British War Economy/Chapter IX

Even in the darkest months of 1940 and 1941, the United Kingdom did not fight alone. The resisting European Governments found sanctuary in Britain, small bands of fighting Frenchmen, Poles, Norwegians, Dutch, Belgians and Czechs took up battle stations with the British forces, while in their subdued homelands obstinate patriots tuned in to Big Ben and formed with each other those first conspiratorial groupings that grew later into the Resistance. Moreover, in the early winter of 1940, while Wavell's men were winning the first desert victories, the Greek state and people flung back Mussolini's attack. For the British people, these were great months—fit climax to the Battle of Britain and fit reward for their civilian fortitude. The reward and respite were all too brief, for the spring of 1941 brought heart-breaking defeats. But in mid-summer the war reached that 'fourth climacteric' proclaimed and welcomed by Mr. Churchill when Hitler tore up the Molotov-Ribbentrop pact, condemned the German nation to war on two fronts and presented the British nation with a great Continental ally. It is true that the Russian alliance brought no economic relief to Britain; as will be shown later, it brought new economic strain. But the strategical relief it brought was immediate and great.

The strategical burden of the previous twelve months had not fallen upon British shoulders only. When the wireless propaganda of Dr. Goebells accused the British people of pushing Australians and New Zealanders, Indians and South Africans into the most dangerous fighting, it advertised a truth of great moment for the world's freedom; in this year of decision, Britain was not an isolated island, but the rallying-centre of Commonwealth and Empire. The reinforcement of her national power was both military and economic. While Canadian soldiers shared with their English, Scottish and Welsh comrades the defence of the United Kingdom, Canadian farms, factories and shipyards were working for victory without any reservations about cash and carry. While forces from India and the southern Dominions were fighting in the Middle East alongside United Kingdom forces to veto the junction of European and Asiatic aggressors, an 'Eastern Supply Group', of which Australia and India were the chief members, was taking from British shoulders part of the weight of military supply in this area. It could not, however, take the main weight. The United Kingdom had to supply more than three quarters of the Empire's military manpower and an even larger proportion of the military equipment.

From the time of Dunkirk, the British Government had made insistent claims upon the United States: self-help without stint or limit did not exclude, but rather encouraged the expectation of American help. As early as 15th May 1940, the Prime Minister had telegraphed to the President:

"If necessary we shall continue the war alone, and we are not afraid of that. But I trust you will realise, Mr. President, that the voice and force of the United States may count for nothing if they are withheld too long."

Throughout May and June, both before the German-French armistice and after it, Mr. Churchill sent to the President many personal telegrams containing specific requests for aid. The same requests were made through the usual channels in official communications from Government to Government; for example, they were systematically enumerated in the aide-mémoire presented by Lord Lothian to the State Department on 3rd July. The aid requested was of two kinds: immediate aid, weapons that the Americans could deliver at once, action that they could take at once: long-term aid, the tasks that American industry would have to set itself if it were to provide, at some future date, the tools 'to finish the job'.

The demands for immediate aid, and the American response to them, cannot be discussed without some reference to the evolution of America's neutrality policy. Needless to say, no British historian is competent as yet to handle this topic with authority; all that the present writers will offer is a minimum of relevant comment suggested by the British documents, which reveal, not the full content of American policy, but those contemporary British interpretations of it that influenced British action. It is simple enough to write down the things the British demanded: the lists are clear. On 15th May, Mr. Churchill asked the President for 'forty or fifty of your old destroyers'. That was always the most urgent demand. On 17th July Mr. Churchill told the President: 'Nothing that America could do would be of greater help that to send fifty destroyers—except sending a hundred.' But destroyers were not by any means the only reinforcements the British needed for their struggle at sea: they asked the Americans to give them motor torpedo boats for Channel fighting and seaplanes for Atlantic patrol: they wanted the United States Navy to make a show of power by sending units to the Mediterranean and to Iceland: they asked the United States Government to consider whether it was ready to take steps leading to the abolition of the 'combat zones'—for it was a reinforcements of their carrying capacity in dangerous waters that they needed, not only of their fighting strength. They needed at the same time immediate help for the battles they might very soon have to fight on their own soil against invading German armies. They asked for American aircraft for the R.A.F and American rifles, machine guns, field guns and mortars to replace some of the equipment that the B.E.F. had lost in France and to arm the Home Guard.

