The Finances of Empire in Letterstime

When the war began, the British government, especially the PM HH Asquith, truly hoped to keep Great Britain out of a major war. This was one reason that the violation of Belgian territorial sovereignty was published as being a trigger. That is, it was a warning to Germany as to exactly what limits Britain would tolerate in conduct on the continent. Even more, perhaps, it gave clear structure and moral high-ground rationale to the British public as to why peace and why war, should it come. (BTW, Britain net imported food from Germany pre-war, per one of my sources, which also stated that finding replacement sources of that lost was one of the first things faced by Asquith.)

When Germany invaded Belgium, Britain declared war, quite consistent with the previous promulgation. However, Asquith continued his peacetime laissez-faire approach to governance, and even announced that the war would not impede commerce and was expected to have little impact on British subjects. Specifically, in the area of finance, he was loathe to raise taxes (let alone dramatically) or otherwise find significant additional revenues for the Crown, revenues that would be required to offset The Great War's even greater expenses. Obviously, if Asquith's government's public position was that there would be no significant costs, how could they have justified seeking massive tax increases? When eventually he did get taxes raised, it was done cautiously, perhaps even tentatively. Once fully implemented, the new revenue they generated amounted to about an additional 1M pounds sterling per day. War expenses had already risen to that amount, were increasing sharply, and would continue to rise.

The British government faced several political crises in the Spring of 1915. There was the "Shell Scandal" (munitions shortages in France were blamed for British reverses and casualties -- shortages possibly due to fiscal pressures). There was Gallipoli, with its huge costs and even greater butcher's bill. Fisher resigned and Asquith adroitly managed to use that resignation as a way to "manage" the crisis rather than have the crises "manage" him.

The fiscal pressures had been invisible for a time to most, because the USA had been a debtor nation in the decades before The Great War. The USA sold much abroad, but bought much more in finished goods than was exported in raw materials and such. By May 1915, the retirement of pre-war loans and notes was apparently complete and the fiscal pressures had not been offset by the (comparatively) minor tax increases implemented by the Asquith government. The first war bonds were floated in Britain in June 1915. The pound sterling, which started the war at $4.865 had slipped to $4.50 by the end of the first year of war. Britain had been dealing with the now $100M trade deficit with the USA by sending $15 - $40M in gold across the Atlantic, but did not want to deplete her gold reserves in any attempt to match the entire deficit.

By the end of January 1916, the US had exported $865, 795, 668 in war commodities, including $250 M in iron, steel, and copper; $200 M in explosives, cartridges, and firearms; and $150 M in auto and related accessories. British sources marveled that it took only about 90 days for US firms to retool to meet their needs. Quite literally, the Entente paid for the US buildup of infrastructure that the US would need to support its own war efforts ahead. The US readied for war and made handsome profits in the process.

Britain began, near the first anniversary of the Great War's start, to negotiate the first of her War loans with the USA. The deal was delayed by the Wilson administration's concern that it might constitute a violation of neutrality. Various deal structures were considered and one was decided not to be a violation. The deal was to have the loan amount be one of "credit" instead of an actual "loan." With the Wilson government acceptance of that arrangement, the deal was structured along those lines and signed on September 29, 1915. The terms were $500M, 5 years, 5%, $98 to buy a $100 unit (essentially "points"), for an effective return of about 5.5%. This rate was attractive to US investors (historically), the interest rate was comparable to the earlier war bonds floated domestically within Great Britain in June. (BTW, Germany agitated quite ineffectively to prevent that loan.)

Thus, in Letterstime, the US has not yet been approached re that FIRST historical loan. However, the British government would already be quite aware that they would have to do just that shortly.

So, what other changes would the events of Letterstime have done in the areas related to finance?

Let me start with the Med. The initial expenses of mounting and launching the invasion would, of course, have been unaffected. However, with the campaign abandoned earlier than historical, the expenses associated with it will be less in the coming months. This is non-trivial, but the forces will doubtless be committed somewhere else and, if in another new endeavor, the savings might be little over historical. If they are brought back to Britain and added to the BEF, the savings would be more real, since that would avoid the expenses of another front. The men still need to be fed, wherever they are, but they will be using little in munitions in the interim. In any event, feeding preserved troops is far cheaper than raising, training, equipping, and transporting their replacements - irrespective of the diminished toll in human lives. Of course, the Ottomans gain similarly, and will also put their preserved resources in men and material to use elsewhere. My first guess would be that the Allied land force would return to Britain for possible redeployment to the BEF 90 - 120 days after Churchill gave the order in early June to abandon the invasion campaign.

