110615_The_Economics_of_Neutrality -Spain Sweden & Switzerland in WWII

8/22/2019 110615_The_Economics_of_Neutrality -Spain Sweden & Switzerland in WWII

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TheEconomicsofNeutrality:

Spain,SwedenandSwitzerlandinthe

SecondWorldWar

EricBernardGolson

TheLondonSchoolofEconomicsand

PoliticalScience

A

thesis

submitted

to

the

Department

of

Economic

History

oftheLondonSchoolofEconomicsforthedegreeofDoctor

ofPhilosophy,London,15June2011.


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2

Declaration

I certify that the thesis I have presented for examination for the

MPhil/PhD degree of the London School of Economics and Political

ScienceissolelymyownworkotherthanwhereIhaveclearlyindicated

thatitistheworkofothers.

The copyright of this thesis rests with the author. Quotation from it is

permitted,providedthatfullacknowledgementismade. Thisthesismay

notbereproducedwithoutthepriorwrittenconsentoftheauthor.

I warrant that this authorization does not, to the best of my belief,

infringe

the

rights

of

any

third

party.


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3

Abstract

Neutralityhaslongbeenseenasimpartialityinwar(Grotius,1925),andis

codified

as

such

in

The

Hague

and

Geneva

Conventions.

This

dissertation

empiricallyinvestigatestheactivitiesofthreeneutralstatesintheSecondWorld

War and determines, on a purely economic basis, these countries actually

employed realist principles to ensure their survival. Neutrals maintain their

independencebyofferingeconomicconcessionstothebelligerentstomakeup

for their relative military weakness. Depending on their position, neutral

countries can also extract concessions from the belligerents if their situation

permitsit.

Despite their different starting places, governments and threats against

them, Spain, Sweden and Switzerland provided similar types of political and

economicconcessionstothebelligerents.Thisthesiscomparatively investigates

neutral trade, labourandcapital.Usingstandardized tradestatistics,thisstudy

shows that while all three neutrals were dependent on the Germans for most

basicgoods,theyweregenerallyabletobenefitfromrelativegainsinpricesand

excessimportsofgoodsinperiodsofGermanweakness.IntradewiththeAllies,

atleasttwoofthethreecountriespermittedtheillicitexportofitemsnecessary

fortheAlliedwareffort,anddidsoatreducedrelativeprices.

All three neutrals benefitted from substantial services revenue and

positive balance of payments in all of their belligerent relationships. In several

casestheneutralswereableto forcethebelligerentstocovertheirbalanceof

paymentsdeficitsingoldbecausetheyneededtomaintainaccesstotheneutral

markets. The final chapters demonstrate that despite political promises, the

Spanishand

Swiss

governments

constructed

labour

transfer

systems

to

limit

the

numberofworkersforGermany.


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4

Acknowledgements

Withgratitudetoallofthosewhohavesupportedmethroughthisprojectand

duringmy

education.

OddcoincidencesandsheerhappenstancebroughtmetotheLondonSchoolof

Economics, the University of Chicago and Marin Academy. During the last

fourteen years I have taken classes from and taught with many inspiring

teachers,enjoyedthecompanyofgoodfriendsandbeenchallengedbythreeof

thebestschoolsintheworld.

Asayoungchild,Iwasintellectuallyimpatient.Iwantedanswers.Iamforeverin

debttothelateYuriSmiley,whospentconsiderableeffortteachingmeJapanese

andpiano.Iwouldneverhavecompletedthisdissertationwithoutlearningthe

virtueof

patience

and

how

to

control

my

intellectual

curiosity.

.

The breadth of this project and the number of people who have contributed

make the task of acknowledging each individual contribution on this page

impossible.SpecificthanksareduetoDr.PeterHowlett,Dr.EveRichards,FDr.

PeterSims,andDr.ChristopherColvinfortheirassistancewithspecificelements

during the research and writing process. Professors Mark Harrison and Neville

Wylie served as rigorous examiners and identified the many strengths and

weaknesses of this work. Dr. Tim Leunig pushed me forward and gave me

confidence. Countless other individuals contributed to this thesis and general

thanksare

due

to

so

many

it

is

impossible

to

acknowledge

them

on

this

single

page. It is my sincere hope that as each of you read this dissertation you will

noticetheindividualcontributionsyouhavemade.


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5

Figure0.1:

Axis,

Allied

and

Neutral

Blocs

at

September

1939

AxisCountries:theGermanReichandtheItalianEmpire

AlliedCountries:GreatBritain,FranceandPolandtheirassociatedEmpires

Neutrals:Belgium,Bulgaria,Denmark,Finland,Greece,Hungry,Ireland,the

Netherlands,Norway,Portugal,Romania,Spain,Sweden,Switzerland,Turkey

andYugoslavia

Source:Author


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6

Figure0.2:Axis,AlliedandNeutralBlocsatJune1941

AxisCountries:GermanReich,ItalianEmpire,Bulgaria,Finland,Hungaryand

Romania

AxisOccupied:Belgium,Denmark,France,Greece,theNetherlands,Norwayand

Yugoslavia

AlliedCountries:GreatBritain,theSovietUnionandtheirassociatedEmpires

Neutrals:Ireland,Portugal,Spain,Sweden,SwitzerlandandTurkey

Source:Author


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7

Contents

Abstract...................................................................................... 3

Indexof

tables

...........................................................................

13

Indexoffiguresandillustrations..............................................16

Indexofabbreviations..............................................................18

Tablesofforeignexchangevalues............................................20

PartOne:TheEconomicsofNeutralityChapterOne:EconomicsofNeutralityintheSecondWorldWar....23

InterpretingEconomicOutcomes.............................................29

NeutralityasImpartiality..........................................................31

RealistNeutrality.......................................................................33

BelligerentsPerspective...............................................37

NeutralsPerspective

....................................................

37

RealistNeutralityamidstMultipleStrongBelligerents............38

TheMutliBelligerentModel.........................................42

WhySpain,SwedenandSwitzerland........................................45

EconomicConcessions..............................................................49

PartTwo:NeutralBelligerentMerchandiseTradeintheSecond

WorldWarChapterTwo:SwedishBelligerentMerchandiseTrade ....................54

Abstract.....................................................................................54

RemarksonMerchandiseTrade...............................................54

Introduction..............................................................................

58

SwedishWartimeTrade:PoliticalDevelopments....................62

SwedishBelligerentWartimeMerchandiseTrade...................71

Methodology.................................................................71

OverallBalanceofMerchandiseTrade.........................73

SwedishNominalTradewiththeGermanBloc............75

SwedishTradewiththeGermanBloc:RealStatistics..78

SwedishNominalTradewiththeAlliedBloc................81

NominalIllicitTrade......................................................82

OverallNominalTradewiththeAllies..........................87

SwedishTradewiththeAlliedBloc:RealStatistics......91

IronOre

Trade

with

Germany

...................................................

93

MeasuringIronOreExports..........................................94

BallBearingstoGermanyandtheAllies...................................99

GermanImportsfromSweden...................................101

GermanDomesticProduction....................................102

AlliedActionstoLimitGermanBallBearings.............103


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PreferentialBallBearingsPricing?..............................106

TheUnitedKingdom...................................................109

ImportsfromSweden.................................................111

DomesticProduction..................................................113

DiscountsProvided

to

the

United

Kingdom

...............

115

TheSwedishEnergySupplySituation.....................................117

Conclusions.............................................................................122

Appendix2.1:SwedishExportstoGermanyBloc...................123

Appendix2.2:SwedishImportsfromGermanBloc................125

Appendix2.3:SwedishExportstotheAlliedBloc..................127

Appendix2.4:SwedishImportsfromtheAlliedBloc.............129

Appendix2.5:SwedishEnergyConsumption.........................131

NotestoAppendices2.1to2.4...............................................132

ChapterThree:SpanishBelligerentMerchandiseTrade..................145

Abstract...................................................................................

145

Introduction............................................................................145

SpanishWartimeTrade:PoliticalDevelopments...................150

SpanishBelligerentWartimeMerchandiseTrade..................164

Methodology...............................................................165

OverallBalanceofMerchandiseTrade.......................167

SpanishNominalTradewithGermany.......................169

SpanishTradewithGermany:RealStatistics..............173

SpanishNominalTradewiththeUnitedStates..........176

SpanishTradewiththeUnitedStates:RealStats.......181

SpanishNominalTradewiththeUnitedKingdom.....183

SpanishTrade

with

the

United

Kingdom:

Real

Stats

..186

ThePreemptivePurchasingProgramme:Wolfram...............190

DidtheAlliesObtaintheirObjectives?.......................190

SpainsBenefitfromtheAlliedPurchaseProgram.....192

TheSpanishEnergySupplySituation......................................196

FuelSupplySituationinSpain.....................................196

TheAlliedOilEmbargoes:CuriousLackofSuccess....199

Conclusions.............................................................................204

Appendix3.1:SpanishExportstoGermany...........................206

Appendix3.2:SpanishImportsfromGermany......................208

Appendix3.3:SpanishExportstotheUnitedStates..............210

Appendix3.4:

Spanish

Imports

from

the

United

States

.........

