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"The economic and efficient development of synthetic fuels to supplement natural petroleum as needed can best be achieved by private industry.

"The oil industry through extensive research has provided the technological basis on which a synthetic fuel industry can be established when conditions require. The furtherance of research and process development by the industry is desirable. Research by governmental agencies should be limited to fundamental studies and to surveys of raw material reserves. The construction of synthetic fuel plants by government intervention would defeat the objectives of an adequate oil supply by impeding the normal functioning of the industry. Synthetic fuels will attain an orderly and economic development by private industry, if normal incentives are free to operate."

A further elaboration of industry's views on the subject is to be found in an article by Dr. Robert E. Wilson, Board Chairman, Standard Oil Company of Indiana: 1/

"Too little weight is given to the additional crude production that can be expected through further emphasis on modern geo-physical methods of exploration and improved production methods.

"The large reserves of oil known to exist within the continental United States as well as in tidelands areas and in Canada give adequate assurance against the early need for large-scale production of synthetic fuels in the United States. . . . I hope you will not conclude that I am in any way opposed to a vigorous research and development program by both Government and industry on synthetic fuels, for such is not the case. However, it would be the wisest course to confine expenditures for many years to research and pilot plant work, so as to have a sound basis for commercial-plant design if and when such plants are needed."

Still another corroboration of this position is to be found in an article by A. L. Solliday, Executive Vice President of Standard Oil and Gas Company, Tulsa, Oklahoma: 2/

1/ *National Petroleum News*, June 8, 1949, Vol. 41 - No. 23, p. 22.

2/ "When Do We Need a Synthetic Fuel Industry," *Oil and Gas Journal*, October 20, 1949, pp. 86-88.

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"The nation has at least until 1961 before it needs to turn to coal and oil shale to supply any of our liquid-fuel demands. Domestic production will meet requirements from existing wells, from the development of known but undrilled reserves, from future onshore discoveries, from future offshore discoveries, and from secondary recovery."

Moreover, opponents point to the high cost of synthetics which they claim would have to be borne by the taxpayer in the form of taxes to subsidize the industry in the first place, and high prices to purchase the fuel in the second place. In addition, it is alleged that the requirements for steel involved in the production and transportation of a synthetic industry to be located at places where there are not now even population centers, much less mining facilities and transporting pipe-lines, would be highly competitive with other important demands for steel.

Again, it is argued that even if a new industry were to be established, it would be at the expense of established old industries-- in the natural liquid fuels, and in organic chemicals where by-product dumping from synthetics could be disastrous--and that this would represent no net gain to the Nation's economy.

Most significantly of all, it is argued that the newly proved oil reserves of Canada provide the answer to this Nation's problem, making a synthetic industry less necessary or desirable than ever.

**Current Status of the Proposals to Establish a Synthetic Liquid Fuels Industry on a Commercial Basis.** The Government's research and pilot development program is approximately a $60,000,000 program which is proceeding at an annual rate of expenditure of about $10,000,000. Financing of the industry on a commercial basis would require upwards of $100,000,000 additional. Provision for loan authorizations up to $700,000,000 has been incorporated in legislative proposals awaiting action by the 81st Congress.

The President's Budget Message for Fiscal 1951 says on the subject of synthetic liquid fuels:

"Through laboratory research and developmental work, including operation of demonstration plants, the Government has shown

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In some instances, additional steps by the administrative agencies are dependent either upon further legislation or appropriation by Congress or both. Congressional attitude toward such new responsibilities may depend upon budgetary considerations, including priority for more immediate insurance factors of strength providing possible quick re-taliation; or it may be decided that of the basic assumptions (A), (B), and (C) outlined in the Introduction, action is not necessary because the risk is not immediate (A), or is not so immediate or so dangerous (C), as to require anything more than executive planning at this stage. Nevertheless, no study of economic mobilization problems can overlook some of those problems which may affect a prospective war effort in a major, even a critical degree.

