611.4131/8–1745: Telegram
The Ambassador in the United Kingdom (Winant) to the Secretary of State
[Received 10:15 p.m.]
8312. For the Secretary, Acheson,82 Thorp and Phelps from Clayton and Collado. We assume that by now you have received the full minutes of my two meetings of August 3 with the British financial group which were transmitted by pouch by Collado to Phelps. In addition I have separately reported on lend-lease matters and on my conversations with the Board of Trade.
A further financial meeting was held on Tuesday83 morning with Keynes, Eady, Brand, Grant, Harmer of the Treasury, Hutton84 of the Food Ministry and Liesching and Hall-Patch of the Board of Trade. On the American side there were Clayton, Collado, Hawkins, Stinebower, Glasser and Earley.
Keynes opened with a discussion of the Lend-Lease time table. He had hoped before the fall of Japan to discuss the dates and type of cutoff of lend-lease deliveries and now hopes that there will be no hasty decisions. He believes that military lend-lease can be cut off quickly except for spares and other current items and would expect no difference of opinion with the War and Navy Departments.
On the FEA non-munitions program consisting principally of food, POL85 and shipping services the British are interested on two counts: (a) the financial effects on the British balance of payments (b) physical procurement and supply mechanisms. Keynes asked whether Crowley could order a continuation of the supply mechanism without prejudice of financial arrangements. The British expect that there will be arranged a program of change-over from Lend-Lease finance. They propose that reverse aid continue on services as it would be impossible properly to price the thousands of small services items for cash payment.
Keynes then turned to the date of more formal financial conversations and pointed out that since the fall of Japan time was more [Page 98] pressing. Clayton indicated that he might not wait for his return to Washington before attempting to complete arrangements for the talks. The UNRRA council meeting may end on Monday or Tuesday86 and Clayton could spend the rest of next week on broad financial and trade subjects. He pointed out that international finance and trade are inextricably meshed and that the only chance of making a really satisfactory credit arrangement is to provide financial assistance for 2 or 3 years of transition and agree upon trade arrangements that will make for the sort of economic world in which the British and other nations will be able to service their borrowings.
Keynes stated that the British would not be able to discuss broad policy within 10 days; that as he had pointed out on August 3 the experts had not had an opportunity to discuss these matters with the new Cabinet which was occupied with the King’s speech.87 Keynes then went on to say that the British would like to take up first the problems of Lend-Lease wind-up and settlement; then the question of financing the British balance of payments; and finally trade policy matters. The last discussions would take many months as it would be necessary also to consult many other countries. Clayton suggested that the world would probably accept any reasonable trade program that the US and UK agree upon. When Keynes indicated a doubt Clayton pointed out that we will never find out until the US and UK agree and take it up with other countries.
Keynes repeated that if the US means agreement on a document such as proposed to the Board of Trade the trade negotiations will take a long time. Clayton replied that it is up to the British Cabinet to decide how long it wants to discuss such matters in view of the urgency of its needs. He believes that the State Department will not agree upon a board [broad] financial plan without British agreement on the type of economic world in which the financial plan would have to work itself out. The US would probably be prepared to extend liberal credits on moderate terms of interest and amortization with appropriate regard for cyclical fluctuations in the balance of payments. These would not be bankers terms.
Keynes with typical abruptness asserted that the British would not accept credits at all especially credits in which the new creditor, the US, would have priority over existing creditors of the UK the sterling area. If this is the US view Britain will be forced to choose the alternative trade policy a bilateralistic course. Clayton rejoined that if the UK wishes to discuss new money it must abandon that position. The sterling area had special reason for becoming the creditors of [Page 99] Britain during the war. Clayton refused to agree with Keynes’ assertion that you cannot free trade unless the blocked sterling balances are made fully convertible; and Keynes finally agreed that a consider able portion of the blocked balances could be ended. Keynes and Eady reheard [rehearsed?] the entire argument relating to the external reserves of the British colonies and other middle eastern nations which they presented on August 3.
Eady then asked whether the US had in mind some period of time over which the liberalization of trade and financial policy would take place pointing out that at Bretton Woods a transitional period of as much as 5 years has been discussed. Clayton replied that the purpose of financial assistance was to permit a more rapid transition; that we might expect a discontinuance of empire preferences and the sterling dollar pool at once with full convertibility in current balance of payments items. The volume of imports would undoubtedly have to be controlled on a non-discriminatory basis for some period, perhaps as much as 3 years.
At this point Brand sought to soften the impression which Keynes had made and urged that the US not crystallize its views until it had had a chance to see a full presentation of the British situation. Clayton stated that he was most anxious to see such a presentation. Keynes and Eady then discussed the relationship of the Labor Party platform to the international economic position of Britain and stressed the necessity for time to influence the new ministers to come out with the right decisions. They reiterated that they as expert officials were not in a position to come to any working level understandings at the present time and urged that they either be permitted to come to Washington early in September or that Clayton prepare to stay in London for at least a month.
