Foreign Relations of the United States Diplomatic Papers, 1941, The British Commonwealth; The Near East and Africa, Volume III

840.48/4844½

The Director General, British Ministry of Economic Warfare (Leith-Ross), to the Assistant Secretary of State (Acheson)¹⁴

[London,] 14 February, 1941.

My Dear Dean: I hope that you have had a chance to read my message to Henry Grady of the 30th November^14a and his reply dated 2nd January about the surpluses problem. At the end of his letter Grady says that my further comments would be welcome and suggests that I send them to the State Department, and I am venturing to interpret this as an invitation to reply to you. It seems to me clear that the prospect of finding any solution of the problem will depend on joint, or at any rate coordinated, action between our two countries and I am anxious, therefore, from the outset, that our policy should be directed on lines which will harmonise with yours. At present my Government have not committed themselves to any hard and fast ideas, but we are doing what we can to think out how the various aspects can best be tackled. My message to Grady was an effort to put down the trend of our thought at that time, and this is a continuation.

2. I was very encouraged to find from Grady’s letter that there is no substantial difference between us on the main objectives. We both recognise the importance of the problem as well as the difficulties in the way of any solution. We are in agreement also that the problem has both short-term and long-term aspects. It follows that the short-term policy ought to be framed in such a way as to lead up to or at any rate not to impede the formulation of a long-term policy, and that both aspects ought, so far as possible, to be kept in view in dealing with immediate cases that arise. Putting it concretely, you and we are being forced by circumstances into dealing with urgent cases of particular industries or particular countries which, for political or commercial reasons, we are impelled to help. We may have to improvise remedial measures for such cases but so far as possible, it is surely desirable to frame such measures so as to get the most constructive results, e. g. in connexion with post-war plans for relief in Europe and for stabilisation of commodity prices and for the adoption of saner economic policies all over the world. We feel that it would be a great pity simply to deal with immediate cases by palliative measures without taking every opportunity to further these wider aims.

3. As regards methods of approach, there are two different lines which have to be followed more or less simultaneously. First, the handling of actual commodity surpluses and any arrangements for regulating production, stockholding and marketing must unquestionably be approached by reference to the individual commodities. We are quite prepared to consult with you on this basis and you will be aware that such consultations have already been initiated about wheat, sugar¹⁵ and cocoa. We are also approaching you about sisal, in conjunction with the Netherlands Government, and we have expressed our readiness to discuss cotton, on which we are also working. I fully agree with Grady that discussion of individual commodities affords the most realistic basis for cooperative action.

4. But side by side with this commodity approach, the economic difficulties of producers have also to be viewed geographically and politically, i. e. country by country. Some countries are so dependent on one crop that their position can be safeguarded by appropriate action in regard to this commodity. But such cases are the exception rather than the rule. In most cases the producing countries have some variety of economic activities, part of which may be depressed, others doing well. In such cases, the Government of that country should make the necessary effort to redistribute its national wealth so as to keep any depressed industries of national importance going. They may need some help for this purpose and your policy of financial credits, as explained in Grady’s letter (paragraphs) represents an effort to give them this help.

5. These two different approaches—by commodities and by countries—will, however, at some stage have to be brought together and reviewed as a whole. This was what I meant by the phrase in my letter to Grady (which I am not sure came through correctly in my cabled message) that “the surpluses problem is a great deal more than a collection of problems of individual surpluses in particular countries”. For example, whether or not your financial assistance to the South American countries is directly linked with purchases or loans on particular commodities, the prospect of their ultimate repayment must largely depend on whether the exports of the borrowing country can be maintained at a profitable level. The extension of financial credits therefore does not make it less but more advisable to proceed with arrangements for regulation of production, stockholding and marketing of particular commodities; and it may be a very useful lever for getting agreements of this kind.

6. Moreover, the question of storage for Europe (to which I will refer again later) cannot be treated adequately on the basis of particular commodities. Any programme for this purpose will raise difficult questions of financing on which we are not ready with any specific proposals; but the same questions are bound to crop up in discussing what stock of each particular commodity should be kept and it would appear advisable therefore that they should be examined as a general factor in the whole problem.

7. Another general factor to which Grady refers at the end of paragraph 3 of his letter is the possibility of increasing consumption. So long as the war lasts, this must be a rather theoretical question for us here, but it is one which certainly should be kept in view for the future. The pre-war consumption in Europe of many foodstuffs could certainly have been greatly expanded and the nutrition of the peoples concerned definitely improved if prices to the consumer could have been lowered by reducing protective duties and quantitative restrictions on imports and also by keeping down handling and distribution costs. Personally, I much hope that after the war action on these lines can be secured. This would be the best means of increasing general consumption; but efforts should also be made to encourage the adoption of special measures such as your Blue Stamp scheme, where they can be applied. Possibly both methods can be tried in combination.

8. For all the above reasons, I feel that the policy on surpluses needs to be worked out from a very broad standpoint and that effective action will depend on a strong lead which can only be taken by your Government and mine in cooperation. My idea was that, at the appropriate stage, some small organisation should be created which could speak with authority for our two countries. Norman Davis will bear me out that the International Sugar Agreement was only made possible by the efforts of the steering committee in which he played so large a part.¹⁶

Something of this kind seems necessary to stimulate progress in the detailed negotiations on specific commodities and to coordinate policy on the whole field. It may well be premature to set up such an organisation until we have made more progress on particular commodities, and I have not attempted to work out any constitution or terms of reference for it, but at a certain point I feel that some such organisation will be the most effective means of securing action. Possibly it might be started as a purely consultative body and allowed to evolve into an executive body.

