TRAGEDY AND HOPE Chapters IX-XI by Dr. Carroll Quigley ISBN 0913022-14-4
IX. GERMANY FROM KAISER TO HITLER 1913-1945 X. BRITAIN: THE BACKGROUND TO APPEASEMENT 1900-1939 XI. CHANGING ECONOMIC PATTERNS
CHAPTER IX: GERMANY FROM THE KAISER TO HITLER 1913-1945
Page 411 The German thirst for the coziness of a totalitarian way of life is the key to German national character. Decision, which requires the evaluation of alternatives, drives man to individualism, self-reliance and rationalism, all hateful qualities to Germanism.
Page 413 They wanted a cozy society which would so absorb the individual in its structure that he would never need to make significant decisions for himself. Held within a framework of known, satisfying personal relationships, such an individual would be safe because he would be surrounded by fellows equally satisfied with their own positions, each feeling important from his membership in the greater whole.
Page 414 The German abhors the need to make decisions. He feels it necessary to proclaim his position by verbal loudness which may seem boastful to outsiders.
Page 415 Germans are ill-at-ease with equality, democracy, individualism, freedom, and other features of modern life. Their neurological systems were a consequence of the coziness of German childhood, which, contrary to popular impression, was not a condition of misery and personal cruelty (as it often is in England) but a warm, affectionate and externally disciplined situation of secure relationships. The Englishman is disciplined from within so that he takes his self-discipline, embedded in his neurological system, with him wherever he goes. The Englishman is the most socialized of Europeans, as the Frenchman is the most civilized, the Italian most completely gregarious, or the Spaniard most completely individualistic. But the German, by seeking external discipline, shows his unconscious desire to recapture the externally disciplined world of his childhood. With such discipline he may be the best behaved of citizens, but without it, he may be a beast. He sees no need to make any effort to see anything from any point of view other than his own. The consequence is a most damaging inability to do this. His union, his neighborhood are the best and all others may be denigrated. His myopic or narrow-angled vision of the universe must be universalized.
Page 417 The precarious structure left by Bismarck was not managed but merely hidden from public view by a facade of nationalistic, anti foreign, anti-Semitic, imperialistic, and chauvinistic propaganda of which the emperor was the center. The monarchy represented the body, which was supported by four legs: the army, the landlords, the bureaucracy and the industrialists. The revolution of 1918 was not really a revolution at all because it removed the monarchy but it left the quartet of legs.
Page 426 The German inflation, which was a great benefit to the Quartet, destroyed the economic position of the middle classes and lower middle classes and permanently alienated them from the republic.
Page 427 The Nationalist Party built up a pervasive propaganda campaign to show that all Germany's problems were caused by the democratic and laboring groups, by the internationalists, and by the Jews.
Page 428 The Centre and Left shared this nationalistic poison sufficiently to abstain from any effort to give the German people the true story of Germany's responsibility for the war and for her own hardships. Thus the Right was able to spread its own story of the war, that Germany had been overcome by a "stab in the back" from "the three Internationals": the "Gold" International of the Jews, the "Red" International of the Socialists, and the "Black" International of the Catholics, an unholy triple alliance which was symbolized in the gold, red, and black flag of the Weimar Republic. Every effort was made to divert popular animosity at the defeat of 1918 and the Versailles settlement from those who were really responsible to the democratic and republican groups. At the same time, German animosity against economic exploitation was directed away from the landlords and industrialists by racist doctrines which blamed all such problems on bad Jewish international bankers and department store owners.
Page 429 The Nazi drive to build up a mass following was kept alive by the financial contributions of the Quartet. The Nazis were financed by the Black Reichswehr from 1919-1923, then this support ceased but was compensated for by the support of the industrialists, who financed the Nazis from Hitler's exit from prison in 1924 to the end of 1932. The destruction of the Weimar Republic has five stages: 1) Bruning: March 24 1930 - May 30 1932 2) Von Papen: May 31 1932 - November 14 1932 3) Schleicher: December 2 1932 - January 28 1933 4) Hitler: January 30 1933 - March 5 1933 5) Gleichschaltung: March 6 1933 - August 2 1934 When the economic crisis began in 1929, Germany had a democratic government of the Center and Social Democratic parties. The crisis resulted in a decrease in tax receipts and a parallel increase in demands for government welfare services. This brought to a head the latent dispute over orthodox and unorthodox financing of a depression. Big business and big finance were determined to place the burden of the depression on the working classes by forcing the government to adopt a policy of deflation - that is, by wage reductions and curtailment of government expenditures. The Social Democrats wavered in their attitude but in general were opposed to this policy. Schacht, as president of the Reichsbank, was able to force the Socialist Rudolf Hilferding out of the position of minister of finance by refusing bank credit to the government until this was done. In March 1930, the Center broke the coalition on the issue of reduction of unemployment benefits, the Socialists were thrown out of the government, and Heinrich Bruning, leader of the Center Party, came in as chancellor. Because he did not have a majority, he had to put the deflationary policy into effect by the use of presidential decree. This marked the end of the Weimar Republic. The Socialists permitted Bruning to remain in office by refusing to vote on a motion of no confidence. Left in office, Bruning continued the deflationary policy by decrees.
Page 431 Bruning's policy of deflation was a disaster. The suffering of the people was terrible with almost eight million unemployed out of twenty-five million employable.
Page 433 President Hindenburg had no liking for any unorthodox economic schemes. The Quartet, especially the industrialists, decided that Hitler had learned a lesson and could safely be put into office as the figurehead of a Right government because he was growing weaker. The whole deal was arranged by Papen and was sealed in an agreement made at the home of Cologne banker Baron Kurt Von Schroder in 1933.
THE NAZI REGIME 1933-1934 Adolf Hitler's life had been a succession of failures, the seven years 1907-1914 being passed as a social derelict in Vienna and Munich. There he had become a fanatical Pan-German anti-semite, attributing his own failures to the "intrigues of international Jewry."
Page 434 During the Great War, he was an excellent soldier always volunteering for the most dangerous tasks. Although he was decorated with the Iron Cross first class in 1918, he was never promoted beyond Private First Class. His regiment of 3,500 suffered 3,260 killed and Hitler himself was wounded twice. After the war, he stayed with the army and eventually became a political spy for the Reichswehr. In the course of spying on the numerous political groups, Hitler became fascinated by the rantings of Gottfried Feder against the "interest slavery of the Jews." Hitler joined the National Socialist German Worker's Party which drew up a Twenty-five Point Program.
Page 435 These included: 4) all Jews and other aliens eliminated; 5) all unearned incomes to be abolished; 6) to punish all war profiteers and usurers with death.
Page 446 Prices were set at a level sufficient to give a profit to most participants and quotas were based on assessments estimated by the farmers themselves. The autarky program gave them a stable market for the products, shielding them from the vicissitudes which they had suffered under liberalism with its unstable markets and fluctuating prices. The prices fixed under Nazism were not high but were adequate, especially in combination with other advantages. Payments for interest and taxes were both reduced. All farms of over family size were made secure in possession of their owner's family, with no possibility of alienation, by increasing the use of entail on great estates and by the Hereditary Farms Act for lesser units.
Page 447 A law of December 28, 1939 stated, what had always been understood, that in his civil service work a party member was not subject to party orders but only to the orders of the civil service superior.
Page 448 There was a statutory provision which made it illegal for members of the armed services to be simultaneously members of the party.
Page 452 Maximum wage rates were set in June 1938. In return for exploitation of labor, the worker received certain compensations of which the chief was the fact that he was no longer threatened with the danger of mass unemployment. Increased economic activity went to nonconsumers' goods.
Page 454 The threat to industry from depression was eliminated.
CHAPTER X: BRITAIN: THE BACKGROUND TO APPEASEMENT, 1900-1939
Page 463 It is the Government that controls the House of Commons. This control is exercised through the Cabinet's control of the political machinery. This power over the party machinery is exercised through control of party funds and of nominations to constituencies. The fact party candidates are named by an inner clique is of tremendous importance and is the key to the control which the inner clique exercises over the House of Commons, yet it is rarely mentioned in books on the English political system. The party control is almost completely centralized in the hands of a largely self-perpetuating inner clique which has power of approval over all candidates. Cabinet can force the majority by using party discipline to pass bills.
