No. 11 NAI DFA Secretary's Files P100

Extract from a memorandum
'Précis of some points made in course of statement by Secretary, Department of Finance,1 to Heads of Missions at Department of External Affairs on 12th September, 1945.'

Dublin, 12 September 1945

Principal Changes in our Economy since Pre-War
I. Finance and Prices.
II. National Income, etc.
III. Sterling Assets.
IV. External Trade, etc.
V. Emigration.
VI. Other Developments during War.
VII. Plans for the Future.

I. Finance and Prices

  1. Large increase in annual expenditure and indebtedness of State and local authorities. State expenditure now exceeds £1,000,000 per week. Aggregate gross liabilities of State and local authorities, £131 million.
  2. Budget deficits annually despite heavy increase in taxation. Point illustrated from following table:-
    Year Total Central Government expenditure (current) Deficit
    £ (thousands) £ (thousands)
    1943/4445,009 1,229
    1945/46 (estd.)55,396 7,454

    While deficits may not seem large one of our difficulties is that taxation here pre-war was at high level. In peacetime we also had rapidly mounting debt and big expansion in annual debt charge.
  3. Total expenditure of State and local authorities from 1939/40 to 1944/45, inclusive, shown by table:-
    Year £ (millions)
    In 1938/39 receipts of State and local authorities from taxation and rates amounted to £35 million approximately; the corresponding figure for 1944/45 is £50 million. Even so, large accumulating liabilities not provided for, e.g., fertilisers, £1,100,000, Army deferred pay, £800,000, Civil Service and other pensions, etc.
  4. The high budgetary expenditure and the financing of deficits contributed to inflation, and industrial and agricultural production suffered by reason, inter alia, of heavy rates of taxation, which acted as a deterrent on enterprise.
  5. At a recent census the Civil Service numbered 30,300, costing £8,100,000 per annum, excluding pensions which cost £920,000 per annum. Employees of local authorities numbered 55,500 costing £5,332,000 per annum, excluding pensions.
  6. In the current year's budget, £9,686,000 provided for social services proper, a new feature of which was Children's Allowances, estimated to cost £2,230,000. Exchequer subsidies were £5.8 million in 1944/45 as against £2.4 million in 1938/39.
  7. All this heavy expenditure, combined with high guaranteed prices for agricultural products, scarcity and high cost of imports, etc., had serious effect on level of prices, the cost of living index number rising from 173 in August, 1939, to 292 in 1945 - an increase of 70%. In the same period the agricultural prices index had risen by 90%. Details, and a comparison with similar prices in Great Britain so far as available, were quoted as follows:-
    Ireland Great Britain
    (Base July, 1914, = 100)
    Cost of Living:
    1939 173 (Aug.) 155 (Aug.)
    1945 292 (May) 205 (Aug.)
    Percentage Increase 70% 32%
    Wholesale Prices:
    1939 101 (Aug.) 98 (Aug.)
    1945 198 (April)171 (July)
    Percentage Increase96% 74%
    Agricultural Produce Prices:
    1939 99 (Aug.)-
    1945 188 (July)-
    Percentage Increase 90% -
    Comparison between two countries cannot be pressed too closely because of subsidies paid by Exchequer to keep down cost of living in Britain. Without such subsidies cost of living would have risen by 46 per cent in Britain, still much lower than the rise here which was very marked for a food-producing country. Other neutral European countries suffered a rise in prices somewhat similar to our own.

