Trade between belligerents

by on January 3, 2012 at 3:03 am in Economics, History | Permalink

I have been enjoying Adam Hochschild’s To End All Wars: A Story of Loyalty and Rebellion, 1914-1918, which covers the British role in World War I.  My favorite section details how the British responded when it turned out they had a drastic shortage of binoculars, which at that time were very important for fighting the war.  They turned to the world’s leading manufacturer of “precision optics,” namely Germany.  The German War Office immediately supplied 8,000 to 10,000 binoculars to Britain, directly intended and designed for military use.  Further orders consisted of many thousands more and the Germans told the British to examine the equipment they had been capturing, to figure out which orders they wished to place.

The Germans in turn demanded rubber from the British, which was needed for their war effort.  It was delivered to Germany at the Swiss border.

What are the possible theories?

1. It was a two-front war, and thus the British could offer the Germans a deal, knowing part of the costs of the rubber supply would fall on the combatants at the Eastern front, or perhaps even other combatants at the Western front.

2. The deal may have appealed to commercial interests in each country.

3. Politicians may have expected to survive the war, and to have their country survive the war, and in the meantime they wanted the war for their side to go better rather than worse, for reasons of public relations or to appeal to their military lobbies.

4. The traders may have disagreed about the relative merits of what they were exchanging, as is the case on Wall Street every day.

What else?

Willitts January 3, 2012 at 3:28 am

At first blush, it seems very odd indeed. But it remains a rather simple case of mutually beneficial gains from trade.

The USA and USSR maintained trade throughout the Cold War.
The USA and USSR traded captured spies, ostensibly assuming the net intelligence gain was no worse than zero.
The USA has given food and even nuclear materials to North Korea.
The USA has given arms and money to Pakistan knowing that some of it is funneled to terrorists
Not all private actors are completely controlled by their central governments, so some trade continues despite war
War is nothing personal
Maintaining trade keeps lines of communication open for negotiations

Or maybe this was an early version of Fast & Furious. (on that note, I didn’t think it was a bad idea, just badly executed and the worst case scenario not explored)

kiwi dave January 3, 2012 at 10:41 am

I’m not so sure, though. We think of the world wars as being the paradigm total wars — i.e., all other interests for all combatants were subject to the war, such that trade with the enemy became inherently zero-sum rather than mutually beneficial. If that is the case, there doesn’t seem to be a rational basis for trade (especially on items that are of military use).

dan1111 January 3, 2012 at 11:43 am

Britain and Germany were giving each other supplies that would enable more effective killing of their own people. I don’t think your examples are analogous to this.

The Cold War was not war–we weren’t actively killing each other. We were trying to maintain a delicate balance and avert war. Trading with them was a part of this balance. The same goes for our relations with North Korea and others.

Prisoner exchanges are about saving lives/freeing our own people.

Finch January 3, 2012 at 3:23 pm

> Prisoner exchanges are about saving lives/freeing our own people.

Which is, in turn, about making it easier to recruit such people in the future.

Adam January 3, 2012 at 3:50 am

Britain needed binoculars and Germany needed rubber? These were the easiest or cheapest or highest-quality sources for both?

Adrian Ratnapala January 3, 2012 at 2:53 pm

Latex (which I expect is the only rubber that mattered) came only from countries with rubber trees. Even when those countries weren’t in the British Empire (and many of them were) they still far, far away from Europe, so and had to be brought accross Britannia’s waves.

As for optics, I know nothing about the period. But until recently I worked with lasers in a British research lab. Our electronics came from all kinds of places, but nearly all optics, including the stuff you bought from the cheap-and-cheerful American company, came from Germany.

Chris Brown January 3, 2012 at 5:02 am

There was a code of “gentlemanly behaviour” that applied to WW1 (and was more or less abandoned by the time WWII arrived). Maintaining some trading relations may have been part of this code. Especially if the “gentlemen” owned the factories that profited from the trade.

qwerty January 3, 2012 at 5:30 am

+1

Rahul January 3, 2012 at 5:52 am

Gentlemanly behavior included using some mustard gas too.

