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Walter S. Salant Oral History Interview

Oral History Interview with
Dr. Walter S. Salant

Head economist, Research Division, Office of Price Administration and predecessor agencies, 1940-45; economic advisor to the Economic Stabilization Director, 1945-46; economist for the Council of Economic Advisers, Executive Office of the President, 1946-52; and consultant in the economic and finance division of the North Atlantic Treaty Organization, 1952-53.

Washington, D.C.
March 30, 1970
by Jerry N. Hess

See also Walter Salant Papers finding aid

[Notices and Restrictions | Interview Transcript | List of Subjects Discussed]


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.

RESTRICTIONS
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 It may not be published in full except by permission of the Harry S. Truman Library.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 October, 1970
Harry S. Truman Library
Independence, Missouri

[Top of the Page | Notices and Restrictions | Interview Transcript | List of Subjects Discussed]


Oral History Interview with
Dr. Walter S. Salant

Washington, D.C.
March 30, 1970
by Jerry N. Hess

[1]

HESS: Mr. Salant, to begin with will you give me a little of your personal career. Where were you born, where were you educated and what are a few of the positions that you have held?

SALANT: Yes. I was born in New York City and went to school, from the first grade through the end of high school, at the Ethical Culture Schools, which became known as the Fieldston Schools, in New York City. I did my undergraduate work at Harvard, then did a year of graduate work at Cambridge University and then I came back, in

[2]

September 1934, to the United States and got a job in the Treasury Department, where I remained for a year and a half in the Research and Statistics Division. Then I went to New York to see what a Wall Street brokerage firm was like and decided what I really wanted was to do more graduate work.

In September of '36 then I went back to Harvard to do two years of graduate work, the second of which was in the Littauer School, which was just beginning. While there I spent my second year almost entirely, at least in the first semester, in what has since become the famous Fiscal Policy Seminar that was run by Professors Alvin Hansen and John Williams. In the second semester I also was an assistant in the Economics Department.

In the summer of 1938, I came down to the SEC where I assisted Raymond Goldsmith in making the first estimates of individual saving by a method that has since been used to supplement the methods used by National Income Division.

[3]

Instead of estimating saving as the difference between income and consumption, this was an attempt to estimate it by measuring the changes in the assets and liabilities of individuals. That has since become the basis of a regular quarterly statistical release.

In the autumn of 1939 I joined a new division in the Department of Commerce, in the Secretary's office, where Harry Hopkins was then the Secretary of Commerce, called the Division of Industrial Economics, which was under the direction of Richard Gilbert. This division was to advise the Secretary, who wanted to play a more active role in economic policy, as many Secretaries of Commerce since then have tried to do. One of the notable contributions of that division, perhaps, was the Annual Report of the Secretary for the fiscal year 1939, which many people do not seem to know about, which is perhaps the first statement in

[4]

an official document of what is now called the "new economics." At least that is my recollection of that statement, although, if I went back and looked at it again, I might find that my memory has played tricks on me.

HESS: Who was instrumental in the drawing up of that statement?

SALANT: Well, this little team in that division consisting of six or eight people, but the main person was Richard Gilbert who was the director of the division, and the spark plug of the advice that Secretary Hopkins got, and who played a very considerable role later, although an unsung one, in economic policy during the war.

In September 1939, when the war broke out, this division was more or less converted into a staff for the Price Commissioner, the Price Commissioner being Leon Henderson. When I refer to the Price Commissioner I'm talking about

[5]

one of several members of the National Defense Advisory Commission which the President appointed. I'm not sure I have the title of that organization exactly right, but that was a commission of a few people, each with functional responsibilities. Leon Henderson was given the responsibility for price developments, and this little group which Richard Gilbert was to head, moved more or less bodily over to helping Leon Henderson. That group subsequently became the Economic Adviser group to the Office of Price Administration and Civilian Supply, which subsequently became known as the Office of Price Administration, of which Henderson was the first head. You might say that the wartime price controls were -- got their first start in that group and then developed further as it became an operating agency.