212

Appendix3.5:SpanishExportstotheUnitedKingdom..........214

Appendix3.6:SpanishImportstotheUnitedKingdom.........216

Appendix3.7:SpanishEnergyConsumption..........................218



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Contents

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ChapterFour:SwissBelligerentMerchandiseTrade........................242

Abstract...................................................................................242

Introduction............................................................................242

SwissWartimeTrade:PoliticalDevelopments.......................246

SwissBelligerent

Wartime

Merchandise

Trade

.....................

262

Methodology...............................................................262

OverallBalanceofMerchandiseTrade.......................265

SwissNominalTradewiththeGermanBloc...............269

SwissTradewiththeGermanBloc:RealStatistics.....274

SwissNominalTradewiththeAlliedBloc...................276

SwissTradewiththeAlliedBloc:RealStatistics.........282

SwissSupplyofMetals:Aluminium........................................284

Watches,TimepiecesandDetonatorsfortheAllies..............288

TheSwissEnergySupplySituation..........................................290

ElectricityandElectricalExports.................................290

FuelSupply

in

Switzerland

..........................................

295

Appendix4.1:SwissExportstoGermanyBloc.......................298

Appendix4.2:SwissImportsfromGermanBloc....................300

Appendix4.3:SwissExportstotheAlliedBloc.......................302

Appendix4.4:SwissImportsfromtheAlliedBloc..................304

Appendix4.5:SwissEnergyConsumption..............................306


PartThree:NeutralCapitalTransfersintheSecondWorldWarChapterFive:NeutralBalanceofPayments......................................325

Abstract...................................................................................325

Introduction............................................................................

325

ClearingSystems.....................................................................330

MonetaryClearingSystemswithGoldSettlement.....335

CompensationClearingSystems.................................336

WartimeFinancialDevelopments...........................................337

PoliticalRelationsClearing:GermanySpain............338

PoliticalRelationsClearing:UKSpain......................341

PoliticalRelationsClearing:USSpain......................343

PoliticalRelationsClearing:GermanySweden........345

PoliticalRelationsClearing:UKSweden..................347

PoliticalRelationsClearing:GermanySwitzerland..348

PoliticalRelations

Clearing:

US

Switzerland

............

352

PoliticalRelationsClearing:UKSwitzerland............353

OverallBalanceofPaymentsStatistics...................................355

Methodology...............................................................355

Spain............................................................................359

SpainGermany............................................................359


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Contents

10

SpainUS......................................................................361

SpainUK......................................................................362

SwedenUK..................................................................364

SwitzerlandUK............................................................370

Services.......................................................................

373

PrivateTransfers.........................................................374

Conclusions.................................................................375

Appendix5.1:BalanceofPayments:SpainGermany............377

Appendix5.2:BalanceofPayments:SpainUnitedStates.....378

Appendix5.3:BalanceofPayments:SpainUnitedKingdom.379

Appendix5.4:BalanceofPayments:SwedenUK...................380

Appendix5.5:BalanceofPayments:SwitzerlandGermany..381

Appendix5.6:BalanceofPayments:SwitzerlandUK.............382


PartFour:

Neutral

Labour

Contributions

in

the

Second

World

War

ChapterSix:SpanishCivilianLabourinGermany.............................388

Abstract...................................................................................388

Introduction............................................................................388

EmploymentOverview............................................................393

WorkerProfiles.......................................................................401

Transfers.................................................................................405

Earnings...................................................................................411

ExpensesoftheSpanishWorkerProgramme........................415

Conclusions.............................................................................419

Appendix6.1:SpanishWorkersinGermany..........................421

Appendix6.2:

Estimated

Earnings

for

Spanish

Workers

........

424

ChapterSeven:SwissGermanTransitoryLabour.............................426

Abstract...................................................................................426

Introduction............................................................................426

Methodology...........................................................................431

SwissWorkersinGermany.....................................................435

GermanWorkersinSwitzerland.............................................443

SwissGermanLabourExchangesandSwissNeutrality..........448

Conclusions.............................................................................451

Appendix7.1:SwissinGermanyCantonZurich..................454

Appendix7.2:

Swiss

in

Germany

Canton

Aargau

.................

459

Appendix7.3:SwissinGermanyCantonBasel....................460

Appendix7.4:SwissinGermanyOtherCantons................ 461

Appendix7.5:EstimatedNetEarningsSwiss

WorkinginGermany...............................................................463


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Contents

11

Appendix7.6:EstimatedNetEarningsGermans

WorkinginSwitzerland...........................................................464

PartFive:ConclusionsonNeutralityintheSecondWorldWarChapter

Eight:

Conclusion

..................................................................

466

Bibliography................................................................................................472


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12

IndexofTables

Table0.1: ForeignExchangeValuesoftheSpanishPeseta..........................20

Table0.2:

Foreign

Exchange

Values

of

the

Swedish

Krona

..........................

20

Table0.3: ForeignExchangeValuesoftheSwissFranc...............................21

Table1.1: SelectedStrengthsofEuropeanArmies......................................39

Table1.2: Propulation,GrossDomesticProduct,TerritoryofSelected

Countries,1938...................................................................46

Table2.0: ExampleBalanceofPaymentsRelationship................................57

Table2.1: SwedensForeignTradebyCountryGroup,19381944..............75

Table2.2: NominalSwedishTradewithGermanyandtheGermanBloc,

19381944...........................................................................76

Table2.3: ValueofCertainGoodsinSwedishImportsfrom

theGermanBloc,19381944..............................................77

Table2.4:

Value

of

Certain

Goods

in

Swedish

Exports

to

theGermanBloc,19381944..............................................78

Table2.5: RealSwedishTradewithGermanyandtheGermanBloc,

19381944...........................................................................79

Table2.6: IllicitSwedishTradewiththeAlliesversusRegularTrade,

19401944...........................................................................83

Table2.7: SwedenUnitedKingdomAirOperations,

CargobyNationality............................................................86

Table2.8: NominalSwedishTradewiththeAlliedBloc,19381944............88

Table2.9: ValueofCertainGoodsinSwedishImportsfrom

theAlliedBloc,19381944..................................................89

Table

2.10:

Value

of

Certain

Goods

in

Swedish

Exports

to

the

Allied

Bloc,

19381944...........................................................................90

Table2.11: RealSwedishTradewiththeAlliedBloc,19381944..................91

Table2.12: SwedishIronOreExportstotheGermanBloc,19381944.........94

Table2.13: GermanysSupplyofIronOre,19351944..................................97

Table2.14: GermanSupplyofBallBearingswithSwedishOrigins..............101

Table2.15: TotalExportsofBallBearings,19381942.................................108

Table2.16: SwedenUnitedKingdomNorthSeaSmugglingOperations:

MaterialsbyType,19411945..........................................111

Table2.17: SwedenUnitedKingdomAirSmugglingOperations:

MaterialsbyType,1941May1945..................................112

Table

2.18:

Swedens

Imports

of

Mineral

Oil

...............................................

120

Table2.19: SwedishIndustrialEnergyConsumption,19391943................121

Table2A.1: StandardizationofCategoriesofSwedishImportsand

Exports..............................................................................138

Table2A.2: PaascheandLaspeyresPriceIndicesSwedishExports

toGermany.......................................................................142

Table2A.3: PaascheandLaspeyresPriceIndicesSwedishImports


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IndexofTables

13

fromGermany...................................................................142

Table2A.4: PaascheandLaspeyresPriceIndicesSwedishExports

totheAllies.......................................................................142

Table2A.5: PaascheandLaspeyresPriceIndicesSwedishImports

tothe

Allies

.......................................................................

143

Table2A.6: ComparisonofOverallSwedishGermanExportPrice

Deflators,1938=100..........................................................144

Table2A.7: ComparisonofOverallSwedishGermanImportPrice

Deflators,1938=100..........................................................144

Table3.1: IncomeandExpenditureoftheNationalistAdministration

(Spain),19361939.....................................................................151

Table3.2: SpainsForeignTradebyCountryGroup,19391944................168

Table3.3: NominalSpanishTradewithGermany,19391944...................171

Table3.4: ValueofCertainGoodsinSpainsImportsfromGermany,

19391944.........................................................................172

Table3.5:

Value

of

Certain

Goods

in

Spains

Exports

to

Germany,

19391944.........................................................................173

Table3.6: RealSpanishTradewithGermany,19391944..........................174

Table3.7: NominalSpanishTradewiththeUnitedStates,19391944......178

Table3.8: ValueofCertainGoodsinSpainsImportsfromthe

UnitedStates,19391944.................................................179

Table3.9: ValueofCertainGoodsinSpainsExportstothe

UnitedStates,19391944.................................................179

Table3.10: RealSpanishTradewiththeUnitedStates,19391944............181

Table3.11: NominalSpanishTradewiththeUnitedKingdom,19391944.184

Table3.12: ValueofCertainGoodsinSpainsImportsfromthe

UnitedKingdom,

1939

1944

.............................................

185

Table3.13: ValueofCertainGoodsinSpainsExportstothe

UnitedKingdom,19391944.............................................186

Table3.14: RealSpanishTradewiththeUnitedKingdom,19391944........187

Table3.15: SpanishWolframProductionandExportsto

GermanyandtheAllies,19391944.................................191

Table3.16: WolframTradebyBelligerentGroup.........................................194

Table3A.1: StandardizationofCategoriesofSpanishImports....................228

Table3A.2: StandardizationofCategoriesofSpanishExports.....................230

Table3A.3: ComparisonofTradeStatistics:ImportsfromGermany...........233

Table3A.4: ComparisonofTradeStatistics:ExportstoGermany................233

Table3A.5:

Comparison

of

Trade

Statistics:

Imports

from

the

US

...............

