50. Memorandum From the Deputy Assistant Secretary of Defense for International Security Affairs (Davis) to the Chairman of the Council on Foreign Economic Policy (Dodge)1

Dear Mr. Dodge: Your memorandum of February 7, 1955, to the CIA Deputy Director of Intelligence, and his reply of February 10, 1955, have been drawn to my attention in the absence of Mr. Hensel. I feel compelled to advise you of my reactions to this memorandum because serious consideration of its conclusions, in my opinion, would be prejudicial to the proper solution of the East-West trade policy problem which was assigned to the CFEP.

First, however, I would like to comment on the central question raised by your memorandum. The relative ease with which the reallocation of resources may be directed by the monolithic Communist bloc constitutes a major strength of that system. Subject to certain limitations, such as those imposed by transport and technical skill, the Communist rulers can and do shift their available resources to meet the most urgent need of the moment.

Since there is a high degree of fungibility in most production resources, a high proportion of the available economic potential can be reallocated from peaceful to military use, especially in view of the probability that production facilities are largely created with the idea that they would be available for war use. It therefore seems clear that the entire Communist bloc economy should logically be considered in any Free World policy aimed at limiting the expansion of military power in the Communist bloc. This principle has been implicit in all actions and recommendations of the Defense Department in this field.

As to the memorandum in reply to yours, I doubt the validity of the conclusion in the final paragraph. This conclusion is inconsistent with the substance of the preceding paragraphs and it cannot be supported by intelligence and technical facts as evaluated by Defense Department experts.

Any implication that the economic might of the Communist bloc cannot be impaired by any Free World action, merely because the Soviets produced quantitatively more machine tools than the U.S. last year, and that, therefore, all efforts to limit the availability to the Soviet Bloc of Free World economic resources are futile, has no basis in logic.

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It seems to me that there are two conflicting views on this whole general subject. One, apparently, is that the prospect of eventual Soviet industrial expansion is such that efforts to delay this expansion are not worthwhile. The other, supported by the Department of Defense, is that any delay in Soviet industrial expansion is important and valuable to U.S. security. In fact, we feel that the situation is such as to justify intensified, rather than relaxed, efforts along these lines.

Sincerely yours,

A.C. Davis
Vice Admiral U.S. Navy
  1. Source: Eisenhower Library, CFEP Records. Secret.