Interdependence, Pauz A

Interdependence, pauz A. ~apayoanou Institutions, and the Balance of Power I Britain, Germany, and I World*War I I

I Economic ties were more extensive and significant in the period before 1914 than at any time before or since, and the chief protagonists of the period, Britain and Germany, were one another’s best customers. Yet Britain and Germany pursued much different foreign policies; Germany pursued an aggressive, expansionist foreign policy and Britain responded with an ambivalent ”straddle policy” toward Germany that was a mix of balancing and conciliation. Many argue that such disparate behavior and the outbreak of World War I falsify the view held by many liberal theorists of international relations that high levels of economic interdependence are conducive to peace; realist critics also suggest that this affirms their position that the requisites of high politics dominate in international politics.’ While the First World War clearly contravenes the liberal view, I argue that the realists are also wrong. Economic interdependence had a profound effect on British and German strategies in balance-of-power politics in the period leading up to August 1914, but the two pursued much different foreign policies because of

Paul A. Papayoanou is Assistant Professor of Political Science at the University of California, Sun Diego, and he completed a draft of this article while a Faculty Fellow of the University of California Institute on Global Conflict and Cooperation during the 1994-95 academic year.

I thank Jack Hirshleifer, Piper Hodson-Pierson, Barbara Morris, Richard Rosecrance, Lars Skllnes, Arthur Stein, and anonymous reviewers for their valuable comments; Risa Brooks, David DLugo, Robert Pahre, Philip Roeder, Ronald Rogowski, and participants at a seminar of the Princeton University Research Program in International Security for very helpful discussions; and Amy Cressey and Hung Tran for research assistance. I also gratefully acknowledge the Committee on Research of the UCSD Academic Senate for funding archival research in Britain, and the Institute on Global Conflict and Cooperation for generous financial support. I assume full responsibility for all errors and shortcomings.

1. For the liberal view, see for example, Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World (New York Basic Books, 1986); but see also Robert Jervis, ”The Future of World Politics: Will It Resemble the Past?” Znternational Security, Vol. 16, No. 3 (Winter 1991/92), pp. 39-73; and Stephen Van Evera, ”Primed for Peace: Europe After the Cold War,” International Security, Vol. 15, No. 3 (Winter 1990/91), pp. 7-57. For the realist view, see esp. John J. Mearsheimer, “Back to the Future: Instability in Europe After the Cold War,” International Security, Vol. 15, No. 1 (Summer 1990), pp. 5-56; and Kenneth N. Waltz, Theory of International Politics (Reading, Mass.: Addison-Wesley, 1979), chapter 7.

International Security, Vol. 20, No. 4 (Spring 1996), pp. 42-76 0 1996 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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the different ways their domestic political institutions aggregated political and economic interests. I first make this argument theoretically, refining and synthesizing liberal and realist perspectives to explain great-power strategies since the late nineteenth century.’ The nature of economic ties, I argue, is a critical determinant of whether societal economic interests will support or oppose a state’s security goals and policies. However, domestic political institutions affect whether internationalist or domestic-oriented economic interests are politically salient and able to affect strategic decisions. Thus, economic ties and political institutions determine whether strategists have the capacity to balance against threats they perceive, and whether they might pursue expansionist goals. Moreover, I argue, these domestic mobilization processes affect the expectations that state leaders have about one another’s intentions, and this has a strong effect on the international strategic interaction process between potential allies and adversaries. Thus, by affecting both the capacities of state leaders and others’ expectations, economic ties and political institutions determine the strategies great powers pursue in balance-of-power politics. The next section elucidates my theory, which is then used to explain the behaviors of Britain and Germany, the pivotal actors in European balance-of- power politics in the period leading up to August 1914. The article concludes by drawing out implications for international relations theory, the future of international politics, and policy.

A Theory of Great Power Strategies

Balance-of-power politics are important, but my theory goes beyond realist conceptions3and draws from liberal theory to incorporate variations in domes-

2. A longer and slightly different version of this theory with applications to the other historical cases and periods since the late nineteenth century discussed briefly in this article, can be found in Paul A. Papayoanou, ”Economic Interdependence and the Balance of Power,” and Economic Interdependence and the Balance of Power, unpublished manuscripts. Other recent interpretations of the relationship between international economic and security factors include Joanne Gowa, AIlies, Adversaries, and International Trade (Princeton: Princeton University Press, 1994); Edward D. Mans- field, Power, Trade, and War (Princeton: Princeton University Press, 1994); and Barry Buzan, ”Eco- nomic Structure and International Security: The Limits of the Liberal Case,” Infernational Organization, Vol. 38, No. 4 (Autumn 1984), pp. 597424. 3. There are many variants of realist balance-of-power theory, but all essentially argue that states tend to oppose threatening powers in the international system and that this balancing behavior is conducive to international stability as aspiring revisionist states will be prevented or deterred from achieving or pursuing their expansionist goals, or because states will be socialized to the system’s

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tic economic and political structures to account for strategies. Such a refinement of balance-of-power theory is necessary because state behavior is structurally determined and thus endogenous to the realist models, and so they cannot explain deviations from equilibrium-such as the emergence of threats, the failure of states to balance, and the outbreak of war in a system where balances of power are said to recur.4 To explain balancing behavior and the prospects for conflict, we must recognize that states can have varied preferences in similar strategic situations, and that there is uncertainty about what those preferences will be. My model thus presumes that some states will be status quo powers-great powers which would prefer not to see an upset to the territorial status quo- while others may have revisionist aspiration^.^ Some national security leaders of status quo powers will, for reasons of domestic politics, have the capacity to balance against threats they perceive, while others will not. The strategies that status quo powers pursue will, in turn, be signals in an uncertain world that affect whether other status quo powers will balance against threats and whether aspiring revisionist powers will risk aggression. Using this framework and logic, the theory then focuses on the impact that economic ties and political institutions have on the capacity of state strategists to mobilize against threats they perceive6 and on others' expectations, and how in turn the strategies of status quo and of aspiring revisionist powers are affe~ted.~

balancing dynamic. See Waltz, The0 y of Internationa! Politics; Edward Vose Gulick, Europe's Classical Balance of Power (New York Norton, 1955); Morton A. Kaplan, System and Process in International Politics (New York John Wdey and Sons, 1957); Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, 3rd ed. (New York: Alfred A. Knopf, 1960). 4. For an argument about how realist conceptions cannot explain why threats emerge and why countries develop revisionist aspirations, see also Jack Snyder, Myths of Empire: Domestic Politics and International Ambition (Ithaca, N.Y.: Cornell University Press, 1991), pp. 11, 22. 5. On the need for making such a distinction, see also Randall L. Schweller, "Bandwagoning for Profit: Bringing the Revisionist State Back In," International Security, Vol. 19, No. 1 (Summer 1994), pp. 72-107. 6. On threat perception, see Stephen M. Walt, The Origins of Alliances (Ithaca, N.Y.: Cornell Uni- versity Press, 1987). Note that I am concerned only with the perceptions of strategists (or national security leaders). My intention is to avoid a definition of threat perceptions that would make the theory potentially tautologous and non-falsifiable. Note also that threats need not be projected toward individual status quo powers to be significant, for great powers will also be deeply concerned about threats in the geographically proximate system since an upset to the balance can quickly endanger their security. See Morgenthau, Politics Among Nations, p. 169. 7. I am using here a logic found in Robert Jervis, The Logic of Images in International Relations (New York Columbia University Press Morningside Edition, 1989) and in signaling game theov. For a review of that literature, see Jeffrey S. Banks, Signaling Games in Political Science (Chur, Switzerland: Harwood Academic Publishers, 1991).

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I hypothesize about how firmly or weakly status quo powers respond to perceived threats8-which is determined by the extent to which they balance by augmenting their capabilities and taking a confrontational position to match and deter the threat, discounted by any conciliatory policies they pursue9-and whether aspiring revisionist powers are likely to risk aggression, that is, to use military force to upset the territorial status quo. What strategies are pursued has depended, since the modernization process of the late nineteenth century, on the capacity that status quo power strategists have had to mobilize to respond to threats, and on others' expectations of their intentions. Because the societal interests generated by economic links often act as powerful constraints or incentives on leaders, this process has depended to a significant extent on the pattern and level of economic ties in the great power system as well as whether domestic political institutions give median economic interests a say in the political process. I predict that firm balancing behavior that deters aspiring revisionist powers depends on there being extensive economic ties among status quo powers and few or no such ties between them and aspiring revisionist powers, and status quo powers must also have political institutions that give median economic interests a prominent voice. Other patterns of economic ties tend to make it difficult for status quo power strategists to make credible balancing commitments, and may even impel them to pursue conciliatory policies, while aspiring revisionist powers will see openings for successful aggression in these situations.

8. The distinction I am making between firm and weak responses differs from the popular balancing-bandwagoning analogy in the literature (see Walt, The Origins of Alliances). Band- wagoning-alignment or alliance with the source of danger-is not a choice in this model, for if status quo powers were to take sides with threatening powers, they would by definition no longer be status quo powers. My continuum is similar to that of Evan Luard, "Conciliation and Deter- rence: A Comparison of Political Strategies in the Interwar and Postwar Periods," World Politics, Vol. 19, No. 2 (January 1967), pp. 167-189; Luard sees policies as ranging from conciliation to deterrence, but typically including some mix even where one policy dominates. See also Dan Reiter, "Learning, Realism, and Alliances: The Weight of the Shadow of the Past," World Politics, Vol. 46, No. 4 (July 1994), pp. 490-526; Reiter notes that between balancing and bandwagoning is a choice of neutrality that often gets overlooked in the realist framework. 9. Status quo powers will be seen as responding firmly to the extent they undertake a vigorous internal mobilization of resources, a strong commitment to a defense pact, and/or forceful public declarations to counterbalance threats. Weaker responses include entente commitments, secret treaties, limited arms buildups (as opposed to an augmentation of capabilities to match the threats faced), nonalignment ke., refusing to ally with others or to pursue confrontational policies), and the pursuit of conciliatory policies such as appeasement, detente, or the signing of neutrality or nonaggression pacts.

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MODERNIZATION AND MOBILIZATION CAPACITY Beginning in the late nineteenth century, the great power system went through a process of modernization characterized by industrialization, urbanization, political centralization, and the rise of mass participation. Linkages between states and their societies thus grew tighter in most cases. As a result, modern statesmen have not usually worked in a political vacuum or had unlimited resources at their disposal in pursuing security policies, for they have often been constrained by groups that oppose a particular policy goal, have political access, and control valuable resources, or because they have had to be sensitive to the consequences of costly security policies for the economy and for social welfare spending. Hence, since security policies typically entail significant economic costs and political implications, it is important to consider whether modern strategists have the capacity to mobilize economic resources and political support from their societies."

