Could Britain Have Kept the Empire after World War II?

Reassessing the Common Take

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Could Britain Have Kept the Empire after WWII?

The grinding war is finally over after what feels like decades of bitter conflict on an inconceivably large scale. The entire world had become a battlefield in which the British had fought desperately to keep their imperial possessions secure in the face of vast hordes of enemies of all sorts, with the Navy and Army strained to the breaking point as battalions launched expeditionary raids and grinding, years-long campaigns everywhere from the steamy Orient to the Meditterranean, the bitter cold of the North to the coast and shores of Northern Africa.

Truth be told, victory, though it came in the end, had strained everything nearly to the breaking point. High taxes had driven the landed element to the breaking point. The necessity of convoys, of relying on domestic agriculture, of keeping the empire intact from an island the size of Michigan…had strained the British people and British society to the breaking point. Class tensions were high, taxes were already ruinously high, and to many elements, rich and poor alike, victory hardly seemed worth the immense cost in gold and blood.

And that was before considering the debt. The ruinous, mountainous, inconceivable debt. Well over 200% of GDP, it would later be calculated…and not at the negative interest rates of modernity either. Over 200% of GDP priced in real, somewhat gold-backed currency, with those who bought it demanding a real return. Ruinous, it was, ruinous! For this final conflict had been preceded not by many long years of peace, but by a similarly large, long conflict that had also involved campaigns across every corner of the earth, mutinous colonials, immense expense, and heavy taxation.

So victory had come. The war against an immense continental hegemon had been won, the international order was stabilized to the liking of and in accord with the ideology of the political elite, and the empire kept together in a hugely expanded state. But the cost had been high. Perhaps the cost had been ruinous…

I am, of course, describing Britain circa 1815, after its final victory over Napoleon at Waterloo. What followed was its century atop Olympus, the century where it ruled a quarter of the Earth’s surface, dominated all the sea lanes, was the world's reserve currency, and became the world’s financial capital. Despite the expense, the defeat of Napoleon did not bring ruin, but success on an unimaginably immense scale.

What happened? Why did the Britain that defeated Napoleon become the hugely successful nation of the Victorian Age, but the Britain that followed the defeat of Hitler became a wrecked backwater, a miserable shell of its former self? The post-war debt load was similar. The human cost had been higher, but not remarkably so, particularly if the immigration outflows of the 19th century are considered.¹ The logistical strains were similar, the social strains similar, and the fractious politics of the wars similar.

But the Britain of the 19th century became the hegemon of note, whereas that of the 20th century became essentially irrelevant. Mindset makes all the difference in the world, as I’ll show in this article, along with why this matters for Americans.

Britain after Napoleon

It is important to note that Britain’s immense imperial and economic success after the defeat of Napoleon was no sure thing. Yes, unlike much of Europe, it hadn’t been ravaged by invading armies. But it had lost its best colonies in the disastrous rebellion that followed the immensely expensive Seven Years’ War, a world war in all but name. It was staggering under a ruinous mountain of debt that could scarcely have been imagined earlier in the century: the national debt stood at somewhere around 210% of GDP, after post-war deflation had been accounted for, with somewhere around 10% of national GDP going just toward paying the interest on that debt.

Perhaps, worse, the population was restive. During the war, farmers and landlords had been pushed into embarking on extremely expensive schemes to drain and enclose land, schemes costing millions of dollars per thousand acres in today’s money; while that worked tolerably well during the war itself, as grain prices remained high, the expense and the cost of the debt used to achieve it was a crushing burden after the end of the war meant renewed trade and a fall in grain prices. That expense and the pain caused by it meant that not only were the farmers and the landlords struggling to make ends meet, but they had little left to pay agricultural laborers, who had their wages cut as a result, putting that bottom rung of the social ladder in an immensely precarious and dire economic position.

Much the same situation played out in the nascent industrial sector, where the end of war meant falling prices for finished goods and thus both lower profits and lower wages, angering industrialists and workers alike. As food remained expensive compared to wages, this meant major unrest, too. Thus, other than perhaps some financiers who were doing well off the debt, particularly given post-war deflation, most segments of society were unhappy at how the government was being run.

