188. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1

Mr. President:

Here, as we understand it, is what Bill Martin found out and will report to you.

With respect to a change in the price of gold, the British and Dutch are inclined to flirt with this option. The Germans are wobbly. The Italians, Belgians and Swiss are strongly against.
He achieved agreement on the statement2 and the willingness to back the gold pool with $500 million, with another $500 million contingent. (At the rate the market in London is going, this will only last a matter of days.)
The Europeans realize that we all may face soon some quite unpleasant choices; but they are not clear about what these choices are and what will be required of them if we are to hold the system together. They are prepared to close down the London gold market and let the free market price of gold float. What they have not thought through are the terms of the intimate collaboration which will be required to make that kind of system work—especially how to deal with the consequences of a two-price gold system.
In the light of this situation, Treasury, State, Federal Reserve, Council of Economic Advisers, and White House staff people have been driving all day, at Ed Fried’s insistence, to get in shape an operational scenario of the kind that is attached.3 The essential object of the scenario would be to get certain minimum essential commitments from the other members of the gold pool before the closing of the gold pool was announced. On this basis we could proceed in reasonable order to a monetary conference.
We do not yet know Joe Fowler’s or Bill Martin’s personal views of this particular scenario. But we will be presenting it to them either late this evening or tomorrow morning.
It emerged from the Basel meeting that the U.S. tax bill and the austerity of the British budget of March 19 are absolutely critical factors. Joe Fowler and Bill Martin have been working Mills over hard on this point. They are also talking to the Republican Policy Committee this afternoon.

My own feeling is that the moment of truth is close upon us; and we shall have to convert some such scenario into action within the next few days.

  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. V [2 of 2], Box 3. Secret; Sensitive. A typed note at the top of the source text reads: “7:00 p.m. meeting with Bill Martin.” No record of this meeting has been found.
  2. Reference may be to the communiqué issued by the Bank for International Settlements in Basel on March 10, in which the central banks contributing to the London gold pool reaffirmed “their determination to continue their support to the pool, based on the fixed price of $35 per ounce of gold.” For text, see The New York Times, March 11, 1968, p. 60.
  3. This untitled paper, not printed, appears to be an early draft of what became a longer and more elaborate paper attached as Tab A to Document 190.