Full text of Winfield W. Riefler Papers (RFLR), 1929-71 : Box 2, Folder 6 : 1941-1942 Vice President of the U.S.

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April 10, 19^1

Dear Mr. Wallace*
I shot! ba vary ple&eed to c o m to yoor conferonce
at tha Ha^-Adaaa Boaae on Saturday, Hay 3rd*

Thank

you for Inrit lag aa.

Sincerely yours,

Winfield w. Riefler

Reary A, Wallace, Seq,
W&rdsan Park Hotel
Washington, D. C*

Reproduced from the Unclassified I Declassified Holdings of the National Archives

F Ie N B Y A .W 4 L L A O B
VASDMAIT PARK H O TEL
W a s h e n g t o n , D .C .

April 9, 194-1

Dear Mr. Riefler:
Sooner or later, the day will come when something
will have to be said about the concrete aims of our national
effort. This day may not come for several years. On the
other hand it may come much earlier. It occurs to me that
it might be a good idea for a few of us to spend an evening
together having a private and off-the-record talk regarding
this matter.
I imagine you would agree with me that when aims are
finally stated they should:
(1) Reflect the responsible opinion of both
parties and the various regions of the
country.
(2) Result from prolonged consultation
rather than momentary judgment.
(3) Represent commitments which it seems
reasonable to suppose the United States
might be specifically willing to under
take and carry through over a period of
years.
I am writing to invite you and the others on the at
tached list to meet me in Washington on Saturday, May 3, for
an informal conversation along these lines. We will meet at
5 o'clock at the Hay Adams House, have supper there and talk
for the rest of the evening.
Obviously, the purpose of this conversation is not to
prepare a statement. The time has not come for that. The
value of our being together will consist in the exchange of
views and the discovery of the direction in which our minds
are moving.
Sincerely yours,
Mr. Winfield W. Riefler
Institute for Advanced Study
Princeton, New Jersey

Reproduced from the Unclassified / Declassified Holdings of the National Archives

Haallton fish Armstrong
Council on Fbraign Balatlona
45 East 65th Straat
H » brk, law Iork
fir* Isaiah Bomurn
Oak Placa
Baltlaora, Maryland
Darid Cushaaa Coyla
1719 B Straat, S. V,
Washington, D. C.
illaa I. Dullaa
4S Wall 8traat
*•» Iork, lav lork
llajor Goorga lialdlng X U o t
19 Sm % fttth Straat
Maw Iork, Maw Iork
Mark Xtbridga
Courlar Journal

La, Kaatoeky
Hria H. Haaaan
Graduata School of Public
idalniatratlon
Harvard Qhiraraity
Caabrldga, Masaachuaetta

Stacy May
4949 Hillbrook U n a
Washington, XI, C.
Francis P, Millar
Council on Poraign Halations
4$ East 65th Straat
Maw Iork, Maw Iork
Paul Scott Mowirwr
Chicago Daily Maws
Chicago, Illinois
Charlton Ogburn
Onion truat Building
lash lngton, D. ;C.
Winfiald ». Bliflar
Inatltuta for -Idrancad Study
Princeton, law Jars ay
Ihitnay H. Shajardson
213 East 6lst itraat
Raw Iork, lav iork

Charlaa P. Taft
H x i a Tar*Inal Building
Cincinnati, Ohio
Jacob Viner
Uhiraraity of Chicago
Chicago, Illinoia
1* V. Wayuack
Bagla tar aad Tribuna
Pas Molnas, l o w
M. L. Wilson
14 Bosaaaxy L a M
Chary Cbasa, Maryland
Halan BULL Millar - Sacratary
Matlonal Policy Coandttaa
1202 Matlonal Prate Building
Washington, D. C.
Mr* Morris Erast
Greenbaum, Wolff aad Erast
285 Madlsoa A t *b « o
law Iork, W«w Iork

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Hmorafclo $ms&. a. Wallad*
Wnaetam Pf’.rl? Hot$t
tfashiiy^ton, ft* C,

Door !fr# ^nllaaoj

Sfcfinfc intoi
n rc tr)

iwh for ^otup invitation to reconvene our
M

j r

s *k ^ L l p la n

Sincerely*

n rc m e n t*

Reproduced from the Unclassified / Declassified Holdings of the National Archives

e x b y

A,Wall

ac e

W ARU M A 3ST P A R K . H O T E L

a s h i n g t o n ,D.C.

June 20, 194-1

Dear Mr. Riefler:
A number of the men who attended our dinner
on May 3 have suggested the desirability of a
further conversation, so I am writing to ask the
group to reconvene on Saturday, July 12.
In order to focus our talk, the enclosed
agenda has been prepared.
As before, we will meet at five o'clock
(Eastern Standard Time) in the same room at the
Hay-Adams House.
Sincerely,

Mr. Winfield W. Riefler
Institute for Advanced Study
Princeton, New Jersey

Reproduced from the Unclassified / Declassified Holdings of the National Archives

JULY 12
Assumptions:

1. That we are talking chiefly about the second of the three periods
mentioned on May 3— namely the period of post war transition.
2. That the instrument of order during this transition period will "be
an American-British agreement.
1. Given these assumptions what should be the wartime relationship between
the United States and the British Commonwealth? Possible alternatives are:
a) Associated powers (as in 1917-19)
b) A defensive alliance
c) Step by step joint action accompanied by the creation of
joint agencies to express common objectives, and to employ
their force to realize these objectives
(1) What are the principal objectives?
(2) What agencies are required?
2. What steps might be taken now to organize an American-British trade
area including:
a) Removal of trade restrictions within the area
b) Agreement upon a common area financial policy
c) Disposition of surplus raw materials
3. If the United States and the British Commonwealth undertake a post
war program of joint action, what kind of permanent governmental procedures
are required to carry out such a program?
procedures?

What kind of American governmental

What kind of American-British governmental procedures?

U# What steps could the United States and the British Commonwealth take
now, at the peace settlement, and during the transition period after the war
to pave the way for a world-wide system of collective security?

Reproduced from the Unclassified I Declassified Holdings of the National Archives

OF FI CE OF THE VICE P R E S I D E N T
WASHINGTON

July 23, 1941

Mr. Winfield Riefler
Princeton University
Princeton, New Jersey
Dear Mr. Riefler:
The Vice President is going to New York on
Friday afternoon of this week, and he has a matter
which he is very anxious to talk over with you. He
wonders if it would be possible for you to ride with
him from Trenton to New York on the train.
He is leaving Washington at 2 P.M. on the
Pennsylvania Railroad, train No. 170, which stops
at Trenton, New Jersey at A*A9 P* M.,E. S. T.
Mr. Wallace will be in car No. 702, drawing room
A. If it is possible for you to make this trip with
the Vice President, will you please wire us confirmation
so that he will know whether to expect you at Trenton.
Sincerely yours,

Personal Secretary to
The Vice President

Reproduced from the Unclassified / Declassified Holdings of the National Archives

;

VIG^E PRESIDENT’S OFPICE
^ ,

Secretary to
Mr, Winfield Eiefler

July 24)\

Here is a copy of the letter sent to Mr.
Riefler this morning* Just thought you might
like to have thie for your information.
Whan you see him in Hew York Monday, you
-sight want to bring this up if, by chanc9,
the original did not reach him.

Mary Hubs
Personal Secretary to
IThe Vies President

Reproduced from the Unclassified / Declassified Holdings of the National Archives

July 24, 1941

A T I MATL

ftPKfiTAL O l U f f i i Z

Hr. flafiald Hiaflar
Orlaana, Maaaaafcaaatta

Daar Ir . Sliflvri
X m writing you at tha suf*aation of
Hi* Vie* fraaldant. 8a haa * aattar whioh lit it
vary aaxiotta to diacaaa with jwi| aad r a d M w n d
lo |«t la touch with you it ffciaottoe jrMtihbqr
bat fouad that you n r i itty fro* th# Islvinlty
for a f«w day*.
U ia oar tmdarataadlaf sow that yon
will bo ia ■ashiafton oa aaxt Tbaraday. Sine*
Mr. Vallao* ii laariag th* city Wadaaaday
aad al&oa ha would Ilk* vary aaeh to hew* this
dlaeuaaion «ith you bafor* ha goaa, ha woodara
if it will ha poaaihla for you to ooa* to laahlagtOA oa Vadaaaday.
Vo will ba vary glad to hoar froa you at
your aarliaat oonYania&ca aa to wfaathar you can
ooa* at that tiaa.
Siaoaraly yoora,

iwrjr Baaa
Foraooal Sooratary to
tha flo* Praaldant

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Octofcar 2, igHl

Hoaomhlt Xaary A. Yallaaa
fba
Protidaat of tha %itad Stotn
Washington, D. C.

My daar Hr. Vie* Pratidaatt
%alotad you will find a m l U i i u q r draft of a prograa to
ttimlata international iaT#*taant ia aadtrdavolopad region*. It
rapreteatt a farther elafceratioa of the idea* afeout which we talked
last Suaner. I mm vary aasio&e to hare yoor reacttone.
Tha progra* proooted 1* novel in many reepeett. It envisage!
a ooannlete revertal of the treada that have eaae inereatiagly to
dominate tho international eeonoaic teeae tlace igiU. Sow utterly
eeeential it It to reverte thete treade it eyritolited nowhere tn ttrikingly a« ia tha hage etoeke of fold vhieh thit coaatry owat at tha protent
tlaa. fa aa iesoortant degree, thlt fold haa ooae to mt, not to go to
work, hat ia search of aafaty.
Ia a vary fundeetatal aaaaa, tha nrofraa nropotee to fat thit
gold■to work. It aaakt to reetore eeeurity to tnveetaent abroad, pro
vided, first, that it it genuine inveetaeat, i.e., eauity invettaeat
nrepared to taka aaoaoaio ritkt, aad provided, secondly, that it it
iavettaent that »ecer>tt itt eoelal reeoonelMlitiee.
?ha prograa ia dttigaad, particularly, to ttianlate iavettaent ia
tha andexdevelooed ragione of tha w*rld. $ha«a regioat today ara characteyited all too frequently by over-T»OT>ulfttioa, aad are carted with p*rti^tent aader-eaployaent, aalnatrition and poverty. fat oftan thay
ara ridi ia ratoureee aad lack aaialy eatorprite aad inveetaeat ta
*o$ve thair problem*. *hie progrea thoald create tho condition* necettaitor to perait oar taterprlae aad tkill, aad oar hnge lataat power ta
iaiitl, to go to work ia thata regloat.
Partotally, I can conceive of ao sore appropriate tatk to which
to dedicate oar geld.

Tery tincer»ly yowrt,

Winfield W. Siafler

Reproduced from the Unclassified / Declassified Holdings of the National Archives

Mr* Milo Perkins, Executive Director
Soonoaio Defence Board
Washington, D. C.

Boar Hr. Perkin#t
Inclosed you will find a preliaiaary draft of a proposal to
1 aa sending a second 0opy by
thia sncto mail to tho Vico President.
st isolate international investnont*

I would Bjrpr'Ciato it very much if 3pm could find time to
road tho manuscript la detail and advise mo of toot reactions. If
tho aaauserlpt to acceptable as a basic working doctaaeat, subject
to subsequent modifeatiott and elaboration, I would liko to have it
mimeographed immediately 00 that wo will have coplot to subeit to
tho various consultants.
I have not shown this draft to anyone as yet. Jurin£ thie
next week I plan to hold extensive conferences oa it with oort in of
isyeflKjllsB^uee here at the lastitute for -Mvsnoed %adyf includiac certain
of the League of Hation* expert*, and also with certain of ay research
associates of tho Satloaal ^raau of ^oononlc ^search* The progras* i%
general tom* is also due for discussion oa Saturday* October 11th,
naoBg tho Economic raid financial ^roui> at the ^otaicll on foreign. Rela
tions*
fheso are sty specific plan? to date* So you want to arrange for
Hr. O^burn to c o s t s . X would be pleased to have> him at any tine. Would
you Blind if I iavltod ?hoa&« Blaisdell of the National Besourcee Board
to done up and go over the urogram thie week? Re callad ne yesterday
oa the basis, ? believe, of a conversation with you* Z would rather
like to have hin. finally, do you want me to coae down to V«shinfftea
for a discussion with you or with tho Vice President. Wednesday would be
best fro» ay point of view, if you do*

Very sincerely yours*

Winfield V, Riefler

Reproduced from the Unclassified I Declassified Holdings of the National Archives

D E C L A SSIF IE D
A u t h o r it y jC 'yc- t

A PROGRAM TO STIMULATE IET3R1TATIOITAL INVESTMENT

Winfield W. Riefler
Princeton, Hew Jersey
October
19^1

Crofifp, ■pg-/sJ Tj #

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority g o K> f;Q \

A Prograa to Stimulate International Investment

Purpose of the Program
It is the purpose of this orograsi to demonstrate, concretely, a mQane "by which
the democracies c?n implement nov the

eace -Hm, "freedom from Want."

Th© ~>rogram

proposes, through the use of public guaranties, to establish a more just and more
secure "basis for the flow of international investment funds.

It is designed

To stimulate the investment of an adequate volume of equity
fund* in corporations operating across national boundaries;

To provide oorticularly for the economic development of tinderdeveloped regions, e.g., the Caribbean, the Danube Valley, China,
the Butch 35ast Indies, L^tin America;

To remove, on the one hand, the fear tJv't native population? and
resources will he subject to exploitation in the interest? of
capital investment, and, on the other hand, the apprehension that
oroductive enterprises will be discriminated against or confiscated,
once they hsve been successfully established}

Che urogram contemplates a bold and imaginative stroke of economic states
manship,

from a political point of viev it ap?ume«

The defeat of the Axis*

A democratic solution of the nolitical problem of international
security b*>sed on a nucleus of aritish-Aaeric«n understanding;

xhe adoption of policies designed to reverse the accentuated trend
toward economic nationalism that dominated much of the pr e - m r seene.

If the general lines of the program are acceptable, stens should be inaugurated
immediately toward, its execution in order that it may be in full operation daring
the period of poet-war reconstruction.

The mechanism pro-nosed ha<? been designed to

nermit tha utmost flexibility in meeting the strains that nay develop at that time.
It should be noted that this prograa does not cover all phnee# *f reconstruction
investment problem*.

A sutwlemeatary memorandum, devoted wrtlculr-rly to publicly

financed investment, Including inter-governments! advances, ia in course of T»repaxation.

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority

$0 \

The Program

It Is proposed
A.

