The unsolved problem of Ulster's exclusion was bound to make this a risky and uncertain strategy. Many of Redmond's followers were bitterly opposed to anything that smacked of part.i.tion and deeply mistrustful of the London government. Redmond's best hope was that the wartime comradeship of Irish unionists and nationalists, and their common sacrifice, would soften their pre-war antagonism and win Ulster's agreement to Home Rule on a flood-tide of All-Irish patriotism. Any prospect of this was badly damaged by the Dublin Easter Rising in April 1916. The Irish Republican Brotherhood, which controlled the Volunteer units opposed to Redmond, had planned an armed insurrection in September 1915. It was delayed into 1916 for the sake of German help with the weapons needed for a general revolt. Even when these failed to arrive (they were intercepted by the Royal Navy), the conspirators under the charismatic leadership of Patrick Pea.r.s.e went ahead with the Dublin rising. Their motives have been much debated, but a desperate determination to shock Irish opinion out of wartime loyalty, perhaps by a 'blood sacrifice', may have been uppermost. Whatever the aim, the effect was seismic. In six days of fighting, the city centre was wrecked and 450 people (mostly civilians) were killed. The initial revulsion against the reckless violence of the conspirators was disarmed by their subsequent fate: ninety were sentenced to death, sixteen were to die.143 Republicanism had found its martyrs. More immediately, the Dublin rising convinced the London government (which wrongly attributed it to the influence of Sinn Fein) that some new gesture was needed to isolate the 'extremists' in Irish politics and bolster the loyalty of Redmond's followers. Home Rule returned to the political agenda but in circ.u.mstances no more favourable than in 1914. Republicanism had found its martyrs. More immediately, the Dublin rising convinced the London government (which wrongly attributed it to the influence of Sinn Fein) that some new gesture was needed to isolate the 'extremists' in Irish politics and bolster the loyalty of Redmond's followers. Home Rule returned to the political agenda but in circ.u.mstances no more favourable than in 1914.

The result was a stalemate. Lloyd George won the shadow of consent but only by telling the Ulster Unionists that their exclusion from a Home Rule Ireland would be permanent, and the Redmondites that it would be temporary. When the truth was revealed, the 'agreement' fell apart. Redmond angrily rejected the offer of immediate Home Rule for the twenty-six counties outside Ulster, knowing that much of his following would reject a compromise that left many Catholic nationalists in a separate North. In the House of Commons in March 1917, the Redmondites complained bitterly of British betrayal. 'What is it that stands in the way of Ireland's taking her place as a self-governing part of the Empire?', asked the leader's brother, William Redmond.144 Ireland wanted to be like Canada, Australia and New Zealand, 'side by side in the common cause'. John Redmond himself offered a sombre and prophetic warning. The 'revolutionary party', almost banished before the war, was now reviving. His own position had been made untenable. In a savage peroration, Redmond blamed his political bankruptcy on the treachery of British leaders. 'Any British statesman who...once again teaches the Irish people the lesson that any National leader who, taking his political life in his hands, endeavours to combine local and Imperial patriotism, endeavours to combine loyalty to Ireland's rights with loyalty to the Empire anyone who again teaches the lesson that such a man is certain to be let down and betrayed by this course, is guilty of treason not merely to the liberties of Ireland but to the unity, strength and best interests of this Empire.' Ireland wanted to be like Canada, Australia and New Zealand, 'side by side in the common cause'. John Redmond himself offered a sombre and prophetic warning. The 'revolutionary party', almost banished before the war, was now reviving. His own position had been made untenable. In a savage peroration, Redmond blamed his political bankruptcy on the treachery of British leaders. 'Any British statesman who...once again teaches the Irish people the lesson that any National leader who, taking his political life in his hands, endeavours to combine local and Imperial patriotism, endeavours to combine loyalty to Ireland's rights with loyalty to the Empire anyone who again teaches the lesson that such a man is certain to be let down and betrayed by this course, is guilty of treason not merely to the liberties of Ireland but to the unity, strength and best interests of this Empire.'145 Lloyd George replied merely that Ulster could not be forced into Home Rule. Lloyd George replied merely that Ulster could not be forced into Home Rule.

There was to be one last throw of the political dice. Too much was at stake to abandon all effort at settlement. For London, an unreconciled Ireland would embarra.s.s Britain's relations with the United States (now a 'co-belligerent'), threaten Irish recruitment and alarm the Unionist majority in Parliament on which the Lloyd George ministry depended. For Redmond and the Irish National party it would ensure the oblivion that Redmond feared. The Irish Convention of 191718 was a desperate attempt to find a bargain acceptable to the nationalists, and both the Northern and the Southern Unionists (who had most to lose from part.i.tion).146 It failed, but its real failure was to have been irrelevant. It was boycotted by Sinn Fein, and Sinn Fein was already by 1917 the most powerful force in Irish politics. While Redmond pursued a const.i.tutional will-o'-the-wisp, Sinn Fein urged ma.s.s support for outright separation. It crushed the Redmondites in the by-elections. In May 1917, it won the open endors.e.m.e.nt of the Catholic hierarchy. But the real secret of its remarkable rise was the Irish fear of conscription. It failed, but its real failure was to have been irrelevant. It was boycotted by Sinn Fein, and Sinn Fein was already by 1917 the most powerful force in Irish politics. While Redmond pursued a const.i.tutional will-o'-the-wisp, Sinn Fein urged ma.s.s support for outright separation. It crushed the Redmondites in the by-elections. In May 1917, it won the open endors.e.m.e.nt of the Catholic hierarchy. But the real secret of its remarkable rise was the Irish fear of conscription.

Ireland had been carefully exempted from the Military Service Act of 1916. But its shadow loomed large in Irish society. As the war dragged on, it seemed only a matter of time before conscription crossed the Irish Sea. There were many reasons why Irish att.i.tudes were so different from those in mainland Britain. Even the Redmondites insisted that without Home Rule conscription was illegitimate. Like Afrikaners or French Canadians, the Catholic majority denied an obligation obligation to fight for the Empire, even if many were willing to do so. Ireland had the highest rate of emigration in pre-war Europe: to fight for the Empire, even if many were willing to do so. Ireland had the highest rate of emigration in pre-war Europe:147 even without conscription, the haemorrhage of young men (and women) was the cruellest fact in Irish life. In rural Ireland especially, conscription threatened (or was thought to) the survival of small farms dependent on family labour. Scares proliferated about the moral and physical pollution that army service would bring. Conscription would debauch as well as impoverish, a notion not discouraged by the clergy. Politically and culturally, it meant anglicisation, the fraying of local loyalty and Catholic ident.i.ty. even without conscription, the haemorrhage of young men (and women) was the cruellest fact in Irish life. In rural Ireland especially, conscription threatened (or was thought to) the survival of small farms dependent on family labour. Scares proliferated about the moral and physical pollution that army service would bring. Conscription would debauch as well as impoverish, a notion not discouraged by the clergy. Politically and culturally, it meant anglicisation, the fraying of local loyalty and Catholic ident.i.ty.

