The same determination suffused its political outlook, liberal principles giving way for the next two years to a more pragmatic agenda: ‘will it tend to increase the efficiency of the nation for achieving victory?’ When Lloyd George stuck a knife into the hapless Asquith to form a new win-at-all costs coalition in December 1916, the Economist backed the energetic Welshman on these grounds.149 By the time the Armistice and khaki election arrived in 1918, however, it had little good to say about Lloyd George or any other political combine: certainly not Labour, with its ‘astonishing and perverted passion for nationalising things’, nor the Conservatives angling to make wartime tariffs permanent, nor Lloyd George. The latter seemed ready to promise anything to anybody – protection to his coalition partners, a land ‘fit for heroes’ to soldiers and, ‘going back on our pledged word’, at Versailles he now demanded that Germany pay for the entire war. Along with Keynes, the Economist denounced peace terms negotiated in France as vindictive and self-defeating.150 Such benevolence did not extend as far as Soviet Russia, excluded from the peace conference after the Bolsheviks bowed out of the Eastern Front in 1917. The Economist saw Russia’s revolution mainly through the prism of debt. The October, if not February, upheavals so menaced the credit Britain had advanced its formerly tsarist ally – £571.6 million, over 30 per cent of the total post-war loan book – that it entertained all options for obtaining repayment, including a blockade and invasion to crush the new regime.151
The Economist now insisted on returning to free trade, as the basis of peace and prosperity prior to 1914, with tariffs and other measures of coercion justified only by the life-and-death struggle that had followed. It endorsed the Cunliffe Report without hesitation in 1918, including its call for a quick return to gold convertibility at the old par rate, state withdrawal from money and capital markets, and a run of budget surpluses to pay off debt.152 Until 1921, the most striking political feature of the paper was its avoidance of politics – a remarkable feat, given the crisis in Ireland at the time, postmarked from that supposed pre-1914 golden age. After sweeping the Irish Parliamentary Party into oblivion for backing Britain in the war, Irish Republicans erupted against British rule in 1919, sparking a bloody guerrilla war that raged until independence in 1921.153 That September, Withers slipped away, taking up a lucrative position at the Saturday Morning Post. A year later, the Conservatives ejected Lloyd George – marking the end not only of his premiership, but that of any other Liberal: on its own, the party has never again captured power in Britain.
The Strange Death of Liberalism?
Liberalism went from a landslide victory in 1906 to eclipse by 1922, a rise and fall historians have struggled to explain. Though it had been common to ascribe its ‘strange death’ to ideological exhaustion, as it faced the discomfiting twentieth-century developments of trade unionism, women’s rights, and a spirited nationalism in Ireland, the pendulum has since swung in the other direction.154 Not only were its formidable intellectual resources put to bold use advancing social reform; its subsequent collapse had little to do with any failings therein.155 On this view, the fall of the last Liberal government, set in motion by its own leaders in 1916, was contingent. It arose from a clash of personalities, not policies. The wish to ‘get rid’ of Lord Kitchener at the War Office, and the unbridled ambitions of Lloyd George, split the party and drove it into permanent electoral exile.156 In this telling, of course, the First World War is itself purely contingent – a bolt from the blue, crashing down on Britain and the unsuspecting Liberals who happened to be ruling it. If Hirst gave voice to a major current of the Liberal Party that achieved office in 1906, his sacking by the Economist in 1916 implies a more complicated, structural picture of the conflicts and culpabilities that led to its demise. The issue of war was an integral element in the struggle to direct and define New Liberalism up to 1914 – with empire, finance, and democracy the key terms in that debate.
