Toward The Great Cleansing
Chapter 1 (Part 4 of 4) of the book
The Discovery of First Principles, Volume 3
Edward J. Dodson
The Keynesian Revolution Gains Momentum
By the early 1930s, Keynes reached the conclusion that the operation
of the global economy had gone beyond the analytical capacity of
neoclassical economic theory. He lived in a time characterized by an
anomaly -- enough output to provide a decent standard of well-being
for virtually all people everywhere, while potential workers remained
unemployed in such large numbers so as to guarantee a continuous
imbalance between supply and demand. What Keynes observed was that
contrary to neoclassical assertions price did not effectively clear
markets. Moreover, even when the wage demands of labor fell low enough
full employment was not the result. Yet, as with most of his
colleagues, he did not see that those who controlled locations or
natural resource-laden lands (and appropriated all or some good
portion of the rental value thereof) generally occupied a highly
advantageous position vis a vis those who did not. On the relative
competitive position of the producer and rent-seeker, Keynes made the
same mistake as Schumpeter, writing:
Since that part of his profit which the entrepreneur has
to hand on to the rentier is fixed in terms of money, rising prices,
even though unaccompanied by any change in output, will
re-distribute incomes to the advantage of the entrepreneur and to
the disadvantage of the rentier, which may have a reaction on the
propensity to consume.[117]
During the Depression, a buyers' market in industrial, retail and
commercial space existed for those businesses not yet bankrupt. As
tenants, business owners had an easier time renegotiating leases to
lower annual payments, and the owners of buildings and their locations
experienced lower profits. As individuals, they cared not at all
whether the lost income came out of location rent, wages or interest,
or in what proportion. Buildings still needed to be maintained, even
though the leasing fees commanded in the market were sometimes
bringing in less revenue than the cost of owning and maintaining the
property. A building owner could take on more of the management and
maintenance responsibility in order to reduce costs, or defer
maintenance until cash flow improved. If the building had been
purchased using bank financing, debt service on the mortgage loan had
to be kept current or the owner risked foreclosure. In the Depression
climate, other banks were reluctant to offer to refinance mortgage
loans when the value of collateral seemed to be on a continuous
decline. The pure land speculator, generally speaking, had only one
ongoing cost to worry about - taxes paid to whatever level of
government taxed land based on assessed value. In the United States
and around the globe, land tended to be taxed lightly or not at all.
Thus, the well-capitalized land speculator with other sources of cash
flow could hold on to land through recession and depression (and even
acquire additional land parcels from bankrupt companies or at
depression-prices from the banks. Determining in advance who would be
the winners and losers would not be easy but the tendencies are
evident in the history of the period.
If this is so, why was it that only the Georgist remnant, bolstered
by the outspokenness of Harry Gunnison Brown, saw so clearly how
market dysfunctions could be materially corrected? George Raymond
Geiger asked this question in 1936:
When this matter of the holding of land out of use for
expected rises in land value was formerly introduced by single
taxers, the stock answer of many economists was to deny that there
was any significant failure to use land. However, since 1929 that
stock answer is not being heard so often, especially if the
economists have paid attention to the many technical studies that
have appeared in the last few years. These studies have demonstrated
that a major item in our present deflation has been the collapse of
inflated and speculative land values.[118]
Geiger went on to make his case, citing from the studies mentioned in
the above quotation. He also referred readers to the book Land and
Unemployment by James F. Muirhead, published the year before by
Oxford University Press. Still, despite a considerable amount of
market data and analytical literature on the operation of land markets
available to economists, the conclusions obvious to Geiger and Harry
Gunnison Brown continued to be ignored by those looking at the
operation of economies.
John Maynard Keynes had his own ideas of how to pull Britain and
other nations out of Depression. He observed that the wealthy were apt
to convert currency into hard assets, such as precious metals, gems,
collectibles or land, rather than expose their financial reserves to
risk of losses during this time of great uncertainty. This led him to
conclude, "in contemporary conditions the growth of wealth,
so far from being dependent on the abstinence of the rich, as is
commonly supposed, is more likely to be impeded by it."[119]
Unwilling to shift the cost of government to the wealthy by imposing
heavier taxation on higher marginal incomes or other assets, this left
two courses of actions: borrow from those who possessed financial
reserves or have the central banks print more currency in exchange for
government bonds. Fear of runaway inflation kept most governments from
pursuing the second course of action. Still, in order to attract
investment in government bonds, the rate of return had to compensate
investors for inflation (i.e., for falling purchase power). In other
words, the rate of interest would have to be high or indexed to some
base. Absent the ability to attract funds by issuing government debt,
the public policies Keynes favored were those being followed,
remarkably, by the British government: a progressive income tax,
surtaxes on luxury goods and reasonably high death duties on large
estates. These revenue measures, properly implemented, minimized taxes
on those of modest means while still rewarding the inventive and
entrepreneurial spirit of those who possessed such superior abilities.
Without pausing to reflect on the idea that control over locations was
a form of privilege yielding imputed and actual rent to the holder,
Keynes argued for an end to all forms of unearned income:
I feel sure that the demand for capital is strictly
limited in the sense that it would not be difficult to increase the
stock of capital up to a point where its marginal efficiency had
fallen to a very low figure. This would mean that the use of capital
instruments would cost almost nothing, but only that the return from
them would have to cover little more than their exhaustion by
wastage and obsolescence together with some margin to cover risk and
the exercise of skill and judgment. ...
Now, though this state of affairs would be quite compatible with
some measure of individualism, yet it would mean the euthanasia of
the rentier, and, consequently, the euthanasia of the cumulative
oppressive power of the capitalist to exploit the scarcity-value of
capital. Interest to-day rewards no genuine sacrifice, any more than
does the rent of land. The owner of capital can obtain interest
because capital is scarce, just as the owner of land can obtain rent
because land is scarce. But whilst there may be intrinsic reasons
for the scarcity of land, there are no intrinsic reasons for the
scarcity of capital.[120]
What Keynes misses here is the reason why people employ capital
(i.e., capital goods of whatever form). Capital goods increase
productivity over what labor alone is able to produce. The owner of
capital goods has a legitimate claim on that portion of production
associated with capital. In a severe recession or depression, the
demand for what is produced might be low not because there is no
desire for the goods produced but because aggregate purchasing power
has disappeared.
Keynes looked to progressive tax policy to generate revenue
sufficient in quantity to fully employ labor. At full employment, the
demand for consumer goods would also translate into a demand for
capital goods, which would in turn stimulate further demand for labor.
From this point on, government would merely need to adjust tax policy
and spending to maintain a full employment economy. Insofar as the
source of income for many corporations and wealthy individuals was
derived from both rent and a protectionist level return on capital
goods, Keynesian intervention looks a bit Georgist by its net capture
of unearned income. Unfortunately, a good deal of earned income is
also captured by imposing high tax rates on earned cash flows. What
saves Keynes is his directive that tax rates ought to be increased in
periods of prosperity in order to build a surplus that could be used
by government for spending during periods of downturn in the private
sector, when tax rates need to be lowered to sustain purchasing power.
In the decades that followed, a new generation of economists broke
with Keynes to become proponents of deficit spending in order to fund
social welfare programs while also maintaining a capable national
defense. They put their faith in an unending upward climb in
productivity and innovation to outpace the growth in a nation's
outstanding debt, and in wise use of monetary policy to keep interest
rates high enough to attract investors in government bonds, yet low
enough not to put an undue strain on government's ability to handle
its debt service.
