John W. Snyder Oral History Interview, June 25, 1969

Notice
This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.

Numbers appearing in square brackets (ex. [45]) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.

RESTRICTIONS
This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.

Opened September, 1970
Harry S. Truman Library
Independence, Missouri

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HESS: Secretary Snyder, shall we continue our discussion of the Treasury operation?

SNYDER: Fine, I'd be very pleased to get this story recorded, particularly for the use of researchers and for interested reviewers of the Truman administration, because by dropping these different activities into the picture, it would give them keys to go into deeper research and deeper studies of the various phases of the Treasury operation under the Truman administration.

Now, we discussed last time, I believe, Mr. Hess, the fiscal year ending June 30, 1947, or what is generally called fiscal '47. Now, I propose today to take up two years, fiscal '48

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and fiscal '49 and highlight some of the Treasury activities in the fiscal and monetary field, during those two fiscal years.

HESS: That will be just fine.

SNYDER: In the fiscal year, 1948, the Federal Government's budget receipts exceeded the expenditures by eight billion four hundred million dollars as compared with the budget surplus during the preceeding year of eight hundred million dollars. And in the following year, fiscal '49, we continued along a very close operation, but revenues had dropped somewhat in relation to the increased expenditures as we drew away from our own rehabilitation program and got more into foreign aid and foreign assistance and into some of our new activities in the Federal Government, into

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some of the social legislations that had been passed. In fiscal '49 we exceeded the revenues by about a billion eight hundred million dollars. In fiscal '48, we had a further reduction in the debt that year. If you, recall, I told you in '47 we reduced the national debt from two hundred seventy-nine billion dollars to two hundred fifty-eight billion three hundred million dollars. And in 1949, in spite of the fact that we spent a billion eight hundred million dollars more than we took in that year, we still did not increase the public debt by but five hundred million dollars. So, at the close of fiscal 1949, the national debt stood at two hundred fifty-two billion eight hundred million dollars. Of course, we were then moving into the area when we had to be so cautious about our outstanding development

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in the field of international finance, which really began to take shape in fiscal 1948 with the inauguration of the program of increased United States economic assistance to Europe and the formation of an organization of European countries to develop a coordinated program of economic reconstruction through the joint efforts of the European nations themselves and the aid provided by the United States Congress. As early as 1945 it had been realized that the reconstruction of Europe and of the war torn countries of Asia, would be extremely difficult without the special assistance of the United States. And accordingly, various steps were taken to facilitate that recovery. I think we touched on that in our discussions of foreign aid, the Marshall plan, the Interim Aid and those programs. I'm not going

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into details on those activities because we have mentioned them already, but I'm weaving them now into the story of our financial handling of those commitments that we had made in those various programs.

Our next important part in debt management, and by debt management, I am referring not only to how we handled the debt but how we used proper debt management to help meet other problems; and in order to manage the debt properly we, of course, had to provide for sufficient revenues. If Congress didn't come through with the taxes requested, we were faced with deficit financing. So, taxation was a vital part of our whole fiscal and monetary operation in the Treasury. On April the 2nd of 1948, Congress passed the revenue act of 1948. That was the principal revenue measure

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that became law during the fiscal year 1948 and it did not produce the revenue needed. In fact, this act provided substantial reduction in individual income taxes by a combination of rate and exemption changes, income splitting and a number of minor provisions. It also provided for estate and gift tax reductions by repealing the 1942 amendments relating to transfers of property in community property states and by adopting estate and gift splitting for non-community property states. The legislation affecting the level and scope of the Social Security taxes was also enacted at that time. In the House version there was legislation providing for the revision of the Internal Revenue codes. The latter didn't go into effect, because, as I recall, the measure passed the House that year but we didn't get it through the

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Senate; so those revisions came later on. I might say here that the Treasury Department's views on all the proposals, to modify a repeal, the various taxes and revenues, are pretty well set out in Section IV of the Secretary of the Treasury's report for fiscal '48, and all the miscellaneous revenue legislation that took effect during that fiscal year is listed in exhibit thirty-five of the Secretary of the Treasury's report for fiscal '48. Any researcher interested can find, in detail, that important information.