ECONOMIC INTERESTS AND THE MEDIATING IMPACT OF POLITICAL INSTITUTIONS Economic ties or their absence give rise to internationalist or domestic-oriented economic concerns that can affect the mobilization capacities of modern political leaders, but whether they do depends on the nature of domestic political institutions. Economic ties can affect mobilization capacities in two ways-by the role played in the political process by vested interests created by international economic ties, and by modern political leaders' need to be concerned with the effects of security policies on their states' economic links and economies." First, economic ties, or the lack thereof, create and reflect the existence of vested interests-groups that either possess an economic stake in maintaining the trade, financial links, and investments they have or, if they are import-sensitive, an interest in avoiding links with other countries. Vested interests are thus affected by, and will seek to influence, their state's security policies.

10. Edward L. Morse, "The Transformation of Foreign Policies: Modernization, Interdependence and Extemalization," World Politics, Vol. 22, No. 3 (April 1970), pp. 371-392; and Morse, Modern- ization and the Transformation of International Relations (New York Free Press, 1976); Michael Barnett, "High Politics Is Low Politics: The Domestic and Systemic Sources of Israeli Security Policy, 1967-1977," World Politics, Vol. 42, No. 4 (July 1990), pp. 529-562; Alan C. Lambom, "Power and the Politics of Extraction," International Studies Quarterly, Vol. 27, No. 2 (June 1983), pp. 125-146. 11. Albert 0. Hirschman, National Power and the Sfructure of Foreign Rade (Berkeley: University of California Press, repr. ed. 1980); Robert 0. Keohane and Joseph S. Nye, Jr., Power and Interdepend- ence: World Politics in Transition, 2d ed. (Glenview, Illinois, Boston and London: Scott, Foresman and Company, 1989).

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Economic links may also affect the mobilization process by their implications for the economy. If economic ties to other powers make a state highly sensitive or vulnerable to changes in others’ policies, modern political leaders may have to be concerned with the significant adjustment costs that would arise in their own economy should economic ties break down, and thus whether security policies endanger or help preserve those links. Without extensive economic ties there are no such concerns with prospective adjustment costs, and so societal support for costly security policies will be lacking. In fact, modern political leaders may feel constrained. Since the welfare of their societies will not be strongly affected by what happens outside their state’s borders, their societies will be inward-looking and opposed to bearing substantial costs for external security commitments and policies. Both narrow interests and broader economic concerns, then, may have political salience for strategists hoping to mobilize for balancing. Whether these economic concerns are important, though, depends on the nature of political institutions. In democracies, we would expect economic interest groups and the society at large as voters to be fairly powerful in relation to the state. This constrains state leaders in democracies to pursue policies that are largely consistent with the median preferences of vested interests. It also impels them to be concerned with the prospective adjustment costs their economies would suffer in the event of a breakdown in economic ties, and to be sensitive to the effects costly security policies have on their economies.’2 Leaders may have similar sensibilities in some non-democracies, when the dominant political coalition includes the internationalist economic interest groups we would expect to see as powerful in an open political system when economic ties are extensive, or the domestic-oriented interest groups we would expect when ties are not ex tensive.13 In other non-democracies, those economic forces may have only a small role in, or be shut out of, the political process. In many authoritarian regimes, for instance, the leadership is quite autonomous from societal forces. And in praetorian polities the institutional framework may not effectively assimilate struggles between competing groups; thus narrow (economic or non-economic)

12. This argument is consistent with the premises of theoretical work on democracies and war, such as Michael W. Doyle, “Liberalism and World Politics,” American Political Science Review, Vol. 80, No. 4 (December 1986), pp. 1151-1169; and David A. Lake, ”Powerful Pacifists: Democratic States and War,” American Political Science Review, Vol. 86, No. 1 (March 1992), pp. 24-37. 13. Tsarist Russia in the late nineteenth century and perhaps present-day China are examples of non-democratic states in which internationalist economic interests wield a great deal of power.

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interest groups with disproportionate influence can capture national policy and shift it away from the preferences of median economic interest^.'^ Leaders of status quo powers with such non-democratic institutions will have a capacity to-mobilize that will be unaffected by the nature of economic ties and associated societal interests. These states will be less predictable, therefore, and the credibility of their commitments relatively weak. Such domestic political institutions may also account for why a great power might have and project aggressive intentions despite being strongly tied to the international economy. Internationalist concerns, given their stake in the international economy, would typically be opposed to military expansionism that could risk war against great powers. While such interests might advocate imperialism against small states to assure access (and often have), this is a much less risky and therefore more palatable, alternative than is imperialism against great power^.'^ Hence, if a great power’s political institutions shut internationalist concerns out of the process and give prominence to domestic- oriented economic or other narrow interests, it is quite possible that an aggressive rather than pacific foreign policy will be pursued in the great power system even when that state has extensive economic ties to other great powers. As discussed below, this accounts for why Germany pursued aggressive policies before the First World War despite being highly dependent on the international economy.

ECONOMIC TIES, BALANCING CAPACITY, AND EXPECTATIONS How do the economic interests generated by economic ties affect the balancing capacity of status quo power strategists and the expectations of others, where the domestic political institutions of status quo powers allow median economic interests a significant voice in the process?

14. See Michael Gordon, ”Domestic Conflict and the Origins of the First World War,” journal of Modern History, Vol. 46 (June 1974), pp. 191-226; Jack Snyder, ”Averting Anarchy in the New Europe,” International Security, Vol. 14, No. 4 (Spring 1990), pp. 5-41; and Snyder, Myths of Empire. 15. Alternative explanations for why a dependent state might be aggressive focus on states’ vulnerability to the severance of economic ties. See Nazli Choucri and Robert C. North, Nations in Conflict (San Francisco: Freeman, 1975); Robert C. North, ”Toward a Framework for the Analysis of Scarcity and Conflict,” International Studies Quarterly, Vol. 21, No. 4 (December 1977), pp. 569- 591; Waltz, Theory of International Politics, chapter 7; and Jack Hirshleifer, “The Technology of Conflict as an Economic Activity,” AEA Papers and Proceedings Vol. 81, No. 2 (May 1991), pp. 130- 134. I find none of these arguments persuasive in looking at great power relationships, for they do not demonstrate that economic interest groups or state leaders would risk war against other great powers. See also Dale C. Copeland, “Economic Interdependence and War: A Theory of Trade Expectations,” International Security, Vol. 20, No. 4 (Spring 19%), pp. 5-41.

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As a given status quo power’s dependence on other status quo powers approaches high levels, its strategists’ capacities for making and coming through on balancing commitments can be expected to be quite strong, ceteris paribus. Vested interests with a stake in other status quo powers will have a strong interest in supporting security policies that protect trade, financial links, and investments. Moreover, the adjustment costs to a status quo power’s economy will be substantial if its economic partners become victims of aggression and that market disappears. When a status quo power’s dependence on other status quo powers is high, therefore, societal concerns reinforce the natural proclivities of national security leaders to oppose threats firmly. In contrast, this capacity for balancing will tend to decline as a status quo power’s level of economic dependence on threatening powers increases. One reason is that vested interests with strong economic ties to states deemed threatening powers by strategists are likely to be more reluctant to believe there is a danger, given their positive relationship, and so will be opposed to balancing (unless the security threat is perceived to imperil the economic links, in which case societal economic interests would also have an interest in opposing the threat).I6 Another reason that the capacity to balance against perceived threatening powers may be weak is that there could be a fear by both political leaders and societal actors that confrontational political-military policies could jeopardize the political foundations of economic links. If the threatening power has non-democratic political institutions that prevent internationalist economic interests in that state from having much of a say in the political process, there may be a legitimate concern that confrontational policies would lead to a response that might include a severing of economic ties. For this reason too, then, constraints on balancing may come from vested interests of a status quo power that have economic ties with perceived threatening powers, and from political leaders wary about substantial economic adjustment costs if the ties were to break down as a result of confrontation. Because of their transparency and domestic salience, international economic ties also provide information to leaders of potential allies and adversaries that shape their expectations about the capacities status quo power strategists have, and thus shape the credibility of balancing commitment^.'^ And because the

16. It is in turn also likely that aspiring revisionist powers will try to avoid projecting aggressive designs that threaten economic ties with those status quo powers that they hope will keep out of balance-of-power politics. 17. Note that while interdependence is an important constraint, its implications are not the only considerations leaders are faced with, and though status quo power leaders may be constrained, what decisions they are willing to risk domestically will also be a source of uncertainty.

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Table 1. Status Quo and Revisionist Power Strategies. Level of economic interdependence between status quo and revisionist powers

Low I High

1 2

Low Weak response Weak response Level of economic Aggression Aggression interdependence among status quo 3 4 powers High Firm response Weak response

No aggression Aggression

firmness or weakness of a status quo power’s behavior depends to a significant degree on the domestic support leaders have to act abroad, the response to a perceived threat is a signal to other powers that tends to reinforce initial assessments of a state’s resolve. Hence, strong balancing commitments by a status quo power will tend to be seen as sincere, and so status quo powers are more apt to ally with one another and aspiring revisionist powers are more likely to be deterred. Conversely, weaker balancing and conciliatory policies by a status quo power will be signals that make other status quo powers more fearful that their potential ally may not come through on commitments, and aspiring revisionist powers more optimistic about their chances for pursuing aggression without meeting firm and effective opposition.

