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Full text of "Tragedy and Hope"

Tragedy and Hope 

A History of the World in Our Time 

By 

Carroll Quigley 

Volumes 1-8 

New York: The Macmillan Company 

1966 

Table of Contents 

Introduction 

Preface 

Part One — Introduction: Western Civilization In Its World Setting 

Chapter 1 — Cultural Evolution in Civilizations 

Chapter 2 — Cultural Diffusion in Western Civilization 2 

Chapter 3 — Europe's Shift to the Twentieth Century 

Part Two — Western Civilization to 1914 

Chapter 4 — The Pattern of Change 

Chapter 5 — European Economic Developments 

Chapter 6— The United States to 1917 

Part Three — The Russian Empire to 1917 

Chapter 7 — Creation of the Russian Civilization 

Part Four — The Buffer Fringe 

Chapter 8— The Near East to 1914 



Chapter 9 — The British Imperial Crisis: Africa, Ireland, and India to 1926 

Chapter 10 — The Far East to World War I 

Part Five— The First World War: 1914: 1918 

Chapter 11 — The Growth of International Tensions, 1871-1914 

Chapter 12— Military History, 1914-1918 

Chapter 13— Diplomatic History, 1914-1 918 

Chapter 14— The Home Front, 1914-1918 

Part Six — The Versailles System and the Return to Normalcy: 1919-1929 

Chapter 15— The Peace Settlements, 1919-1923 

Chapter 16— Security, 1919-1935 

Chapter 17— Disarmament, 1919-1935 

Chapter 18— Reparations, 1919-1932 

Part Seven — Finance, Commercial and Business Activity: 1897-1947 

Chapter 19— Reflation and Inflation, 1897-1925 

Chapter 20— The Period of Stabilization, 1922-1930 

Chapter 21— The Period of Deflation, 1927- 1936 

Chapter 22— Reflation and Inflation, 1933-1947 

Part Eight — International Socialism and the Soviet Challenge 

Chapter 23 — The International Socialist Movement 

Chapter 24— The Bolshevik Revolution to 1924 

Chapter 25— Stalinism, 1924-1939 

Part Nine — Germany from Kaiser to Hitler: 1913-1945 

Chapter 26 — Introduction 



Chapter 27— The Weimar Republic, 1918-1933 

Chapter 28 — The Nazi Regime 

Part Ten — Britain: the Background to Appeasement: 1900-1939 

Chapter 29 — The Social and Constitutional Background 

Chapter 30— Political History to 1939 

Part Eleven — Changing Economic Patterns 

Chapter 31 — Introduction 

Chapter 32 — Great Britain 

Chapter 33 — Germany 

Chapter 34 — France 

Chapter 35 — The United States of America 

Chapter 36 — The Economic Factors 

Chapter 37 — The Results of Economic Depression 

Chapter 38 — The Pluralist Economy and World Blocs 

Part Twelve — The Policy of Appeasement, 1931-1936 

Chapter 39 — Introduction 

Chapter 40— The Japanese Assault, 1931-1941 

Chapter 41— The Italian Assault, 1934-1936 

Chapter 42— Circles and Counter-circles, 1935-1939 

Chapter 43— The Spanish Tragedy, 1931-1939 

Part Thirteen — The Disruption of Europe: 1937-1939 

Chapter 44— Austria Infelix, 1933-1938 

Chapter 45— The Czechoslovak Crisis, 1937-1938 



Chapter 46— The Year of Dupes, 1939 

Part Fourteen — World War II: the Tide of Aggression: 1939-1941 

Chapter 47 — Introduction 

Chapter 48— The Battle of Poland, September 1939 

Chapter 49— The Sitzkrieg, September 1, 1939-May 1940 

Chapter 50 — The Fall of France, (May- June 1940) and the Vichy Regime 

Chapter 51— The Battle of Britain, July-October 1940 

Chapter 52 — The Mediterranean and Eastern Europe, 1940) June 1940-June 1941 

Chapter 53 — American Neutrality and Aid to Britain 

Chapter 54— The Nazi Attack on Soviet Russia, 1941-1942 

Part Fifteen— World War II: the Ebb of Aggression: 1941-1945 

Chapter 55— The Rising in the Pacific, to 1942 

Chapter 56 — The Turning Tide, 1942-1943: Midway, El Alamein, French Africa, and 
Stalingrad 

Chapter 57 — Closing in on Germany, 1943-1945 

Chapter 58 — Closing in on Japan, 1943-1945 

Part Sixteen — The New Age 

Chapter 59 — Introduction 

Chapter 60 — Rationalization and Science 

Chapter 61 — The Twentieth-Century Pattern 

Part Seventeen — Nuclear Rivalry and the Cold War: American Atomic Supremacy: 
1945-1950 

Chapter 62 — The Factors 

Chapter 63— The Origins of the Cold War, 1945-1949 



Chapter 64— The Crisis in China, 1945-1950 

Chapter 65 — American Confusions, 1945-1950 

Part Eighteen — Nuclear Rivalry and the Cold War: the Race for H-Bomb: 1950-1957 

Chapter 66 — "Joe I" and the American Nuclear Debate, 1949-1954 

Chapter 67— The Korean War and Its Aftermath, 1950-1954 

Chapter 68 — The Eisenhower Team, 1952-1956 

Chapter 69— The Rise of Khrushchev, 1953-1958 

Chapter 70— The Cold War in Eastern and Southern Asia, 1950-1957 

Part Nineteen— The New Era: 1957-1964 

Chapter 71 — The Growth of Nuclear Stalemate 

Chapter 72 — The Disintegrating Super-blocs 

Chapter 73 — The Eclipse of Colonialism 

Part Twenty — Tragedy and Hope: the Future in Perspective 

Chapter 74 — The Unfolding of Time 

Chapter 75 — The United States and the Middle-Class Crisis 

Chapter 76 — European Ambiguities 

Chapter 77 — Conclusion 

Introduction 

By 

Michael L. Chadwick 

In 1965 one of the nation's leading professors quietly finished the last draft of a 1311 
page book on world history. He walked over to his typewriter and secured the last pages 
of the book and placed them into a small box and wrapped it for mailing. He then walked 
to the Post Office and mailed the final draft to his publisher in New York City. The editor 
was somewhat overwhelmed and perhaps even inhibited by the scholarly treatise. The 
last thing he wanted to do was to read the huge draft. He knew and trusted the professor. 



After all, he was one of the leading scholars in the western world. They had been 
acquaintances for several years. He had already signed an agreement to publish the book 
before it was finished. He had read several chapters of the early draft. They were boring, 
at least to him. He decided to give the book to a young editor who had just been 
promoted to his assistant. The young editor was also overwhelmed but happy to oblige 
the Senior Editor. The young editor was unaware of the importance of the manuscript and 
of the revelations which it contained. To the young editor this was just another textbook 
or so he thought. 

Somehow one of the most revealing books ever published slipped through the editorial 
of offices of one of the major publishing houses in New York and found it way into the 
bookstores of America in 1966. 

Five years later I was meandering through a used bookstore and stumbled upon this 
giant book. I picked up the book, blew the dust off and opened it to a page where the 
author stated that: 

"...[T]he 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 world as 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 frequent private meetings and conferences. The 
apex of the system was to be the Bank for International Settlements in Basle, 
Switzerland, a private bank owned and controlled by the world's central banks which 
were themselves private corporations.... 

"It must not be felt that these heads of the world's chief central banks were themselves 
substantive powers in world finance. They were not. Rather, they were the technicians 
and agents of the dominant investment bankers of their own countries, who had raised 
them 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 called 
'international' or 'merchant' bankers) who remained largely behind the scenes in their own 
unincorporated private banks. These formed a system of international cooperation and 
national dominance which was more private, more powerful, and more secret than that of 
their agents in the central banks, this dominance of investment bankers was based on 
their control over the flows of credit and investment funds in their own countries and 
throughout the world. They could dominate the financial and industrial systems of their 
own countries by their influence over the flow of current funds though bank loans, the 
discount rate, and the re-discounting of commercial debts; they could dominate 
governments by their own control over current government loans and the play of the 
international exchanges. Almost all of this power was exercised by the personal influence 
and prestige of men who had demonstrated their ability in the past to bring off successful 
financial coupes, to keep their word, to remain cool in a crisis, and to share their winning 
opportunities with their associates." 



I could hardly believe what I was reading. I sat in the bookstore and read until closing 
time. I then bought the book and went home where I read almost all night. For the next 
twenty-five years I traveled throughout the United States, Europe and the Middle East 
following one lead after another to determine if the incredible words of the professor 
were really true. While serving as the Editor of a scholarly journal on international 
affairs, Director of the Center for Global Studies and foreign policy advisor for a key U. 
S. Senator in Washington, D. C, I conducted over 1000 interviews with influential world 
leaders, government officials, military generals, intelligence officers, scholars and 
businessmen, including corporate CEOs and prominent international bankers and 
investment bankers. I went through over 25,000 books and over 50,000 documents. I 
learned for myself that the professor was telling the truth. 

There really is a "world system of financial control in private hands" that is "able to 
dominate the political system of each country and the economy of the world." I call this 
system the World Trade Federation. It is an ultra-secret group of the most powerful men 
on the earth. They now control every major international institution, every major 
multinational and transnational corporation both public and private, every major domestic 
and international banking institution, every central bank, every nation-state on earth, the 
natural resources on every continent and the people around the world through 
complicated inter-locking networks that resemble giant spider webs. This group is 
comprised of the leading family dynasties of the Canada, United States, Britain, 
Germany, France, Italy, Japan, Russia and China. This self-perpetuating group has 
developed an elaborate system of control that enables them to manipulate government 
leaders, consumers and people throughout the world. They are in the last stages of 
developing a World Empire that will rival the ancient Roman Empire. However, this new 
Empire will rule the entire world, not just a goodly portion of it as Rome did long ago, 
from its ultra-secret world headquarters in Germany. This group is responsible for the 
death and suffering of over 1 80 million men, women and children. They were responsible 
for World War I, World War II, the Korean War, and Vietnam, etc. They have created 
periods of inflation and deflation in order to confiscate and consolidate the wealth of the 
world. They were responsible for the enslavement of over two billion people in all 
communist nations — Russia, China, Eastern Europe, etc., inasmuch as they were directly 
responsible for the creation of communism in these nations. They built up and sustain 
these evil totalitarian systems for private gain. They brought Hitler, Mussolini, Stalin and 
Roosevelt to power and guided their governments from behind the scenes to achieve a 
state of plunder unparalleled in world history. They make Attila the Hun look like a 
kindergarten child compared to their accomplishments. Six million Jews were tortured 
and killed in order to confiscate billions of dollars in assets, gold, silver, currency, 
diamonds and art work from the Tribe of Judah-a special group of people. The people in 
Eastern Europe suffered a similar fate as the armies of Hitler overran these countries, 
murdered, enslaved, robbed and plundered the unique people who resided there. For the 
last two and one half centuries wealth and power have been concentrating in the hands of 
fewer and fewer men and women. This wealth is now being used to construct and 
maintain the World Empire that is in the last stages of development. The World Empire is 
partly visible and partly invisible today. 



The chief architects of this new World Empire are planning another war — World War 
III — to eliminate any vestiges of political, economic or religious freedom from the face of 
the earth. They will then completely control the earth, and its natural resources. The 
people will be completely enslaved just as the people were in the ancient Roman Empire. 
While the above may sound like fiction, I can assure you that it is true. I wish it was 
fiction, but it is not, it is reality. 

The above recitation is quite blunt, perhaps more blunt than the professor would have 
liked, but he knows and I know that what I have just written is true. However, most 
people do not want to know that such a Machiavellian group of men, spread strategically 
throughout the world, really exists. They prefer to believe that all is well and that we are 
traveling down the road to world peace, global interdependence and economic prosperity. 
This is not true. 

The above professor describes the network I have just described in elaborate detail — 
far too elaborate for most people. That is why I am truly surprised that it was ever 
published. The above fictional account of its publication may not be far from the truth. 
The contents of the above book will probably astound most people. Most people will 
undoubtedly not believe the professor. That will be a great mistake. Why? Because many 
of the tragedies of the future may be avoided with proper action. 

If all our efforts resulted in saving just one life, wouldn't it be worth it? What if we 
could save 100 lives? What if we could save 1000 lives? What about 10,000 lives? What 
about 1,000,000 lives? What if we could free the billions of inhabitants of Tibet, China, 
Russia and other communist nations and ensure the survival of the people of Taiwan and 
Israel? Would not all our efforts be worth it? I believe so. The tragedies occurring today 
in Russia, China, Asia, Eastern Europe, Africa, Western Europe or the Middle East could 
be avoided. 

The apathy and indifference of people in the Western World to the suffering, torture, 
misery, bondage and death of millions and millions of people around the world in the 
years ahead may be one of the greatest tragedies of the twenty first century. 

The message of the above volume is that the last century was a tragedy that could 
have been avoided. The author argues that wars and depressions are man-made. The hope 
is that we may avoid similar tragedies in the future. That will not happen unless we give 
diligent heed to the warnings of the professor. Unless we carefully study his book and 
learn the secret history of the twentieth century and avoid allowing these same people, 
their heirs and associates — the rulers of various financial, corporate and governmental 
systems around the world — from ruining the twenty first century, his work and the work 
of countless others will have been in vain. 

The above professor was named Carroll Quigley and the book he wrote was entitled, 
Tragedy and Hope: A History of the World in Our Time. It was published in 1966 and is 
clearly one of the most important books ever written. Professor Quigley was an 
extraordinarily gifted historian and geo-political analyst. The insights and information 



contained in his massive study open the door to a true understanding of world history in 
the nineteenth and twentieth centuries. In fact, if the scholar, student, businessman, 
businesswoman, government official and general reader has not thoroughly studied 
Tragedy and Hope there is no way they can understand the nineteenth and twentieth 
centuries. It is a work of exceptional scholarship and is truly a classic. The author should 
have received a Nobel Prize for his work. 

In 1961 Carroll Quigley published The Evolution of Civilizations. It was derived from 
a course he taught on world history at Georgetown University. One of Quigley' s closest 
friends was Harry J. Hogan. In the foreword to The Evolution of Civilizations he wrote: 

"The Evolution of Civilizations expresses two dimensions of its author, Carroll 
Quigley, that most extraordinary historian, philosopher, and teacher. In the first place, its 
scope is wide-ranging, covering the whole of man's activities throughout time. Second, it 
is analytic, not merely descriptive. It attempts a categorization of man's activities in 
sequential fashion so as to provide a causal explanation of the stages of civilization. 

"Quigley coupled enormous capacity for work with a peculiarly "scientific" approach. 
He believed that it should be possible to examine the data and draw conclusions. As a 
boy at the Boston Latin School, his academic interests were mathematics, physics, and 
chemistry. Yet during his senior year he was also associate editor of the Register, the 
oldest high school paper in the country. His articles were singled out for national awards 
by a national committee headed by George Gallup. 

"At Harvard, biochemistry was to be his major. But Harvard, expressing then a belief 
regarding a well-rounded education to which it has now returned, required a core 
curriculum including a course in the humanities. Quigley chose a history course, "Europe 
Since the Fall of Rome." Always a contrary man, he was graded at the top of his class in 
physics and calculus and drew a C in the history course. But the development of ideas 
began to assert its fascination for him, so he elected to major in history. He graduated 
magna cum laude as the top history student in his class. 

"Quigley was always impatient. He stood for his doctorate oral examination at the end 
of his second year of graduate studies. Charles Howard McHwain, chairman of the 
examining board, was very impressed by Quigley's answer to his opening question; the 
answer included a long quotation in Latin from Robert Grosseteste, bishop of Lincoln in 
the thirteenth century. Professor Mcllwain sent Quigley to Princeton University as a 
graduate student instructor. 

"In the spring of 1937 I was a student in my senior year at Princeton. Quigley was my 
preceptor in medieval history. He was Boston Irish; I was New York Irish. Both of us, 
Catholics adventuring in a strangely Protestant establishment world, were fascinated by 
the Western intellectual tradition anchored in Augustine, Abelard, and Aquinas that 
seemed to have so much more richness and depth than contemporary liberalism. We 
became very close in a treasured friendship that was terminated only by his death. 



"In the course of rereading The Evolution of Civilizations I was reminded of the 
intensity of our dialogue. In Quigley's view, which I shared, our age was one of 
irrationality. That spring we talked about what career decisions I should make. At his 
urging I applied to and was admitted by the Harvard Graduate School in History. But I 
had reservations about an academic career in the study of the history that I loved, on the 
ground that on Quigley's own analysis the social decisions of importance in our lifetime 
would be made in ad hoc irrational fashion in the street. On that reasoning, finally I 
transferred to law school. 

"In Princeton, Carroll Quigley met and married Lillian Fox. They spent their 
honeymoon in Paris and Italy on a fellowship to write his doctoral dissertation, a study of 
the public administration of the Kingdom of Italy, 1805-14. The development of the state 
in western Europe over the last thousand years always fascinated Quigley. He regarded 
the development of public administration in the Napoleonic states as a major step in the 
evolution of the modern state. It always frustrated him that each nation, including our 
own, regards its own history as unique and the history of other nations as irrelevant to it. 

"In 1938-41, Quigley served a stint at Harvard, tutoring graduate students in ancient 
and medieval history. It offered little opportunity for the development of cosmic views 
and he was less than completely content there. It was, however, a happy experience for 
me. I had entered Harvard Law School. We began the practice of having breakfast 
together at Carroll and Lillian's apartment. 

"In 1941 Quigley accepted a teaching appointment at Georgetown's School of Foreign 
Service. It was to engage his primary energies throughout the rest of his busy life. There 
he became an almost legendary teacher. He chose to teach a course, "The Development 
of Civilization," required of the incoming class, and that course ultimately provided the 
structure and substance for The Evolution of Civilizations. As a course in his hands, it 
was a vital intellectual experience for young students, a mind-opening adventure. Foreign 
Service School graduates, meeting years later in careers around the world, would 
establish rapport with each other by describing their experience in his class. It was an 
intellectual initiation with remembered impact that could be shared by people who had 
graduated years apart. 

"The fortunes of life brought us together again. During World War n, I served as a 
very junior officer on Admiral King's staff in Washington. Carroll and I saw each other 
frequently. Twenty years later, after practicing law in Oregon, I came into the 
government with President Kennedy. Our eldest daughter became a student under Carroll 
at Georgetown University. We bought a house close by Carroll and Lillian. I had Sunday 
breakfast with them for years and renewed our discussions of the affairs of a 
disintegrating world. 

"Superb teacher Quigley was, and could justify a lifetime of prodigious work on that 
success alone. But ultimately he was more. To me he was a figure — he would scoff at 
this — like Augustine, Abelard, and Aquinas, searching for the truth through examination 



of ultimate reality as it was revealed in history. Long ago, he left the church in the formal 
sense. Spiritually and intellectually he never left it. He never swerved from his search for 
the meaning of life. He never placed any goal in higher priority. If the God of the 
Western civilization that Quigley spent so many years studying does exist in the terms 
that he saw ascribed to him by our civilization, that God will now have welcomed 
Quigley as one who has pleased him." (Carroll Quigley, The Evolution of Civilizations. 
New York: Macmillan, 1961, pp. 13-16.) 

Carroll Quigley was a professor of history at the Foreign Service School of 
Georgetown University. He taught at Princeton and at Harvard. He had done extensive 
research in the archives of France, Italy, and England. He was a member of the editorial 
board of Current History. He was a member of the American Association for the 
Advancement of Science, American Anthropological Association and the American 
Economic Association. For many years he lectured on Russian history at the Industrial 
College of the Armed Forces and on Africa at the Brookings Institution. He was also a 
frequent lecturer at the U.S. Naval Weapons Laboratory, the Foreign Service Institute at 
the U. S. State Department, and the Naval College at Norfolk, Virginia. In 1958 he served 
as a consultant to the Congressional Select Committee which set up the National Space 
Agency. He was a historical advisor to the Smithsonian Institution and was involved with 
the establishment of the new Museum of History and Technology. In the summer of 1964 
he was a consultant at the Navy Post-Graduate School, Monterey, California on Project 
Seabed. The project was created to visualize the status of future American weapons 
systems. 

Tragedy and Hope will enlighten the mind of every sincere seeker of truth and will 
unveil the secret powers that have been carefully manipulating the Western Hemisphere, 
America, Europe, Asia, Russia, China and the Middle East for over 250 years. 

In 1996 I published a 24 volume study entitled Global Governance in the Twenty First 
Century. The multi-volume work was the result of my extensive travels and research 
throughout the United States, Europe and Middle East. It fully collaborates the assertions 
and statements made by professor Carroll Quigley in Tragedy and Hope. It is my sincere 
hope the reader will take the time to carefully peruse and ponder the words of this rather 
remarkable book. And afterwards, I hope the reader will have a desire to thoroughly read 
and ponder the contents of Global Governance in the Twenty First Century. 

Preface 

The expression "contemporary history" is probably self-contradictory, because what is 
contemporary is not history, and what is history is not contemporary. Sensible historians 
usually refrain from writing accounts of very recent events because they realize that the 
source materials for such events, especially the indispensable official documents, are not 
available and that, even with the documentation which is available, it is very difficult for 
anyone to obtain the necessary perspective on the events of one's own mature life. But I 
must clearly not be a sensible or, at least, an ordinary historian, for, having covered, in an 
earlier book, the whole of human history in a mere 271 pages, I now use more than 1300 



pages for the events of a single lifetime. There is a connection here. It will be evident to 
any attentive reader that I have devoted long years of study and much original research, 
even where adequate documentation is not available, but it should be equally evident that 
whatever value this present work has rests on its broad perspective. I have tried to remedy 
deficiencies of evidence by perspective, not only by projecting the patterns of past history 
into the present and the future but also by trying to place the events of the present in their 
total context by examining all the varied aspects of these events, not merely the political 
and economic, as is so frequently done, but by my efforts to bring into the picture the 
military, technological, social, and intellectual elements as well. 

The result of all this, I hope, is an interpretation of the present as well as the 
immediate past and the near future, which is free from the accepted cliches, slogans, and 
self-justifications which mar so much of "contemporary history." Much of my adult life 
has been devoted to training undergraduates in techniques of historical analysis which 
will help them to free their understanding of history from the accepted categories and 
cognitive classifications of the society in which we live, since these, however necessary 
they may be for our processes of thought and for the concepts and symbols needed for us 
to communicate about reality, nevertheless do often serve as barriers which shield us 
from recognition of the underlying realities themselves. The present work is the result of 
such an attempt to look at the real situations which lie beneath the conceptual and verbal 
symbols. I feel that it does provide, as a consequence of this effort, a fresher, somewhat 
different, and (I hope) more satisfying explanation of how we arrived at the situation in 
which we now find ourselves. 

More than twenty years have gone into the writing of this work. Although most of it is 
based on the usual accounts of these events, some portions are based on fairly intensive 
personal research (including research among manuscript materials). These portions 
include the following: the nature and techniques of financial capitalism, the economic 
structure of France under the Third Republic, the social history of the United States, and 
the membership and activities of the English Establishment. On other subjects, my 
reading has been as wide as I could make it, and I have tried consistently to view all 
subjects from as wide and as varied points of view as I am capable. Although I regard 
myself, for purposes of classification, as a historian, I did a great deal of study in political 
science at Harvard, have persisted in the private study of modern psychological theory for 
more than thirty years, and have been a member of the American Anthropological 
Association, the American Economic Association, and the American Association for the 
Advancement of Science, as well as the American Historical Association for many years. 

Thus my chief justification for writing a lengthy work on contemporary history, 
despite the necessarily restricted nature of the documentation, must be based on my 
efforts to remedy this inevitable deficiency by using historical perspective to permit me 
to project the tendencies of the past into the present and even the future and my efforts to 
give this attempt a more solid basis by using all the evidence from a wide variety of 
academic disciplines. 



As a consequence of these efforts to use this broad, and perhaps complex, method, this 
book is almost inexcusably lengthy. For this I must apologize, with the excuse that I did 
not have time to make it shorter and that an admittedly tentative and interpretative work 
must necessarily be longer than a more definite or more dogmatic presentation. To those 
who find the length excessive, I can only say that I omitted chapters, which were already 
written, on three topics: the agricultural history of Europe, the domestic history of France 
and Italy, and the intellectual history of the twentieth century in general. To do this I 
introduced enough on these subjects into other chapters. 

Although I project the interpretation into the near future on a number of occasions, the 
historical narrative ceases in 1964, not because the date of writing caught up with the 
march of historical events but because the period 1862-1864 seems to me to mark the end 
of an era of historical development and a period of pause before a quite different era with 
quite different problems begins. This change is evident in a number of obvious events, 
such as the fact that the leaders of all the major countries (except Red China and France) 
and of many lesser ones (such as Canada, India, West Germany, the Vatican, Brazil, and 
Israel) were changed in this period. Much more important is the fact that the Cold War, 
which culminated in the Cuban crisis of October 1962, began to dwindle toward its end 
during the next two years, a process which w as evident in a number of events, such as 
the rapid replacement of the Cold War by "Competitive Coexistence"; the disintegration 
of the two super-blocs which had faced each other during the Cold War; the rise of 
neutralism, both within the super-blocs and in the buffer fringe of third-bloc powers 
between them; the swamping of the United Nations General Assembly under a flood of 
newly independent, sometimes microscopic, pseudo-powers; the growing parallelism of 
the Soviet Union and the United States; and the growing emphasis in all parts of the 
world on problems of living standards, of social maladjustments, and of mental health, 
replacing the previous emphasis on armaments, nuclear tensions, and heavy 
industrialization. At such a period, when one era seems to be ending and a different, if yet 
indistinct era appearing, it seemed to me as good a time as any to evaluate the past and to 
seek some explanation of how we arrived where we are. 

In any preface such as this, it is customary to conclude with acknowledgment of 
personal obligations. My sense of these is so broad that I find it invidious to single out 
some and to omit others. But four must be mentioned. Much of this book was typed, in 
her usual faultless way, by my wife. This was done originally and in revised versions, in 
spite of the constant distractions of her domestic obligations, of her own professional 
career in a different university, and of her own writing and publication. For her cheerful 
assumption of this great burden, I am very grateful. 

Similarly, I am grateful to the patience, enthusiasm, and amazingly wide knowledge of 
my editor at The Macmillan Company, Peter V. Ritner. 

I wish to express my gratitude to the University Grants Committee of Georgetown 
University, which twice provided funds for summer research. 



And, finally, I must say a word of thanks to my students over many years who forced 
me to keep up with the rapidly changing customs and outlook of our young people and 
sometimes also compelled me to recognize that my way of looking at the world is not 
necessarily the only way, or even the best way, to look at it. Many of these students, past, 
present, and future, are included in the dedication of this book. 

Carroll Quigley 

Washington, D. C. 

March 8, 1965 

Part One — Introduction: Western Civilization In Its World Setting 

Chapter 1 — Cultural Evolution in Civilizations 

There have always been men who have asked, "Where are we going?" But never, it 
would seem, have there been so many of them. And surely never before have these 
myriads of questioners asked their question in such dolorous tones or rephrased their 
question in such despairing words: "Can man survive?" Even on a less cosmic basis, 
questioners appear on all sides, seeking "meaning" or "identity," or even, on the most 
narrowly egocentric basis, "trying to find myself." 

One of these persistent questions is typical of the twentieth century rather than of 
earlier times: Can our way of life survive? Is our civilization doomed to vanish, as did 
that of the Incas, the Sumerians, and the Romans? From Giovanni Battista Vico in the 
early eighteenth century to Oswald Spengler in the early twentieth century and Arnold J. 
Toynbee in our own day, men have been puzzling over the problem whether civilizations 
have a life cycle and follow a similar pattern of change. From this discussion has 
emerged a fairly general agreement that men live in separately organized societies, each 
with its own distinct culture; that some of these societies, having writing and city life, 
exist on a higher level of culture than the rest, and should be called by the different term 
"civilizations"; and that these civilizations tend to pass through a common pattern of 
experience. 

From these studies it would seem that civilizations pass through a process of evolution 
which can be analyzed briefly as follows: each civilization is born in some inexplicable 
fashion and, after a slow start, enters a period of vigorous expansion, increasing its size 
and power, both internally and at the expense of its neighbors, until gradually a crisis of 
organization appears. When this crisis has passed and the civilization has been 
reorganized, it seems somewhat different. Its vigor and morale have weakened. It 
becomes stabilized and eventually stagnant. After a Golden Age of peace and prosperity, 
internal crises again arise. At this point there appears, for the first time, a moral and 
physical weakness which raises, also for the first time, questions about the civilization's 
ability to defend itself against external enemies. Racked by internal struggles of a social 
and constitutional character, weakened by loss of faith in its older ideologies and by the 



challenge of newer ideas incompatible with its past nature, the civilization grows steadily 
weaker until it is submerged by outside enemies, and eventually disappears. 

When we come to apply this process, even in this rather vague form, to our own 
civilization, Western Civilization, we can see that certain modifications are needed. Like 
other civilizations, our civilization began with a period of mixture of cultural elements 
from other societies, formed these elements into a culture distinctly its own, began to 
expand with growing rapidity as others had done, and passed from this period of 
expansion into a period of crisis. But at that point the pattern changed. 

In more than a dozen other civilizations the Age of Expansion was followed by an 
Age of Crisis, and this, in turn, by a period of Universal Empire in which a single 
political unit ruled the whole extent of the civilization. Western Civilization, on the 
contrary, did not pass from the Age of Crisis to the Age of Universal Empire, but instead 
was able to reform itself and entered upon a new period of expansion. Moreover, Western 
Civilization did this not once, but several times. It was this ability to reform or reorganize 
itself again and again which made Western Civilization the dominant factor in the world 
at the beginning of the twentieth century. 

As we look at the three ages forming the central portion of the life cycle of a 
civilization, we can see a common pattern. The Age of Expansion is generally marked by 
four kinds of expansion: (1) of population, (2) of geographic area, (3) of production, and 
(4) of knowledge. The expansion of production and the expansion of knowledge give rise 
to the expansion of population, and the three of these together give rise to the expansion 
of geographic extent. This geographic expansion is of some importance because it gives 
the civilization a kind of nuclear structure made up of an older core area (which had 
existed as part of the civilization even before the period of expansion) and a newer 
peripheral area (which became part of the civilization only in the period of expansion and 
later). If we wish, we can make, as an additional refinement, a third, semi-peripheral area 
between the core area and the fully peripheral area. 

These various areas are readily discernible in various civilizations of the past, and 
have played a vital role in historic change in these civilizations. In Mesopotamian 
Civilization (6000 B.C. -300 B.C.) the core area was the lower valley of Mesopotamia; 
the semi-peripheral area was the middle and upper valley, while the peripheral area 
included the highlands surrounding this valley, and more remote areas like Iran, Syria, 
and even Anatolia. The core area of Cretan Civilization (3500 B.C.-l 100 B.C.) was the 
island of Crete, while the peripheral area included the Aegean islands and the Balkan 
coasts. In Classical Civilization the core area was the shores of the Aegean Sea; the semi- 
peripheral area was the rest of the northern portion of the eastern Mediterranean Sea, 
while the peripheral area covered the rest of the Mediterranean shores and ultimately 
Spain, North Africa, and Gaul. In Canaanite Civilization (2200 B.C. -100 B.C.) the core 
area was the Levant, while the peripheral area was in the western Mediterranean at Tunis, 
western Sicily, and eastern Spain. The core area of Western Civilization (A.D. 400 to 
some time in the future) has been the northern half of Italy, France, the extreme western 
part of Germany, and England; the semi-peripheral area has been central, eastern, and 



southern Europe and the Iberian peninsula, while the peripheral areas have included 
North and South America, Australia, New Zealand, South Africa, and some other areas. 

This distinction of at least two geographic areas in each civilization is of major 
importance. The process of expansion, which begins in the core area, also begins to slow 
up in the core at a time when the peripheral area is still expanding. In consequence, by 
the latter part of the Age of Expansion, the peripheral areas of a civilization tend to 
become wealthier and more powerful than the core area. Another way of saying this is 
that the core passes from the Age of Expansion to the Age of Conflict before the 
periphery does. Eventually, in most civilizations the rate of expansion begins to decline 
everywhere. 

It is this decline in the rate of expansion of a civilization which marks its passage from 
the Age of Expansion to the Age of Conflict. This latter is the most complex, most 
interesting, and most critical of all the periods of the life cycle of a civilization. It is 
marked by four chief characteristics: (a) it is a period of declining rate of expansion; (b) it 
is a period of growing tensions and class conflicts; (c) it is a period of increasingly 
frequent and increasingly violent imperialist wars; and (d) it is a period of growing 
irrationality, pessimism, superstitions, and otherworldliness. All these phenomena appear 
in the core area of a civilization before they appear in more peripheral portions of the 
society. 

The decreasing rate of expansion of the Age of Conflict gives rise to the other 
characteristics of the age, in part at least. After the long years of the Age of Expansion, 
people's minds and their social organizations are adjusted to expansion, and it is a very 
difficult thing to readjust these to a decreasing rate of expansion. Social classes and 
political units within the civilization try to compensate for the slowing of expansion 
through normal growth by the use of violence against other social classes or against other 
political units. From this come class struggles and imperialist wars. The outcomes of 
these struggles within the civilization are not of vital significance for the future of the 
civilization itself. What would be of such significance would be the reorganization of the 
structure of the civilization so that the process of normal growth would be resumed. 
Because such a reorganization requires the removal of the causes of the civilization's 
decline, the triumph of one social class over another or of one political unit over another, 
within the civilization, will not usually have any major influence on the causes of the 
decline, and will not (except by accident) result in such a reorganization of structure as 
will give rise to a new period of expansion. Indeed, the class struggles and imperialist 
wars of the Age of Conflict will probably serve to increase the speed of the civilization's 
decline because they dissipate capital and divert wealth and energies from productive to 
nonproductive activities. 

In most civilizations the long-drawn agony of the Age of Conflict finally ends in a 
new period, the Age of the Universal Empire. As a result of the imperialist wars of the 
Age of Conflict, the number of political units in the civilization are reduced by conquest. 
Eventually one emerges triumphant. When this occurs we have one political unit for the 
whole civilization. Just at the core area passes from the Age of Expansion to the Age of 



Conflict earlier than the peripheral areas, sometimes the core area is conquered by a 
single state before the whole civilization is conquered by the Universal Empire. When 
this occurs the core empire is generally a semi-peripheral state, while the Universal 
Empire is generally a peripheral state. Thus, Mesopotamia's core was conquered by semi- 
peripheral Babylonia about 1700 B.C., while the whole of Mesopotamian civilization was 
conquered by more peripheral Assyria about 7 2 5 H.C. (replaced by fully peripheral 
Persia about 525 B.C.). In Classical Civilization the core area was conquered by semi- 
peripheral Macedonia about 336 B.C., while the whole civilization was conquered by 
peripheral Rome about 146 B.C. In other civilizations the Universal Empire has 
consistently been a peripheral state even when there was no earlier conquest of the core 
area by a semi-peripheral state. In Mayan Civilization (1000 B.C.-A.D. 1550) the core 
area was apparently in Yucatan and Guatemala, but the Universal Empire of the Aztecs 
centered in the peripheral highlands of central Mexico. In Andean Civilization (1500 
B.C.-A.D. 1600) the core areas were on the lower slopes and valleys of the central and 
northern Andes, but the Universal Empire of the Incas centered in the highest Andes, a 
peripheral area. The Canaanite Civilization (2200 B.C. -146 B.C.) had its core area in the 
Levant, but its Universal Empire, the Punic Empire, centered at Carthage in the western 
Mediterranean. If we turn to the Far East we see no less than three civilizations. Of these 
the earliest, Sinic Civilization, rose in the valley of the Yellow River after 2000 B.C., 
culminated in the Chin and Han empires after 200 B.C., and was largely destroyed by 
Ural-Altaic invaders after A.D. 400. From this Sinic Civilization, in the same way in 
which Classical Civilization emerged from Cretan Civilization or Western Civilization 
emerged from Classical Civilization, there emerged two other civilizations: (a) Chinese 
Civilization, which began about A.D. 400, culminated in the Manchu Empire after 1644, 
and was disrupted by European invaders in the period 1790-1930, and (b) Japanese 
Civilization, which began about the time of Christ, culminated in the Tokugawa Empire 
after 1600, and may have been completely disrupted by invaders from Western 
Civilization in the century following 1853. 

In India, as in China, two civilizations have followed one another. Although we know 
relatively little about the earlier of the two, the later (as in China) culminated in a 
Universal Empire ruled by an alien and peripheral people. Indie Civilization, which 
began about 3500 B.C., was destroyed by Aryan invaders about 1700 B.C. Hindu 
Civilization, which emerged from Indie Civilization about 1700 B.C., culminated in the 
Mogul Empire and was destroyed by invaders from Western Civilization in the period 
1500-1900. 

Turning to the extremely complicated area of the Near East, we can see a similar 
pattern. Islamic Civilization, which began about A.D. 500, culminated in the Ottoman 
Empire in the period 1300-1600 and has been in the process of being destroyed by 
invaders from Western Civilization since about 1750. 

Expressed in this way, these patterns in the life cycles of various civilizations may 
seem confused. But if we tabulate them, the pattern emerges with some simplicity. 



From this table a most extraordinary fact emerges. Of approximately twenty 
civilizations which have existed in all of human history, we have listed sixteen. Of these 
sixteen, twelve, possibly fourteen, are already dead or dying, their cultures destroyed by 
outsiders able to come in with sufficient power to disrupt the civilization, destroy its 
established modes of thought and action, and eventually wipe it out. Of these twelve dead 
or dying cultures, six have been destroyed by Europeans bearing the culture of Western 
Civilization. When we consider the untold numbers of other societies, simpler than 
civilizations, which Western Civilization has destroyed or is now destroying, societies 
such as the Hottentots, the Iroquois, the Tasmanians, the Navahos, the Caribs, and 
countless others, the full frightening power of Western Civilization becomes obvious. 

Universal Final Their 

Civilization Its Dates Empire Invasion Dates 

Mesopotamian 6000 B.C.- Assyrian/ Greeks 335 B.C.- 

300 B.C. Persian— 300 B.C. 

725-333 B.C. 
Egyptian 5500 B. C- Egyptian Greeks 334 B. C- 

300 B.C. 300 B.C. 

Cretan 3500 B. C- Minoan- Dorian 1200 B. C- 

1150 B.C. Mycenaean Greeks 1000 B. C. 

Indie 3500 B.C.- Harappa? Aryans 1800 B. C- 

1700 B.C. 1600 B.C. 

Canaanite 2200 B. C. - Punic Romans 264 B. C. - 

100 B.C. 146 B.C. 

Sink 2000 B.C.- Chin/ Ural-Altaic A. D. 200 

A. D. 400 Han 500 

Hittite 1800- Hittite Indo- 1200 B. C. - 

1150 European A. D. 1000 

Classical 1150 B. C. - Roman Germanic A. D. 350 - 



A. D. 500 



600 



Andean 1500 B.C.- Inca Europeans 1534 

A. D. 1600 
Mayan 1000 B.C.- Aztec Europeans 1519 

A. D. 1550 
Hindu 1800 B.C.- Mogul Europeans 1500 

A. D. 1900 1900 

Chinese 400 - Manchu Europeans 1790 - 

1930 1930 

Japanese 850 B. C. - ? Tokugawa Europeans 1853 

Islamic 500 B.C.-? Ottoman Europeans 1750 

Western 350 - ? United States? Future? ? 



Orthodox 



350 -? 



Soviet 



Future? ? 



One cause, although by no means the chief cause, of the ability of Western 
Civilization to destroy other cultures rests on the fact that it has been expanding for a 
long time. This fact, in turn, rests on another condition to which we have already alluded, 
the fact that Western Civilization has passed through three periods of expansion, has 
entered into an Age of Conflict three times, each time has had its core area conquered 
almost completely by a single political unit, but has failed to go on to the Age of the 
Universal Empire because from the confusion of the Age of Conflict there emerged each 
time a new organization of society capable of expanding by its own organizational 
powers, with the result that the four phenomena characteristic of the Age of Conflict 
(decreasing rate of expansion, class conflicts, imperialist wars, irrationality) were 
gradually replaced once again by the four kinds of expansion typical of an Age of 
Expansion (demographic, geographic, production, knowledge). From a narrowly 
technical point of view, this shift from an Age of Conflict to an Age of Expansion is 
marked by a resumption of the investment of capital and the accumulation of capital on a 
large scale, just as the earlier shift from the Age of Expansion to the Age of Conflict was 
marked by a decreasing rate of investment and eventually by a decreasing rate of 
accumulation of capital. 



Western Civilization began, as all civilizations do, in a period of cultural mixture. In 
this particular case it was a mixture resulting from the barbarian invasions which 
destroyed Classical Civilization in the period 350-700. By creating a new culture from 
the various elements offered from the barbarian tribes, the Roman world, the Saracen 
world, and above all the Jewish world (Christianity), Western Civilization became a new 
society. 

This society became a civilization when it became organized, in the period 700-970, 
so that there was accumulation of capital and the beginnings of the investment of this 
capital in new methods of production. These new methods are associated with a change 
from infantry forces to mounted warriors in defense, from manpower (and thus slavery) 
to animal power in energy use, from the scratch plow and two-field, fallow agricultural 
technology of Mediterranean Europe to the eight-oxen, gang plow and three-field system 
of the Germanic peoples, and from the centralized, state-centered political orientation of 
the Roman world to the decentralized, private-power feudal network of the medieval 
world. In the new system a small number of men, equipped and trained to fight, received 
dues and services from the overwhelming majority of men who were expected to till the 
soil. From this inequitable but effective defensive system emerged an inequitable 
distribution of political power and, in turn, an inequitable distribution of the social 
economic income. This, in time, resulted in an accumulation of capital, which, by giving 
rise to demand for luxury goods of remote origin, began to shift the whole economic 
emphasis of the society from its earlier organization in self-sufficient agrarian units 
(manors) to commercial interchange, economic specialization, and, by the thirteenth 
century, to an entirely new pattern of society with towns, a bourgeois class, spreading 
literacy, growing freedom of alternative social choices, and new, often disturbing, 
thoughts. 

From all this came the first period of expansion of Western Civilization, covering the 
years 970-1270. At the end of this period, the organization of society was becoming a 
petrified collection of vested interests, investment was decreasing, and the rate of 
expansion was beginning to fall. Accordingly, Western Civilization, for the first time, 
entered upon the Age of Conflict. This period, the time of the Hundred Years' War, the 
Black Death, the great heresies, and severe class conflicts, lasted from about 1270 to 
1420. By the end of it, efforts were arising from England and Burgundy to conquer the 
eve of Western Civilization. But, just at that moment, a new Age of Expansion, using a 
new organization of society which circumvented the old vested interests of the feudal- 
manorial system, began. 

This new Age of Expansion, frequently called the period of commercial capitalism, 
lasted from about 1440 to about 1680. The real impetus to economic expansion during 
the period came from efforts to obtain profits by the interchange of goods, especially 
semi-luxury or luxury goods, over long distances. In time, this system of commercial 
capitalism became petrified into a structure of vested interests in which profits were 
sought by imposing restrictions on the production or interchange of goods rather than by 
encouraging these activities. This new vested-interest structure, usually called 
mercantilism, became such a burden on economic activities that the rate of expansion of 



economic life declined and even gave rise to a period of economic decline in the decades 
immediately following 1690. The class straggles and imperialist wars engendered by this 
Age of Conflict are sometimes called the Second Hundred Years' War. The wars 
continued until 1815, and the class struggles even later. As a result of the former, France 
by 1810 had conquered most of the eve of Western Civilization. But here, just as had 
occurred in 1420 when England had also conquered part of the core of the civilization 
toward the latter portion of an Age of Conflict, the victory was made meaningless 
because a new period of expansion began. Just as commercial capitalism had 
circumvented the petrified institution of the feudal-manorial system (chivalry) after 1440, 
so industrial capitalism circumvented the petrified institution of commercial capitalism 
(mercantilism) after 1820. 

The new Age of Expansion which made Napoleon's military-political victory of 1810 
impossible to maintain had begun in England long before. It appeared as the Agricultural 
Revolution about 1725 and as the Industrial Revolution about 1775, but it did not get 
started as a great burst of expansion until after 1820. Once started, it moved forward with 
an impetus such as the world had never seen before, and it looked as if Western 
Civilization might cover the whole globe. The dates of this third Age of Expansion might 
be fixed at 1770-1929, following upon the second Age of Conflict of 1690-1815. The 
social organization which was at the center of this new development might be called 
"industrial capitalism." In the course of the last decade of the nineteenth century, it began 
to become a structure of vested interests to which we might give the name "monopoly 
capitalism." As early, perhaps, as 1890, certain aspects of a new Age of Conflict, the 
third in Western Civilization, began to appear, especially in the core area, with a revival 
of imperialism, of class struggle, of violent warfare, and of irrationalities. 

By 1930 it was clear that Western Civilization was again in an Age of Conflict; by 
1942 a semi-peripheral state, Germany, had conquered much of the core of the 
civilization. That effort was defeated by calling into the fray a peripheral state (the United 
States) and another, outside civilization (the Soviet society). It is not yet clear whether 
Western Civilization will continue along the path marked by so many earlier 
civilizations, or whether it will be able to reorganize itself sufficiently to enter upon a 
new, fourth, Age of Expansion. If the former occurs, this Age of Conflict will 
undoubtedly continue with the fourfold characteristics of class struggle, war, irrationality, 
and declining progress. In this case, we shall undoubtedly get a Universal Empire in 
which the United States will rule most of Western Civilization. This will be followed, as 
in other civilizations, by a period of decay and ultimately, as the civilization grows 
weaker, by invasions and the total destruction of Western culture. On the other hand, if 
Western Civilization is able to reorganize itself and enters upon a fourth Age of 
Expansion, the ability of Western Civilization to survive and go on to increasing 
prosperity and power will be bright. Leaving aside this hypothetical future, it would 
appear thus that Western Civilization, in approximately fifteen hundred years, has passed 
through eight periods, thus: 

1. Mixture 350-700 



2. Gestation, 700-970 

3A. First Expansion, 970-1270 

4A. First Conflict, 1270-1 440 

Core Empire: England, 1420 
3B. Second Expansion, 1440-1690 
4B. Second Conflict, 1690-1815 

Core Empire: France, 1810 
3C. Third Expansion, 1770-1929 
4C. Third Conflict, 1893- 

Core Empire: Germany, 1942 
The two possibilities which lie in the future can be listed as follows: 
Reorganization Continuation of the Process 

3D. Fourth Expansion, 1944- 5. Universal Empire (the United States) 

6. Decay 

7. Invasion (end of the civilization) 

From the list of civilizations previously given, it becomes somewhat easier to see how 
Western Civilization was able to destroy (or is still destroying) the cultures of six other 
civilizations. In each of these six cases the victim civilization had already passed the 
period of Universal Empire and was deep in the Age of Decay. In such a situation 
Western Civilization played a role as invader similar to that played by the Germanic 
tribes in Classical Civilization, by the Dorians in Cretan Civilization, by the Greeks in 
Mesopotamian or Egyptian Civilization, by the Romans in Canaanite Civilization, or by 
the Ayrans in Indie Civilization. The Westerners who burst in upon the Aztecs in 1519, 
on the Incas in 1534, on the Mogul Empire in the eighteenth century, on the Manchu 
Empire after 1790, on the Ottoman Empire after 1774, and on the Tokugawa Empire after 
1853 were performing the same role as the Visigoths and the other barbarian tribes to the 
Roman Empire after 377. In each case, the results of the collision of two civilizations, 
one in the Age of Expansion and the other in the Age of Decay, was a foregone 
conclusion. Expansion would destroy Decay. 



In the course of its various expansions Western Civilization has collided with only one 
civilization which was not already in the stage of decay. This exception was its half- 
brother, so to speak, the civilization now represented by the Soviet Empire. It is not clear 
what stage this "Orthodox" Civilization is in, but it clearly is not in its stage of decay. It 
would appear that Orthodox Civilization began as a period of mixture (500-1300) and is 
now in its second period of expansion. The first period of expansion, covering 1500- 
1900, had just begun to change into an Age of Conflict (1900-1920) when the vested 
interests of the society were wiped away by the defeat at the hands of Germany in 1917 
and replaced by a new organization of society which gave rise to a second Age of 
Expansion (since 1921). During much of the last four hundred years culminating in the 
twentieth century, the fringes of Asia have been occupied by a semicircle of old dying 
civilizations (Islamic, Hindu, Chinese, Japanese). These have been under pressure from 
Western Civilization coming in from the oceans and from Orthodox Civilization pushing 
outward from the heart of the Eurasian land mass. The Oceanic pressure began with 
Vasco da Gama in India in 1498, culminated aboard the battleship Missouri in Tokyo 
Bay in 1945, and still continued with the Anglo-French attack on Suez in 1956. The 
Russian pressure from the continental heartland was applied to the inner frontiers of 
China, Iran, and Turkey from the seventeenth century to the present. Much of the world's 
history in the twentieth century has arisen from the interactions of these three factors (the 
continental heartland of Russian power, the shattered cultures of the Buffer Fringe of 
Asia, and the oceanic powers of Western Civilization). 

Chapter 2 — Cultural Diffusion in Western Civilization 

We have said that the culture of a civilization is created in its core area originally and 
moves outward into peripheral areas which thus become part of the civilization. This 
movement of cultural elements is called "diffusion" by students of the subject. It is 
noteworthy that material elements of a culture, such as tools, weapons, vehicles, and 
such, diffuse more readily and thus more rapidly than do the nonmaterial elements such 
as ideas, art forms, religious outlook, or patterns of social behavior. For this reason the 
peripheral portions of a civilization (such as Assyria in Mesopotamian Civilization, Rome 
or Spain in Classical Civilization, and the United States or Australia in Western 
Civilization) tend to have a somewhat cruder and more material culture than the core area 
of the same civilization. 

Material elements of a culture also diffuse beyond the boundaries of a civilization into 
other societies, and do so much more readily than the nonmaterial elements of the culture. 
For this reason the nonmaterial and spiritual elements of a culture are what give it its 
distinctive character rather than its tools and weapons which can be so easily exported to 
entirely different societies. Thus, the distinctive character of Western Civilization rests on 
its Christian heritage, its scientific outlook, its humanitarian elements, and its distinctive 
point of view in regard to the rights of the individual and respect for women rather than 
in such material things as firearms, tractors, plumbing fixtures, or skyscrapers, all of 
which are exportable commodities. 



The export of material elements in a culture, across its peripheral areas and beyond, to 
the peoples of totally different societies has strange results. As elements of material 
culture move from core to periphery inside a civilization, they tend, in the long run, to 
strengthen the periphery at the expense of the core because the core is more hampered in 
the use of material innovations by the strength of past vested interests and because the 
core devotes a much greater part of its wealth and energy to nonmaterial culture. Thus, 
such aspects of the Industrial Revolution as automobiles and radios are European rather 
than American inventions, but have been developed and utilized to a far greater extent in 
America because this area was not hampered in their use by surviving elements of 
feudalism, of church domination, of rigid class distinctions (for example, in education), 
or by widespread attention to music, poetry, art, or religion such as we find in Europe. A 
similar contrast can be seen in Classical Civilization between Greek and Roman or in 
Mesopotamian Civilization between Sumerian and Assyrian or in Mayan Civilization 
between Mayan and Aztec. 

The diffusion of culture elements beyond the boundaries of one society into the 
culture of another society presents quite a different case. The boundaries between 
societies present relatively little hindrance to the diffusion of material elements, and 
relatively greater hindrance to the diffusion of nonmaterial elements. Indeed, it is this fact 
which determines the boundary of the society, for, if the nonmaterial elements also 
diffused, the new area into which they flowed would be a peripheral portion of the old 
society rather than a part of a quite different society. 

The diffusion of material elements from one society to another has a complex effect 
on the importing society. In the short run it is usually benefitted by the importation, but in 
the long run it is frequently disorganized and weakened. When white men first came to 
North America, material elements from Western Civilization spread rapidly among the 
different Indian tribes. The Plains Indians, for example, were weak and impoverished 
before 1543, but in that year the horse began to diffuse northward from the Spaniards in 
Mexico. Within a century the Plains Indians were raised to a much higher standard of 
living (because of ability to hunt buffalo from horseback) and were immensely 
strengthened in their ability to resist Americans coming westward across the continent. In 
the meantime, the trans-Appalachian Indians who had been very powerful in the sixteenth 
and early seventeenth centuries began to receive firearms, steel traps, measles, and 
eventually whiskey from the French and later the English by way of the St. Lawrence. 
These greatly weakened the woods Indians of the trans-Appalachian area and ultimately 
weakened the Plains Indians of the trans-Mississippi area, because measles and whiskey 
were devastating and demoralizing and because the use of traps and guns by certain tribes 
made them dependent on whites for supplies at the same time that they allowed them to 
put great physical pressure on the more remote tribes which had not yet received guns or 
traps. Any united front of reds against whites was impossible, and the Indians were 
disrupted, demoralized, and destroyed. In general, importation of an element of material 
culture from one society to another is helpful to the importing society in the long run only 
if it is (a) productive, (b) can be made within the society itself, and (c) can be fitted into 
the nonmaterial culture of the importing society without demoralizing it. The destructive 
impact of Western Civilization upon so many other societies rests on its ability to 



demoralize their ideological and spiritual culture as much as its ability to destroy them in 
a material sense with firearms. 

When one society is destroyed by the impact of another society, the people are left in a 
debris of cultural elements derived from their own shattered culture as well as from the 
invading culture. These elements generally provide the instruments for fulfilling the 
material needs of these people, but they cannot be organized into a functioning society 
because of the lack of an ideology and spiritual cohesive. Such people either perish or are 
incorporated as individuals and small groups into some other culture, whose ideology 
they adopt for themselves and, above all, for their children. In some cases, however, the 
people left with the debris of a shattered culture are able to reintegrate the cultural 
elements into a new society and a new culture. They are able to do this because they 
obtain a new nonmaterial culture and thus a new ideology and morale which serve as a 
cohesive for the scattered elements of past culture they have at hand. Such a new 
ideology may be imported or may be indigenous, but in either case it becomes 
sufficiently integrated with the necessary elements of material culture to form a 
functioning whole and thus a new society. It is by some such process as this that all new 
societies, and thus all new civilizations, have been born. In this way, Classical 
Civilization was born from the wreckage of Cretan Civilization in the period 1 150 B.C. — 
900 B.C., and Western Civilization was born from the wreckage of Classical Civilization 
in the period A.D. 350 — 700. It is possible that new civilizations may be born in the 
debris from the civilizations wrecked by Western Civilization on the fringes of Asia. In 
this wreckage is debris from Islamic, Hindu, Chinese, and Japanese civilizations. It would 
appear at the present time that new civilizations may be in the throes of birth in Japan, 
possibly in China, less likely in India, and dubiously in Turkey or Indonesia. The birth of 
a powerful civilization at any or several of these points would be of primary significance 
in world history, since it would serve as a counterbalance to the expansion of Soviet 
Civilization on the land mass of Eurasia. 

Turning from a hypothetical future to a historical past, we can trace the diffusion of 
cultural elements within Western Civilization from its core area across peripheral areas 
and outward to other societies. Some of these elements are sufficiently important to 
command a more detailed examination. 

Among the elements of the Western tradition which have diffused only very slowly or 
not at all are a closely related nexus of ideas at the basis of Western ideology. These 
include Christianity, the scientific outlook, humanitarianism, and the idea of the unique 
value and rights of the individual. But from this nexus of ideas have sprung a number of 
elements of material culture of which the most noteworthy are associated with 
technology. These have diffused readily, even to other societies. This ability of Western 
technology to emigrate and the inability of the scientific outlook, with which such 
technology is fairly closely associated, to do so have created an anomalous situation: 
societies such as Soviet Russia which have, because of lack of the tradition of scientific 
method, shown little inventiveness in technology are nevertheless able to threaten 
Western Civilization by the use, on a gigantic scale, of a technology almost entirely 



imported from Western Civilization. A similar situation may well develop in any new 
civilizations which come into existence on the fringes of Asia. 

