CBS REPORTS - "MONEY AND THE NEXT PRESIDENT
OF THE UNITED STATES,"
CBS-TV, OCTOBER 27, 1960
ANNOUNCER. CBS Reports acknowledges with thanks
the cooperation of the Secretary of the Treasury and the Federal Reserve
System, who opened their doors to our cameras to take our television audience
inside the Government printing plant, where money is printed and stored,
and into the vaults of Federal gold depositories. This cooperation was
extended by these officials with the knowledge that many of the opinions
expressed in the next 60 minutes would be contrary to their own.
Now, here is Howard K. Smith.
Mr. SMITH. This is the desk of the next President
of the United States, in the loneliest room in the world, at the White
House, in what Thomas Jefferson called the splendid misery.
VOICE OF JEFFERSON. "Now, I don't believe
that anyone can predict what the next President's problems are really going
Mr. SMITH. On January 20 next, the 35th President
of the United States, armed with whatever memorabilia he brings with him,
and the consent of the governed, will enter through that door and occupy
that seat. The 34th President, speaking of the duties of his successor,
President EISENHOWER. The biggest problem
there is in the United States today is to make sure that her own people
- her own people - understand the basic issues that face us and form their
own Judgments. And if we can inform these people properly, then we can
be sure that the help and vigor of the democracy will solve them properly.
Our great danger is that we are sometimes
led down blind alleys by demagogues or we are too lazy to inform ourselves,
or we just say that some popular figure will solve them for us.
Mr. SMITH. If laziness and popularity contest
elections are a problem now, as some say, they will be an increasing burden
to the next President, who will have to lead at a time when the American
people must become increasingly aware of a myriad of complex questions,
not the least of which is a crucial one called wealth.
Some who come to this room will call it our
money problems - others gold, balance of payments, growth. The Secretary
of Defense will lobby for more funs for missiles and bases. The Secretary
of the Treasury will talk of the dangers of inflation. Health and Welfare
will want funds for schools and aid to the aged. State will plead for foreign
aid funds. The Director of the Budget will want to balance the budget.
And all will want to hold taxes down - until it comes to their province.
But should the 1960 election campaign end
up as more of a popularity contest than one of compelling issues, the man
who sits at this desk may find himself responsible to an electorate unable
to recognize one of the chief remaining differences between our two political
Mr. KENNEDY. This is a great country. But
it can be greater. This is a prosperous country. But it can be the most
prosperous country in the world, where all Americans share that prosperity
and none live on the marginal edge of existence.
But we have to grow. And under Republican
leadership, this country is standing still - here in this country and around
Mr. NIXON. And so I say tonight, first, the
charge that the United States has been standing still just doesn't hold
up. What they are looking at when they make that charge is solely at what
Government does. And they overlook the very great fact about America's
progress, that America's progress comes primarily not from what the Government
does, but from what 180 million free, individual Americans do in individual
Mr. SMITH. It is an argument as fundamental
as Jefferson and Hamilton, as bitter as Truman and Eisenhower. It has to
do with how we manage that which our Founding Fathers called "Our lives,
our fortunes, and our sacred honor."
Mr. SMITH. In the first of the Kennedy-Nixon
debates, it became obvious that the question of economic growth and its
attendant controversies was going to be a major campaign issue. There were
those at that time who criticized the two candidates for going too deeply
into such a complicated and difficult and hard-to-follow subject.
There may be those who think that the same
subject is too difficult and without sufficient excitement and drama for
a 1-hour television report. However, we are convinced that this subject
is going to be the central debate in the 1960's, and so we ought to face
up to it.
So now, with the help of the Secretary of
the Treasury, Robert Anderson, a Nixon supporter, and Prof. John Kenneth
Galbraith, a Kennedy adviser, and some others, who might be Secretary of
the Treasury if their man wins, we present "Money and the Next President
of the United States."
The man who sat in this oval room longer than
anyone in history, Franklin Roosevelt, observed, just a short time before
moving into the White House, that America's growing was probably over.
"Our industrial plant is already built. Our problem
now is whether it is overbuilt."
That was 28 years ago, and that overgrown
economy, then with a $58 billion GNP, has now reached the $500 billion
level, almost 10 times as much.
A nation's real wealth is measured by this
term, which has been heard over and over in this election campaign.
First let us define gross national product.
The GNP is all the earnings and goods and services manufactured and produced
by 69 million employed Americans in the course of a year. It is $11½
billion for milk and dairy products, and just about the same amount, $11
billion for alcoholic beverages, which does not include the liquor we import.