The American response was governed by psychological and political conditions which the British Ambassador in Washington explained, so far as he was able, to his home Government. Lord Lothian reported that the time was now past when Government and public opinion in the United States, despite their democratic sympathies, would make more fuss about the contraband control or the searching of mail in the West Indies or the reduced British purchases of apples and tobacco than about the illegalities and aggressions of Nazi Germany Admittedly, there were some Americans who still made gestures of neutral impartiality which were in effect pro-Axis: as late as November 1940, a prominent American opened a campaign for sending food ships to those 'five European democracies' which, he said—with an impartiality truly impeccable—were being starved 'by the British and German blockades'. By this time, however, it was only a small fringe of Americans who thought of British seapower as anti-democratic; the immense majority of Americans saw in the Royal Navy a champion of 'democracy'—including the democracy of America. President Roosevelt expressed these feelings when he declared at Charlottesville on 12th June 1940:

"We will extend to the opponents of force the material resources of this nation, and, at the same time, we will harness and speed up the use of those resources in order that we ourselves in the Americas may have equipment equal to the task of any emergency and every defence."

But how to balance these two objectives—immediate aid to British democracy which was already an 'opponent of force', and the equipment of American democracy which might oppose the same force later on? Lord Lothian reported the Americans to be divided in their own minds: they were convinced by the events of May and June that Britain was the only barrier between themselves and immediate danger, but they had no confidence in the tenacity of the barrier. They wanted to give help, but they feared that any help they might give would be too little and too late. They found it hard to decide whether to strengthen the British in the front line or to despair of the British and concentrate on defending their own hemisphere—or quarter-sphere: even that phrase was coined. Under these circumstances, British self-help was the most effective way of inducing American help. By the autumn, Lord Lothian was able to report that the Battle of Britain and London's toughness had inspired a renewal of American confidence in British nerve and strength. The policy of 'defending America by helping Britain' was now 'really representative of average American opinion, and for the first time the British became popular in America'.

Against the background sketched by Lord Lothian, the British Government could more easily assess the significance of America's response to its requests for immediate aid. Some of the requests, particularly those which called for American support in the struggle at sea, were turned down or put off. The President felt unable to send naval units to the Mediterranean or Iceland, or to ask Congress for the removal of the ban on the entry of American merchant ships into dangerous waters. Nor did he at first feel able to satisfy the most urgent of all the British demands, the demand for the old destroyers: throughout the critical months of May, June and the greater part of July the United States Administration felt that transfer could not take place without Congressional action, for which neither Congress nor American public opinion was yet ready. However, transfer became practical politics towards the end of July, when it was linked with the leasing to the United States of naval and air facilities in British possessions in the western hemisphere. The deal was completed on 2nd September.

American help had been given much more promptly to strengthen the land defences of Britain. More than half a million rifles, 85,000 machine guns, 25,000 automatic rifles, some hundreds of 'seventy-fives' and mortars, 21,000 revolvers, with supplies of ammunition for all these weapons, were released from surplus American stocks at the very time when the British wanted them most urgently. The British paid for this equipment and it was carried in British and Allied ships; but these consequences of the neutrality legislation did not remove the great moral effect of America's action. Soldiers of the Home Guard who cleaned the rifles from the grease in which they had been packed more than twenty years before did not ask how they had been paid for or how they had been transported to Britain. They were American rifles—not quite so familiar and handy as Lee-Enfields; but they shot straight.

Indeed, while some learned Americans were worrying about the significance of these transactions in terms of international law, ordinary people on both sides of the Atlantic knew very well where they were tending. To quote an American phrase then current,they signified the rapidly emerging policy: 'All aid short of war.' Before the end of 1940 the new policy was expressing itself in a succession of activities hard to reconcile with old-fashioned neutrality—the flying of aircraft direct to Canada, the provision of training facilities in Florida for R.A.F. pilots, the repair of British warships in American ports. The same policy in 1941 would carry America even closer to the zones of combat: American merchant ships would enter the Red Sea, American warships and land forces would take over from Britain the defence of Iceland.

