S/S–NSC
Files: Lot 63D351: NSC 68 Series
[Extracts]
Report to the National Security Council by the Executive
Secretary (Lay)
top secret
Washington, December 8,
1950.
NSC 68/3
Note by the Executive Secretary to the National
Security Council on United States Objectives and Programs for National
Security
| References: |
A. NSC 68 Series |
|
B. NSC Actions Nos. 361 and
3861
|
|
C. Memo for NSC from Executive
Secretary, same subject, dated November 14, 19502
|
The enclosed revision of NSC 68/1 on the
subject, prepared pursuant to Reference C, by the NSC Staff with the assistance of representatives from the other
departments and agencies participating in the NSC 68 project, is submitted herewith for consideration by the
National Security Council, the Secretary of the Treasury, the Secretary of
Commerce, the Economic Cooperation Administrator, the Director, Bureau of
the Budget, and the Chairman, Council of Economic Advisers at the regularly
scheduled Council meeting on Thursday, December 14, 1950.
[Page 426]
Also attached for information are the following appendices:
| Appendix A— |
Tabulation of Approximate Costs of the Programs; |
| Appendix B— |
The Economic Implications of the Proposed Programs, prepared by
the Chairman of the Council of Economic Advisers. |
There is also being circulated separately, for information in connection with
this report, a set of seven related annexes,3 prepared by the
respective departments and agencies as indicated in each annex
It is recommended that, if the enclosed report is adopted, that it be
submitted to the President for consideration with the recommendation that he
approve it as a working guide and direct its implementation by all
appropriate departments and agencies of the U.S. Government.
It is requested that this report be handled with special
security precautions, in accordance with the Presidents desire that no
publicity be given the NSC 68 series
without his approval, and that the information contained therein be
disclosed only to the minimum number of officials of the Executive
Branch who need to know.
[Here follows a draft report by the National Security Council on United
States Objectives and Programs for National Security. For the text, as
amended, see NSC 68/4, December 14, the
report to the President by the NSC, page 467.]
Appendix A
Tabulation of Approximate Costs of the Programs
top secret
[Washington, December 8, 1950.]
The following tabulation of the approximate costs of the programs
required to implement the policies outlined in NSC 68/3 over a five year period, is wholly tentative both
with respect to the magnitude of the sums involved, and the rate of
their expenditure. It is inserted solely to convey an idea of the
general magnitudes likely to be required for the NSC 68 program according to current estimates of
requirements. The four year projections for certain of the programs are
subject to review in the light of the decision to accelerate the
military program as rapidly as possible, and are currently being
reappraised.
[Page 427]
Approximate Costs of Proposed Programs
(In billions of dollars on an obligations basis)
|
Programs
|
FY 1951
|
FY 1952
|
FY 1953
|
FY 1954
|
FY 1955
|
| U.S. armed forces*
|
|
|
|
|
|
| Foreign military and economic
assistance |
8.697 |
10.409 |
10.237 |
7.650 |
5.010 |
| Information and educational
exchange |
.233 |
.193 |
.198 |
.200 |
.200 |
| Civilian defense—Federal |
.150 |
.486 |
.632 |
.452 |
†
|
| —State |
— |
.429 |
.615 |
.418 |
†
|
| Stockpiling |
1.800 |
1.000 |
1.000 |
.800 |
— |
| Internal security (excluding the
Department of Defense programs which will be included in “U.S.
Armed Forces”) |
.112 |
.154 |
.163 |
.170 |
.176 |
Appendix B
Memorandum by the Chairman of the Council of Economic
Advisers (Keyserling)
top secret
[Washington, December 8, 1950.]
Note: This is based on assumptions concerning the
U.S. military programs which appeared most reasonable on the basis of
the NSC Senior Staff meeting of
Wednesday, December 6, 1950, namely:
-
a)
- That the strength target for June 1952 would be 3.2 million men;
and
-
b)
- That the force targets for June 1954 set forth in NSC 68/1, dated September 21, 1950,
would be accepted as targets for June 1952.
The broad calculations flowing from these assumptions were in large
measure based on Annex A to the NSRB
document of December 4, 1950, entitled “Instruction for Preparation and
Presentation of Programs and Program Requirements”.4 This Annex represented a
preliminary effort to translate these assumptions into terms of
productive effort.
Should these assumptions be revised substantially upwards the attached
document would, of course, require major revision.
