Chapter CXV: Between Hawk and Dove.
The most obvious solution to the Prime Minister’s Spanish dilemma was a compromise between the doves and the hawks, specifically reverting to the previous policy of not running convoys past Gibraltar. Internationally the Foreign Office could announce convoys would continue to run ‘as before’ and, by implying no change, ensure there would be no loss of pride or prestige, domestically it would balance the concerns of hawks and doves and in Spain itself the impact would be minimal, the crisis in the South was over and the internal supply lines from the Atlantic ports would be more than sufficient. There was in fact only one problem; politics.
In his short time in office Eden had established something of a reputation for compromise. While there is nothing intrinsically wrong with compromise in politics, properly presented it can be seen as a sign of wise and inclusive leadership, beyond a certain point it becomes a vulnerability and sign of weakness. The location of that point was, and still is, a matter of perception and judgement, but there was general agreement in the spring of 1937 that Eden's premiership was at or beyond it. While Eden's domestic policies had not helped his case, his attempted compromise with the striking boilermakers and his watering down of the ambitious reforms proposed for the coal industry to name but two, it was the budget that confirmed the problem. Delayed first due to the leadership elections following the death of Chamberlain and then by the leisurely Whitsun recess of Parliament, the budget had acquired an air of anticipation quite out of proportion to its contents. Quite simply changes, significant and even dramatic changes, were expected and yet none would be forthcoming.
The issue at the heart of the budget was the economy and the strength of the recovery, was it a delicate flower that still needed protecting or a strong bull that could be harnessed for the national good? Adding spice to this debate was the related question of what exactly had prompted the recovery; was it spending on the war, trade policy, the Keynes Plan, a bit of everything or something else entirely? The many answers to those two questions produced some unusual, if unconvincing, permutations; Keynesians arguing for tax rises (over fears of ‘war profit’ induced inflation) and fiscal conservatives demanding an unbalanced budget (as re-armament expenditure 'didn't count' due to being a temporary, one-off expense). A particular subject of debate was the social security fund, after rocketing upwards as employment had risen, demands on the fund had fallen back again as the economy improved. Indeed in the months after Abyssinian War spending by the fund had fallen faster than even the most optimistic estimates, the recovery accelerating even as defence spending dropped. This happy turn of events had released the most lusted for type of money in politics; ‘free’ money, money that could be spent without raising taxes, running up debt or cutting elsewhere. Naturally there was no shortage of advice on how this windfall was best spent, almost all of it contradictory. At the centre of these arguments sat the Chancellor of the Exchequer, Leo Amery, a man reflecting not on the fund or spending priorities, but on the wisdom of the old saying ‘be careful what you wish for’.
One of the Empire Marketing Board’s campaign posters, this one featuring a stern Imperial Lion demanding consumers alter their bacon purchasing habits, though the connection between lions and bacon is a mystery perhaps known only to the artist. Though the Board had been disbanded after the tariff reforms of the early 1930s, the promotion of intra-Empire trade continued. The terms Imperial Preference and Empire Free Trade are used somewhat interchangeably, much as they were at the time, however in a few key respects they were very different ideas. Empire Free Trade proposed zero tariffs between members, Imperial Preference merely there be a distinct advantage for Empire trade over global alternatives to be produced by lowering some tariffs but raising others. For the Treasury this distinction was far from academic.
Amery was not a typical chancellor inasmuch as he had once fancied himself an economic theorist in addition to being a politician. Prior to the Great War he modestly described his publication on the evils of Free Trade as “a theoretical blast of economic heresy”, purporting to base his arguments on logic and economic theory as much as politics. As one would expect from the lamentable history of politicians who fancy themselves economic innovators the ‘heresy’ itself was both intellectually shaky and not especially original. In essence Amery put forward the conventional protectionist argument, but with the twist of ‘balance’, the idea that volume of trade was unimportant so long as earnings from exports balanced matched the cost of imports. The tariff reforms implemented had been more Empire Free Trade than Imperial Preference, in general intra-Empire tariffs were reciprocally cut and external ones left alone. While not exactly in line with Amery’s ‘heresy’ they were aimed at improving imperial unity and helping to balance the trade figures, two areas he was very much concerned with, and so he had not attempted to change them after entering No.11.
