Peden G.S. Arms, Economics and British Strategy From Dreadnoughts to Hydrogen Bombs
Подождите немного. Документ загружается.
continent were not going to be available in quantity until 1939 at the
earliest, whatever decisions were to be taken about the army’s role in
1934 or in 1937.
The position about field artillery was dominated for most of the period
by the huge stocks of guns and ammunition left over from the First World
War. Field artillery units down to the mid-1930s were equipped with the
old 18-pounder and 4.5-inch howitzer, both of wh ich had been out-
ranged by equivalent guns of continental armies and were no longer, in
the War Office’s view, ‘fit for war’.
81
A specification had been issued in
May 1934 for a weapon to take the place of both the 18-pounder and the
howitzer, and this led to the excellent 25-pounder used in the Second
World War. Satisfactory trials were held in October 1938 and orders
placed forthwith. Meanwhile existing stocks of 18-pounders were con-
verted to 25-pounders by relining them and modifying the carriage, and
stocks of 60-pounder medium guns were also modernised by being
provided with a loose liner, developments that were described as ‘win-
ners’ by the CIGS, Sir Cyril Deverell, and the Master-General of the
Ordnance, Sir Hugh Elles. The 2-pounder tank gun was adopted as an
anti-tank gun in 1934 and was superior to its German 37-mm equivalent;
however, as early as April 1938 it was recognised that there would
probably be a requirement for a heavier anti-t ank gun to cope with
increasing armour, and a new 6-pounder had reached the wooden mock-
up stage by September 1939.
82
The artillery and infantry were com-
pletely motorised in the 1930s – in contrast to continental European
armies, including the German army, where horses continued to be widely
used during the war. The British army was modernised between 1936
and 1939, but the low priority given to it compared with the air force and
navy meant that the re continued to be deficiencies, especially as regards
guns and tanks, and there was a lack of equipment even for training.
83
The economy and finance
What economic and financial factors prevented Britain from creating
and maintaining an air force equal to any other within striking distance
Sub-Committee, May 1937–May 1938’, WO 332/4441; Army Council – Informal
Meetings, 13 July and 20 July 1937, WO 163/47, TNA.
81
‘Organisation, armament and equipment of the army’, DPR 145, 16 Nov. 1936, CAB
64/35, TNA.
82
Postan, Hay and Scott, Design and Development, pp. 247, 257–9, 261–2, 315–16;
correspondence between CIGS and the Master-General of the Ordnance, 24 Feb.
1937, WO 32/4385; ‘Anti-tank equipment’, WO 32/4684, TNA.
83
The Ironside Diaries 1937–1940, ed. Roderick Macleod and Denis Kelly (London:
Constable, 1962), pp. 53–4, 56–60.
Retrenchment and rearmament 125
of the United Kingdom? Or maintaining a navy capable of defending
Britain’s interests in the Far East from the 1920s, while also dealing with
the German and Italian navies from 1935 and protecting Britain’s
worldwide trade routes? Or creating an army capable of co-operating
with European allies, while also defending Britain’s overseas territories
and interests? Merely to list Britain’s defence requirements is to show
that not all could be met, and that therefore strategic choices would be
necessary.
Table 3.2 shows the course of expenditure by the three defence
departments. The figures for the financial years 1919/20 to 1922/3
include the cost of the aftermath of the war and are not therefore strictly
comparable to the years that followed. Those for 1939/40 include the
cost of operations from September 1939 to March 1940, but these were
limited in scope and in July 1939 the Treasury expected total defence
expenditure to reach £750 million in the current financial year, even if
there were no war.
84
The percentage figures in column 2 show what
share of current national output went to the defence departments, but
when reading them one should remember that GDP at current prices
was affected by a fall in prices in most years from 1920 to 1932, and by
severe falls in output between 1920 and 1921, and between 1929 and
1932. On the other hand, GDP at current prices rose sharply between
1935 and 1937 and again between 1938 and 1939. The percentage
figures reflect changes in the denominator as well as the numerator, and
give an impression that defence expenditure rose more slowly than it did
after 1934. On the other hand, the figures for expenditure in column 1
include the effect of prices rising in response to increased demand for
equipment after 1936. For example, a light tank that cost £3,250 in
October 1936 cost £4,000 in March 1938. Prices on Admiralty con-
tracts increased by about 7 per cent between 1937 and 1938, although
wholesale prices were falling and average money wage rates increased by
only 1.2 per cent between these years.