The fear of conscription was thus the cause that turned the republican separatism of Sinn Fein into a popular movement, and Irish politics into its revolutionary phase. As the Convention floundered towards collapse, the slide towards open revolt gathered speed. For, by April 1918, the threat of conscription had become dangerously real. As the crisis of British manpower grew with the huge new losses on the Western Front, the call-up in Britain was extended to men as old as fifty-one. After a bitter internal row, the Lloyd George government shelved its application to Ireland for the moment. The effect on Ireland was like a call to arms. The Volunteer brigades recruited and trained more actively than ever.148 For many young men, armed resistance as a Volunteer seemed the only defence against compulsory service in the British army. Raiding and counter-raiding between Volunteers and police intensified. De Valera, now leader of Sinn Fein, drew up a national pledge against conscription that was signed by tens of thousands at the church door on 21 April 1918 and endorsed by a general strike two days later. Amid these signs of violent upheaval (and with deepening gloom on the Western Front), London turned once more to repression. The Sinn Fein leadership (some 150 persons) was gaoled and its meetings proscribed a step widely seen as the prelude to conscription. But it was now too late to break the grip of the movement and its military wing on the Irish countryside. For the rest of the war, an armed truce prevailed. When peace came, Sinn Fein's electoral triumph (outside Ulster) and the opening shots of its military struggle showed how far and how quickly the war had transformed the old landscape of Anglo-Irish relations. For many young men, armed resistance as a Volunteer seemed the only defence against compulsory service in the British army. Raiding and counter-raiding between Volunteers and police intensified. De Valera, now leader of Sinn Fein, drew up a national pledge against conscription that was signed by tens of thousands at the church door on 21 April 1918 and endorsed by a general strike two days later. Amid these signs of violent upheaval (and with deepening gloom on the Western Front), London turned once more to repression. The Sinn Fein leadership (some 150 persons) was gaoled and its meetings proscribed a step widely seen as the prelude to conscription. But it was now too late to break the grip of the movement and its military wing on the Irish countryside. For the rest of the war, an armed truce prevailed. When peace came, Sinn Fein's electoral triumph (outside Ulster) and the opening shots of its military struggle showed how far and how quickly the war had transformed the old landscape of Anglo-Irish relations.

It was at first sight surprising that the revolt against empire had gone furthest so near the centre of the British system. The paradox is superficial. Though the demands of war had been felt across the whole imperial world, the alienation they caused had been deepest in Ireland. In pre-war Ireland, political expectations had been higher and the edge of violence closer than anywhere else with the consequences seen in 1916. As in India, the imperial government could not promise enough to save its would-be allies from defeat by 'extremists'. As in India, its agents enraged their opponents by the threat of coercion. But the real catalyst of Irish nationalism in its republican and separatist mode was fear that the imperial state was about to drive its control deeper than ever before into the localities through conscription and its enforcement and thus reverse reverse the pre-war trend to devolution. It was in Ireland, then, that the cloven hoof of war imperialism was most clearly visible, and in Ireland that the reaction was most deadly. the pre-war trend to devolution. It was in Ireland, then, that the cloven hoof of war imperialism was most clearly visible, and in Ireland that the reaction was most deadly.

War and empire The effects of the war on the British system were disturbing but also contradictory. Its extraordinary conclusion in Europe unimaginable in 1914 had wrecked, for the time being at least, the old balance of power, which had exerted so much influence on the extra-European diplomacy of the European states. Devising a stable successor regime that would restrain the jealousies of the European powers within Europe and beyond was one of the most pressing concerns of the 'peacemakers' who gathered in Paris in January 1919. Secondly, the war had set in motion a geopolitical revolution in East Asia. The weakness of a Russia engulfed in civil war (the disintegration of Russian colonial power in Northeast Asia seemed highly likely in 1919), the (relative) strength of j.a.pan, and the rise of xenophobic nationalism in China (that was to burst out in May 1919) threatened a general onslaught against Western interests on this furthest frontier of the British world. Thirdly, the war had destabilised the world economy and checked the globalising trends from which Britain had profited so much before 1914. It loaded Britain with debts both internal and external. At the same time, the sacrifice of men and wealth and the terrible uncertainties that persisted almost until the end of the conflict had strained the old basis of cooperation between Britain and the empire countries, goading into life the secessionist strand of local nationalism in Ireland, India and even South Africa. By way of compensation, the war had crushed for the moment the great power rivalry of Germany and Russia, whose compet.i.tive expansion British leaders had feared most before 1914. As a result, the British had been able to occupy much of the Eurasian 'c.o.c.kpit' in the Near and Middle East, the region where geopolitical uncertainty had seemed most dangerous to the imperial system but at what cost, and for how long?

This was what one of Woodrow Wilson's advisers was to call 'the new world'.149 How far British leaders could reconstruct their pre-war system, and adapt it to the shape of the new international order, and how far they could carry with them their partners, agents, allies and collaborators in India, the dominions and the 'outer empire', will be seen in the chapters that follow. How far British leaders could reconstruct their pre-war system, and adapt it to the shape of the new international order, and how far they could carry with them their partners, agents, allies and collaborators in India, the dominions and the 'outer empire', will be seen in the chapters that follow.

9

MAKING IMPERIAL PEACE, 19191926

In 1918, the British won an astonishing, almost fortuitous, victory, s.n.a.t.c.hing an imperial triumph from what seemed, as late as June, the jaws of continental defeat. Their greatest imperial rivals had been broken, one (Russia) by the other (Germany). In the Armageddon of empires, British credit, domestic unity and imperial cohesion had been tested to the limit, but had survived. Of the three princ.i.p.al victor powers, the United States, France and Britain, the British seemed best placed to turn the making of peace to their advantage. They had made the largest territorial gains, in the Middle East, Africa and the Pacific and had most to bargain with. They had incurred heavy debts to the United States, but London's influence on post-war reconstruction was bound to be large, since it was from London that the European victor states had borrowed most. With their pre-war rivals in disarray, there seemed little danger that British authority would be challenged by colonial politicians whose leverage had been cut down by peace or client states, no longer able to play off two sides in the great game of imperial influence. Above all, perhaps, with the gravest threat to the balance of power in Europe extinguished by the defeat of the Central Powers, the British could hope to lower their naval guard (after the strain of the Anglo-German arms race) and ease the pre-war tensions over imperial defence created by their single-minded concentration on the North Sea. European peace would leave them free to remake their partnerships with dominion, Indian and colonial politicians. Devolution promised to the dominions and India in 1918 would earn a dividend of loyalty. The British world-system would enter an Antonine Age of peace and prosperity.

