File No. 841.51/79

The Ambassador in Great Britain ( Page) to the Secretary of State


6780. Continuation of my 6779, July 20, 11 a.m. Beginning of memorandum.

The Chancellor of the Exchequer has seen Mr. Page July 14 and would be much obliged if Mr. Secretary Balfour would cause the following note in reply to be communicated to Mr. Page.

1. The Chancellor of the Exchequer of course accepts Mr. McAdoo’s statement that “At no time, directly or indirectly, has the Secretary of the Treasury or anyone connected with his Department promised to pay the Morgan overdraft.” In any event this question of past misunderstandings is of small consequence as compared with the question as to whether the financial interests of the alliance make this repayment necessary or advisable at the present time. But in view of what passed at the Chancellor of the Exchequer’s interview with Mr. Page the Chancellor of the Exchequer thinks it right to quote the actual words received by cable from Sir C. Spring Rice on April 9 which were the foundation of what he said on that occasion. Spring Rice telegraphed: “Sir R. Crawford desires the following to be communicated to the Chancellor of the Exchequer. I told the Secretary of the Treasury last night that you appreciated and concurred in his proposals. He was very gratified and asked me to convey his compliments. I mentioned to him the four considerations referred to in paragraph 2 of your telegram. He agreed that repayment of overdraft on $4,000,0002 should be a first call on the loan.” (Here follow remarks on three other distinct topics. [Page 550] The telegram continues.) “This morning Governor Harding called, at the request of the Secretary, and confirmed the views expressed by the latter on the above points. This evening I went over the matter again with the Counselor of the State Department who fully concurred that our overdraft should be a first charge.”

2. There are several indications in Mr. McAdoo’s note that he desires above all a fuller and freer communication of facts on our part. We have never desired or intended to keep any reserves from him as to our financial position. On the other hand it has been our preoccupation to bring home to him exactly what that position is. Any specific question we will answer. In the meantime the following figures are presented in the belief that they are the figures most relevant to present issues.

(a) Mr. McAdoo points out that “America’s cooperation cannot mean that America can assume the entire burden of financing the war.” How much less than this has been expressly asked of it is exemplified in the following table of assistance rendered to the European allies by the United States and the United Kingdom respectively since the date of the entry of America into the war:

Financial Assistance from April 1 to July 14, 1917

Countries receiving financial assistance Advanced by United Kingdom Advanced by United States
France 1£50,072,000 $310,000,000
Russia 78,472,000
Italy 47,760,000 100,000,000
Belgium, including Congo 8,035,000 15,000,000
Minor allies 3,545,000 2,000,000
Total £193,849,000 $427,000,000

1 See footnote 2, ante, p. 549; this figure is given as £56,037,000.

The advances by the United States equal, roughly, £90,000,000 against the advances by the United Kingdom of nearly £194,000,000. Russia has been promised $100,000,000 but it is understood that she has not yet received any cash installments. For Belgian relief total amounts promised $45,000,000. Serbia total amount promised $3,000,000.

The Chancellor of the Exchequer gratefully acknowledges that the United States Treasury have advanced $686,000,0001 to this country in addition to the above sums to the other allies.

But he invites Mr. McAdoo’s particular attention to the fact that even since America came into the war the financial assistance afforded to the other allies by the United Kingdom has been more than double the assistance afforded them by the United States and that the assistance the United Kingdom has afforded these other allies much exceeds the assistance she has herself received from the United States.

(b) The United States Treasury have so far limited their assistance to expenditure incurred by the Allies within the United States [Page 551] rightly recognizing that such assistance involves a much less onerous burden than a financial assistance abroad. United Kingdom have been unable to adopt this attitude towards their allies but have supported the burden of their expenditure in all parts of the world. Without this support the allies would have been unable to obtain the supplies of food and munitions which have been essential to their prosecution of the war.

To such an extent has the above been the case that up to the present time United Kingdom is still financing the expenditure of Russia in the United States.

(c) The total expenditure out of the British exchequer between April 1, 1917, and July 14, 1917, amounted to £825,109,000 of which £131,245,000 was met from loans raised in the United States. Both these figures relate to expenditure and income brought to account out of date 14th.

(d) The financial burden upon the exchequer of the United Kingdom did not begin however on April 1 last. The total expenditure between April 1, 1914, and March 31, 1917, amounted to £4,362,798,000 which added to the expenditure of £825,109,000 since April 1, 1917, makes a total expenditure of £5,161,471,000.1 It is after having supported an expenditure of this magnitude for three years that the United Kingdom venture to appeal to the United States of America for sympathetic consideration in financial discussion where the excessive urgency of her need and the precariousness of her position may somewhat impart a tone of insistence to her requests for assistance which would be out of place in ordinary circumstances.

A statement is appended at the end of this note for Mr. McAdoo’s information showing precisely how this sum of £5,000,000,000 has been financed up to date. The proceeds of the overdraft in New York are included under the heading of the ways and means advances. This statement included several particulars which have not been communicated to Parliament and is to be regarded, like all the other figures cited in this note, as being only for the confidential information of the United States Government.

(e) The following statement shows the expenditure and receipts of the British Government in New York from the 1st April to the 14th July 1917.

Payments out of the Treasury account in New York for the purchase of commodities and interest due $602,000,000
Purchase of exchange (e. g., the cost of all wheat purchases for Allies is included in this figure, inter alia, during the greater part of the period in question) 529,000,000
Total 1,131,000,000
Loans from United States Government 685,000,000
British Treasury notes (sundry munitions contracts) 27,000,000
Repayments by French and Italian Governments 134,000,000
Gold 246,000,000
Sale of securities 58,000,000
Miscellaneous 19,000,000
Total 1,169,000,000

[Page 552]

(f) It will be seen from the preceding statement that gold and securities were realized during the period in question (for the most part during June) to the extent of $304,000,000. The impossibility of the United Kingdom’s continuing to supplement American Government assistance on this scale is shown by the following facts.

