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Britain’s Grand Strategy of Restrained Punishment


reducing their strategic worth and further reducing the Continental role of the army (rejecting a “Continental Commitment” for a doctrine of “Lim- ited Liability”). Finally, the outbreak of civil disturbances in Palestine beginning in 1936 required eighteen battalions of the British army.

Finally, Chamberlain argued that a strong British economy would deter emerging contenders from challenging its regional hegemony (Coghlan 1972, 215; Smith 1978, 330–32; Greenwood 1994, 30). The Treasury’s position was that Britain had a ‹nancial advantage over its enemies in a long war due to its strong economy and large war chest. Britain’s superior war potential would deter a rising challenger because any con›ict would become a costly and protracted war, which Britain would win. Conse- quently, Britain had to safeguard its ‹scal strength, for if the emerging challengers detected a strain in Britain’s economy, they would no longer be deterred by the prospect of a prolonged war (Peden 1979, 65).

The Treasury’s ‹nancial concern was not unwarranted. As Britain’s peacetime defense spending increased, its gold reserves began to decline. Britain’s defense spending jumped from 8.1 percent of GNP in 1938, to 21.4 percent in 1939, to 51.7 percent in 1940 (Dunbabin 1975, 588). Between April 1938 and March 1939, Britain’s gold reserves alone declined from 800 million pounds to 300 million pounds (Parker 1975, 643; Peden 1984, 17). By 1939, Britain had already diminished its war chest to pay for the necessary imports (compared to 1914, Britain had less resources and could not borrow from the United States, because the 1934 Johnson Act banned loans to defaulting nations). By 1941, gold stocks had dwindled to almost nothing and Britain was dependent upon American ‹nancial and military assistance to defend its empire.

The Collapse of Free-Trade Resistance

By 1936, Britain committed itself to full rearmament, re›ecting the weak- ening of the free-trade coalition and the defection of many of its core sup- porters to the economic nationalists’ side. As Hancock and Gowing note, “after 1935, the initiative passed to the men who were attempting, very often under great pressure, to build up the war sector of the British indus- try” (1953, 45). In 1936, the cabinet approved the whole of the DRC’s new program, except for the proposed expenditure on the Territorial Army. In the same year, the Treasury relaxed the procedure for the annual Estimates, funding individual projects rather than allocating sums annu- ally, speeding the construction period (Peden 1979, 40). By 1937, Sir Thomas Inskip (Minister for the Co-ordination of Defense), who was

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