The enclosed document on the subject, transmitted by the Office of Defense
Mobilization, is submitted herewith for consideration by the National
Security Council at its meeting on February 21, 1951, concurrently with the
previously circulated statement by the Director of Defense Mobilization
(Reference B).
The Office of Defense Mobilization recommends that the Council concur in the
statement of defense production policy attached to the reference memorandum
of February 1, subject to the amendments
[Page 51]
thereto proposed by the Department of Defense in
subparagraphs a and b on page
1 of the enclosed document.2
[Annex]
Memorandum by the Office of Defense
Mobilization3
secret
[Washington,] February 19, 1951.
ODM Doc. 4/1
Subject: Defense Production Policy
Contents: Answers to questions on ODM Doc. 4, as raised at the fourth meeting
of the Defense Mobilization Board, February 14, 1951.
Comments: ODM Doc. 4 was
communicated to departments and agencies concerned in the following
manner: (a) submitted to, the National Security
Council, February 1; (b) read to third meeting of
ODM Mobilization Executives Staff,
February 7; (c) read to fourth meeting of the
Defense Mobilization Boards February 14, 1951.
Reference: ODM Doc. 4,
February 1, 1951.
With respect to the questions raised at the Defense Mobilization Board
meeting on February 14, 1951, with reference to ODM Doc. 4, being a statement on Defense Production Policy,
the following replies are suggested:
Department of Defense
The changes recommended in wording in the following comments of the
Department of Defense are acceptable.
[Page 52]
“The Department of Defense concurs with the views expressed by the
Director of Defense Mobilization. However, to avoid any possible
misunderstandings the following suggestions are advanced:
-
a.
- Paragraph 2. We suggest that a new sentence be added at the
end of the paragraph; i.e., ‘This will require a spread of
contracts across industry as widely as possible in order to
obtain a sufficiently broad industrial base.’
-
b.
- Paragraph 3. The last sentence is so worded that it may imply
that a multiple band priority rating system should be set up. It
is our understanding that Gen. Harrison4 and
NPA desire to avoid such a
system at this time. We suggest that the last few words be
changed to read ‘. . . must have the next urgency
status.’
-
c.
- Paragraph 4 deals with stockpiling.
The Munitions Board has the responsibility for seeing to it that
stockpile goals are met. However, it does not have, and should not have,
the authority to take such actions as are needed to achieve those
goals.
We agree wholeheartedly that the stockpile goals, both for the long term
and for the short term, should be realistic and should include our
taking some measures of reasonable risk.
However, stockpile goals are agreed upon by an inter-agency committee
which should be competent to evaluate their validity. If these goals are
valid it seems evident that every effort should be executed to achieve
them as rapidly as possible.
Acquisition of stockpile materials is proceeding too slowly in our
opinion. Non-essential civilian uses are still heavy in many fields. We
feel that non-essential uses should be curtailed where necessary to make
materials available to stockpile. We feel also that the acquisition of
materials for the stockpile should have an urgency status just under the
urgency status of military end items.”
National Security Resources Board: (Questions
listed at the beginning of each paragraph)
- 1.
- Would the policies of these programs increase or decrease our
gross national product? It is obvious that this policy will increase
our gross national product, as it is designed to absorb a defense
effort estimated at 50 billion dollars a year within a period of 3
years. While this may not be maintained in full, there is every
reason to believe that it can be obtained in reasonable degree. This
would involve an increase in the gross national product from
approximately 275 billion dollars to 325 billion dollars.
- 2.
- Is an increase of our gross national product important in
connection with tax policy and inflation control policy? An increase
in our gross national product is essential, not only to provide the
Government with tax income, but to meet the demands of the consumer
population with goods, thus preventing inflation. In point of fact,
the program is designed to insure the meeting of an adequate defense
[Page 53]
program, while at the
same time bringing about a restoration of a reasonably normal
economy as rapidly as possible. Only in this way, in the final
analysis, can inflation be stopped.
- 3.
- Under this program, would all business be encouraged or
discouraged in expanding to support the mobilization effort? All
business which is essential to support the mobilization effort would
be encouraged. On the other hand, during the next year and a half
when the demand for materials will be at a peak and before
additional materials can be brought in to meet the peak demand,
business not essential to support the mobilization effort will not
be encouraged to expand. The one thing that can defeat our defense
effort is to simultaneously undertake a capital expenditure program
beyond our capacity to support with materials or which, if
supported, would still further curtail consumer goods. Moreover, in
the long run, the undertaking of too much capital expansion now will
delay the completion of essential projects. First things must be
built first, and further capital expenditures can then be placed
under way.
- 4.
- Would these programs as expressed in this paper encourage or
discourage small business in participating in the defense effort? It
is not clear how this policy affects small business insofar as its
participation in the defense effort is concerned. Its important
effect is that it will keep alive many small businesses doing at
least a substantial proportion of their normal business. Obviously,
within the total defense program, whatever may be its size, special
and earnest efforts must be made to utilize small business.
