58. Memorandum of Conference With President Eisenhower0


  • Secretary Anderson
  • Secretary Gates
  • Assistant Secretary Lennartson
  • Mr. Von Klemperer (Treasury)
  • General George Brown
  • Mr. Hagerty
  • General Goodpaster
  • Colonel Eisenhower

The President opened the meeting by discussing the joint State and Defense memorandum regarding continued military assistance to Italy, Belgium and the Netherlands.1 He discussed the effects of aid to these countries on our problem of balance of payments. He noted that in the State/Defense letter the amount of grant aid going to these three countries had been estimated at less than 5% of the total MAP costs. The Government and the nation must know that we are now in the process of taking the most austere measures to solve this problem of balance of payments.

Secretary Anderson said he had strong feelings regarding continued military assistance to Italy, Belgium and the Netherlands. He disagrees with the State/Defense position that aid to these nations does not affect our balance of payments. He took issue with the argument that balance of payments is not affected when we deliver matériel made in the U.S. He pointed out that sending matériel cuts down the market in which the U.S. would share. Secretary Anderson believes these countries should be made to pay for this equipment.

The President reminded the group that he had been preaching for eight years that we had been too easy with Europe. He pointed out that when he went to Europe as SACEUR in 1951 he had told everyone that the measures we were taking were emergency measures only. In this regard the President quoted the late Secretary Dulles as having urged him continually to maintain current force levels in Europe. Secretary Dulles had said that morale would collapse if one soldier were pulled back from the line.

At this point General Goodpaster read the draft directive to Governmental agencies regarding measures to improve the balance of [Page 135] payments situation.2 A discussion followed in which certain portions of this directive were revised.

Regarding the timing of the impact of the balance of payments problem on the U.S. economy, the President was of the opinion that we have had this subject under consideration for some time longer than the two years specified in the original draft directive. George Humphrey3 had been calling attention to this problem for some time before. Secretary Anderson said that the problem became serious in 1957, the year in which industrial plants in Europe were finished. He pointed out that the situation which had worried George Humphrey was so mild (consisting of a billion dollar deficit per year) he himself would be happy, comparatively, to live with a situation like that. The President directed that the wording be changed to show at least that we had been aware of this problem all the time.

The President showed concern over the situation of dependents overseas and asked how many dependents there are. Mr. Gates said there are 500,000. Mr. Anderson expressed his concern that the inevitable blow to morale might result in the onus being placed on the President. The President said this fact did not concern him and that morale will be all right if the proper leadership is exercised in the armed services. Secretary Anderson said we will have to work toward a goal of 200,000 dependents, or a reduction of 60%.

Secretary Gates said there had been approaches to this problem other than restriction on a strictly numerical basis. One approach would be to specify that only those dependents could go overseas who had Government housing provided for them. Another approach would be merely to stop the travel of any further dependents, without bringing home any which are already there.

The President expressed concern over the distribution of the 200,000 dependents. He is afraid that only dependents of generals and other high ranking officers will be allowed to go. He said that he himself did not worry much about morale of generals. In addition, generals’ wives spend more money than do those of the lower ranks. He would like to see the lower ranks favored in any provision for reducing the number of dependents overseas. Mr. Gates said that under current provisions all ranks above private and private first class are allowed to take dependents with them.

With the editing of the directive finished, the President stated his satisfaction with it as a document, describing it as a good piece of educational literature. He wondered how to put it out without frightening foreign banking circles. Secretary Anderson said there is nothing in this directive affecting the monetary field. The President said he [Page 136] would like to have it stressed that the regulation of the size of our gold reserve is a function of the Federal Reserve Board, which takes into consideration international as well as domestic factors.

Secretary Gates then expressed deep concern over the public relations impact of this directive. He predicted that the military services will kick up a severe fuss and will point out that dependents overseas contribute less to balance of payments deficit than procurement of military items overseas. This action will have a severe effect on our retention and enlistment rates. He is sure the dependents phase of this move will be taken out of context and will become a tough item politically; we cannot count on support from the armed services in this regard.

