Comp. by: SSENDHAMIZHSELVAN
Stage: Proof
Chapter No.: 1
Title Name:
GEYERandTOOZE
Date:2/2/15
Time:14:35:33
Page Number: 42
they found £500 million that could not be covered. Unlike in Germany in the
late 1930s the British experts had an attentive audience. The stringent budget
presented to Parliament in the spring of 1941 was explicitly based on Keynes-
ian macroeconomic methods and the modern national income statistics. The
in
flationary pressure that had been building up sharply between 1939 and 1941
began to be curtailed.
23
For many, the 1941 budget seemed to herald a new
dawn for the rational management of the national economy.
‘It is on the
assumption of this wider responsibility,
’ wrote the economist Nicholas
Kaldor in summer 1941,
‘that our best hope lies for the post-war world’.
24
And Britain
’s war effort was emphatically global. In 1940 the trade deficit
gaped to 9.5 per cent of GDP. Over the war as a whole Britain bene
fited from
a net in
flow on current account of £10 billion. Of this £1.1 billion came from
the sale of British investments abroad; £3.5 billion was made up of new
borrowing, of which £2.7 billion was contributed by the Empire
’s Sterling
Area, the majority from India, Burma and the Middle East. But the imperial
share was dwarfed by funds provided by the USA, which ran to £5.4 billion
pounds.
Churchill described the Lend-Lease Law that FDR signed into effect on
11
March 1941 as the
‘least sordid act in history’. In Berlin it was taken as
tantamount to an American declaration of war. In fact, the peculiar structure
of Lend Lease was the direct result of earlier unhappy experience in Anglo-
American war
finance. In the First World War Britain and France had relied
first on private loans and then on Liberty Loans to fuel their struggle against
the Central Powers. By 1933, after the failure of inter-allied debt diplomacy
they were of
ficially declared in default. Congress could not therefore approve
new loans, but resorted instead to the
fiction of Lend-Lease. America’s aid
appeared denominated as dollars in the accounts of the US federal govern-
ment, but the arms, raw materials and food were provided to its Allies in
kind and did not therefore appear in their regular national accounts as
obligations to the USA. Nevertheless, the relief provided was enormous.
By early 1941 the sum total of Britain
’s foreign currency reserves not already
committed to overseas orders amounted to less than $2 billion, suf
ficient to
cover no more than a few months of procurement. By the end of the war,
according to US accounts, Lend-Lease would funnel over $50 billion into the
23
John Philip Jones, Keynes
’s Vision: Why the Great Depression Did Not Return (Abingdon:
Routledge, 2008), p. 177. Tooze, Statistics and the German State, pp. 4
–17.
24
Nicholas Kaldor,
‘The White Paper on National Income and Expenditure’, Economic
Journal 51
:202/3 (1941), p. 181.
a d a m t o o z e a n d j a m e s r . m a r t i n
42
Comp. by: SSENDHAMIZHSELVAN
Stage: Proof
Chapter No.: 1
Title Name:
GEYERandTOOZE
Date:2/2/15
Time:14:35:33
Page Number: 43
Allied war effort, of which $31 billion were directed to Britain. Britain
’s
allocation of American largesse was greater than Germany
’s total domestic
war effort in 1942. Supplies to its Allies would make up no less than 17 per
cent of the US war effort.
Where did this vast
flow of resources come from? In 1939 the US economy
was still at a low ebb. When FDR launched his momentous plans for the
peacetime draft, a two-ocean navy and a world-conquering 65,000 plane air-
fleet in May 1940, the American economy was still operating at less than
80
per cent of capacity.
25
From 1939 onwards the US economy began to surge
under the impact of British and French military orders, the domestic indus-
trial investment these unleashed and increased federal government spending.
In 1941 real US GNP rose 16 per cent. More remarkably, in 1942 and 1943,
when unemployment among American men had fallen to zero, growth
continued at 13 per cent. Between 1938 and 1944 US GDP increased by
87
per cent. Ef
ficiency gains due to mass production of war equipment
contributed about a quarter of this output growth. In this respect the USA
was similar to the other combatants. The truly distinctive feature of the US
war economy was labour mobilization, which accounted for three-quarters
of the production surge. Between 1940 and 1943 11.25 million men and
women joined or rejoined the American labour force, more than the total
industrial workforce of Germany. An even bigger contribution was made by
the lengthening of working hours which rose from an exceptionally low level
of 35.6 per week in US manufacturing in 1938 to 45.2 in 1944. Despite the
images of American industrial might dramatized by Ford
’s famous B-17
production line, new investment played a surprisingly small role in the US
war effort. The US federal government spent lavishly on war factories. Net
government investment between 1942 and 1945 ran to a massive $99.4 billion.
Gigantic synthetic rubber, aluminium and aircraft industries were built from
scratch. But over the same period private investment was so drastically
curtailed that it fell below depreciation, reducing the private capital stock
by $6.2 billion. Combined with the dramatic growth in output, this concerted
reallocation of resources enabled the USA both to mount a gigantic war
effort and to increase the private standard of consumption relative to 1939,
whilst providing a huge
flow of resources to its Allies.
There was anxiety, of course, about over-taxing even America
’s abundant
resources. In the First World War the USA had seen its prices rise by 120 per
25
Byrd L. Jones,
‘The Role of Keynesians in Wartime Policy and Postwar Planning,
1940
–1946’, American Economic Review 62:2 (1972), 125–33 (p. 127).
The economics of the war with Nazi Germany
43