7. Our Struggle for World Survival

"We can't possibly include reports on the economic war between East and West written so long ago I" I complained. "Why remind people in the 1960s how it was in 1954 and 1955?"

But then I thought, "Yes, that's just why it is wise to include them—as a grim reminder. Why not show that behind today's problem lies a long history of failure to recognize obvious chal­lenges? Why go along with the pretense that the economic war Russia is waging against us now is 'new’?”

Perhaps by suggesting the extent of our errors of commission and omission in the foreign sphere, we may help prevent a repetition of those errors.

Perhaps. . . .

Economic War—1955

The cartoon in The New Yorker showed seven cannibals X sitting in a circle somewhere in the jungle. The chief was speaking: "Now, here's the plan. We let word out that we're in a state of political ferment. Russia smells an opportunity and makes overtures. The West gets worried. THEY make overtures. Russia asks to send cultural ambassadors, and we let them. The West asks for equal representation, and we invite them. Then, when we've got them all here, we eat them."

Sure, it makes you chuckle. That was the aim of the inspired artist who created the picture and caption. But right now, it's not so funny, not so funny at all. Russia makes a dramatic offer to help Egypt finance the building of the huge High Aswan dam on the Nile River, an engineering marvel that when achieved will dwarf the Pyramids. The United States State Department immediately gets the shudders, puts pressure on the World Bank's president Eugene Black to get into the act. Now after two years of dawdling, officials of the World Bank finally are conferring seriously with Egypt's finance ministers in Washington on a World Bank loan and additional United States aid to finance this greatest dam in history.

The Soviet Union's two highest officials—Premier Bulganin and Communist party head Khrushchev—go on a good will tour of India and make high-sounding promises about sharing Russia's atomic and industrial experience with India and giving Prime Minister Nehru help in developing India's heavy industry. In Washington, our Government leaders immediately sputter with indignation, point out how much we actually have done for India—but simultaneously they admit that as a result of Russia's maneuvers, when India asks for a new loan running as high as $1,500,000,000, we'll have to consider it.

The Russians offer to help little Lebanon finance her $50,-000,000 Litani River development program. Our diplomats sput­ter again and emphasize that the World Bank, in which we have the dominant voice, recently extended $27,000,000 to Lebanon for the same project.

And so it is going now all over the globe. The cold war continues, but the direction has clearly shifted from the military to the economic. Only the arrogantly biased can fail to see the implications of Russia's latest tactics, can fail to recognize that the Soviet Union is off on a new aggression, this time covering the whole sphere of economic development and trade.

Why is Russia suddenly wooing Egypt with an offer of help to finance the Aswan Dam? Because harnessing the Nile at Aswan has been Egypt's dream for centuries and the country that helps her achieve it will be in a key position to penetrate Egypt in every way. Why is Russia talking or actually negotiating "econo­mic assistance" programs with India, Egypt, Afghanistan, Burma, Indonesia, Ceylon, Jordan, Pakistan, etc.? Because each of the countries is "neutral" or tending that way and thus, in each case, Russia has an opportunity to do a damaging propaganda job and widen the splits between the nations involved and the West.

Our country has poured over $36,000,000,000 into foreign aid just since World War II! Yet, as 1955 ends, Russia is grabbing the headlines on aid programs. As the cold war enters the eco­nomic phase, a phase in which we certainly should be superior, the initiative is slipping from our grasp.

The new shift in the cold war cries out for a complete over­haul of our foreign aid program and demands a whole new bold approach that will capture the imaginations of the lands we want on our side. Of all the vital policy decisions the President must make soon, this would seem among the most vital and most urgent. It is inconceivable that at this late date, we will fumble out of ignorance.

INCONCEIVABLE?

Brains—Not Billions!

We could quadruple our foreign-aid spending, make many Congressmen four times more livid than they already are over the magnitude of our proposed foreign-aid budget, and still easily lose the new battle of the cold war. For what is needed surely as much as billions in this newest economic phase of the struggle between the United States and Russia is brains.

At this moment, we are showing frightening signs of again overemphasizing the billions, underemphasizing the brains. The Eisenhower Administration obviously has startled both Republi­cans and Democrats with its decision to ask a foreign-aid appro­priation of about $5,000,000,000 next year—up almost 100 per cent from this year's appropriation and the largest request in four years. Despite official denials, it's clearly a major policy reversal. Only a month ago, Administration spokesmen actually were talking of sharp cuts, particularly in foreign economic aid. Only a week ago, authoritative reports indicated the total foreign-aid budget for next year would be about the same as this year.