Aneesh January 3, 2012 at 6:41 am

*Trading mustard gas.

farmer January 3, 2012 at 11:52 am

there’s shadowy elements to Mustard gas attacks that actually are compatable with Euro Gentlemanliness.
The first recognized gas attack was on gravenstafel, 1915 in the battle of ypres. the germans deployed it….but against an opposing side made up of Algerians.
This might be a co-incidence, but it’s telling that “Algerian Colonial” falls well outside of Mutual European Gentlemanliness Codes.
It is possible, given what we know, to BOTH use mustard gas AND to think you are acting in accord with a “by euro for euro” chivalry.

kiwi dave January 3, 2012 at 10:44 am

But that’s not really true. WWI got very nasty on the civil population: Germany and the UK each tried to starve the other (Britain through a naval blockade and preventing Germany from accessing fertilisers, Germany through a U-boat campaign). There were German zeppelin raids on England, and the brutality of the German occupation of Belgium (based on truth, albeit exaggerated and manipulated) was a major motivating factor for the Allies.

kiwi dave January 3, 2012 at 10:45 am

forgot to add, the main reason there weren’t large scale attacks on the civil populations of combatant countries had more to do with the limitations of existing technology than with scruples.

David January 3, 2012 at 11:52 am

This was exactly my thought as well. It’s actually one of the reasons the carnage was so bad. The technology had advanced but the mindset was still Victorian in which wars were won by superior character. There’s a section on this in Modris Eckstein’s Rites of Spring, though I can’t find my copy at the moment.

Nigel January 3, 2012 at 5:04 am

From an economic perspective, WW1 was almost wholly irrational, so I don’t think you’re going to find a theory.

Rahul January 3, 2012 at 7:39 am

Which major wars would people consider economically rational?

Sean January 3, 2012 at 8:10 am

WWII, certainly from the Axis perspective. It’s a rational economic decision, rather true or not, to say that it would be cheaper for our nation to conquer our weak neighbors with their land and resources and take them, rather than pay the high prices that said neighbors demand.

Phill January 3, 2012 at 8:50 am

To be more specific, Japan certainly entered the war for economic reasons – a lack of natural resources necessary for maintaining their existing empire required the capture of a few extra strategic territories – and that the Lebensraum was all about obtaining prime real estate.

Martin Keegan January 3, 2012 at 3:19 pm

Ah yes, this Keegan’s Corollary to Godwin’s Law: any sufficiently economically-oriented discussion of warfare will eventually mention the Conveyancing Fraud Theory of World War II

Pete January 3, 2012 at 5:09 am

WWI on the west is probably better understood as a war of extermination against the working class by the aristocratic classes, in which case this kind of collusion makes much more sense.

Marian Kechlibar January 3, 2012 at 6:26 am

This does not sit well with the fact that the British lost much of their young aristocracy there.

Of course that the working class had the greatest losses in time when it constituted over 80% of drafteable population.

kiwi dave January 3, 2012 at 10:07 am

Exactly — I don’t have the numbers in front of me, but a significant proportion of the hereditary arisocracy was wiped out in WWI when peers or their heirs died in battle; also, at least on the British side, losses among junior officer ranks (who were overwhelmingly from the upper and upper-middle classes) were exceptionally high even relative to enlisted men. WWI may have been crazy, but the simple pseudo-Marxist explanation doesn’t hold water.

Sir Mildred Pierce January 3, 2012 at 5:56 pm

That could easily be chalked up to the differences between intentions and results. Whatever WWI truly was, I think we can all agree that whatever the plan was, it didn’t quite go according to plan.

zbicyclist January 4, 2012 at 12:00 am

Assuming, of course, there was a plan.

Certainly we don’t seem to have had a comprehensive plan in the Iraq war, other than to hang “Mission Accomplished” banners.

