US Wartime Aid to Britain 1940–1946 9781000460087, 1000460088

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ROUTLEDGE LIBRARY EDITIONS: WW2

Volume 36

US WARTIME AID TO BRITAIN 1940–1946

US WARTIME AID TO BRITAIN 1940–1946

ALAN P. DOBSON

First published in 1986 by Croom Helm Ltd This edition first published in 2022 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 1986 Alan P. Dobson All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: ISBN: ISBN: ISBN: ISBN:

978-1-03-201217-9 978-1-00-319367-8 978-1-03-202978-8 978-1-03-202981-8 978-1-00-318611-3

(Set) (Set) (ebk) (Volume 36) (hbk) (Volume 36) (pbk) (Volume 36) (ebk)

DOI: 10.4324/9781003186113 Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

US Wartime Aid to Britain 1940-1946

Alan P. Dobson

CROOM HELM London • Sydney • Dover, New Hampshire

©1986 Alan P. Dobson Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 1AT Croom Helm Australia Pty Ltd, Suite 4,6th Floor, 64-76 Kippax Street, Surry Hills, NSW 2010, Australia British Library Cataloguing in Publication Data Dobson, Alan P. U.S. wartime aid to Britain 1940-1946. 1. Lend-lease operations (1941-1945) 2. Great Britain - Economic policy - 1918-1945 3. Great Britain - Economic policy - 1945I. Title 940.53'1 D753.2.G7 ISBN 0-7099-0893-8

Printed and bound in Great Britain by Mackays of Chatham Ltd, Kent

CONTENTS

Acknowledgements INTRODUCTION

1

1.

THE SUPPLY PROBLEM AND ITS SOLUTION

14

2.

TRADE TALKS AND LEND-LEASE CONSIDERATION

35

3.

THE ATLANTIC CHARTER AND LEND LEASE

62

4.

THE WHEAT TALKS AND THE MUTUAL AID AGREEMENT

93

5.

RESERVES EXPORTS AND RECIPROCAL AID

126

6.

LEND-LEASE TAKE-OUTS AND EXPORT RESTRICTIONS

159

7.

STAGE II LEND-LEASE AND THE QUEBEC CONFERENCE

185

8.

CONCLUSION

216

SOURCES AND SELECT BIBLIOGRAPHY

229

INDEX

234

I DEDICATE THIS BOOK TO

MY

PARENTS

Acknowledgements This book developed out of part of my doctoral thesis which I began in 1973; along the way from then until now I have received financial assistance for my research from the following, all of whom, or which, I most gratefully thank: the Social Science Research Council (as it was known in the early 1970s) for a two year scholarship for my doctoral research; the Durham University Graduate Society and Department of Politics, both of which provided help and part-time employment for me; U.C. Swansea and its fieldwork and research fund; and finally, the British Academy which granted me £1,500 in 1981 enabling me to research archives in the US. I would also like to thank Dr. David Manning (Durham), Professor Peter Calvert (Soton.), Professor W. H. Greenleaf (Swansea) , and Professor Warren Kimball (Rutgers) for supporting me in my academic career both in intellectual and practical matters. Most of all, however, I shall always be indebted to Charles Reynolds of the Department of Politics in Durham; he first encouraged me to consider pursuing an academic career, and then later supervised my doctoral thesis. I taught myself to be a historian, but he helped to show me what history is. Although the book was a long time incubating, in the end I wrote it in just over six months. I was greatly encouraged during that period by my friend Steve Short, who read the manuscript and corrected my punctuation, grammar and syntax. I envy his ability to express himself in the written medium of English, and I am deeply grateful for all the help he gave me. One of the more amusing errors he corrected was my claim that Ambassador Winant 'sent a g a r b l e d v e r s i o n of the Cabinet to Washington1!! Once the manuscript was completed it was typed out by Pat Yates who has worked incredibly hard to meet deadlines, and always did so with a will and with good humour; my thanks go to her also. Finally, I would like to thank my wife Bev. for tolerating my moods, and Becky and Jessie for being patient, reasonably quiet, and for not touching Daddy's papers while he was writing his story. As for the story itself, it is not really "mine", I just found it in the various archives I worked in, nevertheless, I do of course take full responsibility for how it appears here.

INTRODUCTION

'With your relations eat and drink, but do no business.1 An old Levantine proverb.[1]

Britain and the US had engaged in normal business relations ever since 1783, with only occasional interruptions in the nineteenth century because of international and civil wars. In the twentieth century war had a different effect from what had gone before. It brought the two countries together as allies, which resulted in increased economic activity, cooperation and interdependence, but in the Second World War it also fostered the idea of a family relationship. Two of the most impressive achievements of the Second World War were the integration of Anglo-American efforts and the time and resources the two allies devoted to wartime and postwar economic affairs. The number and scope of the topics which fall into the latter category is staggering. They range from aviation rights to long-term meat contracts, from the International Monetary Fund to the international sale of wheat, from the abortive International Trade Organisation to Lend-Lease and the vast array of economic issues which it subsumed. Lend-Lease was the linchpin of the AngloAmerican economic relationship d u r i n g the war. According to the most authoritative estimate Britain received $27 billion-worth of Lend-Lease aid from the US, without cash payments, and Britain in her turn provided America with $6 billion-worth of Reverse Lend-Lease[2]. This was at a time when the official exchange rate was four dollars to the pound, when twelve Shredded Wheat cost just over three pence (8d.) and petrol just under ten pence (Is.lid.) per gallon[3]. Ironically, although there were economic disputes before the Second World War, it was during this period, when the two countries were most intimately a l l i e d , and the idea of a family relationship between the two English speaking

1

Introduction countries was at its height, that the old Levantine proverb became most pertinent. The war years witnessed an i n t e n s i f i c a t i o n of the economic problems which had existed prior to the war, and the emergence of a broad spectrum of new and i n t r a c t a b l e ones. They were not d i f f e r e n c e s between strangers which might f l a r e up at a chance encounter and then g r a d u a l l y dissolve and die by neglect. The difficulties were continually focused in the minds of members of each administration by the sustained contact, cooperation and discussion required by the fight against the Axis, and by their hopes for the r e c o n s t i t u t i o n of the i n t e r n a t i o n a l economy. The demands of total w a r , the dire circumstances of Britain in 1940 and hopes for the f u t u r e f o r c e d B r i t a i n and the US to ignore the admonition of the old L e v a n t i n e p r o v e r b and e s t a b l i s h a close e c o n o m i c r e l a t i o n s h i p t h a t paralleled t h e i r growing political, m i l i t a r y and familial ties. Lend-Lease in many ways was the most successful p o i n t of c o n t a c t in the Anglo-American economic special relationship, but it also generated some of the most bitter disputes. The arguments which arose had wide ranging i m p l i c a t i o n s and w e r e both s y m p t o m a t i c and illustrative of more general c o n f l i c t s between B r i t i s h and A m e r i c a n e c o n o m i c i n t e r e s t s . Thus the story of American wartime aid to Britain through Lend-Lease has a r a t h e r b r o a d e r scope than one might f i r s t imagine. It involves the story of how both c o u n t r i e s jostled for positions they believed would be b e n e f i c i a l for them in the postwar world economy, as well as an account of the p o l i t i c a l d e c i s i o n s m a d e c o n c e r n i n g t h e close wartime interaction of the two national economies. In order to u n d e r s t a n d the ferocity with which the British and Americans bargained and argued with each other d u r i n g the l i f e of Lend-Lease, it is f i r s t l y necessary to explain the existence in 1939 of broad areas of Anglo-American economic conflict, and some of the implications the o u t b r e a k of war had for their economic relations. From the repeal of the Corn Laws in 1846 to the i n t r o d u c t i o n of the Ottawa system of Imperial Preference in 1932, Britain was the exemplar of free t r a d e . For much of this time British industry led the world and B r i t a i n prospered under a t r a d e d o c t r i n e w h i c h insisted on free and open access to raw materials and markets. One of the consequences of t h i s was that British economic prosperity became heavily dependent upon international t r a d e , and even 2

Introduction when it became clear that many of her industries had become vulnerable to foreign competition successive B r i t i s h g o v e r n m e n t s were r e l u c t a n t to upset the f r e e - t r a d e system f r o m which they had so c l e a r l y b e n e f i t e d in the past. It was not until the end of the 1920s that a political coalition began to emerge which seriously challenged the efficacy of u n t r a m m e l l e d laissez-faire . in the l i g h t of a substantial decline in Britain's share of the world export market from around fourteen per cent to under eleven per cent during the period 1913 to 1929 [4] , and because of the onset of the Depression, B r i t a i n moved towards protectionism. The government decided to t a k e d e f e n s i v e measures and to try to s u s t a i n Britain's level of trade by consolidating links with the Commonwealth and E m p i r e . At Ottawa in 1932 a system of i n t r a - i m p e r i a l t a r i f f preference was e s t a b l i s h e d [ 5 ] . This was the f i r s t i n s t a n c e of substantial peacetime protectionism since 1846. The dominant political forces which g r e w up in support of I m p e r i a l P r e f e r e n c e constituted a rather unholy alliance of imperialists such as Leopold Amery and B e a v e r b r o o k , members of the Labour Party who wanted to insulate Britain from the worst v a g a r i e s of the c a p i t a l i s t i n t e r n a t i o n a l economy a n d , l a t e r , a growing band of p r a g m a t i s t s . The p r a g m a t i s t s saw i m p e r i a l economic r e l a t i o n s as a means of encouraging postwar t r a d e and as a p o s s i b l e a l t e r n a t i v e to cooperation with the US if American policies turned out to be unacceptable. I m p e r i a l economic a r r a n g e m e n t s and the p o l i t i c a l f a c t i o n s associated with them had a major impact upon AngloAmerican economic relations during the war. Britain's departure from the canons of i n t e r n a t i o n a l f r e e trade would not have had such an impact upon An'glo-American r e l a t i o n s if it had not b e e n for C o r d e l l H u l l . The US had practised a policy of protectionism throughout her h i s t o r y . In 1930 the Hawley-Smoot Act raised American t a r i f f s to new h e i g h t s . Thus it would have b e e n r a t h e r d i f f i c u l t for the US to complain of British p r o t e c t i o n i s m had it not been for the a r r i v a l of H u l l as President R o o s e v e l t ' s Secretary of State. Hull was strongly convinced of the benefits of f r e e t r a d e and this became one of the c o r n e r s t o n e s of State Department policy. H u l l vehemently attacked B r i t a i n ' s p r e f e r e n t i a l t a r i f f system, which placed higher charges on US i m p o r t s into B r i t a i n than on those f r o m e m p i r e s o u r c e s , not only because it was protectionist, but more i m p o r t a n t l y because it was d i s c r i m i n a t o r y and might set an influential 3

Introduction precedent for other countries. Hull believed such an e v e n t u a l i t y w o u l d s e r i o u s l y damage American interests, for he saw international free trade as an a n t i d o t e to war and as a means to u n i v e r s a l p r o s p e r i t y , as well as enabling the US to export excess agricultural and manufactured goods. The problem of a g r i c u l t u r a l s u r p l u s e s was a l o n g - s t a n d i n g one and H u l l was joined by Henry Wallace, Roosevelt's f i r s t term S e c r e t a r y of A g r i c u l t u r e and later Vice President, in his hopes for solving the problem t h r o u g h increased exports, though as we shall see Wallace and his successor at the Department of Agriculture, Claude W i c k a r d , were more concerned with expanding exports than with any d o c t r i n a l c o m m i t m e n t to laissez-faire. On the industrial side, once the magnitude of the explosive increase i n A m e r i c a ' s i n d u s t r i a l c a p a c i t y w a s g r a s p e d , s u p p o r t f o r H u l l ' s f r e e t r a d e ideas m o u n t e d , both w i t h i n t h e g o v e r n m e n t a n d i n t h e business community, as a means to f a c i l i t a t e the export of excess American p r o d u c t i o n . B r i t a i n was w i d e l y seen as the m a i n obstacle to a f r e e r international economy because of her imperial t r a d e a r r a n g e m e n t s ( a n d l a t e r h e r s t e r l i n g controls) because of the m a j o r role she p l a y e d in the international economy and because of the example she set o t h e r s . It seemed to Hull and his f o l l o w e r s t h a t a t t h e v e r y p o i n t i n h i s t o r y that America needed to abandon her protectionist policies and e n t e r w o r l d e x p o r t m a r k e t s in a really big way Britain was turning away f r o m f r e e t r a d e , was busy erecting b a r r i e r s and c o n t r o l s , and setting a precedent other countries would probably follow. In 1934 Hull began the task of trying to turn the protectionist tide by successfully g u i d i n g the Reciprocal Trade Agreements Act t h r o u g h Congress which enabled the executive branch of government to reduce existing t a r i f f s by up to f i f t y per cent for reciprocal benefits from o t h e r c o u n t r i e s . In 1938 the act bore f r u i t with Britain in the form of the Anglo-American Trade A g r e e m e n t [ 6 ] , but the advantages so gained by Hull were short lived. Once war broke out the war exemption clause was invoked and B r i t a i n began to i n t e n s i f y controls over her economy. The inter-war story of Anglo-American monetary and f i n a n c i a l r e l a t i o n s was j u s t as f u l l , if not f u l l e r , of differences and recriminations. Britain became increasingly aware a f t e r the F i r s t W o r l d War of her r e l a t i v e decline as an i n d u s t r i a l p o w e r . P a r t i c u l a r l y , by comparison with the US, her n a t u r a l 4

Introduction resources, and even her manufacturing base, seemed slender. Understandably, the British resented both their loss of economic supremacy and the rise of the US, and perhaps this was most acutely f e l t , and most o b v i o u s , in the f i e l d of f i n a n c e . It did not go unnoticed in London that while Britain emerged f r o m the G r e a t War saddled w i t h debts to the US, her Johnny-come-lately ally had u n d e r g o n e a t r a n s f o r m a t i o n during the war f r o m debtor nation to the w o r l d ' s leading creditor. In the US the attitude towards the Great War was rather d i f f e r e n t . There soon grew up a school of highly i n f l u e n t i a l revisionist h i s t o r i a n s who argued that Britain and France had duped the US into fighting and paying for a war on t h e i r b e h a l f , and had then created an u n j u s t p e a c e a t V e r s a i l l e s [ 7 ] . They h a d t o r n P r e s i d e n t W i l s o n ' s principles to s h r e d s , imposed p u n i t i v e r e p a r a t i o n s on Germany and e n s u r e d , as Keynes had so b r i l l i a n t l y e x p l a i n e d [ 8 ] , that economic chaos would ensue. When America t r i e d to salvage something f r o m the economic mess in Europe by encouraging lending to Germany and by r e v i s i n g her r e p a r a t i o n s o b l i g a t i o n s t h r o u g h the Dawes and Young plans, in 1924 and 1929 r e s p e c t i v e l y , the E u r o p e a n response seemed to be yet another slap in the face. Europe and Britain began to move down the road of p r o t e c t i o n i s m and economic discrimination, and later defaulted on their war debts to the US. A d i r e c t consequence of this was the Debt Default Act of 1934, sponsored by the a r c h - i s o l a t i o n i s t H i r a m Johnson, which prohibited America from extending loans to, or buying bonds f r o m , d e f a u l t e r s . There was also a widespread d e t e r m i n a t i o n not to become involved again in European dynastic squabbles. The N e u t r a l i t y L a w , passed in 1935, p r o s c r i b e d arms sales t o b e l l i g e r e n t s a n d f o r b a d e t h e u s e o f American shipping in the trade of war supplies. By 1939 there was l i t t l e sympathy in America for the cost B r i t a i n had had to pay in human and economic terms during the Great War [ 9 ] . Another aspect of the m o n e t a r y and financial side of the economic relationship between the US and B r i t a i n was the growth of the idea of responsibly controlled capitalism within the Roosevelt A d m i n i s t r a t i o n . Hull, in many ways was the odd one out in Washington with his commitment to f r e e trade. A much more p r e v a l e n t a t t i t u d e was a mild f o r m of domestic and i n t e r n a t i o n a l diri.gi.sme , w i t h the f o r m e r , spiced w i t h no small element of economic nationalism, taking precedence over the l a t t e r . This was only too a p p a r e n t at the London Economic 5

Introduction Conference in 1933 when Roosevelt torpedoed British a t t e m p t s t o s t a b i l i s e t h e i n t e r n a t i o n a l money m a r k e t s by announcing that: 'The s o u n d i n t e r n a l economic system of a nation is a greater factor in its well-being than the price of its c u r r e n c y ' [10]. He r e f u s e d to allow the US to become a party to the stabilisation plan. The Roosevelt A d m i n i s t r a t i o n t u r n e d away f r o m i n t e r n a t i o n a l c o o p e r a t i o n t o concentrate on reorganising the US domestic economy in the conviction that recovery would have to come there first. Hull's internationalism was u n d e r s t a n d a b l y a f f r o n t e d by this and the incident gave an e a r l y indication of d i f f e r e n t a t t i t u d e s w i t h i n Roosevelt's Government, which were to complicate life greatly for the B r i t i s h d u r i n g the war. One of the leading exponents of responsible controls for capitalism was H e n r y Morgenthau, who was appointed Secretary of the US T r e a s u r y on 17 November 1933. Morgenthau, and his senior advisers such as Harry Dexter White, Bell, Foley, Bernstein and Oscar C o x , were all committed to the idea of government controls to ensure that capitalists did not behave i r r e s p o n s i b l y in the f u t u r e and cause a repeat of the D e p r e s s i o n . As the y e a r s passed M o r g e n t h a u and White realised that A m e r i c a ' s domestic economic stability also depended upon the stability of the international monetary system. The Treasury Secretary became convinced that f i n a n c i a l and monetary power had to be t a k e n away from 1Wall S t r e e t , a n d more p a r t i c u l a r l y f r o m t h e ' C i t y i n London, and placed in the responsible hands of Henry M o r g e n t h a u and his colleagues. This necessarily involved a paramount position for the dollar, which was to be the medium through which control was to be e x e r c i s e d , and a concomitant reduction in the role of s t e r l i n g to the extent t h a t it, and by i m p l i c a t i o n the British Government, would be highly constrained in the type of m o n e t a r y policies they could p u r s u e . Morgenthau was not anti-British, indeed he was one of the leading advocates of aid to Britain, but he was opposed to British international monetary and f i n a n c i a l policies and he was d e t e r m i n e d to place the US and the dollar firmly in the driving seat in this area. N e i t h e r the State Department nor the US Treasury wanted Britain to be so strong economically that she could act c o n t r a r y to A m e r i c a n economic interests, but it was d i f f i c u l t to s t r i k e a balance between economic u n v i a b i l i t y and B r i t i s h economic independence f r o m the US. T h i s p r o b l e m was 6

Introduction compounded by a clash of tactics resulting from the different emphases the departments placed upon f r e e t r a d e and the control of the international monetary system. The Treasury wanted severe r e s t r i c t i o n s on the level of B r i t i s h gold and dollar r e s e r v e s to ensure a controlling voice for America and the dollar in the i n t e r n a t i o n a l m o n e t a r y sphere; the State D e p a r t m e n t b e l i e v e d t h a t i f B r i t a i n w a s s t a r v e d of reserves to the extent desired by the Treasury then this would undermine B r i t a i n ' s ability t o adopt f r e e t r a d e policies a f t e r t h e w a r , t h u s i n v a l i d a t i n g all the h a r d work done by the State Department to p r e s s u r i s e B r i t a i n into committing herself to postwar policies of economic de-control. The r e s u l t s of all this w e r e atacks on two fronts upon what the British perceived to be their economic i n t e r e s t s . This two-pronged a t t a c k , and the triangular r e l a t i o n s h i p between London, the State Department and the US Treasury, supplies some of the main themes for t h i s s t o r y , though of c o u r s e to suggest that t h e r e were only two centres of policy making in Washington is an over-simplification. A n u m b e r of people concerned w i t h economic policy-making had d i f f e r e n t reasons and goals f r o m those which m o t i v a t e d H u l l and M o r g e n t h a u . Some simply wanted to promote American economic interests and p a i d l i t t l e heed to the i n t e r n a t i o n a l consequences - Wallace and Wickard, for example, in the 1941-42 Wheat T a l k s . T h e r e was also a l a r g e amount of Anglophobia in W a s h i n g t o n , m u c h of it emanating from Capitol H i l l , but it was also present in the Roosevelt A d m i n i s t r a t i o n and when combined w i t h e c o n o m i c n a t i o n a l i s m had some impact upon relations with B r i t a i n . Notable instances of men w i t h t h i s k i n d of disposition include Leo Crowley, the Foreign Economic A d m i n i s t r a t o r 1943-45, A d o l f Berle and Breckinridge Long of the State Department, and H. L. Whitney of the Foreign Economic Administration (FEA) who played an important part in the operation of r e s t r i c t i o n s over B r i t i s h c o m m e r c i a l e x p o r t s imposed u n d e r the auspices of Lend-Lease. On many o c c a s i o n s s u c h v i e w s w e r e counter-balanced by Anglophiles such as Acheson and S t e t t i n i u s in the State D e p a r t m e n t , and B e r n h a r d Knollenberg and Charles Denby in the FEA, but as the war p r o g r e s s e d h a r d - l i n e r s on p o l i c y t o w a r d s the British began to gain the upper hand. While London was at one of the apices of the triangle which included the State Department and the US T r e a s u r y , this should not be taken to mean that a u n a n i m o u s v i e w on economic policy prevailed in His 7

Introduction M a j e s t y ' s Government. A w i d e v a r i e t y of v i e w s e x i s t e d w h i c h d e v e l o p e d and changed as the war progressed: however, the British Government was more successful than the American containing such views w i t h i n the f o r m a l decision-making process. The m a j o r i t y of m i n i s t e r s in London a g r e e d in principle with American views concerning freer trade and international agreement to stabilise monetary exchange rates, and wished to open up access to raw m a t e r i a l s , i n t e r n a t i o n a l communications and investment o p p o r t u n i t i e s in an o r d e r l y way. They believed that such policies, pursued in cooperation with the US, would promote Britain's interests. The d i f f e r e n c e between this group, which might be aptly described as liberal pragmatists, and the Americans was the means of achieving this common goal. As the war p r o g r e s s e d , and B r i t a i n ' s e c o n o m i c p o s i t i o n d e t e r i o r a t e d , there was increasing concern over Britain's ability to compete with the US immediately the war ended. The solution was seen in terms of a transitional period f o r B r i t a i n a n d v a r i o u s s a f e g u a r d s for her in the international agreements which were under w a r t i m e discussion with A m e r i c a . For e x a m p l e , in the talks which resulted in the establishment of the I n t e r n a t i o n a l M o n e t a r y Fund (IMF) , one of the main goals of the British Cabinet and Maynard Keynes was to secure more f l e x i b i l i t y than the A m e r i c a n s w a n t e d for exchange rate adjustments in the immediate postwar period. The l a r g e g r o u p which made up the category which I have called l i b e r a l p r a g m a t i s t s had d i f f e r e n c e s of a t t i t u d e w i t h i n itself towards the Americans. The Board of Trade, the Economic Section of the War Cabinet Secretariat, and Lord Cherwell who was1 C h u r c h i l l ' s close f r i e n d - along w i t h ' S B r a n c h w h i c h he had helped to set up and which advised the P r i m e M i n i s t e r on economic and scientific matters were well disposed, on the whole, towards Hull and free trade. At the same time they d i s l i k e d M o r g e n t h a u ' s p o l i c i e s , which weakened Britain's finances and reduced her ability to u n d e r t a k e f r e e t r a d e at the end of the w a r . Sir F r e d e r i c k Leith-Ross of the M i n i s t r y of Economic W a r f a r e and R i c h a r d Law of the Foreign Office, who became very important in economic policy-making in t h e l a t t e r p a r t o f t h e w a r , w e r e h i g h l y proAmerican, though this is not to say that they lost sight of B r i t i s h i n t e r e s t s . Nigel Ronald, FO Counsellor and adviser on economic matters, was less s a n g u i n e a b o u t A m e r i c a n p o l i c i e s . Successive Chancellors of the Exchequer Kingsley Wood, Sir John 8

Introduction Anderson and Hugh Dalton were even more sceptical and suspicious. The f i r s t , as a party stalwart, had the additional concern that if the government made too many concessions, p a r t i c u l a r l y on I m p e r i a l P r e f e r e n c e , this would have a divisive effect upon the Conservative Party. Outside the group of pragmatists the strongest opposition to American economic policies came f r o m i m p e r i a l i s t s such as Leopold Amery, Lord Cranborne and Beaverbrook, and f r o m the Labour Party which had its own ideas about domestic economic dirigisme. In the early part of the war Arthur Greenwood, Minister W i t h o u t P o r t f o l i o w a s t h e most e f f e c t i v e Labour Party opponent of American policies. Both the l e f t and the imperialists suspected American motives and wanted to insulate B r i t a i n f r o m US e c o n o m i c i n f l u e n c e s as far as possible, t h o u g h as we shall see for rather d i f f e r e n t reasons. One f i n a l opponent of America's economic goals needs to be mentioned: the Minister of A g r i c u l t u r e and F i s h e r i e s , R. S. H u d s o n . B r i t a i n was the w o r l d ' s main purchaser o f a g r i c u l t u r a l p r o d u c e . Wheat was her largest single import item, America was the w o r l d ' s main surplus producer of f o o d . The obvious t h i n g to do was to b r i n g the two together a n d , indeed, f o r many years B r i t a i n w a s a m a j o r c u s t o m e r of the US. In the inter-war y e a r s , however, an idea had grown up in B r i t a i n that for s t r a t e g i c reasons she should try to d i m i n i s h her dependence upon foreign food supplies by encouraging home p r o d u c t i o n . Needless to say, this idea became even more popular with the onset of the Second World W a r . I n a d d i t i o n t o increased home p r o d u c t i o n , Imperial Preference, which shifted British purchases away f r o m t h e U S t o t h e D o m i n i o n s , a n d w a r t i m e controls to conserve d o l l a r s also r e d u c e d B r i t i s h imports of American a g r i c u l t u r a l products. These factors taken together sowed the seed of a serious d i s p u t e b e t w e e n t h e t w o c o u n t r i e s . T h e Wheat Negotiations, 1941-42, which were the f i r s t w a r t i m e attempt to deal explicitly with this problem, turned Hudson violently against US economic policies and h i s o p p o s i t i o n w a s t o h a v e m a j o r consequences. While h e r e m a i n e d M i n i s t e r o f A g r i c u l t u r e , n o Conservative led government could take his opposition to American policies lightly, because of the electoral dependence of the party upon rural and f a r m i n g interests for which Hudson was the m a i n political representative. Clearly, then, while Britain and the US entered into a collaborative venture in the Second World War 9

Introduction unprecedented in history, at the same time there was great potential f o r argument and c o n f l i c t in the economic sphere. On trade, m o n e t a r y , raw material and a g r i c u l t u r a l policies t h e r e were serious and s u b s t a n t i a l d i f f e r e n c e s between the two n a t i o n s . The simple f a c t was that w i t h Germany out of the equation of international economic relations Britain and the US were the two great economic rivals of the w o r l d , or at least so it seemed in the 1940s. C o n f l i c t was going to be d i f f i c u l t to avoid, p a r t i c u l a r l y since t h e w a r t i m e c o l l a b o r a t i o n o c c u r r e d at a time when B r i t a i n was in economic retreat and America was on the v e r g e of advancing into the w o r l d economy. The war accelerated both those trends. Among a great many other t h i n g s the war was about the clash of the economic new and the economic old; the economic d e f e n s i v e versus the economic aggressive. The main worry and preoccupation of the British Government during the war, strategic matters apart, was the p r o s p e c t of a h u g e a d v e r s e b a l a n c e of payments a f t e r the w a r . We shall have occasion to consider why this was so l a t e r , but for the moment s u f f i c e it to say that unless this fact is constantly b o r n e in m i n d it is not p o s s i b l e to u n d e r s t a n d t h e a c t i o n s a n d policies o f B r i t i s h ministers and o f f i c i a l s . When B r i t a i n ran out of money towards the end of 1940 Lend-Lease, devised to solve B r i t a i n ' s supply p r o b l e m , also clouded the balance-of-payments issue, putting it into a kind of suspended a n i m a t i o n for the d u r a t i o n of the w a r , though as we shall see, not putting British minds at rest concerning Britain's lack of reserves and her f u t u r e p r o s p e c t s . T h e r e w e r e n o cash payments involved in Lend-Lease, hence the suspension of the b a l a n c e of p a y m e n t s p r o b l e m , but t h e r e was an equivalent of what the law of c o n t r a c t c a l l s c o n s i d e r a t i o n . F i r s t l y , in September 1941, the British agreed that the level of British commercial e x p o r t s should be at the irreducible minimum necessary for the s u c c e s s f u l p r o s e c u t i o n of the w a r [ l l ] . S e c o n d l y , i n F e b r u a r y 1942, t h e State Department extracted a commitment, albeit a r a t h e r equivocal one, f r o m B r i t a i n in the Mutual Aid Agreement to cooperate with the US in the creation of an open, f r e e - t r a d e , world economy[12]. The British agreed with great reluctance to t h i s . They a l r e a d y doubted the a b i l i t y of the British economy to withstand the icy blast of economic c o m p e t i t i o n f r o m the US a f t e r the w a r . T h i n g s , however, were about to get much worse. 10

Introduction A f t e r the US entered the war the British thought that the harsh terms c o n t r o l l i n g B r i t a i n ' s c o m m e r c i a l export t r a d e , and American pressure t a c t i c s such as those used in the L e n d - L e a s e C o n s i d e r a t i o n T a l k s , which led to the M u t u a l Aid Agreement, could no longer be j u s t i f i e d and should be a b a n d o n e d . These hopes were strengthened by the t a l k of pooling resources for the war e f f o r t and equality of s a c r i f i c e , but London was to be rudely disappointed. Lend-Lease was soon used by M o r g e n t h a u , later aided and abetted by Crowley and his F E A , to limit the a c c u m u l a t i o n of g o l d and d o l l a r r e s e r v e s by B r i t a i n and to i n t e n s i f y the restrictions on her export t r a d e . These policies not only weakened B r i t a i n ' s general economic position, they also d i m i n i s h e d the l i k e l i h o o d of B r i t a i n being able to c a r r y out the commitment to f r e e r t r a d e s h e h a d given t h e S t a t e D e p a r t m e n t . This, in its t u r n , revived the antagonism between Hull and his acolytes on the one hand and London on the other. The British a r g u e d that the Lend-Lease A g r e e m e n t s h o u l d be c o n s t r u e d in a b r o a d way to compensate B r i t a i n f o r h e r w a r t i m e s a c r i f i c e s f o r t h e c o m m o n good a n d t o a l l o w h e r t o b u i l d u p sufficient reserves to provide her with an adequate base for the eventual return to a peacetime economy. The US Treasury and the FEA disagreed. P a r t of the problem was the d i f f e r e n t contributions the two countries made to the war e f f o r t . B r i t a i n thought h e r l o n e s t a n d f r o m 1940 t o December 1941, h e r l i q u i d a t i o n of o v e r s e a s a s s e t s and her l o s s of e x p o r t m a r k e t s should all be t a k e n into a c c o u n t . F u r t h e r m o r e , u n t i l D-day B r i t a i n and the Commonwealth had m o r e men u n d e r arms than the US, and t h r o u g h o u t the war the UK was more h i g h l y mobilised for war production. The relative economic cost of the war to Britain was also much h i g h e r an:5! more damaging than it was in the US; indeed, the U£ flourished economically during the war years. M o r g e n t h a u and Crowley saw t h i n g s in a rather d i f f e r e n t perspective. They w e r e s e n s i t i v e to c o n g r e s s i o n a l c r i t i c i s m s and saw the larger gross American economic contribution to the war e f f o r t as more salient than the economic burdens Britain had had to undertake and her losses of blood, sweat and t e a r s . The crucial f a c t o r was that Britain and the US were long standing r i v a l s in the e c o n o m i c f i e l d and t h e r e was a n a t u r a l d i s p o s i t i o n on both sides not to recognise the cogency of the a r g u m e n t s of the o t h e r , t h o u g h Morgenthau did become more h e l p f u l to 11

Introduction Britain after the IMF conference at Bretton Woods in 1944, which appeared to achieve many of his goals in the international monetary field. Britain and the US might have embarked upon a joint military and economic venture, but they still had their own economic interests to nurture. In the pages which follow I have tried to trace the story of the politics of Anglo-American economic cooperation and conflict within the context of Lend-Lease. This introduction is a series of generalisations about the main problems which emerged and the positions which were held by various groups and individuals in London and Washington, which will be amplified in the main body of the book. During the period of the narrative, those positions, and the reasoning behind them, developed and changed. Such detail can only be assimilated properly as the historical account unfolds; nevertheless, an overview is useful and I hope this introduction has indicated one. NOTES 1. Taken f r o m , L o r d H a n k e y , DiBlo.ma.c.y._b_y. Conference. (Ernest Benn, London, 1946), p. 151. 2. R.G.D. A l l e n , ' M u t u a l Aid Between the US a n d t h e B r i t i s h E m p i r e 1 , ifljiinfll_Qf._th£_Bcyal Statistical £fi£i£±y, JJJ5 (1946), p. 245. 3. ' T h e W a y W e W e r e ' , 1245_DaiIi_ttail EiCtfij:ifll_BistCXy._Cf_Qllj:_Tiin£S., 1 ( P h o e b u s P u b l i s h i n g C o m p a n y , 1 9 7 5 ) , pp. 6 4 - 6 5 : N . B . t h e precise dollar/sterling exchange rate was 4.03:1. 4. S. Pollard, The Development of the British Economy 1914-1967 (Edward A r n o l d , London, 1973), p. 188. 5. For a fuller account of B r i t i s h inter-war imperial economic policy see: I . M . Drumond, Imperial Economic Policy 1917-1939 (Allen and U n w i n , London, 1974) . 6. Cmd.5882, 'Anglo-American Trade A g r e e m e n t 1 , 1938. 7. W . I . Cohen, The American Revisionists - The Lessons of Intervention in World War I (University of Chicago Press, 1967). 8. J . M . Keynes, The Econpmic Consequences of the Peace (Macmillan, London, 1920). 9. A . A . O f f n e r , Ihfi_Diigias_cf_tl!£_fie£CIld.

World War: American Foreign Policy and World

Politics 1917-1941 (Praeger, New York, 1976). 10. Quoted from H.B. Hinton, CQidell_Hllll (Hurst and Blackett, London, 1941), p. 158.

12

Introduction 11. Cmd.6311, 'The Export White P a p e r 1 , 10 Sept. 1941. 12. For the text of the Consideration/ or The Mutual Aid Agreement as it was formally called, see: A Decade of American Foreign Policy. Basic Documents 1941-49 (US Government Printing Office, Washington, 1950); and Cmd.6341, 'Principles Applying to Mutual Aid', 23 Feb. 1942.

