The Lesser Known Story of British Heroism in World War II

February 9, 2018

I have been fascinated to see a resurgence of interest in World War II and in particular Britain’s place in the conflict.  Two recent movies, Christopher Nolan’s Dunkirk and Joe Wright’s Darkest Hour are prominent examples.  As a World War II buff and an Anglophile I am glad to see renewed interest in these events, but I feel something is missing and has been neglected in popular histories.  The story of how Britain became insolvent in fighting this conflict and how the United States imposed crippling terms on its ally, effectively making it a financial vassal of the USA at the end of the war and ensured it stay that way, is hardly known at all among the general public, let alone people with an interest in the war.  Perhaps the real, ultimate heroism of Britain in the war (with heroism understood to comprise many elements of self-sacrifice for a greater cause) is not Dunkirk, not the Battle of Britain, not the Blitz, not any military action, but the fact that Britain knowingly sacrificed its global economic and financial position, its Empire, and in fact ended up bankrupting itself, in order to wage war against Germany and Japan.  World War II was essentially the culmination of Britain as a player on the global stage of history.   Everything up to that point seems a prelude to this, the apex of Britain’s history.  I think a quote by Voltaire best sums up the overarching theme of Britain’s history (referring to the country as England since Voltaire lived before Britain came into existence): “The English have doubtless purchased their liberties at a very high price, and waded through seas of blood to drown the idol of arbitrary power.”  Voltaire was referring to England’s own internal struggles against despotism, but the theme also applies to Britain’s struggles against totalitarianism abroad and it reached its zenith, its finale if you will, with World War II.  The British paid a very high price indeed. 

 

Two books illustrate these little known events. 

 

The first is: The Battle of Bretton Woods, John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Ben Steil.  https://press.princeton.edu/titles/9925.html.  It is excellent.  One of the things it goes into that is lacking in most other histories is how the USA essentially shafted Britain after WWII, essentially demanding that it exhaust its entire reserve of dollars and gold and agree to open up all of its markets to American goods in exchange for American supply of armaments, foodstuffs and other goods essential to the war effort under Lend-Lease even though Britain’s continued fight directly benefited the USA, thus rendering Britain prostrate and unable to rebuild its export markets, pay back its debts and pay its way in the world, ensuring that it no longer remain a power in world affairs.  Keynes, Churchill and others did their best to negotiate the best for Britain they could, but given that the USA held all the leverage, the USA could choose a benevolent course or take a hardline and insist on punishing terms.  It chose the latter, led by Morgenthau and White at Treasury, aided and abetted by Harry Hopkins and others at the State Department, and accepted by Roosevelt who was more focused on other things and went back and forth with his ambivalence to Britain.  In many ways, the USSR and China received much better treatment than the British in the terms which the Americans granted them in exchange for supplies.  It was a shameful chapter.  Dean Acheson at the State Department, one of Britain’s few friends, wrote at the time opposing the Treasury Department’s agenda: “which envisaged a victory where both enemies and allies were prostrate – enemies by military action, allies by bankruptcy.”  Our policy was the opposite of enlightened; it was ignorant and immoral. 

 

Most people think that Germany and Japan were the big losers in World War II, but in reality, Great Britain was totally shattered by the conflict and it left her unable to stand on her own in the world.  The British were already in relative decline, but the war substantially accelerated this process.  The poignant thing is that British leaders, such as Churchill, were themselves aware of what would happen, but they bankrupted the nation anyway in order to save freedom and democracy and defeat Hitler.  The other ironic thing that most people don't know is that the USA, with mean spirits, was instrumental in seeing to it that its ally Britain would be exhausted and totally reliant on America, callously disregarding the irrevocable damage that was done to Britain's economy by US policies and the effects of the war.  The USA was not the ultimate selfless good guy in the history of the world that has become the conventional wisdom.  I'm not saying we were out and out bad, but the shabby way we treated Britain is rarely, if ever, discussed.

 

This brings me to the other book I read from which I will quote at length as the quotes speak for themselves.  From The Rise and Fall of British Naval Mastery by Paul Kennedy https://www.penguin.co.uk/books/54520/the-rise-and-fall-of-british-naval-mastery/:

 

"The financial consequences of this 'victory at all costs' programme and the increasing reliance upon the United States were disastrous for Britain; her position as an independent great power was shattered.  In the spring of 1939, as we noticed in the previous chapter, the Treasury was full forebodings: 'The position had radically changed for the worse compared with 1914...we had not the same resources for purchasing supplies from abroad...We were already experiencing anxiety as to payment for stores from abroad for which dollars are required.'   With an estimated adverse trade balance of 400 million pounds in 1940 alone and total gold and dollar reserves of 700 million pounds, it was doubtful Britain could wage war for more than two years.  That was its opinion in February 1940; by August, with the pace of the war accelerating, the Chancellor was forced to warn the Cabinet that the nation's gold and dollar reserves would be exhausted by Christmas.  The root of the problem, so it appeared to Britain's leaders, lay in the fact that they had to pay 'cash and carry' for all these American munitions in compliance with the Neutrality Acts - and the more Britain ordered, the swifter she would become bankrupt.  By the end of 1940 the orders totaled $10,000 million, which was far in excess of her First World War debts and quite outside her capacity to pay.  Only emergency shipments of gold, and borrowing from Canada and the Belgian government, helped to keep her solvent by 1941, when her gold and dollar reserves dipped to a mere $12 million.  In March of that year, however, Roosevelt had succumbed to Churchill's pleadings and to his own fears of a Nazi victory, and he persuaded Congress to pass the famous Lend-Lease Act.