It is $13 billion that we produce in steel, the very sinew of our industry,
and almost half that amount on cigarettes. It is $38 billion on automobiles
and trucks and almost half that amount, $17 billion, on new home construction.
It is $2½ billion on new schools and classrooms and $3 billion for
cosmetics, beauty aids, and other related services - another part of our
Our gross national product is made up of more
than $2 billion we spend annually on candy, the $267 million that we spend
on aspirin and aspirin compounds, and the $280 million we now spend on
tranquilizers - perhaps a symptom of living in a state of perpetual crisis.
It is almost $2 billion for coal and more
than twice as much for the production of oil. It is $325 million that we
spend on textbooks and $50 million that we spend on comic books. It is
$500 million that we spend on civilian space exploration and $6½
billion on military missiles - all forming part of our gross national product,
to reach $500 billion in 1960.
These figures represent the changes, the constant
movement, the growth, of our economy. They reflect the myriads of choices
involved in deciding what we do with our wealth.
But faced as we are with global competition
from the Soviet Union, which is able to afford losses in foreign trade,
which it uses as an instrument of Communist policy, and faced with the
equally real competition of nations friendly to us, the choices we make
may well prove of critical importance for our future, and are reflected
in one of the debates of substance in this election year.
Allen Dulles, Director of the Central Intelligence
Agency, testifying before the Joint Economic Committee of Congress last
November, said that the Soviet GNP has been growing twice as rapidly as
that of the United States over the past 8 years, and he added:
If the Soviet industrial growth persists
at 8 or 9 percent per annum over the next decade, as is forecast, the gap
between our two economies by 1970 will be dangerously narrowed, unless
our own industries' growth rate is substantially increased from the present
Or look at the competition in another way. Today
our GNP is considerably greater than the Soviet GNP. And yet Walter Lippmann
and other experts have estimated that we spend about 20 percent of this
amount on public needs, while the Soviets, on the other hand, spend about
Other Americans agree with Mr. Dulles and
feel that we are not performing now as we should.
Leon Keyserling, former economic adviser to
Mr. KEYSERLING. I think that the American
economy is one of the wonders of the world. We have done enormous things.
We are still capable of doing enormous things. And we are now doing some
very fine things. But although we are one of the wonders of the world,
we are not doing as well now as we should. And we should always remember
that history has produced many wonders of the world. Greece was a wonder
of the world. Rome was a wonder of the world. The British Empire was a
wonder of the world. And there have been others.
When they failed to meet the crisis, the challenge
of the particular times that confronted them, they first ceased to be a
wonder and then ceased to be a leader.
Mr. SMITH. But others claim that the extent
of Soviet growth is a myth.
Economist Colin Clark---
Mr. CLARK. It has been stated by the Central
Intelligence Agency in Washington and by a number of other officials and
professors who ought to know better that the production of the Soviet Union
is increasing at a rate of 9 percent per annum or more, and they say we
ought to be concerned about it. I quite agree. What we ought to be concerned
about is the gullibility and the ignorance of the professors and officials
who make these statements. Any careful examination of the Russian figures
gives an entirely different result.
You will find that the real rate of growth
on Russian productivity in product per man-hour is only 1.6 percent per
year, well below the American figure of 2.3 percent per year, and so far
from overtaking the American economy, Soviet productivity is falling further
Mr. SMITH. Gabriel Hauge, former economic
adviser to President Eisenhower, takes the middle between those viewpoints---
Mr. HAUGE. Personally, I am not joining the
jumping jack set about it, but I do want to try to get it in proper perspective.
Clearly, an economy as newly out into broad
industrialization as that of the Soviet economy is going to make rapid
progress. I think also in our own time the development of the Canadian
economy, in a time period roughly identical with that of the Russians,
would show that there is nothing uniquely wonderful about the Communist
way of getting growth rates in an early stage of industrial development,
if you have the resources that the Canadians have had.
But all that aside, we certainly ought to
shuck any remaining ideas that any of us might have that the Communists
can't make their system work for the purposes they set for it. Obviously,
Mr. SMITH. John Galbraith of Harvard told
Dan Shore of CBS News that we are growing fast enough, but in the wrong
Mr. GALBRAITH. Well, I would think that our
main problem is not how fast we are growing, but the kinds of things that
we are getting.
I said a moment ago that growth consists of
getting all of the increasing production of all the goods we use and all
the services that we have.
Well, there are some things which I suppose
we don't need a great deal more of. We have all the food we need. The food
supply is pressing on the population, rather than the reverse. And I think
we may well be reaching the point where an additional supply of automobiles
will become an embarrassment, and we are well supplied with things like
clothing. And most private goods. Not everybody, but most people are.
