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FREDERIC A. DELANO ©137 NORTH INTERIOR MUILDINO WASHINOTON, O. C. 5TO LEXJNQTON AVINUC NEW YORK CITY Washington, D. C, January 19, 1939. Hon. Marriner S. Eccles, Chairman, Board of Governors, FederalfieserveSystem, Washington, D. C, My dear Governor Eccles: I am enclosing herewith a rough draft of a statement ^ have dictated this morning and which •*• am sending to you without reconsideration or correction. I do not know whether any of the suggestions •*• have made will be useful to you, but I hope they may be. Sincerely yours, P.S, This printed leaflet came in since I dictated the statement, aid illustrates my point in regard to the attitude of banks and bankers# P.A.D. Kncl. I htiV& before me two rather i a t . T ' | t l whie!- j.-re worth a o t i a g , - on* en e d i t o r i a l from the Mfttti FUST of l?i 1939» e n t i t l e d "SO Millions or Bust"; tfci other, aa g eosroeat from the , by coauaeatator Raymond Clapper, Aat«4 January 18, 1939* e n t i t l e d *I%poais Again", Of these, the f i r s t mentioned ia aa e d i t o r i a l daaouneing Mr. Hccles 1 views and support in fr t l W i of S,jm*lor Byrd. r^o |a II I t fc—WU evideace of ;co of the BrockiflK^ I n s t i t u t e , sad altiioiigb I t i s vwrj '--ell preseated, i t twr^ataly f a i l s to apprec i a t e Mr* JBcelee1 p o i n t . I RMIld be happier IIMB ^OTernor Ecal to see the i,saer^l i p i f l l l H by big corporations ^ad uo r e l i e v e tbe Governmeat of the very heavy I ing 12M mechisery going, t p w t t ei^e^lcs ol & wpu^p prl^iag 1 *. lo -ireeeat i3pendiac:; pgagfii of th® ^he igy of pui^p prlnlag has gaae by, thoa« wlio bavs t r i e d to "aitderatamci the situation, r e a l i z e that i t i& much. Bert serious than simply a matter of primlag the pump. %% i s t problem of atr.. . H*tltm« .urfieietit national iasome to rua the Al im^snse amoual b a written by ©coaomists aad othere I i t ©uglit to be <spx>M><e!a'fc to «ay ^erioiiB-miaded msa th°t i t i s not somethl:.. I I c m b& disposed of by ^ f I H l g aasne®* or r i d i c u l i n g e f f o r t s that %re b»iag aade. x carry tfWBld t l ^y pocket • st«toasat of «|M industry in tbo boom yesre of '20 to f 2 9 . eloae the t o t a l expenditures rfeat up to the l«i in the In th&t iadustry a t o t s l of fourtaea b l l l i o a s , of v^hicfc the f l i l f l i l Government contributed less than half a billion. Much of t h i s bulge In bolldlac «PM purely speculative and obviously could not last Indefinitely; and | t 4 perhaps more than any other tiagX* industry, mad© the MMrt * -ie collapse sad brought down with i t many other induetries, - among others mA cortaialy aot the l e a s t , tfc« railroad industry. The problem WH since 1952 bai been hM to restore h u l l Mi to *0«©tMng like normal, /,t f i r s t i t m eg&t of ?§aay busisiess M«a that i l l they aeeded «ae the expenditure of a j i l l H s a or two by Feder?il ^overameat MM llM rset would pick up ti.:v- load, but in of the fact tfctt %k* %9f9^9mmm% hM incressM i t l expenditures oa building ead loan to 2f b i l l i o a s , it h«o nc*. i restore the status quo sate. them thfit many I ^ J m t f t i l f i l i j ioteat to Wben we look for eauaee, we find among • • • aotKjVly IM btnlcers% har© baccate so tiraid that they <io not dare venture into MJUllHj thst It a@w, There is a actable exaaption | | tlM c«se of th* ^liponta about whom Rayaond. Clapper spoaks. He p^iati out in his very interestiiig a r t i c l e that despite tl:»e bar<! times, the Duponts «re M ihifl moment beginning • constructioji of an 8-million dollar plant M ^eaford, Delaware, to manufscture a new product, "%lon*, wnich 1* 10 displace silk perhaps even cotton and other fibers. u ^r& i s .», co-io©ra th&t h« the rap" along «itfc others, end yet ftl tbo present tla* ere employing 52,000 a#n as Ttfffifrt 42,000 «t UMI pctfe of ^-oovci.r rrosperity* How §3 i t happen that this institution la £«uch an outstanding sx«s»|ile