Memorandum of Conversation, by the Adviser on Political Relations (Hornbeck)

Participants: Mr. Morgenthau, Secretary of the Treasury
Mr. Daniel Bell, Under Secretary of the Treasury
Mr. Jacob Viner, Special Asst. to Secretary of the Treasury
Mr. Bernard Bernstein, Assistant General Counsel of Treasury
Mr. Coe, and other officers of the Treasury;
Mr. Lauchlin Currie;
Mr. Hornbeck

At the request of Mr. Morgenthau, conveyed to me orally late yesterday afternoon by Mr. Coe, I went to Mr. Morgenthau’s office this morning at 9:15. I found there the other officers above listed.

Mr. Morgenthau opened the conversation with reference to a meeting which had been held in his office yesterday afternoon in the course of which he had suggested that U.S. financial assistance to China [Page 439] (Chiang Kai-shek’s request for a loan) might perhaps be handled advantageously by means of this Government’s undertaking to devote certain sums of money per month to the support of Chiang Kai-shek’s army (payment of soldiers). Mr. Morgenthau said that Dr. Soong had reacted very favorably. He went on to say that last evening he had dined at the British Embassy and had been “very indiscreet—and had enjoyed being so”. He said that he had talked with Lord Halifax49 and Mr. Churchill; that he had caused Churchill to put his mind intently upon China for a whole hour; that both Halifax and Churchill had responded favorably to the financial idea which he, Mr. Morgenthau, had propounded; that Churchill had said that in whatever direction the U.S. Treasury might wish to proceed toward support of China, England would go along. Mr. Morgenthau said that he had mentioned Sir Otto Niemeyer, his presence in China, and suggestions which he was reported to have made. He said that Mr. Churchill or Lord Halifax (??) had said that he knew Niemeyer well, that … he wondered who had sent him to China, and that they would pull him out immediately. Mr. Morgenthau said, as an aside, that he would wager that a hot telegram had gone out from the British Embassy about Niemeyer last night. Mr. Morgenthau then threw open for discussion his proposal.

Mr. Coe said that a memorandum on the subject had been written last night. A copy of that memorandum was on Mr. Morgenthau’s desk. Mr. Coe gave Mr. Currie and me copies.50 With apparently little reference to the memorandum, the Treasury officers and Mr. Currie then engaged for twenty minutes in a lively discussion of U.S. dollars, silver dollars, Mexican dollars, U.S. paper dollars, “fapi”, rice, etc.

Finally, Mr. Morgenthau’s secretary reminded him of another engagement. Mr. Morgenthau asked me what the Department of State thought of his proposal. [I had been informed briefly yesterday afternoon by Mr. Coe of the fundamental feature of the proposal; and I had informed the Secretary and Mr. Berle and Mr. Hamilton51 of it; and I had the first reaction of each.]52 I replied to Mr. Morgenthau that this matter had been brought to our attention only late yesterday afternoon and I could not say that there had been formulated a State Department opinion. I would wish to point out, however, on my own responsibility one or two things. First, Chiang Kai-shek had asked for a loan in terms which indicated that he wanted something which would be of political advantage to him, the situation in China and his problems being what they are. I sketched briefly what I conceived [Page 440] to be the political problem. I said that I did not think that it would be practicable for us to envisage making ourselves paymasters of the Chinese soldiery; that the situation does not lend itself to that; that our problem is that of clearly indicating to the Chinese nation and all concerned that we have confidence in China, in China as represented by and functioning through the Chiang Kai-shek (Chungking) Government; and that we intend to give a full measure of practical support to China in terms of that Government as an important member in the United Nations group.

Mr. Morgenthau then asked that the group, except himself, adjourn to Mr. Bell’s office and continue the discussion.

In Mr. Bell’s office there was about thirty minutes of discussion. There, Dr. Currie and Dr. Viner brought matters down to earth and emphasized the fact that if we make this loan we will make it for the purpose of attaining certain political objectives, that we must do it in a way which will best serve those objectives. I called attention to the telegraphic reports which we have had of what Chiang Kai-shek said to Mr. Gauss, Mr. Gauss’ comments thereon, Mr. Fox’s comments and suggestions, Dr. Kung’s message, etc. I emphasized that the problem involved is first of all political, that we must try to understand clearly the essential features of that problem and then try to shape our action in the light of those features and with our eyes on the main objectives to be served. Mr. Bell summed the matter up in a manner which led to my remarking that Mr. Bell’s words were almost identical with a statement which I had heard the Secretary of State make and I called attention to the Secretary of State’s letter of January 10.

I walked from the Treasury Department to this Department with Dr. Currie. I find that Dr. Currie’s views coincide largely with those held here, but that Dr. Currie has some concept of being able to make additional financial aid to China available through Lend-Lease channels. I mentioned as possibly advantageous in theory at least the procedure of proposing that a congressional authorization and appropriation be obtained—for the sake of the emphatic political effect both here and in China of such action.

S[tanley] K. H[ornbece]
  1. British Ambassador in the United States.
  2. Supra.
  3. Maxwell M. Hamilton, Chief of the Division of Far Eastern Affairs.
  4. Brackets appear in the original.