Leon H. Keyserling Oral History Interview, May 19, 1971

Notice
This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.

Numbers appearing in square brackets (ex. [45]) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.

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This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.

Opened January, 1975
Harry S. Truman Library
Independence, Missouri

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HESS: All right, Mr. Keyserling, what would you like to start off on this morning, what comes to mind?

KEYSERLING: I think I would like to start with some further remarks on economic policy and my relationship to it during the Truman administration. I covered that in part, let us say through the first year or so of the Korean war. I would like to say a little bit more about that and then carry through to the end of the Truman administration.

I don't think I need to say any more about the matter of domestic economic policy as it was made manifest in the so-called Fair Deal programs. I don't think I need to say any more about my participation in that in three roles: as Vice Chairman and then Chairman of the Council of Economic Advisers; as a member of the group that met at the Wardman Park for quite a while; and the third role, as a sort of a drafted member of the President's White House team in connection with speeches and messages and other things of that kind. I think I've covered that fully.

Now, coming to the economic policy matter, I also said that the really great issue that arose at the beginning of the Korean war was the balance between trying to finance the war out of diversion of resources, as against financing

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the war out of economic expansion. I think the greatest single decision made, both in its immediate importance and its long-range importance, was the decision to go for a program of very large; economic expansion. This involved a very hot battle within the administration, and one which was won completely by the growth people for the first part of the Korean war. I think that my initiation and participation in that was about as large as that of any one individual could be in influencing policy.

Now, that had great significance because if we hadn't expanded the industrial base as much as we did, we would not have virtually overcome inflationary threats and they had been virtually overcome before the Chinese entry. In other words, assuming a war of the size that was contemplated before the Chinese entry, prices were virtually stabilized by late 1950 before the Chinese entry. In view of the Chinese entry; it was not only fortunate but almost miraculously fortunate that we had undertaken the great economic expansion, because otherwise the greater efforts imposed upon us by that war would have distorted the economy tremendously. And third, counter to the claims that a great period of economic expansion would have left us with great unused resources and higher unemployment after the Korean war was over, that never

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happened partly because we continued a high defense program even after the Korean war. But on the other hand, the defense program became a very much smaller part of our total national production after the Korean war, for a while, so that there was a greatly reduced sustaining force behind the economy in the form of defense outlays; and yet we not only came through the period immediately after the Korean war, but to have come through the whole period to date with minor recessions to be sure, but no really large sustained economic downturn by conventional tests, which proved that the great expansion during the Korean war was an asset not only during that period, but in all the years to follow. We've had a much higher standard of living; a much more rapidly rising standard of living; a much greater capacity to support the defense burden, because of those decisions. Later on, as I shall show, this expanding economy idea had a great and new effect upon economic policy after the war was over on until today.

Now, the second great issue in the early stages of the Korean war, was the question of controls, about which there was a good deal of confusion. My view was never against controls, but my view was that obsession with controls at the expense of economic expansion and at the

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expense of developing a complete comprehensive machinery for the organization of all economic policies, or really effective mobilization, would have been very unfortunate. We certainly learned that during World War II. There was at the start of the Korean war so much pressure for controls at the expense of all else that I felt that I needed to emphasize the other issues. So the imposition of controls was somewhat delayed, while these other things were pushed forward. I still think that was correct, although it may be that it was delayed a little bit too long. But there again, we have the factor of the unexpected Chinese intervention, because but for that, the controls never would have been needed, as was shown very clearly by developments during the period of the war before the Chinese intervention. Before that intervention, the strain on the economy was really very small. So we won that battle.

Then when we came to the matter of the ultimate imposition of controls, I switched over, so to speak, and was for the imposition of stronger and firmer controls that were, in fact, applied, especially in that I didn't favor upward adjustments of prices. I was not successful in that. There were upward adjustments of prices, and the control machinery, after it was confirmed and put into full motion, was by no means as tight as I thought it

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ought to have been. But I would say that broadly speaking and in the main my views, which the Council supported on economic policy, were fully supported and vindicated.

The story toward the latter part of the Korean war is entirely different, because later on I learned, both through my participation in the meetings of the Cabinet and of the National Security Council, and in the fact that I undertook personally rather than through staff representation, to participate in the meetings at the top staff level on the so-called NSC papers--and let me say again, that while all that was top secret then, I don't see how it could be top secret in 1971, so I have no hesitancy in talking about it. The sentiment gradually developed that we needed to abate and reduce the pressures of the war effort. This was in a sense a natural, though unfortunate, development, because the pressures of the businessmen as usual gradually reasserted themselves. This was to a degree due to General Electric Charlie Wilson as Mobilizer; it was due in part to the fact that even General Marshall was very, very responsive to the thinking of important business groups on matters of economic policy; and this was as much true or more true of Robert Lovett when he succeeded Marshall as Secretary of Defense; and it was also true of others who strangely have become in turn heros

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first as hawks and then as doves, such as Paul Nitze, who was in the picture, I think as an Assistant Secretary of Defense. So toward the latter part of the war during the Truman administration, there was the development of this great movement toward so-called defense cutback or reduction. I was very much against it.

There was no need for it on economic grounds, and the proof of that is that by the middle of 1953 the economy was in an absolute recession, which lasted from '53 to '54, which shows that we were moving toward operations far below our capacities, and never again resumed an adequate rate of economic growth. The period of '53 to '60 was marked by a terribly low rate of economic growth on the average, and by three recessions. It certainly proved that after the end of the Truman administration, we had gone far below tailoring our exertions to the requirements of the economy, but were far too low.

I would be the last to argue that we should have maintained defense outlays merely to support the economy, because there are better ways of supporting it, and defense outlays were always wasteful in an economic sense. They're not undertaken to be economically constructive, but I do say that a political judgment or an international judgment to cut back on defense outlays was made very substantially

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for economic reasons, which turned out to be highly erroneous and which I was almost alone in insisting was erroneous at that time. I also thought, although it wasn't particularly my business, that it was erroneous from the viewpoint of international policy, because I always regarded the Korean war as a demonstrative war.

I think I coined that term, and I meant that once the greatest power on earth decided to resist aggression, it had to make a demonstration; it couldn't allow itself to be tied by a very minor infinitesimal power if you didn't count the Russians, or even if you counted the Russians. We couldn't afford to be tied; and we were tied at best. Saying that we were tied is a euphemistic discussion of the ending of the Korean war and my own views that if we had done better we might have averted some of the troubles that occurred thereafter. In any event, our original entry was based on the thesis that we would make a demonstration of strength in excess of what we showed. So I thought it was wrong.

Be that as it may, I lost that battle, and we lost it for a variety of reasons: One was the people on the other side, whom I've already referred to; the second was that I had almost no supporters. It's hard for me to think of any. Theoretically at least, the closest I

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came to having support was from Averell Harriman, and I thought we had it entirely, but I remember that when we got to a rather critical Cabinet meeting on the subject, he was surprisingly quiet.

This brings me to the more general reappraisal of why the Truman administration did what it did in the earlier period and to what extent they were really sold on expanding economy arid on some of the other positions. As I've said, I think that President Truman was completely sold on the general idea of economic growth and American power, and our ability to meet our obligations; but I cannot say that I was ever fortunate enough to have at any time, the kind of understanding and support and breadth of support which I think existed, let us say for the policies of the Kennedy economic advisers or the Burns economic advisers for the most part in their tenure.

Burns had support because he really, by and large, represented a middle-of-the-road Republican position, generally speaking. The Kennedy advisers had it because they had come in after great discontent with the failures of the economy in the immediately preceding years, and they had it partly because of the fight that had been made for acclimating the country with the importance of economic growth which I had been counting on throughout

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the Eisenhower administration, as well as earlier. I never had that degree of consensus at any time.

It was always a hard battle; it was a hard battle initially because the Council was divided on how it should behave. I didn't have the advantage of the President deciding that matter, so I had continually to deal with a division within our ranks under very difficult circumstances. And the later developments to which I referred, show that the people who had supported me earlier probably were influenced in part by the obvious political attractiveness of an economic growth program as a basis for selling the feasibility of the traditional extension of the New Deal liberal Democratic programs, and that later on, when the going got very tough, and the divisions increased, they hadn't really got it, because if they had really got it, I don't think they would have reversed as completely as they did. So it is sort of a mixed picture.