13

Chapter One THE SUPPLY PROBLEM AND ITS SOLUTION

On 7 December 1940, one year to the day b e f o r e the Japanese attack on Pearl Harbor and America's entry into the w a r , C h u r c h i l l w r o t e to Roosevelt, 'The moment approaches when we shall no longer be able to pay cash for s h i p p i n g and o t h e r s u p p l i e s ' [ 1 ] . F i f t e e n months of war were about to bankrupt Britain. T h e r e w e r e t h r e e c r u c i a l problems concerning B r i t a i n ' s supply p r o g r a m m e d u r i n g 1939 and 1940. F i r s t l y , B r i t a i n had been w o e f u l l y unprepared for war; she could only o f f e r f o u r army d i v i s i o n s to F r a n c e in September, 1939. Even the RAF, on which many o f B r i t a i n ' s r e a r m a m e n t e f f o r t s h a d b e e n e x p e n d e d , had o n l y h a l f as many bombers as the L u f t w a f f e [ 2 ] . Britain u r g e n t l y needed supplies of arms and m a t e r i a l , and as the months of war passed it became clear that the problem was not solely one of a lack of p r e p a r e d n e s s , but also of a g e n e r a l i n a b i l i t y on the part of the economy to meet B r i t a i n ' s war r e q u i r e m e n t s . Secondly, the British Government knew that German U-boat a t t a c k s u p o n shipping, bringing food, raw materials and equipment to the UK, would h i n d e r B r i t a i n ' s war p r o d u c t i o n , t h r e a t e n the B r i t i s h people with severe privation and might possibly do worse. T h i r d l y , w h i l e supplies f r o m t h e U S , i n c l u d i n g d e s t r o y e r s , w e r e seen as a p o t e n t i a l s o l u t i o n to the f i r s t two problems, the American Neutrality Law constituted an obstacle which would have to be s u r m o u n t e d b e f o r e the a g r i c u l t u r a l and i n d u s t r i a l capacity of the US could be fully drawn upon by Britain. P r e s i d e n t Roosevelt and S e c r e t a r y of State H u l l , k n o w i n g that F r a n c e a n d B r i t a i n would need American assistance against Germany, wanted to amend the N e u t r a l i t y Law: as early as May 1939, t h e y had begun a c a m p a i g n in W a s h i n g t o n to change 14

The Supply Problem and its Solution isolationist sentiment and repeal the embargo on arms sales to belligerents; however, Isolationists in Congress, led by Senator Borah of Idaho, refused to be moved. Hull and Roosevelt were angry, but as the Vice President, John Nance Garner, commented to the President in a crucial meeting with Borah in mid July, '"Well, Captain, we may as well face the facts. You haven't got the votes, and that's all there is to it"'[3], Four months later the story was different. The German blitzkrieg in Poland and a new initiative by Roosevelt changed the balance of Congress. Roosevelt offered the Isolationists a deal: the administration would support proposals to exclude all American shipping from the war zones in exchange for an amendment to the Neutrality Law, which would allow cash-and-carry arms sales to b e l l i g e r e n t s . This was far from b e i n g an even-handed proposal from Germany's point of view, for it clearly discriminated in favour of Britain and France since they had the naval power and the merchant shipping which would allow them to take advantage of this law. Despite the obvious way the proposal favoured France and Britain, both houses of Congress accepted it by large majorities in early November. Public opinion had shifted since July and the s i t u a t i o n in E u r o p e was m o r e c r i t i c a l ; nevertheless, the rump of the Isolationists was angry. One of their leaders, the Republican senator Arthur Vandenberg, entered in his diary, 'In the name of "democracy" we have taken the first step, once more, into Europe's "power politics"...What " s u c k e r s " our emotions make of us'[4]. The President had got his way but the Isolationists might prevent him from consolidating and carrying public opinion with him in his attempts to help France and Britain. He did not want to be a victim of the kind of national disillusionment that had occurred after President Wilson had taken America into the First World War, and he was determined to build his bridges more carefully. This meant moving cautiously down the road which first led to 'all aid short of war" and only then, if perhaps inevitably, to war itself. During the winter of 1939/40 some $50 million of arms were bought from the US by France and Britain and as the flow of supplies from America increased the problem of paying cash for them became m o r e a c u t e . The British Government tried to overcome its dollar shortage in two ways. Firstly, d u r i n g the first twelve months of the war, the government took a succession of measures to bring 15

The Supply Problem and its

Solution

s t e r l i n g , imports and exports under stricter control[5]. Dollars were conserved for essential purchases by prohibiting certain imports from the US and by s w i t c h i n g f r o m the US to other sources of s u p p l y f o r o t h e r s , t h o u g h i n some cases these sources were more expensive, but the o v e r r i d i n g c o n s i d e r a t i o n was that they could be bought for sterling or soft currencies. The second tactic was an export drive to earn more dollars. British economic controls and the i n t e n s i f i c a t i o n of d i s c r i m i n a t i o n deprived many American a g r i c u l t u r a l p r o d u c e r s of t h e i r m a r k e t s , and B r i t a i n ' s export drive led to increased tension in third m a r k e t s between British and American m a n u f a c t u r e r s : this was p a r t i c u l a r l y so in Latin America. These developments aroused a n t i - B r i t i s h sentiment in a number of influential groups in the US, some of which were not normally Anglophobic and the President of the Board of Trade, Oliver Stanley, was soon receiving c o m p l a i n t s f r o m W a s h i n g t o n . Cordell H u l l , a l t h o u g h he had pressed for the cash-and-carry policy, was unwilling to accept that it was economically and militarily necessary for the British government to control its dollar e x p e n d i t u r e s in e v e r y way it could in o r d e r to optimise their u s e f u l n e s s to the war e f f o r t . His i m m e d i a t e reaction to the i n t e n s i f i c a t i o n of B r i t a i n ' s economic controls was to speak out s t r o n g l y against them on behalf of American exporters. On 22 J a n u a r y he protested to Stanley that, there is a s t e a d i l y increasing f e e l i n g in this c o u n t r y that American and other interests are being s e v e r e l y i n j u r e d by discriminations and unnecessary restrictions, the effects of which w i l l extend into peacetime, perhaps permanently, to the detriment of American interests;[6] The spectre of a world economy closed to A m e r i c a n e x p o r t s and i n v e s t m e n t , and denying America raw materials, manifested itself vividly in H u l l ' s mind. R a t h e r i n t e r e s t i n g l y , H u l l ' s vision of an ideal world economy was diametrically opposed to the view held by many politicians of the l e f t , and expounded most notably by Lenin in ' I m p e r i a l i s m , The Highest Stage of C a p i t a l i s m ' [ 7 ] . Hull believed free-trade and an open world economy dove-tailed with peace and did not (as Lenin had argued) result in aggravated 16

The Supply Problem and its Solution competition leading to w a r . He also believed that it was economic autarky, discrimination and controls [whether of the Soviet, N a z i , or any other v a r i e t y ] which led to w a r , and the Second World War seemed very much to him to confirm these views[8]. The Americans continued to express concern in the months that followed and they made a series of representations to the British at various official l e v e l s [ 9 ] . The B r i t i s h , u n f o r t u n a t e l y , were too preoccupied with war m a t t e r s to deal e f f e c t i v e l y with the trade crisis brewing with the US. Oliver S t a n l e y was d i s t u r b e d by the complaints, but he found it d i f f i c u l t to see what positive action he could take to placate the A m e r i c a n s given the war situation. Some members of the B r i t i s h Government hoped that the American farm lobby would pressurise Roosevelt and Congress into emasculating the Johnson A c t , t h u s e n a b l i n g A m e r i c a n f a r m produce t o b e shipped to Britain on credit and d e - f u s i n g most of t h e t e n s i o n i n A n g l o - A m e r i c a n trade relations. These h o p e s w e r e n e v e r f u l f i l l e d b e c a u s e o f Roosevelt's f e a r of giving the Isolationists more ammunition with which to attack the a d m i n i s t r a t i o n and with which to t u r n p u b l i c opinion against it. As the trade situation continued to d e t e r i o r a t e the State Department Executive Committee on Commercial Policy (ECCP) gave more thought to the problem of US exports to B r i t a i n . The situation of American agricultural s u r p l u s e s was becoming acute b u t , as H e n r y Grady ( C h a i r m a n of the ECCP) n o t e d , the problems involved w e r e s u b s t a n t i a l and not simply a t t r i b u t a b l e t o B r i t i s h w a y w a r d n e s s [ 1 0 ] . Grady acknowledged that the i n t e r n a t i o n a l s h o r t a g e of dollars was not only the f a u l t of f o r e i g n e r s / American policies were also partly to b l a m e , and he suggested a number of ways the US might remedy the s i t u a t i o n . While Grady sought t o p u t t h e t r a d e issue in perspective, which involved spreading the burden of responsibility for America's a g r i c u l t u r a l s u r p l u s p r o b l e m , he also f e l t obliged to hand a strong letter of complaint to the B r i t i s h Embassy, on 4 May, because of mounting criticism in the US of British economic policies. H e r b e r t F e i s , an Anglophile and the State D e p a r t m e n t ' s a d v i s e r on international economic policy, expressed r e s e r v a t i o n s a b o u t the implied t h r e a t in the last sentence of the note, but it was sent off u n a l t e r e d . It ran as follows: 17

The Supply Problem and its Solution

In view of the sharp c u r t a i l m e n t of American exports to the United Kingdom and the British colonies of products included i n t h e t r a d e a g r e e m e n t [ i . e . 1938 Anglo-American Trade A g r e e m e n t ] , and the depreciation of B r i t i s h currency, the maintenance of the t r a d e a g r e e m e n t is becoming increasingly more difficult.[11] Throughout the summer and a u t u m n problems p e r s i s t e d . T h e A m e r i c a n s w e r e c a u t i o u s about starting any talks or taking any actions that might prove politically embarrassing during 1940. It was an election year and Roosevelt was s t a n d i n g for an unprecedented third term of office. Clearly, talks which brought Britain's new trade controls to public a t t e n t i o n m i g h t r e s u l t in a bad p r e s s for the administration, nevertheless, the hopes of Grady and his ECCP for moves on the t r a d e f r o n t were not entirely disappointed. Both Henry M o r g e n t h a u and Roosevelt raised w i t h Sir F r e d e r i c k Phillips the possibility of forcing out more B r i t i s h exports to the US to relieve B r i t a i n ' s dollar shortage. Phillips was the senior British T r e a s u r y r e p r e s e n t a t i v e in Washington f r o m 1940 u n t i l his death in 1943, and he played an important role in many of the Anglo-American economic talks which took place d u r i n g that period. P h i l l i p s r e l a y e d t h e t h o u g h t s of Morgenthau and the President to London, where they were e a g e r l y t a k e n up by the new President of the Board of Trade, Oliver Lyttleton. He i n s t r u c t e d D ' A r c y Cooper of the B r i t i s h d e l e g a t i o n in Washington to explore with the Americans the p o s s i b i l i t y of a supplement to the 1938 trade agreement, which would make t h e i r m a r k e t more accessible to United Kingdom e x p o r t e r s , and offset some of the disadvantages which they s u f f e r in consequence of the rise of costs in this country.[12] T h i s s u g g e s t i o n , that t h e B r i t i s h a n d A m e r i c a n s should review their trade r e l a t i o n s , was passed on to Grady on 30 October. It was well timed, because a couple of days later Hull made his dissatisfaction w i t h e x i s t i n g B r i t i s h t r a d e policies a b u n d a n t l y clear w h e n h e l e c t u r e d m e m b e r s o f t h e B r i t i s h d e l e g a t i o n in W a s h i n g t o n [ 1 3 ] . On 12 D e c e m b e r Harry Hawkins, one of H u l l ' s l e a d i n g d i s c i p l e s and 18

The Supply Problem and its Solution head of the D i v i s i o n of C o m m e r c i a l P o l i c y and Agreements, reported to Hull that the d e p a r t m e n t ' s T r a d e A g r e e m e n t s Committee u n a n i m o u s l y f a v o u r e d positive action on the B r i t i s h s u g g e s t i o n for a supplement to the trade agreement of 1938[14]. Four days later Hull forwarded that recommendation to the P r e s i d e n t , who appended his familiar 'OK' to it and returned it[15]. The scene was set for an attempt to solve Anglo-American trade problems. While the Board of Trade was trying to overcome the d i f f i c u l t i e s involved in t r a d e relations with the US, B r i t a i n ' s supply s i t u a t i o n c o n t i n u e d to w o r s e n . R o o s e v e l t w a s w e l l aware o f t h i s , b u t re-election c o n s i d e r a t i o n s and f e a r s of what the Isolationists might do limited his scope for action. In June 1940 he broadened the political base of his a d m i n i s t r a t i o n by b r i n g i n g in Frank Knox as Secretary of the Navy and the n o t o r i o u s w a r - h a w k H e n r y S t i m s o n a s S e c r e t a r y o f W a r . Both were Republicans and the appointments were c l e a r l y made w i t h an eye to combating the spread of anti-Rooseveltian and pro-Isolationist sentiment in t h e R e p u b l i c a n P a r t y . A t t h e same t i m e t h a t Roosevelt was s t r e n g t h e n i n g his hand against the Isolationists, France collapsed and Britain was left alone, ill-armed and ill-prepared, to f a c e G e r m a n y , which raised new questions about extending aid to Britain. Was it aid for a lost cause? If so, why a n t a g o n i s e G e r m a n y needlessly by g i v i n g help to Britain? Would it not be more p r u d e n t to keep the equipment for American forces for the defence of the continental US? The d e f e a t of F r a n c e and the loss of the B r i t i s h A r m y ' s equipment at D u n k i r k in May 1940 compounded B r i t a i n ' s supply problem. Industry was increasingly turned over to war production w i t h the results that the n a t i o n ' s export e a r n i n g capacity was ineluctably reduced w h i l e imports c o n t i n u e d , depleting her gold and d o l l a r reserves apace. As Edward S t e t t i n i u s put it in his h i s t o r y of Lend-Lease the British, 'needed their factories and their raw materials to manufacture bombs for export o v e r G e r m a n y , n o t p e a c e t i m e g o o d s t o sell t o friendly n a t i o n s ' [ 1 6 ] . B r i t a i n could not s u s t a i n enough export p r o d u c t i o n both to pay for vital raw materials and equipment from abroad and simultaneously to reserve enough industrial capacity for the level of p r o d u c t i o n n e c e s s a r y for p r o s e c u t i n g the war against Germany and Italy. The india-rubber island, as Angus Calder has called 19

The Supply Problem and its

Solution

w a r t i m e B r i t a i n / was stretched in innumerable ways to meet the demands of the w a r , but the economic logic of 1940/41 dictated that the tension between the need for exports and the need for war production w o u l d snap it in two unless outside aid was forthcoming[17]. On 10 May 1940 C h u r c h i l l took over f r o m Chamberlain as Prime Minister and f o r m e d the N a t i o n a l G o v e r n m e n t . A l m o s t immediately pleas started to flow across the Atlantic for statements of s u p p o r t from Roosevelt, for supplies, for munitions and above all for destroyers. British and allied shipping losses were mounting a l a r m i n g l y ; they were to exceed 3.5 m i l l i o n tons in 1940 and over 4.3 million tons in 1941. Destroyers were the k e y weapon f o r f i g h t i n g t h e U - b o a t m e n a c e t o merchant shipping bringing supplies to Britain. Churchill's pleas presented the President with a new d i f f i c u l t y . Not only did Roosevelt have to calculate the possible political repercussions of aid to B r i t a i n , and whether it would and could be used e f f e c t i v e l y by her to stop the a d v a n c e of G e r m a n y , but he now also had to contemplate extending aid on a non-commercial basis. On the 15 May Churchill, for the first time as Prime Minister, w r o t e to Roosevelt describing some of B r i t a i n ' s supply problems and requirements. Most importantly for the long-term, he stated, 'We shall go on paying dollars for as long as we can, but I should like to feel reasonably sure that when we can pay no m o r e , you w i l l g i v e u s t h e s t u f f a l l t h e s a m e 1 [ 1 8 ] . Roosevelt was not very responsive to C h u r c h i l l ' s i n i t i a l p l e a s . F r a n c e w a s still i n t h e f i g h t , though o n l y j u s t , a n d o f f i c i a l s i n W a s h i n g t o n continued to hope that H i t l e r could be stopped on the continent of E u r o p e . Such c h i m e r i c a l hopes d i s a p p e a r e d as May and the Germans advanced. Churchill repeated his requests for aid on 18 and 20 May, on 1 June and again, with some desperation, on 15 June[19]. The f a l l of F r a n c e was imminent and the US Ambassador in London, Joseph K e n n e d y , was reporting pessimistically to W a s h i n g t o n (as the B r i t i s h knew full well because they had cracked the State Department codes) about B r i t a i n ' s chances of s u r v i v a l and about her will to resist. Churchill was well aware that Roosevelt was now c a l c u l a t i n g the b e n e f i t s for A m e r i c a f r o m extending aid to Britain against the odds on B r i t a i n s u r v i v i n g , against depriving US forces of much needed material and against the danger of needlessly a n t a g o n i s i n g 20

The Supply Problem and its Solution

Germany if aid failed to prevent B r i t a i n ' s defeat or capitulation. Churchill used the only thing Britain h a d l e f t w h i c h f e a t u r e d p r o m i n e n t l y i n American minds when they t h o u g h t about the defence of the US. A l t h o u g h the p r e s e n t g o v e r n m e n t and I personally would never f a i l to send the fleet across the A t l a n t i c if r e s i s t a n c e was b e a t e n down h e r e , a p o i n t may be reached in the struggle where the present m i n i s t e r s no l o n g e r have control of a f f a i r s and when very easy terms could be obtained for the British islands by their becoming a v a s s a l s t a t e of the H i t l e r empire[20]. Churchill pointed out that the British Navy combined w i t h those of I t a l y , Japan and F r a n c e , and in conjunction with Germany's industrial capacity, w o u l d pose a v i t a l t h r e a t to the US. The P r i m e Minister made it plain that A m e r i c a ' s best option was to give B r i t a i n aid n o w , to stengthen Britain and Churchill's government, and prevent the e m e r g e n c e of a Q u i s l i n g - t y p e r e g i m e in London. Britain only had 68 destroyers fit for service, both to p r o t e c t her shipping lanes against 55 German and 100 Italian submarines and to fend off the expected cross-channel i n v a s i o n . "We must ask t h e r e f o r e " , wrote Churchill, 'as a matter of l i f e or death to be r e i n f o r c e d w i t h . . . d e s t r o y e r s ' . Roosevelt, for the time being, did not act. A month and a h a l f passed b e f o r e C h u r c h i l l pressed Roosevelt once again for destroyers. At the end of July he u r g e d Lord L o t h i a n , the B r i t i s h Ambassador in Washington, to press the B r i t i s h case and on 31 J u l y he m a d e a personal appeal to the President[21]. On 1 August Lothian took the o p p o r t u n i t y of a m e e t i n g w i t h Stimson and Knox to plead for the t r a n s f e r of d e s t r o y e r s to the UK and met w i t h a f a v o u r a b l e response. Harold Ickes, Secretary of the Interior, M o r g e n t h a u a n d n o w , Roosevelt h i m s e l f , f a v o u r e d positive action on the British request for d e s t r o y e r s . The P r e s i d e n t appears to h a v e b e e n i n f l u e n c e d in his decision by more favourable reports about B r i t a i n ' s chances of s u r v i v a l . The Battle of B r i t a i n was still raging, but the achievements of the RAF warranted cautious optimism. On 2 A u g u s t the US Cabinet agreed in principle to the t r a n s f e r of d e s t r o y e r s . At the same time it 21

The Supply Problem and its

Solution

recognised that Congress might prove recalcitrant and would r e q u i r e a quid pro quo w h i c h c o u l d be clearly seen as such. With Britain already short of d o l l a r s c a s h - p a y m e n t seemed t o b e o u t o f t h e question and some other form of payment would have to be sought. A more immediate issue, however, was the p r o c e d u r e by which the destroyers were to be transferred to the Royal Navy. If Congress was to be approached for a u t h o r i s a t i o n for the t r a n s f e r , as R o o s e v e l t at f i r s t t h o u g h t it w o u l d have to be, then the Isolationists might delay matters u n t i l it was too late to help Britain. At this point Britain found a good f r i e n d in the f o r m of Dean Acheson, who was t e m p o r a r i l y out of g o v e r n m e n t service. He had resigned from the Treasury in November 1933 but was to re-enter government employment on 1 February 1941 when he became an Assistant S e c r e t a r y of S t a t e . During the second week of August Acheson, along with B. V. Cohen, T. D. Thatcher ( f o r m e r l y a New Y o r k d i s t r i c t j u d g e and Solicitor General in the Hoover A d m i n i s t r a t i o n ) and George Rublee, d r e w up a document of legal c o n s i d e r a t i o n s . It stated that Roosevelt had the authority, w i t h o u t congressional p e r m i s s i o n , to t r a n s f e r destroyers to theUK providing the Chief of Naval Operations stated that they were not necessary for the defence of the US. Their paper was published in the New Y o r k Times on Sunday 11 A u g u s t . Public reaction and, after some nudging from Acheson, the opinion of the A t t o r n e y G e n e r a l , R . H . J a c k s o n , were both f a v o u r a b l e . I t only remained for the President to be p e r s u a d e d . Acheson set to work again and b r o u g h t pressure to bear c i r c u i t o u s l y via L o t h i a n , Lord Athlone ( t h e Governor General of Canada) and the Canadian Prime Minister, McKenzie K i n g [ 2 2 ] . On 13 August Roosevelt i n f o r m e d C h u r c h i l l t h a t h e t h o u g h t that i t w a s possible for him to accede to the request for an immediate supply of destroyers for B r i t a i n [ 2 3 ] , Ambassador Lothian now began to discuss t e r m s , a n d d u r i n g t h e f o l l o w i n g t h r e e weeks some h a r d b a r g a i n i n g took p l a c e . The A m e r i c a n s w a n t e d a pledge from the British Government that in the event of a German victory the British fleet w o u l d be sent overseas for the defence of the empire. They also wanted a handsome quid pro quo which would d e f l e c t any d o m e s tic criticism of the destroyers deal. The British were reluctant to g i v e the pledge t h a t the Americans requested because it would publicly countenance the p o s s i b i l i t y of d e f e a t : this was 22

The Supply Problem and its Solution

undesirable from the point of view of domestic morale. On the 'payment' issue the B r i t i s h eventually agreed to lease bases in the Caribbean and Newfoundland to the US for 99 years. This type of exchange had been mooted on a number of occasions in the past; however, the British were not happy about a straight swop of bases for destroyers. It was felt in London that it might set as a precedent for harsh bargains in the future. As Churchill later put it in his memoirs, "There was of course no comparison between the intrinsic value of these antiquated and inefficient craft and the immense permanent [sic] strategic security offered the United States by the enjoyment of the island bases' [24], The British agreed to transfer the bases to America but they wanted to give them, as opposed to exchanging them, for the destroyers. Two independent but simultaneous transactions would take place which would detract from the commercial character of the deal and emphasise the close mutual interests of Britain and the US. Unfortunately, Roosevelt's political circumstances would not allow this: he needed to emphasise the businesslike nature of the deal so in the end a compromise was struck. Some bases were presented as a free gift, others specifically for the destroyers. There was also a compromise concerning the requests for a public statement that the fleet would be dispatched to various parts of the Empire if Britain was defeated. Churchill confirmed in writing that such was the policy of his government but this was not bruited about in London[25]. The agreement was finally signed on 2 September 1940. In Washington it was presented as a single quid-pro-quo business agreement, which greatly benefited the US. In London the emphasis was placed on the parallel transactions of Britain giving some bases voluntarily to the US and the US handing over destroyers, for which she got some others. The deal was a turning point in the supply relationship between the two countries. No matter how good the bargain was for the US this could not disguise the facts that the agreement was one which could only have been reached between close friends and that it was not a straightforward commercial arrangement. It p o i n t e d the way for L e n d - L e a s e . The Isolationists saw it very much in terms of Roosevelt getting off what little was left of the fence, and they were right. America no longer even had the formal appearance of being neutral. 23

The Supply Problem and its Solution The destroyers deal was an important victory over the Isolationists and strengthened B r i t a i n ' s defences without her having to pay precious dollars. This was just as well because by the autumn of 1940 B r i t a i n was rapidly approaching bankruptcy. During the summer of 1940 the British Government had hoped that it could continue the cash-and-carry programme w e l l i n t o 1941. In August re-assessments drastically altered the picture and it looked as if Britain would run out of dollars by the end of the y e a r . The i n c r e a s e in B r i t i s h o r d e r s placed in America a f t e r the f a l l of France and an u n d e r s t a n d a b l e desire on the part of American businessmen f o r a d v a n c e p a y m e n t s w e r e t h e m a i n c a u s e s of the r a p i d d e t e r i o r a t i o n of B r i t a i n ' s dollar position. Sir F r e d e r i c k Phillips was sent to Washington and given the job of t r y i n g to f i n d a solution to Britain's American supply problem. His task was not an easy one. In August the US Cabinet t u r n e d down the idea of a d o l l a r l o a n . M e m b e r s of the administration were worried about congressional and public reactions to such a proposal, particularly as it would r e q u i r e the repeal of the J o h n s o n A c t . They also wanted to avoid the kind of mess which had followed the First W o r l d War because of war debts [ 2 6 ] . In July Morgenthau had advised Phillips that Britain should sell off her overseas assets and t h i s l i n e was repeatedly t a k e n by the A m e r i c a n s during the f o l l o w i n g eight m o n t h s . Just p r i o r to the presidential election Lothian reported to London that Britain was expected to sell all her assets in L a t i n A m e r i c a and the US, but t h i s in f a c t never happened. Some of the assets simply could not be speedily l i q u i d a t e d and in the case of others even the Americans acknowledged that t h e i r m a r k e t value was s o d e p r e s s e d b e c a u s e o f B r i t a i n ' s w a r t i m e predicament that it would have been i n e q u i t a b l e for her to sell them. Substantial sales did take place, some £70 million of overseas assets from August 1940 to M a r c h 1941, but they were i n s u f f i c i e n t to f i l l the gap between B r i t a i n ' s d o l l a r h o l d i n g s and her supply needs. Oliver Lyttleton suggested that noneconomic concessions to the US, something along the lines of the d e s t r o y e r s deal, might be considered, or, if it could be arranged, a dollar loan repayable in goods over a f i v e year p e r i o d . The latter suggestion was not looked on f a v o u r a b l y by the B r i t i s h T r e a s u r y , which was already concerned about the prospect for B r i t a i n ' s postwar balance of 24

The Supply Problem and its

Solution

payments, and unrequited exports would obviously not help matters. Continued American p r e s s u r e for the sale of overseas assets caused additional concern b e c a u s e t h e sale o f i n v e s t m e n t s w o u l d r e d u c e dividend payments and exacerbate any postwar balance of payments problem. On 7 December C h u r c h i l l wrote one of the most momentous of his war letters to the US President: The m o m e n t approaches when we shall no longer be able to pay cash for shipping and o t h e r supplies. While we will do our utmost..., I believe that you will agree it would be wrong in p r i n c i p l e and mutually disadvantageous i f . . . , Great B r i t a i n were to be divested of all saleable assets....Such a course would not be in the moral or economic interests of either of our countries.[27] A c c o r d i n g t o R . E . S h e r w o o d [ 2 8 ] Roosevelt brooded over C h u r c h i l l ' s letter for some days b u t , as he had f i r m l y t u c k e d another presidential election victory under his belt in November, he now felt p o l i t i c a l l y s e c u r e e n o u g h t o come f o r w a r d w i t h a r a d i c a l initiative. Ten days a f t e r the P r i m e M i n i s t e r had despatched his letter appealing for assistance the P r e s i d e n t s p o k e p u b l i c l y a b o u t h i s i d e a f o1r abolishing ' t h e s i l l y , f o o l i s h , old dollar sign . At the end of the m o n t h in a ' f i r e s i d e c h a t 1 , Roosevelt t a l k e d about the need for long-term aid for Britain and of America becoming the a r s e n a l for the d e m o c r a c i e s [ 2 9 ] . This was the beginning of the story of Lend-Lease. While members of the US Treasury prepared the Lend-Lease Bill, and while Congress duly debated on it, B r i t a i n g r i m l y held on against H i t l e r and Mussolini. C h u r c h i l l ' s 7 December appeal for aid greatly b e n e f i t e d Britain in the long term by solving h e r w a r t i m e s u p p l y p r o b l e m , b u t i t d i d l i t t l e to alleviate the immediate dollar shortage, and f u r t h e r m o r e , members of the Roosevelt A d m i n i s t r a t i o n p a i d l i t t l e heed t o C h u r c h i l l ' s a r g u m e n t s about asset s t r i p p i n g . T h e A m e r i c a n s continued to press Britain to sell assets and assume new l i a b i l i t i e s . M o r g e n t h a u s u g g e s t e d t h a t a temporary solution to Britain's hard currency s h o r t a g e would b e u n i l a t e r a l l y t o t a k e over £ 2 0 0 million of French gold held in Canada. The B r i t i s h , no doubt bearing in mind their sinking of the French 25

The Supply Problem and its Solution Fleet at M e r s - e l - K e b i r in J u l y and the susceptibilities of the Quebec French, thought that these were considerations of such political weight that they did not take Morgenthau's advice. The n e x t move b y t h e A m e r i c a n s concerned £42 m i l l i o n of gold at Capetown w h i c h had been e a r m a r k e d for the B r i t i s h Government. The account of the 'South African gold incident 1 in the official B r i t i s h history is somewhat misleading. Its author writes that after Phillips had explained the d i f f i c u l t i e s concerning the suggestion that Britain should take over French gold in Canada: The matter thereupon went to the President who, accepting the d i f f i c u l t y of t a k i n g the F r e n c h gold at the moment, startled the British authorities by arranging for a United States warship to call at Capetown for all the gold that could be m u s t e r e d t h e r e . This was not an o f f e r ; it was a statement of the President's decision and of action taken.[30] It has since been explained that the A m e r i c a n s did not t a k e such l i b e r t i e s . In fact, it was Phillips who f i r s t m e n t i o n e d the p o s s i b i l i t y that America m i g h t a c q u i r e B r i t i s h gold in South A f r i c a in a conversation w i t h M o r g e n t h a u on 19 December, upon this u n a u t h o r i s e d suggestion the A m e r i c a n s acted with indecent h a s t e [ 3 1 ] . The US T r e a s u r y was not c o n t e n t w i t h simply r e - e a r m a r k i n g the gold: it wanted physical possession of it and by 23 December this idea had w o r k e d its way up to the President, who readily c o n c u r r e d w i t h the T r e a s u r y v i e w , and i n f o r m e d P h i l l i p s o f h i s d e c i s i o n t o send t h e USS Louisville to Capetown where it would pick up t h e g o l d . U n f o r t u n a t e l y a s P h i l l i p s h a d kept Whitehall oblivious of the p r e l i m i n a r y goings-on, when the news came t h r o u g h of Roosevelt's decision the distress felt there was more acute than it need have been. T h e most f u r i o u s m e m b e r o f t h e B r i t i s h Government was Max Beaverbrook. On 26 December he gave vent to his f e e l i n g s in a m e m o r a n d u m to Churchill: It would appear that the United S t a t e s a r e d e m a n d i n g o u r South A f r i c a n gold and proposing to c a r r y it away. 26

The Supply Problem and its Solution

That is a decision I would resist very strongly and seek to destroy with every means in my power. Our financial relations with the Americans have been so loosely handled that it is necessary, now and forthwith to take up a firm policy and to push it in the face of obstacles and even to the extent of rupture.[32] It is true that Beaverbrook was not a temperate man but in his position as Minister for A i r c r a f t Production, which he had held since August 1940, he was well aware of Britain's dependence upon American supplies and so for him to protest in the manner he did shows just how seriously he took the problem of economic relations with the US. Churchill noted Beaverbrook's comments. He would not, of course, countenance the possibility of a breach with the Americans, however, he was very angry. In an early draft of a letter to Roosevelt he referred to the 'sheriff collecting the last assets of an helpless debtor'. By 2 January, when the PM did finally send a letter concerning the South African gold, he had been somewhat mollified by Roosevelt's broadcast on 29 December in which he announced his commitment to the long-term supply of Britain. The British Embassy in Washington had also done its best to tone down Churchill's language. The relevant part of the final draft read: I agree with your proposal to stave off our difficulties by sending a warship to Cape Town to collect the gold at our disposal there amounting, I believe, to about 30 million sterling. I ought to let you know that this transaction will almost certainly become known to the world with varying reactions.[33] On 6 January 1941 the British Cabinet was notified by America that the gold had arrived safely in the US. To many members of the government in London the episode was not only an example of American high-handedness; it also made America seem avaricious, particularly as US gold holdings topped $22 billion (a very large proportion of the world's monetary gold) whereas Britain's entire reserves now totalled less than half a billion dollars. The reaction in Washington to the appearance of 42 million of British gold was to question whether 27

The Supply Problem and its Solution

Britain was as penurious as Phillips and others so often claimed. Henry Morgenthau, however, had few illusions about Britain's position. During the period November 1940 to March 1941 he was Britain's constant friend and a strong advocate of financial help. At the end of December 1940 Morgenthau and Roosevelt were aware that in the months before Lend-Lease came into operation there was clearly going to be an interim finance crisis caused by a shortfall of about $225 million for Britain's supply requirements. On 3 January Morgenthau's staff drew up a plan for emergency credit assistance to be extended to Britain through the g o v e r n m e n t ' s Reconstruction Finance Corporation (RFC), which was under the authority of the Secretary of Commerce Jesse Jones, a Texas businessman. On 8 January Morgenthau urged Roosevelt to approve the plan, and he did[34]. In the days that followed Morgenthau and Phillips cobbled together various provisions and procedures, not without difficulty and argument, which eventually allowed Britain to place orders at the rate of $35 million a week in the US. Britain's interim supply problem was thus solved, but only at the cost of accumulating additional liabilities. The terms of the RFC loan, which were not finalised until July, were harsh in terms of the collateral Britain had to give[35]. The idea that Britain should post collateral was also frequently mooted in relation to Lend-Lease right up to the passage of the act in March 1941. Even the US Treasury, in the person of Harry Dexter White, made demands for collateral though it was mainly the State Department that made the running on this. Hull had difficulty in understanding how the British Empire could become so short of money so quickly and was unhappy that the British had not carried out Morgenthau's requests that they should sell all their assets in the Western Hemisphere. He calculated the British still had foreign holdings to the value of $18 billion and he repeatedly suggested that some of this should be offered as collateral for Lend-Lease. Roosevelt tried to explain to Hull that the value of Britain's assets was probably only half the Secretary's estimate and that many of Britain's holdings could not be liquidated in a way which would benefit the US and be fair to the UK. The President expressed his concern over Britain's financial p l i g h t and mentioned to Hull the possibility of a $1 billion loan being raised via 28

The Supply Problem and its Solution Jones' RFC[36]. Roosevelt's views f a i l e d to deter H u l l f r o m pressing the British to put more money up f r o n t . On 11 January in conversation with P h i l l i p s he u r g e d the posting of up to $2 b i l l i o n for Lend-Lease: t h i s a c t i o n would g o f u r t h e r t o d i s a r m critics and to keep this whole movement on a f a v o r a b l e basis than anything else that might be said or d o n e . But I m a d e no impression...so far as I could see.[37] Apart from the RFC loan n o t h i n g ever m a t e r i a l i s e d out of these pressures for collateral, but one final demand for the sale of assets could not be resisted. In the r u n - u p to the i n t r o d u c t i o n of the Lend-Lease Bill in Congress M o r g e n t h a u asked the B r i t i s h to sell s o m e t h i n g big to sweeten congressional opinion. Britain had already sold off considerable amounts of easily liquidated assets and the f l o w of sales had d e p r e s s e d the m a r k e t ; c o n s e q u e n t l y , when Britain was more or less obliged to sell the Courtaulds owned Viscose C o r p o r a t i o n of A m e r i c a t o meet M o r g e n t h a u ' s r e q u e s t , only approximately one third of its m a r k e t v a l u e was r e a l i s e d . Once again the British felt hard-done-by and their suspicions and resentments towards America in their economic relations began to i n t e n s i f y . The Lend-Lease Bill went b e f o r e C o n g r e s s in e a r l y J a n u a r y , and c o n t r a r y to a long-held view it did not originate in the minds of E d w a r d F o l e y , General Counsel in the US Treasury, and his assistant Oscar Cox. In a memorandum written at the t i m e of C o x ' s death in 1966, Stephen J. Spingarn, without actually naming anyone, though the detail he g i v e s suggests he was one of the a u t h o r s , c l a i m s that two T r e a s u r y lawyers u n d e r o r d e r s f r o m Foley worked out the Lend-Lease Bill and t h a t , it was "stolen from a statute passed some 6 or 7 m o n t h s e a r l i e r (in J u n e 1 9 4 0 ) a u t h o r i z i n g the Secretaries of War and Navy to m a n u f a c t u r e , purchase and repair war m a t e r i a l s for the American R e p u b l i c s . The two T r e a s u r y lawyers involved n a t u r a l l y remembered the recent statute w h e n t h e y g o t t h e a s s i g n m e n t late o n e a f t e r n o o n in late Dec. 1940 or e a r l y J a n u a r y 1941 to d r a f t a bill to c a r r y out the P r e s i d e n t ' s proposals. It was an 29

The Supply Problem and its Solution e l e m e n t a r y legislative d r a f t i n g job of about two hours or so that night for them to t a k e the 1940l a w ,blow all the r e s t r i c t i o n s out of it and then t u r n it into a bill which, with only minor revisions by the reviewing a u t h o r i t i e s , became the bill introduced as the Lend-Lease bill in both houses of Congress on January 10, 1941. [38] There was q u i t e a s t r u g g l e to get the Lend-Lease Bill through Congress. It was e v e n t u a l l y passed w i t h s u b s t a n t i a l m a j o r i t i e s i n both houses, the voting was 260 for to 165 against and 60 for to 31 against in the House and in the S e n a t e r e s p e c t i v e l y , b u t s t r o n g opposition w a s evident and the fact that the act w o u l d have to be renewed e v e r y year meant that the a d m i n i s t r a t i o n could not a f f o r d to ignore the p o l i t i c a l s i t u a t i o n on Capitol H i l l . A f u r t h e r d i f f i c u l t y arose four days a f t e r the bill became law. On 15 M a r c h H a r o l d S m i t h , the Director of the Budget, while testifying before the House A p p r o p r i a t i o n s C o m m i t t e e , stated that none of the $7 billion for Lend-Lease would be used to pay for materials c o n t r a c t e d for b e f o r e 11 M a r c h , that the UK had s u f f i c i e n t dollars to meet h e r e x i s t i n g o b l i g a t i o n s a n d that a n y r e m a i n i n g B r i t i s h assets in the US could be given as security for defence equipment supplied under Lend-Lease[39]. These statements r e s t r i c t e d t h e a d m i n i s t r a t i o n ' s f r e e d o m o f action m o r e t i g h t l y t h a n t h e a c t u a l p r o v i s i o n s themselves of the Lend-Lease Act. Smith clearly did not think that the sale of the Viscose Corporation had sufficiently sweetened congressional opinion. Over the following months M o r g e n t h a u did ease the s i t u a t i o n for the B r i t i s h by getting the American service d e p a r t m e n t s to t a k e over some of B r i t a i n ' s p r e - L e n d - L e a s e c o n t r a c t s [ 4 0 ] , nevertheless, the British were not sanguine about h a v i n g to scrape the b a r r e l , as they put it, before they could benefit from American aid. By mid-March 1941 the three key supply problems which had c o n f r o n t e d B r i t a i n in 1940 were well in h a n d . B r i t a i n ' s w a r p r o d u c t i o n a n d t h e swelling t i d e of supplies crossing the A t l a n t i c , f i r s t by v i r t u e of c a s h - a n d - c a r r y and then by Lend-Lease, were soon to make up for the l a c k of B r i t a i n ' s war p r e p a r e d n e s s . The A t l a n t i c s u p p l y route was kept open with the help of the f i f t y d e s t r o y e r s f r o m the US, t h o u g h s h i p p i n g lanes r e m a i n e d vulnerable and 30

The Supply Problem and its Solution were a real headache u n t i l M a r c h 1 9 4 3 ,w h e n long-range air surveillance turned the Battle of the Atlantic decisively in favour of Britain and the US. By J u l y 1943 more allied shipping was being built than s u n k . T h e s t a n c e o f A m e r i c a d u r i n g 1 9 4 0 c h a n g e d d r a m a t i c a l l y and by the end of the year Roosevelt had committed his a d m i n i s t r a t i o n to a policy of "all aid short of w a r 1 for B r i t a i n . It remained to be seen what price Britain would have to pay for American help. The war had already cost Britain d e a r l y . E x p o r t m a r k e t s and its gold and d o l l a r r e s e r v e s w e r e all but gone and a considerable proportion of overseas assets had been sold. S t e r l i n g debts were rapidly accumulating in North A f r i c a , and the US had been acting in a manner that many ministers in London thought was inappropriately grasping. The cash-and-carry policy had swallowed B r i t a i n ' s gold and dollar reserves and caused additional dollar l i a b i l i t i e s . A m e r i c a had t a k e n possession of B r i t a i n ' s last nest-egg of gold in South A f r i c a and had struck a hard bargain in the d e s t r o y e r s d e a l . P r e s s u r e t o sell assets, most notably the sale of the Viscose Corporation, aroused f e a r s in London t h a t the US had at least one eye upon gaining some commercial advantage f r o m the war at B r i t a i n ' s expense. Finally, Lend-Lease allowed an even g r e a t e r c o n v e r s i o n to war p r o d u c t i o n in Britain than would otherwise have been possible, and it accelerated B r i t a i n ' s w a r t i m e move away f r o m a market economy. Both these factors were to be important in the coming years and were to complicate the economic relations between the two countries. It was thus with some apprehension that British n e g o t i a t o r s began to work w i t h their American counterparts in the spring and early summer of 1941 on the two most p r e s s i n g , and as we s h a l l see u l t i m a t e l y i n t e r - r e l a t e d , economic i s s u e s - t h e S u p p l e m e n t a r y Trade Talks and the Lend-Lease Consideration Negotiations. NOTES 1. W. F. Kimball, Churchill and Roosevelt; The Cfimpl£te_Ccij:£SpCDden££, 3 Vols. ( P r i n c e t o n University Press, New Jersey, 1 9 8 4 ) , Vol.1, p.108, Churchill to Roosevelt, 7 Dec. 1940. 2 . L . H a r t , Histfiiy_fif_ihe.£££2iid_Scild_Haj: {Pan, London, 1973), p.18. 3. Quoted f r o m J. E. W i l z , From. Jselst Jon_Jt_o_ War (Routledge and Kegan Paul, London, 1969), p.72. 31

The Supply Problem and its Solution 4. A. H. Vandenberg Jr. and J. A. Morris, TJlfi Private Papers of Senator A. H. Vandenberg (Houghton Mifflin Mifflin, , Boston, Boston, 1952), 1952), p.3 p.3. .