Despite official denials, it's also clearly tied in with the smash­ing success that Russia's two traveling salesmen—Bulganin and Khrushchev—had during their just-completed month-long tour of the crucial lands of Asia. Until nearly the end of that tour, our Government scoffed at the impact of the Russian leaders' selling job. We assured ourselves that no half-awake Asian would be­lieve Russia would deliver on any promises made. But now the Administration is reversing its policy, taking the Russian successes seriously, asking for more foreign-aid billions.

So now it is imperative to cry out that the answer we seek lies not in the spending of more and more billions. Rather, it lies in how the billions are spent, what the billions are spent for. If we don't wake up to the developing pattern, it won't matter whether we appropriate $5,000,000,000 or $50,000,000,000. We'll lose.

This was written in December 1955. Do you think we woke up?

Economic War—1958

Never have we had to face a trade war as skillfully planned as this one. Never have we been up against a world economic threat so subtle, so pervasive, so dangerous. For Russia is not only more than matching us in economic aid to the underdevel­oped countries now. In the last two and one half years, she has provided ten underdeveloped lands with $1,500,000,000 in econo­mic aid, about $600,000,000 more than our aid to the same countries in this period.

She also is executing her aid program in several ways that are clearly designed to win them to her side and pull them into the Soviet orbit.

(1) The Soviet bloc is offering loans to countries, particularly in Asia and Africa, on terms far more attractive than ours. The interest rate on Soviet loans usually runs about 2 to 2.5 per cent, about half the rates we charge. (Export-Import Bank loans gen­erally are at 5 per cent; World Bank loans mostly are at 4.75 per cent.)
Her repayment terms are spread over a long period, up to thirty years or so, and most agreements allow a period of grace running to several years before a loan must be repaid. We do it the traditional way. Our loans have shorter terms and suffer repayment clauses.
She often is entirely willing to accept repayments in local currencies or in the commodities the borrowing country has to sell. This form of repayment is extremely appealing to many countries, but we have no repayment policy even approaching it.
(2)        The Soviet Union is wooing countries which have big surpluses of raw materials and which are having trouble in selling them in today's markets by offering to take the surpluses in exchange for loans or for Russia's goods.
She has told Ceylon that she'll buy all Ceylon's rubber at above world prices during the next decade in exchange for Soviet goods. She is in India buying surplus pepper. She is offering to help Colombia and Brazil maintain the price of coffee by bartering Russian products in exchange for surplus coffee.
This is a vitally important policy, far more liberal than anything we have dared to do. Colombia and Brazil, as an illustration, haven't been able to look to us for aid in maintaining coffee prices—not when the American consumer resents the price of coffee as it is.
(3)        The Soviet Union is concentrating on helping the under­developed lands to industrialize, an objective they desperately
seek. She is providing $115,000,000 in machinery, materials, and
technical services for a steel mill in India. The Soviet bloc's
projects also include a $175,000,000 aluminum plant in Yugoslavia, a $10,000,000 petroleum refinery in Syria, a sugar refinery in Indonesia, a flour mill-bakery in Afghanistan.
We have been concentrating our aid on agriculture and public health education, and have given a lot of it in the form of our own surplus food. The food is eaten; the steel mill stands.
(4)        The Soviet Union is focusing assistance on uncommitted, shaky countries. Most of her aid money has gone to such tottering neutrals as Egypt, Afghanistan, Syria, and India. We have been focusing our assistance on countries fairly clearly with us, such as Formosa, South Korea, and South Viet-Nam.
(5) The Soviet Union is centralizing economic aid in a great, powerful agency directly responsible to the Soviet Council of Ministers. Red tape is being slashed, actions quickly follow words and an aid deal. Our program is in an uproar. It's fuzzy and bitterly contested.

Russia makes no secret of it. Through an economic offensive, she plans to win political domination over a vast area of the world. We can't fight this with a halfway, confused program. Either we firmly adopt a new approach—at the least, as skillful, as subtle, as courageous—or we lose the crucial economic war by default.

At the time this was written—1958—if anyone had suggested what Russia would be achieving in Cuba in 1960, he would have been ridiculed out of the Senate, the House, or your living room.