I was with the Office of Price Administration until April 1945, when I went over to the Office of Economic Stabilization and became economic

[6]

advisor to the Stabilization Director, who was then William H. Davis. I remained there after Mr. Davis was, let us say, unceremoniously dumped by President Truman and...

HESS: Why?

SALANT: I don't think I'm in a good position to answer that, but I can say -- and this perhaps might be an interesting little bit of oral history that you wouldn't have gotten from anywhere else.

HESS: That's exactly why we are here.

SALANT: Mr. Davis had no forewarning of being dumped. He went to the White House to a meeting, I recall, in the East Wing and the President was at the same time having a press conference in the West Wing. The President said at the press conference that he was appointing, I can't remember who it was now, to -- oh, that he was moving the functions

[7]

of the Office of Economic Stabilization to the Office of the Director of War Mobilization and Reconversion, and a reporter said, "Mr. President, what does that do to Will Davis?"

And the President said, "I guess that leaves him out of a job."

Apparently somebody ran over from the West Wing to the East Wing to tell Mr. Davis this, and it was a completely stunning blow to him. I recall how that came to us at the office, at Mr. Davis' office. Mr. Davis had been driven over to the White House conference in the office car by the office chauffeur, Herbert, and after the press conference ended, Herbert came back with the car but without Mr. Davis, and I recall that Mr. Davis' secretary said, "Herbert, what did you do with Mr. Davis?"

And Herbert said, "He said he wanted to walk back to the office. Kind of looked like he had something on his mind."

[8]

HESS: Do you know why that move was made, why he was ousted?

SALANT: I don't know. There was much talk that the President, who was then fairly new in the office, just wanted to have somebody whom he knew better in that position. Well, the position already existed, but he wanted the powers, I think, put into that man's hands.

HESS: About what time was this?

SALANT: This was in the summer, if I recall correctly, of 1945. The President, you recall, President Roosevelt, had died in April. President Truman was at first far from comfortable in the office. Of course, this was generally regarded as a rather gauche way of handling things and there were accusations that he wanted a crony, as people said, in the position, but nobody else was in a position to speculate or say anything

[9]

authoritative about what the reasons were.

HESS: I believe it was about in June when John Snyder was appointed as head of the Office of War Mobilization and Reconversion.

SALANT: That's right, it was John Snyder, now that you remind me of it.

HESS: He was the one that was taking over OWMR at that time.

SALANT: Yes, then a -- but an appointment was made to -- that thing's [reference to the tape recorder] still going isn't it?

HESS: It's still going.

SALANT: I hate to waste the time while I speculate about this.

The office was left in a cut-down form and a district judge from Kansas City who was a friend of President Truman's, was appointed named Judge J. Caskie Collet, if I remember correctly.

[10]

HESS: You do.

SALANT: I can't remember the exact timing of all these things and, in particular, I can't remember the relationship of the Bowles appointment to the position of Economic Stabilization Director in relation to Collet's appointment, but it must have come later. Well anyway, without moving out of that office, I subsequently became the Economic Advisor to the Price Decontrol Board, which was set up in the legislation of the summer of 1946.

When most of the price controls were dismantled, shortly before the 1946 election, the Price Decontrol Board in effect went out of business. At that point Dr. [Edwin G.] Nourse, the first chairman of the newly formed Council of Economic Advisers, invited me to become a member of the staff of the Council and I accepted that position. So, that was the end of my period

[11]

with the Price Control, but you can see from that that I was with it from the time it was a gleam in the eye until its burial.

HESS: Fine. That we will want to come back to and go over in detail. Now, after you were on the Council of Economic Advisers, I believe in 1952, you went to NATO. Is that right?

SALANT: That's right. I was on loan, supposedly, but I had in fact to resign formally in order to become a member of the Foreign Service Reserve, which was a necessary condition for my taking my family to Paris for the NATO job. While I was in Paris the election occurred.