85
Notwithstanding these caveats, table 3.2 shows clear trends. Defence
expenditure stabilised after 1923, even rising in some years and, mea-
sured as a percentage of GDP, was not much lower between 1923/4 and
1927/8 than between 1906/7 and 1913/14 (see table 1.1). From 1928/9
to 1932/3 there was a clear downward trend, with no significant recovery
until 1935/6, and the percentage figures were stable only because of the
84
‘Note on financial situation’, CP 149 (39), 3 July 1939, CAB 23/100, p. 138, TNA.
85
G. Oram to E. Compton, 23 Mar. 1938, T 161/822/S.35177/38; Captain V. H.
Danckwerts to First Lord, 9 May 1938, ADM 116/3631, TNA; B. R. Mitchell and
Phyllis Deane, Abstract of British Historical Statistics (Cambridge University Press,
1962), pp. 345, 478.
Arms, economics and British strategy126
fall in GDP between 1929 and 1932. While John Ferris’ description of
the period 1921–7 as a peak in British military preparations in
peacetime is something of an over-statement, he is correct in identi-
fying retrenchment between 1928 and 1933 as the main cause of
the deficiencies that policymakers had to attempt to remedy from
1934.
86
British power was bound to be affected by the changing fortunes of
the national economy compared with other countries. In the severe
depression of 1921 British GDP fell to 87.1 per cent of the 1913 level
and the 1913 level was not achieved again until 1925. Economic growth
Table 3.2. Defence departments’ expenditure as percentage of GDP, 1919/20–1939/40
Financial
year
Total
expenditure (£m.)
Percentage of GDP
adjusted to financial year
1919/20 616.6 12.4
1920/1 232.4 4.6
1921/2 207.4 4.8
1922/3 138.1 3.6
1923/4 122.0 3.3
1924/5 114.7 3.0
1925/6 119.4 3.0
1926/7 116.7 3.0
1927/8 117.4 2.9
1928/9 113.5 2.8
1929/30 113.0 2.7
1930/1 110.5 2.7
1931/2 107.3 2.8
1932/3 103.0 2.8
1933/4 107.9 2.8
1934/5 113.9 2.8
1935/6 136.9 3.2
1936/7 186.1 4.1
1937/8 262.1 5.5
1938/9 382.5 7.7
1939/40 719.0 13.6
Sources: 1919/20 to 1923/4: John Ferris, The Evolution of British Strategic Policy, 1919–26
(Basingstoke: Macmillan, 1989), p. 216; 1924/5 to 1938/9: Statistical Account for the United
Kingdom for Each of the Fifteen Years 1924 to 1938 (Cmd 6232), PP, 1939–40, x, 367;
1939/40: Robert P. Shay, British Rearmament in the Thirties (Princeton University Press,
1977), p. 297.
86
John Robert Ferris, The Evolution of British Strategic Policy, 1919–26 (Basingstoke:
Macmillan, 1989), p. 180; John Robert Ferris, ‘ ‘‘It is our business in the Navy to
command the seas’’ ’, in G. Kennedy and K. Neilson (eds.), Far-Flung Lines.
Retrenchment and rearmament 127
lagged behind other industrial countries from 1913 to 1929, GDP
having risen by only 11.9 per cent over that period compared with
63 per cent for the United States and 78.9 per cent for Japan (two
countries whose economies had benefited from foreign orders during the
war and rapid development during and after it). Even France and
Germany achieved increases of 25.8 per cent and 21.6 per cent
respectively, despite suffering at least as much economic disruption as
Britain during and after the war. There are many reasons for the British
economy’s disappointing performance, including Churchill’s decision,
as chancellor of the exchequer, to return to the gold standard in 1925 at
an over-valued exchange rate; slower growth in international trade than
before 1914; and a reluctance or inability to change more quickly from
an economy based on coal, cotton, iron and steel, shipbuilding and
heavy engineering to one based on oil, man-made fibres, motor vehicles,
light engineering and electrical goods. A world depression in the early
1930s saw British GDP fall by 5.1 per cent between 1929 and 1932, but
this loss of output was mild compared with what other countries
experienced: 28.0 per cent in the United States; 11.0 per cent in France
and 15.8 per cent in Germ any. Moreover, Britain recovered more
quickly from the depression. Helped by suspension of the gold standard
in 1931 and low interest rates from 1932, she reached her 1929 level of
GDP by 1934, one year ahead of Germany and five years ahead of
France and the United States.