Hirst and his allies certainly overestimated their strength, perhaps in part because of their control of levers of opinion, from the Liberal Federation to the press. But while radicals may have set the pace at home, from the outset New Liberalism was in quite different hands abroad. Here Liberal Imperialists strove for ‘continuity’ with the Conservatives, who had concluded by the turn of the century that with the rise of competing imperial powers in Europe – above all Germany; but Russia in Asia too – it was no longer possible to preserve the British Raj worldwide without allies.157 In office, the Liberals maintained the formal alliance with Japan; acting in secrecy, they extended the kind of agreement reached with France to Russia in 1907 – drawing Britain relentlessly thereafter into an unspoken Triple Entente, arrayed against the Central Powers of Germany and Austro-Hungary, even as Grey constantly denied it, insisting Britain had its ‘hands free’. Each time Hirst thought that radical Liberals had checkmated the Imperialists – from Campbell-Bannerman’s apparent defeat of their plot to remove him in 1905 onwards – the latter recoiled like a spring, only to jump forward with greater force.158
Though British diplomacy masked its determination to defend the Empire against what it took to be the gathering challenge of Germany, it is difficult to maintain that radicals were simply bamboozled in 1914 – as their failure to oppose Britain’s plunge into the carnage to any effect suggests. Outside the Cabinet, pious invocations of Gladstone had the desired effect, with many of Hirst’s allies rallying behind Belgium after Grey invoked the Grand Old Man to argue Britain had a moral duty to defend it. Leonard Hobhouse came to see the war in this light, trying to explain his shift from pro-Boer to anti-Hun by 1914 to his sister Emily: ‘Nearly all those who sympathised with the Boers as a small nation struggling for freedom now sympathise with the Belgians struggling for freedom’.159 Inside the Cabinet, Belgium had no part in the decision for war, taken two days before its invasion, though as a pretext its merits were seen. ‘Simplifies matters’, Asquith wrote. For Lloyd George, his mistress reported, it was ‘to be cynical, a heaven-sent excuse’.160 Gladstone’s shade had a different lesson for ministers: frugality. Churchill played a hand that had won him many a trick when he passed Lloyd George a note on 2 August: ‘The naval war will be cheap – not more than £25 million a year.’161 Intervention would be good value for money, with a quick campaign on the high seas.
Hirst was unmoved either by the appeal to morality in international affairs, or the enticement that war could be had on the cheap. Yet his basic assumption about liberalism – that it entailed a free trade empire, kept that way on the one hand by finance capital, and on the other by a powerful navy – had none of the inherently pacific force he attributed to it. Japan, as Hirst was aware, had been tapping the London money markets to finance a war with Russia in the Far East, where its stunning victories on land and sea raised its credit high enough by 1905 to carve out an empire in Asia.162 Tokyo borrowed £84 million between 1897 and 1913, becoming the City’s single best customer in the years up to the First World War.163 Lloyd George was very explicit about the connection between foreign investments of this sort and Britain’s status as a great power. His Mansion House speech of 1911 might have served as a warning to Hirst that free trade finance could just as easily justify war as create ‘hostages for peace’.164 Norman Angell’s optimistic theory of capital export, which Hirst and Paish (and Hobson) also avowed, was no more persuasive before than after August 1914, when events seemed to correspond to the inverted analysis of ‘monopoly capital’ that Lenin posited. The self-satisfied assumptions of a liberal empire – set against a deplorably aggressive imperialism – also propelled Britain toward a confrontation with Germany, in other words, even if Hirst, Paish and Hobson had the personal rectitude to oppose entry into a war against it.165
Given the absolute priority of capital export to the Liberal vision of free trade and empire, it is surprising to see how seriously contemporary scholars take the ‘falling out’ between the party and the City over taxes, old-age pensions and so forth.166 Many bankers, traders, merch
ants and others no doubt abandoned Liberalism, judging by voting patterns in the City, and on logical if rather short-sighted grounds. Between even mild increases in their tax bill, and tariffs – which might also mitigate risk on their sizable imperial investments – they opted for protection and Tories.167 Liberals, however, were not so flighty. While a quick glance at the Economist shows obvious tensions between it and sections of the financial community over the People’s Budget, a closer look reveals a more striking fact: the pleading tone, the passion to keep the City of London the beating heart of global financial and commercial exchange. A propensity to compare bankers to penguins, or fume at individual actors like Lord Rothschild, ought not be confused with opposition to the City as such. Nor should it obscure the central place of finance in the fiscal-political constitution of New Liberalism, as Lloyd George demonstrated very clearly in the summer of 1914. At that moment, he carried out an unprecedented rescue of the City, in what one commentator has called ‘the most severe systemic crisis London has ever experienced – even more so than 1866 or 2007-8’. In a month, the Bank of England doled out £133 million, or 5 per cent of GDP, to banks and discount houses, taking a third of the entire discount market off their books.168
