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

by Adam Tooze

What was exposed at this moment of disaster was not only the central role of the United States in world politics, but also the frailty of the American state as the pivot of this new order. American history was no longer a domestic drama. The political and economic crises of post-war America had global ramifications.

What they demanded was that Congress must have the final word in approving any collective enforcement action. Since the weakly worded Covenant could easily have been interpreted in this direction, it was Wilson himself who presented the ultimate obstacle to compromise. He insisted that the treaty must be accepted whole and complete, or not at all. On 19 November at the first crucial Senate vote the Republicans defeated the treaty, whereupon on Wilson’s instructions the Democratic minority blocked a motion to accept the treaty with reservations. For five further months the Senate agonized. But on 8 March 1920 Wilson reaffirmed his refusal to grant any concessions to the Republican majority, and on 19 March the Senate failed to find the requisite two-thirds majority for either the original or the amended treaty.

Whereas Wilson saw the US overseeing a global order, the Republican vision of the peace was in key respects closer to that of the Europeans. To the vague commitments of the League Covenant, Lodge much preferred a continuation of America’s wartime alliance with Britain and even with France. If America was to embark on radical new foreign commitments, it must be realistic about the constraints of its own polity. The wartime alliances had a compelling political rationale that had been hammered home to America’s fickle, democratic electorate.8 By contrast, the League of Nations was an ill-defined thing. Legally minded Republican internationalists such as Elihu Root took the wording of the Covenant more seriously than Wilson ever meant it.

Never before had the Federal government managed public debt on this scale. Before the war at most a few hundred thousand wealthy investors had held government bonds. Now the assets of millions of ordinary households were at stake. In the second half of 1919, despite its need for new money, the Treasury was forced to spend $900 million massaging the price of the Liberty Loans, by repurchasing outstanding bonds.

Senator Warren G. Harding had coined the phrase that was to define not only his campaign but his presidency: ‘America’s present need is not heroics but healing; not nostrums but normalcy.’ But he went on to add another telling line. What was called for was ‘not submergence in internationality but sustainment of triumphant nationality’.49 Triumphant nationalism is as apt a description of the policies of the Republican administrations in the 1920s as it was of Wilson’s own administration. Triumphant nationalism was not inward-turning or isolationist. It was by definition addressed to an outside world, but it spoke in terms that were unilateral and exceptionalist.

restoring normalcy. That depended less on street-fighting and assassination than on addressing the deeper causes of both domestic and international disorder, above all the financial consequences of the war. As the United States demonstrated, this depended on breaking the inflationary wave. But the US role in this regard was not merely exemplary. It was the pivot of the world economy. The deflationary wave driven forward by America from the spring of 1920 was the true key to the ‘world-wide Thermidor’ of the 1920s, the main driver of the restoration of order, both domestically and internationally.3 It is to this day probably the most underrated event in twentieth-century world history.

The consequences of this deflation for the politics of post-war recovery in Britain were drastic. The ambitious plans for social expenditure, public housing and education reform promised in 1919 were consigned to the wastepaper basket. The disillusionment of the progressives with Lloyd George was complete.

One of the things that helped to make the worldwide crisis of 1920–21 less prolonged and severe than the 1929–33 recession was precisely that it was not uniform in its impact. But the fact that it was not experienced in the same way across the world economy was in itself significant. It made manifest the way in which the reconstruction of the world economy after World War I organized a new hierarchy.

Far more menacing were the $250 million owed as its share of the first Entente loan contracted through J. P. Morgan in 1915. To raise the necessary funds France found itself borrowing on Wall Street at the humiliating rate of 8 per cent.42 Whilst Washington stood back, for several weeks in early 1921 Paris teetered on the edge of default.

France did not have the financial cushion that allowed Britain to weigh up its options. The domestic costs of rebuilding northern France could, if necessary, be raised domestically through taxes, borrowing, or if this proved most expedient, by inflation, a tax on savers. The huge burden of France’s foreign debt – $3 billion to America, $2 billion to Britain – had to be repaid in gold or dollars. Barring a miraculous surge in exports, which the US and the UK with their policies of aggressive deflation were doing nothing to promote, or a ruinous cut to essential imports, this foreign currency could only come from reparations.

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’.

