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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
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
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
are those provided by the taxpayers
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
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.

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
important ways. They will result i i the further accumulation of
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.

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.