The Ambassador in the United Kingdom (Winant) to the Secretary of State
[Received March 5—5:12 p.m.]
1807. For those engaged in Article VII discussions (see Embassy’s 1211, February 12). The informal technical talks between the British and the Dominions on Article VII questions are progressing and will continue next week and perhaps in the following week as well. They are being held in strict secrecy and information in this and subsequent telegrams concerning them should be treated as particularly confidential since it is obtained privately and not officially. Following are preliminary notes which will be supplemented when the talks have developed further.
International Commodity Questions. The British now appear to be moving to a position roughly as follows: Agreements respecting particular commodities might be negotiated directly by governments in the light of agreed general principles adopted by a General Commodity Council. Such agreements in draft form might be submitted to the General Commodity Council for comment and advice before adoption.
The use of buffer stocks as a means of control of the business cycle was discussed at the meetings and the general conclusion is likely to be in favor of experimenting in this field with at least a few commodities. The British strongly favored this and Keynes intervened vigorously in support of it. He admitted the difficulties of covering a large number of commodities with this objective in view but argued that a beginning should be made as early as possible with a very small number of raw materials because of the importance of developing a flexible, quickly responding instrument of control over investment. [Page 20] He feels that public works and public action to stimulate private investment in fixed capital operate too slowly to offset sharp changes in business activity and that it is therefore necessary to supplement such measures by developing means of effecting quick changes in investment and disinvestment in working capital.
The Canadians have stressed the importance of bringing commodity measures into operation promptly after the war. They are becoming sceptical of any tendency to treat the international commodity plan as a long run measure only to come into operation after a postwar transition period has been completed and a supposed equilibrium has been reached. They suggest that the Article VII plans, at least in respect to some raw materials, should start with the immediate postwar position and should tackle the disposal of wartime stocks in ways that would minimize undesirable fluctuations. The experience thus gained might help to set the pattern for subsequent operations.
Tariffs. So far the Canadians have shown themselves ready to consider a larger percentage cut in tariffs than the British seem inclined to favor. The British still hold out for both a ceiling and a floor. They also still oppose a formal limit on subsidies and the Canadians seem to be coming round to their viewpoint on the ground that some political safety valve is probably necessary to obtain acceptance at the political level of the comprehensive series of measures on commercial policy which are under consideration. The tendency is to assume that cost to the taxpayer will set an effective limit to subsidies. This of course, while probably true of total subsidy expenditure, leaves the way open to excessive subsidization in respect to particular commodities.
Full Employment. There has been some discussion of the relation of domestic full employment to the international monetary trade and commodity measures. The Australians have taken the lead in stressing the importance of this subject. So far it does not seem that substantial practical results have come from the discussion. There has been general recognition of the necessity of maintaining a high level of domestic activity if the international measures are to operate satisfactorily but constructive suggestions are hampered by consciousness of political limitations on the ability of international organization[s] or meetings to influence the domestic economic policy of a particular country. Keynes expressed the view that such international advice as would be readily acceptable by a country would be of little use while advice that would be effective if adopted would usually be resented or at least not accepted.
Some of those taking part in the discussions refer to these difficulties as giving additional reason for the establishment of international buffer stocks. They argue that if raw material stocks are dealt with separately in each country in times of maladjustment nationalistic [Page 21] policies will lead to the adoption of conflicting and inappropriate measures in different countries, while buffer stocks under international control might be a convenient instrument through which international influences could be brought to bear on national policies.