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BOARD DF GOVERNORS
DF THE

FEDERAL RESERVE SYSTEM

Dffice Correspondence
To_

nhpirman EccIe s

From.

TTarmeth "
R

WilliamsW/*^

Date February 2JL}.. 19hh
Subject: Leon Henderson' s .Analysis of
the Baruoh Report.

Leon Henderson devoted most of his last broadcast to a
discussion of the Earuch report. His comments were about fundament a l s , instead of technical procedures, ana I think they are helpful
to a proper appraise! of the report. Henderson1s more important
statements are quoted below:
"Anxiety about post-war employment has been intensified
by the universally-accepted realization that production and employment will have to be thirty-five to fifty percent higher in the
post-war years tnan has ever been attained in the peak years before
the war. This scares everybody. I t was evident too that our Allies
Russia and Great Britain, particularly the l a t t e r , were making plans
for the future because they felt they could not risk being weak in
the immediate post-war years.

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"The Earuch-Hancock report treats of two main phases. The
first deals with untangling business from the meshes of government
war contracts and the second phase deals with national policies,
philosophies, and economic reliances by which a high volume of peacetime production csn be attained. In m opinion the pare dealing
y
with contract termination i s much more able and more substantial
'than that devoted to economic policies of the future.
"Ever since 1929 there has been a basic conflict of philosophies about the dynamics of high employment. Roughly there are
two schools of thought. One school believes prosperity can come
only by paramount attention to the needs of producers, /mother
school insists that prosperity comes by insuring that the consumer's
purchasing power i s adequate to create demand for full employment.
Still another group, not a school., of which I expect I a one, bem
lieves in a combination of attention to vigorous producer-business
needs plus insurance of continued flow of consumer purchasing power.
The conflict i s sometimes falsely represented to be a fight between
free enterprise and planning, which to my mind i s so much nonsense.
"fcjr- Baruch and Mr. Hancock make no such distinction but
overwhelmingly they have chosen the producer approach. There i s no
sign in the report that they ever considered the consumer's purchasing power approach. There is no sign either that they studied
alternative programs, such as that advanced by the National Resources




Plcnning Board or the proposals of labor 1 s post-war planning groups.
I t seems evident to me that most of the recommendations and observations about the domestic economy came from ideas which these two
strong men, Baruch and Hancock, had been developing in very busy and
important years of their experience with war, finance, and business.
The report i s a brave and courageous one and is being praised by a l l
journalists today for IDS reliance on the free enterprise system for
the future.
"Throughout the report the various recoinmendatlons are intended to fortify and strengthen .American business institutions for
the post-war period. I t urges more reliance on industry committees
and exemption from the Anti-Trust Act to permit joint actions by
business men which would be illegal otherwise.
"The report However empiiasizes the importance or the small
competitive enterpriser and the necessity for avoiding monopoly. I t
suggests means to channel surpluses of all kinds through existing
businesses and thus bypass speculators and promoters. I t hints that
the O A ought to listen to the W B gbout raising prices to insure
P
P
production.
"The two authors ere very firmly opposed to government
operation of plants, which means they have rejected the pressure on
the Attorney General to find legal methods of operating some government-owned plants as yardsticks.
"One of the best examples that shows the authors were
thinking almost exclusively of producers i s to be found in the tax
recommendation. Baruch and Hancock^a£gue_that poet-war taxes ought
to be reduced to encourage launching of new enterprises and expansion
of existing ones. Nothing" is. said about increasing consumers' purchasing power by means of lowering taxes for small income families.
" The rep or t _ rom atwstandpoint of economic philosophy i s
f
important for significant items which are left out. "While every
effort i s made to create strong producing units, _jfch£re_^jiomjnent,ion
of specific proposals to make labor ..strong j _ n the post-war period.
TEere is p complete absence oi' comment on the suggestion which labor
is continually making that i t ought to participate in the high councTYs of government decision. There are no labor committees end
there i s no place provided for labor en the industry cornmittee.s,,*
There is no mention of severance pay or expended social security and
unemployment compensation.
-*
"It is interesting to compare the Earuch-Hancock report
with the proposals xvhich the Conservatives in England are considering. Churchill has said there will be e substantial area for state
socialism in the future,—that i s government ovmersiiip. oi production
i r c i l i t i e s . The Conservatives nave accepted the necessity for sornetnin- like the Eeveridge Plan for social security and guaranteed




- 3work weeks. They favor monopoly, cartels, and subsidies ror 1'oreign
trade. £hey favor tremendous public works programs, but public
works play a very small part in the Earuch-Hancock program.
"I think i t important to recognize th.at 11 the conservative
aDproach suggested By Earuch and Hancock i s accepted i t will be consistent Yiith the swing to the Right which the country has been experielTBTfig for some time. If the country shoula go Republican in the
next elections the changes in policy that would have to be made would
be at minimum. In m opinion the report is a substantial end timely
y
contribution because i t will force America to make choices that cannot be escaped. X nave a feeling that Baruch ana Hancock have
.
under^ejtiniated^ thei difficulty of providing employment quickly ..for
"aXT who will need i t in the post-war years."

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