36 Ward to Burton

Minute CANBERRA, 8 July 1949

I think the main issues arising from the discussion this morning may be summed up as follows:-

[matter omitted]

If the United States does not take steps to maintain a high level of employment, the United Kingdom and Western Europe simply cannot afford to trade with her at the present level. They could not depend on the United States for supplies of food and raw materials at the present level because they could not pay for them. It would simply mean severe dollar cuts and heavy unemployment both in the United Kingdom and Western Europe. The point Swan [1] made this morning, you will remember, was that other Western Hemisphere countries would also find themselves in a similar position in that they could not afford to trade with the United States at the present level and maintain full employment themselves. So we have the United Kingdom, Western Europe and countries in Western Hemisphere like Canada, faced with a common problem.

The solution, Swan suggested, was that the United Kingdom should try to reach some sort of arrangement, not only with Europe-East and West-but with western hemisphere countries, to set up a mutual full employment area. Under such an arrangement, the goods which western hemisphere countries could not sell to the United States because of recession there, would be sold within the agreed area, and in return those western hemisphere countries would receive goods which they previously imported from the United States from other countries within the area. This, of course, means isolating the United States, as a kind of 'plague spot' in the world economy. This expresses the matter very bluntly, but it does bring out the main issue.

Swan's argument on devaluation was mainly, that by this means, these 'third' western hemisphere countries would be able to continue buying United Kingdom exports. Without devaluation we might not only lose our footing in the United States but in the whole of the Western Hemisphere.

The Immediate Issue World-wide ostracism of the United States is clearly an extreme measure and carries with it far-reaching political implications.

Therefore, the only wise policy is to exhaust the possibilities of United States' action first. But the critical consideration involved here, as mentioned above, is the time factor. The United States Government must act both vigorously and quickly, otherwise the United Kingdom, Western Europe and countries in the western hemisphere, outside the U.S.A., might all be involved in grave economic difficulties.

Perhaps this is a case for not sparing any means to drive home to the United States the importance of acting now.

1 T.W. Swan, Chief Economist, Department of Post-war Reconstruction.

[AA: A4311, 29/4]