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jI
Board of Governors
of the
Federal Reserve System
February 24, 1943
To
Board of Governors
From Mr. Goldenweiser
Subject: Confidential British
Report on Civilian
Supply
The accompanying memorandum is a condensation of part of the contents of the MReport on Non-ililitary Sector of British Economy41 prepared
last October by the Ministry of Production at the request of the Combined
Production and Resources loard in Washington,
Ihe document is marked SECRET and this sunmary should be treated
accordingly*
A single copy was sent to me several weeks ago. The Iteport
contains some 75 pages and consists of an introductory note summarizing the
Report, 45 pages of text and several appendices (tables, schedules, quotas,
lists of prohibited manufactures, etc # ) #
The middle section deals in detail
with the subjects summarized in the introductory note* Of special interest
is a long table of imports (by value) into the United Kingdom from the United
States in 1942, Janf 1-July 31, together with estimated reouirements of the
same items for fourteen months from November 1, 1942, to December 31, 1943.
The Report is not concerned with financial measures or with food production
and distribution.
The attached memorandum consists of the bulk of the Introductory
Note with the addition of a brief section from the body of the Report. A
few tables of special interest are appended*
office for the time being.
Hie Report is available in my
CONFIDENTIAL
(BRITISH SECRET) NOT FOR CIRCULATION OUTSIDE THE BOARD Off
INTRODUCTORY NO IE
to
REPORT ON NON-*1ILIT&RY SECTOR OF 3HETISH ECONOMY
(Ministry of Production, October 1942)
Fifty-five out of every hundred occupied men and women in Great
Britain are in the fighting services, civil defense, national or local government or are working in factories or public utilities td provide goods or
services for the Government.
The civil life of the country has been kept
going, with the eid of lease-lend and other external help, by the other
forty-five*
But to do this it has been necessary to make the following
modifications of our normal life*
(a) Considerable reduction in the consumption of certain types of
food (meat, butter, eggs, sugar, fruit) and increase in consumption of bread, cheese and potatoes*
(b) A substantial reduction in consumption of other articles of
common use* These articles ha. ye been provided for the civil
population partly out of stock end partly out of current output at a rate which is rather less than half or noimal,
(c) The virtual dosing down of the production of capital goods
for civil purposes and the reduction to a very low figure of
repairs to buildings and maintenance and renewals of plant,
vehicles, rolling stock and the like*
The extent of the changes under (b) and {c) and the steps by which
they have been Drought about are described in the detailed sections of the
Report*
The figures in the preceding paragraph, however, fail to indicate
fully the proportion of the nation1s energies which is applied to furthering the war activityj for the distinction between military and non-military
effort is fast disappearing in a total war*
CONFIDENTIAL
-2-
In its endeavor to promote the greatest possible war effort, th6
Government's policy has been:
To prohibit the manufacture and import of unessential goods;
To restrict as far as is feasible the production, import and
consumption of essential goods—including the feeding, clothing and housing of the population and the maintenance of plant
and equipment;
To reduce exports to the minimumj
To mobilize labor so that the maximum of current effort may be
devoted to the expansion of the aimed forces and the production
of munitions;
TD throw into the pool our capital resources both at home and
abroad.
The restriction of standards has necessarily proceeded by successive steps rather than at one stroke. Hardships had to be remedied before
tightening the belt another hole*
The most striking illustration of the change that has taken place
in economic life is the statistics of our imports of raw material*
3eforo
the war the annual volume of raw materials imported into the United Kingdom
was about 29 million tons. For 1942 the figure will bo about 12 million tons,
of which less than 2 million tons will provide goods for civil consumption,
Ihe total effects to date of the contraction in civil standards,
described by this report, cannot be measured precisely, but the war sacrifices of the civilian may be indicated by the following facts: first, of
personal income, only about half is now spent on consumption; the other half
returns to the Treasury in taxes or as savings* Second, the total expenditure on goods other than foodstuffs is now just about the same as before the
war in terms of money; prices are about twice as high, and a real expenditure
half as great as before the war is met pertly from stocks, partly from current
CONFIDENTIAL
-3~
output. The exhaustion of stocks must imply a further reduction. The reduction has not been unifomj fuel and. light, tobacco and drink have been consumed at or above the pre-war rate, but by contrast the consumption of
clothing and household goods has been cut by one-half; private consumption
of petrol is less than one-sixth of pre-war.
