tradgedy and hope quiggley notes

8/19/2019 Tradgedy and Hope Quiggley Notes

http://slidepdf.com/reader/full/tradgedy-and-hope-quiggley-notes 1/33

An interesting discussion Wesley and John boiling down the technical arguments from the politicalseems to have evaded you both it must surely be possible absent moral/political judgements todiscern how the existing system operates in The Uk and The U and elsewhere after all the systemsexist! A favourite dialogue of mine is the one between "roudhon and #astiat summarised here$http%//praxeology$net/&#'"J"'()*'Appx$htm * share "roudhons view regarding *nterest and see thecharging of *nterest as the biggest part of the monetary system$ Jeremy #enthams in defence of

Usury is in the #astiat +amp albeit a dialogue between #entham and Adam mithhttp%//www$econlib$org/library/#entham/bnthUs$html , interestingly one sided reminiscent ofam -arris engaging .oam +homsky mith did not respond at all though$0 The 1uestion aboutissuing money is surely that when 2oney is created out of thin air it should be created withoutinterest and that if *nterest is thought to be a good idea then the *nterest +omponent should becreated at the same time$ This is the fundamental 1uestion , #entham misses it completely and sodoes #astiat in my recollection of the debate$ * personally have philosophical moral and religiousobjections to the charging of *nterest all *nterest charges for me are usurious 2y own politicalviews actually reject +apitalism as well * do not think it works$ We do have the system we havethough and as John3 says 22T is supposed to describe how the system we have works$ teve4een is very good on endogenous money creation and bears very close attention * find$

https%//www$youtube$com/watch!v5T66"h7J8*g $ 9egardless of "olitical views it is the interestelement that causes the damage when money is created as debt$ This is the insight at the heart of thesocial credit movement$

Tradgedy and -ope$

" :;The export of material elements in a culture across its peripheral areas and beyond tothe peoples of totally different societies has strange results$ As elements of materialculture move from core to periphery inside a civili<ation they tend in the long run tostrengthen the periphery at the expense of the core because the core is more hampered inthe use of material innovations by the strength of past vested interests and because thecore devotes a much greater part of its wealth and energy to nonmaterial culture$ Thussuch aspects of the *ndustrial 9evolution as automobiles and radios are =uropean rather than American inventions but have been developed and utili<ed to a far greater extent inAmerica because this area was not hampered in their use by surviving elements of feudalism of church domination of rigid class distinctions ,for example in education0

p$:7The most important parts of Western technology can be listed under four headings%

6$ Ability to kill% development of weapons:$ Ability to preserve life% development of sanitation and medical services>$ Ability to produce both food and industrial goods

;$ *mprovements in transportation and communications



This shows that there has been ase1uence at intervals of about fifty years of four successive population pressures whichmight be designated with the following names%

Anglo'&rench pressure about 6?@3ermanic'*talian pressure about 6Blavic pressure about 6B@Asiatic pressure about :

p$>:(evelopments in Western =urope6$ Western ideology:$ 9evolution in weapons ,especially firearms0>$ Agricultural 9evolution;$ *ndustrial 9evolution@$ 9evolution in sanitation and medicine

7$ (emographic explosion8$ 9evolution in transportation and communications(evelopments in Asia6$ 9evolution in weapons:$ 9evolution in transport and communications>$ 9evolution in sanitation and medicine;$ *ndustrial 9evolution@$ (emographic explosion

7$ Agricultural 9evolution8$ And last ,if at all0 Western ideology

p$>;+hapter >C=uropeDs hift to the Twentieth +enturyWhile =uropeDs traits were diffusing outward to the non'=uropean world =urope wasalso undergoing profound changes and facing difficult choices at home$ These choiceswere associated with drastic changes in some cases we might say reversals of =uropeDs

point of view$ These changes may be examined under eight headings$ The nineteenthcentury was marked by ,:0 belief in the innate goodness of manE ,:0 secularismE ,>0 belief in progressE ,;0 liberalismE ,@0 capitalismE ,70 faith in scienceE ,80 democracyE ,?0nationalism$ *n general these eight factors went along together in the nineteenth century$They were generally regarded as being compatible with one anotherE the friends of one

were generally the friends of the othersE and the enemies of one were generally theenemies of the rest$ 2etternich and (e 2aistre were generally opposed to all eightEThomas Jefferson and John tuart 2ill were generally in favor of all eight$$

p$>8*n contrast with the nineteenth'century belief that human nature is innately good andthat society is corrupting the twentieth century came to believe that human nature is if not innately bad at least capable of being very evil$ Feft to himself it seems today manfalls very easily to the level of the jungle or even lower and this result can be preventedonly by training and the coercive power of society$ Thus man is capable of great evil butsociety can prevent this$ Along with this change from good men and bad society to bad

men and good society has appeared a reaction from optimism to pessimism and fromsecularism to religion$ At the same time the view that evil is merely the absence of goodhas been replaced with the idea that evil is a very positive force which must Dne resisted



and overcome$ The horrors of -itlerDs concentration camps and of talinDs slave'labor units are chiefly responsible for this change$Associated with these changes are a number of others$ The belief that human abilitiesare innate and should be left free from social duress in order to display themselves has

been replaced by the idea that human abilities are the result of social training and must bedirected to socially acceptable ends$ Thus liberalism and laisse<'faire are to be replaced

apparently by social discipline and planning$ The community of interests which wouldappear if men were merely left to pursue their own desires has been replaced by the ideaof the welfare community which must be created by conscious organi<ing action$ The

belief in progress has been replaced by the fear of social retrogression or even humanannihilation$ The old march of democracy now yields to the insidious advance of authoritarianism and the individual capitalism of the profit motive seems about to bereplaced by the state capitalism of the welfare economy

p$>?As an example of such a complication we might mentionthat in Western =urope nationalism industrialism liberalism and democracy were

generally reached in this order$ #ut in 3ermany they all appeared about the same time$To the 3ermans it appeared that they could achieve nationalism and industrialism ,bothof which they wanted0 more rapidly and more successfully if they sacrificed liberalismand democracy$ Thus in 3ermany nationalism was achieved in an undemocratic way byGblood and ironG as #ismarck put it

p$>BThe close relationships between levels can be seen fromthe fact that there are three basic ways to win obedience% by force by buying consentwith wealth and by persuasion$ =ach of these three leads us to another level ,militaryeconomic or intellectual0 outside the political level$ At the same time the organi<ation of authoritarian governments ,but chiefly in those areas where the cheap new weapons wereavailable and local standards of living were high enough to allow people to obtain them0$

p$;The 9ise of Authoritarian 3overnment*n the twentieth century the military situation was drastically changed in two ways$ )nthe one hand communications and transportation were so improved by the invention of the radio and the internal'combustion engine that control and movement of troops andeven of individual soldiers became very flexibleE mobili<ation ceased to be e1uivalent toattack and attack ceased to be e1uivalent to total war "$;6 "olitical persuasion or coercion!Accordingly the feudal

monarchy was replaced by the dynastic monarchy$ *n this system subjects owedallegiance to a royal family ,dynasty0 although the real basis of the dynasty rested on theloyalty of a professional army of pike'men and musketeers$

tages of =conomic (evelopmentThe approximate relationship of these various stages may be seen in the followingtable%Typical

.ame (ates )rgani<ation 2anagement

2anorial 786 2anor +ustom+ommercial capitalism a$ 6@'6:8 +ompany 2unicipal mercantilism

b$ ;;'67B +hartered tate mercantilism



company*ndustrial capitalism 688'6?8 "rivate firm )wnersor partnership&inancial capitalism 6?@'6B>: +orporation and #ankersholding company2onopoly capitalism 6?B'6B@ +artels and trade 2anagers

association"luralist economy 6B>;'present Fobbying groups Technocrats&inance and 2onopoly +apitalismTwo things should be noted$ *n the first place these various stages or periods areadditive in a sense$ and there are many survivals of earlier stages into later ones$ As lateas 6B:@ there was a manor still functioning in =ngland and +ecil 9hodesDs charteredcompany which opened up 9hodesia ,the #ritish outh Africa +ompany;@&our tages of =conomic +ontrol=conomic control has passed through four stages in Western +ivili<ation$ )f these thefirst and third were periods of Gautomatic controlG in the sense that there was no

conscious effort at a centrali<ed system of economic control while the second and fourthstages were periods of conscious efforts at control$ These stages with approximate dateswere as follows%6$ Automatic control% manorial custom 7@'66@:$ +onscious control a$ municipal mercantilism 66@'6;@ b$ state mercantilism 6;@'6?6@>$ Automatic control% laisse<'faire in the competitive market 6?6@'6B>;

;$ +onscious control% planning ,both public and private0 6B>; p$;7 +lass Warfare$!Under industrial capitalismand the early part of financial capitalism society began to develop into a polari<ed twoclasssociety in which an entrenched bourgeoisie stood opposed to a mass proletariat$ *twas on the basis of this development that 4arl 2arx about 6?@ formed his ideas of aninevitable class struggle in which the group of owners would become fewer and fewer and richer and richer while the mass of workers became poorer and poorer but more andmore numerous until finally the mass would rise up and take ownership and control fromthe privileged minority$ #y 6B social developments took a direction so different from thatexpected by 2arx that his analysis became almost worthless and his system had to

be imposed by force in a most backward industrial country ,9ussia0 instead of occurringinevitably in the most advanced industrial country as he had expected$ , consider this reagrding

post :8 collaps and consolidation financial capital$ Written 6B? post 6? neo liberalisation!

p$;8The hift of +ontrolThe social developments which made 2arxDs theories obsolete were the result of technological and economic developments which 2arx had not foreseen$ The energy for

production was derived more and more from inanimate sources of power and less andless from human labor$ As a result mass production re1uired less labor$ #ut mass

production re1uired mass consumption so that the products of the new technology had to be distributed to the working groups as well as to others so that rising standards of livingfor the masses made the proletariat fewer and fewer and richer and richer$ At the sametime the need for managerial and white'collar workers of the middle levels of theeconomic system raised the proletariat into the middle class in large numbers$ The spread

of the corporate form of industrial enterprise allowed control to be separated fromownership and allowed the latter to be dispersed over a much wider group so that ineffect owners became more and more numerous and poorer and poorer$ And finally



control shifted from owners to managers$ The result was that the polari<ed two'classsociety envisaged by 2arx was after 6B increasingly replaced by a mass middle'classsociety with fewer poor and if not fewer rich at least a more numerous group of richwho were relatively less rich than in an earlier period$ This process of leveling up the

poor and leveling down the rich originated in economic forces but was speeded up andextended by governmental policies in regard to taxation and social welfare especially

after 6B;@$

p$;BThe "rimary 3oal of +apitalismThe third notable feature of the whole development is closely related to this specialnature of capitalism$ +apitalism provides very powerful motivations for economicactivity because it associates economic motivations so closely with self'interest$ #ut thissame feature which is a source of strength in providing economic motivation through the

pursuit of profits is also a source of weakness owing to the fact that so self'centered amotivation contributes very readily to a loss of economic coordination$ =ach individual

just because he is so powerfully motivated by self'interest easily loses sight of the role

which his own activities play in the economic system as a whole and tends to act as if hisactivities were the whole with inevitable injury to that whole$ We could indicate this by

pointing out that capitalism because it seeks profits as its primary goal is never primarilyseeking to achieve prosperity high production high consumption political power

patriotic improvement or moral uplift$ Any of these may be achieved under capitalismand any ,or all0 of them may he sacrificed and lost under capitalism depending on thisrelationship to the primary goal of capitalist activityCthe pursuit of profits$ (uring thenine'hundred'year history of capitalism it has at various times contributed both to theachievement and to the destruction of these other social goals$

