ROBERT L. HEILBRONER

168 EAST 74TH STREET
NEW YORK 21, NEW YORK

January 22

Dear Henry:

Herewith some comments on the present draft of Subpanel IV

First and overriding: It does not to grips with the
most important economic and social question of the
(hopeful) future: what happens if the Cold War wanes?
I see three things the report could do about this:

1. Simply raise the question. ( I shall do this in the appropriate chapter in our book )

2. Ask someone like Burns to do an Appendix on this question.

3. Announce the formation of a Rockefeller research project to study this question and to report in six months or a year.

Now for more detailed criticisms.

p. 2. I don't like the "45 million automobiles capable of carrying all the population". It leads to nasty remarks about "Where the hell are they all going to go?". Let us beware of making too much of our material plenty.

p 12. "The real preoccupation of the system was the individual". Was it? Not in my economic history books. Let us be more sophisticated with this "individual" thing.

p 22. "Market forces would result in the most economical development of world petroleum resources". I would omit. It's hard to talk of market forces against the realities of foreign cartels and domestic oligopoly. Suggest we simply ask for more imports as pretty clearly in the national interest.

p 40. Do we really want to encourage consumer savings? This is a very complex question. I think we want to encourage a high level of consumption plus high corporate savings. I would like Burns opinion on this.

"Also: this Commission we want to set up. Isn't there such a commission recently announced by C.E.D.? Let us not duplicate or be caught off base on this.

- 2 -

[y]

p 42. Double taxation of dividends. I fear this is a pious rather than realistic suggestion. It only makes sense when coupled with an undistributed profits tax to force corporations to pay out dividends. But do we want corps to pay high dividends? I would prefer seeing this question by-passed. And the next para about "high marginal rates" in effect means less progressivity in the tax structure. What is the realistic alternative to high marginal rates? Are they really high compared with Canada or Britain? Have they actually interfered with growth, or rather have they not encouraged investment in capital-gains equities? Oh, and finally: the people who are hit by the double-taxation do not play a "strategic role" in capital formation. The strategic role is played by the corporations themselves who finance the bulk of investments out of retained earnings.

p 46. Where does the school expenditure figure come from? ltx is not ( note p84 ) expenditures on education itself ( salaries, etc. ). I don't think Panel V offered this figure. What Panel V did suggest was that "education expenditures" which included, I thought, plant and equipment, should rise to 5+% of G.N.P. For a GNP of $594 in 1965 (4% growthrate) that is an expenditure budget of about $29 billions. This is much higher than the figure on p 84. However it is by no means all Federal. This tangle needs undoing.

p 66. After all the hoopla about slums, the $1 billion recommendation is trivial. Suggest we do it as I have outlined in my reconstituted chapter IX: accept the $100 billion global need, allocate it over twenty years, and assume a "desireable" expenditure of $5 billions a year. This can then be made subject to other claims on the economy. But it can hardly be put second to roads, or for that matter shelters.

p 69. The health section simply fudges the issue. The nation's health is not good and I doubt very much if the voluntaristic methods suggested would deal with that section of the nation which does not or cannot afford good health. If the panel is dead set against compulsory health insurance it must at least phrase the matter more understandingly.

p.76 The suggestion that Soc. Security be paid at age 65 as a matter of right, regardless of continued earnings ( in excess of $1,200 ) has been deleted.

3

On the face of the matter this seems an inequity.
Is there is a good reason for deleting the suggested
change to automatic eligibility, regardless of
earnings? (Remind you that the receipt of property
income does not impair Soc. Sec. rights).

p 84 Urban rehabilitation is not specified in the "budget". Is it in "other"? It should stand by itself. Here is where the $5 billion figure can be judged as feasible or not.
I have already called attention to the lack of internal consistency of the education figure.

I would also wonder if we should not separate
Federal from state and local expenditures here.

p 86 (11.4) I don't know where the very important figure of 10.7 percent of GNP into investment comes from. EG. For 1957, Gross Bus Investment was $65 billions or roughly 15% of GNP. Net bus investment was $35 bil (for new plant and equipment only, not housing.) This is about 8% of GNP. These figures must be supported by a short memo from whomever they derive.

