Memorandum to President Roosevelt 65

1. In January 1943, you approved the following recommendation of a committee consisting of representatives of the Departments of State, Treasury and War, the Office of Lend-Lease Administration and the Board of Economic Warfare:

“It is recommended in the light of present circumstances, that the United Kingdom’s gold and dollar balances should not be permitted to be less than about $600 million nor above about $1 billion.”66

2. Notwithstanding the directive, the British Government’s liquid dollar exchange assets have continued to rise and are now over $1.7 billion, or $1,350 million more than at the time the Lend-Lease Bill was presented to Congress in January 1941.67

In addition to the gold and dollar holdings of the British Government, residents of the United Kingdom hold $320 million of private dollar balances and about $1,150 million of long-term investments in the United States. Of the latter assets, $500 million are pledged with the R.F.C.68 against the $350 million loan.

3. When it became clear that the British balances were rising substantially above the ceiling set in your directive, the Treasury and the Board of Economic Warfare pressed for a reduction in civilian lend-lease as a means of implementing your directive, but the State Department and Lend-Lease Administration were reluctant to recommend such a step in the absence of an exhaustive reexamination of our policy of financial assistance to the British and of Britain’s overall international financial position. It was finally agreed to request the British for strategic and other materials as reciprocal aid, estimated likely to amount to $200–$300 million during the ensuing year. This proposal was immediately placed before the British. Several months elapsed before the latter agreed to the proposal in principle and even then only after considerable prodding. Several more months have been spent in an endeavor to arrive at methods [Page 34] of implementing the proposal. We are disappointed with the progress made to date and we think there is little reason at present to be hopeful that this device will in effect yield anything like the amount needed to carry out your directive.

4. The British Government has strongly objected to a policy which prohibits an increase in their gold and dollar assets. They emphasize that the rise in their holdings of these assets—which may be expected to continue at an annual rate of at least a half billion dollars unless steps are taken to interrupt this trend—is only a fraction of the increase in their short-term indebtedness to overseas countries other than the United States.

They assert first that $365 million of these liabilities represent a specific claim against an equivalent amount of dollars and that that sum must be subtracted from their total holdings in order to obtain the correct figure of their available gold and dollar reserve.

Secondly, they claim that their short-term sterling liabilities to overseas countries are five times the amount of their gold and dollar holdings and that these liabilities are increasing at a rate of $2.5 billion a year.

The British claim that they should be permitted to accumulate gold and dollars as a necessary reserve against these growing liabilities. They assert that the continued accumulation of gold and dollars is a prerequisite to the continuation of the policy by which they have managed to finance their war expenditures in India, the Near East and other overseas areas.

Finally, the British fear that their mounting liabilities to overseas countries will place them in a very vulnerable position after the war and jeopardize their chances of a speedy post-war recovery.

5. There is merit, of course, in the British position but we feel that neither Britain’s international financial position outside the United States nor its post-war needs were among the considerations which prompted Congress to pass the Lend-Lease Act. In our opinion, Congress might well feel now that Lend-Lease aid to Britain was instituted in order to enable her to obtain those goods and services essential to the prosecution of the war for the purchase of which she lacked the necessary dollars, and that therefore to administer the Act in such a way as to help underwrite Britain’s short-term indebtedness to other countries or to improve her post-war financial position might be contrary to the wishes of Congress. The British concede that this narrower purpose may have been the original objective, but they believe that our entry into the war alters the situation.

6. What the view in Congress may be is indicated by the report of the Truman Committee entitled “Outlines of Problems of Conversion [Page 35] from War Production” and submitted to Congress on November 5, 1943.69 To quote from page 13 of this document:

“In the latter connection, we should never forget that lend-lease was originally authorized by the Congress, solely because the English and others whom we desired to assist did not have sufficient American exchange to purchase materials needed by them. Lend-Lease was never intended as a device to shift a portion of their war costs to us, but only as a realistic recognition that they did not have the means with which to pay for materials they needed.

“Before authorizing lend-lease, the Congress expressly requested and received assurances that lend-lease assistance would be extended only where the recipient was fully utilizing all of its own resources.”

7. In view of the considerations mentioned above we believe that various questionable items which were initially included because of the earlier shortage of dollars should be eliminated from lend-lease. Therefore, unless you indicate to the contrary, we propose to discontinue certain types of transactions such as the following:

machinery and capital installations;
off-shore purchases such as Iceland fish, Caribbean sugar, and oil from outside the U.S.;
civilian goods to the Middle East, Jamaica, Southern Rhodesia, etc.;
pulp and paper;
tobacco for the Armed forces;
certain other controversial civilian items.

The policy of discussing with the British each category of items that it is proposed to cease sending under Lend-Lease credit prior to any action being taken with respect to that category will, of course, be continued.

Henry Morgenthau
Leo T. Crowley
  1. Copy obtained from the Franklin D. Roosevelt Library, Hyde Park, N.Y. Although indicated as coming from the Secretary of State as well as the Secretary of the Treasury and the Foreign Economic Administrator, this document was signed only by Messrs. Morgenthau and Crowley. For Secretary Hull’s separate memorandum, see supra.
  2. Memorandum to President Roosevelt, January 1, 1943, Foreign Relations, 1943, vol. iii, p. 48.
  3. The Lend-Lease Bill was introduced into both Houses of Congress on January 10, 1941. For the text of the Bill as introduced and amended, see S. Shepard Jones and Denys P. Myers (eds.), Documents on American Foreign Relations, July 1940–June 1941 (Boston, World Peace Foundation, 1941), vol. iii, pp. 712–723. For text of the Lend-Lease Act as approved March 11, 1941, see 55 Stat. 31.
  4. Reconstruction Finance Corporation.
  5. Senator Harry S. Truman was Chairman of the Senate Special Committee Investigating the National Defense Program, usually referred to as the War Investigating Committee. For text of this report, see Additional Report of the Special Committee Investigating the National Defense Program Pursuant to S. Res. 71 (Washington, Government Printing Office, 1943), Report No. 10, pt. 12.