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MERCHANTS NATIONAL BANK OF BANGOR TWENTY-FIVE BROAD STREET BANGOR,MAINE HORACE S. STEWART President October 2U, Hon. Marriner S. Eccles, Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Sir: The enclosed i s a copy of l e t t e r recently sent to the Treasury Department, which I t r u s t may "be of i n t e r e s t to you. Very t r u l y yours, HSS:K Incl. MERCHANTS NATIONAL BANK OF BANGOR TWENTY-FIVE BROAD STREET BANGOR,MAINE (COPY) HORACE S. STEWART President OctObeT 21 , Hon. Henry Morgenthau, Jr. Secretary of the Treasury Treasury Department Washington, D. C. Deer Sir: The promiscuous use in public, press and radio of the words, "forced savings" and "compulsory savings," "by members of your staff and others, is encouraging hoarding and causing shrinkage in savings dey>osits, especially in country "banks located in areas not benefited by war industries. To many people, especially savings depositors in banks outside of metropolitan districts, the word, "savings" has only one meaning,--a savings account in a banking institution; and when public officials or financial leader? refer to "compulsory savings" or "forced savings," these depositors, fearing confiscation of their life savings, withdraw them from their bank. Result: Increased circulation and less savings funds in banks for purchase of Government securities. The Board of Governors of the Federal Reserve System recently deemed it necessary to deny a report that "federal Reserve officials are contemplating some form of control of savings accounts," and a fsy or two after that announcement there was a press release, quoting someone from your department, stating that "some form of compulsory savings will be necessary unless . . . M Is it any wonder our depositors are confused! May I respectfully suggest that, through your good office, •Dublic officials and others using the press and radio be requested to use the expression, "forced lendi ng" or "comrmlsory investl ng, " instead of the words, "forced savl ng s. " I am ?ure it would restore confidence to savings depositors, and it is possible that it might tend to diminish the rapid increase of money in circulation. Very truly yours, C http://fraser.stlouisfed.org/ H5S:K Federal Reserve Bank of St. Louis (SIGNED) Horace S. Stewart President. A few q u o t a t i o n s from the p r e s s appear "below: BOSTOS FSVfS BUREAU, J u l y Morgenthau wants to 31st: "Eot>es to Avoid Forced c o n t i n u e T r e a s u r y War F i n a n c i n g as long PS p o s s i b l e on v o l u n t a r y basis." THE SECRETARY OF THE TREASURY, P r e s s Conference, "Ue must supplement "by i t s u g l i e s t the v o l u n t a r y name, 'forced savings plan, of the Treasury, be necessary to program supplement year so l e t ' s now i t it "A<? Eenry Morgenthau, warned today t h a t 'forced savings' the Government's v o l u n t a r y "TRENDS," October ?2nd: l o o k s as though i s a foregone the a d o p t i o n of will sales System w i l l be n e c e s s a r y University, soon" speaking before of savings " S a l e s Tax *nd Forced Savings New York newspaper), September 10th: tod?y u n p r e c e d e n t e d volume of war spending made ' i n e v i t a b l e Bpngor, Maine October 2 1 , next the Newspaper Forum of New York C i t y ) . the Treasury Morgentheu a s s e r t e d savings.• " Savings: compulsory (Dr. Marcus N a d l e r , BANGCR DAILY COMMERCIAL ( a country "Secretary "Forced conclusion." AMERICAN BANKER, September 2 8 t h : forced call . . •" DOW JONES & COMPANY, INC., Right September 1 0 t h : £f-"iags, ' " N1V YORK HERALD TRIBUl'E, September 1 1 t h : Secretary Savings. thet the some form of October JO, 19U2. Mr. Horace S. Stewart, President, Merchants Rational Bank of Bangor, 25 Broad Street, Bangor, Maine. Dear Mr. Stewart: Your courtesy in sending me a copy of your letter of October 21 to Secretary Morgenthau is very much appreciated. I was particularly interested to read it because I have been increasingly disturbed by the rise in the volume of currency in circulation which, as you know, is an unfortunate and heavy drain on the banks at a tine when we hare no choice except to provide then with reserves to enable them to purchase that part of the public debt which is not being financed by taxes and borrowing outside the banks. To the extent that the currency drain has to be offset in addition, it adds to and complicates our problem. You are, of course, entirely right in your rery thoughtful letter. The phrase "compulsory savings" has been misunderstood not only in your community but, from what I have been able to learn, in many others. Doubtless to the great mass of people savings means a savings account, and while they are wholly mistaken, it is not unnatural, I suppose, for them to assume that something is contemplated that will interfere with their individual savings accounts. I think your alternative suggestions are well worth considering and I have been turning over in my own mind, since getting your letter, the possibility that the President might make some authoritative statement which it would be hoped would remove for all time such misapprehension as exists in the public mind on this score. The denial to which you refer was issued by this Board because of a wholly erroneous and misleading story which appeared in the Wall Street Journal. WJille we recognise that denials never catch up with the original mis statements, we felt we could not let this flagrant misrepresentation pass without a formal and official refutation. As you know, the War Bonds which are being sold to the public can be readily converted into cash. If, because of new pressures of increasing taxation or for any other reason, the holders de- Mr. Horace S. Stewart - (2) Ootober 20, sired to do so, they could redeem such a volume as to undo all that has been accomplished in selling these bonds to them. Long before we got into the war I felt strongly, and I feel even more strongly today, that as part of the tax program there should be a refundable portion such as the British and Canadians have, this is what is meant by the unfortunate phrase "enforced savings". It is much more important, however, to have a withholding tax so that the income tax and suoh part thereof as would be refundable after the war be collected at the source before it gets into the spending stream where it not only can have an inflationary effect but may escape the tax collector altogether onoe the money is spent. Beyond that, of course, collection at the source brings the funds currently into the Treasury and avoids the long lag that now exists between the time when income is received and the tax is collected on it. Doubtless it would be difficult to make the general public understand that the talk about enforced savings does not relate to their bank accounts and savings deposits. Insofar as you and others who understand the matter can enlighten your depositors, it is all to the good, but I think you are correct that avoidance of the widely misunderstood phrase is also necessary. Sincerely yours, M. S. Ecoles, Chairman.
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