Itestriction of civil consumption of things other than food has been
brought about by a number of different methods:
(a) Increased Taxation,--This has substantially reduced the purchasing power not only of the upper and middle classes, but also the
better-paid menud workers. Indirect taxes have been used to
limit consumption of beer aid tobacco.
(b) Wage Policy.*--TOiile there has been no attempt to impose a definite
wage stop, it has been sought, by preventing increases of the index of the working-class cost of living, to secure in co-operation
with the Trade Unions that wage increases should be reduced to a
minimum.
(c) Savings Drive.—It has been sought to divert purchasing power
from goods into savings by a savings campaign and by other appeals.
(d) Controls of Raw Materials.—All important raw materials are nowcontrolled, and their use is restricted to purposes approved
either by the Raw Material Control or "oy the Department administering the allocations (in the case of Civil consumption almost
always the loard of Trade)f
(o) Limitations of Supplies.—In some cases, where stocks of goods
or materials were large, and it was desired to conserve them or
to secure their more equitable distribution, limitations were
also imposed on supplies to retailors from manufacturers and
^wholesalers.
(f) Concentration of Industry.—In order to free manpower, factory
space and equipment, certain industries were concentrated and
left with only sufficient capacity to meet essential needsf
(g) Rationing.—The purchase of clothing &.\s been made subject to
rationing.
(h) Utility Products.-«-To economize resources used for civilian production, certain "Utility1* products of simple and standardized
CONFtDSNTtAL
-4-
design have beeh introduced* these mostly cover c l o t h i n g ,
t e x t i l e s and household goods•
(i)
Certificates of Need,--Certain goods in particularly short supply are reserved by special arrangement for those users whose
professions make them indispensable, e#g», rubber gloves for
doctors and veterinary surgeons*
Bie manufacture of certain items, e . g , , carpets and wallpaper,
has been entirely suppressed.
Output of other major items of general con-
sumption has been cut to about the following percentages of the pre-war f i g ure:
Per cent of
Pre-War Volume
Clothing •...••••••.••
45
Household textiles .. •. •
••
•
15
Pottery • •
,
• •..
30
Furniture (made of wood) ••..•••..•••••.
12
Newspapers (newsprint consumed) ••••••••
20
Bicycles
/
32
Motor care M « *
.,.•...••....•• spare'parts only
Radio equipment
•••
spare parts only
Stocks of consumption goods held by retailers are believed to be
now not much above half those that existed before the war. While there is
no substantial stockpile that can be drawn upon, rationing will prevent any
undue run on existing suppliesf
It may be claimed that planning has been successful in maintaining a minimum supply of the needs of civil life and in preventing serious
hardship*
3ut behind the minimum supply are growing shortages of everyday
goods such as matches, safety pins, watches and clocks. Imports of certain lines of goods from the United States ere both helpful and significant^-•
for example, certain drugs and medical supplies, watches and alazm clocks,
and electric flashlight bulbst
CONFIDENTIAL
-5-
Bquitable distribution of our limited supplies is complicated by
the war-time movements of population
Accordingly, special measures to con-
trol and organize physical distribution are carried out under the supervision
of area distribution officers.
Since the war, the use of plant for all purposes has increased,
though non-iailitary use has fallenj but provision for maintenance and renewals has been reduced, in all cases severely, and in some to an extent which
will soon have to be revised upwards. Here are some leading examples:
The output of coal mines is running at about 15 million tons
a year below consumption. Strenuous efforts are under way to increase production and economize consumption* New machinery must
also be provided.
Industrial consumption of electricity and gas expanded, and
more materials will have to be devoted to maintenance and new plant.
