550.S1 Washington/558½
Memorandum by Mr. Landreth M. Harrison, of the Division of Eastern European Affairs, of a Conversation Between American and Polish Representatives
The conversations took place in the office of the Secretary of State with the following persons in attendance:
- Mr. Cordell Hull,
The Secretary of State, - Mr. Herbert Feis,
Economic Adviser to the Department of State, - Mr. Robert F. Kelley,
Chief, Division of Eastern European Affairs, - Mr. Landreth M. Harrison,
Division of Eastern European Affairs, - Mr. Stanislaw Patek,
The Polish Ambassador, - Mr. Wladyslaw Sokolowski,
Counselor of Embassy.
The Secretary of State opened the conversations with a short statement to the effect that he was happy to welcome the representatives of Poland to these preliminary conversations which the Government of the United States is holding with the 53 Governments participating [Page 554] in the World Monetary and Economic Conference. Some 11 Governments48 have been invited by telegraph to send special missions to these conversations. As it was impossible, due to the lack of time, to receive missions from all countries, the other countries, including Poland, were invited by note to be represented by the head of their permanent diplomatic mission at Washington. Only those countries with larger interests in the coming Conference were asked to send special missions. However, the same matters will be discussed with all the governments whether represented by a special mission or by their representatives resident in Washington.
The Secretary added that the purpose of the present conversations is to acquaint the Ambassador with the subject matter of the discussions which have been recently concluded with special missions from several countries. Since the President had just summoned him to an important conference at The White House, he found it necessary to leave the conversations temporarily and would delegate Dr. Feis and the other gentlemen present, who were more acquainted with the technical details of the matters covered in the conversations, to carry on the present discussions with the Ambassador during his absence at The White House. He hoped to return later and would then participate further in the meeting.
The Ambassador replied that he had received certain specific instructions with respect to the Conference from his Government and that he desired to present them personally to the Secretary. He would be willing to postpone the conversations until a later date when the Secretary would be free to join them and when he could have the assistance of his own technical adviser, the Commercial Counselor of the Embassy,49 whom he would summon by telegraph from New York City. The Secretary then stated that, in view of the heavy demand upon his time and the possibility that he would rejoin the conversations shortly, he would like to have the conversations proceed during his enforced absence. The Ambassador could take up the other matters with him at a later date. In the meantime, the Department’s economic experts present could give the Ambassador a careful survey of the scope and the content of the conversations which had been held with the special missions.
The Secretary thereupon withdrew and the conversations continued with Dr. Feis presenting the subject matter as summarized below.
Scope and Character of the Preliminary Conversations
The American Government is holding at Washington a series of preliminary conversations preparatory to the World Monetary and [Page 555] Economic Conference with all the states participating in that Conference. This Government was of the opinion that the Revised Agenda for the Conference as drawn up by the Committee of Experts presented a program so extremely involved and complicated that it made any substantial agreement at the Conference impossible. We believe that success at the Conference depends largely upon the degree to which the participating governments understand each other’s problems and points of view before the Conference assembles. These preliminary conversations have not been an effort on the part of the United States to take the lead in presenting a program to the Conference but rather to provide a means for a purely informal and exploratory exchange of opinions in order that some common basis of understanding could be reached. The several topics on the agenda of the Conference have been reviewed at these conversations. There has been no attempt to come to definite understandings and no advance agreements have been or are being sought. Mutual understandings based upon substantial agreement as to the nature of the problems to be faced and to the program to be put forth at the Conference are the aim of this Government in these conversations. We are happy to state that the several missions that have already visited Washington have been in substantial accord with our views with respect to the coming Conference. The tentative program worked out with the special missions will be outlined in detail in the remaining conversations.
