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The Challenge of Hegemony

provide Germany with foreign exchange to purchase British and Com- monwealth goods, the latter experiencing serious debt to London (Forbes 1987, 580). Worse, free traders recognized that Germany’s reliance on credit after 1932 had led to a grave foreign exchange crisis that could be resolved by conquest (Parker 1975, 646; Deist 1994, 383). Free-trade sup- porters proposed extending foreign credits and lower tariffs to Germany so that Hitler could purchase the British goods that Germany needed, quelling the urge to expand (MacDonald 1972; Wendt 1983; Peden 1984; Schmidt 1986b; Forbes 1987; Newton 1991, 1995). In the Far East, to obtain fair treatment for British trade and enterprise in China (and hope- fully Manchukuo), London had to keep the goodwill of China without antagonizing Japan (Trotter 1975, 10; Bennett 1992).

Second, the City believed that trade would improve Germany and Japan’s political-economic climate by strengthening moderates and domestic free-trade constituents. A strong economic connection existed between the major ‹nancial and commercial institutions in London and Berlin. After 1919, British merchant and joint stock banks had raised money for the reconstruction of German cities and ‹nanced German transactions. Further developing the Anglo-German ‹nancial partnership was encouraged by the Bank of England and its governor to show that commercial and industrial collaboration and not aggression would bring prosperity to Germany (Newton 1991, 183; Cain and Hopkins 1993a, 97–99). Free traders appealed to their moderate German counterparts in charge of economic affairs. The intent was that British penetration would pull Germany away from economic autarky, state subsidies, and currency control, and toward a more open and orthodox economic policy (Mac- Donald 1972, 106, 117; Wendt 1983, 163–64). Free traders countered that any attempt to block short-term loans to Germany would weaken eco- nomic moderates (while a budget crash risked contributing to external expansion for raw materials) (Kennedy 1983, 103). As Chamberlain argued, there are sections in Germany “which are anxious to restore inter- national good relations and thereby alleviate the economic dif‹culties” facing their country (MacDonald 1972, 109).

In the Far East, the Treasury pushed for strengthening Japanese moder- ates over naval and military extremists.29 Cooperation would bolster the “better elements” in Tokyo, strengthening the reformers in the Konoe government (Lee 1973, 141).30 To advance this agenda, in 1935, the Treasury sent Sir Frederick Leith-Ross to China and Japan (known as the Leith-Ross Mission) with the immediate goal of providing a currency loan

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