Darwin J. The Empire Project. The Rise and Fall of the British World-System, 1830-1970

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315 / The war for Empire, 1914–1919

part of the war this had hardly seemed likely. British ambitions had

been correspondingly modest. But in 1918 they aspired to dominate

the whole vast tract between Greece and Afghanistan, obliterating the

Ottoman Empire in the process. Their moment in the Middle East began

in earnest.

This great forward movement was a startling reversal of pre-

war policy. Before 1914, the British had been favourable to the expul-

sion of the Ottomans from Europe, but opposed to the break-up of their

empire in Asia. Long-standing fears of Russian or German attempts to

disrupt the route to India and penetrate the Persian Gulf – the mar-

itime frontier of India – made Turkish control over the Straits and the

Arab lands the least worst solution. But, in October 1914, the Turk-

ish military triumvirate that ruled the empire threw in its lot with the

Central Powers, perhaps in fear that an Entente victory would bring

Russian annexation of Constantinople and the Straits, the oldest and

dearest of Tsarist war aims. The British now had to defend their ‘veiled

protectorate’ in Egypt and their ‘virtual’ protectorate in the Persian

Gulf, whose Arab statelets were superintended by the government of

India, against Ottoman attack. They had to protect the oil concession

at the head of the Gulf (in Persian territory but close to the Ottoman

border) half-owned by the British government and intended to supply

the Royal Navy. Above all, they had to blast open the Straits so that

supplies could reach their vast but almost landlocked Russian ally and

turn its huge manpower to account. At the same time, they had to think

how to minimise the effects of Turkish defeat upon the ‘post-war’ secu-

rity of their imperial system, when both France and Russia (it had to be

assumed) would be victor powers and (soon) new rivals. Their instincts

were cautious. Their ﬁrst preference was to keep the Ottoman Empire

in being but force it to decentralise into zones of interest shared out

between the victors. In May 1915, with the attack on the Dardanelles,

the Russians were promised Constantinople and the Straits, while the

British were to take in compensation the large ‘neutral’ zone between

the Russian and British spheres of inﬂuence in Persia. In May 1916,in

a further effort to pre-empt any post-war dispute, the Sykes–Picot (or

‘Tripartite’) agreement proposed a comprehensive partition of the

Ottoman lands. Russia was to receive (as well as the Straits) a large

sphere of interest in Armenia, or eastern Anatolia. Much of central Ana-

tolia, and the coastal lands of the Levant went to France. The British

share was to be the provinces of Baghdad and Basra, in the southern

316 / ‘The great liner is sinking’

part of modern Iraq. The remainder of Turkey’s Arab territories (most

of modern Syria, northern and western Iraq, Jordan and southern Israel)

was divided into two zones, in each of which the British and French

would enjoy an exclusive inﬂuence over autonomous states ‘under the

suzerainty of an Arab chief’.

Palestine was to be internationalised.

The logic of British policy was to limit the scale of their future

commitments and place a swathe of French inﬂuence between the

approaches to the Gulf and the rival they really feared – Russia. By

the latter part of 1917, this grand scheme was in tatters. The Middle

East war had gone disastrously wrong. The Dardanelles expedition to

capture the Straits had been a humiliating failure: Turkey had not been

knocked out. Turkish armies fought hard in Mesopotamia, surround-

ing and defeating the British Indian army at Kut in April 1916. It took

another year before Baghdad was captured. The British army in Egypt

struggled slowly into Palestine: but it took until December 1917 to

capture Jerusalem. The Arab uprising promised by the Sherif of Mecca,

with whom the British had made an alliance, proved of little military

value. All this was bad enough: it did little for British prestige. The lack

of progress on the Western Front made it much more serious. After

January 1917, British leaders could not rule out the possibility of a

peace on terms that left Germany unbeaten and poised to resume the

struggle at a time of its choosing. That made it all the more impor-

tant to secure the outer defences of Egypt (in Palestine) and Southern

Mesopotamia. It was largely this thinking – ‘strategic Zionism’ – that

converted the British War Cabinet to the Balfour Declaration in Novem-

ber 1917 promising a Jewish ‘national home’ in Palestine: a colony of

Jewish settlers, ﬁercely anti-Turk in outlook, would help guard the

approaches to Egypt.