Amery's acquiesce to the reforms was also motivated by common sense, by almost every measures they were a vast success; Free-traders pointed to the increase in total volume of trade as the largest benefit, while those of an imperial bent highlighted the large swing from global imports to those from the Empire. Even protectionists could find a positive, the increase in ‘strategic’ machinery and industrial produced and exported in Britain, the fall in imports of the same and the general improvement in the visible trade balance. There was however a price to all this, the collapse in government revenue. In broad terms the revenue from Customs & Excise had typically accounted for some 40% of the total tax take, part of a long and successful effort by the Treasury to hide the true cost of taxation from the British public. The depression and associated slide of imports had dented that revenue, as had the implementation of tariff reform, but as the economy recovered the Treasury had expected revenues to return to more usual levels. The problem facing Amery was that this had not happened, tariff reform had worked too well; imports were increasingly low or zero rated products from the Empire or from nations like Argentina where trade deals had been arranged. Even allowing for the recovery in excise duties (excise being an inland tax, customs being taxes on imports) there was still a large hole in the government’s revenues.
Strictly speaking this was not a serious problem, between rises in other revenues, the fall in social security spending and the winding down of war time defence spending the budget still broadly balanced, even allowing for the extra costs of Eden’s domestic policies. Little work was required to balance the budget, and that little work was duly done through tinkering with various duties, assessments and funds. For a man very keen on the concept of economic balance this approach had much to commend itself, not least the fact it favoured one of his other great concerns, defence spending. While certainly down from war time levels, the Estimates for all three forces were still far above pre-war levels and it was Amery’s hope that by making them part of a balanced budget he could establish a new, higher, baseline for defence spending. A fine example of long-term strategic thinking perhaps, but as an example of short term politics it is not one to be recommended. As discussed above, the change of Prime Minster, his new approach to the domestic agenda and above all the delays to budget day had built up expectations of large, even radical, changes. It is therefore hardly surprising that a fairly flat ‘steady as she goes’ budget, notable mainly for the admission that the savings from the social security fund would mostly be spent on plugging the gap in the expected customs revenue, did not go down well with either the House or the popular press. It was, in short, viewed as yet another compromise by a Premier unwilling to come off the fence and chose a 'decisive' course of action. 'Decisive' action being defined as moves such as raising taxes to pay down the debts of depression, slashing spending to fund lowering taxes back to 1920s levels or any of the number of radical ideas that had circulated in the vacuum of the extended pre-budget purdah.
Thus it was that Eden was forced into ‘decisive’ action over Spain, even though compromise and keeping to a previously successful policy might have been the best option, politically he had few options. He could continue to destroy his reputation and power base by taking the compromise option, appease the dove faction by withdrawing convoys or side with the hawks and hold a firm line on convoys to southern Spain. Personally Eden may have preferred compromise, perhaps even the dove option given his previous speeches on non-intervention, but in the end he sided with the hawks; the convoys would continue to run. Indeed the Admiralty and Board of Trade were instructed to arrange new convoys to Gibraltar and the southern ports of Spain purely to prove the point and 'show leadership'. The judgement was political, the potential for lose cannons among the ascendant hawks was judged higher than the chance of problems from the declining and more restrained doves. While perhaps true Eden would soon discover that ‘less dangerous’ is not the same thing as ‘not dangerous’.
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Notes:
2000 words of politico-economic rambling, you don't get this kind of update in anyone elses AAR I'll wager. Though that may be a good thing. Anyway, a leader forced by public pressure into making a not properly thought through decision for political reasons? Sounds about right to me.
On the money, yes it does get that messy in the wonderful world of macroeconomics. Keynes did argue that in the good times the country should run a surplus to fund the deficit spending in recessions (though strangely modern day Keynsian economists were quiet on that fact during the 2000s). Equally in OTL the “Defence loans act” was used to shift quite a lot of re-armament spending out of the main budget and into 'defence loans', on the basis that once you'd re-armed you wouldn't need to do it again, though to be fair at least the defence loans were at least admitted to, weren't lied about and weren't hidden off the government books. I can imagine a great many economists confidently saying 'it was this!', safe in the knowledge they can never be proved wrong.
Customs and Excise was indeed that important to the British treasury so reduced tariffs in the Empire would have been a problem, even more if they actually caused trade patterns to alter. Equally social security fund spending did shoot up massively, it was something like £230 million a year in mid-1930s from less than £50 in the mid-1920s, so as the economy recovers that should drop back down. Despite that the 1937 figures would be a bit of a shock to the system, especially as the Treasury has generally been a bit optimistic on how much revenue any given recovery/tax rise will actually bring in. I think for Amery a budget where defence spending is up, the balance of trade looks better and trade with the Empire is strong is pretty much all he’d ask for. As long as that’s happening I can’t see him being a radical, which is a shame for Eden but there you go.
Up next a brief one on things continuing to go wrong for Eden, then I think Japanese hijinks and Dutch techporn. Not sure though, any requests?