JWatts January 3, 2012 at 11:09 am

-1

dan1111 January 3, 2012 at 11:48 am

Dumb. At the very least, how could the aristocracy exist without the working class? Who would make binoculars and harvest rubber?

Adrian Ratnapala January 3, 2012 at 2:55 pm

Binoculars are made by well-to-do middle class artisans. Rubber is harvested by foreigners.

Bennett January 3, 2012 at 3:44 pm

The aristocracy was almost entirely destroyed by WW1. Huge numbers of aristocratic estates were knocked down in the inter war period since there was no one to use them. Being a junior officer held some of the lowest life expectancies in the entire war, on land and in the air.

Rahul January 4, 2012 at 12:26 pm

Worse than an enlisted man? Why?

Matt January 4, 2012 at 12:48 pm

Because the Junior Officers were in front of the enlisted men on pretty much every single attack. A Senior Officer may get to sit in the bunkers to the rear, but all his nephews and sons were the first ones stepping into No-Man’s Land.

Sam January 4, 2012 at 5:48 pm

Plus, of course, the enlisted man had a helmet and a rifle, whereas the officer had a “shoot me first” cap on his head and a stick to wave.

Steven Kopits January 3, 2012 at 5:17 am

WWI ended monarchy as a political institution virtually across Europe, with the notable exception of Britain, where it had arguably ended earlier.

kiwi dave January 3, 2012 at 10:12 am

True: 1688 saved the British monarchy. By the early 19th Century, Britain was a “crowned republic”. Had the Stuarts/Jacobites won in the 17th C., Britain would have ended up with a European-style absolute or absolutish monarchy that would have been overthrown.

kiwi dave January 3, 2012 at 11:18 am

it’s also not really true that WWI ended monarchy across Europe. In addition to Britain, Benelux and Scandinavia (which are still monarchies), Italy, Romania and Bulgaria kept their monarchies until either shortly before or shortly after WWII. Another three countries (Greece, Albania and Yugoslavia) actually became monarchies after WWI. Hungary returned to monarchy but didn’t bother to get a king. So while WWI shook the old order in many ways, it didn’t lead to a collapse of the monarchical principle across Europe.

Chris Durnell January 3, 2012 at 3:26 pm

Not quite. Greece. Albania, and Serbia (the progenitor state of Yugoslavia) were all monarchies before WWI. Albania did go through a period when it was a republic, but the monarchy was restored when Zog declared himself king. Greece too went through a period when it was a republic, but again the monarchy was restored during the interwar period. Yugoslavia was never a republic and maintained its monarchy (which was the former royal house of Serbia) until Tito seized power after WWII.

While monarchial institutions were preserved after the Great War, it’s important to note that the first examples you gave were western modern governments where power was really held in the democratic institutions. Those countries where the royalty really exercised power were overthrown, and the old conservative (in the European context) elites were discredited. It was this discrediting of traditional conservatives (because they lost the war) which opened up the opportunity for fascism to rise as a new modernized form of conservatism in Europe. In southern Europe, the surviving monarchies ceded much of their power to others – Italy had a king, but Mussolini was really in power. Hungary was nominally a monarchy, but was in fact a quasi-dictatorship ran by Horthy mediated by praliamentary support and opposition. Both Romania and Bulgaria monarchies were threatened by fascists on the right, and had to cope with increasing powerful parliaments. In all cases, they monarchies enjoyed far more powers before the war, and were in a transitional state to becoming “crowned republics” that you mentioned earlier. In that sense, the “monarchial principle” did collapse. It had been under threat ever since the French Revolution, but after the Great War the monarchy as a source of political power (as opposed to being a head of state in a constitutional framework) was over as a viable political philosophy.

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Jonathan January 3, 2012 at 5:28 am

It all could have been sanitized through third parties, of course, but in a more sensible (less PR-dominated) age, it made sense to disintermediate.

