Planning Armageddon

Given our times, I decided to pull this one off the shelf and put its review at the top of the queue. It’s an account of another time a great power attempted, by “economic derangement”, to win a war.

It didn’t go well either.

Review: Planning Armageddon: British Economic Warfare in the First World War, Nicholas A. Lambert, 2012.

In one of the great failed predictions of all time, Norman Angell said, in his 1910 bestselling book The Great Illusion, that war between great powers was unthinkable. It would result in, to quote Lambert, “economic Armageddon – a kind of economic mutually assured destruction”.

Ivan Bloch made a more successful prediction in his 1899 work Is War Now Impossible?:

The future of war is not fighting, but famine, not the slaying of men, but the bankruptcy of nations and the break-up of the whole social organization.

The British government, particularly the Royal Navy, didn’t dispute these ideas. It embraced them. Given its dominance in international shipping, central position in a world network of submarine cables, and that London was the world’s financial capitol, maybe England could cut out an enemy nation from international trade and win a war before it, too, economically bled out.

After the 1898 Fashoda Crisis drove up maritime insurance rates for British ships, the Royal Navy reluctantly realized that attacking and defending trade would have to become part of its strategy. A study was commissioned. A six-week month project stretched into years, but, by 1902, the Royal Navy had a dim view, obscured by the lack of good statistics, of the outlines of the problem.

One of its conclusions was that not only was Britain dependent on imports, but Germany increasingly was too. But the most likely future adversaries then were thought to be France and Russia. That changed, though, in 1905 with the Moroccan Crisis making Germany a potential enemy. First Sea Lord Jackie Fisher was not keen on the idea, for strategic and economic reasons (he hoped to reduce naval spending by altering the composition of the Royal Navy), of tangling with the German Fleet in the Baltic in a traditional slugfest of ships’ guns.

Blockading enemy ports and seizing enemy ships on the high seas was, of course, an old tactic. The Russo-Japanese War showed the practicality of using mines and torpedoes to both blockade a port and to defend one. Legally, blockades were codified by the Declaration of Paris in 1856. They came in two types. A “close blockade” of an enemy port with actual warships entitled you to seize all ships bound for that port. But how many warships had to be around an enemy port to trigger this definition? And what about “paper blockades” when a government simply announces, as the Union government did in the American Civil War, that ports are under blockade?

All ships, including neutral ships, could be seized under a blockade if carrying contraband. But what was contraband? In the abstract, it was any property of use to the enemy’s military. Food was usually not considered contraband given its use by civilians. But what about food bound for the enemy military? Thus, food was a “conditional contraband”. In practice, most of the naval Great Powers considered food absolute contraband.

But the financial and communication underpinnings of trade had changed a great deal since 1856. Who bought a cargo was not always clear given financing through foreign banks. The ownership of a cargo could change in mid-voyage. Ships carried mixed cargos. And they were so much bigger than the cargo ships of 50 years ago. They would take longer to search, and that really couldn’t be done at sea. They would have to be compelled to go to the nearest friendly port and be searched. Eventually, the controversial concept of a “continuous blockade” held that a cargo was contraband if its eventual destination, no matter what any financial documents or cargo manifests said, was to an enemy.

Britain had already tried, in the Boer War, to impose a blockade, but neutral nations eventually forced it to stop. Practically, contraband was anything you could seize without neutral nations making too much fuss. And the British government contention that food could be contraband contradicted what they argued regarding food and coal shipments to Japan while it fought Russia. As a harbinger of things to come, the Foreign Office was not keen as to what the Royal Navy was cooking up in its economic warfare strategy. In discussions for the upcoming Hague Convention, it was argued that trade depended on certainty. Britain needed protection when it was a neutral.

The eventual outcome of the disputes between the Admiralty and the Foreign Office was the Admiralty taking the tacit position to support language in the 1907 Hague Convention that would protect Britain when a neutral – and that would be ignored when Britain was a belligerent.

By 1907, the Admiralty had specific plans, four scenarios for economic warfare. Plan A was for a distant blockade of Germany. Plan B, if that failed, was a close blockade. Plan C was sinking blockships at the mouth of the Elbe. Plan D was putting the British fleet in the Baltic. The supporters of Plan A thought it could end the war without the fleets of Germany and Britain engaging.

Some German ships would, undoubtedly, get material to Germany through neutral ports in Holland and Belgium. That shouldn’t be a problem. Germany only had 10 percent of the world’s maritime cargo tonnage. Even if Germany used neutral shipping, that still wouldn’t be enough. Britain had 55 percent of the world’s cargo tonnage.

The political problem with Plan A was that a distant blockade was not legal under international law. Neutrals would not be happy having their cargoes seized, and the Admiralty, given the port defenses afforded by mines and torpedoes, did not want to run a close blockade.

