Mr. Fowler you were a part of the Clark Clifford’s task force for several days evaluating a troop request for 206,000 troops in February, early March of 1968. What ah what did you tell Clark Clifford about the economic consequences of the troop request?

Well, leaving the figures to one side which were primarily a function of the Defense Department ah analysis, I’m sure that I told Mr. Clifford that the additional cost in the fiscal year of ’67 and ’68 would increase our then already alarming deficit in the budget. That it would, the buildup proposed would also increase significantly the balance of payments deficit which was projected in that particular year at several times the size of the, of the rather minor deficits that had ah characterized 1966 and ’65.

And ah that the increase in ’67 was alarming and that a further increase in ’68 we would ah, ah hope could be avoided and we were trying desperately to bring out balance of payments back into equilibrium as a result of President Johnson’s January 1 balance of payments program which had been announced a few months before.

There were problems at this time in federal deficit and balance of payments which related to the war?

Well, you don’t relate a budget deficit or a balance of payments deficit necessarily to any one aspect of ah federal activity. It’s a totality that it’s related to and since the costs of ah the war both budgetary and balance of payments cost ah were ah significant, you could say that ah they were related. But, you didn’t break apart the deficit and say this part of the deficit is because of the defense program. It’s the totality of the, of ah of the national effort ah that ah you have in mind.

But you told Clark Clifford that there were going to be economic problems if this troop requested was granted.

Yes, and for example, that we had been pressing since the previous August for a substantial increase in income taxes in order to more adequately fund ah the federal effort and to avoid any further increase in the deficits in the budget. And, also in the balance of payments.

And ah that, of course, we were having great difficulty in getting a tax bill through the congress and additional outlays of the character and magnitude that were contemplated would mean we would have to increase further our request for taxes or accept reductions in civilian expenditures on the civilian side of the budget in order to achieve the ah financial goals that we had set for ourselves in maintaining a stability in, in our economy and avoiding a serious threat of inflation and some serious international concern about the dollar.

It, it’s traditional to talk about these problems in terms of the president wanting both, both guns and butter and not wanting to cut either. Is this a fair characterization of, of the...

No, I don’t think so. I think the use of the word butter has a certain implication. Ah. What the president was anxious to do was to deal with both the military aspect of our, of our problem, you call that guns. And social progress. Achieve a degree of social progress that had been envisaged by his so-called Great Society Programs which had been enacted in 1964 and in, in 1965 and which he was still, is still pursuing.

So, there’s no question but what he wanted to make progress on both fronts bringing back peace and stability in Southeast Asia without a, a cave in to ahhh the eh communist takeover. And, ah, at the same time to continue to forward the programs that had been initiated and were just then getting underway.

So, in that sense, he was trying to accomplish two objectives, and ah, ah yet I think he was trying to do it in a, in a, in a balanced way because he felt that both were highly desirable and necessary in the national interest at that time.

Did, did this put...him in a crunch? I mean did he, he didn’t want to raise taxes did he, or he didn’t want to cut the ahh, have the spending cuts which would threaten the Great Society? How do you characterize his, the president’s dilemma?

Well, I, he was quite at that time had become fully and irrevocably committed to a very substantial tax increase going back to his State of the Union message in January of 1967 when he’d asked for a seven percent surtax, ahh, which was reinforced the following August by a further message because we had had a bit of a downturn in the economy in the spring of 1967 ahh a softness in certain of the sectors such as automobiles and housing, and he'd come back in August of 1967 with a full-scale, all-out effort for a ten percent tax or surcharge and which, if you will recall, there were daily briefings in which every member of the, of the House and Senate was brought over to the White House and the blackboard drills went on hour after hour and day after day ahh following this message in August.

Then ah there was a, a difficulty in getting the congress to adopt that surtax. It was held up in the House Ways and Means Committee all during the fall. Ah, ah. There were two sets of hearing in, in, in ’67 and then a reiteration of the necessity for this tax increase in the President’s State of the Union Message in January of 1968. It was a key element in his balance of payments program that he had announced in a, in a, oh Jan...oh New Years Day 1968 and so he and ah let me say I and all of the forces at our command, meager as they were, were being devoted almost ah, ah exclusively to getting this tax, ah, surtax so-called bill through.

So that, there was a surtax bill that was being held up by Wilbur Mills?

Well, I would more say it was being held up by Wilbur Mills but there was an ah, unwillingness on the part of the House Ways and Means Committee to report out the surtax and one of the reasons assigned was that they had not been able to work a, ah, an adequate arrangement with the House Appropriations Committee, and with the administration to reduce the level of expenditures that the Ways and Means Committee quite honestly felt was a necessary and a desirable ah, ah accompaniment of any increase in taxes.