The most important parts of Western technology can be listed under four headings: 

1. Ability to kill: development of weapons 

2. Ability to preserve life: development of sanitation and medical services 

3. Ability to produce both food and industrial goods 

4. Improvements in transportation and communications 

We have already spoken of the diffusion of Western firearms. The impact which these 
have had on peripheral areas and other societies, from Cortez's invasion of Mexico, in 
1519 to the use of the first atom bomb on Japan in 1945, is obvious. Less obvious, but in 
the long run of much greater significance, is the ability of Western Civilization to 
conquer disease and to postpone death hy sanitation and medical advances. These 
advances began in the core of Western Civilization before 1500 but have exercised their 
full impact only since about 1750 with the advent of vaccination, the conquest of plague, 
and the steady advance in saving lives through the discovery of antisepsis in the 
nineteenth century and of the antibiotics in the twentieth century. These discoveries and 
techniques have diffused outward from the core of Western Civilization and have resulted 
in a fall in the death rate in western Europe and America almost immediately, in southern 
Europe and eastern Europe somewhat later, and in Asia only in the period since 1900. 
The world-shaking significance of this diffusion will be discussed in a moment. 

Western Civilization's conquest of the techniques of production are so outstanding that 
they have been honored by the term "revolution" in all history books concerned with the 
subject. The conquest of the problem of producing food, known as the Agricultural 
Revolution, began in England as long ago as the early eighteenth century, say about 
1725. The conquest of the problem of producing manufactured goods, known as the 
Industrial Revolution, also began in England, about fifty years after the Agricultural 
Revolution, say about 1775. The relationship of these two "revolutions" to each other and 
to the "revolution" in sanitation and public health and the differing rates at which these 
three "revolutions" diffused is of the greatest importance for understanding both the 
history of Western Civilization and its impact on other societies. 

Agricultural activities, which provide the chief food supply of all civilizations, drain 
the nutritive elements from the soil. Unless these elements are replaced, the productivity 
of the soil will be reduced to a dangerously low level. In the medieval and early modern 
period of European history, these nutritive elements, especially nitrogen, were replaced 
through the action of the weather by leaving the land fallow either one year in three or 
even every second year. This had the effect of reducing the arable land by half or one- 
third. The Agricultural Revolution was an immense step forward, since it replaced the 
year of fallowing with a leguminous crop whose roots increased the supply of nitrogen in 



the soil by capturing this gas from the air and fixing it in the soil in a form usable by plant 
life. Since the leguminous crop which replaced the fallow year of the older agricultural 
cycle was generally a crop like alfalfa, clover, or sainfoin which provided feed for cattle, 
this Agricultural Revolution not only increased the nitrogen content of the soil for 
subsequent crops of grain but also increased the number and quality of farm animals, thus 
increasing the supply of meat and animal products for food, and also increasing the 
fertility of the soil by increasing the supply of animal manure for fertilizers. The net 
result of the whole Agricultural Revolution was an increase in both the quantity and the 
quality of food. Fewer men were able to produce so much more food that many men were 
released from the burden of producing it and could devote their attention to other 
activities, such as government, education, science, or business. It has been said that in 
1700 the agricultural labor of twenty persons was required in order to produce enough 
food for twenty-one persons, while in some areas, by 1900, three persons could produce 
enough food for twenty-one persons, thus releasing seventeen persons for nonagricultural 
activities. 

This Agricultural Revolution which began in England before 1725 reached France 
after 1800, but did not reach Germany or northern Italy until after 1830. As late as 1900 it 
had hardly spread at all into Spain, southern Italy and Sicily, the Balkans, or eastern 
Europe generally. In Germany, about 1840, this Agricultural Revolution was given a new 
boost forward by the introduction of the use of chemical fertilizers, and received another 
boost in the United States after 1880 by the introduction of farm machinery which 
reduced the need for human labor. These same two areas, with contributions from some 
other countries, gave another considerable boost to agricultural output after 1900 by the 
introduction of new seeds and better crops through seed selection and hybridization. 

These great agricultural advances after 1725 made possible the advances in industrial 
production after 1775 by providing the food and thus the labor for the growth of the 
factory system and the rise of industrial cities. Improvements in sanitation and medical 
services after 1775 contributed to the same end by reducing the death rate and by making 
it possible for large numbers of persons to live in cities without the danger of epidemics. 

The "Transportation Revolution" also contributed its share to making the modern 
world. This contribution began, slowly enough, about 1750, with the construction of 
canals and the building of turnpikes by the new methods of road construction devised by 
John L. McAdam ("macadamized" roads). Coal came by canal and food by the new roads 
to the new industrial cities after 1800. After 1825 both were greatly improved by the 
growth of a network of railroads, while communications were speeded by the use of the 
telegraph (after 1837) and the cable (after 1850). This "conquest of distance" was 
unbelievably accelerated in the twentieth century by the use of internal-combustion 
engines in automobiles, aircraft, and ships and by the advent of telephones and radio 
communications. The chief result of this tremendous speeding up of communications and 
transportation was that all parts of the world were brought closer together, and the impact 
of European culture on the non-European world was greatly intensified. This impact was 
made even more overwhelming by the fact that the Transportation Revolution spread 
outward from Europe extremely rapidly, diffusing almost as rapidly as the spread of 



European weapons, somewhat more rapidly than the spread of European sanitation and 
medical services, and much more rapidly than the spread of European industrialism, 
European agricultural techniques, or European ideology. As we shall see in a moment, 
many of the problems which the world faced at the middle of the twentieth century were 
rooted in the fact that these different aspects of the European way of life spread outward 
into the non-European world at such different speeds that the non-European world 
obtained them in an entirely different order from that in which Europe had obtained them. 

One example of this difference can be seen in the fact that in Europe the Industrial 
Revolution generally took place before the Transportation Revolution, but in the non- 
European world this sequence was reversed. 

This means that Europe was able to produce its own iron, steel, and copper to build its 
own railroads and telegraph wires, but the non-European world could construct these 
things only by obtaining the necessary industrial materials from Europe and thus 
becoming the debtor of Europe. The speed with which the Transportation Revolution 
spread out from Europe can be seen in the fact that in Europe the railroad began before 
1830, the telegraph before 1840, the automobile about 1890, and the wireless about 1900. 
The transcontinental railroad in the United States opened in 1869; by 1900 the Trans- 
Siberian Railway and the Cape-to-Cairo railroad were under full construction, and the 
Berlin-to-Baghdad enterprise was just beginning. By that same date — 1900 — India, the 
Balkans, China, and Japan were being covered with a network of railroads, although none 
of these areas, at that date, was sufficiently developed in an industrial sense to provide 
itself with the steel or copper to construct or to maintain such a network. Later stages in 
the Transportation Revolution, such as automobiles or radios, spread even more rapidly 
and were being used to cross the deserts of the Sahara or of Arabia within a generation of 
their advent in Europe. 

Another important example of this situation can be seen in the fact that in Europe the 
Agricultural Revolution began before the Industrial Revolution. Because of this, Europe 
was able to increase its output of food and thus the supply of labor necessary for 
industrialization. But in the non-European world (except North America) the effort to 
industrialize generally began before there had been any notable success in obtaining a 
more productive agricultural system. As a result, the increased supply of food (and thus 
of labor) needed for the growth of industrial cities in the non-European world has 
generally been obtained, not from increased output of food so much as from a reduction 
of the peasants' share of the food produced. In the Soviet Union, especially, the high 
speed of industrialization in the period 1926-1940 was achieved by a merciless 
oppression of the rural community in which millions of peasants lost their lives. The 
effort to copy this Soviet method in Communist China in the 1950'5 brought that area to 
the verge of disaster. 

The most important example of such differential diffusion rates of two European 
developments appears in the difference between the spread of the food-producing 
revolution and the spread of the revolution in sanitation and medical services. This 



difference became of such worldshaking consequences by the middle of the twentieth 
century that we must spend considerable time examining it. 

In Europe the Agricultural Revolution which served to increase the supply of food 
began at least fifty years before the beginnings of the revolution in sanitation and medical 
services which decreased the number of deaths and thus increased the number of the 
population. The two dates for these two beginnings might be put roughly at 1725 and 
1775. As a result of this difference, Europe generally had sufficient food to feed its 
increased population. When the population reached a point where Europe itself could no 
longer feed its own people (say about 1850), the outlying areas of the European and non- 
European worlds were so eager to be industrialized (or to obtain railroads) that Europe 
was able to obtain non-European food in exchange for European industrial products. This 
sequence of events was a very happy combination for Europe. But the sequence of events 
in tile non-European world was quite different and much less happy. Not only did the 
non-European world get industrialization before it got the revolution in food production; 
it also got the revolution in sanitation and medical services before it got a sufficient 
increase in food to take care of the resulting increase in population. As a result, the 
demographic explosion which began in northwestern Europe early in the nineteenth 
century spread outward to eastern Europe and to Asia with increasingly unhappy 
consequences as it spread. The result was to create the greatest social problem of the 
twentieth-century world. 

Most stable and primitive societies, such as the American Indians before 1492 or 
medieval Europe, have no great population problem because the birthrate is balanced by 
the death rate. In such societies both of these are high, the population is stable, and the 
major portion of that population is young (below eighteen years of age). This kind of 
society (frequently called Population Type A) is what existed in Europe in the medieval 
period (say about 1400) or even in part of the early modern period (say about 1700). As a 
result of the increased supply of food in Europe after 1725, and of men's increased ability 
to save lives because of advances in sanitation and medicine after 1775, the death rate 
began to fall, the birthrate remained high, the population began to increase, and the 
number of older persons in the society increased. This gave rise to what we have called 
the demographic explosion (or Population Type B). As a result of it, the population of 
Europe (beginning in western Europe) increased in the nineteenth century, and the major 
portion of that population was in the prime of life (ages eighteen to forty-five), the arms- 
bearing years for men and the childbearing years for women. 

At this point the demographic cycle of an expanding population goes into a third stage 
(Population Type C) in which the birthrate also begins to fall. The reasons for this fall in 
the birthrate have never been explained in a satisfactory way, but, as a consequence of it, 
there appears a new demographic condition marked by a falling birthrate, a low death 
rate, and a stabilizing and aging population whose major part is in the mature years from 
thirty to sixty. As the population gets older because of the decrease in births and the 
increase in expectation of life, a larger and larger part of the population has passed the 
years of hearing children or bearing arms. This causes the birthrate to decline even more 
rapidly, and eventually gives a population so old that the death rate begins to rise again 



because of the great increase in deaths from old age or from the casualties of inevitable 
senility. Accordingly, the society passes into a fourth stage of the demographic cycle 
(Population Type D). This stage is marked by a declining birthrate, a rising death rate, a 
decreasing population, and a population in which the major part is over fifty years of age. 

It must be confessed that the nature of the fourth stage of this demographic cycle is 
based on theoretical considerations rather than on empirical observation, because even 
western Europe, where the cycle is most advanced, has not yet reached this fourth stage. 
However, it seems quite likely that it will pass into such a stage by the year 2000, and 
already the increasing number of older persons has given rise to new problems and to a 
new science called geriatrics both in western Europe and in the eastern United States. 

As we have said, Europe has already experienced the first three stages of this 
demographic cycle as a result of the Agricultural Revolution after 1725 and the 
Sanitation-Medical Revolution after 1775. As these two revolutions have diffused 
outward from western Europe to more peripheral areas of the world (the lifesaving 
revolution passing the food-producing revolution in the process), these more remote areas 
have entered, one by one, upon the demographic cycle. This means that the demographic 
explosion (Population Type B) has moved outward from western Europe to Central 
Europe to eastern Europe and finally to Asia and Africa. By the middle of the twentieth 
century, India was fully in the grasp of the demographic explosion, with its population 
shooting upward at a rate of about 5 million a year, while Japan's population rose from 55 
million in 1920 to 94 million in 1960. A fine example of the working of this process can 
be seen in Ceylon where in 1920 the birthrate was 40 per thousand and the death rate was 
32 per thousand, but in 1950 the birthrate was still at 40 while the death rate had fallen to 
12. Before we examine the impact of this development on world history in the twentieth 
century let us look at two brief tables which will clarify this process. 

The demographic cycle may be divided into four stages which we have designated by 
the first four letters of the alphabet. These four stages can be distinguished in respect to 
four traits: the birthrate, the death rate, the number of the population, and its age 
distribution. The nature of the four stages in these four respects can be seen in the 
following table: 

The Demographic Cycle 

Stage A B C 

Birthrate High High 

Death rate High Falling 

Numbers Stable Rising Stable Falling 

Age Many young Many in prime Many Middle-aged Many old 



D 




Falling 


Low 


Low 


Rising 



Distribution (Below 18) (18-45) (Over 30) (Over 50) 

The consequences of this demographic cycle (and the resulting demographic 
explosion) as it diffuses outward from western Europe to more peripheral areas of the 
world may be gathered from the following table which sets out the chronology of this 
movement in the four areas of western Europe, central Europe, eastern Europe, and Asia: 

Diffusion of the Demographic Cycle 

Areas 

Western Central Eastern 

Dates Europe Europe Europe Asia 

1700 A A A A 

1800 B A A A 



1850 BIB A A 



1900 C B I B A 



1950 C C BIB 



2000 D D C B 

In this table the line of greatest population pressure (the demographic explosion of 
Type B population) has been marked by a dotted line. This shows that there has been a 
sequence, at intervals of about fifty years, of four successive population pressures which 
might be designated with the following names: 

Anglo-French pressure, about 1850 

Germanic-Italian pressure, about 1900 

Slavic pressure, about 1950 



Asiatic pressure, about 2000 

This diffusion of pressure outward from the western European core of Western 
Civilization can contribute a great deal toward a richer understanding of the period 1850- 
2000. It helps to explain the Anglo-French rivalry about 1850, the Anglo-French alliance 
based on fear of Germany after 1900, the free-world alliance based on fear of Soviet 
Russia after 1950, and the danger to both Western Civilization and Soviet Civilization 
from Asiatic pressure by 2000. 

These examples show how our understanding of the problems of the twentieth century 
world can be illuminated by a study of the various developments of western Europe and 
of the varying rates by which they diffused outward to the more peripheral portions of 
Western Civilization and ultimately to the . non-Western world. In a rough fashion we 
might list these developments in the order in which they appeared in western Europe as 
well as the order in which they appeared in the more remote non-Western world: 

Developments in Western Europe 

1 . Western ideology 

2. Revolution in weapons (especially firearms) 

3. Agricultural Revolution 

4. Industrial Revolution 

5. Revolution in sanitation and medicine 

6. Demographic explosion 

7. Revolution in transportation and communications 
Developments in Asia 

1. Revolution in weapons 

2. Revolution in transport and communications 

3. Revolution in sanitation and medicine 

4. Industrial Revolution 

5. Demographic explosion 

6. Agricultural Revolution 



7. And last (if at all), Western ideology 

Naturally, these two lists are only a rough approximation to the truth. In the European 
list it should be quite clear that each development is listed in the order of its first 
beginning and that each of these traits has been a continuing process of development 
since. In the Asiatic list it should be clear that the order of arrival of the different traits is 
quite different in different areas and that the order given on this list is merely one which 
seems to apply to several important areas. Naturally, the problems arising from the 
advent of these traits in Asiatic areas depend on the order in which the traits arrive, and 
thus are quite different in areas where this order of arrival is different. The chief 
difference arises from a reversal of order between items 3 and 4. 

The fact that Asia obtained these traits in a different order from that of Europe is of 
the greatest significance. We shall devote much of the rest of this book to examining this 
subject. At this point we might point out two aspects of it. In 1830 democracy was 
growing rapidly in Europe and in America. At that time the development of weapons had 
reached a point where governments could not get weapons which were much more 
effective than those which private individuals could get. Moreover, private individuals 
could obtain good weapons because they had a high enough standard of living to afford it 
(as a result of the Agricultural Revolution) and such weapons were cheap (as a result of 
the Industrial Revolution). By 1930 (and even more by 1950) the development of 
weapons had advanced to the point where governments could obtain more effective 
weapons (dive-bombers, armored cars, flamethrowers, poisonous gases, and such) than 
private individuals. Moreover, in Asia, these better weapons arrived before standards of 
living could be raised by the Agricultural Revolution or costs of weapons reduced 
sufficiently by the Industrial Revolution. Moreover, standards of living were held down 
in Asia because the Sanitation Medical Revolution and the demographic explosion 
arrived before the Agricultural Revolution. As a result, governments in Europe in 1830 
hardly dared to oppress the people, and democracy was growing; hut in the non-European 
world by 1930 (and even more by 1950) governments did dare to, and could, oppress 
their peoples, who could do little to prevent it. When we add to this picture the fact that 
the ideology of Western Europe had strong democratic elements derived from its 
Christian and scientific traditions, while Asiatic countries had authoritarian traditions in 
political life, we can see that democracy had a hopeful future in Europe in 1830 but a 
very dubious future in Asia m 1950. 

From another point of view we can sec that in Europe the sequence of Agricultural- 
Industrial-Transportation revolutions made it possible for Europe to have rising standards 
of living and little rural oppression, since the Agricultural Revolution provided the food 
and thus the labor for industrialism and for transport facilities. But in Asia, where the 
sequence of these three revolutions was different (generally: Transportation-Industrial- 
Agricultural), labor could be obtained from the Sanitary-Medical Revolution, hut food for 
this labor could be obtained only by oppressing the rural population and preventing any 
real improvements in standards of living. Some countries tried to avoid this by borrowing 
capital for railroads and steel mills from European countries rather than by raising capital 
from the savings of their own people, but this meant that these countries became the 



debtors (and thus to some extent the subordinates) of Europe. Asiatic nationalism usually 
came to resent this debtor role and to prefer the role of rural oppression of its own people 
by its own government. The most striking example of this preference for rural oppression 
over foreign indebtedness was made in the Soviet Union in 1928 with the opening of the 
Five-Year plans. Somewhat similar but less drastic choices were made even earlier in 
Japan and much later in China. But we must never forget that these and other difficult 
choices had to be made by Asiatics because they obtained the diffused traits of Western 
Civilization in an order different from that in which Europe obtained them. 

Chapter 3 — Europe's Shift to the Twentieth Century 

While Europe's traits were diffusing outward to the non-European world, Europe was 
also undergoing profound changes and facing difficult choices at home. These choices 
were associated with drastic changes, in some cases we might say reversals, of Europe's 
point of view. These changes may be examined under eight headings. The nineteenth 
century was marked by (2) belief in the innate goodness of man; (2) secularism; (3) belief 
in progress; (4) liberalism; (5) capitalism; (6) faith in science; (7) democracy; (8) 
nationalism. In general, these eight factors went along together in the nineteenth century. 
They were generally regarded as being compatible with one another; the friends of one 
were generally the friends of the others; and the enemies of one were generally the 
enemies of the rest. Metternich and De Maistre were generally opposed to all eight; 
Thomas Jefferson and John Stuart Mill were generally in favor of all eight.. 

The belief in the innate goodness of man had its roots in the eighteenth century when 
it appeared to many that man was born good and free but was everywhere distorted, 
corrupted, and enslaved by bad institutions and conventions. As Rousseau said, "Man is 
born free yet everywhere he is in chains." Thus arose the belief in the "noble savage," the 
romantic nostalgia for nature and for the simple nobility and honesty of the inhabitants of 
a faraway land. Jf only man could be freed, they felt, freed from the corruption of society 
and its artificial conventions, freed from the burden of property, of the state, of the 
clergy, and of the rules of matrimony, then man, it seemed clear, could rise to heights 
undreamed of before — could, indeed, become a kind of superman, practically a god. It 
was this spirit which set loose the French Revolution. It was this spirit which prompted 
the outburst of self-reliance and optimism so characteristic of the whole period from 1770 
to 1914. 

Obviously, if man is innately good and needs but to be freed from social restrictions, 
he is capable of tremendous achievements in this world of time, and does not need to 
postpone his hopes of personal salvation into eternity. Obviously, if man is a god-like 
creature whose ungod-like actions are due only to the frustrations of social conventions, 
there is no need to worry about service to God or devotion to any other worldly end. Man 
can accomplish most by service to himself and devotion to the goals of this world. Thus 
came the triumph of secularism. 



Closely related to these nineteenth century beliefs that human nature is good, that 
society is bad, and that optimism and secularism were reasonable attitudes were certain 
theories about the nature of evil.. 

To the nineteenth century mind evil, or sin, was a negative conception. It merely 
indicated a lack or, at most, a distortion of good. Any idea of sin or evil as a malignant 
positive force opposed to good, and capable of existing by its own nature, was completely 
lacking in the typical nineteenth-century mind. To such a mind the only evil was 
frustration and the only sin, repression. 

Just as the negative idea of the nature of evil flowed from the belief that human nature 
was good, so the idea of liberalism flowed from the belief that society was bad. For, if 
society was bad, the state, which was the organized coercive power of society, was 
doubly bad, and if man was good, he should be freed, above all, from the coercive power 
of the state. Liberalism was the crop which emerged from this soil. In its broadest aspect 
liberalism believed that men should be freed from coercive power as completely as 
possible. In its narrowest aspect liberalism believed that the economic activities of man 
should be freed completely from "state interference." This latter belief, summed up in the 
battle-cry "No government in business," was commonly called "laissez-faire." 
Liberalism, which included laissez-faire, was a wider term because it would have freed 
men from the coercive power of any church, army, or other institution, and would have 
left to society little power beyond that required to prevent the strong from physically 
oppressing the weak. 

From either aspect liberalism was based on an almost universally accepted nineteenth- 
century superstition known as the "community of interests." This strange, and 
unexamined, belief held that there really existed, in the long run, a community of 
interests between the members of a society. It maintained that, in the long run, what was 
good for one member of society was good for all and that what was bad for one w as had 
for all. But it went much further than this. The theory of the "community of interests" 
believed that there did exist a possible social pattern in which each member of society 
would be secure, free, and prosperous, and that this pattern could be achieved by a 
process of adjustment so that each person could fall into that place in the pattern to which 
his innate abilities entitled him. This implied two corollaries which the nineteenth century 
was prepared to accept: (1) that human abilities are innate and can only be distorted or 
suppressed by social discipline and (2) that each individual is the best judge of his own 
self-interest. All these together form the doctrine of the "community of interests," a 
doctrine which maintained that if each individual does what seems best for himself the 
result, in the long run, will be best for society as a whole.. 

Closely related to the idea of the "community of interests" were two other beliefs of 
the nineteenth century: the belief in progress and in democracy. The average man of 1880 
was convinced that he was the culmination of a long process of inevitable progress which 
had been going on for untold millennia and which would continue indefinitely into the 
future. This belief in progress was so fixed that it tended to regard progress as both 
inevitable and automatic. Out of the struggles and conflicts of the universe better things 



were constantly emerging, and the wishes or plans of the objects themselves had little to 
do with the process. 

The idea of democracy was also accepted as inevitable, although not always as 
desirable, for the nineteenth century could not completely submerge a lingering feeling 
that rule by the best or rule by the strong would be better than rule by the majority. But 
the facts of political development made rule by the majority unavoidable, and it came to 
he accepted, at least in western Europe, especially since it was compatible with liberalism 
and with the community of interests. 

Liberalism, community of interests, and the belief in progress led almost inevitably to 
the practice and theory of capitalism. Capitalism was an economic system in which the 
motivating force was the desire for private profit as determined in a price system. Such a 
system, it was felt, by seeking the aggrandization of profits for each individual, would 
give unprecedented economic progress under liberalism and in accord with the 
community of interests. In the nineteenth century this system, in association with the 
unprecedented advance of natural science, had given rise to industrialism (that is, power 
production) and urbanism (that is, city life), both of which were regarded as inevitable 
concomitants of progress by most people, but with the greatest suspicion by a persistent 
and vocal minority. 

The nineteenth century was also an age of science. By this term we mean the belief 
that the universe obeyed rational laws which could be found by observation and could be 
used to control it. This belief was closely connected with the optimism of the period, with 
its belief in inevitable progress, and with secularism. The latter appeared as a tendency 
toward materialism. This could be defined as the belief that all reality is ultimately 
explicable in terms of the physical and chemical laws which apply to temporal matter. 

The last attribute of the nineteenth century is by no means the least: nationalism. It 
was the great age of nationalism, a movement which has been discussed in many lengthy 
and inconclusive books but which can be defined for our purposes as "a movement for 
political unity with those with whom we believe we are akin." As such, nationalism in the 
nineteenth century had a dynamic force which worked in two directions. On the one side, 
it served to bind persons of the same nationality together into a tight, emotionally 
satisfying, unit. On the other side, it served to divide persons of different nationality into 
antagonistic groups, often to the injury of their real mutual political, economic, or cultural 
advantages. Thus, in the period to which we refer, nationalism sometimes acted as a 
cohesive force, creating a united Germany and a united Italy out of a medley of distinct 
political units. But sometimes, on the other hand, nationalism acted as a disruptive force 
within such dynastic states as the Habsburg Empire or the Ottoman Empire, splitting 
these great states into a number of distinctive political units. 

These characteristics of the nineteenth century have been so largely modified in the 
twentieth century that it might appear, at first glance, as if the latter were nothing more 
than the opposite of the former. This is not completely accurate, but there can be no doubt 
that most of these characteristics have been drastically modified in the twentieth century. 



This change has arisen from a series of shattering experiences which have profoundly 
disturbed patterns of behavior and of belief, of social organizations and human hopes. Of 
these shattering experiences the chief were the trauma of the First World War, the long- 
drawn-out agony of the world depression, and the unprecedented violence of destruction 
of the Second World War. Of these three, the First World War was undoubtedly the most 
important. To a people who believed in the innate goodness of man, in inevitable 
progress, in the community of interests, and in evil as merely the absence of good, the 
First World War, with its millions of persons dead and its billions of dollars wasted, was 
a blow so terrible as to be beyond human ability to comprehend. As a matter of fact, no 
real success was achieved in comprehending it. The people of the day regarded it as a 
temporary and inexplicable aberration to be ended as soon as possible and forgotten as 
soon as ended. Accordingly, men were almost unanimous, in 1919, in their determination 
to restore the world of 1913. This effort was a failure. After ten years of effort to conceal 
the new reality of social life by a facade painted to look like 1913, the facts burst through 
the pretense, and men were forced, willingly or not, to face the grim reality of the 
twentieth century. The events which destroyed the pretty dream world of 1919-1929 were 
the stock-market crash, the world depression, the world financial crisis, and ultimately 
the martial clamor of rearmament and aggression. Thus depression and war forced men to 
realize that the old world of the nineteenth century had passed forever, and made them 
seek to create a new world in accordance with the facts of present-day conditions. This 
new world, the child of the period of 1914-1945, assumed its recognizable form only as 
the first half of the century drew to a close. 

In contrast with the nineteenth-century belief that human nature is innately good and 
that society is corrupting, the twentieth century came to believe that human nature is, if 
not innately bad, at least capable of being very evil. Left to himself, it seems today, man 
falls very easily to the level of the jungle or even lower, and this result can be prevented 
only by training and the coercive power of society. Thus, man is capable of great evil, but 
society 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 from 
secularism to religion. At the same time the view that evil is merely the absence of good 
has been replaced with the idea that evil is a very positive force which must 'ne resisted 
and overcome. The horrors of Hitler's concentration camps and of Stalin's slave-labor 
units are chiefly responsible for this change. 

Associated with these changes are a number of others. The belief that human abilities 
are 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 be 
directed to socially acceptable ends. Thus liberalism and laissez-faire are to be replaced, 
apparently, by social discipline and planning. The community of interests which would 
appear if men were merely left to pursue their own desires has been replaced by the idea 
of the welfare community, which must be created by conscious organizing action. The 
belief in progress has been replaced by the fear of social retrogression or even human 
annihilation. The old march of democracy now yields to the insidious advance of 
authoritarianism, and the individual capitalism of the profit motive seems about to be 
replaced by the state capitalism of the welfare economy. Science, on all sides, is 



challenged by mysticisms, some of which march under the banner of science itself; 
urbanism has passed its peak and is replaced by suburbanism or even "flight to the 
country"; and nationalism finds its patriotic appeal challenged by appeals to much wider 
groups of class, ideological, or continental scope.. 

We have already given some attention to the fashion in which a number of western- 
European innovations, such as industrialism and the demographic explosion, diffused 
outward to the peripheral non-European world at such different rates of speed that they 
arrived in Asia in quite a different order from that in which they had left western Europe. 
The same phenomenon can be seen within Western Civilization in regard to the 
nineteenth-century characteristics of Europe which we have enumerated. For example, 
nationalism was already evident in England at the time of the defeat of the Spanish 
Armada in 1588; it raged through France in the period after 1789; it reached Germany 
and Italy only after 1815, became a potent force in Russia and the Balkans toward the end 
of the nineteenth century, and was noticeable in China, India, and Indonesia, and even 
Negro Africa, only in the twentieth century. Somewhat similar patterns of diffusion can 
be found in regard to the spread of democracy, of parliamentary government, of 
liberalism, and of secularism. The rule, however, is not so general or so simple as it 
appears at first glance. The exceptions and the complications appear more numerous as 
we approach the twentieth century. Even earlier it was evident that the arrival of the 
sovereign state did not follow this pattern, enlightened despotism and the growth of 
supreme public authority appearing in Germany, and even in Italy, before it appeared in 
France. Universal free education also appeared in central Europe before it appeared in a 
western country like England. Socialism also is a product of central Europe rather than of 
western Europe, and moved from the former to the latter only in the fifth decade of the 
twentieth century. These exceptions to the general rule about the eastward movement of 
modern historical developments have various explanations. Some of these are obvious, 
but others are very complicated. As an example of such a complication we might mention 
that in Western Europe nationalism, industrialism, liberalism, and democracy were 
generally reached in this order. But in Germany they all appeared about the same time. 
To the Germans it appeared that they could achieve nationalism and industrialism (both 
of which they wanted) more rapidly and more successfully if they sacrificed liberalism 
and democracy. Thus, in Germany nationalism was achieved in an undemocratic way, by 
"blood and iron," as Bismarck put it, while industrialism was achieved under state 
auspices rather than through liberalism. This selection of elements and the resulting 
playing off of elements against one another was possible in more peripheral areas only 
because these areas had the earlier experience of western Europe to study, copy, avoid, or 
modify. Sometimes they had to modify these traits as they developed. This can be seen 
from the following considerations. When the Industrial Revolution began in England and 
France, these countries were able to raise the necessary capital for new factories because 
they already had the Agricultural Revolution and because, as the earliest producers of 
industrial goods, they made excessive profits which could he used to provide capital. But 
in Germany and in Russia, capital was much more difficult to find, because they obtained 
the Industrial Revolution later, when they had to compete with England and France, and 
could not earn such large profits and also because they did not already have an 
established Agricultural Revolution on which to build their Industrial Revolution. 



Accordingly, while western Europe, with plenty of capital and cheap, democratic 
weapons, could finance its industrialization with liberalism and democracy, central and 
eastern Europe had difficulty financing industrialism, and there the process was delayed 
to a period when cheap and simple democratic weapons were being replaced by 
expensive and complicated weapons. This meant that the capital for railroads and 
factories had to be raised with government assistance; liberalism waned; rising 
nationalism encouraged this tendency; and the undemocratic nature of existing weapons 
made it clear that both liberalism and democracy were living a most precarious existence. 

As a consequence of situations such as this, some of the traits which arose in western 
Europe in the nineteenth century moved outward to more peripheral areas of Europe and 
Asia with great difficulty and for only a brief period. Among these less sturdy traits of 
western Europe's great century we might mention liberalism, democracy, the 
parliamentary system, optimism, and the belief in inevitable progress. These were, we 
might say, flowers of such delicate nature that they could not survive any extended period 
of stormy weather. That the twentieth century subjected them to long periods of very 
stormy weather is clear when we consider that it brought a world economic depression 
sandwiched between two world wars. 

Part Two — Western Civilization to 1914 

Chapter 4 — The Pattern of Change 

In order to obtain perspective we sometimes divide the culture of a society, in a 
somewhat arbitrary fashion, into several different aspects. For example, we can divide a 
society into six aspects: military, political, economic, social, religious, intellectual. 
Naturally there are very close connections between these various aspects; and in each 
aspect there are very close connections between what exists today and what existed in an 
earlier day. For example, we might want to talk about democracy as a fact on the political 
level (or aspect). In order to talk about it in an intelligent way we would not only have to 
know what it is today we would also have to see what relationship it has to earlier facts 
on the political level as well as its relationship to various facts on the other five levels of 
the society. Naturally we cannot talk intelligently unless we have a fairly clear idea of 
what we mean by the words we use. For that reason we shall frequently define the terms 
we use in discussing this subject. 

The Organization of Power 

The military level is concerned with the organization of force, the political level with 
the organization of power, and the economic level with the organization of wealth. By the 
"organization of power" in a society we mean the ways in which obedience and consent 
(or acquiescence) are obtained. The close relationships between levels can be seen from 
the fact that there are three basic ways to win obedience: by force, by buying consent 
with wealth, and by persuasion. Each of these three leads us to another level (military, 
economic, or intellectual) outside the political level. At the same time, the organization of 



power today (that is, of the methods for obtaining obedience in the society) is a 
development of the methods used to obtain obedience in the society in an earlier period. 

Major Change in the 20th Century 

These relationships are important because in the twentieth century in Western 
Civilization all six levels are changing with amazing rapidity, and the relationships 
between levels are also shifting with great speed. When we add to this confusing picture 
of Western Civilization the fact that other societies are influencing it or being influenced 
by it, it would seem that the world in the twentieth century is almost too complicated to 
understand. This is indeed true, and we shall have to simplify (perhaps even 
oversimplify) these complexities in order to reach a low level of understanding. When we 
have reached such a low level perhaps we shall be able to raise the level of our 
understanding by bringing into our minds, little by little, some of the complexities which 
do exist in the world itself. 

The Military Level in Western Civilization 

On the military level in Western Civilization in the twentieth century the chief 
development has been a steady increase in the complexity and the cost of weapons. When 
weapons are cheap to get and so easy to use that almost anyone can use them after a short 
period of training, armies are generally made up of large masses of amateur soldiers. 
Such weapons we call "amateur weapons," and such armies we might call "mass armies 
of citizen-soldiers." The Age of Pericles in Classical Greece and the nineteenth century in 
Western Civilization were periods of amateur weapons and citizen-soldiers. But the 
nineteenth century was preceded (as was the Age of Pericles also) by a period in which 
weapons were expensive and required long training in their use. Such weapons we call 
"specialist" weapons. Periods of specialist weapons are generally periods of small armies 
of professional soldiers (usually mercenaries). In a period of specialist weapons the 
minority who have such weapons can usually force the majority who lack them to obey; 
thus a period of specialist weapons tends to give rise to a period of minority rule and 
authoritarian government. But a period of amateur weapons is a period in which all men 
are roughly equal in military power, a majority can compel a minority to yield, and 
majority rule or even democratic government tends to rise. The medieval period in which 
the best weapon was usually a mounted knight on horseback (clearly a specialist weapon) 
was a period of minority rule and authoritarian government. Even when the medieval 
knight was made obsolete (along with his stone castle) by the invention of gunpowder 
and the appearance of firearms, these new weapons were so expensive and so difficult to 
use (until 1 800) that minority rule and authoritarian government continued even though 
that government sought to enforce its rule by shifting from mounted knights to 
professional pike-men and musketeers. But after 1800, guns became cheaper to obtain 
and easier to use. By 1 840 a Colt revolver sold for $27 and a Springfield musket for not 
much more, and these were about as good weapons as anyone could get at that time. 
Thus, mass armies of citizens, equipped with these cheap and easily used weapons, began 
to replace armies of professional soldiers, beginning about 1800 in Europe and even 
earlier in America. At the same time, democratic government began to replace 



authoritarian governments (but chiefly in those areas where the cheap new weapons were 
available and local standards of living were high enough to allow people to obtain them). 

The arrival of the mass army of citizen-soldiers in the nineteenth century created a 
difficult problem of control, because techniques of transportation and of communications 
had not reached a high-enough level to allow any flexibility of control in a mass army. 
Such an army could be moved on its own feet or by railroad; the government could 
communicate with its various units only by letter post or by telegram. The problem of 
handling a mass army by such techniques was solved partially in the American Civil War 
of 1861-1865 and completely by Helmuth von Moltke for the Kingdom of Prussia in the 
Austro-Prussian War of 1866. The solution was a rigid one: a plan of campaign was 
prepared beforehand against a specific opponent, with an established timetable and 
detailed instructions for each military unit; communications were prepared and even 
issued beforehand, to be used according to the timetable. This plan was so inflexible that 
the signal to mobilize was practically a signal to attack a specified neighboring state 
because the plan, once initiated, could not be changed and could hardly even be slowed 
up. With this rigid method Prussia created the German Empire by smashing Austria in 
1866 and France in 1871. By 1900 all the states of Europe had adopted the same method 
and had fixed plans in which the signal for mobilization constituted an attack on some 
neighbor — a neighbor, in some cases (as in the German invasion of Belgium), with whom 
the attacker had no real quarrel. Thus, when the signal for mobilization was given in 1914 
the states of Europe leaped at each other. 

The Rise of Authoritarian Government 

In the twentieth century the military situation was drastically changed in two ways. On 
the 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 and 
even of individual soldiers became very flexible; mobilization ceased to be equivalent to 
attack, and attack ceased to be equivalent to total war. On the other hand, beginning with 
the first use of tanks, gas, high-explosive shells, and tactical bombing from the air in 
1915-1918, and continuing with all the innovations in weapons leading up to the first 
atomic bomb in 1945, specialist weapons became superior to amateur weapons. This had 
a double result which was still working itself out at mid-century: the drafted army of 
citizen-soldiers began to be replaced by a smaller army of professional specialist soldiers, 
and authoritarian government began to replace democratic government. 

The Political Level in Western Civilization 

On the political level equally profound changes took place in the twentieth century. 
These changes were associated with the basis on which an appeal for allegiance could be 
placed, and especially with the need to find a basis of allegiance which could win loyalty 
over larger and larger areas from more numerous groups of people. In the early Middle 
Ages when there had been no state and no public authority, political organization had 
been the feudal system which was held together by obligations of personal fealty among a 
small number of people. With the reappearance of the state and of public authority, new 



patterns of political behavior were organized in what is called the "feudal monarchy." 
This allowed the state to reappear for the first time since the collapse of Charlemagne's 
Empire in the ninth century, but with restricted allegiance to a relatively small number of 
persons over a relatively small area. The development of weapons and the steady 
improvement in transportation and in communications made it possible to compel 
obedience over wider and wider areas, and made it necessary to base allegiance on 
something wider than personal fealty to a feudal monarch. Accordingly, the feudal 
monarchy was replaced by the dynastic monarchy. In this system subjects owed 
allegiance to a royal family (dynasty), although the real basis of the dynasty rested on the 
loyalty of a professional army of pike-men and musketeers. 

The Rise of the Nation State 

The shift from the professional army of mercenaries to the mass army of citizen- 
soldiers, along with other factors acting on other levels of culture, made it necessary to 
broaden the basis of allegiance once again after 1800. The new basis was nationalism, 
and gave rise to the national state as the typical political unit of the nineteenth century. 
This shift was not possible for the larger dynastic states which ruled over many different 
language and national groups. By the year 1900 three old dynastic monarchies were being 
threatened with disintegration by the rising tide of nationalistic agitation. These three, the 
Austro-Hungarian Empire, the Ottoman Empire, and the Russian Empire of the 
Romanovs, did disintegrate as a consequence of the defeats of the First World War. But 
the smaller territorial units which replaced them, states like Poland, Czechoslovakia, or 
Lithuania, organized largely on the basis of language groups, may have reflected 
adequately enough the nationalistic sentiments of the nineteenth century, but they 
reflected very inadequately the developments in weapons, in communications, in 
transportation, and in economics of the twentieth century. By the middle of this latter 
century these developments were reaching a point where states which could produce the 
latest instruments of coercion were in a position to compel obedience over areas much 
larger than those occupied by peoples speaking the same language or otherwise regarding 
themselves as sharing a common nationality. Even as early as 1940 it began to appear 
that some new basis more continental in scope than existing nationality groups must be 
found for the new super-states which were beginning to be born. It became clear that the 
basis of allegiance for these new super-states of continental scope must be ideological 
rather than national. Thus the nineteenth century's national state began to be replaced by 
the twentieth century's ideological bloc. At the same time, the shift from amateur to 
specialist weapons made it likely that the new form of organization would be 
authoritarian rather than democratic as the earlier national state had been. However, the 
prestige of Britain's power and influence in the nineteenth century was so great in the first 
third of the twentieth century that the British parliamentary system continued to be 
copied everywhere that people were called upon to set up a new form of government. 
This happened in Russia in 1917, in Turkey in 1908, in Czechoslovakia and Poland in 
1918-1919 and in most of the states of Asia (such as China in 1911). 

The Economic Level of Western Civilization 



When we turn to the economic level, we turn to a series of complex developments. It 
would be pleasant if we could just ignore these, but obviously we cannot, because 
economic issues have been of paramount importance in the twentieth century, and no one 
can understand the period without at least a rudimentary grasp of the economic issues. In 
order to simplify these somewhat, we may divide them into four aspects: (a) energy; (b) 
materials; (c) organization; and (d) control. 

It is quite clear that no economic goods can be made without the use of energy and of 
materials. The history of the former falls into two chief parts each of which is divided 
into two sub-parts. The main division, about 1830, separates an earlier period when 
production used the energy delivered through living bodies and a later period when 
production used energy from fossil fuels delivered through engines. The first half is 
subdivided into an earlier period of manpower (and slavery) and a later period using the 
energy of draft animals. This subdivision occurred roughly about A. D. 1000. The second 
half (since 1830) is subdivided into a period which used coal in steam engines, and a 
period which used petroleum in internal-combustion engines. This subdivision occurred 
about 1900 or a little later. 

The development of the use of materials is familiar to everyone. We can speak of an 
age of iron (before 1830), an age of steel (1830-1910), and an age of alloys, light metals, 
and synthetics (since 1910). Naturally, all these dates are arbitrary and approximate, since 
the different periods commenced at different dates in different areas, diffusing outward 
from their origin in the core area of Western Civilization in northwestern Europe. 

Six Periods of Development 

When we turn to the developments which took place in economic organization, we 
approach a subject of great significance. Here again we can see a sequence of several 
periods. There were six of these periods, each with its own typical form of economic 
organization. At the beginning, in the early Middle Ages, Western Civilization had an 
economic system which was almost entirely agricultural, organized in self-sufficient 
manors, with almost no commerce or industry. To this manorial-agrarian system there 
was added, after about 1050, a new economic system based on trade in luxury goods of 
remote origin for the sake of profits. This we might call commercial capitalism. It had 
two periods of expansion, one in the period 1050-1270, and the other in the period 1440- 
1690. The typical organization of these two periods was the trading company (in the 
second we might say the chartered trading company, like the Massachusetts Bay 
Company, the Hudson's Bay Company, or the various East India companies). The next 
period of economic organization was the stage of industrial capitalism, beginning about 
1770, and characterized by owner management through the single-proprietorship or the 
partnership. The third period we might call financial capitalism. It began about 1850, 
reached its peak about 1914, and ended about 1932. Its typical forms of economic 
organization were the limited-liability corporation and the holding company. It was a 
period of financial or banker management rather than one of owner management as in the 
earlier period of industrial capitalism. This period of financial capitalism was followed by 
a period of monopoly capitalism. In this fourth period, typical forms of economic 



organization were cartels and trade associations. This period began to appear about 1890, 
took over control of the economic system from the bankers about 1932, and is 
distinguished as a period of managerial dominance in contrast with the owner 
management and the financial management of the two periods immediately preceding it. 
Many of its characteristics continue, even today, but the dramatic events of World War II 
and the post-war period put it in such a different social and historical context as to create 
a new, sixth, period of economic organization which might be called "the pluralist 
economy." The features of this sixth period will be described later. 

Stages of Economic Development 

The approximate relationship of these various stages may be seen in the following 
table: 

Typical 
Name Dates Organization Management 

Manorial 6701 Manor Custom 

Commercial capitalism a. 1050-1270 Company Municipal mercantilism 

b. 440-1690 Chartered State mercantilism 

company 
Industrial capitalism 1770-1870 Private firm Owners 

or partnership 
Financial capitalism 1850-1932 Corporation and Bankers 

holding company 
Monopoly capitalism 1890-1950 Cartels and trade Managers 

association 

Pluralist economy 1934-present Lobbying groups Technocrats 

Finance and Monopoly Capitalism 

Two things should be noted. In the first place, these various stages or periods are 
additive in a sense, and there are many survivals of earlier stages into later ones. As late 
as 1925 there was a manor still functioning in England, and Cecil Rhodes's chartered 
company which opened up Rhodesia (the British South Africa Company) was chartered 



as late as 1889. In the same way owner-managed private firms engaging in industrial 
activities, or corporations and holding companies engaging in financial activities, could 
be created today. In the second place all the later periods are called capitalism. This term 
means "an economic system motivated by the pursuit of profits within a price system." 
The commercial capitalist sought profits from the exchange of goods; the industrial 
capitalist sought profits from the manufacture of goods; the financial capitalist sought 
profits from the manipulation of claims on money; and the monopoly capitalist sought 
profits from manipulation of the market to make the market price and the amount sold 
such that his profits would be maximized. 

Four Major Stages of Economic Expansion 

It is interesting to note that, as a consequence of these various stages of economic 
organization, Western Civilization has passed through four major stages of economic 
expansion marked by the approximate dates 970-1270, 1440-1690, 1770-1928, and since 
1950. Three of these stages of expansion were followed by the outbreak of imperialist 
wars, as the stage of expansion reached its conclusion. These were the Hundred Years' 
War and the Italian Wars (1338-1445, 1494-1559), the Second Hundred Years' War 
(1667-1815), and the world wars (1914-1945). The economic background of the third of 
these will be examined later in this chapter, but now we must continue our general survey 
of the conditions of Western Civilization in regard to other aspects of culture. One of 
these is the fourth and last portion of the economic level, that concerned with economic 
control. 

Four Stages of Economic Control 

Economic control has passed through four stages in Western Civilization. Of these the 
first and third were periods of "automatic control" in the sense that there was no 
conscious effort at a centralized system of economic control, while the second and fourth 
stages were periods of conscious efforts at control. These stages, with approximate dates, 
were as follows: 

1. Automatic control: manorial custom, 650-1150 

2. Conscious control a. municipal mercantilism, 1150-1450 b. state mercantilism, 1450- 
1815 

3. Automatic control: laissez-faire in the competitive market, 1815-1934 

4. Conscious control: planning (both public and private), 1934 

It should be evident that these five stages of economic control are closely associated 
with the stages previously mentioned in regard to kinds of weapons on the military level 
or the forms of government on the political level. The same five stages of economic 
control have a complex relationship to the six stages of economic organization already 



mentioned, the important stage of industrial capitalism overlapping the transition from 
state mercantilism to laissez-faire. 

The Social Level of a Culture 

When we turn to the social level of a culture, we can note a number of different 
phenomena, such as changes in growth of population, changes in aggregates of this 
population (such as rise or decline of cities), and changes in social classes. Most of these 
things are far too complicated for us to attempt to treat them in any thorough fashion 
here. We have already discussed the various stages in population growth, and shown that 
Europe was, about 1900, generally passing from a stage of population growth with many 
persons in the prime of life (Type B), to a stage of population stabilization with a larger 
percentage of middle-aged persons (Type C). This shift from Type B to Type C 
population in Europe can be placed most roughly at the time that the nineteenth century 
gave rise to the twentieth century. At about the same time or shortly after, and closely 
associated with the rise of monopoly capitalism (with its emphasis on automobiles, 
telephones, radio, and such), was a shift in the aggregation of population. This shift was 
from the period we might call "the rise of the city" (in which, year by year, a larger 
portion of the population lived in cities) to what we might call "the rise of the suburbs" or 
even "the period of megapolis" (in which the growth of residential concentration moved 
outward from the city itself into the surrounding area). 

Changes in Social Classes 

The third aspect of the social level to which we might turn our attention is concerned 
with changes in social classes. Each of the stages in the development of economic 
organization was accompanied by the rise to prominence of a new social class. The 
medieval system had provided the feudal nobility based on the manorial agrarian system. 
The growth of commercial capitalism (in two stages) gave a new class of commercial 
bourgeoisie. The growth of industrial capitalism gave rise to two new classes, the 
industrial bourgeoisie and the industrial workers (or proletariat, as they were sometimes 
called in Europe). The development of financial and monopoly capitalism provided a new 
group of managerial technicians. The distinction between industrial bourgeoisie and 
managers essentially rests on the fact that the former control industry and possess power 
because they are owners, while managers control industry (and also government or labor 
unions or public opinion) because they are skilled or trained in certain techniques. As we 
shall see later, the shift from one to the other was associated with a separation of control 
from ownership in economic life. The shift was also associated with what we might call a 
change from a two-class society to a middle-class society. Under industrial capitalism 
and the early part of financial capitalism, society began to develop into a polarized two- 
class society in which an entrenched bourgeoisie stood opposed to a mass proletariat. It 
was on the basis of this development that Karl Marx, about 1850, formed his ideas of an 
inevitable 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 and 
more numerous, until finally the mass would rise up and take ownership and control from 
the privileged minority. By 1900 social developments took a direction so different from 



that expected by Marx that his analysis became almost worthless, and his system had to 
be imposed by force in a most backward industrial country (Russia) instead of occurring 
inevitably in the most advanced industrial country as he had expected. 

The Shift of Control 

The social developments which made Marx's theories obsolete were the result of 
technological and economic developments which Marx had not foreseen. The energy for 
production was derived more and more from inanimate sources of power and less and 
less from human labor. As a result, mass production required less labor. But mass 
production required 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 living 
for the masses made the proletariat fewer and fewer and richer and richer. At the same 
time, the need for managerial and white-collar workers of the middle levels of the 
economic 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 from 
ownership and allowed the latter to be dispersed over a much wider group, so that, in 
effect, owners became more and more numerous and poorer and poorer. And, finally, 
control shifted from owners to managers. The result was that the polarized two-class 
society envisaged by Marx was, after 1900, increasingly replaced by a mass middle-class 
society, with fewer poor and, if not fewer rich, at least a more numerous group of rich 
who 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 and 
extended by governmental policies in regard to taxation and social welfare, especially 
after 1945. 

The Religious and Intellectual Stages of Culture 

When we turn to the higher levels of culture, such as the religious and intellectual 
aspects, we can discern a sequence of stages similar to those which have been found in 
the more material levels. We shall make no extended examination of these at this time 
except to say that the religious level has seen a shift from a basically secularist, 
materialist, and antireligious outlook in the late nineteenth century to a much more 
spiritualist and religious point of view in the course of the twentieth century. At the same 
time a very complex development on the intellectual level has shown a profound shift in 
outlook from an optimistic and scientific point of view in the period 1860-1890 to a much 
more pessimistic and irrationalist point of view in the period following 1890. This shift in 
point of view, which began in a rather restricted group forming an intellectual vanguard 
about 1890, a group which included such figures as Freud, Sorel, Bergson, and Proust, 
spread downward to larger and larger sections of Western society in the course of the 
new century as a result of the devastating experience of two world wars and the great 
depression. The results of this process can be seen in the striking contrast between the 
typical outlook of Europe in the nineteenth century and in the twentieth century as 
outlined in the preceding chapter. 

Chapter 5 — European Economic Developments 



Commercial Capitalism 

Western Civilization is the richest and most powerful social organization ever made 
by man. One reason for this success has been its economic organization. This, as we have 
said, has passed through six successive stages, of which at least four are called 
"capitalism." Three features are notable about this development as a whole. 

In the first place, each stage crated the conditions which tended to bring about the next 
stage; therefore we could say, in a sense, that each stage committed suicide. The original 
economic organization of self-sufficient agrarian units (manors) was in a society 
organized so that its upper ranks — the lords, lay and ecclesiastical — found their desires 
for necessities so well met that they sought to exchange their surpluses of necessities for 
luxuries of remote origin. This gave rise to a trade in foreign luxuries (spices, fine 
textiles, fine metals) which was the first evidence of the stage of commercial capitalism. 
In this second stage, mercantile profits and widening markets created a demand for 
textiles and other goods which could be met only by application of power to production. 
This gave the third stage: industrial capitalism. The stage of industrial capitalism soon 
gave rise to such an insatiable demand for heavy fixed capital, like railroad lines, steel 
mills, shipyards, and so on, that these investments could not be financed from the profits 
and private fortunes of individual proprietors. New instruments for financing industry 
came into existence in the form of limited-liability corporations and investment banks. 
These were soon in a position to control the chief parts of the industrial system, since 
they provided capital to it. This gave rise to financial capitalism. The control of financial 
capitalism was used to integrate the industrial system into ever-larger units with 
interlinking financial controls. This made possible a reduction of competition with a 
resulting increase in profits. As a result, the industrial system soon found that it was again 
able to finance its own expansion from its own profits, and, with this achievement, 
financial controls were weakened, and the stage of monopoly capitalism arrived. In this 
fifth stage, great industrial units, working together either directly or through cartels and 
trade associations, were in a position to exploit the majority of the people. The result was 
a great economic crisis which soon developed into a struggle for control of the state — the 
minority hoping to use political power to defend their privileged position, the majority 
hoping to use the state to curtail the power and privileges of the minority. Both hoped to 
use the power of the state to find some solution to the economic aspects of the crisis. This 
dualist struggle dwindled with the rise of economic and social pluralism after 1945. 

A Depression Accompanies Transition to Various Stages 

The second notable feature of this whole development is that the transition of each 
stage to the next was associated with a period of depression or low economic activity. 
This was because each stage, after an earlier progressive phase, became later, in its final 
phase, an organization of vested interests more concerned with protecting its established 
modes of action than in continuing progressive changes by the application of resources to 
new, improved methods. This is inevitable in any social organization, but is peculiarly so 
in regard to capitalism. 



The Primary Goal of Capitalism 

The third notable feature of the whole development is closely related to this special 
nature of capitalism. Capitalism provides very powerful motivations for economic 
activity because it associates economic motivations so closely with self-interest. But this 
same 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 a 
motivation contributes very readily to a loss of economic coordination. Each 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 his 
activities 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 primarily 
seeking to achieve prosperity, high production, high consumption, political power, 
patriotic improvement, or moral uplift. Any of these may be achieved under capitalism, 
and any (or all) of them may he sacrificed and lost under capitalism, depending on this 
relationship to the primary goal of capitalist activity — the pursuit of profits. During the 
nine-hundred-year history of capitalism, it has, at various times, contributed both to the 
achievement and to the destruction of these other social goals. 

Commercial Capitalism 

The 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. In this effort, goods went from places 
where they were less valuable to places where they were more valuable, while money, 
doing the same thing, moved in the opposite direction. This valuation, which determined 
the movement both of goods and of money and which made them move in opposite 
directions, 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. Goods 
moved from low-price areas to high-price areas, and money moved from high-price areas 
to low-price areas, because goods were more valuable where prices were high and money 
was more valuable where prices were low. 

Money and Goods Are Different 

Thus, clearly, money and goods are not the same thing but are, on the contrary, 
exactly opposite things. Most confusion in economic thinking arises from failure to 
recognize this fact. Goods are wealth which you have, while money is a claim on wealth 
which you do not have. Thus goods are an asset; money is a debt. If goods are wealth; 
money is not wealth, or negative wealth, or even anti-wealth. They always behave in 
opposite ways, just as they usually move in opposite directions. If the value of one goes 
up, the value of the other goes down, and in the same proportion. The value of goods, 
expressed in money, is called "prices," while the value of money, expressed in goods, is 
called "value." 



The Rise of Commercial Capitalism 

Commercial capitalism arose when merchants, carrying goods from one area to 
another, were able to sell these goods at their destination for a price which covered 
original cost, all costs of moving the goods, including the merchant's expenses, and a 
profit. This development, which began as the movement of luxury goods, increased 
wealth because it led to specialization of activities both in crafts and in agriculture, which 
increased skills and output, and also brought into the market new commodities. 

The Development of Mercantilism 

Eventually, this stage of commercial capitalism became institutionalized into a 
restrictive system, sometimes called "mercantilism," in which merchants sought to gain 
profits, not from the movements of goods but from restricting the movements of goods. 
Thus the pursuit of profits, which had earlier led to increased prosperity by increasing 
trade and production, became a restriction on both trade and production, because profit 
became an end in itself rather than an accessory mechanism in the economic system as a 
whole. 

