Foreign Relations of the United States, 1949, National Security Affairs, Foreign Economic Policy, Volume I

S/S–NSC Files: Lot 63D351: NSC 52 Series

Report by the National Security Council to President Truman

top secret

Washington, September 29, 1949.

NSC 52/3

Governmental Programs in National Security and International Affairs for the Fiscal Year 1951

The National Security Council, at its 46th Meeting,¹ considered a draft report on the above subject (NSC 52/2²) and adopted it in the revised form enclosed herewith.

The Acting Secretary of the Treasury, the Economic Cooperation Administrator, and the Chairman of the Council of Economic Advisers attended this meeting and participated in the discussion. The Economic Cooperation Administrator concurred in the enclosed report as adopted by the National Security Council. The views of the Acting Secretary of the Treasury and of the Chairman of the Council of Economic Advisers with respect to the enclosed report, which were considered and discussed by the National Security Council prior to the adoption of the report, are contained in Annexes A and B hereto.

The National Security Council also considered and discussed the suggestions by the Secretary of Defense contained in Annex C hereto. The Council agreed that these proposals should be submitted for the President’s consideration, concurrently with the enclosed report, as suggestions by the Secretary of Defense in response to the President’s request, in his letter of July 1, 1949 (NSC 52, page 4, sub-paragraph 2³), for any alternative suggestions with respect to this problem.

The National Security Council, together with the Acting Secretary of the Treasury, the Economic Cooperation Administrator, and the Chairman of the Council of Economic Advisers, accordingly submit the enclosed report, together with the attached Annexes, for the consideration of the President as a response to his letter of July 1, 1949 (NSC 52⁴).

Sidney W. Souers

[Enclosure]

Report by the National Security Council

top secret

[Washington, September 29, 1949.]

Governmental Programs in National Security and International Affairs for the Fiscal Year 1951

the problem

1. To review and appraise governmental programs in national security and international affairs for the Fiscal Year 1951, in accordance with the President’s letter of July 1, 1949.

analysis

2. The position of the United States in world affairs is based upon the premise that our security and welfare are inextricably related to the general security and welfare, and upon an acceptance of the responsibility for leadership in world affairs which is called for by that premise. We therefore seek, by unilateral action and through collective effort with other like minded peoples, to establish world conditions under which we can preserve and continue to develop our way of life. Toward that end we have taken such actions as (a) U.S. activities in the United Nations; (b) our programs of aid to Greece, Turkey, and other countries; (c) the European Recovery Program; (d) the North Atlantic Treaty; (e) the proposed overall program for military cooperation with other countries; (f) the Point IV program.

3. Experience since the war has made it obvious that the USSR neither intends nor desires to cooperate in establishing world conditions which we seek in the interest of the general security and welfare. The USSR seeks only the maintenance and extension of Soviet power through all means at its disposal, including a resort to armed force if necessary or desirable to gain its ends. The USSR ruthlessly exploits every weakness of those who oppose its domination, but adjusts its tactics when it encounters effective strength.

4. Faced by this situation, the United States is forced to adopt and effectively maintain programs which will both safeguard its security and welfare against the threats posed by the USSR, and lead to the establishment of the world conditions which we seek. These programs include a fundamental effort on the part of the United States to develop and maintain an adequate level of military readiness, to assure its internal security, and to maximize our economic potential. Recognizing, however, that we do not have the resources unilaterally to defend, direct and support the entire non-Communist world, we are also assisting and encouraging those nations which are willing and able to contribute toward the same results we deem essential, to increase their economic and political stability and their military capabilities. Beyond that, we are endeavoring to place the maximum strain on the Soviet structure of power and particularly on the relationships between Moscow and the satellite countries. By these programs we are attempting to develop and maintain the political, economic and military strength of the entire non-Communist world, to the end that the government in power in Russia will eventually be convinced that it should conduct its international relations in conformity with the purposes and principles set forth in the United Nations Charter. In carrying out the above programs we must take due care to avoid permanently impairing our economy and the fundamental values and institutions in our way of life. This will require a careful balancing of budgetary requirements for national defense, international affairs, and civilian domestic activities in the light of their relative urgency and importance at any given time to our over-all security and welfare.