The American response to British requirements of a long-term character was governed by the same evolution of policy, which in retrospect is seen to be of decisive importance, though to the British people it seemed at the time hesitant and slow. The hesitancy was not all on one side. Then, as later, there existed real and inevitable discrepancies of opinion between 'user' and 'producer' interests, between the men—both British and American—who were thinking of the battles that would be fought in the next months or weeks, and those who were planning programmes of production for victory in years still distant. Between these two categories of opinion there was not, of course, any hard and fast line of division; Service chiefs planned for the years ahead and production experts struggled against the shortages and frustrations of this week and next. Nevertheless, the former did tend in the main to fight for immediate allocations of American material—in the summer of 1940 from old stocks, but from new production thereafter—whereas the latter were more likely to impress upon the Americans the need to raise their sights high and undertake the capital developments necessary for large output later on. Yet even this cautious classification is over-simplified: for the production planners were themselves faced with difficult decisions between the present and future, particularly between the claims of British war industry—which was already very much a going concern but dependent upon American materials and components and tools if it were to achieve maximum production—and American war industry, which needed the same instruments of production if it were to develop, almost from nothing, its great potentialities. Here were problems which could divide opinion on lines cutting right across the national loyalties. National loyalties and narrow domestic policies did, however, count. In the summer and autumn of 1940 an American Service department, arguing that the building of the national defences must come first, might find itself supported by defeatists who said that there was no sense in sending machine tools to be bombed or captured in Britain, and by isolationists who believed that America should do nothing to offend Hitler.

Issues so crucial and so intricately tangled called for skillful and firm handling on the British side. At every point the British had much to lose: at every point their losses might be severe if they failed to strike a just balance between their competing claims; if they failed to argue their case as a whole. This had always been the doctrine of Purvis—and of Monnet, who in July 1940 went to America to take service under Purvis. During the nine months between the fall of France and the advent of lend-lease, the doctrine embodied itself with reasonable success in organisation and policy. The immediate responsibility of Purvis was to the Ministry of Supply, the parent body of the British Purchasing Commission. As chairman of the B.P.C. he had by mid-summer asserted effective control over the whole range of Ministry of Supply activity in America. He then had to face tasks of re-staffing and re-organisation within the B.P.C.; for the tightening of government control over American war industry had outmoded British commercial procurement in the open market. Technicians were now needed, rather than commercial men. The reshaping of the B.P.C was not achieved quickly; Purvis had other things to do; perhaps he did other things better. With an insufficiency of explicit power, he had to establish coordination of policy and action among no less than nine British missions, representing almost as many Whitehall departments. Most of the missions, it is true, were small and easily managed; but one of them—the British Air Commission—was powerful and extremely jealous of its independence. Up to December 1940, Purvis was able to achieve practical coordination by personal firmness and tact and the leverage of the confidence accorded to him by the Secretary of the Treasury Morgenthau; from December onwards he was given explicit status and influence through his chairmanship of the British Supply Council in North American. This new Council did not supersede the arrangements whereby the individual missions in Washington fulfilled the instructions of their parent ministries in London; its purpose was rather to ensure that individual action took place within the agreed framework of British policy in Washington. It was a federalistic organisation representing all the missions and charged with authority 'in all issues of policy concerning supply including all representations made to the United States Administration'.