The way in which commercial capitalism (an expanding economic organization) was 
transformed into mercantilism (a restrictive economic organization) twice in our past 
history is very revealing not only of the nature of economic systems, and of men 
themselves, but also of the nature of economic crisis and what can be done about it. 

Merchants Restrict Trade to Increase Profits 

Under commercial capitalism, merchants soon discovered that an increasing flow of 
goods from a low-price area to a high-price area tended to raise prices in the former and 
to lower prices in the latter. Every time a shipment of spices came into London, the price 
of spices there began to fall, while the arrival of buyers and ships in Malacca gave prices 
there an upward spurt. This trend toward equalization of price levels between two areas 
because of the double, and reciprocal, movement of goods and money jeopardized profits 
for merchants, however much it may have satisfied producers and consumers at either 
end. It did this by reducing the price differential between the two areas and thus reducing 
the margin within which the merchant could make his profit. It did not take shrewd 
merchants long to realize that they could maintain this price differential, and thus their 
profits, if they could restrict the flow of goods, so that an equal volume of money flowed 
for a reduced volume of goods. In this way, shipments were decreased, costs were 
reduced, but profits were maintained. 

Two things are notable in this mercantilist situation. In the first place, the merchant, 
by his restrictive practices, was, in essence, increasing his own satisfaction by reducing 
that of the producer at one end and of the consumer at the other end; he was able to do 
this because he was in the middle between them. In the second place, so long as the 
merchant, in his home port, was concerned with goods, he was eager that the prices of 
goods should be, and remain, high. 



Merchants Became Concerned with Lending of Money 

In the course of time, however, some merchants began to shift their attention from the 
goods aspect of commercial interchange to the other, monetary, side of the exchange. 
They began to accumulate the profits of these transactions, and became increasingly 
concerned, not with the shipment and exchange of goods, but with the shipment and 
exchange of moneys. In time they became concerned with the lending of money to 
merchants 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 New Bankers Were Eager for High Interest Rates 

In this process the attitudes and interests of these new bankers became totally opposed 
to those of the merchants (although few of either recognized the situation). Where the 
merchant had been eager for high prices and was increasingly eager for low interest rates, 
the banker was eager for a high value of money (that is, low prices) and high interest 
rates. Each was concerned to maintain or to increase the value of the half of the 
transaction (goods for money) with which he was directly concerned, with relative 
neglect of the transaction itself (which was of course the concern of the producers and the 
consumers). 

The Operations of Banking and Finance Were Concealed So 

They Appeared Difficult to Master 

In sum, specialization of economic activities, by breaking up the economic process, 
had made it possible for people to concentrate on one portion of the process and, by 
maximizing that portion, to jeopardize the rest. The process was not only broken up into 
producers, exchangers, and consumers but there were also two kinds of exchangers (one 
concerned with goods, the other with money), with almost antithetical, short-term, aims. 
The problems which inevitably arose could be solved and the system reformed only by 
reference to the system as a whole. Unfortunately, however, three parts of the system, 
concerned with the production, transfer, and consumption of goods, were concrete and 
clearly visible so that almost anyone could grasp them simply by examining them, while 
the operations of banking and finance were concealed, scattered, and abstract so that they 
appeared to many to be difficult. To add to this, bankers themselves did everything they 
could to make their activities more secret and more esoteric. Their activities were 
reflected in mysterious marks in ledgers which were never opened to the curious outsider. 

The Relationship Between Goods and Money 

Is Clear to Bankers 

In the course of time the central fact of the developing economic system, the 
relationship between goods and money, became clear, at least to bankers. This 



relationship, 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 money 
and goods. An increase in three of these (demand for goods, supply of money, speed of 
circulation) would move the prices of goods up and the value of money down. This 
inflation was objectionable to bankers, although desirable to producers and merchants. 
On 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 obtained 
more goods for less money). The other factors worked in the opposite direction, so that 
an increase in them (supply of goods, demand for money, and slowness of circulation or 
exchange) would be deflationary. 

Inflationary and Deflationary Prices Have Been a Major 

Force in History for 600 Years 

Such changes of prices, either inflationary or deflationary, have been major forces in 
history for the last six centuries at least. Over that long period, their power to modify 
men's lives and human history has been increasing. This has been reflected in two ways. 
On the one hand, rises in prices have generally encouraged increased economic activity, 
especially the production of goods, while, on the other hand, price changes have served to 
redistribute wealth within the economic system. Inflation, especially a slow steady rise in 
prices, encourages producers, because it means that they can commit themselves to costs 
of production on one price level and then, later, offer the finished product for sale at a 
somewhat higher price level. This situation encourages production because it gives 
confidence of an almost certain profit margin. On the other hand, production is 
discouraged 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. 

Bankers Obsessed With Maintaining Value of Money 

The redistribution of wealth by changing prices is equally important but attracts much 
less attention. Rising prices benefit debtors and injure creditors, while falling prices do 
the opposite. A debtor called upon to pay a debt at a time when prices are higher than 
when he contracted the debt must yield up less goods and services than he obtained at the 
earlier date, on a lower price level when he borrowed the money. A creditor, such as a 
bank, which has lent money — equivalent to a certain quantity of goods and services — on 
one price level, gets back the same amount of money — but a smaller quantity of goods 
and services — when repayment comes at a higher price level, because the money repaid 
is 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 have 
traditionally given for this obsession — that "sound money" maintains "business 
confidence" — has been propagandist rather than accurate. 

The Two Major Goals of Bankers 



Hundreds of years ago, bankers began to specialize, with the richer and more 
influential ones associated increasingly with foreign trade and foreign-exchange 
transactions. Since these were richer and more cosmopolitan and increasingly concerned 
with questions of political significance, such as stability and debasement of currencies, 
war and peace, dynastic marriages, and worldwide trading monopolies, they became the 
financiers and financial advisers of governments. Moreover, since their relationships with 
governments were always in monetary terms and not real terms, and since they were 
always obsessed with the stability of monetary exchanges between one country's money 
and another, they used their power and influence to do two things: (1) to get all money 
and debts expressed in terms of a strictly limited commodity — ultimately gold; and (2) to 
get all monetary matters out of the control of governments and political authority, on the 
ground that they would be handled better by private banking interests in terms of such a 
stable value as gold. 

These efforts ... [were accelerated] with the shift of commercial capitalism into 
mercantilism and the destruction of the whole pattern of social organization based on 
dynastic monarchy, professional mercenary armies, and mercantilism, in the series of 
wars which shook Europe from the middle of the seventeenth century to 1815. 
Commercial capitalism passed through two periods of expansion each of which 
deteriorated into a later phase of war, class struggles, and retrogression. The first stage, 
associated with the Mediterranean Sea, was dominated by the North Italians and 
Catalonians but ended in a phase of crisis after 1300, which was not finally ended until 
1558. The second stage of commercial capitalism, which was associated with the Atlantic 
Ocean, was dominated by the West Iberians, the Netherlanders, and the English. It had 
begun to expand by 1440, was in full swing by 1600, but by the end of the seventeenth 
century had become entangled in the restrictive struggles of state mercantilism and the 
series of wars which ravaged Europe from 1667 to 1815. 

Supremacy of Charter Companies 

The commercial capitalism of the 1440-1815 period was marked by the supremacy of 
the Chartered Companies, such as the Hudson's Bay, the Dutch and British East Indian 
companies, the Virginia Company, and the Association of Merchant Adventurers 
(Muscovy Company). England's greatest rivals in all these activities were defeated by 
England's greater power, and, above all, its greater security derived from its insular 
position. 

Industrial Capitalism 1770-1850 

Britain's victories over Louis XIV in the period 1667-1715 and over the French 
Revolutionary governments and Napoleon in 1792-1815 had many causes, such as its 
insular position, its ability to retain control of the sea, its ability to present itself to the 
world as the defender of the freedoms and rights of small nations and of diverse social 
and religious groups. Among these numerous causes, there were a financial one and an 
economic one. Financially, England had discovered the secret of credit. Economically, 
England had embarked on the Industrial Revolution. 



The Founding of the Bank of England Is One of the 

Great Dates in World History 

Credit had been known to the Italians and Netherlanders long before it became one of 
the instruments of English world supremacy. Nevertheless, the founding of the Bank of 
England by William Paterson and his friends in 1694 is one of the great dates in world 
history. For generations men had sought to avoid the one drawback of gold, its heaviness, 
by using pieces of paper to represent specific pieces of gold. Today we call such pieces of 
paper gold certificates. Such a certificate entitles its bearer to exchange it for its piece of 
gold on demand, but in view of the convenience of paper, only a small fraction of 
certificate holders ever did make such demands. It early became clear that gold need be 
held on hand only to the amount needed to cover the fraction of certificates likely to be 
presented for payment; accordingly, the rest of the gold could be used for business 
purposes, or, what amounts to the same thing, a volume of certificates could be issued 
greater than the volume of gold reserved for payment of demands against them. Such an 
excess volume of paper claims against reserves we now call bank notes. 

Bankers Create Money Out of Nothing 

In effect, this creation of paper claims greater than the reserves available means that 
bankers were creating money out of nothing. The same thing could be done in another 
way, not by note-issuing banks but by deposit banks. Deposit bankers discovered that 
orders and checks drawn against deposits by depositors and given to third persons were 
often not cashed by the latter but were deposited to their own accounts. Thus there were 
no actual movements of funds, and payments were made simply by bookkeeping 
transactions on the accounts. Accordingly, it was necessary for the banker to keep on 
hand in actual money (gold, certificates, and notes) no more than the fraction of deposits 
likely to be drawn upon and cashed; the rest could be used for loans, and if these loans 
were made by creating a deposit for the borrower, who in turn would draw checks upon it 
rather than withdraw it in money, such "created deposits" or loans could also be covered 
adequately by retaining reserves to only a fraction of their value. Such created deposits 
also were a creation of money out of nothing, although bankers usually refused to express 
their actions, either note issuing or deposit lending, in these terms. William Paterson, 
however, on obtaining the charter of the Bank of England in 1694, to use the moneys he 
had won in privateering, said, "The Bank hath benefit of interest on all moneys which it 
creates out of nothing." This was repeated by Sir Edward Holden, founder of the Midland 
Bank, on December 18, 1907, and is, of course, generally admitted today. 

The Creation of Credit 

This organizational structure for creating means of payment out of nothing, which we 
call credit, was not invented by England but was developed by her to become one of her 
chief weapons in the victory over Napoleon in 1815. The emperor, as the last great 
mercantilist, could not see money in any but concrete terms, and was convinced that his 



efforts to fight wars on the basis of "sound money," by avoiding the creation of credit, 
would ultimately win him a victory by bankrupting England. He was wrong, although the 
lesson has had to be relearned by modern financiers in the twentieth century. 

Britain's Victory Over Napoleon 

Britain's victory over Napoleon was also helped by two economic innovations: the 
Agricultural Revolution, which was well established there in 1720, and the Industrial 
Revolution, which was equally well established there by 1776, when Watt patented his 
steam engine. The Industrial Revolution, like the Credit Revolution, has been much 
misunderstood, both at the time and since. This is unfortunate, as each of these has great 
significance, both to advanced and to underdeveloped countries, in the twentieth century. 
The Industrial Revolution was accompanied by a number of incidental features, such as 
growth of cities through the factory system, the rapid growth of an unskilled labor supply 
(the proletariat), the reduction of labor to the status of a commodity in the competitive 
market, and the shifting of ownership of tools and equipment from laborers to a new 
social class of entrepreneurs. None of these constituted the essential feature of 
industrialism, which was, in fact, the application of nonliving power to the productive 
process. This application, symbolized in the steam engine and the water wheel, in the 
long run served to reduce or eliminate the relative significance of unskilled labor and the 
use of human or animal energy in the productive process (automation) and to disperse the 
productive process from cities, but did so, throughout, by intensifying the vital feature of 
the system, the use of energy from sources other than living bodies. 

The Rise of Large Industrial Enterprises in Britain 

In this continuing process, Britain's early achievement of industrialism gave it such 
great profits that these, combined with the profits derived earlier from commercial 
capitalism and the simultaneous profits derived from the unearned rise in land values 
from new cities and mines, made its early industrial enterprises largely self-financed or at 
least locally financed. They were organized in proprietorships and partnerships, had 
contact with local deposit banks for short-term current loans, but had little to do with 
international bankers, investment banks, central governments, or corporative forms of 
business organization. 

This early stage of industrial capitalism, which lasted in England from about 1770 to 
about 1850, was shared to some extent with Belgium and even France, but took quite 
different forms in the United States, Germany, and Italy, and almost totally different 
forms in Russia or Asia. The chief reason for these differences was the need for raising 
funds (capital) to pay for the rearrangement of the factors of production (]and, labor, 
materials, skill, equipment, and so on) which industrialism required. Northwestern 
Europe, and above all England, had large savings for such new enterprises. Central 
Europe and North America had much less, while eastern and southern Europe had very 
little in private hands. 

The Role of the International Investment Banker 



The more difficulty an area had in mobilizing capital for industrialization, the more 
significant was the role of investment bankers and of governments in the industrial 
process. In fact, the early forms of industrialism based on textiles, iron, coal, and steam 
spread so slowly from England to Europe that England was itself entering upon the next 
stage, financial capitalism, by the time Germany and the United States (about 1850) were 
just beginning to industrialize. This new stage of financial capitalism, which continued to 
dominate England, France, and the United States as late as 1930, was made necessary by 
the great mobilizations of capital needed for railroad building after 1830. The capital 
needed for railroads, with their enormous expenditures on track and equipment, could not 
be raised from single proprietorships or partnerships or locally, but, instead, required a 
new form of enterprise — the limited-liability stock corporation — and a new source of 
funds — the international investment banker who had, until then, concentrated his 
attention almost entirely on international flotations of government bonds. The demands of 
railroads for equipment carried this same development, almost at once, into steel 
manufacturing and coal mining. 

Financial Capitalism, 1850 - 1931 

This third stage of capitalism is of such overwhelming significance in the history of 
the twentieth century, and its ramifications and influences have been so subterranean and 
even occult, that we may be excused if we devote considerate attention to its organization 
and methods. Essentially what it did was to take the old disorganized and localized 
methods of handling money and credit and organize them into an integrated system, on 
an international basis, which worked with incredible and well-oiled facility for many 
decades. The center of that system was in London, with major offshoots in New York and 
Paris, and it has left, as its greatest achievement, an integrated banking system and a 
heavily capitalized — if now largely obsolescent — framework of heavy industry, reflected 
in railroads, steel mills, coal mines, and electrical utilities. 

This system had its center in London for four chief reasons. First was the great volume 
of savings in England, resting on England's early successes in commercial and industrial 
capitalism. Second was England's oligarchic social structure (especially as reflected in its 
concentrated landownership and limited access to educational opportunities) which 
provided a very inequitable distribution of incomes with large surpluses coming to the 
control of a small, energetic upper class. Third was the fact that this upper class was 
aristocratic but not noble, and thus, based on traditions rather than birth, was quite willing 
to recruit both money and ability from lower levels of society and even from outside the 
country, welcoming American heiresses and central-European Jews to its ranks, almost as 
willingly as it welcomed monied, able, and conformist recruits from the lower classes of 
Englishmen, whose disabilities from educational deprivation, provincialism, and 
Nonconformist (that is non-Anglican) religious background generally excluded them 
from the privileged aristocracy. Fourth (and by no means last) in significance was the 
skill in financial manipulation, especially on the international scene, which the small 
group of merchant bankers of London had acquired in the period of commercial and 



industrial capitalism and which lay ready for use when the need for financial capitalist 
innovation became urgent. 

The Dynasties of International Bankers 

The merchant bankers of London had already at hand in 1810-1850 the Stock 
Exchange, the Bank of England, and the London money market when the needs of 
advancing industrialism called all of these into the industrial world which they had 
hitherto ignored. In time they brought into their financial network the provincial banking 
centers, organized as commercial banks and savings banks, as well as insurance 
companies, to form all of these into a single financial system on an international scale 
which manipulated the quantity and flow of money so that they were able to influence, if 
not control, governments on one side and industries on the other. The men who did this, 
looking backward toward the period of dynastic monarchy in which they had their own 
roots, aspired to establish dynasties of international bankers and were at least as 
successful at this as were many of the dynastic political rulers. The greatest of these 
dynasties, of course, were the descendants of Meyer Amschel Rothschild (1743-1812) of 
Frankfort, whose male descendants, for at least two generations, generally married first 
cousins or even nieces. Rothschild's five sons, established at branches in Vienna, London, 
Naples, and Paris, as well as Frankfort, cooperated together in ways which other 
international banking dynasties copied but rarely excelled. 

The Financial Activities of International Bankers 

In concentrating, as we must, on the financial or economic activities of international 
bankers, we must not totally ignore their other attributes. They were, especially in later 
generations, cosmopolitan rather than nationalistic... They were usually highly civilized, 
cultured gentlemen, patrons of education and of the arts, so that today colleges, 
professorships, opera companies, symphonies, libraries, and museum collections still 
reflect their munificence. For these purposes they set a pattern of endowed foundations 
which still surround us today. 

The Key International Banking Families 

The names of some of these banking families are familiar to all of us and should he 
more so. They include Raring, Lazard, Erlanger, Warburg, Schroder, Seligman, the 
Speyers, Mirabaud, Mallet, Fould, and above all Rothschild and Morgan. Even after these 
banking families became fully involved in domestic industry by the emergence of 
financial capitalism, they remained different from ordinary bankers in distinctive ways: 
(1) they were cosmopolitan and international; (2) they were close to governments and 
were particularly concerned with questions of government debts, including foreign 
government debts, even in areas which seemed, at first glance, poor risks, like Egypt, 
Persia, Ottoman Turkey, Imperial China, and Latin America; (3) their interests were 
almost exclusively in bonds and very rarely in goods, since they admired "liquidity" and 
regarded commitments in commodities or even real estate as the first step toward 
bankruptcy; (4) 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 these 
values; and (5) they were almost equally devoted to secrecy and the secret use of 
financial influence in political life. These bankers came to be called "international 
bankers" and, more particularly, were known as "merchant bankers" in England, "private 
bankers" in France, and "investment bankers" in the United States. In all countries they 
carried on various kinds of banking and exchange activities, but everywhere they were 
sharply distinguishable from other, more obvious, kinds of banks, such as savings banks 
or commercial banks. 

The International Banking Fraternity Operates 

As Secretive Private Firms 

One of their less obvious characteristics was that they remained as private 
unincorporated firms, usually partnerships, until relatively recently, offering no shares, no 
reports, and usually no advertising to the public. This risky status, which deprived them 
of limited liability, was retained, in most cases, until modern inheritance taxes made it 
essential to surround such family wealth with the immortality of corporate status for tax- 
avoidance purposes. This persistence as private firms continued because it ensured the 
maximum of anonymity and secrecy to persons of tremendous public power who dreaded 
public knowledge of their activities as an evil almost as great as inflation. As a 
consequence, ordinary people had no way of knowing the wealth or areas of operation of 
such firms, and often were somewhat hazy as to their membership. Thus, people of 
considerable political knowledge might not associate the names Walter Burns, Clinton 
Dawkins, Edward Grenfell, Willard Straight, Thomas Lamont, Dwight Morrow, Nelson 
Perkins, Russell Leffingwell, Elihu Root, John W. Davis, John Foster Dulles, and S. 
Parker Gilbert with the name "Morgan," yet all these and many others were parts of the 
system of influence which centered on the J. P. Morgan office at :3 Wall Street. This 
firm, like others of the international banking fraternity, constantly operated through 
corporations and governments, yet remained itself an obscure private partnership until 
international financial capitalism was passing from its deathbed to the grave. J. P. 
Morgan and Company, originally founded in London as George Peabody and Company 
in 1838, was not incorporated until March 21, 1940, and went out of existence as a 
separate entity on April 24, 1959, when it merged with its most important commercial 
bank subsidiary, the Guaranty Trust Company. The London affiliate, Morgan Grenfell, 
was incorporated in , and still exists. 

International Bankers Felt Politicians Could Not Be Trusted 

With Control of the Monetary System 

The influence of financial capitalism and of the international bankers who created it 
was exercised both on business and on governments, but could have done neither if it had 
not been able to persuade both these to accept two "axioms" of its own ideology. Both 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 system; accordingly, 
the 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. 

The Gold Standard 

For example, bankers called the process of establishing a monetary system on gold 
"stabilization," and implied that this covered, as a single consequence, stabilization of 
exchanges and stabilization of prices. It really achieved only stabilization of exchanges, 
while its influence on prices were quite independent and incidental, and might be un- 
stabilizing (from its usual tendency to force prices downward by limiting the supply of 
money). As a consequence, many persons, including financiers and even economists, 
were astonished to discover, in the twentieth century, that the gold standard gave stable 
exchanges and unstable prices. It had, however, already contributed to a similar, but less 
extreme, situation in much of the nineteenth century. 

Exchanges were stabilized on the gold standard because by law, in various countries, 
the monetary unit was made equal to a fixed quantity of gold, and the two were made 
exchangeable at that legal ratio. In the period before 1914, currency was stabilized in 
certain countries as follows: 

In Britain: 77s. 10 Vi d. equaled a standard ounce (1 1/12 pure gold). 

In the United States: $20.67 equaled a fine ounce (12/12 pure gold). 

In France: 3,447.74 francs equaled a fine kilogram of gold. 

In Germany: 2,790 marks equaled a fine kilogram of gold. 

These relationships were established by the legal requirement that a person who 
brought gold, gold coins, or certificates to the public treasury (or other designated places) 
could convert any one of these into either of the others in unlimited amounts for no cost. 
As a result, on a full gold standard, gold had a unique position: it was, at the same time, 
in the sphere of money and in the sphere of wealth. In the sphere of money, the value of 
all other kinds of money was expressed in terms of gold: and, in the sphere of real wealth, 
the values of all other kinds of goods were expressed in terms of gold as money. If we 
regard the relationships between money and goods as a seesaw in which each of these 
was at opposite ends, so that the value of one rose just as much as the value of the other 
declined, then we must see gold as the fulcrum of the seesaw on which this relationship 
balances, but which does not itself go up or down. 

It Is Impossible to Understand World History Without an 

Understanding of Money 



Since it is quite impossible to understand the history of the twentieth century without 
some understanding of the role played by money in domestic affairs and in foreign 
affairs, as well as the role played by bankers in economic life and in political life, we 
must take at least a glance at each of these four subjects. 

Central Banks Were Private Institutions Owned by Shareholders 

In each country the supply of money took the form of an inverted pyramid or cone 
balanced on its point. In the point was a supply of gold and its equivalent certificates; on 
the intermediate levels was a much larger supply of notes; and at the top, with an open 
and expandable upper surface, was an even greater supply of deposits. Each level used 
the levels below it as its reserves, and, since these lower levels had smaller quantities of 
money, they were "sounder." A holder of claims on the middle or upper level could 
increase his confidence in his claims on wealth by reducing them to a lower level, 
although, of course, if everyone, or any considerable number of persons, tried to do this 
at the same time the volume of reserves would be totally inadequate. Notes were issued 
by "banks of emission" or "banks of issue," and were secured by reserves of gold or 
certificates held in their own coffers or in some central reserve. The fraction of such a 
note issue held in reserve depended upon custom, banking regulations (including the 
terms of a bank's charter), or statute law. There were formerly many banks of issue, but 
this function is now generally restricted to a few or even to a single "central bank" in each 
country. Such banks, even central banks, were private institutions, owned by shareholders 
who profited by their operations. In the 1914-1939 period, in the United States, Federal 
Reserve Notes were covered by gold certificates to 40 percent of their value, but this was 
reduced to 25 percent in 1945. The Bank of England, by an Act of 1928, had its notes 
uncovered up to [250 million, and covered by gold for 100 percent value over that 
amount. The Bank of France, in the same year, set its note cover at 35 percent. These 
provisions could always be set aside or changed in an emergency, such as war. 

Determining the Volume of Money in the Community 

Deposits on the upper level of the pyramid were called by this name, with typical 
bankers' ambiguity, in spite of the fact that they consisted of two utterly different kinds of 
relationships: (1) "lodged deposits," which were real claims left by a depositor in a bank, 
on which the depositor might receive interest, since such deposits were debts owed by the 
bank to the depositor; and (2) "created deposits," which were claims created by the bank 
out of nothing as loans from the bank to "depositors" who had to pay interest on them, 
since these represented debt from them to the bank. In both cases, of course, checks could 
be drawn against such deposits to make payments to third parties, which is why both 
were called by the same name. Both form part of the money supply. Lodged deposits as a 
form of savings are deflationary, while created deposits, being an addition to the money 
supply, are inflationary. The volume of the latter depends on a number of factors of 
which the chief are the rate of interest and the demand for such credit. These two play a 
very significant role in determining the volume of money in the community, since a large 
portion of that volume, in an advanced economic community, is made up of checks 



drawn against deposits. The volume of deposits banks can create, like the amount of 
notes they can issue, depends upon the volume of reserves available to pay whatever 
fraction of checks are cashed rather than deposited. These matters may be regulated by 
laws, by bankers' rules, or simply by local customs. In the United States deposits were 
traditionally limited to ten times reserves of notes and gold. In Britain it was usually 
nearer twenty times such reserves. In all countries the demand for and volume of such 
credit was larger in time of a boom and less in time of a depression. This to a 
considerable extent explains the inflationary aspect of a depression, the combination 
helping to form the so-called "business cycle." 

Central Banks Surrounded by Invisible Private 

Investment Banking Firms 

In the course of the nineteenth century, with the full establishment of the gold standard 
and of the modern banking system, there grew up around the fluctuating inverted pyramid 
of the money supply a plethora of financial establishments which came to assume the 
configurations of a solar system; that is, of a central bank surrounded by satellite 
financial institutions. In most countries the central bank was surrounded closely by the 
almost invisible private investment banking firms. These, like the planet Mercury, could 
hardly be seen in the dazzle emitted by the central bank which they, in fact, often 
dominated. Yet a close observer could hardly fail to notice the close private associations 
between these private, international bankers and the central bank itself. In France, for 
example, in 1936 when the Bank of France was reformed, its Board of Regents 
(directors) was still dominated by the names of the families who had originally set it up in 
1800; to these had been added a few more recent names, such as Rothschild (added in 
1819); in some cases the name might not be readily recognized because it was that of a 
son-in-law rather than that of a son. Otherwise, in 1914, the names, frequently those of 
Protestants of Swiss origin (who arrived in the eighteenth century) or of Jews of German 
origin (who arrived in the nineteenth century), had been much the same for more than a 
century. 

The Bank of England and Its Private Banking Firms 

In England a somewhat similar situation existed, so that even in the middle of the 
twentieth century the Members of the Court of the Bank of England were chiefly 
associates of the various old "merchant banking" firms such as Baring Brothers, Morgan 
Grenfell, Lazard Brothers, and others. 

Commercial Banks Operate Outside Central Banks and Private Banking Firms 

In a secondary position, outside the central core, are the commercial banks, called in 
England the "joint-stock banks," and on the Continent frequently known as "deposit 
banks." These include such famous names as Midland Bank, Lloyd's Bank, Barclays 
Bank in England, the National City Bank in the United States, the Credit Lyonnais in 
France, and the Darmstadter Bank in Germany. 



Savings Banks, Insurance Funds and Trust Companies 

Operate on the Outside Ring 

Outside this secondary ring is a third, more peripheral, assemblage of institutions that 
have little financial power but do have the very significant function of mobilizing funds 
from the public. This includes a wide variety of savings banks, insurance firms, and trust 
companies. 

Naturally, these arrangements vary greatly from place to place, especially as the 
division of banking functions and powers are not the same in all countries. In France and 
England the private bankers exercised their powers through the central bank and had 
much more influence on the government and on foreign policy and much less influence 
on industry, because in these two countries, unlike Germany, Italy, the United States, or 
Russia, private savings were sufficient to allow much of industry to finance itself without 
recourse either to bankers or government. In the United States much industry was 
financed by investment bankers directly, and the power of these both on industry and on 
government was very great, while the central bank (the New York Federal Reserve Bank) 
was established late (1913) and became powerful much later (after financial capitalism 
was passing from the scene). In Germany industry was financed and controlled by the 
discount banks, while the central bank was of little power or significance before 1914. In 
Russia the role of the government was dominant in much of economic life, while in Italy 
the situation was backward and complicated. 

The Supply of Money 

We have said that two of the five factors which determined the value of money (and 
thus the price level of goods) are the supply and the demand for money. The supply of 
money in a single country was subject to no centralized, responsible control in most 
countries over recent centuries. Instead, there were a variety of controls of which some 
could be influenced by bankers, some could be influenced by the government, and some 
could hardly be influenced by either. Thus, the various parts of the pyramid of money 
were but loosely related to each other. Moreover, much of this looseness arose from the 
fact that the controls were compulsive in a deflationary direction and were only 
permissive in an inflationary direction. 

This last point can be seen in the fact that the supply of gold could be decreased but 
could hardly be increased. If an ounce of gold was added to the point of the pyramid in a 
system where law and custom allowed To percent reserves on each level, it could permit 
an increase of deposits equivalent to $2067 on the uppermost level. If such an ounce of 
gold were withdrawn from a fully expanded pyramid of money, this would compel a 
reduction of deposits by at least this amount, probably by a refusal to renew loans. 

The Money Power Persuaded Governments to Establish a 



Deflationary Monetary Unit 

Throughout modern history the influence of the gold standard has been deflationary, 
because the natural output of gold each year, except in extraordinary times, has not kept 
pace with the increase in output of goods. Only new supplies of gold, or the suspension of 
the gold standard in wartime, or the development of new kinds of money (like notes and 
checks) which economize the use of gold, have saved our civilization from steady price 
deflation over the last couple of centuries. As it was, we had two long periods of such 
deflation from 1818 to 1850 and from 1872 to about 1897. The three surrounding periods 
of inflation (1790-1817, 1850-1872, 1897-1921) were caused by (1) the wars of the 
French Revolution and Napoleon when most countries were not on gold; (2) the new gold 
strikes of California and Alaska in 1849-1850, followed by a series of wars, which 
included the Crimean War of 1854-1856, the Austrian-French War of 1859, the American 
Civil War of 1861-1865, the Austro-Prussian and Franco-Prussian wars of 1866 and 
1870, and even the Russo-Turkish War of 1877; and (3) the Klondike and Transvaal gold 
strikes of the late 1890's, supplemented by the new cyanide method of refining gold 
(about 1897) and the series of wars from the Spanish- American War of 1898-1899, the 
Boer War of 1899-1902, and the Russo-Japanese War of 1904-1905, to the almost 
uninterrupted series of wars in the decade 1911-1921. In each case, the three great 
periods of war ended with an extreme deflationary crisis (1819, 1873, 1921) as the 
influential Money Power persuaded governments to reestablish a deflationary monetary 
unit with a high gold content. 

Money Power Is More Concerned With Money Than Goods 

The obsession of the Money Power with deflation was partly a result of their concern 
with money rather than with goods, but was also founded on other factors, one of which 
was 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 an 
industrial system pouring out increasing supplies of goods, but in spite of falling prices 
(with its increasing value of money) the interest rate tended to fall rather than to rise. This 
occurred because the relative limiting of the supply of money in business was not 
reflected in the world of finance where excess profits of finance made excess funds 
available for lending. Moreover, the old traditions of merchant banking continued to 
prevail in financial capitalism even to its end in 1931. It continued to emphasize bonds 
rather than equity securities (stocks), to favor government issues rather than private 
offerings, and to look to foreign rather than to domestic investments. Until 1825, 
government bonds made up almost the whole of securities on the London Stock 
Exchange. In 1843, such bonds, usually foreign, were 80 percent of the securities 
registered, and in 1875 they were still 68 percent. The funds available for such loans were 
so great that there were, in the nineteenth century, sometimes riots by subscribers seeking 
opportunities to buy security flotations; and offerings from many remote places and 
obscure activities commanded a ready sale. The excess of savings led to a fall in the price 
necessary to hire money, so that the interest rate on British government bonds fell from 
4.42 percent in 1820 to 3.11 in 1850 to 2.76 in 1900. This tended to drive savings into 
foreign fields where, on the whole, they continued to seek government issues and fixed 



interest securities. All this served to strengthen the merchant bankers' obsession both with 
government influence and with deflation (which would increase value of money and 
interest rates). 

Banker Policies Lead to Inflation and Deflation 

Another paradox of banking practice arose from the fact that bankers, who loved 
deflation, often acted in an inflationary fashion from their eagerness to lend money at 
interest. Since they make money out of loans, they are eager to increase the amounts of 
bank credit on loan. But this is inflationary. The conflict between the deflationary ideas 
and inflationary practices of bankers had profound repercussions on business. The 
bankers made loans to business so that the volume of money increased faster than the 
increase in goods. The result was inflation. When this became clearly noticeable, the 
bankers would flee to notes or specie by curtailing credit and raising discount rates. This 
was beneficial to bankers in the short run (since it allowed them to foreclose on collateral 
held for loans), but it could be disastrous to them in the long run (by forcing the value of 
the collateral below the amount of the loans it secured). But such bankers' deflation was 
destructive to business and industry in the short run as well as the long run. 

Changing the Quality of Money 

The resulting fluctuation in the supply of money, chiefly deposits, was a prominent 
aspect of the "business cycle." The quantity of money could be changed by changing 
reserve requirements or discount (interest) rates. In the United States, for example, an 
upper limit has been set on deposits by requiring Federal Reserve member banks to keep 
a certain percentage of their deposits as reserves with the local Federal Reserve Bank. 
The percentage (usually from 7 to 26 percent) varies with the locality and the decisions of 
the Board of Governors of the Federal Reserve System. 

Central Banks Vary Money in Circulation 

Central banks can usually vary the amount of money in circulation by "open market 
operations" or by influencing the discount rates of lesser banks. In open market 
operations, a central bank buys or sells government bonds in the open market. If it buys, 
it releases money into the economic system; if it sells it reduces the amount of money in 
the community. The change is greater than the price paid for the securities. For example, 
if the Federal Reserve Bank buys government securities in the open market, it pays for 
these by check which is soon deposited in a bank. It thus increases this bank's reserves 
with the Federal Reserve Bank. Since banks are permitted to issue loans for several times 
the value of their reserves with the Federal Reserve Bank, such a transaction permits 
them to issue loans for a much larger sum. 

Central Banks Raise and Lower Interest Rates 

Central banks can also change the quantity of money by influencing the credit policies 
of other banks. This can be done by various methods, such as changing the re-discount 



rate or changing reserve requirements. By changing the re-discount rate we mean the 
interest rate which central banks charge lesser banks for loans backed by commercial 
paper or other security which these lesser banks have taken in return for loans. By raising 
the re-discount rate the central bank forces the lesser bank to raise its discount rate in 
order to operate at a profit; such a raise in interest rates tends to reduce the demand for 
credit and thus the amount of deposits (money). Lowering the re-discount rate permits an 
opposite result. 

Central Banks Force Local Banks to Decrease Credit 

Changing the reserve requirements as a method by which central banks can influence 
the credit policies of other banks is possible only in those places (like the United States) 
where there is a statutory limit on reserves. Increasing reserve requirements curtails the 
ability of lesser banks to grant credit, while decreasing it expands that ability. 

It is to be noted that the control of the central bank over the credit policies of local 
banks are permissive in one direction and compulsive in the other. They can compel these 
local banks to curtail credit and can only permit them to increase credit. This means that 
they have control powers against inflation and not deflation — a reflection of the old 
banking idea that inflation was bad and deflation was good. 

The Powers of Government Over Money 

The powers of governments over the quantity of money are of various kinds, and 
include (a) control over a central bank, (b) control over public taxation, and (c) control 
over public spending. The control of governments over central banks varies greatly from 
one country to another, but on the whole has been increasing. Since most central banks 
have been (technically) private institutions, this control is frequently based on custom 
rather than on law. In any case, the control over the supply of money which governments 
have through centra! banks is exercised by the regular banking procedures we have 
discussed. The powers of the government over the quantity of money in the community 
exercised through taxation and public spending are largely independent of banking 
control. Taxation tends to reduce the amount of money in a community and is usually a 
deflationary force; government spending tends to increase the amount of money in a 
community and is usually an inflationary force. The total effects of a government's policy 
will depend on which item is greater. An unbalanced budget will be inflationary; a budget 
with a surplus will be deflationary. 

A government can also change the amount of money in a community by other, more 
drastic, methods. By changing the gold content of the monetary unit they can change the 
amount of money in the community by a much greater amount. If, for example, the gold 
content of the dollar is cut in half, the amount of gold certificates will be able to be 
doubled, and the amount of notes and deposits reared on this basis will be increased many 
fold, depending on the customs of the community in respect to reserve requirements. 
Moreover, if a government goes off the gold standard completely — that is, refuses to 
exchange certificates and notes for specie — the amount of notes and deposits can be 



increased indefinitely because these are no longer limited by limited amounts of gold 
reserves. 

The Money Power — Controlled by International Investment Bankers — 

Dominates Business and Government 

In the various actions which increase or decrease the supply of money, governments, 
bankers, and industrialists have not always seen eye to eye. On the whole, in the period 
up to 1931, bankers, especially the Money Power controlled by the international 
investment bankers, were able to dominate both business and government. They could 
dominate business, especially in activities and in areas where industry could not finance 
its own needs for capital, because investment bankers had the ability to supply or refuse 
to supply such capital. Thus, Rothschild interests came to dominate many of the railroads 
of Europe, while Morgan dominated at least 26,000 miles of American railroads. Such 
bankers went further than this. In return for flotations of securities of industry, they took 
seats on the boards of directors of industrial firms, as they had already done on 
commercial banks, savings banks, insurance firms, and finance companies. From these 
lesser institutions they funneled capital to enterprises which yielded control and away 
from those who resisted. These firms were controlled through interlocking directorships, 
holding companies, and lesser banks. They engineered amalgamations and generally 
reduced competition, until by the early twentieth century many activities were so 
monopolized that they could raise their noncompetitive prices above costs to obtain 
sufficient profits to become self-financing and were thus able to eliminate the control of 
bankers. But before that stage was reached a relatively small number of bankers were in 
positions of immense influence in European and American economic life. As early as 
1909, Walter Rathenau, who was in a position to know (since he had inherited from his 
father control of the German General Electric Company and held scores of directorships 
himself), said, "Three hundred men, all of whom know one another, direct the economic 
destiny of Europe and choose their successors from among themselves." 

The Power of Investment Bankers Over Governments 

The 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-term 
treasury bills as well as long-term government bonds. Just as businessmen go to 
commercial banks for current capital advances to smooth over the discrepancies between 
their irregular and intermittent incomes and their periodic and persistent outgoes (such as 
monthly rents, annual mortgage payments, and weekly wages), so a government has to go 
to merchant bankers (or institutions controlled by them) to tide over the shallow places 
caused by irregular tax receipts. As experts in government bonds, the international 
bankers not only handled the necessary advances but provided advice to government 
officials 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 1961 
a Republican investment banker became Secretary of the Treasury in a Democratic 
Administration in Washington without significant comment from any direction. 



The Money Power Reigns Supreme and Unquestioned 

Naturally, the influence of bankers over governments during the age of financial 
capitalism (roughly 1850-1931) was not something about which anyone talked freely, but 
it has been admitted frequently enough by those on the inside, especially in England. In 
1852 Gladstone, chancellor of the Exchequer, declared, "The hinge of the whole situation 
was this: the government itself was not to be a substantive power in matters of Finance, 
but was to leave the Money Power supreme and unquestioned." On September 26, 1921, 
The Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could 
upset the whole fabric of government finance by refraining from renewing Treasury 
Bills." In 1924 Sir Drummond Fraser, vice-president of the Institute of Bankers, stated, 
"The Governor of the Bank of England must be the autocrat who dictates the terms upon 
which alone the Government can obtain borrowed money." 

Montagu Norman and J. P. Morgan Dominate the Financial World 

In addition to their power over government based on government financing and 
personal influence, bankers could steer governments in ways they wished them to go by 
other pressures. Since most government officials felt ignorant of finance, they sought 
advice from bankers whom they considered to be experts in the field. The history of the 
last century shows, as we shall see later, that the advice given to governments by bankers, 
like the advice they gave to industrialists, was consistently good for bankers, but was 
often disastrous for governments, businessmen, and the people generally. Such advice 
could be enforced if necessary by manipulation of exchanges, gold flows, discount rates, 
and even levels of business activity. Thus Morgan dominated Cleveland's second 
administration by gold withdrawals, and in 1936-1938 French foreign exchange 
manipulators paralyzed the Popular Front governments. As we shall see, the powers of 
these international bankers reached their peak in the last decade of their supremacy, 
1919-1931, when Montagu Norman and J. P. Morgan dominated not only the financial 
world but international relations and other matters as well. On November 1 1, 1927, the 
Wall Street Journal called Mr. Norman "the currency dictator of Europe." This was 
admitted by Mr. Norman himself before the Court of the Bank on March Zl, 1930, and 
before the Macmillan Committee of the House of Commons five days later. On one 
occasion, just before international financial capitalism ran, at full speed, on the rocks 
which sank it, Mr. Norman is reported to have said, "I hold the hegemony of the world." 
At the time, some Englishmen spoke of "the second Norman Conquest of England" in 
reference to the fact that Norman's brother was head of the British Broadcasting 
Corporation. It might be added that Governor Norman rarely acted in major world 
problems without consulting with J. P. Morgan's representatives, and as a consequence he 
was one of the most widely traveled men of his day. 

The Development of Monopoly Capitalism 

This conflict of interests between bankers and industrialists has resulted in most 
European countries in the subordination of the former either to the latter or to the 



government (after 1931). This subordination was accomplished by the adoption of 
"unorthodox financial policies" — that is, financial policies not in accordance with the 
short-run interests of bankers. This shift by which bankers were made subordinate 
reflected a fundamental development in modern economic history — a development which 
can be described as the growth from financial capitalism to monopoly capitalism. This 
took place in Germany earlier than in any other country and was well under way by 1926. 
It came in Britain only after 1931 and in Italy only in 1934. It did not occur in France to a 
comparable extent at all, and this explains the economic weakness of France in 1938- 
1940 to a considerable degree. 

International Financial Practices 

The financial principals which apply to the relationships between different countries 
are an expansion of those which apply within a single country. When goods are 
exchanged between countries, they must be paid for by commodities or gold. They 
cannot be paid for by the notes, certificates, and checks of the purchaser's country, since 
these are of value only in the country of issue. To avoid shipment of gold with every 
purchase, bills of exchange are used. These are claims against a person in another country 
which are sold to a person in the same country. The latter will buy such a claim if he 
wants to satisfy a claim against himself held by a person in the other country. He can 
satisfy such a claim by sending to his creditor in the other country the claim which he has 
bought against another person in that other country, and let his creditor use that claim to 
satisfy his own claim. Thus, instead of importers in one country sending money to 
exporters in another country, importers in one country pay their debts to exporters in their 
own country, and their creditors in the other country receive payment for the goods they 
have exported from importers in their own country. Thus, payment for goods in an 
international trade is made by merging single transactions involving two persons into 
double transactions involving four persons. In many cases, payment is made by involving 
a multitude of transactions, frequently in several different countries. These transactions 
were carried on in the so-called foreign-exchange market. An exporter of goods sold bills 
of exchange into that market and thus drew out of it money in his own country's units. An 
importer bought such bills of exchange to send to his creditor, and thus he put his own 
country's monetary units into the market. Since the bills available in any market were 
drawn in the monetary units of many different foreign countries, there arose exchange 
relationships between the amounts of money available in the country's own units (put 
there by importers) and the variety of bills drawn in foreign moneys and put into the 
market by exporters. The supply and demand for bills (or money) of any country in terms 
of the supply and demand of the country's own money available in the foreign-exchange 
market determined the value of the other countries' moneys in relation to domestic 
money. These values could fluctuate — widely for countries not on the gold standard, but 
only narrowly (as we shall see) for those on gold. 

The Foreign Exchange Market Acted as Regulator of International Trade 

Under normal conditions a foreign-exchange market served to pay for goods and 
services of foreigners without any international shipment of money (gold). It also acted as 



a regulator of international trade. If the imports of any country steadily exceeded exports 
to another country, more importers would be in the market offering domestic money for 
bills of exchange drawn in the money of their foreign creditor. There thus would be an 
increased supply of domestic money and an increased demand for that foreign money. As 
a result, importers would have to offer more of their money for these foreign bills, and 
the value of domestic money would fall, while the value of the foreign money would rise 
in the foreign-exchange market. This rise (or fall) on a gold relationship would be 
measured in terms of "par" (the exact gold content equivalent of the two currencies). 

As the value of the domestic currency sagged below par in relationship to that of some 
foreign currency, domestic exporters to that foreign country will increase their activities, 
because when they receive payment in the form of a bill of exchange they can sell it for 
more of their own currency than they usually expect and can thus increase their profits. A 
surplus of imports, by lowering the foreign-exchange value of the importing country's 
money, will lead eventually to an increase in exports which, by providing more bills of 
exchange, will tend to restore the relationship of the moneys back toward par. Such a 
restoration of parity in foreign exchange will reflect a restoration of balance in 
international obligations, and this in turn will reflect a restored balance in the exchange of 
goods and services between the two countries. This means, under normal conditions, that 
a trade disequilibrium will create trade conditions which will tend to restore trade 
equilibrium. 

Wide Fluctuations in Foreign Exchange Market 

When countries are not on the gold standard, this foreign-exchange disequilibrium 
(that is, the decline in the value of one monetary unit in relation to the other unit) can go 
on to very wide fluctuations — in fact, to whatever degree is necessary to restore the trade 
equilibrium by encouraging importers to buy in the other country because its money is so 
low in value that the prices of goods in that country are irresistible to importers in the 
other country. 

Foreign Exchange Market Does Not Fluctuate on the Gold Standard 

But when countries are on the gold standard, the result is quite different. In this case 
the value of a country's money will never go below the amount equal to the cost of 
shipping gold between the two countries. An importer who wishes to pay his trade 
partner in the other country will not offer more and more of his own country's money for 
foreign-exchange bills, but will bid up the price of such bills only to the point where it 
becomes cheaper for him to buy gold from a bank and pay the costs of shipping and 
insurance on the gold as it goes to his foreign creditor. Thus, on the gold standard, 
foreign-exchange quotations do not fluctuate widely, but move only between the two 
gold points which are only slightly above (gold export point) and slightly below (gold 
import point) parity (the legal gold relationship of the two currencies). 

Since the cost of packing, shipping and insuring gold used to be about Yi percent of its 
value, the gold export and import points were about this amount above and below the 



parity point. In the case of the dollar-pound relationship, when parity was at £ 1 = $4,866, 
the gold export point was about $4,885 and the gold import point was about $4,845. 
Thus: 

Gold export point $4,885 

(excess demand for bills by importers) 
Parity $4,866 

Gold import point $4,845 

(excess supply of bills by exporters) 

The situation which we have described is overly simplified. In practice the situation is 
made more complicated by several factors. Among these are the following: (1) 
middlemen buy and sell foreign exchange for present or future delivery as a speculative 
activity; (2) the total supply of foreign exchange available in the market depends on much 
more than the international exchange of commodities. It depends on the sum total of all 
international payments, such as interest, payment for services, tourist spending, 
borrowings, sales of securities, immigrant remittances, and so on; (3) the total exchange 
balance depends on the total of the relationships of all countries, not merely between two. 

Elimination of the Gold Standard 

The flow of gold from country to country resulting from unbalanced trade tends to 
create a situation which counteracts the flow. If a country exports more than it imports so 
that gold flows in to cover the difference, this gold will become the basis for an increased 
quantity of money, and this will cause a rise of prices within the country sufficient to 
reduce exports and increase imports. At the same time, the gold by flowing out of some 
other country will reduce the quantity of money there and will cause a fall in prices 
within that country. These shifts in prices will cause shifts in the flow of goods because 
of the obvious fact that goods tend to flow to higher-priced areas and cease to flow to 
lower-priced areas. These shifts in the flow of goods will counteract the original 
unbalance in trade which caused the flow of gold. As a result, the flow of gold will cease, 
and a balanced international trade at slightly different price levels will result. The whole 
process illustrates the subordination of internal price stability to stability of exchanges. It 
was this subordination which was rejected by most countries after 1931. This rejection 
was signified by (a) abandonment of the gold standard at least in part, (b) efforts at 
control of domestic prices, and (c) efforts at exchange control. All these were done 
because of a desire to free the economic system from the restricting influence of a gold- 
dominated financial system. 

Major Countries Forced to Abandon Gold Standard 



This wonderful, automatic mechanism of international payments represents one of the 
greatest social instruments ever devised by man. It requires, however, a very special 
group of conditions for its effective functioning and, as we shall show, these conditions 
were disappearing by 1900 and were largely wiped away as a result of the economic 
changes brought about by the First World War. Because of these changes it became 
impossible to restore the financial system which had existed before 1914. Efforts to 
restore it were made with great determination, but by 1933 they had obviously failed, and 
all major countries had been forced to abandon the gold standard and automatic 
exchanges. 

When the gold standard is abandoned, gold flows between countries like any other 
commodity, and the value of foreign exchanges (no longer tied to gold) can fluctuate 
much more widely. In theory an unbalance of international payments can be rectified 
either through a shift in exchange rates or through a shift in internal price levels. On the 
gold standard this rectification is made by shifts in exchange rates only between the gold 
points. When the unbalance is so great that exchanges would be forced beyond the gold 
points, the rectification is made by means of changing internal prices caused by the fact 
that gold flows at the gold points, instead of the exchanges passing beyond the gold 
points. On the other hand, when a currency is off the gold standard, fluctuation of 
exchanges is not confined between any two points but can go indefinitely in either 
direction. In such a case, the unbalance of international payments is worked out largely 
by a shift in exchange rates and only remotely by shifts in internal prices. In the period of 
1929-1936, the countries of the world went off gold because they preferred to bring their 
international balances toward equilibrium by means of fluctuating exchanges rather than 
by means of fluctuating price levels. They feared these last because changing (especially 
falling) prices led to declines in business activity and shifts in the utilization of economic 
resources (such as labor, land, and capital) from one activity to another. 

Reestablishing the Balance of International Payments 

The reestablishment of the balance of international payments when a currency is off 
gold can be seen from an example. If the value of the pound sterling falls to $4.00 or 
$3.00, Americans will buy in England increasingly because English prices are cheap for 
them, but Englishmen will buy in America only with reluctance because they have to pay 
so much for American money. This will serve to rectify the original excess of exports to 
England which gave the great supply of pound sterling necessary to drive its value down 
to $3.00. Such a depreciation in the exchange value of a currency will cause a rise in 
prices within the country as a result of the increase in demand for the goods of that 
country. 

The Situation before 1914 

The key to the world situation in the period before 1914 is to be found in the dominant 
position of Great Britain. This position was more real than apparent. In many fields (such 
as naval or financial) the supremacy of Britain was so complete that it almost never had 
to be declared by her or admitted by others. It was tacitly assumed by both. As an 



unchallenged ruler in these fields, Britain could afford to be a benevolent ruler. Sure of 
herself and of her position, she could be satisfied with substance rather than forms. If 
others accepted her dominance in fact, she was quite willing to leave to them 
independence and autonomy in law. 

The Supremacy of Britain 

This supremacy of Britain was not an achievement of the nineteenth century alone. Its 
origins go back to the sixteenth century — to the period in which the discovery of America 
made the Atlantic more important than the Mediterranean as a route of commerce and a 
road to wealth. In the Atlantic, Britain's position was unique, not merely because of her 
westernmost position, but much more because she was an island. This last fact made it 
possible for her to watch Europe embroil itself in internal squabbles while she retained 
freedom to exploit the new worlds across the seas. On this basis, Britain had built up a 
naval supremacy which made her ruler of the seas by 1900. Along with this was her 
preeminence in merchant shipping which gave her control of the avenues of world 
transportation and ownership of 39 percent of the world's oceangoing vessels (three times 
the number of her nearest rival). 

To her supremacy in these spheres, won in the period before 1815, Britain added new 
spheres of dominance in the period after 1815. These arose from her early achievement of 
the Industrial Revolution. This was applied to transportation and communications as well 
as to industrial production. In the first it gave the world the railroad and the steamboat; in 
the second it gave the telegraph, the cable, and the telephone; in the third it gave the 
factory system. 

The Industrial Revolution 

The Industrial Revolution existed in Britain for almost two generations before it 
spread elsewhere. It gave a great increase in output of manufactured goods and a great 
demand for raw materials and food; it also gave a great increase in wealth and savings. 
As a result of the first two and the improved methods of transportation, Britain developed 
a world trade of which it was the center and which consisted chiefly of the export of 
manufactured goods and the import of raw materials and food. At the same time, the 
savings of Britain tended to flow out to North America, South America, and Asia, 
seeking to increase the output of raw materials and food in these areas. By 1914 these 
exports of capital had reached such an amount that they were greater than the foreign 
investments of all other countries put together. In 1914 British overseas investment was 
about $20 billion (or about one-quarter of Britain's national wealth, yielding about a tenth 
of the total national income). The French overseas investment at the same time was about 
$9 billion (or one-sixth the French national wealth, yielding 6 percent of the national 
income), while Germany had about $5 billion invested overseas (one-fifteenth the 
national wealth, yielding 3 percent of the national income). The United States at that time 
was a large-scale debtor. 

The World's Great Commercial Markets Were in Britain 



The dominant position of Britain in the world of 1913 was, as I have said, more real 
than apparent. In all parts of the world people slept more securely' worked more 
productively, and lived more fully because Britain existed. British naval vessels in the 
Indian Ocean and the Far East suppressed slave raiders, pirates, and headhunters. Small 
nations like Portugal, the Netherlands, or Belgium retained their overseas possessions 
under the protection of the British fleet. Even the United States, without realizing it, 
remained secure and upheld the Monroe Doctrine behind the shield of the British Navy. 
Small nations were able to preserve their independence in the gaps between the Great 
Powers, kept in precarious balance by the Foreign Office's rather diffident balance-of- 
power tactics. Mos; of the world's great commercial markets, even in commodities like 
cotton, rubber, and tin, which she did not produce in quantities herself, were in England, 
the world price being set from the auction bidding of skilled specialist traders there. If a 
man in Peru wished to send money to a man in Afghanistan, the final payment, as like as 
not, would be made by a bookkeeping transaction in London. The English parliamentary 
system and some aspects of the English judicial system, such as the rule of law, were 
being copied, as best as could be, in all parts of the world. 

Britain Was the Center of World Finance and World Trade 

The profitability of capital outside Britain — a fact which caused the great export of 
capital — was matched by a profitability of labor. As a result, the flow of capital from 
Britain and Europe was matched by a flow of persons. Both of these served to build up 
non-European areas on a modified European pattern. In export of men, as in export of 
capital, Britain was easily first (over 20 million persons emigrating from the United 
Kingdom in the period 1815-1938). As a result of both, Britain became the center of 
world finance as well as the center of world commerce. The system of international 
financial relations, which we described earlier, was based on the system of industrial, 
commercial, and credit relationships which we have just described. The former thus 
required for its existence a very special group of circumstances — a group which could not 
be expected to continue forever. In addition, it required a group of secondary 
characteristics which were also far from permanent. Among these were the following: (1) 
all the countries concerned must be on the full gold standard; (2) there must be freedom 
from public or private interference with the domestic economy of any country; that is, 
prices must be free to rise and fall in accordance with the supply and demand for both 
goods and money; (3) there must also be free flow of international trade so that both 
goods and money can go without hindrance to those areas where each is most valuable; 
(4) the international financial economy must be organized about one center with 
numerous subordinate centers, so that it would be possible to cancel out international 
claims against one another in some clearinghouse and thus reduce the flow of gold to a 
minimum; (5) the flow of goods and funds in international matters should be controlled 
by economic factors and not be subject to political, psychological, or ideological 
influences. 

These conditions, which made the international financial and commercial system 
function so beautifully before 1914, had begun to change by 1890. The fundamental 



economic and commercial conditions changed first, and were noticeably modified by 
1910; the group of secondary characteristics of the system were changed by the events of 
the First World War. As a result, the system of early international financial capitalism is 
now only a dim memory. Imagine a period without passports or visas, and with almost no 
immigration or customs restrictions. Certainly the system had many incidental 
drawbacks, but they were incidental. Socialized if not social, civilized if not cultured, the 
system allowed individuals to breathe freely and develop their individual talents in a way 
unknown before and in jeopardy since. 

