The Problem

ECONOMIC planning in time of war, though complicated in detail, is simple in principle. Strategy dictates priorities; and pro­duction is planned to sustain an economy subordinated to military reąuirements. Urgent and overwhelming military demand, often accompanied by drastic reduction of supplies, produces acute short-ages. Extreme scarcity was the dominant characteristic of the British economy organised for total war. The planners' task was a variant upon the classical economic theme; the distribution of scarce means in order to ensure the maximum result measured in terms of military endeavour. Resources in peace are divided between claimants by the machinery of the market. The urgency and importance of a demand is measured by the price which will be paid for its satisfaction. Price is governed by the interaction of supply and demand; and as price rises under pressure of scarcity, those whose demands on this criterion are the more urgent are satisfied before any part of the scarce supply is turned to satisfy the (less urgent) demands of those willing (or able) to pay less. Markets in modern war are dominated by military reąuirements. Dangerously scarce resources cannot be, and were not, rationed between users, military and civilian, according to the length of their purses. Distribution by market price in war presupposed, among many other impossible conditions, fimitation of finance so strict that no service nor supply department would have the means to make a claim on the national resources exceeding the share to which it was entitled by the dictates of strategy. No Chan­cellor could exert so severe a control over spending departments in time of national emergency and it is at least doubtful if* the civilian will to work and produce could be fortified under taxation so heavy that no element of income remained after buying that minimum of supplies which could be allowed for the domestic market. No modern Government certainly has ever tried to enforce such a fiscal policy and none, it may be supposed, whether democratic or authori-tarian, would be able to do so. After twenty years of unemployment there was no thought at the beginning of the war of a scarcity of labour. The initial scarcity, fore-cast before the war, was the shortage of dollars and other foreign currencies. Reąuirements for raw materials were expected to rise and foreign currencies, including dollars, were needed to pay for the supplies being used in increasing ąuantities as war production was expanded. To get the dollars, securities and other assets in foreign currencies held by British subjects had to be registered, impounded and sold. But these funds alone could not provide a sufficient sum for the purposes of war. It was necessary also in the first year or two, to give the export trades much the same priority as that enjoyed by munitions, in order to ensure the continuing supply of foreign currencies which at that time furnished the means of procuring the imports consumed by the war machinę. Military reąuirements in the event proved more demanding of supplies than had been anticipated in any of the plans which had been considered before the war. Certainly by the end of the first year, it was elear that a choice would have to be made between pro-ducing for war and producing for export. There could be no doubt of the answer in the late summer and autumn of 1940. The passing of the Lend Lease Act by the Congress of the United States in March 1941—the most unsordid act of human history, in Sir Winston Churchill's glowing phrase—removed the danger of a stoppage in war production caused by an inability to find foreign currencies to pay for raw materials from abroad. Even before that, in the in­creasing number of cases in which demands conflicted, the priority allowed to exports was giving way to the vital needs of defence. The War Cabinet was ready to sąuander dollars if need be to keep up production, and for the futurę relied on Providence and the United States of America. Exports lost their priority. They were later to be further confined by the obligation, accepted in deference to American wishes, not to re-export for sale overseas, goods contain-ing any materials received under Lend Lease.1 Exports were limited to those goods essential to the civilian economies of the Allied and neutral countries who furnished supplies or who, for other military reasons, had to be maintained. Some few token exports might still be allowed to keep a trade alive which did not compete with military needs and essential reąuirements at home. For the rest, the export trade, though not without misgivings, was sacrified to war.2 Supplies, first of raw materials and the scarcer types of skilled labour, and later of all labour, skilled and unskilled, małe and 1 Cmd. 6311. Hurstfield: Control of Raw Materials, Chapter XVII. 2 Hurstfield: Control of Raw Materials, Chapters V to XV. female, were found as the war wore on to be wholly inadeąuate to satisfy the sum of military reąuirements and the demands of a civilian economy expanding under the steady growth of earnings and other incomes. A scheme of priorities was instituted. This was soon made ineffective by competition between the large numbers of demands, all of the greatest but ąuite indistinguishable urgency, which had to be admitted into the highest rank. The combined reąuirements represented by all demands ranking for high priority exceeded the total of supplies available and there was added from time to time, the uncertainties which followed upon the grant of an over-riding priority to demands claiming a more than usual urgency—such as those for fighter aircraft during the Battle of Britain. The holders of these "super" priorities swept like pirates