I think a great mistake was made, and even if it wasn't a mistake from the viewpoint of international policy, it was a mistake domestically because it laid the foundations for the seven years of very poor economic performance between 1953 and 1960, although, of course, you can't blame administration too much for what happens seven years thereafter, because the new administration always

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has the chance to correct, and the Eisenhower administration instead of correcting, compounded the evils.

Now, another evidence either of the backtracking or of the lack of understanding as I saw it, was on the monetary policy. Nobody was more sincere and more earnest than Truman in opposing the great changeover in monetary policy represented by the Treasury-Federal Reserve Board accord, which emerged in 1951-1952. He was against it; he didn't believe in it; he even called in Mr. [Allen] Sproul of the bankers and read the law down to them; but somehow it caved in.

The first evidence of it caving in was when Truman appointed a committee at a very late date of Charlie Wilson as chairman, and me and Martin, who had gone over as chairman of the Federal Reserve Board, and John Snyder, as a committee. In the first place, it's indicative, and I don't say this out of any personal affront, I should have been chairman of that committee rather than Charlie Wilson. I knew more about the subject; it was logical that it should be the Chairman of the Council of Economic Advisers who had the broad viewpoint, but somehow Truman never overcame that feeling that Charlie Wilson somehow would carry.

That's why he had brought Charlie Wilson in at the

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beginning. Even though he wasn't too much of a success during World War II, he felt that Symington was good enough to be Mobilizer before we got into trouble, but when we got into trouble, you had to have a statuesque figure like Charlie Wilson.

Well, Charlie Wilson as chairman of that committee was a joke; he knew nothing about it; naturally he was under the influence of the financial community and attached a great deal more weight to the views of the Federal Reserve System, and there was really a sellout of the Truman position.

Now, it would be very unfair to Truman to say that he sanctioned that sellout. He was certainly disappointed by it; he may even have been flabbergasted by the results; but to a small degree, at least, it was his default, and to a considerable degree it was the default of the staff people around him from Clifford right on down, who never took a great interest in this vital problem, and never gave me the means of making any real battle on it against the three other members of that committee.

HESS: Do you think the White House staff members understood the economic implications of such a move?

KEYSERLING: I don't think they did fully. I don't think

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they did fully.

Now, one final reason why it was not easy to be Chairman of the first Council, and I say this only because of the comparisons that were made between our Council and others: People don't realize today how much harder job the first Council had than later Councils. As I have said, the division within on what it should really do and stand for was unique, and any organization of that kind in its early years runs the animosity of suspicion of the other Cabinet people, because insofar as you are doing your job, you must supersede them to a degree. If you're not going to supersede the Secretary of the Treasury on tax policy to a degree, and the chairman of the Federal Reserve Board on money policy to a degree, and the Secretary of Agriculture to a degree, then the Council really means nothing. But to do this in early years is very, very difficult. It required a great deal of diplomacy and maneuver, and I think it is amazing that we did it to the extent that we did; and I can point only to the history of earlier organizations which had attempted to do anything of that kind, such as the old National Resources Board, which came to an early demise for these very reasons. It was abolished by the Congress.

HESS: You mentioned several of the departments just now.

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What was the attitude of some of the Secretaries of those departments when you would try to overrule them on a measure that they thought they had priority on? Let's take John Snyder, Secretary of the Treasury.

KEYSERLING: I never had any outward clashes with them, and in the early years we usually prevailed, and I think it was done by good handling. I think I mentioned earlier that Truman said to me after one Cabinet meeting, he said, "You've taken over Snyder and Sawyer, lock, stock, and barrel. They're among your warmest supporters."

I said, "Well, I did it by selling my shirt."

And he laughed and said, "Oh, no, you didn't do that at all."

So I never had any fracases with them and no outward conflict. But it was a problem.

Now, the other problem was the position of the outside economists, and this has made itself manifest even in later years in the appraisal of the first Council. It came as a tremendous shock to the academic fraternity when I was made vice chairman of the Council and later made Chairman, really for a very simple reason: How could it be possible that anybody that didn't have a piece of paper with Ph.D. written on it could have been selected, could have been qualified to hold that position. They

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never got over it; they still haven't gotten over it.

HESS: Did you find it a handicap that you did not have a Ph.D.?

KEYSERLING: Of course not, except in this sense. How can it be a handicap? I had majored in economics at Columbia; I had done two years of graduate work in economics after I got through law school; I had taught economics at Columbia; I had written a text book in economics at Columbia, which my name didn't get on and was published by Tugwell; I had come into the Government, and as of the time I was appointed to the Council in 1946, I had had thirteen years of experience, which none of them ever had, and still haven't had the equal of in wrestling with the actual economic policies of the Nation, and the creation and the formulation of our origination of some of the most important legislation that effected the economy.

And yet, they are so provincial and so astigmatic and so prejudiced that if instead of that I had stayed at Columbia those thirteen years and written an essay--incidentally, every one of the twenty-three studies that I have put out by the Council of Economic Advisers since I left the Government, is more comprehensive and more original than the average Ph.D. thesis, not to speak of

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my testimony up on the Hill and everything else. But if I had stayed at Columbia and written an essay on bimetallism in Spain in the 16th century and gotten a Ph.D. for it, and for thirteen years had taught by routine a course in trade regulations, reading the same notes every year, then they would have regarded me as a qualified economist. The whole thing is ridiculous, but there was that kind of thing, and I didn't need them particularly, but it does explain.

HESS: Were there times when someone who had a Ph.D. in economics may not have cooperated with you as fully as you would have liked?

KEYSERLING: No, no, almost all the members of our staff were PhDs. The other members of the Council were PhDs. Among the members of our staff who were Ph.Ds., there was none who wouldn't admit, if he was candid, that he had more to learn from me than I had to learn from him, and that there wasn't any element of lack of experience or knowledge on my part because of this fetish. But this was another factor, and this was one of the factors in the agitation.

Let us remember as another evidence of the difficulties, that although Truman was very fast in appointing second

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ranking men to the top job when there was a vacancy, I mean, when Jim Webb left the Budget, Frank Pace was appointed almost overnight; and when Frank Pace left the Budget [Frederick J.] Lawton was appointed almost overnight, and this was Truman's general rule. And yet, Nourse left in the middle of 1949...

HESS: His resignation was in October of '49 and I believe that you took over in May of '50, is that right?

KEYSERLING: Yes.

HESS: That's almost six months. What was the reason for that delay?

KEYSERLING: Well, first of all, it wasn't due to any doubt on Truman's part. Truman told me almost as soon as Nourse left that he was going to appoint me, and he didn't offer the job to anyone else, although there were stories to that effect. But I'm merely citing it as a fact that it was most unusual in view of the kind of service I had rendered, and the way I had helped Truman in so many ways, and the job I had done which everybody in the White House knew, really, in organizing the Council and getting it going, establishing its organization, establishing its policies.

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It was really rather unusual that I was put through the unpleasantness of having to wait five or six months to get my appointment. I merely list these things to indicate the difficulties that the first Council encountered.

Now, despite that--and there are many reasons why an economy does well besides the Council of Economic Advisers--but despite that, you read these books analyzing the various Councils, they cover all the gossip and all the stories, and the way books are usually written, somebody comes to Washington and has interviews with everybody who worked with anybody, as if you were recruiting a public relations officer. None of them has bothered to examine the actual record made by the respective Councils, which I did. You may say it's self-serving, but I did it in answer to an article, and all the facts are verifiable, which shows that the Truman Council during its seven years made a better record on economic growth, a better record on restraining price inflation, a better record on balancing the budget, a better record on meeting our national priorities; or by any criteria, made a better record on reducing unemployment than any Council since. It's there. Maybe that's partly because we didn't spend so much time advertising ourselves, or telling the public how much we had educated

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the President, and all that kind of stuff. But that carries through the story as I see it of what happened during the years I was on the Council.

Now, I suppose another important thing, although it gets a little bit beyond the Truman period, is the effect of what we started during those years and how I carried forward on it during the eight years of the Eisenhower administration upon subsequent Councils. I can't claim to have had much effect on the Eisenhower Council, although it is verifiably true that they really followed our formal pattern. They didn't make much change in the pattern of the economic reports; they made changes in the policies. They veered gradually toward our concept of dealing with the Congress. Burns got away from it in a kind of slippery way, but Saulnier came back to it, and so has everybody since.

