Policy Review Banner

The Great War’s Economic Front

Wednesday, August 1, 2012

Nicholas A. Lambert. Planning Armageddon: British Economic Warfare and the First World War. Harvard University Press. 662 Pages. $45.00.

Wealth may provide the sinews of war, but policymakers have also asked whether economic power itself can be harnessed as an offensive weapon. Since victory means imposing one’s will upon an adversary and not merely winning battles, economic power should provide valuable leverage. Indeed, it might even preclude the need to fight. Blockades long played an important part in war, and sanctions became a common diplomatic tool in the 20th century. Unfortunately, such measures provide a blunt instrument. Or, to vary the metaphor, economic pressure can be a double-edged sword as ready to cut the power wielding it as the opponent at which it is aimed. Can it force an opponent to concede? Does it risk collateral damage, either by injuring the country attempting economic war or by provoking others to intervene?

Recent economic sanctions have proven hard to enforce. Governments imposing them face the burden of keeping them in place over time against growing resistance, and countries neighboring target states often demand exemptions to spare their economies the fallout or facilitate evasion. Wartime blockades involved higher stakes and consequently brought greater risk. Although Britain claimed a legal right to interdict trade from the mid-18th century, its efforts during the American War of Independence brought the Dutch Republic into the conflict and prompted other maritime states to form a Russian-led league of armed neutrality. The same pattern during Britain’s wars against Revolutionary and Napoleonic France expanded the conflict by forcing neutral states to take sides. Napoleon invaded Spain, Portugal, and Russia partly to enforce his own system of trade war against Britain, while the British attacked Denmark to keep it from siding with France. The United States responded to being caught in the middle by first imposing an embargo on exports, which mainly hurt its own citizens, and then fighting the War of 1812 against Britain. Economic warfare during the Napoleonic era gave later strategists a case study even as technology changed the application of sea power. Woodrow Wilson went further in remarking during America’s neutrality early in World War I that “the circumstances of the war of 1812 and now run parallel.” Yet they diverged enough to prevent another war between the United States and Britain.

The story of how tensions during World War I took a different course from the Napoleonic era illuminates economic warfare’s limitations with broader lessons for what it can and cannot accomplish. In Planning Armageddon, Nicholas Lambert meticulously reconstructs the process by which Britain developed and then implemented plans for economic warfare against Germany. His well-written, though detailed, account provides a revisionist interpretation of British strategy which calls into question received opinion on how the Royal Navy aimed to fight a European war. Studies of war plans before 1914 highlight discussions about bringing the war to Germany by inshore operations and amphibious landings along the coast that fit the Royal Navy’s traditional strategy and cultural emphasis on the offensive. When geographical constraints and weapons technology precluded such measures, Britain engaged Germany’s army alongside its French ally in what became a terrible war of attrition. The navy accordingly took a supportive role convoying men and material to France while denying Germany access to the sea.

Documents give credence to this conventional account, which makes sense against the course of World War I, but Lambert uncovers another set of ideas from the deliberations among naval planners that formed the cornerstone of British grand strategy by 1914. International law and technologies including the mine and torpedo made impractical the kind of blockade the Royal Navy had traditionally employed to interdict enemy trade completely, but an alternative strategy leveraged Britain’s control over the infrastructure of global trade to coerce Germany. Planners saw that denying Germany access to the shipping, communications, and financial services that Britain dominated would impose unbearable economic costs without interdicting cargoes. Their approach to economic warfare extended beyond a blockade to involve all necessary steps for disrupting an already strained enemy economy. Sufficient disruption would compel Germany to accept peace on British terms as effectively as battlefield victory.

