Colonial History of India

[acharya]

TALK BETWEEN BRITISH AND AMERICAN OFFICIALS AFTER THE WORLD WAR II

NOTICE THE PAYMENT TO BE MADE TO DOMINION INDIA - 14BILLION DOLLARS


The British Loan-What It Means to Us (radio broadcast), January 1946.

The devastation of World War II forced the British to seek a loan of
$3.8 billion from the United States in 1945 to rebuild their industries
and make the transition to a peacetime economy. In return, the British
agreed to remove all trade barriers that had protected their empire. In
a discussion broadcast in January 1945, Secretary of the Treasury Fred
M. Vinson and Acting Secretary of State Dean Acheson argued that the
loan was necessary to create greater world prosperity and provide markets
for American trade. They cited the importance of the United States'
previous trade relations with the United Kingdom, and the advantages that
the loan would provide for American business interests. The agreement
was characterized as a mutually beneficial one in which the terms of the
loan had been set to make repayment possible, thereby avoiding the
disastrous defaults that had following the extension of loans after World
War I. Without the loan, Acheson and Vinson suggested, Britain would
find itself embattled economically, and the world would once again
confront the specter of war triggered by unfree economic competition.

January 12, 1946
The British Loan What It Means to Us

RADIO BROADCAST

Participants

FRED M. VINSON

Secretary of the Treasury

DEAN ACHESON

Acting Secretary of State

STERLING FISHER

Director, NBC University of the Air

ANNOUNCER: Here are Headlines From Washington:

Secretary of the Treasury Vinson Says British Loan Agreement Will Bring
Increased Trade and Prosperity; Adds That Alternative to Loan Is
Division 'of World Into Viciously Competing Economic Blocs, With Resulting
Danger to World Peace.

Acting Secretary of State Dean Acheson. Says Three Quarters of Future
World Trade WillBe Carried On in Dollars and Pounds Sterling; Claims
Provisions of British Loan Essential To Free World Trade From Excessive
Restrictions.

This is the fifth in a group of State Department programs broadcast by
the NBC University Of the Air as part of a larger series entitled "Our
Foreign Policy" This time the Secretary of the Treasury, Fred M.
Vinson, and the Acting Secretary of State, Dean Acheson, will discuss "The
British Loan". Sterling Fisher, Director of the NBC University of the
Air, will serve as chairman of discussion. Mr. Fisher--

FISHER: The proposed loan to Great Britain has been the subject of
lively discussion since its terms were announced last month. Many questions
have raised by the press and public about the loan, and it has seemed
to us that they deserve frank answers. Secretary Vinson, I'd like to ask
you, as one of the Americans who negotiated the agreement, to describe
briefly the proposed terms of the loan itself, so that we may know
whereof we speak.

VINSON: The outlines of the agreement are simple, Mr. Fisher. We agree
to advance a line of credit of $3,750,000,000 to Great Britain to buy
the goods she needs from abroad to help maintain her economy while she
gets back on her feet. Payments of principal and interest - the interest
rate is 2 percent - start in 1951 and continue for 50 years, until the
loan is paid up, The British, for their part, agree to remove many of
the discriminatory exchange and import restrictions which now exist.
Without the loan it would be impossible for them to do this. The net
results will be of tremendous value to us and to the whole world, in terms
of increased trade and prosperity.

FISHER: Now, Mr. Acheson, I know you have taken a special interest in
our economic policy, first as Assistant Secretary of State for Economic
Affairs and more recently as Under Secretary of State. What do you say
on the British loan?

ACHESON: The loan will make it possible for the United Kingdom to get
back to a peacetime economy and join us in developing an ever-increasing
volume of world trade which both of us need and the whole world needs.

FISHER: I have here what is perhaps the finest collection of tough
questions about the loan that has yet been made up. I'll start off with
some of the milder ones and work up to the meaner ones later. Secretary
Vinson, we might start with the question of whether Great Britain really
needs a loan the size of this one.: Some people are already saying, you
know, that we are being taken for a ride by the wily British.

VINSON: The debate in the British Parliament does not support this
conclusion. But there is always someone who is ready to assume that we,
will get the worst of everything. The fact is, we went into the subject of
Britain's economic condition very thoroughly, and here's where we came
out - or the next few years Britain will be short several billion
dollars which she needs to buy essential imports. In other words, in order
to maintain their economy even at an. austere level, in the next few
years, the, British will. have to, pay out that much more abroad than they
take in from. abroad. It is to our interest and the interest of
everyone else in the world that Britain be able to get back on her feet. Hence
the importance of the loan

FISHER: Why do the British find themselves in, such an unfavorable
spot? Haven't they looked after British interests pretty well, even during
the war?

