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A p r i l 21, 1936* Chairman Socles What i s Wrong with America, Lauchlin Currie by Paul Gourrioh* Attached i s a brief digest of Mr* Gourrich's memorandum on What l a Wrong with America, which you requested from me sometime ago. X do not thii& that i t i s worth your while to read the long memorandum* LBC:am what is t h e master w i t h mmicx amp m a t i s to be poke? b y P a u l T h i s f o r I s t h e most p a r t d i f f i c u l t The d e f e n s e O f s e v e n t y * t h r e e f i r s t o f how i t i n v e r y c o v e r s g e n e r a l a w i d e f i e l d t e r m s , so w i t h v e r y and t h a t i t summarize* p a r t o f msporandisa couched o f c a p i t a l i s t r e a s o n s , w i t h t o i s page O o u r r i o h be g e n e r a l i z a t i o n s I t made and p a b e r democracy m a k i n g c a n t h e workJ t o t a k e n and t h e ; When w o r k s p e c i f i c I s we we f i n d up a e l o q u e n t i m p o r t a n c e , f o r come s e c t i o n a t o t h e m i x t u r e s u g g e s t i o n s * Mr* o f a l l v e r y O o u r r i c h k i n d s d e a l i n g b r o a d e n v i s a g e s 1 l a t h o r o u g h g o i n g o r g a n i z a t i o n o f \I n d u s t r y o n t h e f o l l o w i n g terms* ' i •The s i m i l a r Bach b u i l d i n g t o t h e u n i t i o f each i n d u s t r y * a t o o u t l i n e p r o j e c t s census and i n f o r m a t i o n draw b a l a n c e g r a d u a l and n e c e s s a r y may be t o t o have w i t h •The a n a o t h e r p o l i c i e s a s o f o t h e r t b a s t u d i e d , w i l l have I n t o c o o r d i n a t e d ; Round-Table C o m m i t t e e t o l a b o r , b u t a l s o i m p o r t a n t t o ~ a b o d y t o c h a r a c t e r * l i f e k n i t t i n g s h o u l d consumers, i n t e r e s t s , p» b a n k i n g 55. t a s k 9 pp# 29 ( a be n a t i o n a l as w e l l c a r e f u l l y o f t h i s g i v e n t h e i t b r o a d 30* 1 I n d u s t r y On be i t compare t o g e t h e r and o f c o n d i t i o n s Conzaittee— and w i l l p o l i c i e s * r e p r e s e n t a t i o n a c t i v i t i e s , * each t o such f o r m u l a t i n g coKnalttee economic management, whose p r o g r a m t h e i r as o f t h e N a t i o n a l v i e w and maximum f o r t h t h e o f t h e a be up* w e l l b a s i s I n s u r e p o l i c i e s n a t i o n a l as t h e e a c h must b o t t o m e x p e r t s t h e s e t t i n g w i t h I t s : t a s k a g r i c u l t u r a l n a t i o n a l o f t h e ftts o n w i l l r o u n d - t a b l e which; t h e a s and c o o r d i n a t i n g b r a n c h e d a l l t h a t examine I n d u s t r i e s p r o g r a m s c a p i t a l * so s t r u c t u r e f r o m f a c i l i t i e s , w h i c h a l l i n d u s t r y economic, b y i t s c l e a r l y end t h a t o f o v e r f a l l b o a r d ) , economic houses e n l i s t a l l p r o g r a m o p p o r t u n i t y o f a muat o f g r o w t h * a c h i e v e p l a n n i n g t h o s e u p !bf o p p o r t u n i t i e s , c o o r d i n a t e t h o s e n a t i o n a l b a l a n c e d make t a l e n t s w i l l a c o n s t r u c t i o n s p e c i f i c S a t l o n a l n o t o n l y g o v e r n m e n t , I n t e r e s t s , and o t h e r X cannot help feeling that in the present conditions this is a l i t t l e afcbltious and ujarealistiG, Tho role of govern* ment is not clearly brought out here either* The following are the mora specific suggestions* 1# *8am torn of direct representation with adequate compensation for shareholders and others who act as directors met be an Integral part of any program to render responsible, competent! end just the relationship between management and the rank and f i l e of stockholders, because otherwise there