The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931

by Adam Tooze

To maximize capacity American soldiers were shipped virtually without equipment. Britain and France supplied the fresh American divisions with all their rifles, machine guns, artillery, aircraft and tanks.

This human cargo was America’s major contribution to the military victory – a fresh crop of healthy, well-fed young men of prime fighting age, the likes of which had become depressingly rare in Europe.20 Due to their lack of combat experience, most of America’s army could not be thrown directly into the front line. But they were a promise of ...

Its three battalions of 1,000 strapping young men from Ohio were moved rapidly from town to town, parading in changing uniforms so as to create the impress...

What actually enabled the huge transatlantic movement was the remarkable system of inter-Allied economic cooperation that the Entente had devised since 1915. Originally confined to the financing and purchasing of wheat, then the distribution of coal, inter-Allied cooperation extended in the autumn of 1917 to the common regulation of all-important shipping capacity.

Though each delegate owed primary loyalty to his national government, they collectively constituted an inter-governmental authority capable of making decisions affecting the lives of literally every inhabitant of Europe, whether civilian or soldier. Given the extremity of their situation, by early 1918 it was the Entente Powers, not Wilson, who were exploring radical new forms of cooperation and coordination.

In halting Germany’s final onslaught, the Entente created precedents for inter-governmental cooperation that went beyond anything ever realized in the League of Nations. From 1916, France, Russia and Italy all borrowed on British credit.

In 1916 an economic conference had met in Paris to sketch a bold vision for long-term Allied economic cooperation against common enemies. In November 1917, following the Caporetto disaster, the Supreme War Council was established. By April 1918 Br...

Through the involvement of a generation of businessmen, engineers and technocrats, such as the Briton Arthur Salter and his close colleague and friend, the Frenchman Jean Monnet, this cooperation was to provide the inspiration for the project of the European Union led by the functional integration of the European Coal and Steel Community (ECSC) after World War II.

This third economic model spawned by the war, the model of inter-Allied cooperation, was eclipsed in historical memory by its two chief competitors – Germany’s planned economy and America’s capitalist abundance.24 Nor was this any coincidence. The victor states were liberal political economies that chafed at state regulation.25 And this opposition from within France, Italy and Britain found an eager echo in Washington.

Alarmed by the bold demands of the Paris conference of 1916, which Washington viewed as a project of global cartelization and the absolute negation of the Open Door, American resistance amounted to something akin to open hostility.

Wilson believed that it took only six months for Americans working in London to become ‘Anglicized’.28 In practice, however, every American intervention in Europe – Hoover’s relief programme for Belgium no less than Pershing’s independent American Army – was dependent on the cooperative logistical apparatus established by the Entente.

Given the profoundly uncooperative behaviour both of General Pershing and the Wilson administration, it became commonplace in Britain to discuss the strategic balance on the Western Front as a zero sum game.

Other, cooler heads pointed out that fantasies of independence were vain in any case. Whether victory was won in 1918 or 1919, whether or not a large American army was involved, the Entente were dependent on the United States. Behind Detroit’s aero-engines and Pittsburgh’s steel was something less tangible but ultimately decisive, dollar credits.

overriding the limit of the private capital market and replacing it with a radically new geometry of financial and economic power, one rich democracy, the United States, channelled huge public loans to London, Paris and Rome. It was this direct financing out of US public credit that helped to give the Entente its crucial margin of advantage over Germany.

Money defined all the other problems. Prior to April 1917, to economize on dollar spending, a large part of British shipping had been tied up on the very long haul to Australia. After April 1917, with an abundant supply of dollars, purchasing and shipping could be concentrated on the far more efficient transatlantic route.

Up to April 1917 the Entente had borrowed in the United States to fund purchases from the US and overseas. A condition attached to all US congressional appropriations was that the dollars lent must be spent exclusively in America. After April 1917 the US Federal government was operating a gigantic, publicly funded export scheme.

As critics like John Maynard Keynes, the brilliant young economist advising the UK Treasury, had predicted, delivering the knock-out blow to Germany put Britain at the mercy of the United States. Lloyd George had willingly courted this risk, expecting America to understand its own interests in an Atlantic alliance.

the reality of transatlantic partnership was less reassuring than the rhetoric of a democratic alliance might suggest.

Before the war, the international gold standard had been anchored to the gold parity of the pound sterling. After 1914, though it could no longer be freely converted at home, sterling remained nominally attached to gold and in New York the exchanges continued to function. For the Entente Powers it was vital to maintain the value of their currencies against the dollar. They couldn’t credibly promise to repay their dollar debts if the lira, the rouble, the franc or sterling were depreciating violently.

