Full text of Marriner S. Eccles Papers : Memorandum to Mr. Daiger, Box 76, Folder 2, Item 2

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Form F. R. 131
BOARD

OF

GOVERNORS

□ F TH E

FED ER AL

O f f ic e C o r r e s p o n d e n c e
T o ________ Mr. Daiger_______________
From

Chairman Eccles

R E SE R V E

SYSTEM

Date.jv x 7 2, 195s.
Subject:-----------------------_

This is the tentative draft of a speech which I asked Mr.
Currie to prepare and about which I talked to you on the tele­
phone today. Kindly return it to me when you have finished
with it as I do not desire any copies to be outside of ny
files.




\. /

Draft
6/86/56
Confidential

a u m i s j m
I propose tonight to disease the subject of the public debt,
There is no subject on which there has been so much misinterpretation,
misinformation and misunderstanding*

there is no subject which has

been more surrounded by hysteria and willful distortion*

It is time

that sanity and reason were introduced into the discussion of the
increase in the public debt*

This I propose to do,for we have every­

thing to gain fron a correct understanding end a wide knowledge of
the facts of the case*
Critics of ay Administration pay lip service to the application
of strict accounting methods to the national finances but they fall
to make this application in practice*

There is a balance sheet of the

American people as a nation as well as of individuals •*> of national
assets and liabilities, of national debits and credits, and of national
income and outgo,
balance sheet,

Hy critics would like to forget this national

They would lik« to confine their attention only to

the iiicreasein the public debt*

This Is what I propose they shall

not do.
What would you think of am accountant who criticised a corpora­
tion for issuing bonds without attempting to inquire at the same time
why the bonds were issued or how good the investment had beenf

And

yet my critics do this very thing when they concentrate on tht national
debt and Ignore the offsetting credits.




<«&»

X want to state here end now, unequivocably and without
reservation, that by every relevant test, ao investment of aoney
by the American people has ever yielded larger returns than the
investment of ay Administration in recovery &nd relief since 1953*
The Democratic Party does not apologise for this investment in
the protection anc, well-being of our citiseas*

On the contrary

it claims it to be one of the greatest achievements of any peace­
time government in any period*
First let us look at the facts*
the public debt was $£L billion*

The day I came into office

On Jun<? 14, 19S6, the day before

securities were Issued both to the veterans and to the merket to
redeem the veterans* bonds, the public debt amounted to nearly
$$£ billion*

I choose this date in order to exclude the effsot

of the bonus payment, which mis not a part of the program of
recovery and relief expenditures attacked by wy critics*

The

public debt, then, increased by approximately H i billion because
of relief and recovery expenditures*
As an offset to this increase the Amrlc*n Government itsejlff
as distinct from the American people, acquired various assets* First
among these are loans to individuals and institutions which are current­
ly being repaid to the Governmat*
this period*

They increased by |E billion in

In addition to this $£ billion increase in leans, the

cash balance of the Treasury increased by another $2 billion*




This

is exclusive of the #£ billion fund set aside in 1934 for the defense
of the Am&rlcaa currency system*

When the increase in recoverable

assets and the increase in the cash balance of the treasury are deducted
from the Increase in the gross debt we ere left with a net figure
of |6*7 billion*

This means, in ether words, that from March 4, 1955

to June 14, 1956 the Government expended on non-recoverable relief,
on recovery and on the regular services of the Government $6*7 billion
more than it collected in taxes.

In the $ m

period the annuel computed

interest charge on the total gross debt increased only $60 alllion*

a negligible amount*
So much for the increase 14 the debt and interest charges*
us sow turn to the significance of these figures —

Let

to the other side

of the national ledger*
The first question is, were the expenditures Justified*
of only one answer*

It is yes, on every count*

It permits

Xn tersas of the re­

sultant Increase in employment and income, in terms of the prevention
of destitution and the restoration of the morale of more than twenty
millions of our people, In terms of the very preservation of the economic
and social fabric of our country, no expenditures could be more abund­
antly justified*
Let me pass, then, to the second question*

Granting the need

for increased expenditures, was it necessary to incur a deficit!

Dr

should expenditures have been fully covered by increased taxes?

the

answer is so obvious that our critics have not aven dared to suggest
that taxes should have been doubled end tripled In 1955*




In 1958

African business operated at & staggering lorn*
19&S th

In the f i m l year

yield of personal and corporate income taxes shrank to

#74$ alllion*

The national income h&d been out aore than half*

To

iapose taxes of sufficient a&^iltude at that tlaa to finance the
necessary expenditures would hare drastically decreased baying power
and nullified all our efforts toward recovery#

If we were to have

recovery there was only one possible way to finance th© recovery and
relief expenditures* and that was by borrowing*
But, ay critics claia, th© borrowing was excessive.

On the

contrary, the excess of $6*7 billion non-recoverable expenditures
over tax collections was email in relation to the a&gnitufi© of the
achievement* in relation to our national inco&e and our national debtpaying ability, in relation to our wealth, or in relation to any other
relevant consideration*

fhy, fro® April If17 to August 191$ we increased

our national debt by $35 billion*
borrowed H i billion#

In the year 1918 alone th# Government

Despite the destruction of the w&r we ©merged

in the twenties a aore prosperous people than w® had beisn before*

How

auch aore right have we to expect a far greater prosperity and. well**
b#ing in th® future when our public expenditures have been incurred for
the purpose of rehabilitating and conserving our huaan and material
resources and in setting the wheels of industry again in action*
let ae take another test*

the burden of a aan*s taxes depend#

upon how auch income he has out of which to pay taxes*
true of a nation*




the saae is

In 1929 a© a nation we produced §81 billion of

«•&»