[Page 428]
The Economic Implications of the Proposed Programs:
Required Fiscal, Budgetary and Other Economic Policies
(Prepared by the Chairman, Council of Economic
Advisers)
- 1.
- The top advisers to the President in the field of economic policy
have been asked to register their appraisal of the economic impact
and economic policy implications of the objectives of NSC 68/2, as approved by the President
on September 30, 1950, and of the programs submitted in support of
those objectives. It is not, of course, the function of such an
economic appraisal to pass judgment on the adequacy of the
recommended programs to meet the requirements of military and
foreign policy in the light of the risks and needs outlined in
NSC 68/2. If such an appraisal
showed, however, that the recommended programs substantially
exceeded our economic capabilities, or wrought damage to the economy
to an extent endangering our general strength, they would clearly
have to be brought into balance. Likewise, if such an economic
appraisal showed that the recommended programs fell substantially
short of our economic capabilities, or imposed a burden upon the
economy light in relation to the seriousness of the clearly revealed
and commonly agreed upon national danger, that conclusion should be
revealed forthrightly as one guide in evaluating these recommended
programs.
- 2.
- Because it has not been feasible, within the time available, for
the Department of Defense to prepare procurement and expenditure
estimates in support of the force and strength targets recommended
for June 1952 and thereafter, only a few broad indications of
economic impacts can be given at this time. From such preliminary
calculations as can be made, however, certain broad conclusions
emerge clearly.
- 3.
- The programs submitted in the report represent a relatively brief
maximum effort toward a limited objective. The strength target of
3.2 million men for June 1952 represents about 4½ percent of the
total labor force, as compared with over 17 percent (12.3 million
men) during the peak of World War II, and about 6½ percent (3.9
million men) as of July 1, 1942. Military production at its peak
would absorb not more than 15 to 20 percent of the total steel
supply, as compared with well over 50 percent during World War II.
Yet production of ingot steel is now at an annual rate of 100
million tons, as compared with 89 million tons in 1944. The
absorption of copper would be less than one-third of supply, as
compared with two-thirds during World War II. The absorption of
aluminum would also be less than one-third, as compared with over 80
percent during World War II.
- 4.
- The production rates required to achieve the targets indicated in
the report would reach a peak in 1952 which would be substantially
[Page 429]
below our
capabilities. Total budget expenditures on national security
programs would probably reach a peak annual rate of about 70 billion
dollars during the second half of the fiscal year 1952, or about 25
percent of total national output. If such expenditures were to reach
the World War II peak burden of about 42 percent of national output,
they would amount to about 130 billion dollars. If they were to
reach the 32 percent level achieved during 1942, i.e., during the
12-months period following Pearl Harbor (when the number of men in
the armed forces averaged 3.8 million men), they would amount to
about 100 billion dollars. Such calculations are, of course, only
illustrative. They indicate quite clearly, however, the limited
character of the effort implied in the programs recommended in the
report.
- 5.
- This relatively limited character of the programs does not, of
course, mean that their impact on civilian consumption would be
negligible. In order to free the materials necessary to support the
productive effort implied in these programs (with no allowance for
stockpiling), the production of automobiles and of other metal-using
consumer goods would probably have to be cut below their 1950 levels
by sixty percent or more. Housing would have to be cut by more than
one-third. The production of civilian radios and television sets
would have to be cut by much more than this, if not eliminated
entirely, in order to meet military demands for electronics.
- 6.
- Although these represent very sharp cuts in individual items below
the record-breaking levels of 1950, the general civilian consumption
standards which would be possible under the proposed programs could
hardly be described as austere, even if the relatively comfortable
standards of World War II in this country were taken to represent
bedrock austerity. By the standards of any other country in the
world, they could only be described as luxurious. Aggregate personal
consumption in 1952, although substantially different in composition
and somewhat less satisfactory to consumers, would be within 10
percent of the 1950 level. It would be nearly one fourth greater
than the 1944 level, and over half again as great as in 1939. Even
the production of durable consumer goods would be about half again
as great as in 1939.
- 7.
- These broad estimates are based on the assumption that working
hours and the proportion of the population drawn into the active
labor force would increase considerably above recent levels,
although not approaching the peaks of World War II. With greater
increases in labor effort than assumed in these estimates, a
substantially greater increase in total output could be achieved.
This could provide the basis for a greater military production even
while still maintaining the consumption standards outlined above
(with the exception that
[Page 430]
sharper cuts in durable consumer goods would, of course, be
necessary in order to free materials for military
production).
