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Post by raharris1973 on Sept 20, 2022 0:29:21 GMT
WI the Japanese encrypters outsmarted the US ‘Black Chamber’ before/during Washington Naval Talks?
In OTL, the US read the Japanese delegation’s secret comms and learned their rock bottom offer was a 5–5-3 naval strength ratio, not their public facing demand for at least a 10-10-7 ratio.
what if the Japanese changed their codes shortly enough before the conference that the Americans couldn’t break them during the talks?
could Japan secure in the treaty its desired 10-10-7 naval ratio?
without being forced to settle for less, would Japanese naval advocates be less neurotic in the 1920s and beyond?
if the ‘black chamber’ does not have this success reinforcing US diplomacy versus Japan, Herbert Yardley won’t have the incident to brag about in his book, which in OTL further insulted the Japanese, who had already paid him for similar information.
is this enough to significantly keep Japanese navalists and militarists on the right side of sanity?
A bonus what if:
What if Stimson never defunded the ‘black chamber’ decoding operation, about which he said gentlemen don’t read each other’s mail?
this might have been avoided if Yardley hadn’t joked about reading all the Vatican's traffic.
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oscssw
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Post by oscssw on Sept 20, 2022 12:54:43 GMT
I really don't think specific BB ratios were the key objectives of the major participants, Japan, UK and the USA. So the Black Chamber providing that intel to the US negotiators was not essential or decisive.
As I understand the situation the UK and France were desperate for arms limitation treaty because they were on the brink of bankruptcy. So their initial positions were actually a bluff but the USA, Italy and Japan knew that. Only an utter fool, something the Japanese were and are not, goes into a negotiation without first deciding what their bottom acceptable outcome will be. I find it hard to believe The Brits MI5 or whatever did not break the Japanese code if the US did. So they also knew Japan's minimum acceptable agreement.
There is always the chance the opponent is proven to be desperate for a deal and then you can really put the screws to them.
Post WW I the Brits still had the largest navy afloat, although most it's capital ships were obsolescent and/or worn out. The USN and IJN had expensive new warships on the stocks with plans for more. At that time the Imperial UK and . Japan were allies with a treaty about to expire. Given the utter world exhaustion post WW I, there were no immediate major war dangers. However, those in the know saw signs that pointed to the American-Japanese rivalry for control of the Pacific Ocean as a long-term threat to world peace. As of 1920 the UK decided that it was best for HM Government to Allie with the rapidly strengthening US than renew partnership of WW I convenience Japan.
The USA's primary objective was to impede IJN expansion of bases in WestPac with emphasis on fortifications of strategically-valuable islands. Secondary objectives were to obtain a limit to Japanese expansion and reduce possible antagonism with the British. Third objective was to end Anglo-American stress by repealing the Anglo-Japanese alliance, and to agree on a favorable naval ratio versus Japan. Fourth Objective get the Japanese to officially accept a continuation of the Open Door Policy in China.
HM Government's objectives were more cautious and tempered. HM delegates did not enter the conference with a specific laundry list of demands. The UK objectives were a bit vague; certain general desires to achieve peace and stability in the WestPac. Avoid a naval arms race with the USN. Stop Japanese encroachment into areas under their influence. Most importantly safeguard the security of Singapore, Hong Kong, and Dominion countries.
Japanese officials were more focused on specifics and they approached the conference with two primary goals:
First, to sign a naval treaty with RN and USN that provided for a large enough IJN to meet it's long term strategic goals.
Second, to obtain official recognition of Japan's special interests in Manchuria and Mongolia.
Third, a strong demand to remain in control of Yap, Siberia, and Tsingtao.
Fourth, make clear Japan's concerns and a warning against the further growing presence of American fleets in the Pacific.
But I could be wrong.
1. 100 year old foreign policy and grand strategy is well above an over the hill A E-8's pay grade.
And
2. I am looking at the situation with the benefit of 20/20 hindsight that knows it was the CV not the BB that was the essential
Capital ship of WW II and arguably still is.
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stevep
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Post by stevep on Sept 20, 2022 13:35:17 GMT
I really don't think specific BB ratios were the key objectives of the major participants, Japan, UK and the USA. So the Black Chamber providing that intel to the US negotiators was not essential or decisive.
As I understand the situation the UK and France were desperate for arms limitation treaty because they were on the brink of bankruptcy. So their initial positions were actually a bluff but the USA, Italy and Japan knew that. Only an utter fool, something the Japanese were and are not, goes into a negotiation without first deciding what their bottom acceptable outcome will be. I find it hard to believe The Brits MI5 or whatever did not break the Japanese code if the US did. So they also knew Japan's minimum acceptable agreement.
There is always the chance the opponent is proven to be desperate for a deal and then you can really put the screws to them.