+ommercial +apitalismThe different stages of capitalism have sought to win profits by different kinds of economic activities$ The original stage which we call commercial capitalism sought

profits by moving goods from one place to another$ *n this effort goods went from placeswhere they were less valuable to places where they were more valuable while moneydoing the same thing moved in the opposite direction$ This valuation which determinedthe movement both of goods and of money and which made them move in oppositedirections was measured by the relationship between these two things$ Thus the value of goods was expressed in money$ and the value of money was expressed in goods$ 3oods

moved from low'price areas to high'price areas and money moved from high'price areasto low'price areas because goods were more valuable where prices were high and moneywas more valuable where prices were low$2oney and 3oods Are (ifferentThus clearly money and goods are not the same thing but are on the contraryexactly opposite things$ 2ost confusion in economic thinking arises from failure torecogni<e this fact$ 3oods are wealth which you have while money is a claim on wealthwhich you do not have$ Thus goods are an assetE money is a debt$ *f goods are wealthEmoney is not wealth or negative wealth or even anti'wealth$ They always behave inopposite ways just as they usually move in opposite directions$ *f the value of one goesup the value of the other goes down and in the same proportion$

Merchants Became Concerned with Lending of Money



*n the course of time however some merchants began to shift their attention from thegoods aspect of commercial interchange to the other monetary side of the exchange$They began to accumulate the profits of these transactions and became increasinglyconcerned not with the shipment and exchange of goods but with the shipment andexchange of moneys$ *n time they became concerned with the lending of money tomerchants to finance their ships and their activities advancing money for both at high

interest rates secured by claims on ships or goods as collateral for repayment$The .ew #ankers Were =ager for -igh *nterest 9ates*n this process the attitudes and interests of these new bankers became totally opposedto those of the merchants ,although few of either recogni<ed the situation0$ Where themerchant had been eager for high prices and was increasingly eager for low interest ratesthe banker was eager for a high value of money ,that is low prices0 and high interestrates$ =ach was concerned to maintain or to increase the value of the half of thetransaction ,goods for money0 with which he was directly concerned with relativeneglect of the transaction itself ,which was of course the concern of the producers and theconsumers0$The )perations of #anking and &inance Were +oncealed o

They Appeared (ifficult to 2aster *n sum speciali<ation of economic activities by breaking up the economic processhad made it possible for people to concentrate on one portion of the process and bymaximi<ing that portion to jeopardi<e the rest$ The process was not only broken up into

producers exchangers and consumers but there were also two kinds of exchangers ,oneconcerned with goods the other with money0 with almost antithetical short'term aims$The problems which inevitably arose could be solved and the system reformed only byreference to the system as a whole$ Unfortunately however three parts of the systemconcerned with the production transfer and consumption of goods were concrete andclearly visible so that almost anyone could grasp them simply by examining them whilethe operations of banking and finance were concealed scattered and abstract so that theyappeared to many to be difficult$ To add to this bankers themselves did everything theycould to make their activities more secret and more esoteric$ Their activities werereflected in mysterious marks in ledgers which were never opened to the curious outsider$The 9elationship #etween 3oods and 2oney*s +lear to #ankers*n the course of time the central fact of the developing economic system therelationship between goods and money became clear at least to bankers$ Thisrelationship, the

price system, depended upon five things: the supply and the demand for

goods the supply and the demand for money and the speed of exchange between moneyand goods$ An increase in three of these ,demand for goods supply of money speed of

circulation0 would move the prices of goods up and the value of money down$ Thisinflation was objectionable to bankers although desirable to producers and merchants$)n the other hand a decrease in the same three items would be deflationary and would

please bankers worry producers and merchants and delight consumers ,who obtainedmore goods for less money0$ The other factors worked in the opposite direction so thatan increase in them ,supply of goods demand for money and slowness of circulation or exchange0 would be deflationary$*nflationary and (eflationary "rices -ave #een a 2ajor &orce in -istory for 7 Hearsuch changes of prices either inflationary or deflationary have been major forces inhistory for the last six centuries at least$ )ver that long period their power to modify

menDs lives and human history has been increasing$ This has been reflected in two ways$)n the one hand rises in prices have generally encouraged increased economic activityespecially the production of goods while on the other hand price changes have served to



redistribute wealth within the economic system$ *nflation especially a slow steady rise in prices encourages producers because it means that they can commit themselves to costsof production on one price level and then later offer the finished product for sale at asomewhat higher price level$ This situation encourages production because it givesconfidence of an almost certain profit margin$ )n the other hand production isdiscouraged in a period of falling prices unless the producer is in the very unusual

situation where his costs are falling more rapidly than the prices of his product$#ankers )bsessed With 2aintaining Ialue of 2oneyThe redistribution of wealth by changing prices is e1ually important but attracts muchless attention$ 9ising prices benefit debtors and injure creditors while falling prices dothe opposite$ A debtor called upon to pay a debt at a time when prices are higher thanwhen he contracted the debt must yield up less goods and services than he obtained at theearlier date on a lower price level when he borrowed the money$ A creditor such as a

bank which has lent moneyCe1uivalent to a certain 1uantity of goods and servicesConone price level gets back the same amount of moneyCbut a smaller 1uantity of goodsand servicesCwhen repayment comes at a higher price level because the money repaidis then less valuable$ This is why bankers as creditors in money terms have been

obsessed with maintaining the value of money although the reason they havetraditionally given for this obsessionCthat Gsound moneyG maintains GbusinessconfidenceGChas been propagandist rather than accurate$The Two 2ajor 3oals of #ankers

Hundreds of years ago, bankers began to specialize, with the richer and more

influential ones associated increasingly with foreign trade and foreign'exchangetransactions$ ince these were richer and more cosmopolitan and increasingly concernedwith 1uestions of political significance such as stability and debasement of currencieswar and peace dynastic marriages and worldwide trading monopolies they became thefinanciers and financial advisers of governments$ 2oreover since their relationships withgovernments were always in monetary terms and not real terms and since they werealways obsessed with the stability of monetary exchanges between one countryDs moneyand another they used their power and influence to do two things% ,60 to get all moneyand debts expressed in terms of a strictly limited commodityCultimately goldE and ,:0 toget all monetary matters out of the control of governments and political authority on theground that they would be handled better by private banking interests in terms of such astable value as gold$These efforts $$$ were acceleratedK with the shift of commercial capitalism intomercantilism and the destruction of the whole pattern of social organi<ation based ondynastic monarchy professional mercenary armies and mercantilism in the series of

wars which shook =urope from the middle of the seventeenth century to 6?6@$+ommercial capitalism passed through two periods of expansion each of whichdeteriorated into a later phase of war class struggles and retrogression$ The first stageassociated with the 2editerranean ea was dominated by the .orth *talians and+atalonians but ended in a phase of crisis after 6> which was not finally ended until6@@?$ The second stage of commercial capitalism which was associated with the Atlantic)cean was dominated by the West *berians the .etherlanders and the =nglish$ *t had

begun to expand by 6;; was in full swing by 67 but by the end of the seventeenthcentury had become entangled in the restrictive struggles of state mercantilism and theseries of wars which ravaged =urope from 6778 to 6?6@$upremacy of +harter +ompanies

The commercial capitalism of the 6;;'6?6@ period was marked by the supremacy of the +hartered +ompanies such as the -udsonDs #ay the (utch and #ritish =ast *ndiancompanies the Iirginia +ompany and the Association of 2erchant Adventurers



,2uscovy +ompany0$ =nglandDs greatest rivals in all these activities were defeated by=nglandDs greater power and above all its greater security derived from its insular

position$*ndustrial +apitalism 688'6?@#ritainDs victories over Fouis L*I in the period 6778'686@ and over the &rench9evolutionary governments and .apoleon in 68B:'6?6@ had many causes such as its

insular position its ability to retain control of the sea its ability to present itself to theworld as the defender of the freedoms and rights of small nations and of diverse socialand religious groups$ Among these numerous causes there were a financial one and aneconomic one$ &inancially =ngland had discovered the secret of credit$ =conomically=ngland had embarked on the *ndustrial 9evolution$p!"

their interests were

almost exclusively in bonds and very rarely in goods since they admired Gli1uidityG andregarded commitments in commodities or even real estate as the first step toward

bankruptcyE ,;0 they were accordingly fanatical devotees of deflation ,which they called#sound# money from its close associations with high interest rates and a high value of

money$ and of the gold standard, which, in their eyes, symbolized and ensured thesevalues% and &!$ they were almost e'ually devoted to secrecy and the secret use of

financial influence in political life (hese bankers came to be called #international

bankers# and, more particularly, were known as #merchant bankers# in )ngland, #private

bankers# in *rance, and #investment bankers# in the +nited tates -n all countries they

carried on various kinds of banking and e.change activities, but everywhere they were

sharply distinguishable

-nternational Bankers *elt /oliticians Could 0ot Be (rusted

With +ontrol of the 2onetary ystemThe influence of financial capitalism and of the international bankers who created itwas exercised both on business and on governments but could have done neither if it hadnot been able to persuade both these to accept two GaxiomsG of its own ideology$ #oth of these were based on the assumption that politicians were too weak and too subject to temporary

popular pressures to be trusted with control of the money systemE accordinglythe sanctity of all values and the soundness of money must be protected in two ways% by

basing the value of money on gold and by allowing bankers to control the supply of money$ To do this it was necessary to conceal or even to mislead both governments and

people about the nature of money and its methods of operation$

2oney "ower *s 2ore +oncerned With 2oney Than 3oodsThe obsession of the 2oney "ower with deflation was partly a result of their concernwith money rather than with goods but was also founded on other factors one of whichwas paradoxical$ The paradox arose from the fact that the basic economic conditions of the nineteenth century were deflationary with a money system based on gold and anindustrial system pouring out increasing supplies of goods but in spite of falling prices,with its increasing value of money0 the interest rate tended to fall rather than to rise$ Thisoccurred because the relative limiting of the supply of money in business was notreflected in the world of finance where excess profits of finance made excess fundsavailable for lending$



