When London Ruled the World
What can we learn about Europe’s economy from examining the continent’s historic roots?
- What later became the Monroe doctrine — the idea that Europe should not intervene in American affairs — was initially a British policy.
- The plunder of India enabled Britain to buy back its national debt from the Dutch — and to start the Napoleonic Wars nearly free from foreign debt.
- Britain pursued its national interest via a fragmented and "balanced" power structure in continental Europe, fostering the perception that its world power was being exercised in the general interest.
- The interstate system reconstituted under British leadership was one in which the European balance of power was transformed into an instrument of informal British rule.
By the 1780s, London had displaced Amsterdam as the financial center of the globalizing European system of states — and the United Kingdom became the main beneficiary of interstate competition for capital.
Geopolitically, the system of states established at Westphalia under Dutch leadership had been truly anarchic — characterized, that is, by the absence of central rule.
In contrast, the interstate system reconstituted after the Napoleonic Wars under British leadership was one in which the European balance of power was transformed, for a while at least, into an instrument of informal British rule.
Having gained mastery over the balance of power during the wars, the British took a number of steps to ensure that it would remain in their hands.
First, they reassured the absolutist governments of Continental Europe organized in the Holy Alliance that changes in the balance of power would come about only through consultation in the newly established Concert of Europe.
And second, they created two counterweights to their power. They requested — and obtained — that defeated France be included among the Great Powers, albeit held in check by being ranked with second-tier powers.
And in the Americas, they countered the Holy Alliance’s designs to restore colonial rule by asserting the principle of non-intervention in Latin America — and by inviting the United States to support the principle.
What later became the Monroe doctrine — the idea that Europe should not intervene in American affairs — was initially a British policy.
By pursuing its national interest in the preservation and consolidation of a fragmented and “balanced” power structure in continental Europe, Britain fostered the perception that its overwhelming world power was being exercised in the general interest. It was intended to serve the interest of former enemies as well as of former allies, of the new republics of the Americas and of the old monarchies of Europe.
This perception was consolidated by Britain’s unilateral liberalization of its trade, which culminated in the repeal of the Corn Laws in 1848 — and of the Navigation Acts in 1849. Over the following 20 years, close to one-third of the exports of the rest of the world went to Britain.
The United States, with almost 25% of all imports and exports, was Britain’s single largest trading partner, while European countries accounted for another 25%.
Through this policy, Britain cheapened the domestic costs of vital supplies — and, at the same time, provided the means of payment for other countries to buy its manufactures.
It also drew much of the Western world into its trading orbit — fostering interstate cooperation and securing low protection costs for its overseas trade and territorial empire.
Unlike the 17th century Dutch world-trading system, which was always a purely mercantile one, the 19th century British world-trading system became also an integrated system of mechanized transport and production.
Britain was both the chief organizer and the chief beneficiary of this system, within which it performed the double function of central clearinghouse and regulator.
While the function of central clearinghouse was inseparable from Britain’s role as the workshop of the world, the function of central regulator was inseparable from its role as the leading empire-builder in the non-European world.
The plunder of India enabled Britain to buy back its national debt from the Dutch — and to start the Napoleonic Wars nearly free from foreign debt. More important, it initiated the process of conquest of a territorial empire in South Asia that was to become the principal pillar of Britain’s global power.
India’s huge demographic resources buttressed British world power both commercially and militarily. Commercially, Indian workers were effectively transformed from major competitors of European textile industries into major producers of cheap food and raw materials for Europe.
Militarily, Indian manpower was organized in a European-style colonial army, funded entirely by the Indian taxpayer, and used throughout the 19th century in the endless series of wars through which Britain opened up Asia and Africa to Western trade and investment.
As for the financial aspect, the devaluation of the Indian currency, the imposition of the infamous Home Charges — through which India was made to pay for the privilege of being exploited by Britain — and the Bank of England’s control over India’s foreign-exchange reserves, jointly turned India into the “pivot” of Britain’s world financial and commercial supremacy.
The ensuing Edwardian belle époque, however, was but a preamble to an escalation of interstate conflicts that once again revolutionized the historical geography of world capitalism.
As soon as competition among European powers for “living space” intensified under the impact of the transport revolution and the industrialization of war, the protection costs of Britain’s metropolitan and overseas domains began to escalate — turning its imperial possessions from assets into liabilities.
At the same time, the overcoming of spatial barriers brought about by these same two phenomena turned the continental size, compactness, insularity and direct access to the world’s two major oceans of the United States into decisive strategic advantages in the escalating interstate power struggle.
Unsurprisingly, the struggle ended with the arrival of the bipolar world so often forecast in the 19th and early 20th centuries. Now only the United States and the USSR counted — and the global reach of U.S. power was far superior.
Editor’s Note: This feature is adapted from Adam Smith in Beijing, by Giovanni Arrighi. Copyright 2007 Giovanni Arrighi. Reprinted with permission of the author.