Gold. We have exported to the United States since the commencement of the war (including gold lately ear-marked for the New York Federal Reserve Bank) a sum of $305,000,000 in actual gold. This has all been sent on behalf of the United Kingdom but a considerable part has been borrowed or purchased from the other allies. In addition a fairly substantial amount has been despatched to other destinations. This represents an enormous effort of which the reserves of the United States have obtained the benefit.

The United Kingdom now have left about £50,000,000 in the Bank of England’s reserve, £28,500,000 in the currency note reserve and an unknown amount estimated at a maximum of £50,000,000 with the joint stock banks. In addition there is a sum of about £10,000,000 at the disposal of the Treasury but not included in any published reserve. This makes a total of about £140,000,000. There is virtually no Government bonds [gold] in circulation. This is about 6 per cent of our banking liabilities and considerably less than allotted circulation of the Government bonds [gold] in the United States.

The amount of this Government loan which we could part with, without destroying the confidence upon which our credit rests, is inconsiderable.

Securities. Before the Treasury initiated their official mobilization of dollar securities large amounts were disposed of through private channels and also by the Bank of England who were systematically engaged on the disposal of Dutch Government securities in New York.

The following figures relate only to the Treasury scheme:

Value of securities purchased $770,000,000
Value of securities obtained on deposit as a loan 1,130,000,000
Total $1,900,000,000

The above has been disposed of as follows:

Sold in New York $750,000,000
Deposited as security against loans 600,000,000
Deposited as security against call loan 400,000,000
Still in hand 150,000,000
Total $1,900,000,000
(All figures approximate)

[Page 553]

We have now obtained virtually all the dollar securities available in this country and, in view of penalties now attached, it is believed that the amount of salable securities still in private hands is now of very small dimensions. The balance in hand can only be disposed of gradually and is not in any case an important amount.

3. In short our resources available for payments in America are exhausted. Unless the United States Government can meet in full our expenses in America, including exchange, the whole financial fabric of the alliance will collapse. This conclusion will be a matter not of months but of days.

The question is one of which it is necessary to take a large view. If matters continue on the same basis as during the last few weeks a financial disaster of the first magnitude cannot be avoided. In the course of August the enemy will receive the encouragement of which he stands in so great need, at the moment of the war when perhaps he needs it most.

4. Mr. McAdoo suggests that the settlement of joint Allied purchasing arrangements must precede any promises from him of financial support in August. His Majesty’s Government do not know how to interpret this statement. They are doing what they can to promote the establishment of such arrangements and at the end of June prepared a detailed scheme, on lines which they had been given to understand would commend themselves to the United States Government, for submission to the other allies, but the settlement depends upon the progress of events in America and the acquiescence of the other allies concerned. They will instruct Sir C. Spring Rice to communicate unofficially the details to the United States Government immediately without waiting for replies from the other allies. His Majesty’s Government cannot believe that, if these or other natural and unavoidable causes of delay are operative for reasons which may be out of their control, financial support will be withheld and a catastrophe precipitated.

5. As regards Mr. McAdoo’s concluding passage the Chancellor of the Exchequer desires to say that Lord Northcliffe is the duly authorized representative of His Majesty’s Government to conduct all financial negotiations on their behalf. Lord Northcliffe has however suggested that the United States Government would themselves prefer that someone with political experience such as an ex-Cabinet member should be asked to cross to the United States for the purpose of dealing with the financial situation. If this is the desire of the United States Government, His Majesty’s Government would gladly comply with it.

[Page 554]

Exchequer Receipts and Issues (Net) 1914–15, 1915–16, 1916–17, 1917–18 (to July 14)

Receipts Amount
Balance April 1, 1914 £10,435,000
Tax £1,115,136,000
Non-Tax 163,151,000
Treasury bills (excluding bills bought as collateral shown below) 647,160,000
3½ per cent war loan (net) 189,149,000
4½ per cent war laon 592,345,000
3 per cent exchequer bonds 20,449,000
5 and 6 per cent exchequer bonds (net) 546,957,000
War savings certificates 85,300,000
War expenditure certificates 23,561,000
American loan, 1915 50,820,000
Other debts:
In the United States (net) 314,213,000
In Canada (including précis, £20,549,000 collateral treasury bills), net 73,959,000
In Japan:
For French gold 10,527,000
For Russian gold 53,320,000
Treasury bills 60,000,000
Dutch £14,819,000
Scandinavian collateral 14,760,000
Miscellaneous (in colonies and loans without interest) 4,502,000
Ways and means advances (never contemplated) 226,631,000
Total 5,161,471,000
National debt services 273,417,000
Other consolidated fund services 39,368,000
Supplemental convention services (including £80,400,000 for Army and Navy in 1914—15) 365,283,000
Votes of credit 4,439,467,000
Expenditures 5,117,535,000
Exchequer bonds 1910 paid off 16,395,000
Miscellaneous issues (old sinking fund account), net 2,703,000
Balance July 14, 1917 24,838,000
Total 5,161,471,000

Balfour requests that a copy of the memorandum be given to Spring Rice.

  1. In another copy of this memorandum, dated July 23, enclosed in the Ambassador’s despatch No. 6664, July 26 (received Aug. 9), this figure is given as $400,000,000. (File No. 841.51/270.)
  2. See footnote 2, ante, p. 549; this figure is given as $685,000,000.
  3. See footnote 2, ante, p. 549; these figures given as £4,336,362,000, £800,271,000, and £5,136,633,000, respectively.