In addition, these investment figures are not
necessarily a claim against a growing economy. Some
aid growth; some have much less growth effect.
The construction of a new steel plant and of a
new movie house are both " net investment " but
clearly do not contribute equally to growth. Hence
it is not only total investment, but the direction
of investment which counts. This can also be made
a matter of public policy. I raise this sticky
point because I am a trifle uneasy about the
simplistic subtractional method by which we see
if there is "enough" left for gov't.

p. 93 Very important. You cannot assume that consumer spending grows at 4% when GNP only grows at 3%. This throws your table out of whack, reducing the 384 bil. consumption figure to 355, and paring the "deficit" from 49 to about 19 billion -- a very tolerable figure.

p. 96 This is the critical point about "not needing" defense expenditures. If this is true, it sure as hell hasn't been demonstrated in this report.

4

[y]

My own personal preferences about this total claims section would be to aggregate all the desirable claims -- which means $5 bil. for slum clearance and an education total $18+$4=$22), and then to see what this grand total public budget leaves available. It would be approx as follows:

| | 4% growth | 3% growth |
|:---|---:|---:|
| **Total GNP available** | 594 | 550 |
| **Total public expenditure** | 180 | 180 |
| *($1 bil bigger than in report)* | | |
| due to additional slum education # | 39 | 39 |
| **Leaves as public demands for goods and services** | 141 | 141 |
| **Leaving for nongov't** | 453 | 409 |
| **Investment claims** | x87x | |
| **x8x bus (Less in report)** | 49 | ? would be less at 30%? |
| housing | 24 | ? at 90%? |
| **Leaving net for consumers** | 362 | ? |
| **Today's consumption** | 281 | |
| **Potential increase** | 81 or not quite 30% | |

This rise in consumption is not the equivalent of our rise in "standard of living", since some of the gov't expenditure would result in higher real consumption -- such as health, welfare, housing, etc. But it indicates that the price of an economy in which all desired public projects are realized is one in which all private desires cannot be. The "price" is the difference between the rise in free consumption of the indicated amount ($814) and the amount it would rise if it grew pari passu with the economy (362 bil in the former case vs 384 bil in the latter). It also indicates the need for certain restraints on consumption, such as taxes, or installment reins.

This analysis also has logical difficulties due to the dynamic interdependence of the variables which we here treat as independent, but I think it is a more cogent method of setting forth the issue.

I have no carbon of this letter which is written in some haste, so do keep this for our future discussion.

 yours,

22 WEST 55TH STREET

February 7

195

To: Henry
FROM: Nancy

I talked to Mr. Thomson and he will draft you something over the weekend, though it might not get here by Tuesday. He would have done this earlier but he thought that since Dean Efferson worked for the Rockefellers that he shouldn't touch agriculture. (I allowed that Dean E's membership on the panel had nothing whatsoever to do with this.)

Also, when we got this and the fact that he would have another chance to go over a new version out of the way -- he brightened up tremendously; sounded eager to be of any help he could--will be in NY the 19th and 20th and wants you to call him if he can be of any help at all.!

NORTHWEST BANCORPORATION

Northwestern Bank Building

February 1958

MINNEAPOLIS

Mr. J. Norman Efferson
Dean, College of Agriculture
Louisiana State University
University Station
Baton Rouge, Louisiana

Dear Mr. Efferson:

By now, you have seen the revised report of our Rockefeller Bros. Panel including the portion devoted to agriculture.

The present recommendations do not cover the transition period and they are unrealistic as to the reduction in the amount of land in order to bring supply into line with demand. Taking marginal farmers' land out of production will not do the job. There has to be a good deal of better land taken out of production during the transition period if we are going to get down to a balance and the report has to recognize that the government will have a continuing responsibility to keep the supply of farmers, materials, and land at a level which will enable the farmer to get the free market price for his products. If we can keep supply and demand approximately in balance, I believe that price will be higher than at present. That factor together with a smaller number of farms should enable the efficient commercial farmer to have a really good chance to share in our national prosperity.