It is startling to realize, after the centralized powers two world wars gave so many nations, that it was not illegal for British citizens to trade with a belligerent nation. Legislation was drafted to prevent that. Furthermore, an intelligence network would be spread throughout the world to trace suspicious cargoes that could be seized on the theory of continuous voyage. (Jamie Bisher’s The Intelligence War in Latin America, 1914-1922 covers some of that.)

But British plans involved a lot more than seizing ships and, gradually, the Admiralty brought in experts in banking and financing and trade. One such expert was Sir Robert Giffen, an expert on international trade, and a man with many political connections including with the Board of Trade. War, argued Giffen, would jeopardize the international credit system and its liquidity. Indeed, there had been a financial crisis in 1907 without war.

A great deal of international trade used bills of exchange which came to be used as financial instruments in themselves. These bills came with dates of maturity, the payout date. But London banks would buy them before their maturity date, and the bills became financial instruments that could be easily converted to cash. Before 1914, approximately 25 percent of reserves in London banks were these “London bills”. In the outbreak of war, there would be bank runs on institutions whose reserves composed instruments that may be worthless with the cessation of normal trade. Further “economic derangement” would result when war sucked large amounts of manpower out of the civilian industrial production and reduced the carrying capacity of railroads.

In 1908, a paper influenced by Giffen envisioned denying Germany access to “British banks, insurance companies, and communications network”. Germany would suffer mass unemployment and eventual bankruptcy.

One of the themes of this book is how disunity in Britain between various elements in the political, military, and civilian establishments sabotaged any of these Admiralty plans from being fully implemented. In particular, the Board of Trade usually argued for a less restrictive blockade. The Foreign Office often feared souring relations with neutral countries. While the Admiralty was developing its economic warfare strategy, the General Staff was still developing plans to dispatch the British Expeditionary Force to France in the event of war with Germany.

However, there is no doubt, from the evidence given, the Admiralty itself envisioned winning the war through economic means.

Financial Armageddon came in the last week of July 1914 before Britain even entered the war. Its severity surprised even those who had been contemplating economic warfare.

The Vienna stock market suspended operation on July 27th. Prices dropped on all the other European markets that day. American brokers were flooded with sell instructions. Layoffs began. Bond prices fell in London. The market for discount London bills fell. Demand for gold vastly increased. There were so many requests for banks to ship gold from the US to Europe that America feared it would have to leave the gold standard. However, the increase in maritime insurance rates made shipping it across the Atlantic too costly, and the US took covert steps to make sure that remained the case.

A director of a trading company said

“before a single shot has been fired, and before any destruction of wealth, the whole world-fabric of credit has dissolved.”

In England liquidity was restored on August 13 when the Bank of England said it would discount bills of exchange drawn up before the war. In fact, it would end up underwriting all bills of exchange after the British guaranteed them. Thus, the British added £120,000,000 to a government debt that was £625 million before the war.

The possible destruction of the British economy was, Lambert shows, a key factor in England joining the war. It so feared a “revolution in the north” of the country due to unemployment and starvation, that four out of six British infantry divisions were kept in country to deal with possible civil unrest rather than sending them to France.

The British government, hearkening back to the days of the Napoleonic War, tried to form a grand coalition to facilitate economic warfare with the proposed members being Belgium, Holland, Norway, Portugal, Spain, and Greece. But Foreign Secretary Grey dithered, and that plan went nowhere. Putting pressure on neutral nations might have military consequences. Sweden might decide to side with Germany, and Norway with the Entente.

Royal proclamations forbid British citizens and organizations to trade with the enemy. But there were problems with those. British ships were forbidden to carry stuff they had reason to believe was contraband bound for Germany. Lists of contraband were published, but exporters could appeal certain shipments. However, that appeal had to be accompanied by a bond triple the value of the goods if it was learned they did end up in Germany. Coal, forage, and food were absolute contraband. But even some in the Admiralty had problems with that. Coal was a large British export. The government wanted no unemployed miners and also to allow coal to ship to South America.

On August 1, 1914, before Britain entered the war, Churchill set up a “war room” to monitor every ship in international maritime trade. This was facilitated by an organization secretly developed in the last seven years.

The largest German ships were urged to run for American ports by American wireless messages. The British were not amused, and it would not be the last instance of US-UK tensions in the opening years of the war.

One effect of the blockade was how much trouble neutral vessels, once in port, had in getting insurance for the next voyage. The British government, however, subsidized insurance on British vessels. One diplomatic consequence of the blockade was that the British government ended up buying all neutral cargoes at market rates from ships in British ports.

The conflict between the Admiralty and Foreign Office was to prevent the blockade from being enacted as envisioned. Those rifts were reflected in the Cabinet. One area of dispute was whether to blockade the neutral port of Rotterdam. (Germany invading Belgium had conveniently taken the issue of doing the same to Antwerp off the table.)  Was it even legal to blockade a neutral port?