- 5.
- Does the paper take into consideration a future date as the date
of most critical danger to the United States? Certainly this office
is not attempting to estimate the date of most critical danger to
the United States. It has assumed that the Defense Department has
submitted a program which it considers to provide reasonable
security. The meeting of this program requires the production of
many long lead items and little that is not being done can expedite
the date at which these long lead items will roll off the production
line. It does seem clear that we must meet a defense program
extending over a number of years. To do this, we must not only
establish production lines but also plan to maintain them in use
throughout this period. By the time long lead defense items come
into production in large numbers, materials will be available and
industry will be in a position to expand further and rapidly to meet
maximum expansion of defense forces. Based upon military planning,
and this office does not intend to question the adequacy of such
planning, it would appear that the presently approved program is one
which will insure the quickest possible meeting of military needs
and, concurrently, the maintenance of a reasonably sound economy
capable of complete mobilization for total war when such
mobilization is determined.
- 6.
- Would a policy that does not look towards increasing the gross
national product tend to increase or decrease the necessity for
controls? Since this policy is one which does insure an increase in
the gross national product, there can be no question but that it
would reduce the length of time in which controls would be
necessary.
- 7.
- Are these programs in accordance with the position of the
President in his Economic Report?5 It is the opinion of this office that this
policy is in accordance with the position of the President. It was
written to express the position of the President in production
objectives.
- 8.
- Are they in accordance with his proclamation of the Emergency
Message?6 It is
the view of this office that the proposal is in accordance with the
proclamation of the Emergency Message. Certainly, it involves the
development of an economy, which will support for as long as may be
necessary an annual expenditure for defense in the neighborhood of
50 billion dollars, and which, in meeting such a program, can still
expand rapidly for total war.
- 9.
- Are these programs in accordance with the expanding-economy
philosophy of the Congress as expressed in the Defense Production
Act?7 It is the view of this office that these programs
are in accord with the expanding-economy philosophy of the Congress.
For example, the program involves an expansion of about 16 million
tons per year of steel capacity. A further expansion of steel may be
desirable to meet the needs which will arise after 1953. However, a
further expansion in steel now would delay the completion of the
projects which have been approved and, thus, would slow down the
immediate effort. If and when the present steel program is
completed, or as additional materials become available, then
consideration may be given to still greater steel expansion. We
cannot undertake too much now without delaying the meeting of basic
needs.
- 10.
- Does this policy reflect support of not only the military programs
of ourselves and our allies but programs for a minimum civilian
economy in our country and those of our allies; i.e., that minimum
civilian economy necessary for them to build their part of the war
production? This program is designed to insure that we will maintain
better than a minimum and an increasing civilian economy
[Page 55]
over a long period of time.
It does reflect support of reasonable foreign programs. We must
remember that even at this moment the demand for certain steel
products is twice the available supply. In large part, this demand
arises from trying to undertake too much too soon. There must be a
proper balance between the projects which are approved to provide
additional materials and the end-item programs including a
reasonable civilian economy. Moreover, the civilian economy to be
maintained for an indefinite period must be above the irreducible
minimum which would result in total war.
- 11.
- Do these programs recognize the steadily increasing danger of a
sudden all out atomic attack against the United States? This office
finds it difficult to answer this question. The programs in
themselves do not provide for the allocation of additional
facilities which would be available in the event of sudden all out
atomic attack. The provision by the Defense Department of facilities
capable of further expansion is some protection. It is expected also
that the wide dispersion and diversification which already exists in
American industry will be continued and increased in the program to
provide additional protection. It is assumed that whatever
industrial losses the United States would suffer in the event of
sudden atomic attack would not be out of comparison with similar
losses which would be suffered by the enemy, and that no such attack
is at this time likely to decrease our industrial ability to a
relatively greater degree than the industrial ability of our enemy.
Fortunately, American industry is widespread. Perhaps later, when
immediate programs have been met, some provision must be made for
additional facilities as insurance against atomic attack, as well as
for the construction of facilities resistant to such attack. Such a
program does not appear possible at this time.
- 12.
- Do not these programs put a ceiling on production? If true, does
that not increase the necessity for a continued ceiling on prices
and therefore wages? The policy does not put a ceiling on
production. However, there will be a ceiling on production which
will come about from scarcity of materials. As additional materials
become available, this ceiling will be raised. Nevertheless, the
rate at which additional materials are brought in must be controlled
to prevent an excessive demand for critical materials and components
which could be met now only at the expense of essential
programs.
- 13.
- Should we not either build up our maximum military strength now,
or increase our mobilization base? This office does not propose to
comment with respect to the adequacy of our present military
strength. However, we believe that the mobilization base which is
now established will, by the time long lead items can become
available, fully meet the requirements for military items for the
first year of war and will, therefore, permit a year of further
expansion for total war. It would seem that a further increase of
our mobilization base
[Page 56]
now
would delay the attainment of immediate objectives and, thus,
decrease rather than increase our immediate security.
