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The Challenge of Hegemony

orthodoxy, and resumption of the gold standard. Such cooperation would strengthen ef‹cient industry, the City of London, ‹scal conservatives, the Treasury, and the Bank of England. Enhanced free traders would lobby the government to adopt a more conciliatory policy toward liberal United States and even imperial Germany, Italy, and Japan. Constituents of the economic nationalists favored punishing contenders by means of increased military spending, imperial preferences, and abandonment of the gold standard, supported by state intervention in the economy. Punishment would bolster the military, inef‹cient industry, and colonial-oriented bureaucrats. Strengthened economic nationalists would press for a more belligerent stance toward imperial and liberal contenders alike.

Britain’s World War I strategy of punishment greatly empowered the members of the economic nationalist coalition, with domestic economic considerations (state intervention in the economy, industrial protection, closer union with the empire) taking precedence over international con- cerns.12 This shift in the domestic balance of political power was apparent by 1916, with the Paris Agreements in which Britain and its allies pledged to deny Germany and Austria most-favored-nation status after the war (Newton and Porter 1988, 50). Gains for the economic nationalist faction included a reversal in the declining trend in agricultural development by the war, which agriculture sought to retain in its aftermath.13 Wartime protectionism bene‹ted inef‹cient industry and state managers. The war also enhanced the position of the military services, resulting in new naval construction, an air force with air reserves, and a Continental army. Invis- ible exports were hurt by the decline in the international service economy, domestic tariffs and duties, and the beggar-thy-neighbor economic poli- cies. The embargo on foreign loans undermined the City and meant that British customers cut off from credit had to make new arrangements, often turning toward New York (Cain and Hopkins 1993a, 41). Concomitantly, the war weakened ‹scal conservatives such as the Treasury, who strove to contain expenditure, while the Bank of England’s control over the money supply was eliminated with the suspension of the gold standard (1919).

The war challenged traditional economic orthodoxy by enhancing the role of the state, big business, and peak business organizations (Tomlinson 1990, 62–68). By 1918, two-thirds of the economy and nine-tenths of imports were subject to direction by bodies authorized by the government (Newton and Porter 1988, 36; Cain and Hopkins 1993a, 49). Numerous ad hoc commissions and boards were set up to regulate and coordinate business, such as the Ministry of Munitions, Coal Controller, and Ship-

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