General MARSHALL. Most of the ordnance contracts to date have been on an advertised bid basis, but I might mislead you badly if I answered your question in detail. I would rather refer you to our procurement experts.

Mr. CANNON. What are the agricultural products referred to in this list of matériel?

General MARSHALL. That does not come within my province. Mr. Smith can give you that information.

Mr. CANNON. Are you familiar with the difference in prices that would be paid now as compared with World War prices?

General MARSHALL. No, sir. As a matter of fact, during the World War I was for two and a half years in France and out of touch with the economic situation in this country.

Mr. SNYDER. England today has many guns of different calibers and they have a number of factories manufacturing ammunition for those guns. Now, suppose the Germans should destroy some of those factories, and that would put those guns out of commission entirely. Would we build factories under this appropriation to manufacture ammunition required for those guns?

General MARSHALL. Some of the facilities recommended could be used for that specific purpose.

Mr. TABER. How much, would you say, is for that purpose?
General MARSHALL. I cannot give that data.

Mr. JOHNSON of West Virginia. General, you are trained in the art of war, and seem to know something about South American countries and the British Government and the German Government. I want to ask you this: If we make this appropriation that has been asked for, and do it rather promptly, what will be the effect on morale, looking at it purely from a war standpoint, on England, on South America, and on Germany?

General MARSHALL. I believe it will have a tremendously stimulating effect in England, where it will be felt that their heroic effort is recognized and that we are doing everything we can to help them. I think it will be very beneficial in its effect throughout the Western Hemisphere, where it will be realized that we mean business in this matter. Undoubtedly it will have a very disturbing effect on the nations opposed to Britain.

Mr. TABER. In other words, General, you want them to realize what we are doing this for?

General MARSHALL. Yes, sir.

Mr. TABER. Because we want them to know that we are going the limit; is that it?

General MARSHALL. That we mean business.

Mr. JOHNSON of West Virginia. What effect will this have upon the army itself?

General MARSHALL. Our Army, sir?

Mr. JOHNSON of West Virginia. No; I mean the British Army. General MARSHALL. I think it will have a tremendously stimulating effect on the morale of the British Army.

Mr. JOHNSON of West Virginia. What effect will it have on the soldier himself, from your experience?

General MARSHALL. My experience has been that when the soldier lacks things he actually needs, only the highest type of discipline and the most able leadership will pull him through a crisis. If there is

any mediocrity in leadership or any deficiency in discipline, the first realization of its lack of essential matériel gives a military unit the tendency to dissolve. Matériel is of vast moment to the morale of an army.

Mr. JOHNSON of West Virginia. And the morale means 50 percent of the battle?

General MARSHALL. Well, Napoleon said that morale is to matériel as three is to one, and somebody remarked the other day that under many circumstances the correct ratio is more nearly 10 to 1. Wo have seen a nation collapse. Those who have attempted to explain the debacle have talked a great deal about lack of matériel, but it is quite evident now that the failure was primarily in morale.

Mr. WOODRUM. Are there any other questions of the General? If not, we thank you very much, General. We always enjoy having you with us.

FRIDAY, MARCH 14, 1941.

STATEMENTS OF HAROLD D. SMITH, DIRECTOR, BUREAU OF THE BUDGET; MAJ. GEN. JAMES H. BURNS, EXECUTIVE TO THE UNDER SECRETARY OF WAR; F. J. LAWTON, ADMINISTRATIVE ASSISTANT TO THE DIRECTOR OF THE BUDGET; LT. COL. HENRY S. AURAND, GENERAL STAFF CORPS, WAR DEPARTMENT; AND COMMANDER A. P. H. TAWRESEY, ASSISTANT BUDGET OFFICER, NAVY DEPARTMENT

Mr. WOODRUM. If it is satisfactory, we will proceed. I have several general questions I would like to ask Mr. Smith. You made a general statement yesterday, Mr. Smith, and if there is anything you wish to add to that before we proceed with questions that the committee may wish to ask, we will be glad to hear it. Is there anything you wish to add to your general statement?

