Harvard. Economics Ph.D. alumnus. John Keith Butters, 1941

 

The previous post provided the syllabi for the Harvard economics department public finance course (actually consolidated into a single document for the undergraduate and graduate versions of the course) taught by J. Keith Butters and Arnold M. Soloway in 1954-55.

Since both instructors received their doctorates in economics from Harvard, I have included this post that provides some biographical information about J. Keith Butters. The next post will do the same for Arnold M. Soloway.

I begin with the vital dates: John Keith Butters was born August 28, 1915 in Chicago and he died December 11, 2005 in Lexington, Massachusetts.

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Harvard Economics Ph.D. (1941)

John Keith Butters, A.B. (Univ. of Chicago) 1937, A.M. (Harvard Univ.) 1939. Subject, Economics. Special Field, Public Finance. Thesis, “Federal Taxation of Corporate Profits.” Instructor in Economics and Tutor in the Department of Economics.

Source: Harvard University. Report of the President of Harvard College 1940-1941, p. 174.

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Principal Conclusions

In highly condensed form the principal findings of the study may be summarized as follows:

1. In the development-of-the-idea stage of a new enterprise taxes are seldom of dominant importance.
2. As a business develops beyond the “idea” stage to the point at which production appears feasible, tax considerations become progressively more important.
3. At this stage, and beyond, high corporate taxes are typically much more repressive in their effects than are high personal taxes at least so long as capital gains continue to receive very favorable treatment.
4. High corporate taxes restrict the growth of small companies:
   1. By greatly reducing the attractiveness of risky expansions to the managements of small companies;
   2. By curtailing the amount of capital available from retained earnings to finance such expansions; and
   3. By making the acquisition of outside capital on satisfactory terms much more difficult.
5. In each of these respects the restrictive effect of high personal taxes appears to be much less severe:
   1. The effect of personal taxes on management incentives is much less direct;
   2. Except for unincorporated enterprises personal taxes do not reduce retained earnings; and
   3. On balance, high personal taxes may not even divert outside capital away from highly venturesome enterprises.
6. Retained earnings are an especially critical source of funds for the expansion of small enterprises:
   1. The owners of small companies frequently place great importance on the maintenance of a strong control position and of their personal freedom of action. To the extent that they do so, they will be reluctant to undertake expansions which must be financed by outside capital.
   2. Many small companies even companies with promising growth prospects find it extremely difficult or impossible to raise outside capital on reasonably favorable terms.
   3. Hence, for both of these reasons, many expansions by small companies will, in fact, be undertaken only if funds are available from retained earnings to finance them.
7. In almost every respect high taxes are less repressive on large, established corporations than on small, growing firms.
   1. High taxes reduce the profit expectancy of new expansions by large companies much less severely than they restrict similar expansions undertaken by small, independent companies.
   2. Large, established companies have substantial amounts of funds coming available from their noncash expenses in addition to whatever earnings they may be able to retain after taxes. These funds may be used to finance the introduction of new products and technical innovations.
   3. Finally, large, established companies generally can acquire new capital on much more favorable terms than can small companies. In addition to their ability to float common stock with relative ease, they can usually issue preferred stocks or bonds alternatives available to small companies only on a limited scale, on more expensive terms, and usually at great risk to the common stockholders.
8. Thus, unless special adjustments are made to relieve the burden of a flat-rate corporate tax on small companies, such a tax would tend to promote an increased degree of industrial concentration in addition to restricting the growth of small, independent companies.
9. It would be possible substantially to relieve the tax burden on most small, growing companies without greatly diminishing Federal revenues. This study clearly emphasizes the need for such relief. But it makes no attempt to examine the many problems which would arise in formulating the precise character of this relief.
10. The financial problems confronting small firms are particularly acute in times of depression and market pessimism at such times it is practically impossible for most small companies to acquire new equity capital on acceptable terms. Indeed, perhaps the surest way to improve the position of small firms would be to follow an economic policy that would promote a high level of economic activity. The indirect effects of general prosperity would be far more powerful than any specific measures which could be taken to break down the barriers between small companies and the capital market.
11. As a final point, existing imperfections in the capital market and the general unwillingness of individual savers to assume the risks of ownership emphasize the possibility that venture capital may be scarce at a time when there is general oversavings in the economy. Failure to recognize that oversavings and shortages of venture capital are not mutually incompatible has led to many statements of doubtful validity by both proponents and opponents of the oversavings thesis.

Source: Study Effect of Federal Taxes on Growing Enterprises. Study published by the Division of Research at the Graduate School of Business Administration, Harvard University in 1945, pp. 2-4.

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In Memoriam

HBS professor J. Keith Butters, an authority on finance and taxation, died in Lexington, Massachusetts, in December [2005]. He was 90.

The Thomas D. Casserly Jr. Professor of Business Administration, Emeritus, Butters retired from the HBS faculty in 1986 after 43 years of service, during which he chaired the Finance Unit (from 1969 to 1973) and taught in both the MBA and the Executive Education programs. He also played an influential role as the Business School’s representative to a number of University committees that affected faculty across all of Harvard.

Source:   Harvard Business School/Alumni/Stories, March 1, 2006.

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Boston Globe Obituary

J. Keith Butters

Of Lexington, died Dec. 12, 2005, at age 90. Husband of the late Helena Renaud Butters. He is survived by his brother William of Arlington Heights, IL; 3 children, Liz Butters of Denver, CO, Gerard R. Butters and his wife Ettie of Bethesda, MD, Nancy Butters and her husband Ron Pies of Lexington, MA; two grandchildren and two great grandchildren. A tenured Professor at The Harvard Business School, he received Harvard’s “Distinguished Service Award” in 1989 in recognition of his extraordinary service to the University’s educational mission.

Source: Legacy.com obituary from the Boston Globe.

Image Source:  Harvard Business School, The Annual Report 1954.