The President on October 18, 1951, approved the recommendations of the
National Security Council (NSC Action No.
575–a) with respect to the FY 1953 national
security programs described in NSC 114/2,
subject to certain additional reviews and understandings stated in Reference
C. Subsequently, the President requested that the departments and agencies
responsible for each of these programs, prepare for his information and for
the National Security Council, current summary statements of those programs,
as approved by the President for presentation to the Congress.
The enclosed current summary statements, prepared in response to the
President’s request, reflect his decisions as to the objectives, nature,
magnitude and timing of the FY 1953 national
security programs, and supersede those contained in Part II of NSC 114/2. Accordingly, the enclosures are
transmitted herewith for the information of the President and the National
Security Council.
[Enclosure 2]
Summary Statement No. 2—The Mobilization Program
(Prepared By the Office of Defense Mobilization)
secret
[Washington, undated.]
[Note: The reports submitted by the Director of
Defense Mobilization to the President, beginning on January 1 and April
1, 1951, and monthly and quarterly thereafter,6 should be utilized for a fuller exposition of this
summary analysis. The Budget Message to Congress of January 19527 also contains detailed exposition of the fiscal 1953
program which is not repeated herein.
The mobilization program in the over-all sense was not explicitly
considered in NSC 114, or in its
annexes, since they were closely
[Page 29]
related to the federal budget presentation. The mobilization program (as
distinguished from direct military expenditures) is largely being
carried out by private industry, and direct governmental expenditures
are a small part of the total program.]8
I. Concept of a Mobilization Program
During Cold War
1. The mobilization program, as it was originally conceived in late 1950
and as it will continue into fiscal 1953, has been built on four
concepts:
- a.
- To attain current production rates of military equipment
adequate for American forces in being, to aid NATO allies and friendly nations
in accordance with our commitments, and to provide adequate
military reserve stocks.
- b.
- To develop carefully planned capacity for output of military
matériel in full-scale war, to be held in reserve either as idle
capacity in existing plants, as side-by-side plants with those
now active, or as dual-purpose plants used, prior to full
hostilities, for other products and readily convertible.
- c.
- To expand our sources of materials, processing and fabricating
facilities, and basic industries so that a current program of
military production can be conducted alongside a normal civilian
economy and so that an enormously expanded military effort could
be supported immediately without waiting for further expansion
of the industrial base.
- d.
- Consistent with the foregoing objectives, to maintain a
healthy and growing civilian economy as a valuable source of
national strength to meet the possible shock of full-scale
war.
2. These objectives, as formulated for the guidance of the Executive
Branch, have not been altered. Reconciliation of specific conflicts
between the objectives, the refinement of precise quantitative goals
within each objective, and pressing for the accomplishment of these
goals, have required and will require the bulk of the mobilization
agencies’ efforts in fiscal 1953.
3. The term “mobilization base” includes both the second and third
objectives, and “industrial base” the third only. In this discussion the
term “military matériel mobilization base” will be used to describe the
second objective. “Industrial base” will be used in discussing the third
objective. In fiscal 1953 the distinction will become of greater
importance because the problems involved in attaining selectively the
two objectives will be more clearly separable than in the first eighteen
or twenty months of simultaneous and rapid pushing ahead on many
fronts.
II. Current Military
Production
4. In terms of the planned military strength in the United States and in
other countries of the free world, particularly in the NATO
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area, the flow of many items of
current munitions production (the first objective above) is not yet
great enough. Production of particular items will attain the rate
necessary and level off at various times, and new models will of course
always be coming in. For the program as a whole, expenditures should
level off at the end of calendar 1952 and continue level at least two
years.
5. In determining the point to which expenditure rates should be raised a
choice was involved between short-range and long-range strength. It was
necessary to decide on a position on a range between two extremes. One
extreme would be to build up strictly military strength as fast as
possible by freezing the models and techniques and pouring out today’s
arms today even though many categories would rapidly become obsolescent.
The other extreme would be to minimize current production. An
intermediate position would be a broader and more sustained build-up of
current output while concentrating on research, development, and the
mobilization base. We would then concurrently be producing substantial
amounts of equipment, developing our resources, our techniques, and our
production lines for the newer weapons of the future, and keeping our
civilian economy as strong as possible for the long pull.
6. Because we and other free nations were girding to defend ourselves,
not to attack others, we knew we could not choose the day on which our
stock of weapons would be put to test—nor can we now.