Page 464 Britain can be divided into two groups, the "classes" and the "masses." The "classes" were the ones who had leisure. This meant that they had property and income and did not need to work for a living; they obtained an education in a separate and expensive system; they married within their own class; they had a distinctive accent; and they had a distinctive attitude based on the training provided in the special educational system of the "classes."
Page 465 This educational system was based on three great negatives: a) education must not be vocational, not aimed at assisting one to make a living; b) education is not aimed directly at creating or training intelligence; c) education is not aimed at finding the "Truth." It is aimed at developing a moral outlook, a respect for traditions, qualities of leadership and cooperation, and that ability for cooperation in competition summed up in the English idea of "sport" and "playing the game." Because of the restricted numbers of the upper class, these attitudes applied chiefly to one another, and did not necessarily apply to foreigners or even to the masses. They applied to people who "belonged" and not to all human beings.
Page 469 House members are expected to vote as their party whips tell them to and are not expected to understand the contents of the bills for which they are voting. Legislation originates in the meetings of the clique of the party, acting as first chamber. If accepted by the Cabinet, it passes the House of Commons almost automatically. This situation is sometimes called "Cabinet dictatorship."
Page 470 There have been restrictions on democracy in Britain almost all based on one criterion, the possession of wealth. Britain, until 1945, was the world's greatest plutocracy. In political life, local government had a restricted suffrage. Elected members were unpaid thus restricting these posts to those who had leisure (that is, wealth).
Page 471 Members of Parliament were, for years, restricted to the well-to- do by the fact that Members were unpaid. In 1938, each candidate must post a deposit of #150 amounting to more than the total annual income of about three-quarters of all English families which is forfeited if he does not receive over one-eighth of the total vote. As a result of these monetary barriers, the overwhelming mass of Englishmen could not participate actively in politics unless they could find an outside source of funds. Until 1915, the two parties represented the same social class, the small group known as "society." Both Conservatives and Liberals were controlled by the same small clique consisting of no more than half-a-dozen chief families, their relatives and allies.
Page 472 At the beginning of the 20th century, the inner clique of the Conservative Party was made up almost completely of the Cecil family and their relatives. This is quite different from the US where both major parties are middle-class parties and where geographic, religious and traditional influences are more important than class influences in determining party membership.
Page 474 In eight years (1931-1939) thirteen directors of the "Big Five Banks" and two directors of the Bank of England were raised to the peerage by the Conservative government. Of ninety peers created, thirty five were directors of insurance companies. In 1935, Walter Runciman, as president of the Board of Trade, introduced a bill to grant a subsidy of #2 million to tramp merchant vessels and gave #92,000 to his father's company in which he held 21,000 shares. There is relatively little objection to activities of this kind in England.
Page 475 The Labour Party arose because of the discovery by the masses of the people that their vote did not avail them much so long as the only choice of candidates was "Which of two rich people will you choose?"
Page 476 The radio, the second most important instrument of publicity, is sometimes run very unfairly. In the election of 1931, the government allowed 15 period on the BBC for political campaigning, it took 11, gave 3 to Labour and 1 to the Liberals.
Page 478 France is in sharp contrast where the amount of education by a student is limited only by his ability and willingness to work; and positions of importance in the civil service, the professions, and even business are available to those who do best in the system. In Britain, it is based largely on the ability to pay.
Page 479 For admission to the bar in England, a man had to be a member of one of the four Inns of Court. These are private clubs to which admission was by nomination with large admission fees. Sons of wage earners formed less than 1% of the admissions and members of the bar are almost entirely from the well-to-do classes. Since judges are appointed exclusively from barristers, the judicial system has also been monopolized by the upper classes. Obtaining justice has been complex, slow and above all, expensive. As a result, only the fairly well-to-do can defend their rights in a civil suit and if the less well-to-do go to court at all, they find themselves in an atmosphere completely dominated by members of the upper classes. Accordingly, the ordinary Englishman avoids litigation even when he has right on his side.
Page 483 The 1909 Liberal budget was aimed directly at Conservative supporters by its taxation of unearned incomes, especially from landed properties. Its rejection by the House of Lords was denounced by Asquith as a breach of the constitution which gave control over money bills to the House of Commons. The Lords refused to yield until Asquith threatened to create enough new peers to carry his bill. This bill provided that the Lords could not veto a money bill and could not prevent any other bill from becoming law if it was passed in three sessions of the Commons over a period of at least two years.
Page 485 Liberal Lloyd George's effort to deflate prices after the Great War in order to go back onto the gold standard was fatal to prosperity and domestic order. Unemployment and strikes increased. The Conservatives prevented any realistic attack on these problems and passed the Emergency Power Act of 1920 which for the first time gave a peace-time government the right to proclaim a state of siege (as was done in 1920, 1921, 1926).
Page 486 In 1924, Winston Churchill, as chancellor of the Exchequer, carried out a stabilization policy which put England on the gold standard. This policy of deflation drove Britain into an economic depression and a period of labour conflict and the policy was so bungled in its execution that Britain was doomed to semi-depressions for almost a decade, to financial subjugation to France until 1931 and was driven closer to domestic rebellion than she had been at any time since the Chartist movement of 1848. The deflation of 1926 hit the mines with special impact since prices could only be cut if wages were cut. The government invoked the Emergency Powers Act and the Trade Unions Congress ordered a General Strike but soon ended it leaving the striking miners to shift for themselves. The miners stayed out for six months and then began to drift back to work to escape starvation.
Page 489 In 1931, the Macmillan Committee reported that the whole financial structure was unsound and should be remedied by a managed currency, controlled by the Bank of England. The crisis revealed the incapacity of the Labour Party and the power of the bankers. Labour members had no understanding of economics. Snowden, the economic expert" of the Cabinet, had financial views about the same as Montagu Norman of the Bank of England.
Page 490 As for the bankers, they were in control throughout the crisis. While publicly they insisted on a balanced budget, privately, they refused to accept balancing by taxation and insisted on balancing by cuts in relief payments. Working in close cooperation with American bankers, they were in a position to overthrow any government which was not willing to crush them completely. While they refused cooperation to the Labour government, they were able to obtain a loan of #80 million from the US and France for the National Government when it was only four days old. The National government at once attacked the financial crisis with a typical bankers' weapon: deflation. It offered a budget including higher taxes and drastic cuts in unemployment benefits and public salaries. Riots, protests, and mutiny in the navy were the results. The domestic program of the National Government was to curtail the personal freedom of individuals. On this, there was no real protest for the Labour opposition had a program which, in fact if not in theory, tended in the same direction.
Page 491 The police of London were reorganized in 1933 to destroy their obvious sympathy with the working classes by restricting all ranks above inspector to persons with an upper-class education. A severe Incitement to Disaffection Act in 1934 threatened to destroy the personal freedoms built up over centuries by making police searches of homes less restricted and making the simple possession of material likely to disaffect the armed forces a crime. For the first time in three generations, personal freedom and civil rights were restricted in time of peace. The Prevention of Violence Act of 1939 empowered a secretary of state to arrest without warrant and to deport without trial.
Page 492 Neville Chamberlain was chiefly responsible for the National government's fiscal policies. For the first time in almost a century, there was an increase in the proportion of total tax paid by the working class. For the first time since 1846, there was a tax on food. There was a reversal in the trend to more education for the people. The budget was kept balanced by at a considerable price in human suffering and in wastage of Britain's irreplaceable human resources. Hundreds of thousands had been unemployed for years and had their moral fiber completely destroyed by years of living on inadequate dole. The capitalists of these areas were supported either by government subsidy or were bought out by cartels and trade associations from funds assessed on the more active members of the industry. Chamberlain's Derating Act of 1929 exempted industry from payment of three quarters of its taxes while many unemployed were allowed to starve.
CHAPTER XI: CHANGING ECONOMIC PATTERNS
Page 497 The economic system itself has become organized for expansion and if it does not expand, it tends to collapse. The basic reason for this maladjustment is that investment has become an essential part of the system and if investment falls off, consumers have insufficient incomes to buy the consumers' goods which are being produced in another part of the system because part of the flow of purchasing power created by the production of goods was diverted from purchasing goods it had produced into savings, and all the goods produced could not be sold until those savings came back into the market by being invested.
Page 498 If the groups in society who control the savings which are necessary for progress are the same vested interests who benefit by the existing way of doing things, they are in a position to defend these vested interests and prevent progress merely by preventing the use of surpluses to finance new inventions. The 20th century's economic crisis was a situation of this type.
Page 499 The element of secrecy is one of the outstanding features of English business and financial life. The inner circle of English financial life remains a matter of "whom one knows," rather than "what one knows." Jobs are still obtained by family, marriage, or school connections and important positions are given to men who have no training, experience or knowledge to qualify them.
Page 500 At the core of English financial life have been seventeen private firms of "merchant bankers" with a total of less than a hundred active partners including Baring Brothers, N.M. Rothschild, J. Henry Schroder, Morgan Grenfell, Hambros and Lazard Brothers. These merchant bankers had a dominant position with the Bank of England and, strangely enough, still have retained some of this, despite the nationalization of the Bank by the Labour government in 1946.
Page 501 Financial capitalism was marked not only by a growing financial control of industry but also by an increasing concentration of this control and by an increasing banking control of government. The control of the Bank of England over business was exercised indirectly through the joint-stock banks. This growth of a "money trust" led to an investigation. A bill was drawn up to prevent further concentration but was withdrawn when the bankers made a "gentlemen's agreement" to ask Treasury permission for future amalgamations.
Page 502 In 1931, financiers led by Montagu Norman and J.P. Morgan forced the resignation of the British Labour government. But the handwriting was already on the wall. The deflationary financial policy of the bankers had alienated politicians and industrialists and driven monopolist trade unions to form a united front against the bankers. Labour and industry were united in opposition to continuance to the bankers' economic policy with its low prices and high unemployment. The decisive factor which caused the end of financial capitalism in Britain was the revolt of the British fleet in 1931 and not the abandonment of gold six days later. The mutiny made it clear that the policy of deflations must be ended. As a result, no effort was made to defend the gold standard.
Page 503 The Coal Mines Act of 1930 allowed the National Shipbuilders Security to buy up and destroy shipyards. By 1934, one quarter of Britain's shipbuilding capacity had been eliminated. The Purchase Finance Company was set up to buy up and destroy flour mills. By 1933, over one-sixth of the flour mills in England had been eliminated.
Page 507 In Germany, capital was scarce when industrialism arrived and industry found itself dependent upon banks almost at once. The chief credit banks floated securities for industry by granting credit to the firm, taking securities in return. These securities were slowly sold to the public with the bank retaining enough stock to give it control and appointing its men as directors to give that control final form. The importance of interlocking directorships can be seen from the fact that the same Dresdner Bank had its directors on the boards of over two hundred industrial concerns in 1913. This banking control of industry was made even closer since most investors left their securities on deposit with the banks which voted all this stock for directorships and other control measures, unless the stock-owners expressly forbade it. The banks also voted the stock left as collateral for loans and all stock bought on margin.
Page 509 The control of German financial capitalism rested in the credit banks. It was largely beyond the control of the government and rested in private hands. Of the hundreds of German credit banks, the eight so-called "Great Banks" were the masters of the German economy from 1865 to 1915 and controlled 74% of the capital assets of all 421 banks.
Page 512 I.G. Farbenindustrie made many individual cartel agreements with Du Pont and other American corporations.
Page 514 In France, Britain and the US, the war played a significant role in demonstrating conclusively that economic stagnation and underemployment of resources were not necessary and could be avoided if the financial system were subordinated to the economic system. In Germany, this was not necessary since the Nazis had already made this discovery in the 1930s. Thus a surplus of labor, low wages, experience in unorthodox financial operations and an immense task to be done all contributed to the German revival.
Page 515 With the founding of the Bank of France in 1800, financial power was in the hands of about ten or fifteen banking houses whose founders, in most cases, had come from Switzerland. These bankers, all Protestant, were deeply involved in the agitations leading up to the French Revolution. When it got out of the hand, they were the chief forces behind the rise of Napoleon. As a reward for this support, Napoleon gave these bankers a monopoly over French financial life by giving them control of the new Bank of France.
Page 516 By 1811, most of these bankers had gone over to the opposition and survived the change in regime in 1815. As a result, the Protestant bankers who had controlled financial life under the First Empire were still the main figures on the board of regents of the Bank of France until 1936. The chief names were Mirabaud, Mallet, Neuflize, and Hottinger. In the course of the nineteenth century, a second group was added to French banking circles. This second group, largely Jewish, was also non-French origin, the majority Germanic (like Rothschild, Heine, Fould, Stern and Worms). A rivalry soon grew up between the older Protestant bankers and the newer Jewish bankers, largely along political rather than religious lines which grew confused as some of the Jewish group gave up their religion and moved over to the Protestant group. The leadership of the Protestant group was exercised by Mirabaud, the leadership of the Jewish group was held by Rothschild. These two wings were so close that Mirabaud and Rothschild together dominated the whole financial system and frequently cooperated together even when their groups as a whole were in competition. After 1838, this simple picture was complicated by the slow rise of a third group of bankers who were Catholics which soon split into two halves and joined the other two groups.
Page 517 The rivalry of these two great powers fills the pages of French history in the period 1884-1940. It paralyzed the French political system and economic system preventing economic recovery from the depression in 1935-1940. From 1880-1925, the private bankers continued to exist and grow in power. They were at first chiefly interested in government obligations and the greatest bankers, like Mirabaud and Rothschild, had intimate connections with governments and weak connections with the economic life of the country.
Page 518 To finance railroads, the small savings of many were gathered and made available to the private banker to direct wherever he thought fitting. Thus the private banker became a manager of other persons' funds rather than lender of his own. The private banker became much more influential and much less noticeable. He now controlled billions where he formerly controlled millions and he did it unobtrusively, acting from the background, concealed from public view. The public did not notice that the names of private bankers and their agents still graced the list of directors of new financial enterprises.
Page 520 The centre of the French economic system in the 20th century was not to be found, as some have believed, in the Bank of France, but, instead, resided in a group of almost unknown institutions - the private banks. There were over a hundred of these private banks and two (Rothschild and Mirabaud) were more powerful than all the others combined. These private banks acted as the High Command of the French economic system. Their stock was closely held in the hands of about forty families. They were the same private banks which had set up the Bank of France divided into a group of seven Jewish banks, a group of seven Protestant banks and a group of five Catholic banks. The various groups continued to cooperate in the management of the Bank of France which was controlled until 1936, as it had been in 1813, by the handful of private banks which created it.
Page 521 The state was influenced by the Treasury's need for funds from the Bank of France. These investment banks supplied long-term capital to industry and took stock and directorships in return. In 1931, Paribas held the securities of 357 corporations and its own directors and top managers held 180 directorships in 120 of the more important of these.
Page 522 The Jewish bankers were allied to Standard Oil and Rockefeller while the Catholic-Protestant bankers were allied to Royal Dutch Shell and Deterding.
Page 524 In 1936, there were about 800 important firms. Of these 800, the Paribas bloc controlled almost 400 and the Union-Comite bloc about 300.
Page 525 The whole Paribas system in the 20th century was headed by Baron Edouard de Rothschild with the chief center of operation in the Banque de Paris which controlled communications companies such as Havas. Havas was a great monopolistic news agency. It could, and did, suppress or spread both news and advertising. It received secret subsidies from the government for almost a century. The monopoly on distribution of periodicals and books could be used to kill papers which were regarded as objectionable. After 1937, the Paribas bloc was badly split by the controversy over orthodox and unorthodox financial methods for dealing with depression. The Rothschild desire to form an alliance with Russia and adopt a policy of resistance to Hitler, continuing orthodox financial policies, collapsed from its own internal contradictions, their own lack of faith in it, and the pressure of Great Britain.
Page 528 The three prewar blocs have played no significant role in France since 1945 although Rene Mayer, active head of the Rothschild family interests was minister of finance in the early postwar government. Later in 1962, De Gaulle made the director of the Rothschild bank, George Pompidou, prime minister.
UNITED STATES OF AMERICA
Page 529 By the 1880s, the techniques of financial capitalism reached levels of corruption which were never approached in Europe. This corruption sought to cheat the ordinary investor by flotations and manipulations of securities for the benefit of insiders. The practitioners of these dishonesties were as socially acceptable as their wealth entitled them to be without animadversions on how that wealth was obtained.
Page 530 Corrupt techniques associated with the names Daniel Drew and Jay Gould were also practiced by Morgan and others who became respectable from longer sustained success. Any reform of Wall Street practices came from pressure from the farming West and was long delayed by the close alliance of Wall Street with the two major political parties. By 1900, the influence of Morgan in the Republican party was dominant, his chief rivalry coming from Rockefeller of Ohio. From 1880 to 1930, financial capitalism approximated a feudal structure in which two great powers, centered in New York, dominated a number of lesser powers. No description of this structure as it existed in the 1920s can be given in a brief compass, since it infiltrated all aspects of American life and especially all branches of economic life. At the center were a group of less than dozen investment banks which were still unincorporated partnerships at the height of their powers. These included J.P. Morgan, the Rockefeller family, Kuhn, Loeb, Dillon, Read, Brown Brothers and Harriman, and others. Each of these was linked in organizational or personal relationships with various banks, insurance companies, railroads, utilities and industrial firms. The result was to form a number of webs of economic power. J.P. Morgan worked in close relationship with a group of banks and insurance companies. The whole nexus dominated a network of business firms which included at least one-sixth of the two hundred largest non-financial corporations.
Page 531 The Rockefeller group, investing only its own profits, functioned as a capitalist unit in close cooperation with Morgan and controlled over half the assets of the oil industry.
Page 532 The economic power represented by these figures is almost beyond imagination to grasp. Morgan and Rockefeller together frequently dominated the national Republican Party while Morgan occasionally had extensive influence in the national Democratic Party. These two were also powerful on the state level, especially Morgan in New York and Rockefeller in Ohio. Mellon was a power in Pennsylvania and Du Pont in Delaware. In the 1920s, this system of economic and political power formed a hierarchy headed by the Morgan interests and played a principal role both in political and business life. Morgan, operating on the international level in cooperation with his allies abroad, especially in England, influenced the events of history to a degree which cannot be specified in detail but which certainly was tremendous. The deflationary financial policies on which these bankers insisted were laying the foundations of the economic collapse into general social disaster by 1940. Unemployment which had reached 13 million persons in 1933 was still at 10 million in 1940
Page 533 The deflationary policies of the bankers were acceptable to heavy industry chiefly because it was not unionized. With assembly-line techniques financed by the bankers and unorganized labor, the employers could rearrange, curtail, or terminate labor without notice on a daily basis and could thus reduce labor costs to meet falls in prices from bankers' deflation. The fact that reductions in wages and large lay-offs also reduced the volume of purchasing power as a whole, to the injury of the groups selling consumers' goods, was ignored by the makers of heavy producers' goods. In this way, farmers and other segments of the society were injured by the deflationary policies of the bankers and by the employment policies of heavy industry, closely allied to the bankers. When these policies became unbearable in the depression of 1929- 1933, these other interest blocs deserted the Republican party which remained subservient to high finance and heavy industry. The shift of the farm bloc to the Democratic Party in 1932 resulted in the election of Franklin D. Roosevelt and the New Deal.
Page 534 The New Deal's actions against finance did not represent any victory for unorthodox financing, the real key to either monopoly capitalism or to a managed pluralist society. The reason for this was that the New Deal was fundamentally orthodox in its ideas on the nature of money. Roosevelt was quite willing to unbalance the budget and to spend in a depression in an unorthodox fashion because he had grasped the idea that lack of purchasing power was the cause of the lack of demand which made unsold goods and unemployment, but he had no idea of the causes of the depression and had quite orthodox ideas on the nature of money. As a result, his administration treated the symptoms rather than the causes of the depression and, while spending unorthodoxly to treat these symptoms, did so with money borrowed from the banks in the accepted fashion. The New Deal allowed bankers to create the money, borrowed it from the banks,and spent it. This meant that the New Deal ran up the national debt to the credit of the banks, and spent money in such a limited fashion that no drastic re- employment of idle resources was possible. One of the most significant facts about the New Deal was its orthodoxy on money. For the whole 12 years he was in the White House, Roosevelt had statutory power to issue fiat money in the form of greenbacks printed by the government without recourse to the banks. This authority was never used. As a result of such orthodoxy, the depression's symptoms of idle resources were overcome only when the emergency of the war in 1942 made it possible to justify a limitless increase in the national debt by limitless borrowing from private persons and the banks. But the whole episode showed a failure to grasp the nature of money and the function of the monetary system, of which considerable traces remained in the postwar period.
Page 535 One reason for the New Deal's readiness to continue with an orthodox theory of the nature of money, along with an unorthodox practice in its use, arose from the failure of the Roosevelt administration to recognize the nature of the economic crisis itself. This failure can be seen in Roosevelt's theory of "pump priming." He sincerely believed, as did his Secretary of the Treasury, that there was nothing structurally wrong with the economy, that it was temporarily stalled, and would keep going of its own powers if it could be restarted... The inadequacy of this theory of the depression was shown in 1937 when the New Deal, after four years of pump priming and a victorious election in 1936, stopped its spending. Instead of taking off, the economy collapsed in the steepest recession in history. The New Deal had to resume its treatment of symptoms but now without hope that the spending program could ever be ended, a hopeless prospect since the administration lacked the knowledge of how to reform the system or even how to escape from borrowing bank credit with its mounting public debt, and the administration lacked the courage to adopt the really large-scale spending necessary to give full employment of resources. The administration was saved from this impasse by the need for the rearmament program followed by the war. Since 1947 the Cold War and the space program have allowed the same situation to continue, so that even today, prosperity is not the result of a properly organized economic system but of government spending, and any drastic reduction in such spending would give rise to an acute depression.
THE ECONOMIC FACTORS
Page 540 There are a number of important elements in the economic situation of the 20th century. 8. The increasing disparity in the distribution of income is the most controversial and least well-established characteristic of the system. It would appear that the disparity in national income has been getting wider. In the US, the richest one-fifth receive 46% of the income in 1910, 51% in 1929 and 48% in 1937. In the same three years, the share of the poorest one-fifth fell from 8% to 5.4% to 3.6% If instead of one-fifth, we examine the richest and poorest one- tenth, in 1910 the ratio was 10, in 1929 it was 21.7, in 1937, it was 34.4. This means that the rich were getting richer relatively and probably absolutely while the poor were getting poorer both relatively and absolutely.
Page 542 The progressives who insisted that the lack of investment was caused by lack of consumer purchasing power were correct. But the conservatives who insisted that the lack of investment was caused by lack of confidence were also correct. Each was looking at the opposite side of a single continuous cycle: a) purchasing power creates demand for goods; b) demand for goods creates confidence in the minds of investors; c) confidence creates new investment; d) new investment creates purchasing power which then creates demand. It would appear that the economic factors alone affected the distribution of incomes in the direction of increasing disparity.
Page 543 In Germany, Hitler's 1934 adoption of an unorthodox financial policy which raised the standards of living of the lower-income levels even more drastically (by shifting them from unemployment with incomes close to nothing into wage-earning positions in industry) was not acceptable to the high-income classes because it stopped the threat of revolution by the discontented masses and because it was obviously of long-run benefit to them. This long-run benefit began to appear when capacity employment of capital and labor was achieved in 1937.
Page 546 In the modern economic community, the sum total of goods and services appearing in the market is at one and the same time the income of the community and the aggregate cost of producing goods and services in question. Aggregate costs, aggregate incomes and aggregate prices are the same since they are merely opposite sides of the identical expenditures. The purchasing power available in the community is equal to income minus savings. If there are any savings, the available purchasing power will be less than the aggregate prices being asked for the products for sale and the amount of the savings. Thus, all the goods and services produced cannot be sold as long as savings are held back. In order for al the goods to be sold, it is necessary for the savings to reappear in the market as purchasing power. The disequilibrium between purchasing power and prices which are created by the act of saving is restored completely by the act of investment, and all the goods can be sold at the prices asked. But whenever investment is less than savings, the available supply of purchasing power is inadequate by the same amount to by the goods being offered. This margin by which purchasing power is inadequate because of an excess of savings over investment may be called the "deflationary gap."This "deflationary gap" is the key to the twentieth century economic crisis and one of the three central cores of the whole tragedy of the century.
THE RESULTS OF THE ECONOMIC DEPRESSION
Page 547 The deflationary gap arising from a failure of investment to reach the level of savings can be closed either by lowering the supply of goods to the level of available purchasing power or by raising the supply of purchasing power to a level able to absorb the existing supply of goods, or a combination of both. The first solution will give a stabilized economy on a low level of activity; the second will give a stabilized economy on a high level of activity. Left to itself, the economic system under modern conditions would adopt the former procedure working as follows: The deflationary gap will result in falling prices, declining economic activity and rising unemployment. This will result in a fall in national income resulting in an even more rapid decline in the volume of savings. This decline continues until the volume of savings reaches the level of investment at which point the fall is arrested and the economy becomes stabilized at a low level. This process did not work itself out in any industrial country during the great depression because the disparity in national income was so great that a considerable portion of the population would have been driven to zero incomes and absolute want before savings of the richer segment fell to the level of investment. Under such conditions, the masses of population would have been driven to revolution and the stabilization, if reached, would have been on a level so low that a considerable portion of the population would have been in absolute want. Because of this, governments took steps to arrest the course of the depression before their citizens were driven to desperation. The methods used to deal with the depression and close the deflationary gap were all reducible to two fundamental types: a) those which destroy goods, and b) those which produce goods which do not enter the market. The destruction of goods will close the deflationary gap by reducing the supply of unsold goods through lowering the supply of goods to the level of the supply of purchasing power. It is not generally realized that this method is one of the chief ways in which the gap is closed in a normal business cycle where goods are destroyed by the simple expedient of not producing the goods which the system is capable of producing. The failure to use full level of 1929 output represented a loss of $100 billion in the US, Britain and Germany alone. This loss was equivalent to the destruction of such goods. Destruction of goods by failure to gather the harvest is a common phenomenon under modern conditions. When a farmer leaves his crop unharvested because the price is too low to cover the expense of harvesting, he is destroying the goods. Outright destruction of goods already produced is not common and occurred for the first time as a method of combating depression in the years 1930-1934. During this period, stores of coffee, sugar, and bananas were destroyed, corn was plowed under, and young livestock was slaughtered to reduce the supply on the market. The destruction of goods in warfare is another example of this method of overcoming deflationary conditions in the economic system.
Page 548 The second method of filling the deflationary gap, namely, by producing goods which do not enter the market, accomplishes its purpose by providing purchasing power in the market, since the costs of production of such goods do enter the market as purchasing power, while the goods themselves do not drain funds from the system if they are not offered for sale. New investment was the usual way in which this was accomplished in the normal business cycle but it is not the normal way of filling the gap under modern conditions of depression. We have already seen the growing reluctance to invest and the unlikely chance that the purchasing power necessary for prosperity will be provided by a constant stream of private investment. It this is so, the funds for producing goods which do not enter the market must be sought in a program of public spending. Any program of public spending at once runs into the problems of inflation and public debt. These are the same two problems mentioned in connection with the efforts of government to pay for the First World War. The methods of paying for a depression are exactly the same as the methods of paying for a war, except that the combination of methods used may be somewhat different because the goals are somewhat different. In financing a war, we should seek to achieve a method which will provide a maximum of output with a minimum of inflation and public debt. In dealing with a depression, since a chief aim is to close the deflationary gap, the goal will be to provide a maximum of output with a necessary degree of inflation and a minimum of public debt. Thus the use of fiat money is more justifiable in financing a depression than in financing a war. Moreover the selling of bonds to private persons in wartime might well be aimed at the lower-income groups in order to reduce consumption and release facilities for war production, while in a depression (where low consumption is the chief problem) such sales of bonds to finance public spending would have to be aimed at the savings of the upper-income groups. These ideas on the role of government spending in combating depression have been formally organized into the "theory of the compensatory economy." This theory advocates that government spending and fiscal policies be organized so that they work exactly contrary to the business cycle, with lower taxes and larger spending in deflationary period and higher taxes with reduced spending in a boom period, the fiscal deficits of the down cycle being counterbalanced in the national budget by the surpluses of the up cycle.
Page 549 This compensatory economy has not been applied with much success in any European country except Sweden. In a democratic country, it would take the control of taxing and spending away from the elected representatives of the people and place this precious "power of the purse" at the control of the automatic processes of the business cycle as interpreted by bureaucratic (and representative) experts. Moreover, all these programs of deficit spending are in jeopardy in a country with a private banking system. In such a system, the creation of money (or credit) is usually reserved for the private banking institutions and is deprecated as a government action. The argument that the creation of finds by the government is bad while creation of funds by the banks is salutary is very persuasive in a system based on traditional laissez faire and in which the usual avenues of communications (such as newspapers and radio) are under private, or even banker, control. Public spending as a method of counteracting depression can vary very greatly in character, depending on the purposes of the spending. Spending for destruction of goods or for restriction of output, as under the New Deal agricultural program, cannot be justified easily in a democratic country with freedom of communications because it obviously results in a decline in national income and living standards. Spending for non-productive monuments is somewhat easier to justify but is hardly a long-run solution. Spending for investment in productive equipment (like the Tennessee Valley Authority Dam) is obviously the best solution since it leads to an increase in national wealth and standards of living and is a long-run solution but it marks a permanent departure from a system of private capitalism and can be easily attacked in a country with a capitalistic ideology and a private banking system. Spending on armaments and national defence is the last method of fighting depression and is the one most readily and most widely adopted in the twentieth century. A program of public expenditure on armaments is a method for filling the deflationary gap and overcoming depression because it adds purchasing power to the market without drawing it out again later (since the armaments, once produced, are not put up for sale). From an economic point of view, this method of combating depression is not much different from the method listed earlier under destruction of goods, for, in this case also, economic resources are diverted from constructive activities or idleness to production for destruction. The appeal of this method for coping with the problem of depression does not rest on economic grounds at all, for, on such grounds, there is no justification. It's appeal is rather to be found on other, especially political, grounds.
Page 550 The adoption of rearmament as a method of combating depression does not have to be conscious. The country which adopts it may honestly feel that it is adopting the policy for good reasons, that it is threatened by aggression, and that a program of re-armament is necessary for political protection. It is very rare for a country consciously to adopt a program of aggression, for, in most wars, both sides are convinced that their actions are defensive. It is almost equally rare for a country to adopt a policy of re-armament as a solution for depression. If a country adopts re-armament because of fear of another's arms and these last are the result of efforts to fill a deflationary gap, it can also be said that the re-armament of the former has a basic economic cause. In the 20th century, the vested interests usually sought to prevent the reform of the economic system (a reform whose need was made evident by the long-drawn-out depression) by adopting an economic program whose chief element was the effort to fill the deflationary gap by re-armament.
THE PLURALIST ECONOMY AND WORLD BLOCS
The economic disasters of two wars, a world depression, and the post-war fluctuations showed clearly by 1960 that a new economic organization of society was both needed and available. The laissez- faire competitive system had destroyed itself and almost destroyed civilization as well by its inability to distribute the goods it could produce. The system of monopoly capitalism had helped in this disaster.
Page 551 The almost simultaneous failure of laissez-faire, Fascism, and of Communism to satisfy the growing popular demand both for rising standards of living and for spiritual liberty had forced the mid-20th century to seek some new economic organization. Underdeveloped peoples have been struck by the conflicting claims of the two great super-Powers.. The former offered the goods the new peoples wanted (rising standards of living and freedom) while the latter seemed to offer methods of getting these goods (by state accumulation of capital, government direction of resources) which might tend to smother these goals. The net result has been a convergence toward a common, if remote, system of the future whose ultimate nature is not yet clear but which we might call the "pluralist economy."
CHAPTER XII: THE POLICY OF APPEASEMENT 1931-1936
Page 559 The structure of collective security was destroyed completely under the assaults of Japan, Italy and Germany who were attacking the whole nineteenth century way of life and some of the most fundamental attributes of Western Civilization itself. They were in revolt against democracy, against the parliamentary system, against laissez-faire and the liberal outlook, against nationalism (although in the name of nationalism), against humanitarianism, against science and against all respect for human dignity and human decency. It was recruited from the dregs of society.
Page 560 During the nineteenth century, goals were completely lost or were reduced to the most primitive level of obtaining more power and more wealth. But the constant acquisition of power or wealth, like a narcotic for which the need grows as its use increases without in any way satisfying the user, left man's "higher" nature unsatisfied.
Page 561 Germany could have made no aggression without the acquiescence and even in some cases the actual encouragement of the "satisfied" Powers, especially Britain.
THE JAPANESE ASSAULT, 1931-1941 The similarity between Germany and Japan was striking: each had a completely cartelized industry, a militaristic tradition, a hard- working population which respected authority and loved order, a facade of parliamentary constitutionalism which barely concealed the reality of power wielded by an alliance of army, landlords, and industry.
Page 562 The steady rise in tariffs against Japanese manufactured goods after 1897 led by America served to increase the difficulties of Japan's position. The world depression and the financial crisis hit Japan a terrible blow. Under this impact, the reactionary and aggressive forces were able to solidify their control and embark on that adventure of aggression and destruction that ultimately led to the disasters of 1945.
Page 563 Separate from the armed forces were the forces of monopoly capitalism, the eight great economic complexes controlled as family units knows as "zaibatsu" which controlled 75% of the nation's wealth. By 1930, the militarists and zaibatsu came together in their last fateful alliance.
Page 569 Japan's unfavorable balance of trade was reflected in a heavy outflow of gold in 1937-1938. It was clear that Japan was losing its financial and commercial ability to buy necessary materials of foreign origin. The steps taken by America, Australia, and others to restrict export of strategic or military materials to Japan made this problem even more acute. The attack on China had been intended to remedy this situation by removing the Chinese boycott on Japanese goods.
Page 570 Under the pressure of the growing reluctance of neutral countries to supply Japan with necessary strategic goods, the most vital being petroleum products and rubber, it seemed that the occupation of the Dutch Indies and Malaya could do much to alleviate these shortages but which would lead to an American war on Japan. They decided to attack the United States first.
THE ITALIAN ASSAULT, 1934-1936
Page 571 In 1922, the Fascists came to power in a parliamentary system; in 1925 it was replaced by a political dictatorship while the economic system remained that of orthodox financial capitalism; in 1927 an orthodox and restrictive stabilization of the lira on the international gold standard led to such depressed economic conditions that Mussolini adopted a much more active foreign policy; in 1934 Italy replaced orthodox economic measures by a totalitarian economy functioning beneath a fraudulent corporate facade. Italy was dissatisfied over its lack of colonial gains at Versailles and the refusal of the League to accede to Tittoni's request for a redistribution of the world's resources in accordance with population needs made in 1920. In a series of agreements with Austria and Hungary known as the "Rome Protocols," the Austrian government under Engelbert Dollfuss destroyed the democratic institutions of Austria, wiped out all Socialist and working-class organizations, and established a one-party dictatorial corporate state at Mussolini's behest in 1934. Hitler took advantage of this to attempt a Nazi coup in Austria, murdering Dollfuss in July 1934 but he was prevented by the quick mobilization of Italian troops on the Brenner frontier and a stern warning from Mussolini.
Page 572 Hitler's ascension to office in Germany in 1933 found French foreign policy paralyzed by British opposition to any efforts to support collective security or to enforce German observation of its treaty obligations by force. As a result, a suggestion from Poland in 1933 for joint armed intervention in Germany to remove Hitler from office was rejected by France. Poland at once made an non-aggression pact with Germany and extended a previous one with the Soviet Union. In 1934, France under Jean Louis Bathou, began to adopt a more active policy against Hitler seeking to encircle Germany by bringing the Soviet Union and Italy into a revived alignment of France, Poland, the Little Entente, Greece and Turkey.
Page 573 France's Laval was convinced that Italy could be brought into the anti-German front only if its long-standing grievances and unfulfilled ambitions in Africa could be met. Accordingly, he gave Mussolini 7% of the stock in the Djibouti-Addis Ababa Railway, a stretch of desert 114,000 square miles in extent but containing only a few hundred persons (sixty-two according to Mussolini) on the border of Libya, a small wedge of territory between French Somaliland and Italian Eritrea, and the right to ask for concessions throughout Ethiopia. While Laval insisted that he had made no agreement which jeopardized Ethiopia's independence or territorial integrity, he made it equally clear that Italian support against Germany was more important than the integrity of Ethiopia in his eyes. France had been Ethiopia's only friend and had brought it into the League of Nations. Italy had been prevented from conquering Ethiopia in 1896 only by a decisive defeat of her invading forces at the hands of the Ethiopians themselves, while in 1925, Britain and Italy had cut her up into economic spheres by an agreement which was annulled by a French appeal to the League. Laval's renunciation of France's traditional support of Ethiopian independence brought Italy, Britain and France into agreement on this issue.
Page 574 This point of view was not shared by public opinion in these three countries. Stanley Baldwin (party leader and prime minister) erected one of the most astonishing examples of British "dual" policy in the appeasement period. While publicly supporting collective security and sanctions against Italian aggression, the government privately negotiated to destroy the League and to yield Ethiopia to Italy. They were completely successful in this secret policy. The Italian invaders had no real fear of British military sanctions when they put a major part of their forces in the Red Sea separated from home by the British-controlled Suez canal. The British government's position was clearly stated in a secret report by Sir John Maffey which declared that Italian control of Ethiopia would be a "matter of indifference" to Britain. This opinion was shared by the French government too. Unfortunately, public opinion was insisting on collective sanctions against the aggressor. To meet this demand, both governments engaged in a public policy of unenforced or partially enforced sanctions at wide variance with their real intentions. Foreign Secretary Samuel Hoare delivered a smashing speech to support sanctions against Italy. The day previously he and Anthony Eden had secretly agreed with Pierre Laval to impose only partial economic sanctions avoiding all actions such as blockade of the Suez canal.
Page 575 A number of governments including Belgium, Czechoslovakia, France and Britain had stopped all exports of munitions to Ethiopia as early as May 1935 although Ethiopia's appeal to the League for help had been made on March 17th while the Italian attack did not come until October. The net result was that Ethiopia was left defenceless and her appeal to the US for support was at once rejected. Hoare's speech evoked such applause from the British public that Baldwin decided to hold a general election on that issue. Accordingly, with ringing pledge to support collective security, the National government won an amazing victory and stayed in power until the next general election ten years later (1945). Although Article 16 of the League Covenant bound the signers to break off all trade with an aggressor, France and Britain combined to keep their economic sanctions partial and ineffective. The imposition of oil sanctions was put off again and again until the conquest of Ethiopia was complete. The refusal to establish this sanction resulted from a joint British-French refusal on the grounds that an oil sanction would be so effective that Italy would be compelled to break of its was with Ethiopia and would, in desperation, make war on Britain and France. This, at least, was the amazing logic offered by the British government later.
Page 576 Hoare and Laval worked out a secret deal which would have given Italy outright about one-sixth of Ethiopia. When news of this deal was broken to the public, there was a roar of protest on the grounds that this violated the election pledge made but a month previously. To save his government, Baldwin had to sacrifice Hoare who resigned on December 19 but returned to Cabinet on June 5 as soon as Ethiopia was decently buried. Laval fell from office and was succeeded by Pierre Flandin who pursued the same policy. Ethiopia was conquered on May 2 1936. Sanctions were removed in the next two months just as they were beginning to take effect. The consequences of the Ethiopian fiasco were of the greatest importance. The Conservative Party in England was entrenched in office for a decade during which it carried out its policy of appeasement and waged the resulting war. The US passed a "Neutrality Act" which encouraged aggression, at the outbreak of war, by cutting off supplies to both sides, to the aggressor who had armed at his leisure and to the victim as yet unarmed. Above all, it destroyed French efforts to encircle Germany.
CIRCLES AND COUNTERCIRCLES, 1935-1939
Page 577 The remilitarization of the Rhineland in violation of the Versailles Treaty was the most important result of the Ethiopian crisis.
Page 578 In order to destroy the French and Soviet alliances with Czechoslovakia, Britain and Germany sought to encircle France and the Soviet Union in order to dissuade France from honoring its alliances with either Czechoslovakia or the Soviet Union and France, finding itself encircled, dishonored its alliance with Czechoslovakia when it came due in 1938.
Page 579 The British attitude towards eastern Europe was made perfectly clear when Sir John Simon demanded arms equality for Germany. Adding to the encirclement of France was the Anglo-German Naval Agreement of June 1935.
Page 580 Parallel with the encirclement of France went the encirclement of the Soviet Union known as the anti-Comintern Pact, the union of Germany and Japan against Communism. The last encirclement was that against Czechoslovakia. Hungary and Germany were both opposed to Czechoslovakia as an "artificial" creation of the Versailles Conference. The Polish-German agreement of 1934 opened a campaign until the Polish invasion in 1938. An analysis of the motivations of Britain in 1938-1939 is bound to be difficult because the motives of government were clearly not the same as the motives of the people and in no country has secrecy and anonymity been carried so has been been so well preserved as in Britain. In general, motives become vaguer and less secret as we move our attention from the innermost circles of the government outward. As if we were looking at the layers of an onion, we may discern four points of view: 1) the anti-Bolsheviks at the center; 2) the "three-bloc-world" supporters close to the center; 3) the supporters of "appeasement" and 4) the "peace at any price" group in peripheral position.
Page 581 The chief figures in the anti-Bolshevik group were Lord Curzon, Lord D'Abernon and General Smuts. They did what they could to destroy reparations and permit German re-armament. This point of view was supported by the second group, the Round Table Group, and came later to be called the Clivenden Set which included Lord Milner, Lord Brand (managing director of Lazard Brothers, international bankers). This group wielded great influence because it controlled the Rhodes Trust and dominated the Royal Institute of International Affairs. They sought to contain the Soviet Union rather than destroy it as the anti-Bolsheviks wanted. They advocated a secret alliance of Britain with the German military leaders against the Soviet.
Page 583 Abandoning Austria, Czechoslovakia and the Polish Corridor to Germany was the aim of both the anti-Bolsheviks and the "three-bloc" people.
Page 584 From August 1935 to March 1939, the government built upon the fears of the "peace at any price" group by steadily exaggerating Germany's armed might and belittling their own, by calculated indiscretions like the statement that there were no real anti-aircraft guns in London, by constant hammering at the danger of air attack without warning, by building ostentatious and quite useless air-raid trenches in the streets and parks of London, and by insisting through daily warnings that everyone must be fitted with a gas mask immediately (although the danger of a gas attack was nil). In this way, the government put London into a panic in 1938 and by this panic, Chamberlain was able to get the people to accept the destruction of Czechoslovakia. Since he could not openly appeal on the anti- Bolshevik basis, he had to adopt the expedient of pretending to resist (in order to satisfy the British public) while really continuing to make every possible concession to Hitler which would bring Germany to a common frontier with the Soviet Union.
Page 585 Chamberlain's motives were not really bad ones; he wanted peace so he could devote Britain's limited resources to social welfare; but he was narrow and totally ignorant of the realities of power, convinced that international politics could be conducted in terms of secret deals, as business was, and he was quite ruthless in carrying out his aims, especially in his readiness to sacrifice non-English persons who, in his eyes, did not count.
THE SPANISH TRAGEDY, 1931-1939
Page 587 From the invasion of the Arabs in 711 to their final ejection in 1492, Spanish life has been dominated by the struggle against foreign intruders. As a result of more than a thousand years of such struggles, almost all elements of Spanish society have developed a fanatical intolerance, an uncompromising individualism, and a fatal belief that physical force is a solution to all problems, however spiritual.
Page 588 The war of 1898, by depriving Spain of much of its empire, left its over-sized army with little to do and with a reduced area on which to batten. Like a vampire octopus, the Spanish Army settled down to drain the life-blood of Spain and, above all, Morocco. This brought the army officers into alignment with conservative forces consisting of the Church (upper clergy), the landlords, and the monarchists. The forces of the proletariat discontent consisted of the urban workers and the much larger mass of exploited peasants.
Page 591 In 1923, while most of Spain was suffering from malnutrition, most of the land was untilled and the owners refused to use irrigation facilities which had built by government. As a result, agricultural yields were the poorest in western Europe. While 15 men owned about a million acres and 15,000 men owned about the of all taxed land, almost 2 million owned the other half, frequently in plots too small for subsistence. About 2 million more, who were completely landless, worked 10 to 14 hours a day for about 2.5 pesetas (35 cents) a day for only six months in the year and paid exorbitant rents without any security of tenure. In the Church, while the ordinary priests share the poverty and tribulations of the people, the upper clergy were closely allied with government and supported by an annual grant. They had seats in the upper chamber, control of education, censorship, marriage. In consequence of this alliance of the upper clergy with government and the forces of reaction, all animosities built against the latter came to be directed against the former also. Although the people remained universally and profoundly catholic, they also became incredibly anticlerical reflected in the proclivity for burning churches. All these groups, landlords, officers, upper clergy, and monarchists, were interest groups seeking to utilize Spain for their own power and profit.
Page 592 Alfonso XIII ordered municipal elections but in 46 out of 50 provincial capitals, the anti-monarchial forces were victorious. Alfonso fled to France on April 14, 1931. The republicans at once began to organize their victory, electing a Constituent Assembly in June and establishing an ultramodern uni- cameral, parliamentary government with universal suffrage, separation of Church and State, secularization of education, local autonomy for separatist areas and power to socialize the great estates or the public utilities. The republic lasted only five years before Civil War began in 1936 after being challenged constantly from the Right and the extreme Left. Because of shifting governments, the liberal program which was enacted into law in 1931 was annulled or unenforced.
Page 593 In an effort to reduce illiteracy (over 45% in 1930), the republic created thousands of new schools and new teachers, raised teachers' salaries, founded over a thousand libraries. Army officers were reduced with the surplus being retired on full pay. The republican officers tended to retire, the monarchists to stay on. To assist the peasants and workers, mixed juries were established to hear rural rent disputes, importation of labor for wage-breaking purposes was forbidden; and credit was provided for peasants to obtain land, seed, or fertilizers on favorable terms. Customarily uncultivated lands were expropriated with compensation to provide farms for a new class of peasant proprietors. Most of these reforms went into effect only partially. Few of the abandoned estates could be expropriated because of the lack of money for compensation.
Page 594 The conservative groups reacted violently. Three plots began to be formed against the new republic, the one monarchist led by Sotelo in parliament and by Goicoechea behind the scenes; the second a parliamentary alliance of landlords and clericals under Robles; and the last a conspiracy of officers under Generals Barrera and Sanjurjo. In the meantime, the monarchist conspiracy was organized by former King Alfonso from abroad. Goicoechea performed his task with great skill under the eyes of a government which refused to take preventative action because of its own liberal and legalistic scruples. He organized an alliance of the officers, the Carlists, and his own Alfonsist party. Four men from these three groups then signed an agreement with Mussolini in 1934 who promised arms, money, diplomatic support and 1.5 million pesetas, 10,000 rifles,10,000 grenades, and 200 machine guns. In return, the signers promised to sign a joint export policy with Italy.
