WAR IS POLITICS: OFFENSIVE REALISM, DOMESTIC POLITICS, AND SECURITY STRATEGIES

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WAR IS POLITICS: OFFENSIVE REALISM, DOMESTIC POLITICS, AND SECURITY STRATEGIES STEVEN E. LOBELL IALL FERGUSON writes that Britain’s greatest foreign policy failure in the decade prior to the Great War was that while London “identified a serious German threat to the continental status quo,” Britain “made no serious attempt to prepare to check that threat by the only viable means: the creation of a comparably large lan d army.” 1 Most national actors and interest groups understood the security challenge posed by Germany (bully or conquer France and overrun the Low Countries) and Britain’s shortcomings in terms of its military and industrial preparedness for war (as demonstrated earlier by the Boer War). 2 Yet, before 1914, the accompanying domestic redistributional consequence from the necessary financial, economic, military, and industrial policies made a large standing army politically impossible. N d Steven E. Lobell is an associate professor in the Department of Political Science at the University of Northern Iowa. I would like to thank Karen Ruth Adams, Ken Basom, David Bearce, Benjamin Frankel, Sean Lynn-Jones, Randall Newnham, Tom Rice, Stephen Saideman, Arthur Stein, Jeffrey Taliaferro, and two anonymous Security Studies reviewers for their helpful comments. The Graduate College at the University of Northern Iowa provided research assistance. A version of this paper was presented at the 2002 International Studies Association Annual Convention. 1 . Niall Ferguson, The Cash Nexus: Money and Power in the Modern World, 1700–2000 (New York: Basic Books, 2001), 410–11. 2 . Clive Trebilcock, “War and the Failure of Industrial Mobilisation: 1899 and 1914,” in War and Economic Development , ed. J. M. Winter (Cambridge: Cambridge University Press, 1975), 139–64; Zara S. Steiner, Britain and the Origins of the First World War (New York: St. Martin’s Press, 1977).

Transcript of WAR IS POLITICS: OFFENSIVE REALISM, DOMESTIC POLITICS, AND SECURITY STRATEGIES

WAR IS POLITICS:OFFENSIVE REALISM, DOMESTIC POLITICS, AND SECURITY

STRATEGIES

STEVEN E. LOBELL

IALL FERGUSON writes that Britain’s greatestforeign policy failure in the decade prior tothe Great War was that while London “identified

a serious German threat to the continental statusquo,” Britain “made no serious attempt to prepareto check that threat by the only viable means: thecreation of a comparably large land army.”1 Mostnational actors and interest groups understood thesecurity challenge posed by Germany (bully orconquer France and overrun the Low Countries) andBritain’s shortcomings in terms of its military andindustrial preparedness for war (as demonstratedearlier by the Boer War).2 Yet, before 1914, theaccompanying domestic redistributional consequencefrom the necessary financial, economic, military,and industrial policies made a large standing armypolitically impossible.

N

dSteven E. Lobell is an associate professor in theDepartment of Political Science at the University ofNorthern Iowa.

I would like to thank Karen Ruth Adams, Ken Basom, DavidBearce, Benjamin Frankel, Sean Lynn-Jones, RandallNewnham, Tom Rice, Stephen Saideman, Arthur Stein, JeffreyTaliaferro, and two anonymous Security Studies reviewers fortheir helpful comments. The Graduate College at theUniversity of Northern Iowa provided research assistance.A version of this paper was presented at the 2002International Studies Association Annual Convention.

1. Niall Ferguson, The Cash Nexus: Money and Power in the ModernWorld, 1700–2000 (New York: Basic Books, 2001), 410–11.

2. Clive Trebilcock, “War and the Failure of IndustrialMobilisation: 1899 and 1914,” in War and Economic Development,ed. J. M. Winter (Cambridge: Cambridge University Press,1975), 139–64; Zara S. Steiner, Britain and the Origins of the FirstWorld War (New York: St. Martin’s Press, 1977).

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According to offensive realism, security in theinternational system is scarce.3 Driven by theanarchical nature of the international system, suchtheorists contend that states seek to maximizetheir security through maximizing their relativepower by expansionist foreign policies, takingadvantage of opportunities to gain more power, andweakening potential challengers. The state’sultimate goal is hegemony or primacy. How a statewill go about expansion will vary from nation tonation (due to geography, military tradition, etc.)—offensive realism does not predict the samesecurity strategy for every state.Ignored by offensive realism is that war is

politics (or Laswell’s classic question of “whogets what, when, and how”). By black boxing thestate, offensive realism’s narrow focus disregardshow a state’s external security strategy is drivenby internal political competition. Within liberalstates, broad and log-rolled coalitions of domesticactors and interest groups will compete to advancetheir preferred security strategy and to capturethe associated distributional spoils.4 Supporters

3. Eric J. Labs, “Beyond Victory: Offensive Realism andthe Expansion of War Aims,” Security Studies 6, no. 4 (summer1997): 1–49; Fareed Zakaria, From Wealth to Power: The UnusualOrigins of America’s World Role (Princeton: Princeton UniversityPress, 1998); John J. Mearsheimer, The Tragedy of Great PowerPolitics (New York: Norton, 2001).

SECURITY STUDIES 12, no. 2 (winter 2002/3): 164–94Published by Frank Cass, London.

4. On coalitional politics, see Stephen Haggard andRobert Kaufman, “The Politics of Stabilization andStructural Adjustment,” in Developing Country Debt and EconomicPerformance, ed. Jeffrey Sachs (Chicago: University ofChicago Press, 1989), 209–54; Ronald Rogowski, Commerce andCoalitions: How Trade Affects Domestic Political Alignments (Princeton:Princeton University Press, 1989); Robert O. Keohane andHelen V. Milner, eds., Internationalization and Domestic Politics(New York: Cambridge University Press, 1996); Fred H.Lawson, Why Syria Goes to War: Thirty Years of Confrontation (Ithaca:Cornell University Press, 1996); Hellen V. Milner, Interests,Institutions, and Information: Domestic Politics and International Relations(Princeton: Princeton University Press, 1997); Benjamin O.

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and opponents know that how the state prepares forwar (i.e., how it goes about extracting societalresources and mobilizing wealth) and how itexecutes the war beyond its own borders will createinternal winners and losers. In short, the nation’swar related financial, economic, industrial, andmilitary policies will empower or weaken groupsfrom government, industry, finance, and labor.5

Supporters and opponents also recognize that anychanges in these policies can have domesticdistributional consequences. By capturing the gainsand avoiding the losses, the empowered coalitionwill lobby the government for a security strategythat will further ratchet up their bloc’s strength(while the losing coalition will be weakenedeconomically and politically). As Helen Milnernotes, these “domestic consequences are the ‘stuff’of politics.”6 One real danger is that a factionmight advance a security strategy that will favortheir coalitional interest, but will harm thenational interest.7 A coalition might also resist a

Fordham, Building the Cold War Consensus: The Political Economy of U.S.National Security Policy, 1949–51 (Ann Arbor: University ofMichigan Press, 1998); Etel Solingen, Regional Orders atCentury’s Dawn: Global and Domestic Influences on Grand Strategy(Princeton: Princeton University Press, 1998); PeterTrubowitz, Defining the National Interest: Conflict and Change in AmericanForeign Policy (Chicago: University of Chicago Press, 1998);and Steven E. Lobell, “Second Image Reversed Politics:Britain’s Choice of Freer Trade or Imperial Preferences,1903–1906, 1917–1923, 1930–1932,” International Studies Quarterly43, no. 4 (December 1999): 671–94. The literature onstructural adjustment also highlights the domesticdistributional competition over liberalization.

5. On the relationship between domestic choices and war,see Alan C. Lamborn, The Price of Power: Risk and Foreign Policy inBritain, France and Germany (Boston: Unwin Hyman, 1991); BruceBueno de Mesquita and David Lalman, War and Reason: Domesticand International Imperatives (New Haven: Yale University Press,1992); and Alan C. Stam III, Win, Lose, or Draw: Domestic Politics andthe Crucible of War (Ann Arbor: The University of MichiganPress, 1996).

6. Milner, Interests, Institutions, and Information,16.7. Aaron L. Friedberg, The Weary Titan: Britain and the Experience of

Relative Decline 1895–1905 (Princeton: Princeton UniversityPress, 1988); Jack L. Snyder, Myths of Empire: Domestic Politics andInternational Ambition (Ithaca: Cornell University Press,

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security strategy because it will harm theirfaction’s interests, even if it is in the nation’sinterests.This article examines two competing explanations

for Britain’s decision to adopt a Limited Liabilitysecurity strategy in the decade prior to the GreatWar. Limited Liability entailed a blockade ofGerman ports, deployment of the BritishExpeditionary Force, and financial and industrialpaymaster to the Allies, requiring marginaleconomic, industrial, and manpower mobilization.Offensive realism suggests that Britain adopted aLimited Liability strategy to increase its relativepower against all of the major contenders forcontinental hegemony. By keeping its manpower andresources in reserve, while France, Russia,Germany, and Austria weakened each other, Britainwould emerge from the Great War as the strongeststate. As the undisputed master, Britain woulddictate the peace terms to its allies and enemiesalike in the post war negotiations. Alternatively,driven by domestic distributional concerns, anentrenched free trade coalition pushed for aLimited Liability strategy. They were concernedthat a more offensive security strategy (know asthe Continental Commitment) would rollback theirprewar political and economic gains whileratcheting up the opposing economic nationalistbloc who would push for a big army and navy,national conscription, state intervention in theeconomy, and trade and industrial protection. Freetrade supporters lobbied for a Limited Liabilitysecurity strategy even though it was insufficientto defeat Germany.

