The Deluge

by Adam Tooze

  The problem was that even at a much lower exchange rate, the achievement of a durable stabilization required painful fiscal decisions. To find a democratic majority not only for stabilization but for reparations fulfilment was doubly difficult. There was in Germany, as in Britain, France and Japan, a powerful faction calling for stabilization on a pro-business platform. By rolling back the social gains of the revolution of 1918, reversing the eight-hour day, squeezing wages and lowering taxes, Germany would re-emerge as a global export champion. But this implied a political counter-revolution and despite the severe electoral setback of 1920, the Social Democratic Party was still the largest political party. As the general strike in response to the Kapp putsch had demonstrated, organized labour had a veto over the politics of the Republic. This blocked any decisive turn toward fiscal conservatism. But the Social Democrats also lacked the necessary majority for their own preferred option of steep progressive taxation and a wealth levy.

  It was this political impasse that drove the slide into disaster. Inflation was the path of least resistance. The Wirth government clung to the rhetoric of reparations fulfilment. But it did so by printing cash and dumping it on the foreign exchanges. The result was a feverish domestic boom and a plunging exchange rate. By contrast with Britain and the US, up to the winter of 1922 unemployment in Weimar Germany was negligible. The bill was paid by the huge tax levied by inflation on Germany’s savers. When that became unsustainable, the trigger was set for renewed confrontation.

  IV

  Reparations paid on such a transparently unsteady basis could not provide the financial security that France craved. Though the French share of the sum demanded under the London reparations ultimatum had a net present value of over $8 billion, the most that J. P. Morgan was able to raise on behalf of Paris in the spring of 1921 was $90 million at an embarrassing rate of 7.5 per cent.52 As the third anniversary of the Armistice approached, France’s situation was increasingly desperate. By the end of 1921 huge deferred interest payments would be due on its inter-Allied debts. Without some settlement of these sums enabling the restoration of French credit, there could be no talk of concessions on reparations, regardless of how desperate Germany’s situation might become.

  The mounting pressure in Europe was not lost on the incoming Harding administration. Charles Evans Hughes, the new Secretary of State, embodied a Republican version of the spirit of manifest destiny that had animated Wilson. He was, Teddy Roosevelt once quipped, ‘the whiskered Wilson’.53 Hughes believed, as Herbert Hoover, now serving as Commerce Secretary, had advised Wilson, that the best way to preserve American power was precisely to hold Europe at a distance. Since America did not want to take responsibility for actively policing the struggle in Europe, Washington should stand well back from the fray. Neutrality not only avoided the costs of entanglement. Upholding America’s own claims was the best way of forcing the Europeans to a resolution. When the political passions of the old world had been humbled by financial pressure, markets would take over and private capital would lubricate a more lasting settlement.

  This American strategy of distance was no doubt a reaction to the truly intractable situation in Europe. But it also responded to as impasse within the American state. The last 18 months of the Wilson presidency had demonstrated the bitter lesson of the limits to executive power. President Harding was widely seen as a creature of the Republican congressional majority. And though in the spring of 1921 his new administration showed a surprising degree of activism, it was not long before Congress delivered a shot across his bows.54 In the autumn of that year, at the request of the President, Senator Boise Penrose introduced a bill into Congress that would have given the US Treasury authorization to conduct an activist foreign-debt policy – extending the payment period, authorizing debt swaps and part repayment in other obligations. Though the administration did not wish to offer the Europeans an immediate solution, it wanted to have the legal powers necessary to broker a deal should the opportunity arise. America’s bankers, led by Benjamin Strong at the New York Fed, fully understood the need for an interlocking settlement. But in Congress the Farm Bloc saw things differently.55 As Senator Ashhurst of Arizona put it, ‘We saved Europe and our Christian civilization. But that does not imply now that the peril is past that we should feed the Europeans and allow them in their great cities to live in idleness and sometimes in luxury.’56 A Democratic opponent of war debt concessions was rather more specific, despite the bitter deflation pressing on the economy since the spring of 1920, ‘we are taxing the American people as they have never been taxed before in the history of the republic . . . If we collect but the interest upon these loans, we will of necessity reduce the taxation upon our own people by one-seventh.’57

  On 24 October 1921 the Penrose Bill passed the House of Representatives, but only after having been turned on its head. Rather than authorizing the Treasury to broker strategic debt deals, it gave control over debt policy to a five-member Senate Commission and explicitly banned the use of any foreign bonds as means of repayment. In the aftermath, Governor Norman of the Bank of England complained resignedly to his friend Benjamin Strong at the New York Fed that Congress had created a ‘ridiculous’ roadblock. ‘Having, let us suppose, steadied the exchanges by some reparations adjustment, we are immediately to see them unsteadied by inter-allied debt payments.’58 But when word leaked to the press that the two central bankers were exchanging notes, it was enough to trigger a storm of indignation. Both the British and American governments were forced to issue denials that they harboured any plans for a transatlantic financial conference. The Senate rushed through a motion affirming that America would not cancel a cent of its claims on Europe.

