What Are We Paying For?

June 13, 1949

Suppose a relative who keeps a pleasure car comes to you and tells you that he hasn’t enough money to feed his family. You suggest that he sell the car. He replies that the car is essential for his morale and to keep his family from going communistic. He adds that it is not for you to interfere in his private affairs or tell him what his family can have or not have. He assures you, however, that the particular dollars you contribute will go only for his family’s food.

Such an assurance will satisfy you only if you are an idiot. In that case you will merely insist that he deposit all the money you give him in a special bank account, that the checks he draws against this shall be only for his family’s food, and that he send you a regular accounting to prove this.

But if you have a grain of common sense left, you will know that all this is meaningless make-believe. You will know that you are in fact paying for his pleasure car and his other extravagances. You will know that when you pay for his family’s food, he doesn’t have to use his own income for this and can therefore spend it on luxuries. You will know that it is pointless to make him keep this segregated account, that you are in fact adding to his total spending income, and that what his family spends on luxuries is in effect the money you have contributed.

But if you are an official of the ECA or of the State Department, in charge of giving away other people’s money, you won’t know any of these things. You will solemnly set up special earmarked accounts, checks, “counterpart funds,” and other such pointless paraphernalia. And if anyone points to the appalling deficits in nationalized industries that are being paid for by the socialistic governments that you are helping to support, you will bring out your little account books to prove that it isn’t our funds that they are spending for this, because our funds are used only to buy food or machinery or other austerely necessary things.

I have already pointed out several times in this column that there is no way in which we can insure that either the money or the equipment we contribute under an arms aid program would actually result in a net increase of European armament by that amount. For to the extent that we free European governments from the necessity for military spending, we release just that much more of their own resources for such things as bigger social-security schemes or bigger nationalization deficits.

Now this principle of substitution also works the other way round. Our officials forget that we are already helping to rearm Europe with our ERP funds. For to the extent that we have supplied European governments with other things, we have freed just that amount of their own money and resources for armament.

The Administration argues that the $5,000,000,000 or so it is asking for the next year under the ERP will go exclusively for “recovery” and the $1,130,000,000 exclusively for military aid. It thinks so because it will earmark each fund for this specific purpose. The real effect would be that instead of contributing roughly $5,000,000,000 in the next year to European government expenditures of all kinds, we would contribute $6,130,000,000 toward those expenditures. For as long as European governments control their own spending, the funds we contribute go in fact, if not in form, into a common spending pool.

But whenever Congress, vaguely sensing this, tries to make even the most timid economies, the ECA officials rush in to say that the whole European “recovery” program is being imperiled, that the amounts have been carefully figured, and that you can’t rescue a boy from a 15-foot well by throwing him only a 10-foot rope. As the amounts asked for are in fact completely arbitrary, as they are in fact calculated on the basis of a trade deficit that is itself being brought about by exchange control, overvalued currencies, and other wholly unsound European policies, this facile analogy is without substance.