SUMMARY AND HYPOTHESES In sum, the vested interests and prospective adjustment costs to economies generated by economic ties are likely to have a strong effect on the mobilization capacity of national security leaders hoping to balance against threats and on the expectations of other great powers, though domestic political institutions may alter the process by giving prominence to actors with preferences at variance with median economic interests. Following on the foregoing discussion, and presuming status quo powers are democracies or have other political institutions that give median economic

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interests a prominent voice in the process, we would expect the general out- comes shown in Table 1. This summarizes the likelihood of firm or weak responses to perceived threats by status quo powers and of aggression by aspiring revisionist powers in four ideal-type worlds in which there are high or low levels of economic interdependence among status quo powers, and between status quo and threatening powers with revisionist aspirations. Only one of the four ideal-type worlds is predicted to have a stable balance-of-power system in which status quo powers respond firmly by balancing vigorously and peace is maintained because aspiring revisionist powers eschew aggression. The world in which we are likely to see firm balancing behavior that deters aspiring revisionist powers is one in which there are extensive economic ties among status quo powers and few or no such ties between them and aspiring revisionist powers (Cell 3 in Table 1). In such cases, leaders of status quo powers will have a great capacity to mobilize for balancing, as societal preferences converge with those of state strategists. A large number of vested interests in status quo powers will have a strong interest in supporting balancing policies to help protect threatened trade, financial links, and investments. Moreover, the adjustment costs to the economies of status quo powers, if the links were to break down as a result of aggression, would be substantial. Hence, leaders of status quo powers will be able to play power politics actively, and will be seen by other great powers as likely to come through on balancing commitments given the transparency of the stakes, apparent domestic support, and lack of constraining economic interests. Hence, if status quo powers are democracies or have other political institutions that give median economic interests a strong voice in the process, we should expect them to make both firm and credible balancing commitments, and aspiring revisionist powers are likely to be deterred. This proposition helps account, I would suggest, for the development of the Franco-Russian alliance in the 1890s and its effectiveness as a deterrent of Germany up to 1905 (when actual and perceived Franco-Russian capabilities outweighed German muscle), and for American and west European strategy, the NATO alliance, and the ”long peace” of the post-1945 Cold War era. In both there were significant and increasing economic ties among the allies that com- plemented the security motive, and few ties with Germany (before 1905) or the Soviet Union (after 1945). The proposition also accounts for the continuation of the Franco-Russian alliance from 1906 to 1914, as the nature of economic ties remained similar to that of the preceding period. However, after 1905 the

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combination of Franco-Russian capabilities was no longer sufficient to deter the German threat without the help of the British, so it was not a credible counterweight even though it was perceived to be a tight alliance. Weak responses by status quo powers-partial balancing measures or nonalignment and conciliatory policies-and aggression by aspiring revisionist powers are more likely when economic interdependence is not strong between status quo powers (Cells 1 and 2) or when status quo powers have significant links with revisionist powers (Cells 2 and 4). When economic interdependence is low among status quo powers (Cells 1 and 2), domestic support for balancing will not be strong, for few domestic interests have a stake in other status quo powers, and a breakdown of those economic ties will carry few adjustment costs for status quo powers’ economies. When a status quo power has strong economic links with states that its strategists deem threatening powers (Cells 2 and 4), meanwhile, there will be constraints from vested interests who do not share the strategists’ perception of aggressive intentions. And since the perceived threatening power in such a situation will be a non-democratic state in which internationalist economic interests wield little influence, strategists will also be constrained by vested interests and by political leaders concerned with the prospect of substantial adjustment costs, for those actors will fear that confrontational political-military policies could threaten the economic links. Such societal pressures will lead to a weak response and will undercut leaders’ capacities to make credible commitments, so an aspiring revisionist power is likely to risk aggression. Leaders of a status quo power with non-democratic political institutions in which median economic interests are locked out of the process, meanwhile, will have a greater capacity to mobilize through internal measures, but their interests will be less clear and thus the credibility of their external commitments to potential allies and toward potential adversaries will be low. These propositions explain the ambivalence of British strategy toward Ger- many before 1914, the weakness of British, French, Soviet, and American behavior in the 1930s, and the outbreak of the two world wars. The breakdown of the international economy in the thirties limited the capacity of leaders of Britain, France, and the United States to mobilize their societies to make firm and credible balancing commitments, and while the totalitarian Soviet polity allowed Josef Stalin to mobilize internal resources, Soviet political institutions diminished his credibility as a prospective alliance partner. Thus we saw, from Adolph Hitler’s ascension to power in 1933 until the September 1939 invasion

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of Poland, that the British and French appeased Germany and balanced only weakly, and the Soviets balanced internally but negotiated a pact with the Germans. Meanwhile, the United States remained essentially isolationist until the Japanese attack at Pearl Harbor in 1941. Before the First World War, meanwhile, there was a situation akin to a Cell 4 scenario. Britain and Germany-the pivotal actors in European balance-of- power politics-had quite significant economic ties, particularly with one another, though Britain also had extensive ties with France, its natural ally to balance the German threat. These economic links generated vested interests and adjustment-cost concerns that British strategists, working in a liberal democracy, could not ignore. As a result, they were constrained from balancing firmly against the Germans and instead pursued an ambivalent policy of balancing and conciliation. In contrast, Germany pursued an expansionist foreign policy because its pseudo-democratic political system gave prominence to aggressive socioeconomic, political, and military interests, while more pacific internationalist economic interests had little say in the political process. Eco- nomic ties also influenced German expectations about Britain in ways that helped cause the outbreak of war: Germany recognized the constraints of economic interests on British strategists and noted the mixed signals being sent by the British in the period leading up to August 1914. Thus, German leaders had reason to believe a rapid military offensive could be successful, and launched the Schlieffen Plan.

Applying the Theory: Britain and Germany

Britain and Germany were the chief protagonists in pre-1914 Europe, for their capabilities and real and perceived intentions were crucial to the balance of power. Germany was generally seen to pose the primary threat in the system because of its aggressive policies and military capabilities, and its ally, Austria- Hungary, was largely dependent on, and subordinate to, Germany. Britain, in alliance with France and Russia, was pivotal to checking aggression by Ger- many and Austria-Hungary. France and Russia, allied since the 1890s, did not pose an effective counterweight to the Dual Alliance after 1905, for Russia had been severely weakened by internal revolution and the Russo-Japanese War. Even the revival in Russian power in the years immediately preceding the war was not enough to offset

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the importance of Britain’s possible support.’8 Moreover, British, French, Rus- sian, and German strategists perceived that British support was essential. French and Russian leaders thus actively sought strong commitments from Britain, and British Foreign Secretary Sir Edward Grey and his fellow strategists saw a balancing policy through alliance with France and Russia and by internal mobilization (i.e., by enlarging the British Expeditionary Force [BEFI) as necessary to deter the germ an^.'^ Meanwhile, German leaders felt that if Britain were to stand aside at least initially, a rapid military offensive on the Continent would have a strong probability of success, and so looked repeatedly to discern British intentions in the years leading up to the war.

ECONOMIC INTERDEPENDENCE BEFORE 1914 There is general agreement that, in the aggregate, economic interdependence was quite high in the great power system in the period preceding the First World War. For the three biggest European powers, total trade (exports and imports) as a percentage of gross national product (GNP) was 38 percent for Germany, 52 percent for Great Britain, and 54 percent for France in the years leading up to World War I, and much of their trade was with one another. Moreover, the City of London produced great financial integration; there was significant factor-price equalization as wholesale price levels were closely associated (so economies responded very quickly to price changes in other economies);and trade and capital flows increased at dramatic per-decade rates

18. While there were some concerns in Germany about a growing Russia, Russia was seen to still be several years away from being a concern. Indeed, Marc Trachtenberg, “The Meaning of Mobi- lization in 1914,” International Security, Vol. 15, No. 3 (Winter 1990/91), pp. 120-150, shows that German leaders did not feel a need to make a preemptive first strike and restrained themselves from making the first move, preferring to blame the start of a war on Russia. Note also that in 1913 the Franco-Russian alliance could not match Austro-German capabilities, but with British capabilities added to those of the French and Russians, the Triple Entente clearly counterbalanced the Dual Alliance. See Zara Steiner, Britain and the Origins of the First World War (London: Macmil- lan, 1977), chapters 2-3; Steiner, The Foreign Ofice and Foreign Policy, 2898-1914 (Cambridge: Cambridge University Press, 1969), chapters 34; and Paul M. Kennedy, “The First World War and the International Power System,” International Security, Vol. 9, No. 1 (Summer 1984), pp. 19, 21 (Tables 8 and 9). 19. Eyre Crowe of the Foreign Office wrote in 1911, ”The balance of power . . . consists of a balance of force, actual or latent. . . . Great Britain would definitely upset the balance the day she signed away the right to use force against any particular State in the position held by Germany at present.” In the minutes to British Foreign Office (FO) Political Correspondence, FO 371/1123 No. 18222, May 14,1911, U.K. Public Record Office (PRO). See also Steiner, The Foreign Ofice and Foreign Policy, pp. 87-88,94,101; David French, British Strategy and War Aims, 1914-1916 (London: Allen & Unwin, 1986), pp. 2-3; Keith M. Wilson, The Policy of the Entente: Essays on the Determinants of British Foreign Policy, 1904-2914 (Cambridge: Cambridge University Press, 1985), pp. 48-53.

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of 63.5 percent and 83.8 percent respectively in the years leading up to the war?’ The dyadic economic relationship between Britain and Germany was particularly strong. Although the British had a balance-of-payments deficit with Germany, earnings from invisibles such as shipping, insurance, commodity- dealing, banking, and especially overseas investments more than compensated for it. One-fifth of Germany’s enormous demand for raw materials and food- stuffs was filled by the British Empire and financed by the City of London, and Lloyds of London insured much of the German merchant marine. Britain’s trade with Germany was increasing in the period before World War I and it was a greater proportion of total British trade than was trade with France, which was decreasing, while British trade with Russia was only about half of what it was with Germany from 1905 to 1913. In addition, Britain was the leading market for German exports--14.2 percent went to Britain in 1913-and Britain was a close second to the United States as Germany’s most important bilateral trade partner in 1913. Finally, both Britain and Germany were becoming increasingly dependent on trade, which was growing as a proportion of their GNPs up to 1913. Although there were some rivalries and strains in the Anglo-German economic relationship, there was overall a high degree of com- plementarity and mutual benefit as Britain and Germany gained greatly from trade and financial ties.*’

THE BRITISH SIDE Given the nature of economic ties, my theory predicts a weak response by Britain to the German threat. Working in a liberal democracy, British strategists hoping to mobilize against what they perceived to be a significant German threat would be constrained by societal economic concerns. These constraints would come from vested interests with stakes in the Anglo-German economic relationship and from concerns with the high adjustment costs the British

20. Waltz, Theory of International Politics, p. 212; Richard Rosecrance, Alan Alexandroff, Wallace Koehler, John Kroll, Shlomit Lacqueur, and John Stocker, ”Whther Interdependence?” International Organization, Vol. 31, No. 3 (Summer 1977), pp. 425471; Peter J. Katzenstein, “International Inter- dependence: Some Long-term Trends and Recent Changes,” International Organization, Vol. 29, No. 4 (Autumn 1975), p. 1024. 21. Paul Kennedy, The Rise of the Anglo-German Antagonism, 1860-1914 (London and Atlantic Highlands, N.J.: The Ashfield Press, 1980), pp. 294-295; and Kennedy, Strategy and Diplomacy, 1870-1945: Eight Studies (London: Fontana Paperbacks, 1983), pp. 93-95. For the statistics, see B.R. Mitchell, European Historical Statistics, 7 750-1 970 (New York Columbia University Press, 1975), pp. 526, 573, and in the abridged edition (1978), pp. 304,307,411,416.