What of the ‘democratic promise’ of the party during these years, which has also been positively reappraised since Dangerfield gave his biting assessment of it: stalling on voting rights for women and working men, and opportunistic neglect of Home Rule for Ireland? Here, thanks to analyses of the Liberal budgets, and the changes in taxation they ushered in from 1905 to 1914, a clearer picture emerges of its claims to represent fairness and progress. Neither, as it happened, was incompatible with unequal burdens of taxation. Workers in 1914 continued to pay a larger portion of their income in indirect taxes than almost anyone else, and if the People’s Budget introduced old-age pensions, it also taxed workers’ ‘luxuries’ such as spirits and tobacco, while three-quarters of new unemployment and health insurance was funded out of wages. The greatest beneficiaries of New Liberal finance were neither the poor, nor the very rich – who, above £10,000, did see taxes on unearned incomes rise – but the middle classes, most of whom paid less in 1914 than in 1905, ‘when the income tax, as yet undifferentiated, had stood at 1s. in the £’.169 It is odd to treat social reform and the differentiation and graduation of taxes as watershed moments for Liberalism, but not the wartime interventions that also took place under it, dwarfing these earlier forays. Liberals, whose last peacetime budget of £207 million was considered a fiscal revolution, spent over half that bailing out the banks, before sending a quarter-million men to their deaths in the First World War, to the tune of £9.5 billion.170
A look at its relationship to empire, finance, and democracy gives a different picture of the rise and fall of liberalism. What is perhaps most striking about that story is its aftermath: survival of the central tenets of liberalism, and their re-emergence after the war as virtually hegemonic. Rarely in history has the political power associated with a current of thought given way without its intellectual legitimacy faltering too. ‘By the autumn of 1916, economic liberalism was played out’, asserted the historian A. J. P. Taylor. ‘The only logical alternatives were to abandon liberalism or abandon the war.’171 The Economist is a testament to just how fleeting this judgment was. Not only did the paper successfully insist on liberal economic policies being maintained so far as possible during the war, and then re-imposed after the Armistice, but in the almost hundred years since, its circulation and influence have flourished as never before.
This eBook is licensed to Karim Mamdani, [email protected] on 12/02/2019
5
Own Gold
Layton and the League
Walter Layton quit the Economist in August 1914, after the editor Francis Hirst refused to use it to harness the City of London to the war: ‘Grass will be growing in Lombard Street before the end of the year’ was Hirst’s view. Late in 1921, Layton returned to the Economist, but in a world littered with signs that Hirst had been right – that four and half years of total war had dealt a serious blow to the liberalism the Economist embodied, starting with the international free trade order over which Britain presided as top imperial nation.
From Flanders to the Dardanelles, the map of Europe was stained with blood. Approximately 750,000 British soldiers had died, along with 250,000 from across the colonies and dominions. The Empire was bigger than ever, with Britain acquiring vast territories from the defeated Germans and Ottomans, stretching in an ‘irregular semi-circle’ from South West Africa to the Middle East and on to the Pacific.1 But now a wave of anti-colonial nationalism had spread just as far, sapping the legitimacy of imperial rule and raising the cost of its enforcement. In 1919, Wafd-led demonstrators, frustrated at being locked out of peace negotiations in Paris, took to the streets in Egypt. In India, a British general ordered troops to fire into an unarmed crowd at Amritsar – mowing down at least 500, inflaming Indian nationalists, and giving Afghan king Amanullah a pretext to invade from the north.2 Arabs and Jews alike rioted in newly-mandated Palestine. By 1920, open revolts had erupted in Mesopotamia, Persia, and Ireland – where thousands of ex-servicemen, in paramilitary outfits like the Black and Tans and the Auxiliaries, sowed terror in attempts to flush out republican rebels from Balbriggan to Cork.3 Lloyd George’s coalition finally dissolved in 1922 as the Conservatives and Dominion leaders refused to follow him into another imperial fracas – this time with Kemalist nationalists in Turkey surging towards the Allied-occupied Straits.
