893.51/7757
Memorandum of Conversation, by Mr. Paul F. McGuire of the Division of Financial and Monetary Affairs
| Participants: | Messrs. White and Friedman, Treasury Department |
| Messrs. Vincent, Collado and McGuire, State Department |
The meeting was held in Mr. White’s office to discuss Telegram no. 434, March 8, from the Embassy at Chungking. After Messrs. White and Friedman had read the telegram, which they had not previously seen, Mr. Vincent outlined the four points in the telegram which he considered significant.
[Page 897]Of paramount importance was the Embassy’s reiteration of its concern over the possibility that the scale of operations contemplated by the U. S. Army was beyond the capacity of the Chinese economy, and that attempts to carry out present plans may lead to an economic collapse which will make even limited military operations impossible. Mr. Vincent said he believed the Embassy was reflecting Dr. Edward Acheson’s views on this matter, and suggested that Mr. White might wish to ask the candid opinion of Mr. Solomon Adler, Treasury representative in Chungking. It was felt that if Mr. Adler, with three years’ experience in China, shared Mr. Acheson’s concern, it would become the responsibility of the Treasury and the State Department to ask the War Department to review its plans in the light of possible economic limitations.
Mr. White instructed Mr. Friedman to draft a telegram to Mr. Adler.78 All present recognized that it would be extremely difficult for Mr. Adler to give a definite answer as to the effect of proposed military operations upon the Chinese economy. It was also recognized that if these military operations were essential to the earliest possible defeat of Japan, it might be advisable to attempt to carry them out, regardless of the physical sacrifices of the Chinese or of the monetary costs to the United States Government. The Chinese economy is already so strained that satisfactory conditions cannot be restored until Japan is defeated, and perhaps temporary chaos should be risked if there is a chance that the day of post-war reconstruction can be brought closer. It was conceivable that the physical operations of the Army might actually be facilitated if the Chinese currency system broke down, so long as the Army could use gold or U. S. currency for its own purposes. But Mr. White agreed that every attempt should be made to get the views of economic experts on the spot in China, and submit those views to the War Department for careful consideration.
The other three points mentioned by Mr. Vincent were:
- 1.
- Dr. Kung’s request for shipment of 2000 tons of consumers’ goods into China by air each month. This request has been turned down flatly by General Clay on the ground that transport facilities cannot be spared for shipments which he felt could not affect Chinese inflation significantly. Mr. White agreed that the amount would probably be a mere “drop in the bucket,” but the psychological value might be considerable, and the gesture might please Dr. Kung, and help us in exchange rate negotiations. It was agreed that Mr. Vincent and Mr. Collado would ask General Clay to reconsider the proposition, and perhaps submit it to the Joint Chiefs of Staff.
- 2.
- The Embassy’s pessimism over the possibilities of use of Chinese soldiers and labor battalions in construction work on air-ports. It was agreed that one of the most baffling elements in the whole picture was [Page 898] the unwillingness or inability of the Central Government to take constructive measures which would be of great value to all concerned. However, it was felt that the Embassy was perhaps unduly pessimistic on the labor question because of past experience, and it was agreed that attempts to get Chinese cooperation in this regard should not be abandoned.
- 3.
- The problem of getting an exchange-rate concession. It was agreed that while this was of great importance to the War Department in order to reduce the dollar cost of operations in China, it was not so fundamentally important to the success of our military operations in China as the other considerations now pressing for attention. General Hearn is presumed to have the exchange-rate negotiations reasonably well in hand at the moment.