On the other hand, there are some things of
which we are desperately short. Our schools aren't very good. Our public
services aren't very good. Our cities are still decaying. We still have
a very bad slum problem. Our urban transportation is in terrible shape.
So I would myself place more stress on the
kind of growth we get than I would just growth as such.
These are all things where distribution by
Government at some level is involved, and where, this being the sad part
of it, taxes must be paid and collected and public research news must be
So the real problem of growth, as I would
put it, is that of an imbalance between our private goods and our public
Question. Dr. Galbraith, can Government correct
the imbalance? Mr. GALBRAITH. Why certainly. This is the function of Government.
Mr. SMITH. In this respect, it is often said
that by an economy of very free choice we get lots of tail fins and few
schools, that our community furniture becomes rather shabby while our personal
possessions become rather affluent. We ask Dr. Hauge about this.
Mr. HAUGE. We can have both tail fins, I should
think, and schools, or we can have schools and transportation in compact
cars, if that is what our individual choice is. Individual citizens make
a first choice in the marketplace, and then in the polling place. They
make a first division of their income between what they retain and what
they give to the various levels of Government in taxes, Federal, State,
Now this has varied in different times. But
this is a decision. This is individual choice.
Now, within the category of individual choice,
of what we give to ourselves and what we turn over to governmental units
to spend, which is running over $130 billion a year, now, not really a
pikerly sum at all, if we spend it well, you have got the question of how
you do spend what you turn over to Government.
Now, I think it is perfectly proper for people
to bring up the subject of how we are using our wealth and our abundance;
just so that they don't depart from the essentials of our whole societal
philosophy, which is individual choice and limited Government. I don't
think we can run our country on any other basis.
Mr. SMITH. Leon Keyserling.
Mr. KEYSERLING. I think unfortunately at a
time when we are in a struggle with a monolithic and totalitarian power,
we have begun to degrade free government. We have begun to talk about the
things that ought to be done outside of government, and not put enough
emphasis on the kind of things that the American people have to do as a
whole. You can't combat totalitarianism by telling 50 States, including
Alaska, and 180 million people: "You go and make a program. You go and
close the missile gap. You go and get high economic growth."
These are matters of national policy, of national
direction. And I think that on all these fronts we have gotten a low rate
of economic growth because we haven't done the things that we need to do.
We have been caught in a sort of paralysis of, "We can't afford," a sort
of paralysis of, "Let's fight inflation."
Mr. SMITH. Some say that if the Russians spend
more money than we do on space while we spend more money than they do on
cosmetics, they will be further ahead in space, while we will end up by
being better looking. For how can we compete? For how can we compete if
a monolithic state such as the Soviet Union can virtually channel its economy
to produce what it needs, while our decisions are left to a consumer economy
where the swimming pools are often easier to sell than schools?
We ask Secretary of the Treasury Robert Anderson
about such choices.
Secretary ANDERSON. I think the essence of
economic freedom is the freedom of choice. Growth, it seems to me, ought
to be in terms of real goods and services that people want and that they
are able to buy. In Russia, one has very limited choices. One can decide
whether he wants to buy one color of a shirt or another color of a shirt,
but this freedom extends only to the goods that the Government is willing
In a free-choice society, the consumer reigns
almost supreme. He decides what he wants and what he buys at the marketplace.
But inherently I think our people are fundamentally sound, and that they
are going to be sure that they will spend at some level of the government
the kind of money that is required in order to have a good educational
system. But they will do it because they come to the realization of the
importance of it, because of the desirability of affording to their children
and to the Nation the kind of trained minds and abilities that the Nation
If, on the other hand, we should simply say
that the economy has to be directed, that somebody has to decide for us
how much we spend and how much we utilize of our resources for each of
the segments of our economy, we would have given up a large part of what
we now have our defense for. And that is the right of people to make choices.
Mr. SMITH. Treasury Secretary Anderson says,
"free choice." Professor Galbraith says, "It is the function of government."
Here are Senator Kennedy and Vice President
Nixon on the. subject of growth.
Senator KENNEDY. With a real healthy rate
of growth, this country can have full employment for all who want a job.
With a really healthy rate of growth we can pay for all the defenses that
this administration says we can't afford. With a really healthy rate of
growth, we can afford the best schools for our children and the best paid
and the best trained teachers. And finally, with a really healthy rate
of growth, we can talk about an economic crusade for justice. But it's
time we stopped talking about it and elected an administration that will
do something about it.
