Dear
Al: The group that came back from the NATO Conference1 seemed to exhibit an optimism--cautious, it is true, but definitely an optimism as compared to the feeling developed by the earlier trip of Foster Dulles and Harold Stassen.2
As you know, we are trying to bring the total expenditures of the American Government within reasonable limits. This is not because of any belief that we can afford relaxation of the combined effort to combat Soviet communism. On the contrary, it grows out of a belief that our organized, effective resistance must be maintained over a long period of years and that this is possible only with a healthy American economy. If we should proceed recklessly and habitually to create budget deficits year after year, we have with us an inflationary influence that can scarcely be successfully combatted. Our particular form of economy could not endure.
I realize that many people dismiss all such warnings with glib statements like "What would you pay to save your life?" and "You can't break America" and "America's economy is not to be measured in dollars; its strength is measured in the skill of its workmen, the genius of its management, and the extent of its productivity and natural resources." Each of these aphorisms has a grain of truth in it, but each also neglects to mention the obvious truth that we have a free economy; its health and strength depends upon the incentives that induce people to produce. Experience indicates that failure in this regard usually results in regimentation.
Money is the normal incentive in our kind of society; this means that taxes must not take so much away as to destroy incentive, nor must inflation be allowed to destroy money.
To induce people to do more, leadership has the chore of informing people and attempting to inspire them to real sacrifice. In the present case, there are many dissident voices--all those people that like to buy the Chicago Tribune--appealing to man's natural fear of the future, his hatred of being made a sucker by someone else, and his natural sensitivity when his own pocketbook is involved. So when, in the interests of collective security, you ask a professional man or a business executive to continue to function enthusiastically and efficiently for one-fourth of what he has been getting, or labor to work longer hours without an increase in pay, or farmers to produce even more without additional compensation--then you are really up against it. A higher taxation rate translates, in the final sense, into these simple demands upon the population.
Faced with these political and social facts, it is vitally necessary that the government, in the interests of all the people, take stern measures to protect the value of money. Another reason for this is to encourage savings, the foundation of a capitalistic system. A great portion of the investment in America's development has been made possible through the operation of life insurance companies, long-term bonds, and savings accounts. Once we should permit Americans to believe that it was futile and silly to make this kind of long-term savings, we would be in for really hard sledding. Already we have gone quite a long way along that road. The present dollar is worth about fifty-three percent of the dollar in 1939. People's resentment against this state of affairs is reflected in the growing resistance to the purchase of long-term bonds, including government bonds.
So a growing number of people believe that we must remove all possible inflationary tendencies, and one of these is obviously the deficit. The people in Congress that believe this naturally look for those items in the budget that can be cut with the least possible disadvantage to their own chances for reelection. To them, "foreign aid" is a natural. In cutting this item they can shout and scream about their concern for the individual voter and taxpayer and, of course, show how they are helping to protect the value of the dollar. In this particular case, we can be very penny-wise and pound-foolish, as you and I both know. Nevertheless, it is going to be a hard fight to avoid excessive cuts in a field where it is entirely possible--even probable--that the United States is getting more for its money than in any other.
Another factor that aggravates the situation is the great carry-over now to the credit of the Mutual Security Administrator. As of June 30th, we expect to have something over ten billion carry-over. Of this sum there is, at this instant, something on the order of three billion that is completely unobligated. But obligated or not, the fact is that there is still ten billion dollars' worth of equipment, undelivered and unpaid for, that is yet to go abroad. The Congressional attitude is "As long as you are this far behind, you do not need any money for 1954." As a matter of fact, my own Budget and Treasury people partially share this opinion.3 I see some virtue in the argument. But here again is an item that you and I have been over together a dozen times. We know that it is exceedingly difficult to limit the lead-time on some of the items we make, especially when they are often subject to confiscation for other purposes before delivery--and the whole weary process has to begin again!
Harold has cut his estimates to the bone and is prepared to make a good fight for the remainder.4 Jerry Persons thinks that even the reduced amount is going to come in for bitter criticism and, consequently, reduction. For one or another of the excuses or reasons given above, he feels this reduction may go almost to the point of emasculation.
While the Administration does not intend to give up the fight, and I personally believe that the result will not be so bad as to be unacceptable, I did want to tell you privately of some of these dangers--and of the concern they cause me.5
No one is keener than I to lower taxes. This is an important personal matter with me, highlighted by the assertions made to me by some of the tax experts that, in spite of a large gross salary, I am going to have to borrow twenty to twenty-five thousand a year to get through this job. Whether or not this will be the case, I cannot say. But you can see that taxes constitute for me something more than a mere academic question. Nevertheless, there are thousands of others who believe exactly as I do--we should not really kick about taxes until we know that we have made ourselves reasonably secure against any possible move by the Soviets. Reasonable security demands good outposts, and these have to be furnished by the foreign nations close to the U.S.S.R. I trust that this conviction and this understanding will eventually prevail, and that nothing will happen to damage irreparably the progress toward unified strength and collective security that we have been trying so laboriously to build up.
It is a shame that in the Senate we have lost the understanding, the shrewdness, and the debating skill of Cabot Lodge. He would be a real source of strength in any struggle where the welfare and security of the United States are pitted against the narrow-minded, selfish, and completely reactionary views of Colonel McCormick.6
We should soon know the outcome.
With all the best, As ever7
