Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

26. Memorandum of Discussion Between the President’s Citizen Advisers on the Mutual Security Program and the Secretary of State, Washington, October 25, 1956¹

Washington, October 25, 1956

Mr. Dulles stated that the problem of foreign aid was far and away the most important single aspect of our foreign policy. That policy was designed to meet the threat derived from the Soviet rulers who hoped to gain such a great power advantage that it would enable them to defeat the United States in battle, if necessary, or, far more desirable, cause the United States to surrender without a struggle because a struggle appeared to be futile. The tactics the Russians hoped to use were similar to those employed by chess players. The aim of a chess game is for one of the players to take his opponent’s king. Once he has announced “checkmate”, the king is his without the necessity for completing the remaining plays. Russia hopes to gain a position of such superiority that war won’t be necessary.

Our present foreign policy is designed to prevent three things. It is designed to deter an atomic attack. The United States is subject to direct atomic attack and must have the retaliatory capacity to carry destruction to a would-be attacker. Our foreign policy is also designed to check the Soviet bloc’s enlargement of its area of dominion. An increasing expansion of its area would cause an increasing risk for us since the bloc would gain additional manpower and materials as well as strategic locations. The expansion of the Soviet bloc has gone as far as can be tolerated. Finally, our foreign policy is designed to break up the present Soviet bloc because in the long run a purely defensive role never succeeds. We are trying to force the Russian rulers to concentrate on their own problems; we’re giving them some homework to do. Our so-called foreign aid program, which is really not foreign aid because it isn’t aid to foreigners but aid to us, is an indispensable factor in carrying out our foreign policy.

The effectiveness of our deterrent power against atomic attack is dependent upon our bases around the world. Russia can launch attacks upon the vital parts of our nation from its own shores, but we can’t launch attacks upon the vital parts of Russia from our shores. The distance the United States would have to cover is almost twice as great as that which Russia would have to cover. We must, therefore, have bases to give us propinquity to Russia. In addition, we must have bases to give us diversification, so that if one launching area were wiped out by an initial assault, we would still have other areas from which to operate. We have to remember that those countries which let us have bases are taking a considerable risk.

The Sino-Soviet bloc has been expanding apace since 1945. The number of people under its rule has increased from 250 million people to 800 million. The culmination of the expansion of the Sino-Soviet bloc came with the attack on Korea. The mutual security system which has come into being as a result of that expansion provides, in effect, that the parties pledged to it will stand together in event of attack, so that they won’t be picked off one by one. We have bilateral and multilateral treaties with 42 countries, and the Baghdad Pact brings us in close relationship with two more. From a military as well as a political view, however, a mere pledge is not sufficient; it must be reinforced by forces in being. Originally, the peoples of the world did not feel this way, but the Korean situation changed their attitude. Today we must meet the fears of the people of other countries. It is not enough to have liberated them; it is necessary that we give them protection. To do this we must have forces in being sufficient to deter or at least hold back attack. NATO is that type of force. We must also have forces to ensure internal stability and make costly outside attack.

Our total annual expenditure on security has been about $40 billion annually. Of that approximately ten per cent, or $4 billion has gone for aid. Of that about 85 per cent has been used to assist economically and financially burdened countries in the maintenance of military establishments and in defense support. In Europe at present aid for defense support is insignificant. What little is being given goes primarily to Spain and Yugoslavia. In Spain we have the problem of bases which serve as an alternative to those in North Africa. In Spain we are giving both military and economic aid. We have worked a long time in Yugoslavia to prevent Soviet expansion there. Now that the Soviets are making an economic thrust there, we must keep our hand in because Yugoslavia provides a notable example of national independence in Eastern Europe. Our program in Europe including NATO amounts to about $1 billion for the coming year.

In the coming year we expect to spend $700 million in the Middle East. That area includes the nations running from Turkey through Pakistan. To Turkey and Pakistan we are giving primarily military and defense support aid. Through the Baghdad Pact we have ties with Iraq and Iran, though we are not members of the Pact. Iran which we rescued from the Communist Tudeh party probably will not be a permanent burden to us. Turkey is about the most dependable ally that we have in the world today. In both Turkey and Pakistan, however, there are economic problems to be solved which result partially from the fact that our military experts believe it is necessary for both countries to have military establishments considerably larger than their economies can support.

