Memorandum by the Special Assistant to the Secretary of State (Hewes)

I saw the President this morning by appointment on his initiative. The visit was purely personal but in the course of the conversation the talk turned toward war debts and stabilization.

He said that settlement of the war debts was out of the question until the European countries had straightened themselves out or there [Page 376] was a war. I then asked him whether or not something could be done with the debts in connection with stabilization, etc. He seemed to think that stabilization internationally was out of the question under the present conditions of the respective foreign countries, the reason presumably being that they were trying to maintain unsound economic situations which would not support a stabilization undertaking. He then went on to say that he had what he described as a “perfectly wild” idea on the subject which he would like to have me explore. In substance it was that the countries of the world were capable of being grouped into more or less logical and self-contained economic units. Each unit ought to be capable of furnishing its own supply, roughly speaking, of raw materials and manufactured goods for mutual trade within the unit and also with other units. Each unit would have the same type of currency so that within the unit there would be no question of foreign exchange. Also within each unit there would be little or no interference with trade by tariffs, etc. After these units had been worked out, then it might be possible to effect an international stabilization between the several units. To make this possible, United States would sell the requisite amount of gold and take payment in the foreign currency, to be in turn converted into dollars over a period of time.

In order to assure permanency of a particular currency, the stabilization agreement would provide that at least a 30% gold or metallic cover would be maintained and if any country departed from this minimum cover the other units would refuse to trade with it. As illustrating his idea of units, he thought that the British Empire might be one; that Belgium, France and Spain with its colonies might be another; that Germany, Holland, etc. might possibly be another. He did not, however, have any definite ideas as to the composition of the units other than the British and the Belgian, French and Spanish. There would, of course, be a natural unit in the Far East. Arrangements would have to be made by oil producing countries to share some of their oil with units which did not contain any.

I then suggested that such a plan would seem to require a very material rearrangement of the internal economy of particular countries. He said this was true and they ought to do it anyway. He cited as an illustration, for example, the uneconomic production of beet sugar in this country.

In any event he asked me to explore the proposition in the Department and see how it looked on paper.

T[homas] H[ewes]