Beardsley Ruml, American economist and statistician (b. 1894)

Beardsley Ruml (1894–1960): A Multifaceted American Innovator

Beardsley Ruml, born on November 5, 1894, in Cedar Rapids, Iowa, was a towering figure whose influence spanned the realms of statistics, economics, philanthropy, and business throughout the 1920s, 1930s, and 1940s. A true "man of affairs," his career reflected a rare versatility, moving seamlessly between academia, public service, and the corporate world, leaving an indelible mark on American society, most notably in the system of taxation we know today.

Early Life, Education, and Foundations

Ruml's family background offered a blend of practicality and service. His father, Wentzle Ruml, served his community as a country doctor, while his mother, Salome Beardsley Ruml, held the significant administrative role of a hospital superintendent. This upbringing likely instilled in young Beardsley a strong sense of purpose and a penchant for systematic organization.

His academic journey began at Dartmouth College, where he earned his Bachelor of Arts degree in 1915. He then pursued advanced studies at the University of Chicago, a burgeoning hub of intellectual inquiry, completing his Ph.D. in psychology and education in 1917. This interdisciplinary foundation would prove critical to his later work in developing standardized tests and understanding societal structures.

On August 28, 1917, Beardsley Ruml married Lois Treadwell, and together they would raise three children. The same year, the United States entered World War I, and Ruml quickly put his psychological and statistical expertise to use. As a pioneer in the nascent field of psychometrics, he played a crucial role in 1918 in designing aptitude and intelligence tests for the U.S. Army. These groundbreaking assessments were vital for efficiently deploying millions of recruits, setting a precedent for large-scale psychological testing. Ruml's worldview, shaped by his academic pursuits, saw society as an intricate collection of groups whose characteristics could be precisely measured, ranked, and understood along scales of normality and deviance—a perspective that informed much of his later work in social planning and policy.

Shaping Social Sciences and Public Policy

From 1922 to 1929, Ruml directed the influential fellowship program of the Laura Spelman Rockefeller Memorial Fund. Under his guidance, the fund became a pivotal force in promoting quantitative social and behavioral science, providing crucial financial support that helped establish these fields as rigorous academic disciplines. His work here laid much of the groundwork for modern social science research methods.

His expertise was not confined to academia. Ruml served as an advisor to President Herbert Hoover, particularly on the complex and pressing issue of farm policy during a challenging economic period. In 1931, he returned to the University of Chicago, assuming the deanship of the Division of Social Sciences. This division was a recognized center for quantitative research, perfectly aligning with Ruml's methodological preferences. However, his tenure was reportedly not without friction, as his innovative and perhaps unconventional approaches sometimes clashed with established faculty perspectives.

From Retail Giant to Global Finance

In 1934, Ruml transitioned from the academic world to the demanding realm of commerce, joining Macy's, the parent company of the iconic department store. His ascent was swift and impressive; by 1945, he had risen to the distinguished position of chairman. This move showcased his remarkable adaptability and leadership skills, proving his capabilities extended far beyond intellectual and public service spheres.

During this period, his public service contributions continued. He served as a director of the New York Federal Reserve Bank from 1937 to 1947, and his leadership was further recognized when he became its chairman from 1941 to 1946. This was a critical time for global finance, as World War II reshaped the economic landscape. Ruml was also an active and influential participant at the landmark Bretton Woods Conference in 1944. This historic gathering, which laid the foundations for the post-World War II international monetary system, including the creation of the International Monetary Fund and the World Bank, benefited significantly from his expertise and vision.

Despite his active involvement in several New Deal planning agencies during the 1930s, working on ambitious proposals to reshape American society, many of Ruml's specific plans ultimately did not come to fruition. Yet, his commitment to systematic planning and economic reform remained unwavering.