Chapter 6— The United States to 1917 

Just as Classical culture spread westward from the Greeks who created it to the 
Roman peoples who adopted and changed it, so Europe's culture spread westward to the 
New World, where it was profoundly modified while still remaining basically European. 
The central fact of American history is that people of European origin and culture came 
to occupy and use the immensely rich wilderness between the Atlantic and the Pacific. In 
this process the wilderness was developed and exploited area by area, the Tidewater, the 
Piedmont, the trans-Appalachian forest, the trans-Mississippi prairies, the Pacific Coast, 
and finally the Great Plains. By 1900 the period of occupation which had begun in 1607 
was finished, but the era of development continued on an intensive rather than extensive 
basis. This shift from extensive to intensive development, frequently called the "closing 
of the frontier," required a readjustment of social outlook and behavior from a largely 
individualistic to a more cooperative basis and from an emphasis on mere physical 
prowess to emphasis on other less tangible talents of managerial skills, scientific training, 
and intellectual capacity able to fill the 

newly occupied frontiers with a denser population, producing a higher standard of living, 
and utilizing more extensive leisure. 

The ability of the people of the United States to make this readjustment of social 
outlook and behavior at the "ending of the frontier" about 1900 was hampered by a 
number of factors from its earlier historical experience. Among these we should mention 
the growth of sectionalism, past political and constitutional experiences, isolationism, and 
emphasis on physical prowess and unrealistic idealism. 

Three Major Geographic Sections Arise in U.S. 

The occupation of the United States had given rise to three chief geographic sections: 
a commercial and later financial and industrial East, an agrarian and later industrial West, 
and an agrarian South. Unfortunately, the two agrarian sections were organized quite 
differently, the South on the basis of slave labor and the West on the basis of free labor. 
On this question the East allied with the West to defeat the South in the Civil War (1861- 
1865) and to subject it to a prolonged military occupation as a conquered territory (1865- 
1877). Since the war and the occupation were controlled by the new Republican Party, 
the political organization of the country became split on a sectional basis: the South 
refused to vote Republican until 1928, and the West refused to vote Democratic until 



1932. In the East the older families which inclined toward the Republican Party because 
of the Civil War were largely submerged by waves of new immigrants from Europe, 
beginning with Irish and Germans after 1 846 and continuing with even greater numbers 
from eastern Europe and Mediterranean Europe after 1890. These new immigrants of the 
eastern cities voted Democratic because of religious, economic, and cultural opposition to 
the upper-class Republicans of the same eastern section. The class basis in voting patterns 
in the East and the sectional basis in voting in the South and West proved to be of major 
political significance after 1880. 

Major Changes in Government Occur in 1830 

The Founding Fathers had assumed that the political control of the country would be 
conducted by men of property and leisure who would generally know each other 
personally and, facing no need for urgent decisions, would move government to action 
when they agreed and be able to prevent it from acting, without serious damage, when 
they could not agree. The American Constitution, with its provisions for division of 
powers and selection of the chief executive by an electoral college, reflected this point of 
view. So also did the use of the party caucus of legislative assemblies for nomination to 
public office and the election of senators by the same assemblies. The arrival of a mass 
democracy after 1830 changed this situation, establishing the use of party conventions for 
nominations and the use of entrenched political party machines, supported on the 
patronage of public office, to mobilize sufficient votes to elect their candidates. 

Forces of Finance and Business Grow in Wealth and Power 

As a result of this situation, the elected official from 1840 to 1880 found himself 
under pressure from three directions: from the popular electorate which provided him 
with the votes necessary for election, from the party machine which provided him with 
the nomination to run for office as well as the patronage appointments by which he could 
reward his followers, and from the wealthy economic interests which gave him the 
money for campaign expenses with, perhaps, a certain surplus for his own pocket. This 
was a fairly workable system, since the three forces were approximately equal, the 
advantage, if any, resting with the party machine. This advantage became so great in the 
period 1865-1880 that the forces of finance, commerce, and industry were forced to 
contribute ever-increasing largesse to the political machines in order to obtain the 
services from government which they regarded as their due, services such as higher 
tariffs, land grants to railroads, better postal services, and mining or timber concessions. 
The fact that these forces of finance and business were themselves growing in wealth and 
power made them increasingly restive under the need to make constantly larger 
contributions to party political machines. Moreover, these economic tycoons increasingly 
felt it to be unseemly that they should be unable to issue orders but instead have to 
negotiate as equals in order to obtain services or favors from party bosses. 

The U.S. Government Was Controlled by the Forces of 

Investment Banking and Industry 



By the late 1 870's business leaders determined to make an end to this situation by 
cutting with one blow the taproot of the system of party machines, namely, the patronage 
system. This system, which they called by the derogatory term "spoils system," was 
objectionable to big business not so much because it led to dishonesty or inefficiency but 
because it made the party machines independent of business control by giving them a 
source of income (campaign contributions from government employees) which was 
independent of business control. If this source could be cut off or even sensibly reduced, 
politicians would be much more dependent upon business contributions for campaign 
expenses. At a time when the growth of a mass press and of the use of chartered trains for 
political candidates were greatly increasing the expense of campaigning for office, any 
reduction in campaign contributions from officeholders would inevitably make 
politicians more subservient to business. It was with this aim in view that civil service 
reform began in the Federal government with the Pendleton Bill of 1883. As a result, the 
government was controlled with varying degrees of completeness by the forces of 
investment banking and heavy industry from 1884 to 1933. 

A Group of 400 Individuals Mobilize Enormous Wealth and Power 

This period, 1884-1933, was the period of financial capitalism in which investment 
bankers moving into commercial banking and insurance on one side and into railroading 
and heavy industry on the other were able to mobilize enormous wealth and wield 
enormous economic, political, and social power. Popularly known as "Society," or the 
"400," they lived a life of dazzling splendor. Sailing the ocean in great private yachts or 
traveling on land by private trains, they moved in a ceremonious round between their 
spectacular estates and town houses in Palm Beach, Long Island, the Berkshires, 
Newport, and Bar Harbor; assembling from their fortress-like New York residences to 
attend the Metropolitan Opera under the critical eye of Mrs. Astor; or gathering for 
business meetings of the highest strategic level in the awesome presence of J. P. Morgan 
himself. 

Big Banking and Business Control the Federal Government 

The structure of financial controls created by the tycoons of "Big Banking" and "Big 
Business" in the period 1880-1933 was of extraordinary complexity, one business fief 
being built on another, both being allied with semi-independent associates, the whole 
rearing upward into two pinnacles of economic and financial power, of which one, 
centered in New York, was headed by J. P. Morgan and Company, and the other, in Ohio, 
was headed by the Rockefeller family. When these two cooperated, as they generally did, 
they could influence the economic life of the country to a large degree and could almost 
control its political life, at least on the Federal level. The former point can be illustrated 
by a few facts. In the United States the number of billion-dollar corporations rose from 
one in 1909 (United States Steel, controlled by Morgan) to fifteen in 1930. The share of 
all corporation assets held by the 200 largest corporations rose from 32 percent in 1909 to 
49 percent in 1930 and reached 57 percent in 1939. By 1930 these 200 largest 
corporations held 49.2 percent of the assets of all 40,000 corporations in the country ($81 



billion out of $165 billion); they held 38 percent of all business wealth, incorporated or 
unincorporated (or $81 billion out of $212 billion); and they held 22 percent of all the 
wealth in the country (or $81 billion out of $367 billion). In fact, in 1930, one corporation 
(American Telephone and Telegraph, controlled by Morgan) had greater assets than the 
total wealth in twenty-one states of the Union. 

The Influence and Power of the Morgan and Rockefeller Groups 

The influence of these business leaders was so great that the Morgan and Rockefeller 
groups acting together, or even Morgan acting alone, could have wrecked the economic 
system of the country merely by throwing securities on the stock market for sale, and, 
having precipitated a stock-market panic, could then have bought back the securities they 
had sold but at a lower price. Naturally, they were not so foolish as to do this, although 
Morgan came very close to it in precipitating the "panic of 1907," but they did not 
hesitate to wreck individual corporations, at the expense of the holders of common 
stocks, by driving them to bankruptcy. In this way, to take only two examples, Morgan 
wrecked the New York, New Haven, and Hartford Railroad before 1914 by selling to it, 
at high prices, the largely valueless securities of myriad New England steamship and 
trolley lines; and William Rockefeller and his friends wrecked the Chicago, Milwaukee, 
St. Paul, and Pacific Railroad before 1925 by selling to it, at excessive prices, plans to 
electrify to the Pacific, copper, electricity, and a worthless branch railroad (the Gary 
Line). These are but examples of the discovery by financial capitalists that they made 
money out of issuing and selling securities rather than out of the production, distribution, 
and consumption of goods and accordingly led them to the point where they discovered 
that the exploiting of an operating company by excessive issuance of securities or the 
issuance of bonds rather than equity securities not only was profitable to them but made it 
possible for them to increase their profits by bankruptcy of the firm, providing fees and 
commissions of reorganization as well as the opportunity to issue new securities. 

Control of Political Parties in America 

When the business interests, led by William C. Whitney, pushed through the first 
installment of civil service reform in 1883, they expected that they would be able to 
control both political parties equally. Indeed, some of them intended to contribute to both 
and to allow an alternation of the two parties in public office in order to conceal their 
own influence, inhibit any exhibition of independence by politicians, and allow the 
electorate to believe that they were exercising their own free choice. Such an alternation 
of the parties on the Federal scene occurred in the period 1880-1896, with business 
influence (or at least Morgan's influence) as great in Democratic as in Republican 
administrations. But in 1896 came a shocking experience. The business interests 
discovered that they could control the Republican Party to a large degree but could not be 
nearly so confident of controlling the Democratic Party. The reason for this difference lay 
in the existence of the Solid South as a Democratic section with almost no Republican 
voters. This section sent delegates to the Republican National Convention as did the rest 
of the country, but, since these delegates did not represent voters, they came to represent 
those who were prepared to pay their expenses to the Republican National Convention. In 



this way these delegates came to represent the business interests of the North, whose 
money they accepted. Mark Hanna has told us in detail how he spent much of the winter 
of 1895-1896 in Georgia buying over two hundred delegates for McKinley to the 
Republican National Convention of 1896. As a result of this system, about a quarter of 
the votes in a Republican Convention were "controlled" votes from the Solid South, not 
representing the electorate. After the split in the Republican Party in 1912, this portion of 
the delegates was reduced to about 17 percent. 

The Monetary Tactics of the Banking Oligarchy 

The inability of the investment bankers and their industrial allies to control the 
Democratic Convention of 1896 was a result of the agrarian discontent of the period 
1868-1896. 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 have 
already explained. Accordingly, at the end of the Civil War, they persuaded the Grant 
Administration to curb the postwar inflation and go back on the gold standard (crash of 
1873 and resumption of specie payments in 1875). This gave the bankers a control of the 
supply of money which they did not hesitate to use for their own purposes, as Morgan 
ruthlessly pressurized Cleveland in 1893-1896. The bankers' affection for low prices was 
not shared by the farmers, since each time prices of farm products went down the burden 
of farmers' debts (especially mortgages) became greater. Moreover, farm prices, being 
much more competitive than industrial prices, and not protected by a tariff, fell much 
faster than industrial prices, and farmers could not reduce costs or modify their 
production plans nearly so rapidly as industrialists could. The result was a systematic 
exploitation of the agrarian sectors of the community by the financial and industrial 
sectors. This exploitation took the form of high industrial prices, high (and 
discriminatory) railroad rates, high interest charges, low farm prices, and a very low level 
of farm services by railroads and the government. Unable to resist by economic weapons, 
the farmers of the West turned to political relief, but were greatly hampered by their 
reluctance to vote Democratic (because of their memories of the Civil War). Instead, they 
tried to work on the state political level through local legislation (so-called Granger 
Laws) and set up third-party movements (like the Greenback Party in 1878 or the 
Populist Party in 1892). By 1896, however, agrarian discontent rose so high that it began 
to overcome the memory of the Democratic role in the Civil War. The capture of the 
Democratic Party by these forces of discontent under William Jennings Bryan in 1896, 
who 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 social 
and economic issue for the first time in a generation. Though the forces of high finance 
and of big business were in a state of near panic, by a mighty effort involving large-scale 
spending they were successful in electing McKinley. 

Money Power Seeks to Control Both Political Parties 

The inability of plutocracy to control the Democratic Party as it had demonstrated it 
could control the Republican Party, made it advisable for them to adopt a one-party 
outlook on political affairs, although they continued to contribute to some extent to both 



parties and did not cease their efforts to control both. In fact on two occasions, in 1904 
and in 1924, J. P. Morgan was able to sit back with a feeling of satisfaction to watch a 
presidential election in which the candidates of both parties were in his sphere of 
influence. In 1924 the Democratic candidate was one of his chief lawyers, while the 
Republican candidate was the classmate and handpicked choice of his partner, Dwight 
Morrow. Usually, Morgan had to share this political influence with other sectors of the 
business oligarchy, especially with the Rockefeller interest (as was done, for example, by 
dividing the ticket between them in 1900 and in 1920). 

The Growth of Monopolies and the Excesses of Wall Street 

The agrarian discontent, the growth of monopolies, the oppression of labor, and the 
excesses of Wall Street financiers made the country very restless in the period 1 890- 
1900. All this could have been alleviated merely by increasing the supply of money 
sufficiently to raise prices somewhat, but the financiers in this period, just as thirty years 
later, were determined to defend the gold standard no matter what happened. In looking 
about for some issue which would distract public discontent from domestic economic 
issues, what better solution than a crisis in foreign affairs? Cleveland had stumbled upon 
this alternative, more or less accidentally, in 1 895 when he stirred up a controversy with 
Great Britain over Venezuela. The great opportunity, however, came with the Cuban 
revolt against Spain in 1895. While the "yellow press," led by William Randolph Hearst, 
roused public opinion, Henry Cabot Lodge and Theodore Roosevelt plotted how they 
could best get the United States into the fracas. They got the excuse they needed when 
the American battleship Maine was sunk by a mysterious explosion in Havana harbor in 
February 1898. In two months the United States declared war on Spain to fight for Cuban 
independence. The resulting victory revealed the United States as a world naval power, 
established it is an imperialist power with possession of Puerto Rico, Guam, and the 
Philippines, whetted some appetites for imperialist glory, and covered the transition from 
the long-drawn age of semi-depression to a new period of prosperity. This new period of 
prosperity was spurred to some extent by the increased demand for industrial products 
arising from the war, but even more by the new period of rising prices associated with a 
considerable increase in the world production of gold from. South Africa and Alaska after 
1895. 

America's entrance upon the stage as a world power continued with the annexation of 
Hawaii in 1808, the intervention in the Boxer uprising in 1900, the seizure of Panama in 
1903, the diplomatic intervention in the Russo-Japanese War in 1905, the round-the- 
world cruise of the American Navy in 1908, the military occupation of Nicaragua in 
1912, the opening of the Panama Canal in 1914, and military intervention in Mexico in 
1916. 

The Birth of the Progressive Movement 

During this same period, there appeared a new movement for economic and political 
reform known as Progressivism. The Progressive movement resulted from a combination 
of forces, some new and some old. Its foundation rested on the remains of agrarian and 



labor discontent which had straggled so vainly before 1897. There was also, as a kind of 
afterthought on the part of successful business leaders, a weakening of acquisitive 
selfishness and a revival of the older sense of social obligation and idealism. To some 
extent this feeling was mixed with a realization that the position and privileges of the 
very wealthy could be preserved better with superficial concessions and increased 
opportunity for the discontented to blow off steam than from any policy of blind 
obstructionism on the part of the rich. As an example of the more idealistic impulse we 
might mention the creation of the various Carnegie foundations to work for universal 
peace or to extend scholarly work in science and social studies. As an example of the 
more practical point of view we might mention the founding of The New Republic, a 
"liberal weekly paper," by an agent of Morgan financed with Whitney money (1914). 
Somewhat similar to this last point was the growth of a new "liberal press," which found 
it profitable to print the writings of "muckrakers," and thus expose to the public eye the 
seamy side of Big Business and of human nature itself. But the great opportunity for the 
Progressive forces arose from a split within Big Business between the older forces of 
financial capitalism led by Morgan and the newer forces of monopoly capitalism 
organized around the Rockefeller bloc. As a consequence, the Republican Party was split 
between the followers of Theodore Roosevelt and those of William Howard Taft, so that 
the combined forces of the liberal East and the agrarian West were able to capture the 
Presidency under Woodrow Wilson in 1912. 

The Establishment of the Income Tax and the Federal Reserve System 

Wilson roused a good deal of popular enthusiasm with his talk of "New Freedom" and 
the rights of the underdog, but his program amounted to little more than an attempt to 
establish on a Federal basis those reforms which agrarian and labor discontent had been 
seeking on a state basis for many years. Wilson was by no means a radical (after all, he 
had been accepting money for his personal income from rich industrialists like Cleveland 
Dodge and Cyras Hall McCormick during his professorship at Princeton, and this kind of 
thing by no means ceased when he entered politics in 1910), and there was a good deal of 
unconscious hypocrisy in many of his resounding public speeches. Be this as it may, his 
political and administrative reforms were a good deal more effective than his economic 
or social reforms. The Clayton Antitrust Act and the Federal Trade Commission Act 
(1913) were soon tightly wrapped in litigation and futility. On the other hand, the direct 
election of senators, the establishment of an income tax and of the Federal Reserve 
System, and the creation of a Federal Farm Loan System (1916) and of rural delivery of 
mail and parcel post, as well as the first steps toward various laboring enactments, like 
minimum wages for merchant seamen, restrictions on child labor, and an eight-hour day 
for railroad workers, justified the support which Progressives had given to Wilson. 

The Wilson Administration 

The first Administration of Wilson (1913-1917) and the earlier Administration of 
Theodore Roosevelt (1901-1909) made a substantial contribution to the process by which 
the United States redirected its aim from extensive expansion of physical frontiers to an 
intensive exploitation of its natural and moral resources. The earlier Roosevelt used his 



genius as a showman to publicize the need to conserve the country's natural resources, 
while Wilson, in his own professorial fashion, did much to extend equality of opportunity 
to wider groups of the American people. These people were so absorbed in the 
controversies engendered by these efforts that they hardly noticed the rising international 
tensions in Europe or even the outbreak of war in August, 1914, until by 1915 the 
clamorous controversy of the threat of war quite eclipsed the older domestic 
controversies. By the end of 1915 America was being summoned, in no gentle fashion, to 
play a role on the world's stage. This is a story to which we must return in a later chapter. 

Part Three — The Russian Empire to 1917 

Chapter 7 — Creation of the Russian Civilization 

In the nineteenth century most historians regarded Russia as part of Europe but it is 
now becoming increasingly clear that Russia is another civilization quite separate from 
Western Civilization. Both of these civilizations are descended from Classical 
Civilization, but the connection with this predecessor was made so differently that two 
quite different traditions came into existence. Russian traditions were derived from 
Byzantium directly; Western traditions were derived from the more moderate Classical 
Civilization indirectly, having passed through the Dark Ages when there was no state or 
government in the West. 

Russian civilization was created from three sources originally: (1) the Slav people, (2) 
Viking invaders from the north, and (3) the Byzantine tradition from the south. These 
three were fused together as the result of a common experience arising from Russia's 
exposed geographical position on the western edge of a great flat-land stretching for 
thousands of miles to the east. This flat-land is divided horizontally into three zones of 
which the most southern is open plain, while the most northern is open bush and tundra. 
The middle zone is forest. The southern zone (or steppes) consists of two parts: the 
southern is a salty plain which is practically useless, while the northern part, next to the 
forest, is the famous black-earth region of rich agricultural soil. Unfortunately the eastern 
portion of this great Eurasian plain has been getting steadily drier for thousands of years, 
with the consequence that the Ural-Altaic-speaking peoples of central and east-central 
Asia, peoples like the Huns, Bulgars, Magyars, Mongols, and Turks, have pushed 
westward repeatedly along the steppe corridor between the Urals and the Caspian Sea, 
making the black-earth steppes dangerous for sedentary agricultural peoples. 

The Slavs first appeared more than two thousand years ago as a peaceful, evasive 
people, with an economy based on hunting and rudimentary agriculture, in the forests of 
eastern Poland. These people slowly increased in numbers, moving northeastward 
through the forests, mixing with the scattered Finnish hunting people who were there 
already. About A.D. 700 or so, the Northmen, whom we know as Vikings, came down 
from the Baltic Sea, by way of the rivers of eastern Europe, and eventually reached the 
Black Sea and attacked Constantinople. These Northmen were trying to make a way of 
life out of militarism, seizing booty and slaves, imposing tribute on conquered peoples, 
collecting furs, honey, and wax from the timid Slavs lurking in their forests, and 



exchanging these for the colorful products of the Byzantine south. In time the Northmen 
set up fortified trading posts along their river highways, notably at Novgorod in the north, 
at Smolensk in the center, and at Kiev in the south. They married Slav women and 
imposed on the rudimentary agricultural-hunting economy of the Slavs a superstructure 
of a tribute-collecting state with an exploitative, militaristic, commercial economy. This 
created the pattern of a two-class Russian society which has continued ever since, much 
intensified by subsequent historical events. 

In time the ruling class of Russia became acquainted with Byzantine culture. They 
were dazzled by it, and sought to import it into their wilderness domains in the north. In 
this way they imposed on the Slav peoples many of the accessories of the Byzantine 
Empire, such as Orthodox Christianity, the Byzantine alphabet, the Byzantine calendar, 
the used of domed ecclesiastical architecture, the name Czar (Caesar) for their ruler, and 
innumerable other traits. Most important of all, they imported the Byzantine totalitarian 
autocracy, under which all aspects of life, including political, economic, intellectual, and 
religious, were regarded as departments of government, under the control of an autocratic 
ruler. These beliefs were part of the Greek tradition, and were based ultimately on Greek 
inability to distinguish between state and society. Since society includes all human 
activities, the Greeks had assumed that the state must include all human activities. In the 
days of Classical Greece this all-inclusive entity was called the polis, a term which meant 
both society and state; in the later Roman period this all-inclusive entity was called the 
imperium. The only difference was that the polis was sometimes (as in Pericles's Athens 
about 450 B.C.) democratic, while the imperium was always a military autocracy. Both 
were totalitarian, so that religion and economic life were regarded as spheres of 
governmental activity. This totalitarian autocratic tradition was carried on to the 
Byzantine Empire and passed from it to the Russian state in the north and to the later 
Ottoman Empire in the south. In the north this Byzantine tradition combined with the 
experience of the Northmen to intensify the two-class structure of Slav society. In the 
new Slav (or Orthodox) Civilization this fusion, fitting together the Byzantine tradition 
and the Viking tradition, created Russia. From Byzantium came autocracy and the idea of 
the state as an absolute power and as a totalitarian power, as well as such important 
applications of these principles as the idea that the state should control thought and 
religion, that the Church should be a branch of the government, that law is an enactment 
of the state, and that the ruler is semi-divine. From the Vikings came the idea that the 
state is a foreign importation, based on militarism and supported by booty and tribute, 
that economic innovations are the function of the government, that power rather than law 
is the basis of social life, and that society, with its people and its property, is the private 
property of a foreign ruler. 

These concepts of the Russian system must be emphasized because they are so foreign 
to our own traditions. In the West, the Roman Empire (which continued in the East as the 
Byzantine Empire) disappeared in 476 and, although many efforts were made to revive it, 
there was clearly a period, about goo, when there was no empire, no state, and no public 
authority in the West. The state disappeared, yet society continued. So also, religious and 
economic life continued. This clearly showed that the state and society were not the same 
thing, that society was the basic entity, and that the state was a crowning, but not 



essential, cap to the social structure. This experience had revolutionary effects. It was 
discovered that man can live without a state; this became the basis of Western liberalism. 
It was discovered that the state, if it exists, must serve men and that it is incorrect to 
believe that the purpose of men is to serve the state. It was discovered that economic life, 
religious life, law, and private property can all exist and function effectively without a 
state. From this emerged laissez-faire, separation of Church and State, rule of law, and 
the sanctity of private property. In Rome, in Byzantium, and in Russia, law was regarded 
as an enactment of a supreme power. In the West, when no supreme power existed, it was 
discovered that law still existed as the body of rules which govern social life. Thus law 
was found by observation in the West, not enacted by autocracy as in the East. This 
meant that authority was established by law and under the law in the West, while 
authority was established by power and above the law in the East. The West felt that the 
rules of economic life were found and not enacted; that individuals had rights 
independent of, and even opposed to, public authority; that groups could exist, as the 
Church existed, by right and not by privilege, and without the need to have any charter of 
incorporation entitling them to exist as a group or act as a group; that groups or 
individuals could own property as a right and not as a privilege and that such property 
could not be taken by force but must be taken by established process of law. It was 
emphasized in the West that the way a thing was done was more important than what was 
done, while in the East what was done was far more significant than the way in which it 
was done. 

There was also another basic distinction between Western Civilization and Russian 
Civilization. This was derived from the history of Christianity. This new faith came into 
Classical Civilization from Semitic society. In its origin it was a this-worldly religion, 
believing that the world and the flesh were basically good, or at least filled with good 
potentialities, because both were made by God; the body was made in the image of God; 
God became Man in this world with a human body, to save men as individuals, and to 
establish "Peace on earth." The early Christians intensified the "this-worldly" tradition, 
insisting that salvation was possible only because God lived and died in a human body in 
this world, that the individual could be saved only through God's help (grace) and by 
living correctly in this body on this earth (good works), that there would be, some day, a 
millennium on this earth and that, at that Last Judgment, there would be a resurrection of 
the body and life everlasting. In this way the world of space and time, which God had 
made at the beginning with the statement, "It was good" (Book of Genesis), would, at the 
end, be restored to its original condition. 

This optimistic, "this-worldly" religion was taken into Classical Civilization at a time 
when the philosophic outlook of that society was quite incompatible with the religious 
outlook of Christianity. The Classical philosophic outlook, which we might call 
Neoplatonic, was derived from the teachings of Persian Zoroastrianism, Pythagorean 
rationalism, and Platonism. It was dualistic, dividing the universe into two opposed 
worlds, the world of matter and flesh and the world of spirit and ideas. The former world 
was changeable, unknowable, illusionary, and evil; the latter world was eternal, 
knowable, real, and good. Truth, to these people, could be found by the use of reason and 



logic alone, not hy use of the body or the senses, since these were prone to error, and 
must be spurned. The body, as Plato said, was the "tomb of the soul." 

Thus the Classical world into which Christianity came about A.D. 60 believed that the 
world and the body were unreal, unknowable, corrupt, and hopeless and that no truth or 
success could be found by the use of the body, the senses, or matter. A small minority, 
derived from Democritus and the early Ionian scientists through Aristotle, Epicurus, and 
Lucretius, rejected the Platonic dualism, preferring materialism as an explanation of 
reality. These materialists were equally incompatible with the new Christian religion. 
Moreover, even the ordinary citizen of Rome had an outlook whose implications were not 
compatible with the Christian religion. To give one simple example: while the Christians 
spoke of a millennium in the future, the average Roman continued to think of a "Golden 
Age" in the past, just as Homer had. 

As a consequence of the fact that Christian religion came into a society with an 
incompatible philosophic outlook, the Christian religion was ravaged by theological and 
dogmatic disputes and shot through with "otherworldly" heresies. In general, these 
heresies felt that God was so perfect and so remote and man was so imperfect and such a 
worm that the gap between God and man could not be bridged by any act of man, that 
salvation depended on grace rather than on good works, and that, if God ever did so 
lower Himself as to occupy a human body, this was not an ordinary body, and that, 
accordingly, Christ could be either True God or True Man but could not be both. This 
point of view was opposed by the Christian Fathers of the Church, not always 
successfully; but in the decisive battle, at the first Church Council, held at Nicaea in 325, 
the Christian point of view was enacted into the formal dogma of the Church. Although 
the Church continued to exist for centuries thereafter in a society whose philosophic 
outlook was ill adapted to the Christian religion, and obtained a compatible philosophy 
only in the medieval period, the basic outlook of Christianity reinforced the experience of 
the Dark Ages to create the outlook of Western Civilization. Some of the elements of this 
outlook which were of great importance were the following: (1) the importance of the 
individual, since he alone is saved; (2) the potential goodness of the material world and of 
the body; (3) the need to seek salvation by use of the body and the senses in this world 
(good works); (4) faith in the reliability of the senses (which contributed much to 
Western science); (5) faith in the reality of ideas (which contributed much to Western 
mathematics); (6) mundane optimism and millennianism (which contributed much to 
faith in the future and the idea of progress); (7) the belief that God (and not the devil) 
reigns over this world by a system of established rules (which contributed much to the 
ideas of natural law, natural science, and the rule of law). 

These ideas which became part of the tradition of the West did not become part of the 
tradition of Russia. The influence of Greek philosophic thought remained strong in the 
East. The Latin West before goo used a language which was not, at that time, fitted for 
abstract discussion, and almost all the dogmatic debates which arose from the 
incompatibility of Greek philosophy and Christian religion were carried on in the Greek 
language and fed on the Greek philosophic tradition. In the West the Latin language 
reflected a quite different tradition, based on the Roman emphasis on administrative 



procedures and ethical ideas about human behavior to one's fellow man. As a result, the 
Greek philosophic tradition remained strong in the East, continued to permeate the 
Greek-speaking Church, and went with that Church into the Slavic north. The schism 
between the Latin Church and the Greek Church strengthened their different points of 
view, the former being more this-worldly, more concerned with human behavior, and 
continuing to believe in the efficacy of good works, while the latter was more 
otherworldly, more concerned with God's majesty and power, and emphasized the 
evilness and weakness of the body and the world and the efficacy of God's grace. As a 
result, the religious outlook and, accordingly, the world outlook of Slav religion and 
philosophy developed in quite a different direction from that in the West. The body, this 
world, pain, personal comfort, and even death were of little importance; man could do 
little to change his lot, which was determined by forces more powerful than he; 
resignation to Fate, pessimism, and a belief in the overwhelming power of sin and of the 
devil dominated the East. 

To this point we have seen the Slavs formed into Russian civilization as the result of 
several factors. Before we go on we should, perhaps, recapitulate. The Slavs were 
subjected at first to the Viking exploitative system. These Vikings copied Byzantine 
culture, and did it very consciously, in their religion, in their writing, in their state, in 
their laws, in art, architecture, philosophy, and literature. These rulers were outsiders who 
innovated all the political, religious, economic, and intellectual life of the new 
civilization. There was no state: foreigners brought one in. There was no organized 
religion: one was imported from Byzantium and imposed on the Slavs. The Slav 
economic life was on a low level, a forest subsistence economy with hunting and 
rudimentary agriculture: on this the Vikings imposed an international trading system. 
There was no religious-philosophic outlook: the new State-Church superstructure 
imposed on the Slavs an outlook derived from Greek dualistic idealism. And, finally, the 
East never experienced a Dark Ages to show it that society is distinct from the state and 
more fundamental than the state. 

This summary brings Russian society down to about 1200. In the next six hundred 
years new experiences merely intensified the Russian development. These experiences 
arose from the fact that the new Russian society found itself caught between the 
population pressures of the raiders from the steppes to the east and the pressure of the 
advancing technology of Western Civilization. 

The pressure of the Ural-Altaic speakers from the eastern steppes culminated in the 
Mongol (Tarter) invasions after 1200. The Mongols conquered Russia and established a 
tribute-gathering system which continued for generations. Thus there continued to be a 
foreign exploiting system imposed over the Slav people. In time the Mongols made the 
princes of Moscow their chief tribute collectors for most of Russia. A little later the 
Mongols made a court of highest appeal in Moscow, so that both money and judicial 
cases flowed to Moscow. These continued to flow even after the princes of Moscow 
(1380) led the successful revolt which ejected the Mongols. 



As the population pressure from the East decreased, the technological pressure from 
the West increased (after 1500). By Western technology we mean such things as 
gunpowder and firearms, better agriculture, counting and public finance, sanitation, 
printing, and the spread of education. Russia did not get the full impact of these pressures 
until late, and then from secondary sources, such as Sweden and Poland, rather than from 
England or France. However, Russia was hammered out between the pressures from the 
East and those from the West. The result of this hammering was the Russian autocracy, a 
military, tribute-gathering machine superimposed on the Slav population. The poverty of 
this population made it impossible for them to get firearms or any other advantages of 
Western technology. Only the state had these things, but the state could afford them only 
by draining wealth from the people. This draining of wealth from below upward provided 
arms and Western technology for the rulers but kept the ruled too poor to obtain these 
things, so that all power was concentrated at the top. The continued pressure from the 
West made it impossible for the rulers to use the wealth that accumulated in their hands 
to finance economic improvements which might have raised the standards of living of the 
ruled, since this accumulation had to be used to increase Russian power rather than 
Russian wealth. As a consequence, pressure downward increased and the autocracy 
became more autocratic. In order to get a bureaucracy for the army and for government 
service, the landlords were given personal powers over the peasants, creating a system of 
serfdom in the East just at the time that medieval serfdom was disappearing in the West. 
Private property, personal freedom, and direct contact with the state (for taxation or for 
justice) were lost to the Russian serfs. The landlords were given these powers so that the 
landlords would be free to fight and willing to fight for Moscow or to serve in Moscow's 
autocracy. 

By 1730 the direct pressure of the West upon Russia began to weaken somewhat 
because of the decline of Sweden, of Poland, and of Turkey, while Prussia was too 
occupied with Austria and with France to press very forcibly on Russia. Thus, the Slavs, 
using an adopted Western technology of a rudimentary character, were able to impose 
their supremacy on the peoples to the East. The peasants of Russia, seeking to escape 
from the pressures of serfdom in the area west of the Urals, began to flee eastward, and 
eventually reached the Pacific. The Russian state made every effort to stop this 
movement because it felt that the peasants must remain to work the land and pay taxes if 
the landlords were to be able to maintain the military autocracy which was considered 
necessary. Eventually the autocracy followed the peasants eastward, and Russian society 
came to occupy the whole of northern Asia. 

As the pressure from the East and the pressure from the West declined, the autocracy, 
inspired perhaps by powerful religious feelings, began to have a bad conscience toward 
its own people. At the same time it still sought to westernize itself. It became increasingly 
clear that this process of westernization could not be restricted to the autocracy itself, but 
must be extended downward to include the Russian people. The autocracy found, in 
1812, that it could not defeat Napoleon's army without calling on the Russian people. Its 
inability to defeat the Western allies in the Crimean War of 1854-1856, and the growing 
threat of the Central Powers after the Austro-German alliance of 1879, made it clear that 
Russia must be westernized, in technology if not in ideology, throughout all classes of the 



society, in order to survive. This meant, very specifically, that Russia had to obtain the 
Agricultural Revolution and industrialism; but these in turn required that ability to read 
and write be extended to the peasants and that the rural population be reduced and the 
urban population be increased. These needs, again, meant that serfdom had to be 
abolished and that modern sanitation had to be introduced. Thus one need led to another, 
so that the whole society had to be reformed. In typically Russian fashion all these things 
were undertaken by government action, but as one reform led to another it became a 
question whether the autocracy and the landed upper classes would be willing to allow 
the reform movement to go so far as to jeopardize their power and privileges. For 
example, the abolition of serfdom made it necessary for the landed nobility to cease to 
regard the peasants as private property whose only contact with the state was through 
themselves. Similarly, industrialism and urbanism would create new social classes of 
bourgeoisie and workers. These new classes inevitably would make political and social 
demands very distasteful to the autocracy and the landed nobility. If the reforms led to 
demands for nationalism, how could a dynastic monarchy such as the Romanov 
autocracy yield to such demands without risking the loss of Finland, Poland, the Ukraine, 
or Armenia? 

As long as the desire to westernize and the bad conscience of the upper classes worked 
together, reform advanced. But as soon as the lower classes began to make demands, 
reaction appeared. On this basis the history of Russia was an alternation of reform and 
reaction from the eighteenth century to the Revolution of 1917. Peter the Great (1689- 
1725) and Catherine the Great (1762-1796) were supporters of westernization and 
reform. Paul I (1796-1801) was a reactionary. Alexander I (1801-1825) and Alexander II 
(1855-1881) were reformers, while Nicholas I (1825-1855) and Alexander IE (1881 - 
1894) were reactionaries. As a consequence of these various activities, by r 864 serfdom 
had been abolished, and a fairly modern system of law, of justice, and of education had 
been established; local government had been somewhat modernized; a fairly good 
financial and fiscal system had been established; and an army based on universal military 
service (but lacking in equipment) had been created. On the other hand, the autocracy 
continued, with full power in the hands of weak men, subject to all kinds of personal 
intrigues of the basest kind; the freed serfs had no adequate lands; the newly literate were 
subject to a ruthless censorship which tried to control their reading, writing, and thinking; 
the newly freed and newly urbanized were subject to constant police supervision; the 
non-Russian peoples of the empire were subjected to waves of Russification and Pan- 
Slavism; the judicial system and the fiscal system were administered with an arbitrary 
disregard of all personal rights or equity; and, in general, the autocracy was both 
tyrannical and weak. 

The first period of reform in the nineteenth century, that under Alexander I, resulted 
from a fusion of two factors: the "conscience-stricken gentry" and the westernizing 
autocracy. Alexander himself represented both factors. As a result of his reforms and 
those of his grandmother, Catherine the Great, even earlier, there appeared in Russia, for 
the first time, a new educated class which was wider than the gentry, being recruited from 
sons of Orthodox priests or of state officials (including army officers) and, in general, 
from the fringes of the autocracy and the gentry. When the autocracy became reactionary 



under Nicholas I, this newly educated group, with some support from the conscience- 
stricken gentry, formed a revolutionary group generally called the "Intelligentsia." At first 
this new group was pro-Western, but later it became increasingly anti-Western and 
"Slavophile" because of its disillusionment with the West. In general, the Westernizers 
argued that Russia was merely a backward and barbaric fringe of Western Civilization, 
that it had made no cultural contribution of its own in its past, and that it must pass 
through the same economic, political, and social developments as the West. The 
Westernizers wished to speed up these developments. 

The Slavophiles insisted that Russia was an entirely different civilization from 
Western Civilization and was much superior because it had a profound spirituality (as 
contrasted with Western materialism), it had a deep irrationality in intimate touch with 
vital forces and simple living virtues (in contrast to Western rationality, artificiality, and 
hypocrisy), it had its own native form of social organization, the peasant village 
(commune) providing a fully satisfying social and emotional life (in contrast to Western 
frustration of atomistic individualism in sordid cities); and that a Socialist society could 
be built in Russia out of the simple self-governing, cooperative peasant commune without 
any need to pass along the Western route marked by industrialism, bourgeoisie 
supremacy, or parliamentary democracy. 

As industrialism grew in the West, in the period 1830-1850, the Russian Westernizers 
like P. Y. Chaadayev (1793-1856) and Alexander Herzen (1812-1870) became 
increasingly disillusioned with the West, especially with its urban slums, factory system, 
social disorganization, middle-class money-grubbing and pettiness, its absolutist state, 
and its advanced weapons. Originally the Westernizers in Russia had been inspired by 
French thinkers, while the Slavophiles had been inspired by German thinkers like 
Schelling and Hegel, so that the shift from Westernizers to Slavophiles marked a shift 
from French to Germanic teachers. 

The Slavophiles supported orthodoxy and monarchy, although they were very critical 
of the existing Orthodox Church and of the existing autocracy. They claimed that the 
latter was a Germanic importation, and that the former, instead of remaining a native 
organic growth of Slavic spirituality, had become little more than a tool of autocracy. 
Instead of supporting these institutions, many Slavophiles went out into the villages to get 
in touch with pure Slavic spirituality and virtue in the shape of the untutored peasant. 
These missionaries, called "narodniki," were greeted with unconcealed suspicion and 
distaste by the peasants, because they were city-bred strangers, were educated, and 
expressed anti-Church and anti-governmental ideas. 

Already disillusioned with the West, the Church, and the government, and now 
rejected by the peasants, the Intelligentsia could find no social group on which to base a 
reform program. The result was the growth of nihilism and of anarchism. 

Nihilism was a rejection of all conventions in the name of individualism, both of these 
concepts understood in a Russian sense. Since man is a man and not an animal because of 
his individual development and growth in a society made up of conventions, the nihilist 



rejection of conventions served to destroy man rather than to liberate him as they 
expected. The destruction of conventions would not raise man to be an angel, but would 
lower him to be an animal. Moreover, the individual that the nihilists sought to liberate 
by this destruction of conventions was not what Western culture understands by the word 
"individual." Rather it was "humanity." The nihilists had no respect whatever for the 
concrete individual or for individual personality. Rather, by destroying all conventions 
and stripping all persons naked of all conventional distinctions, they hoped to sink 
everyone, and especially themselves, into the amorphous, indistinguishable mass of 
humanity. The nihilists were completely atheist materialist, irrational, doctrinaire, 
despotic, and violent. They rejected all thought of self so long as humanity suffered; they 
"became atheists because they could not accept a Creator Who made an evil, incomplete 
world full of suffering"; they rejected all thought, all art, all idealism, all conventions, 
because these were superficial, unnecessary luxuries and therefore evil; they rejected 
marriage, because it was conventional bondage on the freedom of love; they rejected 
private property, because it was a tool of individual oppression; some even rejected 
clothing as a corruption of natural innocence; they rejected vice and licentiousness as 
unnecessary upper-class luxuries; as Nikolai Berdyaev put it: "It is Orthodox asceticism 
turned inside out, and asceticism without Grace. At the base of Russian nihilism, when 
grasped in its purity and depth, lies the Orthodox rejection of the world . . ., the 
acknowledgment of the sinfulness of all riches and luxury, of all creative profusion in art 
and in thought.... Nihilism considers as sinful luxury not only art, metaphysics, and 
spiritual values, but religion also.... Nihilism is a demand for nakedness, for the stripping 
of oneself of all the trappings of culture, for the annihilation of all historical traditions, 
for the setting free of the natural man.... The intellectual asceticism of nihilism found 
expression in materialism; any more subtle philosophy was proclaimed a sin.... Not to be 
a materialist was to be taken as a moral suspect. If you were not a materialist, then you 
were in favour of the enslavement of man both intellectually and politically." [N. 
Berdyaev, Origin of Russian Communism (London, Geoffrey Bles, 1948), p. 45.] 

This fantastic philosophy is of great significance because it prepared the ground for 
Bolshevism. Out of the same spiritual sickness which produced nihilism emerged 
anarchism. To the anarchist, as revealed by the founder of the movement, Mikhail 
Bakunin (1814-1876), the chief of all enslaving and needless conventionalities was the 
state. The discovery that the state was not identical with society, a discovery which the 
West had made a thousand years earlier than Russia, could have been a liberating 
discovery to Russia if, like the West, the Russians had been willing to accept both state 
and society, each in its proper place. But this was quite impossible in the Russian 
tradition of fanatical totalitarianism. To this tradition the totalitarian state had been found 
evil and must, accordingly, be completely destroyed, and replaced by the totalitarian 
society in which the individual could be absorbed. Anarchism was the next step after the 
disillusionment of the narodniki and the agitations of the nihilists. The revolutionary 
Intelligentsia, unable to find any social group on which to base a reform program, and 
convinced of the evil of all conventional establishments and of the latent perfection in the 
Russian masses, adopted a program of pure political direct action of the simplest kind: 
assassination. Merely by killing the leaders of states (not only in Russia but throughout 
the world), governments could be eliminated and the masses freed for social cooperation 



and agrarian Socialism. From this background came the assassination of Czar Alexander 
II in 1881, of King Humbert of Italy in 1900, of President McKinley in 1901, as well as 
many anarchist outrages in Russia, Spain, and Italy in the period 1890-1910. The failure 
of governments to disappear in the face of this terrorist agitation, especially in Russia, 
where the oppression of autocracy increased after 1881, led, little by little, to a fading of 
the Intelligentsia's faith in destructive violence as a constructive action, as well as in the 
satisfying peasant commune, and in the survival of natural innocence in the unthinking 
masses. 

Just at this point, about 1890, a great change began in Russia. Western industrialism 
began to grow under governmental and foreign auspices; an urban proletariat began to 
appear, and Marxist social theory came in from Germany. The growth of industrialism 
settled the violent academic dispute between Westerners and Slavophiles as to whether 
Russia must follow the path of Western development or could escape it by falling back 
on some native Slavic solutions hidden in the peasant commune; the growth of a 
proletariat gave the revolutionaries once again a social group on which to build; and 
Marxist theory gave the Intelligentsia an ideology which they could fanatically embrace. 
These new developments, by lifting Russia from the impasse it had reached in 1885, were 
generally welcomed. Even the autocracy lifted the censorship to allow Marxist theory to 
circulate, in the belief that it would alleviate terrorist pressure since it eschewed direct 
political action, especially assassination, and postponed revolution until after 
industrialization had proceeded far enough to create a fully developed bourgeois class 
and a fully developed proletariat. To be sure, the theory created by Marx's mid-nineteenth 
century Germanic background was (as we shall see) gradually changed by the age-long 
Russian outlook, at first by the Leninist Bolshevik triumph over the Mensheviks and later 
by Stalin's Russian nationalist victory over Lenin's more Western rationalism, but in the 
period 1890-1914 the stalemate of opposed violence was broken, and progress, 
punctuated by violence and intolerance, appeared. 

This period of progress punctuated by violence which lasted from 1890 to 1914 has a 
number of aspects. Of these, the economic and social development will be discussed first, 
followed by the political and, lastly, the ideological. 

As late as the liberation of the serfs in 1863, Russia was practically untouched by the 
industrial process, and was indeed more backward by far than Britain and France had 
been before the invention of the steam engine itself. Owing to lack of roads, 
transportation was very poor except for the excellent system of rivers, and these were 
frozen for months each year. Mud tracks, impassable for part of the year and only barely 
passable for the rest of the time, left villages relatively isolated, with the result that 
almost all handicraft products and much agricultural produce were locally produced and 
locally consumed. The serfs were impoverished after liberation, and held at a low 
standard of living by having a large part of their produce taken from them as rents to 
landlords and as taxes to the state bureaucracy. This served to drain a considerable 
fraction of the country's agricultural and mineral production to the cities and to the export 
market. This fraction provided capital for the growth of a modern economy after 1863, 
being exported to pay for the import of the necessary machinery and industrial raw 



materials. This was supplemented by the direct importation of capital from abroad, 
especially from Belgium and France, while much capital, especially for railroads, was 
provided by the government. Foreign capital amounted to about one-third of all industrial 
capital in 1890 and rose to almost one-half by 1900. The proportions varied from one 
activity to another, the foreign portion being, in 1900, at 70 percent in the field of mining, 
42 percent in the field of metallurgical industry, but less than lo percent in textiles. At the 
same date the entire capital of the railroads amounted to 4,700 million rubles, of which 
3,500 belonged to the government. These two sources were of very great importance 
because, except in textiles, most industrial development was based on the railroads, and 
the earliest enterprises in heavy industry, apart from the old charcoal metallurgy of the 
Ural Mountains, were foreign. The first great railroad concession, that of the Main 
Company for 2,650 miles of line, was given to a French company in 1857. A British 
corporation opened the exploitation of the great southern iron ore basin at Krivoi Rog, 
while the German Nobel brothers began the development of the petroleum industry at 
Baku (both about 1880). 

As a consequence of these factors the Russian economy remained largely, but 
decreasingly, a colonial economy for most of the period 1863-1914. There was a very 
low standard of living for the Russian people, with excessive exportation of consumers' 
commodities, even those badly needed by the Russian people themselves, these being 
used to obtain foreign exchange to buy industrial or luxury commodities of foreign origin 
to be owned by the very small ruling class. This pattern of Russian economic 
organization has continued under the Soviet regime since 1917. 

The first Russian railroad opened in 1838, but growth was slow until the establishment 
of a rational plan of development in 1857. This plan sought to penetrate the chief 
agricultural regions, especially the black-earth region of the south, in order to connect 
them with the chief cities of the north and the export ports. At that time there were only 
663 miles of railroads, but this figure went up over tenfold by 1871, doubled again by 
1881 (with 14,000 miles), reached 37,000 by 1901, and 46,600 by 1915. This building 
took place in two great waves, the first in the decade 18661875 and the second in the 
fifteen years 1891-1905. In these two periods averages of over 1,400 miles of track were 
constructed annually, while in the intervening fifteen years, from 1876 to 1890, the 
average construction was only 63 1 miles per year. The decrease in this middle period 
resulted from the "great depression" in western Europe in 1873-1893, and culminated, in 
Russia, in the terrible famine of 1891. After this last date, railroad construction was 
pushed vigorously by Count Sergei Witte, who advanced from station-master to Minister 
of Finance, holding the latter post from 1892 to 1903. His greatest achievement was the 
single-tracked Trans-Siberian line, which ran 6,365 miles from the Polish frontier to 
Vladivostok and was built in the fourteen years 1891-1905. This line, by permitting 
Russia to increase her political pressure in the Far East, brought Britain into an alliance 
with Japan (1902) and brought Russia into war with Japan (1904-1905). 

The railroads had a most profound effect on Russia from every point of view, binding 
one-sixth of the earth's surface into a single political unit and transforming that country's 
economic, political, and social life. New areas, chiefly in the steppes, which had 



previously been too far from markets to be used for any purpose but pastoral activities, 
were brought under cultivation (chiefly for grains and cotton), thus competing with the 
central black-soil area. The drain of wealth from the peasants to the urban and export 
markets was increased, especially in the period before 1890. This process was assisted hy 
the advent of a money economy to those rural areas which had previously been closer to a 
self-sufficient or a barter basis. This increased agricultural specialization and weakened 
handicraft activities. The collection of rural products, which had previously been in the 
hands of a few large commercial operators who worked slowly on a long-term basis, 
largely through Russia's more than six thousand annual fairs, w ere, after 1870, thanks to 
the railroad replaced hy a horde of small, quick-turnover middlemen who swarmed like 
ants through the countryside, offering the contents of their small pouches of money for 
grain, hemp, hides, fats, bristles, and feathers. This drain of goods from the rural areas 
was encouraged by the government through quotas and restrictions, price differentials 
and different railroad rates and taxes for the same commodities with different 
destinations. As a result, Russian sugar sold in London for about 40 percent of its price in 
Russia itself. Russia, with a domestic consumption of 10.5 pounds of sugar per capita 
compared to England's 92 pounds per capita, nevertheless exported in 1900 a quarter of 
its total production of 1,802 million pounds. In the same year Russia exported almost 12 
million pounds of cotton goods (chiefly to Persia and China), although domestic 
consumption of cotton in Russia was only 5.3 pounds per capita compared to England's 
39 pounds. In petroleum products, where Russia had 48 percent of the total world 
production in 1900, about 13.3 percent was exported, although Russian consumption was 
only 12 pounds per capita each year compared to Germany's 42 pounds. In one of these 
products kerosene (where Russia had the strongest potential domestic demand), almost 60 
percent of the domestic production was exported. The full extent of this drain of wealth 
from the rural areas can be judged from the export figures in general. In 1891-1895 rural 
products formed 75 percent (and cereals 40 percent) of the total value of all Russian 
exports. Moreover, it was the better grains which were exported, a quarter of the wheat 
drop compared to one-fifteenth of the crop in 1900. That there was a certain improvement 
in this respect, as time passed, can be seen from the fact that the portion of the wheat crop 
exported fell from half in the 1800's to one-sixth in 1912-1913. 

This policy of siphoning wealth into the export market gave Russia a favorable 
balance of trade (that is, excess of exports over imports) for the whole period after 1875, 
providing gold and foreign exchange which allowed the country to build up its gold 
reserve and to provide capital for its industrial development. In addition, billions of 
rubles were obtained by sales of bonds of the Russian government, largely in France as 
part of the French effort to build up the Triple Entente. The State Bank, which had 
increased its gold reserve from 475 million to 1 ,095 million rubles in the period 1 890- 
1897, was made a bank of issue in 1897 and was required by law to redeem its notes in 
gold, thus placing Russia on the international gold standard. The number of corporations 
in Russia increased from 504 with 912 million rubles capital (of which 215 million was 
foreign) in 1889 to 1,181 corporations with 1,737 million rubles capital (of which over 
800 million was foreign) in 1899. The proportion of industrial concerns among these 
corporations steadily increased, being 58 percent of the new capital flotations in 1874- 
1881 as compared to only 11 percent in 1861-1873. 



Much of the impetus to industrial advance came from the railroads, since these, in the 
last decade of the nineteenth century, were by far tile chief purchasers of ferrous metals, 
coal, and petroleum products. As a result, there was a spectacular outburst of economic 
productivity in this decade, followed by a decade of lower prosperity after 1900. The 
production of pig iron in the period 1860-1870 ranged about 350 thousand tons a year, 
rose to 997 thousand tons in 1890, to almost 1.6 million tons in 1895, and reached a peak 
of 3.3 million tons in 1900. During this period, iron production shifted from the charcoal 
foundries of the Urals to the modern coke furnaces of the Ukraine, the percentages of the 
total Russian production being 67 percent from the Urals to 6 percent from the south in 
1870 and 20 percent from the Urals with 67 percent from the south in 1913. The 
production figure for 1900 was not exceeded during the next decade, but rose after 1909 
to reach 4.6 million tons in 1913. This compared with 14.4 million tons in Germany, 31.5 
million in the United States, or almost 9 million in the United Kingdom. 

Coal production presents a somewhat similar picture, except that its growth continued 
through the decade 1900-1910. Production rose from 750 thousand tons in 1870 to over 
3.6 million tons in 1880 and reached almost 7 million in 1890 and almost 17.5 million in 
1900. From this point, coal production, unlike pig iron, continued upward to 26.2 million 
tons in 1908 and to 36 million in 1913. This last figure compares to Germany's 
production of 190 million tons, American production of 517 million tons, and British 
production of 287 million tons in that same year of 1913. In coal, as in pig iron, there was 
a geographic shift of the center of production, one-third of the Russian coal coming from 
the Donetz area in 1860 while more than two-thirds came from that area in 1900 and 70 
percent in 1913. 

In petroleum there was a somewhat similar geographic shift in the center of 
production, Baku having better than go percent of the total in every year from 1870 until 
after 1900 when the new Grozny fields and a steady decline in Baku's output reduced the 
latter's percentage to 85 in 1910 and to 83 in 1913. Because of this decline in Baku's 
output, Russian production of petroleum, which soared until 1901, declined after that 
year. Production was only 35,000 tons in 1 870, rose to 600,000 tons in 1880, then leaped 
to 4.8 million tons in 1890, to 11.3 million in 1900, and reached its peak of over 12 
million tons in the following year. For the next twelve years output hovered somewhat 
below 8.4 million tons. 

