Foreign Relations of the United States: Diplomatic Papers, 1944, The British Commonwealth and Europe, Volume III

840.50/9–3044

Memorandum by the Secretary of State to President Roosevelt ²⁶

Washington, September 30, 1944.

You will recall my memorandum of September 2, 1944,²⁷ suggesting that you urge upon Mr. Churchill the early resumption of conversations on economic policy, and my memorandum of September 8th²⁸ stressing the fundamental importance of predicating, the extension of financial assistance, whether through lend-lease or otherwise to Great Britain during phase two, upon the adoption by the British Government of sound economic policies designed to revive the flow of international trade.

Your memorandum of September 15th²⁸ indicated that you had substantially agreed to Mr. Churchill’s request for some six-and-a-half billion dollars of lend-lease aid during the first year of phase two but it did not mention any discussion of economic policy or any policy commitments on the part of the British Government.

On September 17th I accordingly urged you to make clear to Mr. Churchill that one of the primary factors in connection with phase two of lend-lease, in excess of the strategic needs of the Pacific war, would be the soundness of the economic policy adopted by Great Britain.

I have just learned that Lord Keynes²⁹ is now en route to this country to be available to discuss the financial situation of the United Kingdom Government.

As the Committee specified in your memorandum of September 15th has already begun discussions with the British and in view of Lord Keynes’ impending arrival in this country, it is important that we know what you said to Mr. Churchill, either at Quebec or Hyde Park,³⁰ along the lines I suggested. It is also important to know whether you consider your agreement with the Prime Minister to cover the extension of lend-lease aid to the specific figure of $6,500,000,000 or whether you intended that lend-lease aid should be based upon specific gross needs rather than upon the proportion, as Mr. Churchill had suggested of British industry which might be converted to peace-time production.

Perhaps it would be useful if I summarized briefly at this point the lend-lease problem as I see it and what my associates and I in the Department of State have been trying to do. Soon after we began to furnish lend-lease assistance to Great Britain under the Act of March 11, 1941,³¹ it became apparent that the volume of such assistance would have to be on such a large scale that there could be no question of the British Government’s repaying us in full either in money or in goods. We had fresh in our minds the world war debts problem. We knew that even if the British could produce the goods to repay us it would not be possible for the United States to accept them. On February 23, 1942 we therefore concluded an agreement with the British Government on the principles applying to mutual aid. That agreement was necessarily a preliminary one since as was recognized the final determination of the terms and conditions under which the United Kingdom received such aid and of the benefits to be received by the United States in return therefor “should be deferred until the extent of the defense aid is known and the progress of events makes clearer the final terms and conditions and benefits which will be in the mutual interests” of the two countries and will promote the establishment and maintenance of world peace.

The heart of the agreement was of course Article VII which I quote in full for ready reference:

“In the final determination of the benefits to be provided to the United States of America by the Government of the United Kingdom in return for aid furnished under the Act of Congress of March 11, 1941, the terms and conditions thereof shall be such as not to burden commerce between the two countries, but to promote mutually advantageous economic relations between them and the betterment of world-wide economic relations. To that end, they shall include provision for agreed action by the United States of America and the United Kingdom, open to participation by all other countries of like mind, directed to the expansion, by appropriate international and domestic measures, of production, employment, and the exchange and consumption of goods, which are the material foundations of the liberty and welfare of all peoples; to the elimination of all forms of discriminatory treatment in international commerce, and to the reduction of tariffs and other trade barriers; and, in general, to the attainment of all the economic objectives set forth in the Joint Declaration made on August 12, 1941,³² by the President of the United States of America and the Prime Minister of the United Kingdom.

“At an early convenient date, conversations shall be begun between the two Governments with a view to determining, in the light of governing economic conditions, the best means of attaining the above-stated objectives by their own agreed action and of seeking the agreed action of other like-minded Governments.”

By the time we undertook the negotiation of this agreement it was clear to me that the principal benefits which we might expect to obtain lay in the field described in Article VII. The United States does not need nor desire any cession of territory from the United Kingdom. The program set forth in Article VII impressed me as being one indispensable to conditions in which world peace could survive. I felt then and I feel now that no collective system of security can be expected to work unless adequate measures are taken in the field of world economics to hold out hope of a tolerable standard of living to all peoples.