Vice President NIXON. We will not be satisfied
with what we were doing, but in determining what new steps we will take,
we will emphasize individual enterprise, and what Government can do to
stimulate that, rather than putting the primary responsibility on Government,
as the source of economic progress in this country.
Mr. SMITH. CBS Reports, "Money and the Next
President," moves on to gold and inflation immediately after this word
from our sponsor. [Commercial.]
ANNOUNCER. Now back to CBS Reports and "Money
and the Next President."
Mr. SMITH. Every American, from Barry Goldwater
to Secretary Anderson to Kenneth Galbraith and Walter Reuther, is for growth
and against inflation. The difference is that the Democrats think that
preoccupation with inflation will stunt our growth, and the Republicans
feel that "growthmanship" produced by Government action will create inflation.
So right now we shall take our life in our
hands and attempt a kind of anatomy of inflation which will take us through
the foggy area of gold, balance of payments, and foreign competition.
In times past, a nation's fortune was its
gold. Today gold is somewhere in between what Khrushchev calls plating
for bathtubs and others, "A ridiculous yellow fetish," and still others,
"The protector of the currency."
But certainly the United States of America,
with its stockpile of enriched uranium, automobiles, food, and steel, has
far more useful and valuable wealth than bricks of gold in a subterranean
crypt. We ask Robert Anderson, the Secretary of the Treasury, about the
relationship of currency to gold.
Question: Mr. Secretary, I have here a $10
bill. It is a gold certificate which promises me that $10 in gold will
be payable to the bearer on demand. Could you give me gold for that?
Secretary ANDERSON. Mr. Smith, the Supreme
Court decided in the 1930's that gold certificates were not redeemable
in gold. And of course, now, under our laws, individual citizens are not
entitled to demand gold at the Treasury. As a matter of fact, all of these
gold certificates are supposed to have been turned in to the Government,
and I am sure you will be glad to leave this with the Treasury, and receive
another $10 bill.
Question. Well, sir, I have a much more orthodox
bill here, which bears your name, Robert B. Anderson, Secretary of the
Treasury. Now what is this worth, in terms of hard money? Is this any relation
to gold ?
Secretary ANDERSON. Well, of course, the whole
$10 is hard money, completely convertible all over the world. It is backed
up by 25 percent of its value in gold; so that for each $10 bill there
is $2.50 of gold to support it.
Mr. SMITH. This gold backing is for Federal
Reserve notes, which today make up, much of the currency in circulation.
Most of the rest is backed by silver. In 1952, the Daughters of the American
Revolution questioned whether 20 years of Democratic control had kept our
gold supply secure, and wanted a delegation to be sent to Fort Knox to
count the gold bars.
Gabriel Hauge, now chairman of the finance
committee of the Manufacturers Trust Co.
Mr. HAUGE. We have had a tremendous gold stock
out at Fort Knox, so great that it got to be an object of humor. And when
George Humphrey became Secretary of the Treasury in 1953, he actually went
out there and had a count made.
Mr. SMITH. Per Jacobsson, Managing Director
of the International Monetary Fund---
Mr. JACOBSSON. We need gold not for the daily
payments; we need it now more for balancing accounts internationally. And
in my opinion the fact that this country is able to meet drafts on the
dollar by using its gold adds to the certainty of the dollar.
Mr. SMITH. Economist John Galbraith---
Mr. GALBRAITH. The real wealth of the Nation,
of course, isn't its gold. This is a very unnutritious commodity. The real
wealth of the Nation is its capacity to produce things, and I suppose behind
that the intelligence and skills, culture, of the people who produce things.
If it just evaporated off the face of the earth, I suppose we would find
Mr. SMITH. Actually, the $19 billion or so
we have at Fort Knox and other gold depositories is little more than chips
in a global poker game and has little to do with inflation or the value
of the dollar. It all started in ancient times, when barter became too
cumbersome and gold was substituted.
Today, in a commercial world which has passed
through the industrial revolution and is now on the threshold of automation,
gold has become obsolete as a coin in anyone's realm. What was never more
than a glittering chip is now represented by chips of its own, which we
in the United States call the dollar.
At the Bureau of Engraving in Washington,
we print $28 million every day, 5 days a week. This machine, printing $100
bills, printed $2¼ million an hour this day.
This incinerator, also at the Treasury, burns
practically the same amount we print, $28 million every day.
You are watching $19 million worth of tired
bills that have been in circulation an average of 15 months being reduced
There is now $28 billion in currency in circulation,
with another $219 billion on deposit in banks across the country. It is
the increase of these funds, which have no relation to gold and often too
little with the goods we produce, that causes inflation.