233

Table3A.6: ComparisonofTradeStatistics:ExportstotheUS....................234

Table3A.7: ComparisonofTradeStatistics:ImportsfromtheUK...............234

Table3A.8: ComparisonofTradeStatistics:ExportstotheUK....................234

Table3A.9: PaascheandLaspeyresPriceIndicesSpanishExports

toGermany.......................................................................238


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IndexofTables

14

Table3A.10:PaascheandLaspeyresPriceIndicesSpanishImports

fromGermany...................................................................238

Table3A.11:PaascheandLaspeyresPriceIndicesSpanishExportstoUS....239

Table3A.12:PaascheandLaspeyresPriceIndicesSpanishImportstoUS....239

Table3A.13:

Paasche

and

Laspeyres

Price

Indices

Spanish

Exports

totheUK...........................................................................239

Table3A.14: PaascheandLaspeyresPriceIndicesSpanishImports

totheUK...........................................................................240

Table3A.15:SpanishExportstotheUnitedStates,MineralPriceDeflator

Construction.....................................................................241

Table4.1: SwitzerlandsForeignTradebyCountryGroup,19391945.....268

Table4.2: NominalSwissTradewithGermanyandtheGermanBloc,

19391944.........................................................................271

Table4.3: ValueofCertainGoodsinSwissImportsfrom

theGermanBloc,19381944............................................272

Table4.4:

Value

of

Certain

Goods

in

Swiss

Exports

to

theGermanBloc,19381944............................................273

Table4.5: RealSwissTradewithGermanyandtheGermanBloc,

19391944.........................................................................274

Table4.6: NominalSwissTradewiththeAlliesandtheAlliedBloc,

19381944.........................................................................277

Table4.7: IllicitSwissTradewiththeAlliesversusRegularTrade,

19401944.........................................................................279

Table4.8: ValueofCertainGoodsinSwissImportsfromtheAlliedBloc,

19381944.........................................................................281

Table4.9: ValueofCertainGoodsinSwissExportstothe

AlliedBloc,

1938

1944

......................................................

281

Table4.10: RealSwisstradewiththeAlliesandtheAlliedBloc,

19381944.........................................................................283

Table4.11: ALAG:ImportanceofSwitzerlandinProvisionof

AluminiumtoGermany.....................................................286

Table4.12: UnitedStatesImportsofSwissWatchesand

Movements,19421944....................................................289

Table4.13: SwissEnergyExportstoGermany,19391945..........................292

Table4.14: SwissCoalImportsfromGermanyversusSwiss

ElectricityExportstoGermany.........................................294

Table4A.1: StandardizationofCategoriesofSwissImports........................315

Table4A.2:

Standardization

of

Categories

of

Swiss

Exports

.........................

316

Table4A.3: SwissAluminiumExportsasreportedintheSJdS,193944......318

Table4A.4: PaascheandLaspeyresPriceIndicesSwissExports

toGermany.......................................................................321

Table4A.5: PaascheandLaspeyresPriceIndicesSwissImports

fromGermany...................................................................321


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IndexofTables

15

Table4A.6: PaascheandLaspeyresPriceIndicesSwissExports

totheAllies.......................................................................321

Table4A.7: PaascheandLaspeyresPriceIndicesSwissImports

totheAllies.......................................................................322

Table5.1:

Bilateral

Clearing

Relationships

by

Type

....................................

332

Table5.2: SpanishCivilWarDebtOwedtoGermany................................339

Table5.3: GermanysClearingDeficitwithSpain.......................................339

Table5.4: GermanysClearingDeficitwithSweden...................................346

Table5.5: GermanysClearingDeficitwithSwitzerland.............................349

Table5.6: SwissNationalBankGoldPurchasesfromGermany.................351

Table5.7: SwissNationalBankGoldPurchasesfromtheUnitedStates...352

Table5.8: SwissNationalBankGoldPurchasesfromBankofEngland......354

Table5.9: ExampleBalanceofPaymentsRelationship..............................356

Table5.10: BalanceofPaymentsRelationshipsExamined..........................358

Table5.11: SpanishGermanBalanceofPayments......................................360

Table5.12:

Spanish

United

States

Balance

of

Payments

.............................

362

Table5.13: SpanishUnitedKingdomBalanceofPayments.........................363

Table5.14: SwedenUnitedKingdomBalanceofPayments........................365

Table5.15: SwitzerlandGermanyBalanceofPayments..............................368

Table5.16: SwitzerlandUnitedKingdomBalanceofPayments..................370

Table5.17: NetServicesEarningsasaProportionofCurrentAccount

andNationalIncome.........................................................373

Table5.18: NetPrivateTransfersasaProportionofNationalIncome........374

Table6.1: SpanishWorkerEmployedinGermanybyQuarter,

Sept.1941toJune1945....................................................395

Table6.2: TransfersfromGermanytoSpain,19411945..........................408

Table6.3:

Transfers

Withheld

and

Under

Investigation,

Dec.

1945...........

410

Table6.4: WeeklyWagesbySkillLevelandSex.........................................412

Table6.5: QuarterlyExpectedEarningsversusArbeiterSonderkontotransfers,January1942throughMay1945......................413

Table6.6: FinalAccountingoftheHispanoGermanCivilian

LabourProgramme...........................................................416

Table7.1: SourcesforSwissWorkerFigures,byCanton...........................432

Table7.2: LabourForceofBadenKleinGrenzgebeit..................................434Table7.3: SwissTransitoryLabourinGermanybyOriginCanton.............437

Table7.4: GermansWorkinginSwitzerlandbyCanton,

December19391945.......................................................444

Table7.5:

Index

of

Comparative

Labour

Trends

in

Baden

.........................

449


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16

IndexofFigures,MapsandIllustrations

Map0.1: MapofAxis,AlliedandNeutralBlocsatSeptember1939............5

Map0.2:

Map

of

Axis,

Allied

and

Neutral

Blocs

at

June

1941

.....................

6Figure1.1: BelligerentNeutralGame:SingleBelligerentModel..................35

Figure1.2: BelligerentNeutralGame:MultipleBelligerentModel..............43

Figure1.3: NominalGDPDevelopmentSpain,SwedenandSwitzerland......47

Map2.1: MapofSweden............................................................................61

Figure2.2: SwedishBelligerentWarTradeAgreements...............................65

Figure2.3: NominalSwedishTradebyCountry,19381944.........................74

Figure2.4: GermanSwedishTradePriceIndices,19381944.......................80

Figure2.5: AlliedSwissTradePriceIndices,19381944................................92

Figure2.6: SwedishIronOreExportedtotheGermanBloc,19351944......95

Figure2.7: OrganisationalStructureofSKFSweden...................................100

Figure2.8:

SKF

Organisational

Changes

to

Maintain

the

Export

of

BallBearings......................................................................105

Figure2.9: GermanSwedishExportTrade,BallBearingsPriceDeflator....107

Figure2.10: AngloSwedishExportTrade,BallBearingsPriceDeflator........115

Figure2.11: ProductionandOriginsofEnergySupplyinSweden,

1938,43and1949............................................................118

Map3.1: MapofSpain..............................................................................146

Figure3.2: NominalSpanishTradebyCountryGroup,19391945.............169

Figure3.3: SpanishGermanTradePriceIndices,19381944......................175

Figure3.4: SpanishAmericanTradePriceIndices,19381944...................182

Figure3.5: SpanishUKTradePriceIndices,19381944..............................189

Figure

3.6:

Allied

Wolfram

Trade

with

Spain

in

Metric

Tons

of

WO3

and

CostperMetricToninPesetas.........................................193

Figure3.7: ProductionandOriginsofEnergySupplyinSpainin1942........198

Figure3.8: SpainsOilImports,MonthlyfromAugust1940to

December1945.................................................................202

Map4.1: MapofSwitzerland....................................................................243

Figure4.2: SwissBelligerentWarTradeAgreements.................................251

Figure4.3: NominalSwissTradebyCountryGroup,19381944.................265

Figure4.4: GermanSwissTradePriceIndices,19381944..........................275

Figure4.5: AlliedSwissTradePriceIndices,19381944..............................284

Figure4.6: SwissExportsofElectricalPowertoGermany,19391945.......293

Figure

4.7:

Production

and

Origins

of

Energy

Supply

in

Switzerland,

1938,1943and1948........................................................296

Figure5.1: SchematicofMonetaryClearingScheme..................................333

Figure5.2: SchematicofCompensationClearingScheme..........................334

Map6.1: MapofSpain..............................................................................394

Figure6.2: TotalSpanishWorkersinGermany,

November1941September1945....................................396


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IndexofFigures,MapsandIllustrations

17

Figure6.3: SpanishWorkersinGermanybySkillLevel,Sept1941to

June1945..........................................................................402

Figure6.4: SpanishWorkersEarningsTransmissionMechanism

fromGermanytoSpain.....................................................407

Figure6.5:

Monthly

Remittances

from

Germany,

Sept1941December1945...............................................409

Map7.1: SwissGermanKleinGrenzgebeit,1939.....................................427Figure7.2: SwissTransitoryLabourinGermany,December1939to