VINSON: No - the war and war production have always come first. So many
British industries have been making, war Materials that now they have
very few civilian goods to export. But oven, though their exports are
low, the British must, import huge quantities of food and raw materials
in order to live. On top of all this, they have been, forced to sell
about four and a half billion dollars, in foreign investments to keep the
war going. That cut their income, further. <span style='color:red'>And although we supplied. a
lot of Britain's war needs through lend-lease, she will be in debt at
the end of this year to the tune of about 14 billion dollars to her
Dominions, India, and other countries. </span>She has to export goods not only to
pay for her imports but also to pay off part of that debt. And she is
not yet, able to produce many goods for export. So you can see what she
is up against.,

ACHESON: We have to remember that Great Britain has been at War for
six. years. Before the War, Britain was one of the world's greatest
trading nations One fifth of all the world's commerce moved in and out of,
her ports. During the war she poured everything she had into the
prosecution of the war. She had to do this; she was right upon the edge of the
battle, and her existence depended on it. At the end of the war, she
found herself with only one third of her pre-war trade For a nation that
has to bring in huge amounts of goods to live, that could only mean
disaster, unless something were done about it

FISHER: What Would, have happened, Mr. Vinson if the loan negotiations
had fallen through?

VINSON: The British could have existed by cutting their imports and
their living standards. 'They would have cut their purchases from the
United States, and other countries, to the very bone. This the would have
had. to do indefinitely and it would have meant very bad business for
us. Before the war, almost one, sixth of our exports went to the United
Kingdom alone to say nothing of the Dominions. In fact, we sold the
British much more than we bought from them. We want to revive and increase
that trade. But that isn't all. I'd like to point out that we're
dealing here with a problem of vast dimensions. Before the war there, were
two, great currencies in international trade the dollar and the pound
sterling. In 1938 half of the world's trade was done in these two
currencies.

ACHESON: And we could add that, now that Germany and Japan are pretty,
well out of the picture, something like three, quarters of the world's
trade will be carried on, in pounds and dollars So it's not only our
trade with Britain or her trade with us that is involved here.

VINSON: If both the dollar and the pound are strong, it will mean that
trade everywhere will be free of excessive restrictions. The level of
trade. for virtually the whole world depends on the eliminated of
restrictions on the dollar and the pound. That's a main reason why the
proposed British loan is important.

FISHER: Mr. Acheson what Specific advantages will we reap from the
proposed loan? Just what do the British undertake to. do to open world,
markets?

ACHESON: First, as soon as Congress approves the credit, the British
are required to put an end to exchange controls on day-to-day business
transactions with, Americans. It will mean, that an American manufacturer
who, has sold goods to Great Britain will be able to collect his
proceeds in dollars.

FISHER: And after that?

ACHESON: Second, at the end of one year, it is required that exchange
controls be ended throughout the whole sterling area.

FISHER: Will, you explain just. what the sterling area is, Mr. Acheson,
before we go any further?

ACHESON: The sterling area is the area where the British pound sterling
is Most extensively used for international transactions, It takes in
the British Empire and all the Dominions, except Canada and Newfoundland,
and it includes India, Egypt, Iraq, and Iceland. But I should add that
under the terms. of the, agreement, at the end of a year no
restrictions will be imposed by the British on day-to-day transactions in any part
of the world.

FISHER: What about British import restrictions on American goods, Mr.
Vinson? How long will they be continued?

VINSON: They'll be, very much lightened by the end of 1946, Mr. Fisher,
because by that date the British will have removed all discriminatory
restrictions. Of course, they will keep some controls over the kinds of
goods their people buy. They'll have to, because they won't have
foreign money enough to go around. But if they decide to spend so much on
tobacco, or stockings, or machine tools, American firms will be able to
compete freely for the business. There will be no more discriminatory
quotas applied against the United States.

FISHER: And about imperial preference, Mr. Acheson - the system whereby
Britain gives tariff preference to British Empire goods as compared to
American goods.

