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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



HEARINGS 

BEFORE THE 

TEMPOEARY NATIONAL ECONOMIC COMMITTEE 
CONGRESS OF THE UNITED STATES 

SEVENTY-SIXTH CONGRESS 

FIRST SESSION 
PURSUANT TO 

Public Resolution No. 113 
(Seventy-fifth Congress) 

AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO 
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



PART 12 



INDUSTRIAL INSURANCE 



AUGUST 23, 24, 25, 28, 29, 30, 31, AND 
SEPTEMBER 5, 6, AND 7, 1939 



Printed for the use of the Temporary National Economic Committee 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
1^^^*" WASHINGTON : 194(1 



'.■J 



iTHEASTERN UNIVERSITY SCHOOLof LAW LIBRARY 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. OMAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING. Senator from Utah 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLI.\MS, Representative from Mis.souri 
THURMAN W. ARNOLD, Assistant Attorney General 
•WENDELL BERGE, Special Assistant to the Attorney Genera) jj^ 

Representing the Department of Justice J»I 

■ JEROME N. FRANK, Chairman ^ 

♦LEON HENDERSON, Commissioner 
Representing the Securities and Exchange Commission • CC- 

GARLAND S. FERGUSON, Commissioner 

"EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission » 

ISADOR LUBIN, Commissioner of Labor Statistics CO 

*A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics CD 

Representing the Department of Labor CD 

JOSEPH J. O'CONNELL. Jr., Special Assistant to the General Counsel 
Representing the Department of the Treasury 
.lAMES R. BRACKETT, Executive Secretary 



Subcommittee Pursuant to Public Resolution 113 

(Seventy fifth Congress) 

GARLAND S. FERGUSON, Chairman 

Representative JOSEPH E. CASEY, Massachusetts, Acting Vice Chairman 

JOSEPH J. 0'gf>N^-''7 ' -, .„,^ 

J.XMES -R. BRACKTETT. Executive Secretary 



♦Alternates. 
ii 



REPRINTED 
BY 

WILLIAM S HEIN & CO.. INC. 

BUFFALO N. Y. 
1968 



CONTENTS 



^'estimony of — Page 

Ackiss, Collis L., manager, Virginia Life & Casualty Co., Washington, 

D. C 6089-6093 

Boswell, Herbert, agent. Monumental Life Insurance Co.. Washington. 

D. C 607t>-60S4 

Bronson, D. C, assistant actuary, Social Security Board, Washington. 

D. C ;3001>-5997 

Burnett, Paul M., chairman, board of directors. Monumental Life In- 
surance Co., Baltimore, Md 5617-5636. 563S!-5641. 5641>-564S. .-)6S5-.i69!) 

Burns, Albert, vice president in charge of agencies. The Baltimore Life 

Insurance Co., Baltimore, Md 6111 6119 

Call, Albert Edward, local manager. Life Insurance Co. of Virginia. 
Washington, D. C , 6029-6<);!7 

Cardozo, Michael H., attorney. Insurance Section, Securities and Ex- 
change Commission, Washington, D. C 5768-5781: 

Cohen, Bert B., agent. Equitable Life Insurance Co., Washington. 

D. C 6062-6074 

Corey, Charles M., manager, agency department, John Hancock Mutual 
Life Insurance Co., Boston, Mass 6120-6137 

Davenport, Dr. Donald H., six^cial economic consultant. Securities and 

Exchange Commission, Washington. D. C - .Vi97-5612 

Davis, Malvin E., assistant actuary. Metropolitan Life Insurnnce Co.. 

New York, N. Y 5844-5846. 5874-5876. 5954-.^975 

Bklund, Edwin, manager. Life Insurance Ad.iustment Bureau, New 

York, N. Y 5782-5792 

Emmons, Howard M., vice president and director. Monumental Life 

Insurance Co., Baltimore, Md 5636-'5637 

Eubank, Buford, tield superintendent. Life & Casualty Insurance Co., 

Nashville, Tenn , " 6018-6'021 

Gerhard, P. Bruce, second vice president and associate actuary. Pru- 
dential Insurance Co. of America. Newark. N. J 5899-5913 

Gimbel, Samuel, agent, Baltimore Life Insurance Co., Washington, 

D. C . ___. 6158-6161 

. Hannah, L. H., vice president and manager of agencies, Efjuitable Life 

Insurance Co., Washington, D. C 6055-6(Ki2 

Haynie, Lloyd Graham, manager. Home Friendly Insurance Co., Wash- 
ington, D. C 613t)-6144 

HoUins, Henry A., district manager, Life & Casualty Insurance Co.. 

Nashville, Tenn 6(KR>-6017- 

King, William B., former agent, Mutual Life Insurance Co. of Baltimore. 

Md., Wilmington. Del 6161-61(v> 

Lacy, William S. B., financial economist. Securities and Exchange 

Commission, Washington, D. i) 5612-5616 

Lambdln, William, former agent Mutual Life Insurance Co. of Balti- 
more, Maryland, Baltimore, Md 5()56 56()0 

Leary, Arthur li., accountant-investigator, Securities and Exchange 

Commission, Washington, D. C 4 -. 5668 

Leith, Featon F., vice president, Peoples Life Insurance Co., Wash- 
ington, D. C .. 6144-()151 

Lincoln, Leroy A., president, Metropolitan Life Insurance Co., New 

York, N. Y 583(^5843, 5846-5874, 5876-5896 

Loweree, F. Harold, secretary. Monumental Life Insurance Co., Balti- 
more Md . 5660-5663.5699-5702 

MacCubbin, Bnunett C, assistant manager, claim department. Home 

Friendly InsuTance Co. of Maryland, Baltimore, Md 6102-6105 

in 



IV CONTENTS 

Testimony of — Continued. Page 

McCarry, E. W., agent, Virginia Life & Casualty Co., Washington. 
D. C 60S4-6U87 

McHale, James Francis, superintendent, American National Insurance 

Co., Washington, D. C 6107-6111 

Mehlman, Harry, actuary, insurance section. Securities and Exchange 

Commission, Washington, D. C 5975-5990 

Mormann, Frank, former agent, Mutual Life Insurance Co. of Balti- 
more, Maryland, Baltimore. Md i 5650-5656 

Owens, Leroy Ernest, agent. Peoples Life Insurance Co., Washington, 
D. C 61.51-6154 

Reaney, Irene, secretary to Paul M. Burnett, Monumental Life In- 
surance Co., Baltimore, Md . 5681-5685 

lloberson, Robert Elmer, agent, I'eoples Life Insurance Co., Washing- 
ton, D. C 6024-6028 

Roberts, Milton E., vice president and director, Monumental Life In- 
surance Co., Baltimore, Md 5641^5646, 5648. 566.'',-5681, 5702-5718 

Rock, Leo P., president, Monumental Life Insurance Co., Baltimore, 

Md 5718-5730 

Ruehlmann, John H., vice president. Western & Southern Life Insur- 
ance Co., Cincinnati, Ohio 5941-5954 

Schvv^arz, Alexander M., Public Ai^sistance Division, Department of 
Public Welfare, Washington, D. C 5793-5797 

Sheehan, Edward J., assistant superintendent, American National In- 
surance Co., Washington, D. C 6154-6158 

Siegel, Morris H., Policyholders' Advisory Council, New York, 

N. Y 5799-5830 

Sutphen, Henry B.. vice president. Prudential Insurance Co., New- 
ark, N. J 5731-5768 

Taylor, Charles G., Jr., second vice president. Metropolitan Life In- 
surance Co., New York, N. Y 5896-5899 

Ulman, Jacob, manager. Monumental Life Insurance Co., Washington, 

D. C 6074-6079 

Van Nalts, William W., secretary. Prudential Insurance Co. of 

America, Newark, N. J 5913-5925 

Ward, George L., supervisor of agencies, Home Friendly Insurance 

Co., Baltimore, Md 6093-6102,6105-0107 

Watkins, A. J., vice president, Home Beneficial Association, Rich- 
mond, Va— , 6037-t)050 

Williams, Charles F., president. Western & Southern Life Insurance 

Co.. Cincinnati, Ohio 5028-5940 

Wright, John William, superintendent. Home Beneficial Association, 

Washington, D. C 6050-6054 

Introductory statement 5595 

Historical and statistical summai-y 5597 

Purpose and characteristics of industrial insurance 5598 

Profits of companies writing industrial insurance 5612 

Monumental Life Insurance Co., history and description 5617 

Transformation from mutual to stock company . — 5621 

Proxy solicitation 5650 

Financing of stock 5663 

Allotments of stock 5669 

Loans to Paul M. Burnett 5681 

Transactions with interlocking companies 5702 

Insurance operations 5719 

Prudential Insurance Co. of America, Newark, N. J 5731 

Operations of industrial department 5731 

Purpose of industrial insurance , 5734 

Agency system .. 5735 

Programming 5743 

I'roduetion quotas 5746 

A((n;in'al studies » 5899 

Election of directors 5913 

Industrial insurance policy terms 5768 

Laws applicable to industrial insurance 5777 



CONTENTS V 

Page. 

Adjustments of iasuranct' holdings 5782 

Persons on relief ^'|^ 

Life Insurance Adjustment Bureau o^»^ 

District of Columbia Welfare Department 5«»^ 

Activities of Morris H. Siegel, insurance counselor 57y.J 

Metropolitan Life Insurance Co ^^JJ 

Operation of industrial department »^^ 

Attitude toward insurance counselors o?^ 

Purpose of industrial insurance ^^' 

Welfare activities ;?°^^ 

Agency system — ^°!' 

Compensation of field force ^»-J* 

Relative cost of industrial insurance — »^W 

Programming J^^* 

Attitude toward endowment insurance oo»<^ 

Actuarial studies J^.^^ 

Western & Southern Life Insurance Co oy-o 

Western & Southern Life Insurance Co o"-^ 

Profits ^l^^ 

Purpose of industrial insurance oy^' 

Agency system ^^^ 

Agency turn-over ^^ 

Compensation of field force ^^^ 

Cost studies J^ 

Cost of universal death benefit system '^^ 

Agency practices — ^^ 

Life & Casualty Insurance Co., of Tennessee bUW 

Life Insurance Co., of Virginia o(^ 

Home Beneficial Association ^06^ 

Equitable Life Insurance Co., of Washington, D. C 605o 

Monumental Life Insurance Co 6074 

Virginia Life & Casualty Co 6084 

Home Friendly Insurance Co bO-M, bidy 

American National Insurance Co 6107, 61u4 

Baltimore Life Insurance Co 6111, 61j6 

John Hancock Mutual Life Insurance Co 6120 

John Hancock agency system 6121 

John Hancock nursing service 6130 

Peoples Life Insurance Co 6144 

Schedule and summary of exhibits I 

Wednesday, August 23, 1939 -'595 

Thursday, August 24, 1939 -^617 

Friday, August 25, 1939 5C89 

Monday, August 28, 1939 &'^ 

Tuesday, August 29, 1939 5(99 

Wednesday, August 30, 1939 585o 

Thursday, August 31, 1939 592< 

Tuesday, September 5, 1939 5999 

Wednesdav, September 6, 1939 6089 

Thursday, September 7, 1939 6139 

Appendix 6165 

Supplemental data 6352 

Index I 



SCHEDULE OF EXHIBITS 



Number nnd sniiinifiry of exhibits 



945. 
946. 

947. 
948. 



Chart: Industrial life insurance. Supported by statistical 
data on p. 6165 in appendix - - - - - - - - - - - - - - 

Table: Relative importance of the 10 largest industrial life- 
insurance companies as measured by the amounts of in- 
dustrial insurance in force, Dec. 31, 1937, and Dec. 31, 



1938. 



949. 
950. 

951. 

952. 

953. 
954. 

955. 
956. 
957. 

958. 
959. 




Table: Industrial life insurance— relative importance in the 
48 States and the District of Columbia, Dec. 31, 1937__. 
Tables: Industrial life insurance— relative importance of 
various States in industrial premiums collected in 1937; 
industrial insurance in the several States relating to their 
population in 1937; States classified according to indus- 
trial-insurance premiums collected per person in the pop- 
ulation in 1937; and States classified according to num- 
ber of industrial policies in force per 100 persons in pop- 
ulation in 1937 ---."": '^' 

Table: Industrial life insurance — amounts in force, newly 

issued, and terminated, 1900-37 

Table- Industrial insurance, showing for each of 84 com- 
panies the number of industrial policies lapsed during 
1938- the number of new industrial policies written dur- 
ing 1938, and the number of industrial policies in force 

at the end of 1938... :-- 

Table: Industrial life insurance — amounts of insurance in 
force, premium income, original paid-in capital, dividends 
to stockholders, surplus and capital in 1938, of 44 stock 

companies selling industrial life insurance --- 

Table- Industrial life insurance— information relating to 
stock ownership and salaries paid chief executives of 44 
stock life-insurance companies selling industrial insur- 
ance, as of Dec. 31, 1938_ ---_ 

Appears in Hearings, Part XI, appendix, p. 5589-- ---- 

Excerpt from Maryland statute relating to the conversion 
of a mutual life-insurance company to a stock company- - 
Clipping from the Baltimore Sun (Nov. 18, 1927) describing 
the change of Mutual Life of Baltimore from a mutual to 

a stock company — -:;^--7. y 

Proxy form of Mutual Life Insurance Co. of Baltimore used 
in the change of that company from a mutual to a stock 

company ^ic W V ~ 'i 

Minutes of meetings of the board of directors of the Mutual 
Life Insurance Co. of Baltimore, held Dec. 29, 1927, and 
Jan. 5, 1928, setting out the proposal to change that .com- 
pany from a mutual to a stock form c l\~' 

Minutes of a special meeting of the policyholders of the 
Mutual Life Insurance Co. of Baltimore, held Jan. ^0, 
1928, at which meeting it was voted to change the cor- 
porate organization of the company from a mutual to a 

stock form - - - - - - - 

Minutes of a meeting of the board of directors of the Mutual 
Life Insurance Co., held Feb. 4, 1928, at which meeting 
stock in the newly formed stock company was allotted... 



5599 

5603 
5604 



5605 
5607 



Appears 
on page 



5600 

6166 
6167 



6169 
6171 



5608 


6.172 


5612 


6174 


5615 
5616 


6176 


5627 


6184 


5629 


6185 


5631 


6186 


5635 


6186 


5635 


618S 



5646 I 0191 

VTI 



VIIT 



SCTTEDTTLE OF EXHTHTTS 



Nuiiiber and summarv of exhibits 



960. Certificate of the State Insurance Department of Maryland, 

authorizing the Mutual Life Insurance Co. of Baltimore 
to transact business as a stock life-insurance company __ 

961. Schedule of the persons to whom temporary stock certificates 

of the Mutual Life Insurance Co. of Baltimore were issued 
^ on Feb. 6. 1928 

962. Scliedule of the persons to whom original stock certificates 

of tlie Mutual Life Insurance Co. of Baltimore were issued 
^ on Feb. 10, 1928, and Feb. 15, 1928 

963. Schedule of amount of Monumental Life Insurance Co. col- 

lateral loans to Real Estate Trust, Inc., Land Mortgages, 
Inc., and Real Estate Trust Co. as of Dec. 31, of each vear 

1929-1938 : :.._ 

964. Schedule showing balance carried by Monumental Life In- 

surance Co. in the Real Estate Trust Co. as of Dec. 31 of 
each year, 1929-38. _ . 

965. Minutes of meeting of the board of directors of Monumental 

Life Insurance Co., Apr. 6, 1939, at which meeting a 
settlement of the indebtedness of Land Mortgages, Inc., 
to Monumental ]>ife Insurance Co. wasapproved 

966. Record of dividends paid on Monumental Life Insurance 

stock 

967. Schedule of industrial life insurance in force Dec. 31, 1938, 

in Monumental Life Insurance Co 

90S. Tables: Selected insurance data, 1929-38, inclusive, of 
Monumental Life Insurance Co 

969. Schedule showing aggregate cash dividends paid by Monu- 

mental Life Insurance Co. to certain stockholders since 
its organization as a stock company, Feb. 6, 1928 

970. Supporting data for exhibit 969 

971. Schedule showing number of shares outstanding and their 

par value, of 44 stock companies selling inaustrial insur- 
ance, Dec. 31, 1938 

972. Schedule: Chargeable finals. Prudential Insurance Co., 

^ 1908-38 

973. Schedule: Record of chargeable finals covering new agents 

appointed on or after Jan. 1, 1931, Prudential Insurance 
Co 

974. Copy of application for weekly premium industrial insur- 

ance in the Prudential Insurance Co 

975. Schedule: Average weekly earnings of industrial field force 

(all sources). Prudential Insurance Co., 1906-38 

976. Form of agent's agreement. Prudential Insurance Co 

977. Schedule: Number of cases, by states, handled by Life 

Insurance Adjustment Bureau, 1932-38 

978. Schedule: Number of social agencies referring cases to Life 

Insurance Adjustment Bureau, 1933-37 

979. Photograph: Bulletin board of Policyholders' Advisory 

Council showing premiums reduced and cash refunds 
obtained for clients 

980. Letter, dated- May 1938, from Policyholders' Advisory 

Council to officers of several insurance companies and to 
State governmental officials describing the insurance 
holdings of the Fortune family 

981. Letter, dated Oct. 29, 1938, from Merle G. Summers to W. 

Cort Treat of radio station WORL, recommending that 
broadcasts of the Policyholders' Advisory Council ought 
to be stopped . 

'On file Willi tile rommit te»>. 



Intro- 
duced at 
page 



5817 



5824 



Appears 
on page 



5646 


6194 


'5603 


0194 


5663 


6195 


5709 


6190 


5709 


6196 


5716 


6197 


5723 


6199 


5726 


6199 


5728 


6200 


5729 
5729 


6201 

(') 


5730 


6202 


5739 


6203 


5742 


0203 


5752 


0204 


5758 
5759 


6205 
6205 


5784 


6213 


5784 


6214 


5809 


5810 



6214 



6217 



SCUlEDlJLE OF EXHIBITS 



IX 



Number and summary of cxliilnts 



Intro- 
duced at 
page 



982. 
983. 

984. 
985. 
986. 
987. 

388. 

689. 

990. 

991. 
992. 
99.-^. 
994. 
995. 

996. 
997. 

998. 

999. 

1000. 

1001, 

1002. 



Letter, dated Nov. 1, 1938, from W. Cort Treat of radio 
station WORL to Morris H. Siege! of the Policyholders' 
Advisory Council regarding the attacks of Metropolitan 
Life Insurance Co. on the Policyholders' Advisory Council- 
Letter dated Feb. 1, 1939, from Townley, Updike & Carter 
to New Jersey Broadcasting Corporation, warning that 
the broadcasts of the Policyholders' Advisory Council 
contain statements which are defamatory of the Metro- 
politan Life Insurance Co 

Scripts of typical broadcasts of the Policyholders' Advisory 
Council 

Memorandum submitted by the Metropolitan Life -Insur- 
ance Co., describing its welfare work 

Tables: Metropolitan Health and Welfare expenditures for 
policyholders only 

Table: Number of industrial policies in force. Metropolitan 
Life Insurance Co., as at the end of various years from 
1 900 to 1938 

Table: Distribution by plan and year of issue — weekly 
premium business. Metropolitan Life Insurance Co., 
Dec. 31, 1938 .- 

Table: Percentage distribution by various plans of insur- 
ance of industrial policies issued, Metropolitan Life In- 
surance Co_- 

Table: Number of agents and open debits of MetropoUtan 
Life Insurance Co. at the end of each year, 1915-38, and 
average weekly earnings of Metropolitan agents auring 
the same period- 

Table: Distribution of income, Metropolitan Life Insur- 
ance Co. , 1934-38 

Tables: Tabulation of terminations of policies, MetropoUtan 
Life Insurance Co — 

Script of radio program presented by Metropolitan Life 
Insurance Co 

Form of agent's agreement, Metropolitan Life Insurance 
C 



Letter, dated Apr. 29, 1938, from officials of Metropolitan 
Life Insurance Co. to its sales managers, setting out 
qualifications for 1938 territorial sales congresses and for 
star salesmen group memberships 

Letter, dated Nov. 17, 1937, from LeRoy A. Lincoln, presi- 
dent of Metropohtan Life Insurance Co., describing a 
visit to the field force during 1937__ _ - - 

Memorandum, prepared by office .of E. H. Wilkes, vice 
president of Metropolitan Life Insurance Co., analyzing 
the responses from the field to LeRoy A. Lincoln letter 
of Nov. 17, 1937 -- 

Schedule of compensation of certain officers of Metropoli- 
tan Life Insurance Co., 1925-38 

Organizational chart of Metropolitan Life Insurance Co., 
Jan. 1, 1939-- 

Table: Industrial insurance — distribution by year of issue 
of policies in force Dec. 31, 1938, and reconciliations with 
policy exhibits, Metropolitan Life Insurance Co 

Tables: Monthly premium industrial insurance in force by 
number of policies and amounts of insurance, 1936-38, 
Prudential Insurance Co 

Table: Weekly premium industrial-age distribution of new 
policies issued. Prudential Insurance Co 



5824 

5827 
5827 
5839 
5840 

5844 

5844 

5845 



Appears 
on page 



5845 
5846 
5855 
5858 

5872 
5877 

5881 
5893 
5893 

5900 

5900 
5900 



6218 

6219 
6219 
6226 
6232 

6233 

6234 

6235 

6235 
6236 
8237 
6238 
6246 

6251 
6252 

6255 
6269 
6272 

6272 

6274 
6275 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



1003. Table: Analysis of industrial receipts, disbursements, etc., 

for 12 months ending Dec. 31, 1937-38, Prudential In- 
surance Co 

1004. Memorandum prepared by the Prudential Insurance Co., 

comparing the cost of insurance benefits on the industrial 
plan with the cost of corresponding benefits on the ordi- 
nary plan 

1005. Letter, dated Sept. 6, 1938, from Edward B. Duffield, 

president. Prudential Insurance Co., to the policy- 
holders of Prudential, announcing an election for direc- 
tors 

1006. Copies of policyholders' proxies used by Prudetitial InsuT- 

ance Co 

1007. Memoranda, dated September 1938, prepared by Edward B. 

Duffield and William W. Van Nalts, president and secrc; 
tary, respectively, of Prudential Insurance Co., giving 
instructions regarding execution of proxies 

1008. Tabulation of proxies voted, 1915-38, Prudential Insurance 

Co 

1009. Record of votes cast at policyholders' meetings, 1934-38, 

Prudential Insurance Co 

1010. Memorandum, dated Dec. 19, 1934, signed "W. J. R., 

Office of Chief Inspector, Prudential Insurance Com- 
pany", reporting on an investigation of Meyer Levow, 
who had asked for a list of the policyholders of Prudential 
Insurance Co., to whom proxies were being sent 

1011. Memorandum, dated Apr. 26, 1939, from Charles B. Brad- 

ley, general counsel of Prudential Insurance Co., describ- 
ing the mutualization of the Prudential Insurance Co 

1012. Scripts of radio broadcasts made by the Prudential Insur- 

ance Co 

1013. Table: Cash and stock dividends paid to stockholders and 

contributions by stockholders to surplus, 1888-1938, The 
Western & Southern Life Insurance Co., Cincinnati, Ohio. 

1014. Schedules listing the stockholders of The Western & South- 

ern Life Insurance Co. as of Dec. 31, 1910, Dec. 31, 1925, 
and Dec. 31, 1928 

1015. Table: Income taxes paid by The Western & Southern 

Life Insurance Co. for officers, directors, employees and 
stockholders, 1913-26 

1016. Memorandum prepared by The Western & Southern Life 

Insurance Co. showing the voluntary insurance benefits 
granted to policyholders by that company between May 
1, 1913 and August 1938 

1017. Table: Ratio of chargeable finals, 1933-36, Western & 

Southern Life Insurance Co 

1018. Memorandum, dated Apr. 11, 1939, prepared by The West- 

ern & Southern Life Insurance Co., sliowing causes for 
160 finals in that company during 1939 

1019. Table: Western & Southern Life Insurance Co. employees 

with 5 or more years of service, as of each year, 1934-38- . 

1020. Memorandum prepared by The Western & Southern Life 

Insurance Co. analyzing the minimum cost of a final 

1021. Table: Direct field compensation costs for industrial insur- 

ance only, 1925-38, The Western & Southern Life Insur- 
ance Co ^ , 

1022. Table: 1938 industrial persistency —lapse ratio for individual 

weeks of issue, 1931-38, The Western & Southern Life 
Insurance Co ^ , 



Intro- 
duced at 
page 



5901 



5905 



5916 


6280 


5918 


6281 


5918 


6282 


5919 


6284 


5921 


6286 



5923 



Appears 
on page 



6275 



6277 



6286 



5927 


6288 


5928 


6295 


5930 


6299 


5930 


6300 


5931 


6301 


5936 


6301 


5942 


6303 


5945 


6304 


5945 


6304 


5946 


6304 


5948 


6305 


5952 


6305 



SCHEDULE OF EXHIBITS 



XI 



Number and summary of exhibits 



1023. 

1024. 

1025. 
1026. 

1027. 

W2S. 

1029. 

1030. 
1031. 

1032. 

1033. 
1034. 



1035. 
1036. 



1037. 



1038. 



Table: Industrial life insurance — net costs. Policy: whole 
life, paid up on policy anniversary afterage 74 (or nearest 
equivalent form) — age 25 — amount of insurance $250 — 
1 939 issue 

Table: Industrial life insurance — net cost. Policy: whole 
life, paid up on policy anniversary after age 74 (or nearest 
equivalent form) — age 1 — amount of insurance $250 — 
1939 issue 

Table: Industrial life insurance — net cost. Policy: 20-year 
endowment — age 25 — amount of insurance $250 — 1939 
issue 

Table: Industrial life insurance — net cost. Policy: 20- 
year endowment — age 1 — amount of insurance $250 — 
1939 issue 

Table: Industrial life insurance — net cost. Policy: whole 
life, paid up on poUcy anniversary after age 74 (or 
nearest equivalent form) — amount of insurance $250 — 
issue of 1918 

Table: Industrial life insurance — net cost. Policy: 20- 
year endowment — amount of insuiance $250 — issue of 
1918 - 

Table: Industrial life insurance — net cost, Metropolitan 
Life Insurance Co. — age 25 — amount of insurance $250 — 
issue of 1928 

Table: Industrial life insurance — graded death benefits^ 
age 1 — issue of 1939 

Table: Industrial life insurance — reserves and nonforfeiture 
benefits.. Policy: whole life, paid up on policy anniver- 
sary after age 74 (or nearest equivalent form) — age 25 — 
amount of insurance $250 — 1939 issue . 

Table: Industrial life insurance, indexes of net costs. 
Policy: Whole life, paid up on policy anniversary after 
age 74 (or nearest equivalent form), age 25, amount of 
insurance $250, issue of 1939 

Table: Industrial life insurance — indexes of net costs. 
Policy: 20-year endowment, age 25, amount of insurance 
$250, issue of 1939 

Table: Industrial and ordinary life insurance, comparative 
indexes of net costs. Ordinary policy: Whole life (or 
nearest equivalent form). Industrial policy: Whole 
life, paid up on policy anniversary after age 74 (or nearest 
equivalent form), age 25, amount of insurance $250, 
issue of 1939 . 

Table: Industrial and ordinary life insurance, corhparative 
indexes of net costs. Policy: 20-year endowment, age 
25, amount of insurance $250, issue of 1939 

Table: Industrial and ordinary life insurance, ratio of indus- 
trial index of net cost to ordinary index of net cost. 
Ordinary policy: Whole life (or nearest equivalent form). 
Industrial poUcy: Whole life, paid up on policy anniver- 
sary after age 74 (or nearest equivalent form), age 25, 
amount of insurance $250, issue of 1939 

Table: Industrial and ordinary life insurance, ratio of indus- 
trial indexes of net cost to ordinary index of net cost. 
Policy: 20-year endowment, age 25, amount of insurance 
$250, issue of 1939 

Table: Total deaths in the United States and amount of pay- 
ment under an insurance system providing|$250 benefit 
for all deaths 



Intro- 
duced at 
page 



Appears 
on page 



5978 


0300 


5978 


0307 


5979 


6308 


5980 


6309 


5980 


6310 


5980 


0311 


5981 


6312 


5983 


6313 



5985 

5980 
5986 



5987 
5987 



5989 



.^.991 



6314 

6317 
6317 



6318 
6319 



6320 

6320 
6321 



XTI 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



1039. 
1040. 

1041. 

1042. 

1043. 

■i 

1044. 
1045. 

1046. 



Table: Total population and deaths in the United States 
by tige groups, 1940 and 1980 

Table: Number of contributors and annual contribution for 
an insurance system providing $250 benefit for all deaths 
under various plans of financing 

Table: Total deaths in the United States and the amounts of 
payments under an insurance system providing benefits 
graded by age ---. 

Letter, dated Mar. 8, 1939, from W. V. Walker, vice presi- 
dent of Life and Casualty Insurance Co. of Tennessee, 
to Mr. H. A. HoUins, Washington, D. C, manager of 
that company, asking for extra production of insurance. _ 

Letter, dated May 11, 1939, from W. V. Walker, vice presi- 
dent of Life and Casualty Insurance Co. of Tennessee, to 
Mr. H. A. HoUins, Washington, U. C, manager of that 
company, asking for a minimum writing of $2 for each 
agent in the Washington district 

Letter, dated Sept. 8, 1939, from Mr. J. E. Acuff", vice presi- 
dent of Life and Casualty Insurance Co. of Tennessee, to 
Mr. H. A. Hollins, Washington, D. C, manager of that 
company, calling for extra effort in a sales drive 

Telgram, dated May 22, 1939, from W. V. Walker, vice 
president of Life and Casualty Insurance Co. of Tennessee, 
to Mr. H. A. Hollins, Washington, D. C, manager of that 
company, urging a determined efi'ort to double produc- 
tion 



Letter, dated May 1, 1939, from W. V. Walker, vice presi- 
dent of Life and Casualty Insurance Co. of Tennessee, to 
Mr, H. A. HoUins, Washington, D. C, manager of that 
company, concerning requirements to qualify for a trip 
to Havana 

1047. Letter, dated May 26, 1939, from J. S. Ward, associate 
medical director. Life and Casualty Insurance Co. of Ten- 
nessee, to Mr. H. A. Hollins, Washington, D. C, manager 
of that company, suggesting that Mr. Hollins watch for 
an opportunity to terminate a policv on an ill policyholder. 

10 IS. Letter, dated Nov. 23, 1937, from J. S. Ward, associate med- 
ical director. Life and Casualty Insurance Co. of Tennes- 
Bee, to Mr. H. A. Hollins, Washington, D. C, manager of 
that company, suggesting that Mr. Hollins watch for an 
opportunity to lapse the policy on an undesirable risk 

1049, Letter, dated Mar. 30, 1939, from J. S. Ward, associate 

medical director. Life and Casualty Insurance Co. of Ten- 
nessee, to Mr. H. A. HoUins, Washington, D. C, manager 
of that company, suggesting that Mr. HoUins watch for 
an opportunity to lapse the policy on an undesirable risk. 

1050. Letter, dated May 12, 1936, from Mr. H. A. HoUins, Wash- 

ington, D. C, mangaer of Life and Casualty Insurance 
Co. of Tennessee, to Mr. J. E. Acutf , vice president of that 
company, pledging 25 industrial appUcations and 25 
ordinary applications for life insurance week 

1051, Letter, dated May 2, 1933, from Mr. H. A. HoUins, Wash- 

ington, D. C, manager of Life and Casualty Insurance 
Co. of Tennessee, to Mr. Guilford Dudley, Jr., vice 
president of that company, regarding industrial insur- 
ance production 

1052. Letter, dated May 23, 1939, from Mr, H. A. HoUins, Wash- 

ington, D. C, manager of Life and Casualty Insurance 
Co. of Tennessee, to W. V. Walker, vice president of 
that company, describing Mr. HoUins' efforts to write 
more business 



Intro- 
duced at 
page 



5992 
5993 
5994 

6007 

6008 
6008 

6008 

6010 

6013 

6014 

6016 

6017 

6017 

6017 



Appears 
on page 



6321 
6322 
6322 

6007 

6008 
6008 

6008 

6010 

6013 

6014 

6010 

0017 

6017 

6017 



SCHEDULE OF EXHIBITS 



XIII 



Num!)er and summary of exhibits 



I Intro- 
:diico.(l at 
paRo 



1053. 



1054. 



1055. 



1056. 

1057. 

1058. 

1059. 
lOGO. 

1061. 

1062. 

1063. 

1064. 



Letter, dated Feb. 22, 1939, from E. R. Derryberry, comp- 
troller of Life and Casualty Insurance Co. of Tennessee, 
to H. A. Hollins, Washington, D. C, manager of that 
company, listing the 1938 earnings of the agents in the 
Washington office of the Life and Casualty Insurance Co_ . 

Letter, dated Mar. 14, 1939, from Mr. E. A. Crawford, 
assistant vice-president of the Life Insurance Co. of 
Virginia, to Mr. A. E. Call, Washington, D. C, manager 
for that companj', asking for more business from the 
Washington district 

Letter, dated Feb. 10, 1939, from E. A. Crawford, assistant 
vice-president of the Life Insurance Co. of Virginia, to 
A. E. Call, Washington, D. C, manager for that company, 
advising that a certain allotment of production would 
have to be reached in order to qualifj^ for a convention in 
New York 

Letter, dated June 20, 1939, from H. P. Anderson, Jr., 
general supervisor of districts. Life Insurance Co. of 
Virginia, to A. E. Call, Washington, D. C, manager for 
that company, regarding the poor production record of 
an agent 

Letter, dated Apr. 14, 1939, from H. P. Anderson, Jr., 
general supervisor of districts, Life Insurance Co. of 
Virginia, to A. E. Call, Washington, D. C, manager for 
that company, regarding the necessity of having an agent 
increase his production if he is to remain with the company. 

Letter, dated Apr. 14, 1939, from H. P. Anderson, Jr., 
general supervisor of districts. Life Insurance Co. of 
Virginia, to A. E. Call, Washington, D. C, manager for 
that company, advising that an agent is required to pro- 
duce both ordinary and industrial business 

Table: Cash dividends paid, 1906-39, the Home Bene- 
ficial Association, Richmond, Va 

Letter, dated January 16, 1935, from A. J. Watkins, vice 
president, Home Beneficial Association, Richmond, Va., 
to John Wright, Washington, D. C, superintendent for 
that company, describing the bonus provisions used by 
that company 

liCtter, dated Jan. 25, 1935, from A. J. Watkins, vice presi- 
dent, Home Beneficial Asssociation, Richmond, Va., to 
John W. Wright, Washington, D. C, superintendent for 
that companv, setting out the company's production allot- 
ments for 1939 

Letter, dated' July 20, 1938, from M. D. Nunnally, Jr., vice 
president, Home Beneficial Association, to John W. 
Wright, Washington, D. C, superintendent for that com- 
pany, regarding the quota of production in Mr. Wright's 
district 

Letter, dated May 6, 1936, from E. G. Hobson, assistant 
superintendent of agencies of the Home Beneficial Asso- 
ciation, to John Wright, Washington, D. C, superin- 
tendent for that company, regarding extra efforts to be 
expended during life insurance week 

Letter, dated Feb. 18, 1938, from F. R. Brauer, of Home 
Beneficial Association, to John W. Wright, Washington, 
D. C, superintendent for that company, regarding the 
production allotment for the Washington district 



6017 



6032 



6033 



6034 



Ap[i(>ar,s 
on papo 



6323 



6032 



6035 
6039 

6045 

6045 

6053 

6054 
6054 



6033 

6034 

6035 

6035 
6325 

6045 

6045 

6053 

6054 
6326 



XIV 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



1065. Letter, dated Sept. 23, 1936, from E. G. Hobson, assistant 
superintendent of agencies of the Home Beneficial Asso- 
ciation, to John W. Wright, Washington, D. C, superin- 
tendent for that company, setting out the production 
quotas for the Washington district for "our president's 
week" 

1006. Letter, dated July 7, 1936, from E. G. Hobson, assistant 
superintendent of agencies of the Home Beneficial Asso- 
ciation, to John W. Wright, Washington, D. C., superin- 
tendent for that company, describing a production con- 
test 

1067. Form of agents' agreement, Equitable Life Insurance Co., 

Washington, D. C 

1068. Letter, dated Mar. 1, 1938, from L. H. Hannah, vice presi- 

dent, Equitable Life Insurance Co., to the field force of 
that company, announcing changes in the company's 
compensation plan 

1069. Table: Analysis of finals, 1934-39, Equitable Life Insurance 

Co., Washington, D. C 

1070. Letter, dated Dec. 16, 1938, from L. H. Hannah, vice presi- 

dent. Equitable Life Insurance Co., Washington, D. C, 
to the field force of that company, setting up the quotas of 
the company for the year 1938 

1071. Advertising material used by the Equitable Life Insurance 

Co., Washington, D. C 

1072. Table: Service record of field men of Monumental Life In- 

surance Co. as of Aug. 1, 1939 

1073. Proxy form used by the Home Friendly Insurance Co. of 

Maryland 

1074. Memorandum, dated Apr. 15, 1939, by Charles H. Taylor, 

president of the Home Friendly Insurance Co. of Mary- 
land, announcing the 55th anniversary contest of that 
company 

1075. Letter, dated Nov. 4, 1937, from George L. Ward, super- 

visor of agencies. Home Friendly Insurance Co., to C. C. 
Cole, Havre de Grace, Md., manager of that company, re- 
questing that insurance production be increased during 
the semi-annual contest 

1076. Letter, dated July 20, 1937, from George L, Ward, super- 

visor of agencies. Home Friendly Insurance Co., to C. C. 
Cole, Havre de Grace, Md., manager of that company, 
setting out production requirements for Mr. Cole's dis- 
trict 

1077. Letter, dated June 7, 1938, from George L. Ward, super- 

visor of agencies. Home Friendly Insurance Co., to T. J. 
Kelley, Salisbury, Md., manager for that company, de- 
scribing the prizes to be awarded for high production dur- 
ing June, 1938 ^ 

1078. Letter, dated|Dec. 15, 1937, from George L. Ward, super- 

visor of agencies. Home Friendly Insurance Co., to C. C. 
Cole, Havre de Grace, Md., manager for that company, 
describing a contest to be conducted by the company 

1079. Letter, dated Aug. 8, 1939, from George L. Ward, super- 

visor of agencies. Home Friendly Insurance Co., to T. J. 
Kelley, Salisbury, Md., manager for that company, re- 
garding the settlement of disability claims 

1080. Letter, dated January 25, 1938, from D. F. Zeigler, vice 

president. Home Friendly Insurance Co. of Maryland, to 
L. G. Haynie, Washington manager of that company, 
regarding proxy solicitation 



Intro- 
duced at 
page 



6054 



Appears 
on page 



6327 



6054 


6327 


6056 


6328 


6056 


6336 


6057 


6336 


6059 


6059 


6070 


6337 


6089 


6338 


6095 


6338 



6098 



6099 



6099 



6100 



6100 



6102 



6339 



6098 



6099 



6341 



6342 



6101 



6L105 I 6343 



SCHEDULE OF EXHIBITS 



XV 



Number and summary of exhibits 



1081. 

1082. 
1083. 

1084. 
1085. 
1086. 

1087. 

1088. 
1089. 

1091. 

1092. 
1119. 

1128. 



1129. 

1130. 
1131. 

1132. 



Letter, dated July 24, 1937, from C. C. Cole, Havre de 
Grace, Md., manager for the Home Friendly Insurance 
Co., to George L. Ward, supervisor of agencies for that 
company, regarding production of business in his district. 

Table: Agency turn-over, 1937, 1938, and the first half of 
1939, The Baltimore Life Insurance Co 

Letter, dated Feb. 6, 1939, from a vice president of the 
Baltimore Life Insurance Co., to E. F. Lort, Washington, 
D. C, manager for that company, setting out the pro- 
duction allotment for 1939 

Table: Policies paid for, terminated, and remaining in force, 
1932-38, The Baltimore Life Insurance Co 

Copy of agents' agreement, John Hancock Mutual Life 
Insurance Co 

Memorandum, dated June 28, 1939, from a vice president 
of the John Hancoclv Mutual Life Insurance Co., setting 
out production quotas 

Letter, dated Apr. 11, 1938, from Lloyd G. Haynie, manager 
for the Home Friendly Insurance Co., to F. Chase Mac- 
Cubbin, vice president of that company, regarding a 
disability claim 

Table: Agency turn-over, 1938, Peoples Life Insurance Co., 
Washington, D. C 

Table: Collateral loans to Irene T. Reaney, shown upon 
schedule C of the convention form annual statements of 
the Monumental Life Insurance Co. for the years 1929- 
38, inclusive. Entered in tlie record on Sept. 11, 1939 — 

Circular letter, dated Nov. 1, 1938, from I. T. Townsend, 
vice president of The Life Insurance Co. of Virginia, 
regarding additional compensation to agents for weekly 
premium business. Entered in the record on Sept. 11, 
1939 



Table: Industrial insurance — insurance in force and new 
issues; proportion in three largest companies, 1938. 
Entered in the record on Sept. 11, 1939 

Letter, dated Sept. 8, 1939, from C. M. Corey, manager, 
agency department, John Hancock Mutual Life Insur- 
ance Co., to Gerhard A. Gesell, regarding monthly debit 
ordinary insurance in force and cost of visiting nurse 
service. Entered in the record on Sept. 13, 1939 

Correspondence between Milton Roberts, president of Real 
Estate Trust Co., Garland F. Ferguson, Temporary 
National Ij^conomic Committee, ^nd Gerhard A. Gesell, 
regarding transactions between Monumental Life Insur- 
ance Co. and the Real Estate Trust Co. Entered in the 
record on Sept. 22, 1939 

Memorandum from James L. Madden, Metropolitan Life 
Insurance Co., regarding Metropolitan agents enrolled 
in the course for Chartered Life Underwriters. Entered 
in the record on Sept. 22, 1939 

Table: Length of service of agents of Metropolitan Life 
Insurance Co. Entered in the record on Sept. 22, 1939- - 

Table: Number of agents employed and duration of em- 
ployment of agents, Home Friendly Insurance Co. of 
Maryland. Entered in the record on Sept. 22, 1939 

Table: Duration of employment of agents, Peoples Life 
Insurance Co., Washington, D. ('. Entered in the record 
on Sept. 22, 1939 



Intro- , 
(iucrd atl^m>ears 
page I ("^ page 



6127 

6143 
6147 



6106 


6106 


6113 


6344 


6114 


6344 


6117 


6345 


6123 


J6345 



6351 

6142 
6352 

6352 

6353 
6356 

6356 



6357 

6359 
6359 

6360 

6361 



IN VESTKUTION OF CONCENTKATION OF ECONOMIC TOWER 



WEDNES£)AY, AUGUST 23, 1939 

United States Senate. 
Subcommittee of thes Temporary 

National Economic Commitiee, 

Washington^ D. C. 

The subconmiittc met at 2:40 p. m. pursiuuit to adjournment on 
July 14, 1939, in the Caucus Room. Senate Office Buikling. Subcom- 
mittee members: Garhmd S. Ferojuson (chairman). Joseph J. O'Con- 
nell and Representative Joseph E. Casey of Massachusetts, requested 
by the committee to sit on the subcommittee as acting vice chairman. 

Present: Commissioner Ferguson (presiding). Representative 
Casey, and Mr. O'Connell. 

Present also: Messrs. Lubiri and Brackett; Joseph Borkin, De- 
partment of Justice; Gerhard A. Gesell, special counsel, and Michael 
H. Cardoza, attorney, Securities and Exchange Connnission. 

Chairman Ferguson. ^ Mr. Gesell, are you ready to proceed? 

introductory statement 

INIr. Gesell. 1 am and I would like to make a short statement 'if I 
may. Today the Commission begins its presentation of testimony 
relating specifically to industrial insurance. Industrial insurance is 
an appropriate subject for special stud}' by this committee which is 
concerned with the causes and eifects of concentration of economic 
power. The two largest life insurance companies in the United 
States, the Metropolitan Life Insurance Co. and the Prudential In- 
surance Co. of America, are primarily industrial insurance companies. 
As the record shows, their combined assets of over $8,000,000,000 ac- 
count for about 31 percent of the assets of all United States com- 
])anies selling either ordinary or industrial insurance. Other 
companies, considered small only by comparison, are rapidly accumu- 
lating substantial assets and surpluses. Many of these companies arc 
stock companies and in addition to the accumulation of substantial 
suri)luses have earned phenomenal returiis for their stockholders. 

The general subject of industrial insurance has never been in- 
tensively studied by any body representing the Federal Government. 
In England, where* modern industrial insurance had its origin, there 
have -been at least two official studies made under the auspices of 
I he British Parliament. Oddl}' enough, these studies have dis- 
closed practices which are in many cases idei^tical with practices 
of certain American industrial insurance companies wjhich have been 



•Note: Commissioner Ferguson is chairman of tlie subcommittee. 

r.r)95 

124491— 40— pt. 12 2 



5596 CUNCENTUATIUN OF ECONOMIC POWER 

pointed out by present-day critics in this country. On several occa- 
sions it is true that committees representing State legislatures have 
inquired into the conduct of the industrial insurance business in a 
particular State. The Armstrong committee under Chief Justice 
Hughes gave some attention to industrial insurance problems, al- 
though the scope of the \york in this connection was admittedly 
limited. The committee reconmiended that a special investigation 
be made, A significant portion of its report reads as follows : 

Apart from what lias already been suggested, the committee is uot prepared 
to make recommendations with reference to industrial insurance further than to 
say that the subject is one deserving of special investigation. The most serious 
evils which have been disclosed by this inquiry, to wit, the excessive premiums, 
the enormous lapse rate and the hardships of the agents, seem to be inherent 
in the system. A great reform could be accomplished if the expense of solicita- 
tion and collection could be avoided by the establishment of branch offices where 
insurance might be obtained by the thrifty poor who desire it. But the opinion 
of those connected with the companies is that such a plan would be impracticable 
and the committee is without information whicii would justify an attempt to 
compel its introduction. It is insisted that the present mehod is the most 
economical that has yet been proved to be adequate to the exigencies of the 
business. The alternative seems to be presented either of prohibiting altogether 
industrial insurance by private corporations or of permitting its continuance 
substantially upon the present basis, subject to those regulations designed to 
secure economical administration, applicable to all companies alike. 

At the present time, the New York State Legislature is studying 
industrial insurance through a committee of which Assemblyman 
R. Foster Piper is chairman. This committee is doing significant 
work and I would like to take this opportunity to acknowledge the 
cooperation which the Commission has received from Assemblyman 
Piper. As will be demonstrated, however, industrial insurance is not 
the peculiar problem of any single State and it is fitting that the 
operations of the industrial business be examined from a national 
point of view. 

Some phases of the industrial insurance problem have already been 
brought to the committee's attention from time to time in the course 
of these hearings. Partial consideration was given to the machinery 
hy which policyholders, including industrial policyholders, select and 
elect the directors of mutual companies. The committee found that 
"Directors of such companies are practically self-perpetuating groups." 

We will present further testimony relating to problems of election 
practices in both mutual and stock companies. In the field of lapse 
and policy terminations in general, substantial evidence was presented 
indicating what was referred to as a "squirrel cage" operation; that 
is to say, the continual sale and resale of industrial policies to policy- 
holders who lapse their policies only to take new policies and lapse 
again. Additional testimony on the subject of lapses will be pre- 
sented in the course of the hearings. In the course of the forth- 
coming hearings we will consider among other things the management 
and organization of certain representative companies, variations in 
agency and sales practices, and will present material bearing on such 
matters as net cost and policy terms. In the course of the next 
2 Aveeks, the committee will hear testimony from agents, managers, 
and company executives. The o})erations of both the large and 
smaller companies will be examined. 

Today we will call representatives of the staff of the Insurance 
Section of the Commission who will present background statistical 



CONCENTRATION OF ECONOMIC POWER 5597 

information. First witness is Dr. Donald H. Davenport who has 
already appeared before this committee on several occasions. 

The Chairman. Do you solemnly swear the testimony you arc 
about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Davenport. I do. 

TESTIMONY OF DR. DONALD H. DAVENPORT, SPECIAL ECONOMIC 
CONSULTANT, SECURITIES AND EXCHANGE COMMISSION, WASH- 
INGTON, D. C. 

HISTORICAL AND STATISTICAL SUMMARY 

Dr. Davenport. As was indicated in the testimony presented be- 
fore this committee February 6, 1939, there are three classes of life 
insurance in force in the legal reserve life-insurance companies in 
this country.^ These classes are known as ordinary, group, and in- 
dustrial life insurance. December 31, 1937, there were 138 com- 
panies ii the United States writing industrial insurance. Many of 
these are small companies that are not included in the summaries pub- 
lished in the Spectator Insurance Yearbooks. In fact, the official 
totals for 1937 are based upon the business of only 66 companies. 
These 66 companies together that year had in force 88,881,000 in- 
dustrial policies. These policies had a face value of $20,591,000,000. 
However, inasmuch as some of these companies carried on business 
in Canada, a small proportion — less than 5 percent of the total, was 
on lives outside of the United States. 

The relative importance of industrial insurance in comparison 
with the other classes of insurance may be gauged in several M^ays. 
We may look at it from the point of view of the amount of insurance 
in force. On this basis, as of December 31, 1937, the $20,600,000,000 
of industrial insurance in force accounted for 19 percent of the total 
life insurance in force in United States companies. 

On the basis of the premiums collected the industrial insurance 
accounted for $811,000,000 out of a total of $3,464,000,000; in other 
words 23.4 percent of the total life-insurance business as measured 
by premiums collected comes from the industrial insurance policy- 
holders. On the basis of the number of policies, the industrial- 
insurance policies account for 72 percent of the total. 

Mr. Gesell. Let's see; then, in terms of insurance in force, in- 
dustrial accounts for 19, in terms of premiums collected for 23.4 
and in terms of insurance' in force measured in terms of number of 
policies, 72 percent of the total. 

Dr. Davenport. That is right, Mr. Gesell. 

Mr. Gesell! Are those '37 or '38 figures that you have used? 

Dr. Davenport. Those are figures as of the end of the year 1937. 

Mr. Gesell. Am I correct in saying that over-all figures for the 
business for 1938 are not yet publicly available? 

Dr. Davenport. That is correct. The official source of this in- 
formation is the Spectator Insurance Yearbook; the Yearbook of 
1939 containing the '38 figures has not yet made its appearance. 



» See Hearings, Part IV, p. 1166 Pt seq. 



5598 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Am I correct in understanding that your figures that 
you have just mentioned refer to 66 companies rather than the total 
of 138? 

Dr. Davenport. That is correct. There is no detailed informa- 
tion for the remaining companies. The Spectator apparently had 
detailed information for 66 companies that write industrial insurance. 

Mr. Gesell. Have you any idea what percentage these 66 com- 
panies represent of the total when measured in terms of, say, number 
of policies in force ? 

Dr. Davenport. I should estimate that it would represent prob- 
ably 95 or 96 percent of the total. 

Mr. Gesell. Very well, Dr. Davenport. 

Dr. Ltjbin. May I ask you to repeat, in terms of the premiums they 
represent, what percentage of the total? 

Dr. Davenport. 23.6 percent. Dr. Lubin, 23.4 percent. 

Dr. Lubin. In terms of face value? 

Dr. Davenport. Nineteen percent. In terms of number of policies, 
72 percent. You see, the industrial insurance policies are for much 
smaller amounts tlian in the case of either the ordinary or the group 
policies. 

There is no question but that from the point of view of the number 
of lives affected by insurance, that industrial insurance is the most 
important single form of insurance that we have. 

In outward appearances there is a great similarity between in- 
dustrial insurance and ordinary insurance. However, industrial in- 
surance differs fundamentally from ordinary insurance in the basic 
purpose which it serves. 

Ordinary insurance is based upon the assumption that an in- 
dividual has an economic value to his dependents and the insurance 
policy undertakes to compensate them for the loss of that value 
in the case of an untimely death. 

PURPOSE and characteristics of industrial insurance 

Dr. Davenport. Industrial insurance, on the other hand, was orig- 
inally designed to provide the very poor with a sum of money suffi- 
cient to defray the cost of a decent burial. Organizations to accom- 
plish this purpose are known to have existed among the early Greeks 
and Romans. In China there are burial tongs today which appear to 
have*been iji existence for many centuries. In the Middle Ages many 
of the religious and craft guilds included provisions for burial in the 
benefits they offered their members. 

Industrial life insurance in its modern form dates back to about 
1843, when the Prudential Mutual Investment & Loan Association of 
London, now called the Prudential of London, undertook the writing 
of life insurance for small amounts on a weekly premium payment 
plan. In the United States the first industrial policy was probably 
written about 1870 by the Mutual Life Insurance Co. of Baltimore, 
now the Monumental Life Insurance Co.^ 

In 1875 the Prudential Friendly Society, which was originally 
known as the Widows and Orphans Friendly Society, and is now the 



1 a photostatic copy of an industrial insurance policy issued by Mutual Life Insurance 
Co. of Baltimore, in March 1873, was entered in the record on September 11, 1939, as 
"Exhibit No. 1090" and is on file with the committee. 



CONCENTRATION OF ECONOMIC TOWER 5599 

Prudential Insurance Co. of America, issued its first industrial 
policy. Four years later both the Metropolitan Life Insurance Co. 
and the John Hancock Mutual Life Insurance Co. entered the indus- 
trial field. 

Mr. Gesell. Now, Dr. Davenport, have you prepared figures which 
will show the growth of the industrial insurance business in this 
country since that time, and figures which will also relate that growth 
to the population of the country? 

Dr. DA^^:NP0RT. I have. 

Mr. Gesell. Are those figures contained on this chart, entitled 
"Industrial Life Insurance," and on the schedule entitled "Industrial 
Life Insurance in the United States 1900-1937," which I now show 
you? 

Dr. Davenport. Thej^ are on the table. 

Mr. Gesell. Am I correct in saying that this material has been 
prepared from the sources indicated in each case? 

Dr. Davenport. That is correct. 

Mr. Gesell. I wish to offer the schedule and chart for the record. 

(The chart referred to was marked "Exhibit No. 945" and appears 
on p. 5600. The statistical data on which tliis chart is based are 
included in the appendix on p. 0165.) 

Dr. Davenport. This table epitomizes the history of industrial 
life insurance in the United States from 1900 through 1937. The 
table is divided into two parts. The part at the top is based upon 
amounts; the part at the bottom presents I'elatives based upon those 
amounts, relatives in which the year 1900 is taken equal to 100 per- 
cent and the figures for the respective years related to the figures 
in the year 1900. 

Certain significant facts emerge from an examination of this table. 
In the first column we see the amounts of industrial life insurance 
in the United States in millions of dollars. In 1900 we had $1,469,- 
000,000 of industrial life insurance in force. By 1937 that had grown 
to $20,591,000,000. In other words, if we look at the figures at the 
bottom of the chart we can see that the amount of industrial life 
insurance in force in 1937 was 14: times as great as the amount of 
industrial insurance in force in 1900. 

The number of policies is represented in tlie secoiul cohunn. There 
were 11,200,000 policies in 1900. That number had grown to 88,900,- 
000 by 1937. In other words, 1937 'had practically eight times as 
many industrial life insurance policies in force as there had been in 
1900. 

It is interesting to compare the growth of industrial life insurance 
with the growth of population in the United States during this same 
period. We have given two sets of figures for population. The 
total population of the continental United States a]ipears in column 
3, the urban population in column 4. The total population grew 
from 76,000.000 to 129.000,000 from 1900 to 1937. In other words, in 
1937 the total population was only 70 percent greater than it had 
been in 1900. 

Industrial life insurance is primarily sold to people who live in 
highly industrialized, urbanized areas. Therefore it was thought 
significant to com])are the growth of urban population in the country. 
In 1900 we had 30,400,000 people living in urban areas. That num- 



5600 



CONCENTRATION OF ECONOMIC POWER 



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COMCENTKATION OF lOl'UiNOJMKl IHJWEK ^){)()\ 

ber "iiad grown to 72,600,000 in 1937. In other words, the urban 
popuhition was 239 percent of wliat it had been in 1900. 

The last two coUnnns relate the amounts of industrial insurance 
to the number of policies and to the number of people living in the 
urban areas. The average policy in force in 1900 was for $131. That 
average amount had grown to $232 in 1937. It was 77 percent greater 
in 1937 than it had been in 1900. 

Mr. Gesell. How do you get that figure of average policy? 

Dr. Davenport. That is obtained by dividing the amount of insur- 
ance in force by the number of policies in force. It is an over-all 
average for the country as a whole. A sigiiificant figure emerges 
when we relate rhe amount of insurance in force to the average 
person living in the urban area. 

In 1900 there Avas a face amount of $48 of industrial insurance in 
force for every person living in the ui-ban areas of the United States. 
That amount had grown to $283 by 1937; it had grown to 590 percent 
as large a figure as it was in 1900. 

Mr. Gesell. Are these presented graphically on the chart which 
Avas introduced at the same time as the schedule? 

Dr. Davenport. The chart presents graphically the figures that are 
shown in the table.' That is correct ; Mr. Gesell. 

Mr. Gesell. Would you care to point out to the committee the 
significant ratios in relationships portrayed by that chart? 

Dr. Davenport. Certainly, If you will look at the chart, the first 
part of it is presented on a ratio grid. The lines on this chart, 
therefore, reveal the rates of change in the respective items that are 
represented. If you will look at the dotted line first you can see 
how the urban ])opulation of the United States increased from 1900 
to 1937. The scale relating to urban population is the scale on the 
left and is in millions; the figures are presented in the accompanying 
table. 

Both the lunnber of policies in force in the respective years repre- 
sented and the amounts of industrial insurance in force in those sauie 
years appear to have grown at nmch more rapid rates than is the 
case with urban population. 

Mr. Gesell. Taking the right-hand portion of the chart with the 
double columns, that again expresses the same result, does it not, 
that the average amount of insurance per policy is related there to 
the average amount of insurance per capita of your urban popu- 
lation? 

Dr. Davenport. That is right. I call your attention to the fact 
that the scale for the segment of the chart on the right is an arithme- 
tic scale in dollars, and if you will look at the columns that are 
represented by the small dots, you have the average amoiuit of in- 
surance per capita. In 1900 that amount was $48, and it grew 
rapidly to the present figure, in 1937, of $283. 

The bar immediately to the right of the bar representing the per 
capita of urban population, the one with the heavy black squares in 
it, represents the average amount of insurance per policy. This 
amount, too, has risen from $131, as you see, to $232 in 1937. 

Mr. Gesell. Noav if you had plotted on this chart not urban pojju- 
lation but all population, the result would have been to show that 



» See "Exhibit No. 945." jjppendix, p. 61G5. 



5()()2 CONCENTRATION OF ECON(JMIC TOWEU 

more iiisiiniiice is being sold lO the population than is reflected by 
the charting of the urban population line; is that correct? In other 
words, the toial population has not grown as rapidly as urban 
population? 

Dr. Davenport. The rate of increase, if we had the figures on the 
average amount of per capita total population, would not have been 
as great, because total population has not grown as rapidly as your 
urban joopulation. 

Mr. Gesell. Now am I correct in saying that industrial- life insur- 
ance is written on the level premium, legal reserve plan? 

Dr. D.WENPORT. It is. It is written on the same plan as ordinary 
insur^ice — the level premium legal reserve. In this respect it is 
ahnost identical with the ordinary life insurance. However, there 
are certain distinctions which we ought to keep in mind. It is writ- 
ten for much smaller amounts, and usually it is written for the 
amount of insurance that a given premium will buy at a particular 

For example, it is written in units of what 5 cents will buy at the 
age of the applicant for the insurance, and consequently facJe amounts 
of insurance represented by these policies. are for odd amounts, which 
is quite different in the case of ordinary insurance, where you buy 
$1,000 or $5,000 or $10,000 policies and pay whatever premium it 
happens to figure out for j'our age. Industrial policies have an aver- 
age face value, we have indicated on the chart and table a moment 
ago, of $232, while the average face value of the ordinary insurance 
i:)olicy is over 10 times as great, about $2,300. 

Most of the premiums on industrial insurance are computed on a 
weekly payment plan, although some industrial policies call for 
monthly payments. These jiremiums are typically collected by agents 
of the company, who call for that purpose at the homes of the policy- 
holders. In this respect it is quite different, as you can see, from the 
way in which the companies collect premiums from ordinary policy- 
holders. They send the ordinary policyholders a bill, and the ordi- 
nary policyholder sends a check in response to that bill. 

Another difference is that industrial insurance is ordinarily written 
without subjecting the applicant to a medical examination. The 
premiums are established on the basis of the specific mortality expe- 
rience with such lives. 

This indicates a rate of mortality for practically all ages that is 
substantially higher than in the case of persons taking out ordinary 
insurance. Partly for this -reason and partly because of the cost of 
collecting ])remiums on industrial insurance at (he homes of the 
jwlicy holders, the premiums on industrial insurance are higher than 
in Ihe case of ordinary insurance. 

Mr. Gesell. Now, Dr. Davenport, have you prepared tables show- 
ing the relative importance of the 10 largest industrial life insurance 
companies doing business in the United States ? 

Dr. Davenport. Yes. 

Mr. Gesell. Are those the tables I now show you? 

Dr. Davenport. These are the tables, Mr. Gesell. 

Mr. Gesell. These tables have been prepared to reflect the rela- 
tionship of the companies measured in terms of amounts of insur- 
ance, rather than numbers of policies in force, have they not? 

Dr. Davenport. That is correct. 



CONCENTRATION OF ECONOMIC POWER 5003 

Mr. Gesell. I wish to offer the schedules for the record. 

The Chairman. They will be received in evidence. 

(The schedules referred to were marked "Exhibit No. 94G" and are 
included in the appendix on p. 616G.) 

Mr. Gesell. Have you any comments which you wish to make on 
these tables? 

Dr. Davenport. The first table shows the details for the 10 largest 
industrial life insurance companies. These 10 companies have in 
force 92 percent of all of the industrial insurance in force, as meas- 
ured by amounts. I would call your attention to the degree of 
concentration represented by the largest of these companies. The 
Prudential Insurance Co. of Amei-ica, with $7,574,000,000 industrial 
insurance in force, has 3G.78 percent of all of the industrial insurance 
in force, reported in the Spectator on December 31, 1937. The 
Metropolitan Life Insurance Co. has just slightly less than that, 
$7,512,000,000 of industrial insurance in force, and that represented 
36.48 percent of the total. 

The next largest company is the John Hancock Mutual Life Insur- 
ance Co. of Boston, Mass., with $1,684,000,000 worth of industrial 
insurance, representing a total of 8.18 percent. These three com- 
panies together control 81.44 percent of all of the industrial insur- 
a-nce in force in the United States.^ 

Mr. Gesell. It is true, is it not, that these three companies are all 
mutual companies? 

Dr. Davenport. That is correct. 

Mr. Gesell. They also sell, do they not, ordinary as well as indus- 
trial insurance? 

Dr. Davenport. They do. The Metropolitan — I have the figures 
here somewhere — roughly, we can say that both the Metropolitan and 
the Prudential hav^e in force practically one and a third times as 
much ordinary insurance as they have industrial insurance. 

Mr. Gesell. Have you figures that will show what that is? 

Dr. Davenport. Yes ; I have ; here they are. In the case of the 
Metropolitan the amount of its industrial insurance is about 65 per- 
cent as large as its ordinary insurance. The Prudential industrial 
insurance is 87 percent as large as its ordinary insurance, while the 
John Hancock industrial insurance is 80 percent of its ordinary in- 
surance. The second table presents more recent information, which 
is available for these 10 companies, which is not available for the 
industry as a whole. It merely adds substantiating detail as to the 
concentration of the control over industrial insurance by the Big 
Three. 

Mr. Gesell. That schedule is prepared on the 'basis of the 1938 
figures, is it not? 

Dr. Davenport. That is correct, Mr. Gesell. 

Mr. Gesell. And the percentages there show the relationship of 
the companies as among themselves, whereas the first schedule shows 
the relationship of the companies to the total amount of insurance 
in force? 

Dr. Davenport. That is so ; yes, sir. 



^ Dr. Davenport 
new issues 
on Septenibei 
on p. 635G 



nport subsequently submitted a schedule of industrial insurance in force and 
-propoition in the tlirce l:ut;('st <ijiupanles, wliicli wiis entered in (lit! record 
r 1], 19:59, as "Kxhibil No. 1191!" and ajipears In tlie :ii)p<'ndix (o Ibis J'art 



5604 CONflENTRATION OP ECONOMIC POWER 

Mr. Gesfxl. Now, have you prepared a schedule entitled "Indus- 
trial life insnmnre, relative importance in the 48 States and the 
Disd-ict, of Columbia^'? 

Dr. Davktsiport. Yes, sir. 

Mr. Gesell. Is th.al the schedule which I show you? 

Dr. Davenport. Yes, sir. 

Mr. Geseel. I wish to offer it for the record. 

Actino- C'liairman Fki;(;uson. It will be received in evidence. 

(The (able reiVned (o was marked "Exhibit No. *»47" and is 
included in Ihe a])pen(lix on ]). 0107.) 

Ml-. Gkseel. Have yoii any comments whicli you wish to make on 
that schedule? 

Dr. Davexport. The table, "Industrial life insurance, relative im- 
portance in the 48 States and the District of Columbia, December 31, 
1937," gives the evidence as to the extent of the influence of industrial 
life insurance companies throughout the United States. For each 
one of the States, including the District of Columbia, we have pre- 
sented for tlie year 1937 the pi-emium income collected by industrial 
life insurance companies from industrial life insurance policyholders. 
This appears in the third column on the table. The fifth cohunn 
represents the amount of industrial insurance in force in thousands 
of dollars in each one of these States. The seventh column represents 
the amount of ordinary insurance in force in each one of these States. 
The column inunediately after that shows the ratio of the amounts 
of ordinary insurance to the amounts of industrial insurance in force. 
The next column shows the number of industrial policies in force, 
and the next to the last column shows the total population, of these 
States in 1937 as estimated by the Bureau of the Census. 

In every State there is at least one company that sells this type of 
insurance. The number of companies selling industrial insurance is 
given directly after the names of the States at the left-hand end of the 
table. Here in the District of Columbia, for example, there are 21 
industrial life-insurance companies doing business. The largest com- 
panies do a nation-wide business. The Metropolitan and Prudential 
are authorized to do business in every State in the United States. 
John Hancock operates in 37 States and in the District of Columbia. 
In contrast there are a number of smaller companies that restrict the 
areas they cover to states in the immediate vicinity of their home 
office. 

While we speak of these companies as smaller companies, it must 
not be assumed that they are insignificant in size. They are small in 
comparison with the big 10 insurance eom])anies, but many of these 
are large organizations when compared with other kinds of financial 
and industrial corporations. For example, the Gulf Life Insurance 
Co. of Jacksonville, Fla., which is the twenty-fifth in order of size on 
our list of industrial life-insurance companies, has assets of five and 
a half million dollars. 

The Gulf Life Insurance Co. operates in Florida, Georgia, and 
Alabama, with a total income in 1938 of three and a half million 
dollars, and that year disbursed a total of $2,600,000, of which com- 
missions amounted to $439,000. Its other agency expenses, home- 
office salaries, medical fees, and so forth, totaled over $1,000,000. Its 
total disbursements to policyholders, beneficiaries, that year amounted 
to $798,516. 



t^ONC^ENTRATlON OF Kt'UMOJMKI POWKJt 5605 

Mr. Gesell. Well, now, referring to this table, can you tell us 
what the most significant States are, in terms of industrial insurance, 
and give us the reasons why you pick out those States as being 
particularly significant ? 

Dr. Davenport. There is a series of tables based upon this table 
which enables us to see in greater detail and greater accuracy the 
precise importance, relative importance, of the State with respect to 
industrial insurance. You can look at the column about the middle 
of the paper, entitled "Amounts of ordinary insurance in force," and 
pick out the States that have the largest amounts in force, without 
any difficulty. 

Run down the list and pick out California, with over 3,000,000 
policies in force; Connecticut, one million eight; Illinois, six million 
three; Indiana, two million seven. 

Mr. Gdsell. New York is the most important, though ? 

Dr. Davenport. New York is the most important; 13,58o,0()0 j)oli- 
cies. 

Mr. Gesell. Now these schedules to which you refer, are they the 
four schedules which I have in my hand at the present time? 

Dr. Davenport. That is correct, Mr. Gesell. 

Mr. Gesell. Those schedules show the relative importance of the 
industrial life-insurance sales in the various States relating to pre- 
miums collected, population, and some of the other significant ratios 
shown on this master schedule ; is that correct ? 

Dr. Davenport. Yes, sir. 

Mr. Gesell. I wish to offer these for the record. 

The Chairman. They will be received in evidence and inserted in 
the record. 

(The schedules referred to were marked "Exhibit No. 948" and 
are included in the appendix on p. 6169.) 

Dr. Davenport. An examination of the first table enables one to 
see that the five largest States from the point of view of the amount 
of premiums collected from insurance of industrial-insurance policy- 
holders account for over a half of the total premiums collected.^ 

Mr. Gesell. Those are New^ York, Pennsylvania, New Jersey, 
Illinois and Ohio; is that correct? 

Dr. Davenport. That is right. The 25 largest States, including the 
District of Columbia as one of the 25, account for 92.8 percent of 
the total. 

Mr. Gesell. You refer to the 25 States listed ? 

Dr. DA^^;NP0RT. The 25 States listed. Details were not given for 
the other States. The second table just introduced into the record 
shows industrial insurance in several States related to their popula- 
tion in 1937.^ The first three columns of this table are identical 
with the figures that are presented under the same captions in "Ex- 
hibit No. 947," amount of industrial premium income collected in 
1937, the number of industrial life insurance polices in force in 
1937, and the population in 1937. From these figures we have 
derived the amount of industrial premium income collected per per- 
son. That is shown in the next to the last column of this table,^ and 



1 See "Exhibit No. 948," appendix, p. 6169. 

» Ibid. 

»Ibid 



5606 CONC'.ENTRATION OF ECONOMIC POWER 

in the last column the number of industrial insurance policies in 
force per hundred persons in the population of respective States. 

Mr. Gesell. Now let ma see if I understand that schedule. Am I 
correct, then, in sayin<j^ tliat in the State of Rhode Island that there 
were $13.86 rollocted ]>cr person in that State for industrial insurance 
in the year 1937? 

Dr. I)Avj:NP(!iri'. $13.80 w:is collected per ]iers(m from the popula- 
tion of Rhode Island in 1037. 'Iliat is rijjht. 

Mr. Gesell. Anrl in tlic Slate of New York the collections were 
$11.66 i)er person; is that correct? 

Dr. DA^EN^(lRT. Yes. 

Mr. Gesell. Now, runniu<T to the last column it will show in the 
case of Rhode Island, for example, that there were 123.57 policies 
per hundred persons in that State? 

Dr. Davenport. That is correct. 

Mr. Gesell. And in the State of Maryland, which seems to be the 
larjiest there, with 139.14? 

Dr. Davenport. For every hundred men, women, and children 
in the State; that is ri^ht. 

Mr. Gesell. Ho\v many States had more policies in force than 
people ? 

Dr. Davenport. There are 8 States in which the number of poli- 
cies per hundred persons exceeded 100. They were Massachusetts, 
New York, Rhode Island, Connecticut, Delaware, the District of 
Columbia, Maryland, and New Jersey. That is given in a summary 
form in a table, entitled "States classified according to number of 
industrial policies in force per hundred persons population." 

Referring to the other derived figure, namely, the premium income 
collected per person, we find that there were 8 States likewise in 
which the premiiuns collected per person in the population exceeded 
$10 in 1937. 

Mr. Gesell. AVhat are those eight States? 

Dr. Davenport. They were the District of Columbia, Connecticut, 
Delaware, Maryland, Massachusetts, New York, New Jersey, and 
Rhode Island. 

Mr. Gesell. The other figures broken down in the States are shown 
on that schedule, are they not? 

Dr. Davenport. Yes, sir. 

Mr. Gesell. What is the average amount, if you know, collected 
per person in the United States for industrial insurance premiums ? 

Dr. Davenport. The average premium per person is $5.99 — that 
was for 1937. 

Mr. Gesell. That is assuming, I take it, that everybody in the 
United States buys industrial insurance? 

Dr. Davenport. No; that is merely an Average figure obtained by 
dividing the complete total amount of premium collected by these 
companies, by the total population of the United Str.tes. 

Mr. Gesell. Well, that, in other words, assumes that everybody — 
in other words, if we take only those persons who buy industrial in- 
surance, the average amount collected would be higher, wouldn't it? 

Dr. Davenport. That is correct. 

Mr. Gesell. You have assumed for this figure of $5.99 that every- 
l)ody in the United States has an industrial policy, which is not neces- 
sarily the case? 



CONCENTRATION OF ECONOMIC POWEll 5g07 

Dr. Davenport. Only, 83,383,000 policies, industrial policies in 
force in the United States. The population of the United States was 
129,257,000. 

It will be recalled that the testimony pi-esented before this com- 
mittee on June 12, 1939, contained some facts relating; to the termina- 
tion of insurance policies.^ That testimony shewed the very large 
percentage of terminations in industrial insurance policies due to 
lapses and surrenders and the relatively small proportion of the 
terminations that occur because of the death of the policyholder. 

It may be well to refer again to the number of industrial policies 
terminating in the 10-year period 1928-37. These facts were pre- 
sented before this committee in table and chart form at an earlier 
date.- We have some extra copies of those tables with us, I believe. 
I will summarize briefly the facts. 

In the 10-year period just referred to, 1928 through 1937, 187 mil- 
lion industrial policies terminated. Only 4.45 percent of those termi- 
nated by reason of the death of the insured, whereas 91 percent of 
those policies terminated by reason of lapse or surrender; and lapse 
alone accounted for 70.68 percent of the total. In other words, there 
were 132,708,000 of these industrial insurance policies that lapsed 
with no payment to the policyholder, through the nonpayment of 
premiums by the policyholder out of a total of 187,760,000. 

Mr. Gese'li.. Now have you prepared additional figures relating to 
this problem of lajise and termination? 

Dr. Davenport. Yes, sir. 

Mr. GiiSEi.L. I show you a schedule entitled "Industrial Life Insur- 
ance Amounts in Force, New Issues and Terminated," which appears 
to cover the years from 1900 to 1937, and ask you if that is a schedule 
which you have prepared. 

Dr. Davenport. Yes, sir. This summarizes by years for this 38- 
year period the total amount of industrial life insurance in force, the 
amount newly issued each year, and the amount terminated each year. 

Mr. Gesell. I wish to offer this for the record. 

The Chairman. It will be received. 

(The table referred to was marked "Exhibit No. 949" and is in- 
cluded in the appendix on p. 6171.) 

Mr. Gesell. Have you any comments which you wish to make on 
that table ? 

Dr. Davenport. That merely gives additional detail to that given in 
the other table. The most important information is summarized in 
a table yet to be identified. 

Mr. Gesell. You are referring, are you, to the schedule entitled 
"Industrial Insurance." 

Dr. J)avenport. That is right. 

Mr. Gesell. Showing information for 84 companies, the number of 
indust^al policies lapsed, the number of ne-SY policies written, and 
the number of policies in force as of the end of 1938 ? 

Dr. Davenport. Correct. 

Dr. LuBiN. Dr. Davenport, reverting to "Exhibit No. 949," do you 
know what the total face value of all policies issued in the 37 years 
in the State amounted to ? Have you got that total ? 



1 See Hearings. Part X, pp. 4281, 4287 and 4684. 

2 Ibid, "Exhibit No. 685,'' p. 4305. 



5608 (lONdKNTllATlON Ob' E(.!OJ\OM10 POWER 

Dr. Davenpoht. I believe — I don't understand your question. 

Dr. LuBiN, Have you the total of column 3 in "Exhibit No. 949?" 

Dr. Davenport. No ; I do not. 

Dr. LuBiN. Do you have the total of column 4 ? 

Dr. Davenport. I have. The summary jBgures of terminations, 
total terminations by 4-year periods from 22 to 37; I have not the 
figures that go back of 1900. 

Dr. LuBiN. Koughly, as you run down the column, it a^j^^ears that 
in the last 37 years over $60,000,000,000 worth of policies have been 
terminated. 

Dr. Davenport. That shouldn't surprise me. 

Dr. LuBiN. Wiiich is equal to the national income for several 
years. 

Mr. Gesell. We can compare those for you if you wish. 

Dr. LuBiN. I just ran down the column, and it is in that neighbor- 
hood. 

Mr. Gesell. We were discussing a schedule showing information 
with respect to 84 companies. I show you that schedule. I would 
like to offer it for the record. 

(The schedule referred to was marked "Exhibit No. 950" and is 
included in the appendix on p. 6172.) 

Mr. Gesell. Will you describe what that schedule shows. Dr. 
Davenport ? 

Dr. Davenport. In this table we have assembled the information 
for 84 companies selling industrial life insurance in the United 
States. This is the largest number of companies for which informa- 
tion could be obtained. 

This exhibit shows the number of industrial policies that lapsed 
during 1938 the number of new industrial policies written during 
1938, and the number of industrial policies in force at the end of 
1938. There is a footnote which I should call your attention to 
which indicates that in some 22 cases the information for 1938 was 
not available and in those cases we have used the information for 

1937 which was available. 

Mr. Gesell. Do the new policies issued there include revivals? 

Dr. Davenport. They include revivals. That is the total of new 
policies issued including the revivals. 

Mr. Geseix.. You have drawn off on the right of that table some 
significant relationships, have you not? 

Dr. Davenport. Yes, sir. 

Mr, Gesell. Will you comment on those, please ? 

Dr. Davenport. I should first like to call attention to the symbol 
appearing in the second colunni which indicates whether the company 
is a mutual company or a stock company. 

The third from the last column is entitled "Percentage ratio of 
the number lapsed to the new issues," and it shows for the Metro- 
politan Life Insurance Co., which appears at the top, that 48.7 per- 
cent is the ratio of the number lapsed to the number of new issues. 
In other words, almost half as many policies as they sold during 

1938 lapsed during 1938, 

Mr. Gesell. There are higher ratios than that shown for other com- 
panies, are there not ? 

Dr. Davenport, I merely mention Metropolitan, because it is the 
first company appearing on the table. There are cases where the nujn- 
ber lapsed exceeded the number written. For example, the first one 



CONCENTRATTON OF ECONOMIC POWER 5609 

we come to is for the Afro-American Life Insurance Co. that lapsed 
112 percent as many as they sold durinjj 19?>8. Then we come down 
to the Glohe Life Insurance Co. (Iiat lapsed r5r>l {lercent as jnany as 
they sold durino; 1938. The Alta Life Insurance Co. lai)sed 235 per- 
cent as many as it sold. And so on. 

Mr. Gesell. How many companies are there that lapsed more than 
they sold ? 

Dr. Davenport. If you count those that have ratios over 100 per- 
cent, one, two, tlnee, four, five, six companies have ratios exceedino- 
100 percent. 

Mr. Gesell. And am I correct in saying that there are a substantial 
number of companies with ratios in excess of 75 percent? 

Dr. Davenport. I should say that the majority, probably 80 percent 
of them, have ratios that exceed 75 percent. 

Mr. Gesell. How many of those companies are mutual companies? 

Dr. Davenport. I count 8 mutual companies out of the 84. 

Mr. Gesell. The great bulk of the companies are stock companies, 
are they not ? 

Dr. Davenport. May I correct myself? I count 10 mutual com- 
panies out of 84 companies. The great bulk of the companies by num- 
ber are stock companies, the profits from which typically go to the 
owners thereof. But the great bulk of the insurance, as indicated 
tefore, by reason of the large concentration in control of the Metro- 
politan, Prudential, and John Hancock, all three of which are mutual 
companies, the great bulk of the industrial life insurance is controlled 
by the mutual companies. 

Mr. Gesell. Have you prepared, Dr. Davenport, any other further 
relationships on this chart which you wish to call to the committee's 
attention ? 

Dr. Davenport. There is one other item on this chart that I call 
to your attention, and that shows the percentage ratio of the number 
lapsed to the number in force — the number lapsed during 1938 to the 
immber in force at the end of 1938. Starting with the Metropolitan, 
because it appears first, we find that as many as 5 percent of the poli- 
cies that were in force at the end of the year had lapsed during the year 
1938. But we come down to the number of companies that actually 
lapsed more industrial policies during 1938 than they had left on 
their books at the end of 1938. 

Mr. Gesell. How many such. companies are there? 

Dr. Davenport. All of those that have ratios exceeding 100 per- 
cent — 14 companies. Again I should like to emphasize that we are 
talking here about lapsed policies only, not lapsed and surrendered 
policies, but lapsed policies. 

The Chairman. For nonpayment of premium ? 

Dr. Davenport. For nonpayment of premium. 

Acting Vice Chairman Casey.^ In many of those instances I sup- 
pose the same person lets the policy lapse, then takes out new insur- 
ance and lets it lapse, and the same individual might go along with 
numerous policies, might he not? 

Dr. Davenport. It quite frequently happens. 

The Vice Chairman. It is a sort of on again, off again, on again, 
off again. 



^ Note : Bepresentative Casey is acting vice cbalrman of tbe .subcommittee. 



5G1() CONCRNTRATTON OF ECOISOIMTC TOWER 

Dr. DAVENroRT. It has been referred to as squirrel-cage activity, 
but the significant thing is that when the policy lapses the policy- 
holder loses all of the reserve, all of the unused portion of the reserve 
against his jjolicy. He is paid nothing back of the savings element 
tliat is involved in this legal reserve level premium scheme of insur- 
ance. We have some figures which indicate the extent of that factor 
of lapse and surrender as a source of gain to the individual insur- 
ance companies. For example, for the year 1938 in the gain and loss 
exhibits of the tliree largest mutual life-insurance companies, Metro- 
politan, Prudential, and John Hancock, we obtained these figures: 
Gains from lapses and surrenders. Metropolitan in its ordinary <le- 
])artment, $4,915,000; from its industrial department, $13,432,000; the 
total gains from lapsed and surrendered policies for the Metropoli- 
tan in 1938 alone amounted to $18,347,000. In the Prudential in the 
ordinary department they reported gains of $3,605,000, in the indus- 
trial department $19,579,000, a total of $23,184,000 during the year 
1938. The John Hancock, a smaller company, reported $889,000 

Mr. Gesell. $899,000. 

Dr. Davenport. Thank you. $899,000 for the ordinary depart- 
ment and $3,848,000 in its industrial department. 

Mr. Gesele. What are the total gains from lapses and surrenders 
for the three companies in 1938? 

Dr. Davenport. $46,280,000. 

Mr. Gesell. How much of that is attributable to the industrial 
departments of those companies ? 

Dr. Davenport. Seventy-nine percent, sir. 

Mr. Gesell. Referring to Congressman Casey's question, there are 
no published statistics available, are there, which will enable us to 
tell how many times a single policyholder may have bought and 
lapsed and bought and lapsed one or more policies? You just have 
the over-all figures? 

Dr. Davenport. We have the over-all figures. Those are not avail- 
able from any source that I know of. 

Mr. Gesell. I take it that you base your statement that a single 
l^ol icy holder must have bought and lapsed, and bought and lapsed, 
and bought again and lapsed again on the fact that during that 
10-year period which we have been discussing there were one hundred 
and ninety-three odd million policies written, in excess of the popu- 
lation. 

Dr. Davenport. That is correct. 

Mr. Gesell. That a figure in excess of the population for all 
policies terminated was also shown. 

Dr. Daa'enport. It is a fact well known in the insurance business 
that many of the people can't keep up their policies. They want to 
hold their policies; they will keep them up until they can no longer 
make the sacrifice to pay their premiums and then let them lapse. 
Those policies may be revived after a period of time, in which case 
there is an addition to the newly issued policies. 

Mr. Gesell. I take it your statement with respect to the gains of 
these three companies from lapses and surrenders is subject to the 
same qualifications that you made with respect to tiie over-all figures 
oh gains from lapses and surrenders in a previous hearing, namely, 
that those figures may not necessarily be a source of profit to the 
company, but they are definitely a loss to the policyholder. 



CONCENTRATION OP ECONOMIC POWER . 5611 

Dr. Davenport. They are reported on the gain and loss exhibit 
as one of the four principal sources of profit to the individual 
companies. 

Mr. Gesell. The companies being mutual companies, however, 
.those profits are still available for distribution. 

Dr. Davenport. To the remaining body of policyholders, but they 
are not distributed to those who paid premiums to build up those 
reserves. 

Mr. Gesell. I have no- further questions of this witness. Would 
any member of the committee like to ask a question ? 

The Vice Chairman. I should like to know, Dr. Davenport, what 
is the minimum policy of tliese industrial policies ? 

Dr. Davenport. Tlie minimum policy would be the amount of in- 
surance purchased for 5 cents on the life of a child 1 year old. 

The Vice Chairman. What would that amount to? 

Dr. Davenport. I haven't the figures precisely in mind, but ap- 
proximately ten or twelve dollars. 

The Vice Chairman. What is the maximum? 

Dr. Davenport. As soon as a po.licy is written for face value of 
$500 or more it is thrown into what is known as. an intermediate 
group whicli is much more like the ordinary insurance than is in- 
dustrial insurance, although quite frequently it is handled by the 
same agents. There is an intermediate area there between $500 and 
$800. The policy that is written for $1,000 or more is an ordinary 
policy based on a different mortality table, with different policy 
provisions. 

The Chairman. With medical examination. 

Dr. Davenport. With medical examination. As a matter of fact, 
in several of the States they require medical examination jf the 
amount of industrial insurance exceeds $500. 

Mr. Gesell. Just one thing. It is true, is it not, that it is very 
difficult to generalize about what the maximum or minimum poligy 
is or what the maximum or minimum premium is. There may be 
industrial companies which have a policy as high as $700, may there 
not, and there may be companies which collect premiums less than 
5' cents ? 

Dr. Davenport. The definition of industrial insurance varies 
somewhat in different States. We have tried to take a general aver- 
age picture of what constitutes industrial insurance. There is this 
midzone known as the intermediate insurance. 

The Vice Chairman. Are there any companies that use this in- 
dustrial-insurance method of going around house to house to collect 
what we know generally as ordinary insurance, in tlie higher 
biackets, $5,000 or $10,000? 

Dr. Davenport. I can't say from personal knowledge. 

Mr. GeSell. I believe there are some companies, Congressman, 
which do collect ordinary policies in the amount Of $1,000. 

Chairman Ferguson. You may be excused. 

(The witness, Dr. Davenport, was excused.) 

Mr. Gesell. The next witness is Mr. William Lacy. 

The Chairman. Do you solemnly swear that the testim*ony you 
are about to give will be the truth, the whole truth and nothing but 
the truth? 

Mr. Lacy. I do. 

124491 — 10 — pt. 12— — 3 



5612 CX)NOENTRATION OF ECONOMIC POWER 

TESTIMONY OF WILLIAM S. B. LACY, FINANCIAL ECONOMIST, 
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D. C. 

PROFITS OF COMPANIES WRITING INDUSTRIAL INSURANCE 

Mr. Gesell. Will you state your full name, please, for the reporter. 

Mr. Lacy. William S. B. Lacy. 

Mr. Gesell. You are a financial economist on the staff of the 
insurance section of the Commission, are you not? 

Mr. Lacy. That is correct, sir. 

Mr. Gesell. Have you prepared certain material indicating the 
amount of cash, stock dividends, and surpluses, which have been 
accumulated in certain representative stock companies selling indus- 
trial insurance? 

Mr. Lacy. I have. 

Mr. Gesell. Am I correct in stating that that information is con- 
tained on the schedule entitled "Forty-four stock companies selling 
industrial life insurance; amounts of insurance in force, premium 
income, original paid-in capital, dividends to stockholders, surplus 
and capital in 1938"? 

Mr. Lacy. That is the correct title, sir. 

Mr. Gesell. Is that a schedule prepared by you ? 

Mr. Lacy. That is right. 

Mr. Gesell. I wish to offer this schedule for the record. 

The Chairman. It may be received. 

(The schedule referred to was marked "Exhibit No. 951" and is 
included in the appendix on p. 6174.) 

Mr. Gesell. Have you some comment which you wish to make 
with respect to this schedule? 

Mr. Lacy. Yes. Dr. Davenport has indicated that there were 
approximately 138 companies in the United States engaged in the 
sale of industrial insurance. This figure includes both mutual and 
stock companies. The exact number, however, of stock companies 
selling industrial insurance is not known and cannot be obtained 
from recognized sources, but we have made a special study of the 
growth of a group of 44 stock companies engaged in the sale of 
industrial insurance, the total industrial insurance in which repre- 
sents 15.8 percent of all industrial insurance in force as reported to 
the Spectator Co., and 90.4 percent of the total industrial insurance 
in force in stock companies reporting to the Spectator Co. 

The group of 44 companies includes all stock companies selling 
industrial insurance in the United States for which an appreciable 
amount of the indicated inaterial is available from any source, in- 
cluding the company itself, without prohibitive expense in securing 
it. We have excluded, however, all companies having less than 
$1,000,050 industrial insurance in force as well as all companies 
whose industrial insurance represents less than 25 percent of their 
total insurance in force. 

Mr. Gesell. Let me see if I get you right. This schedule shows 
infonnation for 44 companies. 

Mr. LAcy. That is correct. 

Mr. Gesell. They are all stock companies? 

Mr. Lacy. That is correct. 



CONCENTRATION OF ECONOMIC POWER 5613 

Mr. Gesell. In many instances the companies sell both ordinary 
and industrial insurance. 

Mr. Lact. That is true. 

Mr. Gesell.. In no case, however, do any of the companies have less 
than $1,000,000 of industrial insurance in force, and in no case does 
that amount of industrial insurance represent less than 25 percent of 
the total industrial insurance, total insurance of all kinds in force in 
the company. 

Mr. Lagy. That is correct. 

Mr. Gesell. Does this include those stock companies which were 
mentioned among the 10 largest companies in the schedule presented 
by Dr. Davenport! ^ 

Mr. Lact. They are included in this schedule. 

Mr. Gesell. Do you know whether all of those companies have 
been' included? I am correct, am I not, that one of them is missing, 
namely, the Life & Casualty Insurance Co. ? 

Mr. Lact. That company may have been excluded, the work may 
have been prepared separately. If it is excluded it is excluded be- 
cause of the first qualification, that material for it is unavailable 
from any source. 

Mr. Gesell. Will you continue, please? 

Mr. Lact. The table lastly presented is prepared to show for each 
of the 44 companies in the group the following material : The year in 
which it began business, which is shown in column 2; the relative 
importance of industrial insurance in its business, which is indicated 
by columns 3 and 4, entitled "Insurance in force" and "Premium in- 
come", respectively, which shows those amounts in force broken down 
into the ordinary and industrial departments of the business; thirdly, 
in column 5, the original paid-in capital ; in column 6, the total cash 
dividends and total stock dividends paid to stockholders since the 
organization of the company ; and finally, present surplus and present 
capital, which are in columns 7 and 8, respectively. The totals or 
aggregates for each column are found at the bottom of the page. 

Mr. Gesell. With respect to the colmnn entitled "Original paid-in 
C9,pital," are there "any qualifications which you wish to make with 
respect to that item? 

Mr. Lact. Yes; the figures representing original paid-in capital 
may be in some cases larger than actual. 

The Vice Chairman. Larger than what? 

Mr. Lact. Larger than the actual. 

Mr. Gesell. Why is tha<^? 

Mr. Lact. The reason is becausfe the source material available to us 
does not go back as far as the days of organization of some of the 
oMest companies. We have reason to believe that the figures quoted 
us represent in some cases original authorized, or perhaps original 
subscribed, capital rather than original paid-in capital. 

Mr^ Gesell. So that, if anything, the total under the column en- 
titled "Original paid-in capital" may be greater than the actual paid- 
in capital uie company has shown. 

Mr. Lact. That is correct, sir. 

Mr. Gesell. Is it your best judgment that that variation is rela- 
tively very small? 



> See "Exhibit No. 946," appendix, p. 6166. 



5614 CONCENTRATION OF ECONOMIC POWER 

Mr. Lacy, Yes ; I should say that variation is small. 

Mr. Gesell. Now, see if I understand some of the totals shown in 
this schedule. Am I correct in saying that for these 44 companies 
there was a total original paid-in capital of $4,146,925? 

Mr. Lacy. That is correct. 

Mr. Gesell. Now, if we wanted to find out what the entire paid-in 
capital of these companies was, it would be necessary, would it not, 
for us to take the column entitled "Capital," which is totaled at 
$39,281,555, and subtract that from the figure of $32,337,000 shown 
nnder "Stock dividends"? 

Mr. Lacy. That is correct, sir. 

Mr. Gesell. Have you made that computation, and can you tell us 
what the entire paid capital of these companies was? 

Mr. Lacy. Yes; with a very few qualifications. 

The difference between present capital and total stock dividends 
paid since the organization amounts to $6,943,605. The figures should 
probably be qualified very slightly in that some companies may have 
revised their capital structure so that the difference will not exactly 
represent total paid-in capital, but that variation would be very small 
indeed. 

Mr. Gesell. The companies, then, have had approximately a paid- 
in capital of slightly in excess of $6,000,000? 

Mr, Lacy. That is correct, sir. 

Mr. Gesell. Am I correct in saying that this paid-in capital has 
produced a return in stock dividends of $32,337,950? 

Mr, Lacy. That is correct, sir. 

Mr. Gesell. And, in addition, it has produced a return in cash of 
$66,238,943? 

Mr. Lacy. That is correct. 

Mr. Gesell. And that, in addition, it has resulted in the accmnu- 
lation of a surplus now measured at $44,201,982? 

Mr. Lacy. That is right. 

Mr. Gesell. That surplus is available, I take it, for the stock- 
holders? 

Mr. Lacy. In a stock company it is available. 

Mr. Gesell. Then against this paid-in capital figure of in the neigh- 
borhood of 6 million we have a total figure, including stock and 
cash and surplus, of $142,778,875, have we not ? 

Mr. Lacy. That is correct, sir. 

Mr. Gesell. Are you sure my addition is correct on that? 

Mr. Lacy. Perhaps there should be some check on it; it appears 
to be $142,776,000. 

Mr. Lacy. Perhaps there should be some check on it; it appears 
list as an example, Mr. Lacy, and trace through the particular his- 
toi*y of that company ? 

Mr. Lacy. Yes ; the Life Insurance Co. of Virginia, which appears 
approximately in the middle of the left-hand side, was organized in 
1871. As of ^ December 31, 1938, it had in force slightly over 178 
millions of ordinary insurance and slightly over 332 millions of in- 
dustrial insurance. Its original paid-in capital, according to the best 
material at our disposal, was $100,000. The total stock dividends 
paid to stockholders since organization totaled $5,200,000. Cash div- 
idends paid to stockholders since organization amount to $14,177,423. 



CONCENTRATION OF ECONOMIC POWER 5615 

The surplus accumulated since organization totaled $6,307,644, and 
its present capital amounts to $6,000,000. 

Mr. Gesell. Well now, since that company sells both ordinary and 
industrial, as do most of the companies on this list, is it possible for 
you to tell us what percentage of the return is attributable to the 
operations of the industrial department and what percentage of the 
return is attributable to the operations of the ordinary department? 

Mr. Lacy. Such a computation is impossible. 

Mr. Gesell. Why is that? 

Mr. Lacy. We have at our disposal no material which is suffi- 
ciently complete to make a proportionate assignment of such items 
as original paid-in capital, present capital, or surplus. 

Mr. Gesell. Am I correct in saying that as far as can be deter- 
mined the companies do not make that type of analysis of their 
operating results? 

Mr. Lacy. That seems, in a large majority of cases, to be true, sir. 

Mr. Gesell. And these returns that are shown in the totals at the 
foot of these various columns are then totals for the operations of 
the business as a whole without regard to whether the profits accrued 
from the industrial or the ordinary department. 

Mr. Lacy. That is right, sir. 

The Chairman. Have you any figures which would show the value 
of the stock per share ? ^ 

Mr. Lacy. Figures are available for par value, yes, sir; the annual 
statements. I don't believe I have them here, but we can supply them 
later.^ 

The Chairman. I think it would be a good idea. 

Mr. O'CoNNELL. Is that company a typical company ? 

Mr. Lacy. I think it is typical in terms of its age; its profits are 
certainly larger than some. 

Mr. O'CoNNELL. It is the oldest company. 

Mr. Lacy. Yes; perhaps. 

Mr- Gesell. The great bulk of these companies were organized 
after 1900, were they not? 

Mr. Lacy. Yes. 

Mr. Gesell. Well now, have you assembled information indicating 
the present holdings of the principal stockholders of these 44 stock- 
insurance companies? 

Mr. Lacy. Yes; we have such information. 

Mr. Gesell. Is that information contained on the schedule entitled 
"Forty-four Stock Life Insurance Companies Selling Industrial In- 
surance as of December 31, 1938, Information Relating to Stock 
Ownership and Salaries Paid Chief Executives"? 

Mr. Lacy. That is correct, sir. 

Mr. Gesell. I wish to offer that schedule for the record. 

(The schedule referred to was marked "Exhibit No. 952" and is 
included in the appendix on p. 6176.) 

Mr. Gesell. Have you any comments you wdsh to make with 
respect to this schedule? 

Mr. Lacy. Yes; first I sliould like to comment on the source of 
the material. The material relating to stock ownership, which is con- 



* Subsequently entered as "Exhibit No. 971.'" See aijpeiidix, p. (}-02. 



5616 (^ONCENTltATION OF ECONOMIC POWER 

tained in the third column, has been obtained from the companies 
themselves. The information relating to the five highest paid officials 
in the. company has been prepared from the annual statements the 
convention form which is submitted by each company to the State 
authority. 

The schedule shows for each of the 44 companies included in the 
previous table the names of the 5 largest owners of stock outstanding 
in the company and the names and salaries of the 5 highest paid 
executives in the company. 

Mr. Gesell. The schedule shows, does it not, that by and large the 
five largest stockholders in most cases have over 50 percent of the 
stock and in most cases they are also officers and executives of their 
companies receiving salaries? 

Mr. Lacy. Yes ; I should sum it up by saying that in the majority 
of the companies included in the group most of the pi-ofits of the 
business went to a small number of people and in a majority of cases 
the companies were controlled by a relatively small group, and that 
in most cases this small group of people receive the principal salaries 
as well as most of the profits. 

Mr. Gesell. These are figures showing the situation as of what 
date? 

Mr. Lacy. December 31, 1938. 

Mr. Gesell. No information is available as to whether this con- 
centrated holding of stock has continued or has been in existence for 
any period of time? 

Mr. Lacy. No, sir ; that is not available. 

Mr. Gesell. I have no further questions on the schedule. 

The Chairman. All right, thank you. Next witness. 

Mr. Gesell. That concludes the presentation for the day. I would 
like t^ say that tomorrow we will present testimony with respect to 
the management and operation of the Monumental Life Insurance 
Co. of Baltimore, now one of the oldest life-insurance companies 
and, at the present time, one of the fastest-growing industrial com- 
panies in the United States. 

The Chairman. I wish to have this inserted in the record. I un- 
derstand it has been agreed upon. 

The committee has received from the Prudential Life Insurance 
Co. of Newark, N. J., a break-down showing the net rate of earn- 
ings on investment portfolio of that company broken down by types 
of investment. This information was requested by Mr. Joseph J. 
O'Connell when Mr. K. R. Rogers, vice president of the Prudential 
Life Insurance Co., testified before the committee on June 29, 1939.^ 

The statement is herewith received and ordered printed in the 
lecord. 

(The table referred to was marked "Exhibit No. 953" and appears 
in Hearings, Part XI, appendix, p. 5589.) 

The Chairman. The committee will recess until 10:30 tomorrow 
morning. 

(Wliereupon, at 4 p. m., a recess was taken until 10:30 a. m. 
Thursday, August 24, 1939.) 



1 See Hearings, Part XI, p. 5078. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWEK 



THURSDAY, AUGUST 24, 1939 

United Sta-ms Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington^ D. C. 

The subcommittee met at 10:35 a. m., pursuant to adjournment on 
Wednesday, August 23, 1939, in the Caucus Room, Senate Office 
Building, Garland S. Ferguson presiding. 

Present: Commissioner Ferguson (chairman), Representative 
Casey, and Mr. O'Connell. 

Present also: Messrs. Lubin and Brackett, Commissioner Edward 
C. Eicher, Securities and Exchange Commission; Gerhard A. Gesell, 
special counsel; and Michael H. Cardozo, attorney, Securities and 
Exchange Commission. 

The Chairman. The committee will come to order. Are you ready 
to proceed, Mr. Gesell ? 

Mr. Gesell. I am. The first witness this morning will be Mr. 
Burnett. 

TESTIMONY OF PAUL M. BURNETT, CHAIRMAN OF THE BOARD 
OF DIRECTORS, MONUMENTAL LIFE INSURANCE CO., BALTI- 
MORE, MD. 

monumental life insurance CO. — HISTORY AND DESCRIPTION 

Mr. Gesell. Mr. Burnett, will you state your full name for the 
record, please? 

Mr. Burnett. Paul M. Burnett. 

Mr. Gesell. Are you chairman of the Board of the Monumental 
Life Insurance Co.? 

Mr. Burnett. I am. 

Mr. Gesell. How long have you been associated with that com- 
pany? 

Mr. Burnett. Since between 1890 and 1895. 

Mr. Gesell. How long have you been chairman of the board? 

Mr. Burnkft. Since 1936. 

Mr. Gesell. Prior to that time you were president of tlie com- 
pany ? 

Mr. Burnett. For quite a period. 

Mr. Gesell. Do you recall how long ? 

Mr. Burnett. Well, I was first cliairman of the board about prob- 
ably '22 or somewhere in there ; I don't know the exact time — for a 

5017 



5618 CONCENTRATION OF ECONOMIC POWER 

short period — and then was made president and continued as presi- 
dent until '36, when I was made chairman of the board, 

Mr. Gesell. The Monumental Life Insurance Co., is a Maryland 
corporation, is it not? 

Mr. Burnett. It is. 

Mr. Gesell. Home offices are in Baltimore? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. In how many States does your company operate ? 

Mr. Burnett. Twelve or thirteen ; thirteen. 

Mr. Gesell. Can you tell us in which States your company operates ? 

JNIr. Burnett. Yes; Maryland, Virginia, Georgia, Louisiana, Kan- 
sas, Michigan, Missouri, Kentucky, Indiana, Ohio, Pennsylvania, and 
Delaware. 

Mr. Gesell. How much insurance in force has your company at the 
present time, approximately? 

Mr. Burnett. About $300,000,000. 

Mr. Gesell. How much of that is ordinary, how much is industrial? 

Mr. Burnett. Well, I would have to refresh my memory on that, sir. 
May I consult ? Two thirty is industrial and seventy is ordinary, Mr. 
Rock tells me, and I am sure that is corrept. . 

Mr. Gesell. You would consider your company primarily an in- 
dustrial company; is that correct? 

Mr. Burnett. Yes; I would. 

Mr. Gesell, Does your company sell industrial insurance in all the 
States you have mentioned? 

Mr. JBuRNETT. Yes. 

Mr. Gesell. Your company has grown rather rapidly in recent 
years, has it not? 

Mr. Burnett. Yes. 

Mr. Gesell. Can you give us some indication of what that growth 
has been since, let us say, 1920? Give us some idea of how the com- 
pany has expanded. 

Mr. Burnett. The growth has' been very great since 1920. I would 
say that at 1920 — I can't give you this accurately because I haven't 
the figures, but I would say we had about three or four million dollars 
at that time. We now have about 33, assets. 

Mr. Gesell. So you have grown about 30 million in assets since 
1920? 

Mr. Burnett. Something like that. 

Mr. Gesell. During that period have you organized any new branch 
offices and increased your sales force and opened up new territory ? 

Mr. Burnett. At that time I think we had only one office, in Balti- 
more. 

Mr. Gesell. So that it would be fair to say that your company's — 
almost its entire growth and development has been since 1920? 

Mr. Burnett. Very largely. 

Mr. Gesell. Wlien was the company organized? 

Mr. Burnett. In '58. 

Mr. Gesell. 185S? 

Mr. Burnett. Yes. 

Mr. Gesell. Did it sell industrial insurance right from the time it 
was organized ? 

Ml'. Burnett. No; it did not. The original charter permitted it to 
write all kinds of insurance, liut so far as my experience with it is 



CONCENTRATION OF ECONOMIC POWER 5619 

concerned it has never written anything but the life contracts, and 
Avhen I became connected witli it in the nineties it was kind of small, 
industrial debit; I couldn't tell you exactly when it began.^ I heard 
somebody say yesterday that we had written industrial before I be- 
came connected with it, but I den't know just how long. 

Mr. Gesell. Now, the company was organized as a mutual company, 
was it not? 

Mr. Burnett. Yes. 

Mr. Gesell. What was its original name? 

Mr. Burnett. Mutual Life and Fire, I think. 

Mr. Gesell. I think that is correct. 

Mr. Gordon.- Mr. Gesell, is there any objection if any of these gen- 
tlemen supply infoiTnation? 

Mr. Gesell. Not at all. 

Mr. Burnett. If I knew it — it is only details ; if I want any infor- 
mation, Mr. Gesell. 

Mr. Gesell. For what period of time was the company a mutual 
company ? 

Mr. Burnett. Until the change was made in 1928. 

Mr. Gesell. February 6, 1928? 

Mr. Burnett. Yes. 
• Mr. Gesell. Since that time the company has been a stock company, 
has it not? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. How much stock is outstanding now ? 

Mr. Burnett. Two million. 

Mr. Gesell, .How many shares of stock outstanding? 

Mr. Burnett. $10 a share, that is 200,000 shares. 

Mr. Gesell. Two hundred thousand shares the company has capi- 
lalized at $2,000,000? 

Mr. Burnett. We have about $2,000,000 surplus. 

Mr. Gesell. You yourself, I take it, are a stockholder? 

Mr. Burnett. Yes. 

Mr. Gesell. Are you the. principal stockholder of the company ? 

Mr. Burnett. I am perhaps the largest one, but I do not have a 
controlling interest or anything near it, but I probably am the largest 
stockholder. 

Mr. Gesell. How many shares do you own either in your own name 
or beneficiaries? 

Mr. Burnett. Well, let me asK jiist what you mean by "beneficiary." 

Mr. Gesell. Take it this way : How many do you own in your own 
name? 

Mr. Burnett. I think I own in my own name about twenty-three 
thousand. 

Mr. Gesell. Are there any other shares over which you have control 
in the names of other persons on which you are able to vote? 

Mr. Burnett. No ; that is included in this. Some of that stock is in 
the name of bankers, but that is my entire private holding. 

Mr. Gesell. How many shares did j^ou say? 

Mr. Burnett. About twenty-three thousand. 



1 A pnotostatic copy of an industrial insurance policy issued by the then Mutual Life 
Insurance Company of Baltimore in March 1873, was subsequently entered in the record 
on September 11, 1939, as "Exhibit No. 1090" and is on file with the committee. 

2 Spencer (fordon. of ("ovinjitoii, T.iniins;, Kiiblec, Acheson & Shorb, Washinston, D. C, 
counsel for Monumental Life Insurance ("o. 



5620 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Can you tell us who the other principal stockholders 
of the company are? 

Mr. Burnett. Well, let me see. Mr. Roberts is a comparatively 
large stockholder. 

Mr. Gesell. What is his full name ? 

Mr. Burnett. Milton Roberts. 

Mr. Gesell. Is he connected with the Monumental ? 

Mr. Burnett. He is the vice president. 

Mr. Gesell. Do you know what his holdings are? 

Mr. Burnett. I do not. 

Mr. Gesell. Who are the other principal ^ockholders ? 

Mr. Burnett. Mr. A. W. Mears. 

Mr. Gesell. Is he. connected with Monumental ? 

Mr. Burnett. Only as a director. 

Mr. Gesell. Who else, sir? 

Mr. Burnett. Mr. Howard Emmons. He is the vice president and 
actively connected with it. 

Mr. Gesell. You, Mr, Roberts, Mr. Emmons, and Mr. Mears were 
the four principal stockholders of the company ? 

Mr. Burnett. Well, sir; yes. 

Mr. Gesell. Do you four gentlemen between you have control of the 
company ? 

Mr. Burnett. No, sir. 

Mr. Gesell. What percentage of stock do you own ? 

Mr. Burnett. The four of us? 

Mr. Gesell. Yes. 

Mr. Burnett. I would have to get that information. I couldn't 
tell you exactly. 

Mr. Gesell. Can you consult your colleagues and give us that figure ? 

Mr. Burnett. We have, Mr. Gesell, about 30 percent, but I neglected, 
when you asked me about the otlier stockholders, to say that there is 
a trust I created a number of years ago with safe deposit companies 
under which they hold 21,000 shares, but I have no voting stock. 

Mr. Gesell. You have the ownership of the stock, but not the right 
to vote? 

Mr, Burnett. It is an irrevocable trust turned over to the safe 
deposit company, and I don't think that I liave any rights under it 
at all. It has been so long since I saw the deed, I don't say positively, 
but I don't think I have any rights. 

Mr. Gesell. Your best estimate is that you four gentlemen have 
approximately 30 percent of the stock at the present time ? 

Mr. Burnett. Yes; 30 percent. 

Mr. Gesell. You receive a salary as chairman of the board ? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. Wliat salary do you receive? 

Mr. Burnett. Twenty-five thousand. 

Mr. Gesell. Are you active in the affairs of the company ? 

Mr. Burnett, Yes, sir, 

Mr, Gesell. Has your connection with the company always been 
on the executive side, either as president or as chairman of the board? 

Mr, Burnett. I started as attorney for the company and later be- 
came vice president, and tlien became chairman of the board and 
president, and then chairman of the board again. 



CONCENTRATION OF ECONOMIC TOWER 5Q21 

TRANSFORMATION FROM MUTUAL TO STOCK COMPANY 

Mr. Gesell. Now, directing your attention to February 6, 1928, at 
the time the company converted from a mutual to a stock company, 
can you tell me what the rights of the policyholders were prior to that 
time with respect to their powers to elect the directors of the com- 
pany? 

Mr. Burnett. Under special statute the policyholders of a thousand 
dollars or more only were entitled to vote. 

Mr. Gesell. So that at that time prior to 1928 the policyholders 
who had policies of a thousand dollars or more were the persons who 
elected the board of directors of the company ? 

Mr. Burnett. Yes 

Mr. Gesell. Was your company at that time selling participating 
or nonparticipating insurance? 

Mr. Burnett. Nonparticipating. Well, the small amount of ordi- 
nary we had was participating, but the main part of our business was 
nonparticipating. 

Mr. Gesell. The industrial business was not participating? 

Mr. Burnett. Yes. 

Mr. Gesell. Then in effect you might say the company was mutual 
only as to the ordinary policyholders? 

Mr. Burnett. Yes; and there were not very many of them. 

Mr. Gesell. What was the surplus of the company immediately 
prior to February 6, 1928 ? 

Mr. Burnett. Six hundred forty-one. 

Mr. Gesell.. $641,000? 

Mr. Burnett. Yes. 

Mr. Gesell. To whom did that money belong? 

Mr. Burnett. Under the statute it was to be held for the creditors 
of the Mutual Co. 

Mr. Gesell. You are talking about following the conversion. I 
am asking you, prior to the conversion, who owned that $641,000? 

Mr. BuRNEiT. I don't know, 

Mr. Gesell. What did the charter of your company provide with 
respect to that? 

Mr. Burnett. I am not familiar enough with it to tell you. 

Mr. Gesell. I would like to direct your attention to this portion 
of the charter, section 14. 

Mr. Burnett. Well, sir; that provision stands for itself, I can 
only tell you that I don't think that ever contemplated the distribu- 
tion of ever3i:hing that was made. An insurance company, like 
every other company, has to have some backlog ; some cushion. 

Mr. Gesell. That is a question of the disbursement of surplus. I 
am asking you who owns this surplus. This section of the charter 
which you have just read states in part as follows: 

The directors at their discretion may reserve from the receipts of each year 
a reasonable amount for an insurance from risks of policies outstanding, and 
each member of said company shall thereupon be credited with his or her 
proportion of the net profits of the premiums earned and of the profits de- 
rived from the Investments of the company and shall be entitled to assert 
such amount transferable only to the books of the company and containing a 
provision that the amount should be subject to any future losses of the 
company. 



5622 CONCENTRATION OF ECONOMIC POWER 

That would indicate that the surplus did belong to the policy- 
holders immediately prior to conversion, would it not? 

Mr. BuRisTETT. I hardly think it is fair to ask me to construe it. 

Mr. Gesell. You are an attorney, Mr. Burnett. 

Mr. Burnett. Yes; but it stands for itself. 

Mr. Gesell. Well let me ask you this : At the time the company 
converted from a mutual to a stock company, did you and the other 
officers o'f the company give consideration as to who owned this sur- 
plus of $641,000 and to whom it should be disbursed or how it should 
be accounted? 

Mr. Burnett. The statute under which the conversion was made 
stated it should be held for the creditors of the Mutual Co. 

Mr. Gesell. Well,, we will come to the statute in a minute; tha-t had 
to do with how the surplus should be treated following the conversion. 
My questions are directed as to whether you gave any consideration 
as to who owned the surplus prior to the conversion. 

Mr. Burnett. You mean did our directors have any discussion ? 

Mr. Gesell. Did your directors or officers have any discussions, 
formally or informally, about it? 

Mr. Burnett. I think not. 

Mr. Gesell. Did you seek any legal advice as to who owned that 
surplus and what should be done about it, or did you simply follow 
the terms of the statute itself? 

Mr. Burnett. Do I have to be photographed? What are my 
rights here? 

The Chairman. Do you object to being photographed? 

Mr. Burnett. I do object to it; yes. I can't answer the questions 
if that man is going to stand here and shoot that thing at me. 

Mr. Gesell. Do you recall my question? 

Mr. Burnett. I will have to ask for it again. 

Mr. Gesell. I asked whether you sought any legal advice as to 
this matter of the surplus. 

Mr. Burnett. Mr. Gesell, when our directors determined upon this 
course, under advice that we had and for reasons that I can explain 
to you if you want to know, we put the matter in the hands of our 
attorneys, Mr. Arthur Jackson was considered one of the leaders of 
our bar at the time, and %vith reference to some features of the con- 
version he consulted other attorneys, Venable, Baetjer, and Howard, 
well-known attorneys in Baltimore, with reference to our rights, and 
the whole scheme for the conversion was with Mr. Jackson. 

Mr. Gesell. Now, I intend to trace with you the details of the con- 
version ; but before we do that, I would like to ask whose idea was it 
to change this company from a mutual to a stock company ? 

Mr. Burnett. I think the first suggestion came from the insurance 
department. 

Mr. Gesell. Now, will you tell us how that worked? 

Mr, Burnett. Well, would you like me to explain the whole situa- 
tion?. 

Mr. Gesell. Certainly. 

Mr. Burnett. Under the mutual set-up we had a very small ordi- 
nary business, and only the ordinary policyholders of more than 
$1,000 could vote. We could not properly control our managers in 



CONCENTRATION OF ECONOMIC POWER 5Q23 

the field ; there were cliques being formed, there were schemes being 
formed, to secure votes to control the election ; they were careless in 
the handling of our business, they were spending a great deal of 
money that ought not to have been spent, and we couldn't correct it; 
they were permitting large balances by agents to accrue that we 
couldn't collect, and we did not have the proper control over our 
agency force. In one year — I don't remember what year it was; I 
could refresh my memory; it was '26 — our balance due by agents 
amounted to considerably over a half million dollars, and it got so 
bad that we had to do something about it, and the conversion was 
thought a means of helping us to control our branches and at the same 
time give us something to work for. When I say "us" I mean those 
who had been with the company and had built it up. 

Mr. Gesell. Weil now, I want to understand that very clearly. 
You say you think the suggestion came from the insurance depart- 
ment. Did the insurance department suggest this or didn't they ? 

Mr. Burnett. The insurance department did positively suggest it. 

Mr. Gesell. Did they originate the idea? 

Mr. Burnett. They did. 

Mr. Gesell. Do I understand that the insurance department came 
to you without any 

Mr. Burnett. No ; I didn't say that. 

Mr. Gesell. Without any previous awareness on your part and 
made this suggestion ? 

Mr. Burnett. I didn't say that. No; in our discussion of matters 
pertaining to the company with the insurance department it was sug- 
gested that we avail ourselves of the statute which had been passed 
several years before. 

Mr. Gesell. Who initiated these discussions? 

Mr. Burnett. I think it came probably through some examination 
of our affairs. 

Mr. Gesell. Then it was some examiner of the company who sug- 
gested that you change from a mutual to a stock company. 

Mr. Burnett. No; I would say that my best recollection is that it 
was the actuary. 

Mr. Gesell. What is his name ? 

Mr. Burnett. Siegk ; Arthur Siegk. 

Mr. Gesell. Your impression is that he made the suggestion? 

Mr. Burnett. I ,think that he. got back of it. 

Mr. Gesell. That isn't my question. 

Mr. Burnett. Well, I say — I mean to say, I think he was enthusi- 
astic for it ; I think he was very anxious. 

Mr. Gesell. I don't want to know who went out and beat the drum 
after it was originated. I want to know who originated the idea, Mr. 
Burnett. 

Mr. Burnett. I think the idea was originated by a suggestion made 
by him. 

Mr. Gesell. To whom did he make that suggestion ? 

Mr. BuRNEiT. I wouldn't remember. 

Mr. Gesell. What is your basis for saying that he suggested it ? 

Mr; Burnett. Because I discussed it with him. I discussed the 
matter with him. 

Mr. Gesell. Then he cama to you to talk about it ? 



5624 CONCENTRAf ION OF ECONOMIC POWER 

Mr. Burnett. He came to me, or I went to him, I don't remember 
which, 

Mr. Gesell. That is what I want to know. Did you go to him or did 
he come to you ? 

Mr. BuENETT. I don't know. I can't tell you at this late date. 