### (1) Fuel and energy resources in relation to economic mobilization.

Problems of the use of basic resources and facilities in the field of fuel and energy are generated by two types of broad economic factors deeply rooted in the political and economic structure of the United States.

A. The first problem is the increased use of petroleum as a source of not only industrial power but of heating for all purposes. At the present time the decreased use of coal as a source of fuel energy from a wartime peak production (annual) of 620 million tons to a 1949 figure of somewhere around 430 million tons of soft coal has been paralleled by an increase in the consumption of petroleum from a wartime peak of around 250 million tons to 335 million tons currently. The sources of this shift are numerous. Greater security in the availability of petroleum as opposed to the interruptions in the supply of soft coal through strikes is probably a major factor. On the other hand, the price differential has also moved increasingly against coal. There is an alleged technical superiority of petroleum for certain types of heating and fuel uses based to some extent on conserving the employment of manpower. Given the high cost of labor, this economic factors seems also to have played a role in the declining use of coal on a relative basis. The nation's transportation system is also adding to this burden not only by the greatly increased number of Diesel locomotives but by the vastly expanded range of trucking services and the increased airlift, particularly of freight. The number of automobiles on the highway has reached new heights. (For details see Section VI c.)

This drift toward an increased use of petroleum production both in the fields of distillate and residual fuels for oils and for larger consumption of gasoline, including higher octane ratings with their comparatively smaller yields of distillates and residual oils per barrel of crude petroleum, poses a severe problem for economic mobilization. Any drastic interruption of tanker supplies,

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of imports from abroad, which have reached a new height (1949, 426,000 barrels daily, as opposed to 236,000 barrels daily in 1946), or the interruption of the very heavy coastwise movement of petroleum by tankers would produce drastic or serious fuel shortages for industrial use, home heating, as well as of motor gasoline. Wartime rationing would require to be pushed to much more severe lengths in any such contingency in a future war; and the reconversion of heating plants to coal might run into severe difficulties in availability of equipment.

There are two suggestions that are usually brought to the fore to deal with these problems, though neither of them would obviate the problems of transportation bottlenecks such as forced during the last war the building of the "Big Inch" and subsidiary pipelines, which have now in the main been reconverted to the transportation of natural gas. Nor would either of the proposed alternative precautions eliminate the need for a large increase in the fleet of available tank cars which were considerably de-pleted by wartime use and have not been restored because of lack of present transportation need.

(1) The first of the proposed remedies is for the establishment of a very large national investment in the production of petroleum from shale oil deposits. Secretary Krug in 1947 and 1948 advocated the investment of a total of nine billion dollars of public funds to insure the maintenance of adequate petroleum reserves within the continental United States through the establishment of plants based upon shale oil reduction to petroleum and its derivatives. The differential in the cost of crude petroleum from drilling and the production of synthetic petroleum from shale deposits still makes some form of national investment or subsidy necessary if such a major shift is to be contemplated as a measure of protection for wartime use. The transportation problem would still remain if shale reserves were utilized on any scale since these reserves are located in the Western United States.

(2) The second alternative consists in maintaining a stand-by reserve of tank-cars at government expense. In peacetime, under ordinary economic operations, the tanker movement of petroleum has obvious advantages in cost and convenience. A reserve fleet of tankers in stand-by condition would also be useful. But conquering the submarine and prevention of loss of refining facilities through sabotage or bombing would be very necessary, even if extra transportation facilities were available.

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B. The second major area of difficulty that may be expected from energy resources lies in the combination of water and electric reserves. Electric power is barely adequate for existing commercial needs in several sectors of the country and would be quite inadequate if an added war burden were imposed upon it comparable to the expansion of the last war. A large expansion of facilities can only be taken over a period of years, especially if large-scale, hydro-electric developments are contemplated. It might not be possible to impose during wartime the rationing of electricity beyond the limited availability of brown-outs and the elimination of nonessential users. Both would have severe effects on the civilian population and economy, if war industry cut deeply into the use of electric power--as it certainly would.