In the first of many concessions to neutrals, it was decided to allow Rotterdam to remain open to coal shipments from England if the Dutch limited their trade to Germany. But the Dutch wanted more including the right to receive food.

Americans were particularly hostile to the British efforts. Cotton was the country’s largest export in 1914, and cotton farmers were close to bankruptcy even before the war began. They needed to get their cotton to foreign markets. The British announced that all goods shipped by America to Rotterdam and Gothenburg would be considered contraband. The American public didn’t like the idea of starving Europeans. British plans to wipe out German merchant ships either by seizing them or confining them to port faced the potential of the US government buying German ships in American ports and reflagging them. The British government vigorously protested. Several members of the British government called for the seizure of these ships. Others feared the diplomatic tensions from doing that.

The dispute was – temporarily – solved when the UK allowed food shipments to Europe through neutral ports. Britain would buy American cotton at market price (and have trouble storing the sheer amount of those purchases), and neutrals would promise that they would not ship goods to Germany.

And neutrals were buying up British ships, weakening British merchant supremacy. Typical of wartime miscommunication and lack of cooperation, the UK Board of Trade didn’t bother to inform the Admiralty of these purchases until they were done, and it was too late to object.

Intelligence showed that the shipments of several items into Denmark, Norway, and Sweden was far in excess of domestic needs. Denmark even sold domestic food production at high prices to Germany and restocked at cheaper places.

Worse, it was becoming clear that UK companies were cheating too. Britain’s free-trade ideology was hard to overcome, and it wasn’t until much later that the British government gathered the amount of information – and, more importantly, developed the data management techniques to use it – to better enforce the blockade.

By January 1915, this domestic and political turmoil led to a reconsideration of strategy, a fateful example of the democratic leaders need to be seen to be “doing something”. That something was the forcing of the Dardanelles. It was hoped a successful campaign would shorten the war and, thus, the problems from economic warfare. And Russia would get an outlet for its grain shipments. Then they could step begging for credit from the UK. (How the Russians pushed for this campaign – which they contributed very little to despite their promises — is covered in Sean McMeekin’s The Russian Origins of the First World War.)

Fisher signed off to the Dardanelles campaign, but his main goal was to intensify the economic war on Germany by mining, without warning, the North Sea ports. He said,

Our proper plan is to blockade Germany and the adjoining neutral countries. That is the way to end the war.

For a country that entered the war allegedly to protect the rights of poor neutral Belgium, Britain certainly contemplated violations of a many a neutral country.

By 1915, the rate of exchange between pound and dollar had worsened. The trade deficit with America had increased. British exports were down. Mass recruitment drives for the British Army were taking manpower from British factories. (Kitchener had proposed the idea of employing women in wartime industries, but it was still unpopular.)

Arthur Balfour warned the Cabinet of all this, but Lloyd George countered that Britain was still very wealthy. Kitchener also argued the war would soon be over before manpower shortages in British factories became a problem.

War had also produced unexpected problems. Britain may be numerically superior in merchant tonnage capacity, but a lot of ships had been requisitioned by the Royal Navy. Food prices were going up in Britain because carrying rates had gone up. Neutral ships were also clogging up dockside facility as their cargoes were inspected. Thus demurrage charges, what a ship had to pay each day just to be docked, had gone up. The lack of British cargoes for neutral ships to carry back to their homes also raised shipping rates. Fixing the price of food was considered, but that would be hard to enforce. It was hoped that storming the Dardanelles would allow Russian wheat on the market for English consumption.

Ultimately, starting in February 1915, the British government, fearing bread shortages, started buying up food. 

The Treasury Office begin to get information that several British banks were making large loans to Scandinavian countries to purchase British goods, supposedly for use in their own country.  In May 1915, British banks were asked to provide weekly updates of loans they had made and for what purpose. They were also asked to get letters of guarantee from their neutral clients that the goods weren’t bound for Germany.

While that sounded nice, it was an informal request, not a requirement. There were no standardized forms right away to made those reports. And there were no details on the nature of those guarantees. Neutrals could easily evade detection, and no bank was going to ask too many questions lest they lose business.

Germany’s declaration of unrestricted submarine warfare helped Anglo-American relations. Before it was announced, Churchill contemplated seizing all neutral ships containing any kind of useful cargo bound for Germany – or presumed to be. But Prime Minister Asquith did not agree. America was also making hints that interfering with American shipping might interfere with America supplying Britain with munitions. But Germany’s announcement allowed Britain to present its proposal as a “retaliation blockade” done in response to Germany’s escalation. What really altered the relationship between the UK and US was the sinking of the Lusitania in May 1915. British objections to America’s actions seemed unnecessary now that the latter was closer to going to war with Germany.

