Wednesday, 18 March 2020
Economic Parallels with 1914-18 and 1939-45
A package equivalent to 15% of GDP is of the magnitude of support for the war effort.
In 1914-18 there were still gold reserves, gold mined in Empire nations and investments overseas. One and a half centuries of industrial growth, during most of which Britain had been the workshop of the world, had built up substantial resources. Even in 1914, when Germany and the USA had caught up in terms of industrial production, British shipyards produced one third of the world’s ships and the cotton mills of Lancashire produced enough yarn and textiles to clothe half the world. The war came at a great economic and well as human cost; some £11,325 million was spent, including loans to Russia which were never repaid. About one third was raised through taxation, £500 million from the sale of investments but the bulk from borrowing; the National Debt increased from £650 to £8,000 million and £1300 million was borrowed from overseas, mainly the USA. All this was needed, amongst much else, pay for incredible quantities of guns and ammunition. Businesses across the country devoted production to the needs of the Ministry of Supply.
The country entered the interwar years much the poorer for having the meet the cost of war. The 1920s saw exceptionally hard times for traditional industries as other countries, not least the USA, took over the industrial and indeed financial lead. The 1930s saw growth in new industries such as cars, but nothing like that in Germany and the USA.
When the country went to war in 1939, the treasury was not full, and very soon massive borrowing was needed and has only recently finally been repaid. The cost of WW2, taken from the Statistical Digest of War was some £22,856 million. The way in which this was financed was influenced strong by the writing of JM Keynes in his book How to pay for the War. Essentially Keynes argued successfully that substantial government borrowing was not only necessary but acceptable.
Writing more recently, Adair Turner in Between Debt and the Devil, argues that as a one off ‘money finance’ is acceptable in exceptional circumstances. COVID-19 is surely such a circumstance. 
Munition workers in WW1
 John Stevenson, Social history of Britain, British Society 1914-1945 (London: Pelican 1984, 1990), p.104.
 John Stevenson, Social history of Britain, British Society 1914-1945 (London: Pelican 1984, 1990), p.105.
 John Stevenson, Social history of Britain, British Society 1914-1945 (London: Pelican 1984, 1990), p.447.
 Adair Turner, Between Debt and the Devil, (Princeton: Princeton University Press, 2016), p.227).