The organisation might change, but the basic issues remained the same. At every stage, a balance had to be struck between short-term and long-term needs. In the summer of 1940 a fair measure of prompt success had been won under the first head; but the issues under the second head were more tangled and longer in doubt. It was a cardinal feature of the Purvis-Monnet programme to get the Americans to raise their sights all round: a great flood of output was the only guarantee that all the parched channels would be irrigated. Unfortunately, the Americans in 1940 were still too easily impressed by an industrial expansion which was, no doubt, a promising beginning; but, even so, was absorbing not much more than ten percent of their national income. The persistent deficiency of supply made the American Service departments reluctant to release to the British, munitions and productive resources that they wanted for their own expanding forces. The same deficiency made some British departments reluctant to pitch their claims too high: if they placed too many new contracts in America, would not the Americans withhold from them the machine tools necessary for maximising their own maturing programmes at home? Such misgivings, it is true, had not deterred Lord Beaverbrook from telling the Americans in July that he would—on top of existing contracts—take all the aircraft they could produce up to 3,000 a month; but even he had to swallow the consequences of his forthrightness: he found himself compelled to compromise on machine tools whose delivery had been already stipulated under the Anglo-French contracts. The other departments were not so ready as Lord Beaverbrook to 'talk big'. In the very middle of the naval crisis, the Admiralty's requirements upon American production were scaled up by little more than £13 millions on a pre-existing £10 millions. Not until the late autumn of 1940 did the Admiralty place the first Todd-Kaiser contract for sixty merchant ships—a contract that initiated the phenomenal expansion of the Kaiser ship-building enterprise. The Ministry of Supply had acted with similar deliberateness—if that is the right word. In the sphere of army supply, those obstacles to boldness that have already been enumerated were reinforced by a special difficulty. The American Service departments did not favour the locking up of industrial resources in the production of weapons of a type that their own forces would never use: the British departments were not quick nor wily enough to persuade the Americans to adopt British types. Perhaps they never had any real chance of doing so. The 'battle of the types' made some stir in the summer and autumn of 1940; but its result was in all probability a foregone conclusion: the chief consequence of fighting it was delay. Up to the end of October, the Ministry of Supply's demand upon America was a small affair of making good deficiencies in the existing British programme, with some additional insurance against losses of production through German bombing. Then there was a change. Towards the end of October, the Americans offered to fulfil the modest requirements that had been already stated for British-type equipment and on top of that to provide with all possible speed American-type equipment for ten British divisions. The Prime Minister cabled—'This is splendid. You should at once accept offer.'

It would be out of place in the present book to go further into these problems; enough has been said to show that Purvis and Monnet and their fellow workers in London and Washington had great difficulty in persuading, not only the United States Administration, but also some of the British departments—from whom the most intense forward impulse was to be expected—to take the action that would initiate a really serious mobilisation of America's war potential. Nevertheless, there was by the end of 1940 a fair degree of progress to record. In the first place, Britain's demonstration of her determination and capacity to hold the front line had given sufficient answer to those Americans who argued that investment in British war-making capacity would give no return in terms of American security. In the second place, the ten division scheme offered the model of arrangements which, even from a strict American Service point of view, would give very positive returns. The United States War Department, for example, was looking ahead; it was rearming, while the country still remained committed not to send armed forces overseas; it wanted to build up productive capacity in case this policy should be changed; it wanted to produce equipment in advance of recruitment. To produce American-type equipment which the British would pay for now was an excellent method of expanding capacity to equip an enlarged American Army in the more distant future. While British soldiers, sailors and airmen were sheltering the still-surviving American peace, British orders were building up the strength that America's fighting services might someday be compelled to exert. But supposing the British ran short of the dollars to pay for the orders? What then?

By the end of 1940, the British had committed nearly all their available dollars. By reason of their own circumspection or the delays and obstacles that had beset them in America, the curve of their demands had been slow in rising; but by now is had reached a respectable height. The Kaiser ship-building enterprise had been launched by Admiralty orders; Lord Beaverbrook's expansive visions were embodying themselves in specific aircraft contracts; the War Office had superimposed Programme B (the ten division scheme) upon Programme A (the deficiency and insurance scheme). All this to be sure, seemed far too little to planners of the Purvis-Monnet school. At this very time Purvis was going into action with a well-tried weapon from Monnet's armoury. With the intention of shocking the Americans into a new estimate of the efforts demanded of them, he produced a 'balance sheet'. It was in three columns; first, the estimate of British requirements: secondly, the estimate of British production: thirdly, the deficiency. It was only American production that could make good the deficiency.