June1945..........................................................................436

Figure7.3: SwissResidentsWorkinginGermanybySkillType,

Dec1939Dec1945...........................................................440

Figure7.4: GenderDistributionofSwissResidentsWorkinginGermany,

Dec1939Dec1945...........................................................441

Figure7.5: QuarterlyEarningsofSwissResidentsWorkinginGermany,

Dec1939Aug1945...........................................................442

Figure7.6:

German

Transitory

Labour

Working

in

Switzerland,

Dec1939June1945..........................................................446


18/499

18

Abbreviations

AAC ArmyAirCorps(UnitedStates)

AATS

ArmyAir

Transport

Service

(United

States)

ABA ABAerotransport(Sweden)

ADAPAktenzurDeutschenAuswrtigenPolitik[DocumentsonGermanForeignPolicy]

AEdEAnuarioEstadsticadeEspaa[AnnualStatisticsofSpain]

AGAArchivoGeneraldelaAdministracin[GeneralAdministrativeArchive],AlcaldeHenares,Madrid,Spain

AMAEC

ArchivodeMinisteriodeAsuntosExterioresydeCooperacin[ArchiveoftheMinistryofForeignAffairsandCooperation],

Madrid,Spain

ASTUK

AnnualStatement

of

the

Trade

of

the

United

Kingdom

BArBundesarchiv[FederalArchives],Bern,Switzerland

BAKBundesarchivKoblenz[FederalArchives],Koblenz,Germany

BAMABundesarchiv/Militrarchiv[FederalMilitaryArchives],Freiburg,Germany

BAMABritishAirwaysMuseumandArchive

Hounslow,UnitedKingdom

BdeEArchivodeBancodeEspaa[ArchiveoftheBankofSpain],Madrid,Spain

BdeEEIEImportacin

yExportacin

Cajas,

Archivo

de

Banco

de

Espaa

[ImportandExportBooks,ArchiveoftheBankofSpain],Madrid,

Spain

BOAC BritishOverseasAirwaysCorporation

BoEBankofEnglandArchive

London,UnitedKingdom

CACChurchillArchives,

Cambridge,UnitedKingdom

DGFP DocumentsonGermanForeignPolicy

DVKDeutscheVerrechnungskasse[GermanClearingOffice]

ECEdE EstadsticadeComercioExteriordeEspaa[SpanishCommercialTradeStatistics]

FNFFArchivodeFundacinNacionalFranciscoFranco[ArchivesoftheFranciscoFrancoFoundation],Madrid,Spain

FRUS ForeignRelationsoftheUnitedStatesSeries


19/499

Abbreviations

19

GLAGenerallandesarchivBaden[GeneralStateArchive]

HPOWWIIHistoryofPreclusiveOperationsinWorldWarII

[NARARG234/16/19]

IWMImperial

War

Museum,

Speer

Archive

Lambeth,London,UnitedKingdom

IWMDImperialWarMuseum,SpeerArchive

Duxford,UnitedKingdom

MT MetricTons

NANationalArchivesoftheUnitedKingdom

KewGardens,London,UnitedKingdom

NARANationalArchivesandRecordsAdministration

WashingtonDC,UnitedStates

RARiksarkivet[NationalArchivesofSweden],Stockholm,Sweden

RAF

RoyalAir

Force

(United

Kingdom)

RBASverigesRiksbankarkivet

[SwedishNationalBankArchive],Stockholm,Sweden

SOE SpecialOperationsExecutive(UnitedKingdom)

SOUStatensOffentligaUtredningar:HandelsdepartmentOfficialStateRegisterfortheTradeDepartment,Sweden

SAfSTAStatistiskarsbokforSverigeTjugottonderganden[AnnualStatisticsBookforSweden]

SHvDStatistischesHandbuchvonDeutschland,19281944[StatisticalHandbookforGermany,19281944]

SJdS

StatistischesJahrbuchderSchweiz[StatisticalYearbookofSwitzerland]

SITC StandardInternationalTradeClassification

SKFSvenskaKullagerFabrikAB

[SwedishBearingManufacturingCo.],Bofors/Gothenburg,Sweden

SOSHSverigesOfficiellaStatistik:Handel[SwedishOfficialTradeStatistics]

SVStSchweizerischeVerrechnungstelle[SwissClearingOffice]

TC TonsofMineralCoal(energyequivalent)

UKCC UnitedKingdomCommercialCorporation

USCC

United

States

Commercial

Corporation

VKFVereinigteKugellagerFabriken

[UnitedBearingManufacturers],Schweinfurt,Germany


20/499

20

ForeignExchangeValues

Table0.1:ForeignExchangeValuesSpanishPesetato(averageofyear):

Year

German

Reichsmark

1RM=

BritishPound

1=

UnitedStatesDollar

1$=

Official

Rate

Official

Rate

Banknote

Rate

Official

Rate

Banknote

Rate

2H1936 3.01 37.22 7.43

1937 3.45 42.36 8.57

1938 3.45 42.45 9.36

1939 3.56 40.65 10.74

1940

4.16

40.01

10.95

1941 4.24 40.50 38.10 10.74 9.85

1942 4.24 40.50 10.95

1943 4.24 40.85 10.95

1944 4.24 44.00 10.95Source:AEdE,1949;ECEdE,1941

Table0.2:ForeignExchangeValuesSwedishKronato(averageofyear):

Year

German

Reichsmark

1RM=British

Pound

1=

UnitedStates

Dollar

1$=

Official

Rate

Official

Rate

Official

Rate

1936 1.6255 18.74 4.038

1937 1.6850 18.74 4.038

1938 1.6850 18.74 4.038

1939 1.6850 16.95 4.038

1940 1.6850 16.95 4.200

1941 1.6850 16.95 4.200

1942 1.6850 16.95 4.200

1943

1.6850 16.95 4.200

1944 1.6850 16.95 4.200Source:RBA,Penning ochkreditvsen,1950,Table72.


21/499

ForeignExchangeValues

21

Table0.3:

Foreign

Exchange

Values

Swiss

Francs

to

(December

of

year):

Year

German

Reichsmark

1RM=

BritishPound

1=

UnitedStatesDollar

1$=

Official

Rate

Banknote

Rate

Official

Rate

Banknote

Rate

Official

Rate

Banknote

Rate

1936 1.745 17.35 21.35 4.35 4.35

1937 1.740 0.880 17.35 21.60 4.35 4.32

1938 1.7685 0.535 17.35 20.58 4.35 4.43

1939 1.790 0.480 17.35 17.20 4.35 4.61

1940 1.730 0.560 17.35 8.10 4.35 4.24

1941

1.730

0.320 17.35 6.85 4.35

2.90

1942 1.730 0.185 17.35 13.25 4.35 3.95

1943 1.730 0.130 17.35 9.25 4.35 3.02

1944 1.730 0.068 17.35 4.35 Source:SJdS1946;SHvD.


22/499

22

PartOne:

TheEconomicsofNeutrality


23/499

23

ChapterOne

TheEconomicsofNeutralityintheSecondWorldWar

This dissertation studies the economic behaviour of three neutral

countries during the Second World War. For the last sixty years, the popular

media,politicians and lawyershave increasinglyused the traditionalversion of

wartime neutrality as impartiality to evaluateSpain, Sweden and Switzerlands

wartime choices. Engaging in merchandize and invisibles trade with the

belligerentspreservedtheneutralsposition,butdidnotendearthemtoeither

belligerentgroup.Thiscriticismhascontinuedintothepostwarera.Theissueof

neutral

complicity

has

been

raised

time

and

time

again

in

the

postwar

era

duringtheEichmannandAuschwitztrials.

Of all the neutrals, Switzerland had the greatest right to

distinction. She has been the sole international force linking the

hideoussundered nations and ourselves. What does it matter

whether she has been unable to give us the commercial

advantages

we

desire

or

has

given

too

many

to

the

Germans,

to

keepherselfalive?Shehasbeenademocraticstate,standingfor

freedom in selfdefence among her mountains and in thought,

despiteofrace,largelyonourside.1

Butas thesewordsofWinstonChurchillsuggest,neutralsurvivaldependedon

economicsintheperiodfromthefallofFranceinJune1940totheliberationof

Europe in May 1945. This dissertation makes two contributions to knowledge.

Firstly,

this

study

develops

more

accurate

economic

statistics

to

reveal

Spain,

SwedenandSwitzerlandswartimeposition.Second,itusesthesenewstatistics

to defineeachcountrysneutrality and thephenomenon more generally; inso

1WinstonChurchill,TheSecondWorldWar:TriumphandTragedy,vol.VI(Boston,1953),p.712.


24/499

ChapterOne:TheEconomicsofNeutrality

24

doing, itchoosesto ignorethepopularmoralargumentswhichhavebeenused

measure the neutrals actions. Rather, using these new figures and certain

Samuelsonianassumptionsaboutcausation,thisdissertationconfirmsChurchills

view of neutrals as rational economic actors who sought primarily to preserve

theirowninterests.

