AMERICAN INSTITUTE
for ECONOMIC RESEARCH
GREAT BARRINGTON
MASSACHUSETTS
RESEARCH
COMING EFFECTS OF CURRENT EVENTS
Korean Objectives
Numerous press reports from the battle lines in Korea
have stressed the fact that the American soldiers directly
involved seem not to know what they are fighting for.
However, if any United States citizen does know what
the official objectives are, he presumably has sources of
information not available to the general public. Only
a few days ago President Truman told his press conference that he was "not decided in his own mind" as to
whether or not United States troops should cross the
38th parallel. If the military objective is still undecided, the specific political and economic objections must
be equally undetermined, because they necessarily will
depend on the extent to which Korea is occupied by
United Nations forces.
There is thus no reason to blame soldiers in the field
or their military leaders for a lack of insight that would
have to border on omniscience. However, citizens here
at home are not preoccupied with trying to kill or be
killed; they have no excuse for failing to debate and
decide the Korean objectives. Aside from the fact that
men ordered to fight and die have a right to know what
the fighting is for, we may soon discover that failure to
decide on the objectives may result in our being "outsmarted" once again by a Russian Government that in
recent years has so often looked farther ahead than we
have. If we really want to achieve worthwhile objectives in Korea, we should soon decide what those objectives are.
Policy Prior to the War
Presumably because Korea was believed to be of little value from an economic or military point of view,
the United States apparently never devised a satisfactory
occupation policy. In the early years of our occupation, Korea was considered enemy territory.
(Korea
had been under Japanese rule since 1910.)
Consequently, a military governor was installed. Either heedless or unaware of the fundamental economic problems involved, the military authorities, or those who established the economic policies applied, blundered seriously.
In order to facilitate control, the Japanese-trained
Korean police were retained; and little was done to
eliminate other Koreans who had collaborated with the
Japanese. Many Koreans soon found little to choose
between their former Japanese rulers and the American
army of occupation.
147
1950
REPORTS
Most important, the land-reform policy was inadequate and poorly administered. Farm lands owned by
Japan's Oriental Development Corporation were made
available to approximately 500,000 farmers. However,
these farm lands represented only 15 percent of the
total arable land; and their distribution eliminated but
little of the widespread farm tenancy. Another attempt
to aid tenant farmers was the regulation that rent should
not exceed one-third of the farmer's crop. However,
many of the farmers, most of whom were unable to read
or write, never even realized that any such regulation was
in effect. Furthermore, to many farmers aware of this
regulation, it failed to bring relief, for local officials
continued to take more than one-half of the crop. Unfortunately, the ensuing riots were quelled by force
and little was done to remedy the situation.
Finally, Syngman Rhee, who was returned to Korea
by the United States in order to head the provisional
government, was given almost a free hand. Backed by
the more influential Koreans, including presumably
many of the more important landlords, there was little
in Rhee's program calculated to improve the lot of the
average Korean. Mark Gayn in his book Japan Diary1
states, "Rhee's was a one track mind; he wanted independence for Korea. But he saw an independent Korea
as a fuedal land, with himself at the head * * * he spoke
for no one but the landlords when he opposed land reform, social security, or civil freedoms. * * * [Rhee's]
main political instrument is the Han Kook (or Korean
Folk) Democratic Party, an organization of landlords
and rich collaborationists."
Gayn concludes, "Under our flag—and often with our
active encouragement—there had come into being a police state so savage in its suppression of man's elemental
liberties that it was difficult to find a parallel for it."
Course of Action Already Suggested
In the early weeks of the war Mr. Truman said that
United States troops would not go north of the 38th
parallel. From reports in the newspapers, apparently
even top military advisers are divided as to what should
be done. Nevertheless, in view of the fact that stopping
at the 38th parallel would leave us in exactly the same
untenable position that we occupied before the present
war, there seems to be little question that we should
eventually occupy all of Korea.
The economic costs of such action would include the
expense of protecting the Manchurian border and policx
Mark Gayn, Japan Diary, William Sloane Associates, Inc. (New
York, 1948), p. 352
sible opposition in jail, or drive it into the hills. * * *
You can't beat the machine. It includes everybody in
power from the village cops and the landlord to the provincial governor."
Although the situation is understood to have been improved somewhat in more recent elections, free elections
as conducted in the United States have not been held.
In fact, if free elections were held today, the communists might win in South as well as North Korea.