We ask Secretary of the Treasury Anderson
how money is created.
Secretary ANDERSON. Let us assume the Treasury
needs $100 million with which to buy airplanes for the Department of Defense,
for you to pay for them tomorrow. We call a bank and say, "Will you lend
us $100 million for a given time at a given rate of interest?" And the
We send to the bank a security. It may be
a Treasury bill or a Treasury note or certificate or bond. The banker,
then, upon receipt of the security, credits us with $100 million.
Mr. SMITH. When you get the security note,
can you make it out at will?
Secretary ANDERSON. We draw it up and collect
for the U.S. Government.
Mr. SMITH. It is a sort of an I O U ?
Secretary ANDERSON. Yes.
Where did the banker get the $100 million?
Did he select some of his customers' accounts and decrease their accounts?
Certainly not. Every customer would object.
He simply created $100 million in the form
of deposits. And this is the money that we will use, with which to buy
Mr. SMITH. Is that a contributory factor to
inflation, to the falling of the purchasing power of the dollar?
Secretary ANDERSON. It is the reason, Mr.
Smith, why we don't want to borrow from the Federal Reserve System. It
is the reason why we don't want to borrow any more than we have to from
the commercial banking system; because if the Treasury borrows from you,
as an individual, your bank account is decreased by the amount of purchasing
power which you transfer to the Treasury. There has been no money creation.
Mr. SMITH. This is a savings bond. And when
Secretary Anderson refers to no new money being created, he means that
in this fashion we lend part of our personal savings to the Treasury, which
promises to pay it back, plus interest. No new money has been created.
When the Treasury, on the other hand, borrows
from a commercial bank, such as Mr. Anderson described, it means that new
money has to be created or printed.
The healthy way for new money to be born is
in direct relationship to the growth of our national product, such as iron
ore, steel, power, food, and services. It is in this area that the Democratic-Republican
argument over tight money policies arouses such passions. But this is an
entire controversy of its own.
One description of inflation is: Too much
money chasing too few goods. Or more simply, a decline in the purchasing
power of the dollar - which to some is at the core of the problems of our
What actually is inflation? How does it affect
Take a man - you, me, anyone. His work provides
him with a return in food or clothes or whatever he may want to exchange
his dollar for.
In 1940, his dollar, for instance, would buy
a certain amount of chicken and eggs. But as the years went by, that same
dollar bought less and less, until in 1960 it will buy only about half.
Or, to put it another way, today it takes $2 to match the stature of the
However, today, with wages up, the same amount
of work in an 8-hour day will bring about the same as 1940. But if the
man is out of work, or retired, his dollar will bring him only about half.
President EISENHOWER. We must fight inflation
as we would fight fire when it imperils our home. Only by so doing can
we prevent it from destroying our savings, pensions, and insurance, and
from gnawing away the very roots of a free, healthy economy and the Nation's
Mr. SMITH. But money is such an inexact science,
if it is a science, that there is disagreement among experts as to whether
we do in fact have inflation.
Mr. KEYSERLING. I think we don't have inflation
now. As a matter of fact, I think what we are really confronted with now
is the problem, and I don't want to be alarmist, of not having next year
or the year after, an economic recession, which is just the opposite of
what people think of as inflation.
Mr. SMITH. Economist John Galbraith.
Mr. GALBRAITH. Prices just at this time are
stable. We should keep in mind that it is for very temporary reasons. We
should have as our objective stable prices. Inflation is a very regressive
thing. It helps the strong, and it is hard on the weak.
Mr. SMITH. Gabriel Hauge.
Mr. HAGUE. The forces that were very strong
in the inflationary direction and that produced almost a kind of an inflationary
psychology were checked last year. And I would say today there is perhaps
somewhat of a lull on this particular front.
But if you adopt the definition of inflation
that I do, which is that inflation comes from bad economic habits, I don't
think, perhaps, we are ever through with it.
Mr. SMITH. Per Jacobsson.
Mr. JACOBSSON. I don't think there is any
inflation at the moment in the United States. But perhaps the most important
question for this country is how to learn to live without inflation.
Mr. SMITH. Secretary of the Treasury Anderson.
Secretary ANDERSON. My belief is that most
economists would say that the 1960's still present problems of inflationary
pressures. One must be concerned about the future and not allow things
to develop which will place unreasonable inflationary pressures on the
Mr. SMITH. Secretary Anderson and the Republicans
believe that inflation caused by too much Government spending is the major
domestic problem of the 1960's. The Democrats want to channel more funds
into public health and educational services.