I've already reviewed fully the story about the allegations that the Congress deprived us of funds, which wasn't true. To the contrary, they came to our rescue in a most unique way, and I was never required to furlough anybody. But that was used as an excuse for getting rid of six or seven absolutely top rank economists as soon as Burns took over, who incidentally were PhDs. Some of them had worked for him in the National Bureau of

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Economic Research. That hasn't been fully understood.

It is also true, that one can go with a fine toothed comb through the reports, majority and minority, of the Republican and Democratic members of the Joint Economic Committee, and one will find that the Republican members dissenting from us on economic policy, there was no criticism of our Council during our years, except by a few people who weren't even on the Joint Economic Committee, like Congressman Phillips, who introduced the resolution on the House floor to cut our funds. But there was no criticism of us ever by the Joint Economic Committee. Our relationship with them was very harmonious throughout, whether it was under the Republican chairmanship of Taft, or the Democratic chairmanship of O'Mahoney. Burns did get into hot water with the Council because of his refusal to testify, or his insistence that if he testified, it had to be off-the-record, and he was, in fact, reprimanded explicitly for that in the majority report of the economic committee, I believe when Douglas was chairman. We never had that kind of difficulty.

Now you come to the subsequent Councils, beginning with the Heller Council. The only thing I want to say about them--now I've been critical of their economic policies, but that's really foreign to this--but let's

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examine only the extent to which they picked up what we had done. First of all, take the idea of economic growth.

There had been almost no interest in American economics in economic growth, even Keynesianism deals with a static economic system. That interest was developed entirely during the Truman administration, and more specifically, developed over the next seven years all over the country so that even Ken Galbraith when he wrote an article about Keynes in the New York Times a few years ago, said that I had added the whole subject of economic growth. This was generally recognized. I had done study after study talking about the national economic deficits, to draw the distinction between the economic deficit and production unemployment which is much more important than the deficit of the Federal budget. The very first thing the Heller Council did when it came up in its very first address to the Congress, was to pick that up and to use it throughout, but instead of calling it economic deficit, they called it economic gap. Well, it's the same thing. Deficit was a little better term, because in contrast it's two kinds of deficits, but I don't care about the terms. They picked that up, and it was their whole theme throughout just as it was the theme of Kennedy during the campaign of 1960, the economic growth, lag and the need for picking it up,

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both for domestic and international reasons.

Second, the matter of full employment surplus, the idea that you should set the budget when you were far short of full employment, not so that it would balance, but so that it would balance the full employment. This is specifically emphasized and developed quantitatively in a number of the Conference in Economics Progress studies that I made between 1953 and 1961 when we were urging the administration to do just that, to increase spending and reduce taxes so as to balance the budget at full employment. That was picked up later on.

War against poverty: The Conference on Economic Progress reports began to emphasize that from '53 forward; and in 1962, our Poverty and Deprivation in the U.S. was the first major study, real economic study, of the whole problem of poverty. Kennedy became interested in that, and our 1964 study, "Progress or Poverty," has become the standard and the most widely used study in this field; and furthermore, I made very extensive criticisms of the original war against poverty on the ground that it was scattered all over the lot with thousands of programs, and that the Council of Economic Advisers really should have analyzed the situation and come up with one or two strategic programs to deal with it; and the theme you see running

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through all these studies of poverty that I made in speeches and articles and congressional testimony was that the two main things are jobs and payments to those who can't work, which are now just beginning to emerge in the idea of the Federal program of supplementary employment, and a nationwide system of income supports.

Inflation: Going all the way back to '49 and continuing throughout, I was the first to point out that there wasn't really a positive correlation between the amount of inflation and the amount of employment, which hasn't been accepted yet even though time after time after time during the Eisenhower administration and most conspicuously during the last five years, you've had the most vivid demonstrations of the fact that when you deliberately reduce employment and production to stop inflation, the inflation gets worse. I think I reviewed that at the beginning. And of course, we (by "we" I mean the work that I did and those who agreed with it), we still haven't been caught up with on the policy of tight money and rising interest rates, because while the Kennedy and Johnson administrations backed and filled on it, they usually offered a rationalization; and the final item was balance of payments, where our position from the beginning was that it was an exaggerated issue, that it really needed to be straightened out through changes

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in the international monetary system, but otherwise you'd have crisis after crisis, and that if that were straightened out, the United States needed to and ought to run an unfavorable balance, because it ought to be there to invest if somebody has to be. So that about rounds out my impression of the Truman administration and the history during those years, and the effect that we had after.

HESS: All right, I have a few points. Some of these are on points that we have raised this morning, and some are on points that we raised in our first two interviews, but regarding Mr. John Snyder, he and Charles Sawyer were considered two of the leading conservative members of the Cabinet. Would you agree with that?

KEYSERLING: Yes.

HESS: Just what is your opinion of the degree of expertise of Mr. John Snyder in the field of banking and economic matters?

KEYSERLING: Well, first let me say that I never crossed swords with John Snyder or with Charlie Sawyer. We got along well; I have an intuitive knowledge that they were among the forces delaying my appointment as Chairman, although they finally favored it; but I also know that later on as

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Chairman, I got along with them very well, really because as to the Fair Deal program, and as to the early Korean war program, the President just, for the reasons I've stated very fully, was won over to our side and there wasn't any point in carrying on the battle.

I would regard John Snyder as an honest, hardworking, wily, small-town banker. That's about the way I would describe him. I think that about covers it..

HESS: All right, on the Defense Production Act of 1950, which, of course, is one of the measures taken after the invasion of Korea, Edward Flash in his book said that you and Benjamin Caplan helped to write the President's address to the American people that was given the day after the signing of that Act. Do you recall helping to write that speech?

KEYSERLING: I helped on so many speeches in so many connections, that I cannot remember them one by one. It certainly sounds right. I helped on many of them, particularly anything that dealt with economics.

HESS: Well, this dealt extremely heavily with economics, of course, and the President spoke of increasing defense spending from fifteen billion, which was intended before Korea, to thirty billion, by June 1951. Do you happen

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to recall where the figure of thirty billion was obtained?

KEYSERLING: No, no, I never attempted to decide or to advise what the size of the defense budget should be. I always maintained that I couldn't contribute very much to that, except in a broad way, and except in the way of advising against cutbacks on economic grounds, and pointing out what the economy could afford. In line with my philosophy and position, I would have had no way of thinking that I was competent to participate…

HESS: To pick a figure.

KEYSERLING: ...to pick a figure as to whether it should be thirty or thirty-two or twenty-eight. What do I know about weaponry, of course?

HESS: Did you think the economy could afford that rate of expenditure?

KEYSERLING: My position was to analyze the significance of that figure in terms of the economy, and it was not simply the passive saying we could afford it, it was the development of economic expansion and other measures, including taxation and so forth, not only to--it's not enough to say, "We can afford it," but "What should we do if we accept it to minimize the short-range and long-range

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impact upon the economy upon taking the other measures." Because there is no one absolute figure as to what the American economy can do, anymore than there is one absolute figure as to what a big business can do. What you can do depends upon your exertions, upon your values, upon your planning, upon the vigor and correctness of your policies. Nobody would have thought that we could do what we did during World War II, but we did it, and we did much better during the Korean war than the people who said inflation was a greater danger to us than Stalin thought we could do.

HESS: And you mentioned that the Korean war was a demonstrative war. It did not end in a victory for the United States. What could we have done differently in handling the matters in Korea? Do you think the President should have relied more upon the advice from General MacArthur?

KEYSERLING: No, because that involved not only the intensity of the effort, but the geographic extension of the effort, and I'm not prepared to pass judgment on that. I am simply saying that fighting where we were fighting, we did not bring the force to bear that we could have brought to bear without extensive strain and through more effective mobilization, and through a larger commitment than we made.

HESS: Why was the decision made to fight in such a limited

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manner? Were you in on discussions at the White House, or with the White House staff at this time when it was decided?

