RR of Letter
JHK Eccles letter follows:
"December 33,1938.
"My Dear Senator:
'tfn the course of your speech
attacking the government which
you delivered in Boston on Decem-
ber 10, you so grossly misrepresented
| my own views that I feel compelled
; to address this letter to you in order
to keep the record straight.. You
professed to quote from my speech
before the New York chapter of the
American Institute of Banking on
December 1, but it would appear
from your misquotations that you
lhad not done me -the Justice of
26,1938.
material- wealth" ox. me - countxy
since 1929? Is it of no significance
that, owing to the decline in the
rate of interest, the total of interest,
payments today is far less than m;
1929? Is it of no significance that,,
while the burden of interest pay-
ments has been lessened, national
income, out of which debts are ser-
viced, increased since the low point
of 1933,until in 1937 it was $30,000,-
000,000 more than in 1932? Is it of
no significance that the interest on
»2?S3itmy 5PeeCh y0Ulthe Federal debt amounts to only a,
'little more than 1 per cent of our]
11 cannot leave uncorrected the
national Income? Finally, is it of no
impression conveyed by your speech1 ^Sc^nw that' as a nation wei
that I am an advocate of reckless. g§- our dcbts ,0 ourselves and not
e of reckless,
wasteful, ever-increasing spending nx a joreign country?
by the government As a banker «^ td-your concern about the
and business man for more than burden of taxation, have you not
twenty years before I came to I overlooked the fact that as national
Washington, I have a vital interest income increases, tax revenues ln-
In the maintenance of our economic
system and of our democratic insti-
tutions. I am quite as concerned as
you are to maintain the solvency of
the government and to avoid the
evils of inflation. However, I am
equally in favor of avoiding the evils
of deflation'. I think I may be for-
given for feeling some impatience
when a responsible .public official
like yourself so misconstrues my
viewpoint as to make it appear that
my advocacy of properly directed
and properly timed Federal expend-
itures, for the primary purpose of
stimulating private enterprise, • is
based on any other principle or pur-
pose than to aid in bringing, about
the greatest possible degree of sus-
tained employment and production
of real wealth by private activity
and enterprise, which, in turn. Is
the surest safeguard of our democ-
racy, as it Is of the solvency of our
government.
Wants Balanced Budget
"Only in this way, by restoration
of national income, can we reach
and maintain the balanced budget
which I am as desirous as you are
of achieving. You have every right
to disagree as to the efficacy of fis-
cal, monetary and other policy In
effecting stimulation in depression
or retardation in a period of unsound
expansion. I, of course, reserve the
right to present the other side of
the case. But I am convinced that
jit deserves consideration on its mer-
its, without rancor or misrepresen-
tation.
"It is evident from the program
you presented in your Boston ad-
dress that you and I have a funda-l
mentally different conception of the
responsibility of government and of
the functioning of the economic sys-
tem. Your program makes only five
specific recommendations, all call-
ing for Immediate and drastic cur-
tailment of government expendi-
tures.
"You appear to believe that a
large part of the government's ex-
penditure is 'waste.' You are fear-
ful about the government's credit
and alarmed about the 'burden' put
upon the country by the public debt
There is not space written within a
letter adequately to discuss these
matters, but In view of your pro-
gram and since you saw fit to make
a personal attack on me, I feel that
it Is in order to raise a number of
questions with respect to each of
the foregoing considerations.
Discusses Debt Burden
"As to the 'burden' of debt: The
pertinent facts are the volume of
total debt In the country, the In-
terest on that debt and the income
out of which interest may be paid.
You failed to mention any of these
pertinent facts. Are you aware of
studies made by a distinguished
group of scholars, under the auspices j
of the Twentieth Century Fund, in-
dicating > that the total of all do-
mestic debts, both pMbllc and pri-
vate, is no greater today than it was
In 1929? That being so, does it not
give a one-sided and alarming plc-|
ture of the country's debt situation
to concentrate attention solely upon
the Increase in the public debt with-
out regard to the contraction of pri-
vate debt, and without regard to the
increase in population and Jn the,
crease, even without a rise in tax
rates? National Income increased
from less than forty billions in 1932
to approximately seventy billions In,
1937. Tax receipts of the Federal)
government increased from $2,080,-
000,000 for* the fiscal year ending,
June 30. 1933, to $6,243,000,000 for
the fiscal year ending June 30,1938.
The country paid about four billions
more in taxes, but it had thirty bil-
lions more of income a year out of
which to make these payments.
Would you have the public believe
that the country was better off In
; 1932 with lower taxes and a lower
public debt than it was in 1937 with
higher taxes and a higher public
debt?
