England went bankrupt in 1940, the US paid for WW2

Discussions on the economic history of the nations taking part in WW2, from the recovery after the depression until the economy at war.
Vinnie O
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England went bankrupt in 1940, the US paid for WW2

Post by Vinnie O » 24 Jul 2003 16:07

England went bankrupt in 1940. The United States then paid for the rest of WW2. The specific date on which this probably occurred was 23 December 1940 when a US warship carried off £50 million worth of gold from Cape Town. A slight delay was then provided by pressuring the governments in exile into "loaning" their gold stockpiles to England (although England knew this could never be repaid). A Belgian "loan" of £60 million was crucial to avoid open default before the US Congress passed the Lend Lease Act on 1 March 1941.

So 12 months before the Japanese bombed Pearl Harbor US taxpayers were paying for Englishmen to kill Germans. That is, the US was not simply acting as a source for a few extra rifles and shells, the US was paying all of the expenses necessary for England to fight the war while the Battle of Britain was still going on. England clearly continued to pay something towards the cost of the war, since they continued to collect taxes in England, but the vast bulk of payments for war materiel was covered by the US.

Only because Roosevelt and Morgenthau, the Secretary of the Treasury and a bitter enemy of Germany, were personally interested in keeping WW2 going at a time when there was no legitimate hope of English victory was the money made available.

Because the American public would never have agreed to fund an ongoing war by a foreign country at a time when the US was a neutral, the US Government lied about English finances and talked in terms of loans and bartering. The general impression being that England was paying 90% or more of its needs and the US was simply filling a few gaps while England completed mobilization or something.

If Roosevelt had not won re-election in November, 1940, England would have asked Germany for terms to end the war in the West by January 1941 because there was simply no money left in England to pay for a continuation of the fighting.

There was serious discussion in the English cabinet throughout the Summer of 1940 of the need to end the war because of the impending bankruptcy. By 22 August, 1940, the decision was made to continue placing orders with the United States although there was no hope of ever paying for the materiel. The logic at the time was that England should run up as large a debt as possible and then argue that the only way for the Americans to ever see any repayment was to fund a continuation of England's war.

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Lord Gort
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Post by Lord Gort » 24 Jul 2003 20:43

On December 8th 1940, Chuchill wrote a letter to Roosevelt, a letter which deserves a much greater place in history than that which it now has. In the letter Churchill frankly stated that Britain had come to the end of her rope in the matter of ships, planes, materials, and dollars; and he asked the President to "find ways and means" to help Britain in the common cause.


Security assesment after security assesment from the State and War departments were prophsising the worsening positon of the United States if Britain went under. With the possibility of two great powers, Japan and Germany emerging on either sea board danger seemed rampant. America could absorb many of her manufactures herself, but with a poor colonial Africa, rich Europe, and Asia rapidly being sealed to trade, economic peril was not far off. It was therefore cosidered that the defence of Great Britain was neccesary in the national interest of the United States. Not too mention, the mother country was calling.


There was one fundamental difference between the British war effort of 1939-45 and that of most previous major conflicts back to those against Louis XIV. It no longer rested on buoyant and rising comercial prosperity - on national wealth that continued to grow even in war. Instead, assets built up in the past were being sold to pay for American equipment. Concentration on war production shattered the British export trade. In 1940 the treasury predicted that Britain would exhaust her economic resources by the end of 1941. This in fact came to pass. Only massive American aid under the lend lease act enabled the British to go on recieving American war supplies; only American aid aid masked the wide gap in the British balance of payments.

For over two centuries the British had been able to pay poorer antions to fight for them: now they too had become subsidized allies.



regards,

John T
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Re: England went bankrupt in 1940, the US paid for WW2

Post by John T » 25 Jul 2003 10:31

Vinnie O wrote: England clearly continued to pay something towards the cost of the war, since they continued to collect taxes in England, but the vast bulk of payments for war materiel was covered by the US.

