Foreign Relations of the United States: Diplomatic Papers, 1942, General; the British Commonwealth; the Far East, Volume I

840.50/388: Telegram

The Chargé in the United Kingdom (Matthews) to the Secretary of State

London, April 12, 1942—3 p.m.
[Received April 12—2:04 p.m.]

1789. From informal conversations of Penrose¹ with Ronald,² Keynes³ and Robinson,⁴ it seems that ministerial consideration has been given to the proposed conversations between British and American Government economists⁵ which they expect to be held here and that the Foreign Office will shortly send instructions to Lord Halifax⁶ to state that the British Government welcomes and approves the holding of the conversations.

The Foreign Office view appears from Ronald to be that the talks should be as informal as possible. They favor making the conversations exploratory in character and covering a fairly wide range, with a view to working towards the principles of arrangements that may subsequently be developed into agreed proposals which the two countries can recommend to other countries. They feel that on some economic questions the proposed arrangements that might ultimately be reached would be dependent on acceptance by another country or other countries besides Britain and the United States.

Both Ronald and Keynes stressed the balance of payments question and it seems likely that instead of directly attacking the problem of tariffs the British will stress the need for making financial arrangements that will ensure an adequate supply of foreign exchange for the purchase of essential imports, since their principal apprehension is that, particularly in the first 2 years after the war, they will not be able to obtain the imports necessary to get back reasonably near their pre-war standard of living and to undertake essential physical reconstruction. Keynes and other Treasury officials expressed an interest in the suggestions in the article of Dr. Feis⁷ in the January issue of Foreign Affairs.

The estimates of the probable position of Britain at the end of the war with respect to foreign investments, which was carried out by Meade⁸ and Robinson, have now been completed but have not yet been made available outside British Government circles.

It appears however that British economists are less pessimistic than they were previously with respect to the probable balance of payments position after the first 2 years of the post-war period are over. Some illustrative figures of a very general character used by Robinson indicated that if output from domestic resources is represented by one hundred, net imports came to about two six in the pre-war period and of these perhaps eleven were the proceeds of investments abroad that will be no longer available when the war ends. He suggested that, of this loss of eleven, five could be made up from increased productivity.

Memoranda have been prepared by Government economists on a number of subjects which it is hoped to take up in the discussions. So far as our information goes the principal subjects with which these deal are the meaning of discriminatory treatment, financial arrangements respecting foreign exchange and trade, raw material controls and international foreign investment arrangements.

These memoranda are not being disclosed, but in the course of conversations Keynes has expressed himself in favor of some form of application of Vice President Wallace’s ever normal granary concept to a number of raw materials. The approach is more likely to be conceived in terms of shortages than in terms of surpluses in relation to post-war world needs.

On British ideas of financial arrangements with respect to foreign exchange and trade, no precise information is available but there is reason to think that some far-reaching detailed suggestions have been devised by the Treasury economists as a basis for discussion.

In some British Government and outside circles here there is a feeling that the enhanced creditor position of the United States makes it essential that there be some general lowering of the American tariff, and not merely further agreements under the Trade Agreements Act,⁹ if a stable basis is to be found for post-war international economic relationships.

It is probably felt in some quarters that Britain will have to reserve the right to bilateral trading arrangements associated with exchange control unless we lower our general tariff and permit increased imports relatively to exports. It is not certain how far this matter will be pressed, in relation to immediate post-war arrangements, since it is realized that such a matter depends on the attitude of Congress. As explained above, the stress is likely to be on financial arrangements ensuring Britain adequate command over foreign currency to permit essential imports in the immediate post-war period.

Keynes mentioned that Harrod, the Economic Advisor to Lord Cherwell—the Prime Minister’s personal assistant—had urged the inclusion of basic nutrition problems in the discussions. In reply to a request for his opinion, Penrose said he understood that both here and in Washington there had been some support for holding a separate nutrition conference, but that he was not certain of present opinion and prospects on this matter. However, he was confident that nutrition would take a leading place in post-war reconstruction plans. Keynes is arranging a meeting with Harrod and, as there is a great interest here in a nutrition program as a post-war measure, it is hoped to obtain more detailed information shortly on the present position here on the subject.

In general the British conceive of the discussions as designed to serve the fundamental purpose of enabling American and British Government economists to test out on each other a fairly wide range of constructive suggestions; and to take preliminary and informal steps toward an ultimate Anglo-American understanding on the economic basis of post-war reconstruction. They regard their proposed plans as tentative and they expect that they will themselves wish to modify their suggestions after they obtain the reactions of our economists. Whether they will bring forward all the suggestions in their documents is likely to depend on the course of the earlier part of the discussions. Hence it is not certain that they will make all their documents available to us, at least until a later stage.

My telegram No. 1594, April 2, 9 [10] p.m.¹⁰ Ministerial sanction has now been given to the Government economists and civil servants to use the suggestions and plans in the documentation “as a basis”, from the British side, “for the exploratory discussions”. This does not necessarily imply ministerial endorsement of all the detailed tentative proposals contained in the documents.

The general attitude among leading Government civil servants and economists continues to be very favorable to Anglo-American discussions and the public and press are showing increasing interest in reconstruction questions, especially from the point of view of presenting some constructive program to counter propaganda of the Axis.

Matthews

1. Ernest F. Penrose, economist, special assistant in the Embassy at London.
2. Nigel Bruce Ronald, Counselor, British Foreign Office; appointed Acting Assistant Under Secretary of State for Foreign Affairs on July 6, 1942.
3. John Maynard Keynes, Economic Adviser to the British Government.
4. F. P. Robinson, Secretary to the British War Damage Commission.
5. i. e., conversations contemplated under article VII of the Lend-Lease Agreement with the United Kingdom, signed at Washington, February 23, 1942; for text of Agreement, see Department of State Executive Agreement Series No. 241, or 56 Stat. (pt. 2) 1433. See also pp. 525 ff.
6. British Ambassador in the United States.
7. Herbert Feis, Adviser on International Economic Affairs.
8. James E. Meade, economist, Offices of the British War Cabinet.
9. Trade Agreements Act of June 12, 1934, as extended April 12, 1940; 54 Stat. 107.
10. Not printed; it reported that the British had drawn up a lengthy and carefully discussed document regarding talks envisaged in article VII of the Lend-Lease Agreement; that the document contained certain monetary views of Keynes; and that, pending the approval of the Cabinet, the document was being kept strictly secret (600.0031 World Program/392).