Water supply is beginning to be a problem not only in hydro-electric development and in conservation measures generally, but in the actual supply for human consumption in large cities, of which a striking recent example is in the New York water shortage. In the whole area of the far West, with the exception of the Northwest states proper, water limits industrial growth, or agricultural expansion, or both. California's difficulties in this respect for future development are claiming marked attention and may become a severe problem in any re-location of war industries or westward shifting of populations, due to war conditions. Conversion of salt water on a large scale is a future necessity. Recognition of this is to be found in the President's request for a million dollars for research. The process is technically feasible, but requires lowered costs and operation on a scale heretofore only theoretically possible.

(2) Substitute Materials and Pilot Plants versus Larger Stockpiles of Strategic Materials.

The setting up of substitute materials which would make unnecessary building up of large-scale stockpiles as an insurance against being cut off from overseas supplies of critical and strategic materials is also directly affected by the nature of the American competitive economy. It is often argued that Germany fought the last war with a far smaller utilization of strategic and critical materials for its war economy than was needed in the United States. This was possible through elaborate substitution, changes in technical processes and a careful prewar planning in an economy which was essentially state-controlled in all its aspects and geared to wartime preparation for five or six years prior to the outbreak of the war. Manpower was less a problem given the masses of slave labor under the Nazi war regime. Such a preparation is not possible in the United States so long as competitive marketing conditions dictate economic processes. The use of high-grade imported bauxite for the making of aluminum has proved to be economically more efficient than the use of domestic reserves of bauxite of

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a low grade which are in adequate supply. Yet war conditions might require dependence on the domestic low-grade ores or on enormous stockpiling of foreign high-grade ores.

The executive departments requested $825,000,000 for fiscal 1950 for stockpiling. Congress appropriated originally $525,000,000 of cash and contract authority, of which $100,000,000 in contract authority was later rescinded.

Three alternatives are proposed of a general nature to meet the difficulties that arise from the dependence of industries in the United States upon particular types of strategic and critical materials which are required by the normal processes of its industry.

A. The first is the large-scale stockpiling program, whose objectives and degree of fulfillment are classified material, though available to the appropriate committees in Congress. It may be stated in a summary way that previous wartime experience has shown that the stockpiling objectives set in peacetime were never adequate and that their realization prior to the outbreak of hostilities has always been far short of the planned performance. The magnitude of the industrial use of minerals and metals from abroad can be realized if one reflects that during the war an annual import from foreign sources of manganese to an amount of about one and one-half million tons was necessary for the continuation and protection of the war effort of that period. Increased productive capacity and the all-out nature of any war would tend, if anything, to raise this import figure.

Some of the sources available to the United States in the past war may prove in any future war to be either inaccessible or not fully productive. Of the roughly 70 materials on the strategic and critical list where imports from abroad are now required by present planning for any successful mobilization of the war potential of the United States, it may be stated in general terms that the prospect of having satisfactory stockpiles within the next year or two exists for not more than two-thirds of the total objectives of the list; and in the main these figures do not show the low point of the most important minerals and materials on the list. If submarine operations proved to be effective against the United States in a future war to the degree reached by the German operations in 1942, failure to achieve stockpiling objectives might have the most serious consequences. In many cases no adequate substitute is available.

Stockpiling of some finished products such as aluminum, tin, and nickel would save both manpower, use of overstrained facilities and particularly power. All these can be stored in a primary form of the processed metal, which would be more efficient,

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though more expensive than stockpiling the unprocessed ores.
Steps in this direction have been undertaken.