British officials, including the Admiralty, always had been preoccupied with the task of protecting the global trading system from serious disruption in wartime for their own defense. Now the impact of disruption offered a potent weapon against Germany, especially if Britain fought as part of a coalition whose assistance would help isolate its economy. Germany depended upon imports to feed its population and sustain industrial production. Losing access to foreign export markets had a further impact by reducing foreign earnings. Blockades imposed such constraints by interdicting maritime commerce, but economic warfare reached further in disrupting trade at various choke points. The fact that British merchant ships carried German trade insured by British companies and financed by British banks pointed to other ways of disrupting vital trade. Germany relied on credit floated in London to handle foreign transactions — short-term bills readily sold there offered an easy means of payment — and as a source of working capital for enterprises. Neutral countries lacked sufficient merchant tonnage to make up for the denial of British ships. Even without physically interdicting goods, Britain could inflict tremendous damage on a German economy that already would be reeling from the dislocations brought by a panic at the declaration of war.

The Admiralty believed pushing Germany into unemployment, distress, and eventually bankruptcy would cripple its war effort while sparking social discord with serious political consequences. Economic warfare played to British strengths, while other possibilities exposed limits. Lambert describes the oft-cited plans for amphibious landings as a secondary option rather than the basis of strategy. Sir John Fisher, head of the British Admiralty, tempered his earlier support for such operations given the risk to capital ships from torpedoes and mines. He took an even stronger line against sending British troops to the continent because that would enable Germany to strike a blow against Britain by focusing overwhelming force against an army that could not be replaced. He thus concluded the best assistance Britain could provide France would be to impose such economic pressure on Germany that it could not continue the war.

Implementing economic warfare, however, required cooperation from other departments, particularly the Treasury and the Board of Trade, which had their own agendas. The strategy required an unprecedented degree of government intervention across a range of activities from banking and shipping to censorship of cable communications. A prewar committee on trading with the enemy looked into regulating Britain’s merchant fleet, imposing controls over the financial services industry, and censoring belligerent communications through the cable networks which ran through Britain. Simply gathering information to deliberate on these points required help from the Foreign Office, War Office, and the Board of Trade, along with civilian experts. Actually setting and implementing policies would mean working together more closely than seemed likely. The Admiralty, Lambert notes, kept back the specifics on its plans for a distant blockade as part of economic warfare, while other departments questioned the practicability of various measures or opposed them outright. Prewar deliberations showed the difficulty of forging a consensus on economic warfare and the measures it involved.

Resistance went beyond the bureaucratic politics sparked by departmental rivalries. The emerging strategy gave the British government an unprecedented role in managing trade, which itself raised concerns. Generations after 1914 did not appreciate the prewar commitment to laissez-faire and minimal state economic oversight. Plans to disrupt German trade by withholding access to British merchant shipping, finance, or commercial services forced officials to think beyond the assumptions of the day. Cutting further against the political grain was the idea to delegate authority before war broke out so that measures could be set in train immediately. Lambert notes that although economic warfare had become the cornerstone of British strategy against Germany, plans for waging it had not been worked out in detail. Key questions thus remained open when war began in August 1914.

The drama of the military crisis as fighting escalated overshadows in public memory the economic shockwaves war brought. Admiralty planners had anticipated disruption and their strategy aimed to capitalize on it, but the consequences raised problems which disrupted their plans. Trade dropped amidst uncertainty. The cabinet deliberated in August on how aggressively to prosecute economic war. Restricting neutral trade that gave Germany a “windpipe” to the global economy divided ministers, and the cabinet retreated from a strict ban. Limiting British and imperial exports also sparked opposition, and the eventual order clarifying policy on economic warfare left great discretion to individual departments. Cabinet unity in early weeks came at the expense of effective policy. The political commitment to economic warfare crumbled, as Lambert writes, over fears about Britain’s capacity to weather the storm and resistance from interest groups hurt by the crisis. Herbert Asquith’s decision to set political considerations first highlights the fragile basis on which prewar decisions rested, and expectations of a short war made it easy to relax controversial measures.

The repercussions for neutral powers of Britain’s economic war were among the many concerns. Geography placed the Netherlands, and to a lesser degree Scandinavia, on the front lines, but the United States presented a much greater difficulty given the size of its economy and its dependence on exports. The impact of restricting trade brought protests from the start, and attempts to evade British measures became a high-stakes game.