Our toughest problems are in the Far East. In that area we have disconnected peninsular and island positions in which we are interested ranging from Korea, Japan, Okinawa (the defensive position there is ours entirely), Taiwan, and the Philippines through Southeast Asia. We have a collective security arrangement for that particular area under SEATO. In the Far East generally, we are spending about $1.6 billion. Japan is carrying most of the burden of its military establishments.

Communist China is still building up her forces and still following the Stalinist policy of the use of force. There have been frequent violations of the Korean armistice, and there are continued threats to take Formosa by force. The Vietminh forces² are being built up. All of these areas have either recently been zones of hostility or threaten to become so.

The problem of defending the areas in which we are interested is very difficult. It can be said that defense of them could and should be managed on a cheaper basis. Some say that we don’t need so many troops in Korea, that our air bases on Okinawa are sufficient to defend Korea. We have to remember, however, that we have a psychological problem, that of morale, to face. The South Koreans live in an area which has already been devastated. If they thought that the United States was abandoning them, they would collapse and could then be taken over internally. We sometimes have to do things that are apparently not rational, bearing in mind the impact of what we do on the people concerned.

In answering the question, are the things we’re doing in the Far East worth the money that we’re spending on them, we must remember that there would be disaster if the western Pacific fell into hostile hands. In developing our foreign policy we enunciated in the Monroe Doctrine our stand against expansion by other countries into the Western hemisphere. Later we found it necessary to extend that policy against expansion when we discovered that we couldn’t afford to have the Atlantic Ocean dominated and then more recently the Pacific Ocean. Imagine what it would be like if we couldn’t hold Japan, for then surely Korea and Formosa would slide into the Communist orbit. Gradually expenses in Korea can be brought down, but the will to resist must be retained.

So far all but about $600 million worth of foreign aid has been accounted for. $400 million of what remains is straight economic aid for countries with whom we have no security arrangements such as India and Indonesia. India is the largest, non-captured, non-Communist country in the Far East. Nehru is conducting a strong effort to prevent the country from going Communist, though some of the trends in India are socialistic. We are giving her between $50 to $60 million this year. Indonesia is in a rather desperate economic position, and we can’t let her fall by the wayside because if we did our communication line between Japan and Australia would be cut. $200 million is going to Indonesia.

Some of the countries needing economic aid are receiving assistance multilaterally through the United Nations, but the problem is beginning to assume tremendous proportions. We are trying to solve part of it through disposal of our agricultural surpluses under P.L. 480 and use of the resultant local currency for aid projects. The bulk of the local currency gained is being circulated in 30 year loans. A complication in disposing of surplus agricultural commodities is the need to avoid cutting into the normal markets of a country. The administration of the program is extremely difficult and has left the State Department friendless. Grain raising countries want the Department to encourage the selling of less while grain consuming countries want the Department to encourage the selling of more.

Those administering the entire aid program are well aware of its imperfections. The Prochnow Committee has been concerned with the failure of planners to have studied adequately the economic effects of the military program before launching it. In Turkey, for instance, many people were taken out of the consumers goods production line for military service or military connected occupations, so that they still remained consumers but were no longer producers. Turkey faces serious inflation. It is possible that the same pattern may evolve in Spain.

Another matter of concern in the program is the tendency of the military aspects to become progressively more expensive. This is due in part to the cumulative cost of maintenance and to the increased cost of weapons. Recipient countries always desire new weapons rather than castoffs. We should do more to create a greater dependence on our strategic weapons, that is largely on atomic weapons. To do so might lead to economies. There is a great lack of acceptance in the countries with which we have mutual security pacts that the next war is going to be an atomic war. First of all, none of these countries wants to be an atomic target; secondly, these countries feel that the United States might not be willing to wage an atomic war because it would redound on the United States. Any atomic weapons, of course, would have to be in the hands of the United States rather than its allies under present laws.

Mr. Fairless asked how much we could afford to spend on an aid program and how long we could afford to spend it. Mr. Dulles replied that some say our economy has prospered despite the program, though we haven’t, of course, reduced the national debt. What had to be remembered was that only ten per cent of the security budget was being considered, though it was perhaps the most important ten per cent. The question that needed answering was could we afford to spend $40 billion. Mr. Fairless commented that the aid should have the proper label. Mr. Dulles went on to say that since the aid money is spent in the United States, it is a stimulus to American business.