Dozens of books appeared in the mid1990s accusing Spain, Sweden,

Switzerland,theVaticanandothersofaidingHitlerswarmachine.2Thesituation

escalated in the late 1990s when the United States Senate held hearings into

missing assets and the economic gains made by the neutrals in the war,

threatening diplomatic retaliation for actions of fifty years before.3 The final

Eizenstat

report,

named

for

the

leader

of

the

United

States

Commission

investigatingtheneutrals,putconsiderableemphasisonthemovementsofgold

betweentheThirdReichandneutralcountriesaswellasJewishdepositsinSwiss

banks.SubsequentreportsofgoldtransferswerepreparedbyseveralEuropean

Central banks.4 Although the movement of gold in the Second World War is

2ThemostimportanttextspresentingtherevisionistpositiononSwitzerlandareMarkAarons

andJohnLoftus,UnholyTrinity:TheVatican,theNazis,andtheSwissBanks(NewYork,1998);

TomBower,BloodMoney:TheSwiss,theNazisandtheLootedBillions(London,1997);AdamLeBor,

Hitlers

Secret

Bankers

(New

Jersey,

1997);

Werner

Rings,

Raubgold

aus

Deutschland:

die

GolddrehscheibeSchweizinZweitenWeltkrieg[TheRobberyofGermanGold:TheRevolvingDoor

ofGoldinSwitzerlandintheSecondWorldWar](Ascona,1990);PhilippSarasinandRegina

Wecker,RaubgoldRduitFlchtlinge:ZurGeschichtederSchweizimZweitenWeltkrieg[TheRobberyofGold:TheHistoryofSwitzerlandintheSecondWorldWar](Zurich,1998);Jakob

Tanner,HandmitdenNazis,Bilanz,10(1989),p.346352;IsabelVincent,SwissBanks,Nazi

Gold,andthePursuitofJustice(NewYork,1997);DonArthurWaters,Hitler'sSecretAlly,

Switzerland(LaMesa,1992);andJeanZiegler,TheSwiss,theGold,andtheDead(NewYork,

1998).3SeeUnitedStatesCongress:Senate.CommitteeonBanking,Housing,andUrbanAffairs,Swiss

banksandthestatusofassetsofHolocaustsurvivorsorheirs:hearingbeforetheCommitteeon

Banking,Housing,andUrbanAffairs,UnitedStatesSenate,OneHundredFourthCongress,

secondsession,April23,1996(Washington,1996);andUnitedStatesCongress:Senate.

Committeeon

Banking,

Housing,

and

Urban

Affairs,

Swiss

banks

and

attempts

to

recover

assets

belongingtothevictimsoftheHolocausthearingbeforetheCommitteeonBanking,Housing,

andUrbanAffairs,UnitedStatesSenate,OneHundredFifthCongress,firstsessionontheinquiry

intotheassetsofHolocaustvictimsdepositedinSwissbanksandtheissuessurroundingthe

recoveryandrestorationofgoldandotherassetslootedbyNaziGermanyduringWorldWarII,

andtheactsofrestitutionwhichmustfollow,15May1997(WashingtonDC,1997).4JanHeuman,FinalReportontheRiksbanksWartimeAcquisitionofGoldRiksbank

(Stockholm,1997);International CommissionofExperts(ICE),Switzerland:NationalSocialism


25/499


25

important, there are underlying merchandise trade, services and payments

reasons for these gold payments which are not explored in these reports. The

movement of gold is only a small part of a much larger story about neutral

belligerentrelations.5

There has been considerable moral debate on why Spain, Sweden and

Switzerland chose to engage politically and economically with the belligerents

during the war. This dissertation also gives no weight to these morallybased

argumentssincetheyarebothdifficulttomeasureandbecauseneutralactions

needtobeplaced incontext.Overthe lastdecade, lawyershavebeenworking

to trace confiscated assets and punish companies which were suspected of

trading

with

the

belligerents.6

A

particularly

vocal

group

of

these

revisionist

historianscastigatetheSwedesandtheSwissforabettinggenocide,byrefusing

to offer sanctuary to Hitlers victims, bankrolling the Nazi war economy and

callously profiting from Hitlers murderous actions.7 For the trade in material

goods, these authors cite Switzerlands exports of precision instruments and

weapons,Swedensprovisionofballbearings, ironore, railwayequipmentand

otherrelatedgoodsandSpainscontributionsofwolframandtungstenasone

sided contributions to the German war machine.8 One of these authors,

Professor JeanZiegler,goesso faras tocharge theSwissgovernmentofbeing

andtheSecondWorldWar(Zurich,2002),p.245ff;MugaciaCommission,Reportofthe

CommissionofInquiryonGoldTransactionswiththeThirdReich(Madrid,1998).5WilliamZ.SlanyPreliminaryStudyonUSandAlliedEffortstoRecoverandRestoreGoldand

OtherAssetsStolenorHiddenbyGermanyDuringWorldWarIIUnitedStatesDepartmentof

StateReport(WashingtonDC,May1997).6Themostnotablelegalactionwasa1996classactionlawsuitagainstEuropeanbanksand

insurersonbehalfofHolocaustvictimsandsurvivors.Thelargestsettlementinthislawsuitcame

fromSwiss

Banks,

totalling

some

USD

$1.25

billion

(New

York

Federal

docket

#CV

96

4849).

OthersmalleractionsincludedsuitsintheUnitedStatesCourtsagainstvariousAustrian,French

andGermancompaniesforslavelabourandmuseumstoreclaimartworkseizedduringthewar.7NevilleWylie,Britain,Switzerland,andtheSecondWorldWar(Oxford,2003),p.2.

8Includes:PaulA.Levine,SwedishNeutralityduringtheSecondWorldWar:tacticalsuccessor

moralcompromise?,inNevilleWylie(ed.),EuropeanNeutralsandNonBelligerentsDuringthe

SecondWorldWar(Cambridge,2002);JordiCatalnVidal,LaEconomaEspaolaylaSegunda

GuerraMundial[TheSpanishEconomyandtheSecondWorldWar](Barcelona,1995).


26/499


26

moredocilethantheVichygovernment.9Thisdissertationdoesnotaddressthe

moralissuesraisedbythesegroupsasmeasuringthemissubjective.

Moreover,themoralargumentsalsolackcontext.ToquotehistorianPaul

Levine on the reasons for this reexamination as they relate to Sweden, that

twogenerationsafterthewar,theSwedesholdaratherdifferentunderstanding

of neutralitys moral implications than do most scholars, establishment

politicians and other defenders of what might be called the traditional or

standardviewofneutrality.11Thisfollowsontheideasraisedbysocalledcode

ofconductscholars,whoassertiftheneutralsexpecttoenjoytheirrights,they

must scrupulous observe their duties, especially the fundamental duty of

impartiality.12In

order

to

understand

their

ideas,

it

is

necessary

to

review

the

argumentsbehindneutrality.LegalscholarStephenNeffarguesimpartiality isa

modernphenomenonwhichitimposesobligationsonthosewhowanttoremain

atpeace.13AnentirechapterofNeffswork,TheRightsandDutiesofNeutrals,

overviewsthemanyrulescreatedduringtheearlytwentiethcenturytoprotect

neutrals.14 Legal scholars see these treaties as valuable in protecting neutral

rightsduringthewar.

But the treaties only provide the framework for neutralbelligerent

relations. The assumption inherent in the revisionist argument for Sweden is

their conduct was somehow wrong. But it is difficult to reach this conclusion.

How can we quantify we value of Swedens contribution to Germany of ball

bearingsagainstthesubjectiveworthofAlliedsignalsintelligenceortherescue

oftheDanishJews?Ifwelimitthisjusttotheeconomicperspective,thecode

ofconduct group argues Sweden provided strategic goods to one or both

partieswhichchangedthecourseofthewar inviolationofthespirit, ifnotthe

9Ziegler,TheSwiss,p.163.

11PaulA.Levine,SwedishNeutralityduringtheSecondWorldWar:tacticalsuccessormoral

compromise?inNevilleWylie(ed.),EuropeanNeutralsandNonBelligerentsDuringtheSecond

WorldWar(Cambridge,2002),p.305.12

StephenC.Neff,TheRightsandDutiesofNeutrals(Manchester,2000),p.172.13

Ibid.14

Neff,RightsandDuties,Chapter7.


27/499


27

letter, of the treaties. But these individual sales are frequently not placed in

context.

For example, the Swedish provision of ball bearings and iron ore to

Germanyistakenoutofperspectivewiththeoverallwartimetradesituationand

theSwedishneedtoearnGermanforeignexchangetobuyfood.Ifwefollowthe

logic of Mancur Olson, there are no strategic goods and therefore, individual

itemsmustbeexamined incontextofoveralltrade.15Asthisthesisshows,the

SwedesprovidedsimilargoodstotheAllies throughoutthewar,evenallowing

AlliedplanestolandandboatstodockonSwedishterritorytocollectthemuch

neededSwedishexports.16Thesesaleswere,atleastinpart,madetoobtaincoal

and

petroleum

products.

While

it

is

beyond

the

scope

of

this

inquiry,

the

questionclearlyarises:shouldtheSwedishgovernmenthavecutofftradewith

GermanyandtheAlliesinordertosatisfytheirmoralobligations,wouldithave

beenacceptabletoallow itscitizenstostarveandfreeze?Although itdoesnot

directlyaddressthemoralissues,thisdissertationplacesthesemoralandcode

ofconduct arguments within the larger economic framework of wartime

economicrelations.Onlythencanwebegintounderstandthem.