Thst the governments of Great Britain and the United States
undertake immediately by joint action to establish an Inter
national Development %thority; Ruch Authority to be organized
-»nd to begin operations ae soon as possible;

That the International Development Authority "be authorized
to gr*nt corporate charters to international enterprises —
•orivate, public, or mixed — that propose to engage in
genuinely -oroductive economic activities*;

that the are*? of investment of enterprises so incorporated te
limited to countries that register their formal approval of
this program and their desire to participate in its benefits;

That the benefits of international incorporation be conferred
only on enterprises that make adequate -orovision to meet the
social obligations of enlightened mpn^gement vith respect to
such matters as

(a)

Working condition?

(b)

Social insurance

(c)

Rousing

(d)

Sanitation and other community
facilities

(e)

Participation, where possible, of
local management «md capital.

That the International Development ivuthorit'/ receive a share
of all -profits accruing to enterprises to which it ha# issued
charters of incorporation;

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority £ D > 0 5 0

F. That provision 'be made that a further share of the orofits
of internationally incorporated enterprise* accrue to the
governments of the countries in which they operate;
G. that the local governments exercising jurisdiction over
internationally incorporated enterprises agree to refrain
from all discrimination against the operations of these
corporations by taxation, by administrative regulation,
or otherwise;
H. fhat the Intern* tional Development Authority "be authorised,
subject to appropriate limitations, to commit itself to ex
change its own debentures for the stock of all internationally
incorporated enterprises at the option of the holder of such
stock;
I. that the <*orld Court have legal jurisdiction over all dis
putes, suits, etc., arising out of the operations of this
program, both with respect to the activities of the Inter
national Development Authority and with respect to enter
prises tothich it has Issued charters of Incorporation;
J. That the Authority take all steps in its power to prepare
for a ouick expansion of activity as soon ae a cessation
of hostilities may permit.

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority

\Q 5 0 1

Discussion of Specifle Petalls ef Program
dlseussion that follows It teiii on th* assumption
that th* general prograa
tract It * to aerlt exploration.

above Is sufficiently at
It oovers specific detail*

of th* prograa, alternative methods of approach to certain
of the problests raised, aad appropriat* procedures required
to further Its Inauguration.

In each section, specific no

tation Is aad* of the protless vhleh require decision*
fhe left hand iargia of each page Is available for
notation and space is left b*l«v eadb query for answers.
The dlseussion Is organized according to the outline
h*lev.

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority f O \Q

A. financial Inducementn to Investment
1. Through Commitment§ to Guarantee
Through Tax Adjustment

6
I
11

3« Determination of Social Standards
15

C, Position of the ^orld Court
19

Problems of definition
1* Interorises Eligible for International Incorporation
Cl)
(?)
(3 )
(U)

Productive enterprise
Economically eound#
&ole of existing internrtional enterprises
What constitutes an international enterprise?

£• Profit-sharing
3. Local participation, discrimination and confiscation

^
'3
Jl
Po

pq
32

Problems of Organization

1. Organised by Whom?
.
?. In what amount should funds be allocated to the Authority! r
3* Board o f Director® - Composition
?
Board of Directors - Term of Office
U5
5* Board of Directors - Personnel Requirement*
tig
6. Legal framework
51

F. Problems of Operation
1* Establishment of the Administrative Organization
2, Going-Coneern functions
3
Powers of the International Development Authority

53
*53

56
57

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority

\Q SO 1

Tlaaael&l Xnduceaeats to Investaent
To sucoeed, thic prograa m a t induce investors, at a tlae when
all economic herl*ons are obscure, to aake plaas to expand sxisting industries aad to develop aew industries outside of oar
borders. Ia particular, the lnduoeaent m a t be strong enough to
encourage new ventures la tha lass fally developed regions of
tho world. It is lxportaat that tha*#* plaas be aatured rapidly
so that actIt* operations nay ha undertaken as sooa as tha stata
of hostilities permits. ^'he finsnois1 induceswnt offered la this
prograa conflicts of a positI t s guaranty to tha investor that, at
the worst, he will get M s money back. It is proposed that this
guaranty take the fora of a coaeiitaent issued by the Interaatioaal
Development *uthority, la which the Authority undertakes to exchange
Its owa debentures for shares of internationally incorporated en
terprises at the optloa of tha holder of those shares.
The exact nature of this guaranty, the terae in which the coaaitsMnt to exchange Is Issued, will determine the success or fail*
ure of the prograa. The Authority aust issue its coaaltaeat la
aoeclfic f o n at the tine it greats a charter of latoraetioa*! in
corporation to enterprlees proposing to operate abroad. It aust
ffneclfy 4t thnt tlae the face value of the debentures which it
e©waits itself to exehaage for shares of the aew eaterprlse as well
as the aaturity of sash debentures and the rate of laterest they
will carry. Exactly how should the Authority determine the basis
of exchange of these debentures? should it be guided solely by the
saouat of tha original investaent represented by e»ch share, or
should it proalse to teke into account the book value of the stock
at the tlae tha option Is exercised? &hould It disregard or take
into account dividends that a#*y have been paid on such stock prior
to its presentation for exchange? *or how long should the coaaiteent run' ta what currency should It be writtenT How should stock
1ssue 41at tlae of Incorporation la exchange for proaotors* services
be treated? What treatment should be accorded to stock Issued by
the new corporation la exchange for concessions *r for existing
capital facilities? How would decision on those points be affected
by current taxation practices?
The answer* to thee# questions will dsteraiae the equity of the
prograa as well as its success la providing lnceatIves to invest,
particularly incentives sufficiently powerful to motivate invest
ment under present obscure conditions*

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority £Q \Q SO I

7.
Suggestion - Commitment to Guarantee
2*et decision on these detail* be guided, first, by the prin
ciple that the financial iacentIre provided by thie program
le
assurance to the investor that he vlll, at the vorst,
«*t hie money back. It vlll provide no guarantee of profits,
nor even of ft minimum rate of return equivalent to that on
government bftade. ^or Income, the Investor vlll have to look
to the success of the venture In vhich he ulaces hie funds
end for vhieh he assumes the responsibilitiee of management.
Let ther* be complete assurance, hovever, not on y that the
investor vlll get his none/ back, but alee that he vlll
It back, vlth certain minor exceptions to be noted later,
at hie ovn option, at a time choeen by his, end for his ovn
reasons — either because he has another use for his funds,
or because he no longer rsgarde the venture as Droaialog.
In accordance vlth this principle, let the International
Development Authority, at the tiae it grants a charter of
Incorporation, ascertain vhat proportion of the equity repre
sents eolely a nev Investisent of cash, or of liquid cash
equivalent, vhat portion represents an exchange of stock In
the nev enterprise for existing values, such ae franchisee,
productive equipment, reel facilities, etc., and vhat portion
represents payment for promoters' services. Let the charter
of Incorporation distinguish clearly between these three cate
gories of stock and let this distinction be carried to tho
stock itself. ?hle can be effected by the Issuance of dif
ferent kinds of etock, e.g., preferred and common, or by
different claeeee of the same stock, e.g., Class
Class B,
Claes C, all three claeeee being identical In their provisions
other than those relating to the commitments which the Inter*
national Development Authority may Iseuo. With respect to
stock issued for nev cash, the Authority vould knov and require
to be printed on each stock certificate of ownership, the pro
rata value of the cash investment represented by that share
of stock. ?o this ?tock it vould attach a commitment giving
t e ovner the right to exchan^B the «tock at hie option for
debenture* of the Authority. A"he Interest and maturity date
to be carried by such debentures vould be vritten into tho
commitment, the rate of Interest being governed by current
market rates of Interest, and the maturity being established
by tho Authority to conform to ite ovn operating reoulremonts,
I.e., It should avoid tho poeelbillty that Its debenture* vlll
mature In too large amounts in any one year*

DECLASSIFIED
Authority £ p K> SO 1

The commitment would provide that th* principal, or face
Talma, of the debenture* would vary according to the time
when tho option was exorcised. It would be determined by
subtracting fro* tho figure shown on tho stock as tho aaount
ef cash in-restaent which it represented at tho time of incor
poration, 8.11 cash disbursements, la tho form of dividends or
otherwise, paid on such stock prior to tho exercise of tho
optica. In other words, tbe guaranty of tho Authority would
ho for a ooa equal to original investment looo dividends -paid.
5on-ea*h dividends or dlsbureements would ho forbidden exempt
with tho consent of tho Authority. Im granting such consent,
tho Authority would determine tho eaoh value to bo imputed
to eueh diTldeadi om the exerolee of the guaranty.
The eommltmeat to excfcmmge stock for deben tare* of tho Authority
would aot start uatil one year had elapsed fron the time whaa
tho commitment was issued. Ia the ease of successful enter
prises, tho commitment would ho ended whenever dividend* and
other c*t*h disbursements oa the stock had eeualled the original
each investment. Ia the cate of unsuccessful enterprises lm
which dividends did not eeual original inveeiment, tho eosmltsent weald teralmate at the end of twenty year*. ^ay stock
aot exchanged by that time for debentures of tho Authority
weald lose tho right to exchange.
Lot stoek representing solely eneasor#1 or promoters' equity
carry ao guaranty. Im ventures ef tho typo hore envisaged, tho
promotional activity of sensors Is frequently remunerated by
tho assignment of a port lorn of tho eoulty stock of the new
enterprise. »hlle thie practice aay ho a source of abuse, It
may alto be entirely Justified. It aay constitute. In fact,
aa excellent device for the sharing of fatare profits between
those, om tho one hand, who hare the vision, imagination, and
managerial ability to develop aow ventures, and those, om tho
other, who aro oaesive exoept for the provision of investment
funds* *he A^t^rlty will, of course, scrutinise and pats om
such issues of stock before It #ramt« a charter of incorpora
tion. *hen It pernito nutk fdssue-s,-. it should insist that
they bo differentiated from issues for cash, and that they
oarry no guaranty commitment.

DECLASSIFIED
Authority

\€> 6 0 \

9.
A ease iateraedlate between these tvo vill arise la the case
of stock issued la erch&nge for existing real values. Pew
enterprises allying for latera?tloaal incorporation, probably,
vlll represent 100 ver cent new cash InTaRtaent. Usually, the/
vlll plan to acquire existing facilities of soae sort needed la
the further development of the bueineae. frequently* payment for
these acquisitions vlll take the fora, 1a whole or la part, of
exchange of stock la the new enterprise for the facilities acquired.
This device may, la fact, fee one of the ways la which the aev inter
nationally incorporated ventures carry out the requirement of the
isrogrsa that local aansgraent and local capltrl, whenever possible*
he associated with these new ventures. *he value to he Placed oa
such acquisitions, however, presents certain oreblems. $lnee they
are usually special purpose facilities, their licuid*tion value as
ascertained aader bankruptcy proceedings would be very lev. As
going concerns, an ths other hand, their mlu* for the new enterprise
may he very high. Clearly this higher value might averocrly he the
b?*i* for the exchange of the facilities for the stock of the new
enterprise.
Shculd stock received in exchange for existing real values he
eligible for guaranty by the Authority? Clearly many cases will
arise la which the Authority will decide against any guaranty for
qtock falling within this category, on the grounds that the vole
purpose ef the guaranty is to induce new investment. There nay
well be cases, however, where the Authority will wish to extend its
guaranty, cares, for exsmple, where the existing real values are
idle *.nd will not he risked in riroductlve use unless some guaranty
is forthcoming. In such cases, should the Authority i?«ue a commitisent to exchange debentures at the original book value at which
these facilities *re acquired by the new corporation, or should the
oouwitaeat be for a lesser amount nearer to the liquidation value
of these facilities?

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority

£C >

<Q 5 0 1

Th*t* qaostion* will Isay* to b* 4oel4*d by the Authority
ecus by gas*. In **a*ralt however, it can bo m i d that
ooiwitoaoats istuod la c»s*s of this kiad should b* for
•oMthiac
than book vain*, *hie would be u e t i u r r
to avoid oa* possibility of abuse of the *a»r*ati*s lssutd
by th* Authority, aaaely, that they would b* aeed to provide oa
indlreet o«*b aarket at hifh level* for *xl*tlaf faeilitl**.
Slae* ova*rs of tfc*«* f»elliti*« woald b* abl* at th* *ad of
a your to exehaa«e their stock for isarket«ble debenture* of
the XateraatloBal ^•▼•loTjaont "uthority, th* coaasitaent vala*
flaeed oa ths** faellltl** oasutot b* so bi*h a* to foralah th*
ecuivaloat of m fewerable e«*h aarket. to avoid sueh probleae,
let th* Authority place aa orlflanl gaaranty value oa stoek
of thl* character that 1* sufficiently below It* far value to
prevent aba.ee. la all other respect*, let such stock be
treated ta exactly the sane wanner as stook represeotlng o*.*h
invostneat. Jor exaag>le» the actoal fkee value of deboatares
which the Authority o'netted itself to lose* la exchange for
sue* stoek would be determined by smbtraetisf frosi It* original
gnarenty waive all dividende aad eaeh disbursement* which it
had. received prior to it* ’■sreeontation for exchange for deben
ture*.