Mr. Gesell. I will give you plenty of time to think about it. 

Mr. Burnett. I don't need the time, sir. I only say that I can't 
recall. You see, when we had these examinations, at the end of the 
examinations the papers were turned over to the actuary of the 
department, and we had frequent interviews with him, and I imagine 
it was on one of his visits to my office to discuss the question of the 
examination, although I can't remember the very identical moment 
that the first suggestion was made ; I know it was made in that way. 

Mr. Gesell. It occurred in the conversation which you had with 
him, and you may have suggested it or he may have suggested it. 
Is that correct, sir? 

Mr. Burnett. I am sure that I did not suggest it. 

Mr. Gesell. You are sure he suggested it? 

Mr. Burnett. I am sure that the original suggestion came from 
him. 

Mr. Gesell. Well, now, I understood you to say that one of the 
things that prompted this change was the fact that your agency force 
was running away with your business, charging up balances, spend- 
ing money you couldn't prevent them from spending. What was the 
matter with the management of your company that they couldn't 
stop the agents in these excesses? 

Mr. Burnett. Well, we didn't have as good an organization — it 
was a small company, and the offices were some distance from the 
home office — and we didn't have as good an organization, naturally, 
as we had afterward. 

Mr. Gesell. Well, you were an officer of the company at the time, 
weren't you? 

Mr. Burnett. Yes, sir ; a very lively one. 

Mr. Gesell. You continued to be an officer equally as lively after, 
the conversion, did you not? 

Mr. Burnett. Well, not all the time afterward. 

Mr. Gesell. Immediately afterward? 

Mr. Burnett. Immediately afterward; yes. 

Mr. Gesell. Now, why was it that you were able to deal with your 
agents better as a representative of a stock-holding interest than you 
were able to deal with your agents as a representative of the policy- 
holders ? 

Mr. Burnett. We had a far more stable organization. 

Mr. Gesell. Will you explain how that is? 

Mr. Burnett. Yes; I can explain it. No clique of our managers 
or agents could get together and attempt to secure votes to control the 
company. 

Mr, Gesell. Well, your concern was then more the fear that these 
managers would oust you and your fellow officers from office than it 
was any overt act that had taken place? 

Mr. Burnett. That is not a fair construction. We had been in 
control of the company and built the company for many years. 

Mr. Gesell. But the policyholders hadn't been — were in control? 



OUNCENTliATION OF ECONOMK^ POWER 5625 

Mr. Burnett. We were in control ; we were the ones managing 
the business and there was always that condition that we had to face. 

Mr. Gesell. Now, I wish you would be specific about the condition. 
Had the managers put men on the board of directors that you didn't 
want there? 

Mr. Burnett. No; the managers had not. 

Mr. Gesell. It was merely the fact that they were threatening to 
do so, n^as it not? 

Mr. PiiRNBiT. They were forming little cliques and doing various 
things that were exceedingly annoying to us in the management of 
our business. 

Mr, Gesell. And among those things was the soliciting of proxies 
from policyholders with a view to putting people on the board of 
directors ? 

Mr. BuRNteTT. I didn't say that because they did not do that. I said 
it was the fear of that. It was the threat of that. 

Mr. Geseu:,. Is it a fact that you were afraid they might do it? 

Mr. Burnett. They were in a position to do it. 

Mr. Gesell. And had they done anything which indicated to you 
that they might do it? 

Mr. Burnett. Yes; we had known of several meetings that they 
had had to discuss it. 

Mr. Gesell. That is what I am getting at. There were plans 
afoot, then, by these managers to solicit proxies from the policy- 
holders and oust some of you fellows from the management of this 
company, weren't there? 

Mr. Burnett. No; I wouldn't say that. I don't know just how 
far they would have gone. I can only say that there were these 
cliques formed and they had some meetings for the purpose of dis- 
cussing questions of that kind. Just how far they went I don't 
know ; I wasn't invited to the meeting. 

Mr. Gesell. And you and your fellow officers were fearful lest 
these plans might mature and result in displacing some of you from 
your controlling position in the affairs of the company ? 

Mr. Burnett. Well, I don't think that is just a fair presumption. 

Mr. Gesell. I am not trying to presume anything. 

Mr. Burnett. You are answering the question. You are answer- 
ing the question. 

Mr. Gesell. Will you state it your own way, then ? 

Mr. Burnett. Well, I would say this, that in any corporation of 
that kind a change of management would be disastrous. 

Mr. Geseix. Then, the fact that these managers were also spending 
money that you didn't want them to spend was really not much of a 
factor in this thing, was it ? 

Mr. Burnett. Yes ; it was a great deal of a factor. 

Mr. Gesell. Couldn't you fire these managers? 

Mr. Burnett. Do what? 

Mr. Gesell. Fire these managers. 

Mr. Burnett. Yes; but where were you going to get others? 
It was a very difficult thing in the expansion of this business to get 
managers ; it is now, but we have better control over them now ; the 
company has grown; we have a better organization. 



5626 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Did yoii tell the insurance department that you were 
afraid that the managers were going to get new directors in? 

Mr. BuKNETT. No ; I don't know that we did. 

Mr. Gesell. What did you tell them? 

Mr. Burnett. Well, the examiners- saw the condition in the exami- 
nation. They saw the condition of our balances due by agents and 
they — probably the conversation resulted from that. 

Mr. Gesell. And it was the considered judgment of the insurance 
department that a management representing a group of stockholders 
could prevent excesses of the agency force which a management rep- 
resenting the policyholders couldn't prevent? 

Mr. Burnett. Well, that is the truth. 

Mr, Gesell. That is your position? 

Mr. Burnett. That is absolutely the truth. 

Mr. Gesell. And that position was agreed with and concurred in 
by the insurance department ? 

Mr. Burnett. Yes. 

Mr. Gesell. Did you have any talks with any other representative 
of the insurance department about this, other than this fellow Siegk ? 

Mr. Burnett. I did not, but Mr. Jackson did. Mr. Jackson took 
it up with Mr. Benson, who was the insurance commissioner at the 
time. After the determination to stock the company it was turned 
over to Mr. Jackson to work out. 

Mr. Gesell. Now you stated that this change was brought about 
in accordance with statute; the statute had been on the books prior 
to the time that these discussions took place, had it not? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. That was a statute which set up the requirements 
which a company would have to follow if it changed from the mutual 
form to the stock form ? 

Mr. Burnett.- (Nodding head, Yes.) 

Mr. Gesell. I would like to read the statute in question for the 
record. The statute states as follows [reading from "Exhibit No. 
954"] : 

Any life-, accident-, or healtti-company heretofore incorporated under the laws 
of this State without capital stock, and whether conducted upon the mutual, 
legal reserye, cooperative, or assessment plan, may,. with the consent of at least 
three-fourths of its directors, become a stock corporation, subject to the laws 
of this State applicable to such corporations, and those prescribing the form 
and manner of making amendments to articles of incorporation; upon comply- 
ing with the following conditions and regulations : Notice of the proposal so 
to change the form of the corporate organization and of the meeting of the 
members of the corporation, its policyholders or certificate holders, or by what- 
ever name its members are known, to he held for the purpose of taking action 
thereon, shall be given by publications stating the time, place, and object of 
said meeting, once a week for six consecutive weeks in at least one newspaper 
of general circulation published in the city or county in which said coiijoration 
has its principal place of business, and in at least two such newspapers if so 
many are published in said city or county. 

At such meeting there shall be required, in order to effect the change pro- 
posed, the affirmative vote in person, or the consent in writing, of at least 
two-thirds of all the members of the corporation and the concurrence of at 
least three-fourths of the directors. At such meeting, if the proposed change 
be; approved, the amount of the capital stock of the corporation shall he fixed, 
within the limits prescribed by law for such corporations, and the par value 
of the shares and number of shares into which the capital stock is to be divided 
shall also be determined. The members, policyholders, or certificate holders 
of such corporation shall have the first right to subscribe to said stock, sub- 



CONCENTKATION <Jb' ECt)NOMlC I'OWEil ♦ 5627 

jeet to audi equitable regulations as the diiectois m;iy prescribe, but all sub- 
scriptions for sliares of stock must be made and paid lor in cash and at a price 
not less than par. Upon the completion of its reorganization as a stock com- 
pany the assets, if any, of such corporation and its liabilities shall be and 
become the assets and liabilities of the stock company, except so far as herein 
otherwise provided. Said company, however, shall not be entitled to do any 
business as a stoqk corporation, until the amount of capital stock, determined 
us herein provided and as authorized by law, shall have been subscribed and 
paid for at not less than par and in accordance with the laws governing the 
formation of corporations, and shall have been invested in an amount equal to 
the par value of such stock in securities mentioned and authorized by Section 
1:0, and deposited with the Insurance Commissioner to guarantee the payment of 
policies issued by said company, and until the Commissioner shall, upon request, 
value the assets of the said company, and its outstanding policies, and shall give 
his certificate that the admitted assets of said company are sufficient to pro- 
vide reserve upon all outstanding policies as required by the laws of this State 
in relation to insurance companies, over and above all bona fide and claims 
against it, exclusive of its capital stock liability. Upon the receipt of such 
certificate from the Insurance Commissioner, the stockholders may elect from 
among themselves not less than five or more than twenty-five directors to hold 
office until the ensuing annual meeting or until their successors shall have been 
duly elected and shall qualify, and the dii'ectors so elected shall have, and they 
are hereby authorized, to exercise all the rights and powers proper to be exer- 
ciesd by the directors of such stock company under the laws of this State. 

There follows additional provision with respect to the valuation 
of the policies, the handling of dissenting policyholders, and I should 
like to offer the entire statute. 

The Chairman. Tlie statute will be received. 

(The statute referred to was marked "Exhibit No. 954" and is 
included in the appendix on p. 6184.) 

Mr. Gesell. Now, prior to this change had you approached any of 
your policyholders to find out what their attitude in this matter 
would be? 

Mr. Burnett. I did not. 

Mr. Gesell. Well, did your company? 

Mr. Burnett. Not to my knowledge. 

Mr. Gesell. It was simply a decision made by the then manage- 
ment and in consultation with the insurance department? 

Mr. Burnett. Yes, sir, 

^Mr. Gesell. Did you tell these managers who were kicking up 
such a fuss that you were planning to change the company from a 
mutual to a stock company? 

Mr. Burnett. Yes. 

Mr. Gesell. Did you tell them that in advance ? 

Mr. Burnett. To the best of my recollection; we were having a 
convention of managers in Baltimore for the ])urpose of trying to 
work up a better condition in the company, and the branch offices, 
and at that meeting we took advantage of" their being at Baltimore 
to notify them of this proposed change. 

Mr. Gesell. The formal resolution of the bo»rd of directors to 
initiate this change was made on the 6tli day of October 1927, was 
it not-1 

Mr. Burnett. I think so, 

Mr. Gesell. And the meeting of managers was held on October 
24 and October 25, was it not ? 

Mr. Burnett. I imagine you are correct; I don't remember the 
exact dates; I will take it as being correct. 

Mr. Gesell. That is your best recollection? 

Mr. Burnett, Yes, sir, I am quite sure you are rigli(. 
1:^4401— 40— pi.. 12 4 



562*^ <'<>n<;entkation of economic tower 

Mr. Gesell. Then do I understand that this meeting of niana^^ers 
was held for the purpose of discussing with them the change from 
the mutual to the stock plan ? 

Mr. Burnett. They weren't called for that sole purpose. We have 
these meetings of managers frequently, once a year, but we took ad- 
vantage of the business that was being discussed at that meeting to 
take this up with them. 

Mr. Gesell. It was just a coincidence, then, that the convention 
was called by the directors at the same meeting that the resolution 
to change the plan was adopted? 

Mr. Burnett. I wouldn't say it was a coincidence. I would say 
we may have had both ideas in mind at the time. I can't recall 
myself just now how it happened. I know they were there. We fre- 
quently have these meetings of managers and it was at this conven- 
tion that the matter was brought to their attention. 

Mr. Gesell. Then what did you tell them at that time about what 
was going to be done? Were you at the meeting? 

Mr. BuKNETi. I don't know whether I w^as or not; I don't re- 
member. 

Mr. Gesell. Do von recall what was said to the managers as to 
what the procedure would be? 

Mr. BuRNiyrr. I think a frank statement was made by somebody, 
but I don't know who made it. I can't tell >ou. You see I was not 
a manager of the agents or the superintendents. We had an agency 
manager, a vice president of the company who had that under his 
control. I didn't have it. At these meetings, Mr. Gesell, of man- 
agers and other conventions, I am frequently asked to attend to make 
some remark with reference to the company, but I do not take part 
as a rule in the work that is done. 

Mr. Gesell. Well, following this meeting at which you are certain 
that the question of the change was discussed, advertisements were 
placed in both the Daily Kecord and the Sun in Baltimore, were they 
not? 

Mr. Burnett. Yes. 

Mr. Gesell. This is the form of notice, is it not : 

A notice is hereby given under section 8 of Article 48a, Bagby's Code of 
Maryland, that a meeting of all the members and policyholders of the Mutual 
Life Insurance Company of Baltimore is hereby called to be held on Thursday, 
.January 5, 1928, at 11 o'clock a. m., at the company's ofBce, northeast corner 
Charles and Chase Streets, Baltimore, Maryland, to vote in person upon or 
give their consent in writing to a resolution to change the form of the corjwrate 
organization to a stock company. 

Paul M. Bubnett, 
President, Mutual Life Insurance Company of Baltimore. 

]Mr. Burnett. Yes, sir. 

Mr. Gesell. Was that the extent of the notice which was given to 
the policyholders, other than the notice which came to them through 
the solicitation of the proxies and consents? 

Mr. Burnett. That w^s the only notice that we published, a paid 
notice, but the Sun interviewed me with reference to it and pub- 
lislied quite an article. I can show it to you if you would like. 

Mr. Gesell. I would be glad to put the article in the record, if 
you have it there. 

Mr. Burnett. I would like to have it taken care of and have it 
back, if you don't mind. 



CONCENTRATION OF ECONOMIC POWER 5629 

Mr. Gesell. I can arrange to have it copied. I think the record 
should contain this news article. 

The Chairman. See that this is returned to Mr. Burnett. 

(The article referred to was marked "Exhibit No. 955" and is 
included in the appendix on p. 6185.) 

Mr. Gesell. That again is a Baltimore paper? 

Mr. Burnett. Yes; the largest circulation in Baltimore. 

Mr. Gesell. What percentage of your policyholders lived in 
Baltimore at this time? 

Mr. Burnett. Well, you see some years before all of our policv- 
holders were in Baltimore, all of those entitled to vote were in Balti- 
more, and we only had the one office. I don't know at the time this 
took place how many we had outside of Baltimore. 

Mr. Gesell. Your company had expanded in several States by 
this time, 1928? 

Mr. Burnett. Yes; we had — 1920 I can't tell you — Mr. Rock can 
give you these details, if you examine him, very much better than 
I can. 

Mr. Gesell. I am looking forward to the chance to examine Mr. 
Rock a little later. 

Mr. Burnett. He is more familiar with these tnings. 

Mr. Gesell. You did have policyholders outside of Baltimore? 

Mr. Burnett. Yes; we did. Would you let me ask how many 
offices we had at that time ? 

Mr. Gesell. Certainly. 

Mr. Burnett. We had 27 offices altogether. 

Mr. Gesell. You had 27 branch offices? 

Mr. Burnett. Yes. 

Mr, Gesell. How many of those were in Baltimore ? 

Mr. Burnett. Probably two. 

Mr. Gesell. So you had over 20 offices outside of the city of 
Baltimore ? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. And unless those policyholders happened to read the 
Baltimore papers they got no notice of this thin^, did they ? 

Mr. Burnett. About 70 percent of all of our business was in Bal- 
timoie because these branch offices had been established only a short 
time before this took place. The statute as I understand, required 
us to publish only in newspapers. 

Mr. Gesell. That is just what I^ am trying to bring out. As a 
practical matter, you follow just the barest minimum of the statutory 
requirements ? 

Mr. Burnett. We followed the statute. I think when we put it in 
the Baltimore Sun we put it in the largest and best advertising 
medium that we knew anything about. 

Mr. Ge^ll. You could have written these policyholders a letter. 
You dlidn't do^;hat, I take it? 

Mr. Burnett. No. 

Mr. Gesell. Tell me, how were these proxies or consents to thif 
conversion solicited, by mail ? 

Mr. Burnett. No, sir; I had absolutely nothing to do with that, 
^he only part that I played in this conversion was to have papers 
sent to me by Mr. Jackson to be submitted to the directors for the 
stockholders. I mean the policyholders. Not the policyholders, either. 



5G30 CONCENTRATION OF ECONOMIC POWER 

At the time the directors — and afterward there were some papers 
passed, I think; some papers that were passed by the stockholders, 
but anyhow, Mr. Jackson would send these papers and I would see 
that they were properly passed, and send them back. The mechanics 
of the tiling were worked by Mr. Ewell, the agency manager. 

Mr. Gesell. Mr. Ewell is dead, isn't he ? 

Mr. Burnett. Yes. 

]Mr. Gesell. Now you were the president of the company weren't 

you ? 

]\Ir. Burnett. Yes. 

Mr. Gordon (Spencer Gordon, counsel). Had you finished answer- 
ing your other question? 

Mr. Gesell. Have you finished ? 

Mr. Burnett. AMiat I was going to say was that the mechanics of 
the whole thing were turned over to Mr. Jackson and Mr. Ewell and I 
had absolutely no part in obtaining the proxies. 

Mr. Gesell. Now you were president of the company, weren't you? 

Mr. Burnett. Yes. 

Mr. Gesell. You were one of the persons named in the proxy ? 

Mr. Burnett. Correct. 

Mr. Gesell. Now my question was just asking you how were these 
proxies solicited and it seems kind of surprising to me that you haven't 
knowledge with respect to that, if you were president of the company 
and actually one of the persons named in the proxy. 

Mr. Burnett. I can tell you that the proxies were sent out to our 
managers to be distributed among the agents, and ask them to take 
them on their debits and to secure the signatures from the policy- 
holders, but I didn't do that. I knew that was done, but I didn't do it. 

Mr. Gesell. They were given to the agents ? 

Mr. Burnett. They were given to the agents. 

Mr. Gesell. Was this in the regular line of their duty or was this 
some special job that they were to do? 

Mr. Burnett. Well, I would say it was a special job. 

Mr. Gesell. Were they paid specially for it? 

Mr. Burnett. It developed several days ago that they were paid 
$10, but if I did know it at the time — I probably did — I have com- 
pletely forgotten it. I don't recall any such arrangement was made 
but it apparently was made and I don't know whether it was made 
with my knowledge or without. I probably knew it. 

Mr. Gesell. You say it developed the other day. You mean you 
learned it the other day ? 

Mr. Burnett. It developed in the course of conversation the other 
day with Mr. Rock. I think that there had been $10 paid to each 
agent for his extra services in securing these proxies, but I say that I 
had completely forgotten it if anything ever did take place although 
doubtless I knew it at the time. 

Mr. Gesell. Then you are willing to state now, as a fact for the 
record, that the agents received $10 apiece for getting in these proxies 
and consents. Is that right? 

Mr. Bubntht. Probably all of them got it, I am not certain, T don't 
know enough about it to say. That is the agent. 

Mr. Gesell. How many agents do you have ? 

Mr. Burnett. A thousand. 



CONCENTRATION OF ECONOMIC POWER 5(33^ 

Mr. Gesell. So this was an expenditure of about $10,000? 

Mr. BuKNETT. Apparently. That is a good calculation. 

Mr. Gesell. Where did the money come from, Mr. Burnett ? 

Mr. Bltenett. I don't know. 

Mr. Gesell. Will you consult your colleagues and find out ^ 

Mr. Burnett. I suppose it came in on the regular voucher for their 
salaries. The company funds Avere used. 

Mr. Gesell. That is what I am getting at. This was cohipany 
money that was used to solicit these consents. 

Mr Burnett. Are you waiting for me to answer? That is the 
statement I made. 

Mr. Gesell. Can you tell me whether there was any time limit 
placed upon these agents within which they had to get in these proxies 
signed ? 

IVIr. Burnett. Why, I think there was, I think it was 2 weeks put 
aside for the securing of these proxies. 

Mr. Gesell. Why was some time limit put upon it? 

Mr. Burnett. So we could get them in as quickly as possible and 
have it all done and over with. 

Mr. Gesell. Would you recognize the form of i?)roxy if I showed it 
(o you? 

Mr. Burnett. Yes. 

Mr. Gesell. Is that proxy which you have in your hand such a 
form as was used? 

Mr. Burnett. Yes, sir; that is correct. 

Mr. Gesell. This proxy reads as follows : 

I hereby appoint Paul M. Burnett, Howard M. Emmons, and Milton Roberts 
to be my .substitute and proxy, to vote on all matters arising at a special meeting 
(if the members of the Mutual Life Insurance Company of Baltimore called, 
under the Maryland Code (1924) Art. 48 A, Section 99, as advertised in the 
Baltimore Daily Record of October 13th, 1927, in the same manner as I might or 
could do if personally present and voting thereat, and I hereby consent to the 
change of the corporate organization from a mutual to a stock company, and 

waive subscription to said stock. Witness my hand and seal this day of 

November, 1927. 

I wish to offer this proxy for the record. 

(Representative Casey assumed the chair.) 

The Vice Chairman. It may be admitted, 

(The proxy referred to was marked "Exhibit No. 956" and is in- 
cluded in the appendix on. p. 618G.) 

Mr. Gesell. I want to call your attention to one part of that. At 
tlie same time you solicited the proxy you solicited a waiver from 
the policyholder of his right to subscribe to any of the stock, did 
you not? 

Mr. BuRNErr. Yes, sir. 

Mr. Gesell. Will you explain that for us? 

Mr. Burnett. The part that the policyholder would have been 
permitted to subscribe to would have been so small that it would 
have been practically impossible to handle it. That did not prevent 
anybody from subscribing if they wanted to do so, but upon the 
advice of Mr. Jackson my recollection is there were two or three 
forms of proxy prepared for consideration and upon the advice of 
Mr. Jackson this form was adopted. 



5G32 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Your answer, then, I take it, is that it was because 
the policyholders would get such a small amount of stock that it 
didn't seem worth while to give them the right to subscribe. 

Mr. BuKNETT. No; they had the right to subscribe, and any of 
them could assert that right who wished to, but they were asked to 
waive that right if they did not want to subscribe. 

Mr. Gesell. You were anxious to get tlwse waivers, weren't you? 

Mr. Burnett. Naturally we wanted them. That is the reason it 
is on there. 

Mr. Gesell. Why did you want them? 

Mr. Burnett. We wanted to control the company. 

Mr. Gesell. That is a very frank statement, you wanted to con- 
trol the company. 

Mr. Burnett. Naturally. 

Mr. Gesell. This was the policyholders' company that was in- 
volved, wasn't it? 

Mr. Burnett. We were proceeding under that statute. 

Mr. Gesell. That statute refers rather specifically to an equitable 
distribution of the stock to be issued following the conversion and 
it seems to me that even the mildest equities in a situation like this 
would give to the policyholder some participation in the company 
that he had helped to build up. 

Mr. Burnett. Any policyholder who applied for it got it. 

Mr. Gesell. Do you know how many policyholders actually came 
out with any stock in the situation? 

Mr. Burnett. Sixty-five. 

Mr. Gesell. Subtract from that, if you will, those policyholders 
who were officers, directors, and employees of the company. How 
many do you get? It is about three, isn't it? About three policy- 
holders who were not connected with the management of the com- 
pany who got any stock. 

Mr. Burnett. I am going into that with Mr. Rock. 

Mr. Gordon. May I ask while you are on the form of proxy, would 
it be possible for you to show for the record that that was approved 
by the Insurance Commission? 

Mr. Gesell. Yes. 

Mr. Gordon. I think your copy shows that on the foot of it. while 
we are on that part or the story. 

Mr. Gesell. I have a copy of the form of proxy which bears a 
notation, "This form approved, 'Joyce, October 13, 1927." Was he 
connected with the department? ^ ' 

Mr. Burnett. Yes; he was the deputy commissioner. 

Mr. Gesell. And he approved this form? 

Mr. Burnett. Yes. 

Mr. Gesell. Was he anxious to see you gentlemen have control of 
the company, too? 

]\Ir. Burnett. I imagine so. but I couldn't speak for him; I am 
quite confident he was very favorable to it but I don't know that 
I ever had any talks with him on the subject. 

Mr. Gesell. Mr. Jackson is dead, isn't he? 

M]-. Burnett. Yes, sir. 



CONCEJSTliATlON OF ECONOfllR* POWEli 5633 

Mr. Gesell. Mr. Burnett, can you tell me when it was that your 
company first advised the other State insurance departments that this 
change from a mutual to a stock plan was in contemplation — I am 
talking about departments other than Maryland. 

Mr. Burnett. Please don't hold me to this, but I don't think they 
were notified until after it became a fact, and we got the certificate 
probably from the insurance department and then sent it around to 
the other departments. Is that correct? Just a moment. I' don't 
definitely know about this, Mr. Gesell. I haven't these dates in my 
mind. Shall I just read this? 

Mr. Gesell. Certainly. This is a form letter that went out to the 
insurance departments? 

Mr. Burnett. I don't know whetlier it is a form letter. This was 
addressed to Mr. Burford, Insurance Commissioner, Harrisburg, Pa., 
December 28, 1927. 

Dear Sir: With the knowledge of the Insurance Commissioner of Maryland 
under whose supervision the change mentioned in this letter was being con- 
ducted and to whom any inquiries respecting the same may be addressed, I 
believe it to be my duty to inform you that the Mutual Life Insurance Company 
of Baltimore is changing from a mutual to a stock basis and I am sending this 
notice in order that you may be in a position to answer any inquiries which may 
come to your department The change is being made in strict accordance with 
the statutes of this State, it being made under the direction and supervision of 
the Insurance Department of Maryland, with whom we are consulting frequently 
and acquainting the Department with every detail connected with the change. 
We are convinced that this change will be for the benefit of the policyholders as 
well as for the financial stability of the company. Without burdening you with 
unnecessary details I may state that the company has tentatively decided to issue 
$500,000 of capital stock which must be paid in cash before the insurance depart- 
ment will approve the change, that separate accounts will be kept of the trans- 
action and equities of policyholders and stockholders and under the laws of 
Maryland none of the suri)lus existing at, the time of the change can be used 
for the benefit of stockholders but must be held for the exclusive security of 
policyholders and creditors. 

I will be very happy to give you any further intormation you may wish. 1 
feel you should be in possession of these facts and the result of the proceedings 
and change of the legal status of the company will be sent you by certified 
copy when consummated. The insurance commissioner of Maryland under the 
law will value policies and assets and determine the surplus existing at the 
time of the change, and thereafter the surplus and common stock will constitute 
a separate fund for the additional protection of policyholders. 

And it is signed by Mr. Jackson. 

Mr. Gesell. That form was sent to the departments of the various 
States in which you operated? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. The following day there was a special meeting of the 
board of directors of the Mutual Life Insurance Co. of Raltimorc at 
which you were present, was there not? ^ 

The Vice Chairman. You mean the day after that ? 

Mr. Gesell. Yes; on the 29th.^ Do you recall that meeting? 

(Chairman Ferguson resumed the Chair.) 

Mr. Burnett. It is very difficult to read this, but tnis is a paper 
that was prepared by Mr. Jackson and submitted to the directors 
and passed. This is a resolution that was offered. 

Mr. Gesell. What was the purport of that resolution, Mr. Burnett? 



'Minutes of the meeting on December 29, 1027. were entered later a.s "Exhibit No. 957." 
See appendix, p. 6186. 



5634 CONCENTRATION OF ECONOMIC POWER 

Mr. Burnett. It Avas to secure the passage of the resohition that 
Mr. Jackson wanted passed. 

Mr. Gesell. That resohition contained, among other things, a reso- 
hition of the board that the policyholders should be given a right to 
subscribe to the stock. 

Mr. Burnett. Yes. 

Mr. Gesell. Do you recall that that resolution was rescinded? 

Mr. Burnett. No ; I don't know that it was.^ 

Mr. Gesell. I would like to show you a copy of a minute of a 
regular meeting of the board held January 5, 1928, at which you 
were present. 

Mr. Burnett (examining minutes). Now, what was the question? 

Mr. Gesell. After you had an opportunity to refresh yourself with 
respect to what happened at these two meetings of the board, I was 
anxious for you to advise us as to why .this resolution which was to 
be read to the policyholders of the company giving information con- 
cerning their right to subscribe to the stock was rescinded immedi- 
ately prior to the meeting of the policyholders. 

Mr. Burnett. Where was it rescinded? 

Mr. Gesell. In the minutes you have before you, sir; the minutes 
of the regular meeting of the board held at 10 : 30 a. m. on January 
5, 1928, following a resolution of Mr. Emmons. 

Mr. Burnett. Won't you point to me the exact language? 

Mr. Gesell. The minutes of the board of directors show yourself, 
among others, being present, and they state as follows [reading from 
"Exhibit No. 957"] : 

Mr. Howard Emmons then offered the following resolution: 
"Whereas, at a meeting: of this board held on the 29th day of December 
1927 a preamble and resolution was adopted in which this board unanimously 
voted in favor of the conversion of this company to a stock company, and 
authorized the secretary of this board to present as its proxy and agent at 
the meeting of the policyholders called for January 5. 1928, a copy of the 
resolution and to read and file the same as part of the Minutes thereof. Now, 
Therefore, be it 

"Resolved,- That the said resolutions be and the same are hereby rescinded 
and annulled." 

Tliat refers to the resolution which \vas covered by the minutes 
of the meeting of the board of December 29 which I showed you a 
moment ago. 

Was it that you had some doubts as to the advisability of mention- 
ing the policyholders' rights to subscribe to stock at this forthcom- 
ing meeting? 

Mr. Burnett. I think not, Mr. Gesell, I really don't know the 
reason. That is all new to me. 

Mr. Gesell. You were present at both meetings ? 

Mr. Burnett. I Avas, yes, sir; apparently I was. 

Mr. Gesell. Have you no recollection as to why the act was taken ? 

Mr. Burnett. No. 

Dr. LuBiN. Do you have any recoHection as to whether you voted 
for rescinding that? 

JNIr. Burnett. I really do not remember this at all; I don't recall 
it. I would have to refresh my memory on the reason for it. 

]\Ir. Gesell. The minutes state the resolution Avas unanimously 
carried. 



' See infra, p. 0648. 



CONCENTRATION OF ECONOMIC! POWER 5G35 

Mr. Burnett. Would you let me consult? He is reading from 
page 71 of the Minute Book. 

Mr. Gesell. I would be perfectly willing, Mr. Burnett, to pass 
tliis point at this time and give you an opportunity to consult with 
your colleagues during the recess and we will come back to it after 
lunch .^ 

Mr. BuENETT. I wish I could remember it. I think the chances are 
we determined to find some other way. 

Mr. Gesell. What other way? 

Mr. Burnett. I don't know. 

Mr. Gesell. I wish to offer these minutes for the record. 

The Chairman. They may be received. 

(The minutes referred to were rriarked "Exhibit No. 957" and are 
included in the appendix on p. 6186.) 

Mr. Gesell. Now, Mr. Burnett, a special meeting of the policy- 
holders of the company was held on January 30, 1928, was it not? 

Mr, Burnett. Yes, sir. 

Mr. Gesell. Do you recall what took place at that meeting? 

Mr. Burnett. I would have to refresh my memory. 

Mr. Gesell. Do you recall that the minutes of that meeting refer 
to the fact that there were outstanding at that time 489,073 policies 
i-n force? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. And that consents or proxy cards had been received 
from 376,982 policyholders? 

Mr. Burnett. I know it since you refresh my memory, by reading 
the minutes of. that meeting. 

Mr. Gesell. You recognize this document I am handing you as a 
correct copy of the minutes of the meeting of the policyholders held 
on that date? 

Mr. Burnett. I am quite sure it is correct. 

Mr. Gesell. I wish to offer these minutes for the record. 

(The rninutes referred to were marked "Exhibit No. 958" and are 
included in the appendix on p. 6188.) 

Mr. Gesell. Mr. Burnett, who counted these proxies? 

Mr. Burnett. I think either Miss Sharry or Mr. Ewell. 

Mr. Gesell. Mr. Ewell was your agency supervisor ? 

Mr. Burnett. Agency manager, Miss Sharry was acting under Mr. 
Ewell as an actuary assistant. Mr. Ewell had been an actuary. I 
don't know whether he is an actuary or an assistant. 

Mr. Gesell. Did anyone else participate in the count of these 
proxies ? 

Mr. Burnet. I couldn't answer that question; I wasn't there. 

Mr. Gesell. Is it your best judgment that nobody else did ? 

Mr. Burnett. I wouldn't like to say that. 

Mr. Gesell. Did any outside authority participate in the count of 
these ballots? 

Mr. Burnett. Not to my knowledge. 

Mr. Gesell. As far as you know they were counted entirely by 
employees of the company? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. Do you recall that an objection was raised to that 
question that the poHcyholders made? 



' Tnfra, p. 5648. 



5636 CONnENTRATION OF ECONOMIC POWER 

Mr. Burnett. That objection was raised to what ? 

Mr. Gesell. To tlie fact that these proxies and consents had been 
counted entirely by persons employed by the company. 

Mr. Burnett. I do not remember anything of the kind. I don't 
think any such objection was made. 

Mr. Gesell. Do you remember comments being made on it by Mr. 
Pearson at the rheeting? 

Mr. Burnett, I remember he attended a meeting, but I don't re- 
member that any comments were made. 

Mr. Gesell. Do you remember being at the meeting? 

Mr. Burnett. Yes, sir. 

INIr. Gesell. And you have no recollection that any question was 
raised with respect to that? 

Mr. Burnett. No, sir. 

Mr. Gesell. May I ask you to step down a minute and ask Mr. 
Emmons to take the stand, please. 

TESTIMONY OF HOWARD M. EMMONS, VICE PRESIDENT AND 
DIRECTOR, MONUMENTAL INSURANCE CO., BALTIMORE, MD. 

The Chairman. Mr. Emmons, do you solemnly swear that the 
testimony you are about to give shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Emmons. I do. 

Mr. Gesell. Wliat is your full name, please, sir ? 

Mr. Emmons. Howard Emmons. 

Mr. Gesell. Are you connected with the Monumental Life Insur- 
ance Co. ? 

Mr. Emmons. I am vice president and one of the directors. 

Mr. Gesell. Did you preside at the meeting of the policyholders 
held at 11 a. m. at the company's offices in Baltimore on January 
30, 1928? 

Mr. Emmons. I imagine I called it to order, but I don't know 
whether I presided or not. 

Mr. Gesell. Do you recall that the question was raised at that 
meeting as to whether or not the contents and proxies had been 
counted by any outside auditor? 

Mr. Emmons. I do not. 

Mr. Gesell. I have in my hand a transcript of the meeting held 
at that time and I would like to read a portion of it to you to refresh 
your recollection.^ Mr. Pearson — you recall him? 

Mr. Emmons. I remember — I think I would recognize him if I saw 
him now. 

Mr. Gesell. He was the dissenting policyholder? 
. Mr. Emmons. Very much of one ; yes, sir. 

Mr. Gesell. Mr. Pearson stated he desired to be marked present. 
You stated, "Would any members like to vpte on that?" Pearson 
stated, "I would like to make a comment on the 376 to you. Have they 
l)een audited by an outside auditor?" And you stated, "They have not, 



sir." 



Do you recall that ? 



1 The transcript in question was not entered In the recoi'd. 



CONCENTRATION OF EC^ONOMK^. POWER 5637 

Mr. Emmons. I do not. If I hadn't seen it, I would not realize it 
took place. 

Mr. Gesell. Was there any other objection or discussion raised 
with respect to that matter at that time ? 

Mr. Emmons. I don't recall that there was. 

Dr. LuBiN. You would have said that ? 

Mr. Emmons. Yes, sir ; I know that Mr. Pearson wanted some stock, 
and he wanted more than was allotted to him, and he was given more ; 
but what his objections were or what he said at that meeting — he may 
have objected to the change ; yes. I don't know that as a positive fact ; 
I know there were one or two recorded votes against him. 

Mr. Gesell. Do you know, Mr. Emmons, how these proxies and 
consents were verified ? 

Mr. Emmons. I only know that Mr. Ewell had charge of it. 

Mr. Gesell. What did he do ? 

Mr. Emmons. I recall going int6 the room where he was having 
them counted, and my recollection is there were quite a number of 
our employees who took the count of the tally. 

Mr. Gesell. They were simply piling them up in stacks and adding 
them up ? 

Mr. Emmons. I don^t know whether they were stacks or how they 
were, but I know he had actual charge of that, together with Miss 
Sharry, who verified the counting, 

Mr. Gesell. Was there any verification of the signatures ? 

Mr. Emmons. I don't know tliat personally. 

Mr, Gesell. What do you know impersonally about it? 

Mr. Emmons. Only hearsay. 

Mr. Gesell. What do you know in the way of hearsay about it ? 

Mr. Emmons. Hearsay is, they would pull out the applications; I 
don't say all of them, but a number of the applications called by num- 
ber on that proxy, and compare the signatures to see if, in their judg- 
ment, they were true signatures. 

Mr. Gesell. Where did you get that hearsay? Who told you that? 

Mr. Emmons. I couldn't, tell you. 

Mr. Gesell. Is Miss Sharry still with the company? 

Mr. Emmons. No. 

Mr. Gesell. And this other gentleman is dead ? 

Mr. Emmons. Yes. 

Mr. Gesell. Do you know anybody else who was present at the 
count of the ballots ? 

Mr. Emmons. No ; I was not present, I happened to step in sev- 
eral times, but you can't count on a few hours, it is a hazy recollec- 
tion. 

Mr. Gesell. Do you recall anyone else who is now with the com- 
pany who was present at that time? 

Mr. Emmons. I do not, because I don't know. I couldn't tell you 
one person in the room outside of Mr. Ewell, but I know there were 
others. I just happened to see them when I went in the room. 

Mr. Gesell. I have no further questions for this gentleman. Will 
you resume the stand Mr. Burnett ? 

(Mr. Burnett resumed the stand.) 

Mr. Gesell. When was this plan to change from a mutual to a stock 
company finally cojisu nmated ? 



5638 CONCENTRATION OF ECONOMIC POWER 

Mr. Burnett. Would you like to know what the attitude of Mr. 
Pearson was later, before you continue, Mr. Gesell? 

Mr. Gesell. Certainly, if you wish to put that in the record now; 
but I am going to question you later on.^ 

Mr. Burnett. If you would take it up later on and let us tell you 
the whole story, I will be glad to do so. I would like to let you know 
what it was that hap[)oned with reference to Mr. Pearsoji and after- 
ward what happened. But if you want to take it up later I will be 
glad to have you do so. 

Mr. Geseijl,. I am going to take it up later, and now I would like 
to get an answer to the question I originallj- asked you. When did 
this plan go through ? When did the change become effective ? 

Mr. Burnett. Wasn't it February 6? 

Mr. Gesell. I think it was February 6, 1928. 

Mr. Burnett. Yes. 

Mr. Gespxl. That was folloAving a meeting of the board of direc- 
tors held on February 4, 1928 ? - 

Mr. Burnett. Yes, sir. 

Mr. Gesell. Do you recall that meeting? 

Mr. Burnett. Yes, 

Mr. Gesell. You were present, were you not ? 

Mr. Burnett. Which meeting are you referring to? 

Mr. Gesell. The meeting of the directors held February 4, 1928. 

Mr. Burnett. Yes ; it was a joint meeting, if I remember correctly. 

Mr. Gesell. Do you recall that at that time it was announced by 
you that subscriptions from 63 policyholders had been received and 
that those subscriptions aggregated $2,147,600? 

Mr. Burnett. That is right, 

Mr. Gesell. The stock of the companv was oversubscribed, was 
it not? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. Will you tell us what deliberations took place at the 
meeting of the board and what decisions were made with respect to 
the allocation of the stock Avhich was to be issued pursuant to the 
plan? 

Mr. Burnett. What I would tell you would be from, recollection. 
The minutes will tell you exactly what took place. 

Mr. Gesell. I would be glad to let you see the minutes to refresh 
your recollection. 

Mr. Burnett. I would be glad to have you read them. "Wliat was 
done would be found in the minutes. 

Mr. Gesell. I am going to offer the minutes in the record. I am 
anxious to know what discussions took place among you and your 
fellow directors at this meeting, and I am sure j'ou will agree with 
me that minutes of meetings don't relate everything that took place 
at the meeting. I want to know the discussion and conversation that 
was held. 

Mr.- Burnett. I think at that meeting — I don't remember who was 
presiding, but I think the meeting was run by Mr. Jackson who did 
all the talking. 



1 Infra, p. 5678. 

2 Entered later as "Exhibit No. 959." See appendix, p. 6191. 



CONCENTRATION OF ECONOMIC POWER 5639 

Mr. Gesell. You mean this meetinf^ was a cut-and-dried affair 
wliere resolutions wove offered and allotments made? 

JMr. Burnett. No; I don't think it was a cut-and-dried affair be- 
cause if I am not mistaken it was a meeting that was continued from 
a Meek before and the reason for the continuance was to give policy- 
holders an opj^ortunity to come in and make any subscriptions that 
(liev wanted. I think that was one of the reasons for holding the 
meeting over. 

Mr. (Jeskll. Now, I want to get this straight. Was the decision 
that was the effect of the allocation of the stock actually made in the 
course of this meeting that was held on P'ebruary 4, 1928? The 
discussions were all limited to that meeting, you and your directors 
didn't discuss it before the meeting in any way? 

Mr. Burnett. I think maybe some of us did, Mr. Jackson and 
some of us may have -done so, but I don't remember any of the dis- 
cussions that took ' place among the directors themselves. 

Mr. Gesell. I want to know what considerations moved the di- 
rectors in the decisions that they have made with respect to the 
allocations of this stock. 

Mr. Burnett. It was on the recommendation of Mr. Jackson. 

Mr. Gesell. Now that recommendation in effect is this, is it not 

Mr. Burnett (interposing). I think not only of Mr. Jackson, but 
I think it was done as a result of a conference between him and Mr. 
Howard, of Venable, Baetjer, and Howard, on the subject of dis- 
tribution of stock. My recollection is that there was some dissension 
at the time about some method that Mr. Jackson had adopted and 
we were unwilling to go ahead with it without hdving other counsel 
consulted and we requested him to take the matter up with Mr. 
Howard, of Venable. Baetzer, and Howard. If I am not mistaken, 
it was as a result oi that conference that this was done; or maybe 
this was done and referred to Mr. Howard afterward to find out if 
it was correct. I don't remember which now. 

Mr. Gesell. Now the decision that came out of this meeting was 
that the subscribing policyholders would get 315 shares, was it not? 

Mr. Burnett. If it says so there, it is correct. 

Mr. Gesell. That the employees would get 350 shares, that the 
managers of offices would get 1,425 shares, that the heads of depart- 
ments would get 1,100 shares, that the secretary of the company would 
get 250 shares — who is that? 

Mr. Burnett. Mr. Roth. 

Mr. Gesell. That the assistant secretaries would get 300 shares, 
that the vice president would get 500. Who is that ? 

Mr. Burnett. Mr. Emmons. 

Mr. Gesell. And that the president — that is yourself — would get 
760 shares. 

Mr. Burnett. That is right. 

Mr. Gesell. The result of that allocation was to keep the control 
of the company closely within the then existing management, was it 
not? 

Mr. Burnett. Yes, sir. 

Mr. Gesell. Now I want to know what decisions and discussions 
took place between you and your fellow directors which resulted in 
your deciding that that type of allocation was the most equitable 



5640 CONCENTRATION OF ECONOMIC POWER 

allocation which could be made under the circumstances and in 
accordance with the provisions of the statute. 
Mr. Burnett. I think- 



Mr. Gordon (interposing). Don't the minutes show it? 

Mr. Burnett. That is just what I was about to say. I think you 
will find the minutes show I was requested to leave the room while 
this discussion was going on. 

Mr. Gesell. I think the minutes show clearly that you left, as far 
as any consideration of allocation to you was concerned, but you have 
already testified, if my understanding is correct, that there were dis- 
cussions over a period of a week with counsel and other people, in- 
cluding similar people who were dissenting with respect to what 
allocations would be made. 

Mr. Burnett. I don't think I said that. 

Mr. Gesell. Well now, let's start all over again fresh, Mr. Burnett. 

Mr. Burnett. I am trying to tell you that so far as I know I do 
not recall what took place at that meeting sufficiently well to give you 
details other than the minutes, which seem to be very full, and so far 
as the allocation is concerned, I want also to say that those minutes 
show that I was absent from the room when it took place. In that 
discussion after my being absent from the room, it was determined 
the value of the services of each one of the officers who were to get a 
portion of this stock and w^hen I came back into the room the agree- 
ment had been made. 

Mr. Gesell. Now the directors have, under the statute, do they not, 
a responsibility for allocating this stock on an equitable basis. 

Mr. Burnett. Yes, sir. 

Mr. Gesell. Now, I want to know whether you participated in any 
way, not just at this meeting, but anywhere, any time, in discussions 
with respect to the general basis upon which this stock should be 
allocated. 

Mr. Burnett. I think not. i don't think there was any discussion 
prior to this meeting If there was I don't remember it. I can't 
say what talks we may have had, but I don't recall any. 

Mr. Gesell. The thing that surprises me, Mr. Burnett is simply 
this very plain fact: The result of the allocation was to place the 
controlling stock in the hands of the existing management. Now, 
that must have involved a determination of policy which you and 
your other directors would have discussed. 

Mr. Burnett. Well,. we followed the statutes. 

Dr. LuBiN. Do you deny that any conversations took place? 

Mr. Burnett. No, I would not; I think it is very likely some con- 
versations did take place among us, but they weren't of such a 
moment that I can recall them now. 

Mr. Gesell. Who would you say was the moving figure in the de- 
cisions with respect to the allocation of the stock ? 

Mr. Burnett. I don't know; I can't tell you that there was any 
one person who was responsible for it. 

Mr. Gesell. Who would you say knows something about the alloca- 
tion of the stock and the basis upon which the decision is made? 

Mr. Burnett. I can only ask you to ask the other gentlemen who 
are here and who were present at this meeting. They may know 
more about it than I do. I can't recall any one person; I think it 
was a very full discussion that took place at this meeting. 



CONCENTRATION OF ECONOMIC I'OWER 5641 

Mr. Gesell. Well then, I will ask you to step down again and ask 
Mr. Roberts to take the stand. 

The Chairman. Mr. Roberts, do you solemnly swear that the testi- 
mony you are about to give shall be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Roberts. I do. 

TESTIMONY OF MILTON E. EOBERTS, VICE PRESIDENT AND DI- 
RECTOR, MONUMENTAL INSURANCE CO., BALTIMORE, MD. 

Mr. Gesell. Will you state your full name for the record please, 
sir? 

Mr. Roberts. Milton Roberts. 

Mr. Gesell. Were you a director of the Mutual Life Insurance Co., 
of Baltimore on February 4, 1928 ? 

Mr. Roberts. I was. 

Mr. Gesell. You presided in the . absence of Mr. Burnett at the 
meeting of the directors which took place on that date, did you not? 

Mr. Roberts. Yes, after Mr. Burnett retired. 

Mr. Gesell. When did he leave the room, early or late ? 

Mr. Roberts. He left early in the discussion. 

Mr. Gesell. Can you tell us what discussions took place? 

Mr. Roberts. Well, probably no discussions of any import took 
place. The resolutions were all prepared, the minutes all written up 
by counsel, prior to the meeting, and the resolutions were offered and 
unanimously passed. 

Mr. Gesell. All right, will you step down please, sir ? Mr. Burnett, 
will you come back to the stand ? 

(^Mr. Burnett resumed the stand.) 

Mr. Gesell. Who drew up these minutes, Mr. Burnett ? 

Mr. Burnett. Who was the secretary? I think Jackson did, but 
what is the name of the secretary? 

Mr. Gesell. The minutes were drawn up before this meeting as the 
previous witness has just testified. Who drew them up ? 

Mr. Burnett. Mr. Jackson. 

Mr. Gesell. Did you see them after they were drawn up and before 
they were presented at this meeting? 

Mr. Burnett. I didn't know they were drawn up before the meet- 
ing and I don't reqall having seen them ; probably I did. 

Mr. Gesell. Did you have any discussions with Mr. Jackson about 
the question of the allocation? 

Mr. Burnett. Not to my knowledge.' 

Mr. Gesell. Did Mr. Jackson lust undertake this allocation on his 
own? 

Mr. Burnett. Did I understand you to say that Mr. Roberts testi- 
fied that these minutes were all written up before the meeting? 

Mr. Gesell (to the reporter)'. Will you read back that part of the 
testimony, please? 

The Reporter [reading] : 

Mr. Geseu,. Can you teU us what discussions took place? 

Mr. RoBKRTS. Well, probably no discussions of any import took place. The 
resolutions were all prepared, the minutes all written up by counsel prior to the 
meeting, and the resolutions were offered and unanimously iut&>tied. 



5G42 CONCENTRATION OF E(]ONOMIC POWER 

Mr. Burnett. We will assume he meant the form of ..the resolution. 
I can hardly believe he meant the form of the resolution. 

Mr. Gesell. Mr. Roberts, will you resume the stand again, please? 

(Mr. Roberts resumed ,the stand.) 

Mr. Geseul, Mr. Roberts, were these minutes prepared in the form 
in which they appear in the minutes book at the present time? 

Mr. Roberts. The form of the resolution that was to be presented to 
the meeting, and the proceedings were ordered just the way you see 
them in this book. Now, with reference to the question of allotments 
and things of that kind, that all took place in the board. But the 
method of the procedure was all outlined. 

Mr. Gesell. But the allocation was not made? 

]Mr. Roberts. No ; the allocations were made in the board. 

Mr. Gesell. Now, very well ; will you tell us what discussions took 
place among the members of the board with respect to the allocation ? 

Mr. Roberts. Well, I can only give you the basis of the discussion ; 
the determination was to keep the stock control among the officers, the 
agents, and the clerks — the employees of the company. That was the 
basis of the discussion. The allotments were discussed on the basis of 
keeping tliat situation just as it is set out in these minutes. 

Dr. LuBiN. May I ask a question at this point just to clarify it in 
my own mind? In view of the fact that the only subscriptions. came 
from employees or officers of the company with the exception of four 
or five, I understand, why did you have to discuss the question as to 
whether you are going to keep control of the officers, agents, and 
managers ? You already had it because they were the only ones who 
had subscribed to the stock. 

Mr. Roberts. The question of the amounts and how the stock would 
be distributed, in order to keep out of the same difficulties that we 
liad been in prior to that time so that the management and the opera- 
tion of the company would be entirely with the officers, the agents, and 
the men in the key positions. 

Dr. LuBiN. They were the only ones who could, because they were 
the only ones who \v3re subscribing for stock. 

Mr. Roberts. Th c is right ; the directors subscribed. I don't know 
the amount of the subscriptions, I can't tell you that, but that was the 
purpose in the way the allotments were made: 

Mr. Gesell. Well, if there were no substantial number of people 
who were just pure, plain, everyday policyholders of the company who 
subscribed to the stock, you would simply have the problem. of deter- 
mining what percentage you would give the officers, what percentage 
you would give the directors, and what percentage you would give to 
the employees. Is that not correct? 

Mr. Roberts. Well, the policyholders were allotted five shares, and 
then the 

The Vice Chairman (interposing). Mr. Roberts, that seems li^e 
a perfectly simple question. Will the reporter r^ad the question, 
please. 

(The reporter read the question.) 

Mr. Gesell. Well, now, I want to know what the basis of the deter- 
mination was for giving 350 shares to employees, 1,425 shares to man- 
agers and officers, 1,100 shares to heads of departments, and larger 
individual blocks to certain officers. What factors were considered 
by the boaid in making this equitable distribution of stock? 



CONCENTRATION OF ECONOMIC POWER 5648 

Mr. Roberts. Just exactly as set out in the minutes, Mr. Gesell. 

The minutes read: 

Be it further resolved. That the Board is of the opinion that the balance of 
the stock shall be allotted to policyholders of the Mutual Life Insurance Com- 
pany holding an executive position therewith either as an oflScial or departmen- 
tal manager of the company or other capacities, in, order that the present 
management, control, and operation of the company niay continue in the same 
hands and under the same management which has successfully conducted the 
company for years past and according to said opinion the board allots the 
following classes of policyholders and the number of shares. 

That was the theory. 

Mr. Gesell. And you are unable to assist this committee by giving 
any further information with respect to the actual discussions that 
took place between you and your fellow directors other than these 
stereotyped minutes? 

Mr. Roberts. Do you mean at this meeting? 

Mr. Gesell. Yes. 

Mr. Roberts. The motive all through the conversion has been set 
out just about as well as I could state it in these minutes, and that 
was the thing that we were determined to accomplish^ 

The Vice Chairman. That is, the discussions must have taken 
place prior to this meeting. 

Mr. Roberts. I was associated, in a measure, with Mr. Jackson, to 
look after some of the details, not with respect to the legal aspects of 
it entirely, but simply with reference to consultation as we went 
along and in order to comply with the law and to do the necessary 
dietailed work that would accomplish the conversion in a legal 
manner. 

The Vice Chairman. The manner in which the stock should be 
divided must have been determined before this meeting. 

Mr. Roberts. I don't recall any discussion as to the manner of the 
division of the stock except that the stock would be distributed, if 
possible, among the policyholders who were officers, managers, and 
executives of the company. 

The Vice Chairman. But you think it was at the meeting that the 
amounts to be distributed among them was determined ? 

Mr. Roberts. Well, you and I know what directors' meetings are. 

The Vice Chairman. Yes; that is why I asked the question. 
Wasn't it settled before the meeting pretty well ? 

Mr. Roberts. I wouldn't say it was settled definitely before the 
meeting, but I think there was a discussion, maybe, as to how the 
1 lagement could be controlled or retained in this group. 

.'he Vice Chairman. Prior to the meeting you had a discussion, 

■ example, as to what Mr. Burnett's past services for this company 
m^ght be worth in the manner of stock ? 

Mr. Roberts. I don't think' there could be much doubt that we dis- 
cussed the merits of each executive or each clerk in order to sort of 
consolidate. 

Mr. Gordon. May I suggest when you say "the existing manage- 
ment," you mean the officers, agents, employees, a great number of 
people who were connected with the company ? 

Mr. Gesell. Everybody but the policyholders. 

Mr. Gordon. All these people were policyholders, Mr. Gesell. 

Mr. Gesell. Now, Mr. Burnett, do you recall the question I asked 



y<r>u? 



124491—40 — pt. 12- 



5644 CONCENTRATION OF ECONOMIC POWER 

Mr. Burnett. I do ; I recall the question you asked me. 

Mr. Gesell. Can you give me an answer ? 

Mr. Burnett. I can only say to you that I do not recall having any 
discussions about the allocation of the stock prior to this meeting, 
nor did I participate in the discussion that took place on that subject 
at the meeting. 

Dr. LuBiN. Mr. Burnett, as president of the company at that time, 
as I understand your statement, you weren't interested in how these 
shares were allocated, and all you did was prove that you took no 
part in any discussion as to how they should be distributed, or who 
should get them, but you just said, "Boys, if this is the way you want 
it, I approve of it" ? 

Mr. Burnett. No; I did not make any statement of that kind. 
I was vitally interested, but where you try to pin me down to con- 
versations, I can't recall it; it has been nearly 11 or 12 years; I can't 
recall any conversations that we had and I can't recall anything that 
took place as to the distribution of this stuff prior to this meeting. 

The Vice Chairman. And came to at least an approximation of 
what each was going to get in the amount of stock ? 

Mr. Roberts. I think undoubtedly there would be a reasonable 
assumption that there was some idea as to how the allotments would 
be made. 

Mr^ O'Connell. Was it your theory that the basis of the allocation 
of the stock was in the nature of additional compensation to the 
existing oflScers and management for the services that they had 
rendered to the company in the past? 

Mr. Roberts. No ; I think because the stock was paid for in cash by 
these subscribers. 

Mr. O'Connell. I take it, it was a pretty good buy, too. 

Mr. Roberts. But the relative importance and the long years of 
service, the value of the person, all of those things were, undoubtedly 
taken into consideration. I am only saying now what I think I would 
have discussed at the time the matter came up. I think that is 
natural to assume, that you would discuss these things. 

Mr. O'Connell. I think it is, too. It seems to me you are being 
a little less than frank in telling us what it seems to me you should 
know, in view of your interest in the situation and the way you came 
out of it. 

Mr. Roberts. I didn't get your remark. 

'Mr. O'Connell. It seems to me you have been a little less than 
frank. 

Mr. Roberts. A little less than frank? 

Mr. O'Connell. Oh, yes. It seems to me highly improbable that 
you could have taken the part that you apparently took in this trans- 
action, and were an active member of the management of the com- 
pany during this conversion period, and not be in a position to tell 
us more about what motivated you people; what you had in mind 
and the basis for what took place. 

T*Ir. Roberts. I don't know how much more frank I could be, sir. 

Mr. O'Connell. I don't, either. 

Mr. Roberts. We have the very purpose expressed in the minutes 
as to what we were attempting to accomplish, and that was the 
motive, and I can only 



CONCENTRATION OF ECONOMIC POWER 5645 

Mr. O'CoNNELL. Would it be fair to say that your purpose was to 
transfer the ownership of this company from the ordinary life policy- 
holders to the existincr manajT^ement of the company? 
. Mr. Roberts. Was it fair? 

Mr. O'CoNNELL. Would it be fair to say that the purpose of the 
whole transaction was to transfer the ownership of this company from 
an individual policyholder to the existing management? 

Mr. Roberts. You couldn't stop there in answering that question. 

Mr. O'CoNNELL. Will you add something to it? 

Mr. Roberts. The purpose, as disclosed, was to insure the growth 
of the company and the stability of the company and avoid all of 
the annoyances that we had had up to this time and prior to that. 

Mr. O'CoNNELL. And you couldn't achieve the growth that you 
hoped for without transferring the ownership, too ? 

Mr. Roberts. If you will permit me, I will answer you this way, 
based on events that have transpired : We wanted a capable and effi- 
cient orga-nization. Isow the gentlemen that were associated in the 
management of the company at the time were businessmen. I 
wouldn't say they were skilled insurance men. 

Mr. O'CoNNELL. You mean the officers of the company at that time ? 
The management of the company were not? 

Mr. Roberts. I don't say they were skilled insurance men. 

Mr. O'CoNNELL. They were skilled? 

Mr. Roberts. They were not skilled insurance men. They had a 
knowledge of business operations, and we had been sorely put to 
securing the kind of field service that we needed in order to get the 
greatest efficiency out of our agents. Now the result of that has 
been that the man who is now the president of this company came 
to the presidency as a result of this very act that we did. He was 
a man that carried a book on the streets in one of our debits in one 
of our western cities. 

Mr. O'CoNNELL. Couldn't that man have become president under 
the mutual set-up ? 

Mr. Roberts. You would not have had a company if a transition 
of that kind had taken place under the way mutual companies are 
set up from time to time, and you gentlemen have plenty of prece- 
dents. 

Mr. O'CoNNELL. Was any upset as a mutual company, in terms of 
its management, other than being upset by the possibility there 
might be a cliange in the management? 

Mr. Roberts. I don't recall any serious movements to oust the 
management. 

Mr. O'CoNNELL. Was there any serious change in the manage- 
ment? 

Mr. Roberts. But v/e had' a continuous more or less, you might 
call it, conspiracy in the field, among certain managers who wanted 
to haye official positions. 

Mr. O'CoNNELL. Was there any substantial change in the man- 
agement of this company after the conversion? 

Mr. Roberts. Any substantial change? 

Mr. O'CoNN^rx. Change in the management; I mean the board 
of directors, tht officers of the company ? 

Mr. Roberts. No; not substantial, except that Mr. Rock was pro- 
moted gradually from the field to the home office, and then finally 



5646' CONCENTRATION OF ECONOMIC POWER 

to the position of president, and the growth of the company from 
that time on is entirely accountable to him. 

Mr, Gesell. I would like to offer for the record at this time the 
minutes of the meeting of the board of directors held February 4, 
1928, please. 

The Chairman. They will be received. 

(The minutes referred to were marked "Exhibit No. 959" and 
are included in the appendix on p. 6191.) 

Mr. Gesell. I also would like to offer for the record a certificate 
of the State Insurance Department of Baltimore, Md., certifying 
that the Mutual Life Insurance Co. has complied with all the laws 
of Maryland in relation to its conversion from mutual to a stock 
company. 

The Chairman, It will be received in evidence. 

(The certificate referred to was marked "Exhibit No. 960" and is. 
included in the appendix on p. 6194.) 

Mr. Gesell. Now, if the committee please, I think this might be 
a good adjourning point. 

Mr. O'Connell. Just a minute. Mr. Burnett, I understood you 
to say that you presided over this meeting of February 4 when the 
meeting opened but that you withdrew before any consideration 
was had as to the number of shares to be allocated to you. Is that 
correct ? 

Mr. Burnett. Yes, sir. 

Mr. O'Connell. I take it you withdrew out of a sense of delicacy 
because of your participation in stock was about to be discussed. 

Mr. Burnett. That is correct. 

Mr. O'Connell, Was there any distribution of stock made at that 
meeting to other members of the board of directors or officers who 
were present at that meeting ? 

Mr. Burnett. While I was there? 

Mr. O'Connell, No ; at the meeting, whether you were there or not. 

Mr. Burnett, I think the minutes show that the allocation of all 
the stock was made at that meeting, doesn't it ? 

Mr, O'Connell, Do you happen to know whether any other mem- 
bers of the board exhibited the same sense of delicacy that you did and 
withdrew from the meeting before their allocation was discussed ? 

Mr. Burnett, The minutes may show it. I don't recall it myself. 

Mr. O'Connell. All you recall is that you withdrew ? 

Mr. Burnett. I know I withdrew. 

Mr, Gesell. I believe the minutes show that the vice president 
withdrew. There was an allocation, was there not, at that time, how- 
ever, to persons who were present at the meeting ? 

Mr. Gordon. Mr. Gesell, wouldn't it be well to read the minutes? I 
don't believe the board knows exactly what happened. There were 
only five shares given to each director who was not an officer, and, the 
officers who got substantial amounts withdrew. Mr. Gesell told me it 
would be all right to address him from time to time, with the permis- 
sion of the Committee, in order to make sure a particular point was 
covered. 

Mr. Burnett. I think you made a remark just now that you imag- 
ined the stock was a pretty good investment. Did I so understand 
you? 



CONCENTRATION OF ECONOMIC POWER 5647 

Mr. O'CoNNELL. I will say that; I may have said that; I would be 
willing to say that. 

Mr. Burnett. In Mr. Roberts' testimony I just wanted to say to you 
that the vice president, who was allowed 500 shares, thought so little 
of it that he refused to take the 500 shares. 
Mr. O'CoNNELL. What did you do about your 750? 
Mr. Burnett. I took all of mine ; I had enough faith in the company 
to take it, but I am willing to say to you that even Mr. Rock, the presi- 
dent of the company, refused to take all he could take, because he 
didn't have the confidence in it, and there were a great many others 
who refused to take their allotment because they did not have confi- 
dence in the success of the company. 

Mr. Gesell. As a practical matter, Mr. Burnett, since 1928 your 
company has* accumulated a surplus of over $2,000,000, declared divi- 
dends in the amount of $1,830,000, and has paid stock dividends in 
the amount of $1,500,000. So it was a pretty good investment, 
wasn't it ? 

Mr. Burnett. It was a pretty good investment, but I am only try- 
ing to tell you that if it hadn't been a good investment we probably 
wouldn't be here today. I would also like to compare it with the 
mutual company that was in existence at the same time. There was a 
mutual company in Maryland, a very good company; I don't criti- 
cize it for one moment. The man who had charge of its destinies was 
a very good friend of mine and a very prominent citizen in Baltimore. 
Just prior to this conversion he used to twit me a good deal on the 
size of our respective companies — that his company was almost double 
the size of ours — and I had to take a good deal of joshing from him 
on account of it. It was good-natured and pleasant. We had assets 
then, probably, of two-thirds the assets of this mutual company. 

Now, since this transfer, since this conversion our assets are 
almost double his today. So it shows that under the conversion 
and under the stock control we have made a great success, where 
under the mutual system his company has gone alon^ about on an 
even keel all the time and has not made any particular success. 
It is a good company ; I am not criticizing it. 

Mr. O'CoNNEiZi. I hadn't thought we discussed the relative merits 
of stock companies against mutual companies. 

Mr. Burnett. The inference from the examiner was that we would 
have made the same success as a mutual company. 

Mr. O'CoNNELL. I didn't think that. 

Mr. Burnett. I think that has gone all through. "Why didn't you 
do this and that, and wouldn't it have been the same if it was a 
mutual company?"- 

The Chairman. Mr. Gordon, the full minutes are inserted in the 
record. 

Mr. Gordon. I wasn't sure the committee knew at this point what 
was in them, and we had had so much discussion of them, and I 
thought it would be quite short and make it a little clearer. 

The Chairman. The committee will take a recess until 2 o'clock. 
• (Whereupon, at 12 : 20 noon, a recess was taken until 2 p. m.) 



5648 CONCENTRATION OF ECONOMIC POWER 

AFTERNOON SESSION 

The subcommittee resumed at 2 : 15 p. m. on the expiration of the 
recess. 

The Chairman. Mr. Gordon, there are only two members of the 
committee here. 

Mr. Gordon. We are happy to do anything. 

The Chairman. Everything will be in the record. The committee 
will be in order. Are you ready to proceed, Mr. Gesell ? 

Mr. Gesell. Yes, sir; will you resume the stand, Mr. Burnett? 

TESTIMONY OF PAUL M. BURNETT, CHAIRMAN OF THE BOARD OF 
DIRECTORS, MONUMENTAL LIFE INSURANCE CO.— Resumed 

Mr. Gesell. Mr. Burnett, before the recess I called your attention 
to minutes of the meetings of the board of directors of the Monu- 
mental, held on December 29 and January 5; the minutes of the 
latter meeting rescinding a preamble and resolution adopted by the 
board at the previous meeting and I suggested that you study the 
matter over the recess and explain to the committee following 
recess the reasons that prompted the recision of that resolution.^ Am 
I correct in saying that you have studied the situation and established 
to your satisfaction why the resolution was rescinded ? 

Mr. Burnett. I think I can tell you to a certainty, Mr. Gesell. 

Mrt Gesell. I wish you would do so. 

Mr. Burnett. I was a good deal embarrassed when you called 
that to my attention this morning because it was new to me and I 
didn't know it was there, to tell you the truth. But on page 70 
you will find that the directors rescinded the resolution of its board 
of December 24 which confirmed or approved the conversion. It is 
very evident that that was done because in the law it states that the 
directors must concur in the determination of the policyholders, 
whatever that might bCj as to the conversion. 

Mr. Gesell. And this meeting was in advance of the policy- 
holders' ? 

Mr. Burnett. This was in advance of it and necessarily when it 
was called to Mr, Jackson's attention he thought it ought to be 
rescinded and then passed afterwards, which was done after the 
policyholders' meeting in which the conversion was approved; the 
same resolution was passed which had formerly been rescinded. 

Mr. Gesell. And it is your belief from reading the minutes and 
from your knowledge of what took place at those meetings that a 
resolution on December 27 relating to the subscription rights of the 
policyholders was never rescinded at the subsequent meeting? 

Mr. Burnett. Let me see. 

Mr. Gesell. That the resolution contained in the minutes of De- 
cember 29, 1927, relating to the subscription rights of the policy- 
holders was never rescinded? 

Mr. Burnett. No; I am quite sure it was not. 

Mr. Gesell. Now may I ask you to step down again? 

(Witness leaves stand.) 



» See supra, p. 5634. See also "Exhibit No. 957," appendix, p. 6186. 



CONCENTRATION OF ECONOMIC POWER 5649 

Mr. Gesell. Will you take the stand, Mr. Roberts? 

(Mr. Roberts resumes the stand.) 

Mr. Gesell. We were discussing, Mr. Roberts, the meeting of Feb- 
luary 4, 1928.^ Was it the practice in the company, or what was 
the practice at that time — was it the practice to paste the minutes 
in the minute book subsequent to the meeting or at the meeting? 

Mr. Roberts. I really couldn't answer that question, sir. I wasn't 
entrusted with this book until some years after. 

Mr. Gesell. Your signatures appear on this. Did you sign them 
after the minutes were in the book or at the meeting or when? 

Mr. Roberts. I would say at the time of the meeting. 

Mr. Gesell. And is it your best judgment that the' minutes are 
pasted into the minute book at that time? 

Mr. Roberts. Or very soon after the meeting, by the secretary. 

Mr. Gesell. I was interested to notice that the figures with respect 
to allotment of the shares appear in tjpe with the rest of the form. I 
was wondering whether you were still definite in your position that 
those allotments had not already been typed into the form of resolu- 
tion at the time the meeting was convened. 

Mr. Roberts. I wouldn't say that they were not. 

Mr. Gesell. You think those allotments were already typed in? 

Mr. Roberts. I think that the allotments were made and passed on 
by the board and then I think that the typed copies were made, either 
simultaneously or shortly afterward. 

Mr. Gesell. You don't think the allotments had been already typed 
into the form of resolution at the time of the meeting ? 

Mr. Roberts. Well, sir; I would be of the opinion that we knew 
really what we were going to do. 

Mr. Gesell. Ahead of time. 

Mr. Roberts. Ahead of time. 

Mr. Gesell. One other thing. I want to direct your attention spe- 
cially to the allocation of 760 shares to Mr. Burnett. I want to ask 
3^ou on what basis it was the board of directors determined that that 
was the amount of shares he should receive ? 

Mr. Roberts. I couldn't give you the basis, Mr. Gesell. It was 
determined that the allotments as made and set out as you see them 
there were to the best interest and advantage of the company. 

Mr. Gesell. How did you hit on this figure of 760 shares? 

Mr. Roberts. Well 

Mr. Gesell (interposing). From the problem of equitable a lot- 
ment you must have had some standard. 

Mr. Roberts. I can only say that in alloting this stock we consid- 
ered the service and value of the official, and if you go back over the 
history of the company you will find that Mr. Burnett's connection 
with it dates way back in the nineties and he had been practically 
the man who had carried the burdens of the company for years and 
had given his time and attention to it, he had gone through all its 
vicissitudes and exigencies and it probably was determined that that 
allotment was a fair allotment for him. 

. Mr. Gesell. And these allotments to the officers and managers and 
other people in the operation A the company were made on a basis 



^ Supra, p. 5641. Also "Exhibit No. 959," appendix, p. 6191. 



5650 CONCENTRATION OF ECONOMIC POWER 

of a rough estimate of the value of the various individuals to the 
work of the organization. 

Mr. Roberts. I think that was used as a basis, Mr. Gresell. 

Mr. Geselx.. I have ho further questions at this time, unless some 
of the members of the committee have. 

I would like to call Mr. Frank Mormann. 

The Chairman. Do you solemnly swear that the evidence you are 
about to give in this proceeding will be the truth, the whole truth, 
and nothing but the truth? 

Mr. Mormann. Yes, sir. 

TESTIMONY OF FRANK MORMANN, BALTIMORE, MD., FORMER 
AGENT, MUTUAL LIFE INSURANCE COMPANY OF BALTIMORE 

PROXY SOLICITATION 

Mr. Gesell. Will you state your full name for the reporter, please, 
sir? 

Mr. Mormann. Frank Mormann, M-o-r-m-a-n-n. 

Mr. Gesell. Where do you live? 

Mr. Mormann. 4526 Schenley Road, Baltimore. 

Mr. Gesell. Are you in this business at the present time? 

Mr. Mormann. No, sir. 

Mr. Gesell. Did you used to work for the Monumental Life In- 
surance Co.? 

Mr. Mormann. I never worked for the Monumental ; I worked for 
the Mutual. 

Mr. Gesell. That was the name of the company before it was 
changed to Monumental? 

Mr. Mormann. Yes. 

Mr. Gesell. Were you working for the company at the time it 
changed from a mutual to a stock company? 

Mr. Mormann. Yes, sir. 

Mr. Gesell. What was your job? 

Mr. Mormann. I .was an agent on the street ; at the end of the week 
I worked in the office part of the time. I just can't give you the 
exact dates of that period when I worked in the office. 

Mr. Gesell. Was that in Baltimore? 

Mr. Mormann. Yes, sir. 

Mr. Gesell. Did you sell insurance? 

Mr. Mormann. Yes, sir. 

Mr. Gesell. Did you have an industrial debit or an ordinary debit 
or both ? 

Mr. Mormann. Industrial first and then ordinary and industrial 
later. 

Mr. Gesell. To whom were you responsible? 

Mr. Mormann. I was responsible first 

Mr. Gesell (interposing). At the time of this conversion. 

Mr. Mormann. To Mr. Harris, who was in charge. 

Mr. Gesell. Was he a manager? 

Mr. Mormann. Yes; I believe he is in Pittsburgh today. 

Mr. Gesell. Were you asked in connection with your duties to 
solicit proxies and consents from policyholders agreeing to the 
change of the company from a mutual to a stock company? 



CONCENTRATION OF ECONOMIC POWER 5651 

Mr. MoRMANN. Yes, sir. 

Mr. Gesell. Who asked you to do that? 

Mr. MoRMANN. It generally went through Mr. Harris' hands to the 
assistant superintendent. 

Mr. Gesell. You mean Mr. Harris would ask the assistant super- 
intendent to ask you to solicit them ? 

Mr. MoRMANN. Well, the first time it came up on the floor at a 
meeting. 

Mr. Gesell. Tell us about those meetings. 

Mr. MoRMANN. One man's name I can't recall; there was a Mr. 
Harris, there were several different ones, Mr. Gesell. 

Mr. Gesell. What did they say? 

Mr. MoRMANN. Well, they more or less gave a sales talk, that is 
to get these things in, and they made an offer. The first one would 
tell you to get it in in 2 weeks, I think, if I remember correctly. If 
you did, you received $10 bonus. But that didn't go because I know 
the major part of them did not get in in 2 weeks, because it couldn't 
be done in 2 weeks anyhow. 

Mr. Gesell. So they came back and asked you to do it again. 
~^ Mr. MoRMANN. Well, no ; you just continued. I think I took about 
6 weeks myself. 

• Mr. Gesell. Did they offer any other inducement other than $10 
for getting them ? 

Mr. MoRMANN. No ; they paid »us $10 personally. That is the only 
inducement we got, and then during the talks on the floor they said 
the company would be in a better position and possibly would be 
able to pay dividends later on, and so forth, more or less a sales 
talk. 

Mr. Gesell. Well, now, how many of these proxies or consents did 
they give you ? 

Mr. MoRMANN. Well, I had in the neighborhood of — when I turned 
them in, I won't say I had them signed, but when I turned them in, 
I had in the neighborhood of twelve hundred. 

Mr. Gesell. You turned in twelve hundred executed? 

Mr. MoRMANN. About tHat. 

The Vice Chairman. What were these consents ; consents to change 
from a mutual to a stock company? 

Mr. Gesell. That is right. 

The Vice Chairman. On the part of the policyholders? 

Mr. MoRMANN. Yes, sir. 

Mr. Gesell. Have we that form of consent that was introduced in 
the record this morning? ^ Is this the form of consent which you 
were asked to solicit? 

Mr. MoRMANN. Yes, sir. , 

Mr. Gesell. And you say you had about twelve hundred of those ? 

Mr. MoRMANN. About twelve hundred ; yes. 

The Chairman. Where is this gentleman located? 

Mr. Gesell. In Baltimore, Md. 

Mr. MoRMANN. Baltimore, Md., 4526 Schenley Road. 

The Chairman. He is an agent of the company ? 

Mr. Gesell. He was an agent at that time. 



> See "Exhibit No. 956," appendix, p; 6186. 



5652 CONCENTRATION OF ECONOMIC POWER 

Mr. MoRMANN. Yes; I was with the company. I went with the 
company in the fall of 1913 or 1914. I can't remember just when. 
It might have been 1912. 

Mr. Gesell. When did you leave the company ? 

Mr. MoRMANN. I was taken down with heart trouble and a nervous 
break-down. 

Mr. Gesell. When was that? 

Mr. MoRMANN. That happened just seven years, I think, this 
Thanksgiving week. 

Mr. Gesell. So you stayed with the company for several years 
afterwards ? 

Mr. MoRMANN. No; I did not after I had my break-down. 

Mr. Gesell. No; you stayed with the company after the 
conversion ? 

Mr. MoRMANN. Oh yes. 

The Chairman. Are you connected with the company now ? 

Mr. Mormann. No, sir. 

Mr. Gesell. What business are you in ? 

Mr. Mormann. Now ? None at all. I am not able to work. 

The Chairman. You are retired? 

Mr. Mormann. Yes,, sir ; you might call it that. 

Mr. Gesell. You said that you had twelve hundred of these proxies 
which you turned in. 

Mr. Mormann. Approximately; yes. 

Mr. Gesell. Consents. Did you get bona fide policy signatures on 
all of them? 

Mr. Mormann. Positively not. 

Mr. Gesell. Will you tell us what your practice was in connection 
with these consents? 

Mr. Mormann. Well, in the first place it was simply impossible to 
get them. I recall a particular case, I remember this woman paid on 
27 contracts and I asked her — I did very little explaining, in fact I 
wouldn't have had time even in 6 weeks to do proper explaining and 
get them in. Naturally she asked me, "Is it all right?" 

I said, "Yes; it is all right." 

She signed for everybody she had insurance for. 

Mr. Gesell. You mean she had 27 of them ? 

Mr. Mormann. She had two policies out of the whole lot on her 
own life. 

Mr. Gesell. Did you sign some of these yourself? 

Mr. Mormann. I sure did, or I couldn't get them. 

The Chairman. Did you report that to the company ? 

Mr. Mormann. No ; they wouldn't accept it. 

Mr. Gesell. Was that the general practice among the men at the 
time ? 

Mr. Mormann. I believe it was. 

The Chairman. Speak from your own knowledge. 

Mr. Gesell. I am asking him with respect to his own knowledge, 
Mr. Chairman. 

Mr. Mormann. I believe that was general. 

Mr. Gesell. How many agents were there in your office? 

Mr. Mormann. I can't recall ; I think there must have been some- 
where around 50. 

Mr, Gesell. About 50? 



CONCENTRATION OF ECONOMIC POWER 5653 

Mr. MoRMANN. I think so; I am not sure about the number. 
Mr. Gesell. Did you see other agents sign these proxies ? 
Mr. MoRMANN. Nobody ever signed them in the office. 
Mr, Gesell. Did you see any of them sign them ? 

Mr. MoRMANN. No. 

Mr. Gesell. Did you hear the men talking about it ? 

Mr. MoRMANN. Oh, here and there ; yes, sir ; the men talked about it. 

Mr. Gesell. I beg your pardon ? 

Mr. MoRMANN. Just here and there men would say, "Well, I got 
mine"; they would say, "I got 'em"; that is about all. They meant 
by that that they got 'em and didn't care how they did get 'em. 

Mr. Gesell. Have you any reason to know whether or not the man- 
agers or the assistant managers knew of this practice ? 

Mr. MoRMANN. If they didn't, they didn't know their business. 

Mr. Gesell. Wliat do you mean by that ? 

The Chairman. You are not answering his question. He asked you 
if you knew. 

Mr. MoRMANN. I don't know personally. They should have known. 

The Chairman. He didn't ask you to guess about it. 

Mr. Gesell. Did you ever have any conversation with any managers 
or assistant managers in which the matter was discussed ? 

■ Mr. MoRMANN. No. 

Mr. Gesell. Was there considerable pressure upon you to get the 
proxies in within a specified period of time? 

Mr. MoRMANN. Oh, yes; they wanted them in. There were meet- 
ings every week on the floor practically through the period. 

Mr. Gesell. Can you give us any idea, more specifically than you 
have, of the kinds of things which were said by the people presiding 
at the meetings? 

Mr. MoRMANN. Well, they told us in a general way that the company 
would be in a better position to do a bigger business and open up 
more offices and in a general way enhance the policyholders, and they 
said it was all along those general lines. 

The Chairman. Who told you that? 

Mr. Mormann. Why, the different ones. 

The Chairman. Name some of them. 

Mr. Mormann. Well, one was Harris. 

Mr. Gesell. He was the manager, I believe. 

Mr. Mormann. Yes. There was one man — his name has gone from 
me; I can't think of it just now — and Mr. Ewell came on the floor, 
and I don't know whether Mr. Emmons was up there or not. I 
wouldn't say for sure — different ones. 

Mr. Gesell. Do you know whether the other agents in the office 
where you worked received any compensation for getting consents or 
proxies in? 

Mr. Mormann. Every one of them got $10. 

The Chairman. How do you know that? 

Mr. Mormann. I know because I got mine, and it was a general 
thing that was all paid off at one time. 

The Chairman. I merely asked for the committee's benefit. 

Mr. Gesell. I have no further questions. 

The Chairman, How did you come to sever your connection with 
the company? 



5654 CONCENTRATION OF ECONOMIC POWER 

Mr. MoRMANN. On account of my trouble. I couldn't work any 
longer on the street. 
The Chaieman. Illness? 
Mr. MoRMANN. Yes, sir. 
Mr. Gesell. How long did you stay with the company after the 

change ? 

Mr. MorMANN. Well, up to — it will be 7 years this fall, and that 

was '32. . 

Mr. Gesell. How long did you say had been your service with the 

company ? 

Mr. MoRMANN. I went with them, say, in the fall of 1912 or '13; 
I am not sure of the dates, along in that time. 

Mr. Gesell. So you were with them for about 20 years? 

Mr. MoRMANN. Well, yes; about that time. The only thing I can 
recall to make it more specific on that point is that I was with them 
at the time they had that trouble in Mexico, the country trouble, when 
Perslting went down. I was with them that time. 

The Vice Chairman. During those 20 years you were with the 
company did you ever have any other proxies to sign ? 

Mr. MoRMANN. No; never. 

The Vice Chairman. Such as voting for a new board of directors? 

Mr. Mormann. No; nothing was said about it at that time. 

The Vice Chairman. This was the only occasion? 

Mr. Mormann. Yos, sir. 

The Vice Chairman. Where did you sign these names of the policy- 
holders to the proxies? 

Mr. Mormann. At home. 

The Vice Chairman. At your own home? 

Mr. Mormann. Yes; m-'^^'Iy. ^ 

The Vice Chairman, xhere was nobody else present? 

Mr. Mormann. Well, my family. 

The Vice Chairman. Did you tell any other agents that you had 
ione this? 

Mr. Mormann. Well, usually there were what we would call 
pigeons around the office, that would come in the office with a story if 
rhey could get something on another man, so we kept quiet. 

The Vice X^hairman. You didn't want this fact known to the 
company ? 

Mr. Mormann. I didn't let it out ; that is, personally. 

The Vice Chairman. Did any other agents talk to you about their 
Aligning? 

Mr. Mormann. Just as I said, they would say, "Well, I got mine," 
and would smile as if to say, "It is none of your business how I got 
them." 

The Vice Chairman. They got signatures and you got signatures. 

Mr. Mormann. Yes. 

The Vice Chairman. How many signatures did you say you got? 

Mr. Mormann. In the neighborhood of twelve hundred, if I remem- 
ber correctly. 

The Vice Chairman. Did you make any attempt to disguise your 
handwriting? 

Mr. Mormann. No; I didn't; I couldn't disguise twelve hundred. 
I just wrote them; that is all. 



CONCENTRATION OF ECONOMIC POWER 5655 

The Vice Chairman. So that the 1^00 signatures were written in 
the same handwriting with no attempt to change them. 

Mr. MoRMANN. Just like in the case of this woman signing this ; as 
long as I said it was all right. In fact 90 percent of those cards were 
signed on the agent's personality, anyhow. 

The Vice Chairman. You don't know of any that were signed in 
the company office by any of the agents? 

•Mr. MoRMANN. No. Not in the office; no. 

Mr. Gesell. What percentage of yours did you sign yourself? 

Mr. MoRMANN. Oh, I guess two-thirds. 

The Chairman. Who signed the others? 

Mr. MoRMANN. I got some just like I said; this woman, where the 
personality looked good, just signed ; nobody ever said anything. 

Mr. Gesell. What do you mean, "Where the personality held 
good?" Where you were good friends of the policyholder? 

The Chairman. Collected from the company? 

Mr. MoRMANN. Just like this woman signed for the whole 27 
policies. 

The Chairman. Was she an employee of the company? 

Mr. MoRMANN. No. 

The Vice Chairman. You got $10, the same as all the other agents? 

Mr. Mormann. I sure did. 

The Vice Chairman. Didn't get anything special because of sign- 
ing these? 

Mr. Mormann. No. 

The Vice Chairman. Did you get a greater number of signatures 
than any other agent? 

Mr. Mormann. I don't think so. 

Mr. Gesell. The next witness is 

Mr. Gordon (interposing), Mr. Chairman, may we be permitted at 
this point, while this gentleman is still here, to show that he has had 
a disagreement with the company? Mr. Rock is right here beside 
him, president of the company. 

The Chairman. Maybe he will admit it. 

Mr. Gordon. One of your questions made me think of that. 

Mr. Rock. Mr. Gesell, I may ask Mr. Mormann when he became ill 
how long he was kept on a pension by the company and why it was 
terminated ? 

Mr. MoRMANisf . I was paid $25 a week until this occurred the last 
week, Tuesday l3efore Thanksgiving of that year. I was paid $25 
a week far into March, I think. Then I was reduced to $15 and cut 
off entirely in August. If that is a disagreement, I don't know what 
he means by that. 

Mr. Gesell. I didn't ask you the question. 

The Chairman. They are entitled to show prejudice. If he is a 
prejudiced witness they are entitled to show it. 

Mr^ Gesell. Have you any prejudice of any sort against the officers 
and directors of this company? 

'Mr. Mormann. Naturally, t didn't like their treatment they gave 
me. He offered me, after my doctor — I tried to get on again but my 
doctor positively forbade me doing any such work because it broke me 
down, and he said it would simply break me down again, and I 
wouldn't be any good. 



5656 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Have your feelings in this matter affected the truth 
or completeness of your testimony in this matter in any way? 

The Vice Chairman. That is, your willingness to come here was 
prompted somewhat by the fact that you haven't got a very friendly 
feeling for the company? 

Mr. MoRMANN. Well, not the company. I don't believe there is 
anybody ever employed by them thought any more of the old mutual 
company than I did. 

The Vice Chairman. I am talking about natural reactions, but 
the fact is that you did make these signatures is the truth, regardless 
of what prompted you to testify? 

Mr. MoRMANN. Sure. 

The Vice Chairman. And you don't know — you weren't asked by 
any managers of the company or anyone in authority by the company 
to get these signatures in this matter? This was your own idea, get- 
ting these signatures? 

Mr. Mormann. Oh, yes; sure. 

Mr. Gesell. The next witness is Mr. William Lambdin. 

(Witness excused.) 

The Chairman. Do you solemnly swear that the evidence you are 
about to give before the committee will be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Lambdin. I do. 

TESTIMONY OF WILLIAM LAMBDIN, BALTIMORE, MD. 

Mr. Gesell. Will you state your name, please, sir, for the record ? 

Mr. Lambdin. William F Lambdin. 

Mr. Gesell. How do you spell it? 

Mr. Lambdin. L-a-m-b-d-i-n. 

Mr. Gesell. Are you employed at the present time? 

Mr. Lambdin. Yes, sir. 

Mr. Gesell. Where do you reside? 

Mr. Lambdin. Baltimore. 

Mr. Gesell. For whom do you work? 

Mr. Lambdin. State of Maryland. 

Mr. Gesell. Did you used to work — or what do you do for the State 
of Maryland ? 

Mr. Lambdin. I am sort of relief manager for the unemployment 
compensation board. 

Mr. Gesell. Did you used to work for the company that is now 
known as the Monumental Life Insurance Co. ? 

Mr. Lambdin. Yes, sir. 

Mr. Gesell. For how long were you with them ? 

Mr. Lambdin. I think I first went with them in 1914. 

Mr. Gesell. When did you leave them ? 

Mr. Lambdin. 1934. 

Mr. Gesell. Were you with the company at the time it was con- 
verted from a mutual to a stock company? 

Mr. Lambdin. Yes, sir. 

Mr. Gesell. In what capacity were you acting? 

Mr. Lambdin. Chief assistant manager. 

Mr. Gesell. Chief assistant manager? 

Mr. Lambdin. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 5657 

Mr. Geseix. For what office? 

Mr. Lambdin. Baltimore, No. 2, they called it. 

Mr. Gesell. Did you have ordinary and industrial policyholders in 
the office ? 

Mr. Lambdin. Yes, sir; we had ordinary and industrial both. 

Mr. Gesell. How many agents did you have? 

Mr. Lambdin. At that time I believe we had around 44. 

Mr. Gesell. Now, will you tell us in your own words when it was 
you first heard that the company was going to change and relate to 
the committee the various events that occurred thereafter ? 

Mr. Lambdin. Well, the first that I heard of the conversion was by 
Mr, Warheim, who was then the agency manager of the Mutual Life 
Insurance Co. 

Mr. Geseix. What was that name? 

Mr. Lambdin. Mr. Warheim; he was the agency manager at that 
time. He came to the office with these proxy cards and told them 
in on each debit that they had their circle to go out and get signed 
by the policyholders. It was very urgent and very necessary to get 
these signed, so they could get the conversion ordered and to do it 
quickly, because they didn't have much time to lose, and by doing this 
extra performance of duty they gave them $10 as a sort of bonus or 
extra salary, so to speak, for their extra work. 

Mr. Gesell. Was that before the consents were in, or after they 
were in? 

Mr. Lambdin. What do you mean? 

Mr. Gesell. Were they paid for soliciting them or paid to get 
^them in? 

Mr. Lambdin. They were paid to get them in. In other words, 
they had to get them in first before they were paid. 

Mr. Gesell, Very well; what happened after that? 

Mr. Lambdin. Well, after they weren't coming in as fast as they 
thought they should come in, Mr. Warheim took the floor and urged 
the agents to expedite the getting of proxies in as soon as possible 
so they could complete the deal and get the matter over w ith. 

Mr. Gesell. Did you solicit any of these proxies or consents your- 
self? 

Mr. Lambdin. No, sir; I did not. 

Mr. Gesell. How many men did you have under you ? 

Mr. Lambdin,, I think around ,44 or 45, and 5 or 6 assistant 
managers. 

Mr. Gesell. What would you say about the methods of those men, 
used in soliciting proxies? 

Mr. Lambdin. I wouldn't be in position to say; I wasn't on the 
outside; I was on the inside. They would have confided in me what 
they were doing on the outside. Being I was an executive of the 
company, they wouldn't give me their reasons for getting things 
signed or whether they were signed correctly or incorrectly. 

Mr. Gesell. What did you think was happening ? 

Mr. Gordon. Is that a proper question. "What do you think they 

Mr. Gesell. I didn't ask him what he thinks now. I asked him 
what he thought at the time of the solicitation of the proxies. 
Mr. Lambdin. I don't quite get that question. What do you mean ? 



5658 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. At that 'time did you believe the signatures the agents 
were getting were bona fide? 

Mr. Lambdin. I had no reason to believe they were or weren't; 
in fact, it was none of my business. All I was authorized to do was 
get these proxy cards in and signed as soon as possible. 
' Mr. Gesell. Did you ever talk to any of the agents as to how they 
got signatures? 

Mr. Lambdin. No; I never did. 

Mr. Gesell. Did you ever hear them talking among themselves as 
to how they got signatures? 

Mr. Lambdin. No ; they jiidn't talk to me about how they got them 
signed. 

Mr. Gesell. Did you make any check-up when these proxies came 
in as to whether they were properly signed or not ? 

Mr. Lambdin. No ; we never verified a signature. No signatures 
were verified. We took the agents' word and sent them through the 
home office, and that is the last we saw of them. 

Mr. Gesell. Were you given any right to subscribe to the stock? 

Mr. Lambdin. No, sir. 

Mr. Gesell. Anybody ever approach you on subscribing to the 
stock ? 

Mr. Lambdin. Nobody in the office, to my knowledge, was ever 
allowed even to think about buying any stock. 

Mr. Gesell. What do you mean, "being allowed to think of it"? 

Mr. Lambdin. We never knew we could buy any stock. I would 
like to have bought some of it. 

Mr. Gesell. Were any of the agents or any of the people working 
in your office asked to solicit subscriptions for the stock? 

Mr. Lambdin. No, sir. The only man that I know that bought any 
stock in their office at that time was Mr. Harris. I believe he bought 
70 shares of stock at that time, at $100 a share. 

Mr. Gesell. I asked you if you know of any attempt to solicit 
subscriptions for the stock? 

Mr. Lambdin. No, sir. 

Mr. Gesell. What was the allotment given to these agents ? 

Mr. Lambdin. In reference to what? 

Mr. Gesell. Consents. 

Mr. Lambdin. You mean proxies — how many did they have to get 
in? 

Mr. Gesell. Yes. 

Mr. Lambdin. I don't recall, to be honest with you, whether it was 
75 or 80 percent. 

Mr. Gesell. Seventy-five or eighty percent, you mean, of the pol- 
icyholders ? 

Mr. Lambdin. On their particular debit. 

Mr. Gesell. How many would that run per man ? 

Mr. Lambdin. That would run quite a lot, because some of those 
debits vary — some 300 debits, some 150, some 200 — so it would be 
pretty hard to even approximate exactly how many would be on a 
debit, so if there would be 1,000 policyholders on a debit, we would 
figure 75 or 80 percent would be probably just the number they 
were required to get in as soon as possible. 

The Chairman. Are you soeaking from your personal knowledge ? 

Mr. Lambdin. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 5659 

Mr. Geseli.. Now, how would that run? Would a nuiu <xi}t about 
two or three hundred that he would have to <^et in? 

Mr. Lambdin. He would have to <;et more than that. 

Mr. Gesell. About how many? Eif^ht hundred? 

Mr. LAMRniN. We would say, probably, 75 percent. In other 
words, 300 debits, 1,500, or 1,300, or 1,800 policyholders, and we 
would expect 80 percent, or 75 percent of the amount of policy- 
holders on that particular debit. 

Mr. Gesell. So it might run over a thousand ? 

Mr. Lambdin. That is right; yes, sir. 

Mr. Gesell. Now, did you hand these out to the men yourself? 

Mr. Lambdin. No, sir; I did not. Mr. Wehrheim brought those 
down and took care of them. 

Mr. Gesell. Did j^ou see them handed out to the men? 

Mr. Lambdin. I saw them passed out; yes, sir. 

Mr. Gesell. After this first set hadn't come in very well and there 
was extra efforts placed on getting them in, were there some men 
who turned in as many as a thousand all at one time ? 

Mr. Lambdin. Well, I would say some of them saved them up and 
turned them in at one time ; some saved them in blocks. 

Mr. Gesell. Was it ever your impression that any agent brought 
in an unusual number within any given period of time? 

Mr. Lambdin. Well, I wouldn't be able to tell you truthfully about 
that, because it has been so long ago I wouldn't recollect exactly what 
my impressions were at that time. I only knew that we had to get 
this in at a certain time, and we paid those men to get them in; 
we wanted them. 

Mr. Gesell. You want to state here before the committee that 
there was no talk around your office or discussion or any other overt 
act which gave you to believe that these proxies and consents had 
been gotten in an unauthorized manner? 

Mr. Lambdin. I couldn't say "yes" to that. 

Mr. Gesell. Well, I want to know — was there or was there not? 

Mr. Lambdin. I couldn't say, because, as I say, I don't remember 
that far back, and passing judgment like that would be very foolisl| 
for me to make that statement. ' *5 

Mr. Gesell. When did you first speak to our representative? 

Mr. Lambdin. Last week. 

Mr. Gesell. How many officers of the company have you spoken 
to since? 

Mr. Lambdin. Of this company? 

Mr. Gesell. Yes. 

Mr. Lambdin. I haven't seen any of them until this morning, when 
they came in here to testify. 

Mr. Gesell. Did you discuss with them what your testimony was 
going to be ? 

Mv. Lambdin. No, sir, 

Mr. Gesell. I have no further questions. 

The Chairman. Are you connected with the company now ? 

Mr. Lambdin. No, sir. 

uhe Chairman. When did you leave the company ? 

Mr. Lambdin. 1934. 

The Chairman. Did you leave on account of any disagreement? 

124491 — 40 — pt. 12 6 



5660 CONCENTRATION OF ECONOMIC POWER 

Mr. Lambdin. No. At the time they were making new offices and 
they created managers for those offices, and I was given a position as 
assistant manager, and I resigned in 1934, I believe the 1st of May ; 
no particular reason or any difficulty, to my knowledge, when I left. 
In fact, at that time I was having a little stomach trouble, and I 
thought the rest would do me good. 

The Chairman. What business are you engaged in? 

Mr. Lambdin. I am with the Maryland State Employment Com- 
pensation, in the State of Maryland. 

'Jhe Vice Chairman. Who did you speak to when he says "our 
representative'' in regard to coming here to testify? 

Mr. Lambdin. I think his name was Peterson. 

The Vice Chairman. Mr. Peterson. Is Mr. Peterson present? 

Mr. Peterson (in rear of room). Here. 

The Vice Chairman. Who is Mr. Peterson ? 

Mr. Gesell. Mr. Peterson is an employee of the Commission. 

The Vice Chairman. Does the story you have told here this after- 
noon differ in any material respect from what you told Mr. Peterson ? 

Mr. Lambdin. No. , 

(The witness Lambdin was excused.) 

Mr. Gesell. Mr. William King? We had another witness on this 
matter, if the committee please, named Mr. William King. We had 
difficulty serving him because he had left on his vacation before we 
had an opportunity to get in touch with him, so I would like permis- 
sion of the committee to present further testimony on this matter as 
soon as we can locate Mr. King.^ 

(Vice Chairman Casey assumed the Chair.) 

The Vice Chairman. That will be all right. 

Mr. Gesell. Mr. Loweree, will you take the stand, please ? 

TESTIMONY OF F. HAROLD LOWEREE, SECRETARY, MONU^ 
MENTAL LIFE INSURANCE CO., BALTIMORE, MD. 

The Vice Chairman. Do you solemnly swear to tell the truth and 
nothing but the truth, so help you, God ? 

Mr. Loweree. I do. 

Mr. Gesell. Will you state your full name, please? 

Mr. Loweree. F. Harold Loweree. 

Mr. Gesell. Are you secretary of the Monumental Life Insurance 
Co.? 

Mr. Loweree. Yes. 

Mr. Gesell. Do you recall you were served on the 17th of this 
month with a subpena, calling for the production of certain books 
and records of the company ? 

Mr. Loweree. I do. 

Mr. Gesell, Directing your attention to paragraph 6 of the sub- 
poena, which calls for the production of all executed proxies and 
consents of policyholders ; have you produced them here today ? 

Mr. Loweree. No, sir. 

Mr. Gesell. Why not? 

Mr. Loweree. I haven't been able to locate them. 



^ Mr. King subsequently testified before the committee. See infra, pp. 6161-6163. 



CONCENTRATION OF ECONOMIC POWER 5QQI 

Mr. Gesell. Will you tell us what search was made to find them? 

Mr, LowEREE. I have general supervision over* all of the files and 
the filing spaces in the home office of the company, and at different 
times in connection with my duties there I have occasion to be familiar 
with what is in these different places. Now, at no time have I ever 
seen the proxies since 1928, and when the subpoena was served, I in- 
quired of the different officers in the home office if they had any 
knowledge of their whereabouts and was given a negative answer, 
and I also myself looked into places where the proxies might be 
expected to be, if they were there, and did not find them. 

Mr. Gesell. Well, did you actually make a room-to-room search 
yourself for these things, or did you just conduct sort of a general 
inquiry ? 

Mr, Loweree. No, sir; I didn't make a room-to-room search, be- 
cause it would be obvious that the proxies would not be in certain 
of the rooms that I might be in every day, or every other day, 
places where you would reasonably feel that they couldn't possibly be. 

Mr. Gesell. Did you locate anyone who told you that those had 
been destroyed, or disposed of? 

Mr. Low^eree. I discussed the matter with every officer, and more 
particularly with Mr. Burnett, Mr. Gans, Mr. Roberts, and Mr, 
Rock, and I was told that Mr. Burnett was of the opinion that in 
1932 the insurance department had given instructions, or given noti- 
fication verbally, that the proxies might be destroyed. That was 
Mr. Burnett's recollection of the matter, and I get the impression 
from him that they had been destroyed at that time. 

Mr. Gesell. Did he tell you who it was in the department that 
gave that verbal authorization? 

Mr. Loweree. Tlie particular man in the insurance department? 
No ; he didn't mention him by name. 

Mr. Gesell, Mr. Burnett, who was that man? 
_ Mr. Burnett, I think it was Mr. Siegk, but I couldn't say posi- 
tively. 

Mr. Gesell, The same gentleman you talked to about the changes 
in the company? 

Mr. Burnett. It was at, the time of examination of our company 
by the insurance department, and in the discussion of our reserve 
with him I asked him how long it would be necessary to keep it; and 
he said 3 years having gone, elapsed, it wouldn't be necessary to keep 
them any longer. 

Mr. Gesell. No further questions of Mr. Loweree. 

Mr. Gordon. Would it be possible for us to show briefly by this 
gentleman the extent of the records of this company and their 
policy as to destroying records after a certain length of time, to 
take away any impression that there is anything "unusual about this 
particular thing? The witness could explain that in just a moment, 
if the committee would like to hear it. 

The Vice Chairman. If he could explain it briefly, I think it would 
be permissible. 

Mr. Loweree. Naturally, there is a great volume of correspondence, 
papers of every kind, accumulating in the company, and it is quite 
a problem for us, on account of limited filing space, to sort out and 
keep what we have to keep and dispose of what we think we won't 
need any more. Now, in 1935, for example, we had a general con- 



5662 CONCENTRATION OF ECONOMIC POWER 

f erence of all department heads and officers and ordered a great 
mass of material to be destroyed. Incidentally, it was a result of that 
particular conference that the records were destroyed pertaining to 
the payment of the $10 items to the agents. They were destroyed in 
1935. The last meeting was held on June 30, 1939, at which all of 
these various items were discussed and instructions were given as to 
how long they should be retained ; and as a result of this meeting on 
June 30, since that time we have destroyed over 15 tons of paper, so 
you can get some idea that it is very voluminous. 

The Vice Chairman. You keep a record of what has been de- 
stroyed ? 

Mr. LowEREE. We do now ; yes, sir. 

Tlie Vice Chairman. You didn't at the time these proxies were 
destroyed ? 

Mr. LowEREE. The first record that was kept was on May 16, 1935, 
to my knowledge. 

The Vice Chairman. I understand that your impression was that 
these proxies were destroyed in 1932 ? 

Mr. Loweree. Yes, sir. 

The Vice Chairman. That would be about 4 years after they were 
obtained ? 

Mr. Loweree. The reason I can identify that time, in addition to 
what Mr. Burnett has told me, is because in the examination of the 
insurance department in 1931 it was stated that surplus existing at 
the time of the conversion had been entirely applied to the payment 
of claims of the former mutual policyholders, and it was the fact 
that that surplus was stated to be known existent, which led Mr. 
Burnett to put the question to the insurance department as to whether 
the proxies should be retained after that. 

The Vice Chairman. Were you in charge of the files in 1932 that 
were destroyed? 

Mr. Loweree. No, sir. 

The Vice Chairman. Wlien did you take over the duties? 

Mr. Loweree. I don't know that there was any definite time. At 
that time, I think, I was assistant secretary and Mr. Ewell was vice 
president in charge of the affairs of the home office, and he remained 
in that capacity until sometime in 1933, and I think there was sort 
of an overlapping of the duties ; as Mr. Ewell relinquished his duties, 
due to ill health, I think I gradually assumed larger responsibilities 
there. 

The Vice Chairman. It wasn't a part of your duty at the time 
these were destroyed in 1932? 

Mr. Loweree. No, sir. 

The Vice Chairman. You have no clear recollection of their being 
filed or where they were filed ? 

Mr. Loweree. I have a recollection at one time they were filed on 
the mezzanine floor. 

The Vice Chairman. Did you search the mezzanine floor? 

Mr. Loweree. Yes, sir; and they are not where they were at the 
time I thouo:ht they were filed there. To the best of my knowledge, 
Mr. Casey, I haven't seen those since 1928. 

The Vice Chairmai^t. Since 1928? 

Mr. Loweree. Since 1928, at the time they were being counted. 



CONCENTRATION OF ECONOMIC POWER 5363 

Tire Vice Chaikman. How much space did they take up, do you 
remember ? 

Mr. LowEREE. When I saw them they were piled on tables and this 
is a very rough estimate, but I would say if they were piled on this 
table they would probably run about that high. 

Mr. Gesell. About 3 feet ? 

Mr. LowEREE. About 3 feet, if they were all on one table. I will 
have to ask you to accept that as an approximation and I don't know 
that what I saw was all of them. 

Mr. Gesell. Just one further thing, Mr. Loweree. I show you a 
document captioned "Temporary stock certificates were issued to the 
following individuals on February 6, 1928," and ask you if you 
recognize those papers as papers which were checked under your sup- 
ervision against the records of the company and found to be correct? 

Mr. Loweree. I do. 

]Mr. Gesell. And I ask you the same question with respect to a 
document entitled 'T)riginal stock certificates were issued to the 
following on February 10, 1928." 

Mr. Lo^\•EREE. That has been checked by our company. 

Mr. Gesell. Those two records, then, are accurate statements of 
what the more voluminous records of your company show with re- 
spect to the issuance of stock certificates and temporary stock certifi- 
cates? 

INIr. Loweree. That is right ; yes, sir. 

Mr. Gesell. I wish to have these introduced in the record at this 
time. 

(Chairman Ferguson resumed the chair.) 

The Chairman, They will be received and inserted in the record. 

Mr, Gesell. I would like to have them back now as they are num- 
bered. 

(The records referred to were marked "Exhibits Nos. 961 and 962" 
and are included in the appendix on pp. 6194 and 6195.) 

(Tlie witness Loweree was excused.) 

^Ir. Gesell. Mr. Koberts, will you resume the stand ? 

TESTIMONY OF MILTON E. ROBERTS, VICE PRESIDENT AND DI- 
RECTOR, MONUMENTAL LIFE INSURANCE CO.— Resumed 

FINANCING 05" STOCK 

Mr. Gesell. Mr. Roberts, do you know a man by the name of Mr. 
Albert? 

Mr. Roberts. In the insurance department of Maryland ^ 

Mr. Gesell. Yes. 

Mr. Roberts. Yes; I know him. 

INIr. Gesell. Was his full name John C. ? 

Mr. Roberts. John P. ; I know him. 

Mv. Gesell. What is his position in the insurance department? 

Mr. Roberts. I couldn't give you definitely what his position is; 
h^ is one of the examiners that comes regularly to look over the insur- 
ance company's accounts. 

Mr. Gesell. He is the representative of the department wlio has 
periodically been in charge of the examination of affairs of the 
Monumental ? 



5664 CONCENTRATION OF ECONOMIC POWER 

Mr. KoBERTS. That is correct. 

Mr. Gesell. He was making examination of the company, was he 
not, at the time of the conversion ? 

Mr. Roberts. I couldn't answer that, even. If there were an ex- 
amination made jnst prior to that time, I think he probably would have 
been in charge of it or one of the men. 

Mr. Gesell. The records here that we have, indicate that you trans- 
ferred certain shares of Monumental stock to Mr. Albert on May 10, 
1928. Do you recall that transaction? 

Mr. Roberts. I personally? 

Mr. Gesell. Yes. 

Mr. Roberts. You mean the trust company acting as agent ? 

Mr. Gesell. Out of your own shares. 

Mr. Roberts. I know he has stock but I couldn't tell you whether he 
got them from me or not ; sir. 

Mr. Gesell. You don't recall whether he got any stock from you or 
not? 

Mr. Roberts. I know he has stock; I know that he had stock ac- 
quired shortly after the conversion. 

Mr, Gesell. Who did he get his stock from, do you know ? 

Mr. Roberts. Well, if you say he got it from the records from me, he 
must have got it out of my certificate. 

Mr. Gesell. Do you recall the transaction ? 

Mr. Roberts. I don't recall how he got his stock; he paid for his 
stock in cash if he got it. 

Mr. Gesell. Now if he didn't get it from you, how do you know he 
paid for it in cash ? 

Mr. Roberts. The trust company was a transfer agent. 

Mr. Gesell. And you are talking about the Real Estate Trust Com- 
pany ? 

Mr. Roberts. Real Estate Trust Company; yes. 

Mr. Gesell. And did he buy this stock from the Real Estate Trui^t 
Company or from you personally? 

Mr. Roberts. I would have to look at my records to answer that. 
I would have sold it to him if he asked for it. Now I think probably 
it may have been a certificate that was in my name that was broken up 
and he got 10 shares of stock. 

Representative Casey. What was the date of that ? 

Mr. Gesell. May 10, 1928. 

Mr. Roberts. He is not the only one in the department that had 
stock. 

Mr. Gesell. I realize that, Mr. Roberts. How many shares has he 
got? 

Mr. Roberts. My recollection is that he had 10 of the original shares. 
Now the record shows clearly what he has. 

Mr. Gesell. Now you are connected with the Real Estate Trust Co., 
aren't you ? 

Mr. Roberts. I am president. 

Mr. Gesell. You are president of that company ? 

Mr. Roberts. Yes. 

Mr. Gesell. Do you recall that he borrowed on these 20 shares on 
May 10 from the Real Estate Trust Company ? 



CONCENTRATION OF ECONOMIC POWER 5665 

Mr. Roberts. I recall it now after looking at the record of loans 
that were submitted to me by your agents to ask about the accounts 
of certain men; yes. 

Mr. Gesell. Who arranged that transaction ? 

Mr, Roberts. Why, he came in and borrowed the money and I lent 
it to him. 

Mr. Gesell. Came in and saw you ? 

Mr. Roberts. I think he saw me. I think most of them saw me; 
I think I made nearly all of the loans or passed on them. 

Mr. Gesell. You mean all of the loans to people in the insurance 
department or all the loans? 

Mr. Roberts. All the loans, nearly all the loans of the bank would 
come over my desk. 

Mr. Gesell. Well, now, did he have the shares in his hand when he 
came in to see you ? 

Mr. Roberts. I really couldn't tell you that, sir. 

Mr. Gesell. Did he already own those shares or was that a trans- 
action which accommodated him and enabled him to purchase those 
shares ? 

Mr. Roberts. Well, I don't see how you could answer a question 
of that kind; Mr. Albert wanted the stock and I agreed to lend 
him a certain portion of the money on it. 

Mr. Gesell. So he could buy it? 

Mr. Roberts. Naturally, I think. 

Mr. Gesell. And did he buy it from you ? 

Mr. Roberts. He bought the stock. Now, if it came out of my 
certificate he may have bought it from me, or it may have been a 
certificate that was in my name that was broken up. Now, whether 
it was any stock that I had gotten — there was no allotment — I re- 
ceived no allotment of stock. 

Mr. Gesell. Well, the stock certificate shows, does it not, that it 
came from you? 

Mr. Roberts. I acquired those certificates later on. Now whether 
they were turned in and the certificate broken up — Mr. Albert got 
whatever he got, 10 or 20 shares, I don't recall now; I thought it 
was 10. Now, he had it and I lent him the money on it. I made a 
practice of lending around 80 percent. 

Mr. Gesell. I would like to show you the discount register and call 
your attention to the loan in question and ask you to give us the 
information with respect to that loan; how many shares there were, 
what the amount of the loan was. 

Mr. Roberts. Of course, this record was not kept by me ; it was kept 
by our general bookkeeper, and it shows here on May 10, 1928, John 
P. Albert hypothecated 20 shares of Mutual Life Insurance Co., and 
the-amount of the stock was valued at $2,000 — the loan was $2,000. 

Mr. Gesell. That wasn't the loan at 80 percent, was it ? 

Mr. Roberts. No; I don't see any other collateral loan here, but 
that was the practice at that time. 

Mr. Gesell. When was the loan due ? 

. Mr. Roberts. There was a demand note. 

Mr. Gesell. Where do you see that ? 

Mr. Roberts. Wait a minute. It was a 3-month note, due August 
10 of the following year. 



5666 CONCENTRATION OF ECONOINIIC TOWER 

Mr. Gesetx. When was that paid off ? 

Mr. Roberts. It shows liere on Aucnst 10 



'ir?^ 



Mr. Gesell (interposing). It shows it was due August 10. 

Mr. Roberts. Wait a minute. It shows it was due August 10. 
There is no date in here that shows when it was paid, Mr. Gesell. 

Mr. Gesell. The notes were renewed on August 10, were they not? 
Can you turn the register to the entry date of August 10 and advise 
us? 

Mr. Roberts. I imagine it was renewed from time to time. Wait a 
minute; now, then, the register shows that on August 10 tliere was 10 
shares in Mr. Albert's name, and the loan was reduced to $1,000. 

Mr. Gesell. How long did that loan run ? 

Mr. Roberts. That was a demand loan, and it doesn't show when it 
was paid. 

Representative Casey. The note on that date was reduced by half? 

Mr. Roberts. This note shows for a thousand dollars. 

Representative Casey. What date is that ? 

Mr. Roberts. August 10, 1928. 

Representative Casey. When was it in 1928 that the original $2,000 
loan was made? 

Mr. Roberts. It was made in May — May 10. Three months later 
it was cut in half. 

Mr. Gesell. Do you have any records here that show when that 
loan was paid off ? 

Mr. Roberts. No; I have no records, but all of those loans have 
been paid off. 

Mr. Gesell. Will you look on the line below and see what happened 
to 10 of those shares? 

Mr. Roberts. The line above. The line above : On August 10, 1928, 
apparently 10 shares — a loan was made to Denton S. Lowe on 10 shares 
of Mutual Life Insurance Co. stock for $1,000. 

Mr. Gesell. Who is Denton S. Lowe ? 

Mr. Roberts. He is a fellow employee of Mr. Albert. 

Mr . Gesell. With the insurance department of the State of 
Maryland ? 

Mr. Roberts. Yes. 

Mr. Gesell. What is his position ? 

Mr. Roberts. I couldn't tell you. 

Mr. Gesell. What were the terms of his loan ? 

Mr. Roberts. Apparently the same as Mr. Albert's. 

Mr. Gesell. Has that loan been paid off ? 

Mr. Roberts. Yes, sir ; it has been paid off. 

Mr. Gesell. What other loans were there to representatives of the 
insurance department? 

Mr. Roberts. Can you refresh my recollection? You have been 
through this and I haven't. Those are the only two men that I know 
that were in clerical positions. 

Mr. Gesell. Do you remember an arrangement with respect to a 
loan to Mr. Siegk?' 

Mr. Roberts. Mr. Siegk? Can you give me a date on that? 

Mr. Gesell. February 17. May I refresh your recollection in this 
way? Did not you loan money to the brokerage firm of Weilepp 
Bruton Co. to enable them to make a loan to Mr. Siegk on some 
shares of stock? 



CONCENTRATION OF ECONOMIC POWER 5667 

Mr. Egberts. Well, not for that purpose. We did business with 
the firm of Weilepp Bruton like we did any other broker and we 
accepted collateral that they would bring in to us that was satis- 
factory to us. 

Mr. Gesell. Do you recall that transaction ? 

Mr. Roberts. I remember Mr. Siegk having stock. Whether we 
made a loan to him or not I just can't recall, unless you can tell me 
the date. 

Mr. Gesell. I don't believe your record will show any loan to 
him. 

Mr. Egberts. Well then, we had none. 

Mr. Gesell. Do you recall, however, loaning nioney to Weilepp 
Bruton Co. in connection with a transaction which involved a loan 
by him to Mr. Siegk? 

' Mr. Egberts. I don't know anything about the Weilepp Bruton 
records at all, but we have been doing business with them ever since 
we opened. They are friends of mine, boyhood friends. 

The Vice Chairman. Is he connected with the insurance depart- 
ment? 

Mr. Egberts. He was the State actuary, he was the actuary of the 
insurance department of the State of Maryland. 

'Mr, Gesell. Well now. would you refer to your records — how 
many shares did Mr. Siegk have, do you recall? 

Mr. Egberts. I was trying to recall that when you asked me the 
question. I think it was in the neighborhood of three or four hun- 
dred, something of that character. I just can't recall right now. 
Mr. Eock says 100, but I thought it was more than that. 

Mr. Gesell. Can you produce your minutes of the Eeal Estate 
Trust Co. for February 17, 1928? 

Mr. Egberts. I have here the minute book; loans made from 
February 14 to February 20. 

Mr. Gesell. Do you have a loan there to Weilepp Bruton & Co, 
of $12,360, secured by 156 shares of Monumental stock? 

Mr. Egberts. On February 17? 

Mr. Gesell. Or 18. 

Mr. Egberts. Here it is : $12,360 on February 18 to Weilepp Bur- 
ton Co.; collateral, 156 shares of Mutual Life Insurance Co. of 
Baltimore. 

Mr. Gesell. Do your records show any certificate numbers? 

Mr. Egberts. No ; not in the minutes. 

Mr. Gesell. Do they show in whose names those shares of stock 

Mr. Egberts (interposing). No. 

ISIr. Gesell. Do you recall anything about that transaction, now 
that you have the records before you ? 

Mr. Egberts. Not the details of it. They would just come in andv,^ 
present the loan and the collateral and we would make the loan. 

Mr. Gesell. Do you have any idea who that collateral belonged 
to, Mr. Eoberts? 

Mr. Egberts. I haven't the slightest idea; no. If you will tell 
me what your purpose is or what you want to show, it would help. 
I knew Mr. Siegk very well. 

Mr. Gessell. Did you not know that Mr. Siegk had pledged these 
same 156 shares of Weilepp Bruton for a loan at Weilepp Bruton 



5668 CONCENTRATION OF ECONOMIC POWER 

and that Weilepp Bruton had turned on the collateral to yon for a 
loan to them? 

