August 4, 1956
THE ECONOMIC WEEKLY
From the London End
Sterling—Dollar Diplomacy
IT
is c e r t a i n t h a t the m o s t eventful
a n d c r i t i c a l phases i n sterling's
post-war h i s t o r y have been those
periods w h e n W h i t e h a l l believed t h a t
A n g l o - A m e r i c a n economic co-operat i o n was the single a l l - e m b r a c i n g
basis for i n t e r n a t i o n a l economic rec o n s t r u c t i o n a n d f o r the r e s t o r a t i o n
of w h a t once was t e r m e d "economic
n 6 r m a l c y " . A n d now, w e are t o l d
w i t h masses of conclusive evidence
t h a t a considerable reason for the
c r i t i c a l episodes in sterling's postw a r h i s t o r y has been the m a r k e d
d i s p a r i t y in economic motives between L o n d o n
and Washington.
Indeed the whole period 1941 to 1947
( a n d even beyond) was in terms of
i n t e r n a t i o n a l economic history, .symbolical of conflicting A n g l o - A m e r i c a n
aims a n d policies. T h i s conclusion
is made i n e v i
table
by Mr
R i c h a r d N Gardiner's; r e m a r k a b l e
study of A n g l o - A m e r i c a n economic
relations in the seven years up to
1947. It is a m a t t e r of g r e a t m i s f o r tune t h a t the study could not have
encompassed t h e , events, pressures
a n d embarrassments w h i c h led up
to the d e v a l u a t i o n of s t e r l i n g . The
study however pets a s t a n d a r d of
e n q u i r y a n d observation t h a t i s l i k e ly to leave a certain m a r k on the
study of post-war i n t e r n a t i o n a l economic developments.
The first b e g i n n i n g of serious
A n g l o - A m e r i c a n co-operation began
w i t h Lend-Lease- a system of m i l i t a r y aid rendered by a p o w e r f u l
n e u t r a l to a belligerent B r i t a i n a n d
w h i c h the then M r . C h u r c h i l l described as "the
m o s t u n s o r d i d act in
h i s t o r y " . T h i s is the .starting p o i n t
i n M r Gardiner's study. H e shows
the deft a n d high-mindedness of the
late President Roosevelt i n m a k i n g
t h i s w o r t h y gesture a n d a t the same
t i m e exposes the m a c h i n a t i o n s of the
scheming pundits of n a r r o w selfinterest w h o then i n h a b i t e d the State
D e p a r t m e n t a n d w h o conceived o f
Lend-Lease as the basis for o b t a i n l n g B r i t i s h u n d e r t a k i n g s for the
a b a n d o n m e n t of I m p e r i a l preference
after the w a r . T h i s i s h i g h l i g h t e d
b y the negotiations w h i c h led t o the
A t l a n t i c C h a r t e r o f A u g u s t 1941.
M r . Sumner Welles w h o accompanied
t h e President a t the A t l a n t i c r e n dezvous w a s p a r t i c u l a r l y concerned
s t o r l i n g - D o l l a r D i p l o m a c y — by
R i c h a r d N G a r d i n e r ( O x f o r d Press)
1966 Pp. 142.
w i t h questions of "economic nond i s c r i m i n a t i o n " and even went so far
as r e f o r m u l a t i n g p o i n t 4 of the d r a f t
C h a r t e r to include "the e l i m i n a t i o n
of a n y d i s c r i m i n a t i o n " in trade a n d
the free access "on equal terms"' to
all markets and r a w materials. The
B r i t i s h rejection o f this f o r m u l a t i o n
on the grounds that- it i m p e r i l l e d
Britain's
obligations under the
O t t a w a a r r a n g e m e n t s received the
i i n a l support of Roosevelt, but on the
condition t h a t this m a t t e r " m i g h t
f a l l i n t o its place after the w a r in a
general economic settlement". A n d
since then r i g h t up to the conclusion
a n d execution of the 1946 Loan
Agreement, the State D e p a r t m e n t
supported by the A m e r i c a n Treasury
h a d w o r k e d for B r i t a i n ' s relinquishment of the O t t a w a p r e f e r e n t i a l
t a r i f f arrangements and the s t e r l i n g
area and to a l l o w "free trade aecess"'
and
'"economic
multilateralism".