Mr. Deupree said that the Advisers had been told that there was $3 billion in gold going out of the country. Mr. Dulles said that he would want to question the views of the person who made that statement. The figure, he felt, was partly attributable to the growing investments by foreigners. The figure set up for our required gold reserve was done on the basis of a hypothetical contingency, that is a sudden gold demand. We should look at ourselves in this situation as a bank. No bank attempts to keep itself entirely liquid, and no bankers whom he ever knew were made unhappy by increased deposits. Mr. Deupree said that increased deposits necessitated increased reserves. He then asked whether the most expensive item in our security was the pay and expenses of our armed forces abroad. Mr. Dulles mentioned that our largest expenditures abroad were tourist expenditures.

Mr. Lewis wanted to know why money wasn’t available for investment in the countries of foreign investors. Mr. Dulles replied that citizens of those countries had more confidence in the United States than their own countries. He added that their countries could, if they wanted to, stop the outward flow of investment capital. Mr. Lewis commented that these countries which had its citizens investing abroad were then pressing us for aid. Mr. Dulles explained that we were not being pressed for aid by those countries which were investing in the United States, such as Great Britain and France. Mr. Lewis wanted to know why something couldn’t be done about Great Britain’s trading with China and France’s failure to meet her NATO commitments. Mr. Dulles said it was difficult to control those matters externally. Mr. Lewis pointed out the softness of the pound sterling and the French franc. Mr. Dulles said that they were soft, that Britain was limiting its flow of gold but that France was finding it difficult to do so.

Mr. Reid wanted to know if we reduced our forces, whether it would be reasonable to assume that we could use our strategic atomic weapons without retaliation. Mr. Dulles replied that it would be a hazardous assumption, that it would be dangerous to let the idea get about that we were going to withdraw our forces, though we had withdrawn some forces in Korea and perhaps might be able to streamline our forces in Germany.

Mr. Deupree asked how much our economy could afford to spend on the whole military picture. Mr. Dulles replied that the fortress of America concept was no longer valid, that we had to have forces along the periphery of the Soviet orbit, that there was no point in saving one dollar in the aid program when it would mean spending ten dollars for the military establishment. Mr. Lewis wanted to know for what length of time we would have to continue our present expenditures in the countries along the line from Korea to Turkey. Mr. Dulles replied that he didn’t know, that there were recently much more encouraging signs of things beginning to crack on the inside. Khrushchev³ in his March letter stated that it had been impossible to change the policy of Stalin as long as it had been successful. When the policy was changed, it started a trend. The denial of successes to the Stalinist policy was due to the policy that we’ve been pursuing, but that policy hasn’t served its day yet. We need it as long as we have a hostile threat to face. By and large, it is vitally essential that we shouldn’t let our policy falter just as Russia is beginning to cave.

Mr. Lewis asked what yardstick was being used in determining the amount of aid that was to be given to Yugoslavia and Spain. Mr. Dulles replied that we had no pact with Yugoslavia, that our aid was largely agricultural surpluses administered under P.L. 480. In the case of Spain, the main consideration was our need for military bases there. Mr. Lewis wanted to know whether Russia mightn’t regard United States aid to Yugoslavia as a help to Russia. Mr. Dulles replied that he didn’t think so. The United States wasn’t sending jet planes to Yugoslavia, though it wanted them. Requests from Yugoslavia, generally, were declining. Tito was most useful as an exhibit.

Mr. Dulles concluded with a few brief comments on the situation in Poland and Hungary and summed up by saying that the blood of the martyrs was the seed of the church.

1. Source: Eisenhower Library, Fairless Committee Records, 1956–1957. Secret. The committee members were Benjamin F. Fairless (chairman), Colgate W. Darden, Richard R. Deupree, John L. Lewis, Whitelaw Reid, Walter Bedell Smith, and Jesse W. Tapp.
2. Vietnamese Communist forces under the leadership of Ho Chi Minh.
3. Nikita S. Khrushchev, First Secretary of the Communist Party of the Soviet Union.