HESS: And the Republicans came in.

SALANT: And the Republicans came in and I was -- I went back and I helped Arthur Burns for a few weeks and then left, left the Council.

HESS: Where did you go at that time? What positions

[12]

have you held since the Truman administration?

SALANT: I was a sort of full-time consultant for a newly formed private organization, public service organization, called the Committee for a National Trade Policy, which was organized by George Ball, Charles Taft, and a number of others, mostly businessmen, and I stayed there until March 1954, when I was a visiting professor at Stanford University for the spring quarter. In September 1954 I came to Brookings.

HESS: Where you...

SALANT: Where I've been ever since.

HESS: Ever since, fine. Now, on several of the jobs that you have mentioned, the positions, you did mention some duties, but are there any other duties that come to mind? We'll just hit upon these just lightly, but at the time that you were on statistical research at the Treasury Department

[13]

in 1934-36, any particular duties, anything of interest come to mind at that time?

SALANT: Well, I was hired on that job on a trial basis, my first job, as a senior statistical clerk, at the munificent salary of $1800 a year, and after one month I was promoted to the lowest of the professional ranks which was called what, junior economist or something, at $2000. I have trouble remembering any great continuity in that job. I did quite a lot of things of a general policy character, because at that time I was regarded as a rather advanced young man, having just come back from a year at Cambridge University where the content of [John Maynard] Keynes' still unpublished General Theory was being talked about. And so, I was able to give what are now conventional reasons for the use of fiscal policy under conditions of unemployment, and I also wrote memoranda about the effects of the exchange rate policy

[14]

and wrote memoranda also on various proposals for currency reform, about which practically one in every ten people in the population had a suggestion. Washington was full of people who thought they knew what was wrong with the monetary system, and the Treasury was the focus of all those incoming letters and proposals.

HESS: What were your views at that time? What should be done to get the country moving and get the country out of a depression?

SALANT: Well, my views, which of course weren't worth anything...

HESS: As a junior professional.

SALANT: As a very, very junior professional, were strongly in favor of the use of budget, of government expenditures, to get income and private spending up and to fight the view that it would be very inflationary in the sense of price-raising

[15]

rather than money-income-raising, to expand demand at a time when there was a great deal of unemployment.

HESS: During this period of time did you have any association with the Secretary of the Treasury Henry Morgenthau?

SALANT: No, I did not. I was...

HESS: Did you ever see him during this period?

SALANT: I may have seen him walking down the hall once or twice but that's about all.

HESS: All right.

SALANT: My main contacts were with Lawrence Seltzer, and at first I had some slight contact with Harry [Dexter] White, but the international and the domestic work were separated after Harry White came into the Treasury, and I went over and worked with Seltzer who was in charge

[16]

of Domestic Research, or in effect in charge, although his title was Assistant Director of Research.

HESS: What was Harry White's title at this time? Do you recall?

SALANT: I don't recall exactly.

HESS: What seemed to be his...

SALANT: He was the director of monetary research, it may have been called the Director of International -- it may have been called the Division of International Research or something, but the function was international research. He did not, at least when I was there, worry about domestic financing matters, and things like that. He worried more about whether the French were going to be able to stick to the old gold parity in the face of declines in the foreign exchange value of sterling and the dollar. You remember

[17]

the continental gold bloc was struggling to maintain the parities of their currencies with the old price of gold and things like that.

HESS: What seemed to be his basic economic theory at this time, or economic philosophy? Do you recall? Harry Dexter White?

SALANT: No, I don't think I could say anything much about that, that one couldn't get from, you know, better...

HESS: More informed sources.

SALANT: From other sources, yes.

HESS: As you know, he was very much in the news just after Mr. Truman left office.

SALANT: Yes. I know about that. There are, of course, many people around town, some still around town, who are in a better position to talk about him on that score than I, but I never was much

[18]

impressed with the charges made against him personally.