5. Budgetary requirements for governmental programs in national security and international affairs should therefore be analyzed in the light of the above considerations. The department or agency responsible for each of these programs, after such an analysis, has made a current estimate of the new obligational authority for FY 1951 which it deems desirable in order that the program may make its maximum contribution at minimum cost to the achievement of our objectives. A comparison of these currently estimated requirements with the planning limits established for FY 1951, is shown in the Appendix hereto. The extent to which the proposed limits for the preparation of tentative plans, as compared with the currently estimated requirements, will require adjustment in strategic and diplomatic planning, if any, is briefly discussed for each program in the following paragraphs:

6. Department of Defense. With the economies which can be effected by 30 June 1950 and during the ensuing year, the Department of Defense can, under the $13 billion ceiling allocated to it in NSC 52/1, maintain substantially the same degree of military strength, readiness and posture during FY 1951 which it will maintain in FY 1950. However, any further reduction below this ceiling would probably require reductions in forces, combat capabilities and minimum mobilization base, which, from a military standpoint, would entail grave risks.

7. Atomic Energy Commission. The planning limit of $720 million would apparently enable the AEC to continue production of weapons and fissionable material in accordance with the currently approved production schedule.

8. Stockpiling. There is general agreement that present stockpile goals are inadequate for a large-scale, five-year war. Even these limited objectives are not going to be reached by 1951 as originally planned because of the unavailability of materials and the inadequacy of appropriations in the last few years. The proposed limit of $500 million for stockpiling in FY 1951 (rather than $835 million which would maintain the program at the level proposed for FY 1950) would materially reduce the current rate of progress toward present stockpile objectives (to some 40% below the rate possible under the President’s budget request for FY 1950), and would thereby postpone once again, and appreciably, the date when these objectives can be met. If the Congress finally rescinds, as proposed by the Senate, $275 million in contract authorization heretofore provided for FY 1950, this date will be further postponed. The seriousness, from a national defense standpoint, of a reduction in FY 1951 to $500 million, turns largely on whether a current reexamination of present stockpile goals, in terms of up-to-date military requirements and current strategic assumptions, indicates a need for their drastic upward revision. From the standpoint of the important secondary benefit of stockpiling, as a stimulus to foreign economies, the proposed limit would reduce stockpile purchases during FY 1951 in areas which are presently receiving substantial dollar aid from the United States by as much as $100 million.

9. Economic Cooperation Administration. The limit of $3 billion should prove adequate assuming a level of U.S. economic activity sufficient to support imports into the U.S. at a level above that of 1948. If this favorable assumption does not prove correct, however, ECA aid may become inadequate to accomplish its objectives by 1952/53 unless it is increased in FY 1951 to approximately $4 billion. Even if the limit for FY 1951 proves sufficient, it should be noted that other actions, possibly including the following, will be required to maximize the longer run benefits of ERP:

a. Encourage the rapid creation of a free trade area and realistic exchange relationships in Western Europe, as steps toward raising productivity and putting Europe on a better competitive position in the world.

b. Help to cover Western Europe’s post-ERP dollar deficit through:

(1) Continuing direct aid to Greece, Austria, and probably Western Germany and Italy;

(2) Promoting greatly increased foreign investment by both private investors and public institutions;

(3) Aiding some parts of the sterling area which are now dependent on Britain for dollars;

(4) Reducing obstacles to imports into the United States from the countries now participating in the ERP and their overseas territories and from the rest of the world.

c. Find some method of restoring adequate gold and dollar reserves in Western European countries, before the end of the ERP period.