Post WW I the Brits still had the largest navy afloat, although most it's capital ships were obsolescent and/or worn out. The USN and IJN had expensive new warships on the stocks with plans for more. At that time the Imperial UK and . Japan were allies with a treaty about to expire. Given the utter world exhaustion post WW I, there were no immediate major war dangers. However, those in the know saw signs that pointed to the American-Japanese rivalry for control of the Pacific Ocean as a long-term threat to world peace. As of 1920 the UK decided that it was best for HM Government to Allie with the rapidly strengthening US than renew partnership of WW I convenience Japan.
The USA's primary objective was to impede IJN expansion of bases in WestPac with emphasis on fortifications of strategically-valuable islands. Secondary objectives were to obtain a limit to Japanese expansion and reduce possible antagonism with the British. Third objective was to end Anglo-American stress by repealing the Anglo-Japanese alliance, and to agree on a favorable naval ratio versus Japan. Fourth Objective get the Japanese to officially accept a continuation of the Open Door Policy in China.
HM Government's objectives were more cautious and tempered. HM delegates did not enter the conference with a specific laundry list of demands. The UK objectives were a bit vague; certain general desires to achieve peace and stability in the WestPac. Avoid a naval arms race with the USN. Stop Japanese encroachment into areas under their influence. Most importantly safeguard the security of Singapore, Hong Kong, and Dominion countries.
Japanese officials were more focused on specifics and they approached the conference with two primary goals:
First, to sign a naval treaty with RN and USN that provided for a large enough IJN to meet it's long term strategic goals.
Second, to obtain official recognition of Japan's special interests in Manchuria and Mongolia.
Third, a strong demand to remain in control of Yap, Siberia, and Tsingtao.
Fourth, make clear Japan's concerns and a warning against the further growing presence of American fleets in the Pacific.
But I could be wrong.
1. 100 year old foreign policy and grand strategy is well above an over the hill A E-8's pay grade.
And
2. I am looking at the situation with the benefit of 20/20 hindsight that knows it was the CV not the BB that was the essential
Capital ship of WW II and arguably still is.
From what I've read, albeit some decades ago Japan was very concerned about the force levels in terms of capital ships in part because they took a very rigid interpretation of Mahican ideas and hence viewed the 7:10 ratio as necessary to avoid Japan being vulnerable to a sustained US attack without any new construction needed. Given the US expansion into the region and hostility towards Japan this was a serious concern for them.
Whether obtaining the desired 7:10 ratio would have greatly changed the future of Japanese politics and increasing military domination I don't know. They still have the place the rule where either the army or navy could cripple any government and also there is likely to be a loss of face with the likely ending of the Anglo-Japanese defensive alliance. Ditto both the UK and US refusing to accept a Japanese procedure at the LoN for racial equality for understandable [at the time] reasons. I fear that the country might go off the rails, especially when the Great depression hits as that's unlikely to be avoided. However it could change a lot of other things.
Britain wasn't bankrupt in 1920 and actually had the 1st 4 G3's fully funded in the forthcoming budget. It was a disaster that they weren't completed even if no other new ships were. Unfortunately while the capacity was there the political will wasn't and the politicians screwed us over badly. From what I've read the same was the case with the US with easily the capacity for completing their modified 1916 programme - although maintaining it could be an issue - but the political will was also lacking. Which was probably a good thing for the USN as they could afford to have less older and less capable ships as those would have been by ~1940 and it would have strengthen the gun lobby in the USN.
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miletus12
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Post by miletus12 on Sept 20, 2022 14:30:25 GMT
WI the Japanese encrypters outsmarted the US ‘Black Chamber’ before/during Washington Naval Talks? Does that include phone taps and pilfering diplomatic pouches? That was marine and overland cable traffic intercepts. This was a 15% break-in. It can be argued that Americans could deduce about as much from talking to drunk delegates at diplomatic functions. That depends on Harding and Hughes. Hughes was a waffle. Harding was not. They would if the British caved, which the British appeared willing to do since we read their traffic, too. Also note, that the British were reading everyone's mail, themselves. That means they read the French and Italians cyphers, and the Japanese. I presume the Americans were also on the British list. Not likely. They were going to get what they needed at the first and second London conferences and they still walked out. That was a bungle. Yardley should have been quietly jailed somewhere out of the way the moment he tried to extort the USG. Marco Polo Bridge date? Not li9kely. Their pattern of lunacy was evident by the 21 Demands date. The USG gets into Enigma and JN 25 before Britain and still misses the Maru codes. Shut him up and fund the Friedmans. No Pearl Harbor happens, but we still get the Philippine Islands debacle. WWII in the Pacific as scheduled. |
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miletus12
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Post by miletus12 on Sept 20, 2022 15:31:10 GMT
