The Consul at Geneva (Gilbert) to the Secretary of State

No. 1776 Political

Sir: I have the honor to submit the following report upon the possible trend of the discussions on economic questions which are expected to take place in the forthcoming sessions of the Economic Committee6 and the Assembly of the League of Nations.7

It will be recalled that Mr. van Zeeland, the President of the Assembly, in his closing address on July 4, 1936, (copies of which are enclosed8), drew attention to the danger of relying entirely upon political methods and neglecting economic considerations and suggested that the next Assembly should again make a comprehensive and strenuous effort to set in motion an economic revival. I learn that Mr. van Zeeland had a number of discussions with Mr. Stoppani and Mr. Smets of the Economic Relations Section of the League Secretariat on the subject and I have therefore taken the occasion to obtain a more definite expression of their views with the thought that they would be of interest as throwing some light on the possible trend of discussions in the forthcoming meetings of League bodies.

Mr. Stoppani considers that if political and economic conditions are allowed to develop along their present paths war is inevitable. German economy, for example, is now based upon rearmament (60% to 70% of its industry, he says, works directly or indirectly for armament). Germany finds obstacles to its exports on all sides, its money is exclusively internal, it can negotiate with other countries only on the basis of compensation, its policy of compensation is to secure the necessary materials for armament and it has used this system to secure a hold on the countries of eastern and central Europe. Without sane and normal communication with the outside world it can maintain its present economic position only by increasing the rhythm of its internal activity and this it can do only by constantly multiplying its military power.

In a year’s time German armament will have reached a formidable level. It is all too likely that this enormous power will find some pretext for its use. Should it be possible, however, to arrive at a political settlement which would dispel the fear of war the position of the German dictator would be even more untenable. For how could Germany then justify continuing the manufacture of thousands of cannon and airplanes per week and on the other hand how could [Page 455] she cease this activity when it is by this means that she avoids unemployment and maintains her national economic activity? The answer, in Mr. Stoppani’s opinion, consists in reestablishing normal monetary, financial, and commercial relations with the rest of the world. Pointing out that there are other countries whose position is similar to that of Germany, Mr. Stoppani asks if it is not time for a last effort to reconstitute the bases for normal economic life. In his opinion the initiative for such a movement must come from that section of the world which enjoys a relatively good economic situation and which is free from quotas and exchange control, namely, the sterling group and the United States.

Until recently Great Britain could hesitate between the alternatives of re-establishing a certain stability of exchange and of keeping its hands free to reply to possible devaluation in other countries. Furthermore, until recently France could consider whether the advantages to be gained would offset the sacrifices which its agriculture and industry would have to make were the system of quotas demobilized. Today, however, the disadvantages of stabilization and of the abolition of quotas and exchange control must be weighed against the possibility of a war which would ruin everyone.

For these reasons Mr. Stoppani considers that it is indispensable that an early effort be made to initiate a project of international economic collaboration. He envisages an eventual provisional accord which he suggests might be developed along the following lines:

A common offer from the United States and Great Britain to maintain the present rate of exchange between the pound and the dollar for a period of, say, two years.
A proposal of these same states to examine, together with countries in monetary distress, particularly Germany, the possibility of aiding them to free themselves from exchange control and to avoid the internal panic which they dread. The conditions of such an operation would probably be: (a) stability of the pound and dollar; (b) minimum guarantees for exports; (c) some arrangements respecting debts.
As a counterpart to these offers a demand to the protectionist countries to envisage the progressive demobilization of quotas and the breaking down of prohibitive barriers.
Any accord must be based on the monetary parities existing at the time of its conclusion and it might be to the interest of countries such as France or Switzerland in the situation thus created to adopt a new parity for their currencies.

It is unnecessary to draw attention to the difficulties which lie in the way of such a program and the part which political questions would play in its development. Mr. Stoppani hopes, however, that the Economic Committee in the report which it will prepare at its September session on the state of international economic relations will draw attention to these considerations, that its report will form a basis for [Page 456] the discussions in the Assembly, and that the Assembly discussion will lead to an eventual international effort to remedy the present deplorable situation.

Respectfully yours,

Prentiss B. Gilbert
  1. Held September 7–12, 1936.
  2. Seventeenth session, September 21–October 10, 1936.
  3. Not printed.