Mr. Roberts. No ; I did not ; I don't recall whose stock it was. Is 
there anythincr in this record? 

Mr. Gesell. Did yon handle that loan personally? 

Mr. Roberts. I would probably handle all of these loans that would 
come in, unless they would go to the window and present it under the 
jjeneral instructions; they would then call me on the telephone that 
they had a loan, presented with collateral. 

Mr. Gesell. You would know whose collateral it was? 

Mr, Roberts. No; I would never see the collateral presented by 
anybody. The teller would tell me there are so many shares of a 
certain security offered. 

Mr. Gesell. May I ask you to step down just a minute, and T 
would like to call Mr. Leary to the stand. 

TESTIMONY OF ARTHUR J. LEARY, ACCOUNTANT-INVESTIGATOR, 
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D. C. 

The Chairman. Mr. Leary, do you solemnly swear that the testi- 
mony you are about to ^ive shall be the truth, the whole truth, and 
hothinof but the truth, so help you God ? 

Mr. Leary. I do, 

Mr. Gesell. What is your full name? 

Mr. Leary. Arthur J. Leary. 

Mr. Gesell. You are employed by the Securities and Exchange 
Commission as an accountant-investigator? 

Mr. Leary. I am. 

Mr, Gesell, Did you have occasion to call at the offices of the 
Weilepp Bruton Co. at Baltimore, Md., and examine a transaction 
between that firm and one Arthur Siegk ? 

Mr, Leary, I did, 

Mr, Gesell. Will you tell us what you found in the records of the 
Weilepp Bruton Co. ? 

Mr. Leary. The records of the Weilepp Bruton Co. disclosed an 
account by the name of Arthur M. Siegk. According to a record I 
have here it was a ledger sheet numbered 385. The records indicated 
that on February 20, 1928, there was an entry showing 158 shares of 
the Mutal coming in for a debit of $17,380 ; on the same date a deposit 
of cash in the amount of $5,000, which left a balance of $12,380. On 
the same date the firm of Weilepp Bruton Co. borrowed from the Real 
Estate Trust Co. $12,380 against which they pledged 158 shares of 
Mutual Benefit along with 5 shares of Mercantile Trust. 

Mr. Gesell, You say Mutual Benefit, Do you mean the Mutual 
Life Insurance Co,? 

Mr, Leary. Yes ; Mutual Life. 

Mr. Gesell. Do you gentlemen have any questions? 

The Vice President. Those are all on the same date ? 

Mr. Leary. Yes, sir ; all under the same date. 

Mr, Gesell. That is all, Mr. Leary, Mr, Roberts, will you come 
back please ? 

(Mr, Roberts resumed the stand,) 



CONCENTRATION OF ECONOMIC POWER 5669 

ALLOTMENTS OF STOCK 

Mr. Gesell. Briefly, Mr. Roberts, I want to ask you about your 
knowledge of the method by which the various persons who were al- 
lotted stock of Monumental at the meeting of February 4, 1936, ar- 
ranged for payment of their securities through the Real Estate Trust 
Co.? 

Mr. Roberts. I can speak only of those to whom we made loans. 
"We were applied by different individuals and if you have a list there, 
I can go down and tell you just who they are and what their connec- 
tions are. 

Mr. Gesell. Before we get to the specific loans, am I correct in 
saying that certain of the persons who were allocated or allotted stock 
of the Monumental arranged to pay for that stock by pledging the 
stock with the Real Estate Trust Co. and getting a loan against the 
stock to cover the purdiasCprice ? 

Mr. Roberts. In many instances they arrange to pay for the stock 
by borrowing money from us. That was only in the number of in- 
stances that you will see on here. Now some of those men who bor- 
rowed on the stock were keymen and arranged, when they paid their 
loans, to pay on account of their loans in monthly installments, which 
were paid, in some instances, by deductions from their pay. 

Mr. Gesell. Well now, the Real Estate Trust Co. is a corporation, 
is it not? 

Mr. Roberts. Yes. 
•' Mr.' Gesell. It has offices in the Monumental Life Insurance Co. 
building ? 

Mr. Roberts. On the first floor. 

Mr. Gesell. When was it organized? 

Mr. Roberts. It was organized around September 1926. 

Mr. Gesell. In addition to yourself, what other people, as officers 
or directors, are interested in the Real Estate Trust Co. 

Mr. Roberts. At the present time? 

Mr. Gesell. Yes. 

Mr, Roberts. Well, at the present time the only director of the 
Monumental Life is the treasurer, Mr. A. W. Mears, and myself. 

Mr. Gesell. In other words, you and Mr. Mears, who are directors 
or officers of Monumental Life, are also connected with the Real Estate 
Trust Co.? 

Mr. Roberts. We are officers of the bank. Now may I refresh my 
recollection here on the directors' list? Yes, Mr. Alfred J. Tormey, 
Mr. Mears ; Mr. Loweree came on the board 2 or 3 years ago. 

Mr. Gesell. So there are now four individuals who are connected in 
an official way, both with the Real Estate Trust Co. and with the 
insurance company? 

Mr. Robert. That is correct. 

Mr. Gesell. Now, at the time of the conversion, back in 1928, to 
what extent did the Real Estate Co. interlock with the insurance 
company ? 

Mr. Roberts. Well, if you refer to interlocking by directors who are 
directors in both 

Mr. Gesell (interposing). Directors or officers, 

Mr. Roberts. Yes. In 1928 my recollection is that Mr. Burnett was 
on the board, Mr. Tormey, Mr. Mears — and do you have any others? 



5670 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Mr. Emmons, was lie not? 

Mr. Roberts. No ; I don't think Mr. Emmons was a director at that 
time at the bank. 

Mr. Gesell. Will you look up your list of directors and make sure 
we have the accurate list ? 

Mr. Roberts. I will look it up. Mr. Alfred Torney was a director 
in the insurance Company and also a director in the bank. Mr. Bur- 
nett, Mr. Mears, myself. Dr. J. D. Iglehart. That is five. 

Mr. Gesell. Out of a total of how many? 

Mr. Roberts. Eleven. 

Chairman Ferguson. What bank was that? 

Mr. Roberts. The Real Estate Trust Co. of Baltimore. 

Mr. Gesell. Who had the principal stock ownership of the Real 
Estate Trust Co. at that time ? 

Mr. Roberts. That was very widely distributed. 

Mr. Gesell. Who were the controlling stockholders? 

Mr. Roberts. There is a control now, but at that time there was no 
control in any group. The stock was very widely subscribed, too. 
My holdings at the time — I forget what they were, but they were small, 
I think only 50 shares, I am not positive about that. The Mercantile 
Trust Co. of Baltimore subscribed to the stock of the company, I 
think to the extent of six or seven hundred shares. 

Mr. Gesell. Is it fair to say that there was a close connection be- 
tween the Real Estate Trust Co. and the Monumental ? 

Mr. Roberts. Not as far as control was concerned. 

Mr. Gesell. No mutual interest between the two concerns? 

Mr. Roberts. We were old friends ; we were associated together for 
50 years. 

Mr. Gesell. And the group of five directors who had a common in- 
terest in both companies were the active men in the Real Estate 
Trust Co., were they not? 

Mr. Roberts. Well, Mr. Fred G. Boyce, the vice president of the 
Mercantile Trust Co., was one of our directors and I don't know of 
any better or more astute banker in business today. 

Mr. Gesell. Was it contemplated at the time these stock certificates 
of Monumental were issued that people would be able to negotiate 
loans to the Real Estate Trust Co. to help pay for the stock ? 

Mr. Roberts. There was no arrangement but I was glad to make 
the loans. 

Mr. Gesell. There was no advance arrangement about it at all? 

Mr. Roberts. None at all, except this now, I interviewed the men 
who wanted to borrow, and most of those were our agents — some of 
them were our agents in the field — and they had been allotted certain 
allotments. Some of them took what was allotted to them; some of 
them did not take any, according to my recollection, and some only 
took part. 

I arranged personally with most of those men the loans that we 
made on their stock. 

Mr. Gesell. Well now, will you tell us what loans you made and to 
whom in connection with assisting in financing the purchase of the 
original allotment of stock? You may refer to your records or any- 
thing you like, Mr. Roberts, to give you this information. 

Mr. Roberts. I haven't any other records but these that were taken 
at the time. 



CONCENTRATION OF ECONOMIC POWER 5671 

I can recall pretty well from memory, if names are called to me, 
what men we have who were with us. 

This is called "A Schedule of Loans Made by the Real Estate Trust 
Co. Against Stock of the Mutual Life Insurance Co. of Baltimore 
between February 10, 1928, and March 19, 1928." 

James C. Harris, he was one of our managers, I do not think he was 
an oflficer at the time. 

Mr. Gesell. How much did he borrow? 

Mr. Roberts. Amount of the loan was $6,000 and he pledged 75 
shares. 

Mr. Gesell. And will you give us similar information with respect 
to the other loans, telling us in each case what the connection of the 
individual with the insurance company was? 

Mr. Roberts. Clarence H. B. Long, assistant secretary. 

He was in one of the other departments, $2,000 on 30 shares; An- 
drew J. Parr, he was one of our oldest men who had been with the 
company, I believe, for about 35 years and now I believe he is retired. 
He borrowed $3,950 on 50 shares. Roland O. Wehrheim, manager, 
borrowed $5,450 on 50 shares. Millard S. Wheeler, $150 on 10 shares. 

Mr. Gesell. Who was he? 

Mr. Roberts. Underwriter. Howard H. Ennnons, $33,000 on 300 
shares. He was vice president. Harry C. Roth, who is now the 
comptroller, at the time he was a clerk. 

Mr. Gesell. These positions you are stating are all positions with 
the insurance company? 

Mr. Roberts. Yes. $3,950 on 50 shares. E. C. Brockenborough, 
inspection department, $2,250 on 30 shares. Irene T. Reaney, $375 on 
5 shares. Adelbert W. Mears 

Mr. Gesell (interposing). Who is Irene T. Reaney? 

Mr. Roberts. Secretary to Mr. Burnett. 

Mr. Gesell. Please give the connection. 

Mr, Roberts. I beg your pardon. Mr. Mears, $20,000 on 225 shares, 
and 30 on Conservation Co. and some New Amsterdam stock. The 
Conservation Co. is another insurance company in Maryland. 

The Chairman. Who is Mr. Mears? 

Mr. Roberts. Mr. Mears is one of the directors of the insurance 
company and also treasurer of the bank. Paul M. Burnett, $6,900. 
This looks like 5 shares of Monumental and 100 New Amsterdam 
Casualty Co. Weilepp Bruton Co. — you have on here "for account 
of Arthur Siegk." 

Mr. Gesell. That is the transaction we discussed. 

Mr. Roberts. That is not in our records, that is your notation; 
$12,380 on 158 shares. 

Mr. Gesell. Your records show Weilepp Bruton. 

Mr. Roberts. Well, if the loan to Weilepp Bruton is in our 
minutes, it is correct. You will find them all through our loans. 
Jessie M. Munn, $450 on 5 shares. 

Mr. Gesell. Who is she? 

Mr. Roberts. She is not an employee, she is an outside person. 
Her husband was formerly employed by the company. Wielepp 
Bruton Co., $7,000. You have a notation here "For account of 
Milton Roberts, special account." 

Mr. Gesell, We will come back to that later. 



5672 CONCENTRATION OF ECONOMIC POWER 

Mr. Roberts. Emily T. Crowley, $400 on 5 shares. She is a book- 
keeper in the auditing department, I think. F. H. Vinup, $1,700 on 
25 shares. He is the medical director. William J. Leimkuhler was 
a manager at that time, $2,500 on 30 shares. Frederick L. Schneider 
$4,450 on 50 shares. He is an assistant secretary. John C. Kulp, he 
was a manager, $2,500 on 30 shares. Leroy Baxter, a manager, $3,- 
450 on 50 shares. Carl C. Wachtel was a manager, $1,950 on 20 
shares. 

The Chairman. Mr. Roberts, is a manager the same as a general 
agent in an insurance company? 

Mr. Roberts. The manager has charge of an office in a city. 

The Chairman. It would be about the same function as an ordi- 
nary general agent ? 

Mr. Roberts. Practically. He has charge of that office in the 
city where he is located. He is a company representative. 

Carl M. Kron, he was a manager, $3,250 on 30 shares of Monu- 
mental. A. Claude Reader, $1,700 on 20 shares. He was a manager. 
Leo Rock, I believe you were a manager, were you not? 

Mr. Rock. Yes. 

Mr. Roberts. $3,450 on 50 shares. Albert J. McNally, a manager, 
$1,700 on 20 shares. Charles H. Mund, Jr., he was a cashier, $1,650 
on 20 shares. Raymond Smith, $2,500 on 30 shares. He was a 
manager and still is, I believe. Clarence W. Bowen, $2,250 on 30 
shares. He is a manager. Robert L. Peck, $800 on 10 shares, he is a 
manager. William J. Hanley was a manager, $1,700 on 20 shares. 

Mr. Gesell. I believe that is all. 

The Vice Chairman. Those are loans from the insurance com- 
pany are they? 

Mr. Roberts. No ; from th^ trust company. 

The Vice Chairman. To insurance company employees? 

Mr. Roberts. On the collateral of the Monumental Life Insur- 
ance Co. 

Mr. Gesell. In other words, Mr. Roberts, at the time that these 
persons took up their allotment of their shares of Monumental 
stock, they arranged to purchase the number of shares involved in 
the collateral behind these loans by making loans at the Real Estate 
Trust Co.? 

Mr. Roberts. That is true. 

Mr. Gesell. I noticed that the total amount of those loans is up 
in the neighborhood of $143,000. 

Mr. Roberts. Today or at that time ? 

Mr. Gesell. At that time. The total paid-in capital was $500,000. 

Mr. Roberts. No; the total paid-in capital was 600 and the sur- 
plus was 125. Seven hundred fifty thousand was what we opened 
with. Oh, I see; you mean the Monumental. Total paid-in capital 
total was some 500,000. 

Mr. Gesell. So about $143,000 of that came through these loans 
which were arranged by legalities at the Real Estate Trust Co.? 

Mr. Roberts. I haven't totaled it, but the figures are probably 
correct. 

Mr. Gesell. I understand this was all just chance that this hap- 
pened. There was no previous arrangement that persons could bor- 
row in this manner? 



CONCENTRATION OF ECONOMIC POWER 5673 

Mr, Roberts. It was not chance and it was not previous arrange- 
ment, Mr. Gesell. We knew the men and I was satisfied with the 
collateral; the executive committee passed it and the board ratified 
it and we today have on our books I think in excess of $100,000 in loans ; 
we have had as high as $300,000 in loans in the last 3 years on this very 
collateral, and I credit that as being as good as you can get. 

Mr. Gesell. I am not challenging the value of the collateral, I am 
simply trying to find out whether my impression is correct that you 
and the other officers and directors of Monumental preferred to assist 
people you knew to purchase this stock, rather than to permit this 
stock to get out into the hands of policyholders and other persons. 

Mr. Roberts. I can answer that this way : I have never seen any of 
these men to whom these loans were made prior to the time of con- 
version, and when it came down to the question of lending them 
money, I was perfectly willing to lend it to them. 

Mr. Gesell. Did they all j^ist drop in to see you ? 

Mr. Roberts. No; I wantHo see some of them personally. I vis- 
ited I don't know how many offices. I think I was away 3 or 4 
days and made these arrangements with some of these men who 
couldn't get in, 

Mr. Gesell. Why was that? Because you wanted to get the stock 
into their hands ? 

Mr. Roberts. Primarily Ave wanted to know that the men would 
take the stock if they had the opportunity to get it, if they wanted it, 
and they subscribed to it. 

Mr. Gesell. You see what concerns me, I am sure, 

Mr. Roberts. Yes; I see that it is a prearranged thing, that the 
whole matter was all set up and cut and dried and we knew where the 
stock was going. Now in effect you might say that is true, but we 
wanted our men in the field — we didn't limit it particularly to man- 
agers or assistant managers, if there were agents or people in our 
offices, cashiers, and other people 

Mr. Gesell (interposing). What about policyholders? 

Mr. Roberts, Those that came in got anything they wanted. 

Mr, Gesell, Did you go to see policyholders? 

Mr, Roberts. I had nothing to do with interviewing anybody. 

Mr. Gesell, You did go to see the agents and the managers? 

Mr. Roberts. And they were all policyholders too, these agents. 

Mr. Gesell. Dtid you go to see them because they were policyholders ? 

Mr. Roberts. No ; I went to see them because they were keymen in 
the company. 

Mr. Gesell. And it was your activities in this connection that at 
that time were known to the officers and directors of the insurance 
company ? 

Mr. Roberts. I don't see how they could help but know what I was 
doing. 

Mr. Gesell. You weren't undertaking this as an entrepreneur inter- 
ested in banking activities. 

Mr. Roberts, I was interested in seeing just what I said to you, that 
the keymen in ouc organization had this stock, 

Mr. Gesell, And you think that in a conversion of this sort it is 
better to finance your own people for stock purchase than to increase 



5674 CONCENTRATION OF ECONOMIC POWER 

the allotments to outsiders who may be able to purchase the stock 
without having financial assistance? 

Mr. Roberts. I don't think that was even a consideration. The bank 
was in the business to lend money and we considered the collateral 
^ood, and I was glad to know where the stock was personally. That 
IS my personal opinion. 

Mr. Gesell. Now I said I would come back to this transaction in- 
volving your loan with the Weilepp Bruton Co. Can you tell us about 
that? 

Mr. Roberts. I probably borrowed some money from Weilepp 
Bruton at the time, or may have lent them money on the stock. 

Mr. Gesell. You were allotted five shares, weren't you ? 

Mr. Roberts. As a policyholder, yes. 

Mr. Gesell. You subsequently purchased additional shares, did you 
not? 

Mr. Roberts. Up to 500. 

Mr. Gesell. Well now, that was purchased with funds that you 
obtained through a loan at Weilepp Bruton Co., was it not? 

Mr. Roberts. I borrowed money wherever it was necessary to borrow 
it to finance my transactions as I made them. 

Mr. Gesell. Did you know that your collateral — your collateral 
was, was it not, stock which was placed against these loans. Monu- 
mental stock collateral ? 

Mr. Roberts. I imagine that was true. You have the details of the 
records there. 

Mr. Gesell. Were you aware that that stock subsequently came 
from Weilepp Bruton to the Real Estate Trust Co. ? 

Mr. Roberts. I wouldn't say that I was or wasn't at that time. All 
I know is that the loans were all paid. 

Mr. Gesell. What was the date of your loan at Weilepp Bruton ? 

Mr. Roberts. I don't know. 

Mr. Gesell. It was February 4, was it not? 

Mr. Roberts. I don't remember the dates. 

Mr. Gesell. Would that refresh your recollection ? 

Mr. Roberts. It wouldn't refresh my recollection to say yes, but 
if you have the dates from the records it must be true. 

Mr. Gesell. Our records indicate that loan was February 4. 

Mr. Roberts. Wliat is the stock, Monumental Life stock on Febru- 
ary 4? 

Mr. Gesell. I was wondering whether that early you anticipated 
beine able to purchase ndditional shares of Monumental stock. 

Mr. Roberts. I would answer that that I anticipated buying the 
stock wherever I could. 

Mr. Gesell. Where did you buv the stock you did buy? 

Mr. Roberts. It came, I think, from the Trust Co., out of certificates 
that were surrendered by those who did not take up their allotments. 

Mr. Gesell. Now, before we come to that, let me ask you one thing 
else. Who put up the original capital of the Monumental Life 
Insurance Co.? 

Mr. Roberts. Wlien all the details of the conversion were con- 
cluded in order to get the certificate from the insurance commissioner 
of operations and the certificates of stock were all prepared, they 
were turned over to the Trust Co. in consideration of the Trust Co. 



CONCENTRATION OF ECONOMIC POWER 5675 

advaiiciii<2: a total amount of the subscriptions which were in the 
neighborhood of $546,000. 

Mr. Gesell. So the Trust Co. advanced that money? 

Mr. Roberts. The Trust Co. advanced that money in exchange for 
all the stock of the company and then my recollection is — I have 
no records from which to refresh my recollection — that the company 
then accepted the payment from the various subscribers on their 
allotments or just whatever they took up. We did that as a matter 
of convenience because we didn't want any interim between the au- 
thorization of the conversion and the subscription of stock and the 
time when the corporation, the insurance company as a corporation, 
started to function. 

Mr. Geselx,. Then I take it people who had been issued temporary 
stock certificates came and surrendered those to the Real Estate Trust 
Co. and got shares in return. 

]\Ir. Roberts. My recollection is hazy on just what the process is, 
but we apparently received all of the stock that was issued. Wliether 
they were temporary certificates or not I don't know, but all perma- 
nent certificates were afterward issued and the subscriptions all paid 
for. 

Mr. Gesell. How long a period was it between the time that the 
Real Estate Trust Co. put up the funds for the purchase of all this 
capital stock and the time when the Real Estate Trust Co. was back 
where it was before it put up the money, a period of time, wasn't it ? 

Mr. Roberts. It may have taken considerable time to have gotten 
all of that stock in and paid for. 

Mr. Loweree says about 2 months but I couldn't tell you. I know it 
would take some time to do it. 

Mr. Gesell. Now, you said, I believe, that you got some of the stock 
of that 500 shares that you purchased from persons who didn't take 
up and pay for their stock certificates which had been allotted to them. 

Mr. Roberts. I have assumed that, Mr. Gesell. I looked at my 
stock record to see if I could trace it, but I have no record of how I 
got it, but I got it. 

Mr. Gesell. How many persons were there who were allotted stock 
and didn't take it? 

Mr. Roberts. Well, in some instances, in many instances, I think 
some of the managers and people in the field received allotments and 
did not take all to which they were entitled, and some I think refused 
to take and some gave as reasons for it that they didn't think it was a 
good thing to take; they weren't satisfied with the safety of the in- 
vestment and declined to take it. Some of those I think maybe I got. 

The Chairman. What is the present market value of the stock? 

Mr. Roberts. The market on it, I checked a couple of days ago, is 
around 30 to 32. It sold in 1*938, I think, as low as 26. 

Mr. Gordon. Mr. Chairman, there have been some stock dividends 
so that is not to be compared with the original 100. 

Mr. Roberts. That is the present market. 

Mr. Gordon. The par is the same as it stood. 

Mr. Gesell. Speaking now from "Exhibit No. 962" which is in 
evidence,^ our records show that Mr, Fred H. Vinup, a manager 

Mr. Roberts (interposing). No; he is a medical director. 



1 See appendix, p. G195. 

124491— 40— pt. 12 — —7 



5676 CONCENTRATION OF ECONOMIC POWER 

Mr. Geseix. An employee, didn't take the 105 shares that weit. 
allotted to him ; that Mr. Dunn, an employee, didn't take the 55 shares 
allotted to him; that Mr. Peck, a manager, didn't take the 80 shares 
allotted to him. 

Mr. Roberts. I remember him. 

Mr. Gesell. That Mr. Smith, a manager, didn't take his 80 shares ; 
that Mr. Bowen didn't take his 80; Mr. Hankins didn't take his 80; 
Mr. Kulp didn't take his 80; Mr. Hanley didn't take his 80; Mr. 
Mueller didn't take his 80. They are all managers. That Mr. Reed, 
an employee, didn't take his 55, and that Mr. Simmons and Mr. 
Wachtel and Mr. Baxter each had 80 shares allotted to them and were 
managers and didn't take their share. That Mr. Dew, an employee, 
didn't take his 55; that Mr. Park, Mr. DeRuse, Mr. Kron, and Mr. 
Rock, all managers didn't take their 80 shares; Mr. Ewell, the secre- 
tary, didn't take his shares, and Geraldine O'Connell, an employee, 
didn't take his 55 shares. A lot of them didn't. 

Mr. Roberts. My recollection is that a lot of them didn't take any 
of it. 

Mr. Gesell. I think your recollection is correct. Who got those 
shares ? 

Mr. Roberts. Now you are asking me — I think they went back — 
Mr. Loweree just suggested they went back into the reservoir of the 
Real Estate Trust Co. for such certificates as were afterward issued 
and paid for. 

Mr. Gesell. Still speaking from "Exhibit No. 962," again it ap- 
pears that those shares that were not taken by these managers and 
employees went to other persons; for cjxample, 95 shares went to Mr. 
Pearson, the objecting policyholder. Mr. Paul M. Burnett got 295 
of those shares ; Mr. Shriver, who is he ? 

Mr. Roberts. He was a director and vice president of the National 
Marine Bank. 

Mr. Gesell. He got 45 of those shares. Mr. Bregel, who was he? 

Mr. Roberts. He was a lawyer in Baltimore. 

Mr. Gesell. He was working with Mr. Jackson on this thing, 
wasn't he? 

Mr. Roberts. Oh, no. He was title examiner. 

Mr. Gesell. He got five shares. Mr. Dunn, who was he? 

Mr. Roberts. A director and vice president of the National Bank 
of Baltimore. 

Mr. Gesell. He got 45 of those. Iglehart? 

Mr. Roberts. A director. 

Mr. Gesell. He got 20. Mr. Hutchinson, who is he? 

Mr. Roberts. A member of the firm of Hutchinson Bros. 

Mr. Gesell. He got 20. Boyce, who is he? 

Mr. Roberts. Vice president of the Mercantile Trust Co. 

Mr. Gesell. No connection with Monumental? 

Mr. Roberts. None whatever. 

Mr. Gesell. He got 50 shares. Sewell S. "Watts ? 

Mr. Roberts. A member of the firm of Baker, Watts & Co. ; now 
dead. 

Mr^ Gesell. They are stockholders in Monumental ? 

Mr. Roberts. Yes. 

Mr. Gessell. He got shares. Mr. Weilepp got 50 shares. Who is 
Mr. A. Claude Reader? 



CONCENTRATION OF ECONOMIC POWER 5677 

Mr. Egberts. He was a manager. 

Mr. Gesell. He got 20 shares. Mr. Otto Loleit? 

Mr. Egberts. He is a manager. 
. Mr. Gesell. He got 20 shares. Mr. Mears, now one of the prime 
stockholders, got 500 shares. Mr. Fred H. Vinup, who was he ? 

Mr. Egberts. He was medical director. 

Mr. Gesell. He got 25 shares. Mr. Ewell ? 

Mr. Egberts. He was the superintendent of agencies, wasn't he? 

Mr. Gesell. He got 42 shares. Mr, Torney, who was he? 

Mr. Egberts. Director. 

Mr. Gesell. He got 70 of the shares. Mr. McNally. Who was he? 

Mr. Egberts. A manager. 

Mr. Gesell. He got 10 shares. 

That would indicate that, by and large, these certificates that were 
allotted and the original allotment to managers and employees in 
many cases ends up with officers and directors. 

Mr. Egberts. It does at that rate, true. 

Mr. Gesell. At the time that these shares were allotted to these 
managers and employees, was it anticipated by you and the other 
people of the management of the company that some of those shares 
would not be taken up ? 

Mr. Egberts. No ; it wasn't anticipated. 

Mr Gesell. Well, did you hope they wouldn't be? 

Mr. Egberts. Well, if you will ask me now I would probably say 
yes. 

Mr. Gesell. Did you expect that you would be able to increase your 
holdings by purchase of some of those allotments which were not 
taken up ? 

Mr. Egberts. I was perfectly willing to take all I could get. 

Mr. Gesell. Did you expect that you would be able to do so at 
the time of the original allotment? 

Mr, Egberts. I can't say that I expected to, but I will say that 
I hoped to. 

Mr. Gesell. Now, isn't it true, Mr. Eoberts, that in some cases it 
was pretty clear that some of these people weren't going to take their 
allotments ? 

Mr Egberts. Oh, no, Mr, Gesell, a good many of the managers at 
that time made pretty good incomes, I can't tell you exactly, but I 
think a lot of the managers made anywhere from $3,500 to $6,000. 
Isn't that right, Mr. Loweree? 

Mr. Loweree, Yes, sir. 

IMr. Egberts. And higher, and a good many were in a position 
to take the stock that was allotted to them. 

Mr. Gesell. These were people who never took the stock allotted 
to them at all, 

Mr, Egberts. A lot of them took the stock afterward. 

Mr-.- Gordon. Mr. Gesell, isn't it correct that a great many of those 
names you read took part of the stock allotted to them but failed to 
take part? 

Mr. Gesell. They failed to take the portion of their allotment 
indicated by the amount I previously read. 

Mr. Gordon. But the same people took part of the stock. For 
example- 



5678 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I must say to the committee that I think Mr. Gordon 
can't testify. 

Mr. Gordon. I didn't mean to, and I beg the chairman's pardon. 

Mr Roberts. I have so stated that I think a good many of them 
took part of the stock. 

Chairman Ferguson. I will allow Mr. Gordon to speak. 

Mr. Gordon. Mr. Rock, isn't it true that you were allotted certain 
of the shares? State how many you were allotted and how many 
you took. 

Mr. Rock. I was allotted 80 and took 50. 

Mr. Gordon. And didn't take 30. And your name was one of those 
read as not taking 30. 

Mr. Rock. That is true of the majority of those read. 

Mr. Roberts. A good many of the men took portions of their 
allotments. 

Mr. Geselx.. How many shares were the managers allotted? 

Mr. Roberts. I couldn't tell you that. 

Mr. Gesell. Eighty? 

Mr. Roberts. According to this, 75. 

Mr. Gesell. In that list I read any number of managers turned in 
the entire 80 shares. Those people didn't take any of their allot- 
ment, did they ? 

Mr. Roberts. If you have a record, that would be correct. I know 
some took them and some did not. 

Mr. Gesell. I notice that on that list there was Mr. Pearson. He 
was the dissenting policyholder, was he not ? 

Mr. Roberts. Yes, sir. 

Mr. Gesell. Instead of getting 5 shares he got 100 shares. What 
is the story behind that ? 

Mr. Roberts. Well, Mr. Gesell, of course you want the story just 
as you know it to be. He was a broker. He also was a policyholder. 
He was employed by rather a large brokerage firm in Baltimore, 
and if my recollection serves me correctly he scouted around and got 
either proxies or assignments or something from other policyholders, 
in legal terms what we call a strike, and he came in and demanded 
more than he would be entitled to or would have been entitled to. 
Now, we had no dissenting voices of any moment except this Mr, 
Pearson. We weren't looking to engage in any acrimonious dis- 
cussions with anybody, and the stock that he got was rather in a set- 
tlement to get rid of his objections. 

Mr. Gesell. In other words, by upping his allotment from 5 to 100 
you were able to silence his objections? 

Mr. Roberts. That is practically the situation. 

The Vice Chairman. You considered him a nuisance ? 

Mr. Roberts. He was, because I dealt with him. 

Mr. Gesell. Now, there is a regular provision in the statute for 
handling people like that.^ Why didn't you follow the statute pro- 
cedure? 

Mr. Roberts. I am not a crusader or a moralist, either one, and I 
choose the line of least resistance. 

Mr. Gesell. That explains it. I have no further questions. 

Miss Reaney, will you take the stand ? 



1 See "Exhibit No. !iri4," appendix, p. 0184. 



CONCENTRATION OF ECONOMIC POWER 5679 

Tlie Vice Chairman. At this time I would like to ask Mr. Roberts 
a question concerning the holding of stock by employees or officials of 
the State insurance department. I would like to know with what 
feeling you viewed their holding stock and borrowing money on that 
stock. 

Mr. Roberts. Well, those men I knew, I knew nearly all of these 
men, and was personally associated with them ; and they expressed a 
desire to have a few shares of the stock, and I saw no reason why they 
shouldn't hold it. 

The Vice Chairman. Did that picture of the employees or officials 
of the State insurance department who had a sort of supervisory posi- 
tion regarding your insurance company — did their holding stock reveal 
to you any lively expectancy of future favors from them ? 

Mr. Roberts. Not the slightest; those men had been with that de- 
partment for years in and out. They are as honorable as any man 
I ever came in contact with. We have never asked them any favors 
and they have never asked us any. They are old men and they have 
been in the department ever since back before Mr. Carville Benson, 
who was the insurance commissioner at the time, and congressman from 
the State of Itlaryland, and whom I knew very well and pleasantly, 
and these rhen were in that department — I think when he came there — 
and I think they are still there. Mr. Albert is there, but I don't 
know about Mr. Lowe. 

The Vice Chairman. Did you think that it might create in them a 
feeling that they would want to pull their punches in the future ? 
Mr. Roberts. No ; that waa furthest from my thoughts. 
Vice Chairman. You felt there was nothing improper or unethical 
about it ? 

Mr. Roberts. Not at all, sir. I think they are entitled to own securi- 
ties if they see fit in things that they consider sound. 

The Vice Chairman. In the insurance companies over which they 
have a supervisory capacity? 

Mr. Roberts. I think undoubtedly that there could be some criticism 
because of the ethics and past events that we have known have tran- 
spired in the last 7 or 8 years, disclosures and other things, have led 
to the passage of laws, I think, to prevent those things, and I think 
properly. 

Mr. Eicher. This Mr. Siegk, whose loan on 156 shares has been 
talked about this afternoon — is he the same Mr. Siegk that Mr. Bur- 
nett testified to this morning had suggested conversion from a mutual 
to a stock basis ? 

Mr. Roberts. He was the only man in that department by that 
name, and he was the State actuary representing the department. 

Mr. O'Connell. I understood you to testify that in making loans on 
collateral of this nature you usually would make a loan of 75 to 80 
percent ; is that correct ? 

Mr. Roberts. That would be our usual practice. In a lot of in- 
stances there were men that would come in there that we knew that 
we would lend money on their notes without collateral. That wasn't 
owr practice. Our practice is entirely a collateral basis, but the names 
of a lot of these men were just as good. 



5680 CONCENTRATION OF ECONOMIC POWER 

Mr. O'CoNNELL. That was apparently the situation with regard 
to the two representatives of the State insurance department where 
the indication is that the loan was equal to 100 percent of the value 
of the stock ? 

Mr. KoBERTS. Undoubtedly. 

Mr. O'CoNNELL. You thought their financial responsibility was 
such 

Mr. Roberts (interposing). Well, and their standing. 

Mr. O'CoNNELL. There were no other considerations. 

Mr. Roberts. None whatever. 

Mr. O'CoNNELL. And the same thing would apply to Mr. Emmons, 
who I think received a loan of $33,000 ? 

Mr. Roberts. Well, he put up collateral. 

Mr. O'CoNNELL. Three hundred shares? 

Mr. Roberts. He had other collateral. 

Mr. O'CoNNELL. You didn't read that. 

Mr. Roberts. It wasn't on that list. It didn't show the other col- 
lateral. 

Mr. O'CoNNELL. Wliat is the collateral? I understood it was just 
300 shares of Monumental. 

Mr. Roberts. Oh, no, Mr. Emmons 

The Chairman (interposing). Do you remember. Mr. Emmons? 

Mr. Emmons. My recollection is that it was $4,000 worth of Real 
Estate Trust Co., Inc. ; $1,000 of Market Street Railway, California, 
and $1,000 of City of Lyons, and a thousand of one other, I forget 
which, all of which were close to par in value at that time. I know 
those particular ones. There may have been others. 

Mr. O'CoNNELL. Were you on the board of the Real Estate Trust 
Co. at that time ? 

Mr. Emmons. I am not sure. I would have to consult the records. 
I was part of the time and part of the time I was not. 

Mr. O'CoNNELL. You were on the board of Monumental? 

Mr. Emmons. Yes, sir. 

Mr. Robert. Here it is; $1,000 City of Lyons, due 1934, which was 
paid. 

Mr. Emmons. It was redeemed. 

Mr. Roberts. $1,000 Grace Steamship Co., first mortgage; $1,000 
Market Street Railway, first mortgage, 1940 ; 300 shares Mutual Life 
and 40 shares of Real Estate Trust. 

Mr. O'CoNNELL. Those shares were the collateral behind the $33,000 
loan ? 

Mr. Roberts. Yes. It shows a collateral value here of over 20 
percent. 

Mr. Gesell. I have no further questions. 
(Vice Chairman Casey assumed the chair.) 

The Vice Chairman. Miss Reaney, will you take the stand ? 

Do you solemnly swear that the evidence you are about to give 
shall be the truth, the whole truth, and nothing but the truth? 

Miss Reaney. I do. 



CONCENTRATION OF ECONOMIC POWER ^Qgl 

TESTIMONY OF MISS IRENE REANEY, SECRETARY TO PAUL M. 
BURNETT, MONUMENTAL LIFE INSURANCE CO., BALTIMORE, 
MD. 

LOANS TO PAUL M. BURNETT 

Mr. Gesell. Will you state your full name ? 

Miss Reaney. Irene Eeaney. 

Mr. Gesell. Miss? 

Miss Reaney. Yes. 

Mr. Gesell, Are you employed by the Monumental Life Insurance 
Co.? 

Miss Reaney. I am. 

Mr. Gesell. In what capacity ? 

Miss Reaney. I am secretary to Mr. Burnett, the chairman of the 
board. 

Mr. Gesell. How long have you been his secretary ? 

Miss Reaney. Since 1922. 

Mr. Gesell. At what salary? 

Miss Reaney. $50 a week. 

Mr. Gesell. Miss Reaney, I note that in the convention-form re- 
ports of the Monumental Life Insurance Co. you were shown as having 
borrowed $13,200 from the company on November 18, 1929. Do you 
recall that transaction ? 

Miss Reaney. I remember the transaction. 

Mr. Gesell. Did you borrow that money ? 

Miss Reaney. I borrowed the money; yes; for Mr. Burnett. 

Mr. Gesell. You signed the note ? 

Miss Reaney. I did. 

Mr. Gesell. You gave the proceeds to Mr. Burnett ? 

Miss Reaney. I did. 

Mr. Gesell. The collateral that was put up against that loan — was 
that your securities or was that Mr. Burnett's securities ? 

Miss Reaney. They belonged to Mr. Burnett. 

Mr. Gesell. The interest payments on that loan — were they made 
by you or were they made by Mr. Burnett ? 

Miss Reaney. By Mr. Burnett. 

Mr. Gesell. When the loan was paid off was the principal paid by 
you or Mr. Burnett ? 

Miss Reaney. By Mr. Burnett. ^ 

Mr. Gesell. How did it happen that the transaction was handled 
in that way ? 

Miss Reaney. Simply that he asked me to sign the note for him, 
and as an accommodation I did. The collateral was there, and I was 
very glad to accommodate him. 

Mr. Gesell. Did he ^ive you any other reasons ? 

Mi^ Reaney. That is the only one. 

Mr. Gesell. Did he indicate to you in any way that he desired the 
transaction to be kept secret? 

Miss Reaney. No, sir; he did not. 

* Mr. Gesell. Did he ^ive you any instructions as to what you were 
to say if anybody inquired of you concerning the transaction? 

Miss Reaney. He did not; no, sir. 



5682 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Did anybody ever inquire of you about this? 

Miss Reaney. They did not; no, sir. 

Mr. Gesell. None of these gentlemen from the insurance depart- 
ment ever came to talk to you. about it? 

Miss Reaney. Not a word was ever said to me. 

Mr. Gesell. Now, I notice that on October 2, 1929, there is another 
loan to you of $3,575 secured by collateral. Is the same story true 
with respect to that loan ? 

Miss Reaney. Yes, sir. 

Mr. Gesell. I notice that on August 10, 1929, there was $1,250, 
secured by collateral, loan to you. The same story ? 

Miss Reaney. 1929? 

Mr. Gesell. September 10, 1929: 

Miss Reaney. Yes, sir. 

Mr. Gesell. And that on July 12, 1929, another loan, again secured 
by collateral, of $2,575. 

Miss Reaney. For. Mr. Burnett. 

Mr. Gesell. Then a loan on August 11, 1930, secured by collateral, 
of $25,300. 

Miss Reaney. That is the same. 

Mr. Gesell. And another loan April 9, 1931, of $45,000. 

(Miss Reaney nodded her head.) 

Mr. Gesell. The same? 

Miss Reaney. The same ; yes, sir. 

Mr. Gesell. And another loan on April 1, 1931, of $30,000. 

Miss Reaney. The same applies to that. 

Mr. Gesell. Some of these loans were paid off before other loans 
were made? 

Miss Reaney. Yes, sir. 

Mr. Gesell. In each case they were for Mr. Burnett? 

Miss Reaney. They were, sir. 

The Vice Chairman. What is the total? 

Mr. Gesell. I believe these total in excess of $120,000. There were 
additional loans. 

Miss Reaney. They were not all running at the same time. 

Mr. Gesell. That is what I said. They were paid off before addi- 
tional loans were made. I notice a loan on January 2, 1932, of $45,000, 
again secured by collateral. 

Miss Reaney. That would be the same. 

Mr. Gesell. Do you know w^hat was the greatest amount outstand- 
ing at any one time on these loans, Miss Reaney ? 

Miss Reaney. No, sir; I could not tell you from memory. 

Mr. Gesell. I notice another loan on January 16, 1933, of $44,000, 
again secured by collateral. 

Miss Reaney. Yes, sir. 

Mr. Gesell. I notice another loan on October 6, 1936, of $600. 

Miss Reaney. That is my own. 

Mr. Gesell. That is your own loan ? 

Miss Reaney. Yes. 

Mr. Gesell. I notice a loan of $12,000 secured by collateral, on 
December 9, 1937. 

Miss Reaney. On that I would have to see the records to be sure. 



CONCENTRATION OF ECONOMIC POWER 5g83 

Mr. Gesell. Did you own Kennecott Copper stock and Consoli- 
dated Oil Corporation, Socony ? 
Miss Reaney. That was Mr. Burnett's. 
Mr. Gesell. I notice a loan of $1,400 on May 19, 1937. 

Miss Reaney. That was my own, 

Mr. Gesell. I notice a loan of $400 on September 28, 1937. 

Miss Reaney. That was mine. 

Mr. Gesell. A loan of $3,600 on May 19. 

Miss Reaney. That was for Mr. Burnett. 

M/I-. Gesell. Miss Reaney, you knew these loans were appearing 
in the statements of the company as loans to you, did you not ? 

Miss Reaney. Yes, sir ; I knew it, 

Mr. Gesell. Did you ever talk to Mr. Burnett about them ? 

Miss Reaney. No ; I didn't. 

Mr. Gesell. Did you understand that they were personal loans for 
Mr. Burnett or business loans? Did he explain them to you? 

Miss Reaney. No, sir ; he did not, and I didn't question him because 
I knew the security was there and I had confidence in him, I had 
been with him a number of years and I just did not question it. 

Mr. Gesell. I understand that no representative of any State 

department 

• Miss Reaney (interposing). It was never called to my attention 
by anyone, 

Mr. Gesell. You are a stockholder of the company? 

Miss Reaney. I am. 

Mr. Gesell. You have been ever since the time of conversion? 

Miss Reaney. Yes, sir. 

Mr. Gesell. Did you know that the convention form reports of the 
company indicated in the interrogatories there had been no loans to 
stockholders ? 

Miss Reaney. I did not know that; no. 

Mr. Gesell. Were there any other loans? 

Mr, Reaney, No, sir; there are no others that I know anything 
about, 

Mr, Gesell. Is it your belief that all of the loans made to Mr. 
Burnett were reflected in the annual convention-form statements ? 

Miss Reaney. I have every reason to believe that they were. 

The Vice Chairman. Did I understand that you demurred to Mr. 
Burnett's request that you sign the note? 

Miss Reaney. I did not, no; I agreed. 

The Vice Chairman. You did it willingly? 

Miss Reaney. 'Yes; there was no question. 

The Vice Chairman. How were these notes paid, by check? 

Miss Reaney. By check, as I recall. 

The Vice Chairman. Did you receive the check and endorse it? 

Miss Reaney. That I cannot answer. 

The Vice Chairman. Would you at some time get cash? 

Miss Reaney. I think it was mostly paid by check. 

The Vice Chairman. Paid by check? 

Miss Reaney. Yes, sir; but I could not answer that without ref- 
erence to the records. 

The Vice Chairman. Did you ever cash any of those checks? 

Miss Reaney. I don't recall having cashed them ; no, sir. 



5684 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. You simply endorsed the check and turned it 
over to Mr. Burnett? 

Miss Reanet. That is my recollection. 

The Vice Chairman. In other words, your position was not to 
reason why. 

Miss Reaney. I did not question it. 

Dr. LuBiN. When you made these loans, just what procedure did 
you go through ? You had a note and you had certain collateral. 

Miss Reanet. I did. 

Dr. LuBiN. You went to whom to get the loan ? 

Miss Reaney. Well, I had to present that, of course, through our 
department which handles the loans. 

Dr. LuBiN. You just made application to the loan department. 

Miss Reaney. I did. 

Dr. LuBiN. You knew the people who were involved, I take it, in 
that department. 

Miss Reanet. Yes, sir; I did. 

Dr. LuBiN. They knew you were Mr. Burnett's secretary. 

Miss Reanet. They did. 

Dr. LuBiN. Was any question ever asked as to the source of this 
collateral ? 

Miss Reanet. It was never questioned. 

Dr. LuBiN. Nobody ever asked you how, on a salary of $50 a week, 
it was possible to put up that kind of collateral ? 

Miss Reanet. I was never questioned by anyone. 

Mr. Gesell. Did you ever receive any additional compensation or 
benefits in any way for lending your name to these? 

Miss Reanet. I did not ; no, sir. 

Mr. Gordon. Mr. Chairman, may we have Mr. Gesell show, as of 
course he would like to do at this time, that on the loan books of the 
company in all these instances where the loan was for the benefit of 
Mr, Burnett is given the name, Irene Reaney, address, % P. M. Bur- 
nett, 1101 North Charles Street. On the other hand, wherever the 
loan is to her personally (some of the loans were for her own benefit) 
it is given Irene Reaney, address, Charles and Chase Street, personal. 
That is giving her own address and stating "personal," whereas when 
it is for the benefit of Mr. Burnett the word "personal" does not appear 
and it is given care of Mr. Burnett. 

The Vice Chairman. Do you think, from that, that that is sufficient 
indication, "Address, % Mr. Burnett," that it was Mr. Burnett's loan? 

Mr. Gordon. I express no opinion on that. I simply wish the record 
to show the entire story, and then when the entire story is in the com- 
mittee will come to whatever conclusion, I am sure, is correct. 

The Vice Chairman. Mr. Gordon's statement may be admitted. 

Mr. Gordon. And may I also ask, Mr. Gesell — I think the record is 
clear on this but I am not sure — the greatest loan at any one time was 
$45,000; the loans were successive renewals, sir; there was never any 
loan outstanding of more than $45,000, and they have all been paid, 
and they all had ample collateral. Is that not right, Mr. Gesell ? 

Mr. Gesell. We will prepare a schedule of these loans based upon 
the information shown in the annual reports of the company and sub- 
mit it for the record.^ I think that will give the full information. 

I Entered during hearings held September 11, 1939, as "Exhibit No. 1089," and included 
in appendix to this Part on p. 6362. 



CONCENTRATION OF ECONOMIC POWER 5685 

Mr. Gordon. Yes, 

Mr. Gesell. In order that we may follow out Mr. Gordon's sugges- 
tion with respect to the record, I would like to point out that the annual 
statements of the company under schedule C showing these loans for 
each year from 1928 to 1939, and not the private books of the company 
but the records that go to public sources show in each case the name 
of the borrower, I. T. Reaney, under the caption, "Name of actual 
borrower." 

I have no further questions. 

Mr. Gordon. Does it also show the collateral ? It does, does it not ? 

Mr. Gesell. Oh, yes ; but not in whose name the collateral is. 

(Miss Reaney was excused.) 

Mr. Gesell. Mr. Burnett, please. 

TESTIMONY OF PAUL M. BURNETT, CHAIRMAN OE THE BOARD, 
MONUMENTAL LIFE INSURANCE CO., BALTIMORE, MD.— 
Resumed 

Mr. Gesell. Mr. Burnett, why were these transactions handled in 
this way? 

Mr. Burnett. Because I didn't want my name to appear on them. 
• Mr. Gesell. Why not? 

Mr. Burnett. I was president of the company and I didn't care 
to have it going around that I was borrowing money. 

Mr. Gesell. Is that the only reason? 

Mr. Burnett. Yes; that is the only reason. 

Mr. Gesell. Absolutely the only reason? 

Mr. Burnett. Can you suggest any other? 

Mr. Gesell. I can suggest two, sir. 

Mr. Burnett. Suggest them. 

Mr. Gesell. One that the charter of the company states that — 

said directors may call in and reinvest money at pleasure but in no case sliall 
it be lawful for them to make, directly or indirectly, any loan to any director 
or other officer of the company. 

Are you familiar with that charter provision ? 

Mr. Burnett. I am. 

Mr. Gesell. Did you not have that in mind in working out these 
transactions in this way? 

Mr. Burnett. I claim that that does not cover the case of a director 
borrowing money on collateral. Gentlemen, the original charter of 
this company provided that no money should be lent to officers or 
directors upon any security whatever and that was the case down to 
1898 when it was decided that there was absolutely no reason why a 
loan shouldn't be made on good security to an officer as well as any- 
one else, and at my office that law was changed to read that no loan\ 
should be made directly to an officer or director, but omitted the 
question of the security; in other words, it was intended to be that 
no loan should be made on the individual responsibility of an officer 
or director, but my collateral was just as good as any other collateral 
and if you can show one case where the collateral wasn't ample I'd 
like to know. Every one of them was paid and the interest was 
paid, and why the company should be deprived of a good loan I 
don't know. I could have taken it to any bank and gotten the money. 



5686 CONCENTRATION OF ECONOMIC POWER 

Mr Gesell. You are an attorney and I want you to listen to this 
and see if you can find any basis for distinguishing between col- 
lateral and"noncollateral loans from the provisions of the charter. 
Section 6 states — 

The directors may lend the funds of the company upon mortgage of unen- 
cumbered real estate or chattel realty worth at the time twice the amount 
lent thereon, and upon stocks, bonds, or other marketable securities worth at 
the time of lending at least one-fourth more than the sum lent thereon, and 
the said directors may call in and reinvest the same at pleasure- 
that is all collateral loans they are talking about— 

but in no case shall it be lawful for them to make, directly or indirectly, any 
loan to any director or other oflScer of the company. 

I want you to explain to me how you can interpret that to apply 
only to unsecured loans. 

Mr. Burnett. I can interpret it because if you look at the other 
provision you will find out that it referred to collateral loans, loans on 
security, and this was purposely left out so that it w^ould meet a 
situation of this kind. 

Mr. Gesell. Will you read the sections referred t^ ? 

Mr. Burnett. I know them. 

Mr. Gesell. Read the sections you refer to. 

Mr. Burnett. I can't find them. 

Mr. Gesell. We are talking about the charter as affected follow- 
ing the conversion of the company. We are talking about the char- 
ter, Mr. Burnett, following the conversion of the company, not the 
charter back in 1858. We are talking about the charter of the 
company as written following the conversion. 

Mr. BuRNEiT. I don't think there was any change made at that 
time. 

Mr. Gesell. Oh, there were amendments affecting the rights of 
the policyholders to vote ; there were several changes. 

Mr. Burnett. I know; but I mean to say with reference to the 
point that you are now making. I think that was done in '98, 
wasn't it? 

Mr. Loweree. Section 6 in 1898 continuing in force until this year. 

Mr. Burnett. Now, under the present law you can lend all you 
want to officers and directors on collateral. 

I want to emphasize there wasn't a loan that was made that wasn't 
amply collateraled. I could have gotten the money at any bank, 
probably on a lower rate of interest. 

Mr. O'CoNNELL. I am interested in that. Why didn't you do it if 
it was possible to make the loan at a lower rate of interest and also 
without having to go to the trouble of having your secretary be the 
ostensible borrower? 

Mr. Burnett. I could see nothing wrong with that and I can't 
see anything wrong with it now. I was giving the company the 
right to invest its money, and Lord knows we have enough difficulty 
investing money so we can make anything out of it. 

Mr. O'CoNNELL. I was only interested in your statement that you 
probably could have borrowed the money at a lower rate of interest 
at a bank. 

Mr. Burnett. I positively could; I said probably on a lower rate 
of interest. I could have gotten it several places; there would have 
been no difficulty. The security was always ample. 



CONCENTRATION OF ECONOMIC POWER 5687 

Dr. LuBiN. What rate of interest did you pay on these loans? 

Mr. Gesell. Mostly 5 or 5i/^ percent, I believe. 

Mr. Burnett. I can't see any point to it at all. If there was any 
loss or if I had not put up sufficient collateral — I know you are look- 
ing for all the dirt you can find and you are trying to find it. 

Dr. LuBiN. Mr. Burnett, is it your habit of borrowing money from 
banks in the same way, having somebody else borrow for you? 

Mr. Burnett. No, sir; when I go to the bank I do it myself. I 
don't do very much of it, but when I do I do it in my own name. 

Mr. Gesell. Now, Mr. Burnett, you say you can't see anything of 
any importance about this at all. I would like to direct your atten- 
tion to the general interrogatories contained in the aimual state- 
ment which your company is required to file with all the States 
in which it does business yearly, and under the general interrogatories, 
question No. 11 asks the company to report the total amount loaned 
during the year to directors or officers. It asks it to report the 
total amount loaned to stockholders, not directors ; it asks it to report 
the total amount of loans outstanding at end of year to directors or 
officers, and it asks that you report the total loans outstanding at end 
of the year to stockholders not officers. Now evidently somebody 
thought that was important and your company every year from 1928 
to the present time has answered "none" to those interrogatories; 
there has been no complete disclosure with respect to these loans, 
has there ? 

Mr. Burnett. Why should there be? They were reported as loans 
to Miss Reaney and she was the borrower. 

Dr. LuBiN. "Mr. Burnett, if there is nothing wrong in your opinion 
in borrowing money from your company under those conditions, why 
didn't the company specifically state that they were making loans to 
officers or stockholders ? 

Mr. Burnett. Why, we were making loans to anybody that would 
give us the collateral; we were very glad to get them. 

Dr. LuBiN. But you say it was your personal loan and in order not 
to reveal to members of the organization that you personally were 
borrowing money 

Mr. Burnett (interposing). I can't hear you, sir. 

Dr. Lubin. You say this loan was a personal loan, but in order 
not to reveal the fact to members of the organization that you were 
borrowing money you used this other device and you saw nothing 
wrong with it. If there was nothing wrong with it why then did 
not the company reveal in their statement to the various insurance 
commissioners that they had been loaning money to members of the 
board of directors or officers ? 

Mr. Burnett. That question would be pertinent if I made the 
statement, but I didn't make up the statement, and I don't think 
I signed it.^ 

Dr. Lubin. Do you know whether any other member of your 
organization knew that you were borrowing money? 

Dr. Burnett. No; I do not. 

Dr. Lubin. Did you discuss with any of 

Mr. Burnett (interposing). Nobody. 

Dr. Lubin. The officers this question? 

1 lu this connection see infra, p. 5689, et seq. 



5688 CONCENTRATION OF ECONOMIC POWER 

Mr. Burnett. Collateral was submitted and, always being ample, 
the loans were made. 

Dr. LuBiN. Do you think that there might have been anybody in 
your organization, knowing the salary that Miss Eeaney was receiv- 
ing, who might question the fact, the source of the $45,000 worth of 
collateral she put up on loan ? 

Mr. Burnett. Not if she put up the collateral. 

Dr. LuBiN. You don't think anybody in your company, knowing 
she was earning $50 a week, would raise the question in their mind 
as to where it came from ? 

Mr. Burnett. No ; I don't, if she put up the collateral, I don't think 
that has anything to do with the loan. The loan, as I take it, sir, 
is not a loan to the individual ; it is a loan on collateral. 

Dr. LuBiN. If I came into a bank and I was earning $50 a week 
and I handed $50,000 worth of collateral to the clerk on a loan, 
do you think a bank would question where I got it, knowing that 
I only earned $50 a week ? Would you as an officer 

Mr. Burnett (interposing). I can't understand your question. 
I can't hear you well. Say that over again, please. 

Dr. LuBiN. If you were making loans as a bank officer and a man 
walked in off the street and you knew he was only earning $50 a 
week and had no. other source of income and he handed you $50,000 
worth of collateral and wanted to borrow $45,000, would you be 
interested in the source of where he got that collateral ? 

Mr. Burnett. Well, it would depend on how responsible the man 
was. There are loads of men getting $50 a week that have an inde- 
pendent income and some small fortune in addition. 

Dr. LuBiN. But if you knew that person had no other source of 
income and no other fortune and they handed you $45,000 worth of 
collateral, would you question that? 

Mr. BuRNimr. But Miss Reaney did have other sources of income. 
Miss Reaney was not by any means in that class ; she wasn't depend- 
ent entirely upon her salary. 

Dr. LuBiN. And you think that those people who are responsible 
for making the loans were of the impression that she had enough 
resources to raise on her own name something in excess of $45,000 
worth of collateral? 

Mr. Burnett. Well, I know it now; I know that she might have 
had; yes. 

Mr. Gesell. I think this might be a good place to adjourn until 
tomorrow morning. 

The Vice Chairman. We will now adjourn, until 10 : 30 tomorrow 
morning. 

(Whereupon at 4 : 25 p. m. a recess was taken until 10 : 30 a. m. 
the following morning.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER 



FRIDAY, AUGUST 25, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10:35 a. m., pursuant to adjournment on 
Thursday, August 24, 1939, in the Caucus Room, Senate Office Build- 
ing, Subcommittee Chairman Garland S. Ferguson presiding. 

Present : Commissioner Ferguson, chairman ; Representative Casey ; 
and Mr. O'Connell. 

Present also: Mr. Brackett; Commissioner Edward C. Eicher, Se- 
curities and Exchange Commission; Gerhard A. Gesell, special coun- 
sel ; and Michael H. Cardozo, attorney. Securities and Exchange Com- 
mission. 

The Chairman. Are you ready, Mr. Gordon ? 

Mr. Gordon, May I ask you something? Yesterday there was 
some testimony by one of the agents indicating that in his particular 
X case he had signed the names on some of the proxies.^ Now, if the 
Commission thinks that that is of any importance, Mr. Rock, the 
president of the company would be glad to give you the names of 
some approximately 50 agents who we expect would testify that 
everything was done properly in every way. 

The Chairman. Well, you can consult with Mr. Gesell about that. 

Mr. Gordon. Of course, we don't want to do anything you don't 
want, but I just want to tell you that that testimony is available. 

The Chairman. At recess sometime, suppose you talk to Mr. Gesell 
about it. 

Mr. Gesell. Mr. Burnett, will you resume the stand, please, sir? 

TESTIMONY OF, PAUL M. BURNETT, CHAIRMAN OF THE BOARD 
OF DIRECTORS, MONUMENTAL LIFE INSURANCE CO.— Resumed 

Mr. Gesell. At the start this morning, Mr. Burnett, I want to clar- 
ify one part of your testimony yesterday.^ The question was raised 
as to whether or not you had signed the convention form annual 
statements of your company, containing the general interrogatory 
with respect to the absence of any loans to directors or officers or 
stockholders of the company, and I believe you indicated that you 



» Supra, p. 5652. 
a Supra, p. 5687. 



5689 



5690 CONCENTRATION OF ECONOMIC TOWER 

had not signed any such report. I want to show you the report of 
your company for the year 1933, as an illustration, and ask you if 
you do not recognize your signature as being sworn to that convention 
form statement. 

Mr. Burnett. Yes, sir, 

Mr. Gesell. And under the general interrogatory No. 10 it is stated 
that the company has made no loans during the year to officers, direc- 
tors, or stockholders, and has no such loans outstanding. 

Mr. Burnett. Mr. Gesell, when I signed that paper — this is a very 
long, as you know, statement; it is made up by our accountancy de- 
partment and like all these papers is turned over to be signed. Now 
this one I did sign, but I didn't read it and to tell you the honest 
truth I didn't know until this question was brought up that this 
question was in there. 

Mr. Gesell. That very question is only a few inches above your 
signature, isn't it, Mr. Burnett? 

Mr, Burnett. I don't know whether it is a few inches or not. 

Mr. Gesell. Right here. 

Mr, Burnett, It is up at the top of the page and my name is at 
the bottom, but I didn't read the thing over; it is a long statement 
and those statements are sent up to me ; I sign papers all the time 
that I never have a chance to read every word, 

Mr, Gesell, Do I understand it was your practice as president of 
your company to place your sworn signature on the annual reports 
filed with the. various State departments in which you operated, with- 
out reading the statement? 

Mr. Burnett. Is this the only one you can find, Mr, Gesell? 

Mr, Gesell. I believe you signed all of them during the time you 
were president, 

Mr. Burnett. Signed all of them ? Are you sure of that ? 

Mr. Gesell, That is my best judgment, during the time you were 
president, 

Mr. Burnett. Well, if they were brought to me by our depart- 
ment I relied upon the accuracy of the statement and signed them; 
I did not read them over. 

Mr. Gesell. Now we were discussing yesterday reasons as to why 
your borrowings from the company were made in the name of Irene 
Reaney. I want to ask you whether or not you have any knowledge 
as to the provisions of the various State laws in which your company 
operates with respect to the right of officers and directors to borrow 
money from the company? 

Mr. Burnett. I have not. We were operating under the Maryland 
State laws. 

Mr. Gesell. Well, your company is obliged to comply with the laws 
of other States insofar as they apply to companies doing business in 
those States, is it not ? 

Mr. Burnett. Well, I don't know — I wouldn't say they would be in a 
matter of this kind. 

Mr. Gesell. I take it, then, you were not, for instance, familiar with 
the Indiana statute — your company operated in Indiana? 

Mr. Burnett. Yes, sir. 



CONCENTIIATION OF ECONOMIC POWER 5g91 

Mr. Gesell. Section 39-3715 of the Burns Annotated Indiana Stat- 
utes reads : 

Loans to officers and directors : Any board of directors, director or officer of any 
insurance company doing business in this State wlio shall directly or indirectly 
loan any of its funds, moneys, capital, or other property whatsoever to any 
director or officer of such insurance company doing business in this State, or 
any director or officer who shall borrow from such insurance company any of Its 
funds, money, capital, or other property whatsoever shall be guilty of a mis- 
demeanor and shnll on conviction be lined not less than $100 nor more than $500 — 

And so forth. 

The Chairman. What is the date of that ? 

Mr. Gesell. That is the act of 1935, sir. 

Tlie Chairman. When was this transaction ? 

Mr. Gesell. There have been transactions since 1935. 

Mr. Burnett. I was not familiar witli it, but I assumed that ap- 
plied only to Indiana companies. 

Mr. Gesell. Well, did you make any examination of the laws of the 
States in which your company operated? 

Mr. Gordon. Is it seriously contended that this gentleman has com- 
mitted a crime against the laws of Indiana, borrowing from his own 
company in Baltimore? 

Mr. Gesell. Well, Mr. Gordon can read the law and understand it 
as well as I can. I am asking this gentleman 

Mr. Gordon (interposing). I have read it. 

The Chairman. I don't understand that Mr. Gesell has made a 
charge against Mr. Burnett. 

Mr. Gesell. Did you make any examination of the laws of the States 
in which your company operated? 

Mr. Burnett. Mr. Gesell, what you are trying to make out of this 
incident surprises me so much because our company was looking for 
investments. We needed it. We needed the investments, and my idea 
is that I was giving them with the collateral an investment that was 
to the interests of the company, not committing anything that was to 
be criticized. For instance, if I could get a mortgage from one of 
oiu' directors on a piece of property, wny should I send it some place 
else when it is a good mortgage and we can take it and get the income 
out of it? Further than that, I want to explain that the law under 
which we are acting now, the present law under which we are acting in 
Maryland, we are fully justified in loaning to a director or officer. 

Mr. Gesell. I am simply trying Jto 

Mr. Burnett (interposing). On collateral. It doesn't make any 
difference that under the law in which we are operating today, makes 
no difference between a director and anybody else. 

Mr. Gesell. I am not concerned with what you think is best. I am 
simply trying to find out what the laws of the various States regulat- 
ing your company imply, and whether or not you have complied with 
those laws. 

Mr-.' Burnett. I never heard of the laws of the different States 
respecting this particular matter. 

Mr. Gesell. By how many departments are you examined ? 

Mr. Burnett. I suppose 13. 

Mr. Gesell. Well, will you consult with your colleagues and give 
us a definite answer as to how many departments examine your 
company ? 

124491—40 — pt. 12 8 



5692 CONCENTRATION OF ECONOMIC POWER 

Mr, Burnett. How many examine our company or how many exam- 
ine these statements ? 
Mr. Gesell. How many examine your company. 
Mr. Burnett. We have never been examined by any but the State 
of Maryland because under the agreement between insurance commis- 
sioners, and I believe it has been proved that the insurance of the 
State — to examine and certify the examinations of the other States. 

Mr. Gesell. Well, it is frequently the case, is it not, that several 
insurance departments will participate in what is known as a conven- 
tion examination of a company ? 
Mr. Burnett. Never been so with us. 

Mr. Gesell. The examinations to date have always been simply by 
the Maryland department ? 
Mr. Burnett. By the Maryland department. 

Mr. Gesell. Well, that focuses very clearly what I have in mind, 
Mr. Burnett. All these other States in which you operate are depend- 
ent upon the accuracy of this financial statement which you file for 
them for any information as to the operations of your company, and 
this statement has been shown to be false. That is the only point I 
am trying to make. 
Mr. Burnett. I don't concede that it was false. 
Mr. Gesell. Who prepared the statement? 

Mr. Burnett. I couldn't tell you. It was prepared under Mr. 
Loweree, I suppose. 

Mr. Gesell. Will you find out who it is that prepares these 
statementai* 
Mr. Burnett. Mr. Loweree has the responsibility. 
Mr. Gesell. There were other collateral loans made by your com- 
pany from time to time to officers or directors or stockholders, were 
there not ? 

Mr. Burnett. If you will read the ones you have reference to, I 
will tell you. I do not recall any of them. 

Mr. Gesell. Do you know whether there were any loans of officers, 
directors, or stockholders other than the Irene Reaney loans? 

Mr. Burnett. There were one or two mortgage loans, I think. 
Would you call that collateral loans? 

Mr. Gesell. Would you know, for example 

Mr. Burnett (interposing). I am just asking you what you want. 
Dr. Vinup is a director. He has a piece of property in which he lives 
that I should say is worth around $18,000 or $20,000, and I think he 
had a mortgage which represents about a little over $5,000. It has 
been a very excellent mortgage, and we don't want to get rid of it. 
Mr. Gesell. Does Dr. Vinup ? 
Mr. Burnett. Yes. 

Mr. Gesell. He has borrowed money on two occasions against 
Monumental stock, has he not? A loan of $5,000 on June 18, 1935, 
and a loan of $1,600 on January 18, 1935, both of which loans have 
been -discharged. 
Mr. Burnett. I have no knowledge of that. 

Mr. Gesell. Are you familiar with the fact that a loan was made to 
C. Emmerich Mears against miscellaneous securities on April 23, 1931, 
of $13,000? 
Mr. Burnett. Yes. 
Mr. Gesell. He was a stockholder, was he not? 



CONCENTRATION OF ECONOMIC POWER 5693 

Mr. Burnett. I am not sure of that. He may have been a small 
stockholder, but I don't recall — Mr. A. W. Mears was a director, but 
this is C. Emmerich. 

Mr. Gesell. Was Mr. C. Emmerich Mears a stockholder? 

Mr. Burnett. I don't know. 

Mr. Gesell. What is his relation to IMr. Adelbert Mears? 

Mr. Burnett. Son. 

Mr. Gesell. Isn't it true he is a stockholder? 

Mr. Burnett. Mr. Rock says he is. 

Mr. Gesell. There have been other such loans then, have there not? 

Mr. Burnett. If you will mention them to me, if I know anything 
about them I will tell you. The Vinup loan I knew nothing about, 
and if you see anything more there you can call my attention to 
I will be very glad to answer frankly. 

Mr. Gesell. Mrs. Cecelia G. Roberts is a stockholder, is she not? 

Mr. Burnett. She is Mr. Roberts' wife, doubtlessly she is. 

Mr. Gesell. There was a loan made to her on August 3, 1936, of 
$20,000 against collateral, was there not? 

Mr. Burnett. Not to my knowledge. Mr. Roberts says it is cor- 
rect; I don't know anything about it. Mr, Roberts tells me this was 
on a mortgage. 

Mr. Gesell. Then there have been other loans to stockholders, at 
least, other than those we have been discussing? 

Mr. Burnett. We would not have turned down any good mortgage 
loans, no matter who it came from. We have 600 stockholders and if 
they come in with a good loan we would take it without any 
hesitation. 

Mr. Gesell. I have no further questions at this time for Mr. 
Burnett. 

Mr. O'CoNNELL. Mr. Burnett, it seems to me that you being an in- 
telligent man, as you are, should realize that the line of questioning 
that has been pursued has to do generally with the propriety of a 
company, an insurance company, making loans secured or unsecured, 
to officers or employees of the company, officers or directors of the 
company. The fact that in your case and in some other cases the 
loans turned out to be good, the security was ample, the loans repaid, 
seems to me to be entirely irrelevant. What do you suppose is the 
public policy behind the many State statutes that exist which have 
for their express purpose prevention of loans to a director or an 
officer of the company? What do you suppose the public policy 
behind that is? 

Mr. Burnett. Mr. O'Connell, I don't know whether you were here 
yesterday when this was discussed or not. 

Mr, O'Connell. I was here. 

Mr. Burnett. But under our present law, as I just now stated, 
there is no prohibition whatever and we are at perfect liberty to lend 
on collateral to anybody, officers or otherwise. Excuse me, when the 
corporation was organized in '58 there was a prohibition against 
lending to an officer or director on security or otherwise, directly or 
indirectly. That law was considered rather harsh because we couldn't 
make loans that we thought were good, and in 1898 it was changed, 
the intention being at the time to make it in the nature of personal 
loans, that is that no loan should be made to an officer on his own 
financial responsibility, but not to prohibit loans on ample security. 



5694 CONCENTRATION OF ECONOMIC POWER 

Mr. O'CoNNELL. The charter provision to which Mr. Gesell re- 
ferred 3^esterday to my mind was unequivocal, to the effect that your 
company was prohibited at that time from making any loans, direct 
or indirect, to officers or directors.^ 

Mr. Burnett. I tliink if you will compare the two statutes, because 
the second one was prepared in my office for the purpose of over- 
coming this very point that we are making now 

Mr. O'CoNNELL (interposing). You are a lawyer, aren't you? 

Mr. Burnett. Yes, sir. 

Mr. O'CoNNELL. It seems to me to be a rather strange rule of 
statutory construction that would require us to look at an 1858 statute 
and an 1898 change for the purpose of determining the validity or 
interpretation of a provision Avhich is perfectly clear as it is. There 
is no ambiguity in the provision that Mr. Gesell read, that I could 
understand, that would make it necessary for us to look back. 

Mr. Burnett. It does not prohibit loans on security. 

Mr. O'CoNNELL. It prohibits loans direct or indirect. Isn't that 
correct? 

Mr. Burnett. No, sir. I make a great distinction between a loan 
to an officer on his personal responsibility and a loan on collateral. 
One is a loan on collateral and the other is a loan to the individual. 

Mr. O'CoNNELL. I see no real distinction when a loan is made to 
an officer or director of the company. What is the difference ? 

Mr. Burnett. I respect your opinion, sir. 

Mr. O'CoNNELL. What is the difference ? 

Mr. Burnett. There is a very great difference. I might make a 
loan to you as a director on the strength of your personal or financial 
responsibility. You might go wrong and we would lose the money, 
but if I w^ould lend it on the strength of security, ample security, 
which you deposit 

Mr. O'CoNNELL (interposing). Wlio determines the amplitude of 
the security, the same people who determine the financial responsi- 
bility of the man? 

Mr. Burnett. These are all marketable securities w^here you could 
get the value of them every day. But Mr. O'Connell, the fact 
remains, and I can't dispute it, that these loans were made to me on 
collateral that was ample; they bore interest at a larger rate than 
we would have lent to other people probably, 'fractionally larger 
certainly; the interest was all paid promptly and the loans were 
paid, and I have no other defense to offer to it. 

Mr. O'Connell. Keturning again to my first question, have you 
any thought as to the public policy behind the type of legislation to 
which I have referred as to its validity ? 

Mr. Burnett. Mr. O'Connell, if I had the consideration that I am 
giving it now probably the loans would not have been made, but 
to me they were absolutely all right. 

Mr. O'Connell. I understand you to say that at the present time 
you would be a little more doubtful about the propriety. I am not 
concerned with a particular individual case, but with a broad public 
policy. 

Mr. Burnett. The questions that you ask me now bring forcibly 
to my mind the fact that somebody thinks it was improper. 

1 Supra, p. 5685. 



CONCENTRATION OF ECONOMIC POWER 5695 

Mr. O'CoNNELL. Well, what do yon think? 

Mr. Burnett. I don't think so. 

Mr. O'CoNNELL. Let's forget yonr case. What do yon think about 
the public policy behind legislation which w^onld prohibit an insur- 
ance company from making loans direct or indirect to officers or 
directors ? 

Mr. Burnett. I see no difference between an officer and anybody 
else who has the collateral, and the fact that that has been con- 
sidered by our law makers is evidence of the fact that that was 
done legally. 

Mr. O'CoNXELL. Where; in Maryland? 

Mr. Burnett. In Maryland. 

Mr. O'CoNNELL. Of course that is not the general rule. 

Mr. Burnett. No ; if I wanted to borrow today I could borrow easily 
on the same collateral that I had and not be subject to the criticism 
that I am being subjected to here. 

Mr. O'CoNNELL. So you think that as a general proposition, as a 
matter of public policy, the legislation which would prohibit an insur- 
ance company from making loans, collateral-wise or otherwise, to its 
officers or directors would be improper? 

Mr. Burnett. Mr. O'Connell, if an insurance company like any 
other company, is run honestly, no difference would be made. 

Mr, O'Connell. Quite obviously a lot of legislation prepared in the 
past is good sound public policy on the theory that not even some in- 
surance companies were honest. 

Mr. Burnett. As a broad subject I would say you were right. I am 
not trying to defend anything, but to say that these were made in 
good faith, they were amply secured, the interest was all paid, and 
then the certificates were paid. To my mind, at the time there was 
nothing wrong about it, or if there had been, it wasn't necessary for me 
to get the loans here by any means : I have good standing in the bank, 
but we have great difficulty, Mr. O'Connell, in getting investments. 

Mr. O'Connell. Looking at the thing after the facts, it is perfectly 
clear that in these cases the loans were good, but for the purpose of 
formulating a sound public policy it seems to me that we have to look at 
the thing a little bit differently; w^e have to look at what may be done 
and the rules that may ensue from a situation that permits the man- 
agers and officers of a company to borrow funds of the company, 
which are not theoretically in use, for their own purposes, whether 
well secured or not. The same people that lend the money are the 
persons that determine the validity of the security. For you to say 
the securities were sound and marketable and worth the face to my 
mind is begging the question. 

Mr. Burnett. We would have lent money to John Jones or anybody 
else who came in for it. 

Mr. O'Connell. I should think it would be safer to lend the money 
to John Jones. However, the discussion gets us nowhere. The re- 
sults are all right in this particular case, but many have turned out less 
fortunately. 

,Mr. Burnett. I can't see where the question of my honesty or in- 
tegrity could be in any way involved. 

Mr. O'Connell. That is not what we are discussing. Wliat we are 
trying to determine is a matter of public policy in relationship between 
the management of the company and the company which they manage. 



5696 CONCENTRATION OF ECONOMIC POWER 

Mr. Burnett, That is what Mr. Gesell has been trying to bring out, 
and I have been subjected to a lot of very^ disagreeable and unfavorable 
advertising as a result of it., 

Mr. Gesell. I think I might say that if this comes down to a 
question of personal motives, I think the committee is interested and 
should be interested in a situation where a company is filing false 
returns with many State departments in which it does business. 

Mr. BuENETT. I can assure you that there will be greater care in 
the future in regard to such matters, but I feel that the defense that 
I have made of the past is absolutely good. I can't see the reason for 
the severe criticism which is being leveled at me in this particular 
instance. 

The Vice Chairman. Do you know, Mr. Gesell, can you tell us 
when the statute permitting a change from mutual to stock com- 
panies was passed? 

Mr. Gesell. I believe in 1922. 

Mr. Gordon. 1922, I think. We will look it up. 

Mr. Burnetp. I am sure it was. 

The Vice Chairman. Were there any other mutual companies, to 
your knowledge, that have changed from a mutual company to a 
stock company, pursuant to the statute? 

Mr. Burnett. I really couldn't answer that. I don't know. 

The Vice Chairman. Were you interested in having a statute 
enacted that would enable you to do that? 

Mr. Burnett. I knew nothing about it until it was called to our 
attention years afterward. I don't think anybody else in our com- 
pany knew anything about it, until it was called to our attention a 
number of years after it had been passed. 

The Vice Chairman. It is obviously for the purpose of enabling a 
mutual company to change to a stock company. 

Mr. Burnett. Yes, sir. 

The Vice Chaikman. From that standpoint the only people inter- 
ested in that type of statute would be the people interested in making 
a change. I can't see anybody else's interest. Maybe that is a pretty 
general question. 

I understand that you own 21,000 shares of stock in this company, 
aside from the irrevocable trust. Is that right? 

Mr. Burnett. No, sir; I own about 23,000 aside from the 21. 

The Vice Chairman. That is right; but you own 21,000 and then 
the 23 irrevocable trust. 

Mr. Burnett. No ; just the opposite. 

The Vice Chairman. I think you said that you and a group of 
three others comprising a group of four control 30 percent of the 
company. 

Mr. Burnett. Yes, sir. 

The Vice Chairman. Now, when you said that, we hadn't heard 
any evidence of this 21,000 shares of irrevocable stock. Had you 
taken that into consideration? 

Mr. Burnett. Yes, Mr. Casey; I mentioned it at the time, and I 
said I did not think I had any right to vote under it but I would have 
to refresh my memory on that subject. I don't know whether there 
is any provision in the deed of trust that permitted me to vote the 
stock or not. It would only permit me to vote it in the event the 
Safe Deposit company gave me a proxy. 



CONCENTRATION OF ECONOMIC POWER 5697 

The Vice Chairman. In giving that consideration, if you had the 
vote and power to vote under it, it would give you something like 40 
percent. 

Mr. Burnett. I imagine so ; yes, sir. 

The Vice Chairman. I think you stated at one time, though it sn't 
clear to me yet, it is somewhat confused, was the change from a mutual 
company to a stock company for the purpose of permitting you and 
this group of four, maybe some others, to keep control of this 
company ? 

Mr. Burnett. "Well, we were not unmindful of that, Mr. Casey. 
We were attempting to secure the control of the company so that we 
could use our best efforts to build it up and make it successful, which 
I think we have done. 

The Vice Chairman. I am not unmindful of the rather natural 
line that would follow, the desire to retain control of the company, 
but I have in mind the apparent ambiguity now about it, so I ask you, 
was that the motivating purpose of this change from a mutual com- 
pany to a stock company, namely the desire to retain control of the 
company ? 

Mr. Burnett. That was not the sole desire. 

The Vice Chairman. I just said motivating. 

Mr, Burnett. Well, I would say yes. 

The Vice Chairman. What other purpose was there that motivated 
the change from mutual to stock? 

Mr. Burnett. Well, as conditions have developed since it enabled 
us to perfect an organization and conduct the business on a very 
profitable basis that would not have been the case under the mutual 
set-up. 

The Vice Chairman. That is the increased service that you might 
render to the public — did that have any bearing ? 

Mr. Burnett. Well, I think if you will look into it you will find 
that we have done a great deal to protect the interests of the policy- 
holder as well as to give us something to work for ourselves. At the 
time of this conversion we had a surplus of $600,000 ; we have a surplus 
and stock now of over $4,000,000, which is an additional reserve and 
a cushion behind all of our policies, and by the way, I want to state 
that in the declaration of stock dividends not one cent has ever been 
taken from the company, and so far as the cash dividends are con- 
cerned, I also would like to call attention to the fact that on a basis 
of five percent interest which we ^ try as far as we can to get, the 
dividends paid the stockholders do not amount to much more than 
the five percent on the stock and surplus. Certainly that interest 
alone would meet two-thirds of the dollar and a half dividend to 
stockholders. 

The Vice Chairman. Do you know what was the source of the 
provision in the charter which prohibited directors from obtaining 
loans from the company? 

Mr. Burnett. What was the what? 

The Vice Chairman. What was the source of that provision in the 
charter ? 

' Mr. Burnett. Well, the original provision, of couree, I knew noth- 
ing about because it was before I was born, but the second one, the 
act was prepared in my office and I don't know whether it was pre- 
pared by me or not, but I know the circumstances under which it was 



5698 CONCENTRATION OF ECONOMIC TOWER 

prepared. It probably was prepared by my associate, but it was to 
meet this very situation. 

The Vice Chairman. You understand, now, Mr. Burnett, your 
attention has been directed to it, that it would be dangerous public 
policy to allow directors and managing officers of an insurance com- 
j)any who have control of the management, of the policies, and the 
funds to borrow from that company over which they have control. 

Mr. Burnett. It has been very forcibly brought to my attention. 

The Vice Chairman. That is, I understand, the purpose of these 
statutes in various States, although it is not a statute in Maryland; 
die purpose is that it is bad public policy, fraught with too many 
temptations, too many dangers, and too much liability to abuse. 

Mr. Burnett. Mr. Casey, I think that is the particular feature, that 
it might be subject to abuse, but if it is not subject to abuse can you 
see any difference on a collateral loan if it is well collateraled ? 

The Vice Chairman. I see a great deal of difference between your 
saying some John Jones who has no connectioii with the company 
might borrow on good collateral and establishing such a dangerous 
precedent as having a member of the company w^ho not only might 
but who has a great deal of power over the management and the 
funds of the company. 

Mr. Burnett. Let me put another case up to you. I would like to 
get this clear in rny mind. 

The Vice Chairman. I would just as soon you would allow me to 
interrogate you ; we would get through much quicker. Did the State 
examiner know of the loans to directors and officers of the company, 
the State examiner in the insurance department ? 

Mr. Burnett. So far as I am concerned I never told him. 

The Vice Chairman. Who besides you knew of these loans to offi- 
cers and directors and stockholders? 

Mr. Burnett. Are you limiting yourself to me or to others, because 
I don't know of any others except the ones that Mr. Gesell mentioned ; 
I have no knowledge of others. 

The Vice Chairman. In your instance, in your own case you know 
of nobody besides yourself? 

Mr. Burnett. No, sir. 

The Vice Chairman. Isn't it the duty of the State insurance com- 
mission-to see that these reports, complete reports, are made to the 
State insurance commission, or do you know that? 

Mr. Burnett. What reports are they ? Do you meaia these reports 
we had this morning? 

The Vice Chairman. I take it it is desirable to have accurate and 
complete reports of loans of insurance companies to individuals. 

Mr. Burnett. The only report we make to them is this annual 
report that Mr. Gesell submitted this morning. 

The Vice Chairman. That is a duty of the commissioners of insur- 
ance, I suppose, to see that they are filed and that they are accurate. 

Mr. Burnett. It is quite a voluminous paper. 

The Vice Chairman. I say it is the duty of the insurance com- 
mission to see that they are filed. 

Mr. Burnett. I say they send them to us every year; we make 
them up and send them back to each department. 

The Vice Chairman. I say is it the duty of the insurance com- 
mission to see that tliey are filed and that they are accurate? 



CONCENTRATION OF ECONOailC POWER 5699 

Mr. Burnett. That they are accurate? 

The Vice Chairman. That they are accurate, in other words they 
check up on them. 

Mr. Burnett. I assume they do. We file them and that is the 
last we hear of them. 

The Vice Chairman. It is part of their duty, I assume, to check 
up on them, otherwise there would be no sense in filing them. 

Mr. Burnet. I would say so. 

The Vice Chairman. I understand that some three stockholders 
outside of people who had some connection with the company were 
policyholders. Is that correct? 

Mr. Burnett. At the time — will you repeat that ? 

The Vice Chairman. I understood there w^ere some sixty-odd pol- 
icyholders who were stockholders in this company. 

Mr. Burnett. A great many more than that. We now have about 
600, 1 think. 

The Vice Chairman. I mean at the time of the change from a 
mutual to a stock company. You said there were 63. 

Mr. Burnett. Sixty-three people subscribed to stock. 

The Vice Chairman. I understood, then, you ruled out those who 
had some connection either as officers or employees of the company 
and there were only three completely disinterested policyholders in 
the stock company. 

Mr. Burnett. I think that is correct. 

Mr. Casey, if you will permit me to go a little further than that, 
I wish to say to you that for months after this conversion there was 
no trouble for the policyholders to secure all the stock they wanted 
because this stock was on the market right straight along at prac- 
tically, certainly about what it cost. A lot of it could be obtained. 
When we were financing, I was taking up all I could get because 
I had faith and confidence in it ; it was only a question of my ability 
to get enough money to swing it, but there was a lot of it on the 
market. 

Mr. Gesell. Mr. Loweree, please. 

TESTIMONY OF F. HAROLD LOWEREE, SECRETARY, MONU- 
MENTAL LIFE INSURANCE CO., BALTIMORE, MD.— Resumed 

Mr. Gesell. You have been sworn, have you not? 

Mr. Loweree. Yes ; I have. 

Mr. Gesell. You have heard discussion concerning the annual con- 
vention form statements of the company during the last 10 years, 
have you not? 

Mr. Loweree. Yes; I have, 

Mr. Gesell. Did you prepare them in each case? 

Mr. Loweree. No; not in every case. I came w^ith the company 
in May of 1927, at which time Mr. Henry Roth was secretary, and 
I was taken into his department to assist him generally. 

Mr. Gesell. For what time did you have responsibility for the 
preparation of statements? 

Mr. Loweree. I think in about '34 or '35, approximately '34. 

Mr, Gesell. It is true, is it not, that from '34 to the present time 
the statements have failed to disclose that there were loans made to 



5700 CONCENTRATION OF ECONOMIC POWER 

Stockholders, officers, and directors or any such loans outstanding in 
response to question 10 of the general interrogatory? 

Mr. LowEREE. The general interrogatories do not disclose that fact, 
no, but the examination of the schedule C would have disclosed it. 

Mr. Gesell. How? 

Mr. Loweree. By reason of the fact that the loans that have been 
under question are named in the name of Irene Reaney. 

Mr. Gesell. How would anyone know that she, (a) was a stock- 
holder, or (b) that she was borrowing the money for Mr. Burnett, 
by reading that schedule? 

Mr. Loweree. Thty wouldn't know she was borrowing the money 
for Mr. Burnett ; no. 

Mr. Gesell. How would they know she was a stockholder ? 

Mr. Loweree. I was assuming that anyone interested or making an 
inquiry would have access to the stock ledger. 

Mr. Gesell. Well, that isn't a fact, is it? 

Mr. Loweree. No. 

Mr. Gesell. So that assumption is incorrect. 

Mr. Loweree. That is incorrect ; yes. 

Mr. Gesell. Can you tell us why it was that these statements failed 
to make the proper disclosures under section 10 of the general inter- 
rogatories? Were you aware of the loans? 

Mr. Loweree. I was aware of every collateral loan ; yes. 

Mr. Gesell. You knew Miss Reaney was a stockholder, did you 
not? 

Mr. Loweree. Yes ; I did. 

Mr. Gesell. Did you know she was borrowing this money for some- 
one else? 

Mr. Loweree. No; I did not. 

Mr. Gesell. Did you have any suspicions in that connection? 

Mr. Loweree. When you say "suspicions" I don't know just how 
to answer it. I wouldn't be inclined to be suspicious of any loan that 
Miss Reaney would bring down there. I don't think I would have 
any reason to question whether it was for her or not. 

Mr. Gesell. Did you think she was borrowing this money for 
herself? 

Mr. Loweree. The loans were in existence, Mr. Gesell, before I 
had responsibility for the statement, and I think I would have to 
answer that by saying that I didn't give it any thought as to whether 
it was for her or Mr. Burnett. 

Mr. Gesell. At least you knew she was a stockholder. 

Mr. Loweree. I did; yes. 

Mr. Gesell. How do you account for the fact, then, that the state- 
ments which you prepared show no loans to the stockholders? 

Mr. Loweree. When I first was interested in preparing the anual 
statements I used to prepare them under the supervision of Mr. Roth. 

Mr. Gesell. Is he dead now? 

Mr. Loweree. He is dead ; I think he died in '29 or '30. And every 
figure that went into the statement would be seen by Mr. Roth and 
either corrected or approved. 

Mr. Gesell. Now let's come to the time that you had the responsi- 
bility of the preparation of the statements. Let's take that. 

Mr. Loweree. I was leading up to that, Mr. Gesell. The inter- 
rogatories would be submitted to Mr. Roth and I recall that I ques- 



CONCENTRATION OF ECONOMIC POWER 570I 

tioned him or asked him about that particular interrogatory that you 
have talked about, and he told me that that was an interpretation of 
the charter and that it did not refer to loans that were collateraled. 

Mr. Gesell. And so though the statement simply says "Any loans 
to stockholders," without specifying the type of loan at all, you fol- 
lowed that interpretation. 

Mr. LoAVEREE. That is correct; yes, sir. 

Mr. Gesell. Did you ever discuss the matter with any of your 
superior officers after you had the responsibility for these statements ? 

Mr. LowEREE. I can't recall of any instance where I ever made an 
issue of that particular question that you have in mind. 

Mr. Gesell. Did you ever question it with the State examiners ? 

Mr. Loweree. Not that I recall ; no, sir. 

Mr. Gesell. I have no more questions. 

The Vice Chairman. I would like to ask a question. You say that 
this Mr. — , what was his name ? 

Mr. Loweree. The former secretary was Mr. Roth. 

The Vice Chairman. He said that his interpretation of the charter 
was that it did not apply to officers or directors who came with 
collateral ? 

Mr. LowERES. That is correct; yes, sir. 

The Vice Chairman. That satisfied you ? 

Mr. Loweree. Yes ; it did. 

The Vice Chairman. Who determines in your company whether 
the collateral is adequate or not? 

Mr. Loweree. At the present time or then? 

The Vice Chairman. Then. 

Mr. Loweree. I think Mr. Burnett, Mr. Roth, and Mr. Harry 
Roth, then, I believe, would have determined that, perhaps Mr. 
Emmons also would have been in it.^ 

The Vice Chairman. If any one of these gentlemen came to the 
company looking for a loan with collateral, they would have some- 
thing to say about the adequacy at that time. Is that right ? 

Mr. Loweree. They would have had ; yes, Mr. Casey 

The Vice Chairman (interposing). If Mr. Roth or Mr. Burnett or 
Mr. Emmons came looking for a loan from the company, with collat- 
eral, they would be having a board of which they were members 
and of which the members were all friends of theirs determining the 
adequacy of the collateral. Isn't that correct? 

Mr.' Loweree, They would have had something to do with deter- 
mining the adequacy of the collateral, subject, of course, to the sub- 
mission of that particular loan to the next meeting of the board and 
its ratification or refusal to ratify. 

The Vice Chairman. To what board ? 

Mr. Loweree. The board of directors. 

The Vice Chairman. They were all members of the board of 
directors, weren't they? 

Mr. Loweree. They were all members of the board of directors, 
but any individual in that group that I named who made the loan 
on collateral or without collateral would have known that his loan 
would be submitted to the next meeting of the board for inspection. 



* In this connection see subsequent statement by Mr. Emmons, infra, p. 5730. 



5702 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. All of this group were also members of the 
board of directors. 

Mr. LowEREE. Except the comptroller, Harry Roth — I mentioned 
his name. 

The Vice Chairman. Mr. Emmons and Mr. Eoth and Mr. Mears? 

Mr. Loweree. No, sir; I mentioned Mr. Emmons, Henry Roth, 
Mr. Burnett. 

The Vice Chairman. I am merely stating that while in this in- 
stance the collateral was stock in the insurance company itself, you 
might have, not only might but the probabilities are that there would 
be grave temptation in allowing directors, managers, and people who 
have control of the company and who themselves have determination 
of how adequate the collateral was allowing these people to determine 
the adequacy and come and get loans. 

Mr. Loweree. Mr. Casey, I don't believe that in this particular 
case the collateral was the stock of the company. I think it was 
mainly collateral on the New York Exchange, if I am not mistaken. 

The Vice Chairman. Stock on the New^ York Stock Exchange ? 

Mr. Loweree. 1 think by far the bulk of that collateral, if not all 
of it, was listed securities on the New York Exchange. 

The Vice Chairman. In this instance I say the collateral was ade- 
quate, no question about this, but what I am pointing out is the 
danger of this practice of establishing a precedent to allow the prac- 
tice of directors and managers of a company to come and obtain loans, 
even though they have collateral, because the value of that collateral 
is passed upon by these self-same men who come looking for loans. 

Mr. Loweree. I can't help but recognize the general principle that 
you say, and I agree with you. 

(Witness Loweree excused.) 

Mr. Gesell. Mr. Roberts, please. 

TESTIMONY OF MILTON E. ROBERTS, VICE PRESIDENT AND 
DIRECTOR, MONUMENTAL INSURANCE CO.— Resumed 

transactions with interlocking companies 

Mr. Gesell. Mr. Roberts, I want to question you concerning the 
affairs of Real Estate Trustee, Inc., Real Estate Trust Co., Land 
Mortgages, Inc., and Consolidation Co. You are familiar, are you not, 
in a general way with the affairs of the companies? 

Mr. Roberts. I am. 

Mr. Gesell. Am I correct in saying that a corporation known as 
Real Estate Trustee, Inc., was incorporated on March 21, 1924? 

Mr. Roberts. Correct. 

Mr. Gesell. Were you interested in that company at the time of 
its organization? 

Mr. Roberts. I was the originator of the corporation, conceived 
the idea. 

Mr. Gesell. Mr. Mears and Mr. Tormey and yourself were among 
the original subscribers to the stock of that company, were you not? 

Mr. Roberts. I believe that is correct. 

The Chairman. Who ? 



CONCENTRATION OF ECONOMIC POWER 5703 

Mr. (tesell. Mr. Mears, Mr. Roberts, and Mr. Tormey; Mr. 
Torniey was connected Avith the Monumental Life Insurance Co. at 
that time as a director, was he not? 

Mr. Roberts. I think so, 

Mr. Gesell, And Mr. Mears also was connected with the com- 
pany ? 

Mr. Roberts. I think so. 

Mr. Gesell. The original paid-in capital of the company was 
$100,000, was it not? 

Mr, Roberts. Oh, no, $250,000; and then the capital stock was 
increased to $500,000, and then by subsequent stock dividends it was 
increased close to $700,000. I just can't recall the exact figure, 

Mr, Gesell. What kind of business was this company engaged in ? 
Was it loaning money on mortgages? 

Mr. Roberts. Simply interested in real estate, 

Mr, Gesell. The business involved mortgages? 

Mr. Roberts. Exclusively. 

Mr. Gesell. Where did the control of this company rest, with 
yourself, Mr, Mears, and Mr, Palmer? 

Mr. Roberts, If you have the stock lists there I can tell you con- 
trol. The control was very widely scattered. 

Mr. Gesell. As a practical working matter, I am not talking 
about where 5 percent of the stock was, I am talking now about a 
practical working matter. Wlio were the guiding people in the 
operations of the company? 

Mr. Roberts. I was practically the controlling operator, I op- 
,erated the company and Mr, Mears was on the committee, I forget 
who else w^as on the real-estate committee, but I practically operated 
the company, 

Mr. Gesell. You say you conceived the idea of the organization 
of the company ? 

Mr, Roberts. I think I am responsible for it, 

Mr, Gesell, What was the idea about the operation of it? 

Mr. Roberts, Well, let me answer it my way and I can save time, 
I think. If you will recall along about that period, 1924 and several 
years prior to that, the practice arose among the large casualty com- 
panies of issuing what was then known as guaranteed mortgage cer- 
tificates. I had looked at that plan quite a good bit and we had 
considered whether or not the mortgage guarantee was a sound in- 
vestment, I concluded that the only safe mortgage plan that could 
be operated was directly in on the real estate in which you held the 
mortgage itseli and not a certificate of participation in any other 
mortgage. 

We discussed the question of organizing the mortgage company at 
that time, and, if you will recall, money rates were very high. There 
was a lot of building going on and construction work, and the rates 
paid for money at that time was in excess of the legal rate of 6 
percent, which is the legal rate in Maryland. We decided that if we 
could organize the mortgage company, get the direct loans, and then 
instead of the insurance company buying for mortgagel investment 
guaranteed mortgage certificates, that they could get a direct lien 
on the property in such quantity that would justify us in giving 
us an outlet for lending our money. We made an arrangement with 
the insurance company 



5704 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell (interposing) . When you say "the insurance company" 
do you mean the Monumental? 

Mr. Roberts. Yes; Monumental Life. We made the arrangement 
that the mortgage company would confine its loans to a margin not 
greater than 60 percent of the purchase value of the properties. 
That hypothecation of that mortgage for 80 percent of the amount 
we lent had a differential of half of 1 percent interest to the mortgage 
company and it would provide a very safe reservoir from which to 
supply mortgage investments for the insurance company. 

The reason that mortgages as investments are desirable from the 
insurance company standpoint is that under the laws of Maryland 
the insurance company receives an exemption in taxes for all of the 
mortgage money that is lent in the State. 

Mr. Gesell. May I interrupt you a moment. I will let you go 
on with your discussion, but I want to make a bit of it clear at this 
stage. Was the insurance company authorized at that time to loan 
money on mortgages directly itself? 

Mr. Roberts. Oh, yes. 

Mr. Geseij.. Instead of doing that, it was thought best to form 
this Real Estate Trustees, Inc., under this arrangement — and I want 
you to check the accuracy of this. 

Mr. Roberts. Yes; at my suggestion. 

Mr. Gesell. Yes; that the Real Estate Trustees, Inc., would loan 
the money on the mortgages up to 60 percent. 

Mr. Robekts. Not all of it, we macle other loans. The insurance 
company took the loan wherever it could get it, but with the added 
collateral value of a corporation of six or seven hundred thousand 
dollars behind it on the assignment, we would assign the mortgage 
with recourse — not without recourse, but with all the asset value of 
the mortgage company behind it, to the insurance company. So we 
not only had the property that was covered by the mortgage, but 
we had whatever security the capital of the mortgage company repre- 
sented in addition. 

Mr. Gesell. I want to get the mechanics of this straight. 

Mr. Roberts. Yes. 

Mr. Gesell. The Real Estate Trust, Inc., would loan money on 
mortgages ? 

Mr. Roberts. That is right. 

Mr. Gesell. It would then take those mortgages, in some instances, 
and merge them with the insurance company as collateral against a 
collateral loan to Real Estate Trustee, Inc. Is that a correct state- 
ment? 

Mr. Roberts. That is true, to the extent of 80 percent of the 
amount of a general entry. 

Mr. Gesell. And the advantage you saw in that arrangement 
from the point of view of the insurance company was that it would 
have, in addition to the security of the mortgage itself, the credit of 
Real Estate Trustee, Inc.? ■ — 

Mr. Roberts. That was the theory. 

Mr. Gesell. And from the point of view of Real Estate Trustee, 
Inc., I take it there was some advantage in that Real Estate Trustee, 
Inc., received some profit for handling these transactions. 



CONCENTRATION OF ECONOMIC POWER 5705 

]Mr. Roberts. Every loan that was made by the mortgage com- 
pany was made on a commission basis in addition to the regular rate 
of interest, the same as a brokerage basis. 

Mr. Gesell. So that on all of these mortgage loans that were made 
by Real Estate Trustee and then pledged with Monumental against a 
collateral loan, Real Estate Trustee, Inc., received a commission? 

Mr. Roberts. Yes; from the borrower. 

Mr. Gesell. No commission from the insurance company? 

Mr. Roberts. None whatever, except the differential in the interest 
late. We would get a half percent. I stated that. 

Mr. Gesell. Yes. You would get something from the insurance 
company as well as something from the borrower? 

Mr. Roberts. That is correct. 

Mr. Gesell. Real Estate Trustee, Inc., paid dividends up until 
December 31, 1930, did it not? 

Mr. Roberts. I believe it did. 

Mr. Gesell. Tlien after that time, am I correct in saying that it 
ceased to pay dividends? 

Mr. Roberts. I think you are correct, sir. 

Mr. Gesell. The name of tlie company was changed, was it not, to 
Land Mortgages on May 19, 1933. 

Mr. Roberts. That is right. 

Mr. Gesell. Land Mortgages continued to engage in the same kind 
of business as Real Estate Trustee, Inc. ? 

Mr. Roberts. No; we were engaged in the same business but we 
were attempting to liquidate as fast as we could. 

Mr. Gesell. You were not making active loans? 

Mr. Roberts. No. In fact, we tried to liquidate when we saw the 
conditions that were changing. In 1927 our board recognized the 
fact that we thought we were approaching a crisis, and we en- 
deavored then to curtail our loans and to call our loans, but it be- 
came exceedingly difficult to even get the interest, of our payments 
on account of the principle. 

The Vice Chairman. You mean you had the sagacity to foresee the 
collapse ? 

Mr. Roberts. Well, sir, if you want to call it that, it is true. We 
discussed it, we thought things were going too well and everybody 
was making money without effort, and we couldn't see how it could 
last. 

The Vice Chairman. I should like to have had your advice at that 
time. [Laughter.] 

Mr. Gesell. Now, Mr. Roberts, how high did these collateral loans 
on mortgages as between Monumental and Real Estate Trustee, Inc., 
run? 

Mr. Roberts. I haven't looked at the statements lately but I think 
at one time we had a peak of around a million and a half to a 
million and three quarters. How near correct is that? 

Mr. Gesell. I believe that is correct. The annual statements of 
the company show for the year-end figures that there was some 
$80,000 in collateral loans from Monumental to Real Estate Trustee 
in 1929, $165,000 at the end of 1930, $692,000 in 1931, and $766,803 
in 1932; and that thereafter the loans were shown as outstanding 
as Land Mortgages, Inc., in amounts ranging from a low in 1938 of 



5706 CONCENTRATION OF ECONOMIC POWER 

three hundred and forty-two thonsand-odd dollai^ to a high in 1933 
of around six hundred and twenty-six thousand-odd dollars. 

Mr. Roberts. Well, those statements were in the books then. 

Mr. Gesell. They were substantial transactions then, were they 
not, as between Land Mortgages and Real Estate Trustee on the 
one hand, and the Monumental, on the other ? 

Mr. Roberts. And very profitable, during that time, to the insur- 
ance company. 

Mr. Gesell. Also of some profit to you gentlemen interested in 
the mortgage? 

Mr. Roberts. Quite naturally, 

Mr. Gesell. Then this was another case, was it not, Mr. Roberts, 
where certain of the officers and the directors of the insurance com- 
pany were dealing with the insurance company? 

Mr. Roberts. Well, you can't deny a fact, Mr. Gesell, that is shown 
from the records, but the question of a motive is an entirely different 
thing. 

Mr. Gesell. I made no reference to a motive. 

Mr. Roberts. I am as human as anybody that ever lived and an 
opportunity to make money honestly and fairly — I don't believe I 
would have passed it up. 

Mr. Gesell. Even though it was an opportunity to make money 
off a company where you were a director? 

Mr. Roberts. If you depend on the integrity of the men involved 
that is the only thing you can possibly do business on. 

Mr. Gesell. Now, coming for a moment to Real Estate Trust 
Co., I believe you said that is a bank. 

Mr. Roberts. Yes. 

Mr. Gesell. That was organized November 1, 1926, was it not? 

Mr. Roberts. Either November or September. I am not certain;. 
I think they opened November 1. 

Mr. Gesell. Where did the money come from to organize Real 
Estate Trust Co.? It came from Real Estate Trustee or Land 
Mortgages, did it not? 

Mr. Roberts. No. I will give you the history of it and then you 
can get the picture. When the building was contemplated at Charles 
and Chase Streets, we had a very attractive first floor that we thought 
would be a very excellent banking location in a section of the city 
that has always been residential. North Charles Street, if any of you 
gentlemen know Baltimore, was the old residential, fashionable sec- 
tion of Baltimore. 

Mr. Gesell. You recall, Mr. Roberts, my question was where did 
the money come from ? • 

Mr. Roberts. I am going to give you that, I am going to give you 
the reason. It was a decided break from the financial district, 10 or 
12 squares away from that section. We discussed whether or not 
we could turn the mortgage company into a bank. 

The Chairman. When was that? 

Mr. Roberts. In 1926, probably a little time leading up to the 
organization, probably when the building was considered. I think 
it was a year or two before that, and when the building was getting 
under way we were looking for a tenant for that first floor. None 
of the banks were willing to go outside of their business or ordinary 
financial district, so we discussed the matter with the banking com- 



CONCENTRATION OF ECONOMIC POWER 5707 

misL-'oner as to the propriety of converting a mortgage company into 
a bank. The bank commissioner did not think it was a proper thing 
to do. that the assets were not liquid, and that a bank ought to liave 
liquid assets. We therefore put an advertisement in the paper organ- 
izing a bank and asking for subscriptions to the stock. I wish I had 
those advertisements but I didn't know this matter would come up. 

The capital Avas subscribed to by — I forget how many stock- 
holders, in one particular instance the Mercantile Trust Co., of 
Baltimore, subscribed to about 20 to 25 percent of the capital and 
the rest of the capital was provided by the mortgage company which 
subscribed to some, and the individuals subscribed to some. I forget 
what the mortgage company subscribed to, but the records will 
show it. 

Mr. Gesell. It was a substantial amount, was it not? 

Mr. Roberts. I think it was a substantial amount. 

Mr. Gesell. After the bank was organized, the people who had been 
interest in the mortgage company continued to have the active oper- 
ating control of the bank, did they not? 

Mr. Roberts. Oh, there is no doubt about that. We -^vere all direc- 
tors in the mortgage company. It's not altogether similar, but if you 
have the directors at the time the bank opened, and the directors of 
the mortgage company, it is very easy to see where the control was. 

Mr. Gesell. Well, now, can you tell us where the control was at the 
time ? You may refer to the minutes. 

Mr. Roberts. Do you have the first meeting of the mortgage com- 
pany ? I have here the first meeting of the bank. 

Mr. Gesell. That is what we are interested in. The question is 
where were the Tormev interests at the time of the organization of the 
Real Estate Trust Co.'? 

Mr. Roberts. In the mortgage company, the records with Mr. 
Tormey, who was also a director in the bank; Mr. William C. Scott 
was a director in the mortgage company and also a director in the 
bank ; Mr. Mears is there, in both companies. 

Mr. Gesell. Yourself? 

Mr. Roberts. Myself would be four. I believe that is all, Mr. Gesell, 
as far as I can see. 

Mr. Gesell. Now, am I correct in saying that the Real Estate Trust 
Co. borrowed money from Monumental Life Insurance Co. on col- 
lateral loans? 

Mr. Roberts. The Real Estate Trust Co.? 

Mr. Gesell. Yes. 

Mr. Roberts. No, sir; we never had — Real Estate Trust Co. never 
did that since it has been opened. 

Mr. Gesell. Have you your convention form statement of the Mon- 
umental Life Insurance Co. 'for the year 1930? Will you refer to 
schedule C-2 and see if there was not a loan from the Monumental to 
Real Estate Trust Co. outstanding at the year end for 1930 in the 
amount of $50,000? 

Mr. Roberts. That was a call-loan transaction on money I think to 
be placed out in the New York market, 

Mr. Gesell. Was collateral shown against that ? 

Mr. Roberts. The collateral will be shown. What is the collateral, 
Mr. Loweree? 

Mr. Loweree. Ten shares — do you want me to read it all ? 

124491 — 40— pt. 12 9 



5708 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. It is a list of miscellaneous securities, is it not ? 

Mr. LowEREE. General Motors, Gold Dust Corporation, Home Fire 
Securities, Houston Oil, Montgomery-Ward, National Dairy Prod- 
ucts, Pennsylvania Eailroad, Phillips Petroleum, Studebaker, Sin- 
clair, Texas Corporation, United Corporation, United. States Realty 
and Improvement, Warner Bros., Washington Central Railway, Bal- 
timore Hebrew — I don't know that. 

Mr. Gesell. Miscellaneous collateral. How was the name of the 
actual borrower shown there? 

Mr. Loweree. The actual borrower is shown as Real Estate Trust 
Co. 

Mr. Gesell. Now, Mr. Roberts, do I understand that was not a 
collateral real-estate loan to Real Estate Trust Co. ? 

Mr. Roberts. We never made it a collateral loan ; we never owned 
securities except in a small amount; I am sure that transaction was 
one made at that time through a participation in a loan that some 
broker or one of our corresponding banks had made and had listed 
collateral furnished to us. 

Mr. Gesell. You mean that you think this was a loan of the insur- 
ance company from someone other than Real Estate Trust Co.? 

Mr. Roberts. It must have been because I have absolutely no recol- 
lection of ever having — we never have had, in my opinion, in my 
recollection, borrowed money from anybody. 

Mr. Gesell. That is another case, then, where we have rather faulty 
reporting of the actual transaction? 

Mr. Roberts. I can't help that, sir; I am interested in the bank and 
I think I would know. 

Mr. Gesell. You are also director of the insurance company, aren't 
you? 

Mr. Roberts. Oh, yes; I am a director in a lot of things. 

Mr. Gesell. Well, now I notice for the years 1931-33, for each year 
there is shown in a similar fashion a loan outstanding in the amount 
of $115,000. Is that the same kind of transaction? 

Mr. Roberts. I think that would all be the same transaction. I 
would like to clear that up myself to my satisfaction. Oiu' vice pres- 
ident who is in active charge of those records could clear that up. 

Mr. Gesell. Can we ask, with the agreement of the committee, for 
you to furnish us with a written statement of the exact nature of 
tliose transactions? ^ 

Mr. Roberts. I will be glad to do it. 

Mr. Gesell. After you have had an opportunity 

Mr. Roberts (interposing). I would want to do that, too, for my 
own satisfaction. 

Mr, Gesell. Now am I correct in saying, Mr. Roberts, that the 
Monumental carried balances at the Real Estate Trust Co. since 1929? 

Mr. Roberts. I think they haA^e carried balances almost since we 
opened, sir. 

Mr. Gesell. They have had money on deposit there at all times, 
haven't they? 



1 Subserjuent correspondence relating to the nature of the Monumental Life Insurance 
loans to the Real Estate Trust Company was entered in the record on September 22. 1939, 
as "Exhibit No. 1128" and appears in the a^jpcndix to this Part, on p. 6357. 



CONCENTRATION OP ECONOMIC POWER 5709 

Mr. Egberts. Not in an excess amount. In the first place we had 
no use for it and I didn't want large deposits. 

Mr. Gesell. The annual statement of the companies from the year 
1929 to 1937 shows that as of the year end, December 31, for those 
years, the balances range from a low of nine-thousand-odd dollars ii^ 
1934 to a high of two-hundred-and-fifty-five-thousand-odd dollars 
shown in 1932? 

Mr. KoBERTS. I think that is probably correct. 

Mr. Gesell. That is a representative statement of balances ? 

Mr. Roberts. Oh, yes; that is true. 

Mr. Gesell. I should like to offer for the record at this time two 
schedules prepared from the annual statements of the company; 
one showing the amount of collateral loans outstanding. Real Estate 
Trust Co., Land Mortgages, Inc., and Real Estate Trust Co. for 
the years 1929 to 1938, and the others showing year-end balances 
f ron'i 1929 to 1938 carried by Monumental with Real Estate Trust Co. 
These schedules are offered, subject to check or correction by the com- 
pany in accordance with the procedure of the committee. 

(The schedules referred to were marked "Exhibits Nos. 963 and 
964" and are included in the appendix on p. 6196.) 

Mr. Roberts. I want to, for the purpose of the record, Mr. Gesell, 
point out that during that period that you are speaking about the 
cash deposits of the insurance company in various banks ran as 
high as 20 millions of dollars. 

Mr. Gesell. I made no effort to indicate that the highest balances 
or the lowest balances, or any other kind of balances pertained to the- 
Real Estate Trust Co. 

Mr. Roberts. There are a couple of reasons why I didn't want it; 
if you want to know, I can tell you. You have to pay the deposit 
insurance on your deposits and it means an operating expense when 
you can't use the money. 

Mr. Gesell. Now, Mr. Roberts, there is one other company we 
haven't mentioned here; that is the Consolidation Co., isn't it? 

Mr. Roberts. That is my company, sir ; that is, I own a little less 
than half interest in it, but it was my money that financed the com- 
pany, sir. 

Mr. Gesell. And you own a substantial interest in the preferred 
stock and 48 percent of the common ? 

Mr. Roberts. I think I own all of the preferred stock and 48 per- 
cent of the other. 

Mr. Gesell. What kind of company is it ? 

Mr. Roberts. Development company, pure and simple. 

Mr. Gesell. Baltimore again? 

Mr. Roberts. Exclusively Baltimore. 

Mr. Gesell. In the real-estate business? 

Mr. Roberts. In the development end of it. 

Mr^ Gesell. Now what I am anxious to discuss with you is the 
manner in which the indebtedness between Land Mortgages, Inc., 
and Monumental Life Insurance Co. was liquidated. Am I correct in • 
saying that in 1934 the indebtedness on these collateral loans running 
between Monumental and Land Mortgages was in the neighborhood 
of $800,000, owed by Land Mortgages to Monumental ? 

Mr; Roberts. I think that is approximately correct, sir. 



5710 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. At that time am I correct m saying that consideration 
was given to the liquidation of the indebtedness and in fact there 
has been consideration of that fact prior to the time. 

Mr. Roberts. Very serious consideration, sir. 

Mr. Gesell. What was the condition of Land Mortgages at that 
time? Was it insolvent? 

Mr. Roberts. I should say it was ; couldn't meet its obligations, and 
it couldn't pay its debts. 

Mr. Gesell. You were still interested in the company ? 

Mr. Roberts. Well, I was still very much interested in the com- 
pany, although I was not the nominal head of the company at the 
time. 

Mr. Gesell, Other persons connected with the insurance company 
were still interested in Land Mortgages, were they not? 

Mr. Roberts. I think there was a sevt.#ance of relations of directors 
in connection with the directors and some years prior to that, though 
I think at the time there were no directors of the Monumental on the 
board. Now, that is my impression. 

Mr. Gesell. But yourself? 

Mr. Roberts. Well, I was and still ani excepting myself. 

Mr. Gesell. Now, am I correct in saying that at that time an agree- 
ment was entered into between Land Mortgages, Inc., and IVwnu- 
mental, that is July 1, 1934, under which an executive committee was 
established ; that executive committee to have the principal responsi- 
bility in working out the liquidation of the $800,000 indebtedness? 

Mr. Roberts. I believe I got off the board at that time, did I not, 
and turned the matter over to the executive committee to try to work 
out the details ? 

Mr. Gesell. The members of the executive committee at that time 
were Mr. Fenton, Mr. Gilbert, Mr. Emmons, and Mr. Scott. 

Mr. Roberts. I didn't recall Mr. Emmons. Mr. Emmons was kept 
in at that time in order to represent the Monumental interests so that 
all deliberations as to disposal of the real estate, the Monumental 
would know what was going on. 

Mr. Gesell. Then that committee continued to function until June 
25, 1935, did it not, and thereafter? 

Mr. Roberts. I think that is true. 

Mr. Gesell. Now, is it not correct that on June 25, 1935, you and 
Mr. Mears came back on the executive committee, replacing Mr. 
Gilbert and Mr. Scott? .^ 

Mr. Roberts. That is right. 

Mr. Gesell. So that as of June 25, 1935, yourself, Mr. Mears, Mr. 
Emmons, and Mr. Fenton constituted the executive committee? 

Mr. Roberts. That is true. 

Mr. Gesell. Now, am I correct in saying that the executive com- 
mittee charged with the liquidation of this indebtedness continued to 
function right up into '38 ? 

Mr. Roberts. If the record shows that, I think that is true. 

Mr. Gesell. It was in 1938, was it not, that there was a new under- 
taking with respect to the liquidation of the indebtedness ? 

Mr. Roberts. Yes ; the agreement that was entered into in 1934 with 
the insurance company would have terminated in 1939, and such little 
progress had been made in the liquidation of the real estate due to the 
conditions that existed in the real-estate market — it was impossible to 



CONCENTRATION OF ECONOMIC POWER 5711 

sell B^nything; you could do practically nothing in the way of liqui- 
dating such frozen assets — that it was deemed advisable to endeavor 
to get the indebtedness settled. 

Mr. Geseli,. Now, I want to discuss with you the manner in which 
that indebtedness was settled. I would like to refer you to the minute 
book of the Consolidation Corporation, which contains a copy of the 
minutes of the quarterly meeting of the directors of the Monumental 
Life Insurance Co. held on April 6, 1929.^ You recognize the minutes 
of the company which are before you, do you not ? 

Mr. Roberts, Yes; I am familiar with the details, although, Mr. 
Geseli, the whole details of this transaction were handled by Mr. Fen- 
ton, who was then president of the company, but I am familiar with the 
theory of the thing. 

Mr. Gesell, Now, the minutes of the Monumental Life Insurance 
Co. as contained in the records of the Consolidation Co. read as follows, 
do they not [reading from "Exhibit No. 965"] : 

The Chairman reported that the indebtedness of Land Mortgages, Inc., to the 
company — 

that is, to Monumental — 

on March 31, 1939, amounted to $446,990.05 as adjusted by verbal agreement, modi- 
fied agreement effective July 1, '34, agreement of August 9, '34, and agreement of 
December 24, '34. He stated that a basis for the settlement of this indebtedness — 

that is, the indebtedness of $446,000— 

had been worked out by the oflScers and had been submitted to the executive com- 
mittee at its meeting just held on this date, and that the executive committee had 
approved and ratified the proposed settlement — 

which is as follows: 

1. That the Monumental Life Insurance Company purchased from Land Mort- 
gages, Inc., certain shares of stock owned by Land Mortgages, Inc., and at present 
hypothecated to the Monumental Life Insurance Company under the said indebted- 
ness at and for the sums herewith set opposite each. 