One of the more intriguing contemporary analyses of the Depression
and its consequences on the immediate and longer-term future was
provided in 1939 by a young Austrian named Peter F. Drucker, whose
career had already included several years as economist for a leading
international banking house in London. In 1937 he arrived in the
United States as correspondent for a number of British newspapers. In
his book, The End of Economic Man, Drucker offered his
explanation of how and why Fascism was spreading across the European
continent. Economics and economists had played a role:
Up to 1929 depression was regarded not only as entirely
rational but almost as desirable - or at least as necessary. Its
sacrifices and sufferings were the price of economic progress toward
ever-greater economic achievement and the realization of the free
and equal society of Economic Man, either through the economic
harmony of capitalism or through the dialectic automatism of
Marxism. …
At the onset of the depression this traditional view of the
function of the trade cycle was still deeply ingrained in the
automatic routine mentality. It disappeared almost overnight in all
European countries when the routine was broken by the crisis. This
shows that the people are no longer willing to make sacrifices for
the sake of economic progress, that they do not consider economic
progress worth the price. …The monetary theories of the
business cycle - such as those of Keynes, Irving Fisher, or Major
Douglas - by denying the necessity and the salutary effects of
depression, deny that depressions are rational parts of a rational
order. It is highly significant that these theories did not become
widely accepted or even widely known until late in the twenties;
then they captured like wildfire the imagination of masses and
leaders alike.[121]
What Keynes, Fisher, Douglas and others were offering to a desperate
world were the theoretical justifications for new policies to move the
world beyond laissez-faire capitalism and beyond Marxism. War and the
economic engine that preparing for war ignites intervened before their
insights could effectively be put to the test.
Some years later, Harry Gunnison Brown finally got around to taking
on the first generation of postwar Keynesians who were diverging from
the master's teachings. By the 1950s, an increasing number of
economists repeated as Keynesian the notion that when necessary,
employment ought to be stimulated by government spending, whether or
not the revenue had to be raised by borrowing. To be sure, one
assumption was that the interest to be paid on an expanding national
debt would come from those with higher incomes. This raised a red flag
in Brown's mind:
In practice, when such a system of "transfer"
is established, the purchasing power is not always transferred from
the rich to the poor. Some of it is transferred from the poor to the
rich -- for example, from workers in the cities, where the cost of
living is relatively high, and who, because of this "transfer,"
find it more difficult to feed, clothe and comfortably house their
children, to such persons as bonanza farmers and other well-to-do
farmers enjoying crop loans, support prices and subsidies.[122]
In 1936, these controversies were only just beginning to surface in
the discussions between economists. In the midst of the Depression, a
growing number of thoughtful individuals in the United States came to
the conclusion that the only salvation for the republic was to become
a real social-democracy. In fits and starts, Roosevelt seemed to be
pulling the nation toward that objective, and Keynes gave to planning,
to policies of centralized control, wealth transfer and progressive
taxation an intellectual pedigree.
At about the same time, George Geiger was putting the finishing
touches on his manuscript (reviewed by both John Dewey and Harry
Gunnison Brown). His book lifted briefly the torch of cooperative
individualism. Geiger, the philosopher son of Oscar Geiger (founder of
the Henry George Schools) hoped in some way to redirect the thinking
and energies of those who studied economics from "the glare
of economic technicalities" toward the idea "that
there may possibly be a basic, unifying, and indeed simple explanation
of the constantly recurring social paradoxes"[123] that
troubled societies. George Geiger was convinced the land question had
to be resolved if the socio-political arrangements and institutions of
society were to guarantee a just distribution of wealth. This would
not, perhaps could not, be accomplished without broad acceptance of
basic principles of justice on the part of the intellectual, academic
and professional communities. Yet, everywhere he turned the supposedly
learned persons he attempted to engage discharged his views as "over-simplified
rationalization"[124] of very complex and dynamic processes.
In response, Geiger covered very much the same ground as had Henry
George, bringing to light the inconsistencies in thought revealed by a
close examination of the writings of the generation of economists who
followed George as well as those who studied under them and were now
Geiger's contemporaries. For the most part, Geiger observed, the
generation of "pre-New Deal anti-ethicist"
professionals believed that "moralizing in economics is taboo."[125]
He recognized that something new was certainly in the air by the 1930s
(even if very much off the mark):
[T]he willingness of economists to cooperate in national
and political programs -- whether or not that cooperation is
recognized as sound -- is a welcome change from the affected
insistence upon purely descriptive economics that featured so much
of pre-"depression" theory. ...[126]
[T]he "over-production" complex found in certain brands
of contemporary economics is not being taken seriously here. It is
felt that the most vicious ... contribution of New Deal economists
is their not-so-subtle attack upon an "economy of abundance."
A study of under-consumption, of effective demand, of the consumer
-- it is this path, pointed out by men like Stuart Chase, that must
be substituted for the one leading to an inverted, but just as
pernicious, Malthusianism.[127]
The bottom line for Geiger -- for all those who found harmony in
principles of political economy espoused by Henry George -- was that
New Deal politics were being driven by an attempt to mitigate
rather than resolve the problems associated with monopoly privilege.
The laws of the land were significantly responsible for creating
disincentives to produce, incentives to hoard and speculate and
extraordinary forms of economic license for the relative few at the
expense of the many. "No sane economic system, Geiger
wrote, "can accept as normal a general curtailment of
production, just as no sane economic system can accept a condition of
permanent unemployment."[128] By adopting policies that met
the test of justice, a society would simultaneously experience the
benefits of economic efficiency. A state of affairs would develop
where full employment became and remained the norm. Geiger argued that
widespread unemployment has nothing to do with overproduction; rather,
whenever large numbers of individuals are without work, "[i]t
can mean only that men do not have the ability to buy the things they
make -- the distributive process has broken down, not the productive."[129]
And, as if the ghost of Frederick Jackson Turner (dead just four
years) haunted the minds of the world's more thoughtful observers,
Geiger could point even to the writing of Walter Lippmann as evidence
of how close some had come to the truth while letting it roll over
them without lasting result. In 1934, Lippmann had written in The
Method of Freedom:
[W]hen do proletariat and plutocracy appear in a society?
They appear, do they not, when there is no more free land, when the
existing resources have been pre-empted? The social disease of
proletarianism is not serious where the frontier is still open.
...It is necessary somehow to construct within the framework of our
complicated machine civilization the moral equivalent of the
opportunity to stake out private property in virgin territory.[130]
Adolf Berle, Gardiner Means and other New Dealers tried to do just
that by gaining for the Federal government the power to create a
social democracy and welfare state. Stuart Chase and George Soule,
leaning further in the direction of state socialism, disdained what
they viewed as unnecessary failures brought on by competition. By
introducing central planning and adopting strict regulation of
business activity, they believed the conflict-prone market system
would gradually fall victim to the more powerful cooperative urge of
people living in society with one another. Individualism would succumb
to the lure of mutual dependence. H.L. Mencken dismissed the lot as "completely
incompetent" and "a truly astounding rabble of
impudent nobodies."[131] They were, nonetheless, agents in
the vanguard of a new movement to subordinate the remaining powers of
the states to that of the Federal government. Stalwarts of the
Progressive brand of idealism such as Louis D. Brandeis and Felix
Frankfurter warned that without ridding the nation of business
concentrations all else would be for naught. Two Frankfurter recruits,
Benjamin Cohen and Thomas Corcoran, went about the task of attracting
talent to government jobs in the new agencies. In their quest to
redistribute power from the industrial landlords to [those who held in
trust the interests of] the common citizens, they participated in
establishing a framework for exponential growth in government. They
had little patience with the Veblenesque social engineers and central
planners. Yet, together they moved in tandem to give government ever
more power. Those who found in history reasons for concern began to
organize in opposition.