Several authors, most notably Neville Wylie and Christian Leitz, have

approached thissubjectasa questionof international relations.Wyliesedited

volume,EuropeanNeutralsandNonBelligerentsduringtheSecondWorldWar,

providesoneofthemostcomprehensivecurrentlyavailablehistoricalreviewsof

European neutrality in the wartime period. This history includes both neutrals

which were victims of aggression and thosewho survived thewar.17 However,

Wylie defines theneutralsaccording to theperiod inwhich they perished,not

the way in which they maintained their independence. This focus on the way

15MancurOlson,TheEconomicsofWartimeShortage:HistoryofBritishFoodSuppliesinthe

NapoleonicWarandinWorldWarsIandII(Durham,1965).PleaseseetheintroductiontoChapterTwoforafullerexplorationofOlsonsideas.16

SeeChapterTwo.17

Wylie,EuropeanNeutrals.


28/499


28

they perished only tells half the story; importance has to be placed on

determiningwhythecountrieswhosurvivedremainedneutralthroughoutwar.

Inhiscomparativework,LeitzfocusesononlythefiveEuropeanneutrals

which survived the duration of the war;18 he reviews nominal Germanneutral

tradestatisticsfora limitednumberofgoods.Leitzassertsthateachofthefive

neutrals in his study provided a significant contribution to the German war

effort.Butthis results froma relianceonstatistics fromexistingsourceswhich

focusonspecificgoods;manyarebasedonpoliticalarchivesasopposedtomore

economically minded ones. As such, Leitz provides support for the revisionist

argumentbynotplacingthismerchandisetrade inwidercontext.Forexample,

thediscussion

of

Sweden

does

not

give

us

overall

statistics

for

Swedish

German

merchandise trade, but examples from what Leitz considers to be key goods,

suchasSwedishironoreorSpanishwolfram.19Inthiswayitbecomesanecdotal

providingahistoryofthingswhichare importantbasedonthereadingofthe

politicalarchivesandnotbasedoneconomicmeasurement.Althoughthefirstto

provide economic comparisons between the neutrals during this period, Leitz

leaveshisreaderswithoutageneralunderstandingoftheeconomicrelationships

betweenneutralsandbelligerents.Thepresentstudybuildsontheworkofboth

Wylie and Leitz by using standardized statistics which allow for crossneutral

comparisonandwhichrevealneutralpreferences.

In threeseparatearticles,BrunoFreyand variouscoauthorshaveused

economicchoicesbybond investorstoassesstheperceptionofthreatsagainst

belligerentsandneutrals.20Usingbondprices,Freyshowstheturningpoints in

18ChristianLeitz,NaziGermanyandNeutralEuropeduringtheSecondWorldWar(Manchester,

2000).19

Leitz,NaziGermany,p.71andp.p.131.20

BrunoS.FreyandMarcelKucher,HistoryasReflectedintheCapitalMarkets:TheCaseof

WorldWarIITheJournalofEconomicHistory,60:2(June2000),p.468496;BrunoS.Freyand

MarcelKucher,WarsandMarkets:HowBondValuesReflecttheSecondWorldWar,

Economica,NewSeries,68:271(August2001),p.317333;DanielWaldenstrmandBrunoS.Frey,

UsingMarketstoMeasurePreWarThreatAssessments:TheNordicCountriesFacingWorld

WarII,IMFWorkingPaperNo.676(2006).


29/499


29

theperceivedthreatagainstaneutralandwhichcountriesthemarketsbelieved

wouldbesuccessful inmaintainingtheir independence throughconcessions. In

particular,Frey isabletodemonstratethattheprice levelsofSwissbondsafter

June1940suggesttheeffectivenessoftheSwissconcessions,withthemarkets

perceivinglittleriskofinvasion,especiallyrelativetootherneutrals.21Thisstudy

buildsontheFreysuseofeconomics toexplainhowSweden,Switzerlandand

Spainswartimeactivitiesdemonstratetheyweretryingobtainthebestpossible

deal from the belligerents while preserving their independence: neutrality is

realism.

InterpretingEconomic

Outcomes

UsingthreeEuropeanneutrals,Spain,SwedenandSwitzerlandandthree

different economic points of study, namely, merchandise and invisible trade

flows,labourmovementsandcapitaltransfers,thisdissertationcontributestoa

retrospective understanding of neutralbelligerent economic relations. The

standardsusedtoevaluateneutrals inthisdissertationaredifferentthanmost

political histories. Politicians representing countries during war often say one

thing and do another. This thesis is focused on and makes inferences from

economicoutcomes.Itprovidesthefirsteconomiccrosscomparativeanalysisof

neutrality in the Second World War. Readers looking for a complete political

history of neutralbelligerent relations in the Second World War will be

disappointed. This study will provide the necessary background to understand

theeconomicandstatisticalchangeshighlighted ineachchapter,but itwillnot

provide a complete diplomatic history. Rather, using these new statistics, it is

abletoprovideapictureofneutraleconomicrelationswiththethreecountries.

From

this,

it

is

possible

to

draw

retrospective

conclusions

on

the

neutral

countriespoliciesduring thewar. It willanswerquestionssuchashowandto

whom Sweden continued to provide ball bearings and ball bearings machinery

21FreyandKucher,HistoryasReflectedintheCapitalMarkets...,pp.484485.


30/499


30

duringthewar,butunlikeLeitz, itwilldoso inthecontextofoverallSwedish

belligerenttrade.22

Connecting the new economic knowledge presented herein to the

political actions during the war and making claims as to causation, of course,

raises many issues. Spain, Sweden and Switzerland found themselves in a

difficultposition.Theuseofeconomicoutcomeslimitsthescopeofthepotential

conclusions. We do not know precisely what types of noneconomic pressure

wereexertedbytheGermansandAllies.Readersshouldrecognizethesituation

is nuanced and can be complicated by cultural elements and political signals

exchangedbetweenthepartnerswhicharenotincludedinthisstudy.Thisstudy

resiststhe

desire

to

overly

simplify

the

situation

to

cases

of

good

and

evil.

Nevertheless, by relying on preference theory, we can reach new

conclusions on Spain, Sweden and Switzerlands wartime activities which are

differentthanthestatedpreferencesshown inthediplomaticcorrespondence.

Paul Samuelson established revealed preference theory, which can be used to

showaconsumersultimatebeliefsastheysubstituteuntiltheymaximizetheir

own utility.23 This is compared against stated preference theory, which isjust

verbalcommitmentstoitemswhicharenotbindingonanindividualsutility.The

principle unit in this Samuelsonian analysis would be the neutral government,

negotiating within the constraints set by the belligerents to obtain the best

results it can to the satisfaction of the belligerents and its own citizens; the

precise operation of this game will be discussed later in this introduction. The

revealedpreferencesshowclearelementsofeconomicrealism.Theseresultsare

different than the diplomatic material in Wylie, Leitz and others, providing

22Leitz,NaziGermanyandNeutralEurope,p.4984.

23PaulSamuelson,ANoteonthePureTheoryofConsumersBehaviour,Economica,5:17

(1938),p.6171;andPaulSamuelson,TheEmpiricalImplicationsofUtilityAnalysis,Economica6:4(1938),p.344356;seealsoRobertA.Pollak,SamuelsonsDr.JekyllandMrs.JekyllProblem:

ADifficultyintheConceptoftheConsumer,MichaelSzenberg(ed.),etal,Samuelsonian

EconomicsandtheTwentyFirstCentury(Oxford,2006),p.116145.


31/499


31

amongst other things, overall trade statistics, prices, capital flows and labour

contributionsbywhichispossibletointerpretneutralactions.

Theresultsofthisdissertationsuggestthethreeneutralsusedrealpolitik

or economic realism to survive the war, adapting their strategies in order to

survive. Contrary to the popular literature, from an economic perspective, the

neutralswerenotproGermaninthefaceofmilitarypressure.Allthreeactually

madeaspecificeffort toavoidbeingconsideredassuch,using illicit tradeand

othermeanstomaintaintradelinkswiththeAllies.Theyprovidedadvantagesin

theirtermsoftrade,labourandcapitalflowsonlywherenecessarytomaximize

theirownutility(inthiscase,tosurviveandsustaintheirpopulations).Bylinking

the

economic

outcomes

to

the

changing

events

in

the

war,

it

is

possible

to

confirmneutrality isrealism inthisperiod.Whilecertainlynotthe lastwordon

thesubject,theneweconomicstatisticshereinprovideanewanduniqueview.

NeutralityasImpartiality:HistoricalContextAs a legal concept, neutrality as impartiality first emerged in the early

seventeenthcentury,whenthefirstvaguedefinitionsofnonparticipationinwar

were penned by Hugo Grotius, a philosopher of modern natural law. Grotius

argued:fromthosewhoareatpeacenothingshouldbetakenexceptincaseof

extremenecessityandsubjecttotherestorationofitsvalue;28withreferenceto

thedutiesofthosewhoremainatpeace,Grotiuscircumscribedneutralactions

such that they should show themselves impartial to either side in permitting

transit, in furnishing supplies to his troops and in not assisting those under

siege.29 Grotius version of neutrality as impartiality remains the most widely

understooddefinitionoftheconcept.

The

Hague

Conventions,

Conference

of

London

Declarations,

Geneva

Conventions and other treaties of the late nineteenth and early twentieth

28HugoGrotius,DeJureBelliacPacis[OntheLawsofWarandPeace],vol.2:bk.3(London,1925),

p.783(Translation). 29

Ibid.