You are refering to the admittedly large part of UK war materiel that where bught in US, not to the total British cost of the war.
Or how do you value the city of Coventry?


Vinnie O wrote:Only because Roosevelt and Morgenthau, the Secretary of the Treasury and a bitter enemy of Germany, were personally interested in keeping WW2 going at a time when there was no legitimate hope of English victory was the money made available.


This is partly a technical matter, no doubt that UK Needed US aid.
but..
The thing you have missed is the difference between Free currencies and domestic finances (Sterling).
It is a bit hard to understand that international trade before 1945 looked different from today. You simply could not just go to a bank and exchange large sums of British pounds with US Dollars. The Ideas of a Free exchange of finances came later.
(I havn't the capacity to teach you the specifics,
what about reading some freshmans textbook in economical history?)

The UK did not have Dollars enough to pay for her orders in US with US Dollars but UK was not really bankrupt just without means to pay for goods outside the commonwealth.

So the British purchasing committe would have gone bancrupt in the beging of 1941 but UK had some more financial-time if she could have survived without US aid.

Cheers
/John T.

Sokol
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Post by Sokol » 25 Jul 2003 18:47

John, the US made Britain pay for everything Britain got from America. But, since actual money wasn't available after 1941, Britain paid by handing over corporations, interests, property and making the trade balance in favour of the US.

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Sokol

Vinnie O
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Some numbers

Post by Vinnie O » 25 Jul 2003 20:48

Clive Ponting in "1940, Myth and Reality" writes that in August, 1940, the English themselves believed that they had £470 million in gold and securities that were available to fund purchases abroad. I believe this was part of the "cash & carry" period and the US was apparently looking for payments that included the actual transfer of gold bullion since England was importing MUCH more than it sold in the US. The English were running up overseas debts at a rate that allowed calculation of the day on which the last of the gold would be shipped away, and the total amount of English businesses overseas that might also be sold was finite. Selling the personal property of each English citizen was some place lower on the list. The fact that England had openly defaulted on its war debts in 1930 might have some connection with why people actually wanted to shift bullion to reflect trade deficits.

The US Government demanded that the English DEMONSTRATE that they were flat broke in January 1941, and they opened their books to Morgenthau who was suitably convinced of their poverty. The US demanded that the English then demonstrate that they were scraping the bottom of their barrels by selling an English-owned business in the US. On 10 March 1941 Morgenthau delivered an ultimatum: an important English company had to be sold within the next week. The English then announced the sale of "American Viscose Corporation, a subsidiary of Courtaulds, the largest remaining English holding in the US. Sold at short notice to Americans, the company brought less than half of its assessed value."

"In total Britain received $27 billion of Lend-Lease assistance to keep its economy afloat and maintain the war effort. ...."

"In 1944 exports were only 1/3 of the 1938 level, whereas imports were 50% higher. In addition to this enormous trade gap, overseas capital assets worth £1.3 billion (a major source of income before the war) had been sold. Britain's overseas debts had risen five-fold to £3.4 billion, the largest in the world. Britain was even in debt to parts of the Empire, such as India, Egypt, and Iraq."

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Lord Gort
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Post by Lord Gort » 25 Jul 2003 21:52

Clive Ponting in "1940, Myth and Reality" writes that in August, 1940, the English themselves believed that they had £470 million in gold and securities that were available to fund purchases abroad.



Mr Ponting can write that, but it doesnt tally with most figures I have read.


Altogether our debt at the end of the war amounted to $40 billion. A small price for the US and the United Kingdom to pay to rid the world of not only a mudering tyrant but also the greatest threat to both nations national security in history.


regards,

John T
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Re: Some numbers

Post by John T » 25 Jul 2003 23:32

My personal hero of WW2 are Morgenthau, he showed much more personal curage than whole bunch of US top brass during WW2-
As an European I suppose he is the guy to thank for that my kids are raised in a democracy!
Serious, I am not ironical.