ACHESON: The British have agreed to support the American proposals to
reduce and eventually eliminate these special privileges. In some ways,
the joint American and British statement on commercial policy is the
most important part of the agreement. The United States has made certain
proposals for consideration by a United Nations trade conference, which
we expect will be held late next summer. The British have joined us in
these proposals for tariff reductions and an end to ham?pering
restrictions of all sorts.

FISHER: Now, Mr. Acheson, what bearing does Britain's war record have
on the loan?

ACHESON: Mr. Fisher, all of us have great admiration for the British
and we think they did ,a great job in the war. We have great sympathy for
what they have suffered. But that has nothing to do with this loan.
This loan is not a pension for a worthy war partner. It's not a handout.
It's not a question of relief, of bundles for :Britain. This loan looks
to the future, not to the past. It does the things that are necessary
to keep the kind of world we want. We're willing to bet three and
three-quarters billion dollars that we and the British can make it work. It's
a case of opening up the trade of the world, so that money will be good
anywhere in trade. The things the British have agreed with us to do
will go a long way toward accomplishing that - toward making it possible
for our people to go out and do business freely anywhere in the world.
That's the kind of world we want to live in.

FISHER The advantages do add up to quite a lot. But there, is some
criticism of the actual terms of the loan that I think you ought to deal
with. For example, the interest rate. Mr. Vinson, isn't 2 percent a
pretty low rate of interest?

VINSON: I would say it's a very reasonable rate. When the British first
came here to negotiate, they would have liked an outright grant We soon
convinced them this was impossible. Their next preference was for a
loan free of interest. This was also out of the question. The interest
rate we finally agreed on was what we could reasonably expect them to pay.

FISHER: But isn't there some provision, Mr. Vinson, for omitting the
interest payments under certain conditions?

VINSON: Yes - but Britain must always meet the payments on the
principal. However, in any year where the present and prospective conditions of
international exchange are bad, and Britain's gold and other reserves
are low, and where her income from foreign transactions falls below a
certain standard, the United States will waive the interest. if in any
year in the future conditions are so bad it would be better for us and
for Britain to have the interest waived than to have Britain default on
the entire credit, as she might otherwise have to.

ACHESON: And remember this too: If interest payments on the loan are
waived by the United States, then Great Britain must have her other
creditors waive interest payments on their loans to her.

FISHER: Are the interest payments just postponed, Mr. Vinson?

VINSON: No, they'll be written off the books.

ACHESON: If all the interest payments are met, Britain will eventually
pay us back $2,200,000,000 more than the credit we're advancing. That's
a very considerable sum.

FISHER: Contrary to what some people say, then, Mr. Acheson, it's
strictly a business arrangement.

ACHESON: I think it's wrong to think of the loan simply as a business
arrangement. We're not in this to make money out of Britain. We made
what everybody thought was a "businesslike arrangement" after the last
war. Foreign governments floated loans, with engraved bonds and all the
trimmings, including much higher rates of interest than we're asking the
British to pay now. But after the last war the foreign governments
found it impossible to repay those loans, And why? Because we tried to
collect payments and interest on our loans, while at the same time we
refused to let our debtors sell us goods to get the, dollars they needed to
pay off these debts to us.

VINSON: This time, we are making the loan on terms we believe will
make; repayment possible. We have a foreign economic policy now which we
believe will permit other nations to trade with us and increase the total
World trade. In, fact, we are working hard to establish. a system which
will cause trade to expand so much that the British will find, it easy
to repay us.

ACHESON: As the Secretary has Said, we don't intend to repeat the
history of the World War I loans.

FISHER: But, Air. Acheson, Can we be sure that the British won't
default on this. loan?

ACHESON: Of course, we take some chance. There's always some risk
involved in making loans But the total context of the agreement makes it
possible for them to pay this time. We know they expect to and we believe
they will.

FISHER Then there's the matter of the lend-lease settlement. Mr.
Acheson, what about that? Isn't it a, pretty generous settlement

ACHESON: No, I think it's a fair settlement. most of the lend-lease
material we sent to Britain has been used, up against the common enemy.
We've written that off. We didn't charge the British for the bombs the
RAF dropped on Berlin and they didn't charge us airmail for delivery. The
remainder - war materials of various sorts - would be worth very little
to us, if we chose to haul them home. We agreed that $650,000,000 was a
fair price for the supplies that remained, after taking into account
the reverse lend-lease which the British furnished to us and which was
not consumed during the war. This, time we have looked at the entire war
account and struck a balance, so that what the British will pay us will
completely clean up all of the mutual claims between our two countries
arising out of the war.