In one election after another between 1923 and 1929 the Wafd won huge majorities for its moderate programme of national reform. Repeatedly, the British intervened to block its road to power, resulting in the suspension of Egypt’s first liberal constitution and the installation in 1930 of a government sufficiently authoritarian to be able to square its limited vision of national independence with British interests. London extracted a heavy price for Cairo’s limited sovereignty. The promise of democratic politics in Egypt was compromised at birth.

Britain’s support for the Greeks had driven the Turks into an unlikely coalition with Russia. Meanwhile, the antagonism stirred up between Britain and France in the Middle East fractured the Entente and helped to unhinge Lloyd George’s policy in Europe. Worst of all, Britain’s aggression toward Turkey threatened to create an unmanageable situation in India.

As Montagu commented to the Viceroy, ‘our old friend, firm government, the idol of the club smoking room, has produced its invariable and inevitable harvest’: violence, death and further radicalization.

Liberal visions were necessary to sustain empire in the sense that they offered fundamental justifications. But they were always likely to be reduced to painful hypocrisy by the real practices of imperial power and by the resistance of those subjected to empire.54 In the 1850s the liberal vision of empire articulated in the 1830s had been swept away by the Indian mutiny. A full revolution of the cycle from liberalism to repression was avoided in India in 1917–22. But the oscillation between liberalism and reaction was now accelerating into a dizzying and unrelenting switchback that sapped the will of empire.

However, despite the failure to deliver a truly comprehensive disarmament deal, there was no doubting the significance of the Washington Conference. America had resumed a role of leadership in global affairs. Japan’s political class had responded constructively to the American line. Britain had accepted a profound realignment of its strategic position. Balfour described it as an event unparalleled in world history. This was no exaggeration. Never before had an empire of Britain’s stature so explicitly and consciously conceded superiority in such a crucial dimension of global power.

On 18 August 1921, only two days after Lloyd George had issued his appeal for a common front, the Soviets accepted Hoover’s offer of aid.7 For the next 12 months, 10 million Russians were fed by America.

Britain would repay $4.6 billion to the US over a 62-year period at an average yearly interest of 3.3 per cent.57 The annual payment of over $160 million was more than it had cost to service the entire British national debt before the war. It was equivalent to the national education budget, or two-thirds of the cost of the navy, enough over 62 years to rehouse the entire city slum population of the UK.58 Prime Minister Andrew Bonar Law, who had lost two sons in the war, was so incensed at these terms that he withdrew from the cabinet discussion and threatened to resign.

war is a stupid expense

If there was no movement on inter-Allied debts, there could be no concessions on reparations. Morgan did not judge. France might be right to prefer military action to a financial stabilization of Germany, but in that case there could be no question of further loans. American investors could not be expected to ‘buy into a quarrel’.

But instead of any such freewheeling military operation, upward of 60,000 French soldiers pitted themselves against the civilian population of the Ruhr in a brutal and unequal struggle. By March the Ruhr and Rhineland were isolated administratively from the rest of Germany.

In retaliation, railway workers and public employees along with their families were summarily expelled from the zone of occupation, often with no more than a few hours’ notice – altogether 147,000 men, women and children.12 Four hundred railwaymen were sentenced to lengthy prison sentences for acts of sabotage. Eight died in scuffles with the occupying forces. To deter attacks, handpicked German hostages were assigned to every train carrying coal to France.13 In total, at least 120 Germans lost their lives.14 This was a small fraction of the thousands of civilians executed by the Kaiser’s armies in Belgium and northern France during the war. But the violence of the occupation justified German observers in their contention that the new order was one in which the line between war and peace had become hopelessly blurred. What did it mean to be at peace, if an essential part of the German nation state could be occupied by military force and its population subjected to brutal reprisals? If this was peace, what was war?