A growing minority of economists, as well as Federal Reserve
officials, had been quietly observing the gradual recovery of the
British economy -- and their decision to finance deficit spending with
borrowing. Jude Wanniski (who, since the 1970s has been a consistent
proponent of supply-side economic policies and a reduction in
taxation, generally) notes the irony in the ascendancy of Keynes as a
dominant figure in economics at a time when "he was
surrounded in Britain by both mass unemployment and the highest tax
rates on personal incomes in the world, yet he made no connection
between the two."[132] In fairness to Keynes, we need to
remember that the measures he proposed to get the British economy out
of its Depression were, he felt, required by the depth of the problem
of mass unemployment. "Keynes produced The General Theory as
a proof - by the standards of the prevailing economic orthodoxy itself
- that, contrary to orthodox beliefs, the normal state of economic
society was not full employment, but general unemployment,"[133]
write Elizabeth and Harry Johnson. Keynes came to understand that some
government intervention was required to achieve what most mainstream
economists thought impossible - full employment without inflation.
Unfortunately, Keynes failed to recognize that economic instability
was caused by laws that created privilege and economic license on
behalf of landed (i.e., rent-seeking) interests.
In part, the debate was and has remained over whose incomes ought to
be taxed rather than on what incomes (i.e., earned versus unearned).
Wanniski's own analysis of business cycle dynamics, coming in the
1970s during a time of the heaviest weight of government regulation
and taxation in the social democracies, presented the supply-side case
for lowering tax rates and regulation to stimulate investment.
However, both supply-side proponents, generally, and Keynesians,
generally, failed to distinguish between income generated by the
production of goods and services and income derived from static
ownership of locations, natural resource-laden lands, the broadcast
spectrum and other forms of natural monopolies. The reaction to
taxation by those who control nature is quite different from those who
labor or own capital goods. The former are pressured by the resulting
increased carrying costs to bring their assets to market, whereas high
taxes on producers penalizes production, commerce and consumption.
None of these distinctions entered into the public dialogue; nor where
they explored by economists in any systematic way.
The new generation of advisers and agency staff employed by the U.S.
government remembered that on December 31, 1933 Keynes had publicly
urged Franklin Roosevelt to stimulate purchasing power by deficit
spending and observed that British authorities had taken this advice
with good results. A second tier of economists and researchers,
including Simon Kuznets, Alvin Hansen, John Kenneth Galbraith and Paul
Samuelson, had independently reached the same conclusions. Marriner
Eccles, a Utah banker who was brought onto the Federal Reserve Board
in 1934, had already convinced Roosevelt that an active monetary and
fiscal program was essential to a sustained recovery. Eccles and
former Harvard University professor Lauchlin Currie, now a Treasury
Department official, put their ideas into a long memorandum detailing
the virtues of immediate government borrowing in order to prime the
nation's economic pump - to get currency circulating again and
stimulate orders for capital and consumer goods.
Roosevelt had survived the counterattack of those who, for reasons of
either narrow self-interest or principle (misguided or legitimate),
opposed the New Deal. However, he began his second term of office with
a new inner circle of advisers less concerned with remedial measures
targeted to sustain the recovery than with the future balance of power
between government and private interests. There were those such as NRA
chief economist, Leon Henderson, who still believed government
oversight could serve the interests of free trade and competitive
markets, but the pendulum was swinging in the direction of those who
believed government needed to have at least some control over basic
industrial production. In response to the changing governmental
landscape, Walter Lippmann, for one, became an outspoken critic,
fearful that Roosevelt was opening the door to state socialism and a
serious erosion of republican virtues. In The Good Society,
Lippmann offered his own plan for creating a social democracy and
later suggested that the courts, rather than a regulatory bureaucracy,
could ensure adherence to laws:
There are two ways of doing this thing. One leads to a
centralized state administered by government office holders, and the
other leads to a system of law in which corporations and everything
else are accountable and can be sued, and the judiciary decides the
issues. It is the second which I proposed as the change by which
liberalism could disembarrass itself of laissez faire and
still remain liberal.[134]
The difference in perspective is one of remedy versus prevention.
Creating new agencies of government with regulatory and enforcement
powers is justified by the view that harmful behavior must be
prevented. Lippmann's perspective is based on the assumption that the
threat of penalties imposed by the courts will direct most people to
behave appropriately or suffer the consequences. We have subsequently
learned how difficult is the challenge of determining the correct
balance between reliance on remedy and prevention. Moreover, to borrow
from Galbraith, the development of countervailing power in the social
democracies did not occur quickly or smoothly. In the 1930s there were
no well-financed and well-organized citizen-based organizations
actively monitoring the behavior of urban or industrial landlords or
government officials and agencies.
Faced with the harsh realities of the 1930s and a system that had
obviously succumbed to excesses, Lippmann was among the minority who
believed the path to recovery and the maintenance of recovery required
reconciliation between the Keynesian proposals and a better
understanding of market forces. Neither the old-line Progressives nor
New Dealers (of various stripes) thought much of this marriage. John
Dewey, for example, expressed the view that Lippmann's book encouraged
reactionaries, by which he meant the defenders of laissez-faire
protectionism and the pre-New Deal status quo. Yet, Dewey also
presented a study in contradictions. In 1932, he had accepted Oscar
Geiger's invitation to serve as honorary president of the
newly-established Henry George School of Social Science. Dewey admired
Henry George and at least on the surface seemed to understand George's
analysis of the road to full employment. In 1932 he delivered a radio
address in New York City that embraced Henry George's proposals. And
yet, he failed to grasp the serious attack on individual liberty at
work in Russia under the Bolshevik regime. While visiting Russia in
1928 to assess the changes being made in the nation's educational
system, Dewey wrote:
…the final significance of what is taking place in
Russia is not to be grasped in political or economic terms, but is
found in change, of incalculable importance, in the mental and moral
disposition of a people, an educational transformation. This
impression, I fear, deviates widely from the belief of both the
devotees and the enemies of the Bolshevik regime. But it is stamped
in my mind and I must record it for what it is.[135]
This was a time of tremendous upheaval throughout the Old World, when
the promise of socialism engaged a great many serious minds. Dewey
observed and listened in Russia, then expressed the hope that the
Russian people could somehow avoid catastrophe. "I find it
more instructive to regard it as an experiment whose outcome is quite
undetermined," Dewey continued, "but that is, just
as an experiment, by all means the most interesting one going on upon
our globe - though I am quite frank to say that for selfish reasons I
prefer seeing it tried in Russia rather than in my own country."[136]
Dewey was far from alone in this regard. Still, I am hard-pressed to
understand how, on the one hand, he could champion the philosophy of
Henry George, while, at the same time, holding out any hope that state
socialism could result in anything but yet one more form of tyranny.
As President of the United States, Roosevelt was in the not very
enviable position of having to navigate this mine field of confused
intellectuals. Practical men, such as the banker Marriner Eccles were
struggling to survive cascading events caused to a large extent,
Eccles concluded, because "a giant suction pump had by
1929-30 drawn into a few hands an increasing portion of currently
produced wealth."[137] Wealth concentration destroyed the
ability of the population to continue to consume what mass production
was able to produce. Eccles agreed with Keynes that the first priority
was to get the economy moving in the right direction. Once this
occurred there would be opportunity to work toward balancing the
budget. Whether or not government had been seriously at fault in
bringing about the Depression, the nation was now dependent upon all
parties to work with government to adopt practical solutions. As
Eccles described the situation:
All parties other than the federal government are
obliged to play according to the established rules of the private
financial game. Unless their outgo balances their income, they
ultimately go broke. But the federal government is in a different
category. To begin with, it can make and change the rules of the
game according to the needs of the nation. It alone has the power to
issue money and credit and thus influence the price structure.