The 2oney "owerC+ontrolled by *nternational *nvestment #ankersC (ominates #usiness and 3overnment*n the various actions which increase or decrease the supply of money governments

bankers and industrialists have not always seen eye to eye$ )n the whole in the periodup to 6B>6 bankers especially the 2oney "ower controlled by the internationalinvestment bankers were able to dominate both business and government$ They could

dominate business especially in activities and in areas where industry could not financeits own needs for capital because investment bankers had the ability to supply or refuseto supply such capital$ Thus 9othschild interests came to dominate many of the railroadsof =urope while 2organ dominated at least :7 miles of American railroads$ uch

bankers went further than this$ *n return for flotations of securities of industry they took seats on the boards of directors of industrial firms as they had already done oncommercial banks savings banks insurance firms and finance companies$ &rom theselesser institutions they funneled capital to enterprises which yielded control and awayfrom those who resisted$ These firms were controlled through interlocking directorshipsholding companies and lesser banks$ They engineered amalgamations and generallyreduced competition until by the early twentieth century many activities were so

monopoli<ed that they could raise their noncompetitive prices above costs to obtainsufficient profits to become self'financing and were thus able to eliminate the control of

bankers$ #ut before that stage was reached a relatively small number of bankers were in positions of immense influence in =uropean and American economic life$ As early as6BB Walter 9athenau who was in a position to know ,since he had inherited from hisfather control of the 3erman 3eneral =lectric +ompany and held scores of directorshipshimself0 said GThree hundred men all of whom know one another direct the economicdestiny of =urope and choose their successors from among themselves$GThe "ower of *nvestment #ankers )ver 3overnmentsThe power of investment bankers over governments rests on a number of factors of which the most significant perhaps is the need of governments to issue short'termtreasury bills as well as long'term government bonds$ Just as businessmen go tocommercial banks for current capital advances to smooth over the discrepancies betweentheir irregular and intermittent incomes and their periodic and persistent outgoes ,such asmonthly rents annual mortgage payments and weekly wages0 so a government has to goto merchant bankers ,or institutions controlled by them0 to tide over the shallow placescaused by irregular tax receipts$ As experts in government bonds the international

bankers not only handled the necessary advances but provided advice to governmentofficials and on many occasions placed their own members in official posts for varied

periods to deal with special problems$ This is so widely accepted even today that in 6B76a 9epublican investment banker became ecretary of the Treasury in a (emocratic

Administration in Washington without significant comment from any direction$

The 2oney "ower 9eigns upreme and Un1uestioned .aturally the influence of bankers over governments during the age of financialcapitalism ,roughly 6?@'6B>60

The (evelopment of 2onopoly +apitalismThis conflict of interests between bankers and industrialists has resulted in most=uropean countries in the subordination of the former either to the latter or to the government ,after6B>60$ This subordination was accomplished by the adoption of

Gunorthodox financial policiesGCthat is financial policies not in accordance with theshort'run interests of bankers$ This shift by which bankers were made subordinatereflected a fundamental development in modern economic historyCa development which



can be described as the growth from financial capitalism to monopoly capitalism$ Thistook place in 3ermany earlier than in any other country and was well under way by 6B:7$*t came in #ritain only after 6B>6 and in *taly only in 6B>;$ *t did not occur in &rance to acomparable extent at all and this explains the economic weakness of &rance in 6B>?'6B; to a considerable degree$

The 2onetary Tactics of the #anking )ligarchy , T) 6B>>0The inability of the investment bankers and their industrial allies to control the(emocratic +onvention of 6?B7 was a result of the agrarian discontent of the period6?7?'6?B7$ This discontent in turn was based very largely on the monetary tactics of the

banking oligarchy$ The bankers were wedded to the gold standard for reasons we havealready explained$ Accordingly at the end of the +ivil War they persuaded the 3rantAdministration to curb the postwar inflation and go back on the gold standard ,crash of 6?8> and resumption of specie payments in 6?8@0$ This gave the bankers a control of thesupply of money which they did not hesitate to use for their own purposes as 2organruthlessly pressuri<ed +leveland in 6?B>'6?B7$ The bankersD affection for low prices was

not shared by the farmers since each time prices of farm products went down the burdenof farmersD debts ,especially mortgages0 became greater$ 2oreover farm prices beingmuch more competitive than industrial prices and not protected by a tariff fell muchfaster than industrial prices and farmers could not reduce costs or modify their

production plans nearly so rapidly as industrialists could$ The result was a systematicexploitation of the agrarian sectors of the community by the financial and industrialsectors$ This exploitation took the form of high industrial prices high ,anddiscriminatory0 railroad rates high interest charges low farm prices and a very low levelof farm services by railroads and the government$ Unable to resist by economic weaponsthe farmers of the West turned to political relief but were greatly hampered by their reluctance to vote (emocratic ,because of their memories of the +ivil War0$ *nstead theytried to work on the state political level through local legislation ,so'called 3ranger Faws0 and set up third'party movements ,like the 3reenback "arty in 6?8? or the"opulist "arty in 6?B:0$ #y 6?B7 however agrarian discontent rose so high that it beganto overcome the memory of the (emocratic role in the +ivil War$ The capture of the(emocratic "arty by these forces of discontent under William Jennings #ryan in 6?B7who was determined to obtain higher prices by increasing the supply of money on a

bimetallic rather than a gold basis presented the electorate with an election on a socialand economic issue for the first time in a generation$ Though the forces of high financeand of big business were in a state of near panic by a mighty effort involving large'scalespending they were successful in electing 2c4inley$

2oney "ower eeks to +ontrol #oth "olitical "arties

The 3rowth of 2onopolies and the =xcesses of Wall treetThe agrarian discontent the growth of monopolies the oppression of labor and theexcesses of Wall treet financiers made the country very restless in the period 6?B'6B$)F*3A9+-HMp$6?=ngland (eveloped an Aristocracy , Weakness by version of &9A.4 -arris$0While the landed upper class of =ngland was unable to become a nobility ,that is acaste based on exalted birth0 it was able to become an aristocracy ,that is an upper classdistinguished by traditions and behavior0$ The chief attributes of this aristocratic upper

class in =ngland were ,60 that it should be trained in an expensive exclusive masculineand relatively partan educational system centering about the great boysD schools like=ton -arrow or WinchesterE ,:0 that it should imbibe from this educational system



"$ 6B7$ *T T-= &AUFT )& (=2)+9A+H .A( .AT*).AF*2!!

The influence of democracy served to increase the tension of a crisis because elected politicians felt it necessary to pander to the most irrational and crass motivations of theelectorate in order to ensure future election and did this by playing on hatred and fear of

powerful neighbors or on such appealing issues as territorial expansion nationalistic pride Ga place in the sunG Goutlets to the seaG and other real or imagined benefits$ At thesame time the popular newspaper press in order to sell papers played on the samemotives and issues arousing their peoples driving their own politicians to extremes andalarming neighboring states to the point where they hurried to adopt similar kinds of action in the name of self'defense$ 2oreover democracy made it impossible to examineinternational disputes on their merits but instead transformed every petty argument intoan affair of honor and national prestige so that no dispute could be examined on its meritsor settled as a simple compromise because such a sensible approach would at once behailed by oneDs democratic opposition as a loss of face and an unseemly compromise of exalted moral principles

The success of #ismarckDs policy of Gblood and ironG tended to justify the use of forceand intimidation in international affairs and to distort the role of diplomacy so that theold type of diplomacy began to disappear$ *nstead of a discussion between gentlemen tofind a workable solution diplomacy became an effort to show the opposition how strongone was in order to deter him from taking advantage of oneDs obvious weaknesses$"p6B8$

Metternich1s old definition, that #a diplomat was a man who never permitted

himself thepleasure of a triumph,# became lost completely, although it was not until after

2345 that

diplomacy became the practice of polishing one1s guns in the presence of the

enemy

(H) 0ub of Conspiracy6 7r tate and Corporate 7ligarchy Crimes against

8emocracy6

Lastly, the influence of imperialism served to make the crises of 235!9232 more

acute than those of an earlier period$ This is a subject which has given rise to much

controversy since 6B6; and has in its crudest form been presented as the theory that war was a result of the machinations of Ginternational bankersG or of the internationalarmaments merchants or was an inevitable result of the fact that the =uropean capitalisteconomic system had reached maturity$ All these theories will be examined in another

place where it will be shown that they are at worst untrue or at best incomplete$-owever one fact seems to be beyond dispute$ This is the fact that internationaleconomic competition was in the period before 6B6; re1uiring increasing politicalsupport$ #ritish gold and diamond miners in outh Africa 3erman railroad builders inthe .ear =ast &rench tin miners in the southwest "acific American oil prospectors in2exico #ritish oil prospectors in the .ear =ast even erbian pork merchants in the-absburg domains sought and expected to get political support from their home

governments$ *t may be that things were always thus$ #ut before 6B6; the number of suchforeign entrepreneurs was greater than ever their demands more urgent their own

politicians more attentive with the result that international relations were exasperated$



-t was in an atmosphere such as this that ;ienna received news of the assassination of

the heir to the -absburg throne on June :? 6B6;$ The Austrians were convinced of thecomplicity of the erbian government although they had no real proof$ We now knowthat high officials of the erbian government knew of the plot and did little to prevent it$

Belgian had nothing to do with it <ermany could not be allowed to 8efeat*rance, 7ld enmities had been settled via treaties and agreements to stop

<erman e.pansion6 Bismark was for Consolidating =aiser >illhelm was for

e.pansion and polishing guns in front of the enemy

erbia, confident of ?ussian support, answered in a reply which was partly favorable,

partly evasive and in one particular at least ,use of Austrian judges in erbian tribunals0negative$ erbia mobili<ed before making her replyE Austria mobili<ed against her assoon as it was received and on July :?th declared war$ The 9ussian c<ar under severe

pressure from his generals issued retracted modified and reissued an order for general

mobili<ation$ ince the 3erman military timetable for a two'front war provided that&rance must be defeated before 9ussian mobili<ation was completed &rance and3ermany both ordered mobili<ation on August 6st and 3ermany declared war on 9ussia$As the 3erman armies began to pour westward 3ermany declared war on &rance,August >rd0 and #elgium ,August ;th0$ #ritain could not allow &rance to be defeatedand in addition was morally entangled by the military conversations of 6B7'6B6; and bythe naval agreement of 6B6:$ 2oreover the 3erman challenge on the high seas incommercial activities throughout the world and in colonial activities in Africa could notgo unanswered$ )n August ;th #ritain declared war on 3ermany emphasi<ing theini1uity of her attack on #elgium although in the +abinet meeting of July :?th it had

been agreed that such an attack would not legally obligate #ritain to go to war$ Althoughthis issue was spread among the people and endless discussions ensued about #ritainDsobligation to defend #elgian neutrality under the Treaty of 6?>B those who made thedecision saw clearly that the real reason for war was that #ritain could not allow3ermany to defeat &rance$

/ @5A-n the eighteenth century, when

rulers were relatively free from popular influences they could wage wars for limitedobjectives and could negotiate peace on a compromise basis when these were objectiveswere attained or appeared unattainable$ Using a mercenary army which fought for pay

they could put that army into war or out of war as seemed necessary without vitallyaffecting its morale or its fighting 1ualities$ The arrival of democracy and of the massarmy re1uired that the great body of the citi<ens give wholehearted support for any war effort and made it impossible to wage wars for limited objectives$ uch popular supportcould be won only in behalf of great moral goals or universal philosophic values or at thevery least for survival$ At the same time the growing industriali<ation and economicintegration of modern society made it impossible to mobili<e for war except on a veryextensive basis which approached total mobili<ation$ This mobili<ation could not bedirected toward limited objectives$ &rom these factors came total war with totalmobili<ation and unlimited objectives including the total destruction or unconditionalsurrender of the enemy$ -aving adopted such grandiose goals and such gigantic plans it

became almost impossible to allow the continued existence of noncombatants within the belligerent countries or neutrals outside them$ *t became almost axiomatic that Gwho isnot with me is against me$G At the same time it became almost impossible to



compromise sufficiently to obtain the much more limited goals which would permit anegotiated peace$ As +harles eymour put it% G=ach side had promised itself a peace of victory$ The very phrase Dnegotiated peaceD became synonymous with treachery$G