5. R e s t r i c t i o n s were imposed under the authority of the 'Import, Export and Customs Defence A c t , 1 9 3 9 ' , and by SR and 0 ( 1 9 4 0 ) N o . 7 0 8 and No.1732, 12 May and 27 Sept. respectively. 6. H u l l memo. 'Representations to the British Government on Effects of Import Controls on American Business and A g r i c u l t u r e ' , 22 Jan. 1940, National Archives Washington, State Department 641-116/2578 ( h e r e a f t e r only decimal f i l e numbers are given for State Dept. references). 7. V. I. Lenin, Imperialism, the Highest Stage Cf.Capitalism, S e l e c t e d W o r k s V o l . 1 ( P r o g r e s s Publishers, Moscow, 1967) . 8. C. H u l l , The_Mfimoirs_2f_£crdelJ._Hllll, 2 Vols. (Hodder and Stoughton, London 1948), Vol.1, p.81. 9. See: M o f f a t t memo. 25 J a n . 1940, 841.711/3027, Welles memo. 9 Feb. 1940, 641.116/2603, and memo, of c o n v e r s a t i o n , between Hull and Ambassador L o t h i a n , 20 M a r c h 1940, 611.4131/2487a. 10. Grady to Hull, 14 May 1940, 611.0031/7493. 11. G r a d y to B r i t i s h Embassy, 25 April 1940, and n o t e by F e i s , 2 May 1940, b o t h at 611.4131/2487a. 12. B r i t i s h Embassy to G r a d y , 30 Oct. 1940, enclosing l e t t e r of i n s t r u c t i o n to D ' A r c y Cooper, 611.4131/2547. 13. Memo, of conversation between H u l l , Butler, C h a l k l e y , Cooper and S t i r l i n g , 2 N o v . 1 9 4 0 , 611.4131/2519. 14. H a w k i n s to H u l l , 12 Dec. 1940, 611.4131/2524. 15. H u l l to R o o s e v e l t , 16 Dec. 1 9 4 0 , 611.4131/2523. 16. E. S t e t t i n i u s , teDdrteasfij_W£ar>QD_fQ.S. Victory (Macmillan, New Y o r k , 1944), p.246. 17. A. Calder, The_Peopl£'s War (Cape, London, 1971) . 18. K i m b a l l , Cfiii£spcndenc.e., V o l . 1 , p . 3 7 , Churchill to Roosevelt, 15 May 1940. 19. Ibid, pp.39, 40, 41, 49-51. 20. Ibid, pp.49-51, Churchill to Roosevelt, 15 June 1940. 21. Ibid, pp.56-57, Churchill to Roosevelt, 31 July 1940. 32

The Supply Problem and its Solution 22. D. Acheson, Morping and Noon ( H o u g h t o n M i f f l i n , Boston, 1965), pp. 222-224. 23. K i m b a l l , CfiirfiSCflndfinte., Vol.1, pp. 58-9, Roosevelt to Churchill, 13 Aug. 1940. 2 4 . W. S. C h u r c h i l l , fljstory of the Sepond Ho_r_ld_Haij_Ib£ij:_EiD£5t_flfiUJ: ( C a s s e l l , L o n d o n , 1948), p. 357. 25. For f u r t h e r detail see: J. E. W i l z , Erfiffi Isolation to War (Routledge Kegan and Paul, London 1969), and J. R. M. Butler, Lprd Lothian (Macmillan, London, 1960) . 26. H. A. Notter, et al, Postwar Foreign Policy EjL£ESi:atian^_123Sr45 ( D e p a r t m e n t o f S t a t e Publication 3580, Washington, 1950), pp. 37-8. 27. K i m b a l l , CQIzespQDde.nc.£, Vol.1, p. 108, Churchill to Roosevelt, 7 Dec. 1940. 28. R. E . Sherwood, Ropsevelt and Hopkins. An Intimate History (Harper, New Y o r k , 1948), p. 224. 29. S. I . R o s e n r o a n , Ihe_EubJ,ic_Papfij:£_ajid. Addresses of F r a n k l i n Delano Roosevelt. 13 V o l s . (Harper, New York, 1938-51), Vol.9, 149 and 643.

30. R. S. Sayers, Hi£tP_r.v._p.f_T.h.e._S.e.c.pDd_W,C;rld Ksi J _UK_dyii_Sfiri££ a _Eiuanci3l_Eelic_y. (HMSO and Longmans Green, London, 1956), p. 384. 31. W. F. Kimball, 'Beggar My Neighbor: America and the B r i t i s h I n t e r i m Finance Crisis 1940-41.' ilfliirnal-sf _E£fiDdini£_Histei:y_22 ( D e c . 1 9 6 9 ) pp. 190-194, quoting source F. D. Roosevelt L i b r a r y , H. Morgenthau Diary ( h e r e a f t e r H.M. Diary) 341 pp. 190-94, memo. Cochran to Young, 19 Dec. 1940. 32. A . J . P . T a y l o r , Beaye.ibip.oJi, ( H a m i s h Hamilton, London, 1972), pp. 439-440. 33. K i m b a l l , Co_r_t£SpfiDdence., Vol.1, pp.120 and 123-24, e d i t o r i a l comment and C h u r c h i l l to Roosevelt, 2 Jan. 1940. 34.

H . M . Diary 346, pp. 8-23, 8 Jan. 1941.

35. Washington to Foreign Office( F 0 ) , 18 J u l y 1941, P u b l i c Record O f f i c e , F0371/28802, W8780/37/49 ( h e r e a f t e r only PRO reference and departmental piece numbers will be given) . 36. R o o s e v e l t to H u l l , 11 J a n . 1941, 841.24/1387. 37. See: memo, of conversation between Hull and P h i l l i p s , 1 1 J a n . 1941, 8 4 1 . 2 4 / 4 4 0 ; a n d H u l l , Memoirs, Vol.11, pp. 923-924. 38. Spingarn memo. 29 Oct. 1 9 6 6 , H. S. T r u m a n L i b r a r y , S. J. Spingarn Papers, f o l d e r : Correspondence re the Lend-Lease Act of 1941. 39. H. M. Diary, 4 0 5 , pp. 49-50, 4 June 1941. 33

The Supply Problem and its

Solution

40. On 18 March 1941 the following conversation took place between Morgenthau and Purvis, head of the British Purchasing Mission in Washington. P u r v i s : 'I t a k e i t . . . t h a t you are [not] in any way unsympathetic to the idea of new contracts coming u n d e r Lend-Lease Bill later if - I mean, when the Appropriations Bill comes t h r o u g h that it would be retroactive 1 . Morgenthau: ' I ' m entirely sympathetic with the idea; I ' m the instigator of i t ' . Morgenthau was true to his word and fought hard to get relief for the B r i t i s h on their pre-Lend-Lease c o n t r a c t s . D u r i n g 1942, however, this issue became entangled w i t h the b r o a d e r question of the level of gold and dollar reserves that the US should help B r i t a i n to m a i n t a i n and M o r g e n t h a u ' s a t t i t u d e towards this w a s f a r less helpful, as we shall see in Chapter 5.

34

Chapter Two TRADE TALKS AND LEND-LEASE CONSIDERATION

Churchill described Lend-Lease as a 'most u n s o r d i d act 1 . It was undoubtedly magnanimous in conception, though from time to time it was to prove less so in execution. Lend-Lease was unique in that it committed the US to supplying B r i t a i n b e f o r e any p r i c e had been negotiated. Even H u l l ' s attempts to get Britain to pledge collateral prior to r e c e i v i n g aid had f a i l e d . The views of the US Treasury prevailed instead and they allowed the Lend-Lease Bill to become law on the basis of the P r e s i d e n t being given wide d i s c r e t i o n when d e t e r m i n i n g re-payment. 3 ( b ) the terms and c o n d i t i o n s upon w h i c h any such f o r e i g n Government receives any aid authorized under Sub-section (a) shall be those w h i c h the P r e s i d e n t deems satisfactory, and the benefit to the U n i t e d States may be payment or repayment in kind or p r o p e r t y , or any o t h e r d i r e c t or indirect benefit which the President deems s a t i s f a c t o r y . i l ] The S e c r e t a r y of the T r e a s u r y had been politically more adventurous t h a n the S e c r e t a r y of State over the Lend-Lease Bill but once it was law and Congress had appropriated $7 billion for the aid p r o g r a m m e m a t t e r s changed. When it came to making proposals for Lend-Lease C o n s i d e r a t i o n it was H u l l who was p o l i t i c a l l y a d v e n t u r o u s and Morgenthau who was business-like and cautious. The d i f f e r e n t views of the two departments and the problem of allocating jurisdiction over the c o n s i d e r a t i o n issue, all of which we shall be looking at shortly, delayed formal talks with the B r i t i s h u n t i l 12 June. In the m e a n t i m e n e g o t i a t i o n s were t a k i n g place on a supplement to the 1938 A n g l o - A m e r i c a n T r a d e A g r e e m e n t . They w e r e e v e n t u a l l y superseded by 35

Trade Talks and Lend-Lease Consideration various negotiations which arose out of Lend-Lease, but while they lasted they w e r e seen as important and they raised the m a t t e r of B r i t a i n ' s p o s t w a r e c o n o m i c p o l i c y , w h i c h w a s later t o become t h e central issue in the Consideration Talks. On 23 December 1940 the head of the B r i t i s h trade negotiating team in Washington, J. A. Stirling of the M i n i s t r y of Economic W a r f a r e , outlined the objectives of the Supplementary T r a d e Talks to his opposite number, Harry Hawkins, as follows, reductions of United States d u t i e s w i t h a q u i d pro quo c o n s i s t i n g of a w a r t i m e guarantee regarding British imports of American a g r i c u l t u r a l products and reductions of the m a r g i n s of B r i t i s h Imperial duty preferences.[2] From t h i s a p p a r e n t l y a n o d y n e s t a t e m e n t o f i n t e n t serious problems immediately arose. Hawkins thought the m a x i m u m t a r i f f r e d u c t i o n of f i f t y per cent allowed under the R e c i p r o c a l Trade Agreement Act would not be s u f f i c i e n t l y compensated for by a f i f t y per cent r e d u c t i o n of B r i t i s h p r e f e r e n c e s . Following H u l l ' s convictions about t h e e v i l s o f d i s c r i m i n a t i o n , H a w k i n s wanted the a b o l i t i o n of Imperial P r e f e r e n c e . A second p r o b l e m was how to c o m p e n s a t e p a r t i e s t o t h e Ottawa A g r e e m e n t s f o r t h e i r loss o f p r e f e r e n t i a l a c c e s s t o B r i t i s h m a r k e t s . N e i t h e r S t i r l i n g nor ministers in London could see how they could meet the requests made by H a w k i n s , p a r t i c u l a r l y under wartime circumstances, and as a consequence, in the m o n t h s t h a t f o l l o w e d p r o g r e s s was negligible. By May it seemed unlikely that Stirling would be able to o f f e r a s a t i s f a c t o r y amount of r e l i e f to American exporters in the form of a supplementary t r a d e a g r e e m e n t ; however t h i s was no longer a s e r i o u s problem because Lend-Lease had started to finance American exports to B r i t a i n . While Lend-Lease e f f e c t i v e l y c i r c u m v e n t e d the wartime obstacles Britain had placed in the path of American exports, the question of a British quid pro quo for US t a r i f f r e d u c t i o n s s t i l l had to be resolved. H a w k i n s came forward with the idea of a deferred quid pro quo. He suggested that if Britain could not abandon I m p e r i a l Preference and exchange controls now she c o u l d at least commit h e r s e l f to doing so at the end of the w a r [ 3 ] . Stirling passed t h i s idea on to London w h e r e the response was u n f a v o u r a b l e . Even the Board of Trade, which was well disposed to a liberal economic 36

Trade Talks and Lend-Lease Consideration

o r d e r , was unable to accept the proposal: R. J. Shackle sent two amendments to the B r i t i s h p r o p o s a l s , on its b e h a l f , w h i c h Lord H a l i f a x and Stirling had presented to the A m e r i c a n s . H a l i f a x had become UK Ambassador in W a s h i n g t o n a f t e r the untimely death of Lord Lothian in December 1940. The amendments stated that Britain 'could not a f f o r d to surrender the advantages accorded to t h e i r e x p o r t s of metal goods in Dominion m a r k e t s ' , and that the UK Government 'must in candour make it clear that they may be compelled because of scarcity of Exchange to maintain r e s t r i c t i o n s upon imports of tobacco and o t h e r A m e r i c a n goods a f t e r t h e w a r 1 [ 4 ] . When S t i r l i n g i n f o r m e d H a w k i n s of the a m e n d m e n t s , the A m e r i c a n c o n c e d e d that B r i t a i n should have some transitional safeguards for her economy, but he t h o u g h t t h a t the way the Board of Trade had expressed itself was unacceptable and that if H u l l f o u n d out t h e n all h e l l would be let loose. Stirling wrote to London that he t h o u g h t the additions to B r i t a1i n ' s extant proposals would have a 'deplorable e f f e c t in Washington[5]. The Board of Trade remained essentially unmoved. 'We do not wish to insist upon proposed additions..., but we must be f u l l y a s s u r e d , b e f o r e being c o m m i t t e d t o f o r m a l negotiations, that these r e s e r v a t i o n s are accepted in principle by the United S t a t e s ' [ 6 ] , Attitudes in Britain were becoming increasingly defensive. The idea of abandoning economic controls without a clear picture of postwar c o n d i t i o n s , and p a r t i c u l a r l y of A m e r i c a n postwar economic policy, was w i d e l y seen in L o n d o n as h i g h l y d a n g e r o u s . While H u l l was b u s y p r o p a g a t i n g the idea of a liberal world economy, notably in a major speech for the i n a u g u r a t i o n of the National Foreign Trade Week (which we shall look at in d e t a i l s h o r t l y ) Leopold A m e r y , head o f t h e I n d i a a n d B u r m a O f f i c e , w a s d r a f t i n g a vitriolic letter to the B r i t i s h F o r e i g n S e c r e t a r y Eden w h i c h was d i a m e t r i c a l l y opposed to H u l l ' s v i e w s . This was the b e g i n n i n g of a l o n g campaign waged by Amery during the war to mobilise a defence against what he saw as the d a n g e r o u s economic demands made of Britain by the US. Amery, who believed that the Empire, and imperial economic r e l a t i o n s , were highly beneficial for B r i t a i n , drew Eden's a t t e n t i o n to the dangers of abandoning I m p e r i a l P r e f e r e n c e , because the r e t u r n of a Republican administration would p r o b a b l y r e v i v e p r o t e c t i o n i s m in the U S . He d e s c r i b e d Hull as an anachronism and expressed his f e a r t h a t the US S e c r e t a r y o f State m i g h t d r a g B r i t a i n into 37

Trade Talks and Lend-Lease Consideration disastrous economic commitments which could not be k e p t and w h i c h would t h u s lead to b i t t e r m u t u a l recriminations. Amery's letter was widely c i r c u l a t e d in government d e p a r t m e n t s and it was replied to a week later by Eden[7]. I confess I am alarmed, not so much by Mr. H u l l ' s conservative ideas about the Most-Favoured-Nation Clause [a principle whereby the most f a v o u r a b l e import a r r a n g e m e n t on a commodity made with x is then u n i v e r s a l l y a p p l i e d i.e. this is a n o t h e r name for non-discrimination] , as by the absence of any indication that the A m e r i c a n A d m i n i s t r a t i o n recognise t h e i n f i n i t e h a r m done t o i n t e r n a t i o n a l economic s e c u r i t y and s t a b i l i t y by what Keynes calls t h e " u n b a l a n c e d c r e d i t o r position of the U . S . A . " ' [ 8 ] The f a c t that Eden was c r i t i c a l of A m e r i c a n economic policy carried weight, especially as he was more aware than most of the dangers of upsetting the A m e r i c a n s . Others w i t h i n the government, such as Kingsley Wood, A r t h u r Greenwood, the head of the Dominions Office Viscount Cranborne and the Colonial S e c r e t a r y Lord M o y n e , evinced v a r y i n g degrees of support for A m e r y ' s viewpoint, though his vigorous attack on H u l l ' s views simply reinforced rather than c r e a t e d concern about the State D e p a r t m e n t ' s economic policies. It was c l e a r that the t r a d e t a l k s needed new d i r e c t i o n if they w e r e to c o n t i n u e . On 16 May H a l i f a x suggested to Hull that the Dominions should be brought into the talks so that they could discuss compensation d i r e c t l y with the A m e r i c a n s for any loss o f p r e f e r e n c e s which might r e s u l t f r o m t h e Anglo-American negotiations. Hull a g r e e d [ 9 ] . This was welcomed in London b e c a u s e it s w i t c h e d the emphasis to t r a d e - o f f s of p r e f e r e n c e s for t a r i f f s and away f r o m the American idea of a d e f e r r e d q u i d pro quo and because it provided a temporary b r e a t h i n g space for the B r i t i s h to t a k e stock of things. May had witnessed a n u m b e r of d e v e l o p m e n t s w h i c h gave London cause for concern. J. M. Keynes, who was attached to the British Treasury d u r i n g the w a r , went to W a s h i n g t o n in May to try to get some financial relief for contracts Britain had u n d e r t a k e n p r i o r to Lend-Lease. Keynes was intellectually m e r c u r i a l , rather a r r o g a n t , witty and 38

Trade Talks and Lend-Lease Consideration sometimes handicapped in his diplomatic career by his academic honesty. While in Washington he c a n d i d l y told Hawkins and others that Britain would p r o b a b l y have t o c o n t i n u e w i t h a w i d e r a n g e o f economic controls a f t e r the w a r . These statements, and the lack of p r o g r e s s in the t r a d e t a l k s , i r r i t a t e d a n d f r u s t r a t e d m e m b e r s o f t h e State Department. Hawkins began to r e a l i s e that the S u p p l e m e n t a r y T r a d e T a l k s w e r e u n l i k e l y to be a s u c c e s s f u l vehicle f o r p r o m o t i n g a l i b e r a l w o r l d economic order unless more leverage could be applied to the B r i t i s h . At the very moment t h a t the t r a d e t a l k s looked as if they might disappoint the State Department more positive progress began to o c c u r on Lend-Lease C o n s i d e r a t i o n , w h i c h provided Hull and his acolytes with a second line of attack. By the end of May the B r i t i s h k n e w t h a t consideration would soon have to be d i s c u s s e d w i t h the A m e r i c a n s and they were also aware that part of the consideration might t a k e the f o r m of a B r i t i s h declaration on postwar economic policy. The British Government was not averse to a g e n e r a l d e c l a r a t i o n of intent but it would have wanted to enter a series of caveats if specific policies had been m e n t i o n e d . Two letters, jointly from the Treasury and the Board of Trade to Stirling and Phillips, disclosed how the B r i t i s h Government was t h i n k i n g in early June. The gist of the two letters was the same; one of t h e m , a f t e r s t a t i n g that the government was looking to a gradual postwar relaxation of controls, continued, We do not know what our postwar exchange and import licensing policy w i l l be, and we must a v o i d in the discussions on trade policy making any statements w h i c h can be q u o t e d as pledges or w h i c h can tie our hands. We feel that it would be a mistake to e n t e r into any discussions with the Americans about the techniques of Payments A g r e e m e n t s and t h e i r possible adaptation to post-war conditions, we should think it unwise to indicate now that it will be our aim not to discriminate as regards imports between c o u n t r i e s except as a r e s u l t of our being heavily i n d e b t e d to p a r t i c u l a r countries[10]. We m u s t now e x p l o r e how the B r i t i s h G o v e r n m e n t ' s position on postwar economic policy fared i n t h e C o n s i d e r a t i o n T a l k s . E a r l y A m e r i c a n t h o u g h t s on c o n s i d e r a t i o n were concentrated on 39

Trade Talks and Lend-Lease Consideration repayment in the form of goods and services. Oscar Cox, who was in the US T r e a s u r y but was about to leave it to become General Counsel of the Lend-Lease Administration, minuted on 8 March that the American public might think they were being taken for a r i d e by the B r i t i s h unless t h e r e was some substantial repayment for Lend-Lease. Cox was something of an A n g l o p h i l e , b u t , as Frank Lee of the British Treasury commented l a t e r in the w a r , he was not a strong character and he had a tendency to sacrifice p r i n c i p l e s ( f o r t h i s read B r i t i s h i n t e r e s t s ) t o p o l i t i c a l expediency[11]. Cox acknowledged that consideration might not be called for at all, but if it was then B r i t i s h investments in American armaments f i r m s , interests i n Bolivian t i n , r a r e books and an extra copy of the Magna Carta might be taken in recompense. A few days l a t e r the list of B r i t i s h goodies was expanded to include everything from raw materials and aviation r i g h t s to j o i n t British and American sovereignty over Hong Kong[12]. When the President signed the Lend-Lease Bill on 11 M a r c h Cox was a l r e a d y on his second d r a f t of the Consideration Agreement[13]. Two days later Roosevelt gave the Treasury authority to negotiate a quid pro quo with the British along lines that the P r e s i d e n t h a d already i n f o r m a l l y discussed w i t h Morgenthau. A f t e r the preparatory work done by Cox, M o r g e n t h a u was able to respond q u i c k l y : to the letter of thanks to the President for his new b r i e f he a t t a c h e d a copy o f t h e d r a f t C o n s i d e r a t i o n A g r e e m e n t . He also sent H u l l a copy at the same time[14]. The Treasury's d r a f t was a commercial repayment agreement couched in broad t e r m s . It s t i p u l a t e d that articles not used up were to be r e t u r n e d , that n o n - a g r i c u l t u r a l commodities used up w e r e to be compensated for in s i m i l a r k i n d , and t h a t an equivalent dollar v a l u e was to be returned in tin, rubber, jute and other imperial p r o d u c t s for LendLease a g r i c u l t u r a l commodities, i n f o r m a t i o n and defence materials. Alternatively, any other m a t e r i a l s a c c e p t a b l e to the P r e s i d e n t could be called for or, by subsequent a g r e e m e n t , any d i r e c t or indirect benefit agreed to by the President could be accepted. The determination of value was to be l e f t to the President and no t r a n s f e r of Lend-Lease goods to t h i r d p a r t i e s was to be a l l o w e d w i t h o u t presidential approval. On 14 M a r c h , a f t e r f u r t h e r d i s c u s s i o n between M o r g e n t h a u , the P r e s i d e n t and his close assistant H a r r y Hopkins (who was e f f e c t i v e l y in c h a r g e of 40

Trade Talks and Lend-Lease Consideration

Lend-Lease, though its o f f i c i a l head was General J. H. Burns) , some alterations to the d r a f t w e r e made but they did not alter its overall character. On 2 April Foley, the T r e a s u r y ' s G e n e r a l C o u n s e l , sent the revised proposals to Morgenthau. Until now the T r e a s u r y had been f i r m l y in the d r i v i n g seat but F o l e y , w i t h some p r e s c i e n c e , r e c o g n i s e d t h a t problems could easily arise with the State D e p a r t m e n t once d i p l o m a t i c n e g o t i a t i o n s were started. In a note which accompanied the r e - d r a f t Foley suggested that the Secretary, 'ascertain.. .whether or not T r e a s u r y , or State, is to take the Agreement up with the British'115]. The President had asked the Treasury to liaise w i t h the State D e p a r t m e n t , and despite Roosevelt's order of 13 M a r c h w h i c h gave M o r g e n t h a u the a u t h o r i t y to d r a f t and n e g o t i a t e a q u i d pro quo a delicate jurisdictional problem clearly still existed. The d r a f t that M o r g e n t h a u sent to the State Department on 14 March sparked off a d i f f e r e n t line of t h o u g h t on c o n s i d e r a t i o n . H u l l gave Assistant Secretary of State Adolf A. Berle the job of formulating the State Department's views. Berle was an unfortunate choice from the British point of view because his pet hate was B r i t a i n ' s latter-day mercantilism. Unlike Hull, however, he was not d o c t r i n a l l y c o m m i t t e d to free-trade; in its stead he wanted to extend a version of the New Deal to the i n t e r n a t i o n a l economy in a way which would f u r t h e r American commercial i n t e r e s t s and expand A m e r i c a n p o w e r : B r i t i s h i m p e r i a l i s m a n d t h e international e c o n o m i c s y s t e m B r i t a i n c o n t r o l l e d b o t h posed obstacles to Berle's ambitions. In the draft consideration agreement he wanted to make a start at removing those obstacles. Berle's judgement on the Treasury d r a f t was, ' I t is a m e a n i n g l e s s agreement because you cannot collect on i t ' . He began w o r k on a new v e r s i o n , ' . . . r e a l l y s l a n t i n g i t n o t t o w a r d s repayment b u t t o w a r d s economic c o o p e r a t i o n a f t e r t h e w a r ' [ 1 6 ] . M i l i t a r y items used up in the war e f f o r t were to be regarded as contributions to the peace of the w o r l d and t h e i r cost w r i t t e n o f f . Items which survived were to be returned and B r i t a i n s h o u l d accept some o b l i g a t i o n for Lend-Lease in reverse. Britain should permit the US to p a r t i c i p a t e in any B r i t i s h c a r t e l a r r a n g e m e n t s governing t i n , r u b b e r , j u t e a n d c h e m i c a l s ; she was to e n t e r the f r e e s t p o s s i b l e t r a d e a r r a n g e m e n t s w i t h the US, peg the Ottawa preferences and enter negotiations for t h e i r 41

Trade Talks and Lend-Lease Consideration r e d u c t i o n in a manner compatible with the p u b l i c interests of the US and the UK[17]. This f i r s t d r a f t of B e r l e ' s e x e m p l i f i e d the a t t i t u d e pervading t h e State D e p a r t m e n t . T h e r e still existed strong feelings there about both the s a d f a t e which h a d b e f a l l e n P r e s i d e n t W i l s o n ' s ideals at P a r i s in 1919 and the economic chaos of the inter-war years, which was attributed p a r t l y to the f a i l u r e of i n t e r n a t i o n a l i s m and partly to the combined effect of r e p a r a t i o n s and war debts. It was with the f e a r of uncollectable and disruptive debts ( w h i c h a m o n g o t h e r t h i n g s c o u l d p r e v e n t B r i t a i n f r o m adopting liberal economic policies) in mind that Berle and others who later took up the c o n s i d e r a t i o n problem advocated an agreement which was a s t o n i s h i n g l y generous in not d e m a n d i n g any substantial repayments in cash, goods or services. On t h e o t h e r h a n d , t h e c o n v i c t i o n t h a t t h e Consideration Agreement should be used to promote an open world economy faced Britain with p o l i t i c a l and economic costs which the government was not sure it could a f f o r d . By the latter part of April 1941 two different documents on consideration existed which meant that the question about j u r i s d i c t i o n between the State Department and the T r e a s u r y was no longer simply academic. D u r i n g the t h r e e week period before 16 May Roosevelt c h a n g e d his m i n d a b o u t w h i c h department was to have a u t h o r i t y over the C o n s i d e r a t i o n A g r e e m e n t . Roosevelt came to the c o n c l u s i o n t h a t t h e q u i d p r o q u o should n o t b e p r i m a r i l y in the f o r m of a cash r e p a y m e n t . The Treasury thus lost its main jurisdictional claim and the President's exclusion of l a r g e cash repayments meant that w i d e r policy m a t t e r s , which were more within the State Department's preserve would have to be d i s c u s s e d w i t h the B r i t i s h . H o p k i n s gave c o n f i r m a t i o n of this to Keynes on 21 May when he explained that the President had given the consideration job to the State D e p a r t m e n t , "on the g r o u n d s it raises political r a t h e r than financial issues'[18]. In the l e t t e r which gave Hull authority over the Consideration Agreement Roosevelt wrote, 'Although I presume the agreement w i l l not p r o v i d e p r i m a r i l y for a r e t u r n to us of cash, I t h i n k , nevertheless, you should consult w i t h S e c r e t a r y M o r g e n t h a u in regard to the broad p r o v i s i o n s of the a g r e e m e n t ' [19] . The P r e s i d e n t n o t i f i e d M o r g e n t h a u of his decision and the latter accepted it with apparent good grace - t h o u g h as we 42

Trade Talks and Lend-Lease Consideration

s h a l l see he was not e n t i r e l y happy a b o u t the matter[20] . Hull and his colleagues were delighted with the new b r i e f . By May 1941 they had strong g r o u n d s for wanting to take charge of the Consideration Agreement. State Department attempts to get Britain to commit itself to liberal postwar economic policies were being t h w a r t e d in the Supplementary T r a d e Talks and Lend-Lease Consideration presented an obvious opportunity to retrieve the situation. The momentum of postwar economic-policy formulation was mounting rapidly in H u l l ' s d e p a r t m e n t . N o t w i t h s t a n d i n g the setback in the Supplementary Trade Agreement Talks, Berle was b u s y r e a f f i r m i n g t h e State D e p a r t m e n t ' s commitment t o f r e e r trade in the text of a m a j o r speech that he was p r e p a r i n g for H u l l . The speech was scheduled for 18 May at the i n a u g u r a t i o n of the N a t i o n a l Foreign Trade Week. It consisted of five principles: extreme nationalism must not be allowed to express itself in excessive trade restrictions, non-discrimination must be the rule not the exception in international commercial relations, raw material supplies must be a v a i l a b l e to all n a t i o n s without discrimination, international agreements r e g u l a t i n g t h e supply o f c o m m o d i t i e s m u s t f u l l y protect the interests of the consuming countries and international finance must aid essential enterprises and the development of the recipient countries, and permit repayment of investments t h r o u g h the processes of t r a d e [21]. State Department colours were thus nailed to the mast in a very p o s i t i v e way at the s t a r t of the Anglo-American talks on consideration. H u l l put A s s i s t a n t S e c r e t a r y of State Dean Acheson in charge of the Consideration Agreement and of l i a i s i n g w i t h the T r e a s u r y . The job by r i g h t should have gone to Berle, but at the t i m e A c h e s o n , as he e x p l a i n e d in his memoirs, was about the only person in the State Department with whom M o r g e n t h a u would talk because he sided with the Treasury in its bitter dispute with Hull to f r e e z e Japanese assets in the US [ 2 2 ] . Acheson was one of the most industrious and competent men H u l l had at his disposal. Roosevelt had i n d i c a t e d that he wanted progress with the B r i t i s h on the C o n s i d e r a t i o n A g r e e m e n t b e f o r e h i s f i r s t Lend-Lease R e p o r t t o C o n g r e s s on 10 J u n e and Acheson d u t i f u l l y m o v e d quickly. On 21 May he presided over a meeting which drew up a new d r a f t along the l i n e s p r e v i o u s l y p u r s u e d by B e r l e . The proposals now s t a t e d t h a t 43

Trade Talks and Lend-Lease Consideration articles returned discharged any repayment o b l i g a t i o n ; that t h e r e was to be no charge for articles used f o r the purpose for which they had been supplied; that the President could o f f - s e t any benefits received from Britain against Lend-Lease a g r i c u l t u r a l supplies and any balance remaining at the end of the war was to be w r i t t e n off so as not to b u r d e n the British; and finally, that the British were to fall in line with the State D e p a r t m e n t ' s vision of the postwar world economy. By the end of the month H u l l had approved the new d r a f t [23]. The gist of Acheson's proposals were informally passed on to the B r i t i s h and, on the whole, they were well received. Keynes noted that part of the d r a f t could c o n f l i c t w i t h t h e Ottawa A g r e e m e n t s , 'but State Department o f f i c i a l s were aware of our probable unavoidable dependence on exchange control and licensing a f t e r the w a r , and will agree to a d e c l a r a t i o n in a form which would not involve us in a lack of c a n d o u r ' [ 2 4 ] . He was soon to be disabused of t h i s b e l i e f . E v e n t h o u g h t h e impression i n London was that the declaration would be anodyne in c h a r a c t e r t h e r e w e r e doubts expressed about t h e p r u d e n c e of f o r g i n g ahead w i t h the C o n s i d e r a t i o n T a l k s . Nigel B. R o n a l d , Counsellor in the Foreign O f f i c e with special r e f e r e n c e to economic and postwar a f f a i r s , thought 'it would appear expedient to play for time in the expectation that if A m e r i c a came into the war we should get much better terms than we could hope for n o w l ' [ 2 5 ] . The US T r e a s u r y also had r e s e r v a t i o n s about Acheson's d r a f t . On the morning of 4 June a lengthy discussion took place in the T r e a s u r y between the S e c r e t a r y , the economist Jacob V i n e r ( w h o was a l o n g s t a n d i n g a d v i s e r t o M o r g e n t h a u ) a n d senior departmental s t a f f , including Bell, Foley and H a r r y W h i t e . Bell e x p l a i n e d t h a t t h e T r e a s u r y d r a f t Consideration Agreement had been f a i r l y t i g h t and commercial whereas the State Department had drawn up a document which fell into two parts and between two stools. It t r i e d to specify a quid pro quo in the f i r s t three sections and it attempted to sketch a b l u e p r i n t for the postwar international economy in t h e f o u r t h section: o n b o t h c o u n t s i t f a i l e d . W h i t e and V i n e r took p a r t i c u l a r e x c e p t i o n to the postwar economic declaration p a r t l y b e c a u s e of its i n a d e q u a c y and p a r t l y because Roosevelt had only given the State D e p a r t m e n t a u t h o r i t y to d r a w up a quid pro quo: he had not given it a blank cheque to draw up the ground rules for the postwar 44

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international economy which was a realm in which the Treasury could legitimately claim to have a say. The general view of the meeting was that the draft was muddled. It was an hermaphrodite: it had failed to be either enough of one thing or the other. The quid pro quo was insufficient to make it a business agreement and the blueprint was not fully worked out. It did not go far enough in its demands upon Britain and it raised questions of high policy which needed to be sorted out by Hull, Morgenthau and Roosevelt. They concluded that matters would be less complicated if the two parts of Acheson's draft were split up and embodied in separate agreements. Morgenthau was not as sanguine about making an issue of the State Department draft as were his advisers. It became obvious during the course of the meeting that Morgenthau was peeved about the way the Consideration Agreement had been handled. His dislike of Hull, and his previous problems with the State Department, were biliously regurgitated. 'Mr. Hull has t w e n t y odd t r a d e t r e a t i e s ' mocked Morgenthau, 'and where has it got us?' At one point Morgenthau became petulant claiming he would no longer be the President's "whipping boy1 on foreign a f f a i r s and threatening to abandon the whole question of consideration. A timely intervention by White prevented this; he suggested that Acheson and Bell should get together to try to sort things out and Morgnethau, calming down, agreed[26]. In the afternoon discussions were renewed, this time with Acheson present. He explained that his department had shifted away from the idea of a repayment document because it believed that it was unwise to lay obligations upon Britain which would drain her reserves. The main operating clause was now the fourth one which Acheson said required the British to be, "willing to go quite a way toward either cracking now or laying the foundation for cracking the Ottawa agreements and the various restrictive monopolistic agreements and practices which they had had'[27]. In response to some of the points which Viner, White and Foley repeated from the morning session Acheson said that there was some support in the State Department for a wider approach on the postwar declaration but he believed that it was better to get a narrow legalistic agreement to which the British could be held and that although there was a danger in this because future conditions were indeterminable he did not think that matters could be left till the end of hostilities. Foley pointed out that this was all very well but that 45