7. Therefore, the nation must be strong against an attack which may come
at any time over an indefinite future. With such an outlook, our best
defense program has seemed to be one of moderate production of current
weapons, a continued development of the newer and better weapons, and
creator of greater resources and more effective production lines, all at
levels which a healthy civilian economy can build and sustain as a
long-range program. We have thus placed emphasis on the intermediate
position, even though it entails a calculated risk.
8. The result is a production plateau to extend through 1953 and 1954.
Through most of fiscal year 1953, however, we must continue to push
ahead to achieve the levels required by this “plateau”. Toward the end
of the fiscal year 1953 the monthly rate for deliveries and construction
put in place is expected to rise to about $3.5 billion. (The rate was
$2.4 billion in March 1952). For hard goods only, the monthly rate is
expected to increase from $1.8 billion in March 1952 to about $3.0
billion early in calendar year 1953.
9. Nevertheless, on some items, we are already facing the problem of how
to schedule continued production to meet the requirements resulting from
obsolescence and the need for replacement.
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For the program as a whole, obsolescence caused by
technological advances in matériel could become (probably early in
fiscal year 1954) the primary determinant of future production needs.
The date of the turning point—from buildup to maintenance—may depend on
policy determinations not yet made.
III. Attaining an Adequate Military
Matériel Mobilization Base
10. Outbreak of full-scale war would require rapid expansion of
production of military matériel above the rate to be reached in a period
of partial mobilization. As our current production nears a plateau,
increasing attention must be given during 1953 to making ready added
production capacity for military end-items beyond current armament
needs, as a protection in case of full-scale war. Careful planning,
initiative in action, and substantial direct and indirect financial
assistance must be the function of government in the attainment of the
second objective.
11. Development and maintenance of standby or readily convertible
capacity is a necessary but not sufficient step in preparedness. The
capacity must be supported by a broadening and strengthening of our
general industrial base on which it must rely for raw materials,
additional facilities, and, indeed, manpower with the necessary skills
and experience. The government’s function in all of this latter area is
largely general guidance and direction.
12. The development of standby, partially utilized, or readily
convertible capacity for direct military production involves special
problems, techniques, and costs to the government not met in expanding
and maintaining the general industrial base in an economy operating at a
high and expanding rate such as we have had since 1950.
13. Planning for the military matériel mobilization base is only now
getting under way. Both planning and action must be accelerated during
1953. The U.S. base must be reviewed in relation to current and future
efforts to develop munitions production in the NATO countries and in other areas.
14. Following are some examples of current planning for the military
matériel mobilization base. The Air Force had computed, as of early
1952, that a monthly production rate of 86 million airframe weight
pounds is required under full mobilization to sustain all-out efforts in
global war. This compares with a maximum production rate of 21 million
pounds under the current schedule. Production for partial mobilization
will in the main be on a one-shift basis. A large part of the increased
capacity for full-scale war would be the result of moving to a
three-shift operation. The Air Force proposes to arrange the needed
additional capacity in three types of plant: (1) plants which are partly
devoted to civilian production;
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(2) separate plants adjacent to civilian production plants; and (3)
independent plants not used for civilian production. From 15 to 20
plants are in each category. Contractors are being asked to specify
their tool requirements for such plants and to estimate the cost.
Obviously, however, initial tool costs represent only one segment of the
cost and planning problem involved in maintenance of this standby
capacity.
15. The problem of what kind of supplementary industrial capacity to
develop is illustrated by the example of the hull of the M–48 tank.
Capacity is approved or proposed for only half the planned rate of 2,150
a month. Plant construction has been delayed until further tests on an
eleven-piece hull to replace the one-piece hull have been made.
16. Mobilization agencies in accelerating planning and action in
developing the military matériel mobilization base in 1953 will seek:
- a.
- to foster parallel and integrated planning action by the armed
services.
- b.
- to develop facilities suitable for a rapid change to
three-shift operations while meeting current requirements by
one-shift or other types of reduced operation.
- c.
- to give particular attention to the manpower and training
problem required for a rapid expansion of production both by
adding shifts and utilizing the standby capacity.
- d.
- to acquire or assist industry in acquiring a reserve of
machine tools and other production equipment needed for shift
expansion or conversion. Particular attention must also be given
to the replacement and modernization of tools as it affects the
expanded operations.
- e.
- to assist in developing techniques for maintaining the
military matériel mobilization base at maximum readiness; that
is, in such condition that full production of military
requirements may be obtained within the time that military
reserve stocks would be consumed so that tactical operations
will not be delayed for want of matériel.