KEYSERLING: No, I couldn't be in on the techniques of fighting the war. I was in throughout on the question where smaller rather than large allocations were agreed upon, on the ground that the additional strain upon the economy would be too great, and these I vigorously resisted, successfully in the earlier stages, and not so in the later stages. I really think that in the later stages, the Truman administration was winding down. It was up against a lot of difficulties; the President was a lame duck President; it was tired; it was under attack; it was sort of winding down.

HESS: You didn't have the feeling that he was keeping things going hoping to turn them over to another Democratic President?

KEYSERLING: I just don't think the record during the last year or so was as good as it had been earlier, for whatever the reasons may have been.

HESS: All right. We have mentioned the New Deal several times, but just a quick question: As someone who wrote a

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good deal of the New Deal legislation, do you see the Fair Deal as a continuation of the New Deal, or was it an attempt to establish a separate legislative program?

KEYSERLING: Well, the change in names represents, I suppose, the desire of every President to have his own. You have the New Freedom of Woodrow Wilson; the New Deal of Franklin Roosevelt; the Square Deal of Theodore Roosevelt; the Fair Deal of Harry Truman; the New Frontiers of John Kennedy...

HESS: The Great Society of Lyndon Johnson.

KEYSERLING: Yes. The term "new" and the term "deal" seem to have been reiterated in different combinations. But the Fair Deal was an extension of the New Deal. The Fair Deal, for the most part--and in fact, all of the Democratic programs since, really, have not been so much innovating as extension of the boundaries of existing New Deal programs: Social Security; help to those in need, and so forth and so on.

The one really innovating factor, which I have covered fully, is expanding economy and economic growth. That was the one really new thing. And the effort through the Employment Act, although never fully achieved, to get a consistent, overall, and comprehensive unified

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economic program directed towards specific long-range goals--in other words, the picking up of the World War II experience for use in relative peace time. This was the one, big innovative factor, economic growth and "planning under freedom," you might call it, a name that hasn't been nearly fully enough exploited. The planning idea was never fully understood. The idea that the employment act of the economic report should be made the basis of the reconciliation of all the great Government programs under common goals. Agriculture was left out, even Social Security and housing never really entered into the economic reports that became more or less concentrated upon the one feature, such as, usually, fiscal policy or tax policy. But the concept of a round and complete, integrated economic program of a policy rather than policies has not been accepted, and this is tragic. And I attach it substantially to the fact that increasingly the Council has become the province of academic economists who just don't think that way. This is reflected in the way economics is taught at the university. You have a course in trade regulations, a course in banking, a course in labor problems; you don't have anything that approximates the general overview into any comprehensive, unified approach to the whole problem of the economy.

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HESS: Well, one general question regarding your overall view of economics. For the last one hundred years or so, the school of economic theory of many economists was laissez faire, to let alone; and now we are moving more towards Government control. At this point in time, would you personally advocate a higher degree of Government control of operation and industry than we have today?

KEYSERLING: Well, it depends on what you mean by control. For example...

HESS: Ownership and management.

KEYSERLING: Oh, no, I've never advocated that. No, I have never advocated that; I have never advocated that the Government build plants, or that the Government run the steel industry, or even that the Government run the railroad industry. No, I have never advocated that.

HESS: Which they may do by default.

KEYSERLING: They may have to. I have advocated the improved execution of those programs which the Government has to do anyway, and nobody questions that the Government has to do, and I have said that if the Government managed its tax policy and its money policy and its Social Security policy and its housing policy and its welfare policy, and

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its international economic policy successfully and creatively, directed towards long-range goals, this in itself is a large enough armory of weapons to accomplish very satisfactory results.

HESS: One very important topic that we should cover is your working relationship with the Bureau of the Budget. What would President Truman have done if he had received conflicting advice on the same issue from the Bureau of the Budget and from the Council of Economic Advisers? Whose advice would he have taken? How would that have been resolved?

KEYSERLING: Well, first of all, there's a little background. First of all, before the Employment Act was passed, the Bureau of the Budget covered the function that was given to the Council of Economic Advisers. In other words, they thought that a Council of Economic Advisers should be a unit in the Bureau of the Budget. Now, this should have been clear then, and it certainly ought to be clear by now, was completely upside down, because national economic policy is not a sub compartment of the Federal budget policy; in fact, it's just the opposite. Federal budget policy is a component of national economic policy, and in some ways there are other economic policies outside the budget,

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for example, Social Security, housing, that are tremendously important, monetary policy. Despite that, we didn't have any conflicts with the Bureau of the Budget--and here let me say another thing that hadn't come to my mind before. When Burns took over, in addition to his furor about how he revived the Council, or re-established the respect for it, cleaning out all of the people...

HESS: Cleaning out the cobwebs.

KEYSERLING: ...he proposed certain legislative reforms, that a great deal of agitation was attached to that amounted to nothing.

First they got legislation to abolish the office of vice chairman. Well, that didn't mean a damn thing, because neither the chairman nor the vice chairman nor the member had more than one vote, or shouldn't have had.

Second: He got legislative authorization to set up certain inter-departmental relations. Those had been developed completely thoroughly and effectively during my tenure, a series of consultations between the Council and the Budget, between the Council and the Cabinet, between the Council and the Federal Reserve. They were all in effective, high-geared operation all during my tenure, and even while Nourse was chairman. You had to

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have them and you did have them.

When we prepared an economic report, the first thing I would do would be to send it to the various Cabinet members, not to the Postmaster General or the Attorney General, but to those concerned with economic affairs. Then I would talk with them about it. We would arrive gradually at a more or less common viewpoint. If there were any differences, I don't recall whether they came over to our viewpoint, or whether we had to submit these differences to the President.

Now, we had a parallel to this at the staff level. We had an inter-departmental committee on economic roundup, by which you meant forecasting, to which I designated a member of the Council staff. The member of the Council staff almost invariably served as chairman. The Budget was represented on it; the Treasury was represented on it; the Labor Department was represented; the Commerce Department was represented. We had a committee on stabilization policy. In other words, I had a highly organized group of working committees within and without the Council, and I have in my files all memoranda developing these and setting them forth: On stabilization policy; on roundup, which was forecasting, and on other subjects. We then created approximate facsimiles of these, running

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throughout the Government departments interested in economic policy. We had inter-departmental committees, headed by, usually, a member of the Council staff. I didn't sit in on these as Chairman of the Council; I operated at the Cabinet level. So that even before we drafted a report, we had gotten the benefit at our staff level and at their staff levels, of the thinking of all of these different agencies. Then the staff would usually prepare a first draft of a report in accord with my outline. We would discuss it with the members of the Council, get the joint view of the three members of the Council. I would usually draft the last draft of the report, which was the first draft really, the first complete draft. I would then send that to the Cabinet members; I would get their views; I would revise it; then it would go to the White House; then the President would usually go over it with the Council; then there would usually be a going over of it in a Cabinet meeting where he would read it. So, we had complete coordination all the way through.

Now, with the Budget Bureau, it went even beyond that. The Budget Bureau would ask from us, very early in the year, a so-called resume of the economic outlook and program or needs, as the basis for the thinking about the budget themselves. Then in the process of preparing the

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budget, they would make use of that, and it would be the subject of discussion in this inter-departmental committee that I have described. We would be informed as to the progress of the budget at various stages; therefore, by the time the budget was in its final form, and the economic report was in final form, they had proceeded more or less simultaneously.

There would be some issues where we were more advanced than the Budget; for example, suppose you wanted to spend more or have the President recommend the spending of more on some of the big social programs in the budget. We usually had our way on that, because the President usually adopted what we now denominate as the Fair Deal program. Certainly on tax policy, the Budget didn't hardly intrude on that. We, broadly speaking, developed the tax program for the President, in consultation with the Treasury to be sure, but we really developed that, and as of the time that Nourse left and he was succeeded by Roy Blough, whom I had recommended, Roy Blough was brought over from the Treasury where he had been really their top expert in tax policy. So we had him right on the Council.

HESS: So you did have pretty good cooperation within the Government?

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KEYSERLING: Very much so.

HESS: Good. How would you evaluate the four gentlemen who held the position of Director of the Bureau of the Budget during the Truman administration: Harold Smith, James Webb, Frank Pace and Frederick J. Lawton?