Because the industrialization of Russia came so late, it was (except in textiles) on a 
large-scale basis from the beginning and was organized on a basis of financial capitalism 
after 1870 and of monopoly capitalism after 1902. Although factories employing over 
500 workers amounted to only 3 percent of all factories in the 1890's, 4 percent in 1903, 
and 5 percent in 1910, these factories generally employed over half of all factory 
workers. This was a far higher percentage than in Germany or the United States, and 
made it easier for labor agitators to organize the workers in these Russian factories. 
Moreover, although Russia as a whole was not highly industrialized and output per 
worker or per unit for Russia as a whole was low (because of the continued existence of 
older forms of production), the new Russian factories were built with the most advanced 



technological equipment, sometimes to a degree which the untrained labor supply could 
not utilize. In 1912 the output of pig iron per furnace in the Ukraine was higher than in 
western Europe by a large margin, although smaller than in the United States by an 
equally large margin. Although the quantity of mechanical power available on a per 
capita basis for the average Russian was low in 1908 compared to western Europe or 
America (being only 1.6 horsepower per 100 persons in Russia compared to 25 in the 
United States, 24 in England, and 13 in Germany), the horsepower per industrial worker 
was higher in Russia than in any other continental country (being 92 horsepower per 100 
workers in Russia compared to 85 in France, 73 in Germany, 153 in England, and 282 in 
the United States). All this made the Russian economy an economy of contradictions. 
Though the range of technical methods was very wide, advanced techniques were lacking 
completely in some fields, and even whole fields of necessary industrial activities (such 
as machine tools or automobiles) were lacking. The economy w as poorly integrated, was 
extremely dependent on foreign trade (both for markets and for essential products), and 
was very dependent on government assistance, especially on government spending 

While the great mass of the Russian people continued, as late as 1914, to live much as 
they had lived for generations, a small number lived in a new, and very insecure, world of 
industrialism, where they were at the mercy of foreign or governmental forces over which 
they had little control. The managers of this new world sought to improve their positions, 
not by any effort to create a mass market in the other, more primitive, Russian economic 
world by improved methods of distribution, by reduction of prices, or by rising standards 
of living, but rather sought to increase their own profit margins on a narrow market by 
ruthless reduction of costs, especially wages, and by monopolistic combinations to raise 
prices. These efforts led to labor agitation on one hand and to monopolistic capitalism on 
the other. Economic progress, except in some lines, was slowed up for these reasons 
during the whole decade 1900-1909. Only in 1909, when a largely monopolistic structure 
of industry had been created, was the increase in output of goods resumed and the 
struggle with labor somewhat abated. The earliest Russian cartels were formed with the 
encouragement of the Russian government and in those activities where foreign interests 
were most prevalent. In 1887 a sugar cartel was formed in order to permit foreign 
dumping of this commodity. A similar agency was set up for kerosene in 1892, but the 
great period of formation of such organizations (usually in the form of joint-selling 
agencies) began after the crisis of 1901. In 1902 a cartel created by a dozen iron and steel 
firms handled almost three-fourths of all Russian sales of these products. It was 
controlled by four foreign banking groups. A similar cartel, ruled from Berlin, took over 
the sales of almost all Russian production of iron pipe. Six Ukraine iron-ore firms in 1908 
set up a cartel controlling 80 percent of Russia's ore production. In 1907 a cartel was 
created to control about three-quarters of Russia's agricultural implements. Others 
handled 97 percent of railway cars, 94 percent of locomotives, and 94 percent of copper 
sales. Eighteen Donetz coal firms in 1906 set up a cartel which sold three-quarters of the 
coal output of that area. 

The creation of monopoly was aided by a change in tariff policy. Free trade, which 
had been established in the tariff of 1857, was curtailed in 1877 and abandoned in 1891. 
The protective tariff of this latter year resulted in a severe tariff war with Germany as the 



Germans sought to exclude Russian agricultural products in retaliation for the Russian 
tariff on manufactured goods. This "war" was settled in 1894 by a series of compromises, 
but the reopening of the German market to Russian grain led to political agitation for 
protection on the part of German landlords. They were successful, as we shall see, in 
1900 as a result of a deal with the German industrialists to support Tirpitz's naval 
building program. 

On the eve of the First World War, the Russian economy was in a very dubious state 
of health. As we have said, it was a patchwork affair, very much lacking in integration, 
very dependent on foreign and government support, racked by labor disturbances, and, 
what was even more threatening, by labor disturbances based on political rather than on 
economic motives, and shot through with all kinds of technological weaknesses and 
discords. As an example of the last, we might mention the fact that over half of Russia's 
pig iron was made with charcoal as late as 1900 and some of Russia's most promising 
natural resources were left unused as a result of the restrictive outlook of monopoly 
capitalists. The failure to develop a domestic market left costs of distribution fantastically 
high and left the Russian per capita consumption of almost all important commodities 
fantastically low. Moreover, to make matters worse, Russia as a consequence of these 
things was losing ground in the race of production with France, Germany, and the United 
States. 

These economic developments had profound political effects under the weak-willed 
Czar Nicholas II (1894-1917). For about a decade Nicholas tried to combine ruthless civil 
repression, economic advance, and an imperialist foreign policy in the Balkans and the 
Far East, with pious worldwide publicity for peace and universal disarmament, domestic 
distractions like anti-Semitic massacres (pogroms), forged terroristic documents, and 
faked terroristic attempts on the lives of high officials, including himself. This unlikely 
melange collapsed completely in 1905-1908. When Count Witte attempted to begin some 
kind of constitutional development by getting in touch with the functioning units of local 
government (the zemstvos, which had been effective in the famine of 1891), he was 
ousted from his position by an intrigue led by the murderous Minister of Interior 
Vyacheslav Plehve (1903). The civil head of the Orthodox Church, Konstantin 
Pobedonostsev (1827-1907) persecuted all dissenting religions, while allowing the 
Orthodox Church to become enveloped in ignorance and corruption. Most Roman 
Catholic monasteries in Poland were confiscated, while priests of that religion were 
forbidden to leave their villages. In Finland construction of Lutheran churches was 
forbidden, and schools of this religion were taken over by the Moscow government. The 
Jews were persecuted, restricted to certain provinces (the Pale), excluded form most 
economic activities, subjected to heavy taxes (even on their religious activities), and 
allowed to form only ten percent of the pupils in schools (eve in villages which were 
almost completely Jewish and where the schools were supported entirely by Jewish 
taxes). Hundreds of Jews were massacred and thousands of their buildings wrecked in 
systematic three-day pogroms tolerated and sometimes encouraged by the police. 
Marriages (and children) of Roman Catholic Uniates were made illegitimate. The 
Moslems in Asia and elsewhere were also persecuted. 



Every effort was made to Russify non-Russian national groups, especially on the 
western frontiers. The Finns, Baltic Germans, and Poles were not allowed to use their 
own languages in public life, and had to use Russian even in private schools and even on 
the primary level. Administrative autonomy in these areas, even that solemnly promised 
to Finland long before, was destroyed, and they were dominated by Russian police, 
Russian education, and the Russian Army. The peoples of these areas were subjected to 
military conscription more rigorously than the Russians themselves, and were Russified 
while in the ranks. 

Against the Russians themselves, unbelievable extremes of espionage, 
counterespionage, censorship, provocation, imprisonment without trial, and outright 
brutality were employed. The revolutionaries responded with similar measures crowned 
by assassination. No one could trust anyone else, because revolutionaries were in the 
police, and members of the police were in the highest ranks of the revolutionaries. Georgi 
Gapon, a priest secretly in the pay of the government, was encouraged to form labor 
unions and lead workers' agitations in order to increase the employers' dependence on the 
autocracy, but when, in 1905, Gapon led a mass march of workers to the Winter Palace to 
present a petition to the czar, they were attacked by the troops and hundreds were shot. 
Gapon was murdered the following year by the revolutionaries as a traitor. In order to 
discredit the revolutionaries, the central Police Department in St. Petersburg "printed at 
the government expense violent appeals to riot" which were circulated all over the 
country by an organization of reactionaries. In one year (1906) the government exiled 
35,000 persons without trial and executed over 600 persons under a new decree which 
fixed the death penalty for ordinary crimes like robbery or insults to officials. In the three 
years 1906-1908, 5,140 officials were killed or wounded, and 2,328 arrested persons 
were executed. In 1909 it was revealed that a police agent, Azeff, had been a member of 
the Central Committee of the Socialist Revolutionaries for years and had participated in 
plots to murder high officials, including Plehve and the Grand Duke Sergius, without 
warning these. The former chief of police who revealed this fact was sent to prison for 
doing so. 

Under conditions such as these no sensible government was possible and all appeals 
for moderation were crushed between the extremists from both sides. The defeats of 
Russian forces in the war with Japan in 1904-1905 brought events to a head. All 
dissatisfied groups began to agitate, culminating in a successful general strike in October 
1905. The emperor began to offer political reforms, although what was extended one day 
was frequently taken back shortly after. A consultative assembly, the Duma, was 
established, elected on a broad suffrage but by very complicated procedures designed to 
reduce the democratic element. In the face of agrarian atrocities, endless strikes, and 
mutinies in both the army and navy, the censorship was temporarily lifted, and the first 
Duma met (May 1906). It had a number of able men and was dominated by two hastily 
organized political parties, the Cadets (somewhat left of Center) and the Octobrists 
(somewhat right of Center). Plans for wholesale reform were in the w-ind, and, when the 
czar's chief minister rejected such plans, he was overwhelmingly censured by the Duma. 
After weeks of agitation the czar tried to form an Octobrist ministry, but this group 
refused to govern without Cadet cooperation, and the latter refused to join a coalition 



government. The czar named Petr Stolypin chief minister, dissolved the first Duma, and 
called for election of a new one. Stolypin was a severe man, willing to move slowly in 
the direction of economic and political reform but determined to crush without mercy any 
suspicion of violence or illegal actions. The full power of the government was used to get 
a second Duma more to its taste, outlawing most of the Cadets, previously the largest 
party, and preventing certain classes and groups from campaigning or voting. The result 
was a new Duma of much less ability, much less discipline, and with many unknown 
faces. The Cadets were reduced from 150 to 123, the Octobrists from about 42 to 32, 
while there were 46 extreme Right, 54 Marxist Social Democrats, 35 Social 
Revolutionaries, at least 100 assorted Laborites, and scattered others. This group devoted 
much of its time to debating whether terrorist violence should be condemned. W hen 
Stolypin demanded that the Social Democrats (Marxists) should be kicked out, the Duma 
referred the matter to a committee; the assembly was immediately dissolved, and new 
elections were fixed for a third Duma (June, 1908). Under powerful government 
intimidation, which included sending 3 1 Social Democrats to Siberia, the third Duma was 
elected. It was mostly an upperclass and upper-middle-class body, with the largest groups 
being 154 Octobrists and 54 Cadets. This body was sufficiently docile to remain for five 
years (1907-1912). During this period both the Duma and the government followed a 
policy of drift, except for Stolypin. Until 1910 this energetic administrator continued his 
efforts to combine oppression and reform, especially agrarian reform. Rural credit banks 
were established; various measures were taken to place larger amounts of land in the 
hands of peasants; restrictions on the migration of peasants, especially to Siberia, were 
removed; participation in local government was opened to lower social classes previously 
excluded; education, especially technical education, w as made more accessible; and 
certain provisions for social insurance were enacted into law. After the Bosnian crisis of 
1908 (to be discussed later), foreign affairs became increasingly absorbing, and by 1910 
Stolypin had lost his enthusiasm for reform, replacing it by senseless efforts at 
Russification of the numerous minority groups. He was assassinated in the presence of 
the czar in 1911. 

The fourth Duma (1912-1916) was similar to the third, elected by complicated 
procedures and on a restricted suffrage. The policy of drift continued, and was more 
obvious since no energetic figure like Stolypin was to be found. On the contrary, the 
autocracy sank deeper into a morass of superstition and corruption. The influence of the 
czarina became more pervasive, and through her was extended the power of a number of 
religious mystics and charlatans, especially Rasputin. The imperial couple had ardently 
desired a son from their marriage in 1894. After the births of four daughters, their wish 
was fulfilled in 1904. Unfortunately, the new czarevich, Alexis, had inherited from his 
mother an incurable disease, hemophilia. Since his blood would not clot, the slightest cut 
endangered his life. This weakness merely exaggerated the czarina's fanatical devotion to 
her son and her determination to see him become czar with the powers of that office 
undiminished by any constitutional or parliamentary innovations. After 1907 she fell 
under the influence of a strange wanderer, Rasputin, a man whose personal habits and 
appearance were both vicious and filthy but who had the power, she believed, to stop the 
czarevich' s bleeding. The czarina fell completely under Rasputin's control and, since the 
czar was completely under her control, Rasputin became the ruler of Russia, 



intermittently at first, but then completely. This situation lasted until he was murdered in 
December 1916. Rasputin used his power to satisfy his personal vices, to accumulate 
wealth by corruption, and to interfere in every branch of the government, always in a 
destructive and unprogressive sense. As Sir Bernard Pares put it, speaking of the czarina, 
"Her letters to Nicholas day by day contain the instructions which Rasputin gave on 
every detail of administration of the Empire — the Church, the Ministers, finance, 
railways, food supply, appointments, military operations, and above all the Duma, and a 
simple comparison of the dates with the events which followed shows that in almost 
every case they were carried out. In all her recommendations for ministerial posts, most 
of which are adopted, one of the primary considerations is always the attitude of the 
given candidate to Rasputin." 

As the autocracy became increasingly corrupt and irresponsible in this way, the slow 
growth toward a constitutional system which might have developed from the zemstvo 
system of local government and the able membership of the first Duma was destroyed. 
The resumption of economic expansion after 1909 could not counterbalance the 
pernicious influence of the political paralysis. This situation was made even more 
hopeless by the growing importance of foreign affairs after 1908 and the failure of 
intellectual life to grow in any constructive fashion. The first of these complications will 
be discussed later; the second deserves a few words here. 

The general trend of intellectual development in Russia in the years before 1914 could 
hardly be regarded as hopeful. To be sure, there were considerable advances in some 
fields such as literacy, natural science, mathematics, and economic thought, but these 
contributed little to any growth of moderation or to Russia's greatest intellectual need, a 
more integrated outlook on life. The influence of the old Orthodox religious attitude 
continued even in those who most emphatically rejected it. The basic attitude of the 
Western tradition had grown toward diversity and toleration, based on the belief that 
every aspect of life and of human experience and every individual has some place in the 
complex structure of reality if that place can only be found and that, accordingly, unity of 
the whole of life can be reached by way of diversity rather than by any compulsory 
uniformity. This idea was entirely foreign to the Russian mind. Any Russian thinker, and 
hordes of other Russians with no capacity for thought, were driven by an insatiable thirst 
to find the "key" to life and to truth. Once this "key" has been found, all other aspects of 
human experience must be rejected as evil, and all men must be compelled to accept that 
key as the whole of life in a dreadful unity of uniformity. To make matters worse' many 
Russian thinkers sought to analyze the complexities of human experience by polarizing 
these into antitheses of mutually exclusive dualisms: Westerners versus Slavophiles, 
individualism versus community, freedom versus fate, revolutionary versus reactionary, 
nature versus conventions, autocracy versus anarchy, and such. There was no logical 
correlation between these, so that individual thinkers frequently embraced either side of 
any antithesis, forming an incredible mixture of emotionally held faiths. Moreover, 
individual thinkers frequently shifted from one side to another, or even oscillated back 
and forth between the extremes of these dualisms. In the most typical Russian minds both 
extremes were held simultaneously, regardless of logical compatibility, in some kind of 
higher mystic unity beyond rational analysis. Thus, Russian thought provides us with 



striking examples of God-intoxicated atheists, revolutionary reactionaries, violent non- 
resisters, belligerent pacifists, compulsory liberators, and individualistic totalitarians. 

The basic characteristic of Russian thought is its extremism. This took two forms: (1) 
any portion of human experience to which allegiance was given became the whole truth, 
demanding total allegiance, all else being evil deception; and (2) every living person was 
expected to accept this same portion or be damned as a minion of anti-Christ. Those who 
embraced the state were expected to embrace it as an autocracy in which the individual 
had no rights, else their allegiance was not pure; those who denied the state were 
expected to reject it utterly by adopting anarchism. Those who became materialists had to 
become complete nihilists without place for any convention, ceremony, or sentiment. 
Those who questioned some minor aspect of the religious system were expected to 
become militant atheists, and if they did not take this step themselves, were driven to it 
by the clergy. Those who were considered to be spiritual or said they were spiritual were 
forgiven every kind of corruption and lechery (like Rasputin) because such material 
aspects were irrelevant. Those who sympathized with the oppressed were expected to 
bury themselves in the masses, living like them, eating dike them, dressing like them, and 
renouncing all culture and thought (if they believed the masses lacked these things). 

The extremism of Russian thinkers can be seen in their attitudes toward such basic 
aspects of human experience as property, reason, the state, art, sex, or power. Always 
there was a fanatical tendency to eliminate as sinful and evil anything except the one 
aspect which the thinker considered to be the key to the cosmos. Alexei Khomyakov 
(1804-1860), a Slavophile, wanted to reject reason completely, regarding it as "the mortal 
sin of the West," while Fedor Dostoevski (1821-1881) went so far in this direction that he 
wished to destroy all logic and all arithmetic, seeking, he said, "to free humanity from the 
tyranny of two plus two equals four." Many Russian thinkers, long before the Soviets, 
regarded all property as sinful. Others felt the same way about sex. Leo Tolstoi, the great 
novelist and essayist (1828-1910), considered all property and all sex to be evil. Western 
thought, which has usually tried to find a place in the cosmos for everything and has felt 
that anything is acceptable in its proper place, recoils from such fanaticism. The West, for 
example, has rarely felt it necessary to justify the existence of art, but many thinkers in 
Russia (like Plato long ago) have rejected all art as evil. Tolstoi, among others, had 
moments (as in the essay What Is Art? Of 1897 or On Shakespeare and the Drama of 
1903) when he denounced most art and literature, including his own novels, as vain, 
irrelevant, and satanic. Similarly the West, while it has sometimes looked askance at sex 
and more frequently has over-emphasized it, has generally felt that sex had a proper 
function in its proper place. In Russia, however, many thinkers including once again 
Tolstoi (The Kreutzer Sonata of 1889), have insisted that sex was evil in all places and 
under all circumstances, and most sinful in marriage. The disruptive effects of such ideas 
upon social or family life can be seen in the later years of Tolstoi's personal life, 
culminating in his last final hatred of his long-suffering wife whom he came to regard as 
the instrument of his fall from grace. But while Tolstoi praised marriage without sex, 
other Russians, with even greater vehemence, praised sex without marriage, regarding 
this social institution as an unnecessary impediment in the path of pure human impulse. 



In some ways we find in Tolstoi the culmination of Russian thought. He rejected all 
power, all violence, most art, all sex, all public authority, and all property as evil. To him 
the key of the universe was to he found in Christ's injunction, "Resist not evil." All other 
aspects of Christ's teachings except those which flow directly from this were rejected, 
including any belief in Christ's divinity or in a personal God. From this injunction flowed 
Tolstoi's ideas of nonviolence and nonresistance and his faith that only in this way could 
man's capacity for a spiritual love so powerful that it could solve all social problems he 
liberated. This idea of Tolstoi, although based on Christ's injunction, is not so much a 
reflection of Christianity as it is of the basic Russian assumption that any physical defeat 
must represent a spiritual victory, and that the latter could be achieved only through the 
former. 

Such a point of view could be held only by persons to whom all prosperity or 
happiness is not only irrelevant but sinful. And this point of view could be held with such 
fanaticism only by persons to whom life, family, or any objective gain is worthless. This 
is a dominant idea in all the Russian Intelligentsia, an idea going back through Plato to 
ancient Asia: All objective reality is of no importance except as symbols for some 
subjective truth. This was, of course, the point of view of the Neoplatonic thinkers of the 
early Christian period. It was generally the point of view of the early Christian heretics 
and of those Western heretics like the Cathari (Albigenses) who were derived from this 
Eastern philosophic position. In modern Russian thought it is well represented by 
Dostoevski, who while chronologically earlier than Tolstoi is spiritually later. To 
Dostoevski every object and every act is merely a symbol for some elusive spiritual truth. 
From this point of view comes an outlook which makes his characters almost 
incomprehensible to the average person in the Western tradition: if such a character 
obtains a fortune, he cries, "I am ruined!" If he is acquitted on a murder charge, or seems 
likely to be, he exclaims, "I am condemned," and seeks to incriminate himself in order to 
ensure the punishment which is so necessary for his own spiritual self-acquittal. If he 
deliberately misses his opponent in a duel, he has a guilty conscience, and says, "I should 
not have injured him thus; I should have killed him!" In each case the speaker cares 
nothing about property, punishment, or life. He cares only about spiritual values: 
asceticism, guilt, remorse, injury to one's self-respect. In the same way, the early 
religious thinkers, both Christian and non-Christian, regarded all objects as symbols for 
spiritual values, all temporal success as an inhibition on spiritual life, and felt that wealth 
could be obtained only by getting rid of property, life could be found only by dying (a 
direct quotation from Plato), eternity could be found only if time ended, and the soul 
could be freed only if the body were enslaved. Thus, as late as 1910 when Tolstoi died, 
Russia remained true to its Greek-Byzantine intellectual tradition. 

We have noted that Dostoevski, who lived slightly before Tolstoi, nevertheless had 
ideas which were chronologically in advance of Tolstoi's ideas. In fact, in many ways, 
Dostoevski was a precursor of the Bolsheviks. Concentrating his attention on poverty, 
crime, and human misery, always seeking the real meaning behind every overt act or 
word, he eventually reached a position where the distinction between appearance and 
significance became so wide that these two were in contradiction with each other. This 
contradiction was really the struggle between God and the Devil in the soul of man. Since 



this straggle is without end, there is no solution to men's problems except to face 
suffering resolutely. Such suffering purges men of all artificiality and joins them together 
in one mass. In this mass the Russian people, because of their greater suffering and their 
greater spirituality, are the hope of the world and must save the world from the 
materialism, violence, and selfishness of Western civilization. The Russian people, on the 
other hand, filled with self-sacrifice, and with no allegiance to luxury or material gain, 
and purified by suffering which makes them the brothers of all other suffering people, 
will save the world by taking up the sword of righteousness against the forces of evil 
stemming from Europe. Constantinople will be seized, all the Slavs will be liberated, and 
Europe and the world will be forced into freedom by conquest, so that Moscow many 
become the Third Rome. Before Russia is fit to save the world in this way, however, the 
Russian intellectuals must merge themselves in the great mass of the suffering Russian 
people, and the Russian people must adopt Europe's science and technology 
uncontaminated by any European ideology. The blood spilled in this effort to extend Slav 
brotherhood to the whole world by force will aid the cause, for suffering shared will 
make men one. 

This mystical Slav imperialism with its apocalyptical overtones was by no means 
uniquely Dostoevski's. It was held in a vague and implicit fashion by many Russian 
thinkers, and had a wide appeal to the unthinking masses. It was implied in much of the 
propaganda of Pan-Slavism, and became semiofficial with the growth of this propaganda 
after 1908. It was widespread among the Orthodox clergy, who emphasized the reign of 
righteousness which would follow the millennialist establishment of Moscow as the 
"Third Rome." It was explicitly stated in a book, Russia and Europe, published in 1869 
by Nicholas Danilevsky (1822-1885). Such ideas, as we shall see, did not die out with the 
passing of the Romanov autocracy in 1917, but became even more influential, merging 
with the Leninist revision of Marxism to provide the ideology of Soviet Russia after 
1917. 

Part Four — The Buffer Fringe 

In the first half of the twentieth century the power structure of the world was entirely 
transformed. In 1900, European civilization, led by Britain and followed by other states at 
varying distances, was still spreading outward, disrupting the cultures of other societies 
unable to resist and frequently without any desire to resist. The European structure which 
pushed outward formed a hierarchy of power, wealth, and prestige with Britain at the top, 
followed by a secondary rank of other Great Powers, by a tertiary rank of the wealthy 
secondary Powers (like Belgium, the Netherlands, and Sweden), and by a quaternary rank 
of the lesser or decadent Powers (like Portugal or Spain, whose world positions were 
sustained by British power). 

At the turn of the twentieth century the first cracklings of impending disaster were 
emitted from this power structure but were generally ignored: in 1896 the Italians were 
massacred by the Ethiopians at Adowa; in 1899-1902 the whole might of Britain was 
held in check by the small Boer republics in the South African War; and in 1904-1905 



Russia was defeated by a resurgent Japan. These omens were generally not heeded, and 
European civilization continued on its course to Armageddon. 

By the second half of the twentieth century, the power structure of the world presented 
a quite different picture. In this new situation the world consisted of three great zones: (1) 
Orthodox civilization under the Soviet Empire, occupying the heartland of Eurasia; (2) 
surrounding this, a fringe of dying and shattered cultures: Islamic, Hindu, Malayan, 
Chinese, Japanese, Indonesian, and others: and (3) outside this fringe, and chiefly 
responsible for shattering its cultures, Western Civilization. Moreover, Western 
Civilization had been profoundly modified. In 1900 it had consisted of a core area in 
Europe with peripheral areas in the Americas, Australia, New Zealand, and the fringes of 
Africa. By 1950 Western Civilization had its center of power in America, the fringes in 
Africa were being lost, and Europe had been so reduced in power, in wealth, and in 
prestige that it seemed to many that it must make a choice between becoming a satellite 
in an American-dominated Western Civilization or joining with the buffer fringe to try to 
create a Third Force able to hold a balance of power between America and the Soviet 
bloc. This impression was mistaken, and by the late 1950's Europe was in a position, 
once again, to play an independent role in world affairs. 

In previous chapters we have examined the background of Western Civilization and of 
the Russian Empire to the second decade of the twentieth century. In the present chapter 
we shall examine the situation in the buffer fringe until about the end of that same 
decade. At the beginning of the twentieth century the areas which were to become the 
buff r fringe consisted of (1) the Near East dominated by the Ottoman Empire, (2) the 
Middle East dominated by the British Empire in India, and (3) the Far East, consisting of 
two old civilizations, China and Japan. On the outskirts of these were the lesser colonial 
areas of Africa, Malaysia, and Indonesia. At this point we shall consider the three major 
areas of the buffer fringe with a brief glance at Africa. 

Chapter 8— The Near East to 1914 

For the space of over a century, from shortly after the end of the Napoleonic Wars in 
1815 until 1922, the relationships of the Great Powers were exacerbated by what was 
known as the "Near East Question." This problem, which arose from the growing 
weakness of the Ottoman Empire, was concerned with the question of what would 
become of the lands and peoples left without government by the retreat of Turkish power. 
The problem was made more complex by the fact that Turkish power did not withdraw 
but rather decayed right were it was, so that in many areas it continued to exist in law 
when it had already ceased to function in fact because of the weakness and corruption of 
the sultan's government. The Turks themselves sought to maintain their position, not by 
remedying their weakness and corruption by reform, but by playing off one European 
state against another and hy using cruel and arbitrary actions against any of their subject 
peoples who dared to become restive under their rule. 

The Ottoman Empire reached its peak in the period 1526-1533 with the conquest of 
Hungary and the first siege of Vienna. A second siege, also unsuccessful, came in 1683. 



From this point Turkish power declined and Turkish sovereignty withdrew, but 
unfortunately the decline was much more rapid than the withdrawal, with the result that 
subject peoples were encouraged to revolt and foreign Powers were encouraged to 
intervene because of the weakness of Turkish power in areas which were still nominally 
under the sultan's sovereignty. 

At its height the Ottoman Empire was larger than any contemporary European state in 
both area and population. South of the Mediterranean it stretched from the Atlantic Ocean 
in Morocco to the Persian Gulf; north of the Mediterranean it stretched from the Adriatic 
Sea to the Caspian Sea, including the Balkans as far north as Poland and the whole 
northern shore of the Black Sea. This vast empire was divided into twenty-one 
governments and subdivided into seventy vilayets, each under a pasha. The whole 
structure was held together as a tribute-gathering military system by the fact that the 
rulers in all parts were Muslims. The supreme ruler in Constantinople was not only sultan 
(and thus head of the empire) but was also caliph (and thus defender of the Muslim 
creed). In most of the empire the mass of the people were Muslims like their rulers, but in 
much of the empire the masses of the peoples were non-Muslims, being Roman 
Christians, Orthodox Christians, Jews, or other creeds. 

Linguistic variations were even more notable than religious distinctions. Only the 
peoples of Anatolia generally spoke Turkish, while those of North Africa and the Near 
East spoke various Semitic and Hamitic dialects of which the most prevalent was Arabic. 
From Syria to the Caspian Sea across the base of Anatolia were several languages, of 
which the chief were Kurdish and Armenian. The shores of the Aegean Sea, especially 
the western, were generally Greek-speaking. The northern shore was a confused mixture 
of Turkish, Greek, and Bulgarian speaking peoples. The eastern shore of the Adriatic was 
Greek-speaking up to the 40th parallel, then Albanian for almost three degrees of latitude, 
merging gradually into various South Slav languages like Croat, Slovens, and (in the 
interior) Serb. The Dalmatian shore and Istria had many Italian speakers. On the Black 
Sea shore Thrace itself was a mixture of Turkish, Greek, and Bulgar from the Bosporus 
to the 42nd parallel where there was a solid mass of Bulgarians. The central Balkans w as 
a confused area, especially in Macedonia where Turkish, Greek, Albanian, Serb, and 
Bulgar met and mingled. North of the Bulgarian-speaking groups, and generally 
separated from them by the Danube, were Romanians. North of the Croatians and Serbs, 
and generally separated from them by the Drava River, were the Hungarians. The district 
where the Hungarians and Romanians met, Transylvania, was confused, with great blocs 
of one language being separated from their fellows by blocs of the other, the confusion 
being compounded by the presence of considerable numbers of Germans and Gypsies. 

The religious and linguistic divisions of the Ottoman Empire were complicated by 
geographic, social, and cultural divisions, especially in the Balkans. This last-named area 
provided such contrasts as the relatively advanced commercial and mercantile activities 
of the Greeks; primitive pastoral groups like Albanian goat-herders; subsistence farmers 
scratching a living from small plots of Macedonia's rocky soils; peasant-size farms on the 
better soils of Serbia and Romania; great rich landed estates producing for a commercial 
market and worked by serf labor in Hungary and Romania. Such diversity made any 



hopes of political unity by consent or by federation almost impossible in the Balkans. 
Indeed, it was almost impossible to draw any political lines which would coincide with 
geographic and linguistic or religious lines, because linguistic and religious distinctions 
frequently indicated class distinctions. Thus the upper and lower classes or the 
commercial and the agricultural groups even in the same district often had different 
languages or different religions. Such a pattern of diversity could be held together most 
easily by a simple display of military force. This was what the Turks provided. Militarism 
and fiscalism were the two keynotes of Turkish rule, and were quite sufficient to hold the 
empire together as long as both remained effective and the empire was free from outside 
interference. But in the course of the eighteenth century Turkish administration became 
ineffective and outside interference became important. 

The sultan, who was a completely absolute ruler, became very quickly a completely 
arbitrary ruler. This characteristic extended to all his activities. He filled his harem with 
any women who pleased his fancy, without any formal ceremony. Such numerous and 
temporary liaisons produced numerous children, of whom many were neglected or even 
forgotten. Accordingly, the succession to the throne never became established and was 
never based on primogeniture. As a consequence, the sultan came to fear murder from 
almost any direction. To avoid this, he tended to surround himself with persons who 
could have no possible chance of succeeding him: women, children, Negroes, eunuchs, 
and Christians. All the sultans from 1451 onward were born of slave mothers and only 
one sultan after this date even bothered to contract a formal marriage. Such a way of life 
isolated the sultan from his subjects completely. 

This isolation applied to the process of government as well as to the ruler's personal 
life. Most of the sultans paid little heed to government, leaving this to their grand viziers 
and the local pashas. The former had no tenure, being appointed or removed in 
accordance with the whims of harem intrigue. The pashas tended to become increasingly 
independent, since they collected local taxes and raised local military forces. The fact that 
the sultan was also caliph (and thus religious successor to Muhammad), and the religious 
belief that the government was under divine guidance and should be obeyed, however 
unjust and tyrannical, made all religious thinking on political or social questions take the 
form of justification of the status quo, and made any kind of reform almost impossible. 
Reform could come only from the Sultan, but his ignorance and isolation from society 
made reform unlikely. In consequence the whole system became increasingly weak and 
corrupt. The administration was chaotic, inefficient, and arbitrary. Almost nothing could 
be done without gifts and bribes to officials, and it was not always possible to know what 
official or series of officials were the correct ones to reward. 

The chaos and weakness which we have described were in full blossom by the 
seventeenth century, and grew worse during the next two hundred years. As early as 1699 
the sultan lost Hungary, Transylvania, Croatia, and Slavonia to the Habsburgs, parts of 
the western Balkans to Venice, and districts in the north to Poland. In the course of the 
eighteenth century, Russia acquired areas north of the Black Sea, notably the Crimea. 



During the nineteenth century, the Near East question became increasingly acute. 
Russia emerged from the Napoleonic Wars as a Great Power, able to increase its pressure 
on Turkey. This pressure resulted from three motivations. Russian imperialism sought to 
win an outlet to open waters in the south by dominating the Black Sea and by winning 
access to the Aegean through the acquisition of the Straits and Constantinople. Later this 
effort was supplemented by economic and diplomatic pressure on Persia in order to reach 
the Persian Gulf. At the same time, Russia regarded itself as the protector of the 
Orthodox Christians in the Ottoman Empire, and as early as 1774 had obtained the 
sultan's consent to this protective role. Moreover, as the most powerful Slav state, Russia 
had ambitions to be regarded as the protector of the Slavs in the sultan's domains. 

These Russian ambitions could never have been thwarted by the sultan alone, but he 
did not need to stand alone. He generally found support from Britain and increasingly 
from France. Britain was obsessed with the need to defend India, which was a manpower 
pool and military staging area vital to the defense of the whole empire. From 1 840 to 
1907, it faced the nightmare possibility that Russia might attempt to cross Afghanistan to 
northwest India, or cross Persia to the Persian Gulf, or penetrate through the Dardanelles 
and the Aegean onto the British "lifeline to India" by way of the Mediterranean. The 
opening of the Suez Canal in 1 869 increased the importance of this Mediterranean route 
to the east in British eyes. It was protected by British forces in Gibraltar, Malta (acquired 
1800), Cyprus (1878), and Egypt (1882). In general, in spite of English humanitarian 
sympathy for the peoples subject to the tyranny of the Turk, and in spite of England's 
regard for the merits of good government, British imperial policy considered that its 
interests would be safer with a weak, if corrupt, Turkey in the Near East than they would 
be with any Great Power in that area or with the area broken up into small independent 
states which might fall under the influence of the Great Powers. 

The French concern with the Near East was parallel to, but weaker than, that of 
Britain. They had cultural and trade relations with the Levant going back, in some cases, 
to the Crusades. In addition the French had ancient claims, revived in 1854, to he 
considered the protectors of Roman Catholics in the Ottoman Empire and of the "holy 
places" in Jerusalem. 

Three other influences which became increasingly strong in the Near East were the 
growth of nationalism and the growing interests of Austria (after 1 866) and of Germany 
(after 1889). The first stirrings of Balkan nationalism can be seen in the revolt of the 
Serbs in 1804-1812. By seizing Bessarabia from Turkey in 1812, Russia won the right for 
local self-government for the Serbs. Unfortunately, these latter began almost immediately 
to fight one another, the chief split being between a Russophile group led by Milan 
Obrenovich and a Serb nationalist group led by George Petroviae (better known as 
Karageorge). The Serb state, formally established in 1830, was bounded by the rivers 
Dvina, Save, Danube, and Timok. With local autonomy under Turkish suzerainty, it 
continued to pay tribute to the sultan and to support garrisons of Turkish troops. The 
vicious feud between Obrenovich and Karageorgevic continued after Serbia obtained 
complete independence in 1878. The Obrenovich dynasty ruled in 1817-1842 and 1858- 
1903, while the Karageorgevic group ruled in 1842-1858 and 1903-1945. The intrigues of 



these two against each other broadened into a constitutional conflict in which the 
Obrenovich group supported the somewhat less liberal constitution of 1869, while the 
Karageorgevic group supported the somewhat more liberal constitution of 1889. The 
former constitution was in effect in 1869 1889 and again in 1894-1903, while the latter 
was in effect in 1889-1894 and again in 1903-1921. In order to win popular support by an 
appeal to nationalist sentiments, both groups plotted against Turkey and later against 
Austria-Hungary. 

A second example of Balkan nationalism appeared in the Greek struggle for 
independence from the sultan (1821-1830). After Greeks and Muslims had massacred 
each other by the thousands, Greek independence was established with a constitutional 
monarchy under the guarantee of the three Great Powers. A Bavarian prince was placed 
on the throne and began to establish a centralized, bureaucratic, constitutional state which 
was quite unsuited for a country with such unconstitutional traditions, poor transportation 
and communications, a low level of literacy, and a high level of partisan localism. After 
thirty turbulent years (1832-1862), Otto of Bavaria was deposed and replaced by a 
Danish prince and a completely democratic unicameral government which functioned 
only slightly better. The Danish dynasty continues to rule, although supplanted by a 
republic in 1924-1935 and by military dictatorships on sundry occasions, notably that of 
Joannes Metaxas (1936-1941). 

The first beginnings of Balkan nationalism must not be overemphasized. While the 
inhabitants of the area have always been unfriendly to outsiders and resentful of 
burdensome governments, these sentiments deserve to be regarded as provincialism or 
localism rather than nationalism. Such feelings are prevalent among all primitive peoples 
and must not be regarded as nationalism unless they are so wide as to embrace loyalty to 
all peoples of the same language and culture and are organized in such fashion that this 
loyalty is directed toward the state as the core of nationalist strivings. Understood in this 
way, nationalism became a very potent factor in the disruption of the Ottoman Empire 
only after 1878. 

Closely related to the beginnings of Balkan nationalism were the beginnings of Pan- 
Slavism and the various "pan-movements" in reaction to this, such as Pan-Islamism. 
These rose to a significant level only at the very end of the nineteenth century. Simply 
defined, Pan-Slavism was a movement for cultural unity, and, perhaps in the long run, 
political unity among the Slavs. In practice it came to mean the right of Russia to assume 
the role of protector of the Slav peoples outside Russia itself. At times it was difficult for 
some peoples, especially Russia's enemies, to distinguish between Pan-Slavism and 
Russian imperialism. Equally simply defined, Pan-Islamism was a movement for unity or 
at least cooperation among all the Muslim peoples in order to resist the encroachments of 
the European Powers on Muslim territories. In concrete terms it sought to give the caliph 
a religious leadership, and perhaps in time a political leadership such as he had really 
never previously possessed. Both of these pan-movements are of no importance until the 
end of the nineteenth century, while Balkan nationalism was only slightly earlier than 
they in its rise to importance. 



These Balkan nationalists had romantic dreams about uniting peoples of the same 
language, and generally looked back, with a distorted historical perspective, to some 
period when their co-linguists had played a more important political role. The Greeks 
dreamed of a revived Byzantine state or even of a Periclean Athenian Empire. The Serbs 
dreamed of the days of Stephen Dushan, while the Bulgars went further back to the days 
of the Bulgarian Empire of Symeon in the early tenth century. However, we must 
remember that even as late as the beginning of the twentieth century such dreams were 
found only among the educated minority of Balkan peoples. In the nineteenth century, 
agitation in the Balkans was much more likely to be caused by Turkish misgovernment 
than by any stirrings of national feeling. Moreover, when national feeling did appear it 
was just as likely to appear as a feeling of animosity against neighbors who were 
different, rather than a feeling of unity with peoples who were the same in culture and 
religion. And at all times localism and class antagonisms (especially rural hostility 
against urban groups) remained at a high level. 

Russia made war on Turkey five times in the nineteenth century. On the last two 
occasions the Great Powers intervened to prevent Russia from imposing its will on the 
sultan. The first intervention led to the Crimean War (1854-1856) and the Congress of 
Paris (1856), while the second intervention, at the Congress of Berlin in 1878, rewrote a 
peace treaty which the czar had just imposed on the sultan (Treaty of San Stefano, 1877) . 

In 1853 the czar, as protector of the Orthodox Christians of the Ottoman Empire, 
occupied the principalities of Moldavia and Wallachia north of the Danube and east of 
the Carpathians. Under British pressure the sultan declared war on Russia, and was 
supported by Britain, France, and Sardinia in the ensuing "Crimean War." Under threat of 
joining the anti-Russian forces, Austria forced the czar to evacuate the principalities and 
occupied them herself, thus exposing an Austro-Russian rivalry in the Balkans which 
continued for two generations and ultimately precipitated the World War of 1914-1918. 

The Congress of Paris of 1856 sought to remove all possibility of any future Russian 
intervention in Turkish affairs. The integrity of Turkey was guaranteed, Russia gave up 
its claim as protector of the sultan's Christian subjects, the Black Sea was "neutralized" 
by prohibiting all naval vessels and naval arsenals on its waters and shores, an 
International Commission was set up to assure free navigation of the Danube, and in 
1862, after several years of indecision, the two principalities of Moldavia and Wallachia, 
along with Bessarabia, were allowed to form the state of Romania. The new state 
remained technically under Turkish suzerainty until 1878. It was the most progressive of 
the successor states of the Ottoman Empire, with advanced educational and judicial 
systems based on those of Napoleonic France, and a thorough-going agrarian reform. 
This last, which was executed in two stages (1863-1866 and 1918-1921), divided up the 
great estates of the Church and the nobility, and wiped away all vestiges of manorial dues 
or serfdom. Under a liberal, but not democratic, constitution, a German prince, Charles of 
Hohenzollern-Sigmaringen (1866-1914), established a new dynasty which was ended 
only in 1948. During this whole period the cultural and educational systems of the 
country continued to be orientated toward France in sharp contrast to the inclinations of 
the ruling dynasty, which had German sympathies. The Romanian possession of 



Bessarabia and their general pride in their Latin heritage, as reflected in the name of the 
country, set up a barrier to good relations with Russia, although the majority of 
Romanians were members of the Orthodox Church. 

The political and military weakness of the Ottoman Empire in the face of Russian 
pressure and Balkan nationalisms made it obvious that it must westernize and it must 
reform, if it was going to survive. Broad verbal promises in this direction were made by 
the sultan in the period 1839-1877, and there were even certain efforts to execute these 
promises. The army was reorganized on a European basis with the assistance of Prussia. 
Local government was reorganized and centralized, and the fiscal system greatly 
improved, chiefly by curtailing the use of tax farmers; government officials were shifted 
from a fee-paid basis to a salaried basis; the slave market was abolished, although this 
meant a large reduction in the sultan's income; the religious monopoly in education was 
curtailed and a considerable impetus given to secular technical education. Finally, in 
1856, in an edict forced on the sultan by the Great Powers, an effort was made to 
establish a secular state in Turkey by abolishing all inequalities based on creed in respect 
to personal freedom, law, property, taxation, and eligibility for office or military service. 

In practice, none of these paper reforms was very effective. It was not possible to 
change the customs of the Turkish people by paper enactments. Indeed, any attempt to do 
so aroused the anger of many Muslims to the point where their personal conduct toward 
non-Muslims became worse. At the same time, these promises led the non-Muslims to 
expect better treatment, so that relations between the various groups were exacerbated. 
Even if the sultan had had every intention of carrying out his stated reforms, he would 
have had extraordinary difficulties in doing so because of the structure of Turkish society 
and the complete lack of trained administrators or even of literate people. The Turkish 
state was a theocratic state, and Turkish society was a patriarchal or even a tribal society. 
Any movement toward secularization or toward social equality could easily result, not in 
reform, but in complete destruction of the society by dissolving the religious and 
authoritarian relationships which held both the state and society together. But the 
movement toward reform lacked the wholehearted support of the sultan; it aroused the 
opposition of the more conservative, and in some ways more loyal, groups of Muslims; it 
aroused the opposition of many liberal Turks because it was derived from Western 
pressure on Turkey; it aroused opposition from many Christian or non-Turkish groups 
who feared that a successful reform might weaken their chances of breaking up the 
Ottoman Empire completely; and the efforts at reform, being aimed at the theocratic 
character of the Turkish state, counteracted the sultan's efforts to make himself the leader 
of Pan-Islamism and to use his title of caliph to mobilize non-Ottoman Muslims in India, 
Russia, and the East to support him in his struggles with the European Great Powers. 

On the other hand, it was equally clear that Turkey could not meet any European state 
on a basis of military equality until it was westernized. At the same time, the cheap 
machinery-made industrial products of the Western Powers began to pour into Turkey 
and to destroy the ability of the handicraft artisans of Turkey to make a living. This could 
not be prevented by tariff protection because the sultan was bound by international 
agreements to keep his customs duties at a low level. At the same time, the appeal of 



Western ways of life began to be felt by some of the sultan's subjects who knew them. 
These began to agitate for industrialism or for railroad construction, for wider 
opportunities in education, especially technical education, for reforms in the Turkish 
language, and for new, less formal, kinds of Turkish literature, for honest and impersonal 
methods of administration in justice and public finance, and for all those things which, by 
making the Western Powers strong, made them a danger to Turkey. 



The sultan made feeble efforts to reform in the period 1838-1875, but by the latter 
date he was completely disillusioned with these efforts, and shifted over to a policy of 
ruthless censorship and repression; this repression led, at last, to the so-called "Young 
Turk" rebellion of 1908. 

The shift from feeble reform to merciless repression coincided with a renewal of the 
Russian attacks on Turkey. These attacks were incited by Turkish butchery of Bulgarian 
agitators in Macedonia and a successful Turkish war on Serbia. Appealing to the doctrine 
of Pan-Slavism, Russia came to the rescue of the Bulgars and Serbs, and quickly defeated 
the Turks, forcing them to accept the Treaty of San Stefano before any of the Western 
Powers could intervene (1877). Among other provisions, this treaty set up a large state of 
Bulgaria, including much of Macedonia, independent of Turkey and under Russian 
military occupation. 

This Treaty of San Stefano, especially the provision for a large Bulgarian state, which, 
it was feared, would be nothing more than a Russian tool, was completely unacceptable 
to England and Austria. Joining with France, Germany, and Italy, they forced Russia to 
come to a conference at Berlin where the treaty was completely rewritten (1878). The 
independence of Serbia, Montenegro, and Romania was accepted, as were the Russian 
acquisitions of Kars and Batum, east of the Black Sea. Romania had to give Bessarabia to 
Russia, but received Dobruja from the sultan. Bulgaria itself, the crucial issue of the 
conference, was divided into three parts: (a) the strip between the Danube and the Balkan 
mountains was set up as an autonomous and tribute-paying state under Turkish 
suzerainty; (b) the portion of Bulgaria south of the mountains was restored to the sultan 
as the province of Eastern Rumelia to be ruled by a Christian governor approved by the 
Powers; and (c) Macedonia, still farther south, was restored to Turkey in return for 
promises of administrative reforms. Austria was given the right to occupy Bosnia, 
Herzegovina, and the Sanjak of Novi-Bazar (a strip between Serbia and Montenegro). 
The English, by a separate agreement with Turkey, received the island of Cyprus to hold 
as long as Russia held Batum and Kars. The other states received nothing, although 
Greece submitted claims to Crete, Thessaly, Epirus, and Macedonia, while France talked 
about her interest in Tunis, and Italy made no secret of her ambitions in Tripoli and 
Albania. Only Germany asked for nothing, and received the sultan's thanks and 
friendship for its moderation. 

The Treaty of Berlin of 1 878 was a disaster from almost every point of view because 
it left every state, except Austria, with its appetite whetted and its hunger unsatisfied. The 
Pan-Slavs, the Romanians, the Bulgars, the South Slavs, the Greeks, and the Turks were 



all disgruntled with the settlement. The agreement turned the Balkans into an open 
powder keg from which the spark was kept away only with great difficulty and only for 
twenty years. It also opened up the prospect of the liquidation of the Turkish possessions 
in North Africa, thus inciting a rivalry between the Great Powers which was a constant 
danger to the peace in the period 1878-1912. The Romanian loss of Bessarabia, the 
Bulgarian loss of Eastern Rumelia, the South Slav loss of its hope of reaching the 
Adriatic or even of reaching Montenegro (because of the Austrian occupation of Bosnia 
and Novi-Bazar), the Greek failure to get Thessaly or Crete, and the complete 
discomfiture of the Turks created an atmosphere of general dissatisfaction. In the midst of 
this, the promise of reforms to Macedonia without any provision for enforcing this 
promise called forth hopes and agitations which could neither be satisfied nor quieted. 
Even Austria, which, on the face of it, had obtained more than she could really have 
expected, had obtained in Bosnia the instrument which was to lead eventually to the total 
destruction of the Habsburg Empire. This acquisition had been encouraged by Bismarck 
as a method of diverting Austrian ambitions southward to the Adriatic and out of 
Germany. But by placing Austria, in this way, in the position of being the chief obstacle 
in the path of the South Slav dreams of unity, Bismarck was also creating the occasion 
for the destruction of the Hohenzollern Empire. It is clear that European diplomatic 
history from 1878 to 1919 is little more than a commentary on the mistakes of the 
Congress of Berlin. 

To Russia the events of 1878 were a bitter disappointment. Even the small Bulgarian 
state which emerged from the settlement gave them little satisfaction. With a constitution 
dictated by Russia and under a prince, Alexander of Battenberg, who was a nephew of 
the czar, the Bulgarians showed an uncooperative spirit which profoundly distressed the 
Russians. As a result, when Eastern Rumelia revolted in 188; and demanded union with 
Bulgaria, the change was opposed by Russia and encouraged by Austria. Serbia, in its 
bitterness, went to war with Bulgaria but was defeated and forced to make peace by 
Austria. The union of Bulgaria and Eastern Rumelia was accepted, on face-saving terms, 
by the sultan. Russian objections were kept within limits by the power of Austria and 
England but were strong enough to force the abdication of Alexander of Battenberg. 
Prince Ferdinand of Saxe-Coburg-Gotha was elected to succeed Alexander, but was 
unacceptable to Russia and was recognized by none of the Powers until his reconciliation 
with Russia in 1896. The state was generally in turmoil during this period, plots and 
assassinations steadily following one another. A Macedonian revolutionary organization 
known as EVIRO, working for independence for their area, adopted an increasingly 
terrorist policy, killing any Bulgarian or Romanian statesman who did not work 
wholeheartedly in cooperation with their efforts. Agitated Bulgarians formed insurgent 
bands which made raids into Macedonia, and insurrection became endemic in the 
province, bursting out in full force in 1902. By that date Serb and Greek bands had joined 
in the confusion. The Powers intervened at that point to inaugurate a program of reform 
in Macedonia under Austro-Russian supervision. 

The Congress of Berlin began the liquidation of the Turkish position in North Africa. 
France, which had been occupying Algeria since 1830, established a French protectorate 
over Tunis as well in 1881. This led to the British occupation of Egypt the following 



year. Not to be outdone, Italy put in a claim for Tripoli but could get no more than an 
exchange of notes, known as the Mediterranean Agreement of 1887, by which England, 
Italy, Austria, Spain, and Germany promised to maintain the status quo in the 
Mediterranean, the Adriatic, the Aegean, and the Black seas, unless all parties agreed to 
changes. The only concrete advantage to Italy in this was a British promise of support in 
North Africa in return for Italian support of the British position in Egypt. This provided 
only tenuous satisfaction for the Italian ambitions in Tripoli, but it was reinforced in 1900 
by a French-Italian agreement by which Italy gave France a free hand in Morocco in 
return for a free hand in Tripoli. 

Berlin to Baghdad Railroad Scheme 

By 1900 an entirely new factor began to intrude into the Eastern Question. Under 
Bismarck (1862-1890) Germany had avoided all non-European adventures. Under 
William II (1888-1918) any kind of adventure, especially a remote and uncertain one, 
was welcomed. In the earlier period Germany had concerned itself with the Near East 
Question only as a member of the European "concert of Powers" and with a few 
incidental issues such as the use of German officers to train the Turkish Army. After 
1889 the situation was different. Economically, the Germans began to invade Anatolia by 
establishing trading agencies and banking facilities; politically, Germany sought to 
strengthen Turkey's international position in every way. This effort was symbolized by 
the German Kaiser's two visits to the sultan in 1889 and 1898. On the latter occasion he 
solemnly promised his friendship to "the Sultan Abdul Hamid and the three hundred 
million Muhammadans who revere him as caliph." Most important, perhaps, was the 
projected "Berlin to Bagdad" railway scheme which completed its main trunk line from 
the Austro-Hungarian border to Nusaybin in northern Mesopotamia by September 1918. 
This project was of the greatest economic, strategic, and political importance not only to 
the Ottoman Empire and the Near East but to the whole of Europe. Economically, it 
tapped a region of great mineral and agricultural resources, including the world's greatest 
petroleum reserves. These were brought into contact with Constantinople and, beyond 
that, with central and northwestern Europe. Germany, which was industrialized late, had 
a great, unsatisfied demand for food and raw materials and a great capacity to 
manufacture industrial products which could be exported to pay for such food and raw 
materials. Efforts had been made and continued to be made by Germany to find a solution 
to this problem by opening trade relations with South America, the Far East, and North 
America. Banking facilities and a merchant marine were being established to encourage 
such trade relations. But the Germans, with their strong strategic sense, knew well that 
relations with the areas mentioned were at the mercy of the British fleet, which would, 
almost unquestionably, control the seas during wartime. The Berlin-to-Baghdad Railway 
solved these crucial problems. It put the German metallurgical industry in touch with the 
great metal resources of Anatolia; it put the German textile industry in touch with the 
supplies of wool, cotton, and hemp of the Balkans, Anatolia, and Mesopotamia; in fact, it 
brought to almost every branch of German industry the possibility of finding a solution 
for its critical market and raw-material problems. Best of all, these connections, being 
almost entirely overland, would be within reach of the German Army and beyond the 
reach of the British Navy. 



For Turkey itself the railway was equally significant. Strategically it made it possible, 
for the first time, for Turkey to mobilize her full power in the Balkans, the Caucasus area, 
the Persian Gulf, or the Levant. It greatly increased the economic prosperity of the whole 
country; it could be run (as it was after 191 1) on Mesopotamian petroleum; it provided 
markets and thus incentives for increased production of agricultural and mineral 
products; it greatly reduced political discontent, public disorder, and banditry in the areas 
through which it ran; it greatly increased the revenues of the Ottoman treasury in spite of 
the government's engagement to pay subsidies to the railroad for each mile of track built 
and for a guaranteed income per mile each year. 

The Ottoman Empire Was Divided into Exclusive Spheres of 

Influence by Money Powers 

The Great Powers showed mild approval of the Baghdad Railway until about 1900. 
Then, for more than ten years, Russia, Britain, and France showed violent disapproval, 
and did all they could to obstruct the project. After 1910 this disapproval was largely 
removed by a series of agreements by which the Ottoman Empire was divided into 
exclusive spheres of influence. During the period of disapproval the Great Powers 
concerned issued such a barrage of propaganda against the plan that it is necessary, even 
today, to warn against its influence. They described the Baghdad Railway as the entering 
wedge of German imperialist aggression seeking to weaken and destroy the Ottoman 
Empire and the stakes of the other Powers in the area. The evidence shows quite the 
contrary. Germany was the only Great Power which wanted the Ottoman Empire to be 
strong and intact. Britain wanted it to be weak and intact. France generally shared the 
British point of view, although the French, with a $500,000,000 investment in the area, 
wanted Turkey to be prosperous as well. Russia wanted it to be weak and partitioned, a 
view which was shared by the Italians and, to some extent, by the Austrians. 

The Baghdad Railway 

The Germans were not only favorably inclined toward Turkey; their conduct seems to 
have been completely fair in regard to the administration of the Baghdad Railway itself. 
At a time when American and other railways were practicing wholesale discrimination 
between customers in regard to rates and freight handling, the Germans had the same 
rates and same treatment for all, including Germans and non-Germans. They worked to 
make the railroad efficient and profitable, although their income from it was guaranteed 
by the Turkish government. In consequence the Turkish payments to the railroad steadily 
declined, and the government was able to share in its profits to the extent of almost three 
million francs in 1914. Moreover, the Germans did not seek to monopolize control of the 
railroad, offering to share equally with France and England and eventually with other 
Powers. France accepted this offer in 1899, but Britain continued to refuse, and placed 
every obstacle in the path of the project. When the Ottoman government in 1911 sought 
to raise their customs duties from 1 1 to 14 percent in order to finance the continued 
construction of the railway, Britain prevented this. In order to carry on the project, the 



Germans sold their railroad interests in the Balkans and gave up the Ottoman building 
subsidy of $275,000 a kilometer. In striking contrast to this attitude, the Russians forced 
the Turks to change the original route of the line from northern Anatolia to southern 
Anatolia by threatening to take immediate measures to collect all the arrears, amounting 
to over 57 million francs, due to the czar from Turkey under the Treaty of 1878. The 
Russians regarded the projected railway as a strategic threat to their Armenian frontier. 
Ultimately, in 1900, they forced the sultan to promise to grant no concessions to build 
railways in northern Anatolia or Armenia except with Russian approval. The French 
government, in spite of the French investments in Turkey of :.5 billion francs, refused to 
allow Baghdad Railway securities to be handled on the Paris Stock Exchange: To block 
the growth of German Catholic missionary activities in the Ottoman Empire, the French 
persuaded the Pope to issue an encyclical ordering all missionaries in that empire to 
communicate with the Vatican through the French consulates. The British opposition 
became intense only in April, 1903. Early in that month Prime Minister Arthur Balfour 
and Foreign Secretary Lord Lansdowne made an agreement for joint German, French, 
and British control of the railroad. Within three weeks this agreement was repudiated by 
the government because of newspaper protests against it, although it would have reduced 
the Turks and Germans together to only fourteen out of thirty votes on the board of 
directors of the railway. When the Turkish government in 1910 tried to borrow abroad 
$30 million, secured by the customs receipts of the country, it was summarily rebuffed in 
Paris and London, but obtained the sum without hesitation in Berlin. In view of these 
facts, the growth of German prestige and the decline in favor of the Western Powers at 
the sultan's court is not surprising, and goes far to explain the Turkish intervention on the 
side of the Central Powers in the war of 1914-1918. 

