Courtesy Reuters

The Impact of Rearmament on the Free World Economy

BOTH the state of the world and the state of the Union are forcing us to reëxamine and redefine our foreign economic policy, especially for Western Europe. Economic recovery for Western Europe within four years' time was both the premise and the promise of the Marshall Plan when it was launched in 1948. Only two years after the plan got under way that recovery was running ahead of schedule in many industries and many countries. But three months thereafter, starting from the invasion of South Korea on June 25, 1950, the pressure of new world events began to alter the political and economic landscape in which the E.R.P. had flourished.

The United States is now engaged in a massive preparedness program. Most of the E.R.P. countries are also rearming and they, too, already feel the effects of the effort. Its burden on our own economy is heavy; and, comparatively, the burden is almost as heavy upon the economies of our principal North Atlantic allies. We shall be spending during the fiscal year starting in 1951 an estimated 48.5 billion dollars for military purposes, or 15.7 percent of our gross national product. The United Kingdom is spending 3.6 billion dollars, or 9 percent, and France plans to spend $2,450,000,000, or 9.7 percent. At the moment, the United States is furnishing its partners in Western Europe with armament aid in the form of ships, tanks, planes, guns, machine tools, spare parts and raw materials at the rate of some $214,000,000 a month; this compares with the $283,000,000 rate at which help for reconstruction in the form of credits, grains and machinery was being furnished during the corresponding months of E.R.P.

All these changing conditions raise basic questions about the economy of Western Europe and the future of our own economic policy. Will the need to rearm extinguish the E.R.P. or merely cause it to redirect certain of its activities into new channels? Will rearming, paradoxically, bring full recovery more rapidly? What is the connection between continued

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