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;r- 15, 1950 • Mr. lm* H. leyserling, Chairmn, Council of Economic Advisers, Washington, B. C. Bear Leon: I regret the delay In acknowledging receipt of your speech before the Herald Tribune Torxm* I have been in the W«tst for son© and have only recently returned to Washington, Everyone will agree, I think, with the general proposition advanced in your speech that the volume and quality of our productive capacity is our greatest hope for peace and in the event of w , of victory over the eneasy, I find cgrself particularly agreeable to the setting-up of goals and a clear outline of the job ahead so that each group will know in what imys its effort is required to insure success • I suspect that subsequent events which now emphasize more the urgency of the task before us would call for soae revisions if the speech were to be given today instead of a oonth and a half ago* There seetae to be little question tl»t our capacity for increasing production is far too limited in the short run to meet increased military requiresient® without rather severe cut-backs on production of civilian durable goods • In this connection it seems to @e that it is unrealistic to hope for anything like the rate of Increased production fro® 1939 to l$kk in the five year© to come. Nearly every pertinent factor to increasing the rate of production is different in 1950 fro® those obtaining In 1939* It ie well to reiaeisber, too, that the increase in production In these earlier years wasraeaa-oredIn tanks, ships, planes and guns rather than consumer durable goods. I think that there is greater danger Involved in overeatiaaating our production potential than to underestlmting it — particularly with reference to t&» effect on th© potential supply of civilian goods. As you know, I have advocated in the past strong doses of fiscal and credit medicine in tliaes like these since any other antiinflationary action possible deals with effects rather than causes* In a recent article In Fortune mg&sine I advocated Increased taxes now Including increases In the norsa&l taxes on corporations as well as P if Mr. Leon !• Keyserling g of a tax on excess profits* I an arguments against excess profits taxes but I the need to get taxes where the money Is and vive In a "life or death" struggle than I as vided by profits, av&re of the economic aa sore impressed with the "incentive'1 to surof the wincentive1* pro- I should like to have had your statement that "credit controls to cut back on nonesgentials should not shut off funds for the kind of expansion we need* elaborated somewhat. There seems to be a failure to recognize that a dollar created for defense production does not have a string tied to It and can be used is&ny times and for any purpose after it gets Into the spending stream. Additional easy and guaranteed credit is not essential for defense production. The credit and vorking capital being used by businesses .-mder the present conditions of full enployinant should be transferred to defense production from civilian production as it is cut back, truly yours, (Signed) RU. S. Eccies . S. Eccies. •G *
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