Thanks for your 1599 and 1602. [1] I have written to Clayton
outlining our views on inventory and settlement. [2] I thought it
desirable as I am leaving Washington on Monday to set down
something concrete so that there will be no misunderstanding
through wrong interpretation of discussion on our views.

Moore and I had another meeting with F.E.A. and Department of
State Officials on Saturday. In general they went over the same
old ground. They pressed for inventory in all categories but
insist that this is required only to have full information for
Congress and not necessarily as a basis for settlement. We told
them that we had already agreed to give them a civilian inventory
for goods in 'pipeline' and main stores and for durable goods in
Government control or possession. We objected in principle to
inclusion of distributed trucks and tractors in the inventory and
the furthest we could go would be to give them information of the
numbers we had received and the distribution made, e.g., to
Australian Army, U.S. Forces, Royal Navy, Civilian use. What
calculations they might make on this information is their affair.

We wanted it to be clearly understood that we were not providing
this information as inventory for settlement. There was a long
discussion on military inventory and clearly the U.S. officials do
not understand the difficulties in its presentation. They are
prepared to accept our estimates and even our guesses and we told
them that the Commonwealth Government, in presenting a document
which on their own admission was for U.S. Congress, would not take
the responsibility of furnishing guesses. It was up to U.S. to
indicate items which they considered should be recorded as
inventory and we would do our best to furnish information. We
suggested that one way in which they could deal with small
consumable items, e.g. spares, drugs, medical equipment, etc.,
would be to fix a period, say three or four months earlier than V-
J day, and assume that everything supplied before that was
consumed and everything after that in stock. Our attitude was
firm, however, that we could not provide comprehensive inventory
on a stocktaking basis and I would not commit the Government or
advise them on such a course. It was left for them to make the
next move. We pointed out the difficulties which their own people
are experiencing in furnishing R.L.L. inventory. Actually on the
figures given in your 1599 and assuming 20 million pounds for
R.L.L. we should not be up for very much in settlement provided we
can keep distributed trucks, etc. and military inventory out of
the picture. Their attitude on this is quite an unknown factor,
however, although they mention that when inventory is provided
they will be prepared to discuss a broad and even generous
settlement. We are not impressed by this as the people with whom
we are discussing it may have little say in such discussion. For
example, they could not indicate whether military items would be
included in or excluded from the settlement and the figures in
military inventory, aircraft in particular, will be very high. I
saw Keynes to-day and he read my letter to Clayton. He said he was
glad that we were taking a firm stand although their own situation
on the items we were most concerned about did not justify them
adopting the same attitude. Their own figures on 'pipe-line' food,
oil, raw materials, etc. inventory produces a gross figure of
about 700 million [3] and Keynes does not expect to conclude
settlement under 300 to 400 million. He thinks that United States
will require some settlement in their favour in all cases even if
the figures might justify a write off. I said that we had been
discussing machine tools before at about 8 million dollars
purchase and that I thought we would agree to a token settlement
up to about 10 million dollars to give us freedom of action but
this has not been referred to in any way to us as they are just
not in a situation to discuss settlement in any form. Eggleston
advises that Keynes at the United Kingdom Embassy junta Meeting
said that he both admired and envied the letter to Clayton, the
'envy' indicates how much they are tied down by background of
financial aid. I will advise by further cable information on
financial aid arising from my interview with Keynes. [4]