Mr. GALBRAITH. This requires a public decision.
And one is asking the market to do the impossible if one asks it to provide
things like schools, highways, national defense. These things have always
been outside of what you call the system of choice. They have always been
subject to public legislative action and always will be.
Mr. SMITH. And it is in this area that the
money battle is joined, as witnessed in this brief exchange from the Nixon-Kennedy
Vice President NIXON. And so I would say that
all of these proposals Senator Kennedy has made will result in one of two
things. Either he has to raise taxes, or he has to unbalance the budget.
If he unbalances the budget, that means you have inflation, and that will
be, of course, a very cruel blow to the very people, the older people,
that we have been talking about.
Senator KENNEDY. There have been statements
made that the Democratic platform would cost a good deal of money and that
I am in favor of unbalancing the budget. That is wholly wrong, wholly in
error, and it is a fact that in the last 8 years the Democratic Congress
has reduced the appropriations request by over $10 billion. That is not
my view, and I think it ought to be stated very clearly in the record.
My view is that you can do these programs, and they should be carefully
drawn within a balanced budget, if we are moving ahead.
Mr. SMITH. CBS Reports, "Money and the Next
President," continues on the subject of the recent flurry in the world
gold market, after this word from * * * [Commercial.]
ANNOUNCER. Now, here again, Howard K. Smith.
Mr. SMITH. If the gold supply has little or
no direct effect upon inflation, inflation and the state of the dollar
have a very profound bearing on the state of the gold market. And 7 days
ago, gold moved off the financial pages of the papers and onto the front
pages and the editorial pages.
Some of the most conservative periodicals
in the world call it the great gold rush of 1960.
As Secretary Anderson said earlier in this
program, the individual citizen cannot redeem his dollars for gold. However,
in Europe there was such an intense scurry to buy gold that the price gyrated
erratically from $35 an ounce up to $40 an ounce, then back down to $36
an ounce, and then back up to $40 again.
Doctors of this inexact science had mixed
theories as to the cause, but they all revolved about what is called our
balance-of-payment problem. It relates to the fact that our gold supply
is shrinking and gold is leaving the country.
Actually, it seldom leaves the United States
physically. But when our balance of payments sags, as it has recently,
gold is moved from the U.S. Treasury vaults into cages of the Federal Reserve
Bank of New York, where it is earmarked to accounts held by Canada, Germany,
France, Switzerland, Italy, and others. The outflow of our gold reserves
has declined steadily since 1958 when it was highest. But it continues.
And the last 2 years saw transfers of close to $3 billion from our gold
reserves to foreign accounts.
Even though there would appear to be little
connection between gold, currency, and imports, one can go to the very
place where money is printed to discover a startling clue.
This is a modern high-speed printing press.
It is a special press that prints U.S. currency. This press and a number
of others like it, replacing old, much slower equipment, located at the
Treasury in Washington, was manufactured in England, which may suggest
the range and extent of the changes which have taken place recently in
Suddenly the United States, the world supplier,
was faced with the unaccustomed reality of foreign competition. Many of
the goods coming off efficient modern assembly lines abroad, built with
America in mind, were finding a receptive market here.
Since 1947, we imported nearly 5½ million
foreign cars. In 1959, we bought nearly 470,000 Italian, German, and Swiss
typewriters. More than 4 million radios from Japan and Germany, imported
turboprops and jet planes from England and France, heavy electrical machinery
from England and Switzerland, perfumes, gloves, fashions, from France and
Italy, textiles from India, Japan, Hong Kong, and England, steel from Germany
and England, electronic equipment and cameras from Japan and Germany; while
our tourists spend more dollars abroad each year.
Secretary ANDERSON. Now we have come to a
procession in which the world is not confronted with a dollar gap, not
even primarily confronted with the problem of liquidity, but confronted
rather with a problem of competitiveness.
Mr. SMITH. An example of this type of competition
is France's Sud Aviacion, manufacturers of the Caravel jet, now one of
the world's fastest selling commercial air liners. Its president is George
Mr. HERRE. In the United States, our first
contract with United Air Lines was for an amount of $65 million. Burt,
as I said, up to the signing of the contract, it is just the beginning.
