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March 8, 1945

My dear Mr. Eccles:
Hill you be so kind and enlighten a poor amateur who does
not understand?
Wiy are you so veiy upset about increases in value for
securities representing the heart of our industrial set-up?
I have always thought it was a good thing for a country
when values were going up»
that wrong?
If I remember correctly you, yourself, vehemently advocated
a high level of everything and you said that all your policies were
directed toward that end. Now, you talk exactly the opposite way.
Surely there has been no speculative fever, since the loans
against securities are less than 1% of their value. What is it that
you fear?
Prices for our leading securities have not advanced anything
like, for instance, cotton, wheat, corn and rye. You have instilled a
great fear in mary people math you panicky state of mind.
Please, dear Mr. Eccles, clear these points up for poor me,
iûio cannot understand ypur viewpoint.
If your ideas as to taxes were adopted, all enterprise
would cease at once. Surely you cannot désire that, as a patriotic
Awaiting your reply
Very sincerely yours

Mr. Marriner S. Eccles, Chairman
Federal Reserve Bank
Washington, D. C.

Paul Forester

March 12, 1945.

Mr. Paul forester,
Park Lane,
¿99 Park avenue,
New York 17, New York.
Dear Mr* forester:
In response to your letter of March 8, I am
enclosing a copy of a statement I prepared to explain
ray reasons for advocating at this time a special wartime capital ggdns tax. I trust that this will sufficiently clarify my own viewpoint so that it will not
continue to puzzle you. You might also be interested
in seeing the enclosed copy of an illuminating letter
I received from an army sergeant in this connection.
May I add that I appreciate your courteous
inquiry, particularly because of the number I have
had that lacked that gractousftess.
Sincerely yours

M. S. Eccles





17 -

March 15, 1945
Mr* Marriner
Eccles, Chairman
Federal Reserve System
Washington, D. C.

dear Mr, Eccless

Thank you for your letter of March 12th and the enclosure. There
are still many matters which I do not understand and perhaps you ?dll be
kind enought to enlighten me.
In Baragraph I of your Statement, you say that the prices for
farms have been steadily increasing since the beginning of the war and that
this tendency threat ns to undermine the entire price and wage stabilization
program. Mow what is this steady increase due to? Certainly not to speculation because a farm is the last thing a professional speculator would
think of. He does not know a thing about farming and will not tie up his
cash in so complicated a "type of speculation. The increase in farm prices
is due solely to the high prices for commodities such as Wheat, Cotton, I^re,
etc., etc. There is no ceiling for such commodities and when speculators
bid up the price of cotton, for instance, no protest is heard from any government agency. let, there is no difference whatever, in speculation for a
rise in securities and commodities, except that an artificial level for such
commodities is far more dangerous.
Mr. Baruch said, years ago, that &o managed economy can work if
ceilings are not placed on everything.
The farmers, themselves, are responsible for the increase in the
cost of farm land. I'hey are doing exactly the same thing they did during the
first world war. Intoxicated by high prices for wheat, cotton, rye, etc.,
they acquired more and more farm land, on mortgage, at sky-high prices. ®hen,
as an aftermath of the war, commodity prices collapsed, the farmers, who could
not pay the interest on farms acquired at fancy prices, yelled to high heaven.
Yet, there is no essential difference between such a faimer, whose greed prompted him to bx$r farm land at exorbitant prices, and a speculator who paid
|2§0 a share for United States Steel, in 1929.
Paragraph II. You talk about the ruinous effects of deficit financing ly the government. Yet, long before the war started and long before
we spent a cent for national defense, sixty billion dollars were expended by
the government for various purposes and this spending led to the inflation
boom of 1937. How can you cure the disease without removing the cause? You
cannot cure a disease ty treating symptoms instead of the real cause.

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Mr. Marriner S. Eccles
March 15, 1945

Page 2.

