This second world war will complete a revolutionary change in our financial position. Before 1914 the United Kingdom was the world's leading creditor country. Year by year, we received from other countries interest and dividends on the investments which British citizens have made abroad for many previous generations. These annual receipts amounted to a very large sum, and they would have sufficed, had we chosen so to use them, to defray a large proportion of our import bill for food and raw materials and other commodities that we imported from overseas. In fact, we did not need to use much of this external income for that purpose. Our exports, visible and invisible, were large enough in those days to cover most of our imports, and we used most of our income from overseas investments for the purpose of making fresh investments. In the first world war these great investments of the past proved their value to us as a nation. By mobilising and selling only part of them, we were able to finance, not only our own war needs, but those of our Allies in the period before the United States entered the war. As a result, however, our receipts from overseas investments were so much less.
What was more important, that war dealt a heavy blow to our export trade, and we were never subsequently able to restore our exports to the volume they had reached before 1914. That loss of export trade entailed tragic consequences, for it was the main cause of the long-continued unemployment during the inter-war period in our depressed areas. But though our exports and the income from overseas investments were reduced, there was still enough, when added together, to enable us to pay for what we bought. The wide favourable margin on the balance of payments which was used in the past to make fresh loans abroad, had, however, disappeared. In some years we had a favourable balance of moderate dimensions. In other years we had an adverse one. By and large, our position was this: our international income had been reduced and we were living right up to it, not beyond it, but up to it, for the first time in our modern industrial history. That was the change produced by the first world war.
This world war is making further deep inroads into our net international income from investments. I speak of net international income, for we have to consider the effects, not only of the sale of our overseas securities, but, as I have already indicated, of the external debt we have incurred for the prosecution of the war. The broad fact is already sufficiently clear, that when the war is over, we shall have ceased to be a large-scale creditor country. We shall no longer be able to rely, as hitherto, on being able to finance any material part of our import needs from overseas investment income.