Finance
I've seen various figures quoted for total US
credits to the Allies in 1917-18, but my scruffy
old (1929) _Encyclopaedia Britannica_ gives a
figure of $9.5 billion, and is probably as
reliable as anything. This was all spent in the
US[1] presumably on raw materials. I haven't seen
a breakdown of _exactly_ what it was spent on (has
anyone?) But would guess that foodstuffs, steel
and especially oil figured prominently.
It was also vital for maintaining Allied credit in
the US, which by 1917 was looking distinctly
shaky. In October 1916 a British Treasury
Committee (JM Keynes was one of its members), set
up to report on how long Britain could go on
spending in America at the current rate, did so in
tones of less than ringing confidence -
"Our financial agents tell us in effect that, by
the use of every available device, and possibly at
the cost of postponing payments by bank
overdrafts, we shall still be solvent on 31st
March [1917]. They cannot tell us how this result
is to be achieved, but they hope and believe it
will be possible".
Patrick Devlin, who (in _Too Proud To Fight -
Woodrow Wilson's Neutrality_) quotes this report,
goes on to note that the French were in the same
bind. "France had in October [1916] completely
exhausted her gold and dollar resources, and in
order to finance her American expenditures for the
next six months needed at least £40,000,000 [about
$200 million at 1916 exchange rates] from the
British Treasury in addition to the sums already
promised." The other Allies were even more
dependent. Earlier in the year Keynes had observed
that Britain had "- - only one ally in this war -
France. The rest are pensioners"
Burton K Hendrick (_Life and Letters of Walter
Hines Page_) says -
"Page's papers show that Mr Balfour, in the early
stages of American participation, regarded the
financial situation as the thing which chiefly
threatened the success of the Allied cause. So
much greater emphasis has been laid on the
submarine warfare that this may at first seem
rather a misreading of Great Britain's peril. Yet
the fact is that the high rate of exchange and the
depredatory U-Boat represented almost identically
the same danger. The prospect that so darkened the
horizon in the spring of 1917 was the possible
isolation of Great Britain. England's weakness, as
always, consisted in the fact that she was an
island, that she could not feed herself with her
own resources and that she had only about six
weeks supply of food ahead of her at any one time.
If Germany could cut the lines of communication
and so prevent essential supplies from reaching
British ports, the population of Great Britain
could be starved into surrender in a very brief
time, France would be overwhelmed, and the triumph
of the Prussian cause would be complete. That the
success of the German submarine campaign would
accomplish this result was a fact that the popular
mind readily grasped. What it did not so clearly
see, however, was that the financial collapse of
great Britain would cut those lines of
communication quite as effectually as the
submarine itself. The British were practically
dependent for their existence upon the food
brought from the United States, just as the Allied
armies were largely dependent upon the steel which
came from the great industrial plants of this
country. If Great Britain could not find the money
with which to purchase these supplies, it is quite
apparent that they could not be shipped. The
collapse of British credit therefore would have
produced the isolation of the British Isles and
led to a British surrender, just as effectively as
would the success of the German submarine
campaign - -"
"- - - The matter that was chiefly pressing at the
time of the Balfour visit was the fact that the
British balances in the New York banks were in a
serious condition. It should always be remembered,
however, that Great Britain was financing not only
herself, but her Allies, and that the difficult
condition in which she now found herself was
caused by the not too considerate demands of the
nations with which she was allied in the war. Thus
by April 6, 1917, Great Britain had overdrawn her
account with JP Morgan to the extent of
$400,000,000 and had no cash available with which
to meet this overdraft. This obligation had been
incurred in the purchase of supplies, both for
Great Britain and for the Allied governments; and
securities, largely British-owned stocks and
bonds, had been deposited to protect the bankers.
The money was now coming due; if the obligations
were not met, the credit of Great Britain in this
country would reach the vanishing point. Though at
first there was a slight misunderstanding about
this matter, the American government finally paid
this overdraft out of the proceeds of the First
Liberty Loan. This act saved the credit of the
Allied countries - - - The first danger that
threatened, the isolation and starvation of Great
Britain, was therefore overcome .- - -"
Page himself wrote to President Wilson on March
5 -
"The inquiries which I have made here about
financial conditions disclose an international
situation which is most alarming to the financial
and industrial outlook of the United States.
England has not only to pay her own war bills, but
is obliged to finance her Allies as well. Up to
the present time she has done these tasks out of
her own capital. But she cannot continue her
present extensive purchases in the United States
without shipping gold as payment for them, and
there are two reasons why she cannot make large
shipments of gold. In the first place, both
England and France must keep the larger part of
the gold they have to maintain issues of their
paper at par; and in the second place, the German
U-Boat has made the shipping of gold a dangerous
procedure even if they had it to ship. There is
therefore a pressing danger that the
Franco-American and Anglo-American exchange will
be greatly disturbed; the inevitable consequence
will be that orders by all the Allied governments
will be reduced to the lowest possible amount, and
that trans-Atlantic trade will practically come to
an end - - Great Britain and France must have a
credit in the United States which will be large
enough to prevent the collapse of world trade and
the whole financial structure of Europe. If the
United states declares war against Germany, the
greatest help we could give Great Britain and its
Allies would be such a credit - - - Of course we
cannot extend such a credit unless we go to war
with Germany. But is there no way in which our
government might immediately and indirectly help
the establishment in the United States of a large
Franco-British credit without violating armed
neutrality? - - - The pressure of this approaching
crisis , I am certain, has gone beyond the ability
of the Morgan financial agency for the British and
French governments. The financial necessities of
the Allies are too great and urgent for any
private agency to handle - - . It is not
improbable that the only way of maintaining our
present pre-eminent trade position and averting a
panic is by going to war with Germany. The
submarine has added the last item to the danger of
a financial world crash. There is now an
uncertainty about our being drawn into the war; no
more considerable credits can be privately placed
in the United States. In the meantime a collapse
may come."
(Interestingly, this letter was written a month
_before_ the US entered the war. It looks as if,
four days after the publication of the Zimmermann
Telegram, British officials were getting certain
enough of US intervention to confide in Page about
what had hitherto been closely guarded secrets.
Judging from Wilson's efforts to pass Armed Ship
Bills and the like, they may have been surer of it
than he was. Nor is it at all certain that Page's
letter had much effect on the President. A few
months later he remarked that "Page is really an
Englishman and I have to discount whatever he says
about the situation in Great Britain." )
Hew Strachan (_The First World War_) puts it
differently, but comes to much the same
conclusion, noting that "By 1st April 1917 Britain
had an overdraft in the United States of $358
million and was spending $75 million a week. The
American entry to the war saved the Entente - and
possibly some American speculators - from
bankruptcy."
Stephenson doesn't go quite so far, saying that -
"By the time the United states entered the war in
April 1917 London had enough gold and securities
remaining to finance just three more weeks of
purchases and only advances from Morgans enabled
the Treasury to meet its obligations in the United
States. Although the British could still have
covered their dollar requirements without American
intervention they would have had enormous
difficulty in continuing to bankroll their
allies."
Quite why the difference between Page and
Stephenson I don't know. Possibly Page just didn't
distinguish as much as Stephenson between Britain'
s own needs and her need to support her allies,
considering the one just as essential as the
other. But that's only a guess.
[1] This was a condition of the loans, and would
cause some financial headaches later. Britain, in
turn, had been making extensive credits to other
Allies, but had neglected to impose a similar
requirement. So this money did not "come back"
into Britain to help us in repaying the US.
