POSTAL SAVINGS

The Postal Savings System, which was established in 1911, was designed to attract the savings of small potential depositors who were distrustful of banks, and to provide deposit facilities in communities where adequate banking services did not exist. The rate of interest paid was to have been noncompetitive with banks, and was established on inauguration of the System at the then low rate of 2 percent. It has remained at 2 percent except in Mississippi where the interest rate is fixed at 1 percent by state law, and for a time in New Jersey where, until recently, the same limitation existed. Accounts for each person were originally limited to $500, but the present limit is $2,500.

Use of the System by the public became stabilized for several years in the 1920's with about 400,000 depositors and total deposits of about 150 million dollars. During the 1930's, as a result of bank closings and other economic disturbances, the number of depositors climbed to almost 3 million. Average individual deposits increased from about 320 dollars in the early twenties to over 450 dollars in the thirties, with total deposits of over 1.25 billion dollars. Since 1940, the number of depositors has continued to increase, probably due in part to a favorable rate of interest, until it now totals over 4 million. On June 30, 1947, the average individual amount on deposit stood at 808 dollars and total deposits in 8,141 post offices, branches, and stations were approximately 3.4 billion dollars.

Operation of the System has been self-supporting to the extent that interest received from funds deposited with local banks and invested in Government obligations has exceeded interest credited to depositors plus the clerical cost of operating the System. This has been due to the fact that total interest paid or credited to depositors has averaged less than 2 percent, but interest paid by depositories has exceeded 2 percent. Since 1938, over 90 percent of postal-savings funds have been invested in United States Treasury obligations, and from 1943 to date the percentage has been over 99 percent. Furthermore, profits realized on transactions in United States Treasury obligations held by the Treasury for the account of the Postal Savings System have been credited in full to the System in the year in which they were realized, and during 1947 and 1948 accounted for the major part by far of the net profit of the System.

The results of operations of the System in the fiscal years ended June 30, 1944, through 1948 can be summarized as follows:

1 Does not include rent for space occupied in federally owned buildings. * Preliminary.

Unlike the usual savings account, deposits in the Postal Savings System are evidenced by certificates of deposit of various denominations issued in the name of the depositor, rather than a passbook. Local post offices also keep a card record for each of their depositors on which is listed each certificate issued to the depositor. When interest becomes payable the certificate must be turned in at the post office if the depositor wishes to withdraw the interest or to redeposit. it so as to earn compound interest. The old certificate serves as a voucher by which the postmaster is reimbursed for the payment of interest and the redemption of the certificate. The same procedure is followed if a depositor wishes to withdraw a part of the amount represented by a single certificate, in which case the post office must issue new certificates for the amount remaining on deposit.

In many cases, especially among low-income groups, the issue and reissue of postal savings certificates reaches major proportions because the post office is used as a temporary safe deposit and not as a savings bank. Some effort is made to discourage such costly "nuisance accounts," but these efforts do not appear to be successful.

Most of the original justifications for establishing the Postal Savings System have disappeared. As a result of the formation of Government-sponsored deposit insurance corporations, almost all

bank savings accounts up to $5,000 are now protected against loss. The banking structure of the country has grown to the point that on June 30, 1935, according to the most recent survey by The American Bankers Association, over 78 percent of the towns and cities designated as postal savings depositories also had bank savings facilities. This percentage is estimated to be much higher today. Moreover, interest paid by the Postal Savings system is now higher than that paid on most bank savings accounts, a condition the reverse of that prevailing in 1911. Finally, United States savings bonds are now available for savings purposes.

The extent to which the Postal Savings system may still be supplying a void in the American banking system, and the extent to which it is providing unneeded special benefits to its depositors, should be determined in order to plan intelligently for the future. At least there appears to be no good economic reason for continuing a rate of interest higher than that generally paid on bank savings accounts, and it is difficult to see why any account should be excessively serviced at abnormal expense to the Department.

Service Research

In addition to operating at a loss all of its special services, except postal savings, the postal service also operates at a loss all of its general postal services, except first-class mail. Table 2 in the appendix shows income and expense by classes of service for the fiscal year 1947, as determined by the cost ascertainment system.