But it did not turn out like that. Inevitably, the violent disruption of the pre-war order could not be repaired overnight. Nor was it likely that a new blueprint for world politics would command ready a.s.sent among the victorious allies, let alone in the ranks of the defeated or disenfranchised. Everywhere the prospect of a post-war settlement that might last for decades raised the stakes of political and social struggle: between states, peoples, races, religions, clans and cla.s.ses. Success whether dominance, freedom or security was vital before the new moulds hardened, before new rulers could climb into the saddle, before cynicism or despair set in among the rank and file on whose backing leaders at all levels depended. For all these reasons, the formal diplomacy of peacemaking was sure to be staged against the disorderly backdrop of political or armed struggle wherever there was the chance of a fait accompli fait accompli, or the hope of winning the national status that the peacemakers seemed so willing to dispense.

The British system was bound to be especially vulnerable to this post-war turbulence. Sprawled across the globe, it faced nation-making movements at every point: Irish, Greek, Turkish, Arab, Egyptian, Persian, Afghan, Indian, Chinese and West African. Its open societies were easily permeable by new ideologies of cla.s.s, nation, race or religion. Without a draconian apparatus of control (unimaginable in most places if only for reasons of cost), its colonial and semi-colonial regions could not be closed to external influence or new ideas. Its commercial prosperity depended upon an open trading economy and multilateral flows of goods and money. The prolonged dislocation of this fine-spun web threatened to wreck the mutual self-interest underpinning the politics of empire, and drain the wealth that paid for its costly superstructure. Peacemaking in its broadest sense settling territorial boundaries and sovereignty, reopening the channels of trade, adjusting the spheres of great power interest would need to be early and complete. The risk otherwise was that discontent and uncertainty would subvert the collaborative base of British rule and erode the loyalty of its self-governing partners to the idea of a British system. But peacemaking was anything but swift and far from complete. It was an intricate puzzle requiring dozens of pieces to be fitted together. Cooperation in one field required agreement in another and harmony in a third. Territorial settlement, strategic security and economic reconstruction were all entangled in a maddening knot of conflicting interests. Consequently, peacemaking in Europe dragged on until the Dawes Plan (1924) and Locarno (1925) and ignored Russia's place in the post-war order. In the Middle East, a territorial settlement was delayed until the treaty of Lausanne (1923) and final agreement over the northern border of Iraq until 1926. In East Asia, the Washington treaties of 19212 checked great power rivalries but not the determination of Chinese nationalists to attack the foreign privileges embodied in treaty-ports and concessions.

As a result, the claims of the dominion governments, as well as Irish, Indian, Egyptian, Arab and (some) African nationalists for wider influence and greater autonomy in the British system were caught up in the larger instabilities of the post-war world. Mistrustful of London's intentions, fearful of new British claims upon them, resentful of the apparent disregard for their ethnic, religious or const.i.tutional aspirations, they had little sympathy for the mood of chronic anxiety that hung over the cabinets of Lloyd George and his prime ministerial successors. Among British ministers and their advisers, the avalanche of international and imperial demands bred a siege mentality that verged at times on paranoia. Die-hards and visionaries pondered loudly whether the end of empire was at hand. But, by the mid-1920s, the worst seemed over. The danger that internal stresses and external pressures would together set off a general crisis of the British system receded. Its strategic security and financial solvency did not break down. The centre held. As nationalism fell back from the high tide of 191920, its leaders made their peace for the moment with the British world-system.

'New World' geopolitics The first priority of British ministers in London was to secure a peace that would avert a future commitment to European security on the terrible scale of the War. The logic of Britain's global interests, as they well understood, was to protect the imperial centre but not at such cost as to imperil the defence and development of the rest of their world-system. The stringent terms imposed in the treaty of Versailles (28 June 1919) were designed to disarm the terrifying power of German 'militarism'. Germany's navy was seized (but scuttled by its crews) and its rebuilding forbidden; her colonies were confiscated; and her army capped at 100,000 one-third the peacetime size of the combined British and Indian armies, one-eighth the size of France's. But the larger problem remained: how to prevent the (eventual) resurgence of German power and enforce (in the meantime) the punitive terms of peace.

For an important group of British opinion, the answer lay in forging an Atlantic partnership with the United States.1 There were many attractions. An Anglo-American alliance would rule the waves and the exchanges. It would be the decisive counter-weight to any power that aspired to dominate the European continent. It appealed to the vague emotion of pan-Anglo-Saxon racial unity to which politicians of all parties were susceptible. It would avert the risk of naval and financial rivalry, whose impact on Britain was bound to be adverse. It was favoured by Canadian leaders, and by s.m.u.ts, the heir-apparent in South African politics. It was the best guarantee against the continental entanglements upon which all the dominions looked with anxiety and disfavour as a dangerous distraction from imperial purposes. It would draw Britain away from the 'old diplomacy' of secret commitments and (as the war had shown) unlimited liabilities towards open covenants and defined obligations: and thus stabilise her claims on dominion loyalty. There were many attractions. An Anglo-American alliance would rule the waves and the exchanges. It would be the decisive counter-weight to any power that aspired to dominate the European continent. It appealed to the vague emotion of pan-Anglo-Saxon racial unity to which politicians of all parties were susceptible. It would avert the risk of naval and financial rivalry, whose impact on Britain was bound to be adverse. It was favoured by Canadian leaders, and by s.m.u.ts, the heir-apparent in South African politics. It was the best guarantee against the continental entanglements upon which all the dominions looked with anxiety and disfavour as a dangerous distraction from imperial purposes. It would draw Britain away from the 'old diplomacy' of secret commitments and (as the war had shown) unlimited liabilities towards open covenants and defined obligations: and thus stabilise her claims on dominion loyalty.2 Above all, it would make bearable the otherwise open-ended burdens of the League of Nations Covenant as the instrument for post-war collective security. Above all, it would make bearable the otherwise open-ended burdens of the League of Nations Covenant as the instrument for post-war collective security.