Mr. Clayton asked what could be accomplished in September if the ministers have not taken the requisite decisions and Keynes intimated that he thought he could negotiate better and with a freer hand if he were in Washington subject only to general direction than if he were in London with day to day contact with the Cabinet. Both Keynes and Eady stressed that final trade decisions cannot be taken within the lend-lease period and Liesching pointed out that the US had somewhat changed the basis of the trade discussions which had previously been on the basis of an overall multilateral agreement to reduce tariffs. To Liesching’s statement that the new US proposal prolongs the schedule of trade negotiation Mr. Clayton replied that he doubted whether in fact it did as in his opinion the straight multilateral basis was probably impossible of agreement.
As the conversation continued it was evident that the British position was to try to get immediate lend-lease understandings followed [Page 100] by early financial agreements with a minimum of trade commitments this year. The US group firmly resisted the attempt to divide finance and trade although recognizing that the time-table presented certain difficulties. Clayton insisted that we must have general trade understandings with the British before a general financial understanding could be reached although the trade arrangements would undoubtedly require many months to be worked out with other countries in detail.
During the entire conversation Keynes insisted that he and his colleagues wished the same sort of economic world as did the US but he kept hinting and on several occasions virtually threatening that if the US was not “inspired” the British would probably choose a bilateralistic course and that if the British swing to state trading they would have an important influence on many parts of the world. He also repeatedly stated that if the Cabinet was pressed for an early decision the results might be disastrous.
In response to Clayton’s direct question as to what the British would expect to cover in Washington in September Keynes stated: (1) the details of the wind up of lend-lease, the handling of the pipeline and stocks and perhaps the principles of lend-lease settlement; (2) a full presentation of the British financial position after which the British would outline certain tentative proposals; (3) late in the discussions probably some discussion of the relationship of financial aid to the Bretton Woods agreements and possibly even to commercial commodity and cartel policy and questions of full employment. On these last matters the British might express their broad views but detailed discussions with other countries would have to be postponed until 1946.
Clayton repeated his full statement.
The US views on the interrelationship of trade and finance, the necessity of the proper trade policy of the world is to be again on a sound basis. Loans can aid in the achievement of a sound economy but only with the achievement of a sound economy can large loans be handled in such a way as not again to become a political football. He also repeated that the British should not expect that a new US credit would be on the same status or a junior status to the blocked sterling balances.
There then occurred a very interesting exchange of remarks which clearly brought out the thinking of Keynes. Clayton suggested that the US thinks of the sterling balances as being about the same level as lend-lease as the basic circumstances were somewhat similar. Keynes replied that the British certainly do not so regard the sterling balances but that they might have regarded lend-lease pari passu with the sterling balances if the US had handed over its gold reserves to [Page 101] the UK as did the sterling area. Keynes then stated that Britain had only so much room in its future balance of payments for debt service and there would not be enough for both new US credits and the old sterling balances and that it would have to honor its existing commitments. A solution in which the entire British availability was allocated to servicing new US obligations would be an “indecent” solution. The sterling balances will have to be written down but he could not agree that the US should have an absolute priority.
Clayton indicated that he believed that it might be necessary and desirable that some small fraction of the blocked sterling balances of the middle eastern countries be made currently available but that the principle emphasis should be on full convertibility as to new trade. He then asked what is the UK suggesting in these financial discussions. Is the US to bail out the entire sterling balances? Keynes replied no, that he did not wish the US to crystallize its opinion. The “realistic” mind is an awful thing. It takes a person with a “crazy” mind to work out an “inspired” solution to the problems facing the world. Clayton replied that he had considerable sympathy with the view that bankers’ solutions were not practicable but that he and, he believed, the American people were essentially “realistic” and that he would be only frank with Keynes in saying that the British should not expect to obtain financial assistance in the form of free grants. Keynes concluded by suggesting that both Governments publish the full facts and ask the American people to decide.
We have prepared the above rather full minutes of the discussions in order to indicate the type of thinking of Keynes and the considerable difficulties which may be anticipated in our further trade and financial discussion with the British. Throughout the conversation it was clear that the other members of the British group would take a milder tone than Keynes and of course we realize that Keynes is making his usual extreme presentation of the British attitude.
It is my personal view that the British are putting up a very determined front to cover a basically very weak financial position with a very serious outlook. It would be easy for the British in these circumstances to go the bilateral trading route. I believe our discussion with the British will be very difficult and they will press for types of financial assistance which we may not find it desirable or possible to offer. Nevertheless I believe that this is the most important international economic problem before the US and that we must get on with our conversations with the British. I shall telegraph separately my recommendations as to further discussions with the British.88
Please inform the Secretary of the Treasury and Crowley regarding these and the August 3 discussions. [Clayton and Collado.]
- Dean Acheson, Under Secretary of State.↩
- August 14.↩
- Maurice I. Hutton, Deputy Secretary, British Ministry of Food.↩
- Petrol, oil, and lubricants.↩
- The closing date of the third session of the UNRRA Council was Friday, August 24.↩
- For text of speech, delivered August 15, see Parliamentary Delates, House of Lords, 5th ser., vol. 137, col. 8.↩
- See telegram 8390, August 18, 8 p.m., from London, p. 103.↩