I really don't think specific BB ratios were the key objectives of the major participants, Japan, UK and the USA. So the Black Chamber providing that intel to the US negotiators was not essential or decisive. Agree. Also agree. Though I will point out that the French were more Italy fixated and were willing to go to the mat on anything Italy connected. The British were looking ahead 10 years. Their calculation was that they needed to derail the US battlecruiser and Japanese 8-8 programs to maintain their empire and their naval preeminence. They counted on the US Congress to never build to full treaty limits (historically true to the present.). I will detail the US WNT mistake in a bit. The US boloed that no-fortifications element. Japan did not mount coast defense guns in the mandates, but she did prepare anchorages and aerodrome infrastructure at Chu'uk (Truk). If she interpreted the WNT this way, why was Manila and Subic not receiving drydocks and machine shops and stores for a whole fleet? Oh that is right, the US was about to release the Philippine Islands as a colony and we did not want to spend the money. Status whoa! The Russians were done in the Pacific as far as the British could see, thanks to Japan. No need to ally with those fellows any more. China had just kicked the British out and that boded ill for India if the Chinese notions crossed the Himalayas. The British might want to keep things tidy and balanced between the Americans and Japanese. Play them off against each other. Use China to egg that rivalry on. Use the Japanese, specifically, to keep the Chinese under positive control and out of Burma and east India. This is a Great Game mentality that the British employed in the Middle East applied to East Asia. How did that work out? NOT TOO GOOD. 1. That is the first time we see a foreign policy designed around an area access and area denial strategy. The whole 7-10-10 idea was mathematically built on a battle fleet that could deny either Britain or the United States "forward presence" to blockade. This rather mechanistic and simplistic approach was a complete misread of Mahan. 2. The British were amenable to this idea, as it fitted in perfectly with their own "balanced approach" to east Asian affairs. They wanted Japan in the north and the Americans in the south and China neutralized between them. 3. See 2. 4. See 1.
Not really.
*It is accurate enough, just not cynical enough. |
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Post by raharris1973 on Sept 21, 2022 0:57:23 GMT
The US boloed that no-fortifications element. What does "boloed" mean? Especially in this context. |
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miletus12
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Post by miletus12 on Sept 21, 2022 11:19:11 GMT
The US boloed that no-fortifications element. What does "boloed" mean? Especially in this context. Walking into an ambush knowing it is an ambush, even why it should be an ambush, even being warned it is an ambush, with your eyes wide open. Be on the lookout (BOLO). Also refers to what happened to any American patrol during the Filipino American War that did not heed their terrain conditions or respect the Filipinos. They were boloed. |
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oscssw
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Post by oscssw on Sept 22, 2022 13:30:38 GMT
As I understand the situation the UK and France were desperate for arms limitation treaty because they were on the brink of bankruptcy. So their initial positions were actually a bluff but the USA, Italy and Japan knew that.
But I could be wrong.
1. 100 year old foreign policy and grand strategy is well above an over the hill A E-8's pay grade.
And
2. I am looking at the situation with the benefit of 20/20 hindsight that knows it was the CV not the BB that was the essential
Capital ship of WW II and arguably still is.
Britain wasn't bankrupt in 1920 and actually had the 1st 4 G3's fully funded in the forthcoming budget. It was a disaster that they weren't completed even if no other new ships were. Unfortunately while the capacity was there the political will wasn't and the politicians screwed us over badly. From what I've read the same was the case with the US with easily the capacity for completing their modified 1916 programme - although maintaining it could be an issue - but the political will was also lacking. Which was probably a good thing for the USN as they could afford to have less older and less capable ships as those would have been by ~1940 and it would have strengthen the gun lobby in the USN.
Steve I never wrote bankrupt, I did write "On the brink of bankruptcy". To a Senior Accountant and MBA in the Venture Capitalist Game, those words have very specific meaning. FWIW, I still am once a quarter at a minimum, more often when really great consulting Gigs (AKA can't turn down fee) are offered. To me those are two related conditions but the actual bankruptcy is far more serious than just being on the brink. Many viable businesses spend a lot of time On the Brink and never do reach bankruptcy.
And now I must apologize in advance to anyone here who chooses to read this very dry bean counter article that explains why I wrote what I did.
Walking wounded: The British economy in the aftermath of World War I
Nicholas Crafts / 27 Aug 2014 Professor of Economics and Economic History University Of Warwick
It is well-known that World War I was expensive for Britain. The indirect economic costs were also huge. This column argues that the adverse implications of the Great War for post-war unemployment and trade – together with the legacy of a greatly increased national debt – significantly reduced the level of real GDP throughout the 1920s. A ballpark calculation suggests the loss of GDP during this period roughly doubled the total costs of the war to Britain.
World War I was not over by Christmas of 1914. It was a prolonged, brutal, and expensive conflict. Britain incurred 715,000 military deaths (with more than twice that number wounded), the destruction of 3.6% of its human capital, 10% of its domestic and 24% of its overseas assets, and spent well over 25% of its GDP on the war effort between 1915 and 1918 (Broadberry and Harrison, 2005). Yet that was far from the sum of the losses that the Great War inflicted on the British economy; economic damage continued to accrue throughout the 1920s and beyond.