17. In some areas of the economy, actions to achieve the desired military
matériel base (second objective) merge into efforts to achieve the
industrial base (third objective). The machine tool industry is a case
in point. In World War II, and again in this emergency, military
production waited while machine tools were designed and ordered and the
industry geared up to the needs of military production.
18. To avoid such delay in the future, two things are necessary. Tools
must be on hand and the tool industry must also be kept operating at a
moderately high level. The problem is immediate because the backlog of
orders for some tools is beginning to decline. The point at which this
decline should be checked and stabilized
[Page 33]
must be determined. The initial step is a
calculation of specific and realistic requirements by the military
services and by important contractors, who have the primary
responsibility for identifying the tools that will be needed in
full-scale war. Continuing civilian requirements, availability of
existing machine tools in the economy, and government-owned reserves,
must be taken into consideration. Provision must be made in military
budgets for the initial slice where that has not already been done.
Congress, industry executives and the public must understand the
difficult long-run objectives of the program and be ready to accept and
support the necessary cost. Finally, orders must be placed on a
realistic basis of needs, and assurances given of their firmness. The
machine tool industry is only one of several industries for which rather
specific support may need to be given in the coming years to sustain
production somewhat above that required by the current demands for the
defense build-up and the civilian economy.
IV. Attaining an Adequate Industrial
Base
19. The over-all industrial capacity of the United States is the
foundation on which current military production and the military
matériel mobilization base, as well as a healthy civilian economy, must
jointly rest. This capacity was twice as high early in 1952 as it was in
1940. Even more important, a large part of this expansion in the great
basic industries has been accomplished since 1945. A major remaining
task of the mobilization program is to supplement the enormous expansion
which has already taken place. Private industries’ own capital has
provided all but a small part of the total expansion. This will continue
to be true. Guidance and direction is the function of government in
developing an industrial structure capable of supporting a full war
effort (the third objective) leaving until the actual war period only
those minimum emergency additions which the indeterminate nature of
certain full war requirements makes necessary.
20. Expenditures for new plant and equipment in 1951 were at a high
level. While capital outlays in almost all manufacturing industry rose
from 1950 to 1951, the increases were substantially greater among the
defense-related industries. Certain of the defense-related industries,
such as chemicals, electric power, and metals, are scheduling even
greater capital outlays in the coming fiscal year. These actions are in
accord with mobilization program objectives.
21. Two major tools have been used to channel the enormous flow of
private capital in the directions desired. One has been the authority
originally granted in the Defense Production Act of 1950, to permit an
accelerated amortization of facilities in the determination
[Page 34]
of tax liability.§§
This permission to amortize the cost of added facilities in five years,
instead of the ten to twenty-five or more years normally permitted under
the corporate tax laws, may operate as a powerful inducement to make
decisions to invest in new facilities. If the new facility will have
maximum usefulness and earning power during the five years, the total
tax liability for earnings from the investment during its life may be
lessened. On the other hand, if the new facility continues to have
earning power after the expiration of the five-year period throughout
its normal physical life, total tax payments may be little altered,
since payments in later years would be proportionately larger in the
absence of the normal depreciation deduction. However, a future but real
inducement to private corporate investors in new plants and facilities
is the possibility that prescribed corporate tax rates may be lower
after 1956 or 1957; in that event, the five-year write-off would become
particularly attractive.
22. Actually, the rapid amortization of new investment over the five-year
period has operated to induce additions to capacity to an unexpectedly
high degree.║║
23. There is thus a major responsibility to make any additional grants
effective in attaining the correct proportions of added capacity over
the whole range of American industries. This necessitates the
establishment of balanced expansion goals. The Defense Production
Administration will be actively engaged in fiscal year 1953 in the task
of adjusting and approving expansion objectives. This task cannot be
fully completed in the sense of covering each of hundreds of industrial
segments. Such determinations of the objectives for expansion are made
in cooperation with other government agencies, and after consultation
with industry.¶¶
24. A second helpful tool of government, useful in guiding the rate and
direction of expansion, is the quarterly allocation of materials
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going into industrial
construction. This will also be used in the light of balanced expansion
goals as those are established. As materials controls become less of a
limiting factor on private industrial planning and actual construction,
this tool will be dulled.
25. Some of the expansions planned by American industries in the next
three years are very large. To a considerable degree they represent
capacity sufficient to support a future war economy on the one hand, and
on the other to support the current output of munitions, new capital
investment in tools and equipment, and the requirements of a healthy
civilian economy in the absence of full hostilities. The higher of these
two requirements is theoretically controlling in determining an
expansion goal. Except for some critical raw materials, official Defense
full war requirements are often not available, and goals tend to be
based on requirements of partial mobilization plus a high level of
civilian activity, rather than full war.
