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REMABKS OF M. S. ECCLES B efore the INVESTMENT BANKERS ASSOCIATION O ctober 19, 1942 New York PRESIDENT FLEEKs Thank you very much, Aims. We very much a p p r e c ia te your bein g here and t e l l i n g us what you had to say. A few weeks ago in Washington I had a ta lk w ith the C hair man o f the Board o f Governors o f th e F ederal R eserve System. He f i n a lly agreed t o be h ere today i f I would not ask him t o say an yth in g. He s a id : M do n o t w ish t o make any s e t speech or be on the program ." I However, he i s here and 1 think I w i l l not do to o much v io le n c e to my commitment w ith him o f a few weeks ago i f I ask him t o say a few words t o you . I can a ssu re you th a t we are very much honored th a t Mr. M arriner E c c le s i s w ith us p a r t ic ip a t in g in t h is c o n fe re n c e , and we would l i k e t o have him g iv e us a few w ord s. MR. EGCLES: Mr. E c c le s . Mr. Chairman, la d ie s and gentlem en: (A pplause) A ft e r lis t e n in g t o as many speeches as you have lis t e n e d t o today i t must be q u ite a disappointm ent t o have someone unexpected th ru s t on your program. I do n ot know th a t I can add very much t o what has been a l ready s a id . I t seems t o me the f i e l d has been q u ite com p letely c o v e r e d . I do want t o say, however, th a t I know o f no in d u stry th a t went through a g r e a te r i n f l a t i o n than you r in d u stry d id in the 2 0 's, -2 - and a g r e a te r d e fla t io n in the 30,1s , and a t p resen t p r o s p e c ts i t does not seem th a t th e d e fla t io n i s ov er, based on the standpoint o f p r o f i t a b l e op era tion s* The f a c t th at you have done what you have in co n n e ctio n w ith the war e f f o r t , and what you have agreed t o do, I th in k i s very commendable in view o f the f in a n c ia l s itu a t io n o f the investm ent banking b u sin ess. I r e a l i z e th at your members may g e t l e s s as the war goes on and th a t on ly th ose who are fo rtu n a te enough to r e ta in something out o f the p r o f it a b le b u sin ess in the p ast may be a b le t o con tin u e t o g iv e your s e r v ic e s in t h is con n ection * I , fo r one, want to r e c o g n iz e th a t f a c t , and to pay you what t r ib u t e I th in k you are f u l l y e n t it le d t o f o r the v olu n ta ry e f f o r t w hich you are a l l making* The problem o f war fin a n c in g i s n ot a d i f f i c u l t problem when i t comes to th e q u e stio n o f g e t t in g the money* so d i f f i c u l t as zhe winning o f the war* i s r a is e d i s extrem ely im portant* I t i s n ot n e a rly Hov/ever, the way the money I t means e ith e r a s ta b le economy o r a g re a t i n f l a t i o n , and i t may mean a g rea t deal about the w inning o f the peace* A f a i l u r e t o fin a n ce the war in a sound and p roper man ner i s goin g to make n ot o n ly the ca rry in g on o f the war in c r e a s in g ly d i f f i c u l t , but i s goin g t o make th e p ost-w ar p o s it io n o f t h is country alm ost an im p o ss ib le one* A ll o f us who have p rop erty and who have f in a n c ia l in t e r e s t s are t e r r i b l y in t e r e s t e d in seeing t o i t th a t everyth in g th a t can be done i s done to fin a n ce t h is war in a manner that w i l l g iv e as much s t a b i l i t y to the economy as i s p o s s ib le * me th a t I have f e l t that our tax program i s in ad equ ate. I t seems t o lo o k in g t o the fu tu re not le s s than 50% o f the c o s t o f the war -3- should be r a is e d c u r re n tly in t a x a tio n . Taxation i s the most a n t i- in f la t io n a r y method o f fin a n cin g the w ar, and i s the soundest method o f fin a n cin g the w ar. I t i s im portant where th ose ta x es come from . They must come from sources th at w i l l c o n tr ib u te g r e a t ly to an in f la t io n a r y s p i r a l . The p e o p le o f la rg e income a re small and few . The g re a t consumer purchasing power w i l l come from th ose p e o p le w ith incomes o f le s s than $ b ,0 0 0 . I f a l l o f the income was taken away from th ose w ith income above $5,000 i t would n ot be a drop in the buck et in co n n e ctio n w ith the fin a n c in g o f the w ar. Consumer goods are d im inish ing and are goin g t o con tin u e t o dim inish r a p id ly . So th ere i s no advantage to be gained by the p eop le as a whole in having more money than they are a b le t o spend in the purchase o f g ood s. I r e a liz e the p r a c t ic a l and the p o l i t i c a l d i f f i c u l t y o f c o l l e c t i n g enough ta x es t o pay f o r the war c u r r e n tly . The B r it is h and Canadians have succeeded in c o l l e c t i n g enough taxes t o pay f o r f u l l y h a l f the c o s t o f the w ar. c a n 't do lik e w is e . There i s no reason why we, in the fu tu r e , What i s n ot fin a n ced in th a t manner must b e f i nanced, so f a r as p o s s ib le , as we have heard to d a y , from o u ts id e o f the banks. I would f e e l t h a t n ot le s s than 25% should be fin a n ced o u t s id e o f the banks. The Canadians and the B r it is h up t o date have f i - - nanced o u ts id e o f the banks more than 25%. The l a s t r e s o r t in con n ection w ith fin a n c in g i s fin a n c in g by the banks. I should not say that is the l a s t r e s o r t , because the l a s t r e s o r t i s fin a n c in g by th e F ederal R eserve System. should The banks be g iv en th e jo b o f fin a n c in g th at p o r tio n th a t i s l e f t over -4 - a f t e r an adequate ta x system and a f t e r th e utm ost e f f o r t i s put f o r t h by the V ic t o r y Fund and the War Savings com m ittees, and i t w i l l be up to the Federal R eserve System to p rov id e the banking system w ith the r e s e r v e s which are n ecessa ry e ith e r through open-market o p e r a tio n s , which have re se rv e requirem ents, or through d isco u n t f a c i l i t i e s t o enable them to ca rry t h e ir p a rt o f the government fin a n cin g * To the exten t th at the banks do n o t ca rry th a t p o r tio n then the F ed eral Reserve System i s the l a s t r e c o u r s e . I t is t o be hoped th at the fin a n c in g to be done by the Federal Reserve System w i l l be reduced t o a minimum. I a p p r e c ia te t h is o p p ortu n ity o f bein g w ith you . I did n ot e x p e ct t o make t h is speech . I had the prom ise o f John Fleek that I should ju s t be an a u d it o r . He came down and asked me a moment ago i f I would n ot say th ese few w ords. I thank y ou . O ctober 19, 1942. (A pplause)
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