Continuing with the taxation side of it, we'll talk for a moment concerning fiscal '49 and the very important program that was inaugurated at that time. On July the 27th, 1948, which was the first month of the fiscal year 1949, President Truman in his

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anit-inflation message to the special session of the 80th Congress, recommended that an excess profits tax be re-established in order to provide a Treasury surplus and act as a brake on inflation. House of Representatives bill 7109, providing for the reimposition of the excess profits tax, was introduced and referred to the Committee on Ways and Means on August the 4th of 1948, but it never got to the point of being considered by the Congress. That was the famous do-nothing Congress that Mr. Truman referred to in his later campaign. But the President in his message of January 1949 recommended again new tax legislation to raise revenues by four billion dollars. He pointed out at that time, that the period of high prosperity -- it is not sound public policy for the Government to operate at a

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deficit. A Government surplus, at a time such as we were experiencing then, is vitally important to provide a margin for contingencies, to permit reduction of public debt, to provide an adequate base for future financing of our present commitments and to reduce inflationary pressures. I bring that out again because it shows from year to year how Mr. Truman stuck to his original conception of money management and of the Treasury's role in assisting in the operation of his administration. In that connection, in my own statement before the Joint Committee on the Economic Report on February the 10th, 1949, I supported the President's recommendation to increase the revenues by the four billion dollars. Again, as I say, I'm just pointing these items out to you to show the continuity of the endeavor

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to carry out and consistently look after the established policy of Mr. Truman.

At this point, you and I mentioned last week, I think, something about the role of savings bonds in the debt management program, and I would like to reiterate here some of the things I said to you then by reading into our interview this morning the statement that I made back on June the 6th of 1947. This was just before the beginning of fiscal '48. But it sets the one of why the Treasury continued to sell savings bonds after the defense need was over. I said (and I'll quote from my speech which was delivered before the Los Angeles Chamber of Commerce in Los Angeles, California; I think I found a quotation here that clearly sets out what our objective was), I pointed out emphatically that in requesting the Americans to continue their

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bond purchases we were not increasing our total debt.

Such action was taken to secure a wider and consequently a better balanced ownership of our total debt. This fiscal year, your Government will have a balanced budget and a surplus of receipts over expenditures. (That's fiscal 1948.) This achievement is possible because, in rapid reduction of our war machinery and some of the attendant heavy cost of the aftermath of war, because the President has effected sound economies in administration and because our business activity has produced such a high level of national income. It was those causes that permitted us to have a surplus in fiscal '47 and '48. The administration's policy is one of strict economy along with the maintenance of adequate revenues. Our goal is to continue our program of debt reduction as rapidly as the surplus of revenues will permit, while at the same time, providing for an orderly tax reduction plan. The management of the public debt involves a constant process of paying off and refunding maturing obligations. These refunding operations could be conducted entirely through sales of securities to banks or other large investors but such a course might lead immediately to inflationary pressures through the monetization of the debt.

I'll step out of the quote for a minute to state

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that monetization of the debt means when you borrow the money for the Government from the banks, and you naturally place the funds in the banks temporarily, it increases the loaning capacity of the bank by anywhere from eight to ten times. As all the money doesn't go out at once, a part of it's loaned and then it echelons on until it builds up a tremendous credit base which is highly inflationary in a time of monetary pressure. But back to the quote:

Economists, financiers, business executives, and experts on debt management are in full agreement with the Treasury policy in this respect. They've concurred that a widely spread national debt is interwoven with the maintenance of a sound economy.

I think that you will recall, Mr. Hess, that I went into some detail with you in establishing the reasons back of my deciding to continue savings bonds and the fact that the banks

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agreed to support it and that they didn't consider it competition with the banks but more as a stimulus to thrift. And this will show further how we conducted the program because it was a sound thing for the economy and that it would stimulate savings not only in the Government bonds but in the bank as well.

Now, to continue, we'll go back to the Treasury administration. The general administration picture throughout the Treasury was highlighted in the fiscal year 1948 by the installation of general Treasury programs, such as management studies of various bureaus in which I brought in from the outside professional management concerns to analyze the operation of the various bureaus of the Treasury and made recommendations as to how to improve

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their efficiency and their productivity. You must recall that we had just come out of a long period of pressure operation under wartime conditions and that we had to find ways of improving operation under the increased load that was put on the Treasury and also correct some of the undesirable practices that had developed during the war years.