Even more alarming than colonial insurgency for the prospects of liberal civilization as understood in London was the apparent crumbling of its economic basis. Free trade was under attack both abroad and at home, where tariffs to safeguard so-called strategic industries, from wireless valves to chemicals, succeeded those on wartime luxuries like clocks and motorcars. Cheap government, meanwhile, lay buried under £7.5 billion of debt: at 40 per cent of GDP, state expenditure had risen thirteen-fold in four years, with loans paying for two-thirds of it.4 The fact that Britain had borrowed so heavily, not just on its own account but also for allies, carried profound implications. By 1918, it owed $1.3 billion to the US, heretofore recipient of the largest share of its capital, reflecting a liquidation of stockpiled assets there that undermined, in turn, the London-managed gold standard. Convertibility of the pound sterling into gold was the symbol of sound money and security in global exchange: but with convertibility suspended at the war’s outset, in March 1919 the pound was freed to float against the American dollar, and fell – a sign of the dwindling confidence Britain’s currency now inspired relative to the greenback.5
If these interlocking pieces of pre-war political economy could not be put back together again, it stood to reason that neither could world trade, which up to 1914 had relied on the City of London to underwrite, finance, ship, and intervene to keep it running. Britain was no less dependent on that trade; by the time Layton became editor of the Economist in August 1921 a heady restocking boom had fizzled, and unemployment was at an unprecedented 17 per cent, rising to twice that in the old staple industries of coal, iron and steel, shipbuilding and textiles.6 The concentration of misery in export trades was all the more troubling, as these had been under pressure since the 1870s, when German and US manufacturers, under cover of rising tariffs, began to erode their share of world markets. What war had now greatly weakened was Britain’s ability to cover, as before, the resulting trade deficits with invisible income piped through the City.7
Not only did the liberal order face threats of a kind almost unimaginable to previous editors of the Economist, but these converged on its home ground: the world of commerce and finance, its institutions, markets and men. And yet, as surprising as it may seem, this liberalism pivoting on the City emerged more ideologically determined after the war – energized by men like Layton – because and not in spite of their experience of it. The Economist reflected this confidence, embedded in the broader perspective
of those who read and wrote it, that to each of the challenges the Great War had thrown up – and to three in particular: preserving peace, reviving global trade, and handling demands for democratic self-determination – liberalism offered not just the best but indeed the only credible solutions.
Liberalism’s ‘Strange’ Rebirth
To the first and most pressing question – how to prevent anything like the First World War from happening again – the official response of the period took shape during the fighting itself, and was the brainchild of a scion of Britain’s leading imperial statesman of the previous generation, Salisbury himself. On coming to power in 1916, Lloyd George ramped up the war effort. Joining the coalition government, Lord Robert Cecil, Salisbury’s third son, a Conservative free-trader, became Minister for the blockade of Germany – designed to starve it into submission, should it not succumb to the Entente armies’ ‘knock-out blow’ promised by Lloyd George. Cecil proposed that a League of Nations be created once victory was achieved. By 1918 the Cabinet had come round to the idea, after Woodrow Wilson was persuaded of it – the inter-Allied committees coordinating everything from shipping to finance henceforward serving, for their staffs, as models of the global governance the League could bring.8 Cecil, responsible for the death of some 400,000 German civilians who succumbed to starvation or disease during the blockade, would in due course be given the Nobel Peace Prize for his contribution to birthing the League.
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