Speech

Z-668 ADDRESS BEFORE AMERICA’S TOWN MEETING OF THE AIR OVER STATION WJZ AND THE BLUE NETWORK THURSDAY EVENING, FEBRUARY 12, 1942 BY MARRINER S. ECCLES CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FOR RELEASE AT NINE P.M. THURSDAY, FEBRUARY 12, 1942 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Z-668 I am much more concerned about winning this war than I am about financing it. The problem of financing the war would be comparatively simple if all of us on the civilian front understood as clearly as do our armed forces on the fighting front that our very survival as a nation is at stake. Then the farmers would not be contending for higher prices, labor for increased wages, and business for continued high profits. We would be willing to cut our civilian expenditures to the bone in order to save every dollar that we can. We would readily accept much higher taxes and turn our savings over to the Government by purchasing Defense Bonds. Too many of our people are still spending all of their incomes and even going further into debt to buy more things. The war can never be won - much less inflation avoided - unless we awaken to the grim realities of the life and death struggle in which we are engaged. The problem of winning this war is a physical, not a financial, one. It is a question of effectively using our man power, raw materials and pro­ ductive capacity. Half of our national effort must be devoted to the war. Only what is left over after the maximum war effort is made will be available for civilian use. In order to finance the war without inflation, civilian buying must be reduced to fit the diminishing supply of goods and services available for civilian consumption. We are rapidly approaching a national income of approxi­ mately $110 billions. About half of that must go for war purposes, leaving the other half for civilian use. The fifty-odd billions which the Government re­ quires must be collected from the public in the form of taxes and borrowings. In other words, upwards of 50 billions of civilian dollars must be drawn into the war effort and not left to compete in the market place for the shrinking supply of civilian goods. Otherwise, the rising tide of national income would rapidly bid up prices and precipitate a ruinous inflation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Z-668 - 2 - This entails making - not just talking about - sacrifices. So far, our standard of living is at the highest peak of all time. It must be drastically reduced in order to make the supreme effort that alone will assure victory. The time to make the supreme effort is now. The time to reduce our individual expenditures is now, not after inflation has taken hold. The time for business to accept smaller profits, the time for labor to forego wage in­ creases and for farmers to forego price advances is now. This is the time when we must all contribute our utmost to the common effort and not squabble among ourselves to see who can get the most out of it. Of the more than fifty billions which must be drawn into the war chest in the next fiscal year, it is proposed to collect about half in taxes, the other half from the sale of Defense Bonds and other Government securities. As for the borrowing, it should come from current incomes of individuals and corporations, thus diverting to war needs funds that otherwise would tend to bid up prices of civilian goods. To the extent that the public fails to divert a sufficient amount of current income into the purchase of Government securities, the Government will be obliged to borrow from the banking system. This process creates additional funds, and since it adds nothing to the supply of goods, it makes for inflation. As to taxes, the present program calls for an increase of $9 billions in the next fiscal year over the amount provided for under present law. These taxes cannot be collected by shifting the load to any one group or class, but only by the widest distribution among all groups of taxpayers, except those whose incomes are no more than enough to maintain health and morale. No matter what our financing program may be, it can be defeated through demands for increased wages, prices and profits. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Z-668 - 3 - The hard fact is that the more we produce for war, the less we can produce for civilian needs. Only a limited and a diminishing volume of goods will be available for the public to purchase. You may be able to increase the dollars in your pay envelope but this will not add to the goods that are offered for sale. We are only fooling ourselves by exchanging more dollars for the same or a smaller amount of goods. That process is known as inflation and spells ultimate ruin. As for the $9 billions of additional taxes that must be collected in the coming fiscal year, we must turn first to the corporations whose taxes, especially excess profits taxes, will have to be steeply increased. They are the primary recipients of the Government’s enormous expenditures. They are the logical primary sources to which we must turn to recapture funds that otherwise tend to go into the spending stream. Thore is no proposal to end the profit motive, even in wartime. Yet even that sacrifice would not be too great a price to pay to preserve our industries so that when peace comes they will have some­ thing left with which to make a profit. Unless existing corporation taxes are sharply increased, corporations will have left over after paying 1942 taxes about $5 billions more than they had in 1939. As against this, the war is putting many concerns out of business. Others that have been prosperous in peace will be barely able to survive. Those that are earning large or even moderate profits should be willing to pay substantially higher taxes in this crisis. Until this is done we cannot expect labor to abate its demands for an increased share in these profits. It is of equal importance that the base of the individual income tax be widened by reducing personal exemptions so that the income tax will reach down to the subsistence level. From this level, rates must be greatly increased all the way up. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Z-668 - 4 - In order that some of the income taxes may be collected at the source and before the funds have gone into the spending stream, a withholding tax is necessary. The amount paid in withholding taxes can be made deductible from the amount due later in income taxes. Glaring loopholes in our tax structure which have been widely used as a means of tax avoidance must be closed. We must apply selective excise taxes on an increasing number of articles, thereby curtailing private consumption of critical raw materials. The measures I have indicated would do away with the necessity for a general sales tax, which reaches into the pockets of those below subsistence level, A sales tax hits the poor harder than the rich because the poor need all their income to buy the necessities of life, A general sales tax would immediately increase prices and the cost of living. It would precipitate wide- spread demands for higher wages to offset the added costs of living. That is the inflation spiral. The sacrifices involved in the program I have outlined for the indi­ vidual and corporate taxpayer are, in fact, no sacrifices at all compared to what we are asking of our armed forces on the battle fronts. They are getting no profits for their patriotism. They are risking or giving not their dollars but their lives, They are not on a forty-hour-a-week basis. There is no time and a half for overtime behind the guns in the Philippines, on the high seas, or anywhere else. When those of us on the home front wake up to the fact that we are fighting for our very lives, we will stop talking about the profits, the wages, the prices we can get out of the war. Only then will we really begin to fight. And just one thing is going to win this war -- and that is fitting. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Marriner S. Eccles (1942, February 11). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19420212_eccles

@misc{wtfs_speech_19420212_eccles,
  author = {Marriner S. Eccles},
  title = {Speech},
  year = {1942},
  month = {Feb},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19420212_eccles},
  note = {Retrieved via When the Fed Speaks corpus}
}