This hart been the single, fundament a l t h r e a d in A m e r i c a n foreign
policy a l l along.
The ending of Lend-Lease in 1945
appeared to a l l the w o r l d to have
been a b r u p t l y made. There was a
terse announcement f r o m the W h i t e
House on August 22nd that year t h a t
the "President has directed that,
steps be t a k e n i m m e d i a t e l y to discontinue a l l Lend-Lease operations
. . . " A n d this, a s G a r d i n e r now
tells us. " f e l l upon B r i t a i n like a
bombshell f r o m
an
unexpected
quarter". C h u r c h i l l described the
step as " r o u g h a n d harsh"', w h i l e
A t t l e e , the new P r i m e M i n i s t e r stated
t h a t "a m o r e l i b e r a l i n t e r p r e t a t i o n
of Lend-Lease h a d been expected".
A n d yet, as G a r d i n e r points out w i t h
o v e r w h e l m i n g evidence, the A m e r i cans h a d l o n g made it abundantly
clear t h a t Lend-Lease was a purely
m i l i t a r y system of aid that it. was
as T r u m a n put i t . a "weapon of w a r
o n l y " . M o r e fundament ally the endi n g of Lend-Lease. in view of i t s
seriousness to the B r i t i s h economy,
paved the w a y for what the A m e r i cans c a l l e d "Phase IP - -a phase in
w h i c h the most determined a t t a c k
was to be made on t h e w e l t e r of
economic fences B r i t a i n h a d erected
r o u n d herself, the E m p i r e a n d the
s t e r l i n g area.
L o r d Keynes w h o earlier h a d come
t o k n o w the a b d u r a n t a n d sometimes u n d u l y s t u b b o r n m e n t a l i t y o f
A m e r i c a n n e g o t i a t o r s as a result of
the t u r m o i l he went t h r o u g h In the
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setting u p o f the I M F a n d I n t e r n a t i o n a l B a n k still hoped, when he n o w
led the B r i t i s h delegation ( f o r negot i a t i n g the loan that the Lend-Lease
spirit of generosity could be once
again evoked in W a s h i n g t o n . He
was rudely mistaken. R e a l i s i n g the
plight of B r i t a i n , he enquired " C a n ' t
you have another b r a i n - w a v e l i k e
Lend-Lease to get us out of our difficuities?" A n d the reply he received
W a s ' N o . Sir, we're n o t h a v i n g a n y
more b r a i n - w a v e s ' . A n d so began
the A m e r i c a n offensive. The p r i n c i pal negotiator on the A m e r i c a n side
was the imposing W i l l C l a y t o n . He
m a y not have possessed the i n t e l lectual b a c k g r o u n d of Keynes or of
H a l i f a x but he possessed a " r e m a r k able a b i l i t y " t o understand w h a t constituted A m e r i c a ' s
self interest.
H i s papers record the statement :
August 4, 1956
" . . . . i f y o u succeed i n doing a w a y
w i t h the E m p i r e p r e s e r e n c e a n d
opening up the E m p i r e to U. S.
Commerce, it may w e l l be that we
can a f f o r d to pay a couple of
b i l l i o n dollars for the privilege".
The A m e r i c a n b a n k e r W i n thdrop
A l d r i c h whose influence Is reflected
in his presence in L o n d o n now as
U. S. Ambassador is stated to have
urged at the t i m e : "The B r i t i s h
C o m m o n w e a l t h should agree to do
a w a y w i t h exchange controls on
c u r r e n t account a n d give up the so
called s t e r l i n g area . . . . relinquish
the system of i m p e r i a l preference
a n d e l i m i n a t e q u a n t i t a t i v e controls".
