The Political Economy of War:
The International Dimension
The world economy in the prewar years was a marvel of growth and interdependence. Though nineteenth-century industrial capitalism showered its benefits unevenly on different social classes, all the developed countries had witnessed amazing leaps in their wealth and standards of living in the several decades before 1914. Much of that material advance owed to the deepening harmony and coordination of international economic relationships. Despite ominously intensifying colonial rivalries in Africa and Asia, the European states allowed goods and capital and even labor to move easily across their own national frontiers. Relative to the movement of raw materials and foodstuffs, trade in industrial products was rising more rapidly, indicating the growing importance of technological specialization to economic growth.
Central to the smooth functioning of this complex international economy was the role of Great Britain. London, the heart of the world financial system, pumped the British pound sterling into all the arteries of global commerce. Sterling was indeed the very lifeblood of the world trading network. Other nations held British pounds as a currency of reserve; foreign merchants maintained large sterling balances at London; and sterling served as a currency of account in the exchange of goods that never touched the shores of Great Britain. So great was the world's confidence in sterling, and so skillful was the British bank