KEYSERLING: Well, as I recall, Harold Smith held it for a very, very short time, because Webb was appointed at the same time as I was, which was in the middle of 1946. So, I couldn't make any particular evaluation of Harold Smith.

As to the other three, I would not be prepared to distinguish very much between them, except that Lawton was more of the career service type, and Webb and Pace were more of the outsider brought in at the top, having other ambitions of moving on to other jobs.

HESS: Did you have pretty good cooperation with these gentlemen, though, when you were Chairman of the Council of Economic Advisers?

KEYSERLING: I had good cooperation, except as I said, that during the early days, when Johnson was Secretary of Defense and the big economy drive was on in Defense, and when there was a big dispute over whether President Truman could safely increase the Defense budget, and

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when he finally sided with us, and when Nourse and I had one of the few differences we had on economic policy, at that time, I guess it was Webb, was very much on, what we came to call, the conservative or the economizer side. And Frank Pace I would classify on that side also.

Fred Lawton was more of a technical man. I don't think Fred Lawton was very assertive on policy.

HESS: I may have already asked you, but what part did political expediency play in Webb's trying to hold down the budget. Do you think that they were trying to balance the budget for a favorable political stand in 1948?

KEYSERLING: I would have no way of knowing. I would assume that Webb, in principle, was a conservative.

HESS: One other question on the Bureau of the Budget: As you know, Mr. Truman, each year, when the Bureau of the Budget's budget was ready, he would take it before the newsmen for a press conference and seemed to know what was in the budget, he seemed to have followed it very closely; do you or do you not think that Mr. Truman understood the workings of the Bureau of the Budget better than he did the Council of Economic Advisers?

KEYSERLING: I would say yes, in the sense that it was a more

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conventional thing, that he had been thinking about it longer, but economic policy is somewhat different from budget figures, and that Truman had a great aptitude for detail and for study, and the budget figures. Now, after all, what he discussed with the newsmen was not so much the philosophy of the budget, or the really ultimate questions as to why the budget was the size it was in terms of economic policy, but he really mastered the details of how much he was allotted for this program or that one, and why he had decided one figure as against another, and he knew that well enough to show up extremely well in the discussions with newsmen, which, after all, doesn't usually go very deep, because the President has the advantage, whatever he knows, of knowing an awful lot more about it than the newsmen who are asking questions.

HESS: When you were working on the economic report, did you coordinate your activities with the people who were working on the State of the Union messages? Work on those was probably going on at the same time.

KEYSERLING: It had to be consistent. After all, they had to be absolutely consistent. In final analysis, the Budget message, the economic report, and the State of the Union message had to be absolutely consistent. For one

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thing the State of the Union message summarized the economic program as well as the international program and every other program. Now, the one thing that I did insist upon successfully, was that the economic report be sent up before the budget message, because it was my view that budgetary policy stemmed from economic policy, rather than vice versa. During my time, the economic report was sent up first. I think now the Budget message is sent up first. They had to be consistent.

Now, granted that they had to be consistent, and I have described the process whereby they became consistent, I did not in any way participate in the drafting of the Budget message. I participated very actively in the drafting of some of the State of the Union messages, because they gave more of the tone and the plane and the philosophy and the pitch, so I was involved in some of those to a considerable extent.

HESS: Do you recall if you worked on the 1949 State of the Union message, in which Mr. Truman used the words, "Fair Deal?"

KEYSERLING: I know I helped on it.

HESS: How are those worked out? Just through many, many

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drafts, and many, many conferences?

KEYSERLING: They go through many drafts. You see, something like the State of the Union message was probably sent to Cabinet members for comment, and since the Chairman of the Council was ranked as a Cabinet member, it would have been sent to me. But I usually got in on it much earlier than that, through the second of my two relationships, which was working with the White House people: Clifford and Murphy and Bell and those others, independent of being Chairman of the Council.

This was one of the things that during Nourse's time he didn't like very much; but, really, it wasn't my undercutting him. He wasn't prepared to do it. He wanted to be disassociated from the administration. The administration was entitled to look anywhere it wanted to in the Government to get help in the preparation of a message of this kind; and so, partly in consequence of the Ewing group and otherwise, I did it; Nourse knew about it; I talked to him about it; he never raised any explicit objection; he hardly could, but I suppose it was a source of uneasiness.

HESS: We have mentioned several times the subject of White House-congressional liaison, and your view of testifying

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before the committees, but in Dr. Nourse's book he mentions the fact that you took an active part in the legislative liaison between the White House and the Hill.

KEYSERLING: Only on the economic report...

HESS: Only on the economic report.

KEYSERLING: ...and on related matters.

For example, my first testimony was in the summer of 1948, before the Senate Banking and Currency Committee, when they held their great hearings on what to do about inflation. I occasionally appeared before other committees when it was an overall matter relating to the whole economy. But, offhand, that's the one instance I can think of. There were some others. Finally, my representation of the White House was as the trustee for the economic report, just as the Secretary of Agriculture was the trustee for the President's farm program.

HESS: You did not involve yourself in other legislative programs that they may have had going on at the same time. Just to throw out a couple of names here, but in 1949, two men were brought in and given the title, "Legislative Assistant to the President:" Joseph Feeney and Charles Maylon. Did they give you any assistance?

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KEYSERLING: No, because you've got to distinguish between two types of congressional liaison men: The friendly type and the substance type. Now, I suppose, without any derogation, when you think of Kennedy's main legislative man, Lawrence O'Brien, I would say that broadly speaking he was the friendly type; in other words, he didn't testify before committees on substantive legislation. He was the contact for the purpose of talking with Congressmen, seeing where they stood, bringing presidential pressure to bear upon them, and I'm not saying this as criticism; it's a necessary function in the same sense, really, that Corcoran was an assistant to Roosevelt. It was really in this same kind of area.

This is an entirely different area from representing the President on the Hill in a substantive exposition in defense of his programs. I didn't go and talk to Congressmen about why they should support the President, or what project they could get if they did, and what project they might not get if they didn't, or what judgeships were in the offing, all of which is legitimate. I didn't report back to the President on how Congress stood on his program. I was up there as a recognized expert in my field, making my argument to the Joint Economic Committee on why I favored the program and filing of the economic report,

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and the analysis of that, and testifying mostly on the Council's reports which were very much longer and which were submitted separately in the same volume.

HESS: Do you think Mr. Truman might have had more success in getting more of his legislative program through if he had had more people of the Larry O'Brien type, shaking hands, slapping backs, on the Hill?

KEYSERLING: I have no way of guessing that, but you've got to think of the sweep of American history. Now, to look at it frankly, Roosevelt in 1936 gained his greatest popular victory. He carried forty-six states. But from 1937 forward, he was almost paralyzed on his legislative program. The only big legislation that I recall that he got after that was the Wages and Hours Bill of '38, and he got that after a terrific fight by a very small margin. But really, his great legislative successes on the domestic field were in his first term. By the second term, it had sort of run down.

This has usually happened in American history, it happened with Theodore Roosevelt, it happened with Wilson, it happened with Jefferson; it almost invariably happens, even if the President runs a big victory. And partly it happened as some of the members of the Congress, including

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Truman, shifted from an all-out New Deal position to a sort of a middle ground position, represented by the Jimmy Byrneses, and Senator Hatch of New Mexico, and Senator Minton of Indiana, and many others who were neither in the Dick Russell conservative group nor the Wagner liberal group, shifted over to a middle group, but it sometimes supported the President and sometimes didn't. Roosevelt's power had practically run out by the end of his first term, and it was the war that revived it, and it is sometimes said that he lost his influence because of the attempted purge of the Supreme Court. I don't think so. I think it would have happened anyway.

And furthermore, I think the Court packing scheme was one of the crowning victories of his whole administration. He lost the war and won the battle. My God, the same Supreme Court before he put a single new member on it, the first man he put on it was [Hugo] Black, but before he put Black on the Court, they had completely reversed themselves over the whole range of Constitutional law. They had declared unconstitutional the Guffey Act and the Agricultural Adjustment Act and the NRA, all on very narrow grounds, and then they turned around and upheld the Social Security Act, and upheld the National Labor

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Relations Act, which went further in the direction of regulation of commerce and trade relations within states than the NRA had gone. Hughes led a complete reversal of the Court, and that's the way they beat the Court packing plan. No Court packing could have got more than Roosevelt got in 1937 when the Wagner Act was declared constitutional, and the Social Security Act was declared constitutional, before a single new judge was put on the court.