Through its power of taxation it has the means to control the
accumulation and distribution of wealth-production. And, finally, it
has the power to mobilize the resources of the whole nation for the
benefit of all the people in it. Neither an individual, a family, a
corporation nor a single state of the Union has any one of these
powers.[138]
Eccles was not expressing a majority view from within the banking
establishment, of course. In February of 1933, a chance meeting with
Stuart Chase in Utah pulled Eccles into the circle of advisers close
to Roosevelt. He had been invited to Washington, D.C. to present his
views before the Senate Committee on Finance. Eccles was already
advocating actions that would later find favor with economists
influenced by Keynes. Yet, at the beginning of Roosevelt's first term
in office, the President and his brains trust headed by
Raymond Moley were committed to reducing government spending and to
balancing the budget. As Eccles recalled:
With the exception of [Mordecai] Ezekiel and Tugwell, I
doubt whether any of the men in my room had ever heard of John
Maynard Keynes, the English economist who has frequently been
referred to as the economic philosopher of the New Deal. At least
none of them cited his writing to support his own case, and the
concepts I formulated, which have been called "Keynesian,"
were not abstracted from his books, which I had never read. My
conceptions were based on naked-eye observation and experience in
the intermountain region.[139]
Eccles and Tugwell agreed on the steps that needed to be taken but
nothing was done to move their interventionist agenda forward until
Henry Morgenthau, Jr. replaced Will Woodin as Secretary of the
Treasury. Eccles was asked to come to Washington, D.C. and prepare a
report for Morgenthau detailing his views on appropriate monetary
policy. Morgenthau then asked Eccles to join the government as a
special assistant. They succeeded in convincing Roosevelt that some
government spending was needed to stimulate private sector demand and
employment-creating investment. Eccles next turned his attention to
the Federal Reserve and prevention of future bank liquidity problems.
In November 1934 he was appointed by Roosevelt as Governor of the
Federal Reserve Board. Months of very tough political fighting
followed before passage of the Banking Act of 1935. Many economists of
the day - including Edwin W. Kemmerer (Princeton), Oliver M.W. Sprague
(Harvard) and Henry Willis (Columbia) lined up against Title II of the
legislation, which comprised the reforms Eccles proposed to the
Federal Reserve System. Over their objections the act was passed by
the U.S. Congress and signed into law by Franklin Roosevelt in August.
Stock prices began to recover in the Spring of 1935. Opponents of
Roosevelt began expressing their fears of inflation. Industrial output
had recovered considerably but millions of workers remained out of
work. As far as Eccles was concerned there was still much to do to
improve and stabilize the nation's banking system. Others were
convinced recovery was well underway and that the government should
now withdraw for actively stimulating investment. Then, not long after
Roosevelt's election to his second term as President, the economy slid
back into recession. Unemployment increased by nearly two million in
the second half of 1937. Plans to gradually dismantle emergency relief
and balance the budget were upset. With ten million people out of work
and the threat of more to come, Roosevelt also faced new external
pressures and an upsurge in isolationist opposition at home. Japan was
now at war against the Chinese. In Japan, the military was firmly in
control of the government. Mussolini's fascist army was not only in
Ethiopia but also put at the disposal of General Franco in Spain.
Hitler was rapidly rearming, and neither the British nor the French
felt they were in any position to act. In the face of these
challenges, Roosevelt needed strong support from his party and made a
public announcement of his intent to work for the defeat of any
candidate in the primary elections who did not support the New Deal
agenda. The result, writes Ted Morgan, was that: "Instead of
liberalizing the party, FDR had further split it."[140] The
President now faced a Congress less inclined than ever to acknowledge
his mandate, and a citizenry running out of patience with its
leadership. With the benefit of so many decades now gone by, one sees
clearly that the opportunity for transnational values to compete
successfully with ethnic nationalism and cultural relativism -- even
the United States or Britain -- had to wait for the terrible cleansing
of warfare to exact its toll. By 1936, Einstein demonstrated that he,
more so than Roosevelt and most U.S. pacifists, saw the handwriting on
the wall:
I am convinced that the British Commonwealth is correct
in asserting that only a powerful and well-organized international
military force will insure enduring peace. By the same token I
consider the American policy of nonparticipation in the solution of
international problems an unfortunate mistake. Such aloofness can
only increase the danger of war. Besides, once a war has broken out
and spread, America is bound to become involved, as she was in the
past. To my mind the principal task of American pacifists today is
to make these facts known.[141]
What Einstein did not understand fully was the strength of
isolationist feeling among American pacifists. There was not yet a
broad realization in the United States that the Old and New Worlds
were forever interconnected. Few had any knowledge of the work being
done on rocket technology, the development of jet power for airplanes
or the quest to unlock the secrets of the atom. Few advocated or
supported creation of a supranational organization of nation-states to
replace the failed League of Nations. Sovereignty and isolationism
were intimately related. Only a series of offensive strikes against
U.S. citizens and territory would turn the United States into a
committed participant for a New World Order.
WAITING FOR THE LEVEE TO BREAK
In a speech made on November 12, 1936 in the British House of
Commons, Winston Churchill presented a sobering assessment of
conditions in the Old World. "
The efforts at rearmament which France and Britain are making will
not by themselves be sufficient," he warned. "It
will be necessary for the Western democracies, even at some extension
of their risks, to gather round them all the elements of collective
security or of combined defensive strength against aggression ...
which can be assembled on the basis of the Covenant of the League of
Nations."[142] None of the nations to which Churchill alluded
could easily claim to hold the high ground of moral righteousness. The
fascists of Germany, Italy and Spain, the militarists of Japan and the
Bolsheviks in Russia were all brutally aggressive in their quest for
absolute dominion over whatever lands and peoples force enabled them
to seize and hold. Force and the threat of force was also at the heart
of empire and colonialism practiced by Britain, France and other Old
World nations. Successive generations of leaders in the United States
had invoked the principles of manifest destiny to claim the Hawaiian
Islands and Puerto Rico, occupy the Philippines, demand trade
concessions from the Chinese and erect barriers against the free
exchange of wealth.
Around the globe people braced for the inevitable outbreak of war.
The Japanese militarists (with the exception of Admiral Yamamoto)
discounted the industrial might of the United States because of a
failure to understand the reality of a national crisis to unite
Americans. And, of course, the great weakness of the German military
effort was its subordination to the whims and excesses of Adolf Hitler
and others at the top of the Nazi hierarchy. Another variable not
fully appreciated by the Axis leaders was the ultimate power of
language, tradition and custom to eventually unite the
English-speaking peoples against them.