With the Ruhr out of action Germany needed foreign exchange even to import coal. On 18 April the dykes broke. The mark plunged, reaching 150,000 to the dollar by June. With bundles of currency being disbursed in the Ruhr, by 1 August the mark had reached 1 million to the dollar. Whereas double-digit inflation since 1921 had helped to keep Germany out of the global recession, the hyperinflation of 1923 caused paralysis (Table 11). Amidst the great steelworks and mineshafts of the Ruhr, the population starved as peasants refused to sell their crops for worthless money. Three hundred thousand famished children had to be evacuated to Germany from the Ruhr, where panic-stricken food riots left dozens dead and hundreds injured.16 But Germany itself offered no more than relative safety. As the mark plunged to 6 million to the dollar at the end of August,

The French had won. As Poincaré had promised, the Ruhr occupation had paid dividends. The costs of the operation up to the end of September had come to 700 million francs, against revenues from the Ruhr of 1 billion francs.27 But France had done far more than vindicate its military power and gain economic advantage. The entire structure of the post-war order was in play. On the French side the possibilities that had been shut down by Clemenceau at Versailles were reopened. Perhaps, after all, France did not have to accept the sovereignty of an integral German nation.

But if there was one common denominator in all these frustrations it was the overshadowing of the European power states – a model originating in seventeenth-century Europe and imported to Asia by Japan – by the challenges of a new era and the rise in the form of the United States of a different focus of economic, political and military authority. As a memo compiled by the British Foreign Office put it in November 1928: ‘Great Britain is faced in the United States of America with a phenomenon for which there is no parallel in our modern history – a state twenty-five times as large, five times as wealthy, three times as populous, twice as ambitious, almost invulnerable, and at least our equal in prosperity, vital energy, technical equipment, and industrial science. This state has risen to its present state of development at a time when Great Britain is still staggering from the effects of the superhuman effort made during the war, is loaded with a great burden of debt, and is crippled by the evil of unemployment.’ However frustrating it might be to search for cooperation with the United States, the conclusion could not be avoided: ‘in almost every field, the advantages to be derived from mutual co-operation are greater for us than for them’.

In the event of a crisis Berlin hoped to be able to play its new American creditors against the reparations claims of Britain and France. Debts owed to America would become a lever of revision.7 As Stresemann remarked in an unbuttoned moment in 1925: ‘One must simply have enough debts; one must have so many debts that, if the debtor collapses, the creditor sees his own existence jeopardized.’

What all these explanations underestimate is the wider political investment in the restored international order of the 1920s. This went beyond fear of inflation, or a conservative desire to cut welfare. The gold standard was tied to visions of international cooperation that went beyond technical discussions amongst central bankers. At the real pressure points in the international system the gold standard was ‘knave proof’ not just with regard to big-spending, inflation-minded socialists. The ‘golden fetters’ also constrained the militarists. Indeed, given Washington’s veto over any tougher collective security system, an embedded market-based liberalism was the only significant guard against the resurgence of imperialism. A cyclical recession, even one that brought mass unemployment and bankruptcy, was a small price to pay to uphold an international order that was the best hope of peace as well as economic progress. It was one of the tragic ironies of the Great Depression that constructive policies of international cooperation became so tightly entangled with economic policies of austerity.

The effect of America’s dogged debt diplomacy and Germany’s revisionism regarding the Versailles Treaty was to reduce that cushion. Britain and France increasingly functioned as conduits for a cycle of payments that ran from the United States to Germany and back again. After the Young Plan, France retained only 40 per cent of its reparations payments, Britain barely 22 per cent. The rest was passed on to the United States for war debts. As Trotsky put it in typically drastic terms: ‘From the financial shackles on Germany’s feet, there extend solid chains which encumber the hands of France, the feet of Italy and the neck of Britain. MacDonald, who nowadays fulfills the duties of keeper to the British lion, points with pride to this dog collar, calling it the best instrument of peace.’6 It was more than mere coincidence that the sum of $2 billion paid to the United States in war debts by 1931 was almost exactly the total of credits advanced to Germany from the US by the early 1920s.7 Funds were being recycled.

World War I had seen the first effort to construct a coalition of liberal powers to manage the vast unwieldy dynamic of the modern world. It was a coalition based on military power, political commitment and money. Layer by layer, piece by piece, issue by issue, that coalition had disintegrated. The price that the collapse of this great democratic alliance would exact defies estimation.

But the League without its great political inspiration, the American President, became symbolic of the truly defining feature of the new era – the absent presence of US power. America was, as one British internationalist put it, the ‘ghost at all our feasts’.

The entire story told in this book – from ‘peace without victory’ down to the Hoover moratorium of 1931 – is inflected by this basic impulse on behalf of successive United States administrations: to use America’s position of privileged detachment, and the dependence on it of the other major world powers, to frame a transformation in world affairs.