But in Europe such an Anglo-American partnership proved impossible. On the British side, even those keenest on Atlantic amity would not give up the claim to naval superiority and its vital instrument, the right of blockade.3 The 'freedom of the seas' on which Woodrow Wilson insisted remained a bone of contention. For Wilson, naval parity with Britain was the only basis on which the United States could enter the new world order envisaged in the League of Nations Covenant. The 'freedom of the seas' on which Woodrow Wilson insisted remained a bone of contention. For Wilson, naval parity with Britain was the only basis on which the United States could enter the new world order envisaged in the League of Nations Covenant.4 But, before the naval issue could be resolved, as it was in part at the Washington conference in 19212, American membership of the League of Nations was bluntly rejected by the United States Senate. This reaction against further involvement in the rancorous quarrels of the Old World had a second vital consequence. It aborted the three-way security pact through which Britain and the United States were together to guarantee France against unprovoked attack by Germany. When ratification failed in Washington, the Anglo-French pact lapsed as well. But, before the naval issue could be resolved, as it was in part at the Washington conference in 19212, American membership of the League of Nations was bluntly rejected by the United States Senate. This reaction against further involvement in the rancorous quarrels of the Old World had a second vital consequence. It aborted the three-way security pact through which Britain and the United States were together to guarantee France against unprovoked attack by Germany. When ratification failed in Washington, the Anglo-French pact lapsed as well.5 From July 1919, therefore, the British were thrown back on less attractive solutions to the most pressing of their strategic concerns. They could not wash their hands of Europe for fear that the dangers that had forced their intervention in 1914 would quickly recur, and because a European settlement was economically vital. They might have been tempted to hark back to 'Edwardian' solutions: to rebuild a European 'balance of power' so that no state could dominate the continent against them. But the balance of power was now discredited by its failure in 1914, and by public suspicion of the 'old diplomacy' of alliance treaties and secret clauses. Instead, London was pledged to collective security and the League of Nations. In principle, this shared the burden of keeping the peace and enforcing the treaty system of post-war Europe among the great continental states. In practice, the Bolshevik revolution in Russia and the fragmentation of Eastern Europe threw the task of containing Germany and policing the treaties back upon Britain and France. Worse still, the communist 'contagion' from Russia threatened to spread through a Europe that was economically devastated and socially disoriented. What was needed was a Concert of Liberal Europe, to preside over the new era of national self-determination, to promote material recovery and to repel the Bolshevik menace. That meant the reconciliation and cooperation of Britain, France and Germany.

This was the object, often muddled and obscure, of Lloyd George's coalition government and those of his successors after his fall in October 1922. What made it Herculean, or worse, were the interlocking differences blocking a European settlement along the lines laid down in the peace treaties of 1919. Thus the peace treaties looked forward to the creation of new nation states in Poland, Czechoslovakia, Hungary and the 'South Slav state' (later Yugoslavia), and the ethnic 'rectification' of other pre-war boundaries. Such an ambitious programme depended heavily upon the cooperation of Germany. At the same time, the treaties prescribed reparations payments through which Germany would compensate France and Belgium (mainly) for the damage of the war. But, neither reparations on the scale demanded, nor the peaceful reconstruction of Central and Eastern Europe, were possible without a wider programme of economic recovery, and the provision of new capital to help rebuild Europe's war-shattered finances. Here was a further maddening complication. New capital meant American money. Fresh American loans were unlikely without agreement on repaying the wartime advances made mainly to Britain. The British were unwilling to promise payment unless the huge loans they had made to their European allies were part of the financial settlement. (Indeed, loud voices in Britain, including Keynes and a former Chancellor of the Exchequer, urged mutual cancellation of all war debts.) But, of their wartime allies, one (Russia) was a bankrupt outlaw; and the other (France) insisted upon large German reparations as the condition of any reckoning. And so the problem came full circle.

By the end of 1922, after three years of tortured diplomacy, periodic confrontation and a full-scale war between Poland and Russia, Europe's post-war instability approached a crisis. Anglo-French relations were embittered by growing differences over their approach to Germany (whose economic recovery was more urgent in British eyes than the enforcement of reparations) and by rivalry in the Near East. German resistance to French demands and resentment against the territorial losses imposed by the treaties were fanned by internal discontent and economic hardship. In January 1923, the Conservative government led by Bonar Law, who had emerged from retirement to break up the Lloyd George coalition, watched impotently as France occupied the Ruhr to extract German reparations. It faced the demand from the United States for repayment of its war loans on terms that Bonar Law rejected as intolerable. It fretted about the military consequences as the Foreign Secretary, Lord Curzon, struggled (at the Lausanne conference) to defend the draconian terms imposed on Turkey in the treaty of Sevres (1920) against an insurgent regime led by Kemal Ataturk, the treachery (as Curzon saw it) of the French and the hostility of the Russians, posing now as Turkey's friend against the British ogre. 'I have realised from the first', Bonar Law had told Curzon in December 1922, 'the utmost importance of trying to get the Lausanne business settled before we came to grips with Poincare over reparations.'6 But, as the Turkish conference turned sour, and the German crisis deepened, he began to press the case for withdrawal from Britain's mandate in Iraq for whose northern third (the old But, as the Turkish conference turned sour, and the German crisis deepened, he began to press the case for withdrawal from Britain's mandate in Iraq for whose northern third (the old vilayet vilayet of Mosul) the Turks were expected to wage an armed struggle. of Mosul) the Turks were expected to wage an armed struggle.7 The travails of the imperial centre were leaving their mark on imperial defence. The need for drastic economies at home (partly to meet the American bill), and the receding prospect of European peace and reconstruction seemed to be turning Britain's main strategic prize in the Middle East into an untenable liability. The travails of the imperial centre were leaving their mark on imperial defence. The need for drastic economies at home (partly to meet the American bill), and the receding prospect of European peace and reconstruction seemed to be turning Britain's main strategic prize in the Middle East into an untenable liability.

1923 was a crisis year. But matters gradually improved. The nightmare of a Turkish, French and Russian combination against Britain in the Near and Middle East soon pa.s.sed. In the treaty that was signed in July 1923, the Turks accepted the loss of their Arab provinces, and the demilitarisation of the Straits but regained full sovereignty in Anatolia and part of Thrace. Mosul was deferred for arbitration. Bonar Law's Cabinet colleagues insisted upon accepting the American terms over his bitter opposition and even his threat to resign (Bonar Law went so far as to write to The Times The Times under the soubriquet of 'Colonial' to denounce his colleagues' views). under the soubriquet of 'Colonial' to denounce his colleagues' views).8 In doing so, they paved the way for American credits to flow to Europe as the severity of the crisis, highlighted by the Ruhr occupation, sounded the alarm across the Atlantic. With the Dawes Plan (1924), it at last seemed possible to cut the Gordian knot of debts and reparations, and begin to normalise the economic relations of the European states. In a more hopeful atmosphere, the idea of a Liberal Concert revived. In doing so, they paved the way for American credits to flow to Europe as the severity of the crisis, highlighted by the Ruhr occupation, sounded the alarm across the Atlantic. With the Dawes Plan (1924), it at last seemed possible to cut the Gordian knot of debts and reparations, and begin to normalise the economic relations of the European states. In a more hopeful atmosphere, the idea of a Liberal Concert revived.

