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DDNALD E. LITCHARD SEVENTY STATE BOSTON STREET S, MASS. CAPITOL 4534 y le- Y % ^T^U^L-J^-^- r -e^^e^L«-^ ^CJUl ^ J ! Y a / / í?é March 13, 19U5X r . Donald B. L i t c h a r d , 70 Stat© S t r e e t , Boston 9 , M a s s a c h u s e t t s . Dear Mr Litchard: I : T h i s i s t o acknowledge your l e t t e r of March 10 e n c l o s i n g t h e copy of Mr* Edson B. Smith * s column which i s , t o my mind, a t e m p e r a t e and i n t e l l i g e n t d i s c u s s i o n , though I do n o t a g r e e w i t h him t h a t e i t h e r t h e s p e c i a l wartime c a p i t a l g a i n s t a x , which I p r o p o s e d , o r t h e a l t e r n a t i v e e x t e n s i o n of t h e h o l d i n g p e r i o d t o two o r t h r e e y e a r s would, a s Mr. Smith b e l i e v e s , d e t e r s e l l i n g more than i t would d e t e r b u y i n g , t h e impact would be on t h e s p e c u l a t i v e b u y e r , which i s e x a c t l y where i t i s i n t e n d e d t o be by such a p r o p o s a l . Judging by t h e o u t c r y f r o m c e r t a i n f i n a n c i a l q u a r t e r s a g a i n s t c l o s i n g t h e c a p i t a l g a i n s t a x l o o p h o l e , t h e s p e c u l a t o r s who a r e p r o f i t i n g so much because of i t would n o t a g r e e with Mr. Smith t h a t t h e p r o p o s a l s would i n c r e a s e p r i c e s . On t h e c o n t r a r y , t h e y comp l a i n b i t t e r l y because they b e l i e v e t h e t a x would be a l l t o o e f f e c t i v e i n h a l t i n g i n s t e a d of a c c e l e r a t i n g a f u r t h e r upward t r e n d of p r i c e s . I f I were a h o l d e r of e i t h e r s t o c k s o r r e a l e s t a t e who hoped t o make a s p e c u l a t i v e p r o f i t and knew t h a t t h e l o o p h o l e was n o t going t o be c l o s e d , I would hold on, e x p e c t i n g t h e market t o c o n t i n u e upward. On t h e o t h e r hand, i f I knew t h e t a x was going t o a p p l y , I would be i n c l i n e d t o g e t o u t now. So, I t h i n k t h e argument a b o u t t h e s e l l i n g just isn*t so. We had a s o - c a l l e d " f r e e market" and a v e r y low c a p i t a l g a i n s t a x i n t h e l a t e 20'a. I f t h e argument now b e i n g made by t h e opponents of a w a r t i m e c a p i t a l g a i n s t a x were v a l i d , i t i s remarkable t h a t t h e market of t h e l a t e 20*s k e p t going on up and up u n t i l t h e bubble f i n a l l y b u r s t . I n f a c t , h i s t o r i c a l l y i n e v e r y movement of any consequence i n t h e s t o c k market volume and p r i c e s have gone up and down t o g e t h e r . Of c o u r s e , what t h e b r o k e r a g e community always wants and l i v e s on i s a h i g h r a t e of a c t i v i t y , whether on t h e up o r down s i d e of t h e m a r k e t . As t h e magazine F o r t u n e s o c o g e n t l y p o i n t s o u t i n i t s March i s s u e , "The i d e a of g u a r a n t e e d p r o s p e r i t y m y n o t be s o good t o a man s e l l i n g s t o c k s . . . . t h e g r e a t m a j o r i t y of Wall S t r e e t p e o p l e l i v e on s e c u r i t i e s t r a d i n g , t h e t r a d i n g s e t u p depends Mr. Donald B. L i t c h a r d - March 13, 19k5 (2) on volume, volume depends on t h e p r o s p e c t s of a market r i s e , and a market r i s e worth a n y t h i n g must be preceded and f o l l o w e d by a f a l l . Ho m a t t e r how much Wall S t r e e t s u f f e r s i n d e p r e s s i o n s , i n a sense i t a l s o depends on d e p r e s s i o n s . I f t h e economy can be r i g g e d t o e l i m i n a t e o r cushion d e p r e s s i o n s , t h e r e w i l l b e l e s s room f o r s e c u r i t i e s to fluctuate.*1 The most t h a t can be s a i d f o r Mr. S m i t h ' s t y p i c a l Wall S t r e e t o b j e c t i o n s i s t h a t i f t h e r e were only a s m a l l volume of buying and s e l l i n g , t h e market might be u n c e r t a i n . However, t h e r e could b e no dangerous s p e c u l a t i v e i n f l a t i o n a r y upswing, and t h a t i s p r e c i s e l y what t h e p r o p o s a l s a r e i n t e n d e d t o p r e v e n t . I t i s , of c o u r s e , q u i t e u n d e r s t a n d a b l e why t h e b r o k e r a g e community o b j e c t s , b u t i t i s a l s o r e a s s u r i n g t o f i n d so much s u p p o r t o u t s i d e of Wall S t r e e t f o r a p r o t e c t i v e measure t h a t w i l l make p o s s i b l e h o l d i n g t h e l i n e a g a i n s t i n f l a t i o n a r y f o r c e s a s long a s t h e y t h r e a t e n t h e economy. You cannot have c a p i t a l v a l u e s going through t h e c e i l i n g and hope t o h o l d t h e l i n e on t h e wage and p r i c e front generally. 1 e n c l o s e a copy of a s t a t e m e n t i n which you m y be I n t e r e s t e d s i n c e i t i n d i c a t e s t h a t my p u r p o s e i s f a r from b e i n g d e s t r u c t i v e a s Mr. Smith assumes, b u t i s i n t e n d e d t o be a p r o t e c t ! c m a g a i n s t a n o t h e r d i s a s t r o u s i n f l a t i o n and t h e i n e v i t a b l e a f t e r m a t h of r u i n o u s consequences. Sincerely yours, M. S . B o e l e s , Chairman. Enclosure ET:b
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