Business In I960: Tough Prosperity

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of gold in the third quarter of 1960 when, as interest rates slipped, foreigners with funds in the U.S. pulled them out, and many U.S. investors also moved to take advantage of the higher rates abroad. The flow of uneasy money slowed as interest rates abroad eased toward year's end. Nevertheless, the loss reached $1.6 billion for the year—a warning to the new Administration that any attempt to ease interest rates too fast to encourage business will step up the outflow again.

One of the basic facts behind the whole gold problem is that the world has not been producing enough gold to keep up with the demands of a growing world economy. In the past decade, the world's gold stocks have risen less than 1½% a year, while the annual growth rate of world trade and production has jumped about 6%. Even with nearly half of the world's bullion in its coffers, the U.S. does not have enough to pay off some $20 billion in short-term foreign credits if all were demanded at once (a highly unlikely possibility). Says Professor of Economics Maurice Masoin of Belgium's University of Louvain: "The United States is a victim of the world monetary system, which intends to play the game of the convertibility of currencies into gold in a world where there is too little gold." The U.S.'s unusual problem clearly called for some unorthodox ideas—and they were forthcoming in 1960. A growing group of economists and businessmen, from M.I.T. Professor Samuelson to Henry Clay Alexander, chairman of the Morgan Guaranty Trust Co., suggested that the U.S. drop the legal 25% gold backing for the U.S. dollar, use its gold stock only for meeting international payments. But to avoid having such a move taken as a sign of weakness, the U.S. will have to do more first to balance its foreign payments.

Chunk of Foreign Cake. One of the most effective steps in that direction would be for businessmen to change their thinking about exports. Faced with a vast domestic market, too many businessmen still look on exports as the frosting on the cake. Now, with huge new world markets opening up and growing faster than the U.S. market, businessmen need to realize that exports are actually a big chunk of cake. Roger Blough, chairman of U.S. Steel Corp., calculates that if the U.S. could boost exports 10% and reclaim 10% of the domestic market that has been taken away by foreign competition, "the current adverse balance of payments could be wiped out completely." Most critical of the U.S. attitude toward exports are some of the U.S.'s biggest competitors, the Europeans themselves. Said a German economist: "American exports in 1959 amounted to 3.6% of the gross national product, compared with West Germany's 16.7%. This is not enough. Your rate of growth would be increased and your balance of payments would be eased by concentrating on exports." Actually, the U.S. did a good job of boosting exports in 1960: they rose to a record $19.6 billion. But many of the main export lines, e.g., cotton, airplanes, are not expected to do as well in 1961.

The task of boosting exports will become even more difficult in the future, as the variety and quality of foreign products improve and countries like Japan move into markets where the U.S. has had the advantage. Many nations still have formidable tariff walls against U.S. goods —and in some places,