through the factories, taking what they wanted and not counting the cost in terms of the delay in completing the production programmes of other depart­ments, now held up for want of the components or capacity which had been commandeered. Priorities were replaced by the prosaic but more easily administered and dependable scheme of an alloca-tion or ration of scarce materials (and later of labour) to each depart-ment. Within the limits of the allocation, the department could arrange its own priorities and plan its production secure in the knowledge that its ration would not be plundered and its programme disorganised by the irruption of other claims, armed with higher priorities, on the same parcels of resources. The problem of economic planning now took on the character it was to show for the rest of the war. Supplies of materials and men had to be got into the employments in which their military value was greatest; and as military demand rose, those supplies had to be as steadily enlarged. The first part of the problem, very broadly, was the task of the war production planners. It was their business to balance strategical priorities against the production possibilities represented by the allocations which had been made to the service and supply departments. In this they were greatly assisted by the fact that the supply departments were also the customers. Contracts could be arranged to suit production plans and allocations of materials made to contractors which matched both. The problem of economic planning for the civilian economy lay in the second part, in the enlargement of the supplies available for allocation to the military. Domestic resources and raw materials such as inland trans­port and coal had to be most thoroughly exploited. New sources of home supply had to be explored, particularly for imported products such as timber and ironstone, first to save foreign currency and later shipping space; and deliveries to the civilian market had to be reduced in order to free men for the Services and resources (of labour no less than materials) for transfer into war production. It was also found necessary, as a part of this process, to standardise specifications of that civilian output which was allowed, not only to prevent the manufacture of a wastefully elaborate article when a cheaper, simpler commodity would do, but also to gain the econ-omies of longer runs and finally, to ensure the production of that minimum of consumer goods, adeąuate in ąuality and reasonable in price, which was needed to keep the civilian population in good heart and in a state of physical efficiency. The task was carried through by no one piece of machinery. Success was won in the end by the mutual reinforcement of one control by another and by a loyal acceptance of the rigours and official direction involved in the subordination of civilian choice to military demand.1 One of the first steps on the road to the mobilisation of the economy had been the distribution of supplies of food and of mater­ials as they became scarce, by ration, allocation and licence. The control of materials by licence alone, however, had left manu-facturers with stocks on which they could draw in order to produce for the civilian market—stocks which, though not subject to alloca­tion, had nevertheless to be reserved for more essential use later on. Firms in the civilian trade displayed a commendable if misplaced ingenuity in making do with uncontrolled substitutes for materials subjected to allocation; and the line between military and civilian production could not always be sharply drawn. The same com-ponents used for both military stores and civilian goods often had common materials. By accident or design, materials allocated for warlike purposes might be diverted into output for civilian consump­tion; and to reduce that danger the Board of Trade were authorised to limit by Order the supplies of goods containing allocated and other scarce materials which manufacturers and wholesalers might deliver to shops for civihan consumption. The ąuotas under these Orders were fixed at first at 70 to 80 per cent of the pre-war supply; and were progressively reduced as supplies became increasingly scarce. The Limitation of Supplies Orders were intended to reduce civilian purchases as a means of enforcing economy of the materials from which the finished products were made. But limitation of supply 1 Hancock and Gowing: British War Economy; Postan: British War Production; Hurstfield: Control of Raw Materials; Hargreaves and Gowing: Cml Industry and Trade; History of the Second World War, United Kingdom Civil Series, H.M.S.O.; Chester (ed.): Lessons of the British War Economy. also raised the problem of short-time working and the increase of cost which might be expected to follow upon the part employment of that industrial capacity which could not be turned to satisfying the needs of war. Much of the labour displaced by the Limitation of Supplies Orders found its way into the steadily expanding war indus-tries or was called up for the forces; and as the shortage of labour in the factories engaged in direct war production grew more acute, the waste of labour represented by short-time working in production for civilian consumption could no longer be allowed. Industrial concen-tration thus followed hard on limitation of supply. That output of civilian goods which could still be permitted, or which experience had shown to be necessary for maintaining the civilian economy, was concentrated on certain nucleus firms. These firms were run at fuli capacity. Other firms in the industry might be closed. Their labour was released for direct transfer into factories producing munitions; and their space was cleared for occupation by firms