"Sound as a Dollar"

The two men chatting last May at the glittering White House dinner for French Minister of Cultural Affairs Andre Malraux found themselves, like many other Americans, discussing the U.S. economy. Both had a good deal to say, and they disagreed in some important particulars. One was President Kennedy. The other was David Rockefeller, 47, president of the Chase Manhattan Bank (the nation's second largest), Harvard man, Republican, and younger brother of New York's Governor. As they talked, the President asked Rockefeller to set down his views about the economy in a personal letter. This week LIFE printed Rockefeller's letter to Kennedy, together with a reply from the President, in just the sort of serious dialogue that Kennedy has sought to have with the U.S. business community.

Vicious Circle. In his letter to Kennedy, Rockefeller expressed confidence "that the thoughts I express are shared widely within the financial and business community, both here and abroad." To help solve the U.S. balance-of-payments deficit, he suggested several measures, among them cutting military expenditures abroad, tying more foreign aid to U.S. exports, pushing an export drive, and keeping interest rates firm, or even raising them, to attract investment by foreign capital. But the heart of the problem, said Rockefeller, was the general posture of the U.S. economy, in which he saw "a vicious circle of events; namely, a constant rise in costs, a squeeze on profits, and a serious lag in investment." Rockefeller suggested that a thoroughgoing overhaul of the nation's tax system was essential, but he questioned the Government's ability to make its planned tax reforms effective while great increases are occurring in Government spending. Said he: "I would urge upon you a more effective control of expenditures and a determined and vigorous effort to balance the budget. Such measures will strengthen confidence everywhere in the future of the dollar."

Kennedy, in his reply, promised to uphold the dollar "with positive solutions." He ruled out devaluing the dollar or imposing exchange controls as measures to stem the payments deficit. He pointed out that the Administration has already cut the dollars spent abroad on defense to $1.7 billion a year, that U.S. Allies are being pressed to increase defense costs, and that the Administration is stepping up its program for increasing exports and attracting foreign visitors and capital to the U.S.

To keep the economy healthy and encourage investment, the President said, another inflationary spiral must be prevented: "Our share of the world's manufactured exports declined in the 1953-60 period by nearly 16%--at the same time that our prices on these products, relative to those of other industrialized nations, increased 14%." To ease the profit squeeze and encourage investment in modernization--thus helping to cut costs and raise exports--he had proposed a new tax credit and a revision of the Treasury's depreciation rules that together would mean a "tax cut" for U.S. businessmen of $2.5 billion.

The Real Key. "But," said the President, "the real key to increased business profits--an objective I wholeheartedly share--is increased use of capacity. We must end the slowdown in the nation's rate of economic growth--and all of the domestic measures of this Administration are aimed at this objective. Some of these measures cost money--money which, for the most part, is used to purchase goods and services from the American business community. This does not, however, di minish the need for strict control of budget expenditures--and I have found it desirable to trim the budget requests of the various departments and agencies by several billion dollars each year. More than two-thirds of our budget increases have been for national security and space--and new domestic civilian programs took less than one-half of 1-c- of the taxpayer's dollar. I assure you that this Administration intends to do whatever must be done to make certain that the dollar remains as 'sound as a dollar.' "

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