Foreign Relations of the United States, 1949, Western Europe, Volume IV

841.5151/7–1949: Telegram

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

top secret

London, July 19, 1949—6 p.m.

2829. For the Secretary (eyes only) from Douglas for discreet circulation to Hoffman ECA and Foley,¹ Treasury after the Secretary has seen it.

1. Immediately following telegram (Embtel 2830²) outlines our suggestions for the study of British financial and economic crisis to be made in advance of September discussions, in Washington.

2. We would like your comments and observations in advance of our discussing outline with British. Suggest it might be useful for you to show it to the Canadians. We are discussing it with them here tomorrow.

3. Object of the study should be to get at the fundamental causes of Britain’s persistent economic and financial difficulties which we think are deep-seated and were also present in inter-war years.

4. We suggest the fundamental questions to be studied might be stated as follows: What geographic structural and organic changes have taken place in the sterling area and in the British Common wealth (the two are not identical), and what changes have taken place in the dollar area, which have contributed to the conversion of the sterling area and British Commonwealth from a state of comparative economic solvency, but growing difficulty prior to the war into a state where it cannot pay its own way

5. To get at the answer we shall need to analyze by qualitative and quantitive means, the key factors in each of the countries or dependencies in the sterling area at different periods (and in some cases non-sterling area countries in or out of the Commonwealth) in order to determine the role which each played and now plays in relation to the solvency of the whole sterling area and the British Commonwealth. Specifically we shall want to know what each country contributed to and subtracted from:

(a) The available supplies of goods in the sterling area;

(b) The dollar and other foreign exchange earnings of the area; and

(c) The available supplies of capital in the area.

6. In all this the changing internal position of the UK as it affects her operations as investor or banker for the sterling area and her activities as ah overseas trading nation, will be the most important factor to be studied, for the UK is the keystone in the arch of the sterling area. (Our thought is that if she pursues policies at home which make it impossible for her to compete in international trade and which interfere with her role as a saver and investor in and solvent banker for the sterling area, then the sterling area will probably slowly disintegrate. The political and power consequences of such a development may be far-reaching).

7. Such a study as we have in mind has never been done in the past and we cannot do a complete job in six weeks nor do more than take preliminary soundings and lay the basis for a thorough study. We are convinced, however, that until this study is made we will not comprehend either the character or the magnitude of this problem which promises to be with us for many years. I, myself, think it is the chief problem of this epoch and the failure to resolve it may have the most profound consequences on the free world.

8. We suggest the following division of work in making the study outlined in the following telegram. Part 1 and 2 can perhaps be done more easily here where material is more readily available. Part 3, which represents most difficult part, can perhaps best be done in Washington where personnel and statistical material are more likely to be available. Part 4 can probably best be done in Washington. We will prepare various comments on aspects of parts 3 and 4 insofar as time and personnel allow.

9. When study gets under way we will send copies of all materials and papers to Washington fastest available conveyance. Since much of statistical material will be of nonconfidential character we propose use regular air mails where possible. Suggest similar procedure in Washington. We would appreciate your keeping us posted on progress of work and early receipt of sections of the study as they come out even if they are preliminary.

10. Would appreciate your comments on procedure outlined paragraphs 8 and 9.³

Sent Department 2829; for Acheson; repeated Paris 550 for Harriman.

Douglas

1. Edward H. Foley Jr., Under Secretary of the Treasury.
2. Not printed; the proposed study was divided into four sections. Section one would treat the items responsible for the increased dollar gap in 1949; section; two would examine the trends in 1948 and 1949 which would throw light on the character and magnitude of the sterling–dollar problem; section three would compare and contrast the balance of payments position between the wars with that of 1948–1949; and section four would appraise the prospects for the next several years based on the trends and data provided by the first three sections. (841.5151/7–1949)
3. In telegram 2545 to London, July 22, the Department of State indicated that its tentative reaction was favorable to the procedure outlined in paragraphs 8 and 9 of telegram 2829 from London, and it described various working groups concerned with preparations for discussions with the British. (841.5151/7–2249)