Paragraph III. Surely there hs been no inordinate gambling in
securities since the start of the war. Admittedly, some stocks have advanced considerably, but look at the level they started from. Let us take
the securities mentioned in the letter of the war veteran, George Smith, a
copy of which you sent me. He says International Telephone went up, from
1 1/2, to 27• That is quite true, but what of it? It sold at 1 l/2 because
a lot of people lost faith in the company and sold out. Can you blame farsighted people for buying such a bargain and holding on to it? Is there anything fundamentally wrong ?dth such a purchase? How about all the people who
lost their money in the stock? ^he same applies to Willys-Overland and Studebaker. <*ould the veteran prefer to see these companies go bankrupt?
Surely there has been no over speculation in stocks ana if Americans
chose to invest in our standard stocks, who shall blame them? I am sure you
will not. Take the case of United States Steel. It barely earns its dividend
of $4-»09. Surely there are no excessive war profits there after meeting the
enormous taxes and increased wage scale. Just compare the United States Steel
earnings with those of Mr. Kayser who made a profit of over seventeen million
dollars on an investment of $100,000.00. What do you call that?
Our stock market struck a low of 92 1/2 (Dow Jones) and advanced to
161 l/2. Kow, let us look at the London market. It struck a low at 60 l/2
and advanced to 14-2 l/a. Yet, no one seems to think that extraordinary.
Paragraph IV. It is almost impossible to differentiate between
what you call a bona fide investor and a speculator. Every farmer who buys
additional land because the price of commodities is high becomes, at once, a
In my opinion, putting the stock market on a cash basis would have
disastrous resulti f m every one. A flood of government bonds would come in
the market because people will not be told that they must sell their stocks.
A black market of fantastic proportions would be a further result.

Sincerely yours,

March 17, 1945.
Mr. Paul Forester,
Park Lane,
299 Park Avenue,
New York 17, New York.
Dear Mr. Forester:
In regard to your letter of March 15, permit me to point
out that you have been misinformed, as there are price ceilings on
all farm products, including, of course, wheat, cotton and rye
which you mention. What is worrying the farmer today is not the
question of ceilings but of floors, since his magnificent production
in the war will enormously exceed probable peacetime requirements.
Many farmers have added to their holdings, of course, and much of
this has been for cash. There are, however, many well authenticated
cases of speculators, nt>t farmers at all, operating in farm lands to
take advantage of the speculative opportunities and the capital gains
tax loophole. Vvhat I meant was that if you let prices of farms and
homes and rentals go up and up, labor is going to demand increased pay
to meet these increased costs and the whole stabilization line cracks.
As to your second point, it was one thing to have deficit
spending in a period of deflation — quite another to have it in a*
period of inflation. Since the Congress did not choose to remove
the cause of the present inflationary potential by greatly reducing
the huge deficit, there is no alternative left except to deal with
the effects if the line is to be held.
I have not attempted to say whether stock market prices are
too high or too low. There can 4® no objection to their rising to adjust to underlying values and prospects. Mi at I do object to is the
speculative leverage that results in instability, on which the brokers
thrive. Hence, they are all for that and against any tax that will
take the speculative gyrations out of the market so that it can reflect in an orderly way a gradual increase if that is justified by
underlying factors. The time to stop speculative activity is before
it gets out of hand. Nothing would bankrupt the industries mentioned
by the veteran quicker than to have an inflation and then another deflation, which this time would make the aftermath of 19^9 look insignificant because the inflation potential now is four or fife times
greater than it was then. You apparently miss the point entirely
when you cite Mr. Kaiser1s profits because they are subject to the
high wartime individual and corporate income tax rates, whereas we
still have a prewar capital gains tax.

Mr. Paul Forester

March 17, 1945•

I am not trying to define the difference between the bona
fide investor and the speculator, but the tax I suggested would
pretty effectively do it. There is certainly a world of difference
between speculative investment, which employs people and produces
real wealth, and the quick turnover speculation, which does neither.
ks for your final conclusion, mine, as I think I told you
previously, is exactly the opposite. I think the sergeant pretty
well disposed of the question of whether the tax would lead people
to invest in Government bonds or in speculation. There is not much
comparability between the British stock market and ours. However,
their market is on a cash basis.
Sincerely yours,

M. S. Eccles,