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 to be."
     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, said recently:
     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 parties.
     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 the world.
     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 enterprise.
     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."
     (Commercial.)
     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. He said:
    "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 growth.
     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 pace.
     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 50 percent.
     Other Americans agree with Mr. Dulles and feel that we are not performing now as we should.
     Leon Keyserling, former economic adviser to President Truman---
     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 behind.
     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, they can.
     Mr. SMITH. John Galbraith of Harvard told Dan Shore of CBS News that we are growing fast enough, but in the wrong direction.
     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 found.
     So the real problem of growth, as I would put it, is that of an imbalance between our private goods and our public services.
     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, and local.
     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 to produce.
     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 requires.
     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 something else.
     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 to ashes.
     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 bank agrees.
     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 the airplanes.
     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 times.
     What actually is inflation? How does it affect our lives?
     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 1940 dollar.
     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 security.
     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.
     Leon Keyserling.
     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 future.
     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 debates.
     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 international trade.
     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 Herre.
     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 $1 billion.
     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 our gold.
     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 not enough.
     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 gold outflow.
     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 for freedom.
     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 abroad.
     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 our economies.
     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 the 8th.
     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.
     Goodnight.