Tim Worstall January 3, 2012 at 5:58 am

There’s a more amusing historical example. During the Napoleonic Wars Britain had a harvest failure. Napoleon authorised the export of French wheat to Britain on the grounds that the paying over of specie for the wheat would weaken the British war effort.

Mercantilism makes people believe strange things…….

anonymous... January 3, 2012 at 3:00 pm

I wonder if the gold standard had anything to do with it? In a non-inflationary economy, they couldn’t simply print money: the gold Britain spent to acquire Napoleonic food would have meant that less could be spent on munitions and other matériel, in absolute terms.

In the first year of World War I people probably had the same mindset. It probably took a while before people caught on to the fact that inflation was happening and was changing some of the old rules.

Olaf January 3, 2012 at 6:04 am

This is Catch 22’s Milo Minderbinder at work, pure and simple.

“Milo is a satire of the modern businessman, and beyond that is the living representation of capitalism, as he has no allegiance to any country, person or principle unless it pays him. … His most interesting attributes are his complete immorality without self-awareness, and his circular logicality in running his Syndicate. … Eventually, Minderbinder begins contracting missions for the Germans, fighting on both sides in the battle at Orvieto, and bombing his own squadron at Pianosa. At one point Minderbinder orders his fleet of aircraft to attack the American base where he lives, killing many American officers and enlisted men.”

http://en.wikipedia.org/wiki/Milo_Minderbinder

Jon Murphy January 3, 2012 at 7:26 am

It could also be something a bit more personal:

The British King, the German Kaiser, and the Russian Tsar were all cousins. I’m wondering if it could possibly be the family trying to keep good relations with one another during a particularly brutal war.

Wil W January 3, 2012 at 7:28 am

I’ll add two more possible reasons:

1. Before the war Germany was in Britain’s top three trading partners. Those relationships do not stop just because the countries are at war.

2. Gentlemanly conduct. It was a nasty war, but at the same time it never really reached home on either side. No British or German soil was invaded. Perhaps for businessmen it was a war that just happened to involve their countries, but not much personal negative impact.

Will McCullam January 3, 2012 at 8:05 am

In the image which can be downloaded from my website.
http://cattermole.com/No.52.jpg

you can see the German made aerial camera my father jettisoned from his airplane in 1918. He was returning from a mission when they hit the windsock above the hanger at their aerodrome. He was a Capt. at the time in the American Air Service and was promptly busted to Lt. since the
“Camera is worth more than you are!”

farmer January 3, 2012 at 11:34 am

great photo, thanks!

david January 3, 2012 at 8:07 am

Unlike World War II, World War I did not generally aim to eliminate the enemy regime; instead the goal was to satisfy the demands of old alliances between governments in a credible way. The value placed upon the welfare of soldiers in the trenches was approximately zero. The value placed upon political support away from the front-line was almost certainly higher. So I’m guessing a combination of of #2 and #3.

Phill January 3, 2012 at 8:53 am

Best answer here so far IMHO.

Andrew' January 3, 2012 at 8:29 am

The procurement guy was judged on his binocular inventory, not the enemy’s rubber inventory. Our recent Medal of Honor winner claims he was blackballed for whistleblowing similar claims.

Slocum January 3, 2012 at 8:40 am

Just what I was going to suggest — I thought such a ‘public choice’ interpretation would be one the first suggestions.

Rahul January 3, 2012 at 8:51 am

An order for 20,000 binoculars wouldn’t get approved by some lowly paper pusher. This had to be signed by someone higher up the chain.

Andrew' January 3, 2012 at 10:04 am

Not every leader is as asinine as Hitler.

zbicyclist January 3, 2012 at 10:04 am

Excellent point, although complicated by the complexities of the US-Pakistan relationship.

