I The success of the Entente’s strategy depended on combining a devastating series of concentric military offensives with the slow economic strangulation of the Central Powers. Before the war the British Admiralty had prepared plans not only for a naval blockade but also for an annihilating financial boycott of all central European trade. But, in August 1914, in the face of fierce protests from America, they shrank from the rigorous enforcement of these plans.2 The result was an uneasy standoff. Britain and France compromised the effectiveness of their ultimate maritime weapon. But the blockade even in its partial form was hugely unpopular in the United States. The American navy regarded the British blockade as ‘untenable under any law or custom of maritime war hitherto known . . .’3 But even more politically charged was the German response. In an effort to turn the tables on the Entente, in February 1915 the Kriegsmarine deployed its U-boats in the first all-out assault on transatlantic shipping. They managed to sink almost two ships per day and an average of 100,000 tons per month. But the shipping resources of Britain were deep and if continued for any period of time this assault seemed bound to force America into the war. TheLusitania in May and the Arabic in August 1915 were only the best-known casualties. Anxious to avoid further escalation, at the end of August the Kaiser’s civilian government retreated. With the backing of the Catholic Centre Party, the progressive Liberals and the Social Democrats, Chancellor Bethmann Hollweg issued orders to restrict the U-boat campaign. Just as the Entente could not properly enforce its blockade for fear of antagonizing America, Germany’s counterstroke miscarried for the same reason. Instead, in the spring of 1916, the German navy tried to break the maritime deadlock by luring the British Grand Fleet into a North Sea trap. On 31 May 1916 in the battle of Jutland, 33 British and 27 German capital ships clashed in the largest naval confrontation of the war. The result was inconclusive. The fleets slunk back to base, henceforth to exert their influence from offstage as massive, silent reserves of naval power. In the summer of 1916, as the Entente struggled to regain the initiative on the Western Front, the politics of the Atlantic blockade remained unresolved. When the French and British sought to tighten their grip by blacklisting American firms charged with ‘trading with the enemy’, President Wilson could barely contain his anger.4 It was ‘the last straw’, Wilson confessed to his closest advisor, the urbane Texan Colonel House, ‘I am, I must admit, about at the end of my patience with Great Britain and the allies.’5 Nor did Wilson content himself with expostulation. The American Army might be small, but even in 1914 the American fleet was a force to be reckoned with. It was the fourth largest in the world and unlike the Japanese or the German navies it actually had a proud memory of having clashed with the Royal Navy in 1812. To the followers of Admiral Mahan, America’s great theorist of naval power from the gilded age, the war presented a priceless opportunity to outbuild the Europeans and to establish undisputed control over the oceanic waterways. In February 1916 President Wilson fell in with their demands, launching a campaign to gain congressional approval for the construction of what he boasted would be ‘incomparably the greatest navy in the world’.6 Six months later, on 29 August 1916, Wilson signed into law the most dramatic naval expansion plan in American history, appropriating almost $500 million over three years to build 157 new vessels, including 16 capital ships. Less dramatic, but no less consequential in the long run, was the establishment in June 1916 of the Emergency Fleet Corporation to oversee the construction of a merchant shipping fleet to rival that of Britain.7 When in September 1916 Colonel House and Wilson discussed the likely impact of America’s naval expansion on Anglo-American relations, Wilson’s view was blunt: ‘let us build a navy bigger than hers and do what we please’.8 The reason that threat was so ominous for Britain was that, once roused, the United States, unlike Imperial Germany or Japan, clearly had the means to make good on it. Within five years America would be acknowledged as Britain’s naval equal. From the British point of view, in 1916 the war thus took on a fundamentally new aspect. As the twentieth century began, containing Japan, Russia and Germany had been the chief priorities of imperial strategy. Since August 1914 all that counted was the defeat of Imperial Germany and its allies. In 1916, Wilson’s evident desire to build an American naval force equal to that of Britain raised an alarming new prospect. Even at the best of times a challenge by the United States would have been intimidating. Given the demands of the Great War it was a nightmarish prospect. Nor were America’s naval ambitions the only fundamental challenge facing the Europeans in 1916.9 The rising economic power of America had been evident from the 1890s, but it was the Entente’s battle with the Central