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The Honorable
Marriner Iccles, Chairman
Federal Reserve System
Washington, D# C.
Dear Marriner:
A year and a half ago I agreed to write a popular short
book for Simon and Schuster on our economic opportunities and
how we could fulfill thein. On a great many occasions since then
I have regretted the commitment. It has "been a long slow tedious
job and most of the work has been done on weekends and at night.
I am sending you a galley proof in the hope that you
will have a chance to look it over. Obviously, the hook is for
popular consumption and is open to the charge of considerable oversimplification. Nevertheless, it seemed to me important to get
some of the "basic Issues established and particularly to develop
the concept of the tremendous potentla tlities that lie ahead of
us unless we stub our toe.
Because Simon and Schuster are so anxious to get the
book out before the middle of April, I have agreed togei the
proof8 back to them in final form by March 11 t t fT
If you ha^e an opportunity to read it over in the next
week or ten days, and send me your very frank comments and criticisms,
I would appreciate it.

With my best regards





T0_ |

Mr« Bowles


Mr. Eccles




In accordance with the telephone conversation I just had with you, I am returning herewith the manuscript, together
with comments made to me by Mr. Thurston,
my assistant.




March 13, I9I46.
Chairman Socles
Mr. Thurston

Herewith the raanuaoript of Chester Bowles* book. This is absolutely
first-rate, in my opinion, primarily because it is written in popular, understandable style. Stuart Chase is about the only other writer who has this gift
of vivid simplification without straying too far from scientific or economic
ao curacy.
As you remarked, it might be well to add to the foreword — just to
keep the meticulous professionals from carping, in case anything will — that
this is not intended as a text book but is meant for the layman who may be
interested in one man's opinion on the many admittedly controversial and complex subjects with which this deals.
I have ventured to write in a series of queries, comments or suggestions as I went along, though I have the feeling that in the short time
available I have not begun to do justice to any editorial effort. I have,
however, tried to note one or two points in particular.
For example, on page H4. there is a reference to workers saving some
of their income and putting it in the bank "which in turn will loan it to
others, etc." The reference to the bank should come out, I think, because as
we have so often said lately, the public gets the impression, wholly contrary
to the facts, that the money which depositors put in commercial banks is the
same money that is loaned out by the banks. I am not suggesting that it be
explained in this text how the commercial banking system creates and extinguishes money, i.e., bank credit based on reserves. I did not note, in
going through« any other misleading statement about it but perhaps the author
will have it in mind in final revision.
On page 16, while it is probably true that the Reserve System was. acclaimed in some quarters as marking the end of depressions, X would rather indicate that such acclamation was naive to say the least. So I suggest saying
that it was acclaimed as if it alone could.
On page 21, I would like to see inserted, though it is not essential,
a reference to the fact that only the Government, representing all of the
people, could assume the risks and extend the oredit that private business and
individuals are not in a position to assume or extend. Hoover did not understand this.
On page 23, I do think it important not to exaggerate deposit insurance. I would, therefore, say that our banking system began to recover,
aided by constructive legislation and fortified by deposit insurance.




Somewhere in the chapter, "Hhy We Bog Dora," I think it would be
valuable to point out that througnout our history it was an axiom of economics that as savings accumulated they flowed more or less automatically
into new production which in turn gave employment. The most significant
fact, I think, of the 20*s was that this axiom proved no longer valid. I
think that is what did so much to confuse and confound the orthodox economist.
This phenomenon has been stated by various people in various ways. I do not
know of anybody who has put it more succinctly as did (of all people!) Harold
G. Moulton in the volume entitled "The Formation of Capital", issued by the
Brookings institution in 1935* Certainly no orthodox source was franker about
it. It is all suamed up in the conclusions on pages 159 and 160 of that
volume, and for convenience I am attacning these quotations which, if used,
should of course be credited. I think it would be better to re-write them.
I have no other particular suggestions excepting that on page U7
there is another reference to savings going into the bank and the implication
that they are loaned out H to pay for new housing, new factories, new equipment, etc." The discussion of idle savings that follows is okay.
In looking for things that seem to need correction or amplification
one always overlooks the virtues of a text. So I want to emphasise again
that I think this will be instructive and useful for the lay public. I also
happen to be in substantial agreement with it.
If I were writing the chapter, "Live and Help Live," on page 70,
however, I would want to make clear that foreign trade is not the answer to
an unemployment problem in this country. To put it another way, a radio
oommentator the other night said in effect that we cannot have prosperity
without foreign trade. I would say, as I think you would, that just the opposite is true. I would want to point out that foreign trade is a two-way
street, etc., and that it should not and cannot indefinitely be sustained on
a basis of loans or taking gold. I would even like to put in a plug for considering stockpiling raw materials which we might be willing to take from
abroad, neither major political party is likely to reduce tariffs materially
as a means of admitting foreign goods and providing dollars with which to buy
our goods. Anyway, to do that would displace our labor. If we have high
levels of production and employment, travel remittances, purchase of luxury
goods, etc., will provide dollars for buying some of our surpluses.


