The snippet that should be considered, and by a man who had no concept of what a "tin foil hat" even was...
And, considering the state of the world, that is what we have. Or considering what we had in the "peace" time of the 1950s. The Army was also small during the post civil war period and the 1920s and 30s. That latter deficit helped lead to WW-II. Notice I said *helped*. As a fraction of the total population, I'd have to check. ... There's a graph in this Article (pdf) that shows the fraction of the population in the military from 1790 to around 2002. We are at about 0.5% of the population. That's maybe twice that of the inter-war years (WWI to WWII) and about the level during the Mexican War. I'd argue that the inter war level was too low for safety. Today's world is at least as dangerous as that period, and we have large numbers of troops deployed to a combat theater.
Federalist 46 indicates that a large standing army would be about 1% of the population. We are half that level. And it's not exactly a time of peace. Not that we've increased that fraction much, if at all, since 911.
Also, things have changed since the 1780s. The population is much more productive, and thus able to sustain a higher fraction in the military.
Spending wise, for FY 2006 we were at around 3.1%, down from 3.4% in FY 05 (about 4.4% if you consider the war supplemental, which the Congress had not yet passed for this year) of GDP. The post WW-II low, approaching the level which existed prior to the US buildup for WW-II, was 2.9% during FY 2001, the last Clinton budget.
A lot of the increased spending is for activation of reserve forces, the closest we have to the militia of old. The rest of for bullets, boots, beans and other consumable material expended in the "non-peace" effort.
I don't think even George Washington would be overly concerned with the size of todays active duty military, all things considered.
That's why they added the 2 year funding restriction. Doesn't mean they didn't think we needed at least a small core to build a real Army around. That's almost what we have, but we haven't used it as core, and built a large army around it, but rather an expeditionary Army in itself.
But the Army, and the rest of the military, is firmly under civilian control, and that was one of the main, if not the main, objections to a standing Army. An Army free of legislative control and barely in executive control. We aren't even close to that.
The two year funding restriction ties in with the requirement that all tax bills originate in the House, the members of which must stand for election every two years. And of course the House must at least concur with, when it doesn't originate, all spending bills as well.