HESS: Did Leslie Biffle, who was Secretary of the Senate, have any influence on White House-congressional liaison?

KEYSERLING: Well, Leslie Biffle, was not a policy man. Leslie Biffle didn't have a policy idea in his head. Leslie Biffle was immensely active on the Senate floor as Secretary of the Majority. I think he was one of the eyes and ears of the President; I think he was very alert; I think he was very helpful to Truman as a reporter to him on what people were doing and where they stood.

HESS: A head counter.

KEYSERLING: Yes.

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HESS: Did he ever give you any assistance?

KEYSERLING: I wasn't in that field. I wasn't attempting to get votes in that sense.

HESS: One question about your handling of the committee staff itself. I understand you did not hold formal staff meetings, is that correct?

KEYSERLING: No, it is not correct.

HESS: It is not correct?

KEYSERLING: It is not correct.

HESS: Did you hold formal staff meetings?

KEYSERLING: Well, let's get down to what you mean by a "formal staff meeting." If you mean did I do what Dr. Nourse did, hold a meeting of the whole staff and spend two or three hours in all kinds of discussion, I did not.

HESS: Sort of a Brookings Institution type of operation.

KEYSERLING: Exactly. I didn't hold those kinds of seminars. I broke the staff down into a series of committees. Now, after all, you've got to recognize that it's a small staff. We only had fifteen to twenty people.

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All right, suppose I had my committee on the economic roundup, which might have had five people on it; Fred Waugh was chairman of that. I had a committee on economic stability and policy, maybe five people; Gerhard Colm was chairman of that. I had some other committees of that type. I didn't have four committees each with five people. Maybe I had five or six committees, and there was overlapping among the committees. So I didn't hold a meeting of the whole staff. I held my meetings regularly with these committees, they were formal meetings, to develop work programs. Then I had a sort of committee for the economic report or a coordinating committee, which was composed of the chairman of these committees, and it was they that I worked with mostly when we came to the writing of the economic report. And then from time to time I maintained a very close connection with each member of the staff separately, by calling and talking to them from time to time.

You know, it's very similar to the evolution of the Cabinet. I predicted at the beginning of the Kennedy administration that the Cabinet was going to become a less and less important institution. Just what do you do at a Cabinet meeting? What has the Postmaster General or the Attorney General and the Secretary of Agriculture

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got in common? It's a purely formalistic thing. The President has to break it down into functioning groups: The Bureau of the Budget is a group; the Council of Economic Advisers; the National Security Council, which is a subcommittee of the Cabinet, is a group. Those are groups that he can work with and do something with. He can't do anything in a Cabinet meeting.

The same thing applies within the Council, to hold a meeting of the whole staff, they're not all working on the same thing. I may have, on rare occasions, had a meeting of the whole staff, just for general accord purposes or exchanged some ideas or talked about the economic report when it was in its final form, but not usually. But the other meetings were very formalized meetings. In fact, the organization was a very tight organization.

HESS: Fine. While we're discussing the staff, we won't go down the entire list, but could you just tell me the strong points of some of the various members and the particular contributions that they may have made? Let's start with Gerhard Colm, what comes to mind?

KEYSERLING: Well, Colm was the ranking member of the staff, in fact, in my estimation.

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HESS: He did not have the formal title, chief of staff, but did you more or less treat him as one?

KEYSERLING: He wanted the title of chief of staff, and I would never give it to him.

HESS: Why?

KEYSERLING: Because I didn't believe in rubber stamp heads of agencies. I believed that I was chief of staff, and that's the way I functioned. Chief of staff for a staff member would really imply that the top people of a small organization, namely your Council members, or your Council chairman, was a sort of a rubber stamp, wasn't much interested in the subject, and wasn't working very hard on it. But working the way I was working every day, longer than any member of the staff, giving all the assignments, going over everything in detail, writing the final draft of the reports, I was the chief of staff.

HESS: You wanted to keep your finger on every pulse.

KEYSERLING: That's right. And second, under all the circumstances, grading him, making him chief of staff, would have not gone down too well with other members of the staff. Now, even so, his abilities and the extent to which I used him, and the fact that he was the chairman of the

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most important of the subcommittees or committees, meant at times that he was first among equals on the staff; there wasn't any friction on it, but even so, some of the members of the staff felt at times that Colm was getting too much. I suppose you always have that in an organization, but it never broke forth into anything. It was much better that way than if I had made him chief of staff.

HESS: Do you recall any particular contribution that he may have made to the Council?

KEYSERLING: Well, it's hard to recall a contribution of a man who was there for so long and worked so hard and was in on everything. His main, unique contribution, I guess, was his technical experience with the Nation's economic budget in the sense of knowing the intricacies of budget terminology, different kinds of accounts, the difference between the cash budget and the conventional budget and all those kind of things. His expertise dealt with finance and Government accounting.

HESS: Benjamin Caplan.

KEYSERLING: Benjamin Caplan was most distinguished in the field of price and wage policy, and I believe--you know,

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it's a little hard for me to remember--I think he was chairman of the committee on that subject.

HESS: John C. Davis.

KEYSERLING: Davis was specifically in the labor relations field.

HESS: Walter Salant.

KEYSERLING: Walter Salant was in the international.

HESS: Robinson Newcomb.

KEYSERLING: Robinson Newcomb was in construction.

HESS: Frederick V. Waugh.

KEYSERLING: Agriculture as I said, and he was also head of the roundup committee on economic forecasting.

HESS: Edgar M. Hoover.

KEYSERLING: Edgar M. Hoover was in business investments.

HESS: And two people who I don't believe were economists, Bertram M. Gross.

KEYSERLING: Gross was the administrative director, sort of an executive secretary or a chief administrative officer.

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HESS: Chief statistician Frances James.

KEYSERLING: She handled the gathering of some of the statistics and the making of charts and things of that kind. You see, I wouldn't remember at this length so precisely what these people did, if I weren't so closely connected with their work. I remember in detail just exactly what they did, and it's eighteen years or more for most of them.

HESS: Did you play any particular role in the development of the implementation of the three major foreign policy moves of the Truman administration: The Truman Doctrine, the Marshall plan or point 4?

KEYSERLING: The Marshall plan certainly, because the Council was assigned the specific task of preparing a report on the economics of foreign aid, and we did prepare that and it was given to the public. It was prepared by the Council.

HESS: One brief question about the moderate recession that we had in 1949, in the midyear economic report of 1949, the following phrase appeared, "A moderate downward trend characterized most phases of economic activity in the first half of 1949." As far as I could find, that's

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about the first official indication of the recession that began to appear in 1949. We may have already covered it, but what steps did you take to counter the recession in 1949?

KEYSERLING: First of all, the economic report in mid-1949 contained explicitly the forecast that the recession would not last very long, and the recovery would shortly set in, and it is true that recovery did set in before the advent of the Korean war. The Korean war started in the middle of 1950, and certainly during the first half of 1950, and by the second quarter of 1950 a definite recovery had set in.

The Council was criticized for not acting more promptly on that recession by proposing big measures. This again shows the lack of perspective, because after all, when you consider that the Kennedy administration got in in January 1961 after seven years of very low economic growth and three recessions, and got in at a time when unemployment was very high, and didn't really propose really any big measure until the tax reductions of '63, proposed in '63 and enacted in '64, they waited more than two years before they really did anything large.

Another item at this point: I can point out that during the Nixon administration, it is only within this

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year 1971 that Nixon declared and articulated the purpose of reversing the restrictionary policy and adopting a vigorous and expansionary policy, although the growth rate had averaged very low for five years, and although we were most recently in a recession, it wasn't until his fiscal 1972 budget that he proposed moving in the opposite direction. Now, the Nixon budget doesn't really do that, but that's a separate question.

So, my Council really waited a relatively short time, because in January 1949, the situation was still ambiguous, and late in 1949, improvement was definitely under way. Now, I come to the next thing: although we only waited a relatively short time, there was some criticism to the effect that we were to hesitant. You very seldom hear that criticism repeated now, because people have a better understanding of how short a time we waited, compared with how long other administrations had waited under more adverse conditions for a long time, but this again illustrates my point that we were the first Council; we were the first group and we were expected to push a button overnight.

