The Financial Adviser to the British Government (Keynes) to the Secretary of the Treasury (Morgenthau)51

Dear Mr. Secretary: I am sorry that I have been so slow in letting you have the further break-up of British war expenses abroad, which I promised you some little time ago. The reason is, of course, as you are only too well aware, that your people and ours have been kept busy up to almost the limit of possibility. I have thought that the most convenient way might be to arrange my reply in a series of short annexes, each dealing with a particular matter.52

You will see that I have partly devoted myself to giving you some further figures for your own information, not suitable for general use, and that here and there I have suggested very briefly one or two lines of argument which might be useful, if later on you have to go up to The Hill on our behalf.

Perhaps I might sum up here a few of the salient points:—

As you will see below, our indebtedness is largely due to our military expenditure in the Middle East and India. For five years we, and we alone, have been responsible for practically the whole cash outgoings for the war over the vast territories from North Africa to Burma. Without these expenditures we should never have held Rommel53 at the critical moment of the war.
Quite early in the war the Treasury control over war expenditure overseas was virtually abandoned. If Treasury control over expenditure had continued, unquestionably many economies could have been [Page 75] made. But these economies would not have been possible without setting up a machine of control which would have impeded the prosecution of the war. One has to choose. The principles of good housekeeping do not apply when you are fighting for your lives over three continents far from home. We threw good housekeeping to the winds. But we saved ourselves, and helped to save the world. Too much financial precaution might easily have made just the difference when, as at one time, the forces were so evenly balanced. It is easy to argue that a method set up in an emergency has been continued too long. Very probably that is the case. But the obstacles in the way of re-imposing detailed control when it has been long absent are very great.
We ourselves receive no reverse Lend-Lease whatever from the British Commonwealth, apart from Canada. As is shown below, we have made far less favourable financial arrangements with our own Dominions than has the United States. We pay Australia, for example, for the same goods and services which the United States receive without payment. Even when Lend-Lease is brought into the account, the United States has with these countries more favourable arrangements than we have.
We have not thought it right to ask for any contribution to the war from the Crown Colonies, where we are in a position of Trustee. We have paid them for everything we have obtained, and consequently owe them vast sums. We even pay them for the goods which they send as reverse Lend-Lease to the United States, so that this contribution also falls on our shoulders.
We abandoned our export business in order to devote to the war the whole of the manpower which could by any means be made available.
We paid over nearly the whole of the gold reserves with which we started the war to the United States, and spent the money to build up the American munitions industries from small beginnings, with the result that when America came into the war, the time-lag in the expansion of production was very greatly reduced.

No doubt the above makes up collectively a story of financial imprudence which has no parallel in history. Nevertheless, that financial imprudence may have been a facet of that single-minded devotion without which the war would have been lost. So we beg leave to think that it was worth while—for us, and also for you.

If there is anything further I can do whilst I am here, I am, of course, always at your service.

Sincerely yours,


[For information concerning the role of Admiral William D. Leahy, Chief of Staff to the Commander in Chief of the Army and Navy, in advising President Roosevelt on Lend-Lease matters in the period November 18 to November 27, 1944, see William D. Leahy, I Was There (New York, Whittlesey House, 1950), pages 279–280.]

  1. Copied from the History of Lend Lease, Part II, Chapter II, Box 64, Document 61, pp. 104–105.
  2. None printed; the three enclosed annexes dealt with the following subjects: British war expenditures overseas; financial relations between United Kingdom, United States, and the Dominions; unfavorable trade balances with other countries.
  3. German Field Marshal Erwin Rommel, Commanding General of the Afrika Korps, December 1941–May 1943.