10. GARIOA. The limit of $350 million, rather than the currently estimated requirement of $400 million, would require in Japan a reduction of food and cotton imports, and transportation. This would mean economically in Japan a reversal of a recovery process and a retrogression toward a disease and unrest program unless some way can be found to make available to Japan U.S.-owned surplus wheat and cotton without requiring new appropriations. A deterioration in our position in Japan, when coupled with events on the continent of Asia, might ultimately require an increased period of occupation in order to offset increased Communist influence. The effect of the planning limit upon the Ryukyus, an area of great strategic significance to the U.S., would be to eliminate imports of consumer goods and reduce urgently needed reconstruction programs. This will increase existing problems and long-range cost to the U.S., and will prove detrimental to our current policy with respect to the Ryukyus (NSC 13/3⁵).

11. The remaining programs all fall within the planning limit of $200 million for which the Department of State is primarily responsible. The Department of State has made the allocations within this total, as shown in the Appendix hereto, for the following reasons and with the following estimated effects:

a. Military Assistance Program. It would be unwise to make any provision for MAP within the $200 million limit, since any possible allocation within that amount would necessarily be of insufficient size to achieve the desired results and might have an adverse psychological effect. At the same time, it is believed that an MAP program of between $1 billion and $1,500,000,000—the exact amount being dependent on estimates which are still to be made and upon planning under the North Atlantic Pact—is essential from the standpoint of national security, and that failure to provide such a program will have a very serious effect upon our strategic and diplomatic planning. From a military standpoint, this program as it applies to Western Europe, represents an indispensable step toward converting these nations into military assets rather than military liabilities in the event of war in the long-range period. Only through such a program will the nations under the North Atlantic Pact be enabled to reach a position in which the Western European Continent can successfully be held against armed aggression, thus obviating the necessity for an extremely costly, and by no means surely successful, invasion of the continent in the event of war. Politically, MAP will bolster the psychological attitudes and morale of our allies and make them willing to strive more energetically toward the objectives we deem essential. Furnishing arms under an MAP is a prerequisite to implementing our obligations and establishing an effective organization under the North Atlantic Pact. Economically, MAP would make Western European countries more willing to take the risks that are necessary in solving their economic problems and thus enable them to move forward toward recovery after ECA aid terminates.

b. Philippines. An allocation of $40 million is necessary to make it possible to complete payments under the original $400 million authorization already made in the Philippine Rehabilitation Act of 1946. The Department of State is now considering the advisability of establishing a Joint United States-Philippine Economic Commission. It is hoped that such a commission would find that measures such as Export-Import Bank loans and allocation of assistance under the Point IV program would meet the requirements of Philippine economic developments during FY 1951 without the necessity for a further authorization of U.S.-appropriated funds during that fiscal year. However, it is likely that grants will be needed to meet an acute temporary crisis which will probably arise in the Philippines in FY 1952 or 1953.

c. Korea Recovery. An allocation of $70 million for aid to Korea is the minimum required to maintain that nation on a bare relief level. An increase to $115 million is necessary to achieve the objectives of the planned three-year program to assist the Koreans toward becoming self-supporting. The $70 million allocation not only offers no prospects of achieving these objectives, but may place such a strain upon the political stability of the Korean Government that South Korea may be lost to Communist influence. While strategically acceptable as far as Korea alone is concerned, this loss would be detrimental to our national interests as a further step toward loss of U.S. influence in Asia as a whole.

d. Arab Refugee. The allocation of $20 million for this program will be sufficient to provide only simple subsistence relief for the refugees, without any provision for the resettlement measures designed to end the need for such direct relief. It is estimated that $40 million is the minimum necessary under a three-year plan beginning January 1, 1950, of repatriation, resettlement, direct relief, work relief, and economic development projects. This plan is designed to effect a permanent solution of this problem within a minimum period of time and at a minimum cost, in order to remove this major threat to the stability and friendship of the strategic Near Eastern area.

e. Point IV. Under the $200 million limit, $45 million is the most that can be made available for the technical assistance aspects of this program, which has such great prospects of contributing to major U.S. objectives in a permanent and inexpensive manner, particularly in the post-ECA period. This allocation falls $7,500,000 short of the funds estimated to be required to hold this part of the modest program to the same level as planned in FY 1950.