Ah. They would put it ah, these are their words not mine. They would say we aren’t about to increase ah surtaxes so that those fellows over in the House Appropriations Committee and the administration can increase eh expenditures that much more. So, we want to accompany the tax increase with a substantial reduction in expenditures. And, it was on that particular question that the legislation had been help up.

So, in the midst of all this, the president in considering a request for 206,000 more troops is, is he’s either got to cut further or jack up the taxes for this?

That’s right. That’s the implication and in, in, in the memorandum to the Clifford Committee or the Clifford Group there were specific questions addressed to what are the consequences of this proposal for the budget and what are the consequences for the balance of payments.

So, it was ah, ah my job to take the figures that were given to me from ah other sources, The Defense Department in particular, and try to read from those figures the impact ah that this action would have on both the legislative situation on Capitol Hill and the attitude around the world in the financial markets towards the dollar and our balance of payments.

Ah. Did the pre...did the president want to, he was pushing for a ten percent surcharge, but would he have had to raise taxes more or cut spending less?

One or the other. I mean if, if the figures as I recall them ah at that time from the Defense Department were that this would cost ahhh an additional ten billion dollars in the, in the budget for the forthcoming fiscal year, beginning July 1, 1968 going to June 30, 1969. So, if you’re going to have ten billion dollars more of expenditures you’ve got to find some additional increase in taxes and some ah, ah additional reduction in expenditures or a combination of the two in order to bring ah what was then a very sizable deficit, wouldn’t seem so at this time in the in current circumstances, but we viewed it as very serious at that time.

I want to avoid editing your statements so I’d, you’ll have a change to add but I want to go back and sort of get the basic idea from, from the beginning that the crunch he was in would be to have to either raise taxes, which he didn’t want to do, or to...

Okay. Well, what I want to get in is that I didn’t have discussions with him relating these things to his decisions. My input was with the Task Force and he was fully aware of all this himself. I wasn’t bringing him any news but he thought the people on the Task Force ought to be made as aware of the fiscal and balance of payments consequences as he was.

So, it was ahh it was, it wasn’t me saying Mr. President you ought to do this or you ought to do that. I was ah, I didn’t, as I told you earlier, ah in our discussion here, I didn’t ever assume a political or a military judgment about Viet, Vietnam.

Are we, are we rolling now?

Ah, ah, but, let’s just go back over the what we, again, what you told Clifford the counsel brought to him of the troops...financial consequences.

Well, given the faults of memory and the fact that you will have access to versions of what Fowler said to the Clifford Group in its early meeting on February 28 and perhaps one or two meetings thereafter, my recollection is that it, it would be in character with my basic attitude was that I simply tried to educate my colleagues on the political consequences on Capitol Hill of the adoption of this particular program, causing in a very difficult legislative situation irrevocably the need for an increase in the level of taxation requested from ten percent surtax to whatever would be equivalent to match this ten billion dollars of extra expenditures, or a reduction in the expenditures on the civilian side of the program, or some combination of the two.

And then on the balance of payment side to relate to them the ah temper and attitudes in the international financial markets, the fact that whi...the dollar was the keystone of the system and anything that threatened to ah increase further the deficit in the balance of payments that was characterizing, ah, had characterized 1967 was dangerous. And, indeed, we had to carry through on the January 1 program to bring that deficit back into, into equilibrium, you know, something, five hundred million dollars up or down.

Why was there an imbalance of payments? Was that related to the war?

Well, it’s related to the totality of your efforts. As a matter of fact, one of the real sources that used to concern me very greatly but I was never able to do anything about was the ah appetite of the ah American for foreign travel. Ah. There was the Civilian Aid Program. There was the lending of our financial institutions sending dollars outside for all kinds of ah, of purposes ah, banking in the, in the world financial markets.

So, there were a lot of elements that entered into the balance of payments, but the military expenditures outside the borders of the United States where you’re buying materials and equipments and ah, facilities and paying for them out of dollars had its balance of payments consequences.

There was a...the gold...

And, it cost, it would cost more to equip and maintain and service ah 206,000 men in addition to those already there than it would if you stayed with the present force.

There was a big flap about gold at that time.

Yes.

Gold scare and, and there was a quite dramatic footage of, of film footage of uh, of frenzied activity on the Paris gold exchange.

Ya.

What does all that mean?

Well, it’s a very complicated question but what it meant was that the United States and four or five other friendly countries through their central banks were trying to maintain a stability in the gold price, a single gold price by buying and selling on the London gold market, and ah some of our - ah didn’t bother us particularly at that point because we had, we were well-equipped to continue the program - but some of our friends, friendly countries who were participating in this program were quite ah concerned that as there would be a demand for gold, we would all have to put ah, ah more gold in, into the gold pool.

