Secretary FINLETTER. Yes, sir; I do. Shall I get off on that subject, Mr. Chairman?

Senator FERGUSON. I did not want to take you off, but I want to be sure you mean that.

Secretary FINLETTER. I will be glad to state what I think about that. I believe two things about deficit spending. First of all, deficit spending is extremely bad and should be avoided where possible. I therefore believe that the correct policy should have been to increase taxes during this year to meet these additional expenditures and the projected deficit. I say that despite the fact that a great element of these expenditures are on capital account. In the case of a private commercial corporation, the normal way of handling such an increase in capital account would have been to have sold bonds.

CAPITAL ACCOUNT

Senator FERGUSON. What do you figure is the capital account, the way these planes become obsolete?

Secretary FINLETTER. I am not saying there is not a high rate of depreciation, but I am saying there is a capital account in the Air Force of the United States because that is just like an insurance policy. That is the thing that is protecting this country from physical destruction and, incidentally, in money terms, from having to spend figures geometrically beyond anything we are talking about.

I therefore think a budget deficit is to be avoided and should be avoided in one of two ways, either by the increase in taxes to pay for it, which in a way is paying out of current account for capital-account items, which is a very conservative thing to do, or by the selling of Government securities. I am not an expert on United States bonds, and there may be objections to that, but I say that the real remedy, whatever it may have been, was certainly not to cut our insurance premiums.

IMPORTANCE OF AIR POWER

Senator FERGUSON. Do you claim that the Air is more important than the other functions of the military?

Secretary FINLETTER. It is very difficult for me to answer that question. I believe that the keystone of the force, which must defend this country, is land-based air power. I believe that unless you have the right kind of land-based air power, as the keystone around which the integrated force must be built, you are not going to have the right kind of force to deal with the problems of the future.

Senator FERGUSON. That would indicate that, if you were going to have the kind of defense, then, we should have, the Air would come first?

Secretary FINLETTER. I do not know what comes first in an integrated machine.

Senator FERGUSON. In a keystone you would have to have that in. Secretary FINLETTER. An arch is not much good unless it has something other than a keystone.

Senator FERGUSON. But at least it has to have that.

Secretary FINLETTER. That is what I am saying. I am saying that you must have the right kind of land-based air power if this country

is to have safety, and you must have it as close to the end of fiscal year 1954 as you can get it.

BUDGET DEFICIT

If I may go back to the other point, about whether this country can afford it, the thing that troubles me, Senator, is the deficit in governmental spending. That I think is inflationary and that I think is bad. But I repeat what I said to Senator Hayden: If you are not going to raise the taxes, if you cannot sell the Government bonds, then it is much better to run the risk of inflation by a deficit than it is not to have the kind of military force that is needed.

Senator FERGUSON. Of course, selling the Government bonds is the only way you can run a deficit. That is what you mean by running your deficit?

Secretary FINLETTER. That is exactly what I mean. But I am talking about the inflationary aspect of the problem, and the selling of Government bonds obviously pulls purchasing power out of the market and diminishes pro tanto the inflationary aspect of the deficit. Senator FERGUSON. They go into the banks and they become usable for credit, even five times what they are.

Secretary FINLETTER. Yes, sir. You are getting me out of my field now. I am talking about the "E"-bond type that pulls purchasing power effectively out of the market.

Senator O'MAHONEY. May I say, Mr. Secretary, we do not seem to get you very far away from your field, no matter what subject you get into.

PER CAPITA CONSUMPTION OF CONSUMER GOODS

Secretary FINLETTER. I would like to say something else; that is, I believe that it is a fact that today, right at this moment, the amount of the national product which is available for nonmilitary purposes is about as great as any recent year in our history and considerably greater than it was in previous years, and also the per capita consumption of consumer goods is now higher than at any time in this history. If the committee wants to go into it, I have a couple of charts on the subject.

Senator FERGUSON. Are you talking about dollars or volume?
Secretary FINLETTER. Dollars. Do you want to see that chart?
Senator FERGUSON. I would like to have that in the record.

Secretary FINLETTER. Could I display that chart a moment so I can put it in the record?

Senator O'MAHONEY. Certainly.

Secretary FINLETTER. We have two charts, the national-product chart and the per-capita-consumption chart.

Senator O'MAHONEY. The situation, of course, is this: that the United States is the richest country in the world, with more employed than ever in its history, with the largest personal national income ever in its history; heavy taxes, of course, greatest taxes in history. Greater debt ever in history, but nevertheless it is living on a higher plane of luxury than any other people in the whole history of the world, and we are afraid of insurance to protect this great opportunity which we have.

Secretary FINLETTER. Yes, sir.

Senator FERGUSON. I would like to add in there: the American people and the capacity of the people in the free-enterprise system account for that.

Senator O'MAHONEY. Oh, that is right. I have been saying that for 15 years to a deaf audience.

Secretary FINLETTER. This chart, very briefly, which I now offer for the record, is the proportions of the gross national product used for national security and other purposes. This black part shows the amount of the national product expressed in billions of dollars at stable 1951 prices.

This black part is the amount that is used for national security, and the red part is the part which is used for all other purposes. These slightly different shadings here

(The chart referred to follows:)

CHART I

'38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

100

GROSS NATIONAL PRODUCT

Senator FERGUSON. You are dealing in dollars, of course? Secretary FINLETTER. Yes, sir; for the years 1952 and 1953 the are estimated. The rest are real historical figures.

The significant thing is that the amount of the gross nationa product in dollars at 1951 prices is higher during these years, wit which we are dealing-namely, 1951, 1952, and 1953-than at an previous time in history, even higher than the prewar years. For ex ample, in the case of 1938 the amount of the gross national produc available for other purposes is about $162 billion at 1951 price whereas for the year 1951 the amount of the national product avai able for other purposes than national security is about $289 billion. Senator FERGUSON. Are you figuring in the population increase ! Secretary FINLETTER. I am sorry, I have another chart which I w be very glad to bring up showing the per capita effect, which is ve slightly different from that, Senator Ferguson.

Senator HAYDEN. Your chart shows that the American people ha more money to buy what they want than they ever had before, a are making the purchases, which shows the absolute soundness of yo argument that under those circumstances they could afford to ha paid more taxes than they are paying because they would have mo left after taxes than they ever had before.

Secretary FINLETTER. Yes, sir.

Senator FERGUSON. You ask the people whether that is true. Senator O'MAHONEY. The people do not like to pay the taxes. Senator FERGUSON. No, but ask them if they can and live. Y have to take the value of the dollar into consideraion, the purchasi power.

Secretary FINLETTER. This is 1951 prices. I regret I do not have per capita one because I think my per capita chart, which I ask le to present later, does show exactly what Senator Hayden says is t and that, in their per capita consumption, the people are better today than at any previous time.

Senator HAYDEN. They have had more to eat, wear better clot are better housesd than ever before in all times. There is no do about that at all. What I am trying to say is that these milit: expenditures that we have been making have been no serious bur to them up to now.

Secretary FINLETTER. No, sir; but I would like to, if I may Senator FERGUSON. The people will not agree with you, Sena Hayden.

Senator HAYDEN. I understand they do not agree, but the f justify what I am saying.

Secretary FINLETTER. I shall never say that military expendit in itself is a good thing. I would like to see a condition in the wo where it was zero. I also do not think that deficits in the budget good, but I think the basic question here is not what the people thi because I venture to suggest that the people will do whatever is ri to protect this country from a hostile menace. I believe the th for them to do at this time, if that is the choice, is to take a bud deficit rather than expose their homes and families to destruction the Soviets.