Powers that abruptly shifted the centre of global financial leadership across the Atlantic.10 In so doing, it redefined not only the locus of financial leadership, but what that leadership actually meant. All the main European combatants began the war with what were by modern standards remarkably strong financial balance sheets, solid public finances and large portfolios of foreign investments. In 1914 fully a third of British wealth was held in private overseas investment. As the war began, the mobilization of these domestic and imperial resources was compounded by an immense transatlantic financing operation. This involved all the governments of Europe, but above all the British in a new form of international action. Before 1914, in the era of Edwardian high finance, London’s leading role was generally acknowledged. But international finance was a private affair. The conductor of the gold standard orchestra, the Bank of England, was not an official agency but a private corporation. If the British state was present in international finance, its influence was subtle and indirect. The UK Treasury remained in the background. Under the extraordinary pressures of the war, these invisible and informal networks of money and influence were quite abruptly solidified into a claim to hegemony of a far more concrete and overtly political kind. From October 1914 the British and French governments put the weight of hundreds of millions of pounds of government loans behind the ‘Russian steam roller’ that was to crush the Central Powers from the east.11 Following the Boulogne agreement of August 1915, the gold reserves of all three major Entente Powers were pooled and used to underwrite the value of sterling and the franc in New York.12 Britain and France in turn assumed responsibility for negotiating loans on behalf of the entire Entente. By August 1916, in the wake of the terrible cost of the Verdun battle, France’s credit had sunk to such a low ebb that it fell to London to underwrite the entire New York operation.13 A new network of political credit had been created in Europe with London at its centre. But this was only one leg of the operation. In accounting terms the financing of the Entente’s war effort involved an enormous reshuffling of national assets and liabilities.14 To provide collateral, theUK Treasury organized a forced purchase scheme for private holdings of first-class North American and Latin American securities, which were exchanged for domestic UK government bonds. The foreign assets, once in the hands of the UK Treasury, were used to provide security for billions of dollars’ worth of Entente borrowing from Wall Street. The liabilities that the UK Treasury incurred in America were counterbalanced in Britain’s national balance sheet by vast new claims on the governments of Russia and France. But to imagine this gigantic mobilization as the effortless redirection of an existing network underplays the historic significance of the shift and the extreme precariousness of the financial architecture that emerged. After 1915, the Entente’s war borrowing upended the political geometry of Edwardian finance. Before the war billions had been lent by private lenders in London and Paris, the rich core of Imperial Europe, to private and public borrowers in peripheral nations.15 As of 1915, not only had the source of lending shifted to Wall Street, it was no longer railways in Russia or diamond prospectors in South Africa queuing up for credit. The most powerful states of Europe were now borrowing from private citizens in the United States and anyone else who would provide credit. Lending of this kind, by private investors in one rich country to the governments of other rich developed countries, in a currency not controlled by the government borrower, was unlike anything seen in the heyday of late Victorian globalization. As the hyperinflations after World War I were to demonstrate, a government that had borrowed in its own currency could simply print its way out of debt. A flood of new banknotes would wipe out the real value of the war debt. The same was not true if Britain or France borrowed in dollars from Wall Street. The most powerful states in Europe became dependent on foreign creditors. Those creditors in turn extended their confidence to the Entente. By the end of 1916, American investors had wagered two billion dollars on an Entente victory. The vehicle for this transatlantic operation, once London took charge in 1915, was a single private bank, the dominant Wall Street house of J. P. Morgan, which had deep historic ties to the City of London.16 This was a business operation for sure. But it was coupled on the part of Morgan with an unabashedly anti-German, pro-Entente stance and a backing within the United States for President Wilson’s loudest critics, the interventionist forces within the Republican Party. The result was a quite unprecedented international combination of public and private power. In the course of the gigantic Somme offensive over the summer of 1916, J. P. Morgan spent more than a billion dollars in America on behalf of the British government, no