f. International Refugee Organization: $25 million has been allocated to this program of an international organization of which the U.S. is a member and to which we have already made commitments. Allocation of a lesser amount would not only be an act of bad faith, but would defer the completion of this program at still greater ultimate cost to the U.S.

g. Probable New Programs. The $200 million limit, in view of the preceding allocations, makes it impossible to provide for new programs which it is anticipated will have to be considered prior to the presentation to the Congress of the FY 1951 budget. These programs, which it is believed will require at least $200 million, will be necessary:

(1) Because the United Kingdom will not be able to cover the immediate dollar requirements of India, Pakistan, and other parts of Southeast Asia and the Middle East.

(2) To facilitate the establishment of the Indonesian Republic, which will no longer be eligible for ECA aid.

(3) To cover other new programs which may result from the current survey of Far Eastern policy.

conclusions

12. The allocation indicated in the Appendix hereto represents as balanced a program in this politico-military area in the interests of our national security as is possible within the planning limits established by the President. Any reductions in the planning limits for the Department of Defense and the Economic Cooperation Administration to take care of the urgent requirements of the Military Assistance Program and some of the smaller programs would so seriously threaten the success of the Defense and ECA programs as to present a grave risk to our national security.

13. These allocations within the established planning limits, however, would require adjustments in current strategic and diplomatic planning in the form of reductions, deferments, or elimination of certain programs, as indicated in the preceding Analysis, which are not only in themselves important elements in our over-all program for national security, but make significant complementary contributions to the successful conduct of the programs provided for in the established planning limits.

14. The most significant adjustment in our over-all program for national security required by the established planning limits, would be the inability to provide for the Military Assistance Program. Provision for this program will necessitate an addition to the planning limits of $1 billion to $1,500,000,000—the exact amount being dependent on estimates yet to be made and upon planning under the North Atlantic Pact—for the reasons indicated in paragraph 11-a-above.

15. Other extremely serious adjustments in our national security program which would be necessitated by the established planning limits are those which involve reductions in certain current and projected international programs making significant contributions to our national security program. These reductions will not only postpone the completion of the specific programs in question but may jeopardize their success or require still greater subsequent expenditures by the United States to achieve their objectives. The increases in planning limits required for each of these programs in order to prevent these serious adjustments are as follows:

a. GARIOA—$50 million (see paragraph 10).

b. Korea Recovery—$45 million (see paragraph 11–c).

c. Arab Refugee—$20 million (see paragraph 11–d).

d. Point IV—$7,500,000. (see paragraph 11–e).

e. Probable New Programs—$200 million (see paragraph 11–g).

16. In indicating the critical need for the above increases in the established planning limits to maintain governmental programs in national security and international affairs during FY 1951 at an adequate level of well-balanced effort, the National Security Council is fully cognizant of the necessity, as expressed by the President in his letter of July 1, 1949, “to contain prospective deficits within a sound fiscal and economic program.” The Council also recognizes that “A strong domestic economy is essential to the maintenance of a high level of military and international programs.” Toward these ends significant reductions have been made during this study in the estimated budgetary requirements for FY 1951 in the foreign and military field. Reductions in these programs, however, must be made in an orderly progression that will not jeopardize the position in international affairs which we have so dearly won. Many of these programs, if carried through to their completion in an orderly fashion, will liquidate outstanding commitments or overcome conditions which now threaten our national security, so that expenditures for such purposes may be reduced or eliminated in the next few years. Too great reductions in expenditures for these programs at this time not only will require, in almost every case, greater total expenditures to solve the problems involved, but may, by the continued existence of these problems create new situations adversely affecting our national security which will require still heavier future expenditures in this politico-military area. The National Security Council therefore believes that it is desirable in the interests of our national security that the reductions in expenditures for foreign and military programs be restricted to a level which will provide for the increases above the established planning limits indicated in paragraphs 14 and 15 above, with the prospect that such a level of expenditures, even though it may result in an increased deficit at this time, should without jeopardy to our national security permit further reductions in this politico-military area in the next few years.