I read Kimball, Warren F. "The most unsordid act : Lend-lease, 1939-1941" a couple of weeks ago and one of the greates problems for Morgenthau was to explain to the US public and Congress that UK was solid enough to lend money to and at the same time did not have enough Dollars to pay for her orders in USA.

All sorts of money was not convertable to Dollars in 1940.
Today almost all sorts of money can be exchanged to Dollar but that was not the case in 1940 and one major reason for this was the debt-default and that most European countries left the gold standard during the thirties.


So our difference lies in your statement
England went bankrupt in 1940

That is not true.

I'll use your quotes to explain it.

Vinnie O wrote:Clive Ponting in "1940, Myth and Reality" writes that in August, 1940, the English themselves believed that they had £470 million in gold and securities that were available to fund purchases abroad.


The thing is that Abroad means countries where you could not pay in Sterling but only in Dollars, gold or other barter agreements.
Quite another thing than bankrupt.
In economical terms it was sort of a cash flow problem.

Vinnie O wrote: I believe this was part of the "cash & carry" period and the US was apparently looking for payments that included the actual transfer of gold bullion since England was importing MUCH more than it sold in the US. The English were running up overseas debts at a rate that allowed calculation of the day on which the last of the gold would be shipped away, and the total amount of English businesses overseas that might also be sold was finite. Selling the personal property of each English citizen was some place lower on the list. The fact that England had openly defaulted on its war debts in 1930 might have some connection with why people actually wanted to shift bullion to reflect trade deficits.


Exactly!
If the European countries had not defaulted during the thierties the whole Lend-lease problem would have been solved the way it was done during WWI, with "normal" loans.

Vinnie O wrote:
The US Government demanded that the English DEMONSTRATE that they were flat broke in January 1941, and they opened their books to Morgenthau who was suitably convinced of their poverty. The US demanded that the English then demonstrate that they were scraping the bottom of their barrels by selling an English-owned business in the US. On 10 March 1941 Morgenthau delivered an ultimatum: an important English company had to be sold within the next week. The English then announced the sale of "American Viscose Corporation, a subsidiary of Courtaulds, the largest remaining English holding in the US. Sold at short notice to Americans, the company brought less than half of its assessed value."

This explains why the Brits did not want to sell all their US-assets at half the (old) market price!



Vinnie O wrote:
"In total Britain received $27 billion of Lend-Lease assistance to keep its economy afloat and maintain the war effort. ...."

"In 1944 exports were only 1/3 of the 1938 level, whereas imports were 50% higher. In addition to this enormous trade gap, overseas capital assets worth £1.3 billion (a major source of income before the war) had been sold. Britain's overseas debts had risen five-fold to £3.4 billion, the largest in the world. Britain was even in debt to parts of the Empire, such as India, Egypt, and Iraq."


Yes I have no intention to belittle USA's role in WW2.
But you started in 1940 and I'll like to keep the discussion at that year.

Cheers
/John T.

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Gerry Chester
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Re: England went bankrupt in 1940, the US paid for WW2

Post by Gerry Chester » 26 Jul 2003 05:14

Vinnie O wrote:England went bankrupt in 1940. The United States then paid for the rest of WW2.


World War Two lasted 2,194 days, Britain and the Commonwealth stood alone for 366 of them. Our bill to the US - zero

How soon we forget!

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Andy H
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Post by Andy H » 27 May 2005 00:31

I seem to remember reading somewhere that Britain from the begining of the war invested X Millions into US Industry so that the US could produce the goods that it required. Britain's money helped to give the US Economy a huge jump start as it came out of depression. Also that if Britain hadn't invested that money, then the US's response to the attacks from December 7th would have been pushed back by at least 6months.

This is taking absolutely nothing away from the heroic achievements of the US Economy and People, but it was a two way street and both sides of the Atlantic benefitted for everyones efforts. United you stand, Divided we fall

Regards

Andy H

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Re: England went bankrupt in 1940, the US paid for WW2

Post by A C » 29 May 2005 04:23

Gerry Chester wrote:
Vinnie O wrote:England went bankrupt in 1940. The United States then paid for the rest of WW2.