The problems to be discussed at the Conference fall naturally into three classifications: (1) intergovernmental debts, (2) monetary and financial matters, and (3) economic matters. These matters, in so far as they entered into the preliminary conversations, will be outlined for the information of the Polish Government.
intergovernmental debts
The question of the intergovernmental debts, in so far as the United States is concerned, has been reserved by the President for his personal consideration. The State Department has, consequently, no authority to enter into any discussions on this subject and the question does not form a part of the present conversations. Any matter with regard thereto should be taken directly to The White House.
monetary and financial matters
Stabilization of Currencies: The most pressing problem in connection with the Conference is that created by the present fluctuations in the value of various currencies. This fluctuation in currency values is having an abnormal effect on the flow of international trade. It seems essential that this fluctuation be ended and that the value of [Page 556] the various currencies be stabilized. In the past conversations, there appears to be universal agreement, in view of the confused situation in international trade, that stabilization of the more important currencies be brought about as soon as possible.
In connection with plans for such stabilization, it should be pointed out that American action in prohibiting the exportation of gold50 was not taken as a measure to provide bargaining power at the Conference. The gold embargo was required by domestic conditions. The banking and credit situation in this country had become acute. The Administration was preparing a program for the recovery of economic activity and it was essential that public confidence be preserved by the prevention of the withdrawal of gold either by foreign interests or as a flight of American capital.
Gold standard: The United States believes in the gold standard. It looks forward to the eventual establishment of an international gold standard. It realizes that the time is not yet ripe for such action and that progress in that direction must necessarily be slow. It is ready at the present time to contemplate a de facto stabilization providing that such stabilization include all major currencies. This de facto stabilization would be a temporary arrangement whereby a definite relationship in terms of gold would be established between currencies. Any such stabilization must, in the opinion of the United States, include the pound sterling. A de facto arrangement would have to be made by an international agreement between the countries participating in such stabilization. The silver exchanges should be stabilized at the same time that the former gold exchanges are stabilized.
If the world returns to the gold standard, it should be to a greatly improved gold standard. The former standard was unsuccessful in its operations and produced highly unsatisfactory results. One possible improvement is a lower ratio of cover. The former cover, which averaged around 40 per cent, should be appreciably reduced, even to 25 per cent. Such a reduction should be brought about by agreements between the central banks rather than by agreements between governments. In the new gold standard, there must be close cooperation between all the central banks.
Commodity Prices: A major problem is the improvement of the prices of basic commodities. It is essential that return to the gold standard be not accompanied by further deflation and renewed fall in commodity prices. Improved commodity prices can be brought about in several ways. One suggestion recommends the undertaking of public works to bring about increased employment and greater economic activities. Practically every country has been compelled to undertake public works to reduce unemployment and to provide [Page 557] commodity markets. It is possible that the Conference can bring about an agreement among governments to synchronize programs of internal public expenditures for the purpose of increasing internal employment and domestic trade. Naturally the details of such programs of public expenditure must be left to the governments themselves. Full independence must be retained by each government with respect to the amount it should spend and how this money is to be raised and expended. There is, however, a great potential value to be derived from coordinating these activities by international understanding. Public opinion and confidence throughout the world would be greatly improved by the knowledge that concerted action was being taken in many countries.
Silver: We are interested in raising the commodity value of silver. While the United States is a silver producing country, its interest does not arise primarily out of that fact, as is evidenced by the value of our silver production which amounted to but $6,000,000 in 1932. We believe that silver is very important from the monetary point of view, particularly in the Far East, and that its value has a very definite effect on the gold exchanges. For example, the value of the Japanese yen is controlled to a large extent by the value of the Chinese silver exchanges. The value of silver likewise has a great effect on trade with the Far East. The silver exchange countries cannot purchase foreign commodities in large quantities when silver values are low. At the present time, the relative value of silver has fallen much lower than the value of other basic commodities. Our general aim, which will be presented to the Conference, is to bring about an improvement in the price of silver and place it on a level equal to that of the commodities.
We are not at all interested in, or proposing any form of, bimetallism. We believe, however, that silver can be given a moderate place in the monetary system in order to increase world demand for it. Countries should continue to use or even expand their present utilization of silver in subsidiary coinage. The present silver coinage of various countries should not be further debased and efforts should be made as soon as possible to restore the former fineness to silver coinage. The price level established for silver in the future should be carefully controlled. Countries holding large stocks of silver, including the United States, Spain, and British India, should come to some agreement under the terms of which they would bind themselves not to dispose of these stocks on the world market except above a certain price level. A similar agreement should be entered into by the producing countries in order to avoid over-production and the possibility of throwing on the market more than it could absorb without important price reactions.