HESS: Then, after you came back from Wall Street and from Harvard, you were with the Securities and Exchange Commission and you touched on some of the duties that you had there. Is there anything else?

SALANT: Those were pretty much my only duties at the SEC, but I did write memoranda on the charges made by anti-New Deal policy people saying that the spending policy was hampering recovery and played some sort of kibitzing role in the -- in planning some of the hearings that were being planned in connection with the TNEC hearings at the time, before they got into operation. I have loads of -- copies of loads of memos on those things, but I haven't referred to them prior to this taping.

HESS: One point, while the tape is running, I will

[19]

mention the fact that we would also like some papers. If you have any papers and documents, personal papers, that go back over this period of time and if you would like to deposit them in the Truman Library, we would be very glad to place them there.

SALANT: I have some.

HESS: Good.

SALANT: Memos that I wrote. I don't know how far up they ever got, but...

HESS: Well, one never knows.

Now, when you were at the Department of Commerce in 1939 and '40, we have also mentioned some of that. Does anything else come to mind?

SALANT: I think that there might be some things that might be of some interest, more to members of the economics profession than to others.

[20]

For example, I wrote a memorandum, under pressure of Dick Gilbert, which I probably would have been too timid to, on professional grounds, to have written without his pressure, attempting to estimate what level of Government expenditures would be required to restore full employment.

What's of some possible interest about that memorandum, is the techniques that were used -- or perhaps I should say, abused, because the national income figures were available for only seven years and it's a statistical crime to do what I did, as I knew at the time, with such a short series of figures. It is really not terribly different, although very much cruder, than what is being done now in econometric models. This memorandum, which never got past the mimeographed form, because it was only for internal circulation, was on the subject of the magnitude of the recovery problem and it attempted to estimate how much increase of

[21]

Government spending would be required to restore more or less full employment, taking into account multiplier effects, that is the indirect cumulative effects of Government spending through its effect on private income and private consumption, and also taking into account the fact that increased output per man over time would tend to reduce the amount of employment associated with each additional dollar of expenditure. It was crude in taking relatively few things into account, and criminal from a statistical point of view, in using data for a period that was too short, although the period was as long as the period for which there were data. But the essential idea was pretty much the same as what was done later -- what has been done later.

HESS: And then you were at the OPA in 1940-45 through the war years.

[22]

SALANT: Yes.

HESS: What other duties did you have there? We discussed some, but what other duties did you have?

SALANT: My duties were partly in the field of the direct -- the theory of OPA operations, the economics of the price controls and also general issues involved in setting and adjusting the price ceilings. I had a lot, I spent a lot of time on the subsidies which were instituted to reconcile paying adequate prices to producers with keeping down the prices paid by consumers for a limited number of products. And in that connection, one had to develop some theory of the price rise, which one might say was interpreted by us as not being entirely a result of excess -- not only a result of excess demand, but we took into account what's called the "cost-push" element of inflation, although it wasn't called that at

[23]

the time, and the price subsidies were intended to limit the cost-push side of the inflation. In the first years of the war, the main thrust of that group under Dick Gilbert, who as I said was a power in economic policy here during the war, was to restrain or to discourage what we regarded as a premature restriction of demand by taxation. "Premature" because we were so far from full employment that we were afraid to prevent demand from growing while there was still so much unused capacity. In other words, we were afraid that -- well, we wanted to get all-out production, and our estimates of how high production could go were regarded generally as wildly exuberant by other people, although in the event, even our estimates turned out to be too low. It was in connection with that kind of argument that I had some correspondence with Keynes which has been sort of immortalized in [Roy Forbes] Harrod's biography of Keynes and

[24]

all of which I've just been asked to send to the Royal Economic Society, which is getting out a complete edition of Keynes' writings, including unpublished letters.

HESS: What was the nature of the correspondence?

