FOREIGN RELATIONS, 1950,-VOLUME I


  It should be noted that these comparisons understate the relative
position of the NAT countries for several reasons: (1) Canada is
excluded because, comparable data were not available; (2) the data
for the U.S.S.R., are the 1950 targets (as stated in the fourth fi-ve-year
plan) rather than. actual rates of production and are believed to exceed
in many ,cases the productioln actually achieved;,(3)-the data for the
European NAT countries are actual data for 1948, and production
has generally increased since that time.
Furthermore,° theý United States could achieve a substantial absolute
increase in :ontput and could thereby increase the allocation-,of re-
sources to a build-up of the economic and military strength of itself
and its allies without suffering a decline in its real standardof living.
Industrial: prodtuction declined by 10 percent between the first quarter
of 1948 and the last quarter of 1949, and by approximately one-fourth
between 1944.and 1949. In March 1950 there were approximately
4,750,000 unemployed, as compared.to 1,070,000 in 1943 and 670,000
in 1944. The gross national product declined slowly in 1949 from the
peak reached in 1948 ($262 billion in 1948 to an annual rate of $256
billion in the _last six months of 1949), and in terms of constant prices
declined by about 20 percent between 1944 and 1948.
  With a high level of economic -activity, the United 'States could
soon attain a gross national product of $300 billion per year, as was
pointed out in the President's Economic Report (January 1950).
Progress in this direction would permit, and might itself be -aided by,
a build-up of the economic and military strength of the United States
and the free world; furthermore, if a dynamic expansion of the econ-
omy were achieved, the necessary build-up could be accomplished
without a decrease in the national standard of living because the
required resources could be obtained by siphoning off a part of the
annual increment in the gross national product. These -are facts of
fundamental importance in considering the courses of action open
to the United States (cf. Ch. IX).
   2. Intentions. Foreign economic policy is a major instrument in
 the conduct of United States foreign relations. It is an instrument
 which can powerfully influence the world environment in ways favor-
 able to the security and welfare of this country. It is also an instrument
 which, if unwisely formulated and employed, can do actual harm
 to our national interests. It is an instrument uniquely suited to our
 capabilities, provided we have the tenacity of purpose and the under-
 standing requisite to a realization of its potentials. 'Finally, it is an
 instrument peculiarly appropriate to the cold war.
   The preceding analysis has indicated that an essential element in a
 program to frustrate the Kremlin design is the development of a suc-
 cessfully :functioning system among the free nations. It is clear that


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