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The Challenge of Hegemony

the decline in foreign trade, and more especially by the growth of barter, exchange clearing and other forms of direct trading, which by-passed the established channels of international distribution and ‹nance” (1939, 293). In all, earnings fell from 200 million pounds in 1926–30, to 110 mil- lion pounds in 1931–33, to 51 million pounds in 1934–38 (Roberts 1991, 68). Relatedly, the marine insurance business conducted by British insur- ance companies suffered. The merchant banks, which specialized in the ‹nance of international trade and foreign loan issuing, businesses that issued long-terms loans for overseas borrowers, and commodity traders and the commodity markets were also adversely affected.

Abandonment of the Gold Standard

The expanding political clout of the economic nationalist coalition con- tributed to the abandonment of the gold standard in 1931 and the adop- tion of imperial preferences in 1932, further weakening the members of the free-trade coalition. The abandonment of the gold standard was a major defeat for the Bank of England, the City of London, the Treasury, and the ‹nancial community, thereby marking the end of the Bank’s inde- pendent authority over monetary policy and, more important, the demise of London’s role as the center of international ‹nance (Longstreth 1979, 171–73). With abandonment, the government, advised by the Treasury, replaced the Bank of England as the authority over monetary policy.24 As one author summarizes, “The thirties thus constituted a decade in which the political power of banking capital was de‹nitely diminished” (Longstreth 1979, 171–72). Free traders were further weakened in 1931 by the imposition of an informal embargo upon capital issues in London for non-empire borrowers. The main City casualties were the merchant banks that for decades had specialized in loans on behalf of foreign clients (Roberts 1991, 66).

Imperial Preferences

Supporters of free enterprise were dealt a second blow when empowered economic nationalists advanced their dream of Empire Free Trade, inten- sifying the global trend toward autarky.25 The Conservative Party, empire visionaries, and industry supported imperial preferences in order to protect British industry against non-empire competition. They also hoped to direct British investment toward the empire, encouraging self-suf‹ciency and expanding the demand for British exports (Tomlinson 1990, 76). Collin Brooks, a ‹nancial journalist, noted that there were “two bodies of

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