For the British, the question was how large a continental commitment they would have to make to ward off the danger of a new European conflagration. Relations with France would not improve, argued Austen Chamberlain (Foreign Secretary 19249), unless Britain guaranteed her safety against Germany. Nor would the Germans 'settle down' so long as they hoped to divide the wartime allies. Sooner or later, a 'new catastrophe' would occur, into which Britain would be dragged. 'We cannot afford to see France crushed, to have Germany, or an eventual Russo-German combination, supreme on the continent, or to allow any great military power to dominate the Low Countries.'9 There were imperial arguments as well. If Britain was at loggerheads with France, said Maurice Hankey, who, as secretary to both the Cabinet and its Committee of Imperial Defence, exerted a powerful influence on ministerial thinking, 'our imperial communications [through the Channel and the Mediterranean] would be jeopardised' and London in 'extreme danger' from France's powerful fleet of bombers. It was an 'almost essential Imperial interest' to be on good terms with France which meant a pact or guarantee. There were imperial arguments as well. If Britain was at loggerheads with France, said Maurice Hankey, who, as secretary to both the Cabinet and its Committee of Imperial Defence, exerted a powerful influence on ministerial thinking, 'our imperial communications [through the Channel and the Mediterranean] would be jeopardised' and London in 'extreme danger' from France's powerful fleet of bombers. It was an 'almost essential Imperial interest' to be on good terms with France which meant a pact or guarantee.10 Imperial defence, noted a Foreign Office memorandum, was 'closely related to a policy of European security'. The government should say publicly that the defence of the Empire entailed a guarantee of France and Belgium. Imperial defence, noted a Foreign Office memorandum, was 'closely related to a policy of European security'. The government should say publicly that the defence of the Empire entailed a guarantee of France and Belgium.11 But the arguments against were formidable. Opinion at home was dead against a French pact. It would be denounced by both Liberals and Labour. It would shackle Britain to the Franco-Polish alliance and to the murky state-system of Eastern Europe. It would be anathema to the dominions and disliked in India. It would mean an intolerable strain on a post-war army barely sufficient for its imperial role. But the arguments against were formidable. Opinion at home was dead against a French pact. It would be denounced by both Liberals and Labour. It would shackle Britain to the Franco-Polish alliance and to the murky state-system of Eastern Europe. It would be anathema to the dominions and disliked in India. It would mean an intolerable strain on a post-war army barely sufficient for its imperial role.12 In the event, Chamberlain achieved a triumph of limited liability. In the Locarno Pacts of October 1925, he avoided an outright guarantee of French security. Instead, France and Germany exchanged pledges to uphold their post-war borders, with Britain and Italy as joint guarantors of their mutual promises. The significance of this implausible formula was largely symbolic. It marked Germany's acceptance of the new European order (in the West), signalled by her joining the League of Nations, not a new continental commitment for Britain. By the same token, it revealed how dependent Britain's In the event, Chamberlain achieved a triumph of limited liability. In the Locarno Pacts of October 1925, he avoided an outright guarantee of French security. Instead, France and Germany exchanged pledges to uphold their post-war borders, with Britain and Italy as joint guarantors of their mutual promises. The significance of this implausible formula was largely symbolic. It marked Germany's acceptance of the new European order (in the West), signalled by her joining the League of Nations, not a new continental commitment for Britain. By the same token, it revealed how dependent Britain's imperial imperial position had become upon a Liberal Concert in Europe as a subst.i.tute for military power or a continental balance. The fragility of that concert was soon to be seen. position had become upon a Liberal Concert in Europe as a subst.i.tute for military power or a continental balance. The fragility of that concert was soon to be seen.

European security was a precondition of imperial safety; but it was not the only one. In his Locarno conversations, Chamberlain bluntly told the French and German leaders that, whatever happened, Britain could never be a party to economic sanctions that brought her into conflict with the United States. 'It is a fundamental condition of British policy', he insisted, 'I might almost say a condition of the continued existence of the British Empire, that we should not be involved in a quarrel with the United States.'13 It was true, of course, that America had drawn back from the role that Woodrow Wilson had imagined for her in the post-war world, a role that promised friction with Britain as well as partnership. To Isaiah Bowman, one of Wilson's closest advisers in Paris, the failure came to seem inevitable. America's multi-ethnic politics, democratic government and commercial self-sufficiency made a definite foreign policy impossible. 'Whatever degree of partic.i.p.ation we may finally come to have in world affairs', he wrote, 'it will be conditional in many respects and limited in all.' It was true, of course, that America had drawn back from the role that Woodrow Wilson had imagined for her in the post-war world, a role that promised friction with Britain as well as partnership. To Isaiah Bowman, one of Wilson's closest advisers in Paris, the failure came to seem inevitable. America's multi-ethnic politics, democratic government and commercial self-sufficiency made a definite foreign policy impossible. 'Whatever degree of partic.i.p.ation we may finally come to have in world affairs', he wrote, 'it will be conditional in many respects and limited in all.'14 But this did not make the US a negligible factor, least of all for the British. They treated American oil companies and their Middle East claims with wary respect. They needed the cooperation of American bankers for the financial reconstruction of Europe. They were conscious that Wilsonian ideals held a powerful attraction for British opinion in the centre and on the left: a fact of some weight in the fluid politics of the 1920s. Above all, they were anxious not to goad American leaders into an arms race at sea. But this did not make the US a negligible factor, least of all for the British. They treated American oil companies and their Middle East claims with wary respect. They needed the cooperation of American bankers for the financial reconstruction of Europe. They were conscious that Wilsonian ideals held a powerful attraction for British opinion in the centre and on the left: a fact of some weight in the fluid politics of the 1920s. Above all, they were anxious not to goad American leaders into an arms race at sea.