engaged on war production or made available for storage. A department was organ-ised in the Board of Trade for the concentration of industry and a Control of Factory and Storage Space set up. The concentration of production was undertaken without the assistance of any specific sanctions. The policy was carried through with the existing machinery and administered by a combination of the inducements which could be offered and the penalties which could be imposed within the framework of the controls over raw materials, factory space and labour.1 The selection of firms to be closed and those which should remain open and run fuli was left to the trade; and so were the arrangements between nucleus and closed firms for such commercial purposes as the sale of the product, the preservation of the goodwill, and the payment for the business trans-ferred. Not all industries of course were suited to concentration and the policy could not always be applied to the industries which had been selected. But firms co-operated willingly in most of the cases in which schemes were worked out and in only a few did the Board of Trade, owing to the failure of the trade to produce promptly an acceptable scheme, have to nominate the nuclei and designate the firms which ought to be closed. Nucleus firms were offered protection for their labour from call-up into the forces and from direct transfer to munitions. They were allotted supplies of raw materials and their premises were safe-guarded against reąuisition. But these concessions were not guar-anteed, nor could non-nucleus firms be compelled to close. They 1 Hargreaves and Gowing: CMI Industry and Trade, p. 220. might continue the struggle with substitutes or with materials obtained outside the allocations, with labour not liable to military service nor subject, by reason of age or other defect, for employment in the war factories; and in premises which could at any time be commandeered. The advantages conferred by the status of nucleus were by no means certain and there was always the chance for any particular firm that materials, labour and premises might not in fact be lost. Concentration conseąuently was not always attractive even to those firms chosen as nuclei; and some firms certainly preferred to take the risk of staying open in industries which generally had accepted the responsibility of applying a scheme. As the mobilisation of industry proceeded, capacity was being in-creasingly taken up by Government contracts. In many trades re-striction of civilian supply could well be left to concentration, allocation of raw materials by licence and limitation of deliveries to shops by quota. But a more positive control was reąuired over those industries which produced goods considered essential for civilian efficiency and morale, such as clothing, furniture, domestic hardware —and cosmetics. Scarcities ąuickly developed and the authorities became concerned to ensure a maximum production of essential civilian goods from the resources which remained. In a series of Orders issued in 1942—the Control of Manufacture and Supply Orders—the Board of Trade took power in some cases to prohibit the manufacture of inessential goods altogether and in others to limit production to certain standardised articles to be sold at fixed prices in the ąuantities reąuired to satisfy the Board's estimates of civilian demand. Production of the classes of goods specified in these Orders could not be undertaken except under licence or by direction; and in both licence and direction the Board of Trade might regulate the place where production could be carried on, the specifications and prices of the articles and the ąuantities which might be produced. Control in all cases in which the Orders were exercised became very detailed and the administrative cost was undoubtedly heavy; but with production of civilian goods limited almost to the minimum re­ąuired to preserve civilian efficiency and morale, it was clearly neces-sary to ensure that the goods which people really had to buy, war or no war, were reliable and recognisable in ąuality, reasonable in price, and ready in the shops when the consumer came to take up his ration. Differences in supply soon began to appear between one area and another and between one shop and another. The latter were perhaps not so disturbing sińce a search from shop to shop could be accepted as one of the inevitable hardships of war; but much time might be wasted if a whole area had been deprived of a supply of some par­ticular piece of household eąuipment and it would have been even worse if consumers had begun to travel to do their shopping, from the denuded to the well provided districts! That would have meant the risk of absenteeism in the factories. The distribution of most household goods, the purchase of which was too infreąuent to be allocated as a periodical ration, or took place only once, as on the setting up of a household, had to be left to arrangements with the manufacturers, modified by such expedients as the issue of priority dockets and furniture units to newly married couples. But in the case of clothing and footwear, the scarcities became so acute that the Board of Trade were driven to a scheme of rationing and to an attempt to plan the production of certain essential components such as cloth. Supplies of textiles had been sufficiently curtailed by reduction in the allocations of raw materials and by the quotas allowed in the Limitation of Supplies Orders; and rationing of clothing, when first introduced in 1941, was intended to secure the eąuitable distribution of those scarce supplies. But a ration imposed on the consumer soon imposes on the supplier an obligation to honour the ration. The Board of Trade .. . felt