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ments would be notified without consultation with us. Also that we would be kept currently informed. I very much approve the wording of the reply you suggest be made to Mr. Eden and on confirmation from you will transmit the same to him.
The Assistant Secretary of State (Acheson) to the Director General, British Ministry of Economic Warfare (Leith-Ross)
WASHINGTON, July 22, 1941.
MY DEAR SIR FREDERICK: I regret the delay in answering your letter of February 14 in which you add your further thoughts respecting the surplus problems discussed by you and Grady in previous correspondence. My delay in sending this reply must not be taken as indicating any lack of interest in the subject. Quite the contrary, it has resulted from my desire to give my best thought to a matter of first importance, and to the extreme difficulty and complexity of the subject.
In the first place, I cordially agree with your thought that we must coordinate our policies and that we should aim, in so far as practicable, in the direction of joint action. Otherwise, as you say, our commitments may lead us in opposite directions. Furthermore, the need for coordination exists with regard to other aspects of our respective commercial policies and we should have constantly in mind the interrelationship between action on surplus commodities and the handling of other problems. The thoughts and suggestions which are here set down have been reached after most helpful discussions with Mr. Keynes. I have shown this letter to him and I believe he is in general agreement with its content.
2. The subject has, of course, innumerable aspects and complexities, but our discussions have dealt primarily with certain questions which are dealt with in the following paragraphs and which may be summarized as follows: (1) Whether the emphasis in any plans and steps which may be taken should be on finding a solution of the immediate problems of dealing with present surpluses and of preparing to supply acute European shortage immediately after the war ends, or whether we should concern ourselves primarily with the longerrange problem of bringing about a more orderly marketing of the principal primary products dealt with in international trade with a view to preventing either chronic surplus situation or alternate shortage and glut with consequent wide fluctuations in prices; (2) problems of organization and method, including principally a) the question whether the problem should be approached principally by commodities or by countries; b) whether the United States and the United
Kingdom as the assisting countries should separately assist different groups of countries, or whether they should both participate in dealing with the problems of each assisted country; c) means of preventing arrangements for dealing with surpluses from being thwarted by uncontrolled production in the primary producing countries or by nationalistic economic measures such as trade barriers in the countries of Europe; and (3) the first steps to be taken toward working out a definite solution to all these questions and achieving the desired results.
3. I am inclined to agree with Mr. Keynes that the question whether emphasis should at first be on solving current surplus problems and the problem of supplying Europe's immediate post-war needs, rather than on longer-run arrangements, should be resolved in favor of the former. This view is based on the simple fact that, since these problems will confront us first, the need for finding an answer is most pressing. But while we must place our emphasis there, we cannot ignore the fact that what we do or fail to do with respect to the immediate post-war problem will affect materially our ability to find long-run solutions. I have particularly in mind the fact that our bargaining position vis-à-vis European countries in regard to any contribution we would want them to make toward basic solutions of the surpluses problem will be strongest at the time when their needs which we are offering to meet are greatest. One contribution which they can make to the long-range solution is to avoid the excessive economic nationalism which before the war caused them to erect preposterous trade barriers and otherwise facilitate domestic production of such products as wheat and sugar, to the detriment not only of the more efficient overseas suppliers who depend so largely on disposing of their surpluses by export but to the detriment of consumers in the European countries as well. Cooperation in any other respects which may be important to orderly marketing of primary products internationally should be obtained from European countries when we are in the best position to insist upon it.
4. The question whether the approach to the problem should be by commodities or by countries is one which cannot of course be answered categorically. But I am strongly inclined to the view that the commodity approach will generally be found most feasible for the reason that it will probably be found impracticable to solve a surplus problem for one country unless similar problems in other countries are dealt with simultaneously, and because it will be difficult as a practical matter to deal with all problems of all countries simultaneously. Moreover, if emphasis is to be laid on meeting Europe's immediate post-war needs, the commodity approach will be inevitable as we will have to deal with the products needed, irrespective of source.
5. In the course of our discussions with Mr. Keynes we gave consideration to the manner in which assistance to the various countries in need of it might be allocated between the Governments of the United States and the United Kingdom. One suggestion discussed was whether it would be desirable for Great Britain to look after the problem in her own Empire, except Canada, and in Africa, while the United States would have primary responsibility for its own surpluses and in respect of those of Central and South America. I question whether such an arrangement is desirable in principle unless it could be definitely predicated upon the assumption that immediately the war is over, Great Britain and the United States will find themselves able to return to or to maintain a substantially free commercial and monetary system. If the British Government should, unfortunately, not return to a free system, the result of the proposal would be to create enormous balances of blocked sterling throughout the areas of the world outside the Western Hemisphere, with implications of clearing and preferential arrangements in order to utilize the sterling. The parallel implications for dollar balances would exist if this country found the war emergency driving it into similar control devices. It might be preferable, therefore, to have whatever arrangements are taken involve joint (though not necessarily equal) participation by the United States and the United Kingdom. The arrangements with any one raw-material-producing country would then become a tri-partite arrangement involving that country, the United States and the United Kingdom. Something along this line would give the United States and the United Kingdom a joint stake in every program and would be in line with the ideas we have expressed regarding joint action.