less than 45 per cent of British war spending in those crucial months.17 In 1916 the bank’s purchasing office was responsible for Entente procurement contracts valued in excess of the entire export trade of the United States in the years before the war. Through the private business contacts of J. P. Morgan, supported by the business and political elite of the American Northeast, the Entente was carrying out a mobilization of a large part of the US economy, entirely without the say-so of the Wilson administration. Potentially, the Entente’s dependence on loans from America gave the American President huge leverage over their war effort. But would Wilson actually be able to exercise that power? Was Wall Street too independent? Did the Federal government have the means to control the activities of J. P. Morgan? In 1916 the question of war finance and America’s relations with the Entente became embroiled in the debate that had been raging for more than a generation over the governance of American capitalism. In 1912, forty years after it had recommitted itself to the gold standard in the aftermath of the Civil War, the United States had still lacked a counterpart to the Bank of England, the Bank of France or the Reichsbank.18 Wall Street had long lobbied for the establishment of a central bank to act as a lender of last resort. But banking interests were far from happy when in 1913 Wilson signed into existence the Federal Reserve Board. For the tastes of the Wall Street interests, notably J. P. Morgan, Wilson’s Fed was far too politicized.19 It was not a truly ‘independent’ institution on the model of the privately owned Bank of England. In 1914, as war broke out in Europe, the new system had survived its first test. The Fed and the Treasury intervened to prevent the closure of the European financial markets from causing a collapse on Wall Street.20 Between 1915 and 1916 the American economy was driven upwards on a vast export-led industrial boom. To meet the needs of the European war, the factory towns of the Northeast and the Great Lakes were sucking in labour and capital pell-mell from all across the United States. But that only increased the pressure on Wilson. If the boom was allowed to proceed unchecked, America’s investment in the Entente war effort would soon become too big to be allowed to fail. The American government would in fact lose the freedom of manoeuvre that promised to give it such power in 1916. Might the Entente for its part have done better to rely rather less on the resources of the United States? Germany after all fought the war without the benefit of such largesse.21 But that comparison demonstrates precisely what the importance of American imports actually was (Table 1). After the draining battles at Verdun and on the Somme in the summer of 1916, Germany remained on the defensive on the Western Front for almost two years. The Central Powers limited themselves to less expensive operations on the Eastern and Italian fronts. Meanwhile, the blockade took a heavy toll on their civilian populations. From the winter of 1916–17 the city dwellers of Germany and Austria were slowly starving. Ensuring the supply of food and coal to the home front was not an incidental consideration in World War I, it was an essential factor in deciding the eventual outcome.22 Economic pressure took time to force the issue, but in the end its influence was decisive. When the Germans launched their last great offensive in the spring of 1918, a large part of the Kaiser’s army was too hungry to sustain the offensive for long. By contrast, the relentless offensive energy of the Entente in 1917 – the French offensive in Champagne in April, the Kerensky offensive in the East in July, the British assault in Flanders in July – and the final drive in the summer and autumn of 1918, would have been impossible both in military and political terms without North American backing. In London, at least until the end of 1916, there were voices calling for Britain to escape dependence on American loans. But they were by the same token calling for a negotiated peace. They were overridden by the advent of the Lloyd George coalition government in December 1916 committed to delivering a ‘knock-out blow’. What no one seriously contemplated was continuing the war at full force without relying on supplies and credit from the United States. From 1916, once the Allies had taken up their first billion dollars in credit in their first major effort to break the Central Powers through concentric assaults, the momentum was cumulative. The assumption behind all subsequent offensive planning was that it would be sustained by substantial transatlantic supplies. And this then reinforced the dependence. As the billions piled up, maintaining payments on the outstanding debts, avoiding the humiliation of a default, became overriding preoccupations both during the war itself and even more in its aftermath. Table 1. What the Dollars Bought: The Share of Vital War Materials Purchased by the UK Abroad, 1914–18 (%)
Posted on: Sat, 15 Nov 2014 13:25:45 +0000
Trending Topics
Recently Viewed Topics
© 2015