[Page 558]Silver might also be used as a means for widening the base of various currencies. Any such arrangements should be by agreements entered into by the central banks rather than the governments. For example, central banks might have the option to hold part of their cover in silver rather than in gold. Central banks might be authorized to purchase silver up to 5 per cent of their cover (five per cent silver and 20 per cent gold in the proposed new 25 per cent cover) whenever silver falls to a certain price. The central banks should be bound not to sell their silver holdings below a set price. The banks should have a large amount of autonomy in this matter.
The Ambassador stated that Poland was not greatly interested in the question of silver. It had no important trade interests in the Far East and silver was not used to any extent in the Polish monetary system. Poland, consequently, would be disposed to leave the question of silver largely to the countries directly interested in it.
Exchange controls: Many countries in Europe and South America have established various systems for controlling the sale of foreign exchange and the transfer of funds abroad. These systems are actively impeding foreign trade and present a great problem to the Conference. The early removal of these restrictions is a problem which involves both financial and economic questions. The restrictions were established primarily to enable a country to maintain a favorable volume of payments and thus to avoid the loss of gold and foreign exchange. Consequently, the governing factor in each country has been the domestic situation and the restrictions cannot be safely removed until the domestic financial situation has been adjusted. For example, the solution in the case of Germany is bound up with the repayment or funding of the large short term foreign indebtedness of that country. In Chile,51 it is the payments required by the long term indebtedness which must be considered in connection with foreign exchange controls. Important domestic improvement must be achieved in most countries before this problem can be solved.
economic matters
Turning from financial and monetary questions to the third class of problems, economic matters, we are confronted by questions much more difficult of immediate solution. Practically all the countries of the world have in the past few years erected tariff and other barriers against the free flow of international trade, designed to obtain for themselves a favorable balance of payments and/or to protect their own markets for the domestic producer. The creation of these barriers has been accompanied by the establishment of all kinds of exchange [Page 559] restrictions. One of the main objects of the Conference in the economic field is to remove as many as possible of the measures which paralyze international trade and thus to enable commerce to move more freely than it does at the present time.
Tariff truce: With this end in view, the Governments of the eight countries represented on the Organizing Committee for the Conference have, at the initiative of the American Government, agreed to adopt a tariff truce from May 12, 1933, to June 12, 1933,52 the opening date of the Conference. These eight countries believe that restrictive measures should not be intensified pending an opportunity for the Conference to deal effectively with the problems created thereby. They have recommended that all countries participating in the Conference announce as soon as possible their adherence to this truce. The Secretary of State hopes that you will request the Polish Government by cable to announce its adherence to the truce. We are interested in having as many countries as possible adhere to it. The truce will thus be in the form of a general declaration in which the responsibility for carrying it out will rest on every government. Each government will be guided by its own judgment and compliance with the truce will be a matter of honor rather than obligation.
The Ambassador stated that he would send a cable as suggested to his Foreign Office but requested a more specific description of the truce in order that he could properly identify it in his cable. He was informed that a copy of the truce was undoubtedly available at Warsaw since the Organizing Committee had forwarded one to each of the governments participating in the Conference.
After thanking the Ambassador for his willingness to cooperate in this matter, Dr. Feis went on to state that, while the proposed truce only extended to the opening date of the Conference, the American delegation would immediately propose to the Conference that it be prolonged for the period of the duration of the Conference. If this was not acceptable to the Conference, a substitute proposal would be offered to the effect that the truce be extended for a definite period subject to future extensions during the life of the Conference.
Methods of tariff reduction and the removal of trade barriers: The tariff truce is designed to prevent the establishment of additional obstacles to international trade. The Conference is faced with the problem of alleviating the present difficulties arresting international commerce. The solution of this problem involves the reduction of tariffs and the removal of various trade barriers. Three methods are available for the accomplishment of this end.
(1) Autonomous action: Each country acting by itself can take individual steps to reduce its own tariffs and abolish trade barriers. This method does not involve international agreement.