And we hope in the next coming years to reach a total amount of more than
Mr. SMITH. American consumers, who had always
seemed to prefer American products, discovered that foreign made goods
were often cheaper, more to their taste in design, and had become fashionable
status symbols. In 1959 we imported more than $15 billion of foreign products
- Jaguar, Porsche, Alfa-Romeo, and Biancha sports cars, and Leica, Rolliflex,
Nipon cameras, Gorgonzola, Camembert, and Cheddar cheese, Tobler and Lent
chocolate, Brazilian and Colombian coffee, Italian shoes, shirts, and dresses,
sewing machines, toys.
Economist John Galbraith.
Mr. GALBRAITH. The United States, of course,
has become an easy market in which to sell, and for the same reason it
has become difficult for us to sell our goods at the lower prices in other
countries, both in Europe and in the third countries; and the so-called
third countries, Africa and South America, have found it easier and cheaper
to buy in Europe than with us.
Mr. SMITH. The United States was faced with
a balance-of-payments problem which has to do with our economic relations
with other lands, as Dr. Galbraith explains.
Mr. GALBRAITH. The balance of payments, after
all, is what we spend for goods, for the things we import, plus the money
that we spend traveling abroad, plus the money that is invested abroad,
plus what we spend for foreign aid, plus military aid, on the one hand,
plus what we earn with our exports on the other hand, plus also what people
spend traveling in the United States, plus what they choose to invest in
the United States. This is the balance. And in recent years, we have been
buying more, spending more abroad, than we have been receiving. And the
result is that we have had a so-called balance-of-payments deficit, which
means that the claims of foreigners have been increasing in the United
States, what property they own within the United States, bank deposits,
and so forth, or they have been withdrawing gold from the United States.
Mr. SMITH. But there is a further complication
to this problem. At the end of World War II, Europe and Japan were in rums,
their economies shattered. With the disintegration of our wartime alliance
with the Soviet Union and the beginning of the cold war, immediate measures
were needed to fill the political, economic, and military void left by
the war. And so the Marshall plan was born, a program to help rebuild the
economies of friend and former enemy alike. We sent funds, technical know-how,
equipment, and military aid to France, Italy, Iran, Turkey, Germany, and
set up bases.
Paradoxically, the very success of our aid
has created a problem for us, best illustrated by the heavy outflow of
Oscar Strackbein, who believes in high tariffs
and represents an industry-labor group dedicated to protectionism.
Mr. STRACKBEIN. We have created a monstrous
problem for our economy. This was not intentional. You might even say that
our assistance succeeded too well. Let us say that we had to do these things.
But yet the results that have now come upon us make it necessary, in my
opinion, that we take measures to prevent the competition from destroying
our own industries in this country.
We must, in my estimation, fight a rearguard
action, if nothing else, to make sure that one industry after another is
not undersold and underbid and driven out of our own market by imports
that come in at very low prices compared with our own.
I recommend specifically that we use import
quotas and tariffs as a means of putting on the brakes on imports.
Mr. SMITH. John Monet, father of the Common
Market, and often called Mr. Europe, is for more competition and against
any kind of restrictive tariffs.
Mr. MONET. I think that the whole philosophy
and basis of American prosperity is based on competition, on constant effort,
on constant changes, on adjusting yourself constraintly to better production.
The creation of Europe, the Common Market, certainly has created a competitor
which otherwise would not have existed. But isn't that the very basis on
which American prosperity has been built? And it seems to me strange to
think that you who have built all your prosperity on competition should
today be afraid.
Mr. SMITH. Warren Lee Pearson, chairman of
the board TransWorld Airlines, and former president of the International
Chamber of Commerce.
Mr. PEARSON. If we raise our tariffs, other
countries are going to raise theirs. It is just as simple as that.
A few years ago, we tried to help our watch industry by raising
the duty on Swiss watches. What was the result? The Swiss almost immediately
raised their duties on American farm products.
Now, the job we thought we were giving the
American watchmaker was not the job of the Swiss watchmaker. Actually,
it was the job of an American farmer.
Secretary ANDERSON. Our problem is to work
the balance of payments into greater equilibrium. It seems to me that we
must do this not by forms of protectionism, not by trying to lessen the
amount of international trade and commerce, but rather by emphasizing American
exports, by being as helpful as we can to our exporters, so that they can
compete in foreign markets, by insisting that other countries do not discriminate
against goods produced in the dollar area, and by being sure, above all
else, that we do not allow inflation to so develop in our country that
we make ourselves noncompetitive with the rest of the world.
Mr. SMITH. To face growing foreign competition,
American firms have opened branch plants abroad. In the past 5 years, alone,
hundreds of companies have moved to Western Europe and Japan, to bring
their products closer to the local consumer, avoiding foreign tariffs,
saving on transportation costs, and taking advantage of cheaper labor.