V. Healthy Civilian Economy
26. The fourth objective of the mobilization program encompasses
achieving the other three while at the same time maintaining a healthy
and growing civilian economy as a valuable source of national
strength.
27. The present security program is large, but the strain on the economy
caused by the program so far has been surprisingly small. Though the
impact in the coming fiscal year will be larger, it is well within our
economic capabilities. Actually, a larger program would be economically
feasible if it were militarily desirable and if political and public
support for larger military appropriations could be developed.
28. Since the beginning of the mobilization effort, total gross national
product has increased more than have governmental security expenditures.
Through 1953 this relationship is likely to continue. Moreover, if total
private investment declines as seems possible, more output will be
available for personal consumption. Consumer expenditures in 1951,
measured in real terms, were only slightly lower than in 1950, but
higher than any other recent year. This decline was only partly, if at
all, the result of shortages since the demand for many commodities did
not keep up with output.
29. The requirements of the defense program, however, did noticeably
affect some segments of the economy in 1951. Housing starts declined,
less essential civilian construction fell, and passenger cars and other
consumer durable goods production was reduced. Credit and other
anti-inflationary controls and materials shortages were partially
responsible for this decline but falling off in demand also played a
part. Rising military requirements for materials,
[Page 36]
as well as for defense-supporting industries, made
necessary, during the first quarter of calendar 1952, contractions in
the output of consumer durable goods, and, in some instances, public and
private investment, but significant expansion will be possible in the
second and third quarters barring severe strike losses.
30. With the expansion of total output, as well as that for key materials
expected in the next two years, consumer supplies can, in general,
expand beyond any levels previously reached in this country. Such
temporary curtailments in limited areas as may be necessary will not
involve sacrifices for the general public which can be regarded as
severe measured by levels of consumption in 1948–51.
VI. Expanding Production of Raw
Materials
31. Underlying all four objectives is the need to provide assured sources
of all essential raw materials. The United States is, in whole or in
part, dependent upon sources outside its continental boundaries for many
key materials—iron ore, manganese, petroleum, wood pulp, natural rubber,
industrial diamonds, nickel and certain other alloying metals, copper,
zinc, and lead, fibres, and some staple foodstuffs. For some materials,
there simply is not enough in the whole free world to meet an
unrestrained U.S. demand, including a satisfactory rate of stockpile
building. Congress has provided authority in the Defense Production Act
for a program of expansion. The program has been developed and is being
carried out. When it is completed, it should take care of all but a few
problems of shortages. However, shortages of many metals will last
through calendar year 1952 and to a lesser degree into 1953, and in some
cases it will be 1955 or beyond before requirements are met (i.e.,
nickel and certain other alloying metals). For a few commodities, such
as copper, unrestricted requirements may continue to exceed supply for
two or three years, although essential requirements may be met in the
latter part of the current year. There will be no single date on which
all shortages will be ended.
32. Major responsibility for implementation of materials expansion rests
in the hands of private producers, both at home and abroad. Success of
government efforts to extend the scope of exploration, the construction
of new mining or processing facilities, and the immediate supply from
existing sources depends heavily on the actions of private producers.
Government stimulation is provided mainly through accelerated tax
amortization, long-term contracts guaranteeing “floor” prices, grants
for exploration, direct purchases of high-cost output for the stockpile
and purchase-and-resale-at-loss operations in particular commodities.
Increased emphasis is being and must be given to the expansion of secure
foreign
[Page 37]
sources of supply by
both private and governmental undertakings in order that the U.S. may
meet its requirements for raw materials in the years ahead. Budget funds
required are primarily working capital for the purchase and resale
operations, which may or may not result in actual losses.*
33. To meet the four objectives of the present mobilization plan, larger
amounts of some materials may be required, paradoxically, than under
full war conditions. Sharp reductions in wartime civilian usage could
bring this result. In other cases, however, the opposite would occur and
demand would sharply increase. In these latter cases, conservation and
substitution measures are crucial. Balancing the alternative of
conservation possibilities with the concept of
ready-but-not-currently-used facilities to increase output after war
began (thus treating the problem as part of the second objective) will
remain a key problem in planning for this group of materials during
1953.
34. Achievement of a satisfactory position in several materials, for
which known and potential free world sources are inadequate under
conditions of either defense mobilization or full war, requires efforts
to channel demand away either by substitution or other materials (which
may either be more expensive or technologically unfamiliar), or by
conservation, i.e., use of smaller quantities to achieve the same
results. Those cases where the current supply is reasonably adequate but
long-run balance is doubtful, or where supply is inadequate under either
situation, will receive major attention during the coming year.