Middle )ast

+ndoubtedly, the most numerous diplomatic agreements of the wartime period were

concerned with the disposition of the )ttoman =mpire$ As early as &ebruary 6B6@ 9ussiaand &rance signed an agreement by which 9ussia was given a free hand in the =ast inreturn for giving &rance a free hand in the West$ This meant that 9ussia could annex+onstantinople and block the movement for an independent "oland while &rance couldtake Alsace'Forraine from 3ermany and set up a new independent state under &renchinfluence in the 9hineland$ A month later in 2arch 6B6@ #ritain and &rance agreed toallow 9ussia to annex the traits and +onstantinople$ The immediate activities of the=ntente "owers however were devoted to plans to encourage the Arabs to rebel againstthe sultanDs authority or at least abstain from supporting his war efforts$ The chances of

success in these activities were increased hy the fact that the Arabian portions of the)ttoman =mpire while nominally subject to the sultan were already breaking up intonumerous petty spheres of authority some virtually independent$ The Arabs who were acompletely separate people from the Turks speaking a emitic rather than a Ural'Altaiclanguage and who had remained largely nomadic in their mode of life while the Turkshad become almost completely a peasant people were united to the )ttoman peoples bylittle more than their common allegiance to the 2uslim religion$ This connection had

been weakened by the efforts to seculari<e the )ttoman state and by the growth of Turkish nationalism which called forth a spirit of Arabic nationalism as a reaction to it$

-n 232!9232 the British high commissioner in )gypt, ir Henry McMahon, entered

into correspondence with the herif -ussein of 2ecca$ While no binding agreement wassigned the gist of their discussions was that #ritain would recogni<e the independence of the Arabs if they revolted against Turkey$ The area covered by the agreement includedthose parts of the )ttoman =mpire south of the >8th degree of latitude except AdanaAlexandretta and Gthose portions of yria lying to the west of the districts of (amascus

-oms -ama and Aleppo whichK cannot be said to be purely Arab$G *n addition Aden was

e.cepted, while Baghdad and Basra were to have a #special administration# (he

rights of &rance in the whole area were reserved the existing #ritish agreements withvarious local sultans along the shores of the "ersian 3ulf were to be maintained and-ussein was to use #ritish advisers exclusively after the war$ =xtended controversy hasrisen from this division of areas the chief point at issue being whether the statement asworded included "alestine in the area which was granted to the Arabs or in the areawhich was reserved$ The interpretation of these terms to exclude "alestine from Arabhands was subse1uently made by 2c2ahon on several occasions after 6B:: and mostexplicitly in 6B>8$

>hile McMahon was negotiating with Hussein, the <overnment of -ndia, through

"ercy +ox was negotiating with *bn'aud of .ejd and in an agreement of (ecember :76B6@ recogni<ed his independence in return for a promise of neutrality in the war$hortly afterward on 2ay 67 6B67 an agreement known as the ykes'"icot agreementfrom the names of the chief negotiators was signed between 9ussia &rance and #ritain$

=arly in 6B68 *taly was added to the settlement$ *t partitioned the )ttoman =mpire insuch a way that little was left to the Turks except the area within : or :@ miles of Ankara$ 9ussia was to get +onstantinople and the traits as well as northeastern



Anatolia including the #lack ea coastE *taly was to get the southwestern coast of Anatolia from myrna to AdaliaE &rance was to get most of eastern Anatolia including2ersin Adana and +ilicia as well as 4urdistan Alexandretta yria and northern2esopotamia including 2osulE #ritain was to get the Fevant from 3a<a south to the 9edea Transjordan most of the yrian (esert all of 2esopotamia south of 4irkuk ,including #aghdad and #asra0 and most of the "ersian 3ulf coast of Arabia$ *t was also

envisaged that western Anatolia around myrna would go to 3reece$ The -oly Fanditself was to be internationali<ed$

(he ne.t document concerned with the disposition of the 7ttoman )mpire was the

famous G#alfour (eclarationG of .ovember 6B68$ "robably no document of the wartime period except WilsonDs &ourteen "oints has given rise to more disputes than this brief statement of less than eleven lines$ 2uch of the controversy arises from the belief that it

promised something to somebody and that this promise was in conflict with other promises notably with the G2c2ahon "ledgeG to herif -ussein$ The #alfour (eclaration took the form of a letter from #ritish &oreign ecretary Arthur James #alfour to Ford 9othschild one of the leading figures in the #ritish Oionist movement$ This

movement which was much stronger in Austria and 3ermany than in #ritain hadaspirations for creating in "alestine or perhaps elsewhere some territory to whichrefugees from anti'emitic persecution or other Jews could go to find Ga national home$DD#alfourDs letter said G-is 2ajestyDs 3overnment view with favor the establishment in"alestine of a national home for the Jewish people and will use their best endeavours tofacilitate the achievement of this object it being clearly understood that nothing shall bedone which may prejudice the civil and religious rights of existing non'Jewishcommunities in "alestine or the rights and political status enjoyed by Jews in any other country$G *t is to be noted that this was neither an agreement nor a promise but merely aunilateral declaration that it did not promise a Jewish state in "alestine or even "alestineas a home for the Jews but merely proposed such a home in "alestine and that it reserved certainrights for the existing groups in the area$ -ussein was so distressed whenhe heard of it that he asked for an explanation and was assured by ($ 3$ -ogarth on

behalf of the #ritish government that GJewish settlement in "alestine would only beallowed in so far as would be consistent with the political and economic freedom of theArab population$G This reassurance apparently was acceptable to -ussein but doubtscontinued among other Arab leaders$ *n answer to a re1uest from seven such leaders onJune 67 6B6? #ritain gave a public answer which divided the Arab territories into three

parts% ,a0 the Arabian peninsula from Aden to Akabah ,at the head of the 9ed ea0 wherethe Gcomplete and sovereign independence of the ArabsG was recogni<edE ,b0 the areaunder #ritish military occupation covering southern "alestine and southern

2esopotamia where #ritain accepted the principle that government should be based Gonthe consent of the governedGE and ,c0 the area still under Turkish control including yriaand northern 2esopotamia where #ritain assumed the obligation to strive for Gfreedomand independence$G omewhat similar in tone was a joint Anglo'&rench (eclaration of

.ovember 8 6B6? just four days before hostilities ended in the war$ *t promised Gthecomplete and final liberation of the peoples who have for so long been oppressed by theTurk and the setting up of national governments and administrations that shall derivetheir authority from the free exercise of the initiative and choice of the indigenous

populations$G

(here have been e.tended discussions of the compatibility of the various agreements

and statements made by the 3reat "owers regarding the disposition of the )ttoman=mpire after the war$ This is a difficult problem in view of the inaccuracy and ambiguityof the wording of most of these documents$ )n the other hand certain facts are 1uite



evident$ There is a sharp contrast between the imperialist avarice to be found in the secretagreements like ykes'"icot and the altruistic tone of the publicly issued statementsEthere is also a sharp contrast between the tenor of the #ritish negotiations with the Jewsand those with the Arabs regarding the disposition of "alestine with the result that Jewsand Arabs were each justified in believing that #ritain would promote their conflicting

political ambitions in that area% these beliefs whether based on misunderstanding or

deliberate deception subse1uently served to reduce the stature of #ritain in the eyes of both groups although both had previously held a higher opinion of #ritish fairness andgenerosity than of any other "owerE lastly the raising of false Arab hopes and the failureto reach any clear and honest understanding regarding yria led to a long period of conflict between the yrians and the &rench government which held the area as amandate of the Feague of .ations after 6B:>$As a result of his understanding of the negotiationswith 2c2ahon -ussein began anArab revolt against Turkey on June @ 6B67$ &rom that point on he received a subsidy of P::@ a month from #ritain$ The famous T$ =$ Fawrence known as GFawrence of ArabiaG who had been an archaeologist in the .ear =ast in 6B6; had nothing to do withthe negotiations with -ussein and did not join the revolt until )ctober 6B67$ When

-ussein did not obtain the concessions he expected at the "aris "eace +onference of 6B6B Fawrence sickened of the whole affair and eventually changed his name to hawand tried to vanish from public view$

(he rab territories remained under military occupation until the legal establishment

of peace with Turkey in 6B:>$ Arabia itself was under a number of sheiks of which thechief were -ussein in -eja< and *bn'aud in .ejd$ "alestine and 2esopotamia ,nowcalled *ra10 were under #ritish military occupation$ The coast of yria was under &renchmilitary occupation while the interior of yria ,including the Aleppo'(amascus railwayline0 and Transjordan were under an Arab force led by =mir &eisal third son of -usseinof 2ecca$ Although an American commission of in1uiry known as the 4ing'+rane+ommission ,6B6B0 and a G3eneral yrian +ongressG of Arabs from the whole &ertile+rescent recommended that &rance be excluded from the area that yria'"alestine be

joined to form a single state with &eisal as king that the Oionists be excluded from"alestine in any political role as well as other points a meeting of the 3reat "owers atan 9emo in April 6B: set up two &rench and two #ritish mandates$ yria and Febanonwent to &rance while *ra1 and "alestine ,including Transjordan0 went to #ritain$ Therewere Arab uprisings and great local unrest following these decisions$ The resistance inyria was crushed by the &rench who then advanced to occupyD the interior of yria andsent &eisal into exile$ The #ritish who by this time were engaged in a rivalry ,over

petroleum resources and other issues0 with the &rench set &eisal up as king in *ra1 under #ritish protection ,6B:60 and placed his brother Abdullah in a similar position as 4ing of Transjordan ,6B:>0$ The father of the two new kings -ussein was attacked by *bn'audof .ejd and forced to abdicate in 6B:;$ -is kingdom of -eja< was annexed by *bn'audin 6B:;$After 6B>: this whole area was known as audi Arabia$(he most important diplomatic event of the latter part of the *irst >orld >ar was the

intervention of the United tates on the side of the =ntente "owers in April 6B68$ Thecauses of this event have been analy<ed at great length$ *n general there have been four chief reasons given for the intervention from four 1uite different points of view$ Thesemight be summari<ed as follows%

,60 The 3erman submarine attacks on neutral shippingmade it necessary for the United tates to go to war to secure Gfreedom of the seasGE



,:0the United tates was influenced by subtle #ritish propaganda conducted in drawingrooms universities and the press of the eastern part of the country where Anglophilismwas rampant among the more influential social groupsE

,>0 the United tates was

inveigled into the war by a conspiracy of international bankers and munitionsmanufacturers eager to protect their loans to the =ntente "owers or their wartime profitsfrom sales to these "owersE and

,;0 #alance of "ower principles made it impossible for the United tates to allow 3reat #ritain to be defeated by 3ermany$

Whatever the weightof these four in the final decision it is 1uite clear that neither the government nor the

people of the United tates were prepared to accept a defeat of the =ntente at the hands of the +entral "owers$

>hatever the weight

of these four in the final decision it is 1uite clear that neither the government nor the people of the United tates were prepared to accept a defeat of the =ntente at the hands of the +entral "owers$ *ndeed in spite of the governmentDs efforts to act with a certainsemblance of neutrality it was clear in 6B6; that this was the view of the chief leaders inthe government with the single exception of ecretary of tate William Jennings #ryan$Without analy<ing the four factors mentioned above it is 1uite clear that the Unitedtates could not allow #ritain to be defeated by any other "ower$

D merican protests reached a peak when the Lusitania was sunk in this way ninemiles off the =nglish coast on 2ay 8 6B6@$ The Fusitania was a #ritish merchant vessel