In view of the foregoing, the United States and the
United Nations apparently have a choice of two practicable alternatives if Korea is to be kept free of communist domination. The first is to try to make Korea
"safe for the landlords" as described above; the second
is to occupy and govern Korea until, after fundamental
reforms have been effected, the Koreans can govern and
better protect themselves.
ing all of Korea. This extension of our first line of defense from the islands of Japan to the Korea-Manchuria
border would greatly increase the military costs of containing Russia. (In his banned speech to the VFW,
General MacArthur stressed the importance of having a
natural barrier of water as the United States' first line
of defense.) Occupation of all Korea will result in a
substantial drain on United States resources.
Although Mr. Truman is not certain about our Korean
objectives, the Korean ambassador, Dr. John M. Chang,
is certain as to what he wants them to be. He recently
asserted, "We do not accept the validity of the 38th
Parallel as a military, political, or economic division
* * * The Korean Government does not recognize the
38th Parallel in any way." Moreover, the Government
of South Korea would insist on "unconditional surrender" as the only terms to be imposed at the conclusion of hostilities.
Dr. Chang also indicated that the
objective of his government is no more than the restoration of the independence that Koreans enjoyed for
4,000 years before they were overrun by the Japanese.
Unfortunately, the "independence enjoyed" by the
Koreans prior to Japanese rule was freedom to perpetuate a feudal state dominated by the nobility and the
landlords. However, in view of the fact that apparent
inability to differentiate between the independence of
a nation and freedom for the individuals within that nation has been a serious failing of our foreign policy to
date, Dr. Chang's objective may be considered desirable
by some United States officials.
Reestablish Prewar Conditions?
An attempt to reestablish prewar conditions in Korea
under the protection of United States troops would solve
no problems. Communism prior to the war was a
powerful, disrupting, and growing force in South Korea
as well as in North Korea. The appeal of communism
was based primarily on the promise to eliminate special
privilege, in particular to subdivide and give to the peasants the land held in vast feudal estates. Reestablishing prewar conditions including reinstatement of the
Rhee Government would place the United States in a position similar to that occupied by England with respect
to Ireland for more than 400 years, and similarly would
require permanent military policing in order to prevent
overthrow of the landlord's government by communists. That a United States attempt to make Korea "safe
for the landlords" would be any more successful than
England's centuries-long effort to do the same in Ireland
is doubtful; that it would incur the undying hatred of
the Korean people is highly probable in view of the attitude of many Irish toward England.
Incidentally, in spite of the opinions of United Nations observers to the contrary, there is evidence indicating that the "free" elections in Korea were "free" more
in name than in fact and that the results did not at all
represent the will of the people. The earlier elections
were described by an official observer in Japan Diary.2
"This is quite an election. First, they let Syngman
Rhee's boys decide the procedure. Second, to make sure
nothing slips up, they hold the election in a series of
four levels [farmers voted for the village representatives, then the village representatives voted for two
county representatives, and so forth], so that the undesirables might be eliminated. * * * They put all the pos-
The Second Alternative
Some arguments have already been urged against the
desirability of a trusteeship for Korea under the United
States or the United Nations. Dr. Chang, for example,
has denounced such a proposal as "absolutely incredible and completely unjustified" and goes on
to plead for the "independence" discussed above.
The New York Times31 believes "the word 'trusteeship'
has the connotation of disunity for Koreans," that "a
fully independent government has already been set up in
Korea and recognized by the United Nations," and that
"to the Koreans, quite naturally, any idea of a 'trusteeship' at this stage would certainly suggest a backward
political step—and a long one."
Dr. Chang's objection is not unexpected. A trusteeship, if effective, would not please the vested interests
that the present Korean Government is upholding and
presumably would end much of the present regime's
power. With regard to the objection of The New
York Times, a new name could be adopted, such as a
"provisional" government. But what is more important,
a new program of action could be adopted. Much of
the antipathy in Asia toward trusteeships is an antipathy
toward the usual colonial policy that results in formal
occupation but does not attempt to solve a country's
problems. Such colonial policy perpetuates injustices
rather than corrects them. A "provisional" government
that enables the farmers to retain what they produce
would not long be a source of discontent among the
Koreans.
That this is so is suggested by the experience of Denmark. Perhaps no country in the world has had a
more harmonious history for the past 100 years than the
Danes. "In 1660 the Danish King overthrew the power
of the nobles" and "possessing a greater authority within
the State than any monarch in Europe," he was able to
rule "in a manner which paid heed only to the State and
the Community and not to any narrow class interest."4
"Reforms were carried through by a number of laws
between 1769 and 1807 and were threefold. First, they
freed the farmer from the joint action in the cultivation
of the soil, second they consolidated the peasants' small
and widely scattered strips of land, into units in close
proximity to the farm buildings * * * The third and
3
Editorial, "Planning for Korea," The New York Times, August
21,
1950.