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economy would suffer if economic links broke down as a result of confrontational political-military policies. Hence, British strategists would be constrained by domestic economic interests from balancing against the German threat, and a weak response would follow?’ Britain’s ambivalent ”straddle policy” in the period leading up to August 1914 is consistent with the prediction. The policy included entente balancing with France and Russia and a response to the German naval challenge. How- ever, the ententes were merely agreements to consult in a crisis; no commitments to come to the aid of France or Russia were made. And while the naval buildup helped insure Britain’s survival, it added little to the security of the Continent. Moreover, Britain failed to build up its army’s resources or to undertake conscription, and was unwilling to commit to sending the expeditionary force to the Continent. Britain also pursued something of a de‘tente with the Germans, negotiating over naval, political, economic, and colonial matters after 1911. And in the crisis of July 1914, Grey pursued mediation and only issued a private, informal warning to Germany. All in all, then, British policy was a mix of balancing and conciliation, as predicted. In what follows, I show that the hypothesized reasons for British policy are also borne out by the historical record. Pressure groups, Cabinet ministers, and members of Parliament whose interests were shaped in large part by economic interdependence were significant constraints on the strategists. While many historians recognize the importance of domestic constraints, most see the divi- sion on foreign policy within the Liberal Party as a guns-versus-butter battle between Liberal Imperialists and radical^.'^ My analysis of the positions and strength of Cabinet ministers on various strategic policies reveals such a dis-

22. Note that, in explaining why Britain pursued the policy it did, my argument supplements the view that stresses the failure of Britain to attempt deterrence of Germany as an important factor explaining the war. See Jack S. Levy, “Preferences, Constraints, and Choices in July 1914,” Interna- tional Security, Vol. 15, No. 3 (Winter 1990/91), pp. 151-186; Scott D. Sagan, “1914 Revisited: Allies, Offense, and Instability,” International Security, Vol. 11, No. 2 (Fall 1986), pp. 151-175; and Sean M. Lynn-Jones, “Ditente and Deterrence: Anglo-German Relations, 1911-1914,” International Security, Vol. 11, No. 2 (Fall 1986), pp. 121-150. Their work and this article challenge the conventional argument that the war was a consequence of a spiral dynamic rooted in factors such as perceptions of offense-dominance, rampant unchecked militarists, tight alliances, and misperceptions. Work in that vein includes Luigi Albertini, The Origins of the War of 1924,3 vols. (London: 1952-57); L.C.F. Turner, Origins of the First World War (New York Norton, 1970); Barbara Tuchman, The Guns of Augusf (New York 1962); Jack L. Snyder, The Ideology of the Offensive: Military Decision Making and the Disasters of 1914 (Ithaca, N.Y.: Cornell University Press, 1984); and Stephen Van Evera, ”The Cult of the Offensive and the Origins of the First World War,” International Security, Vol. 9, No. 1 (Summer 1984), pp. 58-107. 23. See, for example, Wilson, The Policy of the Entente.

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tinction to be misleading. Instead, I show that several pivotal political figures became more or less hawkish over time as their ministerial positions in the Cabinet and thus their bureaucratic constituencies changed, making them more sensitive to strategic or to international economic concerns.24Most other ministers, meanwhile, tended to be quite dovish, as predicted given the strength of Britain’s economic ties with Germany. Hence, the divisions in the Cabinet were largely between the strategists and others in the Cabinet, particularly those sensitive to economic concerns. Moreover, British policy was influenced in important ways by direct pressure from economic interests in the policy- making process and by political leaders’ concerns about the costs that would come to the British economy from a war, which would severely disrupt international economic relations. THE NAVAL ISSUE, 190W9. In 1908, Chancellor of the Exchequer David Lloyd George and Board of Trade President Winston Churchill vigorously opposed the estimates of naval requirements coming from the Admiralty. They sought to have the figures reduced, partially by seeking an agreement with Germany, whom they did not see in suspicious terms and with whom they saw common interests. They made speeches throughout Britain advocating such an approach, and Lloyd George even attempted to negotiate in Berlin, prompting an irritated Grey to threaten resignation. Yet Lloyd George and Churchill continued their opposition, and when the Cabinet met to discuss the Admiralty’s request to build new dreadnoughts in 1909, it nearly fell apart. The strategists- Grey, First Lord of the Admiralty Reginald McKenna, and Richard Haldane of the War Office-and three others (Walter Runciman, the Earl of Crewe, and Sydney Buxton), were in favor of building six. So-called “economists” in the Cabinet-Lloyd George, Churchill, and strong representatives of business cir- cles, including Lewis Harcourt, John Burns, Lord Loreburn, and John Morley- wanted only four. Ultimately, Prime Minister Herbert Henry Asquith got the

24. George L. Bernstein, Liberalism and Liberal Politics in Edwardian England (Boston: Allen & Unwin, 1986), p. 168, makes a similar point in discussing divisions within the British Cabinet; K.G. Robbins, “The Foreign Secretary, the Cabinet, Parliament and the Parties,” in F.H. Hinsley, ed., British Foreign Policy Under Sir Edward Grey (Cambridge: Cambridge University Press, 1977), pp. 3-21, also sees the splits in the Cabinet as not so straightforward. On the importance of bureaucratic affiliation and policy positions, see Graham Allison, Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little, Brown, 1971). Although I draw on the bureaucratic politics approach here, such a model cannot explain the behavior, for it is not clear what many bureaucratic agency heads’ interests would be on British foreign policy; moreover, as Stephen Krasner, ”Are Bureaucracies Important? (Or Allison Wonderland),” Foreign Policy, No. 7 (Summer 1972), pp. 159-179, writes, it matters who has the ear of the president (in this case, the prime minister) in determining the balance of power among bureaucratic interests.

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Cabinet to agree to a compromise that four ships would be built immediately, and that four more could be ordered by April 1910 if German construction appeared to make such a step necessary.25 Although the strategists essentially got their way on this issue, the conflict surrounding it revealed a serious disquiet in the Cabinet that could not be ignored in the making of foreign policy, and the battle lines were, as the theory suggests, essentially between the strategists and those representing economic interests. ENTENTE POLICY AND THE CONTINENTAL COMMITMENT. To maintain peace on the Continent, the strategists felt it necessary from the first years of the Liberal Government that the entente with France especially, but also with Russia, be made into an alliance; this would be a stabilizing deterrent in the international system. Yet, while military and naval conversations had taken place with the French since 1906 and the General Staff drew up plans for a Continental commitment, these were kept secret from the Cabinet, no pledge of support was given to France, and relations with Russia were even more standoffish.26Thus, as Eyre Crowe of the Foreign Office remarked in January 1911, “the fundamental fact of course is that the Entente is not an alliance.”27 That the entente was not an alliance had much to do with domestic constraints. Grey and his colleagues in the Foreign Office firmly believed that Britain should be committed to France in the event of war with Germany, and that the ententes with France and Russia were possible deterrents. But Grey did not pursue an alliance because a majority of the Cabinet was opposed, and economic concerns were an important reason. Indeed, it was strong supporters of internationalist business and financial interests-mostly those who had

25. And they were built. David DLugo and Ronald Rogowski, “The Anglo-German Naval Race and Comparative Constitutional ’Fitness’,” in Rosecrance and Stein, eds., The Domestic Bases of Grand Strategy (Ithaca, N.Y.: Cornell University Press, 1993), pp. 89-90; Raymond James Sontag, European Diplomatic History, 1871-1932 (New York Century, 1933), pp. 108, 113, 120, 127, 129-132; Robbins, “The Foreign Secretary, the Cabinet, Parliament and the Parties,” pp. 9-13; Kennedy, The Rise of the Anglo-German Antagonism, pp. 458459; Steiner, The Foreign Ofice and Foreign Policy, p. 89; Michael Lawrence Dockrill, “David Lloyd George and Foreign Policy Before 1914,” in A.J.P.Taylor, ed., Lloyd George: Twelve Essays (New York: Atheneum, 1971), pp. 5-9. 26. Michael Ekstein, ”Sir Edward Grey and Imperial Germany in 1914,” Thelournal of Contemporary History, Vol. 6, No. 3 (1971), pp. 121-128; Sontag, European Diphatic History, pp. 129, 132, 184-185; Steiner, Britain and the Origins of the First World War, chapter 3; Wilson, The Policy of the Entente, pp. 35-41; Bernstein, Liberalism and Liberal Politics in Edwardian England, pp. 182-185; Robbins, “The Foreign Secretary, the Cabinet, Parliament and the Parties,” pp. 16, 18. 27. Quoted in K.A. Hamilton, “Great Britain and France, 1911-1914,” in Hinsley, ed., British Foreign Policy Under Sir Edward Grey, p. 324.

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opposed Grey in the 1909 dreadnought dispute-that led a majority of the Cabinet in opposing an alliance and in seeking a commitment to neutralityz8 The Agadir crisis of July 1911 led to a slight but temporary revision of the Anglo-French relationship. Germany’s demands on Morocco, which instigated the crisis, and its uncompromising positions in Franco-German negotiations prompted a tougher stand by the British Cabinet. This was due in no small part to the conversions of Lloyd George and Churchill, who had previously been quite pro-German. Lloyd George, in the Mansion House speech to City of London financiers on July 21, 1911, issued a stern warning to Germany on Agadir. Grey welcomed the speech, for it isolated those in the Cabinet who had previously allied with Lloyd George in opposition to balancing policies, and he saw that it would have a great impact on the Germans, coming as it was from the Chancellor of the Exchequer. Moreover, in meetings with other British officials, Lloyd George and Churchill took very militant positions toward Germany, and they even worked to get Britain prepared for The domestic constraints remained, however, so Asquith attempted to cir- cumvent them by convening a special meeting of the Committee on Imperial Defence KID) on August 23, 1911, to determine British military and naval strategy in the event of war. The Cabinet had not been informed of this meeting and by design no “dissenter” was present; even some members of the CID were not invited. Grey, Asquith, Haldane, Lloyd George, and Churchill, five of the seven present (the others were McKenna and Sir Arthur Wilson), argued that Britain had to send direct military aid, including the army, to France. But the continental strategy was scuttled, for the meeting did not remain secret for long and the Cabinet voted 15-5 (the minority being Grey, Asquith, Haldane, Lloyd George, and Churchill) in November 1911 to place restrictions on British policy that precluded any commitments of military or naval intervention. This conflict also led to renewed pressures in the Cabinet for talks with the Germans?’

