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BOARD OF

GOVERNORS

OF THE

FEDERAL

RE SE RVE

SY STE M

D a t e _____________________

To

___________________________
—

-----------------------------------------------------------------------------------------------

MESSAGE:
Mr. Thurston
This gentleman is not on Mr* Eccles*
personal mailing list nor is he on
the Board’s mailing list to receive
«statements, addresses,1" etc*

innm

^■“läessage delivered by
F.R.

468


Rev. 1/4 7


D A V I D M. F1G A R T
BRI A R C L I F F M A N O R . N E W Y O R K

Aprii 9, 1949

Dear Mr« Socles:
I have followed your views on economies with great
interest and constant agreement for many years; and
I could have wept when you oeased to be Chairman of
the Federal Reserve Board.
But on this baffling question of Russia, can we
force the issue? Suppose the Soviet Annies seized
the oities of our Allies and held them as hostages
to be destroyed with the destruction of Russian
oities - what effective answer eould we make?
I think our countrymen will still prefer the ori­
ginal version of the 46th Psalm to Mr. Acheson's.
Sineerely yours

Mr. Marriner S. Eccles
Federal Reserve Board
Washington, D C




May 13, 1949.

Mr. David M. Figart,
Briarcliff Manor, New York.
Dear Mr. Figart:
Thank you for your kind note of April 9
that deserved and would have had an earlier answer
but I have only recently returned from the ttest.
The Russian question is, of course, baf­
fling, as you say, and the risks are great. But I
am firmly convinced that in the choice of alterna­
tives the lesser risk and the greater chance for
peace in our time lies in forcing the issue with
them while we have superior strength. At all odds
you may not have seen the full text of my talk on
this subject and I am accordingly enclosing a copy.
Again let me thank you for your generous
personal references.
Sincerely yours,

M. S. Eccles.
Enclosure

ET:mnm




D A V ID
B R IA R C L IF F

M,

F IG A R T

MANOR,

NEW

YORK

May 25, 1949
Mr. M. S. Eccles
Federal Reserve Board
Washington
Dear Mr. Eccles:
Thank you for your letter of the 13th. I was particularly glad to have the full text
of your talk before the Commonwealth Club of California.
One's point of view on the Russian question will depend much on the authorities re­
lied upon. Winston Churchill was, in my judgment, one of the great war leaders of
all time. I do not fully trust his counsel as a peace leader. He is sin imperialist
and inherits the century-long struggle of Britain to prevent Russian access to the
Mediterranean and Indian Oceans. I wonder also if General Deane's judgment may have
been influenced by the refusal of Russian leaders to exchange vital military infor­
mation with him. My own feeling has been that the views of such observers as the
late Sir Bernard Pares, Walter Duranty, Walter Lippmann and John Foster Dulles, among
others, are more objective; and if I interpret them correctly, I do not think any of
these men would hold the premise that Russia has contemplated world conquest in a
military sense.
Several statements in your economic discussion were most interesting: that recurrent
depression has been a chronic tendency of Western capitalisa; that personal security
is attainable by too few people through individual effort and savings alone; that
Government intervention is the only answer to the business cycle that we have yet
devised; that individuals having great economic power must show a high level of
statesmanship.
The National Association of Manufacturers issued a bulletin last year entitled "Em­
ployment Stabilization.” It listed eleven solutions for stabilizing employment (which, if successful, would I think mean the virtual abolition of depressions.)
It said that
Industry is convinced that the only immediate and sound approach
to the problem of greater job security and regular pay is through
better stabilization of production and employment within the in­
dividual company. This is a practical objective, reasonably with­
in the power of most employers.
On the encouraging side is the revelation of the actual extent and
magnitude of solid achievement by industry in stabilizing employ­
ment and pay as a result of purposeful management initiative and
effort.
The MAM bulletin also said that business cycles "for the most part, lie in the field
of government policy and international relations, and, consequently, are beyond the
ability of the individual employer to modify or eliminate.11 I have long believed
that business underestimates its ability to deal with this problem, and I hope I will
not trespass too greatly upon your patience ty outlining briefly a possible approach
which I have had in mind for many years.
We may concede that every business - regardless of how well it is managed - will have
unforeseen interruptions, and that therefore employment stability cannot be guaran­
teed. Organized labor's approach is through a guaranteed annual wage. But wages
are paid from production. If production is uninterrupted there is no need for a
guarantee, sinoe labor automatically receives its wage; but if production is inter- __
rupted, there is no way to pay a guaranteed wage except from reserves. The essential
thing, from labor's standpoint, is the reserve, not the guarantee. Corporate employ­