FISHER: Now for some of the tougher questions. There have been a number
of comments on the loan to this effect: Why didn't we get more of a
quid pro quo from the British? They have certain territories in this
hemisphere, for example, where we need permanent bases. What about that, Mr.
Acheson?

ACHESON: The proposed loan, Mr. Fisher, is a financial and economic,
agreement between two great nations. We did not attempt to use the
leverage of the loan to obtain territorial concessions. To demand such
concessions as part of the loan agreement would have., been like saying to
Britain, "Sure we'll help you get, back on feet but not unless you hand
over some of your territory, and do things our way from now on" You can
imagine, how any self respecting nation would react to that. They would
have felt we were taking advantage of their necessities to drive a
sharp bargain in a totally different field. No, the proposed loan is an
economic question. It is as essential to the foreign economic policy of
the United States as it is to the future economic prosperity of Great
Britain. It's a mutual arrangement for mutual benefits, arrived at out of
mutual necessity. And if a lot of extraneous non-economic matters had
been injected into the discussion it's doubtful whether an agreement
could ever have been. reached.

FISHER: But, Mr. Acheson, do the same considerations apply to such
matters as communications and civil aviation?

ACHESON: Yes, I think they do. We have already worked out a very good
agreement with the British on communications. That was done at the
recent Bermuda Telecommunications Conference. And for civil aviation, we
expect to settle our differences in that field around a conference table,
too.

FISHER Now, here's a basic question, Mr, Vinson: Can we afford this.
credit of $3,750,000,000 to Great Britain? Where is the, money coming
from?

VINSON Well, at the end I of the war we were spending 250 million
dollars a day, for war purposes. The British, credit over and. above
lend?-lease settlement is equal to What we spent in 15' is equal to what we
spent in 15 days on the war. Once Congress has, approved it, the credit
will come out of the United States Treasury, from time to time, as
Britain requires funds., It will increase our debt by a little more than one
percent, it's true. This credit is an investment, not an expenditure.
We will get it back with interest. And in view of what's at stake - a
healthy Britain and a healthy World trade - I don't think we can afford
not to make the loan.

FISHER: Another question that is commonly asked, Mr. Vinson, is whether
we won't be setting a precedent for loans to other countries if. this
is credit is advanced to Britain. I understand that when all bids are
in, we may be faced with for loans totaling 20 billion dollars from our
various allies.

VINSON: Mr. Fisher, no other nation plays the part in world trade that
Britain plays. She is in a special position in this respect - it is
inconceivable that world trade could be restored and expanded unless the
British are willing and able to join in the effort. In regard to the
figure of 20 billion dollars which you mentioned, I would like to point
out that these large figures are just somebody's guess on the total
applications, and it is far too. high at that. The Government, of course, is
not lending any such large sums. The Government is going to be very
careful in considering foreign loan applications.

FISHER: Then there's this question, Mr. Vinson, and it's also a very
common one: In helping Britain to get back on her feet, won't we be
financing our competitor? Won't this endanger American trade, in the long
run?

VINSON: That notion is based on a fallacy - the mistaken idea that
there is only so much trade to be had - the idea that foreign trade is like
a melon, and if someone else gets a big slice you get a smaller one, in
direct proportion. That's simply not true. As trade increases, there is
more for everybody. And the principal purpose of this loan is to
increase international trade generally.

ACHESON: It isn't competitive trade that we fear, it's discriminatory
trade - trade hampered by high tariffs, exchange restrictions, quotas
and so on. The British loan enables us to move away from these devices,
which limit our ability to sell abroad.

VINSON: And let's not forget the fact that Britain is normally our best
overseas customer. She can buy more abroad only if she is prosperous,
and if she sells more abroad. To restore British trade is the first and
most important move toward restoring normal American peacetime foreign
trade. Britain won't be a good customer of ours until she's back on her
feet. And we need her trade.

FISHER: Another interesting question, Mr. Acheson, is this one: In
making this loan to the Labor government of Great Britain won't we be
"financing Socialism"?