9. Grady made two suggestions in paragraph 8 of his letter, to which I would briefly refer. The first suggestion was that the pertinent facts and statistics concerning surplus commodities should be assembled. Last autumn we got together a group of economists here for this purpose and they compiled a general survey of the background data relating both to surplus commodities and individual producing countries. In fact, however, we have found that their work required such continual revision in the light of new developments that it was better to collect information as required rather than to attempt to develop and keep up to date a general survey. Grady’s second suggestion related to a review of international commodity control schemes. I agree that this would be useful, and I hope that it will be put in hand, though, in view of the present demands on our supply of qualified investigators (who don’t seem to be a surplus commodity!) it will not be easy for us to do much. We should of course be ready to prepare notes on the working of the existing schemes on which we have fuller information than is at your disposal (e. g. rubber, tin¹⁷ and tea¹⁸) and generally to assist on any particular aspects on which you may specially desire our views, and we should be glad to study and comment upon the results of your investigations.

10. My own experience suggests that (apart from technical difficulties) the main obstacle in the way of instituting Governmental control schemes such as we are now considering, is economic nationalism. Parliamentary Governments under pressure from important producers’ interests, are often in as bad a position to take long views as any other types of government. Only when the situation gets more or less hopeless are a number of different Governments likely to accept the limitations on their freedom of action inherent in any regulation scheme. Even then, each Government will want to get the maximum benefit for its own producers and to give away as little as possible to the others; so it comes to a horse deal. But I believe that the situation in regard to many commodities will soon be recognised as pretty hopeless, which is the beginning of wisdom. Further, the United States, with its commitments to Latin-America, and the United Kingdom, with its commitments to the Empire, together cover a great part of the field. You cannot speak for the Latin-American countries and we cannot speak for the self-governing Do minions or the Indian Empire; but if we work together, using our joint consuming power as much as our political influence, we can help to build a bridge between the other countries and their competing interests, and cooperation of this kind will, I believe, help to evolve policies which will bring us closer together, whereas otherwise there is a danger that our respective commitments will lead us to drift apart.

11. Our ultimate aim should be a world-wide extension of some of the principals of the A. A. A.¹⁹ schemes applied in the United States. We shall almost certainly not succeed in making them applicable to all important commodities, but if we succeed only in regard to a few important commodities, it will make a great deal of difference to the economic future. If we could succeed in preventing sharp fluctuations in the prices of the chief primary materials, we should have gone a long way towards smoothing out the cyclical depressions of trade in manufacturing countries. This sort of objective seems remote from the troubles of war which now beset us, but economic depressions are the breeding ground of social disturbances and future wars, so I feel no hesitation in urging this aspect of the problem on you. Meanwhile, to get back to actualities, we are most ready to keep you informed of any interim action which we undertake in regard to specific cases and I hope that on your side you will be willing to reciprocate.

12. Finally, I should like to add a few words about the building up of stocks for Europe’s post-war reconstruction, for this is an aspect of the surpluses problem upon which I said comparatively little in my message to Grady. As I see it broadly, the major part of this problem is likely to be not the purchasing for storage of supplies which would otherwise be lacking, but of providing for the rapid transfer of existing stocks to consumers in Europe when the time comes and of reducing as far as possible price fluctuations. I am turning over in my mind what proposals can be put forward to provide for this, and I should very much like to have some indication of how your ideas are shaping. Here I will only say that it appears to be in the interests of producers and would facilitate the carrying of stocks, if some arrangement could be made for definite quantities of surplus supplies to be segregated for marketing to Europe if not actually sold in advance. But any such arrangement also presupposes some progress in international regulation schemes, as otherwise surpluses will continue to grow and prices to fall, and no forward commitments can be made on a constantly falling and bottomless market.

13. The above refers to the stocks required to get the economic machinery of Europe restarted—involving large-scale supplies of raw materials as well as food supplies. I recognise that, apart from this, there is also the question of making arrangements beforehand to meet the immediate post-war needs for actual relief of destitute areas. It seems to me that this aspect of the question could appropriately be handled by private charitable organisations. I have suggested to Mr. Henry Cadbury and Mr. Yarnell, who recently called on me, that their organisation,²⁰ and the Red Cross, should consider preparatory action in this field.

14. I am afraid that this has become almost an essay rather than a letter, but it may be useful to you to have the various general considerations which I have strung together. I hope that I may be able to follow it up before long with more concrete proposals.

I am giving a copy to Loyd Steere, the Agricultural Attaché here, with whom I am glad to keep in touch, and I am mailing a copy to Sir Owen Chalkley, so that he can follow up the discussions at Washington. If there are any points on which you would like further explanations, please do not hesitate to let me know.

With best remembrances

Yours sincerely

F. W. Leith-Ross

14. Transmitted to the Assistant Secretary of State by Sir Owen Chalkley, Commercial Counselor of the British Embassy, under covering letter dated March 24.
15. Foreign Relations, 1940, vol. iii, p. 138.
15. For correspondence concerning arrangements for the wartime operation of the International Sugar Agreement, see Foreign Relations, 1939, vol. i, pp. 948 ff.
16. Norman H. Davis was chairman of the American delegation to the International Sugar Conference held at London, April 5–May 6, 1937; the International Sugar Agreement was signed May 6, 1937. See Foreign Relations, 1937, vol. i, pp. 931 ff.
17. For correspondence concerning rubber and tin, see vol. i, pp. 492 ff., and pp. 507 ff., respectively.
18. See International Labour Office, Intergovernmental Commodity Control Agreements (Montreal, 1943), pp. 47 ff.
19. Agricultural Adjustment Administration.
20. Presumably the Friends Service Committee.