SALANT: Well, you might summarize it by saying that Keynes was a little bit shocked when he came over here and had a session with us, that we were more "Keynesian" in the popular sense, than he was. He was concerned about our being too slow in getting set for anti-inflationary fiscal policy, and he estimated the potential expansion of output really at a substantially smaller amount than we did. When I say, "we," I now refer to the group led by Richard Gilbert and Bob Nathan.

We had some interesting discussions with Keynes. We had at least one interesting discussion -- two interesting discussions I would say.

[25]

I remember one at the National Press Club and one at the house of Lauchlin Currie, out of which grew this correspondence; some letters back and forth between Keynes and me.

I said before that one of my duties was connected with the theory of price controls and with making estimates concerning subsidies. The other main function I should say probably was to act as a -- to sit for OPA on some interdepartmental committees, especially at the Treasury, in order to get some coordination between the fiscal aspects of anti-inflationary controls and the price control operation, so that I was concerned with some of the tax aspects of the anti-inflationary policy which the operating people in OPA were not much concerned with.

HESS: Who else sat in on those committees from the other organizations, from Treasury? Do you recall?

[26]

SALANT: Well, I remember that there was a group working for the Treasury on how to prevent inflation by taxation under Carl Shoup, Milton Friedman and Ruth Mack. Milton Friedman was not then as famous a man as he is now. A number of agencies were represented there. I can't remember now, but almost any agency that had a concern for taxation or anti-inflationary policy, was on that committee.

I should have mentioned that I also represented OPA on the Trade Agreements Committee, an interdepartmental committee that considered proposed tariff reductions under the Trade Agreements Act.

HESS: And then you moved to the Economic Stabilization. You were Economic Advisor to the Economic Stabilization Director.

SALANT: Economic Advisor, yes, to the Economic Stabilization Director. That was in...

HESS: '45 and '46.

[27]

SALANT: April '45.

HESS: Was it at this time that you were working on the establishment of the Council of Economic Advisers, or was that when you were with the Price Decontrol Board in '46?

SALANT: Are you referring to the material in Steve Bailey's book?

HESS: That's right.

SALANT: I did that actually before, when I was in OPA. I can't remember really having done quite as much as he says, but I think that may be partly because I wrote a few memoranda which I then left at that, and didn't participate for long and actively in that. But in the very early stages when James Patton was spearheading a particular kind of full employment bill I wrote some memos, I think, for Senator [Robert F.] Wagner's committee, Banking and Currency

[28]

Committee. That was before I left OPA; before April '45.

HESS: Good. Let's get into that. What can you tell me about the setting up and the drafting of the full employment bill?

SALANT: I really don't recall very much about that that isn't in all the standard -- in the works on the subject. The initial, rather naive idea, was to have some automatic compensation for a change in private demand in the form of compensating changes in Federal expenditures. That was strongly opposed by the opponents of the new fiscal ideas, but also I think any sophisticated proponents of them would have regarded them -- the proposals that were first made -- as too mechanical. But my recollections of that are not at all clear now.

HESS: I was just reading a little bit from Stephen

[29]

K. Bailey's book, Congress Makes a Law: The Story Behind the Employment Act of 1946, about the initial drafting. I will read this one paragraph and get your opinion of it, page 45:

"[Bertram] Gross' first move was to call Russell Smith of the Farmers Union and tell him what was in the air. Through Smith and other contacts, Gross was able to organize an informal committee, the most faithful members of which were: Louis Bean, V.O. Key, Gerhard Colm of the Budget Bureau; Emile Benoit-Smullyan, representing the views of John Pierson of the Bureau of Labor Statistics; Walter Salant of the O.P.A.; James Earley, representing the views of Richard Gilbert of the O.P.A.; James Maddox of the Bureau of Agricultural Economics; Russell Smith of the National Farmers Union; and finally, Kurt Borchardt of the War Contracts Subcommittee staff."

