.
JK
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no48
B 1,674,150
The Inter-University Case Program
¡
Corinne Silverman
The President's Economic
Advisers
Published for the ICP by
UNIVERSITY OF ALABAMA PRESS
University, Alabama
b
THE UNIVERSITY
OF MICHIGAN
JUN 7 1961
F
LIBRARY

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THE INTER-UNIVERSITY CASE PROGRAM
Cases in Public Administration and Policy Formation
The Inter-University Case Program was organized to stimulate the use and writing of case
studies as aids to the teaching and practice of public administration and policy formation. By en-
couraging the writing and distribution of case studies which depict the work of the executive
branch in the governmental process at all levels from local to international, the ICP aims to:
1.
2. explore the manner in which the insights developed by the various social sciences and
disciplines can be marshaled in administrative policy making;
3.
enlarge the existing basis for realistic generalizations about administrative organization
and behavior;
4.
make generally available a body of varied case materials useful for teaching purposes,
for scholarly inquiry, and for analysis by practitioners in the field of public administra-
tion; and
secure widespread acceptance of the case study technique as a scholarly tool of research
and reporting for use in theses, dissertations, and learned articles.
Membership in the ICP is open to all colleges, universities and other institutions concerned
with public administration and policy formation; some fifty schools and institutions are now
affiliated. The Program is supported by annual subscription-membership fees from participating
institutions and by a grant from the Ford Foundation of New York. ICP members receive copies
of all ICP publications when issued. ICP publications are listed on the back cover of this pamphlet.
The ICP furthers case writing and teaching at universities and allied public administration
research centers by publishing selected case studies of high quality written by students, faculty
members and other scholars under the auspices of the ICP; by furnishing advisory and editorial
services through its Executive Board and central staff; by acting as a clearing house for informa-
tion on case development and use; and by allocating funds to assist in the development and
writing of case projects proposed by interested persons and approved by the Executive Board.
Queries and proposals on membership and on future case studies are welcomed by ICP and
should be addressed to Inter-University Case Program, Edwin A. Bock, Staff Director, 45 East
65th Street, New York 21, New York.
ICP CASE SERIES: NUMBER 48
The President's Economic Advisers
COPYRIGHT 1959 BY THE INTER-UNIVERSITY CASE Program
PUBLISHED BY UNIVERSITY OF ALABAMA PRESS, UNIVERSITY, Alabama
The Inter-University Case Program
The President's Economic
Advisers
Corinne Silverman
Published for the ICP by
UNIVERSITY OF ALABAMA PRESS
University, Alabama
net .35
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#48
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no.48
CORINNE SILVERMAN, author of The Little Rock Story, is a member of the ICP editorial staff and is also the author
of The Office of Education Library for the Committee on Public Administration Cases, the forerunner to ICP.
Her other works include "The Legislative Process in Massachusetts: The Legislators' View," Public Opinion
Quarterly (Summer, 1954); “A Pressure Group and the Pressured," with Oliver Garceau, American Political Science
Review (September, 1954); and "Party and the Separation of Power," with V. O. Key, Jr., in Public Policy, ed. by
Freidrich and Galbraith (Harvard University Press, 1954). Before joining the ICP staff she was chief assistant
to Samuel Lubell.
237-24657
The President's Economic Advisers
IN 1946, in accordance with the Employment
Act passed that year, three economists were
named members of the Council of Economic
Advisers and installed in the Executive Office
of the President. Their principal duty was to
advise President Truman on economic matters
and to prepare reports which the President
would consider in drawing up his annual eco-
nomic message to the Congress now required
by the new act.
As the CEA began its work, there were many
who hoped it would strengthen the quality and
rationality of economic decision-making in the
government by injecting at the White House
level the advice of three professional economists.
The three men who were appointed to inaugu-
rate the CEA had similar hopes, but they soon
found themselves confronted with procedural
problems which raised questions about the ex-
tent to which, and the manner by which, profes-
sional expertise can be effectively incorporated
in the making of major policy decisions in a
political democracy.
The three economists differed on some major
economic policy matters. This made it harder
for them to resolve their difference on one of
the important procedural problems they con-
fronted. This was the question of whether the
three CEA members should testify before con-
gressional committees on economic matters after
they had rendered advice privately to the Presi-
dent. Was their role solely that of privy adviser
to the chief executive or should they also serve
as advocates of the policies he finally decided to
pursue? If the President ignored his advice, was
à CEA member nevertheless obliged to support
White House policies at congressional hearings
at the expense of his professional conscience?
How neutral and confidential could a profes-
sional adviser of the President be and still
exercise effective influence on policy-making
within the executive branch and in the govern-
mental process as a whole?
The three economists who faced these issues
were Edwin G. Nourse, Leon H. Keyserling,
and John B. Clark.¹ As the first members of the
CEA they were conscious that their actions
would set precedents for their successors. This
case study describes their actions and then goes
on to show how their first successor under the
Eisenhower administration-Arthur F. Burns-
attempted to resolve the same problems in
1953-1954.
The Employment Act of 1946
As the Second World War drew to a close,
many economists of all types-government of-
mists, bank advisers, and academicians—issued
ficials, labor union and trade association econo-
predictions of a postwar depression. The general
tenor of their analyses, which were accepted in
the main by government officials, was that the
layoffs from defense plants, disappearance of
overtime wages, and the unemployment of re-
turning veterans, would result in a sharp fall
in personal incomes. This in turn would restrict
consumer purchasing power and result in a
business spiral into depression. Predictions of
unemployment ranged from 8,000,000 to the
Federal Reserve Bulletin's 20,000,000.2 It was
in this atmosphere that the Employment Act
was debated and passed, becoming law on
February 20, 1946. The congressmen sponsoring
the bill saw it as a means of asserting the re-
sponsibility of government to promote full
employment. They hoped that one of the long-
run results of the Act would be an unprece-
dented peacetime total of 60,000,000 jobs.
1 This case was reviewed by the three members of the
first Council of Economic Advisers. Some of their com-
ments appear as footnotes to the text.
2 Keyserling comments: "I think you should add that
there were some economists who did not expect large
unemployment after World War II, and that I was among
them."
2
Inter- University
University Case Program
Apart from the underlying thesis that the
federal government was to assume some kind
of responsibility for the economic health of the
country, this declaration of policy was all things
to all people—and indeed the Employment Act
passed the Senate unanimously. Those interested
in fostering government planning read in loud
tones the phrase which enjoined the govern-
ment to "coordinate and utilize all its plans,
functions and resources. . . .” Those who tended
more to laissez-faire saw in italics the phrase
in a manner calculated to foster and pro-
mote free competitive enterprise.
What
the role of the government was to be under the
Act would emerge only from the way in which
the purposes of the new legislation were carried
CC
"J
out.
However, the economists' predictions soon.
proved wrong. There was an unexpectedly
smooth transition from wartime to peacetime
production. By May 1946 total employment had
risen to 55,000,000 from the war-end level of
52,000,000. Only 2,000,000 were unemployed.
Consumers rushed to buy the cars, houses, and
washing machines they had been waiting for.
It appeared that a major postwar economic
problem was not to be unemployment but
inflation.
But the Employment Act was by no means
obsolete. The Act had been cast in a larger
frame than guaranteeing full or maximum em-
ployment. It had been conceived fundamentally
as an expression of a new consensus about
government responsibility for the economy-a
consensus achieved after the debates and trials-
and-errors of the thirties.
The Act had received much of its support in
Congress because few disagreed with its basic
premises: first, that the country could not af
ford, nor would public opinion accept, another
great depression; and second, that positive gov-
ernment action could and should prevent
extended periods of economic distress. Debate
in Congress had centered on the more difficult
questions of when the government should take
action, how much government action was pos-
sible or desirable, and what kinds of policies.
would be effective in which situations.
The final declaration of policy of the Em-
ployment Act was a cumbersome sentence of
over 100 words, riddled with many qualifica-
tions resulting from legislative compromises:
The Congress hereby declares that it is the con-
tinuing policy and responsibility of the Federal Gov-
crnment to use all practicable means consistent with
its needs and obligations and other essential con-
siderations of national policy, with the assistance
and cooperation of industry, agriculture, labor, and
state and local governments to coordinate and utilize
all its plans, functions, and resources for the pur-
pose of creating and maintaining, in a manner
calculated to foster and promote free competitive
enterprise and the general welfare, conditions under
which there will be afforded useful employment op-
portunities, including self-employment for those able,
willing, and seeking to work, and to promote maxi-
mum employment, production, and purchasing power.