You Must Be Convinced on Aid—1958

How can I convince you—one of our nation's 5,000,000 jobless, or an American businessman being badly hurt by competition from foreign imports—that billions of dollars of tax money must be spent for foreign aid this year and it is imperative that Con­gress continue a trade policy encouraging imports of goods?

Will you willingly accept the argument that more than 4,500,000 American workers earn their living in activities directly created by foreign trade, and that there is scarcely an individual in our land who is not dependent in some degree upon our world trade activities? Will you believe the statement that nearly eighty cents out of every dollar we vote for economic assistance to underdeveloped nations is spent directly in the United States and that this spending alone provided 600,000 jobs on farms and in factories last year? Will you take seriously Khrushchev's dec­laration, last November, of "war upon you in the peaceful field of trade/' and realize that unless we boldly counter Russia's aggressive economic offensive in Asia and Africa, Russia well may, as she boasts, "win over the United States"?

Will you understand that to a significant extent, our country today is a "have-not" land, increasingly dependent upon the underdeveloped areas of the world for essential raw materials to keep our industries running and that we just cannot afford to have those areas closed to us? Do you know that we import 100 per cent of our coffee, tea, and industrial diamonds; more than 50 per cent of our asbestos, nickel, chromite, tin, manganese, tungsten, wool apparel, cobalt, and bauxite?

Will you appreciate how much it is in our self-interest to assist in the economic growth of the underdeveloped regions of the globe because these regions represent a tremendous potential market for American goods, and these new customers easily can be our greatest antidepression insurance in the years to come, easily can help lift us to dizzying peaks of prosperity?

Never before was there a bipartisan demonstration of the cali­ber which I witnessed last week among the one thousand plus citizens who went from all over the nation to attend the Presi­dent's extraordinary, unique Conference on Foreign Aspects of United States National Security. Never before had so distin­guished a group of the country's industrial, civic, religious, politi­cal, and press leaders gathered for a one-day conference of this nature. I'm still a bit awe-stricken by the fact that on one day from the same platform, I heard speeches agreeing on the im­perative necessity of continuing foreign aid and a liberal trade policy from Eisenhower, Truman, and Stevenson, from Nixon, Dulles, and Acheson, from Bishop Sheen, Rabbi Feldman, and Archbishop Stritch.

Yet, even as I listened to the tens of thousands of words spoken from the platform and in the hotel corridors, the thoughts kept nagging me. . . . Most of the people who are here are here because they already ardently believe in foreign economic aid and a liberal trade policy; they're talking to each other . . . Maybe, this unprecedented exhibition of bipartisanship and this exhilaratingly intellectual atmosphere will make some converts among key congressmen, but this conference is hardly grass roots —hardly . . . And even though these "delegates" now go home and start fighting for support of the President's foreign aid and trade programs at the local level, I've not heard many practical hints here on how to overcome the vast amount of hostility to the programs during this cycle of recession. . . .

You, the businessman being directly hurt by foreign imports, are the man who must accept the arguments for a policy encourag­ing imports, You, the worker out of a job today, must appreciate how much your future is involved in our foreign aid and trade policy, You, the family in a flood-threatened area, must realize why we spend money on flood control in far-distant lands even though we have dragged our feet on flood control here.

For unless and until you are convinced, all the exhilarating conferences that can be called won't do the job and our foreign economic aid and trade programs will remain shaky and insecure. And Russia will continue to make terrifying progress in her relentless war to win the world through trade.

The number of Americans "convinced" about the values of our foreign economic trade and aid policies has continued to dwindle, as much because we have failed miserably to reform the programs to meet today's challenges as because of the bitter bread-and-butter effects of foreign competition. The grandiose, unprecedentedly generous bipartisan foreign economic programs begun under President Roosevelt and continued under Presidents Truman and Eisenhower were at the close of the Eisenhower Administration more shaky and insecure than ever.

Foreign Aid—And How You Can Help—1960

Behind closed doors in a conference room of Congress, ten men are meeting today who actually have the awesome power to stun our allies and uncommitted nations of the globe with a blunder almost on a par with the U-2—or to reassure them that in a vital area of foreign policy, our country is set on a studied and firm course. These ten men are the members of a House subcommittee now deciding in private session whether to vote the cash to back up the mutual security law which Congress already has passed and which President Eisenhower signed on the eve of his departure for Paris.