In cases where substitute materials can be made available,
the following second alternative is worth consideration:

B. Pilot plants and tested production processes employing the use of more domestically available substitutes are suggested as a method of utilizing other sources for the manufacturing of, for example, aluminum and for interchangeability in the alloying materials, particularly in the nonferrous metals. Progress along these lines requires either subsidy of experiments by private industry or the erection of controlled government-operated plants. The dependence of the United States upon tin smelters located either in England, Holland or in the Far East led to the erection just before the outbreak of the last war of a tin smelter in Texas, which could use the Bolivian ores. Certain experiments were made during the last war in pilot plant production of alumina (the intermediate state in the production of aluminum metal) from domestic clays. A large-scale shift of a considerable part of the facilities for production in the aluminum industry was made to a lime-soda-center process that could use run-of-the-mill bauxite from Arkansas and other United States deposits. This was done during the worst of the submarine menace, after about 100 ships (importing bauxite from Dutch and British Guiana) had been lost in the Caribbean. The change-over during wartime interfered with many competing war programs, including escort vessels and landing craft. This caused great difficulties which might have been critical if a different time table had been involved.

It is a matter for the judgment of Congress as to what types of substitute processes may be worth either subsidy or pilot plant production, and the degree of expenditure that is justified in such steps to insure against interruption of production through lack of strategic materials. Pilot plants may be cheaper as well as more efficient in war than heavy import programs, but not always than stockpiles, if technological changes in big industries and more manpower are involved.

C. Still a third alternative is the development of sources that are less likely to be cut off during wartime, because of their location within the presumed area of production by free countries and under naval control. A characteristic example of this type would be increased production of manganese ore in Brazil and the development and transport accessibility of deposits of both manganese and manganiferous iron ore in Labrador and Quebec in Canada. The Brazilian ores are capable of greatly expanded production, but railway facilities are still a bottleneck. In the case of the Labrador ores, the deposits appear to have a strong prospect of

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of Nicaro were about to be exported to Europe, as part of the ECA program. This decision, however, was not carried out, due to objections on grounds of national defense. The facilities were retained with a few watchmen, but in a deteriorating condition.

It is worth remarking that the present price of nickel oxide, since this competition has disappeared, has risen to a figure that would make Nicaro's commercial operation entirely feasible once again. There is, however, no apparent legal authority for resuming such an operation.

The further dissipation of stand-by facilities through sale can be prevented under existing legislative authority. 1/ But the recapture of facilities already disposed of appears not to be possible, either because of lack of legislative authorization or from a lack of available funds. The floating power plants which served such an extremely useful purpose in meeting emergency electrical power loads for the most critical war operations have, in one or two instances at least, been disposed of under provisions that would make their availability in wartime through recapture very doubtful. One has gone to Puerto Rico, for example; and, so far as is possible to determine, no provisions have been inserted against its resale to any part of the globe, unless that resale be covered by the export control lists preventing shipment of potential war materials to Soviet or satellite territory.

Some review of the disposal of very expensive wartime assets of this character and their potential availability in case of national emergencies may be of interest to appropriate committees of Congress. A review of the present state of readiness and the plans for operation of government stand-by war facilities would seem to be another possibility of the same sort.

## b. Issues that Deserve the Attention of Congress

I. The criticisms of current measures for planning and readiness in war mobilization appear to rest on the three main groups of assumptions listed (A), (B) and (C) in the Introduction. 2/ These assumptions as to the danger of risk of war, its probable severity, its possible

1/ See Appendix II.

2/ If Assumption (D) is accepted, attention to war mobilization is, of course, irrelevant.

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timing, control the alternative steps which the United States should be
expected to take along the lines of the positions indicated:

(A) All-out for free economy as the best defense against world Communist tactics;

(B) Be ready for probable early aggression by Russia, both in planning and preparation;

(C) Limitations of defense expenditures to about the present level, on the assumption that a politically contented people in the United States and an economy capable of mobilization for large-scale production are a sufficient deterrent to possible actual aggression by Russia.

Congressional attitudes may well depend upon a choice as to which of these alternatives more nearly represents the national strategic situation at this time.

