BRITAIN AND GLOBALISATION SINCE 1850: II. THE RISE OF INSULAR CAPITALISM, 1914–1939

Abstract

AbstractAt the end of the First World War, the British government attempted to return to the pre-war policy trade-off of fixed exchanges rates on the gold standard, capital mobility and free trade, which entailed a sacrifice of domestic monetary policy. But the attempt proved difficult between 1919 and 1931 when the pursuit of international economic polices was constrained by a growing concern for their domestic economic and political repercussions. In the 1930s, a new policy trade-off emerged: managed exchange rates, capital controls and protectionism, with a greater concern for domestic monetary policy. The essay explains the reasons for the emergence of constraints and the subsequent abandonment of the pre-1914 policy trade-off in terms of five variables: changes in the performance of the economy and its impact on different actors; the politics of the national debt and the constraints on interest rates; the impact of capital exports on debt repayment and as an alternative to interest rates in influencing the exchanges; an adjustment in assumptions about flexibility of wages and costs; and a breakdown in the political culture of free trade and gold.