Since you were going to write your comments on the previous draft, I assume you will do so with the present draft. I would very much like to see a copy of your comments.

I believe we both have an interest in improving the present statement as far as its reference to agriculture is concerned.

cc: Dr. Henry A. Kissinger
JCT

GENERAL COMMENTS

MAXWELL BRANDWEN:

(in conference with NAR -- February 7, 1958)

The first chapter "The Challenge" needs reworking. It comes to an anti-climax near the end. It needs probing of greater depth. The application of the result of our material growth to further the values of our society, which is set forth as the second of two challenges to the United States, is not discussed. There are several contradictions in the text as when on Page 7 the public wariness of bigness is cited while on page 12 it is pointed out that large organizations are playing an ever more important role. The chapter on "Motivations" (VI) should either be more fully expanded or should be used as an addendum to another chapter. As it stands it is either too long or too short. The chapter on "National Priorities" (VII) does not take sufficiently into account the interrelations of our economy, nor does it point out that a 1 per cent differential in consumption (i.e. a reduction of 3% from 4%) will leave us with a surplus rather than a deficit, AND thus with an entirely different problem from the one projected.

**MAXWELL BRANDWEN:** Fourth Line and Fifth Line: It is doubtful that business has recognized this. This seems to be an oversimplification. Business pays its respect to the public service and recognizes that there is greater need for concern with public service but has not yet achieved the plane on which public service is its guiding consideration.

Second paragraph - third sentence: "The American ..."
This statement is too harsh and is questionable. It is also very dangerous.
It sounds as though you were saying that the end justifies the means --
In short, voicing the communist viewpoint.

* (NAR suggests pointing out that without a recognition of public service as an aspect of its function, business cannot remain a vital force.)

**MAXWELL BRANDWEN:** First paragraph: There is a contradiction here between the first and last sentences of this paragraph. The first sentence is not a valid statement of the fact. We do have an economic system in which public responsibility and moral convictions play a part, but the motivations stated in the last sentence are still more characteristic of our society as a whole.

(NAR suggests this be rephrased to indicate that private initiative, organized labor and government activities are all suffused with a growing sense of public responsibility and moral convictions but that there is a conflict among them and it is the conflict which creates what we have.)

- 19 -

**MAXWELL BRANDWEN:** First paragraph: This statement lets industry

off too lightly. Look at the earnings of the steel companies in 1957.

Despite a recession, earnings were the greatest xmas of record, even
with wage increases.

Second paragraph: Fourth sentence -- Government
action <u>can</u> provide technological innovation etc. to make growth an
actuality. This underestimates what government <u>can</u> do.

Last paragraph: You deal in previous paragraphs
with anti-inflation and anti-deflation measures, but say here that
specific recommendations are not within the scope of this report. You
should either deal with inflation fully or leave it alone.

* (NAR cites the development of atomic energy as an
an illustration of a major technical innovation and thrust that has come
from government. Brandwen points out that business ends can be served
by sound thinking on this point.) (NAR suggests the possibility of a table
or chart here showing the extent of research going on in government
today which has implications for the forward thrust of our economy in
general.)

**MAXWELL BRANDWEN:** * Second full paragraph: Is there not a substantial gain in general well being when one leaves the $2000-$5000 bracket and goes to the $5000-$10,000 and from the $5000-$10,000 above? Why assume that the 7 million families in the less than $2000 bracket will always remain there? e.g. If as (page 38) housing for 30 million people is below reasonable standards, certainly many in the $2000-$5000 bracket need improvement along that line.

Comment at end of second full paragraph: This is too static an approach.

