9. Grady made two suggestions in paragraph 8 of his letter, to which I would briefly refer. The first suggestion was that the pertinent facts and statistics concerning surplus commodities should be assembled. Last autumn we got together a group of economists here for this purpose and they compiled a general survey of the background data relating both to surplus commodities and individual producing countries. In fact, however, we have found that their work required such continual revision in the light of new developments that it was better to collect information as required rather than to attempt to develop and keep up to date a general survey. Grady's second suggestion related to a review of international commodity control schemes. I agree that this would be useful, and I hope that it will be put in hand, though, in view of the present demands on our supply of qualified investigators (who don't seem to be a surplus commodity!) it will not be easy for us to do much. We should of course be ready to prepare notes on the working of the existing schemes on which we have fuller information than is at your disposal (e. g. rubber, tin 17 and tea 18) and generally to assist on any particular aspects on which you may specially desire our views, and we should be glad to study and comment upon the results of your investigations. 10. My own experience suggests that (apart from technical difficulties) the main obstacle in the way of instituting Governmental control schemes such as we are now considering, is economic nationalism. Parliamentary Governments under pressure from important producers' interests, are often in as bad a position to take long views as any other types of government. Only when the situation gets more or less hopeless are a number of different Governments likely to accept the limitations on their freedom of action inherent in any regulation scheme. Even then, each Government will want to get the maximum benefit for its own producers and to give away as little as possible to the others; so it comes to a horse deal. But I believe that the situation in regard to many commodities will soon be recognised as pretty hopeless, which is the beginning of wisdom. Further, the United States, with its commitments to Latin-America, and the United Kingdom, with its commitments to the Empire, together cover a great part of the field. You cannot speak for the LatinAmerican countries and we cannot speak for the self-governing Dominions or the Indian Empire; but if we work together, using our joint consuming power as much as our political influence, we can help to build a bridge between the other countries and their competing interests, and cooperation of this kind will, I believe, help to evolve 17 For correspondence concerning rubber and tin, see vol. 1, pp. 492 ff., and pp. 507 ff., respectively. 18 See International Labour Office, Intergovernmental Commodity Control Agreements (Montreal, 1943), pp. 47 ff. policies which will bring us closer together, whereas otherwise there is a danger that our respective commitments will lead us to drift apart. 11. Our ultimate aim should be a world-wide extension of some of the principals of the A. A. A.19 schemes applied in the United States. We shall almost certainly not succeed in making them applicable to all important commodities, but if we succeed only in regard to a few important commodities, it will make a great deal of difference to the economic future. If we could succeed in preventing sharp fluctuations in the prices of the chief primary materials, we should have gone a long way towards smoothing out the cyclical depressions of trade in manufacturing countries. This sort of objective seems remote from the troubles of war which now beset us, but economic depressions are the breeding ground of social disturbances and future wars, so I feel no hesitation in urging this aspect of the problem on you. Meanwhile, to get back to actualities, we are most ready to keep you informed of any interim action which we undertake in regard to specific cases and I hope that on your side you will be willing to reciprocate. 12. Finally, I should like to add a few words about the building up of stocks for Europe's post-war reconstruction, for this is an aspect of the surpluses problem upon which I said comparatively little in my message to Grady. As I see it broadly, the major part of this problem is likely to be not the purchasing for storage of supplies which would otherwise be lacking, but of providing for the rapid transfer of existing stocks to consumers in Europe when the time comes and of reducing as far as possible price fluctuations. I am turning over in my mind what proposals can be put forward to provide for this, and I should very much like to have some indication of how your ideas are shaping. Here I will only say that it appears to be in the interests of producers and would facilitate the carrying of stocks, if some arrangement could be made for definite quantities of surplus supplies to be segregated for marketing to Europe if not actually sold in advance. But any such arrangement also presupposes some progress in international regulation schemes, as otherwise surpluses will continue to grow and prices to fall, and no forward commitments can be made on a constantly falling and bottomless market. 13. The above refers to the stocks required to get the economic machinery of Europe restarted-involving large-scale supplies of raw materials as well as food supplies. I recognise that, apart from this, there is also the question of making arrangements beforehand to meet the immediate post-war needs for actual relief of destitute areas. It seems to me that this aspect of the question could appropriately be handled by private charitable organisations. I have suggested to Mr. Henry Cadbury and Mr. Yarnell, who recently called on me, that their organisation,20 and the Red Cross, should consider preparatory action in this field. 14. I am afraid that this has become almost an essay rather than a letter, but it may be useful to you to have the various general considerations which I have strung together. I hope that I may be able to follow it up before long with more concrete proposals. I am giving a copy to Loyd Steere, the Agricultural Attaché here, with whom I am glad to keep in touch, and I am mailing a copy to Sir Owen Chalkley, so that he can follow up the discussions at Washington. If there are any points on which you would like further explanations, please do not hesitate to let me know. With best remembrances F. W. LEITH-ROSS 840.48/4999 The Financial Adviser to the British Government (Keynes) to the Assistant Secretary of State (Acheson) WASHINGTON, June 4, 1941. DEAR MR. ACHESON: It may perhaps be useful to both of us if I try to record what seems to me the main upshot of our conversation the other day about surpluses. 