Opportunities for reducing expenses, through better control and simplification of post-office operations, have already been noted. Possibilities for cost reduction are also believed available in judicious curtailment of service to patrons. Still further opportunities exist for bringing revenues and expenses into better balance by realistic pricing of all services not only in relation to cost but also in relation to their value to the patron.

There are indications that the American public is now overserviced in a number of respects. There may be some question, for example, as to the number of mail deliveries made each day in certain areas. Again, there may be some question as to the length of hours of window service provided at post offices. Over the years there has been a slow retrenchment and revision in services but there is strong evidence that tradition, conjecture, and the demands of vocal minorities have been major influences in determining the extent of service to be rendered to the public. In other instances services may not be completely adequate.

The sale of penny postal cards, "the poor man's letter," appears to be an example of another type of too-generous treatment of the public.

The Department has already developed certain facts in this connection and has made recommendations to the Congress for increasing rates because of a cost of printing and delivering of about 21⁄2 cents. The postal card has, in recent years, become a business instrument and it is estimated that about 85 percent of the 3.3 billion postal cards used in 1947 were used for business purposes. At 2 cents a postal card, the rate recommended by the Department, the price would still be within the reach of the "poor man," and would still be a relatively inexpensive method of mailing for business users.

At present the Department has no organized procedure for determining the real needs and desires of its patrons and the extent to which either special or general postal services are excessive or are underpriced in relation to the public's willingness to pay. Further, it has virtually no means for regularly testing the adequacy and quality of existing services or exploring, in the field, the practicability of new services which might be advantageously offered and promoted. It is true that numerous complaints, recommendations, and requests are received daily from patrons throughout the country, the inspection force conducts special service investigations, and the Congress makes frequent studies; however, information secured in this manner is too limited and often disproportionately weighted to supply postal management or the Congress with the market facts which should be at their disposal.

In private business, progressive companies have found it profitable to organize for systematic tests of consumer attitude toward present and proposed products and services and to conduct economic studies concerned with such matters as extension or simplification of product line and sales and distribution costs. Commercial research of this character is undertaken at considerable expense in order to make certain that marketing methods are as economically sound as possible, and for the purpose of finding new ways and means of promoting the sale of their products.

By business standards the lack of sufficient facts concerning markets for postal service is uneconomic. From the taxpayer's standpoint, it is hazardous because public service obligations of the Postal Establishment tend unduly to obscure opportunities for commercial improvements and economies.

Transportation Research

Although the Department has been active in developing improved means for transporting the mails, including the use of air transportation, helicopter service, and highway post offices, there apparently has been no exhaustive country-wide study made to determine the

most advantageous balance between the various means of moving the mails. There is reason to believe that broad economic studies might show, for instance, that certain volumes of mail moving regularly in certain directions between certain points of the country could be transported at lower cost by air than by rail if all factors were considered, including payment for return of empty cars required under present railway mail pay rates. Similar studies of truck transportation might also reveal economies which might be achieved without impairing service. In any event there is real need for organized transportation research by the Post Office Department.

Rates and Subsidies

Rates charged for postal services may be likened to prices charged by a private business for its products, but there are several factors which tend seriously to distort this similarity between rates and prices because of influences nonexistent in business.

RATE SETTING

The Department has practically no control over its rates. It may recommend to the Congress changes in first-, second-, and third-class rates but is not required to do so and has seldom, until recently, availed itself of this opportunity. When it has done so, it has been faced with strong opposition by organized postal users based primarily on hardship to them.

In the case of fourth-class (parcel post) mail, the Postmaster General has the right by law "subject to the approval of the Interstate Commerce Commission, after investigation," to reform rates and conditions of service. However, because of the long delay which occurred in securing final approval by the Interstate Commerce Commission of a change in rates, the Department has preferred to make such recommendations as it initiates direct to the Congress.

There is no unanimity of opinion as to the proper limits of postal deficits, and consequently there is no compulsion on the Congress to establish rates which will approximately recover the actual cost of services or which fairly represent the value of the services. Furthermore, there is not complete agreement as to the accuracy of the method used by the Department in estimating the revenues and expenses assignable to the various services in the costing process. This is in spite of the fact that the cost ascertainment system has been in operation for over 20 years, has been refined and improved many times, and has received the approval of several well-qualified independent examiners.