The idea of a world transformed by the ideals and culture of Britain,
spread by commerce and educational institutions as well as by a
colonial and imperial presence had been long on the minds of a
powerful and wealthy elite in Britain and the United States. As the
twentieth century began, the synergy for this grand vision was
injected with the financial means provided by the personal fortunes of
Cecil Rhodes and William T. Stead. Prior to the First World War they
advanced the funds and established an organizational framework to
advance their ideals. As John Bowles concludes, the institutions they
created increased in influence with the passage of time:
For Rhodes money meant power. He wanted nothing less
than Anglo-Saxon world domination to impose world peace, an
objective now much denigrated as typical of the racialist social
Darwinism of the day. But it compares well with the ideas of other
racialists like Gobineau and Treitschke; and in fact Anglo-American
world power would decide two World Wars. Better co-ordinated it
might have prevented the First, and in fact it stabilized the
situation after the Second.[143]
Building on the activities of what were called Round Table Groups --
formed in the early 1900s by Britain's Alfred Milner -- U.S. and
British intellectuals, financiers, public officials and wealthy
industrial-landlords forged a close association. An Institute of
International Affairs emerged in Britain; and, in the U.S. an existing
organization, the Council on Foreign Relations, was gradually taken
over and guided into the role of think tank and publisher. The Council
began publishing Foreign Affairs in 1924, with Harvard
University's Archibald C. Coolidge as editor. Walter Lippmann
regularly contributed articles and was also among the Council's inner
group. During the 1930s, Council members adopted a more or less free
trade posture and an internationalist view of the role to be played by
the United States. Under the influence of Council members, Roosevelt
resisted pressures to bring centralized planning into the American
System. While both Ted Morgan and James MacGregor Burns are silent
on the influence of Council thinking on Roosevelt's positions, Marxist
historians Laurence Shoup and William Minter point to the Council as "[p]roviding
the intellectual rationale and leading th[e] thrust toward global
power"[144] pursued by U.S. leaders from this point on. As
early as 1934, Walter Lippmann echoed in his writings the Council's
view that the U.S. ought to withdrawal all troops from China and the
Philippines and make a firm commitment to support Britain should war
erupt with any continental power or powers. No doubt the U.S. would
support and itself be supported by the English-speaking populations of
Canada, Australia, New Zealand and South Africa.
Nothing similar to the Rhodes-financed effort to Anglo-Americanize
the world existed among the Nazis, Fascists or Marxist-Leninists.
Force and terror were the accepted means of crushing opponents -
internal and external. Persuasion and rational argument were purged
from political discourse. The rule of men displaced the rule of law in
a significant portion of the world. Whatever potential there had been
for a liberating overthrow of aristocratic privilege in Russia was
lost to the excesses of the Bolshevik leaders. Elsewhere, socialists
and communists employed whatever means they could to destabilize
existing governments. Conservative elements turned to political or
military leaders who promised order and stability. Spain, Portugal and
Poland succumbed to military dictators. Police states emerged in the
Balkans. Mussolini assumed total power in Italy in 1930. Franco
emerged in control of Spain in 1939. The Nazis gained control over
Germany in 1933 by less violent but hardly democratic means, after
which the level of violence against opponents was systematically
increased.
Long before Hitler came to power the German militarists worked
secretly to maintain the German General Staff. All training and plans
contemplated the rebuilding of a massive and thoroughly modernized
armed force. Their future allies, the Japanese, flexed their muscles
against the Chinese in Manchuria during 1931 and 1932. In the Spring
of 1935, the Germans formally denounced the Treaty of Versailles and
accelerated their program of rearming. Later that same year the
Italians invaded Ethiopia and in May of 1936 captured the capital,
Addis Ababa.
Remarkable as this sounds, as early as 1937 Adolf Hitler had already
declared to the German generals and his inner circle his decision to
take the nation to war if his territorial aspirations were resisted.
After their unopposed reoccupation of the Rhineland, he was convinced
he would not be challenged by France or Britain. Austria was occupied
in March of 1938. The generals warned Hitler that the army was not
ready for a continental war. Hitler ignored them. Britain and France
were even less prepared for war.
In May of 1937, Neville Chamberlain was summoned by the King to serve
as Britain's Prime Minister, and Chamberlain took tentative steps to
prepare for the defense of the empire. He continued to hope, or
believe, that a new world order could yet be negotiated into
existence. Winston Churchill, on the other hand, knew that the time
for rapprochement had long past, and that appeasement merely
sacrificed others without strengthening Britain. Equally important, he
also knew that Britain no longer possessed the productive capacity to
build and maintain a defensive force powerful enough to discourage
German and Japanese militarism. More than ever, Britain needed full
partners:
We wish to make our country safe and strong -- she can
only be safe if she is strong -- and we wish her to play her part
with other Parliamentary democracies on both sides of the Atlantic
Ocean in warding off from civilization, while time yet remains, the
devastating and obliterating horrors of another world war. We wish
to see inaugurated a reign of international law, backed, as it must
be in these turbulent times, by ample and, if possible,
super-abundant strength.[145]
There was little chance that the non-Fascist nations of Europe could
for long resist the combined aggression of Germany and Italy. Not even
Churchill held out any hope that the peoples of Europe might respond
favorably to a plan of unified resistance. Britain's future,
therefore, rested on establishing close ties with the United States
and the rest of the English-speaking nations. Britain's life-and-death
struggle depended on its ability to somehow overcome widespread
support in the U.S. for isolationist policies. The attitude among many
persons of influence in the United States was that the corruption of
the Old World powers had reached the point where an era of upheaval
was inevitable. The was no tradition of effective participatory
government in Spain, Italy and Germany. France and Britain now had
their own Fascist parties to contend with, and there was considerable
doubt whether those who had long held power through institutionalized
privilege would yield to a true expansion of social democracy. Even
Britain and France might yet succumb to the tyranny of the one party
state. As late as October 1939, John Foster Dulles argued that cries
against German aggressions were more of the same "stock in
trade of those who have vested interests which they want to preserve
against those in revolt against a rigid system."[146]
Roosevelt heard similar views expressed by Adolph Berle and Joseph
Kennedy.
Although Franklin Roosevelt was less than anxious to assume a leading
role against the aggressor nations when those far more directly
affected opted for appeasement, he was at the same time extremely
concerned by the failure of Cordell Hull, his Secretary of State, to
find a solution to the emerging crisis of Japanese aggression - and
the Japanese challenge to U.S. interests -- in Asia. At the same time,
many within the State Department continued to recognize the expansion
of Bolshevism as the gravest threat to the republic. A permanent
anti-communist contingent was emerging within the U.S. foreign policy
establishment, individuals willing to support all manner of
dictatorships so long as they declared themselves to be
anti-communist. Hans Morgenthau, on the other hand, urged Roosevelt to
unite with the Old World's constitutional republics and other willing
nations to blockade Germany while there was yet time. Allen Dulles,
who had recently been to Germany and recognized in Hitler the menace
he posed to world peace, thoroughly agreed. Then came the so-called
Crystal Night ("Kristallnacht") of November 7, 1938, when
the Nazis systematically burned Jewish synagogues and businesses,
killing hundreds of Jews in their shops and homes. Many leading public
figures in the U.S. joined with transnationals in a condemnation of
the Fascist regimes and began to modify their isolationist views.