ACHESON: No, we will not be "financing Socialism". When the British
Government takes over any British private industry it makes payment in
British Government bonds, and, when interest and principal on the bonds
fall due it pays them in pounds sterling. It gets the pounds sterling by
taxing the British people or by borrowing from them or from British
banks. It doesn't need to come to us for its own currency. The loan we are
making is in dollars. The British Government needs dollars not to
finance expenditures in Britain but to finance purchases in other countries
and especially in this country. The loan will very greatly help the
British people to finance what they need to buy abroad. It has nothing
whatever to do with what their Government decides to buy at home.

FiSHER: Now we come to one of the toughest questions of all. It's a
fairly technical one, but I'll try to state it simply. We're facing a,
danger of inflation here at home. We don't have enough goods to meet our
own demands. If you suddenly hand Great Britain three and three-quarters
billion dollars in purchasing power to buy goods over here, won't that
be an added pressure for inflation? Mr. Vinson, that's one for you to
answer, if you can.

VINSON: Well, Mr. Fisher, if you suddenly dumped three or four billion
dollars in purchasing power on the American market, it might well be an
added force for inflation. But that won't happen. The credit will be
spread over a period of several years, and so it probably won't add more
than one or two percent to purchasing power at any one time. And
another thing - the British won't be buying automobiles and refrigerators and
other things for which demand is greatest here in the United States.
The things they'll be buying from us will be raw materials, machinery,
and things, that we can spare, for the most part. Finally, let me say
this: If we get dangerous inflation, it won't be because of the British
loan. The causes will be a lot nearer home than that. It will be because
we have f ailed to get our peacetime, production rolling soon enough;
or it will be because controls are lifted too soon. These are the real
danger points not the British loan.

FiSHER: I have one more question, Mr. Acheson. In her present
condition, is Britain a good investment?

ACHESON: We think she is. All Britain needs is a chance to come back
economically. If we don't give her that chance, then we might as, well
say good-by to our aim of a world with an expanding trade and rising
standards of living. Just consider the alternative, and you'll see that
we've got to help the British to recover.

FISHER: What is the alternative?

ACHESON: The alternative is that we do not get the commercial
arrangements which are necessary for the survival of our free industrial system.
The alternative is the division of the world into warring economic
blocs.

FISHER: Do you agree with that dire prediction Mr. Vinson?

VINSON: Yes, Dean is absolutely right. The alternative to helping the
British is to face an extension and tightening up of the whole series of
trade and exchange controls that have been put in effect during the
war. The world would soon be divided into a few relatively closed economic
regions. That would mean restricted trade, lower living standards,
bitter rivalry, and stored-up hatred for the United States as the richest
nation in the world. That would be a dangerous course to take, I'm
confident that we'll have sense enough to choose the other way.

FISHER: To summarize what you've said, then, the proposed British loan
is an essential step toward the expanding world trade that we need if
we are to remain prosperous. Its terms offer great advantages to both
parties., It's a loan, not a gift, and the total credit we shall advance
will be very small compared to the benefits we shall receive. The
alternative to the loan would be a reversion to destructive economic
nationalism such as we had in the period between the last two wars.

VINSON: If there's time, Mr. Fisher, I'd. like to quote a few sentences
from a newspaper editorial I have here.

FISHER: Go, right ahead, Mr. Secretary.

VINSON: It's from the Arkansas Democrat, and I think it puts, the whole
thing in perspective as well as anything I've seen. Here's what it
says:

" . . . Without this credit Britain would have to embark on a fight for
world trade by every device she could invent . . . "

We would have to battle that set-up, with its wealth of raw materials
and it's manufacturing skills, for trade in South America and every
out?lying corner of, the world.

"It would be sheet stupidity to force such a course on, Britain. The
cost to us in trade would eventually be far greater than the amount of
the loan, even if it's never repaid.

"More than that, Britain must be, Strong if there is to be a balanced
world, with any prospect for peace. She is our natural ally, and a
feeble, impoverished Britain . . . would weaken our own position.

"This loan isn't an act of charity. It's just good sense." So says the
Arkansas Democrat, and I agree.

FISHER: Well, thank you very much, Mr. Vinson and Mr. Acheson, for
answering our questions on the British loan.

ANNOUNCER: That was Sterling Fisher, Director of the NBC University of
the Air. He has been interviewing Secretary of the Treasury Fred M.
Vinson and Under Secretary of State Dean Acheson. The discusson was
adapted for radio by Salden Menefee.



Released to the press Jan. 12. Separate prints of this broadcast are
available from the Department of State. For text of the financial
agreement, see Bulletin of Dec. 9, 1945, p. 907.