There was not the slightest hope that Britain could raise the dollars to finance that production. By the end of 1940, British commitments in the United States for initial orders and capital development without counting Programme B amounted to nearly $10,000 millions. This figure represented only a fraction of America's war potential, but it was much larger than the debt Britain had incurred in 1914-18, and far in excess of total British assets in the United States. The United States Treasury was informed about this. The warnings of impending dollar exhaustion that the Prime Minister had given the President as far back as mid-May were justified by precise figures produced during July by a senior Treasury official who had gone to America on Mr. Morgenthau's invitation. Thereby the Americans were confronted with a dilemma: either to withdraw support from Britain and consequently to impose upon themselves immediate and immense strategical dangers and war expenditures far greater than any they had yet contemplated: or else to continue and expand their aid to Britain irrespective of 'the dollar sign'. The United States Government never doubted what its ultimate decision would be; but it was intensely anxious to postpone the day of decision. The representative of the British Treasury telegraphed to London, 'Nothing before the election'. Until then, the United States Treasury encouraged the British to press ahead with war contracts they could never fully pay for, while all the time it put persistent pressure upon them 'to scrape the bottom of the barrel' so that they might meet the interim payments as they fell due. Some Americans tried to persuade themselves that there was more in the barrel than the British pretended; as late as 28th November 1940, Lord Lothian reported them to be 'saturated with illusions that we have vast resources available that we have not yet disclosed and that we ought to empty this vast hypothetical barrel before we ask for assistance'. The United States Administration was fertile of suggestions to the British for stripping themselves bare. They might raise some more cash by disposing of their 'direct investments' in America—the British-controlled enterprises, such as Viscose Corporation, for which there was no established market. They might sell their South American securities and their interests in Malayan tin and rubber. They might cash in at once on the stocks of whiskey intended for export to America during the next ten years. They might cash in at once on their stocks of Australian and South African wool. They might dispose of the Empire's gold stocks in anticipation of future mining production.

Some of these things the British did. They sold British ownership of the Viscose Corporation—not perhaps at a 'rubbish price', as was often said at the time, but certainly at a heavy sacrifice. This was partly because the time at which sale took place was unfavourable, but still more because the real value of Viscose fell as soon as it was separated from the parent British firm, Courtauld's Ltd. Would they not incur even greater losses by selling at knock-down prices their South American or Malayan investments? Mr. J. M. Keynes, in a pointed memorandum, discussed the economic issues. The Malayan investments, he said, represented living personal enterprises, not an automatic flow of dividends: if the Americans took over the dividends they would have to take over the enterprises, together with responsibility for the territories in which the enterprises were situated: otherwise the flow of production would dry up. And what about gold? Actually, the British were doing everything in their power to mobilise all available gold: on 5th January 1941 the United States cruiser Louisville put in at Simonstown and took off gold to the value of $149,633,653: on the very eve of the Lend-Lease Act, the Belgians came to the rescue of their ally by giving them an option on $300 millions worth of gold in Belgian possession. It was only by expedients of this kind, and by slowing down their contracts, that the British squeezed through the winter months without defaulting on payments that fell due. But were such improvisations sound in economics? Mr J. M Keynes argued that it was nobody's interest, most certainly not America's, that Britain should completely denude herself of gold. If the convention by which gold was used as a means of settling international balances came to an end, America's own stocks would become valueless. 'The convention depends', Keynes wrote, 'on not all the gold being in one hand. When in the game of "beggar my neighbour" all the cards belong to one player, that is the signal for the game to come to an end. The pack becomes worthless pasteboard: the fun is over.'

The economists who were attached to the United States Treasury no doubt saw these truths as clearly as Keynes did; but the Treasury according to British reports, insisted upon 'the psychological importance of the question' and argued that Britain must manifestly strip herself bare in order to strengthen the President's hand when he came before Congress with new proposals of financial aid. Mr. Churchill concluded that the time had come for him to approach the President again with a statement ranging wider than political economics. He reminded the President that the British Commonwealth in defending itself, was buying time for the United States to prepare their own defences: the future of both democracies depended upon successful British resistance during the coming year. The decision in the coming year would lie on the seas; Britain, having survived direct enemy assault in 1940, might be overwhelmed in 1941 by the less spectacular but no less deadly attack upon her shipping. Should she fall under this attack, the United States might not find time to complete their own preparations. The Prime Minister reiterated the urgent need for American help at sea—strategic help, through the transfer of American warships or the reassertion of the American policy of freedom of the seas, and industrial help, in the form of a ship-building drive comparable with the Hog Island programme of the last war. Industrial help was hardly less indispensable in the sphere of air and army production. This brought Mr. Churchill to the question of finance.