Against a background of continued weak productivity performance (see Table 1), a number of new problems emerged from a transition to peace that was fraught with difficulty. The difficulties that beset the British economy in the 1920s came from changes in the world economic environment compared with the pre-war period, from the legacy of the war itself, and from the policy choices made in the aftermath of the war. The implications were a substantial rise in equilibrium unemployment, a big squeeze on real earnings and a need for eye-watering primary budget surpluses to preserve fiscal sustainability.
More than any other major country, Britain’s position in the world economy on the eve of World War I was predicated on the globalization of that period. Britain was the leading capital exporter with net property income from abroad of about 9% of GDP, accounted for 27% of the world’s manufactured exports, and had a much higher share of trade in GDP (54%) than other leading economies such as Germany (40%) or the United States (10%). As Findlay and O’Rourke put it, “World War I brought the liberal economic order of the late 19th century to an abrupt halt” (2007, p. 429). The implication for Britain was a substantial increase in trade costs in the face of increased protectionism (Jacks et al. 2011). The trade ratio, (X + M)/Y, fell by about 12 percentage points – which can be expected to have reduced the level of GDP through adverse impacts on investment and TFP (Frankel and Romer 1999).
Moreover, countries such as Japan and the United States were able to replace Britain in international markets during the war, allowing them to develop successful agglomerations that undermined British first-mover advantages in activities such as cotton textiles and international lending with the result that Britain suffered a permanent loss of world market share (Cochrane 2009). The bottom line was that the volume of British exports in the mid-1920s was only about 75% of its 1913 level, and persistently high levels of unemployment in what had been staple export industries in 19th century scarred ‘Outer Britain’ (Table 2).
Table 2 Unemployment rates, 1925-29 (%)
Total labour force 8.4
All insured workers 10.9
London and South East 5.9
Midlands 9.5
North East, North West and Scotland 13.5
Wales 19.3
Coalmining 16.5
Cotton textiles 13.6
Iron and steel 25.5
Shipbuilding 30.5
Note: the National Insurance Scheme did not cover all workers in the interwar period, implying that total numbers unemployed are underestimated while unemployment rates are exaggerated by data taken from its records (all rows in Table 2 except the first one).
Sources: total labour force from Boyer and Hatton (2002); insured workers from Ministry of Labour Gazette.
Not surprisingly, the conduct of the war, which entailed substantial borrowing, resulted in high inflation and a large increase in the national debt. By 1920, the GDP deflator stood at 270.8 (1913 = 100) and the national debt was £7.8 billion (1.3 times GDP) compared with £0.62 billion (0.25 times GDP) in 1913 (Mitchell 1988). Such a large increase in the public debt to GDP ratio can be expected to have significant adverse effects on economic growth through its implications for interest rates, taxes, investment and TFP.
Macroeconomic conditions during the war were conducive to a massive increase in trade union membership, which doubled from 22 to 44% of the work force, intensifying militancy. The policy response included the development of relatively generous unemployment benefits with much wider coverage and the development of collective bargaining institutions such as wage councils and trade boards. Ultimately, this reduced wage flexibility and raised the NAIRU which was about 4 percentage points above the pre-1913 level (Hatton and Thomas 2013).
The key post-war policy decision, taken following the report of the Cunliffe Committee in 1919, was to seek to return to the gold standard at the pre-war parity of $4.86. Seen as a return to the contingent 19th century rule which imposed discipline on politicians, this was entirely understandable (Bordo and Kydland 1995). Montagu Norman, Governor of the Bank of England, saw the return to gold as “knaveproof”. However, this could only be achieved through a severe deflation which reduced domestic prices and wages very substantially such that the real exchange rate was consistent with external and internal balance. At the time it was not clear how much prices needed to fall, and ex-post analysis leaves considerable room for doubt (Redmond 1984). This is especially so because in the new external economic environment the equilibrium real exchange rate was probably lower than in 1913, so purchasing-power-parity-based calculations were likely inappropriate. Table 3 suggests that the eventual return to gold at $4.86 in April 1925 was at an overvalued exchange rate if the aim was to return to the 1913 unemployment rate of 4.2%, and prices were not very flexible downward. It is easy to think that this was a big mistake, a verdict that has been generally believed ever since Keynes delivered it at the time.
It should be recognized that the challenge to policymakers of the immediate post-war situation was daunting and that the biggest costs came from getting from 1920 to 1925. These costs came from the early 1920s deflation and were felt in terms of a severe recession, a permanent increase in unemployment, and the fiscal consequences of a big increase in the public debt to GDP ratio. The deflationary squeeze saw the unemployment rate for all workers at an average of 11.5% during 1921-1922 (Boyer and Hatton 2002) while prices fell by about 30 per cent between 1920 and 1923. In the course of this adjustment, real earnings showed no growth between 1919 and 1926. However, real unemployment benefits and replacement rates rose steeply because nominal benefit levels were not cut significantly as prices fell.