Gconstructed with 3overnment funds as anK auxiliary cruiser $ $ $ expressly included in the navy

list published by the British dmiralty,# with #bases laid for mounting guns of

six'inch caliberG carrying a cargo of :; cases of rifle cartridges and 6:@ cases of shrapnel and with orders to attack 3erman submarines whenever possible$ evenhundred and eighty'five of 6:@8 passengers including 6:? of 6B8 Americans lost their lives$ The incompetence of the acting captain contributed to the heavy loss as did also amysterious Gsecond explosionG after the 3erman torpedo struck$ The vessel which had

been declared GunsinkableG went down in eighteen minutes$ The captain was on a coursehe had orders to avoidE he was running at reduced speedE he had an inexperienced crewE

the portholes had been left openE the lifeboats had not been swung outE and no lifeboatdrills had been held$

(he propaganda agencies of the )ntente /owers made full use of the occasion (he

Times of Fondon announced that Gfour'fifths of her passengers were citi<ens of theUnited tatesG ,the actual proportion was 6@$7 percent0E the #ritish manufactured anddistributed a medal which they pretended had been awarded to the submarine crew by the3erman governmentE a &rench paper published a picture of the crowds in #erlin at theoutbreak of war in 6B6; as a picture of 3ermans GrejoicingG at news of the sinking of the

Fusitania$

>hen their offer to negotiate, made on

(ecember 6: 6B67 was rejected hy the =ntente "owers on (ecember :8th the group in



the 3erman government which had been advocating ruthless submarine warfare cameinto a position to control affairs and ordered the resumption of unrestricted submarineattacks on &ebruary 6 6B68$ Wilson was notified of this decision on January >6st$ -e

broke off diplomatic relations with 3ermany on &ebruary >rd and after two months of indecision asked the +ongress for a declaration of war April > 6B68$

>ar -M:

*rom the various efforts to negotiate peace it is clear that Britain was unwilling toaccept any peace which would not include the restoration of #elgium or which wouldleave 3ermany supreme on the +ontinent or in a position to resume the commercialnaval and colonial rivalry which had existed before 6B6;E &rance was unwilling to acceptany solution which did not restore Alsace'Forraine to herE the 3erman -igh +ommandand the 3erman industrialists were determined not to give up all the occupied territory inthe west but were hoping to retain Forraine part of Alsace Fuxembourg part of #elgium and Fongwy in &rance because of the mineral and industrial resources of theseareas$ The fact that 3ermany had an excellent supply of coking coal with an inade1uatesupply of iron ore while the occupied areas had plenty of the latter but an inade1uatesupply of the former had a great deal to do with the 3erman objections to a negotiated

peace and the ambiguous terms in which their war aims were discussed$ Austria wasuntil the death of =mperor &rancis Joseph in 6B67 unwilling to accept any peace whichwould leave the lavs especially the erbs free to continue their nationalistic agitationsfor the disintegration of the -absburg =mpire$ )n the other hand *taly was determined toexclude the -absburg =mpire from the shores of the Adriatic ea while the erbs wereeven more determined to reach those shores by the ac1uisition of -absburg'ruled lavareas in the Western #alkans$ After the 9ussian revolutions of 6B8 many of theseobstacles to a negotiated peace became weaker$ The Iatican working through +ardinal"acelli ,later "ope "ius L**0 sought a negotiated peace which would prevent thedestruction of the -absburg =mpire the last +atholic 3reat "ower in =urope$ "rominentmen in all countries like Ford Fansdowne ,#ritish foreign secretary before 6B6;0

became so alarmed at the spread of ocialism that they were willing to make almost anyconcessions to stop the destruction of civili<ed ways of life by continued warfare$-umanitarians like -enry &ord or 9omain 9olland became increasingly alarmed at thecontinued slaughter$ #ut for the reasons we have already mentioned peace remainedelusive until the great 3erman offensives of 6B6? had been broken$

7n

)ctober @th a 3erman note to "resident Wilson asked for an armistice on the basis of the&ourteen "oints of January ? 6B6? and his subse1uent principles of eptember :8 6B6?$These statements of Wilson had captured the imaginations of idealistic persons and

subject peoples everywhere$ The &ourteen "oints promised

the end of secret diplomacyE

freedom of the seasE

freedom of commerceE

disarmamentE

a fair settlement of colonialclaims with the interests of the native peoples receiving e1ual weight with the titles of imperialist "owersE the evacuation of 9ussiaE the evacuation and restoration of #elgiumE



the evacuation of &rance and the restoration to her of Alsace'Forraine as in 6?8E

the readjustment of the *talian frontiers on nationality linesE

free and autonomous development for the peoples of the -absburg =mpireE

the evacuation restoration and guarantee of 9omania 2ontenegro and erbia with the last'named securing free access to the seaE

international guarantees to keep the traits permanently opened to the shipsand commerce of all nationsE

freedom for the autonomous development of the non' Turkish nationalities of the )ttoman =mpirealong with a secure sovereignty for the Turks themselvesE an independent /olish state with free

access to the sea and with international guarantees%

a Feague of .ations to afford Gmutual guarantees of political

independence and territorial integrity to great and small states alikeGE

and no destruction of 3ermany or even any alteration of her institutions except those necessary tomake it clear when her spokesmen spoke for the 9eichstag majority and when they Gspeak for themilitary party and the men whose creed is imperial domination$G

-n a series of notes between <ermany and the +nited tates, >ilson made it clear that

he would grant an armistice only if 3ermany would withdraw from all occupied territorymake an end to submarine attacks accept the &ourteen "oints establish a responsible

government and accept terms which would preserve the existing =ntente militarysuperiority$ -e was most insistent on the responsible government warning that if he hadto deal Gwith military masters or monarchical autocratsG he would demand Gnotnegotiations but surrender$G

-n the meantime, the )ntente upreme >ar Council

refused to accept the &ourteen "oints as the basis for peace until Colonel House

https%//en$wikipedia$org/wiki/=dwardQ2$Q-ouse threatened that the United tates would makes a separate peace with 3ermany$ They thendemanded and received a definition of the meaning of each term made a reservation onGthe freedom of the seasG and expanded the meaning of Grestoration of invaded territoryGto include compensation to the civilian population for their war losses$ )n this basis anarmistice commission met 3erman negotiators on .ovember 8 th

lways keep this whole 'uiote in Conte.tEEE -e also 0azi /ropaganda re ;ersaille6

(he negotiations with >ilson leading up to the rmistice of 232A are of great

significance since they formed one of the chief factors in subse1uent 3erman resentmentat the Treaty of Iersailles$ *n these negotiations Wilson had clearly promised that the

peace treaty with 3ermany would be negotiated and would be based on the &ourteen

"ointsE as we shall see the Treaty of Iersailles was imposed without negotiation and the&ourteen "oints fared very poorly in its provisions$ An additional factor connected withthese events lies in the subse1uent claim of the 3erman militarists that the 3erman Army

https://en.wikipedia.org/wiki/Edward_M._House

https://en.wikipedia.org/wiki/Edward_M._House



was never defeated but was Gstabbed in the backG by the home front through acombination of international +atholics international Jews and international ocialists$There is no merit whatever in these contentions$ The 3erman Army was clearly beaten inthe fieldE the negotiations for an armistice were commenced by the civilian government atthe insistence of the -igh +ommand and the Treaty of Iersailles itself was subse1uentlysigned rather than rejected at the insistence of the same -igh +ommand in order to

avoid a military occupation of 3ermany$ #y these tactics the 3erman Army was able toescape the military occupation of 3ermany which they so dreaded$ Although the lastenemy forces did not leave 3erman soil until 6B>6 no portions of 3ermany wereoccupied beyond those signified in the armistice itself ,the 9hineland and the three

bridgeheads on the right hank of the 9hine0 except for a brief occupation of the 9uhr district in 6B>:$

Chapter 2F(he Home *ront, 2329232A

The &irst World War was a catastrophe of such magnitude that even today theimagination has some difficulty grasping it$ *n the year 6B67 in two battles ,Ierdun and

the omme0 casualties of over 68 were suffered by both sides$ *n the artillery barrage which opened the &rench attack on +hemin des (ames in April 6B68 66shells were fired on a >'mile front in 6 days$ Three months later on an 66'mile front at"asschendaele the #ritish fired ;:@ shells costing P:: in a preliminary barrage andlost ; men in the ensuing infantry assault$ *n the 3erman attack of 2arch 6B6? 7: divisions with ;@ heavy guns and 6 planes were hurled on a frontonly ;@ miles wide$ )n all fronts in the whole war almost 6> men in the variousarmed forces died from wounds and disease$ *t has been estimated by the +arnegie=ndowment for *nternational "eace that the war destroyed over R; of

property at a time when the value of every object in &rance and #elgium was not worthover R8@$

*-( M70)G +0L-M-()8 C70)+)0C) 7* (H) <?)( >?E

1uite unexpected for both sides and were impressed upon them only gradually$ *t first became clear in regard to consumption of supplies especially ammunition and in the problem of how to pay for these supplies$ *n July 6B6; the military men were confidentthat a decision would be reached in six months because their military plans and theexamples of 6?77 and 6?8 indicated an immediate decision$ This belief was supported

by the financial experts who while greatly underestimating the cost of fighting wereconfident that the financial resources of all states would be exhausted in six months$ #yGfinancial resourcesG they meant the gold reserves of the various nations$ These wereclearly limitedE all the 3reat "owers were on the gold standard under which bank notesand paper money could be converted into gold on demand$ -owever each country

suspended the gold standard at the outbreak of war$ This removed the automatic

/ @@!

Limitation on the supply of paper money (hen each country proceeded to pay

for the war

by borrowing from the banks$ The banks created the money which they lent by merely

giving the government a deposit of any si<e against which the government could drawchecks$ The banks were no longer limited in the amount of credit they could create

because they no longer had to pay out gold for checks on demand$ Thus the creation of



money in the form of credit by the banks was limited only by the demands of its borrowers$ .aturally as governments borrowed to pay for their needs private businesses borrowed in order to be able to fill the governmentDs orders$ The gold which could nolonger be demanded merely rested in the vaults except where some of it was exported to

pay for supplies from neutral countries or from fellow belligerents$ As a result the percentage of outstanding bank notes covered by gold reserves steadily fell and the

percentage of bank credit covered by either gold or bank notes fell even further$

"ropaganda p::B

Committees were formed, but proved relatively ineffective, and in most

activities in most countries were replaced by single'headed agencies e1uipped withextensive controls$ The use of voluntary or semi'voluntary methods of control generallyvanished with the committees and were replaced by compulsion however covert$ *n

governments as w holes a somewhat similar shifting of personnel took place until each+abinet came to be dominated by a single man endowed with greater energy or a greater willingness to make 1uick decisions on scanty information than his fellows$ *n this wayFloyd 3eorge replaced As1uith in =nglandE +lemenceau replaced a series of lesser leaders in &ranceE Wilson strengthened his control on his own government in the UnitedtatesE and in a distinctly 3erman way Fudendorff came to dominate the government of his country$ *n order to build up the morale of their own peoples and to lower that of their enemies countries engaged in a variety of activities designed to regulate the flow of information to these peoples$ This involved censorship propaganda and curtailment of civil liberties$ These were established in all countries without a hitch in the +entral"owers and 9ussia where there were long traditions of extensive police authority but noless effectively in &rance and #ritain$ *n &rance a tate of iege was proclaimed onAugust : 6B6;$ This gave the government the right to rule by decree establishedcensorship and placed the police under military control$ *n general &rench censorshipwas not so severe as the 3erman nor so skillful as the #ritish while their propaganda wasfar better than the 3erman but could not compare with the #ritish$