What do you recall about that group?

SALANT: Very little. I recall more (and that's not very much), about a group that met at the Federal Reserve for some time prior to that with Alvin Hansen who was a consultant for the Federal Reserve and Gerhard Colm, Lloyd Metzler. I don't really remember this group very well. I really

[30]

don't remember it at all, to state it more accurately. Jim Earley I worked with at OPA so I remember these people as individuals, but I don't remember much about meeting with them as a group.

HESS: What, in your opinion, seemed to be Mr. Truman's attitude in connection with the Council of Economic -- the budding Council of Economic Advisers at this time? What do you think he foresaw as the functions and the duties of this new organization?

SALANT: I can't really tell. I was the youngest senior staff member of the Council and I was not -- and my responsibilities were, in a way, not in the field in which the Council members themselves were most interested, which is one reason I was overloaded with work. My responsibilities developed to be almost entirely in the international field. I was the only senior staff member responsible for international work. All

[31]

the others were distributed over various parts of the domestic economy, and that's what the Council was really most concerned with. So, I would say that I -- I didn't have any assistant in this either -- so that you might say, in the first place because I was young, I was probably not regarded as one who participated with the Council members themselves directly in what they were sending to the President, but rather tended to do it through Gerhard Colm, who had an undefined leadership role among the staff members. And also, they didn't really spend much time on international stuff. In the first report, for example, there's only about one paragraph, I think, on international problems.

HESS: Was that an error perhaps? Should more of -- more interest and more time been spent on international matters that early? Should more attention have been given international matters?

[32]

SALANT: Well, I think it could have had more attention, but then of course, it began to command more attention when the British used up the Anglo-American loan very quickly and it became clear that something was going to have to be done which developed into the Marshall plan, and in fact, the Council was given an assignment in connection with the Marshall plan as to the effects it would have on the U.S. economy.

HESS: What was that assignment?

SALANT: To write a report. The President had three reports written by three different groups; the [Averell] Harriman group, I forget what their assignment was; and a group under Mr. [Julius A.] Krug, who just died the other day, on the mineral resource aspects of it, and a report by the Council on whether we could afford it and what it would do to the U.S. economy, which I guess

[33]

got the least attention.

You asked about the attitude of the President. I think that there were times, in the early stages at least, when perhaps the Council, perhaps Dr. Nourse felt the President wasn't getting all the -- giving all the attention that Dr. Nourse would have liked to the report to the President. I think that (this is a personal guess), that the first drafts of the report that were sent to the President probably were not well adapted to the requirements of the presidential office, that the President probably felt that he was reading the first draft of a Ph.D. thesis. The first report was rather too long and the President doesn't have time for such things, and I think that Dr. Nourse probably took as an indication of a lack of interest what may really have represented a mistake in what was being given to the President.

HESS: Was there anyone on the White House staff that

[34]

tended to act as liaison with the Council? Who was your point of contact on the staff?

SALANT: Well, at first Mr. [John R.] Steelman, I can't remember the time relationships so that I can't remember who it was at the outset, but I think there was substantial rewriting of the very first report by -- in the White House itself, then it came back to the Council. But at late reports...

HESS: Do you know who rewrote it in the White House?

SALANT: Well, a team. I think that one of the -- I remember that there was a man who was in charge of the sort of writing and public information activities named Anthony Hyde, and an excellent economist who has been at the U.N. since or almost since it started, named Jacob Mosak, participated I think in that writing. At that stage I can't remember whether Robert

[35]

Turner was -- did any work on that or not; he may have.

HESS: Now, one question on Mr. Nourse himself. Before...

SALANT: Oh, excuse me, may I just add one thing more? I know that Turner was a point of contact at a later stage, I can't just remember when he came into the White -- because a member of the White House staff, and another economist, I forget who he was.

HESS: Do you recall what particular messages -- was it a particular message, or a project with which you worked with them at the time that they were a contact?