World War Two lasted 2,194 days, Britain and the Commonwealth stood alone for 366 of them. Our bill to the US - zero

How soon we forget!


Even though we weren't in the war for those days prior to December 7th, 1941...I agree with your statement. Britain owes us nothing. We are forever linked to Great Britain. Lend-Lease was the only right thing to do.

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Steve
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Post by Steve » 01 Jun 2005 21:53

Unfortunatly few British people realise the debt they owe to Roosevelt who for all his other faults was the best friend Britain had in the war. Whether British and French arms purchases and early Lend Lease helped American rearmament or hindered it is a moot point.

In February 1940 General Marshall was complaining that even the antiquated equipment was needed for training purposes and in April that no objections would be raised to French arms purchases from specified companies unless the current procurement programe was seriously delayed. There were other complaints about variouse things including the sales and transfers of planes needed by the American armed forces. Roosevelt tactfully seems to have over ridden these complaints.

In a document "Basis For Immediate Decisions Concerning The National Defence" 22 June 1940 the Chiefs of Staff believed that "to release to GB additional war material now in the hands of the armed forces (large ammounts of arms had been released after Dunkerque) will seriously weaken our present state of defence and will not materially assist the British forces". They recommended that the US makes no further commitments of this sort. They also recommended against commercial producers acceptance of any munitions orders which would retard the American forces procurement.

It is often forgotten that American rearmament did not start on Dec. 7th 1941 but had started in 1940 with a huge expansion of American defence spending from around June 1940.

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Oracle
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Canadian contributions!

Post by Oracle » 02 Jun 2005 18:58

I hope this working paper that I wrote in connection with my PhD thesis will be of interest:
http://www.btinternet.com/~gmhistorian/CANADIANDOLLARS.htm

The position viz-a-viz Canada was alleviated to a certain extent by sales of military vehicles and munitions to the Canadian Government who paid in dollars in London. Vehicles supplied to the Indian Army, Australian Imperial Force and New Zealand Expeditionary Force in north Africa were then 'sold' to the respective governments although paid for initially by the Ministry of Supply from Canada and British manufacturers.

It must also borne in mind that the US sold for cash vehicles to disparate governments as the Polish, the Dutch and Belgians [up to the invasion of the Low Countries], the Netherlands East Indies, Afghanistan, Egypt, Greece, Yugoslavia, Spain [to 1940?], South Africa, Switzerland [to 1940], and of course France and the UK. The general assignment of French contracts to the UK provided a huge bounty of US vehicles and the evidence shows that components comprised in ex-French orders not wanted, including fuel tanks, were sold off in the US at a huge discount..no-one wanted them! The UK were heavily involved in US aero-engine and diesel engine manufacture as well as specific vehicle contracts that greatly assisted the US from 1941 onwards, pre-Pearl Harbor. Of course these required millions in investments and hastened the cash crisis.

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Post by Belrick » 14 Nov 2005 03:27

Do people bear this in mind when comparing Britains superior war production in the early years to Germany's?

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Y Ddraig Goch
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Destroyers

Post by Y Ddraig Goch » 20 Dec 2005 18:07

As part of the Lend Lease programme, The USA exchanged 100 out of date destroyers for leases of 100 years for British islands in the Carribean. Does anyone know if these islans will be returned to Britain after the expiry date and what islans were they?

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Habu
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Post by Habu » 21 Dec 2005 06:37

As part of the "Destroyers for Bases Agreement" (2 Sept. 1940) the US provided 50 destroyers in exchange for 99-year leases on/in Newfoundland, Bermuda, the Bahamas, Jamaica, St. Lucia, Antigua, Trinidad, and British Guiana. The US leases are rent-free, and I think the land gets returned to the UK afterwards. Source for this is my notes from "Guarding the United States and Its Outposts" by Conn, Engleman, and Fairchild; a book it would probably do me well to read again.

Was this what you meant, Madcap?

Habu

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