S/S–NSC Files, Lot 63 D 351, NSC 114 Series
Statement by the Chairman of the Council of Economic Advisers (Keyserling)1
Economic Implications of the Security Program
Submitted by the Chairman of the Council of Economic Advisers (with the concurrence of his two colleagues)2
1. In order to estimate the effect upon the domestic economy of the defense program in the next two or three years, it is not sufficient to make a cold statistical analysis in the precarious effort to determine the theoretical capacity of the economy to produce goods and services if every resource of manpower, of capital, and of materials does its full part in the cooperative effort. The actual results will be determined by how people act—people as the most important of the direct economic factors in production, but also people as consumers, and [Page 231] people as citizens who, in this democracy, will have to support any plan of Government which succeeds and who will surely bring failure to any plan which they turn against.
2. The last point discloses the most important and the most difficult question to be answered in reaching a judgment about the feasibility of the defense program at any level. In planning for security, we are assuming that the program will enable us to avoid general war, but that there may be serious danger for several years, and that our people must stand up under burdens and restraints for month after month with no certain end in sight and never a full peace to be seen ahead which the nation can reach by its own efforts regardless of what others do. General war would bring from them a response which subordinated every consideration of personal and family need and comfort and of business requirement to the overriding objective of national defense, but we hope to avert war. What we face is a period, perhaps many years, during which our people will become increasingly familiar, as are the Europeans, with the threat of international danger; will become more and more disposed to consider occasional alarums as cries of “wolf,” “wolf”; and will be more and more inclined to give greater weight to their own desires and needs and less to the requirements of a national defense program which has become old stuff.
3. Assertion of the need to maintain civilian morale is no mere platitude under these circumstances. If any defense program is to succeed, it must not only have the cooperation of our people as direct participants in necessary numbers in production, in the places, for the daily periods, and at the wages called for by the program. The individual attitudes which determine whether this cooperation is given are equally controlling in the matter of public support of a Government policy. Fostering needed attitudes is especially important with respect to a policy which is of transcendental significance in the national scene, and the subject of intense discussion and debate. If public sentiment swings against our defense program, because they feel it weighs too heavily upon them, the reaction would probably not be limited to the matter of size of the program but might grow into hostility to the basic international policy of the Government to which the defense program is related.
45. In summary, a national security program that will rise from slightly more than 15 billion dollars before Korea to nearly 80 billion dollars in the fiscal year 1954, or from slightly more than 5 to 20–25 percent of total national output, unavoidably presents a serious challenge to the determination and ingenuity of government, business, and labor. The economic analysis indicates that the program, in general, lies within our capacity to produce and need not require undue sacrifices [Page 232] either in terms of economic strength or consumers’ standard of living.
46. This whole appraisal is handicapped because the program has not yet been translated sufficiently into specific material and other requirements; because it has not yet been scheduled sufficiently as to timing; and because it does not include items which must shortly be considered.
47. Even the now stated program requires, however, continued and further curtailments in many lines of production. It will produce dislocations which, while tolerable by the economy as a whole, will severely hurt some groups, including many small businesses. It also requires great restraints, through taxes or saving, in consumer spending. There is need, therefore, for comprehensive economic controls over production and prices and wages, and other stabilization measures. In a period of partial mobilization, such controls present serious problems of enforcement, enactment, acceptance. During the past year, the willingness of the people to put up with the inconveniences of controls has hardly been tested, because during that period, except for the fixed income receiver, virtually everybody gained. The coming period will test the readiness of the American people to pay the economic and social costs of a substantial security program. It is our belief that these costs could be sustained, if the American people become sufficiently convinced of the necessity for the program and of its fairness of execution to accept the hardships, dislocations and controls involved. In considering the program, the social and political factors must be weighed carefully and realistically, lest the whole effect be impaired by moving at a faster pace than the people are ready to go. Consideration must also be given as to whether the Government itself is prepared to accept and operate the more extensive administrative and directional responsibilities which a program of this size will involve.
- On October 16, Executive Secretary Lay transmitted this statement of 24 pages to the Members of the National Security Council and to the heads of other agencies involved in the preparation of the NSC 114 Series.↩
- The Council of Economic Advisers consisted of Leon H. Keyserling, Chairman; John D. Clark; and Roy Blough.↩