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they did not really know what the President w a n t e d . As this point sank in Acheson agreed to countenance the idea of splitting his document into two separate agreements, as the Treasury officials had wanted to do in the m o r n i n g session, and p r e p a r e t h e m for presentation to the President in order to elicit his views. Once the meeting had agreed to this those present then decided it would be necessary to propose an Anglo-American commission to c o o r d i n a t e the quid pro quo agreement and the postwar d e c l a r a t i o n , and to develop postwar e c o n o m i c p o l i c i e s i n m o r e d e t a i l . W i t h this apparently acceptable compromise between Acheson and the T r e a s u r y team the meeting broke up with some degree of optimism[28]. During the next four days two problems emerged. Firstly, once the postwar declaration was hived off from the quid pro quo document it then demanded very l i t t l e of the B r i t i s h . O s c a r Cox in a n o t e to Hopkins remarked that exemptions from repayments for the British, except for non-military supplies, might be p o l i t i c a l l y d a n g e r o u s and it would be better to have a m o r e open-ended a g r e e m e n t so t h a t m o r e c o n c r e t e r e i m b u r s e m e n t s c o u l d b e called f o r i f n e c e s s a r y [ 2 9 ] . T h e second p r o b l e m c o n c e r n e d repayment for m i l i t a r y items used up in the w a r . The State Department stuck to its original position ( t h a t t h e i r cost s h o u l d b e w r i t t e n o f f ) b u t Morgenthau, while professing not to be a g a i n s t the idea in p r i n c i p l e , r e f u s e d to recommend it to the President. He thought serious political implications were involved and a decision should be left entirely to Roosevelt. On the 9 J u n e it was clear that a j o i n t statement from the Treasury and the State Department could not be presented to the P r e s i d e n t . M o r g e n t h a u was now thoroughly browned off with the Consideration Agreement and concluded that the State Department 'can do anything they want with i t 1 [ 3 0 ] . On 9 June Hopkins and Acheson saw the President to discuss the consideration issue. Roosevelt had some s y m p a t h y w i t h t h e v i e w s o f t h e T r e a s u r y . Hopkins recorded t h a t , 'The P r e s i d e n t t h i n k s that the supplies which are destroyed in the war should be i n c l u d e d in the a g r e e m e n t . He is a n x i o u s , h o w e v e r , that the whole a g r e e m e n t be one in which the ultimate payments can really be m a d e 1 [ 3 1 ] . The P r e s i d e n t w a n t e d something substantial f r o m the British but r e j e c t e d the idea of a r e c o r d e d d e b t . T h i s e v e n t u a l l y led the State Department to reintegrate the postwar declaration into the 46

Trade Talks and Lend-Lease Consideration Consideration Agreement as the only acceptable means of acquiring tangible benefits for the US; however, for the time b e i n g , matters remained f l u i d . Roosevelt mentioned a number of t h i n g s w h i c h it would have been politically i m p r u d e n t to disclose publicly, such as B r i t i s h c o l l a b o r a t i o n in establishing an i n t e r n a t i o n a l police f o r c e and a customs union in the West Indies. Acheson put it to the President that he did not like talking about the consideration he wanted and he did not l i k e the c o n s i d e r a t i o n h e c o u l d t a l k a b o u t . Roosevelt agreed, but n e v e r t h e l e s s asked Acheson to try his hand at a new d r a f t [ 3 2 ] , The c o n s u l t a t i o n s w i t h Roosevelt on 9 J u n e established, albeit r a t h e r v a g u e l y , the basis for talks with the British. Roosevelt's deadline for 10 June had been met and he could tell Congress that progress was being made on Lend-Lease Consideration. The f i r s t f o r m a l exchange took place between Undersecretary of State Sumner Welles and H a l i f a x on 12 J u n e , but Acheson had kept Keynes informally in the p i c t u r e and on 10 J u n e H a l i f a x was a b l e to r e p o r t to the Chancellor of the Exchequer, Kingsley Wood, a n d t h e P r i m e M i n i s t e r a b o u t t h e l a t e s t A m e r i c a n ideas on consideration. Lend-Lease articles were to be categorised as e x p e n d e d , r e t u r n a b l e , m i l i t a r y and non-military. Payment, in t e r m s of some k i n d of r e v e r s e L e n d - L e a s e and an exchange of information and inventions, was only to be made for the last category. H a l i f a x added that n o t h i n g had been said about payment by delivery of British raw materials, but it looked as if political commitments on postwar trade policy were going to be asked for and t h e r e was a proposal t h a t a j o i n t A n g l o - A m e r i c a n commission be set up to sort out economic policies[33] . H a l i f a x ' s summary arrived in London at the same time that Amery's warnings about A m e r i c a n economic p o l i c i e s , w h i c h had been p r o m p t e d by the Supplementary Trade T a l k s , w e r e being digested by m i n i s t e r s . Kingsley Wood, w o r r i e d about the financial angle, wrote to Eden, 'I agree [ w i t h A m e r y ] t h a t our object must be not to commit ourselves more than we can h e l p as to w h a t our policy will be a f t e r the w a r ' [ 3 4 ] . Wood's mood of c a u t i o n was e v i d e n t in a t e l e g r a m , a p p r o v e d by C h u r c h i l l , w h i c h w a s sent t o H a l i f a x a n d Keynes explaining the g o v e r n m e n t ' s a t t i t u d e to the p r o p o s a l s mooted by A c h e s o n . C h u r c h i l l and Wood wanted t o avoid both d o l l a r l i a b i l i t i e s a n d a n y specific postwar commitments. Wood was also against 47

Trade Talks and Lend-Lease Consideration the idea of an Anglo-American commission because, as he e x p l a i n e d to Eden later in the month, he was f r i g h t e n e d i t would immediately r a i s e d i f f i c u l t issues such as Imperial Preference[35]. On 20 June Keynes explained to A c h e s o n his g o v e r n m e n t ' s position, though without fully disclosing the reasoning behind it. He ended by r e p o r t i n g t h a t , "consideration for the articles t r a n s f e r r e d should be f o u n d in m i l i t a r y and political c o n s i d e r a t i o1n s and in the field of broad economic c o l l a b o r a t i o n [ 3 6 ] . B r i t i s h views about commitments to economic collaboration were somewhat different f r o m those in the State D e p a r t m e n t , but u n w i t t i n g l y the B r i t i s h had nudged the State Department back towards the idea of incorporating a statement about postwar economic policies in the Consideration Agreement. They had done this in two ways: f i r s t l y by r e j e c t i n g the idea of an AngloAmerican commission, which had been put f o r w a r d as an a l t e r n a t i v e means of dealing with postwar economic policies, and secondly by e x c l u d i n g commitments to any f o r m of repayment, which meant that w i t h o u t a d e c l a r a t i o n of postwar intent the C o n s i d e r a t i o n Agreement would lack consideration. The main question now was exactly what would the declaration contain. In late June arrangements were made for Halifax and Keynes to meet w i t h the President on 8 July to discuss the c o n s i d e r a t i o n p r o b l e m . A n u m b e r of ideas had been bandied about by State Department officials since the meeting on 20 June and the ever c a u t i o u s Chancellor of the Exchequer was worried by them. He wrote to Churchill on 28 June, 'We clearly cannot give Keynes permission to broach these ideas when he sees the President on Tuesday'[37] . Keynes was o r d e r e d instead to listen passively, unless it became n e c e s s a r y t o r e j e c t t h e p o s s i b i l i t y o f B r i t a i n accepting any dollar liabilities[38]. The substance of the proposals the President made at the meeting was g e n e r o u s . Section one paragraph three later ran that there was to be no cash account, and that nor were any goods or assets to be called for which would b u r d e n the B r i t i s h in any w a y . According to the British account of the meeting the President expressed a strong desire for a general a g r e e m e n t and said that he did not see any urgency for detailed provisions. This was partly because he was not clear what f o r m such provisions should take and partly because the ideas he did have, which were the same as he had related to Acheson on 9 J u n e , might not be acceptable to public opinion. 48

Trade Talks and Lend-Lease Consideration Roosevelt added that he did not evisage any f u t u r e demands for reciprocal Lend-Lease and that he was not in f a v o u r of making f i n e distinctions between war and n o n - w a r - m a t e r i a l s [ 3 9 ] . The B r i t i s h had f e a r e d that a separate n o n - w a r - m a t e r i a l category might have led to demands for repayment in k i n d or in s i m i l a r k i n d . The heart of the consideration Keynes later wrote lay in section two. P r e s i d e n t shall be entitled to ask for deliveries in k i n d or p r o p e r t y or for d i r e c t or i n d i r e c t benefits under all or any of the f o l l o w i n g h e a d s as may be a g r e e d in d e t a i l h e r e a f t e r , subject to 1(3) above. a) Defence of the United States. b) Maintenance of the f u t u r e peace of the world. c) Post-war r e l i e f and reconstruction. d) Post-war trade and economic policy.[40] The President suggested that Keynes should undertake further talks on the above basis with Acheson and draw up a new draft. Keynes readily agreed for he now believed a satisfactory agreement was in sight. He told Acheson afterwards about what had transpired and promised that he would return to discuss m a t t e r s once he had r e c e i v e d new instructions from London[41], Keynes and Halifax described the meeting with the President to Kingsley Wood in optimistic terms. They were encouraged by what the President had said, and in particular by his statement that there was no need for detailed provisions in the agreement. Keynes did suspect, however, that Acheson would press for f u r t 1h e r e l u 1c i d a t i o n as r e g a r d s sub-headings 'a to 'd , and he asked Wood for permission to do this[42]. Kingsley Wood refused. The attitude in the Treasury was concisely expressed with suitably dry humour in a note exchanged between two senior officials, David Waley and Richard N. Hopkins. 'If President himself is anxious to go slowly, surely1 it is not the right policy for us to try to go fast [43]. Kingsley Wood and Churchill ordered Keynes not to enter detailed discussions. He was to restrict himself to a declaration of common purpose , and to section one paragraph three of the proposals Roosevelt had discussed on 8 July, followed by something along the lines of, 'the

49

Trade Talks and Lend-Lease Consideration British Government will be happy to discuss with the U n i t e d S t a t e s G o v e r n m e n t i n d u e course f u r t h e r measures of c o - o p e r a t i o n o v e r a w i d e r s p h e r e * . F u r t h e r t h a n t h i s Keynes was not to go and he, 'should not put f o r w a r d other proposals even in a t e n t a t i v e f o r m 1 [ 4 4 ] . K i n g l s e y Wood t h o u g h t this matter was so important that he sent a n o t h e r t e l e g r a m personally to Keynes to explain the Treasury's position more f u l l y . The p r o p o s a l s r e g a r d i n g d e f e n c e of the United States and post-war t r a d e and e c o n o m i c p o l i c y have most f a r - r e a c h i n g implications and involve commitments into w h i c h we should not wish to enter lightly or w i t h o u t the f u l l e s t u n d e r s t a n d i n g of the exact i n t e r p r e t a t i o n likely to be placed on them, whether by the present or by some f u t u r e Administration. We warmly agree with the President that attempts to d e f i n e such m a t t e r s at this stage might lead to great d i f f i c u l t i e s and we hope you w i l l be able in your discussion with Acheson t o c o n f i n e h i m t o t h e g e n e r a l q u e s t i o n s w h i c h the President seems to have i n m i n d . . . e s p e c i a l l y n o w t h a t t h e P r e s i d e n t has himself given such a clear lead that he does not at present w i s h for definitions[45] . Kingsley Wood had always been c a u t i o u s in his d e a l i n g s w i t h the US and in early July that disposition was strongly reinforced by developments in the Supplementary Trade Talks. The entry of the Dominions into t h e d i s c u s s i o n s h a d r e l i e v e d t h e p r e s s u r e on B r i t a i n m o m e n t a r i l y but by J u l y the situation had become tense. Repeated statements by K e y n e s , such as the f o l l o w i n g to Hawkins in early July, only increased the State Department resolve to p u r s u e its goal of a l i b e r a l w o r l d economy w h i l e Britain was vulnerable to American pressures. In a short discussion with Hawkins, Keynes said in asking us to undertake not to make our p u r c h a s e s f r o m any country dependent upon its p u r c h a s e s f r o m us or on the e x c h a n g e p o s i t i o n , A m e r i c a n s might be asking us to do the impossible so long as they remained a creditor c o u n t r y , maintained an export balance, and did not lend a b r o a d [ 4 6 ] . 50

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Hawkins remained unpersuaded and told Keynes that the economic controls he had in mind would not be acceptable to H u l l or to A m e r i c a n businessmen. On 4 July H a1l i f a x reported t h a t , 'a s i t u a t i o n of some delicacy existed in the Supplementary Trade T a l k s . H a w k i n s wanted to n e g o t i a t e reductions in t a r i f f s and in imperial t a r i f f p r e f e r e n c e s , and to r e t a i n the 1938 agreement o t h e r w i s e intact. This would mean that at the end of the war B r i t a i n would not be a b l e to d i s c r i m i n a t e against US imports covered by the trade agreement. Halifax commented, Keynes and Phillips advise me that despite the admitted goodwill of the State D e p a r t m e n t , the propositions put forward by the latter are d a n g e r o u s . Any r e t u r n to p r e - w a r c o n d i t i o n s , p a r t i c u l a r l y as regards t r a d e between the U n i t e d States and t h e U n i t e d K i n g d o m , i s impossible. There is no chance that our b a l a n c e of payments will permit i t . [ 4 7 ] Stirling and Keynes, for their p a r t , could not get H a w k i n s to agree to controls which would safeguard B r i t a i n ' s t r a n s i t i o n to a peacetime e c o n o m y even w i t h a n u l l i f i c a t i o n c l a u s e w h i c h e i t h e r p a r t y could a c t i v a t e i f i t b e l i e v e d t h e general intent of the agreement was being breached. Nevertheless, Halifax thought something along those l i n e s s h o u l d s t i l l be p u r s u e d , combined w i t h an attempt to explain B r i t a i n ' s economic p l i g h t to the A m e r i c a n s . Kingsley Wood, Duncan (who had recently r e t u r n e d as head of the Board of T r a d e ) and Eden agreed with H a l i f a x , though they now doubted whether t h e i r goals could b e a c h i e v e d w i t h i n t h e t r a d e talks. As the reply to H a l i f a x put it, 'The immediate problem is to f i n d a means of p e r m i t t i n g the present negotiations to continue and if possible p r o d u c e u s e f u l r1 e s u l t s w i t h o u t p r e j u d i c e t o t h e g e n e r a l p r o b l e m [ 4 8 ] . The trade talks did continue in a desultory fashion for months without a g r e e m e n t being reached and we shall have occasion to r e f e r to them again b r i e f l y , but the main focus of A n g l o - A m e r i c a n economic d i s c u s s i o n s was about to move decisively elsewhere. The reply to H a l i f a x of 16 July c o n c l u d e d r a t h e r o m i n o u s l y , 'You will doubtless bear in mind that s i m i l a r c o n s i d e r a t i o n s and d i f f i c u l t i e s may a r i s e out of "consideration" discussions'[49] . On 15 July Keynes renewed talks with Acheson on the Consideration Agreement. The d r a f t he presented 51

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embodied the proposals that Roosevelt had discussed on 8 July and, as instructed by the Prime Minister and K i n g s l e y Wood, Keynes added nothing f u r t h e r apart from an indication that B r i t a i n was prepared to talk about economic c o l l a b o r a t i o n at an unspecified date in the f u t u r e . The B r i t i s h had grasped the opportunity presented in the talks with Roosevelt to keep the agreement general and to avoid c o m m i t m e n t s to immediate talks which would have inevitably led to questions of p o s t w a r e c o n o m i c policy, but they had gone too far for Acheson. His immediate reaction to the British draft was to point out that it excused Britain from any liabilities in the f o r m of goods, a s s e t s or any o t h e r type of specific o b l i g a t i o n . Keynes agreed but indicated that the President and the P r i m e M i n i s t e r appeared to f a v o u r such verbose v a c u i t y . Acheson insisted that the US Government w o u l d not accept s u c h a one-sided agreement and that the State Department in particular would oppose it in no u n c e r t a i n terms; with that the meeting came to a rather inauspicious end[50]. Acheson was clearly unhappy during the meeting, and later, in conversation with Redvers Opie, Second S e c r e t a r y at the B r i t i s h Embassy, he described Keynes as a bad envoy and as having put conclusions into Roosevelt's m o u t h . By this Acheson was not referring to the general nature of the British d r a f t so much as to the way the British had taken license from their talks with the President to give only a v a g u e c o m m i t m e n t to discussions on economic collaboration. Acheson said to Opie that Roosevelt ' b l e w u p 1 when he h e a r d about this and in a memorandum for the State Department expressed himself, 'very bluntly on the show of reluctance' to enter talks shown in the British draft[51]. When we look at this memorandum we shall see that Acheson was exaggerating. This is u n d e r s t a n d a b l e because the issue at stake was seen as crucial by members of the State Department, and Acheson wanted the British to believe that they had the f u l l support of the President. In fact the President's support was more passive than the State Department would have liked. The British Government's reluctance to commit itself to talks and evidence of its thinking in the Supplementary Trade T a l k s now led the State Department to r e v e r t to the idea of incorporating specific provisions for postwar economic policy in the Consideration Agreement. Early State Department drafts had included rather narrow, legalistic p r o v i s i o n s which required Britain to abandon, or at 52

Trade Talks and Lend-Lease Consideration

least begin to abandon, Imperial Preference but at the meeting with Treasury officials on 4 June Acheson had agreed to separate what they called the quid pro quo from the economic policy commitments on the understanding that a joint Anglo-American commission would be established to formulate postwar economic policies. In other words, providing some framework was created in which Britain could be moved towards the abolition of Imperial Preference and other forms of economic controls, Acheson and his colleagues would be content. By 17 July the British had not only rejected the commission but they were also circumspect about the very idea of talks on future economic collaboration. The goal which the State Department had always sought in the Consideration Talks was thus now in jeopardy and this was the main reason why Acheson and his colleagues fell back on the idea of including specific references to future economic policies in the Consideration Agreement. In addition to this both Berle and Hawkins now believed it was essential to take a strong line with the British. On 17 July Berle minuted in his diary that a first class battle was going on over Lend-Lease; he followed this on 23 July with the comment that, 'most amazing negotiations going on between Acheson and Keynes1, and he continued that the position, 'is that the British do not propose to pay anything, anywhere at any time..., in post-war economic arrangements we shall jolly well have to take care of ourselves" [52] . Undersecretary Welles was also alerted to the problem. On the same day that Acheson talked with Keynes he sent Welles a note describing the British proposals as too vague and he mentioned the possibility that Welles might talk about them with Roosevelt[53]. Three days later the President had decided that he was not happy with developments. He wrote to Acheson on 18 July that the British draft, 'is so vague I do not understand it myself'[54]. This was a bit unfair given what he had said to H a l i f a x and Keynes on 8 J u l y , furthermore the rough outline of a re-draft he enclosed for Acheson's guidance was neither very1 specific nor clear, neither does it appear as "hot and 'blunt1 as Acheson later described it to Opie. The UK was to return material the President thought might be useful, and due allowances would be made for the restoration of normal economic relations and for British capacity to purchase US goods. In consideration for Lend-Lease the US was to give due weight to the value of information received from 53

Trade Talks and Lend-Lease Consideration B r i t a i n and the B r i t i s h Government was to continue discussions with the US, 'covering measures of aid and of cooperation over a wider sphere 1 [55]. The State Department acted decisively despite t h e l a c k o f a c l e a r lead f r o m t h e P r e s i d e n t . Members of the department interpreted Roosevelt's memorandum to Acheson very broadly and included in t h e i r r e - d r a f t a strong a r t i c l e which would have c o m m i t t e d B r i t a i n t o l i b e r a l p o s t w a r economic policies. S i g n i f i c a n t l y , Roosevelt was only i n f o r m e d about the new d r a f t over the telephone, before it was put to the B r i t i s h [ 5 6 ] . He approved it for n e g o t i a t i n g , but it is v e r y doubtful if he realised exactly what demands the document contained. In the next chapter we shall see he was n o t prepared w h o l e h e a r t e d l y t o s u p p o r t s i m i l a r demands at the Atlantic C o n f e r e n c e , and while the rather different context might explain this we shall also see that his support for detailed provisions continued to be lukewarm throughout the Consideration Talks. Some months later a memorandum by Hull to the President gave the impression that the State Department had simply f u l f i l l e d Roosevelt's wishes in the new d r a f t . Its purport was to c a r r y out your instructions that decision r e g a r d i n g the quid pro quo was to be deferred to a final settlement and t h a t it s h o u l d t h e n be f r a m e d w i t h i n c e r t a i n broad p r i n c i p l e s relating to world peace and i n t e r n a t i o n a l economic relations. These principles were stated in Article V I I . [ 5 7 ] . In f a c t Acheson and his colleagues had taken liberties with Roosevelt's m e m o r a n d u m of 18 J u l y . They were determined to include the kind of detailed commitments that Roosevelt had told H a l i f a x and Keynes were not necessary. H a w k i n s in particular was adamant. Keynes 1 talk of postwar controls and the d i f f i c u l t i e s H a w k i n s had encountered in the Supplementary Trade Talks convinced him that the i n f l u e n c e of Keynes and of those of similar ilk had to be countered otherwise there would be a danger of a d i s a s t r o u s t r a d e war between the US and Britain. In a retrospective memorandum of 4 August Hawkins w e n t i n t o a l e n g t h y d e s c r i p t i o n of the economic d i f f i c u l t i e s confronting the US because of B r i t a i n . Sixteen pages on, Hawkins proposed a way of getting Britain to adopt policies amenable to the US, 'The appropriate instrument for crystallizing and, if 54

Trade Talks and Lend-Lease Consideration possible, s e t t l i n g 1 the issue presented is the lend-lease agreement [58]. On 28 July Acheson and Keynes met a g a i n . The new American draft was presented and was by no means wholly objectionable, but problems arose over the key article, number seven. VII The t e r m s and conditions upon which the U n i t e d K i n g d o m receives d e f e n c e aid from the United States of America and the b e n e f i t s to be r e c e i v e d by the U n i t e d States of America in r e t u r n t h e r e f o r , as f i n a l l y d e t e r m i n e d , shall be such as not to burden commerce between the two countries but to promote mutually advantageous economic r e l a t i o n s between t h e m and the b e t t e r m e n t of world wide economic r e l a t i o n s , they s h a l l p r o v i d e against discrimination in either the U n i t e d States of A m e r i c a or the U n i t e d K i n g d o m a g a i n s t the i m p o r t a t i o n of any produce originating in the other c o u n t r y ; and they shall provide for the formulation of measures for the achievement of these ends[59]. Keynes wanted to reach an agreement but, nevert h e l e s s , he v e h e m e n t l y objected to t h i s a r t i c l e . According to Acheson, he b u r s t i n t o a s p e e c h such as only he could make. The B r i t i s h could not1 ' m a k e s u c h a c o m m i t m e n t in good f a i t h ; "it would require an imperial conference 1 ; 'it saddled upon the f u t u r e an iron-clad formula from the Nineteenth-Century 1 ; ' i t c o n t e m p l a t e d t h e . . . hopeless task of r e t u r n i n g to a g o l d s t a n d a r d " ; and so on[60]. Keynes l a t e r apologised for c a v i l l i n g at the word ' d i s c r i m i n a t i o n 1 , but the damage was done[61]. Acheson coldly explained that the intent of a r t i c l e seven was that at the end of the w a r , after Britain had received vast quantities of aid, she was simply to be prohibited f r o m taking whatever trade measures she liked against the US. He went on to a d m i t that t e c h n i c a l l a n g u a g e had been used w h i c h prohibited Imperial P r e f e r e n c e and possibly i m p o r t and export e x c h a n g e controls. Keynes subsequently reported to London that Acheson's ideas on d i s c r i m i n a t i o n w e r e 55

Trade Talks and Lend-Lease Consideration

technical whereas the President had had nothing so specific in m i n d [ 6 2 ] . B e f o r e the m e e t i n g ended K e y n e s cooled down and promised Acheson that he would try to explain the American position to the British Government in London, to which he was due to r e t u r n the f o l l o w i n g day. B e f o r e p a r t i n g Keynes w a r n e d A c h e s o n t h a t a s s e s s m e n t of the d r a f t in London might take some t i m e [ 6 3 ] , H a l i f a x and Keynes had been optimistic after their talk with Roosevelt on 8 July; they were now disappointed by the t u r n of events. Halifax told the Foreign Office that in his opinion the Americans w e r e determined to get some assurances r e g a r d i n g British postwar economic policies, but as a r t i c l e seven stood he thought it was too specific and that it could prove highly e m b a r r a s s i n g . He did not recommend acceptance of the new American draft though he was eager for Britain to commit herself to liberal economic policies in a general way. The problems of d i s c r i m i n a t i o n and economic controls were proving to be ubiquitous, and American attitudes about them had h a r d e n e d . On 1 A u g u s t Hawkins wrote to Acheson that Keynes must be made to realise that US public opinion w o u l d not accept British discriminatory policies. He thought Keynes 1 approach was too academic and oblivious of political r e a l i t i e s . Three days later Hawkins circulated his lengthy memorandum about the p r o b l e m s B r i t i s h e c o n o m i c p o l i c i e s posed for the US and he also raised the matter of discrimination in the American C a b i n e t [ 6 4 ] , 1 Such were the 'economic consequences of Mr. Keynes as one historian has put i t [ 6 5 ] , Keynes was aware of the g r o w i n g hostility to B r i t i s h evasiveness in Washington and he was f r i g h t e n e d of the s i t u a t i o n deteriorating. He wanted the British Government to be as f o r t h c o m i n g as p o s s i b l e but he was not p r e p a r e d to accept a r t i c l e seven as it s t o o d . He put f o r w a r d a re-formulation of the second part of the article for Kingsley Wood. they shall provide for j o i n t and agreed a c t i o n b y t h e U . S . a n d t h e U . K . , each working within the limits of their governing economic conditions, directed to the progressive a t t a i n m e n t of a balanced i n t e r n a t i o n a l economy which would render unnecessary policies of discrimination and other i m p e d i m e n t s to the freedom of trade.[66] 56

Trade Talks and Lend-Lease Consideration

The Chancellor of the Exchequer liked this. He and Keynes w a n t e d s a f e g u a r d s a g a i n s t t w o p o s s i b l e e v e n t u a l i t i e s . F i r s t l y , the imposition on Britain of a unilateral obligation to reduce or to abolish p r e f e r e n t i a l t a r i f f s and c o m m e r c i a l and exchange controls. If such commitments were unavoidable then they should be tied to commensurate US concessions on t a r i f f s . The inclusion of the phrase 'agreed and joint a c t i o n 1 was to emphasise the reciprocity of the o b l i g a t i o n s . Secondly, Keynes and Wood w e r e a c u t e l y aware of B r i t a i n ' s vulnerability to the vagaries that they expected in the postwar i n t e r n a t i o n a l economy, and consequently any commitments had to be conditional upon e c o n o m i c conditions prevailing then. B y A u g u s t 1941 t h e f i r s t c l i m a x o f t h e d i f f e r e n c e s in the Anglo-American economic alliance was r a p i d l y a p p r o a c h i n g . For n e a r l y n i n e months B r i t i s h and American n e g o t i a t o r s had haggled over economic policies and speculated about the f u t u r e . At the end of J u l y m a t t e r s were coming to a head. Keynes and Wood hoped that t h e i r r e f o r m u l a t i o n of a r t i c l e seven of the US d r a f t agreement of 28 July would allow agreement to be made, but before matters could proceed f u r t h e r Churchill, Roosevelt and their advisers at the Atlantic Conference pre-empted them and took up the question of f u t u r e economic policy themselves. The manner in which C h u r c h i l l and Roosevelt eventually agreed on the economic clause of the Atlantic C h a r t e r , and the substance of it, had a major bearing upon the character of subsequent Anglo-American economic discussions and policies. NOTES

1. 'The Lend-Lease Act', Section 3. 55 Stat. (Part 1) 31 (1941) . 2. Memo, of conversation between Stirling, Hawkins, Cooper, Fuqua, 23 Dec. 1940, 611.4131/2541. 3. See Dominions Office to Southern Rhodesia 31 May 1941, A4191/2354/45, F0371/26252. 4. S h a c k l e to S t i r l i n g , 9 May 1941, A3435/2354/45, F0371/26251. 5. Stirling to Board of Trade, 11 May 1941, A3495/2354/45, F0371/26251. 6. Board of Trade to Stirling, A3565/2354/45, F0371/26251. 7. Amery to Eden, 30 May 1941, W6669/37/49, FO 371/28799. 8. Eden to Amery, 6 June 1941, W6669/37/49, FO 371/28799. 57

Trade Talks and Lend-Lease Consideration 9. H a l i f a x to Hull and his reply, 16 and 21 May 1941, 611.4131/2560. See also Halifax to FO, 23 May 1941, A3895/235/45 and D o m i n i o n s O f f i c e to New Z e a l a n d , South Africa and Australia, 31 May 1941, A4191/2354/45, F0371/26252. 10. Treasury and Board of Trade to Phillips and S t i r l i n g , 5 a n d 9 J u n e 1941, W 6 3 1 5 / 3 7 / 4 9 , F0371/28799. 11. F r a n k Lee, T r e a s u r y Delegation in Washington to F.E. Harmer, Treasury, 6 Dec.1944, Public Record O f f i c e T160/1375/F17942/010/6 (hereinafter only P.R.O. reference will be given). 12. Cox m e m o r a n d a , 8 and 14 M a r c h 1941, F.D. Roosevelt Library, Cox Papers, box 78, f o l d e r : Aid to Britain, Vol.VI. 13. Lend-Lease Consideration, second d r a f t , 11 March 1941, ibid. 14. Roosevelt to Morgenthau and his reply 13 a n d 1 4 M a r c h 1941, F . D . R o o s e v e l t L i b r a r y , Roosevelt PSF, box 100, and Hopkins Papers, box 305, folder: Background to Lend-Lease. 15. Foley to Morgenthau, 2 April 1941, R o o s e v e l t P S F , box 49, f o l d e r : G . B . T r a n s f e r of Defence Articles. 16. Berle D i a r y , 14 March and 15 April 1941, F.D. Roosevelt Library, Berle Papers, box 212. 17. Ibid. 18. K e y n e s t o T e a s u r y 2 1 M a y 1941, T160/1105/F17 660/02/1. 19. Roosevelt to Hull, 16 May 1941, 841.24/603 20. M o r g e n t h a u to Roosevelt, 20 May 1941, Roosevelt PSF, box 100. 21. Berle D i a r y , 13 May 1941, Berle Papers, box 212. Text of the speech at H a l i f a x to Eden, 9 June 1941, A4395/3795/45, F0371/26264. 22. D. Acheson, Present At The Creation (W. W. Norton Company, New York, 1969), p.23. 23. Acheson to B e r l e , H a w k i n s , Feis et a l , 21 May 1941 and memo. 22 May 1941. Not everyone in the department agreed with the new d r a f t . James Dunn, one of the European specialists, thought the quid pro quo should be kept separate f r o m economic policies which the department wanted to press upon the British, Dunn to Acheson 22 May 1941, nevertheless by the end of May Hull had approved the d r a f t . All sources at 841.24/603.2. 24. K e y n e s t o L o n d o n , 2 5 M a y 1941, T160/1105/F17660/02/1. 25. Ronald to Waley, 30 May 1941. The FO was upset with the A m e r i c a n s because a f t e r s u g g e s t i n g 58

Trade Talks and Lend-Lease Consideration that Britain pay part of the construction costs for the bases exchanged for American destroyers, the Americans had said the British could not use the bases whereas certain Latin American countries could. Ibid. 26. H.M. Diary, 404, pp.235-247, 4 June 1941. 27. Ibid., pp.269-333. 28. Ibid. 29. Cox to H o p k i n s , 6 J u n e 1941, H o p k i n s Papers, box 325, folder: Lend-Lease Operation III. 30. H . M . D i a r y , 4 0 6 , p.163, 9 J u n e 1941, Treasury meeting pp.157-165 and memo, for P r e s i d e n t pp.166-171. 31. M e m o . 9 J u n e 1941, H o p k i n s P a p e r s , box 3 0 7 , f o l d e r : P e r i o d Between T r i p s to London. For c o m p a r i s o n of d r a f t s see memo, to P r e s i d e n t , 9 June 1941, at same location, and Treasury d r a f t at H.M. Diary 406, pp.166-171. 32. See memo, by Redvers Opie, 12 Aug. 1941, T160/1105/F17660/02/1. 33. H a l i f a x to Wood and C h u r c h i l l , 10 June 1941, ibid. 34. Wood to Eden, 10 June 1941, ibid. 35. C h u r c h i l l and Wood to H a l i f a x , 15 J u n e 1941, and Wood to C h u r c h i l l 14 June 1941, ibid. For Wood's reservations about the commission s e e Wood t o E d e n , 2 3 J u n e 1941, W 7 7 8 2 / 4 2 6 / 4 9 , F0371/28901. 36. Memo. 20 J u n e 1941, Roosevelt PSF, box 156, folder: Lend-Lease. 37. W o o d t o C h u r c h i l l , 2 8 J u n e 1941, T160/1105/F17660/02/1. 38. Chancellor of the Exchequer to Washington, 8 July 1941, W8340/39/49, F0371/28802. 39. W a s h i n g t o n to F0 (dispatched 3.20 p . m . ) , 8 July 1941, W8340/39/49, F0371/28802. 40. W a s h i n g t o n to F0 (dispatched 2.58 p . m . ) , 8 July 1941, ibid. 41. Memo, of conversation Keynes and Acheson, 7 J u l y 1941, 8 4 1 . 2 4 / 6 3 5 J . T h e r e is d i s a g r e e m e n t between B r i t i s h and American records about the date H a l i f a x and Keynes met Roosevelt. Acheson"s memo, of 7 J u l y r e f e r s to K e y n e s i n f o r m i n g him of the substance of the t a l k s he had had w i t h the P r e s i d e n t , whereas British records indicate the meeting did not occur u n t i l the f o l l o w i n g d a y . In W a s h i n g t o n t o F 0 ( 3 . 2 0 p . m . ) , 8 J u l y 1941, W8340/39/49, F0371/28802, it is stated ' J . M . K . [ K e y n e s ] and H a l i f a x saw President t o d a y 1 , also the 8 July was a Tuesday and in Chancellor of E x c h e q u e r t o W a s h i n g t o n , 2 9 J u n e 1941, W 7 9 0 5 / 3 7 / 4 9 ,

59

Trade Talks and Lend-Lease Consideration F0371/28801, it is mentioned that Halifax and Keynes ' a r e t o m e e t w i t h F . D . R . [Roosevelt] o n t h e following Tuesday 1 . On this evidence it looks as if 8 July is the correct date.

42. Washington to F0 (3.20 p . m . ) , 8 July 1941, W 8 3 4 0 / 3 9 / 4 9 , F 0 3 7 1 / 2 8 8 0 2 , a n d K e y n e s t o Wood, 8 July 1941, T160/1105/F17660/02/1. 43. Waley to Hopkins, 9 July 1941, T160/1105/F17660/02/1. 44. C h u r c h i l l a n d Wood t o W a s h i n g t o n , 14 July 1941, W8377/37/49, F0371/28802. 45. Wood to Keynes, 14 July 1941, ibid. 46. S t i r l i n g to Board of Trade, ( r e c e i v e d ) 4 July 1941, W8681/426/49, F0371/28901. 47. Washington to F0, 4 July 1941, W9465/426/49, F0371/28901. 48. F0 to Washington, 16 July 1941, W 8 7 3 8 / 4 2 6 / 4 9 , F0371/28901. An i n t e r e s t i n g line taken in this t e l e g r a m was that while t h e r e was a p r o v i s i o n i n t h e 1938 a g r e e m e n t w h i c h allowed economic controls to be imposed in w a r t i m e , there was no mention as to when they should be removed. Eden, Duncan and Wood t h o u g h t this might p r o v i d e B r i t a i n with legitimate grounds for continuing controls a f t e r the war. This was a rather cavalier i n t e r p r e t a t i o n of the treaty and did not provide a solution to the trade talks. 49. Ibid. 50. See Acheson, E£££fint_at_th£_C.rea.tiQ.n, p.29, and Keynes to Wood, 15 July 1941, W9078/37/49, F0371/28803. Keynes in a rather I-told-you-so fashion explained to Wood that he did not think they could get excused from repayments without being more forthcoming about the economic policy declaration, however as we shall see Keynes was not prepared to go as far as the State Department wanted. 51. Opie memo. 12 A u g . 1941, T160/1105/F17660/02/1. 52. Berle Diary, 17 and 23 July, Berle Papers,

box 213.

53. Acheson to Welles, 15 July 1941, Roosevelt PSF, box 96, folder: Welles Correspondence June to

Dec. 1941.