As Russia tottered towards collapse at the end

of 1917, the urgency of safeguarding the Canal and the Gulf against a

new Turko-German offensive seemed greater than ever. As the Russian

armies fell back from the Caucasus, they opened the road to German

and Turkish advance into Northern Persia and even Central Asia out-

ﬂanking Britain’s defence of the route to India.

Thus, even before the catastrophic events of March and April

1918 on the Western Front, the British had been forced to rethink

their Middle East war aims in drastic fashion. They were desperate

to block the route through the Caucasus along which German armies

might march from the Ukraine. They wanted control of North Persia

and a client government in Teheran. That meant advancing north from

317 / The war for Empire, 1914–1919

Baghdad towards Mosul and Kurdistan. With little prospect of defeat-

ing Germany and Austria-Hungary in Europe, it was all the more nec-

essary to drive the Ottomans out of the Arab lands and hold them

come what might in the West. Lloyd George and Milner had little

faith in victory on the Western Front until American troops arrived

en masse in 1919. At the beginning of February 1918, after a ﬁerce

argument with the other Entente leaders, they won agreement to their

plan for a British offensive in Palestine, while standing their ground

in Europe.

In March, the ‘Eastern Committee’ of the War Cabinet

was set up under Curzon’s chairmanship to coordinate British policy

between Greece and Afghanistan, to preside, in effect, over the forward

movement in the Middle East. In the event, the hope of a swift offensive

was aborted by the scale of the crisis in the West. Far from advancing

deeper into Ottoman Syria, General Allenby was forced to repatriate

British units in the Egyptian Expeditionary Force to meet Haig’s des-

perate need for reinforcement, and wait instead for the arrival of more

Indian troops, who were to make up nearly half his ﬁghting strength.

Not until September could the advance begin in earnest. When it did,

the battle of Megiddo and the occupation of Damascus (1 October

1918) marked the virtual end of Ottoman resistance. On 2 October,

the British and Indian army in Mesopotamia (which was two-thirds

Indian) began its advance on Mosul. By 20 October, the Ottoman gov-

ernment had opened negotiations for an armistice, which was signed

on the island of Mudros on 31 October.

As the scale of their victory began to unfold, the ministers of

the Eastern Committee seized their chance to build a permanent barrier

between their old European rivals and the approaches to what Mil-

ner’s prot

e, Leo Amery (a keen student of geopolitics), had called the

‘Southern British World’ in India, Africa and Oceania. The French were

brutally told that their claims under the Sykes–Picot agreement were

no longer valid. The ministers invoked instead the new ideals of self-

determination, set out in Woodrow Wilson’s Fourteen Points in January

1918, to propose a wide degree of self-government in the Arab provinces

(with the signiﬁcant exception of Palestine), on the understanding that

Britain would enjoy a complete monopoly of external inﬂuence.

‘We

will have a Protectorate but not declare it’, remarked the Foreign Secre-

tary, Arthur Balfour.

Further east, they sanctioned Curzon’s project

of turning Persia – where ‘the British stake is a greater and not a less one

in consequence of the war’ – into a virtual protectorate, with British

318 / ‘The great liner is sinking’

command of the army, a ﬁnancial adviser and a treaty.

Only over

Curzon’s scheme for British occupation of the Caucasus and Trans-

Caspia did his colleagues begin to cavil at the colossal scale of the

commitments envisaged. But, by December 1918, a new British empire

had been planned across much of the modern Middle East (the future

of Armenia, the Straits and Constantinople was left undecided).