1991); Richard Rosecrance and Arthur A. Stein, The DomesticBases of Grand Strategy (Ithaca: Cornell University Press,1993); and Charles A. Kupchan, The Vulnerability of Empire(Ithaca: Cornell University Press, 1994).

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SECURITY STRATEGIES

STATE’S SECURITY STRATEGY is a package of warpreparation and war-related financial, economic,

military, and industry policies. A securitystrategy involves how a state configures itsmilitary forces (the extraction of manpower andresources) and how it creates military power (themobilization of resources) for the conduct of war.8

A state’s security strategy is narrower than grandstrategy, which includes military doctrine, waraims, resource extraction, and diplomatic activity.9

Yet, it is broader than military doctrine, whichdeals with how a state uses its military forces inwar; the role and mission of armed forces, forceorganization, and weapons systems.10 One of theissues at hand is how a state will balance themilitary component of its security strategy inrelation to the financial-economic-industrialcapacity element of its security strategy.11 Will

A

8. Aaron L. Friedberg, In the Shadow of the Garrison State: America’sAnti-Statism and its Cold War Grand Strategy (Princeton: PrincetonUniversity Press, 2000), 62–66. Also see MichaelMastanduno, David A. Lake, and G. John Ikenberry, “Towarda Realist Theory of State Action,” International Studies Quarterly33, no. 4 (December 1989): 462–64.

9. Barry R. Posen, The Sources of Military Doctrine: France, Britain,and Germany between the World Wars (Ithaca: Cornell UniversityPress, 1984), 6; Stephen M. Walt, “The Case for FiniteContainment: Analyzing U.S. Grand Strategy,” InternationalSecurity 14, No. 1 (summer 1989): 6; and Paul M. Kennedy,ed. “Grand Strategy in War and Peace: Toward a BroaderDefinition,” in Grand Strategies in War and Peace (New Haven:Yale University Press, 1991), 1–7. On the relationshipbetween grand strategy and domestic politics, seeRosecrance and Stein, The Domestic Bases; Paul A. Papayoanou,Power Ties: Economic Interdependence, Balancing, and War (Ann Arbor:University of Michigan Press, 1999); Lars S. Skålnes,Politics, Markets, and Grand Strategy: Foreign Economic Policies as StrategicInstruments (Ann Arbor: The University of Michigan Press,2000); and Steven E. Lobell, The Challenge of Hegemony: GrandStrategy, Trade, and Domestic Politics (Ann Arbor: University ofMichigan Press, 2003).

10. Dan Reiter and Curtis Meek, “Determinants of MilitaryStrategy, 1903–1994: A Quantitative Empirical Test,”International Studies Quarterly 43, no. 2 (June 1999): 363–87.

11. Stephen G. Brooks, “Dueling Realisms (Realism inInternational Relations),” International Organization 51, no. 3

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the state always maximize its military security,even if doing so will harm its productive capacity?Will the state attempt to enhance its productivecapacity, even if doing so reduces its militarysecurity? A state’s security strategy can range from

defensive oriented to offensive oriented. Adefensive security strategy involves fiscal andmonetary restraint, enhancing security through lowcost defense arrangements (membership inintergovernmental organizations and nongovernmentalorganizations, collective security arrangements,and participation in international arms limitationand arms reduction agreements), and reliance onvolunteerism, and market mechanisms (to preventwasteful expenditure and inflation). One danger isthat a defensive security strategy will limit theamount of military power the country can generateimmediately. Yet, such a state will have largemanpower, economic, and industrial reserves whichit can mobilize for war if it has the properinfrastructure, administrative apparatus, and sparemilitary capacity.An offensive security strategy entails societal

resource extraction and mobilization for higherdefense expenditure, national military andindustrial conscription, and a total-war economy tofully mobilize the state’s resources through stateintervention and wartime controls over all aspectsof industry, the economy, and manpower allocation.By doing so, the state will maximize the amount ofmilitary power the country can generate. Thisstrategy risks eroding the state’s productivecapacity for long-term military security.

STRUCTURAL REALISM: DEFENSIVE AND OFFENSIVE

(summer 1997): 445–77.

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TRUCTURAL REALIST THEORIES broadly argue that thenature of the international system and changes

in its structure will guide interstate behavior,and not the internal characteristics of theparticipants. Realist theorists can broadly bedivided into “defensive realists” and “offensiverealists.”12 One primary distinction is the role ofthe anarchic international system in guiding greatpower behavior and whether it pressures states tomaximize their security or to maximize their power.For defensive realists, states maximize theirsecurity through preserving the existing balance ofpower.13 Defensive realists maintain that theinternational system pushes states to pursuemoderate behavior to ensure their survival andsafety. The rationale is that moves to maximizepower through hegemony or preponderance isunproductive because it will provokecounterbalancing behavior, and thereby thwart thestate’s effort to gain power.

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Offensive realists charge that the anarchic natureof the international system pushes states tomaximize their share of world power in order tomake themselves more secure.14 The reasoning is that

12. Robert Jervis, “Cooperation Under the SecurityDilemma,” World Politics 30, no. 2 (January 1978): 167–214;Sean M. Lynn-Jones, “Offense-Defense Theory and itsCritics,” Security Studies 4, no. 4 (summer 1995): 660–91;Benjamin Frankel, ed., “Restating the Realist Case: AnIntroduction,” in Realism: Restatements and Renewal (Portland:Frank Cass, 1996), ix–xx; Barry R. Posen and Andrew L.Ross, “Competing Visions for U.S. Grand Strategy,”International Security 21, no. 3 (winter 1996/97): 5–53; JeffreyW. Legro and Andrew Moravcsik, “Is Anybody Still aRealist?” International Security 24, no. 2 (fall 1999): 5–55;and Jeffrey W. Taliaferro, “Security Seeking underAnarchy: Defensive Realism Revisited,” International Security25, no. 3 (winter 2000/1): 128–61.

13. Kenneth N. Waltz, Theory of International Politics (Reading:Addison-Wesley, 1979); Christopher Layne, “FromPreponderance to Offshore Balancing: America’s FutureGrand Strategy,” International Security 22, no. 1 (summer 1997):86–124.

14. Zakaria, From Wealth to Power; Randall L. Schweller,“Neorealism’s Status Quo Bias: What Security Dilemma?”Security Studies 5, no. 3 (spring1996): 90–121; Labs, “Beyond

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the more power and the stronger the state, the lesslikely it will be a target, since weaker powerswill be reluctant to fight. In The Tragedy of the GreatPowers, John Mearsheimer repeatedly emphasizes that“states quickly understand that the best way toensure their survival is to be the most powerfulstate in the system.”15 For Mearsheimer, “Hegemonyis the ultimate form of security.”16 The tragedy isthat states that have no qualms are forced tomaximize power which can bring them into conflict.For offensive realists, the international system

creates powerful incentives for states to look foropportunities to gain power at the expense ofrivals. These include expansionist and aggressiveforeign policies, taking advantage of opportunitiesto gain more power, and weakening potentialchallengers through preventive wars or “delayingtactics” to slow their ascent. In fact, only amisdirected state will pass up such opportunities.One important caveat is that as opportunisticexpansionists, states are sensitive to cost, andnot mindless expansionists.17 Offensive realism doesnot predict that states will always adopt the mostcostly military strategies or that they will pursueexpansionist strategies at all times and under allcircumstances.For both offensive and defensive realists the

nature of and shifts in the international settingwill direct state behavior. Where these approachesdiffer is in how much power the internationalenvironment encourages states to aggregate. Fordefensive realists, the international structureencourages moderation, while offensive realistsmaintains that the system provides incentives forhegemony and preponderance.

Victory”; Mearsheimer, The Tragedy of Great Power Politics, 168–72.15. Mearsheimer, The Tragedy of Great Power Politics, 33.16. Ibid., 345.17. Labs, “Beyond Victory,” 12–14; Zakaria, From Wealth to

Power, 35, 42.

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WAR AND DOMESTIC POLITICS

TRUCTURAL REALISM IGNORES the internal politics of warand war preparation, and the suboptimal security

strategies that can result from such domesticcompetition. Within liberal states, two broad andlogrolled coalitions (“free trade” and “economicnationalists”) will battle to advance theirfaction’s preferred security strategy (and perhapsthe nation’s) and to capture the associateddistributional benefits. Supporters and opponentsunderstand that the extent and form of how thestate prepares for war and how it fights the warwill generate domestic victors and vanquished (seeTable 1).18 Members of the free trade bloc will pushfor a defensive oriented security strategy becauseit will have the internal consequence of ratchetingup the power of their own supporters, whileconcomitantly rolling back the opposing economicnationalist faction. Free traders will resist anoffensive security strategy because it will empowerthe economic nationalists, who will capture thedistributional gains, and thereby push the statetoward a more hard-line security strategy. Economicnationalists will push for an offensive orientedsecurity strategy because it will have the domesticaffect of boosting their own faction, whileweakening the opposing free trade bloc. Economicnationalists will oppose a defensive securitystrategy because it will strengthen the free

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18. For a discussion of domestic winners and losers inthe political economy literature, see Richard B. Freeman,“Are Your Wages Set in Beijing?” Journal of Economic Perspectives9, no. 3 (summer 1995): 15–32; Jeffrey A. Frieden, Debt,Development, and Democracy: Modern Political Economy and Latin America,1965–1985 (Princeton: Princeton University Press, 1991);Hector E. Schamis, “Distributional Coalitions and thePolitics of Economic Reform in Latin America,” World Politics51, no. 1 (January 1999): 236–68; Ethan B. Kapstein,“Winners and Losers in the Global Economy,” InternationalOrganization 54, no. 2 (spring 2000): 359–84. On theinternational side, see Lloyd Gruber, Ruling the World: PowerPolitics and the Rise of Supranational Institutions (Princeton: PrincetonUniversity Press, 2000).

