W. Keith Hancock and Margaret M. Gowing

“ At the beginning of the First World War, when huge administrative structures such as the Ministry of Munitions had not yet as even been dreamt of, the mainspring of industrial mobilisation was by necessity economic demand, not sovereign command. It was government expenditure that released the spring. The Government had to spend immense sums of money in order to achieve at maximum speed the maximum intensity of economic employment; it had to keep on spending them in order to feed the war machine’s insatiable appetite for men and steel. ”

“ A Chancellor of the Exchequer need not perhaps be too severely blamed if he lowered his sights a little and measured the financial performance of his nation, not against its own famous past, but against the present-day performances of its twentieth-century enemies and allies. To levy taxes covering not much more than a quarter of government expenditure might not seem heroic; but it was sufficient to maintain the solid structure of British credit. ”

“ The Beginnings of Economic Control
‘Business as usual’, that slogan of economic endeavour which was trumpeted throughout the United Kingdom in August 1914, has provoked many retrospective sneers; it is so easy, and so flattering to our self-conceit, to be wise after the event. Set in its proper context, the slogan was not altogether absurd, for it reflected faithfully enough the experience of the previous hundred years, during which the mechanisms of supply and demand had been well adapted to meet the comparatively modest requirements of the war machine. ”

“ We never borrow a pound without making provision by new taxation sufficient to cover both interest and sinking fund.
How much happier German history would have been, in spite of military defeat, if the government of the Reich had followed the same precept!
Such a defence of British financial policy has great weight. From a strictly budgetary point of view, it might perhaps be accepted as a sufficient answer to those zealots of the Gladstonian tradition who, from 1914 onwards accused British Chancellors of doing too little and doing it too late. ”

“ For the expanding war economy necessitated a great effort of investment which the mechanism of the market—even if the essential strategical and technical knowledge had been miraculously injected into it—was most unlikely to call forth. The purpose of the investment was a short-term one, destruction of the enemy’s power; private enterprise could hardly be expected to accept the major financial risks of providing buildings and planet that would become redundant when peace returned. The Ministry of Munitions therefore, had to expand the capital equipment of the old specialist firms. ”

“ Against the inevitable delays in the voting of new taxes and the gathering-in of their yield, there must in every war always be set a steep rise of expenditure from the very day on which the Government sets itself in earnest to its wartime tasks. Adam Smith was no lover of public borrowing; but he knew that there was no escape from it ‘in the moment of immediate danger’. [3] Those same necessities that constrained British Governments in the great war against France constrained them again in the first great war against Germany. They found that taxes took time to vote ”

“ In 1940, liberty’s year of crisis, the British people surrendered to the Government as their trustee those lesser liberties that their fathers a generation back had clung to as inalienable rights. Economic control was enabled henceforward to penetrate the national life more deeply, even to the very roots of manpower scarcity. ”

“ The control of labour during 1914-18 had been far more a matter of prohibitions than of positive commands. The shortage of skilled munitions workers had brought about quite early in the war a fairly wide-spread agreement to three general propositions: first, that labour must not be wasted in strikes and lock-outs: secondly, that it must not be permitted to shift at will from job to job without regard to the relative importance of the jobs and to the need for continuity in production: thirdly, that skilled labour must be diluted. ”

“ What we have called ‘the horizontal extension of controls’ aimed thus at a just equilibrium between the military and civilian sectors of the war economy and within each respective sector. Such an equilibrium could not be achieved merely by controlling end-products. The factors of production—materials, machinery, factory space, labour—had to be employed in a manner well calculated to satisfy at the same time both the expanded military demand and also the civilian demand, scaled down though the latter might sometimes be. ”

“ The sequence of economic phenomena when war broke out remained relatively simple: governments expanded their armed forces, speeded up production in their own ordnance factories and dockyards, and for the rest of their military requirements went into the open market as purchasers. If the war were a large one and the demands upon industry were heavy, the governments might find that prices were raised steeply against them—a sign that private enterprise was not responding with sufficient speed to its new opportunities of profitable employment ”

“ These budgetary problems were formidable; but the economic and social consequences of inflation were more formidable still. It interfered with the war plan by stimulating private bidding for resources needed by the Services and supply departments. By the injustices it inflicted upon a section of the people, it damaged social morale and national unity. The violent disturbance of economic demand caused by the war was bound in any event to alter the relative economic rewards of different individuals and classes; inflation mischievously and capriciously aggravated these war created inequalities. ”

“ It was, no doubt, too much to expect that any government engaged in a war of twentieth century scale would be able completely to satisfy its needs without having recourse to the banks, and thereby generating a surplus of purchasing power; but from 1916 onwards the British Government adopted a new borrowing policy which aimed at the reduction of purchasing power by drawing directly upon ‘the genuine savings of the people’. ”

“ Like other problems of the inter-departmental allocation of scarce resources, it could not be completely mastered without new institutional development within the framework of the British Cabinet system.
A review of the manpower problem will lead to a similar conclusion. The manpower problem has a universality peculiar to itself, all the more so because it represents something more than the basic factor of production: it is the fighting power no less than working power, it is the men and women of the nation. ”