Is danger that those security holders »ay bring pressure to bear upon the government to do for thea in their corporations what under existing conditions they have so far been largely unable to do for themselves." pp. 27, 28. X a» very skeptical of the possibilities of inducing shareholders to take an active part i n the affairs of their corporations, £. "To reopen the capital market, i t stay be necessary for the government to extend loans to or stake investments && needy and deserving companies through an o r g a n i z a t i o n est tap especially for such activities under the name of, say, Federal Industrial Bask, A system of SegiOnal Industrial Banks nay then be set up whose capital shall be furnished by the federal Industrial Banfc»* 48* •Because i t Is difficult to see how the private capital market under present conditions can be reopened on any substantial scale, few problems among the many which are troubling us are so pressing as the nsed for an Immediate solution of the existing impasse in the capital ciarket* Recommendations which should help considerably to retive the capital market In two important industries follow?* pp. 50,51, *1« 2. For public utilities.***, aim at establishing economically sound rates and at eliminating duplication*,,*p*51, For railroads, consolidate or unify their operations in order to eliminate wastes) establish economically sound and flexible rates..,.* p. 51, I have a f e e l i n g that too;much stress I s l a i d on the reopen* i Ing of the capital market, at least f o r the larger f i n s . Such f i r m * Jlayer m a r k e t , a v a i l When t h e m s e l v e s t h e y e x p e r i e n c e d much t h e r e p e a l v i r t u a l q u e n t i n c e n t i v e abundance o f 3* o f © a a l l e r o f t o t h e f o r i n d u s t r i e s i n f u r t h e r o f I t h e I t b a n k s u p e r v i s o r y * c * L i b e r a l i z a t i o n *d» C r e a t i o n 1 b u y o f o f o f bank t o t a x t o n e v e r s t o c k * end t h e t h e W i t h conse- w i l l o f have a n f i n a n c i n g back xtay I n t o t h e c o r p o r a t e o n t h e p a r t o f o f banks* p o l i c i e s * o f i n t e r m e d i a t e p u r c h a s e s e v e n t u a l a r i s e , p o l i c i e s i n s t r u m e n t s f o r m o f p o s s i b l y n e e d i n v e s t m e n t l e n d i n g t h e and t h e l i b e r a l i s a t i o n i n v e s t m e n t r e d u c t i o n have i s s u i n g oomes g o l d , t h r o u g h s l i v e r g r a d u a l t h e y p r o p o s a l * g e t b a n k s * c a p i t a l b a n k i n g b a n k s i n t h e I n d u s t r i e s I t f o r bank I n p r o f i t s a s d u r a t i o n ' C e s s a t i o n # s y s t e m o r r e q u i r e m e n t s o f o f p r o f i t s l a r g e r y o u r a u t h o r i t i e s o f t h e When o f I n v e s t o r s c o v e r duration * e e a s i e r as e x t e n t borrovriag d e s t e r l l i s a t l o n r e s e r v e Make t o and e a r n i n g s , f l e l j l m a r k e t d e p o s i t i n p r e f e r bond y e a r s volume g r e a t e x p a n s i o n * *b» t h r e e <any u n d i s t r i b u t e d r e t a i n f u n d s l o w e r i n g t h e d i f f i c u l t y S u g g e s t i o n s *a» h a v e t o o f f r o m One t o e x t e n d e d c e r t i f i c a t e s l o a n s i n d u s t r y b y t h e p r i c e s a t t o government w h i c h t h o o f o f s i m i l a r t h r o u g h a T r e a s u r y w i l l s i l v e r * i * f * C o o r d i n a t i o n f e d e r a l R e s e r v e a n d C o m p t r o l l e r t h e b a n k s * g . a c t A l s o a s f s t u d y b r i n g s e c u r i t y p r i v i l e g e t i o n s t o F e d e r a l c r e d i t F e d e r a l D e p o s i t I n s u r a n c e o f I t t o t h e C u r r e n c y t h e t h e - p o s s i b i l i t y u n d