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traders, who will lobby the government for a moretemperate security strategy.Suboptimality occurs when the empowered faction

advances a security strategy that will ratchet upits coalitional interest, even if it harms thenational interest by eroding the state’s productivecapacity or military security. Alternatively, thecoalition that is under threat of being rolled backwill resist a security strategy because it willharm their faction’s interests, even if the chosenstrategy is in the nation’s interests. Any reversalin the domestic balance of political power canagain set these forces into play, reorienting thestate’s security strategy. Thus, the purpose hereis to understand how states formulate theirsecurity strategies given domestic politicalcompetition.

Table 1WAR IS POLITICS

OffensivesecurityStrategy

DefensivesecurityStrategyEconomic

nationalists

1. Empowereconomicnationalists;weaken free

3. Empower freetraders;weaken economicnationalistsFree

traders2. Empowereconomic nationalists;weaken freetraders

4. Empower freetraders; weaken economicnationalists

The composition of these domestic coalitions spanstate and private actors, and national interestgroups, and their allegiance will depend on whethertheir incentives are inward and national orientedor outward and international oriented. As PeterGourevitch notes, “what people want depends on

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where they sit.”19 The primary constituents of theeconomic nationalist bloc include the military andsecurity commanders, settler groups, unskilledlabor, inefficient industry and agriculture,import-substituting manufacturing, public sectorworkers and managers, and colonial and empireoriented state bureaucrats.20 The main supporters ofthe opposing free trade faction include fiscalconservatives, export-oriented firms (capitalintensive, large banking and financial services,capital exporters, liquid asset holders), smallerfirms oriented to global markets, skilled labor,and finance oriented civil servants and governmentbureaucracies.

ECONOMIC NATIONALISTS AND AN OFFENSIVE SECURITY STRATEGY

Economic nationalists prefer an offensive externalsecurity strategy, which will have the domesticeffect of ratcheting up their faction’s relativepower, while simultaneously weakening the opposingfree trade coalition (Cell 1).21 In capturing the

19. Peter Gourevitch, Politics in Hard Times: Comparative Responsesto International Economic Crises (Ithaca: Cornell University Press,1986), 56.

20. Eckart Kehr, Economic Interests, Militarism and Foreign Policy:Essays on German History, ed. Gordon A. Craig (Berkeley:University of California Press, 1977); Herman Lebovics, TheAlliance of Iron and Wheat in the Third French Republic, 1860–1914: Origins ofthe New Conservativism (Baton Rouge: Louisiana State UniversityPress, 1988); Haggard and Kaufman, “The Politics ofStabilization”; John Waterbury, “The Political Managementof Economic Adjustment and Reform,” in Fragile Coalitions: ThePolitics of Economic Adjustment, ed. Joan M. Nelson (NewBrunswick: Transaction Books, 1989), 39–56. The timing ofdevelopment can play a role in differential domesticarrangements, influencing the relative strength of freetraders and economic nationalists. In early developers,the state is less interventionist while in the late andlate late, the state plays a leading role in development.

21. On ratchets, see Robert Higgs, Crisis and Leviathan: CriticalEpisodes in the Growth of American Government (New York: OxfordUniversity Press, 1987), 57–74; Bruce Porter, War and the Riseof the State: The Military Foundations of Modern Politics (New York: FreePress, 1994), 14; and Friedberg, In the Shadow of the GarrisonState, 30–32. For a discussion and example of degrees ofcoalitional strength, see Solingen, Regional Orders, 64, fig.

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distributional gains from an offensive strategy,empowered economic nationalists will lobby thenational leadership for higher defense expenditure,national military and industrial conscription,protection for industry and agriculture, and atotal-war economy to fully mobilize the state’sresources. Such a strategy will generate thenecessary economic, industrial, and military powerfor an offensive and expansionist war, but if takentoo far can undermine the state’s productivecapacity. First, members of the economic nationalist bloc

favor a military posture that calls for offensiveground-force systems, lobbying the government fornational military conscription to support asubstantial standing army.22 The institutional biasof the military-industrial complex and the nationalsecurity apparatus is to produce a militarydoctrine that assures victory. As a result, thereis pressure to adopt offensive rather thandefensive strategies. The benefit for the militaryand intelligence agencies is an increase in theirbudget, role, and mission. Outside of thegovernment, private and government-owned defenseindustries, workers, military bases, and partisanleaders who represent these areas will receivedirect economic benefit from the maintenance of astrong defense and high military budget.Second, economic nationalists will favor a total-

war economy to fully mobilize the state’sresources. They will call for state interventionand wartime controls over all aspects of industry,the economy, and manpower allocation rather thanthe reliance on volunteerism, private industry, andmarket mechanisms. Economic nationalists willsupport an active government that controls prices,2.

22. John Lewis Gaddis, Strategies of Containment (New York:Oxford University Press, 1982), 90–95. On the preferencefor offensive military strategies, see Posen, The Sources ofMilitary Doctrine, 47–58.

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licensing, purchasing, and wages. They will lobbyfor the extension of the state’s legal power totake direct control over the private sector,especially armament industries and transportation,to insure their optimal use. Economic nationalistswill encourage the collaboration and amalgamationof industry into big business, and corporatistlabor arrangements to compel labor’s cooperationwith management and the government (especiallyprohibiting labor strikes). As such, stateenterprises such as the military industrialcomplex, agriculture, state managers, and publicsector monopolies will capture a large share ofsocietal resources. Third, state encroachment and war planning is

viewed by economic nationalists as the engine forenhancing domestic industry. Economic nationalistswill define such sectors as strategic for nationaldefense (and will push for state support for“strategic” technologies), emphasizing the dangerof dependence on imports. They will lobby fortariffs, duties, and subsidies to protectinefficient and infant industry from foreigncompetition while increasing overall domesticconsumption. Such protection means that industrywill enjoy sectoral monopolies in domestic markets.Economic nationalists will also recommendtechnological and financial assistance for nationalagricultural production and the creation of vaststocks of raw materials. One consequence is thatcompanies dependent on government contracts andcredit are threatened by economic liberalizationsuch as devaluation, budget cuts, restrictions ondomestic credit, and reforms that reduce protectionand government support.23 Finally, economicnationalists will favor controls on capital,opposing overseas lending because it willstrengthen foreign competition. Where such firmsare prominent and can mobilize political resources

23. Haggard and Kaufman, “The Politics of Stabilization.”

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through peak organizations, parties, and the mediathey will challenge the free trader’s imposition offiscal and monetary reform. Lastly, economic nationalists will favor

strengthening economic and military ties tocolonies, the empire, or any occupied areas andperhaps expanding imperial interests to promoteself-sufficiency and embracing a “fortress”concept.24 State bureaucrats and civil servants withstrong ties to the empire, and especially colonialoffices and administrators, will favor imperialunity fearing dismantlement of state enterprises.During wartime, economic nationalists will regardcolonial manpower and markets as an importantsource of national power.25 Economic nationalistsare likely to use external threats and strategicmyths such as economic self-sufficiency,imperialist ideologies, and national security tosustain themselves politically.26 Refusal tocompromise with an historical enemy and aninflexible position at peace talks is associatedwith diligence and self-sacrifice.27

FREE TRADERS AND A DEFENSIVE SECURITY STRATEGY

For free traders, a defensive security strategywill have the internal result of strengtheningtheir faction, while rolling back the opposingeconomic nationalist bloc (Cell 4). Free tradersknow that an offensive security strategy will leadto increased state intervention in the economy,heightened military spending, and protection forindustry and agriculture, thereby empowering theopposing faction.28 Their concern is that it isdifficult to reconcile the maintenance of a liberal

24. Friedberg, In the Shadow of the Garrison State.25. Mark Brawley, Liberal Leadership: Great Powers and Their

Challengers in Peace and War (Ithaca: Cornell University Press,1993).

26. Snyder, Myths of Empire, 35–38.27. Lawson, Why Syria Goes to War, 152.

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economy with the requirements of war and warpreparation. The war economy will require stateintervention in business and management of theeconomy to coordinate production, industrial andmilitary conscription, price fixing, protection ofvital resources and industry, and industrialcartels and the amalgamation of industry. As such,minor state encroachment and partial controls willlead to broad controls and will often necessitategovernment intervention further back or forwards.29

Ultimately, the state can find itself directing amajor part of the country’s industries, laborforce, and finances.30

First, in wartime, the goal of the free tradecoalition is to minimize disruptions to thedomestic economy. In emphasizing the role offinance and the state’s limited financial means,the members of the free trade coalition will favorrelying on low cost defense arrangements such asthe navy, air force, nuclear weapons, and laborsaving technology to protect the nation’s interestsover a more costly conscripted standing army. Freetraders counter that such national securitystrategies will divert the least amount of manpowerand resources from domestic industrial production,while unrestrained defense spending will result inhigh inflation, budget deficits, confiscatorytaxes, and economic controls that will ultimatelybankrupt the state.31 As well, a strong navy or airforce is deemed essential to protect the sea lanesof communication, trade links, and trade routes tosecure imports and exports. Free traders will alsotriumph economic sanctions and blockades to weaken

28. John A. Vasquez, The War Puzzle (Cambridge: CambridgeUniversity Press, 1993), 207–10.

29. Kathleen Burk, ed. “The Treasury: from Impotence toPower,” in War and the State: The Transformation of British Government,1914–1919 (Boston: George Allen and Unwin, 1982); Higgs,Crisis and Leviathan.