* (NAR suggests that what was intended here was to say that if our present economic growth continues, there will automatically be a further redistribution of wealth.)

be a further redetermination of wealth.)

that if our recent economic growth continues, there will automatically

* (NAR studies that what was intended here was to say

static as abscissa.

paragraph need improvement along that line.
Because it below reasonable standard, certainly many in the $2000-$2000
remain there? e.g. If we (late 88) housing for 30 million households
that the 1 million families in the less than $2000 packet will leave
the $2000-$210,000 and from the $2000-$210,000 above? Why assume
in general well being when one leaves the $2000-$2000 packet and does

MAXIMIZING BUDGET: * Second full paragraph: Is there not a substantial dev

- 33 -

- 87 -

**MAXWELL BRANDWEN:** Chart - last line: This is not too serious particularly if we assume that growth may be a little less accelerated in 1958-59. If consumption is projected at the rate of 3% instead of 4%, it leaves a surplus margin of 1 billion in 1960 and 17 billion in 1965. It it conceivable therefore we shall be confronted with an inflationary problem rather than a deficit problem at that time.

The figures on this page do not give adequate recognition to (a) the interdependence of a 4% growth and expenses charged against growth, and (b) variations in expenses -- demands -- which need not necessarily impede 4% growth. You have dealt with only one side of the equation and have not taken into account the employment of technical research aspects that have come to the fore. I might say that our previous record is not necessarily the controlling factor over what we have a right to expect of the future.

March 13, 1958

MEMORANDUM FOR DR. KISSINGER

Subject: VI Report discussion of Messrs. Rockefeller, Price, Ruebhausen, and Heilbroner, March 13, 1958.

Since Mr. Price is leaving town on March fourteenth, the above group met to discuss his suggested revisions of the VI Report (attached).

I. Introduction

A. Three-fold Threat

1. NAR felt that it was good to point out the threats to our institutions, but felt we should give an indication of the answer to them, i.e., stress an informed, responsive, and responsible electorate.

2. The first aspect: questions must be revised and broadened.

3. The second aspect: broader approach, the individual is the goal, not just merely building of a secure peace.

4. The third aspect: point is not well stated and should be revised and perhaps include Mr. Price's reference to the difference between American democracy and that found elsewhere: we built ours on values other than mass democracy (Federal system, checks and balances, etc.).

B. There was a feeling that a few points along the lines of Dr. Dickey's presentation Friday night should precede the "Threats" section. Following the "Threats" section there should be a clear statement of the importance of organization and structure of our institutions and why a consideration of them is important to us not only at home but also abroad.

C. General comments and comments on specific pages:

1. Introduction should bring in the international problem as well as the domestic.

- 2 -

2. Page 3, first full paragraph: NAR: must be our purpose to make these beliefs reality.

3. Page 3, second full paragraph: We should give every individual the opportunity to achieve his potential *not especially if he is a citizen of exceptional talent.*"

II. **The Parties and Pressure Groups:** this section should include a discussion of the importance of the continuity of planning.

III. **The Personnel Need** (pages 46 and 47) should be revised to set forth that the career civil servant should carry out his instructions with determination but this does not prevent his function of warning, consulting, advising, etc., prior to receiving orders. It is not his business to stir up the Congress and the main heat should always be taken by the political appointee.

IV. **The Nature of the Presidential Staff:** Mr. Price agreed to write a paragraph or two giving an indication of more specific organization recommendations. NAR felt that the distinction made between the staff and the interdepartmental committees was not accurate. He also feels that the Secretary of State must have a staff that is not part of the Foreign Service.

V. Mr. Heilbroner will attempt a draft of an introduction for your consideration by the early part of next week.

VI. Chuck Thomson will be in New York for a meeting on March 24. He will be glad to talk to anyone you want him to that afternoon and start the redraft.

March 12, 1958

MEMORANDUM FOR MR. NELSON A. ROCKEFELLER

From: Don K. Price

Subject: Revision of Subpanel VI Report, draft dated February 26, 1958

In reconsidering this draft on the basis of our meeting last Saturday I think that there are two especially difficult points involved:

1. the introduction and,

2. the section on presidential staff, including the Secretary of State.