There are then listed certain shares of Real Estate Trust, Mid-Conti- 
nental, and Monumental Life, which were to be purchased by Monu- 
mental ? 

Mr. Roberts. That is right. 

Mr. Gesell. For $296,500; is that correct? 

Mr. Roberts. That is true. 

Mr. Gesell. I notice there that there are 2,193 shares of Real Estate 
Trust Co. stock which was purchased for a total of $274,125, or a cost 
per share of $125 ? 

Mr. Roberts. That is correct. 

Mr. Gesell. That is a rather high price for shares of Real Estate 
Trust Co. stock, isn't it? 

Mr. Roberts. But if you will go further into it you will see that I 
personally entered into an agreement to buy that stock back at the 
same price, personally. 

Mr. Gesell. What was the stock worth at this time? 

Mr. Roberts. The market on the stock paid $2 a year, and the market 
on it is around $64 to $65 ; in fact, I just bought some. 
' Mr. Gesell. Then the company agreed to buy this stock at $125 ? 

Mr. Roberts. Yes. 



» Entered later as "Exhibit No. 965." See appendix, p. 6197. 



5712 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. When the market price was around $64 ? 

Mr. Roberts. That is true. 

Mr. Gesell. With the understanding that you later on would pur- 
chase the stock from Monumental at the price of $125 a share? 

Mr. Roberts. That is right. 

Mr. Gesell. When was that purchase to be made by you ? 

Mr. Roberts. Within 2 years from the date of the agreement. 

,Mr. Gesell. Two years hasn't come yet, has it? 

Mr. Roberts. Oh, no. 

Mr. Gesell. That is a dubious investment, from your point of view, 
isn't it, Mr. Roberts? 

Mr. Roberts. I think not, or I wouldn't have made it. 

Mr. Gesell. Do you think it will be a collectible indebtedness? 

Mr. Roberts. Well, I will answer your question this way : The thing 
that impels us to make an investment is the opportunity for profit. 
The book value of the bank today is around $165 a share. I own 
enough of the stock of the Trust Co., which, together with the stock 
that we have here will place the control in a few of us, so I know how 
the bank will be operated and I know just what the value of the stock 
will be, and am perfectly willing 

Mr. Gesell (interposing). You believe that in the future it will be 
worth $125 ? 

Mr. Roberts. In fact, if we wanted to liquidate the bank today the 
position the bank is in, as liquid as it is, the liquidating value to the 
stockholders would be in the neighborhood of $160 a share. 

Mr. Gesell. In effect, what was happening here was that the Mon- 
umental was giving about twice the value of this stock to Land 
Mortgages in return for your guaranty to give them that additional 
\alue 2 years later. That is a fair statement? 

Mr. Roberts. It was done to protect the insurance company for 
the very simple reason, Mr. Gesell 

Mr. Gesell (interposing). Wait just a minute, Mr. Roberts. "Done 
to protect the insurance company"? 

Mr. Roberts. It was to place the insurance company in the same 
position it was when it made the investment in the stock. Now, 
they were carrying it at $125 on their books, because that is what 
they paid for it. 

Mr. Gesell. Well, now I want to come back to this after we 
cover the rest of this, and I think I can talk to you again about that. 
[Reading from "Exhibit No. 965" :] 

2. The Land Mortgages, Inc., will apply the proceeds of this sale to its indebt- 
edness to Monumental, thus reducing the indebtedness from $446,000 odd to 
$150,490. 

3. Land Mortgages, Inc., will pay to Monumental Life the sum of $50,490.05, 
which will be a settlement in full of the said remaining indebtedness of $150,- 
490.05, and Monumental Life will release all of the remaining pledged col- 
lateral under the said indebtedness. 

In other words, Monumental wrote off $100,000 of this debt, didn't 
it? 
Mr. Roberts. That is true. 
Mr. Gesell. And it released certain collateral? 
Mr. Roberts. That is right. 



CONCENTRATION OF ECONOMIC POWER 5713 

Mr. Gesell. The Monumental Life will charge off as a loss the 
unpaid difference at $100,000. [Reading further from "Exhibit No. 
965":] 

In this connection Monumental Life and Land Mortgages will enter into an 
agreement mutually releasing each other from all claims and demands of any 
kind and description. 

Now, so far — there are other stages in this agreement, but so far 
they have given Moni^inental a value of $125 against 2,193 shares of 
Real Estate Trust Col ■Btock, when the market was $64, in return for 
your guaranty to take it at $125, 2 years later. And they have 
written off $100,000 of this indebtedness. That is the practical effect? 

Mr. Roberts. Yes. 

Mf. Gesell (reading further from "Exhibit No. 965") : 

4. In connection with the purchase of the 2,193 shares of stock of Real Estate 
Trust Company as set forth in item one, the company will enter into an agree- 
ment with Mr. Milton Roberts to be effective March 31, 1939, wherein Mr. 
Milton Roberts will agree to buy, and the Monumental will agree to sell, before 
April 1, 1941, the said 2,193 shares of Real Estate Trust Company, at $125 per 
share, for a total of $274,125. 

And the agreement, paragraph 4, sets forth the other arrangements 
with respect to your agreement to take that stock at $125. 

5. In connection with the payment to the Monumental Life Insurance Co. of 
$50,490.05, as set forth in item 3, it is understood that the collateral released 
to Land Mortgages — 

That is the collateral released by Monumental to Land Mortgages? 
Mr. Roberts. That is the stuff they didn't want. 
Mr. Gesell (continuing to read) : 

is to be conveyed by such legal methods as our attorneys' advise to a corporation 
known as Consolidation Company. 

That is your company? 

The said Consolidation Company is to make a $50,000 mortgage to the Monu- 
mental Life, secured by collateral as set forth below for a period of 3 years 
from March 31, 1939, with interest at 3 percent. 

In other words. Land Mortgages didn't have this $50,000, did it ? 

Mr. Roberts. No. The Consolidation Co. borrowed the money from 
the Monumental on the collateral released. 

Mr. Gesell. It went all around 

Mr. Roberts (interposing). And then they paid — this is the 
mechanics of it. 

Mr. Gesell. Ring-around-a-rosy ? 

Mr. Roberts. It is a perfectly straight thing, and you can follow it 
very easily; $50,000 went back to the Land Mortgages to pay them 
for the property that they then owned. 

Mr. Gesell. After these securities were purchased by Monu- 
mental 

Mr. Gordon (interposing) . Won't you permit the witness to give his 
explanation and not be interrupting him with "ring-around-a-rosy"? 

Mr. Gesell. There is no interruption of the witness. I object to. 
Mr. Gordon's statement very much. There has been no effort to inter- 
rupt this man or in any way to prevent him from fully presenting all 
of the facts before the committee, and I think his statement is 
extremely unfair. 



6714 CONCENTRATION OF ECONOMIC POWER 

Mr. Gordon. I didn't say that at all. I just said the little "ring- 
around-a-rosy." I didn't say any of this last you said — didn't mean 
anything of that sort. 

The Chairman, You can make your explanation, Mr. Roberts, and 
I am sure Mr. Gesell will be glad for you to make it. 

Mr. Gesell. Go ahead, Mr. Roberts, and say anything you have 
to say. 

The Chairman. Have you finished your question? 

Mr. Gesell. Not at all. 

Mr. Roberts. It wasn't circuitous; it was very easily traced. 

JNIr. Gesell. I want to trace it with you. After Monumental had 
purchased these securities and written off the $100,000 of the debt, it 
was agreed that it would settle the remainder for fifty-odd-thousand 
dollars? 

Mr. Roberts. Yes. 

Mr. Gesell. Land Mortgages was to pay Monumental fifty-thou- 
sand-and-some-odd dollars; it didn't have the money, is that correct? 

Mr. "Roberts. No, sir ; it did not. 

Mr. Gesell. So it took the collateral which was released by Monu- 
mental and pledged it with Consolidation in return for a loan by 
Consolidation of $50,000 to Land Mortgages, which Land Mortgages 
was to pay to Monumental? 

Mr, Roberts. Correct. 

Mr. Gesell. Now Consolidation didn't have that money, either? 

Mr. Roberts. Oh, yes; Consolidation shows a statement today of 
around $150,000. 

Mr. Gesell. What did Consolidation do with the collateral? 

Mr. Roberts. Consolidation Company? I will answer your ques- 
tion, and I think we will get along a little faster, if you will just let 
me answer it my way. The Monumental Life Insurance Co., by virtue 
of its character, is not equipped or permitted even by law to go into 
the development business. 

The Vice Chairman. That is the State law of Maryland? 

Mr. Roberts. It is either that or it is a result of supervision by 
the insurance department. The insurance company has — you will 
admit, I think, that an insurance company has no business going 
into the land development. We had made during the life of this 
agreement, when it was first entered into, through the Consolidation 
Co., a proposition to develop certain of the unimproved land that was 
in tl-'j Land Mortgage loan ; it was considered very carefully and de- 
cided that it wasn't the province of the insurance company to invest 
good n.v^ney in a speculative realty-development proposition. 

We, therefore, endeavored to find some way to liquidate these 
various properties and pay the loans to Monumental that would 
result in the smallest possible loss, if any, to the insurance company. 

Well, 4 years' experience in endeavoring to do that was just fruit- 
less. The Land Mortgages Co. had no money, and it would have 
been, I think, from my viewpoint, a foolish or unwise thing to have 
put good cash into an already bankrupt company, so the Consolida- 
tion Co. was organized purposely for the purpose of taking over, if 
we could, from Land Mortgages, undeveloped lands, and through the 
operation of that company by a very skilled young man who is oper- 
ating this company, who has been trained in the real-estate business 



CONCENTRATION OF ECONOMIC POWER 5715 

and developing business, who manages this company almost ex- 
clusively, and in which he has the other part of the stock control. 

The Consolidation Co., therefore, when these agreements were 
consummated, and particularly the last one, started in to develop 
with its own capital some of these unimproved plans; and by the use 
of Federal Housing Administration plans, and things of that kind, 
we have disposed of certain portions of these lands. 

Now that was not something that the insurance company could 
do. We had discussed quite at length the losses that had been 
taken by insurance companies in their real-estate operations through 
mortgages, and if you will look at the records, you gentlemen know 
that the insurance companies all over the United States have charged 
off, not hundreds of thousands but hundreds of millions of dollars in 
mortgage loans. 

Mr. Gesell. Now, may I appeal to the committee. I have asked 
Mr. Roberts whether the Consolidation took the collateral out of 
Land Mortgages and pledged it with the insurance company with 
a $50,000 loan, and we have had an explanation that goes way beyond 
that point. 

Mr. Roberts. I said, "yes." 

The Chaieman. He is entitled to an explanation. All right, go 
aiiead with the next question. 

Mr. Gesell. The result was, then, that the same collateral which 
was released by Monumental to Land Mortgages was pledged by 
Land Mortgages with Consolidation, and pledged by Consolidation 
back to Land Mortgages, in each case for a loan of $50,000, which 
was made by Monumental to Consolidation, by Consolidation to Land 
Mortgages, and by Land Mortgages to Monumental to pay off the 
debt that Monumental had with Land Mortgages. 

Mr. Roberts. With the very obvious result that the Consolidation 
Co. as the mortgagor was the solvent company with some hundred 
thousand dollars in its assets, where the Land Mortgages had none, 
and the real estate involved in the transaction was worth at least 
50 to 75 percent, I should .say, if it could be liquidated, beyond the 
amount of the mortgage. 

Mr. Gesell. Yes; in other words, this collateral which had been 
released and went around this ring was worth more than $50,000, was 
it not? 

Mr. Roberts. It is to the Consolidation Co., from the standpoint of 
a development company. 

Mr. Gesell. I noticed in these minutes that the grand total of the 
real estate and the mortgages is shown to have a valuation of $148,625. 

Mr. Roberts. Let me answer that my way, too, please. 

The Chairman. Answer the question directly, and then explain. 
That is the procedure. When he asks you a direct question, answer^ 
"Yes" or "No" and then explain. 

Mr. Roberts. They are the assessed valuations. That assessment 
was made on those properties by the income-tax department in an 
adjustment of the tax problems of the Consolidation Co. and the 
Land Mortgages. I want to point out right here that it would be a 
physical impossibility and an absolute impossibility to liquidate those 
properties at the assessed valuation. 



5716 CONCENTRATION OF ECONOMIC FOWER 

Mr. Gesell. It doesn't say anything about assessed valuation here, 
Mr. Koberts. It says [reading from "Exhibit No. 965"] : 

The specific items of collateral to be covered by this mortgage with their 
respective released values are as follows: 

This is a released valuation which is placed against this collateral, 
this figure of $148,625. What happened as a result of this transac- 
tion was that the indebtedness of Land Mortgages to Monumental 
was released and taken off the book by a transaction whereby the 
company, first of all, purchased securities at a value in excess of their 
then present market value, subject to your agreement to take them 2 
years later, whereby they released collateral valued at $148,000 against 
a $50,000 claim, and whereby they wrote off a loan of $100,000. 

Mr. Roberts. That is right. 

Mr. Gesell. Well now, that was a rather favorable transaction, 
from the point of view of you gentlemen interested in the real-estate 
business, from these various real-estate companies, wasn't it? 

Mr. Roberts. I would like you to put the same proposition to an 
outsider and see what answer you would get on it. You couldn't 
possibly have worked it out. 

The Chairman. Mr. Roberts, as I said a few minutes ago, when 
Mr. Gesell asks you a question, please answer it "Yes" or "No" and 
then make your explanation of it. 

Mr. Roberts. I would say "No," and the other answer is time only 
will tell. 

Mr. Gesell. Now I want to call your attention to a portion of the 
minutes of the Consolidation Co., Mr. Roberts. We are looking for 
those minutes and I will come back to that. 

I would like to offer at this time a copy of the meeting of the 
directors of the Monumental Life Insurance Co. held April 6, 1939, 
which describes the transaction in detail. 

(The minutes referred to were marked "Exhibit No. 965" and are 
included in the appendix on p. 6197.) 

Mr. O'CoNNELL. Mr. Roberts, who were on the executive com- 
mittee referred to in these minutes at the time this meeting was 
held? 

Mr. Roberts. The executive committee of which company? Oh, 
they are the Monumental minutes that you are reading. 

Mr. O'CoNNELL. Yes. 

Mr. Roberts, The executive committee of the Monumental was 
composed of Mr. Mears, Mr. Emmons — no, not Mr. Emmons — Dr. 
Vinup, Mr. Stewart Clifford, and Mr. Tormey, and Mr. Burnett. 

Mr. O'CoNNELL. Is that the same executive committee that was 
referred to previously as having been appointed to control the 
situation ? 

Mr. Roberts. No;*the executive committee that was appointed, that 
was the Land Mortgages, that executive committee was appointed to 
try to clear up the affairs of the Land Mortgages. 

Mr. O'CoNNELL. The executive committee referred to in these min- 
utes is not the same? 

Mr. Roberts. Oh, no. 

Mr. Gesell. That, I believe, was a special committee formulated 
for the purpose of liquidating this indebtedness. 

Mr. Roberts. That is correct. 



CONCENTRATION OF ECONOMIC POWER 5717 

Mr. O'CoNNELL. This plan was worked out by which executive 
committee ? 

Mr. Roberts. By the executive committee of the Monumental Life 
in collaboration with the Land Mortgages, 

Mr. O'CoNNELL. Executive committee? 

Mr. Roberts. Yes. 

Mr. O'CoNNELL. What was the membership of the executive com- 
mittee of the Land Mortgages Co. at tfeat time ? 

Mr. Roberts. I think Mr. Fenton — you have that, Mr. Gesell, will 
you refresh my memory, please? 

Mr. Gesell. The executive committee of the Land Mortgages Co. : 
Mr. Roberts, Mr. Mears, Mr. Fenton, and Mr. Emmons were on the 
executive committee as constituted June 25, 1939. I don't think there 
have been any changes in the committee from that time, Mr. Roberts, 
you got off at first and then came back on again in '35. 

Mr. Roberts. That is right. 

Mr. Gesell. Coming to the minutes, Mr. Roberts, that I was look- 
ing for, I believe you stated you didn't think it was to the advantage 
of the Consolidation Co., this transaction. 

Mr. Roberts. I said time will only tell. 

Mr. O'Connell. I understood you to say "No," in direct answer to 
the question, Mr. Roberts. Didn't you say the answer to the question 
directly was "No," and your comment on it was "only time will tell." 
Mr. Roberts. Yes, sir; I did. 

Mr. O'Connell. Well, you did say it was not a favorable trans- 
action from the point of view of Consolidation. Isn't that correct ? 

Mr. Roberts. That is a correct answer if you want to look at it in 
the abstract. There are other sides to it. 

Mr. Gesell. Then I would like to call this directly to your atten- 
tion. The minutes of the meeting of the board of directors of Con- 
solidation Co., Inc., held on May 23, 1938, at which you were shown 
to be present, contain the following statement with respect to this 
transaction — 

It was obviously to the advantage of this company to persuade remaining 
assets from Land Mortgages and repledge them with Monumental to secure the 
loan aforesaid. 

That is rather in direct opposition to your testimony. 

Mr. Roberts. That may be true and that would be in making the 
transaction and in order to straighten out and clear up the whole 
matter, was probably considered by the company that the prospect 
of the new mon^y and the ability to develop it would be an advan- 
tageous transaction. That is probably true. 

Mr. O'Connell. Which is true in your opinion? You have now 
said it was to the advantage and it was not to the advantage. 

Mr. Roberts. I would answer to the individual, if I were not asso-^ 
ciated with the various interests I wouldn't have been interested. 
Now my connection — well, it would have to have been with somebody 
who had a sincere interest in not only the Consolidation Co. coming 
in at the time it did, but with the interests of the Monumental Life 
Insurance Co. to endeavor, as far as possible, to insure it against any 
loss. 

Mr. O'Connell. Rather a difficult position to be in when you are 
representing three or four interests at one transaction. 



5718 CONCENTRATION OP ECONOMIC POWER 

Mr. KoBEETS. It is strange to try to explain all your transactions 
and your motives. 

Mr. O'CoNNELL. Isn't it rather difficult to properly represent all 
the varied interests that are involved in such a transaction ? 

Mr. Egberts. Well, Mr. O'Connell, it is a difficult thing to di- 
vorce your own selfish interests every time from every transaction. 

Mr. O'Connell. Well, one way of doing it is not to be on both 
sides of the transaction. 

Mr. Roberts. Well, service is a beautiful thing. 

Mr. O'Connell. That is one way to determine what to do in the 
future, isn't it? 

Mr. Roberts. Absolutely, I agree with you. I didn't want to refer 
to the method by which I acquired control of the Land Mortgages, 
but I called out every one of those stockholders by giving them good 
stock. 

Mr. O'Connell. Would you care to clarify the record as to 
whether you think, in answering "yes" or "no," whether this trans- 
action was to the advantage of the Consolidation Co. You have 
said both, actually. 

Mr. Roberts. The only way I could clear it up is by saying I hope 
it will be. 

Mr. O'Connell. So you now don't know ? 

Mr. Roberts. I am in a dilemma. 

Mr. O'Connell. We have all the possible answers anyway : You 
think it was an advantage ; you don't think it was an advantage ; and 
you don't know. 

Mr. Gesell. I have no further questions. 

The Chairman. Very well. 

Mr. Gesell. Mr. Rock, please. 

(Witness excused.) 

The Chairman. Do you solemnly sw^ear that the evidence you are 
about to give before the committee will be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Rock. I do. 

TESTIMONY OF LEO P. ROCK, PRESIDENT, MONUMENTAL LIFE 
INSURANCE CO., BALTIMORE, MD. 

Mr. Gesell. What is your full name, please ? 

Mr. Rock. Leo P. Rock. 

Mr. Gesell. Are you president of the Monumental Life Insurance 
Co.? 

Mr. Rock. I am, sir. 

Mr. Gesell. How long have you been with the company? 

Mr. Rock. Ever since June 1, 1921. 

Mr. Gesell. How long have you been president ? 

Mr. Rock. Since June 1, 1936. 

Mr. Gesell. Prior to this time had you been an agent for the com- 
pany and also a manager and assistant manager? 

Mr. Rock. Agent in '21, assistant manager in '22, manager from 
1923 until the time I came into the home office. 

Mr. Gesell. Has your experience been mostly in the industrial in- 
surance field? 

Mr. Rock. Not entirely, no, sir ; both industrial and ordinary. 



CONCENTRATION OF ECONOMIC POWER 5719 

Mr. Gesell. Do you think your experience is exactly equal or 
would you say 3'ou are primarily an industrial insurance man ? 

Mr. Rock. I would say I have as much experience with one as the 
other. 

Mr. Gesell. Mr. Rock, did you have any knowledge of the fact 
that the annual statements of your company failed ^o disclose these 
loans to officers and directors and stockholders? 

Mr. Rock. No, sir ; as a matter of fact, my first experience in sign- 
ing an annual statement would have been December 31, 1936. 

Mr. Gesell. Well, did you have any knowledge of it since the time 
that you have been signing it ? 

Mr. Rock. My knowledge of these various transactions really be- 
gan with the inquiry that is being developed. 

Mr. Gesell. Wliat is your salary Mr. Rock? 

Mr. Rock. Twenty-two thousand. 

Mr. Gesell. Can you tell us Mr. Emmons' salary ? 

Mr. Rock. I believe $8,000. 

Mr. Gesell. Can you tell us Mr. Mears' salary ? 

Mr. Rock. He received no salary ; he is not an officer. 

Mr. Gesell. Simply a director at a fee of nominal amount? 

Mr. Rock. Whatever they may pay. 

Mr. Gesell. Did Mr. Roberts receive a salary ? 

Mr. Rock. Yes, sir. 

Mr. Gesell. What amount? 

Mr. Rock. I believe $7,500. 

insurance operations 

Mr. Gesell. How much industrial insurance has your company 
m force at the present time? 

Mr. Rock. Approximately $230,000,000. 

Mr. Gesell. How many industrial insurance policies has it out- 
standing ? 

Mr. Rock. Approximately 800,000. 

Mr. Gesell. So there are about 800,000 policies. Have you any 
idea how many policyholders ? 

Mr. Rock. I couldn't answer that. 

Mr. Gesell. Your records don't show that? 

Mr. Rock. They would show that but I can't answer it offhand. 

Mr. Gesell. Would it be perhaps a just estimate to say that there 
were probably 500,000 industrial policyholders? 

Mr. Rock. I would say there are more than that, because from the 
standpoint of our growth, being a comparatively young company, we 
would not have the ratio of policies on lives that some of the older 
companies would have. 

Mr. Gesell. How do those figures on your industrial business com- 
pare with your ordinary business? 

Mr. Rock. We have approximately $70,000,000 of ordinary. 

Mr. Gesell. So in terms of insurance in force you are primarily an 
industrial company. 

Mr. Rock. Our ratio evidences that. 

Mr. Gesell. The same would be true with respect to policyholders, 
would it not? 

Mr. Rock. Yes, 



5720 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now how many different types of industrial insurance 
do you sell ? 

Mr. Rock. Well, we sell all of the types, we sell ordinary life, 20- 
pay life, we referred to 15-pay life, some endowment insurance. 
Mr, Gesell. All the standard forms? 
Mr. Rock. All of the standard forms. 

Mr. Gesell. Have you any idea of how your business breaks up as 
between those forms? 
Mr. Rock. Yes. 

Mr. Gesell. What percentage of your business is endowment 
business ? 
Mr. Rock. About 12 percent. 

Mr. Gesell. And what percentage would you say was straight life? 
Mr. Rock. Fifty-one or fifty-two. 

Mr. Gesell. Have you any idea what the average policy of your 
company is? 

Mr. Rock. Two-hundred-sixty-some-odd dollars. 
Mr. Gesell. How many agents has your company ? 
Mr. Rock. Today, 865. 

Mr. Gesell. The agents sell both ordinary and industrial ? 
Mr. Rock. Yes, sir. ' 

Mr. Gesell. I take it they have debits assigned to them to make 
weekly collections just the way all industrial companies operate? 
Mr. Rock. Yes, sir. 

Mr. Gesell. Have you any provision for the payment of premiums 
directly to the home office or branch office at a discount? 
Mr. Rock. Yes^ sh*. 

Mr. Gesell. \\ hat [:)erct'n(^HgG of your business is handled that way ? 
Mr. Rock- I would simply be liazaiding an opinion; I would say 
not very much. 

Mr. Gesell. Would it be your estimate that it would be substan- 
tially less than 10 percent? 
Mr. Rock. I would say so. 
Mr. Gesell. Around about two or three ? 
Mr. Rock. Can't we leave it, say, 10? 
Mr. Gesell. It is less than that. 
Mr. Rock. Probably so ; I wouldn't know. 
Mr. Gesell- How many branch offices have you? 
Mr. Rock. Fifty-six. 

Mr. Gesell. How do you pay your salesmen? Do you pay them a 
salary or do you pay them a commission, or do you pay them a combi- 
nation of both ? 

Mr. Rock. Our salesmen are compensated entirely on a commission 
basis, a commission on industrial renewal premiums; that is; the 
actual collection of renewal premiums due and commissions on 
increases they make in the premiums in force in their territory. 
Mr. Gesell. Are they penalized for lapse ? 

Mr. Rock. Well, you say "penalized" — I might say that the factor 
of increase is a combination between business written and business 
canceled. 

Mr. Gesell. There is no specific provision with respect to per- 
sistency of business in tJie contracts? 



COi:rENTRATION OF EnONOMTC POWER 5721 

Mr. KocK. Oh, definitely, because a man who is capable and does 
actually preserve his business, of necessity, does not find it necessary 
to produce as much volume of new business in order to get satisfactory 
compensation. 

Mr. Gesell. I think we understand that. By the way, on this ques- 
tion of being able to get reduced premiums by payijig directly to the 
office, is there any statement to that effect in the policy? 

Mr. Rock. I might say that that provision is not in our policy 
contract as of today. The provision, though, that you referred to 
in policies that have that privilege is definitely stated in the policy. 

Mr. GeselIv. So at the present time there is no such privilege to 
the policyholders who are now coming into the company. 

Mr. Rock. No, sir. 

Air. Gesell. Do you have contests for your salesmen ^ 

Mr. Rock. Yes, sir. 

Mr, Gesell. Do you pay them bonuses? 

Mr. Rock. Yes, sir. 

Mr. Gesell. For business written? 

Mr. Rock. Yes. 

Mr. Gesell. How do those bonuses run? 

Mr. Rock. Well, on the basis, we will say, of an ordinary com- 
pany, naturally a man who produces $20,000 a year is more of an 
asset to your company than a man who submits an application 
occasionally. 

Mr. Gesell. I want to know the amount of the volume. 

Mr. Rock. It would be on the industrial, something of a 6-percent 
increase over and above the regular tabulated commissions. 

Mr. Gesell. You mean they get a cash bonus based upon the 
amount of increase? 

Mr. Rock. Yes, sir; provided they attain certain objectives. 

Mr. Gesell. Tell me, how do you train your agents? 

Mr. Rock. Well, we tried any number of methods. That is a 
source of concern. 

Mr. Gesell. How do you train them now ? 

Mr. Rock. How do we train them now? When an agent receives 
his appointment we have a manual of instruction for agents and he 
is asked to read it through and he is interrogated upon it. We have 
a series of 13 educational meetings where everything pertaining to 
life insurance, ir^dustrial, ordinary, and service to policyholders and 
everything else that we can conceive of is brought into one of these 
13 instructive sessions; they last for maybe an hour or an hour and 
a half. The newer men coming into the organization are expected 
to attend these meetings of instruction. 

Mr. Gesell. I take it the agents are out on the debit before this 
course is over. They go to work immediately, don't they? 

Mr. Rock. We tried it another way. We tried bringing the 

Mr. Gesell (interposing). Mr. Rock, we are talking about the 
present practices of the company. 

Mr. Rock. Now, yes. Pardon me, an agent of ours goes out on 
the debit, yes, that is ti-ue, but accompanied by an assistant manager 
for a period of 2 w^eeks, so really definitely the agent is not on his 
own until that 2 weeks period has elapsed, and it is our endeavor 



5722 CONCENTRATION OF ECONOMIC POWER 

to cram and push as much knowledge of the business as we can mto 
the man in that brief interval of time. 

Mr. Gesell. Let me ask you this: How much does it cost you to 
train a man and get him to work ? 

Mr. Rock. If I were to give you a figure it would be simply a 
figment of the imagination. 

Mr. Gesell. You mean to say your company hasn't made any 
studies of that kind? 

Mr. Rock. There are so many factors that are involved. 

Mr. Gesell. What is the answer? Have you made the studies or 
haven't you? 

Mr. Rock. We can find no acceptable basis on which you can give 
•an authoritative figure. 

Mr. Gesell. So you haven't made the study. 

Mr. Rock. Because there are so many factors involved. 

Mr. Gesell. Let me explain our procedure, Mr. Rock. I want to 
know whether or not you, your company, has studies showing the 
costs of training an agent. Now if the fact is known I think if you 
tell me that and explain why we will move along a little faster. 

Mr. Rock. Certainly. No. 

Mr. Gesell. Why not? 

Mr. Rock. For.tne reason that there are so many factors involved. 
It is not alone the time of the manager interviewing the man, the 
time of the home office approving him, the time of the assistant 
manager instructing him, that is not so much of importance, but it is 
the fact that you do make changes on your territory, the fact that 
your policyholders don't like changes, the fact that there is occa- 
sional loss of business because of the change, different personality of 
the agent involved — it would be so hard to put any accurate estimate 
on it. 

Mr. Gesell. What is your estimate of what it costs? 

Mr. Rock. I have heard estimates of anywhere from two to four 
hundred dollars. One might be equally as right as the other. 

Mr. Gesell. What kind of turn-over do you have among your agents ? 

Mr. Rock. We are experiencing — I will leave this to you — our 
turn-over this year has averaged us with a field personnel of 1,100 
men, an average turn-over of 7 per week. 

Mr. Gesell. You mean you have to take on seven new men a 
week? 

Mr. Rock, We have to replace seven men per week. 

Mr. Gesell. That means that by the time the year has run around, 
how many of the agents who were with the company at the begin- 
ning are with the company at the end? 

Mr. Rock. You see again that is difficult to answer because I say 
we have a turn-over of seven per week; it might be that a man that 
would be replaced in January would again be replaced in April or 
again in September, so from the standpoint of hoSv many out of a 
given number of agents you have at the end of the year 

Mr. Gesell (interposing). I can see that. 

Mr. Rock. In other words, put it this way. Here is an office with 
a personnel of, say, 36 men. We have had 1 change in that office 
this; year, but agani we may wind up the year with 3 changes, but 
they may all be on the same territory and the other 35 men still be 
with us. 



CONCENTRATION OF ECONOMIC POWER 5723 

Mr. Gesell. Conceivably all of these men could refill one place. 

Mr. Rock. Eight. 

Mr. Gesell. Let's get at it this way. How many agents have you 
now? 

Mr. Rock. Eight hundred and sixty-five. 

Mr. Gesell. How many of those would you say have been with 
the company 3 years? 

Mr. Rock. I can't answer that except in this way. From the 
standpoint of your determining what the turnover is in the industrial 
business, I might say that our managers' average length of service 
is 11 years, our assistant managers' 6 years, and the average length 
of service of the agents about 4 years. That is the average. To 
answer your question specifically as to how many of our agents that 
are with us now were with us on January 1, I couldn't do it at this 
moment. 

Mr. Gesell. Could you prepare for us a statement showing how 
many of your agents have been with the company over 1 year, how 
many over 2, how many over 3, and so on ? ^ 

Mr. Rock. I would be very happy to. 

Mr. Gesell. I want to discuss with you, Mr. Rock, some of the cash 
and stock dividends that have been declared by the company. Am I 
correct in saying that there was a paid-in capital of $500,000 and 
a paid-in surplus of $50,000 or a total paid-in at the beginning of 
the company's operations following conversion, of $550,000? 

Mr. Rock. That is my understanding. 

Mr. Gesell. Am I correct in saying that the surplus was then 
somewhere in the $600,000 figure? 

Mr. Rock. That is true. 

Mr. Gesell. The surplus now is over two and a half million ? 

Mr. Rock. No; about .two millioi;! one. 

Mr. Gesell. The company has had stock dividends totaling 
$1,500,000. 

Mr. Rock. Yes. 

Mr. Gesell. And it has had cash dividends amounting to 
$1,830,000. 

Mr. Rock. I understand that is correct. 

Mr. Gesell. I should like to offer for the record at this time a state- 
ment prepared by the Monumental Life Insurance Co. entitled 
"Record of Dividends Paid on Monumental Life Insurance Stock," 
which shows the various dates of the stock and cash dividends and 
the amounts. 

The Chairman. It may be received. 

(The statement referred to was marked "Exhibit No. 966" and is 
Included in the appendix on p. 6199.) 

Mr. Gesell. Can you tell us, Mr. Rock, what the source of the com- 
pany's profit is? How it makes this money? 

Mr, Rock. Yes ; I might say there are three chief sources of profit. 
One is, of course, investment return over and above your reserve basis, 
which, of course, we don't get these days. The next is savings in 
your mortality, and a third, I would say, comes from operating 
profit; in other words, operating on a better basis than would nor- 
mally be expected. 

* Subsequently furnished by Monumental. Entered infra, p. 6089, as "Exhibit No. 1072." 
See appendix, p. 6338. 

124491 — 40^pt. 12 10 - 



5724 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I think maybe there are one or two other possible 
sources there. 

Mr. Rock. To carry it through, profit, we know, on terminations. 

Mr. Gesell. Let's take the gain-and-loss exhibit as our basis. The 
company could have had gains or losses from loading, could it not? 

Mr. Rock. Right. 

Mr. Gesell. In other words, if in computing its premiums it had 
made allowance for expense money in excess of what had to be paid, 
there would have been a saving or a gain there, and vice versa a loss. 

Mr. Rock. That is true. 

Mr. Gesell. Now, your company never had gains from loading. 

Mr. Rock. It is my understanding that none of them do. 

Mr. Gesell. Let's stick to the Monumental. 

Mr. Rock. No; we didn't. 

Mr. Gesell. Also, there could be earnings from interest in excess 
of the contract amount, could there not? 

Mr. Rock. Yes, sir. 

Mr. Gesell. It is true, is it not, that since 1934 your company has 
not earned its contract interest rate? 

Mr. Rock. Yes, sir. 

Mr. Gesell. Is it true that from 1934 to '38 it has failed to earn 
the contract interest rate by $1,228,000? 

Mr. Rock. That figure is probably substantially correct. 

Mr. Gesell. Then, it hasn't made any money from loading and it 
hasn't made any money from interest. 

Mr. Rock. You mean from investment return. 

Mr. Gesell. Two things so far. The company has made substan- 
tial gains from mortality, has it not? 

Mr. Rock. Yes, sir. 

Mr. Gesell. Do you think I am correct if I say that from 1929 to 
1938 the gains from mortality amounted to $7,084,669 ? 

Mr. Rock. I couldn't answer that, Mr. Gesell; from that stand- 
point it would be preferable, I should think, that that question be 
directed to the secretary, who is more familiar with that. 

Mr. Gesell. Is that your best judgment? 

Mr. Rock. I have never heard the figure. 

Mr. Gesell. Would you consult Mr, Loweree? Mr. Loweree, how 
about it? 

Mr. Loweree. What was the period? 

Mr. Gesell. '29 to '38. 

Mr. Loweree. I have a statement here for '28. 

Mr. Gesell. Tell us what it has been for '28. 

JVTr. Rock. '28 through '38 the statements show a profit, as you say, 
or a gain of mortality, $7,439,944. 

Mr. Gesell. In the period from 1929 to '38 or '28 to '38, whatever 
your figures show, can you tell us what the gain has been from sur- 
renders and lapses? 

Mr. Rock. $6,988,036. 

Mr. Gesell, Six million, nine hundred and eighty thousand-odd 
dollars ? 

Mr. Rock. Yes. 

Mr. Gesell. That is gains from lapses and surrenders? 

Mr. Rock. Yes, sir. May I be permitted to explain that? This 
gain shown in your loss-and-gain exhibit on profit on terminations; 



CONCENTRATION OF ECONOMIC POWER 5725 

it is true that on some business that terminates you lose money ; it is 
equally true that on other business due to your surrender charge at 
$25 per thousand, you do show a profit, but on the other hand a fac- 
tor that has never been worked into this gain-and-loss exhibit from 
the standpoint of profit on terminations that properly lias a place 
there, we must take into consideration the fact that if we do lose a 
dollar of premium, even though we may make a gain, as a result of 
that loss, we then must spend money in acquisition costs to put that 
business back or replace it on our books. Those factors are never 
taken into consideration in these figures. 

Mr. Gesell. You mean by that that 

Mr. EocK. I mean if we deducted from this $6,980,000 that you 
show from gains from lapses and surrenders, our acquisition costs 
over this same period of years, there would be no such fictitious figure 
of gain from terminations as is shown here. 

Mr. Gesell. Well, yes; in other words, that the company, if it 
takes into account the amount of money it spent to get the business, 
may not have actually made a net gain or profit. 
Mr. Rock. It might be the other way around. 

Mr. Gesell. On the other hand, as far as John Q. Public or the 
policyholder is concerned, he has lost that $6,000,000, hasn't he? 
Mr. Rock. I cnn't conceive of that, either. 
Mr. Gesell. Why not? 

Mr. Rock. For the simple reason he has received protection. 
Mr. Gesell. He has paid on a level-premium plan, hasn't he, in 
excess of the costs of that protection ? 

Mr. Rock. Yes. You say, "Has the loss been entirely John Q. 
Public's?" 
I say, «No." 

Mr. Gesell. Well, in computing your operating expenses you take 
out what the cost of protection has been, and this six-million-odd- 
thousand-dollar figure represents, does it not, the excessive payments 
by policyholders in excess of what it would cost them for protection 
alone. 

Mr. Rock. May I say this, Mr. Gesell: Primarily, I am an oper- 
ating man, Wlien you g:et me on discussions that properly or more 
properly should be discussed by actuaries, I am in over my head. 

Mr. Gesell, Very well, Mr, Rock, I am interested iri bringing 
this up with you not so much because of the technical actuarial prob- 
lem, but you have mentioned one factor involved in this thing, acqui- 
sition costs as a proposition of operations. 
Mr. Rock. Yes, sir. 

Mr. Gesell. And we are also mentioning lapse, which has to do 
with the whole sales end of the business in the kind of business you 
run. That is what I want to talk to you about. Your company has 
had a pretty high lapse rate, hasn't it? 
Mrr Rock. Not in recent years. 

Mr. Gesell. Will you tell us what your experience has been? 
Mr, Rock. Our lapses for the last several years, that is on a weekly 
basis, have been, that is net lapse, your lapse less revivals, has been 
somewhere around four-tenths of 1 percent weekly, 

Mr. Gesell. Let me get at figures I can understand. Of the busi- 
ness you write during the year, how much of that business is in force 
at the end of the year ? 



5726 CONCENTRATION OF ECONOMIC POWER 

Mr. Rock. Your investigators are perhaps familiar with this fact, 
that we, together with one other industrial company, operate an in- 
spection department. In that department, its function, are salaried 
home-office men who have no interest whatsoever in whether a piece 
of business is passed or rejected. Without criticising operations, I 
think we are all agreed that where the man ^oes out on the street, 
and where his own commissions, his own direct remuneration, is 
involved, he perhaps is not going to be as careful as to the quality of 
the business he submits because after all he is personally involved in 
the matter of his earnings. With our situation, with our set-up, our 
agent is simply an order taker. He has absolutely nothing to say 
as to whether the company will put that business on its books or 
not. Now in 1932 when we originated the idea of the inspection 
department, out of every dollar we issued that year we had 34 cents 
on our books paying business at the end of the year, which experience 
is not good, 

Mr. Gesell. What was that experience again ? 

Mr. Rock. Thirty-four cents out of each dollar stayed on our books 
as paying business. 

Mr. Gesell. Well, yes. Then, in other words 

Mr. Rock (interposing). Then it progressively improved; in 1934 
it was 56; 1935, 59; 1936, 62; 1937, 61; and 1938, 64.9, or practically 
65 cents out of each dollar issued throughout the year was still paying 
business at the en J of the year. 

Mr. Gesell. Taking it another way, about a third of the business 
you w^rite during the year was tiot in force on the books at the end of 
the year ? 

Mr. Rock. Sixty-five; yes, sir. 

Mr. Gesell. That is a correct statement ? 

Mr. Rock. That is correct. 

Mr. Gesell. Well, now, taking the figures back over a period of 
years, do you reco^ize this schedule which I show you as a schedule 
showing the experience of your company with respect to the number 
of policies in force now at the date of issue ? 

Mr. Rock. This is the first time I have seen this particular state- 
ment. 

Mr. Gesell. You recognize your actuary's signature on the foot? 

Mr. Rock. Oh, yes. Mr. Gesell, there is no contention other than 
the statement, but don't vou believe 

Mr. Gesell (interposing). Just a minute. I would like you to 
explain it, but I would like to first offer it for the record. I would 
like to offer a schedule entitled "Monumental Life Insurance Co. In- 
dustrial Insurance in Force December 31, 1938" for the record. 

The Chairman. It will be received in evidence. 

(The schedule referred to was marked "Exhibit No. 967" and is 
included in the appendix on p. 6199.) 

Mr. Gesell. That schedule in a general way indicates, does it not, 
Mr. .Rock, that the persistency of the business is of pretty short 
duration ? 

Mr. Rock. It would. 

Mr. Gesell. Now, if you put that fact alongside the fact that there 
are very substantial gains running into the millions of dollars from 
lapses and surrenders, it-tTccurs to me that possibly in the operating 
end of the business, with which you are familiar, there may be some 



CONCENTRATION OF ECONOMIC POWER 5727 

mistakes from the underwriting point of view. Isn't it possible your 
company is writing too much business ? 

Mr. Rock. From the underwriting point of view? 

Mr. Gesell. From the point of view of selling insurance, isn't it 
possible your company is selling insurance too hard and too fast to get 
the kind of quality of business that you want ? 

Or do you think it is inherent in the business that policies should 
have this short duration ? 

Mr. Rock. I have noted both your questions and may I be permitted 
to say this, that I believe the comparisons you have drawn or will 
draw with industrial insurance, pertaining to the industry as a 
whole — I think it is all very fresh in our memories, the years of 1929 
through 1933 and 1934 which affected the working classes which In- 
dustrial serves, and I think that any comparison of figiires embracing 
those years and using those years is not fair to the. business. 

Mr. Gesell. We have, Mr. Rock, in previous hearings presented 
statistical material showing the termination experience of all indus- 
trial companies over a period of 20 or 30 years; those facts are 
before the committee. It still is true that there is — it seems to be the 
experience of your company's policyholders that they remain with 
the company for a very short period of time, a few years? 

Mr. Rock. I wouldn't say that for the reasons that I have 
advanced. 

Mr. Gesell. Well, if we take any of the figures contained on "Ex- 
hibit No. 967," which was introduced, it would indicate that the great 
bulk of your business has been written and came on the books within 
the last 3 or 4 or 5 years, and that if you look back where business 
has been in force for 10 or 15 years you find a very small proportion 
of business, looking at the premium paying of policies in '38. That 
is true, isn't it? 

Mr. Rock. Yes; however, it shows a pretty fair ratio as far back 
as, well, we will say, '31, '32, and throughout those years. 

Mr. Gesell. Of course, we have to take into account the fact that 
your company has been growing rapidly and that it hasn t been 
selling the same number of policies each year; it has been selling 
more in recent years. 

Mr. Rock. I think it is fair of you to say that. May I add this? 
Please believe me when I say that we don't believe that we are per- 
fect, by any means. This problem of improving on persistency in 
conserving our business below the number is one of the most serious 
problems that we have to contend with. If this investigation throws 
any light upon any plan or objective where our experience, as well 
as others', can be improved, we will be very happy to recognize that 
factor, just as we have in our own way through the inspection depart- 
ment and through other safeguards tried to do all we could to 
improve it. 

Mr. Gesell. Let me suggest one thing to you, then — we must close 
quickly — isn't it conducive to lapse to pay your agents bonuses for 
increase ? 

Mr. Rock. I would say not. May I add to that that I think we all 
Work better when we receive a little encouragement? At least I 
know I do. 

Mr. Gesell. Well, now if the committee please I would like to 
offer for the record a schedule which has been prepared by the staff 



5728 "ONCENTRATION OF ECONOMIC POWER 

of the Coinmissioii from the annual statements of the Monumental 
Life Insurance Co. for the years 1929 to '38, showing the number of 
policies issued, lapsed, and. surrendered, and in force for both the 
industrial and ordinary departments of the company. That is offered 
again subject to any corrections in accordance with the procedure of 
the committee. 

The Chairman, It will be received in evidence. 

(The schedule referred to was marked "Exhibit No. 968" and is 
included in the appendix* on p. 6200.) 

Mr. Gesell. Well, now I still want to get the specific answer to my 
original question, Mr. Eock, and that is where does the company 
make its money when we run down this gain ajid loss exhibit? 
It looks as though it makes it in two principal places, mortality and 
gains from lapse and surrender. Is that correct? 

Mr. KocK. According to the statement, yes, sir. 

Mr. Gesell. The gains from mortality are the result of charging 
premiums on the basis of a mortality table which doesn't appear to 
fit the experience of your company ? 

Mr. Rock. Mr. Gesell, moltality tables, when you come right down 
to it, have no bearing on mortality savings for the reason that it is 
a matter of selection. 

Mr. Gesell. Entirely? 

Mr. Rock. I would say so. It has been my experience. In other 
words, if selection were not involved, if you operated on a lax under- 
writing policy, and you insured men or women with grave — or 
physically incapacitated, you could run in excess of your mortality 
tables and on the other hand it has always been conceded and ac- 
cepted practice that there would be mortality savings in any company 
that runs in the 70's, high 70's or above the 80's on mortality, is 
in danger. 

Mr. Gesell. We do have this big difference, though, don't we, 
that if there are savings of the type you mention or gains from 
mortality, in a stock company they go to the stockholders if there are 
gains of that character; in a mutual company they go back to the 
policyholders ? 

Mr. Rock. In both instances they go to surplus. 

Mr. Gesell. That is just quibbling on the end result, isn't it? 

Mr. Rock. It is not quibbling ; they go to surplus. 

Mr. Gesell. Where does the surplus go? 

Mr. Rock. Dividends come from surplus, either to stockholders or 
policyholders. 

Mr. Gesell. That was the point I had in mind. I haven't any 
further questions. 

Mr. O'Connell. I should like to ask, Mr. Gesell. A little earlier 
in the hearing reference was made to some entries on the annual 
reports of the Monumental Insurance Co. to the State insurance com- 
missioner relative to loans from the Monumental Insurance Co. to 
the Real Estate Trust Co.^ Did you intend to develop that further 
through the officers of the Monumental? Someone, I understood, 
was going to give you some information on that, but from the point 
of view of the Real Estate Trust Co. I thought those entries did 
appear in the annual reports the Monumental Insurance Co. made 



» Supra, p. 5708. 



CONCENTRATION OF ECONOMIC POWER 5729 

to th"at company. Who signed the reports? The reports, as I un- 
derstand it, indicated a loan or series of loans from the Monumental 
Insurance Co. to the Real Estate Trust Co. 

Mr. Gesell. I think those reports were not signed by Mr. Rock, 
however, because they involved loans made before he became presi- 
dent of the company. 

Mr. Gordon. Didn't you ask just to get our statement on that? 

Mr. O'CoNNELL. I understood Mr. Roberts knew nothing about 
the transaction insofar as the Monumental Insurance Co. was con- 
cerned, but rather from the point of view of the Real Estate Trust 
Co. I merely wanted to know if you intended to develop that? 

Mr. Gesell. I did not, but I think it might be well. 

Mr. O'CoNNFXL. Well 

Mr. Loweree (interposing). I possibly can explain that. At that 
time the company was lending money on call and probably the check 
in these particular loans was made to the Real Estate Trust Co. 
which in turn would pass it on to New York and secure the collateral, 
and I have a letter from the Real Estate Trust Co. dated in 1928 
where they said that they were acting as an agent. Now, this is the 
first time that I have ever seen that letter. 

Mr. O'Connell. You were the one that made the entries in the 
reports that went to the insurance commission ; is that correct ? 

Mr. Loweree. No, sir ; not at that time. 

Mr. Gesell. What years were they? 

Mr. Rock. 1928, 1929, 1930, and 1931. 

Mr. Gesell. I think it was in the earlier years. 

Mr. O'Connell. If you were not the person in the situation, there 
is no reason to make an attempt to explain it. 

Mr. Gesell. Can't we ask that the statement from Mr. Roberts 
include a full explanation from the point of view of the insurance 
company as well as the real-estate company ? ^ 

Mr. Roberts, We will do that. They were call loans, Mr. Gesell. 

Mr. Gesell. At this time I would like to offer for the record a 
schedule which has been prepared by the staff of the Commission 
from the register and the records of cash dividends of the Monumen- 
tal Life Insurance Co., showing the aggregate cash dividends paid 
to certain stockholders of the company since the organization of the 
company on February 6, 1928. This material is based upon the capi- 
tal stock ledger sheets of the company using information which is 
already in the record and it is offered subject to check. 

The Chairman. This will be received in evidence. 

(The schedule referred to was marked "Exhibit No. 969" and is 
included in the appendix on p. 6201.) 

Mr. Gesell. In order that the supporting data may be all with the 
committee, I should like to offer, though not for printing, the stock 
ledger sheets themselves, to be filed with the committee. 

(The data referred to were marked "Exhibit No. 970" and are on 
file with the committee.) 

The Chairman. Photostats? 

Mr. Gesell. Yes. 
'The Chairman. It will be received in evidence. 



1 See "Exhibit No. 1128" which was entered in the record on September 22 1939 and 
appears in the appendix on p. 6357. 



5730 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I should like also at this time to submit a schedule 
which has been prepared at the suggestion of Chairman Ferguson, 
showing the par value and the number of shares outstanding of the 
44 stock companies selling industrial insurance which were dis- 
cussed on the first day of these hearings. 

The Chairman. They will be received in evidence and inserted in 
the record. 

(The schedule referred to was markd "Exhibit No. 971" and is 
included in the appendix on p. 6202.) 

Mr. Gesell. There are no further witnesses to be called today 
and this concludes any testimony which we wish to present from the 
gentlemen who are here under subpena, and as far as the Commis- 
sion is concerned, they may be excused. 

Mr. Gordon. Mr. Mears is sitting right here. There is one rather 
immaterial error made that he wanted to correct. Would you state 
it Mr. Mears? 

Mr. Emmons. My name is Emmons. Mr. Loweree happened to 
mention thS,t the collateral loans were on securities made by the 
committee of which I was one.^ I wanted to say that Mr. Loweree 
is incorrect and I think he will change his statement. I never, to 
my knowledge, made any loan or approved any loan on collateral 
securities to anybody. 

Mr. Gesell. Then I think we might, if agreeable, request the 
Monumental to present for the record a statement of the members 
of the committee who approved these various collateral loans from 
the date of conversion up until the present time. 

Mr. Emmons. Now mortgages — I did pass on a number of the 
mortgages; but on no collateral. 

The Chairman. If you will give us that statement, please? The 
Commission will take a recess until Monday morning at 10 : 30 
o'clock. 

(Whereupon at 12: 55 a recess was declared until Monday at 10: 30 
o'clock.) 



» Supra, p. 5701. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWEE 

MONDAY, AUGUST 28, 1939 

* United States Senate, 

Subcommittee of the Temporary 

National Economic Committee, 

Washington^ D. G. 

The subcommittee met at 10 : 35 o'clock a. m., pursuant to ad- 
journment on Friday, August 25, 1939, in the Caucus Room, Senate 
Office Building, the vice chairman, Hon. Joseph A. Casey, Repre- 
sentative from Massachusetts, presiding. 

Present: Representative Casey (acting chairman) and Mr. 
O'Connell. 

Present also : Mr. Brackett, Gerhard A. Gesell, special counsel, and 
Michael H. Cardozo, attorney. Securities and Exchange Commission. 

The Vice Chairman. The committee will please come to order. 
Mr. Gesell, are you ready to proceed ? 

Mr. Gesell. I am. The first witness this morning is Mr. Sutphen. 

The Vice Chairman. Mr. Sutphen, will you hold up your right 
hand and swear to tell the truth, the whole truth, and nothing but 
the truth, so help you God ? 

Mr. Sutphen. I do. 

TESTIMONY OF HENRY B. SUTPHEN, VICE PRESIDENT, 
PRUDENTIAL INSURANCE CO., NEWARK, N. J. 

prudential insurance company operations of industrial 

department 

Mr. Gesell. Will you state your full name for the reporter, 
please ? 

Mr. Sutphen. Henry B. Sutphen. 

Mr. Gesell. You are vice president of the Prudential Insurance 
Co.? ^ 

Mr. Sutphen^ Yes, sir. 

Mr. Gesell. How long have you been connected with the Pru- 
dential? 

Mr. Sutphen. Thirty-nine years. 

Mr. Gesell. How long have you been vice president ? 

Mr, Sutphen. Since December 1934. 

Mr. Gesell. What are your particular duties at the Prudential? 
Are you in charge of some department there ? 

Mr. Sutphen. I have charge of the industrial agency force. 

Mr. Gesell. Will you give us some idea of the nature of the de- 
partment over which you have charge — how it is organized, how 
many people there are in it? 

5731 



5732 CONCENTRATION OF ECONOMIC POWER 

Mr. SuTPHEN. Home office? 

Mr. Gesell. Yes. 

Mr. SuTPHEN. Our organization in the home office is headed by 
the vice president, 2 second vice presidents, 5 assistant secretaries, 
5 supervisors, and 20 division managers, the territory being divided 
into 20 units which we call divisions. 

Mr. Gesell. And to whom are you responsible, Mr. Sutphen? 

Mr. Sutphen. The president. 

Mr. Gesell. I will come back to the home office a little more in 
detail in a moment. How much industrial insurance has the Pru- 
dential in force at the present time, as of the last date for which 
you have convenient figures? 

Mr. Sutphen. At the end of last year we had $7,600,000,000. 

Mr. Gesell. That represented how many policies? 

Mr. Sutphen. Premium-paying, Mr. Gesell? 

Mr. Gesell. Yes. 

Mr. Sutphen. Some of these figures are actuarial figures that deal 
with paid-up and extended insurance. Of the premium-paying 
policies, we had 20,772,000 at the end of June of this year. 

Mr. Gesell. That does not include. I take it, the paid-up policies? 

Mr. Sutphen. That does not include the paid-up policies, nor 
does it include some of our intermediate business. We have, as you 
know, probably, a classification of business between industrial and 
ordinary called intermediate, and there are some of those policies 
that are classified in our statement as industrial insurance. I can't 
tell you just how many policies there were. 

Mr. Gesell. Can you tell us approximately how many industrial 
policyholders the company has? I take it that would have to be an 
estimate. 

Mr. Sutphen. I can't tell, no. We don't have any definite figures 
on it. I presume the actuaries could give you an estimate on it. I 
really don't know. 

Mr. Gesell. You have never heard any estimate as to the number 
of industrial policyholders you have ? 

Mr. Sutphen. I don't recall. I have heard estimates given, but I 
don't recall. 

Mr. Gesell. In how many States does your company sell industrial 
insurance at the present time ? 

Mr. Sutphen. Well, in all of the States of the Union with the ex- 
ception. I think, of 10 or 11 — I am not positive about that. 

Mr. Gesell. Probably around 35 States, something in that neigh- 
borhood ? 

Mr. Sutphen. Yes. 

Mr. Gesell. Are there States in addition to the ones in which you 
operate from which you collect industrial premiums ? 

Mr. Sutphen. Yes, they are collected by mail. Policyholders that 
move in those States remit their premiums by mail. 

Mr. Gesell. In terms of insurance in force or number of policies 
or number of policyholders is it correct to state that the company has 
more interest in the industrial side of the business than it does in 
the ordinary side of the business? In other words, there is more 
industrial insurance in force than ordinary insurance? 

Mr. Sutphen. No. We have more ordinary insurance in force 
than we have industrial. 



(CONCENTRATION OF ErONOMIC! POWER 5733 

Mr. Gesell. What are the figures for the amount of ordinary in 
force ? 

Mr. SuTPHEN, Now, I am at a disadvantage in that the figures that 
we use in the production department are not the same as they use 
in the actuarial department. On our statement we show $7,600,000,- 
000 of industrial and $10,100,000,000 of ordinary. 

Mr. Gesell. I take it in terms of number of policies or number 
of policyholders there are more industrial than ordinary. 

Mr. SuTPHEN. Yes. 

The Vice Chairman. May I inquire how many policies you have 
in the ordinary? 

Mr. Sutphen. Premium-paying policies — I have this broken down 
by the four general classifications of industrial and intermediate and 
ordinary and group. 

The Vice Chairman. I notice you said there were 20,772,000 pre- 
mium-paying policies under industrial. 

Mr. Sutphen. Under the weekly premium industrial. Under our 
intermediate business, which is the classification between industrial 
and ordinary, we have at the end of last year 2,808,000 policies, and 
on the regular ordinary, 3,700,000; in our group insurance, 2,401 
policies. 

• Mr. Gesell. Now, where do you include the monthly premium 
industrial ? 

Mr. Sutphen. We don't issue monthly premium industrial as such. 
We issue the monthly premium policy which we call an intermediate 
policy, which at the present time is classified as ordinary. 

Mr. Gesell. That is a policy which is collected 

Mr. Sutphen. Collected monthly by the agent, at the home of the 
insured. 

Mr. Gesell. What are the size of the policies ? 

Mr. Sutphen, They are issued in amounts of five, six, seven, and 
eight hundred dollars. 

Mr. Gesell. And you classify that as ordinary insurance? 

Mr. Sutphen. Yes; at the present time. There was a time when 
it was classified as industrial. 

Mr. Gesell. Have you any idea how much of that business there is ? 

Mr. Sutphen. Of that in force ? 

Mr. Gessell. Yes. 

Mr. Sutphen. $1,752,000,000 at the end of last year. 

Mr. Gesell. So that if that business was classified on the industrial 
side, rather than on the ordinary side, you would find that even in 
terms of insurance in force there was a greater amount of industrial 
than ordinary, would you not? 

Mr. Sutphen. If that were all included in the industrial, yes. 

The Vice Chairman. But you subtract that from the ten billion, 
ordinary and add it to the seven billion six hundred million industrial ?'' 

Mr. Sutphen. Well, the figures here — probably I had better correct 
that. I see the figures are very close. The figure would be $8,852,- 
000,000 industrial and $8,934,000,000 of ordinary. 

Mr. Gesell. Now, have you any figures there that will tell us what 
the premium income of the company is from its weekly industrial 
business ? 

Mr. Sutphen. Last year it was $310,000,000. 



5734 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And how much did it take in from its ordinary busi- 
ness ? 

Mr. SuTPHEN. Three hundred forty million. 

Mr. Geselx,. And have you the figures there as to- how much of that 
ordinary premium income was attributable to the monthly business? 

Mr. Sutphen. No ; I have not. 

PURPOSE OF INDUSTRIAL INSURANCE 

Mr. Gesell. Now, what I wanted to discuss with you today, Mr. 
Sutphen, was the way in which an industrial company conducts its 
busmess. We have heard a great deal about industrial insurance but 
have very little idea of the mechanics of the operation of an industrial 
company. First of all, though, I wanted to ask you what you consid- 
ered, what your company considered, to be the basic purposes of 
industrial insurance. 

Mr. Sutphen. Well, to provide for the average workingman a fund 
payable upon death which will take care of the necessary funeral 
expenses and the incidental expenses in connection with the death, and 
a reasonable amount for the readjustment of the family, temporarily 
only. 

Mr. Gesell. That would be until someone else in the family got a 
job, or something of that sort? 

Mr. Sutphen. Yes; the natural adjustment that has to be made 
whenever a death occurs. 

Mr. Gesell. That has always been more or less the basic purpose 
of industrial insurance, ever since your company started to write the 
business, has it not? 

Mr. Sutphen. Basically, yes. 

Mr. Gesell. Wherein would you say it had changed? 

Mr. Sutphen. It changed in recent years largely upon the — I will 
say the demand of the public for a personal interest in the insurance, 
that is, an opportunity for the insured to derive some benefit from 
it during his lifetime or her lifetime. 

Mr. Gesell. You are referring, then, to the more recent develop- 
ment of forms of endowment insurance? 

Mr. Sutphen. Yes, and the surrender value on the life policies. 

Mr. Gesell. But even today you state, do you not, that the basic 
purpose is this purpose of burying persons who die and providing 
funds sufficient to take care of that adjustment period? 

Mr. Sutphen. That is our fundamental principle. 

Mr. Gesell. Industrial insurance, I take it, is sold to provide that 
type of benefit not only to the workingman, but to all members of 
his family. 

Mr. Sutphen. Yes. 

Mr. Gesell. Coming now to our discussion of the mechanical 
operations of the business 

The Vice Chairman (interposing). Before you go to that, may I 
inquire along this line you have been pursuing, do industrial policies 
today contain disability benefits? 

Mr. Sutphen. They have a modified form of disability benefit. It 
is not the generally accepted form of disability benefit. It provides 
for a payment in event of the loss of eyesight, or of the limbs, the 
arms or legs. 



CONCENTRATION OF ECONOMIC POWER 5735 

The Vice Chairman. Does it contain an accidental death benefit? 
Mr. SuTPHEN. It has an accidental death benefit, yes. 
The Vice Chairman. In that way is it different from the original 
policies when industrial insurance started ? 
Mr. SuTPHEN. Yes. 

AGENCY SYSTEM 

Mr. Gesell. How many agents has your company at the present 
time? 

Mr. SuTPHEN. Speaking now of industrial agents, Mr. Gesell? 

Mr. Gesell. Yes; agents who sell industrial or who sell industrial 
and ordinary. 

Mr. SuTPHEN. At the end of June — I have these figures for the end 
of June— 19,299. 

Mr. Gesell. Those are all agents who at least as part of their duties 
have the job of selling and servicing the industrial policyholder. 

Mr. SuTPHEN. That is true. 

Mr. Gesell. Does your company have agents who also sell purely 
in the ordinary and group fields? 

Mr. SuTPHEN. We do; yes. 

Mr. Gesell. And those agents are not included in this ? 

Mr. SuTPHEN. They are not figured in this. 

The Vice Chairman. They are solely industrial agents ? 

Mr. SuTPHEN. The 19,299 are — well, we call them industrial agents, 
but they write ordinary, they write all of the forms of insurance that 
the company writes. 

Mr. Gesell. They are agents on debits, though, are they not ? 

Mr. Sutphen. They are agents on debits ; yes, sir. 

Mr. Gesell. When you take a new agent into your company, what 
kind of training do you give the man and what kind of experience do 
you look for ? 

Mr. Sutphen. That is the experience of the man himself ? 

Mr. Gesell. Yes ; in other words, how do you get an agent and how 
do you train him ? 

Mr. Sutphen. Well, our field staff is in charge of district superin- 
tendents in the respective districts, and th? superintendent in coopera- 
tion with the assistant superintendent naturally are on the lookout 
from time to time for available men in case vacancies occur, and in 
practically all of , our offices, I guess in all of our offices today, we have a 
list of candidates of men who apply for these positions. Now we do 
not pick out any particular line of vocation that a man has followed 
previously ; we try to pick out a man who is honest, who has a good 
record back of him, and who is industrious and will be a credit to the 
insurance business. 

Mr. Gesell. In other words, you take men from any walk of life. 

Mr. Sutphen. Yes. 

Mr. Gesell. Including ex-industrial agents of other companies? 

Mr. Sutphen. Yes. We do not exclude them. We don't prefer 
them. 

Mr. Gesell. It is true, is it not, that ther.- was quite a substantial 
period of time when your company had agreements with other com- 
panies which at least limited the time in which they could take 
industrial agents that come off the debit of another company ? 



5736 CONCENTRATION OF' ECONOMIC POWER 

Mr. SuTPHEN, Yes. Only for the reason that experience has shown 
in tlie past that sometimes agents would leave one company and go 
back on their old debits and induce people to give up their insurance 
to change over to the new company. That was the only- reason. 

Mr. Gesell. By and large then, am I correct in saying that the 
men who come onto the debits now are men who have not had 
insurance experience ? 

Mr. Sdtphen. By and large; yes. 

Mr. Gesell. What kind of training do you give them? How do 
they learn the business? 

Mr. SuTPHEN. He is given when he comes in, literature to read, 
all of our instruction books, and is placed under the supervision 
of an assistant superintendent who introduces him to the debit, 
introduces him to the policyholders, shows him by actual experience 
how the business is handled in the field, shows him how to write 
business and constantly keeps in touch with him for several weeks 
or months as the necessity may occur, until he becomes familiar with 
the work. As a matter of fact he continues to supervise his work for 
some time to come. 

Mr. Gesell. I take it there is always some degree of supervision 
even after the man is trained. 

Mr. Sutphen. Yes, yes. We have in addition to that an educa- 
tion course of booklets which explains the different types of policies 
and the different types of service that the company renders, which 
he is required to study, and a questionnaire is prepared in connec- 
tion with each one of the booklets, which he fills out and sends in 
to the home office. 

Mr. Gesell. That is to test his knowledge. 

Mr. Sutphen. To see whether he has actually got a general 
knowledge of insurance. 

Mr. Gesell. The basic training, I take it, though, is the training 
on the debit under supervision of the assistant superintendent. 

Mr. Sutphen. Yes; learning to do by doing it. 

Mr. Gesell. Over what period of time does a man continue under a 
very active type of field supervision of that kind? 

Mr. Sutphen. As long as is necessary. You see, men differ; some 
men pick this business up very much quicker than others. I should 
imagine that on the average in a couple of months time a man has 
a pretty good knowledge of the working of the business. 

Mr. Gesell. Does that mean that the man isn't on the debit alone 
until 2 months have passed? 

Mr. Sutphen. No. 

Mr. Gesell. How soon does he get on the debit alone ? 

Mr. Sutphen. As soon as the assistant thinks it is all right for 
him to go on the debit. 

Mr. Gesell. How does that run, Mr. Sutphen? You must have 
some idea as to what the average man does. I appreciate it would be 
difficult. 

Mr. Sutphen. The assistant probably will go with a man for 2 
weeks and then the following weeks he will go with him part of the 
time, don't you know, 

Mr. Gesell. Check back on his work. 

Mr. Sutphen. Yes; he won't go with him all the time, just to see 
how he is getting along. 



CONCENTRATION OF ECONOMIC POWER 5737 

Mr. Gesell. I have been using the phrase "debit." What do you 
understand by that phrase ? What is the man's debit ? 

Mr. SuTPHEN. A debit is a technical term that we use, I presume. 
It represents the premiums if we are talking about the money; or, 
from a different angle, it represents the life insurance of all the 
policyholders which are assigned to this particular agent to service. 

Mr. Gesell. In other words, wlien he comes on he is given a debit 
which is a very well defined area 

Mr. SuTPHEN. Established business. 

Mr. Gesell, In the particular city where he works. That debit, 
has, I imagine, in the vast majority of cases already been developed 
by the previous agent. 

Mr. SuTPHEN. Yes; in every case. 

Mr. Gesell. There are on the debit, then, policyholders of the 
company and the man has the responsibility of servicing those policies, 
and is he also given some exclusive right to sell policies to other 
persons in the area who don't have any insurance ? 

Mr. Sutphen. He has no exclusive right. He has a right to sell 
his policies wherever he is licensed to sell policies. 

Mr. Gesell. Well, then, his selling activities are not confined to 
his own debits? 

Mr. Sutphen. In actual practice his selling activities are largely 
confined to his own debit, and almost exclusively confined to his own 
district territory. 

Mr. Gesell, Is there more or less an unwritten code among the 
agents that one fellow won't go over and raid another man's debit 
for new business? I mean, as a practical matter, does it work out 
that each agent has his own territory? 

Mr. Sutphen. You are speaking about industrial, because in the 
writing of ordinary quite a different situation obtains. The latitude 
and practice in connection with ordinary is. entirely different. 

Mr. Gesell. We are talking about industrial. 

Mr. Sutphen. Yes; I think that that is fairly well established. 
It is no rule of the company. 

Mr. Gesell. But as a practical matter that is the way it works 
out, isn't it? The man has both the job of collecting in that area 
and usually is by far the principal selling agent of industrial insur- 
ance for the company in that area. 

Mr. Sutphen, That is correct. .. 

Mr. Gesell. How many debits has your company at the present 
time ? 

Mr. Sutphen. 19,299. 

Mr. Gesell. One for each agent? 

Mr. Sutphen. One for each agent. 

Mr. Gesell. What is the average size of the debit, measured in 
terms of money? 

Mr. Sutphen- The industrial debit is $229. 

Mr. Gesell. That is $229 collected weekly? 

Mr. Sutphen. Collected weekly; yes, sir. That is the average. 

Mr. Gesell. And how does it run, from a low of what to a high 
of what? I realize these figures may not be available. I just want 
your best estimates of what the limits are. 

Mr. Sutphen. Of course we have some isolated cases of men, for 
instance, who are partially disabled, that might have $80 or $90 



5738 CONCENTRATION OF*ECONOMIC POWER 

debits, which would be all they could handle, but they are very de- 
cided exceptions. The debits will run from $150 to $300. That is a 
rough figure. 

Mr. Gesell. I suppose in terms of measuring the debit in terms 
of territory a man may have a very large area to cover if he is in a 
sparsely settled or undeveloped area, or if he is in a crowded tene- 
ment region, for example, his debit may be very small physically. 

Mr. SuTPHEN. His territory might be. 

Mr. Gesell. Yes. 

Well now, can you tell us how much it costs you to take on a man 
and train him? 

Mr. Sutphen. I don't think it costs anything except a loss of pro- 
duction of business. Our agent changes are very low. I think that 
on our experience this year we will probably only have about half 
a new man to introduce by each assistant. 

Mr. Gesell. So each assistant has to introduce half a man ? 

Mr. Sutphen. On an average. 

Mr. Gesell. There must be some way of measuring or estimating, at 
least, what it costs to put one of these new men on. You have, after 
all, some expenses, do you not? 

Mr. Sutphen. Mr. Gesell, we cannot figure that there would be 
any saving if we^never had another new man to introduce. There 
wouldn't be any saving to the business because the assistant is there, 
he is required there to supervise these debits. This debit that hasn't 
any man on it— we call it an open debit — requires supervision just the 
same whether there is a man on it or whether there isn't a man on it. 

Mr. Gesell. Then you take this position, I take it, that instead 
of the assistant working more of his time on the production of new 
business and the servicing of old business some of his time is diverted 
to the training of these men. 

Mr. Sutphen. And in addition the assistant is required to spend 
more time during that period. 

Mr. Gesell. Well now, you would agree, wouldn't you, that it is 
very desirable to have a low agency turn-over ? 

Mr. Sutphen. Oh, yes. 

Mr. Gesell. Is that entirely for reasons other than financial 
reasons ? 

Mr. Sutphen. Oh, yes — well, I say yes, I agree with that, because 
I don't think that there is any particular financial reason when your 
finals are at a reasonable figure. 

Mr. Gesell. And actually, then, your company has no studies, or 
no computations, which would be even the basis for an estimate of 
what cost there may be in taking on a new man ? 

Mr. Sutphen. I don't doubt but what estimates were made in the 
past. I have not seen any for many years. I do not recall what the 
figures were in the past. We have worked toward the goal that we 
feel we are reaching now for many years, toward reducing agency 
changes. 

Mr. Gesell. When a man leaves the company is that called tech- 
nically in the business "finalling" the man ? 

Mr. Sutphen. Yes. 

The Vice Chairman. What was that, again? 



CONCENTRATION OF ECONOMIC POWER 5739 

Mr. Gesell. "Finallinf^." What do you mean by a chargeable final 1 

Mr. SuTPHEN. I will explain it another way. The nonchargeable 
tinals are deaths, men who are retired, who go out upon disability, and 
oromotions, and, of course, men transferred to other debits in other 
sections. We make a final on those cases. 

Chargeable finals are the men who actually resign from the service 
or who are requested to resign. 

The Vice Chairman. You do not include promotions? 

Mr. SuTPHEN. Chargeable finals do not include promotions. 

Mr. Gesell. I take it they also do not include resignations for bad 
health, resignations as a result of reaching retirement age, or any of 
those. They are chargeable finals where a man leaves under some 
cloud. Is that correct? 

Mr. Sutphen. No ; we have a great many men who leave our busi- 
ness to go into business for themselves. We have all kinds of cases — 
men inherit estates, or because of family reasons they have to move 
to some community where we do not have any vacancy in which we 
can use them. 

Mr. Gesell. Am I correct in saying that in recent years in your 
company the chargeable finals have diminished to a very great extent? 

Mr. Sutphen. Very much. 

Mr. Gesell. Do j^ou recognize this as a schedule showing the num- 
ber of agencies for each year from 1908 to 1938, and the number of 
chargeable finals? 

Mr. Sutphen. Yes. 

Mr. Gesell. I notice it has gone from a figure of a high of 84 per- 
cent back in 1910 down to 7.02 percent in 1938. 

I wish to offer that for the record. 

The Vice Chairman. It may be admitted. 

(The tabulation referred to was "Exhibit No. 972" and is included 
in the appendix on p. 6203.) 

Mr. Gesell. Have you any idea as to what percentage of the men 
who leave your agency force are finaled for deficiencies or irregulari- 
ties of one sort or another? 

Mr. Sutphen. I haven't any figures on that, excepting the 
deficiencies. 

Mr. Gesell. Tell us what your best estimate is as to the number of 
men who leave the business because of deficiencies. 

Mr. Sutphen. Last year out of 1,371 we had 409 that had defi- 
ciencies. 

Mr. Gesell. Those men, I take it, were included among the charge- 
able finals. 

Mr. Sutphen. They are included among the chargeable finals, 

Mr. Gesell. What do you mean by "A man had a deficiency"? 

Mr. Sutphen. He used policyholders' money for his personal use. 

Mr. Gesell. Either for his personal use or, perhaps, Avould this 
be included as a deficiency, where a man took policyholders' advance 
payments and credited them to the back payments of another policy- 
holder? Would that be included as a deficiency? In other words, 
where the agent took Mrs. Jones, who was 2 months ahead, and put 
her money against Mrs. Smith, Avho was 2 months behind, in order to 
prevent her policy from lapsing. 

Mr. Sutphen. And gave Mrs. Smith the credit? 

124491— 40— pt. 12 11 



5740 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Yes. "Would that be included as a deficiency ? 

Mr. SuTPHEN. Yes. 

Mr. Gesell. So these men who are fired for deficiencies aren't all 
fired for personally using policyholders' funds, are they ? 

Mr. SuTPHEN. Yes; because our deficiency cases are not caused by 
that. 

The Vice Chairman. You mean the case Mr. Gesell has just used 
in illustration is not anything that, you have in mind as existing in 
your company? 

Mr. SuTPHEN. I don't say that it does not. Mr. Gesell is talking 
about excess arrears, where a man fails to lapse his business when it 
should be lapsed. 

Mr. Gesell. And in effect "kites" somebody else's advance pay- 
ments against the policy which is about to lapse. 

Mr. SuTPHEN. Yes. We dismiss that man, if it is flagrant, for gen- 
eral irregularities, because he has to falsify all his records in order 
to do that. He has to not comply with all of the rules and regula- 
tions of the company pertaining to the proper accounting for his 
business and the money he collects. 

Mr. Gesell. It represents a misrepresentation of the condition of 
his debit, doesn't it? 

Mr. Sutphen. Absolutely. 

Mr. Gesell. The only thing I was trying to point up was whether 
all of these deficiency cases actually involved an agent pocketing 
policyholders' money. Where a man indulges in excess arrears he is 
not personally taking policyholders' money, is he? 

Mr. Sutphen. I have not analyzed all the deficiencies, but those 
that I have indicate this: A very small percentage is of this excess 
arrears, and the balance of it is where he has actually taken money. 

Mr. Gesell. Of these cases that you find, by and large, do you 
find that they are men who had been with the company a short period 
of time? 

Mr. Sutphen. Generally speaking, when you say a short period of 
time, within the first 3 years; yet.. It sometimes occurs on the older 
ones. 

Mr. Gesell. You are apt to find it with the older men as well as 
the others? 

Mr. Sutphen. Infrequently. 

Mr. Gesell. The majority of them, you say, would be younger 
men who had been with the company less than 3 years ? 

Mr. Sutphen. Yes. 

Mr. Gesell. Do you consider that a pretty high percentage or not, 
this many dismissals for deficiencies? 

Mr. Sutphen. Well, of course, from the standpoint x)f desire, or 
what we want to do, we shouldn't have any, but with 19,000 men it is 
impossible to keep all of them on a straight and narrow path at all 
times. I think that considering the fact that our men are not bonded, 
that they handle tremendous volumes of money, that most of them 
come into the business without any experience of handling money or 
being responsible for trust funds, it is a very low rate. 

Mr. Gesell. Well, now, have you any figures there which will 
show us a break-down of some of the other causes for finals, charge- 
able finals ? What are the other types of irregularities which develop 
in the agency force ? Can you tell us some of them ? 



CONCENTRATION OF ECONOMIC POWER 5741 

Mr. SuTPHEN. That is the principal type. Men recommend poor 
risks sometimes. They sometimes misrepresent terms of policies to 
prospects, things of that nature. 

Mr. Gesell. Do you final men just because they can't write busi- 
ness? 

Mr. SuTPHEN. No. 

Mr. Gesell. Do you final any for that reason ? 

Mr. SuTPHEN. Yes. When you say "any", of course, you are get- 
ting right down to nothing. 

Mr. Gesell. That is right. 

Mr. SuTPHEN. Practically none, Mr. Gesell. 

Mr. Gesell. In other words, a man's ability to produce isn't one 
of the cardinal things to consider, 

Mr. SuTPHEN. Yes. We must at times come to the end of the 
rope of the man who will not work, who just will not work, who 
will not try. 

Mr. Gesell. Do you run into many of those ? 

Mr. SuTPHEN. No; not many. 

Mr. Gesell. Do you recognize that schedule which I show you? 

Mr. SuTPiiEN. I have seen it, Mr. Gesell ; yes. 

Mr. Gesell. That schedule is a record of chargeable finals cov- 
ering new agents appointed on or after January 1, 1931, running 
through 1936, is it not? 

Mr. Sutphen. Yes. 

Mr. Gesell. I notice on the schedule that out of some 25,000 newly 
appointed agents, 3,348, or some 13.2 percent, are shown as having 
been finaled under the heading, "Finaled for nonsuccess." That is a 
little more of a substantial percentage than I gather from your 
testimony. 

Mr. SuPTHEN. I was testifying on what we are doing today, Mr. 
Gesell. 

Mr. Gesell. I take it, then, the policy of the company has changed 
since 1936? 

Mr. Sutphen. The policy of the company has changed to the ex- 
tent that— that is 1931, isn't it? 

Mr, Gesell. It runs to 1936. 

Mr. Sutphen. But the figures may be weighted with the expe- 
rience in '31. 

Mr. Gesell. With the schedule before you, will you make any qual- 
ification or explanation of your previous testimony you wish with 
respect to that percentage? 

Mr, Sutphen. No ; because I was testifying on what we are doing 
today, and have done in the last couple of years. 

Mr. Gesell. Am I correct .in understanding from that, then, that 
in the past there was a greater emphasis upon production of new 
business than there is at the present time ? 

Mr.- Sutphen. Yes; that is true, with this explanation: In the 
very unsettled times, the economic unsettlement in which we are 
living in these times, it is very difficult to determine by production 
figures whether a man is actually putting his time in or not. Now, 
in normal times you can tell fairly well by results, because the results 
will run along level with practically most men, whether the man is 
actually trying to sell business or not. You cannot tell today by 
results whether he is or not because of so many people being un- 



5742 CONCENTRATION OF ECONOMIC POWER 

employed, and we have taken that into consideration and realize that 
we want to be fair to men and not do anybody any injustice. 

Mr. Gesell. Then, I gather from that, from which I understand 
your position perfectly, that if you were able to make an accurate 
determination of those agents who weren't producing business, there 
might be more finals chargeable for nonsuccess, 

Mr. SuTPHEN. There might be more, but you always live and learn ; 
at least most people do. 

Mr. Gesell. Will you explain that? 

Mr. SuTPHEN. I think we have found that we do pretty well with- 
out making these finals for production, and I doubt very much 
whether we will ever go back to making as many finals for produc- 
tion as we have in the past. I doubt it. 

Mr. Gesell. Now, under this heading on the schedule entitled 
"Number Finaled for Other Work," does that mean persons who 
change their jobs within the company or left the company? 

Mr. SuTPHEN. No ; they left for other positions. 

Mr. Gesell. Jobs outside? 

Mr. SuTPHEN. To go back to their former vocation. There are a 
great many concerns that are trying to get our men to work for 
them because of their success in selling. 

Mr. Gesell. Do you feel this percentage of 20.9 percent shown 
under the heading "Number Finaled for Deficiency and Other Irreg- 
ularities" is a representative figure in terms of your present situa- 
tion, or do you believe it has been reduced somewhat ? 

Mr. SuTPHEN. That is 20 percent of all finals. 

Mr. Gesell. Twenty percent of all finals for the new agents within 
a period of 6 years? It is limited to new agents entirely? 

Mr. SuTPHEN. Of course, that is a very difficult question to answer, 
Mr. Gesell. I think — well, I don't know. There is no use of my 
trying to guess; I just don't know. 

Mr. Gesell. I wish to offer this schedule for the record. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 973" and is 
included in the appendix on p. 6203.) 

Mr. Gesell. Why is the word "chargeable" used on these finals ? 

Mr. Supthen. We could just as well use "preventable." It is some- 
thing that has been in the business for many years and I presume — 
I can only presume this — it was used as a term to indicate to the 
clerical organization the ones that would be charged as finals. That 
is the only significance that I can account for that it might have. 

Mr. Gesell. In other words, where an agent is fired for a final for 
nonsuccess or irregularities and deficiencies or because he leaves for 
some other job within a short period of time after he is taken on, you 
would feel those are areas in which your procedure for the selection 
and training of agents had broken down. 

Mr. SuTPHEN. Well, we take the broad position that under the 100 
percent supervision and direction we should save those men in the 
business. 

Mr. Gesell. I realize you can't make a perfect standard. Now, on 
these men who leave with deficiencies, you find that you are able to 
collect back a considerable percentage of those deficiencies? 

Mr. Supthen. Yes. 



CONCENTRATION OF ECONOMIC POWER 5743 

Mr. Gesell. Have you any figures as to what the net loss for the 
company is as a result of deficiency after the account is finally wound 
up? 

Mr. SuTPHEN. Last year the net loss was $44,000. 

Mr. Gesell. What is that figure? 

Mr. SuTPHEN. $44,125.68 ; that is the net figure. 

Mr. Gesell. For what period of time ? 

Mr. SuTPHEN. 1938. That takes into consideration the collections 
that were made on previous deficiencies. It is a current-year figure. 

Mr. Gesell. Now, coming back to the debit a moment, is there any 
way that you can tell us what the average size of the company's indus- 
trial policies is? 

Mr. SuTPHEN. You mean in amount? 

Mr. Gesell. Yes. 

Mr. SuTPHEN. In amount of insurance, the weekly premium, pre- 
mium-paying policies in force, $257. That is the end of last year. 

PROGRAMMING 

Mr. Gesell. How many policies do you figure per person, about one 
and a half, two, something like that? 

Mr. Sutphen. Per person? 

Mr. Gesell. Or per family, either way that you have your figures. 

Mr. Sutphen. I have a record that is not an actuarial record ; it is 
a record that we compile from statistics that we get from our men in 
the field. 

Mr. Gesell. I should think that would be more accurate than ac- 
tuarial figures. 

Mr. Sutphen. Well, with the exception that our field men do make 
mistakes in figures and actuaries don't — so they say. 

Mr. Gesell. I won't agree. 

Mr. Sutphen. I said "so they say." 

Mr. Gesell. How does it figure? 

Mr. Sutphen. The average number of policies per family — I am 
speaking now of the weekly premium industrial — is 3.9 policies per 
family. 

Mr. Gesell. That is for policies in your own company. 

Mr. Sutphen. Oh, yes. 

Mr. Gesell. These debits may overlap, may they not? 

Mr. Sutphen. With other companies ? 

Mr. Gesell. You may have four or five different agents from four 
or five different companies canvassing the same territory. 

Mr. Sutphen. That is possible. 

Mr. Gesell. And any individual family may be meeting not only the 
collector from your company but from all these other companies on 
different' days during the week. 

Mr. Sutphen. That is correct. 

Mr. Gesell. Do you believe that on most of your debits that dupli- 
cation exists? 

Mr. Sutphen. You mean on most of our debits or most of our homes ? 
li probably exists in some part on all debits, of course, but on most 
of the homes I do not think it does. 



5744 CONCENTRATION OF ECONOMIC POWERS 

Mr. Gesell. You think by and large in the families that your com- 
pany has as policyholders it would be rather infrequent to find that 
that family also has industrial policies with other companies? 

Mr. SuTPHEN. Well, with any number of other companies. You 
would find a considerable number that have them with one other com- 
pany, for instance. 

Mr. Gesell. And you believe that on all of your debits, forgetting 
the individual families, there is the duplication in the sense that there 
may be at least two different agents from two different companies serv- 
icing the same area ? 

Mr. Sutphen. AVTien you say "servicing the same area," do you 
mean that they have policies in the same homes that we have? We 
don't have policies in all the homes, you know. 

Mr. Gesell. Yes ; policies in the same home. 

Mr. Sutphen. An agent of another company may be working in 
the same neighborhood and be in different homes than we are. 

Mr. Gesell. But there is that overlapping of jurisdiction as between 
two companies, taking a single territory, is there not ? 

Mr. Sutphen. Oh, yes. 

The Vice Chahjman. Can you give us anything approximate, or 
would it be only a guess? 

Mr. SuTPHEJf. It would be even worse than a guess. I just can't 
answer that. 

The Vice Chairman. I can understand that. All right, Mr. 
Gesell, 

Mr. Gesell. It seems to me that in some areas that must lead to 
considerable confusion, doesn't it, Mr. Sutphen? 

Mr. Sutphen. Well, in what respect? 

Mr. Gesell. Well, I have in mind this kind of situation. Let's 
take a fairly concentrated area where within the same apartment 
building, for example, you may have four or five different companies 
soliciting industrial insurance, I should imagine that the agent who 
got to a particular family first might be the one who would be able 
to keep his premiums and his policies in force, if a particular family 
was having any difficulty in meeting its weekly payments. I can 
imagine another kind of difficulty that it would be very hard to 
sell in that area where there is so much competition as between 
.i,gents,'and from an over-all point of view I can see difficulties, I 
think, because of the duplication of effort and time and expense in- 
volved in having so many individuals concentrating on a single 
territory. 

Mr. Sutphen. Well, of course all salesmen expect competition in 
almost any line; he wouldn't be a salesman if there weren't com- 
petition. 

Mr. Gesell. There are two features to your business, aren't there? 
Forgetting the selling feature for a moment, there is the collection 
and servicing feature of your business. I can't see the desirability 
of having much duplication in that area. You see what 1 mean, 
1 am sure. 

Mr. Sutphen. Yes; I see what you mean. I don't follow you, 
though, that it is any particular detriment to the business because a 
policyholder desires to have his insurance in two companies. In 
other words, he may very properly, as a great many people do that 



CONCENTRATION OF ECONOMIC POWER 5745 

buy T)rdinary insurance, feel that he shouldn't put all his eggs in one 
basket. 

Mr. Gesell. These fellows haven't many eggs, have they ? 

Mr. SuTPHEN. Well, they are just as much eggs to them as the 
bi^ policy is to the big one. 

Mr. Geseix. Let me get at it from another point of view. Isn't 
it rather difficult to sell policies to an individual family in a manner 
which completely meets its particular requirements if there arc 
policies from several different companies involved rather than just 
policies from your own company ? 

Mr. SuTPHEN. I am not just sure I understand what you mean, 
Mr. Gesell. 

Mr. Gesell. I take it it is the desire of your company not to over- 
load any family with too many policies. 

Mr. SuTPHEN. That is right. 

Mr. Gesell. Not to put all of the protection on a 1-year old child 
or the breadwinner, and to keep some equitable distribution at least 
between the coverage and premium payments and endowment and 
whole life and all those other matters that involve an insurance 
program in the family's policy. Isn't it harder to accomplish that 
result if there are knocking at the doors of an individual family 
solicitors and collectors from more than one company? That is the 
question. 

Mr. SuTPHEN. If you eliminate the solicitors who might solicit 
and not get anything, they w^ould not complicate the situation, but 
if the family had insurance in more than one company it would not 
complicate the situation any if they told the agent just what the}'' 
had, because he would simply have to make a report the same as if it 
were one company. 

Mr. Gesell. There are difficulties in that respect ? 

Mr. SuTPHEN. There are difficulties in finding out what they have 
in other companies ; yes. 

Mr. Gesell. And isn't it possible that where a family becomes 
hard-pressed because of economic circumstances or something else 
and you have two people collecting from that family, that one agent 
may be successful in getting his premiums and the other agent not 
be successful and as a result the whole program may get out of gear 
through the continuance of certain policies in one company and the 
lapsing of policies in the other company? I am sure that must be 
a practical difficulty. 

Mr. SuTPHEN. No more so than if they were all in one company. 
I think there is an advantage in competition that accrues to the 
policyholder. In the mere situation that you present now the proba- 
bilities are that the company giving the best service in the home 
would be the one that would get the money and not the one who 
got there first. 

Mr. Gesell. What instructions do you give to your agents with 
respect to this whole matter of programming the family's insurance 
problem ? 

Mr. SuTPHEN. Well, we have tried sincerely to educate them and 
train them along the lines of properly selling the policy that fits the 
particular needs of the particular family and the individual. 

Mr. Gesell. Can you be a little more specific as to just what you 
have done and how you have done it? 



5746 CONCENTRATION OF ECONOMIC POWER 

Mr. SuTPHEN. Well, we haven't done anything except tell them 
that they should not sell more insurance than should be sold or than 
the family can carry. After all, these things all become matters 
of judgment. It is very difficult to set down any hard and fast rule 
as to how much insurance people can afford to carry. 

Mr. Gesell. You refer, I take it, to the statement of general duties 
in the manual of instructions for agents. 

Mr. SuTPHEN. That is one place. 

Mr. Gesell. Namely — 

to advocate the class of insurancQ most suitable to the applicant's position in 
family-insurance program and not to press for a larger amount of insurance 
than the applicant is able to maintain. 

Mr. SuTPHEN. Yes. 

Mr. Gesell. I take it your agent's contract also contains that. 

Mr. Sutphen. We have it in his contract. 

Mr. Gesell. That type of statement? 

Mr. Sutphen. Yes. 

Mr. Gesell. What do you do to guide the- agent toward the accom- 
plishment of that result? 

Mr. Sutphen. We depend upon the supervision over them from 
the home office and in the field, largely in the field. Our superin- 
tendents understand the policy of the company ; they are continually 
talked to about it. Our men that go out from the home office attend 
a great many meetings in the field with the agents and stress those 
things. 

Mr. Gesell. Wha.t I am trying to get at, Mr. Sutphen, is what do 
you say to them to help them apart from this general statement? 
What kind of specific instructions, type of guidance, do you give 
them 'a order that they can accomplish the admittedly laudable 
result we have talked about? 

Mr. Sutphen. There isn't anything very concrete that you can 
give them other than to continue to preach to them the necessity of 
rendering proper service to policyholders, to treat the policyholders 
right, to see that the insurance so far as can be controlled is placed 
on the lives of the people that should have their lives protected and 
the premiums are not in excess of what is reasonable in a particular 
case. It is a very difficult thing to work out any formula on. 

Mr. Gesell, I can see where there will be big variations. 

Mr. Sutphen. But it is a continual talking about things, and I 
think that we have made very decided progress along that line in 
convincing our men, in getting our men in the frame of mind where 
they are sympathetic toward the rendering of a proper service to the 
policyholders. 

PEODUCTTON QUOTAS 

Mr. Gesell. Do you have quotas for your agents, the amount of 
business they have to produce? 

Mr. Sutphen. We give those indirectly. 

Mr. Gesell. Will you explain that? 

Mr. Sutphen. We give a quota to the superintendent and he di- 
vides it up into the number of units that he has, which becomes the 
quota of the agent. Now that is an objective rather than a quota. 

Mr. Gesell. Do you mean by that your quota isn't always reached ? 

Mr. Sutphen. No; and we don't do anything about it if it isn't 



CONCENTRATION OF ECONOMIC POWER 5747 

Mr, Gesell. Wliy do you go through all the elaborate procedure 
of having one? 

Mr. SuTPHEN. Because the men need an objective; they want it. 
They want to know what the company expects them to do, and what 
is expected of them. You know, the job of being an agent, selling 
life insurance, is not an easy job. 

They have many disappointments. They do a great deal of their 
work alone. They are not accompanied by anybody and they meet 
with lots of rebuffs and all other kinds of things, and if you aren't 
careful they get discouraged, and they need to have something, an 
objective, kept before them all the time. They need to be inspired, 
to have their confidence continually built up. In other words, they 
need to have their morale maintained. 

Mr, Gesell. I can see a certain contradiction in terms between 
giving a man a quota on the one side and trying to tell him not to 
sell in certain manners on the other. You put him in something of 
a box. 

Mr. StJTPHEN. No ; because the quotas are sufficientlj^ small that he 
does, not have to resort to poor selling in order to accomplish it. 

Mr. O'CoNNELL. How do you arrive at quotas? 

Mr. SuTPHEN. Arbitrarily. 

Mr. O'CoNNELL. It must be based on something. 

Mr. SuTPHEN. It is based largely on past results or reasonable 
expectations from territories. 

Mr. O'CoNNELL. What do you ordinarily do, take the past results 
in a given territory and step them up and give that as an objective 
to the people in that territory during the next period ? 

Mr. SuTPHEN. No; sometimes we take quotas that are less than 
what was accomplished the year before. 

Mr. O'CoNNELL. Generally speaking? 

Mr. SuTPHEN. Generally speaking, we take a company figure and 
more or less distribute it among the districts we have. 

Mr. O'CoNNELL. What do you mean by the company figure? How 
do you get that? 

Mr. SuTPHEN. Based on what we feel at the end of the year it is 
reasonable to expect during the next year, based on our hopes for 
improved business conditions, economic conditions, and based some- 
what on what has been accomplished before. 

Mr. O'CoNNELL. Generally speaking, would you say you arrive at 
the company figure by taking the experience of the company during 
a period and stepping it up as something to be hoped for, bigger and 
better business ? ' There must be some way you arrive at the company 
figure which in turn you hand down to your superintendents. 

-Mr. SuTPHEN. Well, it is not done in just that way. It is not done 
just in the way of aiming for bigger and better business. 

Mr. O'CoNNELL. Can you tell me how it is done ? 

Mr. SuTPHEN. Keep in mind we do not insist upon these quotas 
being met. 

Mr. O'CoNNELL. I know, I am only interested at the moment in 
finding out the process, the mental process or whatever process you 
go through in arriving at a company figure. 

Mr. SuTPHEN. The mental process is very much as you say, with 
the exception of this trying to get bigger and better business. 



5748 CONCENTRATION OF ECONOMIC POWER 

Mr. O'CoNNELL. Possibly I shouldn't have said bigger and better, 
but in any event, you take the experience of a territory for a given 
period and you would step that up as the objective for the next 
period. 

Mr. SuTPHEN. If the conditions were anywhere near similar at all. 
In other words, we would not take the experience of 1929 and 1930 
and base an allotment or quota in 1940 on those figures. 

Mr. O'CoNNELL. I see. Have you a figure now for the year 1939, a 
company figure? 

Mr. SuTPHEN. Yes. 

Mr. O'CoNNELL. How does that compare with the company figure 
for 1938? 

Mr. Gesell. And if you have the figures, I think we might have 

those. 

Mr. SuTPHEN. Of course, the whole thing is tied up with this tre- 
mendous change in the economic situation which very quickly and 
definitely affects the production of business. 

Mr. O'CoNNELL. Undoubtedly the results may vary greatly from 
your hopes. 

Mr. SuTPHEN. We gave the combined quota for 1939, that is com- 
bining the weekly premium industrial and the intermediate. It was 
$335,000. It was $385,000 for 1938. 

Mr. Gesell. Is that an increase in weekly collections? 

Mr. SuTPHEN. Yes. 

Mr. Gesell. Not in insurance in force? 

Mr. SuTPHEN. No. It was $385,000 the year before that. 

Mr. O'CoNNELL. That is an increase? 

Mr. SuTPHEN. That is an increase; yes. We cut it down this year 
because last year things did not work out well. 

Mr. O'CoNNELL. You mean you cut down the rate of increase? 

Mr. SuTPHEN. We cut down the quota. 

Mr. O'CoNNELL. How close did you come in '38 to realizing the 
quota? 

Mr, SuTPHEN. We came nowhere near it in '38. We came reason- 
ably close in '37 ; we made three hundred thirty-four thousand against 
three hundred eighty-five quota. 

Mr. O'CoNNELL. And what did you make in '38 ? 

Mr. SuTPHEN. We made $40,000. 

Mr. O'CoNNELL. And in 1939, you have a quota of three hundred 
thirty-five thousand as against a realization of forty thousand and 
an expectation of three hundred eighty-five in '38 ? 

Mr. SuTPHEN. But at the beginning of the year — of course, what- 
ever anybody else may be in this world, production people are opti- 
mists, and we 

Mr. O'CoNNELL (interposing). It is your business, I take it, to pro- 
duce more and more insurance. 

Mr. SuTPHEN. Not necessarily more and more. I don't like to ad- 
mit that our objective is more and more. Our objective is better and 
better. 

Mr. O'CoNNELL. But the purpose of the allotment or this quota 
seems to me to be pretty directly toward more and more, is it not? 
The purpose of that one particular feature of the production scheme 
of setting a quota 3ach year substantially larger than the previous 



CONCENTRATION OF ECONOMIC POWER 5749 

year is to achieve the result of more and more insurance, is that 
not so? 

Mr. SuTPHEN. No; I will not agree to that, because that is not our 
objective. 

Mr. O'CoNNELL. I don't mean it is the objective of your company 
as such. What other objective has the quota ? 

Mr= SuTPHEN. It does not have that effect in actual exi^erience. 

Mr. O'CoNNELL. What is its purpose? 

Mr. SuTPHEN. Its purpose is to give the men an objective to work 
toward. 

Mr. O'CoNNELL. And which you hope they will reach. 

Mr. SuTPHEN. And which we hope they will reach. 

Mr. O'CoNNELL. And if they reach it the result will be more and 
more insurance, is that correct? I mean, it has to do with nothing 
but insurance. 

Mr. SuTPHEN. Naturally, it will be more than we would get if we 
didn't reach it. It means that the men's morale will be kept up. 
Their compensation is dependent to an extent upon production and 
wp. endeavor to encourage them to keep up their production so long 
as we can get the right kind of business properly written and 
properly placed. 

• Mr. O'CoNNELL. The quota has nothing to do with the right kind 
of business. 

Mr. SuTPHEN. No; it has nothing to do with the right kind of 
business, but we endeavor to keep it low enough so they can write 
the right kind of business and still make the quota, under normal 
times. 

Mr. O'CoNNELL. The quota for 1939 is quite substantially in excess 
of your realization. 

Mr. SuTPHEN. It is far in excess of the realization for 1938, yes; 
but it was based on the hopes and optimism that we had for a better 
economic condition in 1939. 

Mr. O'CoNNELL. You were optimistic in 1938, too. 

Mr. SuTPHEN. Yes. 

Mr. Gesell. May I ask you if you have any figures as to actually 
how many new policies an agent sells per week or per month ? 

Mr. SuTPHEN. You are speaking about industrial now, Mr. Gesell ? 

Mr. Gesell. Yes ; this whole discussion is limited to industrial. 

Mr. SuTPHEN, The first 6 months this year; — the figures are ap- 
proximately the same, I haven't the figures right up to date, I was 
away for a while — for the first 6 months which are characteristic 
this year the average production per agent was 1.9 policies. 

Mr. Gesell. The agent on the average wrote almost two policies a 
week. 

Mr. SuTPHEN. Almost two policies. 

Mr. Gesell. I want to ask you a little more about the agent's 
duties. Does he have a pretty definite day-to-day schedule during 
the week that he must follow? I mean, does he have to collect on 
certain days? 

Mr. Sui'PHEN. During the first 3 days of the week he collects his 
debits. They have two debits, the monthly debit and the weekly 
debit. 

The Vice Chairman. What is that day, is that an 8-hour day ? 



5750 CONCENTRATION OF ECONOMIC POWER 

Mr. SuTPHEN. We don't have any hours. The men report at the 
office on Tuesday and Wednesday and Thursday and Friday. They 
do not report on Mondays, they go right out on debits. They do not 
report back. We don't know when they quit work. They report 
on Tuesday morning to turn in the collections that they have made 
on Monday and they do the same thing on Wednesday. This is the 
general practice. On Thursday they come in and make up their 
weekly account. While they are collecting their debit they also do 
other incidental work and write business and do all kinds of things, 
if the opportunity presents itself or they have some service to render. 
If the policyholder wants to know anything, they take care of those 
things as they go over their route. 

On Thursday afternoon and Friday morning they are doing their 
miscellaneous work, canvassing and whatever they have to do. They 
do not come in Friday morning. Friday afternoon they come in, at 
which time the records for the week come down and they adjust 
their books and we have a meeting and then they are through. They 
do not work on Saturday. They are paid on Friday. 

The Vice Chairman. So really from Thursday noon until Friday 
noon is the time set aside particularly for the canvassing and obtain- 
ing of new business. 

Mr. SuTPHEN, Specifically. They have some collections that have 
to be made later in the week and miscellaneous duties that have 
to be performed that come along. 

The Vice Chairman. Before you leave that, Mr. Gesell, I f:hought 
you said 3 days in the week they used for covering their debit. 

Mr. SuTPHEN. Monday, Tuesday, and Wednesday ; yes. 

The Vice Chairman. Does that leave at least 3 days in the week 
for them to go out and get additional business ? 

Mr. SuTPHEN. No; they come in on Thuisday morning. This is 
the general practice. There are som.- oases where they come in on 
Wednesday afternoon, but they generady come in on Thursday morn- 
ing. Wlien they get their accounts turned in, they have the balance 
of that day, and Friday morning; they usually come into the 
meeting on Friday afternoon around 1 o'clock. They have that time 
for canvassing or miscellaneous work. It much depends upon the 
territory. There are some territories where pay days vary very much 
and they have to do some collecting later in the week, the latter 
part of the week. They have people that they could not see or could 
not collect from when they went around on Tuesday and they have 
to go around the latter part of the week to see them. They largely 
dovetail all features of their work into the general time. 

The Vice Chairman. What portion of a workday week would you 
say an agent has outside of his debit and miscellaneous duties in 
order to apply himself to getting new business ? 

Mr. Sutphen. It is so closely tied up, the writing of new business 
is so closely tied up with all his other work that that is very difficult 
to say. As he goes over his debit, collecting premiums, he looks 
over his books and he sees someone in that family that he thinks 
should have more insurance than he has got, or he meets someone 
in the home as he is going in there, probably a friend or a neighbor, 
or he gets to talking with the policyholder and finds out that the 
woman next door has just moved in, or something like that; he stops 
on the route, going around on his collection route, and talks insurance. 



CONCENTRATION OF ECONOMIC POWER 5751 

The Vice Chairman. You say covering the debit is a full week's 
work? 

Mr. SuTPHEN. No; I don't say it is a full week's work. They 
devote basically the first 3 ' days of the week ; they conclude basically 
their collections in the first 3 days of the week, the exception being 
the isolated cases that have to be taken care of later. The balance 
of the week they do have for writing new business, less the time that 
they must put in collecting the isolated cases and the miscellaneous 
duties that they have to perform in connection with people who ask 
for cash surrender values' or policies that mature, death claims and 
that sort of thing. 

The Vice Chairman. I assume your agents are paid on commis- 
sion exclusively. 

Mr. SuTPHEN. Yes. 

The Vice Chairman, Industrial agents? 

Mr. Sutphen. Yes. 

The Vice Chairman. But a debit gives them a certain guaranteed 
weekly income, doesn't it? 

Mr, Sutphen. In effect. The man who has $240 of debit gets paid 
each week. Our current agents get 12 percent on the amount they 
collect each week. They don't always collect $240. One week they 
may collect more and another week they may collect less, but it 
runs fairly constant. 

Mr. Gesell. Agents have to collect, I take it, from everyone on 
the debit. You leave no way whereby policyholders can pay in at 
the home office, do you ? 

Mr. Sutphen. Again speaking about industrial? 

Mr. Gesell. Yes. 

Mr. Sutphen. Our current policies provide for their paying at 
the office. 

Mr. Gesell. How long have those policies been in effect? 

Mr, Sutphen. Since the first of this year. 

Mr. Gesell. They make it possible for an industrial policyholder 
to pay his premiums at the office ? 

Mr. Sutphen. That is correct. 

Mr. Gesell. And I take it he gets as a result some premium de- 
duction ? 

Mr. Sutphen. He does ; yes. 

Mr. Gesell. What is the amount of that deduction ? 

Mr. Sutphen. Providing he pays continuously during the year at 
the office and does not permit his premium to become in default, he 
gets 10 percent. 

Mr. Gesell. He gets 10 percent? 

Mr. Sutphen. At the end of the year. 

Mr. Gesell. Have you worked out any kind of schemes other than 
this one that has just gone into effect for collecting other than 
through the agent's going around from door to door? I mean by 
that, have you any pay roll deduction plans or anything of that 
cha racter ? 

Mr. Sutphen. No; all industrial policyholders, if they pay 47 
weeks at one time, we give them credit for 52 weeks. That is pay- 
ment in advance. 

Mr. Gesell. If they pay, in effect, a year in advance. 

Mr. Sutphen, Yes. 



5752 CONCENTRATION OF 'ECONOMIC POWER 

Mr. Gesell. You have no pay-roll deduction arrangements with 
employers at all? 

Mr. Stjtphen. No. 

Mr. Gesell. When an agent writes a policy, I take it an applica- 
tion is filled out. 

Mr. SuTPHEN. That is correct. 

Mr. Gesell. Is this the form of application which is used by your 
company ? 

Mr. SuTPHEN. Yes, sir. 

Mr. Gesell. I wish to offer this application. 

The Vice Chairman. It maj^ be admitted. 

(The application form referred to was marked "Exhibit No. 974" 
and is included in the appendix on p. 6204.) 

Mr. Gesell. Is that application filled out by the policyholder or 
by the agent? 

Mr. Sutphen. It may be done either way. It is usually completed 
by the agent asking questions of the policyholder. 

Mr. Gesell. In the great majority of cases it is correct to say it 
is filled out in the agent's handwriting. 

Mr. Sutphen. I think that is correct ; yes. 

Mn Gesell. That application subsequently is attached to the 
policy, is it not? 

Mr. Sutphen. A copy of it, a photograph ; yes. 

Mr. Gesell. Can you tell us a little of what happens from the time 
the application is signed? Give us some idea of the mechanics 
which the company goes through in handling the application and 
in issuing the policy. 

Mr. Sutphen. Well, the agent, of course, writes the application. 
He keeps a record on forms that he has provided for that purpose 
and he turns it over into the district office, where it is reviewed and 
checked against rejection files, and if the agent does not have the 
privilege of certifying to the health it is turned over to the assistant 
superintendent for that purpose, or if the amount of insurance re- 
quires a medical examination it is turned over to a medical examiner. 

Mr. Gesell. In a great majority of cases there is no medical 
examination, and the agent is the only person to certify as to the 
health of the applicant. 

Mr. Sutphen. Th,at is correct. 

Then it is sent to the home office. It goes to our policy section 
and is checked over, and unless it requires the attention of the medical 
department, which most of them do not, it is approved and the 
proper policy is selected to cover the particular case. Then the 
policies are sent to the numbering room, where they are numbered; 
then 'they go to what we call the print section, where a photograph 
is made of the application. They go to the typewriting department, 
where tlie policy is written and a copy of the application is attached. 
They go back to the policy department, where each is compared and 
referred to the life and lapse register section, where the life and 
lapse forms are made up, which are the records of the business we 
send to the a^ent, a copy of which we keep in the home office, and 
then the policies, together with the life schedules and lapse schedules, 
are sent to the field. 

Mr. Gesell. Does the policyholder pay the first premium in 
advance ? 



CONCENTRATION OF ECONOMIC POWER 5753 

Mr, SuTPHEN. Yes ; the business is all written on a binding receipt 
basis. 

Mr. Gesell. Who is it that checks the application and the records 
of the company to see whether it is, let us say, socially desirable to 
issue another policy to this particular family? 

Mr. SuTPHEN. It is done in these policy sections, where they de- 
cide upon the issuance of the business. 

Mr. Gesell. They check over to see whether the family has too 
much insurance or whether it is the right kind of protection that the 
family ought to have, or things of that sort ? 

Mr. Sutphen. They are not in a position to do that at all. 

Mr. Gesell. Then who has that responsibility? 

Mr. Sutphen. The field. 

Mr. Gesell. Does it rest with the superintendent, the assistant 
superintendent, or the agent? 

Mr. Sutphen. Well, it is divided. Primarily it rests with the 
agent. The superintendent and the assistant superintendent are sup- 
posed to supervise it, but, again, they are not on the ground and do 
not see the actual conditions that exist. 

Mr, Gesell, That determination is primarily the agent's, himself? 

Mr. Sutphen, Yes. 

Mr. Gesell. Do you let your prospective policyholders have a 
sample copy of the policy in advance? 

Mr. Sutphen. No; unless they specifically ask for it. 

Mr. Gesell. What if they ask for it? Do you let them have it? 

Mr. Sutphen. Yes; we do. It is something that they don't ask 
. for, though, Mr, Gesell. The agents have copies of the policies. 

Mr. Gesell, They have policies with them as they go the round 
which they can show the policyholders? 

Mr. Sutphen. Yes; and, of course, the policyholder, after he gets 
his policy, if he doesn't want it, doesn't have to keep it He has 
2 weeks 

Mr. Gesell (interposing) . He has 2 weeks to turn it in, and if he 
turns it in he gets his money back. 

Mr. Sutphen. Yes; that's right, 

Mr, Gesell, Is everyone eligible for industrial insurance? 1 
mean, can any person in any walk of life or occupation get industrial 
insurance from your company? 

Mr. Sutphen., If they are in good health, 

Mr, Gesell. You don't exclude, then, these people who are shot 
out of cannons, or divers, or other dangerous occupations? 

Mr. Sutphen. We wouldn't consider — I say "good health"; we 
would project that somewhat into the future, probably. We have a 
list of cases that are either rated or rejected that we do not take. 
It is a very limited list. 

Mr. Gesell. What sort of persons are they ? Am I correct in say- 
ing they are mostly people engaged in very dangerous occupations? 

Mr. Sutphen. Very dangerous occupations. They are people who 
cannot get any kind of ordinary insurance with even the most hazard- 
ous rating. 

Mr, Gesell, People like wild-animal trainers, motorcycle racers, 
and things like that ? 

Mr. Sutphen. Yes. 



5754 CONCENTRATION OF* ECONOMIC POWER 

Mr. Gesell. I noticed you included in there, and I couldn't quite 
understand it, burlesque actresses. Is that considered a dangerous 
occupation ? 

Mr. SuTPHEN. I will have to admit, Mr. Gesell, that the actuaries 
iigured these out and not me. They may be more familiar with 
them. 

Mr. Gesell. By and large almost anyone is eligible ? 

Mr. SuTPHEN. That is true, if they are in a good condition of 
health. 

Mr. Gesell. And the agent is the person who certifies as to whether 
they are in good health or not, on behalf of the company ? 

Mr. SuTPHEN. Yes ; after he has been in the service for 3 months — 
I think it is 3 months — we give him this authority to pass upon these 
cases, subject to the approval of the superintendent. Of course, in 
his early days it is supervised somewhat by the assistant superin- 
lendent, but prior to that time they have to be passed upon by the 
assistant superintendent, providing they do not call for a medical 
examination by the amounts involved. 

Mr. Gesell. I have here a considerable group of applications for 
policies issued as of April 17, 1939, by your company, I think 5 from 
each of the 20 divisions, and by and large the great bulk of them say 
"Never sick" or "Never," or sometimes "jamais," or whatever the 
French word for "never sick" is. I wonder if it is quite customary 
for your applications to come in with that type of endorsement. It 
seems hardly possible, under the facts, for it to be true. 

Mr. SuTPHEN. I think it is true. I don't know what percentage; I 
would hesitate to venture a percentage, but a great many of them do 
say that. That is what people say when you ask them. 

Mr. Gesell. Well I know, but I take it the agent, as well as you or 
I or anybody else, would be apt to question the accuracy of a statement 
of almost anybody that he had never been sick. 

Mr. SuTPHEN. No ; I don't think so. The application has a long list 
of serious illnesses which they certify that they have had or have not 
had. I think that I have been examined by doctors that asked me if I 
had ever had any serious illness or ever had been attended by a doctor, 
and I said no and they never questioned it. 

Mr. Gesell. I just was trying to get at using that as an illustration 
of the possibility of misrepresentations or half truths creeping into 
the application by reason of the fact that the agent in his desire to write 
the policy will run through the questions on the application as quickly 
as possible. 

Mr. Sutphen. I think if there is one thin^ our men are very 
conscientious about it is in recommending the risks. They know we 
will not stand for any violation of their paying proper attention to 
the physical condition of the applicants. 

The Vice Chairman. What is the period of incontestability in your 
company ? 

Mr. Sutphen. One year. 

We have, Mr. Gesell, I think, a very fine type of man as an industrial 
agent today. I don't know whether you have ever met any of them 
or not, but they are an honorable lot of men and they are conscientious 
in their work. In 19,300 there is a small percentage that do not 
measure up 100 percent to anything, but the great majority of them are 



CONCENTRATION OF ECONOMIC POWER 5755 

very conscientious in their work and they do not take any chances 
on recommending poor risks to the company. 

Mr. Gesell. Are their debits inspected by inspectors who check 
up on that question ? 

Mr, SuTPHEN. Their business is periodically spot checked by in- 
spectors that check up on all the questions. 

Mr. Gesell. You mean inspectors who actually go out into the 
field. 

Mr. SuTPHEN. They are home office people; yes, entirely; and 
the agent's work is periodically spot checked and gone over once a year 
entirely by the assistant superintendent. 

Mr. Gesell. Well now, you said that on Fridays the agents had 
a meeting. What kind of meeting is that ? 

Mr. SuTPHEN. The agents are divided up into districts in charge 
of a superintendent (we have 451 districts) and the superintendent 
and the assistant superintendents and the agents meet. Some of 
the districts are in detached territory. The men, however, come in 
on Friday and do their weekly detail work. You see, the new busi- 
ness comes down and has to be entered up in their collection books, 
and their lapses are turned in and transfers and things of that 
nature, after which a meeting is held by the superintendent with 
the men. It is an educational meeting, very largely. 

Mr. Gesell. What kind of thing takes place at the meeting? Do 
you mean he discusses the policy provisions and discusses things of 
that sort? 

Mr. Sutphen. At times. It all depends upon what he decides to do. 
He may talk about some letters that have come down from the home 
office or something that has appeared in our weekly record that is of 
an inspirational nature, or of the plans for the following week, or it 
may be purely educational in taking up a particular form of insurance 
and talking about it and discussing it with the men, having them* take 
part in it. 

Mr. Gesell. I take it it is in these meetings that the managers 
occasionally attempt to assist the home office management in reach- 
ii^g the quotas which they have set from a production point of view ? 

Mr. Sutphen. Well, not only in meetings — all the time. 

Mr. Gesell. Is it at these meetings that the managers are apt to set 
small weekly quotas which will brnig you to the big over-all yearly 
quota, and to put a certain degree of pressure on the men to get the 
business in? 

Mr. Sutphen. It depends on what you call weekly quotas and 
pressure. 

Mr. Gesell. I just want you to tell us what happens. I don't want 
to diaracterize it at all. 

Mr. Sutphen. It is entirely possible that they suggest to men, if 
they are talking about or explaining a certain type of policy, that 
they ejideavui CO sell some of it in the next week. 

Mr. Gesell. Do you have contests? 

Mr. Sutphen. We don't have any company contests — that is, there 
is none that is, company wide. We give the superintendent reasonable 
leeway in handling his district as long as he is reasonable about 
things, don't you know. In other words, Mr. Gesell, if we get a report 
from a superintendent on Monday showing a large writing of business 

124491— 40— pt 12 12 



5756 CONCENTRATION OF ECONOMIC POWER 

the week before, we immediately question him. We don't congrat- 
ulate him, we question him. 

Mr. Gesell, I take it, then, tho superintendents can hold a contest 
on their own volition. 

Mr. SuTPHEN. Yes; as long as it is reasonable and friendly. 

Mr. Gesell. What is a reasonable and friendly contest? 

Mr. SuTPHEN. Well, we would object — of course, it is hard to define 
these things, don't you know. 

Mr. Gesell. I am just trying to get an idea of what happens, you 
see. 

Mr. SuTPHEN. Well, sometimes they will choose up sides just to 
have a friendly contest to see who can write the most applications, 
or something like that. 

The Vice Chairman. What does the winning side get ? 

Mr. SuTPHEN. Usually nothing. 

The Vice Chairman. Not even a banquet ? 

Mr. SuTPHFN. Very seldom nowadays. We do not favor it, we do 
not favor their having long periods of contests. 

Mr. O'CoNNELL. What would you consider unreasonable activity in 
this regard ? Can you give us a specific example of a case ? 

Mr. SuTPHEN. Setting an unusual or unreasonable quota of busi- 
ness that they might ask for. They might ask the men to produce 
$10,000 of ordinary in a week. 