Secret Agreement Divides Turkey into Spheres of Foreign Influence 

The Baghdad Railway played no real role in the outbreak of the war of 1914 because 
the Germans in the period 1910-1914 were able to reduce the Great Powers' objections to 
the scheme. This was done through a series of agreements which divided Turkey into 
spheres of foreign influence. In November, 1910, a German-Russian agreement at 
Potsdam gave Russia a free hand in northern Persia, withdrew all Russian opposition to 
the Baghdad Railway, and pledged both parties to support equal trade opportunities for 
all (the "open-door" policy) in their respective areas of influence in the Near East. The 
French were given 2,000 miles of railway concessions in western and northern Anatolia 
and in Syria in 1910-1912 and signed a secret agreement with the Germans in February 
1914, by which these regions were recognized as French "spheres of influence," while the 
route of the Baghdad Railway was recognized as a German sphere of influence; both 
Powers promised to work to increase the Ottoman tax receipts; the French withdrew their 
opposition to the railway; and the French gave the Germans the 70-million-franc 
investment which the French already had in the Baghdad Railway in return for an equal 
amount in the Turkish bond issue of 1911, which France had earlier rebuffed, plus a 
lucrative discount on a new Ottoman bond issue of 1914. 

Various Monopolies Over Natural Resources Established 



The British drove a much harder bargain with the Germans. By an agreement of June 
1914, Britain withdrew her opposition to the Baghdad Railway, allowed Turkey to raise 
her customs from 1 1 percent to 15 percent, and accepted a German sphere of interest 
along the railway route in return for promises (1) that the railway would not be extended 
to the Persian Gulf 'out would stop at Basra on the Tigris River, (2) that British capitalists 
would be given a monopoly on the navigation of the Euphrates and Tigris rivers and 
exclusive control over irrigation projects based on these rivers, (3) that two British 
subjects would be given seats on the board of directors of the Baghdad Railway, (4) that 
Britain would have exclusive control over the commercial activities of Kuwait, the only 
good port on the upper Persian Gulf: (5) that a monopoly over the oil resources of the 
area from Mosul to Baghdad would be given to a new corporation in which British 
finances would have a half-interest, Royal Dutch Shell Company a quarter-interest, and 
the Germans a quarter-interest; and (6) that both Powers would support the "open-door" 
policy in commercial activities in Asiatic Turkey. Unfortunately, this agreement, as well 
as the earlier ones with other Powers, became worthless with the outbreak of the First 
World War in 1914. However, it is still important to recognize that the Entente Powers 
forced upon the Germans a settlement dividing Turkey into "spheres of interest" in place 
of the projected German settlement based on international cooperation in the economic 
reconstruction of the area. 

The Struggles of the Money Powers for Profit and Influence 

These struggles of the Great Powers for profit and influence in the wreckage of the 
Ottoman Empire could not fail to have profound effects in Turkish domestic affairs. 
Probably the great mass of the sultan's subjects were still untouched by these events, but 
an animated minority was deeply stirred. This minority received no encouragement from 
the despotic Abdul-Hamid U, sultan from 1876 to 1909. While eager for economic 
improvements, Abdul-Hamid II was opposed to the spread of the Western ideas of 
liberalism, constitutionalism, nationalism, or democracy, and did all he could to prevent 
their propagation by censorship, by restrictions on foreign travel or study abroad by 
Turks, and by an elaborate system of arbitrary police rule and governmental espionage. 
As a result, the minority of liberal, nationalistic, or progressive Turks had to organize 
abroad. This they did at Geneva in 1891 in a group which is generally known as the 
"Young Turks." Their chief difficulty was to reconcile the animosities which existed 
between the many linguistic groups among the sultan's subjects. This was done in a series 
of congresses held in Paris, notably in 190' and in 1907. At the latter meeting were 
representatives of the Turks, Armenians, Bulgars, Jews, Arabs, and Albanians. In the 
meantime, this secret organization had penetrated the sultan's army, which was seething 
with discontent. The plotters were so successful that they were able to revolt in July 
1908, and force the sultan to reestablish the Constitution of 1876. At once divisions 
appeared among the rebel leaders, notably between those who wished a centralized state 
and those who accepted the subject nationalities' demands for decentralization. Moreover, 
the orthodox Muslims formed a league to resist secularization, and the army soon saw 
that its chief demands for better pay and improved living conditions were not going to be 
met. Abdul-Hamid took advantage of these divisions to organize a violent 
counterrevolution (April 1909). It was crushed, the sultan was deposed, and the Young 



Turks began to impose their ideas of a dictatorial Turkish national state with ruthless 
severity. A wave of resistance arose from the non-Turkish groups and the orthodox 
Muslims. No settlement of these disputes was achieved by the outbreak of the World War 
in 1914. Indeed, as we shall see in a later chapter, the Young Turk Revolution of 1908 
precipitated a series of international crises of which the outbreak of war in 1914 was the 
latest and most disastrous. 

Chapter 9 — The British Imperial Crisis: Africa, Ireland, and India to 1926 

Introduction 

The old statement that England acquired its empire in a fit of absentmindedness is 
amusing but does not explain very much. It does, however, contain an element of truth: 
much of the empire was acquired by private individuals and commercial firms, and was 
taken over by the British government much later. The motives which impelled the 
government to annex areas which its citizens had been exploiting were varied, both in 
time and in place, and were frequently much different from what an outsider might 
believe. 

Britain acquired the world's greatest empire because it possessed certain advantages 
which other countries lacked. We mention three of these advantages: (1) that it was an 
island, (2) that it was in the Atlantic, and (3) that its social traditions at home produced 
the will and the talents for imperial acquisition. 

English Channel Provides Security for Britain 

As an island off the coast of Europe, Britain had security as long as it had control of 
the narrow seas. It had such control from the defeat of the Spanish Armada in 1588 until 
the creation of new weapons based on air power in the period after 1935. The rise of the 
German Air Force under Hitler, the invention of the long-range rocket projectiles (V-2 
weapon) in 1944, and the development of the atomic and hydrogen bombs in 1945-1955 
destroyed England's security by reducing the defensive effectiveness of the English 
Channel. But in the period 1588-1942, in which Britain controlled the seas, the Channel 
gave England security and made its international position entirely different from that of 
any continental Power. Because Britain had security, it had freedom of action. That 
means it had a choice whether to intervene or to stay out of the various disputes which 
arose on the Continent of Europe or elsewhere in the world. Moreover, if it intervened, it 
could do so on a limited commitment, restricting its contribution of men, energy, money, 
and wealth to whatever amount it wished. If such a limited commitment were exhausted 
or lost, so long as the British fleet controlled the seas, Britain had security, and thus had 
freedom to choose if it would break off its intervention or increase its commitment. 
Moreover, England could make even a small commitment of its resources of decisive 
importance by using this commitment in support of the second strongest Power on the 
Continent against the strongest Power, thus hampering the strongest Power and making 
the second Power temporarily the strongest, as long as it acted in accord with Britain's 
wishes. In this way, by following balance-of-power tactics, Britain was able to play a 



decisive role on the Continent, keep the Continent divided and embroiled in its own 
disputes, and do this with a limited commitment of Britain's own resources, leaving a 
considerable surplus of energy, manpower, and wealth available for acquiring an empire 
overseas. In addition, Britain's unique advantage in having security through a limited 
commitment of resources by control of the sea was one of the contributing factors which 
allowed Britain to develop its unique social structure, its parliamentary system, its wide 
range of civil liberties, and its great economic advance. 

European Wars 

The Powers on the Continent had none of these advantages. Since each could be 
invaded by its neighbors at any time, each had security, and thus freedom of action, only 
on rare and brief occasions. When the security of a continental Power was threatened by a 
neighbor, it had no freedom of action, but had to defend itself with all its resources. 
Clearly, it would be impossible for France to say to itself, "We shall oppose German 
hegemony on the Continent only to the extent of 50,000 men or of $10 million." Yet as 
late as 1939, Chamberlain informed France that England's commitment on the Continent 
for this purpose would be no more than two divisions. 

European Powers Focus on the Continent 

Since the continental Powers had neither security nor freedom of action, their position 
on the Continent always was paramount over their ambitions for world empire, and these 
latter always had to be sacrificed for the sake of the former whenever a conflict arose. 
France was unable to hold on to its possessions in India or in North America in the 
eighteenth century because so much of its resources had to be used to bolster French 
security against Prussia or Austria. Napoleon sold Louisiana to the United States in 1803 
because his primary concern had to be his position on the Continent. Bismarck tried to 
discourage Germany from embarking on any overseas adventures in the period after 1871 
because he saw that Germany must be a continental power or be nothing. Again, France 
in 1882 had to yield Egypt to Britain, and in 1898 had to yield the Sudan in the same 
way, because it saw that it could not engage in any colonial dispute with Britain while the 
German Army stood across the Rhineland. This situation was so clear that all the lesser 
continental Powers with overseas colonial possessions, such as Portugal, Belgium, or the 
Netherlands, had to collaborate with Britain, or, at the very least, be carefully neutral. So 
long as the ocean highway from these countries to their overseas empires was controlled 
by the British fleet, they could not afford to embark on a policy hostile to Britain, 
regardless of their personal feelings on the subject. It is no accident that Britain's most 
constant international backing in the two centuries following the Methuen Treaty of 1703 
came from Portugal and that Britain has felt free to negotiate with a third Power, like 
Germany, regarding the disposition of the Portuguese colonies, as she did in 1898 and 
tried to do in 1937-1939. 

Britain's Control of the Sea 



Britain's position on the Atlantic, combined with her naval control of the sea, gave her 
a great advantage when the new lands to the west of that ocean became one of the chief 
sources of commercial and naval wealth in the period after 1588. Lumber, tar, and ships 
were supplied from the American colonies to Britain in the period before the advent of 
iron, steam-driven ships (after 1860), and these ships helped to establish Britain's 
mercantile supremacy. At the same time, Britain's insular position deprived her monarchy 
of any need for a large professional, mercenary army such as the kings on the Continent 
used as the chief bulwark of royal absolutism. As a result, the kings of England were 
unable to prevent the landed gentry from taking over the control of the government in the 
period 1642-1690, and the kings of England became constitutional monarchs. Britain's 
security behind her navy allowed this struggle to go to a decision without any important 
outside interference, and permitted a rivalry between monarch and aristocracy which 
would have been suicidal on the insecure grounds of continental Europe. 

The Landed Oligarchy in Britain 

Britain's security combined with the political triumph of the landed oligarchy to create 
a social tradition entirely unlike that on the Continent. One result of these two factors was 
that England did not obtain a bureaucracy such as appeared on the Continent. This lack of 
a separate bureaucracy loyal to the monarch can be seen in the weakness of the 
professional army (already mentioned) and also in the lack of a bureaucratic judicial 
system. In England, the gentry and the younger sons of the landed oligarchy studied law 
in the Inns of Court and obtained a feeling for tradition and the sanctity of due process of 
law while still remaining a part of the landed class. In fact this class became the landed 
class in England just because they obtained control of the bar and the bench and were, 
thus, in a position to judge all disputes about real property in their own favor. Control of 
the courts and of the Parliament made it possible for this ruling group in England to 
override the rights of the peasants in land, to eject them from the land, to enclose the 
open fields of the medieval system, to deprive the cultivators of their manorial rights and 
thus to reduce them to the condition of landless rural laborers or of tenants. This advance 
of the enclosure movement in England made possible the Agricultural Revolution, greatly 
depopulated the rural areas of England (as described in The Deserted Village of Oliver 
Goldsmith), and provided a surplus population for the cities, the mercantile and naval 
marine, and for overseas colonization. 

The Unique Status of the Landed Oligarchy in Britain 

The landed oligarchy which arose in England differed from the landed aristocracy of 
continental Europe in the three points already mentioned: (1) it got control of the 
government; (2) it was not opposed by a professional army, a bureaucracy, or a 
professional judicial system, but, on the contrary, it took over the control of these 
adjuncts of government itself, generally serving without pay, and making access to these 
positions difficult for outsiders by making such access expensive; and (3) it obtained 
complete control of the land as well as political, religious, and social control of the 
villages. In addition, the landed oligarchy of England was different from that on the 
Continent because it was not a nobility. This lack was reflected in three important factors. 



On the Continent a noble was excluded from marrying outside his class or from engaging 
in commercial enterprise; moreover, access to the nobility by persons of non-noble birth 
was very difficult, and could hardly be achieved in much less than three generations. In 
England, the landed oligarchy could engage in any kind of commerce or business and 
could marry anyone without question (provided she was rich); moreover, while access to 
the gentry in England was a slow process which might require generations of effort 
acquiring land-holdings in a single locality, access to the peerage by act of the 
government took only a moment, and could be achieved on the basis of either wealth or 
service. As a consequence of all these differences, the landed upper class in England was 
open to the influx of new talent, new money, and new blood, while the continental 
nobility was deprived of these valuable acquisitions. 

England Developed an Aristocracy 

While the landed upper class of England was unable to become a nobility (that is, a 
caste based on exalted birth), it was able to become an aristocracy (that is, an upper class 
distinguished by traditions and behavior). The chief attributes of this aristocratic upper 
class in England were (1) that it should be trained in an expensive, exclusive, masculine, 
and relatively Spartan educational system centering about the great boys' schools like 
Eton, Harrow, or Winchester; (2) that it should imbibe from this educational system 
certain distinctive attitudes of leadership, courage, sportsmanship, team play, self- 
sacrifice, disdain for physical comforts, and devotion to duty; (3) that it should be 
prepared in later life to devote a great deal of time and energy to unpaid tasks of public 
significance, as justices of the peace, on county councils, in the county militia, or in other 
services. Since all the sons of the upper classes received the same training, while only the 
oldest, by primogeniture, was entitled to take over the income-yielding property of the 
family, all the younger sons had to go out into the world to seek their fortunes, and, as 
likely as not, would do their seeking overseas. At the same time, the uneventful life of the 
typical English village or county, completely controlled by the upperclass oligarchy, 
made it necessary for the more ambitious members of the lower classes to seek 
advancement outside the county and even outside England. From these two sources were 
recruited the men who acquired Britain's empire and the men who colonized it. 

The British Empire 

The English have not always been unanimous in regarding the empire as a source of 
pride and benefit. In fact, the middle generation of the nineteenth century was filled with 
persons, such as Gladstone, who regarded the empire with profound suspicion. They felt 
that it was a source of great expense; they were convinced that it involved England in 
remote strategic problems which could easily lead to wars England had no need to fight; 
they could see no economic advantage in having an empire, since the existence of free 
trade (which this generation accepted) would allow commerce to flow no matter who 
held colonial areas; they were convinced that any colonial areas, no matter at what cost 
they might be acquired, would eventually separate from the mother country, voluntarily if 
they were given the rights of Englishmen, or by rebellion, as the American colonies had 



done, if they were deprived of such rights. In general, the "Little Englanders," as they 
were called, were averse to colonial expansion on the grounds of cost. 

Colonies Could Be a Source of Riches 

Although upholders of the "Little England" point of view, men like Gladstone or Sir 
William Harcourt, continued in political prominence until 1895, this point of view was in 
steady retreat after 1870. In the Liberal Party the Little Englanders were opposed by 
imperialists like Lord Rosebery even before 1895; after that date, a younger group of 
imperialists, like Asquith, Grey, and Haldane took over the party. In the Conservative 
Party, where the anti-imperialist idea had never been strong, moderate imperialists like 
Lord Salisbury were followed by more active imperialists like Joseph Chamberlain, or 
Lords Curzon, Selborne, and Milner. There were many factors which led to the growth of 
imperialism after 1870, and many obvious manifestations of that growth. The Royal 
Colonial Institute was founded in 1868 to fight the "Little England" idea; Disraeli as 
prime minister (1874-1880) dramatized the profit and glamour of empire by such acts as 
the purchase of control of the Suez Canal and by granting Queen Victoria the title of 
Empress of India; after 1870 it became increasingly evident that, however expensive 
colonies might be to a government, they could be fantastically profitable to individuals 
and companies supported by such governments; moreover, with the spread of democracy 
and the growing influence of the press and the expanding need for campaign 
contributions, individuals who made fantastic profits in overseas adventures could obtain 
favorable support from their governments by contributing some part of their profits to 
politicians' expenses; the efforts of King Leopold U of Belgium, using Henry Stanley, to 
obtain the Congo area as his own preserve in 1876-1880, started a contagious fever of 
colony-grabbing in Africa which lasted for more than thirty years; the discovery of 
diamonds (in 1869) and of gold (in 1886) in South Africa, especially in the Boer 
Transvaal Republic, intensified this fever. 

John Ruskin 

The new imperialism after 1 870 was quite different in tone from that which the Little 
Englanders had opposed earlier. The chief changes were that it was justified on grounds 
of moral duty and of social reform and not, as earlier, on grounds of missionary activity 
and material advantage. The man most responsible for this change was John Ruskin. 

Until 1870 there was no professorship of fine arts at Oxford, but in that year, thanks to 
the Slade bequest, John Ruskin was named to such a chair. He hit Oxford like an 
earthquake, not so much because he talked about fine arts, but because he talked also 
about the empire and England's downtrodden masses, and above all because he talked 
about all three of these things as moral issues. Until the end of the nineteenth century the 
poverty-stricken masses in the cities of England lived in want, ignorance, and crime very 
much as they have been described by Charles Dickens. Ruskin spoke to the Oxford 
undergraduates as members of the privileged, ruling class. He told them that they were 
the possessors of a magnificent tradition of education, beauty, rule of law, freedom, 
decency, and self-discipline but that this tradition could not be saved, and did not deserve 



to be saved, unless it could be extended to the lower classes in England itself and to the 
non-English masses throughout the world. If this precious tradition were not extended to 
these two great majorities, the minority of upper-class Englishmen would ultimately be 
submerged by these majorities and the tradition lost. To prevent this, the tradition must be 
extended to the masses and to the empire. 

Cecil Rhodes Sets Up a Monopoly Over the Gold and 

Diamond Mines in South Africa 

Ruskin's message had a sensational impact. His inaugural lecture was copied out in 
longhand by one undergraduate, Cecil Rhodes, who kept it with him for thirty years. 
Rhodes (1853-1902) feverishly exploited the diamond and goldfields of South Africa, 
rose to be prime minister of the Cape Colony (1890-1896), contributed money to political 
parties, controlled parliamentary seats both in England and in South Africa, and sought to 
win a strip of British territory across Africa from the Cape of Good Hope to Egypt and to 
join these two extremes together with a telegraph line and ultimately with a Cape-to- 
Cairo Railway. Rhodes inspired devoted support for his goals from others in South Africa 
and in England. With financial support from Lord Rothschild and Alfred Beit, he was 
able to monopolize the diamond mines of South Africa as De Beers Consolidated Mines 
and to build up a great gold mining enterprise as Consolidated Gold Fields. In the middle 
1 890's Rhodes had a personal income of at least a million pounds sterling a year (then 
about five million dollars) which was spent so freely for his mysterious purposes that he 
was usually overdrawn on his account. These purposes centered on his desire to federate 
the English-speaking peoples and to bring all the habitable portions of the world under 
their control. For this purpose Rhodes left part of his great fortune to found the Rhodes 
Scholarships at Oxford in order to spread the English ruling class tradition throughout the 
English-speaking world as Ruskin had wanted. 

Cecil Rhodes Organized a Secret Society in 1891 

Among Ruskin's most devoted disciples at Oxford were a group of intimate friends 
including Arnold Toynbee, Alfred (later Lord) Milner, Arthur Glazebrook, George (later 
Sir George) Parkin, Philip Lyttelton Gell, and Henry (later Sir Henry) Birchenough. 
These were so moved by Ruskin that they devoted the rest of their lives to carrying out 
his ideas. A similar group of Cambridge men including Reginald Baliol Brett (Lord 
Esher), Sir John B. Seeley, Albert (Lord) Grey, and Edmund Garrett were also aroused by 
Ruskin's message and devoted their lives to extension of the British Empire and uplift of 
England's urban masses as two parts of one project which they called "extension of the 
English-speaking idea." They were remarkably successful in these aims because 
England's most sensational journalist William T. Stead (1849-1912), an ardent social 
reformer and imperialist, brought them into association with Rhodes. This association 
was formally established on February 5, 1891, when Rhodes and Stead organized a secret 
society of which Rhodes had been dreaming for sixteen years. In this secret society 
Rhodes was to be leader; Stead, Brett (Lord Esher), and Milner were to form an executive 
committee; Arthur (Lord) Balfour, (Sir) Harry Johnston, Lord Rothschild, Albert (Lord) 



Grey, and others were listed as potential members of a "Circle of Initiates"; while there 
was to be an outer circle known as the "Association of Helpers" (later organized by 
Milner as the Round Table organization). Brett was invited to join this organization the 
same day and Milner a couple of weeks later, on his return from Egypt. Both accepted 
with enthusiasm. Thus the central part of the secret society was established by March 
1891. It continued to function as a formal group, although the outer circle was, 
apparently, not organized until 1909-1913. 

Financial Backing of the Secret Society 

This group was able to get access to Rhodes's money after his death in 1902 and also 
to the funds of loyal Rhodes supporters like Alfred Beit (1853-1906) and Sir Abe Bailey 
(1864-1940). With this backing they sought to extend and execute the ideals that Rhodes 
had obtained from Ruskin and Stead. Milner was the chief Rhodes Trustee and Parkin 
was Organizing Secretary of the Rhodes Trust after 1902, while Gell and Birchenough, as 
well as others with similar ideas, became officials of the British South Africa Company. 
They were joined in their efforts by other Ruskinite friends of Stead's like Lord Grey, 
Lord Esher, and Flora Shaw (later Lady Lugard). In 1890, by a stratagem too elaborate to 
describe here, Miss Shaw became Head of the Colonial Department of The Times while 
still remaining on the payroll of Stead's Pall Mall Gazette, In this post she played a major 
role in the next ten years in carrying into execution the imperial schemes of Cecil 
Rhodes, to whom Stead had introduced her in 1889. 

The Toynbee Hall Is Set Up 

In the meantime, in 1884, acting under Ruskin's inspiration, a group which included 
Arnold Toynbee, Milner, Gell, Grey, Seeley, and Michael Glazebrook founded the first 
"settlement house," an organization by which educated, upper-class people could live in 
the slums in order to assist, instruct, and guide the poor, with particular emphasis on 
social welfare and adult education. The new enterprise, set up in East London with P. L. 
Gell as chairman, was named Toynbee Hall after Arnold Toynbee who died, aged 3 1 , in 
1883. This was the original model for the thousands of settlement houses, such as Hull 
House in Chicago, now found throughout the world, and was one of the seeds from which 
the modern movement for adult education and university extension grew. 

Roundtable Group Established 

As governor-general and high commissioner of South Africa in the period 1897-1905, 
Milner recruited a group of young men, chiefly from Oxford and from Toynbee Hall, to 
assist him in organizing his administration. Through his influence these men were able to 
win influential posts in government and international finance and became the dominant 
influence in British imperial and foreign affairs up to 1939. Under Milner in South Africa 
they were known as Milner's Kindergarten until 1910. In 1909-1913 they organized semi- 
secret groups, known as Round Table Groups, in the chief British dependencies and the 
United States. These still function in eight countries. They kept in touch with each other 
by personal correspondence and frequent visits, and through an influential quarterly 



magazine, The Round Table, founded in 1910 and largely supported by Sir Abe Bailey's 
money. 

The Royal Institute and Council on Foreign Relations Are Set Up 

In 1919 they founded the Royal Institute of International Affairs (Chatham House) for 
which the chief financial supporters were Sir Abe Bailey and the Astor family (owners of 
The Times). Similar Institutes of International Affairs were established in the chief 
British dominions and in the United States (where it is known as the Council on Foreign 
Relations) in the period 1919-1927. After 1925 a somewhat similar structure of 
organizations, known as the Institute of Pacific Relations, was set up in twelve countries 
holding territory in the Pacific area, the units in each British dominion existing on an 
interlocking basis with the Round Table Group and the Royal Institute of International 
Affairs in the same country. In Canada the nucleus of this group consisted of Milner's 
undergraduate friends at Oxford (such as Arthur Glazebrook and George Parkin), while 
in South Africa and India the nucleus was made up of former members of Milner's 
Kindergarten. These included (Sir) Patrick Duncan, B. K. Long, Richard Feetham, and 
(Sir) Dougal Malcolm in South Africa and (Sir) William Marris, James (Lord) Meston, 
and their friend Malcolm (Lord) Hailey in India. The groups in Australia and New 
Zealand had been recruited by Stead (through his magazine The Review of Reviews) as 
early as 1890-1893; by Parkin, at Milner instigation, in the period 1889-1910, and by 
Lionel Curtis, also at Milner's request, in 1910-1919. The power and influence of this 
Rhodes-Milner group in British imperial affairs and in foreign policy since 1889, 
although not widely recognized, can hardly be exaggerated. We might mention as an 
example that this group dominated The Times from 1890 to 191, and has controlled it 
completely since 1912 (except for the years 1919-1922). Because The Times has been 
owned by the Astor family since 1922, this Rhodes-Milner group was sometimes spoken 
of as the "Cliveden Set," named after the Astor country house where they sometimes 
assembled. Numerous other papers and journals have been under the control or influence 
of this group since 1889. They have also established and influenced numerous university 
and other chairs of imperial affairs and international relations. Some of these are the Beit 
chairs at Oxford, the Montague Burton chair at Oxford, the Rhodes chair at London, the 
Stevenson chair at Chatham House, the Wilson chair at Aberystwyth, and others, as well 
as such important sources of influence as Rhodes House at Oxford. 

Roundtable Groups Seek to Extend the British Empire 

From 1884 to about 1915 the members of this group worked valiantly to extend the 
British Empire and to organize it in a federal system. They were constantly harping on 
the lessons to be learned from the failure of the American Revolution and the success of 
the Canadian federation of 1867, and hoped to federate the various parts of the empire as 
seemed feasible, then confederate the whole of it, with the United Kingdom, into a single 
organization. They also hoped to bring the United States into this organization to 
whatever degree was possible. Stead was able to get Rhodes to accept, in principle, a 
solution which might have made Washington the capital of the whole organization or 
allow parts of the empire to become states of the American Union. The varied character 



of the British imperial possessions, the backwardness of many of the native peoples 
involved, the independence of many of the white colonists overseas, and the growing 
international tension which culminated in the First World War made it impossible to 
carry out the plan for Imperial Federation, although the five colonies in Australia were 
joined into the Commonwealth of Australia in 1901 and the four colonies in South Africa 
were joined into the Union of South Africa in 1910. 

Egypt and the Sudan to 1922 

Disraeli's purchase, with Rothschild money, of 176,602 shares of Suez Canal stock for 
£3,680,000 from the Khedive of Egypt in 1875 was motivated by concern for the British 
communications with India, just as the British acquisition of the Cape of Good Hope in 
1814 had resulted from the same concern. But in imperial matters one step leads to 
another, and every acquisition obtained to protect an earlier acquisition requires a new 
advance at a later date to protect it. This was clearly true in Africa where such 
motivations gradually extended British control southward from Egypt and northward 
from the Cape until these were joined in central Africa with the conquest of German 
Tanganyika in 1916. 

The extravagances of the Khedive Ismail (1863-1879), which had compelled the sale 
of his Suez Canal shares, led ultimately to the creation of an Anglo-French condominium 
to manage the Egyptian foreign debt and to the deposition of the khedive by his suzerain, 
the Sultan of Turkey. The condominium led to disputes and finally to open fighting 
between Egyptian nationalists and Anglo-French forces. When the French refused to join 
the British in a joint bombardment of Alexandria in 1882, the condominium was broken, 
and Britain reorganized the country in such a fashion that, while all public positions were 
held by Egyptians, a British army was in occupation, British "advisers" controlled all the 
chief governmental posts, and a British "resident," Sir Evelyn Baring (known as Lord 
Cromer after 1892), controlled all finances and really ruled the country until 1907. 

Inspired by fanatical Muslim religious agitators (dervishes), the Mahdi Muhammad 
Ahmed led a Sudanese revolt against Egyptian control in 1883, massacred a British force 
under General Charles ("Chinese") Gordon at Khartoum, and maintained an independent 
Sudan for fifteen years. In 1898 a British force under (Lord) Kitchener, seeking to protect 
the Nile water supply of Egypt, fought its way southward against fanatical Sudanese 
tribesmen and won a decisive victory at Omdurman. An Anglo-Egyptian convention 
established a condominium known as the Anglo-Egyptian Sudan in the area between 
Egypt and the Congo River. This area, which had lived in disorder for centuries, was 
gradually pacified, brought under the rule of law, irrigated by extensive hydraulic works, 
and brought under cultivation, producing, chiefly, long staple cotton. 

East Central Africa to 19 10 

South and east of the Sudan the struggle for a British Africa was largely in the hands 
of H. H. (Sir Harry) Johnston (1858-1927) and Frederick (later Lord) Lugard (1858- 
1945). These two, chiefly using private funds but frequently holding official positions, 



fought all over tropical Africa, ostensibly seeking to pacify it and to wipe out the Arab 
slave trade, but always possessing a burning desire to extend British rule. Frequently, 
these ambitions led to rivalries with supporters of French and German ambitions in the 
same regions. In 1884 Johnston obtained many concessions from native chiefs in the 
Kenya area, turning these over to the British East Africa Company in 1887. When this 
company went bankrupt in '895, most of its rights were taken over by the British 
government. In the meantime, Johnston had moved south, into a chaos of Arab slavers' 
intrigues and native unrest in Nyasaland (1888). Here his exploits were largely financed 
by Rhodes (1889-1893) in order to prevent the Portuguese Mozambique Company from 
pushing westward toward the Portuguese West African colony of Angola to block the 
Cape-to-Cairo route. Lord Salisbury made Nyasaland a British Protectorate after a deal 
with Rhodes in which the South African promised to pay £1,000 a year toward the cost of 
the new territory. About the same time Rhodes gave the Liberal Party a substantial 
financial contribution in return for a promise that they would not abandon Egypt. He had 
already (1888) given £10,000 to the Irish Home Rule Party on condition that it seek 
Home Rule for Ireland while keeping Irish members in the British Parliament as a step 
toward Imperial Federation. 

Rhodes's plans received a terrible blow in 1890-1891 when Lord Salisbury sought to 
end the African disputes with Germany and Portugal by delimiting their territorial claims 
in South and East Africa. The Portuguese agreement of 1891 was never ratified, but the 
Anglo-German agreement of 1890 blocked Rhodes's route to Egypt by extending German 
East Africa (Tanganyika) west to the Belgium Congo. By the same agreement Germany 
abandoned Nyasaland, Uganda, and Zanzibar to Britain in return for the island of 
Heligoland in the Baltic Sea and an advantageous boundary in German Southwest Africa. 

As soon as the German agreement was published, Lugard was sent by the British East 
Africa Company to overcome the resistance of native chiefs and slavers in Uganda 
(1890-1894). The bankruptcy of this company in 1895 seemed likely to lead to the 
abandonment of Uganda because of the Little Englander sentiment in the Liberal Party 
(which was in office in 1892-1895). Rhodes offered to take the area over himself and run 
it for £25,000 a year, but was refused. As a result of complex and secret negotiations in 
which Lord Rosebery was the chief figure, Britain kept Uganda, Rhodes was made a 
privy councilor, Rosebery replaced his father-in-law, Lord Rothschild, in Rhodes's secret 
group and was made a Trustee under Rhodes's next (and last) will. Rosebery tried to 
obtain a route for Rhodes's railway to the north across the Belgian Congo; Rosebery was 
informed of Rhodes's plans to finance an uprising of the English within the Transvaal 
(Boer) Republic and to send Dr. Jameson on a raid into that country "to restore order"; 
and, finally, Rhodes found the money to finance Kitchener's railway from Egypt to 
Uganda, using the South African gauge and engines given by Rhodes. 

The economic strength which allowed Rhodes to do these things rested in his diamond 
and gold mines, the latter in the Transvaal, and thus not in British territory. North of Cape 
Colony, across the Orange River, was a Boer republic, the Orange Free State. Beyond 
this, and separated by the Vaal River, was another Boer republic, the Transvaal. Beyond 
this, across the Limpopo River and continuing northward to the Zambezi River, was the 



savage native kingdom of the Matabeles. With great personal daring, unscrupulous 
opportunism, and extravagant expenditure of money, Rhodes obtained an opening to the 
north, passing west of the Boer republics, by getting British control in Griqualand West 
(1880), Bechuanaland, and the Bechuanaland Protectorate (1885). In 1888 Rhodes 
obtained a vague but extensive mining concession from the Matabeles' chief, Lobengula, 
and gave it to the British South Africa Company organized for the purpose (1889). 
Rhodes obtained a charter so worded that the company had very extensive powers in an 
area without any northern limits beyond Bechuanaland Protectorate. Four years later the 
Matabeles were attacked and destroyed by Dr. Jameson, and their lands taken by the 
company. The company, however, was not a commercial success, and paid no dividends 
for thirty-five years (1889-1924) and only 12.5 shillings in forty-six years. This compares 
with 793.5 percent dividends paid by Rhodes's Consolidated Gold Fields in the five years 
1889-1894 and the 125 percent dividend it paid in 1896. Most of the South Africa 
Company's money was used on public improvements like roads and schools, and no rich 
mines were found in its territory (known as Rhodesia) compared to those farther south in 
the Transvaal. 

In spite of the terms of the Rhodes wills, Rhodes himself was not a racist. Nor was he 
a political democrat. He worked as easily and as closely with Jews, black natives, or 
Boers as he did with English. But he had a passionate belief in the value of a liberal 
education, and was attached to a restricted suffrage and even to a non-secret ballot. In 
South Africa he was a staunch friend of the Dutch and of the blacks, found his chief 
political support among the Boers, until at least 1895, and wanted restrictions on natives 
put on an educational rather than on a color basis. These ideas have generally been held 
by his group since and have played an important role in British imperial history. His 
greatest weakness rested on the fact that his passionate attachment to his goals made him 
overly tolerant in regard to methods. He did not hesitate to use either bribery or force to 
attain his ends if he judged they would be effective. This weakness led to his greatest 
errors, the Jameson Raid of 1895 and the Boer War of 1899-1902, errors which were 
disastrous for the future of the empire he loved. 

South Africa, 1895-1933 

By 1 895 the Transvaal Republic presented an acute problem. All political control was 
in the hands of a rural, backward, Bible-reading, racist minority of Boers, while all 
economic wealth was in the hands of a violent, aggressive majority of foreigners 
(Uitlanders), most of whom lived in the new city of Johannesburg. The Uitlanders, who 
were twice as numerous as the Boers and owned two-thirds of the land and nine-tenths of 
the wealth of the country, were prevented from participating in political life or from 
becoming citizens (except after fourteen years' residence) and were irritated by a series of 
minor pinpricks and extortions such as tax differentials, a dynamite monopoly, and 
transportation restrictions) and by rumors that the Transvaal president, Paul Kruger, was 
intriguing to obtain some kind of German intervention and protection. At this point in 
1895, Rhodes made his plans to overthrow Kruger's government by an uprising in 
Johannesburg, financed by himself and Beit, and led by his brother Frank Rhodes, Abe 
Bailey, and other supporters, followed by an invasion of the Transvaal by a force led by 



Jameson from Bechuanaland and Rhodesia. Flora Shaw used The Times to prepare public 
opinion in England, while Albert Grey and others negotiated with Colonial Secretary 
Joseph Chamberlain for the official support that was necessary. Unfortunately, when the 
revolt fizzled out in Johannesburg, Jameson raided anyway in an effort to revive it, and 
was easily captured by the Boers. The public officials involved denounced the plot, 
loudly proclaimed their surprise at the event, and were able to whitewash most of the 
participants in the subsequent parliamentary inquiry. A telegram from the German Kaiser 
to President Kruger of the Transvaal, congratulating him on his success "in preserving the 
independence of his country without the need to call for aid from his friends," was built 
up by The Times into an example of brazen German interference in British affairs, and 
almost eclipsed Jameson's aggression. 

Rhodes was stopped only temporarily, but he had lost the support of many of the 
Boers. For almost two years he and his friends stayed quiet, waiting for the storm to blow 
over. Then they began to act again. Propaganda, most of it true, about the plight of 
Uitlanders in the Transvaal Republic flooded England and South Africa from Flora Shaw, 
W. T. Stead, Edmund Garrett, and others; Milner was made high commissioner of South 
Africa (1897); Brett worked his way into the confidence of the monarchy to become its 
chief political adviser during a period of more than twenty-five years (he wrote almost 
daily letters of advice to King Edward during his reign, 1901-1910). By a process whose 
details are still obscure, a brilliant, young graduate of Cambridge, Jan Smuts, who had 
been a vigorous supporter of Rhodes and acted as his agent in Kimberley as late as 1 895 
and who was one of the most important members of the Rhodes-Milner group in the 
period 1908-1950, went to the Transvaal and, by violent anti-British agitation, became 
state secretary of that country (although a British subject) and chief political adviser to 
President Kruger; Milner made provocative troop movements on the Boer frontiers in 
spite of the vigorous protests of his commanding general in South Africa, who had to be 
removed; and, finally, war was precipitated when Smuts drew up an ultimatum insisting 
that the British troop movements cease and when this was rejected by Milner. 

The Boer War (1899-1902) was one of the most important events in British imperial 
history. The ability of 40,000 Boer farmers to hold off ten times as many British for three 
years, inflicting a series of defeats on them over that period, destroyed faith in British 
power. Although the Boer republics were defeated and annexed in 1902, Britain's 
confidence was so shaken that it made a treaty with Japan in the same year providing that 
if either signer became engaged in war with two enemies in the Far East the other signer 
would come to the rescue. This treaty, which allowed Japan to attack Russia in 1904, 
lasted for twenty years, being extended to the Middle East in 1912. At the same time 
Germany's obvious sympathy with the Boers, combined with the German naval 
construction program of 1900, alienated the British people from the Germans and 
contributed greatly toward the Anglo-French entente of 1904. 

Milner took over the two defeated Boer republics and administered them as occupied 
territory until 1905, using a civil service of young men recruited for the purpose. This 
group, known as "Milner's Kindergarten," reorganized the government and administration 
of the Transvaal and Orange River Colony and played a major role in South African life 



generally. When Milner left public life in 1905 to devote himself to international finance 
and the Rhodes enterprises, Lord Selborne, his successor as high commissioner, took 
over the Kindergarten and continued to use it. In 1906 a new Liberal government in 
London granted self-government to the two Boer states. The Kindergarten spent the next 
four years in a successful effort to create a South African Federation. The task was not an 
easy one, even with such powerful backing as Selborne, Smuts (who was now the 
dominant political figure in the Transvaal, although Botha held the position of prime 
minister), and Jameson (who was the prime minister of the Cape Colony in 1904-1908). 
The subject was broached through a prearranged public interchange of letters between 
Jameson and Selborne. Then Selborne published a memorandum, written by Philip Kerr 
(Lothian) and Lionel Curtis, calling for a union of the four colonies. Kerr founded a 
periodical (The State, financed by Sir Abe Bailey) which advocated federation in every 
issue; Curtis and others scurried about organizing "Closer Union" societies; Robert H. 
(Lord) Brand and (Sir) Patrick Duncan laid the groundwork for the new constitution. At 
the Durban constitutional convention (where Duncan and B. K. Long were legal advisers) 
the Transvaal delegation was controlled by Smuts and the Kindergarten. This delegation, 
which was heavily financed, tightly organized, and knew exactly what it wanted, 
dominated the convention, wrote the constitution for the Union of South Africa, and 
succeeded in having it ratified (1910). Local animosities were compromised in a series of 
ingenious arrangements, including one by which the legislative, executive, and judicial 
branches of the new government were placed in three different cities. The Rhodes-Milner 
group recognized that Boer nationalism and color intolerance were threats to the future 
stability and loyalty of South Africa, but they had faith in the political influence of Smuts 
and Botha, of Rhodes's allies, and of the four members of the Kindergarten who stayed in 
South Africa to hold off these problems until time could moderate the irreconcilable 
Boers. In this they were mistaken, because, as men like Jameson (1917), Botha (1919), 
Duncan (1943), Long (1943), and Smuts (1950) died off, they were not replaced by men 
of equal loyalty and ability, with the result that the Boer extremists under D. F. Malan 
came to power in 1948. 

The first Cabinet of the Union of South Africa was formed in 1910 by the South 
African Party, which was largely Boer, with Louis Botha as prime minister. The real 
master of the government was Smuts, who held three out of nine portfolios, all important 
ones, and completely dominated Botha. Their policy of reconciliation with the English 
and of loyal support for the British connection was violently opposed by the Boer 
Nationalists within the party led by J. B. M. Hertzog. Hertzog was eager to get 
independence from Britain and to reserve political control in a South African republic to 
Boers only. He obtained growing support by agitating on the language and educational 
issues, insisting that all government officials must speak Afrikaans and that it be a 
compulsory language in schools, with English a voluntary, second language. 

The opposition party, known as Unionist, was largely English and was led by Jameson 
supported by Duncan, Richard Feetham, Hugh Wyndham, and Long. Financed by 
Milner's allies and the Rhodes Trust, its leaders considered that their chief task was "to 
support the prime minister against the extremists of his own party." Long, as the best 
speaker, was ordered to attack Hertzog constantly. When Hertzog struck back with too 



violent language in 1912, he was dropped from the Cabinet and soon seceded from the 
South African Party, joining with the irreconcilable Boer republicans like Christiaan De 
Wet to form the Nationalist Party. The new party adopted an extremist anti-English and 
anti-native platform. 

Jameson's party, under his successor, Sir Thomas Smartt (a paid agent of the Rhodes 
organization), had dissident elements because of the growth of white labor unions which 
insisted on anti-native legislation. By 1914 these formed a separate Labour Party under F. 
H. P. Creswell, and were able to win from Smuts a law excluding natives from most 
semiskilled or skilled work or any high-paving positions (1911). The natives were 
compelled to work for wages, however low, by the need to obtain cash for taxes and by 
the inadequacy of the native reserves to support them from their own agricultural 
activities. By the Land Act of 1913 about 7 percent of the land area was reserved for 
future land purchases by natives and the other 93 percent for purchase by whites. At that 
time the native population exceeded the whites by at least fourfold. 

As a result of such discriminations, the wages of natives were about one-tenth those of 
whites. This discrepancy in remuneration permitted white workers to earn salaries 
comparable to those earned in North America, although national income was low and 
productivity per capita was very low (about $125 per year). 

The Botha-Smuts government of 1910-1924 did little to cope with the almost 
insoluble problems which faced South Africa. As it became weaker, and the Hertzog 
Nationalists grew stronger, it had to rely with increasing frequency on the support of the 
Unionist party. In 1920 a coalition was formed, and three members of the Unionist party, 
including Duncan, took seats in Smuts's Cabinet. In the next election in 1924 Cresswell's 
Labourites and Hertzog's Nationalists formed an agreement which dropped the 
republican-imperial issue and emphasized the importance of economic and native 
questions. This alliance defeated Smuts's party and formed a Cabinet which held office 
for nine years. It was replaced in March 1933 by a Smuts-Hertzog coalition formed to 
deal with the economic crisis arising from the world depression of 1929-1935. 

The defeat of the Smuts group in 1924 resulted from four factors, besides his own 
imperious personality. These were (1 ) his violence toward labor unions and strikers; (2) 
his strong support for the imperial connection, especially during the war of 1914-1918; 
(3) his refusal to show any enthusiasm for an anti-native program, and (4) the economic 
hardships of the postwar depression and the droughts of 1919-1923. A miners' strike in 
1913 was followed by a general strike in 1914; in both, Smuts used martial law and 
machine-gun bullets against the strikers and in the latter case illegally deported nine 
union leaders to England. This problem had hardly subsided before the government 
entered the war against Germany and actively participated in the conquest of German 
Africa as w ell as in the fighting in France. Opposition from Boer extremists to this 
evidence of the English connection was so violent that it resulted in open revolt against 
the government and mutiny by various military contingents which sought to join the 
small German forces in Southwest Africa. The rebels were crushed, and thousands of 
their supporters lost their political rights for ten years. 



Botha and, even more, Smuts played major roles in the Imperial War Cabinet in 
London and at the Peace Conference of 1919. The former died as soon as he returned 
home, leaving Smuts, as prime minister, to face the acute postwar problems. The 
economic collapse of 1920-1923 was especially heavy in South Africa as the ostrich- 
feather and diamond markets were wiped out, the gold and export markets were badly 
injured, and years of drought were prevalent. Efforts to reduce costs in the mines by 
increased use of native labor led to strikes and eventually to a revolution on the Rand 
(1922). Over 200 rebels were killed. As a result, the popularity of Smuts in his own 
country reached a low ebb just at the time when he was being praised almost daily in 
England as one of the world's greatest men. 

These political shifts in South Africa's domestic affairs did little to relieve any of the 
acute economic and social problems which faced that country. On the contrary these grew 
worse year by year. In 1921 the Union had only 1.5 million whites, 4.7 million natives, 
545 thousand mulattoes ("coloured"), and 166 thousand Indians. By 1936 the whites had 
increased by only half a million, while the number of natives had gone up almost two 
million. These natives lived on inadequate and eroded reserves or in horrible urban 
slums, and were drastically restricted in movements, residence, or economic 
opportunities, and had almost no political or even civil rights. By 1950 most of the native 
workers of Johannesburg lived in a distant suburb where 90,000 Africans were crowded 
onto 600 acres of shacks with no sanitation, with almost no running water, and with such 
inadequate bus service that they had to stand in line for hours to get a bus into the city to 
work. In this way the natives were steadily "detribalized," abandoning allegiance to their 
own customs and beliefs (including religion) without assuming the customs or beliefs of 
the whites. Indeed, they were generally excluded from this because of the obstacles 
placed in their path to education or property ownership. The result was that the natives 
were steadily ground downward to the point where they were denied all opportunity 
except for animal survival and reproduction. 

Almost half of the whites and many of the blacks were farmers, but agricultural 
practices w ere so deplorable that water shortages and erosion grew with frightening 
rapidity, and rivers which had flowed steadily in 1880 largely disappeared by 1950. As 
lands became too dry to farm, they were turned to grazing, especially under the spur of 
high wool prices during the two great wars, but the soil continued to drift away as dust. 

Because of low standards of living for the blacks, there was little domestic market 
either for farm products or for industrial goods. As a result, most products of both black 
and white labor were exported, the receipts being used to pay for goods which were 
locally unavailable or for luxuries for whites. But most of the export trade was 
precarious. The gold mines and diamond mines had to dig so deeply (below 7,000-foot 
levels) that costs arose sharply, while the demand for both products fluctuated widely, 
since neither was a necessity of life. Nonetheless, each year over half of the Union's 
annual production of all goods was exported, with about one-third of the total represented 
by gold. 



The basic problem was lack of labor, not so much the lack of hands but the low level 
of productivity of those hands. This in turn resulted from lack of capitalization and from 
the color bar which refused to allow native labor to become skilled. Moreover, the 
cheapness of unskilled labor, especially on the farms, meant that most work was left to 
blacks, and many whites fell into lazy habits. Unskilled whites, unwilling and unable to 
compete as labor with the blacks, became indolent "poor whites." Milner's Kindergarten 
had, at the end of the Boer War, the sum of £3 million provided by the peace treaty to be 
used to restore Boer families from concentration camps to their farms. They were 
shocked to discover that one-tenth of the Boers were "poor whites," had no land and 
wanted none. The Kindergarten decided that this sad condition resulted from the 
competition of cheap black labor, a conclusion which was incorporated into the report of 
a commission established by Selborne to study the problem. 

This famous Report of the Transvaal Indigency Commission, published in 1908, was 
written by Philip Kerr (Lothian) and republished by the Union government twenty years 
later. About the same time, the group became convinced that black labor not only 
demoralized white labor and prevented it from acquiring the physical skills necessary for 
self-reliance and high personal morale but that blacks were capable of learning such skills 
as well as whites were. As Curtis expressed it in 1952: "I came to see how the colour bar 
reacted on Whites and Blacks. Exempt from drudgery by custom and law, Whites acquire 
no skill in crafts, because the school of skill is drudgery. The Blacks, by doing drudgery, 
acquire skill. All skilled work in mines such as rock-drilling was done by miners 
imported from Cornwall who worked subject to the colour bar. The heavy drills were 
fixed and driven under their direction by Natives. These Cornish miners earned £1 a day, 
the Natives about 2s. The Cornish miners struck for higher pay, but the Blacks, who in 
doing the drudgery had learned how to work the drills, kept the mines running at a lower 
cost." 

Accordingly, the Milner-Round Table group worked out a scheme to reserve the 
tropical portions of Africa north of the Zambezi River for natives under such attractive 
conditions that the blacks south of that river would be enticed to migrate northward. As 
Curtis envisioned this plan, an international state or administrative body "would take over 
the British, French, Belgian, and Portuguese dependencies in tropical Africa.... Its policy 
would be to found north of the Zambezi a Negro Dominion in which Blacks could own 
land, enter professions, and stand on a footing of equality with Whites. The inevitable 
consequence would be that Black laborers south of the Zambezi would rapidly emigrate 
from South Africa and leave South African Whites to do their own drudgery which would 
be the salvation of the Whites." Although this project has not been achieved, it provides 
the key to Britain's native and central-African policies from 1917 onward. For example, 
in 19371939 Britain made many vain efforts to negotiate a settlement of Germany's 
colonial claims under which Germany would renounce forever its claims on Tanganyika 
and be allowed to participate as a member of an international administration of all 
tropical Africa (including the Belgian Congo and Portuguese Angola as well as British 
and French territory) as a single unit in which native rights would be paramount. 



The British tradition of fair conduct toward natives and nonwhites generally was 
found most frequently among the best educated of the English upper class and among 
those lower-class groups, such as missionaries, where religious influences were strongest. 
This tradition was greatly strengthened by the actions of the Rhodes-Milner group, 
especially after 1920. Rhodes aroused considerable ill-feeling among the whites of South 
Africa when he announced that his program included "equal rights for all civilized men 
south of the Zambezi," and went on to indicate that "civilized men" included ambitious, 
literate Negroes. When Milner took over the Boer states in 1901, he tried to follow the 
same policy. The peace treaty of 1902 promised that the native franchise would not be 
forced on the defeated Boers, but Milner tried to organize the governments of 
municipalities, beginning with Johannesburg, so that natives could vote. This was 
blocked by the Kindergarten (led by Curtis who was in charge of municipal 
reorganization in 1901-1906) because they considered reconciliation with the Boers as a 
preliminary to a South African Union to be more urgent. Similarly, Smuts as the chief 
political figure in South Africa after 1910 had to play down native rights in order to win 
Boer and English labor support for the rest of his program. 

The Rhodes-Milner group, however, was in a better position to carry out its plans in 
the non-self-governing portions of Africa outside the Union. In South Africa the three 
native protectorates of Swaziland, Bechuanaland, and Basutoland were retained by the 
imperial authorities as areas where native rights were paramount and where tribal forms 
of living could be maintained at least partially. However, certain tribal customs, such as 
those which required a youth to prove his manhood by undergoing inhuman suffering or 
engaging in warfare or cattle stealing before he could marry or become a full-fledged 
member of the tribe, had to be curtailed. They were replaced in the twentieth century by 
the custom of taking work in the mines of South Africa as contract laborers for a period 
of years. Such labor was as onerous and killing as tribal warfare had been earlier because 
deaths from disease and accident were very high. But, by undergoing this test for about 
five years, the survivors obtained sufficient savings to allow them to return to their tribes 
and buy sufficient cattle and wives to support them as full members of the tribe for the 
rest of their days. Unfortunately, this procedure did not result in good agricultural 
practices but rather in overgrazing, growing drought and erosion, and great population 
pressure in the native reserves. It also left the mines without any assured labor supply so 
that it became necessary to recruit contract labor farther and farther north. Efforts by the 
Union government to set northern limits beyond which labor recruiting was forbidden led 
to controversy with employers, frequent changes in regulations, and widespread evasions. 
As a consequence of an agreement made by Milner with Portuguese authorities, about a 
quarter of the natives working in South African mines came from Portuguese East Africa 
even as late as 1936. 

Making the Commonwealth, 1910-1926 

As soon as South Africa was united in 1910, the Kindergarten returned to London to 
try to federate the whole empire by the same methods. They were in a hurry to achieve 
this before the war with Germany which they believed to be approaching. With Abe 
Bailey money they founded The Round Table under Kerr's (Lothian's) editorship, met in 



formal conclaves presided over by Milner to decide the fate of the empire, and recruited 
new members to their group, chiefly from New College, of which Milner was a fellow. 
The new recruits included a historian, F. S. Oliver, (Sir) Alfred Zimmern, (Sir) Reginald 
Coupland, Lord Lovat, and Waldorf (Lord) Astor. Curtis and others were sent around the 
world to organize Round Table groups in the chief British dependencies. 

For several years (1910 1916) the Round Table groups worked desperately trying to 
find an acceptable formula for federating the empire. Three books and many articles 
emerged from these discussions, but gradually it became clear that federation was not 
acceptable to the English-speaking dependencies. Gradually, it was decided to dissolve 
all formal bonds between these dependencies, except, perhaps, allegiance to the Crow-n, 
and depend on the common outlook of Englishmen to keep the empire together. This 
involved changing the name "British Empire" to "Commonwealth of Nations," as in the 
title of Curtis's book of 1916, giving the chief dependencies, including India and Ireland, 
their complete independence (but gradually- and by free gift rather than under duress), 
working to bring the United States more closely into this same orientation, and seeking to 
solidify the intangible links of sentiment by propaganda among financial, educational, 
and political leaders in each country. 

Efforts to bring the dependencies into a closer relationship with the mother country 
were by no means new in 1910, nor were they supported only by the Rhodes-Milner 
group. Nevertheless, the actions of this group were all-pervasive. The poor military 
performance of British forces during the Boer War led to the creation of a commission to 
investigate the South African War, with Lord Esher (Brett) as chairman (1903). Among 
other items, this commission recommended creation of a permanent Committee of 
Imperial Defence. Esher became (unofficial) chairman of this committee, holding the 
position for the rest of his life (1905-1930). He was able to establish an Imperial General 
Staff in 1907 and to get a complete reorganization of the military forces of New Zealand, 
Australia, and South Africa so that they could be incorporated into the imperial forces in 
an emergency (1909- 1912). On the committee itself he created an able secretariat which 
cooperated loyally with the Rhodes-Milner group thereafter. These men included (Sir) 
Maurice (later Lord) Hankey and (Sir) Ernest Swinton (who invented the tank in 1915). 
When, in 1916-1917, Milner and Esher persuaded the Cabinet to create a secretariat for 
the first time, the task was largely given to this secretariat from the Committee on 
Imperial Defence. Thus Hankey was secretary to the committee for thirty years (1908- 
1938), to the Cabinet for twenty-two years (1916-1938), clerk to the Privy Council for 
fifteen years (1923-1938), secretary-general of the five imperial conferences held 
between 1921 and 1937, secretary to the British delegation to almost every important 
international conference held between the Versailles Conference of 1919 and the 
Lausanne Conference of 1932, and one of the leading advisers to the Conservative 
governments after 1939. 