DECLASSIFIED
Authority £ p \Q § 0 \

llr

Suggestioa - Taxation
?ha treatment outlined above will i»«r«ln com Modification
la taxatloa policies with respect to disburscaeats oa sharss
of internationally incorporated e&terprlees. According to
preseat practico la tho Waited States, divideads oa shares
la oil corporate snterprlees are treated os income, subject
to tho lacoae tax. Oader tho aew graduated ratoo bow la offoot, each taxatioa absorbs a Tory c^asiderable portloa of
divideads except la tho caso of taxpayers fall la* ia tho
Tory low taxable lacoae brockets. Ia tho ca«o of iateraa*
tionally incorporated enterprises, coasesueatly, tho value
of the coamltaoata issued "by th* Authority vould ho nallifiod
to tho extent that tax** wore lorlod oa divideads received
while tho coaaitacnt rsaainod outstanding.
To aaat thi # difficulty, lot tho income tax base he aodiflsd
to provide that dlvldoad* paid oa share* vlth respect to which
coaaitacats of tho International I>evelopaeat Authority are
outetaadiag, he coasldered capital repayaeats so long a* such
eoaaitaents ftre ia effect. Ahi§ vould aeaa la practice th»t
disburscaeats oa that portloa of th* stoek of interacttonally
incorporated enterprises that represented real iavectaeat
would he free fro* taxation uatll such disburscaeats equalled
t>e original lavsstmeat. ^hi* orocedar* should aot lavolve
serious adaiaistratlve difficulties. *‘he share* af interna
tionally laeorporated eaterprlses would be diet lavished into
classes la accordance with the value aad nature of the eoanltaeat which the Authority had Issued with respect to each.
Shares representlag proaotors' equity would aot he affected
aad divldeads oa such shares would he fully subject to laeeae
taxatloa as at preseat. Classes of shares oa which ceaaltaeat*
had beea issued by the Authority, oa the othsr hasd, would have
printed oa their face the original aaeuat of that eoatnltnent.
the cash disburscaeats aade on such shares would, of course,
be a natter of public record. 4he current value of the coaaitaeat, therefore, vould be readily ascertalaable as the positive
dlffereace between those two subs . Oa this basis, the mrtaetability of ths shares would be preserved, since aay potential

DECLASSIFIED
Authority £D IQ 6 0 1

n
U-c. e

buyer would knew exactly the currant value of the coaaltment
that attached to the stock »nd the status of dividend# from
sueh stock for tax ^urr'ose*. Once dividends on such *tock
equalled tfce origin*! cft*fe actually inverted in such new
enterprises, or, la the ca?e of shares Issued in exchange
far existing facilities, eoualled the guaranty value placed
on such ehare* by the >uthnrity, further dividend disbursewent* would be subject to full taxation ae at ^resent. ^hig
rodification would T>re*erve the value of the Authority's cqbwitBent, nasely, that it guaranteed to the investor the full
return of hie original Investment at a zero rate of interest.
It wouldt*leo»*robably constitute an inducesent tn investors
to undertake investment in enterprises chartered by the
Authority
Should this Bodificatioa be adopted, it would necessitate a
correspondiag modification in the capital gains tax la this
country. At present the canitsl glia* tax it levied on the
excess, if any, of the sjsouat for which stock is told as cob9arad with the aaouat for which it was ?urch*»«ed« intervening
dividend disbursements ere not c-n*ider?d. To prevent the
•edification* suggested above from leading to tax evasion, it
would be neeessstry, in the ease of shares with respect to
which eeaoftltaeats ef the Authority were outstanding, to •orevide that on sale of such stock the capital gains tax be levied
ob « basis that takes account of tha full aiaouat by which its
selling price exceeds the guaranty coanitaeat of the Authority
on the date ef sale*

DECLASSIFIED
Authority £ p

50 I

13.-

Goaaent
This novel procedure haa been worked out to meet the specific
p r o U M posed by the nature of th® guaranties proposed Ia this
prograa. It is not out of line, however, with bsglc econoaio
principles. 'from a theoretical point of view, econoalsts have
long recognised that eoulty iavestaente lose all stated c*-sh
value as soon as tho/ are aade. Once cask is invested ia
fixed plant and equipment, it* value represents a cat»it»li?»tion
of tho value of tho services vhleh that fixed ca-oital is ex
pected to produce. *he investor, la other words, exchangee a
current eash value for
series of expected future cash retiuni. These aa/ take the fora either of dividends or of
cash received oa sale of the equity. Cash receipts oa either
or both of these accounts, aoroover, aa/ be negligible. Given
these baric conditions. It ai^ht perhape bo visor far Investors
to consider their first dividends not as income but as repayMats of the principal which the/ had ventured, ^hey would
then tr*at as iacoae only thoeo receipts which accrued to
t/oa after their eash returns had equalled their original invest»ont. Soasiderfcd fr^a this point of view, such iacoae
receipts night, of course, include eash received oa the sale
of their invastaents.

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority £D\Q

5 O1

tyOMTJ
(a)

What detailed adjustments would have to be aad* in tha
American tax lav* to carry exit thla suggested procedure?

(h)

What adjustments would have to ba and* ia th* British
tax lav* to accomplish a result comparable to that sug
gested for th* United States?

(e)

In what currency should debenture• be issued? A strict
construction of th* guiding principle, namely, that tha
investor should be assured that h* vonld g*t his investment
¥aek and nothing aore, would require that th* debentures
of th* Authority issued in *xchang* for *to«k to in the saa*
currency as th* cash investa*nt originally represented by
such stoek. larestore, of oours*, would prefer that th*
debentures b* issued in th* strongest eurr*ney —
aressnt,
dollars* In these days of fluctuating exchanges and bloek*d
currencies, th* issuanc* of dobanturas in dollars, where
d*sir*d, would provide a powerful inducement for foreign
owners of foreign facilities to s**k American capital to
expand their enterprises. ^ould it or would it not be wise
to give th* -Authority discretion to depart in this instance
froa a strict construction of th* primary guiding -oriaciple
advanced above and psrait coamita*nts to be issued ia dollars,
on occasion, without regard to the currency of original in
vestmeat T

DECLASSIFIED
Authority £ t> \Q 6 0 \

15-

Determination of Social Standards with Respect to
(a)
(b)
(o)
{4)

V orkin* Conditions
Social iACttTAAOO
Routing
Sanitation and other coamunlty
facilities.

One of tho worst indlctsents of largo scale industry It that,
due to tho separation of »aa*ge«*nt and ownership, tioo aaaagers
of U r f o enterprises *ay took to aaxlalze orofIt* at tho oxpoaea of dooont vages and vorkiag conditions for thoir employees.
Tho laollcations of this indictment have especial significance
ia connection with a orograa such ae tho o&o which 1* hero pro
posed, for thie prograai olaxt* definitely to stimulate the in
vestment of ^msrican funtfe la uaderdOTOloped areas, aaay of
vhich aro remote geofratfcleally from thie country. H tjIubo
to makm British and ^eerloan skill and man’gesent technique*
available for tho development of the resources of these are&e
and thue eontribute to a solution of their pressing eeonoalo
oroblems. Tboee •kills ant* technique*, ho* eror, vould bo
definitely asrociated with the management of thase enterprises,
vhllo thoir ownership vould insrltably, ia a great number of
cases, bo vested In resident* of thie country or ot ^roat
Britain. Taking into account tho 'orimltive conditions that
exist In aany reglone vh#re investment vil • take place, there
vould ordinarily he a distinct danger that some of the enter*
prises ctisolated by a orogram such
is here proposed vould
becoma identified vlth all of the abuses of '’•absentee owner*i p . M It is to preclude this .possibility that tho program
stliralatesj as a condition prereoulsite to international lacorporation by the International development Authority, as
surance that such corporations are aware of their roeial
responsibilities and will conform to modern standards of
enlightened man gement vlth respect to working conditions
(i&ftlddlng remuneration), the social Insurances, housing,
sanitation, and other coamunlty facilities, S'hat these
standards can be not h»? boon aavly demonstrated in the past
and Is being demonstrated nov in the foreign operations of
a very great number of existing large scale enterprises.

R ep rod uced from th e U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rchives

DECLASSIFIED
Authority £DK> 5 0 1

16.

How < u this warcoulolt* b* affaotaatad? Ar* th«r« *t«i*d*rd«
with ra«p*«t to tho** toslal arooct* of lav»*ta*at ttwt earn
ba «tat«& la l U t n l fora, aabodlad at It ware- ta aa aafor#a~
able eoatraetT Ar# thojr uatr«r«aUjr aptilieablo or aa*t thajr
ba indi-rtdaally adapted to *a#h eoanroaity? How cna t
aafaraad? fh««« ara tjortrtaxia* qoastioaa whloh ratalra ax*
t*n«ir* Aleea««loa la tho eoarea of
of tbit
profVaa*

i iu iu inya ui uie iNduunai A rcm ves

DECLASSIFIED
Authority £t?<P 501

17.

Suggestion
Let one of the Directors of the Authority be definitely
chosen fron the groupsthat has been asociated with the
International labour Office, for thie office has devoted
■ore attention to a study of these problems than any other*
Such an appointneat would introduce into the inner Mechanism
of the Authority a deep concern for and an intimate familiar
ity with the whole area of industrial standards.
Let the Draft Conventions prepared by the International Labour
Office be analysed from the point of view of the problems here
posed, ®hey represent the fruits of years of conference and
study devoted specifically to the problem of Introducing and
enforcing higher Industrial standards with respect to social
conditions on an international baci*. Many of these Conven
tions nay not be directly applicable to the problems at hand,
since they were prepared with a different purpose in mind,
i.e., they were prepared primarily for the purpose of level
ling up social standards in the more advanced industrial
countries. Iren though these Conventions nay be subject
to this criticism, it should be possible to adapt than to
the requirements of this progran.
finally, let the Authority maintain current contact with
enlightened managements that are facing successfully the pro
blems of meeting decent working standards, especially those
managements that are operating under primitive conditions,
fhe Authority will be able to secure a detailed understand
ing of the problems involved and the tedJualques that hare
proved most successful in their solution.
In developing standards, it is essential that the Authority
avoid the danger that they become a concealed form of economic
nationalism. 5hat is, they should not be drawn up nor should
they be administered in such a way as to prevent new investment
in new areas and thus protect the vested Interests of the
more fortunate industrialised regions.

R ep rod uced from th e U ncla ssifie d / D ecla ssifie d H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority

<Q 5 0 1

IS.

lj*SUi*tri*l ***a#*rd* tfc«t ean %•

am tit* prefelmi ot

^ tfe«

R ep rod uced from th e U ncla ssified / D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £Q

50 1

19.

C. Position of the World QtmxX
It It aa underlying conception of this prograa that corpora
tions engaged primarily la international economic activities
will function more effectively for the general welfare if
they derive thoir corporate powers fro* an international
body aad ar* subject to the juriedictioa of aa international
court. It Is believed that ia this way the operations ef
large-eeale iatoraatioaal industry oaa he subjected to governaental restraints without taint of intervention, imperialism,
aad eeonomlo nationalism that has beclouded this relationship
hitherto*
In the abseaee of iatoraatioaal political institutions, aad
particularly, ef a system of iatoraatioaal courts to which to
appeal, large-scale iateraatloaal ecoaoaie activities are
hound to he surrouaded with suspicion and friction. *oreign
officers of state, particularly of powerful states, have
frequently adopted the policy of pushing the iaterests of
their nations without regard to the interests of other
parties. When they hate, oa the ether head, at tines adopted
a policy of hands off, there hare heea numerous instances
when the Interests of their natloaals have heea unjustly dis
regarded. There have heea cases where international corpora
tions have meddled la local politics in foreign countries
and then called on their governments for help when parties they
had heea opposing gained control. There have hean other in
stances when international corporations, because they failed
to secure effective representation on their hehalf from their
own government, have sought to preserve themselves from dis
crimination hy embarking into local political activities. These
various sources of frictloa and trouble reflect aai&ly one
great lack, I.e., the absence of aay international source of
corporate authority and the correlative absence of a system
of international courts. Without international courts of
appeal to exercise judicial review of the thousands of situa
tions when international economic activities clash, there
cannot help but be friction and trouble.

R ep rod uced from th e U ncla ssified / D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority

<C> 5 0 1

It is contemplated ia this program that the world Court will
perform this essential function. It would te the court of
Jurisdiction over such cases, for example, ae disputes over
the powere asgoaed by the Authority invoking a review of the
legal acts under which the ^athorlty v m established; dispates
concerning the activities of corporations incorporated by the
Authority to determine whether they had or had not exceeded
the limits of their corporate powers; dispates concerning the
accounting practices adopted by corporations holding interna
tional charters, in deteraing net income ant thus the share
of their profits that accrued to the Authority and to the
gover&ment s of the states in which they operated; disputes
with respect to the value of property held hy corporations and
the astonnt of compensation due thereon when such property was
taken over hy public authorities under their powers of eainent
domain, aad finally, dispates with respect to the interpretation
of discrimination, determining whether or not a given adminis
trative act of a local government constituted aa act of dis
crimination with respect to an internationally incorporated
enterprise. It should he realised that these problems of dis
crimination will doubtless he the most difficult for the Court
to decide, xhey will come nearer to involving national prestige
than any other questions, and will see* to approach more closely
to an infringement of local sovereignty. It is hoped that the
benefits of the whole program undertaken by the Authority will
be sufficient to induce states to make this concession*

R e p ro d u ce d from th e U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority

*orl4
sow cambl* of
«a»ia£ th« iaportaat
fa&etloa* «ugg»«t«4 ia thin pro*ra»? If met, kov *hool4
1%
r»©rg»»it**T

R e p rod uced

from the U ncla ssifie d / D e cla ssified H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority

£ Q

JO SO j

Problea* of Befiaitioa

SnttrprlMs Eligible for Int*rBailoa*d laeorooratloa
fht« »rograa &• directed epeelfiealljr toward etlaulatlag
a flew of laveet«eat out of creditor cou&trla* iato uaderdeveloped r*|i«ti« A aew corporation organised by A»#rlc«a
capital to develop th* steel industry 1*
would
constitute a perfect eaatrple of tha tyoe of enterprise
im tome of which tha progra* ha* baas ooaoelved. Im m tual eperatloa, however, a great preportloa of tha applieatleae will fall to ewafora to elosaly to tha tyoe of
laveetaeat visualised. It 1* eaaentlal to explore these
possible rarifttioaa ia M w m c la order to state with
greater «**ctitud» whet aa/ or «ay not constitute aa
eligible application*
(1)

Productive Xatemriaa
Oae range of problem* will center arouad the
defialtlea of the ©hrase "productive enterprise,*
«iaee to be eligible for international iaoorpormtloat3V?llcsifte aust nrepoee t® eagage la “productive
anterpriae.“ .fast what la aeaat by "productive
enterprise!*

. . u n i u i c u n u a M i i i e u / u B u ia s s m e a n o ia m g s o r t n e N a t io n a l A r c h iv e s

DECLASSIFIED
Authority £ P IQ 5 0 1

Socgcttioa
Productive onttrprlta olaarly •nrttmgpn am aporation la which,
if it It taeotttfttl, rac*ift* will nor* thaa covar cott* of
ooeratica. It alto aaviaaftc aa op*ratiom ia vfcloh tha iavattaaat of ea.pital it a major rathar thaa aa iacidoatal
•lamaat aad ia which n w t t i If dapaadaot to a coaaId*ratio
oxtaat om aoalitloa of aaaafamaat. Sueh ontorprlaoa woald or
dinarily *o privattly aimed, ’
Hat thoro it so roaaoa to provaat
thalr toii| rmbllcl'jr ova«(j, *r ixjsyiai a mixed ovaerahip.
ftsterprieea that frwpott to *n*af*
extractive oparatioaa,
Im large aaale a^rlealtural aad raw material woduction, ia
proeeaeinc, or lm maaafactore, clearly fall vithia tho scope
of tha operatic* horo eaviaafed. Investment tru«tt holding
aaeett im tha fora of f«raiga aeeoritle* clearly fall ©ntaido.
Ia tatvmaa that* extreme* thort ara a variety of oat*a refulrlac ooaalderatioa, moh at
(a)

Morehaadltiac enterpriset ia vheletale aad retail
trade*

(b)

Radio chaina, marl* chaias, local advertlalng agencies

(a)

Insurance eompaaiet, haaka, aad f taance eavpamiet;

(d)

Tranrpertatloa enterpritea, railroadt, hat aad track
eoaamiee, aviation IIn*a, aad water •hlnpiau aorvicet<

(*}

Self*1 ifmidatlag tmhlic work*, dock aad harbor facllltiet, toll hridgm*.