The management studies authorized by the Congress for the Bureau of Customs and the United States Coast Guard were conducted by McKinsey and Company, a management firm and by Ebasco Services, Inc., respectively. Both of these studies were implemented through steering committees which were made up of officials from the interested bureaus and the office of the Secretary. Just prior to the end of the fiscal year, I established a committee

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to direct management studies of the Bureau of Internal Revenue. I'm mentioning those things to show that in addition to the fiscal and monetary things we were also plunging into an improvement and a betterment of the operation of the Treasury as a whole, as well as the fiscal operation for the Government.

At the same time that we were doing this, we set up a committee on practice and its job was to examine the attorneys that were going to be permitted to practice on tax matters, and appear before the various Bureau of Internal Revenue offices to present tax cases. This was a very important move because it was our intent to raise the caliber of the attorneys who were handling tax matters in Internal Revenue. I considered that to be one of the important things that we developed at that time. In fiscal

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'49, we didn't get any tax measures acted on by Congress. We did set up, however, a division of tax research, and the purpose of that was to assist in studying all proposed tax changes, revisions, tax reductions, new taxes, to try to build a better tax structure and to cooperate with the congressional committees, who were beginning to study the modification of the reorganization of the whole tax structure. That was a vitally important action that we took which I mentioned some time ago.

At this point I have a rather important matter I would like to call to your attention. On November the 28th in 1947, this was during the fiscal year 1948, I appeared before the Joint Committee on the Economic Report and I made this presentation:

As you know, I appeared before the

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House Banking and Currency Committee and discussed this subject with you several hours last Tuesday. Only one business day has intervened since my appearance before the committee and the statement which I wish to make before you today, therefore, consists mainly of a restatement of the points that I made before the House Committee.

Now, that had to do with the Revenue Act of 1948 and so I'm pointing that out as a reference. I'm not going to put the whole statement in here but if any students are interested, they can read those statements which will show what the administration was attempting to put before the Congress and the assistance that we were trying to give to the improvement of the general tax situation.

Now, I have another matter that I want to refer to. It's so important to get these clearly before us. I want to refer now to the Secretary of the Treasury's annual report for

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the fiscal year ending June 30th, 1949 -- that's fiscal 1949. As you recall, I took office in June, the 25th, 1946 and at that time the country was confronted with momentous problems both on the domestic front and in the international area. Many of these problems had a direct and a determinative bearing on the conduct of Treasury affairs. Because of the pre-eminent financial position of the United States Government, the policies and operations of the Treasury Department were significantly tied in with the solution of this country's own problem. In the period from June 1946 the Nation enjoyed a remarkable period of prosperity with the highest levels of production and employment in its peacetime history up to that date, despite the magnitude of the problems which were being daily encountered.

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During the first part of this period, strong inflationary pressures prevailed. But as we went along through the calendar year 1948, the country met, and safely passed, a period of inventory readjustments which completed the shift to normal competitive markets, and as we went into fiscal '49, the economy was on a more even keel than at any time since the end of the war with bright prospects, very bright prospects, for the future. In order to bring this clearly into focus we prepared a report which is included in the Secretary's annual report for fiscal '49 which I would like to call attention to at this point because it gives a full summary of the Treasury activities from June 25th, 1946 through October 31st, 1949, and I think a review by the student and by the researcher will assist

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the tremendous job that fell upon the Treasury to perform during those days following the war. I'm doing that simply as an aid. I don't want to go into retelling all of those incidents, but I do want to focus on it so that it will be easier to find because, as you know, in the Truman Library there are, I think, two complete sets of the Treasurer's reports from June 1946 through the operation of the Truman administration, and this is just pointed out in order to give a quick reference point where they can refer to these other matters.

