Britain, America and the Sinews of War 1914-1918 (RLE The First World War)

Kathleen Burk

• Publisher: Taylor & Francis
• Year: 2014
• eBook ISBN: 9781317700500
• Edition: 1
• Topic: History
• Subtopic: 20th Century History
• Index: History

Anglo-American relations were transformed during the First World War. Britain was already in long-term economic decline relative to the United States, but this decline was accelerated by the war, which was militarily a victory for Britain, but economically a catastrophe.

This book sets out the economic, and in particular, the financial relations between the two powers during the war, setting it in the context of the more familiar political and diplomatic relationship. Particular attention is paid to the British war missions sent out to the USA, which were the agents for much of the financial and economic negotiation, and which are rescued here from underserved historical obscurity.

Part One

1914–1917 and American Neutrality: British Relations with Private America

1

British Purchasing, August 1914 to May 1915, and the Appointment of J. P. Morgan & Co.

Britain, in common with the other belligerents, was unprepared for the scale of the war, and for the duration of continual fighting. The assumptions on which British prewar strategic planning had been based were very quickly falsified. British war planning had been based on the assumption that she would utilise her superior naval power and concentrate on supplying her Allies with matériel while blockading the Central Powers and slowly starving them of resources. She would not provide a mass army of her own; rather, Britain’s continental Allies were expected to provide the bulk of the land forces with Britain contributing an Expeditionary Force of six divisions (150,000 men), two divisions of which were to remain in Britain for home defence. (In fact, all six divisions of the British Expeditionary Force, plus one cavalry division, were in France by early September 1914.) But very soon after war began, the Secretary of State for War, Lord Kitchener, succeeded in persuading the Cabinet that it was vital that Britain should after all raise a mass army. Kitchener, almost alone in the higher reaches of the government, envisaged a long war, and such was his prestige in the early days that the Cabinet agreed to begin the necessary preparations.¹ In addition, the British army was unprepared for the change in tactics necessitated by trench warfare (as opposed to a war of mobility) and in particular for the enormous expenditure of shells. The result of these strategic and tactical problems was to be a transformation of War Office purchasing practices.

The normal system of buying by the Contracts Department of the War Office in peacetime had been by competitive tender, confined in general to a limited number of approved British suppliers.² It soon proved impossible to restrict orders for munitions to known firms, since the need was so great, but the War Office attempted to mitigate the problem by stipulating that firms which had not previously fulfilled orders for the government should work as subcontractors for the approved firms, thereby throwing on their shoulders the task of training the new firms up to the standards necessary.³ But even with this expansion of the list there were not enough firms to meet all of the orders, and very early on the government had to turn to the United States for further industrial capacity.⁴

There was some anxiety as to the likely American reactions to British orders, but in fact the American government did not hinder the purchase of goods by belligerents. The overwhelming desire of the Administration was to be neutral; and in spite of protests from various groups such as the Irish, the State Department finally issued a circular to the press on 15 October 1914 in which it stated that it had no authority to interfere with the purchase of goods by belligerents, even of munitions, and that in fact it would be highly unneutral for it or for any agency of the government to do so.⁵ Besides, there was clearly no point in turning down good business.

Thus the main concern of the War Office was with possible deficiencies in the capacity and productive ability of American firms. British engineering firms were much more used to precision engineering than were American firms, and the question as to whether they could cope with the tolerances necessary in the production of shells or guns was a real one. It was therefore decided to send out agents to inspect likely American firms and to see if they seemed competent. The first agents were sent in September 1914,⁶ and in October as a result of a Cabinet decision an agent was sent to place orders.