VII. Guidance in the Distribution of
Materials
35. To sustain day-to-day progress in the attainment of the four
mobilization objectives, some government guidance is needed over the
flow of materials, to meet current consumption needs, stockpile goals,
and construction requirements. The Defense Production Administration is
charged with basic responsibility for guiding the use of resources in
the economy, and especially of the materials which have a central
controlling role in the direction, volume, and pace of industrial output
and of the expansion of facilities. In carrying out this responsibility,
DPA has followed the policy that the determination of the security needs
of the nation is a matter for the Department of Defense, and that the
task of the mobilization agencies is to meet the material requirements
of that program. In the event
[Page 38]
those requirements are so large as to interfere very seriously with
essential industrial programs, the question would be taken to the
President as to whether military or industrial needs would be cut.
36. So long as military demand plus the needs of the stockpile requires
the diversion from civilian use of a substantial percentage of the total
supply of particular materials the government must take responsibility
for control. There are three reasons for this:
- a.
- There must be assurance that military needs are met. This is a
relatively simple problem, once the program is determined, since
military orders are readily identified for preferential
treatment.
- b.
- There must be assurance that defense-supporting and essential
civilian needs also are met. This is a complex problem involving
the maintenance and expansion of industry, the stockpile, the
materials sources themselves, the agricultural base, and the
transportation and communication services.
- c.
- There must be a fair division of the remaining supply among
less essential needs. This is a difficult problem in reconciling
clashing interests, and the Government must perforce take
primary responsibility for its solution.
37. Because of the easing of the materials situation in the Spring of
1952, consideration has been given in consultation with industry and
claimant agencies to the future relaxation of the Controlled Materials
Plan, which governs the distribution of steel, aluminum and copper. Top
priority for essential defense projects would still be retained. The
intention otherwise is to remove the demand-control aspect of CMP to the
maximum extent possible, but to maintain standby control machinery ready
for future use if needed. Maintenance of the control function as such is
dependent upon extension, beyond June 30, 1952, of the necessary
authority from Congress.
38. In addition to the controls exercised on the three commodities
through CMP, the Government intervenes in a wide range of other
commodities to insure their proper allocation, conservation and end-use.
This is particularly important for the nonferrous metals which will
continue to be in short supply.
39. Stockpiling—The development of a national
stockpile is partially dependent upon the authority for general control
over the flow of materials. The policy is now established that controls
will not be completely abandoned in any case until stockpile needs are
met.
40. Building war-reserve stocks of key materials, owned directly by the
Government, rests on the assumption that supply sources outside the
United States during full war would be subject to loss or crippling by
enemy action, or that these sources plus domestic sources of supply in a
full war period would be inadequate to meet enlarged demands. The
stockpiling program of the Munitions Board antedates the 1950–52
mobilization effort. (The status of the
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stockpile is covered in the summary statement on
the National Stockpiling Program (No. 5) below.) The stockpile goals
will be given thorough review in the coming year, particularly to define
various levels of urgency, to eliminate some materials, and to emphasize
the particular materials where expansion or purchase programs should be
stepped up.
41. In this review the “rating band” to which a strategic and critical
material is assigned will reflect a judgment as to the supply position
that would exist should total war come in January 1953. After the
materials have been assigned to agreed rating bands, determination of
the action to be taken beyond present expansion or controlled measures
will be made. It is anticipated that these actions may include
extra-ordinary programs to expand supplies, development of
transportation facilities, encouragement of construction of additional
processing facilities to prevent disruption of supply through
destruction of one of the limited number of present facilities. The
Defense Production Administration will be charged with responsibility to
see that there is implementation of the action recommendations.
42. How the four objectives of the program are balanced has been
strikingly illustrated in the management of the current purchasing for
stockpiles in the past eighteen months. Where necessary to bolster
current supply, particularly to permit carrying out expansion programs
for new munitions facilities (the second objective) and for additions to
the industrial base (the third objective), current output of some
materials destined for the stockpile has been diverted to current
consumption. In other instances, materials actually in stockpile have
been released. The maintenance of a healthy civilian economy (the fourth
objective) has also been taken into consideration in these
decisions.
