S/S–NSC files, lot 63 d 351, “NSC 135”
Statement by the Director of Defense Mobilization (Steelman) 1
Increased Availability of Materials Makes Acceleration or Upward Adjustment of Security Programs Feasible (NSC 135/2)2
NSC 135/2 states, in paragraph 16, that “The United States should … assure the acceleration of the production of selected military end items under present programs,” and in paragraph 9 states inter alia that a re-examination of existing programs should be made “to determine whether a general increase in the level of free world programs and military forces is required …”
Because both of these steps would affect the broad question of the level of national security programs in the last half of fiscal 1953 and in fiscal 1954, I have had prepared a detailed projection of the materials outlook, a suggestive analysis of military production programs which may advantageously be accelerated, and a preliminary study of the stabilization impacts of an accelerated or increased national security program. I should like to place before the members of the National Security Council some of the major conclusions of this inquiry.
Our Course of Action
Some analysts of the defense program have felt that too much emphasis was placed early in the program on building new facilities for the mobilization base and too little in turning out new [Page 157] weapons. The choice now is not between one or the other. There is room now to make more rapid progress on both if the funds and authority are made available.
In the field of military production, it may have been unavoidable that original schedules fixed early in 1951 for certain key weapons could not be met because of difficulties in organization of production, delays in placement of contracts down through the subcontracting chain, material flow difficulties and shortages, machine tool shortages, design difficulties, testing delays, strikes, and so on. Hence, it made sense to revise schedules to realistic levels and avoid the continued immobilizing of materials and facilities that were out of phase.
But now, since many of these earlier problems have been solved or are well on the way to solution, we are confronted by a new freedom of choice.
We could continue to live with the consequences of these past difficulties and continue to extend the period of attaining these goals accordingly. By so doing, we would content ourselves with getting back at a later date to the levels of production earlier contemplated. We would thereby not attempt to make up for lost time and past slippages either by (a) accelerating those schedules or (b) by an over-all increase in these key programs for the defense of the free world.
The other alternative is to take advantage of the solution of the earlier difficulties which have been painfully overcome to carry out the objectives toward which NSC 135/2 points. I strongly urge that the acceleration of present schedules of key selected weapons is not only feasible, but wise. Furthermore, in addition to such an acceleration, I believe that a general expansion of our total programs beginning in fiscal 1954 will also be feasible, to a very substantial degree.
Material Availabilities
The feasibility of accelerating security programs is supported by a detailed analysis of projected controlled materials (steel, copper, and aluminum) supply and demand for calendar year 1953. This report shows that sufficient materials will be available to permit considerably expanded security program levels beginning in June 1953, even after allowing fully for all presently planned security programs and unrestricted demand for consumption uses in all other areas.
[Page 158]Steel should ease after the setbacks caused by the steel strike have been made up.3 By mid-calendar year 1953, with the exception only of several special shapes and alloys, steel availability should fully meet all requirements including unrestricted market demand for all non-military uses. While estimates regarding calendar year 1954 present the usual difficulties of judgment-making for more remote periods of time, that period—as well as it can be estimated at present—should present even greater availability against projected unrestricted demands.
The relationship of demand to supply for copper is tight in 1953. Given an expected increase in the domestic production and imports over first half calendar 1953 levels, sufficient copper should be available to fulfill presently projected security programs, including an assumed quarterly stockpile addition of 30,000 tons (an arbitrary rate having no official status), and permitting an approximate demand-supply balance for all other consumption without use restrictions. It should be noted that military programs other than small arms ammunition could be increased substantially with only a relatively insignificant increase in copper requirements.
The demand-supply relationship for aluminum, assuming no interruptible power loss and no stockpile additions, is expected to be in approximate balance by the second calendar quarter of 1953. New facilities should provide a rising surplus above projected direct defense requirements, plus unrestricted market demand for all other uses, throughout the latter half of calendar year 1953. Past experience indicates, however, that account must be taken of potential losses of production because of power shortages in the Northwest. In addition, of course, stockpile additions must be taken into account. The DPA Deputy Administrator for Aluminum has suggested that aluminum stockpile additions in the first half of calendar year 1953 be 100,000 tons, and that the impact of any losses of production growing out of potential power interruption fall upon this stockpile addition. This rate of stockpiling would require approximately third quarter 1952 allotment levels—which are relatively generous—to be maintained during the first and second calendar quarters of 1953. Stockpiling at a level moderately less than this in the last half of calendar 1953, however, would leave supplies of aluminum above anticipated demands (on an unrestricted basis) in that period.