The Revolutionary Concept of Withholding Tax

Perhaps Beardsley Ruml's most enduring and widely recognized contribution to American life came in the summer of 1942. Faced with the immense financial demands of World War II and the need for a more efficient way to collect greatly expanded income taxes, Ruml proposed a revolutionary system. He suggested that the U.S. Treasury implement a "pay-as-you-go" system through employer withholding, where taxes would be deducted directly from paychecks throughout the year. To ease the transition and ensure a smooth shift to this immediate collection model, he also proposed an abatement—essentially forgiving a significant portion of the previous year's taxes, thereby preventing taxpayers from facing a double burden. This ingenious solution streamlined tax collection and dramatically increased compliance. In 1943, Congress adopted the employer withholding system, a mechanism that remains a cornerstone of U.S. income tax collection to this day.

Ruml's Economic Philosophy: "Taxes for Revenue are Obsolete"

In 1945, in a speech that would become famously provocative, Ruml addressed the American Bar Association (ABA) with a bold assertion: "Taxes for Revenue are Obsolete." This statement, delivered in the wake of the world's departure from the gold standard, fundamentally challenged traditional economic thinking. With the ability of governments to control their own currency no longer constrained by gold reserves, Ruml argued that the primary purpose of taxation was no longer simply to raise revenue for government spending. Instead, he identified several new, critical functions for taxes:

This forward-thinking perspective is widely regarded as a significant precursor to modern economic theories such as functional finance and chartalism. Functional finance, a theory of macroeconomics, posits that government financial policy should be judged by its effects on the economy, not by a balanced budget principle. Chartalism, or Modern Monetary Theory (MMT), asserts that a sovereign government, as the issuer of its currency, is not financially constrained and can always create money to fund its spending, making taxes a tool for managing inflation and demand rather than purely for funding expenditure.

Works and Legacy

Throughout his prolific career, Ruml authored several influential books and essays that captured his diverse intellectual interests and policy insights. Notable works include: The Interest Rate Problem, a detailed analysis of financial markets; Memo to a College Trustee: A Report on Financial and Structural Problems of the Liberal College, which offered critical perspectives on higher education administration; Government, Business, and Values, reflecting his thoughts on the interplay between these vital sectors; and Tomorrow's Business, a forward-looking examination of economic and corporate trends.

Beardsley Ruml passed away on April 19, 1960, in Danbury, Connecticut, leaving behind a legacy of innovation and profound impact on American economics and public administration. He is interred at Umpawaug Cemetery, in Redding, Connecticut.

Frequently Asked Questions About Beardsley Ruml

What was Beardsley Ruml best known for?
Beardsley Ruml is most widely recognized for his pioneering proposal in 1942 for the "pay-as-you-go" income tax system, which led to the adoption of employer withholding in the United States. This fundamental change revolutionized how Americans pay their federal income taxes.
What was Ruml's role at the Bretton Woods Conference?
Ruml was an active participant at the Bretton Woods Conference in 1944. This pivotal international gathering established the framework for the post-World War II global financial system, including the creation of institutions like the International Monetary Fund and the World Bank. His expertise in economics and finance contributed to shaping these crucial agreements.
What did Beardsley Ruml mean by "Taxes for Revenue are Obsolete"?
In his famous 1945 speech, Ruml argued that after the U.S. abandoned the gold standard, the primary purpose of taxes was no longer simply to raise revenue. Instead, he posited that taxes served as powerful tools for economic policy, such as stabilizing the dollar's purchasing power, influencing wealth distribution, incentivizing or penalizing industries, and funding specific national benefits like highways and Social Security.
Was Beardsley Ruml involved in academia?
Yes, Beardsley Ruml had a significant academic career. He earned a Ph.D. from the University of Chicago, directed a fellowship program for the Laura Spelman Rockefeller Memorial Fund, and later served as the dean of the Division of Social Sciences at the University of Chicago, where he championed quantitative research.
What is the connection between Ruml's economic ideas and functional finance or chartalism?
Ruml's ideas, particularly his assertion that taxes have purposes beyond just revenue generation, are considered important precursors to both functional finance and chartalism (also known as Modern Monetary Theory or MMT). These economic theories suggest that a sovereign government, as the issuer of its own currency, is not financially constrained in the same way a household or business is and can use fiscal policy, including taxation, primarily to manage economic factors like inflation, employment, and resource allocation, rather than merely to fund spending.