1. We agreed that the de facto situation was broadly speaking as follows: (a) Where the financial conditions and other circumstances render outside help essential, Great Britain is looking after the problem in her own Dominions, apart from Canada, and in Africa. The Dutch, being financially strong, have been left to deal with their own problems, as has Canada. The United States has the primary responsibility towards her own surpluses and those of Central and South America. (b) Where an important commodity overlaps more than one of these areas, preliminary steps are being taken for international conferences with a view to working out a more stable and more permanent policy. Particular examples of such cases are, up to date, wheat, cotton and cocoa. 2. We agreed that there was no particular reason to interfere with the above arrangements so far as the preliminary phase is concerned. But they are likely-indeed it is advisable that they should lead up to wider and more ambitious programmes. In particular, the surpluses which are being accumulated are well assorted for the purpose 20 Presumably the Friends Service Committee. of furnishing first aid towards European relief and reconstruction after the war. 3. The international discussions relating to particular commodities, taken in conjunction with the arrangements for carrying and financing surpluses, might naturally lead on to a more ambitious policy for stabilising within reasonable limits the prices of the leading internationally traded raw materials and even for some kind of international holding cartel which would apply the idea of the ever normal granary to the international field. 4. Nevertheless it would be difficult to bring these more ambitious ideas to the practical level in present circumstances, partly owing to shipping difficulties, partly owing to half the world being at war and partly owing to the abnormal concentration of war demand in particular directions. For this reason the most practical measure might be something on a much more modest scale, limited in the first instance to those tasks which cannot be avoided. Those working together on a narrower field and discussing these problems in common might find themselves in a good position for widening their field of interest whenever circumstances might appear ripe for this. 5. I suggested that this more immediate limited field might cover the following ground:-At whatever date the war ends and whatever particular form the political reorganisation of post-war Europe may take, the continent is certain to be denuded of the primary foodstuffs and raw materials. The governments of a number of the occupied areas are represented in London or Washington. My suggestion was that we should invite the representatives of these countries with whom we are in contact to prepare a preliminary list of their probable postwar requirements in order of priority, covering e. g. the first six months after the armistice. These should then be studied by a joint AngloAmerican Committee and criticised, since it would be contrary to human nature to suppose that they would not be on the ample side. The results would then be compared with the actual surpluses in hand and the prospective surpluses. In regard to prospective surpluses it would be useful to form some sort of estimate of the raw materials now required for defence and very far from being in surplus, which will suddenly become redundant when the war machine is stopped with little or no notice. It would then be possible to make provisional allocations, taking into account the probable acute shortage of shipping, matching the more urgent demands with what is most readily available. The next step would be to frame some sort of general idea of the appropriate means for financing such supplies. I should repeat that I should not regard such discussions as the final end and aim. They would be of real practical significance and they might come to be of value and importance for propaganda purposes. Indeed they would be accomplishing a necessary job of work, which could not be avoided. But they would form habits of association and discussion between individuals of our two countries well qualified in these matters which might well be productive of further constructive developments on more ambitious lines. Meanwhile they would automatically link up our several activities in dealing with current surpluses and would also be of relevance in relation to the discussions of the international conferences treating of particular commodities. I shall be in Washington next week, but I hope not much longer, and would much welcome a further talk if your group can spare the time. Yours sincerely, J. M. KEYNES P. S. There is one point I mentioned at our meeting, which is omitted above, but of which it is perhaps worth while to make a memorandum. I distinguished three possible approaches to the surplus problem in cases where financial assistance is necessary. The first was that which you have followed in your import-export bank loans, i. e. loans substantially without conditions attached, the surplus country being left free to deal with its own surplus problem with the financial aid thus accorded. Secondly, there was the line which Great Britain had taken in dealing with the Australian wool surplus, namely, an outright purchase of the clip during the war and for one season thereafter without any conditions relating to the Australian financial position as a whole. Thirdly, the assisting country might 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. This course had been adopted by Great Britain in her latest arrangement with the Egyptian Government for dealing with cotton. I expressed the opinion that the third method was the best and might lend itself to a tripartite partnership in appropriate cases. It did not relieve the assisted country of the onus of making adjustments in their output of the surplus commodity. Above all it brought the two countries into partnership at the later and highly important stage of liquidation when the surplus stocks would be in competition with the current output. Even with this method, however, there would remain the overriding importance of treating an assisted country's position as a whole and only giving such measure of assistance in the case of a particular commodity as might be justified, taking all the other elements in the situation into account. |