You will recall the difficulties which we had in getting the British Government to agree to Article VII. It was your intercession with Mr. Churchill at the last moment which finally persuaded him to take the British Cabinet along with him in assuming this commitment.³³ Unfortunately the commitment was necessarily indefinite. It would perhaps be better to describe it as a statement of an agreement on objective without a binding commitment as to the ways and means by which the objective would be realized.

I attached very real importance to this whole question because of a number of disturbing trends which were visible throughout the world under war-time conditions. One of these was an emotional tendency, which I fear may be capable of being translated into governmental action toward the extension, rather than the curtailment, of Imperial preference.³⁴ This was doubtless due to an appreciation in the United Kingdom of the extent and degree to which the Dominions and the Colonial Possessions supported the home country in the war effort. Another thing which disturbed me was the frank advocacy in Great Britain, even on the part of some British officials that Britain’s post-war commercial policy should be based on discriminatory bilateral agreements. This was the method of Hitler and the totalitarians. It didn’t work for Germany and we know that it won’t work for Britain or any other country.

You will recall that in September and October of last year we had confidential conversations at the expert level with representatives of the British Government on the objective set forth in Article VII.³⁵ We made considerable progress in our discussion with the British experts. It was hoped that we would be able to resume these conversations in February 1944. This was not possible, however, because the British experts ran into difficulties at the Cabinet level. In other words the British Cabinet as recently as April of this year was reluctant to go forward even with expert discussions on the program set forth in Article VII since they were not able to reach agreement among themselves as to whether they wanted to proceed in the direction laid down in Article VII.

Naturally we don’t know at this time the extent to which public opinion and Congress will support a program for the reduction of trade barriers, which in my opinion is indispensable to world peace. What is important, however, is that the British Government agree now that they will not be the obstacle if we are prepared to move along in that direction. In other words they should be prepared to go along with us to the extent that we find it possible to proceed, and they should make it easier, not harder, for us politically.

My associates and I have endeavored at all times to keep before the British Government not only their obligation under Article VII to proceed with us in the formulation of a program but to impress upon them the desirability from the standpoint of the British Commonwealth itself and general world conditions in doing so. Richard Law informed me about six weeks ago that his Government would be prepared to resume the Article VII discussions in London “in the autumn”. In the meantime our experts have been hard at work on the formulation of definitive proposals. In a few weeks I hope that it will be possible for me to lay these proposals before you and to discuss them with you. My suggestion would be that we not proceed too rapidly with the implementation of plans for lend-lease aid in phase two beyond the direct strategic needs of the Pacific war until we are able to ascertain a little more clearly the attitude of the British on these commercial policy questions above referred to. As I pointed out in my memorandum to you of September 8th it seems to me that it is in the interests of the people of the United States that we extend such credits and other financial assistance to the United Kingdom that may be necessary to reconstitute and restore what has been traditionally the largest market for American goods. We must, however, bear in mind that the United Kingdom cannot again become either a good credit risk or the largest market for American goods unless she follows a sound commercial policy designed to increase the flow of international trade.

Another advantage of proceeding cautiously with the implementation of the plans for the non-military part of phase two of lend-lease is the Argentine situation where, as you know, we are not receiving that measure of British cooperation which is essential.³⁶

26. Handed to the President by the Secretary of State, October 1, 1944.
27. Not printed.
28. Memorandum quoted in airgram A–1843, September 19, 12:40 p.m., to London, p. 58.
28. Memorandum quoted in airgram A–1843, September 19, 12:40 p.m., to London, p. 58.
29. Baron John Maynard Keynes, financial adviser to the British Government.
30. Reference is to discussions held at Hyde Park, N.Y., following the close of the Second Quebec Conference.
31. 55 Stat. 31.
32. Statement released to the press on August 14, 1941, Foreign Relations, 1941, vol. i, p. 367.
33. See telegram 418, February 4, 1942, 5 p.m., and telegram of February 11, 1942, to London, ibid., 1942, vol. i, pp. 529 and 535, respectively.
34. Reference is to the system of bilateral treaties inaugurated at the Imperial Economic Conference held in Ottawa in 1932 whereby Commonwealth members extended preferential treatment on tariffs to one another.
35. See Foreign Relations, 1943, vol. i, pp, 1099 ff.
36. For correspondence on this matter, see vol. vii , section under Argentina entitled “Efforts of the United States to enlist the American Republics and the United Kingdom in a common policy toward Argentina.”