(Public Law 304, 79th Congress, Sec. 2)
The New Obligations of the
Federal Government
Although the Act was ambiguous as to the
scope and nature of the new policy obligations
of the government, it was clear about the ma-
chinery to be established. The Act called upon
the President to present an annual Economic
Report to Congress in addition to the traditional
State of the Union and Budget messages. It also
established the Council of Economic Advisers
in the Executive Office of the President, and
a Joint Committee on the Economic Report in
the Congress. The Joint Committee was to re-
ceive the President's economic message and to
report to the House and Senate its own recom-
mendations on each of the major proposals in
the President's message.
The Council's principal tasks were to assist
the President in drawing up his new annual
message, to advise him on economic trends, to
appraise current economic policies, and to de-
velop and to recommend to the President
national economic policies. The Council was
also to collect from existing governmental
agencies statistical information on economic
developments and trends.
There had been considerable debate in Con-
gress on whether a separate Council was de-
sirable. The Treasury
The Treasury Department already
reported directly to the President on the state
of the economy and recommended fiscal policies.
The Bureau of the Budget also reported to the
The President's Economic Advisers
President on the effect of current and proposed
economic policies, including the impact on the
economy of the total federal budget. However,
neither of the two agencies wished the other
to be designated as the top adviser and co-
ordinator of economic policies, and so a separate
Council of Economic Advisers was established.
In the next year or two the Executive Office
of the President was to be expanded further by
the creation, for example, of the National Se-
curity Council and the re-location in the Execu-
tive Office of the Joint Chiefs of Staff. But the
Council of Economic Advisers had to break new
ground in deciding whether it would act solely
as privy adviser to the President with no deal-
ings with Congress on policy issues, or whether
it would follow the example of the Bureau of
the Budget. The Bureau was also part of the
Executive Office, but it had a single head and
its director had always worked closely with
congressional committees and testified at con-
gressional hearings in support of presidential
policies.
3
The Members of the Council
The Employment Act was passed in February
1946. President Truman offered positions on
the Council to a number of economists, but it
was not until July 25, 1946 that he received
three acceptances. Edwin G. Nourse accepted
the position of Chairman, Leon H. Keyserling
became Vice Chairman, and John D. Clark filled
the third place. The Act did not specifically
invest the Chairman with any extra powers or
duties. None of the three had met before being
nominated to the Council.
Edwin G. Nourse was then 63. He had taught
at a number of universities until 1923 when he
became associated with The Brookings Institu-
tion, a non-profit research foundation in Wash-
ington. He became director of Brookings'
of Brookings'
3 The Executive Office of the President may be divided
into (1) the President and his personal staff, and (2)
the other more formal agencies such as the Bureau of
the Budget and the CEA. Traditionally, there is a con-
fidential relationship between the President and his
personal staff. Unlike CEA appointments, the President's
appointments of his personal staff aides and of the
Director of the Bureau of the Budget do not require
Senate confirmation.
من
3
Institute of Economics in 1929, and was vice
president of The Brookings Institution at the
time his appointment to CEA was announced.
He had served as president of the American
Farm Economic Association in 1924 and of the
American Economic Association in 1942, and
he had been chairman of the Social Science Re-
search Council from 1942 to 1945. He was
generally regarded as middle-of-the-road to con-
servative. Politically, Nourse claimed he was
"non-political" and "non-partisan.” His father
had been a member of the Prohibition Party,
and Nourse himself had voted only twice in
presidential elections, once for a Republican
and once for a Democrat. (Since the 1920s, as a
resident of the District of Columbia, he had
been unable to vote.)
John D. Clark, then 62, was generally con-
sidered to be the most conservative of the three.
He had had a rather unusual career, starting
as a lawyer, at one time serving as counsel for
the Midwest Refining Company. Then he be-
came vice president of Standard Oil of Indiana.
Successful in business, he decided to turn to
teaching. He resigned from Standard Oil, re-
turned to college, and received a Ph.D. in
economics in 1931. He taught economics for ten
years at the University of Denver and at the
University of Nebraska, and then he became
dean of the College of Business Administration
at the University of Nebraska. Sandwiched be-
tween these academic posts was a short stint
Legislature. During the 1940s he was appointed
as a Democratic representative in the Wyoming
sions. His political activities in Wyoming had
to a number of political committees or commis-
brought him close to Wyoming's Democratic
Senator Joseph O'Mahoney, one of the co-
sponsors of the Employment Act, and he was
regarded by some as the Senator's protegé. Clark
did not consider himself a "conservative” econo-
mist, and his position on questions pondered
by the Council of Economic Advisers seemed to
confirm this estimate of himself.
Leon H. Keyserling, only 38 when he was
appointed to the Council, had a reputation as
one of Washington's "boy wonders." His pro-
fessional training had been in both law and
economics. He had received a degree from Har-
vard Law School, and he had also completed
4
two years of graduate courses in economics at
Columbia University. He entered government
service as a lawyer for the Agricultural Adjust-
ment Administration in 1933 and almost im-
mediately became legislative assistant to New
York's Democratic Senator Robert F. Wagner.
He remained associated with Wagner until 1937
when he became general counsel of the U. S.
Housing Authority. He rose to be acting ad-
ministrator of the Authority and then general
counsel of the National Housing Agency. Dur-
ing this period Keyserling had his fingers in
almost every pie baking in the New Deal ovens.
He became involved in the drafting of the Na-
tional Industrial Recovery Act, various public
works, farm, and banking acts, the Social Se-
curity Act, and the National Labor Relations
Act. He also did staff work on economic ques-
tions for a number of congressional committees.
As direct qualifications for nomination to the
Council of Economic Advisers, Keyserling had
assisted in drafting the bill which ultimately
became the Employment Act of 1946; and he
had maintained close connections with Senator
Wagner, one of the co-sponsors of the original
bill. Also, Keyserling had attracted attention
when he won the second prize of $10,000 in
the Pabst Brewing Company's postwar employ-
ment essay contest in 1944.4
Inter-University
These background sketches do not shed any
light on the personalities of the three men, nor
on how they fit together. There were people
who had the opportunity to assess the members:
the Council had a professional staff of twenty
or so economists; also there were liaison per-
sonnel between the Council and the White
House, the Bureau of the Budget, the Federal
Reserve Board, and the Treasury Department.
This case will draw on the recollections of four
such persons.
Commentator A described the Council mem-
bers this way:
Nourse's reputation with us was that he was a
Case Program
wise man with scholarly achievements. His views on
policy were limited: he had been in agricultural eco-
nomics most of his life. He was relatively conserva-
tive-not when viewed on the spectrum of economists,
but when viewed as an appointee of a Democratic
administration. He was personally liked and re-
spected.
He was also known as relatively inflexible on sub-
stantive economic matters. This was the major reason
why there were difficulties. He was willing to recog-
nize political realities-for example, the Democratic
platform might have said something about price
supports which Nourse was not in favor of, but he
was willing to go along. However, he chafed under
it. He was not used to the kind of policy-making
where there is discussion and dissension over policy,
then a decision is made, and thereafter the ranks
close behind the decision.
4 One of Keyserling's theses in this essay was that plan-
ning and the development of economic policies should
be a joint executive-legislative function. He suggested
the establishment of a continuing American Economic
Committee. This committee, Keyserling wrote, should be
composed of representatives from the Senate, House,
Cabinet, industry, labor, and agriculture.
Keyserling had no difficulty with this problem,
partly because his views were nearer the President's,
partly because he was by training a lawyer and gov-
ernment official. Keyserling was regarded as a hard
working man with a somewhat abrupt and sometimes
abrasive manner.
Clark was the dark horse. He turned out to be a
man who had spent most of his life in business and
had just about retired. He had a vigorous mind and
unorthodox ideas. He suffered from the narrowness
of his background. He was the easiest personality
of the three.
On administrative policy issues the Council often
split with Keyserling and Clark against Nourse. But
it is very important to remember that on economic
questions they agreed about eighty percent of the
time.
Commentator B observed:
Nourse was a formalistic thinker. That's one reason
why he and Keyserling didn't get along very well.
Keyserling didn't have a Ph.D. in economics so Nourse
sometimes acted as though he didn't know anything
about economics. Of course Keyserling resented this
attitude.
This latter observation was repeated in sub-
stance by several persons close to the Council.