87
However, Germany and Japan
experienced very rapid economic growth in the 1930s and by 1937 the
relative GDPs of the leading capitalist economies compared with 1913
were as shown in table 3.3: Britain had lost ground compared with all of
them except France – the country with which she was most likely to be
allied in war. Although reliable figures for Soviet GDP are not availab le,
rapid industrialisation under Stalin meant that Russia was also relatively
more powerful than in 1913.
Falling prices and econom ic depressions reduced the rate of return
from taxes, yet chancellors of the exchequer faced a major increase in
outgoings as a result of loans raised to pay for the war. The cost of
servicing the national debt (interest, sinkin g funds an d other charge s)
increased from £24.5 million, or 12.4 per cent of total revenue, in
1913/14 to an average of £344.5 million, or 37.4 per cent, in the 1920s.
The 1913/14 figure had been about one-third of the combined army and
87
Maddison, Phases of Capitalist Development, pp. 174–5. For a brief account of why
Britain’s experience differed from other countries, see Barry Eichengreen, ‘The inter-
war economy in a European mirror’, in Roderick Floud and Donald McCloskey (eds.),
The Economic History of Britain since 1700, 2nd edn, 3 vols. (Cambridge University
Press, 1994), vol. II, pp. 291–317.
Arms, economics and British strategy128
navy estimates; the 1920s average was about three times the combined
cost of the peace-time air force, army and navy.
88
Fortunately interna-
tional interest rates fell in the depression of the early 1930s and the cost
of servicing the debt was substantially reduced by converting 5 per cent
War Loan to 3.5 per cent in 1932, saving £42 million a year. There was
also a saving of £24.6 million from paying lower rates on Treasury bills.
The decision in 1932 to make only a nominal repayment of the war debt
to the United States, instead of the regular instalments agreed in 1923,
saved a further £24.2 million.
89
Altogether these savings on the servi-
cing of the national debt released a total of £90.8 million for other
purposes, a not insignificant sum at a time when defence expenditure
amounted to £103 million.
Unemployment relief was another major burden on the chancellor’s
budget. Unemployment rose in the depression of 1921 to 16.9 per cent
of workers in occupations covered by the National Insurance Act of 1920;
fell to about 10 per cent in the late 1920s; rose to about 22 per cent
in 1931 and 1932, and then fell again to just under 11 per cent in 1937.
Even so, the cost to the Exchequer was higher in the 1930s than the
1920s, as many workers had exhausted their right to unemployment
insurance benefits and relied on Treasury-funded unemployment
assistance. When Sir Richard Hopkins, the second secretary of the
Treasury, was asked in November 1937 about future budget prospects,
and therefore what coul d be afforded for defence within a balanced
budget, he drew attention to the cost of unemployment assistance as a
Table 3.3. Indices of GDP for United Kingdom, France, Germany, Italy, Japan and the USA,
1913–37 (1913¼100)
1921 1929 1932 1937
UK 87.1 111.9 106.2 130.9
France 80.5 125.8 112.0 120.8
Germany 87.5 121.1 102.0 153.4
Italy 98.0 130.4 125.5 146.1
Japan 146.9 178.9 173.2 261.2
USA 112.1 163.0 117.4 160.7
Sources: Angus Maddison, Phases of Capitalist Development (Oxford University Press,
1982), pp. 174–5.
88
Calculated from figures in Bernard Mallet and C. O. George, British Budgets, 3rd Series,
1921/22–1932/33 (London: Macmillan, 1933), pp. 554–7.
89
Jeremy Wormell, The Management of the National Debt of the United Kingdom, 1900–1932
(London: Routledge, 2000), pp. 622, 685.