In the first months of the war, there was understandable anxiety in the British government as to whether Britain could produce enough munitions to supply its expanding army. A Cabinet Committee on Munitions was set up. At the first meeting on 12 October the committee considered the provision of guns, including that of rifles, and decided that there was no prospect of equipping recruits unless special efforts were made. It was decided to send a message to the War Office representative in the United States, instructing him to find out the maximum number of rifles which could be secured from competent firms. The committee wanted 500,000 rifles, but a reply to their inquiry showed that there was little hope for substantial supplies from the USA before September 1915. When the committee met on 21 October Major-General Sir Stanley von Donop, the Master-General of the Ordnance, stated that 781,000 rifles were promised from British sources by 1 July 1915, but the committee decided that this was inadequate and that the army required a further 400,000.⁷ It was decided to send a War Office agent to negotiate in the United States, and Lieutenant B. C. Smyth-Pigott and an assistant sailed on 24 October 1914.⁸

Smyth-Pigott took over from Major Farmar, a War Office representative who had gone out in September to see about small arms, and continued Farmar’s discussions with the Remington and Winchester firms.⁹ Unknown to Smyth-Pigott, however, David Lloyd George, the Chancellor of the Exchequer, was casting around for other means of finding rifles. From the earliest days of the war Lloyd George had searched impatiently for ways of increasing munitions output, although as Chancellor his only direct act was to waive the Treasury’s right (and duty) to oversee War Office expenditure on supplies, the point of the waiver being to expedite the placing of orders. Nevertheless, as Chancellor he was acquainted with E. C. Grenfell, senior partner of Morgan Grenfell & Co. and a director of the Bank of England, whose firm was associated with that of J. P. Morgan & Co., the largest investment banking firm in America. Accordingly, Lloyd George contacted Grenfell and early in November 1914, at the Chancellor’s request, Grenfell cabled J. P. Morgan & Co. in New York to ask them to inquire of American rifle firms whether rifle-producing capacity could be increased, either by the extension of existing plant, or by the conversion of, say, sewing machine paint for the purpose.¹⁰ J. P. Morgan cabled back that he liked the idea, that he would be glad to get work in that area and that he planned to contact two firms which were friends of the Morgan firm – Remington and Winchester.¹¹

The following day, when Smyth-Pigott heard that Morgan’s were making inquiries, he cabled the War Office for permission to request Morgan’s to desist, on the grounds that the firm and the War Office were competing for the same product.¹² Permission was granted and Morgan’s desisted, but Grenfell was outraged at the treatment the firms had received: Morgan’s had made the inquiries at the specific request of Lloyd George, and since the War Office had seen a copy of every cable concerning the business, they had had ample opportunity to prevent the investigation.¹³ Lloyd George managed to smooth Grenfell’s feathers,¹⁴ and Smyth-Pigott placed contracts with both firms to supply 200,000 rifles each.¹⁵ The incident therefore was small and harmless, but it was an example of a major problem with which Britain would have to contend in purchasing in the United States: since there was no one authority to purchase, different departments and agents of the British government – and more importantly the different Allies – were bidding against each other, pushing up prices for goods and causing turmoil in industry as firms fought over the stocks of raw materials and the pool of available labour.¹⁶

American manufacturers were eager for this business, since some of them were in a desperate financial position after the extremely depressed industrial conditions of 1913 and 1914. Some firms were disposed to undertake munitions contracts without fully realising the inherent difficulties, whether these lay in the manufacturing process itself or in obtaining supplies of raw materials and skilled labour. Unfortunately, the Allied buying agents were not always able, or willing to take the time, to distinguish between those who could deliver what they promised and those who could not.¹⁷

Another problem was the swarm of private brokers and agents which descended on the British authorities on both sides of the Atlantic. The Allied purchasers were particularly vulnerable in America because of their lack of local knowledge. A broker would realise that the government would require a particular item or raw material, would go to a firm producing it and would persuade the firm to give a commission to the agent if he could arrange for an order to be placed with the firm. Some brokers claimed falsely to be British government agents; in one case,

it became known that orders were to be placed for a certain kind of cloth; an unauthorised person visited half a dozen of the leading firms in a particular city and told them that he had directions to make inquiries as to the capacity of the mills in the city and had some influence as to the distribution of orders, and by this means he secured promises of commissions from each of the firms in the event of the order being placed there. The orders were duly placed with several of these firms a few days later and the individual who had done nothing except use his intelligence in anticipating probable orders secured substantial commissions.¹⁸