I have accordingly made a stab at a dictated draft of a part of each of these two sections. If these stabs are successful they may serve to set the tone for the rest.

In addition I will note in a separate memorandum a few of the specific points that need to be watched in the revision, with comments on them. Perhaps this will make it more convenient for you to give your suggestions to whomever is charged with the drafting.

Note from NH

Although identification of where each suggestion fits into the draft is indicated at the top of the page, also enclosed is a copy of the outline used Saturday in case you wish to refer to it.

cc: Mr. Price - Hand Deliver 9:00 a.m. Thursday
Mr. Ruebhausen - Hand Deliver Home Wednesday p.m.
Mr. Heilbroner - Hand Deliver Home Wednesday p.m.
Mrs. Savelle
✓ Mr. Kissinger
Mr. Thomson

VI - Report
February 26, 1958
(Price revision)

- 1 -

## Introduction

Our democratic process is under a three-fold threat.

It is important to understand the nature of this threat to our democratic institutions, as we seek to meet the more obvious and apparent threat to our physical survival and national interests.

The first aspect of this threat, and the one that is most easy for us to understand in the era of Sputnik, comes from the complexity of modern science. Can the democratic institutions of a simpler era cope with the complications of a nuclear age? Can politicians who are ignorant of the mysteries that are reshaping our lives continue to be responsible for the decisions on which our fate depends? Or has control over our destiny passed to some secret back-room scientific council, or worse still to some commander of a strategic bombing plane who may feel impelled to act hurriedly on the basis of inadequate communication?

The second phase of the threat is less immediate and cataclysmic but no less real. The building of a secure peace and hopefully of a just and honorable world order will require a constancy of purpose and a capacity to act with a degree of speed and decisiveness that it has always been hard to muster in peace time. Can we rise above the subsidiary threats of psychological or economic depression and take the bold and far reaching steps which are needed to stabilize our leadership in distant parts of the world, and to rid our potential enemies of any delusion that we

- 2 -

are likely to back down in the face of a nibbling series of local
encroachments?

But the third phase of the threat is the most dangerous of all. We
have misunderstood and underestimated our opponents and put our faith
in the wrong aspects of our own system.

Because we detest and reject the Communist doctrine we do not
realize how much it appeals to the new and poverty stricken nations with
its vision of man as the magic controller of the universe, bent only on
satisfying his material wants. But more important we have let our case
go by default, by failing to understand how different our democratic system
is from the theoretical system that has been held up as the model in many
Western countries over the past two centuries. That is a model of
democracy which, by forgetting the moral foundation of personal rights,
has weakened both the individual, the private institution, and ultimately
the executive power of government itself. The concentration of all power
in theory in the single national mass electorate, and in practice in a single
representative assembly, has led too often to the destruction of
representative institutions and personal freedoms and the substitution of
one party rule.

It is time now to search back to the fundamental principles of our
constitutional democracy. While acknowledging and correcting its many

- 3 -

imperfections we may well find that it can not only save us, but serve
as an example abroad. We would not offer it for imitation in its structural
details, but would reaffirm the validity for our present era of its
fundamental principles.

For it is founded on a faith in the moral responsibility, the dignity,
and the divinely guided destiny of man. It includes protections for
individual personal freedom, as the best safeguard for moral development
and responsibility and it also involves the equal and active participation
of its citizens in the processes of government.

This equality is one not of capacity but of opportunity; while we
seek to protect the individual as a moral being from coercion by minority
groups or even by majorities, we should also give him the opportunity --
especially if he is a citizen of exceptional talent -- to use that talent to
its fullest in the public service. And as a means of making possible such
exceptional service, and protecting such personal and minority rights, we
do not settle all matters by direct majorities or by popular vote, but
maintain our representative system, giving due regard to the roles of
political parties, private corporations and institutions, and state and local
governments, and to the mutually responsible relations of an independent
legislature, executive and judiciary.