28. Wilson, The Policy of the Entente, pp. 3541; Steiner, The Foreign Office and Foreign Policy, pp. 123-125; Bernstein, Liberalism and Liberal Politics in Edwardian England, pp. 182-186; David French, British Economic and Strategic Planning, 1905-1915 (London: George Allen & Unwin, 1982), p. 32. 29. Wilson, The Policy of the Entente, p. 27; Bernstein, Liberalism and Liberal Politics in Edwardian England, pp. 187-188; Dockrill, “David Lloyd George and Foreign Policy Before 1914,” pp. 14-15, 16-20. 30. Wilson, The Policy of the Entente, pp. 27-29, 135-136; Robbins, “The Foreign Secretary, the Cabinet, Parliament and the Parties,” pp. 15-16, 20; French, British Economic and Strategic Planning, pp. 32-35; Hamilton, ”Great Britain and France, 1911-1914,” p. 325; Steiner, The Foreign Office and Foreign Policy, pp. 125-126; Steiner, Britain and the Origins of the First World War, chapter 3.

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On naval and entente policy, and on the Continental commitment, British strategists were thus highly constrained at home by the Cabinet as predicted by the theory. Most of the Cabinet, and particularly those heading economic ministries, took quite dovish positions up to August 1914, and those heading security ministries took hawkish stands, as my argument suggests. For instance, Grey, Asquith, and Haldane, three of the chief strategists, consistently sought to balance firmly against the German threat. And while First Lord, McKenna favored the building of dreadnoughts, and though he was not in favor of sending troops to France in the wake of Agadir, he did favor support of France by other means.31 It is also noteworthy that McKenna went from supporting Lloyd George and Churchill in their opposition to the Admiralty’s naval estimates in 1908, when he headed the Board of Education, to being a staunch defender of the figures in the 1909 Cabinet battles after becoming First Lord of the Admiralty in April 1908?2 Then, after being replaced at the Admi- ralty in October 1911 by Churchill and moving to the Home Office, McKenna again took consistently dovish positions, voting for restrictions on British policy, advocating conciliation of Germany, and opposing Churchill on naval estimates. Hence, when McKenna was not First Lord, and thus not as sensitive to strategic concerns, he was less hawkish than when he was heading the Admiralty. Those who were not strategists, and particularly those who were in positions that made them sensitive to international economic concerns, tended to be more dovish. For instance, Buxton switched from siding with Grey in the Cabinet’s 1909 dreadnought dispute, when he was postmaster-general, to advocating conciliation with the Germans upon moving to the Board of Trade in 1910, where his primary constituency was trading interests.33Churchill too was quite dovish while he was head of the Board of Trade, but took consistently hawkish stands after leaving that post in February 1910 and especially as First Lord of the Admiralty from October 1911 to the war. Hence, once Churchill’s bureaucratic constituency no longer comprised internationalist economic interests, and particularly when as First Lord strategic concerns were of greatest importance to him, Churchill shed dovish positions for hawkish ones.

31. French, British Strategy and War Aims, p. 5. Given McKenna’s concerns to guard the Admiralty and his lack of support for the army, one might ask why Haldane supported dreadnought construction. The reason is that Britain’s navy was seen as a key to its very survival. Expansion of the army was important to preserving peace on the Continent, less so to Britain’s survival. 32. Steiner, The Foreign Office and Foreign Policy, p. 89. 33. Ibid., pp. 125-6.

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Lloyd George’s generally dovish behavior on naval and entente policy is consistent with what we would expect from a Treasury head,34 but his hawk- ishness during the Agadir crisis appears anomalous. However, two considerations make his actions understandable. First, the tone of his speech suggests a sense of indignation, which is hardly surprising since he had worked for three years with the Germans, who were nonetheless thoroughly uncompromising in the crisis. Second, Lloyd George also saw vital British commercial interests threatened by the German provocation over Morocco, a natural concern for a Chancellor of the Exchequer and one consistent with the theory.35Hence, his response to the Agadir crisis represented a quite understandable shift in views, and this was temporary since Lloyd George reverted to a quite dovish stance toward the Germans not long after Agadir. DIRECT PRESSURES AND ADJUSTMENT COST CONCERNS. British policy was also influenced directly by British commercial and financial interests, and by politicians’ concerns with the likely effects on the British economy of a possible war. For instance, financial interests played a direct role in the CID meetings after Agadir, raising serious concerns about the financial consequences of a war with Germany. Those effects would be profound since the City of London had been profiting enormously from the growth in the trade of foreign countries, and so depended on a stable international environment. And with a large part of German foreign trade being financed by London banks, which facilitated German acquisition of raw materials, an Anglo-German war might well lead to the collapse of several important London banks owed millions of pounds by German industry, which would hurt the British economy badly. The strate gists also learned in the CID meetings that Lloyds of London insured much of the German merchant marine and was inclined to pay out for losses incurred in wartime, even if the Royal Navy was involved in the conflict.36 British economic interests also had direct influence through the Foreign Office’s Commercial Department, which worked closely with British business interests. As a result, Grey often cooperated with financial or commercial institutions and associations to insure a “fair field and no favour” for British trade and investment, and in this capacity, Grey became well aware that British

34. To be sure, Lloyd George’s concerns were partly budgetary, as most accounts emphasize. However, making the entente into an alliance would have, by increasing military coordination, reduced balancing costs for Britain. Hence, budgetary concerns could not explain Lloyd George’s opposition to the alliance. 35. Dockrill, ”David Lloyd George and Foreign Policy Before 1914,” pp. 15-31. 36. Kennedy, Strategy and Diplomacy, pp. 93-95; CAB 16/18A (Cabinet Records, Britain), PRO.

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business supported the improvement in Anglo-German political relations prior to 1914 and wanted no disturbance of the peace.37 Grey and other politicians were also keenly aware of the high adjustment costs a war might bring to the British economy because of the strength of Britain’s international economic ties. Thus Grey spoke in February 1914 of how war was the worst possible thing that could happen to trade. Indeed, one of the government’s premises in its prewar plans was that war would disrupt trade and financial links that Britain was highly dependent on, causing food shortages, high prices, and unemployment. “A deep pessimism pervaded the government’s thinking about the likely domestic repercussions of the outbreak of war. Trade across the North Sea would collapse, the mechanisms of international finance would seize up, hundreds of thousands would be thrown out of work and hungry mobs would riot in the streets and perhaps try to force the government to make a premature peace.”% THE HALDANE MISSION.In January 1912 the Germans requested from the British a promise of “benevolent neutrality” should one of them become involved in a war. Grey, Asquith, and the permanent officials of the Foreign Office were opposed to making a binding promise of neutrality and saw in the German request a plot to disrupt the entente. However, Cabinet opposition inspired by economic interests impelled Grey to try to reach an understanding with Germany, so Haldane was sent to negotiate on naval and colonial ques- tions in February 1912.39 The first moves leading to the mission came from Albert Ballin and Ernest Cassel, business and financial leaders in Germany and Britain respectively who feared the economic consequences of an Anglo-German war. According to Grey, they made overtures to the members of the Cabinet who were most likely to be favorable to conciliation with Germany. Grey found himself faced with a majority of the Cabinet pushing for negotiations, and many of them-Lloyd George, Joseph Pease, Harcourt, McKenna, and Lord Loreburn-were pressing for a neutrality clause. Grey could not resist so much pressure from his colleagues, and so had to undertake discussions!0

37. See Ross J.S. Hoffman, Great Britain and the German Trade Rivalry, 1875-2924 (New York: Russell & Russell, 1964), pp. 62, 27S279; K.G. Robbins, ”Public Opinion, the Press and Pressure Groups,” in Hinsley, ed., British Foreign Policy Under Sir Edward Grey, pp. 87-88; and documents in the Foreign Office Commercial Series FO 368, PRO. 38. French, British Economic and Strategic Planning, pp. 18, 76-77, 85. 39. Wilson, The Policy of the Entente, pp. 2629; Robbins, ”The Foreign Secretary, the Cabinet, Parliament and the Parties,” p. 18; Sontag, European Diplomatic History, pp. 140-142; Fischer, War of Illusions, p. 124. 40. R.T.B. Langhorne, “Great Britain and Germany, 1911-1914,” in Hinsley, ed., British Foreign Policy Under Sir Edward Grey, pp. 288-289; Steiner, The Foreign Office and Foreign Policy, p. 127; Wilson,

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The power of economic interests in bringing about the mission was noted and resented by diplomats and Foreign Office officials. One notable example of this surrounded a memorandum written by George Goschen, Britain’s ambassador to Germany, about an article writen by Count Reventlow, a German publicist. Reventlow’s article discussed how these Anglo-German negotiations were initiated by Ballin and Cassell, and Goschen reported that Reventlow concluded in essence: ”There can be no possible doubt but that the relations between European countries would be clearer, and, above all, more straightforward and above-board if the Jewish financial element could be altogether excluded from exercising any direct, or even indirect, influence upon international diplomatic negotiations.” To this, Crowe wrote in the minutes, “I do not often agree with Count Reventlow, but I share the view expressed in the concluding paragraph.” And his colleague Arthur Nicolson echoed the point: ”I also entirely agree with the concluding paragraph in Count Reventlow’s arti~le.”~’ The negotiations did not, however, lead to an agreement. Though Haldane was quite accommodating, the Germans remained steadfast in demanding unconditional neutrality, and negotiations broke down. Nonetheless, economic interests had impelled the strategists to make a reply to the German request that went far beyond what Grey and his advisers wanted to give, even though it fell short of the German proposal!2 THE PORTUGUESE COLONIES. Economic interests also had a significant impact on negotiations begun in late 1911 with Germany on the future partition of the Portuguese colonies in Africa. British business interests motivated discussions on the Portuguese colonies, and the Foreign Office had only partial control of this matter. The head of the Colonial Office, Harcourt, pursued the negotiations largely independently from the Foreign Office and often at cross purposes to it, prompting Crowe to comment sarcastically about ”Mr. Harcourt’s own private negotiations . . . of which not even this office has any information.” Harcourt was also able to organize those in the Cabinet in favor of a dktente

The Policy of the Entente, pp. 26, 29; Friedrich Wilhelm Wiemann, ”Lloyd George and the Struggle for the Navy Estimates of 1914,” in Taylor, ed., Lloyd George, p. 73. 41. British Foreign Office Political Correspondence, FO 371/1371 No. 17863, PRO. See also Wie- mann, “Lloyd George and the Struggle for the Navy Estimates of 1914,” p. 73. Referring to the “financial element” as Jewish, as Reventlow did, reflected a conflation of the two groups that was then a common attitude in Britain as well as Germany. It is clear from the context of the Reventlow article and the responses cited that the concerns were with the ”financial element,” not its supposed domination by Jews. 42. Robbins, “The Foreign Secretary, the Cabinet, Parliament and the Parties,” p. 18; Fischer, War of Illusions, pp. 124-130; Sontag, European Diplomatic History, pp. 169-170.