The projected industrial and civilian demands utilized above reflect a judgment that economic activity through 1953 will continue [Page 159] at the current high level, but that no attempt to build inventories will take place comparable to that in the post-Korean period. Total Gross National Product in 1951 dollars is expected to rise moderately in 1953—perhaps by 5 or 6 per cent. By mid-1953 national security expenditures under present programs are expected to be about 15 per cent ($8 billion) above the current annual rate. Consumer spending on hard goods is expected to be sustained. Total dollar expenditures for all types of construction in 1953 are expected to remain at about the 1952 level. While expenditures for new industrial plant and equipment related to mobilization expansion will decline, with sharply-falling material requirements, increases are anticipated in such other heavy construction areas as petroleum and electric power. Relaxation of controls over commercial and recreational construction will permit increased activity. State and local governments will probably raise their expenditures for road and bridge construction and other capital equipment.
No detailed examination of projected demand for major materials has been made for calendar year 1954. Some increase in the production of aluminum and copper may be contemplated as new expansion adds to supply; the supply level for total steel products in CMP shapes and forms is anticipated to be about equal to 1953 capacity. If material requirements continue into the year 1954 at the year-end-calendar 1953 rates, exclusive of stockpile additions for copper and aluminum, the spread of supply over demand for aluminum will widen in the calendar year 1954; the margins for steel and copper will approximate those existing at the end of calendar 1953.
Of course, the demand-supply relationship for different shapes and forms would show variation in relative tightness and in timing of demand-supply balance. But in the aggregate, controlled materials for accelerated security program use will become available in increasing amounts in the last half of calendar year 1953 and 1954. The rapid expansion of our plant and equipment in the past few years will add steadily to our ability to accelerate security programs without adversely affecting the civilian sector of the economy.
Alternative Choices Must be Made for Available Materials
This outlook suggests the importance of appraising, at this time, future alternative uses for the available materials. These alternatives include: (a) increases in selected direct military and atomic energy programs; (b) increased stockpiling over currently-projected levels for calendar year 1953; and (c) selective expansion through the entire range of our security programs to strengthen deficiencies, fill gaps, and provide for changing requirements in the production [Page 160] and resource base for full mobilization, both for ourselves and our allies.
Although the extent to which individual military and other security programs could be expanded can be determined only after detailed review of specific shape, alloy, facility and other requirements, materials should be available to support any one or a combination of the following: substantial expansion of the specific military programs, increased stockpiling of copper and aluminum, building toward mobilization-readiness objectives in selected resource and facility areas both at home and elsewhere in the free world, and the direct provision of general economic aid to our allies in the form of materials and production equipment. In any event, it is clear that security programs could be increased beginning in the latter half of 1953 while at the same time permitting material availability sufficient to meet unrestricted market demand, as nearly as that demand can be predicted at this time.
Accelerating Military End-Item Production, Stockpiling, and Foreign-Aid Programs
This review of material availabilities suggests that the acceleration of output called for in paragraph 16 a of NSC 135/2 could cover a wide range of items. There are a number of candidate programs, using that term in its broadest sense.
In the area of military end-item production, possibilities for acceleration would seem to center in programs having such characteristics as the following: they are of central importance in providing security; they cannot be manufactured in a short time-period following an outbreak of war; engineering has been completed or nearly completed on the item at the present time; adequate facilities and raw materials are now available for their production; plant capacity, including machine tools to produce the item, is now available; and a sudden increased demand in the near future would not result in a corresponding demand for extraordinary skills or long apprenticeships.
The specific programs which might be chosen, of course, are intimately related to strategic considerations which I do not presume to appraise. Illustrative of the type of program items which fit the above criteria are jet engines; airframes for fighters and bombers; certain electronics like the Hydrogen Thystron tubes, transistors, the circuits to go with them, and servo-mechanisms; large tools not used in civilian work such as heavy presses and their attendant equipment, as well as large steel castings and forgings; certain optics which require aging of the glass, and slow grinding or ruling of the lenses or reflectors; and some types of guided missiles.
[Page 161]For some programs, short-lived bottlenecks would have to be overcome. Choke-points might grow out of the need for additional manpower, more jigs and fixtures, and perhaps even additions to plant capacity. None of these problems is so difficult, however, that expediting action could not overcome it quickly if decisions to accelerate or expand were to be taken now. In no case has it been established that any material shortages would restrain such an acceleration with the possible exception of a few very scarce materials such as titanium. Such problems, however, are now in the process of being resolved.
In appraising the availability of materials for accelerating security programs, in calendar year 1953 and beyond, the future rate of stockpiling (which is an important phase of our security programs) must be taken into account. Stockpile objectives for a number of critical materials, such as copper and aluminum and the ferroalloys, have not been completed. The materials outlook sketched above for the last half of calendar year 1953 and extending into the year 1954 suggests that a substantial additional degree of security could be acquired, after meeting other demands, both in security end-item production and in stockpiling. How much of each is obtained depends, of course, upon the degree of acceleration determined in each case.
The opportunity open for accelerating military end-item production was noted above. A correspondingly favorable possibility exits for stockpiling. For example, the stockpile objective for copper is 1,100,000 tons against which an inventory on June 30, 1952 of 565,000 tons existed. If the goal were to be achieved within the next few years, the quarterly additions of copper to the stockpile would have to be above the arbitrary rate of 30,000 tons mentioned above, as an assumption in making the demand-supply projection for this metal. The aluminum inventory in the national stockpile on June 30, 1952 amounted to 103,000 tons against a stockpile objective of 2,000,000 tons. Obviously, here too, an approach to achieving stockpile goals within the next few years would require higher quarterly additions than the rates assumed above. The situation in other key materials is similar.