The President then described the situation in North Africa in 1942 when things were extremely bad. Ground movement was bogged down by mud and any planes flying were certain to be German rather than American. At this time, when morale was low, John L. Lewis4 had gone on strike to achieve wage levels from $16 to $20 a day. The President himself had received many questions on why troops were undergoing such hardships for $2 or $3 a day. The fact of the matter is that the regular Services are enlisted for service and not for personal gain. This means that we must convince people in the Services that we are now at war, and they must take that attitude. As an adjunct to the morale problem in the Services, the President said the State Department must cut down the number of people in their embassies. Since State Department is acutely aware of the balance of payment, it should realize the nature of the problem and should take the initiative in cutting down. Ambassador Whitney recently told the President that he has 1500 people in his embassy and predicted increased efficiency if this figure were cut 50%. Secretary Gates expressed doubts on the way the Services and the State Department would receive such measures, pointing out we are now a spoiled people.

General Goodpaster recommended that the wording regarding the State Department be made stronger since the wording in the original draft gave too much discretion. The President said he would like to see a report from each Ambassador as the head of the country team showing his recommendations for reduction of personnel in all agencies in each country. General Goodpaster explained to the President his feeling that the State Department should not be allowed undue leeway, as expressed in such terms as “without impairing.” He himself is sure there will be great repercussions to the cutback on dependents, and impairment of many of our objectives affected by this. There will be resistance to these measures from many quarters, including our allies, who are growing fat on the expenditures of U.S. personnel [Page 137] overseas. We will pay a heavy cost for this move, and the only justification for it is that the alternative to making this move would be the destruction of our monetary system. If people can be made to realize this fact, the realization may carry the day. He recognized the anguish which had been undergone by those who had planned this directive. The President said he is willing to accept this crisis, and to go ahead and do it. He himself will take the responsibility. The nation has only two months in which to impeach him. He reiterated that if the 200,000 dependents are provided for those in the lower grades, morale will be OK. Mr. Gates said this would mean that nobody would be allowed to go abroad in the next year and a half if we are to effect the 60% cut. The President agreed that the wording regarding the State Department must be made tougher, despite Secretary Anderson’s statement that both Secretary Herter and Secretary Dillon had asked him over the phone not to touch State.

The President said that the State Department must be thinning out automatically with all the new embassies they are creating. He knows of no increase in personnel of the foreign service. Just that day he had received three requests for new embassies, which requests he had turned down. He had specified that money can be saved if these offices remain legations. To top it all, these locations are behind the Iron Curtain.

Regarding implementation, Secretary Anderson suggested that this directive be followed up with letters to Treasury, Agriculture, State, and other departments with personnel overseas. The President expressed his belief in the primary responsibility of the Ambassador in each country, but would agree to having letters also sent to each department.

Secretary Anderson said that the impact of this directive might be lessened if it is pointed out that our actual balance of trade in the world is still satisfactory. This is a measure which applies to areas of activity in which the U.S. can act unilaterally. The United States is the country which stations forces overseas, which runs PXs and commissaries overseas, and which indulges in the extension of soft loans. These things should be pointed out. The President agreed and said we should emphasize that these actions are being done completely within the purview of the President himself and apply to activities where the U.S. acts uniquely.

Secretary Gates again expressed his worry over the President’s personal position. Should this directive turn out to create a major issue, Senator Kennedy will consider the issue a great advantage to himself. Mr. Gates compared this situation to the bank holiday of 1933 and said the Democrats could ride this white horse for the next twenty years. They will point out how Democrats had had to straighten out the errors of this Administration. The President said perhaps they are [Page 138] correct. Perhaps we should have faced up to this matter a year earlier. We are, however, going along with the least of the evils. We can’t afford to let our monetary system break down before Mr. Kennedy is even sworn in. He told Mr. Anderson to discuss the balance of payments problem on his visit to Europe, particularly with de Gaulle and Adenauer. Mr. Anderson said he would, and said he would ask Adenauer for $650,000,000 a year as payment for keeping our troops on their soil. Drastic action is necessary there. If we undergo another six months comparable to the last six, our gold cover will run out. We are down to almost $18 billion now and speculation in banking circles is that we will devalue the dollar once our gold reserve reaches $17 billion. This, of course, we will not do.