R ep rod uced from th e U ncla ssifie d / D ecla ssifie d H o ld in g s o f th e N a tional A rchives

DECLASSIFIED
Authority £ P \Q 5 0 j

<&**7

Should m i *ttos$t
and* to w r i t * »p*eiflc
oowrlag typo# »f oli*iklo eporfttioan la th* lo*»l ehortor
of tli* Authority* or should thooo problo«« to loft to tho
dattl«tmtii« Aitorotiom of tho Authority ltitlft

v n w M o m c u / u c o iaoam cu n u iu m y s

01 m e iNanonai A rcm ves

DECLASSIFIED
Authority ££>\P 5 0 1

25-

(?) "laoaoaioally 8«wA.»
Othar diffioalt proklaaa of dofiaitloa vlll cantor axouad
tho pkraaa *aoonealcally aouad.* What tori of oparationa
aka«Ul 1m dafiaad aa “*oaaAf*
9a««*atloa

lb* Bhraaa 'aoonwoloally aoaad* ahoald not Ha dafiaad narrowly
in tha aaaaa af a *»•*** raatnra. It i« tha parpoaa of thi*
nrograa lo *aooarag* lawatora to taka riaka. *k* iMregna
wonld ka dafaatad if ahartarc of iacorporatioa war* llaitad
to m t u i i whoa* anecoaaful oparatloa ooald
tairoa far
granted. *ha pkr&a* ahould ha dafiaad, oa tha othar haad, «o
aa to axolaAo "wild oat" vanturaa, to *ajr nothin* of downright
fraada. fhara ahoald k* a fair chanco of aa*e**a;taatad fro*
tha point of *ifw of profit*kla oparatioaa. fka aaaeaaafal
outaaaa of %k* Toatara aaat alao proalso to k* food oa
kalaaea for tha e«atli7 ia wklafc tka imraataaat ia loeatad aad
alao for th* world ia g*a*ral. U ahrald preaia* graatar aaplayaaat, or aoia akoadant good* aad aarrl*** to ita looaiity.
It ahoald aot too gr*atljr dlarapt or kriag ahaoa into tko world
aarkata (aa troald happaa*. for axaarpla, ia tka oaea of fartkar
laraataaat ia aogar or ««ff** plaatatlana.)
"Iwmoaiealljr aoaad,* aa aaad ia tki* prograa, ahoald alao ko
dofiaad froa tka point of vitv of tk* o«oacalo aaada aad tk*
kalaaea of payaant* of tha country ia which tho iavaataoat
takaa plaoa. A raataxa vhioh had tk* affoot of eaaaiag aa
outflow of oxshaag* would k* *a*on©uieally aoaad* ia tk* eavo
of tk* Unltad Statoa, kut *aaaouad» la tk* aaa* of Bratll. Tha
Authority aheald alwaya appralo* tk* offoot of propoa*d laataraa
upon tka kalaaa* of payaaata aad tka poaitlea of tk* oxahaag**,
glviag praforonoo ia oa«k araa to *nt*rpria*a which t*ad*d to
roator* kalaae* to tkaaa poaitloaa.

R ep rod uced from th e U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £ & <Q 5 0

at.

{})

*olo ef ixlttlii lato«atlo*al ntnpriaai
In aaay «m*« anrolicaato for lataraatloaal laoorporatloa
aaitr the ?ro*raa will aot coattltato wholly "aair* oatcrprliot. Part of a voatuxp applylac f«r laeorporatloa
a#jr Im aow la the h i m that tho lavostaoat of aow capital
It larol**4» tat fart of it aajr ho *14 la th* aoaoo that
th* vaataro lnelad** tha ao<rul«iti«a Of eort*la existlag
fftollltio* «ad mgr tafeo th* fora of a aargcr of thoo*
facllltl** tato tlui aow corporation. A char? lino 41atlagalohlag hotvooa a*w capital aad oxlotlag lavootaoat
1* alearly roqulro4 with. r#»peot to comltaaato which
tho Authority m y w i n with rocpoct to Its guaraatloo.
fhla tnrehloa ha* already hooa 41o«a«*e4 earlier la thlo
a*aorsa4a*. ®hc cueatioa at lcoa* horo lo whether thoro
boo4 ho m tharp a list with re«poct to tho graatlag of
an lataraatloaal charter ef laeoryoratloa.
Such a ohartor i«f>e*e* oa corporatloao 4eflalt* rotpoatlhlVltieo vlth roofoot to tholr social poliei*c, hat It aloe
eoafors privilege* hy reaovlag j«rl*4ietioa oror o*rt»ia of
tholr problem fro* a local authority to that ef tho later*
aatloaal Berelopaeat Authority aa4 to tho *or!4 Court* It
■igjkt area ooao about, «ho«14 tho ^regraa prove oxoentioaally
oaoootofal la Ita legal acpoetc, that aaay of tho large ox*
lotlag iateraatloaal eorporatloa* woal4 oToataally a-sply to
tha Authority for chartaro of latoraatloaal iaeorporatlo*
without eeeklag flaaaclal gnaraatle« of any kla4.

-m .c u i i> c w a o a m e u n u i u m y b u i m e n a t i o n a l A r c m v e s

DECLASSIFIED
Authority £D lO 5 0 1

??•
fyunf

SfcMlA *xi*tta* lntonmtloaal *OTper»ti»m« that fall *l**Tly
w ithim th« ■<xrp« of th* program 1» all r*«?*0t* *xe*i>t ttwut
th*jr *r* mot u*% aad do not *e«lc fcoaraati**, 1»* p*mitt*d to
Kpplf for elimrtor* of int*ra> tioaal laoorporatioiiT

R ep rod uced from th e U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £ & \Q 5 0 1

(H) What ooaatltataa an lataraatieaal aatarprlaaT
Aa aatarpriaa whally o*aa4 wlthia oaa country, tha
of vhieh it wholly Unst«i within th» m m
eoaatry, would elaarljr fall outaIda th* daflait iea
of aa *la&*np.tioaal aatarpriaa.* All athar Taatmraa
might coact ltmWy W so dafiaad.
taggftatle*

I M aa latra«tUa»l antarpriea ba dafiaad a* o m la which
(l) laaa thaa 75 P*r e«at of th* total aaaltal la Isvatitad
la a tingl* ttatt, aad (?) laaa than 75 P*<* *•*♦ «f tha cnraasrahlp of tha aatarprlaa ia halt Ijr eitif*n* af tha *a»a State*

R e p rod uced from th e U ncla ssified / D ecla ssified H o ld in g s o f th e N a tional A rchives

DECLASSIFIED
Authority

i P

\Q 5 0 1

2. Profit-Sharing
Th* prograa requires that internationally incorporated
enterprises shall share a portion of their profits with the
governments of the countries in which funds are invested
and a further portion with the International development
Authority Itself. The share of profits accruing to tha
International I>evelepaent Authority may he considered as
partkld.Bg of the nature of a fee or insurance charge to
reimburse the Authority for the commitments to guarantee
which it assumes* The Income accruing from this source
would help to make the -Authority self-sustaining In the
long run. ^he other share of profits, accruing to the
governments of countries in which funds are invested,
have a different purpose. xhelr funct ion is (1) to as
sure local governments that Investment in their areas will
not only improve their general economic situation, hut also
help directly to relieve their local fiscal problems, (2)
to Interest local governments in the success of interna
tionally incorporated ventures by assuring direct partici
pation In their profits, ®his direct sharing of profits
is designed to be a substitute for certain kinds of local
taxation. It will approximate, in effect, taxes on cor
porate net income as they are applied In the United St&tes.
TarIons questions arise with respect to the rates of these
two shares. 5hey require much more extensive detailed study
than It has yet been possible to make aad are listed below
for further canvass and research. Many of them raise in
tricate questions quite similar to those Involved in probleme of double taxation.

DECLASSIFIED
Authority gC? IO 6 0 j

3<*

tymrr

(a)

Itfcat Unit mh'mXt bo nl&eaA am tho total of tho tvo ty**» of
profit flharlac «<w*bl(*odf l.». * to look at tho mum <tt»o«tioa fro*
th# Ufnttamt polat of tlw, what It tho ft«gragat« proportion
of aot lafMM U»* obotftld aocruo to lavoiitoro to nmrl&o inrtmco»0Qt for ijrrostaont la * vido raaga of foreign ontor^riooo —
$0 por ©ont, 60 por ©ont, 70 ^or mitt

<b)

*hat tho*14 bo th# cpetifle oharo of profit* « e m l B « to tho
latoraatioaal Develo^wwat Authority?

(e)

*fcoa aa iatotaatloaally iaeorooratoA omtor^vtoo sasr*Ss* ii
• 9f» tha* a M

iA tho «a«o of' & shipping-, line cr

airplaao oorvico, how v l H tho ro*$o«%tvo oharoo of tho dlf~
foreat eo«atrttot bo dotoratlaoif

(A)

Sheml* tho aot ineo»o of latot»atloaatljr lneoroor<»tod oator?rlN« bo oxonpt frooi taxation la &r*at M t u l a ao* tho Unitod
fitwto? Vwli thoy bo oo m n t without tmoctflo aaoaAwmto to
tho carront tat \avo7

R e p rod uced from th e U ncla ssified / D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £D

50 1

(•> *# *l*t #zt#»t out tfe#»# profit tfeurta* pwriil*** Im «h4# at
ivliUtttli f«r other tjr?M «*f local taxation’ to wlmt *xt#at
•heald tit# %thorltjr
tHat %h*j fc# *v&ctU%t#& *#for#
t««miftg * «(aa»it«M»t to goaraat##!

R ep rod uced from th e U ncla ssified / D ecla ssifie d H o ld in g s o f th e N a tional A rch ive s

d e c l a s s if ie d

Authority £D \Q

SO 1

321

Local participation, discrimination and confiscation.
fh* benefit* of tho prograa hero proposed should bo open
to all countries ia need, of foroiga investment provided
tho governing authorities of tho** countries exprog* for
mally their approval of the prograa, their desire to par
ticipate la it* beaefits, aad their agreement to observe
its responsibilities. ^heee responsibilities are of two
kinds, (l) aa agreement to refrain froa discrimination
against internationally incorporated enterprises, aad (2 )
an agreement to acoept the Jurisdiction of the *orld Court
on all eases involving disputes vith respect to the opera
tions of the Authority, or of enterprises incorporated by
the Authority» and also, with respect to whether a specific
act of local administration does or does not constitute
discrimination.
the manner in which these agreements are registered muet
be left to expert* on international law. there is one Ques
tion of policy, however, that will require general confideration
before specific details can be worked out by these experts.
Should the International Development Authority be required
to secure the formal approval of the local government of a
country before It incorporates an individual enterprise pro
posing to Invest in that country? In most cases, of course,
th» local government will be informed of proposed ventures.
In many cases, In fact, these ventures will h-ve be*n pro
moted by them. In all cases, It would be highly desirable
that proposed ventures be welcomed by the country ia whlob
they propose to operate. A specific requirement that formal
approval be given, however, might in some cases permit 'ilackmall tactics or tend to lead to bribery of local officials*

R ep rod uced from th e U ncla ssified / D ecla ssified H o ld in g s o f th e N ational A rch ive s

DECLASSIFIED
Authority £D <Q SO 1

131*

€&*ry
Humid tho lo*«l do«moat«
till* vrbgrm $r«rrl4«
a mlttfttlott formal*. *ach m eri*t**l imwataoitt oo*t, m
rmplmmmmt
to guido tho Cfaurt Ia dotornlaia* tfeo
ftaemt u d fosna of eo*poa«fttlo& da* t<i ovaor* w&ooo '8>ro|>ortjr
too toJnaa w * r V lo«*l <coT*ra«oat« wa£«r
powoi-a of •KlaWRt 4«a*laf Sfcoold tfa*
of tho
sotfcod of Yolnatloa «« ««11 «* tho OSOfMt of fRMSll QOafyMJMMP*
tlo« %• oaatiEaod moelfi tally to tho Jttrlodietloa of tbo
Karli Court?

DECLASSIFIED
Authority £t? K> 5 O i

?nUt»«

0||Aait«tlMi

1. Orgoalsod by tfhoaf
th# ?>ropo*«d ?Ri»ra«ti9BAl &ov«to?»oat Authority wmld ©1o*rly
o*artltat* 9>. £otat
t£*acy. it would «otv hovwor*
©oa«tit«to % joint «c**oy «twj>or»blo to th* XatoraAttoiiaX L*toar
OffiHt wfto*o *11 aaebor *tato* aootipy tho h m loftl ^owitioa.
*fco fsfteti«m* of tho latonatlofeal 3oroloi»oat /<tttborlty differ
n & i m l l r ft* botvooa ototoo gotora!*# aeonoalealljr dovoloood
rogtoa** on th» on* M , *a& *t*vt*« ^Yomi&g aooaoaioonr
ttaftordovalopod r**loa#* on tho other. I* Is th* T t t m M of
tho lfito*&4tioaal
**tl»orltjr> bjr aooao of | « t m t U « f
to ftlMlit* » flow rtf do*alo?*oatol e«pltel oat of tirrit«rt«t
^v » f M A by tbo foffwtr iato tfeoto g<rvoi*ftod by tho l*t‘*r. ¥*•
t*tk of o«t«blithia& tin Aathorlty «*d of providing th* funds
to ^owr»ift»o H » ooirnltMM, ttoojwfor*, voold **•« to <xirt*la
oolotjr t« «bo ewitlw powo**. st*too tw^lac to bon*flt froa
*b ijrfJw of iMTRStMl M t , os tlio otfeor fe*a4t vwl4 b*
ftiM t* fifiitor * fowart M m U o i of th«ir doolr* t» m f ttetpato ia tli# % m « t iU af th* wo$v*ai aad of that* willla#*oo« to o«Afofm to it* rtinoBtlbiUtUt.

