Mrs. CHURCH. I think, Mr. Secretary, your insight in that regard gives us courage.

Specifically, I was leading up to this second question:

In an effort to economize and to buy as much security as we can with the least expense, have we cut out of this bill any amount of money which would make us more secure from the north or from the south of our own continent?

Secretary WILSON. I do not think so. I think it is a good compromise, a good realistic appraisal.

We have to realize we could defeat ourselves by completely upsetting the economy of our country.

The Russians, ever since World War II, have expected our free economy to collapse on itself. They have been banking on that, and it has not happened.

It is necessary to preserve the economy of our country, preserve a standard of living for the people, so that they will support the activity that is going on.

If we tried to produce twice as much, we could only do it by taking it out of the standard of living of Americans. There is no place else for it to come from. The people are all working. We have good tools; we have good management; we are doing things well. We are paying high wages, and we are still getting relatively good costs on the finished products. But if you tried to double the program we would have to take it out of the standard of living of all the people, and I do not think they would be for it.

Mrs. CHURCH. And you feel that this gives us the security we need. Secretary WILSON. Right now; yes.

Mrs. CHURCH. Thank you.

Chairman CHIPERFIELD. Mr. Harrison.

Mr. HARRISON. Mr. Secretary, I would like to say I have observed a couple of times in the course of your remarks that you have commented on the slowness in getting the money spent that has been authorized and the failure to translate these appropriations into hard goods, and I would just like to say that I certainly do commend your efforts in that direction, which seems to me to be one of your greatest problems.

Chairman CHIPERFIELD. Mr. Prouty.

Mr. PROUTY. Mr. Chairman, I, too, should like to compliment the Secretary and suggest that perhaps a primary reason for the backlog and our failure to get the job done may be due in large measure to the complicated organizational structure which has been created.

I have a chart here which represents the military-assistance screening process.

I have another also, a MSD flow chart. I do not profess to understand them, but it does seem to me that what we need more than anything else is a coordinator to coordinate the coordinators.

I am wondering if there is going to be a serious attempt made to streamline this whole approach and simplify it.

Secretary WILSON. I am sure you men know about the plan for the reorganization of the Defense Department that the President sent to Congress, and which resulted from the recommendations of the Ro feller Committee. I personally think it was the finest committee one ever got to work on a problem for them. They worked very h

and faithfully, and they were very competent and experienced people who were on that committee.

I hope that a reorganization of the Defense Department itself will just do the thing you are talking about.

Mr. PROUTY. I hope so.

I have just one other question: What do you think is the primary objective of the offshore procurement program-let me amplify: Is it a short-range program designed to secure the maximum of strategic materials in the shortest possible time or is it to be regarded as a long-range program to enable the European countries to build up their industrial and defensive strength to a point where further assistance from us will be unnecessary?

Secretary WILSON. There are really three facets to it. It will take advantage of and use the industrial capacity of Europe. In the process it will build up their ability to produce at the right kind of costs. It will make it possible for us to gradually withdraw so much assistance because they will have the facilities to take care of their own requirements, especially if they cooperate with each other.

The thing that has made the military defense of Europe so expensive in the past is that each nation tried to be self-sufficient in itself. It tried to design all types of guns and airplanes, and tanks, and so forth, and build them in relatively small quantities. They are going to have to pool some of their resources in Europe, and this aircraft contract is a very good example of that, where certain types of fighters-the Hawker-Hunter is going to be built in England and the Mystere Mark 4 in France.

I took the trouble to go down and see both of them, and they demonstrated them for me. I have great confidence in our technical people, but I want to see them myself so, if anybody asked me about it, I could say "Yes; they are good planes, and we are going to get our money's worth out of them."

They form an added piece of cooperation in Europe, which is highly

necessary.

Now, a third thing-and this especially applies to ammunition and these short-range airplanes like the ones I am talking about that will be needed so badly in the first few weeks of war. It is much better to have ammunition that can be produced close up than ammunition produced in our country, that has to be shipped abroad with the added time interval and the added hazard of submarines and what not.

So, the defense of Western Europe to an increasing degree is going to have to be finally the responsibility of the people who live over there. So, the offshore-procurement-program proposal carried out at the right place has some added gains in it other than just getting the material itself. It also will help to balance our trade with these nations during this period.

Mr. PROUTY. But it will not necessarily help their internal economy. It will ease the balance-of-payments problem obviously. I imagine it will increase their productive capacity to some extent.

Secretary WILSON. It does in a way, because it gives them bigger quantities and they can organize and get better machinery and organize the production better.

For instance, these planes we are buying in England were added to planes they were going to buy themselves. They are the planes

that are going to be used by the Dutch and the Belgians and so forth, for their part of it.