"The moment approaches [he said] when we shall no longer be able to pay cash for shipping and other supplies. While we will do our utmost, and shrink from no proper sacrifice to make payments across the Exchange, I believe you will agree that it would be wrong in principle and mutually disadvantageous in effect, if at the height of this struggle, Great Britain were to be divested of all salable assets, so that after the victory was won with our blood, civilisation saved, and the time gained for the United States to be fully armed against all eventualities, we should stand stripped to the bone. Such a course would not be in the moral or the economic interests of either of our countries."

Finally, the Prime Minister affirmed Britain's readiness to suffer for the common cause, and her pride in being its champion. He asked the President to look upon his letter, 'not as an appeal for aid, but as a statement of the minimum action necessary to achieve our common purpose'. He declared himself convinced that America would find ways and means of action which future generations on both sides of the Atlantic would approve and admire. Indeed, the time for action had come. On 5th November Mr. Roosevelt had been re-elected President of the United States for a third term. On 23rd November Lord Lothian, without specific authorisation from the Chancellor of the Exchequer, told the American public the truth about the impending exhaustion of the British store of dollars. Lord Lothian died suddenly on 12th December. On 17th December President Roosevelt made the great speech that put the idea of lend-lease into American minds. On 10th January the bill embodying the new idea came before Congress. Its number—H.R. 1776—recalled the year of American independence; its title proclaimed it to be an 'Act to promote the defense of the United States'. It became the law of the United States on 11th March 1941.

Meanwhile, the Canadian Government maintained and where necessary expanded the policy which from the beginning of the war until the end enabled the United Kingdom to procure from Canada the munitions, materials and food it needed, without at any time suffering embarrassment from shortage of Canadian dollars.

It is the historian's task to study reality within a framework of time. The framework of the present study is March to December 1941. What reinforcement of their war-making power did the British derive from lend-lease during these nine months? The passing of the Act did not transform Britain into an island well furnished for war; America aspired to be the arsenal of democracy, but the aspiration was still far from achievement.

The services rendered under lend-lease are measurable, first of all, in dollars. Fortunately for the historian, the Act did not altogether 'remove the dollar sign'. Although the recipients of aid stated their requirements in quantities and categories of 'defence articles', the givers of it kept strict account—as by their own constitutional practice they were bound to do —in money. The appropriations of money authorised by Congress for all lend-lease purposes before Pearl Harbor amounted approximately to $14,000 million; but the defence aid rendered to Britain and the British Empire during the same period was only about one-fifteenth of this total. For this gap between the money appropriated and the aid rendered there was more than one cause. To begin with, the British, although the chief beneficiaries of the new American policy, were not the only beneficiaries: China, Soviet Russia, and the smaller Allies received their shares. More important still were the peculiarities—at that time not generally appreciated in Britain—of United States financial procedure. Whereas a 'vote' of money by the British Parliament represents the estimated expenditure upon a specific object within a single financial year, an 'appropriation' by Congress is not nearly so confined: quite frequently, it represents the whole estimated cost of a task that may take two or three years to complete. The appropriations of Congress for lend-lease purposes were no more than the first link in a long chain of action—statement of requirements by an American procurement authority, allocation of funds, issue of contracts, expenditure under the contracts, progress of work, delivery of the goods, their eventual transfer to the recipient of defence aid. There need be no surprise that the flow of lend-lease aid, which in later years became so mighty a flood, was during the first nine months a comparatively modest trickle. The actual dollar value of the aid rendered to the whole British Empire during those first nine months has been reckoned at $1,082 million—a bare thirtieth of the total achieved between March 1941 and August 1945.