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against the Foreign Office and so was able to reach an agreement in August 1913 which gave Germany a larger share of the Portuguese colonies. It was never formally signed, however, for the Foreign Office insisted on publication of the agreement, a condition Germany refused to accept. As with the Haldane Mission, then, British conciliation of the Germans was inspired by economic forces outside the control of the Foreign Office and was far more extensive than the strategists hoped to see, but Grey again had the last word on critical details :3 THE NAVAL ISSUE, 1913-14. Naval expenditure was again a contentious issue for the Cabinet toward the end of 1913. The First Lord of the Admiralty, Churchill, was seeking increases for 1914-15 that would far exceed the demands of 1913-14, and he was met with opposition from Lloyd George and many in the Cabinet-including Hobhouse, McKenna, Simon, Beauchamp, Samuel, Runciman, and Pease-who sought to reduce the size of the request. Most of these Cabinet members also lobbied for Churchill's resignation in December 1913 and January 1914, and about 100 members of parliament protested the increased navy estimates as After doing battle publicly, Lloyd George and Churchill met privately with Asquith in January 1914. Asquith took Churchill's side and warned Lloyd George that a general election would ensue if he came through on his threat to resign over the matter. Lloyd George backed down and the others opposing Churchill also acquiesced, getting only a concession from Churchill that there would be reductions in 1915-16. But a few days later, Churchill declared he was not bound by this promise, and Lloyd George rallied those in the Cabinet opposed to Churchill and made further noises about ousting the First Lord. Such efforts were to no avail, though Churchill did call for some modest cuts in resp0nse.4~ We see on this issue that Churchill, who had once opposed naval increases as Board of Trade head, was now their chief advocate as First Lord. And Chancellor of the Exchequer Lloyd George, who had allied with Churchill in

43. Lynn-Jones, "De'tente and Deterrence," pp. 125-127; A.J.P. Taylor, The Struggle for Mastery in Europe, 1848-1928 (Oxford: Oxford University Press, 1954), pp. 502-504; Langhorne, "Great Britain and Germany, 1911-1914," pp. 308-11; Wilson, The Policy of the Entente, pp. 28-29. 44. Dockrill, "David Lloyd George and Foreign Policy Before 1914," pp. 24-25; Wiemann, "Lloyd George and the Struggle for the Navy Estimates of 1914," pp. 75-76; Robbins, "The Foreign Secretary, the Cabinet, Parliament and the Parties," pp. 20-21. 45. Dockrill, "David Lloyd George and Foreign Policy Before 1914," p. 25; Wiemann, "Lloyd George and the Struggle for the Navy Estimates of 1914," pp. 8M6; Robbins, "The Foreign Secretary, the Cabinet, Parliament and the Parties," p. 21.

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the early battles over naval estimates, was leading the strong opposition to the demands of his longtime friend. Hence, Churchill and Lloyd George pursued hawkish or dovish concerns depending on whether their ministerial positions made them sensitive to strategic or to economic interests. THE JULY CRISIS. In July 1914 and up to August 2, British strategists pursued conciliation, were slow to adopt balancing policies, and did little to attempt deterrence. Upon learning of the Austrian ultimatum to Serbia on July 24, Grey twice proposed mediation and a four-power conference, and although he did issue an informal warning on July 29 through Germany’s Ambassador Karl Lichnowsky, this was a private rather than public threat. The Cabinet, meanwhile, would not agree to commit on the question of Belgian neutrality unless all five signatory powers to the 1839 Treaty did so. The Cabinet also decided, on August 1, against sending the BEF to the Continent. Grey thus had to tell his French counterpart Paul Cambon, ”France must take her own decision at this moment without reckoning on an assistance that we are not now in a position to promise.”46 Grey could not send an unambiguous warning to Germany nor give an assurance to France because of Cabinet constraints. He and the other chief strategistsxhurchill, Asquith, and Haldane-as well as Crewe of the India Office, wanted to do more to support France, but the rest of the Cabinet was opposed to intervention. One of the reasons that Cabinet ministers were constraining Grey was that they were sensitive to the City of London’s strong opposition to war. There were, too, grave concerns with adjustment costs, for financial chaos in late July was such that even Grey was thinking that Britain might have to stay out as ”the only means of preventing a complete collapse of European credit” and to avert the total collapse of world trade. Hence, Grey did not believe he had sufficient domestic support for issuing an ultimatum to Germany or for supporting France.47 It was not until August 2 that the British Cabinet took the first step toward intervention, deciding that violation of Belgian neutrality was cause for going to war. And when Germany issued an ultimatum to Belgium and declared war on France on August 3, Britain mobilized its army and the Cabinet responded

46. Quoted in Sontag, European Diplomatic History, p. 200. On this history, see Steiner, Britain and the Origins of the First World War, pp. 225-235. 47. Michael G. Ekstein and Zara Steiner, “The Sarajevo Crisis,” in Hinsley, ed., British Foreign Policy Under Sir Edward Grey, pp. 404406; Bernstein, Liberalism and Liberal Politics in Edwardian England, p. 193; Sagan, ”1914 Revisited,” pp. 169-170; Levy, ”Preferences, Constraints, and Choices,” p. 169; French, British Economic and Strategic Pluming, p. 87.

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with an ultimatum to Berlin. Germany’s invasion of Belgium the following day brought a British declaration of war at midnight, and two days later the Cabinet agreed to send the BEF to France. Cabinet members could be per- suaded after August 2 because a German occupation of the Belgian and French coasts would pose a significant threat to the security of the British Isles. It was this prospect that had led to the conversion of the Cabinet and loosened the constraints that had prevented the strategists from balancing firmly and pos- sibly deterring the Germans.48

THE GERMAN SIDE I argue that if non-democratic political institutions shut median economic interests out of the political process, then internationalists will not be a constraint on their governments even when their state’s international economic links are extensive. It is for this reason that Germany, despite being dependent on the international economy, would have had aggressive intentions. The theory also leads us to expect that German leaders would see interdependence as generating constraints on British strategists, and that this would give the Germans optimistic expectations about British intentions and the prospects for a successful military offensive on the Continent. I show that Germany’s pseudo-democratic political structure gave prominence to aggressive socioeconomic, political, and military forces, some of whom perceived economic interdependence to entail pernicious effects, while pacific internationalist economic interests were marginalized in the political process. As a result, expansionist goals and policies intended in part to alter the nature of economic links and reduce German vulnerability were adopted. However, Germany did not act without awareness of Britain’s potential role as the pivotal balancer. This caused German leaders to attempt to determine, and even influence, British intentions. In doing so, Germany recognized that there were significant domestic constraints on British strategists emanating from international economic concerns, and saw mixed signals coming from Britain. There was, consequently, perceived to be a reasonable chance that British strategists would be unable to thwart the Schlieffen Plan!9

48. Ekstein and Steiner, ”Sarajevo Crisis,” pp, 407409; Steiner, Britain and the Origins of the First World War, p. 230; Sontag, European Diplomatic History, pp. 20C-201. TWOmembers resigned over the change in British policy, including notably Board of Trade head Burns. 49. This contributes to the important debate on German motivations sparked by Fritz Fischer, War of Illusions: German Policies from 1911-1914 (New York: Norton, 1975); and Fischer, Germany‘s Aims in the First World War (New York: Norton, 1961/1967). Fischer argued that Germany was primarily

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A PSEUDO-DEMOCRACY.From the 1870s to 1914 Germany’s political structure was “an autocratic monarchy with a few parliamentary trimming^."^' Al- though there was a legislature, including a popularly elected house, the Reich- stag, it had no power to unseat government ministers, who were selected by the kaiser. Moreover, the kaiser had great authority over foreign affairs, including the right to wage war and supreme command of the armed forces. The legislature was not powerless, however. Laws needed a majority in both the Reichstag and the Bundesrat, and the approval of the kaiser and chancellor, to go into effect. Hence, tariffs, direct taxes, and the budget required legislative approval, so the executive branch was not simply free to do what it wanted on foreign economic and military procurement policies. However, legislative power favored the Bundesrat, which had the power to initiate bills and to block bills or amendments coming from the Reichstag. This was important since the Prussian government had ascendancy in the Bundesrat under the Constitution of 1871, and its interests were largely those of the Junkers, the landed aristoc- racy. Hence, the Reich government often had to reach agreements that were consonant with those agrarian interests5’ Moreover, though elections to the Reichs tag were by universal adult male suffrage, the ”Government interfered notoriously in local campaigns, the undemocratic Bundesra t had an unlimited power of dissolution, and the electoral districts were increasingly malappor- tioned against the urban intere~t.”~’ It was, then, a governmental structure that gave prominence to the Junkers and to the kaiser and chancellor. They could not simply rule as they wished, but they had effective veto power. For that reason they had to form coalitions with other groups to pursue their goals, and coalitions that did not include the

responsible for the First World War and that the sources of its policies could be found in its domestic political, economic, and social structures. I argue that Fischer and others, such as Gordon, ”Domestic Conflict and the Origins of the First World War,” and Snyder, Myths of Empire, are largely correct in pointing to political economic factors as sources of German policies, but they do not identify sufficient conditions for German behavior, which was also influenced by intemational-level strategic interaction calculations, particularly uis-d-vis Britain. On the Fischer controversy, see David E. Kaiser, “Germany and the Origins of the First World War,” Iournal of Modern History, Vol. 55, No. 3 (September 1983), pp. 442-474; and John A. Moses, The Politics of Illusion: The Fischer Controversy in German Historiography (London: George Prior, 1975). 50. V.R. Berghahn, Germany and the Approach of War in 1924 (New York: St. Martin’s Press, 1973), pp. 9-11. 51. Ibid., pp. l(r11; Alexander Gerschenkron, Bread and Democracy in Germany (Ithaca, N.Y.: Comell University Press, 1943/1989), p. 25. 52. Ronald Rogowski, ”Iron, Rye, and the Authoritarian Coalition in Germany After 1879,” paper prepared for delivery at the Annual Meeting of the American Political Science Association, Denver, Colorado, September 1-5, 1982, p. 9.