32/499


32

century institutionalized the concept of neutrality as impartiality in war. The

treaties detail the rightsanddutiesof neutralson land andatsea.Land rights

include the inviolability ofneutral territory, interment of combatants, rights to

tradeandtheneutralsdutiesinprotectingprisonersofwar;navalrightsinclude

the ability to pass freely through the lines of war and maintain their trade

relationships amidst war.30 Legal scholar Stephan Neff argues these rights and

dutieswerepartoftherequirementsofanewformofimpartiality;andineffect

measurements of morality could be made from the neutrals actions on these

issues.31

Support for Neffs position canbe found in the legal changes neutrality

underwentafter

the

First

World

War.

New

treaties

established

clear

rules

for

the

impartialitywithwhichneutralityshouldfunctionandrestrictedthebehaviourof

neutrals inwar.Declarationsofneutralityhadtomeettheminimumstandards

of the Fifth Hague Convention, constraining the belligerents actions against

neutral states; a neutrals behaviour was also restricted. With the adoption of

these rules, the international community sought to lower the levels of

uncertaintyinwartimeandpreventthespreadofwartoneutralcountries.

30See

The

Fifth

Hague

Convention

of

1907,

which

details

the

rights

and

duties

of

neutral

powers

andpersonsincaseofwaronland.Foracompletetext,seeTreatiesandOtherInternational

AgreementsoftheUnitedStatesofAmerica1776to1917,vol.1:Multilateral 17761917

(Washington,DC,1968).TheInternational NavalConferenceofLondon,19081909set

international rulesforthetransportationofneutralgoodsduringwartime,includingtherightsof

inspection,seizureandblockadeaffordedtothebelligerentsandneutralsalike.Foralonger

discussionoftheconferenceanditsimpactontradeinwartime,seeC.H.Stockton,International

NavalConferenceofLondon,19081909TheAmericanJournalofInternationalLaw,3:3(July,

1909),pp.596618.Onthelackofratificationofseveraltreatiesbypotentialbelligerents,see

Stockton,p.596andJamesBrownScott,TheHagueConventionsandDeclarationsof1899and

1907(NewYork,1915).Acurioussetofclausesmadethesetreatiesinternational lawwithratificationbyasmallnumberofstates.Visitwww.unhcr.ch/html/menu3/b/91.html ,lastvisited

3March2007foracopyofthe1949GenevaConventionandtheProtocolsof1977.Fortheprior

Conventions(1864,

1928

and

1929)

visit

the

Avalon

projects

website

on

the

laws

of

war

at:

http://www.yale.edu/lawweb/avalon/lawofwar/lawwar.htm ,lastvisited3March2007.The

SwissandSwedishgovernments,alongwiththeInternationalCommitteeoftheRedCross,are

entrustedwithcarryingoutcertainlegalandhumanitariandutiesduringtimesofwar.These

dutiesincludethedocumentation, transit,inspectionandprovisionofprivilegesforprisonersof

war.Forexamplesofthewaysinwhich institutionslowersystemicuncertainty,seeDouglass

North,Institutions,InstitutionalChange,andEconomicPerformance(Cambridge,1990).31

StephenC.Neff,TheRightsandDutiesofNeutrals(Manchester,2000).


33/499


33

Thecodificationofneutralityasimpartialityandagreementsastoneutral

rightsprovidedneutralstateswithmethodsofredressagainstbelligerentswhich

violated their position. Examples include simple twoactor cases, such as the

bombing by the Japanese of the neutral United States vesselUSS Panay in a

ChineseriverinDecember1937,forwhichthegovernmentofJapanpaidslightly

over $2.2 million dollars compensation in order to pacify the US;32 or the

bombing of the Swiss city of Schaffhausen in 1944 by the US, for which

compensationof$4millionwaspaidtoSwitzerlanddirectlyaftertheincidentto

maintain relations and Allied intelligence operations in the country.33 These

paymentsreinforcetheconceptofneutralityas impartialityaccordingtoNeffs

criteria.

TheRiseofRealistNeutrality

The meaning of neutrality changed in the First World War. From this

point,theconceptofneutralityas impartiality,whethermeasuredaccordingto

theGrotiusorNeffversions,changed.Themilitary imbalancebetweenneutrals

andbelligerents,andparticularlyaggressiveoffensivetacticsusedintheSecond

World War confirm a version of neutrality which is based largely on economic

realpolitik.35Neutralcountrieshadrightsandduties,buttheywereconstrained

bythepowerofthebelligerent.Whattheywereallowedtodowasdetermined

bytheirtrade inmaterialgoods,services,capitaland labourasopposedtothe

law or moral considerations. Support for this position can be found in the

writingsofneutralityexpertNilsrvik,whoafterthewarposited:

32WilliamGeraldDowney,Jr.ClaimsforReparationsandDamagesResultingfromViolationof

NeutralRightsLawandContemporaryProblems,16:3(Summer1951),p.488.33

JonathanE.Helmreich,TheDiplomacyofApology:U.S.BombingsofSwitzerlandduringWorld

WarIIAirUniversityReview(MayJune1977);alsobythesameauthor,TheBombingofZurich

AerospacePowerJournal(Summer2000),pp.4855.35

JackSnyder,CivilMilitaryRelationsandtheCultoftheOffensive,1914to1984International

Security,9:1(Summer1984),pp.108146.


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34

Theoutcomeofthestruggle toestablish [asystemofneutral

rights] has at all times been entirely dependent on the

economic and military strength, the strategic position and the

perspicacity and persistence of the two sides. In short the

products of two forces pulling in opposite directions, the final

resultbeingdeterminedbytherelativebargainingpowerofthe

parties.36

As rvik describes, with the increasing relative military strength of the Great

Powers and their use of the cult of the offensive, neutrality evolved from

impartiality

into

a

realist

system

where

the

belligerents

and

the

neutrals

continually reevaluated their relations on the basis of the power balance

betweenthem.Inthisrealistpowerbalancethereweretwocriticalcomponents:

the belligerents strength and the neutrals deterrent against invasion. The

belligerentsoffensivestrengthoveraneutralwouldhavetobecalculatedwith

respect to military, economic and political forces it could employ over the

neutral and the credibility of such threats. Similarly, the neutrals defensive

deterrent would involve some combination of the same forces, although the

neutral not only has to ensure the credibility of its deterrent force, but also

broadcastitswillingnesstodefenditselfclearlytothebelligerent.Therightsand

dutiesofneutralswerenot importanttotherelativepowerbalance;theywere

regularly ignored. The services the neutrals provided in the new version of

neutralityoutlinedbyNeffareimportantaspartofthispowerbalance;theyare

ultimately captured as economic payments in this dissertation (they were not

donethroughaltruism).37

36Nilsrvik,TheDeclineofNeutrality19141941(London,1971),pp.1316.

37Formoreinformationonrationaldeterrencetheory,seeChristopherAchenandDuncanSnidal,

RationalDeterrenceTheoryandComparativeCaseStudiesWorldPolitics,41:2(January1989),p.143169;JackS.LevyWhenDoDeterrentThreatsWork?BritishJournalofPoliticalScience,

18:4(October1988),p.485512;andJohnJ.Mearsheimer,ConventionalDeterrence(Ithaca,1983);RichardNedLebow,RationalDeterrenceTheory:IThink,ThereforeIDeterWorld


35/499


35

This dissertation proposes a simple game in order to understand this

relationship.Thisgame isbasedonsameprinciplesasthose introduced inThe

ProblemofSocialCostbyRonaldH.Coase.38

Inthisrealistpowerbalance,there

weretwocriticalcomponents:thebelligerentsoverallstrengthandtheneutrals

deterrentagainstinvasion.Itisalsoimportanttonotetheneutralsconcessionis

constrainedby themaximumpotentialcost theneutralmight incur if invaded.

The relativepowerbalancebetween a singlebelligerent and aneutral canbe

definedaccordingtothefollowingrelationship:

Figure1.1:BelligerentNeutralGame:SingleBelligerentModel

Where: BisthebelligerentandNtheneutral

Xisthenetbenefitorcostofwartothebelligerent

X>0representsabenefitforthebelligerent

X0representsconcessions(costs)fortheneutral

Z0);

Politics,41:2(January1989),p.208224;andKennethWaltz,TheoryofInternationalPolitics(Reading,1979).38

RonaldH.Coase,TheProblemofSocialCost,TheJournalofLawandEconomics,3:1960,pp.144171.


36/499


36

Thecosttotheneutralintheeventofwarmustbegreater

thantheconcessionsofferedbytheneutral(Z>Y)

NchoosesconcessionsifZX

Concessionarytrade

is

the

equilibrium

if

X


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37

BelligerentsPerspective

For the belligerent power, the game hinges on the relative values of X

andZ,

namely,

what

it

would

win

or

lose

in

awar

and

what

it

would

benefit

in

concessions.Acostlyinvasionorincreasedmilitarydeterrenceonthepartofthe

neutral would lower the X value relative to both Z and 0. If the benefits of

invadingtheneutralarenetnegative,asinXX, then the belligerent power has no

incentivetoinvade.Theneutralspresentedinthisdissertationareallclearcases

ofthevalueoftheconcessionsexceedingthebenefitsofinvasionsuchthatZ>X;

eachexample

with

high

costs

of

military

invasion,

and

at

least

in

the

cases

of

Switzerland and Sweden, limited strategic benefits. Each provided specific and

much demanded goods which were important for the belligerents war efforts

and which might have been lost in an invasion. If the benefits of war for the

belligerentexceedthevalueoftheconcessionsofferedbytheneutralZ


38/499


38

of the war. The overwhelming German strategic return from invasion make it

unlikely these neutrals could provide economic benefits sufficient to turn the

balanceawayfrominvasioninthewayneutralcountrieswhichweremorecostly

toinvade,suchasSpain,SwedenandSwitzerland,could.