- 14.
- If we do not do either, rather devote such items as copper and
steel to our already lush civilian economy, how can we defend that
to our fighting forces? How can we justify it, because we can double
our present defense effort and still have a civilian economy well
ahead of the civilian economy standards prior to World War II. This
program has been designed to fully meet the expressed needs of our
fighting forces. Quite obviously, if these needs are changed, then
the program should be changed. Moreover, while we still have a
civilian economy far ahead of the standards of World War II, it is
apparent that this comes about in part because the full impact of
the defense effort has not yet hit our economy. Our present plans
contemplate a reduction in consumer durables by the end of the year
of from 30% to 40%. While inventories will maintain a high standard
of living for some time, the shortage of consumer goods will be real
and will make our efforts to control inflation just that much more
difficult. If, as this office understands the directives which have
been issued, we are in a long-term defense program, then indeed it
is important to maintain a reasonably sound economy. On the other
hand, this office is not attempting to freeze a program. It is
attempting to establish criteria which would insure the meeting of
the program now expressed by the Defense Department. Obviously, if
this military program is changed either upward or downward,
production objectives would have to be revised accordingly.
- 15.
- How can we establish even a firm and restrictive definition of
mobilization philosophy at this time when we do not yet know the
details of what is needed quantitatively so we can really measure
resources against requirements? While my experience in World War
II8 tells me very definitely that we know now
about as much quantitatively in an overall way of our needs as we
will ever know at any given time, this office has made no attempt to
express its objectives quantitatively. Nevertheless, the information
which it has received does establish that we can return to a
reasonably normal economy with, for example, a steel output
approaching 118 million tons per year. However, the piling up of
requirements which is now taking place requires an allocation of
materials, and there can be no intelligent allocation of materials
unless those responsible for such allocation have a guiding
philosophy. Certainly, we can double our present defense effort, but
to do so would result in a very serious disruption of our economy
which could not be maintained over a long period. The stockpiling of
military end items, the development of resources now beyond those
required to sustain a year of total war, would result
[Page 57]
in the short-time diversion
of a very large portion of our economy and the establishment of
production rates at peaks which could not be maintained unless total
war did result. It would seem that a national expenditure of 50
billion dollars for defense is a recognition of the present
emergency. It will provide not only the needs as expressed by our
Defense Department, but aso an economy which will be acceptable to
the American people for the long pull and capable of diversion in
great part if total war comes.
-
- Expressed in popular terms, this is a guns and butter economy. It
is our understanding that until total war does come our objective
must be to supply both guns and butter, so that when total war does
come there is enough butter in the hands of the American people so
that we need then to think only of guns.
Department of Agriculture
With respect to the comment by Secretary Brannan,9 there is nothing in the
proposed policy statement which would prevent the provision of
additional nitrogen facilities if it is demonstrated that the existing
facilities do not suffice for the present military program and for
agricultural needs. If these fertilizer plants would be required only in
the event of total war, then it would seem that their construction
should not be placed under way until it is clear that it will not
conflict with the facilities being provided for the immediate program.
Moreover, this program is designed to insure that reasonable quantities
of materials will be available for farm and associated agricultural
needs.
Secretary Brannan’s comments, communicated to the Executive Secretary of
ODM by the Executive Assistant to
the Secretary of Agriculture, are as follows:
“Secretary Brannan expressed the hope that the category of ‘Defense’,
as used in the proposed policy statement, was broad enough to
include essential agricultural supplies, such as nitrogen for
fertilizer. He stated, for example, that one ton of ammonium nitrate
will produce an additional 250 or 300 bushels of corn—enough to feed
10 or 12 hogs. The Secretary stated that his department is asking
for the building of several nitrogen plants and that it would be
essential that the material for these plants be regarded as defense
material, even though the end product will not go into the hands of
soldiers. He added that officials of the Department who are looking
to get sufficient materials for farm machinery, fertilizer,
insecticides, etc., encounter some feeling that food production is
not directly enough a defense problem to warrant full
attention.”
Reconstruction Finance Corporation
With respect to Mr. Harber’s10
suggestion, paragraph 5 simply stated a few examples of many, and there
can be no objection to the addition of exploration and production of
crude oil to these examples.
[Page 58]
The suggestion of RFC
Chairman Harber is quoted as follows:
“The second sentence of Item 5 identifies certain programs to be
included, such as the provision of additional oil refining capacity,
pipelines, ocean-going tankers, tank cars, etc. It occurred to me in
this reference that there should be included in this program the
exploration and production of crude oil. It seems to me that it is
essential that an exploration program be carried on for the purpose
of bringing into being additional sources of supplies of crude oil
with the objective of increasing existing production.”
