98 Note by Bruce of Conversation with Keynes

[LONDON], 12 January 1943

I asked Keynes to come and see me this morning and we had a quite interesting three quarters of an hour's conversation.

I told him that I felt some concern that we were not really getting on to his side of the post-war policy, namely, International economic co-operation. I asked him what had happened with regard to the Clearing Union paper and the one on 'Buffer Stocks'. [1]

With regard to the former he said that Phillips had taken it back to the U.S.A. and given it to the Administration there in its revised form. [2] There had been a considerable pause but only yesterday they had heard that the United States Treasury are now putting in a counter paper which Keynes feels is certain to be down the lines of White's scheme for an International Bank. [3]

With regard to the 'Buffer Stocks' paper [4], it had been drastically revised as a result of the recent conversations in London and was now at the point where it was likely to be submitted to the Cabinet for its approval.

Keynes also told me that the paper the Treasury is contemplating putting in would be a paper that had not the endorsement behind it of the American Administration, and would be treated merely as a private document. He said that this appeared to him very unsatisfactory and that led us to the point that really this matter is not progressing as it should.

On this theme I developed to Keynes very briefly my whole view with regard to post-war problems and how they are all linked together, and the necessity of getting a definite policy agreed and getting on with the job. I found that Keynes was in complete agreement and he told me that he had been attending a weekly meeting at the Foreign Office where the Political problems were being considered, but that he had been horrified at the lack of really sound thinking. He told me that what I had said to him was the first realistic approach that he had heard to the whole subject.

I then put to Keynes very strongly, with regard to his own particular subject, that it seemed to me the time had come for ceasing these underground discussions and coming out into the open with the broad principles that we feel should be adopted and then creating the machinery for getting on with the job of considering practical propositions. I asked him whether he would have any objection to that now being done. His reply was that on the contrary he would welcome it.

Keynes said that while we had no definite ideas as to our own policy it would have been embarrassing, but now that we knew roughly where we stood he thought it would be much better to take a definite line.

We then discussed how this could be brought about and were agreed that the only way was to get the Prime Minister to see the necessity and that he and the President should make public statements as to what we had in mind.

On this basis we left this phase of our discussions and then went on to deal with the American position and our approach to them. I outlined to Keynes my idea that we should put it flatly up to America that we were prepared to play in bringing about International economic co-operation but that whether this could be effected depended entirely on the attitude of America. If they were not prepared to play then we would have to get on with the job of consolidating the British Empire economically. I pointed out to Keynes that while all the Dominions were anxious to bring about an expansion of International trade, and as long as there was any hope of doing that, [they] would not listen to any idea of an Empire Economic Unit. If, however, International economic co- operation was impossible the Dominions would be prepared to co- operate in Empire economic solidarity.

I pointed out to him that the Ottawa Conference [5] had been solely for the purpose of meeting the economic chaos that then prevailed and had not the sinister objective of bringing about

Empire economic autarchy. I told him that I was sure the Dominions' point of view was-we quite liked Imperial Preference, but that would not weigh in the balance with us in comparison with the real expansion of world trade.

Keynes said that he very much agreed as to the attitude we should have taken towards America and then raised the question of reciprocal Lease-Lend. He gave me a startling piece of information, which they had only discovered in the Treasury in the last few days, that probably the reciprocal Lease-Lend that we were affording was equal to 50% of what the Americans were doing and if you took into account what we were doing for Russia and other countries, the British Empire was probably giving freely 75% of what America was affording by Lease-Lend.

Keynes then told me that in America propaganda is being put out that reciprocal Lease-Lend is only equal to about 1% of what America is doing. We agreed that the Americans ought to be undeceived on this particular point but felt it could best be done by the Americans themselves and there is quite a prospect that Stettinius will bring it out in his evidence before the Congress Committee.

The conversation was quite interesting and useful and we agreed that we would have further talks.


1 Bruce had received early drafts of both these papers, but had been asked not to disclose their contents as no other Dominion representative had yet seen them (see cablegram 170A of 16 October 1942 on file AA:M100, October 1942). In Washington, J. B. Brigden had also received a copy of the Clearing Union paper for transmission to Canberra (see the attachment to his letter of 19 October 1942 on file AA:A989, 43/735/56/2).

2 Phillips had given a fifth draft of Keynes's Clearing Union paper to Morgenthau in August 1942. On returning to Washington in November 1942, Phillips submitted a further draft to the U.S.

Treasury dated 9 November 1942, which had been revised in the light of the U.K.-Dominions economic discussions held in London between 23 October and 9 November 1942. (For a copy of this draft see attachment A to Wilson's letter of 18 January 1943 on file AA:A989, 43/735/56/1.) This formed the basis of the version published on 7 April 1943 under the title 'Proposals for an International Clearing Union'.

3 H. D. White's 'Preliminary Draft Proposal for a United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations', dated April 1942, had been sent to Keynes in July 1942. This formed the basis of subsequent drafts of the U.S. Govt's Stabilisation Fund proposals. In February 1943, the U.S. State Dept forwarded a revised draft dated January 1943 to the British Treasury which was to be used at an informal international meeting held in Washington on 15-17 June (see copy on file AA:A989, 43/735/56/2). This was published, with minor alterations, in Washington on 7 April 1943. Further drafts also appeared on 8 May, 15 June, 26 June and 10 July, with a summary being produced on 19 August. See also Documents 104 and 129 and J. Keith Horsefield, The International Monetary Fund 1945- 1965, vol. 1, International Monetary Fund, Washington, 1969, ch.


4 A draft of this paper, entitled 'The International Regulation of Primary Products' and dated November 1942, is attachment C to Wilson's letter of 18 January, on the file cited in note 2.

5 This conference, attended by British and Dominion representatives in 1932, resulted in a limited Imperial Preference agreement.

[AA:M100, JANUARY 1943]