e r w r i t e r s , t o m i t t e d o f w i t h c o n t r o l r e g a r d t o a g e n c i e s — C o r p o r a t i o n , I n s p e c t i o n o f p o r t f o l i o s * e f e t c , , t h r e e B o a r d , back: t h e e v i l s f o r s u c h be assume u n d e r t a k e a r e a t To p u r p o s e s v * l l t o h e l p a s t h a n 60 a l l o w i n g same t o I t c o m m e r c i a l t i m e b e i n g e x p e r i e n c e d t h e u s e b a l l i n g t h e b a n k s t h a t commitments and p e r c e n t i n o f no t h e n o o f bank o f a n y ease t o t a l t o banks c a r e f u l u n d e r a v o i d s t i p u l a t e u n d e r w r i t i n g I n d e b t e d m o r e o f t h e f o r m e r l y a f f i l i a t e s * m i g h t w h i c h w h i l e t h e o l d t h e o u t t o n o t s y s t e m u n d e r w r i t i n g o f s h a l l k i n d a l l o w bad be f o r t h e u n d e r w r i t i n g l o a n s , perc o r p o r a banks I n e a c h "Instance* Begardiag tho stipulation that banks be not permitted to underwrite for corporations which ere Indebted to them, care t i l l need to be exercised lest that prohibition be circumvented by mutual understandings between banks to l e t one do the underwriting for corporations which are indebted to the other* Under no circumstances should commercial banks be allowed to engage directly or indirectly i n dietributlon and retailing of securities** pp. 58, 53. 4. Taxation •a* Study the p o s s i b i l i t i e s of improving the tax system how to broaden i t s base; how to determine optimum points of surtaxes, capital gains taxes* etc. *b« Modify the capital gains tax by, say, segregating capital gains Into a speolel Account «hioh shall be settled on the basis of a three-year average, the government having the right to ask for adequate Installments i n anticipation of the three-year settle* meat, i n order to prevent tax delinquencies. *c# Modify the undistributed p r o f i t s tax with a view to penalising unjustified retention of earnings end exempt a l l other retentions, particularly those that lead to greater employment of labor** pp.60,61* The implication throughout the treatment on taxation i s that i t bears too heavily on business end the wealthy, and that i t w i l l have the eventual effect of asking capital eoarce and expensive* impressed with the treatment here* X am not From my analysis of the 1937 situa- t i o n 1 have concluded that despite higher taxes the volume of saving was just about as great as In 1988 end the national income was about the wane as i n 1937* ©lis general implication of the shortage of capital occurs at other places throughout the treatment* following quotations For instance, i n the m teid, f i n a l l y ! the recession of 193? has contributed another incontrovertible lessons that neither the farmers nor the industrial workers, separately or Jointly* (nor possibly even the government). can take too much of the national income at the expense of capital without disrupting the economy to the eventuel detriment of a l l of thea*» pp* 10,11. Thla implies that the share of capital i n the national income diminished i n 1937 and that there wae an inadequacy of saving* Avail- able s t a t i s t i c a l material gives no support to this view* 5* The wa&Q problem* Tho suggestion Is advanced that, i f necessary, labor should be kept In l i n e through the machinery of coapuleory arbitration* 6. Budget problem. I t i s suggested that an attempt be made to balance current expenditures by current revenues and to carry capital expenditures i n a separate account* There i s also a suggest* ioa, not worked out, that social security funds should be used Jud* loiouely for the purposes of economic expansion*
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