Now, Professor Leach has recalled certain tragic and costly experiences in recent history. My first point invokes the statement of the late, great, perceptive James Forrestal: “It is obvious that defense policy should be continuously coordinated with the state of our foreign relations.” What is not obvious, what is being tragically ignored today, is the prime Forrestal teaching, that defense policy requires continuous coordination, not merely with foreign relations, but with fiscal policy.
Speaking of the enemy, you know the old saying, “Would that my enemy had written a book.” Well, our enemy has. Karl Marx said “I stood Hegel on his head.” What has resulted from our forgetting that money policy should be coordinated with defense policy is that we have stood that relationship on its head, and defense policy is now being coordinated with money policy. And that’s not only worse than it sounds, it is much more unworkable than anyone trying it yet realizes, for this reason: Money policy by definition changes with every gust of economic wind. If the new Chevrolet, which may or may not come with fins, is a flop, money policy will change accordingly. If there is bad weather over the Fourth of July, money conditions will change. People who participate in the money market not only count—they read. Whether they have confidence or lack of confidence, in one day can offset economies in the defense establishment which it will take a decade or more to assess.
When the Treasury is obligated to pay four percent for money that is not long-term money, and when public utilities are unable to sell their bonds for over six percent, the taxpayer finds it cheaper, he finds it an economy, to bank his tax accruals with the United States Treasury by not paying his taxes and incurring a merely six percent interest obligation instead of going to the institutions, if the usury laws will permit, and paying more than six and a quarter percent. When that happens, the Treasury loses funds as surely and more swiftly than it can hope to recapture by whatever it does to the defense program.
Now, for my second point. We are told that the reason for what has been done on the defense side of the budget is that the debt limit must be respected. The logic of this proposition follows from the fact that our $70 million budget is four-sevenths defense. Therefore, goes the reasoning, to control spending and stay within the debt limit, slice at the four-sevenths part on the spending side. I put it to you that the question about the budget is not whether we are going over the debt limit, and soon and fast; the question about it is not whether the spending level is going over $70 billion. The question is whether, for the inflation that we are involved in, and for the spending and the deficits that lie ahead of us in any case, we are going to get less defense or more defense.
There are two ways in which a deficit grows. The first is by spending more than you collect. The second is by collecting less than you spend. The effect of the current decisions, coupled as they are and compelled as they are by the subordination of defense policy to monetary policy instead of their coordination, is going to spell failure to the speculative experiment which launched this policy.
Let the bond market fall, let the stock market fall—or merely not rise—let employment fall, let overtime disappear, and the Treasury’s tax collections will fall. There is, in other words, a built-in valving system between defense spending and over-all collection—between, if you will, defense spending, or the defense component of the Treasury’s situation, and the nondefense components. Let the defense component valve out, cut off, deflate, or depress—given the shortness of the money cycle for merely six months—and the Treasury will run into as difficult a situation as if the defense establishment were being enabled to fund, to budget requirements, and to spend in the only way that I know—or, if I may say so, that anyone knows—to achieve defense economy. And that is, as Mr. Baruch has put it, “by continuous respect for requirements which accrue whether they are put into the budget or not.”
Mr. Childs: We have heard a great deal from officials in the government and elsewhere about the very greatly increased cost of modern weaponry, and we are told that this is contributing to the current inflation. I would like to ask Mr. Janeway to appraise briefly what contribution this spending has made to inflation.
Mr. Witkin: Is there not some qualitative difference between defense spending of this sort, where you are dependent to a great extent on government purchases from industry, and the type of consumer growth of technological products that would be ordinarily developed in times of disarmament and relative calm of the international situation?
Mr. Witkin: Well, that’s one example. But what about the broad spectrum of industry?
Mr. Lindley: Is it not true at least in ’55 and I believe in ’56, that the real income per capita in the United States, after all taxes, was the highest in our history?
Mr. Lindley: How can anyone seriously maintain that the federal budget, particularly defense expenditures, is an insupportable burden when, as I understand, the real income of the American people has continued to rise during this period and, as far as I can see now, will continue to rise?
Mr. Lindley: As an economist, do you have any percentage of the gross national product or of the national income, whichever figure you want to use, that you have regarded as a ceiling?
See what senior leaders had to say at AFA's Air Warfare Symposium in Orlando, Fla.
Find out what senior Air Force and industry leaders had to say at AFA's Air Warfare Symposium.
AFA's Air Warfare Symposium kicked off Wednesday and runs through Friday. Follow Air Force Magazine's coverage of the show online and via social media by following us on Twitter,
Flickr, or by using
Tweets by @AirForceMag