4
Peter Manniche, Denmark — A Social Laboratory, G. E. C. Gad
Publisher, (Copenhagen, 1939), p. 23-24.
2Ibid, p. 398.
148
most difficult part of the reform was to free the peasants
from obligatory services on the large estates, a task
which required a century." Since those reforms were
completed, the progressive enlightenment and capacity
for self-government exhibited by the Danish people has
been noteworthy.
Similar reforms in Korea presumably would lessen
antipathy toward a trusteeship that might at first be regarded as the usual colonial policy. Tenant farmers,
who theretofore had much, if not most, of their crops
appropriated by the landlords, would realize immediately that fundamental reforms were being effected.
But even more important, we should be dealing a veritable death blow to communism's hold on the peasants.
By not only eliminating the special privileges of the
feudal landlords but also by permitting the farmers to
retain their crops (under communism the State merely
takes the place of the landlord), we should be attacking
the counterrevolution effectively.
In order to introduce such a workable program, a
form of trusteeship or "provisional government" would
seem to be essential. The transition from feudalism to
freedom and self-government cannot be effected overnight. Such was Denmark's experience, and the Danes
of a few centuries ago were in much the same situation
that the Koreans occupy today.
In the past, two methods have been used in effecting
comprehensive and successful land reforms. In Denmark, land was simply confiscated from the nobility
and given to the farmers tilling the soil. In New Zealand, a tax on land only, not on improvements, has
caused large estates to be divided; and there is an especially heavy tax on absentee owners. Either of these
methods presumably could be used in effecting reforms
in Korea.
A Little-Discussed Possibility
Lost in the headlines of action on the battlefield has
been any rational consideration of simply getting out
of Korea. The "die having been cast" and with American lives being sacrificed every day, Korea has assumed
an importance far and above that expressed in Hanson
Baldwin's earlier comments in The New York Times
that "we have been committed to the independence of at
least southern Korea, but we could not implement that
commitment without the expenditure of a vast effort altogether disproportionate to the strategic, economic, and
military value of the country." Today, to The New
York Times5 "Korea is only a single battle in a long war
whose sphere of action is the greater part of the world.
This is an acute phase of a struggle in which our liberty
and our whole way of life are at stake."
Unfortunately, to dissipate much of the Nation's land,
labor, and capital in this "single battle" would make the
successful outcome of the "long war" less certain. We
agree that Korea is "an acute phase of a struggle in
which our liberty and our whole way of life are at
stake"; but we hesitate to go on to the conclusion that
winning that battle regardless of the cost therefore,
is desirable. A "single battle" will not win or lose the
long-run struggle against communism.
However, no satisfactory estimate of the costs incidental to winning the Korean War and achieving subsequent objectives can be made. Furthermore, the costs
of withdrawing from the Korean War would include
much more than the losses in lives and materials to date:
several intangibles such as world prestige, the cooperation of other countries in future situations, the effects
on Russia's future plans, the preservation of the United
Nations, and the example to be set before the world's
oppressed, all of which are most important, cannot be
measured precisely.
Nevertheless, if Korea is regained only to reestablish
the old status quo, the United States would, in all probability, be faced with an interminable series of uprisings
for the next few centuries (assuming that we would be
as persistent as England was in attempting to subdue
the "rebels" of Ireland). In that event, we question
whether the costs would not be so great that getting out
of Korea now would be preferable.
Conclusion
There is little question that the economic costs of the
Korean War are out of proportion to the military or economic value of that country to the United States. How'
ever, if winning the war in Korea is followed by application of policies that bring individual freedom to the
people of that land, we shall have struck our first real
blow against the counterrevolution. Furthermore, in so
doing we shall regain understanding of some of the
principles that have helped to make our own country
what it is today. Such a beginning in the acquirement
of wisdom is a first essential for moving toward the
goals of the great revolution, which is the most effective
means we have in the long run for coping with the counterrevolution (communism) within Western Civilization.
SUPPLY
Industrial Production
Steel-ingot production, scheduled at 97.1 percent of
capacity for the week ended September 2, 1950, was 6
percent more than that in the preceding week and was
18 percent more than that in the corresponding week
last year. Resumption of rail movements by the strikebound railroad companies enabled certain steel mills to
increase operations during the past week.
1929 1932 1937 1938 1949 1950
Percent of Capacityt
89 13 84 41* 86 97p
Weekly Cap. (Million Tons) 1.38 1.52 1.51 1.54 1.84 1.93
Production (Million Tons) 1.24 .20 1.27 .63 1.58 1.87
Automobile and truck production during the week
ended August 26, 1950, in the United States and Canada was estimated at 180,540 vehicles, compared with a
revised total of 190,979 vehicles for the previous week.