of at %h& probl&m at m t o t a l l y different sagle than others? are p&rh&pfi sover&l d j f f » t f , t answers: 1# I would sey ti-tit the Isrg© fiagnaiere a:r# pttftMfNi ®ore responsible for IIM exaggerated bulge i s business in the years f 24 to '29 thsa any other yeeyXf* %l the r a i l r o a d serYiaa, instead of seeing 11M handwrtfclag oa the wall ami the @ff@et of isotor com.pstltloa, %h*f iaeresse?d the l ve^tiared in that aatsrprioe 'by some 9 b i l l i o n s af d o l l a r s , of 8*lj '.bout, h#iit' cculd be regarded as sa enditurea l i k e l y to IMVUM the Tolmsi.a of bMsiaeas or dlmimlsii. tb«j eost of doing i t . The fiEaasler& who ciici trits were more i m e r e s t e d In tb@ p r o f i t s of wmierwrittiig UMMI they MM) in benefit ing tiie railroad Industry, 2« AujxLer t*oil,# sras leading or oxtrt»vr ^n+. c^«ts to y^raaay, | # otli#r i^:rop©ea n a t i o a e , to &onih Aaerieaa aatioas» mad to c i t i e s oa loasig whicii w^re atlraotiire oaly b^eiiug© UMQp carrl«<l a r a t e of aie-Ht'.-Ki Ml llMlftMNIo.f I t that t h t y V«9« t » j i t i n aacl losees ia tlii^ elest; of | M M aloa© smomated to tw©-thirae of tha bMUMW in oxpenses mad© by the Federal «-overa®&nt In the- 3. fort of t.hft trouble can perhaps be t T j l n i w i by o,h,fiage ia p o l i c i e s adopted bf tlM Ooagress, soa© of vrtileh haw lMMNI fT'TtiiHllilf ia a) XhM ehut-tiag i f f of t i t ^ H t Ion • • • thereby r©ducia«. b) file sbtittiag. off by %k* baake, with the aytfaoritj of the l#s#rv« law, of paying i a t ^ f e s t Mi d e p o s i t s . TMe resulted til aa taorsoua sa^iags to the banks but leaded to m&k:e %h/m l e s t iat#r«?st€Ci ia (Ml a^1^ drrelopmstits. P r i o r to *J !^ p*&c<iL-; of trie i-et, i t was ooi^oa tor htrnka- ia th« *orth to pay 2 5.acl -4on deposits, aud In UM South end Soutlmest as high ©s 4 and 6$L A bank that paid fantastic Hkttfl of interest like thife -a deposit money wag compelled to tttfe UWHftMfttfl | i order to make ^arnia^s. T&ey featured to invest la "wild cat" enterprises wfcieh sometimes proved very profitable, bin, they also ventured in financing foreign countries whose securities they &;d act- study, and then got rici of tbe bonds by soiling tfeem at a profit to the "clear piablie*. c) Aaothar tbln^ whic: riich 3«ght to "be ;->as of organized business in dealing «rith depressions. Thifl i s knox'm as the "budgeting of ^xpcindituret-11. la old days, a aao. nmaiag • railroad or factory irould watct. hie business and if it f or 7 off a little, he tresuld not at once reduc© wsges/«M fdismlse • lot of bit employees beceu.ee he regarded tfeftt it m impoi'teat to keep a good staff aad aot to do anything to alarm rublic opinion. Tb« attitude today is almost the reverse of that. As soon as there is any drop-off In busiaeee, expenses are reduced to fully M M t the reduction In earnings, and the effect of this h*»-n frequently bmm to eccentuete and accelerate the dowaward &pin. A few companies:, • very few, (but apparently the Dupont ©oncerae lead U M list), sr© those %iio, w.tioa bueiness is dropping off, soak to iitcre»sa their latfti r lk«f than, to reduce tbeir outgo, B<m& of thesa reduce prices and try to incrs-sec? Ml<MI| others put on special advertising campaigns to increase their sales; still others do wnat tb© Duponts ar© doing througb thair research work, - incres&e thair production ana their markets tlther by -^king a better article for the H M H prie© or th# MHMI article for • leas priea. •5la. closing, oae thing I reiterate: criticlan* '~he bitter These are tiatf for Men of single-track mina, like Senator Byrd, do not help M «ader^w In tb« flaanclal i?orld wto Mqr they viXl aot do thing until the fioiniliail ntopii criticising crookeu hlthutt «ad dishoaest fiaaace. iiiey I I i t l l UM fMMVtl public tluit i& seared and do aot n f t i j t that they themselves fc • M more th&a a to frighten them. Frederic A. Delano Draft Jeauery 19, 1939.
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