It may or may not have been accurate. But the
fact that others placed this interpretation on
Nourse's opinion of Keyserling made for strain
between the two.
Relations with the White House
The Council members were formally ap-
pointed in August 1946. By October a staff had
been recruited, and CEA offices were set up
The President's Economic
Economic Advisers
in the Executive Office Building, near the
White House. The Bureau of the Budget is
also located in this building.
The Council's first substantive task was
preparing the draft of the President's first eco-
nomic message to Congress-the draft con-
taining the Council's analysis of "foreseeable
economic trends" and its suggestions for national
economic policy and program.
Here, the newness of the Council presented
difficulties. The CEA had no regular channels
for co-ordinating its proposed recommendations
with those in the drafts of the other two mes-
sages which were to be presented to Congress
in the first week of January—the State of the
Union and the Budget messages. The procedure
this first year was somewhat disorganized, with
co-ordination coming only the last two weeks
in December through the joint efforts of the
Council and members of the staff of John Steel-
man, the Assistant to the President.
There was nothing in this half-hour interview which
in any way suggested that the President was in-
terested in the content of the work our staff was
doing or in the conclusions toward which we were
moving.
the White House staff. In 1953, quoting from
a diary which he kept during his Council years,
Nourse referred to an interview he had had
with the President in November 1946, during
the preparation of the first draft of the eco-
nomic message:
•
While he has accepted the material which we have
presented to him for use in the Economic Reports
and passed it on without material change and with
only minor omissions, there is no clear evidence that
at any juncture we have had any tangible influence
on the formation of policy or the adoption of any
course of action or feature of a program.5
And, Nourse wrote:
When it came to using the Council as an in-
tellectual staff arm of the Presidency . . the Presi-
dent was quite evidently at sea.
20
Writing in his diary in 1947, Nourse again
expressed dissatisfaction:
•
5
In the following years a rift developed within
the White House staff between John Steelman
and Clark Clifford, the President's legal coun-
sel. In time, each of the CEA members, along
with many other government officials, found he
was relying on a different person to serve as a
channel of communication with the President.
Nourse felt Steelman was more receptive to his
way of thinking; Keyserling had more of a bond
with Clifford. Clark found easier access through
influential members of Congress. On economic
questions to be discussed in presidential mes-
sages co-ordination was effected by the establish-
ment of work groups comprised of staff members
from the White House office, the Bureau of the
Budget, and the CEA. Many of these staff people
had been trained in the Bureau of the Budget.
The work groups, forming a network of people by a disgruntled former official on record. Dr. Nourse
who knew each other and had worked together,
not only bridged the cleavage between Steelman
and Clifford, but connected the Bureau of the
Budget, the Treasury, the CEA, and the White
House, as well as any department concerned
with a major economic matter that would be
mentioned in a presidential message.
5 Keyserling comments: "Dr. Nourse's habitual assertions
that he was not accorded the utmost considerate treat-
ment by President Truman is in my opinion one of the
most extreme cases of unfair treatment of a President
could see the President whenever he wanted to. The
President gave him a great deal of time. . . . Dr. Nourse
was simply unable to adjust himself to the nature and
the problems of the Presidency. He could never under-
stand that the President of the United States has too
many things to do to engage in long bull sessions on
economics of the kind that take place at The Brookings
Institution. He could never understand that the President
must delegate, must have confidence in his principal of-
ficers, and that these officers have no just cause for com-
plaint when the President not only remains accessible to
them but also accepts practically everything that they
recommend to him."
Keyserling and Clark had no difficulty with.
this system. Nourse, however, had been dis-
turbed by the extent to which responsibility
for the draft of the first economic message had
been delegated by the President to members of
There was really no basis for Nourse's feeling that
the Council was rejected by the President. The White
House took the Council members very seriously. Their
views were sought and listened to on every occasion
they should have been. But Nourse may have wished
the Council was something it was not and couldn't
These relationships between the Council
members and the President were seen by Com-
mentator A in this way:
6
Inter - University Case Program
Relations with Congress
The Employment Act had provided that the
Joint Committee on the Economic Report,
aided by a professional staff, should review the
President's economic message and present a
report of its own to Congress. The Joint Com-
mittee was composed of seven senators appointed
by the president of the Senate, and seven repre-
sentatives appointed by the speaker of the
House. The party composition reflected roughly
the party division in each of the two houses.
The first Joint Committee included many of
the senators and representatives who had played
an active role in the debate and passage of the
Employment Act. Democratic Senator Joseph
O'Mahoney, who had been one of the co-sponsors
of the bill, was expected to be the Committee's
first chairman. However, the Republicans gained
a majority in Congress in the 1946 elections,
and Senator Robert A. Taft became chairman.
hope to be. It was set up as a separate, advisory
agency with no control or power.6 It was not part
of a regular flow of procedures and documents. The
Council had to make new connections or else wait
until people came to consult it-things did not flow
across its path in the same way as things routed
through the Bureau of the Budget. One of the origi-
nal ideas had been to give the responsibility to the
Bureau of the Budget, making the Council a special
section within the Bureau. If that had been done, the
Council would have had a more direct way of having
its views made effective through influencing the
budget.
However, the Council did have the initiative when
it came to the draft of the economic message. That
was a device for approaching issues on the Council's
terms. There the Council didn't have to wait to see
whether it was invited in.
The real question in determining whether anyone
paid proper attention to the Council is whether it
was consulted in time to have its views considered,
and whether it had access to the information it
needed to formulate its views. On these scores the
Council had no complaints.
Commentator C saw the relationship between
them this way:
It was all a matter of temperament. The President
was a man who knew his limitations. He knew he
was not a scholar. He was a politician. He was some-
what awed by expertise. He just couldn't sit down
and jaw with a man with the scholarly reputation
and mien of Dr. Nourse. Nourse, on the other hand,
wanted to sit down and "ponder" problems with the
President.
And Commentator D observed:
That's the way Truman worked. You had to work
through his subordinates. Nourse never really ac-
cepted this, so the other members of the Council
were sometimes able to outflank him by using White
House staff channels more effectively.
6 Nourse comments: "I did wish for the Council to be
something it was not-that is, a purely advisory agency
of the highest professional competence and political de-
tachment. But the implication of this passage that I
wished it to be an agency of 'control or power' is com-
pletely erroneous, as is abundantly shown in other parts
of this document."
Clark comments: “Mr. Keyserling and I wanted the
Council to be a powerful influence in devising and
securing the understanding and acceptance of sound
economic policies to save prosperity."
The President delivered his first economic
message in January 1947, but the members of
the Joint Committee were occupied primarily
with problems attendant on the shift of party
control. They did not hold extensive hearings
on the 1947 message or prepare more than a
mimeographed report of a few pages. Although
the Joint Committee began to hold hearings
during 1947 on a variety of subjects, the issue
of the relationship of the Council of Economic
Advisers to congressional committees arose first
with the Senate Foreign Relations Committee.
In June 1947, Secretary of State George C.
Marshall delivered his famous Commencement
Address at Harvard, suggesting a program of
economic aid to Europe. That same month
President Truman set in motion three studies
on the impact of a foreign aid program upon
the domestic economy. One of these studies was
made by the Council of Economic Advisers,
which submitted its report to the President in
October of that year.
The next month the Foreign Relations Com-
mittee scheduled hearings on the European
Recovery Plan and tentatively scheduled ap-
pearances before the Committee by the Chair-
man of the CEA. When Nourse was advised by
the Committee secretary of the proposed invita-
tion, he explained that he would be "embar-
rassed by a formal invitation to testify" and that
Economic Advisers
The President's Economic
he had taken the position that Council members
should not appear, even before the Joint Com-
mittee on the Economic Report.
Nourse stated that he had taken this position
to protect the relationship between Council
members and the President. He had explained
his position to his colleagues and to the Presi-
dent: the Joint Committee on the Economic
Report might try to draw Council members into
a discussion of policy positions taken by the
President in his economic message. Some of
these policy positions might not have followed
the drafted recommendations of the Council.
Or, the Council members might disagree among
themselves as to the advisability of some of the
President's positions. To date, there had been
no major divergence between the Council and
the President, and only minor disagreements
among Council members, but, Nourse explained,
either situation might arise in the future and
cause embarrassment both to the President and
the Council members. It would be wise, he felt,
to establish precedents to prevent such mutual
embarrassment.
The President indicated to Nourse, when the
subject was first raised, that he agreed that the
Council should protect itself against such situa-
tions, but he added that at the same time the
Council should not remain aloof from the work
of the Joint Committee.