- 4 -

Within this system it is possible, as repeated experience during
emergency or war has shown, to organize vigorous and effective executive
action without sacrificing our essential liberties. This ability will be
put severely to the test in the decades that lie ahead. For as the studies
of our associated panels have shown we can no longer wait until disaster
is on us -- in either a military, diplomatic, or economic guise -- to take
preventive action. Without yielding our fundamental moral principles
or the fundamental aspects of our constitutional system, we must learn
how to sustain the government and to make it adequate to our national
responsibilities for leadership in the world.

This will require a system of more effective communication between
the government and people through party and representative institutions,
as well as within the executive machinery. It will require more adequate fore-
thought for our crucial problems -- more adequate machinery to develop
policies, work out effective programs, and carry them into execution. It
will require an effort to breathe even greater vigor into the state and local
political institutions in which our free citizens are trained for political leadership.
P.
and in which they take many of their most important decisions.

It is to suggest some key approaches toward this complex and crucial
range of problems that this Panel has prepared its report.

VI - Report

February 26, 1958

(Price revisions of)

## II. THE STRUCTURE OF OUR DEMOCRACY

### A. A Federal Republic (Pages 8 to 15)

This section would follow the kind of general introduction I tried to sketch out in a first draft. I think it should include some emphasis such as Dean Pike suggested on the importance of voluntary institutions in a constitutional democracy. (I do not see the voluntary *asapposed* to constitutional democracy.) While the Panel did not discuss it very much if at all, I do not think it would be out of order to point out that it is important in a free society to have strong private institutions as well as strong state and local government, and indeed the private corporations are taking over by subcontract from government more and more important public functions, just as the states have built up their functions with the help and encouragement of federal grants. I do not think the measure here is the comparison of ultimate power or of dollar expenditures as between the federal and state levels. I think the important thing to stress is that the nature of our federal government, with the judiciary and the congressional committees having a built-in motive for supporting state and local, and against federal bureaucracy, maintains a healthy pluralism in our system, even at a time when all of the weight of technological progress puts a premium on centralization.

VI - Report

February 26, 1958

(Price revisions of)

### B. The Parties and Pressure Groups: Poles of Power

(Pages 16 to 23)

I think it is possible and desirable to stress the role and responsibility of parties and the need for assumption of more responsibility for developing responsible and consistent policy positions within each party. I do not see as the ideal a system in which the greatest possible number of major issues are settled by battles between parties, or in which those parties differ in fundamental theory on major issues. Consequently I would be strongly against any proposal to give party machinery as such authority or influence, as over against Congressional leadership or executive authority. The parties should be a medium and a process through which executive and legislative leadership come into agreement, not competing third force.

(Re the foregoing paragraph, I do not think our group had any consensus and I am expressing a personal view.)

VI - Reprt

February 26, 1958

(Price revisions of)

### III. LEADERSHIP WITHIN THE DEMOCRATIC PROCESS

#### C. Leadership Within Government (Page 44 - )

##### 1. The Personnel Need (pp. 46-47):

On the issue of the senior career service and the nature of the political appointees who help department heads, I was interested in our discussion of the issue whether Congressional committees should question career officials. We cannot recommend a rigid rule that they should not, but I do think that we should endorse the principle that it is not the obligation of career officials (either civilian or military) to come forward either surreptitiously or publicly with recommendations to Congressional committees against the policies of their superior political officers. The dividing line between policies and factual information is of course difficult, and impossible except as a matter of intent. But I do think we could and should argue the point that both proper political responsibility within the executive branch and the possibility of developing a career, again in either the military or civilian services, require the Congress to exercise its legislative review by dealing with the political level.

VI - Report

February 26, 1958

(Price revisions of)

#### D. The Presidency and the President (Page 51)

##### 6. Specific Limitations on Leadership of President

###### c. Page 62:

I think we should adopt General Clay's position in arguing as a matter of principle that the President should be given the right to reorganize the Executive Branch. I think we could state that as a matter of general principle but then go on to say that this principle would not be badly shaken if reorganization moves were to be upset only by constitutional majorities of both Houses.