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The core of the US Treasury policy - apart from de-industrialisation of Germany - had been the convertibility of sterling, still by far the most important rival to the dollar. This had been key to Article VII of the Lend Lease treaty, to the principles agreed at Bretton Woods and to the loan negotiated between Keynes and White in December 1945. In accordance with the treaty, it was enacted in July 1947, the month following Marshall's speech, and almost immediately (and, one might have thought, predictably) proved disastrous for the British economy. To quote Milward again (p.3):

'Only one phenomenon associated with previous economic crises occurred, a severe fall in gold and foreign exchange reserves in some countries, associated with acute balance of payments difficulties. Yet this was sufficient to bring crashing down one of the pillars on which the post-war capitalist world was intended to be based - the free convertibility of sterling into dollars.'

Milward continues (p.4):

'Had the British economy in the 1930s operated at higher levels of employment the increased demand for imports might have made the balance of payments so weak as to have made it difficult to maintain confidence in the sterling exchange rate. In that sense the higher employment and imports of the post-war period were always likely to produce a loss of confidence and a speculative movement against sterling. The limited convertibility of sterling into dollars, imposed by the terms of the Anglo-American Financial Agreement which had ratified the post-war dollar loan to Britain, was in fact brought to an end after only six weeks, when holders of sterling, suspecting that its value in terms of dollars would fall steeply, began to disembarrass themselves of it at an increasing rate.'

Milward sees this as a major problem of the post war period, consequence of the 'enormously increased ... stock of transferable liquid assets in private and corporate hands' and 'The growing familiarity with foreign exchange as a valuable asset ... This tendency had already been clearly observable in the period of wildly fluctuating change rates which followed the First World War and there was nothing in the Bretton Woods arrangement designed to curb it.'

According to Bullock (this and the following quotes, pp.452-4):

'In the five days, 10-15 August, Britain suffered a drain on her dollar resources to the amount of $176 million; the Treasury thought it might rise to $300 million a week, a rate which would exhaust the remaining $700 million of the American loan in little more than two weeks.'

As a result the Cabinet decided to suspend convertibility on 17th August. It was Bevin's job to inform the US ambassador. He did so in terms calculated to appeal to the Americans. According to the account transmitted by the ambassador, Lew Douglas, to Washington: 'A breach in sterling would necessarily lead to bilateral arrangements [shades of Schacht - PB]; shrinking of trade at the very time they were attempting to expand trade ...' It would also increase the dangers of political instability and opportunities for the Soviet Union in France and Italy.

Here the argument is put in the context of the US desire for increased trade. Appealing to the TUC Congress a fortnight later, on the 3rd September, he put the emphasis on self reliance as the only means by which full employment could be maintained. He used an argument very close to the one we have just read from Milward:

'When the balance of payments went wrong, the old system had one very simple method by which to deal with it. They restricted purchases abroad, they called in credit and they protected unemployment and I well remember on the Macmillan Committee in 1929 and 1930 saying to the then Governor of the Bank of England: Why do you say that in these difficulties it is better to keep people on the dole than to employ them? His answer was: "You see, if you employ them, you import raw materials; if you employ them, they have a standard of consumption higher than we can afford, and therefore it is better to keep the people at the standard of living that the dole represents than to employ them.'"

He continued:

'I get accused of tying Great Britain up to America. My God! I am here this morning to appeal to you to fight for our independence in the workshop, in the mine, in the field. It is a very ignoble thing for any Foreign Secretary to have to deal with anybody on whom you are so dependent. Who wants that position? Who wants it with a trade union training such as I have had, who built a great union on purpose so that I could stand up equal to anyone in the world? ... I want Britain to stand self-reliant and to come back and I can only do that if you come forward ...

'Let me try and put it clearly. I have described the old method of starvation and you are familiar with it. We have now accepted the view that instead of starvation to save ourselves we will adopt production. That is the issue. If you do not give the production then this country will lose its position and back you will be forced, all of you, to the old 1926 position over again. Do not complain that you have not been warned, because that is the issue you have to fight.'

If only we could hear language like that from the Labour Party nowadays!