Full text of Statements and Speeches of Frederick L. Deming : Letter to Fred Deming

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f*o 8

B m in g

Br * Stasis*

p ip er

on corporate profit

I think, Is an

«coXl?gnfc prssscnfcation w different coacopta and differing emsuraj^nts
of profits. I

wmaM

of this co&feresies*

m

it

m3m bM

In

pe^pectiw on profit

a w ry
ob^ietiw

mmmmsmmfc*

m& thst

it provides useful

j& m &

pXicitisr, Br« Sfe&nis points out that
mart difficult

aMition to the record

certainly to*

prm im e mmnmmmnt

of profits in

in a some profits arts *tot mosernot* t o * ss&

vaxying accounting conventions s&ar they are*

H a discisssion a M quick

analysis of tfe© wt-iml soorces of infozmtion on profit® and the mrimss
tint series relating to profit
and infossmtiw*

dtBcmmxit

are l*otfc interesting

I vaolisse that it Is dselAedly ii^pprofrlate for a

to g iw wrtisxteft pmise to a paper* bafc I find nothing to

criticise in Dr* limnis* psper
a wry

mm m ty m i l &mm and

axA can express

nothing ba§ auOntration for

place of vork.

I can eaas sonewh&t closer to the aoataal &iscnismnt#s role in com­
menting briefly cm Mr.

puper*

I t&lEfe It 1* egssally w i l *Som?,

of corn'se, oaft Is vexy closely resy§on®&# bat it is desired to fee w
provocative than Dr* Hsoaiift* report| *mr*X sfeauM say at the outset that I

mm not in bsslc

vitfe ih& taosA

Mr* 3&sosi, t^it I can be

m bit

plsfcy

that is «^ponsa& %

certain .of- his concepts, per-

hap® I should say certain of him definitions.
»f

I haw son© question as to

tf

v

the nscfttlnass of bis concept of a pxre or a mturcX rate of interact
which applies to ^ X a t iw ly

t&m
I!

rimti&m®

that this should be subtracted,
ff

& tm e profit figure*

conaotjoently to the

trm

I I'mm t o t one

rcportcs! profits so as to yield

t%m caaoelve

intellectually of a

" pure” rate of interest, out X sSs^sXy &onft know ha/ to
eonecpi and I really &on#t

msmmm$

such a

srae&ly vlsat it n&tns, aed therefore I

find this idea not particularly useful in trying to get at what profits
really arc*

Sincc reported profits ms given are partly the predict of

1




Spftgaeaat,

partly the paroduct of lo^&l iaterjaret&tioa,
n

tmct

portly the

n

product at amzmm&lm cmrnsitlm, mad &lace the pure rate of Interest is
not only mn elusive ecmeo&t hot a mte that m y v&ry over t t » , I find
thmt

rayself nasevhat lee,'*/ satisfied with using fitter a currently -incepted
series on profits or me- adjusted for thal'pure’ rate of interest, -$=4P » f e $ = ^ f e i ^ I

im

also sot particularly happy vith Hr. Tyson’s

defSjiitiari of utility

that vhich 'Drinks

p ! ^ M r of a good or service*

moamtary

Uhlle I t o

pieafiure to the

a solid belief in the

desirability of iM ividm l free mrtet choice as the mast efflelozit spur
to eeoaacoie effieiestey/ I camst go 51s t o a# he

ummm

to go vlth this

t o ; hmuase I dotift quite see he** ot'ie can fit &fr schools* streets, and
*w «ss,

to

mention three itegss, iato that pattern*

M » finally* I teve eom M ersb^ lese certainty as to vhat is
I think Mr. Uysm is quite right is pitting leisure ti m
a little
the growth. eam&pt, 'tout X*d prcfoahly odd/aare
velf&re them he

i c m s k gEWth*

Into

\*mM* In
mmm$M

a

'broesd

growth*

the output of the

sense,

1 try

to distinguish betsmeu tiro aspects of

One la the c e c i t y of the econoe^, isud the ether is

m m es^ *

After having said that, I mist confess that

I find it eawedlngty difficult to define or measure either-

Wm having

partly, at least, fulfilled the a w i role of the discussant hy being
dis&ipree&ble, I w i t to turn to the larger arm of

with

Mr. fusion and go cm a bit hssyond M s paper.
Certainly there 1© no <|uestion that the profit aystesa constitutes £Im»
great driving force to eeonotaic growth.

