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
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. 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. 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.