Memorandum by the Secretary of State

The British Ambassador came in and handed to me, as a matter of courtesy, an extract, in which he thought I would be interested, from the speech in the House of Commons of Mr. Runciman, President of the Board of Trade, relative to the British commercial policy. A copy is hereto attached. I read the statement and expressed the opinion that Ambassador Bingham had cabled most of this to me some days ago39 but that I was nevertheless very appreciative of the kindness of the Ambassador in bringing me a copy.

I then stated that in the abstract the statement of Mr. Runciman was excellent and encouraging, especially if the qualifications and exceptions in it were not to be too much emphasized. I added that the one discouraging note about the matter was my feeling, which I could not help but entertain, to the effect that the statement was too much in the abstract, implying a static or inert attitude of the British Government rather than some step or steps, or some sort of suitable activities, in the direction of leadership with a program approaching and attacking the disorganized and disrupted world economic situation, somewhat after the fashion undertaken by this Government two years ago and still pursued. I said that I desired to express my appreciation of the tone of Mr. Runciman’s remarks, especially as viewed from the abstract standpoint, and added that I would not be quite frank if I did not express a little disappointment in the failure of Mr. Runciman to indicate a single step or act or utterance in the direction, as stated, of some substantial activities [Page 676] on the part of the British Government in the definite direction of seeking and adopting a liberal commercial policy. I further stated that unfortunately the inert or static attitude of the British Government in this respect was pointed to both at home and by most of the capitals of Europe, and emphasized, in support of the state of mind of the opposition, to the effect that the British Government was not moving one fraction of an inch in the direction of either carrying forward any kind of a program or furnishing any kind of leadership for the purposes of international economic rehabilitation; and that I felt sure the Ambassador could understand the distinction I was drawing and the point I was emphasizing. He replied in the affirmative.

I suggested that I was hoping that the desultory conversations between the British Government and the United States Treasury Department might sooner or later result in some encouraging development; that there was a crying need for leadership of the economic section at Geneva; that there was a splendid opportunity for the British to take one step of real leadership and avoid what seemed at this distance to be an attack on the favored-nation policy by lobbyists or fixed interests, as was revealed by the resumption of the discussion and consideration of the favored-nation policy, which had been postponed from time to time and was now set for September. I said that another method of leadership would involve the question of carrying forward an equality program somewhat after the fashion of our operation of this program with Brazil, and that was that instead of taking advantage of our unfavorable trade balance to require every dollar of debt due in our country to be paid promptly, we had made reasonable arrangements with the Brazilians by which the chief portion of the frozen exchange situation was taken care of, with the further understanding that the remainder, which would be made good by security, would be paid later as trade increased under our liberal reciprocity trade program; that if the British Government could see its way clear to make some similar application of the doctrine of equality, it would be a great stroke of leadership in the right direction, whereas the other course of collecting every penny of debt promptly would inevitably become impossible in the not distant future on account of the complete network of artificial and arbitrary trade methods and practices generally and under the course of economic isolation which was so far being pursued. The Ambassador inquired whether Great Britain was not virtually doing this very thing, to which I expressed the view that I was not absolutely certain but it was not my understanding at all.

I called upon the Ambassador to give me any suggestion that he might have that would be helpful to our two Governments in finding ways to go forward by word or act in pursuit of liberal commercial [Page 677] policies. He expressed entire sympathy with my views and indicated that he had no suggestion in mind at the moment.

We both agreed that we were in no sense speaking officially but simply as two individuals discussing economics in a general way and that I was not in the remotest speaking for the Treasury or the President or my Government, especially in my reference to the exchange stabilization program. On this latter phase I raised the inquiry as to why it would not be possible for the British and the American Governments to sum up the economic problems presented and the urgency for their solution and the increasingly disastrous effects of the present narrow policies and announce to the world that hereafter they would undertake to keep the pound and the dollar within certain ranges, with the one qualification of providing that if another country or other countries should manipulate or drastically change their currency or monetary situation with resultant bad effects upon the domestic economy of Great Britain or the United States, the fullest right and privilege was reserved to make such offsetting readjustments as might be deemed necessary and effective. The Ambassador seemed much interested and entirely sympathetic with these inquiries in the nature of suggestions. I again spoke of the fact that a purely nonaction course or policy as heretofore followed was every week rapidly driving all food and raw material producing nations to a policy of industrialization and that no matter how cruel this might be it was wholly and hopelessly uneconomic from everybody’s standpoint; that in certain parts of Europe economic penetration on a steadily increasing scale, which might soon result in both economic and political problems, not to say dangers, was being encouraged and largely forced by a policy of inaction on the part of other important nations; that the longer nations waited before proceeding with a sound program, the more destructive the results which would follow and the more aggravated the difficulties which would arise; that it was clearly important that nations should find some method of approach and of attack of the structure of economic difficulties confronting the nations generally.