In the months that followed, this grandiose vision was gradu-

ally whittled down. The furious French refusal to give up their promised

gains under Sykes–Picot forced a u-turn, and Syria, along with Lebanon,

eventually became a League of Nations mandate under French trustee-

ship. The British foray into the Caucasus and Central Asia could not

last. When demobilisation shrank the British army, the attempt to aid

the successor states of the Tsarist empire against its Bolshevik successor

was soon abandoned. Turkey revolted against the crushing terms of

peace and the occupation of Asia Minor by the Greeks, willing allies in

Britain’s regional imperium. Even Persia resisted the quasi-protectorate

that Curzon tried to force upon it in 1919. Across Egypt and the Arab

lands in 1919–20, the British were caught up in a vast wave of politi-

cal turbulence, much of it hostile to external control. Bitter arguments

raged inside the British government over the cost of Iraq, the risks

of confronting Turkey and the safety of the shoestring empire of ‘hot

air, aeroplanes and Arabs’ (the characteristically acerbic phrase was Sir

Henry Wilson’s) that Churchill began to fashion in 1921. But, despite

all this, the belief that defending the British world-system required a

regional primacy across the whole Middle East, not fortiﬁed enclaves

around the Gulf and the Canal, proved astonishingly durable. The

strategic geography of imperial defence had been permanently recast.

From now on until the end of empire, guarding this great salient in the

middle of the world as the grand counterpoise to British weakness in

Europe became the ultimate test of imperial power.

Of course, the imperial triumph in the Middle East was magni-

ﬁed by the victory over Germany and Austria-Hungary that had seemed

so elusive for so long. As the Germans retreated, and then asked for

an armistice, the British War Cabinet seized the chance to stop the war

before the exhaustion of their manpower (and the shrinking size of their

armies on the Western Front) began to tilt the balance of Allied power

in favour of Wilson and Washington. They preferred the ambiguities

of an armistice to the cost and delays that imposing unconditional sur-

render on Germany might entail. They hoped at the peace to limit the

319 / The war for Empire, 1914–1919

inﬂuence of American diplomacy and use it to restrain the demands of

France. They had good reason to expect that, if the world had not been

made safe for democracy, it had at least been made safe for the British

Empire. The German navy – the great pre-war menace – was captured,

and then scuttled by its own crews. The German colonies had been

conquered. The Ottoman Empire had been demolished. The Russian

empire had disintegrated in revolution. The peace conference would

determine not the fact but the scale and permanence of British vic-

tory. The great unknown was American policy and the extent to which

President Wilson would go to enforce the programme of the Fourteen

Points.

Would British sea-power regain the easy primacy it had lost

after 1890? Or would American naval rivalry and bitter dislike of the

British claim to control neutral shipping in time of war (Point Two of

Wilson’s Fourteen Points) trigger a new and unwinnable arms race –

as Colonel House threatened Lloyd George in October 1918?

Would

the Americans insist upon the internationalising of wartime colonial

conquests, and, if so, on what terms? Would the rise of Japanese power

in East Asia, Chinese demands for an end to the unequal treaties, and

the growing inﬂuence of the United States in the Western Paciﬁc mean

the attrition of British commercial and diplomatic inﬂuence in China?

Above all, could victory on the Western Front be converted into a last-

ing reconstruction of the balance of power in Europe – and a guarantee

that Britain would not again be faced with a continent united or dom-

inated against her interests? On these, and on the economic aftermath

of the war, the shape of the ‘new world’ would depend.

The price of victory

The war was bound to disrupt the global economy that had grown up

after 1880 and depended upon the free movement of trade, capital and

(with rather more restriction) people around the world. As the greatest

beneﬁciary of this ‘globalisation’, Britain was bound to be affected,

with uncertain consequences for the political and economic cohesion of

the British world-system. But, at the outset of the war, once the turmoil

of the ﬁnancial markets had calmed down, it was widely assumed that

the struggle would reveal Britain’s latent strength as the pivot of the

world economy. The British would use the huge credits built up over

decades to draw in the produce needed from non-European countries.