Until 1907 the overseas portions of the Empire (except India) communicated with the 
imperial government through the secretary of state for colonies. To supplement this 
relationship, conferences of the prime ministers of the self-governing colonies were held 
in London to discuss common problems in 1887, 1897, 1902, 1907, 1911, 1917, and 



1918. In 1907 it was decided to hold such conferences every four years, to call the self- 
governing colonies "Dominions," and to by-pass the Colonial Secretary by establishing a 
new Dominion Department. Ruskin's influence, among others, could be seen in the 
emphasis of the Imperial Conference of 191 1 that the Empire rested on a triple 
foundation of (1) rule of law, (2) local autonomy, and (3) trusteeship of the interests and 
fortunes of those fellow subjects who had not yet attained self -government. 

The Conference of 1915 could not be held because of the war, but as soon as Milner 
became one of the four members of the War Cabinet in 1915 his influence began to be 
felt everywhere. We have mentioned that he established a Cabinet secretariat in 1916- 
1917 consisting of two proteges of Esher (Hankey and Swinton) and two of his own (his 
secretaries, Leopold Amery and W. G. A. Ormsby-Gore, later Lord Harlech). At the same 
time he gave the Prime Minister, Lloyd George, a secretariat from the Round Table, 
consisting of Kerr (Lothian), Grigg (Lord Altrincham), W. G. S. Adams (Fellow of All 
Souls College), and Astor. He created an Imperial War Cabinet by adding Dominion 
Prime Ministers (particularly Smuts) to the United Kingdom War Cabinet. He also called 
the Imperial Conferences of 1917 and 1918 and invited the dominions to establish 
Resident Ministers in London. A' the war drew to a close in 1918, Milner took the office 
of Colonia] Secretary, with Amery as his assistant, negotiated an agreement providing 
independence for Egypt, set up a new self-government constitution in Malta, sent Curtis 
to India (where he drew up the chief provisions of the Government of India Act of 1919), 
appointed Curtis to the post of Adviser on Irish Affairs (where he played an important 
role in granting dominion status to southern Ireland in 1921), gave Canada permission to 
establish separate diplomatic relations with the United States (the firs minister being the 
son-in-law of Milner's closest collaborator on the Rhodes Trust), and called the Imperial 
Conference of 1921. 

During this decade 1919-1929 the Rhodes-Milner group gave the chief impetus 
toward transforming the British Empire into the Commonwealth of Nations and 
launching India on the road to responsible self-government. The creation of the Round 
Table groups by Milner's Kindergarten in 1909-1913 opened a new day in both these 
fields, although the whole group was so secretive that, even today, many close students of 
the subject are not aware of its significance. These men had formed their intellectual 
growth at Oxford on Pericle's funeral oration as described in a book by a member of the 
group, (Sir) Alfred Zimmern's The Greek Commonwealth (1911), on Edmund Burke's On 
Conciliation with America, on Sir J. B. Seeley's Growth of British Policy, on A. V. 
Dicey's The Law and Custom of the Constitution, and on The New Testament's "Sermon 
on the Mount." The last was especially influential on Lionel Curtis. He had a fanatical 
conviction that with the proper spirit and the proper organization (local self-government 
and federalism), the Kingdom of God could be established on earth. He was sure that if 
people were trusted just a bit beyond what they deserve they would respond by proving 
worthy of such trust. As he wrote in The Problem of a Commonwealth (1916), "if 
political power is granted to groups before they are fit they will tend to rise to the need." 
This was the spirit which Milner's group tried to use toward the Boers in 1902-1910, 
toward India in 1910 1947, and, unfortunately, toward Hitler in 1933-1939. This point of 
view was reflected in Curtis's three volumes on world history, published as Civitas Dei in 



1938. In the case of Hitler, at least, these high ideals led to disaster; this seems also to be 
the case in South Africa; whether this group succeeded in transforming the British 
Empire into a Commonwealth of Nations or merely succeeded in destroying the British 
Empire is not yet clear, but one seems as likely as the other. 

That these ideas were not solely those of Curtis but were held by the group as a whole 
will be clear to all who study it. When Lord Lothian died in Washington in 1940, Curtis 
published a volume of his speeches and included the obituary which Grigg had written 
for The Round Table. Of Lothian this said, "He held that men should strive to build the 
Kingdom of Heaven here upon this earth, and that the leadership in that task must fall 
first and foremost upon the English-speaking peoples." Other attitudes of this influential 
group can be gathered from some quotations from four books published by Curtis in 
1916-1920: "The rule of law as contrasted with the rule of an individual is the 
distinguishing mark of the Commonwealth. In despotisms government rests on the 
authority of the ruler or of the invisible and uncontrollable power behind him. In a 
commonwealth rulers derive their authority from the law, and the law from a public 
opinion which is competent to change it . . . The idea that the principle of the 
Commonwealth implies universal suffrage betrays an ignorance of its real nature. That 
principle simply means that government rests on the duty of the citizens to each other, 
and is to be vested in those who are capable of setting public interests before their own.... 
The task of preparing for freedom the races which cannot as yet govern themselves is the 
supreme duty of those who can. It is the spiritual end for which the Commonwealth 
exists, and material order is nothing except as a means to it.... The peoples of India and 
Egypt, no less than those of the British Isles and Dominions, must be gradually schooled 
in the management of their national affairs.... The whole effect of the war [of 1914-1918] 
has been to bring movements long gathering to a sudden head.... Companionship in arms 
has fanned . . . long smouldering resentment against the presumption that Europeans are 
destined to dominate the rest of the world. In every part of Asia and Africa it is bursting 
into flames. . . . Personally I regard this challenge to the long unquestioned claim of the 
white man to dominate the world as inevitable and wholesome, especially to ourselves.... 
The world is in the throes which precede creation or death. Our whole race has outgrown 
the merely national state and, as surely as day follows night or night the day, will pass 
either to a Commonwealth of Nations or else to an empire of slaves. And the issue of 
these agonies rests with us." 

In this spirit the Rhodes-Milner group tried to draw plans for a federation of the 
British Empire in 1909-1916. Gradually this project was replaced or postponed in favor 
of the commonwealth project of free cooperation. Milner seems to have accepted the 
lesser aim after a meeting, sponsored by the Empire Parliamentary Association, on July 
28, 1916, at which he outlined the project for federation with many references to the 
writings of Curtis, but found that not one Dominion member present would accept it. At 
the Imperial Conference of 1917, under his guidance, it was resolved that "any re- 
adjustment of constitutional relations . . . should be based on a full recognition of the 
Dominions as autonomous nations of an Imperial Commonwealth and of India as an 
important portion of the same, should recognize the right of the Dominions and India to 
an adequate voice in foreign policy and in foreign relations, and should provide effective 



arrangements for continuous consultation in all important matters of common Imperial 
concern." Another resolution called for full representation for India in future Imperial 
Conferences. This was done in 1918. At this second wartime Imperial Conference it was 
resolved that Prime Ministers of Dominions could communicate directly with the Prime 
Minister of the United Kingdom and that each dominion (and India) could establish 
Resident Ministers in London who would have seats on the Imperial War Cabinet. Milner 
was the chief motivating force in these developments. He hoped that the Imperial War 
Cabinet would continue to meet annually after the war but this did not occur. 

During these years 1917-1918, a declaration was drawn up establishing complete 
independence for the dominions except for allegiance to the crown. This was not issued 
until 1926. Instead, on July 9, 1919 Milner issued an official statement which said, "The 
United Kingdom and the Dominions are partner nations; not yet indeed of equal power, 
but for good and all of equal status.... The only possibility of a continuance of the British 
Empire is on a basis of absolute out-and-out equal partnership between the United 
Kingdom and the Dominions. I say that without any kind of reservation whatsoever." 
This point of view was restated in the so-called Balfour Declaration of 1926 and was 
enacted into law as the Statute of Westminster in 1931. B. K. Long of the South African 
Round Table group (who was Colonial Editor of The Times in 1913-1921 and Editor of 
Rhodes's paper, The Cape Times, in South Africa in 1922-1935) tells us that the 
provisions of the declaration of 1926 were agreed on in 1917 during the Imperial 
Conference convoked by Milner. They were formulated by John W. Dafoe, editor of the 
Winnipeg Free Press for 43 years and the most influential journalist in Canada for much 
of that period. Dafoe persuaded the Canadian Prime Minister, Sir Robert Borden, to 
accept his ideas and then brought in Long and Dawson (Editor of The Times). Dawson 
negotiated the agreement with Milner, Smuts, and others. Although Australia and New 
Zealand were far from satisfied, the influence of Canada and of South Africa carried the 
agreement. Nine years later it was issued under Balfour's name at a conference convoked 
by Amery. 

East Africa, 1910-1931 

In the dependent empire, especially in tropical Africa north of the Zambezi River, the 
Rhodes-Milner group was unable to achieve most of its desires, but was able to win wide 
publicity for them, especially for its views on native questions. It dominated the Colonial 
Office in London, at least for the decade 1919-1929. There Milner was secretary of state 
in 1919-1921 and Amery in 1924-1929, while the post of parliamentary under-secretary 
was held by three members of the group for most of the decade. Publicity for their views 
on civilizing the natives and training them for eventual self-government received wide 
dissemination, not only by official sources but also by the academic, scholarly, and 
journalistic organizations they dominated. As examples of this we might mention the 
writings of Coupland, Hailey, Curtis, Grigg, Amery, and Lothian, all Round Tablers. In 
1938 Lord Hailey edited a gigantic volume of 1,837 pages called An Africa Survey. This 
work was first suggested by Smuts at Rhodes House, Oxford, in 1929, had a foreword by 
Lothian, and an editorial board of Lothian, Hailey, Coupland, Curtis, and others. It 
remains the greatest single book on modern Africa. These people, and others, through 



The Times, The Round Table, The Observer, Chatham House, and other conduits, 
became the chief source of ideas on colonial problems in the English-speaking world. 
Nevertheless, they were unable to achieve their program. 

In the course of the 1920's the Round Table program for East Africa was paralyzed by 
a debate on the priority which should be given to the three aspects of group's project for a 
Negro Dominion north of the Zambezi. The three parts were (1) native rights, (2) "Closer 
Union," and (3) international trusteeship. Generally, the group gave priority to Closer 
Union (federation of Kenya with Uganda and Tanganyika), but the ambiguity of their 
ideas on native rights made it possible for Dr. Joseph H. Oldham, spokesman for the 
organized Nonconformist missionary groups, to organize a successful opposition 
movement to federation of East Africa. In this effort Oldham found a powerful ally in 
Lord Lugard, and considerable support from other informed persons, including Margery 
Perham. 

The Round Tablers, who had no firsthand knowledge of native life or even of tropical 
Africa, were devoted supporters of the English way of life, and could see no greater 
benefit conferred on natives than to help them to move in that direction. This, however, 
would inevitably destroy the tribal organization of life, as well as the native systems of 
land tenure, which were generally based on tribal holding of land. The white settlers were 
eager to see these things disappear, since they generally wished to bring the native labor 
force and African lands into the commercial market. Oldham and Lugard opposed this, 
since they felt it would lead to white ownership of large tracts of land on which 
detribalized and demoralized natives would subsist as wage slaves. Moreover, to Lugard, 
economy in colonial administration required that natives be governed under his system of 
"indirect rule" through tribal chiefs. Closer Union became a controversial target in this 
dispute because it involved a gradual increase in local self-government which would lead 
to a greater degree of white settler rule. 

The opposition to Closer Union in East Africa was successful in holding up this 
project in spite of the Round Table domination of the Colonial Office, chiefly because of 
Prime Minister Baldwin's refusal to move quickly. This delayed change until the Labour 
government took over in 1929; in this the pro-native, nonconformist (especially Quaker) 
influence was stronger. 

The trusteeship issue came into this controversy because Britain was bound, as a 
mandate Power, to maintain native rights in Tanganyika to the satisfaction of the 
Mandates Commission of the League of Nations. This placed a major obstacle in the path 
of Round Table efforts to join Tanganyika with Kenya and Uganda into a Negro 
Dominion which would be under quite a different kind of trusteeship of the African 
colonial Powers. Father south, in the Rhodesias and Nyasaland, the Round Table 
obsession with federation did not meet this obstacle, and that area was eventually 
federated, over native protests, in 1953, but this creation, the Central African Federation, 
broke up again in 1964. Strangely enough, the League of Nations Mandate System which 
became such an obstacle to the Round Table plans was largely a creation of the Round 
Table itself. 



The Milner Group used the defeat of Germany in 1918 as an opportunity to impose an 
international obligation on certain Powers to treat the natives fairly in the regions taken 
from Germany. This opportunity was of great significance because just at that time the 
earlier impetus in this direction arising from missionaries was beginning to weaken as a 
consequence of the general weakening of religious feeling in European culture. 

The chief problem in East Africa arose from the position of the white settlers of 
Kenya. Although this colony rests directly on the equator, its interior highlands, 4,000 to 
10,000 feet up, were well adapted to white settlement and to European agricultural 
methods. The situation was dangerous by 1920, and grew steadily worse as the years 
passed, until by 1950 Kenya had the most critical native problem in Africa. It differed 
from South Africa in that it lacked self-government, rich mines, or a divided white 
population, but it had many common problems, such as overcrowded native reserves, soil 
erosion, and discontented and detribalized blacks working for low wages on lands owned 
by whites. It had about two million blacks and only 3,000 whites in 1910. Forty years 
later it had about 4 million blacks, 100,000 Indians, 24,000 Arabs, and only 30,000 
whites (of which 40 percent were government employees). But what the whites lacked in 
numbers they made up in determination. The healthful highlands were reserved for white 
ownership as early as 1908, although they were not delimited and guaranteed until 1939. 
They were organized as very large, mostly undeveloped, farms of which there were only 
2,000 covering 10,000 square miles in 1940. Many of these farms were of more than 
30,000 acres and had been obtained from the government, either by purchase or on very 
long (999-year) leases for only nominal costs (rents about two cents per year per acre). 
The native reserves amounted to about 50,000 square miles of generally poorer land, or 
five times as much land for the blacks, although they had at least 150 times as many 
people. The Indians, chiefly in commerce and crafts, were so industrious that they 
gradually came to own most of the commercial areas both in the towns and in the native 
reserves. 

The two great subjects of controversy in Kenya were concerned with the supply of 
labor and the problem of self-government, although less agitated problems, like 
agricultural technology, sanitation, and education were of vital significance. The whites 
tried to increase the pressure on natives to work on white farms rather than to seek to 
make a living on their own lands within the reserves, by forcing them to pay taxes in 
cash, by curtailing the size or quality of the reserves, by restricting improvements in 
native agricultural techniques, and by personal and political pressure and compulsion. 
The effort to use political compulsion reached a peak in 1919 and was stopped by Milner, 
although his group, like Rhodes in South Africa, was eager to make natives more 
industrious and more ambitious by any kinds of social, educational, or economic 
pressures. The settlers encouraged natives to live off the reserves in various ways: for 
example, hy permitting them to settle as squatters on white estates in return for at least 
180 clays of work a year at the usual low wage rates. To help both back and white 
farmers, not only in Kenya but throughout the world, Milner created, as a research 
organization, an Imperial College of Tropical Agriculture at Trinidad in 1919. 



As a consequence of various pressures which we have mentioned, notably the need to 
pay taxes which averaged, perhaps, one month's wages a year and, in the aggregate, took 
from the natives a larger sum than that realized from the sale of native products, the 
percentage of adult males working off the reservations increased from about 35 percent in 
1925 to over 80 percent in 1940. This had very deleterious effects on tribal life, family 
life, native morality, and family discipline, although it seems to have had beneficial 
effects on native health and general education. 

The real crux of controversy before the Mau Mau uprising of 1948-1955 was the 
problem of self-government. Pointing to South Africa, the settlers in Kenya demanded 
self-rule which would allow them to enforce restrictions on nonwhites. A local colonial 
government was organized under the Colonial Office in 1906; as was usual in such cases 
it consisted of an appointive governor assisted by an appointed Executive Council and 
advised by a legislative Council. The latter had, also as usual, a majority of officials and a 
minority of "unofficial" outsiders. Only in 1922 did the unofficial portion become 
elective, and only in 1949 did it become a majority of the whole body. The efforts to 
establish an elective element in the Legislative Council in 1919-1923 resulted in violent 
controversy. The draft drawn by the council itself provided for only European members 
elected by a European electorate. Milner added two Indian members elected by a separate 
Indian electorate. In the resulting controversy the settlers sought to obtain their original 
plan, while London sought a single electoral roll restricted in size by educational and 
property qualifications but without mention of race. To resist this, the settlers organized a 
Vigilance Committee and planned to seize the colony, abduct the governor, and form a 
republic federated in some way with South Africa. From this controversy came 
eventually a compromise, the famous Kenya White Paper of 1923, and the appointment 
of Sir Edward Grigg as governor for the period of 1925-1931. The compromise gave 
Kenya a Legislative Council containing representatives of the imperial government, the 
white settlers, the Indians, the Arabs, and a white missionary to represent the blacks. 
Except for the settlers and Indians, most of these were nominated rather than elected, but 
by 1949, as the membership was enlarged, election was extended, and only the official 
and Negro members (4 out of 41) were nominated. 

The Kenya White Paper of 1923 arose from a specific problem in a single colony, but 
remained the formal statement of imperial policy in tropical Africa. It said: "Primarily 
Kenya is an African territory, and His Majesty's Government think it necessary definitely 
to record their considered opinion that the interests of the African natives must be 
paramount, and that if and when those interests and the interests of the immigrant races 
should conflict, the former should prevail.... In the administration of Kenya His Majesty's 
Government regard themselves as exercising a trust on behalf of the African population, 
and they are unable to delegate or share this trust, the object of which may be defined as 
the protection and advancement of the native races." 

As a result of these troubles in Kenya and the continued encroachment of white 
settlers on native reserves, Amery sent one of the most important members of Milner's 
group to the colony as governor and commander in chief. This was Sir Edward Grigg 
(Lord Altrincham), who had been a member of Milner's Kindergarten, an editor of The 



Round Table and of The Times (1903-1905, 1908-1913), a secretary to Lloyd George and 
to the Rhodes Trustees (1923-1925), and a prolific writer on British imperial, colonial, 
and foreign affairs. In Kenya he tried to protect native reserves while still forcing natives 
to develop habits of industry by steady work, to shift white attention from political to 
technical problems such as agriculture, and to work toward a consolidation of tropical 
Africa into a single territorial unit. He forced through the Colonial Legislature in 1930 
the Native Land Trust Ordinance which guaranteed native reserves. But these reserves 
remained inadequate and were increasingly damaged by bad agricultural practices. Only 
in 1925 did any sustained effort to improve such practices by natives begin. About the 
same time efforts were made to extend the use of native courts, native advisory councils, 
and to train natives for an administrative service. All of these met slow, varied, and (on 
the whole) indifferent success, chiefly because of natives' reluctance to cooperate and the 
natives' growing suspicion of white men's motives even when these whites were most 
eager to help. The chief cause of this growing suspicion (which in some cases reached a 
psychotic level) would seem to be the native's insatiable hunger for religion and his 
conviction that the whites were hypocrites who taught a religion that they did not obey, 
were traitors to Christ's teachings, and were using these to control the natives and to 
betray their interests, under cover of religious ideas which the whites themselves did not 
observe in practice. 

India to 1926 

In the decade 1910-1920, the two greatest problems to be faced in creating a 
Commonwealth of Nations were India and Ireland. There can be no doubt that India 
provided a puzzle infinitely more complex, as it was more remote and less clearly 
envisioned, than Ireland. When the British East India Company became the dominant 
power in India about the middle of the eighteenth century, the Mogul Empire was in the 
last stages of disintegration. Provincial rulers had only nominal titles, sufficient to bring 
them immense treasure in taxes and rents, but they generally lacked either the will or the 
strength to maintain order. The more vigorous tried to expand their domains at the 
expense of the more feeble, oppressing the peace-loving peasantry in the process, while 
all legal power was challenged by roaming upstart bands and plundering tribes. Of these 
willful tribes, the most important were the Marathas. These systematically devastated 
much of south-central India in the last half of the eighteenth century, forcing each village 
to buy temporary immunity from destruction, but steadily reducing the capacity of the 
countryside to meet their demands because of the trail of death and economic 
disorganization they left in their wake. By 1900 only one-fifth of the land in some areas 
was cultivated. 

Although the East India Company was a commercial firm, primarily interested in 
profits, and thus reluctant to assume a political role in this chaotic countryside, it had to 
intervene again and again to restore order, replacing one nominal ruler by another and 
even taking over the government of those areas where it was more immediately 
concerned. In addition the cupidity of many of its employees led them to intervene as 
political powers in order to divert to their own pockets some of the fabulous wealth 
which they saw flowing by. For these two reasons the areas under company rule, 



although not contiguous, expanded steadily until by 1858 they covered three-fifths of the 
country. Outside the British areas were over five hundred princely domains, some no 
larger than a single village but others as extensive as some states of Europe. At this point, 
in 1857-1858, a sudden, violent insurrection of native forces, known as the Great Mutiny, 
resulted in the end of the Mogul Empire and of the East India Company, the British 
government taking over their political activities. From this flowed a number of important 
consequences. Annexation of native principalities ceased, leaving 562 outside British 
India, but under British protection and subject to British intervention to ensure good 
government; within British India itself, good government became increasingly dominant 
and commercial profit decreasingly so for the whole period 1858-1947; British political 
prestige rose to new heights from 1858 to 1890 and then began to dwindle, f ailing 
precipitously in 1919-1922. 

The task of good government in India was not an easy one. In this great subcontinent 
with a population amounting to almost one-fifth of the human race were to be found an 
almost unbelievable diversity of cultures, religions, languages, and attitudes. Even in 
1950 modern locomotives linked together great cities with advanced industrial production 
by passing through jungles inhabited by tigers, elephants, and primitive pagan tribes. The 
population, which increased from 284 million in 1901 to 389 million in 1941 and reached 
530 million in 1961, spoke more than a dozen major languages divided into hundreds of 
dialects, and were members of dozens of antithetical religious beliefs. There were, in 
1941, 255 million Hindus, 92 million Muslims, 6.3 million Christians, 5.7 million Sikhs, 
1.5 million Jains, and almost 26 million pagan animists of various kinds. In addition, the 
Hindus and even some of the non-Hindus were divided into four major hereditary castes 
subdivided into thousands of sub-castes, plus a lowest group of outcastes 
("untouchables"), amounting to at least 30 million persons in 1900 and twice this number 
in 1950. These thousands of groups were endogamous, practiced hereditary economic 
activities, frequently had distinctive marks or garb, and were usually forbidden to marry, 
eat or drink with, or even to associate with, persons of different caste. Untouchables were 
generally forbidden to come in contact, even indirectly, with members of other groups 
and were, accordingly, forbidden to enter many temples or public buildings, to draw 
water from the public wells, even to allow their shadows to fall on any person of a 
different group, and were subject to other restrictions, all designed to avoid a personal 
pollution which could be removed only by religious rituals of varying degrees of 
elaborateness. Most sub-castes were occupational groups covering all kinds of activities, 
so that there were hereditary groups of carrion collectors, thieves, high-way robbers, or 
murderers (thugs), as well a farmers, fishermen, storekeepers, drug mixers, or copper 
smelters. For most peoples of India, cast was the most important fact of life, submerging 
their individuality into a group from which they could never escape, and regulating all 
their activities from birth to death. As a result, India, even as late as 1900, was a society 
in which status was dominant, each individual having a place in a group which, in turn, 
had a place in society. This place, known to all and accepted by all, operated by 
established procedures in its relationships with other groups so that there was in spite of 
diversity, a minimum of intergroup friction and a certain peaceful tolerance so long as 
intergroup etiquette was known and accepted. 



The diversity of social groups and beliefs was naturally reflected in an extraordinarily 
wide range of social behavior from the most degraded and bestial activities based on 
crude superstitions to even more astounding levels of exalted spiritual self-sacrifice and 
cooperation. Although the British refrained from interfering with religious practices, in 
the course of the nineteenth century they abolished or greatly reduced the practice of 
thuggism (in which a secret caste strangled strangers in honor of the goddess Kali), suttee 
(in which the widow of a deceased Hindu was expected to destroy herself on his funeral 
pyre), infanticide, temple prostitution, and child marriages. At the other extreme, most 
Hindus abstained from all violence; many had such a respect for life that they would eat 
no meat, not even eggs, while a few carried this belief so far that they would not molest a 
cobra about to strike, a mosquito about to sting, or even walk about at night, less they 
unknowingly step on an ant or worm. Hindus, who considered cows so sacred that the 
worse crime would be to cause the death of one (even by accident), who allowed millions 
of these beasts to have free run of the country to the great detriment of cleanliness or 
standards of living, who would not wear shoes of leather, and would rather die than taste 
beef, ate pork and associated daily with Muslims who ate beef but considered pigs to be 
polluting. In general, most Indians lived in abject poverty and want; only about one in a 
hundred could read in 1858, while considerably less could understand the English 
language. The overwhelming majority at that time were peasants, pressed down by 
onerous taxes and rents, isolated in small villages unconnected by roads, and decimated 
at irregular intervals by famine or disease. 

British rule in the period 1858-1947 tied India together by railroads, roads, and 
telegraph lines. It brought the country into contact with the Western world, and especially 
with world markets, by establishing a uniform system of money, steamboat connections 
with Europe by the Suez Canal, cable connections throughout the world, and the use of 
English as the language of government and administration. Best of all, Britain established 
the rule of law, equality before the law, and a tradition of judicial fairness to replace the 
older practice of inequality and arbitrary, violence. A certain degree of efficiency, and a 
certain ambitious, if discontented, energy directed toward change replaced the older 
abject resignation to inevitable fate. 

The modern postal, telegraphic, and railroad systems all began in 1854. The first grew 
to such dimensions that by the outbreak of war in 1939 it handled over a billion pieces of 
mail and forty million rupees in money orders each year. The railroad grew from zoo 
miles in 1855 to 9,000 in 1880, to 25,000 in 1901, and to 43,000 in 1939. This, the third 
largest railroad system in the world, carried 600 million passengers and go million tons of 
freight a year. About the same time, the dirt tracks of 1858 had been partly replaced by 
over 300,000 miles of highways, of which only about a quarter could be rated as first 
class. From 1925 onward, these highways were used increasingly by passenger buses, 
crowded and ramshackle in many cases, but steadily breaking down the isolation of the 
villages. 

Improved communications and public order served to merge the isolated village 
markets, smoothing out the earlier alternations of scarcity and glut with their 
accompanying phenomena of waste and of starvation in the midst of plenty. All this led 



to a great extension of cultivation into more remote areas and the growing of a greater 
variety of crops. Sparsely settled areas of forests and hills, especially in Assam and the 
Northwest Provinces, were occupied, without the devastation of deforestation (as in 
China or in non-Indian Nepal) because of a highly developed forestry conservation 
service. Migration, permanent and seasonal, became regular features of Indian life, the 
earnings of the migrants being sent back to their families in the villages they had left. A 
magnificent system of canals, chiefly for irrigation, was constructed, populating desolate 
wastes, especially in the northwestern parts of the country, and encouraging whole tribes 
which had previously been pastoral freebooters to settle down as cultivators. By 1939 
almost 60 million acres of land were irrigated. For this and other reasons, the sown area 
of India increased from 195 to 228 million acres in about forty years (1900-1939). 
Increases in yields were much less satisfactory because of reluctance to change, lack of 
knowledge or capital, and organizational problems. 

The tax on land traditionally had been the major part of public revenue in India, and 
remained near so percent as late as 1900. Under the Moguls these land revenues had been 
collected by tax farmers. In many areas, notably Bengal, the British tended to regard 
these land revenues as rents rather than taxes, and thus regarded the revenue collectors as 
the owners of the land. Once this was established, these new landlords used their powers 
to raise rents, to evict cultivators who had been on the same land for years or even 
generations, and to create an unstable rural proletariat of tenants and laborers unable or 
unwilling to improve their methods. Numerous legislative enactments sought, without 
great success, to improve these conditions. Such efforts were counterbalanced by the 
growth of population, the great rise in the value of land, the inability of industry or 
commerce to drain surplus population from the land as fast as it increased, the tendency 
of the government to favor industry or commerce over agriculture by tariffs, taxation, and 
public expenditures, the growing frequency of famines (from droughts), of malaria (from 
irrigation projects), and of plague (from trade with the Far East) which wiped out in one 
year gains made in several years, the growing burden of peasant debt at onerous terms 
and at high interest rates, and the growing inability to supplement incomes from 
cultivation by incomes from household crafts because of the growing competition from 
cheap industrial goods. Although slavery was abolished in 1843, many of the poor were 
reduced to peonage by contracting debts at unfair terms and binding themselves and their 
heirs to work for their creditors until the debt was paid. Such a debt could never be paid, 
in many cases, because the rate at which it was reduced was left to the creditor and could 
rarely be questioned by the illiterate debtor. 

All of these misfortunes culminated in the period 1895-1901. There had been a long 
period of declining prices in 1873-1896, which increased the burden on debtors and 
stagnated economic activities. In 1897 the monsoon rains failed, with a loss of 18 million 
tons of food crops and of one million lives from famine. This disaster was repeated in 
1899-1900. Bubonic plague was introduced to Bombay from China in 1895 and killed 
about two million persons in the next six years. 

From this low point in 1901, economic conditions improved fairly steadily, except for 
a brief period in 1919-1922 and the long burden of the world depression in 1929-1934. 



The rise in prices in 1900 1914 benefitted India more than others, as the prices of her 
exports rose more rapidly. The war of 1914-1918 gave India a great economic 
opportunity, especially by increasing the demand for her textiles. Tariffs were raised 
steadily after 1916, providing protection for industry, especially in metals, textiles, 
cement, and paper. The customs became the largest single source of revenue, alleviating 
to some extent the pressure of taxation on cultivators. However, the agrarian problem 
remained acute, for most of the factors listed above remained in force. In 1931 it was 
estimated that, in the United Provinces, 30 percent of the cultivators could not make a 
diving from their holdings even in good years, while 52 percent could make a living in 
good years but not in bad ones. 

There was great economic advance in mining, industry, commerce, and finance in the 
period after 1900. Coal output went up from 6 to 21 million tons in 1900-1924, and 
petroleum output (chiefly from Burma) Went up from 37 to 294 million gallons. 
Production in the protected industries also improved in the same period until, by 1932, 
India could produce three-quarters of her cotton cloth, three-quarters of her steel, and 
most of her cement, matches, and sugar. In one product, jute, India became the chief 
source for the world's supply, and this became the leading export after 1925. 

A notable feature of the growth of manufacturing in India after 1900 lies in the fact 
that Hindu capital largely replaced British capital, chiefly for political reasons. In spite of 
India's poverty, there was a considerable volume of saving, arising chiefly from the 
inequitable distribution of income to the landlord class and to the moneylenders (if these 
two groups can be separated in this way). Naturally, these groups preferred to invest their 
incomes back in the activities whence they had been derived, but, after 1919, nationalist 
agitation and especially Gandhi's influence inclined many Hindus to make contributions 
to their country's strength by investing in industry. 

The growth of industry should not be exaggerated, and its influences were 
considerably less than one might believe at first glance. There was little growth of an 
urban proletariat or of a permanent class of factory workers, although this did exist. 
Increases in output came largely from power production rather than from increases in the 
labor force. This labor force continued to be rural in its psychological and social 
orientation, being generally temporary migrants from the villages, living under urban 
industrial conditions only for a few years, with every intention of returning to the village 
eventually, and generally sending savings back to their families and visiting them for 
weeks or even months each year (generally at the harvest season). This class of industrial 
laborers did not adopt either an urban or a proletarian point of view, were almost wholly 
illiterate, formed labor organizations only reluctantly (because of refusal to pay dues), 
and rarely acquired industrial skills. After 1915 labor unions did appear, but membership 
remained small, and they were organized and controlled by non-laboring persons, 
frequently middle-class intellectuals. Moreover, industry remained a widely scattered 
activity found in a few cities but absent from the rest. Although India had 35 cities of 
over 100,000 population in 19:1, most of these remained commercial and administrative 
centers and not manufacturing centers. That the chief emphasis remained on rural 
activities can be seen from the fact that these 35 centers of population had a total of 8.2 



million inhabitants compared to 310.7 million outside their limits in 1921. In fact, only 
30 million persons lived in the 1,623 centers of over 5,000 persons each, while 289 
million lived in centers smaller than 5,000 persons. 

One of the chief ways in which the impact of Western culture reached India was by 
education. The charge has frequently been made that the British neglected education in 
India or that they made an error in emphasizing education in English for the upper classes 
rather than education in the vernacular languages for the masses of the people. History 
does not sustain the justice of these charges. In England itself the government assumed 
little responsibility for education until 1902, and in general had a more advanced policy 
in this field in India than in England until well into the present century. Until 1835 the 
English did try to encourage native traditions of education, but their vernacular schools 
failed from lack of patronage; the Indians themselves objected to being excluded, as they 
regarded it, from English education. Accordingly, from 1835 the British offered English- 
language education on the higher levels in the hope that Western science, technology, and 
political attitudes could be introduced without disrupting religious or social life and that 
these innovations would "infiltrate" downward into the population. Because of the 
expense, government-sponsored education had to be restricted to the higher levels, 
although encouragement for vernacular schools on the lower levels began (without much 
financial obligation) in 1854. The "infiltration downward" theory was quite mistaken 
because those who acquired knowledge of English used it as a passport to advancement 
in government service or professional life and became renegades from, rather than 
missionaries to, the lower classes of Indian society. In a sense the use of English on the 
university level of education did not lead to its spread in Indian society but removed 
those who acquired it from that society, leaving them in a kind of barren ground which 
was neither Indian nor Western but hovered uncomfortably between the two. The fact 
that knowledge of English and possession of a university degree could free one from the 
physical drudgery of Indian life by opening the door to public service or the professions 
created a veritable passion to obtain these keys (but only in a minority). 

The British had little choice but to use English as the language of government and 
higher education. In India the languages used in these two fields had been foreign ones 
for centuries. The language of government and of the courts was Persian until 1837. 
Advanced and middle-level education had always been foreign, in Sanskrit for the 
Hindus and in Arabic for the Muslims. Sanskrit, a "dead" language, was that of Hindu 
religious literature, while Arabic was the language of the Koran, the only writing the 
ordinary Muslim would wish to read. In fact, the allegiance of the Muslims to the Koran 
and to Arabic was so intense that they refused to participate in the new English-language 
educational system and, in consequence, had been excluded from government, the 
professions, and much of the economic life of the country by 1900. 

No vernacular language could have been used to teach the really valuable 
contributions of the West, such as science, technology, economics, agricultural science, 
or political science, because the necessary vocabulary was lacking in the vernaculars. 
When the university of the native state of Hyderabad tried to translate Western works into 
Urdu for teaching purposes after 1920, it was necessary to create about 40,000 new 



words. Moreover, the large number of vernacular languages would have made the choice 
of any one of them for the purpose of higher education invidious. And, finally, the natives 
themselves had no desire to learn to read their vernacular languages, at least during the 
nineteenth century; they wanted to learn English because it provided access to 
knowledge, to government positions, and to social advancement as no vernacular could. 
But it must be remembered that it was the exceptional Indian, not the average one, who 
wanted to learn to read at all. The average native was content to remain illiterate, at least 
until deep into the twentieth century. Only then did the desire to read spread under the 
stimulus of growing nationalism, political awareness, and growing concern with political 
and religious tensions. These fostered the desire to read, in order to read newspapers, but 
this had adverse effects: each political or religious group had its own press and presented 
its own biased version of world events so that, by 1940, these different groups had 
entirely different ideas of reality. 

Moreover, the new enthusiasm for the vernacular languages, the influence of extreme 
Hindu nationalists like B. G. Tilak (1859-1920) or anti-Westerners like M. K. Gandhi 
(1869-1948), led to a wholesale rejection of all that was best in British or in European 
culture. At the same time, those who sought power, advancement, or knowledge 
continued to learn English as the key to these ambitions. Unfortunately, these semi- 
westernized Indians neglected much of the practical side of the European way of life and 
tended to be intellectualist and doctrinaire and to despise practical learning and physical 
labor. They lived, as we have said, in a middle world which was neither Indian nor 
Western, spoiled for the Indian way of life, but often unable to find a position in Indian 
society which would allow them to live their own version of a Western way of life. At the 
university they studied literature, law, and political science, all subjects which 
emphasized verbal accomplishments. Since India did not provide sufficient jobs for such 
accomplishments, there was a great deal of "academic unemployment," with resulting 
discontent and growing radicalism. The career of Gandhi was a result of the efforts of one 
man to avoid this problem by fusing certain elements of Western teaching with a purified 
Hinduism to create a nationalist Indian way of life on a basically moral foundation. 

It is obvious that one of the chief effects of British educational policy has been to 
increase the social tensions within India and to give them a political orientation. This 
change is usually called the "rise of Indian nationalism," but it is considerably more 
complex than this simple name might imply. It began to rise about 1890, possibly under 
the influence of the misfortunes at the end of the century, grew steadily until it reached 
the crisis stage after 1917, and finally emerged in the long-drawn crisis of 1930-1947. 

India's outlook was fundamentally religious, just as the British outlook was 
fundamentally political. The average Indian derived from his religious outlook a 
profound conviction that the material world and physical comfort were irrelevant and 
unimportant in contrast with such spiritual matters as the proper preparation for the life to 
come after the body's death. From his English education the average Indian student 
derived the conviction that liberty and self-government were the highest goods of life and 
must be sought by such resistance to authority as had been shown in the Magna Carta, the 
opposition to Charles I, the "Glorious Revolution" of 1689, the writings of John Locke 



and of John Stuart Mill, and the general resistance to public authority found in nineteenth 
century liberalism and laissez-faire. These two points of view tended to merge in the 
minds of Indian intellectuals into a point of view in which it seemed that English political 
ideals should be sought by Indian methods of religious fervor, self-sacrifice, and 
contempt for material welfare or physical comforts. As a result, political and social 
tensions were acerbated between British and Indians, between Westernizers and 
Nationalists, between Hindus and Muslims, between Brahmins and lower castes, and 
between caste members and outcastes. 

In the early part of the nineteenth century there had been a revival of interest in Indian 
languages and literatures. This revival soon revealed that many Hindu ideas and practices 
had no real support in the earliest evidence. Since these later innovations included some 
of the most objectionable features of Hindu life, such as suttee, child marriage, female 
inferiority, image worship, and extreme polytheism, a movement began that sought to 
free Hinduism from these extraneous elements and to restore it to its earlier "purity" by 
emphasizing ethics, monotheism, and an abstract idea of deity. This tendency was 
reinforced by the influence of Christianity and of Islam, so that the revived Hinduism w 
as really a synthesis of these three religions. As a consequence of these influences, the 
old, and basic, Hindu idea of Karma was played down. This idea maintained that each 
individual soul reappeared again and again, throughout eternity, in a different physical 
form and in a different social status, each difference being a reward or punishment for the 
soul's conduct at its previous appearance. There was no real hope for escape from this 
cycle, except by a gradual improvement through a long series of successive appearances 
to the ultimate goal of complete obliteration of personality (Nirvana) by ultimate 
mergence in the soul of the universe (Brahma). This release (moksha) from the endless 
cycle of existence could be achieved only by the suppression of all desire, of all 
individuality, and of all will to live. 

The belief in Karma was the key to Hindu ideology and to Hindu society, explaining 
not only the emphasis on fate and resignation to fate, the idea that man was a part of 
nature and brother to the beasts, the submergence of individuality and the lack of 
personal ambition, but also specific social institutions such as caste or even suttee. How 
could castes be ended if these are God-given gradations for the rewards or punishments 
earned in an earlier existence? How could suttee be ended if a wife is a wife through all 
eternity, and must pass from one life to another when her husband does? 

The influence of Christianity and of Islam, of Western ideas and of British education, 
in changing Hindu society was largely a consequence of their ability to reduce the 
average Hindu's faith in Karma. One of the earliest figures in this growing synthesis of 
Hinduism, Christianity, and Islam was Ram Mohan Roy (1772-1833), founder of the 
Brahma Samaj Society in 1828. Another was Keshab Chandra Sen (1841-1884), who 
hoped to unite Asia and Europe into a common culture on the basis of a synthesis of the 
common elements of these three religions. There were many reformers of this type. Their 
most notable feature was that they were universalist rather than nationalist and were 
Westernizers in their basic inclinations. About 1870 a change began to appear, perhaps 
from the influence of Rama Krishna (1834-1886) and his disciple Swami Vivekananda 



(1862-1902), founder of Vedanta. This new tendency emphasized India's spiritual power 
as a higher value than the material power of the West. It advocated simplicity, asceticism, 
self-sacrifice, cooperation, and India's mission to spread these virtues to the world. One 
of the disciples of this movement was Gopal Krishna Gokhale ( 1866-1915), founder of 
the Servants of India Society (1905). This was a small band of devoted persons who took 
vows of poverty and obedience, to regard all Indians as brothers irrespective of caste or 
creed, and to engage in no personal quarrels. The members scattered among the most 
diverse groups of India to teach, to weld India into a single spiritual unit, and to seek 
social reform. 

In time these movements became increasingly nationalistic and anti-Western, tending 
to defend orthodox Hinduism rather than to purify it and to oppose Westerners rather than 
to copy them. This tendency culminated in Bal Gangathar Tilak (1859-1920), a Marathi 
journalist of Poona, who started his career in mathematics and law but slowly developed 
a passionate love for Hinduism, even in its most degrading details, and insisted that it 
must be defended against outsiders, even with violence. He was not opposed to reforms 
which appeared as spontaneous developments of Indian sentiment, but he was violently 
opposed to any attempt to legislate reform from above or to bring in foreign influences 
from European or Christian sources. He first became a political figure in 1891 when he 
vigorously opposed a government bill which would have curtailed child marriage by 
fixing the age of consent for girls at twelve years. By 1897 he was using his paper to 
incite to murder and riots against government officials. 

A British official w ho foresaw this movement toward violent nationalism as early as 
1878 sought to divert it into more legal and more constructive channels by establishing 
the Indian National Congress in 1885. The official in question, Allan Octavian Hume 
(1829-1912), had the secret support of the viceroy, Lord Dufferin. They hoped to 
assemble each year an unofficial congress of Indian leaders to discuss Indian political 
matters in the hope that this experience would provide training in the working of 
representative institutions and parliamentary government. For twenty years the Congress 
agitated for extension of Indian participation in the administration, and for the extension 
of representation and eventually of parliamentary government within the British system. 
It is notable that this movement renounced violent methods, did not seek separation from 
Britain, and aspired to form a government based on the British pattern. 

Support for the movement grew very slowly at first, even among Hindus, and there 
was open opposition, led by Sir Saiyid Ahmad Khan, among the Muslims. As the 
movement gathered momentum, after 1890, many British officials began to oppose it. At 
the same time, under pressure from Tilak, the Congress itself advanced its demands and 
began to use economic pressure to obtain these. As a result, after 1900, fewer Muslims 
joined the Congress: there were 156 Muslims out of 702 delegates in 1890, but only 17 
out of 756 in 1905. All these forces came to a head in 1904-1907 when the Congress, for 
the first time, demanded self-government within the empire for India and approved the 
use of economic pressures (boycott) against Britain. 



The Japanese victory over Russia in 1905, which was regarded as an Asiatic triumph 
over Europe, the Russian revolt of 1905, the growing power of Tilak over Gokhale in the 
Indian National Congress, and public agitation over Lord Curzon's efforts to push 
through an administrative division of the huge-province of Bengal (population 78 
million) brought matters to a head. There was open agitation by Hindu extremists to spill 
English blood to satisfy the goddess of destruction, Kali. In the Indian National Congress 
of 1907, the followers of Tilak stormed the platform and disrupted the meeting. Much 
impressed with the revolutionary violence in Russia against the czar and in Ireland 
against the English, this group advocated the use of terrorism rather than of petitions in 
India. The viceroy, Lord Hardinge, was wounded by a bomb in 1912. For many Nears, 
racial intolerance against Indians by English residents in India had been growing, and 
was increasingly manifested in studied insults and even physical assaults. In 1906 a 
Muslim League was formed in opposition to tile Hindu extremists and in support of the 
British position, but in 1913 it also demanded self-government. Tilak's group boycotted 
the Indian National Congress for nine years (1907-1916), and Tilak himself was in prison 
for sedition for six years (1908-1914). 

The constitutional development of India did not stand still during this tumult. In 1861 
appointive councils with advisory powers had been created, both at the center to assist the 
viceroy and in the provinces. These had nonofficial as well as official members, and the 
provincial ones had certain legislative powers, but all these activities were under strict 
executive control and veto. In 1892 these powers were widened to allow discussion of 
administrative questions, and various non-governmental groups (called "communities") 
were allowed to suggest individuals for the unofficial seats in the councils. 

A third act, of 1909, passed by the Liberal government with John (Lord) Morley as 
secretary of state and Lord Minto as viceroy, enlarged the councils, making a nonofficial 
majority in the provincial councils, allowed the councils to vote on all issues, and gave 
the right to elect the nonofficial members to various communal groups, including Hindus, 
Muslims, and Sikhs, on a fixed ratio. This last provision was a disaster. By establishing 
separate electoral lists for various religious groups, it encouraged religious extremism in 
all groups, made it likely that the more extremist candidates would be successful, and 
made religious differences the basic and irreconcilable fact of political life. By giving 
religious minorities more seats than their actual proportions of the electorate entitled 
them to (a principle known as "weightage"), it made it politically advantageous to he a 
minority. By emphasizing minority rights (in which they did believe) over majority rule 
(in which they did not believe) the British made religion a permanently disruptive force 
in political life, and encouraged the resulting acerbated extremism to work out its 
rivalries outside the constitutional framework and the scope of legal action in riots rather 
than at the polls or in political assemblies. Moreover, as soon as the British had given the 
Muslims this special constitutional position in 1909 they lost the support of the Muslim 
community in 1911-1919. This loss of Muslim support was the result of several factors. 
Curzon's division of Bengal, which the Muslims had supported (since it gave them East 
Bengal as a separate area with a Muslim majority) was countermanded in 1911 without 
any notice to the Muslims. British foreign policy after 1911 was increasingly anti- 
Turkish, and thus opposed to the caliph (the religious leader of the Muslims). As a result 



the Muslim League called for self-government for India for the first time in 1913, and 
four years later formed an alliance with the Indian National Congress which continued 
until 1924. 

In 1909, while Philip Kerr (Lothian), Lionel Curtis, and (Sir) William Marris were in 
Canada laying the foundations for the Round Table organization there, Marris persuaded 
Curtis that "self-government, . . . however far distant was the only intelligible goal of 
British policy in India.. .the existence of political unrest in India, so far from being a 
reason for pessimism, was the surest sign that the British, with all their manifest failings, 
had not shirked their primary duty of extending western education to India and so 
preparing Indians to govern themselves." Four years later the Round Table group in 
London decided to investigate how this could be done. It formed a study group of eight 
members, under Curtis, adding to the group three officials from the India Office. This 
group decided, in 1915, to issue a public declaration favoring "the progressive realization 
of responsible government in India." A declaration to this effect was drawn up by Lord 
Milner and was issued on August 20, 1917, by Secretary of State for India Edwin S. 
Montagu. It said that "the policy of His Majesty's Government, with which the 
Government of India are in complete accord, is that of the increasing association of 
Indians in every branch of the administration and the gradual development of self- 
governing institutions with a view to the progressive realization of responsible 
government in India as an integral part of the British Empire." 

This declaration was revolutionary because, for the first time, it specifically 
enunciated British hopes for India's future and because it used, for the first time, the 
words "responsible government." The British had spoken vaguely for over a century 
about "self-government" for India; they had spoken increasingly about "representative 
government"; but they had consistently avoided the expression "responsible government." 
This latter term meant parliamentary government, which most English conservatives 
regarded as quite unsuited for Indian conditions, since it required, they believed, an 
educated electorate and a homogeneous social system, both of which were lacking in 
India. The conservatives had talked for years about ultimate self-government for India on 
some indigenous Indian model, but had done nothing to find such a model. Then, without 
any clear conception of where they were going, they had introduced "representative 
government," in which the executive consulted with public opinion through 
representatives of the people (either appointed, as in 1871, or elected, as in 1909), but 
with the executive still autocratic and in no way responsible to these representatives. The 
use of the expression "responsible government" in the declaration of 1917 went back to 
the Round Table group and ultimately to the Marris-Curtis conversation in the Canadian 
Rockies in 1909. 

In the meantime, the Round Table study-group had worked for three years (1913- 
1916) on methods for carrying out this promise. Through the influence of Curtis and F. S. 
Oliver the federal constitution of the United States contributed a good deal to the drafts 
which were made, especially to provisions for dividing governmental activities into 
central and provincial portions, with gradual Indianization of the latter and 166 ultimately 
of the former. This approach to the problem was named "dyarchy" by Curtis. The Round 



Table draft was sent to the Governor of New South Wales, Lord Chelmsford, a Fellow of 
All Souls College, who believed that it came from an official committee of the India 
Office. After he accepted it in principle he was made Viceroy of India in 1916. Curtis 
went to India immediately to consult with local authorities there (including Meston, 
Marris, Hailey, and the retired Times Foreign Editor, Sir Valentine Chirol) as well as 
with Indians. From these conferences emerged a report, written by Marris, which was 
issued as the Montagu-Chelmsford Report in 1917. The provisions of this report were 
drawn up as a bill, passed by Parliament (after substantial revision by a Joint Committee 
under Lord Selborne) and became the Government of India Act of 1919. 

The Act of 1919 was the most important law in Indian constitutional history before 
1935. It divided governmental activities into "central" and "provincial." The former 
included defense, foreign affairs, railways and communications, commerce, civil and 
criminal law and procedures and others; the latter included public order and police, 
irrigation, forests, education, public health, public works, and other activities. 
Furthermore, the provincial activities were divided into "transferred" departments and 
"reserved" departments, the former being entrusted to native ministers who were 
responsible to provincial assemblies. The central government remained in the hands of 
the governor-general and viceroy, who was responsible to Britain and not to the Indian 
Legislature. His Cabinet (Executive Council) usually had three Indian members after 
1921. The legislature was bicameral, consisting of a Council of State and a Legislative 
Assembly. In both, some members were appointed officials, but the majority were elected 
on a very restricted suffrage. There were, on the electoral lists, no more than 900,000 
voters for the lower chamber and only 16,000 for the upper chamber. The provincial 
unicameral legislatures had a wider, but still limited, franchise, with about a million on 
the list of voters in Bengal, half as many in Bombay. Moreover, certain seats, on the 
principle of "weightage," were reserved to Muslims elected by a separate Muslim 
electoral list. Both legislatures had the power to enact laws, subject to rather extensive 
powers of veto and of decree in the hands of the governor-general and the appointed 
provincial governors. Only the "transferred" departments of the provincial governments 
were responsible to elective assemblies, the "reserved" activities on the provincial level 
and all activities in the central administration being responsible to the appointed 
governors and governor-general and ultimately to Britain. 

It was hoped that the Act of 1919 would provide opportunities in parliamentary 
procedures, responsible government, and administration to Indians so that self- 
government could be extended by successive steps later, but these hopes were destroyed 
in the disasters of 1919-1922. The violence of British reactionaries collided with the 
nonviolent refusal to cooperate of Mahatma Gandhi, crushing out the hopes of the Round 
Table reformers between them. 

Mohandas Karamchand Gandhi (1869-1948), known as "Mahatma," or "Great Soul," 
was the son and grandson of prime ministers of a minute princely state in western India. 
Of the Vaisya caste (third of the four), he grew up in a very religious and ascetic 
atmosphere of Hinduism. Married at thirteen and a father at fifteen, Gandhi was sent to 
England to study law by his older brother when he was seventeen. Such a voyage was 



forbidden by the rules of his caste, and he was expelled from it for going. Before he left 
he gave a vow to his family not to touch wine, women, or meat. After three years in 
England he passed the bar at Inner Temple. Most of his time in Europe was passed in 
dilettante fads, experimenting with vegetarian diets and self- administered medicines or in 
religious or ethical discussions with English faddists and Indiophiles. He was much 
troubled by religious scruples and feelings of guilt. Back in India in 1891, he was a 
failure as a lawyer because of his inarticulate lack of assurance and his real lack of 
interest in the law. In 1893 a Muslim firm sent him to Natal, South Africa, on a case. 
There Gandhi found his vocation. 

The population of Natal in 1896 consisted of 50,000 Europeans, mostly English, 
400,000 African natives, and 51,000 Indians, chiefly outcastes. The last group had been 
imported from India, chiefly as indentured workers on three or five-year contracts, to 
work the humid low land plantations where the Negroes refused to work. Most of the 
Indians stayed, after their contracts were fulfilled, and were so industrious and intelligent 
that they began to rise very rapidly in an economic sense, especially in the retail trades. 
The whites, who were often indolent, resented such competition from dark-skinned 
persons and were generally indignant at Indian economic success. As Lionel Curtis told 
Gandhi in the Transvaal in 1903, "It is not the vices of Indians that Europeans in this 
country fear but their virtues." 

When Gandhi first arrived in Natal in 1893, he found that that country, like most of 
South Africa, was rent with color hatred and group animosities. All political rights were 
in the hands of whites, while the nonwhites were subjected to various kinds of social and 
economic discriminations and segregations. When Gandhi first appeared in court, the 
judge ordered him to remove his turban (worn with European clothes); Gandhi refused, 
and left. Later, traveling on business in a first-class railway carriage to the Transvaal, he 
was ejected from the train at the insistence of a white passenger. He spent a bitterly cold 
night on the railway platform rather than move to a second- or third-class compartment 
when he had been sold a first-class ticket. For the rest of his life he traveled only third 
class. In the Transvaal he was unable to get a room in a hotel because of his color. These 
episodes gave him his new vocation: to establish that Indians were citizens of the British 
Empire and therefore entitled to equality under its laws. He was determined to use only 
peaceful methods of passive mass non-cooperation to achieve his goal. His chief weapon 
would be love and submissiveness, even to those who treated him most brutally. His 
refusal to fear death or to avoid pain and his efforts to return love to those who tried to 
inflict injuries upon him made a powerful weapon, especially if it were practiced on a 
mass basis. 

Gandhi's methods were really derived from his own Hindu tradition, but certain 
elements in this tradition had been reinforced by reading Ruskin, Thoreau, Tolstoi, and 
the Sermon on the Mount. When he was brutally beaten by whites in Natal in 1897, he 
refused to prosecute, saying that it was not their fault that they had been taught evil ideas. 

These methods gave the Indians of South Africa a temporary respite from the burden 
of intolerance under Gandhi's leadership in the period 1893-1914. When the Transvaal 



proposed an ordinance compelling all Indians to register, be fingerprinted, and carry 
identity cards at all times, Gandhi organized a mass, peaceful refusal to register. 
Hundreds went to jail. Smuts worked out a compromise with Gandhi: if the Indians 
would register "voluntarily" the Transvaal would repeal the ordinance. After Gandhi had 
persuaded his compatriots to register, Smuts failed to carry out his part of the agreement, 
and the Indians solemnly burned their registration cards at a mass meeting. Then, to test 
the Transvaal ban on Indian immigration, Gandhi organized mass marches of Indians into 
the Transvaal from Natal. Others went from the Transvaal to Natal and returned, being 
arrested for crossing the frontier. At one time 2,500 of the 13,000 Indians in the 
Transvaal were in jail and 6,000 were in exile. 

The struggle was intensified after the creation of the Union of South Africa in 1910 
because the Transvaal restrictions on Indians, which forbade them to own land, to live 
outside segregated districts, or to vote, were not repealed, and a Supreme Court decision 
of 1913 declared all non-Christian marriages to be legally invalid. This last decision 
deprived most nonwhite wives and children of all legal protection of their family rights. 
Mass civil disobedience by Indians increased, including a march by 6,000 from Natal to 
the Transvaal. Finally, after much controversy, Gandhi and Smuts worked out an 
elaborate compromise agreement in 1914. This revoked some of the discriminations 
against Indians in South Africa, recognized Indian marriages, annulled a discriminatory 
£3 annual tax on Indians, and stopped all importation of indentured labor from India in 
1920. Peace was restored in this civil controversy just in time to permit a united front in 
the external war with Germany. But in South Africa by 1914 Gandhi had worked out the 
techniques he would use against the British in India after 1919. 

