Over Here by Kennedy David M.;

Author:Kennedy, David M.;
Language: eng
Format: epub
Publisher: Oxford University Press, Incorporated
Published: 2004-03-17T16:00:00+00:00

6

The Political Economy of War: The International Dimension

The world economy in the prewar years was a marvel of growth and interdependence. Though nineteenth-century industrial capitalism showered its benefits unevenly on different social classes, all the developed countries had witnessed amazing leaps in their wealth and standards of living in the several decades before 1914. Much of that material advance owed to the deepening harmony and coordination of international economic relationships. Despite ominously intensifying colonial rivalries in Africa and Asia, the European states allowed goods and capital and even labor to move easily across their own national frontiers. Relative to the movement of raw materials and foodstuffs, trade in industrial products was rising more rapidly, indicating the growing importance of technological specialization to economic growth.

Central to the smooth functioning of this complex international economy was the role of Great Britain. London, the heart of the world financial system, pumped the British pound sterling into all the arteries of global commerce. Sterling was indeed the very lifeblood of the world trading network. Other nations held British pounds as a currency of reserve; foreign merchants maintained large sterling balances at London; and sterling served as a currency of account in the exchange of goods that never touched the shores of Great Britain. So great was the world’s confidence in sterling, and so skillful was the British banking system’s management of sterling flows, that the Bank of England actually operated with smaller gold reserves than most other central banks.

In the course of the nineteenth century, Britain had accumulated enormous financial surpluses. Rather than hoard or redistribute these resources at home, British capitalists had made them available for foreign loans and investments. Roughly 40 percent of British savings in the late nineteenth century were annually invested overseas, and on the eve of World War I, one third of all accumulated British wealth had taken the form of foreign investment. Most of this sizable sum was placed outside the British Empire, predominantly in the United States and in Latin America.1 Britons in 1914 held over half of all foreign investment in the world. The return on that investment more than offset the growing British tendency annually to import more than was exported. Moreover, the strategic placement of British overseas capital in the development of sophisticated installations like railroads and electric utilities—built to British specifications and dependent on British engineers for servicing and British factories for replacement parts—guaranteed continuing markets for high-value British technology. Britannia also unarguably ruled the waves. Her merchant ships accounted for one third the world’s tonnage, while her far-flung empire provided a global network of bunkering facilities that fueled the vessels of all nations. The income from those maritime services, and from related enterprises such as insurance and commercial banking, played a major role in sustaining Britain’s financial health.

The British held other major assets as well. Though the home islands had a limited endowment of natural resources, the globe-girdling empire contained nearly every raw material necessary to modern industrial production. Britons also possessed

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