ABSTRACT
In late 1967, after tightening regulations for the 1968 extension of the voluntary capital control program, events convinced the Johnson administration to replace the voluntary program with a mandatory one more restrictive of direct investment. Most observers realized that the US payments deficit was neither caused by the war nor would it disappear after the war's end; but the war was an important factor in the exacerbation of the payments deficit and became a catalyst for capital controls. The mandatory capital control program aimed to reduce the net US capital outflow without inhibiting the growth of US direct investment. Important representatives of capital were beginning to view the Vietnam war itself as an important cause of the deficit. The restoration of free capital movements was conditioned upon minimizing the foreign exchange costs of the war. The divisions between international capital and the Johnson and Nixon administrations over the mandatory program continued the debate over the voluntary program.