In the context of today’s concerns over public debt reduction in the wake of the recent financial crisis, Table 4 makes painful reading. Despite running really big primary surpluses, the fall in prices and the huge differential between real interest rates and real growth rates meant that the public debt to GDP ratio had risen to 1.76 by 1923. Even after the return to gold, high real interest rates made debt reduction difficult. Table 4 shows that the end result of the return-to-gold strategy was that British taxpayers delivered an average primary budget surplus of 7% of GDP during 1921 through 1929 but the debt-to-GDP ratio at the end of this period had risen to 1.58 compared to 1.47 at the start!
Overall, there were important adverse effects of World War I on British income levels in the 1920s, working through higher unemployment, lower trade, and a vastly increased public debt to GDP ratio. How big was the reduction in real GDP? This requires serious research, but a ‘back of the envelope’ calculation suggests it was quite big.
If we assume that the NAIRU was raised by 4 percentage points then real GDP each year would be lower by about 2.8 percentage points. If we assume that the trade ratio was reduced by 22% then with the elasticity of 0.2 (as in Bradford et al. 2006), real GDP each year would be lower by 4.5%. Using the estimates in Egert (2013) it would not be unreasonable to suppose that an increase of the ratio of public debt from below 30% pre-war to over 90% post war would reduce growth by at least 0.8 percentage points per year, implying that by 1929 the level of GDP would be reduced by 7.3%. In total for the 1920s, this means that on average GDP would have been 1.028 x 1.045 x 1.036 = 1.113 times the actual level. Adding up an annual loss of about 11% of GDP each year during the decade gives a total not very different from the amount spent on fighting the war. This is obviously a crude estimate of the indirect economic costs to Britain but its message is surely correct: the total economic cost of World War I to Britain was far greater than is generally recognized.
Editors' note: This is the sixth in a series of Vox columns by leading economic historians on the First World War, which will be collected in a Vox eBook at the end of the year: "The Economics of the First World War", edited by Nicholas Crafts, Kevin O'Rourke and Alan Taylor.
References
Bordo, M D and Kydland, F E (1995), “The Gold Standard as a Rule: an Essay in Exploration”, Explorations in Economic History, 32, 423-464.
Boyer, G R and Hatton, T J (2002), “New Estimates of British Unemployment, 1870-1913”, Journal of Economic History, 62, 643-675.
Bradford, S, Grieco, P, and Hufbauer, G (2006), “The Payoff to America from Globalisation”, The World Economy, 29, 893-916.
Broadberry, S (2006), Market Services and the Productivity Race, 1850-2000. Cambridge: Cambridge University Press.
Broadberry, S and Harrison, M (2005), “The Economics of World War I: an Overview”, in S. Broadberry and M. Harrison (eds.), The Economics of World War I. Cam
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miletus12
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Post by miletus12 on Sept 22, 2022 14:22:31 GMT
(^^^) Chicago School or Vienna School, it does not matter, the HMG mismanaged the shrinking capital generating base of industry/labor leading to revenue collapse, overpromised on subsidy social payouts and mismanaged the overall money supply. They screwed up. Too much Keynes, not enough Adam Smith.
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stevep
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Post by stevep on Sept 22, 2022 18:45:57 GMT
(^^^) Chicago School or Vienna School, it does not matter, the HMG mismanaged the shrinking capital generating base of industry/labor leading to revenue collapse, overpromised on subsidy social payouts and mismanaged the overall money supply. They screwed up. Too much Keynes, not enough Adam Smith.
Wrong analysis on the wrong war. Britain failed to invest in its economy after WWI which caused/worsened a lot of the problems because its leadership was too wedded to the distortion of Smith's arguments that was classical economic. Keynesian economics only became dominant after WWII - or to a degree within it.
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stevep
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Post by stevep on Sept 22, 2022 18:54:50 GMT
Britain wasn't bankrupt in 1920 and actually had the 1st 4 G3's fully funded in the forthcoming budget. It was a disaster that they weren't completed even if no other new ships were. Unfortunately while the capacity was there the political will wasn't and the politicians screwed us over badly. From what I've read the same was the case with the US with easily the capacity for completing their modified 1916 programme - although maintaining it could be an issue - but the political will was also lacking. Which was probably a good thing for the USN as they could afford to have less older and less capable ships as those would have been by ~1940 and it would have strengthen the gun lobby in the USN.
Steve I never wrote bankrupt, I did write "On the brink of bankruptcy". To a Senior Accountant and MBA in the Venture Capitalist Game, those words have very specific meaning. FWIW, I still am once a quarter at a minimum, more often when really great consulting Gigs (AKA can't turn down fee) are offered. To me those are two related conditions but the actual bankruptcy is far more serious than just being on the brink. Many viable businesses spend a lot of time On the Brink and never do reach bankruptcy.