Britain had ended the war with a colossal navy: 70 battleships and battle-cruisers, 120 cruisers, 463 destroyers and 147 submarines. Once the German fleet was confiscated or scuttled, the American navy, with some 40 battleships, 35 cruisers and 131 destroyers, was the second most powerful. But these flattering figures were not the whole story. The British fleet was far too large to be maintained in peacetime: the naval budget crashed from 334 million in 191819 to 54 million in 19234. Secondly, many of its most powerful units would soon need replacing by more modern versions. Thirdly, it faced a post-war strategic revolution as far-reaching as that of 1912. For now, its main rivals were the American and j.a.panese navies: two potential enemies at opposite ends of the globe. The strategy of concentration used to bottle up Germany was obsolete. Worse still, American hostility to a continental blockade Britain's key weapon in another war meant that British sea-power in the Atlantic could not be weakened to reinforce the East except in a great emergency. At the very least, the Royal Navy needed parity with the Americans, whose Pacific commitments would then serve to balance its own obligations in the eastern seas.

In the aftermath of the war, this looked improbable. The Wilsonians were committed to a big navy. Their programme for 1918 had added 20 'super-dreadnoughts', 12 large battle-cruisers and 300 other ships.15 The naval budget rocketed upwards from $37 million in 1914 to $433 million in 1921. As these new battleships came into service, even a numerically smaller American navy would outgun its Atlantic rival. At the end of 1920, British ministers anxiously debated how to contain the American challenge. Lloyd George argued for the pre-war view that America should be discounted as a possible enemy. But other ministers insisted that naval supremacy could not be surrendered. The naval budget rocketed upwards from $37 million in 1914 to $433 million in 1921. As these new battleships came into service, even a numerically smaller American navy would outgun its Atlantic rival. At the end of 1920, British ministers anxiously debated how to contain the American challenge. Lloyd George argued for the pre-war view that America should be discounted as a possible enemy. But other ministers insisted that naval supremacy could not be surrendered.16 It was agreed to seek negotiations, but from the Washington emba.s.sy came warnings of growing antagonism to Britain even amongst the incoming Republicans, exacerbated by friction over war debts and the war in Ireland. It was agreed to seek negotiations, but from the Washington emba.s.sy came warnings of growing antagonism to Britain even amongst the incoming Republicans, exacerbated by friction over war debts and the war in Ireland.17 This a.n.a.lysis proved excessively bleak. In fact, much American opinion regarded enmity towards Britain as unthinkable: talk of British aggression, said the This a.n.a.lysis proved excessively bleak. In fact, much American opinion regarded enmity towards Britain as unthinkable: talk of British aggression, said the New York Times New York Times was 'grotesque'. was 'grotesque'.18 The reaction against Wilsonian involvement in international politics had its counterpart in the revolt against 'navalism'. A big navy would drag America into overseas conflicts as surely as the League. Naval limitation attracted growing support. This new mood gave the British some much-needed leverage. They could hope to bargain their limited programme of March 1921 for American concessions. More to the point, by giving up their twenty-year-old alliance with j.a.pan, whose renewal was disliked by both the Foreign Office and the Admiralty, they could neutralise the strongest card of the 'big navy' school in Washington: the fear that Britain would abet j.a.panese expansion in the Western Pacific. After a fierce debate, into which both Canada and Australia were drawn (on different sides), and amid much unease about the fate of British interests in China, the alliance was abandoned. The reaction against Wilsonian involvement in international politics had its counterpart in the revolt against 'navalism'. A big navy would drag America into overseas conflicts as surely as the League. Naval limitation attracted growing support. This new mood gave the British some much-needed leverage. They could hope to bargain their limited programme of March 1921 for American concessions. More to the point, by giving up their twenty-year-old alliance with j.a.pan, whose renewal was disliked by both the Foreign Office and the Admiralty, they could neutralise the strongest card of the 'big navy' school in Washington: the fear that Britain would abet j.a.panese expansion in the Western Pacific. After a fierce debate, into which both Canada and Australia were drawn (on different sides), and amid much unease about the fate of British interests in China, the alliance was abandoned.

The balance was swung. At the Washington conference in 19212, the British and Americans settled their naval differences by agreeing to parity in capital ships, and a ten-year 'holiday' in construction. The new rapprochement had a further consequence. Hesitation over giving up the alliance derived partly from British alarm at the semi-colonial expansion of j.a.pan into China and especially her reluctance to give up the large Shantung concession seized from Germany.19 Without the alliance, argued its champions, restraining j.a.pan would become even harder. In fact, the show of Anglo-American unity helped to push j.a.panese policy towards economic rather than military expansion in China, in financial partnership with American business. Without the alliance, argued its champions, restraining j.a.pan would become even harder. In fact, the show of Anglo-American unity helped to push j.a.panese policy towards economic rather than military expansion in China, in financial partnership with American business.20 The j.a.panese agreed to attend the conference which framed a post-war settlement for East Asia. They gave up Shantung and agreed to limit their battleship strength to 60 per cent of the British and American figure (the 5:5:3 ratio). They also signed the Four Power treaty alongside Britain, France and America, guaranteeing the independence and integrity of China, and the Nine Power treaty, promising no expansion of existing foreign rights and concessions in the country. The j.a.panese agreed to attend the conference which framed a post-war settlement for East Asia. They gave up Shantung and agreed to limit their battleship strength to 60 per cent of the British and American figure (the 5:5:3 ratio). They also signed the Four Power treaty alongside Britain, France and America, guaranteeing the independence and integrity of China, and the Nine Power treaty, promising no expansion of existing foreign rights and concessions in the country.

The 'Washington system' was a promise of stability in East Asia. But its strategic implications were only gradually clarified. To British naval planners, the Washington logic was straightforward. To conciliate j.a.pan, the treaty had forbidden new fortifications across a vast area of the Western Pacific. Henceforth, if a British fleet were sent to East Asia, it must use Singapore as its base, not vulnerable, underfortified Hong Kong. Indeed, the need for a great new naval base at Singapore had already been agreed by British ministers in 1921. Secondly, the post-war navy should be built and trained for a war against its likeliest enemy, now j.a.pan. Yet, as financial stringency bit deeper, governments in London scaled down or postponed the Singapore base and questioned the need for an East Asian strategy. Matters came to a head in 1925 when Winston Churchill, as Chancellor of the Exchequer, dismissed the navy's spending plans as ruinously expensive. They would infuriate taxpayers, he told Baldwin, the Conservative prime minister, and unite Liberals and Labour in a campaign for economy.21 The j.a.panese threat was chimerical. 'Why', he asked, 'should there be a war with j.a.pan? I do not believe there is the slightest chance of it in my lifetime.' No j.a.panese government would risk a war against the united strength of the Anglo-Saxon sea-powers. The Cabinet agreed. Churchill had his way. Navy spending was cut down and the Admiralty forbidden to prepare war plans against the j.a.panese navy. The j.a.panese threat was chimerical. 'Why', he asked, 'should there be a war with j.a.pan? I do not believe there is the slightest chance of it in my lifetime.' No j.a.panese government would risk a war against the united strength of the Anglo-Saxon sea-powers. The Cabinet agreed. Churchill had his way. Navy spending was cut down and the Admiralty forbidden to prepare war plans against the j.a.panese navy.

