W. Keith Hancock and Margaret M. Gowing

“ The Germans, of course, were able to make other people work for them; by 1944 they were employing in their own country more than five million imported civilian workers and nearly two million prisoners of war—a total of 7.13 million foreign workers, which in large measure explains the gentleness with which the German Government treated its own people, in comparison with Great Britain’s relentless mobilisation of manpower. ”

“ Economists have sometimes attempted to measure the advantage of overseas supply in statistical terms. Even in the dark year of 1941, the economists of the War Cabinet Office, piecing together their knowledge of British figures and their guesses at German and Italian figures, concluded that the war production of the United Kingdom was already closely matching that of her enemies—a prodigy of achievement which a nation so heavily outmatched in population could not even have approached, had not its own efforts been intermeshed with the productive labour of other countries. ”

“ There would have been a much smaller war industry working for these diminished Forces, and a greatly expanded export industry struggling to earn the overseas supplies essential to sustain the United Kingdom’s small-to-medium mobilisation. Such a distribution of the national resources—the very contrary of the overstrain and unbalance which were the eventual legacy of the war—would have been highly favourable to British recovery after victory. ”

“ It would be an interesting exercise in hypothetical statistics to estimate what the eventual size of the British war effort would have been if the United States had not in March 1941 thrown aside the ‘cash’ provisions of their neutrality legislation and if Canada had not throughout the war overcome every financial impediment to full economic collaboration with Britain. ”

“ Allowance must no doubt be made for some exceptional requirements of imports to speed the expansion of war production and for the unavoidable time-lags in expanding agriculture and other import-saving industries. What could have been avoided, or at least mitigated, was departmental boggling at the extent of the economies and effort insistently demanded by the facts of the shipping situation. ”

“ And on the continent of North America there was established, both in agriculture and industry, the most formidable concentration of productive power in the whole world.
The United Kingdom’s economic advantage was therefore great; but in earning it she had chosen to live dangerously. Whereas the Germans held on secure tenure—until the liberating armies at last drew near—their modest profits from Polish or Bulgarian economic effort, the British held on precarious and conditional tenure their much greater benefit from Argentinian or American production. ”

“ Neither in September 1939, nor eight years earlier when sterling had separated itself from gold, was the sterling area a new creation: all that happened on both occasions was that a trading and financial partnership already long established took a shape that was more visible to outsiders. The sterling area had grown naturally from the London-centred international market of the nineteenth century, when overseas producers were always able to sell their products for sterling which they could use either to finance their imports from the United Kingdom or to clear their accounts with third parties. ”

“ Before the war it had been expected that the British blockade would aggravate the world’s chronic over-supply of tonnage and bring neutral owners in flocks to the Ministry of Shipping, there to be employed on terms not unfavourable to the Treasury. What the war in fact produced was a world shortage of shipping which sent neutral owners frolicking after high freights. ”

“ Economic prudence, estimating in long-term the interests and bare needs of the people and the interlocking long-term interests and needs of the British Commonwealth and of world society, could not be brought into congruity with military prudence, estimating the immediate, urgent requirements of armed resistance. ”

“ This approach to the problems of overseas supply was in harmony with the policy of armament in depth and the aim of preponderant military power within the period of a three-year war. If the British and French Governments had realised that Hitler was banking on victory in the west within the first twelve months of war, they would surely have felt themselves compelled to state their import requirements very differently, with a much heavier demand upon the American munitions industries, despite the immediate cost in dollars. ”

“ More significant still was the steep rise in the requirements upon America for fulfilment of the British munitions programmes. Steel was ‘pre-eminently the basic raw material of warfare’; but since the capacity of the British steel industry was below the requirements of the newly-expanded British war plans, there existed a growing deficiency which would have to be made good by heavy imports from America. There would, moreover be a sizeable bill to pay for machine tools, petroleum products (though the tankers would so far as possible be sent to the Middle East) and some other commodities. ”

“ Private commercial imports had been by far the smaller part of the total even in the early months of the war; in the mature war economy they were destined to take a rigorously diminished place. However, the assumption by the great importing departments of direct responsibility for the main bulk of overseas supplies did not by itself bring into being an economical, realistic and genuinely national import programme, from which all unessential items were pruned and in which all the essential ones were scientifically balanced in relation to the nation’s war needs. ”

“ Whereas Germany could use force to exact from her land neighbours a large, if not a full measure of economic collaboration, the United Kingdom must depend upon the good will of her distant oceanic neighbours, and upon their feeling of a common interest between themselves and her.
The United Kingdom must in particular attune her economic policy to the political decisions of the United States. In September 1939, each self-governing nation of the British Commonwealth, excepting Eire, had by its own sovereign decision made common cause with the United Kingdom ”

“ For it is wrong to allow large issues of economic policy and the structure of the war economy itself to be determined incidentally by the day-to-day operations of shipping. Such issues occurred frequently through the overlap of ‘cash’ and ‘carry’; considerations of ‘carry’ demanded concentration on the short hauls; but considerations of ‘cash’—or of economic warfare—often demanded the reverse. Again: if the United Kingdom’s import programme had been the only test, British tonnage should have been withdrawn completely from the ‘cross trades’ ”