And now I must apologize in advance to anyone here who chooses to read this very dry bean counter article that explains why I wrote what I did.
Walking wounded: The British economy in the aftermath of World War I
Nicholas Crafts / 27 Aug 2014 Professor of Economics and Economic History University Of Warwick
It is well-known that World War I was expensive for Britain. The indirect economic costs were also huge. This column argues that the adverse implications of the Great War for post-war unemployment and trade – together with the legacy of a greatly increased national debt – significantly reduced the level of real GDP throughout the 1920s. A ballpark calculation suggests the loss of GDP during this period roughly doubled the total costs of the war to Britain.
World War I was not over by Christmas of 1914. It was a prolonged, brutal, and expensive conflict. Britain incurred 715,000 military deaths (with more than twice that number wounded), the destruction of 3.6% of its human capital, 10% of its domestic and 24% of its overseas assets, and spent well over 25% of its GDP on the war effort between 1915 and 1918 (Broadberry and Harrison, 2005). Yet that was far from the sum of the losses that the Great War inflicted on the British economy; economic damage continued to accrue throughout the 1920s and beyond.
Against a background of continued weak productivity performance (see Table 1), a number of new problems emerged from a transition to peace that was fraught with difficulty. The difficulties that beset the British economy in the 1920s came from changes in the world economic environment compared with the pre-war period, from the legacy of the war itself, and from the policy choices made in the aftermath of the war. The implications were a substantial rise in equilibrium unemployment, a big squeeze on real earnings and a need for eye-watering primary budget surpluses to preserve fiscal sustainability.
More than any other major country, Britain’s position in the world economy on the eve of World War I was predicated on the globalization of that period. Britain was the leading capital exporter with net property income from abroad of about 9% of GDP, accounted for 27% of the world’s manufactured exports, and had a much higher share of trade in GDP (54%) than other leading economies such as Germany (40%) or the United States (10%). As Findlay and O’Rourke put it, “World War I brought the liberal economic order of the late 19th century to an abrupt halt” (2007, p. 429). The implication for Britain was a substantial increase in trade costs in the face of increased protectionism (Jacks et al. 2011). The trade ratio, (X + M)/Y, fell by about 12 percentage points – which can be expected to have reduced the level of GDP through adverse impacts on investment and TFP (Frankel and Romer 1999).
Moreover, countries such as Japan and the United States were able to replace Britain in international markets during the war, allowing them to develop successful agglomerations that undermined British first-mover advantages in activities such as cotton textiles and international lending with the result that Britain suffered a permanent loss of world market share (Cochrane 2009). The bottom line was that the volume of British exports in the mid-1920s was only about 75% of its 1913 level, and persistently high levels of unemployment in what had been staple export industries in 19th century scarred ‘Outer Britain’ (Table 2).
Table 2 Unemployment rates, 1925-29 (%)
Total labour force 8.4
All insured workers 10.9
London and South East 5.9
Midlands 9.5
North East, North West and Scotland 13.5
Wales 19.3
Coalmining 16.5
Cotton textiles 13.6
Iron and steel 25.5
Shipbuilding 30.5
Note: the National Insurance Scheme did not cover all workers in the interwar period, implying that total numbers unemployed are underestimated while unemployment rates are exaggerated by data taken from its records (all rows in Table 2 except the first one).
Sources: total labour force from Boyer and Hatton (2002); insured workers from Ministry of Labour Gazette.
Not surprisingly, the conduct of the war, which entailed substantial borrowing, resulted in high inflation and a large increase in the national debt. By 1920, the GDP deflator stood at 270.8 (1913 = 100) and the national debt was £7.8 billion (1.3 times GDP) compared with £0.62 billion (0.25 times GDP) in 1913 (Mitchell 1988). Such a large increase in the public debt to GDP ratio can be expected to have significant adverse effects on economic growth through its implications for interest rates, taxes, investment and TFP.
Macroeconomic conditions during the war were conducive to a massive increase in trade union membership, which doubled from 22 to 44% of the work force, intensifying militancy. The policy response included the development of relatively generous unemployment benefits with much wider coverage and the development of collective bargaining institutions such as wage councils and trade boards. Ultimately, this reduced wage flexibility and raised the NAIRU which was about 4 percentage points above the pre-1913 level (Hatton and Thomas 2013).
The key post-war policy decision, taken following the report of the Cunliffe Committee in 1919, was to seek to return to the gold standard at the pre-war parity of $4.86. Seen as a return to the contingent 19th century rule which imposed discipline on politicians, this was entirely understandable (Bordo and Kydland 1995). Montagu Norman, Governor of the Bank of England, saw the return to gold as “knaveproof”. However, this could only be achieved through a severe deflation which reduced domestic prices and wages very substantially such that the real exchange rate was consistent with external and internal balance. At the time it was not clear how much prices needed to fall, and ex-post analysis leaves considerable room for doubt (Redmond 1984). This is especially so because in the new external economic environment the equilibrium real exchange rate was probably lower than in 1913, so purchasing-power-parity-based calculations were likely inappropriate. Table 3 suggests that the eventual return to gold at $4.86 in April 1925 was at an overvalued exchange rate if the aim was to return to the 1913 unemployment rate of 4.2%, and prices were not very flexible downward. It is easy to think that this was a big mistake, a verdict that has been generally believed ever since Keynes delivered it at the time.