Certainly there is no question,

as 1 noted earlier, that free choice on the part of

has led to

the traaeBdous g r o ^ of the Araaric&n economy, nor that this free choice
eeooaalcally is fully c « s m a t with our entire political and social
philosophy*

Certainly there is no question, as the record clearly

indicate#* that the American eeoaaaie arystea has t e

letter than any

£*sj

other in providing the good things of life te the great Majority of the
people.

t e e point#, it

$m m

to me, are rsally hs^eai dispute*

a

I




&140 think that tta

savixi^, iimftawiffr, a M eeos&ssie

g ro ^i m i be se©& reasoo&bl^r clearly em i thoufgi the links
tet^mlmble

nm

tiBchaisgijsg, r^sd -Use

tssmjUtg

not be

th e d riv e

shaft m y 8*ov@> at m ^ iu g aiid iijgcrbgrraimt^ m tm of spaed aver a span of
tlas*

Butt it is fcigily i^portsijt to

tfe&t ^ 6

lai to be

m vi&g if thew is to be ifnmt&eatj m l that there lias to b@ ifrveat^nt
if tte capacity of tfes ecoEroqy la to egp&afi so as to pemit <$eommic
fp W ftlu

tea it is Sfaally teporiant to

incentive to save*

that tor© sunt te

fhere is little point isi deferring coomar^grtian if

there is bo froepMst of $roc«&«r

an in the future*

I s&ia enrlter

that I didn’t kao^-' what ^'purc?''rats of irsteroet is*

I thick, however, I

t o

It tmrvm the func­

the lUoction of ttse ii&era*t rate, in

tion of allocating resource asfi therefore it snst ms^r vith cais&ittom
and srith tlae*

Since saving is ijs^ortant* the ssate of interest should be

hIgn eno®$\ to stimi&to saving.

Since iw^satmat 1m mcmwxrj for

groutb, the rate of Interest mat ’be lur onou^i to stljail&te barro%*ors to
tttte Jftuods for

3tam |£rH ai^r ^ood intere&t rato for all tftwu

Scnstiiaes bi$i xutaa are nocasaor?, maetlaaos Xosr ratm are*
sense* I think the mm thing can 'b* saM about profits.
htglb

In a Ijro&t

The^ no@& to b©

to atiimjl&tc risk taking &n& nr*/ vmtimrm, i>«& vfcat is hi^s is

relative to th« coodttlans and the tlaes.

I wials r*e h&d seme better

aa*&i»r««s£^ of profit# m m »lght more clm rtj sea over time and under
ditfarejat situations their varying roles in the processes of economic
fgtXMth*

3




October 23, 1964

Mr. Harold W. Stevenson
Professor of Finance
School of Business Administration
University of Minnesota
Minneapolis 14, Minnesota
Dear Professor Stevenson:
Some time ago you sent me a transcript of
my comments on the paper which I gave at the Conference
on Understanding P r o fits .
The transcript is substan*
t ia lly accurate, but I thought it might be more useful
to you to have the typed transcript of my remarks as
I wrote them out.
I suspect I departed once or twice
from the exact wording, but not enough to make any
significant difference.

Very truly yours,

Frederick L. Deming
Encl.




SCHOOL OF BUSINESS ADM INISTRATION
DEPARTM ENT OF BU SINESS FUNCTIONS AND MANAGEMENT
M INNEAPOLIS 14
J u ly

22 ,

196^

Dr. F re d e ric k L. Derning, P resid e n t
F e d e ra l Reserve Bank o f M inneapolis
M in n eap olis, M im eso ta ^ k 02.
Dear Dr. Deming:
A ft e r some u n fortu n ate d e la y s , we are now embarking on p re p a ra tio n
o f a p u b lic a tio n o f papers o f the "Conference on U nderstanding P r o f i t s . 1*
I am e n c lo s in g th e t r a n s c r ip t o f your comments on the paper by
Dr. Mennis and the paper by Mr. Tyson. We have made no attem pt to
e d it the t r a n s c r ip t a t t h i s tim e, and we wonder whether you may w ish
to make m o d ific a tio n s or a d d itio n s to th ese rem arks. We can c e r t a i n ly
remember th a t the luncheon program was p ressed f o r tim e, in view o f
two m ajor papers as w e ll as in tro d u c to ry rem arks.
Although we have not s e le c t e d a p u b lis h e r , i t i s l i k e l y to be e it h e r
the U n iv e r s ity o f M innesota P ress or a commercial p re ss lo c a te d in the
Twin C i t i e s . We a n tic ip a te a c t u a l p u b lic a tio n e a r ly in 1965*
Although the A p r il Conference i s now h is t o r y , we would c e r t a in ly
a p p re c ia te your a tte n tio n to t h i s p r o je c t . Your comments are c e r t a in ly
a h ig h l i g h t o f th a t p o rtio n o f th e co n feren ce.
Yours v e ry t r u l y ,

Harold W. Stevenson
P ro fe s s o r o f Finance
HWS: ih
E nclosure