Neither of Nourse's two colleagues were
happy with the Chairman's position. Clark, for
one, argued that a "policy of aloofness from
congressional committees" such as Nourse sug-
gested would impede "the machinery set up by
the Employment Act of 1946 to secure congres-
sional approval of economic policies recom-
mended by the President upon the advice of
the Council of Economic Advisers." When the
issue arose on the question of testifying be-
fore the Senate Foreign Relations Committee,
Nourse's point of view was accepted by the
Committee. Keyserling and Clark deferred to
this view although they disagreed with it.
From time to time, the members of the CEA
were invited by various congressional commit-
tees to testify on economic matters, and in each
instance Nourse's view prevailed, and invitations
were declined. By 1948 the issue of testifying or
not had become a source of considerable tension
among the Council members.
7
The President Recalls Congress
This was an election year. Harry Truman,
regarded by many as a "caretaker" and Presi-
dent only by accident, was almost alone in
feeling he had any chance of being re-elected.
In July, President Truman, when accepting the
Democratic nomination, made a surprise an-
nouncement to the convention: he was going to
call back into session the Republican-controlled
80th Congress to consider his eight-point emer-
gency program for inflation control. Inflation
was still a serious problem, and Truman seized
on this tactic to dramatize his idea that respon-
sibility lay with Congress.
Keyserling and Clark were firmly convinced
Council members should testify before congres-
sional committees at the special session. Clark
felt the Council was on probation, since the
House Appropriations Committee had just cut
the Council budget sharply. Clark still had
ringing in his ears the words of the report of
the Appropriations subcommittee:
The testimony of this agency was lamentably weak.
There was strong sentiment in the committee for
the complete elimination of all funds for the agency.
There is little evidence of any important results
from its work of interpretation, and it takes the po-
sition that its views and recommendations are confi-
dential except to the President, unless released by him.
Nourse did not agree with Keyserling and
Clark that their reduced budget was a result
of their refusal to testify. He interpreted it as
a reflection of the Republican majority's antago-
nism to President Truman and his advisers,
and its dislike of the Employment Act.
The issue of Council members testifying was
finally resolved. Nourse described the decision
process this way: "After numerous telephone
conversations with Mr. Steelman, Mr. Clifford,
Mr. [Paul] Porter and Mr. [Robert] Turner,8
7 Paul Porter had been the last head of the wartime
Office of Price Administration. He was at that time one
of Truman's principal campaign advisers and was co-
ordinating presentations to congressional committees at
the special sessions.
8 Robert Turner had been director of the Foreign Divi-
sion of the War Production Board during World War
II, had been a staff member of the Office of War Mo-
bilization and Reconversion, and was then assistant to
John Steelman. He was one of the principal liaison men
between the White House staff and the CEA.
8
and with lengthy conferences on the Williams-
burg [the President's yacht] between the Presi-
dent, the White House aides, and Mr. Porter,
and after positions had been taken and reversed,
as I recall it, four times within the week, the
President's final decision was given me in his
letter of August 13." The letter read:
Inter-University Case Pro gr a m
you would want an entirely different kind of
chairman, and I would want to be relieved of
the position at once. . . ." In the second draft—
the one the President received in December
1948-Nourse said principally that in view of
his age and the hard work and tensions in-
volved in the job, he hoped he could be relieved
soon.
Dear Dr. Nourse,
Mr. Paul Porter has raised with me the question of
whether I would regard it as appropriate for mem-
bers of the Council of Economic Advisers to testify
before Congressional committees concerning the anti-
inflation program I have recommended to the Con-
gress.
As you know, I have considered from time to time
in the past the question. . . . I am aware of the
difference between your views on this subject and
the views held by your colleagues on the Council.
I respect these varying views, which I am sure all of
you hold most conscientiously.
Under these circumstances, it seems that the wisest
course in the present instance is to permit the mem-
bers of the Council to be guided by their own con-
victions. Accordingly, I do not wish to induce any
member of the Council to testify if he feels it in-
appropriate for him to do so; nor do I wish to
restrain any member from testifying if he feels that
to be an appropriate part of his duties.
I am informing Mr. Porter of this letter, with the
expectation that he will make arrangements for tes-
timony by the members of the Council if any testi-
mony is to be presented by them.
Sincerely,
/s/ Harry S. Truman
Keyserling appeared before the Senate Bank-
ing and Currency Committee a few days later.
Nourse was invited to appear but was excused
by the Committee chairman. This became the
practice during the rest of 1948, and in 1949.
Keyserling and Clark appeared before several
committees; Nourse was invited, but he declined
and was excused.9
Nourse's Letter of Resignation
Immediately after the election of 1948 Nourse
submitted his resignation to President Truman.
He wrote two drafts of his resignation. The first
draft, which he never sent to the President,
included the thought that if the Council was
"in any way to be assigned a political role or
to be allowed to stray over into political activi-
ties or lay itself open to political influences,
The President did not respond to the letter
of resignation, and Nourse did not actually re-
sign until a year later. However, during the
year the issue became more and more a source
of bitter argument among the Council mem-
bers. Nourse clung to his view that any appear-
ances before Congress meant that the Council
was taking on a political role. Keyserling and
Clark were convinced that it was the duty of
the Council to be the President's economic
ambassadors to and tutors of Congress.
Tensions grew, also, over the kinds of public
speeches both Nourse and Keyserling were
making. Nourse had taken the position that he
did not want to be forced into criticizing the
President before congressional committees. Yet,
Keyserling pointed out, Nourse did not seem
to hesitate to criticize the President's position
in public speeches. Nourse's reply was that he
9 Keyserling comments: "The important thing is that I
refrained from appearing before Congressional commit-
tees during the first year of the Council operations, and
thus made the concession to Dr. Nourse of being bound
by his views, although they were the minority view. I
would have been willing to do this throughout the period
of our joint service on the Council. But even though I
made this concession, Dr. Nourse persisted in making a
public issue of it, which was entirely inappropriate on a
matter of Council procedure, and which violated his own
profession of desire to avoid public controversy. He made
a speech on this subject to the National Planning Asso-
ciation before I had ever testified. He carried stories on
the disagreement into the public press. He imputed po-
litical motivation to his colleagues. I frequently pointed
out to him how entirely unreasonable and inconsiderate
this was, in view of the concession which the other mem-
bers of the Council at that time were making to his
views. But he persisted in this course of personal attack
and disparagement in public forums, and it was this
which led me ultimately to the view that nothing was
to be gained by refraining further from appearing be-
fore Congressional committees, a position which I be-
lieved to be correct in substance, and which in fact was
held by a majority of the Council."
9
Council members began to be felt during 1949
when production, employment, and prices all
declined. By mid-June 1949 unemployment was
over 3,000,000. The government policy Nourse
favored was allowing the recession to find its
own bottom. He opposed expansion of the gov-
ernment expenditures as a means of pumping
buying power into the economy. Inflationary
deficit spending by the government, he be-
lieved, was not the way to cope with the
recession. Keyserling favored more aggressive
anti-slump policies.10 In his mid-year economic
message to Congress, President Truman said,
"We cannot have prosperity by getting adjusted
to the idea of a depression." The President
went on to repeat his January requests including
improved supports for farm income, an increase
in the minimum wage, more unemployment and
old age assistance. He specifically rejected any
increase in taxation. This program of increased
benefits with no additional revenue portended
a budget deficit for the coming year.
The President's Economic Advisers
could choose his own ground in making speeches,
but he could not choose which questions to
answer in congressional hearings. In turn, he
criticized Keyserling for appearing before such
partisan groups as the Americans for Demo-
cratic Action. Public appearances, Nourse felt,
should be limited to academic, civic, business,
labor, or agricultural organizations. (The or-
ganizations before which Nourse had appeared
included such groups as the Controllers Insti-
tute of America, the U. S. Chamber of Com-
merce, the Executives Club of Chicago, and
the Illinois Tech Alumni Association.) For his
part, Keyserling felt the audience was less im-
portant than the content of the speech. Early
in 1949 Nourse received considerable press at-
tention for his public criticism of a pending
presidential proposal. Keyserling wrote Nourse
a memorandum pointing out that his own ac-
tions had never drawn attention for such a
reason. Nourse replied that on several occasions
in the past he had been "deeply concerned"
when Keyserling or Clark had made speeches
conveying the impression that their personal
professional views were in fact the positions of
the Council.