320 / ‘The great liner is sinking’

British industry would supply the weapons for the Entente’s war effort.

The Germans by contrast would ﬁnd their foreign trade strangled by

the British blockade, and the gross inﬂation set off by the expansion of

paper money would undermine their will to ﬁght.

In a long war, the

British were bound to win.

These were the views of John Maynard Keynes, the young

Cambridge economist recruited to the British Treasury in August 1914.

His technical knowledge and analytical brilliance quickly won him

inﬂuence at the highest level. The essence of Keynes’ thinking was that

Britain should ﬁght the war in the same way as it had been fought

against Napoleon, but with the added advantage conferred by huge

claims on overseas production (by the capital and income from foreign

investments) and Germany’s dependence on foreign trade – the result of

rapid industrialisation before 1914. After a year of war, it was clear that

this optimistic calculation was badly ﬂawed. The Germans had won a

position from which they could only be driven by frontal assault. They

controlled much of the coal, iron and steel production of the French

and Belgian economies. The huge mobilisation of French and (later)

Italian manpower drastically reduced their production of food. With

the Dardanelles closed, Russian wheat could not reach the West, nor

could Russia pay for the munitions she needed. As the war went on,

Britain’s allies needed more and more shipping, food and equipment

and had less and less means to pay for them. To make matters worse,

there was no question of keeping British manpower at home in fac-

tory and farm while the ﬁghting was done by their continental allies. If

Germany was to be driven out of France and Belgium, it would need a

huge British army as well.

By August 1915, Keynes (who was now responsible for British

purchases in the United States) was well aware of the dilemma. Britain

could not raise Kitchener’s armies, he argued, as well as supporting her

allies economically.

‘It is certain’, he wrote in September, ‘that the

limitations of our resources are in sight.’

The nub of the problem was

foreign exchange. London had to ﬁnd dollars to pay for the American

goods the war effort demanded. In ordinary times, Britain earned dol-

lars by exports, from foreign investment, and from exchanging goods

with countries (like India) that had a surplus of dollars. But the war had

disrupted international trade and payments. It sharply reduced Britain’s

dollar earnings from exports, since much of British industry was sup-

plying munitions to the Allies, paid for by British loans not foreign

321 / The war for Empire, 1914–1919

payments. The longer the war lasted, the greater the need of the Allied

countries for American products, for which only Britain could pay in

dollars. The pressure became relentless. To pay for British and Allied

purchases, the Treasury bought up British-owned dollar securities (with

sterling) and sold or pledged them in New York. It exported some of

the precious reserve of gold. And it borrowed from American bankers,

using the great ﬁrm of J. P. Morgan to raise dollar loans on its behalf.

At all costs, it had to prevent a collapse in the value of sterling against

the dollar. For, if American sellers and lenders lost conﬁdence, Amer-

ican goods would become impossibly expensive and bring the Allied

war effort to a standstill.

For Keynes, therefore, the economic pivot of the war was

Britain’s credit in New York. If it failed, the Allies were ﬁnished. ‘We

have one ally’, Keynes told the Admiralty board in March 1916, ‘the rest

are mercenaries.’

There was no certainty that American lenders would

continue to buy British bonds when their own economy was booming.