The total traffic by road and rail has substantially increased,
but, in spite of the black-out and a sharp reduction in maintenance
and renewals, goods and passengers have been carried without inter*ruption or serious delay* This success is attributable to better
organization within each type of service and better co-ordination
between the services*
The Post Office spent on telephone and telegraph communications
about the same sum for maintenance and engineering stores in the
year ending March 1942 as in that ending I larch 1939 $ but the expenditure on military account, "which was nil in 1938, claimed 50 per cent
of the total in 1942.
Preparations for Civil Defense and the results of air-raid damage have put a heavy burden on the Water and Fire Fighting Services.
Increased materials for these Services are essential.
Civil construction has been restricted by a variety of measures
including the allocation of materials and a system of permits for all work
costing more than irlOO# New civilian building (including work for air raid
precautions) now takes less than one-tenth the number employed in 1939»
The conservation of raw materials has formed an essential part
CONFIDENTIAL
-6-
of economic policy*
It has four aspects:
(a) Economy of consumption has been improved by limiting allocations of raw materials, by rationing end-products or their supply to retailers, by prohibition of manufacture, by enforcing
economies on the fighting services.
(b) Economy of use has been achieved by revising specifications,
reducing dimensions, accepting lower safety margins, simplifying packing, substituting at eveiy point less scarce for more
scarce materials*
(c) Economy of manufacture has been insisted upon in order to in*crease output and avoid diversion of materials? This has been
carried furthest in steel, "where the British Standards Institu*tion, with official support, has published a schedule of approved standards to supersede all earlier specifications*
(d) Economy of waste materials iias been achieved by organizing colf
lection of scrap, both from manufacturers and 'consumers.
All these methods of conservation have been pushed further and
further during the past three years. Information as to the detailed methods
pursued in individual cases has been made available to the United States
authorities*
The most spectacular economies have been achieved in the case
of timber, steel and (more recently) rubber.
Finally, exports have fallen. Since the country's productive resources are fully engaged, export reduces the volume of production which can
be devoted to the war effort at home. But some exports are necessary to the
successful prosecution of the war*
Ihey serve three distinct purposes:
They supply Snpire and Allied countries with the goods necessary to maintain
their own war effort.
They help to pay for pur essential imports of food
and materials (and often provide stronger inducements than sterling payments) . They provide a valuable weapon of economic warfare both in attack*ing the influence of Axis countries and in making pre-emptive purchases
easier.
CONFIDENTIAL
-7-
The volume of exports is limited by a variety of factors—labor,
inward shipping, outward shipping, scarcity of materials. Where scarce
materials are not required, the policy has been to provide the minimum needs
of Etapire and Allied countries and to direct any balance to the destinations
where it will bring the largest return in essential imports. But as our production rises the volume of exports is tending to fall below what is required
for all the purposes enimerated above.
In the early days of the war it was both possible and necessary to
encourage exports even if made of critical materials. By September 1941
scarcity of materials and man-power had virtually eliminated such exports
and the policy outlined in the White Paper had in the main been the actual
practice of the previous months. In all cases of exports involving critical
materials the British authorities now try to satisfy themselves that the
goods are needed for a purpose as essential to the war effort as would justify release in this country, and that they cannot conveniently be supplied
from another source without detriment to the war effort of the United Nations,
The qualification is important. Speed of delivery must be considered as well
as the possibility that refusal to supply neutral countries may drive them
into the economic embraces of the Axis or affect our own supplies of materials.
The success of this policy is best measured by the results. The
following figures show the tonnage of critical materials embodied in nonmunition exports as a percentage of the total United Kingdom
of the materials for the whole of 1942:
Steel
C o p p e r •, • f
.,
f.
Percentage
1,9
• f • • ff.