Mr. SMITH. I think not, Mr. Chairman.

Mr. WOODRUM. I have two or three questions I would like to ask, and, if it is agreeable to the committee, we will proceed as we did yesterday.

PROCEDURE IN ADMINISTRATION OF FUNDS

(See p. 42)

Is it anticipated, Mr. Smith, that it will be necessary to set up any new administrative agencies in connection with the funds which we are asked to provide for, or will they be handled by the regular Government machinery now set up? In that connection, when you answer that, let me say I have this in mind, that under the procedure, as I understand it to be, the President, under the terms of the lease and lend bill and under the terms of the appropriation, will allocate to the Army, Navy, or other Government agency, a certain amount of money for the procurement of certain defense articles. Now, will that money be processed down through the agencies purchasing those articles?

Mr. SMITH. The program will be processed by the regular agencies.

Mr. WOODRUM. Now, as to the administrative expenses necessarily incurred by those agencies, in processing these orders under the lend-lease bill, will they be paid for out of funds provided here, or in every appropriation bill that comes up hereafter, will we meet with the situation of every agency coming in and saying, "We will have to have 100 extra clerks, because of this lend-lease program"?

Mr. SMITH. It was our plan under these estimates to have every request for additional administrative expenses on account of the lease-lend bill reviewed by the Bureau of the Budget. This assumes that a part, and a considerable part, of the administrative expenses can be taken care of under existing appropriations, but where there are real difficulties, and where there is a need for additional help on the administrative side, that request would come through the Bureau of the Budget, and would be reviewed as any other request for estimates would be reviewed-that is, in the light of what administrative provision the department or agency already has. A recommendation for an allotment would then be submitted to the President for his approval. In that way, I think we can keep the administrative costs of this program definitely segregated from the administrative costs incident to our own defense program.

Mr. WOODRUM. They will be or can be segregated so that when you take your cost sheet for planes, you will be able to tell how much was for planes and how much for the item of administrative expense? Mr. SMITH. Yes, sir.

Mr. WOODRUM. If a department has additional administrative costs, it will be paid out of the lease-lend fund.

Mr. SMITH. Yes, sir; that is provided for in item (c).

NEW OVERHEAD ORGANIZATION

(See p. 34)

Mr. WOODRUM. Is it anticipated that any overhead organization will be set up in any of these departments?

Mr. SMITH. I assume that, at least, in the Army and Navy, some persons would have to be designated specifically to guide this program in those departments.

Mr. WOODRUM. Outside of the Budget-and I understand all of these things will clear through the Budget-and outside of the additional set-up you will have to have on account of this, will there be an over-all agency that will handle it?

Mr. SMITH. I do not think that has been finally determined, but it is my understanding that there will be some kind of a policy committee, probably consisting of Cabinet officers, who will look at this program in its relation to our own program.

Mr. WOODRUM. Now, the policy to be carried out, as we understand it, is that these funds will be allocated by the President to different agencies of the Government, and, in making these purchases, they will proceed in exactly the same manner and form, and according to the same rules, regulations, restrictions, and so forth, that they follow in making purchases for their own agencies.

Mr. SMITH. Yes, sir; in the same manner as they proceed under existing appropriations.

BUREAU OF BUDGET TO COORDINATE DATA ON PROGRAM

(See p. 38)

Mr. WOODRUM. You will recall that a suggestion was made at the White House conference the other day that it would be very helpful, and from my viewpoint it seems necessary, that there be set up somewhere, preferably in the Bureau of the Budget, some unit that will know from day to day the intimate details of this program as it develops, so that when committees of Congress wish to be informed, either informally or on the record, exactly what has been done, the expenditures made, and the contracts and commitments made, the types of material or facilities being contracted for, and so forth, all of the details will be ready in one compact agency that will know all about it, and to which they may come and find out the information. they wish to have. Will that plan be followed?

Mr. SMITH. We will try to meet your wishes on that. It will be necessary for the Bureau of the Budget to assemble this information in any event. It must be processed through the Bureau, and we can make it available to you, if it is desired.