Let me say this: This is another indication that I moved out ahead of the administration and took great risks in doing so, and one of my criticisms of subsequent chairmen

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is that they have been too much "yes men," and tried to guess what the President wanted. The evidence of that is that in 1949 I promoted a so-called [Representative Brent] Spence Bill for economic expansion. In other words, I was moving out ahead of the administration, and it almost got me into very serious trouble. I might have been fired, because I remember the point where I was advocating that and agitating it and making speeches about it.

HESS: Did you ever hear any reports from the White House that you may have been moving to far ahead of the administration?

KEYSERLING: Oh, yes. Clifford called me and said that--I was scheduled to talk to a group of businessmen in New York--and Clifford called me and said, "The Boss thinks it would be best if you didn't go and make that talk." And, of course, I made an excuse and called it off. I wasn't prepared to fight the President on the Spence Bill, and I was really a little bit out of line, but I merely cite it as an illustration, both for the fact that I did get out of line, and of the fact that it wasn't easy for me to move the administration in other matters to the extent that I did over the years.

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And look, after all, Truman was a conservative as to balancing the budget. You can see that in these letters out on my wall, and the economists didn't realize that I had that to contend with.

HESS: In the economic report of January the 6th of 1950, about six months after the other one, it says, "We have succeeded in avoiding a serious setback in 1949; we have regained stability, but we need more stability, Maximum production and maximum employment are not static goals. They mean more jobs and more business opportunities in each succeeding year. If we are to attain these objectives we must make full use of all the resources of the American economy."

KEYSERLING: Well, that is my perpetual theme on economic growth.

HESS: I thought that sounded like your work.

KEYSERLING: Most of the final reports were very substantially my work. But even growing isn't enough if you don't keep up with the potential.

I used to give the example--and this was my fundamental critique on the Eisenhower administration throughout, that Kennedy picked up, that even if you're growing--if a boy

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is in the seventh grade, if it took him three years to get from the sixth grade to the seventh grade, you don't brag about his progress. You see, it's not adequate if a tree grows one inch when it should have grown five, and that we had to measure growth against par for the course.

It's very interesting that Paul Samuelson, now I notice, is picking up as a critique of the Eisenhower administration, just beginning to pick up, with the beginning of the recovery, what I was saying from '53 forward. I mean, he's saying, "Sure, the administration may have growth, but are they going to have enough growth to regain and maintain full employment and full production." Well, this shows that we didn't rest on our oars in early 1950, and it also establishes the point that I made a moment ago, that a recovery had set in by the beginning of 1950 before the advent of the Korean war.

HESS: You mentioned that you were asked to cancel a speech by Clark Clifford, which gives rise to a question: Some writers have contended that you were too active in Democratic political affairs, and made too many speeches. You're aware of this criticism. Do you think that that was valid, do you think that you should have participated in Democratic affairs to the extent that you did, or not?

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KEYSERLING: Well, let me tell you a story first. During the early Eisenhower administration, they used to tell this story that a man met an old friend on the street that he hadn't seen for a long time, and he said to him, "What do you think of the new administration?"

And his friend's answer was, "Well, that's like asking me, 'What do I think about my wife’ and the answer is, 'Compared with what?"'

Now, if you compare me with Ed Nourse, I participated excessively in political affairs. If you compare me with Burns, this is not true, because despite his assertions, he, during his tenure, definitely engaged in "political" activity, in the sense of public advocacy of the President's program.

Let me get back to the point: I never made a campaign speech while I was Chairman, or Vice Chairman, and this was one of the reasons--we discussed it a little bit before--one of the reasons why I wasn't on the campaign train. I never engaged in campaign activity. Now I did go around the country advocating the program of the President, and this led to the claim by some, which was entirely unjustified, that I was getting improperly into political affairs--well, first of all, in the eyes of Nourse and in the eyes of some of the economists, even going before the Joint

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Economic Committee, or making a speech explaining the President's program to the American Bankers' Association. was improperly engaging in political affairs, because you were supporting the President's program. Well, I've answered that nonsense, and I'm not going to answer it anymore. But what intensified the complaint, which never would have arisen but for this false view, was that the Truman administration decided to hold what they called Cabinet meetings in the field, they organized it in several cities, and had people come out and talk to audiences, various Cabinet officers. First of all, I couldn't refuse to participate in that, and second, there's no reason why I should have; I was a part of the administration, and the very fact that people like the Secretary of Defense participated in those meetings shows what their philosophy was.

It was the Democratic Truman administration bringing itself to the people in the field, and I did participate, but this was not a plea for votes as such; it was an educational meeting where I and the Secretary of Labor and the Secretary of Commerce or the Defense Secretary and others went out and made a series of talks on the subject matter of their programs. Now, if you compare that, not with what Nourse did, but with a degree

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of backing that CEA Chairman Heller or Ackley or Okun or McCracken give to the programs of their Presidents, there was nothing unusual about it, nothing different about it, and nothing improper about it.

HESS: What has been the nature and extent of the Council's impact on economic policy?

KEYSERLING: Oh, I think it's been tremendous. I think we have a general respect for the institution and for the law, and for the purpose, around the country. I think this has grown over the years, because of the difficulties confronting the first Council, which I have cited.

I think if the first Council hadn't behaved very much more skillfully than it is given credit for, there wouldn't have been any second Council. It would have been abandoned. I think there has been increasing acceptance, increasing respect. I haven't heard any serious proposals to abolish it; I haven't heard that later Councils have run into any of the imaginary difficulties that Nourse foresaw; no Republican has criticized Mr. Okun or Mr. McCracken for supporting the program of his President; they've run into embarrassment by testifying on the Hill, even in the face of control of the Congress by a party opposed to the administration. We've got an overwhelmingly Democratic

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Congress now, and McCracken has no difficulty on the Hill. He's respected and accepted as what he is. He doesn't pretend to be anything else.

I think that the Council has fallen immensely short of the purposes of the Act, and has made grievous errors of economic policy as I see it; nonetheless, the economy has done very much better than we would have done without a CEA, and it has been a great constructive force in the improvement of economic policy.

And I think the CEA must claim some credit for the fact that we haven't had anything since World War II, which after all is twenty-five years, approximating what would even be called an economic downtrend by previous criteria, so the criticism is on an advanced frontier. The Council has made the country unwilling to accept an amount of downtrend or a level of unemployment which twenty-five or thirty years ago would have been regarded as roaring prosperity. The very fact that the country wasn't even satisfied with less than four percent unemployment in 1966, and certainly later on not with five, and clearly grossly dissatisfied with six, is progress, especially remembering that when I came on the Council, businessmen and others were saying, "We need five or six percent unemployment." Nobody says that now. They're only wrestling with the problem of how to get less. This

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is a tremendous gain. I think the Council has performed, all of the Councils, have performed a great educational task, and done a very good job of relations with the public and with the Congress.

HESS: On the subject of unemployment, what could we do now to reduce the unemployment that we have?

KEYSERLING: Oh, well, that is a vast problem in itself.

HESS: That is a big subject, isn't it?

KEYSERLING: That is a vast problem in itself. We should do everything almost the opposite of what we're doing.

First of all, we should throw out of the window the idea that you reduce inflation by creating unemployment and idle plant, because it would be wrong even if it were right. Even if more unemployment did reduce inflation it is economically silly and socially dangerous and morally wrong to tell the two and a half million additional people who have been unemployed since a year and a half ago that they should be the insurers of Leon Keyserling against having to pay a little more when he takes still another vacation to Europe or buys still another expensive car. This is economically wrong and morally indefensible, and if it continues long enough you're going to have a

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kind of friction and discord, compared with what we have had will seem like a pale imitation. You can't do it.

But it isn't even right in any other way, because the record has been just the opposite of what the economists claim, and the fact that they still haven't awakened is the best instance of their frozen slowness and their inertia.

