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“Beggar My Neighbor”: America and the British Interim Finance Crisis, 1940–1941

Published online by Cambridge University Press:  03 February 2011

Warren F. Kimball
Warren F. Kimball
Affiliation:
The University of Georgia
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Extract

Nazi Germany was not the only enemy the British faced in the fall of 1940. While the Battle of Britain raged in the skies over southern England, an equally important struggle took place at the diplomatic and financial level. This time Britain's foe was far more nebulous: American distrust of things European and the memory of World War I. Although Britain eventually withstood the blitz on her own, British leaders knew full well by the summer of 1940 that continued resistance to Hitler depended upon aid from the United States.

Type
Articles
Information
The Journal of Economic History , Volume 29 , Issue 4 , December 1969 , pp. 758 - 772
Copyright
Copyright © The Economic History Association 1969

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References

1 Cohen, Warren I., The American Revisionists: The Lessons of Intervention in World War I (Chicago and London: Univ. of Chicago Press, 1967)Google Scholar is a useful study of the revisionist position.

2 The best study of the purpose and passage of the Johnson Act is Vinson, J. Chal, “War Debts and Peace Legislation: The Johnson Act of 1934,” Mid-America, L (July 1968), 206–22Google Scholar. The neutrality legislation of the 1930's is fully discussed in Divine, Robert A., The Illusion of Neutrality (Chicago: Univ. of Chicago Press, 1962)Google Scholar.

3 As quoted in Wheeler-Bennett, John W., King George VI: His Life and Reign (London: Macmillan, 1958), p. 521Google Scholar. The development of Britain's financial problem and the American response to it is traced in Kimball, Warren F., ”The Most Unsordid Act”: Lend-Lease, 1939–1941 (Baltimore: Johns Hopkins Press, 1969)Google Scholar.

4 Sayers, R. S., Financial Policy, 1939–1945, a volume in History of the Second World War: United Kingdom Civil Series, SirHancock, Keith, ed. (London: Her Majesty's Stationery Office and Longmans, Green, 1956), p. 397Google Scholar. Pages 383–97 of this study contain the most complete treatment of the British side of the interim finance problem. Although the Lend-Lease Act did not specifically forbid the paying of “old commitments” with Lend-Lease appropriations, Budget Director Harold Smith promised the Congress that Britain would pay for such pre-Lend-Lease purchases in cash. See U.S. House of Representatives, Subcommittee of the Committee on Appropriations, 77th Cong., 1st Sess., Hearings on H. R. 4050: Making a Supplemental Appropriation for the National Defense to Provide Aid to the Government of any Country Whose Defense the President Deems Vital to the Defense of the United States, and. for Other Purposes (Washington: U.S. Gov't. Printing Office, 1941), p. 67Google Scholar.

5 Roosevelt, Franklin D., The Public Papers and Addresses of Franklin D. Roosevelt, comp. Samuel I. Rosenman (13 vols.; London: Macmillan, 1938–1950), 1940, p. 610Google Scholar.

6 Morgenthau, Henry Jr., Diary, MS (Franklin D. Roosevelt Library, Hyde Park, N.Y.), Dec. 17, 1940Google Scholar, vol. 340, pp. 343–45; Dec. 18, 1940, vol. 341, pp. 56–61. Hereafter cited as Morgenthau Diary (MS), followed by the date, volume, and page numbers.

7 Records of the Foreign Economic Administration, MS (National Archives, Washington, D.C., under the custody of the Department of State), President's Liaison Committee, files of Philip Young, 1940-July, 1941, box 13, file titled “correspondence re: Sir Frederick Phillips,” copy of a letter from the British Embassy dated December 19,1940. See also Hall, H. Duncan, North American Supply, a volume in History of the Second World War: United Kingdom Civil Series, SirHancock, Keith, ed. (London: Her Majesty's Stationery Office and Longmans, Green, 1955), pp. 260–61Google Scholar.

8 Morgenthau Press Conferences, MS (Franklin D. Roosevelt Library, Hyde Park, N.Y.), conference of Dec. 19, 1940, vol. 16, pp. 205–6Google Scholar.

9 Hall, North American Supply, p. 260, states that by the first week in December the British dollar reserve had dipped to $574 million.

10 Memo by Cochran to Young, Morgenthau Diary (MS), Dec. 19, 1941, 341: 190–94.

11 Ibid., Dec. 23, 1940, 342: 49-A through 49-E. In attendance at the meeting were Morgenthau, Hull, Stimson, Navy Secretary Frank Knox, Army Chief of Staff General George Marshall, and Chief of Naval Operations Admiral Harold Stark.