1,9
Aluminum ••.,•,,,,,,••#*#,,
0,1
Rubber ••
4«0
,,*•»•,.,,
consumption
CONFIDENTIAL
-8-
The future of exports is bound up with the combined discussions now
taking place under the auspices of the Combined Raw Materials Board and the
Sykes Committee• Since all our capacity to produce, all our raw materials
and all our man-power are devoted to the prosecution of the war, the combined
planning of exports for the supply of the essential requirements of the non~
Axis world is a most necessary task*
It has been the consistent aim of British economic policy over the
last three years to establish a working balance between demand and supply,
and thus eliminate both the dangers of inflation and the inequities of a system of distribution in which scarce goods went to the highest bidder or the
most persistent seeker. This balance has been achieved by a combination of
rationing, price stabilization and income stabilisation, which* though far
from perfect, has, on the nftiole, worked very successfully.
But the balance has been struck at a level of supplies just sufficient to keep the ordinary family going, The reductions that are tolerable
over a short period, vtfiile stocks of clothing and household goods can be worn
out, become increasingly onerous with time, What is true of the more durable
foras of consumption is even more true of the plant and equipment of public
utilities and of civilian industry. The present state of maintenance is in
danger of falling below the safety mark. There is certainly little room for
further economies; and the point has been reached where it is more important
to make adequate provision for maintenance of existing plant than to embaxk
on new construction.
Over the whole field of raw material consumption, continuous attempts
are being made to secure economies, both by butting down demands, and by eliminating waste. The drive is threefold^r-inspired by the need to save raw material, to save shipping and to save labor. The report shows that a large
measure of success has been achieved.
CONFIDENTIAL
INDICES OF REAL CONSUMPTION IN CIVILIAN MAIKETS
1938 1940 1941
Food
100
91
87
Drink and Tobaoco
100 101 112
Shelter (Bent and Bates)
100 104 102
FuelandLight
100 106 107
Household Goods and Domestic Service.,, 100
82
59
Clothing and Footwear ....,..,.,
100
85
63
Travel
100
67 66
Other Goods and Services
100
85
79
INCOME TAX AT PRE-WAR AND PRESENT R&TES
Income*
before Tax
Ir
500
800
1,000
1,500
2,000
3,000
5,000
10,000
25,000
50,000
100,000
1938-39
Tax
Ir
Post-war Credit
Tax
h
h
8
68
112
222
359
699
1,536
4,173
13,698
30,923
67,172
Of which,
1941-42
28
42
48
76
211
301
526
776
1,382
65
ti
n
tt
2,757
6,782
20,970
n
45,345
n
n
it
94,095
*Rates quoted apply to a married couple with two children and
an income wholly earned.
ESTIMATED CHANGES IN VOLUME OF RETAIL STOCKS OF CIVILIAN
GOODS OF CERTAIN DEPARTMENT STORES
(End of June each year)
Piece goods ••••••
•
Household goods
Dress1 materials ••••••••
Women
s wear
...•••
Men98 and boys1 wear •••
Boots and shoes ...«••••
Furnishing depti, •
1938
100
100
100
100
100
100
100
Hardware ••••...,....•••
Fancy goods .•
•,.•
100
100
Sports and travel ......
100
1940
128
144
117
121
in
93
99
103
120
120
1941
112
123
105
no
96
72
78
72
103
81
1942
78
68
83
93
74
58
48
47
78
58
CIVIL USE OF MAIEHIAL AND MANUFACTURBD IMPORTS
(Million tons)
1942 (Annual Rate of January-June)
Percentage
for C i v i l
Use
Iron and s t e e l
•,
Kan-ferrous m e t a l s . . . . . . .
textiles
Timber
Paper and paper-making
materials*
•.,.
8,0
1#7
1.2
10.0
4;86
1*46
1;32
0.88
0.340
0.102
0.264
0.026
3*3
Hides, leather, etc
Fertilizers and chemicals
Miscellaneous
•. • •.
Manufactures (including
all tobacco)•......••..
0.1
1,5
3*2
OM
0,28
0.94
0.78
0.290
0.140
0.517
0.156
45
3,0
0.70
0.210
30
32.0
11.84
2.045
17
Total
7
7
20
3
50
55
20
@FedFRASER