17. With respect to the stockpiling program the National Security Council further believes that, if Congress should finally rescind (as proposed by the Senate) some or all of $275 million from the FY 1950 stockpile budget, the FY 1951 planning limit should be increased by the amount of such rescission, taking into account the considerations set forth in paragraph 16 above regarding increases in certain other planning limits. In addition, the Council considers that, if the current re-examination of stockpile objectives (which is being expedited) should indicate the necessity of substantial upward adjustments in existing goals, immediate consideration should then be given to the desirability of an appropriate increase in the planning limits existing at that time, again taking account of the considerations set forth in paragraph 16 above. Pending possible increases as a result of the two contingencies noted above, the Council has been unable to reach unanimous agreement with respect to the current planning limit of $500 million. The Secretary of Defense feels that it is premature to propose an increase in the $500 million limit until the current re-examination of stockpile objectives indicates the amount, if any, by which this limit should be increased. On the other hand, the Chairman, NSRB, anticipating from a tentative study that the current re-examination of objectives will undoubtedly indicate substantial upward adjustment of these goals, believes that the planning limit of $500 million should be increased by $335 million in order to maintain the program at the level proposed for FY 1950.

Appendix

[Washington, September 29, 1949.]

Summary Tabulation of New Obligational Authority

top secret

	Planning Limits for FY 1951		Currently Estimated Requirements for FY 1951
Department of Defense	$13,000,000,000		$13,000,000,000
AEC	720,000,000		720,000,000*
Stockpiling of Critical and Strategic Materials	500,000,000	{	500,000,000 (Defense)
			835,000,000 (NSRB)
ECA	3,000,000,000		3,000,000,000
GARIOA	350,000,000		400,000,000
MAP	0		1,000,000,000–
			role="num"1,500,000,000
Philippine	40,000,000		40,000,000
Korea Recovery	70,000,000		115,000,000
Arab Refugee	20,000,000		40,000,000
Point IV	45,000,000		52,500,000
International Refugee Organization	25,000,000		25,000,000
Probable New Programs	0		200,000,000
Totals	$17,770,000,000		$19,092,500,000-
		19,927,500,000

Annex A

[Washington, September 29, 1949.]

Views of the Acting Secretary of the Treasury

top secret

The Treasury Department finds that, with the exception of MAP, it cannot concur with the recommendations for the raising of the over-all planning limits for the fiscal year 1951 above the Budget Bureau total of $17,770 million. It also believes that the requirements for MAP should be kept to as low an amount as is feasible within what now appears to be the likely range of $1.0 billion to $1.5 billion.

The Treasury Department’s position is not based on a detailed analysis of each program requirement—some of which will be reviewed further from an economic and financial viewpoint by the National Advisory Council on International Monetary and Financial Problems in the next few months—but rather on a general concern about the trend of the Federal Government’s budget deficit.

Annex B

Washington, September 30, 1949.

Memorandum by the Chairman of the Council of Economic Advisers (Nourse) to the National Security Council

top secret

Subject: Domestic Impact of Budget Ceilings for the Fiscal Year 1951

The draft Report by the National Security Council on Governmental Programs in National Security and International Affairs for the Fiscal Year 1951^* presents a careful and objective appraisal of the consequences of the restrictions on strategic and diplomatic planning which would be entailed by the budget ceilings proposed for fiscal 1951. The Council present it as their conclusion that the budget ceilings would have to be raised by amounts running up to or even exceeding 2 billion dollars, if the minimum strategic and diplomatic requirements were to be met. I have been asked to comment on the impact on the domestic economy of a budget deficit of the amount to be expected under the proposed budget ceiling of $17,770 million or under the increased level of expenditure here recommended by the National Security Council. The President’s letter of July 1, 1949 very correctly refers to this fiscal situation as “a substantial governmental budgetary deficit for the indefinite future.”