30. Sidney Pollard, The Development of the British Economy, 1914–1967 (New York: St. Martin’s Press, 1969), 44.

31. Gaddis, Strategies of Containment.

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the economy of the adversary and bring about theireconomic collapse. Second, free traders will favor fiscal and

monetary restraint.32 In wartime, free traders arguethat economic stability and military strength areinseparable. They emphasize that the state willneed to heighten exports in order to earn foreigncurrency to compensate for the increased importsnecessary for the war effort or risk bankruptingthe economy by the end of the war. They opposecalls for a large standing army and offensivemilitary strategies on the ground that they willdrain manpower and resources from export industry.Free traders also highlight the role of monetarydiscipline, volunteerism, and market mechanisms toprevent wasteful expenditure and inflation, whilerejecting central planning and a command economythat will benefit specific domestic producers. Third, free traders favor military alliances in

order to distribute the cost of war. If possible,the proper role for the state is to act as thequartermaster of the alliance, providing loans andmilitary equipment to their allies (instead ofdispatching troops overseas). Free traders supportenhancing national security through low-cost meanssuch as membership in intergovernmentalorganizations (IGOs) and nongovernmentalorganizations (NGOs), collective securityarrangements, and international arms limitation andarms reduction agreements. Finally, free traders are open to negotiated

settlement of conflicts. They prefer to easeinternational tension and to settle internationaldisputes in order to lower the political, economic,and military costs of war. Prolonged war isespecially dangerous because it will divertresources from productive domestic investment tomilitary spending, and thereby undermine

32. Haggard and Kaufman, “The Politics of Stabilization”;Solingen, Regional Orders.

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prosperity, disrupt trade flows, and contribute toincreased protectionism. Free traders will appealto liberal members in opposing states, attemptingto strengthen their position, in order to moderatean adversary’s war policies.

RATCHETS, ROLLBACKS, AND REORIENTATIONS OF STRATEGY

NY SHIFTS IN the domestic balance of politicalpower between the free trade and economic

nationalist factions can reinforce or reorient thestate’s security strategy. The beneficiaries willtry to accelerate and expand the internalredistribution of power by pushing for a moreoffensive or defensive security strategy, while thelosers will seek to retard and halt it.

A

ECONOMIC NATIONALISTS: RATCHETS AND ROLLBACKS

Economic nationalists will resist a defensivesecurity strategy because it will ratchet up thestrength of the free trade faction, while rollingback their own supporters (Cell 3). Protectedstate-run enterprises and import competing industrywill oppose such a security strategy since theywill bear the burden of a reduction in governmentcontrols and rents. A decline in tension willweaken the security apparatus and the military-industrial complex by diverting the resources awayfrom defense expenditure (and undermining the mythof national security through expansion). Stateaffiliated managers and colonial bureaucrats arethreatened by the dismantlement of state-ownedenterprises and the public sector monopolies andmonopsonies, devaluations, budget cuts,deregulation, lowering of tariffs, lowering ofsocial welfare spending, and the retreat fromempire.

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In upsetting the domestic balance of politicalpower, a defensive strategy will strengthen freetrade supporters who will press for a comparativelysofter security strategy and militate toward a moreflexible stance. Free traders have an interest ineconomic liberalization and the formation of closerties to the outside world. Concerned for fiscalorthodoxy and a greater reliance on market forces,they will lobby for a reduction in protectionismand expansion of the private sector. Their policypackage will include retreat from empire,liberalization of trade and exchange rate policies,improved efficacy of government spending, reductionin bloated state apparatuses, changes in taxpolicies (releasing resources for privateinvestment), and replacing bureaucratic control bymarket mechanisms.33 Free traders will emphasizeair, naval, and nuclear forces, and enhancingsecurity through economic sanctions, collectivesecurity, and arms control. Such actions willescalate free trader activities, furtherundercutting the position of the economicnationalists.

FREE TRADERS: RATCHETS AND ROLLBACKS

Free traders will reject an offensive securitystrategy because it will ratchet up the economicnationalist bloc, while rolling back their ownconstituents (Cell 2). The bulk of the outwardoriented free trade supporters will lobby againstimmoderate military and commercial punishment,resulting in high budget deficits, inflation, andexcessive borrowing. Free traders will contestoffensive military proposals and will try to slim

33. Peter B. Evans, “The State as Problem and Solution:Predation, Embedded Autonomy, and Structural Changes,” inThe Politics of Economic Adjustment: International Constraints, DistributiveConflicts, and the State, eds. Stephan Haggard and Robert R.Kaufman (Princeton: Princeton University Press, 1992),139–42.

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down inflated military budgets. Free traders willseek to limit the retreat from fiscal orthodoxy andwill oppose calls for high tariffs and duties (theyalso recognize that the long-term risk fromprotection is a decline in the proportion of theeconomy that is involved in the internationaleconomy). Finally, free traders will warn of thedanger of the misallocation of societal resourcesdue to the decline in competition and theencroachment of state intervention, protectionism,and sector monopolies. For fiscal conservatives andfinance oriented government bureaucracies, adefensive strategy translates into lower levels ofdefense expenditure and increased savings andforeign exchange earnings. By-products of greaterfiscal and monetary restraint are lower inflation,reduced taxation, and currency stability, furtherbenefiting the export sectors.An offensive security strategy will enhance

economic nationalists who will push for a morebelligerent stance. State-affiliated managers andstate-run (or public sector) enterprises will lobbyfor increased control over the production anddistribution of national resources (throughindirect measures such as prices, licensing,purchasing, and wages or direct measures such asnew bureaucratic agencies). The military-industrialcomplex and the national security apparatus willfavor offensive ground strategies, supported bymilitary and industrial conscription. Inefficientindustry and agriculture will press for externalsupports, protection, and a settled share of thedomestic market to foreign competition.34 Defined asstrategic for national security, they will receivesuch state patronage. Empire, settler groups, andcolonial bureaucrats will call for extracting andmobilizing resources from the empire or occupiedterritories, contributing to stronger links to theempire-territories. Concomitantly, expansionary

34. Pollard, The Development of the British Economy, 53.

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fiscal policy benefits the public sector. Finally,belligerence will dampen moves by free traders suchas export-oriented industry to further escalatetheir collaboration with counterparts in rivalstates.35

SELF-REINFORCING SUBOPTIMALITY

Concerns about the domestic distributionalconsequence from ratchets, rollbacks, andreorientations can affect whether the supporters ofthe economic nationalist and free trade factionswill respond nationally or coalitionally toexternal threats. The coalitional interest is tobolster its own faction’s relative power over theopposing bloc’s, ensuring its survival. Thenational interest is to prepare for war withoutundermining the state’s productive capacity oreroding its military security. In some instancesthese interests will coincide, pointing in the samedirection, and the chosen strategy will advanceboth interests. Suboptimality occurs when the faction that is

under threat of being rolled back advocates a self-reinforcing security strategy.36 Such a strategy willratchet up the threatened faction’s relative powerby capturing the associated distributional gains,but will undermine the nation’s interests byeroding its economic staying power or militarysecurity.37 Self-reinforcing strategies are most

35. Lawson, Why Syria Goes to War, 152.36. I would like to thank Arthur Stein for this term. For

an application to foreign economic policy, see Jeffrey A.Frieden, “Sectoral Conflict and Foreign Economic Policy,1914–1940,” International Organization 42, no. 1 (winter 1988):59–90.

37. Friedberg, The Weary Titan; Snyder, Myths of Empire; Buenode Mesquita and Lalman, War and Reason; and Kupchan,Vulnerability of Empire. According to David, ruling elites inthe Third World balance against internal threats to theirregime’s survival as well as against more traditionalexternal threats to the state. Such elites will advancethe regime’s interests, even if it overrides the state’s.

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likely to be selected when the threatened coalitionfaces a severe setback to its relative power if itadvances the nation’s interest over its faction’sinterests. The import is that internal competitioncan disrupt the state’s adjustment to externalcircumstances.

Economic nationalists and self-reinforcing suboptimality:Economic nationalists will push for an offensivesecurity strategy (which will advance theircoalition’s interests) and will oppose a defensivesecurity strategy (which will empower the freetraders), even if the latter is in the nation’sinterests. The danger of an offensive securitystrategy is that it can undermine the state’sproductive capacity by wasting resources through anoverly expensive and expansive security strategy.High levels of defense expenditure can erode thestate’s economic base (private and publicresources) for future military security. As RobertGilpin and Paul Kennedy warn, excessive andsustained military expenditure will divertresources from domestic investment, limit futureeconomic growth, and erode the financial basis thatthe state has to construct and maintain a modernmilitary force.38 A three step argument links military spending and

economic decline.39 First, military spending divertsresources from wealth creating activity, such asdomestic investment, research and development(commercial, not military), education, theinfrastructure, equipment and factories, and thelike. Second, a shift in resources away from

See Steven R. David, “Explaining Third World Alignments,”World Politics 43, no. 2 (January 1991): 243.

38. Robert Gilpin, War and Change in World Politics (New York:Cambridge University Press, 1981); Paul Kennedy, The Rise andFall of the Great Powers: Economic Change and Military Conflict from 1500 to2000 (New York: Random House, 1987).

39. Seymour Melman, The Permanent War Economy: AmericanCapitalism in Decline (New York: Simon and Schuster, 1974);Gilpin, War and Change, 156–85; Kennedy, The Rise and Fall, 514–35.