Mr. O'CoNNELL. And what would you do then? 

Mr. SuTPHEN. If we knew abfeut it ahead of time — of course, the 
fact is they don't do it, because we have them trained so they don't 
do it. 

Mr. O'CoNNELL. Can you tell us of a case in which something was 
done which you considered unreasonable ? 

Mr. SuTPHEN. We would only criticize them. If we knew about 
it ahead of time, we would have them call it off. 

Mr. O'CoNNELL. Again, can you tell us of a specific instance in 
which something was done which you consider was unreasonable? 

Mr. SuTPHEN. I cannot now ; no. 

Mr. Gesell. Is it the policy of your company to discourage 
contests ? 

Mr. Sutphen. Well, that is a difficult question to answer, now, Mr. 
Gesell ; when you say contests you get into the realm of competition. 
If you are going to keep salesmen alive, you have got to have live 
competition. 

I think that applies in any activity. I know when we have com- 
munity chests in my town they depend quite considerably upon 
competition between different teams; don't you know. 

Mr. Gesell. I have made no suggestions that there is anything 
wrong with contests. You appear to be on the defensive. I didn't 
intend to criticize. 

Mr. Sutphen. It is criticized sometimes. We have tried to adopt 
a reasonable middle ground on the basis that anything that is done 
must be sensible and reasonable and not resort to high pressure 
and try to force men to write business that should not be written, 
or to ask them to do things that they cannot do. 

Mr. Gesell. Do you find that business produced by what we will 
call improper contests or too strenuous contests is of poor per- 
sistency and poor quality? 



CONCENTRATION OF ECONOMIC POWER • 5757 

Mr. SuTPHEN. Yes; that is the reason we have tried to cut it out. 

Mr. Gesell. And bad in the interests of the policyholders and 
everyone else concerned? 

Mr. SuTPHEN. Yes. 

Mr. Gesell. So I take it your company as a company is against 
any extreme form of sales contest? 

Mr. SuTPHEN. That is right. 

Mr. Gesell. And your company does not, as a company, sponsor 
any company contests, put any cash prices, bonuses or anything of 
that sort. 

Mr. SuTPHEN. No; we do not. 

Mr. Gesell. You leave it to the discretion of each superintendent 
to conduct such reasonable contests as he feels are best in the inter- 
ests of the running of his office ? 

Mr. SuTPHEN. Yes. 

The Vice Chairman. I take it there is no question but what these 
weekly Friday meetings have as one of their purposes the keeping 
up of morale, instilling of pep, and of getting more business. 

Mr. SuTPHEN. Of getting some business ; yes. Wlien you say more, 
additional business, I don't want to admit that we are constantly 
striving for bigger and bigger business. 

The Vice Chairman. I didn't characterize the kind of business. 
I simply said more business. 

Mr. SuTPHEN. That is right. 

Mr. Gesell. Now let's see if we can perhaps get at this question 
through a discussion of compensation. I take it that each agent 
has a superintendent over him. 

Mr. Sutphen. He has an assistant over him first, and then a 
superintendent. 

Mr. Gesell. How many agents to an assistant? 

Mr. Sutphen. On an average of about seven; it averages 6.7 to 
be exact. 

Mr. Gesell. How many assistants to a superintendent? 

Mr. Sutphen. About six. 

Mr. Gesell. In other words, each superintendent has about six 
assistants and each of those assistants has six or seven men under 
him. 

Mr. Sutphen. Yes. 

Mr. Gesell. Who is on top of the superintendent, immediately 
above him? 

Mr. Sutphen. A division manager in the home office. 

Mr. Gesell. And that division manager is responsible to you? 

Mr. Sutphen. Yes; there being intermediate positions. We have 
20 division managers, and wje have 5 supervisors having 4 division 
managers under them, 5 assistant secretaries who have 4 divisions 
and 1 supei'visor. 

Mr. Gesell. You are compensated on a straight salary basis, is that 
correct ? 

Mr. Sutphen. Yes. 

Mr. Gesell. Wliat about these division superintendents, the divi- 
sion heads in the home office ? 

Mr. Sutphen. They are all on a straight salary basis. All of our 
home office people are on a straight salary basis entirely. 



5758 CONCENTRATION OF ECONOMIC POWER 

COMPENSATION OF FIELD FORCE 

Mr. Gesell. The superintendent, the assistant superintendent, and 
the agent are all on either entirely a commission basis or ai commis- 
sion-salary basis, is that correct? 

Mr. SuTPHEN. The agents are on a commission basis, and the 
superintendent and his assistant are part on salary and part on 
commission. 

Mr. Gesell. The commission that the agent, the assistant super- 
intendent, and superintendent receive are based to some degree upon 
the production of new business, are they not ? 

Mr. SuTPHEN. Yes. 

Mr. Gesell. Then there is a very definite motive on the part of 
all people actively in the field to produce new business, is there not ? 

Mr. SuTPHEN. Yes. 

Mr. Gesell. Am I correct in saying that the average compensa- 
tion of the superintendents, assistants, and agents has risen con- 
siderably since 1906? 

Mr. SuTPHEN. That is right. 

Mr. Gesell. Do you recognize this schedule as a schedule showing 
the average compensation of those three groups of employers by years 
for that period ? 

Mr. SuTPHEN. Yes, sir. 

Mr. Gesell. I note that the superintendents' average weekly earn- 
ings have increased from $96.57 in 1906 to $141.51 in 1938, that the 
assistants' have increased from $24.26 in 1906 to $62.56 in 1938, and 
that the agents' have increased from $14.86 in 1906 to $50.07 in 1938. 
I wish to offer this schedule for the record. 

The Vice Chaikman- It may be admitted. 

(The schedule referred to was marked "Exhibit No. 975" and is 
included in the appendix on p. 6205.) 

Mr. O'CoNNELL. Have you any figures on the percentage of the 
income of the superintendent chargeable to salary and the percentage 
chargeable to commission on the average? 

Mr. SuTPHEN. For the first 6 months this year — I am taking now 
the 442 superintendents — we have nine of the old class superintendents 
who are on a different contract that they have had for many years, 
what we call new-term contracts, which is 99 percent of all of them; 
their average income was $142, $114 of which was guaranteed salary. 

Mr. O'CoNNELL. Is that a standard rate that you pay all your super- 
intendents ? 

Mr. SuTPHEN. No ; it varies according to their length of experience 
and the work that they do. We increase it from time to time, 
dependent upon the value of the superintendents to the company. 

Mr. O'CoNNELL. Would it depend upon the size of his area, the 
amount of premiums collected in the area ? 

Mr. SuTPHEN. Our current contracts have a formula in them which 
increases their guaranteed salary on the basis of the results of the 
district for the past year, until the guaranty reaches $100, after which 
all increases are optional with the company, and we simply review the 
man's work for the previous year, after it becomes $100, and decide 
arbitrarily, you might say, what we will give. It depends upon his 
quality of management. 



CONCENTRATION OF ECONOMIC POWER 5759 

Mr. Gesell. You mean you take into account such factors as his 
ability to select good, salesmen, the absence of complaints on his debits, 
his production records, how the men like him, all those intangible 
factors. 

Mr. SuTPHEN. Yes, sir. 

Mr. Gesell. Well, now, do you recognize this as the agent's agree- 
ment which is now in effect in your company ? 

Mr. Sutphen. Yes, sir. 

Mr. Gesell. What percentage of your agents are now under this 
agreement ? 

Mr. Sutphen. Ninety-six percent, I think the last figure is. 

Mr. Gesell. I should like to offer the agreement for the record. 

The Vice Chaieman. It may be admitted. 

(The agreement referred to was marked "Exhibit No. 976" and is 
included in the appendix on p. 6205.) 

Mr. Gesell. If I may have it back, I have some questions to ask. 
I have had quite a time, Mr. Sutphen, understanding just exactly 
how you pay your agents, though I have read this agreement several 
times, and I would appreciate your stating it for us in as simple 
terms as you can, for the record. 

Mr. Sutphen. The agent is paid a commission upon the weekly 
premium, industrial premiums, that he collects each week, of 12 per- 
cent. That is, he has a weekly premium debit that averages, for the 
company, $229, and each week he turns in his account with the amount 
he collected that week and he retains 12 percent of it. 

Mr. Gesell. He turns it all in and gets a check back for 12 percent, 
doesn't he ? 

Mr. Sutphen. Yes; on his monthly debit — he also has a monthly 
debit, and these monthly debits are premiums collected once a month 
and average $367 in monthly premiums. He gets 4i/^ percent on the 
monthly premiums. He is paid for the production of ordinary and 
all of the different types of ordinary, such as annuities, group insur- 
ance, and so forth, according to a scale in the contract that has been 
constant for a great many years. It has a 35 percent graded scale. 

The Vice Chairman. You say he gets 12 percent of his weekly 
collections. 

Mr. Sutphen. Yes, sir. 

The Vice Chairman. That would be 12 cents of the income dollar 
on industrial insurance that goes to the agent ? 

Mr. Sutphen. Yes, sir. 

The Vice Chairman. When you speak of monthly 

Mr. Sutphen (interposing). The income premium. 

The Vice Chahjman. When you speak of monthly, are you still 
talking of industrial insurance ? 

Mr. Sutphen. No ; we started to issue the monthly business in 1928, 
and with the exception of the years '36, '37, and '38, it has always been 
ordinary; in '36, '37, and '38 it was classified as industrial, so that this 
monthly debit — in 1936 we started issuing regular ordinary on a 
monthly basis, putting it on these debits collected at the home by the 
agent. That is in these monthly premium debits also. 
' The Vice Chairman. I am sorry I interrupted you. You were 
telling us how an agent is paid. 

Mr. Sutphen. Yes. 



5760 CONCENTRATION OF ECONOMIC POWER 

Now, for the payment of production and conservation of the weekly 
premium and the monthly premium business, we adopted in 1934 a 
new idea. Tliat is, at least it was different from anything that had 
been in effect before in our company, or any other as far as I know, 
with respect to paying on new business and conservation. The men 
had always been paid from week to week upon the basis of 1 week's 
results, and this contract provides that the agent is paid the same 
amount each week for a period of 13 weeks for services performed 
each such week in the production and conservation of industrial and 
monthly premium business. He has a constant income from this 
source tor 13 weeks that does hot vary. In the years before they used 
to have a big week sometimes, a week which led to their over- 
enthusiasm in order to get big pay, and then they would get off 
claiming and they wouldn't have anything at all coming from this 
source. 

Mr. Gesell. What section of this contract contains the provision 
with respect to conservation and persistency ? 

Mr. SuTPHEN. Conservation in section 10 and production in section 
9. The amount that is paid is determined by the record of the agent 
for the previous 13-week period. That is the basic principle, that 
we pay them the same for each week for the next 13 weeks, based 
upon the record of the agency for the past 13 weeks, and in deter- 
mining the payment for production, allowance is made on certain 
endowment policies of 25 percent, and on other policies of 35 percent ; 
(we differentiate between the endowments and the life policies, pay- 
ing more on the life policies) of the first year premium of policies 
issued for the previous 13-week period, to which is added the same 
percentage on any unpaid balance of first-year business premiums on 
the revival of policies originally issued to the agent. 

In other words, he gets paid on new business, and on the balance 
of first-year premiums on business that he revives, of his own busi- 
ness — it is all based on his own business 

Mr. Gesell (interposing). His own business is put up, though, 
against company results as a whole, is it not ? 

Mr. SuTPHEN. No; I am talking about payment for the produc- 
tion, now. 

Mr. Gesell. Just on what he produces? 

Mr. SuTPHEN. Just on what he produces. We deduct from that 
total the same percentages on the unpaid balance of first-year premi- 
ums on policies originally issued to the agent which canceled during 
the previous 13 weeks. In other words, when he issues a new policy, 
we set up immediately a credit to him for the full year, assuming 
that it will be paid. If he lapses it or if the policy lapses before 
the full year is paid we simply take back the excess credit that has 
been allowed for that, and if he subsequently revives it we reinstate 
that again. In effect what we are doing is paying agents 25 percent 
on endowment kinds and 35 percent on life kinds, of all of the first- 
year premiums that are collected on the policies that he writes. That 
is what it is in effect. There is one exception to that in establishing 
these credits. In the calculations, no credit is allowed on policies 
issued where a policy is lapsed in the home 3 months before or 3 
months after the new policy is written. That is to prevent the 
agent from inducing policyholders to lapse their old policies and 
apply for new ones, which he would get first-year commission on. 



CONCENTRATION OF ECONOMIC POWER 57gl 

Mr. Gesell. Will you tell us the basis upon which the conserva- 
tion commission is paid? 

Mr. SuTPHEN. In the conservation commission, there is a change in 
the contract which you do not have, Mr. Gesell, which has been put 
into effect recently. The conservation of industrial and monthly 
premium business is determined by dividing the agent's lapse rate 
for the previous 13 weeks' period by the lapse rate of the company 
or of the division in which the agent works, whichever is the 
greater — we have adjusted this to the option of the division or the 
company. 

The Vice Chairman. I see it is half past 12. May we stop here 
until 2 o'clock. 

(Whereupon, at 12 : 30 p. m., the subcommittee recessed until 2 
p. m. of the same day.) 

AFTERNOON SESSION 

The hearing was resumed at 2:05 o'clock p. m. upon the expira- 
tion of the recess. 

The Vice Chairman. The committee will come to order. 

Mr. Gesell. Will you resume the stand, Mr. Sutphen ? 

Before recess we were considering the agents' contract and you 
were about to describe or summarize for us the provisions of section 
10,^ I believe it is, of the contract, with respect to the commission for 
conservation. If you think it would be easier, I have no objection 
to your reading that section itself. 

Mr. Sutphen. I think I can explain it better — the principle of it. 
I will read it if you want me to. 

Mr. Gesell. Your explanation will be sufficient. 

Mr. Sutphen. The amount that is paid for the conservation of in- 
dustrial and monthly premium business is determined by dividing the 
agent's lapse rate for the previous 13- week period by the lapse rate for 
the company or the division in which the agent works, whichever is 
the greater. The resulting percentage is applied to the table in 
the agents' agreement and the amount indicated, which varies from 
nothing to $6, is the amount paid the agent for each week he works 
during the following 13-week period. If follows the same principle 
as applied to new business, of paying the man the same amount each 
week during the 13-week period, based upon his results for the previ- 
ous 13-week period. 

Mr. Gesell. This time, however, his results are compared against 
the results of his district or area. 

Mr. Sutphen. Yes. 

Mr. Gesell. Can you tell us, on the basis of this contract, just 
what percentage of premium paid by a policyholder during the first 
year he is with the company goes to the agent? It is rather difficult 
to compute that, is it not? 

Mr. Sutphen. I think it is an actuarial matter, Mr. Gesell. I can't 
compute it. 

Mr. Gesell. Do you know how it figures — what percentage? 

Mr. Sutphen. I have never seen a figure. 



> See "Exhibit No. 976," appendix, p. 6205, at p. 6207. 



5762 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. We know that 12 percent of it goes under the arrange- 
ments for the collection of the debit itself, and you know of no figures 
that will tell us how much more "^han 12 percent is involved? 

Mr. SuTPHEN. No. 

Mr. O'CoNNELL. Thirty-five percent, would it not be, of the first- 
year premium? 

Mr. SuTPHEN. That is in the first year. 

Mr. O'CoNNELL. And it is the first year that you are referring to. 

Mr. Gesell. Yes ; so it would be at least 12 percent and 35 percent. 

Mr. SuTPHEN. Or 25. 

Mr. O'CoNNELL. If it were an endowment policy, so excluding en- 
dowment you would have 47 percent of the first year's premium that 
would go to the agent. Might it be more than that? 

Mr. SuTPHEN. Yes; the payment for conservation — a certain 
amount — would be chargeable to it. 

Mr. O'CoNNELL. You wouldn't have any percentages on that? 

Mr. SuTPHEN. No. 

Mr. O'CoNNELL. Would it be safe to say 50 percent of the first 
year's premium? 

Mr. SuTPHEN. It wouldn't be as high as that. 

Mr. O'CoNNELL. It would be more than 47, so it couldn't be much 
less than 50 percent. 

Mr. SuTPHEN. Of course, I am only just guessing now. I don't 
like to guess on these things without having definite figures. 

Mr. O'CoNNELL. We are agreed on 47 percent, are we not? 

Mr. SuTPHEN. Yes. 

Mr. O'CoNNELL. So it would be more than 47 percent, 

Mr. SuTPHEN. That's right. 

Mr. O'CoNNELL. But we don't know how much more. 

Mr. Gesell. Am I correct in saying that you have some agents 
still under the old contract? 

Mr. SuTPHEN. We have some agents that we have continued to pay 
15 percent collections. 

Mr. Gesell. How many agents are there on that basis? 

Mr. Sutphen. There are 5,000 

Mr. Gesell. 5,370? 

Mr. Sutphen. Five thousand of them. They are gradually drop- 
ping off as finals occur. 

Mr. Gesell. In those cases the percentage for the first year of 
premiums would be 3 percent higher than the others. 

Mr. Sutphen. Yes; that is correct. 

The Vice Chairman. Could you give us the distribution of an 
income dollar? 

Mr. Sutphen. No; I couldn't. Mr. Gerhard can, I imagine. 

Mr. Gesell. He will be on the stand later and we can get that 
information from him.^ I want to be sure that I had clear the dif- 
ference between what you call your weekly industrial and what you 
call your intermediate. The intermediate classification is ordinary 
but is collected monthly by the man on the debit, is it not ? 

Mr. Sutphen. That is right. 

Mr. Gesell. I take it, then, that the difference between it and the 
weekly industrial relates itself in some way to the contract, the policy 
contract. Are there some differences in the policy contract? 



1 See infra, p. 5901, and- "Exhibit No. 1003," appendix, p. 6275. 



CONCENTRATION OF ECONOMIC POWER 5763 

Mr. SuTPHEN. Yes ; it is essentiall3^ an ordinary contract. 

Mr. Gesell. Wherein does it differ from the industrial contract? 

Mr. SuTPHEN. It has surrender value after 3 years, it has loan values, 
the premium is different. It is based on a different selection. 

Mr. Gesell. Is it medical ? 

Mr. Sutphen. No ; it is nonmedical, the same as the industrial. 

Mr. Gesell. It is a sort of hybrid policy. 

Mr. Sutphen. A larger percentage of it is medical, because it gets 
into larger amounts. 

Mr. O'CoNNELL. What is the minimum size policy 

Mr. Sutphen. $500. 

Mr. O'CoNNELL. What is the minimum size policy that you write 
that always requires a medical examination ? 

Mr. Sutphen. You mean now in this monthly business? 

Mr. O'CoNNELL. I take it that neither your intermediate class nor 
your industrial requires a medical examination as an ordinary thing. 

Mr. Sutphen. We have the nonmedical privilege which applies to 
ordinary and the intermediate and the industrial up to certain figures. 

Mr. O'CoNNELL. That is right. That is the figure I wanted. 

Mr. Sutphen. In the industrial, the medical examinations are re- 
quired at ages 46 to 50 if the total industrial insurance in our company 
is $1,000 or more, and at ages 51 and over if it is $500 or more. On 
the intermediate, which is the $500 policy, between the age of 46 to 50 
it is required on $1,000 or more ; 51 to 55, $500 or more ; and at 56 and 
over, at all ages. 

On our ordinary business we issue 

Mr. O'CoNNELL (interposing). The intermediate class of insurance 
doesn't cover policies of less than $500, does it ? 

Mr. Sutphen. It does not. On the ordinary we issue nonmedical 
up to age 35 for $2,000. I think the amount is $2,000. 

Mr. O'CoNNELL. That is the ordinary you are talking about ? 

Mr. Sutphen. That is regular ordinary. 

Mr. O'CoNNELL. I was interested more in the industrial and the 
intermediate. Generally .speaking, medical examinations are not 
required for industrial insurance. 

Mr. Sutphen. That is right. 

Mr. O'CoNNELL. Nor for the intermediate, except in the upper 
ranges. 

Mr. Sutphen. In the upper ranges. 

Mr. Gesell. Now, can you tell us briefly the manner in which the 
assistant superintendents and superintendents are compensated? 
You have said it is a combination of salary plus commission. 

Mr. Sutphen. Our superintendents and the assistants are both on 
the same basis. They are paid today on a guaranty basis; that is, 
they get a guaranteed salary, and they get a payment on the indus- 
trial increase and the monthly premium increase. Some years ago 
we combined those two factors so that they get paid on the combined 
and not on each individual policy. 

Mr. Gesell. They get paid on the combined 

Mr. Sutphen. Increase in premiums on industrial and monthly 
premiums. 

Mr. Gesell. I take it that the assistants are paid on the increase 
of their particular men. 



fc 



5764 CONCENTRATION OF ECONOMIC POWER 

Mr. SuTPHEN. Of their particular men, and the superintendent on 
the increase of the district. 

Mr. Gesell. The superintendent on his own ? 

Mr. SuTPHEN. They get paid also on their ordinary production, 
depending upon the lapse rate of the ordinary business. 

Mr. Gesell, But in the industrial, it is just the straight payment 
based upon increase without regard to anything else. 

Mr. Sutphen. Yes. 

Mr. Gesell. It nuist be a pretty complicated job, Mr. Sutphen, 
computing these agents' commissions, managers' and assistant mana- 
gers' commissions. 

Mr. Sutphen. Well, I wouldn't say so. 

Mr. Gesell. How many clerks does it take to compute these agents' 
commissions? 

Mr. Sutphen. I couldn't tell you that. 

Mr. Gesell. It runs into the hundreds, doesn't it? 

Mr. Sutphen. I couldn't say. 

Mr. Gesell. How many operations are necessary to arrive at these 
figures ? 

Mr. Sutphen. It has all been built upon a system over a period 
of years. It creates a minimum of work. The biggest problem, of 
course, is in the agent's contract, under the present agent's contract. 

Mr. Gesell. All these elaborate computations that are shown on 
these two large sheets have to be made to get one agent's pay for 1 
week, don't they? 

Mr. SuTi'HEN. They are the records that are kept for the agents, 
not only for the payments but for all other purposes. 

Mr. Gesell. The necessity of keeping the entry arises mostly out of 
the nature of the contract, doesn't it? 

Mr. Sutphen. Well, a great many of theni are records that would 
be kept, anyhow — the progress that the agent is making, his record, 
his production, his conservation. If you are going to supervise the 
business, you must have the records to supervise it with. 

Mr. Gesell. I appreciate that. I am surprised that there is any 
doubt in your mind that it is a complicated and extremely expensive 
proposition to compute the agent's commissions based upon this elabo- 
rate form of contract. I should think anyone who would go through 
your office and see the rows and rows and rows of clerks who do noth- 
ing but make the computations necessary would come to that con- 
clusion. 

Mr. Sutphen. Well, when you say that there are rows and rows of 
clerks that make the computation outside of the machine department 
that work out the replacement calculations and wdio, incidentally, give 
us a lot of other data that is necessary in the business, there are not 
great numbers of clerks that do nothing but just work out the com- 
pensations. 

Mr. Gesell. Do you think it would be cheaper if you paid these 
fellows a salary ? 

Mr. Sutphen. Well, now, that is a difficult question to answer. 
When you say, "Would it be cheaper to pay them a salary?" it would 
depend upon how much salary they would get. 

Mr. Gesell. It certainly would be cheaper from a bookkeeping and 
mechanical standpoint. 



CONCENTRATION OF ECONOMIC POWER 5765 

Mr. SuTPHEN. It would be certainly cheaper from a bookkeeping 
and mechanical standpoint ; yes. 

Mr. Gesell. I take it, if you can compute pretty well what the 
average salary of an agent is, it would be possible to work out some 
type of salary basis for the men that would approximate that average, 
wouldn't it? 

Mr. SuTPHEN. Yes ; but it would not be satisfactory to the men. 

Mr. Gesell. You mean that the men themselves do not want a 
salary job ? 

Mr. SuTPHEN. The income of agents fluctuates very greatly, depend- 
ing upon their ability in the business and their application to the 
business. 

Mr. Gesell. What is the range ? Your average, I think, was around 
$50 in 1938. 

Mr. SuTPHEN. Yes. 

Mr. Gesell. Do you recall what your highest-paid agents are? 

Mr. Sutphen. Well, there are isolated exceptions of fellows that 
run up to $5,000 a year, but they are the very decided exception. The 
gene-i'al range w^ill run from $30 to $75. 

Mr. Gesell. Has your company given any thought to the desira- 
bility of paying agents a salary ? 

Mr. Sutphen. We have thought about it many times. 

Mr. Gesell. What have been the reasons for discarding that as an 
approach to the problem ? 

Mr. Sutphen. The difficulty of arriving at a figure that would be 
fair to the men. We have men today that, because of their ability 
and because of their experience in the business, are making consid- 
erably more than the average, and you have other men with less ability 
and less experience and less inclined to apply themselves who prob- 
ably on an average would be paid too much for the service that they 
are rendering to the policyholder. 

Mr. Gesell. I should think it would be possible to take many of 
those factors into account the same way any other salaried office does 
by recognizing ability and paying for it. 

Mr. Sutphen. It is a difficult thing to evaluate services of a large 
body of men. You would undoubtedly continually have men asking 
for the highest rate that is being paid and it is a very difficult matter 
to satisfy them that they are not entitled to it. Keep in mind that our 
men work very largely on their own. It is not like the clerks that you 
refer to that are given a certain number of columns to run and they 
sit right before your eyes all day and you see exactly whether they do 
their work and how they do it. The agent is out on his own on a com- 
mission basis very largely and he can utilize his time or not utilize 
his time as he happens to feel about it, and we have always felt that 
there should be an incentive feature in the payment of men under 
those conditions. 

Mr. Gesell. Of course, I suppose that is partly prompted by your 
desire to get new business written and to place a premium on that in 
your compensation. 

Mr. Sutphen. Not only get new business written but to give proper 
attention to the business that is already in force. It is essential, we 
believe, that an agent should have a financial interest not only in the 
production of business but in the conversation of the business that is 



5766 CONCENTRATION OF ECONOMIC POWER 

in force. As a matter of fact, we have an interest in writing new 
business, of course ; that is the purpose of life insurance, the purpose 
of life-insurance companies ; it is what they were established for in 
the first place, to provide protection for the American public. 

Mr. Gesell. And you think that there is a better chance of selling 
more insurance if you emphasize that through your compensation 
methods. 

Mr. SuTPHEN. Absolutely. 

Mr. Gesell. Of course, it is conceivable that a company may stay 
just even, isn't it? Possibly even desirable? 

Mr. SuTPHEN. Well, they couldn't stay just even unless they sold 
business. 

Mr. Gesell. But you could place less premium on writing new busi- 
ness and still stay even, couldn't you? 

Mr. SuTPHEN. We don't place a very big premium on it now. 

Mr. Gesell. That is the question we are discussing. Do you tliink 
there is too much premium placed upon it ? 

Mr. SuTPHEN. No, I do not. Our agents at the present time for 
the first 6 months of tliis year were averaging $52 a week and the 
payments that they received from new business represented about 
25 percent of their total payment, which I don't think is too large 
a payment, bearing in mind that these men must be competent as sales- 
men to sell life insurance. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. On the commission basis, don't you feel, Mr. 
Sutphen, that it is a pretty good guide to use a commission so an agent 
will get paid for what he has done? 

Mr. Sutphen. Yes. 

The Vice Chairman. And there is no doubt but what a commis- 
sion paid to an agent still enables a desire and ambition to get more 
business for the company? 

Mr. Sutphen. Yes. 

The Vice Chairman. How is the beneficiary named under an 
industrial policy? Is that compulsory that the beneficiary be named? 

Mr. Sutphen. Yes; either the beneficiary, or I believe they can 
name the estate, but they must name beneficiaries in the policy. 

The Vice Chairman. What about a grace period? How long a 
grace period? 

Mr. Sutphen. Four weeks on industrial. 

Mr. O'CoNNELL. Do industrial policies have a cash-surrender 
value ? 

Mr. Sutphen. After 5 years. 

Mr. Gesell. Is there a surrender charge? 

Mr. Sutphen. I think so. That is an actuarial matter. 

Mr. O'Connell. You wouldn't know that? 

Mr. Sutphen. They have a surrender charge, yes; at the end of 5 
years. 

Mr. O'Connell. You wouldn't know how it would compare with 
the surrender value at the time? 

Mr. Sutphen. I would rather that you ask the actuaries about that. 
That is a matter that they control entirely. 

Mr. O'Connell. This morning you referred to the fact that last 
year, as I recall it, some 400 of your agents were finaled for de- 
ficiencies. That, I take it, means something in the nature of em- 



CONCENTRATION OF ECONOMIC POWER 5767 

bezzlement of funds entrusted to their care. Four hundred people- 
that must mean about 8 a week that your company had to deal with 
in such a way. Wliat do you do ? 

Mr. SuTPHEN. We discharge them. 

Mr. O'CoNNELL. And that is all ? 

Mr. SuTPHEN. We do endeavor to collect the deficiency. There 
are isolated cases in which we have prosecuted a man. 

Mr. O'CoNNELL. With the exception of such isolated cases no at- 
tempt is made to prosecute? 

Mr. SuTPHEN. No. 

Mr. O'CoNNELL. What is the theory behind that? 

Mr. SuTPHEj^. They are small amounts, they are not large amounts, 
generally speaking. 

Mr. O'CoNNELL. Last year, if you had a loss of $44,000, with 
400 agents that would be an average of about $100 an agent. 

Mr. SuTPHEN. $100. 

Mr. O'CoNNELL. Generally speaking, you discharge them, and if 
it is worth your while you attempt civil action to collect the amount 
they owe you. 

Mr. SuTPHEN. Of course, I don't handle that end of the business. 
That is my understanding. We prosecute very few of these men. 
The expense involved would be more than the amount we would 
collect. 

Mr. O'CoNNELL. The expense involved in prosecution would be 
more than you would collect? 

Mr. SuTPHEN. It might be. 

Mr. O'CoNNELL. I should think it would merely mean referring the 
case to the appropriate public officers in the area. 

Mr. SuTPHEN. Well, we don't have any desire to persecute these 
men. 

Mr. O'CoNNELL. You say this situation is such that 

Mr. SuTPHEN (interposing). In other words, we don't want to 
take advantage of their misfortune. A great many of these men 
that go out with deficiencies are not bad at heart. They spend more 
money than they make and get into debt and get into trouble of one 
kind or another and take the money. 

Mr. O'CoNNELL. You think the system is such and the temptation 
is such and the type of person that you employ is such that, under all 
the facts, it isn't one tliac you think would require any punishment 
other than to lose their job ? 

Mr. SuTPHEN. Generally speaking. If we have a flagrant case 
wherB men take large amounts under circumstances where we feel that 
something should be done in the way of prosecuting them, we do. 

The Vice Chairman. Do all your industrial policies contain a 
disability clause? 

Mr. Sutphen. They contain a modified disability clause ptoviding 
for the payment in event of the loss of eyesight or the loss of both 
arms or both legs or one arm and one leg. That is as far as it goes. 

The Vice Chairman. It applies to loss of eyesight and limbs? 

Mr. Sutphen. If the policyholder loses the sight of both eyes, 
we pay the full amount of insurance and give him a paid-up policy, 
and at death pay the amount of the policy again. 

The Vice Chairman. Can you give us any idea of the percentage 
of disability benefits paid under the industrial policies ? 



5768 CONCENTRATION OF' ECONOMIC POWER 

Mr. SuTPHEN. We paid $1,387,000 last year. 

The Vice Chairman, What would that be in percentage ? 

Mr. SuTPHEN. Percentage of what, may I ask? 

The Vice Chaikman. Of the total payments last year. 

Mr. Sutphen. That is compared with $70,000,000. Well, no, it is 
not $70,000,000. I haven't the exact figures on it, Mr. Chairman. 
This is tied up with the payments of matured endowments, and so 
forth and so on, to living policyholders, but the payments of this 
disability amounted to $1,387,000. 

The Vice Chairman. These have an accidental death clause? 

Mr. Sutphen. They have an accidental death clause. 

The Vice Chairman. Is that double the amount of the policy? 

Mr. Sutphen. Yes, 

Mr. Gesell. I have no further questions. 

(The witness, Mr. Sutphen, was excused.) 

Mr. Gesell. The next witness is Mr, Cardozo. If the committee 
please, at this time we wish to present the results of an analysis that 
has been made by the staff of the Commission of some 1,000 or more 
industrial insurance policies, and also the results of an analysis which 
has been made of the various State statutes regulating the sale of 
industrial insurance. 

The Vice Chairman. Do these 1,000 policies cover one company 
or many companies? 

Mr. Gesell. Several different companies, approximately 60 in 
number. I will bring out the details through this witness. 

The Vice Chairman. Do you solemnly swear the testimony you 
shall give shall be the truth, the whole truth, and nothing but the 
truth, so help you God ? 

Mr. Cardozo. I do. 

TESTIMONY OF MICHAEL H. CAEDOZO, INSURANCE SECTION, 
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D. C. 

industrial insurance policy terms 

Mr, Gesell, What is your full name? 

Mr, Cardozo, Michael H, Cardozo, 

Mr, Gesell. Are you an attorney on the staff of the Insurance Sec- 
tion of the Securities and Exchange Commission? 

Mr. Cardozo, I am. 

Mr. Gesell, Am I correct in saying the staff of the Insurance Sec- 
tion has made an analysis of industrial insurance policies? 

Mr, Cardozo, Yes, 

Mr. Gesell, About how many policies were analyzed? 

Mr, Cabdozo, There were at least 1,000, 

Mr, Gesell. How many different companies were these policies 
obtained from? 

Mr. Cardozo. We obtained policies from more than 60 companies, 
but we used only the policies of about 60 companies in making this 
analysis. 

Mr. Gesell. Are the policies involved in the analysis, unless other- 
wise indicated, policies which are currently being sold by the com- 
panies ? 

Mr. Cardozo. Yes; that is right. 



CONCENTRATION OF ECONOMIC POWER 5769 

Mr. Gesell. What was the method used in obtaining these pol- 
icies ? 

Mr. Cakdozo. a letter was sent to all the companies writing indus- 
trial insurance, asking them to send samples of their policies being 
issued since 1932, and they sent those policies in. 

Mr. Gesell. I take it this list of 60 companies includes all of the 
principal industrial companies. 

Mr. Cardozo. Yes; that is true. 

Mr. Gesell. First of all, how many different plans of insurance 
were found as a result of this examination? 

Mr. Cardozo. We found over 30 plans. I have 30 of them listed 
here. 

Mr. Gesell. You would say those are the 30 more conunonly in use '( 

Mr. Cardozo. Yes. 

Mr. Gesell. Can you name them, please, for us? 

Mr. Cardozo. Whole life; whole life paid up on the anniversary of 
the policy after age 74; whole life paid up on the anniversary after age 
75, age 70, and age 69 ; 30-payment life ; 21-payment life ; 20-payment 
life; 15-payment life; 14-payment life; 10-payment life; endowment 
at age 80, 75, 70, 65, 60, 50, and endowment at age 21 ; 40-year endow- 
ment; 30-year endowment; 25-year endowment; 20-year endowment; 
15-year endowment; 10-year endowment; 20-payment, 30-year endow- 
ment; 10-payment, 30-year endowment; 19-year endowment; 13y2-pay- 
ment endowment at 75, term to age 75. 

And we found a $1,000 endowment at age 85, calling for weekly 
premiums. 

, Mr. Gesell. Am I correct in saying that there are probably even 
more plans than those designated being used by the companies? 

Mr. Cardozo. Yes ; that is accurate. 

Mr. O'Connell. Are all these plans involving industrial insur- 
ance? 

Mr. Cardozo. Yes; those are all strictly industrial insurance, de- 
fined as legal reserve life insurance, in amounts, except for the policy 
I mentioned, under $1,000 on which premiums are collected monthly 
or oftener at the homes of the persons insured. There are a few 
variations from that, but that is substantially the definition we 
followed. 

Mr. Gesell. Can you tell us whether if examination were made of 
policies issued during recent years and not limited to an examination 
of policies now being issued but including policies that are now in 
force, this list would be even still greater? 

Mr. Cardozo. Yes ; it would undoubtedly be longer. 

Mr. Gesell. Have you in analyzing the provisions of these vari- 
ous policies assumed that the terms of the entire contract between 
the company and the insured are contained on the face of the policy ? 

Mr. Cardozo. Yes; we have. We have assumed that the contract 
is contained in the policy, on the theory that from the point of view 
of the policyholder that is where he finds what his rights are. It is 
true that frequently the companies do not require strict adherence to 
the exact provisions, and frequently concessions are made after the 
issuance of the policies. 

Mr. Gesell. Will you present your comments with respect to this 
analysis ? 



5770 CONCENTRATION OF 'ECONOMIC POWER 

Mr. Cardozo. There are certain policy provisions which are now 
considered fundamental for life insurance policies. They have al- 
ready been referred to in these hearings as the "Ten Commandments" 
of a life insurance policy. Some of these "Ten Commandments" are 
not considered appropriate for industrial insurance; for instance, 
the size of the average industrial policy precludes the making of 
loans on such policies without incurring expenses that are likely to 
be out of proportion to the benefits conferred. Therefore, most in- 
dustrial policies do not grant the privilege of a loan. However, we 
did find one company which issues policies on the weekly premium 
industrial plan containing a provision for loans. 

Since the premiums on industrial policies are usually collected at 
the homes of the insureds by agents who call at regular intervals, it 
has generally been considered unnecessary to send premium notices 
to industrial policyholders. However, there is no obligation assumed 
by the companies to collect premiums regularly. 

Mr. Gesell. You mean by that that the industrial policy contains 
no obligation on the company to 'call and make a collection of the 
premium ? 

Mr. Cardozo. That is true. 

The size of the average policy and the purpose of industrial insur- 
ance, namely, to provide burial expenses, make it impractical to grant 
optional modes of settlement upon the death of the insured. We did 
find three companies wlych are issuing policies containing such 
options, however. Another clause which is not as important in indus- 
trial insurance as in ordinary insurance is the so-called suicide clause 
which removes suicide from the covered liabilities in case it occurs 
within 2 years or so after issue. However, reference to suicide is 
made in many industrial policies and in the policies of at least two 
companies it continued to be an excepted liability during the whole 
life of the policy. 

The various clauses which tend to safeguard the rights of the policy- 
holder are likely to be more important in the case of industrial in- 
surance than in ordinary insurance. Also, clarity and simplicity 
of expression in the clauses are more important in industrial insurance. 
The average industrial policyholder has less education and access 
to advice than the holder of an ordinary policy. In addition, there 
are many illiterate policyholders and others who are unable to speak 
or read English. It is also more important to industrial policy- 
holders to receive their full money's worth for every dollar that they 
put into insurance. We found frequent evidence of an attempt by 
smaller companies to emulate the larger ones by copying their policies, 
but all too frequently a vital word would be omitted and the safe- 
guards in the original would be missing from the copy. 

Our study of industrial policies revealed that there are frequently 
violations of those of the "Ten Commandments" of life-insurance 
policies which are considered appropriate for industrial insurance. 

For instance, the clause making a policy incontestable after it has 
been in force for a given length of time, such as 1 or 2 years, has 
become universally accepted as part of a good life-insurance policy. 
It is intended to enable a policyholder to know that when he dies, 
after paying premiums for the specified period, he will leave a certain 
sum to his beneficiaries, instead of a possible lawsuit. Also, it places 



CONCENTRATION OF ECONOMIC TOWER 5771 

Upon the company the obligation to investigate representations 
promptly and before premiums have been paid for many years. Most 
States which have laws regulatino- the provisions of life-insurance 
policies have required that they become incontestable after the pas- 
sage of a year or two. We found policies of four different companies 
which contained no incontestable clause at all. 

Mr. Gesell. Were those companies small companies or large com- 
})anies? 

Mr. Cardozo. They are not so small that they are insignificant. 
They are authorized to operate in a total of seven States and had 
over 190.000 policies in force. Even if every one of their policy- 
holders had two policies, which is very unlikely, these companies 
would be directly affecting 95,000 people. 

Most of the policies were found to contain terms making them 
incontestable after they had been in force for 2 years, but at least 
10 companies, including the first 3 companies in number of indus- 
trial policies in force, had a 1-year contestable period, while three 
companies were found to be issuing policies which are incontestable 
from the date of issue. 

Practically all life-insurance policies gi\^ the policyholders a 
grace period, usually a month, in which to pay premiums before 
the policy will be considered in default. This clause also usually 
appears in industrial policies. Usually this clause prevents de- 
fault in case of nonpayment of premium, but at least six companies 
use a grace period which seems to apply only to cases in which a 
death claim arises before premium default of more than 4 weeks. 
Under such policies it appears that failure to pay premiums exactly 
when due would put the policyholder in default, with all the pen- 
alties attached thereto, unless he died. Tliis appears to be a somewhat 
delusive grace period. 

Probably the most important standard provisions of life-insurance 
]iolicies are those which prevent forfeiture of the reserve in case of 
default in premium payments. It will be recalled that the reserve 
is really the policyholder's savings, held by the company for use 
A^hen the policyholder groAvs older and the annual cost of mortality 
rises above the annual level ])remium. For reasons which have 
already been explained in these hearings, the companies have usually 
not permitted the policyholder to obtain any of his reserve in case 
of default in premium ])ayments before they have been ])aid for 
3 years. Thereafter, forfeiture of the reserve is usually prevented by 
means of the so-called "nonforfeiture benefits." These benefits usually 
appear in industrial policies, but policies being issued by three com- 
panies, having over 400,000 industrial policies in force between them, 
Vrere found to lack any provisions for nonforfeiture of the reserve. 

Usually the nonforfeiture provisions include the granting of one 
type of insurance automatically upon default, so that a policyholder 
need jnot gi^^e the company notice of his desire to have the benefit of 
his reserve in order to obtain it. However, at least seven com- 
panies are issuing policies in which the nonforfeiture benefit is not 
automatic. In most of these cases, the policyholder can only obtain 
the full benefit of his reserve by demanding it within 13 weeks after 
the last premium payment. The companies using these ])olicies are 
authorized to do business in 13 States, and have an aggregate of 
over 700,000 policies in force. 

124491—40 — pt. 12 13 



5772 CONCENTRATION OF ECONOMIC POWER 

The types of nonforfeiture benefits usually given are extended 
term insurance for the full amount of the policy, paid-up insurance 
for a reduced amount, and a cash surrender value. Paid-up insur- 
ance for a reduced amount usually results in giving the industrial 
policyholder a very small death benefit. However, at least 10 com- 
panies are now giving this as the automatic nonforfeiture benefit. 

Mr. Gesell. You mean by that, that that is the only automatic 
nonforfeiture benefit available in those 10 companies? 

Mr. Cardozo. Yes; that is true. There are other nonforfeiture 
benefits which can be elected in some of the policies. 

Mr. Gesell. But that is the one that takes effect unless the policy- 
holder directs otherwise? 

Mr. Cardozo. Tliat is true. 

Many more companies give extended term insurance as the auto- 
matic iDenefit, and the Prudential and Western and Southern allow 
extended insurance in all cases after 3 weeks' premiums have been 
paid, and after 2 weeks in endowment policies. The Metropolitan 
and John Hancock give it after premiums have been paid for 26 weeks. 
Most of these nonforfeiture benefits in other companies are available 
after premiums have been paid for 3 years, but at least nine companies 
are issuing policies which have no nonforfeiture benefits until pre- 
miums have been paid for 5 years. 

The policies generally contain tables showing the amounts of the 
, nonforfeiture benefits which are available after premiums have been 
paid for various periods of time, but usually these tables only show 
the benefits for the first 20 years. One company which grants non- 
forfeiture benefits provided no tables showing their amounts. At 
least three other companies did not provide any statement of the 
basis on which nonforfeiture benefits would be calculated in case they 
were sought after the policy had been in force for over 20 years. 

Ordinary policies are generally made payable to a named bene- 
ficiary upon the death of the insured. However, in industrial insur- 
ance the so-called "facility of payment" clause has been used on the 
theory that the companies can make more prompt payment of the 
proceeds without the necessity of locating the named beneficiary, or 
without the appointment of an executor or administrator. 

Mr. Gesell. Can you give us an idea of how what might be called 
a typical "facility of payment" clause would read ? 

Mr. Cardozo. I have a facility of payment clause being used by the 
Metropolitan. It reads as follows: 

If the beneficiary does not si:rrender this policy with due proof of death within 
30 days after the death of the insured, ^r if the beneficiary is tJie estate of the 
insured, or ig not legally qualified to fc.ve a valid release, or dies before the 
insured, the death benefit will, upon surrender of this policy ^vith due proof of 
death, be paid to the executor or administrator of the insured, but in any such 
case the company may, in lieu of payment to the executor or administrator, 
pay the death benefit to any person named as beneficiary, or to any relative by 
l)lood or connection by marriage of the insured, appearing to the company to be 
equitably entitled to such payment. The company may, during the minority of 
the insured, make any other payment or grant any privilege provided in the 
policy to any of the persons described in this paragraph. 

Mr. Gesell. Am I correct in saying that there are facility of pay- 
ment clauses used by principal companies which give a greater 
discretion tp the company than is contained in that clause of the 
Metropolitan ? 



CONCENTRATION OF ECONOMIC POWER 5773 

Mr. Cardozo. Yes; the Western and Southern, for instance, uses a 
shorter clause which reads as follows : 

The Company may make any payment or allow any benefit provided for in 
this policy to any relative by blood or connection by marriage of the Insured 
appearing to the Company to be equitably entitled thereto. 

Mr. Gesell. I believe you said that type. of clause, facility of pay- 
ment clause, is contained and generally considered essential in all 
industrial insurance policies. Are there any companies which were 
found that issued policies that do not contain such a facility of pay- 
ment clause? 

Mr. Cardozo. Yes; we found three companies that do not use a 
facility of payment clause. One of these three, the National Life 
and Accident Insurance Company of Tennessee, has over 2,800,000 
industrial policies in force, the fourth largest among the United 
States companies. 

Mv. Gesell. What about this business of naming a beneficiary in 
an industrial policy? Does your analysis cover that? 

Mr. Cardozo. Yes; usually in the present policies being issued the 
proceeds will be paid to the beneficiary if he files a claim before a 
certain time has elapsed after the death of the insured. At least eight 
companies, with a total of over 3.000,000 policies in force, are now 
issuing policies under which the proceeds Avill be paid to the bene- 
ficiary without restriction if he is living at the death of the insured. 
Four companies are issuing policies under which the beneficiary has 
prior rights if he files his clann within 15 days after the death of the 
insured; over 17 companies give him 30 days in which to appear; and 
4 companies, including the Prudential, allow 60 days. 

Mr. Gesell. Are there sometimes policies which contain provisions 
which make the policy payable directly to a named undertaker? 

Mr. Cardozo. Yes; this is a so-called funeral-benefit policy, under 
which the benefits are payable directlj^ to a named undertaker. We 
found at least four companies issuing policies which conform to our 
definition of industrial insurance that contain this type of beneficiary 
clause. 

'Mr. O'CoNA'ELL. In answer to a previous question you indicated 
that some companies have a 15- and some a 30- and some a GO-day 
period within which the beneficiary might appear and present his 
claims. Suppose he does not. 

Mr. Cardozo. If he does not appear, then the facility of payment 
clause goes into etfect and the company may pay to the person among 
those named who appears equitably entitled to the proceeds. 

Mr. O'CoNNELL. Are there any companies that have no facility of 
payment clause and have a limited period of time in which the bene- 
ficiary may claim? 

Mr. Cardozo. No; we didn't find any of that. You mean a case 
where there seems to be nobody — 

Mr.-'O'CoNNELL. There might be a forfeiture in the event of failure 
to claim the proceeds of the policy. 

Mr. Cardozo. No ; we didn't find anything like that. 

Mr. O'CoNNELL. Did you make any study as to unclaimed insur- 
ance proceeds of policies? There nuist be a number of cases in which 
for one reason or another the beneficiary might not know that he was 
beneficiary of a policy or that the policy might become lost. 



5774 CONCENTRATION OF ECONOMIC POWER 

Mr. Cardozo. We are going to take that up, I think, with the other 
witnesses. 

The Vice Chairman. How many policies are issued that permit 
payment directly to the undertaker? 

Mr, Cardozo. We found only four companies issuing policies of 
that kind. 

The Vice Chairman. Do you know the number of policies? 

Mr. Cardozo. By those companies ? 

The Vice Chairman. Yes. 

Mr. Cardozo. We can get those. 

The Vice Chairman.' If it is going to put you out, let it wait. 

Mr. Gesell. We can get you that. 

While that material is being found, Mr. Cardozo, did your analysis 
include an analysis of provisions relating to the revival of the policy 
after certain kinds of voluntary termination? 

Mr. Cardozo. Yes. In industrial policies revival is usually per- 
mitted within 1 or 2 years after the last premium payment, if the 
cash surrender value has not been paid. However, one company gives 
only 6 months for revival ; another, the American National, which is 
the sixth largest" in the industrial insurance field by number of poli- 
cies in force, allows 3 years, and nine companies were found to allow 
revival at any time after default in premium payments. 

Mr. O'Connell. By revival, what do you mean, that the policy 
may be revived at the same premium rate by paying all arrears? 

Mr. Cardozo. Yes; that is right, either paying them in cash or 
paying them by a lien. Most of the companies, including the largest 
ones, permit an industrial policy to be revived by the payment in 
cash of all arrears of premiums or by means of a lien for either 
the whole or part of the amount of the a^Tears. However, on^ one 
company, the Equitable Life Insurance Co. of Washington, D. C, 
was found to be issuing a policy which mentioned liens for premium 
payments, and this policy did not refer to revivals by lien. 

.Another problem connected with revival is raised by the incon- 
testability clause. It is a question whether the revived policy is a 
new policy for this purpose. Most of the incontestability clauses 
state that the policies shall be incontestable after they have been "in 
force" for a certain period during the lifetime of the insured. If a 
policy lapses and is revived, is it incontestable after the same period 
from issue or does the contestable period begin to run again? While 
almost all the policies contain revival and incontestability clauses, 
only five companies were found to be issuing policies which specific- 
ally state whether or not they are incontestable after revival. 

Life-insurance policies usually state that the provisions set forth 
therein constitute the entire contract between the company and the 
insured. State statutes on this subject generally prohibit the use 
of the application if it is not attached to the policy. Industrial 
policies generally do not have the application attached but merely 
contain a printed representation by the insured that he was in sound 
health on the date of issue. Only four of the companies, including 
the Prudential, appear to be attaching applications to any of their 
industrial policies. Eleven other companies are issuing policies which 
state that the policy and the application together constitute the en- 
tire contract, but the. application is not attached. Seven companies 



CONCENTRATION OF ECONOMIC POWER 5775 

are issuing policies containing reference neither to the application 
nor to the fact that the policy contains the entire contract. In these 
latter companies in the absence of a state statute on the subject, 
the company might even refer to its bylaws in contesting claims. 

Five of the companies are issuing policies- which state that any 
assignment will make the policy void. In most companies assign- 
ments are declared void unless the company approves them. 

As further examples of the indiscriminate manner in which many 
policyholders accept contracts offered them by the companies, I 
should like to mention two policies containing obvious misprints. One 
is issued by the National Life & Accident Insurance Co., one of the 
largest in the industrial field. There appears what purports to be a 
description of the policy at the bottom of the first page, in bold-face 
type. This description is of a 20-payment life policy. However, the 
j)olicy itself is clearly a 20-year endowment policy, and on this same' 
page the company agrees to pay the sum to the insured if living at 
maturity, which is stated to be the twentieth anniversary of the 
policy. 

Mr. Gesell. You said you had two of these misprints ? 

Mr. Cardozo. There was one other policy which contained a mis- 
print in the disability clause which obviously the company would not 
live up to because it seemed to call for severance of tile hands and feet 
of a policyholder in case he continueci to pay premiums for more than 
3 years. 

Mr, Gesell. We have had reference here to the fact that some com- 
panies, notably the Metropolitan, have provisions which permit a re- 
duction in premiums if the premiums are paid for a stated period of 
time by policyholders directly to some branch office. In how many 
companies do you find such provisions being used ? 

Mr. Cardozo. Well, the Prudential and John Hancock are includ- 
ing a ])rovision of that kind in their current policies. For some years 
the Prudential has given credit for 52 weeks' premiums upon payment 
of 47 weeks in advance. In addition, we found four other companies 
which are now granting a deduction in consideration of the payment 
of premiums at an office of the company every week or payment of a 
reduced amount 1 year in advance. 

Mr. Gesell. Have you any comment which you wish to make with 
respect to the incontestable period clauses in some of these policies? 

Mr. Cardozo. A typical incontestability clause reads as follows: 

This policy slmll be ineontestable after it has been in force, during the life- 
time of the Insured, for one year from its date of issue, except for non-payment 
of premiums. 

However, we found at least 10 companies now issuing policies 
which state that after they have been in force for a certain period 
they will be incontestable except for fraud or non-payment of premi- 
ums. The fraud exception is susceptible of interpretation to cover 
most of the situations under which a ])olicy is likely to be contested 
and therefore the protection of the incontestability provision is 
diminished. 

.In endowment insurance, the promise to pay the sum as an en- 
dowment to the insured upon maturity is of the essence of this plan 
of insurance, and this promise is contained in most such policies. 
However, we found nine policies which do not contain such a prcnftse. 



5776 CONCENTRATION OF ECONOMIC POWER 

]\Ir. Gesell. You mean to say there were nine policies that didn't 
contain a promise to pay the endowment to the insured when the 
policy matured? 

Mr. Cardozo. That is right. 

Mr. O'CoNNELL. What Avas the contract? 

Mr. Cardozo. The contracts read that the sum insured will be paid 
as an endowment at the end of 20 years ; that is the way some of them 
read. It just doesn't say whom it will be paid to. 

In addition, many of the facility of payment clauses state that the 
company may pa.y the benefits in accordance with the provisions of 
that clause, despite the fact that the policy is an endowment. 

In this connection, it is interesting: to observe the provisions of two 
recent policies used by the Monuniental Life Insurance Co. of Balti- 
more, Maryland. In a 20-year endowment form printed in 1937 the 
company promises to pay the sum mentioned on the death of the in- 
sured, aiid in a box on page 1 prints the following : 

Amount payable 20 years fi'om the date hereof or at death if prior tliereto. 

There was no other clause in the policy containing a promise to 
pay. In a form printed in 1939, the 20-year endowment policy has 
this statement : 

Amount payable as an endowment to the insured, if living, twenty years from 
the date hereof or at death if prior thereto. 

This seems to promise to pay the sum to the insured if he dies 
prior to the 20-year period. 

These policies are not cited as evidence that there is any failure 
on the part of the companies, as far as we know, in making payment 
when due; they are merely examples of the careless drafting of the 
contracts issued by some companies and accepted by many policy- 
holders. 

Mr. Gesell. AVhat about the accidental death and disability pro- 
visions in these policies? Does your analysis include an examination 
of some such provisions ? 

Mr. Cardozo. Yes; it does. We found that many of the small 
companies were using clauses which were similar to those of the 
larger companies, and a few of them, apparently trying to enjoy 
the competitive advantage of including such a clause without incur- 
ring the liabilities, have so bound it with restrictions that it is more 
delusive than beneficial. 

An example of such a clause is the following. It is headed: 
"Double Accidental Death Benefit." 

Mr. Gesell. Is that in bold type ? 

Mr, Cardozo. Yes ; that is in bold-face type. 

If the death of the Insured results within ninety days from date of accident, 
and while there is no default in the payment ,of premium beyond the four 
weeks' grace period, from bodily injuries sustained solely through external, 
violent, and accidental means, (1) while the Insured is riding as a passenger 
in a passenger elevator (elevators in mines excepted) ; (2) or while the Insured 
is riding as a passenger within the enclosed part of any railway passenger 
car provided by a common carrier for the exclusive use of passengers ; (3) or 
while the Insured is riding as a passenger on board a steam vessel licensed 
for the regular transportation of passengers; and sucu injuries are, in each 
case, due directly to and received in consequence of the wrecking of such 
elevator, car, or vessel and are not received while getting on or off, or being 
on the step or steps thereof; (4) or in consequence of the burning of a building 
in which the Insured is at the time of the commencement of the fire; (5) or 



CONCENTRATION OF ECONOMIC POWER 5777 

in consequence of the collapse of the outer walls of a building while the Insured 
is therein ; (6) or in conseauence of a stroke of lighting, then — 

and this is in bold-face type — 

the amount to be paid shall be double the sum that otherwise would be payable 
under this policy. 

Mr. Gesell. Then, in other words, this industrial insurance policy- 
holder wanting to collect under this clause would have to be either 
ridin^y in a passenger elevator or as a passenger on a railroad car or 
as a passenger on a steam vessel or he would have to be in a building 
before a fire started and be killed as a result of a fire or he would 
have to be killed in a building where the outer walls, not the inside 
walls, collapsed, and if he was lucky to get hit by lightning he could 
also collect. 

Mr. Cardozo. That is right. 

It has been common to find a clause in industrial policies which 
states that the policy will be void in case there is another policy in 
force in the same company and reference to it is not endorsed on the 
later policy. The agent of the company who collects the premiums is 
the one most likely to know of the existence of such a policy. Never- 
theless, these policies state that the companies shall not be deemed to 
know of it. Seven companies were found to be still issuing policies 
containing such a clause. 

Mr. Gesell. Did you find that some companies Avere still issuing 
short-term endowment policies ? 

Mr. Cardozo. Yes; we found at least six companies still issuing 
10-year endowment policies. In case of the lapse of such a policy 
before any nonforfeiture benefits are available, the loss to the insured 
is much greater than in the case of most other policies. In at least 
two of these 10-year endowment policies the companies do not grant 
any automatic nonforfeiture benefit at any time. Several com- 
panies are writing industrial term insurance. Two of them are 
issuing policies called "Term to age 65." Such a policy, if' issued 
before age 45, builds up a reserve sufficient to warrant the payment 
of nonforfeiture benefits in case of premium default. However, one 
of these companies does not grant any nonforfeiture benefits, and 
the loss to the policyholder in case of lapse would be substantial. 

LAWS APPLICABLE TO INDUSTRIAL INSURANCE 

Mr. Gesell. Have you also made an examination of the various 
State statutes relating to industrial insurance? 

Mr. Cardozo. Yes; we have. 

Mr. Gesell. Does this examination incude all of the 48 States and 
the District of Columbia? 

Mr. Cardozo. Yes; that is right. 

Mr. Gesell. First of all, directing your attention to those pro- 
visions of State laws relating to policy provisions and the approval 
of such policy provisions by State authorities, and other similar mat- 
ters, will you state for the committee what your analysis discloses? 

^Mr. Cardozo. We found that in 12 States and possibly 3 others the 
law requires that all life-insurance policies be approved by the super- 
intendent or commissioner of insurance before they are issued or 
delivered in those States. In 6 other States the law requires that 
the superintendent or commissioner exainine the policies to determine 



5778 CONCENTRATION OF ECONOMIC POWER 

whether or not they conform to law. We have been informed that 
in some States, despite the absence of authority expressed in the 
statute, and without a statutory declaration of wliat it is proper for 
policies to contain, the commissioners assert some form of super- 
vision. However, it is sifrnificant that it has widely been considered 
necessary to enact laws requiring standard provisions in ordinary 
policies, despite the superintendent's authority to approve or 
disapprove. 

In some of the laroer States the number of policies submitted for 
approval every year runs into thousands. Perhaps it is not sur- 
prising, therefore, that two of the policies which were found not to 
contain any nonforfeiture provisions stated on their faces that they 
were approved by the Insurance Department of South Carolina. 
The two endowment policies referred to earlier, issued by the Monu- 
mental, were likewise subject to the approval of the superintendent 
of Maryland. One policy issued by the Star Life Insurance Co. of 
Baltimore, Md., during 1937. despite the requirement of prior ap- 
proval by the superintendent, is notable because it contains no incon- 
testable clause, no provision for automatic nonforfeiture benefits, no 
provision for a cash value, no table of nonforfeiture benefits, and no 
statement of the premium-paying period. It appears to be a whole 
life policy and calls for a weekly premium. It contains a special 
accidental death benefit of double the amount insured, but the death 
must result from accident within 24 hours of injury in order to 
warrant the additional payment Only one-half of the stipulated 
sum payable for natural death will be paid in case death is caused 
by tuberculosis, heart disease, pneumonia, cerebral hemorrhage, 
paralysis, or any chronic disease which had its beginning within 24 
months from the date of the policy. 

It is interesting to note that on June 1, 1937, a new statute went 
into effect in Maryland establishing extensive standard provisions 
for industrial policies. 

Mr. Gesell. Have you, before passing to a consideration of other 
provisions of State laws, any comment which you wish to make 
upon this analysis of policy provisions and the laws relating thereto? 

Mr. Cardozo. We found that there is no uniformity in the plans 
-on Avhich industrial insurance is written, and that there is no 
standard form of policy in use, and also that the clauses which 
do appear in the policies are worded so differently by the different 
companies that it is frequently very difficult to understand their 
exact import. This is especially confusing for the holders of in- 
dustrial, policies, whose understanding of insurance terminology is 
necessarily limited. 

Mr. Geselt^. Will you present for us the results of the study 
of the statutes relatinc; to industrial insurance? 

Mr. Cardozo. In Illinois, Maryland^ Pennsylvania, and Virginia 
there are statutes containing standard provisions specifically appli- 
cable to industrial insurance. In addition, the recodification of the 
New York insurance law. which becomes effective on January 1, 1940, 
contains standards provisions for industrial policies. These provi- 
sions are not dissimilar to ])rovisions which apply to ordinary 
policies but are adapted especially for the problems of industrial 
insurance. The new New York statute, the present Pennsylvania 
statute, and the present District of Columbia statute contain refer- 



CONCENTRATION OF ECONOMIC POWER 5779 

ences to the facility of payment clause and require that it be made 
operative only after the beneficiary has had an opportunity to file his 
claim. The new New York statute also reguhites contestabiiity after 
revival. 

Mr. Gesell. How do these States generally regulate industrial 
insurance? Are the provisions as explicit and frequent as you find 
in the case of ordinary insurance? 

Mr. Cardozo. No. Industrial insurance has usually been excepted 
from the requirements of standard provisions. Of the States which 
have some such requirements, we found 26 that excepted industrial 
insurance. Typical of this type of statute is the present New York 
Jaw, which states that no life or endowment insurance policy, "except 
policies of industrial insurance," may be issued or delivered in New 
York unless it contains in substance the 10 standard provisions set 
forth. There are not over 15 States which require anything that 
could be called standard provisions for industrial policies. There are 
over 35,000,000 policies in force in the States that do not have such 
laws. 

After the Armstrong investigation in New York, a law was passed 
limiting the expenses that a company might incur. Industrial in- 
surance is excepted from these limitations. Another law was en- 
acted in New York as a result of the Armstrong investigation regu- 
lating the method of electing dii'ectors of mutual companies. This 
law gives policyholders the right, under certain -rircumstances, to 
demand a list of all the policyholders of the company. However, 
they have never been, under this clause, able to obtain a list of 
the holders of industrial policies, although the latter are entitled 
to vote. In a company like the Metropolitan, this means that the 
names of around 20,000,000 voters are not available to any but the 
officers of the company. 

Although many States refer to industrial insurance by name, it 
is interesting that 17 of them have not defined it. Fourteen States 
apparently do not refer to it even by name. One of the States 
defines it with a definition that really applies only to group in- 
surance. Only 11 States appear to have specific definitions which 
are not merely to be implied from the treatment given it in sections 
of the law. Very few of the States define industrial insurance in the 
same way. New York and Pennsylvania define it substantially as 
follows : 

Industrial life insurance is hereby defined to be that form of life insurance, 
either — 

( a ) under which the premiums are payable weekly, or 

(b) under which the premiums are payable monthly or oftener, if the 

face amount of insurance provided in the policy is less than one 
thousand dollars, and the words "industrial policy" are printed upon 
the policy as a part of the descriptive matter. 

Some of the States define industrial insurance only as weekly pre- 
mium insurance, omitting monthly premium policies. For policies 
issued prior to 1911, Massachusetts defines it partly in terms of the 
amount of the premium. This definition has been in the Massachu- 
setts laws since about 1880, when the Massachusetts Public Statutes 
contained the following provision : 

* * * policies of prudential or industrial insurance, on wliich the premiums 
are 50 per week and upwards, but not exceeding 50(f, * * * 



5780 CONCENTRATION OF ECONOMIC POWER 

The District of Columbia has a clear definition of industrial insur- 
ance, defining it as weekly or monthly premium insurance, but for some 
reason the sections of the law which contain the regulatory provisions 
state that they apply only to weeklj^ premium insurance. 

Ml-. Gesell. What are the provisions of the State laws with respect 
to policy valuation ? 

Mr. Cardozo. We have found that only 2 States require the Stand- 
ard Industrial Table for the valuation of any industrial policies, and 
in only 9 of the other States was there any mention of the Standard 
Industrial Table. The minimum standard of valuation in 44 States 
was either the actuaries or combined experience table or the American 
Experience Table, using interest ranging from three and one-half 
to four and one-half percent. 

Mr. Gesell. With respect to the so-called "10 commandments" which 
you were discussing, do you find that there are many States which 
require any or all of those provisions to be included in the industrial 
policies ? 

Mr. Cardozo. We found that in 32 States there was no requirement 
that a policy become incontestable at any time. In 41 States we 
found no law establishing a period of grace for the payment of pre- 
miums. In 37 States we found no law requiring the payment of 
claims, on an adjusted basis, in case of a misstatement of age. In 29 
States we found no law requiring an automatic nonforfeiture benefit. 
There are over 30,000,000 policies in force in these latter 29 States, and 
in 3 of them there are more policies than there are people. In 3 other 
States it is doubtful whether or not the benefits required must be auto- 
matic or depend upon a demand by the insured. In 29 States we found 
no provisions requiring nonforfeiture benefits, whether automatic or 
not, and in 34 States we found no requirement that a cash value be 
made available at any time. In only 7 States was there found a re- 
quirement that the policies contain tables showing the values of non- 
forfeiture options, and in 29 States the statutes do not establish any 
top limit on the surrender charge which may be made. In only 5 
of the 48 States w^as there found a requirement that the policies con- 
tain a reinstatement or revival clause and in only 4 States any mention 
of the naming of the beneficiary in industrial policies. In 18 States 
we found no statute requiring that the entire contract be contained in 
the policy and that the application not be considered a part thereof un- 
less attached. Nine other States have statutes which we did not con- 
sider susceptible of definite interpretation on this subject. 

Many States contain laws prohibiting the inclusion of certain pro- 
visions of life-insurance policies, such as a forfeiture for failure to 
pay a loan, excessive dating back of the policy, and so forth. Thirty- 
four States had no such prohibitions with respect to industrial insur- 
ance. The District of Columbia alone prohibits the inclusion in an 
industrial policy of a clause which states that any assignment of the 
policy will make it void. 

One of the difficulties that arises when a subject like industrial 
insurance is treated like a stepchild is exemplified by the situation in 
Texas. In that State, where there are 20 companies writing indus- 
trial insurance and nearly 2,000,000 policies in force, they so far 
ignored industrial insurance that they failed to except it from the 
statute which establishes standard provisions for ordinary policies. 



CONCENTRATION OF ECONOMIC POWER 5781 

As a result, industrial policies in Texas, in order to conform to law, 
must make a loan available and grant a cash value after premiums 
have been paid for 3 years. We found no company issuing regular 
industrial policies in Texas containing these provisions. 

Mr. Gesell. As a matter of fact, that very issue has been the 
subject of some recent litigation, has it not? The courts have decided 
that until the law is changed the industrial policies must comply with 
the same standards as the ordinary? 

Mr. Cabdozo. That is true. That case has been implemented by a 
decision of the Texas Board of Insurance Commissioners. 

Mr. Gesell. Is there a somewhat similar situation in Rhode Island? 

Mr. Cardozo. In Rhode Island! we found a statute which requires 
that all life-insurance policies grant an automatic premium loan after 
the policy has been in force 2 years. There are more policies in force 
in Rhode Island than there are people there, but no industrial policy 
being issued there was found to contain such a prohibition. 

In only three States have there been any laws regulating remunera- 
tion of agents, and in one of these, Texas, only the agents of the 
mutoial companies are affected. In New York and Massachusetts 
tnere were laws passed with a view toward relieving the agents of 
certain charges for the lapse and surrender of policies. 

The States have been remarkably eager to require agents, and 
even industrial agents, to obtain licenses. In only one State are agents 
not so required, although in one other State they may not be, and in 
one of those two States, New York, the law in 1940 requires licenses. 

Mr. Gesell. That concludes the presentation, does it not ? 

Mr. Cardozo. Yes. 

Mr. Gesell. We have no further questions, unless some of the 
committee have. 

The Vice Chairman. I notice you said there were 30 different types 
of policies. 

Mr. Cardozo. We listed 30 different ones here. There are probably 
more. 

The Vice Chairman. But do the vast majority of these policies fall 
within three classifications? 

Mr. Cardozo. I should say about three. Naturally, the three biggest 
companies, which have a very much larger number of policies than 
all the other companies combined, are issuing very few different plans 
of insurance, and the Metropolitan, for instance, uses for its white 
policyholders a whole life paid up at age 74. The Prudential user; 
a whole life paid up at age TO, but those are substantially similar 
policies. 

The Vice Chairman. That is, the vast majority of them follow 
the three classifications : Whole life paid at a certain age, the 20-pay- 
ment life, and the 20-year endowment. 

Mr. Cardozo. None of those three companies are issuing 20-year 
endowment policies now. That is because of a New York statute 
which substantially prohibits that. 

The Vice Chairman. They are confined to 

Mr. Cardozo (interposing). Twenty-payment life and life paid up 
at age 74 or age 70. 

Mr. O'Connell. Did you make any attempt to ascertain whether 
a given company would write a different type of policy in different 
States because of statutory requirements? 



5782 CONCENTRATION OF ECONOMIC POWER 

Mr. Cardozo. The Prudential does have differences in its policies 
for different States. Usually those are just endorsements on the 
refjular form of the policy, but those are not substantial differences. 

Mr. Gesell. It is true, isn't it, that the three larger companies, after 
having prepared contracts complying with the strictest regulations, 
issue those- policies even in States where the regulations are not so 
strict. 

Mr. Cardozo. Oh, that is true. They issue substantially only one 
type of policy throughout the country. 

Mr. O'CoNNELL. Is that so for all companies, do you know? 

Mr. Cardozo. I wouldn't be able to say for all companies. I know 
that the American National has a clause which apparently does not 
conform entirely to the law of the District of Columbia, so they have 
included in all their policies a statement that if this policy is issued 
in the District of Columbia it shall be interpreted to conform to that 
law. Some of the companies do that. 

I may add that most of the policies, certainly of the largest com- 
panies, contain a statement that if the policy does not conform to a 
law of the State in which it is issued, it shall be deemed to contain 
any clause that the law requires. 

Mr. O'CoNNELL. Wouldn't it in all probability be so interpreted 
in that State regardless of whether it was in the contract? 

Mr. Cardozo. Yes; it would. The only question is whether the 
policyholder knows he has the rights under it. 

The Vice Chairman. Is misstatement of age generally a basis for 
avoiding policies? 

Mr. Cardozo. No; I should say generally misstatement of age is a 
basis for adjusting the amount of insurance so that the amount that 
will be paid on death is the amount that would be paid at the proper 
age of the policyholder. Most of the policies contain that kind of 
adjustment clause. 

The Vice Chairman. Do some contain a clause which allows for 
4 years' variance in statement of age? 

Mr. Cardozo. I didn't find any of that kind. Perhaps the prac- 
tice of the companies is not to cont-est if the age is just very nearly 
correct. 

(The witness, Mr. Cardozo, was excused.) 

Mr. Gesell. The ne :t witness is Mr. Eklund. 

The Vice Chairman. Please stand, Mr. Eklund. Do you solemnly 
swear the testimony which you will give will be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Eklund. I do. 

TESTIMONY OF EDWIN EKLUND, MANAGER, LIFE INSURANCE 
ADJUSTMENT BUREAU, NEW YORK CITY, N. Y. 

adjustments or insurance holdings — persons on relief — LITE insur- 
ance adjustment bureau 

Mr. Gesell. What is your full name? 
Mr. Eklund. Edwin Eklund. 

Mr. Gesell. You are connected with the Life Insurance Adjust- 
ment Bureau, are you not, Mr. Eklund? 



CONCENTRATION OF ECONOMIC POWER 5783 

Mr. Eklund. Yes, sir. 

Mr. Gesell. In what capacity? 

Mr. Eklunu. I am the manager of the bureau. 

Mr. Gesell. Have you been with the bureau since its organization ? 

Mr. Eklukd. Since its organization. 

Mr. Gesell. It was organized in May of 1931, was it not? 

Mr. Eklund. That is correct. 

Mr. Gesell. Its main offices are in New York? 

Mr. Eklund. New York City. 

Mr. Gesell. Will you tell us what the Life Insurance Adjustment 
Bureau is, how and under what circumstances it was organized, who 
its members are, and how it is financed ? 

Mr. Eklund. The history of tlie Life Insurance Adjustment Bu- 
reau goes back considerably further than my connection with it. 
However, from reading and talking to persons who were connected 
with it I know something of the history before I came to it. 

In the National Conference of Social Work in 1929 I was present 
at a meeting of one of the sections of the National Conference at 
which Dr. Lee K. Franklin, who was then second vice president of 
the Metropolitan, made a report on studies of life insurance in de- 
pendent families that had been carried on for some years under the 
auspices of a committee of well-known social work executives, and 
after that another committee was appointed consisting of some of 
the original members of that social work committee and some others, 
wlio met with a committee from the three largest companies, the 
Metropolitan, Prudential, and John Hancock, and as a result of 
these meetings the companies agreed to finance the Life Insurance 
Adjustment Bureau. 

Mr. Gesell. What purpose was this bureau supposed and intended 
to fulfill ? 

Mr. Eklund. According to the outline, to take clients of agencies 
that were dealing with dependent families — and in those days they 
were primarily private agencies in many of the citi6s because the 
public agencies were not developed; New York City, for instance, 
had no public welfare department at that time. These agencies were 
to be given an opportunity to report the life insurance of any family 
which they were dealing with to the bureau, and the bureau would 
work out an adjustment which the policies would permit in con- 
formity with suggestions from the agency and the policies involved. 

Mr. Gesell. You mean by that that various social agencies would 
refer to the bureau cases where their clients had insurance? 

Mr. Eklund. In the three companies concerned. 

Mr. Gesell. In the three principal companies? 

Mr. Eklund. Yes; we developed a form, of which I have some 
samples, in which the life-insurance data, all that was necessary, 
was put, and certain information about the family so that the ad- 
justers in our bureau could figure out the best possible rearrangement 
or adjustment of that insurance in conformity with the practices of 
the particular agency concerned. 

Mr. Gesell. These cases, I take it, were referred to you from all 
parts of the country. 

Mr. Eklund. Practically all parts of the country. 



5784 CONCENTRATION OF 'ECONOMIC POWER 

Mr. Gesell. Do you recognize this schedule as a schedule showing 
the number of cases for the years indicated, and the States from which 
they were referred? 

Mr, Eklund. Yes. 

Mr. Gesell. I note that in the years from 1932 to 1938, you have had 
some 594,839 cases referred from, well, almost every State in the 
Union. 

Mr. Eklund. Yes; from some States very few, and I think one or 
two, none. 

Mr. Gesell. Am I correct in saying the principal States were 
Connecticut, Illinois, Massachusetts, New York, Michigan, Ohio, and 
Pennsylvania ? 

Mr. Eklund. I should say so; yes. The figures are all there. I 
can't name them myself without the figures. 

Mr. Gesell. I wish to offer this schedule for the record. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 977" and is 
included in the appendix on p. 6213.) 

Mr. Gesell. I take it that a lot of insurance that came to you for 
adjustment Avas industrial insurance. 

Mr. Eklund. Yes; by long odds the majority. I think I have 
figures on that. 

Mr. Gesell. Approximately what percentage would you say? 

Mr. Eklund. Well, I would guess 90 percent, 85 to 90 percent 
was industrial. 

Mr. Gesell. Now, were these cases- sent to you from both public 
and private social agencies? 

Mr. Eklund. Yes; as I said, in the beginning the work was all 
with private agencies, practically, and then when the depression 
came on and public agencies developed and grew as they did under 
the F. E. R. A., the iDig part of the work sprang over and now of 
course in the last few years the great bulk of our work is from the 
public agencies, the various categories of public agencies. 

Mr. Gesell. Do you recognize that schedule which I hand you as 
the schedule showing the number of private and public agencies in 
the various States submitting cases to you? 

Mr. Eklund. Yes; this is up to and including 1937. Of course, 
may I point out one thing, that we may have 490 private agencies 
and 1,750 public, but the proportion of cases from public would 
be far greater than that difference in agencies. 

Mr. Gesell. Though there are more private agencies the bulk of 
the cases came from the public agencies. 

Mr. Eklund. There are not more, but the proportion of the private 
agencies, which is 491 to 1,700 

Mr. Gesell. It shows 490 private agencies and 1,750 public 
agencies. 

Mr. Eklund. That is about a fourth as many, but not a fourth 
of our cases come from the private agencies is what I meant to 
bring out. I haven't the figure in mind but it probably would not 
be an eighth of them. 

Mr. Gesell. I wish to submit that schedule. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 978" and is 
included in the appendix on p. 6214.) 



CONCENTRATION OF ECONOMIC POWER 5785 

Mr. Gesell. Will you tell us what happens, taking a typical case 
as an example, Mr. Eklund, from the time it is referred to you, the 
type of adjustment you try to make, and how it is handled? 

Mr. Eklund. I don't know that anything is typical, I can show 
several examples of the kind of cases that we are adjusting all the 
time, with perhaps four or five policies on it, and some of the policies 
are endowment policies and the policy on the father is more likely 
to be a whole life. 

The social agency will report to us any serious health condition in 
any member of the family ; that is, they don't give us the specific ail- 
ment but usually say, health of the father, if that is the case, is poor 
or fair, which may indicate they wouldn't w-ant any reduction of his 
insurance. If the endowment policies have been carried for 3 years or 
longer, they may be changed anyway, but if they are carried more than 
3 years they wall be changed to whole life with a smaller premium and 
a payment of cash on the difference in reserves of those two policies. 
So that as a result of the adjustment, there will be cash on any part 
of the insurance which is canceled, and all reduced to whole life if the 
health of the family permits, and the premium reductions may be very 
notable, because you may change a 20-cent endowment to a 5-cent 
whole life, which, of course, brings about a big reduction in premium 
on a child. 

Mr. Gesell. Let me see if I understand that. These cases are relief 
cases ? 

Mr. Eklund. Practically all of them. Many agencies w'ill send in 

an account before they are actually accepted for relief, so that if the 

^amount of cash is considerable, they will not take the family on relief 

at the time but will tell them to come back if they are still unemployed 

when that cash is exhausted. 

Mr. Gesell. They are either relief or potential relief cases. 

Mr. Eklund. Yes ; applicants for relief. 

Mr. Gesell. And am I correct in saying that the present attitude of 
social agencies is that it is desirable to maintain some protection on 
the lives of the people in the family sufficient for burial purposes? 

Mr. Eklund. If an agency under some particular circumstance asks 
us to cash surrender policies, even if they are the only policies they 
have, we will offer them that cash surrender value if the policies have 
it. By and large, the agencies do not want us to take away protection ; 
it is a very rare distance w-here they ask us to cash surrender, even on 
children where it is all the insurance they have. 

Mr. Gesell. And your adjustment program is directed toward 
keeping a minimum burial protection on these relief families ? 

Mr. Eklund. Yes. 

Mr. Gesell. How do you do that? I take it first of all you look 
at the endowment policies and convert them into whole-life policies. 

Mr. Eklund. Yes. 

Mr. Gesell. You find by doing that you effect a considerable reduc- 
tion in premiums and a cash saving; is th«t correct? 

Mr. Eklund. That is correct. 

Mr. Gesell. Do you sometimes find too many policies on one life? 

Mr. Eklund. Yes; I mean, you may have a child with two and 
three endowment policies, occasionally. 



5786 CONCENTRATION OF 'ECONOIMTC POWER 

Mr. Gesell. So that your effort is even to surrender some of those 
policies? 

Mr. Eklund. We would change the oldest one of the endowment 
policies, if there was a difference in rates, to whole life, giving the 
advantage to the oldest age possible, and cash surrender the others if 
all on the same life. 

Mr. Gesell. Do you find cases of what we call maldistribution of 
the policies, where the breadwinner or wage earner may not have any 
coverage and the children and wife may have considerable ? 

Mr. Eklund. Yes; as far as our reports are concerned, of course 
we don't always get the complete report of the life insurance because 
of the vast number of companies which you have been hearing about. 
We only know what is reported to us and we only ask the agencies 
to report to us the insurance which is in our companies because we 
don't offer adjustments on the others. 

Occasionally, very occasionally, some social agency will report that 
the father has none. He may have insurance in some other company 
but we, of course, pay no attention to that. 

Mr. Gesell. Do you try to adjust the insurance program sc as to 
put coverage on essential members of the family who don't have such 
coverage ? 

Mr. Eklund. No ; we do not recommend any new insurance. The 
social workers engaged in dealing with that family may, of course, 
if they wish to, try to make arrangements to have someone w^ho isn't 
covered take on insurance, but I haven't personally heard of that hap- 
pening very frequently. 

Mr. Gesell. Then you limit your efforts to the particular policy, 
to an adjustment of those particular policies which are in force. 

Mr. Eklund. Not necessarily in force. They may be lapsed. 

Mr. Gesell. They bring in lapsed policies, too? 

Mr. Eklund. Yes. 

Mr. Gesell. Policies on which there is some value which they 
may not realize exists? 

Mr. Eklund. Yes ; policies w^hich have lapsed for some time, either 
on paid-up basis or extended insurance. If they are lapsed so far 
back that revival isn't practical, and there is no particular health 
condition, we usually cancel those all out and the family is left with- 
out any insurance as far as we are concerned. 

Mr. Gesell. You do find families, do you, which have policies 
which have a cash value which you are able to turn in for them and 
get that cash value ? 

Mr. Eklund. I didn't quite understand that. 

Mr. Gesell. Do you find policies on which premiums have ceased 
being paid which have a cash value? 

Mr. Eklund. Oh, yes. 

Mr. Gesell. I would like you to relate to the committee, if you 
would, one or two typical cases that come into your bureau and indi- 
cate at the same time the type of procedure taken in adjusting it. 
May I suggest you refer, for instance, to your case No. 617633? 
Have you that case before you? 

Mr. Eklund. Yes. 

Mr. Gesell. Now, Mr. Eklund, this case was a case that came to 
you March 31, 1939. 

Mr. Eklund. Correct. 



CONCENTRATION OF ECONOIMK^ POWER 5787 

Mr. Gesell. From a family living in a little town in Xew York; 
is that correct? 

Mr. Eklund. Correct. 

Mr. Gesell. It was a white family, with four members of the 
family. 

Mr. Eklund. Correct. 

Mr. Gesell. Complete unemployment and no income; is that 
correct 'i 

Mr. Eklund. No income rf'ported except relief income. 

Mr. Gesell. Am I correct in saying that there were paid up and 
in force in that family at the time it came to you 11 ditlerent indus- 
trial-insurance policies ? 

Mr. Eklund. Correct. 

Mr. Gesell. Those policies had been sold to the family at va'rious 
times from June 1931 up until as late as JVIay of 1938. 

Mr. Eklund. Correct. 

Mr. Gesell. There were three policies on the father of the family. 

Mr. Eklund. Correct. 

Mr. Gesell. One whole life for $711, one 20-payment life for $G'^. 
and one 20-payment life for $500. 

Mr. Eklund. Yes. 

Mr. Gesell. Involving total premiums of 90^ a week; is that 
correct ? 

Mr. Eklund. Yes. 

Mr. (iesell. There were four policies on the mother, two 20-year- 
endowmeiit policies, one for $82 and one for $205; one 15-year- 
endowment, and one 20-payment life for $285. 

Mr. Eklund. Yes. 

Mr. Gesell. That involved a total weekly premium of 80 cents; did 
it not? 

Mr. Eklund. Yes. 

Mr. Gesell. And then there were four additional policies on one 
of the daughters of the family; is that correct? 

Mr. Eklund. No; two sons, Donald and Harold. 
, Mr. Gesell. Each had two policies. One had a 20-year endowment 
and a 15-year endowment, of a total of $390 face value, on which 
they were paying 45 cents. 

Mr. Eklund. Correct. 

Mr. Geseix. And the other had, a 15-year and 20-year endowment 
for a total of $295. on which they were paying 35 cents. 

Mr. Eklund. Correct. 

Mr. Gesell. How many different insurance companies' policies 
were involved in this case ^ 

Mr. Eklund. One company. 

Mr. Gesell. This was all one company. What company was that? 

Mr. Ekli ND. Metro[)olitan. 

Mr, (lESELL. Will you tell us what adjustments you made in this 
program, and what the result was? 

Mr. Eklund. The fatheV's insurance was reduced to one whole-life 
policy at 30 cents a week premium for $504, with $31 cash, and his 
other two policies were cashed outright for a total of $46 as a choice 
We ^'requently give social workers choices on these cases, and lu-* had 
a choice of whole-life paid-uj) of $90 and $19, or the C!)sh. 

Ili44!il— 40— pt. 12 14 



5788 CONCENTRATION OF ECONOMIC POWER 

With the mother's insurance, the adjusters canceled two of her 
policies for their automatic extended insurance periods. Those 
policies, issued in March of '38 and May of '38, had no values except 
the automatic extended insurance values. Two of her other policies, 
one 20-year endowment was changed to a 10-cent whole-life for $158, 
and the other one to a 20-cent whole-life for $372, and cash given on 
that one because that had been paid on for more than 3 years, for the 
difference in reserves of $17. 

Donald's policy was changed from an endowment to whole life for 
5 cents at $200 and a $57 cash payment made. His other policy was 
lapsed for the extended insurance, as a policy to keep in reserve for 
further adjustment if needed. 

One of Harold's was treated in the same way and Harold's other 
policy was changed to a $200 policy at 5 cents with $21 cash. The 
total of cash made available was $172 and there was cash held in re- 
serve of whatever the cash surrender of those two endowments on 
extended would amount to, possibly $60. 

I may say that when we first started the adjustment service, we used 
to make an adjustment cutting the insurance immediately down to 
whatever the minimum standards of the social agency were and giv- 
ing cash, so that cash amounting occasionally to five or six or seven 
hundred dollars went to a family at one time, and the social agencies 
began to request that we not give so much at one time but rather give 
a reasonable amount, half of it or two-thirds of it, or whatever they 
might suggest, and then send in the balance on the second adjustment, 
so a great many of our cases have had two adjustments, one after the 
other, and some have had three where the amount of cash was very 
large. 

We put on this case an "A. C." which we have explained to all social 
workers. You will find it on the yellow copy. It means reserve 
adjustment, which they all understand. 

Mr. Gesell. In this case where the family had been paying $2.50 a 
week in premiums, the premiums were reduced to 70 cents a week. 

Mr. Eklund. Yes. 

Mr. Gesell. And where the protection had previously been $2,670, 
it was reduced to $1,434. It was your thought, I take it, that $1,434 
was sufficient for burial purposes. 

Mr. Eklund. Yes. 

Mr. Gesell. And in addition, you were able to get back for the 
policyholder, for the family, $172 which they could use for their ex- 
treme necessities, is that correct? 

Mr. Eklund. Yes; that is correct. 

Mr.. Gesell. I don't quite understand why your bureau functions 
in this manner. Why wasn't this a situation which resolved itself 
as between the policyholder and his company? 

Mr. Eklund. That goes back to the origin of the bureau again. I 
neglected to mention the fact that a great many people have insur- 
ance in two or all three of these companies, and, of course, to make an 
adjustment Avhicli would be fair and cover all the policies would take 
some sort of organization as ours that was equipped to function for 
all three companies to make the adjustment. 



CONCENTRATION OF ECONOMIC POWER 5789 

Mr. Gesell. You mean it was the thought of the companies them- 
selves that in a family which needed such an adjustment, where 
there were policies sold by several different companies, no single 
company was in a position to work out the type of arrangement which 
might be necessary ? 

Mr. Eklund. Correct. 

Mr. Gesell. In this case, though, they were all with one company. 

Mr. Eklund. In any case which is referred to us by a social 
agency, whether it is one company or two, we make the adjustments 
anyway. 

Mr. Gesell. I think time will permit us to go into one other case.^ 
Will 3^ou take any case you have there? 

Mr. Eklund. I have them all here. Have you any particular 
choice ? 

Mr, Gesell. I would as soon you selected a case. 

Mr. Eklund. This one is next on the list, No. 614642. 

Mr. Gesell. That was another case that was referred to j'ou from 
New York State, was it not? 

Mr. Eklund. Yes. 

Mr. Gesell. There was a family that needed all available cash for 
furnishings and necessary clothing. 

Mr. Eklund. Yes. 

Mr. Gesell. They didn't have any relief. 

Mr. Eklund. Yes; they were getting relief. 

Mr. Gesell. They were getting $20 in kind 

]\Ir. Eklund. Twenty a month. 

Mr. Gesel. That was relief in kind. 

j\Ir. Eklund. Not cash relief, that is correct. 

Mr. Gesell. They were getting food worth $20 a month. 

Mr. Eklund. Food and clothino-, and whatever else it may be. 

Mr. Gesell. That was the family income, was it not? 

Mr. Eklund. This was a case where a great many policies w^ere in 
volved. Metropolitan and Prudential, both. 

Mr. Gesell. A family of seven people, is it not ? 

^Mr. Eklund. There are seven persons in the family, and they al! 
had lapsed ])olicies, not a single one Avith a later date of payi'nent 
than August 1934; I believe that is correct. 

Mr. Gesell. How^ many policies did they bring in to you ? 

Mr. Eklund. They brought in 20, I believe, as I count them. 

Mr. Gesell. These 20 policies, none of which 

Mr. Ekliind. None of which had been paid on for a considerable 
number of years. 

Mr. Gesell. I notice a lot of those policies had been stamped with 
as many as three- or four-lien stamps; in other words, issued and 
lapsed, and issued and lapsecl and revived again, and so forth. 

Mr. Eklund. Correct. 

Mr^GESELL. What were you able to do for that family? 

Mr. Eklund. In a case of this kind, it was largely a matter of 
reporting to the Department of Public Welfare the fact that most 
of the policies had lapsed with no value because they had not been 
paid on either 3 years or else the extended insurance had expired. 



^-^QQ CONCENTRATION OF EC 'NOMIC POWER 

However, there were four or five policies that had some vakie, 
totaling $47, which were offered for cash surrender. 

Mr. Gesell. In other words, there were four of them, were there? 

INIr. Eklund. Five. I have indicated on my column. 

Mr. Gesell. The impression I get from looking at this— and I 
want to see if it jibes with your nnpression and knowledge of the 
case— is that here is a family that had been evidently taking out 
insurance, lapsing it, taking it out again, and lapsing it, over a period 
of as many as 4 or 5 years. 

Mr. Eklund. All of the insurance lapsed in '34, so that evidently 
the family— they don't tell us here when they did lose their regular 
income, but I presume the income loss must have come somewhere 
along the time the policies lapsed. They may have come somewhat 
before that, because, as you noted, liens hnd been taken on some of 
the policies previous to August of 1934. 

Mr. Gesell. Yes; I noticed there is a $250 20-year endowment 
policy on the son at the top of the page which had at least three hen 
stamps on it. 

Mr. Eklund. Yes ; the first was in December '33. 

Mr. Gesell. And another 20-year endowment policy on the same 
individual for $150, which had at least three lien stamps. Can you 
tell us now, using these cases as illustrations, if you wish, and call- 
ing on your general experience with the bureau, just what are the 
basic needs and problems of these famifies which are sent in to you? 

Mr. Eklund. Well, the basic need of the families is first of all for 
means of a livelihood, for relief, which in the main the State depart- 
ments or local departments are furnishing them. 

Mr. Gesell. They need cash of some sort. 

Mr. Eklund. Yes; cash or relief in kind, one or the other. Most 
cities seem to give relief in kind. 

Mr. Gesell. Do you find, in looking into the cases, what you would 
consider an unnecessary or too great an amount of endowment in- 
surance in force in families? 

Mr. Eklund. We get most of our cash from these endowment 
policies which they have, because the whole life policies, unless they 
have been paid on for a very long time, don't have such a very large 
cash value. One can get considerable cash on these endowment 
policies that have been paid on for 6 or 7 years. 

Mr. Gesell. What number of policies did you find per famdy, 

approximatelv? 

Mr. Eklund. I have that average here. We find the average num- 
ber of policies per familv in 1931 was 8.3; in 1932, 7.5; in 1933, 6.5; 
1934, 5.16; 1935, 5 2; 1936, 5.1; 1937. 5.1; 1938, 4.2. 

Mr. Gesell. What would you say was the average weekly premmm 

per family? 

Mr. Eklund. I have that. too. This gives the average premnun 
per policy, and then we multiply that by the size of the family. 

;Mr. Gesell. What is the average premium per policy? 

Mr. Eklund. We f ci nd it in '31 to be $0.21; '32, $0.21; '33, $0,201; 
'34, $0 202. It is around 20 cents, so if you have four m a family 
it would be 80 cents, if five, it would be a dollar a week. 

INIr. Gesell. And what percentage of the families that come in to 
you Avould you say had lapsed insurance? It was in excess of 27 
percent, was it not? 



CONCENTRATION OF ECONOMIC POWER 5791 



Mr. Eklund. I had that figure somewhere. Is that there? Do 
you have that on one of my tables? 

Tliis was prepared in June 1937; 27.5 percent of the families, 
based on a total of 8,132 families that we had checked for this 
report. 

Mr. O'CoNNELL, Those figures refer only to the three largest 
companies ? 
. Mr. Eklund. Yes; those are the only ones we get. 

Mr, O'CoNNELL. So you wouldn't ordinarily have any information 
as to whether a particular case involved, or whether a particular 
client had, insurance policies with other companies? 

Mr. Eklund. No; except that in New York State and in many 
States where we operate there aren't so many companies functioning. 
There are only four companies functioning in Xew York State and 
some of the other States. I don't have those facts in mind. 

Mr. Gesell. How much cash were you able to return to the insured 
as a result of your activities? 

Mr. Eklund. Since our beginning? I have the exact figure here. 
In round numbers it is between 25 and 26 million dollars. 

The Vice Chairman. How long have you been in existence? 

Mr. Eklund. Since the summer of 1931. Of course, our work was 
very small to start with. The bulk of our work has been in the 
last 3 years. 

The Vice Chairman. AVho supports your organization? 

Mr. Eklund. The three companies, on the basis of the number 
of industrial policies they have in force, proportionately. 

The Vice Chairman. And is your organization able to obtain 
from these three companies anything over and above what the policy- 
holders are legally entitled to? 

]\Ir. Eklund. AVell, no; they make concessions. For instance, as 
that original contract stated, some of the policies issued some years 
ago called for cash values at the end of 10 years, but on any case 
which shows a financial dependency the Metro])olitan and Prudential 
will give the 3-year value of the policy in cash. They make a con- 
cession. 

The Vice Chairman. In some instances thev waive a strict legal 
defense in order to make a concession to a dependent family? 

Mr. Eklund. Yes. All our cases are dependent, so that we may 
give any cash value or any other value in a 3-year period. 

The Vice Chairman. You used soine figures — an average of eight 
policies or five policies per family, and so forth. 

Mr, Eklund. Yes. 

The Vice Chairman. What was the total number? What would 
you base these percentage figures of eight, five, and so on, on ? 

Mr, Eklund. I mean each year. 

Mr. Gesell. Would those be the total number of families as shown 
in the previous schedule introduced? 

Mr. Eklund. I think so; yes. This schedule here — I haven't got 
it for 1931 — shows that in 1932 there was a total of 29,383 families. 

The Vice Chairman. And what percentage was that? 
•Mr. Eklund. That is the total number we dealt with. 

The Vice Chairman. And out of that total number, how many 
policies per family? 



5792 CONCENTRATION OF ECONOMIC POWER 

Mr. Eklund. An average of 7.5. 

The Vice Chairman. Have you a schedule introduced which shows 
(hat? 

JNIr. Gesell. We have introduced a schedule showing the total 
number of cases handled each year. Am I right, that the figures 
you gave were based upon an examination of all families examined 
l)y the bureau during that yea^^ 

Mr. Eklund. Yes. 

Mr. John Lord O'Brian (counsel, Metropolitan Life Insurance 
Co.). May I suggest that you ask this question. 

Mr. Gesell. This is Mr. O'Brian, counsel for the Metropolitan 
Life Insurance Co. 

Mr. O'Brian. Does that 8.1 per family mean policies in force, or 
does that mean all of the policies listed on the form, some of which 
had lapsed? 

Mr. Eklund. I think that is a very good point. In that case 
referred to, all the policies were lapsed 3 or 4 years ago, but when 
we say "average number of policies per family" we count all policies 
referred to, although a great many were laiDsed at the time, so it 
doesn't mean policies on which premiums were being paid. It means 
policies Ave have to study. 

Mr. Gesell. The policies referred to vou tor adjustment for each 
of these cases. 

The Vice Chairman. It doesn't mean there were eight policies in 
the family running at the same time ? 

Mr. Eklund. No, no; if you mean by "running" in force. No. 
There were just that many on the page that they referred to us, of 
which they might all be lapsed. 

Mr. Gesell. Or. as in the other case, they might all be in force. 

Mr. Eklund. We haven't made any analysis. 

Mr. Gesell. You were looking for a cash recovery figure. You said 
it was between 25 and 26 million dollars. 

Mr. Eklund. Cash returned. Yes ; I have it right here. Accord- 
ing to our records, it is $25,885,000 plus. 

Mr. O'CoNNELL. That figure was arrived at, I take it, by collecting 
the cash-surrender value on policies that had lapsed, plus the cash- 
surrender value on policies in force, but in your judgment not to be 
continued. 

Mr. Eklund. The source of the cash is not indicated, whether it is 
due to cancelation of a lapsed policy or a policy in force. We have 
no break-down. 

Mr. O'CoNNELL. You wouldn't have a break-down to show Iioai 
much you recovered from policies that had lapsed ? 

Mr. Eklund. We haven't brought the figure down to that. 

Mr. Gesell. I have ho further questions of this witness. 

The Vice Chairman. You may step down. 

(The witness, Mr. Eklund, was excused.) 

Mr. Gesell. The next witness is Mr. Schwarz. 

The Vice Chairman. Mr. Schwarz, will you hold up your right 
hand? Do you solemnly swear the testimony you will give will be 
the truth, the whole truth, and nothing but the truth, so help you God? 

Mr. Schwarz. I do. 



CONCENTRATION OF ECONOMIC POWER 5793 

TESTIMONY OF ALEXANDER M. SCHWARZ, PUBLIC ASSISTANCE 
DIVISION, DEPARTMENT OF PUBLIC WELFARE, WASHINGTON, 
D. C. 

DISTRICT OF COLUMBIA WELFARE DEPARTMENT 

Mr. Gesell. Will you state your full name, please, sir? 

Mr. ScHWARz. Alexander M. Schwarz. 

Mr. Gesell. Are you connected with the department of public 
welfare in the District of Columbia? 

Mr. Schwarz. The public assistance division of the department of 
public welfare. 

Mr. Gesell. What is your particular job? 

Mr. Schwarz. Insurance adviser. 

Mr. Gesell. You have heard the testiipony of the previous witness, 
have you not? 

Mr. Schwarz. Yes, sir. 

Mr. Gesell. Do you have occasion to deal with similar problems here 
in the District ? 

Mr. Schwarz. Yes, sir. 

Mr. Gesell. How many industrial insurance companies are there 
operating here in the District? 

Mr. Schwarz. Twenty-odd. 

Mr. Gesell. Does that include all of the Big Three companies ? 

Mr. Schwarz. No ; it only includes two of the Big Three. 

Mr. Gesell. The John Hancock does not operate here? 

Mr. Schwarz. That is right. 

Mr. Gesell. Is there any kind of bureau that you know of which 
handles the problems of these smaller companies ? 

Mr. Schwarz. None other than my own individual efforts. 

Mr. Gesell. Will you tell us the kind of problems you have in your 
office and how you handle them ? 

Mr. Schwarz. We have a considerable amount of problems in- 
volving industrial life insurance, particularly those types of indust- 
rial life insurance pertaining to what is known as a sick benefit policy. 
That is a policy on which, for quick computation, 20 percent of the 
premium is for death benefits and 80 percent of the premium is for 
the sick benefit portion. All of these policies more or less have can- 
celation clauses, and in the event that the insured becomes ill too 
frequently these companies will cf^ncel out the policy. 

Some of the companies, even though in their home States they may 
require that they convert the life portion for 20 percent of the pre- 
mium, do not do it in the District of Columbia, because the law does 
not require it. Quite a few companies have that clause in the contract. 

Mr. Gesell. How does that come before you in handling these 
problems of insurance adjustment for people on relief? 

Mr. Schwarz. People on relief are requested to bring to us all of 
their life-insurance policies, both current and lapsed, primarily for 
the purpose of looking into them; if they are in the larger companies 
they are submitted to the L. I. A. B. for their adjustment, or if in one 
of the other companies, for whatever adjustment that we can possibly 
make. 



5794 CONCP^NTRATTON OF ECONOMIC POWER 

Mr. Gesell. What kind of adjustments do you attempt to make. 
Do you try to change the endowment policies over to whole life 

policies ? 

My. Schwarz. We try to convert the short-term endowments us- 
ually into whole life policies or long-term endowments, or something 
of that tvpe. It depends upon the company. 

Mr. Gesell. Do you try to turn in for surrender policies which 
have some cash value, but on which payment of premiums has ceased? 

Mr. Schwarz. Yes; Ave endeavor to do that. 

Mr. Gesell. Do you try to program the particular family in any 
way by putting coverage on persons in the family not covered? 

Mr. Schwarz. A great deal depends upon the background of the 
family and a great deal upon whether or not it is a habitual relief 
family or whether it is a temporary relief family or whether it is 
going^ to be permanent relief. We have to take into consideration 
many factors involving the individual family, 

Mr, Gesell. Would you say this problem of insurance, from the 
point of view of the whole problem of relief, is an extremely important 
one ? i 

Mr. Schwarz. I would think so ; yes, sir. 

Mr. Gesell. Have you some typical cases that you can give us 
indicating the kind of thing that comes into your office and how it is 
handled ? 

Mr. Schwarz. I have some cases here, but I could probably cite 
some cases quicker than refer to them. 

Mr. Gesell. If you would, j^lease. 

Mr. ScHAVARz. Quite a few cases come to us. Now I am talking of 
companies other than the L. I. A. B. companies. We call them 
L. I. A. B. companies because they happen to work through that 
bureau, 

Mr. Gesell. You mean companies other than the three large com- 
panies. 

Mr. Schwarz. We have one company in mind where liability was 
denied by reason of a claim that the policy had lapsed- The contract 
itself read that a grace period of four Mondays would be allowed. 
If my memory serves me right, the last premium payment was Sep- 
tember 17 of that year, and on September 24 no premium payment 
was made, and none was made on the subsequent Mondays of the 1st, 
8th, and 15th of October. On the 16th of October the insured died. 
The company denied liability, claiming that four Mondays had 
elapsed. Their interpretation of four Mondays was the 24th, 1st, 8th, 
and 15th. 

Our interpretation of four Mondays was that Monday, the 24th, was 
the due date, the day upon which the insured had the right to pay. 
Failing to pay, his grace period started on midnight of the 24th, and 
therefore the first Monday, according to the terms of the contract, 
was Monday, October 1, and since he died on the 16th of October, the 
fourth Monday would have been the 22d. The company denied lia- 
bility, we took the matter to court, and the court sustained our view- 
point. However, I will say that since then that company has changed 
the terms of its contract to read from ."'four Mondays" to "4 weeks." 

INIr. Gesell, I had in mind more relief cases which come to you, 
wliere there' was some problem of adjusting the insurance program, 
rallier than these individual cases. 



CONCIENTKATION OF ECONOMIC POWER 5795 

Mr. ScHW.ARz. We have a number of ])roblenis whereby i)e()i)le luive 
carried insurance in certain companies, I will say, on a 20-year enclow- 
inent plan. The nonforfeiture values, even thou^irh the word "non- 
forfeiture" is in the contract, would be ucuautomatic, and even though 
the contract was paid for close to 10 years, all the values in a policy 
of that kind were taken over by the company and nothin<; allowed to 
the policyholder. 

Mr. Gesell. Those are cases where the policyholder, not familiar 
with the fact that he has to make an affirmative motion to o;et some 
forfeiture value, has values in his policy which the company denies 
him under the strict terms of the policy. 

Mr ScHWARz. Absolutely. 

Mr. Gesell. In those cases are you able to collect some funds? 

Mr. ScHWARz. No ; in some of these cases we have not been successful 
in bringing: the companies around to realizing that a large premium 
has been collected from the endowment policy, and this value existed 
at the time of lapse and should be given, and failure on the part of 
(he insured to make application within the required 6 months may 
therefore have, so to speak, confiscated the value of the insurance. 

Mr. Gesell. That Avould indicate that a lot of the policyholders 
don't read their policies. 

• Mr. ScHWARZ. The majority of the people do not read them. A 
great many of them couldn't understand them probably if they did. 

Mr. Gesell. Do you find some families with a rather large num- 
ber of policies sold to them and in force at any one time ? 

Mr. ScHAVARZ. I have been with the public assistance division since 
1933, and I find that in the early days when we considered the life 
insurance of the people on the relief rolls, there were a great many 
policies that came to us, particularly issues of 1927, '28, '29, and '30 ; 
we find it diminishing now^, in the policies coming to us there is not 
a great deal, and where you find overloading of the family it w'ould 
be an exception. 

Mr. Gesell. What do you consider an overloading of the family? 

Mr. ScHWARZ. Well, we. have to take it more or less on an indi- 
vidual basis, depending upon what tlie incom« of the family w^as 
prior to dependency, and if it was a very small income we would 
consider more than one ]:)olicy as being too much. 

Mr. Gesell. Do you find many cases where people have policies 
in a lot of companies? 

Mr. ScHWARZ. Well, we find that considerable amongst the colored 
people here in the District of Columbia, that they have policies in a 
g -eat number of companies. 

Mr. Gesell. Can you gi\^ us an example? 

Mr. ScHWARZ. I don't know that I have one to show. We have 
about 20,000 cases on file, and I don't know all of them, but I known 
we have found instances where they had a great many different 
types of sick-benefit policies. I have one case here w^here there are 
two in the family and there are five policies, one on one member of 
the family and four on another, issued in 1932, all issued on the same 
date. 

Mr. Gesell. Do you find that this situation of a lot of policies 
sold to a single family by different companies complicates the adjust- 
ment problem considerably? 



5796 CONCENTRATION OF ECONOMIC POWER 

Mr. ScHWARz. No ; the only thiiif? that complicates the adjustment 
is the company itself. If they are in certain companies the adjust- 
ments are very simple. 

Mr. Gesell. But would you say it is just as easy to adjust the 
problems of a family which had all its policies in one company as it 
would of ~a family that had its policies in several companies? 

Mr. ScHWARZ. Naturally it would be easier in one company, but if 
the policies were in a number of companies, if they were in certain 
companies there would be no difficulty; again, if they were in other 
companies you might have some difficulty in adjustment, in fact we 
might not be able to make an adjustment. 

Mr. Gesell. How many cases have you had here in the District 
where some sort of insurance adjustment has been necessary or desir- 
able ? 

Mr. ScHWARZ. I would have to calculate that. 

Mr. Gesell. Can you give us the approximate number ? 

Mr. ScHWARZ. Yes ; roughly about 16,000. That is over a period of 
years, since 1934, in the last 5 years. 

Mr. Gesell. I have no further questions. 

Mr. O'CoNNELL. You mentioned a figure of 20,000. Is that the 
number of relief people or relief families that you have to deal with 
in the District of Columbia? 

Mr. ScHWARz. That is the number that come to my attention. That 
doesn't mean that is the number of relief families. Some don't have 
any insurance at all. 

Mr. O'CoNNELL. Generally speaking, do most relief families have 
insurance, industrial insurance, either in force or lapsed when they 
come to your attention? 

Mr. ScHWARz. If they had no life insurance 1 wouldn't contact 
them at all. 

Mr. O'CoNNELL. But you ask all relief people, I take it, to report 

to you. 

Mr. ScHWARZ. To report to us their life insurance. 

Mr. O'CoNNELL. You wouldn't have known what percentage of re- 
lief people do have an industrial insurance problem ? 

Mr. ScHWARz. No; I wouldn't. If they had none they wouldn't 
contact me. 

Mr. O'CoNNELL. You have come across some 16,000 cases in which 
relief people in the District of Columbia have had insurance prob- 
lems. 

Mr. ScHWARz. That is right, sir. 

The Vice Chairman. Do you wait until they contact you? 

Mr. ScHWARz. I wait until they contact me, but they must contact 
me through the case worker. 

The Vice Chairman. Do you think the case workers cover pretty 
exhaustively the relief insurance cases? 

INIr. ScHWARz. We endeavor to have them do so ; I would think that 
they do; yes. 

The Vice Chairman. I assume that many of these people come to 
you because they must cash their insurance policies in order to acquire 
a relief status. Is that correct ? 

Mr. ScHWARz. No, sir. 

The Vice Chairman. Don't you have any cases like that? 



CONCENTRATION OF ECONOMIC POWER 5797 

Mr. ScHWAKZ. No, sir; they bring their insurance to us so that 
we may adjust it according to their income, that is, say, of course, we 
don't make any demands upon them. I am not positive that they 
always bring in their policies. Sometimes it is very difficult to get 
them to bring them in, and they may bring some few policies, and 
we have to interrogate them a long time before they will admit of 
other policies. We wouldn't have any knowledge of the extent of 
insurance they may have. 

The Vice Chairman. You interrogate all relief cases that come to 
your attention as to whether or not they have insurance policies? 

Mr. ScHWARZ. Yes, sir. 

The Vice Chairman. If they have, you make adjustments in order 
to obtain cash? 

Mr. ScHWARz. We make adjustments not only to obtain cash, but 
if they should be overinsured we advise them of that fact and en- 
deavor to have them reduce their insurance in accordance with their 
income, so as to keep a minimum, usually mostly for emergencies. 

Mr. O'CoNNELL. These people are people who are primarily de- 
pendent upon the support of the Government? 

Mr. ScHWARZ. Lately there is a little different situation since the 
National Social Security Act. In the early days we had what we 
generally termed general public assistance, and we have the category 
of aid for dependent children, aid for the blind and old-age assist- 
ance. Of course, insurance is treated differently in each category. 

Mr. O'CoNNELL. Yes; but, generally speaking as a relief agency, 
you are interested in the amount of the income of the family which 
must go toward industrial insurance. 

Mr. ScHWARz. That is right. 

Mr. O'CoNNELL. So you have two purposes: (1) To reduce the 
amount that is spent for insurance if the amount that is being spent 
is out of line with the need, and (2) in some cases to get back for the 
insured certain cash by converting the types of policies that they have 
into a type that will give them adequate coverage at a lesser cost and 
some cash return. Is that right? 

Mr. ScHWARz. That is right; or if they have lapsed policies and 
have not applied for cash values and do not realize it existed, we try 
to obtain that cash value for them. 

Mr. O'CoNNELL. In those cases I take it if your organization or 
some other .organization did not .enter the picture to assist them to get 
their cash surrender value on a lapsed policy, the probabilities would 
be that it would be lost; that is, the insured in your experience would 
not ordinarily know of the fact that his lapsed policy had a cash 
surrender value. 

Mr, ScHWARz. And frequently he would not know. 

The Vice Chairman. Your success in obtaining money on these>^ 
policies that have lapsed depends, as I understand you, almost entirely 
upon the attitude of the insurance company involved. 

Mr. Schwarz. That is right, sir. 

The Vice Chairman. We will stop here until 10 : 30 tomorrow 
morning. 

(Whereupon, at 4 : 25 p. m., a recess was taken until Tuesday, August 
29, 1939, at 10: 30 a.m.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



TUESDAY, AUGUST 29, 1939 

United States Senate, 
surcommiitee of the temporary, 

National Economic Committee, 

Washington, D. C. 

The subcomniittee met at 10 : 35 a. m., piirsuaiit to adjournment on 
Monday, August 28, 1939, in the Caucus Eoom, Senate Office Building, 
the vice chairman, Hon. Joseph E. Casey, Representative from Massa- 
chusetts, presiding. 

Present : Representative Casey, acting chairman, and Mr. O'Coimell. 

Present also: Mr. Brackett; Gerhard A Gesell, special counsel; and 
Michael H. Cardozo, attorney, Securities and Exchange Commission. 

The Vice Chairman. We will now come to order. 

Mr. Gesell, are you ready to proceed ? 

Mr. Gesell. Yes, I am. The first witness this morning is Mr. 
Morris H. Siegel. 

The Vice Chairman. Mr. Siegel, wnll you hold up your right hand, 
^please, and solemnly swear that the testimony you will give shall be 
the truth, the whole truth, and nothing but the truth, so help you 
God? 

Mr. Siegel. I do. 

TESTIMONY OF MOREIS H. SIEGEL, POLICYHOLDERS' ADVISORY 

COUNCIL, NEW YORK, N. Y. 

ACTIVITIES OF MORRIS H. SIEGEL INSURANCE COUNSELOR 

Mr. Gesell. Will you please state your full name for the record ? 

Mr. Siegel. Morris H. Siegel. 

Mr. Gesell. You resitle in Ne-w York City? 

Mr. Siegel. Yes, 

Mr. Gesell. Are you connected with the Policyholders' Advisory 
Council ? 

Ml', Siegel. I am, 

Mr. Gesell. What is your connection with that organization? 

Mr. Siegel. Co-j)artner. 

Mr. Gesell. Is tliat a {partnership operating in the city of New 
York? 

Mr. Siegel. That's right. 

Mr. Gesell. Has it offices elsew^here than in New York City? 

Mr. Siegel. One office in Boston, 

Mr. Gesell. What kind of organization is the Policyholders' Ad- 
visory Council? 

5799 



5800 CONCENTRATION OF 'ECONOMIC POWER 

Mr. SiEGEL. How do you mean, "what kind of organization"? 

Mr. Gesell. What is its business, what does it do ? 

Mr. SiEGEL. To give advice to hoklers of life insurance policies. 

Mr. Gesell. You are an insurance counselor ? 

Mr. SiEGEL. That's right. 

Mr. Gesell. How long has this organization been in business? 

Mr. SiEGEL. Since February of 1937. 

Mr. Gesell. How long have you been in the insurance counselor 
business ? 

Mr. SiEGEL. Since April of 1935. 

Mr. Gssell. AVho are your partners in the Policyholders' Advisory 
Council ? 

Mr. SiEGEL. My brother, Sam Singel. 

Mr. Gesell. You are the only ])artners? 

Mr. SiEGEL. That's right. 

Mr. Gesell. Had you had any experience in th? insurance business 
prior to becoming an insurance counselor ? 

Mr. SiEGEL. Yes; I was a broker and I was also a life insurance 
agent. 

Mr. Gesell. For what company were you an agent? 

Mr. SiEGEL. Oh, the Metropolitan Life, the Delaware Mutual, 
Prudential, Travelers, Security Mutual. 

Mr. Gesell. You were with Metropolitan Life Insurance Co. when? 

Mr. SiEGEL. I joined the Metropolitan December of 1930; that was 
my first experience in life insurance. 

Mr. Gesell. Were you on an industrial debit? 

Mr. SiEGEL. I was. 

Mr. Gesell. You were an agent? 

Mr. SiEGEL. That is right. 

Mr. Gesell. How long were you with the company? 

Mr. SiEGEL. Until August of 1933. 

Mr. Gesell. Am I correct in saying that your resignation was re- 
quested at that time? 

Mr. SiEGEL. Yes. 

Mr. Gesell. What was the reason for requesting your resignation ? 

Mr. SiEGEL. I paid premiums for policyholders against the com- 
pany rule. 

Mr. Gesell. Were there any deficiencies in your account ? 

Mr. SiEGEL. No. 

Mr. Gesell. Am I correct in saying that at the present time you 
have a suit filed against the Metropolitan Life Insurance Co. which 
has arisen out of some of the claims made in connection with your 
dismissal ? 

Mr. SiEGEL. Yes. 

Mr. Gesell. Is that suit now in active litigation ? 

Mr. Siegel. Yes. As soon as I return to New York there will be 
an examination before trial in regard to that case. 

Mr. Gesell. Am I correct in saying that you sued Metropolitan 
and one of its officers, Mr, Taylor, for libel ? 

Mr. Siegel. Yes. 

Mr. Gesell. What did you do after you left the Metropolitan ? 

Mr. Siegel. I became branch manager for the Fidelity Mutual Life 
of Philadelphia for about a year. 

Mr. Gesell. What did you do after that ? 



CONCENTRATION OF ECONOMIC POWER 5801 

Mr. SiEGEL. I became a general broker in the State of New York, 
selling general insurance anc £ retained my life insurance license Avith 
the Fidelity Mutual and wim several other companies. 

Mr. Gesell. Well now, is the Fidelity Mutual an industrial com- 
pany ? 

Mr. SiEGEL. No; ordinary company, 

Mr. Gesell. While you were a broker did you sell all kinds of 
insurance or the ordinary only? 

Mr. SiEGEL. No; I sold life insurance as well as automobile, prop- 
erty damage, public liability, and so forth. 

Mr. Gesell. Now, you were licensed during this time, were you, as 
an agent in the State of New York? 

Mr. SiEGEL. Yes. 

Mr. Gesell. How did you happen to get into this insurance coun- 
selor business? 

Mr. SiEGEL. In March of 1935 I was invited by a radio station in 
New York City to deliver a broadcast during Life Insurance Week 
which I believe was in May of that year. 

