Papers relating to the foreign relations of the United States, 1931, Volume I

462.00R296/4807½

Memorandum by the Secretary of State of a Conversation With the British Prime Minister (MacDonald), London, July 31, 1931

London, July 31, 1931

I lunched with the Prime Minister. He spoke of the situation being bad, too. I told him that it was a case of the psychology of a panic. In my opinion the thing to do was to keep your head cool. I told him how Sackett had acted in Berlin. I was told by Mellon of Snowden’s⁷⁹ talk with him as to a possible moratorium and some things that could not be even mentioned without doing harm. He agreed with me and told me that something worse had happened, namely, he found that Henderson had talked to Laval about the financial situation. I reverted to Laval’s talk with me saying that it was brought up entirely by Laval and pointed out that Laval’s promise had been kept. He agreed that it had been kept. MacDonald said he had this in mind when he made his recent statement in Berlin of how helpful the French had been. I did not say anything but I thought that while his motive was good it might have been better for the credit of the Bank of England if he had not spoken as he did even in regard to the attitude of the French.

I turned the question to disarmament and read him portions of Mr. Boot’s letter to me of June 3.⁸⁰ He spoke of the recent French statement on disarmament and how bad it was in certain respects. One point he mentioned was that it said the Treaty of Locarno,⁸¹ the Covenant and all the other pacts were no good unless they were backed by force. He told me that the British had selected their delegation yesterday to go to the Geneva General Disarmament Conference next February, that he was to head the delegation with the understanding that he won’t have to be there all the time. He told me the difficulties of the situation and that the opposition under Baldwin had been very decent, but could not join in a three-party delegation because they were going to try to put the Labour Party out in the meanwhile. I told him of my talk with Henderson about giving me access to the results of the deliberation of their three-party preparatory commission. He told me that he had approved of Henderson’s action and thought they could give us a large part of their work outlining some of the things they were doing.

He talked of the general problem that Britain had in the face of France’s arbitrary position on armament, saying that he did not intend to be led into a contentious attitude in spite of the irritation, but he thought it would be better for Britain to stand aside and not force a rivalry in lending with other countries. He spoke frankly of his relations with Norman,⁸² how Norman had become excited under the strain and was now, today, ill, virtually broken down under the pressure. I told him of my recent thoughts on the subject of methods of investment and spoke to him of Feis’⁸³ book on “Europe and the World’s Banker,” a study made of the different methods of investment between France and England. Somewhat to my surprise he proved to be familiar with the methods of lending direct to the industries as Britain had done and lending to the political governments as France had done. He said he never would allow Britain to drift into the French method, even if France built up a big financial control in Paris. I told him that I agreed with him; that no two nations could go into a financial contest of political lending without really engaging upon a modified warfare which might drift into very dangerous political irritation; that in my opinion the French method would lead to dangers both between the competing creditor nations and also to a very unsatisfactory relationship between the respective creditor and debtor nations. I pointed out, as examples, how little trouble the American investing corporations had got into during the present economic crisis where they loaned directly to the foreign industries, as compared to the cases where they loaned to the governments of other nations.

He told me at considerable length of his talks with Bruening. He also brought up the question of what was to be done at the close of the Hoover year. I told him that I thought nothing could be done now, even by suggestions, that what we must try for now was a clearing away of the smoke of the panic, that then we could tell much better whether anything further was necessary. He told me in detail of his interviews with Bruening at Chequers⁸⁴ and how Bruening brought up the question of a moratorium and told MacDonald that he was thinking of consulting France about it. MacDonald warned him to consult anyone a week beforehand would be fatal, because during that intervening week they would start a panic and that if the subject was to be taken up it should be without warning to anyone. MacDonald said that was the great thing about the Hoover plan; it had been sprung without warning and that an attempted warning would have been fatal. He said very emphatically that it had come just at the right moment and in his opinion had saved everybody in Europe from a great disaster and perhaps ourselves in America.

79. Philip Snowden, British Chancellor of the Exchequer.
80. Not printed.
81. Treaty of Mutual Guarantee between Germany, Belgium, France, Great Britain, and Italy, signed at Locarno, October 16, 1925, League of Nations Treaty Series, vol. liv, p. 289.
82. Montagu Norman, Governor of the Bank of England.
83. Herbert Feis, Economic Adviser of the Department of State.
84. See pp. 6–8 and 11–14.