111. Memorandum From Smith (S/P) to John Foster Dulles1
SUBJECT
- Basic National Policy: Approach to President
1. Present budgetary policies seem increasingly likely to have the following consequences:
- (a)
- The FY 1960 Mutual Security Program will, if there are significant BOB cuts in the Department’s request, be inadequate to achieve the development objective which you outlined to your Wednesday press conference: that of creating enough progress so that there will be a feeling of dynamism rather than stagnation. Recent NSC Planning Board discussion indicates that attainment of this objective would call for substantial increase in present levels of development financing.
- (b)
- Our local war capability will not be enhanced. As you suggested the other day, measures which might be directed to this end will probably be the first to feel the effect of a very tight DOD budget ceiling.
- (c)
- The result could be a gradual weakening of our position in Asia, the Middle East, and Africa, in the face of increasing Communist efforts at subversion and aggression. For we will not be able to offer needed help to countries which are progressively seeking economic growth; and we will not be able to respond effectively to limited military challenges.
2. We would not wish this administration to be recorded as thus having presided, in its last two years, over a weakening of US strength which could have even more serious consequences than the economy drive which preceded the Korean aggression.
What are the alternatives?
- (a)
- We could proceed with deficit financing of necessary additional national security expenditures, which would probably run to a very few billion dollars, at most.
- (b)
- We could raise these additional sums through taxes, e.g., a national sales tax explicitly designed to [Facsimile Page 2] meet national security requirements until these could be covered out of rising revenues resulting from a resumption of economic growth.
3. I do not believe that there has so far been any deliberate comparison of the economic effects of these two courses of action with the security effects of the course on which we are now embarking.
4. If the President should decide to propose increased national security expenditures, and—if necessary—increased taxation, I believe that the country would welcome his leadership and rally vigorously to his support.
Present aggressive Communist policies in Berlin, and the tougher world-wide Communist posture, would provide a convincing rationale for that leadership.
Such a Presidential initiative—and the US response thereto—would encourage our allies to increased effort. It might deter the Communists from considering that the elections and the present budget-cutting exercise portend a period of weakness, which they can exploit through more frequent probing operations.
5. This need not involve abandonment of the President’s economy campaign. Domestic expenditures could still be held to minimum feasible levels, and the disagreement with Congressional advocates of greater spending would focus on these levels.
6. Conclusion. It may be worth making these points to the President on Sunday:
- (a)
- There is growing need for a more effective development program and local war capability, to hold our own against the increasingly aggressive Communist policies which now seem likely.
- (b)
- If this need cannot be met within presently planned budgetary limits, it might be useful to have the executive branch (using the NSC mechanism as appropriate) urgently undertake a deliberate comparison of: (i) the security effects of failing to meet this need, (ii) the economic effects of meeting it through deficit financing and/or additional taxes. This comparison could provide a basis for final Presidential decisions on the FY 1960 DOD and MSP programs.
- Source: Defense budget; includes three transmittal notes. Secret. 5 pp. NARA, RG 59, S/S–NSC Files, Lot 63 D 351.↩