Income Contracted
'Since 1937. national income has
porarily contracted due to a
combination of factors, one of which
was a too sharp and too rapid re-
duction, amounting to more than;
$3,000,000,000 in the government's
net contribution to community buy-
ing power In 1937 as compared with
1936. The government's net contri-
bution to purchasing power is the
amount that •the government ex-
pends over and above the amount it
collects. On this basis, the govern-
ment not only drastically withdrew
Its stimulus to consumption in 1937,
but contrary to your apparent be-
lief, actually had a balanced cash
budget and a cash surplus of about
$100,000,000 for the period from June
30. 1937 to March 30, 1938. .
"So much for the debt 'burden.'
Tumng to the 'question of what is
to be entered upon the credit side of
the ledger as an offset to the In-
crease of the public debt, you evi-
dently contend1 that nothing Is to
be entered: that the government's
expenditures; for which the debt
was Incurred, represented 'waste.'
"Is it 'waste,' as you seem to think,
to have the government borrow and
put to use otherwise idle funds of
Individuals and corporations? Is It
'waste' to have the government, by
borrowing from the commercial
banks, replenish the supply of bank
deposits which contracted by one-
third because of debt liquidation
during the deflation, and put this
newly created money to work pro-
viding employment and thus utiliz-
ing man power and productive
facilities that otherwise would have
remained idle? Is It 'waste' for the
government to expend these newly
created and these otherwise idle
funds for roads, slum clearance,
bridges, school houses, hospitals, and
a host of other useful and necessary
things that are needed by the com-
munity but are not supplied by pri-
vate enterprise? Are these addi-
tions to our national wealth, addi-
tions resulting from public expend i-
tures that are based upon increase
of .public debt more 'wasteful' than
the expenditures In the late twenties,
based upon private debt, whereby
billions of dollars were diverted to
uncpHcctable foreign loans and to
build at inflated prices huge sky-
scrapers, office buildings and apart-
ment houses, many of which never
have _ been, sufficiently occupied to
maintain the investment?
Denies Spending* Is "Waste"
"Do you think It was 'natural
forces' that produced the recovery
after 1933? Do you think that the
restoration of the national Income
from less than forty billions to
approximately seventy billions came
I about In spite of and not as a result
of government expenditures If so,
why was It that for more than three
years after 1929, when we did not
'have the legislation or expenditures
to which you' so strenuously object
there was no recovery, but'instead,
a continuing deflation until the
government intervened on a com-
prehensive scale, replenished bank
deposits and put these funds, to-
gether with stagnant funds held by
individuals and corporations, to
work? This, of course. Increased thej
public debt after private debt had.
rapidly contracted. Doubtless had
the government been adequately
prepared, It could have spent money
more efficiently and more produc-1
tively. Yet in the light of all of
'the foregoing considerations, how
jean; it Justly be said that the gov-
ernment's expenditures were 'waste'?
What to my mind is the real and
Irreparable waste, which the nation
can least afford, is that which re-
sults from failure to use our human
and material resources productively.
"As to the government's credit:
Why do you suppose it was that inj
1932, when the government's debt
was. about half of what It is now,
3 per cent government bonds sold
.down as low as 83? If the govern-
ment's credit is as precarious as you
told your Boston audience, why Is
-that Vh per cent government bon
today are selling at a premium
more than 102? How does it happ
that since 1933 foreign capital has
steadily flowed into the country
from abroad, if the credit of the
country is in Jeopardy, as you
contend?
"Early In your speech you extolled
'those time-old virtues of thrift,
frugality, self-reliance and Industry.'
Somewhat later, however, you ex-
pressed alarm at the increase in
debt of the last Ave years. I am at
a loss to understand how you recon-
cile these two ideas. Certainly if it
is good for people to save, 1. e., prac-
tice the virtues of thrift and frugal-
ity,.It must also be good that some
one should borrow money and put it
to productive uses. Private enter-
prise has In the years since the de-
pression began been In no position
to employ profitably anywhere near
the total of the country's savings,
because there was not sufficient buy-
ing power in the hands of the pub-
lic to purchase the output of exist-
ing facilities of production.
Needn't Liquidate Debt
"In connection with the question
of .debt you also make the curious
statement that some day the whole |
amount must be repaid. Such a
statement reflects a misunderstand-
ing of the fundamental nature of
our capitalist economy. Debts and
Obligations of various kinds are but
the other side of Investment and if
we ever tried to liquidate the whole
amount of them, or even any sub-
stantial fraction, we would precipi-
tate a crisis so severe that general
economic paralysis would result
When there Is contraction of total
debt, private and public, we have
deflation. We have never had pros-
perous conditions without an ac-
companying expansion of debt
either private or public, or both.
"Do you think, as your speech