responsible for seeing that there was broadly the right amount of the right clothes in the shops at the right time and at the right price.1 Cloths of a "decent ąuality and at a decent price" were assured by the standardisation of a limited number of so-called "utility" speci-fications; and utility in the manufacture of cloth and austerity in the making up of garments conduced to economies in production which not only conserved resources but also helped to prevent rise in price. The supply of cotton yarn owing to scarcity of labour fell con-sistently short of reąuirements throughout the war (and for some time after). This shortage in turn reduced the output both of woven cotton cloth and of knitwear. The scarcity of piece-goods finally became so severe that the mills had to be directed to produce to a programme drawn up by the Board of Trade. Reąuirements had to be estimated—the expected expenditure by the population of their coupons upon the several classes of garments which could be pro­duced from the raw materials and capacity allotted to the civilian market; and the controlling authorities specified what each mili should make from the yarn which had been allowed.2 Service de- 1 Hargreaves and Gowing: Cml Industry and Trade, p. 424. 2 Ibid., pp. 440-441 and 459-464. mands for woollens and worsteds had already fallen by the time that the production of utility wear was due to begin. The shortage of wool and worsted was conseąuently never so severe as to threaten the Board's ability to honour the ration, as the scarcity of cotton yarn and grey cloth undoubtedly did. The Wool Control, manned as it was by members of the trade, was understandably "reluctant ... to intervene more than was absolutely necessary in the individual firms' trade". Woollen and worsted cloths continued to be woven to the order of the clothier and not to the direction of the Board transmitted through the Control. The central ordering of production in satisfaction of a civilian demand even in wartime, it appeared, could not successfully be undertaken unless scarcities were so acute that provision for the most simple and elementary needs of the consumer stood in danger. That was clearly the condition of the market for cotton yarn and grey cotton cloth and a production programme of ąuantities by count and specification was laid down to which each mili had to conform. But the shortages of wool and worsted were never so extreme. The "idea of fair shares", as deeply entrenched in the minds of the British producers as in those of the consumers did not have to give way in the wool trade as it had done in cotton to that discrimination between mills which would have been inherent in a thorough application of the utility scheme. Allocations of woollen and worsted yarns were eąuitably divided between the firms which stayed in the business. Each mili within the permitted rangę wove those specifications of cloth for which orders had been placed by the clothiers and other customers; and "the proportion of (woollen and worsted) cloth output which was utility was" (perhaps not unnaturally) "lower than in any other of the textile trades".1 Utility cloths might only be made up into certain classes of gar­ments; and manufacturers who had been "designated" or chosen as nuclei undertook, as one of the liabilities of that status, an obligation to make up 75 per cent of their output in utility cloth and to utility specifications. Estimates of the numbers of garments reąuired to honour the coupons distributed to the public were compared with the production programmes of the "designated" and nucleus makers up. Unlike the departments supplying the Services, the branches of the Board of Trade responsible for civilian supply were not also the finał purchasers. Garments deemed essential for the civilian market were not produced under contracts let by the Board in which speci­fications, ąuantities, dates of delivery, price and distribution were 1 Hargreaves and Gowing: Civil Industry and Trade, pp. 451-459. 421 H.C. 1824. laid down. Production "programmes" for clothing could not be "planned" as were those of the supply departments for military stores, as the detailed ordering of goods to specified design, to be delivered against a prescribed scalę of reąuirements issued on the authority of one of the Services. Holding in reserve the power to vary the allocation of cloth, the Board of Trade was certainly well placed to persuade manufacturers to "reduce the output of garments which had been oversubscribed and to stimulate the production of the neglected items". But acute as the shortages were, they were apparently not so serious that the Board could have gone further and prescribed an output for each firm by direction. Had they done so, and misinterpreted the reąuirements of consumers, the loss would have fallen on the manufacturers, wholesalers and retailers who, acting on the Board's directions, had been led to make these un-wanted garments.1 Grave as they were, the scarcities of clothing never reached that limit at which the consumer could have been relied upon to take up all those garments which the planners might have chosen to produce. In the case of grey cotton cloth, it appar­ently did, and output could be planned by direction without risk of an unsold stock of unwanted lines. But grey cloth is a relatively undifferentiated commodity. The initiative for the next stage in the production process, the making up of that standard line into so highly individual an article as a garment, could not be assumed by the Board of Trade. It was left, throughout the war, to the merchant converters and the clothiers, on whom would lie the financial respon-sibility if the consumers' wants and tastes had been wrongly anticipated.2