The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
L.H. M e . H E N R Y X Co. UNITED STATES T R U S T BLDG. ^^mcùm'^y 2, Ky. Aprii 9, 1946. Mr* Marriner S. Eccles, Chairman, Board of Governors, Federal Reserve System, Washington, D. C. Dear Mr« Eccles: Absence from the city has preventedraywriting and thanking you for your letter of March 5th. If you can hold the increase in the cost of living within 40$ of pre-war costs, you will have done a pretty good job; however, the Government has done nothing to hold down the real cost of anything, i.e., labor. A ton of coal in the ground is useless until it is mined, processed, and deliveredj and the cost of these things is what gives it its value» The same is true of a tree in the woods; it has to be felled, processed, and delivered before it has any value; and the cost of these things is what gives it its value. When nothing is done to hold down these labor costs, there is not much use in putting a ceiling price on anything, as these increased labor costs will sooner or later shove up the price or stop production* We now have the greatest inflation we have ever had in the cost of labor and the value received therefor; it is not felt by the general public, as yet, but has been dumped upon the employers of labor, principally the corporations; those who are suffering from it are the owners of the securities of these corporations• The terrific cost of war could be largely reduced if, when war was declared, all prices, including labor, were fixed as of a certain date prior to the declaration of war. Regarding the Capital Gains tax, it is to tax the profits on trades which were made fcr business purposes, i.e., to make profits, but where an investor takes a longer term position in a security based on income possibilities, and is taxed on an involuntary capital gain, resulting from the call or judicial payment of the security, he suffers, in effect, a loss of income instead of any profit, which loss of income capitalized is in effect a capital loss. The Capital Gains tax in such situations is entirely unjust and it should be remedied. In April, 1944, I had occasion to endeavor to ascertain about the length of time a trader or speculator holds his securities. I conferred with the Louisville manager of the largest brokerage concern in the United States, and here is what he said: tf Security Trader. The preservation of his principal is not his main object, as he deals principally in speculative securities, and he does not look to the income of his securities as his profit. He holds them only a short time; he is constantly April 9, 1946 2. Mr* Marriner S. Eccles buying and selling securities and is satisfied with a very small profit on each trade* Most of the securities bought by traders are non-interest or non-dividend paying, and they deal in millions of dollars of sales and purchases, only considering the appreciation of the value of the securities they purchase and sell for their profit; they rarely ever see the securities they buy or sell, and many of them close their trades at the end of the day; many at the end of the week; they rarely hold the securities they purchase longer than a few months. The Government has fixed six months as the dividing line to distinguish a 'trader' from an 'investor',in that the gain from securities held six months, or less, is taxed double than that received from the sale of securities held over six months. A 'trader1 usually purchases on the smallest amount of margin possible with the idea of making a quick profit• This is in contrast to the 'investor1 who purchases the securities for cash and pays for them in full. These are usually registered in the customer's name, delivered to him, and held for a longer period of time* "For your information, I have been in the securities business since October, 1928. All of this time I have been connected with New York Stock Exchange firms." As for making a longer holding period, to keep down prices and reduce speculation, it will actually increase it for the reason that owners will not sell; it makes a scarcity,- that is one of the troubles now; it is one of the reasons the stock market has gone up; holders will not sell, as they do not want to give up one~fourth to one-half of their profits. Increasing the tax and lengthening the holding period would make it worse. I have been reading a little book entitled, "Why Only 3% of the Investors Secure Pfofits in the Stock Market". It is written by A. C. Stewart, an ex-broker. On page 499 he says: "One reason today for the rapid advance in the high priced stocks is that persons holding these issues are loathe to sell, because the tax collector takes such a big slice of the profit." This is a very interesting little book and very unusually written« The cheapness of money is caused by the printing press money that is being issued. The dollar is on the skids. If the Government does not cut down expenses and stop the rise in labor costs, it will be only a few years before the dollar will have little or no purchasing power. Here, in this community, a great many people are buying farms, believing that in a few years that will be all they will have* April 9, 1946 3. Mr. Marriner S. Eccles I have been interested in financial matters for some forty-odd years; I have seen wars, booms and panics come and go, but never, have I found such an underecurrent of uncertainty and fear prevalent among the business and financial men, as I find now. It is really an amazing thing to me that our Government is taking so much interest in the trials and tribulations of other countries, while the indications are our own house is burning down and nothing is being done to stop it* This letter does not require an answer; it is just an exchange of views relative to these matters in which we are all vitally interested* Sincerely yours, LHM:mm
@FedFRASER