54. Roosevelt to Acheson, 18 July 1941, ibid. 55. Ibid. 56. Welles memo. 27 July 1941, 841.24/646J. The a u t h o r owes t h i s p o i n t to D. R e y n o l d s , Thfi C.re_a.tifin_of _ the Anglo-American Alliance 1937-41 (Europa, London, 1981), p.275. 57. Hull to Roosevelt, 19 Nov. 1941, Roosevelt PSF, box 16, folder: Lend-Lease III. 60

Trade Talks and Lend-Lease Consideration 58. Hawkins memo, to Hull, Welles and Acheson, 4 Aug. 1941, Roosevelt PSF, box 90, folder: State Department. 59. See Wood to Eden w i t h d r a f t a t t a c h e d , 8 Aug. 1941, W9748/37/49, F0371/28804. 60. Acheson, Present afc the Creation f p.30. 61. K e y n e s t o A c h e s o n , 2 9 J u l y 1941, 841.24/648J. 62. K e y n e s m e m o . 2 8 J u l y 1941, T160/1105/F7660/02/1. 63. Acheson memo. 28 July 1941, 841.24/820. 64. H a w k i n s t o A c h e s o n , 1 A u g . 1941, 8 4 1 . 2 4 / 6 4 3 , and H a l i f a x to London, 3 A u g . 1941, W9552/37/49, F0371/28803. 65. Reynolds in Anglo-American Alliance. 6 6 . Wood t o E d e n w i t h d r a f t a t t a c h e d , 8 Aug. 1941, W9748/37/49, F0371/28804.

61

Chapter Three THE ATLANTIC CHARTER AND LEND-LEASE

A d e c l a r a t i o n of intent by B r i t a i n about postwar economic policy had become of the utmost concern for the State Department in the context of Anglo-American economic relations by August 1941. After some uncertainty about the procedure by which Britain was to be brought to a commitment to postwar liberal economic policies, Acheson, Welles, Berle and H a w k i n s decided by mid-summer 1941 that such a statement should be included in the Consideration A g r e e m e n t ( i . e . a r t i c l e seven of the M u t u a l Aid Agreement). Their decision, however, did not p r e c l u d e the p o s s i b i l i t y of s e e k i n g a s i m i l a r commitment in a d i f f e r e n t context as w e l l , and in fact this is exactly what U n d e r s e c r e t a r y of State Welles did at the meeting between R o o s e v e l t and Churchill at the Atlantic Conference. Roosevelt f i r s t began to t h i n k of a meeting with C h u r c h i l l after receiving the letter's message of 7 December 1940, in w h i c h B r i t a i n ' s i m m i n e n t b a n k r u p t c y was declared and in which a series of political and strategic issues were r a i s e d . The President believed that a meeting would enable them to sort out those issues quickly and he hoped that a p e r s o n a l rapport between him and C h u r c h i l l might develop which would f a c i l i t a t e f u t u r e decision-making[1]. In the months that followed the n i g h t - t i m e b l i t z on B r i t a i n ' s c i t i e s , and German v i c t o r i e s in North A f r i c a and the Mediterranean prevented Churchill f r o m l e a v i n g the UK and R o o s e v e l t ' s hopes for a m e e t i n g between them from being q u i c k l y r e a l i s e d . H a r r y H o p k i n s p a r t l y compensated for the President's disappointment with his t r i p to London as a special envoy in F e b r u a r y 1941. H o p k i n s was a great success; the account of one m e e t i n g between him and C h u r c h i l l , w h i c h has p e r h a p s been e m b e l l i s h e d f o r d r a m a t i c e f f e c t , 62

The Atlantic Charter and Lend-Lease

i l l u s t r a t e s t h e i n f o r m a l , no-nonsense f r i e n d s h i p they established in early 1941 upon which Churchill was to rely o f t e n in the coming years in o r d e r to sound out Roosevelt on delicate matters. The scene was after dinner and Churchill had launched into one of his famous p e r o r a t i o n s . He sought to persuade Hopkins that England was f i g h t i n g the war for the same goals that had been p u r s u e d in the New Deal. He wound u p a f t e r a b o u t h a l f a n h o u r . N o b o d y s p o k e for a moment a f t e r he had finished; e v e r y o n e else w a s w a i t i n g uneasily for the reaction of President Roosevelt's representative, who had slumped f a r t h e r and f a r t h e r down on h i s spine. "Well, M r . P r i m e M i n i s t e r " , Hopkins finally said, "neither the President nor myself gives a damn about what y o u ' v e been saying. All w e ' r e interested in in Washington is how we can beat that son of a bitch in Berlin". Churchill smiled...and pulled out a f r e s h cigar.[2] Hopkins did much to pave the way for the f r i e n d s h i p w h i c h l a t e r developed between Roosevelt and the Prime Minister. On t h e 2 2 J u n e 1941, t h e a n n i v e r s a r y o f Napoleon's march on Moscow, H i t l e r invaded the Soviet U n i o n . With Germany's attention now focused mainly to the East, Hopkins, in J u l y d u r i n g his second t r i p to London, f o u n d the time was ripe to conclude arrangements for a meeting between Roosevelt and C h u r c h i l l . The date set was e a r l y A u g u s t and the place e v e n t u a l l y decided upon was Placentia Bay, Newfoundland. The Atlantic Conference was an o r g a n i s a t i o n a l shambles and t h i s had i m p o r t a n t consequences for Anglo-American economic r e l a t i o n s . The A m e r i c a n s were not prepared for substantive t a l k s and a British memorandum shows that t h e r e was no f o r m a l a g e n d a . The meetings were haphazardly arranged and the participants were often u n s u r e about what they w e r e supposed to be d i s c u s s i n g [ 3 ] . N e i t h e r C h u r c h i l l n o r Roosevelt h a d s p e c i f i e d w h a t t h e purpose of the m e e t i n g was to be, though they were both keen to establish a closer r e l a t i o n s h i p , and a number of issues begged attention such as the battle for the Atlantic, the German invasion of the Soviet U n i o n , the Japanese t h r e a t in the Far East and the p r o b l e m o f secret w a r t i m e a g r e e m e n t s w h i c h m i g h t 63

The Atlantic Charter and Lend-Lease adversely affect the peace settlement after the war. This l a t t e r point c o m b i n e d w i t h p r o p a g a n d a considerations to produce the Atlantic Charter which was one of the main achievements of the meeting. Roosevelt suggested to Churchill on the first evening of the conference that they should issue a joint statement which would i d e n t i f y common goals for the two liberal democracies and w h i c h w o u l d o f f e r t h e w o r l d a n a l t e r n a t i v e v i s i o n t o that presented by the Axis Powers. Churchill agreed, and the r e s u l t was the A t l a n t i c C h a r t e r which was the first Anglo-American declaration of war aims. References to the f u t u r e and to the ideals which the two leaders hoped to see f u l f i l l e d were necessarily involved but point f o u r of the declaration, which dealt with economic policies, developed d u r i n g the c o u r s e of n e g o t i a t i o n s along more s p e c i f i c lines than either Roosevelt or Churchill had a n t i c i p a t e d . The man responsible for giving the declaration its unexpected twist was Sumner Welles who saw the joint statement as a chance for g e t t i n g Britain to make that elusive commitment to postwar policies of freer t r a d e a n d n o n - d i s c r i m i n a t i o n which t h e State Department so keenly w a n t e d . How Welles f a r e d in this attempt was determined mainly by the attitudes of Roosevelt and C h u r c h i l l , and b e f o r e l o o k i n g at the conference a few words need to be devoted to the two leaders and their views on postwar policy. There were a number of occasions in the months preceding the Atlantic Conference when Roosevelt had cause to think about the problem of postwar policy, and as we have seen there was more than a hint of a difference about this between him and members of the State Department. Just how d i f f e r e n t t h e i r views were becomes apparent in their respective attitudes towards a major speech by Eden on B r i t i s h war aims at the M a n s i o n H o u s e in London on 30 M a y . The address echoed the sentiments e x p r e s s e d by H u l l e a r l i e r in the month at the i n a u g u r a t i o n of the National F o r e i g n T r a d e Week but it was much less s p e c i f i c . Eden spoke of B r i t a i n ' s commitment to social security at home and a b r o a d , and c o n c e r n i n g economic policy he went on to say, 'When peace comes we s h a l l m a k e s u c h r e l a x a t i o n o f o u r w a r - t i m e financial arrangements as will permit the revival of international trade on the widest possible b a s i s ' [ 4 ] . A week l a t e r Leo P a s v o l s k y , a s e n i o r economic adviser in the State D e p a r t m e n t , w r o t e a lengthy memorandum to Hull pointing out the shortcomings of E d e n ' s speech. Pasvolsky was p a r t i c u l a r l y w o r r i e d by the absence of any mention 64

The Atlantic Charter and Lend-Lease of specific means of a t t a i n i n g the r a t h e r v a g u e o b j e c t i v e s mentioned by Eden. He noted that the speech w a s f a r less a c c e p t a b l e t o t h e S t a t e Department than the one made by the Prime Minister, C h a m b e r l a i n , on 31 J a n u a r y 1 9 4 0 , when a c l e a r statement of intent was made to return to the Most Favoured Nation Principle and multilateral channels of trade after the war. In the light of Eden's less s a t i s f a c t o r y statement Pasvolsky s u g g e s t e d t h a t t h e r e should be a joint Anglo-American exploration, ' t o w o r k o u t a m o r e o r less p r e c i s e p o s t - w a r p r o g r a m 1 [ 5 ] , In correspondence which took place a few days later between Berle and Roosevelt a r a t h e r a m u s i n g i r o n y i s evident c o n c e r n i n g P a s v o l s k y ' s views. B e r l e l i k e o t h e r m e m b e r s of the State D e p a r t m e n t , f e a r e d that secret w a r t i m e diplomacy m i g h t c a u s e a repeat of the k i n d of catastrophe which had occurred at the Paris Peace c o n f e r e n c e in 1919. He did not want the State Department to have its hands tied and its p r i n c i p l e s compromised by commitments made by Britain, or any other power, on the basis of short-term expediency. At the end of June 1941 B e r l e ' s worst suspicions were aroused by rumours reaching Washington of secret British agreements concerning postwar Yugoslavia. He promptly asked Roosevelt for p e r m i s s i o n to sketch o u t A m e r i c a n p o l i c y f o r t h e f u t u r e which would indicate among other things opposition to secret a r r a n g e m e n t s for the postwar w o r l d . The President granted Berle his request t h o u g h he i n s i s t e d that any plans should be kept confidential. He then most significantly went on to say, When I saw Keynes three weeks ago, I told him I did not like the proposed speech of E d e n ' s [ i . e . t h e Mansion House Speech] because while we could all a g r e e on objectives, we could all fight about the machinery to attain them. He got Eden to e l i m i n a t e the m e t h o d s ... and we should follow that idea over h e r e [ 6 ] . Thus Keynes and H a l i f a x w e r e q u i t e r i g h t in J u l y when they reported to London that Roosevelt did not wish for details and d e f i n i t i o n s regarding postwar policy. The President was only prepared to state US goals in g e n e r a l t e r m s . There was t h e r e f o r e a substantial d i f f e r e n c e between his position and the State D e p a r t m e n t l i n e as advocated by Pasvolsky on 7 June. 65

The Atlantic Charter and Lend-Lease D u r i n g e a r l y July Berle continued to caution his colleagues about British secret commitments and in a d d i t i o n he expressed his fear that Britain intended to develop a controlled t r a d i n g system on the l i n e s developed in Germany by the economist Schacht[7]. Sumner Welles, Hopkins and Roosevelt were all concerned and the r e s u l t was a letter to Churchill on 14 J u l y in which Roosevelt asked the P r i m e M i n i s t e r to release a s t a t e m e n t , which he would publicly support, indicating t h a t , " n o p o s t - w a r p e a c e c o m m i t m e n t s a s t o t e r 1r i t o r i e s , populations or economics have been g i v e n [ 8 ] . The tone of the letter was quite insistent but Roosevelt received no response. This lack of f o r t h c o m i n g n e s s which was also evident to Acheson in the 15 July meeting w i t h Keynes that we considered in the p r e v i o u s c h a p t e r p r o m p t e d Roosevelt, with some n u d g i n g f r o m t h e State D e p a r t m e n t , t o l e n d m o r e support to the idea of extracting a declaration of postwar intent from Britain. In July the P r e s i d e n t had i n s t r u c t e d H o p k i n s that during his t r i p to London he should tell C h u r c h i l l not to expect any talk of A m e r i c a n e n t r y into the war or of t e r r i t o r i a l and economic m a t t e r s at the A t l a n t i c Conference; but by the t i m e Roosevelt got to Placentia Bay he had c h a n g e d his m i n d [ 9 ] . The p r o p a g a n d a v a l u e of a j o i n t d e c l a r a t i o n and his d e s i r e t o p r e v e n t secret a g r e e m e n t s w h i c h m i g h t compromise postwar settlements overcame his wariness about speaking on postwar policy. He did not confer with C h u r c h i l l or p r e p a r e a d r a f t prior to the c o n f e r e n c e , but in i n f o r m a l t a l k s w i t h Welles he m a d e it c l e a r that a d e c l a r a t i o n of p r i n c i p l e s , which would prevent B r i t a i n e n t e r i n g secret agreements of the kind she had made in World War I, was uppermost in his m i n d [ 1 0 ] . He also t a l k e d casually about the f u t u r e of B r i t a i n ' s restrictive trade policies with his son E l l i o t t s h o r t l y b e f o r e the B r i t i s h arrived at Placentia B a y [ l l ] , but there was l i t t l e , i f a n y , s p e c i f i c p r e p a r a t i o n f o r t h e j o i n t statement t h o u g h Welles, no doubt with it in m i n d , took to the c o n f e r e n c e a copy of the d r a f t M u t u a l Aid A g r e e m e n t w h i c h Acheson had given to Keynes on 28 July. The d r a f t contained the k i n d of declaration the State Department sought from Britain but, as we noted in the previous c h a p t e r , a l t h o u g h Roosevelt had f o r m a l l y approved the d r a f t for negotiation it is u n l i k e l y that he r e a l i s e d it c o n t a i n e d the kind of detail about methods which he had told Berle to steer clear of on 26 June. Events at the c o n f e r e n c e show t h a t Roosevelt had not 66

The Atlantic Charter and Lend-Lease s i g n i f i c a n t l y changed his opinions; he wanted a g e n e r a l d e c l a r a t i o n of i n t e n t but he would not support Welles when he a t t e m p t e d to p l a g i a r i s e a r t i c l e seven of the d r a f t Mutual Aid Agreement in t h e joint d e c l a r a t i o n . I n R o o s e v e l t ' s o p i n i o n m e n t i o n of s u c h detailed means and f o r m u l a t i o n s would have had a divisive e f f e c t on Anglo-American r e l a t i o n s at a time when it was crucial to maintain harmony and accord. Churchill was even more cautious than Roosevelt about public statements concerning postwar policies. A few months prior to the Atlantic Conference he had 'blown up" over matters of this kind, which had been l e a k e d to the press by Harold Nicolson who was, ironically, in Duff Cooper's Ministry of I n f o r m a t i o n [12]. Concerning the State Department's ideas Churchill had strong grounds for reticence. His government was v i r t u a l l y u n a n i m o u s in its opposition to the way in which the State Department wanted B r i t a i n to abandon her economic c o n t r o l s . Even t h o s e w e l l d i s p o s e d t o S t a t e D e p a r t m e n t objectives, such as members of the Board of Trade, the Economic Section of the Cabinet S e c r e t a r i a t and the North American Department of the Foreign Office, were worried about how Britain was to move towards them. Churchill himself was well known as a liberal i m p e r i a l i s t who had o r i g i n a l l y opposed I m p e r i a l P r e f e r e n c e but it was a m i s t a k e , which Ambassador Winant and other Americans made, to think that under the circumstances Britain faced during the war that C h u r c h i l l would be prepared to g i v e up e c o n o m i c controls. He was far f r o m being ignorant of economic m a t t e r s ; he had been C h a n c e l l o r of the Exchequer from 1924 to 1929 and so he was well aware of the d i f f i c u l t i e s confronting Britain. F u r t h e r m o r e , as Colonial Secretary in 1922 he had proved to be a w i l l i n g c o m p r o m i s e r of l i b e r a l economic p r i n c i p l e s when m a j o r imperial economic interests were at stake. In that year he supported and implemented the Stevenson Plan to restrict the out-put of rubber in Malaya and Ceylon in o r d e r to r a i s e p r i c e s [ 1 3 ] . Faced w i t h the g r i m f a c t s of B r i t a i n ' s w a r t i m e economic s i t u a t i o n a n d i n t h e knowledge of widespread opposition in his government to the demands made by m e m b e r s of the State D e p a r t m e n t C h u r c h i l l was u n w i l l i n g to take a doctrinal stance on f r e e trade. Although Churchill had made no arrangements for a joint declaration before his arrival at P l a c e n t i a Bay h e w a s d e l i g h t e d t o s e i z e t h e o p p o r t u n i t y o f f e r e d by Roosevelt for i d e n t i f y i n g common 67

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Anglo-American aspirations in a statement of general principles because this would help to b r i n g the two c o u n t r i e s c l o s e r t o g e t h e r and because it would provide beneficial propaganda. He knew as well as Roosevelt, however, that any resort to details might raise divisive issues which would d a m a g e the prospects for wartime collaboration and destroy the propaganda value of the conference. C h u r c h i l l and Roosevelt travelled to Placentia Bay respectively on HMS Prince of Vales and the USS Augusta . C h u r c h i l l was accompanied by his personal f r i e n d and adviser Lord C h e r w e l l , by the P e r m a n e n t U n d e r s e c r e t a r y a t t h e Foreign O f f i c e Sir Alexander Cadogan, by the Chiefs of Staff and by H a r r y Hopkins who had just r e t u r n e d f r o m Moscow. Hopkins s u f f e r e d one of his f r e q u e n t bouts of ill-health on the voyage but he was s u f f i c i e n t l y recovered to advise Roosevelt at the C o n f e r e n c e . C h u r c h i l l ' s e n t o u r a g e was enlarged on the last day of the conference, 12 August, by the belated arrival of Max Beaverbrook the Minister of Supply, who was too late to i n f l u e n c e the c o u r s e of e v e n t s . R o o s e v e l t t o o k w i t h him U n d e r s e c r e t a r y of State Welles, Averell Harriman, who had been given the job of expediting Lend-Lease in London, and his Chiefs of Staff. Churchill arrived at the rendezvous a few hours after Roosevelt on 9 August. Cadogan and Welles got s t r a i g h t down to business that a f t e r n o o n . Ambassador H a l i f a x had p r i m e d Cadogan for the discussions by a d v i s i n g him to be accommodating as Welles had recently been f r i e n d l y and h e l p f u l [ 1 4 ] . This m i g h t explain why C a d o g a n ' s response was not completely candid when Welles raised the question of B r i t a i n ' s i n t e n t i o n s c o n c e r n i n g postwar economic p o l i c y . W e l l e s p r o d u c e d a copy of the e x t a n t American d r a f t of the Mutual Aid Agreement and there was some discussion of article seven, which was the consideration part, and of economic discrimination. Cadogan was d i p l o m a t i c ; he s a i d he had a l w a y s d i s l i k e d the Ottawa Agreements but then added that decisions on such matters would have to be t a k e n by C h u r c h i l l of whose views he p r o f e s s e d i g n o r a n c e . Cadogan may sincerely have d i s l i k e d I m p e r i a l P r e f e r e n c e , however, he disliked American proposals for its removal even m o r e . A few months later he described the American version of article seven as, 'impertinent b l a c k m a i l " , but he gave Welles no i n k l i n g of such v i e w s on 9 August. Indeed, Welles commented later that t h e r e was complete accord on t h e n e w A m e r i c a n d r a f t between h i m a n d C a d o g a n . 68

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This seems to have led Welles to the mistaken belief that proposals like those in article seven would not be uncogenial to the British[15]. A few hours after the exchange of views between Cadogan and Welles, C h u r c h i l l and Roosevelt dined aboard the USS A u g u s t a . D u r i n g the course of the evening the President suggested that they should issue a j o i n t statement of p r i n c i p l e s and intent. Churchill eagerly responded and took the i n i t i a t i v e by o f f e r i n g to draw up the f i r s t d r a f t . Early on Sunday morning he sketched the o v e r a l l f o r m a t for Cadogan who s w i f t l y knocked it into shape. Churchill made some minor amendments and then it was handed to Welles a f t e r the Sunday service on the deck of the P r i n c e of Wales in w h i c h they had all a p p r o p r i a t e l y sung ' O n w a r d C h r i s t i a n S o l d i e r s ' . Churchill and Cadogan had produced a b r o a d , g e n e r a l s t a t e m e n t w h i c h t r i e d t o i d e n t i f y common g r o u n d between the B r i t i s h and the A m e r i c a n s . D i v i s i v e i s s u e s w e r e d e l i b e r a t e l y avoided and as the paragraph on economic policy shows there was thus an inevitable element of blandness. Fourth they will s t r i v e to b r i n g about a f a i r and equitable distribution of essential produce, not only w i t h i n t h e i r t e r r i t o r i a l b o u n d a r i e s , but between the nations of the world.[16] W i t h i n t w e n t y f o u r h o u r s Welles h a d re-cast point f o u r in a radically d i f f e r e n t v e i n , w h i c h was strikingly similar to that embodied in article seven of the Mutual Aid Agreement. Fourth they will strive to promote m u t u a l l y a d v a n t a g e o u s r e l a t i o n s between them t h r o u g h the elimination of any discrimination in either the United States of A m e r i c a or in the United Kingdom a g a i n s t the i m p o r t a t i o n of any p r o d u c t o r i g i n a t i n g in the o t h e r c o u n t r y ; and they w i l l e n d e a v o u r t o f u r t h e r t h e e n j o y m e n t by all p e o p l e s of access on equal terms to the markets and to the raw m a t e r i a l s which are needed for t h e i r economic prosperity.[17] When Roosevelt saw this he revised it in accordance with views he had p r e v i o u s l y e x p r e s s e d . It is possible t h a t an i r r i t a b l e exchange between Roosevelt and C h u r c h i l l the p r e v i o u s e v e n i n g over 69

The Atlantic Charter and Lend-Lease f r e e t r a d e a n d B r i t a i n ' s imperial arrangements reinforced the President's belief that they should avoid discussing means and stick to stating ends, but the President had been c o n v i n c e d of the d e s i r a b i l i t y of this for some time[18], He changed the phrase concerning the elimination of d i s c r i m i n a t i o n in Welles' d r a f t f r o m being a description of a means so that it specified an end. Fourth they will endeavour to further the enjoyment by all peoples of access without d i s c r i m i n a t i o n and on equal terms, to the markets and to the raw m a t e r i a l s of the world which are needed for their economic prosperity.[19] On M o n d a y m o r n i n g 11 A u g u s t R o o s e v e l t , accompanied by H a r r y Hopkins and Welles, gave the re-draft of the joint declaration to Churchill. The Prime Minister read through the f i r s t three points quite happily but then of point four he said he was in no position to accept it because it m i g h t be taken to call into question the contractual obligations of the Ottawa A g r e e m e n t s . He went on, in reply to a protest from Welles, to point out that in the past B r i t i s h f r e e t r a d e had been met by successive doses of American protectionism. While the U n d e r s e c r e t a r y was digesting t h i s , the P r i m e Minister proposed that, "with due respect for their existing obligations' should be inserted into point f o u r , t h a t ' t r a d e ' s h o u l d b e s u b s t i t u1t e d f o r 'markets' and that 'without d i s c r i m i n a t i o n should be d e l e t e d . W e l l e s r e f u s e d to c a p i t u l a t e ; he tenaciously pressed for a commitment from Britain to abandon discrimination. He pointed out that Britain was o n l y r e q u i r e d t o c o m m i t h e r s e l f t o m o v i n g towards f r e e r non-discriminatory trade; he did not of course mention that his o r i g i n a l d r a f t had been m o r e d e m a n d i n g . C h u r c h i l l replied b y r e m i n d i n g Welles that he had opposed the Ottawa Agreements for a long time but he went on to reiterate his legal difficulties and to explain that if Welles wanted to r e t a i n his version then the Dominions would have to be consulted, which would take no less than a w e e k , and that even then t h e i r verdict would probably be u n f a v o u r a b l e [ 2 0 ] . This was a game of f o x e s and hounds. The views Churchill expressed for American consumption w e r e s l i g h t l y d i f f e r e n t f r o m those h e relayed to the Cabinet later in the day.

70

The Atlantic Charter and Lend-Lease The f o u r t h condition would evidently have to be amended to safeguard our obligations contracted in Ottawa and not prejudice the f u t u r e of imperial preference. This might f a l l into its place a f t e r the war in a g e n e r a l economic settlement with decisive lowering o f t a r i f f s a n d t r a d e b a r r i e r s t h r o u g h o u t the w o r l d . But we cannot settle it now.[21] In an e f f o r t to de-fuse the s i t u a t i o n Hopkins suggested that Cadogan and Welles should r e - d r a f t point f o u r . He commented t h a t , 'it was inconceivable that the issuance of the j o i n t d e c l a1 r a t i o n should be held up by a matter of this k i n d [ 2 2 ] . Poor Welles was not as perceptive as H o p k i n s , and instead of graciously accepting defeat he expostulated that it was not a question of words but p r i n c i p l e s and that this paragraph embodied the ideal for which the a d m i n i s t r a t i o n had s t r i v e n for the p a s t n i n e y e a r s . The end nevertheless came q u i c k l y as Roosevelt sided w i t h H o p k i n s . It was decided that C h u r c h i l l and Cadogan should re-draft point four and then consult with Welles later in the day. After the meeting Welles made one last attempt to change the President's mind. He suggested to him that C h u r c h i l l s h o u l d b e p e r s u a d e d t o e x p e d i t e communications w i t h the Dominions so that the commitment to non-discrimination could be i n c l u d e d in point f o u r . H e s p e c i f i c a l l y a r g u e d that i f C h u r c h i l l ' s phrase ' w i t h d u e respect f o r t h e i r existing obligations' was adopted then, 'the article would have no application to the Ottawa A g r e e m e n t s , and its f o r c e would be gravely w e a k e n e d ' [ 2 3 ] . Welles 1 idea that the problem could be resolved by expediting communications with the Dominions evinces a lack of d i p l o m a t i c f i n e s s e if not d o w n r i g h t naivety. Roosevelt did not take Welles' advice. It might have been, as Welles speculated l a t e r , that H o p k i n s b r o u g h t p r e s s u r e to b e a r to give way to Churchill on point f o u r , but it is u n l i k e l y he did a n y t h i n g more than r e i n f o r c e R o o s e v e l t ' s a l r e a d y existing disposition[24]. Roosevelt knew the issue of d i s c r i m i n a t i o n was too controversial and potentially divisive to be resolved in the context of the j o i n t d e c l a r a t i o n . Why Welles ever thought the British would renounce d i s c r i m i n a t o r y c o n t r o l s is d i f f i c u l t to imagine; he may have been encouraged by the false impression he a c q u i r e d f r o m t a l k s w i t h Cadogan on 9 August but he certainly had 71

The Atlantic Charter and Lend-Lease no o t h e r g r o u n d s a p a r t f r o m a r a t h e r i n f l a t e d opinion of his own abilities. A few minutes before Welles went to see Cadogan a b o u t p o i n t f o u r he received the P r e s i d e n t ' s response to his arguments. Dear Sumner, Time being of the essence I t h i n k I can stand on my own f o r m e r f o r m u l a s - to w i t : access to raw m a t e r i a l s . This omits entirely the other subject which is the only one in conflict: discrimination in trade. The f o u r t h would then read "of access to the raw materials of the world" etc. Yours, F.D.R. [25] W h e n W e l l e s met C a d o g a n he was a l i t t l e surprised and r a t h e r pleased to f i n d that the declaration still had some teeth in it - teeth which Roosevelt would have been content for the British to e x t r a c t . Churchill had retained the phrase 'access on equal terms to trade' which could be construed as a general commitment to non-discriminatory policies. As this was more a c c e p t a b l e to W e l l e s t h a n the minimum which Roosevelt had i n s t r u c t e d him to accept, he agreed to the B r i t i s h r e - d r a f t and it became the f i n a l version of point f o u r [ 2 6 ] . Thus the economic part of the declaration was equivocal; for the B r i t i s h its main value was the American acknowledgement that existing controls were not to be u n c o n d i t i o n a l l y abandoned, while for Welles the salient point was the commitment to move t o w a r d s equal access to trade. F o u r t h , they w i l l e n d e a v o u r , w i t h d u e respect for their existing obligations, to further the enjoyment of all States, great or small, victor or vanquished, of access, on equal t e r m s , to the t r a d e and to the raw m a t e r i a l s of the world which are needed for their economic prosperity.[27] When W e l l e s t o o k t h i s t o R o o s e v e l t t h e l a t t e r remarked that even this version was ' b e t t e r than he had thought M r . C h u r c h i l l would be willing to concede' [ 2 8 ] . I f f u r t h e r p r o o f w e r e n e e d e d t o establish R o o s e v e l t ' s belief that it would be d i f f i c u l t and t h e r e f o r e at this stage of the war 72

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unwise to try to e x t r a c t detailed commitments from Britain then this comment provides it. Welles made a grave tactical error in raising the question of e c o n o m i c d i s c r i m i n a t i o n at the A t l a n t i c Conference. He failed to coordinate f u l l y with the President concerning his intentions and the result was a declaration which compromised the State Department's principles. There is no doubt that the wording of point f o u r was closer to the position the British were d e f e n d i n g in the S u p p l e m e n t a r y Trade Talks and in the Consideration Talks than to the one espoused b y t h e S t a t e D e p a r t m e n t . W e l l e s h a d s u f f e r e d a d i p l o m a t i c defeat which weakened his department's negotiating position for the f u t u r e . The text of point four agreed upon by Cadogan and Welles was not finally a u t h o r i s e d by Roosevelt and C h u r c h i l l u n t i l the early afternoon of the f o l l o w i n g day. In the meantime the Deputy P r i m e Minister Attlee, unaware of the outcome of Cadogan 1 s discussion with Welles, called an emergency meeting of the Cabinet which took place in the early hours of Tuesday morning (London was f i v e h o u r s ahead of local N e w f o u n d l a n d t i m e ) . Members of the Cabinet discussed the Welles/Roosevelt text of the d e c l a r a t i o n and C h u r c h i l l ' s counter-proposals. Churchill put them u n d e r cons id er able p r e s s u r e to accept h i s a m e n d m e n t s w i t h o u t f u r t h e r ado; h e suspected that the p h r a s e "equal access to t r a d e 1 would a r o u s e opposition in the Cabinet but he did n o t want t o a n t a g o n i s e t h e A m e r i c a n s b y m a k i n g f u r t h e r d e m a n d s . He was of course ignorant of the fact that Roosevelt had told W e l l e s t h a t he was prepared to leave the whole question of discrimination in trade e n t i r e l y to one side. Churchill, like Roosevelt, was willing to compromise for the value to be g a i n e d f r o m s t a t i n g common Anglo-American aims and by p r o j e c t i n g an image of cooperation. The Cabinet sent Churchill a revision of point f o u r and added a new paragraph-point five. F o u r t h , t h e y will e n d e a v o u r t o f u r t h e r enjoyment by all peoples of a c c e s s , without discrimination and on equal terms, to raw m a t e r i a l s of the w o r l d which are needed for their economic prosperity, and to promote greatest possible e x p a n s i o n of m a r k e t s for the i n t e r c h a n g e of goods and services throughout the w o r l d . F i f t h , they desire to b r i n g about the fullest collaboration between all n a t i o n s 73

The Atlantic Charter and Lend-Lease in the economic field, with the object of securing for all improved labour standards, economic advancement and social security.129] Attlee i n f o r m e d C h u r c h i l l that these were only the preliminary views of the Cabinet; he explained that Kingsley Wood and Duncan, the two men concerned most w i t h economic p o l i c y , h a d been a b s e n t f r o m t h e meeting and that a more considered view would be sent later in the m o r n i n g [ 3 0 ] . The C a b i n e t had a l r e a d y adopted a m o r e d e f e n s i v e position than Churchill; the prohibition against d i s c r i m i n a t i o n was l e f t in point four but it was now only to apply to raw materials, and point five could be used to argue against dismantling economic controls if such action was seen as l i k e l y to endanger either the domestic economy or social s e c u r i t y . Churchill's response to this was simply to increase the pressure on the C a b i n e t to agree to the Welles/Roosevelt version plus his amendments, and in f a c t in the early a f t e r n o o n of 12 August C h u r c h i l l went ahead and agreed w i t h Roosevelt on that version w i t h o u t waiting for the 'considered proposals' of his Cabinet to a r r i v e (at least that is what he later reported to A t t l e e , though there is circumstantial evidence to suggest t h a t he did r e c e i v e the C a b i n e t ' s considered opinions before concluding the Atlantic Charter but chose to ignore them) [31] . He put the p r e l i m i n a r y v i e w s of the Cabinet to Roosevelt who accepted point f i v e but rejected the r e - f o r m u l a t i o n o f p o i n t f o u r . Thus t h e social security clause which helped to stengthen B r i t a i n ' s e c o n o m i c d e f e n c e s was i n c l u d e d in the A t l a n t i c Charter but the phrase about equal access, c o n t r a r y to what became the considered opinion of the Cabinet, stayed in [32] . When the Cabinet re-convened at ten o'clock it had no less than three drafts of article four before it; the Welles/Roosevelt d r a f t as amended by Churchill, the Cabinet's d r a f t of e a r l i e r that m o r n i n g , and a d r a f t put f o r w a r d by Kingsley Wood which was actually K e y n e s ' new d r a f t of the Consideration Agreement which we discussed at the end of the previous chapter. In the meeting Wood d r e w the attention of his colleagues to the f a c t that the problems connected with point four had also arisen in r e l a t i o n to a r t i c l e seven of the M u t u a l Aid A g r e e m e n t . He read an e x t r a c t f r o m a letter by A m e r y , ' w h i c h stressed the importance of not p e r m i t t i n g any doubt as to our r i g h t and 74

The Atlantic Charter and Lend-Lease d e t e r m i n a t i1o n to p u r s u e a policy of inter-Imperial P r e f e r e n c e [ 3 3 ] . Eden also f a v o u r e d a d e f e n s i v e strategy; h e said t h a t t h e r e w o u l d b e g r a v e economic d a n g e r s f o r B r i t a i n a f t e r t h e w a r i f A m e r i c a i n s i s t e d on the abandonment of exchange c o n t r o l s [ 3 4 ] . A f t e r considerable discussion t h e C a b i n e t 1w r o t e t o C h u r c h i l l t h a t t h e y ' g r e a t l y preferred their version of point f o u r , which they had sent him e a r l i e r , subject to the a d d i t i o n a l amendment that the promotion of the g r e a t e s t possible expansion of m a r k e t s should be done with due respect for existing obligations. They wanted a clear distinction to be drawn between trade and raw materials: in the latter case, and this might have b e e n p a r t l y a consequence of the Wheat Talks we shall be looking at s h o r t l y , the Cabinet f a v o u r e d equal t e r m s of access and saw no reason to qualify this by reference to existing obligations. 'We are, h o w e v e r , bound to make this reservation in dealing with trade in order to safeguard Imperial preference and, e.g. to prevent our markets f r o m being undercut by c o u1 n t r i e s with a low s t a n d a r d of l i v i n g l i k e J a p a n . The Cabinet also f e a r e d that "access on equal terms to trade" might be interpreted in t e r m s of 'extreme laissez-faire" which was unacceptable as indeed was anything which might prevent Britain from using exchange c o n t r o l s a f t e r the w a r . Even with Churchill's amendments the Cabinet was still unhappy but at the end of the telegram they conceded that if the Prime Minister had 'great d i f f i c u l t y ' in getting t h e i r proposals accepted then they would accept the American d r a f t subject to his amendments[35]. As we have observed the C a b i n e t ' s a r g u m e n t s were to no avail, but they need to be b o r n e in mind in the context of developments in A n g l o - A m e r i c a n economic policies a f t e r t h e A t l a n t i c C o n f e r e n c e . Point f o u r thus committed America and Britain, with due respect for their existing o b l i g a t i o n s , to the goal of equal access for t r a d e and raw materials. This was not a total v i c t o r y for the B r i t i s h over the S t a t e D e p a r t m e n t but it was good enough for Amery to c o n g r a t u l a t e Wood on, " t h e c o m p a r a t i v e l y innocuous c h a r a c t e r of Points Four and Five in the Joint D e c l a r a t i o n ' [ 3 6 ] . D u n c a n , Wood and the M i n i s t e r W i t h o u t P o r t f o l i o A r t h u r Greenwood w e r e also p l e a s e d b e c a u s e t h e y b e l i e v e d p o i n t f o u r p r o v i d e d a d e f e n c e of Imperial P r e f e r e n c e which could be incorporated into the C o n s i d e r a t i o n Agreement[37]. Once Hull received the text it did not take him l o n g to see the t h r e a t posed by the e c o n o m i c 75

