73. Memorandum of Conversation0
THE PRESIDENT’S TRIP TO EUROPE
June 23-July 2, 1963
SUBJECT
- Erhard’s Views on American Economy
PARTICIPANTS
- United States
- The President
- Mr. Lissance (Interpreter)
- Germany
- Vice Chancellor Erhard
- Mr. Weber (Interpreter)
The President opened by stating that he appreciated what Erhard had done for trade and to help Gov. Herter in Geneva. He then asked Erhard’s ideas concerning the balance of payments and monetary policy.
Erhard replied that he followed all aspects of the U.S. trade balance closely. This trade balance was not merely America’s concern, in which case it would not be his business to talk about it, but it was something of concern to the world monetary order. A policy of defense spending and simultaneous tax reduction seemed entirely appropriate provided the [Page 175] two together served not merely to increase consumer purchasing power but also had the effect of stimulating productive investment. He had closely studied American tax reduction plans, however, and had concluded that if they only encouraged consumer spending, they would not speed economic growth.
There is a rather strange situation that runs contrary to traditional economic views, Germany had an overboom, with a very lively market, a surplus, and continuing activity. In the same situation the U.S. had unemployment, a balance of payments deficit, and a good deal of unused productive capacity. Erhard thought we should increase the discount and interest rates. Such an increase need not at all paralyze investment activity, but would on the contrary stimulate it. Low interest rates did not produce the effect expected of them. His ideas about that and about monetary policy were embodied in a bill that he would submit to the Bundestag. He also stressed the need on the American side for a more active policy of influencing the business cycle.
The President noted that last year there was a deficit of $2 billion. Now it is cut by one-third, with investment down.
Erhard thought there were some devices which had not been used enough. He would have a discussion with the president of the International Monetary Fund. Erhard had proposed to him that nations should draw on the mark and not only on the dollar. Wider use of the Fund’s facilities would be useful.
The President commended Erhard for his helpfulness in connection with the dollar balance. If everybody wanted 100 percent gold cover, there just is not enough gold for that around. Raising the rate for money had been considered, but we must remember that when that was done before we got the recessions of 1958 and 1960. If we raise the rate now we might run into the same situation. He thought the tax cut would get things on the move.
Vice Chancellor Erhard wondered whether there were not certain powerful industrial and business interests in the United States who deliberately manipulated the American economy to perpetuate a high level of unemployment. Their rationale could be that full employment in Germany having brought about a situation where the labor unions pre-sented management with ever increasing demands, a level of unemployment such as the present level in the United States would keep American labor more tractable and keep production costs favorable for export. The President dismissed such a possibility by saying that these powerful industrial and business interests were not “smart enough” to carry out such a deliberate plan.
- Source: Department of State, Conference Files: Lot 66 D 110, CF 2275. Secret. No drafting information appears on the source text. Approved by the White House on July 22. The meeting was held at the Von Steuben Hotel.↩