Foreign Relations of the United States, Diplomatic Papers, 1945, The British Commonwealth, The Far East, Volume VI

841.50/1–1146: Telegram

The Ambassador in the United Kingdom (Winant) to the Secretary of State

London, January 11, 1946—11 p.m.
[Received January 12—8:55 a.m.]

374. This is British Economic Reconstruction No. 2 in the series. Mytel 13186 of December 15 was No. 1.⁶⁸

1. There is much concern in Britain re ability of UK to meet all obligations resulting from the financial agreement with US. In this series of messages efforts will be made to analyse from time to time material which has direct or indirect bearing on the question and to follow developments in the views of UK economists and administrators. The difficulties of prediction should be recognized and in view of the dangers of spurious quantitative forecasts, discussion of the question in sections of next few messages will be largely qualitative.

2. Those concerned with economic side of international relations should recognize importance of non-economic aspects of the US–UK financial agreement. It will be noted from Embassy messages reporting press and Parliamentary views on the agreement that discussion of practicability of the agreement has been equalled and in some quarters overshadowed by discussion of its equity from the standpoint of contributions to a common war effort. In the year preceding the agreement we frequently had occasion to point out that the British people, from Cabinet Minister to man-in-the-street are convinced that the reason why UK came out of the war with unfavorable external financial position is that, apart from help from Dominions, she alone held off the enemy for more than a year, and in equity should be paid by rather than have to pay her creditors for this service. This feeling is strengthened by documentation from US prosecutors at Nuremberg to prove that Nazis plotted world domination before 1939.⁶⁹ Interest payments on the loan, small though they may be in proportion to national income, are felt to be the most inequitable feature of the agreement and if the agreement runs its course without alteration the annual payments will serve as an annual reminder for half a century of what is considered by the British to be an unjust outcome of the war, quite independently of UK economic capacity to meet the payments.

3. Since these views on non-economic aspects of agreement are shared by Labor Ministers and the Labor Party, it follows that Labor Government and vast majority of Labor MP’s acted from economic motives in firmly steering the measure through Parliament. In art VII messages we pointed out that the fundamental position of Labor and Liberal Parties were more in accord with objectives of art VII than was position of Conservative Party even though under coalition there was sufficient support from Conservative left and center to enable coalition to support art VII. When the coalition broke up conservatives, who were no longer under necessity to give and take in relation to other parties but were anxious to emphasize their differences from them, were torn apart internally on art VII matters and the reactionary section gained ground.

4. That Labor rose to the occasion confirms the point that British Socialism and Trade Unionism the first from its beginnings and second through most of its history, are essentially international in outlook. Hyndman and Robert Blatchford⁷⁰ showed nationalistic tendencies in their times but their influence in this respect was never deep, since the international outlook is strongly rooted in rank and file of Labor. As regards trade matters this outlook may have appeared to some to be obscured at times by Labor’s belief in planning on a national scale and by Labor attacks on the Liberal Party in period in which Labor fought its way to position of chief opposition party. Labor spokesmen, except Philip Snowden,⁷¹ were sparing in their advocacy of “free trade” because of its frequent association with the Liberal Party, with laissez faire and with exclusive private enterprise. Indeed, Labor’s views on trade differ substantially from those of 19th and early 20th century advocates of free trade who linked it indissolubly with private enterprise.

5. But these differences must not be allowed to obscure the fact that, except in war or near war conditions, British Labor could not without reversal of its whole political convictions become the advocate of exclusive economic blocs, or of deliberate discriminations on nationalistic and imperialistic grounds. Nor could it take the initiative in erecting or raising barriers to economic intercourse with the workers of other lands. Recently Fleming, Cabinet Secretariat Economics, told Penrose that he thought the Labor Ministers whose antecedents were in Liberalism could be relied on to support article VII more than those whose antecedents were in Conservatism. But in fact no Minister was firmer during recent events than Cripps. Perhaps the central point is that Labor has a strong enough tradition of its own to absorb effectively persons of diverse antecedents. In any event it is clear that Labor’s basic outlook and its political strength make it a more reliable instrument of UK cooperation in realizing the objectives of art VII taken as a whole than can be found in any other political party in UK.