II. National Income, etc.

  1. Increase in income in terms of money but fall in terms of production, former illustrated by following figures:-
    National Income £mns.
    1938 153
    1939 164
    1940 178
    1941 194
    1942 215
    1943 240
    1944 250
    Percentage increase between 1938 and 1944 = 63%.
  2. A gratifying feature was increase in percentage of agricultural income from 25% in 1938 to 35% in 1944. In the same period non-agricultural income, expressed as a percentage of total national income, fell from 75% to 65%.
  3. Though 50% of the population is engaged in agricultural occupations it still draws only 35% of the national income.
  4. Variations in output were shown by reference to following table:-
    Agricultural and other output (quantum indices):
    1938/39 1942/43 1943/44
    Gross Agricultural Output 100 92.1 90.0
    1938 1942 1943
    Net Output of Industrial
    Transportable Goods
    100 79 80.4
    Gross output of Agriculture has thus fallen by 10% and output of industrial goods by nearly 20%.
  5. Consumption of goods had, in the circumstances, shown an inevitable decline between 1938 and 1944:-
    Consumption of Goods:
    Value at 1938 prices (£mns) Index of Quantity
    1938 124 100
    1944 102.1 82
    There was thus a general fall of 18%, due entirely to reduced consumption of goods other than foodstuffs. In volume the consumption of food, drink and tobacco has been well maintained.

III. Sterling Assets

  1. Accumulation of additional sterling assets. Net increase from 1940-44, inclusive, taking into account all the debit and credit movements in the capital items of the Balance of Payments, £108 million.
  2. Assuming figure prior to 1940 was £300 million, increase at 31st December, 1944, amounts to about 36% of pre-war figure. But during the war there was a 74% increase in British wholesale prices, which will probably settle down at level of about 50% pre-war.
  3. In terms of commodities, therefore, our increased sterling assets represent less than they did before the war.
  4. We did not gain these additional assets by charging high prices for our products, as did many other countries which made sterling accumulations during war. On contrary British had pursued a deliberate policy of cutting to a minimum prices paid for our agricultural exports. Hence it would be very unjust to apply to us a suggestion credited to USA Government that British should write down her sterling indebtedness as a condition of financial assistance from America. In any case, we were not in the war, as these other countries were, e.g. India, South Africa, Australia, etc., nor is the debt inter-Governmental. It was contracted between private traders.

IV. External Trade, etc.

  1. Reduced power to import through -
    • shortage of commodities
    • shortage of shipping
    • limited convertibility of sterling into other currencies, particularly hard currencies, American and Canadian dollars, Swiss francs, Swedish kronor, Portuguese escudos, Argentine pesos, etc.
      Factors (a) and (b) well-known and need no further comment.
      As regards (c), we were able, by virtue of our pre-war arrangements with the British Treasury, to obtain foreign currencies, mainly the scarce currencies, to the extent of £48 million to end of 1944. This represents our net draw on the British pool after taking credit for any contributions we made to it. Latter necessarily small. Even in normal times our foreign exchange earnings were inconsiderable. In 1938 our exports to non-sterling countries were £1,528,000 and our imports, £15,362,000, leaving a deficit on foreign exchange account of £13,824,000. Apart from trade our only sources of foreign exchange earnings were emigrants' remittances, which now consist mainly of legacies and distributions of estates from USA; expenditure by American tourists in this country; interest on investment in US and Canada, and Sweepstake earnings. The aggregate of these net invisible credits reduced the deficit of £13.8 million to approximately £12? million or, say, US $50 million on basis of 1938 trade and prices.
  2. Larger quantities of foreign currencies now needed to make up deficiencies of war years and meet the higher prices now ruling.
  3. Our imports from the non-sterling countries consist mainly of maize (£2,258,000), wheat (£2,134,000), timber (£1,266,000), petrol (£680,000), paraffin (£290,000), fertilisers (£277,000), and rubber (£42,000) - 1938 figures.
  4. Our exports to the non-sterling countries consist mainly of raw wool, woollen goods, poplin, horses, cattle, bacon and biscuits.

    At back is brief analysis (Table A)2 of our trade in 1938 with principal non-sterling countries. These countries buy from us only a small fraction of what we take from them. They take even less now, and we have less to export.

    To revive and increase our exports depends on increased home production at competitive prices, producing a surplus for export, and on reduction of trade barriers abroad. It is hard to get markets in non-sterling countries for our export products, which are mainly agricultural. About 50% of our total exports consists of live cattle and, owing to high labour and other costs here, the export of articles with an appreciable labour content at competitive levels of quality and price is going to be difficult.

