811.24/1850a: Telegram
The Secretary of State to the Ambassador in the United Kingdom (Winant)
4207. For the Ambassador and Harriman only. Department’s 4206, July 10, midnight.93 Secretary Morgenthau is primarily concerned with the financial aspects of lend-lease policy and his telegram was naturally written from that angle. At the same time the Department and the Office of Lend-Lease Administration attach much broader significance to the request for raw materials as reciprocal aid than his telegram indicates and we trust that the following additional background will place the matter in proper perspective. Incidentally, the mandate of the Interdepartmental Committee was to consider lend-lease policy in relation to the dollar position of lend-lease countries.
After the Treasury requested through Phillips that raw materials be given as reciprocal aid, Harry Hopkins discussed the manner [matter] fully and forcefully in a conversation with Lord Halifax. On June 25 Sir Frederick Phillips and Opie discussed the matter at [Page 65] their request with Stettinius, Acheson and Feis and gave the reasons why the British Government found difficulty in acceding to our request. Phillips explained that although the dollar and gold assets of the United Kingdom had grown since inauguration of the lend-lease program until it appeared likely that they would amount to approximately $1,000,000,000 by the end of 1943, British current liabilities in other parts of the world would increase this year at the rate of $3,200,000,000. Against these liabilities the British Treasury considered that it had quickly realizable securities amounting to $600,000,000, leaving a net increase in its liabilities of $2,600,000,000. The British Treasury feared its other creditors might refuse to accept substantial sterling balances unless either payments in gold or dollars were made on account or those balances were permitted to accumulate as a reserve against which payments might be made when needed. British payments in sterling for raw materials for this country would both increase sterling liabilities and reduce gold and dollar assets.
Stettinius and Acheson explained that in the discussions they had had with members of Congress during the period when the extension of lend-lease was before Congress and during the hearings upon recent lend-lease appropriations,94 the question of payment by the United States for raw materials purchased in the British Empire had been repeatedly raised. They explained further that the general principle of pooling materials for the conduct of the war was one which Congress was willing to accept and that the extent of British reciprocal aid to the United States had made a highly favorable impression in Congress. Payment by this Government for raw materials purchased in the British Empire was, however, very difficult, if not impossible, for Congress to understand. It seemed to Congress a striking exception to the principle of pooling resources. The amount involved was comparatively small and it continually distracted the attention of members of Congress from the large amounts of assistance being given us by the British, particularly as part of the raw materials which we buy are returned to the British through lend-lease. Stettinius urged strongly that the political effect of the British transferring these materials under reverse lend-lease would far exceed the financial outlay and would greatly assist him in maintaining lend-lease assistance at a high level.
[Page 66]Phillips also inquired whether, if the British balance should continue to grow, even if they furnished us raw materials, this Government would apply continued pressure to keep the balance at approximately the present level. It was explained to him that there undoubtedly would be continued pressure for such action under the circumstances cited by him. It was also pointed out that, in considering what steps could or should be taken with regard to the growth of the British balance, it would make a great deal of difference whether or not this country was contributing directly to that growth by purchasing essential imports and whether or not the British Government was doing everything in its power to furnish us reciprocal aid. In other words, it was made clear to him that no commitment could be made regarding future action but also that the pressure for some reduction of lend-lease would be almost irresistible if the balance continued to be increased by our payments for public purchases. Phillips and Opie said they would discuss the matter with the Chancellor of the Exchequer during their present visit to London.
The foregoing is for your guidance and Harriman’s in discussing this matter with the British authorities.
- See footnote 84, p. 60.↩
- For reference to Mr. Acheson’s testimony on extension of the Lend-Lease Act, see footnote 68, p. 52; for Mr. Stettinius’ testimony before the House Foreign Affairs Committee, see Extension of Lend-Lease Act: Hearings Before the House Committee on Foreign Affairs, 78th Cong., 1st sess., on H.R. 1501, pp. 1–48, 329–345. For Mr. Stettinius’ testimony before the Senate Foreign Relations Committee, see Extension of the Lend-Lease Act: Hearings Before the Senate Committee on Foreign Relations, 78th Cong., 1st sess., on S. 813, pp. 1–26, 31. For Mr. Stettinius’ testimony on supplemental lend-lease aid, see Defense Aid (Lend-Lease) Supplemental Appropriation Bill, 1948: Hearings Before the Subcommittee of the Senate Committee on Appropriations, 78th Cong., 1st sess., on H.R. 2753.↩