Economic disruption at the outbreak of war hit the United States hard. Washington already had exchange rate problems from the August crisis, when European investors liquidated American securities and converted dollars into gold. Trade restrictions precluded the obvious correction of earning foreign currency through exports. The collapse of cotton exports had a cascading effect on the domestic economy in the South, with obvious political consequences. Not only did the United States require export earnings to stabilize its economy, the whole question of blockade aroused memories of the War of 1812.

British officials soon faced a choice between quarreling with Washington and keeping Germany from drawing overseas supplies. When the Royal Navy forced German ships into neutral ports, their owners tried to cut their financial losses by selling the ships, and many found American buyers. Congress passed legislation to facilitate the transfer, and American companies hoped to use ships they had acquired to transport their goods to Europe. The United States also took steps to acquire vessels the federal government would own and operate. Doing so knocked a hole in British efforts to block trade with Germany by denying access to shipping. Although international law subjected vessels reflagged during wartime to seizure, the British risked confrontation with Washington and, accordingly, backed away from enforcement. The issue set the British Foreign Office and Admiralty at odds, and contributed to Anglo-American tensions along with conflicts within the government.

Betting on a short war, the British first relaxed and then effectively suspended economic warfare by October 1914. When the reality of a protracted war became clear, however, the moment to score a decisive blow by imposing a sudden economic stranglehold on Germany had passed. The British government then improvised a new approach, known as “blockade,” which promised less effect on Germany while demanding more coordination among government departments to control trade. Unlike a traditional blockade, the system required more than commanding the sea and sought to manage the shipment of strategic materials, which included food. Restricting European demand rather than interdicting overseas trade limited open confrontation with the United States, but it had its own problems: e.g., Dutch and Scandinavian merchants often collaborated with American producers to ship food products to Germany. Britain’s desire for strategic imports from those smaller neutrals limited the leverage it could apply. Countries demanded return cargoes of British coal for their own shipping. Thus did various little compromises and the difficulty of waging economic war gradually lead the British government to give up its prewar strategy for a less effective system of blockade that created fewer problems.

Lambert argues that the British never actually implemented the economic warfare of the prewar naval planners. Rather than being tried and found wanting, Asquith’s cabinet feared the plan would itself be trying and, accordingly, did not want to pursue the strategy aggressively. Lambert underlines the point by asking whether the strategy could have worked had the British fully implemented it. Would the collapse of Germany’s finances have had a decisive political effect? What measures would Germany have taken to counter a more robust economic war? The lack of data makes any effort at answering the questions speculative, and such answers are beyond the scope of Lambert’s book. His project analyzes how naval strategists tried to solve a problem based on the economic realities of their day. The story Lambert recounts frames not only the development of British strategy but also the way Britain waged war from 1914.

What broader lessons about economic warfare does Lambert’s Planning Armageddon offer? The strategy he describes reflects Britain’s uniquely dominant position in the early-20th-century global economy as a center of finance, shipping, and communication. Other countries before and since have lacked that degree of leverage — one that allows for going beyond simply restricting maritime trade to attempt to disrupt, systematically, an enemy’s internal economy. A few points, however, seem relevant today. Every nation’s economy has key choke points — whether access to finance, transport, strategic materials, or even vital export markets — that offer adversaries leverage. Imposing pressure can inflict significant strain, even if that damage falls short of Armageddon. Any measures to disrupt trade beyond a naval blockade require a coordinated effort among government agencies and private sector groups, along with their foreign counterparts, which means considerable political friction. Collateral damage to domestic or allied interest groups imposes costs, but the real danger lies in antagonizing neutral parties, whose trade suffers. The hopes among those early-20th-century British planners of inflicting a knockout blow by economic means notwithstanding, the more realistic approach is to apply slow pressure that erodes the enemy’s capacity to wage war or compels it to abandon an objectionable policy. Costs have to be measured against the benefits. Indeed, economic warfare works most effectively as a supplement to other military or political measures rather than as a substitute for them. Policymakers take note.