A high debt load that could only be maintained with high taxes, a highly restive and discontented population, and an economy-punishing bout of deflation are not the stuff of which great empires are typically made.

But the British figured it out, and did so without massive inflation, government default, or authoritarian societal repression.

For one, instead of following the death spiral of using ever-higher taxes to pay for the debt and, in turn, suppressing legitimate economic activity and necessitating yet higher taxes, the British state rationalized its spending and taxation. It did away with hundreds of old, inefficient forms of taxation and instead implemented a few basic taxes at relatively low rates that could be easily administered. Meanwhile, much of state spending was cut entirely, and what spending was left was administered as frugally and thoughtfully as possible: the gentlemen who ran the government were taught to administer the state finances even more carefully than their personal finances, and largely did so. Some critics saw this as penny pinching, and it certainly meant no national welfare schemes were engaged in (the Poor Laws kept aid for the indigent a local matter), but it meant taxes could be gradually decreased with no debt default necessary.

Meanwhile, the state didn’t try to inflate its way out of the debt—the coward’s option that leads to ever-higher interest rates, and thus more inflation and a still-high risk of default—but rather did the opposite. It readopted the gold standard in 1821, managed the transition back to sound currency well, and used that to maintain faith in its currency. It then used that faith in the currency to refinance the debt at gradually lower rates, primarily through the use of perpetual-term “consol” bonds. Such was more politically difficult in the short-term than inflation, but worked far better.

And, of course, the nation doubled down on every advantage possible to grow out of the debt problem. The colonies were expanded with outmigration and investment flows, then made useful by serving as largely captive markets for British-manufactured goods, such as the famous sale of British-manufactured textiles in the Indian Raj. The carrying trade kept the merchant marine afloat in a profitable way, and helped justify the expense of the Navy, without which the pound sterling wouldn’t have been the reserve currency nor the empire profitable. Standing by the traditional law that mineral rights belonged to landowners rather than the state ensured that those minerals, primarily coal and iron, were profitably developed. Most importantly, the technological advancements of the day—steamships, steam-powered factories, railroads, Bessemer steel, and more—were intensively developed and encouraged with the law, when possible.

Thus, the situation was one from which the nation did not just recover, but prospered. It encouraged the fulfillment of the Agricultural Revolution’s promise with the Corn Laws, which kept the price of grain high enough to pay for the necessary development; then it abolished them before the industrial workers and capitalists revolted over the higher cost of grain. It encouraged the Industrial Revolution, from its factories to its railroads, and used the colonies to provide markets for the goods that kept the development of the industrial sector humming along for decades.

Growing the economy at a previously unimaginable rate through both the Industrial Revolution and the Agricultural Revolution grew the nation out of its painful debt load, and maintaining strict economy regarding government expenditures kept that debt load from rising apace: by the time World War I began, the national debt was back down to only about 30% of GDP, a very manageable position.

There were issues over this period, of course. The Reform Acts gradually opened up the franchise in the name of keeping social tensions low; this worked, but caused problems over the long term. The free trade doctrine of Manchester Liberalism, which gradually became adopted as the Victorian years wore on, ended up causing substantial problems for the British agricultural and industrial sectors by the time World War I began. The Navy was a monumental expense, and the cost of the dreadnoughts is what gave Churchill the opportunity to ram through his eventually country-wrecking People’s Budget. The empire was also hugely expensive, though that cost was generally offset overall by the markets it provided and the minerals it produced, such as the ore mines of Australia and the gold of South Africa.

Overall, then, Britain managed to not just succeed but become the leading world power in the years after it defeated Napoleon by doing the hard but correct thing repeatedly. From the gold standard to developing the colonies, avoiding default to building the immensely expensive railroads, it leaned into social and financial stability, lean government, technological advancement, and low taxes that encouraged massive reinvestment and economic development domestically and across the empire. Such is, in very broad terms, how Albion climbed atop Olympus.

After World War II

Such is also about the exact opposite of what the British state did after the Second World War. Facing a debt burden of 250% of GDP and an interest burden of about 4.5% of GDP, Britain chose not to lean into imperial preference, atomic power, and massive industrial development on the bases of technological advance and economic opportunity that existed in the mid-20th century.