The Atlantic Charter and Lend-Lease p r o v i s i o n s of t h e A t l a n t i c C h a r t e r / a n d a s international economic policy was one of Hull's main concerns and one of the few areas of foreign affairs over which Roosevelt did not take direct command during the w a r , Hull was understandably sensitive about the c h a r t e r ' s f o u r t h and f i f t h points. The a n g e r h e came t o f e e l over t h e i r c o n t e n t w a s f o r t i f i e d by the context in which the charter had been born, for while Hull was politically important because of his influence in Congress and because the right wing of the Democratic Party thought he was a sound moderating influence upon New Deal radicalism, his relationship with the President was cool and f o r m a l and he was often excluded f r o m important decision-making. Roosevelt much p r e f e r r e d to work w i t h his old school f r i e n d Sumner Welles and this caused friction both within the State Department and between Hull and the President. With regard to the A t l a n t i c C o n f e r e n c e H u l l h a d been d e n i e d a n y knowledge of it and more pointedly he had discovered that there had been a directive so denying h i m [ 3 8 ] . T h e f i n a l s t r a w w a s t h a t h i s immediate j u n i o r , Welles, who Hull p e r s o n a l l y and p r o f e s s i o n a l l y d i s l i k e d , had been p r i v y to the preparations, had attended the c o n f e r e n c e and had b o t c h e d up the economic part of the declaration. Rumours at a press c o n f e r e n c e on 14 A u g u s t tended to c o n f i r m H u l l ' s fear that London meant to use point four to defend Imperial P r e f e r e n c e . H u l l was determined that this should not be done. On 18 August he began to work on the P r e s i d e n t ; he sent him the paper by Hawkins of 4 August in which the l a t t e r had p a i n t e d a v i v i d p i c t u r e of the d a n g e r s posed b y B r i t a i n ' s e c o n o m i c c o n t r o l s . Whether Roosevelt read it or not is u n c l e a r but a few days later when Hull pressed upon the President the need to clarify point f o u r he agreed that Hull could send the following to Churchill. The f o u r t h point in the statement by the President and Mr. C h u r c h i l l is a forthright declaration of intention by the B r i t i s h and American Governments to do everything in their power, now and in the post-war period by means of the reduction of t r a d e b a r r i e r s and the r e d u c t i o n or elimination of p r e f e r e n c e s and discriminations, 'to f u r t h e r the enjoyment...etc.'[39]

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This attempt to cut t h r o u g h the e q u i v o c a t i o n of point four was passed on to Eden and Churchill by US Ambassador W i n a n t . The reaction of the B r i t i s h leaders was not h e l p f u l to Hull. There was certainly no inclination in C h u r c h i l l ' s Cabinet to g i v e away w h a t s a f e g u a r d s had been won at the Atlantic C o n f e r e n c e and while the Prime M i n i s t e r believed that there could be, 'no great f u t u r e for the world without a vast b r e a k i n g down of t a r i f f s and other b a r r i e r s ' , he was not prepared to take decisive action at that time, nor was he prepared to countenance B r i t i s h action in the f u t u r e w i t h o u t reciprocal moves f r o m the US and other c o u n t r i e s . He suggested, 'vexatious discriminations as part, of a general scheme to f u r t h e r the enjoyment...etc.' to Kingsley Wood as an alternative which might placate H u l l . Wood, cautious as u s u a l , thought the less sensitive t e r m r e s t r i c t i o n s would be better than discriminations. The Prime Minister agreed and with t h e f u r t h1 e r s u b s t i t u t i o n o f ' h a r m f u l 1 f o r 'vexatious Churchill's re-wording of point four was sent to the State Department via the US Embassy in London[40] . W i n a n t proved to be sympathetic towards Churchill's defensive reply. He told H u l l that he thought C h u r c h i l l f a v o u r e d H u l l ' s re-phrasing but had been prevented from adopting it because of fears about splits w i t h i n the C o n s e r v a t i v e Party if the f u t u r e of Imperial P r e f e r e n c e was placed in q u e s t i o n . This assessment was not entirely accurate. Churchill was worried about splitting his p a r t y but he was also concerned that the methods adopted for i m p l e m e n t i n g a l i b e r a l w o r l d economy should not damage B r i t i s h i n t e r e s t s . Winant also told H u l l t h a t h e h a d been w a r n e d t h a t i f t h e Americans insisted on t h e i r c l a r i f i c a t i o n then it would have to be r e f e r r e d to the Dominions, which w o u l d d e l a y t h i n g s , a n d t h a t i n a n y case t h e Dominions would probably reject it in the end. The threat of complicating t a l k s by involving the Dominions or the claim that the Dominions would not agree was f r e q u e n t l y and i n g e n u o u s l y used by the British. On this occasion Winant was convinced of C h u r c h i l l ' s d i f f i c u l t i e s and he u r g e d Hull not to press matters[41], Churchill's re-wording was of no use to H u l l but he took Winant's advice and dropped the m a t t e r even t h o u g h he and his d e p u t i e s w e r e a p p r e h e n s i v e about the effect point f o u r might have on the Consideration Agreement. T h e r e w e r e two f a c t o r s in a d d i t i o n to point f o u r of the Atlantic C h a r t e r w h i c h each had an 77

The Atlantic Charter and Lend-Leass

impact upon the r e - d r a f t i n g of the d r a f t Consideration Agreement in London. The first factor was the role played by A r t h u r Greenwood, Minister Without Portfolio and a leading light in the Labour P a r t y . In F e b r u a r y 1941 he had been placed in charge of a new committee, which was o f t e n r e f e r r e d to as the Greenwood Committee, to deal with postwar reconstruction policy. In August 1941, he set up a n o n - m i n i s t e r i a l c o u n t e r p a r t 'The Committee on Postwar External Economic Policy and Anglo-American Cooperation 1 [42]. These committees met infrequently and Greenwood has been described as a weak chairman, but u n t i l his exit f r o m the government in February 1941 he was an influential f i g u r e in Anglo-American economic policy-making. This was largely because of the coordinating role he performed by v i r t u e of his s u z e r a i n t y over the economic policy committees. In p a r t i c u l a r , he had a vantage point f r o m which he could see that the position the Americans adopted in the W h e a t T a l k s d u r i n g the s u m m e r of 1941 was d i r e c t l y at odds w i t h the economic principles the State Department had advocated for i n c l u s i o n in point f o u r of the A t l a n t i c C h a r t e r and which were embodied in the A m e r i c a n d r a f t of a r t i c l e seven. The second f a c t o r was the Wheat Talks themselves which require some detailed explanation. The abolition of the Corn Laws in 1846 had made B r i t a i n an open m a r k e t for f o r e i g n g r a i n s and an obvious destination for American wheat. The export of New World cereals b u r g e o n e d at the end of the Nineteenth Century and a steady pattern of trade was established w i t h B r i t a i n . Doubts a b o u t m a s s i v e r e l i a n c e on overseas food supplies emerged in Britain with the U-boat blockade d u r i n g the Great W a r , b u t i t w a s n o t u n t i l t h e D e p r e s s i o n that B r i t a i n moved d r a s t i c a l l y away f r o m a g r i c u l t u r a l f r e e t r a d e w i t h the A g r i c u l t u r a l Marketing Acts of 1931 and 1933, and the W h e a t Act of 1932. The Second World War accelerated this trend and sparked off consideration of long t e r m m e a s u r e s to f o s t e r and expand B r i t i s h a g r i c u l t u r a l p r o d u c t i o n . The f a r m lobby, r u r a l i n t e r e s t s a n d a n i n f l u e n t i a l s e c t i o n of the Conservative P a r t y led by the M i n i s t e r of A g r i c u l t u r e , R. S. H u d s o n , b e g a n to t h i n k in terms of more protection and of subsidies for farmers to lessen the strategic vulnerability of B r i t a i n ' s r e l i a n c e o n i m p o r t e d f o o d s . Given t h e C o n s e r v a t i v e P a r t y ' s dependence o n t h e e l e c t o r a l support of r u r a l Britain such views were politically powerful. In addition to this the T r e a s u r y began to look w i t h f a v o u r on any policy w h i c h would reduce 78

The Atlantic Charter and Lend-Lease B r i t a i n ' s postwar i m p o r t b i l l - g r a i n had been Britain's largest single pre-war import item. The problem with wheat on the American side of the Atlantic was over-production. The depression in the 1930s hit the farming community c r u e l l y . While the i n d u s t r i a l unemployed starved and ranks of farmers left the land, as so v i v i d l y1 portrayed in S t e i n b e c k ' s ' T h e G r a p e s of W r a t h , the corn of Oklahoma stood as high as an e l e p h a n t ' s eye: the problem was that not enough people had the w h e r e w i t h a l to buy i t [ 4 3 ] . European and B r i t i s h moves towards economic nationalism exacerbated the problem o f American a g r i c u l t u r a l s u r p l u s e s a n d p r e s e n t e d t h e N e w D e a l w i t h o n e o f i t s most intractable and politically explosive problems. Henry A. Wallace, born into a farming community in Iowa in 1888, the ' o n e w o r l d i d e a l i s t ' who c a r r i e d t h e r a d i c a l , some c l a i m e d l e f t - w i n g , conscience of the New Deal through to the end of the 1940s, was given the job of s o r t i n g out America's a g r i c u l t u r a l p r o b l e m s b y R o o s e v e l t1. W a l l a c e ' s solution was two-fold; he ' r e t i r e d thousands of acres of marginal farmland by paying f a r m e r s not to p r o d u c e , and secondly he supported H u l l ' s t r a d e p r o g r a m m e i n t h e hope o f r e c o v e r i n g o v e r s e a s m a r k e t s [ 4 4 ] . T h e B r i t i s h w a r t i m e c o n t r o l s which reduced h e r p u r c h a s e s o f A m e r i c a n a g r i c u l t u r a l p r o d u c t s was t h u s a considerable blow to the hopes of the US Department of A g r i c u l t u r e and as we have seen, H u l l was q u i c k to complain on its behalf to the British Government. One r e s u l t of these complaints was the S u p p l e m e n t a r y T r a d e Talks; h o w e v e r , wheat was so important t h a t it m e r i t e d n e g o t i a t i o n s on its own. Before leaving the Department of A g r i c u l t u r e to become R o o s e v e l t ' s r u n n i n g mate in the 1940 election, Wallace began to address the problem of the w o r l d p r o d u c t i o n of and i n t e r n a t i o n a l trade in wheat. He decided that f r e e t r a d e alone was not the s o l u t i o n ; both domestic p r o d u c t i o n a n d m a r k e t s u p p l y o f wheat were t o o important strategically, economically, p h i l a n t h r o p i c a l l y and politically to be left to the vagaries of w e a t h e r , man and the f r e e m a r k e t . He d e v i s e d a p l a n , despite his professed hatred of parochial self-interest, which envisaged a c o n t r o l l e d m a r k e t in the i n t e r e s t s of the US. As Vice P r e s i d e n t he c o n t i n u e d to busy h i m s e l f w i t h economic m a t t e r s and the emergence of the American Wheat P r o p o s a l s i n A u g u s t 1941 h a d h i s s t r o n g b a c k i n g . Some time later, Ronald Campbell, British M i n i s t e r i n W a s h i n g t o n , e x p l a i n e d that W a l l a c e ' s 79

The Atlantic Charter and Lend-Lease commitment to American agriculture combined with his arrogance had led him to f o r m u l a t e the Wheat Proposals in a manner which embodied the kind of economic nationalism he deplored in others, but that unfortunately he could not be made to see this[45]. Claude Wickard, 'Roosevelt's farmer from I n d i a n a 1 , and Wallace's successor at the Department of A g r i c u l t u r e , s h a r e d W a l l a c e ' s c o m m i t m e n t t o promoting American agriculture. One of the pitfalls he and the Vice President wished to a v o i d was a postwar slump in agricultural prices after American farmers had been encouraged to produce more for the war e f f o r t [ 4 6 ] . Thus it was with the objective of establishing prosperous and stable wheat f a r m i n g in the US that the Americans entered into talks in Washington with the other main producers, Argentina, Canada and A u s t r a l i a , and with Britain who was the main buyer of wheat, between 10 July and 3 A u g u s t , 1941. On t h e same d a y t h a t C h u r c h i l l b e g a n h i s j o u r n e y to P l a c e n t i a Bay the f i r s t round of the Wheat Talks was concluded. The British were shocked by the d r a f t p r o p o s a l s w h i c h the US had pushed through the preliminary talks. They knew that they had been d r a w n up in the US Department of Agriculture but they were s u r p r i s e d that the State Department, whose responsibility it was to negotiate with foreign countries, evinced neither e m b a r r a s s m e n t about the proposals, which were to control the wheat trade in America's interests, nor any reluctance about pressing them on the British when in all p r e v i o u s t a l k s they had preached the merits of free trade. The draft which emerged on 3 A u g u s t had some s i m i l a r i t i e s to proposals for the stabilisation of the wheat t r a d e which had been made in 1939 but t h e r e were three unpalatable novelties. Firstly, a m i n i m u m price was to be applied to all wheat p r o d u c t i o n , not to seventy f i v e per cent as had previously been the case. Secondly, the m i n i m u m price was to be raised f r o m 35/6d. to 38/6d. per quarter; this caused apocalyptic visions in London about B r i t a i n ' s international balance of payments. Thirdly, the Americans were suggesting that the onus of e n f o r c i n g the a g r e e m e n t should lie w i t h the importing countries. Not only was Britain to accept a v e n d o r ' s c h a r t e r and reduce her own cereal production, she was also to be obliged to embargo wheat imports f r o m those who did not join the agreement. London feared that acts of embargo would p r o v o k e r e t a l i a t o r y action against British exports 80

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and that the big producers and Britain might appear to be f o i s t i n g an agreement upon the Soviet Union and the major western European i m p o r t e r s and p r o d u c e r s when they were in no p o s i t i o n to contribute to the discussions[47] . The aspect of the agreement which worried and angered British ministers and officials most was the b l a t a n t way it contradicted the much vaunted economic principles of the State D e p a r t m e n t . The suspicion harboured by some ministers and officials, including Wood and Greenwood, that Hull's pursuit of f r e e trade was simply a guise for pursuing American national interests r a t h e r than an a l t r u i s t i c commitment to f r e e t r a d e seemed to be c o n f i r m e d . The State Department appeared s e l f - r i g h t e o u s and hypocritical because as soon as something arose over which it was in America's interests to have economic c o n t r o l s i t i m m e d i a t e l y stopped t a l k i n g about laissez-faire and equal access. This had been borne in mind on the 12 August when the Cabinet cabled C h u r c h i l l that they f a v o u r e d equal access to raw m a t e r i a l s , w h i c h of c o u r s e included w h e a t . On 15 August in a note expressing his v i e w s on the Consideration Agreement, Keynes commented, The d r a f t W h e a t A g r e e m e n t i s a g o o d i l l u s t r a t i o n of the extreme d i f f i c u l t y of strictly interpreting "discrimination" in the post-war w o r l d . On the one hand we are here asked by the U n i t e d States Government to abjure "discrimination". Yet, in the d r a f t Wheat A g r e e m e n t , which they press on us in the same week, we are asked to commit o u r s e l v e s to " d i s c r i m i n a t i o n " in the most extreme form against any country which does not accept the wheat plans of the big f o u r . [48] R. S. Hudson, the Minister of A g r i c u l t u r e , wanted to k n o w w h e r e the quid pro quo lay in the wheat proposals; he was so i n c e n s e d he t h o u g h t t h e y w a r r a n t e d the removal of restrictions on Britain's cereal acreage and as Leith-Ross of the M i n i s t r y of Economic W a r f a r e explained to Winant, 'Hudson even speaks privately of new post-war policy to m a i n t a i n f e r t i l i t y a s ( a ] l o n g range measure of national defense1[49] . In the latter part of August informal Anglo-American talks on wheat w e r e b e g u n in London between Leith-Ross, Lloyd Steere the A g r i c u l t u r a l Attache at the US Embassy, Appleby the US 81

The Atlantic Charter and Lend-Lease U n d e r s e c r e t a r y of A g r i c u l t u r e and R . M . Evans the Director of the US Agricultural Adjustment Agency. It f e l l to Leith-Ross, who was pro-American and one of the few in the B r i t i s h A d m i n i s t r a t i o n who f a v o u r e d the American proposals for long-term price f i x i n g , to explain to Steere that the British G o v e r n m e n t w o u l d n o t accept t h e American price formula and that it disliked the idea of reducing the B r i t i s h wheat a c r e a g e [ 5 0 ] . This news was ill received in Washington where matters were placed in the unsympathetic hands of Assistant Secretary of State B r e c k i n r i d g e Long who was certainly not an Anglophile. On 4 September in a letter on Hull's behalf Long explained the basis of the A m e r i c a n position to W i n a n t . It was a p a i n f u l l y crude exposition of A m e r i c a n s e l f - i n t e r e s t , w h i c h r e f l e c t e d the t h i n k i n g of some members both of the Agriculture Department and of the State D e p a r t m e n t , and it was h a r d l y likely to a f f o r d much assistance to the US negotiators in London in their attempts to present an acceptable case to Britain. Long argued that it was A m e r i c a ' s i n t e n t i o n to r e c o v e r the European wheat m a r k e t it had lost in the 1920s and to charge the European c o u n t r i e s f a i r prices. He went on, It is of c o u r s e in the i n t e r e s t of wheat-exporting c o u n t r i e s that European wheat-importing countries should l e a r n as soon as possible of the new policy which they will at the appropriate time be pressed to adopt. It is before, and not a f t e r , t h e i r u r g e n t postwar n e e d s h a v e been relieved, that they should appreciate the necessity of i n t e r n a t i o n a l collaboration in working out an effective solution of the world wheat problem.[51] As these views filtered into the Foreign Office they fuelled the indignation that was already s m o u l d e r i n g . Nigel Ronald the department's adviser on p o s t w a r economic r e c o n s t r u c t i o n and its representative on Greenwood's committee on external economic policy and A n g l o - A m e r i c a n c o o p e r a t i o n , vitriolically commented on Long's reasoning, This is too much l i k e s e l l i n g o n e ' s b i r t h r i g h t for a mess of pottage. Do not let us a l l o w o u r s e l v e s to be m a n o e v r e d into the position of selling our b i r t h r i g h t for a mess of pottage and g i v e 82

The Atlantic Charter and Lend-Lease way t o o f a r t o meet t h e A m e r i c a n s o n A r t i c l e VII of the D r a f t C o n s i d e r a t i o n Agreement.[52] On 17 September Winant reported to H u l l that the B r i t i s h t h o u g h t that the f o r m a t of the Wheat Proposals might appear as an objectionable diktat to o t h e r c o u n t r i e s , a n d t h a t they d i s l i k e d t h e provisions concerning importing nations. The A m e r i c a n s had dropped their proposals for policing prices, but the B r i t i s h were still supposed to p o l i c e q u o t a s . W i n a n t w e n t on to say that the British were frightened that exchange d i f f i c u l t i e s would arise, that they objected to the price formula and the proposed r e d u c t i o n of w h e a t a c r e a g e in i m p o r t i n g c o u n t r i e s and t h a t they regarded t h e absence of the Soviet Union f r o m the t a l k s as a m a j o r p r o b l e m [ 5 3 ] . On the same day Winant, still surprisingly optimistic that a settlement could be reached, sent a letter to Eden urging the necessity of reaching an accord, but r a t h e r i m p r u d e n t l y he also passed on verbatim some of Breckinridge Long's a r g u m e n t s [ 5 4 ] . These had a l r e a d y caused v i o l e n t r e a c t i o n s in London and when they were f o r m a l l y communicated to Eden they provided the p r e t e x t for taking the wheat issue to the highest level. In a telegram on 8 October C h u r c h i l l w r o t e to Roosevelt that, The d r a f t seems to give the i m p r e s s i o n that it is contemplated to f o r c e on the wheat importing countries of E u r o p e , as a condition of immediate post-war relief, a series of obligations including a d r a s t i c r e s t r i c t i o n o f t h e i r wheat p r o d u c t i o n , which would vitally affect their agricultural systems.[55] Churchill said that he thought the propaganda effect of the p r o p o s a l s w o u l d be h a r m f u l and that the Soviet Union should be a party to any agreement that was to be made but t h a t , given her delicate strategic situation, he thought it would be unwise to distract her with the Wheat Proposals. The Prime Minister wanted to emasculate the American proposals, allowing only anodyne provisions for 'an ever normal g r a n a r y ' , a relief pool and export quota a r r a n g e m e n t s among t h e b i g f o u r p r o d u c e r s t o g o f o r w a r d . Even after this Winant continued to place the most f a v o u r a b l e c o n s t r u c t i o n p o s s i b l e on the British position. Just b e f o r e the b e g i n n i n g of the 83

The Atlantic Charter and Lend-Lease second r o u n d of the Wheat Talks in Washington, Winant wrote to Hull on 12 October that, In a v e r y f r a n k talk with the Prime Minister he told me that the wheat problem as it a f f e c t e d Great B r i t a i n was not a matter of concern to him and I believe he is in a g r e e m e n t with us on our general proposals.[56] This was s o m e w h a t at odds with the tone and substance o f C h u r c h i l l ' s l e t t e r t o R o o s e v e l t . Perhaps Winant had misunderstood Churchill or maybe the Prime Minister had not been entirely candid with him; whatever the case may have been Winant misread the situation. He knew that the o r i g i n a l reaction of the B r i t i s h to the W h e a t Proposals had been caustic but he believed that the t a l k s in London b e t w e e n Leith-Ross and Appleby had done much to dilute the corrosive effect on Anglo-American r e l a t i o n s . There was some t r u t h in this but much ill feeling and substantial d i f f e r e n c e s r e m a i n e d . Winant, however, continued, almost to the point of perversity, to construe the atmosphere in London in the Consideration as well as the Wheat Talks as more favourable to American demands than was actually the case. In so d o i n g , he c o m m u n i c a t e d a very misleading impression to Washington. The W h e a t Talks jaundiced B r i t i s h views of American economic plans at the v e r y time that the review of the American July d r a f t of article seven got u n d e r way in L o n d o n . A n u m b e r of B r i t i s h m i n i s t e r s and officials perceived the inconsistency in American economic demands as a symptom both of bad f a i t h and e n t r e p r e n e u r i a l a v a r i c e . There was widespread determination, bolstered by what was seen as a v i c t o r y at the A t l a n t i c C o n f e r e n c e , not to exchange B r i t a i n ' s economic f u t u r e for a 'mess of pottage 1 . Contrary to the reports that Winant later gave W a s h i n g t o n t h a t a r t i c l e seven w a s b e i n g reviewed at lowly b u r e a u c r a t i c levels by anti-American officials, it was dealt with by senior m i n i s t e r s i n c l u d i n g Wood and Greenwood, who were members of the War C a b i n e t , as well as by A m e r y , Duncan, Cranborne, Moyne and Dalton the Minister of Economic W a r f a r e [ 5 7 ] . In addition Churchill, Attlee and Eden were all involved directly at various times and also tangentially during Cabinet discussions and in correspondence about identical matters raised by point f o u r of the A t l a n t i c C h a r t e r . Winant contributed f u r t h e r to the State Department's 84

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misperceptions by suggesting that it was only the a r c h - T o r i e s - v i r t u a l l y i m p e r i a l i s t s as he once i n d i g n a n t l y r e f e r r e d to them - who were opposing A m e r i c a n d e m a n d s . On a n u m b e r of occasions he reported favourably about C h u r c h i l l ' s a t t i t u d e s on the C o n s i d e r a t i o n and Wheat Talks and he advised Washington that the Labour P a r t y would u n a n i m o u s l y support a r t i c l e seven whereas in f a c t many in the p a r t y w e r e opposed t o i t , p a r t i c u l a r l y A r t h u r Greenwood being one of the focal p o i n t s of ministerial opposition[58] . We may r e c a l l that on his r e t u r n to London Keynes had proposed an a l t e r n a t i v e to the American July d r a f t of article seven. They shall p r o v i d e for j o i n t and agreed a c t i o n b y t h e U . S . a n d t h e U . K . , each working within the limits of their governing economic conditions, directed to the progressive attainment of a balanced i n t e r n a t i o n a l economy which would render unnecessary policies of discrimination and other impediments to the freedom of trade. This was the starting point for B r i t a i n ' s response to the S t a t e D e p a r t m e n t . It was f o l l o w e d by a constellation of factors, to wit: point four of the Atlantic Charter, Churchill's refusal to be moved by H u l l ' s plea f o r a m o r e f o r t h r i g h t s t a t e m e n t o n economic policy, and American proposals for a wheat agreement, all of which conspired to s t e n g t h e n the d e f e n s i v e stance the British Government was already inclined to take on article seven. During the latter part of August Greenwood, who had t a k e n c h a r g e of and c o o r d i n a t e d w o r k on the r e - d r a f t of a r t i c l e seven, accepted a number of s a f e g u a r d s for B r i t a i n ' s economic i n t e r e s t s . By 8 S e p t e m b e r A m e r y had got the caveat c o n c e r n i n g respect for existing obligations, culled f r o m point f o u r o f t h e A t l a n t i c C h a r t e r , added t o t h e n e w d r a f t . A query from Cranborne about the phrase 'avoidance of special d i s c r i m i n a t i o n s ' which was already a more anodyne r e - p h r a s i n g of K e y n e s ' v e r s i o n , resulted in the word discrimination being deleted a l t o g e t h e r [ 5 9 ] . The substance of a r t i c l e seven now read as follows, they shall p r o v i d e f o r j o i n t a n d agreed a c t i o n by the Government of the U n i t e d States and the G o v e r n m e n t of the U n i t e d K i n g d o m , (each w o r k i n g within t h e limits 85

The Atlantic Charter and Lend-Lease of their governing economic conditions and existing obligations/established policies) directed to the progressive attainment of a balanced international economy and the enjoyment by all States,...etc.[60] It went on to repeat the text of points four and five of the Atlantic Charter and ended with the commitment that the two countries should begin talks as soon as convenient to implement the aims of article seven. This version was considered by the Foreign Office and its legal advisers in early September and Nigel Ronald explained the conclusions in a lengthy memorandum which he sent to Mr. Daish of the War Cabinet Offices, with copies to the Treasury, the Board of Trade and the Dominion and Colonial offices. The main problem that the Foreign Office identified in article seven arose from the attempt to safeguard three things for Britain: the right to use exchange controls and other measures of trade regulation, the right to take protective measures against cheap goods from countries with lower standards of living, and Imperial Preference. The Foreign Office believed that points four and five of the Atlantic Charter, so long as discrimination was not involved, achieved the first two objectives and therefore there was no point in reproducing their text in article seven. On the third objective, the department thought that the phrases in parentheses were too broad and as their main purpose was to protect Imperial Preference Ronald suggested it would be better either to include an explicit phrase to that effect in article seven or else, and here he put forward a proposal which was eagerly taken up later, the British and Americans could informally minute or agree that article seven was not intended to exclude the use of Imperial Preference[61]. This sparked off a further round of amendments centring on the discrimination issue, the upshot of which was1 a new draft which in some ways returned to Keynes version of early August. Keynes was against the line argued by Amery in particular that Britain should just repeat points four and five of the Atlantic Charter in article seven. He correctly pointed out that as the commitments in points four and five had already been given they could not provide a quid pro quo for Lend-Lease. Keynes wanted Britain to be more forthcoming; he noted in a letter to Richard Hopkins, Second Secretary in the Treasury, and Lord Catto, financial adviser to Wood, 86

The Atlantic Charter and Lend-Lease

that the A m e r i c a n s had many o t h e r ways of pressurising the British on economic policies and it was best not to antagonise them in the Consideration Agreement[62]. Keynes 1 hopes were partly f u l f i l l e d ; t h e n e w d r a f t , i n accordance w i t h F o r e i g n O f f i c e a r g u m e n t s , d r o p p e d A m e r y ' s amendment c o n c e r n i n g 'existing obligations' and now simply r e f e r r e d to the Atlantic Charter rather than repeating its text. The d r a f t also went some way t o w a r d s accommodating the American d e s i r e for t a l k s on postwar economic policy by stipulating that the date for talks should not j u s t be 'as soon as convenient', which was the phrase used i n t h e G r e e n w o o d d r a f t o f e a r l y September, but that they should be held at an early convenient date. Finally, the t e r m d i s c r i m i n a t i o n was r e - i n c o r p o r a t e d into the d r a f t and a f t e r c o n s i d e r a b l e debate o v e r how it s h o u l d be used Churchill himself settled the matter by adopting the same wording he had offered Hull in clarification of point f o u r of the A t l a n t i c Charter; ' h a r m f u l ' was now to prefix discrimination[63]. By late September the following d r a f t had been approved by Churchill. The terms and c o n d i t i o n s upon w h i c h the Government of the United Kingdom receives defence aid from the Government of the U n i t e d States of America and the benefits to be received by the U n i t e d S t a t e s of America in return therefor, as finally determined, shall be such as not to burden commerce between the two countries, but to promote m u t u a l l y a d v a n t a g e o u s e c o n o m i c r e l a t i o n s b e t w e e n them; they shall provide for joint and agreed action by the United States and the United Kingdom, each working within the limits of their governing economic conditions, directed to s e c u r i n g as part of a g e n e r a l p l a n the progressive attainment of balanced international economics, the avoidance of h a r m f u l discriminations and generally the economic objectives set forth in the joint D e c l a r a t i o n made by the President of the U n i t e d States of A m e r i c a and the P r i m e M i n i s t e r of the United Kingdom on August 12, 1941. And f u r t h e r m o r e it is agreed that at an e a r l y c o n v e n i e n t date c o n v e r s a t i o n s should be begun between the two Governments with a view to d i s c u s s i n g the best means of attaining the above objects 87

The Atlantic Charter and Lend-Lease and g e n e r a l l y t h e b e t t e r o r d e r i n g of economic intercourse between nations in f u t u r e conditions of settled peace. [64] It had taken the B r i t i s h over two months to produce what they considered to be s a t i s f a c t o r y c o u n t e r - p r o p o s a l s on a r t i c l e seven for the Americans. The Consideration Talks were now renewed in Washington and they coincided and interacted with the second round of the Wheat Talks . The atmosphere in Anglo-American economic relations soon began to d e t e r i o r a t e a s i t became c l e a r t h a t t h e S t a t e D e p a r t m e n t w o u l d n o t accept t h e s a f e g u a r d s t h e British had woven into article seven, and that the B r i t i s h would not accept the American proposals on wheat. A double impasse loomed l a r g e upon the horizon. NOTES

1. For background and accounts of the Atlantic C o n f e r e n c e see, T. A. W i l s o n , Ui£_Eij:s.t_Su.mjDiti Roosevelt and Churchill at Placentia Bay 1941

(Houghton M i f f l i n , Boston, 1 9 6 9 ) , H . V . M o r t o n , Atlantic Meeting (Methuen, London, 1943), and A. P. Dobson, 'Economic D i p l o m a c y at the A t l a n t i c C o n f e r e n c e 1 , Review of International Studies, 10, 2 (April 1984), pp. 143-163. 2. Quoted f r o m an a r t i c l e on Hopkins by G. T. Hellman in Hopkins Papers, box 338. 3. Wilson, First Summit, p. 151, Bridges memo. t o C h u r c h i l l , 3 1 J u l y 1941, A 6 9 4 2 / 1 8 / 4 5 , F0371/26151; F. J. Merli and T. A. Wilson ( E d . ) , The Makers of American Diplomacy ( S c r i b n e r s , New Y o r k , 1974) , T. A. Wilson and R. D. McKinzie, 'Franklin D. Roosevelt a n d t h e C o n d u c t o f A m e r i c a n F o r e i g n Policy', p. 483. 4. For extracts f r o m the text of E d e n ' s M a n s i o n H o u s e Speech see, L. B r o a d , Eden i_ The. Chronicles of a Career ( H u t c h i n s o n , London, 1955), pp. 154-155. 5. Pasvolsky m e m o , to H u l l , 7 J u n e 1941, 840.50/232J. 6. Berle to Roosevelt and his reply 21 and 26 June 1941, Roosevelt PSF, box 90. 7. Berle to H o p k i n s , 7 July 1941, Berle to W e l l e s 7 and 8 J u l y 1941, B e r l e to R o o s e v e l t 8 and 9 July, 1941, Berle P a p e r s , box 54, f o l d e r : Allied Commitments for Postwar Settlements June to November 1941.

88

The Atlantic Charter and Lend-Lease

8. W. F. Kimball, Churchill and Roosevelt; The CQJDEl£t£_£aj:i.£SEfind£n£fi.» 3 V o l s . ( P r i n c e t o n U n i v e r s i t y P r e s s , New J e r s e y , 1 9 8 4 ) , Vol.1, p.221 Roosevelt to Churchill, 14 July 1941. 9. Editorial comment, ibid, p.227. 10. S. Welles, Where Are We Heading? ( H a r p e r Bros. New York, 1946), p.6. 11. E. Roosevelt, A s , H e Saw It ( D u e l l , Sloan and Pearce, New Y o r k , 1946), p.24. 12. H. Nicolson pj.arj.es and L e t t e r s 1939-45 (Collins, London, 1968), pp.143-144. 13. J. B r a n d e s , H e r b e r t Hoover apd Ecpnomic piplomacy (University of Pittsburg Press, New Y o r k , 1962) , pp.84-87. 14. D. Dilks ( E d . ) The Diaries of Sir Alexander Cadogan 1938-45 (Putnams, New Y o r k , 1972), editorial note, p.397. 15. Ibid pp.430-31, and memo, of c o n v e r s a t i o n between Welles and Cadogan, 9 A u g . 1941, 740.0011 European War 1939/14007.2. Some a u t h o r s h a v e mistakenly claimed that Welles took a prepared d r a f t of a joint d e c l a r a t i o n to the A t l a n t i c C o n f e r e n c e w h i c h suggests that more t h o u g h t and p r e p a r a t i o n went i n t o t h e d r a f t t h a n i s s u g g e s t e d i n t h i s n a r r a t i v e , see, R o o s e v e l t A.£_fl£_S_aw._It, p . 3 9 , W i l s o n , F_i_r_s£_S_ummit, and W. L. Langer and S. E. Gleason, The Undeclared War (Harper Row, New Y o r k , 1968) . N o t h i n g apart f r o m a r t i c l e seven of the d r a f t M u t u a l Aid A g r e e m e n t is mentioned in the documents and W. M. F r a n k l i n who has had access to W e l l e s 1 papers wrote to the a u t h o r , 'In response to your letter of June 7, I can say that I did not find in the papers of Sumner W e l l e s any d r a f t of joint principles which he might have prepared and taken to the Atlantic Conference of 1941' F r a n k l i n to Dobson, 16 June 1982 with permission to cite. 16. W. S. Churchill History of the Second World Ha_tj._TJi£_Cxaj3d_Alliaiice ( C a s s e l l , L o n d o n , 1 9 4 8 ) , p.386. 17. Welles, Ebejr£_Aj:£_jj£_H£adiii3? p.9. 18. Roosevelt, As He Saw It. pp.35-37. 19. Welles, Where Are We Heading? pp.10-11. 20. C h u r c h i l l memo, to War C a b i n e t , 20 A u g .

1941, WP{41)202, CAB 66, Churchill, Giajjd_Allianc.fi, pp.387-388, Welles, where.Are We Heading, p.13.

21. C h u r c h i l l to A t t l e e , Tudor 15, 11 A u g . 1941, W P ( 4 1 ) 2 0 3 , CAB 66. Telegrams during the Atlantic C o n f e r e n c e w e r e code-named T u d o r and Abbey respectively from C h u r c h i l l to the Cabinet and f r o m the Cabinet to Churchill.