Mr. WOODRUM. I think that certainly would be the wish of the committee.

Mr. JOHNSON of West Virginia. If you have this central organization created, how large will it be? Do you have any idea how large it will be?

Mr. SMITH. I do not at this time.

Mr. JOHNSON of West Virginia. Would it be composed of two, three, four, five, or six people?

Mr. SMITH. Are you speaking now with respect to the organization in the Bureau of the Budget?

Mr. JOHNSON of West Virginia. Yes.

Mr. SMITH. I think that, so far as we are concerned, it will take a very small staff, because we will depend upon the other departments and existing accounting facilities and records.

Mr. JOHNSON of West Virginia. If there should be such a committee set up, do you contemplate taking the Secretary of War and the Secretary of the Navy, or someone representing those departments? Mr. SMITH. While, as I pointed out, so far as I know, a definite decision has not been made by the President, there would probably be a policy committee to advise the President. So far as the records are concerned, or in making an accounting for what has been done, that is an entirely different matter, and it can be handled by the existing agencies of the Government, with, perhaps, some little increase in the staffs.

APPLICATION OF EXISTING LAW TO PROCUREMENTS

(See p. 43)

Mr. WOODRUM. In the matter of this program, Mr. Smith, what procedure will be followed by those different agencies in placing contracts, and so forth? Will the lease-lend money be subject to all of the laws applicable to the departments in carrying out their own procurements and purchases?

Mr. SMITH. It is my understanding that that is true-that the leaselend bill does not expand the authority under existing appropriations except insofar as it may be contained in the act.

Mr. WOODRUM. Will there be any conditions under which the various laws covering the procurements and purchases now made will have to be set aside in this program? For instance, section 3 (a) authorizes the President, notwithstanding the provisions of any other law, to authorize the Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government, to do certain things. Will you say something about that?

Mr. LAWTON. It was pointed out in the report of the Foreign Affairs Committee of the House, that the item in this authorization bill, "notwithstanding the provisions of any other law," meant notwithstanding the provisions of any other law that would conflict or interfere with the carrying out of this bill. In other words, they pointed out in that report that the purpose would be to continue, as it did not interfere with the carrying out of this bill, the Walsh-Healey Act or wage-hour law. The War Department and the Navy Department have exemptions from section 3709, and statutes of that type, and I think it would be interpreted that this would be carried out with the same exemptions now existing under the programs of the Army and Navy.

Mr. WOODRUM. It is not anticipated that this language would call for any drastic departure from any existing procedure, or from following any laws on the statute books that relate to the procurement and purchase of these materials?

Mr. LAWTON. No, sir; I do not think that would be contemplated, because in a great many cases those orders will be placed in the factories at the same time that orders for our own defense will be placed.

Mr. WOODRUM. All of these expenditures will have to be cleared through the Comptroller General, just as expenditures for purchases under the regular program?

Mr. LAWTON. Yes, sir.

Mr. WOODRUM. If it meets with the pleasure of the committee, I would suggest that the members of the committee ask Mr. Smith such general questions as they desire, before taking up the several categories in the estimates.

Mr. TABER. I think we should establish the question of the policies before we go into the details of the bill.

Mr. WOODRUM. Suppose we go around the committee, and let the members ask Mr. Smith such general questions as they wish. Then I will have some questions to ask about the several categories of the estimates. If that is satisfactory, we will proceed in that way, Mr. Cannon.

Mr. CANNON. Mr. Smith, your aide has just said you will follow the procedure heretofore followed in securing materials. Those materials now purchased are purchased in a routine way. These are not routine things, they are materials not generally produced, and for which, in many cases, you will have no blueprints. How much of the material indicated in this inventory will the Government manufacture, and how much will it buy? How much will be procured in the open market, and how much under contract?

Mr. SMITH. I would say, in general, that is probably a question that cannot be answered very accurately at this time, because this program, as it goes along, would have to be fitted in with the Army and Navy program. I would like to ask General Burns to comment

on the question you have asked.