“ Of course, the value of mechanisms must not be overrated: in times of crisis, personality reasserts its rights: it is motive power, not the machine, which counts for most. But the motive power will in large measure run to waste if the machine works badly. Mr. Lloyd George knew that. He gave himself a good machine. In his War Cabinet of four to six members was vested the supreme power of decision. The War Cabinet took into its own direct service the organisation and techniques and procedures built up during the past dozen years by the Committee of Imperial Defence and its war-time heirs. ”

“ The Committee demonstrated that when the Government spent money which it had borrowed from the trading banks, it increased by a proportionate amount the deposits on which private people could draw cheques, and that it increased the volume of private purchasing power in extreme disproportion, when it borrowed from the Bank of England. No doubt the Government recovered by taxation and subscription to war loan (at an interest rate of approximately five percent) a considerable part of these inflated money incomes. But need the inflation have been so large in the first place? ”

“ A realistic appraisal of the needs of war would have revealed the futility of building a fighting army excessively disproportionate in size to the industrial army’ yet by 1917 the Czarist government had called to the colours thirty-seven percent of the male population of working age. It thereby condemned thousands and even millions of its soldiers to fight without adequate clothes, boots and weapons, and it pushed large sections of the Russian people over that narrow line across which lay, even in time of peace, almost unendurable physical want. ”

“ Whatever the measures adopted for the control of imported supplies, there had to be parallel measures for the control of the corresponding home-produced supplies. An outstanding example is the meat trade; control began early, with the measures taken the by the War Office to safeguard the Army’s requirements of imported meat; it extended, late but at last, into the Ministry of Food’s drastic refashioning of the entire meat industry and its organisation of rationing to safeguard essential civilian needs. ”

“ Our heroic ancestors, in Gladstone’s view, had been financially most unheroic at the beginning of their great war; it was only in the culminating years of supreme exertion that they fully redeemed their former sloth. Gladstone believed that they might have gathered the strength that overthrew Napoleon without adding a single penny to the national debt, if only they had shouldered the war taxes in 1793. From 1799 onwards, resolution was vouchsafed to them increasingly, and over the whole twenty-one years of struggle they raised from taxation nearly half of their public expenditure. ”

“ The protesting economists of the First World War paid less attention to the mechanisms of inflationary finance than to its injurious effects. They pointed out that the Chancellor, by seizing an easy short-term advantage, was storing up long-term trouble for himself and his successors. While the war lasted and the inflation continued, the original budgetary gap must become progressively more difficult to bridge, owing to the time-lag between the assessment of taxes when money was worth more, and their collection when money was worth less. ”

“ The experience of 1914-18 showed that the manpower problem had two main aspects: first, how to strike a balance between the requirements of the rapidly expanding fighting services and those of industry: secondly, how to strike a balance within industry itself. The immense importance of the first question may be illustrated by recalling the classically inept answer which Czarist Russia gave to it. The Russian population at the outbreak of the First World War has been estimated at about 175 millions, of whom the immense majority were peasants. ”

“ No less important to twentieth-century minds (which have learned once again to take the measure of war) is the political irresponsibility with which the bullionists pressed their propaganda. Their wrong-headed advocacy would have forced the nation back to gold and a restricted war effort in the very month—so it turned out—when Napoleon was winning the opening battles in the great campaign in Saxony. ”

“ It also bequeathed a coherent body of doctrine, in which price control and rationing were two mutually supporting principles: for just as scarcity without price control must allocate supplies to the richer people, so also must price control, if unsupported by rationing, allocate them to the luckier, or the more cunning and pushful ones. ”

“ To equip millions of British and Allied soldiers with weapons and keep them supplied with ammunition, the Ministry had to take control of the munitions industries exactly as the War Office had taken control of the textile industries—canceling private contracts, arranging its own contracts without respect to the laws of supply and demand, estimating costs and fixing prices at every stage of production, purchasing and distributing the raw material. ”

“ The size of the campaigning armies was constricted in Napoleon’s day by the transporting capacities of sailing ships, canal barges, and horse-drawn vehicles or pack animals. A careful contemporary student of Great Britain’s economic effort against Napoleon came to the conclusion that it took the whole-time effort of one war-worker to maintain two men in the fighting services; he reported this conclusion with some awe. [15] A century later, British economists calculated that as many as three war-workers might be needed to maintain a single fighting man. ”

“ In abstract theory, these tasks might have been tackled and mastered by sovereign command, by the universal conscription of men and wealth into a ‘siege economy’ where the Government would manage everything and pay everybody in practice so ambitious an attempt, had it been made, would have collapsed into administrative and social chaos. ”

“ A narrowly nationalist economic policy which secured the United Kingdom’s stocks of wheat but left Italy to starve would have been inconsistent with strategical policy; there had to be some pooling of resources for the stake of the combined strength of the Allied war effort. The difficulty was to find an objective measurement of comparative needs. When the shipping shortage became acute, the heaviest strain of decision fell upon the British shipping authorities. From the early days of the war they had been making doles of tonnage to reinforce the mercantile marines of the Allied nations ”