Instead, it did the opposite of what it had done in the wake of the massive cost and carnage that the combination of the Seven Years War, American Revolutionary War, and Napoleonic War entailed: under Attlee, the post-WWII Labour Prime Minister, the British state went on a massive expansion spree in which financial policy that destroyed the wealthy and productive was inflicted in the name of soothing social tensions by benefitting “the people”.

For one, there were the nationalizations. Heavy industry was nationalized, as were the mines that supported it. The railways were nationalized. The Bank of England was nationalized. The hospitals were nationalized.

Bureaucrats could not run the economy better than capitalists, and so the British economy stagnated. An atomic renaissance didn’t come, powering the aluminum smelters and electric arc furnaces that would create the materials for a new industrial revolution based on electricity and aerospace. The scientific sector stagnated under such bureaucracy as well, and it was America that led the computer revolution. Instead of unleashing industry as it had after Napoleon, it strangled it, and the predictable result was endless decay and despair: wartime rationing didn’t even end until the 50s.

Then there was the welfare state and the class war taxes used to pay for it. After the Napoleonic Wars were over, the British government trimmed state spending as much as possible so as to be able to pay the debt without raising taxes. Attlee and his socialists did the exact opposite. They kept wartime death and income taxes painfully high, liquidating ancient families in the process, to pay for an absurd welfare state. Government healthcare, a massive nanny state, safety hammocks rather than safety nets, and a vast buildout of government housing were all begun at once, and paid for with taxes that destroyed all the families and capitalists who would have invested in an economic buildout after the war, as they had done the century prior. This reached absurd heights as the death taxes climbed higher, with huge numbers of bureaucrats barely paying for themselves as they watched families like hawks and taxed them into oblivion.² This was a period of capital destruction, not capital growth, and the entire country paid.

This time, the gold standard was not again embraced when peace returned. When Winston Churchill had attempted that as an underqualified Chancellor of the Exchequer in the 20s, it had been a disaster, so a fiat currency was kept. But without responsible restraints on spending, it was immensely inflationary. The nation’s savings were destroyed over the decades that followed, the pound lost its reserve status, and New York rather than London became the world’s financial capital. Things got so bad that Britain needed an IMF bailout in the 1970s.

All combined, that meant the Suez Crisis went as it did. When French, British, and Israeli troops tried to take back the Suez Canal from the gangster government in Egypt that had stolen it from European investors by nationalizing it, Eisenhower and the Soviets went berserk over the supposed threat to world peace. That would have mattered little in the old world, but under the new state of things, London’s financial recklessness meant it was beholden to America for immense amounts of debt financing, and financial pressure from Washington meant it had to give up the Canal and ignominiously retreat. Retreating from Suez cost it what remained of its empire, both practically and in spirit. Thus, though rebellions like the Mau Maus in Kenya and the Malay Emergency had been defeated without too much expense or bloodshed, the British gave up and lost their empire.

Losing the empire meant losing the merchant marine, which meant losing the Navy. It also meant losing imperial markets, which meant yet more catastrophe in the industrial sector. Soon, the “Commonwealth” was little more than a collection of domestic unions that made production impossible and gangster-ruled African states demanding welfare from the British.³

And with that, the empire died for good. It was all shed, and Britain retreated back to the borders of its little island, suffering immensely as it did so.

The Lynchpin and the Path Not Taken

The British Empire could have avoided that dire fate, had not ideology intervened. Had they maintained the spirit of their ancestors, hanging on even to India might have been possible. But they did not, and so when the Suez Crisis struck, the empire came tumbling down.

Key to that outcome was a financial weakness caused by focusing on the wrong things after the war. The cost of the first half of the Twentieth Century had been immense, both in blood and treasure. But the combined cost of it all was no more expensive, as an annual percentage of GDP, than the Napoleonic Wars were. In fact, low interest rates meant it was somewhat less so, leaving much more wiggle room to dramatically reduce taxes and power redevelopment, and with far more rot that could have been cut to fund further such tax reductions.