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interests of the Junkers, kaiser, and chancellor either could not be realized or were doomed to failure. As a result, interests opposed to democratization and free trade, and in favor of expansionist policies, were prominent, while internationalist concerns were largely shut out of the political system. Thus German foreign policy was quite aggressive from the 1871 Constitution to 1914.53 THE BISMARCKIAN ERA. When the Depression of 1873 led to a crisis in state revenues, German Chancellor Otto von Bismarck successfully brokered an alliance between industrialists and farmers-the “marriage of iron and rye”- to pass tariff legislation that could redress shortages in the government’s coffers. The first tariffs came in 1879 on iron and finished industrial goods and grain, and they reflected trade-offs by the Junkers and by heavy industry, for each wanted protection for themselves but not in the other sector. Hence, the executive branch united with, and forged compromise between, iron and rye, while excluding interests that favored free trade and democratization in the late 1870s and 1880s. This led to an imperialist bent in German foreign policy as Bismarck and others began to elucidate arguments about the need for economic self-sufficiency and a powerful military. And by the late 1880s Ger- many began a significant military build-up, passing the Army Bill in 1887 and increasing foreign and defense expenditures nearly 100 percent from 1885 to 1890.54 THE CAPRIVI INTERLUDE. Following Bismarck‘s resignation in 1890 there was a brief interruption in this trend of increased protectionism and military expansion. The election of 1890 resulted in the defeat of National Liberals and

53. Snyder, Myths of Empire, p. 18, makes a coalitional argument similar to mine in contending that logrolling is a function of the “distribution of power and interests in the society and on the character of its political institutions,” an argument he, too, applies to Wilhelmine Germany. However, there is a crucially important difference between us. I have pointed to these pseudo- democratic features as crucial, whereas he characterizes the political institutions as cartelized. For Snyder, cartelization is what is important because it gives prominence to concentrated interests which tend to logroll to pursue expansion and militarism. I disagree with this argument because concentrated interests do not necessarily have expansionist aims (and many in Wilhelmine Ger- many did not), so a cartelized system will not necessarily give rise to such a foreign policy. What is important is what types of concentrated interests have prominence under a particular set of political institutions, not whether there is cartelization. 54. The Junkers needed high agricultural tariffs, for they were at a comparative disadvantage in the world economy. For heavy industry, protection helped them because it would force makers of manufactured goods to buy at home. Other sectors in agriculture and industry were less protectionist or more in favor of free trade. Peter Gourevitch, “International Trade, Domestic Coalitions, and Liberty: Comparative Responses to the Crisis of 187S1896,” Journal of Interdisciplinary History, Vol. 8, No. 2 (Autumn 1977), pp. 285290; Gerschenkron, Bread and Democracy, pp. 4247; Ro- gowski, “Iron, Rye, and the Authoritarian Coalition,” pp. 2-23; Alan c. Lamborn, The Price of Power: Risk and Foreign Policy in Britain, France, and Germany (Boston: Unwin Hyman, 1%1), p. 119.

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Conservatives, and gains for Social Democrats and Progressives who were opposed to protectionism. Bismarck‘s successor, Leo von Caprivi, therefore could and did pursue trade agreements that reduced tariffs. Industry benefited, by and large, from these policies, for it had developed a comparative advantage in the international economy by the 1890s, and the policies led to a temporary split in the iron-rye coalition. However, with Social Democratic gains in the 1893 elections, Wilhelm put his support behind the agrarians and in 1894 Caprivi was forced out “by the cabals of the Junkers and the intrigues of the court camarilla.”55 THE PURSUIT OF wEmoLrm AND MITTELELIROPA. Protectionism and militarism returned to center stage as the naval bills of 1897, 1898, and 1900 led to a massive buildup of the navy, and the 1902 Tariff Act made German grain among the most strongly protected in the world. These pieces of legislation reflected a revival of the marriage of iron and rye. The naval expenditures meant orders for heavy industry’s factories, and the Junkers, who had no use for an enlarged navy since they dominated the army and had autarkic economic interests, went along in exchange for the agricultural tariffs.56 These developments were due to the fact that the kaiser and, beginning in 1900, Chancellor Bernhard von Biilow, were, like Bismarck, well-positioned under the German governmental structure to broker compromise between industry and agriculture in pursuit of their world policy, Weltpolitik. This expansionist power policy sought to enhance Germany’s international role by gaining access to overseas markets and raw materials, which would lead to self-sufficiency and greater levels of industrialization. They also had a belief that Germany would have to reduce its economic vulnerability and promote its growth by transforming economic relationships on the Continent through a customs union it would dominate, known as Mitteleuropu. In these ways, Germany could gain a measure of control over its economic destiny and augment its political power relative to other great powers, especially those on the Continent. These Weltpolitik and Mitteleuropu visions and the coalition forged by Wilhelm, Biilow, and Bulow’s replacement as of 1909, Theobald von

55. Gourevitch, ”International Trade,” p. 292; Gerschenkron, Bread and Democracy, pp. 49-57. 56. David Calleo, The German Problem Reconsidered: Germany and the World Order, 1870 to the Present (Cambridge: Cambridge University Press, 1978), pp. 20,8243; Gerschenkron, Bread and Democracy, pp. 5243; Eckart Kehr, Economic Interest, Militarism, and Foreign Policy: Essays on German History, ed. and Intro. by Gordon A. Craig, trans. by Grete Heinz (Berkeley: University of California Press, 1977), p. 40; Immanuel Geiss, German Foreign Policy, 1871-1914 (London: Routledge and Kegan Paul, 1976), p. 79; DLugo and Rogowski, “The Anglo-German Naval Race and Comparative Constitutional ’Fitness’,” pp. 79-81.

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Bethmann Hollweg, led to continued or increased tariffs over the next several years and to a dramatic growth in defense expenditures from the 1890s 011.5~ The importance of political structure in determining such an outcome becomes clearer when one recognizes that many sectors in Germany disapproved of the tenor of German policy. In particular, the banks, export industry, and finished goods industry profited from, and lobbied for, strong economic links and better relations with other powers. These groups formed the Hansa League of Commerce, Trade, and Industry in 1909 to oppose protective tariffs and to avoid a trade war. But this alliance against the right, encompassing a wide array of groups, was not a coherent set of interests, and it was sabotaged from within by heavy industry. Thus, the Hansa League was the product and then the victim of the "marriage of iron and rye," and its limitations point up the difficulties that internationalist interests had in the German polity.58 Nevertheless, most economic interest groups were in favor of one aspect or another of the combined MitteZeurop-colonialgoals, albeit for different reasons. They differed on the approach that Germany's foreign policy should have in pursuing these objectives. The bankers, finished goods industry, and export sector-those groups which benefited most from economic ties-wanted colonial possessions to fulfill raw material needs and they thought the customs union could improve the Continent's economic system. Yet they also had a relatively pacific outlook. Bankers saw Germany as unprepared for war finan- cially, and so they and their economic and political allies advocated peaceful approaches to altering the nature of their country's economic ties. In particular, good relations with Britain were a prerequisite for these gr0ups.5~ In contrast, the agrarians and heavy industrialists were generally in favor of higher tariffs and more aggressive policies. The agrarians had protectionist preferences since they saw themselves at a comparative disadvantage relative to Hungary and to colonial states. Heavy industry, meanwhile, accounted for 22 percent of German exports in 1913 but was allied with the Junkers on protectionism, for several reasons. First, heavy industry was receiving side-

57. Calleo, The German Problem Reconsidered, p. 20, chapters 34;Gerschenkron, Bread and Democ- racy, pp. 5W1; Kehr, Economic Interest, Militarism, and Foreign Policy, chapter 2, p. 55; Geiss, German Foreign Policy, chapters 8-9; Kennedy, The Rise of the Anglo-German Antagonism, chapter 13; Fischer, War of Illusions, pp. 11-12, 22-25, 33-35, 48-50, 137-138, 234, 237, 363; A.J.F. Taylor, The Course of German History: A Survey of the Development of Germany Since 1815 (New York G.P. Putnam, 1946/1979), chapters 8-9. 58. Fischer, War of Illusions, pp. 22-25; Kennedy, The Rise of the Anglo-German Antagonism, pp. 29% 302. 59. Fischer, War of Illusions, pp. 121, 134, 140, 199, 203, 231-236, 260.

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payments in the form of orders for the fleet buildup. Second, heavy industry was highly labor intensive, so it had an interest in allying with the Junkers on anti-Socialist legislation. Finally, with large fixed costs and domestic oligopolies (but more competitive international markets), protection enabled firms in heavy industry to charge oligopolistic prices and cover their fixed costs at home, allowing them to sell overseas at their marginal cost instead of their average cost. Both agrarians and heavy industrialists, meanwhile, felt that maintaining German economic autonomy required Germany to alter the nature of economic ties by having a measure of political control, and this might entail war. Unlike the bankers, who expressed pessimism about financial difficulties, these groups were confident of Germany's ability to pay for war and felt that a compromise policy with Britain was merely wishful thinking6' The more aggressive posture carried the day because the distribution of power in the German political system heavily favored the military, Junkers, and heavy industry. As they won out politically, military expenditures jumped dramatically, increasing from about 1.3 billion marks in 1911 to 2 billion marks in 1913, with much of the increase coming in the army as the Junkers successfully sought to bolster their positions in the German political system with greater expenditures on the army they dominated." All in all, Germany pursued an expansionist foreign policy despite its economic dependence on other great powers because its pseudo-democratic institutional structure gave prominence to forces that saw economic interdependence to have pernicious effects and expansionist policies as beneficial. Germany's political system gave the kaiser, chancellors, and the Junkers so much power that winning coalitions tended to form around their interests, while economic interests advocating closer international economic ties and a more pacific foreign policy had little say in German politics. AGGRESSIVE BUT NOT RECKLESS: THE IMPORTANCE OF EXPECTATIONS AND STRA- TEGIC INTERACTION. While German foreign policy was aggressive, it was not reckless or out of control. German expectations of British intentions were crucial to strategy and were influenced by economic ties. German leaders recognized for many years that Britain was the pivotal actor in balance-of- power politics. Thus, although the fleet buildup was a deliberate challenge to Britain's supremacy on the high seas, Tirpitz was initially concerned about

60. %id., pp. 135, 140, 235, 265. I am grateful to Robert Pahre and Ronald Rogowski for their discussions and insights on heavy industry's preferences. 61. Lamborn, The Price of Power, pp. 119-120.