The mutual security law is at the heart of our foreign policy, is our basic foreign economic policy. This is the law under which we extend economic and military aid to our allies and the under­developed nations. This is the law with which we are fighting the Soviets in an intensifying economic war all over the world. This is the law through which we are supporting our alliances in the North Atlantic, sustaining our defenses in Asia. This is the law which in the past rescued Greece from Communism, saved Turkey from collapse, kept Western Europe in the free world.

Do not misjudge the status of the program. The mutual security act, authorizing slightly more than $4,000,000,000 of foreign aid in the year starting July 1 was passed by Congress in mid-May, signed by a "gratified" President as he left for the summit. But just as I could give you the privilege to spend $400.00 of my money and then make the offer a mockery by not giving you the right to draw on my account up to $400.00, so Congress can authorize $4,000,000,000 of foreign aid in the next twelve months, then make a mockery of the authorization by not appropriating the $4,000,000,000.

Even as the President was signing the act, influential members of Congress were stating openly that they intended to slash the appropriations $1,500,000,000 to $2,000,000,000 under the law's authorization. Why is the opposition so strong?

One reason is the admitted maladministration of the program in many instances. Some of the bungling has been abominable. But the way to correct maladministration of a law is not to cripple the law to be administered. The common sense move is to get the machinery into operation, then to act with determina­tion to make the machinery more efficient and put more efficient men in control.

A second argument against the law is that, if we can't "afford" to spend millions to aid such depressed areas of our own as West Virginia, we can't "afford" to spend billions to aid foreign areas.

This argument is cockeyed and loaded with obvious politics. We do not give further aid to our depressed areas by cutting foreign aid—and this is definitely no time to be playing politics with our foreign policy.

A third reason for the opposition is the feeling of disenchant­ment with the results of the program, the belief that foreign aid is not being adjusted to today's world. Here, again, it seems to me that the way to find a new program is not to sabotage the only one we have. Our economic aid to such lands as Laos, Jordan, Pakistan, and South Viet-Nam is averting Communist domination in those areas. We haven't gained as much as we hoped, but neither have the Russians.

Imperfect as the foreign-aid program is, it is at the heart of our foreign policy. The first major act to come out of Congress following the Paris debacle must not be a retreat on this program. You can help your country by making your support known now.

Congress adjourned from the political conventions with the appropriations bill still not passed. It returned in August 1960, and the final result—after the summit collapse and the Cuban crisis and the explosion in the Congo—was a vote of $3,700,000,000 for the mutual security act, just about what President Eisenhower had requested. But between the request and the act was a time interval of six months.

Goods from Abroad—1959

A couple of years ago at Christmas our daughter received a most treasured gift—an American-made bicycle. This past Christ­mas her best friend received her heart's desire—a Japanese-made bicycle. On New Year's Day in 1958, when my mother and I went for our customary stroll in the country, she was wearing new walking shoes manufactured by a well-known American company. When we went for our stroll this past New Year's Day she was wearing walking shoes imported from Italy, and she exclaimed several times how comfortable, well-made, and stylish they were for only around eight dollars a pair.

Suddenly the realization hit me that in recent months we have bought or received as gifts bought in New York stores water glasses made in West Germany, a radio and steak knives made in Japan, a set of breakfast dishes and two sweaters made in England, gloves made in France, a salad bowl made in Holland, ash trays made in South Africa—and this is only a partial list!

"Everyone knows the success story of the foreign-made car in the American market in the past eighteen months," I said to a spokesman for the National Council of American Importers a few minutes after I had made my hasty inventory. "But what about the rest of this stuff? What's the story there?" The story is that we are witnessing a spectacular upsurge in imports of finished goods into the American market from lands throughout the free world, an influx which directly touches us, America's ordinary consumers, for the first time in our lives.

The over-all statistics on imports of foreign goods into our country don't tell the tale. In 1958 we bought from other coun­tries about $13,000,000,000 of goods, down moderately from 1957. Our purchases held up remarkably well considering the recession in the United States last year, but the total figure doesn't reveal what's actually going on.

The real story comes through only when you break down the total. A decade ago about 70 per cent of our imports represented raw materials, essentials we needed to buy abroad. Another 20 per cent represented our purchases of semifinished products, and only 10 per cent consisted of finished goods. Today our purchases of raw materials have slumped to 50 per cent of the total we buy from abroad. Our imports of semifinished products are up from 20 per cent to 30 per cent. Our purchases of finished goods—things similar to what our own companies turn out—have doubled to 20 per cent of the total.