Such was the opportunity. Following the war, the empire remained, and the Commonwealth contained a number of immensely valuable assets. There were the oil fields in the Middle East and Niger, the uranium mines of Canada, the ore mines of Australia, the diamond and gold mines of South Africa, the copper mines of Zambia, and the fertile farms of Rhodesia and the Canadian prairie. The Merchant Marine was still intact, the Navy was a large expense but could keep the trade routes open, and the City of London remained a viable hub of finance—indeed it still is—if only the responsible steps were taken. Yet further, what rebels there were—the Malays, the Mau Maus, and so on—were defeated with relative ease. A few outlying and expensive colonies would have to be given up, but the better parts could remain.

A slimmed-down and efficiency-focused empire that got back to business could have been a massive success. All the right ore mines were in place for atom-powered production of aluminum on a massive scale, with that and the copper mines of Zambia in turn powering an immense electrification buildout, development of the aerospace sector, renewed shipping empire, and prosperous imperial trading bloc. Difficulties would have abounded, of course, as they always do. But the would have been surmountable. The problems could have been overcome had the nation doubled down on greatness as it had in the wake of Napoleon.

Yet further, the financial strength generated by such a redoubled focus on investment and imperial strength would have given it the means with which it could reject Eisenhower’s meddling during the Suez Crisis, and retain access to the canal, and thus the empire.

But it didn’t. Egalitarianism had rotted it from the inside out, and so instead of embracing growth and national renewal, it stewed in the pit of its own destruction, letting all become equally poor instead of unequally rich while losing all of the economic advantages it had once held.

Now Britain is known primarily as the place of taxes for everything, a massive bureaucratic state, a dole on which seemingly everyone not employed by the government relies, and “Grooming Gangs.” That was an intentional choice it made in the aftermath of the Second World War, the opposite of what it did when finally given a chance to breathe after the decades of war that began with the Seven Years War and ended with Waterloo. The latter generated national success on a previously unimaginable scale, the second only decay.

Why It Matters for Americans

Contrary to the belief of many, the fate of Europe and the Old World does matter.

Particularly, it matters as we’re now told that America ought return to being a republic and leave the days of empire behind. “A Republic, Not an Empire”, as Pat Buchanan put it. Maybe that would be prudent. Maybe not. But we must remember the cost of giving the empire up, and what decisions made along the way lay the path for national perdition.

Britain was great so long as it used the empire and the wealth it generated to power its own success. For a very long time this was true, as the colonial marketplaces provided raw materials and trading opportunities in exchange for finished goods. With taxes and government expenditures very low, that was a broadly profitable exchange for the nation, and empowered economic development, particularly of the industrial sort, which was hugely beneficial to the nation.

Perhaps the revolution driven by coal, steam, and steel would have come regardless, but it’s hard to imagine it happening in quite the same hugely beneficial way for Britain. So too did the trade networks and investment potential of empire benefit the moneyed classes, as did the stability brought by the pound’s prominence. Meanwhile, those who were agentic and able—men like Cecil Rhodes and James Brooke—were granted immense opportunities that would not have existed but for the empire, and became vastly better off as a result of it. Such is not the case now that Britain is back to just being a nation, and what human capital it has is remarkable primarily for the degree to which it is squandered.

America must not trod down that same path. Yes, offshoring has been a disaster for America, and our empire seems designed primarily to ensure the worst possible outcomes occur repeatedly, rather than that we or those on whom our empire is inflicted benefit from it. Yes, our national debt burden is substantial, and getting worse. Yes, the social situation is tense, and trending in the wrong direction.

But those problems are overcomeable. Statesmanship and wise governance can fix them, much as trimming the bloated government and effectuating tax cuts where possible in a way that stimulates real investment and development in emerging sectors, primarily space and nuclear, would help us grow out of the debt burden. It has been done before, from a far worse starting point. It could be done again. We could do it now, and have another American Century.

But that will take doing what is difficult, with a focus on the long term—the McKinley strategy—rather than continuing to walk down the path that is the easiest purely because it is the easiest. Britain’s course over the 19th and 20th centuries shows us the two paths down which we could head. The first must be taken. Achievement and greatness must be embraced, not equality and temporary ease.

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1. This is noted by AJP Taylor in his The First World War and Its Aftermath

2. An infuriating example of this is covered in the context of the Grosvenor family and its decade-long feud with an entire agency devoted to taxing the Grosvenor fortune in Aristocrats by Robert Lacey

3. Lee Kuan Yew describes this in From Third World to First