Mr. M. S. Eccles

- 2 -

May 25, 1949

ment security reserves could cushion the shock of temporary interruptions in pro­
duction just as effectively as the individual's savings - where they exist - cushion
the shock of unemployment; and by doing so the employee's purchasing power would be
sustained in a substantial degree, and - what is more important - community morale
would not suffer. Social security is only a partial answer to this problem: it is
totally inadequate in amount, and it may actually tend to bring about the very con­
dition it is designed to alleviate; for it says in effect to employers: "It is all
right for you to lay off your labor, since we have funds to take care of it." It
thus transfers to government a responsibility which should be industry's - and this
in an economy which industry insists must remain free.
How, most employers fear the commitments of a guaranteed annual -mage; but I suspeot
that if they were given an adequate incentive, they would be willing to accumulate
employment security reserves designed to carry labor over temporary shutdowns; some_
are doing it now. I believe that if Congress would grant tax exemption to reserves
earmarked to maintain labor (the human assets of a business) during enforced idle­
ness, just as it now grants tax exemption to reserves to take care of machinery and
plant (the physical assets of a business), this would prove a sufficient incentive _
to most large corporations to inaugurate such a practice. It is possibly true that
under present Treasury regulations some f o m of reserve could be set up for this
purpose which would be tax exempt; but it is doubtful to what extent this is real­
ized, and it has seemed to me that the situation needs to be dramatized in some
way - through some specific act by Congress with a corresponding announcement to
labor and industry of the intent.
For if Congress were to grant tax exemption to corporate employment security re­
serves, it would be tatamount to saying to industry: "You say you want to provide
security of employment. We are going to make it easy for you by exempting from
taxes the reserves without which employment security is a meaningless phrase." And
Congress would be saying to labor: "You say you want employment security. Now co­
operate with business so that there will be sustained profits out of which reserves
can be set up to insure a measure of income stability during the unavoidable fluc­
tuations of business."
There are a great many details which I will not attempt to cover. But I wish to
suggest that the chief result of such a general accumulation of employment security
reserves by the large corporations would not necessarily be in the amount of funds
involved, but rather in the effect on management policies that such reserves would
have. For it would inevitably lead to greater c aution in production, merchandiz­
ing and expansion policies in order to insure employment stability; and it would
lead to greater co-operation on the part of labor, even to the extent of accept­
ance of wage and hour adjustments to insure continued profitable operations of the
business. It would hasten the trend - already evident in industry - to regard its
function as primarily one of soivice to the community, and profit as simply a device
to measure the success achieved in rendering such service. It is of course obvious
that profit and employment stabilization are complementary: one cannot exist without
the other.
The question will naturally arise whether tax exemption alone would prove a suffi­
cient incentive to induce corporations to accumulate employment security reserves
and pay them out when the necessity arose. It would of course be a simple matter " ^
to make such reserTOs yi£|ua|lyn?jigMatory through a modified undistributed profits
tax, with severe penal ties/not specifically exempted from tax. But it might be bet­
ter to try out the voluntary method first. It could do no ham, so far as I can
see; it might astound us by its success.
We used to think that the law of supply and demand kept the economy in reasonable
balance. The growth of the corporation and concentration of economic power upset



Mr. M. S. Eccles

-3-

May 25, 1949

that mechanism. My own belief is that -we need not rely on government intervention
to maintain a balance, but that our economic system still possesses the power of
self-regulation - that is, boiled down to its simplest terns, the power to guaran­
tee reasonable employment security. Even the HAM comments on the Magnitude of
solid achievement” in that respect. But men need incentives to do their best work.
Perhaps the tax incentive outlined above would help our business leaders "having““-'
great economic power” to "show a high level of statesmanship" by suggesting that
the stabilization of employment is, again in the words of the NAM, a practical
objective, reasonably within the power of most employers."
__ J
With expressions of high regard, I remain




Faithfully yours,

David M. Figart