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Summary of informal address given before the
Economic Club of Detroit, Monday noon, February 20, 1939,
at the Book-Cadillac Hotel« by Marrlner S. Eccles:_____

Speaking before the Economic Club of Detroit, on the
subject, "What Should Be the Government’s Objectives in Fiscal and
Monetary Policies?", Mr. Eccles stressed the importance of encourag­
ing a maximum of private investment in productive enterprise that
will in turn utilize idle man power, idle resources, and idle capital
and thus result in higher national income.

Whatever deterrents exist,

he said, that can be removed, should be lifted, including any re­
strictive policies whether on the part of Government, private capital,
or labor.
While concentrating attention upon the removal of such re­
strictions so as to afford the greatest possible incentive for private
activity, he said, it would be a mistake to withdraw the Government's
contribution to community buying power, since our experience in the
past decade has proved that Government spending is not a deterrent
but a stimulant to private enterprise.

Mr. Eccles said he was fully

aware of some of the deterrents in the picture today, but that
Government spending is not one of them.

He stated further that Gov­

ernment expenditure is justified as a means of utilizing idle
power, idle resources, and idle money only when private enterprise
has been given every legitimate encouragement but nevertheless is
unable to put these factors of production to work in the creation
of new wealth.


The only real limitation upon such a policy, he said,
is available man power, since in this country material resources
and monuy are available in abundance.

It is widely claimed that

this policy will lead to inflation, and this is a matter of
proper concern and our means to control it should be improved.
However, a general inflation, said Ifr. Eccles, would be evidenced
by over-employment and a general rise in costs and we are far
from such a development.
Essentially, the fundamental domestic problem, he said,
is the maintenance of a balanced relationship between the accumula­
tion of funds seeking nev investment on the one hand, and effective
consumer purchasing power on the other; only with such a balance,
coupled with an adequate flow of money through the economy, can we
attain a continuous and increasing production of real wealth.


maintenance of effective consumer purchasing power, he said, tends
not only to sustain existing investment but also to provide profit­
able outlets for new investment.
In this connection, he cited the report made to share­
holders of the Midland Bank Limited, the largest bank in Ihgland,
on January 26, 1939, by Sir Reginald McKenna, Chairman of the Bank,
and a former Chancellor of the Exchequer, who said:
"If, as in -America, savings are left idle through
foar of loss and not ventured freely in new enterprise,
trade depression sets in end unemployment increases....
The problem of the proper use to be made of the nation's
savings presents at the moment no difficulties for us;
it is solved by the fact that the Government has come
into the market as a borrower on a large scale."


Discussing the question of whether added expenditures
for armament should be met by further taxation or by incurring a
temporary deficit, Mr. McKenna stated:
"The choice lies between additional taxation, borrow­
ing or something of each. If labor today were in full
employment I should, for my part, unhesitatingly lay the
emphasis on taxation. But i f e there is very considerable
unemployment, questions arise which may lead to a different
conclusion.... The additional expenditure by the Govern­
ment ought, if possible, to bo so directed as to bring
into productive activity men and women who are now out of
employment. Taxation will not help in this respect;
borrowing, on the other hand, under existing conditions
will stimulate employment, and as the demand for labor
grows industrialists will be forced ultimately to draw
from the pool of unemployed. The limit to this policy is
obviously reached when all labor employable at a profit at
the current rate of wages is fully engaged, but we are a
long way from that condition at the present time."
With regard to the danger of inflation, Mr. McKenna
"If it should become clear that rearmament is caus­
ing true inflation, as indicated by over-employment and an
all-around rise in costs, it will, I think, be undeniable
that restrictive measures have become a matter of urgency.
But I see no sign of a near approach to that condition."
American bankers and industrialists might well consider
this approach to Government fiscal and monetary policy, Mr. Eccles
said, for while conditions are not exactly analogous, the under­
lying considerations are substantially the same in e&ch country,
and there is even more reason for pursuing this general policy in
the United States because recovery here is not yet as far advanced
as in Groat Britain and we do not have the deterrents of the high
tax levels and Government debt load which have prevailed in Great
Britain since the last war.