Mr. Gesell. Was that a paid broadcast? 

Mr. Siegel. No, just gratis; they call it a sustaining program. 

Mr. Gesell. What was the station? 

Mr. Siegel. WBNX. 

Mr. Gesell. Did you give such a speech? 

Mr. Siegel. I did. 

Mr. Gesell. What happened after that? 

Mr. Siegel. The manager of the station requested that I prepare 
a series of sustaining talks on life insurance from an educational view- 
point. 

Mr. Gesell. Those were talks that you were to make how often ? 

Mr. Siegel. Once a week. 

Mr. Gesell. For which you got no pay ? 

Mr. Siegel. No compensation. 

Mr. Gesell. Did you commence that type of broadcast ? 

Mr. Siegel. I did. 

Mr. Gesell. For how long did you make such broadcasts ? 

Mr. Siegel. On WBNX? 

Mr. Gesell. Yes. 

Mr. Siegel. Two years. 

Mr. Gesell. Y,ou were telling us how you came to be an insurance 
counselor. 

Mr. Siegel. After I had been broadcasting for some time, I began 
to discuss the subject of industrial insurance. Prior to that time 
there hadn't been very much interest from the listeners insofar as 
mail response w^as concerned. About 3 or 4 months after the broad- 
cast began when I touched on the subject of industrial insurance, we 
began to receive inquiries by mail with regard to specific problems. 
Then there began occasional callers to the studio asking for advice. 

Mr. Gesell. You mean people came into the studio and asked for 
advice ? 

Mr. Siegel. That is right. And traffic became so heavy that the 
studio set aside a special office for these interviews. 

Mr. Gesell. Now, about when was this ? 



5802 C0NCP:.\Ti{AT10N OF *l^](:OXOMlC I'OWER 

Mr. SiEGEL. The discussions of industrial insurance be<i;an about 
the middle of 1935, and toward the end of summer the volume of in- 
quiries and visits began to increase. 

Mr. Gesell. Now, these interviews that you had at the offices of 
the studio, did you charge anything for those interviews? 

Mr. SiEGEL. No ; there was no fee. 

Mr. Gesell. Will you continue, please? 

Mr. SiEGEL. In the course of the follow^ing yt ir and a half, quite a 
number of those who called for assistance an ' advice offered to pay a 
fee. I was on a sustaining program. While there wasn't any par- 
ticular arrangement with the radio station as to whether a fee should 
be charged or not, I felt that since the program was being offered free 
as far as radio time was concerned, that I would give my services free. 
In the beginning it didn't occur to me that it was possible to offer a 
service of this type for a fee where no insurance was to be sold. 

About December of 1936 I decided that there was a possibility of 
setting up a new line of endeavor, to offer insurance counsel for a 
fee without selling insurance. 

Mr. Gesell. What kind of problems had come to you at the radio 
stlition ? Can you give us some idea of the kind of people who came 
in, and what their concern was? 

Mr. SiEGEL. Every single case Avas that of an industrial policy 
liolder. They were of the working classes, obviously. They were 
finding it difficult to meet their premiums. Most of them needed 
some sort of cash and wanted to know if they could get the cash 
from their policies or reduce their premiums, or both. 

Mr. Gesell. And you would take these policies and examine them 
and tell them what they could and what they couldn't do? 

Mr. SiEGEL. That is correct. 

Mr. Gesell. Did you get any indication at that time as to why 
these people hadn't been to their agents? 

Mr. SiEGEL. They had been, most of them. Most of them told me 
that they had asked their awnts either for cash for some of their 
policies, or whether there coulcl be any way of reducing their premium 
l)urden, and the answer in most cases, at least in those cases that 
came to my attention, was that either no way could be found to 
reduce the' premium or that no cash was possible to be obtained 
from the policies. 

Mr. Gesell. Can you gi^e us some idea of, say, a typical case that 
came to you at that time ? 

Mr. SiEGEL. I remember one of the earliest cases, a case by the name 
of Mohler, Herman Mohler, a delicatessen-store keeper who found 
it necessary to go to work and let his wife tend the store because he 
couldn't niake ends meet with the business in the store. His pre- 
miums were something like $4 a week and he was constantly in 
arrears. 

Mr. Gesell. You say he was in arrears, his payments were behind? 

Mr. SiEGEL. His payments were always on what they call the fifth 
week. He told me lie had attempted to obtain some cash on the 
policies by asking his agent and liis agent had told him that the only 
thing he could do would be to continue paying premiums or his 
policies would lai)se and he would lose them. I arranged a reorgani- 
zation for him through his company. I found in examining the 
policies that his wife and two children, as I recall, carried the major 



OONCEXTHATION OF KCONO.MIC POWER 5803 

))()rtioii of the premiums and the smaller portion was on himself. I 
made certain chanrjes in the children's insurance and that, produced 
some cash for him; put about $2,000 of ordinary insurance on his 
life, and left the children witli ]iremium-free insurance: that is, they 
were still insured without further payment premiums. As 1 recall, 
from $4 weekly premiums the premiums were reduced to about $8 
a month, most of which was for insurance on his life, a little of it 
for insurance on Mrs. Mohler, and there was approximately $400 
in cash which went to him. 

Mr. Gesell. What percentage of his income, if you know, was goino- 
to industrial premiums before he came to you? 
Mr. SiEGEL. I (/an't tell you that. 

Mr. Gesell. I believe you said that you saw the possibilities of going 
into business and charging a fee for doing the work that you were 
doing fi-ee of charge at the radio station. 

Mr. SiEGEL. ]\Iohler was one of the first men who offered to pay 
a fee. 

Mv. Gesell. When did you set out in business? 
Mr. Siegel. February of 1937. 

Mr. Gesell. Will you tell us a little about how you organized your 
business, where von got the money, how much cash you put in, and 
so forth ? ■ ^ • 

Mr. Siegel. My brother and I pooled whatever resources Ave had. 
His resources lay entirely in a policy of the Metropolitan Life Insur- 
ance Co., on which he made a loan. We opened our office in Jamaica, 
Long Island, and shortly thereafter moved to New York City, where 
we are now. 
Mr. Gesell. How did you plan to get clients? 
Mr. Siegel. By radio broadcasts, 

Mr. Gesell. Did you start your radio broadcasts immediately? 
Mr. Siegel. Yes, we did; we bought 1 weekly period, 15 minutes, 
for a 15-minute talk, on a small station in Brooklyn. 

Mr. Gesell. Were these talks in the same tenor as the talk you had 
been making on sustaining time prior to that? 
sMr. Siegel. Not exactly. 
Mr. Gesell. How did they differ? 

Mr. Siegel. Well, out of consideration for the station in the Bronx, 
WBNX, that was giving me sustaining time, I had to be rather mod- 
erate in my discussion. On the commercial program on the period 
I bought, I mentioned case histories by name and the faults that I 
believed were conmion not only in industrial policies but in holdings 
of various industrial families. 

Mr. Gesell. Will you tell us a little about how your business has 
grown since that time? 

INIr. Siegel. TJie first week we i)ut on the broadcast we had, I believe, 

8 calls. The^ second week there were 15, the third week there were 430. 

Mr.-GESELL. Did it continue to grow, or did it drop off? 

Mr. Siegel. It didn't grow at that rate, but we found in checking 

back that we luive increased our volume about 100 percent every 6 

months to date. 

Mr. Gesell. How many clients do you have — new clients — do you 
have a week in your place now? 
Mr. Siegel. Currently? 
Mr. Gesell. Yes. 

124491— 40— pt. 12 15 



5804 CONCENTRATION OF ECONOMIC POAVER 

Mr. SiEGEL. They average about 700 a week. 

Mr. Gesell. How many cases have you had since you started? 

Mr. SiEGEL. Forty-four-thousand-odd. 

Mr. Gesell. Have you increased your broadcasting activities since 
that time? 

Mr. SiEGEL. Considerably. 

Mr. Gesell. Will you tell us what you have done in that con- 
nection? 

Mr. SiEGEL. We now broadcast on 14 stations, I believe it is 117 
periods a week. 

Mr. Gesell. Are those stations all in New York City? 

Mr. SiEGEL. No ; there are 3 stations in Boston. 

Mr. Gesell. You broadcast in Boston and New York City? 

Mr. SiEGEL. That's right. I might say this, that of course the 
great majority of the broadcasts are electrical transcriptions pre- 
pared from what they call my live broadcasts. 

Mr. Gesell. You mean by that 

Mr. SiEGEL (interposing). Broadcasts I give myself. 

Mr. Gesell. You give 1 or 2 yourself, and transcriptions are made 
and 

Mr. SiEGEL (interposing). Played on the other stations. 

Mr. Gesell. Will you tell us what you do, how you handle one of 
these cases that comes to you ? 

Mr. SiEGEL. Do you want the actual detail ? 

Mr. Gesell. I want to know how you do business. Someone 
comes to you as a result of one of your radio broadcasts. What 
procedure do they go through and what type of assistance do you 
render to them? 

Mr. SiEGEL. They are interviewed to establish what brought them 
in, what particular problem they had. We find that by far the 
greater majority have one of two problems or a combination of both. 

Mr. Gesell. What are those problems ? 

Mr. Siegel. They either need cash or a reduction in their premium 
payments. There is a very small class that comes in and merely 
want to know whether they have the proper insurance for the 
premiums they are paying, but they are distinctly in the minority. 

Mr. Gesell. These people are all industrial policyholders? 

Mr. Siegel. Not all. Approximately^ 95 percent of our clients 
are industrial policyholders, and you will find in -their holdings oc- 
casionally an ordinary policy. 

Mr. Gesell. These people mostly come in after the problem has 
arisen, rather than before? 

Mr. Siegel. All of them. 

Mr. Gesell. You have none that come in and say, "Look here; I 
am thinking about buying life insurance. Whom should I buy from, 
an(^ how much?" 

Mr. Siegel. I would say perhaps one-tenth of 1 percent. We do 
have such inquiries. 

Mr. Gesell. Are you or is anybody in your organization licensed 
to sell insurance? 

Mr. Siegel. No. 

Mr. Gesell. Do you directly or indirectly in any way receive any 
commissions for the sale of insurance? 
" Mr. Siegel. No. 



CONCENTRATION OF ECONOMIC POWER 5805 

Mr. Gesell. Your compensation and living, then, I take it, are 
based entirely from a fee charged the people who come for advice. 

Mr. SiEGEL. That's right. 

Mr. Gesell. Do you get any cases referred to you by charity 
organizations ? 

Mr. SiEGEL. Yes; once in a while. 

Mr. Gesell. Are these cases handled free of charge ? 

Mr. SiEGEL. Yes; we make no charge for that, and I might say 
this, too, that cases that are on welfare or relief when they come to 
us are not handled by us. We refer them back to the L. I. A. B. in 
New York. 

Mr. Gesell. These men are all people who have jobs ? 

Mr. Seegel. Not necessarily. 

Mr. Gesell. Or who have no jobs but are not on relief. 

Mr. Siegel. That's right. 

Mi\ Gesell. You say they come in and you try to find out what 
their problem is. Wliat is the next step? 

Mr. Siegel. The next step is to attempt to plan some method of 
reorganization that will take into consideration the object that 
brought them there, and very often we find that from our viewpoint 
what they want is not the best for them. 

Mr. Gesell. You will have to explain that a little more. 

Mr. Siegel. We will have them come in and say, "I don't want you 
to touch my children's endowment policies; I want to keep them as 
they are," and occasionally we will find an insistent client who refuses 
to make any changes in those policies, and then we can't service him. 

Mr. Gesell. I take it, then, that if someone comes to 3'ou, you 
insist that you have complete discretion in adjusting his program. 

Mr. Siegel. We put it this way, that when they come to us they 
are coming to the doctor, and they shouldn't attempt to tell the 
doctor what to do. 

Mr. Gesell. Then, I take it, the answer to my question is '"Yes," 
that you insist on taking their entire program for them. 

Mr. Siegel. That's right. 

,Mr. Gesell. Do you handle the actual changes in their insurance 
program, or do you simply make written recommendations to-.them 
which they can accept and act upon or not by taking them up with 
their own company? 

Mr. Siegel. May I go back a little bit in our history in answering 
that question? 

Mr. Gesell. Certainly. 

Mr. Siegel. When we first started in business we confined our work 
entirely to the giving of written reports, some of which ran to three 
or four pages. After several months of operation occasional clients 
would come back and tell us that tlie}^ had been unable to obtain the 
cooperation of their agents to put throuoh the changes we had 
recommended. We felt then that it would be necessary to render 
them assistance in putting those changes through, and we changed our 
system to take that into consideration. Today we not only give them 
a written report, but we supervise all of the changes we recommend 
until everything is properly completed, which usually takes from 
2 to 3 months. 

Mr. Gesell. There must be a considerable amount of clerical work, 
computation work, and things of that sort in connection with it. 



5806 CONCENTRATION OF ECONOMIC POWER 

Mr. SiEGEL. A very great deal. 

Mr. Geseix. Well, now, do you do something for everybody that 
comes to you, Mr. Siegel ? 

Mr. Siegel. Definitel}' not. 

Mr. Gesell. About how many do you turn away out of those that 
come ? 

Mr. Siegel. We service 38 percent today; we turn away 62. 

Mr. Gesell. Those that are turned away I presume aro turned 
away either because the}' haven't the type of problem for which you 
can be of assistance or they are unwilling to let you take over entirely 
the problem of adjusting their program. 

Mr. Siegel. Generally speaking, they fall into those two cate- 
gories. 

The yiCE Chairman. You don't include those people on relief in 
those figures ? 

Mr, Siegel. No; we just don't count those at all. 

Mr. Gesell. How much money did vou take in during 1938? 

Mr. Siegel. $98,000. 

Mr. Gesell. Can you give us some idea of how that money was 
disbursed ? 

INIr. Siegel. These are round figures, Mr. Gesell — round figures. 



Approximately $60,000 for radio time; $18,000 for pay roll- 
Mr. Gesell (interposing). That is office pay roll? 

Mr. Siegel. Office pay roll, $7,500 for drawing accounts for my 
brother and myself, approximately $2,500 miscellaneous expenses, 
and $10,000 net profit remaining. 

Mr. Gesell. So that from the operations of the Council during 
1938 the drawing account of $7,500 and the $10,000 represent ap- 
proximately the total that went to the partners. 

The Vice Chairman. A net of $25,000? 

Mr. Siegel. Not $25,000. 

Mr. Gesell. Ten thousand net profit and seventy-five hundred 
drawing account. 

The Vice Chairman. For the two of them? 

Mr. Siegel. Yes. I might say this, that the figures are very un- 
evenly distributed during 1938^ due to the very rapid increase in 
the volume of our business. 

Mr. Gesell. I take it, for a while there were no such returns as 
this for the business. 

Mr. Siegel. AVell, during 1937, from February to December, my 
total drawing account was $15 per week and my brother drew nothing 
whatsoever from February until September, and from September to 
the end of the year he drew $400. 

Mr. Gesell. Will you tell us upon what basis you charge these 
people who come for advice? 

Mr. Siegel. Our charges are based on a flat fee scale, depending 
upon one of two factors, the amount of premium being paid in the 
case of industrial insurance and the face amount of the policy in the 
case of ordinary. 

Mr. Geseix. Do you charge any of these people on the basis of 
what money you get for them ? 

Mr. Siegel. No. 

Mr. Gesell. And you receive no compensation in any way for any 
insurance that may be sold as a result of your activities? 



CONCENTRATION OF ECONOMIC POWER 5807 

Mr. SiEGEL. Not at the present time, and to qnalify that I want to 
o;o back a bit in histoiy. At our inception we always had a flat 
fee with regard to in-force policies. AVe made one exception, in the 
case of lapsed policies that were brought to us to see if we could 
recover a cash value. For the first 6 months of our existence we 
undertook sucli cases on a contingency basis. We charged 25 percent 
of the amount of cash recovered if there Avas a recovery, and no 
charge if there wasn't any. At the end of 6 months we changed that 
method so that lapsed policies were computed on the same basis as 
in-force policies, with this exception, that if no cash was recovered 
the fee would not be payable. 

Ml'. Gesell. So tliat now, in computing your fees, you take all the 
policies, all the industrial policies in the family, and compute your 
fees on the basis of the premiums which would be necessary weekly 
to keep both the lapsed and those policies not lapsed in force? 

Mr. SiEGEL. The fee is separated in that respect. 

Mr. Gesell. "Will you explain how? 

Mr. SiEGEL. So far as the charges are concerned, lapsed policies 
are treated separately, though treated on the same basis, because the 
hipsed policy fee would not be payable if no cash is recovered. 

Mr. Gesell. Will you take a typical case and show us how the 
compensation scheme would work ( 

Mr. SiEGEL. We will take the case of a family with a $1.50 weekly 
premium. The policies in the group that are on the whole-life plan 
are figured at $2 per pt)iicy; all the other policies, the remaining 
premium is multiplied by 15 so that in this case we are using $1.50 
of weekly premium, and we will assume there are two whole-life 
jwlicies for a total premium of 50 cents. That leaves a premium of 
$1 for the balance. The two whole-life policies w^ould call for $4; 
the remaining weekh' premium of $1 would be multiplied by 15. 
That would be $15, and the two combined would be $19. Then we 
have a flat loading charge of $3 per case regardless of its size, 
whether the fee is $5 or $50. That means in this case the fee would 
be $22. 

Mr. Gesell. For ]:)eople with industrial policies only, what w^ould 
be your mininunu fee? 

Mr. SiEGEL. Tlie mininnuii fee in any case is $7.50. I am sorry; I 
want to ([ualify that. All cases that come in are required to register 
at the door. There is an interview fee of $1 that is required of 
anybody that comes in. If they accept our service, that dollar is 
credited against this final fee. 

Mr. Gesell. The minimum fee is then, you say, $7 and what ? 

Mr. SiEGEL. Seven dollars and a half. 

Mr. Gesell. Is there any maxinunn fee? 

Mr. SiEGEL,. No. 

Mr. Gesell. What has been the average fee? 

Mr. Siegel. Between $20 and $22 on accepted cases. May I add 
just one point more here, Mr. Gesell? The fee scale is set forth in 
very precise detail on the back of what we call our work sheet, for 
the guidance of the men. I mean by that that we insist when the 
man quotes his fee, he do his computing on this sheet which is set 
forth for him. This sheet is then audited by the accounting depart- 
ment to see that the correct fee was quoted. We do that so that there 
will be no variable factors between the men, no variation, no flexi- 



5808 CONCENTRATION OF ECONOMIC POWER 

bility. If there are any exceptions to this rule, they must be taken 
up with the office management. 

Mr. Gesell. Have you there a form which you refer to ? 

Mr. SiEGEL. I have one in this form book and I think I can give it 
to you. 

The Vice Chairman. Have you offices in any other place than New 
York? 

Mr. SiEGEL. Not at the present time, although several are under 
way. 

The Vice Chairman. I understood j^ou made broadcasts. 

Mr. SiEGEL. I am sorry, in' Boston ; we have one office in Boston. 

This is a combination work sheet on the face, on which we list all 
the values, data, policy information, and the fee charges on the back. 
It requires a little explanation. It is not self-explanatory. 

Mr. Gesell. I still think we haven't clearly for the record the basis 
for the compensation. If a policyholder comes in and has entirelj' 
industrial policies and the weekly premiums on those policies total 
less than $1 

Mr. SiEGEL (interposing). They fall into a separate category. 

Mr. Gesell. You then take the amount that is being paid and 
multiply that by what? 

Mr. SiEGEL. Fifteen. 

Mr. Gesell. And is that figure then the fee ? 

Mr. SiEGEL. No; it isn't. We set forth two figures and we make 
a choice between them. We found that there are a number of people 
paying premiums of less than $1 a week on a number of policies. We 
would get a case, for instance, involving four policies at 15 cents each 
in premium. The total premium would be 60 cents. It costs us just 
so much money to handle each policy. We then set forth the figure 
in this fashion, taking the case I mentioned four policies for a total 
premium of 60 cents, the number of policies in the group multiplied 
by four and a half; in this case four policies would give a figure of 
$18. The total weekly premium of 60 cents, multiplied by fifteen, 
would give a figure of $9. There is an explanatory note with this 
section : The correct fee is the higher of these two results except that 
the maximum in any case is $15. That is, the maximum in any case 
where the premium is less than $1 per week is $15, so in this case 
where the maximum figure would be 18 and the minimum 9, the fee 
would be $15. 

Mr. Gesell. In other words, you computed it both by 

Mr. SiEGEL. The number of policies 

Mr. Gesell. And the premium, 

Mr. SiEGEL. We felt if we based it entirely on the number of pol- 
icies, we would have a condition whereby a man paying 60 cents a 
week in premiums would pay us a higher fee than a man paying $1 a 
week in premiums, and so we limited it to the $15 item. 

Mr. Gesell. And then in each case there is added to that a flat fee 
of $3. 

Mr. SiEGEL. A loading fee of $3. 

Mr. Gesell. What is it on ordinary? 

]\Ir. SiEGEL. The fee on ordinary policies is $10 for any policy of 
$2,000 or less, and $5 per thousand on any ordinary in excess of that 
amount. 



CONCENTRATION OF ECONOMIC POWER 5809 

Mr. Gesell. What has been your record to date with respect to re- 
duction of premiums and cash refunds obtained? 

INIr. SiEGEL. I will see if I can find my record on that. This record 
is for the year to date, this year to date ? 

Mr. Gesell. Yes; and for the total. 

Mr. Siegel. These figures are as of August 15 for this year : 

Premium reductions total $138,029; cash recoveries returned to 
policyholders, $692,065. 

Mr. Gesell. That is the result of the operations 

Mr. Siegel. From January 1 of this year to August 15. 

Mr. Gesell. Do you post figures in your office showing what reduc- 
tions in premiums have been accomplished during the year for the 
last week and the last month and similarly what cash refunds have 
been obtained for the last week and the last month of the year? 

Mr. Siegel. Yes; we post them on a large bulletin board. 

Mr. Gesell. Is this a correct copy ? 

Mr. Siegel. That is a photograph ; yes, 

Mr. Gesell. I offer it in evidence. 

The Vice Chairman. It may be admitted. 

(The bulletin referred to was marked "Exhibit No. 979" and ap- 
pears on p. 5810.) 

Mr. O'CoNXELL. You mentioned reduction in payments of one hun- 
dred-some-odd thousand dollars for a period of time. 

Mr. Siegel. Yes ; this is on insurance policies submitted to us from 
January 1 to August 15 of this year. 

Mr. O'CoNNELL. Over how long a period would that figure apply? 

Mr. Siegel. For the length of time they keep their policies. That 
is a total annual reduction of premium. 

Mr. O'CoNNELL. Annual ? 

Mr. Siegel. Yes. 

The Vice Chairman. I notice this last exhibit, you say this year 
to date. 

Mr. Siegel. There is no date on it. This photograph was taken 
iust before we came down, on August 15. 

The Vice Chairman. On August 15? 

Mr. Siegel. That is right. 

Mr. Gesell. It shows the bulletin board as of August 15. 

Mr. Siegel. That is correct. 

Mr. Gesell. What kind of people come in ? 

Mr. Siegel. May I give you the , figures for last year ? 

Mr. Gesell. Do you have them ? 

Mr. Siegel. Yes; I have them here. The figures for last year are 
approximate : 

Reduction in premiums for 1938, the annual reduction in premiums, 
$145,000; the cash returned to policyholders, $847,000. 

Mr. Gesell. Mr. Siegel, how big a staff have you got? Am I 
correct in saying some 52 people? 

Mr. Siegel. In normal times. In the summer time we reduce our 
staff slightly. 

Mr. Gesell. How do those employees divide themselves? What 
are the principal classifications? 

Mr. Siegel. Two executives, including my brother and myself; 
one office manager; there are eight interviewers. 

Mr. Gesell. Who are these interviewers ? 



5810 



CONCENTKATION OF ECONOMIC POWEK 



c 
i2 




CONCENTRATION OF ECONOMIC TOWER 5811 

Mr. SiEGEL. The}^ are former insurance agents who do the actual 
mterviewing of the client. There are 3 members of our pu])licity 
staff, 4 in the actuarial division, 3 in the planning division, 2 in the 
legal division, 2 supervisors, 2 receptionists, 8 stenographers, 1 cashier, 
and 16 clerks. 

Mr. Gesell. What kind of person comes into your office? Will you 
give us some idea of the occupations and types of families involved ? 
Mr. SiEGEL. Their occupations are street-car conductors, bus chauf- 
feurs, elevator operators, grocery clerks, men whose incomes range 
probably from twenty to thirty-five dollars per week. 

Mr. Gesell. What would you say was the average income of the 
peoi)le w^ho come into your office? Of the families? 

Mr. SiEGEL. We don't keep any statistics. We can't get that sort 
of information in our line of business. We feel we are treading 
rather on personal ground. But from their occupations I should 
say their average income is ])robably $30 a week. 

Mr. Gesell. Can you tell us what the usual problem is of such a 
family ? ■ Am I correct in saying that either they have need of cash 
or they find that their premiums are too heavy or they are looking 
for better insurance for what they pay ? 

Mr. SiEGEL. There are very few in the last category. The great 
majority don't really know exactly what brings them in; they are 
in trouble of some sort with their insurance, and it takes skillful 
questioning to establish what it is that they are seeking, and it boils 
down to the two factors that I mentioned before: Need for cash for 
some purpose or other, and the need for some means of reducing 
the premium payments in force in the family. 

Mr. Gesell. Do most of these families have policies in more than 
one company? 
Mr. SiEGEL. Yes. 

Mr. Gesell. How many companies operate in the State of New- 
York, industrial companies? 

Mr. SiEGEL. Four are licensed to do business — Metropolitan, Pru- 
dential, John Hancock, and Colonial Life. 

Mr. Gesell. Do you sometimes occasionally find a family which 
has policies in all four companies? 

Mr. SiEGEL. No; I can't say I ever have. I have found a number 
with three. 

Mr. Gesell. What percentage of them would you say had policies 
in at least two companies ? 

Mr. SiEGEL. Seventy-five percent. 

Mr. Gesell. Do you find that the distribution of tlie policies 
within the family is in accordance with what you think is desirable? 
Mr. SiEGEL. Definitely not. 

Mr. Gesell. Will you explain it to me — you say "definitely not." 
Mr. SiEGEL. We find that entirely apart from the large percentage 
of family's income that is being spent for life insurance, that the 
insurance is maldistributed, the major portion of either the insur- 
ance protection or the premiums or both is on the dependents in the 
family rather than on the breadwinner. 

Mr. Gesell. That is, you find there is too little insurance on the 
head of the house and too much on the children. 



5312 CONCENTRATION OF ECONOMIC POWER 

Mr. SiEGEL. It is entirely common to find the head of the house 
with no insurance at all and that all the premiums are on the wife 
and children. 

Mr. Gesell. Is this insurance on the children endowment insur- 
ance usually, or whole life, or what-not ? 

Mr. SiEGEL. Ninety-eight percent of it is on the endowment plan. 
That is what I meant before when I said either the total insurance 
on the dependents or the total premium on the dependents is in excess 
of that of the head of the family. 

Mr. Gesell. Do you find sometimes that a rather high percentage 
of income in the family is going to industrial premiums ? 

Mr. SiEGEL. Normally, from what we judge their income to be. it 
would be between 12 and 15 percent. 

Mr. Gesell. Between 12 and 15 percent of their income going to 
industrial insurance premiums ? 

Mr. SiEGEL. That is right. 

Mr. Gesell. Let me ask you, do you find that sometimes there are 
policies in the family which are on persons who are no longer mem- 
bers of the family, have gone away, become self dependent, or some- 
thing of that sort ? 

Mr. SiEGEL. I have some interesting figures here with regard to 
the reduction in total insurance in 1938, of which practically 95 per- 
cent was due to the fact that the families were carrying insurance 
either on total strangers who were boarders at the time the policies 
were taken out, or on great aunts or great uncles, or on children who 
had since married, many of whom had their own insurance, or on 
people who had disappeared for a number of years. 

Mr. Gesell. In other words, that is one of the ways that you can 
bring about a reduction in premiums, by cutting off some of those 
types of policies. 

Mr. SiEGEL. Partially; yes. 

Mr. Gesell. Did you find many cases where there was what might 
be called speculative insurance, insurance where the insurable interest 
was highly doubtful? 

Mr. SiEGEL. I would say that was likely in one case out of five. 

Mr. Gesell. Will you explain the kind of cases that come to you 
in that category? 

Mr. SiEGEL. Usually it is a distant relative who was residing with 
the family at the time the policies were taken out, or a total stranger, 
as I said before, boarding or living with the family and who has 
since moved away. 

Mr. Gesell. Have you what you might call an average family that 
would show what the general situation is of the families that come 
into your place? 

Mr. SiEGEL. Yes ; we figured one out from our figures. 

Mr. Gesell. Can you give us that average family? Will you tell 
us how it is constituted, how it is made up ? 

Mr. SiEGEL. We would say that the average family coming to us 
consists of father, mother, two children, with an average income of 
$30 per week, of which they are paying $1.90 per week for industrial 
insurance. 

Mr. Gesell. Do you find in your average family any ordinary 
insurance ? 

Mr. SiEGEL. No. 



CONCENTRATION OF ECONOMIC POWER 5813 

Mr. Gesell. Wliat about group insurance? 

Mr. SiEGEL. Yes; that comes in occasionally, but not sufficiently to 
have any part in the picture of the average family. 

Mr. Gesell. What about social security? 

Mr. SiEGEL. We haven't taken that into consideration as yet. We 
are planning to now, in view of the recent changes in the Social 
Security Act. 

Mr. Gesell. What about fraternal benefit insurance of one sort 
and another? 

Mr. SiEGEL. That enters the picture very slightly only in New York 
City. 

Mr. Gesell. So, by and large, people who come into your shop 
have just industrial insurance. 

Mr. SiEGEL. That is right. 

Mr. Gesell. You said it was a family of how many? 

Mr. SiEGEL. Four. 

Mr. Gesell. Will you proceed, please? 

Mr. Siegel. As I said before, based upon their occupation, the 
average income is about $30 a week; they are paying, on the average, 
$1.90 per week for industrial insurance, distributed usually in the 
form of 50 cents a week on each child on the endowment plan, 40 
cents a week on the mother on the 20-payment life plan, and 50 cents 
a week on the head of the family, usually on the whole life plan, 
making a total of $1.90 per week. 

Mr. Gesell. How does that insurance divide itself as between 
Metropolitan policies and Prudential policies? 

Mr. Siegel. About 50 percent of those that come to us — I will put it 
in this fashion : we have examined some three-hundred-odd thousand 
policies, about 50 percent of which were in the Prudential, 40 percent 
in the Metropolitan, and the remainder scattered between Hancock, 
Colonial, and a few out-of-State companies that come in because of 
families that move into New York. 

Mr. Gesell. Can you tell us what the usual type of adjustment 
would be for this average iamily ? Do you have those figures ? 

]\Ir. Siegel. Yes. I haven't got them with me. 

Mr. Gesell. Can you give us a case which will illustrate some of 
these problems that we have been discussing? You made consider- 
able point out of the famous case of the Fortune family, did you 
not? ^ 

Mr. Siegel. Yes; I did. 

Mr, Gesell. Will you tell us about that case? 

Mr. Siegel. The reason we have made considerable point of it is 
that while it is unusual with regard to the figures involved it is 
not unusual with regard to the principle behind it. The Fortune 
family consists, or did consist, of four members. 

Mr. Gesell. When did this family come to you, and under what 
circumstances ? 

Mr. Siegel. May of 1938, a 15-year-old boy in the family called 
and told us his mother wanted to come down and couldn't because she 
was ill and they needed relief on their premium payments and needed 
some cash. An examination of the family's policies disclosed that 



I See "Exhibit No. 980," appendix, p. 6214, 



5814 CONCENTUATIOX OF ECOXOMU^ I'OWER 

there were four members, the father, mother, one boy of 15, and a 
brother of Mr. Fortune's: 

Mr. Gesell. That is a family of four people. 

Mr. SiEGEL. That is correct. 

Mr. Gesell. How much insurance was in force in that family? 

Mr. Stegel. a total of $18,000. for which they were paying $926.89 
a year in premiums. 

Mr. Gesell. Were those all industrial policies? 

Mr. SiEGEL. No; there were 4 ordinary ])olicies. and 40 industrial 
policies. 

^fr. Gesell. How many industrial policies? 

Mv. SiEGEL. Fcn'ty. 

Mr. Gesell. How did those diyide up? Were they all with one 
company ? 

Mr. SiEGEL. They were almost equally diyided between the Metro- 
jiolitan, Prudential, and John Hancock. 

Mr. Gesell. Haye you fjot the diyision as between the three com- 
panies ? 

Mr. SiEGEL. I haye the diyision as to the number of policies by 
each company and amount of premiums l)ein<i- collected by each 
company. 

JNIr. Gesell. I think you said there was a total of $926 being; col- 
lected a year from this family. 

Mr. SiEGEL. That is correct. 

Mr. GeseiX. For a total insurauce of $18,000. 

Mr. SiEGEL. That is rio;ht. 

Mr. Gesell. How much of that $926 was bein^- collected by the 
Metropolitan ? 

Uv. SiEGEL. $362.35 by the jNIeti'opolitan. 

]\Ir. Gesell. How nnicli by the Prudential? 

Mr. SiEGEL. $336.48. 

Mr. Gesell. How nnich by the ,Iohn Haucock? 

Mr. SiEGEL. $227.56. 

Mr. Gesell. What was the income of this family? 

Mr. SiEGEL. At the time they came to us, $35 a week. 

Mr. Gesell. Have you figured out what percenta<;e that is of their 
income beiu": spent on insurance? 

Mr. SiEGEL. About 55 percent. 

INIr. Gesell. And you say there were 44 industrial policies in the 
family? 

Mr, SiEGEL. No; 40 industrial policies and 4 ordinary. 

Mr. Gesell. Have you records there which will shoAv the order in 
which these various ))olicies were sold to the family? Which com- 
])any first sold them policies? 

Mr. SiEGEL. In 1919 the Metropolitan sold one i)olicy; thereafter, 
1920, the Metropolitan sold one; in 1921, one from the John Hancock; 
1922. one from the Metropolitan; 1923, one from the Metropolitan; in 
1924, two more from the John Hancock; in 1925, one from the Metro- 
politan; in 1926, three from the Metropolitan; 1927, five from the 
Metropolitan and three from the Prudential; in 1928, one from the 
Prudential, five from the John Hancock; 1929, two from the John 
Hancock, one from the Prudential; in 1930, one from the Prudential; 
in 1931, five from the Prudential; in 1932, one from the Prudential; 
they skip 1933; in 1934, one from the Metropolitan, one from the 



CONCENTHATIOX OF ECONOMIC I'OWEK 5815 

Prudential, two from tlie Jolin Hancock; in 1935, two from the Pru- 
dential; in 1936, one John Hancock and two Prudential. That is the 
total. 

Mr. Gesell. Let's take the indiA'idual members of this family, Mr. 
Siegel, and see if we can find out wliat the insurance on each of them 
was. Take the father first of all, William, Sr. He was age what? 
Age 51; is that not correct? 

Mr. Siegel. He was age 51 last year. 
Mr. Gesell. "What was his business? 
Mr. Siegel. He was a longshoreman. 
]\Ir. Gesell. How much insurance did he have? 
Mr. Siegel. $6,532. 

Mr. Gesell. That was costing him \\(ny much a year? 
Mr. Siegel. $294.71. 

Mr. Gesell. He was paying, then, about $45.35 a thousand? 
Mr. Siegel. About $45.30 per thousand. 
Mr. Gesell. How many i:)olicies were there on him ? 
Mr. Siegel. Fifteen. 

Mr. Gesell. AYere those policies all in force when this case came to 
you ? 

Mr. Siegel. All of these policies, the entire list, were in force. 
Mr. Gesell. What kind of policies were those? 
Mr. Siegel. On Mr. Fortune ? 
Mr. Gesell. Yes. 

Mr. Siegel. Mr. Fortune had one ordinary policy for $2,000, and 
one Metropolitan intermediate ordinary for $500 and all the rest 
-were industrial. 

Mr. Gesell. Were they endowment, whole life, what type? 
Mr. Siegel. There were seven on the whole-life plan, seven on the 
20-payment-life plan, two were 20-year endowments. I don't know 
whether that totals up correctly. 

The Vice Chairman. It is too many policies. You have 15 totaled. 
Mr. Siegel. I see that here, I am sorry, there are 15 policies. Is 
that what I said before ? 

The Vice .Chairman. Yes; but you enumerated 16. 
Mr. Siegel. That is because I included the two ordinaries which 
don't belong in there. There are six whole life; there is one 38-year 
endowment; there are six 20-payment life; and two 20-year endow- 
ments. 

Mr. Gesell. Were there policies ^from all three companies sold to the 
father ? 

Mr. Siegel. Yes. 

Mr. Gesell. I noticed here in the records I have that the John 
Hancock issued four $250 policies to him, those policies having con- 
secutive numbers. Were those all sold to him at the same time? 
Mr. Siegel. All at the same time, with the same date of issue. 
Mr. Gesell. In other Avords, instead of selling him $1,000 ordinary 
insurance policy they sold him four industrial insurance policies of 
$250 apiece. 

Mr. Siegel. That is correct. 

Mr. Gesell. What ab'outi the mother in the family? 
Mr. Siegel. She had 13 policies for a total of $3,725 of insurance, 
calling for premiums of $274.56 a year, an approximate rate of $72 
per thousand. 



5816 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. Seventy-four. 

Mr. SiEGEL. It is 72 on the original sheet. That is a typographical 
error. 

Mr. Gesell. Were those policies again sold to her in all three 
companies ? 

Mr. Siegel. Yes; they were. 

Mr. Gesell. What about William, Jr., the son, age 15? How 
much did he have? 

Mr. Siegel. He had $5,092 of insurance. 

Mr. Gesell. How many policies? 

Mr. Siegel. Ten, calling for a total premium of $72 a year, an 
average rate of $41 per thousand. 

Mr. Gesell. I believe you said that the father's brother also lived 
in the family. 

-Mr. Siegel. That is right. 

Mr. Gesell. What did he have ? 

Mr. Siegel. He had $2,85B of insurance, at a premium of $150.80 
a year, an average rate of $52 per thousand. 

The Vice Chairman. You say he lived with the family? 

Mr. Siegel. Yes. 

The Vice Chairman. I notice the report says he did not live with 
the Fortunes and did not contribute to the support of the family. 

Mr. Siegel. That is my error. He was not living with the family. 
I didn't handle the case myself. 

Mr. Gesell. Mr. Siegel, what happened about this case after it 
came in ? 

Mr. Siegel. We addressed a letter to the presidents of the three 
companies concerned and suggested that they take the necessary 
steps to reorganize this family's insurance holdings more in line with 
their circumstances. We didn't follow our usual procedure in thia- 
case, which is to prepare in complete outline our own recommenda- 
tions. 

Mr. Gesell. Why was that? 

Mr. Siegel. We felt that this- was an ideal case in which to give 
the companies an opportunity to make their own corrections. 

Mr. Gesell. "Wliat did the companies do after they had been 
advised of this situation ? 

TVIr. Siegel. Our record in this case shows that the home-office 
inspectors called at the home of the family and complained to our 
representative. I might say at this point that we never send any- 
body out to the home of the insured, but Ave were requested to do so 
in this case by the Fortune family, and so we had a representative 
present at the time the home-office inspector called. The home- 
office inspectors had no plan whatsoever when they came. They 
inquired of Mr. Fortune what he wanted done with his insurance. 

Mr. Gesell. Did Mr. Fortune have any ideas as to what he wanted ? 

Mr. Siegel. I^o; he merely told them he had left it entirely in 
our hands. 

Mr. Gesfll. I take it then from that time on your organization 
worked out the adjustment? 

Mr. Siegel. That is right. 

Mr. Gesell. Will you tell us what adjustment was made, and what 
the result of that adjustment was? 



CUMCENTRATION OF ECONOMIC POWER 5817 

Mr. SiEGEL. You are askint? for a big order. You mean the final 
results ? 

Mr. Geseix. I would like to know the final results of the adjust- 
ment; yes. 

Mr. SiEGEL. The original insurance on the life of William, Sr., was 
$6,532, at a cost of $294 per year. The final results were $6,750 at 
a yearly cost of $245.39 per year, with a cash return of $186.05. 

On Mrs. Fortune, the original insurance was $3,725. Following- 
adjustment, it was $3,526. The original premium payments were 
$274.56 per year. There were no premium payments whatsoever re- 
maining after the changes and there was no cash recovery. I might 
say at this point that Mrs. Fortune died while this insurance was 
in course of change. It did not, however, affect the amount of the 
death benefit that was paid. The companies paid the full amount. 

The original insurance on William, Jr., was $5,092, and that was 
reduced to $665. The original cost was $206 a year, approximately. 
There were no premium paj^nents remaining after the change and 
there was $503.89 in cash returned. The cash returned on William, 
Jr.'s policies was not due to a cash surrender or a change. It repre- 
sented all premiums paid on certain of the policies which had been 
issued in excess of the amount permitted by law in New York State. 

Mr. Gesell. There is a law in New York State limiting the amount 
of insurance which can be sold to children of certain ages, is that 
correct ? 

Mr. SiEGEL. That is true. 

Mr. Gesell. And there had been an amount in excess of that legal 
dimit sold to this particular child? 

Mr. SiEGEL. That is correct. 

On Joseph, the father's brother, the original insurance was $2,858. 
There was $951 remaining after the change. The original premiums 
were approximately $150. There were no premiums to be paid after 
the change and there was no cash recovery. 

Mr. Gesell, For the over-all of the whole family, what was the 
result ? 

Mr. SiEGEL. The.over-all of the entire family — there was approxi- 
mately $18,000 originally in force, about $12,000 remained in force, 
and where the yearly cost previously was $926, the final yearly cost 
was $245. There was a reduction in insurance on actual dependent 
lives in the family of 34 percent, and a reduction in premium pay- 
ment all told of 73 percent. 

Mr. Gesell. How much of a fee did you get for that service? 

Mr. SiEGEL. $105. 

Mr. Gesell. Is that one of the biggest fees you have ever received? 

Mr. SiEGEL. Approximately. 

Mr. Gesell. Is this document which I show you a copy of the letter 
Avhich was sent to the presidents of the three insurance companies? 

Mr. Seegel. Yes. 

Mr. Gesell. Did you receive any replies from the three companies ? 

Mr. SiEGEL. None whatsoever. 

Mr. Gesell. I wish to offer that document. 

The Vice Chairman. It may be admitted. 

(The document referred to was marked "Exhibit No. 980" and is 
included in the appendix on p. 6214.) 



5818 CONCENTRATION OF 'ECONOMIC POWER 

Mr. Gesell. This case we have just reviewed is admittedly an ex- 
treme case, is it not? 

Mr. SiEGEL. Yes; it is. 

Mr. (jESEix. Can you <>ive us some other case histories which will 
illustrate the nature of the problems that you have to deal with 
specifically 'i 

Mr. SiEGEL. We have a case here that we consider typical without 
the extreme that was evident in the Fortune case. This is our file 
No. 2585G. It involves a family of six individuals, two parents and 
four children. We find that of a total premium of $432 per year, 
$167 is being paid for insurance on the head of the family, about 
40 percent. The policies are all on the industrial plan with the 
exception of two. All policies are endow^ments with the exception 
of two. 

Mr. Gesell. What is the total number of policies in the family? 

Mr. Siegel. The total number of policies is 18. 

Mr. Gesell. And what was the occupation and income of the father 
or breadwinner? 

Mr. Siegel. A blacksmith. 

Mr. GesfIvL. Were all those policies in force ? 

Mr. Seigel. Yes. 

Mr. Gesell. Following adjustment, what was the result? 

Mr. Siegel. The original total of insurance was $0,294 in the family. 
After the change there was a total of $6,268. The original premiums 
were $432.80, the final premiums were $107.12, and there was a cash 
return to the family of $1,593. 

Mr. Gesell. That amounts to a yearly saving of about $205.68, 
does it not ? 

Mr. Siegel. That is correct. 

Mr, Gesell. Let me ask you this, Mr, Siegel. Do you frequently 
switch policies from one company to another, or is it your purpose 
to keep policies in the same company? 

Mr. Siegel, At all times the insurance remains in the same com- 
pany. There are very rai-e exceptions, and that is due only to the 
desires of the client, who may have some reason for wanting to change 
from one company to another. 

Mr. Gesell. I sliould assume that on some cases you might have to 
switch from one company to another because in bringing about the 
change the company which sold the original policy might not sell the 
form of policy desired following the adjustment, 

Mr. Siegel. That happens also in rare cases, 

Mr. Geseli>. Do you have many people come to you with lapsed 
policies upon which you are able to obtain some cash-surrender value ? 

Mr. Siegel. We have a large number of people who come with 
lapsed policies, but it isn't too frequent that we can obtain a cash 
value. However, most of them who come in believe the policies are 
valueless. While we don't always recover cash, in, I would say, 25 or 
30 percent of the cases there is either extended or paid-up insurance 
in force of which thev knew nothing. 

The Vice Chairman, Do you mean either that or cash? 

Mr. Siegel. Either cash is available or if the premiums had not 
been })aid up for a sufficient time to obtain a cash value they had been 
paid long enough to have either paid-up or extended insurance. 



CONCENTRATION OF ECONOMIC POWER 5819 

The Vice Chairman. In about 75 peix^ent of your cases the lapsed 
policies had no value. 
Mr. SiEGEL. That's right. 

Mr. O'CoNNELL. In the cases to which you just referred, what kind 
of insurance policies did the family have after the adjustment ? Were 
they industrial or ordinary policies? 

Mr. SiEGEL. The head of the family had ordinary plus the equivalent 
paid-up values that remained from the industrial. So far as the 
premium-paying- contract was concerned, it was an ordinary. The 
mother had an ordinary ; the children, three of them, had intermediate 
ordinary, and one, an infant apparently, had a 10-cents-a-week indus- 
trial whole-life policy still in force. 

Mr, O'CoNNELL. Would that be typical of the sort of. thing you 
would try to obtain in the way of an adjustment? I mean by that, 
a switching from the industrial type of policy to the ordinary, or car 
you generalize on that? 

Mr. SiEGEL. We can generalize. In the majority of cases, espe 
cially on adult lives, the change can be made in the same com- 
pany from industrial to ordinary. On the lives of children, those 
who are under 10, the companies do not issue ordinary insur- 
ance. It then becomes necessary to keep their protection on the 
industrial premium basis. The figures, so far as our own business 
is concerned^ show that of the three-hundred-odd-thousancl policies 
chat we have examined and passed upon, approximately one-eighth 
remain as they are without changes of any sort; another one-eighth 
go in for a cash surrender value; the remaining three-quarters go 
through some process of change, either a change of plan within the 
same policy or change to a different classification such as from 
industrial to ordinary, and I might add at this point that you can 
obtain nine different sets of figures from the results of change on 
any one endowment policy, depending upon what type of change you 
want to put through, what you are trying to accomplish. 

Mr. O'CoNNELL. To the extent that you are able to do so, do you 
strive to change from industrial policies to ordinary ? 
>Mr. Seegel. Wherever it is possible. 
Mr. O'CoNNELL. Wliy is that? 

Mr. SiEGEL. Because we find that in these industrial companies, 
all three of the large companies wull issue ordinary insurance on a 
monthly premium basis. The typical ctfse that is paying $2 a week 
for industrial insurance can, without any difficulty, pay the I'educed 
premiums that are called for by ordinary insurance on a monthly 
basis. - 

Mr. O'CoNNELL. That is what I am getting at. I take it you feel 
il is desirable to the extent it js possible to do so within the company 
rules, to change from industrial to ordinary because it is cheaper. 

Mr. SiEGEL. Because it is cheaper for the same protection, and 
because it has^iiore valuable features, and I want to stress this, that 
we have found it not practical to attempt to change the average 
industrial family to^an ordinary policy calling for an annual, semi- 
annual, or quarterly premium. They must have, apparently, the 
agent calling at the home, and they can have ordinary insurance 
on precisely tlmt same basis. . The agent will call at the home to 
collect that premium on a monthly basis, just as well as he \vill call 
to collect the premium on a weekly basis, and for the reduction in 

124491— 40— pt. 12 16 



5g20 CONCENTRATION OF ECONOMIC POWER 

cost for the same coverage together with the better features, with 
the fact that the agent is available at their home, they are much 
better off with the ordinary in the same company. 

Mr. Gesell. Have you found cases where the amount of industrial 
insurance in a given family has been as high as $18,000 ? 

Mr, SiEGEL. Yes; it was in the Fortune family, wasn't it? 

Mr. Gesell. Is that the highest amount that you have found of 
industrial insurance? 

Mr. Siegel. I don't recall. This is the Fortune family case. This 
total insurance covers both ordinary and industrial wherever there 
is any ordinary in the family. As I said, we classify those families 
as industrial families, even though they have an occasional ordinary 
policy. 

Mr. Gesell. Is it frequent to find families which have from $4,000 
to, let's say, $6,000 of industrial insurance in force in the family ? 

Mr. Siegel, Yes ; quite frequent. 

The Vice Chairman. How do you charge in those 75 percent of the 
cases in which you can get neither cash nor paid-up insurance for the 
lapsed policy? 

Mr. Siegel. If all they bring in is the lapsed policy there is no 
charge other than the initial interview charge of $1. 

Mr. Gesell. Do you believe the companies can render the same 
service you render, Mr. Siegel? 

Mr. Siegel. Yes, 

Mr, Gesell. Do you believe they do ? 

Mr. Siegel. No. 

Mr. Gesell. What about the Insurance Department? Is it 
equipped and in a position to render the service you render ? 

Mr. Siegel. We have tested that by sending through two cases to 
the New York State Insurance Department or what might be called 
not too involved a plan, where there was more than one company 
involved and where there were 8 or 10 policies. We found that they 
received general information, but nothing specific. 

Mr. Gesell. You found that the Insurance Department doesn't 
concern itself with the details of the adjustment of an insurance 
program ? 

Mr. Siegel, That's right. 

Mr, Gesell. Now, you say you don't feel the companies do. Upon 
what do you base that statement? 

Mr. Siegel. Upon practical experience. 

Mr. Gesell. Can you give us an instance of what j^ou mean? 

Mr. Siegel. Yes. We have a very recent case that just took place 
two weeks before this hearing. It involves our file No. 43,798. This 
client had a total insurance in force of $1,690 at a premium of $114.40 
per year. Her request was to see if we could obtain a reduction in 
premium for the same coverage. We prepared a plan, and she wrote 
to the Prudential asking the Prudential to prepare its plan. The 
Prudential did, and submitted its plan in writing. 

Here is a comparison of the two plans : The original insurance, as 
I said before, in the family, was $1,690. The Prudential sug<jested 
changes that would bring the insurance up tp $2,735, The original 
premium was $114.40; the premium remaining under the Prudential 
plan was $110.88, a saving of a little over $3 a year together with a 
cash return of $249. 



CONCENTRATION OF ECONOMIC POWER 5821 

Our plan reduced the insurance slightly, from $1,690 originally to 
$1,576, left no premium payments whatsoever, and a cash return of 
$264. The client then notified the Prudential in writing that she 
preferred to accept our plan. 

Mr. Gesell. In other words, in your instance you have kept the 
same protection and were able to bring about a change in type of 
insurance which gave the client the protection she wanted on a 
paid-up basis with some cash return. 
Mr. SiEGEL. That is correct. 

Mr. Gesell. Whereas, in the case of the Prudential, though there 
was a change in the type of insurance, the premiums remaniod the 
same and the plan suggested involved a doubling of the amount of 
protection, approximately. 
Mr. SiEGEL. Almost. 

Mr. Gesell. Have you had cases, Mr. Siegel, where you have been 
able to collect funds for policyholders who have had lapsed policies 
after they have been unable to do that acting in their individual 
capacities, from the companies? 

Mr. Siegel. After they have told us they have been unable to 
do it. 

Mr. Gesell. You have had such cases, basing your information on 
what the clients have told you? 
Mr. Siegel. That's right. 

The Vice Chairman. Have you any additional information in the 
line of letters that have been written? 

Mr. Siegel. No; it is very rare that an industrial policyholder will 
write a letter. They either go to the home office, to the local office, or 
see the agent. I might add that in this case, with regard to the 
Prudential, the written proposal, while it was requested by the client 
to be directed to her specifically, was not directed to her but to the 
branch office, and it was only after considerable insistence that she 
obtained a copy from the branch office. We have found that that is 
true in most cases, that they cannot obtain statements in writing as to 
any given fact upon which they are seeking information, and when 
they come in to see us they tell us they have either been at the home 
office or the branch office or they have asked the agent this, that, or 
the other thing, and the agent said this, that, or the other. 

The Vice Chairman. In no case have you been able to find a letter 
direct from the company to the policyholder? 

Mr. Siegel. I believe there were one or two cases; I wouldn't, 
recall the details, but as I remember them I believe they were clerical 
errors on the part of ^he home office department, that is, where they 
made a statement that there was no cash surrender value available iu 
a given case, that it was duQ to an error on the part of somebody 
in the home office. 

The Vice Chairman. Is your implication that the insurance com- 
panies avoid, -Allien they cai^, setting forth in letters or in writing 
direct to the policyholder an answer to their request for adjustment ? 
Mr. Siegel. I don't know whether it is a matter of policy, Mr. 
Chairman, but I do know this, that it is the practice of the industrial 
company, where inquiries are directed to the home office, to refer all 
such inquiries to the local office, and the client or the pplicyholder 
receives a letter of this nature. 



5822 CONCENTRATION OF ECONOMIC POWER 

I don't seem to have the original form letter that the Prudential 
uses, but as I recall it merely says that "Your inquiry has been 
received and you will be visited by a representative of our local 
office." Then it is followed up with something like this : 

Since we last wrote you we have learned that your request has been referred 
to the superintendent whose name and address appear below. We are asking 
him to give this matter prompt attention. 

That is known among clients who come to us as the "run-around." 
That is the way they describe it. They cannot seem to get a state- 
ment in writing from the home office and they are invariably re- 
ferred back to the local office or to the local agent. 

The Vice Chairman. Does the local agent or the superintendent, 
in conformity with that letter, call upon them ? 

Mr. SiEGEL. Yes; he calls upon them, but he has nothing in writing 
when he comes. It is all verbal. 

The Vice Chairman. When he calls u])on them, does he establish 
some arrangement of paying on policies? 

Mr. SiEGEL. Are you referring to cases that are seeking assistance ? 

The Vice Chairman. I am referring to the usual case that re- 
ceives a letter such as you have read to us. 

Mr. SiEGEL. That letter will be sent to a client in answer to almost 
any form of inquiry, and the agent receives a communication from 
the home office to call with regard to this particular matter; I have 
no doubt that if there are statistics or information to be given, the 
information is contained in the home office letter to the local office, 
but that letter never gets to the possession of the policyholder. We 
had the same difficulty here in this Mrs. Gunning's case that I men- 
tioned before. 

Mr. Gesell. Which case is that ? 

Mr. SiEGEL. That is the case in which the Prudential made the 
written proposal. The written proposal is not in my possession. 
All I have here is a copy on the stationery of the local office of the 
original home office letter to the local superintendent, and that was 
obtained by Mrs. Gunning only after repeated insistence. 

Mr. Gessell. Well now, I want to ask you, Mr. Siegel, whether the 
industrial insurance companies operating in New" York have co- 
operated with you in connection with the work you are doing. 

JNIr. Siegel. No. 

INIr. Gesell. Can you tell us in what way they have not co- 
operated? First of all let me ask you this: Do they answer your 
mail? 

Mr. Siegel. No. They used to. For the first six months or so of 
our operation they did reply to inquiries from us in which we enclosed 
a letter of authorization signed by the policyholder. For the past 2 
years we have received no mail whatsoever from the three largest 
industrial companies, the Metropolitan, Prudential, and John Han- 
cock. The Colonial Life does reply to our correspondence. The 
ordinary companies, such as the New York Life, the Equitable Life, 
the Mutual Life, Travelers, and Aetna will also reply to our com- 
munications provided we give them a letter of authorization signed 
by the policyholder. 

The vice Chairman. Did you receive an answer to the copy of the 
letter on the Fortune family case that you sent to the superintendent 



CONCENTRATION OF ECONOMIC POWER 5823 

of iiisurance in New York, commissioner of bankino; and insurance 
of New Jersey, and commissioner of insurance in Massacliiisetts ? 

Mr. SiEGEL. No. 

Mr. Gesell. Is there any other way in which the companies have 
not cooperated Avith you or have indicated that they are opposed to 
your activities? 

Mr. SiEGEL. Well, suppose we g:o back into history once aj^ain. 
Following: tlie cessation of correspondence which occurred in the fall 
of 1937, on March 2, 1938, there was a hearing, a public hearing, in 
Albany, N. Y., on a resolution to investigate industrial insurance in 
that State. I appeared at the hearing to speak in support of the 
resolution, and the one who spoke against it was Mr. Charles Taylor, 
vice president of the Metropolitan Life. In the course of his address 
on the floor he attacked me by name and also the Policyholders Ad- 
visory Council. He made a statement on the floor at that time that 
he did not acknowledge our mail. 

The Vice Chairman. When you say the floor, what do you mean? 

Mr. SiEGEL. In addressing the subcommittee, in speaking against 
the resolution to investigate industrial insurance. 

Mr. Gesell. This was. I take it, a committee which was holding 
hearings to determine whether or not the New York Legislature 
should vote favorably or unfavorably on the resolution to investigate 
industrial insurance. 

Mr. SiEGEL. That is right. 

Mr. Gesell. Then what happened after that? 

Mr. SiEGEL. In June of 1938 the ^Metropolitan put out an 8-page 
leaflet, signed by Mr. Taylor, attacking me and the Policyholders 
Advisory Council. 

Mr. Gesell. Is that leaflet the leaflet which forms the basis of the 
suit which we referred to earlier in your testimony? 

Mr. SiEGEL. That is correct. 

Mr. Gesell. What happened after that? 

Mr. SiEGEL. In December of 1938, 3 months after we had opened our 
Boston office, a complaint was filed by the INIassachusetts Mutual Life, 
the Massachusetts Association of Life Underwriters, and the Boston 
Better Business Bureau with the Federal Communications Commis- 
si(Mi against our broadcasts in that area. 

Mr. Gesell. What happened as a result of that complaint? 

Mr. SiEGEL. The stations suspended our broadcasts pending the 
final decision by the F. C. C. 

The Vice Chairman. What station did vou broadcast on? 

Mr. SiEGEL. We were on WMEX, WORL, and WCOP. 

Mr. Gesell. Are you back on the air there at the present time? 

Mr. SiEGEL. Yes. 

Mr. Gesell. Was any action taken against you by the Federal 
Communications Commission as a result of the complaint? 

INIr. SiEGEL. No. 

Mr. Gesell. The result, I take it, was that the companies, upon the 

filing of the complaint, refused you broadcasting facilities for the 

time being. 

*Mr. Siegel. That is correct. 



way 



Mr. Gesell. Did you change the mode of your broadcasting in any 



5824 CONCENTRATION OF ECONOMIC POWER 

Mr. SiEGEL. Yes; we had to delete the use of company names in 
the Boston area. 

Mr. Gesell. What happened after that? 

Mr. SiEGEL. Well, there was something prior to that, or at about 
that same time. 

The Vice Chairman. Who asked you ; was there an order ordering 
you to delete that? 

Mr, SiEGEL. No; the station's attorney, here in Washington, sug- 
gested to the radio station that our broadcasts be suspended pending 
the final word from the Federal Communications Commission. We 
received a letter from the F. C. C, or rather my attorney did, to the 
effect that they were not in a position to censor broadcasts, and that 
the only action that they could take was with regard to the station's 
license, that if the license of the stations concerned were renewed on 
the next renewal date it would automatically dispose of the complaint. 

The Vice Chairman. Yes ; but I am trying to find out what moti- 
vated you in ceasing to name these companies on the air. 

Mr. SiEGEL. The stations will not accept the programs today in 
Boston where they have company names. 

The Vice Chairman. The stations themselves? 

Mr. SiEGEL. The stations themselves. 

On October 29, 1938, the president of the Massachusetts Associa- 
tion of Life Underwriters wrote a letter to the manager of Radio 
Station WORL in Boston, in which he said [reading from "Exhibit 
No. 981"] : 

I am most anxious to submit to you, if you are desirous of further investigat- 
ing this matter, material which I believe will conclusively demonstrate the 
fact that Mr. Siegel is operating a very definite racket and one which is most 
despicable in that it preys upon the savings of the citizens, fine intentioned and 
substantial, but unadvised to the extent that they are not competent to judge 
the advice offered by a clever individual having considerable knowledge of the 
insurance contracts and their terminology. 

Mr. Gesell. Have you a copy of that letter ? 

Mr. Siegel. I have. 

Mr. Gesell. I should like to have it. 

Mr. Siegel. I have a copy of a letter from Radio Station WORL 
to me in which is enclosed this copy of the letter from the Massa- 
chusetts Association in which he refers to the booklet or leaflet 
printed" by the Metropolitan Life on June 24, 1938, as having been 
submitted to the manager of the station by Merle G. Summers. 

Mr. Gesell. I would like to offer this correspondence for the 
record. 

The Vice Chairman. It may be admitted. 

(The letters referred to were marked "Exhibits Nos. 981 and 982" 
and are included in the appendix on pp. 6217 and 6218.) 

Mr. Gesell. What Avas the next event in this story. Am I cor- 
rect in saying that on February 9, 1939, certain suits were threatened 
against the broadcasting companies of New York? 

Mr. Siegel. On February 1, 1939, the attorneys for the Metro- 
politan Life sent a letter to four of our radio stations, WHOM, 
WIMCA, WINS, and WARD. The letter was sent by Townley, 
Updike & Carter, as attorneys for the Metropolitan Life, and all 
the letters are identical with the exception of the salutation. It 
read in this way [reading from "Exhibit No. 983"] : 



CONCENTRATION OF ECONOMIC POWER 5825 

Wa represent the Metropolitan Life Insurance Company and this letter to 
you is written on its behalf. 

We are advised that you own and operate the radio station known as WHOM. 
For some time past broadcasts over your station have been made by one 
Morris H. Siegel, who sometimes refers to himself as the "Counsellor" and 
who is connected with the Policyholders' Advisory Council of 36 West 44th 
Street, New York City. 

These broadcasts contain statements which, in our judgment, are defama- 
tory of The Metropolitan Life Insurance Company, as well as of certain of its 
officers and agents. That these defamatory utterances are serious and calcu- 
lated to produce a reduction in its business is apparent from the face of them. 

Without prejudice to the existing rights to recover with respect to past 
defamation, this will constitute notice to you that you will also be held strictly 
accountable and responsible under the law for all future broadcasts, with re- 
spect to our client, by Morris H. Siegel or by any one else under his sponsorship, 
or under the sponsorship of the Policyholders' Advisory Council. 

Mr. Gesell. After that, were any suits brought against you by the 
Metropolitan ? 

Mr. Siegel. No. 

Mr. Gesell. Were suits filed against the broadcasting stations? 

Mr. Siegel. Yes. In April of 1939 Metropolitan Life sued WMCA 
and in July of 1939 sued WINS. 

Mr. Gesell. Were those suits based entirely upon remarks made 
by yourself over those stations or also by remarks of other insurance 
counselors ? 

Mr. Siegel. By remarks of both myself and one other. 

Mr. Gesell. Am I correct in saying that recently two of the large 
industrial insurance companies have commenced broadcasts of their 
own? 

Mr. Siegel. Yes; in April of 1939 the Metropolitan Life, under 
the direction of Edwin C. Hill, began radio broadcasts on three sta- 
tions in the New York City area, which were sent out by wire to 
one station in Boston and one station here in Washington. The 
Prudential began broadcasting in May of 1939 on the Columbia 
Broadcasting System throughout the country. The Prudential's com- 
ments refer merely to the fact that the agent would give informa- 
tion. Here are the opening and closing announcement used by the 
Prudential on August 3, 1939 : 

There is a Prudential policy and a Prudential payment plan to fit every 
need. Let the friendly Prudential man in your neighborhood help you decide 
how Prudential protection can best help you and your family. He is ready and 
willing to sit down and talk with you, to help you, to give you the best advice 
on any life-insurance problem you have, and, of course, he charges no fee. He 
knows that well advised Prudential policyholders are his best friends and 
wants you to be one, too. 

That is the sole extent to which the Prudential broadcasts go, but 
the broadcasts by the Metropolitan Life and Edwin C. Hill directly 
attack insurance counselors. 

Mr. Gesell, I want to come back to these broadcasts in a moment, 
Mr. Siegel. First of all I would like you to give us some idea of 
the insurance counselor problem in the New York area. Are you 
llie only counselor there? 

Mr. Siegel. No. 

^Mr. Gesell. How many counselors are there ? 

'Mr. Siegel. I am not quite sure, but it has been reported back as 
varying anywhere from 70 to over 100. 



5826 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell, There has been quite a development in the New York 
area in recent years, has there not ? 

Mr. SiEGEL. Not only in New York but throughout the country. 

Mr. Gesell. Are there any provisions for licensing counselors in 
the State of New York? 

jMr. Siegel. No. 

Mr. Gesell. Have you publicly advocated such licensing ? 

Mr. Siegel. I have, on a number of occasions, both on the broad- 
cast as well as in open letters to the legislators of New York State 
as well as in my interviews with various members of the New York 
State insurance committee. ' 

Mr. Gesell. What is the position of the insurance department with 
respect to advisors? 

JMr. Siegel. Well, it seems to straddle the issue. 

Mr. Gesell. The insurance department has taken the air, too, on 
this thing, hasn't it? 

Mr. Siegel. Yes; it has. 

Mr. Gesell. You say they seem to straddle the issue. What do 
you mean by that? 

Mr. Siegel. Well, the New^ York superintendent of insurance, Mr. 
Pink, broadcast in New York City some 2 months ago, I believe, in a 
broadcast that was interpreted by listeners to be a warning against 
insurance counselors, and the following week delivered an address to 
an agents' association in California in which he stated that there 
might be a j)lace for insurance counselors. Following that, there 
were several broadcasts by deputy commissioners of the New York 
State Insurance Department containing similar warnings, but then 
following that again Mr. Pink came out with a suggestion that the 
insurance companies set up joint offices in various areas at which 
advice on life insurance was to be given without charge, but at 
which no insurance was to be sold. 

yiv. Gesell. Do you recognize ti*iese 

Mr. Siegel (interposing), I have here a reprint of the open letter 
which I sent to the members of the legislature of New York State 
which was printed in the New York World Telegram of May 11, 
1939. 

Mr. Gesell. That is the letter advocating regulation? 

Mr. Siegel. Regulation and suggesting a basis upon which they 
should be regulated. 

Mr. Gesell. What is the basis you think best for the regulation of 
insurance counselors? 

Mr. Siegel. Licensing activity together with a very severe restric- 
tion as to how the fees are to be basad. 

Mr. Gesell. There are counselors charging fees based upon the 
amount of cash they collect, are there not? 

Mr. Siegel. That is right. 

Mr. Gesell. You think that is undesirable? 

Mr. Siegel. That is right. 

Mr. Gesell. Do you recognize these documents that I hand you now 
as scripts of radio talks given by you over your weekly broadcast ? 

Mr. Siegel. Yes. 

Mr. Gesell. I Avish to offer these, for the record. 

The Vice Chairman. Do you care to offer Mr. Updike's letter? 

Mr.. Siegel. Y«s. 



CONCENTRATION OK ECONOMIC POWER 5827 

Mr. Gesell. I offer this letter that Mr. Siegel referred to in his 
testimony from Townley, Updike & Carter. 

The Vice Chairman. They may be admitted. 

(The documents referred to were marked "Exhibits Nos. 983 and 
984" and are included in the appendix on p. 6219.) 

Mr. Gesell. How many times a week do you broadcast, did you 
say? 

Mr. Siegel. Our broadcasts go out over the air about 117 times a 
week. 

Mr. Gesell. And do you attribute 3'our clientele almost entirely to 
these broadcasts? 

Mr. Siegel. To broadcasts and reconmiendations by those who have 
come in. 

Mr. Gesell. Certainly the broadcasts must play a pretty important 
part in the bringing of clients to your office. 

Mr. Siegel. A very important part. As a matter of fact, they are 
the only form of advertising we use. 

Mr. Gesell. You don't advertise in the newspapers, you don't drop 
circulars around at doors, or anything of that kind ? 

Mr. Siegel. No. 

Mr. Gesell. If the committee ])lease, I would like at this time to 
play for the benefit of the committee one of Mr. Siegel 's records, in 
order that you may have an exact idea of how it is presented over the 
air. It may take us 5 minutes or so to rig up the apparatus. We 
might adjourn until 2 o'clock, if that is convenient. 

The Vice Chairman. Yes; it is 20 minutes past 12 now. We will 
adjourn until 2 o'clock. 

(Whereupon, at 12:20 p. m. the committee recessed until 2 p. m. 
the same day.) 

AFTERNOON SESSION 

The hearing was resumed at 2 p. m. upon the expiration of the 
recess. 

The Vice Chairman. The meeting will come to order. Proceed, 
Mr. Gesell. 

Mr. Gesell. Mr. Siegel, will you resume the stand, please? 

There is one point that I don't think we covered in this morning's 
session, Mr. Siegel, and that is in respect to the manner in which 
you are able to reduce premiums. Am I correct in saying that fre- 
quently you put the family's insurance on an extended-term basis? 

Mr. Siegel. Some of the policies. 

Mr. Gesell. What percentage of your adjustments would you say 
involved that type of change in the program ? 

Mr. Siegel. We don't keep a break-down of that type of statistics 
except what I mentioned this morning ; that is, that one-eighth of the\ 
policies remain without change, about one-eighth are surrendered for 
cash, and the remaining three-quarters go through some process of 
adjustment which may be extended insurance, a change of plan 
within the same policy, or a change of plan to a different type of 
policy in the same company. 

Mr. Gesell. Now, when the insurance goes on an extended-term 
oasis that results, really, or will result, in eventual reduction of the 
coverage of the policyholder, will it not? 



5828 CONCENTRATION OF ECONOMIC POWER 

Mr. SiEGEL. The policy is never recommended for extended-term 
insurance unless the extension term will run at least as long as the 
original period of coverage. For instance, in a 20-year endowment 
policy that may be 5 years old, if the extended-term- insurance does not 
run for at least 15 years that policy would not be put on extended- 
term insurance. The contract in any event would expire at the end of 
20 years if it is an endowment policy on the 20-year plan. We leave 
them with the same protection for the same term that they had be- 
fore, under the original contract. 

Mr. Gesell. I see. Well now, we were referring before recess to 
some of the broadcasts made by Mr. Siegel and scripts of certain of 
the broadcasts are in the record. With the committee's permission, I 
would like to play one such broadcast back to the committee in order 
that the exact tone of voice that Mr. Siegel uses, the exact manner in 
which he makes his presentation, will be made known to the 
committee. 

The Vice Chairman. You may proceed. 

(There followed presentation of radio transcription M-18, the 
script of which had been admitted to the record as "Exhibit No. 
984" see appendix, p. 6219.) 

Mr. Gesell. I might state for the record that that record just 
played is the record of the script No. M-18 which was introduced into 
the record just prior to the noon recess. 

I have no further questions for this witness. 

Mr. O'Connell. I should like to ask Mr. Siegel one question. What 
training do you give to your people who act as advisers to the people 
who come to you? 

Mr. Siegel. We don't have any advisers as such who do any actual 
interviewing. The interviewer is merely a transmitter of the problem. 
He establishes the problem by questioning the client. There are a 
variety of factors involved in each case that must be taken into con- 
sideration, such as whether a given member of the family is employed 
or not, the condition of liis health, whether he is living with the 
family, whether he is married and on his own. The intei-viewer 
establishes those facts and makes a"note of them in the proper place. 
The material, together with the information that is listed on the work 
sheet concerning each policy in the family, then goes to what is known 
as the planning division. We found in the beginning that the inter- 
viewer was apt to be influenced by the desires of the client, which are 
not always to the client's own best interests. That is the client very 
often wanted all the cash he could get out of his policy. We knew 
that if we yielded to that desire it would mean stripping them 
entirely of the backlog they had built up, that these people are usu- 
ally desperately in need of funds and that once the funds come into 
their possession they would be spent. We felt that it would be wiser 
to leave a backlog m the policy, and furthermore, even though we 
don't believe that industrial insurance is the proper kind for the 
average family to have, once the policy is on the books, has been 
on the books for a certain number of years, a loss has already been 
occasioned, has already been taken by that family, to drive that 
policy completely off the books by a surrender would mean a replace- 
ment with a new policy and a second loss taken. 



CONCENTRATION OF ECONOMIC POWER 5829 

We found the interviewers yielding to the desires of the policyholder 
at a time when the interviewers were the ones doing what we called 
the planning, suggesting necessary changes. We shifted our technique. 
We have a planning division that consists of three people that review 
every work sheet, take into consideration wherever possible the de- 
sires of the client, prepare the plan, send it to the computing division 
for the necessary figures, and then it goes back and the client is called 
back for a second visit, at which time the plan is set forth before him. 

Mr. O'CoNNELL. What is the background of the people that are in 
the planning division? What experience have they? 

Mr. SiEGEL. The people that are in the planning division have all 
been in the selling end of life insurance. They work on certain prin- 
ciples. The principle is to retain the insurance on the head of the 
house under all circumstances, industrial or otherwise. There is only 
one exception to that rule. If we find that the only policy which would 
provide cash in the family is on the head of the house, and if the head 
of the house has other insurance, we will permit a cash surrender on 
that policy. The general plan is to reduce the protection on the chil- 
4i'en- and to increase the protection on the head of the family wher- 
ever possible, but to maintain the same total amount of insurance in 
the family, which is what they want when they come to us. 
* The Vice Chairman. How many men are there in your planning 
division? 

Mr. SiEGEL. There are three. 

The Vice Chairman. Are you and your brother in it ? 

Mr. SiEGEL. No; we don't handle it directly ourselves. The only 
cases I handle myself are the ordinary cases, cases involving ordi- 
nary insurance only, of large sums, $100,000, $800,000, $300,000jpcases 
of that nature. 'f' 

The Vice Chairman. These three men in the planning division are 
sort of a bottleneck of your organization. 

Mr. SiEGEL. They are the heart of the organization. 

The Vice Chairman. They give the final advice, do they ? 

Mr. SiEGEL. That is correct. 

The Vice Chairman. Do you and your brother have a supervisory 
responsibility ? 

Mr. Siegel. There is a constant check on the quality of the plans. 
There is not a 100-percent check. There is what we would call a 
spot check on the quality of the plans. A group of folders is lifted 
daily on a given number of cases to be checked to see what recom- 
mendations are being made. 

The Vice Chairman. Are you a corporation ? 

Mr. Siegel. We are incorporated in New York State to protect our 
name, but we do not operate as a corporation. We operate as a co- 
partnership. 

The Vice Chairman. Is there any other large policyholders' ad- 
visory company in New York State? 

Mr. Siegel. Not that I know of. 

The Vice Chairman. You are the largest? 

Mr. Siegel. The largest and oldest. 

The Vice Chairman. Do you know of any other policyholders' ad- 
visory companies in other States? 

Mr. Siegel. Yes; I do. 



5830 CONCENTRATION OF KCC^NO.MIC POWER 

The Vice Chairman. What other States do they operate in? 

Mr, SiEGEL. Tliere is one in Massachusetts, there is one in Newark, 
there is one in Chicago, one in San Francisco, one in Cincinnati, one 
in Philadelphia, and I think a few other scattered ones, but most of 
them are individuals operating on their own. 

The Vice Chairman. Do most of them operate on a flat fee basis 
as you do? 

Mr. SiECJEL. I am sorry to say they don't, lliey operate on a 
percentage of the cash recovery. 

The Vice Chairman. All of the others operate on a percentage of 
cash recovery? 

Mr. SiEGEL. I won't say all of them, but I will say the majority of 
them, from what I have learned, operate on that basis. 

Mr. Gesell. How are your employees and planners compensated, 
are they on a salary? 

Mr. SiEGEL. They are all on salary, every employee. 

Mr. Gesell. It doesn't make any difference to them how much 
cash they recover or what changes they make in the program of the 
assured ? 

Mr. SiEGEL. None whatever. 

Mv. (iesell. I have no further questions. 

{'\ he witness, Mr. Siegel, was excused.) 

Mi Gesell. The next witness is Mr. Leroy A. Lincoln. 

The Vice CHAiR:\rAN. Will you hold up your right hand? Do 
you solemnly swear the testimony you shall give shall be the truth, 
the whole truth and nothing but the truth, so help you God? 

Mr. Lincoln. I do. 

TESTIMONY OF LEROY A. LINCOLN, PRESIDENT, METROPOLITAN 
LIFE INSURANCE CO., NEW YORK, N. Y. 

metropolitan life insurance CO. OPERATION OF INDUSTRIAL 

department 

Mr. Gesell. Your name is Leroy A. Lincoln, and you are presi- 
dent of the Metropolitan Life Insurance Co. ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. How long have you been president of that company? 

Mr. Lincoln. About Si/o years. 

Mr. GEsm.L. We have had some testimony thie morning, Mr. 
Lincoln, with respect to the activities of insurance counselors, and 
before proceeding to the regular examination which I have in mind, 
I would like to give you an opportunity to make any statement you 
wish with respect to the attitude of your company toward insurance 
counselors. 

attitude toward insurance counselors 

Mr. Lincoln. Our company, of course, has been interested in the 
subject of these counselor activities which had their origin, so far as 
any extensive activity was concerned, so far as I know, with the wit- 
ness whose testimony you have just heard. That individual was 
employed by our company in 1931 or thereabouts. He was, I don't 
know whether I could say discharged or resigned, but if he resigned 
it was a resignation by request because of irregularities. 



CONCENTRATION OF ECONOMIC TOWER 5831 

Mr. Gesell. You weren't here this morning. Since that issue is one 
of litigation, I very carefully refrained from asking Mr. Siegel to 
state his position with respect to it. I think in fairness that issue had 
best await the litigation which is now in process. 

Mr. Lincoln. That may very well be, but I do want the committee 
to know of his own position taken by him and expressed in his letters 
to the company on that occasion. I have here a facsimile — we have 
the original in the committee room — of a letter which Morris Siegel 
wrote and signed addressed to the superintendent of agencies under 
date of November 19, 1931. 

Deae Sie: I have come to the conclusion that your offer of reinstatement if I 
pay the amount involved means that there will be no mark against my record, 
as, if you believe the charge against me you will forbid my reinstatement under 
any consideration. I bow to your decision and have deposited the amount in- 
volved, feeling that your sense of justice has ruled that this is my penalty for 
my infraction of the rules. It is an expensive way to learn a lesson, but I have 
learned it. 

Trusting that my reinstatement will be effective as rapidly as possible, I am. 
Respectfully yours, 

Morris Siemel. 

That is dated November 19, 1931. He was reengaged after the 
irregularities mentioned, and again when he left the service under 
other circumstances which were highly unsatisfactory to the company 
he addressed this letter under date of July 27, 1933 : 

Mr. Flynn informed me this morning that Home Office has ordered my final 
for next week. May I ask that you grar.t me an interview? Perhaps the Home 
OflSce will not object to my obtaining an agency in another district if I can find 
a manager willing to put me on. I am making this plea as an individual who 
,has committed a wrong and pleads that this error should not cause my severance 
with the company. My wife and two children are my first concern. 
Please permit me to call and see you. 
Truly yours, 

Morris Sieghx. 

He was not reemployed the second time, and whatever may have 
occurred between that time^iiiiid the occasion when we began to hear 
of these counselor activities of his I do not know, but some few years 
later, perhaps in '35 or '36, we began to hear about a man named Siegel 
acting as counseloi* and undertaking to advise life insurance policy- 
holders. On a survey of that situation we found it was this same Siege'l 
who had left our employ under the circumstances I mention. 

That activity v/ent on for a year or two without causing us any great 
concern, and then he undertook a campaign over the radio, and I have 
here some excerpts of his radio talks which I should like to read to 
you, but it came to a point where not only Siegel but other discharged 
and dismissed agents were resorting to this occupation, and it became 
a general occitpation about New York and in Boston, sir, and in other 
localities, for agents who had been discharged to set themselves up as 
insurance counselors. In our opinion, based on complaints that we 
had from policyholders and based on complaints which we had from 
agents, he was doing great harm to the life-insurance business. Policy- 
holders would write and tell us of the unfortunate advice which had 
been received from this and other counselors, and we felt that it was 
our bounden duty to take some affirmative steps to protect the policy- 
holders and to protect the agent. I believe you, sir, are from Boston. 
I held meetings with our agents in Boston several months ago and 
there was no subject which bore so much discussion on the part of 



5832 CONCENTRATION OF 'ECONOMIC POWER 

those agents with me as the activities of these counselors, the harm 
they were doing. I suppose there were close to a thousand of Metro- 
politan agents in those meetings; there were other agents, of course, 
of other companies equally badly affected. Now, this thing hasn't 
been confined to New York or Boston or Newark; there have been 
activities in all parts of the country. These counselors are known for 
the type of work they do from one end of the country to the other. 
This person's name, this individual who has just testified, is known 
to all the agents around this country, hundreds of thousands of them, 
and they know the harm he is doing to the policyholders, to say 
nothing of the harm he is doing to them, to their business, to their 
standards, to their reputations in the community. These agents in 
Boston, to be specific, asked me, "Mr. Lincoln, isn't there some way 
you can go on the radio and answer this man?" 

That was some months ago, several months, back in 1938 I remem- 
ber saying to those agents in Boston, I said, ^'What would you think 
of our taking advertising space in the local Boston papers to tell 
this story?" 

"Oh," they said, "that won't do. People don't read those papers, 
but they do listen to their radios, and that is the only way to deal 
with it." 

All right. The thing went on and on and these counselors were 
going on in every direction and almost all of them-^I can't be literal 
but almost all of them are discharged employees of the companies. 

Consequently, by reason of the damage they were doing to our 
policyholders and their interests, and the concern with which the 
agents looked on this activity, we decided last April that we would 
undertake an affirmative campaign against them, a campaign which 
I say was suggested to me in the first instance by those agents in 
Boston. So we engaged a well-known commentator, Edwin C. Hill; 
we got time on one or two local stations in New York in April; 
about some 3 or 4 weeks later, I can't recall when, we extended to a 
Boston station and another in Washington, and all up and down the 
coast for the last 4 or 5 months we have been endeavoring to tell, 
over the radio, 5 nights a week, to our policyholders, the story of 
these counselors and their activities, and the utter lack of necessity 
of resorting to any counselor for anything. 

We are there to serve our policyholders, and so are our agents. 
Every one of our agents is desirous and we are insisting that he- 
shall serve the policyholders, and our duty, my personal responsi- 
bility and that of my associates, is to about 29,000,000 policyholders. 
I have a duty to every one of them, a responsibility to each one of 
these policyholders, and it doesn't matter what the circumstances 
may be, every one of our officers and employees has a similar duty 
to all those policyholders. We can't stand to see them exploited. 

Now we look on this practice as an exploitation of policyholders. 
We have had countless cases where policyholders have been to these 
people, have received bad advice and sometimes if they have accepted 
it they have come to us to try to undo the transactions. We can't 
always undo them. They have charged fees to these people that they 
have sought to collect in the small courts, and I have some reports here 
about that. But their malign influence on policyholders and on the 
splendid body of agents in this country, not only Metropolitan but 
all other agents, is something that we felt should be combatted. 



CONCENTRATION OF ECONOMIC POWER 5833 

There are thousands and hundreds of thousands of agents in this 
country, and this activity, the kind of material that these people 
recite over the radio, is a direct attack on the agents. Let me read 
some of the excerpts from this person's own broadcasts, 

Mr. Gesell. Now I must insist that we have an answer to the 
question, and not an attack upon the witness. 

Mr. Lincoln. You have had the answers to the questions. 

Mr. Gesell. I beg your pardon, sir. I must insist that the com- 
mittee ask the witness to be still until I have stated my objection. 

The Vice Chairman, You may state your objection. 

Mr. Gesell. I asked this witness a very simple question, whicli 
was the attitude of his company toward insurance counselers. He 
has chosen this hearing as a forum to make a personal attack upon 
an individual who was brought here under subpoena to testify. I 
think it is improper, it is beyond the limits of the question, and I 
must ask the committee to hold him to the particular quesrion he was 
asked, 

Mr. Lincoln. I was asked to state the reasons why we have adopted 
the attitude we have concerning these counselors, not alone against 
your witness but concerning all counselors. I am only undertaking 
to state those reasons. Among those reasons I would like to state 
some excerpts that this particular man has broadcast. 

The Vice Chairman. This Commission is seeking facts and we 
haven't bound anybody to the strict rules of evidence. I think we 
should continue our wide latitude. The question was rather a gen- 
eral one and I think in keeping within the question as to your atti- 
tude, the attitude of your company toward these advisers to policy- 
holders, you may continue. 

Mr. Lincoln. I am reading now from excerpts taken from the 
broadcasts given by the witness who last appeared before you, and 
I am reading these in chronological order. This one is from a 
broadcast of November 14, 1937. He says : 

To the average agent the policyholder is only a means to an end, someone 
to be held in contempt and to be insulted whenever necessary. Most of you 
have had personal experience with the insulting, high-handed manner in which 
agents treat those whose money supports them, and most of you also know how 
much misrepresentation ^hey resort to to sell their policies. Stay away from 
high-flown promises much as you should avoid the unsupported promises of 
insurance agents whose words are as gold but whose deeds are as brass, which 
resembles gold but, which is of little worth. 

I have often told people who come to my office that T wouldn't believe the 
average agent if he swore an oath on- the Bible, unless he wrote down what 
he said and signed his name to it before my very eyes, so that he could not 
repudiate his signature later on. 

The next one, dated April 10, 1938 : 

Last Sunday I said that the weekly premium policies were highly deceiving 
documents, and this Sunday I repeat that they are not only deceiving by 
accident but that they have been deliberately designed to be deceiving. 

April 13, '38 : 

Strip the legal verbiage away from those few innocent-seeming words in fine 
print and what have you got? Nothing but an outright fraud on the part of 
the company to deceive you into thinking that the person whose name is written 
there is certain to receive the insurance money. The entire transaction is just 
a blind to keep you quiet and shut you up. That its the type of deception prac- 
ticed by the biggest life-insurance company in the world, and the next largest 
is right on its heels with its own particular brand of deceit and deception. 



5834 CONCENTRATION OI<^ ECONOMIC POVVEK 

And I say in passing, one may ask, why do we combat these 
counselors ? 

The next one, May 18, 1938 : 

I have said to you a thousand times, no weelvly premium policy is a good 
policy. I have said to you a thousand times the Insurance Department of the 
State of New York is not and never has been operated in the interest of those 
who pay the premiums. 

May 15, 1938 : 

I have made this statement before and I will make it again : Most agents 
know so little about the thing they sell that it is criminal to let them sell life 
insurance at any time. As for going to your companies, all I can say is, try 
it ; by all means go to your own companies before you come to us. Then after 
you have been given the "run around" there, you will come to us and get the 
sort of impartial advice that it's impossible to get anywhere else. 

May 18, 1938 : 

I am right here to tell you that we will be in business long after your present 
agents have been fired for misrepresentation. 

I hope you will recall the story with which I introduced this 
individual's record. 

Most of you have had, personal experience with the insulting, high-handed 
manner with which agents treat those whose money supports them, and most 
of you also know how much misrepresentation they resort to to sell their 
policies. Remember that if your agents had the truth on their side, they would 
stand up and say so. Instead, they lie — 

speaking of the agents, the decent, respectable agents of this country : 

they lie, deceive you, frighten you, bully you, show you all kinds of fraudulent 
documents in order to keep you from making the changes that would be to 
your best interests. 

Another one : 

If you go to your agent you will be skinned alive before you will get out of- 
his hands. He will bamboozle you from here to Halifax and back, take the 
gold fillings out of your teeth, talk you deaf, dumb, and blind until you are 
dizzy, and then tell you lies about us to keep you tied dowu to your present 
heavy premium payments, on weekly policies at that. 

Well, those are examples, if we were asked to say why we felt it 
important that we should take up this matter of these counselors. 

The Vice Chairman. I take it, Mr. Lincoln, your attitude is un- 
favorable toward these counselors. 

Mr. JjiNCOLN. You have got it! 

Mr. O'CoNNELL. Is it your belief that the only people who are 
competent to advise persons about life insurance are people in the 
life-insurance business? 

Mr. Lincoln. No, sir; my belief is that the people in the life-in- 
surance business are amply competent and do it without charge. 

Mr. O'CoNNELL. You have a feeling that there is no need for any 
group of people doing the job that the insurance counselors now do? 

Mr. Lincoln. Exactly. 

Mr. O'CoNNELL. No need for that at all? 

Mr. Lincoln. Exactly so. 

Mr. O'CoNNELL. You are not impressed with the fact that the 
monetary interest the agent has in writing insurance is apt to in- 
fluence him. 

Mr. Lincoln. No, I am not; but on the contrary I am impressed 
with the fact that when a* man goes to the counselor, the only way a 

/ 



CONCENTRATION OF ECONOMIC POWER 5835 

counselor is able to make a fee is by recommending some change 
involving some cash in order for him to be compensated. 

Mr. O'CoNNELL. In answer to my question, you are not impressed 
Avith the fact that the agents have a monetary interest? 

Mr. Lincoln. No, sir; I have too much respect for our agents and 
for the agents throughout the country. 

Mr. O'CoNNELL. You have too much respect for them to think 
they would be influenced by that? 

Mr. Lincoln. Yes, sir. 

Mr. O'CoNNELL. It would seem to me quite natural for a person 
selling life insurance to try to sell all the life insurance he could. 

Mr. Lincoln. That isn't what we are discussing ; we are discussing 
these changes and proposed revisions in the plan. 

Mr. O'GoNNELL. I was discussing generally the proposition as to 
whether or not there might not be people better competent to advise 
a prospective policyholder as to his needs than the insurance agents. 

Mr. Lincoln. I suppose it might very well be you would find 
people who are officers of companies, or agents, where one man is 
more competent than another, the same as we find lawyers where we 
might regard one more competent than another, but I say all these 
agents are able, willing, and have the entire capacity to examine a 
policyholder's situation and give him prompt advice, proper advice, 
and free advice, and if there is any doubt about it he can get all the 
information he wants about it from our experts at the home office. 
There is no occasion whatsoever to resort to anyone outside to get 
this advice. 

Mr. O'CoNNELL. You would oppose any move to create a class or 
group of people outside of the insurance companies to advise people 
on their insurance needs, is that correct? 

Mr. Lincoln. So far 'as these experiences have gone with these 
men, most of whom have been discharged by the companies, I answer 
you unqualifiedly, yes ; I would oppose it. 

Mr. O'CoNNELL. That wasn't exactly my question. I say you 
would oppose any move to create a group or class outside of the life- 
insurance companies to advise people on their insurance needs. 

Mr. Lincoln. I would have to know who was to compose that 
group, sir. 

Mr. O'CoNNELL. You would much prefer to have any such advice 
come from people in the insurance business? 

Mr, Lincoln. I would have to know who was to compose a group 
such as you have in mind. 

Mr. O'CoNNELL. I haven't any group in mind. I wanted to get 
as clear as I could that you feel, as I understand you feel, that the 
job is being adequately handled by insurance agents and there is no 
need for having that job done by people outside the insurance 
companies. 

Mr. Lincoln. Decidedly; and I say that not only for Metropolitan 
but all the companies and all the agents in the country. I should say 
to you, because the question of our facilities for handling these cases 
has been brought up, that we have at the home office in the industrial 
department a division called the change and surrender division, which 
includes 300 employees whose sole duty it is to adjust policies on 
account of changed circumstance, and to give advice to policyholders 
without cost. 

124401—40 — pt. 12 17 



5836 CONCENTRATION OF ECONOMIC POWER 

Now, those individuals have no dependency on any commission, as 
was intimated by you or your associate. 

Mr. O'CoNNELL. How do such cases come to them, through the 
agency force? 

Mr.' Lincoln. Through the agency and directly, both. Last year 
they handled transactions amounting to 1,987,884 policies, according 
to the report which I have before me, in which changes were made. 
That is done at the home office without charge. 

Mr. O'CoNNELL. How many policyholders have you? 

Mr. Lincoln. Twenty-nine million, roughly. No one can say to 
the exact number. We know exactly how many policies we have, but 
you might have three in your family, you might have two, and we 
have a formula 

Mr. O'CoNNELL (interposing). No; I haven't. 

Mr. Gesell. "We were interested yesterday, Mr. Lincoln, in the for- 
mation of the Life Insurance Adjustment Bureau, and there we saw 
that the companies had organized an agency for the purpose of han- 
dling the problems of people on relief, or people who had welfare 
difficulties of one sort and another, in order to meet their insurance 
adjustment problems. Why was it desirable to form that organiza- 
tion if the companies were perfectly qualified to take care of the 
problem ? 

Mr. Lincoln. I remember the occurrence when our late Dr. Frankel, 
one of our vice presidents then in charge of our welfare department, 
came to the present chairman and myself some time in 1931 and he 
said that the relief agencies, the public-welfare agencies, were some- 
what concerned over the means of adjusting policies as between 
families which applied to welfare agencies for assistance, and those 
adjustments often involved more than one of the Industrial com- 
panies, so that it was proposed that the three largest Industrial 
companies doing business in New York should try to work out some 
plan by which their policies could be reviewed, and in connection with 
an application to a welfare organization for relief, the proper dis- 
position of those policies in those three companies might be made 
without having to resort to each company separately. 

Mr. Gesell. It was thought to be more efficient to handle it that 
way, I take it. 

Mr. Lincoln. It was born in this relief situation in 1931. Mind 
you, the depression, so-called, had been going on for a year or two 
then, and welfare was a serious problem, relief was a problem. 

Mr. Gesell. Of course, cases have increased in the bureau since 
those dark days. 

Mr. Lincoln. The bureau has expanded its services, I have no 
doubt. I don't follow its figures. 

Mr. Gesell. And it was quite clear from the testimony we had 
yesterday, I thought, that it was thought that it was more efficient 
and an easier way to handle the problems. 

Mr. Lincoln. Whose testimony was that ? 

Mr. Gesell. Mr. Eklund. 

Mr. Lincoln. I didn't hear him. I don't know whether he is in a 
position to give evidence as to the purposes of the company in estab- 
lishing the bureau, I never have met the gentleman. 

Mr. Gesell. I asked you whether you thought it was more efficient 
to handle it all in one place. 



CONCENTRATION OF ECONOMIC POWER 5837 

Mr. Lincoln. No ; I won't say it is. I think it had to do with the 
requirements of the welfare bureaus and the limitations which were 
imposed on the amount of welfare relief which would be involved 
in the insurance which the family had. 

Mr. Gesell. And you don't think that one factor involved in any 
way in the situation was the fact that you might be able to better 
adjust the program of some insured who had policies in three com- 
panies if there was some central clearing place to which he could go? 

Mr. Lincoln. I wouldn't say it was intended as such a clearing 
house at all. 

Mr. Gesell. And you feel that all these thousands of families whp 
are going rightly or wrongly to insurance counselors are all deluded 
people who have no real problem at all. 

Mr. Lincoln. I don't doubt that they have a problem, but they 
should come to the place where we are equipped to handle it, and 
handle it without charge. 

Mr. Gesell. We can be pretty sure that they see theii agent much 
more often than they see their counselor. I wonder why they don't 
go to their agent. 

Mr. Lincoln. I can't tell, except for these broadcasts and other 
publicity activities of these people ; I don't know of any other reason. 

Mv. O'Connell. You don't think there might be a need ? 

Mr. Lincoln. No, sir; I do not. 

Mr. Gesell. Now, to get on to another subject, will you tell us 
what you consider to be, Mr. Lincoln, the fundamental purpose of 
industrial insurance ? 

purpose of industrial insurance 

Mr. Lincoln. Industrial insurance is designed to furnish, life 
insurance protection to the individuals whose lives are covered by it, 
to furnish a sort of backlog in the way of possible surrender values 
in case the policyholder is in difficulty. In case the family should ' 
be in circumstances where they might need some money, this has 
afforded a backlog, to the extent in our own company of considerably 
over a billion dollars in the last 10 years, paid out by us, paid out 
to people who otherwise probably would not have had a dollar of 
funds from any corresponding source. Besides that, of course, we 
have the endowment. Besides that, there is the facility which our 
company affords of a free nursing service growing out of our indus- 
trial business. 

Mr. Gesell. May I have an answer to my question? What is the 
fundamental purpose of industrial insurance? 

Mr. Lincoln. What is the fundamental purpose of any insurance? 
It is the same purpose as' any life insurance has, whether it is ordi- 
nai-y life insurance, group life insurance, or industrial. They are all 
phases of one single thing, that is, service that is offered by the com- 
panies, to wit, life insurance. I differentiate not at all between 
mdustrial and ordinary; they both furnish the same service; it is a 
service of money compensation so far as money can compensate in 
the case of a death of the individual insured. That is the basic 
purpose of all of it. 

Mr. Gesell. You don't relate, then, industrial insurance to the 
problem of burial at all. 



5838 CONCENTRATION OF ECONOMIC POWER 

Mr. Lincoln. No, sir. We liave down South, I believe, companies 
whicli do report burial facilities, in kind — is that the word? — they 
report facilities in kind. We have no such thing. 

Mr. Gesell. Industrial insurance had that as its purpose at one 
time ? 

Mr. LiNCXDLN. I have no knowledge of that. 

Mr. Gesell. You have made no study of the history of industrial 
insurance ? 

Mr. Lincoln. I have. I didn't read that. It may have been 
before my time. 

Mr. Gesell. You never heard it called burial insurance? 

Mr. Lincoln. No, sir. 

Mr. Gesell. You never heard it called coffin insurance? 

Mr. Lincoln. I have never 

Mr. Gesell. You never heard it called burial insurance? 

Mr. Lincoln. Oh, yes; of course; I am hearing it called burial 
insurance today. I am hearing it now. 

Mr. Gesell. You think it has no relation to the problem of burial? 

Mr. Lincoln. It has no more relation to the problem of burial 
than an ordinary policy has. 

Mr. Gesell. When industrial insurance was originally sold, were 
there endowment policies? 

Mr. Lincoln. I don't know. I think probably not. I suppose 
endowment was one of the developments. 

Mr. Gesell. Were there surrender, values? 

Mr. Lincoln. Later on; yes; not in the original days. All these 
things have been developments through the years. 

Mr. Gesell. And your company, then, in selling industrial insur- 
ance, is anxious to give ks much life insurance protection to as many 
people as possible, and that is the broad fundamental purpose of 
your effort? 

Mr. Lincoln. I. don't know whether that question of yours con- 
templates asking something about endowments after I have answered 
it. We do sell life insurance. We sell also endowment insurance. 
The two serve their various purposes, but it is our purpose to make 
our life insurance facilities available to the public in the United 
States and Canada. 

WELFARE activities 

Mr. Geseix. Now, you have not mentioned your nursing service. 

Mr. Lincoln. I did mention it, but I guess you missed it. 

Mr. Gesell. I deeply apologize. Will you tell us a little more 
about your nursing service? 

Mr. Lincoln. About 30 j'ears ago — I think it is exactly 30 years 
this year — our company started what is known in its official family 
as its welfare department, and in the course of that establishment it 
was conceivably a service that a life-insurance company might ren- 
der, to furnish a visiting-nurse service to its industrial policyholders, 
the lower-income group. An experiment of that sort was made in 
New York City. Whether it was originally made with what is now 
known as the Henry Street Settlement I am not quite sure; but, at 
any rate, we started, and by contract with that nursing service, the 
Henry Street Settlement — if it was that — to give free of charge, with- 
out any additional cost to-our industrial policyholders in that locality, 



CONPENTRATION OF P^fONOMIC TOWER 5839 

the attention of a visiting nurse in case of illness in the family. That 
service innnediately demonstrated its usefulness and its desirability 
from the point of view of the policyholder. It was extended and has 
been extended through the years. 

Whenever it is possible we make those arrangements with the vis- 
iting-nurse organization in the community. It helps to support those 
visiting-nurse organizations; they value our support in the commu- 
nity. In communities where there are no visiting-nurse associations 
and where there are policyholders of sufficient number to warrant 
it, we maintain our own individual nursing service. We have made 
last year, as I recall it, about 3,800,000 visits to sick industrial policy- 
holders. Through the years since the nursing service was estab- 
lished we have made, as I recall the figures, about 76,000,000 such 
visits, to people who in almost every instance would be unable to 
affortl the service of a nurse unless they should have it through 
this means. 

Mr. O'CoNNELL. You don't mean you do this as an act of charity, 
do you? Don't you consider it good business? 
Mr. Lincoln. I would resent the word "charity." 
Mr. O'CoNNELL. Isn't it good business — you do it as a matter of 
business ? 

Mr, Lincoln. Well, I wouldn't put it on that ground either. We 
feel that a great organization like this, with a large membership, as 
we have, has some more duties and responsibilities to its policy- 
holders than merely being able to pay a death claim when it comes 
due or to pay some other monetary contract obligation. We feel 
the company is so big that we can do something toward the health 
of the public, toward the health of our own policyholders through 
these services, toward the health of the whole community through 
other services. 

Mr. O'CoNNELL. Well, to the extent that you improve the health 
of your policyholders through the visting-nursing service or any- 
thing else, I take it that your mortality records would improve. It 
is good business, isn't it? 

Mr. Lincoln. I would have no hesitation in discussing it from 
that angle, Mr. O'Connell, but I do feel that there is a bigger and 
broader angle to it than merely the question of whether we make 
enough money by saving lives to pay for the service. It is bigger 
than that. 

Mr. Gesell. I would like to offer for the record at this time a state- 
ment prepared by the Metropolitan Life Insurance Co., at the request 
of Chairman Douglas, of the Securities and Exchange Commission, 
in the course of the testimony of JSIr. Frederick H. Ecker, chairman 
of the board.^ The material submitted will, I believe, expand some- 
what Mr. Lincoln's testimony. 

(The statement referred to was marked "Exhibit No. 985" and is 
included in the appendix on p. G226.) 

Mr. Gesell. How^ much does this welfare service cost? How 
much does this health and welfare work cost ? 

Mr.. Lincoln. The welfare services all together — you may have" 
our figures. We furnished them to 3'ou. I would rather use your 
figures than my memory. The welfare service in 1938 cost $6,265,- 

1 See Hearings, Part IV, p. 1292. 



5840 CONCENTRATION OF ECONOMIC POWER 

331.68, of which $4,162,000 odd was in the visiting-nurse service, 
$1,398,000 was what we call general welfare, and $704,000 for Life 
Extension Institute service. Is that the figure you want? All the 
figures were prepared by us and given to you, and I am sure they 
are right. 

Mr. Gesell. a great percentage of that money was expended in 
the industrial department, was it not ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. Some $65,673,000? 

M. Lincoln. Yes. 

Mr. Gesell. I would like to offer this schedule, showing the ex- 
penditures for health and welfare services, 1909 to 1938, for the 
record. 

The Vice Chairman. It may be admitted. 

(The tabulation referred to was marked "Exhibit No. 986" and is 
included in the appendix on p. 6232.) 

Mr. Lincoln. If I may interrupt to suggest, that is from the 
beginning of our welfare department. In other words, it is the 
complete service throughout the years since this service was con- 
ceived. 

Mr. Gesell. The Prudential doesn't do this health and welfare 
work, does it, to the same extent your company does ? 

Mr. Lincoln. I am sure no one does it to the same extent. I 
think the John Hancock has a visiting-nurse service of some conse- 
quence. I am not quite sure what the Prudential does. I think they 
have some other services. 

Mr. Gesell. How does this nursing service relate itself to this 
fundamental purpose of industrial insurance we were talking about ? 

Mr. Lincoln. I tried to say a moment ago, and I will repeat it, 
that we have these millions of policyholders in the low-income groups 
to whom we think we can properly give some service for the moneys 
which they have placed in our hands other than the mere readiness 
to pay a claim, a monetary claim, alone. Any company can pay its 
death claims and its surrenders when they become due. We want 
to give our policyholders a service that goes beyond that. 

The Vice Chairman. Mr. Lincoln, this service is in no way a con- 
tractual obligation of the company. 

Mr. Lincoln. You are right. 

The Vice Chairman. It is something from the king's largesse, over 
and above what you are obliged to do. 

Mr. Lincoln. It is our own funds which we have believed they 
would like to have us employ for the prolongation of their lives, and 
for the health of themselves and their dear ones. It is not largesse in 
any sense. 

The Vice Chairman. It is over and above any contractual obli- 
gation. 

Mr. Lincoln. We have nothing in the contract that provides for it. 

Mr. O'Connell. In the alternative, I take it, were the money not 
spent in this way it would be returned to the policyholders by way of 
reduced premiums or by way of dividends ? 

Mr. Lincoln. We would be bound to deal with it in. some such 
fashion, of course. 

Mr. Gesell. There is no option to the policyholder as to whether 
he does or does not want this service ? 



CONCENTRATION OF ECONOMIC POWER 5841 

Mr. Lincoln. I have yet to find one that doesn't. Perhaps you 
know of some. 

Mr. Gesell. Do you give them an opportunity to state whether he 
does want it or doesn't want it ? 

Mr. Lincoln. There is no opportunity. As soon as one of our 
agents learns of a sick policyholder in his community he reports it to 
the district office, or the policyholders, who all know of this service, 
communicate with the office themselves, and ask that the nurse be sent- 

Mr. Gesell. You miss my point. Can the policyholder buying in- 
dustrial insurance, less his proportionate share 

Mr. Lincoln (interposing). No, sir. 

Mr. Gesell. I would like to at least finish the questions once in 
a while. 

Mr. Lincoln. I'm sorry; I guess I'll settle down. 

Mr. Gesell. That's fine. I would like to know whether the policy- 
holder has any choice in purchasing industrial insurance. Can he 
buy it at a cheaper premium without the nursing service ? 

Mr. Lincoln. I thought I had answered that. I will say "no." 

Mr. Gesell. It represents how much money to each policyholder of 
your company per year? 

Mr. Lincoln. I will have to ask some of those smart people behind 
me to figure that out. 

This is on the basis of premium income. It is li/^ percent. I didn't 
understand your question to be on the basis of premium income. 

Mr. Gesell. It wasn't. I wanted to know how much each industrial 
policyholder, or policy, pays per year for this nursing service. 

Mr. Lincoln. I can only tell you that on the basis of our total pre- 
mium income it is li/^ percent in the industrial department. 

Mr. O'CoNNELL. It would be rather simple to compute, wouldn't it ? 

Mr. Lincoln. My friend, I think, is computing it. I have given 
you the figure— $6,000,000. 

Mr. O'Connelij. How many industrial policyholders have you? 

Mr. Lincoln. We don't know. We know how many policies we 
have. 

Mr. O'Connell. How many policies do you have? 

Mr. Lincoln. In the industrial department, about 34,000,000. 

Mr. O'Connell. You have never made any attempt to check on 
how many policyholders? 

Mr. Lincoln. It is impossible. I tried to explain that once be- 
fore. We will have two or three policies on one life. I am not an 
industrial policyholder, but I have several policies on my life. You 
might have one. We know how many policies there are, but it is 
only by a formula which our statistician has got up that we compute 
the number of individuals. Is "empirical" the word, Mr. O'Brian? 

Mr. O'Brian.^ No ; it is not. 

Mr. Gesell. This figure per policy comes to about 16 cents per 
policy. 

Mr. Lincoln. I don't know. If you have figured it out — this is a 
policy on the 20-pay life plan, age 25, weekly premium basis. 

I don't know what this all spells here. Does anybody understand 
that? 

Mr. Gesell. It is your own document, not mine. 



* John Lord O'Brian, counsel for Metropolitan Life Insurance Co. 



5842 CONCENTRATION OF ECONOMIC POWER 

Mr. Lincoln. I am sorry to say I can't interpret it under the stress 
of the moment. 

You're right ; the first policy year it is 16 cents. 

Mr, Gesell. And it computes 16 cents every year thereafter, 
doesn't it ? 

Mr. Lincoln. Apparently; yes, sir. 

Mr. Gesell. That is per policy. 

Mr. Lincoln. Well, that is per policy at this particular age and 
plan. I suppose it would be different at different ages. 

Mr. Gesell. The other ages and plans are there, and I think you 
Avill find the same amount. 

Mr. Lincoln. Would you like to have me look? 

Mr. Gesell. I would like to have a little testimony from you, 
INlr. Lincoln. 

Mr. Lincoln. My friend says it is about right. 

Mr. Gesell. Are you willing to adopt your friend's answer as 
your own? 

Mr. Lincoln. I adopt the answer that was contained in the ques- 
tionnaire which you showed me, of course. 

jNIr. Gesell. Then, I take it, it does represent a charge of 16 cents 
per year per weekly premium policy. 

Mr. Lincoln. Yes. That is an average. 

Mr. Gesell. Now I want to discuss with you a little this after- 
noon 

Mr. Lincoln (interposing). Have you finished with the welfare, 
if I may ask? I have had a comment that I wanted to make. 

Mr. Gesell. All right. If it is all right with the committee, I 
have no objection at all. 

Mr. Lincoln. That is, tliat through the 30 years during which we 
have conducted this welfare work covering millions and millions and 
millions of policyholders we have yet to have the first objection from 
any policyholder to the company's conduct of this welfare work. We 
receive countless letters of commendation, but I was dealing with 
the negative. There has been not one single objection that I know 
of to the welfare work of the company. 

Mr. O'Connell. Do you understand that there has been some 
objection raised here? 

Mr. Lincoln. No, sir; I thought I would like to add this so long 
as we were discussing whether tlie policyholders could get a policy 
without it. I would like to throw that into the record. 

Mr. O'Connell. While we are tlirowing things into the record, I 
would like to point out, Mr. Lincoln, that some other people in the 
industrial insurance business are not entirely in accord with your 
view on industrial insurance. We had a witness yesterday, the vice 
president of the Prudential Insurance Co., who in answer to a ques- 
tion as to what his company considered to be the basic purpose of 
industrial insurance, said : ^ 

To provide for the" average working man a fiind payable upon death which 
will take care of the necessary funeral expenses and incidental expenses in 
connection with the death, and a reasonable amount for the readjustment of 
the family temporarily only. 



* See testimony of Henry B. Sutphen, supra, p. 5734. 



CONCENTRATION OP ECONOMIC POWER 5843 

I take it you care in complete disagreement with that definition. 

Mr. Lincoln. I wouldn't say complete. If I were to sit down and 
prepare a definition I might not prepare it exactly as I have uttered 
my views here in answer to the question. I say it is not, from our 
point of view, burial insurance, if that is tlie tenor of that testimony. 

Mr. O'CoNNELL. The testimony is that from the point of view of 
the Prudential it is burial insurance. 

Mr. Lincoln. It is not from the point of view of the Metropolitan. 

The Vice Chairman. I take it there is no dispute that the desire 
to cover funeral expenses and to avoid potter's field is responsible 
for taking out industrial insurance to a great extent, quite aside 
from the endowment policies. 

Mr. Lincoln. I don't think that I can undertake to interpret 
wliat is in the policyholder's mind when he applies for industrial 
insurance. Some may have the potter's field in the back, of their 
minds. I don't know. 

Mr. O'CoNNELL. You in a sense interpret what is in their minds 
when you write the various types of policies that you write. 

Mr. Lincoln. We try to recommend to them the type of policy 
which we think will fit their needs. They make decisions which are 
often not the same as we recommend. 

The Vice Chairman. You don't trace the money that you pay on 
these policies? 

Mr. Lincoln. You mean after it passes out of our hands ? 

The Vice Chairman. Yes. 

Mr. Lincoln. I never heard of it. 

The Vice Chairman. But there is pretty general knowledge that 
fhese people are in the low-income group. 

Mr. Lincoln. Yes, sir. 

The Vice Chairman. And that this amount of money which they 
receive from the industrial policy is applied to their burial expenses. 

Mr. Lincoln. I don't know that that is so. I have no means of 
knowing whether it is or not. 

Mr. O'CoNNELL. Do you have any statistics as to the percentage of 
your industrial policies issued on the life plan ? 

Mr. Lincoln. Yes; but I can't give it to you. My associates can 
give it. Do you want it now ? 

Mr. O'CoNNELL. No. 

Mr. Gesell. I would be glad to give you the figures Avith respect 
to that in the record. 

Mr. CCoNNELL. If you have them I would like to see them. 

Mr. Gesell. Do you recognize this schedule entitled "Number of 
Industrial Policies in Force December 31, 1938," as a schedule show- 
ing the distribution of your business by policies and amounts as 
between different types of plans ? 

Mr. Lincoln. I would say without looking at it that I would have 
to refer it to our actuary. I wouldn't recognize it now. 

Mr. Gesell. Let's put the actuary up and get him to recognize 
these figures. I have to get some of these figures in the record. 

Mr. O'Brian. Wouldn't that be better to have the actuary testify 
to all these figures ? 

Mr. Gesell. All right, let's have him now. 



5844 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF MALVIN E. DAVIS, ASSISTANT ACTUARY, 
METROPOLITAN LIFE INSURANCE CO. 

The Vice Chairman. Do you solemnly swear that the evidence you 
are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth ? 

Mr. Davis. I do. 

Mr. Gesell. Wliat is your full name ? 

Mr. Davis. Malvin E. Davis. 

Mr. Gesell. What is your connection with the Metropolitan Life 
Insurance Co.? 

Mr. Davis. I am an assistant actuary, 

Mr. Gesell. How long have you been w^ith the company ? 

Mr, Davis. Sixteen years. 

Mr. Gesell. Are you particularly familiar with the industrial de- 
partment of the Metropolitan ? 

Mr. Davis. I am. 

Mr. Gesell. Have you before you the schedule which I showed the 
president of your company? 

Mr, Davis, That is right, 

Mr. Gesell. Will you state what that schedule shows, purports to 
show? 

Mr. Davis. This schedule shows the number of industrial policies 
in force at the end of '38 as well as for certain prior years, according 
to the principal subdivisions of the plans of insurance, 

Mr, Gesell. To your knowledge is that schedule correct? 

Mr. Davis. Yes. 

Mr. Gesell. Was it prepared from the books of the company ? 

Mr. Davis. It was. 

Mr. Gesell. I should like to offer it for the record. 

(The chart referred to was marked "Exhibit No. 987" and is 
included in the appendix on p. 6233.) 

Mr. Gesell. Mr. Davis, I show you a schedule entitled "Distribu- 
tion by Plan and Year of Issue — AVeekly Premium Business," and 
ask you if you recognize that schedule. 

Mr. Davis. I do. 

Mr. Gesell. Will you describe what that schedule shows, please ? 

Mr. Davis. This schedule shows the number of premium-paying 
industrial weekly premium policies according to the calendar year 
in which they were issued and according to the plan of insurance. 
Another schedule attached gives the same information based on the 
amount of insurance. 

Mr. Gesell. To your knowledge is this schedule correct ? 

Mr. Davis. Yes. 

Mr. Gesell. Was it prepared from the 'books of the company? 

Mr. Davis. Yes. 

Mr. Gesell. I wish to offer it for the record. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 988" and is 
included in the appendix on p. 6234.) 

Mr. Gesell. I next show you a schedule entitled "Percentage Dis- 
tribution of Industrial Policies Issued." Have you seen that sched- 
ule before ? 

Mr. Davis. I have. 



CONCENTRATION OF ECONOMIC POWER 5845 

Mr. Gesell. Will you describe what it shows, please? 

Mr. Davis. This, according to the principal subdivisions of the 
business, according to the plans of insurance, states the number of 
industrial policies issued during the 5-year period 1934r-38, according 
to age groups at issue, on a percentage basis. 

Mr. Gesell. Was it prepared from the books of the company ? 

Mr. Davis. It was. 

Mr. Gesell. To your knowledge is it correct? 

Mr. Davis. It is, but in connection with that I would like to say 
that information like that is frequently misinterpreted. That is, as 
the heading indicates, a distribution of business issued, not of busi- 
ness in force. Critics sometimes point to statistics of that kind and 
claim that there is an undue amount of business being issued at age 1. 
Naturally, after a business is established you would expect to write 
more business at age 1 than age 2, etc., because you have already 
insured those. 

Mr. Gesell. There are few children born who already have a 
policy in the Metropolitan ? 

Mr. Davis. I think we would all agree to that. 

Mr. O'Brian. It is very unfortunate. 

Mr. Gesell. I wish to offer the schedule. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 989" and is 
included in the appendix on p. 6235.) 

Mr. Gesell. I show you a schedule which contains information 
for the 'years 1915 to '38 with respect to the number of agents, 
agents' average earnings, and other information, and ask you if you 
are familiar with that schedule. 

Mr. Davis. It was prepared from home-office records; yes. 

Mr, Gesell. To your best knowledge and belief is it true, accurate, 
and correct ? 

Mr. Davis. Yes. 

Mr. Gesell. I wish to offer it for the record. 

The Vice Chairman. It may be received. 

(The schedule referred to was marked ''Exhibit No. 990" and is 
included in the appendix on p. 6235.) 

Mr. Gesell. I show you a schedule entitled "Distribution of In- 
come, Amounts in Thousands of Dollars," and ask you to describe 
that. 

Mr, Davis. This schedule presents the subdivision of the income of 
the Metropolitan during the 5-year period from 1934-38 on an in- 
curred basis, for the industrial department and for the ordinary, 
excluding group; showing the distribution of income which is com- 
posed of premium income and investment income. 

Mr. Gesell. To your best knowledge is this schedule coriect? 

Mr. Davis. It is. 

Mr. Gesell. I wish to offer it for the record. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 991" and is 
included in the appendix on p. 6236.) 

Mr. Gesell. I show you a schedule "Tabulation of Terminations, 
Weekly Premium Policies," one sheet being by number of policies, 
the other sheet being by percentages, and ask you if you will describe 
that schedule. 



