Edward Reilly Stettinius to Colonel House

MEMORANDUM.

1– The aggregate purchases by the Allied Governments in the United States of munitions and war materials, exclusive of grain, food-stuffs, cotton and other products, are estimated to have amounted to upwards of $4,000,000,000. Their orders have extended to practically all lines of production and manufacture; while contracts involving large amounts have been placed for finished munitions and for raw materials to be used in the manufacture of munitions abroad. a far greater number of orders, involving, however, the expenditure of much smaller amounts, have been and are being placed daily for all conceivable kinds of materials.
Each of the Allied Governments maintains more or less elaborate missions in this country. The organizations set up by the British and French Governments confine their activities to inspection, production and transportation, practically all purchases for the Munitions Departments of these two Governments being made through J.P. Morgan & Company. The Russian and Italian Governments maintain organization to buy miscellaneous materials. Their more important requirements, however, and particularly of raw materials, such as copper, aluminum, spelter, powder and explosives, are bought by the British Government through J.P. Morgan & Company under an arrangement by which purchases of all such materials for all the Allies are co-ordinated in London through the International Commission. While the British and French Governments have co-operated in their purchases of steel, pig iron, etc., the Italians, on the other hand are said to have made purchases of these materials independently.
The problem of devising some method by which all purchases of every character for the Allied Governments may be made by or through the United States Government is all the more difficult because business with many of the technical representatives of the Russian, Italian, Roumanian, and to some extent, Frecn Governments, can be transacted only through interpreters.
2– The United States Government is now directly interested in the prices and available supplies of practically all materials that are being obtained in this country by the Allied Governments. Such materials are essential to the manufacture of munitions and equipment for an army and navy, and just to the extent that prices may be advanced by competitive buying or otherwise, just to that extent will the cost of the war to the United States be increased and the purchasing power of the money loaned by the United States Government to the Allies by diminished.3– Theoretically, it would appear logical to create immediately a Central Buying Organization to buy all munitions and all supplies for the Allies and for all Departments of the United States Government. Practically, however, the immediate formation of such a Central Organization to do all the buying is open to objections:
(a) The enormity of the volume and the infinite variety of articles and merchandise required, coupled with the difficulty of transacting business speedily and satisfactorily with the non-English speaking representatives of the Allied Governments, would render physically impossible the speedy development of an organization of such magnitude as would be required to buy everything for all the Allies and for all Departments of the United States Government.
(b) Both the Navy and War Departments of the United States Government have always maintained bureaus for the purchase of munitions, etc. the enlargement of these bureaus to such an extent as may now be necessary can be more readily effected, and with less interruption of effort than if they were divested of their powers to close contracts and the work assigned to a new Department or Organization to be created.

Co-ordination of some kind, and certainly as to some things, however, appears essential, and since raw materials form the bases of all negotiations for the War and Navy Departments, as well as for the Allied Governments, it would seem that the pressing necessities of the situation could be met, and the interests of the United States and of the Allied Governments measurably protected if arrangements were made immediately by which purchases of the more important raw materials could be co-ordinated.4– Under laws enacted cthe past year, the President is empowered to require manufacturers to devote their facilities to the production of materials and the manufacture of supplies at reasonable prices, but it is not clear that such power can be exercised in behalf of the Allied Governments; nor does the term “reasonable prices” appear to have been defined. What are reasonable prices? By what standard shall they be determined?Committees appointed by the Council of National Defense are reported to have reached tentative agreements fixing the prices at which certain materials, in limited quantities, will be furnished the United States Government. The bases upon which these prices were fixed appear to differ in respect to different articles. Moreover, the agreements, it is said, extend to limited quantities only, and already there is discussion in trade circles in regard to demanding advanced prices for the further requirements of the United States Government, to say nothing of the requirements of the Allied Governments.
Summing up then, it would appear that:
(a) The formation at this time of a Central Buying Organization to do all the buying for all the Allies and all Departments of the United States Government, is both unwise and impracticable.
(b) Co-ordination of purchases of the more important raw materials for the Navy and War Departments of the United States Government and for the Allied Governments is essential, and preference should be given to some orders over others with regard to their importance from a military and shipping standpoint.
(c) Legislation should be enacted in order that the President shall be given the same powers as to the control of output, of manufacturing facilities and of prices, for the Allied Governments as he now can exercise in behalf of the United States Government.
(d) A standard or method should be established, if possible, by which the reasonableness of prices can be determined.
The Council of National Defense, and the Advisory Committee, and the several Committees that have been created, have done effective work in the investigation of sources of supply and in developing what undoubtedly can be used as the nucleus of a Central Buying Organization if one by found necessary at a later date.
The plan proposed here would not in any respect interfere with the activities of the Council of National Defense or of any sub-committees, but, on the other hand, is designed to co-ordinate these activities to the end that they would be exercised in behalf of the United States and Allied Governments alike. The creation of a Board or Department to control prices and require manufacturers and producers to give priority to certain orders with direct reference to their military and shipping importance would be wholly consistent with all that has been done heretofore; moreover such a Board or Department would not conflict in any way with the functions or duties of the Navy or War Departments. This Board or Department would be judicial rather than administrative. At the outset, it would receive estimates of the more important raw material required by the United States and Allied Governments and at as early date as the development of its organization permitted, estimates of all materials and supplies required by the Allied Governments would be filled with it in order that however unimportant such orders might appear to they could be co-ordinated, if necessary, with the execution of orders for like materials and supplies placed by the United States Government. This Board or Department would consider the prices at which the more important raw materials were offered, and would hear or receive statements of producers, of such experts as the Board itself might retain, of the representatives of the United States Navy and War Departments, and of the Allied Governments, and finally would fix prices at which producers would be required to furnish the more important raw materials, which prices would form the bases of contracts closed directly by the War and Navy Departments and Allied Governments. If the combined requirements of a given material for the United States and Allied Governments formed a large percentage of the total productive capacity of the country as to render impossible the prompt execution of all orders, the Board or Department would have the right to require producers or manufacturers to give priority to certain orders over others, having regard to the shipping and general industrial situation as well as military necessities. The Board or Department would serve as the avenue through which information regarding the requirements and purchases of the Allied Governments would pass to the Treasury, War and Navy Departments, and the Shipping Board.Ultimately, as its organization develops, its activities and the scope of its work can be extended so that in addition to fixing prices for the more important materials for all the Governments, it could execute contracts and actually make purchase of such materials and supplies for the Allied Governments as well as for the United States Government if considered desirable. At the outset it would not be required necessarily to deal with or consider more than a relatively small number of materials such as steel, copper, spelter, aluminum powder and explosives.In any arrangement by which purchases of materials for the Allied Governments would be made by or through the United States Government, it is, of course, of the greatest importance that no publicity should be given as to the extent or character of purchases for it may well be that such information might at times be of great advantage to the enemy.