One of the more creative efforts to strengthen the social democracies
was advanced in the late 1930s by a journalist working for the New
York Times, Clarence K. Streit. In a series of articles (and
eventually in book form) he made his case for the formation of a union
of democratic peoples:
Merely by the elimination of excessive government,
needless bureaucracy, and unnecessary duplication which Union would
automatically effect, the democracies could easily balance budgets
while reducing taxation and debt. To an appalling degree taxes and
government in the democracies today are devoted only to the
maintenance of their separate sovereignties as regards citizenship,
defense, trade, money and communications. To a still more appalling
degree they are quite unnecessary and thwart instead of serve the
purpose for which we established those governments and voted those
taxes, namely, the maintenance of our own freedom and sovereignty as
individual men and women.[147]
Streit had a great deal of faith in the citizens of a democratic
society to accomplish dramatic change. "The democracy that
permits a book such as this one to be freely written by any simple
citizen and freely read by any individual," he declared, "makes
the speed with which the common will can be formed depend only on the
book's truth and clarity, and the need for action."[148] What
history also suggests, however, is that windows of opportunity are
left opened only so long and that even the clearest of expositions,
the most irrefutable presentations, coming from one or a few
individuals are seldom sufficient to generate action. Henry George
understood that real change during his lifetime was unlikely. He
trusted that eventually truth would prevail. Sustained action on
behalf of change, constrained by processes of democratic
decision-making, requires a steadily widening constituency of support
and frequent restatement of principles by individuals of diverse
backgrounds. World events were working against the kind of action
Streit proposed. However, a remarkable list of transnationals joined
with Streit to form the Federal Union, Inc. One supporter was Columbia
University's Harold C. Urey, who in 1934 had won the Nobel Prize for
his discovery of heavy hydrogen; and, in August of 1940, Urey urged
Einstein to give the project his support. In reply, Einstein asked:
Do you believe that America's intellectual leaders would
ever openly subscribe to a policy which was clearly antithetical to
the feelings of the average American? I am convinced they would not
do so. Rather, they will choose, as they have done in the past, to
remain passive while one bulwark of culture and justice after
another is being destroyed -- passive, that is, until their own turn
comes. Intellectuals are cowards, even more so than most people.
They have always failed miserably when called upon to fight on
behalf of dangerous convictions.[149]
Urey confirmed Einstein's general assessment of intellectuals as a
group. He had written to numerous scientists urging support for
Streit's plan, largely without result. A few years earlier, Albert Jay
Nock had observed that the two great English-speaking democracies --
Britain and the U.S. -- were moving not closer but further apart in
customs and attitude. The "burden of some two million laws,"
regulating the behavior of U.S. citizens had, according to Nock,
brought about a "serious and debilitating deterioration of
individual responsibility..."[150] The burdens of widespread
unemployment, the losses of homes and farms were, at the same time,
the immediate concerns of most people in the United States. Few had a
very deep understanding of what had gone wrong with the American
System. They would not have understood at all my reference to the
set of socio-political arrangements and institutions of the country as
fostering laissez-faire protectionism and landlordism. They
understood corporate greed and the corruption of public officials.
Increasingly, it seemed that only the deeper involvement of a
strengthened national government could turn things around. This was
not the opportune time for internationalists to appeal to mainstream
America to think very far into the future. Streit's efforts would have
to wait until the defeat of Italy, Germany and Japan became
inevitable. Churchill was by this time convinced that only an
overwhelming show of military strength could prevent the outbreak of a
second global conflict:
Civilization will not last, freedom will not survive,
peace will not be kept, unless a very large majority of mankind
unite together to defend them and show themselves possessed of a
constabulary power before which barbaric and atavistic forces will
stand in awe.[151]
The Old World powers poised to do battle with the Germans, Italians,
Japanese - and, possibly, Russians -- had become the victims of their
own, longstanding internal discord. Britain's government, now headed
by Neville Chamberlain, was firmly controlled by Conservatives, and
many within the Conservative ranks were outspokenly pro-German. In
particular, they had few objections to the creation of a strong German
state in Central Europe to contain the spread of Bolshevism. In
France, Leon Blum's socialist experiment had failed, and since June of
1937 the French lived on the brink of political anarchy. One should
not be surprised, therefore, that neither the French nor the British
conservatives reacted with concern when German troops moved across the
Austrian border in March 1938 to bring the Austrians within the
greater German state. From this point on until the declaration of war,
foreign policy by the constitutional republics toward Germany, Japan
and Italy relied on appeasement as the only alternative to war. The
promise of an Anglo-American alliance on some level -- the only real
means of giving the Axis powers reason for second thought --
disappeared when Chamberlain declined an invitation extended in
January 1938 by Roosevelt to meet in Washington, D.C. Frustrated by
Chamberlain's intransigence and disdain for an Anglo-American
alliance, Anthony Eden resigned as Foreign Secretary.
Despite their apparent overwhelming military superiority in 1938, the
French leaders despaired at the thought of having to face the Germans
in defense of Czechoslovakian sovereignty. With each passing month,
the Germans prepared to put ever more troops in the field and were
producing four times the number of fighters and bombers each month as
the French and British combined. Plagued by tentative military leaders
and political upheaval, the French desperately sought a British
commitment to stand with them. Chamberlain refused, believing there
was nothing to be done for the Czechs if Hitler really wanted their
territory. At the same time, senior officers within the German army's
General Staff and members of the aristocracy plotted to put Hitler
under arrest and revealed to the British the Fuhrer's intentions to
take, by force, if necessary, the Sudetenland from the Czechs. They
finally understood that allowing Hitler to gain power had been a
terrible miscalculation. Germany was not ready for war and, they were
sure, would suffer a terrible defeat. Ewald von Kleist was dispatched
by the conspirators to London, where he met with Churchill, who
assured him that any attack on Czechoslovakia would initiate a new
global war. Chamberlain, informed of Kleist's visit but still
unwilling to accept the truth, decided the time had come to meet face
to face with Hitler. Meanwhile, German preparations went forward for
the invasion of Czechoslovakia. Hitler was certain there would be no
interference from the French, British or Russians.
Chamberlain made the trip to Berchtesgaden on September 15, 1938,
promising Hitler all that he wanted if only war could be averted.
Negotiations, threats, conciliatory gestures and the mobilization of
troops by all the powers involved continued throughout the rest of
September. Hitler wanted war, wanted the Czechs to resist his demands
so that he could invade and take Czechoslovakia. Chamberlain's desire
to somehow avoid a second world war drove him to sacrifice the Czechs
without any real promise of lasting peace. Hitler was growing
increasingly impatient and remained adamant that he would have all of
Czechoslovakia, and more. Although he would become momentarily
diverted by the details of removing those of the Jewish faith from
German society and German lands, Hitler soon returned to his plans for
the conquest of Eurasia.
In March of 1939 the Czech government was forced by separatist
agitation to declare martial law. Hitler countered by forcing the
Slovaks to declare their independence and put themselves under German
protection. Surrounded and threatened with annihilation, the Czech
leaders now surrendered without a fight to the Germans. Initially, the
British took no action and made almost no protest. The French
protested to the Germans but also took no action. Within a few days,
however, the political situation in Britain dramatically changed.
Chamberlain finally awoke to Hitler's true nature and objectives, and
on March 31 he declared Britain's commitment to protect Polish
independence. This change in attitude was, perhaps, all the more
remarkable given the fact that the Poles had been more than happy to
take part of Czechoslovakia for themselves.
Hardly concerned with British threats, Hitler opened his propaganda
attack on the Poles. His first demand was the return of the port city
of Danzig to Germany. Though pro-German in attitude, the Polish
Foreign Minister, Colonel Jozef Beck, resisted German demands but had
little in the way of military capability to back up his words. Polish
resistance would depend to a very great extent on the timely
intervention of the French and British. In the east, the Poles faced
the anger of a rapidly strengthening Soviet Union, where Stalin had
not forgotten that in 1920 the Poles had taken advantage of the
Russian civil war to expand eastward at Russia's expense. In March of
1939 Ribbentrop informed the Polish ambassador that Hitler would
accept no further delays or resistance; Poland must give up Danzig,
grant the Germans access through the corridor and commit to an
anti-Soviet alliance. Days later Lithuania was forced to return the
port of Memel to Germany, a clear indication that Hitler's threats
were real. Convinced they would receive help, the Poles mobilized and
declared their determination to resist all German demands. On April 3
Chamberlain restated the British commitment to come to the aid of the
Poles if attacked. On the same day, Hitler set September 1 or earlier
for his invasion of Poland.