H lo raflgootoi that, la tho bociaalac ** loaot, the Iataraatloaal ftavolopaaat %th*rit? bo o*gma£sod o* * jolat agom y by
tto* govomaoat* of Ovoat *rit*la and th% halted S%otoc. Oaoo
it 1* 0 v;palMl» UvititUAai ih^uH bo **tondad to all ftrvovftbljr
dlapoood f U t n to tofea taoh fosaal sctioa t« aay bo aooaftaary
to 9«»it tholr c^Mtvtoi t*
la tho boa*flto of tho
^ragraa. ffelo orooodaro would follow oxaetljr tho spirit aad
lottor of ?oiat IT of tho W ^ I U ^ ^ m t l t jotat doeiaratloa
vfcar* th*y j»lo4|od Oroat Brttafa and the UWtad &t*t*o to safe*
ow j r offflrt to |lvt all ototao fesaal acooo* to tho trad* aad
raw Mttritli of tho m U *

R e p rod uced

from the U ncla ssifie d / D e cla ssified H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority £t? K> SO 1

%»*r
(s )

Sbotaild vpm*<3V«ikif at th* 'pi*.* b* lia»lfc*4 jwraeAtatly t*

&r*»t

sod tto Uait#A $t*t#*« or *heuld ottor er#dH*jr
to ft«k»d t» Join — Holland, ox (*ft*r Ik* war) fmmsm
«t <»*r»*ny?

(fc) *ho*14 ill* raitw of drttor csuatrl** invite %» niSmm 1*
tto snr**i*ii waft *<» *W * ia it * toavfit* to liai.%*d ia mgr
w*gr, as for assapl*, to d*w©cm*ei*it,
te aoa-toci* nffiliat**
«t»t*«?

DECLASSIFIED
Authority f P \Q 6 0 1

Im what iMttl ahoald fond* W alloo$to& to th* ^othorityf

?wo |»ri«tary eon*id©rftti*as gorara th* aiaaa&t of funds aoisdod by
*.ho '■uihority to fulfill itw funetloaa. First of isll, tha fund*
under Its control M» t ba l*rg* *uough ia asouat to protlii
iaaoa* far o’
poratlag *3R>*a*oa aad to a«*t all rioaolbl© Iosco*
rosultia# frtm th* oxtaasloa of it* guarantiee, ^tiwlie
T>rop*r orguliatiQA nod aoaad adaial*tration, a total olloeatloa
of $1,000,000,ODO would be «mpl* frtm this poiat of via*. It
would proYlda iaeoa* far la *>©**« of onorating eoeta* *feioh
*ft*r a preliaiaary period would probably ba *»oro thaa eovorod
out of profit sharlag r*saint*. It would alco provid* a a*ora
than pdofjuAt# capital euahloa for tho guarautl*«« particularly
to la wimt of tho aatar* of tho oowaltaoata aswuaad ia tha**
guaraati**, which taka tho fora of aa oxehaugo of doboataro*
for *$ulty, and la view of tho vala* of tho nrooorty aooulrod
by th* Authority wfcoaovor tho guaraatlos alght bo lavatood* k
•oooad aa* aoro ivocrtaat *oaeld*ratioa« howorar, I* that tho
fuadfl aadar th* ooatrol of tha Authority aqat *Tr»**r to Jho
laraitog to bo fally aaplo to no*t all ooaaiVl* eoatlngaaoia**
this eoaaidaratloa will rooulr* a aatarially largor velu»* of
fuad*. claeo lavootora, particularly la tho oarly oorlod of
^•st-war ooavatloa, vlll bo hesitant — th* ataosphor* will
t t i l l b* poraaatod by a fooling of gaaosral lasecurity, th*
Authority will ba a*w aad uatostod, thoro will bo ao record of
•x^rlMoi to iadleat* to tha iavaator tho opooiflo oharaetor
of riaka It la atiuaiag through it* guaraati**, aad thor* will bo
no Ittdloatloa of how largo la tha aggrogato the** guaraati** aay
ooao to bo. &oaoatloally, a situatioa *aefc
this coaid bo
aot a* it ha« booa aat la tho ease of tho debenture* of th*
federal Houoiag MmSalstvatf oa, by haring th* d*boatare* of
th* ^ithorlty guftfaataad by tho treasury, la tho ooao of a
Joint lataraatloaal ageaey, such a* lo her* oswisagod, thl*
dawie* oould, of floorM, bo ad^t«i» but it alght l*ad uadar
eartala elreua*t**ea* to frletloa b«tw**a two gonroMaU. It
would bo ^rof*rab\*# tfaorofore, to orovld* a larger gnaraaty
foad.

D E C L A S S IF IE D
Authority £ Q \Q 6 0 \

37*

It I*
t*4 that th* Tat«ni«tloAfrl £««lor*»flnt Atttteriljr
b* «n o «*t*d r totnl. mm .of *fe#OOOt(*50,^00, enulrffllsnt *.t cur
rent osshan** to tl,000,000,000. Of this ft.woaat, oaa-half, or
000 ,000, *r«»ttid b* «mto*crlh«d 'by th* T?nitod $t*t«* ff*V*m••at, *ithor dirtotlj V tfe» V«*ttry, or Ifcwugh th*
tie® l i i M M Corporation. *h* other hnlf, or %$OQtQGQt&fta would
t* *ob«erlfe*A >jr th* Srlti*h govomaent or hy «»* of it#
Of th* Mwuat ** *u,l*arih*d, 5 m t a*n% wauld b* ?*ld in th*
form *f f w d i w y
i*t th* tin* of oripnit^tioa of th*
Sitfcority. **ii* ****** that th* 9»it«d St«t*« jjoremwmt voal*
t « n or*r t* th*
fwwwpjr bowl* with * ffcc* w l w of
$190,000,000, whit* th* *riti«h Qn'frttmnX would tar# # w r
fc?5,000,000 i* British ?r*«*ory boafl*. *h* ^iroator* of th*
Authority voald to **nowar«d to m il *s th* tv* t m m n t i
J«iatly for th* r*a*l»&*r of th* «*h*«riptioa in *»*h 7>rorid*d
(1) th*t th* MNMUKt c*ll*d for vn« a**d*d to M * t w t u l a t d*t*Atxur*« i*«f**A ** * r*irolt of eo**it»*mt» %&
nA
(?) that *iaah *aU* Mir* liaitod la Mgr *** y**r 1* aot *or*
tha* *100,000,000 *r
000,000 r©*p**ttT*ly ta th* *•** of
th* two fr****erl««. ft I* ««6g**t*d, fia*ny, th*t th* ^ir**t*r«
of th* Authority h* r*r>»lr*d to *U*ent* oat of ftuA* ok has*
*r lokjMt t* e*U» ******** AgMast irwmatjr ***Mitm*at0 at
th* tlM th* o*flftlt**at* *r* *ad*. Th*** ftU**&t*d r***rv**
h* f«r th* fall w»wfe of th* gu*f*»tl*« M t w e d or for *
t>rep*rtt*?a of t«ofc c**r*Ati*«. la *lth*r **•*, th* &lr**t*r*
voald t* r*fair*d %*> ft^n*«M» Wfor*l»fld th* imam t ef r***rr**
tb*jr v*r* **tnVllifeiac «il th* i»*li#i** hy which th*y vould
fc* g o n m i ia afttftUlftiaf th«i«

DECLASSIFIED
Authority

£ t>

\Q 5 0

This procedure would appear to be sufficiently flexible to moot
the exigencies of the situation. ®he Authority would hare aaple
income from the Treasury securities which it received at the
time of organisation to meet current organizational and operating
expenses, even though these night well be hepvy, involving ae
thoy would costly preliminary investigstion* in different region#
of the world. *he D i r e c t o r s of the ^tho rlty would also he able
to adapt their reserve -nolicy to a developing situation. In tho
early stages of operation, they would ho ahle to assure Investor
confidence by allocating reserves ooual to the total amounts of
investments guaranteed. Later, when they had established in
vestor confidence on the basis of a period of experience, they
would be in a position to reduce the proportions so allocated.
The only calls made during the period of war financing would
bo Halted to asounts equivalent to $100,000,000 each. These
sung, moreover, would not Involve a current cash drain on the
Treasuries (except for the interest involved) since they would
bo paid in the form of bonds. Should the program work: out on
a normally successful basis. Its self-financing characteristics
night obviate the necessity of any further calls on the two
Treasuries whatever. Should it not be entirely self-financing,
i . e . , should losses run higher than receipts, the amounts called
from the two treasuries would be noderate in amount (not over
$100, 000,000 each) in any one year. This provision would con
stitute a real protection to the Treasuries and would not hamper
the Authority, since it would make good on its guaranties by a
tender of debentures, the maturities of which could be so
spaoed that no more than a specified amount fell due In any
one year. It should be noted, finally, that this financial
set-up matoes no current draft on resources — financial or
real — needed for the effective prosecution of the war.

R ep rod uced from th e U ncla ssified

I D e cla ssified H o ld in g s o f the N a tio n a l A rch ive s

DECLASSIFIED
Authority

50 1

3?-

fyiary
(a)

raroaat to tho »bov* ouggofttlo**

Cl) *• * total * X U
tha AulMilft

(?)

m U m

«f ?HfOOO,ooo.ooo «aff*«taat for

it bo allaootod actually
0r»*t *rltal& riA
tba Hattod Statat aa tba fcaala af th« earraat rata of
o*ehaa*o?

<3) tfaalA tha laadtlata eulMeriptiofi of $100,000,000 ia c<Jalfc*d Stata* *r«a«wry «ecturltloo ttaA i»?5,000,000 la
Britlab frtnoary iiettriil*« ^rorlda ouffiolaat oath la
tha form af lator^t to aa#t orbital ioaftl wan at^ratlag
•xpaaoao af tbo Authority?

(V) Ara tbo pvtfofto* llalt*tioa« oa fataro call* adaqaata ta
*rotaat tho t*o tr«a»i>ytoo?

{;0 *** t*a prvpofaA: proiri*laa« vltfe rinoct t« nlloaataA
r#«#rr*#.,ftitfmmtt 'to -Aittjra lairo*tor conftdonao aa* ta
ffalatalft tho *«*lYO»ay of tha Istarmtlooftt terolapHWt
Aathorityf

R ep rod uced from the U ncla ssified

I D e cla ssified H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority

£ t > \ 0

(fc) Sbomld %h* lat*r*rt r*t*» 0* Umi A*?o«1U4 *«ettrtti*s
th*
«mm for ill#
«»!atrlti« *r *lumX6 th«y jr*fl*«t th* m*km%
itlti ourmllf Wlif fill m m v Imftix* 1•»«»•!

(«) *famt
utaHd* b# a»d* nbaa*
*joQh&sc* — riisali
both eonatrl** «fft# not to r**trlet tit* coa*»r*i*m ef *x*fciia*»
hftlA by ite# Authority?

R ep rod uced from th e U ncla ssified / D e cla ssified H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority £D \0 501

Hi.

ffc* ooareofitioa aad aotbod of ooloatloft of tba Soard of
2iy»«Wn for tbo ^rspatod
’oraooata ottom! kaotty
problaao, (a) *ba *<atbarit/ itoalf wald eoantitato aa attoriy
aov Ifti of t*t«raatlo&ot *<aaoy for
tboro aro so i>ro~
oadoato. It would bo «b*rfod with otlatitatlag aow iavottaoat
throughout il» iataraotioaal fiold*
inlo araaa
vboro oooftHRle ^ r l u t i i l n «f« fr«il»ii| but
<arf
ooeial obotaaloo ara
It iremld Vo m»tft»iUo for
tbo guidoaao of that iavootaoat aooording t* tho hl&boot
otn&darda of m#iol aoofalaooo aad of aalifbtoaod atfta^coaaat.
ill of tbaa* 0*a#id*r0 ti0a» Ulillt * #*0*4 of Blro«toro
o^wpooad of f«iwii|btii iadivldttalo vitb touai ooaial ta~
ttUeli oomblo of ovoeatiag a oro£r»a *a<rairiag a high
dagroa of political
n« wall a« oooaomie ttatoo^bay &l*o laply n lusrfo attaoaro of toillotIvo
for tbo Board of ^iroctor®. It sat* bar* frood'** of aetloa,
if it ii tc curry ©at tho idaals isroliod in tt« *aadata.
(b) flto fa*t that tbo Authority vontd bo oot^bliobad by
two gavorowmto mt povorfal at tho*a of ®r*at *rit*ia «ad
tbo tlmitod %*ta* aad tbat it vo*l<! dov<ilot> It* loadarobt©
oa tbo booit of po*aro dologntad jointly by tbooo tm pmmwt
voald iadlcat* tb«t it aboatd bo «o aatablithad tbr t aottbar
£0*0*JtfcOOH1 alaaa oa«ld octroi it* oooratioao* i* ) tbo
ror>*a*ibtlity of tbo *utbority for oooial dovolorwmto ia
toolbar aoaatrioo tft*otbor vitb tha taflaaaa* tl voald bo
ftblo to o*ort <*a tboir growth **ald point to tbo Aoilnbtl ity
af hnviag i>l»co oa tbo loord for oitlroao of «tataa otbor
tb*a %• *t %lt*ia aad tbo ^aitod ‘1t»t*«* *t would bo
dlffiaaH far tbo Authority to rot*i* tho c^afidoaaa of
t bo M l t a r ao«atrlat» If tbo *o»rd waro coanaoad oololy
of rapraooatttlvoo of tbooo tvo auditor etatoo. (d) fa
do its viylr boa* ttIy aad to ninii tbo eattfidaaoa «f iatti*
tore aad ef tho wmlatl^ao of aadordavalotjod rogioaa, tba
lo*rd would b*vo to ba fro* fro* tha oyorti*a of i>r»o*ttr*
by later*it#d **lltl«al
Co) la ooatraot to tbaaa
e^acldar«tlna«f #11 of vbieb ^oiat %*m t& #. ?o*rd of Mrt»*
tdrn fraa fr^s* e^atrot of tbo t?*n.9$rtng ^rrern*ottttf tba
Board v-'uld bcro to bo tboroofhly nad diraetly r^oijoaoiblo
to- tbo«o ^jvsraasoste la s flBsacinl ooaoo — tbo imtwm
of faado Allocs tod to it# o<mtr*l would ba too troat to
Tior*it it t* onoroto vitbomt oartaUloaoo. (f) Fiaally, tho
Board woald b^ro to bo rol*tlvoly o*all« It o^ald aot
foaetioa roo^oaoibly or offoatiroly If It m *o aatrloldly in
Olff*.;

