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«Last revised April 23, 2006 The Second World War as an Economic Disaster Niall Ferguson Laurence A. Tisch Professor of History Harvard University ...»

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1938. 54 Of equal importance was her acute economic vulnerability. The Four Year Plan could not possibly have improved the German position much by September 1938, barely two years since Hitler’s memorandum had been drafted. Domestic iron ore production had certainly been boosted, but the increment since 1936 was just over a million tons, little more than a tenth of imports in 1938. No more than 11,000 tons of synthetic rubber had been produced, around 12 per cent of imports. 55 The rationale of annexing Austria and Czechoslovakia was precisely to address the shortages of raw materials that were continuing to hamper German rearmament. 56 Had war come in 1938, the journalist Ian Colvin had it on good authority that Germany had only sufficient stocks of gasoline for three months. 57 In addition, the German economy was by now suffering from acute labor shortages, not least as a result of the upsurge in arms spending that had been set in train by the Four Year Plan. 58 As Colvin’s testimony suggests, Germany’s economic problems were no secret. Indeed, their financial symptoms were highly visible. Schacht’s resignation as Economics Minister – which he submitted in August 1937, though it was not accepted until November − was widely seen as a blow to the regime’s fiscal credibility, although he stayed on as Reichsbank President. 59 Aside from his objections to the Four Year Plan, Schacht had two concerns: the mounting inflationary pressure as more and more of the costs of rearmament were met by printing money, and the looming exhaustion of Germany’s hard currency reserves. These problems did not go away.

Dunbabin, ‘British Rearmament’, p. 597.

For the non-economic aspects of the problem, see Ferguson, War of the World, chs. 9 and 10.

Tooze, Wages of Destruction, table 6.

Overy, ‘Germany and the Munich Crisis’, pp. 194–200.

Colvin, Vansittart in Office, p. 273.

Tooze, Wages of Destruction, ch. 8.

Smelser, ‘Nazi Dynamics’, pp. 38f. Cf. Brown and Burdekin, ‘German Debt’, p. 665.

German exports were a fifth lower in 1938 than the year before. In July Germany had to give in when Britain insisted on a revision of the Anglo-German Payments Agreement and continued payment of interest due on the Dawes and Young bonds (issued to help finance reparations). 60 The anti-appeasing commercial attaché in the British embassy in Berlin had a point when he argued for canceling the Anglo-German Payments Agreement. By further reducing Germany’s access to hard currency, that would have struck at the German economy’s Achilles heel. 61 Small wonder the German stock market slumped by 13 per cent between April and August 1938; the German Finance Minister Count Schwerin von Krosigk warned that Germany was on the brink of an inflationary crisis. In a devastating Reichsbank memorandum, dated October 3, 1938, Schacht said the same. When Schacht and his colleagues repeated their warnings of inflation Hitler fired them. 62 As we have seen, British officials worried a great deal about Britain’s shortages of labour and hard currency. But in both respects the German position was far worse in 1938, just as it was worse militarily, diplomatically and domestically. Had Chamberlain resisted the temptation to fly off to Germany in pursuit of ‘peace in our time’, but had instead held firm to the maintenance of Czechoslovakia’s territorial integrity, the pressure on Germany would have far exceeded that on Britain. Even after Hitler’s bad faith became apparent, he and key officials in the Treasury and the Foreign Office clung to the notion that time was on Britain’s side and that it was better to fight later than sooner. But this was wrong. Time – not to mention the free gift of Czechoslovakia − enabled Hitler to improve Germany’s strategic position, particularly by concluding the Nazi-Soviet Pact. In terms of military and economic preparedness, it was the Germans not the British who gained the most from the last twelve months of peace. In economic terms Munich was a disaster, for the simple reason that a relatively small war over Czechoslovakia would have been so much less costly than the war that began with the partition of Poland in 1939.

IV MacDonald, ‘Economic Appeasement and the German “Moderates”’, pp. 115ff.

Ibid., p. 121.

Tooze, Wages of Destruction, ch. 9.

Appeasement meant that Germany was undeterred by subsequent British commitments to other Central and East European countries. ‘Our enemies are little worms,’ he remarked, two days before the Nazi-Soviet Pact was signed; ‘I saw them at Munich.’ 63 Slow rearmament also meant that Germany was undeterred by the diminutive forces Britain had at her disposal to send to Europe even as later as 1940.

