Shines Coldly

Peter Hitchens writes:

The supposed ‘Special Relationship’ between Britain and the USA continues to fascinate me. This curiously unequal love-affair, if it can be so called, was supposedly forged during our Finest and/or Darkest Hour, in 1940.

It was during this period that Britain was stripped almost completely naked by the ‘cash and carry’ system under which we were allowed to buy war supplies, for hard cash only, from the USA before the later introduction of ‘Lend-Lease’. This was enforced under US neutrality laws party framed in resentment at our failure to pay off our 1914-18 war debts to the USA.

Lend-Lease’ was not introduced until Britain had shown, to the satisfaction of the US Congress, that she was bankrupt. This had many aspects.

Lord Lothian, the (dying) British ambassador in Washington, said openly and bluntly to American reporters in November 1940, ‘Boys, we’re broke – all we need now is your money.’

It was true, too true, and too blunt, which is why poor Lothian was reprimanded for saying it.

Britain was in fact borrowing gold at this stage from the Czech government in exile, and even from the Belgians, just to keep going. British assets in the USA had to be pledged, and in one bitterly-remembered case, for which the company was later compensated by the British government after a court battle (the Courtaulds subsidiary American Viscose), sold to American buyers at knock-down prices.

Secret convoys of warships, meanwhile, were hurrying across the Atlantic loaded down with Britain’s gold reserves, and packed with stacks of negotiable paper securities, ostensibly for fear these would fall into German hands, though perhaps the real purpose was to ease their sale.

These arrived in Canada via Halifax, and were trans-shipped to the Bank of Canada (the gold) and a secret vault beneath an office building in Montreal (the securities). South African gold also made its way direct to North America, or via Australia.

From Ottawa much of this bullion, perhaps all of it, made its way to Fort Knox, the USA’s vast and overbearing bullion vaults in Kentucky.

One calculation of the value of this bullion is, in modern terms, rather more than £26 billion, the Pound Sterling of 1940 being worth roughly 47 times as much as today’s feeble imitation.

How much of this, the accumulated savings of Britain over many decades, ever came back is not stated in the only book I’ve been able to find about the subject, Alfred Draper’s fascinating Operation Fish (Cassell, 1979). The whole operation remained largely secret when he wrote it, and probably still does.

The book is written in an old-fashioned and optimistic style, very much imbued with the ‘shoulder to shoulder’ atmosphere of the time and the subsequent Anglo-American closeness which endured through the Cold War.

But the bare fact, that the nation’s monetary heart was removed and physically shipped to the vaults of a rival, shines coldly through the narrative.

Using the 47:1 conversion rate, I’ll try to sum up what had happened in the opening months of the War of the Polish Guarantee, as the 1939-40 war between Britain and Germany should more accurately be called.

By November 1940 we had paid for all the war supplies we’d received from the USA – selling about £15 billion in American shares requisitioned from private owners in Britain, and paying out about $212 billion in cash. We had reserves of just $94 billion left in investments, which were not readily saleable.

As Draper puts it: ‘Even if we divested ourselves of all our gold and foreign assets, we could not pay for half [of what] we had ordered, and the extension of the war made it necessary for us to have ten times as much.’

By January 1941 (I revert here to contemporary figures, as these are in US dollars rather than Sterling), the US dollar at this time was worth approximately five English shillings, that is to say one Pound would buy four Dollars.

Henry Morgenthau, Roosevelt’s Treasury Secretary spelt out the position to the US Senate’s Foreign Relations Committee, Britain having by then been forced to open up its most closely-kept financial secrets to prove the depth of her need.

Some samples from this statement:

Britain’s current (January 1941) debt to US manufacturers - $1,400,000,000 (1941 values)

British total assets (including private holdings in dollars, gold and marketable securities) $2,167,000,000 – of which $1,811,000,000 were actually available for use. (1941 values)

Britain’s gold and dollar reserves had already dropped by $2,250,000,000 (1941 values) in the first sixteen months of the war. The war was now costing Britain $48,000,000 a day (1941 values) – the cost of the war was 60% of national income, much of which was being raised by crippling taxation.

Morgenthau told the sceptical senators that of course Britain had resources all over the world, but she could not turn them into dollars, so they were of no use in buying weapons.

‘I am convinced’, he told the Senators, ‘they have no dollar assets beyond those they have disclosed to me. Lacking a formula by which Great Britain can continue to buy supplies here, I think they will just have to stop fighting, that’s all.’

Thus the great act of generosity (‘This most generous act’ as Churchill publicly termed it) called Lend-Lease, actually began with something very like a bankruptcy hearing. The two houses of Congress would not have passed it otherwise, and it was a very close-run thing.

And when Lend-lease began, it was strictly limited to ensure that we could fight the war, but not use American aid to recover our lost economic strength, as Benn Steil makes clear in his important new book The Battle of Bretton Woods.

Also, it’s interesting to see just what an anti-British document the ‘Atlantic Charter’ of August 1941 was, though it was lauded at the time as the embodiment of supposed Anglo-American friendship, with sailors from both navies singing the same shared hymns as they gathered to celebrate its signing on the decks of majestic warships in Placentia Bay.

But article three, with its insistence on self-determination for all peoples, was aimed straight at British rule in India; article 4, with its hostility to trade barriers, was aimed at the British system of Imperial Preference; article 7, with its insistence on ‘freedom of the seas’ would greatly constrain the future activities of the Royal Navy.

Much of the rest of it is pregnant with the kind of social objectives and supranational aims which have helped to promote state interference in private life, and to restrict the actions of medium-sized powers (while not affecting superpowers) ever since 1945.

I’m all in favour of hard, cynical foreign relations in one’s own national interest. Nothing else works.

But why should we simper over the USA’s decision to use our War of the Polish Guarantee to diminish our power and wealth, and supplant us in all important areas?

It was a neat bit of work, but it certainly wasn’t charity, or based on soppy sentiment.