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productive investment slows the expansion of theexisting stock of capital and national wealthavailable for investment, and impedes the rate atwhich technology and innovation spread throughoutthe economy. Finally, by constraining reinvestment,innovation, and production, military spendingreduces the state’s long-term productive capacityto generate future military security. One problemwith this argument is that the long time lagbetween extraction and decline makes it difficultto ascertain whether military spending is theprimary culprit of economic decline.40

Free traders and self-reinforcing suboptimality: Free traderswill push for a defensive security strategy andwill resist an offensive security strategy, even ifthe latter policy advances the state’s interest.The danger of a defensive security strategy is thatit can erode the state’s military security. Inallocating too few resources to defense,administrative shortcomings, and lacking industrialand manpower mobilization, the state risks havinginsufficient military capacity to defend itself.Once more, concern for economy, which reflect itsconstituents’ interests, means that free tradersfavor extending military, economic, or territorialconcessions in order to moderate a challenger’sdemands and to pursue the least confrontationalposture possible.41 The types of concessions mostacceptable are those that impede the increase in

40. For a critical assessment of the link betweenmilitary burdens and economic growth, see Karen A. Raslerand William R. Thompson, “Relative Decline and theOverconsumption-Underinvestment Hypothesis,” InternationalStudies Quarterly 35, no. 3 (September 1991): 273–94; CharlesA. Kupchan, “Empire, Military Power, and EconomicDecline,” International Security 13, no. 4 (spring 1989): 36–53.41. For a review of the literature on appeasement, see PaulW. Schroeder, “Munich and the British Tradition,” HistoricalJournal 19, no. 1 (March 1976): 223–43; Paul M. Kennedy,“Strategy versus Finance in Twentieth-century Britain,” inStrategy and Diplomacy (London: Fontana Press, 1983), 15–39; J.L. Richardson, “New Perspectives on Appeasement: SomeImplications for International Relations,” World Politics 40,no. 3 (April 1988): 289–316.

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the military and economic power of the contender.If free traders can convince the contender tomoderate its expansion, then they can lighten theunbearable burden of fighting against multiplechallengers. Yet, if the challengers renege orcheat on the economic, political, and militaryagreements, this will compound the state’sdeficient military and military-industrialcapacity. The danger, as E. H. Carr warns, is that“weaker states will renounce treaties concluded bythem with stronger states so soon as the powerposition alters and the weaker state feels itselfstrong enough to reject or modify the obligation.”42

CAVEATS

The domestic process of strengthening or weakeninga coalition involves more than merely the shift ofmembers from one coalition to another. Domesticactors and interest groups deploy resources inorder to capture particularistic gains and mobilizesupport, whether through lobbying, donations, orthe promise of votes.43 This includes new politicalparties, mobilizing activists and generating newsupporters, greater public attention for theiragenda and votes in elections, new lobbying andpeak organizations which deploy resources in orderto gain particular benefits, and additional publicand private resources.44

There are several constraints on the ability ofthe strengthened coalition to convert its interestsand preferences into policy outcomes.45 Collective

42. Edward Hallet Carr, The Twenty Years’ Crisis, 1919-1939 (NewYork: Harper and Row, 1964).

43. Mancur C. Olson, The Rise and Decline of Nations: EconomicGrowth, Stagflation, and Social Rigidities (New Haven: Yale UniversityPress, 1982).

44. Snyder, Myths of Empire, 36.45. See James E. Alt and Michael Gilligan, “The Political

Economy of Trading States: Factor Specificity, CollectiveAction Problems, and Domestic Political Institutions,”Journal of Political Philosophy 2, no. 2 (1994):165–92.

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action and free rider problems can make itdifficult for large logrolled coalitions toorganize and voice their preferences.46 Newlyempowered factions will also have a disadvantage inimplementing their preferences. In the case ofempowered economic nationalists, according toJudith Goldstein, if orthodox policies have becomeentrenched in state institutions, theseinstitutions will resist protectionism andexpansionary fiscal policies (for either social ordefense spending).47 The same type of institutionalbarriers will confront empowered free traders ifimperial policies have become entrenched. Finally,economic nationalists will have certain advantagesin organizing because they can create rents throughtariffs and imperial preferences, rewardingspecific groups or compensating losers (whiledispersing costs among a larger set of groups).Empowered free traders will reduce protectionismand thereby diminish custom duties and revenue forstate patronage. Yet, in enhancing the nation’saggregate welfare, free traders will create morewealth to go around and to be redistributed toreward supporters, making coalition buildingeasier.

BRITAIN’S LIMITED LIABILITY SECURITY STRATEGY

FFENSIVE REALISM suggests that Britain adopted aLimited Liability strategy to increase its

relative power against all of the major powercontenders seeking continental hegemony (whiledefensive realism suggests that London wasmotivated by the danger if France and Russiacollapsed). A Limited Liability strategy meant that

O

46. Russell Hardin, Collective Action (Baltimore: JohnsHopkins University Press, 1982).

47. Judith Goldstein, Ideas, Interests, and American Trade Policy(Ithaca: Cornell University Press, 1993).

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London would serve as the paymaster to the Entente,financing the military operations of the allies andproducing the supplies they needed to fight theGermans on land while restricting Britain’s ownmilitary operations. The Royal Navy would blockadeGerman ports and a small volunteer army (theBritish Expeditionary Force, 130,000-160,000 men)would support the left flank of the French army.Such a strategy would increase Britain’s relativepower cheaply by keeping its manpower in reserve,untapped by the war, while shifting the cost ofbalancing to France and Russia, whose armies wouldbear the brunt of the fighting.48 By letting France,Russia, Germany, and Austria weaken each other,Britain would emerge from the Great War as thestrongest state. After all, Britain would havesuffered minimal losses whereas the otherbelligerents would have expended considerableresources and lost significant numbers of soldiers.Once the Central Powers and Britain’s allies foughtto a standstill, London could seize the initiative,delivering the final knock-out blow against anearly defeated Germany. As the undisputed master,Britain would dictate the peace terms to its alliesand enemies in the post war negotiations.Offensive realism faces an anomaly in explaining

why Britain selected a Limited Liability securitystrategy. It was known that this strategy would beinsufficient to defeat Germany and it couldthreaten Britain’s survival.49 At best, a navalblockade alone could not bring Berlin (a landpower) to its knees since the blockade could notprevent overland German resupply. At worst, ifFrance was quickly overrun and the Belgian coastwas occupied, then Germany could challengeBritain’s limited military capabilities. Scant

48. David French, British Strategy and War Aims: 1914–1916(Boston: Allen and Unwin, 1986); Labs, “Beyond Victory.”

49. A second anomaly is why Britain jumped to aContinental Commitment in 1916 over a less costly limitedblows or war of attrition strategy.

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spare military-industrial capacity, outdatedtechnology, a lack of a central planning staff, andlimited administrative apparatus to run the war,control resources, and coordinate governmentoperations would greatly slow Britain’s ability tomobilize its defenses.Driven by the distributional consequences from a

Continental Commitment (full-scale frontal assaulton the Western front, implementation of theMilitary Service Act introducing universalconscription, closer ties to the empire, anddestroying Prussian militarism), threatened freetraders pushed for a Limited Liability strategy. Asdiscussed below, free trade supporters wereconcerned that greater military, industrial,economic, and financial preparation for war wouldthreaten their coalition’s survival and roll backtheir prewar gains while ratcheting up the opposingeconomic nationalists (who would push for an evenmore hard-line security strategy). As such, wellbefore the outbreak of the First World War,entrenched free traders blocked any policies thatwould harm their faction, even though such actionswould better prepare Britain for the coming war.

FREE TRADE BLOC

The members of the free trade and economicnationalist coalitions clashed on key issues suchas naval construction, army reform, and nationalconscription; staff talks and naval conversationswith France and Russia; Continental intervention;tariffs and imperial preferences; fiscal orthodoxyand state intervention in the economy;international arms control and arms reductionagreements; and the Empire. Free trade supporterslobbied for freer trade, fiscal and monetaryorthodoxy, voluntarism, temperance, andantimilitarism. The members of the free tradefaction include the Labour and Liberal Parties, the

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Radicals, a complex of international financialservices, export oriented firms, statebureaucracies such as the Treasury and the ForeignOffice, the trade unions (TUC), and many top civilservants wedded to Gladstonian orthodoxy.50 Both theLabour and the Liberal Parties favored the policyagenda of freer trade, retreat from empire, andreduced defense spending (rejecting the Cawdormemorandum inherited from the Unionist that calledfor laying down four capital ships annually),thereby releasing resources for social reformprograms.51 Such savings would be possible bydowngrading the two-power naval standard to a 60per cent standard and by reducing internationaltensions.52 The Radicals, subscribed to the ideal of“universal disarmament, friendly relations with allcountries, open diplomacy, and the settlement ofinternational disputes by arbitration.”53 Opposing

50. Frank Longstreth, “The City, Industry, and theState,” in State and Economy in Contemporary Capitalism, ed. ColinCrouch (New York: St. Martin’s, 1979), 157–90; KeithMiddlemas, Politics in Industrial Society: The Experience of the British Systemsince 1911 (London: A. Deutsch, 1979); Geoffrey K. Ingham,Capitalism Divided? The City and Industry in British Social Development (NewYork: Schocken Books, 1984); Scott Newton and DilwynPorter, Modernization Frustrated: The Politics of Industrial Decline in Britainsince 1900 (Boston: Unwin Hyman, 1988); and Jim Tomlinson,Public Policy and the Economy since 1900 (Clarendon Press: Oxford,1990).

51. Hugh V. Emy, Liberals Radicals and Social Politics: 1892–1914(Cambridge: Cambridge University Press, 1973); MichaelHoward, “The Edwardian Arms Race,” in Edwardian England, ed.Donald Read (London: Croom Helm, 1982), 207–21; DavidFrench, British Economic and Strategic Planning, 1905–1915 (Boston:George Allen and Unwin, 1982); and Rhodri Williams,Defending the Empire: The Conservative Party and British Defence Policy 1899–1915 (New Haven: Yale University Press, 1991).