Mr. Hess, in order to review and summarize up to this point, I think that at this time I'm going to refer to a speech that I made before the Town Hall Meeting in New York City on December the 15th, 1948 which was in the fiscal year 1949. In the speech I said that:

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My major objective as Secretary of the Treasury is to maintain the financial soundness of the United States Government and a sound fiscal policy must rest upon a revenue system that will meet the cost of Government functions and provide funds to service and reduce the public debt. To meet our domestic and international obligations as reflected in the proposed Government expenditures in the budget for the coming fiscal year, we must give careful attention to the effect of these expenditures on the national economy.

By those expenditures, I'm talking about these international expenditures that we were approaching at that time, don't you see. This was the end of the calendar year 1948 but in the middle of the fiscal year 1949.

A primary objective of the Government must be to maintain a continued sound fiscal policy. If this should require additional revenue, it will be the duty of Congress to provide the necessary additional taxes. Another major objective of Treasury policy has been to conduct policy debt management in such a way as to promote confidence in the Government's credit. When I assumed office at a time when reconversion to peacetime economy

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was under way, I felt that confidence in the stability of the bond market would be of great help to the nation in easing the problems of reconversion for industry and business as well as for the reconversion of the Government.

I stated that:

I believe that the steps taken towards maintaining such confidence have contributed to the maintenance of our present unparalleled prosperity. The Treasury and the Federal Reserve have considered it equally important to keep bond prices from going up too fast and to keep them, by the same token, from going down too sharply. Starting in the spring of 1947, we took action to control a boom that was beginning to develop in the bond market. For this purpose we sold long term bonds from some Government investment accounts, and put out an investment series of bonds for institutional investors and increased short term rates. All of these operations combined to take upward pressure off of the market. When conditions changed and a downward pressure on bond prices developed, we stabilized the market through purchase of long term bonds and all of our actions were taken with the view towards promoting business confidence and encouraging a high level of economy.

It was argued then, as now, that supporting the

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market was inflationary because of the large sales of Government securities to the Federal Reserve and that we were paying too high a price in order to gain the benefits of some market bond stability as I've outlined. Actually, there had been at that time, December 1949, no net increase in Federal Reserve holdings of the Government securities attributable to the support program. Since this program was initiated in November 1947, the Federal Reserve holdings had increased by some nine hundred fifty million dollars. But most of this, however, was directly attributable to the two billion dollar increase in Reserve requirements of the previous fall. Now, the reason that I'm going back and referring to that situation is that I want to bring it to notice at this time so you'll note that this has a great bearing on today's

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situation in the bond market, in the stock market, and in the finances of this country. If we had let the bond market get out of control, as it apparently has in recent years, there would have been a real possibility that we would have had more inflation to contend with rather than less inflation. The removal of confidence in the stability of the bond market, and a consequent impairment of confidence in our financial situation could well have led to serious consequences, not only in this country but throughout the financial market of the world. I stated then that I intended to continue a firm course in maintaining confidence in the Government credit.

Now, that, I think, will bring a close to our discussion today. But you see, my purpose in dropping back, I thought that that would fit

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in right at this time as to what our position was, President Truman's and mine, back to those days some twenty years ago, and how sound it is as compared with the situation today.

HESS: I have one question on something that you brought up dealing with the special session of Congress in 1948, the Turnip Day session, and Mr. Truman's first recommendation to Congress in that speech was: "I recommend that an excess profits tax be re-established in order to provide a Treasury surplus and to provide a break on inflation." That was number one of his list. Were you in favor of this particular provision at this time?

SNYDER: Would you repeat that please?

HESS: Now, this deals with the message that President

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Truman sent to, or actually read to, as delivered in person before a joint session on July the 27th, the Turnip Day session. And his first recommendation was: "I recommend that an excess profits tax be re-established in order to provide a Treasury surplus and to provide a break on inflation." And my question was: Were you in favor of an excess profits tax at this time?

SNYDER: Well, I went on record as supporting that request. It was largely strategic and I felt that it would have a sobering influence, because we were trying to slow down an inflationary trend at that time and it would serve as at least a psychological warning to the Congress that we were in an inflationary atmosphere.

HESS: Did you and Mr. Truman really think that you

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were going to get something of this nature through?

SNYDER: We were positive that we were not.

HESS: Why was it put forward?

SNYDER: Just what I said.

HESS: Just strategic?

SNYDER: Yes.

HESS: Just strategic. Fine.