The Economics of Arms Aid

August 8, 1949

If we may judge from the history of the ECA, it is not likely that the economic side of the proposed Foreign Military Assistance Act will be intelligently or adequately considered. Yet in spite of its military and political aspects, the whole proposal rests on the essentially economic argument that the other nations in the Atlantic Pact are unable to pay for their own armament. And this contention is not supported either by common sense or by the facts.

Mr. Truman offers Congress the very fragmentary piece of information that eight out of the eleven nations in the Atlantic Pact now have total annual military expenditures equivalent to $5,500,000,000. “This,” he insists, “is the maximum amount they are able to spend” without self-injury. How does he know that? His own country alone is already spending nearly three times as much on armament as these eight nations combined—in other words, about as much as 22 such nations. Yet Mr. Truman still doesn’t consider this a maximum for us. On the contrary, he wants us in addition to take over part of the burden of the others.

If Congress will inquire, it will find that the total amount of $1,450, 000,000 we are supposed to contribute in the first year is equal to only about 4 percent of the total government expenditures of the other nations in the Atlantic Pact. It would not seem impossible for these other countries either to increase their total budgets by 4 percent—or, better, to take that amount out of their swollen nonmilitary expenditures. Their other government expenditures are, in fact, about four times as great as their military expenditures. And these sums are being spent, among other things, on expanded social-security programs, huge food subsidies, and above all on huge deficits in socialized industries.

Mr. Truman thinks other nations need part of these funds from us for “certain items essential for their defense which they are not equipped to provide for themselves.” This argument, though often used, has no merit.

They can buy these items from us and pay for them with other items. In short, they can pay for imports with exports—or rather they could do so if they had not deliberately unbalanced their economics and their foreign trade with their own exchange controls and overvalued currencies. Our own country does not produce for itself enough tin, natural rubber, or uranium; but it does not occur to us to use that as an excuse to demand these things as gifts from other countries.

As I have already pointed out in previous articles (April 4, May 30, and June 13), there is no way in which we can insure that either the money or the equipment we contribute under an arms-aid program would actually result in a net increase of European armament by that amount. For to the extent that we pay for the armament of European governments, we release just that much more of their own funds for other expenditures. The only way we could prevent this result would be to dictate every European government expenditure—a course which I, for one, would not recommend.

Looking at the matter the other way round, it should be equally obvious that our Marshall-Plan funds, though spent on other things, have freed just that much of Europe’s own funds for armament. Instead of throwing still further funds in the direction of Europe, therefore, Congress could merely authorize Atlantic Pact nations to use up to, say, $1,450,000,000 of their ECA credit for military expenditures.

The so-called military-aid program, in short, involves precisely the same broad economic issues as the Marshall Plan. We are weakening ourselves to give continuous and futile blood transfusions to Europe while Europe does nothing to stop its socialistic hemorrhage. Our own officials don’t dare to be specific about the European policies producing this hemorrhage. Their principle seems to be: “Europe’s economic policies are none of our affair; therefore we must pay for its deficits.”