Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

30. Letter From John Kenneth Galbraith to President Kennedy⁰

Washington, August 28, 1963.

Dear Mr. President: This is the first of two papers that I am sending you on the balance of payments problem.

1. The companion paper is concerned with problems and remedies.¹ This deals with the more serious question, as I measure matters, of how to handle the problem. There is at present no mechanism for enforcing the continuing action on the wide front that the problem requires. Since I must speak frankly about persons and departments, I plead that this particular memorandum be held in strict confidence.

2. The heart of the matter is that for everyone concerned with the balance of payments problem it is subordinate to another concern. For the Council of Economic Advisers, it is subordinate to the domestic economy. Tobin, although his views were not typical, was perilously close to the conclusion that there is no problem at all. Other members, in fighting off measures which were considered, in my view quite correctly, to have a bad domestic impact, failed to develop a solidly affirmative position. All economists unduly emphasize international liquidity, which is a fashionable conversation piece of the economists’ union. The State Department, though it suffers from the effect of a weak balance of payments position on its bargaining position, is primarily concerned with protecting trade, troops and aid. The Commerce Department views the trade balance largely as an opportunity to get more money for trade promotion and foreign tourist travel. These are negligible in their possibilities. The Treasury has responsibility for the problem as a whole, but until recently its sacred cow has been the capital market. Even now, the checking of long-term capital outflows, and the stopping of avenues of escape around the proposed tax, is being handled in a highly unwilling way.

The picture is not entirely black. Bob McNamara has made a loyal and substantial effort to ease the problem. On the dollar-saving side, his is the only area of substantial achievement.

Now as to remedies. Something over a year ago I urged you to set up a Cabinet Committee to have jurisdiction over this problem and to be responsible for its solution.² This hasn’t worked. It has been a place where those responsible have sought to shift the buck. There is no further hope for action here.

I gather you have been sufficiently pressed as regards the Treasury and Dillon. The Treasury hasn’t done well. It waited too long on long-term capital movements. It is subject to the banker syndrome, which is to foresee disaster but prefer inaction. However, the Treasury cannot exercise real jurisdiction over the other Government Departments. The latter will always find it easier to organize against Dillon than to follow his lead. An appeal to you is inherent in the situation, so the problem comes to your office in any case.

Accordingly, I see no alternative to better organization of the Executive Office for continuing pressure and action. This means, I believe, that you must have someone of stature, fully seized of the seriousness of the problem, who will do in this critical matter what Bundy does for you on foreign policy and Sorensen on domestic policy. (You might reflect that nothing in the areas they so competently now cover is as important as the balance of payments, yet neither can function with real confidence on this issue.) Such a solution will cause sadness in the Treasury and the Council of Economic Advisers. But every President since Roosevelt has had to have an economist or economic figure who was his man to help him in combatting the excessive parochialism of departmental policy. (Currie served Roosevelt in this way, David Bell so served Truman, and Randall and Gabriel Hauge so served Eisenhower.) The man is all-important. Carl Kaysen, who is perhaps the ablest all-around economist in the country, is unfortunately susceptible to the economists’ union. As a result, he is overly impressed by the international liquidity escapism. In any case, you need someone full time. I suggest that, whatever the implications, you attach Charles Hitch to the White House Office for nine months for this job. He is highly intelligent, has a pragmatic view of the issue, takes it seriously, and you can rely completely on his judgment. He would act largely through you, but he would command respect as your adviser. This need not be a permanent assignment. He need stay only until the present bleeding is decisively reversed.

As I argue in the accompanying memorandum, the present trend can be reversed. It is this, as well as the urgency of doing so, that leads me to urge that the powers of the President be decisively engaged.

Yours faithfully,

John Kenneth Galbraith³

0. Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold. Personal; Secret. Galbraith, who had been succeeded by Chester Bowles as Ambassador to India in July 1963, was serving as a consultant to the White House.
1. Reference presumably is to Documents 31 and 32.
2. Not further identified.
3. Printed from a copy that bears this typed signature.