Rahul January 3, 2012 at 9:02 am

What about sabotage? Would it be easily detectable if Zeiss annealed some lenses at wrong temperatures or added in a bunch of substandard screws?

farmer January 3, 2012 at 11:36 am

that would work once, but note the brits re-ordered. which meant they were satisfied

Bill January 3, 2012 at 9:10 am

Rubber has uses in the German domestic economy other than for warfare, whereas binoculars have limited civilian use. Germany was protecting its domestic businesses and reducing domestic discontent.

The question should be phrased differently: What values did each side have, and what were they seeking to protect and preserve.

In other words, revealed preference.

NAME REDACTED January 3, 2012 at 9:28 am

It gets weirder. Germany also paid the UK royalties on every machine gun manufactured.

Mark Thorson January 3, 2012 at 11:38 am

According to the autobiography of Vannevar Bush, Mitsubishi was paying Pratt & Whitney royalties during WW2 through Switzerland on the propeller for the Zero, until the Navy found out and ordered them to cancel the patent license. They did, and the payments stopped, but Mitsubishi kept making Zeroes.

zbicyclist January 4, 2012 at 12:05 am

The Navy actually thought Mitsubishi would stop using the patent? Wow.

Mark Thorson January 4, 2012 at 12:35 am

It probably was the principle of the thing that bothered them.

kiwi dave January 3, 2012 at 11:49 am

In the movie Casablanca, the producers wanted to put the Horst Wessel Lied against La Marseillaise in the “duel of the songs” scene, but replaced it because Horst Wessel was still subject to copyright and would cause problems releasing the film in neutral countries.

Another story is behind the origin of Fanta — Germany had been the biggest market for Coke outside the US; Coca Cola’s agent in Germany, Max Keith, was unable to get Coke syrup during the war and so invented Fanta — but he dutifully turned over the profits to Coca Cola after the war.

Rahul January 3, 2012 at 12:00 pm

Interesting that inventing Fanta was thought easier than replicating Coke syrup.

Marton January 4, 2012 at 5:51 am

Well, oranges grew in Europe, but coca leaves didn’t…

bk January 4, 2012 at 1:10 am

Not Coca-Cola’s flagship brand – its orange soda.

NAME REDACTED January 3, 2012 at 9:30 am

Also Tyler’s 4 options are incomplete.
At the time, business between belligerents was seen as normal and war was just something soldiers, royals and governments did. There was a separation between state and economy that we no longer have.

NAME REDACTED January 3, 2012 at 9:35 am

Everything changed after ww1. After WW1 war became “total war” and the strategy became to destroy the other side’s industry.

Right Wing-nut January 3, 2012 at 9:59 am

Or rather, WWI marked the end of a period of limited war in Europe. We’ve gone through various periods where people were more or less willing to cede territory or make other concessions. Total war is not a 20th century invention, far from it. But we are in a period where the ideologies of the belligerents don’t allow for negotiated settlements. (ie: Nazism, Communism (“We will bury you.”), Al Quedua, et. al.)

Stigand January 3, 2012 at 10:14 am

Most of this trade stopped in World War II, where the struggle for access to resources was taken much more seriously. See David Edgerton’s excellent “Britain’s War Machine” for lots of detail on the struggle for resources in WW2. This suggests it was a learning process: leaders took a while to work out that refusing trade to the enemy could be smart, just as it took them several years to work out that walking en masse towards the enemy’s machine guns wasn’t.

charlie January 3, 2012 at 10:22 am

My first answer was wrong; I had assumed this had happened early before the scale of the war was apparant. According to the book, it happened in 1915.

It also notes that all records are missing, so this could be urban legend or you can see that people in 1915 started to become embarassed by it.

BTW, Reagan won in 1980 becuase of his support for the soviets. If JC haden’t cut off all grain export to the Soviet unions, a lot of farming familes — and farming states — would have remained D in the South.

JWatts January 3, 2012 at 11:21 am

“If JC haden’t cut off all grain export to the Soviet unions, a lot of farming familes — and farming states — would have remained D in the South.”

