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Guidelines for International Monetary Reform Hearings

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Guidelines for International Monetary Reform Hearings 2q7 GUIDELINES FOR INTERNATIONAL MONETARY REFORM HEARINGS BEFORE THE SUBCOMMITTEE ON INTERNATIONAL EXCHANGE AND PAYMENTS OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES EIGHTY-NINTH CONGRESS FIRST SESSION Part 1-Hearings JULY 27, 28, AND 29, 1965 Printed for the use of the Joint Economic Committee U.S. GOVERNMENT PRINTING OFICE1 62424 WASHINGTON: 1985 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C., 20402 -Price 50 cents JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.) WRIGHT PATMAN, Texas, Chairman PAUL H. DOUGLAS, Illinois, Vice Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri JOHN SPARKMAN, Alabama HALE BOGGS, Louisiana J. W. FULBRIGHT, Arkansas HENRY S. REUSS, Wisconsin WILLIAM PROXMIRE, Wisconsin MARTHA W. GRIFFITHS, Michigan HERMAN E. TALMADGE, Georgia THOMAS B. CURTIS, Missouri JACOB K. JAVITS, New York WILLIAM B. WIDNALL, New Jersey JACK MILLER, Iowa ROBERT F. ELLSWORTH, Kansas LEN B. JORDAN, Idaho JAMES W. KNOWLES, Executive Director JOHN R. STARK, Deputy Director MARIAN T. TRACY, Financial Clerk HAMILTON D. GEWEHR, Administrative Clerk ECONOMISTS WILLIAM H. MOORE NELSON D. MCCLUNG GERALD A. POLLACK DONALD A. WEBSTER (Minority) SUBCOMMITTEE ON INTERNATIONAL EXCHANGE AND PAYMENTS HENRY S. REUSS, Wisconsin, Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri P'AUL H. DOUGLAS, Illinois HALE BOGGS, Louisiana WILLIAM PROXMIRE, Wisconsin WILLIAM B. WIDNALL, New Jersey JACK MILLER, Iowa ROBERT F. ELLSWORTH, Kansas GERALD A. POLLACK, Economist nI CON TENTS PRELIMINARY MATERIAL Page Major background questions for hearings to develop guidelines for inter- national monetary reform- 3 Material submitted by Senator Javits- 5 CHRONOLOGICAL LIST OF WITNESSES TUESDAY, JULY 27, 1965 Lester V. Chandler, professor of economics, Princeton University -11 August Maffry, senior vice president, Irving Trust Co., New York -15 Judd Polk, manager, International Projects, National Industrial Con- ference Board -------------------------------- 18 WEDNESDAY, JULY 28, 1965 Robert A. Mundell, the Brookings Institution- 48 Warren L. Smith, professor of economics, the University of Michigan --- 54 Henry C. Wallich, professor of economics, Yale University -70 AFTERNOON SESSION Hon. Vance Hartke, a U.S. Senator from the State of Indiana; accom- panied by Eliot Janeway - 99 THURSDAY, JULY 29, 1965 Richard N. Cooper, associate professor of economics, Yale University ---- 109 James C. Ingram, professor of economics, University of North Carolina_ 123 Lawrence B. Krause, the Brookings Institution - 135 STATEMENTS Chandler, Lester V., professor of economics, Princeton University -11 Cooper, Richard N., associate professor of economics, Yale University ---- 115 Hartke, Hon. Vance, a U.S. Senator from the State of Indiana -99 Ingram, James C., professor of economics, University of North Carolina_ 130 Javits, Hon. Jacob K., a U.S: Senator from the State of -New York 5 Krause, Lawrence B., the Br6okings Institution -135 Maffry, August, senior vice president, Irving Trust Co.. New York -15 McCarthy. Hon. Eugene J., a U.S. Senator from the State of Minnesota.-.- 99 Mundell, Robert A., the Brookings Institution -_- 48 Polk, Judd, manager, International Projects, National Industrial Con- ference Board -_--__18 Smith, Warren L., professor of economics, the University of Michigan ---- 60 W0allich, Henry C., professor of economics, Yale University -70 APPENDIX ADDITIONAL STATEMENTS Salant, Walter S., the Brookings Institution -161 Triffin, Robert, Yale University: "Guidelines for International Monetary Reform"- 164 Letter: Chairman Reuss to a number of organizations- 184 AFL-CIO: Statement by Nat Goldfinger, director, department of research. 185 Foreign Investment Committee of the Investment Bankers Association of America: Statement by Nathaniel Samuels, chairman -187 Committee on International Monetary Relations, U.S. Council of the International Chamber of Commerce: Statement by Norris 0. Johnson... 