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15, 1939.

Honorable Horary Morgentliau, J r . ,
Secretary of the Treasury,
D. C.
Doar Mr. Secretary:
To complete your set of memoranda I an enclosing e copy of the statement on old age security
I left with the President. I should very such appreciate i t if you could gtre thia statessent some study
as X am tliorougmy aonvinced that a national old I
passion program i s issiritabla ancl tliat w& fears regarding t&e i f l i i n i affects of the ftmilm benefit
am©2^B.0nts vSIX tie amply borne out by the middle of
next year.
elso appreciate f W tfil Ht «*Q a
complete copy of tlie material prssented yestorday to
the President ~oy the Fiscal Board.
Sincerely,

Cliainaan.

June 13, 1939..

OLD lU-K SECURITY

1,

Tim ecc-i,o .ie baais of tlaa old a;® iis.iA^ zc^ pro.^axi i s ua-

sound. I t is operating as a gigantic saving defies at a tiae when there
is a surfeit of saving; I t is decreusisg eonsxamption -whan w© bare inadequate consumer buying pcrarar.

I t vionld 'm appropriate to a capital*-

poor country where a curtailment of consumption was necessary in order
to divert aor© resources into the leaking of plant aM equipment. It
no possible ecozumic Justification, however, in our capitel-ricn,
snm.ptios-poor
2. The old a:;e i.iiauracce pro^ra^i is nullifyiiis the recovery
efforts of the •• . -':.:* .•tratior^ By the end of this ysar nearly' | 2 billion
aeo«SEale.t©d in S5Tf5i5 will havo b&a© witMrawn froa miIMHHIJJIIlulli Hence.,
tha effect of nearly | 2 blHion of deficit spending will heTe been M»»
plately offset. Wan under psiidiug assadmsnts si»th.er on@«iialf billion
dollars will be added to the F-nd in 1940.
3« Our ciiroiLic difficulty ginco 1929 bus DSQE
g
TJie stimulation of conci^ption threi,;1. Wk is tranins in popularity. 555
field of old Agi pensions offers the BOfft feasible ilfuBBM for increasing
elatiT© to income. W©fc.&¥©closoci tiiis iifUHiiiii and our old
progrsm is intensifying ratlier tiiaii ©esias ^^r 'b&sie probleai.
Bayroll taxes In I n l a n d ^as^unt onlj ,to.60, percent of old
the resaaainder beir. „ -1 •. - -:-c . c ; o;* _ ,•;- r-wl
the stisnilation of consiiptiori, En;;.lcrd lias boan'able to''sustain
a Mgii level of ?;.cti¥itj with less capital expenditurai tlian formerly.
5* riaa ©xistinj old S^Q insuroioa yrojr^ is, golitically
^ Tlte Federal Govarr^isnt is collecting lietTy tsxos for old
age security and i t s only I .
.• .ents k i s been tlaroujL the separate
state assistance systems. Tfea real dessand in this country is for old
ajje pensions for the exist ing aged population, rather tlia.n for old ace
JBlHili'liiCiii for the gainfully employed in certain occupations* A contributorf .systaiii vtill sever be aliow&a to deT-slop unless the ajed. sm tiie
people ifi uncoYered occupations, includii^s agricultura, are
cared for.
6. Ti.e proposed postpoE^nent of the tax increase will merely
greyent tlie situation froa; ;;ettin^ 0:-, j . The ^ropooc-1 benefit aaendsiants
islll, add a^pe^li^ibls aaount to buying power next JOLT &nd v/ill prove
to ba a political l i a b i l i t y of major proportions* The pending benefit
sEiaiTJuvBirtj are unbelievably conplij^iaJ, adjsinistrativslj impossible,
and in operation will maika the old a.;e isanras,ee program t e r r i f i c a l l y



