How We Paid for Spitfires
Writing about web page http://www.bbc.co.uk/news/uk-england-35697546
On 5 March we marked the eightieth anniversary of the 1936 maiden flight of the Supermarine Spitfire, a fighter airplane that played a decisive role in Britain's air defence in World War II. The British affection for the Spitfire is partly for its role in our history, and partly for its elegant design. Like thousands of other boys of the 1950s (and no doubt a few girls, but this was the 1950s), I made up model aircraft from plastic construction kits. I think my first was the even more beautiful Hawker Hunter. The Spitfire was perhaps my second, and always my favourite.
A few days ago the BBC journalist Greig Watson wrote some engaging pieces on the Spitfire's anniversary, here and here. The second of these describes the Spitfire Fighter Fund, through which the public was invited to contribute to their cost. While he was preparing this piece, Greig wrote to me:
Clearly pilots were not sat around waiting for a cheque to arrive so they could purchase a new plane – so could it be argued the funds were just a publicity stunt which made no difference to the number of Spitfire in the air? Or were they in fact effective?
In his article Greig quotes me briefly – right at the bottom, if you struggle to find the place. Here's the full reply that I sent him.
From 1940 onwards, Britain had a command economy. The market economy was restricted to the sidelines: those foodstuffs that were unrationed, and the black market. For most things the government set targets and priorities, decided how money would be spent, and on what, and how much of nearly everything would be produced. That included Spitfires. Only after ensuring the supply of Spitfires did the government worry about how to pay for them. Quite right, too, that’s what you do in an existential struggle. That’s not to say they did not care how it was paid for. They did care. But still, it was a secondary care, one that came after working out how many ships and planes we should make.
From this perspective, Spitfire funds were like today’s “sponsor a panda” and “buy a metre of rainforest” appeals. In any immediate sense these make no difference to the number of pandas or the amount of rainforest. They do put money into the hands of campaigning organizations and charities. We trust them to make a difference, and we get some small satisfaction from the cloak of sponsorship.
What difference did Spitfire funds make? They did not make any difference to the number of Spitfires, because for most of the war Spitfires were a top government priority (along with ships and other planes). If you run out of money, it’s not the top priority that is at risk. It’s the bottom priority that is most likely to be neglected.
What would have happened without Spitfire funds? Two scenarios.
- Scenario 1: with less money coming in, the government might have economized on the bottom priority, which could have been, say, the rehousing of bomb victims. So more civilians would have been homeless and morale on the home front might have been that bit lower.
- Scenario 2: the government might have spent the money on the war anyway, by printing it, so more money would have been in circulation in the economy. Since most goods were rationed, the extra money might have found its way into the black market, raising prices for under-the-counter food. Because of this, some army battalion quartermaster would have been tempted to sell army rations on the black market, so more soldiers would have gone hungry and morale on the fighting front would have been that bit lower.
Thus, Spitfire funds did not pay for Spitfires, but they were still an essential part of the war effort. Without them the war would eventually have gone less well in one aspect or another. There would have been a cost.
According to Greig Watson, the total subscribed by the public was £13m. This would have covered only a small fraction of the Spitfires produced in wartime. (The total number of Spitfires produced up to 1948 was just over 20,000. Their average unit cost lay somewhere between the £13,000 of an early batch sold to Estonia in 1939 and the notional £5,000 set by the Spitfire funds appeal.) The rest was paid out of general taxation and government borrowing, both of which reached large fractions of national income.
Mark Harrison
21 Mar 2016 10:38
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Tags: Economics War
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[Skip to the latest comment]Bill Klein
I have a love/hate relationship with this aircraft. I loved that this was an important fighter during a critical time of British history, and I loved the spirit of Churchill and the British people during the 1939-1945 period. I hated this aircraft, because it shot down my great uncle who was flying a Me-109 on a reconnaissance flight over Britain in 1940!
21 Mar 2016, 19:22
Anders
Great piece, and I agree that they didn’t actually pay for Spitfires, but you don’t follow your counterfactual to its conclusion.
With the govt deprived of the Spitfire funds, there might have been two negative effects in terms of the consumption of real goods and services, as you outline. But you neglect the effect of the public being richer in the counterfactual scenario.
It seems fair to assume that the Spitfire funds reduced £ for £ the public’s discretionary consumption. So in the counterfactual, non-govt spending would have been higher, with the positive effects in terms of consumption of real goods and services, with all the morale-raising effects that would have had.
In short, the initiative just shifted some consumption from private sector to public sector: a distributional shift but not one that obviously helped the war effort.
The real macroeconomic purpose, or function, of the initiative was that it lowered inflation relative to the counterfactual.
23 Mar 2016, 12:51
Gary
@anders,
Why do you assume non-government spending would have been higher?
That’s just your bias. Poor thinking.
23 Mar 2016, 13:16
Arturo
@Anders
@Gary
Ditto for the “lowered inflation” claim. Gold standard had been suspended and govts ran massive deficits to fund WWII efforts. Thus, Spitfire funds and similar initiatives were essentially publicity stunts (although many officials may have sincerely believed they were needed).
23 Mar 2016, 16:58
Anders
Gary – “bias”; “poor thinking”? Must you be so patronising right off the bat?
The £13m funds which the private sector turned over to the govt must otherwise have been saved or spent on discretionary consumption. My take is that the thrust of such ‘fund-raising’ drives, as for war bonds, was to encourage citizens to see it as their patriotic duty to turn their money over to the govt rather than spend it; it was an austerity drive. In other words, the idea was “donate to these patriotic funds rather than spend”.
Do you think that, rather, households spent the same amount on fripperies that they would have done without the £13m Spitfire funds initiative? Do you think the idea was “don’t put that money you save at the end of the week in the bank; donate to this patriotic cause instead”?
23 Mar 2016, 17:08
Mark Harrison
Anders: “It seems fair to assume that the Spitfire funds reduced £ for £ the public’s discretionary consumption.” My underlying assumption was different: a command economy is constrained on the supply side. In wartime, civilians could not consume more than the resources left after the government spent what it wanted on the war. Leaving £13m in the hands of the public would not change this, so aggregate real consumption (that is, the combined consumption of the civilian population and military personnel) would not increase. My two scenarios focused on the government reaction function; I did not spell out all repercussions. In scenario #1, the civilian population consumes the same amount of food and lives in bombed-out ruins. In scenario #2, the civilian population competes food away from military personnel through the black market; here there is more inflation. You could tweak the assumptions and tell different stories. The main point is: Spitfire funds made a difference, but probably not to the number of Spitfires. Hope this helps.
23 Mar 2016, 19:42
Hugo Evans
My mother sometimes asks me this question – how did we pay for the war? The answer is we didn’t pay for it in any nominal terms. It was a functional finance economy. Resources are mobilised without budgetary consideration. If I have a requirement to build a fast bomber, but I’ve only got furniture manufacturers available I build a mosquito. Costs are irrelevant as prices are administered. Only real resources count. Taxes, war bonds and volunteer funds are just enforced saving, to prevent people seeking to claim consumption goods away from the war effort. That’s not to say the spitfire fund wasn’t valuable, as it made people believe the result turned on their individual actions, which in the end it did
23 Mar 2016, 21:07
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