190 m GUIDELINES FOR INTERNATIONAL MONETARY REFORM TUESDAY, JULY 27, 1965 CONGRESS OF THE UNITED STATES, SUBCOMMITTEE ON INTERNATIONAL EXCHANGE AND PAYMENTS OF THE JOINT ECONOMIC Comxrmrrs, Washington, D.C. The subcommittee met, pursuant to call, at 10 a.m., in room AE-1, U.S. Capitol Building, Hon. Henry S. Reuss (chairman of the sub- committee) presiding. Present: Representatives Reuss, Bolling, Ellsworth; and Senator Proxmire, of the subcommittee. Also attending: Representatives Curtis, Moorhead, Hanna, Ottinger, and Halpern. Also present: Gerald A. Pollack, economist; James W. Knowles, executive director; John R. Stark, deputy director, and Hamilton D. Gewehr, administrative clerk. Representative REUSS. Good morning. The Subcommittee on In- ternational Exchange and Payments of the Joint Economic Committee will be in order. We are delighted to have here with us this morning some members of the House International Finance Subcommittee of the House Banking and Currency Committee which has legislative jurisdiction over the subject matter. We meet this morning to begin the important job of developing guidelines for international monetary reform. This is not our first visit to the subject matter. Back in 1959 the Joint Economic Com- mittee hearings on employment, growth, and price levels probed into the payments problem. At that time, Professor Triffin of Yale pre- sented us with his proposal for internationalizing the foreign exchange component of the world's monetary reserves. And since then hearings of-this subcommittee in 1961 and -1962, and of the full committee in 1963 have been held. These earlier efforts have begun to bear fruit, and we are now ready for the next step, which is to consider the specific, particular characteristics that the monetary system of the future should possess. If the effect, of these hearings is to help construct a model for the upcoming negotiations, so much the better. Recent events have made it clear that our task is timely as well as important. We are clearly not speaking of ai future far beyond the horizon. Instead, we really do stand on the threshold between the old and the new. 1 2 GUIDELINES FOR INTERNATIONAL MONETARY REFORM Just a month ago, former Secretary of the Treasury Dillon said: There is an urgent need to strengthen the international monetary system, so as to insure that the needed increases in reserves will be forthcoming. * * * There is no longer any time to dally. And his successor, Secretary Fowler, on July 10 called for an inter- national monetary conference to secure substantial improvements in international monetary arrangements. Both the former Secretary and the present Secretary spoke after plans for these hearings were underway, so that our work here this week acquires added significance. We gave consideration in planning these hearings to requesting from the executive branch the so-called Ossola report, mentioned by Secre- tary Fowler in his speech, which report is said to set forth various specific proposals for the creation of reserve assets. We chose in the end not to make that request because we wish to approach this hearing with an open mind and without limiting our purview to what has been said by any particular international group. We are attempting, then, to overcome the paradoxical nature of the present international monetary system; the paradox being that the world's needs for additional liquidity have been met chiefly by dollars pumped into the reserves of other countries by our own deficits, but these very deficits have served to bring into question confidence in the dollar and the willingness on the part of other countries to hold dollar reserves. The International Monetarv Fund has increasingly demonstrated its usefulness. We will be interested to learn whether our witnesses will favor an expanded role for the Fund, or whether you think wve should look elsewhere for the reforms that are needed. In afny case, we have an open mind. We have asked our witnesses only to rule out the subject of completely flexible exchange rates and changes in the price of gold, for these alternatives seem to us not to have any reasonable chance of adoption. And now, let us begin these hearings. We are fortunate in having as our witnesses today three gentlemen of great distinction and expertise, Prof. Lester V. Chandler, of Princeton, Dr. August Maffrv, senior vice president of the Irving Trust Co., New York, and Mr. Judd Polk, manager of international projects for the National Industrial Conference Board. We are very grateful to you gentlemen, and I think I will follow alphabetical order and ask you, Professor Chandler, to start out. Your statements, gentlemen, have been gratefully received in good time and will be made a part of the record, and you may proceed either by reading the statement, by summarizing part of it and going beyond it as you will, or in any way that suits you best. (At the direction of the chairman, the following set of questions is made a part of the record. The questions were prepared for the use of the subcommittee and provided to all of the witnesses when they were invited to appear.) Chairman Reuss wrote to the witnesses: "Your contribution to our hearings would be especially valuable if you made the identification of major guideposts the central organiza- tional theme of your prepared statement. * * * "We have prepared a paper listing major questions, grouped in broad subject areas, which may be useful in this task. Aiiy guidelines we may favor will necessarily
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