The South, by and large, is not a large grain exporter. Nearly all of the wheat involved in the trade embargo came from the mid-west. So, no that’s not the reason the South voted for Reagan.

It’s pretty academic in any case. Reagan won in a huge landslide; 90% of the electoral college went to Reagan, 10% to Carter. Even if Carter had won the rest of the South, he would have still lost.

farmer January 3, 2012 at 11:45 am

it’s also important to note that “Britain” and “France” and to a lesser extent “Germany” where much bigger and poorly administrated back then.
If a guy in Leeds sold wellies to Germany, it (to me) is a different story than if a guy in Durban, ZA or Canberra or Bangalore sells boots to Germany. All were “british” cities at the time, but the notion of “the hated german” must have been felt with less gravity halfway around the world.
Also, the mechanisms of enforcement to prevent Leeds from aiding the enemy were certainly better than preventing Singapore aiding the enemy.
(to whit, where ya make rubber ain’t leeds)

dan1111 January 3, 2012 at 11:59 am

The post implies that it was a centralized decision.

sam January 3, 2012 at 2:01 pm

What else?

Both sides were fucking nuts.

TallDave January 3, 2012 at 2:09 pm

I think the answer is just that war was a very different creature before WW I. It’s easy to forget how horrific The Great War actually was — trench warfare was something new.

Marian Kechlibar January 4, 2012 at 8:22 am

“trench warfare was something new”

In Europe, yes.

On the other hand, the battle for Port Arthur in the Russo-Japanese war, a decade earlier, showed the future carnage perfectly.

It is interesting that many countries had their military observers there, yet the observations weren’t mostly taken into account by the chief staff.

Matt January 4, 2012 at 1:06 pm

Or Petersburg in 1864…

Derek Lowe January 3, 2012 at 2:24 pm

This is a good time to plug Paul Fussell’s “The Great War and Modern Memory”, which does a good job on this very point.

Bill Harshaw January 3, 2012 at 3:03 pm

It’s easy to fantasize an all-knowing, all-powerful government, so all actions must make sense according to the motives of the “state”–that rules out your no. 1. The reality is government is a bunch of people doing their own things, so achieving consistency of action is impossible. (Look at the problems the Union had in controlling the movement of cotton during the Civil War.) It’s also true the nature of war changed faster than did the structure and powers of government. Even today we have big problems in applying economic sanctions to foreign countries.

JohnZ January 3, 2012 at 3:51 pm

There seems to be some evidence that, while this was discussed, it ultimately never happened.

See the 8th post….
http://boards.straightdope.com/sdmb/showthread.php?t=582638

He references this book
http://www.amazon.com/Official-History-Ministry-Munitions-XI/dp/1847348858

In case you don’t want to click thru, here is the post:


The History Of The Ministry Of Munitions, Vol. XI relates that a deal was indeed contemplated to exchange German optical instruments for British rubber through a series of Swiss intermediaries. The Germans offered around 30,000 binoculars at once and 20-30,000 a month within six weeks. 500 rifle telescopes were offered at once and 5-10,000 a month. In the end, this deal did not go proceed, supposedly because the British supply position had improved although it may have been because somebody got cold feet and said “look, this really isn’t on”.

This may have been the inspiration for the plot of Robert Ludlum’s novel, The Rhinemann Exchange

Stephen January 3, 2012 at 4:57 pm

Britain’s advance purchase arrangement would lock-in the price for its ongoing demand of optics. The increase in demand causes an increase in price for non-locked customers. Germany (presumably, not locked-in) therefore needs to commit more resources to purchasing optics. War would be over “by Christmas”, well before supply could increase to meet the increased demand.

awfulconcoction January 3, 2012 at 8:46 pm

mercantilism and the lust for gold? Didn’t the exact same thing happen with wheat during the Napoleonic Wars?

Adrian January 8, 2012 at 2:08 pm

Planning the invasion of Russia in 1812, Napoleon bought a million great coats for his Grande Armée from Yorkshire textile mills.

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