And Detroit has met the foreign-car threat head on by producing its own
compact car versions.
This more efficient production in other industries,
and heavy foreign sales of our jet transports, have tended to improve our
balance-of-payments deficit - a step in the right direction, but still
This month the Pentagon reversed a longstanding
policy of giving preference to overseas purchases. From now on, at equal
prices, products manufactured in this country will be given preference
over foreign products. Although the dollar amount involved in this is small,
the step is a symptom of the Government's will to do something about our
Both Vice President Nixon and Senator Kennedy
have been concerned about this gold outflow and have discussed it in a
recent television debate.
Vice President NIXON. As far as the gold supply
is concerned, and as far as the movement of gold is concerned, we have
to bear in mind that we must get more help from our allies abroad in this
great venture, in which all freemen are involved, of winning the battle
Now, America has been carrying a tremendous
load in this respect. I think we have been right in carrying it. I have
favored our programs abroad for economic assistance and for military assistance.
But now we find that the countries of Europe, for example, that we have
aided, and Japan, that we have aided in the Far East - these countries,
some our former enemies, some our friends, have now recovered completely.
They have got to bear a greater share of this load of economic assistance
Senator KENNEDY. The difficulty, of course,
is that we do have heavy obligations abroad; that we therefore have to
maintain not only a favorable balance of trade, but also send a good deal
of our dollars overseas to pay our troops, maintain our bases, and sustain
In other words, if we are going to continue
to maintain our position in the 1960's, we have to maintain a sound monetary
and fiscal policy. We have to have control over inflation. And we also
have to have a favorable balance of trade.
We have to be able to compete in the world
market. We have to be able to sell abroad more than we consume from abroad,
if we are going to be able to meet our obligations.
Mr. SMITH. As to the reasons for the current
anxiety about gold, no man can yet say with certainty, but the United States
has lost substantial gold in the last 2 months, due to the flight of international
capital in search of high interest rates, while in Europe the London gold
market has responded to nervous buying whipped up by an uncertain situation.
Vice President NIXON. There are a number of
reasons why this happened, the experts believe. But you know what they
all agree on? That a major contributing factor for the lack of confidence
in the American dollar abroad is the widespread fear, growing out of the
ill-considered proposals and suggestions made by my opponent concerning
the fiscal and monetary policies of this country.
What are those proposals?
Well, a major London newspaper made the suggestion
just a few days ago that my opponent had the idea of devaluating the dollar.
Senator KENNEDY. I must say the Vice President
does show signs of some tension. Tonight he blamed me for the increase
in the cost of gold in the London market.
Mr. Nixon, if you are listening in, I didn't
do it, I promise you.
Mr. SMITH. The task of defending the dollar
will be a priority goal of the next President of the United States, and
the job will have to be done without sacrificing American prestige and
commitments in the vital areas of foreign aid, military assistance, and
NATO, in which another kind of survival is at stake.
All of this relates directly to the health
and the growth of our own economy.
Senator KENNEDY. Now, what is the issue is
what we are going to do in the future. That is an issue between Mr. Nixon
and myself. He feels that we are moving ahead, we are not going into a
recession in this country economically. He feels that our power and prestige
is stronger than it ever was relative to that of the Communists, that we
are moving ahead.
I disagree. I believe the American people
have to make the choice on November 8 between the view of whether we have
to move ahead faster, whether what we are doing now is not satisfactory,
whether we have to build greater strength at home and abroad; and Mr. Nixon's
view: That is the great issue.
Vice President NIXON. We have to grow enough
to maintain the forces that we have abroad and to wage the nonmilitary
battle for the world, in Asia, Africa, and Latin America. It is going to
cost more money, and growth will help us to win that battle.
Now, what do we do about it? And here I believe
basically that what we have to do is to stimulate that sector of America,
the private enterprise sector of the economy, in which there is the greatest
possibility for expansion. So that is why I advocate a program of tax reform,
which will stimulate more investment in our economy.
Mr. SMITH. This is a voting machine, on which
the only true verdict on the Nixon-Kennedy debate will be rendered. And
the most important act that you and I are likely to perform for several
years to come will be to pull the lever or mark the ballot on November
We will find on the ballot no indication of
economic growth or inflation or national goals. Just a man's name.
It may be, as Edwin Dale, the New York Times
economic expert has said, that the only basic difference between our two
political parties is on economics. If our report has not made your decision
for November 8 easier, we hope at least that we have illuminated a little
what is at stake when a new President faces the most bountiful but the
most disagreed about mechanism on earth, the American economy.