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Britain’s Grand Strategy of Restrained Punishment

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public expenditure), a return to the gold standard (which was necessary for a revival of trade), deregulation of the economy, and rolling back state economic management. One of the central strategies of the free trader coalition was to cultivate the growth of moderates within rival imperial states, especially free-trade-oriented business, who would pressure their respective governments for commercial and military restraint.

The Treasury Department

As the central department of ‹nance, Britain’s Treasury Department pressed for rolling back state intervention in the economy and the high levels of public spending to prewar norms of policy. The Treasury Depart- ment was responsible for the oversight of all government spending, and it had the ‹nal say on all issues relating to budgetary control and debt man- agement (Shay 1977; Peden 1979, 38–44; 1983, 374–78; Kennedy 1981, 230–36). The Treasury had in›uence over what proportion of the national wealth should be allocated to defense and how the services would allocate their resources. First, the Treasury was responsible for levying and creating new taxes. Second, since there was no Ministry of Defence, the allocation of funds was negotiated directly between the Treasury and the three ser- vices.15 This meant that the Treasury also had the function of coordinat- ing among the services, thereby preventing a chaotic competition among the services for scarce resources that would have slowed the rate of rear- mament; hence it had a substantial voice over Britain’s grand strategy (see the appendix for a discussion of the concept of Treasury control). The autonomy of Britain’s Treasury was intended to safeguard the country’s ‹scal strength by preventing excessive extraction of societal resources for military purposes, while allowing for modest increases in the rate of defense spending.

The theoretical approach of the Treasury’s ‹scal policy remained rooted in the Gladstonian tradition of limited government expenditure, low tax- ation (especially direct taxation), adherence to the gold standard, debt reduction, and minimal intervention in the economy in order to safeguard Britain’s ‹nancial strength.16 The heart of the Treasury’s position was that ‹nance was the “fourth arm of defence,” upon which the three branches of the Services (and traditionally Britain’s allies) would rely in the event of a prolonged war.17 To pay for future wars, Britain’s leaders intended to use its creditworthiness, the sales of foreign securities, and running down its war chest, which was composed of gold and foreign exchange reserves (Peden 1979, 1984).

In the aftermath of World War I, the priority of the Treasury was to

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