12 The meeting between Phillips and Roosevelt is mentioned in Hall, North American Supply, p. 262. The reaction of the British Treasury is reported in Sayers, Financial Policy, p. 384, and Phillips' comment is in a footnote on the same page. Sayers is most explicit about the surprise the idea caused in British government circles and presents his material in a section discussing American pressure on Britain to spend every available dollar resource. Both Hall and Sayers infer, the latter more strongly, that this was another example of American cupidity, whereas in reality it was a British idea.

13 Beaverbrook to Churchill, Dec. 26, 1940, as quoted in Young, Kenneth, Churchill and Beaverbrook (London: Eyre and Spottiswoode, 1966), pp. 176–78Google Scholar. Beaverbrook was the British Minister for Aircraft Production. The destroyer-bases deal of September 1940 was a trade of overage American destroyers for tlie right to build military bases on a number of British territories in the Western Hemisphere.

14 Churchill to Roosevelt (received by Roosevelt on Jan. 2, 1941), U.S., Department of State, Foreign Relations of the United States (Washington: U.S. Gov't. Printing Office, 1862—), 1941, III, 1–2Google Scholar. (Hereafter cited as FR plus year and volume.) There is some confusion between this letter and a similar one which Churchill claims to have sent on Dec. 31, 1940; see Churchill, Winston, Their Finest Hour, vol. II of The Second World War (Boston, 1949), pp. 573–74Google Scholar. The letter printed in Churchill's memoirs deals with identically the same topics and for tlie most part in exactly the same language. So much so that it seems clear that Churchill is referring to the message Roosevelt received on January 2. There are, however, some substantive differences between the two copies. In the letter printed in his memoirs, Churchill is critical at length of the scheme to transfer the South African gold. After stating that public knowledge of the shipment would hurt British morale and encourage the Germans, he recommended that the move be avoided if possible. He went on to suggest giving title to the South African gold to France and switching the French gold in Canada to New York to obviate the need for a dangerous sea voyage. With obvious bad grace, he finally agreed that if Roosevelt felt the transfer was “the only way,” then the necessary instructions would be given. None of those strong tones appears in the message printed in FR. In that copy of the letter Churchill dealt with the gold transfer in two brief sentences and only hinted at his annoyance and fears by the phrase “varying reactions.” In addition to that significant difference between the two copies of the message, the FR copy does not contain a New Year's greeting and a brief description of the recent bombings of London which are in the memoir copy. There are also some minor changes in wording. Nevertheless, it seems unlikely that two different messages were sent, particularly in view of Churchill's articulateness, for he repeats himself identically in the major portion of each copy. At a meeting of Mongenthau and his staff on January 3, Edward Foley, read the text of the message which Roosevelt had received on January 2. Unhappily, the verbatim record of that meeting does not solve the mystery. The reading by Foley corresponds word for word with the message printed in FR, except for the first paragraph which deals with the Capetown gold shipment. However, the message as read by Foley is preceded by a line of asterisks and a handwritten notation “(in safe).” Since Morgenthau had cautioned his secretary to handle personally all records mentioning the gold shipment, it is possible that those asterisks indicate that the portion of the message concerning the gold was in the safe and not written down. It is also possible that two messages were sent and Churchill combined them into one when writing his memoirs. Certainly Morgenthau complained during this period that Churchill kept sending “unwise” cables to the President. My own feeling is that Mr. Churchill succumbed to the temptation of printing what he wished he had said to Roosevelt rather than what he actually did say. It is also quite possible that Churchill wrote his memoirs from a draft message rather than the final copy as sent. The reading by Foley is in Morgenthau Diary (MS), Jan. 3, 1941, 344: 237–38. Morgenthau's comment about “unwise” cables is in ibid., Jan. 9, 1941, 346: 126. The complete copy of the message as received by Morgenthau is in ibid., Jan. 3, 1941, 344: 262. A glance at it might solve this little puzzle, but that document is not open to researchers under restrictions placed on Churchill's correspondence by both the British government and the Churchill heirs. As minor as it may seem, it could become significant if it demonstrated that Churchill edited the documents he printed in his memoirs.