II. The steps to be taken in terms of budgetary policy involve a choice between certain alternatives in the way of financing present policies for defense, either (a) for cutting them back, or (B) for maintaining the defense budget at approximately its present level, or (c) for expanding it: The basic argument in this respect turns on which method of handling taxes and expenditures best preserves a healthy and expanding economy in the United States.

Assumption (A) above is generally associated with a demand for budgetary orthodoxy by balancing the budget, usually through the device of reducing defense expenditures in order that taxation may be reduced, particularly on excises and corporation taxes, with some alleviations on corporation and higher bracket income taxes as a method of providing incentives for investment and for greater managerial enterprise.

Assumption (C) above generally indicates retention of about the present defense level of expenditures, through a tax revenue approximately of the same weight as the present, but somewhat redistributed in accordance with the President's Budget Message, with a repeal of some, but not all excise taxes, and a slight increase in corporation taxes. The general trend would be toward balancing the budget (a principle introduced into the President's Message for the first time this year). Along with this would, of course, go a continuation of foreign aid at the proposed levels and a Mutual Aid Arms program, to implement the Atlantic Pact, with no increases of the military budget and some possible cuts in addition to the 735 million dollars that the President in 1949 put in escrow from the Air Force appropriations. <u>1</u>/(Stabilization of the Air Force at 48-group level, rather than 57 groups provided by Congress.)

1/ The amount in escrow was carried forward for spending in 1950-51. Since this was written the Secretary of Defense has asked for an increase in the originally proposed 1950-51 budget (just over 13 billions) of $350,000,000 to be added to the National Military Establishment appropriations. This is to include $200,000,000 of new contract authority for the Air Force; $100,000,000 contract authority for the Navy (carriers and aviation); and $50,000,000 each for anti-submarine warfare.

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The objective of this budgetary program would be to provide an expanding economy that would offer some stimulus to private enterprise and, at the same time, maintain the social security measures advocated by the Administration under the Fair Deal.

Assumption (B) would indicate a larger expenditure, first, in terms of the provision of actual military weapons, particularly an increase in the striking strength of the Air Force, an effective radar screen, anti-submarine devices; and, second, a much greater degree of readiness measures in planning for both industrial mobilization and civilian defense. Certain corollary expenditures for increasing the availability of stand-by war plants on immediate notice, the building up of larger stockpiles at a more rapid rate, and possibly the provision of a larger appropriation for defense roads, the Saint Lawrence Waterway, and the Columbia River Valley Authority would be indicated. If the full implications of Assumption (E) were accepted, it would also be necessary to proceed with a larger outlay for the provision of petroleum from coal or shale, or both. The maintenance of a large stand-by Merchant Marine, and the building up of the air transport fleet, as a necessary supporting service for the Defense Department in a "Merchant Marine of the Air" would, however, be a legitimate implication on the more moderate preparations deemed necessary by Assumption (B).

Methods of financing such expenditures would fall into several alternatives and their possible combination:

(1) Larger scale deficit financing (defended on the grounds that at present rates of unemployment, this would be an anti-cyclical measure sanctioned by Keynesian economics).

(2) Increased taxation by one of several methods, either those previously indicated by the Administration in past budgetary messages for increases in the corporate income tax and the general income tax, plus a broadening of the excise tax, rather than its present shrinking, both in the commodities covered and in the rates applied.

(3) Through savings in the rest of the budget, including the projected savings of the Hoover Commission, and/or cuts in social welfare measures, Veterans expenditures, and farm aid.

The objective of this program would be alternatively either to continue the expanding economy through deficit financing or to pay for increased defense security through increased taxation and/or savings in the rest of the federal budget. The arguments would, as outlined in the Introduction and subsequent analyses, rest upon the "bigger insurance policy against greater risks" thinking, with strong emphasis on these measures as a necessary sacrifice as a deterrent to war.