If American opinion was alienated by some transatlantic quarrel, the

effect might be devastating. For the rest of 1916, however, disaster was

postponed. The British dribbled their gold (and that of their Allies)

into the New York market. They spent heavily to hold up the value of

sterling. The American investor, despite Keynes’ pessimism, remained

a willing buyer of Allied loans. But, by the end of 1916, the huge

reserves of British ﬁnancial power had reached the limits that Keynes

predicted. In November 1916, the American authorities, disturbed by

the rapid growth of so much debt, advised their banks to curtail for-

eign loans. At the same time, as the gold reserve in London reached

a critical level, and dollar securities began to run out, British depen-

dence on American lending became greater than ever. At the moment

when the Asquith cabinet fell in early December, the Treasury privately

calculated that it was scarcely a week away from exhausting its dol-

lars. The immediate danger of a sterling collapse receded. But, in the

spring of 1917, as Germany’s unrestricted submarine warfare brought

the United States closer and closer to intervention, there was barely a

month’s reserve in hand before a drastic reduction of British purchases

would have been necessary.

Even after American entry in April 1917,

the strain and uncertainty were intense. A hold-up on American cred-

its in June brought the British to the point of default.

On 29 July

1917, Bonar Law, now Chancellor of the Exchequer, told his American

counterpart, William Gibbs McAdoo, that, without urgent help, the

322 / ‘The great liner is sinking’

‘whole ﬁnancial fabric’ of the Alliance would collapse within days.

Keynes pondered how to safeguard Britain’s ‘ﬁnal reserve’ of gold –

implying the curtailment of British purchases or going off gold. At

the time of Passchendaele, the French army mutinies, the break-up of

the Russian armies and the holocaust of their shipping in the subma-

rine war, the British faced a ﬁnancial ‘Dunkirk’. The implications were

colossal. Financial breakdown would shatter the Alliance and force an

early peace. A British default on their dollar loans, or a refusal to pay

gold on demand to foreign holders of sterling balances kept in London,

would ruin for the foreseeable future the City’s reputation as a ﬁnan-

cial centre – together with sea-power, the principal source of Britain’s

world power.

The British were rescued from this dilemma by the willingness

of the American government to take on the burden of lending to the

Entente powers until the end of the war. Financial disaster was averted.

The threat of a famine in food and munitions disappeared, especially

with the fall in Atlantic sinkings by the end of 1917.But,asKeynes

insisted, Britain’s dependence on American goods, the burden of Amer-

ican loans and the diversion of industrial manpower into the war of

attrition in Flanders, was bound to debilitate her commercial power. ‘In

another year’, he wrote at the end of 1917 (when the war was expected

to continue into 1919 or 1920), ‘we shall have forfeited the claim we had

staked out in the New World and . . . the country will be mortgaged to

America.’

Indeed, Britain’s displacement by America as the commer-

cial and ﬁnancial superpower seemed all but inevitable. As the British

rushed to sell their dollar portfolio and borrowed to their limit from

American lenders, the United States was transformed almost overnight

from a debtor to a creditor.

Its foreign lending raced upwards towards

the majestic level that the British had accumulated in 1913. With British

exports sinking to 60 per cent of their pre-war value,

and America’s

rising to unprecedented heights, the dollar replaced sterling as the most

coveted currency. American banks began to emerge from isolation to

set up branches abroad. American exports ﬁlled the gap left by the

British shortfall. In Latin America, where Anglo-American competi-

tion was sharpest, the fall-off of British trade to long-valued markets

was particularly steep.

Nor was the Americans’ challenge conﬁned to

trade, investment and commercial transactions. In 1916 began the vast

expansion of their merchant marine through government subsidy. By

the end of the war, this commercial ﬂeet was 40 per cent as large as the

British.

Behind this great American progress lurked the suggestion

323 / The war for Empire, 1914–1919

of a world reordered to America’s design. ‘When the war is over’,

Woodrow Wilson told his main foreign policy adviser, Colonel House,

‘we can force them [the British] to our way of thinking, because by that

time they will . . . be ﬁnancially in our hands.’ But, he added, ‘we cannot

force them now’.

The scale of British debts at the end of the war was cer-

tainly huge. By November 1918, nearly £1 billion was owed to the

American government and private lenders.