And, actually, on March 15 meeting with the central banks ah of the ah participating countries in the gold pool in Washington, Chairman William McChesney Martin of the Federal Reserve Board worked out a, a program for ah dissolving the gold pool and setting up what was called the two-tier system which would mean that central banks would exchange gold at the stable figure of $35.14 an ounce and you’d let the market determine what private transactions in gold ah were.

Ah. That action was taken. Nothing much happened for a num...several years because the price of gold in private transactions hovered maybe a little bit above or actually if anything it went below the $35 an ounce figure for quite a period of time.

It was only in 1971 that the gold scare came back again because our balance of payments in 1970 and 1971 was, again, getting out of hand, and we were in an era of so-called benign neglect of that topic which ah, ahhh caused the, the dissolution of the gold and the dollar, the link between the gold and the dollar in August of 1971.

But, but, but back in, in February of ’68, whatever, the, why was there the gold scare? Were people losing confidence in the...?

Well, the, the, the two main currencies that were the reserve currencies at that time were the dollar and the pound, and the pound had been devalued ah substantially in November of 1967 and as, the words that I used at the time, the dollar was in the front line. So, in order to maintain the stability of the international monetary system, it behooved us to be sure that our balance of payment was under perceptible control, and that was, of course, the reason for the January 1 Johnson Balance of Payments Program.

And having set forth on that program in which, incidentally, the surtax was one of the centerpiece elements, ah, we didn’t want to take any steps involved with balance of payments consequences without amending further the program or doing those things that would be necessary to bring that ah, ah three and a half billion dollar deficit down to zero or a few hundred million either side. Which, as a matter of fact, I should add we did accomplish because in the calendar year 1968 we had a surplus in the balance of payments for the first time since 1957.

Was Wilbur Mills being responsible in not referring out the tax surcharge? Was he, his concern was to keep the lid on the federal deficit. Was that...how did you feel about that?

Well, I felt that ah, he was, yes, he was being responsible in as he saw the situation. From my point of view I would have much preferred to have had a hard-bitten negotiation with the House Appropriations Committee and with the administration and get a bill that would include a su-substantial reduction in expenditures along with the surcharge. And, that’s finally actually what happened in a very circuitous way in April and May of ah of 1968, which is a part of the legislative history of that bill I doubt that you want to get into in this program.

When the troop request came along ah you were educating Clifford, but Johnson didn’t need to be told this, but how, how did he feel about that? I mean his options were to cut spending in the Great Society or to raise, raise taxes of...You tell me wha...how he evaluated these options.

I don’t remember how he would have, and we would not I suspect have discussed those options. I think he would have agreed that we had to take the necessary action to get the budget deficit back down to ah, ah minor proportions but ah mine would be just a guess as to whether he preferred the additional ah, the increase in the projected surtax or to what extent he was ready to ah to accept ah reductions in, in the civilian side of the program.

As later events developed, he was quite, quite reluctant in April to ah accept a coupling of the seven, ten percent surtax with a six billion dollar reduction in spending. He preferred four or three, but at the compromise as it was finally worked out ah, ah, and enacted by the House and the Senate was at the six billion dollar reduction figure, and my recollection is that he didn’t, he, he thought that was a little excessive.

But, he still, these are painful choices for him?

Sure.

I mean, he still wanted to do what he thinks is a...?

Mr. Fowler what kind of...The president had two major concerns. The request for troops comes along, it means paying for them. What kind of a crunch did this put him in?

Well, it’s ah it, it, I think put him in ah a very serious decision-making area as to whether or not he would risk adding to the tax bill which was undergoing very great difficulties and delays in, and it was at that time dubious as to whether or not we would, we would get it. And, it would have an impact on our balance of payments to which he had just made a very dramatic ah appeal to the country for a program to correct the deficit in 1967 on national television on New Years Day.

Then, on the other hand, if you looked at the corollary of reducing civilian expenditures in the budget, ah as a price you might say of getting the tax bill, he would be ah cutting down or cutting off some of the measures which he had sincerely felt were necessary to further social progress in a decade, which as you recall, was a troubled ah decade as far as ah, ah minorities and less privileged ah elements in our society.

It would have meant that he was reluctant to cut back on the Great Society.

Ya.

Let me ask another question. Was, what effect did he see the troop increase having on the Great Society?

Well, I think creating a situation in which ah it would be inevitable that ah the congress would insist on much more major reductions in civilian expenditures than he, President Johnson wanted to have at that time.

Was he ah...

What I, what I’m taking objection to the normal thing is the, the use of the terms guns and butter. I’m quite familiar with that having been involved in the War Production Board in World War II and what, what was a concern there was the guns and butter effort was ah cutting down and cutting out on the production of a lot of luxury items in the economy in order to make available the materials and the work, work force and the tools to ah make guns or to provide essential civilian supplies.