In the seven years that followed the end of the war, the strains and tensions of imperial politics had been magnified by persistent geopolitical uncertainty. For the British, the defeat or exhaustion of their international rivals had been the main guarantee that the simultaneous emergencies they faced in Ireland, Egypt, China, India and the Middle East would not escalate into a general crisis of their global system. By 1925, they could be more hopeful. The settlements at Locarno and Washington (as Churchill had interpreted its meaning) revealed an emerging world order whose imperial consequences seemed rea.s.suringly benign. International tranquillity at both ends of Eurasia dispelled the nightmare of war on fronts 12,000 miles apart. With Germany tied to the Liberal Concert (underwritten financially by American capital), and j.a.pan constrained by Anglo-American friendship, only Russia could threaten the defences of empire though more by ideological subversion than by military challenge. The gates of the British world would be guarded by the self-interested caution of its most likely predators: an agreeably cheap solution. The revolutionary excitement of 1919 had pa.s.sed. The siren call of Wilsonian self-determination had modulated into the League of Nations mandate system, under the watchful eye of the two main colonial powers.22 With little risk of external attack, the internal enemies of the British system could be dealt with in detail by an army freed from its old strategic burdens. The defence costs of empire could be axed to pay for its debts and fund social reform. As escape from the British system seemed less likely, colonial resistance would grow less fervent. The politics of empire could pa.s.s from the maelstrom of the aftermath to the calmer waters of the post-war world. With little risk of external attack, the internal enemies of the British system could be dealt with in detail by an army freed from its old strategic burdens. The defence costs of empire could be axed to pay for its debts and fund social reform. As escape from the British system seemed less likely, colonial resistance would grow less fervent. The politics of empire could pa.s.s from the maelstrom of the aftermath to the calmer waters of the post-war world.

Rebuilding commercial empire The necessary counterpart to international tranquillity was the revival of London's commercial imperium imperium. Churchill's furious opposition to naval rearmament sprang from the fear that its costs would unhinge his financial strategy. Stringency, especially in defence, was necessary partly to pay for social spending the price of political survival in the age of universal suffrage but even more to fund the return to a gold-based currency. In the City, at the Bank of England and in the Treasury, it was axiomatic that London's reputation as a financial centre depended upon the restoration of the gold standard.23 'Gold', said Montagu Norman, the Governor of the Bank, 'is the guarantee of good faith.' 'Gold', said Montagu Norman, the Governor of the Bank, 'is the guarantee of good faith.'24 But there was a catch. If sterling was once more to be based upon a fixed value in gold, bullion had to be attracted to London. It would only come if London offered the safest haven or the highest rates. On both counts it was vital to reduce government spending and borrowing (hugely inflated by the war) to the minimum. Foreign depositors would be rea.s.sured by the strict management of public finance, and the interest rate needed to attract them would fall back gradually to a level that domestic industry could afford. Britain's return to gold in October 1925 was intended to signal the end of post-war economic turbulence, and London's resumption of its pre-war status. As we shall see, however, its old commercial empire was not so easily revived. But there was a catch. If sterling was once more to be based upon a fixed value in gold, bullion had to be attracted to London. It would only come if London offered the safest haven or the highest rates. On both counts it was vital to reduce government spending and borrowing (hugely inflated by the war) to the minimum. Foreign depositors would be rea.s.sured by the strict management of public finance, and the interest rate needed to attract them would fall back gradually to a level that domestic industry could afford. Britain's return to gold in October 1925 was intended to signal the end of post-war economic turbulence, and London's resumption of its pre-war status. As we shall see, however, its old commercial empire was not so easily revived.

Before 1914, London's pre-eminence had been based upon the vast scale of its commercial and financial transactions. A huge proportion of the world's international business was conducted in or through the City. The City exerted its influence on the financial and commercial practice of states inside and outside the Empire to protect or enhance Britain's overseas wealth perhaps one-third of her total by 1914. As the centre of the world's information network (all cables led to London), it was the princ.i.p.al engine of Britain's 'soft power': transmitting news, ideas and intellectual fashion to audiences abroad. Above all, perhaps, its claims on overseas production (the real meaning of its foreign investment) and its portfolio of foreign property formed a grand 'war-chest' to be drawn on in times of imperial emergency.

This commercial empire had survived the war. Its prospects in peacetime were much less certain. The rupture of the pre-war commercial and financial system was prolonged by the struggle over debts and reparations, the violent fluctuations in currency values, the proliferation of new states and frontiers and the revolution in Russia. To restart the flow of trade, from which the City drew its profits, required a ma.s.sive injection of loans and credits. But the City lacked the ready cash. With a large dollar debt to service, small hope of recovering its wartime advances (especially to Russia), and so much British saving tied up in government borrowing at home, capital for once was in short supply. To make matters worse, the end of the war cut off the flow of American credits just as government spending was reaching its peak. The result was a wave of inflation and an outflow of gold. The gold standard was suspended, deterring short-term lenders from depositing their funds in London and further weakening the City against its great rival, New York. Orthodox remedies merely enfeebled the patient. Interest rates were raised and expenditure slashed. As dear money at home drove up its costs and dried up demand, British industry struggled to compete in foreign markets. Its failings were reflected in the balance of payments, the value of sterling and the credit of the City. Here was a vicious circle of decline from which no escape seemed easy.

