THE INSTITUTIONAL SAVING-INVESTMENT PROCESS AND CURRENT ECONOMIC THEORY.

An increasing proportion of the saving being done by Americans is flowing through savings institutions, and an increasing proportion is taking a contractual form. Theoretical discussion of investment assumes that decisions are made by individual investors, that is, the individual saves and then decides whether to hold his saving in cash or to buy a bond, a stock, or some other capital asset, and it is apparently assumed implicitly that decisions made by financial officers of institutions are but conglomerate decisions of a large number of individuals. Actually, the investment decisions which govern the corporate bond and mortgage market today, and to a large extent marketable government securities, are decisions made by financial officers of institutions. The investment decisions made by these financial officers are not at all made along the lines of the motivational pattern which theoretical discussion attributes to individuals. This has important implications for the theory of investment and for general economic theory, particularly interest-rate theory. It is also important for public policy that the motivating forces behind institutional investment are understood better.