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NATIONAL WAR LABOR BOARD Department of Labor B u i l d i n g Washington, B. C. Office of t h e Chairman November 12, 1942 Honorable James F . Byrnes,. Director, Office of Economic S t a b i l i z a t i o n , Washington, D. C. Dear Mr. Byrnes: At the meeting of the Board of Economic Stabilization to be hold tomorrow, November 13, at 11:00 a.m., I should like to inject into the discussion of measures designed to control excess purchasing power, some consideration of the effect of the cost of production upon the available purchasing power of the country. This effect exists in all production, but seems to me peculiarly important in the production of war materials. All of those things which tend to reduce the cost of production have a deflationary effect. These things include increased productivity of "workers, improved methods of production, increased efficiency of management, etc. If decreased costs of production are reflected in prices the total amount of money paid for the goods produced is reduced and the excess purchasing power is reduced. If the decreased costs of production aro not reflected in prices, they aro reflected in profits, and in part find their way back into tho national treasury by way of taxes on earnings, dividonds and excess profits. It seoms to mo worthwhile for the Board of Economic Stabilization to considor this idea. Porhaps incontivos suitablo to oncourago reduction of production costs may bo suggested. In tho fiold of profits this is porhaps a matter of tho tax laws to bo considorod hy tho Treasury, and also a matter of contract prices to bo considorod by tho procurement agencies. In tho fiold of wages it would soom that if carefully and wisoly applied a wage policy which allots to tho workers a reasonable fraction of any saving in production costs, vdicro that saving can bo attributed to increased productivity of workers, might do much to decrease tho labor costs per unit of production and correspondingly lesson excess purchasing power. Cordially yours, (Sgd.) William H. Davis William EU Davis, Chairman National War Labor Board
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