FOREIGN RELATIONS) 19 5 0 VOLUME I


ment taking advantage, however cynically, of real elements of dissatis-
faction cannot be stopped by the threat of tforce alone.
                 DISCUSSION OF ECONOMIC FACTORS
  Lacking any indication of the magnitude of the proposed increase
in security expenditures, it is impossible to assess the economic im-
pact of this document and the economic risks iwhich it might involve.
There is no doubt that a larger share of resources could be devoted to
security purposes, but such a course is not without its cost under any
circumstances, and the extent of diversion is crucial to an analysis of
consequences.
  The comparison of the present situation with that of the peak of
World War II is misleading. Apart from statistical difficulties in
computing GNP in wartime on a basis comparable to peacetime, the
effort achieved in 1944 was possible only under wartime conditions,
with widespread controls, heavy deterioration in many types of capital
assets, and bulging inflationary pressure subject to only short-range
restraints. Under a total war effort the U.S. might, in time and barring
internal destruction, exceed its World War II performance, but this
effort would not be sustained for a long period and is hardly relevant
to the task of a long drawn-out cold war.
   Unless the risks of war are considered sufficiently grave to require
 moving now toward large-scale mobilization, determination of the
 size of our military posture should be heavily influenced by its
 sustainability over an indefinite period and by a balancing of the
 military: risks with the risks to our society and to the prospects for
 economic growth. Expansion of military expenditures involves an
 economic cost, particularly if sustained for a substantial period, and
 it also involves a cost in terms of the psychology and orientation of
 our society. This is always true, and temporary factors such as un-
 employment should not be permitted to obscure the issue.
   At the moment there are some 31/2 million unemployed and certain
 industries are operating below capacity. However, at present levels
 of activity there are signs of inflationary pressure, particularly in
 heavy industries and construction. It would be difficult to conclude
 categorically that tinder:current conditions substantial further arma-
 ment demands could be placed upon durable goods industries without
 requiring a diversion from present civilian purposes either through
 inflation or through taxes or direct:controls. The result might be
 little or no net increase in total output depending upon the methods
 used. It is thus necessary to assess the impact of increased security
 expenditures on specific sectors of the economy as well as in terms of
 ..ggregates."


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