Retrenchment and rearmament 129
major consideration, noting that in contrast to the figure of £20 million
in 1929, it did not now fall below £55 million, owing to the numbers of
long-term unemployed. It was capable of rising to £100 million.
90
The defence departments also had to compete with political pressure
for extra Exchequer funds to help to deal with the housing problem that
had worsened during the war (when few houses were built), as well as to
pay for health services and education. Churchill, when arguing in 1924
for a reduction in the naval estimates, referred to the need to spend
money on social reform. Failure to do so, he warned, woul d lead to a
Socialist victory in the next election, and greater cuts in naval expen-
diture.
91
There were also pressures to build roads and to provide other
social infrastructure. Bet ween 1932/3 and 1938/9 civil expenditure of all
kinds that had to be paid for out of the chancellor’s budget increased by
£70 million, or 20 per cent.
92
The other pressure on the chancellor was to reduce taxation. The
standard rate of income tax had increased from 1s 2d (5.8p) to 6s (30p)
in the pound between 1913/14 and 1918/19, and the top rate of income
tax p lus surtax from 1s 8d (8.3p) to 10s 6d (52.5p). MPs, the press and
business interests agitated continually from 1919 for reductions. Lloyd
George responded by appointing the Geddes Committee in 1921 to
make recommendations on how expenditure could be reduced, and
most of the consequent cuts were at the expense of the def ence
departments rather than social services.
93
It is against this background that one can begin to understand the Ten
Year Rule and Churchill’s steps to strengthen it, first by having it
renewed in 1925, and then by persuading the Cabinet in 1928 to extend
it indefinitely, until such time as the Cabinet should decide to abrogate
it on the advice of the Foreign Office or the Chiefs of Staff. In March
1932 the Cabinet took that decision, in the light of Japanese aggression
in China, but the Chancellor, Neville Chamberlain, successfully resisted
any immediate rise in the defence estimates. In a Treasury forecasting
exercise in 1932 to see how the budget could be balanced in 1935 he
provided for an increase in the defence estimates from £103 million to
£115 million. In June 1934 he rejected a sugg estion in a Cabinet
committee that some of the expenditure recommended by the DRC
90
Minutes of Inskip review, 25 Nov. 1937, T 161/855/S.48431/04, TNA.
91
Churchill to Baldwin, 15 Dec. 1924, in Gilbert, Winston S. Churchill, vol. V,
companion, part 1, pp. 303–7.
92
Peden, Treasury and British Public Policy, p. 296.
93
Daunton, Just Taxes, esp. p. 47; Andrew McDonald, ‘The Geddes Committee and the
formulation of public expenditure policy, 1921–1922’, Historical Journal, 32 (1989),
643–74.
Arms, economics and British strategy130
should be financed by borrowing; at that date the risk to financial
confidence, and therefore to recovery from the depression, seemed to be
greater than the risks of slow rearmament.
94
However, on the initiative of the Permanent Secretary of the Treas-
ury, Fisher, it was decided in 1935 that the rearmament programme
being planned for the years 1936/7 to 1941/2 should be worked out on
the basis that a defence loan would be available. This change of heart
was brought about by intelligence reports about the scale of the German
government’s borrowing to pay for armaments. The Defence Loans Act
of 1937 authorised borrowing over the period 1937/8 to 1941/2, the
intention being to return to a balanced budget once the rearmament
programme was complete. The absence of the need to balance expen-
diture and taxation annually enabled the defence departments to spend
money more freely and to add to their programmes. The Treasury
worried that the defence forces being created would be too big to
maintain from taxation and tried to impose financial discipline by
‘rationing’ each department for the whole period down to spring 1942.
