The Atlantic Report on the World Today: Washington

CONGRESS gave the President authority to put controls into effect whenever he saw fit, but Mr. Truman limited himself to a program of taxation, allocations, and credit controls. Even so, the first industries to be hit by the credit curbs have squawked.

Real estate is the prime example of a credit industry which has been rocketing ahead in recordbreaking activity. Hugh Gaitskell, Britain’s new Chancellor of the Exchequer, when in Washington confessed his amazement over the boom figures, He found by comparison that there were ten times as many starts in America as in Britain, though the population advantage was only three times. Yet Britain had to make up for a shortage induced bybombs as well as wartime inactivity.

It was upon this building boom that the Federal Reserve applied its squeeze by restraining credit. The aim is to reduce construction now running at an annual rate of 1.3 million units to 800,000 by next year. The purpose, of course, is to divert rawmaterials and labor to defense industries. Our human and material resources are simply not great enough to provide defense goods on a business-asusual basis.

The buying spree

Actually restraints would have been called for without the pressures created by the decision to go into a semimobilized economy. Even before Korea, inflation was manifest - that is to say, too much creation of purchasing power without an equivalence in goods. Korea made matters worse, and there was clamant need, in addition, to divert manpower and resources engaged in the inflationbreeding industries into defense production. Fed by unusually liberal credit terms, especially for veterans, housing in particular was forging ahead full tilt.

Here are the statistics of the buying spree that followed the Korean affair. During July and August total consumer borrowings rose by nearly 1.3 billion dollars to a new peak close to 21 billion; a year before, the total was 16.5 billion. Installment buying alone — for cars and household durables shot up 900 million dollars in the two-month period. In mid-September, curbs were applied by authority of the Defense Production Act. But no assuagement was noted; hence the new tightening by t he Federal Reserve a month later which brought forth the protests.

Whether a crimp will be put in the market of the affected items remains to be seen. If the new policy doesn’t have the desired effect, then wage and price controls will be imposed. It will be a last resort by this administration. Defense officialdom recognizes not only that controls disguise inflation, but that they tend to impede output..

The new controllers are already putting out their shingles at the sign of the Economic Stabilization Agency. They will have thankless jobs if they are activated. Indeed, the President had to do a lot of shopping around before he found his candidates—except for the head of the Wage Stabilization Board, Cyrus S. Ching, one of the wisest men to come to Washington in recent years.

The management of the semimobilized economy is a formidable undertaking, because there is not enough to go around. Claimants for the relatively scarce resources are five in number: the stockpiles, foreign clients, industries, consumers, defense. The task is first to get an inventory of available goods and then to apportion them in order of urgency.

Fortunately there is a master agency, the National Security Resources Board, under Stuart Symington and he is full of zest and imagination. All the now officials profess to BE expendable, while t hoy-are struggling in relative darkness. They know from pasl experience (hat heads roll during the painful processes of budding up organizat ion.

The defense against inflation

All these new agencies are concerned only with the goods side of the semimobilized economy. The money side is equally important, not in providing the sinews, for that problem was settled long ago by the device of money creation, but in keeping the money supply in balance with purchasable or nondefense goods.

Most of the burden in thwarting inflation depends upon money management. For the stabilizing influence of more production is nowadays lessened by the fact that production is being diverted into wartime goods which don’t absorb wages and other money payments.

The two forces upon which the country has to rely in defending the dollar on the financial front are old-line agencies, the Federal Reserve System and the Treasury. Yet they are at loggerheads. The Federal Reserve wants to make the government as well as private persons pay more on borrowings. To this the I reasury objects, and the feud has now entered into public discussion, with most people taking the side of the Federal Reserve. It seems logical that the same medicine should apply to the government as to the people if inflation is to be kept at bay.

The issue, however, is not so simple. Secretary Snyder’s borrowing determines the rate at which our 258 billion dollars of national debt is serviced. He has said that the raising of interest rates as little as one eighth of I per cent would increase the service bill to the taxpayer more than a billion dollars. Here is the dilemma — to jack up the borrowing rate a little might help in the fight against inflation, but would assuredly increase the price of carrying the Federal debt. A possibility, in other words, is matched against a certainty.

This conflict has become razor-edged since Korea because of the advance of inflation. But it is nothing new. The last Congress looked into the problem through a subcommittee headed by Senator Douglas, and it came to this conclusion: —

“The advantages of avoiding inflation are so great and a restrictive monetary policy can cont ribute so much to this end that the freedom of the Federal Reserve to restrict credit and raise interest rates for general stabilization purposes should be restored even if the cost should prove to be a significant increase in service charges on the Federal debt and a greater inconvenience to the Treasury in its sales of securities for new financing and refunding purposes.”

This utterance, however, did not meet with ready acceptance in the Capital. The point is made that the only condition on which an independent agency like the Federal Reserve could be made supreme over the Treasury would be to make the federal Reserve a creature of the government. This would be revolutionary doctrine to many freeenterprisers. To the purists, only that money policy is regarded as sound which is managed outside of politics. However, in the nature of things the argument of the Treasury advocates would doubtless win the country if presented in the light of relative responsibility.

Others feel that the need is to do for money what has already been done for goods — namely, to put a new agency over both the Treasury and the Federal Reserve as umpire. The task would logically fall to the sort of “Assistant President “ that was F.D.R. s reliance. Mr. Truman, however, is averse to the re-creation of this over-all role.

Knowing this, the proponents of such a superagency suggest that extra authority be given to the Director of the Budget. The Director already is so powerful that he is sometimes called the pivot of American government. With the new referee powers he would be an arbiter as well as a pivot.