89

The Atlantic Charter and Lend-Lease

22. Memo, of conversation between Roosevelt, C h u r c h i l l , Welles, Cadogan and H o p k i n s , 11 A u g . 1941, 740.0011 European War 1939/14007.6. 23. Welles, Where Are We Heading? p.15. 24. Ibid, p.15. 25. Ibid, p.16. 26. Memo, of conversation between Welles and C a d o g a n , 11 A u g . 1941, 7 4 0 . 0 0 1 1 E u r o p e a n War 1939/14007.8. 27. Churchill, Grand Alliance, pp.443-444. 28. Memo, of c o n v e r s a t i o n between Welles and C a d o g a n , 1 1 A u g . 1941, 7 4 0 . 0 0 1 1 E u r o p e a n W a r 1939/14007.8. 29. Attlee to C h u r c h i l l , Abbey 31, 11 Aug. 1941, WP(41)203 CAB 66.202. 30. Ibid. 31. C h u r c h i l l to Attlee, Tudor 20, 12 A u g . 1941, i b i d . For d e t a i l s of the c i r c u m s t a n t i a l e v i d e n c e s e e D o b s o n , Ecanfiffiic. Diplomacy, pp.158-161. 32. Churchill to Attlee, Tudor 23, 12 Aug. 1941, WP(41)203, CAB 66. 33. War Cabinet, 12 Aug. 1941, WM81/41, CAB 65. 34. Ibid. 35. Attlee to C h u r c h i l l , Abbey 35, 12 Aug. 1941, WP(41)203 CAB 66. 36. A m e r y to W o o d , 18 A u g . 1941, T160/1105/F17660/02/1. 37. Duncan to Wood, 19 Aug. 1941 and Greenwood to Wood, 22 Aug. 1941, ibid. 38. B r e c k i n r i d g e Long Desk D i a r y , 31 Aug. 1941, Library of Congress, Long P a p e r s , box 5. 39. Hull to Roosevelt, 23 Aug. 1941, Roosevelt P S F , b o x 2 , f o l d e r : A t l a n t i c C h a r t e r . Hull t o Roosevelt 18 August 1941, Roosevelt PSF, box 90, f o l d e r : S t a t e Department 1941. Hull to W i n a n t , 25 Aug. 1941, 740.0011 European War 1939/14454. 40. C h u r c h i l l to Wood and his reply, 28 and 29 August 1941, W10659/426/49, F0371/28805. 41. W i n a n t to H u l l , 1 Sept. 1941, 740.0011 European War 1939/14570. 42. M i n u t e s , 24 Feb. 1941, RP(41) CAB 87, and notes, 8 Aug. 1941, W9915/426/49, F0371/28903. 43. The a u t h o r is indebted to Professor David Adams for the contrasting images of American a g r i c u l t u r e painted by 'Oklahoma' and Steinbeck. 44. For Wallace's views on foreign policy see, J. S. Walker, Henry A. Wallace and American Foreign Policy (Greenwood Press, Connecticut, 1976). 90

The Atlantic Charter and Lend-Lease

45. Campbell to S a r g e n t , 1 A p r i l 1 9 4 2 , W5914/19/49, F0371/32413. 46. W i c k a r d ' s statement 23 Sept. 1941, Hearings b e f o r e House Sub-committee of Appropriations C o m m i t t e e , Lend-Lease: q u o t e d i n D . A l b e r t s o n , BQQseyelt's F a r m e r ; Claude^R^WisJtard in the^Hea D£fll (Columbia U n i v e r s i t y P r e s s , New Y o r k , 1961), p.235. 47. R. J. Hammond, History of the Secpng. World War,, U . K . Civil Series.. Food I (HMSO and Longmans Green, London, 1951), p.351. 48. K e y n e s to Sir H. W i l s o n , 15 A u g . 1941, T160/1105/F17660/02/1. 49. Winant to Hull, 23 Aug. 1941, 102.78/2959. 50. F. Leith-Ross, Honey Talks; F i f t y Years of

Iniej:DfltiQoaJ,_EiDanc£^

Ibfi_AutfliaiQaxapby_Ql_£ii

Frederick Leith-Ross ( H u t c h i n s o n , L o n d o n , 1 9 6 8 ) , pp.290-292. W i n a n t t o H u l l , 2 3 A u g . 1941, 102.78/2959. 51. B r e c k i n r i d g e Long ( f o r Secretary of State) t o W i n a n t , 4 S e p t . 1941, 561.311 F l a d v i s o r y committee/1033b. For Long's views on Britain see, Long Desk D i a r y , 4 M a r c h and 29 J a n . 1 9 4 2 , L o n g Papers, box 5. 52. M i n u t e s by N. B. R o n a l d , 29 Sept. 1941, W10969/37/49, F0371/28806. The contradiction in the State Department p o s i t i o n did not go u n n o t i c e d in the Board of T r a d e : see Willis to Holland, 6 Sept. 1941, w h e r e it is noted t h a t the proposal that B r i t a i n police the Wheat A g r e e m e n t could c o n f l i c t w i t h the idea of f r e e access to p r i m a r y products. P u b l i c Record O f f i c e , Board o f T r a d e records, BT11/1733/CRT10071/41. 5 3 . W i n a n t to H u l l , 17 Sept. 1941, 561.311 Fl a d v i s o r y committee/1935. On 15 Sept. Leith-Ross indicated his willingness to accept British policing of export quotas but others higher in the government i.e. Wood and Greenwood, d i s a g r e e d , Leith Ross to Willis, 15 Sept. 1941, BT11/1733/CRT10071/41. 54. See W i n a n t to H u l l , 12 Oct. 1941, 561.311 Fl advisory committee/1049. 55. C h u r c h i l l t o R o o s e v e l t , 8 O c t . 1941, 561.311 Fl advisory committee/1055. 56. W i n a n t to H u l l , 12 Oct. 1941, 561.311 Fl advisory committee/1049. 57. Winant to Hull and Acheson, 16 Nov. 1941, 841.24/1002. 58. Winant to H u l l , 29 Sept. 1941, 841.24/814. 59. A m e r y t o G r e e n w o o d , 2 7 A u g . 1941 a n d C r a n b o r n e to G r e e n w o o d , 7 Sept. 1941, b o t h at W10480/37/49, F0371/28805. 91

The Atlantic Charter and Lend-Lease

60. Attached to, Ronald to Daish, 8 Sept. 1941, ibid. 61. Ibid. 62. Keynes to Hopkins and Catto, 27 Aug. 1941, T160/1105/F17660/02/1. 63. See margin note in Smith to B u t l e r , 26 Sept. 1941, W11797/37/49, F0371/28808. 64. Ibid.

92

Chapter Four THE WHEAT TALKS AND THE MUTUAL AID AGREEMENT

In late September Winant was finally able to tell an impatient State Department that details of a new British draft of article seven had been sent to Halifax for informal discussion and that Redvers Opie, who was a member of Halifax's staff and who was in London at that time, was shortly to take the full text to Washington. Winant was now less sympathetic towards British prevarication than he had been when Hull had sought clarification of point four of the Atlantic Charter and he reported to Hull that, 'contrary to the advice of September 1, ...I believe we should insist on articles [of the Mutual Aid Agreement] including the provision against discrimination'[1] . He thought that the political climate was now more conducive to the success of article seven and wrote that if the matter came up in Parliament the majority of the Conservatives, the Liberals and the entire Labour bloc would vote for it. Winant conveyed the misleading impression that only the Tory imperialists were opposed to article seven; his failure to discern any opposition to it from the Labour Party is probably attributable to a doctrinal reluctance to do so. He had been posted to London with the possibility in mind that the Labour Party might succeed to power, and Breckinridge Long described him as,'an intense, melodramatic theorist with a philosophy embedded in humanitarianism and directed by sympathy for labor' (epithets used by Cadogan were less charitable: 'inaudible1, 'spineless', 'ass')[2]. In addition to the rose-tinted view he had of the Labour Party Winant also failed to discern how the Wheat Talks had soured the attitudes of men like Greenwood, Ronald and Wood who were key decision-makers in the Consideration Talks. In the light of all this and the B r i t i s h success at the Atlantic Conference

93

The Wheat Talks and the Mutual Aid Agreement Winant's assessment of the situation in London seems singularly unapt. The growing misperceptions in Washington were strengthened by H a l i f a x who told Acheson a f t e r a brief trip to London that Churchill had said that an e c o n o m i c a c c o r d w i t h the US was second only in importance t o w i n n i n g t h e w a r [ 3 ] . T h e m i s t a k e H a l i f a x a n d W i n a n t m a d e w a s t o i n f e r that such statements meant Churchill was prepared to capitulate to American economic demands. On 3 October H a l i f a x o u t l i n e d the B r i t i s h r e - d r a f t of a r t i c l e seven to Acheson. He pointed out that the B r i t i s h were now p r e p a r e d to e n t e r talks as soon as possible to implement its aims, and he mentioned Keynes a m o n g o t h e r s as a p o s s i b l e negotiator; also, he explained that Keynes and Wood t h o u g h t t h a t '1h a r m f u l 1 s h o u l d q u a l i f y ' d i s c r i m i n a t i o n . Acheson did not object to early talks (he had suggested this himself in July with the idea of a joint Anglo-American commission), but he dryly commented that a h a r m f u l r e s t r i c t i o n was, ' u s u a l l y a r e s t r i c t i o n w h i c h s o m e b o d y else proposed 1 [4]. Disappointment w i t h the British proposals was mitigated by Halifax who e n c o u r a g e d members of the State Department to believe that they could still achieve an agreement which would be s a t i s f a c t o r y to them. On 9 October he told Welles that while there was a split in the British Cabinet over the c u r r e n t d r a f t o f a r t i c l e seven s t r o n g o p p o s i t i o n w a s restricted to extreme Tory elements, i . e . i m p e r i a l i s t s . This misleading information was added to when Halifax claimed t h a t , ' M r . C h u r c h i l l s t r o n g l y supported the position taken by this [i.e. the US] Government 1 [5]. Even b e f o r e Opie arrived from London with the f u l l text of the B r i t i s h proposals A c h e s o n ' s drafting committee, which consisted of Hawkins, Feis and John H i c k e r s o n of the d e p a r t m e n t ' s E u r o p e a n Division, was set to w o r k to strengthen the State Department's case. Hawkins was q u i c k off the m a r k but he m i s c o n s t r u e d H a l i f a x ' s comment that Keynes might negotiate the impelementation of article seven to mean that he might p a r t i c i p a t e in the c u r r e n t discussions over its content. He w r o t e to Acheson t h a t , ' i f M r . K e y n e s h i m s e l f comes, I t h i n k i t highly unlikely that we will ever be able to reach an a g r e e m e n t on a d r a f t . . . ' [ 6 ] . The misunderstanding is t r i v i a l but it throws light on a cast of m i n d e x i s t i n g in the State Department that viewed opposition to A m e r i c a n proposals as coming 94

The Wheat Talks and the Mutual Aid Agreement m a i n l y f r o m i m p e r i a l i s t s and oddballs such as Keynes. Hawkins thought that if a r t i c l e seven was submitted to the highest government circle in London that it would by-pass its opposition and p r o v i d e a r a l l y i n g point f o r high r a n k i n g B r i t i s h liberals. Hawkins had got it almost entirely wrong. Sympathy towards the aims of a r t i c l e seven was to be found most at the lower bureaucratic and political levels, i.e. Halifax and his s t a f f , Richard Law the Parliamentary Undersecretary for Foreign A f f a i r s , the North A m e r i c a n D e p a r t m e n t o f t h e Foreign O f f i c e , a n d officials of the Economic Section of the War Cabinet S e c r e t a 1r i a t , o f t h e B o a r d o f T r a d e , a n d o f 'S Branch which Cherwell had helped to set up to advise Churchill on scientific and economic matters. F u r t h e r m o r e , it was not just Imperial P r e f e r e n c e that occasioned opposition to American policy; the majority of ministers in London were also concerned that the prohibition of discrimination would prevent Britain from using exchange controls to help salvage her economic fortunes after the w a r . Hawkins produced a new version of article seven on 10 October which was intended to strengthen the American b a r g a i n i n g position in the S u p p l e m e n t a r y Trade Talks which were still teetering along and to get Britain committed to the abandonment of b i l a t e r a l i s t economic policies. He wanted Britain to eliminate Imperial Preference and join the US in r e d u c i n g t a r i f f s . The two countries, he suggested, should commit themselves to e a r l y t a l k s to achieve these o b j e c t i v e s [ 7 ] . Thus by the time Opie arrived in Washington with the new British d r a f t the Americans were already revising it. Halifax and Opie handed the d r a f t to Acheson on 17 October; they explained that the Prime Minister wanted an agreement but that he was w o r r i e d about domestic p o l i t i c a l problems if Imperial Preference was discarded without a viable alternative economic strategy on the table to help Britain. According to the official record Acheson and Hawkins simply took the proposals saying that they would have to take the matter up both with Hull and possibly w i t h the President. H a l i f a x reported to London that A c h e s o n ' s i n i t i a l r e a c t i o n seemed ' O K 1 t h o u g h he w a n t e d t1o r e s e r v e h i s p o s i t i o n o n t h e w o r d ' h a r m f u l . I n A c h e s o n ' s memoirs m o r e c o l o u r f u l r e a c t i o n s are r e c o r d e d , though the account is also slightly confused as the a u t h o r has c o n f l a t e d the two m e e t i n g s w i t h H a l i f a x of 3 and 17 October into one event. 95

The Wheat Talks and the Mutual Aid Agreement A g l a n c e was e n o u g h to s h o w t h a t the i n s e r t i o n o f some s l i p p e r y w o r d s a n d p h r a s e s h a d r o b b e d of a l l meaning o u r prohibition of d i s c r i m i n a t i o n . .. Instead , their proposed settlement would commit the two c o u n t r i e s "each w o r k i n g w i t h i n t h e l i m i t s of t h e i r g o v e r n i n g economic conditions [an escape clause l a r g e enough for a Sherman t a n k ] . . . t o securing as part of a g e n e r a l plan [ t h a t is, B r i t i s h obligations in return for lend-lease to be conditioned upon, say, L a t i n A m e r i c a ' s accepting the same] the progressive attainment of a balanced i n t e r n a t i o n a l e c o n o m y , [ h e r e w e r e t w o Humpty Dumpty words which could mean whatever one wished t h e m to m e a n ] the avoidance of h a r m f u l discriminations, [harmful d i s c r i m i n a t i o n s I said to H a l i f a x , are always the other f e l l o w ' s d i s c r i m i n a t i o n s never o n e ' s own]..."[8] A c h e s o n ' s d r a f t i n g committee r e n e w e d t h e i r e f f o r t s and again H a w k i n s proved industrious. He tried his hand at a formula which would extract from B r i t a i n a c o m m i t m e n t to the a b a n d o n m e n t of discriminatory policies w i t h o u t causing her p o l i t i c a l e m b a r r a s s m e n t by mentioning Imperial Preference. He proposed the f o l l o w i n g a l t e r a t i o n s1 to the British d r a f t : delete ' j o i n t a n d a g r e e d because there might be agreed action w h i c h was not joint; o m i t "each w o r k i n g w i t h i n t h e l i m i t s o f their governing economic conditions' because it was too s i m i l a r to point f o u r of the Atlantic Charter; omit "as part of a g e n e r a l p l a n ' because it could provide a let-out clause 1 if no general plan emerged; and delete ' h a r m f u l . He suggested that embarrassment in London could be avoided by omitting references to Imperial P r e f e r e n c e , but the B r i t i s h should be told plainly that its abolition was intended by article seven and in order to avoid any subsequent misunderstanding the two countries could exchange c o n f i d e n t i a l notes of i n t e r p r e t a t i o n [ 9 ] . We may recall that an identical procedure had been proposed b y Ronald t h o u g h h i s i n t e n t i o n w a s t o e x c l u d e I m p e r i a l P r e f e r e n c e f r o m a r t i c l e seven altogether. Adolf B e r l e d e c l a r e d H a w k i n s 1 re-draft to be ' t h e best y e t " a n d only added t h a t ' l i k e m i n d e d governments' should be invited to participate in the t a l k s t o implement i t s o b j e c t i v e s . H e r b e r t Feis 96

The Wheat Talks and the Mutual Aid Agreement raised the solitary voice of dissent in the department, but he was not influential. He was Jewish and had mixed in radical circles while at the London School of Economics in 1919; thus he was unhappy about Hull's pro-Vichy policy, the lack of concern among his colleagues for the plight of European Jewry and about his department's attempts to force the British Empire into economic policies it was clearly reluctant to adopt. Acheson, when Feis put the last point to him, brushed it aside remarking that the Dominions would fall in line with American policy because of their growing dependence on the US for defence[10] . On 16 November Winant again advised the State Department to persist with their economic objectives and he reinforced the impression that opposition to American demands in London was located in small pockets and generally at junior levels. "The Secretary of State should know 1 he wrote, 'that future US-UK economic relations are being left to ranking civil servants and government economic advisers...excepting for intermittent references in the Cabinet to the wheat agreement' [11] . He added that it was a good time to press the British because of their favourable reaction to the recent repeal of the remnants of the US Neutrality Law. Acheson and his drafting committee were now coming to the end of their work despite many time-consuming distractions caused by the growing crisis with Japan. After the re-draft had been approved by the v a r i o u s interested parties in Washington, including the Lend-Lease Administration, Hull sent it to Roosevelt with the comments that it simply put into effect instructions the President had given Acheson in July, though as we have seen the State Department had construed them rather liberally. The President nevertheless approved the new draft, and thus ensured that a critical phase in the negotiations with the British was about to be embarked upon[12]. On 2 December Acheson and Feis gave their new draft of article seven to Halifax. It read as follows, In the final determination of the benefits to be provided to the United States of America by the Government of the United Kingdom in return for aid furnished under the Act of Congress of March 11, 1941, the terms and conditions thereof shall be such as not to burden commerce between the two 97

The Wheat Talks and the Mutual Aid Agreement countries, but to promote mutually advantageous economic r e l a t i o n s between t h e m and the b e t t e r m e n t of world-wide economic r e l a t i o n s . To t h a t e n d , t h e y shall i n c l u d e provision for agreed action by the United States of A m e r i c a and the United K i n g d o m , open to participation by all other countries of like mind, directed to the expansion, by a p p r o p r i a t e i n t e r n a t i o n a l and domestic m e a s u r e s of p r o d u c t i o n , employment, and the exchange and consumption of goods, which are the m a t e r i a l f o u n d a t i o n s of the l i b e r t y and the welfare of all peoples; to the elimination of all forms of discriminatory treatment in international commerce, and t o t h e r e d u c t i o n o f t a r i f f s a n d other t r a d e b a r r i e r s ; and, in objectives set f o r t h in the Joint D e c l a r a t i o n made on August 14, 1941, by the P r e s i d e n t of the U n i t e d S t a t e s of America and the P r i m e Minister of the United Kingdom. At an e a r l y c o n v e n i e n t d a t e , conversations shall be begun between the two Governments with a view to determining in the light of g o v e r n i n g economic c o n d i t i o n s , the best means of a t t a i n i n g the above stated o b j e c t i v e s by t h e i r own agreed action and of seeking the agreed action of other like minded Governments.[13 ] The Americans had made some cosmetic a l t e r a t i o n s to t h e i r J u l y d r a f t . They n o w mentioned t a r i f f r e d u c t i o n s as well as the a b o l i t i o n of d i s c r i m i n a t i o n , and Acheson pointed out that their new d r a f t o f a r t i c l e seven e m p h a s i s e d t h a t t h e s p e c i f i e d a i m s were to be achieved by concerted international action in the context of an expanding world economy. The most important cosmetic change, however, was the omission of a specific reference to Imperial P r e f e r e n c e . Acheson and Hawkins had come to believe that there were two causes of the o p p o s i t i o n in London to the State Department version: one was the Tory imperialists' commitment to the Ottawa trade arrangements; the other was the fear of the political embarrassment that would arise if B r i t a i n were seen to abandon Imperial Preference at the behest of the State D e p a r t m e n t . They c a l c u l a t e d t h a t i f t h i s e m b a r r a s s m e n t could b e avoided t h e n a m a j o r i t y of B r i t i s h o f f i c i a l s and 98

The Wheat Talks and the Mutual Aid Agreement members of the government would accept the American version of article seven and swamp the opposition to i t f r o m t h e i m p e r i a l i s t s . Acheson explained t o Halifax that they had taken pains to avoid upsetting B r i t i s h sensitivities over Imperial Preference, but that the intention of article seven was nevertheless to abolish it; however, if the Americans were asked about this in public they would evade a direct reply by simply stating that nothing was excluded from its scope. H a l i f a x pointed o u t that t h e commitment t o abolish discrimination might not be seen in London a s c o m m e n s u r a t e w i t h t h e u n d e r t a k i n g t o reduce t a r i f f s . Acheson was unmoved; he made it c l e a r that an u n e q u i v o c a l commitment to abolish Imperial Preference was crucial for him and his c o l l e a g u e s . He had e x p l a i n e d e a r l i e r in the meeting that they had put "in the light of g o v e r n i n g e c o n o m i c c o n d i t i o n s ' in the second paragraph of the article so that it qualified the means of implementation and not the aims of the article; he now warned Halifax that if a g r e e m e n t was not r e a c h e d s o o n or if a loop-hole for Imperial Preference was again suggested, the suspicions and impatience t h i s w o u l d a r o u s e in the US could prove d i s a s t r o u s . He cautioned that f u r t h e r delay might result in the US service d e p a r t m e n t s becoming involved which would not be helpful to B r i t a i n ; t h e r e was also the problem of congressional appropriations for Lend-Lease in J a n u a r y to think about, and f u r t h e r m o r e if Britain's exasperating behaviour continued even those well disposed towards her might feel like throwing in the towel. H a l i f a x in his r e p o r t to L o n d o n , w h i l s t a c k n o w l e d g i n g that some r i s k s w e r e i n v o l v e d , f a v o u r e d acceptance o f t h e American position. He emphasised how much he agreed w i t h the s e n t i m e n t s Acheson had expressed and he d e c l a r e d his f a i t h in A m e r i c a n g o o d w i 1 1 [ 14 ] . H a l i f a x had been won over: perhaps he should have paid more attention to Lord C h e s t e r f i e l d ' s anecdote that p o l i t i c i a n s are moved by interest, not by sentiment. The v i e w championed by the B r i t i s h Treasury, which prevailed in London, was that the u n q u a l i f i e d commitment to abolish discrimination was imprudent, especially when article seven did not specify what a commensurate t a r i f f reduction would be. On the face of it t h i s d r a f t of a r t i c l e seven seemed m o r e f a v o u r a b l e to British interests than did the American July d r a f t , but as Acheson had made c l e a r much of it was p o l i t i c a l window-dressing. Its 99

The Wheat Talks and the Mutual Aid Agreement purpose remained the same; the d i f f e r e n c e was that it now depended upon an understanding extraneous to the text. Halifax, frightened by the prospect of a b r e a k d o w n in the t a l k s , was p r e p a r e d to put his faith in American goodwill and accept t h e i r i n t e r p r e t a t i o n of the article, and he urged London to do likewise; London, h o w e v e r , was not prepared to do so. Kingsley Wood and others were unhappy with the text and with Acheson's interpretation. An equally worrying factor was that the draft could be interpreted in v a r i o u s ways and the B r i t i s h Government was not prepared to t r u s t to American goodwill in interpreting it in the f u t u r e . In the light of the s u b s t a n t i a l d i f f i c u l t i e s the British saw with the American version it is doubtful whether the consideration issue could have been resolved in December 1941 even if an a b u n d a n c e of f a i t h in American economic goodwill had existed in London. In f a c t , by e a r l y December, t h e r e was a d i s t i n c t absence of such f a i t h and this was largely because of the second round of the Wheat T a l k s to which we must now t u r n . On 14 October, the British, led by the head of the M e r c h a n t Marine Commission in Washington Sir A r t h u r S a l t e r , and the A m e r i c a n s , l e d by Paul Appleby, began the second round of the Wheat Talks. At the same time L. A. Wheeler of the US D e p a r t m e n t of A g r i c u l t u r e was preparing a reply to Churchill's l e t t e r of 8 O c t o b e r to the P r e s i d e n t w h i c h we considered in the p r e v i o u s c h a p t e r . R o o s e v e l t ' s reply w a s r a t h e r b l a n d w h i c h i s n o t s u r p r i s i n g considering its origins. The President acknowledged the d i f f i c u l t y of imposing an agreement on countries which w e r e not p a r t i c i p a t i n g in the talks, but he said that an agreement should still be sought and t h a t it s h o u l d be possible to include a f o r m u l a which would enable the Soviet Union to enter into the a g r e e m e n t at a l a t e r d a t e . He m e n t i o n e d an equitable s h a r i1n g of the export m a r k e t , an ' e v e r normal g r a n a r y and the cooperation of Britain as the main importer as crucial goals which s h o u l d be p u r s u e d in the t a l k s . Some B r i t i s h officials saw this as a move t o w a r d s a c c e p t i n g the p o s i t i o n Churchill had outlined on 8 October b u t , in fact, it left matters wide open[15]. In f i v e m e e t i n g s f r o m 20 to 27 October Salter explained B r i t i s h r e s e r v a t i o n s a b o u t t h e W h e a t P r o p o s a l s . In reply the A m e r i c a n s persisted with immoderate demands: for example, on the question of levels of p r o d u c t i o n they would not compromise and insisted that Britain should reduce her acreage even 100

The Wheat Talks and the Mutual Aid Agreement though this would damage her agricultural system and adversely a f f e c t the q u a l i t y of r u r a l l i f e by f o r c i n g f a r m e r s off the land. 'They even went so far a s t o a r g u e that these [ i m p o r t i n g ] c o u n t r i e s w o u l d be d i r e c t l y b e n e f i t e d and t h a t in any case they would share in the d i r e c t a d v a n t a g e s a r i s i n g f r o m a p r o s p e r o u s overseas f a r m i n g p o p u l a t i o n . 1 T.N. Whitehead of the Foreign Office N o r t h A m e r i c a n D e p a r t m e n t m i n u t e d the view t h a t , 'This f a i l u r e to take effective notice of the British representative's criticisms' strongly suggested that the arguments the Americans adduced to d e f e n d t h e i r p o s i t i o n , ' w e r e n o t t h e real reasons w h i c h w e r e prompting them. This was in fact o b v i o u s l y the case'[16] . On 31 October Hull entered the f r a y once again. He c a l l e d f o r B r i t i s h a c c e p t a n c e o f t h e Wheat Proposals and commented t h a t , ' i t s h o u l d . . . b e made clear t h a t the ultimate objectives of the agreement are in accordance with the liberal trade p r i n c i p l e s of Anglo-American collaboration as expressed in the Atlantic C h a r t e r ' [ 1 7 ] . Just how Hull c o u l d p e r f o r m t h i s s o m e r s a u l t in economic logic is d i f f i c u l t to see, b u t h e w a s n o t a l o n e i n h i s i n t e l l e c t u a l g y m n a s t i c s . On 10 November the Australian Minister in Washington passed on to the British d e t a i l s of a c o n v e r s a t i o n w i t h Acheson in which he had used the terms 'broad-minded' and ' l i b e r a l 1 in r e f e r r i n g to the Wheat A g r e e m e n t . However, two days later when Salter suggested to Acheson and H a w k i n s t h a t t h e r e was an apparent conflict between 'American proposals in the wheat agreement and t h e i r proposals in A r t i c l e 7 . . 1. r e g a r d i n g t h e p o s t - w a r i n t e r n a t i o n a l trade system , the two State D e p a r t m e n t o f f i c i a l s looked d i s t i n c t l y ' u n e a s y ' [ 1 8 ] . Nevertheless, in the weeks that followed both H u l l and Acheson c o n t i n u e d to bring pressure to bear on the British. The need to appease Congress and the f a c t i o n in the Department of A g r i c u l t u r e which favoured restrictive commodity agreements, the adverse affect n o n - a g r e e m e n t m i g h t h a v e o n Lend-Lease a n d t h e damage to A n g l o - A m e r i c a n economic c o o p e r a t i o n in general were all used to try to get Britain to agree to the Wheat Proposals, but by late N o v e m b e r t h e r e was little chance of that happening[19]. On 26 November Hull wrote to Winant that except for w h e a t p r i c e s the US had met all the B r i t i s h objections, but this was not entirely a c c u r a t e [ 2 0 ] . The A m e r i c a n s still wanted B r i t a i n to police quotas w h i c h w e r e to be a l l o c a t e d to n o n - m e m b e r s of the a g r e e m e n t and a Board of Trade paper pointed out in 101

The Wheat Talks and the Mutual Aid Agreement early December the dangerous consequences that such an agreement would have: it would offend the Soviet Union because she had not participated in drawing up an agreement which would g r e a t l y a f f e c t her; the policing arrangements would have r e p e r c u s s i o n s on B r i t a i n ' s t r a d e relations; B r i t a i n might b e t h e only importing c o u n t r y to accept the agreement if the high p r i c e s suggested by the US were accepted; it m i g h t also set a precedent for high prices in o t h e r c o m m o d i t y a g r e e m e n t s which would f u r t h e r damage B r i t a i n ' s b a l a n c e o f p a y m e n t s [ 2 1 ] . In a d d i t i o n to these f a c t o r s Hull had overlooked an important aspect of the Wheat Talks which was caused by t h e b l a t a n t c o n t r a d i c t i o n between t h e Wheat Proposals and the principles which the S t a t e Department constantly enunciated. This angered the British/ made them suspicious of American intentions in economic policy and t h u s c o n t r i b u t e d to t h e i r resolve not to give in to American economic demands. In the light of developments in the Wheat Talks it is little wonder that H a l i f a x ' s plea for f a i t h in A m e r i c a n goodwill in relation to article seven went largely unheeded in London. On 7 D e c e m b e r the J a p a n e s e a t t a c k e d P e a r l Harbor and the following day the US formally entered the war becoming B r i t a i n ' s co-belligerent. The determination in London to resist American economic d e m a n d s was i m m e d i a t e l y s t r e n g t h e n e d and a more robust attitude towards dealings in general with the US was soon evident, for example, when Churchill was asked whether the m i l i t a r y ought to c o n t i n u e c a u t i o u s l y to make r e p r e s e n t a t i o n s to the US he replied, "Oh! that is the way we talked to her while we w e r e wooing h e r ; now that she is in the harem, we talk to her q u i t e d i f f e r e n t l y ' [ 2 2 ] . Those who had resisted American demands before her entry into t h e w a r s a w e v e n less r e a s o n t o m a k e w h a t o n e T r e a s u r y a d v i s e r d e s c r i b e d as a1 " u n i l a t e r a l s a c r i f i c e o f o u r policy t o t h e i r s [ 2 3 ] , They thought that c o n s i d e r a t i o n for what was now being used in a common war e f f o r t was i n a p p r o p r i a t e . Amery advised great c a u t i o n c o n c e r n i n g H a l i f a x ' s recommendations about the American 2 December d r a f t of a r t i c l e seven and it was soon clear that the ambassador's pleas were going to f a i l [ 2 4 ] . On 9 D e c e m b e r H u l l and Winant repeated the arguments for British acceptance of article seven as it stood yet a g a i n ; H u l l told the a m b a s s a d o r he should let the B r i t i s h k n o w , ' W i t h respect to the provision concerning d i s c r i m i n a t i o n , all that we ask is that the British sit down with us to work out the 102

The Wheat Talks and the Mutual Aid Agreement problems which lie a h e a d 1 [ 2 5 ] . But this was clearly a misleading gloss on the text as far as the British were concerned; Acheson had made it clear that they would sit down at the n e g o t i a t i n g t a b l e w i t h the f u t u r e of a major bargaining counter already decided: Imperial P r e f e r e n c e was to be a b o l i s h e d . W i n a n t t r i e d to take up the matter of a r t i c l e seven at the highest political level without success. On 14 December he r e p o r t e d on his f a i l u r e but advised Acheson and Hull that they should continue to a r g u e their views on article seven which he believed would win t h r o u g h i n t h e e n d , t h o u g h h e w a s n o w less sanguine about the Wheat Talks, which he thought the British would try to postpone u n t i l t h e y could become p a r t of a wider economic settlement[26]. In fact, decisions had been taken in London w h i c h w e r e more drastic than Winant realised. On 13 December a t e l e g r a m w h i c h r e f l e c t e d the views of Wood and Greenwood more than those of the Foreign O f f i c e was sent to Washington. It i n f o r m e d H a l i f a x t h a t it was p r e f e r a b l e , in the changed circumstances i.e. American entry into the w a r , not to make a h u r r i e d decision concerning a r t i c l e seven, and that more general t a l k s w i t h the D o m i n i o n s and the US were under consideration, ' r e q u i r i n g no f i n a l decision on Imperial P r e f e r e n c e or any o t h e r l a r g e i s s u e * . In the light of the idea of pooling US and UK r e s o u r c e s f o r t h e w a r e f f o r t W o o d a n d o t h e r s hoped t h a t a r t i c l e seven m i g h t become r e d u n d a n t , but, so far as the new d r a f t was concerned, H a l i f a x was told that Apart from Imperial Preference, the . . . i n t r o d u c t i o n of the w o r d "discrimination" without any qualifying a d j e c t i v e shows the i m p o r t a n c e the Administration attach to it. Our comment, for y o u r i n f o r m a t i o n , is that the word "discrimination" admits of varied i n t e r p r e t a t i o n s , and it becomes essential that we s h o u l d r e v i e w v e r y c a r e f u l l y to what extent we can at this stage wholeheartedly s u b s c r i b e to i t . . . W e need to r e v i e w c a r e f u l l y how far we can a f f o r d to divest ourselves of t h i s power to use protective measures unless and until better a r r a n g e m e n t s can be f o u n d . [ 2 7 ] H a l i f a x did not agree and in the following weeks he and his staff e n c o u r a g e d the A m e r i c a n s to s u s t a i n their p r e s s u r e for agreement on consideration. 103

The Wheat Talks and the Mutual Aid Agreement On 1 2 D e c e m b e r C h u r c h i l l j o u r n e y e d t o Washington for a council of war with Roosevelt. The State Department now had an opportunity to a r g u e t h e i r case at the highest level and on t h e i r own ground. Winant i n f o r m e d Hull that to the best of h i s k n o w l e d g e C h u r c h i l l h a d n e i t h e r read n o r seriously considered the American a r g u m e n t s about a r t i c l e s e v e n ; 1t h i s w a s c o r r o b o r a t e d f r o m a 'reliable source in the B r i t i s h Embassy in Washington who also told Acheson that if a r t i c l e seven w e r e r a i s e d w i t h t h e P r i m e M i n i s t e r i n Washington there would be unanimous advice from the embassy to accept it. Acheson was also cautioned that if the m a t t e r were not resolved in Washington it would probably get bogged down in b u r e a u c r a c y in London, which was a diplomatic way of telling the A m e r i c a n s that they should try to c i r c u m v e n t the P r i m e M i n i s t e r ' s advisers t h e r e [ 2 8 J . For some days the issue of c o n s i d e r a t i o n was to h a n g f i r e in W a s h i n g t o n as the B r i t i s h Embassy and the State Department tried to arrange things so that Churchill w o u l d m a k e a f i n a l d e c i s i o n about this m a t t e r . While t h o s e m a n o e u v r e s w e r e g o i n g o n d r a m a t i c developments in the Wheat Talks broke the brooding impasse that had been apparent there for some time. On 12 December the T r e a s u r y and the F o r e i g n O f f i c e agreed that Churchill should be given b r i e f s both on the Wheat Talks and on article seven for his discussions i n t h e U S . I n s t e a d , a p p a r e n t l y b y mistake though possibly with the collusion of Greenwood and Wood, the b r i e f s w e r e sent as i n s t r u c t i o n s to Washington. Ronald and Richard Law thought that the ' b r i e f s ' would unintentionally and u n n e c e s s a r i l y give a h a r s h p i c t u r e of the British position if they were conveyed to the A m e r i c a n s . R o n a l d ' s f e a r s were not so much for 'the corpse of the Wheat A g r e e m e n t ' as for f u t u r e economic t a l k s and he and Law wanted a note of clarification to be sent to Washington. Kingsley Wood would have none of this; Ronald recorded that, The Chancellor.. .was inclined to t a k e up the wholly i n d e f e n s i b l e line that it was not for the Foreign Office to interfere in these matters. Both he and M r . Greenwood, he said, had agreed with the Prime M i n i s t e r that we could never accept what the Americans w e r e a s k i n g us to do in c o n n e x i o n w i t h the Wheat A g r e e m e n t : we could neither accept the price f o r m u l a or 104

The Wheat Talks and the Mutual Aid Agreement [sic] the suggestion we should undertake to police non-signatories. [29] Just b e f o r e C h r i s t m a s other voices joined the debate on the Wheat Proposals, urging accommodation; Leith-Ross f a v o u r e d the d r a f t agreement and Salter thought that it might be necessary to accept it for otherwise anti-British sentiment might be strengthened and there might be adverse e f f e c t s in the State Department with regard to Lend-Lease[30] . It was at this p o i n t , when s e r i o u s d i f f e r e n c e s of opinion were emerging in the British camp, that the impasse in the Wheat T a l k s was b r o k e n . It began around the 11 December with exchanges of information between E d e n a n d W i n a n t . E v e n t u a l l y W i n a n t ' s economic adviser, Professor E. F. Penrose was given the minutes of the October talks. He was at once struck by the fact that Sir A. Salter had put the U . K . case with great cogency and lucidity, but that no one had even bothered to try to answer h i m . The f i r s t consequence of P r o f . P e n r o s e ' s researches was that U . S . Ambassador w i t h d r e w . . . c h a r g e s . . . a n d a c t u a l l y asked our [i.e. British] help in r e b u t t i n g the charges which the State Department levelled against us. [31] P e n r o s e t o l d W i n a n t that t h e C o n s i d e r a t i o n Talks were being jeopardised because of doubts about American sincerity when they advocated f r e e trade in one breath and in the next demanded that B r i t a i n , instead of seeking the cheapest source for her most vital import, should buy at f i x e d p r i c e s f r o m f o u r d e s i g n a t e d m a r k e t s [ 3 2 ] . On 28 December W i n a n t reported on the unease in London and he specifically mentioned the difficulties that the British saw with n o n - s i g n a t o r i e s and the f a c t t h a t m o d e r a t e s w e r e being f o r c e d to side w i t h the h a r d - l i n e r s led by Hudson because of American policy[33]. The American Wheat proposals were already under pressure because of the tepid s u p p o r t f r o m the o t h e r big p r o d u c e r s and because of B r i t i s h c r i t i c i s m s , and the intervention of Penrose and Winant tipped the scales d e c i s i v e l y . On 19 January Salter reported that the State Department now believed that it was i n j u d i c i o u s to conclude an agreement of the k i n d it had argued for up to now w i t h o u t the p a r t i c i p a t i o n of the Soviet U n i o n [ 3 4 ] . This was not the whole story but it was a convenient way of saving face and 105

