Dear Mr. Drury,

You telephoned me this morning asking if we had any information about how the United States proposed to spend on additional military appropriations the $10 billions announced in the President's speech.¹⁸ I was speaking to Mr. Ignatieff a few minutes later and he gave me the following figures, which were given to Congress yesterday:

Supplementary Appropriations Asked for Yesterday by the Armed Forces

$10.486 billions, divided as follows: Army X3.063 billions; Navy and Marines x.648 billions;

'$ Voir/See Public Papers of the Presidents of the United States of America: Harry S. Truman 1950,

Washington: United States Government Printing Office, 1965, Document 193, pp. 527 537.

Air Force $4.535 billions;
Establishment Wide Activities $240 millions.

All this includes $3.344 billions for aircraft, and $2.646 billions for tanks, guns, and Army equipment, and includes an increase of 600,000 men in the three Services; that is, 40% increase, up to 2.100 millions total armed strength, which is nearly 100,000 over the present statutory ceiling.

Mr. Ignatieff also drew my attention to a news item in the New York Times of today's date (which has not yet come to hand), reporting Mr. Symington's representations to a Congressional Committee yesterday. According to Mr. Ignatieff, the three items noted as in short supply are steel, aluminum, rubber, and controls are being asked for these commodities.

Mr. Ignatieff quite agreed with the likelihood that the United States, under their accelerated programme, will wish to buy from us more than the amount suggested some time ago for reciprocal purchases of equipment. Mr. Ignatieff is meeting State Department officials again on Thursday and will likely learn more of their proposals with respect to purchases in Canada. He will be in Ottawa next week for a meeting of the Interdepartmental Panel on Economic Aspects of Defence Questions.

Yours sincerely,

R.A. MACKAY

P.S.: Since dictating the above, Mr. Byrd, of the United States Embassy, was in my office on other matters and I took the opportunity of sounding him out, since I knew he had been taking part in discussions in Washington last week preparatory to the Joint Industrial Mobilization Board meeting. Mr. Byrd confirmed my speculation, that the $10 billion programme might affect U.S. policy with respect to purchases in Canada. He said that the $25 millions figure proposed previously for reciprocal purchasing was now regarded as a minimum and that the real question at the moment was not how much could be spent in Canada but how much could Canadian industry produce. I asked whether there was any possibility of the U.S. considering anything like a revised Hyde Park Agreement. Mr. Byrd gave me to understand that such a proposal was likely to be made. He said they were also speculating in Washington on our capacity to produce for mutual aid to Europe and our willingness to contribute.

As you suggested, the $10 billion programme may well result in exporting inflation to Canada: