I have lately come across some libertarian literature which maintains that Britain's decline as a world power was due to the implementation of Keynesian economic policies during and after the Great Depression. The introduction of social services and the welfare state supposedly undermined the competitiveness of the British economy. Britain's decline as a political and economic power is attributed to the suspension of laissez faire free market policies. To put it mildly, this is utter nonsense. In order to understand a process of this magnitude, one must look to history, not silly ideological preconceptions.
By the middle of the 19th century, the British Empire was the most powerful political entity in the world, controlling a third of the surface of the earth and a quarter of its human population. The key to Britain's success was undoubtedly international trade, which was maintained and protected by naval superiority and industrial technology. However, to call the policies then in place a form of "free trade" would be incorrect. Britain used tariffs, blockades and trade barriers extremely aggressively to protect the interests of domestic companies, most notably against the Dutch and the French. Trade barriers were only lowered when the competitiveness and dominance of British goods was certain. Britain practiced free trade and protectionism interchangably, depending on its own interests, much like the United States does today.
Colonies were the lodestone of British capitalism. India, a country much bigger than Britain both in terms of land area and population, provided British manufacturers with a gigantic consumer market and a virtually inexhaustible pool of labour. The vast acres of India first produced opium, forced with violence upon the reluctant Chinese, and later, British tea, a lucrative trade commodity for European markets. African and Asian colonies provided British industry with raw materials -- their native population ruthlessly exploited for profit and given no say in the governance of the Empire.
By the beginning of the twentieth century, the British had grown fat and bloated on their profits -- the men who built the Empire had faded away and were replaced by the Bertie Woosters of the decadent British public school system. The Boer War of 1904 was an expensive and politically disastrous failure, as were other British military ventures during the period. The onset of the Great Depression affected all the developed powers, but the British were actually among the first to recover, largely thanks to Keynesianism.
After the Second World War, Britain was exhausted and deep in debt to foreign creditors. One by one, the British colonies broke away, as did the dominions of South Africa, Canada and Australia. Many of them had been fighting for home rule and independence since before the war, and now saw their chance. Indebted, ravished by war, overshadowed by the United States, Britain ceased to be the major world power.
Blaming the decline of the British Empire on Keynesian economic policies is to display a fundamental ignorance of its history, economy, culture and political institutions.