A Single Head?
In January 1949 the first of the Hoover Com-
mission reports appeared-the Report on Gen-
eral Management of the Executive Branch. (Un-
der the chairmanship of former President Her-
bert Hoover, the non-partisan Commission
prepared a series of reports aimed at improving
the administrative efficiency of government de-
partments. It recommended specific reorganiza-
tion plans.) The Hoover Commission's comments
and recommendations concerning the CEA re-
flected much of the general feeling that the
Council's problems were at least partly tied to
its organizational structure. The Report recom-
Economic Differences
The separate economic orientations of the
two men also made for difficulties. These pro-
fessional differences began to be felt late in
1948 and during 1949. A split first developed
over the moot question of how much the na-
tion could spend on national defense without
increasing inflationary pressures to a dangerous
extent. Nourse took the position that a thirteen
billion dollar defense program was close to the
outer limit of safety-presumably a safety de-
fined in terms of economic stability. Keyserling
argued that the economy could stand a sub-
stantial increase in the defense effort if this
should prove necessary for national security.
President Truman asserted his desire for a
fifteen billion dollar ceiling on defense spend-
ing-much closer to Nourse's position than to
Keyserling's—and the defense budget was held
under that limit until the outbreak of the Ko-
rean War shot defense expenditures to $22
billion in 1951 and $45 billion in 1952.
Another source of disagreement among the larged national income. This is standard economics."
Keyserling comments: "An increase in expenditures
without an increase in tax rates does not necessarily
portend a budget deficit if it produces sufficient eco-
nomic recovery to enlarge tax receipts through an en-
10 Nourse comments: "There is a faulty implication of
laissez faire in saying: 'Nourse favored allowing the re-
cession to find its own bottom. . . .' The fact was that
I was urging on both labor and management that they
had a responsibility for working out sound wage and
price adjustments for checking recession and quickening
recovery rather than looking to the government for the
inflationary devices of deficit spending."
10
Inter-University Case Pro gr a m
Keyserling felt they were arms of the President.
Like other agencies, they were established by Con-
gress to do a certain job and were confirmed in their
positions by Congress. They were, he felt, account-
able to Congress.
mended that the CEA be replaced by an Office
of the Economic Adviser and that it have a
single head:
... at least potentially it is handicapped by being
a multiheaded body, with the requirement that its
members be confirmed by the Senate.
To put a full-time board at the head of a staff
agency is to run the risk of inviting public disagree-
ments among its members and of transplanting
within the President's Office the disagreements on
policy issues that grow up in the executive depart-
ments or in Congress. It also makes cooperation
with related staff agencies more difficult.11
In 1949 the Council broke with another prac-
tice. Previously, in its quarterly reports to the
President on economic policies, or in its annual
and mid-year drafts of presidential economic
messages, the Council members had attempted
to reconcile differences of opinion and present
a single viewpoint to the President. However, in
the preparation of the draft of the President's
mid-year report in 1949, Nourse found he dif-
fered with his colleagues to such an extent that
he wrote a minority report.
Finally, on September 9, 1949 Nourse wrote
Truman that "if the work of the Council is to
be kept from serious demoralization," he felt
he should tell his colleagues that he wished to
retire so that they could get on with the job
of preparing the draft of the 1950 economic
message. This time Nourse's resignation was
accepted, and he left the Council on November
1. Leon Keyserling became Acting Chairman
and subsequently was appointed the second
Chairman.
Commentator C said of Nourse's resignation:
Nourse wanted to avoid a possible difficult
situation which actually never was a real situation.
Nourse, so far as I could tell, diverged from the
President's position only on very minor points. But
Nourse felt the Council members were confidential
advisers.
•
11 Keyserling comments: "It is significant that the Hoover
Commission's recommendation was preceded by discus-
sions between representatives of that Commission and
Dr. Nourse, but no effort was made to obtain the views
of the other members of the Council. Further, Dr. Nourse
never informed the other members of the Council of his
discussions on this point, which is to my mind one
example of his improper concept of the relationships
among the three members of the Council."
But behind those positions was another factor-
the personalities of the two. Nourse didn't like the
limelight. Keyserling loved it.
Many public sources attributed Nourse's resig-
nation more to a combination of reasons. The
influential British weekly, The Economist, re-
ported on October 29:
The open split in the Council between Dr. Nourse
on the one hand, and Mr. Keyserling and Dr. Clark
on the other, has for over a year made it likely that
Dr. Nourse would resign. Their disagreement is
merely the latest of a series over economic policy
and practice which has plagued Washington since
the scope and responsibilities of government began
to grow under the impact of the great depression
nearly twenty years ago.
It was in a speech last week that Dr. Nourse most
bluntly outlined the reasons for his determination to
press his resignation and made it inevitable that the
President should accept it . . . his bitterest criticism
was reserved for the apparent willingness to accept
deficit financing as a "way of life."
That [the CEA] should split was perhaps in-
evitable, but is nevertheless regrettable. Dr. Nourse
is far from a proponent of laissez faire, but he has a
caution as to the extent of government activity which
is not shared by the other two members. . . . He
likewise holds the conviction that a council appointed
to advise the President should do exactly that and
no more, while the other two believe its functions
should include open advocacy . . . [of] policies felt
to be appropriate. The proper character of the new
organization has therefore also been an issue.
The Washington Post sympathized editorially
with Nourse's view that the Council should be
politically neutral. But, the Post went on,
•
we think that Dr. Nourse seriously impaired his
influence with the President by delivering speeches
in which he openly criticized some Administration
policies and made it quite plain that he did not
agree with the views of his colleagues on various
important issues. If he had stuck to his thesis that
a presidential adviser should reserve his opinions for
the council table, it is our belief that he would have
been more effective as a dissenter, and might still
be in a position to render useful service as a member
of the Advisory Council.
•
•
The President's Economic Advisers
As Keyserling Saw It
In 1952 Leon Keyserling, then Chairman of
the CEA, was testifying before a subcommittee
of the Joint Committee on the Economic Re-
port. He was asked by Senator Paul Douglas
to explain exactly what his position was on this
issue: was not the Council primarily an adviser
to the President, Douglas asked, and if this was
true could Council members be frank with Con-
gress? Keyserling answered with this statement:
It is ..
clear that the members of the Council
are employees of and advisers to the President, and
that they are not employees of and advisers to the
Congress in the same sense.
But this does not mean, in my opinion, that the
members of the Council cannot or should not testify
before, cooperate and consult with, and in a sense
give advice to, committees of the Congress, just as
this is done by heads of other agencies in the execu-
tive branch, and even other agencies in the Executive
Office of the President.
·
•
In all of these cases. . . none of these officials,
except in rare instances, makes available to the pub-
lic or to the Congress the nature of the advice he
gives to the President while he is assisting and ad-
vising the President in the preparation of such
Presidential messages and the recommendations con-
tained therein; and likewise, it is only in rare in-
stances that such officials make it known to the
public or even to the Congress if there is a variance
between the advice they give to the President and
the extent to which the President follows that ad-
vice. . . . Nonetheless after the Presidential message
in question and the recommendations contained
therein are sent to the Congress . . . it has been
practically the universal custom and is entirely ap-
propriate for those officials whose statutory respon-
sibility makes it clear that they have been advisers
to the President in the field covered by such Presi-
dential message and recommendations to appear be-
fore such congressional committees, to discuss and
analyze the matters involved, and in fact to amplify
and support the recommendations made by the
President and the analysis underlying it. In addition,
it has been the almost universal custom and entirely
appropriate for such officials to appear before con-
gressional committees and to make analyses and give
advice in the fields in which they operate under
statute, even when this has not been preceded by
a Presidential message.
In appearing before committees of the Congress
in this role, I cannot see where the Council of Eco-
nomic Advisers is doing any different or appearing
•
•
11
in any different light from what is done by heads
of other agencies working in different fields.
Certainly, the distinction cannot be that members of
the Council deal with economic problems, because
many heads of many other agencies deal with eco-
nomic problems, or even predominantly with eco-
nomic problems.
•
That this construction of the Council's role is cor-
rect is supported by the legislative history of the
Employment Act, by the expressed views of some
of the legislative sponsors of the Act, by the fact
that the Joint Committee on the Economic Report
and other congressional committees have frequently
invited the members of the Council to appear be-
fore them for this purpose, and by the fact that
doing so is in accord with the Council's responsi-
bilities as defined by the President. More important,
it is in accord with the whole tenor of the American
system of government, and I believe it a good and
healthy thing that public officials should be sub-
jected to the questioning and testing of their views
by congressional committees, particularly when these
public officials have been appointed and confirmed
under acts of Congress to deal with the very subject
matters which these committees are considering and
to help in the preparation of the very reports and
recommendations which the President sends to these
committees.