A third major security program area is our aid to foreign friendly nations. Increasing material availabilities will make possible further help in controlled material shapes and forms (e.g., steel ingots), as well as components and finished products, to strengthen their defense programs. In this area a comparatively small utilization of our productive resources can pay large dividends to our allies and to us.
[Page 162]Acceleration of Security Programs Not Inflationary
Preliminary studies show that accelerated security program delivery rates becoming effective about the middle of fiscal year 1954 (i.e., at the end of calendar 1953) would probably not adversely affect the stabilization program.
Some weakness in the economy may develop by the middle of next year. With the approaching completion of the capacity expansion program, aggregate investment is expected to decline. Although certain areas of investment will remain high for some time, such as electric power and petroleum, the rate is not likely to increase and therefore cannot serve to offset the decline in other major expansion programs, such as steel. Nor will potential expansion in other types of construction provide a sufficient offset.
By the third quarter of calendar 1953, moreover, expenditures for existing major security programs will have reached their peak and will no longer provide an inflationary impact on the economy. In fact, this maximum impact will undoubtedly have been reached several months earlier. The point of maximum drain of critical materials away from the civilian segment of the economy for defense purposes has already been passed. The inflationary pressures from the defense program, however, must be measured also in terms of the employment of labor in the fabrication of raw materials into end products. The peak inflationary impact, therefore, would precede the peak in actual Treasury expenditures.
Trends toward weakness by mid-1953 may also develop from declines in inventories and foreign investment. Manufacturing inventories for defense contracts can be expected to recede as production bottlenecks are eliminated and production reaches established schedules. Distribution inventories are currently fairly well in balance with sales with the possible exception of automobiles and a few other items, and it is doubtful that any substantial expansion would be in prospect next year given the economic outlook above outlined.
The only possible offset to these prospective weakening factors is a large increase in consumption. This probably will not occur, however, without a substantial downward price readjustment, which is not likely to develop until production has fallen off substantially.
In appraising the possible stabilization impact of an acceleration or expansion of our security programs, the timing as well as the rate and magnitude must be considered. A program which called for an increase in final deliveries of military goods as early as July 1, 1953 would require that materials be committed for that program immediately. On the other hand, if deliveries were not required [Page 163] before the first quarter of calendar 1954, materials would not need to be committed much before mid-1953.
An expansion of the defense program ranging from $6 to $12 billion (resulting from acceleration or program increases, or both), if its actual impact is felt no earlier than mid-1953, probably would create no serious inflationary problem. Quite possibly this would be true as early as April 1, 1953. Naturally there may be particular materials which at that time may still remain in relatively short supply, but for the most part these would be specialized types of industrial materials which do not have a wide use throughout the economy.
I do not cite these dollar magnitudes as being my recommendation of the extent to which security programs should be expanded. They are designed, rather, to make the point that fairly sizeable additions to existing levels of expenditures—ranging from 10 to 20 per cent—are not likely to be inflationary if their actual impact comes after about mid-calendar year 1953. These dollar magnitudes, of course, refer to the total range of security expenditures for all purposes—as broadly defined as they are in NSC 135/2. They include materials and production equipment which might be part of an altered or expanded program of aid to our allies and increased stockpiling, as well as strictly military expenditures.
An increase of up to 10 to 12 per cent above existing programs, which would mean $5 to $6 billion above the projected June 1953 annual level, I believe could readily be absorbed without strain. If much beyond the maximum of $12 billion were involved, we would enter a situation in which the use of control mechanisms might be increasingly necessary to overcome specific materials shortages and an inflation problem. Our problems could be accentuated also if the increase determined upon were concentrated in a particular segment of the whole range of security programming; e.g., in a few categories of military hard goods. I would, therefore, stress the importance of early decisions on the possible magnitude of acceleration, and the items involved, and on the extent and nature of an overall increase in our programs.
I should like to add, too, that acceleration of existing programs fits into our present and proposed abilities to manage our resources. A large future increase in our security programs, following a period of moderate levels, might find us shorn of our ability to exert that degree of direction over the economy that would be required. The magnitude of that problem, of course, would turn upon the timing and the level of such higher program.
- A covering memorandum by Lay to the National Security Council, dated Sept. 25, reads: “The attached statement by the Director of Defense Mobilization on the subject, the contents of which he summarized orally at the meeting of the National Security Council on September 24, 1952, is circulated herewith for the information of the National Security Council.”↩
- Regarding NSC 135/2, see footnote 1, p. 134.↩
- Reference is to the steel strike of 1952. President Truman discussed his role in the controversy in his Memoirs, volume II, Years of Trial and Hope (New York, 1956), pp. 465–478.↩