The second item I'd like to discuss is the blockade of the Central Powers. This blockade pre-dated the February 1915 German declaration of USW. However, the scope of the blockade vastly increased in its scope after USW, per the Order of Council in March 1915. Until March, neutrals were allowed by the British (theoretically) to carry German goods out of ports and were allowed (again theoretically) to carry non-war material in. Possible war materials (dual use stuff like metals but not explosives, munitions, etc.) were allowed to dock at neutrals whose lands bordered Central Powers nations. Britain knew full well that actions taken against neutral shipping would hurt their relations with those and other neutrals - and that Britain needed the good will of neutrals. The British had implemented several Orders in Council intended to progressively reduce those flows of goods and materials, but they dared not make overly offensive moves to halt it completely. The USW declaration provided Britain all the excuse that they needed to justify the escalation to a full blockade. In Letterstime, without USW, I am going to assume that the historical expansion in scope of the British blockade has NOT occurred in mid-June 1915. I will support this position in the following paragraphs. (For more on the historical British Blockade, see the piece by that title in the general Ein Geleitzug area.)

The two most famous cases of the blockade being disputed by US are the Rotterdam case and the "Chicago Meat Packers" case. The former was that a large lot of German-manufactured goods in US ships were not allowed to be sent to the US, although the US hulls were in Rotterdam trying to sail with them as cargo. The British position was that the goods could not be "released for shipment to the US" UNLESS it could be proved that they had been contracted for BEFORE March 1, 1915 (the effective date of the Council Order). US firms screamed that they would be injured by the sum of $50 M - later they decided that damages would be $100 M or even $150 M. I believe the case was eventually settled for about $15 M. The British fixation on the Order date of March 1, 1915 is the basis for my position for Letterstime. That is, without that Order, the cargos would have been shipped.

The "Chicago Meat packers" case is similar. In that case, no fewer than 33 ships from Chicago-based meatpacker firms had been seized by the RN on the way to neutral Copenhagen. The US firms said it was non-war material cargos enroute to a neutral port. Britain noted that this constituted about 13 times the pre-war usage of Copenhagen. Also, that Copenhagen had imported very little canned meat pre-war, but that the cargos included 100,000s of such tins. The US firms noted (somewhat lamely, IMHO) that British exports to Copenhagen and other such neutrals contiguous to the Central Powers had also increased greatly since war's start, such that any mathematical basis must be irrelevant. The US firms argued that the blockade was thus being used as a way to gain commercial advantage for British firms. The British (especially Sir Edward Grey) were unswayed by any arguments and held that the Order of Council was quite clear that all goods intended for the Central Powers were to be intercepted.

Note, though, the RN was told by HM government to generally stay clear of cotton cargoes, aware of the power and militancy of the US southern states' delegations within the US Congress. (For more on US cotton to Germany, and the "Wilhelmina Case," see "The British Blockade" piece.)

So, in Letterstime, in the absence of that March 1915 Order of Council, cargoes such as above are still allowed by the RN to reach their destinations. In addition, at least some food cargos are getting by, following the Wilhelmina Case.

The absence of USW also has advantages for the Entente, as the historical expenses inherent in the sunk ships and lost cargos have not occurred. (This is not trivial.) Merchants must still be boarded, etc. and the loss rate is more like 10% of historical for the post-DB period. Also, the three newest u-boats were not put out on patrol, as the Baron had other duties in mind for them. ;-)

In summary, Britain has gained in Letterstime over historical in that the losses and expenses associated with USW losses have not occurred and the expenses of CONTINUING the Gallipoli campaign will soon wind down. Germany has gained by not having all its imports quite as impacted as historical. Historically, at this point Germany was down to about 8% of pre-war exports. This will have changed to Germany's gain, but only slightly - call it 10-12%. Germany will be paying a premium for whatever it can get through sources like Copenhagen. Both Britain and Germany have the greater expenses (over historical) associated with repairs and re-stocking from the battles of Dogger Bank and Die Kaiserschlacht. Any increases in shipbuilding, of course, will have to be paid for, but that's another post in the future.

by Jim