currencies of other countries at their nominal parities, almost all of which were sharply limited in use by their exchange controls. From the Fund's operative start on March 1, 1947, through April 1952, total "drawings" came to only $726.2 million in U.S. dollars, 34 million dollars worth of pounds sterling, and 11.4 million dollars worth of Belgian francs. (That April 1952 date was chosen only because the writer happens to have the May 1952 issue of the Fund's statistical bulletin.)

From July 1, 1945, through 1952 the U.S. Government supplied about 50 times as much foreign aid-$35 billion of non-military grants and credits, of which $24.6 billion was in grants.

If this Government had only supplied smaller grants and more loans to various European countries, we would today be being serenaded with cries of the terrible dollar shortage instead of complaints of a dollar glut and lack of confidence in the dollar.

A roughly similar proportion between IMF drawings and U.S. aid continued for a number of years beyond 1952.

Besides shouldering a great deal of the burden of the non-Communist world's defense costs, the United States by the end of 1957 had furnished $48.6 billion of nonmilitary grants and credits. These enabled a number of the stronger countries to rebuild their economies (relying heavily on scarce goods from this country), reestablish their export and import trades, accumulate reserves of dollars and gold, attract foreign investments (over $40 billion worth, net, from the United States) and tourists.

Furthermore, the Fund Articles of Agreement were not drawn in the expectation that one or two national currencies would be the vehicles for most of the world's international trade and payments, or that 106 of the 107 members would fulfill their own currency stabilization commitments primarily through sales and purchases of one currency, the dollar.

The dollar has also been burdened with one or two other unplanned functions. Consequently, it is wholly out of proportion for anyone to assert that the United States and the dollar must follow identical rules and behave according to the same principles as all the regular members of the Fund. The dollar has a set of problems perculiar to itself alone, in quantity and quality, and must be managed and judged on special principles.

Also, the IMF system was designed when the United States had about 60% of the world's official monetary gold stocks (excluding the U.S.S.R.), which rose to about 70% by 1949. There was worry that this country would receive almost all of the world's reserves, and that gold would then become of little monetary

use.

It is natural that today a different relationship between the dollar and gold is necessary.

2. A second major misapprehension, at least on the part of some people, is that there are any genuine barriers in the way of continuing to use the international dollar system, or that there is any substitute for it in sight. (The prospective Special Drawing Rights in the IMF are no substitute and will add to the problems of the dollar.) Every country, however, should be free to make its own choice in the matter.

3. A third is that the U.S. Treasury has to keep on selling gold freely to foreign central banks on demand in order to make the system workable and to give value to the dollar. (Dr. Otmar Emminger, an official of the German Bundesbank, expresed the point well to the National Industrial Conference Board in New York on February 15, “* ** Nor has gold an immutable value. Money does not derive its value from its link to gold. On the contrary, gold derives its value, at least to a large extent, from its link to money. ***" Dr. Emminger, however, favored more stringent action regarding the dollar's balance of payments that this statement recommends.)

A fourth misapprehension is that the United States has been "living beyond its means internationally" and that in a realistic sense foreign countries have been "financing the U.S. balance of payments deficits" on a large scale.

A fifth and most important misapprehension is that the United States should and must end its balance of payments deficit as shown in the Department of Commerce estimates "on the liquidity basis," through this country's applying deliberate, forceful measures to reduce its payments to foreigners and increase its receipts from them. Nor are the deficits "on the official reserve transactions basis" a proper target to eliminate either.

For one thing, a great many countries need more dollar reserves. For a second thing, if foreign business firms and foreign capitalists elect to acquire and hold dollar assets in the form of deposits in U.S. banks or in U.S. Treasury securities— increases which show up as "deficits on the liquidity basis"-there is no more reason to deny them that opportunity than to ban an increase in the U.S. domestic money supply, savings and time deposits, and holdings of Government securities. Thirdly, an increase in dollars held by foreigners is the best means the world now has for handling such situations as the periodic storms which blow up over one currency or another such as the pound sterling, the Canadian dollar, the Italian lira, etc., to name a few example of recent years.

It is true, on the other hand, that the U.S. should most certainly put an end to utter and huge wastes-domestic and international-like the 8-month copper industry shut-down. It should also be less bountiful in supplying defense for other countries for which they mostly fail to offset even the U.S. foreign exchange costs of our doing so, and for which the direct dollar costs and all the indirect foreign exchange and dollar costs are not even mentioned and perhaps not even recognized to exist.

To set forth and reply to all the opinions which disagree with the above five assertions of misapprehensions would make this statement too long to read and impossible to complete before the deadline.

MORE SPECIFIC FEATURES OF A BETTER

BALANCE-OF-PAYMENTS

PROGRAM

A program to overcome the weaknesses of the present balance of payments proposals includes the following features:

A. The United States should plan to retain most of its remaining gold reserve. B. Instead of applying harsh travel expenditures restrictions to every country outside the Western Hemisphere, it should ask each country in the Eastern Hemisphere whether it wishes American tourist expenditures in their area to be limited or reduced, on the basis that continuation of American tourist travel will require each country to agree to work out the balance of payments between it and the United States with virtually no further gold sales by us.