[Page 560](2) Bilateral agreements or treaties: This method requires bilateral treaties containing the unconditional most-favored-nation clause. Two countries would enter into a treaty providing for tariff reductions on specified lists of commodities of special interest to them in their trade with each other. A series of such treaties would, by virtue of the unconditional most-favored-nation clause, extend the tariff reductions throughout the world while each individual country would be protected in its interests by the concessions which it had obtained in the treaties to which it was a party.
The United States favors this method and it will support it at the Conference. If it finds that many countries are not disposed to practice the most-favored-nation treatment, which is the present American policy with respect to commercial treaties, this Government will be compelled to abandon our policy and adopt a bargaining system in order to compete with those countries which maintain bargaining systems. While the United States would prefer to maintain the most-favored-nation principle, it must protect its own interests. Legislation empowering the President to enter into bargaining agreements will probably be introduced in the Congress in the near future.
(3) Multilateral treaties: This method involves the negotiation of treaties to which many countries are a party. The American Government is not particularly interested in this type of treaty and, consequently, makes no proposals with regard thereto. It will, however, consider any proposal put forth by other countries at the Conference.
Remarks of the Polish Ambassador: The Polish Ambassador at this point in the conversations remarked that the American proposals appeared too indefinite to him to provide any basis for any understanding between the Polish and American Governments. He would prefer a definite statement (thése) that “The United States is for this” and “the United States is opposed to that,” etc. He requested that he be furnished with a clear cut statement of American proposals in order to submit it to Warsaw. Dr. Feis replied that the United States did not want to enter the Conference with a program binding itself to a series of propositions which other countries could accept or reject. The Conference is not an American Conference and the United States has less to gain and less to lose than most of the countries participating in it. The Ambassador replied that he would like to have Poland associated with the United States at the Conference. To arrange this, he would have to submit to his Government the American proposals in concrete form so that Poland can either accept them, refuse them, or attempt to come to some agreement or compromise with respect to them. The American attitude, as expressed above, was again pointed out to him with the additional statement that the United States does not want to enter the Conference in the light of having a definite series of proposals which must be considered as an American program.
International Fund: The Ambassador referred to the discussion of the question of the synchronization of internal public expenditures in connection with public works undertaken for the purpose of increasing [Page 561] employment and trade and asked how funds would be provided. He was informed that proposals had been made for the creation of an international fund to provide financing for such improvements. Such a proposal was put forth by the Special British Mission. The United States could not participate in such a fund. In the first place we believe that it would be impossible to come to any international agreement respecting such a fund. There is the example of the small international loan proposed for Austria over which the various European countries have disputed for some eighteen months without coming to any agreement. An international fund of the nature proposed would only cause greater dissension among the countries. In the second place, the United States could not possibly participate in such a fund since the Congress would not provide money for that purpose. American experience with respect to international loans has not been sufficiently happy to encourage it to enter into additional ventures.
Silver: The United States is not interested in the monetization of silver. It desires only to reestablish the commodity price of silver, which has fallen much more than the prices of other important commodities. At the present scale of prices for commodities, the price of silver should be somewhere between $.45 and $.50 cents per ounce. The Special Missions which recently visited Washington gave a sympathetic consideration and even agreed to support our proposals with respect to silver. Great Britain hesitates to take a stand until it has had an opportunity to consult with British India.
Remarks of the Ambassador: The Ambassador was asked if everything that had been discussed was clear to him. He stated that he believed so but that he would have his Counselor of Embassy read the notes that he had taken to avoid any possibility of error. Mr. Sokolowski read the notes which represented the general trends of the conversations.
The Ambassador then asked if all the preliminary conversations carried on at Washington had been held separately with each Special Mission. He was informed that they had been and that such procedure had been adopted at the request of the President. The Ambassador then asked, in view of the fact that the Secretary of State had not yet returned from his conference at The White House, whether he could have an appointment with the Secretary later in the day or early in the morning to discuss with him certain instructions with respect to the Conference that he had received from his Government. He was informed that an attempt would be made to arrange such an appointment with the Secretary’s office. The Ambassador then added that he would have the Commercial Counselor of the Embassy come from New York and discuss the technical matters more in detail with the office of the Economic Adviser.