Income*

In 195£f despite an increase In population, we produced

only $59*6 billion*

The burden of every dollar of debt, public

and private, and the burden of every dollar of taxes, had more
than doubled*

In the three years following 1929 tho sum of the

annual declines In our national income from the 1989 level under
Republican misrule was fl£0 billion*

The decline was even greater

if allowance is Bade for the ttornal growth of income that should
have occurred*

Think of lit

A Party that cost the American people*

more than |X20 billion in loss of income end an incalculable loss
of wealth, to say nothing of the aisery and suffering that lie
behind these cold figures, now dares to criticise ay Administration
for a net expenditure of $6.7 billion to restore Incomes, wealth
and the national well-being*
Xt Is estimated that curreatly the national income is running
over #20 billion higher than in 1952*

The sum of the annual Increases

in the national income from the 195S level to the middle of this
year must amount to around $40 billion*

I think that even Hfcll

Street would concede that a return of $40 billion on a $8*7 billion
investment In three years la mot bad.

And this Is not the end*

The foundations have been firmly laid for a dlffus> d and widespread
prosperity*

If the Democratic Party is allowed to carry out its

great task we can look forward to a full recovery and a national
income increasing steadily beyond the 1529 level of $81 billion,
and a national wealth far in excess of 1929*




wiflw

The figure of #8.7 billion amounts to loss than 17 percent of
the sum of the increases in the national income to date, or to &
little over a month*© current income*

Exact figures are not avail­

able but that is the order of magnitude* It amounts to a far lower
't\
parentage of the increase in wealth, lid tad stocks alone? having
risen by over #54 billion from July 1952 to June 1956*
Hots I put it to my critics*

If a man’s income increase* #4,000

and his net liabilities increase #670 in the sam«.: period, is ho batter
or worse off?

If his annual income increases from #4,000 to over

#6,000 and his annual interest payments increase #60, has he been
impoverished!
When recovery is fully achieved our annual income and our national
weelth will have more than doubled their 1952 levels*

The interest

charge on the total debt will amount to less than one percent of our
m&tion&l income*

On the increase In the debt attributable to recovery

and relief expenditures, it will amount to a mere fraction of one percent
of our net income*

lou will see how absurd, how hysterical, is all

this loose talk of impoverishing ourselves, of paving the road for
eventual bankruptcy, or, in the sober words of the Republican keynoter,
7 ‘ i, • ' i v

of *crarilea decorated by debt**
Wien you are greeted with this kind of tfclk you do not need to
reeall the figures I have cited to refute it*

#uet hold fast to the

sound cos&omssmse view that no nation which is conserving its human
and material resources, which is repidly increasing its production*



-7 oonsumption and capital equipment* which is adding to its wealth*
its money income and its real income* which* mark you, is doing all
this while at the •&»© time maintaining the soundest m o m y in the
world* can in any scsnee of the term be said to be impoverishing
Itself or worsening its position,
X trust that ay attitude on the debt question will not be misunderstood*
itself*

I am not arguing that a debt is a good thing in and by

Whet X have tried to insist upon is that on our national

balance sheet we must consider both sides of the ledger*

When thet

is done X have no fear of your judgment*
X believe that the public debt should be increased only for
the most urgent reasons*
most urgent*

In the past three years the reasons were

We are now* however, approaching a point where the

increased national income is making possible rapidly increasing
federal revenues*

These revenues will be still further augmented

in 1987 by the recent enactment of a tax on unaistri uted corporation
earnings*

The addition to the public debt arising froa recovery

and relief expenditures will therefore be of Very modest proportions
before the budget is balanced*
to do not propose* however* to stop with a balanced budget*
X believe ws should begin to retire the emergency debt before full
recovery is attained*

Xf there is a danger of a boon it will not

be from Government operations but from private speculation and
excessive capital expenditures by business*

X would have the Government

exercise a restraining influence by having its tax revnues exceed

its expenditures



at such times*

X would, in other words, have the

fiscal policy of the Government act as a balance wheel to compensate
for the wide fluctuations la private and business spending*

The

Government Is not a private corporation as sgr o >ponents appear to
assuse, but an instrumentality designed to serve the needs of
the whole conaunlty.

It should not Intensify business instability

but should moderate and prevent it*
X can cite no better proof of the confidence in the soundness
of our fiscal policy than the attitude of the. financial community
Itself*

The interest rate on Government bonds fa&s been reduced to

the lowest point la 28 yearn*

The same Government bonds which in

193$ sold under 86 are now selling over 104*

The financial community

eagerly oversubscribes for every new issue of Government securities*
Thesae, ay friends, are not the actions of people who believe the
budget will not be balanced or, indeed, whobelieve in any of the
dire predictions about our fiscal policy th«lr Bpokesaen say for
public consumption*

Do not be fooled by words*

If you would learn

what a a&n really believes, lock to his actions*
Th

Democratic Party was not fooled, nor deterred, by the

threats and hysterical predictions of ruin that arose from the
spokesmen of the vested interest®*

It clung fast to the fundaaental

conviction that the purpose of the federal goverant is the pro­
tection and well-being of Its citl?*?«s*

We believed that any course

of action that contributes to that protection and well-being is
sound*




Th© recovery movement has now proceeded sufficiently far

to demonstrate the soundness of our policies to all sav«? those who
dare not face the facts#
The position of the Democratic Part/ is far stronger then in
19$£*

It is true that by then Re publican leadership had demonstrated

Its Incompetence- and its cowardice* lou had to trust, however, to
our ability, to our honesty and to our courage#

Mow we are a

Party that can point to the greatest achievement of any peace-time
government in our history.

It is with a feeling of great pride

that I present the account of our financial stewardship to the people*