SALANT: Well, I worked with them on various sections of particular reports -- economic reports of the President. My most vivid recollection of contact -- and this is perhaps one of the most important things I felt I had some kind of

[36]

hand in -- was in connection with the point 4 program.

HESS: Tell me about that.

SALANT: I think nobody knows the full history of that, so all I can tell you is my own participation in what may, or may not have had, anything to do with it.

Around in late 1948, we were concerned -- those of us who were concerned about international payments problems were concerned about the need of Europe to obtain imports from the United States when they did not have financial resources owing to low export capacity and the depletion of their international monetary reserves, and clearly they needed aid. But at the same time I was concerned and was interested in the position of less developed countries and the need for development. That seemed to be an important thing to me, although I don't know

[37]

how many other people felt so at the time, and it seemed to me that as European export capacity increased, there was a possibility that we could gradually shift the direction of foreign aid from Europe to less developed countries and that the expenditure of aid that we gave less developed countries would go partly to Europe as Europe's export capacity increased, and that Europe could earn dollars in this indirect way. In December, I think it was, of '48, I recall making a lunch date with David Lloyd, who was on the White House staff, and put this idea forward and he showed great interest, in fact what struck me as a rather extraordinary and surprisingly urgent kind of interest in this idea, and asked me if I could give him a memorandum on those ideas, and I said that I could. It was a hard -- a peak period for the Council, whose economic report was due in January, and I asked him when he wanted it and he said, "By 6 o'clock

[38]

tonight."

And I said, "I can't give you a memorandum, but I can make an outline just, you know, sort of listing the points."

And he said, "That would be all right."

And I did that, and a little while later he said that he had passed these ideas up and there was considerable interest in them, and he said they would be -- he thought they would be very useful for a major speech by somebody very high up. I recall with embarrassment at my naivete, that at first I couldn't think of what speech it would be. The continuity of the administration was something I had more or less taken for granted after the election, and I just forgot that the President was going to have to make an inaugural address. And a little later Dave Lloyd called me again to come down to his office and read me a passage, a few paragraphs I think it was, from a speech that was to be

[39]

given, which turned out to be a draft of the point 4 paragraphs of the President's inaugural address. Shortly before Inauguration Day, he told me that it was going to be in the inaugural address. I recall that that put me in a somewhat embarrassing position because I think the draft of this address had not gone to the Council and he asked me to tell the chairman of the Council, Dr. Nourse, that this would be in the inaugural address and I didn't have the wit to say, "You ought to tell him," or something. I was put in the embarrassing position of having to tell Dr. Nourse that I knew of something that was going to be in the inaugural address and had been asked to tell him about it, when he apparently didn't know it. He shouldn't have heard it from me. What embarrassed me was that he might think I had been trying to put something up to the White House not through channels, whereas in fact I had just been trying out this idea at a

[40]

luncheon with Dave Lloyd, with whom I had lunch every now and then anyway. It all started out as a sort of casual thing from my point of view and developed into this.

Now, it turned out that a lot of other people -- well, some other people had been sending ideas up to the White House, too, although they were different. My idea was a capital investment idea; that is to say I was discussing the use of funds. A man named Benjamin Hardy had been pressing unsuccessfully, through the State Department, and I understand then communicated his ideas directly to the White House -- he had been pressing the idea of technical assistance. These ideas came together in Clark Clifford's office, I believe, and for all I know so may similar ideas of other people, too. I just had heard about the Hardy one. Everybody knows only what he sees and happens to hear about and doesn't know too much about what other ideas head up to the President's

[41]

office. Clifford probably would know, but even for somebody in a central position, the identity of the people who send things up probably gets lost, so I doubt if anybody really has the whole picture. But anyway, as the message read, it was not clear whether the point 4 idea was intended to be totally one of technical assistance, as it was subsequently interpreted to be, or whether it was sort of neutral between technical assistance and capital funds. It is true that there wasn't much stress on capital funds, and one can easily see that, to the President, technical assistance would be much more appealing because it would involve less money.