It's happening because other nations in the free world are finally back on their economic feet and now have the factories, materials, and know-how to turn out products for sale abroad as well as at home. It's happening because we in this country have persistently nurtured their comeback with billions of dollars in loans and gifts, with a liberal trade policy, and with technical aid and exchange of know-how.

It's happening because many of the products other countries are sending for sale here are of superior workmanship and style and we, the consumers of America, like the workmanship and the styles. It's happening because many of the products also can be sold in our stores at prices comparing favorably with prices charged by American makers for the same things. "But price is not the key factor in lots of sales," emphasized one department store official I queried. "Quality and style are what the customers are responding to."

This revival of the economies of the West has been a prime objective of United States policy—but now that the imports of goods are skyrocketing, so are the complaints of American manu­facturers. The National Council of American Importers expects 1959 will be one of the roughest years since the thirties for sup­porters of free trade. "United States businessmen will be asking relief under the antidumping law," said my informant. "They'll be demanding relief via the escape clauses of the trade act. They'll be urging quotas on imports, even embargoes."

Putting up trade walls never has been an answer, though, and it never will be. The fact is we are no longer undisputed boss of the world's markets. We have competitors and some stiff ones. The almost overnight "internationalizing" of the pantry and closet shelves in my home symbolizes the birth of a new boom, a new cycle in world trade. There's room enough in this boom for all of us.

The huge imports of steel into our country during the prolonged steel strike of 1959 dramatized the import problem. But as the above report shows, steel is only a part of the story.

Are We Pricing Ourselves out of World Markets?—1960

A fallacy which shows dangerous signs of becoming folklore in our land is that our climbing wage rates are progressively pricing American products out of the world's markets—that, in short, because of our far higher wage levels, our products are less  and  less  competitive with  the goods  of  "cheap  labor" nations. Another fallacy which shows equally dangerous signs of becoming folklore is that our wage level is rising much faster than the wage levels of the major nations of Western Europe, and thus the wage spread between our country and European countries is widening and making our competitive position worse and worse.

It well may be that you believe these fallacies; they certainly are being publicized widely enough. But they cannot be sup­ported by facts. Rather, new statistics just brought out by world respected sources emphasize that wages in Western Europe are rising faster than in the United States and the likelihood is that they will continue to rise faster, thereby closing not widening the labor cost gap. Although Europe's wage levels are substan­tially below our wage levels—as they have been for generations-many factors other than wage levels decide the total cost of a product, and these other factors make it possible for a long list of products to be produced more cheaply in our country despite our higher wage rates.

These facts are underlined in a new study by the French Na­tional Institute of Statistics and Economic Studies and are con­sidered so "important" by New York's giant Chase Manhattan Bank that it is sending them in a report to all "United States businessmen considering investments in Western Europe." They surely will be of interest to you, too.

To begin with, the fact which is the basis for the fallacies about our problems in the world's market today is that our wage level is still so much above Europe's. Our hourly average of $2.68 compares with $1.08 in Sweden (highest in Europe) and with $.57 in the Netherlands (lowest in Europe). These comparisons include fringe benefits or social charges which, incidentally, ac­count for a much larger part of total labor costs in Europe than here. In Italy, for instance, social benefits account for 43 per cent of total labor costs.

In view of this central fact, how can it be argued that wages are not pricing us out of the world's markets?

(1) The hourly wage figures may often, as the Chase Man­hattan Bank puts it, "understate actual labor costs." Our workers can turn out more goods per hour because they have more equip- ment behind them and they are more effective than equivalently skilled European workers.

1. Other costs beyond wages must be considered—such as the cost of fuel, power, construction, and raw materials—and often these expenses are higher abroad than here.
2. The trend is toward a more rapid rise in wages in Europe than in our country. Between 1950 and 1958, the wage rise in six European countries averaged almost 8 per cent a year against about 5 per cent here. And European labor unions are tightening their organizations, building their financial resources, pressing harder for more pay and shorter hours.

What is hurting us in the world markets is not our always superior wage scale. What is hurting us is our lack of real selling, our inferior if not deteriorating servicing of our products, our unnecessarily tough credit demands, our complacent indifference to top-notch planning to compete with our alert, vigorous, ag­gressive European competitors.

To accept the fallacy that we're being priced out of the world's markets by our wage rates is to accept defeat. We certainly are not going to slash our wages, and it will be a long time before Europe's level reaches ours. The answers lie in our common sense and courage, qualities American industrialists are supposed to possess in abundance.