If any country elects to deter American tourist traffic, either they can apply the deterrents themselves, following ample warning of the intention to do so; or the United States can warn U.S. tourists to minimize their stays and expenditures in the specified countries and to tax each day's stay therein, as shown by passports on return to the United States. It is possible that different rates of tax could be applied depending on the individual's income tax bracket for that year. It seems unlikey that any country will choose to lose its American tourist business to an appreciable degree. Applying the proposed travel expenditures tax to countries like Great Britain, which desperately needs dollars, would be the height of folly for both them and us.

C. The United States can offer foreign central banks and possibly others a right to deposit dollars in a new type of account in the United States which this country will guarantee, in dollars, against any increase in the Treasury's buying price for monetary gold or any devaluation of the par value of the dollar communicated to the International Monetary Fund.

D. The United States should show a new readiness and flexibility to consult with and assist other countries which may have or receive in the future a greater quantity of dollars than they think is in their best interest. Of course, they have many ways of disposing of such holdings at their own command. In some cases. however, it may be mutually advantageous for the United States to borrow back such dollars-the idea of the "Roosa bonds" but applied more widely-to offer guarantees adverse changes in exchange rates, or use other available devices. E. Last and most important and difficult of all is the acute need for a direct approach to halt the erosion of the dollar by cost-push price rises which has gone on for the last 30 years. Neither more taxes nor tighter money nor cuts in Government expenditures are an effective answer to them. Monetary and budget restraints can reach them only after creating dangerous increases in unemployment and slow-downs in business and agricultural marketings.

Since World War II, and even since the late 1930's, monetary expansion and budget deficits have been compelled by the need to overcome the unemploymentcreating effects of union wage exactions. The last have been made possible by Congress's granting unions excessive powers since the 1930's without proper guiding principles and limitations. A revised Government policy to curb union "muscle" in coercing increases in wage, fringe, and other compensation terms

which force labor costs upward. The statistics in the Treasury blue book on the dollar presents data on labor costs which are grossly misleading, and the subject is treated to a blizzard of false allegations in public statements by union spokesmen. The current copper strike is a prime example of this problem.

Congress, and especially this committee, has powers to correct this condition which earlier Congresses helped create, once there is some recognition of the true facts of the situation.

Action of exceptional forthrightness in this field is needed to make the dollar worthy of long run confidence for both American citizens and foreigners. The purchasing power of the dollar has declined around 50% in the last 23 years and is currently declining at a higher-than-average rate. It has gravely endangered our international position on exports and imports.

Should the committee be interested in pursuing this matter more realistically than merely to enact the requested surtax and some gestures regarding the balance of payments, the writer would welcome the chance to outline his conclusions further.

Mr. LANDRUM. Are there members who desire to ask questions? Thank you, Mr. Eddy.

Mr. EDDY. Thank you, Mr. Chairman.

Mr. LANDRUM. Has Mr. Vidockler arrived? (Mr. Vidockler's prepared statement appears at p. 1097.)

That completes all the witnesses that the committee had scheduled for today. With that, the committee adjourns until 10 o'clock tomorrow morning.

(Whereupon, at 10:45 a.m., the committee adjourned, to reconvene at 10 a.m., Friday, February 23, 1968.)

ADMINISTRATION'S BALANCE-OF-PAYMENTS

PROPOSALS

FRIDAY, FEBRUARY 23, 1968

HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D.C.

The committee met at 10 a.m., pursuant to notice, in the committee room, Longworth House Office Building, Hon. Phil M. Landrum presiding.

Mr. LANDRUM. The committee will come to order.

This morning the first witness scheduled is Mr. Robert S. Kane, president of the Society of American Travel Writers, and Mr. Michael Frome, former president.

Are these gentlemen present?

STATEMENT OF ROBERT S. KANE, PRESIDENT, SOCIETY OF AMERICAN TRAVEL WRITERS; ACCOMPANIED BY MICHAEL FROME, FORMER PRESIDENT

Mr. KANE. Right.

Mr. LANDRUM. If you will come around please, Mr. Kane and Mr. Frome, and identify yourself for the record, the committee will be glad to receive your statement.

Mr. KANE. Mr. Chairman, members of the committee, my name is Robert S. Kane. I appear this morning as president of the Society of American Travel Writers, a nationwide organization of more than 500 members.

Our active members are the travel editors and writers of newspapers and magazines serving many millions of readers. They include the authors of virtually all guidebooks and contemporary travel literature. Our cooperating allied and associate members are public relations representatives of cities, States, and regions in the United States and Canada of foreign national travel organizations with offices in this country, of major hotel and transportation carriers and companies.

You may wish to have a copy of our national 1968 roster, Mr. Chairman, for our entire membership is at the service of this committee in solving the difficult problems before you.

Our society was born at a meeting in Ellinor Village, Fla., in 1956. The following year we met in the Ozarks, first in Oklahoma, then in Arkansas. Our 12th convention last year was held in Turkey. I am the travel editor of Cue magazine in New York and author of the A to Z travel books published by Doubleday Co., and I am pleased to have