CHART 3-F

PERCENTAGE OF THE NATIONAL INCOME

EXTRACTED FROM INDIVIDUALS HAVING INCOMES OF $50,000 AND UNDER $100,000

BY VARIOUS EFFECTIVE INCOME-TAX RATES
AS MEASURED BY THE AVERAGE

FOR THE GIVEN AND TWO PRECEDING YEARS

CHART 3-6

PERCENTAGE OF THE NATIONAL INCOME EXTRACTED FROM INDIVIDUALS HAVING INCOMES OF $25,000 AND UNDER $50,000

BY VARIOUS EFFECTIVE INCOME-TAX RATES

AS MEASURED BY THE AVERAGE

FOR THE GIVEN AND TWO PRECEDING YEARS

TABLE I.—The realized national income and the percentages thereof going respectively to persons in each of the upper-income brackets

Percentage of realized national income going to persons having incomes in thousands amounting to 1

Calculated by dividing figures in Statistics of Income, pp. 236-37, by the national income figures in this table and multiplying the quotients by 100.

Data taken from The National Income and Its Purchasing Power, by Willford I. King, p. 74, table VIII. Quantities between 1925 and 1929 secured by multiplying the income estimates made by the National Industrial Conference Board by figures interpolated along a straight line between the ratios applicable respectively to 1925 and 1929.

Data taken from the United States Survey of Current Business, July 1947, supplement, p. 19, table 1.

TABLE II.-Income-tax revenue derived from persons in the respective higher income brackets expressed as percentages of the national income

1 Calculated by dividing figures in Statistics of Income, pp. 238-239, by the national income figures in this table and multiplying the quotients by 100.

2 Data taken from The National Income and Its Purchasing Power, by Willford I. King, p. 74, table VIII.

Quantities between 1925 and 1929 secured by multiplying the income estimates made by the National Industrial Conference Board by figures interpolated along a straight line between the ratios applicable respectively to 1925 and 1929.

Data taken from the United States Survey of Current Business, July 1947, supplement, p. 19, table 1.

TABLE III.—Federal tax rates on 1947 family incomes

[Rates applicable to a family composed of husband, wife, and 2 minor children, recorded to the nearest whole percent]

To Members of Congress, Editors, Bankers, and all Citizens Interested in Sound Financial Policy:

Those who have not specialized in monetary theory are likely to find it a bit difficult to comprehend just what the controversy between the Secretary of the Treasury and the Federal Reserve Board is all about. In an endeavor to aid the average reader to understand the principal questions involved, Dr. Willford I. King, an economist who has long concerned himself with such problems, has prepared the accompanying analysis. We believe you may be interested in seeing what he finds to be the primary basis of the conflict.

Sincerely yours,

SUMNER GERARD,

Trustee, Committee for Constitutional Government, Inc.

THE SQUABBLE

All this shooting between the Treasury Department and the Federal Reserve Board over whether we are going to have "cheap" money-that is, the rate that Government bonds will command-or higher rates as advocated by the Reserve governors leaves the average layman with a cold feeling. He just doesn't understand what all the argument is about. We don't blame the taxpayer!

He's caught in a political whirlpool that has no place in an economic program dedicated to the Nation's welfare. Even the boys downtown (the denizens of Wall Street who find it difficult to make ends meet) can only remark that many in Washington can't see the forest for the trees.

The tussle between the Treasury and "Fed" has been going on long enough. Unless Congress steps in and stops this farce, we are in for another round.

FEDERAL DEBT POLICY AND INFLATION

DEMAND DEPOSITS

In our United States, barter plays but a minor role in trade-money or money substitutes being employed to pay for most goods that change hands. Pennies, nickels, silver, or paper money are commonly used to cover small purchases, but, when larger amounts are involved, the buyer usually settles by giving to the seller a check which transfers to the seller part of the buyer's checking account. The funds in these checking accounts are referred to in banking parlance as "demand deposits."

However, many a person gets a "demand deposit" without depositing in the bank any money, but instead by giving to the banker his note. In other words, demand deposits largely originate through borrowing from the banks. The more the volume of borrowing the greater is the volume of demand deposits in the Nation. And, when debts are paid off, the volume of demand deposits shrinks.

CREDIT AND SPENDING POWER

The spending of the individual who does not go into debt is limited by his income plus his past savings. This same principle holds for all individuals taken together, and also for Government. Furthermore, if either an individual or Government borrows from another individual, the gain in the spending power of the borrower is exactly offset by the loss in the spending power of the lender.

But the case is very different indeed when either the individual or the Government borrows from a bank. Such borrowing increases the total ability to spend, for, when the bank lends, it exchanges its credit for the credit of the borrower. The latter is not freely spendable. By contrast the bank's credit is generally acceptable in payment of debts and therefore serves the same purpose as money; in other words, it furnishes part of the Nation's supply of circulating medium, and, when created by borrowing, adds to the total of ready spending power in the Nation.

CIRCULATING MEDIUM; TRADE, AND THE PRICE LEVEL

Experience shows, moreover, that, when other factors are unchanged, any increase in the spending-power total makes the general price level rise. Economists have found that the relationship between the supply of circulating medium, business volume, and the price level can be expressed by a very simple formula known as the equation of exchange. If

M"

=

the average number of dollars of pocketbook money and demand deposits in circulation in the Nation during a specified period.

V" the average number of times each dollar is used in the same period to pay for goods; V" being, therefore, the velocity of monetary circulation. T=the volume of trade, in other words, the number of units of goods paid for in the given period (a unit being the quantity selling for $1 at the base date).

P=the general price level; in other words the average price per unit paid for goods in general in the given period. Then clearly

M"V" the total number of dollars paid for goods in the given period.

PT the total number of dollars received for goods in the given period. Hence

M"V"=PT. This is the equation of exchange.

stated, it must always hold true.

Evidently it can be transposed into the form P

With the terms defined as

M"V"

T