Our Own Competition

An American corporation which has been progressively dis­continuing its manufacturing operation in this country has at the same time been opening plants in Italy, Germany, Sweden, Brazil, Japan, and Australia. "What might be the effect on its employees," asks Fred Rudge, one of the country's leading special­ists in management-employee relations, "when in growing num­bers they discover that much of the 'foreign competition' their corporation is deploring comes from the corporation itself?"

The "Made in Japan" label is being criticized with mounting intensity by businessmen feeling and fearing imports from efficient manufacturers in this low-wage nation. "How are employees of these businessmen going to react," continues Mr. Rudge, "when they get proof that the 'Made in Japan' label is on an increasing number of products owned by United States firms?"

Subcontracting of work has been a critical issue in many union contracts recently. "Will employers find unions easier to convince on subcontracting as more and more production activities are shifted from United States plants to United States-based plants overseas?" persists Mr. Rudge.

On successive days some months ago two witnesses appeared at a Tariff Commission hearing in Washington, D. C. They ve­hemently argued opposite cases—but they represented two divi­sions of the same company! "Is it difficult to imagine," Mr. Rudge goes on, "how employees of corporations such as this are going to respond when they see the absurdities that can result from 'conflicting self-interests'?"

Rudge Associates is now conducting monthly surveys among more than a thousand hourly workers in six major industrial areas across the country for a selected list of corporations. I have just completed studying the texts and results of the first two surveys, which dramatize what Rudge hails as "the fabulous, revo­lutionary" changes in the thinking of American workers during the past couple of decades, their deep awareness of and interest in fundamental economic problems, domestic and foreign.

As one illustration, 82.5 per cent of those interviewed were in favor of United States economic aid to underdeveloped lands, but half recognized the programs have weaknesses which de­mand correction. A full 65 per cent believe the Soviet Union is waging economic war against the United States, but most think the United States is losing in the war.

On the question of foreign competition, though, the answers revealed distinctly limited knowledge. While half expect no ill effects on their jobs from foreign competition, more than half also favor higher tariff-quota barriers, indicating a concern deep within themselves which they didn't express on the surface. While many interviewed are employed by companies which have greatly extended their overseas production in the past ten years, almost none seemed aware of the extent and scope of American industry's activities and commitments overseas.

Foreign competition is a challenge facing American industry, and businessmen who urge unions to forgo benefits to help the United States compete "had better know their own policies and operations first," warns Mr. Rudge. "The workers we've inter­viewed represent the people who do the work of American in­dustry. The manager who thinks of wage employees as people who appear and disappear when shifts begin and end and whose thoughts are limited to wages and hours dangerously misleads himself."

The surveys emphasized over and over that the American worker is skeptical about private industry's ability to provide es­sential jobs in coming years, that he is not convinced by superficial house organ articles viewing with alarm the impact of foreign competition. He might be much less convinced when he gets some pertinent facts about the corporation.

This is a warning about conflicts which I think has been crying for expression. Perhaps many managers who need it will listen, since it comes from an expert who has for decades worked for and on management's side.

What the Gold Outflow Means to You—September 1960

Week after week, gold is flowing out of the United States Government's subterranean vaults to other major financial centers of the West. So far in 1960 our gold hoard has dwindled a half-billion dollars. Since the start of 1958 our reserve of the globe's most precious monetary metal has shrunk four billion dollars.

Our gold hoard is the foundation of the United States dollar, a key reason why ours is the greatest currency in the world today. Gold is the pivot around which all other currencies of the West revolve.

Today we have less than $19,000,000,000 left in our reserve at Fort Knox and in mints across the country, the lowest total we've held in more than twenty years. What's more, there are massive claims against our reserves. For, under our laws, around $12,000,000,000 must be kept untouched as backing behind our money. In addition, foreign nations have potential claims on the United States Government equal to the total hoard. There is no denying that our reserves are declining, there is no doubt that the outflow is causing concern both at home and among our friends abroad.

"Is this at last a dreaded run on, a flight from the United States dollar?" ask alarmed observers. "Is this a dollar crisis, a warning that the United States dollar is toppling from its position as the top currency in the world?"

Before writing one more word on this important story, I want to go on record with the flat statement that, as of today, the answer to each question is no! We are not witnessing a run on the dollar, a flight from our currency. We are not in a crisis of the dollar, and our currency is not toppling from its leading position.