Indeed, the post-war turbulence seemed to have drastically worsened the structural problems of the British economy, some of which had been visible before the war. The heavy dependence upon exports of cotton textiles and coal became an increasing liability. Cotton exports fell back heavily from 125 million in 1913 to 85 million in 1925 and 72 million by 1929.25 Under the pressure of j.a.panese and local compet.i.tion, the Indian market, Lancashire's great stand-by, began its inter-war collapse. Coal was damaged by cheap compet.i.tion and the increasing use of oil as fuel. The index of all exports by volume declined from 173 (1913) to 119 (1922) and recovered only to 134 (1927). Under the pressure of j.a.panese and local compet.i.tion, the Indian market, Lancashire's great stand-by, began its inter-war collapse. Coal was damaged by cheap compet.i.tion and the increasing use of oil as fuel. The index of all exports by volume declined from 173 (1913) to 119 (1922) and recovered only to 134 (1927).26 But imports rose from 81 (1913) to 86 (1924) to 96 (1927) (1939 = 100). The result was ever-growing pressure on the balance of payments. As imports surged and exports faltered, the strain was taken up (as it had been before the war) by the income from invisibles. Before the war, however, the merchandise gap was narrower and invisible income far more buoyant. In the five years from 1922 to 1926, the income from both overseas investments and other invisibles fell well below their equivalent pre-war values. But imports rose from 81 (1913) to 86 (1924) to 96 (1927) (1939 = 100). The result was ever-growing pressure on the balance of payments. As imports surged and exports faltered, the strain was taken up (as it had been before the war) by the income from invisibles. Before the war, however, the merchandise gap was narrower and invisible income far more buoyant. In the five years from 1922 to 1926, the income from both overseas investments and other invisibles fell well below their equivalent pre-war values.27 Shipping, a huge source of pre-war earnings, was particularly hard-hit. One-fifth of the British merchant fleet was laid up in the 1920s. Shipping, a huge source of pre-war earnings, was particularly hard-hit. One-fifth of the British merchant fleet was laid up in the 1920s.28 Compet.i.tion from the United States, j.a.pan and the Scandinavian countries drove down the British share of world trade carried from 52% in 1913 to 40% in 1936, Compet.i.tion from the United States, j.a.pan and the Scandinavian countries drove down the British share of world trade carried from 52% in 1913 to 40% in 1936,29 and Britain's share of world tonnage began its long descent from 40% (in 1913) to 30% (in 1930), to 26% (1939). and Britain's share of world tonnage began its long descent from 40% (in 1913) to 30% (in 1930), to 26% (1939).30 The shipping giants of the pre-war years fell on hard times. The shipping giants of the pre-war years fell on hard times.31 British shipping was slow to modernise by adopting oil instead of coal, and its share of the booming trade in oil transport was soon only half its pre-war level. British shipping was slow to modernise by adopting oil instead of coal, and its share of the booming trade in oil transport was soon only half its pre-war level.

The full significance of these economic difficulties emerged only gradually after 1918. For seven years after the armistice, the British economy seemed on a roller-coaster: boom, followed by slump, followed by signs of recovery, a further setback and then cautious optimism as the Dawes Plan in 1924 promised to settle the problem of reparations and stabilise the European economy, to which one-third of British exports were normally sent. To the City, it was vital to rebuild the pre-war world, if need be by an active financial diplomacy. This was the role a.s.sumed by Montagu Norman, the Governor of the Bank of England, an idiosyncratic, highly strung and emotional figure of remarkable tenacity. Norman's recipe was the close cooperation of the main central banks, with London as the intermediary between New York and Europe. The severity of the depression after 1920 encouraged others to propose more radical solutions. The grudging nod by the wartime British government towards imperial preference, 'imperial development' and subsidised empire settlement was converted by post-war tariff reformers like Leo Amery into a full-scale programme to relieve unemployment and reorient the economy. Budgetary cuts and Treasury opposition meant that little came of this.32 But it was desperation at the prospect of deepening economic crisis at the end of 1923 that led Baldwin, the Conservative prime minister, to declare a sudden conversion to protective tariffs. The occupation of the Ruhr, he told the House of Commons, meant that 'the restoration of Europe had been postponed for years...[W]e are...in a position of emergency that we have never had to meet before.' 'Radical and drastic measures' were needed. But it was desperation at the prospect of deepening economic crisis at the end of 1923 that led Baldwin, the Conservative prime minister, to declare a sudden conversion to protective tariffs. The occupation of the Ruhr, he told the House of Commons, meant that 'the restoration of Europe had been postponed for years...[W]e are...in a position of emergency that we have never had to meet before.' 'Radical and drastic measures' were needed.33 Tariffs were rejected by the electorate. The 1924 Labour government and the second Baldwin ministry (19249), with the free-trader Churchill as Chancellor of the Exchequer, turned back to the orthodoxies of the gold standard as their escape from the economic labyrinth. Tariffs were rejected by the electorate. The 1924 Labour government and the second Baldwin ministry (19249), with the free-trader Churchill as Chancellor of the Exchequer, turned back to the orthodoxies of the gold standard as their escape from the economic labyrinth.

With the return to gold, the City might have hoped that the worst of its post-war uncertainties were over, and that it could begin to profit from the revival of the world economy. In reality, the economic damage revealed by the recovery period proved much more lasting. The gold standard was meant to restore confidence in London as the financial centre of the world economy. But the strain was felt by domestic industry struggling to compete abroad while an over-priced pound and high interest rates drove up its costs. Nor was going back on gold a cure for the most serious weakness of the City's commercial empire after 1918: the shrinkage of its foreign investment and the shortage of capital with which to rebuild its pre-war holdings. Indeed, in the effort to keep sterling high against the dollar and prevent interest rates at home (driven up by the enormous scale of government debt) from rising further, the Treasury and Bank of England had actively discouraged investment overseas except to sterling countries.34 When the Bradbury Committee recommended ending the embargo on foreign issues in 1925, it remarked that Britain could not afford to lend abroad more than 100 or 120 million a year, far below the pre-war figure. When the Bradbury Committee recommended ending the embargo on foreign issues in 1925, it remarked that Britain could not afford to lend abroad more than 100 or 120 million a year, far below the pre-war figure.35 British investors seemed to heed this advice. Where British foreign investment in 191113 had taken some 8 per cent of national income, after 1925 the figure was 2.5 per cent. British investors seemed to heed this advice. Where British foreign investment in 191113 had taken some 8 per cent of national income, after 1925 the figure was 2.5 per cent.36 By 1929, the nominal level of British capital abroad was the same as in 1913, but its real value had fallen by perhaps 40 per cent. High interest rates at home and uncompet.i.tive exports reduced both the incentive and the means to invest or reinvest abroad. Well before the great depression, the old pattern of commercial empire practised since the 1870s was in retreat. By 1929, the nominal level of British capital abroad was the same as in 1913, but its real value had fallen by perhaps 40 per cent. High interest rates at home and uncompet.i.tive exports reduced both the incentive and the means to invest or reinvest abroad. Well before the great depression, the old pattern of commercial empire practised since the 1870s was in retreat.

The shortage of British capital was not the only culprit. The operating conditions for British commerce and capital were also changing. In Latin America as a whole, American capital and trade competed much more heavily than before the war. The British position was strongest in Argentina. In 1914, Argentina had been the third largest destination for British capital after the United States and Canada.37 British investment had boomed on the back of its exceptionally dynamic growth as a producer of meat and grain. In the 1920s, it still seemed of huge importance to British weal