(Prom "The Formation of Capital", by Harold G. Moultan)

"The rapid growth of savings as compared with consumption in tho
deoade of the twenties resulted in a supply of investment money quite out of
proportion to the volume of securities being floated for purposes of expanding plant and equipment, while at the same time the flow of funds through consumptive channels was inadequate to absorb — at the prices at which goods were
offered for sale — the potential output of our existing productive capacity.
The excess savings which entered the investment market served to inflate the
prices of securities and to produce financial instability. A larger relative
flow of funds through consumptive channels would have led not only to a larger
utilisation of existing productive capacity, but also to a more rapid growth
of plant and equipment.
"The phenomenon of an excessive supply of funds in the investment
markets had never been anticipated. Wot only had it been assumed that all
savings would automatically be transformed into capital equipment, but it
seemed impossible to oonoeive of a situation in which savings might become redundant* Such a point of view is natural enough in the light of our historical
"In the early history of this country the volume of funds available
for the purposes of capitalistic enterprise was persistently inadequate* Business men often found it difficult to obtain the liquid capital, at any price,
with which to expand the sise of their business undertakings or to exploit new
fields of enterprise* In colonial days, for example, the shortage of funds was
a continual source of difficulty and a primary cause of irritation with the
mother country, which opposed the Issuance of bills of credit by colonial governments* Until well into the nineteenth century the volume of savings rendered
available through investment channels for the needs of business enterprisers was
negligible in amount* The philosophy which emphasised the fundamental importance
of increased savings was a realistic one for that age*
"In the period since the Civil War, however, two factors have combined
to produce a profound change in this situation* The first has been the growth
of a well-to-do middle class, with funds available for investment* The second
has been the development of the commercial banking system, making possible an
expansion of credit to business enterprise for both fixed and working capital
purposes* It is those developments which account for the emergence of the
United States as a great financial power* Sot only do we now have an abundance
of funds with which to finance American enterprise, but we are also able to extend credits to the world at large. In this development we have followed the
road which England travelled at an earlier date*
"At the present stage in the economic evolution of the United States,
the problem of balance between consumption and saving is thus essentially
different from what it was in earlier times* Instead of a scarcity of funds
for the needs of business enterprise, there tends to be an exoessive supply
of available investment money, which is productive not of new capital goods
bat of financial maladjustments* The primary need at this stage in our economic history is a larger flow of funds through consumptive channels rather than
m>re abundant savings*"













March 15th, 1946

Sear Marriner
I understand from Chet Bowles that you
have read the first galleys of his hook, TOMCRBCSf
WITHOUT iEAH. As you know, we are pahlishing it
sometime late in April • If you liked the "book, I
wonder if you would he good enough to give us a
abort comment, i t i h we might print on the cover
of the first edition, along with three or four
others from highly responsible people # We should
also like to use it for advertisii^«
Ghet feels that your opinion is very
important, and of course m < o too* If you could
see your way clear to do this, we would consider
it a great favor*
Best personal regards,

ifred Smith
The Honorable Marriner S* Ecoles
Chairman Board of Governors
Fédéral Sesenre System
Federal Beserre Building

March 20, 191*6.

Mr. Fred Smith,
Simon and Sohuster, Inc.,
1230 Sixth Avenue,
New York 20, Mew York.
Dear Fred»
If any word of mine will help to give wider
circulation to Chester Bowles* book, I certainly want
to say that word. As you suggested in your note to
me of March 15, I am glad to offer a short comment for
such use, if any, as you might care to make of it. I
would be inclined to say the following}

"The great virtue of this book is that it
is written in language the layman can understand. Everyone who is sufficiently interested
in the social and economic problems of our times
to want to understand and do something about them
should read this informed and enlightening book."
Sincerely yours,

M. S. Eccles,

W A S H I N G T O N , D. C .


April 29, 1946

Mr. Blliott Thurston,
Assistant to the Chairman
Board of Governors of the
Federal Heserve System
Dear Mr. Thurston:
Sevrral weeks ago Marriner Iccles passed along to me
your reactions to the book I've wJritton, together with your
very helpful suggestions for improving it. I have finally
made a good many minor changes and the book is ready for the
press. Whatever success I have with it will certainly reflect the help that constructive criticism like yours has
given me.
I tried to profit by your good ideas on the relationship
of foreign trade to our prosperity. I didn't mean to give
the impression that it was a panacea.
I was very Interested to read the excerpt from Harold
Moulton's Ideas oh the flow of capital and savings. I tried
to reword the chapter on "Why We Bogged Down" to cover your
suggestion. It may be I didn't go far enough.
Frankly, if I had been able to find the time, there was
a great deal more reorganisation and rewriting that I would
like to have done. But I suppose no author was ever completely
satisfied with his efforts, particularly in this period of
vacuum when the book is in that final slow going-to-press state.
Many thanks again for taking time to read the gallles so
thoroughly and to suggest so many valid points.


Chester Bowles,
M. rector




Dear Marriner:
My book is finally off the press, and I em
sending a copy to your office.
I certainly appreciate the help you gave me
on it. The final result isn't everything I hoped
for» but I do think it is a bit smoother than when
you first saw it.

Best regards