But our country does have a disturbing gold problem—or more technically, a challenging "balance of payments" problem with other countries. If your family has ever persistently spent more than it has taken in and you have watched the claims against you mount, you can understand the position the United States is in. For some time now, our country has been spending more abroad than it has been taking in from abroad, and the claims of foreign nations against us and our gold have been building up.

Since the chaotic depression years of the early 1930s, owner­ship of gold money by private United States citizens has been illegal, and thus a whole generation has grown up with little understanding of the immense financial, political, and interna­tional significance of gold as a monetary reserve. But because you don't read or hear about our gold problem in everyday language doesn't mean that the problem doesn't exist or is going to disappear.

Here, therefore, I’ll try in question-and-answer form to explain the story simply.

Question: Why is our gold reserve so important?

Answer: For more than a quarter century, the United States Treasury has been committed to buy gold from any sellers at $35.00 an ounce and to sell it to foreign central banks on their demand at $35.00 an ounce. This has made the United States dollar and gold the primary mediums for settling trade transac­tions among nations. Also, under our law, the Federal Reserve System must maintain a minimum of 25 per cent in gold backing against Federal Reserve notes and deposits.

Our gold reserve, as a result, is our dollar's basic backing and our dollar is the Western World's basic currency. While inter­national gold and dollar movements may seem mysterious mumbo jumbo to most Americans, the way the sophisticated financial world views them was put coldly by Germany's Finance Min­ister Ludwig Erhard more than a year ago. "If the sun, the dollar, around which other currencies revolve, starts to move, which God forbid, the consequences for the West would be unthinkable."

The dollar is not starting "to move." The "unthinkable" con­sequences are not on the horizon. But we are in the red to other nations. Our deficit to other nations is a potential threat to us, an indisputable challenge which we must meet successfully.

Question: Could foreign claimants start a flight from our dol­lar, demand gold en masse, cause an "unthinkable" crisis?

Answer: It's conceivable, but that's all. First, only about half the dollar balances here belong to central banks, and these are the only sources that can get gold on demand. The rest is held by private sources and to get gold these would have to go through quite a rigmarole. Many wouldn't want to do it under any circumstances.

Second, so tightly is the West tied together financially today that only if the central bankers lost complete confidence in the United States dollar might they start a run and cause an inter­national crisis. They haven't lost confidence in the dollar. On the contrary, confidence is high.

Third, sophisticated financiers recognize that no bank keeps a dollar of cash on hand to match every dollar deposited, and the United States needn't do this with gold either. Britain's pound is strong, and yet claims against her amount to three and four times her gold reserve.

Question: Is this gold outflow new for us?

Answer: New for this generation. Through the prewar 1930s, most of the world's gold flowed to us for protection. After World War II, we were the globe's greatest producers and sellers of goods, and so critical was the shortage of dollars, gold, and goods elsewhere that under the Marshall Plan and other programs we gave and loaned tens of billions to help our friends buy our goods and rebuild their factories. We have worked for years to end the shortage of dollars abroad, help other nations regain their strength, and redistribute our gold.

Question: Why are we losing so much gold now?

Answer: Because our programs of rehabilitation and aid have been so successful and now other nations are able to compete with us in the world's markets as suppliers and producers. We still are selling abroad more goods and services than we're buying from abroad, but our other payments are so huge that we're running what is technically called a "balance of payments" deficit with other lands—meaning we're spending more abroad than we're taking in, and as a result, other countries are building up claims against our gold.

In 1958 and 1959 we went into the red by $7,300,000,000— and other countries took $3,000,000,000 of their claims in gold, kept the rest in dollars here so they could earn the interest the United States was paying on its short-term IOUs, particularly during the high interest months of 1959. In recent months the deficit has been running at a $3,000,000,000 annual rate. For even though our sales of goods and services abroad have been topping our purchases by a handsome $4,400,000,000, our spend­ing for military purposes, gifts and loans, our private investments in other countries, and other payments have slashed that export surplus to a total payments deficit of $3,000,000,000. This year so far foreign claimants have taken about a half billion in gold and kept a comparatively smaller amount in dollars here because interest rates in other key money centers have risen above ours and some "hot money" always flows to the highest paying center.

Question: What can and should be done to solve our problem?

Answer: (1) A first imperative is that we maintain world con­fidence in the United States dollar and prove our capacity to solve our payment problem.