The National Security Council’s report is in the main limited to other aspects of the expenditure problem, but Section 16 explicitly recommends raising the ceiling from $17,770 million to $19,092 million or to $19,927 million “even though it may result in an increased deficit at this time.” The Council does not examine or even comment on the economic results of such enlargement of deficits—a task which in the nature of the case lies outside the province of the National Security Council. I suggest, however, that their recommendation cannot safely be accepted before such examinations have been made.

On the basis of my studies, I believe that incurring a budget deficit of the size contemplated for 1951 would have such adverse effects on the functioning of the domestic economy as to threaten total national security in ways which must be weighed seriously against whatever gains for national security in the strategic and diplomatic sense would result from those levels of expenditure.

It is of course essential that we prepare ourselves to meet whatever strains may be placed upon our national security and the security of the non-Soviet society of nations with as strong a joint military force as is feasible and that we should do anything reasonably within our power to strengthen the political and industrial situation of the nations associated with us in this joint security effort. But it is no less essential that we put ourselves in as strong a fiscal position as we can to meet the strains of a possible war or an indefinitely sustained defense effort and that we maintain economic conditions in the United States which will promote maximum industrial strength and political and social stability.

It is my judgment that we are already seeing threats to these essential conditions at home which would be aggravated by the continuation of budget deficits such as are emerging during Fiscal ’50 and would be in prospect in Fiscal ’51 and thereafter under proposed fiscal policies.

The threat of nation-wide strikes in basic industries and the menace of Communistic elements in the unions are in part manifestations of the industrial strains engendered by the drag on real wage levels which results from the allocation of so large a part of the national product to purposes which do not contribute except in remote and indirect ways to domestic well-being. No less do these drains, expressed either as tax burden or as higher operating costs or lower market demand, threaten the willingness or ability of employers to offer jobs or to expand and improve plant. Likewise, the stable adjustment of agriculture to its functional place in the economy is complicated by the fiscal disruption caused by a budget of the proposed size.

Concretely, I would call attention to the fact that we incurred a deficit of 1.8 billion dollars in Fiscal ’49, which was the culminating year of the postwar inflationary boom. Only its last few months were affected by moderate recessionary influences. Under assumptions of reasonably full employment and maintenance of the present price level, there would be an estimated deficit of 5 billion dollars or more in Fiscal ’50. In other words, even on a prosperity plateau, we would have erased the small debt reduction of 7 billion dollars effected at the peak of the boom and have put ourselves back in a situation of growing national debt. This would stultify the whole doctrine of a budget balanced over the period of the full economic cycle.

I regard the implications of such a development for taxation, for debt management, for capital formation, for labor relations, for social services and developmental expenditures and for the position of the fixed income class as serious, if not ominous. The relative ease with which we met the fiscal strain of World War II, with the national debt rising from 43 billion to 259 billions gives no assurance as to how we would meet the fiscal strains of a probably more wasteful World War III, starting from a national debt of 265, 270, or 290 billion dollars.

Obviously our country is faced by a true economic dilemma, with neither solution of our problem anywhere near satisfactory. Decision as to the total budget figure and its allotment among strategic, diplomatic, and industrial efforts toward national security must be taken only after careful weighing of the inescapable consequences of withdrawing strength from any one of the three seriously vulnerable fronts.

The economist as such has no technical competence to weigh the absolute needs or dangers on the strategic or diplomatic front. He should have some competence for identifying and appraising at least roughly the magnitude of needs and dangers on the economic front. As this third basic factor of the problem is weighed in the making of final decisions, recognition must be given also to the manner in which the policy chosen is to be carried out.