R ep rod uced from th e U ncla ssified

I D e cla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority

£ p \

SO 1

ini|i«ilo«

It it aaggoatod that th# aaabor of I>ir«6t«r* b# fixod at
nlno, that throo of thooo Eireetora ho afroolatod by th#
gorarnaoat of ®r-*at Britaia, thr## by th# govaraaoat of tho
tfait#d 8Uii», oiid that tho rftaalalag throo ho aspolatod la tho
flr«t iaataae#, i.o., at tho tiaa of organlsatloa, by tho haada
of tho two govafaaaata la jeiat eoaatdtatloa, aad tharoaftar, by
tho Board of Blraotor* it**If. It 1* farthor aaggostod that aaoh
goTomaoat infora tho othar govoraaoat of it* proapoetiwa appointooa,
la tlaa for that goraraaaat to r®gi*tor aaoh eoaaoata ao It aay
vi*h to aako with rotpoet to tholr fitaots fop tho poalti#a« It
ahoald bo aadomtood that tho throo aaabor* at largo, i.o.# tho
throo appolatod la tho flrot lactaaeo by tho hood* of tho t w
atatoa aoting jointly aad tharaaftor by tho Board itaalf, ahoald
brlag to tho *oard a thoroughly iatoraatioaal poiat of viov gaiaod
om tho haala of latla&t# contact with iatoraatioaal t>roVLaao aad with
•octal aad oooaoale probloaa, mrtieularly thooo of aaall aad ralatiroly loo* dovolopod eoaatrloa. B*aauso of tho rapid thift ia
ooadltioaa, it woald ho daagosroua to specify too dirootly la adwaao#
tho baekgroaad aad contact* ragairod for caadidatoa for thovo pool*
tioa*. Uadar proooat ooadltioaa, howowar, It woald bo wholly
nppropriato if thoso throo appoiatooo woro ehoooa froa a froap
ooaposod of ladiTidaaXo who had booa oloaoly Idoatiflad with tho
work of oaeh organisation* a* tho Iatoraatioaal Labour ^ffico, or
that of tho Leafoo of Batioaa, olthor la eoaaootloa with ito aoonoaio aad financial oorrlooo or its aaadatoo ?orrica«, or of ia*
<Hridual* ia oarraat latlaata ooataet with *poolfi« doTolopaoats
la ooloaial aroao, or ia othor aadordoTolopod rofloao. 3aoh a
group woald ooaotitato a guaranty to aaallor statoa that tha
logitlaato iatoroot of thooo statoa as wall a| thoto of tho erodltor
powora woald haw# a hoariaf la tho Authorlty. It woald probably \
bo a aittaka to appoint aatloaala of c taatriof hoplag to boaoflt
groatl? froa inroataont * guaranteed by tho Authority, alaeo thia
alght engender too groat joaloaay oa tho part of othor saall
states*

R ep rod uced from the U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority

0 \

50 1

*3*

(*) I* al«t m «g»#tip*4ftt« **»fc#r f#§ tfc* B*mNI *f &i**#t<ir*,
1 .* ., I* il mmXl #itea# to faacUoa *ff#«tiv»ly m* *

B#*r4 «od At tli# mm tin# litx$# #aoia£h to lntar* that
tli* *#rjr l*rr<*rt*nt r#tp*ftfti1»illtl#* d#l#gKt*& i« th#

tath#rity id a#t 4#n#aA f«r th#ir «fo**r*»a©* <sa a tl&ffl#
*13$*iat## who *«jr fralX t* evp* vlth il*#*t

(%) It life# 4i«tritastl#ft of th# aia#* i.*#, tit*## A«#rt#n*
»i#«b«rtt thr## ®riti*k *w*fc#r* <md thy*®
at luff*
«r*r##t? *111 it flTt atojaat# #jg>*##*lo* Cl) to th# w r y
A tract iat#r»*tt #f $**at %$t*i& aad th* 3alt#d. -fat## —
th* tv# *«satrt## that nap* atoawtiag th# £a*.**ati##, (?)
t# th# m lfm m *t th# *#ftaa# ia which l&ir»?t«#*t t#k#«
glue#, #»d <3)
**#*A e#atli#r*tle& of iat#*aaii«*al
p9%itf *ad«rlytag th* «fe*l# progrmmt

R ep rod uced from th e U n cla ssified

I D e cla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority

(e) Kov «ai iho

£ p \

50 1

4 « « a n **• o«l*bll*hlag Iho Authority

D u typo
vithottl b«e0«ta«:

#rt«i r*fuirod for aooboro it Ui|i
a^oelflo ** to mki hi* & ro^rooont*-

tlv* of ft or>oolol U i»9»«l or ®l •»

Ihot wgr

&et eOStlWM *0 will?

(d) Should «o»o isrovioioa Ini and* for tho Board la l&fti» U *

t«rn*.ti^nVL or<$iftf*»tio*o of pyoirpeoiiv* wolootoot fur
aooboro n l largo, floia# t h m opparliuiity la aofco o«— ial«
« i » t U r I© tho to
lo ooch im i'N M iit with r*ap#«i
to a$9oialooo of tho othar sotorm oat? if no, hov would
thooo or**alfAtlomo bo aoaod? X« n*t tho vholo dovolopnomi
of laH»»tloa^l s«£oaoloo loo mhrjonio 91111 lo m t m Dilo
proeodaro foaolfelo?

R ep rod uced from the U ncla ssified

I D ecla ssified H o ld in g s o f th e N ational A rchives

DECLASSIFIED
Authority

5@ 1

Board of T’ir^otore - Term of Office

there it no great importance attach ing to any specifle ten of
office* ugr ®f fl^e yoars ** cfl«ppred with seven. It le tapert*nt# hoverer, that a definite tern fee decided upon, that that
ter* fee go fixed as ta guarantee rotation on the Board, and that
the term of goYernaent aesfeers fee longer in general than fire
Tfara e© that no single adaini atratio* In either country will have
an opportunity to inflmeaee unduly the co«peeitian ef the Beard.
It le nlee important that the original groapoe* the Board have
long enough terat to insure up. adequate initial jofe of orgemitation.

R ep rod uced from the U ncla ssified

I D e cla ssified H o ld in g s o f th e N ational A rch ive s

D E C L A S S IF IE D
A u t h o r it y £ o\o$ Q \

Lot tho tora of offloo for goforaaoat Board aoahoro ho
ilx
oaoh geifrawsl aakiag
aopoiataoat oa
aoto yoaro, prorldod that ia eottiag up tho Authority,
rotatloa of gororaooat aoahoro dooo not «tart uatll tho
fourth your. I*ot tho tom of offtoo of aoahoro at lore*
ho throo yoaro, rot*tioa aot to «t#rt until throo jntri
oftor orgaaisatloa. k t Yaoo&oloo doo to r09 Ignatlea or
tooth ho flllod oa aa latoria haolo hy appolataoat la tho
• m aonaor ao tho origiaal appelataoat. At orgaalratloa,
Groat *ritoia aad tho ttaltod »tatoo would ootohllth hy lot
tho country whoto oppolatoo wnuld ho firot ouhjoot to
rotatioa. $ador thlo plaa, rotatioa of tor* would follow
tho 001torn sot forth ia tho following tahlo. *ho nhortor
tom for aoahoro at large 1 * po«? Illy Ju«tlfi«d hy tho faot
that oortoaaol is aoro fluid la thlo fiold. Tho roaooa for
o thr«o yowr tors Is (1) th&t it 1c divioahlo late olxf oad
(?) th»t aoahoro at largo woald ho appolatod altoraatloaly*
fir»t aolneldontally with a fcrltl«h aoabor aad aoxt with
aa Aaoriona aeahor. £ho following tohlo aoaoaoo that tho
draw o*tVb!ithod tho halted
as tho country to rotato
lto aTmolotooo fir ft, tad al*o, that tho Dro&raa wa* lata*
gar&tod ia l$h?.

Toaro of Wow

s
fa
*W

v m
*5 ?
m

Britith
Maahor
(1 for
5 (1 for
(1 for
aoao
aoao
noao
aoao
1 far 6
aoao
1 f # ;$
noao
1 t«*j 6
aoao ’
1 tm €
/
ot«.

taoriean
Moahor
yr*.)
Tr#.)
yr*.)

yr0.
yro#
yro.
yro.

(1 for
7 (1
(1 for
aoao
aoao
noae
1 for
aoao
1 for
aoao
1 for
aoao
1 for

total
A^ooiatoot
* » r— *

Hoahoro
at T-*ar^o

k yr*.)
6 yr*.)
<5 yro.)

(1 for J yro)

H 1 for 5 yro.

'1 for ? yro.)
aoao
aoao

1 for 3 yro.
6 yro.

aoao

6 yro.

aoao

1 for
1 for
6 yr*.
S yro.

aoao
1 for
aoao
1 for

yro.
yro.
yro*
yro.

noa#
aoao
I
1
*
I
$

I
?
1
?

R ep rod uced from th e U n cla ssified / D ecla ssifie d H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority £Q

\ Q

50 1

Qmry

(a) I» tlx roar* o*ti«faotory for goTorinoat a-wfcor*?

I« throo y*ar« Jmotlflod for momfcoro at laur**’

(o) I« it latolllgmmt to dofor tho bogijmin£ of rotatlom
until tho third yoar im ordor to ia«curo a *t«M.o
Ba*rd t* orgAairo tho Antfcoritjr?

R ep rod uced from th e U ncla ssified

I D e cla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £D

\ Q

5@ 1

Board o f Sirootora * ^rsoaaol j*oqoiromomta
£oo$oanihility for tho dovolopmaat of fcrood policios of
tho Iatoraatioaal &o?olopMmt Authority will root ia tho
Board of ©ireetor*. &o«r>fmfiBility for tho oxootsBio* of
thooo ^olloios will root la tho #*ocativo org*nifatlom
whioh tlio
of Blroetora aoBo «p. Clwurly, tho
Board ohomld Bo £1tob wida froodo* with ro«?oot to tho
i>or#oanol asi to tho motho&o of «rflUil**tto* of tho
ovooatlTO ogotiey which it er««too. *ho variety of proBlo**
that may Bo fmcod aro too namaromo to oormlt oooeifioatioa
la adwaneo with roopoot to thooo mottora. But vhat of
tho Board of Birootoro itaolft Vhat kiisd of iadlvidmalo
ohomld It ha*oT How datallod should tholr fuaetleaa hot
3h<mld thoy Bo ftetV-tino or ^rt-tiaoT
1* floaoral full-timo Board« of directort Booomo iavolrod
la tho miiMEtiftO of o^orttioa* aad toad %o iatorforo with
food aimimistrwttva man^fomoat. f^l* ah©aid eort*ialy
Bp awoldod la tho latera* ti*n*l Dovoloismoat \thority#
H tho tamo tlmo, tho w->rk of tho -*oard itoolf, vtnljr fro*
tho ‘solat of wiow vt volley dotormin«t loa, will malt* fairly
hoowy drafto m tho ti*o of it« momhors. ft will probahly
Bo aocoaaary to ootaBlioh two mala conter* of o?or*tloa
for tho *«nri, oao la *n#hia£toa aad n o ia Xomdom* It
woald Bo well If tho *oord mot alternately ia esch plaoe.
*ltfc tho levelOT*»eat of aviatioa, thi* T>roeodaro woald mot
Bo at timo esnoamiag ar It woald have Booa hitherto* Bat
it will aeverthelova *till rooatre b coaeldoraBle amoaat
of timo. *he *oard member*, im addition, ohomld Bo la
fairly olooo eoataet with industrial oestiaeat* la tho
two ooaatrie#, aad, aloo, with e'taditioa* la 'torioat parte
of the world wfeere lave«tmeat madertafclace aro ta ofcerntiea.

R ep rod uced from th e U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £OK> 5 0 1

& G t£ g # « tl# 1l

I*#t th#
doetaant* •»t*"bli#hla* th# A&thority b#
*ll#at #& th# qsantloa of "ull-tla# ■***&•rship. ®hi#
will flf# th# aathorlti®# r#«w>a«i’bl# for *??#lafclB*
«#•%#*# aaximm fr##do* ia loo&t la£ individual* with
th# r#cmi*it# tatkgraanA* #»$#rl#ao# and curr#at coataetft n#«d#d. fhl# will a&k# It postlM# la c*rtala
ta#t»ae«# t# ##care Soard zB#nh#rt <*f high callhr# who
oth#rwlt# w*mld aot h# airailafcl#*
th# saa# tiai,
th#r« wait ta a##mr#ae# th#t *#ard a#it#n will d#vot#
th# tia# a###s»&ry to th# job aad th#r# suit h# coap#*#ati$a *d#$a&ta to m * t th# conditioa# iapoaed hy
tfcl# situation.

R e p rod uced from th e U n cla ssified I D e cla ssified H o ld in g s o f th e N ational A rch ive s

DECLASSIFIED
Authority

\Q SO 1

Query
(a) Should the enaMiiv? legislation he filent on th* question
of full-time sr>rrlee for the Bo*rd »ewher«, hut *p»cifle
oa the requirement of wtule time to nerfora the functions
i*po§ed?

(b) Should coina*n«»tion 'be specified, And if no, how?

R ep rod uced from the U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority £OK> SO 1

51.

ftwaamrk

6. .

fh« ligfil fra«*w*rlc repaired to •ata¥Li«h tba eant«s$lat*d
prtigrm
<m**tl©tt* vhleh a&ljr th« sn*ci*li*t eaa
aa«w»r. ^hey are littad "btloif.

QjB»rjr

(*) ffov cm .m latenrti^nal agsiiey «udi as th# lataraatieaal
D«y«1o >a*nt ^athority
eraatad
Could it ba eetabliskad
*by $*aaty fe*tva«& th« llaltad St*t«« and &x*ftt *ritata^

(fc) How would tha aaeataary fnad« T>a tav&ad orat to th#
%th<i?ityt Would tfei* r«quir« a full appropriation Hll
ii %ha Uaited i%ati>*f

R ep rod uced from th e U ncla ssified

I D e cla ssified H o ld in g s o f th e N atio n a l A rch ive s

DECLASSIFIED
Authority £C>K> 5 0

52.

How would ether countries benefittiag fro* the prograai
arrange their foraal participatloa and express their
adherence to the r^roousibilitle* isrooeed.t'

(d) What legal steps ere necessary to »aenure to the World
Court jarindiction over disputes arising in the soars*
*f eperation of the Program?