Although central bankers are sophisticated "gentlemen" who realize that, if they precipitate a dollar crisis by draining our gold hoard, they'll precipitate a crisis of their own currencies, they might forget they are gentlemen and start a run if they really became scared about our dollar's strength. They would be shaken, they say, if we repeated our immense budget deficit of 1959— particularly shocking to them because it happened under a Re­publican President. Or, they say, if we tinkered with the in­dependence of our central bank—the Federal Reserve System— or if we pursued inflationary United States debt management policies.

Today the West's confidence in the dollar is high and is underlined by the fact that foreign claimants are building up huge dollar balances here even as they rebuild their gold reserves too. Top-level queries indicate central bankers have little fear of frightening developments under the new administration.

(2)        A second imperative is that we expand our exports of goods and services so we can earn enough more to offset our other spending.

This implies that American businessmen must intensify efforts to compete in world markets on the basis of quality, service, and price. The upsurge in our exports in 1960 proved it could be done.

It implies that other nations must lower and/or eliminate barriers against our exports so we can sell more. Those barriers made sense in the 1940s and 1950s when we were virtually the sole producers in the world. They are utterly unfair and harmful now.

It implies that we mightily step up foreign travel in our land.

It implies that we adopt more programs to stimulate purchases of our goods by nations to which we are giving aid.

(3)        A third imperative is that our allies take more of a share of the West's financial and military responsibilities.

Initial moves in this direction have begun but we know—and our allies also know—only a beginning has been made. Our allies have staged a powerful economic comeback, with our multi-billion-dollar help. They are in a position now to share in eco­nomic and military aid around the globe.

Our deficit is lower in 1960 than in 1959 or 1958. We are moving toward a more tolerable gap between income and outgo. But we have a lot further to go and the deficit is not going to disappear because we wish it would.

Gold is flowing out, but there is no run on our reserve. We have a payments problem, but there is no dollar crisis. Hard though the problem is, we're tackling it and I'm sure we'll solve it on and in time.

What the Gold Outflow Means to You—Now

The analysis which you've just read was originally in the form of three columns on the outflow of gold. After they appeared in September 1960, I was shocked and depressed at the volume of mail which tumbled into my office criticizing me for getting into a story "no one wants to hear about" and "going over the heads" of average Americans.

Then, as you read on page 97, in October the gold market in London exploded and, suddenly, the price of gold became headline news around the world. The drain on our gold reserves intensified and, week after week, the total of our gold reserves sank to a new post-World War II low. The question of whether the United States would raise the price of gold and devalue the dollar became part of the Presidential election campaign between Sen­ator Kennedy and Vice President Nixon. The Democratic candi­date was compelled to go on record with a suggested series of steps to meet the challenge of the gold outflow and with an unqualified pledge to protect the value of the dollar. In late November, Secretary of the Treasury Anderson and Under Secre­tary of State Dillon went on a mission to Bonn to ask the West Germans to take over a chunk of the cost of U. S. defense troops in Germany and by the very request to dramatize the extent to which the newly prosperous nations of the free world are still taking a free ride on the backs of U. S. taxpayers. From the White House came several executive orders designed to cut down ex­cessive spending of U. S. dollars abroad and to make the rest of the world aware that this country is carrying too much of a load of the West's financial responsibilities.

Now millions of Americans realize for the first time that we cannot continue spending billions of dollars more each year out­side our borders than we are taking in and remain solvent—and realizing this, we are determined to get our international accounts in order. Now we understand such technical phrases as "adverse balance of payments/' and understanding that this is a threat to our nation's strength we are ready to take the steps necessary to turn the balance from adverse to favorable. Now we know that even the United States—with its still huge gold hoard, great dollar, and immense resources—can spend itself into financial trouble and knowing this we are agreed that we must get out of trouble fast. Now we accept the fact that our allies have become first-class trade competitors and accepting this fact we are set to make ourselves a tougher competitor.

In late 1960, you and I, the American public, grew up, I think —left behind us the grandious, childish illusion that "I can do anything I want and I'm so powerful nothing can hurt me." In its closing months, the Eisenhower Administration initiated moves to bring our balance of payments into more tolerable balance, curb the gold drain, and defend the dollar; and since it has taken office, the Kennedy Administration has carried on and gone fur­ther. The details are on the front pages of our nation's news­papers and today there is no condemnation of a writer for "going over the heads" of average readers, getting into a story "no one wants to hear about." Now I can repeat with far more confidence than I had in September: "We have a payments problem, but there is no dollar crisis. Hard though the problem is, we're tackling it and I'm sure we'll solve it on and in time."

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