52. The Naval Defence Act formally called for Britain tomaintain a two-power standard or a navy “at least equal tothe naval strength of any two other countries.” See ArthurJ. Marder, The Anatomy of British Sea Power: A History of British NavalPolicy in the Pre-Dreadnought Era, 1880–1905 (New York: Knopf,1940), 106. For Hamilton, the two-power standard was basedon modern battleships, but extended to first-classcruisers too.

53. A. J. A. Morris, “The English Radicals’ Campaign forDisarmament and the Hague Conference of 1907,” Journal ofModern History 43 (1971): 367. On opposition, see HowardWeinroth, “Left-wing Opposition to Naval Armaments in

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the principle of balance of power, they called fora new League of Peace, improved Anglo-Germanrelations, ending Anglo-French staff talks (1911),and argued that Britain could not expect relativelyweaker navies to make the first move toward navaldisarmament.54The City of London included international banking,

financial services, shipping, insurance, overseasmerchanting, and income from capital investedoverseas. They lobbied for freer trade by reducingtariffs and duties, the elimination of regulationby the state, and ensuring that the sterlingmaintained its position as the reserve currency forthe world monetary system and as the major vehiclefor international economic transactions.55 Thepolitical power of the City extended throughprivate organizations such as the Bank of Englandand key state bureaucracies such as the Treasury.The Bank of England, as the guardian of the goldstandard, was the most important element indetermining the money supply in Britain.56 For thegold standard to function smoothly, trade had to

Britain before 1914,” Contemporary History 6, no. 4 (1971):93–120.

54. Samuel R. Williamson Jr., The Politics of Grand Strategy:Britain and France Prepare for War, 1904–1914 (London: AshfieldPress, 1969).

55. Longstreth, “The City,” 160–63; Ingham, CapitalismDivided, 96–102, 113–16; Peter J. Cain and Anthony G.Hopkins, British Imperialism: Crisis and Deconstruction, 1914–1990(London: Longman, 1993), 125–31. Daunton divides the Cityinto four primary groupings: bankers, financiers andstockbrokers; shipping interests; middlemen and importers;and colonial houses. See M. J. Daunton, “‘GentlemanlyCapitalism’ and British Industry 1820–1914,” Past and Present122 (1989): 149. On other characteristics of the membersof the City, see Lance E. Davis and Robert A. Huttenback,Mammon and the Pursuit of Empire: The Economics of British Imperialism(Cambridge: Cambridge University Press, 1986), 162–82.

56. Sidney Pollard, Britain’s Prime and Britain’s Decline: The BritishEconomy 1870–1914 (New York: Edward Arnold, 1989), 244–50;Tomlinson, Public Policy, 25–28. The Bank of England was aprivate enterprise and the government had no direct accessto its decision making. Yet, the government asked for andfrequently took the advice of the Bank of England onquestions of monetary policy and related issues

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flow freely, unimpeded by restrictive tariffs andduties. Once more, confidence in the stability ofthe sterling was essential for it increased thedesire to purchase British goods and services. TheTreasury Department, as the watchdog overgovernment finance, was responsible for striking abalance between the competing demands of governmentexpenditure (civil and military) and maintainingthe health of the economy. The philosophy of theTreasury was steeped in the Gladstonian traditionof limited government expenditure on defense andsocial welfare, low taxation, minimal interferencein the economy, and freer trade.57 The belief wasthat Britain’s fiscal strength was a third leg ofdefense, upon which the army and the navy wouldrely in the event of a prolonged conflict.

ECONOMIC NATIONALIST FACTION

In response to commercial and military challengesfrom the United States, France, Russia, Germany,and Japan, the economic nationalists called for abig army and navy, national service, tariff reform,trade protection, empire unity, and nationalefficiency and industrial planning.58 The economicnationalist coalition included inefficientindustry, arable agriculture and landowners, theChamber of Commerce, the military services,supporters of the Conservative Party, and pro-Empire organizations and colonial bureaucrats.The majority of the Conservative Party feared for

the continued safety of the Empire and theydemanded stronger measures of national defense,arguing that the agenda of the free trade coalitionwas weakening industry at home and in the Empire

57. Hugh V. Emy, “The Impact of Financial Policy onEnglish Party Politics before 1914,” Historical Journal 15(1972): 103–31, 105–7; Tomlinson, Public Policy, 28–30.

58. Steiner, Britain and the Origins.

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and sapping Britain’s military strength.59 Prominentamong the Conservative Party membership, thediehards (landed Conservative aristocrats in theHouse of Lords), were active in organizationsdesigned to promote a big army and navy, nationalservice, and tariff reform.60 Other importantlobbying organizations supported by Conservativesand diehards included the Navy League (establishedin 1895), the National Service League (1902), andthe Imperial Maritime League (1908).61 Absent in therosters of these organizations were members of thefree trade coalition, such as bankers, laborrepresentatives, and members of the leading Cityhouses.The most influential organization calling for

imperial preferences was Joseph Chamberlain’sTariff Reform League (1903).62 They were joined bythe National Agricultural Union, especially wheatgrowers, who sought protection to secure morehomegrown food production, emphasizing the nationalsecurity risk of Britain’s dependence on importedfood in the event of war. They also pushed for thenational government to establish granaries in whichsupplies of wheat could be stored in peacetime foruse during emergencies. Chamberlain sought toestablish the Conservative Party as the party ofprotection and Empire.63 Many members of the armed services (navy, army)

called for increased defense spending to maintain59. The Unionist or Conservative Party was split between

Tariff Reformers, Free Traders, and a center group led byArthur Balfour.

60. Gregory D. Phillips, The Diehards: Aristocratic Society andPolitics in Edwardian England (Cambridge: Cambridge UniversityPress, 1979), 82–110; Williams, Defending the Empire, 3, 28–30.

61. Marder, The Anatomy of British Sea Power, 49–55.62. Other proimperial preference groups included the

National Fair Trade League, the Imperial FederationLeague, the British Empire League, the United Empire TradeLeague, and the Tariff Commission.

63. E. H. H. Green, The Crisis of Conservatism: The Politics, Economics,and Ideology of the British Conservative Party, 1880–1914 (New York:Routledge, 1995), 69–77.

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Britain’s naval supremacy. By revising thetraditional two-power naval standard to a three- orfour-power naval standard, the Admiralty arguedthat Britain could maintain its command of the highseas and its local supremacy in the Far East, theMediterranean, and the Americas. In response to thefree traders concern for economy, the Admiraltycountered that resources must be found for theNavy, since defeat at sea would be far more ruinousthan any damage to the economy due to increasedgovernment expenditure.64 After the Agadir crisis(1911), the War Office (General Staff) firmlyembraced the ideal of a major land commitment tothe continent. Some even envisioned Britainbecoming a major land power as well. The militarywas determined that the British Expeditionary Force(BEF) should be sent to France to cooperate with theFrench army on the Franco-Belgian frontier. In1913, the Conservatives (with one Liberal sponsor)introduced a bill calling for compulsory trainingto replace the failed attempt at voluntaryrecruiting for the Territorial Army, but facedopposition from both the Liberal and Laborparties.65

There were few links between the free trade andeconomic nationalist blocs. No important bankersjoined Chamberlain’s Tariff Reform League.66 Thedirectorate of the Bank of England was dominated bythe leading City merchant banks and merchanthouses, with few industrialists. Of the 35 firmsrepresented on the Board of the Bank of Englandbetween 1890 and 1914, 13 (37 percent) weremerchant bankers, 17 (49 percent) were merchants,and 5 operated in other spheres.67 When the Treasurycalled on outside experts, this usually involvedpeople from the City or ex-chancellors of the

64. George W. Monger, The End of Isolation: British Foreign Policy1900–1907 (London: Thomas Nelson, 1963), 9–10.

65. French, British Economic and Strategic Planning, 25.66. Longstreth, “The City,” 162.67. Pollard, Britain’s Prime, 245.

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Exchequer.68 Industrialists distrusted the Bank ofEngland’s freedom of action, calling for a newcentral bank with purely administrative control,lower interest rates, a politically managed lowexchange rate to enhance export competitiveness,and a “National Investment Bank” to bypass Citymarkets.69

EMPOWERED FREE TRADERS AND THEIR SELF-REINFORCINGLIMITED LIABILITY STRATEGY

HE SHIFT IN the epicenter of British economicactivity after 1850 from visible exports to

invisible exports empowered the domestic supportersof the free trade coalition. By the 1890s, whileBritain’s share of world trade in its stapleindustries was on the wane, it was compensated bythe growing importance of invisible income fromtrade in services, overseas investments, shipping,insurance, and other commercial services.70 Freetrade supporters prospered from a robust tradeactivity and export performance (after 1900),record volumes of lending, investment, and capitalexports (which reached new heights between 1910 and1913), and the peace dividends from the reducedcost of empire and forced economies at the War

T

68. Tomlinson, Public Policy, 34. 69. Ingham, Capitalism Divided, 80; Cain and Hopkins, British

Imperialism, 144–45. The bimetallic controversy of the 1880sand 1890s foreshadowed the growing strength of the City ofLondon over industry during the coming decades. The slidein silver prices caused a revaluation of the sterlingagainst silver based currencies making it harder to exportto silver standard countries, but easier to buy importsfrom them. It increased invisible income but harmed thosesuffering from foreign competition, such as agriculture.One solution, rejected by the City, called for anagreement that would fix a ratio for gold to silver (Cainand Hopkins, British Imperialism, 151–52).

70. Kennedy, “Strategy,” 93–94; Jim Tomlinson, Governmentand the Enterprise since 1900: The Changing Problem of Efficiency (Oxford:Clarendon Press, 1994), 41, table 2.3.