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(4) A suggestion of basic importance for financing a considerable part of the indirect defense expenditures (not military weapons) would be the creation of a number of government corporations financed on the model of the RFC or the Export-Import Bank, where the charges would not fall on a single year's budget, and where in some measure the projects would tend to offset liabilities by assets. The strategic stockpiles, for instance, could be accounted as investments, rather than direct military expenditures, since the materials remain as assets; and the development of the Saint Lawrence Waterway or the Columbia Valley Authority could equally be advanced in terms of long-range investments and treated in the budget as involving recoverable assets through the corporate form. A similar treatment of expenditures for the "Merchant Marine of the Air" has been indicated in the Kennedy bill, discussed above in Section VI a (2).

III. In spite of the disagreements on basic assumptions and policy objectives, as well as on methods of financing--that do not fall in fact, of course, into the neat patterns suggested above [since various combinations are possible within the groups (A), (B) and (C)]--there is a general agreement that there must be some budgetary limits on defense. The total sums which would be involved in implementing all the programs considered in mobilization and planning would run over a period of a few years to very formidable amounts. The proposals for defense roads in terms of strategic highways alone, without including access roads, runs to a total of 11 billion dollars. Secretary Krug estimated the total program for synthetic fuels at 9 billion dollars. The expenditures on the Columbia Valley Authority, if they were made, would run to indeterminate but certainly very large amounts, which would presumably be paralleled by the Saint Lawrence Waterway. A really adequate stockpiling program might run into many billions of dollars, particularly if no provisions (or very small results) are made for the return of strategic materials to repay ECA loans or grants, as was anticipated in the ECA Act. These are only selected examples, but they indicate that the magnitude for an all-out defense program for immediate readiness would run into something approaching one hundred billion dollars. Only on the discarded Assumption (E) (immediate all-out military preparedness) could such an expenditure be contemplated for an undertaking within the next year or two. If all the measures that were indicated for relocation of industries and underground protection against atomic attack were included, they would probably run to very much larger figures. Some suggestions (e.g., figures criticized by Hanson Baldwin) have been made of three hundred billion--a figure larger than the total direct cost of World War II. Such an undertaking could not be physically accomplished in less than several years. If it were to be done at all, it could only be in response to measures of desperation that indicated national survival itself was at stake, on an assessment of military Intelligence that would show the prospects of immediate and overwhelming attack by Russia to be

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a probability in the very near future. Recent developments in Korea may indicate an "installment plan" testing or may turn into such a full-scale trial of strength.

If the prospects of war become inevitable in the next years, such an undertaking may be indicated as a measure of national survival. Yet, even under such conditions, it seems manifest that any such program, even if it were undertaken under conditions of wartime, would have to be spread over several years. In peacetime, it would have to be spread over a correspondingly longer period, if it were to be financed in any large part. There is, therefore, an admitted necessity for establishing priorities and for an allocation on a budgetable basis of national resources, on any assumptions about war.

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#### IV. The planning for mobilization of manpower is also of critical importance. Its key is, of course, the minimum amount of manpower that the armed forces would require, since the remainder would be what would be devoted to supporting the war economy. However, no such simple equation is possible, since the supporting economy in turn determines the limits of how many troops can be maintained in the field and with what equipment, transport, and weapons. The area of manpower will serve to illustrate the whole "feasibility approach," which appears to govern present mobilization planning. This is an entirely necessary calculation in terms of the expenditure of presumably available resources.

It may be noted, however, that the last war was fought on a somewhat different basis. The feasibility limits were set in 1940 (See Appendix I, Section C), with an assumption that emergency mobilization planning should be limited to what the civilian economy could support without conversion to war purposes of civilian industries, so that the war burden would be superimposed upon the going civilian economy. Under the impact of actual war and Lend-Lease requirements, this approach was almost completely overturned. The expansion of facilities, the introduction of new labor forces, and expenditures on an astronomical scale (in terms of previous war experience) radically altered all the assumptions as to the productive capacity of the United States for war.