5846 CONCENTRATION OF ECONOMIC POWER 

Mr, Davis. In this schedule is shown the number of weekly pre- 
mium policies that have lapsed, less those that have been revived, 
according to the number of premiums paid. This is based on the 
experience of 1935, and on the second sheet the ratio of these lapses 
to the policies issued has been presented. 

Mr. Gesele. The 1938 experience is shown there ? 

Mr. Davis. There has been a good deal of improvement for a num- 
ber of years in the early lapse experience of the company. Since this 
is rather old, speaking of current times, being 1935, the data for the 
most recent experience of the company has also been added below. 
In addition to the weekly premium figures, industrial monthly 
2)remium figures are also presented. 

Mr. Gesell. To your best knowledge is this figure correct? 

Mr. Davis. Yes. In that connection, I would like to point out that 
in obtaining those statistics we have subtracted revivals. There 
seems to be a good deal of misunderstanding on the part of certain 
people as to the nature of revivals. For instance. Dr. Davenport, in 
presenting his lapse statistics, has added revivals to issues and com- 
pared the total terminations or lapses against the revivals plus issues. 
Now, a revival is the reinstatement of a policy that has lapsed; a 
person drops behind in the paying of premiums beyond the grace 
period, his policy lapses; very shortly thereafter he again resumes 
premium payments. That policy is revived. Now, consequently, 
that is a negative lapse; it is merely a reversal of a lapse transaction. 

Mr. O'Connell. Had you intended that this Avitness would ex- 
plain again to us what revivals are ? I don^t believe we are under any 
misapprehension. 

Mr. Davis. Dr. Davenport apparently was, because he misused it. 

Mr. O'Connell. You mean he added it to the wrong column, 

Mr. Davis. For instance, you take 10 policies issued; 4 are lapsed, 
2 revived. 

Mr. O'Connell. I am sorry; I had no intention of continuing the 
discussion. I thought to stop it, 

Mr. Gesell. I wish to offer this schedule for the record, 

Mr, Davis. May I correct just one statement ? It was m)t a case of 
the column to which it was added. They should have been subtracted 
from the lapses, not added to the issues. 

Mr. Gesell. Anything else on those schedules? 

Mr. Davis. Have you any other questions? 

Mr. Gesell. I have no further questions of this witness at the pres- 
ent time, but I would not like to have him excused. 

The Vice Chairman. The last schedule may be admitted in the 
record. 

(The schedule referred to was marked "Exhibit 992" and is in- 
cluded in the appendix on p. 6237.) 

Mr. Geseix. Will Mr. Lincoln take the stand again. 

TESTIMONY OF LEROY A. LINCOLN, PRESIDENT, METROPOLITAN 
LIFE llJSTJRANCE CO., NEW YORK CITY— Resumed 

Mr. Gesell. Mr. O'Connell, I believe your question was how many 
industrial policies were issued on the life plan. This schedule, speak- 
ing from "Exhibit No. 987", shows for the total industrial business in 
1938, 17,422,011 life-plan policies. 



CONCENTRATION OP ECONOMIC POWER 5847 

Mr. O'CoNNELL. What jDercenfage is that of the total number of 
policies? 

Mr. Gesell. The total policies were thirty-three million, nine hun- 
dred thousand-odd. 

Mr. O'CoNNELL. Something over half. 

Mr. Gesell. One otl>er question on this nursing service, Mr. Lin- 
coln. Is it available to all of your policyholders ? 

Mr. Lincoln. No, sir. Do you mean by that all the industrial 
policyholders ? 

Mr. Gesell. Yes. 

Mr. Lincoln. No, sir. 

Mr. Gesell. Have you any idea what percentage of your industrial 
policyholders do not have this service available ? 

Mr. Lincoln, A very small percent, but, of course, there are locali- 
ties and communities where the number of policyholders is not large 
enough to warrant the maintenance of the company's own nurse and 
at the same time there is no visiting-nurse service in that community, 
and in those communities we just can't and do not give it. 

The Vice Chairman. Do you supplement with the district nurse 
association ? 

Mr. Lincoln. Oh, yes. If I understand your question, where we 
have a visiting-nurse association contract we do not maintain our own 
nurse. Here in Washington, in the District of Columbia, if I am 
not mistaken, we have an arrangement with the local visiting-nurse 
association which embraces industrial policyholders in the District 
of Columbia, but if you get outside the border in counties around 
here, which are, I suppose, essentially a part of the community, that 
visiting-nurse association does not serve outside t^e borders of the 
District, and we maintain our own nursing service in those sections. 

The Vice Chairman. And where you have a visiting-nurse asso- 
ciation do you know whether it is the policy of the visiting-nurse 
association to refer your policyholders to your company nurses? 

Mr. Lincoln. Well, I don't see how they would function in the 
same locality. 

The Vice Chairman. That is, you don't have a nursing association 
that is separate*. 

Mr. Lincoln. We would not have our own nurses where we have 
an association contract. 

Mr. Gesei-l. How many States does your company operate in, Mr. 
Lincoln ? 

Mr, Lincoln. We are licensed in 48 States and the District of 
Columbia. We maintain no active agencies in Arizona, New Mexico, 
Texas, Nevada, Wyoming, Nox th and South Dakota, 

Mr, Gesell. Do you sell industrial insurance in all those States 
in which you are actively maintaining agencies? 

Mr. Lincoln. In communities where we maintain distr'ct offices 
and agencies. 

agency system 

Mr. Gesell. Am I correct in saying that for the most part all of 
your agents sell both industrial and ordinary insurance ? 

Mr. Lincoln. Entirely, so far as our agents are concerned, abso- 
lutely. 

Mr. Gesell. You have no agents who sell only ordinary insurance? 

Mr. Lincoln. No, sir. 



5848 CONCENTRATION 'OF ECONOMIC POWER 

Mr. Gesell. All of your agents are men out on debit ? 

Mr. Lincoln. I say we have no agents who sell only ordinary 
insurance. I am bound to correct that slightly. We do have a few 
agents who are called ordinar}^ representatives who have come up 
through the agency force and developed a desire to devote themselves 
to ordinary insurance; there are relatively few, but there are a few. 
My first answer wouldn't be exactly accurate. 

Mr. Gesell. How many agents does your company have? 

Mr, Lincoln. Twenty thousand, roughly ; there may be 19,800. 
Perhaps you have the figures. I haven't them exactly in mind. 

Mr. Gesell. Approximately 20,000? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. Can you tell us what type of training is given to the 
agents of your company when they come into the company ? 

Mr. Lincoln. A new agent coming into the company has to take a 
course which in certain cities where we have schools consists in at- 
tending the school ; in other locations where we have no schools a cor- 
respondence course is ^ven to him in the district office; that is 
supplemented by the training, the close training, which is given to him 
by the assistant manager following a period of weeks certainly; that 
is supplemented by another course in what we have as a correspondence 
school in which he can take further training in the business, and 
further than that we encourage our men — and we have had remarkable 
success with this — in going out for the chartered life underwriter's 
degree. You may know that there is a college of life underwriters, 
established, I think, by Federal charter, maintaining its principal 
office in Philadelphia, which gives courses running over, I think, 
3 or 4 years, for the degree which they are authorized by Congress to 
give, of chartered life underwriter. Those courses we encourage our 
men to take, and we have gone so far by way of encouraging our men 
to make a profession of this that we have provided for payment of the 
expense, I think — or half the expense, I am not sure which — of those 
who actually accomplish the degree, and we furnish a complete library' 
of books required for the study in the district office and any office where 
there is such an agent studying for the degree. Beyond that, for our 
agency course we have a corps of traveling instructors growing out of 
our field training service. Those traveling instructors go about the 
country and assign themselves or are assigned to the training of our 
agents in the field. 

Mr. Gesell. How many of your agents would you say are chartered 
life underwriters ? ^ 

Mr. Lincoln. I have the figures, and it is a remarkably proud 
number. Maybe you have the figures. I am proud of it. We have 
hundreds of them engaged in taking that course now, which is a course 
for the professional degree. 

Mr. Gesell. You say you have the figures. Can you give them 
to us? 

Mr. Lincoln. I say I have them. I am sorry, I haven't them on my 
tongue's end, but we have them and I would he glad to furnish them 
to you.^ 

Mr. Gesell. How long after a man comes into the company does 
he start out on the debit? 



1 Subsequently supplied by Metropolitan and entered in the record on September 22, 
1939 as "Exhibit No. 1129." It is included in the appendix on p. 6359. 



CONCENTRATION OF ECONOMIC POWER 5849 

Mr. LiNCX)LN. I should suppose on the average a week or 10 days. 

Mr. Gesell. Then the original course takes about a week or 10 
days. 

Mr. LiNCX)LN. That is a preliminary course before he gets out on 
the debit. 

Mr. Gesell. Then he is out on the debit under very close super- 
vision, I believe you said for a period of weeks. 

Mr. Lincoln. Several weeks. I don't think it is uniform. It 
depends on the man, it depends on the situation in the district. 

Mr. Gesell. Would you be able to hazard an estimate as to what 
the average time is that a man is under that close supervision ? 

Mr. Lincoln. I would hazard a guess of 2 017 3 weeks, subject to 
correction. 

Mr. Gesell. Do you have a very high degree of agency turn-over ? 

Mr. Lincoln. Very low. 

Mr. Gesell. Can you give us a figure as to how many new agent? 
your company has taken on in recent years ? 

Mr. Lincoln. I bear in mind the figures for last year and for the 
current year. This year our turn-over so far has been, I think, about 
7 percent. Last year I think it was a little less than 10 percent, and 
I would characterize 7 percent as a remarkably low turnover in an 
occupation of this sort. 

Mr. Gesell. Have you any figures there of agency turnover ? ^ Can 
you give us some idea as to what the experience has been over a period 
of time? 

Mr. Lincoln. We have figures which were developed for you 01 
some other questionnaire for 10 years, showing the continuous de- 
crease in the agency turn-over from something upwards of 30 percent 
10 years ago down to 7 percent this year. 

Mr. Gesell. Have you the figures there? 

Mr. Lincoln. No, sir ; not the figures you mean. 

Mr. Gesell. While we are trying to find the figures 

Mr. Lincoln (interposing). Maybe we can produce them.^ 

Mr. Gesell. Will you tell us how much it costs to train an agent? 

Mr. Lincoln. I don't think I can, sir. We have a training division, 
a field training division, which was established in 1931 for the spe- 
cific purpose of training our field men and making them better 
adapted, better able to carry on their work, and that apparently runs 
now, the total cost of that field training division, about a million to 
$1,200,000 a year. When you ask me how much it costs to train an 
individual agent I haven't seen the- figures broken down as to agents, 
because that also embraces managers, it embraces a whole lot of 
factors beside the training of the agent himself. 

I guess these are the figures, Mr. Gesell. Is that it, 1927-38? 
Mr. Gesell. I have one document in my hand here, the report of 
the Joint Legislative Committee on Revision of the Insurance Laws 
Mr. Lincoln. What is the date ? 
Mr. Gesell. 1939, which states that — 

during the ten-year period the Metropolitan Life Insurance Company termi- 
nated the employment of 65,000 agents and hired new men in their places. The 



1 Subsequently submitted by Metropolitan Life Insurance Co., and entered in the record 
on September 22, 1939, as "Exhibit No. 1130." Included in appendix to this Part on 
p. 6359. 



5850 CONCENTRATION "OF ECONOMIC POWER 

company's figures sho^V that the cost of terminating old agents and teaching 
and training a new agent in tlie industrial business amounts to $530. Based 
on these figures the total cost for this training of the Metropolitan Life Insur- 
ance Company alone amounted to $34,500,000 for this ten-year period. The 
company figures further indicate that less than half of the agents remain with 
the company for more than two years. 

Is that what you had in mind ? 

Mr. Lincoln. That is the figure I have in mind. I hope that isn't 
being entirely accepted by the committee as evidence. There are 
some parts of that read by counsel that we would like to challenge. 
But as a part of the so-called Piper Report, that was incorporated in 
their report. 

Mr. Gesell. May I ask you to produce figures showing how many 
agents have been dismissed, for each year from 1927 to 1938. Have 
you those figures there ? 

Mr. Lincoln. The figures are as read by you. It is not the figures 
that I challenge. It is some of the conclusions. 

Mr. Gesell. Will you answer my question and let me know whether 
you have the figures there? 

Mr. Lincoln. I think we have, haven't we? These figures from 
the Weinstein report, so-called, are believed to be accurate. 

Mr. Gesell. These figures show from 1908 to 1936 the percentage 
of controllable finals to the average number of agents per each year 
has declined from a high in 1908 of 76.66 percent to a low in 1936 
of 18.43 percent. 

Mr. Lincoln. And you will bear in mind that I said that the cur 
rent year it is down to 7 percent. 

Mr. O'CoNNELL. For the first 7 months ? 

Mr. Lincoln. Computed on an annual basis. 

Mr. Gesell. What would you say is the average length of service 
of an agent with the company? 

Mr. Lincoln. I have seen those figures but I am afraid I have 
forgotten them. He says under 7 years but he doesn't say how far 
under. I don't know. 

Mr. Gesell. Have you any figures which will show the average 
length of service with the company? 

Mr. Lincoln. I am sure we have, but I don't know where to turn 
to them at this moment. I will be glad to give you the average 
figures if you want us to produce them from New York. Apparently 
we haven't them here. 

Mr. Gesell. Can you produce for us a figure which will show wliat 
it costs to tram a new agent ? 

]Mr. Lincoln. I am not sure we can. I don't know that there are 
any such figures available without a considerable study and survey. 
I don't know that they are not, mind you. I never have seen them. 

Mr. Gesell. Is there anyone here from your organization who 
would have those figures and be able to give the committee any light 
on that question? 

Mr. O'Brian. Mr. Gesell, the actuaries say they computed a figure 
which is in the questionnaire furnished the Piper conunittee. 

Mr. Gesell. Have you a copy of that questioimaii'e here? 

Mr. Lincoln. It is right there, in this questionnaire here. (To the 
actuaries.) Will you find it? 



CONCENTRATION OF ECONOMIC POWER 5851 

You wouldn't like me to volunteer something in passing, would 
you? 

Mr. Gesell. That is up to the committee. 

The Vice Chairman. If you have any general statement to make, 
it might come at the close of the examination. 

Mr. Lincoln. But it only has to do with the length of service of 
agents which is the topic we are on now, and if you are willing to 
accept it at this point, we have over 2,000 field men with over 20 
years of service. 

Mr. Gesell. I think that figure might be interesting if we kneAV 
what the average period of service of the agents is. 

Mr. Lincoln. We are getting it. I am reading from an answer in 
one of the questionnaires we have filed recently. "Our best estimate 
of the cost of training a new agent during the first yeai- of his work, 
assuming that he receives the training as outlined above, is $320.'' 

Mr. Gesell. Does that include all of the cost and expenses incident 
to training, bringing on a new agent ? 

Mr. Lincoln. I am sure I don't know. 

Mr. Gesell. I want the overall figure which will tell us what the 
cost is per agent, to train him, bring him on and make the change. 
There is an additional $147 to be added to the figure which you gave, 
is there not? 

Mr. Lincoln. There is another answer here which says: 

In addition to tlie foregoing items of cost which were specifically requested, 
a final in most cases requires the training of each new agent which entails an 
average cost of $320 as indicated in the answer to the previous question. 
Furthermore, the average expense incident to the selection and training of a 
new agent is estimated to he $147. 

Mr. Gesell. Is it your belief that those two statements you have 
read are correct? 

Mr. Lincoln. No; I don't think they are. They are estimates 
based on figures that were prepared by someone in answer to a 
questionnaire. 

Mr. Gesell. They are contained 4n this questionnaire reply which 
has on the back page your sworn signature. 

Mr. Lincoln. I still say I have my doubts as to whether those 
figures are correct. I don't know where you can get correct figures, 
but they are so much predicated on estimates that I have con- 
siderable doubt as to whether they are right. ITiey might be larger, 
they might be smaller, I don't saj' they are too high, I say I have 
a question as to whether figures of that sort are necessarily accurate. 

Mr. O'Connell. Was the answer in that questionnaire qualified 
as you qualify it here^ 

Mr. Lincoln. No, sir. 

Mr. Gesell. Then I don't know exactly where we are on the ques- 
tion of cost. 

Mr. Lincoln. I don't either. I am bound to take those figures 
as' the best we have. 

Mr. Gesell. I take it they represent the best estimate of your 
company after serious consideration by the agencj' superintendents 
and the actuaries and the fitld men and the attorneys and the man- 
agers and the executives, and all the other people that consult on 
these things. 

JVtr. Lincoln. That is expressed precisely as I would express it. 

124491 — 40— pt. 12 18 



5852 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. After the matter had o;one through the coordinating 
department of your company and all the necessary information is 
there. 

Mr. Lincoln. Yes, sir. 

AGENCY TUBNOVER 

Mr. Gesell. Is that figure contained in the statement which I read 
at the beginning of this examination to the effect that your company 
has taken on in the last 10 years a total of 65,000 new agents correct ? 

Mr. Lincoln. I have no doubt it is. 

Mr. Gesell. Have you figures that will show how many new agents 
your company has employed in the last 10 years ? 

Mr. Lincoln. Only from that tabulation. 

Mr. Gesell. Can you give us a figure here that will show us how 
many agents were taken on in the last 10 years ? 

• Mr. Lincoln. I haven't any in mind. There may be some available 
here. 

Mr. Gesell. Will you consult your associates and see if they may 
have such figures ? Those figures in the Weinstein report you showed 
me do not show the number of new agents taken on in the 10-year 
period. They show only the average number of agents and the rela- 
tion of chargeable number of finals to the total number. 

Mr. Lincoln. I have to say I don't know where there are any 
figures as to the average number of new agents or total number of 
new agents ; but, of course, they are available somewhere. 

Mr. Gesell. Will you tell us the number of new agents hired for 
each year from 1928 to 1937, inclusive ? 

Mr. Lincoln. Heading from this answer: 1927, 9,482; 1928, 9,500; 
1929, 8,800; 1930, 8,400; '31, 7,600; '32, 7,225; '33, 6,200; '34, 5,000; 
'35, 4,800; '36, 4,000; '37, 3,600. 

Mr. Gesell. Heading from "Exhibit No. 990," ^ which has been in- 
troduced, this exhibit shows that the agents' average earnings per 
week in 1915 were $23 and that the agents' average earnings per week 
have increased to $52 in 1938, having been slightly higher than that 
figure in the period from i925 to 1929. Do you know how many 
debits there are now? Are there one per agent? Would that be a 
^afe statement? 

Mr. Lincoln. That is a strange question. I assume there is exactly 
one per agent. 

Mr. Gesell. Has the number of your debits increased or decreased 
in recent years ? 

Mr. Lincoln. Decreased. 

Mr. Gesell. Substantially? 

Mr. Lincoln. Quite. 

Mr. GrESELL. Can you give us some idea of how much? 

Mr. Lincoln. I would say without looking at the figures — and you 
will recall tliat I had no idea what questions you would ask, so I had 
hardly come prepared to answer them 

Mr. Gesell (interposing). I won't quarrel with you, but I don't 
recall such a thing at all. 

Mr. Lincoln. I had no idea what the questions were to be or I 
would have come prepared. 



1 See appendix, {>. 6235. 



CONCENTRATION OF ECONOMIC POWER 5853 

Mr. Gesell. You could consult with coordinators as to what we 
expected answered. I don't think it is fair to indicate you were not 
advised in advance with respect to what the examination was going 
to be. These questions have been discussed with representatives of 
your company over some period of time. 

Mr. Lincoln. We will pass over that. I would say that reduction 
in debit, I would guess, without looking at the figures, has probably 
been 1,500 since 1933 or '34. I don't know without examining the 
tabulation. 

Mr. Gesell. Would you have any figures as to what it costs to 
establish a new debit or what it costs to reduce the size of these debits ? 

Mr. Lincoln. No; they are constantly changed in boundary. I 
think it is seldom nowadays that we establish a new one, but they are 
reorganized from time to time and a territory that is attached to one 
debit may be shifted over to another. It may be a reformulation of 
the boundary, but I think it is rather rare that we establish a new one. 

Mr. Gesell. About what is the average size of the debit at the pres- 
ent time? 

Mr. Lincoln. Does that mean geographically? 

Mr. Gesell. Premiums in terms of cash. 

Mr. Lincoln. In premiums $217 for the weekly department and I 
suppose it runs three hundred something for the monthly. Let's see, 
$360 a month, that would be about $90 a week, broken down onto a 
weekly basis. I suppose it runs something over $300 for the com- 
bination of the weekly debit and the weekly break-down of the 
monthly debit. 

Mr. Gesell. Now your company has been one of the leaders, has 
it not, in attempting to work out an arrangement whereby policy- 
holders would pay their policy premiums at the home office and get 
a reduction. 

Mr. Lincoln. So far as I know, we are the originators of that 
project which has been in force in our company, if I am not mistaken, 
about 28 years. 

Mr. Gesell. Can you tell us what percentage of your business is 
paid on that basis at the present time? 

Mr. Lincoln. Close to 28, 29 percent. 

Mr. Gesell. Has the percentage of business that is paid on that 
basis increased from year to year? 

Mr. Lincoln. Oh, undoubtedly; yes, sir. 

Mr. Gesell. Do you happen to have the figures available for the 
past 4 or 5 years so we get some idea as to how it has increased ? 

Mr. Lincoln. May I inquire? I don't carry those in my head. 

The Vice Chairman. You may consult with your associates. 

Mr. O'Brian. All these figures are compiled by the actuarial 
department, which is represented here. 

The Vice Chairman. I was wondering whether or not they might 
furnish us tomorrow as nearly as possible with what happens to 
an income dollar. Is that possible? 

Mr. Lincoln. Oh, yes. 

The Vice Chairman. Take your income dollar and tell how dis- 
tributed — agents, etc. 



5854 CONCENTRATION OF ECONOMIC I'OWER 

Mr. Gesell. That has been admitted in the record as "Exhibit 
No. 991"^ today, and I expect to question Mr. Lincoln with respect 
to it. The figures are part of the record and the break -down shows, 
the various relationships as between the industrial and the ordinary 
department of the business. 

The Vice Chairman. At this junction I am going to adjourn 
until tomorrow morning. I have some other business to transact. 
We will adjourn until 10 : 30 in the morning. 

(Whereupon, at 3 : 50 o'clock p. m., a recess was taken until 10 : 30 
a. m. Wednesday, August 30, 1939.) 



1 See appendix, p. 6236. 



INYESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



WEDNESDAY, AUGUST 30, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10:35 a. m., pursuant to adjournment on 
Tuesday, August 29, 1939, in the Caucus Room, Senate Office Build- 
ing, the vice chaiinian, Joseph A. Casey, Representative from Mas- 
sachusetts, presiding. 

Present : Representative Casey (acting chairman) and Mr. 
O'Connell. 

Present also : Messrs. Henderson and Brackett ; Gerhard A. Gesell. 
special counsel; and Michael H. Cardozo, attorney, Securities and 
Exchange Commission. 

The Vice Chairman. The hearing will now come to order. Mr. 
Gesell, will you proceed? 

Mr. Gesell. Mr. Lincoln, will you resume the stand, please, sir? 

TESTIMONY OF LEROY A. LINCOLN, PRESIDENT, METROPOLITAN 
LIFE INSURANCE CO., NEW YORK, N. Y.— Resumed 

Mr. Gesell. I should like to introduce for the record at this time 
copies of two radio programs presented by Edwin C. Hill for the 
Metropolitan Life Insurance Co. The dates of the broadcasts and the 
stations over which they were made are indicated on the exhibits. I 
might say that this material was submitted to us by the jNIetropolitan 
and these broadcasts are intended to be typical broadcasts of Mr. Hill. 

The Vice Chairman. These may be admitted. 

(The transcripts referred to were marked "Exhibit No. 993" and are 
included in the appendix on p. 6238.) 

Mr. Gesell. Mr. Lincoln, yesterday we were discussing agency turn- 
over, and I asked you if you had any figures which would indicate the 
average period of service of an agent with your company. Have you 
those figures for us this morning? 

Mr. Lincoln. Yes ; we have. 

Mr. Gesell. What is the average period of service ? 

Mr. Lincoln. The average period of service of an agent is slightly 
over 6 years. 

Mr. Gesell. Are those based upon your current experience? 

Mr. Lincoln. I believe so ; I didn't make them up. 

Mr. Gesell. I just wondered over what period of years. 

Mr. Lincoln. May I inquire? 

Mr. Gesell. Yes. 

5855 



5856 CONCENTRATION OF ECONOMIC POWER 

Mr. Lincoln. They don't give a very satisfactory answer, and I am 
afraid I can't tell you. 

Mr. O'Brian. They were prepared last night by the actuaries in 
New York. If you postpone the question we will ascertain the exact 
period.^ 

Mr. Gesell. Yesterday we also discussed the percentage of con- 
trollable finals to the average number of agents employed, and I 
believe the record shows that your percentage of controllable finals 
for the years 1908 to 1936 has steadily decreased from a percentage 
of 76.66 percent in 1908 to a low of 18.3 percent in 1936. I believe 
you said the current figures are even lower. 

Mr. Lincoln. The current figure js 7 percent this year on the 
actual basis. 

Mr. Gesell. Will you tell us what is meant by the term controllable 
finals? 

Mr. Lincoln. That embraces the agents whose termination with 
the company was due to their own resignation or to the company's 
affirmative termination of their employment. It does not embrace 
promotions, deaths, disability, or other forms of termination. 

Mr. Gesell. If a man simply resigns from the company for an- 
other job that is included along with the controllable finals? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. Also are all dismissals of men for irregularities ? 

Mr, Lincoln. Yes, sir. 

Mr. Gesell. Can you tell us how many men were dismissed in 1938 
by your company for irregularities and give us some idea as to 
what tjie nature of those irregularities were ? 

Mr. Lincoln. Not without referring to the figures. I don't bear 
those things in mind. 

Mr. Gesell. Have you those figures here with you ? 

Mr. Lincoln. You ask how many; I haven't the figures. 

Mr. Gesell. Can you give us some idea as to the causes, Mr. 
Lincoln, for such finals? 

Mr. Lincoln. Some are due to the determination on the part either 
of the agent or of the company of his unadaptability, if there is such 
[[ word, to the business. 

Mr. Gesell. When you say unadaptability to the business, do you 
mean inabi-lity to produce business? 

Mr. Lincoln. Inability to represent the company as an agent in 
the all-around requirements of the business. 

Mr. Gesell. Given a man who meets all requirements except the 
ability to produce new business, are such men finaled ? 

Mr. Lincoln. Not unless their inability to produce new business 
is so extreme that they are an utter failure in that branch of the busi- 
ness. For instance, if a man produced no new business for a long 
period of time, he is not serving the purpose for which he is 
employed. 

Mr. Gesell. Would you say that those cases are rare or fairly 
frequent? 

Mr. Lincoln, Kare. They are very rare, I believe. I have known 
of cases where we had to terminate the service of a man because he 



1 This information was subsequently submitted and entered in the record on September 
22, 1939, as "Exhibit No. 1130," which is included in the appendix to this Part on p. 6359. 



CONCENTRATION OP ECONOMIC POWER 5857 

absolutely produced no business over a considerable term of months, 
years, 6 months. Rare; yes. , -,•.•.■. ^ 

Mr. Gesell. What is the nature of the irregularities that you 

refer to ? 

Mr. Lincoln. Irregularities in accounting, irregularities in ac- 
counting for the money collected by the company, sometimes irregu- 
larities in overreaching. 

Mr. Gesell. What? 

Mr. Lincoln. I don't know just what I mean by that term, but 
(irregularities in relationships with the policyholder. 

Mr. Gesell. Are many men finaled for what is known as excess 

arrears? . , . . 

Mr. Lincoln. If we have glaring cases of excess arrears which are 
an absolute violation of our rules, then we must of necessity dis- 
cipline the man who is guilty. I wouldn't say how many were 
absolutely finaled for that, I don't Imow, but it is a case of severe 
disciplinary action on the part of the company. 

Mr. Gesell. It is, of course, against the company's rules. 

Mr. Lincoln. Entirely. 

Mr. Gesell. What do you understand by the term "excess arrears i 

Mr. Lincoln. Wliere an agent pays premiums after the expira- 
tion of the grace period to keep the business alive on the books 
when the policyholder himself is not paying those premiums. 

Mr. Gesell. Those would be moneys fliat the agent might pay 
out of his own pocket? 

Mr. Lincoln. Precisely. , 

Mr. Gesell. What do you believe it is that m^akes an agent do 

that, Mr. Lincoln ? . -, ^ . .^ ^ i 

Mr. Lincoln. I doubt if there is much of any of that nowadays. 
I think there may have been somewhat more under earlier forms 
of company contracts. , .1 

Mr. O'Connell. I should like to have an answer to the question. 

Mr. Gesell. That hardly answers my question. 

Mr. O'Connell. Wouldn't it be . possible for you to answer the 

question ? 

Mr. Lincoln. I thought I was. 

Mr O'Connell. Will you read the question and answer^ ^ 

(The reporter read Mr. Gesell's question and Mr. Lincoln s re- 
sponse.) . . . 

Mr Lincoln. I think your point is well taken. 

Mr O^Connell. I would like to know what you think the reason is. 

Mr Lincoln. In order, under an earlier form of contract, that 
his so-called lapsed indebtedness, which was a factor in his compensa- 
tion at that time, might be kept down. That is a reason which 1 
suspect impelled agents some years ago to resort to that practice 
which the company absolutely forbids. ^ -r 

Mr. Gesell. In other words, an agent's pay would be greater if 
his business showed a high degree of persistency. 

Mr. Lincoln. Not today, I don't mean that applies today. 1 
said under earlier forms of contract. 

Mr Gesell. Therefore, in order to keep a record which would show 
a high degree of persistency, the agent might pay money for policy- 
holders where they were in arrears. 



5858 CONCENTRATION OF ECONOMIC POWER 

Mr. Lincoln, If I may adhere to my statement, under earlier 
forms of contract, which we haven't had for a good many years; 
if I raay adhere to that qualification; yes, sir. 

Mr. Gesell. Do I understand that at the present time the agent's 
contract in use in your company does not contain any provision 
which would make it to the agent's advantage to prevent lapses from 
occurring ? 

Mr, Lincoln. Will you repeat that, please? 

(The reporter read the question.) 

Mr. Gesell. Let me say it this way: It is still to the agent's ad- 
vantage to prevent lapses to the debits. 

Mr. Lincoln. He gets a commission. 

The Vice Chairman. May we discontinue at this point. If you 
boys want to take pictures and Mr. Lincoln has no objection 

Mr. Lincoln. I have no predilection toward being photographed. 

The Vice Chairman. I am interested in proceeding smoothly and 
in an orderly way. 

I didn't mean to block you from taking the photographs. 

Mr. Gesell. I will rephrase my question. The agent still gets 
some commission, does he not, in your company for the persistency 
of his business — conservation commission ? 

Mr. Lincoln. One phase of our present agent's contract is the com- 
mission for conservation, which means for keeping the business on 
the books, and that, of course, involves the affirmative efforts on the 
part of the agent, and to the extent that those efforts are successful 
there is a sliding scale of connnissions, predicated on that factor 
alone. , 

Mr. Gesell. Then wouldn't it be possible still for an agent to find 
it desirable to build up excess arrears for his debit ? 

Mr. Lincoln. I think not, I can't give an absolute, categorical 
"no," but I think not. 

COMPENSATION OF FIELD FORCE 

Mr. Gesell. Do you recognize this form which I show you as the 
form of the present agent's contract in use in your company ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. That is the contract which all agents coming into the 
business at the present time must sign ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. Are many of the older agents on that contract now? 

Mr. Lincoln. I think all but, I have the figures — I just don't carry 
those figures in my mind. All but 73 out of 20,000, I am told 

Mr, Gesell. Are on this type of contract ? 

Mr. Lincoln. I understand so, 

Mr. Gesell. I wish to offer the the contract for the record. 

The Vice Chairman. It may be admitted. 

(The contract referred to was marked "Exhibit No, 994" and is 
included in the appendix on p, 6246.) 

Mr, Gesell. I neglected to ask you yesterday how many managers 
and how many assistant managers are employed by your company. 

Mr. Lincoln. Without referring to precise figures, I would say about 
860 managers and about 2,600 assistant managers. 



CONCENTRATION OF ECONOMIC POWER 5859 

Mr, Gesell, What is the average number of assistant managers per 
manager? 

Mr. Lincoln. I think it is approximately three. 

Mr. Gesell. And each assistant manager has about how many agents 
under him? 

Mr. Lincoln. Approximately eight, seven or eight. These figures, 
of course, aren't intended to be accurate. 

Mr. Gesell, I understand they are just estimates. The managers, 
the assistant managers, and the agents are all compensated to some 
degree, at least, upon the amount of business they produce, are they 
not? 

Mr. Lincoln. Well, in a remote fashion. There is a factor in the 
manager's contract and the assistant manager's contract which is 
predicated on the new business of the agent, in the first place the new 
business which persists for a year, and it is a very small portion of the 
compensation of either the manager or the assistant manager. 

Mr. Gesell. Does the majority of the compensation both to the man- 
ager and the assistant manager come on a flat salary basis ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. How is that salary determined ? 

Mr. Lincoin. Well, some of it is predicated on the amount of pre- 
miums in force in the district in all departments of the business, and 
in gradations according to the size of the premium in force in the 
district; the fixed salary is determined at the beginning of the year. 

Mr, Gesell. Do certain outstanding managers or assistant man- 
agers receive compensation in the way of salary in addition to that 
which would come to them on the basis of this method of computing 
their salaries which you have just described? 

Mr. Lincoln. I don't believe I understand your question. Perhaps 
you can clarify it. Insofar as I understand it, I would say no. 

Mr. Gesell. Have you any top salary for your managers, for 
example ? 

Mr. Lincoln. You mean a maximum? 

Mr. Gesell. Yes. 

Mr, Lincoln, I never heard of one. 

Mr. Gesell. In other words, there is an area of flexibility with 
which you can compensate any particular manager, based upon his 
services to the company? 

Mr, Lincoln, Well, I don't think it comes ' to .that. It is more 
in the nature of the top size of the district; on the basis of a district 
with a large premium income and salary is necessarily going to be 
higher than the salary of a manager in the smaller district. 

Mr, Gesell, I have in mind any compensation over and above 
that which would be determined purely upon the basis of the size 
of his district, 

Mr, Lincoln, There are compensating factors, but the salary to 
which you are addressing yourself is a fixed salary determined on the 
size of the premium income in the district. 

Mr. Gesell, Have you in mind the approximate average salary 
at the present time of a manager, or average compensation ? 
' Mr, Lincoln, I hate to have you ask me figures, I think it is 
$187, You expect me to get the right answer, don't you? 

Mr, Gesell. Yes. 

" Lincoln. $191, I am told. 



5860 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. Over what period of time? 

Mr. Lincoln. A week. 

Mr. Gesell. Is that salary or is that his entire compensation? 

Mr. Lincoln. That is his entire compensation. 

RELATIVE COST OF INDUSTRIAL INSURANCE 

Mr. Gesell. Am I correct in saying, Mr. Lincoln, that industrial 
insurance is a more expensive form of insurance than ordinary 
insurance ? 

Mr. Lincoln. The rates of insurance, that is, the rates of premium, 
for industrial policies are necessarily higher per unit of insurance 

Mr. O'CoNNELL (interposing). May I interrupt? Why is it neces- 
sary, in answer to a question like that, to say anything other than 
"yes" or "no"? Either the rates of insurance for industrial insur- 
ance are higher or they are not higher, and it is a little bit difficult 
for me to absorb some of the answers. The answer should be very 
simple. 

Mr. Lincoln. The answer can be made in a categorical fashion, 
but I am afraid a misunderstanding might creep into the record if 
there were no effort to clear up the question. 

Mr. O'CoNNELL. I think we should give the examiner an op- 
portunity to ask the series of questions on this line that he desires, 
and then if you want to make any other explanation at the end of 
it it would seem to me more reasonable. It doesn't seem to be rea- 
sonable that every time a questioner asks a question it is necessary 
for you to make a long explanation of a relatively simple answer. 
I am not trying to shut you off, but it seems to me the questions can 
be simply answered and you can explain later. Isn't that rea- 
sonable ? 

The Vice Chairman. I think that that is a reasonable request, and 
I feel that what is happening is that you are anticipating; for 
example, when a question is asked directly whether it is more expen- 
sive or not, I think there might be a direct "Yes." and later on it 
will develop why it is more expensive. 

Mr. Lincoln. I am very glad to do that, sir. I hope, however, 
that it won't be lost sight of, so that eventually in the course of the 
testimony some amplification may be made of that answer. 

The Vice Chairman. We are very anxious to get all the facts. 
We will allow the fullest latitude, and I will add my voice to Mr. 
O'Connell's by saying that if you do not anticipate and answer 
directly, and you feel that there is some explanation that should be 
added later on, you will have that opportunity. 

Mr. Lincoln. The answer to the question is "Yes." 

Mr. Gesell. The second question on my notes here is, Mr. Lincoln, 
Why does it cost more? 

Mr. Lincoln. That makes your point for you. Counselor. 

Because of the higher mortality of the lower-income groups usu- 
ally insured under industrial policies, and because of the nature of 
the payment or collection of the premiums, which premiums are 
collected by the agents at the homes of the insured on a weekly basis. 

Mr. Gesell. You would say, then, that two principal reasons are 
(1) that it obviously costs more to call weekly at the homes of the 



CONCENTRATION OF ECONOMIC POWER 5861 

insured to collect the premiums, and (2) because the type of risk is 
such that the mortality is heavier. 

Mr. Lincoln. The mortality tables which have been prepared by 
the actuaries demonstrate there is a higher mortality among indi- 
viduals in what I call the lower-income groups. 

Mr, Gesell. Are there any other factors which should be taken 
into consideration in determining why industrial costs more than 
ordinary ? 

Mr. Lincoln. I am afraid I would have to refer that to the 
actuaries. 

Mr. O'CoNNELL. When you say that your actuarial figures indicate 
that the mortality rate is higher in the lower-income groups, do you 
mean that the mortality among the persons insured in your company 
is higher, or do you mean that the mortality is actually higher? 

Mr. Lincoln. I believe — I don't like to testify on actuarial sub- 
jects — ^that the statistics show the mortality rate is higher all along 
the line, whether insured in our company or not. 

Mr. O'CoNNELL. There is a difference, I take it, in the degree of 
selection as between industrial policies and ordinary policies in your 
company ? 

Mr. Lincoln. In the manner of selection? 

Mr. O'CoNNELL. I take it there are, generally speaking, no medical 
examinations, and that sort of thing. 

Mr. Lincoln. There are medical examinations, I believe, in about 
15 percent of the industrial cases. 

Mr. O'CoNNELL. And in practically all of the ordinary cases? 

Mr. Lincoln. Oh, no; far from it, 

Mr. O CoNNELL. What percentage ? 

Mr. Lincoln. I don't bear the percentage in mind, but we have a 
substantial of nonmedical business in the ordinary department. 

Mr. O'CoNNELL. Is that so? 

Mr. Gesell. Are there any other factors that occur to you other 
than mortality and collection expense? 

Mr. Lincoln. There are none that occur to me. It may be the 
actuaries have others in mind. 

There are a great many more industrial policies, units of insur- 
ance, than ordinary policies, which necessarily requires a good deal 
more overhead and home-office expense in handling. We have about 
six industrial policies to one ordinary policy, on. the average, and 
there is a necessary overhead there, that undoubtedly comes into that 
computation. 

Mr. Gesell. So that from the point of view of your home office 
there is more floor space, more clerks, more mechanical processes 
involved in handling the industrial department ? 

Mr. Lincoln. Yes. 

Mr. Gesell. Does the business cost more to acquire than ordinary 
business ? 

Mr, Lincoln. The first year's cost of the industrial business is 
not greater than the first-year cost of our ordinary business, and it is 
less than the first-year cost of many ordinary companies. That is on 
the basis of the pro rata of premium. 

Mr. Gesell. I was talking about acquisition cost rather than first- 
year cost. Do you distinguish between the two ? 



i^gg2 CONCENTRATION OF ECONOMIC POWER 

Mr. Lincoln. The acquisition cost in the case of an industrial policy 
embraces the commission that is paid to the agent in case the business 
persists throughout the year, plus the collection commissions which 
are paid "for the collection of the weekly premiums through the year, 

Mr. Gesell. And you use, then, I take it, synonymously, first-year 
cost and acquisition cost. 

Mr. Lincoln. Well, of course, the first-year cost embraces the cost 
of handling the business in the home office; the acquisition cost I 
assume means the production of the business up to the time it gets 
into the home office management. 

Mr. Gesell. Yes; I had in mind the cost required to get the business 
on the books, so to speak. Is that higher for industrial than ordinary, 
or not? 

Mr. Lincoln. I believe not, sir. 

Mr. Gesell. Is it your belief that it is the same or less? 

Mr. Lincoln. Very close to the same cost that the ordinary policies 
involve. 

Mr. Gesell. Does your company have a higher lapse rate in the 
industrial department than in the ordinary department? 

Mr. Lincoln. Naturally. I don't carry those figures in my mind, 
but I am quite sure, on the basis of lapsation which in some cases is 
used, there is a considerably higher lapse rate. 

Mr. Gesell. Is that another factor, do you believe, in accounting 
for the higher cost of industrial insurance as opposed to ordinary? 

Mr. Lincoln. I don't know\ I don't know whether the actuaries 
take that into consideration or not. 

Mr. Gesell. Let me see if I can help you get at the answer. How 
long does it take for a policy to pay for itself in getting on the books? 

Mr. Lincoln. Well, I can only answer that in this fashion, and 
that is the type of question that I feel certain an actuary can much 
better answer than I can. My answer to it is that under our present 
form of policy, after 6 months, 26 weeks, in force, we have a form of 
surrender value which is available to the policyholder, 

Mr. Gesell. I take it, then, that it takes, according to your best 
estimate, at least 6 months for the policy to pay for itself. 

Mr. Lincoln. I wouldn't say wdiether it had paid for itself then. 
I am just not capable of answering a question of that character, it is 
so purely actuarial. 

Mr. Gesell. I have in mind just the very broadest generalities, Mr. 
Lincoln. 

Mr. Lincoln. I only reach this conclusion. Counselor, that when 
we are giving a surrender value after 6 months that is some evidence 
that the policy is in a position where we can afford to pay it. 

Mr. Gesell. Whether it is 6 months or whatever the period is, it 
does take a time for the policy to pay for itself, and it just occurred 
to me that all policies that lapse before that time must have increased 
the expense to the policyholders who remain. That is why I asked 
whether lapse was not one factor in the higher cost of industrial 
insurance. 

Mr. Lincoln. I have a figure which may have a bearing on that 
last statement of yours, and that is that the cost to the remaining pol- 



CONCENTRATION OF ECONOMIC POWER 5863 

icyholders of the class from wliich the lapse occurred is about one- 
teutli of 1 percent of their premiums. 

Mr. Gesell. But it still is a factor in the cost, isn't it ? 

Mr. Lincoln. To that extent I suppose it is. 

Mr. Gesell. All I am seeking to do is to get into the record all the 
various factors which affect this higher cost. 

Mr. Lincoln. I should like you to have them, and I assure you you 
will get them if you examine the actuaries. I am doing the best I 
can not being an actuary. 

Mr. Gesell. Is it true that the industrial policies of your company 
have made greater contributions, proportionately, to surplus than 
have the ordinary policyholders? 

Mr. Lincoln. The surplus in the industrial department on a per- 
centage basis is larger than in the ordinary department. 

Mr. Gesell. You say it is larger? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. Would that be another factor which would be involved 
in this question of cost? 

Mr. Lincoln. I don't know. I don't think so, I think that is 
predicated on other considerations. I don't know that it does or does 
not. 

Mr. Gesell. Yesterday Congressman Casey indicated interest in 
the schedule which was introduced with respect to distribution of 
income showing the different amounts of income going to certain 
classifications from the industrial and ordinary departments.^ I 
don't believe you have seen that schedule. I thought perhaps you 
would like to bring out anything you have in mind. 

The Vice Chairman. I will look at it, and you continue, unless you 
want to use it now. 

Mr. Gesell. This covers the period from '34 to '38. In order that 
we may have in mind some of the basic differences between the two 
departments, in the industrial department we see 62.97 percent of the 
income paid to insureds and beneficiaries as opposed to 57.66 per- 
cent in the ordinary department. Taking into account the health and 
welfare work apd the increases in the insured's funds, we have a per- 
centage for the industrial department of 77.65 percent and a percent- 
age for the ordinary of 85.58 percent. 

Payments to managers, assistants, agents, district office clerks, and 
field expense, account for 15.29 percent in the industrial department 
as opposed to 7.63 percent in the ordinary. Now, I take it that 
rather sharp difference is the difference which you attribute to the 
additional overhead in the home office and the cost of collecting on 
the debits. 

Mr. Lincoln. Well, you will have merely to accept my generaliza- 
tion that I assume that is so. I don't know. 

Mr. Gesell. The division as to salaries, rents, employees, health, 
and welfare, and other home-office expense is 5.31 percent for the 
industrial department and 5.22 percent for the ordinary department. 
The total expenses for the industrial department amount to 22.35 
percent against total expenses of the ordinary department 14.42 
percent. 



1 See "Exhibit No. 901," appendix, p. 623G. 



I 

I 



5864 CONCENTRATION *OF ECONOMIC POWER 

In many of the areas that we have been discussing, Mr. Lincoln, 
the activities of the agency department are extremely important, 
are they not? 

Mr. Lincoln. Very. 

Mr. Gesell. In attempting to keep down the cost of industrial 
insurance, the better an agency department is, the lower the cost is 
apt to be. 

Mr. Lincoln. I am sure of it; yes. 

Mr. Gesell. If the agency department can in one manner or 
another minimize collection expense, show good judgment in the 
selection of risks, look for persistent business, keep down acquisi- 
tion expense, in all of those fields the over-all cost of industrial 
insurance is affected. 

Mr. Lincoln. It must be. 

Mr. Gesell. In that connection I want to know whether you feel 
that the method of compensating agents in the Metropolitan Life 
Insurance Co., and the efforts of the company to obtain new business, 
are conducive to bringing about the lowest possible expense. 

Mr. Lincoln. I could never say the lowest possible. We make 
improvements from time to time. We are always seeking to improve 
the service of the' company to its policyholders and I couldn't say 
that it had attained that at the stage of its progress at this moment. 
We are seeking to do that all the time. 

PROGRAMMING 

Mr. Gesell. Do you feel that there is any amount of what is 
known as high-pressure selling in the Metropolitan Life Insurance 
Co.? 

Mr. Lincoln. Of course, the word "high-pressure" is subject to 
some definition. I don't think that we have anything of the charac- 
ter contemplated, I suppose, by your question. We certainly do not 
want it; we discountenance it in every fashion, in securing of the 
risk, the method of underwriting the risk at the home office, the 
follow-up that we make. 

Mr. Gesell. I take it, then, that you disagree rather violently with 
the conclusions in the recent report of the committee in New York 
on the revision of the laws in that State. Reading from page 21 of 
the report, it states — 

The pressure exercised on the agents in the sale of industrial policies has 
driven them to the point where they have been forced to depart from the ethics 
of their calling. 

Again later on the page — 

The pressure upon the agents has caused an enormous sale of industrial policies 
to those who are unable to maintain them. 

Mr. Lincoln. On both those counts I say that is an utterly unwar- 
ranted statement. 

Mr. Gesell. And you believe it does not in any event properly 
apply to your company. 

Mr. Lincoln. I certainly do. 

Would you be interested or would the committee be interested in 
the course that we seek to follow to see to it that only business which 
is properly applicable to the need of the policyholder is put on the 



CONCENTRATION OF ECONOMIC POWER 5865 

books, the course in which our applications are taken and which they 
follow through the home office ? I would be glad to describe that to 
you in detail. 

Mr. Gesell. I intended to ask Mr. Lincoln about it and I have no 
objection to his telling us about it now. 

Mr. Lincoln. I am sorry that I seem to be once or twice ahead of 
your questions. 

When an application is solicited in the field, the applicant secures 
the necessary data — I mean the agent secures the necessary data from 
the applicant and in addition to that on our application form we 
require a statement from the agent as to the family income and that 
is related very definitely to whether that insurance will be issued or 
in what amount. 

Mr. Henderson. Do you have a percentage, Mr. Lincoln, of family 
income which you think could be properly applied to insurance ? 

Mr. Lincoln. Not a formal percentage to which we work at all, 
no, sir; but I think that you can definitely say as a maximum — I 
don't mean by this answer to say that even we approach that maxi- 
mum, but a maximum certainly of 10 percent would be the highest 
that we would consider. 

Hr. Henderson. That is for all policies? 

Mr. Lincoln. That relates not only to policies in our company but 
to policies in force in other companies, and on our application blank 
we ask one question as to the amount of insurance in force in the 
Metropolitan and in other companies when this application is secured. 

The Vice Chairman. Does that apply to ordinary as well as indus- 
trial — that 10 percent? 

Mr. Lincoln. Oh, I don't know. 

The Vice Chairman. You are just talking about industrial ? 

Mr. Lincoln. Yes, sir; I was confining that answer to industrial. 

After that application is secured and the agent has reported as 
to the family income, that application is reviewed by the manager 
in the district office and he knows our rules; he knows the company's 
insistence that insurance shall not be sold beyond needs or beyond the 
ability to pay ;, and the manager singles out applications which he 
feels do not meet that requirement and they are not forwarded to 
the home office. Those that are forwarded to the home office are 
again subjected to the closest scrutiny on the part of the bureau 
which we have at the home office which makes a study of the applica- 
tion, of the relationship of the family income to the amount of insur- 
ance then in force and to be in force, and singles out cases where 
that requirement seems not to be met. Then those cases are sent 
back to the district office ; the agent is supposed either to take them 
up or they may ultimately be discarded, but we will not accept that 
business if in our judgment, carried through in this sifting process, 
the amount of the income of the family does not warrant the amount 
of insurance which would be in force if that policy is issued. 

The Vice Chairman. How much stress do you place upon the 
iinswer of an applicant to your question as to what other insurance 
he carries? 

Mr. Lincoln. Oh, a great deal; it is a very important answer. 

The Vice Chairman. If he answers that he carries no other in- 
surance and you found out that he carries industrial policies in some 
other company, would that be a basis for your voidance of a policy? 



5866 CONCENTRATION 'OF ECONOMIC POWER 

Mr. Lincoln. I don't think that you could void a policy. I may 
be a little loose in this answer, but we would make efforts to see 
that that policy was in the language of the business lifted. We 
wouldn't want to persist in the relationship to that policyholder 
under those circumstances. 

Mr. O'CoNNELL. Were you here yesterday when the evidence was 
introduced relative to the so-called Fortune case ? ^ 

Mr. Lincoln. No, sir. 

Mr. O'CoNNELL. In that case apparently there were some 44 poli- 
cies of which 13 were with your company and some, of them written 
fairly recently. The amount of income taken in premiums appar- 
ently was something over 50 percent. I wonder how you would 
explain that. 

Mr. Lincoln. I can discuss that in general terms. I can't discuss 
it so specifically as some of my associates. Of course that has been 
an egregious exception, an exceptional case. Everybody understands 
that that case was exceptional. So far as our policies are concerned 
I think, if I recall, the industrial policies were issued prior to 1927. 
It just happens that it was in 1927 that this bureau of ours which I 
have just described was sef up in the home office. 

Mr. Henderson.' Was that bureau set up because of a growing rec- 
ognition on the part of the Metropolitan that there was an over- 
selling ? 

Mr. Lincoln. A growing recognition of our obligation to thp 
public and to policyholders to see to it that insurance is placed oni> 
in accordance with the needs and where the premiums can be paid 
and can be expected to be kept up. 

The Vice Chairman. When was that bureau established? 

Mr. Lincoln. 1927. 

The Vice Chairman. '27. Yesterday morning INIr. Siegel testi- 
fied that in March 1935, he went on the radio once a week with a 
sustaining program, and he said for several months he talked insur- 
ance generally and received little response.^ About the third month 
of his weekly broadcast upon industrial insurance he said immedi- 
ately there was a response to that speech and thereafter traffic became 
so heavy in the studio that he set up private offices, set up business in 
1937, 1 believe, and from that day to this some 40,000 i>eople holding 
industrial policies have called upon him for assistance and advice. 
Having that in mind, do you say that that showed a condition oi 
overselling that was rather widespread? 

Mr. Lincoln. I don't think that foUoAvs at all, sir. There is no 
evidence in a statement like that, nor for that matter in this Fortune 
case, as to what the family income was when the family policies were 
sold. In the Fortune case we have had reports which I can't sub- 
stantiate that the family income at the time those policies were taken 
out was very substantial. 

Mr. O'CoNNELL. Mr. Lincoln, you said a moment ago that you 
thought no industrial policies were sold to the Fortune family by 
your company after 1927. 

Mr. Lincoln. That is my understanding. 



iSupre, p. 5813. Also "Exhibit No. 9S0," appendix, p. G214. 
=• ^jupra, p. 5801, et seq. 



CONCENTRATION OF ECONOMIC POWER 5867 

Mr. O'CoNNELL. According to tlie testimony yesterday a policy ^vas 
written by the Metropolitan to that family as recently as 1934. 
Mr. Lincoln. Wasn't that an ordinary jDolicy ? 
Mr. O'CoNNELL. I have no idea. 

Mr. Lincoln. I believe that was an ordinarv policy upon the 
child. 

Mr. Gesell. I think that is right. 

The Vice Chairman. I think that you used in the answer to one of 
your questions this morning the term "overreaching." What do you 
mean by that term "overreaching" ? 

Mr. LiNCCLN. It is difficult to define. I have forgotten in just 
what connection I used it, but any taking advantage of a policyholder 
or applicant would be a serious offense in our point of view; we just 
won't have it. We insist on honest, honorable treatment of the 
policyholders and the prospects on the part of our company. We 
have a great responsibility to the public, to the policyholders, and 
to the people that we seek to persuade to become policyholders. 

The Vice Chairman. Do you know whether other companies have 
set up bureaus similar to yours? 

Mr. Lincoln. I am sure I can't testify on that. May I just follow 
through on that? After the application is issued we have another 
corps of employees known as application inspectoi's, who go out 
through the field and make test checks, a substantial amount of test 
checks, interviewing the policyholders themselves as to the applica- 
tion, as to the answers to the questions and as to their condition. 
That is a subsequent check that we make after the policy is issued. 

Mr. Gesell. Have you told everything you do in the home oflSce? 
I don't want to interrupt. 

Mr. Lincoln. I hope so. I may have forgotten something. 

Mr. Gesell. Wlien was this 10 percent that you referred to in 
response to Commissioner Henderson's question first hinde known to 
your agents as the maximum which your com])any would allow ? 

Mr. Lincoln. I don't know that there is any such formal percent- 
age. I don't know that it has ever been established in the home office 
or the field. I heard rambling discussion. My associates suggest that 
that is home office. I don't know anything about it. 

Mr. Gesell. That is the rule that is followed by those who check 
the applications when they come to the home office? 

Mr. Lincoln. I tried to so emphasize the fact that that is not a 
rule, that it is simply an outside maximum in each case that is 
reviewed on a case basis. 

Mr. Gesell. When Avas that rule established? 

Mr. Lincoln. I don't know. 

Mr, Gesell. If you cai\ get it, I would certainly like to know. 

Mr. Lincoln. Last year, 

Mr. Gesell. Did you have some different percentage maximum 
prior to that time or was that last year the first time that you gave 
thought to this question of incomes ? 

Mr. Lincoln. My associate says that we for the first time last year 
incorporated that question by test, but before that we gave, of course, 
special attention to these cases, as I described it, on a case basis. 

The Vice Chairman. May I say in reading over the record yester- 
day I was struck by the niunber of answers which said "my associate," 
and I think unless the witness wishes to adopt what he is advised as 

124491—40 — pt. 12 in 



58t)8 CONCENTRATION OF ECONOMIC POWER 

his own answer, it ought to be set forth in the record who his 
associate is. 

INIr. Lincoln. In this case Vice President Smith, the officer in 
charge of our industrial department. 

Mr. Gesell. There was another statement you made that I want 
to ask you about it. You said in discussing this Fortune case with 
Mr. O'Connell that it was a question of the percentage of income at 
the time the policies were sold. .You do have another problem, don't 
you, and that is the changes in that percentage of income which go 
to premiums as the result of changed conditions in the particular 
family's existence. 

]Mr. Lincoln. If such cases arise, we have sought to take some 
action on them, making recommendations to the policyholders. We 
have been rebuffed time and again in cases where we have approached 
policyholders and made a suggestion that they change from one 
f orm"^ of policy to another, and they say they want to keep it the 
way it is. That is a responsibility ; if we want to make such a recom- 
mendation, anything tending to change the policyholder's type of 
insurance is a responsibility which I have more hesitatfon in assum- 
ing than a counselor seems to have. I think it is a serious question. 
The policyholders have taken out their policy; they have a contract; 
they want to keep it in that shape. We are in no position legally 
to upset it. It is just a matter of recommendation and we have tried 
it aiid we have found the policyholders don't wish to make those 
changes. 

]\Ir. Gesell. It is then very difficult for your company, after it has 
placed the policies, to work out such adjustments as you may think 
necessary to meet their changed income? 

Mr. Lincoln. It is utterly impossible as a contractual matter to say 
that we are going to require a contract be changed, and the recommen- 
dations we seek to make have not been accepted, although we are 
undertaking to follow the cases of some of these policyholders which 
would seem to us to require some consideration and reappraisal, and 
we haven't had too good success in persuading them to make the 
changes. 

^ The Vice Chairman. Do you think their reluctance to follow the 
suggestions of the company is due in any way to a suspicion the com- 
pany might wish to profit more by the change? 

Mr. Lincoln. No, sir; I think "that the reason is that those policy- 
holders feel that they know their business, they know what they have 
got, and they are satisfied to keep it, and in a matter of judgment 
they prefer to use their own judgment. 

Mr. O'Connell. The experience of the counselors is apparently 
somewhat at variance from yours. 

Mr. Lincoln. I don't know much about this experience of the coun- 
selors. I hear a lot about it. 

Mr. O'Connell. You are quite interested in their activities, and I 
understood you to say yesterday 

Mr. Lincoln (interposing). You gathered correctly yesterday. 

Mr. O'Connell. And apparently your interest arises largely from 
the fact that they have been successful in advising a large number of 
policyholders to change their form of coverage. 

Mr. Lincoln, Here is an example, Mr. O'Connell: In one case that 
comes to my mind where a counselor recommended that a policy be 



CONCENTRATION OF ECONOMIC P(nVER , 5869 

changed from one form to another which involved a great decrease in 
the amount of the death benefit, the policyholder declined to accept 
that change and in two weeks that policyholder was dead. Now, that 
is a great responsibility to assume. 

Mr. O'CoNNELL. We are talking about two different things, I think. 
I wasn't interested particularly at this point in the merits of the par- 
ticular case. I was merely attempting to develop the fact, which 
seems to me to be a fact, that the counselors have more success than 
you indicate that your company has had in advising people to change 
their form of coverage. You say it is almost impossible to get a 
policyholder to change the type of insurance that he has after it is 
on the books. 

Mr. Lincoln. I wouldn't go so far as to say it is almost impossible. 
1 would say that our efforts in that direction haven't met with the 
complete success that we contemplated when we undertook them. 

Mr, Gesell. May I ask whether in the case of these five-thousand- 
odd cases that luiA-e come to the Life Insurance Adjustment Bureau, 
that was one of the reasons why the company set up this bureau, in 
order that it would go througli there rather than through the com- 
pany and there would be better success in working out changes in 
the programs? 

Mr. Lincoln. What is the question? I got lost. 

Mr. Gesell. I will try to restate it again for you. In setting up the 
Life Insurance Adjustment Bureau, was it intended that it would be 
easier for the companies to work out adjustments in welfare cases 
through a bureau not bearing the company name than it would be for 
the company to do it direct ? 

Mr. Lincoln. I don't think that had the slightest thing to do with 
it. The bureau is well known to represent the t'hree largest indus- 
trial companies. There is no effort whatsoever that I ever heard 
suggested until this moment that this, company's name should be 
subordinated some place. 

Mr. Gesell. Then the bureau lias had considerable success in ad- 
justing these cases? 

Mr. Lincoln. We would have if we had the same opportunity. 
AVe don't know — I want to make this perfectly clear; we don't 
know, and so far as I know, the bureau has no figures as to what 
the premium income of those families was when the policies were 
taken out. Incidentally, in passing, it is my understanding that 
the witness from the bureau the other day gave figures which em- 
braces policies absolutely lapsed. The figures which I am told were 
given here included not only going policies but lapsed policies. 

Mr. Gesell. That was all carefully brought out, and this involves 
another challenge on another witness before the committee. 

Mr. LixcoLN. It is not "a challenge; it is just an effort to clear up 
the facts for the committee. 

Air. Gesell. Did you say that the application contains a statement 
as to the amount of insurance in force in these families? 

Mr. Lincoln. As I understand your question, the application is 
calculated to bring information to the company as to the amount 
of insurance in force in the Aletropolitan or in other companies at 
the date of the application. 

Mr. Gesell. Does the application ask for the income of the family 
at the time the application is written? 



58V0 CONCENTRATION OF ECONOMIC POWER 

Mr. Lincoln. We ask tlie agent to inform us as to the income of 
the family, and we have a blank question in that part of the applica- 
tion which the agent fills out which is calculated to give us that 
information. 

Mr. Gesell. That is based on the agent's estimate of the family's 
income ? 

Mr. Lincoln. It is based on the agent's estimate, and we have 
made a very careful survey of -the accuracy of those answers and 
find in considerably more than 99 percent of the answers they are 
sound. 

Mr. Gesell. I should imagine they would be very accurate. They 
know the families well. 

]\Ir. Lincoln. That is correct. 

Mr. Gesell. What check is there made to determine the accuracy 
of the statements in the applications with respect to the amount of 
insurance in force in a particular family? I believe you said 
inspectors. 

Mr. Lincoln. We have application inspectors, as I said, who go 
into the different districts and make test checks. 

Mr. Gesell. I was interested in observing on the report of the 
inspectors on examination of the weekly industrial nonmedical appli- 
cations for the 5'ear 1936 that the biggest item under misstatements 
or omissions on applications concerned is the item with respect to 
insurance in force in this or other companies. I take it, then, you do 
have trouble in getting accurate information from the policyholders 
witli respect to the amount of insurance they have in force. 

Mr. Lincoln. I can't sj^eak from experience. What I am trying to 
say is that as a question of policy, we are extremely interested in tnat 
as a factor in determining whether that insurance is properly issued. 

Mr. Gesell. You don't know whether you have any difficulty get- 
ting that information or not ? 

Mr. Lincoln. I couldn't personally tell you. 

Mr. Gesell. When I asked you with respect to agency pressure, 
I gathered from what you said that you thought the existence of 
Kuch pressure was bad from the point of view of the underwriting of 
industrial insurance. 

Mr. Lincoln. We want all our insurance sold according to the needs, 
of the family and the ability to pay it, and if they haven't that need 
Kiid that ability to pay, we don't want it. 

Mr. Gesell. That is why you feel pressure upon production or get- 
1 ing business for the sake of business alone, is bad. 

Mr. Lincoln. I don't know what that word "pressure" means. I 
suppose you and I and everyone in this room could make a different 
definition of it. I would rather confine my answer to the policy of the 
company, 

Mr. Gesell. We were interested both in the policy and the practice 
of the company, 

Mr. Lincoln. I am decidedly interested in the practice — decidedl}' 
&o. 

Mr. Gesell. I think it is a rather simple question. Do you think 
that emphasis upon the production of business, if it is in the extreme, 
is bad from the point of view of underwriting generally? 

Mr, Lincoln. Of course it is; if it doesn't take into consideration 
the proprieties of the issuance of that policy, it is very bad. 



CONCEINTRATION OF ECONOMIC POWER 5871 

Mr. Gesell. May I ask wliether you have sales contests in your 
company? 

Mr. Lincoln. A ^i^eneralized answer like my friend would like to 
have me. give, would be no, but I must amplify it a little if you are 
willing. 

Mr. Gesell. Yes ; I would like to have your explanation. 

Mr. O'CoNNELL. Can't you answer that question "yes" or "no"? 

Mr. Lincoln. Because of the definition, sir, of what a sales contest 
is, I would like to tell you of one or two situations that we have that 
might or might not fall within the definition of a sales contest in your 
mind. We have, for instance, in the ordinary department, what we 
call the $100,000 club, in which every man who writes $100,000 of 
ordinary insurance during the year gets a little button of insignificant 
monetary value, and I believe he gets the right to have his name and 
his $100,000 club on some stationery. That is that. 

We have throughout the year a situation that h^s been developed 
by the managers themselves. This is not a company contest, if you 
call it a contest, but some 31 years ago the company's managers on 
their own account, proposed that there be a trophy given by the com- 
pany's veterans' association, which embraces all managers of 20 years 
or over; a trophy given to the district which should best meet the re- 
quirements of sound management of the company's business. Each 
year in these eight-hundred-odd districts that we have there is kept a 
record, or we keep a record as to the all-round meeting of requirements 
on the part of those districts, and the one which is outstanding on the 
formula that we have is awarded at the company's annual convention, 
by the veterans' association. It is awarded by the veterans' associa- 
tion, not by the company, a trophy. It happens that the trophy for 
1938 was awarded to the district here in Washington— one of the dis- 
tricts here in Washington. That formula for that award is predicated 
upon all-round management. It is predicated upon the production, the 
business in force, the gain in force, the agency terminations. All the 
factors that go to make up good management are included, and the 
test is- as to which one best meets that requirement. 

Then about 5 or 6 years ago we undertook what we called sales 
congresses, which were designed to be educational meetings— and I 
say that very seriously— of groups of our agents from the different 
territories, to be gathered at one point once a year. Those meetiiig* 
were held^ in localities as respects the different territories which 
seemed suitable. The agents who, attend those meetings, or did 
attend them— because that type of meeting has since been discon- 
tinued; but the agents who did attend them were selected on the 
basis of an all-round production record. A man couldn't go to one 
of those meetings if he just specialized in one or another branch 
of the company's business. He had to have an all-round record in 
order to be eligible to attend. 

Those meetings, running, I think, some 5 years, were held as 
respects each territory in locations which seemed suitable, as for 
instance, I have in mind in the southern territory our men were 
brought in 1 year to Biloxi, in another year to Asheville, in another 
year to Chattanooga. 

In the New England territory, I rempmber one time they were 
brought to New York. I say I remember it because officers and 



5872 CONCENTRATION OF ECONOMIC POWER 

other officials of the company would appear at those meetings and 
I attended one of them in New York. 

The men from the territory here, which embraces from the Dis- 
trict of Columbia to New Jersey, were taken on occasion to Atlantic 
City, to New York, to Boston, to Montreal. The men from Indiana 
were taken to Niagara Falls on one occasion that I remember, and 
so it goes. I don't want to tire }ou with the detail, but if you 
embrace in your question a description of that sort as a contest, I 
have tried to tell you what it is. 

Mr. Gesell. You recognize this document I show you as one set- 
ting up the qualifications for the sales congress to which you refer? 

]\Ir. Lincoln. Without reading it, I am sure from a glance that 
it is correct. Suppose I do read it now. 

Mr. Gesell. Suit yourself. 

Mr. Lincoln. Yes, sir. I should have said in the description of 
these sales congresses that the men who attend have a designation 
of Star Salesmen. I am reminded of that by looking at it. 

Mr. Gesell. Those who attend are determined through a point 
system, based upon the amount of industrial, paid-up ordinary, and 
accident and health policies written, the company reserving to itself 
the right to withhold anyone from eligibility where the character 
of his business is of poor grade, 

Mr. Lincoln. I want to make two points clear. In the first place, 
that formula is designed to produce an all-round record in all de- 
partments of the business. I also want to make it clear, if it wasn't 
clear from my other statement, that that type of sales congress 
has b^n discontinued. In the place of it, we are now holding sales 
conferences of all our men — this year they are being held and not 
the type which took some and not all of the men as described there. 

Mr. Gesell. J wish to offer this for the record. 

The Vice Chairman. It may be admitted. 

(The document referred to was marked "Exhibit No. 995" and is 
included in the appendix on p. 6251.) 

Mr. Gesell. I gather from what you said that your company is as 
a matter of policy opposed to sales contests. 

Mr. Lincoln. Decidedly. I want to make that clear. But I did 
want to have these descriptions so I wouldn't be misunderst^H, 

Mr. Gesell. May I ask why ? 

Mr. Lincoln. Because there would be a human tendency toward 
an effort to produce a class of business which we wouldn't want 
the books. We don't want business that will not persist. . We don 
want business ^vhich is written without regard to the family re 
quirements and the familv ability to pay, and we believe that those 
contests may have that effect. Insofar as it is possible to discourage 
them, we are doing it. 

Tlie Vice Chairman. You feel that is bad business from the stand- 
point of profit and loss ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. Coming back for a moment to your statement thai, 
you believe that 10 percent is possibly the maximum, I was interested 
in reading a market survey conducted back in 1928 and 1929 by your 
company and the Prudential. Are you familiar in a general wav 
with that survey? 



CONCENTRATION OF ECONOMIC POWER 5873 

Mr. LixcoLN. No, sir. May I see it to refresh my recollection ? 

Mr. Gesell. Certainly. 

Mr. Lincoln. I suspect the introduction of the Prudential into it 
is gratuitous. I surmise from glancing at it that it is a Metropolitan 
document. 

Mr, Gesell. Let me ask you this question directly so we will know 
where we are. Do j^ou recall a survey was made jointly by your 
company and the Prudential of high premium-paying families in 
certain industrial areas? 

Mr. Lincoln. I do not. If that is developed here, I have no recol- 
lection of it. JVIay I just read the first paragraph? 

Well, it is quite evident from that statement that there was an in- 
dependent survey conducted by tlie Prudential. I have no knowledge 
of it and no recollection. 

Mr. Gesell. You have no recollection of that at all? 

Mr. Lincoln. No, sir, I see on the outside it is marked 1930, Is 
that your figure? 

Mr. Gesell. Will you consult with representatives of your company 
who are here and see if any of them recall such a survey? 

Mr. Lincoln. I am quite sure they will not, sir, because from the 
appearance of the document, I am certain it is one that Avas prepared 
by our economist's department and he is not here and I am sure none 
of the people here know anj^thing about it. 

Mr. Gesell. The part of the market survey which I wish to call to 
your particular attention was the statement as follows : 

Although approximately one-quarter of the families normally have incomes 
over $100 and one-half over $150, the remaining one-quarter of all the families 
have incomes under $50. 

Mr. Lincoln. May I interrupt — for what period, a week or month, 
or what is it intended to be? 

Mr. Gesell. I am reading from the report. I think it would be a 
month. If you wish to deny the authenticity of this document, I 
would be glad not to discuss it at all. 

Mr. Lincoln. Mr. Gesell, on the contrary, I am sure at a glance that 
was produced by our economist's department, I am certain that that 
is authentic. I don't want to discuss that. 

Mr, Gesell. The document goes on to state : 

In this latter group of families the ratio of premiums to income is 10-8 per- 
cent. This is obviously too large a proportion of premium to budget for families 
earning $50 a week. For the incomes below $30 the share spent for life insurance 
was 15.6 percent, and in some isolated instances the proportion was even higher. 
About one-tenth of the families spend between 11 and 14 percent of their respec- 
tive incomes, and 3.5 percent of the families spend over 15 percent of their 
incomes on life-insurance premiums. About three families out of every five 
devoted only from 3 to 7 percent to this purpose. 

I can't pursue the examination if you are not familiar with the 
document. 

Mr. Lincoln. I never saw it before. I doubt if I saw it when it 
came out. I certainly have" no recollection of it. 

Mr. Gesell. Have you made any recent studies to indicate what 
percentage of the income of the families who are policyholders of 
your 'company is being spent on insurance premiums? 

Mr. Lincoln. I am prompted here by Mr. Madden, who apparently 
knows the facts — less than 3 percent. I would have no personal 
knowledge. 



5874 CONCENTRATION OF ECONOMIC POWER 

Mr. O'CoNNELL. Less than 3 percent what? 

Mr. LiNcx)LN. Mr. Davis, our assistant actuary, tells us that less 
than 3 percent of the family income is used for weekly premium 
insurance in our and all other companies. 

Mr. Gesell. If Mr. Davis can take the stand a moment, I would like 
to ask him what the basis of that information is. 

TESTIMONY OF MALVIN E. DAVIS, ASSISTANT ACTUARY, METRO- 
POLITAN LIFE INSURANCE CO., NEW YORK, N. Y.— Resumed 

Mr. Gesell. You have been sworn, have you not, Mr. Davis? 

Mr. Davis. Yes. 

Mr. G-Esell. Do you know of studies which have been made to 
determine the percentage of income which is being spent by families 
who are Metropolitan policyholders? 

Mr. Davis. During the latter part of last year we added a question 
to our application asking for the income of the premium payer and 
for the number of wage earners in the family. From that, we have 
been able to estimate the income of the family. Since we have had 
that question in our application we have made several studies by tak- 
ing applications issued one week, later another week, and classifying 
them to determine how much these families who are applying for 
insurance would be paying out of their income for weekly premium 
insurance, both to the Metropolitan and to all other companies. 

Mr. Gesell. AATiere do you get the information as to how much 
they are paying to other companies ? 

Mr. Da\^s. The question is asked them on the application. 

Mr. Gesell. The application asks them how much money they 
spend a week on all 

Mr. Davis (interposing). Weekly premium insurance. 

Mr. Gesell. What about ordinary? Would you include that? 

Mr. Da\'is. We do not include ordinary; no. 

Mr. Gesell. So that from that information you would judge that 
3 percent 

Mr. Davis. It is less than 3 percent, nearer 214. 

Mr. Gesell. Less than 3 percent of the income of a family is being 
spent for weekly industrial premiums. 

Mr. Davis. That is right. 

Mr. Gesell. What number of applications were studied to reach 
that figure ? 

Mr. Davis. I recall three separate studies. I think in each one there 
were at least a thousand or more applications, and the picture was 
representative as the results of the three studies were practically 
identical. 

The Vice Chairman. What is the average income that you found 
out from the study of these incomes? 

Mr. Davis. I don't recall the 'exact figure. It is somewhere around 
$30 or $35. 

The Vice Chairman. That is the income of the family or the pre- 
mium paid? 

Mr. Davis. The income of the family. 

Mr. Henderson. WJiat was the range of the percentage of income? 

Mr. Davis. The studies were not made in that way. We did 
break down two of the studies as I recall, doing the same type of 



CONCENTRATION OF ECONOMIC POWER 5875 

study for families whose income was less than $30, where the income 
was $30 to $45, as I recall, and those with a total family income per 
week of over $45. For families with incomes of under $30 the 
relation was also somewhat less than 3 percent. 

Mr. Henderson. Maybe you didn't understand my question. In 
order to arrive at an average of two and a half, what was the high 
and what was the low ? 

Mr. Davis. The job was not done in that way, sir. 

Mr. Henderson. Would you mind explaining, then, to me what 
the technic was by which you arrived at that figure ? 

Mr. Davis. We would take the number of applications and add up 
the total income for the families represented by those applications, 
and the total being spent for weekly premiums to the Metropolitan 
and other companies on those applications and get a relationship be- . 
tween the two. We didn't get a relationship on each individual 
application, but in groups of applications. It is the average figure 
for the group as a whole. Do I make myself clear, sir? 

Mr. Henderson. Yes ; but I have the same general suspicion of this 
average that has been aroused by some of my own. In this case 
you are on the receiving end. Having dealt with figures over a good 
many years I think I know something of the difficulty in getting an 
average. An average of two items of 100 and 1 would produce au 
average of 501/2? which nobody pays, but I would be interested in 
knowing how many people pay 3 percent, how many people pay, for 
example, as shown by the earlier survey, 15 percent, 12 percent. You 
didn't take that into account? 

Mr. Davis. I don't recall, sir. 

Mr. Henderson. Do you recall any studies which have been made of 
that by your company in recent years? 

Mr. Davis. No ; I do not. 

Mr. Gesell. Was this study that you made reduced to writing in 
memorandum form ? 

Mr. Davis. Whether memoranda were written on the subject or 
whether the conclusions were merely the summary sheet of the study, 
I don't recall. I do recall summary sheets of the study, which are 
self-exlanatory, and presumably the study did not require a memo- 
randum. I am told that it might be of interest to you to know that 
our industrial families are paying to us on the average 70 cents per 
week for weekly premiums. 

Mr. Henderson. But it is obvious, of course, when you take the 
totality of income in those studies, that you are likely to get some 
industrial policies tiiat are held by persons of relatively high income. 

Mr, Davis. That is right. 

Mr. Henderson. Because a number of these industrial policies are 
taken when the age is very low, before the earner has a substantial 
income. I know people who are making $10,000 and more who still 
are paying a 5-cent weekly premium. Without any distribution of 
income in relation to the payments the figure is significant only as u 
sample, I would say, of. the percentage of annual income of a certain 
group that goes for this type of insurance. I think it is a significant 
figure as far as that goes, but I think it has a limited significance. 

Mr. Davis. For that reason, sir, the study was also made by limit- 
ing it to families whose income was not in excess of $30, to eliminate 
the influence of the families where the income might be quite large. 



5876 CONCENTRATION OF ECONOMIC POWER 

and there, too, for those families the amount being spent for weekly 
premiums was not in excess of 3 percent. 

The Vice Chairman. I thought you said the average income was 
$30 for the family. 

Mr. Davis. The average income for the whole group was in the 
thirties. I don't recall the exact j5gure. 

The Vice Chairman. I understand your later answer was that 
you limited it to families 

Mr. Davis (interposing). No. After doing the job for the entire 
group we did the job over again by eliminating all families where 
the income was over $30, to eliminate the situation Mr. Henderson 
referred to, because, of course, many industrial policies on children 
are written in families where the father has an ordinary policy. 

Mr. Gesell. I have no further questions. 

Mr. Henderson. I have none. 

The Vice Chairman. That's all. 

(The witness, Mr. Davis, was excused.) 

TESTIMONY OF LEROY A. LINCOLN, PRESIDENT, METROPOLITAN 
LIFE INSURANCE CO., NEW YORK, N. Y.— Resumed 

Mr. Gesell. Mr. Lincoln, am I correct in saying that you make 
periodic trips around the country to interview agents and managers 
and become familiar with their problems ? 

Mr. Lincoln. Shortly after I was elected president in 1936 I began 
a series of trips in the field. I think I was elected on the 24th of 
March and held my first meeting with the agents in Boston on the 
12th of May. That is how promptly I undertook to go [ibout the 
field. Those trips take about a year and a quarter. Wlien I say 
that I don't want it misunderstood, but what with the travel, the 
time taken and the time at the office and so forth, it generally amounts 
to about a year and a quarter from the time I start one of those 
series until I have seen the last agent. My predecessor made two 
such trips, and that was about his experience. 

I finished that series begun in May 1936, in the fall of 1937. In 
March 1938, I began another series, of a slightly. different character, 
which I would be glad to describe, and of that series I have visited 
probably, well, I have visited all but 1 of our 10 Territories and half 
of the Dominion of Canada. There is 1 Territory and half of Canada 
still unvisited on this second trip. 

In this trip I am undertaking to see the agents personally. That 
is, I hold meetings in which I sit down with a group of, on the 
average, 50 or 60 agents, in a room where there is no other officer 
present. I sit with them alone, visit with them alone, hear their 
discussions alone, and they, on their pa'rt, have ample opportunity 
to say anything they want to to me. 

What I mean by that is, it is not a meeting where speeches are 
prevalent. I detest speeches and I evolved this plan by which we 
can have these small conversational meetings. 

Mr. Gesell. The purpose, I take it, of these meetings is to ac- 
quaint yourself as intimately and thoroughly as possible with the 
problems of the agency force ? 



CONCENTRATION OF ECONOMIC POWER 5877 

PRESSURE FOR PRODUCTION 

Mr. Lincoln. Of course. 

Mr, Gesell. In making these trips have you found indications 
that in certain offices of your company there exists some degree of 
high-pressure selling and improper practices of one sort or another? 

Mr. Lincoln. I think that is putting it too strongly. We won't 
find every office on a dead level of efficiency in accordance with the 
company s requirements. We find some where we conclude there is 
some improvement possible and in those cases we do have earnest 
discussions with those responsible to bring those up to the level of 
performance that we require. 

Mr. Gesell. Is it your practice on occasion to write letters to the 
field force acquainting them with home-office policy, or summariz- 
ing the results of one of these visits and the attitude of the home 
office? 

Mr. Lincoln. I don't write as many as I should. When I go 
about these meetings they ask me if I won't please write some more, 
and I hope I get time to, some day. I have written, in my memory, 
two general letters of that sort to the field force since I began those 
trips. I had two in mind ; perhaps I am wrong. 

Mr. Gesell. I show you a letter dated November 17, 1937, and 
ask you whether that is such a letter? 

Mr. Lincoln. I am sure it is. I recognize it without reading it. 

Mr. Gesell. I wish to offer this letter for the record. 

The Vice Chairman. It may be admitted. 

(The letter referred to was marked "Exhibit No. 996" and is in- 
cluded in the appendix on p. 6252.) 

Mr. Gesell, Do you recall that as a result of that letter you re- 
ceived a considerable number of replies from agents and managers, 
and that those replies were digested and summarized for you as 
responses from the field ? ^ 

Mr, Lincoln, I don't recall it, I take it you have something to 
that effect, I had forgotten ij:, 

I don't recall ever seeing that, I see it has a mark on there, 
"•Office of Vice President Wilkes," I presume I must have received 
it if they did it. I don't recall it. 

Mr. Gesell. You at least saw the replies to these letters which 
were written you by the agents? 

Mr. Lincoln. Unless they were perfunctory I prepared and dic- 
tated the answers personally, 

Mr, Gesell, So you are familiar with the replies that were received, 

Mr, Lincoln, I would have to refresh my recollection about them, 
but I dealt with a great many of them personally by personal dic- 
tation of the reply. 

Mr. Gesell. This summary of the replies to your letter indicates 
that some replies were received from all of the various territories or 
divisions in which your company does business. The total replies 
were some 271, summarized as follows^ 

Mr. Lincoln (interposing). Ma}^ I interrupt? Does that mean 271 
out of 20,000 agents? They certainly went to every agent, 



* Entered later as "Exhibit No. 907," see appendix, p-. 6255, 



5878 CONCENTRATION OF ECONOMIC POWER 

iVlr. Gesell. It says there were 271 received, so if they went to 
every agent, that is it. 

Mr. Lincoln. Yes. 

Mr. Gesell. The letters were classified as follows {reading from 
Exhibit No. 997] : 

Expressions of Appreciation : 

I appreciate all the things the Company has done for me and wish 

to assure you of my continuing loyalty 195 

I have always wanted to know why the Home OflSce was "so far 
away." This is the first time I have received any communication 

direct from the Home Office to my home. I welcome your letter 3 

Under the heading "Labor Organization" : 

I have this day severed my connection with the Union 42 

We resent the activity of labor organizers and protest affiliation 

with any outside labor organization 9 

We have full confidence and faith in the officers of the Company 

to treat all employees with justice 3 

The fear of being considered a scab by my associates influenced 

me to join the Union 2 

Bombarded with union literature, I should like to have your opin- 
ion as to what I ought to do 2 

I joined the Employee's Fidelity Organization 1 

Under "Managers" : 

My Manager threatens and abuses the Agents 13 

The Manager's high-pressure methods force the Agents to do 

dishonest selling 2 

My Manager has always treated me with courtesy and consid- 
eration 6 

Under "Superintendent of Agencies" : 

My Manager says, "Put yourself in my place." I have never 

seen such third-degree methods used on a manager 2 

Then there are other headings, "Veterans and Retirement," ".Sat- 
urday Holiday," "Sales Training," "The Contract," "Disability," 
"Sanatorium Treatment," "Services to Policyholders," "Clerical 
"Work," and so forth. 

I want to direct your attention specifically, Mr. Lincoln, to some 
of the letters received with respect to this question of pressure which 
we have been discussing. Here is a letter from territorv "C," which 
is indicated in this summary as bemg the great eastern territory 
[reading further from Exhibit No. 997] : 

Sales promotion under some Managers is very crude and doesn't get results, 
I mean by~that, threats of loss of position if not up to the Manager's standard 
of efpeetations. If the Managers could only use the methods of our dearly 
beloved Manager, Mr. F. J. Williams, Vice President, now lost to us. Not 
lost, because I think his teachings, personality, and methods will live in the 
hearts of all men who were fortunate enough to work under his supervision. 
Why did he get results? Because he felt men were men and used them 
accordingly? 

Here is another: 

Our manager is the militant and dynamic type. Unfortunately, however, 
he has been using the browbeating method so long that he knows no other 
method of getting results. I have tried to reason with him on occasions 
without success. 

It is my understanding that Managers now are not to hold more than one 
general meeting a week. In this District accounts are turned in on Saturday 
mornings, eight to ten a. m. From ten to twelve, or so, we have our general 
meeting. About fifteen per cent of the time is taken over by a review of the 
District record in the Territory. Then fifty per cent in a review of each Agent's 
record. There is plenty of embarrassment for all concerned, including Assistant 
Managers. Quite often it goes entirely too far. These meetings, as conducted, 
are most depressing, even to the men who may not be denounced. The general 
atmosphere is bad — not always, but too often. 



CONCENTRATION OF ECONOMIC POWER 5879 

Here is another : 

If the Field-Man is to be raised to a higher level and really and truly preach 
the gospel of life insura;nce, then I have been wondering for quite some time 
why in the name of justice has he been so mistreated, abused, villified, and 
made to look oftentimes ridiculous and disgraced on the part of his dealings 
with the only superior he knows, namely, his Manager, 

Here is another : 

It is my opinion that of all of the evils that beset an Agent (and believe 
me they are plenty in the field) none is greater than the "aggressive manage- 
ment" of some Managers. A remark made by the Manager in the morning 
often spoils an Agents mental attitude and health for weeks. This occasion 
of the Agent reporting to the Manager every morning should be au opportunity 
for giving advice and encouragement ; otherwise it had better be cut out. 

Another : 

Let me endeavor to portray the picture as it exists: 

It has been mere digs which time has gotten us used to that made us tell 
ourselves that the abuse for a daily blank report was not an insult. Assistant 
Managers' speeches that wasted our time in the morning were never sales talks. 
They were so full of threats of our jobs, that by the time we were really 
ready to leave the office, we were in such a fog that we did not know whether 
we were coming or going. All this put us in a frame of mind that could do 
little justice to policyholders or further sales. 

Here is another one : 

Is it possible that during the panic following the depression, when every 
Manager rallied to the call to conserve business, we formed a habit of driving 
and threatening, like mule skinners, and it has become a regular procedure? 
Is it not quite true that men who were promoted to positions of Manager and 
Assistant Manager at that time still believe their mule-skinning methods are 
proper and right? 

These methods are in the very atmosphere. They have become habitual in 
the business. Yet everyone dislikes them, including the Manager. 

Here is another one : 

I have always maintained that to have a successful sales organization of any 
kind, harmony, contentment, and respect for superiors must exist ; otherwise 
there can be no loyalty, enthusiasm, or desire to improve oneself for promotion, 
nor can the proper service to policyholders be rendered. I am' sure you will agree 
that these proper conditions cannot exist when Agents are treated unlike human 
beings, when they are compelled to report at the office at six or nine in the 
evening or possibly late Saturday unless a certain volume of business is written. 
The compelling of agents to take off accounts after nine in the evening and many 
other conditions that I know exist in some districts. 

Here is another : 

You see, our Manager still believes in Saturday meetings. From eight in the 
morning till one or two p. m. they stay cooped up in an office, with no windows 
(they never know if it's raining or not), and listen to things that usually have 
them down in the dumps when they do get out. When my husband started as an 
Agent we were told that they'd have meetings just once a month. 

Here is another: 

Twenty-eight years have been happy years, and the most congenial relations 
existed between me and my Managers. But very reluctantly I shall state some 
of my experiences for the past year. I feel it my duty to do so, and I shall be 
very frank. 

Once when I was on decrease I was greeted by my present Manager, before my 

fellow workers, with this remark : "Mr. , you should come in the office 

backwards," to which I made no reply. 

Three weeks ago I asked to be excused one Saturday morning from a meeting 
and my Manager said, "You have a Jiell of a nerve to ask to be excused, with 
the record you have." My Manager also said, "Do you know I am having a hell 
of a time to keep jou on?" 



5880 CONCENTRATION 'OF ECONOMIC POWER 

Another one said: 

You probably have already received many other letters concerning goings on in 
the Office ; by that I mean the way the Manager treats his men. 

Another one said : 

The high pressure in brought about vrhat the Managers called 

meetings 3 or 4 times daily, often as late as Saturday midnight and Sunday 
a. m. reports to the office, occasional telegrams (collect) to Agent's home, if 
his report was below expectation. 

It was common practice in the District to load new agents with salary 
indebtedness of ex-agents, all for points. It broke Agents before they started. 

Here is still another : 

Please try to imagine yourself an Agent in one of the Metropolitan districts. 
You, an intelligent man, probably, as the majority of the men, having had 
respected and responsible positions in other fields, become an Agent, eager 
to show your ability and certainly willing to learn. From the first day you 
are handed a book you are made to feel that your Manager is your Lord and 
Master, Judge, and Jury, and that he has your life in his hands at all times. 
You are made to feel that you are just nothing at all in this world and inferior 
to everybody. After the introduction you are on your own. Starting with 
Monday, three or four hundred people to see in three days, with many in the 
four-week column by this time ; you know the meaning of lapses, and four- 
week cases mean lapses. You rush to get to the office at 8 o'clock in order 
to take care of the many things requiring your attention ; then the Manager 
comes into the room with an order to drop your work. He takes a report of 
the business done over the week-end, insulting every man who has no report. 
He will then talk for over two hours of how much business the men ought to 
do and what will happen to the man who does not bring iu business. 

This is in all very discouraging and tiresome to a new man or to a man 
who has been with the company for a long period of time, and is certainly a 
waste of time. You then reach your debit wondering where you can get the 
business the Manager has ordered you to get — you know you will have trouble 
with your four-week cases — you will find many people out — you will get in- 
numerable complaints. Tuesday morning the same is repeated, except that the 
meeting lasts longer, and sometimes you are ordered to come back at four or 
eight o'clock to another meeting as punishment for not being able to get an 
application. These men have no consideration for j-our feelings and instead of 
cooperating with you, they hamper you with your work. Under the circum- 
stances, you are forced to work late every night. 

Wednesday you have the weekly account to make. If you want an idea 
of what it takes to make an account and balance it correctly and till out the 
different forms that go with it, try to make it ; and the last week of every 
month you have a monthly account to make, as well as the weekly. After 
struggling for hours with the account, you are lined up outside of the Manager's 
office and every man must face him to get his O. K. on the account, and if he 
does not like the looks of it, he will tear up the sheets and make you go out on 
the debit for more money, although he knows no more could be collected, and 
make another one. It is heart-breaking to see the men lined up almost like 
criminals, after they try their best in their work. 

It is hard to describe in words the suffering and humiliation forced on the men 
by these so-called Managers and Assistant Managers. Here are some expressions 
used by them during their "pep" talk meetings, "Why don't you go on relief, 
you are too old to be useful." "I will give you two weeks to make good or get 
out." "You are yellow." "You are a coward." Once I heard the Manager tell 
a man who was with the company over 11 years that he was a yellow dog if he 
did not resign, and for that they receive $500 or more per week, or about $30.00 
per week for humiliating each man. They never go out in the Field with the 
men, they constantly threaten them with dismissal, and do not prove to them 
that it is possible to get business. Instead of lending a helping hand to the man 
who is down, they force him to desperation. 

Another : 

Everyone in the State knows the abuses Agents go through from their Man- 
agers and some clients that treat them like dogs. 



CONCENTRATION OF ECONOMIC POWER 5881 

Why, I know of a Manager that told one of his agents, "Go out and sell to 
your mother, father, or your grandparents. Sell it to yourself. I don't care so 
long as you sell." With high pressure abuses like these, no wonder they are 
sometimes forced to do dishonest selling. 

I would like to offer all of the replies on all of the topics covered 
for the record. 

The Vice Chairman. It may be admitted. 

(The document referred to was marked "Exhibit No. 997" and is 
included in the appendix on p. 6255.) 

Mr. Gesell. I gather from that that there is a certain degree of 
discontent among some of the agents of your company with respect 
to some of the practices of certain of your managers. 

Mr. Lincoln. There is undoubtedly a discontent reflected in somei 
of those cases. It is reflected in the meetings I hold ; those descrip- 
tions illustrate the struggle I am going through to get rid of that 
sort of practice if there is any in our districts. I don't want it; I 
won't have it, the Managers know I won't have it, and those instances 
cited in those letters in 1937, Insofar as they are not exaggerations., 
and you must qualify that because we have had some of them in- 
spected, we often find the agent, through some motive or other, has 
exaggerated a description, but so far as there is any validity to those 
statements, those things are the things that we will not have. 

This matter of meetings, for instance. I don't believe in those 
meetings. I found, sir, up in your section, not in Boston but in one 
of the surrounding cities, one of the agents said, "Is it proper for the 
manager to hqld meetings every morning?" 

I said, "Of course not.'' 

"Why," he said, "we all sit there aud we get tired with his talk 
and we go out exhausted and we are no good all day long." 

I said, "I agree with you." 

I got hold of that manager immediately, within an hour or two., 
and if I may put it this way, laid down the law to him that those 
meetings had got to end. 

The same thing happened in Detroit last fall. We won't have it. 
Those complaints are things that we will not countenance. I am 
just as earnest* about that as I can be, and I suspect some of them 
are true and some of them are exaggerations. 

Mr. Gesell. I read them merely as being indicative of a condi- 
tion which might arise in certain offices under certain circumstances. 

Mr. Lincoln. I think they are to the vanishing point. If they 
are not, I want to know up-to-date facts. That is one of the pur- 
poses of the letter inviting them to write me. It is one of the pur- 
poses of these meetings I am holding. I want to know the facts, and 
if there are any. such things going on today I shall deal with them 
vigorously. I don't think there is very much of that going on now, 

Mr. Gesell. Is it perhaps rather difficult for your company to 
supervise as many debits and district offices, considering how far- 
flung it is? 

Mr, Lincoln. Oh, no. 

Mr.^ Gesell. It seems to me rather surprising that a person who 
seems to have the most active part in correcting these abuses should 
be yourself, the president of the company, who certainly must have 
many other pressing obligations, and it also is interesting to note that 
it takes you over a year even to cover your territory once. 



5882 CONCENTRATION OF ECONOMIC POWER 

Mr, Lincoln. I tried to make it plain that that was with due 
respect to my other duties which I also try to perform. I will go out 
for 2 weeks at a time. For instance, the last meeting I held was at 
Philadelphia on 2 days in June. Before that, the last meeting I held 
was in February. Well, as the thing works out, it spreads over 
about a year. 

Mr. Gesell. You don't think that a closer-knit organization where 
the home office was closer in contact with the men and the agents 
would be apt to bring about fewer of this type of situation ? 

Mr. vLiNCOLN. We seek to have that ; we seek to have it through our 
present method ; and if it should in the course of time develop that 
that is not sufficient, we will develop something else, because we are 
going to have these practices right and proper. 

Mr. Gesell. Do you feel that possibly some of the difficulty arises 
from the method of compensating the agents? 

Mr. Lincoln. No, sir. 

Mr. Gesell. You don't believe that if the agent was on a salary 
basis this type of situation would be less apt to occur ? 

Mr. Lincoln. We wouldn't have any company in a short time. 

Mr. Gesell. You wouldn't have any company? 

Mr. Lincoln. No. 

Mr. Gesell. Why not? 

Mr. Lincoln. Because if you put your agents on a salary basis the 
human equation with respect to building the company is going to 
vanish, and you simply have a company that becomes moribund right 
away. 

Mr. Gesell. You mean that without a system of compensation 
which recognizes the ability of a man to keep good business and 
produce new business, your company would deteriorate ? 

Mr. Lincoln. It is true in any selling organization, whether it is 
vacuum cleaners or automobiles or life insurance. 

Mr, Gesell. I was under the impression, for instance, that the 
Prudential of London paid its agents on a salary basis. 

Mr. Lincoln. I think there is some system of salaries and also a 
system of commissions. I am not sufficiently well informed about 
their practices to answer, 

Mr. Gesell. Have you ever tried a salary system as a method of 
compensating the agents? 

Mr. Lincoln. The term "salary" has been used, but it is a mis- 
nomer as related to this business. There must be aggi-essive action 
predicated upon that human equation Avhich makes a man want to 
earn something through accomplishment. It doesn't make any differ- 
ence, I say again, whether it is a fellow who peddles milk around 
your house in the morning or a felloAv who sells life insurance or 
what it is. 

Mr. O'CoNNELL. Again I Avould like to ask you to answer Mr. 
Gesell's question. His question, as I understood it, was simple : Did 
you ever try to compensate your agents on a salary basis? 

Mr. Lincoln. I said "no," but I had to qualify it because the term 
"salary," a misnomer, was used. 

Mr. O'CoNNELL. But you never did pay them a salary. 

Mr. Lincoln. No, sir; within my knowledge. 

Mr. Henderson. You said that without this method of compensa- 
tion, as I understood it, the company would deteriorate. Do you 



CONCENTRATION OF ECONOMIC POWER 5883 

mean growth would stop — it would decline? Do you mean that there 
would be any diminution of the value of the policies in force? 

Mr. Lincoln. Not the latter at all, sir; but drawing a line through 
any date, suppose we said we would write no more business after 
August 30, 1939, or January 1, 1940, immediately your service or- 
ganization in the field is going to disintegrate, your poorer risks are 
going to stay and your good risks are going to get out, and you are 
going to have investment problems galore by reason of the necessity 
for keeping in a more current, liquid condition. Why, you can forsee 
all sorts of things which would happen. I don't suppose it is in your 
mind — it certainly isn't conceivable — that you could draw a line 
across any date on the calendar and say, "No more business after 
that." 

Mr. Henderson. Well, I am not suggesting a policy for the Metro- 
politan. 

Mr. Lincoln. I am trying to give some of the reasons. 

Mr. Henderson. I am trying to get what you meant by disintegra- 
tion. Frankly, I was afraid from your answer that you misunder- 
stood ; and therefore I gave you two prongs of a fork between which 
you could select, and you selected. 

Mr. Lincoln. I am obliged to you. 

Mr. Henderson. And intimated that perhaps I selected the other. 

Mr. Lincoln. Oh, no. 

Mr. Henderson. I certainly w^ould not nave done that. I gather 
you feel, then, that if you did draw this imaginary line, there would 
be no method of compensation through which you could have agents 
interested in maintaining the good risks and eliminating the bad. 

Mr. Lincoln. I don't think it would follow at all. If you just 
suspended all together and tried to pay men a salary for preservation 
of the business and they got a straight salary, that human equation 
that I keep bearing down on is bound to develop itself. 

Mr. Henderson. Now, from the company standpoint as a living 
and vital organization — I believe I have asked this questiim in dif- 
ferent forms before. I believe I asked Mr. Ecker. You have evi- 
dently — and if I am wrong I know you will correct me — an abiding 
faith that it is necessary to have a substantial addition to the volume 
of business over any reasonable period in order to have vitality. 

Mr. Lincoln. That is what we are in business for. That is what 
we are chartered for. The charter of our company, the laws of the 
State of New York, and I daresay it is true of the laws of any State, 
the District of Columbia, which charters some companies, say the 
company is authorized to make insurance on the lives and health of 
people and to issue endowments. 

Mr. Henderson. Yes; but that isn't the sole purpose of the com- 
pany. The purpose of the company is to provide insurance for its 
policyholders. 

Mr. Lincoln. To afford an insurance service to the public. 

Mr. Henderson. I am going beyond that. In order to furnish 
that service within your standards, you feel that as far as the existing 
body of policyholders is concerned they are better served by a growth 
in the business; that is, by the addition of new policyholdei's. 

Mr. Lincoln. You said it much better than I have; that is pre- 
cisely our view. 

124491 — iO— pt. 12 20 



5SS4: COXCENTRATIOX OF ECONOMIC POW'ER 

Mr. Henderson. I wanted to i^?t jvist the exact statement. 

Mr. LiNtx>LX. Yes, sir. 

^^r. Henoekson. It is a very important question, this question of 
whetlier or not it is possible to mamtain a high degree of insurance 
service without growth of the company. 

]SIr. Lincoln. Yes, sir. 

Mr. Geseel. It becomes more and more difficult to grow, doesn't 
it, Mr. Lincoln, as times sroes on i 

^Ir. Lincoln. I shoul^^ sav not, sir. I feel that the natural ac- 
cretions to the insurable public turn over the business: people come, 
people go, and there aiv natuml accretions that will go on so long 
as human Ivings live and insurance is recognized. 

Mr. Geseijl. You don't feel that today the market for industrial 
insurance is more saturated than it was, s;\v, i}0 years airo i 

Mr. Lincoln. Xo: I do not. Just a minute — I don\ like to be 
put on t\imparis<ni. I would like to make it an absolute. I don't 
tliink it is saturated. I don't have any comparative;5 in my mind 
as to *20 years a^o. 

Mr. Gesexi.. 1\^ you think it is just as easy for an agent to place 
an industrial i^K^licy now as it was ifo years ,ago? 

Mr. Lincoln. I should s:iy. Mr. G^sell. that it is easier. The public 
is more insurance minded; it has better recognition of the importance 
of insurance in the familv economy than it did. I should sav it 
should Iv easier. 

Mr. Gesell. Have you made any studies which would indicate 
whether or not the market was getting saturated* 

Mr. Lincoln. "Well, I have none in mind. Perhaps you have some 
there. 

Mr. Gesell. You know of none at this time i 

Mr. Lincoln. I haven't them in mind. 

Mr. Geseix. If the solution isn't in paying a^rents a salary, is 
there any other ^.^nveviuiv which could be adopte^I by the company, 
do you tiiink, which would prevent the existence of the type of thing 
represented by the letters which I read a moment ago i 

Mr. LiNi.xiLN. "Well, I would tii-^t answer that I don't think that 
exists in any appivciable form whatsoever. 

Mr. Geseix. It is rather difficult for you to find out, isn't it ? 

Mr. Lincoln. Xo, sir: I don't thmk it is, I tliink those letters 
elicited — just the verv thiiiiis that vou read there elicited — the an- 
swers from the discontented agents which I want. My meetings 
are doing the same thing as I go about the comitry, seeing these 
men alone, no officer, no field repivsentative at all in the room with 
me. and I invite them to unburden themselves and discuss any snb- 
je^'t they w:viit, and I have had great success in having heart-to-heart 
talks with them. 

Mr. Geseix. Of coui-se, it is only your guess as to whether or not 
you are getting the complete story, is it not i After all, you are a 
home office official, and anytliing these agents may say does involve 
criticism *f his superior. 

Mr. Lincoln. I have to answer that with some iimnodesty. I 
believe they have so much confidence in me and my integrity in 
appiw^ching them and inviting them to tell me, that I do get the 
correct :uiswers. 



CONCENTRATION OF ECONOMIC POWER 5885 

Mr. Geseix,. Have you ever ^rixen any thought to other ways 
which could be adopted by your company to collect a premium, 
other than the method presently used? 

Mr. LiNa)LN. That presently in use being: 'i straight -commission 
percentage on the premiums collected. Do you mean have we given 
any thought to aiiy other method than that? 

Mr, Gesell. I am shifting now from the agent to the policyholder. 
You have two systems — you collect it from door to door or let him 
j)ay it in at tlie home office with a percentage deducted? 
Mr. Lincoln. Yes. 

Mr. Geseix. Have you ^iven any thought to any other method 
which could be adopted which would reduce the expense of industrial 
insurance? 

Mr. Lincoln. I don't know of any. If there are any we should 
certainly like to know it. 

Mr. Gesell. My question was : Have you ever thought of adopting 
any other? 
Mr. Lincoln. No ; as far as I am> personally answering. 
Mr. Gesell. Well, I am talking to you as the president of the 
company. To your best knowledge, has the company ever done it? 
Mr. Lincoln. Not to my knowledge. 

Mr. Gesell. Have any efforts been made to work out any sort 
of pay-roll deduction plan? 

Mr. LiNcoL^f. For policyholders? 
Mr. Gesell. Yes. 

Mr. Lincoln. Oh, we have it in the ordinary department. 
Mr. Gesell. I am talking about the industrial department. 
Mr. Lincoln. I don't know of any in the industrial. Pay-roll 
deductions, I imagine, would be of such size as to make it a little 
more impractical, but I don't know. Perhaps there have been 
studies made on it. I don't know of them. They have it in group, 
of course, and in ordinary. 

Mr. Gesell. Well, the group has one very outstanding difference, 
hasn't it? 
Mr. Lincoln, Certainly. 

Mr. Gesell. A man leaves the group and loses his protection, to a 
degree. I was talking of some method of deduction of pay roll 
which would keep to each individual his individual policy. 
Mr. Lincoln. For the industrial? 
Mr. Gesell. Yes. 

Mr. Lincoln. I don't know of any consideration which has been 
given to it. 

Mr. Gesell. Have you and the other principal companies ever 
discussed the desirability of limiting the policies in any one family 
to q, single company ? ' ~ 

Mr. Lincoln. I never heard of it. 

JMr. Gesell. I take it you agree with me that some of these under- 
writing difficulties which may exist result from the fact that a single 
family has policies in several companies. 

Mr. Lincoln. I think it is a rare instance, comparatively rare ; and 
I think there again a human desire to diversify the coverage, or, to 
use the old phrase, not to put all the eggs in one basket, may have 
some bearing. 



5886 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Has your company ever given any consideration to the 
desirability of separating agents from collectors ? 

Mr. Lincoln. We do that in New York, in one phase of the busi- 
ness ; but generally speaking, no, sir. 

Mr. Gesell. I am talking about your weekly premium business 
generally. 

Mr. Lincoln. No, sir. 

Mr. Gesell. You don't know whether that would make the insur- 
ance cheaper or more expensive? No studies have been made along 
that line? 

Mr. Lincoln. I don't know of any studies, and I would have grave 
doubt as to its reducing the cost of the insurance. Those collectors 
would probably have to be paid additional compensation in some 
form to make the position attractive which is now available through 
this contract which embraces first-year commissions and collections 
and conservation commissions. 

Mr. Gesell. You have never tried that in your weekly premium 
business ? 

Mr. Lincoln. Not that I know of. 

Mr. Gesell. Have you ever given any thought or tried making a 
clearer-cut distinction between the agents who sell ordinary and the 
agents who sell industrial? 

Mr. Lincoln. Only in this — I believe I mentioned it yesterday — 
that we have a few agents who are known as ordinary representa- 
tives; they have come up through the ranks as agents following the 
same procedure as any other agent, writing business all around, ordi- 
nary, industrial, accident, and health, but they have desired to spe- 
cialize in ordinary. They have developed some aptitude for the ordi- 
nary business, and we have created a few of those positions known 
as ordinary representatives. Now that ordinary representative is not 
a free lance in the sense that perhaps is the practice of some other 
companies. He is identified with a given district; he has all of the 
earmarks of an agent in that district except that he has no industrial 
debit. 

Mr. Gesell. Is it njostly just tradition which has developed agents 
in your company who sell both ordinary and industrial, or is it the 
result of a very definite policy ? 

Mr. Lincoln. I suppose it is both. Historically the company 
undertook the ordinary business, I think, in 1892, on the premise that 
ordinary business could be written by our agents who were then 
devoting themselves to industrial business, and I am told by those 
who lived in those days that the company was laughed at — that the 
company was laughed at for presuming that industrial men, such as 
these were classified as in those days, could write a substantial amount 
of ordinary business. That has been adhered to through the years, 
with slight exception, I imagine; and as you all know, we have^jnore 
ordinary insurance in for(*e than any other company in the world, 
and it has all been written by these agents who, in the first instance, 
when the ordinary began, were writing only industrial insurance. 
Since that time we have had them writing ordinary and industrial 
and more lately accident and health. 

INIr. Gesell. I take it, then, from your answer, that you don't 
think any operating efficiencies would result which would be bene- 



CONCENTRATION OF ECONOMIC POWER 5887 

ficial to the industrial policyholder by making a clearer-cut distinction 
between the industrial and the ordinary side of your business. 

Mr. Lincoln. I should think that that could be studied on the 
basis of our friend, the Prudential, than on the basis of our own 
system, I believe they have another and different system. I hold 
no brief for any particular system. The results of our method have 
been very amazing. All this insurance in the ordinary department, 
more than any company in the world, has been written by these 
same agents who carry on their industrial debits. 

Mr. Gesell. But my question was wliether such a division might 
not bring about some benefits to the industrial policyholder. 

Mr. Lincoln. I know of none. I don't see why they should. 

Mr, Gesell. Has your company given any thought to whether the 
cost of industrial insurance might not be lessened by reducing the 
gross premium charged the industrial policyholder? 

Mr. Lincoln. That, of course, has to do with a question of the 
mortality rate, which is a question which I am not capable of dis- 
cussing. If the actuaries are here, they would be glad to discuss it 
with you. I am afraid I couldn't contribute anything to your con- 
sideration on that subject. 

Mr. Gesell. I just asked whether the company had given consider- 
ation to that problem. 

Mr. Lincoln. We are considering premium rates all the time, ot 
course; we are making studies which have as their background the 
propriety of a given premium rate. Those are going on all the time. 

Mr. Gesell. Well, I am sure you understand what I mean by my 
question when I ask as a broad general question of policy, quite 
apart from wliether this year or that year there should be a reduction 
or increase in premiums, whether the selling of industrial insurance 
at a lower gross premium might not result in a lower cost to the 
industrial policyholder. 

Mr. Lincoln. I don't think that follows, counselor, and I say 
again I would have to have the actuaries answer that, but I think 
from my nonactuarial view of things that that doesn't necessarily 
follow at all. 

Mr. Gesell. Has your company ever considered establishing more 
small local offices in the territories in which you operate so as to give 
the policyholders a more immediate access to the selling office and 
thus a chance to reduce their premiums by paying at such office? 

Mr. Lincoln. Well, our field set-up is such that we have what is 
known as a district office in charge of a manager in each conmiunity 
of any importance where we do business. 

In some localities there is a community of less size in which we 
have policies which are allocated to that district office ; but that com- 
munity may be 10, 20, sometimes more, miles away. There we have 
what is called a detached office under the charge of one of the assist- 
ant managers, but which is an established office and a head-quarters 
for the business in that community. I have in mind Daytona 
Beach — Daytona. I visited that detached office. The main office for 
that detachment is in Orlando, or was then, and here at Daytona is 
a substantial population wliich is served through this detached office. 
Now, it may again happen that we have a debit in a community 
which is too small to have a detached office and an assistant manager 
in charge and a staff of agents, and in that case tlae agent himself. 



5888 CONCENTRATION OF ECONOMIC POWER 

of course, operates from his own home. There are some instances 
of that, but they are relatively few. 

Mr. Gesell. I had in mind a break-down even into smaller units 
than those that you have. 

Mr. Lincoln. In cities ? 

Mr. Gesell. So as to put some type of local collection office nearer 
to the residences of the individual policyholders. 

Mr. Lincoln. Well, that is all a question of degree, a question of 
the best service that we can perform. If it should transpire that 
some method of that sort should establish itself as a better method, 
you may be sure we would adopt it; but our experience so far indi- 
cates that the methods that we have, the office, detached office, and 
an occasional agent in a community by himself, are the best service 
that we can give to our policyholders. 

Mr. Gesell. I think it might be a good place to adjourn here. 

The Vice Chairman. We will meet again at 2 o'clock. 

(Whereupon, at 12 : 40 p. m., the subcommittee recessed until 2 
p. m.) 

AFTERNOON SESSION 

The hearing was resumed at 2 p. m., upon the expiration of the 
recess, Mr. Joseph J. O'Connell, Jr., presiding. 

Acting Chairman O'Connell. The hearing will please come to 
order. Congressman Casey will be a little bit delayed. I think we 
can proceed in his absence. 

Mr. Gesell. Will you resume the stand, Mr. Lincoln, please, sir 2 

Mr. Lincoln. Yes, sir. 

TESTIMONY OF LEROY A. LINCOLN, PRESIDENT, METROPOLITAN 
LIFE INSURANCE CO., NEW YORK, N. Y.— Resumed 

Mr. Gesell. Before recess I was asking you as to whether or not 
your company had considered certain other items which might have 
some effect upon the cost of industrial insurance. There is one on 
my list I didn't cover with you. I wondered whether the company 
had considered whether there was any way that it would be able to 
encourage a larger number of its policyholders to pay premiums di- 
rectly to the office and have the benefit of the 10-percent reduction. 

Mr. Lincoln. Whether there is any way in which that could be 
advocated, do you mean, amongst policyholders ? 

Mr. Gesell. Whether there is any way of getting more of your 
policyholders to pay their premiums in that manner and still have 
the premium reduction available to thern. 

Mr. Lincoln. I suppose ways could be conceived. I don't know 
that any special way has been considered. The very growth in the 
proportion of that business speaks for itself. There has been a steady 
growth in the proportion of business which is paid in that manner. 

Mr. Gesell. I realize your company has a better record from that 
point of view than any other company in the business, but I was 
wondering if this question possibly isn't involved : These agents are 
paid a commission based upon the size of the debit from which they 
collect, are they not? Is it called collection salary? 

Mr. Lincoln. It is based on the aQtual collections under the present 
contract. 



CONCENTRATION OF ECONOMIC POWER 5889 

Mr. GrESELL. It is a salary based upon the collections. 

Mr. Lincoln. Commission for collections is predicated on the 
actual collections which they make. 

Mr. Gesell. Then, to some extent, it is to the agents' interest, is 
it not, for the premiums to be paid at the homes of the insured, so 
that they can collect them? 

Mr, Lincoln. Well, I could conceive that if the agents' collections 
and the size of the debit were diminished through that process we 
would have to find other ways of building up the debit so as to 
maintain a relatively level income for it. 

Mr. Gesell. To keep the same average wage that he gets now. 

Mr. Lincoln. That would have to be by consolidations or other- 
wise. 

Mr. Gesell. But under the present system it is ^ true, isn't it, that 
the agent has some personal interest in keeping the mllections at the 
homes of the insured. 

Mr. Lincoln. There can't be any doubt of that. That is a part 
of his income, and he receives collection commissions predicated on 
those policies w^hich are in force on his debits 

Mr. Gesell. That being true, do you believe the agents encourage 
to the fullest possible degree the payment of the premium direct to 
the home or branch office? 

Mr. Lincoln. I don't know whether "to the fullest possible de- 
gree" would be an exact description. I think where they find policy- 
holder^ are in a position or there are circumstances which would 
dij^ect the policyholder toward this method of payment that they 
woL -d probably call it to their attention. I can't say whether they 
woui. or not; I don't know. 

Mr. Gesell. Let me ask you one other thing : It is a little cheaper 
if the policyholder pays bv the month than if he pays by the week, 
isn't it? 

Mr. Lincoln. The insurance premium is cheaper. 

Mr. Gesell. I suppose you are aware that many of your agents 
and agents in other companies collecting weekly premium business 
frequently collect a month's premiums in advance. 

Mr. Lincoln. I suppose they do sporadically. I would be sur- 
prised if there were any great number that had a continuous prac- 
tice of that through the year. 

Mr. Gesell. Wliat is the feeling of your company with respect to 
this problem of weekly payments? Do you believe that it would be 
impossible for the policyholder to carry the same insurance on a 
monthly basis? 

Mr. Lincoln. On the contrary, we have introduced the monthly 
premium insurance for that purpose. 

Mr. Gesell. Well, I was referring as to the policyholders who were 
now on weekly ; do you feel that they wouldn't be able to carry the 
same insurance as they have if they were on a monthly basis? 

Mr. Lincoln. I think there are such a large number of families in 
which the income is paid weekly or biweekly that it would be un- 
likely that many of them in that classification, that categogy, would 
be in* a practical position to pay premiums monthly. We have some 
figures — ^I haven't them at my tongue's end — as to the proportion of 
workers in this country who are paid weekly, biweekly, and monthly. 



5890 CONCENTRATION OF ECONOiNIIC POWER 

They are quite striking. The large majority — I can't give you the 
figures — are paid either weekly or biweekly. 

Mr. Gesell. Is it the policy of your company to encourage as 
much business going on the monthly basis as possible ? 

Mr. Lincoln. I think the policy is to sell ordinary insurance where 
ordinary is appropriate, and monthly where monthly is appropriate, 
and weekly where that is the proper method, in our judgment, for 
the policyholder to take. Certainly our policy is to have the insur- 
ance sold in the type according to the manner of payment which 
best suits the policyholder. 

Mr. Gesell, Of course, there is an area of judgment there that 
rests with the agent. 

Mr. Lincoln. As in everything. 

Mr. Gesell. What I was trying to get at was whether it was the 
policy of your company to encourage the agents to put as much 
business as properly belonged on the monthly basis, on the monthly 
basis. 

Mr. Lincoln. Undoubtedly ; and if that same business belonged in 
the ordinary dei)artment, it would be our policy to have it there. 

ATTITUDE TOWARD ENDOWMENT INSURANCE 

Mr. Gesell. I haven't discussed with you yet endowment insur- 
ance. I would appreciate your stating for us what the position of 
your company is with respect to the sale of industrial endowment 
insurance. 

Mr. Lincoln. During the period when endowment insurance could 
be sold in the industrial department, it was one of the types of insur- 
ance in our portfolio which we believed the public wishes. In fact, 
since the New York Legislature passed a law a year ago which for- 
bade endowment insurance in the industrial department, the decrease 
in insurance in and of itself speaks for the desire of the people, we 
believe, to have endowment insurance. The New York Legislature 
has so far reorganized its position in the matter that it passed a law 
at the last session which wdll take effect the 1st of January, which 
will make it possible for endowment insurance to be sold in the indus- 
trial department in all States except New York; and carrying that 
informatioji one step further, a bill was introduced in the legislature 
to permit endowment insurance to be sold everywhere, including the 
State of New York, and that passed the State senate by a vote of 
47 to 1. It never got on the floor of the assembly because it was tied 
up in the rules connnittee under procedural practice there, and it 
wasn't ])ossible for it to get out. 

