Notes on the Keyserling File

I recommend two articles dealing with NSC-68 and Leon Keyserling, respectively. "Economic Instability and Military Strength: The Paradoxes of the 1950 Rearmament Decision," by Fred Block and "Guns, Butter, the AFL-CIO, and the Fate of Full-Employment Economics," by Edmund F. Wehrle. Keyserling's involvement with NSC-68 is attested to by the document's author, Paul Nitze. His key advisory role to the AFL-CIO is also indisputable. The AFL-CIO funded his think tank, Conference on Economic Progress. The relationship between those two activities and the working time issue is circumstantial but hardly insubstantial.

Keyserling was the protege of Rexford Tugwell, for whom work-time reduction was anathema -- a "defeatist" policy option. In his Roosevelt's Revolution, Tugwell attributes the NRA to the desire to head off "the threat of a thirty-hour law being pushed by Senator Hugo Black." Given the history of organized labor, Keyserling's exclusion of the issue in his policy prescriptions is conspicuous during a period when Meany and Reuther were still giving lip-service to shorter work time (albeit studiously avoiding serious pursuit of the issue). Ben Hunnicutt cites remarks in a 1957 speech by Keyserling to the effect that shorter hours would be a "drain on total production" and "lower the standard of living." In a 1957 exchange with a Washington Post columnist, J.A. Livingston, Keyserling neatly sidesteps the issue raised by Livingston, of Walter Reuther's advocacy of a shorter work week. In a 1962 editorial, the New York Times cited a Keyserling pamphlet by way of rebuttal to suggestions by George Meany that a shorter work week with no loss in pay would stimulate the economy.

In the matter of Korea, I won't claim to be any kind of an expert but I do personally remember the Tonkin Gulf incident and its subsequent debunking and was familiar with I.F. Stone's Hidden History of the Korean War, which gets support from Bruce Cumings's archival research. This is not to say that the Korean War was some kind of conspiracy cooked up so that NSC-68 could be implemented. But that its outbreak was deliberately spun by the U.S. Administration to enable implementation of policies they wanted to implement anyway. Oh, 9/11 and Saddam's Weapons of Mass Destruction? I guess you could say, "There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again."

Block:

Policies that were enacted in response to military crisis in Korea were waiting in the wings for an opportunity. The Truman administration had been biding its time. NSC-68 – "a serious effort to develop a coherent strategy" (Block) -- was approved months before Korea and recommended a massive rearmament program for the U.S. and Western Europe. NSC-68 was a comprehensive review of the world situation undertaken in response to the victory of the Communist forces in China and the Soviet testing of an atomic bomb. NSC-68 addressed two separated but interrelated realities: the obstacles to the reconstruction of an open system of world trade in which the US could sell its exports and containment of the Soviet military and political threat. Stabilizing the U.S. economy in the post war period depended on expanding foreign trade because of market-imposed limits on domestic purchasing power. Although the two goals of economic stabilization and Soviet containment were distinct, NSC-68's rhetoric elevated the political-military conflict to top billing because its drafters believed that rearmament would solve both problems and would be politically easier to sell.

The economic dilemma arose out of Western Europe's fragile financial condition in the immediate post war period. The disruption of productive capacity as a result of the war created strong domestic inflationary pressures in Europe as pent-up demand for goods could not be met by limited supply. Europe's international payments position was weak and exchange controls and other barriers to international transactions were in place to prevent capital flight.

In the U.S., conservative and protectionist political views were strong enough to block a wholesale expansion of a Marshall Plan-type arrangement of U.S. aid and easy credit. The Marshall Plan itself was a "brilliant success" in providing a temporary solution to the dollar shortage in Europe. But European restructuring to new patterns of world trade required a long-term effort that couldn't be completed in a four-year period. Changes were needed in European business practices, new institutions for investment planning, regional integration and co-ordination and overcoming of protectionist sentiment in the U.S.

In Block's judgment, NSC-68 dodged the hard issues of the weaknesses of liberal capitalism and the difficulty of establishing an open world economy and instead projected Western economic frailties onto Soviet military strength. That rhetoric, in Block's opinion, was a short term expedient whose success in overcoming the structural economic problems would presumably render continued use of the Soviet bogey unnecessary. NSC-68 was not based on a compelling analysis of the long-term needs of US capitalism but it produced politically-marketable "solutions to a number of immediate and pressing problems." "Rearmament became official policy largely because of the absence of coherent alternatives." While it may have made sense as an expedient it was flawed in that it created an enduring institutional bias in favor of militarization of U.S. foreign policy. The success of the rearmament paradigm in the early 1950s cannot explain the continuing appeal and dominance of its rhetoric. Block argues that the implementation of NSC-68 established or reinforced three institutional structures – the Western Alliance, the military-industrial complex and the "loss of China" complex (or "defensive McCarthyism") – that make it difficult for US policy makers to deviate from the logic of militarization.

Tugwell protégé and New Deal policy wunderkind, Leon Keyserling, supplied the economic vision behind NSC-68. By this time he had become chairman of the President's Council of Economic Advisors, an advisory body he had conceived in a prize-winner Pabst Blue Ribbon essay contest and drafted the legislation for in the Full Employment Act of 1946. "Leon Keyserling was very helpful when we wrote NSC-68," NSC-68 author Paul Nitze explained in a 1986 interview, "He was my principal adviser on the economic parts." Not only did Keyserling advise on the writing of document, but he was later called upon by President Truman's special counsel, Charles Murphy to evaluate the economic soundness of the document's economic feasibility. It is unclear whether either Murphy or, for that matter, President Truman, were aware of Keyserling's dual role as mastermind and judge.

Wehrle:

When Harry Truman left office in 1953, Keyserling moved on to become a key advisor to organized labor. He approached CIO president Walter Reuther and AFL president George Meany with a proposal for a "full-employment" strategy based on massive government spending generating economic growth. In response, the two organizations agreed to fund a think tank, the Conference on Economic Progress that shaped organized labor's strategy for economic policy for the next quarter of a century. Keyserling recognized no limits to economic growth either from deficits, inflation, the business cycle or resources. Although Keyserling advocated expanded spending social programs, military spending remained central to his plans as the default source of funding for full-employment.

Werle's article concludes:

"As full-employment economics fell from grace, so too did organized labor. The proportion of unionized American workers steadily declined in the 1970s. The AFL-CIO’s political clout suffered a parallel decline. Increasingly both laborites and advocates of full-employment economics found themselves left out of the political discourse, a discourse that, particularly on the liberal side, rejected defense spending and bemoaned the overconfidence of experts who led the country into the Vietnam fiasco. Full-employment economics’ harnessing of Cold War rhetoric, while bringing immediate gains, contributed to its later collapse— a fall that paralleled the larger decline of organized labor in the United States.

"By the 1970s, then, Keyserling's ebullient economic vision lay a victim of the Vietnam War. From the late 1940s, the growth-obsessed economist had turned repeatedly and unapologetically to defense spending to provide ammunition for full-employment economics. Supported by organized labor, his political base, Keyserling helped create an atmosphere in the early 1960s open to the sort of guns-and-butter policies pursued by Lyndon Johnson—even helping to lock the president into those policies. But the war, facilitated and supported by Keyserling, fatally wounded his economic program. Ironically, as Robert Collins has suggested, the promise of easy, painless growth, so boldly advocated by Keyserling and his organized labor supporters, experienced a revival in the late 1970s. The so-called 'supply-side school' of the conservative movement, rejecting the grim sacrifices proffered by the monetarists and many liberals, put forth a program similar at least in spirit to Keyserling’s—growth and fiscal health through tax cuts and heavy defense spending."