43. International Action to Meet Defense Needs for Raw
Materials—It became clear, shortly after the outbreak of
hostilities in Korea, that some action in the international sphere was
called for to support national efforts to channel the flow of scarce
materials to defense and essential civilian needs. In early 1951, the
International Materials Conference, (consisting of seven commodity
committees, a central group, and a staff) was established. The raw
materials selected for coverage by the commodity committees were those
which required immediate attention because of the widespread need for
them and the great apparent shortage. The seven committees are as
follows: Copper-lead-zinc; Cotton-cotton linters;
Manganese-nickel-cobalt; Pulp-paper; Sulphur; Tungsten-molybdenum; and
Wool.
44. The first task of the committees was to review the facts of supply
and demand. The second task of the committees was to determine
[Page 40]
what, if any, action should be
recommended to governments to alleviate the difficulties revealed by a
review of the facts.
45. In a number of cases the facts revealed such a disparity between
available supplies and the requirements of the free world for defense
and essential civilian purposes that the committees recommended
distribution according to defense and essential civilian requirements.
Sulphur, tungsten and molybdenum, copper, zinc, nickel and cobalt were
thus recommended for allocation. These allocations are renegotiated
periodically, usually quarter by quarter.
46. Other commodities studied by the committees were not recommended for
allocation. Supply and demand in lead and manganese were judged to be
about in balance; cotton and cotton linters, while in short supply last
year, are now expected to be much easier; the Wool Committee did not
agree on the scope of the wool shortage, nor on steps to alleviate it.
The Pulp and Paper Committee has recommended small emergency allocations
of newsprint to help the press of many countries of the free world
continue in operation, but no over-all allocation of newsprint or pulp
has been recommended.
47. The share of world supply recommended for the United States has, in
every case, corresponded closely with the share the United States
secured for itself in the days of free competition for supplies in the
years 1948, 1949, and 1950. At the same time, the general acceptance by
the governments involved of IMC allocation recommendations has helped to
check what might have been runaway price increases in the short
materials.
48. It seems clear that efforts to solve problems of shortage or surplus
in raw materials must be developed on a basis of genuinely effective
cooperation among a fairly large number of sovereign states and their
industries. If such cooperation had not been developed, countries might
have bargained the raw materials they held or controlled against the raw
materials and manufactured goods they needed; but to do this on a narrow
bilateral basis would have led only to holding back supplies, reducing
levels of production and increasing international animosity. Instead of
trading one specific commodity or resource against another, countries
must “trade” all commodities in general cooperation for the defense of
the free world. Leadership by the United States in supporting this
principle will continue to be of prime importance in obtaining a fair
share of the free world’s raw materials for the U.S. and in bolstering
public support for mobilization in allied or friendly countries of the
free world.
[Page 41]
VIII. Manpower
49. A primary problem in the manpower field in fiscal year 1953 will
continue to be an accurate assessment of manpower requirements and
supply for a mobilization program of varying size and for full war.
Under current plans the active strength of the armed forces will
increase by about 100,000 to 3.7 million men at the end of fiscal 1953.
This further augmentation will not have a serious impact on the size of
the civilian labor force. Furthermore, by the second quarter of fiscal
1953, the number of soldiers returning to the civilian labor force is
expected very nearly to equal the number of men entering the armed
forces. Thus, under the mobilization program currently scheduled, it may
be said that the worst impact on the civilian economy of manpower
withdrawals for the armed forces has already been felt. Civilian
employment including non-defense and defense employment which is now
over 61,000,000 will rise to between 62,000,000 and 63,000,000 in fiscal
1953. Civilian employment in defense industries will rise to over 7
million. Barring significant changes in the active strength levels of
the armed forces and given the gradual acceleration of the defense
production program in fiscal 1953, manpower resources appear to be
adequate to meet both civilian and military needs during the year.
50. As time passes the increasing number of men who have been released
from the services will swell the reserve forces. This could result in a
situation where the main initial complements for expansion of forces in
full war would be subject to direct call by the military. Thus it is
important that a sound reserve call-up policy be developed which will
recognize fully the civilian requirements for manning defense industries
in full war.
51. The development of a military material mobilization base (second
objective) will also require detailed planning to insure manpower needs
can be met in both partial and full mobilization. Ideally, the second
objective—literally achieved—would result in creation of a standby pool
of skilled employees, trained and ready to step into the expanded
production lines of a war economy. This is impossible policywise since
it would necessitate idling of many employables for an indefinite
period. Encouragement of specialized training programs for workers is a
partial answer. Extensive knowledge of available skills potentially
transferable from current employment also is a partial answer.
Experimentation with the most effective short-period training methods is
another.
52. Planning for future manpower needs, plus wide publicity for the
resulting aims and plans, will continue in 1953 as a major preoccupation
of the manpower agencies.