A n d so in spite of the considerable
persuasive powers of Keynes, the
A m e r i c a n s extracted B r i t i s h concessions on at least t w o of the three
p r i n c i p a l defences around sterling-;
the c o n v e r t i b i l i t y of sterling: and the
s c a l i n g down of the s t e r l i n g balances.
To A m e r i c a n s these concessions
were considerable victories for what
they termed " m u l t i l a t e r a l i s m ' ' and
yet a l l w h o were i n f o r m e d of the
B r i t i s h economic s i t u a t i o n k n e w t h a t
t h e under-takings foisted on the
U , K . w o u l d sound the v i r t u a l deathk n e l l of s t e r l i n g . In these ways the
intended A m e r i c a n penetration or
"free access'" to the ' m a r k e t s a n d
r a w m a t e r i a l s " of the Empire was
to be executed. The L o a n Agreem e n t of 1946 d i d however provide
one escape
for B r i t a i n : there was
the ambiguous clause to the effect
t h a t B r i t a i n was to apply its application (by certain dates) "unless in
exceptional cases the parties agreed
otherwise". A n d it was on this score
that convertibility
was abandoned
after a b r i e f disastrous period a n d
the s t e r l i n g area re-fenced. A n d
this was in spite of Clayton's firm
belief that " w i t h this credit, B r i t a i n
is enabled to
abolish the s t e r l i n g
area dollar pool w i t h i n one year. . . .
w h i c h is the first v e r y obvious and
concrete benefit t h a t the U. S, w i l l
derive'.
T h e B r i t i s h aim in i t s economic
r e l a t i o n s w i t h the U S, has possessed, it now appeas, both a defensive
a n d offensive character. A l l realized
t h a t the A m e r i c a n economy was a l l
t o o - p o w e r f u l a n d on the realisation,
W h i t e h a l l banked on the possibility
Of using t h i s power to revitalise
s t e r l i n g a n d it is here that Keynes'
c l e a r i n g u n i o n proposals are of relevance. T h e u n i o n in his, and thus
the B r i t i s h Government's view, w o u l d
be a source of s h o r t - t e r m credit a n d
w h i c h could b e d r a w n upon a d l i b .
Since the A m e r i c a n s w o u l d be asked to c o n t r i b u t e considerably m o r e
THE ECONOMIC WEEKLY
to the c l e a r i n g u n i o n funds, they
would in act finacing the p l a n ned r e h a b i l i t a t i o n of sterling, On
the other hand,
the defensive features of B r i t i s h policy were l a r g e l y
concerned w i t h the containment of
the i n t e r n a t i o n a l encroachment of
the d o l l a r : here the B r i t i s h had a l l
along resisted to their fullest power
the a t t a c k s on the s t e r l i n g area and
the preferential system of E m p i r e
tariffIn the analysis of the study under
review, the a u t h o r claims t h a t the
Americans were f u l l y prepared to
undertake a full-scale 'review" of
the Loan Agreement a n d in particular the failure of B r i t a i n to f u l f i l its
obligations (after the c o n v e r t i b i l i t y
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918
f a i l u r e ) but f o r the cold w a r a n d the
astutely t i m e d F u l t o n speech of Sir
Winston ' c h u r c h i l l . The coming of
the cold w a r forced t h r o u g h a n
abandonment ( f o r the t i m e being) of
the A m e r i c a n offensive a n d t h i s a l lowed the b r e a t h i n g space t h a t B r i t a i n then considered essential to her
life. A n d it. is at this point t h a t
Gardiner ends his e x c i t i n g h i s t o r y of
a very i m p o r t a n t period of A n g l o American
economic co-operation.
Subsequent developments m a y v e r y
well show t h a t In spite of the i n t e n sification of the cold war, the A m e r i
can offensive was resumed somew h a t in 194 8 and this was possibly
a c o n t r i b u t o r y f a c t o r to the 1949
sterling d e v a l u a t i o n crisis.