Curtailments at Chrysler plants as a result of labor difficulties were primarily responsible for the decrease in
production.
1929 1932 1937 1938 1949 1950
Vehicles (000 omitted )t
118 25 83 19 155 181p
Electric-power production in the week ended August
26, 1950, decreased to 6,345,503,000 kilowatt-hours
from 6,369,830,000 kilowatt-hours in the previous week.
1929 1932 1937 1938 1949 1950
Billion Kilowatt-Hourst
1.76 1.44 2.29 2.13 5.52 6.35
Lumber production in the week ended August 19,
1950, decreased. The Neiv York Times seasonally adjusted index was slightly below that for the previous
week but was 21 points above that for the corresponding
week last year. Industrial officials report that lumber
production in the West is being hampered by the shortages of rail cars. However, most mills have increased
^Editorial, "What We Fight For," The New York Times, August
20, 1950.
149
output; and many marginal mills, which had previously
been shut down, have resumed operations in recent
months.
7929 1932 1937 1938 1949 1950
The New York Times Indext 129 35 85
96 93
f Latest weekly data; corresponding weeks of earlier years
p=preliminary; ""holiday
114
New Consumer Goods Per Capita
In July, for the fifth consecutive month, our indexes
of new consumer goods per capita increased to an alltime high. The unadjusted index for July was 2 percent above that for the previous month and was 29 percent above the index for July 1949. Since February,
when the recent uninterrupted rise began, the unadjusted index has increased 14 percent.
The index adjusted for long-term trend also rose 2
percent above the June figure and 24 percent above that
for July last year to the highest level reached since mid1941, only 2 percent below the previous all-time highs.
Preliminary data indicate that production of consumer
goods decreased slightly in July. (The indexes shown
on the chart are a 3-month moving average of the production index plotted at the third month.) Although
slightly less than the June figure, the July production
figure was somewhat greater than that for April, which
was dropped from the 3-month moving average. A
marked increase in the residential-construction component was more than counterbalanced by decreases in the
remaining components for which preliminary July data
were available.
As we have mentioned in previous discussions, automobile output in July was less (by 8 percent) than the
record output of the previous month. A holiday, widespread vacations, and shortages hampered automobile
production. Other decreases in July were as follows:
furniture production, 2 percent; food production, 1 percent; and textile output, 3 percent. On the other hand,
we have estimated that our index of residential construction increased substantially.
Although consumer demand seems to be abating, the
backlog of orders for consumer goods is still relatively
large. Orders for consumer durable goods, particularly
automobiles and household appliances, apparently are
equal to several months' production. Nevertheless, the
situation may not be so healthy as order volume would
suggest. If drastic curtailment of consumer credit is
ordered by the Federal Reserve Board, as now seems
probable, and if taxes on individual incomes are increased shortly, the effective demand for goods may not
be so large as many businessmen apparently expect.
Decreased production of consumer goods presumably
would follow any marked reduction in effective demand.
However, further increases in our indexes of new consumers goods produced per capita are expected in
August and September. Thereafter the outlook is obscure; in addition to the possible curtailment of demand already mentioned, production may be curtailed
to some extent by the diversion of raw materials to the
production of war materials.
DEMAND
Department-Store Sales
Department-store sales for the week ended August 24,
1950, were 2 percent more than sales for the previous
week and were 14 percent more than sales in the corresponding week last year.
PRICES
Commodities at Wholesale
1949
1950
Aug. 21 Aug. 24 Aug. 31
(August 1939=100)
249
316
Spot-Market Prices
320
(28 basic raw materials)
Commodity Futures Prices
284
382
388
(Dow-Jones Daily Index)
BOOK REVIEW
Authoritarianism and the Individual by Harold Metz
and C. A. H. Thompson
The Brookings Institution, Washington ($3.50)
In this survey of authoritarianism, the experiences of
citizen members of the various societies discussed are
described in detail. Included are the following social
organizations: feudalism, absolute monarchies, communistic Russia, Fascistic Italy, Nazi Germany, and several
religious and nonreligious communites. The authors
conclude that freedom as we of Western Civilization
have known it is not to be found in any authoritarian
society.
200
NEW CONSUMER GOODS PER
CAP
1919 "20 "21 '22 "23 '24 '2S '26 "27 '28 "29 %3O '31 '32 '33 "34 '35 '36 '37' '38 '39 '40 '41 '42 '43 '44 '45 "46 '47 '48 '49 50