“ All the main elements of the problem of foreign exchange have now been examined—British exchange control, the sterling area, the payments agreements with foreign countries, the value of British reserves and external investments and the process of turning the latter into current cash, import restrictions, the export drive, the mounting total of overseas war expenditure. ”

“ The authorities responsible for war production will inevitably concern themselves with specific commodities of strategic importance which are likely to become difficult to procure in time of war, either through a rise in total demand or because of enemy domination over important sources of supply. ”

“ More than half of them were located in sterling area countries, where payments difficulties did not arise; to transfer them to American buyers would be a long and difficult process, even if the buyers should be in the end forthcoming. As for the British investments in America itself, the Johnson Act ruled out the possibility of raising money on them as security. But could not some of them be sold outright? That was, indeed, British policy; but the only investments that could be realised quickly and economically were listed securities denominated in American currency and enjoying a free market. ”

“ Small cruisers could be used not only to defend trade routes but to enforce a blockade; whereas a small number of large cruisers, which was what the Americans wanted, could be used to prevent British interference with neutral commerce. ”

“ In the War Cabinet, the balance of forces during the first war winter favoured laxity of control. It was only by slow degrees that the War Cabinet prepared itself for its task of subjecting contending and excessive departmental claims upon shipping space to an agreed measurement of national necessity. Meanwhile, though there had occurred as yet no serious inflationary pressure against stocks, [55] the persistent refusal to scale down import requirements to real importing capacity found its counterpart in a drain upon stocks of imported commodities. ”

“ Even in the first year of the 1914-18 war, British investors maintained their capital exports to the tune of about £200 millions. But in 1939 the situation was very different. The old staple export industries had for a long time been languishing, and for some years past a net deficit on the international balance of payments had announced that the nation, even in advance of war, was already beginning the process of overseas disinvestment. ”

“ It would be possible to make a long list of commodities which, though of very indirect value to the war effort, were still being shipped to the United Kingdom in larger quantities than in peace time. Wines and spirits, Spanish onions, canned, bottled and dried fruits would be conspicuous among the food items on the list; there were besides many dubious items, chiefly odds and ends of manufacture, included in the ‘miscellaneous and unallocated’ imports for which the Board of Trade was officially responsible. ”

“ To earn the means of payment, the British would find themselves compelled to maintain a large flow of exports, thereby diluting the intensity of their war mobilisation, both materially and psychologically—for it would be hard to persuade ordinary people that the workers who were producing luxury frocks for Buenos Aires or fine table linen for New York were serving the nation just as effectively as the workers in the dockyards or the aircraft factories. ”

“ In 1936, the figure of 52 millions—about three millions less than average peace-time imports—had been cited to the Committee of Imperial Defence; but the Food Supply Sub-Committee unwittingly complicated the issue by recommending that ‘an overall decrease of imports of food of twenty-five percent should be assumed throughout the duration of the war’. On this authority the Mercantile Marine Department cut its estimate of food requirements from 20 million tons to 15 millions, thereby bringing down the total of import requirements to the 47 million figure. ”

“ When France fell, war-making power was still being wasted through importation of unessential things, and of essential things in quantities which—in default of a scientific restatement of relative needs in the context of a compulsorily diminished total of imports—were sometimes excessive, and sometimes inadequate. ”

“ There are certain things that cannot be predicted in advance of war with any reasonable accuracy: for example, the balance of gains and losses. There are certain other things, such as the savings that may be made by reducing the number of loading and discharging ports, which can be predicted with tolerable correctness by an experience statistician with a thorough practical knowledge of shipping. ”

“ In the overall stocks position of the Ministry of Supply, the graph show first a steep decline and then a wide, deep trough. The Ministry of Food, thanks to the tenacity with which it defended its 20 million tons import programme and to the success from December onwards, of its rationing policies, had more comforting graphs to contemplate: even before the fall of France, it was improving its stocks position and thereby gaining elbow room for the more balanced food policy it subsequently adopted. ”

“ Great Britain, for example, employed on the land less than a million people or not quite five percent of her labour force; whereas Germany, to provide her people with food, was employing on the land 11 millions, or twenty-seven percent of her labour force. Again, to take a single minor example: the erection by the Germans of twelve synthetic oil plants with a capacity of 3.3 million tons a year was estimated to require 2.4 million tons of structural steel and 7.6 million man-days of labour ”

“ Its broad effect was to enable the British Government to continue importing without making immediate payment. The sums accruing to Argentine exporters were paid into a special account in the Bank of England on behalf of the Argentine Banco Central, with a guarantee that they would be available later on at gold value. The neutral Argentinians had thus shown themselves ready, like the members of the sterling area, to lend their resources to the belligerent British: or—to state the situation in reverse—the British had succeeded in softening a currency which they had originally reckoned as ‘hard’. ”

“ The demands of the importing departments for foreign exchange were met by the Treasury, after they had been scrutinised by the Exchange Requirements Committee, a body set up on 29th August 1939 with representatives from all the importing departments, the Treasury, and the Bank of England. The demands of private importers were controlled by the Import Licensing Department of the Board of Trade. ”

“ They found themselves hampered by the export licensing mechanism, which had been established by the Board of Trade not primarily to facilitate British exports, but to conserve scarce materials for home use and to prevent exported goods from reaching countries through which they could be filtered to the enemy—i.e. to wage economic warfare against the enemy. ”