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getting through the ”danger zone”; that is, building the fleet without provoking Britain or Russia until Germany had enough ships to be on a par with them. German political leaders also made attempts to get Britain to agree to neutrality, for they felt the critical issue was whether Britain might stand on the sidelines long enough for the Schlieffen Plan to achieve success.62 Germany had somewhat optimistic expectations on this score because of strong Anglo-German economic ties. Germany thus perceived Britain to be a potential friend, or at least not necessarily an enemy. Hence, in discussing his plan to establish a “United States of Europe against America” (i.e., Mittel- europa), Kaiser Wilhelm pointed to the good relations he had with King George V and the City of London, and thought that the British would not be unsym- pathetic to the idea. Moreover, while some factions spoke in terms of an Anglo-German trade rivalry and saw that Britain could cut Germany off from colonies and trade, the prevailing view was that the economic relationship was largely complementary and that Britain, ”a nation of shopkeepers,” would be foolish to oppose Germany militarily and endanger those ties. War, many in Germany thought, would be disastrous to English commerce and industry, and so Britain would probably stand aside.63 Indeed, the German ambassador, Lichnowsky, felt Britain had a high opinion of Germany and that there was not a desire to fight Germany because “our joint interests are too great, our economic ties too close and too important and the material losses of even a victorious war too considerable.”64And Grey noted after the war that the Germans apparently could not understand why Britain did mobilize against them given the economic ties.65 Germany’s beliefs about Britain’s intentions were influenced by a recognition of economic constraints, therefore, and those expectations were reinforced by the de‘tente that emerged between Britain and Germany beginning in 1911, since this was a series of ambiguous signals sent by the British. Hence, by 1912 Bethmann saw the entente as having largely faded away, and the de‘tente boosted German hopes for British neutrality. German leaders thus saw the British as quite dovish in the handful of years leading up to the war.66

62. Fischer, War of Illusions, pp. 50, 55-56; Sontag, European Diplomatic History, pp. 142-143; Sagan, “1914 Revisited,” pp. 170-171. 63. Fischer, War of Illusions, pp. 137-138, 140, 174-175, 397; Sontag, European Diplomatic Histoy, p. 193; Hoffman, Great Britain and the German Trade Rivalry, pp. 273-276. 64. Fischer, War oflllusions, pp. 174-175. 65. Fischer, War of Illusions, p. 475; Hoffman, Great Britain and the German Trade Rivalry, pp. 275-276. 66. Fischer, War of Illusions, pp. 124, 142; Sontag, European Diplomatic Histoy, pp. 142-143.

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THE JULY CRISIS. How much the Germans believed during the July crisis that Britain might not intervene on the Continent, and how long they thought British intervention would take, is a matter of some debate.67Nonetheless, the Germans had at least some confidence in their assessments of British intentions, and this was ”the critical link in the escalation of all stages of the crisis.”68 Indeed, having seen constraints on Grey and British conciliatory behavior for years prior to and in the July crisis, German leaders had good reason to believe they could achieve their expansionist goals. Some would take issue with this argument by noting that Bethmann took Grey’s informal, private warning of July 29 (relayed through Lichnowsky), so seriously that he tried unsuccessfully to get Austria to reverse course and implement a ”Halt in Belgrade.”69At least three replies can be made to this. First, Bethmann was already attempting to pursue a more restrained policy in response to Russia’s partial mobilization.” Second, war between Austria and Serbia was unlikely to bring British intervention, even if Russia and France got involved as a result. After all, the British Cabinet was unwilling until August 2 to commit even on the issue of Belgian neutrality, and this would have posed a clear threat to Britain itself. Hence, to the extent there is a relationship between Grey’s warning and Bethmann’s attempt at restraining the Austrians, it is probably spurious. Third, and most importantly, if the warning did have a significant effect, Bethmann would not have pursued the threatening policy toward Belgium that he did days after receiving Grey’s warning since the threat to the British Isles that came from a possible occupation of the Belgian and French coasts would be the action most likely to convert the British government.71 This German assessment of Britain was not a misperception of intentions. The British government had not committed to oppose Germany as of the first of August, and since the Germans had also seen the domestic constraints on British strategists and ambivalent signals for years before as well as during the July crisis, Germany’s actions reflected a reasonable assessment that Britain

67. See, in particular, the exchange between Jack Levy and Marc Trachtenberg in “Correspondence: Mobilization and Inadvertence in the July Crisis,” International Security, Vol. 16, No. 1 (Summer 1991), pp. 189-203. 68. Levy, ”Preferences, Constraints, and Choices,” p. 163. 69. See, for example, Levy’s argument in ”Correspondence,” pp. 189-190. 70. Trachtenberg, “The Meaning of Mobilization,” p. 136, and in ”Correspondence,” p. 198. 71. See similar points made by Trachtenberg in ”Correspondence,” pp. 199-200; and Sagan, ”1914 Revisited,“ pp. 167-169.

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might be neutral at least long enough for the Schlieffen Plan to And German leaders were not terribly far off in this calculation, for Germany came close to success with its offensive.”

Conclusion and Implications

The relationship between economic interdependence and war has long been an important theoretical and empirical question, and it is at the heart of many debates among realist and liberal scholars in international relations. This study finds both schools of thought to be wrong in their conclusions about the effects of economic ties in the international system, but suggests that an integration of the two perspectives is appropriate. The theory advanced here refines and synthesizes liberal conceptions and realist balance-of-power theory in elucidating how economic interdependence affects state leaders’ mobilization capacities and expectations about others’ intentions, and by discussing how political institutions can mediate the impact of economic interests.74The empirical evidence on this crucial case shows that economic ties played a profound role in balance-of-power politics before 1914. Economic ties generated domestic constraints on British strategists attempting to mobilize to oppose Germany, and these, along with the ambiguous signals being sent by Britain, affected German officials’ assessments of British intentions. German leaders thus had somewhat optimistic expectations that Britain might stand on the sidelines long enough for a rapid military offensive to work.

72. To be sure, there were different views within the German government regarding the possibility of British neutrality, but all believed Britain was dovish to a point. The kaiser and Foreign Minister Gottlieb Jagow were convinced that Britain would stand aside, while Bethmann was less certain. Levy, “Preferences, Constraints, and Choices,” p. 164, says Bethmann was “generally confident” of British neutrality, while Trachtenberg, ”The Meaning of Mobilization,” p. 135, contends there is little evidence to support this and writes in ”Correspondence,” p. 199, that Bethmann was ”not sure that Britain would stay out.” There is little difference between Levy’s and Trachtenberg’s positions, for both see Bethmann as somewhat uncertain about whether Britain would stand aside temporarily and believe that this influenced his decision. Their positions are consistent with mine. 73. Levy, ”Preferences, Constraints, and Choices,” pp. 163-183; Sagan, “1914 Revisited,” pp. 170- 171; Trachtenberg, ”The Meaning of Mobilization,” p. 137. Kennedy, “The First World War and the International Power System,” p. 21, points out, “the Allies were failing to win the war even after two or three years of fighting-and by 1917 were indeed in some danger of losing it.” 74. Also stressing the importance of how interdependence is translated is Jervis, “The Future of World Politics,” p. 49, but he focuses more on perceptions and potential perceptual biases rather than the impact of domestic political processes. On the importance of studying both political institutions and political economic interests, see James Alt and Michael Gilligan, ”The Political Economy of Trading States: Factor Specificity, Collective Action Problems and Domestic Political Institutions,” The journal of Political Philosophy, Vol. 2, No. 2 (June 1994), pp. 165-192.

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It was also shown that Germany’s pseudo-democratic political structure gave prominence to the coalition of iron, rye, military, and kaiser-actors who had expansionist goals and saw economic ties to entail pernicious effects that could be mitigated only by transforming the nature of economic links with aggressive policies-while more pacific internationalist economic concerns had little say in the political process. For this reason, Germany had revisionist aspirations despite having extensive ties in the international economy. Thus, in contrast to the tendency to see international economic ties as either derivative of security factors or simply a matter of low politics, this article demonstrates both theoretically and empirically that economic links are an integral part of high politics, for they affect the capacity state leaders have at home to play power politics abroad, and their ability to project credible balancing commitments.

THE FUTURE AND POLICY Whether economic interdependence will have a pacifying effect in the great power system now that the bipolar Cold War era has waned depends on the pattern and level of economic ties. If we see a collapse of the international economy like that of the 1930s, the theory suggests that an unstable balance-of-power system is quite possible. The emergence of a Hitlerian threat is unlikely to be met by a stabilizing counter- balancing effort, just as in the thirties, for leaders will be constrained by domestic-oriented concerns, which will limit their capacity to mobilize and will undercut their ability to make credible commitments. If economic interdependence remains strong, the peacefulness of the international system depends on the pattern of ties, as well as the nature of the political institutions of those great powers that are part of the international economy. At present, the great powers that are highly integrated into the world economy-the United States, Great Britain, France, Germany, and Japan-are all democracies. The analysis here suggests that none of these powers is likely to adopt aggressive postures in the international arena, for their strategists will be constrained by internationalist economic interests and political leaders’ adjustment cost concerns, which have high salience through democratic political institutions. Moreover, if a threat does emerge from a great power outside this international economy (from, e.g., a resurgent Russia), the democratic great powers are likely to be able to forge a firm and credible balancing posture, since democratic leaders would be able to mobilize support to protect their economic stakes.

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If Russia becomes part of the international economy without, however, having made a transition to full-fledged democratic institutions, economic ties could have a negative effect, as in the years preceding World War I. The transition to democracy is far from complete and certain in Russia. History shows that states in this phase are more ~ar-prone?~and the situation in Russia today is also eerily similar to that of Wilhelmine Germany. While there are some democratic institutions, there are also many anti-democratic, authoritarian features. Meanwhile, there is a battle between economic groups seeking integration with the West-the energy and banking sectors-and those against-hiefly agrarian interests and the military-industrial complex, which includes steelmakers and workers, and has a nationalist appeal. The balance of power between these groups now and into the foreseeable future is unclear and depends in part on the development of Russian political institutions?6 There is thus no assurance that economic integration would have pacifying consequences on Russian foreign policy because internationalists might not have much of a restraining influence in the domestic arena in the future. And if that happens, Western democratic leaders may find themselves constrained by domestic economic interests just as Britain was before the First World War. While it is essential that Russia be brought into the international economy to see a transition to a stable market democracy, the West must do so with great care. It should carefully design economic concessions and interactions that will support internationalists and democratizing forces within Russia, without cre- ating ties in the West that would be too politically costly to break should the nationalists win domestic political battles and promote aggressive foreign policies that need to be balanced against. To do otherwise risks revisiting 1914.

75. Edward Mansfield and Jack Snyder, “Democratization and War,” Foreign Affairs, Vol. 74, No. 3 (May/June 1995), pp. 79-97. 76. Peter Reddaway, ”Yeltsin’s American Apologists,” Washington Posf, February 22, 1995, p. A19; Alexei K. Pushkov, ”Letter from Eurasia: Russia and America-The Honeymoon’s Over,” Foreign Policy, Vol. 93 (Winter 1993), pp. 7690; Fred Hiatt, “Political Elites Vie for Power In Russian Quasi-Democracy,” Washington Posf, March 26, 1995, pp. A1 and A28.

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