The Clearing Union

As he flew back to England, aboard the Clipper, Keynes had time to reflect on his conversation with Acheson and Hawkins. Between the demands for non-discrimination and convertibility of currencies, as expressed by the State Department, and the system of bilateral trade agreements he himself had been advocating there was no common denominator. The one practically excluded the other. The State Department had made it unmistakably clear that, if Britain followed after the war a policy of extension of the existing bilateral agreements, this would mean a ‘trade war’ with the United States. These warnings could not be ignored. Nor could the inescapable fact that Britain would emerge from the war as a heavy debtor to many countries; that reconversion from war production would take a long time; that the need for imports would be immediate; and that the chronic shortage of dollars would last several years after the end of hostilities. Having lost its overseas investments, its gold and dollar reserves, Britain would be able to pay for its imports only by its exports. Keynes’s visit to Washington had not altered his conviction that the United States would not correct its unbalanced creditor position after the war. How then could Britain open its doors to American exports, and buy at the same time food and raw materials overseas? That was the dilemma.