Hitler realized he now needed some sort of rapprochement with the
Soviet Union, whose armies -- having fought Japanese encroachments in
eastern Asia to standstill -- were largely free to engage any foe in
the West. Hitler decided to agree to a joint declaration by the French
and German governments guaranteeing existing borders. Stalin sensed
that German territorial designs would soon head in the direction of
the Soviet Union and decided Russia would not risk war with Germany
over what were largely the interests of the French and British. Stalin
publicly suggested as much in March of 1939 during a speech before the
Eighteenth Party Congress. Stalin's desire for an accommodation with
Hitler moved forward after a proposal for a conference with Britain,
France, Rumania and Turkey was rejected by Chamberlain. Chamberlain,
by this decision, left the Bolsheviks free to reach the appropriate
conclusions about the West's attitude should the Germans move through
Poland and against them.
The process of a German-Soviet rapprochement began late in 1938 with
negotiations for the expansion of trade, then moved ahead in fits and
starts through May of 1939. Stalin then decided to accelerate the
course of events by replacing Maxim Litvinov (who was Jewish) as
Foreign Commissar with Vyacheslav Molotov. Anglo-French fears were
heightened later in May when a German-Italian military alliance was
announced. Considerable effort was then made by the British and French
to bring the Soviet Union into an anti-German alliance, but this
proved impossible for two primary reasons. The first was their failure
to simultaneously negotiate political and military protocols in
conjunction with the Poles themselves, once again showing a callous
disregard for peoples whose fate was most directly at risk. The second
was a perception conveyed of a continuing tentativeness to commit to a
ground war directed immediately against Germany. Thus, when the Poles
refused to allow Soviet troops to enter their territory, Stalin
reached his decision. On August 23 the Soviet Union entered into a
ten-year non-aggression pact with Germany, an agreement that also
included the partitioning of Poland between them. Hitler once again
managed to isolate his next intended victim from any significant
outside military intervention.
As German troops moved during the last days of August to the Polish
border, as the outbreak of war seemed clearer and clearer to even
casual observers, the basis for peaceful resolution of tensions
evaporated. Still, the British and French did little to position
themselves to come to the aid of the Poles. Precious hours and
thousands of Polish lives were lost on the day of attack, September 1,
while the great allied governments continued to ponder their entry
into a second world war. As the attack continued into its second day,
Chamberlain was severely attacked in the House of Commons for delaying
Britain's declaration of war. Chamberlain had been pressing the French
for joint action -- without result; and, now, his own political career
was in serious jeopardy. At noon on September 3 the British finally
declared war on Germany; France followed suit shortly thereafter. They
nevertheless did nothing on the battlefield.
There were, as yet, no British troops in France, and the French had
no intention of moving against the Germans alone. Within the first few
days of war the Polish air force was destroyed (almost all on the
ground). By mid-month, Warsaw was surrounded and the Polish armies
virtually annihilated. At the beginning of the fighting, Churchill
declared before the House of Commons:
This is not a question of fighting for Danzig or
fighting for Poland. We are fighting to save the whole world from
the pestilence of Nazi tyranny and in defense of all that is most
sacred to man. This is no war of domination or imperial
aggrandizement or material gain; no war to shut any country out of
its sunlight and means of progress. It is a war, viewed in its
inherent quality, to establish, on impregnable rocks, the rights of
the individual, and it is a war to establish and revive the stature
of man.[152]
Many Americans were not so sure. Francis Neilson, not among
Churchill's admirers, authored an unpublished pamphlet titled Why
Hitler? circulated among his friends and acquaintances. During the
war he kept a journal, and eventually completed a rather controversial
history of the war, a five-volume work titled, The Tragedy of
Europe. Neilson was extremely fearful once the war began of
governmental measures to prevent or penalize any expression of
opposition to war policies. He later recorded that those who
encouraged him in this writing, including Robert M. Hutchins,
President of the University of Chicago, "did not realize
that, if the volume fell into the hands of the government
propagandists, it might be suppressed" as similar "speeches
and books"[153] were during the First World War. The first
volume of The Tragedy of Europe was published late in 1940
without government interference but was distributed quietly and
without promotion. Even at this early stage of the war, Neilson
expressed grave concerns over what would occur once peace again
returned. The second, third and fourth volumes appeared during the war
years; the final volume appeared in October of 1946. Friends then
encouraged Neilson to prepare a condensed edition. He decided instead
to work on a new book that examined the "events before
Hitler's onslaught on Poland,"[154] which was published in
1950 with the title The Makers of War.
Churchill's expressed hope the war would finally serve "to
establish and revive the stature of man failed to take into
account the consequences of having Stalin as an ally. On October 1,
after Soviet forces poured across eastern Poland to share in the
division of territory, Churchill was hesitant to condemn the Russian
actions, preferring to describe the occupation as "clearly
necessary for the safety of Russia against the Nazi menace."[155]
Poland was gone, and many of its citizens were now destined to be
killed at the hands of Nazi fanatics and Bolshevik-led occupation
forces. Millions more were forced into slavery to work for the Third
Reich.
While one cannot by any logic defend the actions of Hitler and the
Nazi regime, there is certainly room for discussion on the question of
whether the socio-political systems of the warring states were
inherently different or merely seemed to be. Ethnic nationalism had
replaced tribalism as the basis for declarations of superior claim to
portions of the earth; however, wars of annihilation in pursuit of
absolute control over territory were hardly a German or Nazi creation.
The weapons available to the belligerents were simply more destructive
than ever before. From the perspective of countless peoples scattered
around the globe, the best thing that could happen was for Britain,
France, Germany, Italy, Japan, the Soviet Union and even the United
States to wear themselves out in an all out war against one another.
Then, perhaps, sovereignty might be regained by the less industrially
advanced and militarily unprepared societies whose people had come
under external domination. When Roosevelt attempted to pressure
Germany on moral grounds, Hitler was quick to remind Roosevelt of the
recent and past history of the United States:
Mr. Roosevelt declares that it is clear to him that all
international problems can be solved at the council table.
I would be very happy if these problems could really find their
solution at the council table. My skepticism, however, is based on
the fact that it was America herself who gave sharpest expression to
her mistrust in the effectiveness of conferences. For the greatest
conference of all time was the League of Nations ... representing
all the peoples of the world, created in accordance with the will of
an American President. The first State, however, that shrank from
this endeavor was the United States. ...
The freedom of North America was not achieved at the conference
table any more than the conflict between the North and the South was
decided there. I will say nothing about the innumerable struggles
which finally led to the subjugation of the North American continent
as a whole.
I mention all this only in order to show that your view, Mr.
Roosevelt, although undoubtedly deserving of all honor, finds no
confirmation in the history of your own country or of the rest of
the world. ...
I must draw Mr. Roosevelt's attention to one or two historical
errors. He mentioned Ireland, for instance, and asks for a statement
that Germany will not attack Ireland. Now, I have just read a speech
by De Valera, the Irish Taoiseach [Prime Minister], in which,
strangely enough, and contrary to Mr. Roosevelt's opinion, he does
not charge Germany with oppressing Ireland but he reproaches England
with subjecting Ireland to continuous aggression. ...
In the same way, the fact has obviously escaped Mr. Roosevelt's
notice that Palestine is at present occupied not by German troops
but by the English; and that country is having its liberty
restricted by the most brutal resort to force. ...[156]
Hitler went on to make other points, the logic of which would have
had greater weight had they come from an individual at least
moderately supportive of social democracy and individual liberty.
Words spoken by a demagogue, even when true, are easily ignored by
those who have not come under the emotional spell of the true
believer.