HESS: Do you think it would have been more successful if it had stressed capital funds more than it did?

SALANT: Well, I don't think it really mattered very

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much because before we got finished we were providing capital funds too, and it took a long time to get the whole idea started. The State Department appears to have been caught quite flatfooted by the point 4 proposal. In fact, the State Department really rejected the idea when Hardy suggested it.

There would be a great story for the oral history which you may have, about what happened to Hardy's ideas when he tried to get them put forward through channels. I understand that they were discussed in a State Department meeting and there are people around who can tell you what happened at those meetings. I remember being told a story that the fiscal officer said, "Oh, the budget's already in, it's too late," you know. Here is an interesting example, if that story is true, of a major policy idea being pushed aside on what, in the light of history, one would have to regard as an essentially bureaucratic

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ground. If I recall correctly, two of the people who participated in those meetings were Wilfred Malenbaum, who I think is at the University of Pennsylvania now, and Joseph Coppock, who is at Earlham College.

HESS: Where's that?

SALANT: In Indiana. And I guess, of course, Willard Thorp, who was the Assistant Secretary for Economic Affairs, would know more about it, but I never talked to him about that. The reports that I got came from one of the other two, if I recall correctly. But that would be something to go into, I think, if you don't already have it. I had the copy of the memorandum I gave to Dave Lloyd and I mentioned it once to one of your predecessors who was working on oral history, I can't remember who it was, a few years ago. I mislaid a little folder that I had on the origins of point 4 and I've never come across it in my

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house since; it's probably in the basement somewhere.

HESS: When you find that let's send it out to the Truman Library. That will be the heart of the Walter S. Salant papers in the Truman Library.

Have we answered our question of whether or not Mr. Truman took a close interest in matters pertaining to the Council of Economic Advisers and if not, why not? Did you feel that he paid as much attention to the recommendations of the Council of Economic Advisers as he should have?

SALANT: I have no means of being able to judge that. I think very few Presidents really -- until President Kennedy -- had any real interest in anything but the results of economic policy or policy recommendations.

HESS: Why was he the exception?

SALANT: Well, I think he had a more analytical mind

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than most, that's my impression. Economics has gotten better at explaining the short-term developments that Presidents tend to be most interested in, such as the economic outlook. We can now say something more sensible than talk about business confidence. Also, he was more exposed to economists. I don't know whether he was so much an exception in the light of all those who've come later, as he was the first of a new breed in being interested in those things. After all, President Roosevelt was interested in hearing any details about economic policy, Churchill wasn't.

An interest in economics usually is associated with a degree of analytical capacity that almost unfits a man to be a great leader. It takes almost a certain degree of irrationality, I think, to exercise a great degree of leadership. You have to be a real romantic. Consider Churchill's position before the Battle of Britain.

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A rationally calculating man might have said, "Well, the odds are clear. We should give up." It would take a very sophisticated rational calculation to figure, as he probably did, that they could hold on for a certain length of time, long enough for the U.S. to come in and so forth, but there's real question whether the people who have that charisma (to use the current word), and who can exert moral leadership, could do so if they were close calculators.

HESS: Does one have to be a close calculator and completely logical to be an economist?

SALANT: One has to be pretty analytical. You don't have to be a computing machine, but the technical details of many things -- things in which President Kennedy seemed to show more interest than any predecessor that I know anything about -- don't have any appeal to people who are interested

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in rather broad issues. They want to know the answer. Of course, Roosevelt was interested in economic policy, that was a major -- in the first part of his administration that was the major problem, but I don't know that he would have been interested in hearing much about the economic effects of a change of the exchange rate before he devalued the dollar. He would just want to know, "What does it do; tell me what it does and don't tell me how or why." I think President Nixon's statements show clearly that he has a quite good understanding of some of the things he gets from the Coun