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• May 19, 1950. Honorable Harry P. Cain, United States Senate, Washington, D. C. My dear Harry: Your letter of May 16, unfortunately, catches r e in preparaa tion for a brief Western trip and, therefore, I am unable to give you all of the help which you ask. I am gratified, however, to find that the conclusion to which you have come on the social security program is so much in line with my own thinking. Your thought that what is needed at this tiiae is a thorough and independent restudy and assessment of the whole problem of social security, is one in which I strongly concur. It is indeed important to oppose the pending social security bill and to urge as an alternative the appointment of a Commission along the lines of the Hoover idea* At this time, I am not in a position to comment on the matter of the personnel and method of study that might be pursued by such a Commission. I do feel, however, that a study and review Commission, if provided for, should be composed of men who are socially and economically liberal, but definitely sound in their monetary and fiscal views. It ought to be possible to find men of standing and competence who have these qualifications. Given a Commission of this type, adequately staffed with technicians of broad training and experience in the field, I am confident that appropriate methods of inquiry and study will be developed. You may be interested in some views on our social security problem which I expressed in a recent speech. I quote them in full: "Regarding social security, let me say at the outset that I think this is a field in which a great deal can be done to provide for a more stable expansion of consumer expenditures, which would help to bring about a more balanced increase in capital expenditures. But if we want such a social security system, we will have to change our whole approach to the subject. "In the first place, it must be a Federal Government program and it must be greatly expanded in scope from the one that is in existence today. The Government should underwrite and guarantee for aT1 nf iftp .citizens unemployment income, education, health, Honorable Harry P. Cain, - and old age security up to its ability to pay for such benefits and at the same time maintaining a climate that would produce sufficient savings and incentives to provide needed productive facilities for an increasing standard of living and an increasing population. By doing this, the Government would assure a basic level of purchasing power in the economy that would provide a certain market for a substantial share of the commodities and services produced by our Industry and agriculture. "Secondly, the social security benefits should be paid for currently out of general tax receipts. They should not be financed out of payroll tax receipts that have been accumulated over time in a large reserve fund. Payroll taxes are too heavy a "burden directly on consumption and indirectly on investment and are therefore undesirable when what we need in the long-run is increased private consumption and investment. Reserve funds have to find lodgment in Government obligations, the proceeds from which must be spent to pay for Government deficits or to retire other outstanding obligations. "These ideas on Federal social security are by no means radical, I should like to quote f o t an editorial published in the Hew York rii Herald Tribune on March 2: 'What our social security system demands today is not a mere expansion of the existing structure] It demands first of all a thorough re-study of the problem and revision of that structure if it is to have any chance of carrying the much vaster needs now contemplated for it. *The system was set up in 1936. Thirteen years1 experience has established beyond serious question the principle of national and public responsibility for providing security against the hazards of old age and dependence; the same experience has at the same time led powerfully to the conclusion that the system was not well designed, that it is extravagantly wasteful and in an important sense a virtual failure. #### 'It is impossible for such a plan to offer any insurance against changing price levels and particularly so when the very operation of the plan can have its inflationary effect. It cannot in any real sense save up through a reserve fund, when Government bonds are the only possible investment for the fund 'earnin are those provided by the taxpayers 1#*F%i&nja£^^ ing may thh inte Honorable Harry P. Cain, - #3 be Juggled, the provision for old age is a current cost on the community, coming in any given year out of the current production, and it is already an urgent question whether a frank shift to a current cost or 'pay-as-you-go1 system would not yield a structure far more economical, more equitable, sore adequate to current needs and offering much more genuine security for the citizen's future than the present one.' I eoaid not state my views on the social security question more simply and directly than the editors of the New York Herald Tribune have clone la that editorial. (t As a final point on social security, I should like to say that I think the recent growth in private pension funds is a very undesirable long-run economic davelopment. I am opposed to this development primarily because I feel that the growth of these funds will tend to affect t a functioning of the economy adversely in two tt important ways. They will result i i the further accumulation of f funds in reserves aeoking low risk investment opportunities. This encourages Government deficits to provide securities to absorb accumulating reserves. They will also result in some redistribution of income from low to higher income groups. This will come about because the flaOBCiag of private pension funds will increase the prices of goods aad services that are purchased in the main by the low income groups. The peosions will be paid, on the other hand, only to a few selected and relatively well paid groups of executives and industrial workers. ?t I am also opposed to the iMllnp—jiit of privaxe pension funds on other economic grounds. They will discriminate against small companies, for only large companies can afford them. The growth of private pension funds will make it even more difficult for small businesses to survive in a world of industrial giants. Private pension funds will also greatly inhibit the mobility of labor from one firm to another for workers will be extremely reluctant to forfeit the pension rights they have built up. They will also probably lead to discrimination against older workers, for employers will hesitate to employ people near the retirement age." You will gather from these paragraphs that 1 am in full agreement with you that the matter of social security is one of "vital importance to the preservation of our system of free enterprise and the noncollectivist way of life." Please be assured of my every encouragement to your effort to correct basic errors. If I can be of farther help in this matter, please do not hesitate to call on me. M. S. Eccles.