+ensorship(he British censorship was established on ugust !, 232, and at once

intercepted all cables and private mail which it could reach including that of neutralcountries$ These at once became an important source of military and economic

intelligence$ A (efence of the 9ealm Act ,familiarly known as ()9A0 was passedgiving the government the power to censor all information$ A "ress +ensorship+ommittee was set up in 6B6; and was replaced by the "ress #ureau under &rederick =$mith ,later Ford #irkenhead0 in 6B67$ =stablished in +rewe -ouse it was able tocontrol all news printed in the press acting as the direct agent of the Admiralty and War )ffices$ The censorship of printed books was fairly lenient and was much more so for

books to be read in =ngland than for books for export with the result that Gbest sellersG in=ngland were unknown in America$ "arallel with the censorship was the War "ropaganda #ureau under ir +harles 2asterman which had an American #ureau of *nformation under ir 3ilbert "arker at Wellington -ouse$ This last agency was able tocontrol almost all information going to the American press and by 6B67 was acting as aninternational news service itself distributing =uropean news to about >@ American paperswhich had no foreign reporters of their own$



-n general, manufacture or outright lies by

propaganda agencies was infre1uent and the desired picture of the enemy was built up bya process of selection and distortion of evidence until by 6B6? many in the Westregarded the 3ermans as bloodthirsty and sadistic militarists while the 3ermans regarded

the 9ussians as DDsubhuman monsters$G A great deal was made especially by the #ritishof GatrocityG propagandaE stories of 3erman mutilation of bodies violation of womencutting off of childrenDs hands desecration of churches and shrines and crucifixions of #elgians were widely believed in the West by 6B67$ Ford #ryce headed a committeewhich produced a volume of such stories in 6B6@ and it is 1uite evident that this welleducatedman Gthe greatest =nglish authority on the United tatesG was completelytaken in by his own stories$ -ere again outright manufacture of falsehoods wasinfre1uent although 3eneral -enry +harteris in 6B68 created a story that the 3ermanswere cooking human bodies to extract glycerine and produced pictures to prove it$Again photographs of mutilated bodies in a 9ussian anti'emitic outrage in 6B@ werecirculated as pictures of #elgians in 6B6@$ There were several reasons for the use of such

atrocity stories% ,a0 to build up the fighting spirit of the mass armyE ,b0 to stiffen civilianmoraleE ,c0 to encourage enlistments especially in =ngland where volunteers were usedfor one and a half yearsE ,d0 to increase subscriptions for war bondsE ,e0 to justify oneDsown breaches of international law or the customs of warE ,f0 to destroy the chances of negotiating peace ,as in (ecember 6B670 or to justify a severe final peace ,as 3ermanydid in respect to #rest'Fitovsk0E and ,g0 to win the support of neutrals$ )n the whole therelative innocence and credulity of the average person who was not yet immuni<ed to

propaganda assaults through mediums of mass communication in 6B6; made the use of such stories relatively effective$ #ut the discovery in the period after 6B6B that they had

been hoaxed gave rise to a skepticism toward all government communications which wasespecially noticeable in the econd World War$

(reaty of ;ersailles with <ermany, Iune @A, 2323

(reaty of aint9<ermain with ustria, eptember 25, 2323

Treaty of .euilly with #ulgaria .ovember :8 6B6BTreaty of Trianon with -ungary June ; 6B:

Treaty of Svres with Turkey August : 6B:The last of these the Treaty of Svres with Turkey was never ratified and wasreplaced by a new treaty signed at Fausanne in 6B:>$

(he causes of the discontent with the settlements of 23239

6B:> rested on the procedures which were used to make these settlements rather than onthe terms of the settlements themselves$ Above all there was discontent at the contrast

between the procedures which were used and the procedures which pretended to he usedas well as between the high'minded principles which were supposed to be applied andthose which really were applied

>hen it became clear that the settlements were to be imposed rather than



negotiated that the &ourteen "oints had been lost in the confusion and that the terms of the settlements had been reached by a process of secret negotiations from which the smallnations had been excluded and in which power politics played a much larger role than thesafety of democracy there was a revulsion of feeling against the treaties$

p@4@

but criticism should have been directed rather at the hypocrisy and lack

of realism in the ideals of the wartime propaganda and at the lack of honesty of the chief negotiators in carrying on the pretense that these ideals were still in effect while theyviolated them daily and necessarily violated them$ The settlements were clearly made bysecret negotiations by the 3reat "owers exclusively and by power politics$ They had to

be$ .o settlements could ever have been made on any other bases$ The failure of the chief negotiators ,at least the Anglo'Americans0 to admit this is regrettable but behind their

reluctance to admit it is the even more regrettable fact that the lack of political e.perience

and political education of the merican and )nglish electorates made it

dangerous for thenegotiators to admit the facts of life in international political relationships

by the time the victorious <reat /owers realized

all this and decided to make the terms by secret negotiations among themselvesinvitations had already been sent to all the victorious "owers to come to an *nter'Allied+onference to make preliminary terms$ As a solution to this embarrassing situation the

peace was made on two levels$ )n one level in the full glare of publicityD the *nter'Allied+onference became the "lenary "eace +onference and with considerable fanfare did

nothing$ )n the other level the 3reat "owers worked out their peace terms in secret and

when they were ready, imposed them simultaneously on the conference and on the

3ermans$$$$

"ost War Technocracy$>hen the treaty with <ermany was signed on Iune @ A, 2323, the heads of

governments left "aris and the +ouncil of Ten ended$ o also did the "lenary +onference$The five foreign ministers ,#alfour Fansing "ichon Tittoni and 2akino0 were left in"aris as the +ouncil of -eads of (elegations with full powers to complete the peacesettlements$ This group finished the treaties with Austria and #ulgaria and had them both

signed$ They disbanded on January lo 6B: leaving behind an executive committee the+onference of Ambassadors$ This consisted of the ambassadors of the four 3reat "owersin "aris plus a &rench representative$ This group held two hundred meetings in the nextthree years and continued to meet until 6B>6$ *t supervised the execution of the three

peace treaties already signed negotiated the peace treaty with -ungary and performedmany purely political acts which had no treaty basis such as drawing the Albanianfrontier in .ovember 6B:6$ *n general in the decade after the "eace +onference the+onference of Ambassadors was the organi<ation by which the 3reat "owers ruled=urope$ *t acted with power speed and secrecy in all issues delegated to it$ When issuest all of these meetings, as at the /eace Conference itself, the political leaders were

assisted by groups of experts and interested persons sometimes self'appointed$ 2any of these GexpertsG were members or associates of the international'banking fraternity$ At the"aris "eace +onference the experts numbered thousands and were organi<ed into official



staffs by most countries even before the war ended$ These experts were of the greatestimportance$ They were formed into committees at "aris and given problem after problemespecially boundary problems usually without any indication as to what principlesshould guide their decisions$ The importance of these committees of experts can he seenin the fact that in every case hut one where a committee of experts submitted aunanimous report the upreme +ouncil accepted its recommendation and incorporated it

in the treaty$

(he one case where a unanimous

report was not accepted was concerned with the "olish +orridor the same issue whichhad forced the upreme +ouncil to be cut down to the +ouncil of &our in 6B6B and theissue which led to the econd World War twenty years later$ *n this case the experts

were much harsher on 3ermany than the final decision of the politicians

(he <erman

delegation at once returned to 3ermany and recommended a refusal to sign$ The +abinetresigned rather than sign but a new +abinet was formed of +atholics and ocialists$ #othof these groups were fearful that an Allied invasion of 3ermany would lead to chaos andconfusion which would encourage #olshevism in the east and separatism in the westEthey voted to sign if the articles on war guilt and war criminals could be struck from thetreaty$ When the Allies refused these concessions the +atholic +enter "arty voted 7;'6;not to sign$ At this critical moment when rejection seemed certain the -igh +ommandof the 3erman Army through +hief of taff Wilhelm 3roener ordered the +abinet tosign in order to prevent a military occupation of 3ermany$ )n June :? 6B6B exactly fiveyears after the assassination at arajevo in the -all of 2irrors at Iersailles where the3erman =mpire had been proclaimed in 6?86 the Treaty of Iersailles was signed by allthe delegations except the +hinese$ The latter refused protest against the disposition of the prewar 3erman concessions in hantung$

(his group was persuaded to sign

the Treaty of Trianon hy a trick and ever afterward repudiated it$ 2aurice "alologuesecretary'general of the &rench 2inistry of &oreign Affairs ,but acting on behalf of &ranceDs greatest industrialist =ugene chneider0 made a deal with the -ungarians that if they would sign the Treaty of Trianon as it stood and give chneider control of the-ungarian state railways the port of #udapest and the -ungarian 3eneral +redit #ank ,which had a stranglehold on -ungarian industry0 &rance would eventually make-ungary one of the mainstays of its anti'3erman bloc in eastern =urope would sign amilitary convention with -ungary and would at the proper time obtain a drastic revisionof the Treaty of Trianon$ The -ungarian side of this complex deal was largely carriedout but #ritish and *talian objections to the extension of &rench economic control intocentral =urope disrupted the negotiations and prevented -ungary from obtaining its

reward$ "alologue although forced to resign and replaced at the Nuai dD)rsay by theanti'-ungarian and pro'+<ech "hilippe #erthelot received his reward from chneider$



-e was made a director of chneiderDs personal holding company for

https%//en$wikipedia$org/wiki/=ug+>A?neQchneiderQ**

(he (reaty of Jvres with (urkey was the last one made and the only one never

ratified$ There w'ere three reasons for the delay% ,60 the uncertainty about the role of theUnited tates which was expected to accept control of the traits and a mandate for Armenia thus forming a buffer against oviet 9ussiaE ,:0 the instability of the Turkishgovernment which was threatened hy a nationalist uprising led by 2ustafa 4emalE and,>0 the scandal caused by the #olshevik publication of the secret treaties regarding the)ttoman =mpire since these treaties contrasted so sharply with the expressed war aimsof the Allies$ The news that the United tates refused to participate in the .ear =astsettlement made it possible to draw up a treaty$ This was begun by the upreme +ouncilat its Fondon +onference of &ebruary 6B: and continued at an 9emo in April$ *t wassigned by the sultanVs government on August : 6B: but the .ationalists under

2ustafa 4emal refused to accept it and set up an insurgent government at Ankara

7-L -0()?( (H) (+?= 08 (H) M-88L) )(

(he *rench believed that greater economic concessions could be

obtained from the 4emalist government while the #ritish felt that richer prospects wereto be obtained from the sultan$ *n particular the &rench were prepared to support theclaims of tandard )il to such concessions while the #ritish were prepared to support