The next phase of the question is whether the
members of the Council are in a position to express
themselves frankly and fully to congressional com-
mittees, in view of the fact that they are advisers to
the President, and in view of the fact that the advice
and recommendations that they give to the President
may at times not be exactly the same as the advice
and recommendations which the President transmits
to the Congress. There has been considerable in-
terest in this subject, and I am glad of this op-
portunity to express my views.
I believe that members of the Council of Economic
Advisers are in exactly the same position, with re-
spect to expressing themselves frankly and fully be-
fore congressional committees, as any other agency
heads of integrity who had advised the President in
important fields in which the President makes recom-
mendations to the Congress. Under our system, no
responsible official in such a position, while working
for the President, parades before the public or be-
fore congressional committees the differences of view-
point that there may be between himself and the
President on matters under consideration by the
Congress. If these differences are minor in character,
the responsible public official does not feel entitled
to the luxury of self-satisfaction of having the Presi-
dent agree with him in every detail; government
12
Inter - University Case Program
subcommittee to assume what is in fact the truth,
that the analyses and recommendations which I make
to it are consistent with the analyses and recommen-
dations which I make to the President. So long as
the recommendations made by the President to the
Congress conform in the main to the recommenda-
tions which I have given him, I feel privileged and
duty-bound in appearing before a congressional com-
mittee to give my reasons for supporting those recom-
mendations. If the President were to fundamentally
repudiate my views as to what is in the nation's
economic interest, and were to send recommendations
to the Congress in basic conflict with them, then I
would resign. That situation has not arisen. At all
times, consequently, I hope this subcommittee will
feel that the analyses and recommendations I present
to it represent my honest convictions. I would not
present them if they did not.
could not function if that were expected. But if the
President, in his recommendations to the Congress,
were to depart from the analysis and advice given
him by the official in question to the extent that it
could be regarded as a fundamental repudiation of
that official's views, the official of integrity should
resign where under all the circumstances he believes
it in the national interest to do so. But it seems to
me incorrect to say that a public official in this kind
of job can place himself in open conflict with the
President for whom he works, and at the same time
stay on the job. Obviously, also, a man of integrity
should resign if the President for whom he works
should ask him to go before a congressional com-
mittee or anywhere else and stultify himself by mak-
ing analyses or supporting policies which this official
believes to be against the national interest.
The view has been expressed in some quarters,
that members of the Council of Economic Advisers,
in order never to be faced with a choice based upon
the situation described above, should solve the prob-
lem by advising the President but by refusing to
appear before congressional committees to analyze
and support those recommendations by the President
to the Congress which are in accord with the advice
they have given him. I can see no more reason why
the members of the Council should duck their basic
responsibilities by so doing than why other officials
should thus avoid their responsibilities. Under our
system, if it is to function and if congressional com-
mittees are intelligently to process reports and recom-
mendations sent to them by the President, there
must be and there always has been someone from
the executive branch available and ready to come
before the congressional committees and to work with
them in the customary fashion. With respect to
analyses and recommendations sent by the President
to the Congress in those areas of economic policy
which are the province of the Council as defined by
statute, if the members of the Council are not the
proper persons to come before the congressional
committees for this purpose, then who are the
proper persons?
If my analysis is at all correct, it seems to me that
for a member of a congressional committee to raise
a question about my freedom to be frank, or whether
I agree with the recommendations made by the Presi-
dent, or whether after the President has sent up
recommendations I am estopped from expressing my
own views, is the same as asking that question of
the head of some other statutory agency of govern-
ment appearing before a congressional committee.
My own answer to the question is as follows: I
always have and always will try to speak frankly and
deal fairly with congressional committees. I ask the
As Nourse Saw It
Nourse explained his point of view this way:12
One of the most important considerations, I felt,
was for us to build the precedents properly. The
Executive Office was only seven years old, and the
Council was a completely new agency. I felt I should
think ahead carefully. I was impressed that other
people would have to sleep in the bed I was making.
I felt there were, theoretically, three levels on
which the Council could operate. The first would
be for us to draw up abstract economic analyses.
The second would be for us to make our analyses,
taking into consideration the impact on the various
institutional structures of the country-the labor in-
stitutions, the banking setup, and so forth. This I
considered to be economically realistic, and this is
what I attempted to do. The third level would be
to make analyses taking into account the different
pressure groups which bear on an issue and try to
make analyses which would be accepted by them.
This, I felt, was none of our business. This was the
role of the politician. Keyserling and Clark disagreed
with me.13
12 Based on a transcript of a recorded interview, July
1958.
13 Keyserling comments: "No evidence can be brought to
bear to support the allegation that either Clark or I
took positions in which we did not substantively believe.
.. Dr. Clark and I did, of course, take account of the
practicality of policy recommendations from the viewpoint
of their institutional acceptability, and this is within the
proper scope of economics in the public service.
Dr. Nourse's statement . that Keyserling and Clark
wanted to be policy makers is also categorically false.
•
•
•
The President's Economic
Economic
The sharpest difference between me and my col-
leagues was that I differentiated clearly between
economic analysis and political synthesis. Keyserling
and Clark wanted to be policy makers. But I saw the
Council as an apex of economic thought, with us
processing problems for the President's consideration.
Our role was to give the President a notion of how
professional economic thought was dividing on a
question, and then give him our best judgment on
it. If the President, for political considerations, for-
mulated a policy that led to bad economic policy,
the role of the Council was then to show him the
least bad way to apply bad policy. I made this point
in my speech before the American Philosophical
Society. I said
“.. the economist must be spiritually capable of
bringing the choicest pearls of scientific work to cast
before the politically motivated and politically con-
ditioned policy makers of the executive branch. He
must be prepared to see these carefully fabricated
materials rejected or distorted, and still carry on the
same process of preparation and submission again
tomorrow, unperturbed and unabashed. He must all
the while be aware that his professional brethren
and the public will hold him accountable for the
final compromised product while he, by virtue of
his relationship with the Executive Office, is estopped
from saying anything in explanation or vindication
of his own workmanship."14
Now that is where the problem came in testifying
before Congress. If we were all in agreement-we
three and the President-we could go up and ex-
plain to Congress what the economic needs were
and how the decisions had been arrived at. But you'd
be establishing a precedent. What happens when a
policy comes up which you don't think is good eco-
nomics-and they're bound to come because the
President can't be expected always to follow the
advice of the Council when he takes into account
We recognized that policy had to be determined by the
President. We, of course, sought to urge him to adopt
the policies in which we believed, but so did Dr. Nourse,
and so would anyone else in our position. Further, Dr.
Nourse went all around the country making speeches to
all kinds of groups, urging upon them the policies in
which he believed. Sometimes he did this before the
President had made a determination of policy, and some-
times, after the President had made a determination of
policy, Dr. Nourse made speeches to the contrary. Clark
and I believed this to be inappropriate for reasons fully
set forth in your quotation of my views."
14 Edwin G. Nourse, Proceedings of the American Philo-
sophical Society (R.A.F. Penrose, Jr., Memorial Lecture),
Vol. 94, No. 4, 1950.
Advisers
all factors in the political decision-making process.
What would I do then? That was the question I was
asking. Do I go ahead as a professional economist
and argue for the President's position? That came
up and I said, “I can't do that.” That, in my judg-
ment, was an entirely different role from the one
I envisioned as a member of the President's Council.
Take my situation. Suppose the President took a
position for, say, selective price or wage controls
and that I have to go before Congress and defend
it. Then some smart senator on the Joint Commit-
tee like O'Mahoney, Douglas, Sparkman—there were
plenty of them-says, "That's a very interesting case
you make for this policy, Dr. Nourse. Now I notice
that on page 486 of your book, America's Capacity
to Produce, you deplore government controls in
these words. Now, do you think the situation has
changed?" What am I going to do? Someone else
might make a forty-minute speech showing how
conditions had changed. I couldn't operate on that
basis.
13
I felt, as I read the Act, that the Congress had
provided for dual implementation-we were to ad-
vise the President and the Joint Committee was to
advise Congress. There was no necessity for us to
go before Congress. Congress had its own advisers
with their own staff.