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Office and Admiralty.71 Britain sustained itsbalance of payments by capturing a large share ofthe world’s shipping, insurance, returns oninvestments abroad, and banking and commercialservices such as international short-term credits.72

In the 1906 elections, voters and Parliamentheeded export oriented commercial, financial, andshipping interests.73 The election resulted in anoverwhelming defeat of the Unionist (ConservativeParty) who stood for protection, imperialpreferences, and higher defense spending, returningto power the free trade Liberal Party. The“People’s Budget” of 1909 reflected anothervictory. To meet an estimated deficit, the People’sBudget raised direct taxes, with the burden fallingon the opposing aristocracy.74 Conservativessuffered further defeats in the two elections of1910 over the issue of tariff reform. Free tradersused these distributional gains to attract newsupporters by enacting a number of costly socialand economic reform programs (1909 Old Age PensionsAct, 1911 National Insurance Act), attractive tothe working and middle classes.

71. On the constraining consequence of the expansion ofBritish trade on raising an army, see David M. Rowe, DavidH. Bearce, and Patrick J. McDonald, “Binding Prometheus:How the 19th Century Expansion of Trade Impeded Britain’sAbility to Raise an Army,” International Studies Quarterly 46, no.4 (December 2002): 529–49.

72. Longstreth, “The City,” 160–64; Pollard, Britain’s Prime,235–58; Cain and Hopkins, British Imperialism, 161.

73. Sidney Checkland, British Public Policy, 1776–1939: An Economic,Social and Political Perspective (New York: Cambridge UniversityPress, 1983); Friedberg, The Weary Titan.

74. Emy, “The Impact of Financial Policy,” 122–23, 129;Bruce Murray, The People’s Budget of 1909/10: LLoyd George and LiberalPolitics (Oxford: Clarendon Press, 1980), 9–10. What rousedthe fury of the landed classes (the Conservativeopposition and the House of Lords) was the proposal forthe valuation of land, with a view to future taxation onprofits from increases in land values. These moves wereresisted by Conservatives since they derived much of theirpolitical support from the landed class and sought toprotect its constituents against substantial new taxation.

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To lower the economic, political, and militarycost of hegemony, free traders pushed for improvedrelations with Germany, France, Russia, Japan, andthe United States, which further enhanced theirdomestic position. Economic nationalists especiallyopposed the entente with France and Russia. Theycorrectly foresaw that the free traders’ demand toexempt France from the two-power naval standardwould entail a real diminution of naval strength.The City championed the rapprochement with the Czarbecause it would facilitate financial investmentsin Russia and protect Britain’s commercial andfinancial interests in Persia. In 1901, freetraders pushed for a revision of the Anglo-AmericanClayton-Bulwer Treaty (1850) to allow the UnitedStates unilaterally to construct and defend anisthmian canal. The rationale was that Britainwould benefit more than any other country sincethey estimated that 60 percent of shipping passingthrough the canal would fly the British flag.75 TheCity of London played a central role in theformation of the Anglo-Japanese (1902) due to thecomplementarity between Japan’s industrializationand the City’s export trade of capital goods andservices. For British investors, the Anglo-Japanesealliance provided a sense of safety for theirinvestment of Japanese loans and for the emergingAnglo-Japanese financial relationship. Finally,anxious to avoid an international naval race, freetraders focused on improving relations with Berlin.London bankers financed Germany’s boomingindustries and its foreign trade. Free traders andthe liberal papers also criticized the economicnationalists for exaggerating the naval threat topanic the cabinet.In pushing for a Limited Liability security

strategy, entrenched free traders blocked the

75. J. A. S. Grenville, “Great Britain and the IsthmianCanal, 1898–1901,” American Historical Review 61, no. 1 (October1955): 52.

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military, economic, industrial and financialpolicies that were necessary to generate the powerfor a more offensive Continental Commitment, whichwould have the domestic consequence of empoweringthe economic nationalist bloc.

MILITARY

Free traders opposed early calls for militaryconscription, a mass army, and participation injoint military offensives on the Western front,pushing for economizing on armaments.76 Theyresisted Anglo-French staff talks (both naval andmilitary) and blocked the entente from becoming analliance to prevent Britain from getting entangledin a Continental war. The Treasury and conservativefinanciers warned that Britain’s commitment to thecontinental land war would harm industry, commerce,and agriculture.77 The danger was that if too manymen were taken for the army and too large aproportion of industry were given over to supplyingthem, Britain would cripple its exports, therebycollapsing its balance of payments. The ensuingnational bankruptcy would make it impossible tosupport London’s financial obligations to itsallies to win the war. While the trade unions andthe Labour Party rejected conscription for fear itwould be used by the Unionists and employerfederations to discipline the labor force and toroll back gains made in the previous decade.78

76. Paul Guinn, British Strategy and Politics: 1914–1918 (Oxford:Clarendon Press, 1965).

77. Alan S. Milward, The Economic Effects of the Two World Wars onBritain (London: MacMillan, 1970); G. C. Peden, The Treasuryand British Public Policy, 1906–1959 (Oxford: Oxford UniversityPress, 2000), 74; Hew Strachan, The First World War (Oxford:Oxford University Press, 2001), 1071–73.

78. Middlemas, The Necessities of War, 72; Leading pacifists inthe labour movement, consulted the French socialists whohad declared their support for a socialist conference atStockholm (which never met). See V. H. Rothwell, British WarAims and Peace Diplomacy, 1914–1918 (Oxford: Clarendon Press,1971), 98.

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Finally, the Liberal Party viewed higher peacetimedefense estimates as provocative. The lynchpin of the free trader’s military

strategy was the cost-saving reliance on a maritimestrategy. Both free traders and economicnationalists recognized that the security ofBritain and its empire rested on its possession ofa preponderant navy to protect the homeland frominvasion and to keep the sea lanes open.79 TheTerritorial Forces would deal with any raids fromthe Continent. The Ballard Committee (1906–7)recommended that Britain could best bring about thedefeat of Germany by means of a naval blockade.They called for: (1) Blockading German ports, theKiel canal, and the North Sea Coast to strangle theGerman economy by disrupting its trade which wouldcontribute to a serious economic depression inGermany and thereby force Berlin’s defeat; (2)Sweeping the German merchant marine from the seasand bombarding her Baltic coastal towns. To assistthem in this plan the Admiralty wanted the WarOffice to lend them part of the BEF so that theycould employ it to seize islands off the Germancoast for use as advanced destroyer bases andengage in coastal raids; (3) Keeping open Britain’ssea lanes of communication to carry on trade and tosupply its allies with the munitions they need forthe land war, while neutral trade would becontrolled; and (4) Flushing out and forcing ashowdown with the German High Seas Fleet.Short of a Continental Commitment and a

continental-scale army advocated by the GeneralStaff, the War Office wanted the BEF sent to Franceto cooperate with the left wing of the French armyon the Franco-Belgian frontier to deny Germany anearly victory (due to France’s numerical weakness).The British General Staff hoped that the sixdivisions of the BEF would be just enough to tip thescales of the land war in the Entente’s favor and

79. Williamson, The Politics of Grand Strategy.

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stop the German advance through Belgium andnorthern France. However, in 1906, under pressureto economize, the Secretary of State for Warlowered the army estimates every year from 1905–6to 1909–10, and the expenditure on munitionsdropped until 1912–13.80 With these reductions, thegovernment was reluctant to spend more than it hadto on land armaments.The Liberal and Labor parties, the Radicals (or

“troublemakers”), and the “economists” were wrongin arguing that Britain did not need a larger army.There was evidence available that a naval blockadecould not force Germany to its knees, but wouldonly produce temporary shortages.81 The GeneralStaff warned that a German advance through Belgiumwas inevitable and that a blockade would not beeffective in time, and thereby risked France beingdefeated long before the German economy ground to ahalt.82 The problem was that Berlin was not veryvulnerable to a naval blockade since Germany’seconomy was too broadly based in Europe and Germanydid not rely on overseas trade for its economicsurvival and raw materials. Instead, Berlin couldacquire resources by land victories or throughtrade via rail with neighboring neutral countries.83

On the latter point, in 1911, a subcommittee warnedthat it would be necessary to blockade neutrals as

80. French, British Economic and Strategic Planning, 45.81. Williamson, The Politics of Grand Strategy, 240–43; Steiner,

Britain and the Origins, 204–5; French, British Economic and StrategicPlanning, 29. Limited Liability also ignored the dangers ofa blockading fleet operating near the German coast. Itwould face threats from new technologies such as mines,torpedoes, airplanes, and submarines (Guinn, British Strategyand Politics, 17). Britain would also need to divert a largeportion of the navy to defend its own shores and imports.In 1913, naval games demonstrated that contrary to “bluewater advocates” Germany might be able to land a force onBritish shores much larger than a raiding party(Williamson, The Politics of Grand Strategy, 308–9).

82. French, British Economic and Strategic Planning, 30.83. Steiner, Britain and the Origins, 202–4.

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well, which might rouse their hostility and bringthem into the fray.84

ECONOMY

Concomitantly, free traders blocked calls for acommand or militarized economy, pushing forvoluntary enlistment and the free market in labor.Free traders intended to intervene only at a fewselected points in the economy. By rejecting theraising, outfitting, and dispatching of aContinental size army to France, free traderscountered that there was also no need to organizemanpower and factories normally devoted to civilianconsumption to support the war effort. As late as1913, free traders blocked a proposal tonationalize the munitions firms.85 Threatened freetraders feared that total a total-war economy wouldresult in expansion of the state into the privaterealm, endangering “gentlemanly capitalism” whichbroadly called for laissez faire values, andespecially reliance on market mechanisms andfreedom for capital flows.86 Economic nationalistsroutinely criticized the “too individualisticBritish state” calling for a more highly organizedstate.87 Free traders recognized that national andindustrial efficiency would rollback their prewargains, while empowering the tariff reform movement.It was widely argued that in a long war Britain

had the advantage over Germany because of itsgreater economic staying power. Yet, free tradersresisted the associated physical infrastructure andadministrative apparatus necessary to generate thepower to fight such a war. In the North Sea,Britain lacked sufficient dockyards and shore bases

84. French, British Economic and Strategic Planning, 29.85. Pollard, The Development of the British Economy, 44.86. Cain and Hopkins, British Imperialism.87. Newton and Porter, Modernization Frustrated, 46.