Page 595 The Robles coalition of Right parties with the clerical party and agrarian party of landlords was able to replace the Left Republican Azana by the Right Republican Lerroux as prime minister. It then called new elections, won victory and revoked many of the 1931 reforms while allowing most of the rest to go unenforced and restored expropriated estates. This led to a violent agitation which burst into open revolt in the two separatist centers of the Basque country and Catalonia. The uprising in Asturias spearheaded by anarchist miners hurling dynamite from slings, lasted for nine days. The government used the Foreign Legion and Moors, brought to Morocco by sea, and crushed the rebels without mercy. The latter suffered at 5,000 casualties. After the uprising, 25,000 suspects were thrown into prison. The uprising of October 1934, although crushed, split the oligarchy. The demands of the army, monarchists and the biggest landlords for a ruthless dictatorship alarmed the leaders of the Church and president of the republic Zamora. Robles as minister of war encouraged reactionary control of the army and even put General Franco in as his undersecretary of war.
Page 596 For the 1936 elections, the parties of the Left formed the Popular Front with a published program promising a full restoration of the constitution, amnesty for political crimes committed after 1933, civil liberties, an independent judiciary, minimum wages, protection for tenants, reform of taxation, credit, banking. It repudiated the Socialist program for nationalization of the land, the banks, and industry. While all the Popular Front parties would support the government, only the bourgeois parties would hold seats in the Cabinet while the workers parties such as the Socialists would remain outside. The Popular Front captured 266 of 473 seats while the Right had 153, the Center 54, CEDA 96, Socialists 87, Republic Left 81, Communists 14. The defeated forces of the Right refused to accept the election results and tried to persuade Valladeres to hand over the government to General Franco. That was rebuffed. On Feb. 20, the conspirators met and decided the time was not yet ripe. The new government heard of this meeting and transferred Franco to the Canary Islands. The day before he left Madrid, Franco met with the chief conspirators and they completed their plans for a military revolt but fixed no date. In the meantime, provocation, assassination, and retaliation grew steadily with the verbal encouragement of the Right. Property was seized or destroyed and churches were burned on all sides. The mob retaliated by assaults on monarchists and by burning churches.
Page 597 Italian Air Force planes were painted over and went into action in support of the revolt which was a failure when the navy remained loyal because the crews overthrew their officers; the Air Force remained loyal; the army revolted with much of the police but were overcome. At the first news of the revolt, the people, led by labor unions, demanded arms. Because arms were lacking, orders were sent at once to France. The recognized government in Madrid had the right to buy arms abroad and was even bound to do so by treaty with France. As a result of the failure of the revolt, the generals found themselves isolated in several different parts of Spain with no mass popular support.
Page 598 The rebels held the extreme northwest, the north and the south as well as Morocco and the islands. They had the unlimited support of Italy and Portugal and tentative support from Germany. The French suggested an agreement not to intervene in Spain since it was clear that if there was no intervention, the Spanish government could suppress the rebels. Britain accept the French offer at once but efforts to get Portugal, Italy, Germany and Russia into the agreement were difficult because Portugal and Italy were both helping the rebels. By August, all six Powers had agreed. Efforts to establish some kind of supervision were rejected by the rebels and by Portugal while Britain refused to permit any restrictions to be placed on war material going to Portugal at the very moment when it was putting all kinds of pressure on France to restrict any flow of supplies to the recognized government of Spain. Portugal had delayed joining the agreement until it would hurt the Loyalist forces more than the rebels. Even then, there was no intention of observing the agreements.
Page 599 France did little to help the Madrid government while Britain was positively hostile to it. Both governments stopped all shipments of war material to Spain. By its insistence on enforcing non-intervention against the Loyalists, while ignoring the systematic and large-scale evasions of the agreement in behalf of the rebels, Britain was neither fair nor neutral, and had to engage in large-scale violations of international law. Britain refuse to permit any restrictions to be placed on war material going to Portugal (to the rebels). It refused to allow the Loyalist Spanish Navy to blockade the seaports held by the rebels, and took immediate action against efforts by the Madrid government to interfere with any kind of shipments to rebel areas, while wholesale assaults by the rebels on British and other neutral ships going to Loyalist areas drew little more than feeble protests from Britain. Britain was clearly seeking a rebel victory and instead of trying to enforce nonintervention, was actively supporting the rebel blockade of Loyalist Spain when the British Navy began, in 1937, to intercept British ships headed for Loyalist ports and on some pretext, or simply by force, made them go elsewhere. The rebel forces were fewer than the Loyalists but were eventually successful because of their great superiority in artillery, aviation, and tanks as a result of the one-sided enforcement of the non-intervention agreement.
Page 600 The failure of Franco to capture Madrid led to a joint Italian- German meeting where it was decided to recognize the Franco government and withdraw their recognition from Madrid on Nov. 18, 1936. Japan recognized the Franco regime in December. As a result, Franco received the full support of the aggressor states while the Loyalist government was obstructed in every way by the "peace-loving" Powers. Italy sent 100,000 men and suffered 50,000 casualties, Germany sent 20,000 men. On the other side, the Loyalists were cut off from foreign supplies almost at once because of the embargoes of the Great Powers and obtained only limited amounts, chiefly from Mexico, Russia and the US until the Non-intervention agreement cut these off. On Jan. 18, 1937, the American Neutrality Act was revised to apply to civil as well as international wars and was invoked against Spain immediately but unofficial pressure from the American government prevented such exports to Spain even earlier. The Madrid government made violent protests against the Axis intervention both before the Non-intervention Committee in London and before the League of Nations. These were denied by the Axis Powers. An investigation of these charges was made under Soviet pressure but the Committee reported that these charges were unproved. Anthony Eden went so far to say that so far as non-intervention was concerned, "there were other governments more to blame tan either Germany or Italy."
Page 601 Soviet intervention began Oct 7,1936, three and a half years after Italian intervention and almost three months after both Italian and German units were fighting with the rebels. The Third International recruited volunteers throughout the world to fight in Spain. This Soviet intervention in support of the Madrid government at a time when it could find support almost nowhere else served to increase Communist influence in the government very greatly.
Page 602 The Italian submarine fleet was waiting for Russian shipping in the Mediterranean and did not hesitate to sink it in the last few months of 1936. Although the evidence for Axis intervention in Spain was overwhelming and was admitted by the Powers themselves early in 1937, the British refused to admit it and refused to modify the non- intervention policy. Britain's attitude was so devious that it can hardly be untangled although the results were clear enough. The real sympathy of the London government clearly favored the rebels although it had to conceal the fact from public opinion since this opinion favored the Loyalists over Franco by 57% to 7% according to a 1938 opinion poll.
Page 603 On December 18, 1936, Eden admitted that the government had exaggerated the danger of war four months earlier to get the non- intervention agreement accepted, and when Britain wanted to use force to achieve its aims, as it did in the piracy of Italian submarines in 1937, it did so without risk of war. The non-intervention agreement, as practiced, was neither an aid to peace nor an example of neutrality, but was clearly enforced in such a way as to give aid to the rebels and place all possible obstacles in the way of the Loyalist government suppressing the rebellion. The attitude of the British government could not be admitted publicly and every effort was made to picture the actions of the Non- intervention Committee as one of even-handed neutrality. In fact, it was used to throw dust in the eyes of the world, especially the British public. For months, the meaningless debates of this committee were reported in detail to the world and charges, countercharges, proposals, counterproposals, investigations and inconclusive conclusions were offered to the a confused world, thus successfully increasing its confusion. While debating and quibbling on about issues like belligerence, patrols, volunteers, etc., before the Committee in London, the Franco forces, with their foreign contingents, slowly crushed the Loyalist forces.
Page 604 The Loyalist forces surrendered on March 28th 1939. England and France had recognized the Franco government on February 17 and the Axis troops were evacuated from Spain after a triumphal march through Madrid in June. When the war ended, much of Spain was wrecked, at least 450,000 Spaniards had been killed and an unpopular military dictatorship had been imposed as a result of the actions of non-Spanish forces. At least 400,000 Spaniards were in prison and large numbers were hungry and destitute. Germany recognized this problem and tried to get France to follow a path of conciliation, humanitarian reform, and social, agricultural, and economic reform. This advice was rejected, with the result that Spain has remained weak, apathetic, war-weary, and discontented ever since.
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