And, President Johnson thought that the measures that he had, the Great Society measures, were not butter. They were not luxuries. They were not, they were essential items to, to ah strengthen the fabric of a, of a society that as he saw it from his point of view at that time was a, was in trouble.

Was Clifford surprised at the financial consequences as you outlined it?

I don’t recall how Clark ah reacted to it. You’d have to, have to ask him that.

What were the, the, how, how was our economy perceived by people abroad?

Well, it depends on who the people were. (Chuckles) If you are talking about bankers, bankers thought that we were under a very considerable strain. If you’re talking about the average person or the political chiefs of state and ah, ah ministers in other than the ministry of fina...ministries of finance or the central bankers, ah I doubt that they were terribly concerned about it.

But, along the financial community abroad, there was a concern about our financial posture and ah, indeed, I was engaged in a very heavy negotiation at that time which for the latter part of March kept me out of the country a good deal ah trying to finalize an agreement to create a new reserve asset which was a negotiation we’ve had underway for about four years ah three years at that time.

And, ah, the willingness of our friends in other countries to collaborate in this new and rather adventurous exercise which led to the creation of what is now called Special Drawing Rights was well you wwwould get a certain amount of ah static from them about why don’t you get your house in order and let’s, let’s not take any chances with the dollar and, and that, that kind of attitude.

There used to be an expression that the dollar was...

Which, incidentally, I never would accept and never would tolerate ah, ah if I felt it was an effort on their part to effect our conduct of our war which they were not helping with in, in any particular, and I should add I did not, in relating these ah financial and ah economic aspects to Clark Clifford and his colleagues on the committee, I did not attempt to draw a conclusion that because of these circumstances, there should not be an additional force of two...I did not consider that to be my function nor did I think I had the competence to make that kind of judgment.

It was my role to simply give them a reading on what the economic and financial consequences would be. It was their responsibility to pull that together with a number of other factors which ah we can’t go into here, political and military, and make a final judgment. As a matter of fact, I think that what really happened and I get some support from President Johnson’s own book, “The Vantage Point”, on this, is that between February 28, in the aftermath of the Tet Offensive and later on in March, say to the end of March, when he made his ah address to the nation indicating there would only be a small increase in the force in Vietnam.

I think during that period ah the situation on the ground with our military forces in Vietnam and with the South Vietnamese Army improved substantially insofar as the information was coming to him is concerned and that, that probably as, as I read what he says in his book, it was the improvement of that situation which was ah, which was ah determinative of more determinative than I suspect the economic and financial consequences. But I have no way of knowing. That’s, that’s simply a reading I give to what he says in his book.

You don’t know...um...when he made the decision not to send them, do you?

No. No. As I say, I was away a good deal of the time from in the latter part of March up...I actually only returned to this country only the day before his, his ah address to the nation on Sunday night that he would not ah run again in a, in a, in the fall and stating his three reasons and the three circumstances which caused him to come to that decision.

These trips would have cost about...what?

Well, the estimates are I had no way of ah calculating that so I had to take my information from the Defense Department and it ah I don’t recall the precise figures but in the book ahhh “The Vantage Point” that, that ten billion dollars is the, is the ah figure that floats around as the cost budget-wise for the fiscal year that would begin on July 1.

And, this would have to come from somewhere.

That’s right. If, unless you were going to allow it to ah increase the deficit at a time when we were doing everything we possibly could to reduce that deficit.

And I might add just as a minor footnote for history, that ah as a result of the increase in the taxes in ah in the spring of 1968 and a reduction in the civilian expenditures of about six billion dollars in the fiscal year that began July 1, 1968 and ended June 30, 1969, we had a surplus of about three billion dollars in the deficit as against - in, in the budget - as against a deficit of twenty-five billon in the preceding year.

So, the objective that we were concerned with at that time was accomplished. And, incidentally, that’s the only surplus we’ve had in the budget ah, ah since that time.

What was Johnson like during this, these months? Was he an agonized man?

Very much.

Ah. How would you describe him?

And his, as an agonized man, I don’t think, I want to be clear, I don’t think it was ah an agony for himself or for the tough decisions he was having to make. It wasn’t a business of feeling sorry for himself.

I think his, his agony as I saw at very close range and this is a little private meetings in his little side room to the oval office in the evening when I had a habit of a custom and he’d like to have me come over a couple of times a week just to chat and talk, it was ah what was happening in terms of the killing and the, and the death and the, and the wounding and whatnot to our troops and to the civilians that were caught up in this, in this maelstrom in Vietnam. I think it was that simple.