The Wheat Talks and the Mutual Aid Agreement f a l l i n g back on an anodyne p r o v i s i o n a l agreement along t h e l i n e s C h u r c h i l l h a d s u g g e s t e d o n 8 October. As Ronald wryly put it, it was 'vaguely disquieting 1 that the US Embassy in London was able to put across the British case better than 'our own Embassy' in Washington[35]. The talks dragged on in a d e s u l t o r y fashion for some months but the British had won a postponement of all the sensitive issues. Thus a f t e r much c o n t r o v e r s y the Wheat Talks fizzled out. Their most important effect was on the development of attitudes in London towards economic cooperation with the US. Lord Chesterfield was only p a r t l y r i g h t when h e s a i d t h a t p o l i t i c i a n s a r e motivated by interest and not by sentiment, because the i d e n t i f i c a t i o n of interest is often determined by the sentiments that men h o l d . Both d u r i n g and a f t e r the Wheat Talks British policy-makers became more i n c l i n e d to f o r m u l a t e p o l i c i e s in a m a n n e r w h i c h a s s u m e d an a b s e n c e of good f a i t h and an adversary spirit in their American opposite numbers. W i t h the A m e r i c a n w i t h d r a w a l of proposals in t h e Wheat Talks that c o n t r a d i c t e d t h e e c o n o m i c p r i n c i p l e s of the State D e p a r t m e n t it was now possible for H u l l and his acolytes to a r g u e m o r e cogently for l a i s s e z - f a i r e . On 16 December a new i n i t i a t i v e w a s taken t o t r y t o show B r i t a i n t h e e r r o r of her economic ways. The 'Pasvolsky Memorandum" was deliberately leaked to the B r i t i s h Government via t h e i r embassy in Washington; this was a c o n f i d e n t i a l State D e p a r t m e n t p a p e r by Pasvolsky w h i c h a t t a c k e d B r i t a i n for her lack of cooperation on economic p o l i c y [ 3 6 ] , Pasvolsky was the leading economist in the department but while his analysis of the opposition in London to American economic policy was more perceptive than Winant's he still attributed it largely to doctrinal d i s a f f e c t i o n with free trade whereas, although that existed, the bulk of the opposition was more c o n c e r n e d w i t h e n s u r i n g t h a t the means of moving towards f r e e r t r a d e would not damage B r i t a i n . F a i l i n g t o g r a s p t h i s , Pasvolsky t h o u g h t B r i t a i n should accept article seven as currently d r a f t e d at once, and then d e t a i l e d economic talks which would cater for Britain's economic d i f f i c u l t i e s could get u n d e r w a y . The British, of course, were unsure that such t a l k s could solve t h e i r problems if c e r t a i n policies were excluded by article seven in the f i r s t place. Four days a f t e r sending the 'Pasvolsky Memorandum1 to London H a l i f a x entered his own impassioned plea for B r i t i s h acceptance of article 106

The Wheat Talks and the Mutual Aid Agreement seven. He w r o t e that the s u b s t a n c e of L o n d o n ' s t e l e g r a m of 13 December w o u l d have a ' d e p l o r a b l e e f f e c t ' if he communicated it to the A m e r i c a n s . He went on, Above all we simply cannot a f f o r d to allow s u s p i c i o n t o a r i s e i n t h e mind o f t h e President or his a d v i s e r s that we are organising entry of the United States into the war as a p r e t e x t for evading the c o m m i t m e n t s which we might otherwise have been not unwilling to u n d e r t a k e . . . ' [ 3 7 ] In a second letter H a l i f a x reported that the Americans did not envisage the a b o l i t i o n of discrimination in isolation f r o m other developments. T h e t a l k s w h i c h w o u l d issue f r o m t h e M u t u a l A i d A g r e e m e n t would p r o v i d e f o r , "a v e r y s u b s t a n t i a l reduction of United States t a r i f f s ' , and so, f u l l y c o n v i n c e d of the need for Britain to accept article seven, H a l i f a x r e - k i n d l e d t h e idea o f e x c h a n g i n g n o t e s of i n t e r p r e t a t i o n as a t a c t i c t h a t m i g h t produce agreement[38]. London dismissed H a l i f a x ' s arguments with the duplitious claim that the Dominions were unhappy w i t h a r t i c l e seven as it stood and w i t h the observation that n e i t h e r g o v e r n m e n t could r i s k p u b l i s h i n g an ambiguous agreement that might prejudice f u t u r e cooperation. On the suggestion that notes of interpretation should be exchanged the reaction was more favourable and H a l i f a x was told to b r i n g C h u r c h i l l up to date on the arguments for and against acceptance of a r t i c l e seven w h i c h had been made since his departure f r o m London and to seek his opinion about an exchange of notes [ 3 9 ] . K i n g s l e y Wood asked Winant on 27 December what he thought about exchanging notes w h i c h would l i n k the abolition of d i s c r i m i n a t i o n to postwar reductions in American t a r i f f s ; he also m e n t i o n e d Britain's 'problems' with the Dominions. Winant evaded a reply t e l l i n g Wood he had r e c e i v e d no d i r e c t i v e s on this f r o m Washington. Winant was angered by Wood using the Dominions as an excuse for n o t a c c e p t i n g a r t i c l e s e v e n because B r u c e , t h e Australian High Commissioner in London, had told him t h a t the Dominions f a v o u r e d acceptance. Winant expressed the hope to Hull that t a l k s w i t h C h u r c h i l l in W a s h i n g t o n w o u l d m a k e the proposed exchange of notes u n n e c e s s a r y [ 4 0 ] . For two w e e k s the hopes of t h o s e who w a n t e d progress on a r t i c l e seven h i n g e d on d i r e c t appeals 107

The Wheat Talks and the Mutual Aid Agreement to Churchill. All the signals from the British Embassy indicated that agreement was possible. Hickerson reported to Hull that Noel Hall, the British Minister in Washington, thought that if Hull or the President expressed an interest in the Consideration Agreement then it would be signed at once. A similar message came from Opie who added that Halifax now regarded agreement as a matter involving his own personal prestige; even the dour and wily Phillips favoured acceptance, though with an exchange of notes of interpretation. However, worrying signs began to emerge when Halifax's first approach to Churchill about article seven was rebuffed by him with the curt comment that he was too busy to take up the matter[41]. On 29 December Halifax talked with Hull and they decided that Acheson should approach Roosevelt and that Halifax should speak again with Churchill, after the Prime Minister returned from his excursion to Toronto, to see if the two leaders could be p e r s u a d e d to take decisive action on article seven[42], Halifax told the Foreign Office he was determined not to leave the matter in cold storage and he reported that he and all his senior advisers saw not the slightest chance of the US altering its position. He strongly recommended acceptance of the current draft of article seven and he sent to London his own draft of a bland statement of interpretation which made no attempt to protect Imperial Preference or to construe the term 'discrimination' in such a way as to protect British economic interests[43]. While Halifax fulminated in W a s h i n g t o n , Greenwood spelt out the difficulties over article seven for the War Cabinet. He reported that the Prime Minister was unable to take up the matter in Washington and that progress would have to await his return to London[44]. The Foreign Office was not entirely happy about this and while it had more reservations about article seven than Halifax had it was beginning to doubt the wisdom of further delays and equivocation. At the end of December Richard Law summed up the situation as follows, One difficulty about Consideration is that while we [i.e. the Foreign Office] regard it, in the main as a political problem affecting, possibly, our whole f u t u r e relations with the U.S.A., the Chancellor regards it as a financial problem. The P r i m e M i n i s t e r seems to support the Chancellor...[who] aided and abetted by 108

The Wheat Talks and the Mutual Aid Agreement the G r e e n w o o d Committee, acts in these m a t t e r s as his own F o r e i g n S e c r e t a r y . ...Another difficulty is this. It is the view of the Greenwood Committee that on Consideration as well as on Wheat that the Americans are determined at all costs to get the better of u s . [ 4 5 ] In general the Foreign Office agreed with Halifax on the d e s i r a b i l i t y of signing the Mutual Aid Agreement, but they t h o u g h t that a b e t t e r note of i n t e r p r e t a t i o n than the one which he had sent on 29 December was r e q u i r e d . Law d r e w up a new note which emphasised j o i n t action in the context of an expanding world economy. It concluded w i t h , ' I t is against this b a c k g r o u n d and in conjunction with it that there are added the objectives of e l i m i n a t i n g , by a g r e e d a n d i f n e c e s s a r y b y g r a d u a l s t a g e s , discriminatory treatment, r e d u c i n g t a r i f f s and achieving the other objectives of the Atlantic C h a r t e r ' [ 4 6 ] . Eden's position on all this is rather d i f f i c u l t to d e c i p h e r . On 5 J a n u a r y , reacting to the 'Pasvolsky Memorandum' and to the analysis of it w h i c h was then e m e r g i n g in L o n d o n , he wrote t h a t , 'My own point of view is that from a political point of view Imperial Preference is an Imperial domestic matter and as such should not be l i g h t l y described as d i s c r i m i n a t o r y , though f r o m the economic view it is undoubtedly discriminatory in e f f e c t ' [ 4 7 ] . This line of t h i n k i n g was soon to become important but then Eden began to have similar doubts to those that Law h a d e x p r e s s e d a n d h e e v e n t u a l l y a r g u e d f o r g i v i n g way to the A m e r i c a n s . Of m o r e i m m e d i a t e c o n c e r n is K e y n e s 1 evaluation of the 'Pasvolsky Memorandum'. Keynes f i r s t damned it w i t h f a i n t praise and then ridiculed Pasvolsky himself. The b u l k of t h i s p a p e r , which is a very able one, w i t h i n its l i m i t a t i o n s , is a dogmatic statement of the v i r t u e s of l a i s s e z - f a i r e in i n t e r n a t i o n a l t r a d e on the lines f a m i l i a r f o r t y years a g o , . . . M r . P a s v o l s k y lo_o_ks l i k e Rip Van W i n k l e and evidently is. in fact, he![48] The ' P a s v o l s k y M e m o r a n d u m 1 was subjected to intellectual d e s t r u c t i o n b y K e y n e s w h o a l o n g w i t h other British o f f i c i a l s believed with c h a r a c t e r i s t i c arrogance that much of the problem in Anglo-American 109

The Wheat Talks and the Mutual Aid Agreement economic relations lay in A m e r i c a n lack of understanding. There was some t r u t h to this but one feels that Keynes had missed the point here: the 'Pasvolsky M e m o r a n d u m 1 was not a u n i v e r s i t y paper embodying the latest ideas of economic theory; it was p r i m a r i l y a p o l i t i c a l document w h i c h was intended to indicate both American dislike of British policies and American d e t e r m i n a t i o n to get a r t i c l e seven accepted. In fact Keynes now wanted Britain to accept article seven because he t h o u g h t it would n e c e s s a r i l y remain vague without detailed talks and because f u r t h e r d e l a y s w o u l d only a n t a g o n i s e the A m e r i c a n s . He was otpimistic about the outcome of detailed talks because he had a plan for an I n t e r n a t i o n a l Clearing Union which he hoped the Americans would accept (at least in a m o d i f i e d f o r m ) , m a k i n g it unncessary for Britain to continue discriminatory monetary exchange policies a f t e r the war. T h e i r p e r c e i v e d need to engage in such policies was of course one of the main reasons for the B r i t i s h Cabinet to be opposed to article seven, with its prohibition of discrimination. Ironically, K e y n e s 1 analysis of the 'Pasvolsky Memorandum 1 gave more ammunition to those who were resisting American d e m a n d s . T o w a r d s the end of his a n a l y s i s Keynes commented t h a t , The c h i e f moral I draw from this paper is the inadvisability ( w h i c h I wish Lord H a l i f a x could be made to a p p r e c i a t e ) of our being asked to sign up a m b i g u o u s undertakings on the dotted line in advance of face to face d i s c u s s i o n about the principles of f u t u r e policy.[49] This view was taken by the m a j o r i t y of the B r i t i s h Government as grounds for continuing to seek a more s a t i s f a c t o r y note of i n t e r p r e t a t i o n of a r t i c l e seven. On 5 J a n u a r y the C a b i n e t asked Greenwood to d r a w up a r g u m e n t s for and against acceptance of the current d r a f t of article seven. W i t h i n a few days Greenwood produced a lengthy document; the arguments for acceptance were: i) that it would keep American goodwill, ii) that Lend-Lease appropriations were i m m i n e n t , iii) that a new p o s t w a r economy needed to be planned, iv) that a r t i c l e seven p r o v i d e d some q u i d p r o q u o f o r t h e a b a n d o n m e n t of I m p e r i a l P r e f e r e n c e , v) that acceptance would prevent a r e t u r n to p r o t e c t i o n i s m , vi) t h a t the Dominions favoured agreement providing 110

The Wheat Talks and the Mutual Aid Agreement a quid pro quo was r e c e i v e d . The c a t a l o g u e of a r g u m e n t s against agreement was notably longer: i) that as the US was now a c o - b e l l i g e r e n t a r t i c l e seven was inappropriate, ii) that America would not damage the war e f f o r t because of non-agreement i.e. Lend-Lease would continue as before despite hints to the contrary f r o m the State D e p a r t m e n t , iii) that B r i t a i n needed to know s p e c i f i c a l l y what her quid pro quo would be (the B r i t i s h reasoned that w i t h America in the war payment for Lend-Lease was inappropriate and thus the Americans needed to give s o m e t h i n g to the British in exchange for her abandoning Imperial P r e f e r e n c e ) , iv) that I m p e r i a l P r e f e r e n c e was m o r e i m p o r t a n t politically than economically, v) that agreement w o u l d w e a k e n imperial ties at a sensitive time, vi) that there was n o s t r o n g f e e l i n g i n t h e U S a b o u t I m p e r i a l P r e f e r e n c e , v i i ) that it would be acceptable if there was an i n t e r p r e t a t i o n s a f e g u a r d i n g I m p e r i a l P r e f e r e n c e , viii) that it might allow cheap exports into British markets, ix) that there was a disparity between the abolition of preferences and the reduction of t a r i f f s [ 5 0 ] . Amery predictably opposed acceptance, Cranborne thought that a note of interpretation was e s s e n t i a l and K i n g s l e y Wood believed that the idea of pooling US and UK resources for the war e f f o r t made a r t i c l e seven r e d u n d a n t , but that if the Americans insisted on i t then h e t h o u g h t t h a t I m p e r i a l P r e f e r e n c e should be removed entirely f r o m its scope[51]. The views of key ministers in London were c o n s o l i d a t i n g into a s t o n g l y a n t i - A m e r i c a n position, contrary to those expectations w i d e l y h e l d in the S t a t e D e p a r t m e n t w h i c h had been propagated by Winant and the British Embassy in W a s h i n g t o n . A m e r i c a n hopes t h a t they would be able to b r e a k the deadlock on article seven by approaching Churchill directly also proved to be f r u i t l e s s . On 17 January Churchill reported to the Cabinet that w h i l e he was in the US he had taken the line that article seven, 'need not be settled as a matter of u r1g e n c y , and that he had not been pressed on the p o i n t [ 5 2 ] . When H a l i f a x f i r s t r a i s e d t h e m a t t e r Churchill had brushed it aside and when he raised it a second time after talking with Hull Churchill told him in no u n c e r t a i n terms that the matter should be postponed on the grounds w h i c h had been r e p e a t e d l y a r g u e d f r o m L o n d o n b y Wood a n d G r e e n w o o d [ 5 3 ] . Roosevelt also t r i e d his hand w i t h C h u r c h i l l on a n u m b e r of o c c a s i o n s , only to be t o l d that a r t i c l e seven w a s n o t i n t h e P r i m e M i n i s t e r ' s b r i e f [ 5 4 ] . Ill

The Wheat Talks and the Mutual Aid Agreement T h e o n e d r a m a t i c c o n f r o n t a t i o n came b e t w e e n Churchill and Hull on the eve of the f o r m e r ' s return to London. Breckinridge Long recorded that, C h u r c h i l l has r e f u s e d to include in the contract for our compensation for Lend-Lease the agreement to d i s c a r d the Empire t a r i f f and trade program. Hull secured the P r e s i d e n t ' s a c c e p t a n c e . C h u r c h i l l has got it e l i m i n a t e d . They dined side by side last n i g h t and H u l l a p p r o a c h e d the s u b j e c t only to have C h u r c h i l l say he d e f i n i t e l y r e f u s e d to agree to it and would not accept it. [55] H a l i f a x and his embassy s t a f f had m i s c a l c u l a t e d badly: instead of Churchill acceding to a request from a high ranking member of the US A d m i n i s t r a t i o n he had strongly rejected it. On 2 2 J a n u a r y A c h e s o n , a n x i o u s t o r e a c h agreement on a r t i c l e seven, w r o t e to H u l l saying that he was unaware of what had t r a n s p i r e d between Roosevelt and C h u r c h i l l but that he wanted a clear indication as to whether the President was p r e p a r e d to put p r e s s u r e on the British to a g r e e [ 5 6 ] . R o o s e v e l t ' s comments a t t h e C a b i n e t m e e t i n g t h e f o l l o w i n g d a y w o u l d u n d o u b t e d l y have h e a r t e n e d Acheson: he 'spoke of the B r i t i s h being h a r d to work with. He said they w e r e high hat and selfish' [57] . As it was Acheson did not have long to w a i t ; he got an audience with the President on 29 December and Roosevelt said that he wanted an a g r e e m e n t . Acheson explained that as Churchill was worried about domestic political problems they had d r a w n up a m e m o r a n d u m w h i c h gave the B r i t i s h two options: they could either accept a r t i c l e seven as i t s t o o d , o r t h e e n t i r e i s s u e o f repayment a n d Anglo-American economic cooperation c o u l d be deferred. Roosevelt r e a l i s e d t h e t h r e a t t o t h e British implicit in the second option but to e n s u r e that they did not f a i l to get the message he wrote in long-hand that 'I strongly hope the B r i t i s h w i l l accept the f i r s t c o u r s e because the second leaves them i n a m u c h m o r e d i f f i c u l t f u t u r e e c o n o m i c p o s i t i o n 1 and he told Acheson that some way should be found to unofficially disclose this to them[58]. That evening Acheson and Feis showed the P r e s i d e n t ' s comment to H a l i f a x and told him t h a t if the m a t t e r was postponed the B r i t i s h might discover Congress to be more demanding when d i s c u s s i o n s w e r e renewed. H a l i f a x , f o l l o w i n g instructions from 112

The Wheat Talks and the Mutual Aid Agreement London, suggested that the concept of pooling resources had rendered article seven redundant, but Acheson replied that Lend-Lease was the only legal mechanism by which such pooling arrangements could go forward. In his report to London Halifax said that it would now be a profound mistake not to sign the agreement[59]. London was used to hearing such arguments from Halifax but a number of other developments were proving to be more persuasive and they began to reduce the government's ability to resist American pressures. There were serious military reverses in North Africa and in the Far East which undermined the prestige of Churchill's government, and there was also the fact that the Dominions, partly because of their need for American defence assistance, were 'actually resentful1 that Britain had not signed the Consideration Agreement[60]. Britain was facing crises on several fronts, but the government still refused to succumb to American pressure although it was now split in its opinions. In the Cabinet on 2 February Eden, amidst a long wrangle, 'put up a fight to meet the State Department1. He acknowledged that the Americans had considerable scope for interpreting the agreement as it stood in ways damaging to Britain, but he thought that if it was not signed now worse conditions might be set in the future and that in the meantime r e l a t i o n s with t h e State D e p a r t m e n t would deteriorate. The Secretary of State for Air, Sinclair, true to his liberal colours sided with Eden, and so did Lord Cranborne, largely because of representations made by the Dominions. The unholy alliance of Churchill, the old Chamberlainite Kingsley Wood, the imperialist Amery and the leading Labourite Arthur Greenwood opposed signing on the grounds marshalled for the Cabinet by Greenwood in early January though now with emphasis on the need for a specific quid pro quo for the elimination of Imperial Preference and on the unacceptability of article seven's infringing upon Britain's sovereign relations with the Empire. As Cadogan put it in his d i a r y , 'P.M. c a r r i e d the day a g a i n s t A. [Anthony Eden]' and it was decided that Eden and Wood should draw up a note, interpreting article s e v e n , w h i c h would s a f e g u a r d I m p e r i a l Preference[61] . A few hours after the Cabinet meeting Winant sent details about it to Acheson. The source of his information is unclear though it was presumably the Foreign Office. Winant mentioned in particular that 113

The Wheat Talks and the Mutual Aid Agreement members of the Cabinet t h o u g h t that the US Administration would not have political d i f f i c u l t i e s if amendments w e r e made to the w o r d i n g of article seven, which they believed lacked strong support in i t s p r e s e n t f o r m o u t s i d e t h e State D e p a r t m e n t . W i n a n t suggested t h a t R o o s e v e l t a n d M o r g e n t h a u should d i s a b u s e them of t h i s b e l i e f ; he t h o u g h t that the latter would be especially influential with Wood because he s t i l l f e l t a debt of gratitude to Morgenthau for helping with B r i t a i n ' s supply problem[62]. Acheson acted quickly. He brought the letter to the attention of Roosevelt, H u l l , M o r g e n t h a u , Welles, Wallace and H a w k i n s . Hawkins was livid. He said the B r i t i s h w e r e a t t e m p t i n g to repudiate the Atlantic Charter (which was rather ironical as they thought they were consolidating the p o s i t i o n a c h i e v e d t h e r e i n ) a n d that b e f o r e t h e British Cabinet r e n e g e d on it, it should consider t h a t t h e r e m i g h t be, 'repercussions of the gravest character on the unity of the war e f f o r t ' [ 6 3 ] . On 4 F e b r u a r y Roosevelt and Acheson, who was acting on Morgenthau's behalf, took a s t r o n g l i n e . A c h e s o n , u s i n g M o r g e n t h a u ' s name with his permission, wrote to Wood expressing the opinion that the M u t u a l Aid Agreement was f a i r and that it should be accepted to avoid both impediment t o t h e w a r e f f o r t a n d t h e d a n g e r of adverse effects on more long-range m a t t e r s [ 6 4 ] . Roosevelt's letter to C h u r c h i l l was a s i m i l a r m i x t u r e o f p e r s o n a l appeals a n d veiled threats. I am convinced that f u r t h e r delay in concluding this agreement will be h a r m f u l to your interests and ours. I am likewise convinced that the p r e s e n t d r a f t is not only f a i r and e q u i t a b l e but it meets the a p p r e h e n s i o n , w h i c h some of y o u r colleagues have felt and which Halifax has brought to our a t t e n t i o n . . . f a i l u r e to sign this agreement would do much m i s c h i e f . [ 6 5 ] While this was going on Eden and Wood had come up w i t h an i n t e r p r e t a t i o n w h i c h excluded Imperial Preference from the scope of a r t i c l e seven. E d e n , h o w e v e r , soon began to have d o u b t s because of a letter from Winant which disclosed the P r e s i d e n t ' s v i e w that it would probably be worse for Britain if she did not agree to settle matters now. The letter also contained the blunt statement t h a t , 'The United States Government believes that f u r t h e r a t t e m p t s to r e f i n e the l a n g u a g e of article seven would be time 114

The Wheat Talks and the Mutual Aid Agreement consuming and wholly u n p r o f i t a b l e * . This and the arrival of the letters from Morgenthau and Roosevelt requesting agreement persuaded Eden that the note i n t e r p r e t i n g article seven drawn up with Wood would not be acceptable to W a s h i n g t o n . He t h e r e f o r e d r a f t e d a second version which did not require the exclusion of Imperial Preference; instead it called for g r a d u a l stages of joint and agreed action with no imposition of unilateral obligations[66]. The C a b i n e t on 6 F e b r u a r y would not accept Eden's second d r a f t ; ministers strongly favoured the f i r s t , w h i c h they decided should be sent to Halifax. They advised C h u r c h i l l t h a t i n h i s r e s p o n s e to R o o s e v e l t ' s letter of 4 F e b r u a r y he should explain t h i s d e c i s i o n [ 6 7 ] . C h u r c h i l l d u l y w r o t e to the P r e s i d e n t that the C a b i n e t was more resolved than ever not to trade Imperial P r e f e r e n c e for Lend-Lease and that they f e l t that if article seven was accepted as it s t o o d it w o u l d e n t a i l i n t e r f e r e n c e in the domestic a f f a i r s of the British Empire, which would occasion d i f f i c u l t debates in Parliament. I t would also p r o v i d e m a t e r i a l f o r German propaganda and might provoke suggestions that B r i t a i n was becoming a dependent t e r r i t o r y of the US. The P r i m e M i n i s t e 1r said he had a l w a y s b e e n 'opposed' or ' l u k e w a r m to Imperial Preference and he rather ingenuously claimed that, 'we are all for sweeping away trade b a r r i e r s ' . Britain, he went on, wanted to work with the US in, 'constructing a f r e e , f e r t i l e economic policy for the postwar world" but that he hoped that Roosevelt w o u l d m a k e allowances for B r i t i s h d i f f i c u l t i e s . He asked for the P r e s i d e n t ' s help i n g e t t i n g t h e B r i t i s h n o t e o f i n t e r p r e t a t i o n accepted; the crucial part of which stated that, The r e p r e s e n t a t i v e s of the United Kingdom Government have stated that they do not u n d e r s t a n d the w o r d ' d i s c r i m i n a t i o n ' as applying to special a r r a n g e m e n t s between m e m b e r s of the same C o m m o n w e a l t h or F e d e r a t i o n , such as the B r i t i s h Commonwealth or the United States of America and its P o s s e s s i o n s , and that b e f o r e accepting any definite commitments involving modification of the e x i s t i n g system of Imperial P r e f e r e n c e , the Government of the United K i n g d o m w o u l d n a t u r a l l y r e q u i r e to consult with the Governments of the D o m i n i o n s . [ 6 8 ] 115

The Wheat Talks and the Mutual Aid Agreement Winant sent a rather garbled account of the Cabinet meeting to Washington, but there was no m i s u n d e r s t a n d i n g of its outcome; he commented in the note that it, 'is a negation of most we have asked f o r ' 1 6 9 ] . In Washington H a l i f a x did as he was bid and a r g u e d , albeit h a l f - h e a r t e d l y according to Welles, that the note of interpretation was all r i g h t . He said that C h u r c h i l l did not want to upset the Conservative P a r t y a n d a s everyone w o u l d f a v o u r l i b e r a l t r a d e policies a f t e r the war there was no h a r m in a s k i n g the Dominions to acquiesce b e f o r e s t a r t i n g t a l k s on Imperial Preference. Welles, k n o w i n g f u l l well the position of the D o m i n i o n s , said t h a t if they w e r e so acquiescent why had they not been asked a l r e a d y , to which H a l i f a x c a n d i d l y r e p l i e d that they had and that they f a v o u r e d the position of the US. Welles commented l a t e r , ' I would say no more beyond emphasising the fact this issue was f a s t becoming a v e r y s e r i o u s issue and that I f e a r e d the B r i t i s h did not realisehow serious an issue it really w a s 1 [ 7 0 ] . F u r t h e r meetings the f o l l o w i n g day made it clear that the State D e p a r t m e n t still wanted a c o m m i t m e n t f r o m B r i t a i n w h i c h would eventually result in the abolition of Imperial Preference. Welles described the s i t u a t i o n as ' g r a v e ' and Acheson said the US could not accept that talks on Imperial P r e f e r e n c e w e r e to be c o n d i t i o n a l upon Dominion a g r e e m e n t . When Halifax suggested that Imperial P r e f e r e n c e was purely a domestic matter Feis and Acheson 'turned it down f l a t ' and, ' H a l i f a x did not dissent'[71]. A f t e r spending the weekend w i t h Churchill at Chequers, Winant reported to Hull that s e v e n t y - f i v e per cent of the Cabinet opposed article seven in its present f o r m . T h e P r i m e M i n i s t e r h a d t o l d h i m , h o w e v e r , t h a t he and some of his colleagues had little f a i t h in preferences and d i s c r i m i n a t i o n and that they would be happy to begin separate talks on those i s s u e s [ 7 2 ] . This was n o t h i n g n e w , as apart from the imperialists most members of the government wanted economic cooperation w i t h the US, but they d i d n o t w a n t t o g i v e a w a y t h e b a r g a i n i n g chips before specific talks got underway. On 10 February Acheson produced the f i r s t d r a f t of a reply to C h u r c h i l l ' s l e t t e r and the proposed note of i n t e r p r e t a t i o n . Acheson specifically rejected the idea of excluding I m p e r i a l P r e f e r e n c e from the scope of article seven but he went on that, "There is no suggest i o n . . . of b a r t e r i n g Empire s o v e r e i g n t y to meet a d e b t 1 , and t h a t , 'The A r t i c l e 116

The Wheat Talks and the Mutual Aid Agreement makes it plain that all conclusions must be reached by agreement after discussions of all the objectives m e n t i o n e d 1 . Acheson's d r a f t made no a t t e m p t to q u a l i f y the aim of e l i m i n a t i n g d i s c r i m i n a t i o n , of which Imperial P r e f e r e n c e was r e g a r d e d as an i n s t a n c e , indeed the d r a f t contained the statement, 'I still believe that a simple acceptance of the d r a f t would be far the best method of achieivng the purposes of both our c o u n t r i e s ' [ 7 3 ] . When Acheson had f i n i s h e d h i s d r a f t Welles i n f o r m e d Roosevelt that a reply for C h u r c h i l l had been p r e p a r e d as r e q u e s t e d [ 7 4 ] . T h e f o l l o w i n g d a y W e l l e s sent another note to Roosevelt saying that Acheson and H a r r y Hopkins had re-worked the d r a f t letter for the Prime Minister and Welles said he thought it was an impr o v e m e n t [75] . It is t h i s d r a f t w h i c h is g e n e r a l l y held t o h a v e b e e n s e n t t o C h u r c h i l l ; h o w e v e r , in the light of the role which Welles had played in Anglo-American economic d i p l o m a c y since 1940 it is i n c o n c e i v a b l e that he could have d e s c r i b e d t h e l e t t e r Roosevelt a c t u a l l y sent t o C h u r c h i l l on 11 F e b r u a r y as an i m p r o v e m e n t on Acheson's 10 F e b r u a r y d r a f t . If the second r e - d r a f t , w h i c h Acheson had helped w i t h , was the letter Roosevelt sent to C h u r c h i l l t h e n it is odd that Acheson should later comment rather disparagingly t h a t , ' I f t h i s d i d n o t i l l u m i n e t h e subject, as Professor Whitehead said of a lecture by Lord Russell o n h i g h e r m a t h e m a t i c s , i t d i d n o t deepen the surrounding darkness'. H u l l also peremptorily dismisses R o o s e v e l t ' s l e t t e r w i t h the simple comment that it led to a final a g r e e m e n t [ 7 6 ] . One suspects that both Acheson and Hull h a n d l e t h i s m a t t e r r a t h e r g i n g e r l y because t h e letter queered t h e State D e p a r t m e n t ' s p i t c h j u s t a s R o o s e v e l t himself had done at the A t l a n t i c C o n f e r e n c e . The answer to the q u e s t i o n of a u t h o r s h i p of the f i n a l d r a f t of R o o s e v e l t ' s l e t t e r to C h u r c h i l l is to be found in R. E. Sherwood's account of the relationship between Hopkins and the President. A reply to the Prime Minister, d r a f t e d by the State D e p a r t m e n t , was couched in the usual formal terms, but Roosevelt rejected t h i s and w r o t e a cable in his own intensely personal and considerate manner.[77] The State Department must s u r e l y have t h o u g h t t h a t R o o s e v e l t ' s l e t t e r was too c o n s i d e r a t e . He wrote that, 117

The Wheat Talks and the Mutual Aid Agreement I want to make it clear to you, that it is the f u r t h e s t thing f r o m my mind that we are attempting in any way to ask you to trade the principle of imperial preference as a consideration for lend-lease... W h a t seems t o b e b o t h e r i n g t h e C a b i n e t is the t h o u g h t that we want a commitment in advance that empire p r e f e r e n c e w i l l be a b o l i s h e d . We are asking for no such commitment, and I can say that A r t i c l e 7 does not contain any such c o m m i t m e n t . I r e a l i z e t h a t t h a t would be a c o m m i t m e n t which y o u r government could not give now if it wanted to; and I am very sure that I could not, on my part, make any commitment r e l a t i v e to a v i t a l revision of our t a r i f f policy.[78] C h u r c h i l l and his Cabinet immediately seized the life-line. The Prime Minister w r o t e that 'I am d e e p l y g r a t e f u l t o y o u f o r a l l y o u s a y , which entirely meets my d i f f i c u l t i e s ' . He c o n t i n u e d , 'Of c o u r s e when I am asked I shall state my view of the p u b l i c document f r o m my own s t a n d p o i n t in t e r m s which lie within your assurances'[79]. It has been suggested on the basis of Cabinet m i n u t e s t h a t C h u r c h i l l a c c e p t e d a r t i c l e seven because he t h o u g h t that Roosevelt had a g r e e d to exclude I m p e r i a l P r e f e r e n c e f r o m its scope. This seems an u n l i k e l y m i s t a k e and one that would have been c o r r e c t e d by Wood. A possible explanation of the error contained in the m i n u t e s is that it was made by the s e c r e t a r y who took them rather than by C h u r c h i l l . W h a t e v e r t h e case m i g h t b e a d r a f t l e t t e r to the Dominions of the f o l l o w i n g day c l e a r l y shows t h e government u n d e r s t o o d t h a t Imperial Preference fell within the scope of article seven. Another reason which has been suggested for C h u r c h i l l ' s acceptance is that the British did not want to antagonise Roosevelt when he was about to consider w h e t h e r or not to relieve Britain of $800 million worth of pre-Lend-Lease c o n t r a c t s , but the evidence to support t h i s hypothesis is weak. Both these attempts t o e x p l a i n C h u r c h i l l ' s b e h a v i o u r a s s u m e t h a t h e a n d h i s C a b i n e t were still v e r y reluctant to accept the a g r e e m e n t w h e r e a s t h i s was no longer the case[80]. The British n e g o t i a t i n g p o s i t i o n had been w e a k e n e d since the entry of Japan into the w a r . On 26 February Ronald commented that a f t e r the losses 118

The Wheat Talks and the Mutual Aid Agreement of c r u c i a l components of the Sterling Area such as Malaya, 'The Americans could h a r d l y be expected to t r e a t seriously any suggestion by us that, unless they fell in with our ideas for the co-ordination of p o s t - w a r p o l i c y , we s h o u l d be f o r c e d back on a closed Empire trading system. Such a trading system h e n c e f o r w a r d is p r o b a b l y an i l l u s i o n 1 [ 8 1 ] . Thus economic c o o p e r a t i o n w i t h the A m e r i c a n s was m o r e necessary than ever and probably unavoidable: the question was on what terms it should be u n d e r t a k e n . A r t i c l e seven as it stood was unacceptable but the interpretation of it by Roosevelt was not. Members of the State Department had consistently striven for an u n e q u i v o c a l c o m m i t m e n t f r o m B r i t a i n t o e l i m i n a t e d i s c r i m i n a t o r y economic practices, including Imperial P r e f e r e n c e , and t h i s was to be part of the consideration for Lend-Lease. They envisaged cooperative talks between Britain and t h e U S w h i c h w o u l d d e t e r m i n e t h e means b y w h i c h those a i m s , a l o n g w i t h o t h e r l i b e r a l e c o n o m i c p o l i c i e s , w e r e to be i m p l e m e n t e d . Roosevelt now r e p u d i a t e d much o f t h a t a n d c o n t r i v e d t o t h r o w discriminatory policies and Imperial Preference back into the bargaining arena in such a way that B r i t a i n would be able to use them as bargaining chips. Furthermore, the President postponed their e l i m i n a t i o n into an i n d e t e r m i n a t e f u t u r e that e f f e c t i v e l y q u a l i f i e d the stated aims of a r t i c l e s e v e n . Two y e a r s l a t e r in the House of Commons Churchill, to some people's s u r p r i s e t h o u g h why is d i f f i c u l t to see as he was o n l y p a r a p h r a s i n g the President's message of 11 February 1942, said t h a t , I did not agree to Article 7 . . . w i t h o u t having previously o b t a i n e d f r o m the P r e s i d e n t a d e f i n i t e a s s u r a n c e t h a t we were no more committed to the abolition of I m p e r i a l P r e f e r e n c e , than the American Government were committed to the abolition of t h e i r high protective t a r i f f s . [ 8 2 ] Churchill had rather conveniently overlooked much of the ambiguity which arose f r o m a r t i c l e seven when it was interpreted in the light of Roosevelt's l e t t e r , but the M u t u a l Aid Agreement was a successful rearguard action by the B r i t i s h . The State Department attempt to e l i m i n a t e the equivocation embodied in the A t l a n t i c C h a r t e r had f a i l e d and R o o s e v e l t had proved once again to be less sanguine about f r e e t r a d e and less k e e n to get d e t a i l e d c o m m i t m e n t s o n e c o n o m i c policy t h a n H u l l a n d h i s 119

The Wheat Talks and the Mutual Aid Agreement acolytes. I t i s t r u e that t h e B r i t i s h w e r e n o w committed to early economic talks with the Americans, and as Lionel Robbins, the head of the Economic Section of the War Cabinet S e c r e t a r i a t , correctly states in his m e m o i r s the B r i t i s h would h a v e b e e n f o o l i s h to go completely against the economic s p i r i t w h i c h h a d m o t i v a t e d t h e S t a t e Department in the Lend-Lease Consideration Talks; nevertheless they had more room to m a n o e u v r e than the State Department had intended that they should have[83] . T o w a r d s the end of t h i s book we shall have occasion to look briefly at the t a l k s w h i c h issued f r o m a r t i c l e seven and at the way 'discrimination' and Imperial Preference raised their heads again at the end of the w a r , but now we must t u r n to the political and economic consequences of Lend-Lease in operation. NOTES

1. See: H u l l to W i n a n t and his r e p l y , 27 and 29 Sept. 1941, 841.24/811; and W i n a n t to Hull, 30 Sept. 1941, 841.24/814. 2. Breckinridge Long Desk Diary, 15 Feb. 1945, Long Papers, box 5; and D. Dilks ( E d . ) , The Diaries of Sir Alexander Cadogan 1938-45 (Putnams, New York, 1972), pp.364, 642 and 699. 3. Memo, of conversation between H a l i f a x and Acheson, 3 Oct. 1941, 841.24/1059. 4. I b i d , and Acheson memo, for Hull and Welles, 22 Oct. 1941, 841.24/1059. 5. Memo, of conversation between H a l i f a x and Welles, 9 Oct. 1941, 841.24/1074. 6 . H a w k i n s t o A c h e s o n , 1 0 O c t . 1941, 841.24/902J. 7. Ibid. 8. D . A c h e s o n , £xe££Qt_at_tll£_Cj:£Sii