Financial allocations could only be made after priorities had been
reviewed on strategi c grounds, and this task was given to Inskip, as
minister for co-ordination of defence, advised by senior officials, the
most regular participants at meetings being Hankey; Sir Arthur
Robinson, chairman of the CID’s Supply Board; Sir Horace Wilson, the
chief industrial adviser; and Edward Bridges, the head of the Treasury
division dealing with defence expenditure. In the summer of 1937
the defence departments estimated future annual maintenance costs at
£255 million, on the basis of their approved programmes, and
£301 million on the basis of the expanded programmes that they
wanted. Treasury officials believed that £220 million might be found for
defence from taxation from 1942/3, if there were no recession, and if
there were no sinking fund with which to reduce the national debt, but
the Cabinet was advised that it would be ‘most unwise to assume’ that
more than £150 million to £170 million would be available on the 1937
basis of taxation. The lower figures were no doubt unduly pessimistic and
were intended to concentrate the minds of ministers on the need to
choose priorities or be prepared to raise taxes. In the event, although the
Inskip review curbed the defence departments’ tendency to add to their
programmes in the second half of 1937 and the first nine months of 1938,
further additions to the programmes, particularly between February and
June 1939, raised the estimated future maintenance cost of the defence
forces to £450 million, whereas 1939 tax rates (higher than in 1937)
94
Peden, British Rearmament, pp. 7, 67, 69.
Retrenchment and rearmament 131
were expected to produce only £250 million for defence. By June 1939
the Treasury was contemplating a rise from the current standard rate of
income tax of 5s 6d (27.5p) to a new, permanent, rate of 7s 6d (37.5p )
in the pound, higher than the maximum rate of 6s (30p) reached in the
First World War.
95
Treasury arguments against unlimited defence expenditure were not
purely financial, although officials did believe that repeated borrowing
would cause inflation, as it had done in the First World War. In 1937 they
used the concept of economic stability as a fourth arm of defence. On this
view, the real resources of the country were its manpower, productive
capacity, trade, and ability to raise loans. Britain had to import raw
materials and food, and nothing should be done to undermine industry’s
ability to export. The amount that the government could borrow
depended upon two factors: the savings of the community and confidence
in financial stability. If the government attempted to borrow more than
the money market was willing to lend, the Bank of England would have to
create credit and the result would be inflation. Higher domestic prices
would have an adverse effect on exports, savings would be reduced, and
financial confidence would be weakened. In order to be able to wage the
long war that the Chiefs of Staff’s plans envisaged, Britain would have to
maintain its economic stability so that she would have greater staying
power than Germany.
96
Chamberlain shared this line of thought,
although his concerns were not purely economic or strategic. On 25 April
1937, shortly before becoming prime minister, he noted that expenditure
on rearmament was causing prices to rise, and feared that in consequence
there might be ‘a series of crippling strikes ruining our programme, a
sharp steepening of costs due to wage increases, leading to the loss of our
export trade, a feverish and artificial boom followed by a disastrous
slump, and finally the defeat of the Government’.
97
Economic stability was also necessary to maintain confidence in
sterling. Sterling was used to finance international trade through
London, and overseas sterling balances were held there to facilitate
transactions. Sterling balances also formed all or part of the official
reserves of countries forming the sterling area: the dominions, except
Canada after 1931; India; British colonies, except Hong Kong; and
95
Ibid., pp. 40–2, 73–4, 88–9, 102–3.
96
‘Defence expenditure in future years: interim report by the Minister for Co-ordination
of Defence’, CP 316(37), 15 Dec. 1937, CAB 24/273, paras. 7–10. These paragraphs,
which the Chancellor of the Exchequer, Sir John Simon, called ‘a classic statement of
the elements that make up our strength for national defence’ (Cabinet conclusions,
16 Feb. 1938, CAB 23/92, TNA) are printed in Gibbs, Grand Strategy, vol. I, pp. 283–4.
97
Feiling, Neville Chamberlain, p. 292.
Arms, economics and British strategy132
some semi-independent countries, like Egypt; as well as of some foreign
countries. During the Second World War overseas sterling balances held
in London were to rise from a normal pre-war level of about £500
million to £3,355 million, the difference representing the value of goods
and services obtained by Britain without payment other than a book
entry at the Bank of England. The international acceptability of sterling
was thus a valuable asset. However, foreigners would not hold more
sterling than was required for current transactions if sterling was
expected to depreciate against other currencies, as it tended to do in
1938–9 when Britain had an increasingly adverse bal ance of payments
on current account. Moreover, when sterling depreciated, the cost of
imports tended to rise, either directly as a result of goods priced in
foreign currencies becoming more expensive, or because sterling prices
abroad tended to rise. An increase in import prices was to be avoided
because 25 to 30 per cent of the price of armament s produced in British
factories represented the cost of imported raw materials. Foreign
exchange to finance purchases outside the sterling area could be
obtained only by exporting goods and services; by drawing on gold and
foreign exchange reserves; by selling foreign securities owned by British
subjects, or by borrowing. There was, however, no immediate prospect
of loans from the American government, such as had sustained the
British war effort in 1917–18. Britain, like almost all other countries,
had ceased to make regular repayments of its war debt to the United
States during the depression of the early 1930s, and in 1934 Congress
included Britain in the provisions of the Johnson Act, which prohibited
new loans to any government that was in default.