-2-

unpopul&r* They Mill merely result in pmjwmtM to a relatively few
people who dan qualify 021 store or less arbitrary and accidental grounds.
To those who can qualify, the payments will in MUflf cases be hundreds of
tines in excess of taxes paid. Others will fettfl peid taxes but, for various
reasons, which will appear completely arbitrary to the individuals concerned,
they will not ymllfy. I t is « conservative es - 3
1 that during the nart
f®w y^ars not less than. 50 to 100 thousand persons who pay taxes will be disqualified each year from raceiTiEg benefits by certain arbitrary provisions.
These exclusions will be concentrat3d on the groups least able to bear
PMfe ES employees in tlie lot/ *•$• arses of the South, in regions of
unemployment, and in areas where the character of the industries i s such
that rates of sickness and disability are above normal. Thirty-one per cent
of the women in covered occupations will pay taxes and yet will not 'be able to
qualify for benefits. Every QoagPteflaajD .HI hsv* in his d i s t r i c t substant i a l numbers of parsons or JMBtivuru, orflipjuflltTitilof persona vho hsire r©c©iTed Mftm ligM and psid 2^>re taxes than aoms persons or survirdra who
have recsiTed benefits but find themselves turtfjlliloii disqualified. In
other words, penaing benefit smendKiOKts, instead of aakillg the old t£t insurancQ program less politically Yulno^blo, r i l l , by the r.;iIdle of 1940,
make i t iaore Tulnerable to attsck.

7» ^hO| OYorwholain^ aou^iid of th^s country, particularly a
^ |
who ars on o'Suor mQi-sr-ros ^:--, r ^ l y in support of tha K@w Deal,
i s for a rslaoiTely simple national old-a,:s pension pro.^reg:. I t is
boliairsd that a scheme along this line can a© worked out wiiicii would
grsatly broaden the ftffymfigi of tho existing old e.^e assistance progrsm,
would prssanre regional differentials in payments, would permit the contributory systet.. to erolTe naturally, wwijd contributa enorisously to the
growth in consioiuption, and yet isould not sntail a.ny sore federal and state
appropriations t&a
acm bei,
.3.
8* A national old a.;;.e pension pro^raxw is politically
In the G-allup poll reported on Febmayy 25, 1939* 94 percent stated that
th&y flbeliev^d in OoTsrimsirt *Xd
panoions*1. For pensions of 440 a
rionth for a sin^l© person and #60 for a couple, 8? percent signified their
wiliiiign©ss wto pay a sales tax or an ineosiG t&z in order to proiride siich
pansiona*. In the Gallup poll reported on April 21, 1939» in answer to
the auostion, uDo you think Fodsral spending ahoul
iduesd bf 10
percent or. old ty;;e pens ionsw? 86 psrcant replied, BHo,n In the Fortune
poll, reported in April 1939* a substantial MLJ«rltj of the people WBBB
balievad tliLt the President *is aasential^ approved of larger pensions,
orsaa a substantial majority of the people who completely disapproved of
the President v;ere opposed to XtrgftT portions. 3y ecoiK),;dc groups, 63
percent of th© poor faTorad larger pensions. The fortune coimr^rrt; on tMl
poll was to the effsct tlitt tti:x>rG liberal pension legislfttloa




apparently be not only popular btrt politically expedient for the Aumlnistration.•

9* A :~ i i o i J '1 ', ' ^ gens JOB nyate^ is i&3yifcftSla« I t Is cartain that, ir, ft®* of tEe political nit^etlon ?:~ri the ix>, CLJIII, riaibor of
old people, i t is but a question of time befium such e grogrwc will bo
initiated. In that ease i t say happen tliat tliis AcMinis tret ion TIMCL IMMB
the interests of He lowest third of the population ftt iioart and which,
lias blazsd. tlis way for the EdoptioE of security in oldftggtas a iMtioiml
policy will be blamed for colloctiug billioBS ta taxes for old ftge Insurenco wiiile a subssqusnt adminlstratiOB tAlX TQQQIYB credit for sdoptiag
an effective old-a^Q program ?iith l i t t l e , if any, additional cost to the




THE SECRETARY QF THE TREASURY
WAS HI NGTON

June 23,

Dear 7^arriner:
Thank you for a copy of the statement on old age
security which you left -with the President. I have read
it with interest but confess my position on the matter
remains substantially the same. However, the subject of
social security is in no sense a closed issue with me and
I shall be glad to discuss the matter further with you in
the hope that our differences in opinion may be resolved.
There is enclosed a complete copy of the material
presented to the President by the fiscal and Monetary
Advisory Board on June L4, 1939.
incerely,

Hon. Marriner S. Secies,
Chairman, Board of Governors
of the Federal Reserve System,
Washington, D. G.
Enclosure

o