Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

PPS Files, Lot 64 D 563

Memorandum by Mr. Robert W. Tufts, Member of the Policy Planning Staff

top secret

[Washington, December 12, 1951.]

Comment on the Budget Presentation

(Projected Receipts and Expenditures; Defense, Manpower, and Resources Programs)

1. This memorandum is based on Mr. Ferguson’s report on a meeting at the Bureau of the Budget, December 11. In general, the projections appear to be refinements of the material presented by the departments and agencies concerned in connection with the preparation of NSC 114/2.

2. The question of inflation. Underlying the Bureau’s presentation was the assumption that there would be no further increases in taxation. On this assumption there will be deficits of $6 billion in FY 1952, $13 billion in FY 1953, $15 billion in 1954, and $3 billion in FY 1955. If the tax assumption is correct and if the projections are approximately correct, the Governments impact on the economy will be inflationary. It may be possible to offset this elsewhere in the economy. If personal savings remain at anything like the high 1951 level, this item alone would offset the Governmental deficit. On the whole it does not appear that the inflationary problem will be serious.

3. The nature of the build-up. The most unexpected feature of the presentation is, in my opinion, that there is not a sharper reduction of expenditures in FY 1955, even taking the projections based on the $50 billion defense program for FY 1952. Allowing for the fact that it is unsafe to deduce the nature of the build-up from information of this kind, there does appear to be ground for the presumption that the presently contemplated build-up is one which involves nothing like a sharp cut-back or even a strong tapering off—at least not until after 1955. Taking into account the introduction of the $85 billion concept and the $24 billion program to meet SHAPE plans, one is bound to ask whether there has been a change in national strategy—whether, in short, the build-up we are now planning is one which attempts to develop sufficient force-in-being prior to the outbreak of war to (1) hold while mobilizing or (2) go over to an immediate counter-offensive.

4. The most disturbing figure is the figure of $30 billion for maintenance of the military establishment (without any allowance for new procurement or replacement) after we have reached presently approved force levels. Again one is bound to ask whether this nation can afford to be a great power on a luxury basis. In my opinion one of our most serious problems is to obtain more defense per dollar. The high cost of the U.S. military establishment may prove to be our Achilles’ heel. It re-emphasizes the economy to the U.S. in assisting other countries with low cost military establishments.