 

"...Like any bank manager, [America] felt it necessary to dictate conditions before proffering benefits upon a needy customer.  Britain's gold and dollar reserves were rigorously controlled in order to prevent them from rising above the level though desirable in Washington - even though a similar scrutiny was not exercised over other powers receiving lend-lease.  No lend-lease goods could go into exports, nor could similar British-made products be sent to overseas markets lest this provoke resentment in United States commercial circles.  Not surprisingly British exports, already hit by the war, tumbled from a notional 100 in 1938 to 29 in 1943.  The consequences of this were clear.  'In a war allegedly governed by the concept of pooling resources among Allies,' the official historians note, 'the British had taken upon themselves a sacrifice so disproportionate as to jeopardize their economic survival as a nation.'  'She sacrificed her postwar future for the sake of the world,' observed A.J.P. Taylor, recalling Keyne's admission that 'We threw good housekeeping to the wind.'  The decline in exports, Correlli Barnett has noted in a less homely metaphor, 'testified...to the degree to which, like a patient on a heart-lung machine, she was now dependent for life itself on the United States.'

 

"But these conditions, it has been suggested, were only the short-term requirements of the United States Treasury: the longer-term demands were more alarming still.  Pushed on by a desire to increase their control of the raw materials of the world, and by a determination to see the breaking-up of those trading blocs which had hampered American exporting drives in the 1930s, Washington's political and business leaders sought an end to the Sterling Bloc and to the imperial preference system established at Ottowa in 1932; strove to ensure that British industries and British traders - whose strength they greatly exaggerated - would not recover the markets they had been forced to surrender to their American rivals after 1939; and worked for an end to the European colonial Empires and a full freedom for their own firms to secure the oil of the Middle East, the rubber and tin of Malaya, and the markets of India and the colonies - at the same time ensuring that American raw materials, tariffs and spheres of influence (especially Latin America) would not be tampered with by the allies from whom she was demanding so much.  Hence the constant insistence, in the Atlantic Charter, the 1942 Lend-Lease Agreement and elsewhere, upon 'access to the trade and raw materials of the world'; the frequent collisions with London over control of the oilfields of the Gulf States, Saudi Arabia and Iran; the efforts to control the size of the sterling balances by reducing lend-lease supplies; and the plan for an American-dominated International Banking Fund.  So alarming did the American policy appear that the British government always strove to write into agreements 'escape clauses that would permit them to save the sterling bloc as their major postwar crutch should that prove necessary.'  Nevertheless, being in such a weakened position London could not always defend itself: by December 1943, Britain's sterling liabilities were seven times its gold and dollar holdings, which were only one-eighteenth of the American gold reserves and one third of France's gold and dollar reserves.  It was long suspected that the United States had never really recognized the British Empire as a unit in any sense of a sovereign state, even if no open opposition had been showing.  But now lend-lease, notes the chronicler of this unequal relationship, was rendering the British economy 'ill-equipped to resist American objectives at the end of the war.'

 

"Indeed, even the briefest survey of Britain's economic position in 1945 would illustrate just how disastrous the conflict had been for her.  Only in terms of casualties could it be said to have been an improvement upon the First World War - and that because of a determination to avoid mass assaults until the enemy's resistance had been sapped by the Russian army and the bombing campaign.  Her losses in merchant ships totaled 11,455,906 tons, bringing the size of the fleet down to 70 per cent of its 1939 figure despite frantic rebuilding efforts (whereas the American merchant marine was now greater than Europe's together).  Bombing had caused extensive damage to housing and industrial property, and the strain of six years of war had worn out much of Britain's plant and led to a heavy depreciation of capital equipment - which together destroyed some 10 percent of her pre-war national wealth at home and left her in a poor position to recapture her world markets.  Lend-lease conditions and the single-minded determination to prosecute the war regardless of the financial consequences had led to the collapse of her export trade, which declined in value from 471 million pounds in 1938 to 258 million pounds in 1945.  During the same period imports rose from 858 million pounds to 1,299 million pounds, overseas debts increased nearly fivefold, to 3,355 million pounds, and capital assets to the tune of 1,299 million pounds were liquidated, thereby halving the net overseas income from this source and making it even more difficult to achieve a balance of payments.  She had probably lost about one-quarter (7,300 million pounds) of her pre-war wealth and was now in the unenviable position of being the world's largest debtor nation.   

 

"In the later stages of the war the British government was planning a gradual transition from a wartime to a peacetime economy, through the reorganization of industry and the revival of export trades, so that the country would again be able to pay its way in the world; but the defeat of Japan in three (instead of the estimated eighteen) months after the German collapse, together with Truman's decision to cut off lend-lease, destroyed these hopes and left Britain terribly weak and dependent upon securing further American support.  With Keynes dispatched to Washington to negotiate a fresh loan, the American demands for discussions about imperial preference and the Sterling Bloc could no longer be put off.  Against all these disadvantages could be set the immense social changes brought about by the war and the creation or development of newer industries which had potential for peacetime purposes (electronics, aircraft, chemicals, cars); but in terms of power politics... the prolonged struggle had had a shattering effect upon Great Britain."  - 1976, 2004, Paul Kennedy, "The Rise and Fall of British Naval Mastery", Humanity Books, pgs. 315-318. 

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