We have had a vivid demonstration during the past five years that the inflation has accelerated, as the unemployment and idle plant have grown, year after year. And even in 1970, they started saying, "This is due to a time lag." Well, a four-year time lag is preposterous. If prices responded to supply and demand, and cutting demand below productive capacity was going to cause prices to drop, they would have dropped in '67 or in '68 or in '69. We roared right on through to early '70, faster and faster, and now what is the drop? In the first quarter of this year 1971, the wholesale price index rose at an annual rate of ,more than six percent, which was higher than last year. I think the latest figure on the consumer price index for the last twelve months is something like 4.6 percent, compared with 5.6 the year earlier. That's after five or six years of creating unemployment and recession and stagnation to achieve that. That's nothing.

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The only reason that the inflation is dropping a little bit is for the very reason I've given you. The economy is beginning to recover, and if they pursued more vigorous policies for recovery and got us back closer to full resource use we'd have less inflation. The whole history is that from '61 to '65 when the unemployment rate was cut from 6.8 to 3.8, and when the real average annual economic growth rate was more than five percent, the average annual increase in consumer prices was only 1.5 percent. From '66 to now when the average growth rate has been cut to two and a half percent, plus an absolute recession, and when the unemployment has been increased from 3.8 to 6.2 or 6.1, the average annual inflation has been three or four times as high as in the previous period.

This phenomenon has been true all the way back to the Korean war. But they don't see it, they don't look at it, they still have the theory that if they speed up the economy, it will cause inflation. They forget completely about distribution of income, which is the only important thing anyway, because if income were distributed equally as prices rise, it wouldn't make any difference to anybody. It would be just like changing the value of poker chips and giving everybody twice as many chips, because it's

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only if you have inflation that distributes the income in the wrong way that it makes any difference. That's what they've been doing. The very policies designed to stop inflation, like rising interest rates, unemployment, are distributing the income in the wrong direction, and cause more inflation to boot, so they've got the wrong end of the stick on all points.

So what would I do? I would reverse the policies. I would spend more money than Nixon has been planning to spend, not only to create employment, not only to quicken production, but to meet some of our national needs that we've neglected terribly. This would balance the budget more in the long run than the twenty million dollar deficit that he's going to get. I would reduce interest rates rather than increase them. I would expand the money supply more rapidly; I would say that a condition of the economic health, based upon full employment and full production gives you a yield and output and ability to meet your needs and employment that far outweighs any differential in the price level, and that actually the prices rise less in the long run when you have that than what we've got now. So I would reverse the policies; I'm in disagreement with them.

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HESS: Do you think we've adequately discussed the economic policies that were developed during Mr. Truman's administration?

KEYSERLING: Yes, I think so.

HESS: Just on to two brief political questions: Who in your opinion would President Truman have preferred for a Democratic standard bearer in 1952?

KEYSERLING: In 1952 he was the main factor in the selection of Adlai Stevenson. He was the one who first said, "Stevenson is the man." In 1956 Truman supported Harriman. He was disappointed in Stevenson.

HESS: What do you recall about the convention and the campaign in 1952, anything in particular?

KEYSERLING: Well, the outstanding factor of the campaign in 1952 was that after twenty years of Democratic administration and after the attack that had been launched upon Truman, that it was absolutely impossible to beat a war hero; there is no use going into the refinements. The chances of Eisenhower winning were about ninety-nine and a half out of a hundred. It was always that way. He was a war hero; nobody could say anything against him, and the Democrats had been in for

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twenty years. There's nothing that could have been done to change that result.

HESS: What do you recall of the transition from the Truman administration to the Eisenhower administration? Did Mr. Sherman Adams show up in your shop to discuss what might transpire?

KEYSERLING: No, there was no discussion with me, because it was their plan to abolish the Council. They didn't believe in the Council. It was only Taft that saved the Council. I covered that earlier.

HESS: That's right.

Just two general ending questions: What in your opinion are Mr. Truman's major contributions during his career?

KEYSERLING: His courage, which was almost unequaled in my experience; his relative freedom from political consideration, in the narrow sense, when he was making the big decisions--relative, I say--to which I would rank him first among any of the other Presidents that I have observed directly running from Roosevelt to date; I think he was far freer of narrow political considerations in making the big decisions, because he had such a

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concept of the awesome responsibilities of the President. I think his courage and his administrative decisiveness enabled him to make decisions rather quickly as well as courageously. I think that he summed it up I think in what he said himself when he was describing the Presidency later and someone said, "What does a President have to do?"

He said, "He has to make decisions."

And somebody said, "What do you do if the decisions are wrong?"

He said, "Then you make another decision." That's about it.

In addition, despite the variances and the coloration and the matter of the point that everything in life is a matter of degree, I think Truman was thoroughly committed to the proposition that it's the average man that counts most, and that the purpose of Government is to help the average man, and that the big fellows can take care of themselves, and that what you have to watch them for mostly is that they don't get too much. I don't regard this as a bias or a class prejudice. This is the nature of the American society. The Government has to help the average people, help them the most. They need help the most, the people on the lower sides. I think he was very firmly committed to that in a general way. I don't think he

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understood all of the implications of it for economic policy, and therefore he was a conservative, for example, on balancing the budget and on some other things. He didn't completely overcome what one would expect of a Midwestern man who wasn't a philosopher, but I think he was deeply committed to that, and in this sense he was in the real tradition of the Democratic Presidency in the way that I think Jackson and Wilson and Roosevelt were, and that I think, broadly speaking, Johnson was. I'm not at all so sure about Kennedy. I think Kennedy sort of thought this was all hearts and flowers, that this was just...

HESS: Camelot?

KEYSERLING: Yes, this was just for the political platform, that it really wasn't the right policy.

HESS: What is your estimation of Mr. Truman's place in history?

KEYSERLING: Well, his place in history will be determined by the viewpoint of those who rank him. I did notice with interest that a few years ago there was an article in the New York Times in which a number of leading historians ranked the Presidents, and they had a top

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five composed of Washington, Jefferson, Lincoln, Wilson, and Roosevelt (Roosevelt the second), and then Truman came in the second grouping of five, along with Theodore Roosevelt and Andrew Jackson and two others. Now, you know you always get revisionists, so I don't know what future rankings will be, and it depends partly on what happens. I think Truman will have a very high ranking. I think he will deserve a very high ranking.

HESS: Do you have anything else to add on Mr. Truman or on the Council of Economic Advisers?

KEYSERLING: I think we've covered it pretty thoroughly. Mr. Truman was not, aside from these qualities I have mentioned and which are great gifts, every one of them, he was not really a very outstanding man by some tests. I mean, he isn't the kind of man that, if you met him in a living room and talked with him for an evening with a group of people, you would be impressed tremendously with his grasp or understanding or exceptional ability. This was a quality possessed to a greater degree, I suppose by Woodrow Wilson, and it was probably true to a considerable degree of Theodore Roosevelt.

Theodore Roosevelt had a very wide-ranging and inquiring mind; he evidently wrote a number of fairly good

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books himself; he was a good editorialist. I mean, he was a man that you'd say was of very exceptional mental range. I don't think you get that impression of Mr. Truman, but he had other qualities far above the average, and far above the average President, which turned out to be very important.

The reason I wouldn't rank him as high as Franklin Roosevelt, is that he didn't have the gift of sustained national leadership in the same sense. Now, he could make a decision on the bomb or a decision on Korea, but that was a spontaneous decision. He got advice and he made a decision. He didn't have the capacity of educating and leading the people to stick with him on a difficult course. He could not, I think, have done what Roosevelt did in developing assent if not support to his aid to the democracies before Pearl Harbor. I am not sure that Truman could have accomplished Lend-lease and the destroyer deal and those other things in the face of an isolationist country. He didn't have that sustained capacity of leadership in the face of adversity or in the face of difficulty. He couldn't lead the people and sustain their support of him to that degree. He just didn't have so rare a gift of expression or of leadership. In that aspect I think he ranks below

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Lincoln, who had it to a superb degree; below Jefferson, who had it to a great degree; below Washington; and below Woodrow Wilson, who despite his disaster with the League of Nations after he became sick, had it to a superb degree during his first term. So in that sense I don't think Truman's in the very top rank of five. But he comes very close; and in some qualities I have mentioned, he ranks higher than some of these five.

HESS: Thank you very much, sir.

KEYSERLING: I was very glad to talk with you.