Ultimately, Britain didn’t press America more, before that, on its increasing trade with Germany. Why is something of a mystery. Foreign Secretary Grey complained, after the war, he didn’t want to alienate a future source of munitions. But in his contemporary correspondence and memos, there’s no evidence that was a concern at the time. 

While this was going on, the War Trade Department couldn’t keep up with the applications of British exporters for exemptions on contraband and simply rubber-stamped most of them. However, it did attempt to gather actual statistics on the exports and imports of neutral companies, how much of various commodities and manufactured goods the populations of these countries domestically consumed. 

During early 1915, the UK started to pressure Sweden about its massive exports, particularly of iron, that were above pre-war levels and obviously intended for shipment to Germany. Sweden threatened to stop shipments to and from Russia across its territory if pressed too hard. Eliminating this Swedish excuse by opening the Black Sea to Russian trade was another motive for the Dardanelles operation. 

Seized neutral ships were taken to British ports and evidence heard in Admiralty Prize Courts as to whether they carried contraband. But how to prove that? How, as in the actual case of several Danish tankers full of oil, to prove the Danes weren’t really going to use all that oil and were going to sell it? 

The ultimate question, by June 1915, for the British government was whether or not to relax the blockade? Was it really working? Some warned that the war had become one of attrition and that the Allied cause may collapse if the war lasted until 1916. There were labor shortages and inefficiencies in British industry. Exports were down. Britain was subsidizing its Allies heavily. Kitchener’s New Armies were very expensive. And who knew how much the country already owed America?

And the British public was getting upset. There were newspaper stories about how much neutrals were helping Germany.

Anglo-American relations didn’t immediately improve after the Lusitania incident. Even in July 1915, Asquith was still pressing America on its cotton shipments to Germans. (It should be remembered that cotton wasn’t just an item for clothing but also an ingredient of guncotton.) But two events changed matters. In late 1914, a Danish ship full of American meat had been seized. The Prize Court hearing was finally held in July 1915, and the British government tried a new tactic to prove the meat was contraband: statistical evidence. Based on trade statistics, it argued, there was no way Denmark was going to be using that meat for its own citizens. The Court accepted that argument.

However, the Chicago meatpackers, who had supplied the cargo, threatened to rouse the German immigrant population of the American Midwest and lobby against the British. Furthermore, the Americans had somehow learned that many British businesses were still trading with the enemy. The US government claimed that the blockade’s object was to cut American trade out of certain commodities and replace them with British shipments. Also, British credit temporarily faltered in trying to buy munitions for Russian. American interests in cotton trade were heightened greatly by President Woodrow Wilson’s re-election campaign. He had to have the support of the American South.

Eventually, in August 1915, Britain agreed to buy more American cotton with a subsidized price floor.

By August 1915, it was clear that the Dardanelles campaign was a failure. It was not going to save the British government from making hard decisions on financial and blockade matters.

The British government decided, despite its victory in Prize Court, to back off on the idea of contraband being decided on statistical and not documentary evidence.

The question of comfort foods – coffee, tea, and chocolate – also came up. Should they be considered contraband? Were they necessary for enemy morale? Or just a way for the enemy to waste his money?

Lambert ends his account in 1916. After a change in British government and increasing public discontent, the blockade entered a new phase. Rather than being managed by several government departments, it was put under the Ministry of Blockade. That, says Lambert, is a history covered elsewhere.

Lambert describes this as a hidden history using official sources but also many private memoes and letters to give us a previously untold story of how Britain developed and tried to execute economic warfare. He shows it wasn’t an idle pursuit but a keystone of national policy and how the strategy played a key part in the opening days of the war and the decision to go to Gallipoli. It was, to a certain extent, a story the British government and London financial interests tried to hide. Lambert quotes Clausewitz about the dangers of fraud in military of history because a leader does not like to admit how many decisions were “motivated by the fear that his strength would run out, or that he might make new enemies”.

Economic warfare was the equivalent of the German Schlieffen Plan, a way to quickly end a European war. Both failed. But could the strategy, if implemented as envisioned, have worked? Lambert raises the question, but says he has no answer.

Britain waged economic warfare, in part it claimed, for a country whose neutrality it contemplated violating itself if necessary. The strategy did not shorten the war. Its effects on Germany are not self-evident. It, and the war itself, accelerated the decline of the British Empire. “Economic derangement” of the enemy made the Empire poorer and weaker too.

I have, of course, only hit some of the highlights of this very complicated history featuring many people who fill up the bulk of the index. (In fact, the index is too sparse on entries that aren’t names.) The text itself is 504 pages long with another 134 pages of notes.

Certainly, this isn’t a book for everyone, not even those interested in World War One. But if you’re interested in the intricacies of how the British really imagined running a blockade of Germany and how that effort was sabotaged internally and by administrative limitations, it’s for you.

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