That the war now underway was, indeed, a war of aggression by
despotic dictatorships against either hapless peoples and against
democratic process was now clear to many intellectuals who had
previously looked with some or great favor on Fascist or Bolshevik
principles. Stalin's murderous ways were finally becoming known. One
can imagine the feeling of betrayal when radical Marxists in the U.S.,
Britain and around the globe heard that Stalin had signed a treaty
with Hitler. The equalitarian objectives championed by many socialists
were being ruthlessly subverted by Stalin, who had made a pact with
the devil. The promise of a Soviet-directed revolution to bring about
international socialism was dead. In its place, the age-old
empire-builders were carving out new spheres of influence and
domination under new banners and with new slogans.
Communists in the U.S. at first attempted to defend the actions of
Stalin by putting all imperialist powers in the same morally bankrupt
category. Then came the partitioning of Poland and the war of
territorial conquest against the Finnish people. Almost immediately,
editorials in the Nation and the New Republic revealed
that U.S. intellectuals had turned against the Soviets - or, at least,
against the Stalinist regime. Trotsky, guided by moral relativism only
moderately less despotic than that of Stalin, declared the revolution
betrayed. For his trouble, he was destined to be hunted down by
Stalin's agents and murdered in Mexico. Sidney Hook, fairly
representative of those intellectuals who had long believed in Marxism
as a potentially liberating force, now wrote that "[a]lmost
all of the liberating ideals of the Russian Revolution have been
abandoned to such an extent that the identification of its cultural
and political institutions with those of other totalitarian countries
is inescapable to the critical mind."[157] Norman Thomas went
even further, declaring that "Lenin, Trotsky, and above all,
Stalin, pioneered in that contempt for pity and that Machiavellian
ruthlessness in which Hitler has become so adept."[158] All
of a sudden democratic processes and institutions, even taking into
consideration the power of landlordism in its various forms, were
recognized and accepted as key ingredients to constructive societal
change. Social democracy, the ex-socialists and ex-communists
increasingly observed, could be achieved incrementally within the
existing socio-political structure.
The advance toward social democracy was disjointed, at best, and,
sadly, too often in conflict with the principles of cooperative
individualism. Yet, the Roosevelt era managed to place significant
restrictions on the century long experiment in laissez-faire
protectionism. In 1975, historian Otis Graham described the U.S.
society emerging from the 1930s as "the post-New Deal Broker
State," characterized by a "mix of partial planning
and ad hoc interventionism."[159] The great cleansing had
begun in Britain before the war, and with peace there would be no
turning back a reliance on central government planning to counter the
influences of entrenched privilege. Government power was to be
increasingly relied upon as the primary engine of the British social
welfare state. In the U.S. the Keynesian-oriented economists -- Alvin
Hansen, James Tobin, John Dunlop, Seymour Harris, John Kenneth
Galbraith, Paul Samuelson and others -- produced a steady stream of
young disciples who specialized in the art of fine-tuning economies.
Many secured positions in the wartime government. The Office of Price
Administration became home to John Kenneth Galbraith, Gardner Ackley,
Philip H. Coombs and James Tobin. Walter Heller served in the U.S.
Treasury, W.W. Rostow worked for the O.S.S. This is not to say that
only Keynesians managed to find work within government. Even Milton
Friedman, his doctorate not yet completed and his own brand of
monetarism still to be developed, spent the war years working in the
Division of Tax Research of the U.S. Treasury.
Early in 1941 Roosevelt began in earnest to prepare for the coming
war. This the U.S. did in a rather disorganized and overlapping
manner. Yet, the final result was nothing short of astounding. By
1945, fully 40 percent of all goods produced were for the war effort.
During the same period the nation's Gross National Product expanded
from $100 billion to almost $215 billion (a third of which was
attributable to inflation). It is worth noting how little relationship
the G.N.P. (or G.D.P.) measurements have to increased well-being on
the part of a citizenry. The goods produced could not be consumed or
utilized to make life easier or more enjoyable; their purpose was to
destroy enemy targets, whether those targets were warships, bombers,
war factories, soldiers or civilians and their homes. A clear
indication of the situation facing the great bulk of mostly
propertyless workers in the U.S. was the fact that in the face of
rising prices they were forced to resort to the strike on a regular
basis. The nation's industrial landlords saw no reason to change the
way they operated before the Depression. Labor leaders now called upon
government to assume an activist role in balancing the interests of
those who controlled land, capital goods and financial reserves, with
those who relied on their own labor for survival. Walter Lippmann,
among others, forecast the arrival of postwar changes:
Men have always, of course, deplored unemployment and
wanted good and profitable work, and they have struggled and fought
for it. But in this century, bloody and violent though it has been,
mankind has made an epoch-making discovery. It is that involuntary
mass unemployment in a modern industrial nation is an unnecessary
and preventable evil.
Economists, industrial leaders, public officials are by no means
entirely agreed which among the many measures are the best. But
never again will they or the mass of the people accept the view,
which was the common view thirty years ago, that public policy has
nothing to do with and can do nothing effective about the
maintenance of reasonably full employment. ...
In our epoch the principle of the division of labor has been
modified and supplemented by the discovery that large nations with
big resources, skilled labor, and progressive management can, if
they insist on it, regulate the cycle of booms and depressions.
Since the discovery has been made, the public will no more tolerate
a failure to apply it than they would tolerate hospitals which
refused to use sulfa drugs and penicillin.
If we can absorb this idea, that by a successful policy of
maintaining full employment here at home we make our fundamental
contribution to economic stability and prosperity abroad -- if we
grasp this idea, then all sorts of vexatious issues will fall into
their proper perspective. Here is the real answer to the notion that
prosperity depends upon cutthroat competition for international
markets; with full employment at home we shall have no frantic
desire to export furiously. Here is the real answer to the notion
that we can or should restore world prosperity by some kind of vast
philanthropy; if the American economy, which is such an immense
factor in the world economy, is kept working steadily at reasonably
full capacity it will set up a demand for goods which will
contribute enormously to prosperity almost everywhere else.[160]
Lippmann was setting the bar rather high, higher in fact than most
among the American elite considered acceptable. Much in the same way
that the war for independence from Britain in 1776 had required
conservatives to give ground to democratic processes and institutions
of limited citizen participation, the Second World War established
conditions for a similar shift in the balance of power. Full
employment generated a new equilibrium, one that promised real benefit
to those who received their incomes almost exclusively as wages rather
than as rent or interest. A new window of opportunity had opened. How
long it would remain open was the great unknown. For transnationals in
the U.S. and elsewhere, the question was whether wartime measures
would lead to permanent postwar changes in socio-political
arrangements. Would legislation finally eliminate entrenched
privileges and monopoly licenses? Would the private appropriation of
the exchange value of locations and natural resource-laden lands
continue unabated? Or, would government finally begin to play its
necessary and appropriate role for creating and maintaining a fair
field with no favors? In old age, Francis Neilson left this
cautionary note for the reformer and political activist of succeeding
generations:
The time spent upon the political platform in an attempt
to educate the masses was ill spent. The bitter experience of three
wars has taught me that the mass is not reformable. Then why should
I cudgel my brains about their afflictions? How can I help them, if
they are not willing to help themselves?[161]
The war had to be fought and won. This would require mobilization of
most of the world's productive capability. Already by early 1940 there
was great concern within the Roosevelt cabinet that across large
sections of Europe food would be very scarce. Ironically, the rapid
German occupation of the European continent enabled European farmers
to plant their crops and avoid widespread famine. Britain, on the
other hand, was desperately in need of assistance from the U.S. and
Canada, whose ships had to travel U-boat infested Atlantic waters.
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