218 FOREIGN RELATIONS, 1950, VOLUME I

Policy Planning Staff Files | . | . | ; “7 7 | o . a —

Memorandum by the Assistant Secretary of State for F conomic Affairs
(Thorp) to the Secretary of State*

TOP SECRET i ss FWasurneron,] April 5, 1950.
Subject: Draft Report to President _ | . -
1. One of the underlying assumptions in the. Report is the notion
that the USSR is “steadily reducing the discrepancy between its over-
all economic strength and that of the U.S.” (page 6). So far as the
evidence included in the ‘Report is concerned, I do not feel that this
proposition is demonstrated, but rather the reverse. It rests largely
upon statistics showing that the ‘USSR is diverting a higher propor-
tion of its gross national prodtict to investment and defense than is
the United States. In this instance, percentage figures are completely
misleading. Put in dollar terms, the facts seem to be as follows for
19492 - oo
a ae Gross , a | | |
Intestment — Defense Consumption — Total
| | Po | _ (billions of dollars) | See
USSR. Se 16.5 9.0. 89.5 . 65.0
US _ Oo 34.05 16.2 199.8 — 250.0
- I do not have the data to add the figures for the “Soviet orbit” and
the NAP countries, but they are in almost identical proportions. The
NAP. countries have'a much larger gross national product, so they
would-also run far ahead of the satellites in absolute terms. Therefore,
in actual rather than proportionate terms, the expansion in the US
economy was double that of USSR during 1949, and that was probably
somewhat below our rate of expansion for the previous year. :
_ The suggestion is made but not developed that new investment in the
USSR was much more significant relative to military requirements.
This may be somewhat true—but in- 1949, US steel capacity increased
about 2 million tons.. The Soviet would have had to record a 10%
jump in one year to have kept pace. I suspect that our oil reserves and
capacity both increased in the US more rapidly than in USSR, in
absolute terns. It is of course true that our economy is more advanced,
and therefore our investment covers a wider variety of items. But the
television manufacturer cannot be disregarded as a national asset.
(Even the manufacturer of Kirsten pipes made carburetors during the
War.) Even in the narrow definition, the point is in doubt. I suspect a
Jarger proportion of Soviet investment went into housing. The largest
single item in the US investment picture in 1949 was in electric power,
which is certainly a “war-supporting industry.”

1 Transmitted through Under Secretary of State ‘Webb.