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The Challenge of Hegemony

ever, that London needed to protect its foreign commercial interests (Capie 1983, 17–22).

Within Britain, two large and logrolled coalitions battled over which contenders to accommodate, where to punish, and how to appropriate the nation’s resources between its political economy and its national security. Critical differences existed between the supporters of the free-trade and economic nationalist blocs on the issues of the restoration of the gold stan- dard, rearmament and arms limitation agreements, peacetime state plan- ning and intervention in the economy, loans to China and Germany, col- lective security and the League of Nations, and imperial trade preferences. The constituents of the free-trade coalition included the Labour Party, invisible exporters and the City of London (shipping, banking, insurance services), the Bank of England, ‹scal conservatives, state bureaucrats and supporting civil servants, exporters and importers who relied heavily on foreign raw materials and markets, and the working class. The free-trade coalition’s preferred grand strategy called for cooperation. In the aftermath of World War I, free traders lobbied for the restoration of the gold stan- dard, international banking, and the currency system; a return to ‹scal orthodoxy including balanced budgets, reduced government spending, lowered taxes, and retreat from wartime state intervention in the econ- omy; freer trade and the elimination of wartime tariffs and duties; and reliance on collective security, arms control, and arms reduction agree- ments. Free traders viewed the easing of international tension and the set- tlement of disputes between nations as essential for improving the inter- national climate for trade. For reasons of economy, they emphasized disarmament, collective security, sanctions, and the League of Nations to promote international peace and European stability rather than relying on the balance of power and rearmament. The domestic consequence of such an agenda would ratchet-up the strength of ef‹cient industry, the City of London, the Bank of England, and bureaucrats such as the chancellor of the Exchequer. Free traders argued that punishing contenders through rearmament or protectionism would result in commercial and military retaliation, undermining Britain’s recovering ‹scal strength by prolonging defense expenditures.

In opposition, the members of the economic nationalist coalition included inef‹cient industry, empire-oriented lobbying organizations, colonial bureaucrats, the services (air force, army, navy), and peak busi- ness organizations. The economic nationalists’ preferred grand strategy was to punish the rising contenders. Their policy package favored massive

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