6. Recent events confirm importance of Keynes’ role in art VII matters. From the signing of art VII we have believed that Keynes’ active support and participation were more important than those of any other single person in UK. This may be said in full awareness of the lapses in his views on international trade in 1933 and 1941 and his occasional irritability and arrogance—aggravated by ill-health—in argument and negotiation. These defects are more than offset by the power and range of his mind which always bring him back from a partial to a comprehensive viewpoint that places economic issues in a world and not a mere national setting. Other economists among the UK team are more tactful in negotiating an agreement: None commands one-tenth of Keynes’ influence in gaming acceptancy of the agreement in Great Britain.

7. Thus acceptance of the US-UK agreements in UK is result of their economic merits in opening way for multilateral trade instead of barter and for economic cooperation instead of economic warfare, rather than from any special attachment to the CS [US?]. Britain has swung decisively from conservative to progressive courses and this change has benefited the forces in US striving for world economic cooperation and freer trade. But the progressive forces in UK look doubtingly at the US because they have little confidence that Congress and the US public will move in a progressive direction in economic matters. They fear that the US public is swinging in opposite direction to UK public and putting its faith in outworn slogans of reliance on private enterprise and laissez faire, except when it suits vested interests to have Government intervention of a type that is usually against the interests of other countries. They probably exaggerate these tendencies and may be underestimating progressive forces in US but at moment they point to mutilation of Full Employment Bill, scrapping of controls, lack of provision for low cost housing, and frustration of attempts at extending Social Security. Hence at present in economic matters the US has little attraction for the predominant political and intellectual groups in Britain.

8. This attitude might, of course, change if distinctive American types of social measures could get through Congress. Of all New Deal measures the TVA⁷² has the greatest appeal to progressive forces in UK. Here they feel was a great American achievement in social as well as technical organization that outdid anything that Europe could show in that field and from which Europe, including UK, could learn. Developments on similar lines in other parts of US would make a great impression here.

9. There are three points on which officials in Whitehall particularly fear that the purposes of the general US-UK agreement may be frustrated by US action or inaction. First, for reasons already given they fear that Congress has made or will make it impossible for the Administration to pursue a full employment policy. Second, they fear that shipping interests will induce Congress to pursue a [nationalist?] shipping policy out of harmony with the commercial policy proposals. Third, they stress the inconsistency of US tied loans with US policy against discriminations.

10. In the eyes of Whitehall and of others in UK divergencies on loan policy and anticipated divergencies on shipping policy weaken the force of American declarations on freer trade and nondiscrimination. It is considered that trade, transport and investment are so interconnected that inconsistency in international policies governing them would seriously hinder the expansion of international trade. In immediate future particularly in 1946 tied loans might possibly be represented as being offset by permissible methods of adjusting sterling balances. But as long term policy they could hardly be reconciled with freer international trade, with nondiscrimination or with pursuit of the best international division of labor.

11. The difference between the approach up to now to the question of international machinery on trade and that on shipping and inland transport policy may slow up the process of achieving consistency between trade and transport policies. The part played by subsidies in both fields, effects of subsidies in one field on the other, and effects of manipulation of transport rates on trade, seem to necessitate adequate machinery to achieve consistency.

[Here follows part 2 of this telegram which deals with the long-term plans of the British Labor Government.]

Winant

68. Not printed.
69. See Trial of the Major War Criminals Before the International Military Tribunal (Nuremberg, 1947–1949), passim; also Nazi Conspiracy and Aggression (Washington, Government Printing Office, 1946–1948), which is a collection of documentary and guide material prepared by U.S. and British prosecuting staffs for use in presentation before the International Military Tribunal, not all of which appears in the Trial records. Further documentation relating to the foreign policy of the Nazi regime is printed in Documents on German Foreign Policy, series C and D.
70. Henry Mayers Hyndman and Robert Blatchford were prominent in the beginnings of the British Labor movement.
71. British Chancellor of the Exchequer, 1924, 1928–1931.
72. Tennessee Valley Authority.