82 MULTIPLE PURPOSE RIVER DEVELOPMENT 



ments of old loans and mortgages roughly offset new ones. 



The picture in agriculture is quite similar; $4 billion of con- 

 struction and agricultural implements was financed principally 

 through bank loans and mortgages, but the repayments of other 

 farmers were at least equal to the borrowing. 



Finally, $12 billion of construction was carried on by govern- 

 ment. The $9 billion share of state and local government led to 

 the issuance of $5 billion of new securities, but surpluses run by 

 other state and local bodies reduced the net deficit of the sector to 

 $1.5 billion. The federal government invested at least $3 billion 

 in construction, a figure which omits much military work, but this 

 was entirely financed out of taxes, and there was a net cash surplus 

 of $2.7 billion for the year. Foreign investment for the year was 

 negative, with repayments exceeding new investments by $300 

 million. 



It can be seen from these figures that the net borrowing of the 

 various sectors is less than 10 per cent of the total capital formation 

 for the economy as a whole. This is significant. On both the lend- 

 ing and borrowing side of the capital market we need to take a 

 second look at the factors that determine the level of investment 

 and of saving for each group of decision-makers. 



The significance of the small amount of net borrowing or lending 

 of the sectors depends, in part, on the degree to which the lenders 

 provide funds for the borrowers within the same sector. To some 

 extent, there is a common capital market for all sectors, in which 

 some personal, business, and government savings are commingled 

 through the activities of financial intermediary institutions. But, 

 at least in the case of the household sector, we find the capital 

 flows primarily within the sector. Of the $15 billion of mortgages, 

 savings and loan associations acquired $5.4 billion; life insurance 

 companies, $3 billion; mutual savings banks, $2.4 billion; indi- 

 viduals, $2.4 billion; and commercial banks, $1.7 billion. All but 

 the last of these sources administer the savings of individuals and, 

 even in the latter category, much of the money available for mort- 

 gages springs out of individuals' time deposits. As for the $5 

 billion of installment and other credit, the household credit cor- 

 porations which handle the largest part of this paper raise their 

 own funds by sale of their notes to insurance companies and other 

 financial intermediaries who draw the bulk of their funds from 

 individual savings. 