98
The Tre asury’s arguments have been challe nged by Christopher
Price, who claims that ‘had the will to rearm existed, British resources
were effectively limitless’. He believes that the system of imperial
preference agreed at the Ottawa conference in 1932, whereby Britain
and the dominions agreed to levy lower tariffs on trade between each
other than on trade with foreign countries, had provided the means to
escape the constraints of free-market conditions, but tha t instead Neville
Chamberlain preferred to appease the United States by agreeing in
November 1938 to a trade treaty that undermined the Ottawa agree-
ments. Britain, Price believes, could have matched Nazi Germany, with
its closed economy and intimidation of neighbours into joining its
98
Ian M. Drummond, The Floating Pound and the Sterling Area 1931–1939 (Cambridge
University Press, 1981); G. C. Peden, ‘A matter of timing: the economic background to
British foreign policy, 1937–1939’, History, 69 (1984), 15–28; L. S. Pressnell, External
Economic Policy since the War, vol. I: The Post-war Financial Settlement (London: HMSO,
1986), pp. 1–2, 413.
Retrenchment and rearmament 133
autarkic system, beca use members of the sterli ng area ‘were oblige d to
accept sterling in p ayment for their comm odities’ .
99
The re are a number
of proble ms with this thesi s. The domini ons were independ ent coun tries
and they knew that the Brit ish market, large as it was , could no t absorb all
of their export s of raw m aterials an d food . They did not, theref ore, wish
to cut themse lves off from third markets by making the Brit ish Empire
autarkic. Nor were the do minio ns oblige d to adhere to the sterling area –
Canada preferre d to lin k its currency to that of its maj or tradi ng p artner,
the Uni ted States. Othe r coun tries in the Em pire, particula rly Indi a,
the colonie s, and areas of informal empire in the Middle E ast, had no
choice but to accept sterli ng in payme nt for goods and services , but these
countri es, with the partial exception of Indi a, were wh at would now be
called ‘underde veloped’, and their export s were limited to food and raw
materials. It should also be noted that the sterling balances were not, as
Price assumes, an ‘unmitigated benefit’ to Britain.
100
As will be discussed
in chapt ers 5 and 6, the sterling balanc es repres ented claim s on B ritish
exports. After the war they tended to make sterling vulnerable to spec-
ulative pressure, forcing successive governments to deflate by cutting
public expenditure, including defence expenditure.
Returning to 1938, one cannot assume that Chamberlain’s wish to
win favour in the United States was a sign of antipathy towards the
Ottawa agreements, of which he was one of the authors. Rather it almost
certainly reflected awar eness that the Empire could not provide all the
goods that Britain would need in war, and that Britain would have to
look to the United States for supplies, especially of industrial goods, as
in the First World War. By 1938 Britain was already importi ng machine
tools and other engineering products required for rearmament from
outside the Empire, an d experience in 1917–18 had shown that North
American sources of supply for all goods, including food and raw
materials, would be more economica l in terms of shipping than more
distant Empire sources. Given the Johnson Act, imports from North
America would have to be paid for out of Britain’s gold or dollar
reserves, plus dollars earned from exports. Even cash purchases of
munitions woul d be problematic, given American neutrality legislation
in 1935 and 1937, which was designed to prohibit trade with, or credit
to, a belligerent. There were good reasons why Britain should seek ‘to
conciliate and please’ (to use Keynes’ words in 1916) both the United
States government and American public opinion in 1937–9.
99
Christopher Price, Britain, America and Rearmament in the 1930s: The Cost of Failure
(Basingstoke: Palgrave, 2001), esp. pp. xiii, 130–1.
100
Ibid., p. 185.
Arms, economics and British strategy134