6. Means of controlling production are an essential part of any scheme for dealing with surplus problems, and really effective means are extremely difficult to devise and get adopted. In some cases, the solution may lie in a multilateral commodity agreement, involving a general program with respect to exports, stocks and production. Where the approach is that of financial assistance, perhaps the basis for a solution is to be found in Mr. Keynes' suggestion regarding the arrangements between the assisting and the assisted country. His suggestion is that the assisting country go into partnership with the assisted country in solving the problem, each providing a portion of the finance and sharing the ultimate profit or loss on winding up the scheme. He mentions by way of illustration the course followed by Great Britain in her latest arrangement with the Egyptian Government for dealing with cotton and points out that such a scheme does not relieve the assisted country of the onus of making adjustments in its output of surplus commodity.
7. I have already mentioned in another connection the fact that nationalistic economic policies as expressed in promoting domestic production by tariff protection or subsidies to relatively inefficient producers represents a serious obstacle to any long-range solution of the surplus problem and one which will have to be dealt with at the early stage when the greatest possible pressure can be brought against such policies. I need only remark at this point that trade barriers are one of the basic causes of surplus problems and that there should be no slacking up in our efforts in the direction of reducing such barriers. This applies, of course, not only to the European countries whose ill-advised efforts to be self-sufficient are injurious to overseas producers, but to trade barriers elsewhere, since the European countries who seek self-sufficiency at home have done so in part because their efficient producers have been faced with closed or restricted markets abroad. Moreover, the extent of the burden of financing European needs for primary products will be reduced to the extent that Europe can export and thereby finance its own purchases.
8. Conscious of the tremendous difficulty and complexity, and at the same time of the importance, of the subject with which we are dealing, I share the view expressed in your first letter to Mr. Grady, and frequently mentioned in our discussions here, that these problems can only be solved if at the outset we set up some machinery for working them out. I agree with your suggestion that it would be desirable to set up, probably for the present on an entirely informal basis, a joint United States-United Kingdom committee to study further the general lines of policy and later to act as a coordinating body for committees or agencies dealing with various specific projects. Indeed, I consider it essential to making progress toward solutions that we should immediately get organized for the job. I believe that your correspondence with Mr. Grady and with me will contain many ideas and suggestions which will serve as a starting point for the committee's work.
9. Mr. Keynes has suggested, and I agree, that the first job of such a body would be immediately to invite the Governments of occupied areas which are represented in London and Washington to prepare a preliminary list of their probable post-war requirements in order of priority, for, say, the first six months after an armistice. The Anglo-American committee would then study and criticize these data, compare the results with surpluses on hand and prospective.
10. To summarize, the practical steps which we might proceed to take appear to be as follows:
(a) To continue our study of marketing agreements between the producing and stock-holding countries with respect to cocoa, wheat and cotton and to initiate such studies with respect to any other com
modities where such agreements appear to offer the possibility of successful action.
(b) To initiate a study of the immediate post-war needs of Europe, in the first instance by the Governments of the European countries now resident at London.
(c) To initiate a study of potential supplies available to meet these needs.
(d) To study ways and means of financing the holding of stocks for European needs.
(e) To establish an informal joint committee to coordinate these activities.
Meanwhile we should keep each other informed through such channels as may be most convenient of any action which either Government may take in this general field and pool any experience thus acquired which may be of assistance in connection with any of the numerous aspects of the problem.
The Ambassador in the United Kingdom (Winant) to the Secretary
LONDON, August 13, 1941-9 p. m. [Received 9: 05 p. m.]
3615. Your 2703, July 21, 7 p. m. and 2780, July 25, 4 p. m.23 The letter was delivered to Mr. Eden on July 25 and dated the same day. The following is text of a letter in reply from Mr. Eden dated August 12 and received today:
"Thank you for your letter of 25th July about the proposed Allied meeting.
I am most grateful to you for your help and I am very glad to know that the United States Government consider the proposal to be of prospective usefulness.
In order to explain more fully what we have in mind I should perhaps add that if the proposed Allied meeting produces satisfactory results we hope to approach the United States Government in due course with a view to establishing jointly with His Majesty's Government and later with the other producing or stock holding countries an organization to examine the problem of the re-provisioning of Europe from the point of view of arranging for supplies to be made available. We also hope that eventually information and views might be exchanged between this organization and the proposed Allied bureau. Nor have we overlooked the needs of neutral and enemy countries which might well require consideration and also the needs of countries outside Europe, such, for instance, as China.
23 Telegram No. 2780 (840.48/5016) authorized the Ambassador to deliver to Mr. Eden the Department's reply which was transmitted in telegram No. 2703, July 21, 7 p. m., p. 100.