[Page 42]
IX. Stabilization of Prices and
Wages
53. All four of the basic objectives are affected, and their success
conditioned, by money costs. Cost-price increases could seriously
handicap the immediate procurement program since they would in effect
reduce Congressional appropriations and would also impair production
incentives. Similarly, inflation could slow down the creation of the
mobilization and industrial base by disrupting investment plans which
are derived from multiple decisions made by private concerns.
54. After Korea, a speculative boom skyrocketed prices to very high
levels; although wages lagged somewhat, they also rose rapidly. In
January 1951, after it was recognized that monetary and fiscal controls
were inadequate, direct controls were imposed. From that time retail
prices remained relatively stable until September 1951 when they rose
again slightly until February 1952, followed again by a slight drop.
Wholesale prices, being more sensitive in reflecting speculative
pressures, fell steadily from March 1951 to April 1952. Wages have risen
steadily since Korea and have not shown signs of weakness as yet.
However, average weekly hours in manufacturing have declined.
Unemployment is still at exceedingly low levels, so that consumers’
disposable income has been maintained at a high level.
55. It is anticipated that in the absence of a further speculative buying
crisis, the trend toward weakness which has developed in some markets
will continue; but strong price pressures on industrial materials and
fabricated products will also continue for the balance of fiscal 1953
and probably as long as military spending and private investment remain
at presently projected high levels. Wages will probably continue to rise
moderately.
56. When the decision to impose direct price and wage control was made
and the general freeze instituted early in 1951, the price and wage
structures had been badly distorted by the sudden speculative boom. The
first task was to smooth out the imbalances at the lowest levels that
were fair and equitable. This involved some rollbacks as well as some
increases. In areas where that process is complete we have attempted to
hold the line, except in cases of hardship, within general standards
established to measure the merit of requests for ceiling increases.
While these standards do not need to be and are not as rigorous as they
were in full war, it is necessary that they be established at some level
and held consistently in order to assure that no industry or business
group gets special treatment.
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57. The standards developed to date include the “industry earnings
standard”, the “product standard”, and the “essential supply”
standard.
58. The industry earnings standard allows industry-wide price relief when
the earnings to net worth ratio of an industry falls below 85% of that
ratio in the three best years during the period 1946–1949. This standard
uses the excess profits tax test and says essentially that so long as an
industry as a whole is in the excess profits tax bracket it shall not be
entitled to price relief. In the spring of 1952, this standard became an
issue in the steel cases where it resulted in denial of ceiling increase
requests which were made as a result of the wage increase recommended by
the Wage Stabilization Board. The standard has been attacked on the
ground that it does not allow sufficient incentive in cases where large
expansion is desired and necessary and also that it applies a rigid
dollar test to stockholder earnings in a situation where farmers and
labor both are on escalators which allow increases with the cost of
living and in the case of labor may also include an annual “improvement”
addition to wages.
59. The product standard is designed to assure that no industry is forced
below the break-even point in producing a particular product line. The
essential supply standard is rarely used but can be applied to justify
price ceiling increases where necessary to insure supply which is
essential to the national defense.
60. Requests for wage increases are considered within the framework of
several criteria. Under present policies wage increases are limited to
compensation required because of increases in cost of living, correction
of inequities in pay scales, operation of merit and length of service
systems, establishment of health and welfare plans on a limited scale,
and recruitment of workers into defense industries. The increases
required by increased productivity or annual improvement clauses have
also been approved where they existed before controls. A policy to allow
annual improvements in new contracts may be approved in fiscal year 1953
or perhaps earlier.†
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61. Since institutional factors of great complexity increase the
difficulty of reducing wages to reflect possible price declines, serious
profit squeezes can be anticipated during fiscal 1953.
62. Credit control measures taken to date include the Voluntary Credit
Restraint Program which aimed at reducing credit expansion in the
non-defense areas, and Regulations X and W which applied restraints on
housing and consumer durables credit. In response to the softening
markets in the Spring of 1952, in many construction materials and most
consumer durables, the Voluntary Credit Restraint Program and Regulation
W have been put on a standby basis.
63. The softness in some markets has also been reflected in the price
control program by the development of a price ceiling-suspension policy.
Its purpose will be to keep price controls flexible enough for the
presently mixed and changing market situation. Ceiling suspension action
will be taken where the market price is “materially below” ceiling and
there is no prospect of a need to reimpose the control in the near
future.