(e) How ooald the program be amended as time -oases* and poses
aew problemsT

R ep rod uced from th e U ncla ssified

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DECLASSIFIED
Authority g e ? > o 5 Q l

53-

Problems of Oparatloa
!• ^stablishaent of th* M»ialetratiTe Organisation
Th* kind of administrative organ1sation needed to effsen
ate tha policies of ^he Authority will necessarily ba
go-reraed by tha tasks it trill ba called upon oa perform.
It Is aspumed la this discussion that tha Authority It
established jointly by Oraat Britain aad tha Waited
State* while tha war is still ia -proves*. Slider theta
conditions, tha economic resources available far cur
rent inTeataent ia undeveloped regions will be distinctly
limited. $a leaf a* the war continues, tha organization
vould ha chiefly concerned vlth making adequate prepara
tion for active operation oa the termination of hostilities.
It vould hare to arrange fa) for tha appointment of axaeutire officers, (b) for tha establishment of executive
headquarters, (c) for the formal participation im the
program of state* dasiring to participate la it* benefits,
and (d) for the granting of certificate* of international
incorporation to as many worthwhile project! as d o «tibia
with the object of setting the stage for a large outflow
of develepmeatal capital immediately on the eeaaatlo*
of hostilitle*. It should be acted that thl* activity
would proTlda valuable estimates of tha volume of amtfe
investment that might be expected. $uoh estimate* would
ba highly useful im th* general formulation of pe*t-var
reconstruction plan**

R ep rod uced from th e U ncla ssified

I D e cla ssified H o ld in g s o f th e N atio n a l A rch ive s

D E C L A SSIF IE D
A u t h o r it y £ t> \Q $Q \

5k.

Suggestion
It ha* already been suggested that the International
Developaent Authority have two headquarters, oa* la
Washington snd one in London. *hlt suggestion Is
directly contrary to the general rule of sound or
ganisation. It seeae to he imperative in this cage,
however* since the Authority will need to operate ia close
contact with both American and ^rltlsh investors, if it
la to he ia a position to stimulate a mtiwam flow of
investment, and also, If it i s to he able to act quicily
and intelligently on -olan<? submitted to it for approval*
Experience has shown that it would not he wise to haw
a single headquarters equally removed from hoth important
canters ef operation, Something elmliar to this was dona
in the case of the -Bank of International Settlement a which,
located its headquarters at Basle ia order to escape the
oosalbility of over-dominance hy reason of too great
propinquity to London, Paris, or Berlin. The result
was that the ^aak was. Isolated at the start froa the or
ganisations with which it was supposed to ware. Ia tha
caee of the Authority, it is essential that it should
not he isolated froa the center* of investment activity*
This heiag the case, it would he preferable to face the
problem* of organization Imposed by the creation of twe
headquarters*

fhe preblem ef securing formal adherence to the program
oa tha fart of eeaatrlaa daeirlag to Dartleipate la it*
benefit* would probably fall am the Dlrectorsas well a*
tha Administrate Staff. Intensive travel oa th/part
of both ml^it be neaaeaary to arrange tha detail* of
tha program with eeaatrles plaaniag to partloSpate.
»^Kaal»tlom wa* selaated, headquartera establiehad
and tha formal adherence of participating countries arranged
tha **tlierlty would concentrate cm tha problem af passing
oa applications for laaorporatiom. fhla would iavolva a
considerable amount af ataff work, laaluding field *u*w
Taya to establish tha conformity af applications with
tha requilament e of the program. It, weald ba d^aeeaary,
far example, to astablieh criteria for eeoAamleVoouBdnoe*,
social standards, eta. *he problems involved in establlahing suah criteria have already been considered la other
sections of this memorandam.
\

R ep rod uced from the U ncla ssified

I D e cla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority

£ t>

\ Q

50 1

55-

Qm n j
th««li l i l i i l i t prorliloa %« *adof a« iig g tilti, for
two feo&A<{aartor« — oao Im VA«hiAgtom and ono la
I>aa&o*t

R ep rod uced from th e U ncla ssified

I D ecla ssified H o ld in g s o f th e N a tional A rch ive s

DECLASSIFIED
Authority g o i o S O l

56.

2. &ola£~Coaoora Tuactioaa
Aftor ootoatioa of hoitllltloo, th* Authority would faeo
at* Tprohloat at a fotat concom. Ia addltioa to orgaaltlac
itaolf offoot truly to ttlaalato ap-plieatioat for latoraatloaal iacorporatioa aad to pate oa oaeh applicatioat
whoa roooivod, It would havo to ootahlioh aa accountla*
ooetloa to recoiTo roporto fro* corporation* to which it
had giaatod ehartora, to oorutlalso thoto aeeouatt la
ordor to dotoruiao aot laooao tubjoet to profit-iharia*
uador tho prograa, aad to ettahllth tho aaouat of tho
ooaaltaoat oatftaadlag aador tho goaraatioo which tho
Authority had isouod.
Tho to eoaaltuoata would prohahly aot eoao iato actiaa
for ooao year*. *h»m thoy did eoao, tho Authority ai^ht
fiad that It wao tho dealaaat holdor of tho oqulty ia
tho oaoo of ooao of tho looo tueootsfal of tho oato*priooo iaoorporatod aador it* la this oYoat, tho
Authority would havo to otaff itoolf to doal dirootly
with prohloao of aaaagoaoat.

R ep rod uced from th e U ncla ssified

I D e cla ssified H o ld in g s o f th e N a tio n a l A rch ive s

DECLASSIFIED
Authority

IQ $

57
3.

Powers of the International Bevelepaent Authority
fhls outllae of probicas involved Ia organisation aad
operatios suggests soae 0f the severe that the Authority
aaet have la arder to faactlea effectively. A tentative
Hot, to he amplified at a result of dlseussloa of the
pregraa, le preeeated belov.
(1

to organise, establish headquarters, engage
personnel;
to grant charters of lateraatloaal Incorporation!

fo issue eeaaitaeats to exchange debentures for
the stock af lateraatloaally laoerperated enterprise*^
9a sue aad he vm ti

7o receive aad hold funds (la eash or priae obligations),
to lseae debeatures, aad to hold* aeaage or sell prepertles received ae a result of gaaraaty eoaaltaeatsi

fe alloeate reserves against gaaraaty eoaaltaents;

fa aak» lavestigatloss — econoaic, social, engineerlag, eta* — la eoaaeetioa with the grantlag of ccjntIf1 cates of incorporation!

fo deal dlreetly with govemaaats with respect te
the recpcaslbllltias delegated to the Authority}

fe reeelve reports fron internationally chartered
eorperatloas;

(10

fo have access to the accounts of internationally
chartered corooratloas for the purpose of determining
aaauats due under gaaraaty eoaaltaeats, aet laceae
subject te profit-sharing, etc*

n.ep iuu uce a iro m tn e U n cla ssified / D e cla ssified H o ld in g s o f th e N atio n a l A rch ive s

DECLASSIFIED
Authority £CMO SO I

<&mrj

(a) What ah«ald Va tha axact povar with raapaet to tha
count* of latamat loaallj iacorporatad autarprlaasT

(h) What othar povalra ehcmld ha addad to tha ahova?

R e p rod uced from the U ncla ssified

I D ecla ssified H o ld in g s o f th e N ational A rch ive s

DECLASSIFIED
Authority £ 0 \ 0 501

59.
Background aad Conclusions

This program has boon designed specifically to ftlaulate international
InTo*t»ent la new Yonturos to dsrelop tho underdeveloped rollons of tho
world.

Because of tho high risks laovltably associated with aew ventures,

lavectaeat of thie character preferably takes tbo for* of ooaitloo.

Xa tho

century that preceded tho first ®orld *ar, such iavestaoat spread tho beneflto of tho Industrial *evolution far beyond tho boundariee of Suropo and
succeeded in knitting tho eeoaoale activities of a largo part of tho
globe Into a single fabric.
Algo, during that century, there appeared a reactioa against Inter*
aatloaal equity investaent, known popularly as tho •roaetioa against im
perialism. B This was duo basically to a variety of frictions sad abuses
rathor thaa to aay oao eaaso.

There vae sharp crltleisa, for example, of

thie practice of powerful creditor eouatrles of seeking special privileges
abroad for the trade aad capital of their aatloaals.

$uch practices coa-

stiltuted specific examples, ia the pre-1 9 1 ^ period, of teadeaclee toward
economic aatloaallesi that have become increasingly domlaaat during the
last decade.

Ia recent years suck teadeaclee have been particularly coa-

epi6uous la the lat#matioaal ecoaoaic policies pursued by the ixls powers.
Criticism also developed when the governments of creditor eouatrles interveaed ia smaller eouatrles to eaforce recognition of contractual ri^ht* held
by their aatloaals agalast such contingencies as default or eoaflscatioa.
71sally, the reslstaace of certala large internationally fiaaaced corporatioas

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to regulation of their activities by loeal governments, and especially
their active participation 1b loeal polities to prevent the passage of
soelal legislation, aroused widespread reeeataent within the creditor de*oeraeies as well as ia the countries directly affected.
Partly as a result of this reaction and pertly in eoneeotumoe of the
unstable character of the whole Versailles settlement, genuine acuity in
vestment* specifically investment In underdeveloped areas* diminished, in
1sportanoe during the reconstruction that followed the First World War.
Other types of international capital flows, however, increased.

There were,

for example, hnge flows of investment funds across national boundaries that
cane to be known as *hot money. * These flews were not directed toward new
areas or new resources in need, of development.

They came generally to

countries already highly developed in search of speculative gain or In
flight from confiscation.

There was also, for a time In the twenties, a

large countervailing flew cf capital funds out of creditor countries, in
tfce form of bond debt contracted, by governments er by institutions guaranteed
bjr governments.

The economic effectIveness of many of these leans was

limited, especially so In the ease of leans that were floated, directly or
indirectly, to provide service for war debts and reparations.

There were

also, of course, many leans not connected with the reparation and war debt
situation, particularly leane In Latin America.

*ven in these eases,

however, international capital investment tended to take the form of pub
licly guaranteed bende because of a preference on the part of investors for
tils type of security.

U ncla ssified / D e cla ssified H o ld in g s o f th e N atio n a l A rch ive s

D E C L A S S IF IE D
A u t h o r it y £ fc M O $Q \

fhe mall voluae of international equity laveetaeat that did occur ia
tho iatonral between tho wart vat confined largely to tho developaeat of
very lov-cott alaeral resources aad to tho establishaent of branch plants
vlthia tariff-protected areas.

Altogether, thoro vas little InTottaont de-

rotod to the general develepaent of underdeveloped region*.

Opportunities

for tuoh oatorpritot had been sharply dialnlthed by tho growth of eeoaoalc
nationalIn®, with it* disruption of tho ohaaaolt of trade, and tuch opportuaitlct at reaained tondod to bo loft untouched, ualott tho potentialitlot
were especially iapretsive.

111th declining confidence that their fQfemae«ti

vould intervene in thoir behalf, inveetort have hesitated to attvae tho
haiard of direct operationt la thoto aroat.

19 3 9 *

the general laposition

of exchange controls, tho prevalence of defaultt, certaia out standing caret
of confiscation, together vlth the general insecurity engendered by the en

croachment e of the Axlt powers, had produced a situation of alaott ooaplete
ttagnation la the lateraatioaal eapital aarkett.

^uch aoveaeats of capital

a$ still took place eoaelsted either of "hot aoaey* coning to the United
Statet where it vat aot aeeded, or of political leant, extoaded by govera:

tt, to teeure friends or to bultrett allies la the impending conflict,
deelrabllity of direetiag an adequate flow of equity eapital to the

underdeveloped regloat of the vorld vat freely adaltted vlthia the doaoc raclet, but the outlook appeared hopelett.

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A u t h o r it y £ D K > 6 O \

&>.

fh# Oarraat Probl#a
D#vslopa#ats tlae#

1939

k**# aaphasisad tha aaad for a eoapl#ts re-

appraisal of this prohlaa, partieularly at It affsctt th# international
•xahaag# positioa of hoth ®r#at ^ritaia aad th# Ualted States.

It 1# aow

apparaat that capital fundt la toa# fora or oth#r aust b# aad# wtd#ly
availshl# at th# clone of hoetilittos,

£coaoaic devalopaoats daring th#

war, including th# pressing ne#ds of th# iaperilled d#aooraei#s for
sappliet aad auntttons of war, hav# brought about a aaiversal shortage la
dollar exehaage and la acs#te convertible iato dollar exchange.

Th# pr###ikr#

of this sitaatloa 1# feeing #as#d eurreatly through th# operations of tha
&aad-Lease program, hat th# faadaasatal lack of balaae# la th# lataraatloaal exchange position reaatnt, aad aast ha fao#d ia aajr prograa that
is dlr#et#d toward th# foraalatloa of post-war reconstruction pallet##.
Should th# fait#d *tat#s fail to taka a#atar#s adoquate to iadae# aa
oatflow of oapltal faad# at th# elos# of hostilities, th# aoaaails of past*

waar roaoastraetloa will h# hauatsd by a persistent shortag# of dollar ex
change.

*he structure of th# Aaariaaa ecoaoaj Is it111 on# ia vhlah tha

vajlae of its export commodities aoraallj axoaads ia th# aggregate th# value
of iaports accepted ia exchange• H

tha e#ssatioa of hostilitias, tha

prstoat afeaoraal sxport d#aaad for ^aericaa aaaltloas (ftaaaoad aov through

Lead-Lease) will eaasa, hat th# Aasrleaa econoay will still aaad its #xp#rt
outlets aad *arop# will still a#ad ^aerican tapplies ta larga voluae, par
ti eularljr foodstuffs, raw aat#rials, aad productive eauipaent reouirsd to

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63-

reconstruct laduttry to * pe»ce-tlae ba*lt.

®ht oatside world, however,

will aot have (sufficient aeaat to pay for these exportt.

*he import* of the

Halted State* alone will aot twpply a auffieient voXuae of dollar exchange,
foreign holding* of liquid cath ateett aad capital attet* convertlbXe lato
dolXar exchange by tale la tha United statet have already beea drastically
drawn down aad will ao longer be available ia sufficient quantItlet to aeet
the lituatloa.

fhit potltloa does aot need extensive aapllfioatioa.

it asrply illustrated by the pretent concentration of the World1 1 gold.
A gradual redactioa of American tariff barriert under a revival of
the trade Agreeaeate Prograa wiXX constitute an essential eleaeat la develop*
lag a aore balanced trading petition between the United Statet aad the oat*
tide world, bat lt will aot be tufflclent in the laaedlate pott*war period
when iaduetry abroad will be ttlll disorganized.