9oyal'(utch hell$ The .ationalist forces made good use of these dissensions$ After

buying off

the -talians and *rench with economic concessions,they launched a

counteroffensive against the 3reeks$ Although =ngland came to the rescue of the 3reeksit received no support from the other "owers while the Turks had the support of oviet9ussia$ The Turks destroyed the 3reeks burned myrna$ and came face'to'face with the#ritish at +hanak$ At this critical moment the (ominions in answer to +ur<onDstelegraphed appeal refused to support a war with Turkey$ The Treaty of Svres alreadyin tatters had to be discarded$ A new conference at Fausanne in .ovember 6B::

produced a moderate and negotiated treaty which was signed by the 4emalist governmenton July :; 6B:>$ This act ended in a formal way the &irst World War$ *t also took a

most vital step toward establishing a new Turkey which would serve as a powerful forcefor peace and stability in the .ear =ast$ The decline of Turkey which had continued for four hundred years was finally ended$

By this (reaty of Lausanne, (urkey gave up all non9(urkish territory

e.cept

4urdistan losing Arabia 2esopotamia the Fevant western Thrace and some islands of

the Aegean$ The capitulations were abolished in return for a promise of judicial reform$There were no reparations and no disarmament except that the traits were demilitari<edand were to be open to all ships except those of belligerents if Turkey was at war$ Turkey

https://en.wikipedia.org/wiki/Eug%C3%A8ne_Schneider,_II

https://en.wikipedia.org/wiki/Eug%C3%A8ne_Schneider,_II



accepted a minorities treaty and agreed to a compulsory exchange with 3reece of 3reek and Turkish minorities judged on the basis of membership in the 3reek )rthodox or 2uslim religions$ Under this last provision over 6:@ 3reeks were removed fromTurkey by 6B>$ Unfortunately most of these had been urban shopkeepers in Turkey andwere settled as farmers on the un'hospitable soil of 2acedonia$ The #ulgarian peasantswho had previously lived in 2acedonia were unceremoniously dumped into #ulgaria

where they were tinder for the sparks of a revolutionary #ulgarian secret society calledthe *nternal 2acedonian 9evolutionary )rgani<ation ,*29)0 whose chief method of

political action was assassination$

ll the original peace treaties consisted of five chief parts: &a$ the Covenant of the

Feague of .ationsE ,b0 the territorial provisionsE ,c0 the disarmament provisionE ,d0 thereparations provisionsE and ,e0 penalties and guarantees$ The first of these must bereserved until later but the others should be mentioned here$*n theory the territorial provisions of the treaties were based on Gself'determinationG

but in fact they were usually based on other considerations% strategic economic punitivelegal power or compensation$ #y Gself'determinationG the peacemakers usually meantGnationalityG and by GnationalityG they usually meant GlanguageG except in the )ttoman=mpire where GnationalityG usually meant Greligion$G

(he city of *iume itself

was largely *talian but the suburbs and surrounding countryside were overwhelminglylav$ The experts at "aris wished to give *taly neither &iume nor (almatia but +olonel-ouse tried to overrule the experts in order to obtain *talian support for the Feague of

.ations in return$ Wilson overruled -ouse and issued his famous appeal to the *talian

people which resulted in the temporary withdrawal of the *talian delegation from "aris$After their return the issue was left unsettled$ *n eptember 6B6B an erratic *talian poet3abriele (DAnnun<io with a band of freebooters sei<ed &iume and set up an independentgovernment on a comic'opera basis$ The dispute between *taly and Hugoslavia continuedwith decreasing bitterness until .ovember 6B: when they signed a treaty at 9apallo

Because *rance lacked security, its chief concern in every issue was political% because

#ritain had security its chief concern was economic$ The political desires of &rance re'uired that

<ermany should be weakened% the economic desires of Britain re'uired that

3ermany should be strengthened in order to increase the prosperity of all =urope$ Whilethe chief political threat to &rance was 3ermany the chief economic and social threat to#ritain was #olshevism$ *n any struggle with #olshevist 9ussia #ritain tended to regard3ermany as a potential ally especially if it were prosperous and powerful$ This was the

primary concern of Ford (DAbernon #ritish ambassador in #erlin in the critical years6B:'6B:7$ )n the other hand while &rance was completely opposed to the economicand social system of the oviet Union and could not easily forget the immense &renchinvestments which had been lost in that country it still tended to regard the 9ussians as

potential allies against any revival of 3ermany ,although &rance did not make an alliancewith the oviet Union until 6B>@0$

-n both Britain and *rance &before 234!$ there was a difference of opinion in



international politics which followed general political outlooks ,and even class lines0rather closely$ *n #ritain persons who were of the Feft tended to believe in revision of the Treaty of Iersailles in favor of 3ermany collective security general disarmamentand friendship with the oviet Union$ *n the same period the 9ight were impatient with

policies based on humanitarianism idealism or friendship for the oviet Union andwanted to pursue a policy of Gnational interestG by which they meant emphasis on

strengthening the empire conducting an aggressive commercial policy against outsidersand adopting relative isolationism in general policy with no =uropean politicalcommitments except west of the 9hine ,where #ritainDs interests were immediate0$ Thegroups of the Feft were in office in #ritain for only about two years in the twenty years6B6B'6B>B and then only as a minority government ,6B:; 6B:B'6B>60E the groups of the9ight were in power for eighteen of these twenty years usually with an absolutemajority$ -owever during these twenty years the people of #ritain were generallysympathetic to the point of view of the Feft in foreign policy although they generallyvoted in elections on the basis of domestic rather than foreign politics$ This means thatthe people were in favor of revision of Iersailles of collective security of international

cooperation and of disarmament$

p@"

-nteresting one for Corbyn this6

8>) /L0 C70(?( >-(H <?))C)6

(he 8awes /lan, which was largely a I / Morgan production, was drawn up by an

international committee of financial experts presided over by the American banker +harles 3$ (awes$ *t was concerned only with 3ermanyDs ability to pay and decided thatthis would reach a rate of :$@ billion marks a year after four years of reconstruction$(uring the first four years 3ermany would be given a loan of R? million and would

pay a total of only @$68 billion marks in reparations$ This plan did not supersede the3erman reparations obligation as established in 6B:6 and the difference between the

8awes payments and the payments due on the London chedule were

added to the total

reparations debt$ Thus 3ermany paid reparations for five years under the (awes "lan,6B:;'6B:B0 and owed more at the end than it had owed at the beginning$The (awes "lan also established guarantees for reparations payments setting asidevarious sources of income within 3ermany to provide funds and shifting theresponsibility for changing these funds from marks into foreign exchange from the3erman government to an agent'general for reparations payments who received markswithin 3ermany$ These marks were transferred into foreign exchange only when therewas a plentiful supply of such exchange within the 3erman foreign'exchange market$This meant that the value of the 3erman mark in the foreign'exchange market was

artificially protected almost as if 3ermany had exchange control since every time thevalue of the mark tended to fall the agent'general stopped selling marks$ This allowed3ermany to begin a career of wild financial extravagance without suffering the



conse1uences which would have resulted under a system of free international exchange$pecifically 3ermany was able to borrow abroad beyond her ability to pay without thenormal slump in the value of the mark which would have stopped such loans under normal circumstances$ *t is worthy of note that this system was set up by the international

bankers and that the subse1uent lending of other peopleDs money to 3ermany was very profitable to these bankers$

Using these American loans 3ermanyDs industry was largely ree1uipped with themost advanced technical facilities and almost every 3erman municipality was providedwith a post office a swimming pool sports facilities or other nonproductive e1uipment$With these American loans 3ermany was able to rebuild her industrial system to make itthe second best in the world by a wide margin to keep up her prosperity and her standardof living in spite of the defeat and reparations and to pay reparations without either a

balanced budget or a favorable balance of trade$ #y these loans 3ermanyDs creditors wereable to pay their war debts to =ngland and to the United tates without sending goods or services$ &oreign exchange went to 3ermany as loans back to *taly #elgium &ranceand #ritain as reparations and finally back to the United tates as payments on war debts$ The only things wrong with the system were ,a0 that it would collapse as soon as

the United tates ceased to lend and ,b0 in the meantime debts were merely being shiftedfrom one account to another and no one was really getting any nearer to solvency$ *n the

period 6B:;'6B>6 <ermany paid 25! billion marks in reparations but

borrowed abroad a

total of 2A billion marks 0othing was settled by all this, but the

international bankers

sat in heaven, under a rain of fees and commissionsThe (awes "lan was replaced by the Houng "lan at the beginning of 6B> for avariety of reasons$ *t was recogni<ed that the (awes "lan was only a temporary

expedient that 3ermanyDs total reparations obligation was increasing even as she paid billions of marks because the (awes "lan payments were less than the paymentsre1uired by the Fondon cheduleE that the 3erman foreign'exchange market had to befreed in order that 3ermany might face the conse1uences of her orgy of borrowing andthat 3ermany Gcould not payG the standard (awes payment of :$@ billion marks a year which was re1uired in the fifth and following years of the (awes "lan$ *n addition(he 8awes /lan was replaced by the Goung /lan at the beginning of 2345 for a

variety of reasons$ *t was recogni<ed that the (awes "lan was only a temporaryexpedient that 3ermanyDs total reparations obligation was increasing even as she paid

billions of marks because the (awes "lan payments were less than the payments

re1uired by the Fondon cheduleE that the 3erman foreign'exchange market had to befreed in order that 3ermany might face the conse1uences of her orgy of borrowing andthat 3ermany Gcould not payG the standard (awes payment of :$@ billion marks a year which was re1uired in the fifth and following years of the (awes "lan$ *n addition

(he problem was how to obtain 3erman and #ritish permission to Gcommerciali<eG part of

the reparations$ *n order to obtain this permission &rance made a gross error in tactics%she promised to evacuate all of the 9hineland in 6B> five years before the date fixed inthe Treaty of Iersailles in return for permission to commerciali<e part of the reparations

payments$This deal was embodied in the Houng "lan named after the American )wen ($Houng ,a 2organ agent0 who served as chairman of the committee which drew up thenew agreements ,&ebruary to June 6B:B0$ Twenty governments signed these agreements



in January 6B>$ The agreement with 3ermany provided for reparations to be paid for @Byears at rates rising from *$8 billion marks in 6B>6 to a peak of :$; billion marks in 6B77and then declining to less than a billion marks in 6B??$ The earmarked sources of fundsin 3ermany were abolished except for 77 million marks a year which could beGcommerciali<edG and ail protection of 3ermanyDs foreign'exchange position was ended

by placing the responsibility for transferring reparations from marks to foreign currencies

s1uarely on 3ermany$ To assist in this task a new private bank called the #ank for *nternational ettlements was established in wit<erland at #asle$ )wned by the chief central banks of the world and holding accounts for each of them the #ank for *nternational ettlements was to serve as Ga +entral #ankersD #ankG and allowinternational payments to be made by merely shifting credits from one countryDs accountto another on the books of the bank$The Houng "lan which was to have been a final settlement of the reparations1uestion lasted for less than eighteen months$ The crash of the .ew Hork stock marketin )ctober 6B:B marked the end of the decade of reconstruction and opened the decade of destruction between the two wars$ This crash ended the American loans to 3ermany andthus cut off the flow of foreign exchange which made it possible for 3ermany to appear

as if it were paying reparations$ *n seven years 6B:;'6B>6 the debt of the 3ermanfederal government went up 7$7 billion marks while the debts of 3erman localgovernments went up 66$7 billion marks$ 3ermanyDs net foreign debt both public and

private, was increased in the same period by 2A billion marks, e.clusive of reparations