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for protracted operations.88 Britain’s navaloriented military industry was not adapted to themaintenance of a large army that required a largenumber of expendable units for fighting protractedland operations. One danger of limited preparationfor mobilizing resources and manpower was thatshortages of men, machines, raw materials, andproduction could result in bottlenecks, slowingBritain’s conversion to a war economy.

INDUSTRY

Free traders and economic nationalists also clashedover the issue of state intervention in industryand industrial mobilization. In relying on theRoyal Navy to defend Britain, free tradersdownplayed the need for a sophisticated apparatusof rapid industrial mobilization and expansion forthe army.89 Free traders trusted the enterprisingnature of British businessmen to mitigate theeffects of the war by securing new markets and rawmaterials.90 Wedded to orthodoxy, the Treasuryopposed government interference in private businessactivities, preferring to rely on the laws ofsupply and demand (no mechanism for industrialmobilization was to come until 1915, with theMinistry of Munitions). They took a firm stanceagainst prewar state intervention in such areas aswar risk insurance, price fixing, railways,national granaries, and a “second gold reserve”because it would be costly and would give thesesectors an unfair advantage while other sectorswere harmed by the war. Ship owners called for anational guarantee for the war risks of shippingunder which the state would reimburse ship ownersfor the increased cost of war risk insurance inwartime. The concern was that owners would either

88. Strachen, The First World War.89. Trebilcock, “War and the Failure,” 160.90. French, British Economic and Strategic Planning, 64.

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pass the cost to consumers, transfer ships toneutral flags, or keep them in port for theduration of the war. There were also early callsfor the government to assume overall control of therailways to ensure that the best use was made ofthem in the national interest. In both cases theTreasury resisted state intervention, counteringthat it would constitute a state subsidy that wouldprovide owners and shareholders with an unfairadvantage and create an invitation to defraud thegovernment. It was argued that market forces due tofood prices would encourage ship owners to sendtheir vessels to sea.91 For the same reason, theTreasury was reluctant to subsidize foreignpurchasing of food and raw materials. While theUnionist Party and the National Agricultural Unionpushed for national granaries to be established bythe government, free traders saw it as a backdoorfor tariff reform. The Treasury opposed a secondgold reserve to increase cash reserves because itwould establish a false sense of security. Free traders also opposed the formation of a

shadow state armament industry and national shellfactories. They were concerned that it would expandthe scope of the state, even though the Boer Wardemonstrated the deficiency of the existing privateand state ordinance factories (in 1915, Britainsuffered a similar shortage of shells and fuses).92

Also, new national factories would not be bound bythe restrictive practices of older shops,benefiting employers.93 Finally, eager to reduceexpenditure on the ordnance factories, spendingdropped from 1905–6 until 1912–13.94 This meant thatmachinery and manpower was reduced and spare

91. Ibid., 66.92. According to Trebilcock (“War and the Failure,” 150),

the Boer War “demonstrated the mistakes and the lack ofplanning that one might expect from any free enterpriseindustrial system.”

93. Strachen, The First World War, 1080.94. French, British Economic and Strategic Planning, 45.

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capacity, reserve machinery, and plants abandoned.95

Private manufacturers (Vickers and Armstrong)turned much of its machinery over to otherproduction. In the event of rapid entente defeatsor losses, neglected private and governmentordinance factories with no centralized system ofsupply could not expand production in the veryshort term.

FINANCE

Finally, free traders resisted high peace timedefense estimates because they would require hightaxes and feared that sooner or later protectivetariffs would have to be introduced, breaching theedifice of free trade. Since free trade precludedthe government from placing a large share of thetax burden on commerce, revenue could only beraised through taxes. A continental commitmentwould further lead to a balance of paymentdifficulty, based on the incapacity to finance thehigh level of imports for arming and equipping alarge standing army. Free traders also feared that high taxes might

harm trade and industry, and that the expandinggovernment budget and increasing taxes would crowdout investment. They were also concerned with theneed to minimize the burden of debt in order tomaintain the credit of the state and its ability toborrow at low interest. While many Unionists saw areturn to protection as the only escape, such asolution was rejected by the Liberal Party and theTreasury. Finally, the Treasury pushed for raisingfunds in a manner that would minimize inflation.In summary, the prospect of German hegemony in

Europe was daunting. Yet, free traders resisted aset of financial, economic, industrial, andmilitary policies that would have generated thenecessary power to counter this challenge.

95. Trebilcock, “War and the Failure,” 152.

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Entrenched free traders were not seekingpreponderance for Britain among the Continentalpowers, but to check the ascendance of theirdomestic opponents. Knowing that a Continentalsecurity strategy would empower economicnationalists who would push for a big army andnavy, national service, tariff reform, tradeprotection, empire unity, and national efficiencyand industrial planning, threatened free traderslobbied for a self-reinforcing Limited Liabilitystrategy. While such a strategy moderated thedemise of the free trade faction, it shortchangedBritain’s war preparedness.

EMPOWERED ECONOMIC NATIONALISTSAND THEIR SELF-REINFORCING CONTINENTAL STRATEGY.

FFENSIVE REALISM ignores the internal politics ofwar and war preparation, and the suboptimality

that it can cause. National and societal actors andinterest groups know that how the state preparesfor and fights a war will create domestic winnersand losers. The beneficiaries from the war relatedfinancial, economic, industrial, and militarypolicies will push to accelerate the internalredistribution of political power while the loserswill lobby to restrain it. Concerned for thedistributional consequence of the state’s securitystrategy, economic nationalists will push for anoffensive security strategy which will have theinternal result of benefiting their constituents.Economic nationalists will resist a defensivesecurity strategy, even if this is in the nationalinterest, because it will empower the opposing freetrade faction. Strengthened free traders will lobbyfor limited state intervention in the economy,reliance on low-cost defensive arrangements, fiscaland monetary orthodoxy, and negotiated settlementof conflicts.

O

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Free traders will push for a defensive securitystrategy which will have the domestic result ofenhancing their supporters. Free traders willoppose an offensive security strategy because itwill empower members of the economic nationalistbloc who will advocate for an offensive militaryposture, trade protection, a total-war economy,state encroachment and war planning, and closereconomic and military ties to the empire oroccupied territories. One danger is that thethreatened coalition will lobby for a self-reinforcing security strategy that will advance itscoalitional interest, but risks damaging thenational interest. The entrenched coalition mightresist a strategy because it will harm theirfaction’s interests, even if it is in the nation’sinterests. In the decade prior to the First World War,

economic nationalists and free traders in Britainclashed over the orientation of the state’ssecurity strategy. Entrenched free traders pursueda self-reinforcing Limited Liability strategy thatrejected conscription, industrial mobilization, anda Continental commitment. Their concern was thatmobilization for a Continental commitment wouldpermanently extinguish “free trade individualism”and “gentlemanly” financial capitalism in Britain,resulting in state regulation and management of theeconomy, thereby curbing the influence oftraditional finance and the City of London. Byrelying on a naval blockade, there was no reason todivert resources from civilian production, to senda large army to the Continent, or to set up theadministrative apparatus to run the war, controlessential war resources (raw material, skilledlabor, or machine tools), or create a unifiedcentral planning staff to coordinate the work ofvarious government offices. While a defensivestrategy would cause less harm to their position,it risked the national interest, especially if

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France and the Low Countries were quickly overrunsince Britain lacked military and industrialpreparedness for a land war.Early in the war free traders were still strong

enough to block proposals to nationalize themunitions firms, for military and industrialconscription, and for participation in militaryoffensives on the Western front. By 1916, freetraders reluctantly accepted increased stateintervention in the economy, heightened militaryspending, and protection for industry andagriculture, thereby ratcheting up the strength ofthe members of the economic nationalist coalition,while rolling back merchant banking, fiscalconservatives, and international financialservices. As the old system perished, it wasreplaced by a strong preference for stateintervention, the formation of trade associationsand combinations, and trade protection. By 1918,two-thirds of the economy and nine-tenths ofimports were subject to direction by bodiesauthorized by the government.96 Numerous ad hoccommissions and boards were set up to regulate andcoordinate business such as the Ministry ofMunitions, Coal Controller, and ShippingController. Regulation and management of theeconomy meant intervention in the conduct ofindustrial firms, coordination of railways, themanipulation of investment into useful enterprises,the ban on specific exports, heavy duties todiscourage the misuse of limited shipping cargospace (McKenna duties), and currency controls toprevent the loss of foreign exchange. Other stateschemes included the central allocation ofresources and price fixing of munitions and food,import licensing, railroads, and shippinginsurance. As well, the state intentionallyencouraged the development of peak industrial96. Newton and Porter, Modernization Frustrated, 36; Cain andHopkins, British Imperialism, 49.

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organizations and big business in Britain, and thecooperation between capital and labor. Empoweredeconomic nationalists used the distributional gainsfrom these national policies to push to escalateBritain’s involvement from a Limited Liabilitystrategy to a Continental strategy, calling forconscription of a mass army, total warfare andmilitary offensives on the Western front, a knock-out blow against Germany, and imperialpreferences.97 As one author concludes, “Thepolicies of 1916—war, military, and domestic—had bythe end of the year become extremist, because theywere imposed by extremist.”98

97. French, British Strategy.98. Guinn, British Strategy and Politics, 180.

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