We must admit frankly that the totalitarian system with which we are in conflict has one element of competitive advantage in that it can control natural resources, mobilize manpower, and administer finances with a directness and simplicity that free nations cannot. The autocracy can marshall almost any predetermined amount of military power or politico-economic pressure by squeezing it out of a lowered standard of living for the masses. But our statecraft, as it comes to its final decisions on what we shall try to do simultaneously on the strategic, the diplomatic, and the economic fronts, cannot avoid the question of the economic behavior of free men and how soon and in what ways that free behavior will have to be curtailed if we are to meet the commitments we undertake and at the same time avoid a collapse of the financial machinery, public and private, on which our total security program rests.

Annex C

[Washington, September 29, 1949.]

Alternative Suggestions by the Secretary of Defense (Johnson)

top secret

1. The Secretary of Defense considers that further thorough study should be made of a proposal which, if feasible and consistent with other U.S. policies, might make possible some reduction in the recommended limits for GARIOA and certain other programs designed to furnish dollar aid to foreign areas. This proposal relates to the fullest possible utilization in support of our foreign policies of U.S. Government-owned surpluses of commodities such as cotton, wheat, and, to a lesser extent, corn—that is, quantities beyond the ceiling amounts which the Commodity Credit Corporation considers it reasonable and desirable for it to retain in storage in the United States. If these surpluses (which remain doubtful assets if simply held in this country, require money to store, and tend to depress the domestic market) could be employed—for example, through their sale in part or in whole for soft currencies—to provide Japan and other countries with materials for whose purchase they would otherwise require appropriated dollar aid, planning limits could be adjusted downward accordingly. Recognizing that this proposal involves considerations beyond the province of the National Security Council, it is therefore suggested that the President direct the Director of the Bureau of the Budget, in consultation with the Departments of State, Defense, the Treasury, Agriculture, the Economic Cooperation Administration, and any other appropriate departments and agencies, immediately to study, and submit recommendations concerning, the desirability, feasibility and manner of utilizing such surpluses in furtherance of total U.S. objectives and with a minimum of appropriated funds in FY 1951.

2. The Secretary of Defense is of the further opinion that additional savings may be possible, with a resultant ultimate reduction of certain of the planning limits, if an effective method can be found to coordinate the use of all United States funds which involve either (a) expenditures abroad to provide dollar aid or (b) expenditures to purchase goods or services which are required by the United States in areas receiving such aid. The possibilities in this regard can best be illustrated by the following concrete though oversimplified example: If supplies or services required by the United States forces in Japan could be purchased within Japan with the dollars which in any event must be appropriated for such purchases, such dollars would redound to the benefit of the Japanese economy and would reduce the amount of dollar aid required by Japan and, consequently, the size of necessary GARIOA appropriations. In other words, one dollar is made to serve the purposes of two—first, to provide the United States with materials or services; and, second, to furnish dollar aid. Numerous similar examples might be given, examples involving not merely the intelligent coordination of two programs or two objectives within a single area, but the coordination of such programs and objectives as among two or more areas—the relating, by way of illustration, of the foreign aid programs for Japan, the Philippines and the Ryukyus, so that, through trade among them, certain dollars furnished to one might be also of aid to one or more of the others. Recognizing that any proposal of this character involves considerations beyond the province of the National Security Council, it is therefore suggested that the President direct the Director of the Bureau of the Budget, in consultation with the appropriate departments and agencies, immediately to study, and submit recommendations concerning, the desirability, feasibility and best method of coordinating, in order to minimize dollar expenditures while still achieving desired objectives, all programs which involve either (a) expenditures of U.S. funds abroad, or (b) the purchase of goods or services which are to be used abroad.

1. September 29.
2. NSC 52/2, September 26, not printed.
3. Of July 5, p. 349.
4. This report did not receive the formal approval or disapproval of President Truman. It remained the subject of White House consideration until superseded by studies undertaken by the National Security Council in, 1950.
5. Dated May 6, vol. vii, Part 2, p. 730.
6. Not estimated, except as to adequacy for military purposes in accordance with currently approved production schedule. [Footnote in the source text.]
7. NSC 52/2 [Footnote in the source text. NSC 52/2, September 26, not printed.]