Marshall-Acheson teamwork

Since General Marshall took up the reins at the Pentagon the relations between State and Defense have improved noticeably. There is a perfect understanding over the North Atlantic Treaty Organization, and the organization is off to a flying start—belatedly. Hitherto it has been a façade, contrary to the will of Congress. When the legislators voted military aid in 1949, what they had in mind was an organization expressed by a central command and resting upon division of labor in making the munitions and manning the unified military establishment.

“Mutuality of effort” was one of the phrases that the legislators used in issuing t he conference report. However, all the Allies, including the United States, ducked the obligation. The Pentagon could not bring itself to contribute an acknowledgment of a common strategy with its allies, let alone leadership. Now the one for all, and all for one, principle seems to be the guide to action on Atlantic defense.

There is an equal Marshall-Acheson understanding about the Far East. Marshall has never changed his mind that wise policy was hands off China when that tortured country became embroiled in civil war. To be sure, he acquiesced in the military intervention that a Republican Congress voted in 1947, but only because he could not have got ECA otherwise. Now he is said to be prepared to face what Nehru calls the “stark realities” of China under the Communists.

A meeting of minds between State and Defense is likewise evident in t he Acheson move to put teeth into the General Assembly. At first there were doubts in the Pentagon, resolved in Acheson’s favor by the President, who found Marshall support when the General took over the Defense portfolio. The generals didn’t like commitments which were unforeseeable. However, the Acheson move is nothing more than an attempt to restore to the United Nations the functions of peace enforcement which the Russians nullified by hamstringing the Security Council. To be sure, the veto is not available in the General Assembly, but the reply to objections on this count is that no police action could possibly be authorized without American support.

What Korea taught us

Korea, moreover, has shown the Pentagon that there is no limit to obligations when the general peace is in danger. Korea had been put outside the perimeter of United States defense. It is untrue that the military, including General MacArthur, led the way to action. The leadership was Presidential — arising from a dual recognition of what Russian success in Korea would entail both in lost prestige in Japan and in the virtual extinction of the United Nations.

The desire now is to make Korea a sort of showcase for reconstruction. The difficulties are immense. The State Department has been dunning the member nations with reminder notes of their obligations to unite in the interim policing of Korea. The response has not been satisfactory.

There are some nations, of course, whose help is not wanted, such as France, which is fully booked with commitments, and Turkey, which must keep fully armed as a threatened neighbor of Russia. But there are others who could help, particularly the Swedes, with the best army in Europe, and the Latin Americans.

These are days of trial when the sheep are separating themselves from the goats among the member nations. The hero of them all is Turkey—• a lone example of readiness to invest fully in collective security. France is criticized, though sometimes unjustly. Her three-year program to increase her army by 15 divisions will cost nearly 6 billion dollars.

The military lessons of Korea are the subject of much dispute within the precincts of the Pentagon. But there is an x in the argument. That is that the enemy did not commit his air in the struggle for the Pusan beachhead. If he had, the story might have ended differently. Why he was loath to do so is said to be explicable by Russia’s unwillingness to tear off the camouflage of the aggression. The planes would have had to be manned by Russians.

The Communist Control Bill

Surely there will be changes in the Internal Security Act when Congress comes back. The repressionists have won a Pyrrhic victory, for the act is plainly unworkable and unenforceable. For this reason, perhaps, the act may have done a service—by marking the high-water mark of postwar reactionism. An analogue of the present situation is more and more seen to be the Alien and Sedition Laws in John Adams’s administration. These were due to a fear that French agents in this country were endangering American independence. In due time the hysteria passed and the offending laws were repealed.

Few persons want the whole of the McCarran Act repealed, for there are clauses in it, dealing with such aspects of unpreparedness as sabotage, that mere prudence dictates should be retained. But these items are more or less peripheral to major provisions covering the policing of what the bureaucrats may think is potential subversion.

Yet the Congressional stampede back of McCarran was in part due to lack of leadership on the part of the Administration. The President had pooh-poohed the national concern over Communism, even turning his back on a proposal fora citizens commission to look into the whole problem of internal security, He was handicapped by the opposition of Senate majority leader Scott Lucas of Illinois. Also opposing the President on the McCarran Act was the majority clerk, Leslie Biffle.

Mood of the Capital

The mood of the Capital is a general sense of uneasiness lest the momentum brought on by Korea should decelerate. New taxes are needed in the light on inflation. Will the people who at the height of the lighting wanted to be taxed and taxed be less sacrifice-minded when Congress returns? The momentum will be maintained if Russian pressure prevents America from going to sleep again. May not the continued pressure be due to the Russian hope that a runaway inflation will ruin America?

There is also fear ol a letdown in the backing for rearmament. In the last Congress, Senators Lodge and Douglas demanded 30 divisions, This would mean 600,000 front-line fighters with a backstop manpower of 2½ million men, or over 3 million men for the Army alone. Mr. Truman asked for 18 divisions with 3 million men for all services. But there is doubt whether, in the post-Korean relaxation, he will get even that total.

As to the commitments under NATO (North Atlantic Treaty Organization), this is even more worrisome. There can be no turning back on these commitments on the morning after. The fact is that they are scarcely understood as yet in all their implications. The American frontier is to rest on the Elbe, supported by up to 5 American divisions acting as a crusher ahead of the French, who, under this assurance, are ready to raise as many as 20 divisions. To do our part, there will have to be as much management of manpower as of the economy.