Acting Chairman O'Connell. When was the bill passed prohibit- 
ing it? 

Mr. Lincoln. A year ago, in the 1938 session, I should say in 
March or April of 1938. 

Acting Chairman O'Connell. Prior to that you could sell endow- 
ment insurance in the industrial department, and in the 1938 session 
you wore forbade to do it? 

Mr. Lincoln. Yes, sir. 

Acting Chairman O'Connell. And your company discontinued 
the sale of it in all States? 



CONCENTRATION OF ECONOMIC POWER 5891 

Mr. Lincoln. We discontinued the sale of it in all States when 
that law took effect, which I think was January 1 of this present 
year, and we have not sold industrial endowments in any State 
during the current year. 

As of January 1 next it will be permissible in every State except 
New York. 

Acting Chairman O'Connell. Was your company interested in 
that legislation, the last bill that was passed? 

Mr. Lincoln. I guess I will have to ask you what you mean by 
interested. We were highly interested. 

Acting Chairman O'Connell. Did you sponsor the legislation? 

Mr. Lincoln. We had no sponsorship of the bill which permitted 
endowment insurance to be sold in other States. 

Acting Chairman O'Connell. That was the bill I had reference 
to. 

Mr. Lincoln. That was the outgrowth of a i-eorganization by the 
so-called Piper committee of the effect of the bill passed 1 year ago. 

Acting Chairman O'Connell. Did you oppose the bill passed a 
yeaiL ago ? 

Mr. Lincoln. Yes, sir. 

Mr. Gesell. And your company has advocated the I'epeal of that 
legislation ? 

Mr. Lincoln. Yes; we have. 

Mr. Gesell. You say you believe the public wants endowment 
insurance. 

Mr. Lincoln. To a very large degree. There is every evidence 
of it. 

Mr. Gesell. Will you tell us what some of the evidences of that 
are? 

Mr. Lincoln. One evidence of it is the fact that when a survey 
was taken by representatives of the New York Insurance Depart- 
ment, or a spot check you might say of policyholders holding endow- 
ment insurance in the city of New York, it was found that 97 per- 
cent of them said they knew -they had endowment insurance and I 
think 92 percent said they had endowment insurance and they wanted 
it, while knowing that life insurance as such was cheaper, they 
preferred the endowment insurance. 

Now, as we go about the field intervieAving our representatives in 
the field, we find that there are whole racial groups which will have 
nothing but endowment. I have in mind the French Canadians, 
those thrifty people down in Quebec. These people want endow- 
ment &nd nothing else. I have in mind some of the racial groups 
in the States. I have in mind one section which w^e visited, I should 
say centered in and about Wilkes-Barre, Pa., where we Avere told that 
all those people settled up and downi in tliat country wanted endow- 
ment insurance, preferred it. And our general studies of the whole 
subject led us to the firm conviction that endowment insurance has 
its place and that there are people who prefer it to whole-life insur- 
ance, even with the knowledge that the life insurance would be 
cheaper. They want to build up a fund for themselves or for the 
child's education, something of that sort. All those things put to- 
gether have persuaded us, and I think, I may say, they will even- 



5892 CONCENTRATION OF ECONOMIC POWER 

tually persuade the New York Legislature that endowment insurance 
in the industrial department has its place. 

Mr. Gesell. What is the average size of the endowment policies 
that you have on your books at the present time ? 

Mr. Lincoln. May I make inquiry? Mr. Davis, assistant actuary, 
says in the neighborhood of $250. 

Mr. Gesell. Am 1 correct in saying that a large amount of the en- 
dowment insurance sold by your company was sold to children?. 

Mr. Lincoln. I wouldn't be able to say what the proportion is. 
The greater part, Mr. Davis says. You say to children — on the lives 
of children, of course you mean. 

Mr. Gesell. On the lives ofchildrei;; yes. 

Now, what purposes do you understand such a meager endowment 
Avould fulfill in the case of a person say 20 years old, or 21, when 
the endowment matured ? 

Mr. Lincoln. What you and I would call meager might not be at 
all meager to the family which takes it out. They want to have some 
established fund for the child when it reaches the age say of ad- 
vanced education, when the child reaches an age when matrimony 
may be anticipated, and to them it is not meager. 

Mr. Gesell. You feel, then, that it is one of the purposes of indus- 
trial insurance to provide for people in low-income groups, funds for 
educational purposes or to help expenses anticipated in the future, 
such as educational requirements and things of that sort? 

Mr. Lincoln. I think the extent to which that insurance has been 
accepted by the public is probably the best proof of that. 

Mr. Gesell. Well, as far as the acceptance is concerned, that is 
somewhat of a debatable point. 

Mr. Lincoln. I don't think so. I think some of us may be too 
prone to assume that the policyholder doesn't know what he or she 
is buying, and I think that is an unwarranted assumption. 

Mr.. Gesell. Of course the agents in the old days when this en- 
dowment insurance was being put on your books received a higher 
commission for -placing an endowment policy than they did for 
placing a whole-life policy, did they not ? 

Mr. Lincoln. I think the effect of that matter of compensation 
probably was as you describe it. There wasn't a higher commission, 
I believe, for endowment as such, but the effect of selling a policy 
with a higher premium probably had that result. You understand 
now our endowment commission, when we sell endowments, is lower 
than the commission for a whole-life policy. 

Mr. Gesell. I understand that, but during the time that most of 
this endowment went on your books, the contrary situation obtained. 

Mr. Lincoln. It was the effect of the manner of payment of agents 
at that time. 

Mr. Gesell. So that it might be possible, might it not, that the 
agents were engaging in rather a strenuous effort to educate people 
on endowment policies. 

Mr. Lincoln. It might be possible. 

Mr. Gesell. And some of this demand to which you refer may 
have resulted out of the motivations of the agent, rather than from 
the fundamental distinction in analysis of the two different types of 
policy form. 



CONCENTRATION OF ECONOMIC POWER 5893 

Mr. Lincoln. I answer your question, it may have, but I doubt very 
much if that is the true situation, the true mental concept of the 
policyholder. 

Mr. Gesell. I have no further questions. 

Acting Chairman O'Connell, Do you happen to know or could you 
tell me briefly what the rationale behind the 1938 legislation was, 
that is the legisliation prohibiting the sale of endowment insurance 
on an industrial basis? 

Mr. LiNcxDLN. I am afraid I couldn't give you any intelligent reason 
for it. I nev€r have seen any and I haven't heard any expressed. 
There was a hue and cry in the State of New York about industrial 
life-insurance business at that time, and the legislature responded to 
it in this respect and in some other respects. 

Acting Chairman O'Connell. You opposed that legislation I un- 
derstood you to say? 

Mr. Lincoln. \ es, sir ; but personally in fact I was out of the 
State; I was in the far West when the bill was introduced, put 
through and passed. 

Acting Chairman O'Connell. Excuse me, Mr. Gesell, had you 
intended developing anything more about that legislation from any 
other witness? I am rather interested. I hadn't known that that 
legislation' had been enacted and I thought possibly Mr. Lincoln or 
someone could tell us the purpose of it. 

Mr. Lincoln. It happens that the gentleman is in the room who had 
to do with the actual contact with the legislation when it was passed. 

Acting Chairman O'Connell. I don't want to disrupt your 
program. 

Mr. Gesell. That will be quite all right with me. I hadn't more 
than intended to touch upon it with one other witness. I doubt if 
the subsequent witness will be able to give any information as to 
the legislative consideration of the problem at all, mostly from an 
actuarial point of view. 

Acting Chairman O'Connell. Whom did you have in mind? 

Mr. Lincoln. Vice President Taylor was in close contact with that 
and I believe he is in the room. He is here if you would like to hear 
his story. 

Mr. Gesell. -That is all right with me. 

Acting Chairman O'Connell. I don't want to disrupt the program, 
but I would be interested to know what the position. of the proponents 
of the legislation was and what the position of Mr. Taylor was. 

Mr. Lincoln. We would be glad to have you hear it. 

There are one or two items that I want to make reference to, if 
counsel is finished, with your permission. 

Mr. Gesell. I have simply to introduce two schedules which I 
might introduce in advance. One is a schedule showing the compen- 
sation of certain active and retired officers of the Metropolitan Life 
Insurance Co. prepared from schedule G of the company's annual 
statements and checked with a representative of the company, and the 
other is a schedule showing the present active officers of the company 
and the history of their careers with that company while employed 
in executive capacities. 

(The schedules referred to were marked "Exhibits Nos. 998 and 
999" and are included in the appendix on pp. 6269 and 6272.) 



5894 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Both of these scliediiles have been checked with the 
Metropolitan for accuracy. 

Mr. Lincoln. May I at this time, or before I am excused, make ref- 
erence to 'one or two things we would just like to call to your attention? 
They have to do with the subject matter which has been brought up 
yesterday or today. 

For instance, yesterday there were some figures brought out by 
counsel as to the number of terminations of agents as to the supposed 
cost of those terminations and the applicability of that ratio of cost 
to the total number of terminations which produced a pretty substan- 
tial figure.^ 

I do want to impress on the committee that the cost of the training 
of the agent doesn't mean an out-of-pocket expenditure of the com- 
pany which would be reflected in the dollar figiu^e that was discussed 
here yesterdaj'. It simply means that the company is using some of 
its people whose time is allocated to that purpose, and there is no 
necessary relation between the application of the dollars estimated 
and produced from the Piper report yesterday and the actual cost to 
the company. In other words, it might happen that if we had no 
agency changes at all there would be no diminution in the cost. That 
is one feature that I would like to mention. 

Mr. Gesell. Before you leave that there are one or two questions. 

Do you m,ean by that that in computing that figure you have 
taken into account that a certain proportion of, let's say, your assist- 
ant superintendents' time is taken up with the training of those 
men ? 

Mr. Lincoln. As I understood when I inquired a little more about 
the source of the figures we had here yesterday, those were made on 
an allocation ana an estimate of time and time studies which pro- 
duced a result converted into dollars in the figures you had there, 
but we feel that that doesn't represent, and shouldn't be taken to 
represent, that the company has spent that money. Those assistant 
managers are not necessarily going to be eliminated from the service 
if we don't have that particular activity, 

Mr. Gesell. In otlier words, they would receive the same salary 
if they trained a man or if they didn't train a man. 

Mr. LiNCOi-N. They might be engaged in other activities, hut the 
net result would not be any appreciable difference in the cost. 

Mr. Gesell. But on the over-all picture you would agree, wouldn't 
you, Mr. Lincoln, that agency turn-over is a bad thing? 

Mr. Lincoln. We exert every effort to prevent it, and the trend 
of those efforts was very strikingly brought out in the figures pre- 
sented here yesterday. 

Mr. Gesell. And if you do have a high agency turn-over it does 
increase the cost of doing business ? 

Mr. Lincoln. There is no way, I maintain — I was discussing this 
same thing yesterday — that you can develop an actual out-of-pocket 
cost to the company by reason of it. It just goes without saying to 
any sensible person that the higher your turn-over, the worse your 
situation, and that is a thing to struggle against, but to put a dollar 
value on it I think is impossible. 



1 Supra, p. 5849. 



CONCENTRATION OF ECONOMIC POWER 5895 

Acting Chairman O'Connell. Mr. Gesell didn't ask yon to put a 
dollar value on it. He suggested that high agency turn-over in- 
creased cost. 

Mr. Lincoln. It is my recollection that yesterday the discussion 
more or less ended with an application of that dollar turn-over to 
the number of agency turn-overs, with the number during 10 years, 
and produced a very striking figure. 

Acting Chairman O'Connell. I don't believe we were under any 
misapprehension as to how the figure was arrived at, or what it 
meant. The figure was taken from you people. 

Mr. Lincoln. It was taken from some estimates given to the 
Piper committee. 

Acting Chairman O'Connell. They were prepared by your com- 
pany? 

Mr. Lincoln. Yes, sir. 

Acting Chairman O'Connell. There is no quarrel about the ac- 
curacy of the figures. All you want us to do is to understand the 
basis upon which they were made. I think we understand the basis 
upon which they were made. 

Mr. Lincoln. I think that is a fair statement. 

Now, I wanted to bring out what wasn't brought out here before, 
that the average of the new weeklj^ and industrial policies written 
by our agencies currently this year is 1.75 per agent per week. We 
fail to see how there is any indication of pressure, high, low, or 
otherwise, in an average production per agent of one and three- 
quarters policies a week. 

Acting Chairman O'Connell. I don't think it indicates one thing 
one way or the other. 

Mr. Lincoln. With your permission I w^ould like to have it in 
the record ; and the average premium on our new weekly industrial 
policies, if we may put it in the record, is about 36i/^ cents per week. 

One thing more : You will understand, although I don't believe it 
was brought out orally here, that under our agency contract the 
agent receives no commission at all on the business which he writes, 
the industrial business, unless it persists through the year. In other 
words, his compensation for what you call putting the policy on the 
books is determined by its persistency through the year. We call it 
the first-year commission, 

Mr. Gesell. Am I correct, Mr. Lincoln, that in the main the form 
of your agency contract is similar to that of the Prudential? 

Mr. Lincoln. I am not able to say. 

Mr. Ge'sell, I didn't go into some of the details because we had 
rather a long session here going into the Prudential contract. 

Mr. Lincoln. I can't say. That is easily verified. I don't know 
whether it is true or not. 

Did you want to hear from Vice President Taylor ? 

Acting Chairman O'Connell. I would like to ask you one more 
quiestion : Yesterday you were asked what the average term of service 
ofi your agents was.^ 

(Mr. Lincoln. I brought that out this morning. On the agents 
thjemselves, not counting managers and assistant managers, the aver- 
age term of service is slightly over 6 years. 



Supra, p. 5850. Also "Exhibit No. MM," appendix, p. G359. 



5896 CONCENTRATION 'OF ECONOMIC POWER 

Mr. Gesell. Mr. 'Lincoln is to advise us as to what period that 
covers, what basis of experience that covers. 

Mr. Lincoln. That is taken as of March 1, 1937, and covers every 
agent in the service; whether he has been there 30 or 40 years or 30 
days, the average is 6 years. 

Mr. GeseIxL. I was looking for a" figure which will show us the 
total number of years divided by the number of agents that came in 
and the number who stayed. 

Mr. Lincoln. That must be it, as of a given date, I should think. 
I didn't make up the figure. 

Mr. Gesell. We can work out such an arrangement with you. 

Mr. Lincoln. We will be glad to work it out. 

Mr. O'Brian. I don't think we have that now. 

Mr. Gesell. We can work that out with your representative. 

Mr. Lincoln. Do you want to hear Mr. Taylor? 

Mr. Gesell. I have no further questions of this witness. 

Mr. Lincoln. Mr. Taylor is here and he can tell you the storv of 
that endowment legislation. 

Acting Chairman O'Connell. Let's have Mr. Taylor just for a few 
moments. 

(The witness, Mt. Lincoln, was excused.) 

Acting Chairman O'Connell. Will you hold up your right hand? 
Will you solemnly swear the testimony you are about to give in 
this proceeding will be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Taylor. I do. 

TESTIMONY OF CHARLES G. TAYLOR, JR., SECOND VICE PRESIDENT, 
METROPOLITAN LIFE INSURANCE CO., NEW YORK, N. Y. 

Mr. Gesell. What is your full name, please, sir? 

Mr. Taylor. Charles G. Taylor, Jr. 

Mr. Gesell. Mr. Taylor, would you be good enough, in the next 
10 minutes, to tell us the story with respect to the recent legisla- 
tion in New York on endowment insurancCj presenting for the com- 
mittee both the arguments pro and con with respect to that legis- 
lation ? 

Mr. Taylor. Well, one side of that can be disposed of quite easily. 
It was one of those peculiar bills where no arguments were made 
pro. The history of the bill is rather unusual. It was presented 
in the senate and reported out of the senate committee without a 
hearing. On request we got a hearing, the hearing composed of 
the now deceased chairman of the committee sitting and signing 
papers during the whole of the discussion. We did have a hearing 
in the house. 

I don't remember now whether the bill was actually acted upon 
by the insurance committee of the house, but it. got into the hopper i 
in the last days. We were led to belive by some in touch with the 
bill that it probably wouldn't pass, but it did pass. There was no 
proponent of the bill that appeared at any time. 

Acting Chairman O'Connell. Someone introduced the bill, and I 
take it a majority of both houses of the legislature voted in favor 
of the bill, so there must have been somebody behind it. 



CONCENTRATION OF ECONOMIC POWER 5897 

Mr. Taylor. As a practical legislator, if you have ever been in the 
legislature I don't know, you know there are many bills that go 
through the legislative assemblies, of the States particularly, more 
or less automatically. If they get out of the committee, they get on 
the calendar, and if there is no opposition, they fly along, and we 
didn't make any opposition on the floor. 

Acting Chairman O'Connell. Did the insurance commissioner of 
the State of New York take any position as regards the legislation? 

Mr. Taylor. He was not particularly favorable to that bill. 

Acting Chairman O'Connell. Was he asked to report on the bill, 
do you know? 

Mr. Taylor. Not so far as I know. 

Acting Chairman O'Connell. Then you don't know whether he 
took a definite position in favor of or against the legislation? 

Mr. Taylor. I don't think he did. There was a good deal of dis- 
cussion and acrimony going on between certain individuals and a 
good deal of insurance discussion at that time, and I think he was 
avoiding getting in the picture any more than he had to. 

Mr. Gesell. Do I understand from what you say, Mr. Taylor, that 
there was no real bona fide interest in the bill at all ? 

Mr. Taylor. Yes, sir. 

Mr. Gesell. The insurance department has taken this position 
since its enactment, has it not? 

Mr. Taylor. That is not the story. You didn't ask me that. 

Acting Chairman O'Connell. He's asking you now. 

Mr. Gesell. Reading from this statement by Mr. Pink of his rec- 
ommendations to the legislative committee on endowments, he states: 

The Department was not entirely convinced that the law enacted the last 
session of the legislature preventing the writing of industrial endowment insur- 
ance vpas in the right direction. 

We recognize and have called attention to the fact that entirely too much 
endowment insurance has been written particularly on the lives of children. 
On the other hand, to entirely prohibit it seems somewhat ^^rbitrary and pater- 
nalistic. Those who buy ordinary insurance are permitted to exercise their 
discretion and choose the kind of insurance they want. There seems to be no 
suflScient reason for telling the poor man that he can only choose certain types 
irrespective of his own desires. While it may be that this legislation has gone 
too far, the law was intended to correct an obvious maladjustment in the dis- 
tribution of family income. Its enactment was aided by the fact that there 
was a larger loss due to lapses under endowment than under life policies. We, 
therefore, favor the continuance of this law for the present experiment. The law 
is on the books, and it should be thoroughly tried before any amendment is 
made. 

That would indicate that there was at least some reason for the 
enactment of this piece of legislation. I didn't get it from your 
testimony. 

Mr. Taylor. Well, you asked me, sir, and I am trying to give 
you frankly what happened. 

Acting Chairman O'Connell. I wanted to develop witb you, if 
I could, what the motivations were, what the reasons were that the 
legislation was enacted in so far as you knew them. 

Mr. Taylor. I couldn't give you the reasons because nobody ever 
presented them. 

Acting Chairman O'Connell. At least it is apparent that there 
was and probably still is a school of thought that felt that endowment 



5898 CONCENTRATION 'OF ECONOMIC POWER 

insurance in the industrial field — that too much has been written 
and that the losses are so ^reat that it is socially undesirable, and 
that that at least is one of the motives behind that legislation. Isn't 
that a fair statement? 

Mr. Taylor. Well, of course Mr. Pink says in that report practi- 
cally that he wouldn't have advocated the passing of the bill. We 
have taken our own steps. There are some objections to 15-year 
endowments on the industrial plan. We used to sell those and we 
cut them out. We have taken our own steps before the legislation 
to cure the situation. 

Mr. Gesell. Can you tell us, then, Mr. Taylor, why your com- 
pany objected to the enactment of this legislation? That is some- 
thing within your own knowledge. 

Mr. Taylor. Yes; we objected to it because we thought it was very 
undesirable to deny the man who could buy only a small amount of 
industrial insurance and could pay for it by weekly payments the 
opportunity to do what his more fortunate fellow-citizens could do. 
Now there are those who argue theoretically about some social dis- 
advantage. However, if you interpret the word "social" as against 
the purchase of endowment insurance by people in the industrial 
ranks or classes; oil the other hand, those who have had practical ex- 
perience in the business know that great advantage does come from 
endowments; we have in our files letters from people who advise 
us of the advantages of their maturing endowments. 

I had presented to the legislative committee in the argument in 
opposition to the bill under discussion, a letter from a man M'hose 
income I suppose must at least have been six or seven thousand dol- 
lars a year. When he heard about this excitement — there was some 
discussion in one of tlie New York papers about the same thing — 
he wrote me about a full page letter to say that his wife, unknown 
to him, had purcha.sed two endowment policies on the children when 
they were young, if he had known anything about it he would have 
opposed it, but she paid the premiums out of money that slie wouldn't 
have saved in any other way. These policies were about to mature, 
and he was a great advocate of endowment insurance and thought 
it ought to be permitted. 

Mr. Gesell. Of course it is a little like this argument of whether 
we should have a national sweepstakes, isn't it? Those people who 
always hit the jack-pot are always for it. 

Mr. Taylor. I wouldn't compare it to the national sweepstakes 
because there is no such element as that in it. Everybody can go 
through with it if they will or are able to do it. 

Mr. Gesell. A very small percentage of the endowment policies 
mature. 

Mr. Taylor. No ; a considerable percentage of endowment policies 
go through to maturity or to cash-surrender values. 

Mr. GESELii. It was 28 percent on the 1910 isSue, wasn't it? 

Mr. Taylor. I think that is the figure, Mr. Gesell, but. that 28.. 
])ercent is people who get something and in the sweepstakes it is 
one in a million, so I think that is a very unfair comparison. Fur- 
thermore, there are a great many people who surrender their endow- 
ments for their cash values. During this period of the depression, 
you can take the testimony of the former chief examiner of the New 
York Insurance Department who in writing some of his remi- 



CONCENTRATION OF ECONOMIC POWER 5899 

niscenses stated that thousands of people who had come in to him in 
the insurance department about their insurance questions during the 
depression admitted that if it hadn't been for the endowment indus- 
trial policy they had they wouldn't have had any accumulation of 
money and they had funds that were of very great advantage to them 
in the time of stress which they wouldn't have had any other way. 

Mr. Gesell. I think the 10 minutes is up. 

Acting Chainnan O'Connell. Thank you. 

Mr. Gesell. I am afraid our other program won't permit any 
longer testimony. 

The next witness is Mr. Gerhard, of the Prudential, With your 
permission, Mr. Cardozo will examine him. 

TESTIMONY OF F. BRUCE GERHARD, SECOND VICE PRESIDENT 
AND ASSOCIATE ACTUARY, PRUDENTIAL INSURANCE CO., OF 
AMERICA 

prudential insurance CO. ACTUARIAL STUDIES 

Acting Chairman O'Connell. Do you solemnly swear that the 
testimony you are about to give in this proceeding shall be the 
truth, the whole truth, and nothing but the truth, so help you God? 

Mr. Gerhard. I do. 

Mr. Cardozo. Will you state your full name for the record. 

Mr. Gerhard. F. Bruce Gerhard. 

Mr. Cardozo. You are connected with the Prudential Insurance 
Co. of America? 

Mr. Gerhard. Second vice president and associate actuary. 

Mr. Cardozo. Are you connected principally with the industrial 
department or Avith the ordinary department? 

Mr. Gerhard. With both. 

Mr. Cardozo. How long have you been with the company? 

Mr. Gerhard. A little over 10 years. 

Mr. Cardozo. I have two tables here which I should like you to 
identify. They show the distribution of policies in force in the Pru- 
dential in the industrial department? 

Mr. Gerhard. They do. 

Mr. Cardozo. And the amounts of insurance? 

Mr. Gerhard. Right. 

Mr. Cardozo. Does the Prudential still have any policies in force 
which were issued in the first year in which it wrote industrial 
insurance ? 

Mr. Gerhard. Yes, it does; three policies are still in force of the 
issue of 1875. 

Mr. Cardozo. Are those necessarily premium-paying policies? 

Mr. Gerhard. Well, they may be or they may be paid' up under 
the age 75 concession, I am not sure which. 

Mr. Cardozo. How many policies are there now in force or as of 
December 31, 1938, in the Prudential industrial department ? I think 
that is shown on another page. 

Mr. Gerhard. You mean including the paid-up policies and ex- 
tended term? 

Mr. Cardozo. How many premium-paying? 

Mr. Geehard. 21,863,818. 

124491-^40— pt. 12- 21 



5900 CONCENTRATION OF ECONOMIC POWER 

Mr. Cardozo. How many on the paid-up basis? 

Mr. Gerhard. The nonforfeiture paid up, 795,575; and those paid 
up by disability, 36,892. 

Mr. Cardozo. Does that figure of 795,575 represent policies which 
have become paid up because of the exercise of an option by the 
insured ? 

Mr. Gerhard. That is right. 

Mr. Cardozo. And how many -policies are there on extended term 
and paid-up insurance? 

]\Ir. Gerhard. 3,375,557. 

Mr. Cardozo. Do they represent policies which have become auto- 
matically paid up ? 

Mr. Gerhard. That is right. 

Mr. Cardozo. AVhat is the amount of industrial insurance now in 
force as of this date? 

Mr. Gerhard. Total amount is $7,100,461,694. 

Mr. Cardozo. I should like to enter those tables. 

Acting Chairman O'Connell. They may be admitted. 

(The tables referred to were marked "Exhibit No. 1000" and are 
included in the appendix on p. 6272.) 

Mr. Cardozo. Do you recognize this table as showing the monthly 
premium industrial policies now in force, or as of that date? 

Mr. Gerhard. I do, 

(The vice chairman, Kepresentative Casey, took the chair.) 

Mr. Cardozo. How many monthly premium industrial policies are 
there now in force ? 

Mr. Gerhard. As of the end of the year, 1,035,871. 

Mr. Cardozo. That is as of December 31, 1938. 

Mr. Gerhard. That is right. 

Mr. Cardozo. I should like to oflfer this table in evidence. 

The Vice Chahiman. It may be admitted. 

(The table referred to was marked "Exhibit No. 1001" and is in- 
cluded in the appendix on p. 6274.) 

Mr. Cardozo. Do you recognize this table? 

Mr. Gerhard. I do. 

Mr. Cardozo. What does that show ? 

Mr. Gerhard. This shows a distribution of number of policies, 
number of industrial policies, by individual ages up to age nine, 
inclusive, and by age groups for the adult ages, and for various years. 

Mr. Cardozo. Does this show that more industrial policies on the 
weekly premium plan are issued at age one or hfive been in the last 
few years than at any other age ? 

Mr. Gerhard. That is right. 

Mr. Cardozo. Would you say that there are more industrial weekly 
premium policies issued under age 10 in the Prudential than at any 
other group of 10 years of ages? 

Mr. Gerhard. Yes. 

Mr. Cardozo. I offer that for the record. 

The Vice Chairman. It may be admitted. 

(The table referred to was "marked "Exhibit No. 1002" and is in- 
cluded in the appendix on p. 6275.) 

Mr. Cardozo. Do you recognize this table? 

Mr. Gerhard. I do. 



CONCENTRATION OF ECONOMIC POWER 59(J1 

Mr. Cardozo. Does this table show an analysis of the industrial 
receipts, disbursements, and so forth, for the 12 months ending 
December 31, 1937, and for the 12 months ending December 31, 1938, 
in the industrial department? 
Mr. Gerhard. Yes. 

Mr. Cardozo. I notice that according to this the total expenses of 
the Prudential appear to be 24.33 percent of the income in 1937 and 
25.28 percent of the income in 1938. Is that a correct figure? 

Mr. Gerhard. That is a correct figure, and it does include all of 
the expenses, including investment expenses, which are the result of 
the investment operations of the company, and including the expenses 
of our field offices to administer mortgage loans. 

Mr. Cardozo. Are those figures not usually included in total 
expenses t 

Mr. Gerhard. They would be included in total expenses, but I 
believe that most companies operate on a different basis, using a 
commission basis by which there is an interest differential, so that 
they wouldn't have these expenses. 

Mr. Cardozo. It would appear as less income. 

Mr. Gerhard. It would appear as less income. 

Mr. Cardozo. Is there any particular comment you would like to 
make about this statement? 

Mr. Gerhard. No; I think not. 

Mr. Cardozo. I will introduce that in the record. 

The Vice Chairman. It may be admitted. 

(The table referred to was marked "Exhibit No. 1003" and is 
included in the appendix on p. 6275.) 

Mr. Cardozo. Do you recognize this as a table showing the number 
of policies issued during 1938 to 1939, according to plans of insur- 
ance and months of issne ? 

Mr. Gerhard. I do. 

Mr, Cardozo. Does th.^.s table show that there has been less indus- 
trial insurance sold in 1939 than in 1938, during the first 6 months? 

Mr. Gerhard. Yes. 

Mr. Cardozo. Do you attribute that to the change from writing 
endowment insurance to not writing endowment insurance i 

Mr. Gerhard. I would say that is a very important factor. 

Mr. Cardozo. Has there been more or less adult ordinary endow- 
ment insurance sold in 1939 than in 1938 ? 

Mr. Gerhard. Adult ordinary endowment insurance — there has 
been less. 

Mr. Cardozo. And has there been more or less infantile ordinary 
endowment insurance solcT? 

Mr. Gerhard. Well, there has been more because we didirt sell any 
infantile endowment insurance in 1938. 

Mr. Cardozo. Did you start writing monthly debit ordniary and 
regular ordinary infantile policies this year? 

Mr. Gerhard. Monthly debit ordinary policies have been issued 
since 1936, but the new infantile ordinary policy was introduced for 
the first time this year. 

Mr. Cardozo. Did you introduce that partly because of the change 
from enclowment insurance to not writing endowment insurance? 

Mr. Gerhard. Yes; in other words, we thought there were families 
with substantial incomes who tlesired end ^vnient insurance on tlieir 



5902 CONCENTRATION OF ECONOMIC POWER 

children and who were perfectly able to pay for them and they 
should have the opportunity to apply for that kind of insurance. 

Mr. Cardozo. Have you had more ordinary insurance sold this year 
than you had last year? 

Mr. Gerhard. We have had more ordinary insurance sold through 
our industrial agency staff. 

Mr. Cardozo, You have agents who write only ordinary insurance ? 

Mr. Gerhard. We have. 

Mr. Cardozo. And have they written more ordinary insurance this 
year ? 

Mr. Gerhard. They have written less. 

Mr. Cardozo. And your agents who wrote both industrial and 
ordinary insurance have written more ordinary insurance this year ? 

Mr. Gerhard. They have written more ordinary insurance, sub- 
stantially more. 

Mr. Cardozo. Do you attribute that to their not writing any indus- 
trial endowment insurance? 

Mr. Gerhard. I think that is a very important reason, probably 
the reason. In other words, they had to do what they could to keep 
up their income, and their activities were shifted over to a consider- 
able extent to the ordinary field. 

Mr. Cardozo. And is ordinary insurance sold by those agents less 
expensive than industrial insurance ? 

Mr. Gerhard. Yes. 

Mr. Cardozo. Is your company writing endowment insurance any- 
where in the country now ? 

Mr. Gerhard. You mean industrial endowment insurance — no. 

Mr. Cardozo. Do you feel you would like to write endowment 
insurance in the industrial department? 

Mr. Gerhard. Well, we are very glad to continue the experiment 
of not writing endowment insurance in the industrial department, aii 
experiment which was forced upon us by the Legislature in New 
York, That is, it was forced upon us as far as New York was con- 
cerned and then we thought that we would try the experiment 
throughout the entire country which we have during this year and 
we would be very glad to continue that. 

Mr. Cardozo. Do you feel that endowment insurance doesn't en- 
tirely fulfill the purpose of industrial insurance ? 

Mr, Gerhard. I would say this, that the prohibition of endow- 
ments is we feel of some aid in getting the agents to put the insur- 
ance in the families where most of it belongs. In other words, we 
get a better distribution with the prohibition of endowments- 
Mr. Cardozo, You find that there was some demand among fam- 
ilies to put endowment insurance on the children ? 

Mr. Gerhard. Oh, yes; our operations have always indicated the 
demand, and the report of the field survey of the New York Insur- 
ance Department, referred to previously, I think confirms that very 
definitely. 

Mr. O'Connell. Did your company take any active part in con- 
nection with that legislation in New York ? Did you oppose it ? 

Mr. Gerhard. We opposed it at the time it was first proposed be- 
cause we felt it was legislation of an extreme type and that these 
people did desire endowments and that they should have the right to 
apply for them. 



CONCENTRATION OF ECONOMIC POWER 5903 

Mr. CCoNNELL. But if I understand you correctly, since the legis- 
lation was passed, although it applies only in the State of New York 
your company is applying that rule throughout the country. 

Mr. Gerhard. That is right. In other words, as long as we are 
forced to it in New York, we felt that we would take advantage of 
that by extending it throughout the country and seeing just how it 
worked. 

Mr. Cardozo. Do you find that the results are satisfactory ? 

Mr. Gerhard. I would say so, yes ; as demonstrated by this schedule 
here which shows a larger amount of intermediate insurance written 
and a larger amount of ordinary. 

Mr. Cardozo. And if for any reason the Metropolitan should start 
to write industrial endowment insurance next year, what would youi" 
company do ? 

Mr, Gerhard. Well, of course, we would be at a very serious dis- 
advantage competitively, and while I am not in a position to state 
now what we would do, I think it is quite probable that we would 
have to follow for competitive reasons. 

The Vice Chairman. Would you say that the legislation enacted 
in the State df New York was less harmful than you anticipated ? 

Mr. Gerhard. I think that would be a fair statement. 

Mr. Cardozo. Have you made a special study of the relative costs 
of industrial and ordinary insurance, as shown by this document? 

Mr. Gerhard. Yes; that is right. 

Mr. Cardozo. You have stated that ordinary insurance does not 
cost as much as industrial insurance. Can you describe what you 
did in making up this special study? 

Mr. Gerhard. Well, this was a study made to try to break down 
the difference in costs into their component parts, with particular 
reference to trying to show how much of it was due to the higher 
mortality which comes from the fact that the industrial insurance is 
offered on a much broader basis, and offered to a very wide group 
of the population, and is not selected anywhere nearly as severely 
as the ordinary. That was one phase of the calculation, to bring 
out how much of the additional cost was due to that, and then how 
much was due to the higher expense rate, breaking that down into 
component parts of commissions, taxes, and all other expenses. 

In doing this, we used in every case our best estimate of our own 
experience; that is to say, in using, the mortality we used our own 
recent mortality experience on industrial policies. 

Mr. Cardozo. That is, you didn't just use the premium rates that 
are current, but you used rates that you felt reflected present mor- 
tality experience. 

Mr. Gerhard. Absolutely; and the same as far as expenses were 
concerned. The figures are based upon a very careful analysis of 
the actual expenses of the company. 

Mr. Cardozo. I would like to call your attention to table A in this 
study.^ Would you describe what the three columns there show. 
The one headed "Net level premiums per $1,000 insurance," what does 
that show ? 

Mr. Gerhard. The column headed "Net level premium per $1,000 
insurance" gives the annual cost of the insurance without any loading 
for expenses whatever. 

1 See "Exhibit No. 1004," appendix, p. 6277, at p. 6278. 



5904 CONCENTKATION OF ECONOMIC POWER 

Mr. Cardozo. In other words, this just reflects the mortality 
element ? 

Mr. Gerhard. That is right. 

Mr. Cardozo. And on the policies under "life plan, premiums ceas- 
ing at age 70," at age 20, for instance, I see that the net level premium 
for ordinary would be $9.61 and for industrial $10.81, and that reflects 
the difference in mortality? 

Mr. Gerhard. Exactly. 

Mr. Cardozo. When you go down to 20-year endowment at age 20, 
the net level premium for ordinary is $35.71, for industrial $36.64. 
That also just reflects the difference in mortality. 

Mr. Gerhard. Yes; and, of course, in the case of endowment the 
difference is very slight because of the accumulation of a relatively 
large reserve there is a much smaller amount of risk today. 

Mr. Cardozo. And the mortality element is of less consequence. 

Mr. Gerhard. Exactly. 

Mr. Cardozo. Would you describe what the other two columns 
represent ? 

Mr. Gerhard. The next column, called "Gross hypothetical pre- 
mium per $1,000 insurance," represents the premium that we would 
have to charge in accordance with the company's own experience now, 
loaded for our actual expenses, if our expenses in the future were 
just exactly as they were in the year 1937 when this analysis was 
made, so that we would be able just exactly to mature our contracts 
without any contribution to surplus or payment of any dividends. 

Mr. Cardozo. And what is the column, "Tabular premium per 
$1,000 .insurance"? 

Mr. Gerhard. That is the actual premium being charged by the 
company. 

Mr. Cardozo. And that in all cases is slightly higher than the 
gross hypothetical premium? 

Mr. Gerhard. Exactly. 

Mr. Cardozo. I would like to turn over to table B.^ Under the 
column headed "Life — Premiums cease at 70," in the industrial de- 
partment, can you pick out the items that show that industrial insur- 
ance costs more than ordinary insurance ? For instance, I refer you to 
item 3, "Expenses : Commissions." At age 20 in the industrial 
department that is how much? 

Mr. Gerhard. $3.07. 

Mr. Cardozo. And in the ordinary department? 

Mr. Gerhard. Eighty-four cents. 

Mr. Cardozo. And that reflects the difference in collection com- 
missions ? 

Mr. Gerhard. Very largely it is due to the difference in collection 
commissions. 

Mr. Cardozo. And the item immediately above that in both of those 
sections under industrial is $10.81, is it not? 

Mr. Gerhard. That is right. 

Mr. Cardozo. And in the ordinary that is $9.61. 

Mr. Gerhard. And that is again just a restatement of the premium 
for the insurance benefit alone. 



» See "Exhibit No. 1004," appendix, p. 6277, at p. 6278. 



CONCENTRATION OF ECONOMIC POWER 5905 

Mr. Cardozo. That reflects the mortality? 

Mr. Gekhakd. The mortality. 

Mr. Cardozo. Are there any other principal differences between the 
expenses of industrial and ordinary insurance as shown by this study? 

Mr. Gerhard. No ; I think the study shows that the other items of 
expense do not vary materially as between industrial and ordinary. 
In building up the' total cost we have in the industrial department 
included our benefit for specific disabilities, loss of limbs or eyesight, 
and also the accidental death benefit, because they are granted without 
extra premium charge. In the ordinary department we have also 
included a waiver of premium benefit which is included without any 
extra premium charge, and for the accidental death benefit for which 
a specific premium is charged, we have nothing. 

Mr. Cardozo. I would like to call your attention to table D ^ which 
is the 20-year endowment policy. Are the expenses for commissions 
relatively just as much higher in the industrial department as they 
are in the ordinary department, as they were in the case of life paid 
up at 70? 

Mr. Gerhard. Yes; they are. 

Mr. Cardozo. Both of these are for $1,000 of insurance, are they 
not, the endowment and the whole life.? 

Mr. Gerhard. That is right. 

Mr. Cardozo. And for a policy on the life plan paid up at 70, at 
age 20 the industrial expenses for commissions were $3.07, were they 
not^age 20, table B ? 

Mr. Gerhard. Oh, B, age 20 

Mr. Cardozo. Expenses for commissions. 

Mr. Gerhard. $3.07, that is right. 

Mr. Cardozo. And what was the expense for commissions on the 
20-year endowment plan in the industrial department at the same 
age? 

Mr. Gerhard. $8.06. 

Mr. Cardozo. Is there any other comment you would like to make 

on this study? 

Mr. Gerhard. No; I believe not. 

Mr. Cardozo. I would like to put that in the record, please. 

The Vice Chairman. It may be admitted. 

(The documents referred to were marked "Exhibit No. 1004 and 
are included in the appendix on p. 6277.) 

Mr. Cardozo. I would like now to refer to the industrial policies 
currently being issued and those that have been issued in the past few 
years. In 1934 I understand you adopted some new policy forms. 
Could you tell us what were the principal changes that were put into 
the form in that year? 

Mr. Gerhard. In 1934? 

Mr. Cardozo. Yes. Was that the year m which you started to 
give new nonforfeiture values? Was that done by concession? 

Mr. Gerhard. That was done by concession. On Decembei 31 r 
1934, by concession of the company, it was provided that in thecase 
of policies terminating before three full years' premiums" haa been 
paid,' there would be a special extended insurance benefit equal to 
1 week for every 3 weeks of premiums paid on life policies, with 

» "Exhibit No. 1004", appendix, p. 6277, at p. 6280. 



5906 CONCENTRATION OF ECONOMIC POWER 

two minor exceptions at very young ages where I believe it was 
4 and 5 weeks in two specific instances, and 1 week of extension for 
every 2 weeks of premiums paid on endowment policies. That was 
incorporated in our new issue of policies in 1937. 

Mr. Cardozo. Did you make any other changes in the 1937 policies ? 

Mr. Gerhard. Yes; we did. 

Mr. Cardozo. What were they ? 

Mr. Gerhard. Well, the principal changes were that the applica- 
tion was made a part of the contract and a copy of the application 
was attached to the contract. Provision was made for naming the 
beneficiary and giving the insured the right to change the beneficiary. 

Mr. Cardozo. Was the beneficiary to be named in the policy itself? 

Mr. Gerhard. If the insured desired, but it was not required. 
■ Mr. Cardozo. Were there any other changes in that year? 

Mr. Gerhard. Yes; the basis of premiums was changed to what 
we call the modified principle under which the net premium and the 
gross premium increase by 20 percent after 5 years, and under which 
it was further provided that dividends were to be used to postpone 
this period of increase. 

Mr. Cardozo. Previous to that, how did you pay your dividends 
in the industrial department? 

Mr. Gerhard. Paid-up additions to the sum insured. 

Mr. Cardozo. Was that system of paying dividends stated in the 
policy itself? 

Mr. Gerhard. Yes; and by the way, these policies issued in 1937 
provided for the payment of paid-up additions as well; that is to 
say, both forms of dividends were provided. 

Mr. Cardozo. Only part of the dividends was to be used to apply 
on the premium? 

Mr. Gerhard. That is right. 

Mr. Cardozo. Did you have any other change in that year? 

Mr. Gerhard. As t mentioned, this special extended insurance was 
included in the policy. 

Mr. Cardozo. Didn't you have a provision also to pay 47 weeks' 
premiums at the home office? 

Mr. Gerhard. That is right; with a credit for 1 year's premiums 
given for payment of 47 weeks' premiums in advance. 

Mr. Cardozo. Was that made retroactive? 

Mr. Gerhard. It was. 

Mr. Cardozo. Do you have any other principal change you would 
like to mention in the 1937 policies? 

Mr. Gerhard. The nonforfeiture values in the policy were calcu- 
lated by applying to the industrial reserve the same formula that was 
applied to the ordinary reserve to get the nonforfeiture values in the 
ordinary policy. 

Mr. Cardozo. Did that liberalize the benefits ? 

Mr. Gerhard. It liberalized them somewhat in the earlier years 
and provided for a surrender charge at 20 years and thereafter 
which had not previously been in effect. 

Mr. Cardozo. And in the 1939 edition what change did you make? 

Mr. Gerhard. In the 1939 edition a'definite space was provided in 
the policy for the naming of the beneficiary. 

Mr. Cardozo. Did you make any change in the facility of payment 
clause at the same time? 



CONCENTRATION OF ECONOMIC POWER 5907 

Mr. Gerhard. Yes. The facility of payment clause was changed 
to provide that if the beneficiary was the estate of the insured, or if 
the beneficiary named in the policy did not make claim and give a 
valid release within 60 days, or died before the insured, the company 
could pay the amount of insurance under the policy to a relative who 
Avas equitably entitled to the proceeds. 

Mr. Cardozo. What other provision was added to the 1939 policy ? 

Mr. Gerhard. A provision by which it was agreed that a 10-per- 
cent refund of premiums would be made at the end of each year for 
direct, continuous payment of premiums to an office of the company. 

Mr. Cardozo. Did you make that retroactive to other policies? 

Mr. Gerhard. No ; that was not made retroactive. 

Mr. Cardozo. That is only 10 percent, and I understand the agents 
receive, some of them, 15 percent, and some 12 percent for collection 
commissions. Why is it that you don't give the full differential? 

Mr. Gerhard. There are substantial field expenses in connection 
with these policies where the premiums are paid direct to the office. 
There are records that have to be kept, there must be a receipt for the 
premium, and there must be general service rendered the policy- 
holders which is otherwise rendered by the agents, and our researches 
mdicate, so far as we have had experience with this benefit, that these 
incidental services amount to at least 2 percent of the premium, if not 
more, and of course our current contracts for a good many years have 
provided for a collection commission of 12 percent or thereabouts. 

Mr. Cardozo. Going back to the 1934 and '35 changes, prior to that 
time how long did premiums have to be paid before a nonforfeiture 
benefit was available according to the contract? 

Mr. Gerhard. Three years. 

Mr. Cardozo. At that time was there any change in the method of 
conducting the business that justified giving nonforfeiture benefits 
earlier than after 3 years' premiums had been paid ? 

Mr. Gerhard. There had been over a period of years an improve- 
ment in the earnings on industrial policies due to an improvement 
in mortality, and also a reduction in the expense, and this improve- 
ment in earnings made possible the granting of various increased 
benefits, and this extended insurance was just one of the series. It 
was felt that it was no more than right that a policyholder who had 
paid his premiums for an appreciable time, but less than 3 years, 
should get some nonforfeiture benefit, and the particular rule in- 
volved'^ was considered a convenient rule and one that could be 
readily applied and would give some benefit to pretty nearly every 
policyholder who discontinued before the end of 3 years. 

Mr. Cardozo. Are there certain expenses in the industrial depart- 
ment which you consider first-year expenses and acquisition costs ? 

Mr. Gerhard. Yes. 

Mr. Cardozo. Do you feel that they use up part of the reserve so 
that it is not justified to pay the full reserve? 

Mr. Gerhard. Certainly. 

Mr. Cardozo. Until premiums have been paid for perhaps 3 years? 

Mr. Gerhard. Or a longer time. 

Mr. Cardozo. But you do give some of the reserve as a nonfor- 
feiture value earlier? 

Mr. Gerhard. That is right. 



5908 CONCENTRATION OF ECONOMIC POWER 

Mr. Cardozo. And therefore those expenses are paid by whom in 
case the policy goes into one of these nonforfeiture benefits? 

Mr. Gerhakd. We try to keep our nonforfeiture benefits within 
the actual accumulation under the policy. In other words, the 
amount of money received, accumulated, and charged with the ex- 
pense and the mortality is less than the reserve for a considerable 
period. 

Mr. Cardozo. Do you pay nonforfeiture benefits on some of those 
policies if they terminate before the full amount has been paid in 
enough to pay the expenses? Perhaps I didn't word that right. 
Do you pay nonforfeiture benefits in some cases before the policy- 
holder has paid in enough to pay all the expenses on his policy? 

Mr. Gerhard. I think that would be true in some instances where 
this special extended insurance is granted after the payment of just 
a few premiums. 

Mr. Cardozo. And then the expenses on that person's policy are 
paid by whom ? 

Mr. Gerhard. Well, the expenses are charged against the industrial 
business as a whole. 

Mr. Cardozo. The other policyholders, the persisting policyholders, 
pay those expenses? 

Mr. Gerhard. Just the same as the cost of the grace period is also 
charged against the policyholders as a whole. 

Mr. Cardozo. So that under some circumstances you do feel that 
it is justified to have the persisting or other bodj of policyholders 
pay some of the expenses for a discontinuing policyholder? 

Mr. Gerhard. I would say provided it is a very small amount. 
Of course, this extended insurance in those cases where only a few 
weeks' premiums have been paid really costs very little because the 
life has just been insured and he must be in reasonably good health, 
and our mortality in the first year under industrial insurance is 
considerably lower than after that, so that the actual cost of paying 
the extended insurance in the case of policies which terminate for 
nonpayment of premiums shortly after issue is very small indeed. 

Mr. Cardozo. I see. But now, if a policyholder stops paying 
premiums after the policy has been in force for any time after 3 
years, you still do not give him the full reserve as a surrender value, 
I understand. 

Mr. Gerhard. We do not. 

Mr. Cardozo. You don't even after 20 years' premiums have been 
paid? 

Mr. Gerhard. That is right. 

Mr. Cardozo. That in effect is a surrender charge. 

Mr. Gerhard. That is right. 

Mr. Cardozo. Will you tell us on what you base a surrender charge, 
on what grounds you make a surrender charge ? 

Mr. Gerhard. In the very long durations, as for instance after 20 
years, the amount of accumulation under the policy is in ordinary 
times as great or greater than the reserve value. There are, however, 
several things that have to be taken into account when it comes to 
the payment of these nonforfeiture values. We had that brought 
home to us very definitely during the very difficult times in the sprmg 
of 1933 when there was a tremendous casn drain on the life-insurance 



CONCENTRATION OF ECONOMIC POWER 5909 

companies. They were very much like a bank on which there is a 
run, and it indicated that it was quite possible that in a similar oc- 
currence in the future, if things got a little worse, we might have to 
sell securities. Now if we had to sell securities at panic prices, it is 
quite evident that a very substantial loss would be involved to the 
body of policyholders who continued their policies, and we felt that 
it was only right that the people who do surrender, or who do forfeit 
their policy by nonpayment or premium, should before they are given 
the nonforfeiture value have charged against the reserve something 
to take care of this possible depreciation in time of emergency. 

And there is another aspect to this, which is that the very fact 
that we may have this run sometime in the future means that we 
have to keep our securities in a more liquid condition than would 
otherwise be necessary, and when you consider that the policies run for 
a period of many years — a policy issued at one year can run on a 
premium-paying basis up to age 70 and still be m force after that 
until 96 — we feel that we have to provide for contingencies far into 
the future, and that this sacrifice of a certain amount of interest 
earnings because of the right of withdrawal of cash is something that 
the policyholders who withdraw should defray. 
Mr. Cardozo. And they defray it in part out of the reserves. 
Mr. Gerhard. Out of the surrender charge made against the 
reserves. 

Mr. Cardozo. Now, have you changed from a 3.5-percent basis on 
your reserves to a 3.25-percent basis in recent years ? 
Mr. Gerhard. We have, in 1937. 

Mr. Cardozo. Your older policies pay surrender values, as I un- 
derstand it, on a 3.5 percent basis. 
Mr. Gerhard. On the basis provided in the policy. 
Mr. Cardozo. When you went on a 3.25-percent basis, what was 
the effect on your aggregate reserves? 
Mr. Gerhard. It increased the aggregate reserves. 
Mr. Cardozo. And could you have brought about the same effect 
in a different way, in other words, accumulating a larger surplus, 
for instance, without changing to a 3.25-percent basis ? 

Mr. Gerhard. You mean, could we have increased our surplus by 
the amount represented by the difference between the reserves on 
the 3.25-percent basis and on the 3.5-percent basis? Obviously we 
could have. 

Mr. Cardozo. And would the effect on the policy-holders have been 
the same? 

Mr. Gerhard. It -would have been practically the same as what we 
did, except that we feel that in view of the very severe shrinkage in 
interest rates and the possibility of these low interest rates continu- 
ing into the future, and perhaps even there being a further shrinkage, 
that these reserves should be put on a basis which more nearly re- 
flects a very conservative estimate of our interest earnings, and that 
it is better to have it expressed in the reserve under the policy, rather 
than the present surplus. 

Mr. Cardozo. That is the reason that you did it that way, rather 
than doing it in the other way ? 
Mr. Gerhard. That is the reason. 

Mr. Cardozo. Now, I would like to go back to this change that you 
put into effect which puts the industrial policies on a modified basis. 



5910 ( 'ONC^ENTRATION OF ECONOIMIC POWER 

Policies are iioav issued with premiums, as I understand it, that are 
supposed to rise 20 percent after 5 years. 

Mr. Gerhard. Yes. 

Mr. Cardozo. Do you expect that that premium will rise? 

Mr. Gerhard. We do not. 

Mr. Cardozo. Have you had any experience on those policies yet? 

Mr. (jerhard. We have none that have run 5 years. Of course we 
have the experience of our earnings in our industrial department, 
which have been carefully analyzed over a long period of years. 

Mr. Cardozo. So you assume that if your earnings continue as they 
have, those premiums will not rise? 

Mr. Gerhard. Yes ; we have a very considerable margin ; that is to 
say the earnings could be reduced somewhat and still the premiums 
would not rise. There is a margin there, and the margin, if it con- 
tinues, will be used to buy paid-up additions. 

Mr. Cardozo. What has been the effect of putting the policies out 
on this basis? 

Mr. (terhard. It has made it possible to grant a considerable in- 
crease in the initial benefit per premium unit paid. To put it an- 
other way, it has made it possible to grant a larger amount of in- 
surance for the same premium. 

Mr. Cardozo. In other words, if a policyholder wanted a policy 
for $250, whereas previously he might have to pay, say 20 cents a 
week, he would now pay 20 percent less than that ? 

Mr. Gerhard. Well, it wouldn't necessarily be 20 percent. That 
is, the difference in benefits isn't exactly the same as the difference 
in premiums. It varies, but it runs somewhere around 12 or 15 
percent increase in benefits, as compared with the previous benefits. 

Mr. Cardozo. And a policyholder who stopped paying premiums 
within the first 3 or 4 years would have paid in less for the same 
amount of protection, excluding the nonforfeiture benefits, than the 
policyholder under the old system ? 

Mr. Gerhard. That's it exactly. In other words, it evens out some- 
what the amount of insurance protection. "Where all of the earnings 
were used to buy paid-up additions to the insurance, the amount of 
insurance increased very considerably in the later years, and this mod- 
ified plan makes it possible to grant more in the beginning, and as a 
result of that there will be much less steep increases in the insurance 
in the future. 

Mr. Cardozo. And under your present plan a policyholder who 
stopped paying premiums within the first 3 years would not only 
get a larger amount of protection per premium unit, but would also 
now receive some extended insurance, so that he would have got more 
coverage for. the same amount of money paid in as he would have 
paid under the old policies for less coverage ? 

Mr. Gerhard. Yes. Of course the extended insurance benefit, how- 
ever, under 3 years, was applied to all our policies. In other words, 
for instance at the time that this was introduced we had policies 
which were on^the old plan and which provided the same extended 
insurance benefit as was in the new policies. 

Mr. Cardozo. I was referring to the policyholders taking out 
policies now. 

Mr. Gerhard. Yes ; they are better off, to a considerable extent. 



CONCENTRATION OF ECONOMIC POWER 5911 

Mr. Cardozo. Could you tell us what would be the effect of usin^ a 
different mortality table? You are using the standard industrial 
table for valuing your reserves and nonforfeiture benefits now, aren't 
you? 

Mr. Gerhard. We are. 

Mr. Cardozo. If you started to use a mortality table which re- 
flected current industrial mortality, what would be the effect on 
your aggregate reserves? 

Mr. Gerhard. Well, it is very hard to say. We have made a 
number of experiments, and the reserves in some instances would 
be lowered and in some instances would be higher, 

Mr. Cardozo. You mean at some ages, and on some plans 

Mr. Gerhard (interposing). And certain durations, too. 

Mr. Cardozo. And therefore it is hard to say whether the aggregate 
reserves would be higher or lower ? 

Mr. Gerhard. Yes; but I would say that the tests that we have 
made indicate that the aggregate reserve would probably be a little 
higher, but very little. 

Mr. Cardozo. Then, with respect to an individual policyholder, 
would he have a larger or smaller cash surrender value or would 
that vary according to plans and ages ? 

Mr. Gerhard. That would vary the same as the reserve would. In 
some cases it would be higher and in some lower, in the aggregate 
very little difference, but probably a very little higher, a couple of 
percent, or something like that. 

Mr. Cardozo. In the case of this extended insurance, which is the 
automatic benefit, is it not, under your policy, would he get a longer 
term of extended insurance? 

Mr. Gerhard. He would get a longer term ; yes. 

Mr. Cardozo. Do you think in all cases he would get a longer term 
of extended insurance ? 

Mr. Gerhard. I should say practically in all cases; yes. 

Mr. Cardozo. Then, to that extent it would be to his advantage to 
have a new mortality table. 

Mr. Gerhard. That's right. Otherwise it would not make any 
appreciable difference. 

Mr. Cardozo. Can you tell why you haven't adopted a new mortality 
table for your new policies which you are issuing now ? 

Mr. Gerhard. Of course, we have adopted it in the calculations 
of our premiums, and the reason we haven't adopted it for valua- 
tion is that the valuation, the table that we use in valuation, is pre- 
scribed by the various State laws — the New York law, for instance. 

Mr. Cardozo. Under the New York law — excuse me, I don't want 
to go into the law with you just now. 

Mr. Gerhard. In other words, it is a practical difficulty. We 
have to make our valuations on the basis of the table which is pre- 
scribed by the laws of the different States in which we operate. 

Mr. Cardozo. Yes, of course. 

Do you think it has any effect on the question of unclaimed or 
abandoned funds in the company as to whether you use automatic 
paid-up insurance as your nonforfeiture benefit or automatic ex- 
tended insurance as your nonforfeiture benefit ? 



5912 CONCENTRATION 'OF ECONOMIC POWER 

Mr. Gerhard. Well, I don't know. I would say, though, that the 
longer that the benefit runs, perhaps the more likely it is for it to be 
overlooked. 

Mr. Cardozo. It is possible that a policyholder could have auto- 
matically paid-up insurance and lost the policy and not know anything 
about it? 

Mr. Gerhard. Oh, yes ; surely. 

Mr. Cardozo. But in the case of extended insurance, would that 
become unclaimed funds if he lost his policy ? 

Mr. Gerhard. No; that would not become unclaimed funds. 

Mr. Cardozo. It would eventually just go off the books? 

Mr. Gerhard. Yes; it would eventually go off the books if the 
claim is not presented. 

Mr. Cardozo. Do you have a substantial amount of unclaimed 
funds ? 

Mr. Gerhard. No; we have quite a small amount. I think I can 
find some figures here. Of course, we have a department 

Mr. Cardozo (interposing). I am referring to Question 6-H of 
the Piper committee's questionnaire. 

Mr. Gerhard. Yes; that is a schedule showing our unclaimed 
funds. We have a special department the special function of which 
is to make every reasonable attempt to locate the payee in these cases 
where there are unclaimed funds, and this schedule shows the amounts 
which have been paid over a series of years as a result of the 
efforts of that department. 

Mr. Cardozo. From what source do most of the unclaimed funds 
come? Can you tell that? 

Mr. Gerhard. They are mostly pure endowments on policies which 
were transferred to extended insurance with the pure endowment 
benefit, and when the endowment period has expired, so that it is 
quite evident some amount is payable; and also policies which have 
become paid-up by their terms, and on which the insured has not 
been located by age 96; and also cases where the policy is paid up 
and no word has been received from the insured after a certain age, 
which I think is 75. 

Mr. Cardozo. Do you think most of them come from matured en- 
dowments, either under nonforfeiture benefits or otherwise? 

Mr. Gerhard. Yes. 

Mr. Cardozo. Now what is the amount as of the last date shown 
here of these unclaimed funds? 

Mr. Gerhard. The amount of unclaimed funds is $397,986, and 
there is in addition to that an amount of dividends on which the 
insured has not been located equal to $506,768 as of the end of 1937. 

Mr. Cardozo. Now I would like to just take up one more question 
in connection with the policy form. Your current policy is incon- 
testable one year from its date of issue, is it not, except for certain 
reasons ? 

Mr. Gerhard. That's right. 

Mr. Cardozo. This policy also can be reinstated at any time within 
1 year after default in premiums, I understand. If a policy is rein- 
stated, is there anything stated in the policy that shoAvs whether or 
not it is incontestable after it has been reinstated ? 
Mr. Gerhard. No. 



CONCENTRATION OF ECONOMIC POWER 59^3 

Mr. Cardozo. Does the company contest policies on which the 
insured has died more than 1 year after the date of issue, but on 
which there has been a revival ? 

Mr. Gerhard. No, not in the case of industrial policies. 

Mr. Cardozo. But so far as the terms of the policies are concerned, 
there is nothing there that states they could not contest it, is that 
right? 

Mr, Gerhard. That is right. 

Mr. Cardozo. I have no further questions. 

The Vice Chairman. It is not clear in my own mind. After a 
policy has been revived your 1-year contestability clause runs as far 
as the strict technicalities of the contract itself are concerned ? 

Mr. Gerhard. After a policy has been revived — or, let's put it this 
way : In the application for revival no effort is made to reinstate any 
incontestable clause, and it is the practice of the company not to 
consider any contestable period after revival. In other words, by 
the terms of the policy it can be contested only within 1 year from 
its date, and that is the practice, also. 

Mr. Cardozo. You state it can be contested after it has been in 
force for 1 year. If it has been in force for 6 months, and the policy- 
holder stops paying premiums, and it is revived 6 months later, and 
then 1 month after that, 13 months from the date of issue, the policy- 
holder should die, the policy really has not been in force for a full 
year, has it ? 

Mr. Gerhard. Well, we consider it as far as the administration of 
the claim department is concerned as having been in force. 

Mr. Cardozo. But from the terms of the policy 

Mr. Gerhard (interposing). I guess from a strict interpretation 
it was not in force for 1 year. 

The Vice Chairman. There are no further questions. 

(The witness, Mr. Gerhard, was excused.) 

Mr. Gesell. Mr. Van Nalts is the next witness. 

The Vice Chairman. Will you hold up your right hand? " Do 
you solemnly swear the testimony you give shall be the truth, the 
whole truth, and nothing but the truth, so help you God ? 

Mr. Van Na'lts. I do. 

TESTIMONY OF WILLIAM W. VAN NALTS, SECRETARY, THE 
PRUDENTIAL INSURANCE CO. OF AMERICA, NEWARK, N. J. 

ELECTION OF DIRECTORS 

Mr. Gesell. Will you state your full name, please ? 

Mr. Van Nalts. William W. Van Nalts. 

Mr. Gesell. What is your connection with the Prudential? 

Mr. Van Nalts. I am secretary of the Prudential. 

Mr. Gesell. How long have you been associated with that com- 
pany ? 

Mr. Van Nalts. Forty-five years last March 12. 

Mr. Gesell. How long have you been secretary? 

Mr, Van Nalts. This is the ninth year. 

Mr. Gesell, As one of your duties are you responsible for the 
conduct of the elections of directors^of that company ? 



5914 CONCENTRATION "OF ECONOMIC POWER 

Mr. Van Nalts. I am responsible for the sending out of the 
material, the proxies and so forth, yes. 

Mr. Gesell. The Prudential was a stock company entirely up 
until what date? 

Mr. Van Nalts. The Prudential is a stock company now, but we 
started the proceedings for mutualization under the laws of 1913. 

Mr. Gesell. Prior to that time the right to elect the directors 
rested entirely with the stockholders? 

Mr. Van Nalts. Yes; that is right. 

Mr. Gesell. The company is still in process of mutualization, is 
that correct? 

Mr. Van Nalts. Correct. 

Mr. Gesell. Can you give us some idea of what the situation is 
at the present time with respect to mutualization and how far it has 
progressed ? ^ 

Mr. Van Nalts. Well, the stock of the company was 40,000 shares, 
and 39,415 and a fraction have been acquired for the benefit of the 
policyholders and lodged with the trustees for the policyholders. 

Mr. Gesell. Those shares are held by how many trustees ? 

Mr. Van Nalts. Two trustees. 

Mr. Gesell. And they hold them for the benefit of the policy- 
holders ? 

Mr. Van Nalts. And vote them, at the stockholders' meeting. 

Mr. Gesell. In whom does the actual right to elect the directors 
rest at the present time? 

Mr. Van Nalts. The actual election is by the stockliolders of the 
company. The directors are selected by the policyholders at a meet- 
ing held in December. 

Mr. Gesell. Now let me see if I get that straight. There is a 
meeting of the policyholders. 

Mr. Van Nalts. A meeting of the policyholders on the first Mon- 
day in December. 

Mr. Gesell. And by their meeting at that time they indicate their 
preference for directors? 

Mr. Van Nalts. Yes. 

Mr. Gesell. And they so instruct the trustees? 

Mr. Van Nalts. Exactly. 

Mr. Gesell. Who hold the stock for them? 

Mr. Van Nalts. Right! 

Mr. Gesell. And the trustees, then, voting for the stockholders, 
vote in accordance with the direction given to them by the 
policyholders ? 

Mr. Van Nalts. That's right. 

Mr. Gesell. How often is there an election of directors of the 
Prudential ? 

Mr. Van Nalts. There has been an election of a director whenever 
a vacancy occurred. 

Mr. Gesell. You have regular elections of directors. 

Mr. Van Nalts. The 16 directors of the company who are elected 
by the stockholders are divided into four groups, and the term of 
four gentlemen, four directors, expires each year. 



1 In this connection see "Exhibit No. 1011," entered later, which appears in the 
appendix on p. 6288. 



CONCENTRATION OF ECONOMIC POWER 5915 

Mr. Gesell. So that every year four of these men, or someone 
chosen in their place 

Mr. Van Nalts (interposing). Their successors are selected by the 
policyholders, by their proxies or by votes in person, and the trustees 
are instructed to vote for the four names of the men recommended 
for the board. 

Mr. Gesell. How many directors of the company are there '^ 

Mr. Van Nalts. There are 16 directors elected by the stock- 
holders and tliree directors appointed by the chancellor of the State 
of New Jersey, known as State directors. They are appointed by 
the chancellor for 3 years. The term of one such director expires 
annually and his successor is reappointed by the chancellor for a 
term of 3 years. 

Mr. Gesell. Thus, under your procedure, once every year four 
directors of the company come up for reelection? 

Mr. Van Nalts. Correct. 

Mr. Gesell. How many policyholders are there in the company, 
Mr. Van Nalts? 

Mr, Van Nalts. Well, that is statistical information I am not 
informed on exactly, but I should say there must be some twenty-odd 
million policyholders. 

Mr, Gesell. The great majority of those policyholders are indus- 
trial policyholders, are they not? 

Mr. Van Nalts. I think it is merely — well, yes; a great majority 
are industrial policyholders. 

Mr. Gesell, Which policyholders are entitled to vote in the elec- 
tion? 

Mr, Van Nalts, Any policyholder, industrial or ordinary, whose 
policy has been in force 1 year or more and who is 21 years of age or 
more, is entitled to cast one vote. 

Mr, Gesell, It doesn't make any difference how large his policy 
is? 

Mr, Van Nalts, It does not, 

Mr, Gesell, It doesn't make any difference how many policies he 
may have? 

Mr. Van Nalts. That's right — one vote. 

Mr. Gesell. Each policyliolder has one vote if he is 21 years old 
and has been with the company a year ? 

Mr. Van Nalts, Eight, 

Mr, Gesell, When is this election of directors held? 

Mr, Van Nalts, The election of directors by the stockholders is 
held on the day of the annual meeting of the company, which is always 
the second Monday in January. 

Mr. Gesell, And when is the policyholders' meeting before that ? 

Mr. Van Nalts. The policyholders' meeting has always been, up to 
date (and we have had 24 of them in 24 years), the first Monday in 
December preceding. 

Mr. Gesell. What kind of notice do you give the policyholders with 
respect to this election ? 

Mr. Van Nalts. Of course, we publish the notice ou call for the 
meeting as prescribed by the chancellor, and the notice we send out 
to policyholders; that is, to our agents for circulation among policy- 
holders, is a letter from the president giving the reason for the meeting 
and outlining the policyholders' voting rights and giving the names 

124491 — 40— pt. 12 22 



5916 CONCENTRATION OF ECONOMIC POWER 

of the four directors who have been nominated by the committee of 
the board of directors and approved by the board for submission to the 
policyholders, and also stating that there are two forms of proxies, one 
containing those names, and a blank form on which the policyholder 
may vote for anybody he pleases. 

Mr. Gesell, I will come to those different forms of proxies in a 
moment. You notify the policyholder by a letter or leaflet which is 
handed 

Mr. Van Nalts (interposing). Which is circulated by agents to the 
best of their ability amon^ all the policyholders as they come in con- 
tact with them. The notice call for the meeting is, of course, pre- 
scribed by the chancellor. 

Mr. Gesell. Is this the form of letter to the policyholders, which I 
now show you? 

Mr. Van Nalts. Yes, that is it. 

Mr. Gesell. I wish to offer this for the record. 

The Vice Chairman. It may be admitted. 

(The letter referred to was marked "Exhibit 1005" and is included 
in the appendix on p. 6280.) 

Mr. Gesell. In addition you say you publish a notice in the news- 
papers ? 

Mr. Van Nalts. Yes. 

Mr. Gesell. I take it that is the strict statutory notice that is 
required ? 

Mr. Van Nalts. That is prescribed by the chancellor. 

Mr. Gesell. Published in newspapers only in Newark, N. J. ? 

Mr. Van Nalts. No; the notice of the policyholders' meeting has, 
up to this year, been published in a paper published in the capital of 
each State of the United States and of each province of Canada, once 
each month for 5 months, July to November, inclusive. 

Mr. Gesell. That, I take it, is a small box notice which is put 
with the legal notices and things of that sort? 

Mr. Van Nalts. It is a regular notice to the policyholders telling 
them a meeting of the policyholders will be held on a certain date, 
and what they can do. 

Mr. Gesell. Have you the form of such notice with you? 

Mr. Van Nalts. Yes; the notice that has been sent out this year 
I have. 

Mr. Gesell. Can you read that for the record please? 

Mr. Van Nalts. The notice reads as follows : 

To the Policyholders of the Prudential Insurance Company of America: 

Notice is hereby given that a meeting of the policyholders of the Prudential 
Insurance Company of America -will be held at the Home Office of said com- 
pany in the City of Newark, N. J., on Monday, the 5th day of December (it will 
be the 4th day of December in 1939, this time) at twelve o'clock Noon, for the 
purpose of selecting four persons to be voted for by the policyholders' trustees 
us members of the Board of Directors at the annual election of Directors of 
the company, to be held on the 9th day of January 1939 (which will be the 
second Monday of January 1940, this time). 

I didn't read it all. 

At such meeting every policyholder of the corporation who is of the age of 
twenty-one years or upwards and whose policy has been in force for at least 
one year last past shall be entitled to cast one vote in person or by proxy. 

That is signed by the president. 



CONCENTRATION OF ECONOMIC POWER 5917 

ISIr. Gesell. Most of these policyholders liave policies or premium 
books or something of that sort. Do you put any notice on any of 
them ? 

Mr. Van Nalts. We have not. 

Mr. Gesell. No notice in the premium book and no notice on the 
policy. Is that correct? 

Mr. Van Nalts. That is correct. We have something of that sort 
under consideration. 

Mr, Gesell. Most of the policyholders, T take it, don't vote in per- 
son. 

Mr. Van Nalts. That is true. 

Mr. Gesell. They vote by proxy? 

Mr. Van Nalts. By proxy. 

Mr. Gesell. Am I correct in saying that anyone can be nominated 
for position as a director in the Prudential if he receives sufficient 
proxies on his behalf? 

Mr. Van Nalts. Yes. 

INIr. Gesell. There is no administration slate such as we considered 
under the New York law where a list proposed by the existing board 
of directors goes out and after a certain time there is no opportunity 
for any other group to present candidates? 

Mr. Van Nalts. No; the names are sent to the policyholders and 
it is plain that they can vote for anybody they please. 

Mr. Gesell. The board in each case nominates its own directors. 

Mr. Van Nalts. Yes. 

Mr. Gesell. And the policyholder is advised that he may nominate 
anyone else he chooses? 

Mr. Van Nalts. Yes. 

Mr. Gesell. And it isn't until the final vote at the policyholders' 
meetings that it can be definitely determined whether the directors 
selected by the existing directors or directors nominated by someone 
else have been chosen. 

Mr. Van Nalts. That is true. 

Mr. Gesell. You must then have two forms of proxy. 

Mr. Van Nalts. Yes. 

Mr. Gesell. Am I correct in saying that one form of proxy which 
we will call the white proxy designates the nominees selected by the 
existing board of directors and that a green proxy in similar form is 
forwarded with provision for the policyholder to write in anyone whom 
he may designate? 

Mr. Van Nalts. You are correct, sir. 

Mr. Gesell. Are these the forms of white and green proxy which 
I now show you ? 

Mr. Van Nalts. They are. 

Mr. Gesell. Would you be good enough to read the green proxy for 
us? 

Mr. Van Nalts [Beading from "Exhibit No. 1006"] : 

I, the undersigned, being of the age of twenty-one years or upwards, and a 
policyholder in the Prudential Insurance Company of America, whose policy has 
been in force for at least one year, do hereby constitute and appoint Edward 
J. Ill, A. Harry Moore, and Charles P. Messick or any one of them my attorneys 
and agents for me and in my name, place, and stead to vote as my proxy at 
the meeting of the policyholders of The Prudential Insurance Company of 
America to be held at the office of said Company on Monday, December 5, 1938, 
at twelve o'clock noon, or at any adjournment thereof, for the following named 
persons as Directors of said Company for four years > 



591 S (X)mM':ntkation of economio powku 

Thon follow four bl:iuk spaces [i-oadins: further] : 

In (ho ovont of tlu'> do;ith ov ilisquiiHtu-Mtion of any of tho nbovo-naniod per- 
sons, (hon to vote for suoh othor linly qiialitiod vorson or vhm-sohs as Ihoy may 
soloot; and further (o vote upon nil qnostions or matters whieh may proiHMiy 
he presentiM at sneh meetinsr. or any adjournment thereof, all as fully as I oould 
do if personally present. It witness hereof 1 have hereiuito set my hand and 
seal this blank day of Wank, one thousand nine hundred thirty-eight — 

aiui thore is a spaoo fi>r iho sii2:na(iuo i>f tlu> insinvd, and seal, aiui 
thou this oortitioaliou appears at the bottom: 

1 do hereby i-ertify that 1 am iKM-sonallj' aetpiainted ^Yilh the ivrson slguiug 
tho above prox,v. that sueh person is to my knowledge a polieyholdor in the 
Trndential Insuranee (''omvviny of Ameriea. whose poliey is now in foree and 
has been in ftuee for at least one ye;ir. that said person is of the age of twenty- 
one years ov upwards and that the said prox.v was signed. sealtHl, and delivered 
in my presenee - 

signed, witness, and space for the polic^v luunboi- muier which the 
vote is takei\. 

The Vice Chaujman. That is the title? 

Mr. (tvski.i,. It is titled "rioxy." 

The VuK Cu.viKM.vN. The ajivnt? 

]\[r. Van Nalts. It just sjiys witness. 

The VioK CuAiKMAN. Who checks np on the witness? 

!^^r. Van Nai.ts. It is just the witi\css there. 

Mr. CiKSKi.L. 1 wish to otfer these for the record. 

The ViOK CuAnniAX. They may be iweive^i. 

(^The proxies ivferred to were marked "Exhibit Xo. lOOtV and are 
iucludod in the appendix on p. t>'J8l.) 

Mr. (.iF.SKi.i,. I believe you said the oroen ones are the ones on which 
the policyholder may make his indepeiulent non\ination. 

Mr. V.VN NAi,i>i. 'rUey are in-ovided for tiiat purpose, (Vcasionally 
one of the policyholders will scratch oi\e of the white proxies and 
write in another name at\d that is treated as a i:;reen one. 

jNfr, Gf.seij.. How are the proxies distributed? 

Mr. Van Xai.i^. They J^i'o J^ent to all our local offices through- 
out the United States and Canada and lettei^ are addivssed to our 
keymen, superiittendents and managers, referring to the two forms 
of' pivxy and to the letter addrcv^sed to the policyholder, setting 
forth practically all the material that is in the letter to the policy- 
holder, and m-ges that everybody entitled io vote be given an oppor- 
tunity to do so. 

Mr. Geskli>, Are these letters the forms of letters sent out to the 
managiM-s and other persons f 

Mr. Van Xaia^s. The letter on top is the one we send to managei-s, 
superimei\deius, and others. ai\d the letter underneath is the one that 
gcx\>5 with my instructions on the examination of proxies. 

^fr. Gksfi.i.. T wish to otTer these documents for the reconi. 

The Vice Chatkman. They may Iv admitted. 

(The documoms ivferred to weiv marked "Exhibit No. 1007" and 
are included in the apix»ndix on p. iVJS'J.") 

Mr. (^rsvi.i,. Thei\, T take it that the agent brings these proxies to 
the policyholder. Is that correct f 

Mr. Van Nalts. Oh, yes: we send out proxie*;, for instance last 
year, pntbably an average of '20 per man. not as an allotment, and 
these agiMits take them around on their debits and they are submitted 
for signatures. 



CONC^KNTIIATION OF KCONOMKI TOVVKIl 5910 

Mr. (hoHKiJ,. Ai-«> (lu* ii^ciils pMid !iiiy<liiii^ specially I'oi- doiii^ (Ills 
or is (his \):\vi of (licir duly''? 

Mr. Van Nalts. 'I'his is siin|)ly a, duty vviiich Wwy [)orfoi-m end 
I liavo nov(M" heard (hiil auylxxly was dissal islicd willi il.. 

Mr. (lESKij,. Wlial l(>M<j;(h of (ime do I hey have (o ^ei (hem signed 'i^ 

Mr. Van NAi/rs. 'riicse IcKcrs <:;o out. v(>rv cai'ly in S('i)(iMiil)(>r, as 
a matter of fact Sopteniher last yearj mihI will ii<2;!rm this year on 
S(^p(eml)ei* 0, so (he a<i;eii(s have pi'iict ically most of September, all 
of October and all of Nov(>mbei- to <x,vi, them in. 

Mr. (jEHKMi. ])o yon rec<)<i;nize this schednhr which T show you as a 
schcdnlo showin<j^ for the industrial divisions and ordinai-y afjjonts 
sei)arately the number of whiti> aii<l u^icen proxies pi'inted each y<'!U' 
from lOlC) to 1J);{H, and the number of such [)roxies available for each 
man or a<j^(Mit. for (list I'ibut ion? 

Mr. Van NM/rs. 'I'hat is true. I made this up. 

Mr. (iKSKi,!,. T notice from this schedule, Mi-. Van Nalts^ taking 
tiie yeai- IJKW as an example, that, theie wei(» in the industrial divi- 
sions r)()!),()()() white |)roxies as a«i^ainst, 21),r)0() <>;re(Mi |)r()xies, making 
24.8 white proxies per man as a<2jainst one-half a ^roen proxy per 
ni;ui. 

Mr. Van Nalts. Yes, 

Mr. (iiKSKiJi. I take it then the policyholder doesn't ^et both a white 
and a preen proxy. 

Mr. Van Nai/pk. The agents have these and in fact. th(\y make a 
re(iiiisition foi- more than we seiul out and yet they don't come in. 
The fact of the matter is they tell the policyholders they can vote for 
anybody they |)lease; the j)olicyholdeTS evidently desire to vote for 
the ones on the white ticket. 

Mr. Gksi:li.. I wish to oiler this schedule for the record. 

The Vice (Chairman. It may be admitted. 

(Hie schedule referred to was marked "Exhibit No. 1008" and is 
included in the !>p|)cndix on p. 0284.) 

Mr. GESEMi. That schedule also shows the number of additional 
iHMiuests for each type of proxy received each year, docs it not? 

Mr. Van Nai.ts. Yes. 

Mr. Okskm,. When these i)roxies come in how are they handled? 

Mr. Van NAi;rs. Theie are 21 departments in the oftice in which 
clerks handle the accounts of our agency staff. These proxies are 
sent by our mail department right to these divisions that are familiar 
with the agents who secured them, and they are carefully examined 
by the clerk in charge of the district froni which the [)roxies come. 
Any green proxy or any proxy bearing a change or mark of any 
charactei- is sent to the secretary's office foi- presentation to a proxy 
committee, atul the proxies left in the 21 depai-tments are the white 
ones, and they vote for the nominees of the board. One clerk 
examines those proxies very carefully and counts them out in lots 
of 1,000, another clerk verifies the count, and they are put in wrap- 
pers and on the outside of the wrapper is indicated the district from 
which they came, making the 1,000. That process goes on through- 
out the 12 or 13 weeks that they have to vSend in the proxies. 

Mc. Geseix. Is there any comparison of signatures as against the 
signatures, let's say, of the person who signs the proxy on his insur- 
ance application ? 



5920 OONCENTRATION OF ECONOMIC POWER 

Mr. Van Nalts. No ; we take the certification of the agent that he 
has done his duty. 

Mr. Gesell. As the proxies come in, I take it some of them are in 
considerably in advance of the election. 

I^Ir. Van Nalts. Yes; as a matter of fact here is the way they 
came in in 1938. There were 12 weeks' shipment of proxies to the 
home office. It started with sixty-seven-odd thousand the first week, 
eighty-seven thousand, eighty-one thousand, sixty-nine, thirty-seven, 
and it tapers down each week until the last week, only 930, so that 
three hundred seventy-six-odd thousand were received during the 
period. 

Mr. Gesell. Then you keep track of these proxies as they come in 
to determine how many green ones you are getting and how many 
white ones you are getting. 

Mr. Van Nalts. Yes. 
^ The white proxies are all left in the department until the day of 
Ihe policyholders' meeting — anything that indicates a difference is 
sent. 

Mr. Gesell. Do you have to get any percentage of white proxies 
in to carry the election ? 

Mr. Van Nalts. No. 

Mr. Gesell. Any number of votes are sufficient ? 

Mr. Van Nalts. They have been sufficient, any number of votes. 

Mr. Gesell. It is simply necessary for them to be in excess of the 
nomination for any one individual on the green proxy. 

Mr. Van Nalts. Yes; those nominations for individuals have just 
been (yie, two, or three votes. 

Mr. Gesell. No one has ever been nominated through the green 
proxy method ? 

Mr. Van Nalts. Not at all. 

Mr. Gesell. I notice in the 1938 election that there was one vote 
for yourself, one for James J. Hines, and one for Thomas E. Dewey. 

Mr. Van Nalts. Yes. 

Mr. Gesell. Can you tell us what the greatest number of votes that 
you have ever received for an individual on the green proxy has 
been? 

Mr. Van Nalts. Well, I don't believe any on the green proxy, as 
I recall, has ever received more than four votes. 

Mr. Gesell. I notice in '38, votes up as high as 15. 

Mr. Van Nalts. Well, those were for the' proxy conunittee. Some 
of them may have misunderstood. I don't think there have been any- 
thing but three or four. In 1938 there were thirty-odd names listed. 
The total vote is 79; in 1937, ten-odd names; total vote 28. 

Mr. Gesell. Have you a schedule showing what the situation was 
in that respect each year? 

Mr. Van Nalts. This may be of service to you. It is practically 
that. 

Mr. Gesell. This schedule shows the number of votes by proxy and 
in person for the persons nominated by the board of directors and the 
number of individuals who received votes on the green proxy, does 
it not? 

Mr. Van Nalts. Yes. 

Mr. Gesell. I notice in 1938 that there were thirty-odd names 
voted for by proxy for a total of 79 votes. 



CONCENTRATION OF ECONOiNIKJ POWER 5921 

Mr. Van Nalts. And you will find these in those minutes that you 
referred to a moment ago. 

Mr. Gesell. And that the four nominees of the board of directors 
received 376,756 votes, or thereabouts, by proxy, and 31 votes in person, 
or totals in the neighborhood of 376,787. 

Mr. Van Nalts. Yes ; the difference in the number between the four 
directors is where a policyholder has scratched a white proxy. 

The Vice Chaieman. What would the highest man get ? 

Mr. Van Nalts. The highest vote that anybody had here among the 
company directors is 376,770. 

Mr. Gesell. That is for a company director. 

Mr. Van Nalts. That is for a company director. 

Mr. Gesell. What is the highest amount that anyone got on the 
green proxies? 

Mr. Van Nalts. Three. 

The Vice Chairman. There was no recount asked for ? 

Mr. Van Nalts. We didn't think it was desirable, 

Mr. Gesell. I wish to offer this schedule for the record. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 1009" and is 
included in the appendix on p. 6286.) 

Mr. Gesell. I take it there is no prohibition under any circum- 
stances in the New Jersey law against a company using its own agents 
and representatives to solicit proxies. 

Mr. Van Nalts. The general counsel of the company might know. 

Mr. Bradley. That is correct. 

Mr. Gesell. Can you answer me this, Mr. Van Nalts, can a policy- 
holder of the Prudential caU at the home oflBce or write and get a. copy 
of the list of policyholders of the company ? 

Mr. Van Nalts. I don't know that anybody can get a list of the 
policyholders of the company. It would be a tremendous job to do 
that. 

Mr. Gesell. In other words, if I happened to be a policyholder of the 
company and decided I wanted to put someone of my own choice on 
the board of directors and decided that I would undertake that venture 
and attempt to get a policyholder's list I couldn't even find one at your 
company ? 

Mr. Van Nalts. We couldn't make up a list without a tremendous 
amount of labor and expense. It .would be of no benefit to the policy- 
holders. 

Mr. Gesell. If I were attempting to put someone of my own choice 
on the board of directors it might be of some benefit to me. 

Mr. Van Nalts. No ; we wouldn't care about that. [Laughter,] 

Mr. Gesell. So as a practical matter anybody who wants to really 
get under way and move to put on someone other than that person 
selected by the board of directors hasn't a possible chance of doing so. 

Mr. Van Nalts. I don't know. 

The Vice Chairman. What is the answer ? 

Mr. Van Nalts. I don't know what the chance is. 

Mr. Gesell. You don't think he has any. 

Mr. Van Nalts. I don't know whether he has. 

Mr. Gesell. Do you occasionally have policyholders who inquire 
about this matter ? 

Mr. Van Nalts. Once in a while, but not very often. 



5922 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What do you do in the case of an inquiring policy- 
holder ? 

Mr. Van Nalts. Well, it depends upon what his inquiry is. I 
answer him. 

Mr. Gesell. Well, let me show you the file of a Mr. Meyer Levow 
of 1334 Prospect Avenue, iN^ew York City. With that file in front of 
you will you tell us what was done in that case, the nature of the 
inquiry, the nature of the reply, and any other investigation that 
was made by your company. 

Mr. Van Nalts. The first letter reads — 

Kindly send nie a list of all policyholders to whom proxies are being sent. 
I make this request as a holder of policy No. so-and-so, issued on May 7, 1932. 
Will you reply by return mail? I am respectfully yours. 

Mr. Gesell. He wrote in and asked for a list of the policyholders 
to whom proxies were being sent, did he not ? 
Mr. Van Nalts. Yes. 
Mr. Gesell. And what was the reply to that letter? 

Mr. Van Nalts [reading] : 

Your letter of the 24th ultimo addressed to the President has been referred 
to me — 

That reply was made by the vice president and general counsel. 

The statute requires that notice of the policyholders' meetings shall be given 
in the manner tixed by the chancellor. On May 15, 1934, the chancellor directed 
that a notice should be published once each month during the months of July, 
August, September, October, and November, in the newspapers published in the 
capital in every State in the United States and the Provinces of Canada where 
the con\pany does business. Proxies are not mailed to policyholders but can 
be secured for any election at any of our branch offices. I am sorry that reply 
to this letter was delayed. The meeting of the policyholders was on Monday 
the 3rd Inst. 

Mr. Gesell. There is really no mention of the policyholders' list 
at all, is there ? 

Mr. Van Nalts. No ; it tells how we sent the notice. 

Mr. Gesell. He wrote again about it, didn't he ? What did he sny 
the second time ? 

Mr. Van Nalts [reading] : 

In reply to your letter of the 4th I wish to state that proxies have been 
mailed to policyholders in the past. As a holder of a policy in a mutual life- 
insurance company it is my privilege to have a list of all policy owners in the 
Prudential Insurance Company. I request this list be sent to me at once or I 
shall be forced to start an action on a writ of mandamus to compel you to 
give me this list. — Respectfully yours. 

Mr. Gesell. "VMiat did the company do after receipt of that sec- 
ond letter? 

Mr. Van Nalts. They didn't do anything. 

The Vice Chairman. I imagine it was all rather boresome. 

Mr. Van Nalts. I don't know, I didn't handle the case. 

Mr. Gesell. Isn't it correct, Mr. Van Nalts, that the company 
made an investigation of this fellow to find out who he was, where 
he lived, why he was writing, and all about it ? 

Mr. Van Nalts. Yes. 

Mr. Gesell. Do you recognize this as the report furnished by the 
chief investigator of the company? 

Mr. Van Nalts. Yes. 



CONCENTRATION OF ECONOMIC POWER 5923 

Mr. Gesell. Who ordered tliat investigation? 

Mr. Van Nalts. I don't recall ; I don't know. 

Mr. Gesell. Is it the practice of the company to make investiga- 
tions of people who inquire with respect to such matters as these ? 

Mr. Van Nalts. Well, we don't have many of them in the first 
place, and it is only a natural thing to want to know who a man is 
who makes an inquiry. 

The Vice Chairman. Tliat is, you didn't want to liquidate him. 

Mr. Gesell. I wish to offer this investigation for the record. 

(The report referred to was marked "Exhibit No. 1010" and is 
included in the appendix on p. 6286.) 

Mr. Gesell. Am I correct in saying that recently you have stepped 
up the number of white proxies that you have obtained ? 

Mr. Van Nalts. You mean stepped up the number we send out? 

Mr. Gesell. Yes. 

Mr. Van Nalts. That is done simply because of the additional 
ones requested each year. 

Mr. Gesell. It is not done because of any other reason ? 

Mr. Van Nalts. No ; not to my knowledge. 

The Vice Chairman. That is, those four votes of the preceding 
year didn't cause you any apprehension. 

Mr. Van Nalts. The four votes that I got ? 

Mr. Gesell. Have you ever seen this memorandum before ? 

Mr. Van Nalts. Yes; I saw that memorandum but I don't know 
anything about it. 

Mr. Gesell. Do you not think that tha^ memorandum contains 
some explanation as to why there has been a step-up in the number? 

Mr. Van Nalts. It would seem so, but I don't believe it had any 
effect. 

Mr. Gesell. That memorandum indicates, does it not, that the 
company was concerned that some group might obtain sufficient 
green proxies to have some position in the management? 

Mr. Van Nalts. Well, perhaps that thought was in the writer 
of it, but really I never saw any danger of "it, and I don't think there 
was any consideration of that in sending out the increased number 
of proxies, because the number of increase was not appreciable. 

Mr. Gesell. Is it your practice to vote all these white proxies 
when you get them ? 

Mr. Van Nalts. Yes, sir. 
.Mr. Gesell. Has it been your practice to do that in the past? 

Mr. Van Nalts. Oh, there was a time when we didn t think it 
necessary, 

Mr. Gesell. Tell us about that a little, Mr. Van Nalts. 

Mr. Van Nalts. Well, I have forgotten the years when all these 
proxies came in and at that time the revenue tax was required. The 
counsel of the company said that it wasn't necessary to vote more 
than about a thousand of the proxies. There were no dissenting 
votes anywhere; they were all votes for the company's nominees. 

Mr. Gesell. What is your purpose, then, in getting in so many of 
these proxies? 

Mr. Van Nalts. We are not trying to get in so many as it is to 
give a policyholder the opportunity to vote. If we didn't send out a 
large number of proxies they won't have that. 



5924 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I might have assumed it was to give them an oppor- 
tunity to vote if it wasn't for the fact that when you got them you 
didn't cast them. 

Mr. Van Nalts. Well, that is back history. I don't know. We 
didn't think it necessary to vote them. I don't know as a matter 
of fact what the reason was. The counsel of the company said it 
wasn't necessary to vote more than a thousand. My attention has 
been called to the fact afterward that we paid a penalty for it. 

Mr. Gesell. You wouldn't agree that one of the considerations in 
the solicitations of the white proxies is to have at hand sufficient 
proxies so in case any opposition developed you would be able to 
meet it. 

Mr. Van Nalts. Well, I don't think I could deny that. I think 
that is a natural thing. 

Mr. Gesell. That is all I was getting at. 

Mr. Van Nalts. Yes. 

Mr. Gesell. Now is it your practice to destroy the proxies after 
they are cast? 

Mr. Van Nalts. No; not right after they are cast. We retain 
the proxies until the term of the director selected has run out. 

Mr. Gesell. Am I correct in saying that representatives of the 
Commission made a request of your company to examine some of 
those proxies? 

Mr. Van Nalts. That is true. 

Mr. Gesell. Have you a statement which you would like to make 
with respect to that? 

Mr. Van Nalts. Yes. Shall I read the statement to you ? [Read- 
ing:] 

Representatives of the Securities and Exchange Commission requested from 
our company, The Prudential Insurance Company of America, that they be 
permitted to investigate into the signatures appearing on proxies voted in con- 
nection with our annual election of directors, their belief being that they 
would find proxies which had not been signed by the policyholders purported 
to have signed them. We were glad to give them access to the proxies cast 
in the election of directors during recent years. It is our practice to keep the 
proxies for a period of four years, the term for which the directors are elected. 
An aggregate of 782,467 proxies were voted in the 1934. 1936, and 1937 elections, 
and these proxies, together with the proxies cast in the other elections of 
recent years, were made available to the representatives of the Commission. 
The representatives of the Securities and Exchange Commission thumbed 
through approximately 4.000 proxies comprising bundles of proxies cast by 
policyholders resident in St. Louis, Mo., Detroit, Mich., New York City, and 
(^hicago. 111., in the 1934, 1936, and 1937 elections. 

From the approximately 4,000 proxies through which they thumbed, they 
took out 110 proxies for particular examination and signature comparisons 
with the signatures of the policyholders as they appeared on the applications 
for insurance contained in our files. The representatives of the Conamission 
reported to us the results of the signature comparisons of the 110 proxies 
to be as follows, namely, that 21 proxies could not be compared because the 
policy numbers stated did not correspond with the true policy numbers ; that 
fi proxies were signed by minors ; and that 44 were signed by unauthorized 
persons contrary to the certification on the proxy that the policyholder had 
personally, in the presence of a witness, appeared and signed the proxy in 
question. 

The representatives of the Commission went over with certain of the oflScers 
of the Company these 110 proxies. We have no desire to question what they 
report to have found in their examination and comparison and have made 
no attempt to check up in any way on their findings. The existence of any 
practice as to the signing of proxies by persons other than proper policyholders 



CONCENTRATION OF ECONOMIC POWER 5925 

has not been known to any executive officer of the Company, and, there 
having been no contested elections, vpe have had no real occasion to go into 
the matter. In this connection it should be pointed out that as an admin- 
istrative matter the securing of proxies has all along been made so easy for 
the agents as to make it unlikely that many would attempt to avoid the small 
effort required. During the years 1934, 1936, and 1937 only from ten to fifteen 
proxies were obtained on the average by each agent, and in 1938 only about 
20 on the average. There were no allotments and agents were free to obtain 
fewer proxies or none at all if they wished. Agents have from ten to twelve 
weeks in which to obtain these few proxies, during which time on the average 
they are seeing regularly over two hundred policyholder families each week. 
We intend to adopt every possible method to avoid irregularities in connection 
with the securing of proxies. 

Mr. Gesell. The reference to proxies signed by minors might need 
clarification, Mr. Van Naks. It is true that you have to be 21 years 
old to vote, is it not? 

Mr. Van Nalts. Yes, that is true; and the policy on the life of a 
minor does not entitle the parent to vote. 

Mr. Gesell. In most cases are these proxies witnessed by the 
agents? 

Mr. Van Nalts. I should say yes. They come in from the agency 
staff. They are witnessed by the agent or his assistant superintend- 
ent or one of our representatives. 

Mr, Gesell. I have no further questions of this witness. 

The Vice Chairman. I have none. 

(The witness, Mr. Van Nalts, was excused.) 

Mr. Gesell. That completes the presentation for today .^ 

The Vice Chairman. We will adjourn now until 10 : 30 tomorrow 
morning. 

(Wliereupon, at 4:10 p. m., a recess was taken until 10:30 a. m., 
Thursday, August 31, 1939.) 



1 Mr. Gesell subsequently oCfered the transcript of 5 broadcasts of he Prudential 
Insurance Co., which were entered in the record as "Exhibit No. 1012" and appear 
in the appendix on p. 6295. 



INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER 



THURSDAY, AUGUST 31, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington^ D. C. 

The subcommittee met at 10 : 40 a. m., pursuant to adjournment on 
Wednesday, August 30, 1939, in the Caucus Room, Senate Office 
Building, Ewin L. Davis, Commissioner, Federal Trade Commission, 
presiding. 

Present: Commissioner Davis (acting chairman), Representative 
Casey, and Mr. O'Connell. 

Present also : Mr. Brackett, Gerhard A. Gesell, special counsel, and 
Michael H. Cardozo, attorney, Securities and Exchange Commission. 

Acting Chairman Davis. Are you ready to proceed with the hear- 
ing? 

Mr. GeseLlL. I am. 

Acting Chairman Davis. Call your first witness. 

Mr. Gesell. The first witness this morning is Mr. Williams. I 
should like, before Mr. Williams is sworn, to introduce for the record 
a memorandum concerning the mutualization of the Prudential In- 
surance Co. of America, which was prepared by Mr. Bradley, general 
counsel of that company, and explains some of the matters that were 
covered yesterday in the testimony in a little more detail. I believe 
it is desirable to have that in the record. 

Acting Chairman Davis. Do you want it in the printed record ? 

Mr. Gesell. I believe that to be desirable ; yes. 

Acting Chairman Davis. Let this be inserted in the printed record. 

(The document referred to was marked "Exhibit No. 1011" and is 
included in the appendix on p. 6288.) 

Mr. Gesell. I should also like to offer for the record five broad- 
casts of the Prudential Insurance Co. made on June 8, June 23, July 
3, August 1, and August 21 of this year. These broadcasts were fur- 
nished by the company and it is my understanding they were made 
over the Columbia network. The portions being offered are only the 
commercial portions relating to insurance problems. 

Acting Chairman Davis. Do you want those printed in the record ? 

Mr. Gesell. Yes, please. 

Acting Chairman Davis. These forms have only the commercial or 
advertising features? 

Mr. Gesell. Those forms relate to the insurance phases of the 
broadcasts only, and I want them printed in their entirety. 

Acting Chairman Davis. Let these be printed in the record of the 
committee. 

5927 



5928 CONCENTRATION "OP ECONOMIC POWER 

(Copies of the 5 broadcasts referred to were marked "Exhibit 
No. 1012" and are included in the appendix on p. 6295.) 

Mr. Geskll. I am ready to proceed with Mr. Williams. 

Acting Chairman Davis. Do you solemnly swear that the state- 
ment you are about to make in this hearing will be the truth, the 
whole truth and nothing but the truth, so help you God ? 

Mr. Williams. I do. 

TESTIMONY OF CHARLES E. WILLIAMS, CINCINNATI, OHIO, 
PRESIDENT, WESTERN & SOUTHERN LIFE INSURANCE CO. 

WESTERN" AND SOUTHERN LIFE INSURANCE CO. — HISTORY AND DESCRIPTION 

Acting Chairman Davis. First, Mr. Williams, will you state your 
full name and residence and occupation for the record. 

Mr. Williams. Giarley F. Williams, Cincinnati, Ohio. I am presi- 
dent of the Western & Southern Life Insurance Co. 

Mr. Gesell. Mr. Williams, how long have you been with the 
Western & Southern ? 

Mr. Williams. I have been with the company since it has been 
organized. 

Mr. Gesell. When was the company organized? 

Mr. Williams. It was organized on May the 7th, '88. 

Mr. Gesell. It is the fourth largest industrial insurance company 
in the United States, is it not? 

Mr. Williams. I think so ; yes, it is. 

Mr. Gesell. It is a stock company? 

Mr. Williams. It is a stock company. 

Mr. Gesell. Therefore, it is the largest stock company selling in- 
dustrial insurance in the United States? 

Mr. Williams. Yes; it is the largest stock company. 

Mr. Gesell. How many policyholders has your company? 

Mr. Williams. We have roughly two and a half million. 

Mr. Gesell. Does that include both the ordinary and the indus- 
trial? 

Mr. Williams. No; that is the industrial. 

Mr. Gesell. How many ordinary policyholders have you ? 

Mr. Williams. Ordinary, I would say about 250,000 or 300,000. 

Mr. Gesell. Can you tell us how much industrial insurance your 
company has in force? 

Mr. Williams. We have $577,000,000 industrial and $315,000,000 
ordinary. 

Mr. Gesell. Has your company been writing industrial since the 
date of its organization? 

Mr. Williams. Yes; we were organized as an uidustrial companv 
in '88. 

Mr. Gesell. In how many States does your company operate? 

Mr. Williams. Our territory is simply from Pittsburgh on the 
the east to St. Louis on the west, and from the northern Ime or 
northern part of West Virginia and Kentucky to the southern 
part of Michigan. 

Mr. Gesell. That would cover eight States. 

Mr. Williams. It covers eight States. Yes. 

Mr. Gesell. Will you name those States for me ? 



CONCENTEATION OF ECONOMIC POWER 5929 

Mr. Williams. Yes; we are in the eastern part of Pennsylvania, 
northern part of West Virginia, northern part of Kentucky, the 
southern part of Michigan, and the eastern part of Missouri, and then 
all of Ohio, Indiana, and Illinois. 

Acting Chairman Davis. Mr. Williams, did you mean the eastern 
part of Pennsylvania or the veestern part? 

Mr. Williams. I meant the western part of Pennsylvania. 

Mr. Gesell. Can you give us some idea of the history of the com- 
pany and your family's connection with it? 

Mr. Williams. The company was organized by my brother in 1888. 

Mr. Gesell. "Wliat was his name? 

Mr. Y^T'iLLiAMS. His name was William J. At that time he was 
secretary of the Knights Templars Masonic Mutual, which was a 
fraternal organization. We had heard of the industrial business 
which was just organized then, it was organized about 8 or 10 years, 
rather it was brought to this country about in '78, and we were just 
hearing about it out West, and we thought it had great possibilities. 
We formed this company. It was no stock-promotion scheme. We 
had about $130,000 in cash. We put in $100,000 and issued the 
stock and had about $30,000 in capital. And then we started and 
for 21 years there were no dividends declared, nor did we get much 
salary. As a matter of fact, we had to put into the surplus, or 
rather into the reserves, because the second year we had to put in 
ten more, then we had to put in ten more about the fourth year, 
then we had to put in twenty more, then we had to put in forty-five 
thousand, then we had to put in forty-nine thousand, and in 1909 
we had to put in $385,000 to make our reserves good. 

Mr. Gesell. Am I correct in saying that the contributions by the 
stockholders to surplus, to maintain reserves and prevent capital im- 
pairment, amounted to $518,993.75? 

Mr. Williams. Just exactly. I think that is the correct figure. 

Mr. Gesell. That money has all been paid back, has it not? 

Mr. Williams. Oh, yes ; with interest — I think with interest on it, 
I am not sure. 

Mr. Gesell. Will you continue with your discussion of the history 
of the company? 

Mr. Williams. Then, of course, it was a family proposition when 
we had that money in there, and the result was that the stock was 
held 40 percent by my brother and 60 percent by myself. All our 
stock was kept intact. We personally, of course, watched every in- 
vestment that this company ever made, and you might say we watched 
almost every life-insurance policy that was issued. We begin declar- 
ing dividends in 1910 or '11, about that time, and, of course, they 
gradually increased. We tried to do it so that all our dividends were 
paid out of our excess interest earnings. In other words, we were on 
3.5 percent full level premium, and the excess of 3.5 percent which we 
made on our investments paid our dividends. We gradually increased 
the capital stock, until today it is $15,000,000, and our surplus, I think, 
is about nine million, and I think we liave probably every reserve that 
is possible to put up — I mean, to strengthen the company. We be- 
lieve, of course, in the safety of our people. 

Acting Chairman Davis. Speaking of dividends, you refer to the 
stock dividends and no reference to the policies. 



5930 CONCENTRATION OF ECONOMIC POWER 

Mr. "Williams. No; we are a stock company. 

Acting Chairman Davis. In paying these dividends that you speak 
of, over a considerable period of time and amount, were they all paid 
in cash, or were they in part stock dividends? 

Mr. Williams. We did both. We paid both cash and stock. 

Acting Chairman Davis. Could you tell what proportion during 
that period? 

PROFITS 

Mr. Gesell. Do you recognize this schedule as a schedule showing 
contributions by the stockholders, and the cash and stock dividends? 

Mr. Williams. Yes. 

Mr. Gesell. This schedule shows during the period from 1906 to 
1938, inclusive, the company declared cash dividends totaling $19,- 
102,500, and stock dividends totaling $14,900,000. 

I should like to offer the schedule for the record. 

Acting Chairman Davis. Without objection, this will be inserted 
in the printed record. 

(The schedule referred to was marked "Exhibit No. 1013" and is 
included in the appendix on p. 6299.) 

Mr. Gesell. Now, the company has always been a closely held 
family company, has it not ? 

Mr. Williams. It has been. 

Mr. Gesell. Your family has always been in control, has it not? 

Mr. Williams. Oh, yes. In 1922 my brother and I distributed 
our stock to our families, my brother s 40 percent, he now being 
deceased, going to his four children and my 60 percent is in my five 
children. 

Mr. Gesell. But the Williams family, so to speak, has always had 
the control. 

Mr. Williams. Yes. 

Mr. Gesell. And there has never been any public participation 
as such in the stock of the company. 

Mr. Williams. No, never. 

Mr. Gesell. Do you recognize these schedules which I now show 
you as schedufes showing the ownership of the capital stock of your 
company as of December 31, 1910, December 31, 1925, and December 
31, 1938, respectively? 

Mr. Williams Yes ; that is right. 

Mr. Gesell. I wish to offer these schedules for the record. 

Acting Chairman Davis. These schedules will be inserted in the 
printed record. 

(The schedules referred to were marked "Exhibit No. 1014" and 
are included in the appendix on p. 6300.) 

Mr. Gesell. Now, am I correct in saying, Mr. Williams, that you 
and other members of your family have been in active positions of 
management in the company, in addition to having the stock control?; 

Mr. Williams. I would say it has always been under the manage- 
ment of brother and mysel:^, and since he died, myself. 

Mr. Gesell. You have been the principal executive as well as the 
principal stockholder? 

Mr. Williams. Yes; I have really been the principal executive 
since 1919. Brother became very ill then and I have been practically 
running it ever since. 



CONCENTRATION OF ECONOMIC POWER 5931 

Mr. Gesell, Now, am I correct in understanding that the com- 
pany, in addition to paying these dividends which we have been dis- 
cussing, paid the income taxes for directors, stockholders, and em- 
ployees during the period from 1913 to 1936? 

Mr. Williams. Y es ; we paid for all the employees and oflficers and 
directors, and then the officers, directors, and stockholders. Yes; I 
think all of them until 1936. 

Mr. Gesell. Do you recognize this schedule as a schedule which 
reflects the income taxes paid by the Western & Southern Life In- 
surance Co., both in totals and to officers, directors, and stockholders 
and employees for the taxable years 1913 to 1936 ? 
Mr. Williams. Yes; that is right. 

Mr. Gesell. I notice that the total income taxes paid from 1931 
to 1936 for officers, directors, stockholders, and employes totaled 
$5,835,469.70, and that of that amount all but seventeen-odd thousand, 
or $5,817,675.34, were paid to officers, directors, and stockholders. 
Mr. Williams. That is the income tax ; yes. 
Mr. Gesell. That is the Federal income tax? 
Mr. Williams. Yes. 

Mr. Gesell. So that if we were to determine how profitable this 
enterprise has been to the stockholders it would be necessary to take 
into account these income-tax payments, would itnot? 
Mr. Williams. Oh, yes. 

Mr. Gesell. I wish to offer this schedule for the record. 
Mr. Williams. Mr. Gesell, were they not on that list of dividends 
that were included in the dividends? 

Mr. Gesell. I believe not. I believe these are in addition to those. 
These are not in the nature of cash dividends, are they ? 
Mr. Williams. No. 

Acting Chairman Davis. They may be admitted. 
(The schedule referred to was marked "Exhibit No. 1015" and is 
included in the appendix on p. 6301.) 

Mr. Gesell. Have you or any of the other principal officers or 
controlling stockholders had business relations with the company 
through outside affiliations of any sort? 
Mr. Williams. Never. 

Mr. Gesell. You have confined your business activities to the 
operation of the insurance company? 
Mr. Williams. That is right. 

Mr. Gesell. Is it your feeling that officers and directors should 
not deal witli their own company, even when it is a stock company? 
Mr. Williams. I don't see how they can do it. No; of course not. 
Mr. Gesell. You think it is undesirable for that situation to exist? 
Mr. Williams. Yes, yes; it is even worse than undesirable. 
Mr. Gesell. Now, you, I believe, said that you were president. 
ISIr. Williams. I am president. 
.Mr. GEstLL. What salary do you receive ? 
Mr. Williams. $60,000. 

Mr. Gesell. Am I correct in saying that your son, Mr. C. M. 
Williams, is executive vice president of the company? 
Mr. Williams. Executive vice president. 
Mr. Gesell. What does he receive? 
Mr. Williams. $7,500. 

124491 — 40 — pt. 12 23 



5932 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Am I correct that Mr. Clyde P. Johnson is vice presi- 
dent? 

Mr. Williams. He is general counsel and vice president. 

Mr. Gesell. Is he related to one of these principal stockholders ? 

Mr. Williams. No; his father was the attorney for the company 
when it organized and had his stock all the time. The reason I say 
the stock is "as is" is that we have options, there is no stock out that is 
not optioned. 

Mr. Gesell. Then he is not related to any principal stockholder ? 

Mr. Williams. No. 

Mr, Gesell. Mr, Richard A. Ryan ; is he a vice president ? 

Mr. Williams. He is vice president. 

Mr. Gesell. Is he your brother-in-law ? 

Mr. Williams. He is my brother-in-law. 

Mr. Gesell. What salary does he receive ? 

Mr. Williams. I think the same as Johnson, I think twenty-two. 
twenty-three. 

Mr. Gesell. $22,500? 

Mr. Williams. $22,500. 

Mr. Gesell. Am I correct in saying that Mr. E. S. Reynolds is also 
your brother-in-law ? 

Mr. Williams. He is a brother-in-law. 

Mr. Gesell. What is his position with the company ? 

Mr. Williams. He is auditor. 

Mr. Gesell, He receives $9,000 a year ? 

Mr. Williams, $9,000, 

Mr, Gesell. Is Mr. William R. Burlingame related in any way to 
the Williams family ? 

Mr. Williams. He married a granddaughter of my brother and, of 
course, I guess — well his wife owns the bulk of that stock; he, of 
course, is the husband. Well, he would be my grandnephew. 

Mr. Gesell. He is one of the directors of the company ? 

Mr. Williams. He is one of the directors. 

Mr. Gesell. And receives compensation, does he not? 

Mr. Williams. Well, he receives probably $1,000 a year, I would 
say a very small salary, but he receives something. 

Mr. Gesell. I believe you referred to the surplus of the company, 
Mr. Williams, What did you say it was at the present time? 

Mr. Williams. Well, I think it is around eight or nine million 
dollars. 

Mr. Gesell. Reading from your company's reply to the Commis- 
sion's investment questionnaire, the following figures are shown for 
the surplus of the years '29 to '38 and I want to ask you if, in your 
best judgment, those figures are correct: $5,051,072.39 for 1929, 
$5,734,677.69 for 1930, $8,215,779.14 for 1931, $10,236,125.24 for 1932, 
$11,949,003.01 for 1933, $12,320,425.09 for 1934, $12,022,076.69 for '35, 
$12,275,032.55 for '36, $8,153,172.95 for '37, $8,807,682.09 for 1938. 

Mr. Williams. Yes; that is right. 

Mr. Gesell. Can you give us some idea of what the principal 
sources of profit have been for your company during its period of 
operation ? 

Mr. Williams. Well, of course, prior to 1910 there were Irish divi- 
dends, but since that time the bulk of them has come from the excess 



CONCENTRATION OF ECONOMIC POWER 5933 

interest earnings, and the other, of course, from the underwriting 
profits. 

Mr. Gesell. Your company has never made any gains from load- 
ing, has it ? 

Mr. Williams. Yes; I think we lost money on our loading. 

Mr. Gesell. Your expenses have been in excess- of the loading 
factor in the premium? 

Mr. Williams. Yes. 

Mr. Gesell. You have made money from interest earnings. 

Mr. Williams. Interest earnings. 

Mr. Gesell. Money from gains in mortality? 

Mr. Williams. Gains in mortality; yes. 

Mr. Gesell. And you have made money from lapse and surrender i 

Mr. Williams. Yes ; on that I would like to explain that, of course, 
the annual statements you get show the profit that it says in there 
from cash surrenders and lapses. Of course, with our company there 
can be no lapses any more in the industrial ; there can be, of course, 
lapses in the ordinary, and that profit in that item must be offset 
by the loss in special salaries which are paid to bring that up. In 
other words, if you didn't have those lapses you would be better 
off, that is the way to express it. 

Mr. Gesell. Yes; in other words,' though it may result in some 
loss to the policyholder, represent a loss to the policyholder, it 
doesn't necessarily represent a gain to the company. 

Mr. Williams. No; and here is the way I look at it, Mr. Gesell. I 
think a life insurance policy is sort of a contract, don't you know, 
that, if carried out to its limit, that is to its maturity, both parties 
win, tlie company wins and makes money and the insured does; 
if it takes cash surrender or lapse, the policyholder loses, the agent 
loses, and the company loses. 

Mr. Gesell. Well, it is true, however, that your surplus has gained 
from surrenders and lapses, has it not? 

Mr. Williams. Yes ; you release a certain amount of reserve which, 
of course, would go in there. 

Mr. Gesell. Am I correct in saying that that amount ' has been 
slightly in excess of a million dollars a year during recent years' 

Mr. Williams. Oh, I would say that. You are not taking into 
consideration the other losses; I said about special salaries. 

Mr. Gesell. No. 

Mr. Williams. Surely, you are right. 

Mr. Gesell. That much fund has been released to surplus? 

Mr. Williams. Released, that is right, that is right. 

Mr. Gesell. Now the gains from mortality have run considerably 
higher, have they, not, from around $2,000,000 up to as high as 
$4,760,000 in 1938? 

Mr. Williams. Yes. we have had a very good mortality, which, of 
course, vv« take the credit for — watching the business. We have 
made it from the mortality. 

Mr. Gesell. You feel that is a result of good risk selection ? 

Mr. Williams. Yes ; I think it is by watching that, together with 
watching the other essentials. 

Mr. Gesell. Do yoiL think it would be fair to say that those gains 
from mortality liave been tlie principal source of profit to the 
'^ompany ? 



5934 CONCENTRATION OF ECONOMIC POWER 

Mr. Williams. No; I think when you examine it that you will 
find excess interest earnings are, up until recently. Now that they 
are dropping — the interest rate — they will be; I don't think there 
will be any question. 

Mr. Gesell. Since '29 the gains from mortality have been greater 
than the gains from investment income? 

Mr. Williams. Yes; you mean since the depression, let us say 
since the depression. 

Mr. Gesell. And your impression is that prior to 1929 the gains 
from investment income were greater than the gains from mortality. 

Mr. Williams. Oh, yes. I think there is no question about that. 

Mr. Gesell. Can you give us briefly some idea of what the invest- 
ment policy of your company has been ? You have a rather different 
portfolio from many companies, have you not? 

Mr. Williams. Well, of course, first of all we are Irish ; my father 
was Welsh or Irish. We sort of like to see what we have there, and 
of course up until the depression the main ^ing we invested in was 
real-estate mortgages. Of course since that time we all got a little 
bump in mortgages. I think we did not get hurt as badly as the 
others. We had to take over some real estate ; I think you will find 
around $15,000,000 of real estate, but the real estate we immediately 
put in such sliape as to bring in a profit to us and now it nets us 
about 41/2 percent — i and a fraction percent, and I doubt if there 
is any company that realizes half of that sum from their real estate. 

Mr. Gesell. In other words, you have a closely supervised real- 
estate account and the majority of the rest of your portfolio is pretty 
well in Governments, is it not? 

Mr. Williams. Yes; and we did not go into competition with the 
big companies in endeavoring to obtain real-estate mortgages under 
the inflated prices, and so forth, and we have confined ourselves now 
pretty well to the Government issues. 

Mr. Gesell. Do you feel that there are some advantages which 
accrue to your company by reason of the fact that the area in which 
. it operates is limited to these eight States or portions of these eight 
States? 

Mr. Williams. I think there is no question about that because Cin- 
cinnati is right in the center and I can reach any place over night, 
so that we don't hesitate to go and keep in touch with our men, you 
see. Now I personally, and have for many years, had what we call 
regional conventions, at which I have had every man and his wife 
present, and I can say that I sat down once a year with every agent 
and his wife to dinner, and I have done the same with our home oflfice 
force and have kept right in touch with them, and I think that is 
one of the reasons why we can explain to them ; in other words, when 
we sit down there we don't have any long talk, we just try to show 
the wives that this is a real business and how their husband has got 
an all-time job and if he gets old he can still continue, and so forth. 

Mr. Gesell. Then you feel there are practical operating advan- 
tages which result from being not more than overnight from your 
farthest agent. 

Mr. Williams. Oh, yes; especially in the insurance, because we 
don't write any insurance but profitable insurance. In other words 
we have only the life policies, the limited life policies, and the endow- 
ment policies, we don't write any reinsurance or take reinsurance; 



CONCENTRATION OF ECONOMIC POWER 5935 

we don't issue any group or term or annuities or anything of that 
nature. 

Mr. Gesell. Has your company tried to expand into other States? 

Mr. Williams. No ; we neve