15 Sayers, Financial Policy, p. 385. Hall, North American Supply, p. 262, states the ship sailed on January 5, with $150 million of gold. That is roughly £.30 million, which is the figure Churchill mentioned in his message to Roosevelt received on January 2. Sayers says the difference was caused by the arrival of additional quantities of newly mined gold. Additional gold shipments from South Africa to the United States were made in March and April of 1941.

16 Morgenthau Diary (MS), Dec. 19, 1941, 341: 190–94. Ibid., Dec. 23, 1941, 342: 49-A through 49-E. Sayers, Financial Policy, pp; 335–36, 386, summarizes. the question from the British viewpoint Pickersgill, J. W., The Mackenzie King Record (Toronto: Univ. of Chicago Press and Univ. of Toronto Press, 1960), I (1939–1944), 187Google Scholar.

17 As quoted in Hancock, W. K. and Gowing, M. M., British War Economy, a volume in History of the Second World: United Kingdom Civil Series, SirHancock, Keith, ed. (London: His Majesty's Stationery Office, 1949), p. 234Google Scholar. The Belgian loan is discussed in Sayers, Financial Policy, pp. 386, 370–71.

18 Shepardson, Whitney H. and Scroggs, William O., The United States in World Affairs: An Account of American Foreign Relations, 1940 (New York and London: Harper and Bros., 1941), p. 236Google Scholar.

19 Memo by Cochran to Young, Morgenthau Diary (MS), Dec. 19, 1940, 341: 192–94. Jones was head of the RFC as well as Secretary of Commerce.

20 Hall, North American Supply, pp. 260–70. Stimson, Henry L. Diary, MS (Yale University, New Haven, Conn.) Dec. 18, 19, 20, 1940Google Scholar. The major exception to order limits was for merchant ships. See Hall, North American Supply, p. 261.

21 Hall, North American Supply, p. 263. Blum, John Morton, From the Morgenthau Diaries, II, Years of Urgency, 1938–1941 (Boston: Houghton Mifflin, 1965), 210Google Scholar.

22 Press conference of Dec. 21, 1940, Roosevelt papers, MS (Franklin D. Roosevelt Library, Hyde Park, N.Y.), President's Personal File (PPF) 1-P, XVI, 393–94.

23 Hall, North American Supply, p. 263. Morgenthau Diary (MS), Jan. 2, 1941, 344: 78. Harry White listed 15 possible steps on Jan. 8, see ibid., 346: 161–62.

24 Theodore Wyckoff, “The Office of Secretary of War Under Henry L. Stimson, 1940–45” (unpublished Ph.D. dissertation, Dept. of Politics, Princeton University, 1960, copy available in the Office of the Chief of Military History, Washington, D.C.), p. V-9.

25 Churchill to Roosevelt, FR, 1941, III, 1–2.

26 Morgenthau Diary (MS), Jan. 3, 1941, 344: 238–42.

27 Ibid., Jan. 8, 1941, 346: 8–23; Jan. 9, 1941, 346: 125, 222. Blum, From the Morgenthau Diaries, II, 210, also mentions the “hysterical” comment, though his quoting of Morgenthau's Diary is not precisely correct. Roosevelt's promise to the reporters is in Roosevelt papers (MS), PPF 1-P, vol. XVII, press conference on January 7, 1941, pp. 13–14. The interim financing memo was written largely by two of Morgenthau's top assistants, Edward Foley and Oscar Cox.

28 Blum, From the Morgenthau Diaries, II, 223–24. Hall, North American Supply, pp. 270–71. Stimson Diary (MS), January 22, 1941.

29 There was heavy pressure from Morgenthau on the British for them to sell their direct investments in America as quickly as possible, but nothing significant was realized from such sales until the spring of 1941. That pressure is more important to the question of legislative strategy for the Lend-Lease Bill and the attempt to convince the Congress of Britain's dollar shortage. Sales of British-owned American securities continued, but except for a brief flurry, produced relatively little. See Blum, From the Morgenthau Diaries, II, 220–23.

30 This is treated in Langer, William L. and Gleason, S. Everett, The Undeclared War, 1940–1941 (New York: Harper and Bros., 1953), p. 274Google Scholar.

31 Hall, North American Supply, p. 272. The Canadians were most generous in their financial support of England and permitted them to pay for goods without exchanging sterling for dollars, which was, in effect, a loan without interest. They also bought sterling during the interim period which gave Britain some of the dollars she desperately needed, since Canadian dollars could readily be exchanged for American dollars. Sayers, Financial Policy, pp. 321–39, deals with Canadian financial aid to Britain during the war.

32 Hall, North American Supply, p. 259.