71. Memorandum From the Chairman of the Council of Economic Advisers (Stein) to the Under Secretary of the Treasury for Monetary Affairs (Bennett)1
- Memorandum for the President on Gold2
It seems to me that on a subject as important and esoteric as this the President deserves to be given a description of the pros and cons of the proposed course of action, rather than a single recommendation. You would know better than I what the cons are, but at least the following points might be mentioned:
- To inject an operation of such uncertain magnitude and impact into the present nervous economic and political situation may be unwise, and if that can be deferred it should be.
- There are people who will think that the sale of gold is the dissipation of our last patrimony.
- There are less primitive people who think that we should preserve our gold stock for sale against the possibility that the Europeans might try to fix a price of gold.
I think the memo should mention that we don’t have the foggiest idea of the amount of additional gold American citizens will want. It should also point out that the budget effect is essentially arbitrary, and neither economists nor anyone else will consider that reducing the deficit by selling gold has the implications usually associated with balancing the budget. The anti-inflationary effect, recognized to be small, might be trivial and result from the sale of Treasury gold, not from the removal of restrictions on private U.S. ownership. In fact, the memo is confusing on that point: it seems to suggest that the budget effect and the anti-inflation effect are connected with the removal of the restriction.
I doubt that we should say that we plan to make sales in "amounts roughly comparable to the new investment demand in the United States." We don’t know how much that is. I think we should say that we will sell some, and I think we should do it, but I think we should keep a free hand about the amount.[Page 259]
(I assume you have verified that gold sales reduce the deficit.)
Subject to these comments I concur in sending the memo to the President, although I think it would have been good procedure to have a meeting on the question.