The Japanese case was different. Here, it is true, the British offered even less reason for concern than they did in Europe. It was not difficult for Japanese decisionmakers to work out that the British Empire in Asia was as enfeebled by 1941 as the Dutch and French. Even had the Europeans adopted more confrontational policies, they would have lacked credibility given the magnitude of the setbacks they had suffered in Europe in 1940. The sole obstacle to Japanese hegemony in South-East Asia was therefore America. 64 On the one hand, it was clear that the United States had scant appetite for war, in Asia or anywhere else. On the other, Americans had little desire to see Japan as sole master of China, let alone the whole of East Asia. But those who ran U.S. policy in the Pacific believed they did not need to take up arms to prevent this because of Japan’s dependence on trade with the United States and hence its vulnerability to economic pressure. 65 Even if the Americans did not intervene militarily, they had the option to choke the Japanese war machine to death, especially if they cut off oil exports to Japan. 66 This was precisely what made it so hard for American diplomats and politicians to foresee the Japanese attack on Pearl Harbor. As normally risk-averse people, they could not imagine the Japanese being so rash as to gamble on a very swift victory when the economic odds were stacked so heavily against them. 67 They assumed that the partial sanctions imposed after the Japanese invasion of Indo-China would send a clear enough signal to deter the Japanese. Their effect was precisely the opposite.

The origins of the war in the Pacific were in large measure economic. The Japanese-American Commercial Treaty of 1911 was abrogated in July 1939. By the end of the year Japan (along with other combatants) was affected by the Roosevelt’s ‘moral embargo’ on the export of ‘materials essential to airplane manufacture’, which meant in Overy, ‘Germany and the Munich Crisis’, p.191 See Kinhide, ‘Structure of Japanese-American Relations’.

Barnhart, Japan Prepares for Total War, pp178f.

Scalapino, ‘Southern Advance’, p. 117.

Graebner, ‘Introduction’, pp. xvi–xvii.

practice aluminum, molybdenum, nickel, tungsten and vanadium. 68 At the same time, the State Department applied pressure on American firms to stop exporting technology to Japan that would facilitate the production of aviation fuel. 69 With the National Defense Act of July 1940 the President was empowered to impose real prohibitions on the exports of strategic commodities and manufactures. By the end of the month, after a protracted wrangle between the State Department and the Treasury, it was agreed to ban the export of high-grade scrap iron and steel, aviation fuel, lubricating oil and the fuel blending agent tetraethyl lead. On September 26 the ban was extended to all scrap; two months later the export of iron and steel themselves became subject to license. 70 No one knew for sure what the effect of these restrictions would be. Some, like the State Department’s ‘Advisor on Far Eastern Affairs’ Stanley Hornbeck, said they would hobble the Japanese military; others, like the U.S. Ambassador in Tokyo, Joseph Grew, that they would provoke it. Neither view was correct. The sanctions had in fact been imposed too late to deter Japan from contemplating war, since the Japanese had been importing and stockpiling American raw materials since the outbreak of war in China. 71 Only one economic sanction was regarded in Tokyo as a casus belli and that was an embargo on oil. That came in July 1941, along with a freeze on all Japanese assets in the United States – a response to the Japanese occupation of southern Indo-China. 72 From this point, war in the Pacific was inevitable.

For a long time the Japanese Foreign Ministry had found it hard to imagine the United States taking up arms against a victorious combination of Germany, Italy and Japan – especially if the Soviet Union were on friendly terms with that combination. 73 A guiding assumption was that the American public was staunchly isolationist, and that the victories of Japan and her allies would reinforce rather than reverse that sentiment. 74 The army was also reluctant to confront the United States, hoping that the conquest of European possessions in Asia could somehow be achieved without precipitating Barnhart, Japan Prepares for Total War, pp. 179f.

Ibid., pp. 180f. Cf. Lu, From the Marco Polo Bridge, p. 150.

Barnhart, Japan Prepares for Total War, pp. 182–97.Cf. Lu, From the Marco Polo Bridge, p. 144; Coox, ‘Pacific War’, p. 326.

Lu, From the Marco Polo Bridge, pp. 244f.

Barnhart, Japan Prepares for Total War, pp. 263ff.

Lu, From the Marco Polo Bridge, pp. 109–13.

Barnhart, ‘Japanese Intelligence’, pp. 440, 446f.

