On June 18, 1940, Winston Churchill gave his “finest hour” speech. This is how it ended:
What General Weygand called the Battle of France is over. I expect that the Battle of Britain is about to begin. Upon this battle depends the survival of Christian civilization. Upon it depends our own British life, and the long continuity of our institutions and our Empire. The whole fury and might of the enemy must very soon be turned on us. Hitler knows that he will have to break us in this Island or lose the war. If we can stand up to him, all Europe may be free and the life of the world may move forward into broad, sunlit uplands. But if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new Dark Age made more sinister, and perhaps more protracted, by the lights of perverted science. Let us therefore brace ourselves to our duties, and so bear ourselves that, if the British Empire and its Commonwealth last for a thousand years, men will still say, “This was their finest hour.”
For a student of history, it would be hard to find a finer hour in the history of Britain. And yet the British Empire is a shadow of its former glory. Wars and the debt that accompanies war changes everything for the victors and the vanquished alike.
Pride Before the Fall
After World War II, victorious British politicians saw the United Kingdom as a first-class power that would rival the United States. Britain looked like a world power in terms of its navy and army. But it was all based on a mirage of debt.
According to the BBC:
John Maynard Keynes, the chief economic advisor to the new Labour Government, warned ministers in August 1945 that Britain’s world role was a burden which ‘… there is no reasonable expectation of our being able to carry …’
As he pointed out, the entire British war effort, including all her overseas military commitments, had only been made possible by American subsidies under the Lend-Lease programme. If the Americans stopped Lend-Lease, Britain would face a ‘financial Dunkirk’ – his words – unless Washington could be touched for a loan of $5 billion.
Keynes wrote that such a ‘Dunkirk’ would have to be met by: ‘… a sudden and humiliating withdrawal from our onerous responsibilities with great loss of prestige and the acceptance for the time being of the position of second-class Power, rather like the present position of France.’
History tells us that Briton squandered $4 billion in Marshall Plan money on keeping the dreams of empire alive while Germany rebuilt its factories and infrastructure. The U.K. had sought to revive the sterling and be the banker to the world. Yet, by the end of 1947, the U.S. dollar was ascendant, and the U.K. had wasted its money.
In 1949, the sterling devalued, caused by a balance of payments crisis. By the 1950s, new plants in Germany were about to start putting out millions of Volkswagen Beetles.
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On a side note, the Americans offered the VW factory to the British to be dismantled and shipped to Britain in 1945. No British car manufacturer was interested. An official report included the phrases: “The vehicle does not meet the fundamental technical requirement of a motor-car… it is quite unattractive to the average buyer… To build the car commercially would be a completely uneconomic enterprise.”
Creative Destruction
The U.K. in the post-war years missed the opportunity to reinvent itself for the new world because it was ingrained in the past. To use a business analogy, it was like Blockbuster and Netflix.
At one point, Netflix’s CEO offered to sell out to Blockbuster for $50 million. But Blockbuster just couldn’t cannibalize cash flow of existing stores, though it must have known that the future of rental was online.
The U.S. is a global empire. We have over 800 bases around the world. There are 28,000 U.S. troops in South Korea alone. South Korea is the 11th largest economy in the world — surely it can pay for its own troops…
As a country, we owe more than $21 trillion and are growing that debt rapidly. This is happening at a time when the unemployment is low and GDP is expected to be 4% in the next quarter. We can’t reduce debt during the good times, and we will double it again when the next recession hits.
The longer an empire lasts, the more entrenched the powers become, and the harder it becomes to deviate from course. In business, there is something called “opportunity cost,” which is defined as the loss of potential gain from other alternatives when one alternative is chosen. The VW Beetle and Netflix were just two examples.
The question is not “What will we lose by deviating from the status quo?” but “What have we given up by not?”
What is the price of empire?
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