Now, if they had tried to design new planes and put them into production in small quantities in Holland and Belgium, they would have cost twice as much and it would have been a much bigger strain on the economy.

Also, the planes the English bought for themselves were cheaper because of the added volume of this production.

They do not understand that quite as well as Americans do, but they are beginning to see it over there.

Mr. PROUTY. We made a commitment to France last July for about $99 million worth of ammunition, which, as I understand it, has never been met, principally due to the effect of the inflexible price criteria applicable to OSP contracts.

Secretary WILSON. Say that again, now.

Mr. PROUTY. I think we made a commitment to buy from France last year, $99 million worth of ammunition. That was in July 1952. To the best of my knowledge, that commitment has not been met as of now, because of the inflexible price ceiling which our procurement agencies must adhere to.

Secretary WILSON. Do you mean the obligation has not been made, that we have not contracted for it?

Mr. NASH. If I could answer that, Mr. Prouty, we, as of some months ago, had placed contracts for about $82 million worth of it. When I was over there in early April, I urged that the rest of it be committed and the entire amount has been properly committed, the entire $99 million has been properly committed.

There was a long delay in doing it because our people insisted on getting what they felt were proper types for proper prices, but it is all under contract now. That commitment to France has been fulfilled.

Mr. PROUTY. Did it involve any subsidization?

Mr. NASH. Not to my knowledge; no, sir.

Secretary WILSON. I might say that the French military people thanked us for it, for being a little careful about the price and insisting that it be right, and that the production be set up properly, because they say, "Now we are going to get ours cheaper, too."

Mr. PROUTY. I cannot find any fault with that.

Mr. RICHARDS. Will the gentleman yield for just one question? Mr. PROUTY. I yield.

Mr. RICHARDS. I think the preponderance of the evidence is that the offshore procurement program is a good thing for many reasons, but I think the weakness of it is that it hamstrings standardization.

Secretary WILSON. The front is so big and you handle your military operations in groups. You would have flying off of one airbase English planes or French planes, and 100 miles away you might have some American fighters. But the parts and service problem, the closer you can get that to home, the better off you are, too.

Mr. RICHARDS. On the offshore procurement program, you do not even get standardization of parts, do you?

Secretary WILSON. Oh, yes. You are much better off then, if each nation has its own, you know.

There are only five countries, ours and England, Italy, Belgium, and France, who make planes now. The Germans did, of course, but their industry has all been liquidated.

I see nothing the matter with the program.

Mr. RICHARDS. I think it is a good program, overall.

Chairman CHIPERFIELD. Thank you very much, Mr. Secretary, for your fine testimony.

(Whereupon, the committee adjourned at 1 p. m. to reconvene at 10:30 a. m., Tuesday, May 12, 1953.)

MUTUAL SECURITY ACT EXTENSION

TUESDAY, MAY 12, 1953

HOUSE OF REPRESENTATIVES,
COMMITTEE ON FOREIGN AFFAIRS,

Washington, D. C.

The committee met in executive session, pursuant to call, in room G-3, United States Capitol, at 10:35 a. m., Hon. Robert B. Chiperfield (chairman) presiding.

Chairman CHIPERFIELD. The committee will come to order.

It would be helpful to us, Mr. Secretary, if you would explain in simple terms some points that bother the committee; for example, the difference between an administrative deficit and a cost deficit. Another point that should be clarified is why appropriations made by the Congress several years ago for tanks and other military items have not yet been spent.

This bill contains a large request. We have to understand why it is so large and its relation to our income. Perhaps you could also explain the overhang of billions of dollars that you referred to the other day.

STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OF THE TREASURY

Secretary HUMPHREY. I did not bring the figures on that because I thought we were to talk about MSA, but I will try to explain it anyhow.

What the Congress does is this: The Congress makes an appropriation. My recollection is that the appropriations are about $73 billion for this year.

I think perhaps this paper will give it to us, right here. Here are the estimated expenditures for this year:

$78 billion. The estimated appropriation is a substantially lesser figure.

Now, this is the Truman budget: $78.6 billion of expenditures, $68.7 billion of income, which shows a proposed deficit of $9.9 billion. It then shows what is estimated as a cash deficit of $6.6 billion. I will explain the difference between the $6.6 billion and the $9.9 billion. That is a simple explanation and you will get it in just a minute.

There are certain governmental funds, pension funds, unemployment compensation funds and funds of that kind, for which money has to be collected from the people and paid into these funds each year. Those funds are about $3.3 billion a year now. As that $3.3 billion comes in, the Treasury reaches in and takes out the cash and puts an IOU back in.