- 8.
- Given a major labor effort over the next two years, and given a
substantial investment in basic productive facilities, there can be
no doubt that the force targets presented in the report could, from
the standpoint of our manpower and other resources, be maintained
indefinitely; and that, even with the maintenance of these forces,
the civilian consumption standards of 1950 could be restored and
improved within a few years. This is hardly the time to give high
priority to improving the consumption standards of 1950. But the
fact that such an achievement is within reasonably conservative
bounds of feasibility casts light on the degree of long-term
sacrifice and effort implied in the programs recommended in the
report. Without passing any judgment upon the adequacy of the
programs recommended in the report, which would be outside the scope
of economic analysis, it follows palpably that these programs in
terms of their economic implications fall about half way between
“business as usual” and a really large-scale dedication of our
enormous economic resources to the defense of our freedoms, even
when defining this large-scale dedication as something far short of
an all-out war or all-out economic mobilization for war
purposes.
- 9.
- Aside from the basic economic conclusion just stated, it is
necessary to outline the economic policies which would flow from
programs of the size and degree of acceleration recommended in the
report. It is self-evident that defense, civilian (both industrial
and consumer) and international needs are of such a size that none
can be given an absolute priority over another. Perhaps the most
striking example of this is the fact that fulfillment of the
manganese stockpiling goal would require a very severe cutback in
current steel production. A decision to attempt to achieve the full
stockpile objective for copper Try June 1952, for example, would be
tantamount to a decision to forego any industrial expansion in this
country, and to disrupt the economies of allied nations. It is for
such reasons that so great importance is attached by Mr. Attlee in
the current conversations to the establishment of machinery for the
international allocation of basic materials.
- 10.
- The central and urgent requirement of economic policy,
indispensable to the sound formation of policy in all other areas,
is the continuing maintenance of an over-all inventory of supply and
requirements, accompanied by a continued basic programming to
determine the priority considerations which must determine the
distribution of available supply among competing requirements. The
basic requirements are military, stockpiling, international,
industrial and consumer. These must all be serviced, in varying
degrees, by the totality of supply. Every specific economic program
is directed, in the final analysis, toward the matching of supply
and requirements,
[Page 431]
whether
it be by increasing supply, redirecting supply, or restricting
certain requirements. And since this over-all programming operation
is central to the whole task of economic mobilization, it should be
located in one place. Further, this place of location should also be
the place of location for ultimate decisions, short of the
President, with respect to coordination of programs, settlement of
disputes arising from conflicting policies or requirements, etc.
This is true because no ultimate coordinator or umpire can act
effectively unless armed with a programming operation to provide the
basis for intelligent action. The Administrative question of where
this function is located is not specifically within the economic
sphere, but economic analysis must point out that until this
operation is functioning on a centralized and comprehensive basis
there can be no effective economic mobilization either partial or
complete.
- 11.
- The completion of the first effort at such a comprehensive
balancing of program requirements and supply would reveal the need,
and provide first quantitative guide lines, for the expansion of
capacity in critical areas. It would also reveal areas where such
expansion could be given only a low priority. Such an analysis is
essential in order to give meaningful and detailed content to the
term “shortages”, and in order to translate the need for expansion
into concrete terms.
- 12.
- Such a comprehensive programming operation is also essential to
reveal the way in which direct controls should be used. The need for
such controls is no longer in question. There can now be no doubt of
the early necessity for complete allocation of basic materials
throughout the economy, on a scale comparable to the Controlled
Materials Plan of World War II. There can be no doubt that
widespread price and wage controls will be required within the near
future. Maximum feasible action in the fields of taxation and credit
will be essential, not in the hope of minimizing the need for direct
controls, but in order to make those controls workable. The probable
existence, under present and pending tax legislation, of a deficit
of over 30 billion dollars (annual rate) by the second half of
fiscal 1952 is ample evidence of this.
- 13.
- It would be the height of folly, however, to initiate a fully
comprehensive system of direct controls before having a reasonably
clear idea of the purposes which those controls were intended to
accomplish, i.e. before major policy decisions had been reached in
the light of a comprehensive analysis of the facts, and of a
reappraisal of existing policies in the light of those facts.
Controls without purpose could only weaken the economies of the free
world and confuse the populace. Nonetheless, it should be emphasized
that certain tasks to be accomplished by controls are so immediately
urgent, and the size of the ultimate task so great, that the
development of the necessary organization and staff should proceed
with utmost speed.