Keynes, characteristically, hit upon the central point. The dependence of the Entente on the United States was not necessary. Like Germany, the Entente could have tried to fight the war without American resources. But this would have been a very different kind of war than that for which London, Paris and Petrograd had planned in early 1917. London’s decision to lead the Entente toward Wall Street was taken as part of the deliberate high-risk strategy, as part of an all-out effort to deliver the ‘knock-out’ blow.

In the spring of 1917 Wilson’s Treasury Secretary (and son-in-law) William McAdoo made quite clear that he aimed to replace sterling with the dollar as the key reserve currency.

McAdoo proposed that no funds from congressionally approved Liberty Loans should be used to support either sterling or the franc. Nor should London be permitted to use such funds to repay overdrafts that it had contracted with J. P. Morgan during Wilson’s credit freeze over the winter of 1916–17. This put London under terrible pressure. First at the end of June, and then again at the end of July 1917, Britain came within hours of default.36 The near panic this caused in London and on Wall Street was enough to convince the Wilson administration that even if the dollar was to replace sterling in the long run, in the short term defending sterling was the cheapest way to prop up the Entente war effort.

The empire had two lopsided monetary pillars, the first being sterling based on gold supplied in large part from South Africa. The second was the Indian rupee based on an uneasy silver-currency standard.

Britain’s imports from the Dominions and India surged, whilst its exports to the empire were throttled to a bare minimum. The empire accumulated large surplus claims on Britain, but given its desperate need for dollars and gold, London could not permit the empire to indulge in an import boom from third markets, such as the US.

Within days of the outbreak of war, London declared a monopoly on the output of South Africa’s gold mines, setting an artificially low official price and raking in exorbitant fees for shipping and insurance. South African banks attempting to sell gold directly to the US at higher market prices were subject to sanctions...

Whereas in South Africa attention focused on a single key commodity produced by gigantic, British-owned mining corporations, employing a minority workforce of white miners, in India, wartime financial relations were potentially even more explosive, involving as they did the relations between the British and a population of 240 million people largely dependent on agriculture for their subsistence.

From the autumn of 1915 the balance of trade shifted decisively in India’s favour. Under normal circumstances this would have triggered either expanded Indian imports or an inflow of precious metals. But instead, to prevent India’s purchasing power from spilling over into a huge surge in ‘unnecessary’ imports, wartime controls were extended to the subcontinent.39 Held in bank accounts in London, India’s export earnings were invested in British war bonds.

India was enrolled in an involuntary war-saving programme, a commitment made all the more painful because the government of India was simultaneously slashing spending on long-promised investments such as primary education to make room for war costs.

In early 1916 the Indian currency was officially uncoupled from silver. Henceforth, the backing for the rupee would be the British government bonds held in London in India’s name. On the assumption that sterling retained its pre-war value, these bonds would be redeemable after the war for bullion or goods. But, in the likely event of a post-war devaluation, India would suffer a commensurate loss.

With the risk of inflation becoming more and more obvious, the remaining silver stocks disappeared from the market. This in turn made it harder to sustain the fiction that the flood of paper rupees would eventually be redeemable in specie. As a countermeasure, in April 1916 the government of India began feeding silver purchased in the United States into circulation.

Instead, in September 1917, Washington insisted that if India was providing Britain with deliveries on credit, then the same privilege must be extended to the US as well. The United States extracted a rupee credit equivalent to $10.5 million from India.

In Bombay political discussion of the Montagu-Chelmsford reforms was overshadowed by tumultuous scenes on the exchanges as merchants scrambled to cash their rupee notes for the dwindling stock of silver. Given London’s precarious position, only the United States had the resources to underwrite the monetary system of the Raj. On 21 March Washington announced that it would throw open for sale the enormous silver reserves of the US. Under the Pittman Act the sale of 350 million ounces of silver was approved, at the fixed price of one dollar per ounce. The government of India was authorized to use its funds in London to replenish its silver stocks from the American official reserves.

In effect India was uncoupled from sterling and moved to a silver-dollar basis, with the rupee valued at approximately a third of an ounce of silver, or 35.5 cents. Against sterling the rupee promptly appreciated from 16 pence per rupee to 18 pence.

World War I ratified the emergence of the US as the dominant force in the world economy. The rivalrous talk in London and Washington could give the impression that the issue at stake was the question of how America would succeed to Britain’s position of pre-eminence. But that seriously understated the novelty of the situation created by the war.

In their struggle to defeat Germany, the Entente entered into an unprecedented period of dependence on the United States. This new asymmetrical financial geometry signalled the end to the great-power competition that had defined the age of imperialism.

On the one hand, the Entente’s transatlantic war effort defeated Germany. But at the same time it raised the US to a position of unprecedented dominance, not over its Caribbean satrapies or the Philippines, but over Britain, France and Italy, the great powers of Europe.