64. Stabilization activity in fiscal 1953 will center around developing
further policy with reference to (a) the market softness which probably
will continue, (b) the rising level of wages and its accompanying effect
on profits and incentives for investment, and (c) changes in monetary
and fiscal measures which may be required by changes in the total
economic situation.
X. Protection of the Industrial Base
in War
65. An integral part of future mobilization and defense planning will be
the problems of potential damage to industrial and economic capacity
under war conditions. This is a new element in American planning, as
compared with the two World Wars. Calculation of claims upon scarce
resources during future hostilities must include the potential drain of
enemy-inflicted damage.
66. During fiscal year 1953, there will be a growing emphasis on this
segment of mobilization planning, under the leadership of NSRB, ODM
and the National Security Council. The Council itself has already taken
action in one portion of this area through its Interdepartmental
Committee on Internal Security, which is concerned, among other things,
with preattack security and problems of sabotage and personnel risks.
Another portion is the “emergency phase” planning and nationwide
organization under FCDA, which is also
concerned with a number of preventive and damage-reducing measures. Its
work is discussed in summary statement on the Federal Civil Defense
Program (No. 4) below. A final area of necessary planning and
forethought will be the rehabilitation burden following upon attacks,
once the immediate emergency phase of an
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attack has passed. Active development of these
phases of the mobilization program will involve a new phase of
consultation with communities, industry groups, and local governmental
units in the coming year. Here also the problem is not primarily one of
current budget appropriations by Congress (except for important portions
of FCDA activity), but of integration
of effort between private industries or services, local communities and
governments, and the appropriate Federal agencies.
XI. Federal Budget Requests in Fiscal
Year 1953 to Support the Mobilization Program
67. Just over 1.1 billion dollars in new obligational authority is being
requested in FY 1953 to finance the
mobilization program (see Table I). The great bulk of the funds
requested ($900,000,000) is to increase the borrowing authority of DPA
required to continue the expansion and purchase-sale programs being
administered by DPA, DMPA, RFC, and the Department of Agriculture.
Since some of this amount is for working capital needed in purchase and
resale programs, net expenditure may ultimately be much less. A
significant fraction is for administrative expenses of the mobilization
agencies.
65. This authority plus related new obligation requests for mobilization
activities in 1953 total 1.5 billion. This excludes expenditures by the
Department of Defense, Department of State, Mutual Security Agency,
Atomic Energy Commission, and the Federal Civil Defense Administration,
which are budgeted separately. It includes budget authority for the
promotion of the merchant marine, defense housing, community facilities
and services, and Defense Transportation Administration.
Table I
Direct requests for new obligational authority
in the fiscal year 1953 budget are as follows:
| Expansion of Defense Production |
$900,000,000 |
| Other defense production and economic stabilization
costs |
236,960,000 |
| Defense production activities (Natural resources) |
5,500,000 |
| Defense Production activities (Labor) |
2,800,000 |
| Total direct mobilization included in National Security
Programs |
$1,145,250,000 |
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Related programs included in Budget estimate of
National Security Programs
| Promotion of Merchant Marine |
$72,543,000 |
Related defense programs not included in Budget
estimate of National Security Program
| Defense housing, community facilities and services |
325,400,000 |
| Defense Transport Administration |
2,800,000 |
|
$328,200,000 |
| Grand total direct and related defense mobilization
activities |
$1,545,993,000 |
69. This direct cost of mobilization represents only a small fraction of
investment and expenditure which has been flowing—and will continue to
flow—into the mobilization-affected segments of the economy. Private
investment is financing the bulk of the expansion of industry necessary
to meet defense needs and maintain a high level of civilian
production.
70. The aggressive action of private industry to expand capacity has been
partly a response to the large and increasing volume of direct
procurement by the armed services and partly a desire to take advantage
of the provision in the Defense Production Act for accelerated
amortization of plants and other incentives. Of equal, if not greater
importance, has been the influence of optimistic expectations of the
level of business activity over the foreseeable future. All segments of
the economy have been affected to a degree. Gross private domestic
investment rose to a new post-World War II high of 59 billion in 1951
(see Table II). In 1952 it is expected to decline and may fall further
in calendar 1953 as the requirements of the total mobilization program
for new capacity and new equipment are gradually fulfilled.
[Here follows Table II, setting forth the actual and projected movements
of the gross national product, national security expenditures, and gross
private investment between 1950 and 1953 (projected).
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[Here follows Summary Statement No. 3, a 12-page report on the Mutual
Security Program prepared by the Office of the Director for Mutual
Security. For documentation on the Mutual Security Program, see volume I, Part 1, pages 460
ff.]
