The Lend-lease scheme of 1941 changed history. It de-coupled waging war by the Allies from the ability to pay for it. Ideological principle not commercial advantage determined the Allies’ capacity for waging war.
Part 5 and Part 6 (of this 10 part series), I focussed on the economic theory behind money supply in the western world at that time. This economic theory is important to understanding the importance of the Lend-lease scheme.
Let us now return to Britain’s economic situation in the early part of WW2. Britain had returned to the Gold Standard in the later 1930s as its economy recovered from the Great Depression. This return helped to encourage economic stability and consumer confidence. However, the outbreak of WW2 radically de-stabilised Britain’s post-Depression economic recovery – its sea trade (fundamental to its economy) was severely curtailed by enemy action, millions of people were diverted from civilian employment either into the armed forces or into supporting the armed forces, and enemy aerial bombing sought to destroy Britain’s industries and port facilities. And with Germany also threatening to invade, Britain had to massively expand its economy and its civilian and military infrastructure on a scale many times greater than the value of its gold reserves. Therefore it had to abandon the Gold Standard (again) in order to fund the war. And America, a key source of imported munitions, wanted payment in cash for the munitions it wanted to sell to Britain. Where did this cash come from? Remember the American ‘Cash and Carry’ policy of 1939 (see Part 4)? You guessed it, the cash came from Britain’s gold reserves.
By 1941, Britain’s gold reserves were nearing exhaustion. Once it was gone, Britain would be unable to keep buying American munitions. No gold meant no munitions. No munitions means, well you get the idea. WW2 in Europe could easily have ended in 1941.
In Part 8 (of this 10 Part series), with Britain facing economic ruin and military defeat in WW2, I will discuss the race by the US and Britain to find an alternate solution to provisioning Britain.