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

840.48/4999

The Financial Adviser to the British Government (Keynes) to the Assistant Secretary of State (Acheson)

Washington, June 4, 1941.

Dear Mr. Acheson: It may perhaps be useful to both of us if I try to record what seems to me the main upshot of our conversation the other day about surpluses.

1. We agreed that the de facto situation was broadly speaking as follows:

(a) Where the financial conditions and other circumstances render outside help essential, Great Britain is looking after the problem in her own Dominions, apart from Canada, and in Africa. The Dutch, being financially strong, have been left to deal with their own problems, as has Canada. The United States has the primary responsibility towards her own surpluses and those of Central and South America.

(b) Where an important commodity overlaps more than one of these areas, preliminary steps are being taken for international conferences with a view to working out a more stable and more permanent policy. Particular examples of such cases are, up to date, wheat, cotton and cocoa.

2. We agreed that there was no particular reason to interfere with the above arrangements so far as the preliminary phase is concerned. But they are likely—indeed it is advisable—that they should lead up to wider and more ambitious programmes. In particular, the surpluses which are being accumulated are well assorted for the purpose of furnishing first aid towards European relief and reconstruction after the war.

3. The international discussions relating to particular commodities, taken in conjunction with the arrangements for carrying and financing surpluses, might naturally lead on to a more ambitious policy for stabilising within reasonable limits the prices of the leading internationally traded raw materials and even for some kind of international holding cartel which would apply the idea of the ever normal granary to the international field.

4. Nevertheless it would be difficult to bring these more ambitious ideas to the practical level in present circumstances, partly owing to shipping difficulties, partly owing to half the world being at war and partly owing to the abnormal concentration of war demand in particular directions. For this reason the most practical measure might be something on a much more modest scale, limited in the first instance to those tasks which cannot be avoided. Those working together on a narrower field and discussing these problems in common might find themselves in a good position for widening their field of interest whenever circumstances might appear ripe for this.

5. I suggested that this more immediate limited field might cover the following ground:—At whatever date the war ends and whatever particular form the political reorganisation of post-war Europe may take, the continent is certain to be denuded of the primary foodstuffs and raw materials. The governments of a number of the occupied areas are represented in London or Washington. My suggestion was that we should invite the representatives of these countries with whom we are in contact to prepare a preliminary list of their probable post-war requirements in order of priority, covering e. g. the first six months after the armistice. These should then be studied by a joint Anglo-American Committee and criticised, since it would be contrary to human nature to suppose that they would not be on the ample side. The results would then be compared with the actual surpluses in hand and the prospective surpluses. In regard to prospective surpluses it would be useful to form some sort of estimate of the raw materials now required for defence and very far from being in surplus, which will suddenly become redundant when the war machine is stopped with little or no notice. It would then be possible to make provisional allocations, taking into account the probable acute shortage of shipping, matching the more urgent demands with what is most readily available. The next step would be to frame some sort of general idea of the appropriate means for financing such supplies.

I should repeat that I should not regard such discussions as the final end and aim. They would be of real practical significance and they might come to be of value and importance for propaganda purposes. Indeed they would be accomplishing a necessary job of work, which could not be avoided. But they would form habits of association and discussion between individuals of our two countries well qualified in these matters which might well be productive of further constructive developments on more ambitious lines. Meanwhile they would automatically link up our several activities in dealing with current surpluses and would also be of relevance in relation to the discussions of the international conferences treating of particular commodities.

I shall be in Washington next week, but I hope not much longer, and would much welcome a further talk if your group can spare the time.

Yours sincerely,

J. M. Keynes

P. S. There is one point I mentioned at our meeting, which is omitted above, but of which it is perhaps worth while to make a memorandum. I distinguished three possible approaches to the surplus problem in cases where financial assistance is necessary. The first was that which you have followed in your import-export bank loans, i. e. loans substantially without conditions attached, the surplus country being left free to deal with its own surplus problem with the financial aid thus accorded. Secondly, there was the line which Great Britain had taken in dealing with the Australian wool surplus, namely, an outright purchase of the clip during the war and for one season thereafter without any conditions relating to the Australian financial position as a whole. Thirdly, the assisting country might go into partnership with the assisted country in solving the problem, each providing a portion of the finance and sharing the ultimate profit or loss on winding up the scheme. This course had been adopted by Great Britain in her latest arrangement with the Egyptian Government for dealing with cotton. I expressed the opinion that the third method was the best and might lend itself to a tripartite partnership in appropriate cases. It did not relieve the assisted country of the onus of making adjustments in their output of the surplus commodity. Above all it brought the two countries into partnership at the later and highly important stage of liquidation when the surplus stocks would be in competition with the current output. Even with this method, however, there would remain the overriding importance of treating an assisted country’s position as a whole and only giving such measure of assistance in the case of a particular commodity as might be justified, taking all the other elements in the situation into account.