American intervention. 75 Until September 1941 Japan’s naval strategists were the only ones prepared to contemplate a war with America. However, they ultimately could see no other way of winning it than to deal a knockout blow to the U.S. Navy at the outset. 76 By April 1941 Admiral Yamamoto Isoroku had convinced himself that the ships stationed at Pearl Harbor could be sunk in one fell swoop. On November 1 Lieutenant-General Suzuki Teiichi assured the participants at a ministerial-military Liaison Conference that supplies from the territories to be occupied would be sufficient to meet Japan’s material needs. ‘In 1943,’ he declared, ‘the material situation will be much better if we go to war.’ 77 This was not in fact the same as saying that Japan’s material situation was equal to the challenge of war against the British Empire, the Dutch East Indies and the United States. 78 All Suzuki meant was that Japan’s material situation was bound to deteriorate the longer war was postponed. The navy alone was consuming 400 tons of oil an hour, just idly waiting; after eighteen months it would all be gone. 79 It therefore followed that it was better to strike now rather than to wait. This rationale was sufficient to commit Japan to such a war if no diplomatic breakthrough had been achieved by midnight on November 30, 1941.

It is sometimes suggested that the decision-makers in Tokyo were succumbing to some kind irrational Oriental fatalism – an impression heightened by Tōjō Hideki’s assertion on October 14 that ‘a man sometimes must dare to leap boldly from the towering stage of Kiyomizu Temple’. 80 Links have been drawn between the decision for war against the United States and the samurai code, or a specifically Japanese ‘siege mentality’, if not collective hysteria. Yet in many ways this way of thinking was more Western than Eastern in its provenance. Unknowingly, Tōjō was echoing Bethmann Hollweg’s arguments for a German war against Russia in 1914 and Hitler’s arguments

for a German war against the Western powers in 1939. Even the timeframe was similar:

Coox, ‘Pacific War’, p. 325; Fujiwara, ‘Role of the Japanese Army’, p. 191.

Kiyoshi, ‘Japanese Strategy’, pp. 129ff.

Ibid., p. 132; Barnhart, ‘Japanese Intelligence’, p. 449.

For more realistic assessments of Japan’s economic position, see Coox, ‘Pacific War’, pp. 333ff.

Jansen, Japan and China, pp. 404f.

Coox, ‘Effectiveness of the Japanese Military Establishment’, p. 14.

Two years from now [1943] we will have no petroleum for military use; ships will stop moving. When I think about the strengthening of American defences in the south-western Pacific, the expansion of the U.S. fleet, the unfinished China Incident, and so on, I see no end of difficulties. We can talk long about suffering and austerity but can our people endure such a life for long?... I fear that we would become a third class nation after two or three years if we merely sat tight. 81 Thus, when Tōjō spoke of ‘shutting one’s eyes and taking the plunge’ he was making a very German argument: to gamble on immediate war rather than submit to relative decline in the near future; to put to use military assets that would certainly bankrupt the country if they continued to sit idle. 82 In the words of a High Command policy paper presented to the Imperial Conference of September 6, 1941, the American aim was ‘to dominate the world’; to this end the United States aimed ‘to prevent our empire from rising and developing in East Asia’. Japan was in ‘a desperate situation, where it must resort to the ultimate step – war – to defend itself and ensure its preservation’. The alternative was to ‘lie prostrate at the feet of the United States’. 83 The Japanese were not fantasists. For Matsuoka Yōsuke, Pearl Harbor was the disastrous culmination of a strategic miscalculation. He had assumed that the combination of the Tripartite Pact with Germany and Italy and the Neutrality Treaty with the Soviet Union would deter the United States from resisting Japanese expansion in Asia. 84 Nomura Kichisaburō, the last pre-war ambassador to Washington, had favored a more moderate policy, seeking a return to the Open Door regime in China, rather than risk war with the United States. 85 Nor were all Japan’s senior naval officers persuaded by Yamamoto’s plan. Nagano Osami, chief of the Navy Staff, argued that Japan was ‘bound for self-destruction and … destined for national extinction’ – though he regarded this, somewhat paradoxically, as true to ‘the spirit of defending the nation in a war’. 86 In the summer of 1941 the Economic Mobilization Bureau produced a report which concluded that after two years of hostilities, Japan’s economic resources would probably not suffice Coox, ‘Pacific War’, p. 336.

Buruma, Inventing Japan, p. 96. See also Jansen, Japan and China, pp. 405–8.

Coox, ‘Pacific War’, p. 329.

Lu, From the Marco Polo Bridge, p. 119.

Graebner, ‘Introduction’, p. xii.

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