  20

  Crisis of Empire

  In Europe, Britain was the strongest power financially and the most stable politically. Further afield the war appeared to have ended as a triumph for the British Empire. Its rivals old and new were humbled, the Royal Navy ruled the waves, the armies of the empire were victorious in Europe and the Middle East (Table 10). But within a year of the Armistice the map of the British Empire came to resemble not so much a vista of power as a landscape of rebellion on which the sun never set.1 The crisis of empire spanned the globe from the West Indies to Ireland, Egypt, Palestine, South Africa, India and Hong Kong.

  The propaganda of the war with its appeal to the rights of small nations, self-determination and Wilson’s 14 Points had created a common political language with which to make claims on London. Against this backdrop each protest vindicated others in their common appeal to the importance of this moment of history. At the same time the switchback of inflation and deflation swept through the colonial economy. As the cost of living surged, there was boiling labour unrest from Winnipeg to Bombay. In November 1919, facing a doubling of prices, stevedores in Trinidad demanded a 25 per cent wage increase and the eight-hour day.2 In Sierra Leone in July 1919 the fivefold increase in the price of rice sparked unprecedented strikes.3 In southern Rhodesia wartime inflation left the workforce barefoot and ragged, triggering strikes amongst railway workers, miners and public servants.4

  But although inflation was destabilizing, when the deflation began in 1920 that too exacted a price. In West Africa the bursting of the post-war commodity bubble drove local businessmen into the ranks of the Pan African Congress.5 As sterling rebounded from its lows against the dollar, gold prices plunged. The empire’s main gold producers, the mines of the South African Rand, faced a devastating blow to their corporate balance sheets. With wages being slashed and the white workforce diluted with black labour, on 10 March 1922 the white miners of the Rand rose in rebellion. To deal with the uprising, which at its peak involved tens of thousands of well-armed commandos, Prime Minister Smuts, the epitome of enlightened statesmanship, sent 20,000 troops, artillery, tanks and the airforce to bomb the strikers back to work.6

  Table 10. Stretched Thin: Deployment of British Imperial Forces, February 1920


  British

  Indian Army

  Germany

  16,000

  Turkey

  9,000

  14,000

  Egypt

  6,000

  20,000

  Palestine

  10,000

  13,000

  Mesopotamia

  17,000

  44,000

  During the war, whilst Germany and Japan both struggled to formulate coherent strategic or political rationales for imperial expansion in Eurasia, it had seemed that Britain had successfully reinvented the formula of liberal empire. The British Empire, it seemed, would claim for itself a major place in the twentieth-century world as a self-sustaining and self-legitimating strategic unit. After 1919 that complacent scenario collapsed. London found itself struggling both to overcome resistance to its imperial rule and to mobilize the internal resources necessary to uphold its power. The international legitimacy and the strategic rationale of the empire were both in doubt as never before. The empire was to survive the crisis, but the challenge it had faced was like nothing it had ever experienced before. It brought Britain dangerously close to the edge of true political disaster.

  I

  Ireland offered a vision of imperial catastrophe in microcosm.7 The results of the Khaki election in December 1918 confirmed the polarization brought about by Sinn Fein’s suicidal Easter Uprising. The Unionists swept the board in Ulster. Sinn Fein dominated the entire rest of Ireland. London’s moderate nationalist collaborators were driven out of politics. On 21 January 1919 nationalist MPs meeting in Dublin constituted the Dail Eirann, an Irish national parliament, and proclaimed a provisional government of the Irish Republic. Whilst a parallel state began to constitute itself across the South, the armed wing of republicanism, the Irish Republican Army (IRA), set itself the task of isolating and uprooting the infrastructure of British rule. By early 1920 Ireland was in the grip of an escalating guerrilla war, which over the next two years claimed the lives of 1,400 people in ambushes and reprisal shootings. In a country of only 3 million souls, casualties on such a scale were a terrible toll. (Magnified to the size of India it would have implied over 110,000 dead, in Egypt 14,000.) And it was as much the quality of the violence as the quantity that was shocking. From August 1920 the ordinary rule of civilian law was replaced by outright repression. Over 4,400 suspected IRA activists were detained without trial, again a vast number in relation to Ireland’s population. Open sanction was given by the British cabinet to the assassination of IRA leaders and to reprisals including the burning of farms and other property. Martial law was declared across much of Ireland. But, given the lack of regular army and police units, London resorted to the deployment of brutish paramilitaries. By the summer of 1921 Field Marshal Henry Wilson, himself a co-conspirator in the Ulster mutiny plans of 1914, was calling for Ireland to be flooded with over 100,000 regular troops.8

  In July 1921, Lloyd George used the threat of massive repression to force through a truce. But London was bluffing. A full-scale military occupation of Ireland would not only have placed an intolerable strain on Britain. It would have done incalculable political damage, both at home and abroad.9 The fact that this escalation was avoided was due to concessions from moderates on all sides. The Tory Party in Britain made clear to the Ulster Unionists that they must finally concede Home Rule on the condition that the North remained a separate jurisdiction. The Irish nationalists swallowed a partition, a Council of Ireland in which Unionists had a voice, continued fealty to the British Empire, and British naval bases on Irish territory.