    Reduced power to export evidenced by falling off in trade in certain important items of pre-war export.

[matter omitted]

V. Emigration

Large exodus of our nationals to the fighting services and to war work in the United Kingdom. Best estimate at present puts figure at about 250,000. In numbers our population has not declined but obviously in its age constitution it has changed adversely from point of view of production. Even prior to the war the proportion of aged people was unduly high, with resultant large expenditure on non-productive services, e.g. Old Age Pensions. These re-distributive services are on the increase and constitute an added burden on the productive sections of the population.

VI. Other Developments during War

Other developments referred to as occurring during the war related to tillage, turf, mining, shipping, electricity and air. Plans for the future under a number of these heads also mentioned, many of them expensive and not revenue producing. Our chief interest remained in agriculture, and while the war enabled our farmers to make up substantially for the losses sustained during the economic war when we were fighting Great Britain about the land purchase annuities and other payments, it also enabled them to reduce arrears of annuities and rates, to cut down their liabilities to the banks in respect of advances, and to increase their bank deposits. In spite of this it was disappointing to find that current direct subsidies to agriculture, in addition to high guaranteed prices, included over £1,000,000 for butter and allied products. The distribution of seed, lime, etc., is also still subsidised. Expensive land division goes on. In spite of all this outlay the gross volume of agricultural production had fallen by 10 per cent.

We had planned ahead as regards air development with considerable success, and our prospects here in the international field were favourable.

VII. Plans for the Future

Conflicting forces in operation. Pressure on Department of Finance to reduce taxation and at same time undertake further considerable expenditure. People here want services on an imperial scale with a far from imperial income. Pressure here, for example, to apply British Social Security Scheme although latter still in paper stage. There was already a high standard of social services here, and we had introduced a scheme of children's allowances costing £2¼ million per annum.

Our future also affected by the prospect of international currency arrangements which may not be so favourable to us as the relatively free international exchange position which obtained pre-war.

We had nothing particularly to gain from the adoption of the Bretton Woods recommendations to set up an International Monetary Fund and an International Bank for Reconstruction and Development. If the proposed arrangements were good for sterling they would be good for us. The British Government had not declared itself on matter. The stoppage of Land-Lease had so far not operated to reduce any further the convertibility of our sterling holdings into foreign currency. If the negotiations in Washington took a turn unfavourable to Britain, it would be distinctly bad for our prospects of post-war imports of capital and consumer goods from non-sterling countries. Our export prospects to such countries distinctly limited; confined to a few specialised articles with a relatively limited appeal. Prospects of our raising credits abroad did not look very bright either. Our experience in USA in 1927 showed that such an operation was at least twice as costly as a similar operation at home. We could not provide the annual service of a loan contracted abroad except through sterling.

In view of our difficulties it would be desirable that Heads of Missions abroad should provide information from time to time as to any trade or financial openings which would give us more command of foreign currencies. The search for alternative markets previously was disappointing; not likely to be more successful now because of shattered economy of most European countries. The need for goods was there but the ability to pay was limited. To show the types of articles we normally imported and exported short particulars of trade of main countries outside sterling area were given (as attached).3

Copies of laws passed or important regulations or Government pronounce-ments made in various countries affecting currency and banking in national or international sphere would also be useful to D/Finance and Central Bank.

The Budget Speech of M/Finance of May, 1945, contained a number of other economic data about the country which might interest Heads of Missions, particularly in the sphere of currency and finance.

1James J. McElligott.

2Not printed.

3Not printed.

Purchase Volumes Online

Purchase Volumes Online



The Royal Irish Academy's Documents on Irish Foreign Policy series has published an eBook of confidential correspondence on the 1921 Anglo-Irish Treaty negotiations.

Free Download

International Counterparts

The international network of Editors of Diplomatic Documents was founded in 1988. Delegations from different parts of the world met for the first time in London in 1989.
Read more ....

Website design and developed by FUSIO