Reading List

1. Benes, Valchav.

Eastern European Government and Policies.

New York: Harper and Row, 1966.

2. Brown, James F. The New Eastern Europe, the Khrushchev Era and After. New York: Praeger, 1966.

3. Brzezinski, Zbigniew K. The Soviet Bloc: Unity and Conflict. Cambridge, Mass.: Harvard Univ. Press, 1967.

4. Davison, Roderic. Turkey. New York: Prentice-Hall, 1968. 5. Fischer-Galati, Stephen F. Man, State, and Society in East European History. New York: Praeger, 1970.

6. Kaiser, Karl. German Foreign Policy in Transition: Bonn Between East and West. New York: Oxford Univ. Press, 1968.

7. Kovrig, Bennet. The Hungarian People's Republic. Baltimore: Johns Hopkins Univ., 1970.

8. Sampson, Anthony. Anatomy of Europe. New York: Harper and Row, 1969.

9. Schopflin, George, ed. The Soviet Union and Eastern Europe: A Handbook. New York: Praeger, 1970.

10. Shears, David. The Ugly Frontier. (refers to border dividing East and West Germany) New York: Knopf, 1970.

11. Starr, Richard F. Communist Regimes in Eastern Europe. Rev. ed. Stanford, Calif.: Hoover Inst. Press, 1971.

12. Sterling, Claire. The Masaryk Case. New York: Harper and Row, 1969.

ECONOMICS OF NATIONAL SECURITY

The historical development of a country's economic institutions influences the general attitude of its people toward government involvement in economic affairs. In the United States the economic system has been identified with the institutions of private property and the free market system. Before the Great Depression of the 1930's the economy was also characterized by a pattern of sustained growth, interrupted for only short periods by recessions or limited depressions. Given these conditions, it is not surprising that the American people in general came to associate private property and the free market system with economic growth and prosperity.

The Federal Government, however, had intervened in economic affairs in several instances. It adopted trade and tariff acts in the late 1790's and antitrust acts in 1890 and 1914 in the interest of the economy. The Pure Food and Drug Act of 1906 and the Railroad Labor Act of 1926 had the same common purpose, as did the acts that established the Federal Reserve System in 1913 and the Federal Commission in 1920. These interventions were made on the theory that they would strengthen property rights and the free market. None was designed to make the Federal Government directly responsible for dictating the overall level of productive activity in the economy.

During the 1930's the Federal Government chose to combat the severe conditions of unemployment by programs that did not substantially interfere with free market operations-programs such as the Work Progress Administration and the Civilian Conservation Corps. Although the economy experienced a slight upturn toward the end of the 1930's, it was not until the United States began to prepare for a global war that unemployment figures substantially declined. Only with the advent of World War II and the vast Federal expenditures of 1941 to 1946 did the American economy once again grow and prosper.

As World War II came to a close, Government officials and the public began to fear that another depression would ensue. Having witnessed the regenerative economic effects of mass Federal spending

Congress attempted to avoid the haunting specter of depression by passing the Employment Act of 1946 which bestowed upon the Federal Government a major responsibility for maintaining prosperity in the postwar economy. In substance, this act required the Federal Government to promote within the Nation's economy conditions of maximum employment, production, and purchasing power. Thus, the Federal Government was no longer to be concerned merely with individual problems relating to the economy. It was now required to consider and act upon matters designed to influence the overall level of activity within the entire economy.

Even as the Congress assigned this new responsibility and moved the Government into the heart of the American economic system; it reaffirmed the central importance of private property and the free market system. In the Employment Act itself Congress declared that Federal actions must also foster and promote free competitive enterprise. With much the same intent, the Congress began removing many of the direct wartime economic controls-wage and price controls, rent controls, rationing, and so forth.