  In December 1921 the Irish Free State was formally accorded Dominion status, ‘in the community of nations known as the British Empire’.10 But this was not enough to bring peace. Sinn Fein’s final burst of apocalyptic radicalism vented itself not on the British, but on their former comrades who had accepted the compromise. The resulting civil war within the Republic claimed more lives than the fight against the British. Taking the two wars together, the Irish death toll rose to levels comparable, in proportional terms, to that other great disaster of Britain’s retreat from empire, India’s partition in 1947. It was a humiliating ending to the effort to craft a liberal solution to the question of Irish self-determination that had preoccupied the British political class for fifty years. It stored up violence for the rest of the twentieth century. But Ireland never did become for Britain what Sinn Fein hoped it would, a true strategic liability. The nationalist strategy hinged on gaining recognition and support from Washington. But Wilson had refused to allow the Irish question to be raised at the Paris Peace Conference.11 The subsequent civil war did much to discredit the extreme nationalists in the eyes of global opinion. London was able to contain the Irish question. The same could not be said for the self-inflicted wounds that resulted from the aggressive Middle Eastern policy of the Lloyd George coalition. Here Britain’s ambitious pursuit of excessive imperial strategic goals provoked local resistance, outrage throughout the empire and a debacle of British policy in Europe.

  II

  From its opening in 1869 down to the Franco-British intervention of 1956, the Suez canal was to be a consistent focus of British strategic attention. But power could be exercised in different ways. It was the uneven momentum of the Great War that launched Britain on the most aggressive and disastrous phase of its career as a Middle Eastern power.12 From the spring of 1918, faced with Germany’s dramatic advance, Lloyd George’s chief advisor Alfred Milner had advocated a retreat to the imperial periphery. If it was driven out of France, Britain would fight on from its offshore position, anchored in the North Sea, the Atlantic and through its bases dotted from end to end of the Mediterranean. By October 1918 British victory was complete on every front. In Palestine, in Syria, in Persia, even in the Caucasus, there seemed no limit to the expansion of British power. With the Bolsheviks hemmed in, London’s main problem was its allies, France and the United States. At Versailles, France insisted on its claim to priority in Syria. Meanwhile, Lloyd George sought to lure America into accepting a mandate for an autonomous Armenian state. Washington dispatched investigative committees both to Palestine and Armenia to explore the possibility. Armenia became a personal hobby horse of Wilson. But the likely costs were obvious, the economic benefits minimal, and suspicion of British intrigue ran rife. Congress conclusively voted down the idea of an Armenian mandate along with the rest of the peace treaty in the spring of 1920.13

  But not only did the British overestimate America’s interest in the active sponsorship of self-determination. They seriously underestimated the force that this promise might acquire as a challenge to Britain’s own power in the region, nowhere more so than in Egypt. In the 1880s Egypt had been at the centre of the new imperial competition in Africa. Britain had ousted both the Ottomans and the French from the country and secured dominance over the French-financed Suez canal. As war approached in 1914 there was talk of outright annexation. Instead, leaving open all possibilities, in December 1914 London declared a protectorate, whilst at the same time promising progress towards self-government.14 This produced contradictory expectations. The French-orientated Egyptian elite took the liberal rhetoric of the Entente and the United States at face value, whereas Britain’s most expansive imperialists expected the ‘dissolution of the Ottoman Empire’ to ‘make Egypt the lodestar in any new Afro-Asian imperial constellation’.15

  In 1918 the man who was rapidly emerging as the leader of the new nationalism, Sa’d pasha Zaghloul, a former Minister of Education and Minister of Justice, demanded representation at Versailles in the name of his patrician national delegation,
or Wafd. The initial British response was one of contempt. When warned that they might soon be facing a conflagration, the British financial and judicial advisor, William Brunyate, responded that he ‘would put out the fire by spitting on it’.16 If Egyptian nationalism had remained confined to Zaghloul and his notable friends, that might have been enough. But over the winter of 1918–19 the cause gathered behind it a quite unprecedented popular coalition. By March 1919 the British faced a fully fledged, but largely non-violent, popular uprising in which politics and economics were mingled together.17

  The dislocation of the Egyptian economy caused by its incorporation into the imperial war effort was one of the driving forces of this unrest. Inflation was rampant. Prices had increased threefold and malnutrition was at alarming levels.18 The cost of food hit the urban poor worst, but peasants too, who grew cotton for export, found themselves close to starvation. Yet as one Scandinavian diplomat commented, this was no mere food riot. It was the ‘first time in modern Egyptian history that the whole of the native population has cooperated in a political movement’.19 By March 1919, with Cairo in turmoil and Zaghloul in detention on Malta, the British were unable to find any significant Egyptian figure willing to serve as the head of a cooperative government. Martial law was declared whilst the hero of the victorious Palestine campaign, General Allenby, was hurriedly shipped in to serve as High Commissioner. But even the deployment of substantial British forces from their barracks in the Suez canal zone was not enough to restore order, as the government was paralysed by a nationwide civil service strike. In a symbolic display of national unity, Easter Sunday 1919 was celebrated jointly by Copts and Muslims.