It is not suggested that present planning is conducted on anything like the 1940 basis of the protection of the civilian economy, or that "feasibility limits" are set in terms of an inadequate view of plant expansion and the availability of new manpower reserves, which, as seen from Section D of Appendix III, could be widely increased by one of several methods. What is suggested, however, is that strategic necessity may demand the impossible of the United States once again, and that the impossible can be fulfilled because it *must* be fulfilled. When President Roosevelt set an annual production figure of one hundred thousand planes, this objective was treated as purely visionary. But in point of fact it was attained in a relatively very rapid time, on the basis of an aircraft industry which, however, had had several years to expand before Pearl Harbor.

"Feasibility limits" on strictly statistical methods, therefore, should be viewed with some caution as the determining factors in total national military strategy.

#### V. Alternative assumptions are also necessary for planning purposes as against the probabilities of military exigencies after the outbreak of war.
It seems, in the light of studies made during and since World War II, to be impossible to plan all the eventualities of a war by a single set of basic figures or a single blueprint for limits to the essential civilian economy, e.g. Not only is it necessary to provide against more severe levels of injury to the national economy through possible enemy action or sabotage; it may be necessary to plan for what amounts to a disaster plan.

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What becomes important in these circumstances is that all the elements of a national mobilization plan should be available and as closely integrated as possible for alternatives at three assumed levels of the national economy:

(1) About that at which we ended the last war, with controls appropriate to such an integrated war mobilization plan. No future plan could count on a lighter war effort than the last.

(2) A deeper level of conversion of the economy to war purposes, with all the corollary tightening up of controls in rationing, manpower, transportation, allocation of scarce facilities, substitutions, etc., on the level of, for example, the British economy (after the Battle of Britain) preferably in 1944. This would be a probable level for a future war with Russia.

(3) A real disaster level, in which this nation might have to function with the destruction of some of its major cities and ports, and all the corollary interruptions of its production, which would decrease war production by a percentage that might run to a very serious figure.

No such plans can be more than outlines of policy. But since the parts of a plan are inter-related, they would seem to be essential features of realistic mobilization planning along the same lines that a military general staff uses in planning for reverses as well as victories.

VI. Readiness measures will, of course, be determined both in civilian defense and in other areas of industrial mobilization by which one of the basic Assumptions (A), (B) and (C) is accepted. It would appear, however, that atomic warfare and the possibilities of surprise would under any of these assumptions indicate tightening up on the free entry into any port of the United States of vessels with cargo from behind the Iron Curtain (since they might plant atomic or other weapons, and mine harbors or cities), plus a greater degree of security in the matter of anti-sabotage measures than has ever before been necessary, and appropriate security measures of other types. Permitting Russian and satellite vessels to put into only one smaller port would be a protection worth considering. Vessels trading with satellite countries, Russia, or their probable outlets might be subjected to search or similar rules applied. Such a measure would seem to be indicated as a prevention against merchant vessel penetration for mining harbors with atomic weapons. It would also serve against the same type of mining operation with the plastic contact mines developed in the last war, which present such difficulties of detection as to render harbors practically unusable. Mining and coastal attacks by submarines are more difficult matters in this day of rapid development of guided missiles. The solutions may require the same ruthless measures against the near approach of submarines to our coast as the Russians have applied to the shooting down of what was officially stated to be an unarmed American plane far out over the free waters of the Baltic Sea.

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VII. Perhaps most important of all is the increased pace of the
development of scientific research and application in the production of
unconventional weapons, both of defense and of offense. The heavy
Russian tank, for example, and possibly the long-range bomber might
prove to be obsolescent, if not obsolete, weapons in the light of new
developments in artillery and guided missiles.

Horrifying as the prospect may be of living in such a world of
"Buck Rogers" weapons, if the choice is to live _and to remain free_, the
price may be, at any bearable cost, to maintain the margin of superiority
in the application of scientific research to warfare. This means also
the maintenance at any given period of an adequate striking force to
make retaliation a deterrent to aggression.