Mr. Keyserling, though, felt we were responsible
in a sense to Congress, partly because we had had
senatorial confirmation, partly because as the Presi-
dent's advisers we should speak for him, and partly
because he wanted to wield that influence. On the
first score, I had always felt that the situation would
be clarified if we did not need senatorial confirma-
tion. We weren't presiding over any action programs.
On the second score, although we were the Presi-
dent's advisers he didn't always follow our advice.
Our advice was only one factor he took into account.
On the third score, I was content being "schulmeister”
to the White House. I didn't feel I needed the larger
class on the Hill also.
Of course, I wasn't completely happy with the re-
lations we did have with the President. There was
never a time when I called Matt Connally, the Presi-
dent's appointment secretary, when there was the
slightest difficulty in getting an appointment. He
would say, "Will fifteen minutes be all right?" And
I would say, "No, I need a half hour." Then Con-
nally would say, "Well, we've got a lot of cash
customers this morning; we'll have to move some of
them around." And they were moved. There was
never more than a day's lapse before I was sitting at
the President's desk, and that was excellent. But when
I got there, the President was always very gracious,
friendly and nice-too nice, in fact. He wasn't busi-
14
Inter-University Case Program
it in as objective a manner as my basic attitudes
permit. However,
a definite recommendation
on expenditures, it seems to me, is advice that I can
more properly give to the Executive than to Con-
gress.
ness-like enough. He'd tell me what happened on
his walk that morning, or tell me chit-chat about
his family-wasting minutes of this precious appoint-
ment. As I think back, I can honestly say that I
think I never had a real intellectual exchange with
the President, that I was opening my mind to analysis
with him, that he was following me. And the situa
tion wasn't much better when I sent him reports.
On the occasion when we turned in a majority and
minority report the President took them and said,
"Thank you for making this report. I'll study it with
great care." But the next day he saw Clark Clifford
in the morning and he said, "Well, I asked these
guys for a report, and they gave me two reports.
You take them and see if you can make anything
out of them." You see, that was the frustrating part
of it. I felt there was little opportunity to become
more effective.
But the important thing was to establish the
Council as a professional body immune from po-
litical influence. And, in fact, if the Council could
pass from one administration to the next with some
continuity of personnel, I felt that would firmly es-
tablish the precedent. As I said once or twice before,
"It will take time for successive Presidents to learn
how to use a nonpolitical advisory staff agency ef-
fectively. It will take time for successive Council
members to learn how to bring the most competent
and realistic analysis of economic problems simply
and effectively to the President's aid."
Blough's View
After Keyserling became Chairman, Council
members appeared frequently at congressional
hearings. The new Council member appointed
to fill the vacancy left by Nourse's resignation
was Dr. Roy Blough, then professor of economics
and political science at the University of Chi-
cago. Blough joined in these appearances but
differed from Keyserling on the kinds of testi-
mony a Council member should give. This
emerged publicly at the 1952 subcommittee
hearing referred to above, when Senator Douglas
asked Blough whether he advised Congress to
cut expenditures by five billion dollars or
whether he preferred not to answer. In reply
Blough stated:
I consider myself completely at liberty to dis-
cuss with Congress economic trends and develop-
ments, the effects and implications of governmental
policies, and the different ways in which various
policy objectives can be achieved. I am very pleased
to have an opportunity to do this, and I try to do
•
Blough subsequently enlarged on this state-
ment to the effect that the advisory relationship
to the President clearly precludes the Council
member from openly expressing views adverse
to the President's recommendations. Accordingly,
Blough felt, it is unwise for a Council member
to serve as an advocate of administration pro-
grams. Congressmen will not receive his frank
opinion on matters of policy, but they should
be able to rely on the objectivity of his state-
ments as an economist.
The CEA Under Eisenhower
In January 1953, when Republican President
Dwight Eisenhower took office, he inherited an
unusual situation. In 1952 the Congress, un-
certain whether the Council should be con-
tinued, had provided it only enough money to
function for nine months. Thus, Council funds
were due to run out in March 1953. In February
1953 Sherman Adams, the Assistant to the Presi-
dent, advised the Chairman of the House Ap-
propriations Committee that President Eisen-
hower considered it important that the Council
continue to function, and asked that the Com-
mittee consider a supplemental appropriation
to carry the Council through the rest of the
fiscal year.
At the same time, President Eisenhower asked
Dr. Arthur F. Burns if he would serve as Chair-
man of the Council of Economic Advisers. Burns
was at that time professor of economics at Co-
lumbia University and director of research of
the National Bureau of Economic Research.
Burns thought back over some of the difficul-
ties in CEA operations during the Truman
administration and looked ahead to the kind
of CEA on which he would be serving if he
accepted the appointment. He advised the White
House that he would accept the nomination
provided he had the right to review the other
two appointments. His condition was met. Early
in March his nomination was presented to the
Senate, which confirmed it on March 18. A few
days later Congress approved the Supplementary
Appropriation Act which provided only for the
The President's Economic Advisers
establishment of one Economic Adviser to the
President and appropriated $50,000 for this
Adviser and a small staff.
The CEA's forty-member economic and cleri-
cal staff was almost entirely dispersed. Only two
or three economists remained.
Burns considered his first task to be an evalu-
ation of the structure of the Council as it had
functioned in the Truman administration. In
the course of his evaluation he concluded that
many of the CEA's difficulties had resulted
from defects in the legislation. He agreed with
the Hoover Commission finding that the Coun-
cil had been handicapped "by being a multi-
headed body" whose three members had held
identical powers and responsibilities. The Chair-
man, as such, had no added powers at all. All
administrative problems had to be decided by
all three members.
The second defect which Burns detected in
the basic legislation was the absence of estab-
lished channels between the Council and other
agencies within the government. This deficiency
had caused at least two problems: (1) It had
been difficult for the Council to influence the
making of economic policy throughout the gov-
ernment. (2) There had been many accusations
of "intrigue" between Council members and
officials of other agencies. Burns felt that if
there had been any "intriguing," one reason
was the necessity to by-pass the blocks in the
institutional arrangements. He therefore pro-
posed a reorganization of the Council, which
was approved by the President and which be-
came Reorganization Plan Number 9, approved
by Congress on August 1, 1953. This plan placed
administrative responsibility for the CEA in the
Council Chairman, who also had the sole re-
sponsibility for reporting to the President. The
position of Vice Chairman was abolished.
In his letter transmitting the Reorganization
Plan to Congress, President Eisenhower indi-
cated that he was also asking the heads of
several departments and agencies, or their rep-
resentatives, to serve as an Advisory Board on
Economic Growth and Stability under the chair-
manship of the Chairman of the CEA. This
was in line with Burns' notion that regular
channels of communication between government
agencies should be institutionalized. Burns'
original idea had been to have an economic
15
cabinet. This cabinet, under the chairmanship
of the CEA Chairman, would have been com-
posed of the Chairman of the Federal Reserve
Board, the Secretary of the Treasury, and other
Cabinet-level officials with major responsibility
in the economic field. However, Burns recom-
mended that rather than leap directly to this
high-level economic cabinet, it might be well
to try the idea first with an advisory board
composed of officials from the policy-making
level immediately below that of Secretary.
In June 1953 the Advisory Board on Eco-
nomic Growth and Stability was set up with
Burns as Chairman. The other seven members
were under-secretaries, assistant secretaries, and
officials of similar rank from the departments
of the Treasury, Agriculture, Commerce, and
Labor, and the Bureau of the Budget and the
Federal Reserve Board. The White House was
represented by Gabriel Hauge, an Administra-
tive Assistant to the President with responsibility
for briefing the President on details of economic
matters.
Burns now had a Council reconstituted on
his terms: administrative responsibility was cen
tralized in the chairman; there was an inter-
agency board for co-ordinating economic policy
under CEA direction; the two other members
of the Council were men specifically approved
by Burns. (In September 1953 Burns was joined
on the Council by Dr. Neil H. Jacoby, Dean
of the School of Business Administration at the
University of California at Los Angeles, and in
December by Dr. Walter W. Stewart of the
Institute for Advanced Study in Princeton.)
Burns also had strong backing from the Presi-
dent. Eisenhower repeatedly told his Cabinet
members that he wished them to consult the
CEA Chairman on all important economic mat-
ters and policies. While this did not give Burns
veto power, of course, it lent weight to his posi-
tion and provided him with another channel
for putting forward his views. Besides consulting
with the heads of departments and agencies
individually, Burns attended Cabinet meetings
regularly and participated in debates on eco-
nomic issues.