Further, many agents went to firms, got an option on their production and then offered it to the government, with an additional 10 per cent for themselves. There were great numbers of agents, both with and without official authority, and no one knew how to distinguish the true from the false, since no British government department was notifying the Foreign Office or any other departments of its plans. As one observer noted, ‘Neither the Embassy nor the New York Consulate have any knowledge at all on the subject. Agents go over from England apparently without written credentials and without directions to report themselves to any representative of the British Government in America.’¹⁹ Initially, on receiving an inquiry or complaint about a particular man claiming to have government authority, the British Ambassador, Sir Cecil Spring Rice, or the British Consul-General in New York, Sir Courtenay Bennett, was generally able to check on the man only by cabling to London.²⁰ Spring Rice accordingly tried to get full lists of all accredited agents sent to him, and the War Office at least complied.²¹

In one case it was certainly discovered that the War Office had contracted to buy materials at an unnecessarily high price from a previously unknown agent. This discovery was made by George Macaulay Booth, of the merchant and shipping company Alfred Booth & Co. (which owned a large part of Cunard). Booth had served as an unofficial adviser to members of the War Office and the Board of Trade, and in October 1914, while he was preparing to travel to the United States on a routine trip to look into the New York branch of the family business, he was asked by Kitchener to arrange finance for a contract that the War Office had made with a certain Alfred Fraser for 30,000 winter coats. Fraser had contracted to sell these coats at 37s each, but Booth reported that ‘while I was in Boston I made careful investigations and satisfied myself that any large reputable house, acting on behalf of the Government, could have bought these coats at under 24s per coat.’²²

While he was in the United States the War Office cabled a request that he purchase accoutrements and gun cotton for them, for which he made the necessary arrangements. But probably his most important activity was to investigate the whole problem of agents and to try to bring some order into the purchasing process. He discussed the problem with Spring Rice, an old friend, and he agreed with Spring Rice’s growing conviction that a single purchasing agency was vital for the British government.²³

Spring Rice, in response to the incredible confusion he saw, first suggested to the Foreign Office that Britain channel her purchases through one organisation on 21 October 1914. After talking to Sir George Paish and Basil Blackett, Treasury representatives then in the United States (see Chapter 4), Spring Rice repeated the suggestion, adding that the proposed responsible agent should be a firm of standing on both sides of the Atlantic, such as J. P. Morgan & Co.²⁴ The Foreign Office passed on the suggestion to the War Office, the Admiralty and the CIR (Commission Internationale de Ravitailement, the London-based organisation which purchased supplies for the Allies in the Allied countries – see Chapter 3), but the immediate response was discouraging: the War Office and the Admiralty both preferred to deal directly with firms or their agents; and the CIR was not placing any contracts in the United States in its own name.²⁵ Spring Rice continued to argue for such an organisation, but as Lord Eustace Percy at the Foreign Office minuted, ‘It is impossible to have “one neck to the bottle” if the War Office insist that their proper course is to deal directly with manufacturers’.²⁶

Spring Rice’s suggestion that J. P. Morgan & Co. should be made the British government’s sole purchasing agent was adopted in January 1915. It is clear that this action by the British government was prompted not merely by Spring Rice (and by those in London more concerned with adequate supplies of munitions than with the methods used to obtain them) but also by Booth, Blackett and Paish, who returned from the United States having witnessed the chaos. What is not entirely clear is just which Cabinet minister formally asked which British or American Morgan partner to take on the responsibility, and when.

When Booth returned to Britain in mid-November 1914 he reported to Kitchener, Sir Frederick Black (the Director of Admiralty Contracts) and the Board of Trade that he felt there was an overriding need for a centralised purchasing agency; he suggested the Morgan firm. Booth, in fact, probably had a further reason for suggesting Morgan’s beyond their dominant position in American banking. As a shipowner he would have been aware that the Morgan group controlled substantial tonnage in their International Mercantile Marine combine and he probably calculated that the appointment of Morgan’s would ensure use of the ships in the Allied interest....

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Contents
• Acknowledgements
• dedication
• Introduction Anglo-American Relations, 1895–1918
• Part One 1914–1917 and American Neutrality British Relations with Private America
• Part Two 1917–1918 and the Love-Hate Relationship British Relations with Public America
• Epilogue Did History Come to a Full Stop?
• Appendix I
• Select Bibliography
• Select Index