3ermany could pay reparations only so long as her debts continued to grow because only by increasing debts could the necessary foreign exchange be obtained$ uch foreign loansalmost ceased in 6B> and by 6B>6 3ermans and others had begun a Gflight from themarkG selling this currency for other monies in which they had greater confidence$ Thiscreated a great drain on the 3erman gold reserve$ As the gold reserve dwindled thevolume of money and credit erected on that reserve had to be reduced by raising theinterest rate$ "rices fell because of the reduced supply of money and the reduced demandso that it became almost impossible for the banks to sell collateral and other properties inorder to obtain funds to meet the growing demand for money$t this point, in pril 2342, <ermany announced a customs union with ustria

&rance protested that such a union was illegal under the Treaty of aint'3ermain bywhich Austria had promised to maintain its independence from 3ermany$ The disputewas referred to the World +ourt but in the meantime the &rench to discourage suchattempts at union recalled &rench funds from both Austria and 3ermany$ #oth countrieswere vulnerable$ )n 2ay ? 6B>6 the largest Austrian bank the +redit'Anstalt ,a

9othschild institution0 with extensive interests almost control in 8 percent of AustriaDsindustry announced that it had lost 6; million schillings ,about @: million0$ The trueloss was over a billion schillings and the bank had really been insolvent for years$ The9othschilds and the Austrian government gave the +redit'Anstalt 67 million to cover the loss but public confidence had been destroyed$ A run began on the bank$ To meetthis run the Austrian banks called in all the funds they had in 3erman banks$ The 3erman

banks began to collapse$ These latter began to call in all their funds in Fondon$ TheFondon banks began to fall and gold flowed outward$ )n eptember :lst =ngland wasforced off the gold standard$ (uring this crisis the 9eichsbank lost : million marks of its gold reserve and foreign exchange in the first week of June and about 6 million inthe second week of June$ The discount rate was raised step by step to 6@ percent without

stopping the loss of reserves but destroying the activities of the 3erman industrial systemalmost completely



/@""(he Money /ower eeks to Create a >orld ystem of *inancial

Control in /rivate Hands ble to 8ominate )very 0ation on )arth*n addition to these pragmatic goals the powers of financial capitalism had another

far'reaching aim nothing less than to create a world system of financial control in private

hands able to dominate the political system of each country and the economy of the worldas a whole$ This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in fre1uent private meetingsand conferences$ The apex of the system was to be the #ank for *nternational ettlementsin #asle wit<erland a private bank owned and controlled by the worldDs central bankswhich were themselves private corporations$ =ach central bank in the hands of men like2ontagu .orman of the #ank of =ngland #enjamin trong of the .ew Hork &ederal9eserve #ank +harles 9ist of the #ank of &rance and -jalmar chacht of the9eichsbank sought to dominate its government by its ability to control Treasury loans to

manipulate foreign exchanges to influence the level of economic activity in the countryand to influence cooperative politicians by subse1uent economic rewards in the businessworld$

(he Bank for -nternational ettlements Becomes the Mechanism for llowing the

(hree *inancial Centers of the >orld to ct s 7ne

The #$*$$ is generally regarded as the apex of the structure of financial capitalismwhose remote origins go back to the creation of the #ank of =ngland in 67B; and the#ank of &rance in 6?>$ As a matter of fact its establishment in 6B:B was rather anindication that the centrali<ed world financial system of 6B6; was in decline$ *t was setup rather to remedy the decline of Fondon as the worldDs financial center by providing a

mechanism by which a world with three chief financial centers in Fondon .ew Horkand "aris could still operate as one$ The #$*$$ was a $$$ effort to cope with the problemsarising from the growth of a number of centers$ *t was intended to be the world cartel of ever'growing national financial powers by assembling the nominal heads of thesenational financial centers$Montagu 0orman >as the Commander9in9Chief of the

>orld ystem of Banking Control

The commander in chief of the world system of banking control was 2ontagu .orman 3overnor of the #ank of =ngland who was built up by the private bankers to a position where he was regarded as an oracle in all matters of government and business$ *ngovernment the power of the #ank of =ngland was a considerable restriction on political

action as early as 6?6B but an effort to break this power by a modification of the bankDscharter in 6?;; failed$ *n 6?@: 3ladstone then chancellor of the =xche1uer and later

prime minister declared GThe hinge of the whole situation was this% the governmentitself was not to be a substantive power in matters of &inance but was to leave the 2oney"ower supreme and un1uestioned$G

(he Currency 8ictator of )urope

This power of the #ank of =ngland and of its governor was admitted by most 1ualifiedobservers$ *n January 6B:; 9eginald 2c4enna who had been chancellor of the=xche1uer in 6B6@'6B67 as chairman of the board of the 2idland #ank told itsstockholders%



"I am afraid the ordinary citizen will not like to be told that the banks can,

and do, create money.... And they who control the credit of the nation direct the

policy of

Governments and hold in the hollow of their hands the destiny of the people." *n that

same year ir (rummond &raser vice'president of the *nstitute of #ankers stated GThe

3overnor of the #ank of =ngland must be the autocrat who dictates the terms upon whichalone the 3overnment can obtain borrowed money$G )n eptember :7 6B:6 The&inancial Times wrote G-alf a do<en men at the top of the #ig &ive #anks could upsetthe whole fabric of government finance by refraining from renewing Treasury #ills$GIincent Iickers who had been a director of the bank for nine years said Gince 6B6Bthe monetary policy of the 3overnment has been the policy of the #ank of =ngland andthe policy of the #ank of =ngland has been the policy of 2r$ 2ontagu .orman$G )n

.ovember *l 6B:8 the Wall treet Journal called 2r$ .orman Gthe currency dictator of =urope$G This fact was admitted by 2r$ .orman himself before the court of the bank on2arch :6 6B> and before the 2acmillan +ommittee five days later$2ontagu .ormanDs position may be gathered from the fact that his predecessors in the

governorship almost a hundred of them had served two'year terms increased rarely intime of crisis to three or even four years$ #ut .orman held the position for twenty'four years ,6B:'6B;;0 during which he became the chief architect of the li1uidation of #ritainDs global preeminence$

0orman ;iewed <overnments and 8emocracy s

(hreats to the Money /ower .orman was a strange man whose mental outlook was one of successfully suppressedhysteria or even paranoia$ -e had no use for governments and feared democracy$ #oth of theseseemed to him to be threats to private banking and thus to all that was proper and

precious in human life$ trong'willed tireless and ruthless he viewed his life as a kindof cloak'and'dagger struggle with the forces of $$$ soundK money $$$$ When he rebuilt the#ank of =ngland he constructed it as a fortress prepared to defend itself against any

popular revolt with the sacred gold reserves hidden in deep vaults below the level of underground waters which could be released to cover them by pressing a button on thegovernorDs desk$ &or much of his life .orman rushed about the world by fast steamshipcovering tens of thousands of miles each year often traveling incognito concealed by a

black slouch hat and a long black cloak under the assumed name of G"rofessor kinner$G-is embarkations and debarkations onto and off the fastest ocean liners of the daysometimes through the freight hatch were about as unobserved as the somewhat similar

passages of 3reta 3arbo in the same years and were carried out in a similarly GsincereG

effort at self'effacement$

Montagu 0orman1s 8evoted Colleague in 0ew Gork City .orman had a devoted colleague in #enjamin trong the first governor of the &ederal9eserve #ank of .ew Hork$ trong owed his career to the favor of the 2organ #ankespecially of -enry "$ (avison who made him secretary of the #ankers Trust +ompanyof .ew Hork ,in succession to Thomas W$ Famont0 in 6B; used him as 2organDs agentin the banking rearrangements following the crash of 6B8 and made him vice'presidentof the #ankers Trust ,still in succession to Famont0 in 6BB$ -e became governor of the&ederal 9eserve #ank of .ew Hork as the joint nominee of 2organ and of 4uhn Foeband +ompany in 6B6;$ Two years later trong met .orman for the first time and they at

once made an agreement to work in cooperation for the financial practices they bothrevered$These financial practices were explicitly stated many times in the voluminous



correspondence between these two men and in many conversations they had both in their work and at their leisure ,they often spent their vacations together for weeks usually inthe south of &rance0$

.orman and trong eek to )perate +entral #anks &ree fromAny "olitical +ontrol*n the 6B:Ds they were determined to use the financial power of #ritain and of the

United tates to force all the major countries of the world to go on the gold standard andto operate it through central banks free from all political control with all 1uestions of international finance to be settled by agreements by such central banks withoutinterference from governments$

.orman and trong Were 2ere Agents of the "owerful #ankersWho 9emained #ehind the cenes and )perated in ecret

*t must not be felt that these heads of the worldDs chief central banks were themselvessubstantive powers in world finance$ They were not$ 9ather they were the technicians

and agents of the dominant investment bankers of their own countries who had raisedthem up and were perfectly capable of throwing them down$ The substantive financial

powers of the world were in the hands of these investment bankers ,also calledGinternationalG or GmerchantG bankers0 who remained largely behind the scenes in their own unincorporated private banks$ These formed a system of international cooperationand national dominance which was more private more powerful and more secret thanthat of their agents in the central banks$ This dominance of investment bankers was basedon their control over the flows of credit and investment funds in their own countries andthroughout the world$ They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans thediscount rate and the re'discounting of commercial debtsE they could dominate

governments by their control over current government loans and the play of theinternational exchanges$ Almost all of this power was exercised by the personal influenceand prestige of men who had demonstrated their ability in the past to bring off successfulfinancial coupe to keep their word to remain cool in a crisis and to share their winningopportunities with their associates$ *n this system the 9othschilds had been preeminentduring much of the nineteenth century but at the end of that century they were beingreplaced by J$ "$ 2organ whose central office was in .ew Hork although it was alwaysoperated as if it were in Fondon ,where it had indeed originated as 3eorge "eabody and+ompany in 6?>?0$ )ld J$ "$ 2organ died in 6B6> but was succeeded by his son of thesame name ,who had been trained in the Fondon branch until 6B60 while the chief decisions in the firm were increasingly made by Thomas W$ Famont after 6B:;$ #utthese relationships can be described better on a national basis later$ At the present stagewe must follow the efforts of the central bankers to compel the world to return to the goldstandard of 6B6; in the postwar conditions following 6B6?$

*nternational #ankerDs Iiewpoints =xpressed in3overnment 9eports and +onferencesThe bankersD point of view was clearly expressed in a series of government reports andinternational conferences from 6B6? to 6B>>$ Among these were the reports of the+unliffe +ommittee of 3reat #ritain ,August 6B6?0 that of the #russels +onference of =xperts ,eptember 6B:0 that of the 3enoa +onference of the upreme +ouncil,January 6B::0 the &irst World =conomic +onference ,at 3eneva 2ay 6B:80 the reportof the 2acmillan +ommittee on &inance and *ndustry ,of 6B>60 and the variousstatements released by the World =conomic +onference ,at Fondon in 6B>>0$ These and



many other statements and reports called vainly for a free international gold standard for balanced budgets for restoration of the exchange rates and reserve ratios customary before 6B6; for reductions in taxes and government spending and for a cessation of allgovernment interference in economic activity either domestic or international$ #ut noneof these studies made any effort to assess the fundamental changes in economiccommercial and political life since 6B6;$ And none gave any indication of a reali<ation

that a financial system must adapt itself to such changes$ *nstead they all implied that if men wouldonly give up their evil ways and impose the financial system of 6B6; on theworld the changes would be compelled to reverse their direction and go back to theconditions of 6B6;$

tradgedy and hope quiggley notes

Documents