40. Memorandum Prepared in the Department of the Treasury0

Memorandum on Letter of L. W. Douglas to the President of November 25, 19581

The main thesis of the letter is that the United States has had a persistent trade surplus with the rest of the world and since “we are an extremely protectionist nation”, it is desirable for the United States regularly to pay more dollars to foreign countries so as to enable them to cover current transactions and service on debts without impairing exchange stability. It suggests the possibility of creating an institution “to export dollars on public account” for foreign aid and the economic development of the less-developed countries. This institution would receive permanent appropriations from Congress and would distribute the aid without the necessity of annual review.

The argument of a chronic dollar shortage must be considered in the light of facts in recent years. Since 1950, U.S. Government grants and capital investments abroad, plus private investment, have provided more dollars than were needed by foreign countries to cover their deficits with the United States on goods and service account. (See table attached.)2 In this period foreign countries as a group have consistently gained in their holdings of gold and dollars. In fact, since the beginning of 1950 the gold and liquid dollar resources of foreign [Page 96] countries have more than doubled, from $15.5 billion to $31.5 billion, and in addition there has been substantial foreign investment in the United States private sector.

The countries of Europe in particular have in the last nine years nearly all emerged with strong balance-of-payments situations, and have increased their gold and dollar reserves. They have not merely been able to finance their own import requirements, but are now also in a position to finance increased exports to less-developed areas and to contribute increasingly toward economic development in such areas. There are individual exceptions, such as France, whose situation continues unsatisfactory. Also the United Kingdom, among others, temporarily encountered serious balance-of-payments difficulties during the Suez crisis.

The less-developed areas of the world are, of course, in a different situation. These poor and financially weak countries have import demands in excess of their foreign exchange earnings. Programs of economic development require capital imports, and, in addition, many of these countries have had inflationary difficulties which have added to their current balance-of-payments problems.

The balance-of-payments difficulties of these less-developed countries and of individual developed countries like France, however, are not essentially a dollar problem. These difficulties reflect a general inadequacy of foreign exchange earnings not merely of United States dollars, and the whole problem of economic development is a broader and wholly different question from that envisaged in earlier discussions of the so-called “dollar gap”.

Programs of military aid, economic aid, and assistance for economic development must be considered on their own merits in terms of the political and economic objectives sought. The form of these programs and the amounts of funds provided for them must be adapted to these objectives and not generally to distribute dollars abroad as a means of financing a non-existent “dollar shortage”.

The balance-of-payments problems of the less-developed countries have usually little direct relation to United States commercial policy, though there are exceptions such as the countries exporting lead and zinc. Many of the exports of the less-developed areas are either duty free or subject to relatively low tariffs. In addition, the industrialized countries of Europe have in recent years become increasingly important, relatively to the United States, as a factor in world demand for the commodities exported by less-developed countries. It also should be noted that the U.S. Government has for a period of 20 years been engaged in a program of reducing trade barriers through trade agreements, GATT, and other measures, and the level of duties is a fraction of what they were years ago.

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The proposal to establish an institution with permanent appropriations to provide dollar assistance without the necessity of annual Congressional review raises serious questions which must be adequately considered. While the annual review procedure may involve some difficulties in planning programs of economic development, it may be argued, on the other hand, that since expenditures for economic assistance programs are so large and the character of these programs is changed from time to time, Congressional review is essential not only to protect the public purse but to maintain popular control over an important area of government activity. This problem is now being given serious attention in the Administration.

  1. Source: Eisenhower Library, Whitman File, Administration Series, Anderson, Robert B. No classification marking. The memorandum, unsigned and undated, is filed with a covering letter of December 8 from Anderson to the President, which also comments on an inquiry by the President concerning the result if the Soviets were to raise the price of gold.
  2. The letter from insurance executive and former Ambassador to the United Kingdom Lewis W. Douglas, dated November 25, is not printed. (Ibid.)
  3. Not printed.