It it la awarenett of

thie Impending tltaatioa that aaay obterrert throughout the world are fore*
catting at Inevitable a continuation of exchange ooatrolt in the period
l^aedlately following the war, together witht a further developaent of coaaerclal polici*t along blXateraX llnet, deepite the fact that each developatjatt weald ran directly contrary to the fnndaaentaX coaaeroial polie let of
thje government of the halted States.
Alternative Approaches to the Problea of Capital Outlayt
Broadly tpeakiag, a tupply of dollar exchange tufflcleat to avert a
crjltlt ia the iamediate pott-war period caa be provided through operatloat in
thi capital aarkatt hymy eae of three aethode ef approach,

flret, the halted

Stitet goveraaeat caa coatlaae to ralte fundt ia the American aarket oa ltt

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D E C L A S S IF IE D
A u t h o r it y £t?\O$0\

6H.

ova credit aad can then advance theee funds directly or iadlrsctly to for#iga
gorernmeats.

*hie it tho asthod that gave rise to tho lnter-allied debts

Ia tho last war.

It it alao tho method that It being mood at tho preeent

time, ia tho for* of advance* to governments la South A.*#rice aad olee~
vhere through the leeonstructloa finance Corporation*

Secoad, foreign

governmeats or forelga industries can obtain dollar resource! hy floatlag
loans la the American market.
the 19?0*e.

xhie is the procedure that was followed la

It le geaerally agreed that a resumption of leading of thle

type would aot take place la the ah*one* of powerful public guaranties.
7 inally, the supply of dollar exchange eaa he augmented ae a result of direct
equity investment operatloae of the type discussed ia this program.

?e he

effective, these operatloae, also, would require public guaranties.
*ay ome of these three methods of providing capital will meet the
short-run requirements of the sltuatloa, that is, it will avert aa acute
shortage of dollar exchange aad the unfavorable repereuseioae that may he
expected to ensue from that ehortage. ^ay oae of theee methods, la fact,
will produce a favorable eavlroameat for a time, ao matter how 111-eoasldered
it may he from a longer point of view, this was demonstrated specifically
dajriag the 19?0*s.

between 19

when the &awes Plan was laaugurated, aad

1950, whea the *aak for International Settlements vts established, the
second of theee three methods was adopted. Intensive efforte were devoted
to the creation ef eoaditioae favorable to a resumption of lateraatloaal

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65.

Hnmeats of investment funds, bat this movement consisted of loans,
particularly loans to governments.

Za tsrms of tha volums of fund* la*

volved, these offorts were highly successful — probably too successful ~
elnce tliers is grave doubt whether ths receiving countries really nteded
or had productIts ass for ths largo bodies of faads which ware aads arali
able to thsa ia ths capital aarkete of tho United States and Great Britain
during those years.

Ia teras of their purely short-run economic and pelit1-

eal effect, these movemente of faads were also highly successful,

^hey

allayed political unrest; they served temporarily to balance the international
account* of creditor as wsll as debtor countries; they psraltted the stabili
sation of currencies; aad they were accompanied by a rise to aew high levels
la the standard of living for the coaaon people of aany countrise.

the other hand, they were equally 4esVMli*ing la their loager-tern polltidal and econoaic effects.

soae of the reasons for this ultimate failure

grew out of the precarloue Batura of the peace that was establishsd at the
c lose of the last war and such reasoas nay aot proseat theaselves again.
Other*, as will be indicated in the subsequent discussion, are always likely
tcj recur when international government debt is incurred in too large volume.
Although, as the bread program of post-war reconstruction develops,
there will be need for a continuation of direct Inter-governmental loans,
eiery effort should be aads to avoid too great reliance on this form of
lzternatioaal eapltal outlay.

*he feeding of the people of $reat Brltaia,

far example, is becoming increasingly dependent on American supplls* received
through the eperatloas of Lead-teass.

Such supplies will probably have to bs

I D e cla ssified H o ld in g s o f th e N ational A rch ive s

re p ro d u c e d from the U ncla ssified

D E C L A S S IF IE D
A u t h o r it y £p \Q S O I

continued for a tine after the ceaeatloa of host11itlea.

Loana froa the

eonstruct ion Finance Corporation to Latin ^sorlea aad other foreign goremnents vlll alto w o t e W y continue ia ectfn yolune.

Ia fact, plant for tho

eoaatraction of iatern*tlonal public works to aid la prorid lag esployaent
daring tho period of post-war readjusts*nt vlll inevitably Involve a con
tinuation of lata r-goveranental loans In soao Magnitude.
Strenuous offorts should bo nade, however, to keep tho total voluae of
such loans at a aialauzri. Inter-gorernneatal dobt a, by thoir nature, are apt
to becone sources of friction,

*hey autke tho econonlc prosporlty and tho

volfaro of prssuaably independent atatoa incr*aalngly dependent upon tho
good will and benevolence of tho goverwBente of tho loading atatoa.

Should

anything happon to ehaoge that good vlll, or should lntornal political
developaenta in tho lending countriea bo reflected in a change of attltudo
tovard lnter-goveraaental loans, tho govenuaente of dobtor countrloa vlll
ba foreod into draatlo ooonoailo readjustments for which thoy may be 111ptaparad.

Should suoh roadjustnonta taka tho fora of oconoaic and political

nationalism, or of gonoral default a, aa thoy did in tho

19 3 °' •*

tho vholo

ffbric of International aoeurity aay be strained.
Hoat lnter-governmental loana, and all international lang-tom loana,
a iffor aleo froa the baalc defeat that they are extremely vulnerable to
difault during period of dopreaaion.

?hi* la particularly true of loana

contracted by eountrloa or nationala of countrloa dependent largely for
t&elr existence on the export of raw aatorlale.

feea the volume of inter-

mtlonal long-torn dobt la largo, conaeuuently, there la Introduced a basic

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D E C L A S S IF IE D
A u t h o r it y £t> \Q 5 0 1

6?.

element of imstability late tho economic fram©work that makes that frame
work susceptible to collapse under even moderately adverse circumstances.
This vulnerability arises, first, froa tho faet that tho aarvlce oa loans
i« detsralned accord!ng to a contractual rate of interest.

*his ssrvice

is payable la the enae sun ia period* of depression as ia prosperity, despite
the fact that the exchange available to the borrowing country out of which
to pay the terries say vary widely as between these periods,

la faet, borrow

ing countries dependent on raw Material exports nay have very little ex~
dhaage out of which to maintain debt service in periods of degression.
Wider these circumstances, suoh countries usually attempt at first to main*
tain their national credit by various measure? oaleulatsd to diminish their
demands for foreign exchange.

They raise tariffs, impose rigid tariff fuotae,

institute exchange controls, or undertake a bread program incorporating
all ef these devioes end many more.
tionalism.

*hese are the devices of economic na

Iwen when they succeed in averting debt default, they accomplish

their end by a diminution In the aggregate volume of international trade*
In their short-run effects, ther fore, the use of these devices Is destabili
sing in that they tend to accentuate the depth of depressions.

In the longer

r*n, it is often found thalt the imposition of controls ef this type develops
heritage of vested Interests which require the retention of controls long
It

a:!%er^t^£^|sloa for th^'lr use has passed.
Default Is always a serious matter and Involves at best a loss of credit
standing on the part of the party la default.

*hen foreign investment obliga

tions consist of public boa^Ls rather than private obligations, default Involves
th» whole credit of the gov$rna»*% ooneerned.
r

It is for this reaeon that

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SO 1

governments frequently adopt such rl«omi measures to avert default.

*hen,

la spite of these asasures, default takas place, tha ere&lt of tha v&ole coun
try is ruined.

Under these circumstances the administration ef the country

in question, or, a* frequently happens, a new administration nay undertake
to rationalise the default by suggesting that the obligation* were net
aorally bindlot'

Antl-forelgn agitation sometimes develops.

nay be eonflseated.

foreign property

*his sometimes proceeds to the point where the resump-

tlon of debt service is politically difficult er even impossible, even when
exchange has again beooae available for debt service as a result of In*
dustrial revival.
International movements of capital funds in the form of equity Investment
are free from these Particular defeats.

% e problem with respect to equity

funds, aa has already been noted, is found in the fears that may be engen
dered — fear on the part of weaker states that the economic power of large
aad dominant countries will be used, net for their development, but for their
exploitation and domination, and fear on the part of Investors that the sue*
eejss of enterprises on which

they risk their fund* will be frustrated by

administrative discrimination, or that the enterprises will be confiscated
if] they are successful*
It has been the priaary purpose of this program, by removing these twe
fekrs, to provide once mere for a large-scale development of equity investment
Wish those grounds for apprehension eliminated, the transfer of funds arising

R e p rod uced from the U ncla ssified / D ecla ssified H o ld in g s o f th e N ational A rch ive s

D E C L A S S IF IE D
A u t h o r it y £t>\C> 5 0 \

oat of goaaiao o<*ulty itvt«tv«il eaa do a u l aoro thaa provido «trily for
groator oxohaago flexibility ia tbo earroat halaaoo of international aoeoaat*.
It oaa ooaatitata a dynamic foroo that cproada tho laitlfitlvo, oatorprlao,
iaAn*trial toohaloaoe, aad aaa&gaaaat ftdlle of tho aoro highly developed
ootmtrloo throughout tho world,

*o«aaoo they consist of a«aitlo*f tho eer-

vie# oa iatoraatioaal capital obligatioat inoarred throag* operation* of
thie character oaa ho doforrod la daftroetioa.

Xa faet they aro *oro thaa

llkaly to ho doforrod hoeaaao profits aro aeually loir at oaeh tiaa*.

thaaa

ohllgatioao, thoroforo# do aot aagtseat tho cyclical ▼alaerahlllty of eaallor
oonmtrtoe dependent for oadhaago largely oa tho assort of oao or two ooaawditto*. Agaia, because thoy aro equities, these obligation* do aot oadaager
tho aatioaal crodit.

If aa oatorprioo i# a failure, it lo a private failure

la whioh a apooific group of iavoator* have ventured aad loot*

Previdod

thor* « u no adalaletrativo diaerlalaatloa to cause tho fallaro, ao ooeasloa
for latoraatioaal recrimination i* provided.

*iaallyt hooaaao thoy aro eeul-

tie*, thoy aoraally load to aoro Intimate aadaretaadlng of latoraatlaaal
a^ao»to problaaa.

*ha petition of aa Iavoator venturing hit funds la ofovt*

tioao far froa homo io eaeeatially diffareat froa that of a foreign boad
h»ldor.

fho foraor, if h* follow* hi* iaveetaent at all* saat, ao a matter

ot aoooeaity, ho brought into continuous ooataot with tho aarrentr aad erooo
oirronte of world affair* ia thalr polltleal ao wall aa ia thair eooaoaio
'i
aiooata.

Ho caanet/teaaia aa aoapletely Ignorant of lapoadiag atiaiaa a* a

Proaucea trom th e u n cla ssifie d / D e cla ssified H o ld in g s o f th e N a tional A rch ive s

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Authority £ Q \Q 5 0 1

70.

bond holder mho is saddealy aw&keaed by a default to tho fact that hi*
ooupoas mood ao loager bo olipped,
Ooaelasloa
Shoald tho prograa here described bo adonted aov while hostilities
are still ia orogreos, It will deaoaotrate concretely tho detendaatloa of
(treat Britala and the Waited st*t«« to reverse tho separatist trends of tho
paet tiro decades; and their will to oroaote doftaito leadership ia tho eoa«tmet ioa of a aow world ordor ia which the eeoaoalc adweatages of tho la
destrtally aero advaaeed etatoo are made broadly available to tho oeoplee
of leee advanced areas.

It will constitute an exawple of what ie aeoat

by Poiat XT of the ''hurohill-Roosevelt Deolaratloa that &reat ^rltaia oad
the Uaited States
* . . . will eadoavor, with duo rospect for their
exlot lac obligations, to farther the eajoyaeat by ail
States, groat or eaall, victor or vanquished, of aaeees,
e& equal term*, to tho trade and to tba row saterials of
the world whieh are aeeded for their eeoaoalo prosperity; *
!

as a concrete exaaple, it will briag to tho alads of all aea everywhere faith
la the 'validity of that declaration.

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December lf

1 9 U1

fhe Honorable Henry
Wallace
The Tie# President
Washington, D. C.

Bear Mr. Tice President*
I a9.«.$haae& to find that I failed to vrite you earlier
about Stephen Baaehenbnelu
I have known Mr* Hnuehenbush Intimately for years* We
were boy* In g m m &r school to^ether and were close friends
through h i # school, college and enlisted together ia 1 9 1 ?*
Si&c© then our contacts have naturally been less numerous,
but they have nevertheless been fairly continuous* X can
Touch absolutely for hi* integrity* Hie Judgment asy have
been wron# or open to dispute at tls»sf but there is no
question whatever of^ his sincerity, honesty and patriotism*

Very sincerely yours.

Winfield W. Bieflsr

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\ Q

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February $9 19^2

Honorable Henry A. Wallaee
She Tics Fr*eid*»ft
Washington, D* 0*

Dear Hr* Vie* President!
Thank yem veiy much for your letter of February 6th.
It encourages me greatly* T o n m y rely upon it th&t X will
be available to stake aay contribution I tm to carrying out
theee plane*
X agree with you |hat the Iht ern&tional Surplus Coaraodity
Corporation vwXd provide in effect a eonmo&lty dollar. In
fact, it la the only type ef cosmodity dollar that appear*
praotioel or realistic to ne. Trtm my conversational with
Keynes, X think that he haa the eaae general feeling*

Very sincerely youre#

Winfield W* Riefler

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W> 5 0 \

OFFICE OF THE VICE PRESID ENT
WASHINGTON

February 6, 19-42

Mr. Winfield W. Riefler
The Institute for Advanced Study
School of Economics and Polities
Princeton, Hew Jersey
Dear Mr. Riefler:
I
agree wholeheartedly with you as to the
great importance both of an International Surplus
Commodity Corporation and an International Develop
ment Corporation. After reading the memorandum which
grew out of the conference between you and Alvin
Hansen, I asked Mr. Perkins to take up this problem
with the various affected agencies so that I might
talk the matter over with the President with some
degree of assurance. I am glad you have been taking
such a deep interest in this matter.
Sincerely yours,
^ 4 C X u O vJlSLtuzJL*'

H< A. Wallace

P. S. It appears that Winston Churchill, when
he was here, didn't indicate any particular interest in
post-war economic planning. There was one exception,
however: he did manifest interest in an International
Commodity Dollar* An International Commodity Dollar
would, of course, have a very real relationship to an
International Commodity Corporation.

Full text of Winfield W. Riefler Papers (RFLR), 1929-71 : Box 2, Folder 6 : 1941-1942 Vice President of the U.S.

FRASER