The President pointed out that this problem should not be new to the American people. Secretary Anderson had gone on TV and the President himself had mentioned it in a speech. Secretary Anderson recommended that we get the word to the Kennedy Administration as soon as possible. We can talk to Clark Clifford5 between now and departure time on Saturday.6 If Clifford will not respond to our efforts to make contact with him, Secretary Anderson recommends that the President call Senator Kennedy and talk to him. He himself had outlined the entire problem to Senator Fulbright.7 Senator Fulbright had expressed the opinion that it is high time to pull forces out of Europe and to cut the number of dependents. Senator Fulbright had offered to suggest to Senator Kennedy through Senator Johnson8 that somebody from the incoming Administration go to Europe with Mr. Anderson. The President said he would speak to General Persons right away to get some wheels in motion to inform Senator Kennedy’s group. He said we should put the directive out Wednesday or at least before Secretary Anderson’s departure. Furthermore, we should notify General Norstad9 so that he can prepare himself for the reaction in Europe.

Secretary Anderson recommended that the document, having been very carefully worded, be allowed to speak for itself without elaboration by any spokesman. Mr. Hagerty said the document has to speak for itself because few people understand it.

The discussion then turned to the Soviet action on the value of the ruble. Its value on the world market is actually $0.25. This, however, is reduced to $0.10 for persons travelling within the USSR to encourage the spending of foreign exchange in that country. On paper, the Soviets [Page 139] recently raised the ruble by a factor of 10 to make it $2.50. Yesterday they reduced this on paper to $1.10. Apparently the purpose of this last figure is to maintain Soviet prestige by carrying the ruble as slightly more valuable than the dollar. This does not affect Soviet foreign trade, since for those purposes the ruble is valued at current market prices.

Secretary Anderson then recommended that any questions on details of the Presidential directive be directed toward the Treasury Department rather than toward the White House. Mr. Hagerty10 recommended that some advance preparation be made for this jarring news, and the President said that we could report on today’s meeting as one in which measures were being prepared affecting balance of payments.11 General Goodpaster showed the President an article in which the Austrians had emphasized the importance of future U.S. policy regarding confidence in the dollar and had said the future policy is more important than the amount of gold which we carry in our banks.

Secretary Anderson, at the close of the meeting, said that Senator Javits12 had recommended we offer to invite Senator Fulbright to observe, but not participate, in our discussions on this subject overseas. The President approved this idea.

John S. D. Eisenhower
  1. Source: Eisenhower Library, Whitman File, DDE Diaries. No classification marking. Drafted by Assistant Staff Secretary to the President John S.D. Eisenhower.
  2. Document 267.
  3. See Document 59.
  4. Secretary of the Treasury, January 1953–July 1957.
  5. President of the United Mine Workers of America.
  6. President-elect Kennedy had designated attorney Clark M. Clifford, formerly Special Counsel to the President under President Truman, as his representative for liaison with the outgoing Eisenhower administration.
  7. November 19.
  8. Senator J. William Fulbright of Arkansas, Chairman of the Senate Foreign Relations Committee.
  9. Vice President-elect Lyndon Baines Johnson.
  10. General Lauris Norstad, USAF, Supreme Allied Commander in Europe.
  11. James C. Hagerty, the President’s press secretary.
  12. For text of a statement by Anderson released after the meeting, see the Department of State Bulletin, December 5, 1960, p. 864.
  13. Senator Jacob K. Javits of New York.