The practical results of these actions were on the one hand to assign particular economic responsibilities to the Government, and on the other to intimate that certain methods were more desirable for achieving economic goals than were others. In the years following the passage of the Employment Act, Federal monetary, debt management, and fiscal policies, which influence the level of economic activity indirectly by affecting disposable income and the money supply, have been championed as the appropriate tools for promoting economic growth and stability over the more direct economic stabilization devices of wage, price, and rent controls and rationing.

From World War II to the summer of 1971, the American economy made impressive advances without burdensome direct economic controls except for the brief Korean War period. In accordance with the Employment Act of 1946, each succeeding Federal administration has acknowledged the Government's responsibility to maintain maximum employment, production, and purchasing power. The extent of commitment to these objectives, however, has varied from administration to administration, as have the particular policies and techniques used and emphasized by each administration.

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The stature, power, and security of the United States in the international arena are greatly influenced by the country's economic status. Domestically, the strength, cohesion, and dedication of the American people are determined to a great extent by the ability of the economy to generate jobs and to supply the material necessities for a socially acceptable standard of living.

The President in his January 1972 State of the Union message made the following comments:

11

The Vietnam war

lay at the root of our economic problems 3 years ago. The attempt to finance that war through budget deficits in a period of full employment had produced a wave of price inflation as dangerous and as persistent as any in our history. It was more persistent, frankly, than I expected it would be when I first took office. And it only yielded slowly to our dual efforts to cool the war and to cool inflation.

"Our challenge was further compounded by the need to reabsorb more than 2 million persons who were released from the Armed Forces and from defense-related industries and by the substantial expansion of the labor force.

"In short, the escalation of the Vietnam war in the late 1960's destroyed price stability. And the de-escalation of that war in the early 1970's impeded full employment.

"Throughout these years, however, I have remained convinced that both price stability and full employment were realistic goals for this country. By last summer it became apparent that our efforts to eradicate inflation without wage and price controls would either take too long or--if they were to take effect quickly-would come at the cost of persistent high unemployment. This cost was unacceptable. On August 15th I therefore announced a series of new economic policies to speed our progress toward a new prosperity without inflation in peacetime..

And in his Economic Report to the Congress of January 31,

1973, the President said:

"As predicted, 1972 was a very good year for the American economy. From the end of 1971 to the end of 1972, total output rose by about 7-1/2 percent. This is one of the largest 1-year increases in the past 25 years. This growth took place in a largely peacetime economy; it was not achieved by a war-fed, inflationary boom. In fact, real defense spending declined 5 percent during the year. More important is the fact that the big increase of production in the year just ended was accompanied by a reduced rate of inflation. Consumer prices increased a little more than 3 percent from 1971 to 1972--a far cry from the runaway inflation rate of 6 percent that confronted us in 1969.

"A year ago, looking ahead to 1972, I said that the great problem was to get the unemployment rate down from the 6-percent level where it was in 1971. During 1972 the rate was reduced to a little over 5 percent. We should get this down further, and expect to do so, but what was accomplished was gratifying. It is especially significant that the total number of people at work rose by 2.3 million from 1971 to 1972, the largest 1-year increase in 25 years.

"Everything was not ideal in 1972--in the economy any more than in other aspects of our national life. Rising food prices were a major concern. The U.S. balance of trade with other countries did not improve as we had hoped. But all-in-all it was a very good year.

"The economic performance of 1972 owed much to sound and forceful Government policy. The history of this policy goes back before 1972, and back before the dramatic moves taken on August 15, 1971. It goes back to the decision made in 1969 to bring to an end the dangerous inflation that had started in the mid-sixties. The decision was carried out by slowing down the rise of Federal spending and continuing the temporary tax increase that had been enacted in 1968 and by tightening monetary conditions. As a result, much of the cause of the inflation was removed and the rise in the cost of living was moderated. Without these steps, the subsequent success of price and wage controls would have been impossible.

"Curbing inflation and cutting back on defense production necessarily involved a downturn in the economy and a rise of unemployment. To keep this from going too far, fiscal and monetary