It should be recognized that the challenge to policymakers of the immediate post-war situation was daunting and that the biggest costs came from getting from 1920 to 1925. These costs came from the early 1920s deflation and were felt in terms of a severe recession, a permanent increase in unemployment, and the fiscal consequences of a big increase in the public debt to GDP ratio. The deflationary squeeze saw the unemployment rate for all workers at an average of 11.5% during 1921-1922 (Boyer and Hatton 2002) while prices fell by about 30 per cent between 1920 and 1923. In the course of this adjustment, real earnings showed no growth between 1919 and 1926. However, real unemployment benefits and replacement rates rose steeply because nominal benefit levels were not cut significantly as prices fell.
In the context of today’s concerns over public debt reduction in the wake of the recent financial crisis, Table 4 makes painful reading. Despite running really big primary surpluses, the fall in prices and the huge differential between real interest rates and real growth rates meant that the public debt to GDP ratio had risen to 1.76 by 1923. Even after the return to gold, high real interest rates made debt reduction difficult. Table 4 shows that the end result of the return-to-gold strategy was that British taxpayers delivered an average primary budget surplus of 7% of GDP during 1921 through 1929 but the debt-to-GDP ratio at the end of this period had risen to 1.58 compared to 1.47 at the start!
Overall, there were important adverse effects of World War I on British income levels in the 1920s, working through higher unemployment, lower trade, and a vastly increased public debt to GDP ratio. How big was the reduction in real GDP? This requires serious research, but a ‘back of the envelope’ calculation suggests it was quite big.
If we assume that the NAIRU was raised by 4 percentage points then real GDP each year would be lower by about 2.8 percentage points. If we assume that the trade ratio was reduced by 22% then with the elasticity of 0.2 (as in Bradford et al. 2006), real GDP each year would be lower by 4.5%. Using the estimates in Egert (2013) it would not be unreasonable to suppose that an increase of the ratio of public debt from below 30% pre-war to over 90% post war would reduce growth by at least 0.8 percentage points per year, implying that by 1929 the level of GDP would be reduced by 7.3%. In total for the 1920s, this means that on average GDP would have been 1.028 x 1.045 x 1.036 = 1.113 times the actual level. Adding up an annual loss of about 11% of GDP each year during the decade gives a total not very different from the amount spent on fighting the war. This is obviously a crude estimate of the indirect economic costs to Britain but its message is surely correct: the total economic cost of World War I to Britain was far greater than is generally recognized.
Editors' note: This is the sixth in a series of Vox columns by leading economic historians on the First World War, which will be collected in a Vox eBook at the end of the year: "The Economics of the First World War", edited by Nicholas Crafts, Kevin O'Rourke and Alan Taylor.
References
Bordo, M D and Kydland, F E (1995), “The Gold Standard as a Rule: an Essay in Exploration”, Explorations in Economic History, 32, 423-464.
Boyer, G R and Hatton, T J (2002), “New Estimates of British Unemployment, 1870-1913”, Journal of Economic History, 62, 643-675.
Bradford, S, Grieco, P, and Hufbauer, G (2006), “The Payoff to America from Globalisation”, The World Economy, 29, 893-916.
Broadberry, S (2006), Market Services and the Productivity Race, 1850-2000. Cambridge: Cambridge University Press.
Broadberry, S and Harrison, M (2005), “The Economics of World War I: an Overview”, in S. Broadberry and M. Harrison (eds.), The Economics of World War I. Cam
OK sorry for the misunderstanding. As you say there is a subtle but clear difference between bankrupt and being close to it.
I still hold that the economy was good enough to maintain a slow and steady reconstruction of the battle fleet and other capital ships IF the will had been there. Which arguably would have helped the economy by reducing unemployment in badly affected areas, keeping more money in circulation and maintaining skills. Unfortunately a 'Smith' view of the world economy was applied including the continued commitment to free trade [despite as you said post-1919 was even more protectionist than pre-1914 and the idea that the banking sector was the primary one - which unfortunately has gained even more traction since 1979  - hence disasters like returning to the gold standard at the crippling 1914 rate.
It didn't help that post-war as well a lot of resources were tied up in expensive actions to try and restore stability to parts of the world including interventions in Russia and seeking to maintain international control of Constantinople and the straits. 
Steve
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miletus12
Squadron vice admiral
To get yourself lost, just follow the signs.