RealistNeutralityamidstMultipleStrongBelligerents

As thissimple twoplayermodeldemonstrates,neutralshavetorelyon

economic and military deterrents. The military disparity at the opening of the

Second World War was unusually stark. This meant the costs of invasion for a

belligerent

were

small

compared

to

the

benefits.

The

neutrals

collapsed

quickly

inthefaceofGermanaggression.Duringtheinterwarperiod,theGreatPowers

madesignificantmilitaryadvances,whiletheneutralscontinuedtorelyonout

dated technology and strategies. As the statistics in Table 1.1 suggest, these

changesgavetheGreatPowersnotableadvantages.39

39MartinvanCreveld,TechnologyandWar:From2000B.C.tothePresent(London,1991);Larry

H.Addington,ThePatternsofWarSincetheEighteenthCentury(Bloomington,2004),pp.176189.


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39

Table1.1:SelectedMilitaryStrengthsofEuropeanArmies

Country

Men

under

Arms

Tanks HeavyGuns AirForcesNavalForces

(HomeFleet)

Mechanized

Forces

(divisions)

Belgium

(1939)600,000 10

lacked

heavyguns

50modern

200obsolete2small

warships;

coastaldefence

vessels

2

fully

motorized

2partially

motorized

Denmark

(1940)14,000 none none 50obsolete

2coastaldefence

vesselsnone

Finland

(1939)125,000 none

50anti

aircraft;

under2,000

artillery

onordersmallcoastal

defensivevessels

onepartially

motorized

division

Greece

(1940)333,000 none

fewerthan

450300obsolete

10destroyers

6submarines

53othervessels

onepartially

motorized

division

Hungary(1941)

216,000 190

noanti

tanksandantiair

weapons

189obsolete notapplicabletwomotorized

brigades

Ireland

(1939)7,494 none none 4fighters 2patrolboats none

Netherlands

(1940)400,000 none

656

obsolete50obsolete

1cruiser

1destroyer

3submarines

8gunboats

5minesweepers

bicyclecorps

Norway

(1939)56,000 none

fewanti

tankand

antiair

weapons

24modern

44older

150on

order

7destroyers

1minelayer

40smaller

vessels

none

Poland

(1939)1,000,000

300

medium

tanks;500

lighttanks

4,000heavy

fieldguns,

ofwhich

1,154were

offront

linequality

423aircraft

ofwhich

16were

modern

bombersand

27were

modern

fighters

4destroyers

5submarines

6minesweepers

2complete,

1incomplete

motorized

infantry

brigades

100armoured

cars

10armoured

transport

carriers

Sweden

(1937)403,000 none

79anti

aircraft

257modern

(1936)

47assorted

vessels

(Sept.1939)

none

Switzerland

(1939)435,000 none

30to60

antiaircraft

guns

200

modernnotapplicable bicyclecorps

Yugoslavia

(1941)700,000

110light

tanksnone 419aircraft

4destroyers,

1cruiser,

1submarine

none


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40

PrincipalBelligerents:

Country

Men

under

Arms

Tanks HeavyGuns AirForcesNavalForces

(HomeFleet)

Mechanized

Forces

(divisions)

France

(1939)5million

3,000high

quality

1,927guns

7,500more

onorder

2,200planes,

ofwhich

1,000were

modern

7battleships

2aircraftcarriers

19cruisers

58destroyers

77submarines

3armoured

7motorized

infantry,

3light

mechanized

3light

motorized

infantry

United

Kingdom

(1939)

897,000 969total1,900total

over75mm

7,940total,

alltypes

includingold

biplanes

15battleships

4aircraftcarriers

37cruisers

105destroyers

57submarines

1armoured,

4motorized

infantry

2light

mechanized

Germany

(1939)

3.74

million

4,700high

quality5,000total

2,564

modern

5battleships,

1heavycruiser,

4lightcruisers

21destroyers

57submarines

6armoured,

4motorized

infantry,

4light

mechanized

2airborne

infantry

Sources:OxfordUniversityPress(ed.)TheOxfordCompaniontoWorldWarII(Oxford,2001),pp.9596,252,228, 316318, 369277,402,43334,610611, 640,702 and 853; BritishandGerman

ArmyfigurestakenfromMarkHarrison(ed.),TheEconomicsofWorldWarII (Cambridge,1998),p.14;FinnishantiaircraftgunsfromH.PeterKrosby,Finland,GermanandtheSovietUnion,1940

1941(Madison,1968),p.11;Finnishheavyguns,airforces,coastaldefencesfromOlliVehvilinen,

Finlandin

the

Second

World

War

(Basingstoke,

2002),

pp.50

53;

Dutch

Naval

forces

(home

fleet)

fromA.Kroese,TheDutchNavyatWar(London,1945),p.7;Polishforces:JosefGarlinski,Poland

andtheSecondWorldWar(London,1985),pp.1213;GreekheavygunsfromJ.Moher,Summarytable of the Wartime Composition of an Infantry Division (Mountain Type): Greek Army 1940

1941.

Against sixteen mechanized German and French divisions, the best

equipped neutral country could boast only two mechanized and two partially

mechanizedinfantrydivisions.TheDutchandtheSwissstillreliedformobilityon

bicycle corpsand requisitioned civilian transportation.Others hadno provision

whatsoeverformechanizedforces.ApartfromtenexperimentalBelgianmodels,

the neutrals did not own a single tank, compared with some 4,700 German

models in1939.Theneutralsdidhaveairforces,mostnotablytheSwedesand

Swiss,whohadsome257and200modernaircraft,respectively,butagainthese


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41

were small compared to the German force of 2,564. Nor had the neutrals

developedanynewstrategiestocounterthenewbelligerentarmies;instead,on

1September1939theychoosetodeploytheirinfantryonthebasisofstrategies

usedintheGreatWar.40

Itwastotheadvantageofthemorepowerfulbelligerentstoinvadeand

expropriatetheforcesofthemilitarilyweakerneutrals.Withinninemonths,the

war had absorbed the Netherlands, which had a weak military and a strategy

basedonforeignintervention.TheadvantagesofinvadingtheNetherlandswere

particularly stark for the Germans, who could capture the costal ports, gold

reserves and manufacturing centres.41 The strategic advantage of attacking

Francethrough

Belgium

made

the

latters

military

defences

of

little

consequence

from a strategic perspective. The limited economic cost of attackingcompared

with the benefitsofnothaving toattacktheMaginot lineoutweighed the few

costs for the Germans. No economic concessions sufficient to counter these

interestsweredeployed.

Asseen inthemaps inFigures0.1and0.2, lessthantwoyears intothe

waronlyfourcontinentalEuropeanneutralswere left:Portugal,Spain,Sweden

and Switzerland. In the face of the military power of the belligerents, these

remaining independent countries could not instantaneously reshape their

militaryforces.AcountrysuchasSwitzerland,nowsurroundedbyGermanyand

similarly aligned Italy, could not instantly build a military force capable of

countering German influence.44 Nor could they build a Navy capable of

40Swedenreliedona1925strategyalmostidenticaltoitsstrategyintheGreatWar;seeUlf

Olsson,TheStateandIndustryinSwedishRearmamentinMartinFritzetal,TheAdaptable

Nation:EssaysinSwedishEconomyduringtheSecondWorldWar(Stockholm,1983),p.60.

Switzerlandrelied

on

adefence

in

depth

scheme

from

September

1939,

later

replaced

by

the

rduit;seeHenriGuisan,BerichtandieBundesversammlungberdenAktivdienst19391945[ReporttotheFederalCouncilabout(my)ActiveService19391945](Lausanne,1946),pp.91

126.FrancoapparentlylackedagrandmilitarystrategyforSpain(seeFNFF).41

BobMoore,TheNetherlands,inWylie,EuropeanNeutrals,pp.7696.44

IttookGermanythreeandahalfyears(1935to1938)tobuildanairforceof50,000men

trainedtousethevariousnewtypesofaircraft;seeLaRearmamentClandestineduReich1930

1935[ClandestineRearmamentoftheReich,1930to1935]authorunknown(Paris,1954),


42/499


42

protecting their merchant marine against the Allies. Instead they were

dependent on economic concessions to counter the belligerents desire to

conquerthem.Sufficientconcessionshavetobeofferedtoassuagebothparties

without upsetting the other. Understanding this more complex situation with

twobelligerents,B1andB2,andaneutralrequiresamultibelligerentmodelof

theCoasiangame.

TheMultiBelligerentModel

Insocalledworldwars,neutralsarefacedwiththreatsfromnotjustone

belligerent,asinthepreviousgame,butatleasttwobelligerents,ifnotmore.