The backlog of payments

made it considerably more by 1920,

equivalent perhaps to some 20

per cent of overseas assets in 1913. Around 15 per cent of Britain’s

overseas wealth had also been spent on vital dollar goods in the ﬁrst

years of the war. Britain would have to pay back its American loans

at £100 million a year, Keynes calculated gloomily in March 1919.

‘Such a burden will cripple our foreign development in other parts

of the world.’

To make matters worse, much of this debt had been

incurred on behalf of Britain’s wartime allies, mainly Russia, from

whom it was unlikely to be recovered. Added to that, the huge domes-

tic borrowing that had ﬁnanced much of the war effort

was likely

to mean high interest rates and taxation, and a consequent burden on

industry, for a long time to come. But the picture might have been

worse.

Brutal though the strain had been, the British had defended the

value of the pound in the vital arena of the New York market. By doing

so, they kept much of their commercial empire in being. The sterling

balances of their main trading partners remained in London. Battered

though it was by submarine warfare, their vast merchant marine

carried the great bulk of British goods and earned vital dollars in

the Atlantic trade. When American troops were sent to the European

war, more than half crossed the Atlantic in British ships. For that and

other British supplies and services, Washington paid – nearly $2 billion

(£400m) in 1918–19.

British investments overseas continued to earn

a substantial income. The returns for 1920 show overseas investment

earnings at £200 million and other invisible exports at £395 million –

a grand total of nearly £600 million, compared with £369 million

in 1913.

Against that must be set the huge rise in prices: by 1920,

domestic wholesale prices were at three times their pre-war level,

and

the price of raw cotton – one of Britain’s largest imports – showed

a similar rise.

1920 was also the high point of the post-war boom,

before the huge backlog of deferred purchases gave way to the depressed

conditions (in Britain) of the early 1920s. Nevertheless, the scale of their

324 / ‘The great liner is sinking’

overseas commerce and the arduous defence of sterling had enabled

the British to offset considerably the external effects of their war

economy.

An important element in the safeguarding of the commercial

empire had been the resources drawn from the dominions and India.

The dominions (South Africa in part) paid for the forces they sent to the

imperial war effort. To buy the supplies they needed, they borrowed

from London. To help balance this borrowing, the British government

bought much of their produce at generous prices: the entire Australian

wool-clip in 1916–17. Except in the case of Canada, which was part

of the North American dollar zone, no payments in gold were made to

Empire countries which had to be content with sterling balances piled

up in London.

Gold was hoarded for the more vital task of propping

sterling’s value against the dollar. South African gold was exported

to London, and the Treasury resisted the plaintive requests of South

African banks for shipments to boost the supply of coin. ‘We keep send-

ing away our vast gold production and yet cannot get enough sovereigns

to carry on the business of the country’, complained one ‘English’

politician.

As a non-sterling country, Canada’s role was especially

vital. It had the most industrialised economy of any Empire country.

As well as sending the largest contingent of dominion manpower (over

400,000 men) in the Canadian Expeditionary Force, it supplied by the

second half of the war a large fraction of the munitions Britain needed.

By 1917, between a quarter and a third of Britain’s artillery ammuni-

tion was being produced in Canada.

An Imperial Munitions Board,

staffed by ‘some of the ablest men of business in Canada’

was set up

in December 1915 to coordinate production among some 400 ﬁrms and

300,000 workers. Canada became a western extension of Britain’s war

production economy. In the quarter ending on 30 December 1916,the

British ministry of munitions spent £66 million in the UK, £33 million

in the US and £20 million in Canada.

With the pressure on Britain’s

hard currency reserves by the end of 1916, it became something more:

a source of dollars for British war purchases. Much of the cost of the

munitions produced in Canada was met with advances from the Cana-

dian government and the loans it raised at home. Britain borrowed

in all $1 billion in Canada: an amount equal to the value of the dol-

lar securities sold in the United States, and to a quarter of London’s

borrowing from the American government.

It was heavily offset by

the sterling expenses that Canada incurred in ﬁghting the war (some