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Post by miletus12 on Sept 22, 2022 19:57:34 GMT
(^^^) Chicago School or Vienna School, it does not matter, the HMG mismanaged the shrinking capital generating base of industry/labor leading to revenue collapse, overpromised on subsidy social payouts and mismanaged the overall money supply. They screwed up. Too much Keynes, not enough Adam Smith.
Wrong analysis on the wrong war. Britain failed to invest in its economy after WWI which caused/worsened a lot of the problems because its leadership was too wedded to the distortion of Smith's arguments that was classical economic. Keynesian economics only became dominant after WWII - or to a degree within it.
Britain bungled the First World War recovery in 1920-1925 for about the same reason everyone else did. She was so busy punishing Germany that she forgot about the free trade with Germany that was 30% of her own foreign economic activity. I know you don't like to hear some truths, but if you try to "manage" an economy instead of adjust to the market forces and realities that result from your tampering, you get 1929 and then 1939. You punch that giant hole in the trade patterns, fail to adjust for it properly and you get market forces BLOWBACK with cascade negative effects. What do you think is happening now? Keynes, the nitwit, never understood that about trade activity and capitalism. Smith is the absolute baseline on this economic science. You get that wrong in the slightest, and you get everything else wrong that goes with it. To keep it on topic... how do you start a war with Japan after you shut down your crypto and thus get Pearl Harbored for your stupidity? Let a traitor in your Treasury Department or foreign office embargo OIL and STEEL without your NCA approval. Interrupt those patterns of trade and see the results. |
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oscssw
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Post by oscssw on Sept 23, 2022 0:06:07 GMT
Britain bungled the First World War recovery in 1920-1925 for about the same reason everyone else did. She was so busy punishing Germany that she forgot about the free trade with Germany that was 30% of her own foreign economic activity. I know you don't like to hear some truths, but if you try to "manage" an economy instead of adjust to the market forces and realities that result from your tampering, you get 1929 and then 1939.
BZ miletus12, that is an absolutely magnificently concise and insightful paragraph.
I especially admire "If you try to "manage" an economy instead of adjust to the market forces and realities that result from your tampering, you get 1929 and then 1939."
Don't let that go to your head....Kid 
Seriously, I do take some pride in being a member of Lordroel's forum.
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stevep
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Post by stevep on Sept 23, 2022 16:03:40 GMT
Wrong analysis on the wrong war. Britain failed to invest in its economy after WWI which caused/worsened a lot of the problems because its leadership was too wedded to the distortion of Smith's arguments that was classical economic. Keynesian economics only became dominant after WWII - or to a degree within it.
Britain bungled the First World War recovery in 1920-1925 for about the same reason everyone else did. She was so busy punishing Germany that she forgot about the free trade with Germany that was 30% of her own foreign economic activity. I know you don't like to hear some truths, but if you try to "manage" an economy instead of adjust to the market forces and realities that result from your tampering, you get 1929 and then 1939. You punch that giant hole in the trade patterns, fail to adjust for it properly and you get market forces BLOWBACK with cascade negative effects. What do you think is happening now? Keynes, the nitwit, never understood that about trade activity and capitalism. Smith is the absolute baseline on this economic science. You get that wrong in the slightest, and you get everything else wrong that goes with it. To keep it on topic... how do you start a war with Japan after you shut down your crypto and thus get Pearl Harbored for your stupidity? Let a traitor in your Treasury Department or foreign office embargo OIL and STEEL without your NCA approval. Interrupt those patterns of trade and see the results.
You really need to learn something about what was going on at the time. As usual your displaying a massive ignorance of what was going on in Britain in this period and I suspect also the US from the tail end of your comments.
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lordroel
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Post by lordroel on Sept 23, 2022 16:07:36 GMT
Britain bungled the First World War recovery in 1920-1925 for about the same reason everyone else did. She was so busy punishing Germany that she forgot about the free trade with Germany that was 30% of her own foreign economic activity. I know you don't like to hear some truths, but if you try to "manage" an economy instead of adjust to the market forces and realities that result from your tampering, you get 1929 and then 1939. You punch that giant hole in the trade patterns, fail to adjust for it properly and you get market forces BLOWBACK with cascade negative effects. What do you think is happening now? Keynes, the nitwit, never understood that about trade activity and capitalism. Smith is the absolute baseline on this economic science. You get that wrong in the slightest, and you get everything else wrong that goes with it. To keep it on topic... how do you start a war with Japan after you shut down your crypto and thus get Pearl Harbored for your stupidity? Let a traitor in your Treasury Department or foreign office embargo OIL and STEEL without your NCA approval. Interrupt those patterns of trade and see the results.
You really need to learn something about what was going on at the time. As usual your displaying a massive ignorance of what was going on in Britain in this period and I suspect also the US from the tail end of your comments.
, i already have responded to miletus12 regarding this matter, if you find a post of any member is something to much, PM me ore report it. |
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- hence disasters like returning to the gold standard at the crippling 1914 rate.