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The details of policies on machine tools; on present priority planning by the Munitions Board; on the utilization of only the major corporations out of a list of 2500 main priority sources; and on the alternative policies of fiscal control, rationing, allocations, and similar problems would require treatment so elaborate as to need many volumes the size of the present study. What has been attempted in this Bulletin is to outline the main alternatives of present planning policy and of organization which are being considered for economic mobilization. By relating these issues and plans to the *Basic Assumptions* on which they seem to rest, it is hoped that Congress may get a clearer idea of the real issues that underlie the timing, the scope, and the necessary burden which this country must assume in the present period of Cold War, in the field of planning and readiness measures for economic mobilization.

********

Since this study was made, former Secretary of the Air Force Symington has been made Chairman of the National Security Resources Board. One of his early acts was to send through under the President's reorganization power a broad scheme for reorganizing the National Security Resources Board. This proposal is presented as Appendix IV. It does not require material revision of the main sections on the organization of functions and agencies for economic mobilization. Under this Reorganization Plan (No. 25 of 1950) the President would transfer all functions of the National Security Resources Board to the Chairman himself and leave the Board as an advisory agency. Up until this time the Chairman has been handicapped by the necessity of what was often taken, in practice, to mean *unanimous* clearance by the other busy cabinet members on the Board. This change would allow him to give the needed initiative and speed to the actions of the Board. These actions, however, remain advisory to the President and are almost entirely limited to planning for future mobilization.

During the present session of Congress (since this study was prepared and circulated for criticisms among the agencies concerned) several factors have emerged more clearly that deserve consideration in a closing word.

I. It has become apparent that at least for the next fiscal year budgetary considerations are maintaining defense expenditures, including readiness measures within the general framework of an approximately 13 billion dollar defense figure for the Armed Forces of the United States, with a figure of something over one billion dollars for the Military Aid Program for Europe and another one hundred or so millions for expenditures in other military aid programs for other areas, including the Far East. It is not apparent what relation such a budgetary figure bears to war plans or what relation these plans bear to the Assumptions previously listed as (A), (B) and (C). Presumably they are a calculated risk, generally related to Assumption (C).

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II. However, indications are not lacking from speeches from high authority, including those made by the Secretary of State (Harvard University Commencement, June 22, 1950) and above all, from our recent action in Korea in conjunction with the United Nations that the basic policy of the United States is grounded firmly upon the assumption that containment of imperialistic Russian communism requires strength, both military and moral, in order to unite and protect the free parts of the world and to prevent the future extension of Red imperialism.

III. As matters stand the defense budget would appear not to have a priority geared into overall strategic necessity, insofar as this is capable of being assessed. There are pressures, on the one hand, for balancing the budget and lightening taxation (Assumption [A]) and, on the other hand, for increasing the amount of the national income devoted to what may be broadly called social legislation. Between them these pressures operate to subject the expenditures for military measures and industrial preparedness to the felt necessities of fiscal policy, in the light of heavy expenditures in other directions and the desire to limit deficit financing at this time.

IV. The issue that is presented to the country and to its government, in both executive and legislative branches, is the adequacy of such planning in the light of the present and prospective status of "cold" or "hot" war. The past political tradition of the United States has been to restrict military expenditures, in advance of hostilities, to the "necessary minimum," which has on past experience always been miscalculated. In the light of the expectations as to probable Russian behavior and its relation to the strength or weakness of the United States, and to whether or not that strength or weakness need be calculated primarily in terms of military readiness, the decisions as to more or less strenuous defense preparations must be made. What is the "necessary minimum" in a period of "Cold War" that shows very "hot" spots? Is it compatible with adequate deterrent value as a retaliatory strength, now in being? Is it related to a coherent set of war plans for the several possible alternatives of the way war may come, and the degrees of mobilization required for such?