There was some reference to the opposition to the trade agreements program here at home. I expressed the view that no matter what the outcome of the November elections this program would continue and would be kept alive; that at the Cleveland Convention40 the platform faced in several directions and that in brief this nation had no alternative except to turn to wholesale regimentation and to a radical and drastic reorganization of the entire economic life of the country, which was unthinkable to the rational person. I said that while I felt that the trade agreements would be preserved in any event, it would not do [Page 678] to overlook the sources of pressure by extremely nationalistic and also selfish groups for the formulation of permanent economic policies for the purposes of both peace and war; that this latter included pacifists and other strong peace organizations; that such pressure naturally would go to the extent of attempted isolation in virtually every way in time of war, including such vital phases as international credit and trade policies; that this again illustrated the importance of economic rehabilitation at the earliest possible date along the lines of a liberal commercial policy; that I could not help but feel that great strides would already have been made had Great Britain moved forward as the United States did beginning two years ago; that, as already indicated, there was a feeling among the opposition in this country and among most countries of Europe that the British Government was almost absolutely static with reference to its economic and commercial policy; that it was seemingly settling and falling back to a two-fold major objective of large armaments and Empire preference; that it was in these unfortunate circumstances that I was finding it difficult to induce other countries in Europe to move forward in support of the liberal economic program such as I knew the British statesmen, as well as the Roosevelt Administration, whole-heartedly believed in and to which I had no doubt the British Government at some time in the future expected to make a real contribution in its carrying out.

The Ambassador seemed greatly interested and emphasized from time to time what I said, and we made it thoroughly clear that we were only speaking to each other in a purely casual and individual way. I finally added that it was barely possible that before the Ambassador left for home in August we might have a purely oral conversation for the benefit of our respective Governments which he could carry home with him. He expressed much interest in this and whole-hearted approval of the idea, in case, as I stated, there should be such facts or developments as would afford an occasion and a basis for such oral conversation.

C[ordell] H[ull]

Extract From the Speech in the House of Commons Delivered by the President of the British Board of Trade (Runciman) on July 15, 1936

I would like to say a few words on the commercial policy of this country, and I am sure it will give satisfaction at all events to the majority of the Members of the House to know that the commercial policy of this country remains unchanged. It is now a well tried policy. We are able to judge by results, and we have no intention of taking any undue risks in the future. Our policy is founded on [Page 679] equality of opportunity for all nations, and is qualified only by the duty of other nations to play their part in the same general scheme. Our policy rests on the belief that only the removal of the artificial restrictions which at present hamper multilateral trade can restore the volume of turnover which was reached before the crisis of 1931. Events since that date have reduced the volume of world trade by 20% and its gold value by 60%, and this disastrous decline can only be due to the impoverishment of nations, to the closing of markets and to the increase of restrictions of all kinds. Not only have tariffs been increased but far more drastic barriers have been raised in the form of prohibitions and quotas and also by the operation of exchange restrictions. The quantitative regulations of imports commonly called quotas are of two kinds. They can be adopted merely as an additional means of protection or they can also be used for the better regulation of production and marketing in the case of certain primary commodities, especially of agricultural products. As regards exchange restrictions, these are happily unknown in the United Kingdom. They are the outcome of fear for the exchange value of the currency in those countries which are haunted by memories of uncontrolled inflation, or by apprehension of the flight of capital. Such fears readily arise in countries where the currency is overvalued. In this country I am glad to say there are no such fears, but in some others they have been constantly present since the crisis of 1931. Such countries, having no currency that can be freely exported, are driven back upon various kinds of barter trade of greater or less rigidity. Clearing agreements are the modern sophisticated form of barter; their object is to get over exchange restrictions or to secure a balance of payments. His Majesty’s Government believe that payments can only be made to balance by artificial means at a lower level of trade all round, but in self-defence we have been compelled to use clearings, or agreements of the nature of clearings, in the case of countries having exchange restrictions where it was essential to secure the liquidation of outstanding commercial debts and to provide more hopeful conditions for current trade. The British import market, which is by far the largest import market in the world, has been kept open for the goods of all nations on fair and equal terms. All through these difficult years the control of this market for the purpose of buying from those who buy from us is a temptation to those who believe that clearings really provide the foundation of a system of balanced trade. Upon certain countries and for a certain period we could no doubt force the greater quantity of United Kingdom goods, but we do not believe that a policy of force in this régime would prosper for long. It would lead to the impoverishment of our customers and of third parties in whose prosperity we are interested, and eventually to a fall in our own trade. We have therefore used [Page 680] the power of our huge import market with great caution to promote the sales of our goods abroad rather than to compel artificially changed purchases. This has been the policy of the Ottawa agreements and of our trade agreements, and it is the policy which we shall continue to follow.

  1. Telegram No. 349, July 16, 5 p.m., from the Ambassador in the United Kingdom; not printed.
  2. Republican National Convention.