Under the Reorganization Plan Burns alone
was responsible for reporting to the President
on the workings of the CEA and on economic
policy recommendations. Burns had a scheduled
Inter- University Case Program
Secondly, a congressional committee might wish
testimony on some technical problem, such as
an analysis of the statistical units of all govern-
ment departments. This too would be a legiti-
mate request which should be honored. Third,
Council members certainly should appear be-
fore the Appropriations Committee to defend
budget requests for the Council itself.15
The difficulty arose when an invitation was
proffered by a congressional committee dealing
with economic conditions and policy. Here,
Burns felt, there were at least two major dangers
in testifying.
16
weekly meeting with Eisenhower, generally at-
tended also by Hauge. Burns made it clear to
his two colleagues, however, that although he
had sole administrative responsibility for pro-
cedural matters, he considered that all three
members of the CEA shared equally the respon-
sibility for advising on substantive economic
problems.
Burns also discontinued the practice of having
the Council issue separate annual economic sur-
veys. These were now made part of the Presi-
dent's economic messages.
The problem of the relationship of the CEA
to Congress arose immediately. During the hear-
ings before the Senate Banking and Currency
Committee on the confirmation of Burns as
CEA Chairman in March 1953, Senator John
Sparkman put a question to Burns: "Is it your
feeling that you should testify before a con-
gressional committee, or will you keep yourself
aloof from congressional committees?"
Burns replied: "Senator Sparkman, it is per-
fectly plain to me that the Congress has the
full right to call upon any citizen within or
outside the Government to testify at any time.
... My own personal . . . inclination would be
to stay out of the limelight, make my recom-
mendations to the President, indicate to him
what the basis for the recommendation is
and then having done that, to remain eternally
quiet.”
•
Burns' Position
Burns later gave considerable thought to the
position he should take. To a large extent he
agreed with Nourse's feeling that it would be
difficult for an economic adviser to maintain
his usefulness to the President if he had to
answer all questions put to him by a political
group. However, he felt Nourse had carried
this position too far. There were several cate-
gories of aid which could be given without
interfering with his advisory relationship to the
President. First, there might be a request for
the CEA to aid the Congress in understanding
the Employment Act of 1946. Such a request
would call upon Council members in their
function as administrators of an Act passed by
Congress, and it would be completely appro-
priate for Council members to testify freely.
First, in some cases the President had to adopt
policies that he didn't like and that I didn't like.
He had to do it for reasons of overall political
policy, but his heart was bleeding over it. What
should I do before a committee of Congress in such
a case? Should I criticize the President when I hap-
pen to know that he shares my views? Would that
be fair? In any case, how could I criticize the Presi-
dent publicly and still remain a useful member of
his administration? On the other hand, how could
I say to a congressional committee that something
is sound when I believed otherwise?
The other major danger in testifying is that once
an adviser takes a strong position in public, he is
apt to become a prisoner of that position. I wanted
to give the President the fullest benefit of my knowl-
15 Nourse comments: "With these three propositions I
am, of course, in complete agreement. I only wish I
had been smart enough to differentiate these cases as
explicitly as Burns has done from the fourth issue-the
one on which I took my stand. Naturally, I appeared
before Senate and House committees to defend the
Council's budget. When, in May 1947, Senator Taft, as
chairman of the Joint Economic Committee, extended
us an invitation to meet with that committee to discuss
interpretation of the Employment Act and, in a broad
way, means for its implementation, I unhesitatingly ac-
cepted. The Committee's report had been made several
months before. The session was well along on the legis-
lative program, and our discussion was entirely free of
debate over policy recommendations of the President or
specific issues then involved in Congressional debate.
We cooperated fully on the staff level in inquiries in-
itiated by the Joint Economic Committee as to 'statistical
gaps' and if, at any time, we had been invited to join
with the committee in mutual conferences within this
field, I am sure I would have been glad to participate.
Not having the statistical competence that Burns had,
I was not in a position to exercise the leadership in
this important area which he subsequently contributed."
1
The President's Economic
edge and thought. Hence I wanted to be free to
advise the President one way one day, and yet be
able if necessary to go in the next day and say,
"I've been thinking it over. What I told you yester-
day was wrong. I overlooked some important points.
What really ought to be done is thus and so."
Burns decided that he ought to testify de-
spite these dangers, because good citizenship
required it. He also decided that he would
express to the congressional committee, if it
dealt with economic policy, a preference as to
the method of testifying. Burns preferred that
he be permitted to testify in executive session
with no transcript made of the remarks. But
if the congressional committee would not agree
to this method, Burns decided, he would testify
anyway. "Maybe I'd have to resign after I got
off the stand, but that would be one of the
chances I knew I would be taking."
In 1954 the Joint Committee on the Economic
Report called upon Burns to testify. At that
time the Republicans controlled Congress, and
Republican Jesse Wolcott was Chairman of the
Joint Committee. Wolcott and the Committee
with its majority of Republicans acceded to
Burns' request that the testimony be taken in
executive session with no transcript.
The election of 1954 resulted in the Demo-
crats gaining control of Congress, and in 1955
Democrat Paul Douglas was Chairman of the
Joint Committee with its new Democratic ma-
jority. Again, Burns was asked to testif and
again he expressed his preference. Douglas re-
plied that although he would agree to an ex-
ecutive session, he would want a transcript made
of the testimony. However, Douglas we on,
this transcript would not be part of the public
record. Burns replied that if a transcript were
to be made at all, he would want the script
made public. So in 1955 the testimony was
given in executive session, and the transcript
was made a part of the printed record
man,
The next year Douglas was still
and Burns again expressed his origin prefer-
ence. This time some Democrats on
Committee voted with the Republic
Burns' testimony was taken in executi
with no transcript made.
Joint
and
ession
So Burns established his policy. Hwould
clearly express his preference to the ongres-
sional committees dealing with economic issues.
Advisers
17
If the committee in question accepted his pref-
erence, that was all to the good. However, if
the Committee insisted on different terms, Burns
would accept those terms.
There was another major change in the work-
ings of the Employment Act in the first years
of the Eisenhower administration. The Joint
Congressional Committee, which up to this time
usually issued partisan majority and minority
reports, issued a unanimous report in 1954 and
again in 1955. By 1956 there were those who felt
that the Joint Committee was no longer "a fifth
wheel" and that its hearings and reports were
as significant as those of the CEA.
Burns resigned from the Council in December
1956 and returned to his post as professor of
economics at Columbia University, becoming
at the same time president of the National
Bureau of Economic Research. In 1958, look-
ing back over his years as Chairman, and eval-
uating his policy against that of the first Council
members, Burns said:

Keyserling took an extreme position and in the
process ignored a vital distinction. Cabinet officers
are directly responsible to Congress. Their responsi-
bilities are largely defined by Congress. But the
Council is not an administrative agency. It is ad-
visory only-advisory to the President by law, and
advisory to the Presidency by practice.
Nourse also took a rigid position. To the extent
that the Council had duties defined by law it is
responsible to Congress and must answer to it-that
is why I placed no conditions on my testifying on
proposed changes of the Employment Act or on the
statistical gathering functions of the government or
on the defense of the Council's budget.

But I want to add this: if there had only been
the type of Council that Keyserling envisaged, I never
would have accepted the appointment. I would have
taken it for granted
Council Chairman
must, as a practical matter, support the President's
views at public hearings, and I would not place
myself in that position. But because there had been
a Nourse I could conceive of there being a practical
alternative and could try to find it. So Nourse did
more than make my job easier by taking the posi-
tion he did; because there had been a Nourse my
job was possible.
VAN TURK
Not everyone agreed that Burns had solved
the problems. Harvard economist Alvin H. Han-
sen, for one, considered that Burns' solution had
been to sidestep the dilemma Nourse had feared
18
by restricting his activities "more nearly, though
not quite exclusively" to assisting and advising
the President. Hansen felt that Burns had not
really met the question (raised earlier by Keyser-
ling) that the Democratic members of the Joint
Committee posed in this manner in the com-
mittee's Supplementary Report of March 1955:
“A sound and consistent position for the Coun-
Inter University Case Program
cil must be agreed upon, either it acts solely as
an anonymous professional body advising the
President or as the spokesmen before Congress
and the public for the President's economic
analyses and programs. If the first alternative
is adopted, then some other spokesman for the
President's overall economic position must be
established."
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