Until 1919 Gandhi Noms very loyal to the British connection. Both in South Africa 
and in India he had found that the English from England were much more tolerant and 
understanding than most of the English-speaking whites of middle-class origin in the 
overseas areas. In the Boer War he was the active leader of an 1,100-man Indian 
ambulance corps which worked with inspiring courage even under fire on the field of 
battle. During World War I, he worked constantly on recruiting campaigns for the British 
forces. On one of these in 1915 he said, "I discovered that the British Empire had certain 
ideals with which I have fallen in love, and one of these ideals is that every subject of the 
British Empire has the freest scope possible for his energy and honor and whatever he 
thinks is due to his conscience." By 1918 this apostle of nonviolence was saying: "We are 
regarded as a cowardly people. If we want to become free from that reproach, we should 
learn to use arms.... Partnership in the Empire is our definite goal. We should suffer to the 
utmost of our ability and even lay down our lives to defend the Empire. If the Empire 
perishes, with it perishes our cherished aspiration." 

During this period Gandhi's asceticism and his opposition to all kinds of 
discrimination were winning him an outstanding moral position among the Indian people. 
He was opposed to all violence and bloodshed, to alcohol, meat, and tobacco, even to the 
eating of milk and eggs, and to sex (even in marriage). More than this, he was opposed to 
Western industrialism, to Western science and medicine, and to the use of Western rather 
than Indian languages. He demanded that his followers make fixed quotas of homespun 



cotton each day, wore a minimum of homespun clothing himself, spun on a small wheel 
throughout all his daily activities, and took the small hand spinning wheel as the symbol 
of his movement — all this in order to signify the honorable nature of handwork, the need 
for Indian economic self-sufficiency, and his opposition to Western industrialism. He 
worked for equality for the untouchables, calling them "God's children" (Harijans), 
associating with them whenever he could, taking them into his own home, even adopting 
one as his own daughter. He worked to relieve economic oppression, organizing strikes 
against low wages or miserable working conditions, supporting the strikers with money 
he had gathered from India's richest Hindu industrialists. He attacked Western medicine 
and sanitation, supported all kinds of native medical nostrums and even quackery, yet 
went to a Western-trained surgeon for an operation when he had appendicitis himself. 
Similarly he preached against the use of milk, but drank goat's milk for his health much 
of his life. These inconsistencies he attributed to his own weak sinfulness. Similarly, he 
permitted hand-spun cotton to be sewn on Singer sewing machines, and conceded that 
Western-type factories were necessary to provide such machines. 

During this period he discovered that his personal fasts from food, which he had long 
practiced, could be used as moral weapons against those who opposed him while they 
strengthened his moral hold over those who supported him. "I fasted," he said, "to reform 
those who loved me. You cannot fast against a tyrant." Gandhi never seemed to recognize 
that his fasting and nonviolent civil disobedience were effective against the British in 
India and in South Africa only to the degree that the British had the qualities of humanity, 
decency, generosity, and fair play which he most admired, but that by attacking the 
British through these virtues he was weakening Britain and the class which possessed 
these virtues and making it more likely that they would be replaced by nations and by 
leaders who did not have these virtues. Certainly Hitler and the Germans who 
exterminated six million Jews in cold blood during World War U would not have shared 
the reluctance of Smuts to imprison a few thousand Indians or Lord Halifax's reluctance 
to see Gandhi starve himself to death. This was the fatal weakness of Gandhi's aims and 
his methods, but these aims and methods were so dear to Indian hearts and so selflessly 
pursued by Gandhi that he rapidly became the spiritual leader of the Indian National 
Congress after Gokhale's death in 1915. In this position Gandhi by his spiritual power 
succeeded in something which no earlier Indian leader had achieved and few had hoped 
for: he spread political awareness and nationalist feeling from the educated class down 
into the great uneducated mass of the Indian people. 

This mass and Gandhi expected and demanded a greater degree of self-government 
after the end of World War I. The Act of 1919 provided that, and probably provided as 
much of it as the political experience of Indians entitled them to. Moreover, the Act 
anticipated expansion of the areas of self-government as Indian political experience 
increased. But the Act was largely a failure, because Gandhi had aroused political 
ambitions in great masses of Indians who lacked experience in political activities, and 
these demands gave rise to intense opposition to Indian self-government in British circles 
which did not share the ideals of the Round Table group. Finally, the actions of this 
British opposition drove Gandhi from "nonresistance" through complete "non- 



cooperation," to "civil disobedience," thus destroying the whole purpose of the Act of 
1919. 

Many British conservatives both at home and in India opposed the Act of 1919. Lord 
Ampthill, who had long experience in India and had valiantly supported Gandhi in South 
Africa, attacked the Act and Lionel Curtis for making it. In the House of Lords he said: 
"The incredible fact is that, but for the chance visit to India of a globe-trotting doctrinaire 
with a positive mania for constitution-mongering [Curtis], nobody in the world would 
ever have thought of so peculiar a notion as Dyarchy. And yet the Joint [Selborne] 
Committee tells us in an airy manner that no better plan can be conceived." In India men 
like the governor of the Punjab, Sir Michael O'Dwyer, were even more emphatically 
opposed to Indian self-government or Indian nationalist agitation. Many Conservatives 
who were determined to maintain the empire intact could not see how this could be done 
without India as the major jewel in it, as in the nineteenth century. India not only 
provided a large share of the manpower in the peacetime imperial army, hut this army 
was largely stationed in India and paid for out of the revenues of the Government of 
India. Moreover, this self-paying manpower pool was beyond the scrutiny of the British 
reformer as well as the British taxpayers. The older Tories, with their strong army 
connections, and others, like Winston Churchill, with an appreciation of military matters, 
did not see how England could face the military demands of the twentieth century 
without Indian military manpower, at least in colonial areas. 

Instead of getting more freedom at the end of the war in 1918, the Indians got less. 
The conservative group pushed through the Rowlatt Act in March 1919. This continued 
most of the wartime restrictions on civil liberties in India, to be used to control nationalist 
agitations. Gandhi called for civil disobedience and a series of scattered local general 
strikes (hartels) in protest. These actions led to violence, especially to Indian attacks on 
the British. Gandhi bewailed this violence, and inflicted a seventy-two-hour fast on 
himself as penance. 

In Amritsar an Englishwoman was attacked in the street (April 10, 1919). The 
Congress Party leaders in the city were deported, and Brigadier R. E. H. Dyer was sent to 
restore order. On arrival he prohibited all processions and meetings; then, without waiting 
for the order to be publicized, went with fifty men to disperse with gunfire a meeting 
already in progress (April 13, 1919). He fired 1,650 bullets into a dense crowd packed in 
a square with inadequate exits, inflicting 1,516 casualties, of which 379 met death. 
Leaving the wounded untended on the ground, General Dyer returned to his office and 
issued an order that all Indians passing through the street where the Englishwoman had 
been assaulted a week before must do so by crawling on hands and knees. There is no 
doubt that General Dyer was looking for trouble. In his own words: "I had made up my 
mind I would do all men to death.... It was no longer a question of merely dispersing the 
crowd, but one of producing a sufficient moral effect from a military point of view not 
only on those who were present, but more especially throughout the Punjab." 

The situation might still have been saved from Dyer's barbarity but the Hunter 
Committee, which investigated the atrocity, refused to condemn Dyer except for "a grave 



error of judgment" and "an honest but mistaken conception of duty." A majority of the 
House of Lords approved his action by refusing to censure him, and, when the 
government forced him to resign from the army, his admirers in England presented him 
with a sword and a purse of 120,000. 

At this point Gandhi committed a grave error of judgment. In order to solidify the 
alliance of Hindu and Muslim which had been in existence since 1917, he supported the 
Khilafat movement of Indian Muslims to obtain a lenient peace treaty for the Turkish 
sultan (and caliph) following World War I. Gandhi suggested that the Khilafat adopt 
"non-cooperation" against Britain to enforce its demands. This would have involved a 
boycott of British goods, schools, law courts, offices, honors, and of all goods subject to 
British taxes (such as alcohol). This was an error of judgment because the sultan was 
soon overthrown by his own people organized in a Turkish Nationalist movement and 
seeking a secularized Turkish state, in spite of all Britain was already doing (both in 
public and in private) to support him. Thus, the Khilafat movement was seeking to force 
Britain to do something it already wanted to do and was not able to do. Moreover, by 
bringing up "non-cooperation" as a weapon against the British, Gandhi had opened a 
number of doors he had no desire to open, with very bad consequences for India. 

At the Indian National Congress of December, 1919, Tilak and Gandhi were the 
leading figures. Both were willing to accept the Montagu-Chelmsford Reforms, Tilak 
because he believed this would be the best way to prove that they were not adequate. But 
on August I, 1920, Gandhi proclaimed "non-cooperation" in behalf of the Khilafat 
movement. On the same day Tilak died, leaving Gandhi as undisputed leader of the 
Congress. At the 1920 meeting he won unanimous approval for "non-cooperation," and 
then moved a resolution for swaraj (self-rule) either within or outside the British Empire. 
The Muslims in Congress, led by Muhammad Ali Jinnah, refused to accept an 
independent India outside the British Empire because this would subject the Muslims to a 
Hindu majority without Britain's protecting restraint. As a result, from that point, many 
Muslims left the Congress. 

Non-cooperation was a great public success. But it did not get self-rule for India, and 
made the country less fitted for self-rule by making it impossible for Indians to get 
experience in government under the Act of 1919. Thousands of Indians gave up medals 
and honors, gave up the practice of law in British courts, left the British schools, and 
burned British goods. Gandhi held great mass meetings at which thousands of persons 
stripped themselves of their foreign clothing to throw it on raging bonfires. This did not, 
however, give them training in government. It merely roused nationalist violence. On 
February 1, 1922, Gandhi informed the viceroy that he was about to begin mass civil 
disobedience, in one district at a time, beginning in Bardoli near Bombay. Civil 
disobedience, including refusal to pay taxes or obey the laws, was a step beyond non- 
cooperation, since it involved illegal acts rather than legal ones. On February 5, 1922, a 
Hindu mob attacked twenty-two police constables and killed them by burning the police 
station down over their heads. In horror Gandhi canceled the campaign against Britain. 
He was at once arrested and condemned to six years in prison for sedition. 



Very great damage had been done by the events of 1919-1922. Britain and India were 
alienated to the point where they no longer trusted one another. The Congress Party itself 
had been split, the moderates forming a new group called the Indian Liberal Federation. 
The Muslims had also left the Congress Party to a large extent and gone to strengthen the 
Muslim League. From this point onward, Muslim-Hindu riots were annual occurrences in 
India. And finally the boycott had crippled the Montagu-Chelmsford Reforms, almost 
two-thirds of the eligible voters refusing to vote in the Councils elections of November, 
1920. 

Ireland to 1939 

While the Indian crisis was at its height in 1919-1922, an even more violent crisis was 
raging in Ireland. Throughout the nineteenth century Ireland had been agitated by 
grievances of long standing. The three major problems were agrarian, religious, and 
political. The Cromwellian conquest of Ireland in the seventeenth century had transferred 
much Irish land, as plunder of war, to absentee English landlords. In consequence high 
rents, insecure tenure, lack of improvements, and legalized economic exploitation, 
supported by English judges and English soldiers, gave rise to violent agrarian unrest and 
rural atrocities against English lives and properties. 

Beginning with Gladstone's Land Act of 1870, the agrarian problems were slowly 
alleviated and, by 1914, were well in hand. The religious problem arose from the fact that 
Ireland was overwhelmingly Roman Catholic, and resented being ruled by persons of a 
different religion. Moreover, until the Irish (Episcopal) Church was dis-established in 
1869, Irish Catholics had to support a structure of Anglican clergy and bishops, most of 
whom had few or no parishioners in Ireland and resided in England, supported by 
incomes from Ireland. Finally, the Act of Union of 1801 had made Ireland a part of the 
United Kingdom, with representatives in the Parliament at Westminster. 

By 1871 those representatives who were opposed to union with England formed the 
Irish Home Rule Party. It sought to obtain separation by obstructing the functions of 
Parliament and disrupting its proceedings. At times this group exercised considerable 
influence in Parliament by holding a balance of power between Liberals and 
Conservatives. The Gladstone Liberals were willing to give Ireland Home Rule, with no 
representatives at Westminster; the Conservatives (with the support of a majority of 
Englishmen) were opposed to Home Rule; the Rhodes-Milner group wanted self- 
government for the Irish in their home affairs with Irish representatives retained at 
Westminster for foreign and imperial matters. The Liberal government of 1906- 1916 
tried to enact a Home Rule bill with continued Irish representation in the House of 
Commons, but was repeatedly blocked by the opposition of the House of Lords; the bill 
did not become law until September, 1914. 

The chief opposition arose from the fact that Protestant Ulster (Northern Ireland) 
would be submerged in an overwhelmingly Catholic Ireland. The Ulster opposition, led 
by Sir Edward (later Lord) Carson, organized a private army, armed it with guns 
smuggled from Germany, and prepared to seize control of Belfast at a signal from 



London. Carson was on his way to the telegraph station to send this signal in 1914 when 
he received a message from the prime minister that war was about to break out with 
Germany. Accordingly, the Ulster revolt was canceled and the Home Rule Act was 
suspended until six months after the peace with Germany. As a consequence the revolt 
with German arms in Ireland was made by the Irish Nationalists in 1916, instead of by 
their Ulster opponents in 1914. This so-called Easter Revolt of 1916 was crushed and its 
leaders executed, but discontent continued to simmer in Ireland, with violence only 
slightly below the surface. 

In the parliamentary election of 1918, Ireland elected 6 Nationalists (who wanted 
Home Rule for all Ireland), 73 Sinn Fein (who wanted an Irish Republic free from 
England), and 23 Unionists (who wanted to remain part of Britain). Instead of going to 
Westminster, the Sinn Fein organized their own Parliament in Dublin. Efforts to arrest its 
members led to open civil war. This was a struggle of assassination, treachery, and 
reprisal, fought out in back alleys and on moonlit fields. Sixty thousand British troops 
could not maintain order. Thousands of lives were lost, with brutal inhumanity on both 
sides, and property damage rose to £50 million in value. 

Lionel Curtis, who helped edit The Round Table in 1919-1921, advocated in the 
March 1920 issue that Northern Ireland and Southern Ireland be separated and each given 
Home Rule as autonomous parts of Great Britain. This was enacted into law eight months 
later as the Government of Ireland Act of 1920, but was rejected by the Irish Republicans 
led by Eamon de Valera. The civil war continued. The Round Table group worked 
valiantly to stop the extremists on both sides, but with only moderate success. Amery's 
brother-in-law, Hamar (Lord) Greenwood, was appointed chief secretary for Ireland, the 
last incumbent of that post, while Curtis was appointed adviser on Irish affairs to the 
Colonial Office (which was headed by Milner and Amery). The Times and The Round 
Table condemned British repression in Ireland, the latter saying, "If the British 
Commonwealth can only be preserved by such means, it would become a negation of the 
principle for which it has stood." But British violence could not be curtailed until Irish 
violence could be curtailed. One of the chief leaders of the Irish Republicans was Erskine 
Childers, an old schoolboy friend of Curtis who had been with him in South Africa, but 
nothing could be done through him, since he had become fanatically anti-British. 
Accordingly, Smuts was called in. He wrote a conciliatory speech for King George to 
deliver at the opening of the Ulster Parliament, and made a secret visit to the rebel hiding 
place in Ireland to try to persuade the Irish Republican leaders to be reasonable. He 
contrasted the insecurity of the Transvaal Republic before 1 895 with its happy condition 
under dominion status since 1910, saying: "Make no mistake about it, you have more 
privilege, more power, more peace, more security in such a sisterhood of equal nations 
than in a small, nervous republic having all the time to rely on the good will and perhaps 
the assistance of foreigners. What sort of independence do you call that?" 

Smuts arranged an armistice and a conference to negotiate a settlement. From this 
conference, at which Curtis was secretary, came the Articles of Agreement of December, 
1921, which gave Southern Ireland dominion status as the Irish Free State, Northern 
Ireland continuing under the Act of 1920. The boundary line between the two countries 



was drawn by a committee of three of which the British member (and chairman) was 
Richard Feetham of Milner's Kindergarten and the Round Table group, later Supreme 
Court judge in South Africa. 

De Valera's Irish Republicans refused to accept the settlement, and went into 
insurrection, this time against the moderate Irish leaders, Arthur Griffith and Michael 
Collins. Collins was assassinated, and Griffith died, exhausted by the strain, but the Irish 
people themselves were now tired of turmoil. De Valera's forces were driven 
underground and were defeated in the election of 1922. When De Valera's party' the 
Fianna Fail, did win an election in 1932 and he became President of Ireland, he abolished 
the oath of loyalty to the king and the office of governor-general, ended annual payments 
on seized English lands and appeals to the Privy Council, engaged in a bitter tariff war 
with Britain, and continued to demand the annexation of Ulster. One of the last links with 
Britain was ended in 1938, when the British naval bases in Eire were turned over to the 
Irish, to the great benefit of German submarines in 1939-1945 

Chapter 10 — The Far East to World War I 

The Collapse of China to 1920 

The destruction of traditional Chinese culture under the impact of Western 
Civilization was considerably later than the similar destruction of Indian culture by 
Europeans. This delay arose from the fact that European pressure on India was applied 
fairly steadily from the early sixteenth century, while in the Far East, in Japan even more 
completely than in China, this pressure was relaxed from the early seventeenth century 
for almost two hundred years, to 1794 in the case of China and to 1854 in the case of 
Japan. As a result, we can see the process by which European culture was able to destroy 
the traditional native cultures of Asia more clearly in China than almost anywhere else. 

The traditional culture of China, as elsewhere in Asia, consisted of a military and 
bureaucratic hierarchy superimposed on a great mass of hardworking peasantry. It is 
customary, in studying this subject, to divide this hierarchy into three levels. Politically, 
these three levels consisted of the imperial authority at the top, an enormous hierarchy of 
imperial and provincial officials in the middle, and the myriad of semi-patriarchal, semi- 
democratic local villages at the bottom. Socially, this hierarchy was similarly divided into 
the ruling class, the gentry, and the peasants. And, economically, there was a parallel 
division, the uppermost group deriving its incomes as tribute and taxes from its 
possession of military and political power, while the middle group derived its incomes 
from economic sources, as interest on loans, rents from lands, and the profits of 
commercial enterprise, as well as from the salaries, graft, and other emoluments arising 
from his middle group's control of the bureaucracy. At the bottom the peasantry, which 
was the only really productive group in the society, derived its incomes from the sweat of 
its collective brows, and had to survive on what was left to it after a substantial fraction 
of its product had gone to the two higher groups in the form of rents, taxes, interest, 
customary bribes (called "squeeze"), and excessive profits on such purchased 
"necessities" of life as salt, iron, or opium. 



Although the peasants were clearly an exploited group in the traditional society of 
China, this exploitation was impersonal and traditional and this more easily borne shall if 
it had been personal or arbitrary. In the course of time, a workable system of customary 
relationships had come into existence among the three levels of society. Each group knew 
its established relationships with the others, and used those relationships to avoid any 
sudden or excessive pressures which might disrupt the established patterns of the society. 
The political and military force of the imperial regime rarely impinged directly on the 
peasantry, since the bureaucracy intervened between them as a protecting buffer. This 
buffer followed a pattern of deliberate amorphous inefficiency so that the military and 
political force from above had been diffused, dispersed, and blunted by the time it 
reached down to the peasant villages. The bureaucracy followed this pattern because it 
recognized that the peasantry was the source of its incomes, and it had no desire to create 
such discontent as would jeopardize the productive process or the payments of rents, 
taxes, and interest on which it lived. Furthermore, the inefficiency of the system was both 
customary and deliberate, since it allowed a large portion of the wealth which was being 
drained from the peasantry to be diverted and diffused among the middle class of gentry 
before the remnants of it reached the imperial group at the top. 

This imperial group, in its turn, had to accept this system of inefficiency and diversion 
of incomes and its own basic remoteness from the peasantry because of the great size of 
China, the ineffectiveness of its systems of transportation and communications, and the 
impossibility of keeping records of population, or of incomes and taxes except through 
the indirect mediation of the bureaucracy. The semi-autonomous position of the 
bureaucracy depended, to a considerable extent, on the fact that the Chinese system of 
writing was so cumbersome, so inefficient, and so difficult to learn that the central 
government could not possibly have kept any records or have administered tax collection, 
public order, or justice except through a bureaucracy of trained experts. This bureaucracy 
was recruited from the gentry because the complex systems of writing, of law, and of 
administrative traditions could be mastered only by a group possessing leisure based on 
unearned incomes. To be sure, in time, the training for this bureaucracy and for the 
examinations admitting to it became quite unrealistic, consisting largely of memorizing 
of ancient literary texts for examination purposes rather than for any cultural or 
administrative ends. This was not so bad as it sounds, for many of the memorized texts 
contained a good deal of ancient wisdom with an ethical or practical slant, and the 
possession of this store of knowledge engendered in its possessors a respect for 
moderation and for tradition which was just what the system required. No one regretted 
that the system of education and of examinations leading to the bureaucracy did not 
engender a thirst for efficiency, because efficiency was not a quality which anyone 
desired. The bureaucracy itself did not desire efficiency because this would have reduced 
its ability to divert the funds flowing upward from the peasantry. 

The peasantry surely did not want any increase in efficiency, which would have led to 
an increase in pressure on it and would have made it less easy to blunt or to avoid the 
impact of imperial power. The imperial power itself had little desire for any increased 
efficiency in its bureaucracy, since this might have led to increased independence on the 



part of the bureaucracy. So long as the imperial superstructure of Chinese society 
obtained its share of the wealth flowing upward from the peasantry, it was satisfied. The 
share of this wealth which the imperial group obtained was very large, in absolute 
figures, although proportionately it was only a small part of the total amount which left 
the peasant class, the larger part being diverted by the gentry and bureaucracy on its 
upward flow. 

The exploitative nature of this three-class social system was alleviated, as we have 
seen, by inefficiency, by traditional moderation and accepted ethical ideas, by a sense of 
social interdependence, and by the power of traditional law and custom which protected 
the ordinary peasant from arbitrary treatment or the direct impact of force. Most 
important of all, perhaps, the system was alleviated by the existence of careers open to 
talent. China never became organized into hereditary groups or castes, being in this 
respect like England and quite unlike India. The way was open to the top in Chinese 
society, not for any individual peasant in his own lifetime, but to any individual peasant 
family over a period of several generations. Thus an individual's position in society 
depended, not on the efforts of his own youth, but on the efforts of his father and 
grandfather. 

If a Chinese peasant was diligent, shrewd, and lucky, he could expect to accumulate 
some small surplus beyond the subsistence of his own family and the drain to the upper 
classes. This surplus could be invested in activities such as iron-making, opium selling, 
lumber or fuel selling, pig-trading and such. The profits from these activities could then 
be invested in small bits of land to be rented out to less fortunate peasants or in loans to 
other peasants. If times remained good, the owner of the surpluses began to receive rents 
and interest from his neighbors; if times became bad he still had his land or could take 
over his debtor's land as forfeited collateral on his loan. In good times or bad, the growth 
of population in China kept the demand for land high, and peasants were able to rise in 
the social scale from peasantry to gentry by slowly expanding their legal claims over 
land. Once in the gentry, one's children or grandchildren could be educated to pass the 
bureaucratic examinations and be admitted to the group of mandarins. A family which 
had a member or two in this group gained access to the whole system of "squeeze" and of 
bureaucratic diversion of income flows, so that the family as a whole could continue to 
rise in the social and economic structure. Eventually some member of the family might 
move into the imperial center from the provincial level on which this rise began, and 
might even gain access to the imperial ruling group itself. 

In these higher levels of the social structure many families were able to maintain a 
position for generations, but in general there was a steady, if slow, "circulation of the 
elite," most families remaining in a high social position for only a couple of generations, 
after about three generations of climb, to be followed by a couple of generations of 
decline. Thus, the old American saying that it took only three generations "from shirt- 
sleeves to shirt-sleeves" would, in the old China, have to be extended to allow about six 
or seven generations from the rice paddy's drudgery back to the rice paddy again. But the 
hope of such a rise contributed much to increase individual diligence and family 
solidarity and to reduce peasant discontent. Only in the late nineteenth and early 



twentieth century did peasants in China come to regard their positions as so hopeless that 
violence became preferable to diligence or conformity. This change arose from the fact, 
as we shall see, that the impact of Western culture on China did, in fact, make the 
peasant's position economically hopeless. 

In traditional Chinese society the bureaucrats recruited through examinations from the 
gentry class were called mandarins. They became, for all practical purposes, the 
dominant element in Chinese society. Since their social and economic position did not 
rest on political or military power but on traditions, the legal structure, social stability, 
accepted ethical teachings, and the rights of property, this middle-level group gave 
Chinese society a powerful traditionalist orientation. Respect for old traditions, for the 
accepted modes of thought and action, for the ancestors in society and religion, and for 
the father in the family became the salient characteristics of Chinese society. That this 
society was a complex network of vested interests, was unprogressive, and was shot 
through with corruption was no more objectionable to the average Chinese, on any level, 
than the fact that it was also shot through with inefficiency. 

These things became objectionable only when Chinese society came directly in 
contact with European culture during the nineteenth century. As these two societies 
collided, inefficiency, unprogressiveness, corruption, and the whole nexus of vested 
interests and traditions which constituted Chinese society was unable to survive in 
contact with the efficiency, the progressiveness, and the instruments of penetration and 
domination of Europeans. A system could not hope to survive which could not provide 
itself with firearms in large quantities or with mass armies of loyal soldiers to use such 
weapons, a system which could not increase its taxes or its output of wealth or which 
could not keep track of its own population or its own incomes by effective records or 
which had no effective methods of communication and transportation over an area of 3.5 
million square miles. 

The society of the West which began to impinge on China about 1 800 was powerful, 
efficient, and progressive. It had no respect for the corruption, the traditions, the property 
rights, the family solidarity, or the ethical moderation of traditional Chinese society. As 
the weapons of the West, along with its efficient methods of sanitation, of writing, of 
transportation and communications, of individual self-interest, and of corrosive 
intellectual rationalism came into contact with Chinese society, they began to dissolve it. 
On the one hand, Chinese society w as too weak to defend itself against the West. When 
it tried to do so, as in the Opium Wars and other struggles of 1841-1861, or in the Boxer 
uprising of 1900, such Chinese resistance to European penetration was crushed by the 
armaments of the Western Powers, and all kinds of concessions to these Powers were 
imposed on China. 

Until 1841 Canton was the only port allowed for foreign imports, and opium was 
illegal. As a consequence of Chinese destruction of illegal Indian opium and the 
commercial exactions of Cantonese authorities, Britain imposed on China the treaties of 
Nanking (1842) and of Tientsin (1858). These forced China to cede Hong Kong to 
Britain and to open sixteen ports to foreign trade, to impose a uniform import tariff of no 



more than 5 percent, to pay an indemnity of about $100 million, to permit foreign 
legations in Peking, to allow a British official to act as head of the Chinese customs 
service, and to legalize the import of opium. Other agreements were imposed by which 
China lost various fringe areas such as Burma (to Britain), Indochina (to France), 
Formosa and the Pescadores (to Japan), and Macao (to Portugal), while other areas were 
taken on leases of various durations, from twenty-five to ninety-nine years. In this way 
Germany took Kiaochow, Russia took southern Liaotung (including Port Arthur), France 
took Kwangcho-wan, and Britain took Kowloon and Weihaiwei. In this same period 
various Powers imposed on China a system of extraterritorial courts under which 
foreigners, injudicial cases, could not be tried in Chinese courts or under Chinese law. 

The political impact of Western civilization on China, great as it was, was 
overshadowed by the economic impact. We have already indicated that China was a 
largely agrarian country. Years of cultivation and the slow growth of population had 
given rise to a relentless pressure on the soil and to a destructive exploitation of its 
vegetative resources. .Most of the country was deforested, resulting in shortage of fuel, 
rapid runoff of precipitation, constant danger of floods, and large-scale erosion of the 
soil. Cultivation had been extended to remote valleys and up the slopes of hills by 
population pressures, with a great increase in the same destructive consequences, in spite 
of the fact that many slopes were rebuilt in terraces. The fact that the southern portion of 
the country depended on rice cultivation created many problems, since this crop, of 
relatively low nutritive value, required great expenditure of labor (transplanting and 
weeding) under conditions which were destructive of good health. Long periods of 
wading in rice paddies exposed most peasants to various kinds of joint diseases, and to 
water-borne infections such as malaria or parasitical flukes. 

The pressure on the soil was intensified by the fact that 60 percent of China was over 
6,000 feet above sea level, too high for cultivation, while more than half the land had 
inadequate rainfall (below twenty inches a year). Moreover, the rainfall was provided by 
the erratic monsoon winds which frequently brought floods and occasionally failed 
completely, causing wholesale famine. In the United States 140 million people were 
supported by the labor of 6.5 million farmers on 365 million acres of cultivated land in 
1945; China, about the same time, had almost 500 million persons supported by the labor 
of 65 million farmers on only 217 million acres of cultivated land. In China the average 
farm was only a little over four acres (compared to 157 in the United States) but was 
divided into five or six separate fields and had, on the average, 6.2 persons living on it 
(compared to 4.2 persons on the immensely larger American farm). As a result, in China 
there was only about half an acre of land for each person living on the land, compared to 
the American figure of 15.7 acres per person. 

As a consequence of this pressure on the land, the average Chinese peasant had, even 
in earlier times, no margin above the subsistence level, especially when we recall that a 
certain part of his income flowed upward to the upper classes. Since, on his agricultural 
account alone, the average Chinese peasant was below the subsistence level, he had to 
use various ingenious devices to get up to that level. All purchases of goods produced off 
the farm were kept at an absolute minimum. Every wisp of grass, fallen leaf, or crop 



residue was collected to serve as fuel. All human waste products, including those of the 
cities, were carefully collected and restored to the soil as fertilizer. For this reason, 
farmlands around cities, because of the greater supply of such wastes, were more 
productive than more remote farms which were dependent on local supplies of such 
human wastes. Collection and sale of such wastes became an important link in the 
agricultural economics of China. Since the human digestive system extracts only part of 
the nutritive elements in food, the remaining elements were frequently extracted by 
feeding such wastes to swine, thus passing them through the pig's digestive system before 
these wastes returned to the soil to provide nourishment for new crops and, thus, for new 
food. Every peasant farm had at least one pig which was purchased young, lived in the 
farm latrine until it was full grown, and then was sold into the city to provide a cash 
margin for such necessary purchases as salt, sugar, oils, or iron products. In a somewhat 
similar way the rice paddy was able to contribute to the farmer's supply of proteins by 
acting as a fishpond and an aquarium for minute freshwater shrimp. 

In China, as in Europe, the aims of agricultural efficiency were quite different from 
the aims of agricultural efficiency in new countries, such as the United States, Canada, 
Argentina, or Australia. In these newer countries there was a shortage of labor and a 
surplus of land, while in Europe and Asia there was a shortage of land and a surplus of 
labor. Accordingly, the aim of agricultural efficiency in newer lands was high output of 
crops per unit of labor. It was for this reason that American agriculture put such emphasis 
on labor-saving agricultural machinery and soil-exhausting agricultural practices, while 
Asiatic agriculture put immense amounts of hand labor on small amounts of land in order 
to save the soil and to win the maximum crop from the limited amount of land. In 
America the farmer could afford to spend large sums for farm machinery because the 
labor such machinery replaced would have been expensive anyway and because the cost 
of that machinery was spread over such a large acreage that its cost per acre was 
relatively moderate. In Asia there was no capital for such expenditures on machinery 
because there was no margin of surplus above subsistence in the hands of the peasantry 
and because the average farm was so small that the cost of machinery per acre (either to 
buy or even to operate) would have been prohibitive. The only surplus in Asia was of 
labor, and every effort was made, by putting more and more labor on the land, to make 
the limited amount of land more productive. One result of this investment of labor in land 
in China can be seen in the fact that about half of the Chinese farm acreage was irrigated 
while about a quarter of it was terraced. Another result of this excess concentration of 
labor on land was that such labor was underemployed and semi-idle for about three- 
quarters of the year, being fully busy only in the planting and harvest seasons. From this 
semi-idleness of the Asiatic rural population came the most important effort to 
supplement peasant incomes through rural handicrafts. Before we turn to this crucial 
point, we should glance at the relative success of China's efforts to achieve high-unit 
yields in agriculture. 

In the United States, about 1940, each acre of wheat required 1.2 man-days of work 
each year; in China an acre of wheat took 26 man-days of labor. The rewards of such 
expenditures of labor were quite different. In China the output of grain for each man-year 
of labor was 3,080 pounds; in the United States the output was 44,000 pounds per man- 



year of labor. This low productivity of agricultural labor in China would have been 
perfectly acceptable if China had, instead, achieved high output per acre. Unfortunately, 
even in this alternative aim China was only moderately successful, more successful than 
the United States, it is true, but far less successful than European countries which aimed 
at the same type of agricultural efficiency (high yields per acre) as China did. This can be 
seen from the following figures: 

Output Per Acre 

In Rice In Wheat 

United States 47 bushes United States 14 bushels 

China 67 bushes China 16 bushels 

Italy 93 bushels England 32 bushels 

These figures indicate the relative failure of Chinese (and other Asiatic) agriculture 
even in terms of its own aims. This relative failure was not caused by lack of effort, but 
by such factors as (I) farms too small for efficient operation; (2) excessive population 
pressure which forced farming onto less productive soil and which drew more nutritive 
elements out of the soil than could be replaced, even by wholesale use of human wastes 
as fertilizer; (3) lack of such scientific agricultural techniques as seed selection or crop 
rotation; and (4) the erratic character of a monsoon climate on a deforested and semi- 
eroded land. 

Because of the relatively low productivity of Chinese (and all Asiatic) agriculture, the 
whole population was close to the margin of subsistence and, at irregular intervals, was 
forced below that margin into widespread famine. In China the situation was alleviated to 
some extent by three forces. In the first place, the irregular famines which we have 
mentioned, and somewhat more frequent onslaughts of plague disease, kept the 
population within manageable bounds. These two irregular occurrences reduced the 
population by millions, in both China and India, when they occurred. Even in ordinary 
years the death rate was high, about 30 per thousand in China compared to 25 in India, 
12.3 in England, or 8.7 in Australia. Infant mortality (in the first year of life) was about 
159 per thousand in China compared to 240 in India, about 70 in western Europe, and 
about 32 in New Zealand. At birth an infant could be expected to live less than 27 years 
in India, less than 35 years in China, about 60 years in England or the United States, and 
about 66 years in New Zealand (all figures are about 1930). In spite of this "expectation 
of death" in China, the population was maintained at a high level by a birth rate of about 
38 per thousand of the population compared to 34 in India, 18 in the United States or 
Australia, and 15 in England. The skyrocketing effect which the use of modern sanitary 
or medical practices might have upon China's population figures can be gathered from the 
fact that about three-quarters of Chinese deaths are from causes which are preventable 
(usually easily preventable) in the West. For example, a quarter of all deaths are from 
diseases spread by human wastes; about 10 percent come from childhood diseases like 



smallpox, measles, diphtheria, scarlet fever, and whooping cough; about 15 percent arise 
from tuberculosis; and about 7 percent are in childbirth.. 

The birthrate was kept up, in traditional Chinese society as a consequence of a group 
of ideas which are usually known as "ancestor worship." Every Chinese family had, as its 
most powerful motivation, the conviction that the family line must be continued in order 
to have descendants to keep up the family shrines, to maintain the ancestral graves, and to 
support the living members of the family after their productive years had ended. The 
expense of such shrines, graves, and old persons was a considerable burden on the 
average Chinese family and a cumulative burden as well, since the diligence of earlier 
generations frequently left a family with shrines and graves so elaborate that upkeep 
alone was a heavy expense to later generations. At the same time the urge to have sons 
kept the birth rate up and led to such undesirable social practices, in traditional Chinese 
society, as infanticide, abandonment, or sale of female offspring. Another consequence of 
these ideas was that more well-to-do families in China tended to have more children than 
poor families. This was the exact opposite of the situation in Western civilization, where 
a rise in the economic scale resulted in the acquisition of a middle-class outlook which 
included restriction of the family's offspring. 

The pressure of China's population on the level of subsistence was relieved to some 
extent by wholesale Chinese emigration in the period after 1800. This outward movement 
was toward the less settled areas of Manchuria, Mongolia, and southwestern China, 
overseas to America and Europe, and, above all, to the tropical areas of southeastern Asia 
(especially to Malaya and Indonesia). In these areas, the diligence, frugality, and 
shrewdness of the Chinese provided them with a good living and in some cases with 
considerable wealth. They generally acted as a commercial middle class pushing inward 
between the native Malaysian or Indonesian peasants and the upper group of ruling 
whites. This movement, which began centuries ago, steadily accelerated after 1900 and 
gave rise to unfavorable reactions from the non-Chinese residents of these areas. The 
Malay, Siamese, and Indonesians, for example, came to regard the Chinese as 
economically oppressive and exploitative, while the white rulers of these areas, especially 
in Australia and New Zealand, regarded them with suspicion for political and racial 
reasons. Among the causes of this political suspicion were that emigrant Chinese 
remained loyal to their families at home and to the homeland itself, that they were 
generally excluded from citizenship in areas to which they emigrated, and that they 
continued to be regarded as citizens by successive Chinese governments. The loyalty of 
emigrant Chinese to their families at home became an important source of economic 
strength to these families and to China itself, because emigrant Chinese sent very large 
savings back to their families. 

We have already mentioned the important role played by peasant handicrafts in 
traditional Chinese society. It would, perhaps, not be any real exaggeration to say that 
peasant handicrafts were the factor which permitted the traditional form of society to 
continue, not only in China but in all of Asia. This society was based on an inefficient 
agricultural system in which the political, military, legal, and economic claims of the 
upper classes drained from the peasantry such a large proportion of their agricultural 



produce that the peasant was kept pressed down to the subsistence level (and, in much of 
China, below this level). Only by this process could Asia support its large urban 
populations and its large numbers of rulers, soldiers, bureaucrats, traders, priests, and 
scholars (none of whom produced the food, clothing, or shelter they were consuming). In 
all Asiatic countries the peasants on the land were underemployed in agricultural 
activities, because of the seasonal nature of their work. In the course of time there had 
grown up a solution to this social-agrarian problem: in their spare time the peasantry 
occupied themselves with handicrafts and other nonagricultural activities and then sold 
the products of their labor to the cities for money to be used to buy necessities. In real 
terms this meant that the agricultural products which were flowing from the peasantry to 
the upper classes (and generally from rural areas to the cities) were replaced in part by 
handicrafts, leaving a somewhat larger share of the peasants' agricultural products in the 
hands of peasants. It was this arrangement which made it possible for the Chinese 
peasantry to raise their incomes up to the subsistence level. 

The importance of this relationship should be obvious. If it were destroyed, the 
peasant would be faced with a cruel alternative: either he could perish by falling below 
the subsistence level or he could turn to violence in order to reduce the claims which the 
upper classes had on his agricultural products. In the long run every peasant group was 
driven toward the second of these alternatives. As a result, all Asia by 1940 was in the 
grip of a profound political and social upheaval because, a generation earlier the demand 
for the products of peasants' handicrafts had been reduced. 

The destruction of this delicately balanced system occurred when cheap, machine- 
made products of Western manufacture began to flow into Asiatic countries. Native 
products such as textiles, metal goods, paper, wood carvings, pottery, hats, baskets, and 
such found it increasingly difficult to compete with Western manufactures in the markets 
of their own cities. As a result, the peasantry found it increasingly difficult to shift the 
legal and economic claims which the upper, urban, classes held against them from 
agricultural products to handicraft products. And, as a consequence of this, the 
percentage of their agricultural products which was being taken from the peasantry by the 
claims of other classes began to rise.. 

This destruction of the local market for native handicrafts could have been prevented 
if high customs duties had been imposed on European industrial goods. But one point on 
which the European Powers were agreed was that they would not allow "backward" 
countries to exclude their products with tariffs. In India, Indonesia, and some of the lesser 
states of southeastern Asia this was prevented by the European Powers taking over the 
government of the areas; in China, Egypt, Turkey, Persia, and some Malay states the 
European Powers took over no more than the financial system or the customs service. As 
a result, countries like China, Japan, and Turkey had to sign treaties maintaining their 
tariffs at 5 or 8 percent and allowing Europeans to control these services. Sir Robert Hart 
was head of the Chinese customs from 1863 to 1906, just as Sir Evelyn Baring (Lord 
Cromer) was head of the Egyptian financial system from 1879 to 1907, and Sir Edgar 
Vincent (Lord DAbernon) was the chief figure in the Turkish financial system from 1882 
to 1897. 



As a consequence of the factors we have described, the position of the Chinese 
peasant was desperate by 1900, and became steadily worse. A moderate estimate 
(published in 1940) showed that lo percent of the farm population owned 53 percent of 
the cultivated land, while the other go percent had only 47 percent of the land. The 
majority of Chinese farmers had to rent at least some land, for which they paid, as rent, 
from one-third to one-half of the crop. Since their incomes were not adequate, more than 
half of all Chinese farmers had to borrow each year. On borrowed grain the interest rate 
was 85 percent a year; on money loans the interest rate was variable, being over 20 
percent a year on nine-tenths of all loans made and over so percent a year on one-eighth 
of the loans made. Under such conditions of landownership, rental rates, and interest 
charges, the future was hopeless for the majority of Chinese farmers long before 1940. 
Yet the social revolution in China did not come until after 1940. 

The slow growth of the social revolution in China was the result of many influences. 
Chinese population pressure was relieved to some extent in the last half of the nineteenth 
century by the famines of 1877-1879 (which killed about 12 million people), by the 
political disturbances of the Tai-Ping and other rebellions in 1848-1875 (which 
depopulated large areas), and by the continued high death rate. The continued influence 
of traditional ideas, especially Confucianism and respect for ancestral ways, held the lid 
on this boiling pot until this influence was destroyed in the period after 1900. Hope that 
some solution might be found by the republican regime after the collapse of the imperial 
regime in 1911 had a similar effect. And, lastly, the distribution of European weapons in 
Chinese society was such as to hinder rather than to assist revolution until well into the 
twentieth century. Then this distribution turned in a direction quite different from that in 
Western civilization. These last three points are sufficiently important to warrant a closer 
examination. 

We have already mentioned that effective weapons which are difficult to use or 
expensive to obtain encourage the development of authoritarian regimes in any society. 
In the late medieval period, in Asia, cavalry provided such a weapon. Since the most 
effective cavalry was that of the pastoral Ural-Altaic-speaking peoples of central Asia, 
these peoples were able to conquer the peasant peoples of Russia, of Anatolia, of India, 
and of China. In the course of time, the alien regimes of three of these areas (not in 
Russia) were able to strengthen their authority by the acquisition of effective, and 
expensive, artillery. In Russia, the princes of Moscow, having been the agents of the 
Mongols, replaced them by becoming their imitators, and made the same transition to a 
mercenary army, based on cavalry and artillery, as the backbone of the ruling despotism. 
In Western civilization similar despotisms, but based on infantry and artillery, were 
controlled by figures like Louis XIV, Frederick the Great, or Gustavus Adolphus. In 
Western Civilization, however, the Agricultural Revolution after 1725 raised standards of 
living, while the Industrial Revolution after 1800 so lowered the cost of firearms that the 
ordinary citizen of western Europe and of North America could acquire the most 
effective weapon existing (the musket). As a result of this, and other factors, democracy 
came to these areas, along with mass armies of citizen-soldiers. In central and southern 



Europe where the Agricultural and Industrial revolutions came late or not at all, the 
victory of democracy was also late and incomplete. 

In Asia generally, the revolution in weapons (meaning muskets and later rifles) came 
before the Agricultural Revolution or the Industrial Revolution. Indeed, most firearms 
were not locally made, but were imported and, being imported, came into the possession 
of the upper class of rulers, bureaucrats, and landlords and not into the hands of peasants 
or city masses. As a result, these ruling groups were generally able to maintain their 
position against their own masses even when they could not defend themselves against 
European Powers. As a consequence of this, any hope of partial reform or of a successful 
revolution early enough to be a moderate revolution became quite unlikely. In Russia and 
in Turkey it required defeat in a foreign war with European states to destroy the corrupt 
imperial regimes (1917-1921). Earlier, the czar had been able to crush the revolt of 1905, 
because the army remained loyal to the regime, while the sultan, in 1908, had to yield to a 
reform movement because it was supported by the army. In India, Malaya, and Indonesia 
the disarmed native peoples offered no threat of revolt to the ruling European Powers 
before 1940. In Japan the army, as we shall see, remained loyal to the regime and was 
able to dominate events so that no revolution was conceivable before 1940. But in China 
the trend of events was much more complex. 

In China the people could not get weapons because of their low standards of living 
and the high cost of imported arms. As a result, power remained in the hands of the army, 
except for small groups who were financed by emigrant Chinese with relatively high 
incomes overseas. By 1911 the prestige of the imperial regime had fallen so low that it 
obtained support from almost no one, and the army refused to sustain it. As a result, the 
revolutionaries, supported by overseas money, were able to overthrow the imperial 
regime in an almost bloodless revolution, but were not able to control the army after they 
had technically come to power. The army, leaving the politicians to squabble over forms 
of government or areas of jurisdiction, became independent political powers loyal to their 
own chiefs ("warlords"), and supported themselves and maintained their supply of 
imported arms by exploiting the peasantry of the provinces. The result was a period of 
"warlordism" from 1920 to 1941. 

In this period the Republican government was in nominal control of the whole country 
but was actually in control only of the seacoast and river valleys, chiefly in the south, 
while various warlords, operating as bandits, were in control of the interior and most of 
the north. In order to restore its control to the whole country, the Republican regime 
needed money and imported arms. Accordingly, it tried two expedients in sequence. The 
first expedient, in the period 1920-1927, sought to restore its power in China by obtaining 
financial and military support from foreign countries (Western countries, Japan, or Soviet 
Russia). This expedient failed, either because these foreign Powers were unwilling to 
assist or (in the case of Japan and Soviet Russia) were willing to help only on terms 
which would have ended China's independent political status. As a consequence, after 
1927, the Republican regime underwent a profound change, shifting from a democratic to 
an authoritarian organization, changing its name from Republican to Nationalist, and 
seeking the money and arms to restore its control over the country by making an alliance 



with the landlord, commercial, and banking classes of the eastern Chinese cities. These 
propertied classes could provide the Republican regime with the money to obtain foreign 
arms in order to fight the warlords of the west and north, but these groups would not 
support any Republican effort to deal with the social and economic problems facing the 
great mass of the Chinese peoples. 

While the Republican armies and the warlords were struggling with each other over 
the prostrate backs of the Chinese masses, the Japanese attacked China in 1931 and 1937. 
In order to resist the Japanese it became necessary, after 1940, to arm the Chinese 
masses. This arming of the masses of Chinese in order to defeat Japan in 1941-1945 
made it impossible to continue the Republican regime after 1945 so long as it continued 
to be allied with the upper economic and social groups of China, since the masses 
regarded these groups as exploiters. At the same time, changes to more expensive and 
more complex weapons made it impossible either for warlordism to revive or for the 
Chinese masses to use their weapons to establish a democratic regime. The new weapons, 
like airplanes and tanks, could not be supported by peasants on a provincial basis nor 
could they be operated by peasants. The former fact ended warlordism, while the latter 
fact ended any possibility of democracy. In view of the low productivity of Chinese 
agriculture and the difficulty of accumulating sufficient capital either to buy or to 
manufacture such expensive weapons, these weapons (in either way) could be acquired 
only by a government in control of most of China and could be used only by a 
professional army loyal to that government. Under such conditions it was to be expected 
that such a government would be authoritarian and would continue to exploit the 
peasantry (in order to accumulate capital either to buy such weapons abroad or to 
industrialize enough to make them at home, or both). 

From this point of view the history of China in the twentieth century presents five 
phases, as follows: 

1. The collapse of the imperial regime, to 1911 

2. The failure of the Republic, 1911-1920 

3. The struggle with warlordism, 1920-1941 

a. Efforts to obtain support abroad, 1920-1927 

b. Efforts to obtain support form the propertied groups, 1927-1941 

4. The struggle with Japan, 1931-1945 

5. The authoritarian triumph, 1945 — 

The collapse of the imperial regime has already been discussed as a political and 
economic development. It was also an ideological development. The authoritarian and 
traditionalist ideology of the old China, in which social conservatism, Confucianist 



philosophy, and ancestor worship were intimately blended together, was well fitted to 
resist the intrusion of new ideas and new patterns of action. The failure of the imperial 
regime to resist the military, economic, and political penetration of Western Civilization 
gave a fatal blow to this ideology. New ideas of Western origin were introduced, at first 
by Christian missionaries and later by Chinese students who had studied abroad. By 1900 
there were thousands of such students. They had acquired Western ideas which were 
completely incompatible with the older Chinese system. In general, such Western ideas 
were not traditionalist or authoritarian, and were, thus, destructive to the Chinese 
patriarchal family, to ancestor worship, or to the imperial autocracy. The students brought 
back from abroad Western ideas of science, of democracy, of parliamentarianism, of 
empiricism, of self-reliance, of liberalism, of individualism, and of pragmatism. Their 
possession of such ideas made it impossible for them to fit into their own country. As a 
result, they attempted to change it, developing a revolutionary fervor which merged with 
the anti-dynastic secret societies which had existed in China since the Manchus took over 
the country in 1644. 

Japan's victory over China in 1894-1895 in a war arising from a dispute over Korea, 
and especially the Japanese victory over Russia in the war of 1904-1905, gave a great 
impetus to the revolutionary spirit in China because these events seemed to show that an 
Oriental country could adopt Western techniques successfully. The failure of the Boxer 
movement in 1900 to expel Westerners without using such Western techniques also 
increased the revolutionary fervor in China. As a consequence of such events, the 
supporters of the imperial regime began to lose faith in their own system and in their own 
ideology. They began to install piecemeal, hesitant, and ineffective reforms which 
disrupted the imperial system without in any way strengthening it. Marriage between 
Manchu and Chinese was sanctioned for the first time (1902); Manchuria was opened to 
settlement by Chinese (1907); the system of imperial examinations based on the old 
literary scholarship for admission to the civil service and the mandarinate were abolished 
and a Ministry of Education, copied from Japan, was established (1905); a drafted 
constitution was published providing for provincial assemblies and a future national 
parliament (1908); the law was codified (1910). 

These concessions did not strengthen the imperial regime, but merely intensified the 
revolutionary feeling. The death of the emperor and of Dowager Empress Tzu Hsi, who 
had been the real ruler of the country (1908), brought to the throne a two-year-old child, 
P'u-I. The reactionary elements made use of the regency to obstruct reform, dismissing 
the conservative reform minister Yuan Shih-k'ai (1859-1916). Discovery of the 
headquarters of the revolutionists at Hankow in 1911 precipitated the revolution. While 
Dr. Sun Yat-sen (1866-1925) hurried back to China from abroad, whence he had directed 
the revolutionary movement for many years, the tottering imperial regime recalled Yuan 
Shih-K'ai to take command of the anti-revolutionary armies. Instead he cooperated with 
the revolutionists, forced the abdication of the Manchu dynasty, and plotted to have 
himself elected as president of the Chinese Republic. Sun Yat-sen who had already been 
elected provisional president by the National Assembly at Nanking, accepted this 
situation, retiring from office, and calling on all Chinese to support President Yuan. 



The contrast between Dr. Sun and General Yuan, the first and second presidents of the 
Chinese Republic, was as sharp as could be. Dr. Sun was a believer in Western ideas, 
especially in science, democracy, parliamentary government, and socialism, and had 
lived for most of his life as an exile overseas. He was self-sacrificing, idealistic, and 
somewhat impractical. General Yuan, on the other hand, was purely Chinese, a product 
of the imperial bureaucracy, who had no knowledge of Western ideas and no faith in 
either democracy or parliamentary government. He was vigorous, corrupt, realistic, and 
ambitious. The real basis of his power rested in the new westernized army which he had 
built up as governor-general of Chihli in 1901-1907. In this force there were five 
divisions, well trained and completely loyal to Yuan. The officers of these units had been 
picked and trained by Yuan, and played principal roles in Chinese politics after 1916. 

As president, Yuan opposed almost everything for which Dr. Sun had dreamed. He 
expanded the army, bribed politicians, and eliminated those who could not be bribed. The 
chief support of his policies came from a £25 million loan from Britain, France, Russia, 
and Japan in 1913. This made him independent of the assembly and of Dr. Sun's political 
party, the Kuomintang, which dominated the assembly. In 1913 one element of Sun's 
followers revolted against Yuan but were crushed. Yuan dissolved the Kuomintang, 
arrested its members, dismissed the Parliament, and revised the constitution to give 
himself dictatorial powers as president for life, with the right to name his own successor. 
He was arranging to have himself proclaimed emperor when he died m 1916. 

As soon as Yuan died, the military leaders stationed in various parts of the country 
began to consolidate their power on a local basis. One of them even restored the Manchu 
dynasty, but it was removed again within two weeks. By the end of 1916 China was 
under the nominal rule of two governments, one at Peking under Feng Kuo-chang (one of 
Yuan's militarists) and a secession government at Canton under Dr. Sun. Both of these 
functioned under a series of fluctuating paper constitutions, but the real power of both 
was based on the loyalty of local armies. Because in both cases the armies of more 
remote areas were semi-independent, government in those areas was a matter of 
negotiation rather than of commands from the capital. Even Dr. Sun saw this situation 
sufficiently clearly to organize the Cantonese government as a military system with 
himself as generalissimo (1917). Dr. Sun was so unfitted for this military post that on two 
occasions he had to flee from his own generals to security in the French concession at 
Shanghai (1918-1922). Under such conditions Dr. Sun was unable to achieve any of his 
pet schemes, such as the vigorous political education of the Chinese people, a widespread 
network of Chinese railways built with foreign capital, or the industrialization of China 
on a socialist basis. Instead, by 1920, warlordism was supreme, and the Westernized 
Chinese found opportunity to exercise their new knowledge only in education and in the 
diplomatic service. Within China itself, command of a well-drilled army in control of a 
compact group of local provinces was far more valuable than any Westernized 
knowledge acquired as a student abroad. 

The Resurgence of Japan to 1918 



The history of Japan in the twentieth century is quite distinct from that of the other 
Asiatic peoples. Among the latter the impact of the West led to the disruption of the 
social and economic structure, the abandonment of the traditional ideologies, and the 
revelation of the weakness of native political and military systems. In Japan these events 
either did not occur or occurred in a quite different fashion. Until 1945 Japan's political 
and military systems were strengthened by Western influences; the older Japanese 
ideology was retained, relatively intact, even by those who were most energetic copiers 
of Western ways; and the changes in the older social and economic structure were kept 
within manageable limits and were directed in a progressive direction. The real reason for 
these differences probably rests in the ideological factor — that the Japanese, even the 
vigorous Westernizers, retained the old Japanese point of view and, as a consequence, 
were allied with the older Japanese political, economic, and social structure rather than 
opposed to it (as, for example, Westernizers were in India, in China, or in Turkey). The 
ability of the Japanese to westernize without going into opposition to the basic core of the 
older system gave a degree of discipline and a sense of unquestioning direction to their 
lives which allowed Japan to achieve a phenomenal amount of westernization without 
weakening the older structure or without disrupting it. In a sense until about 1950, Japan 
took from Western culture only superficial and material details in an imitative way and 
amalgamated these newly acquired items around the older ideological, political, military, 
and social structure to make it more powerful and effective. The essential item which the 
Japanese retained from their traditional society and did not adopt from Western 
civilization was the ideology. In time, as we shall see, this was very dangerous to both of 
the societies concerned, to Japan and to the West. 

Originally Japan came into contact with Western civilization in the sixteenth century, 
about as early as any other Asiatic peoples, but, within a hundred years, Japan was able to 
eject the West, to exterminate most of its Christian converts, and to slam its doors against 
the entrance of any Western influences. A very limited amount of trade was permitted on 
a restricted basis, but only with the Dutch and only through the single port of Nagasaki. 

Japan Is Dominated by the Tokugawa Family 

Japan, thus isolated from the world, was dominated by the military dictatorship (or 
shogunate) of the Tokugawa family. The imperial family had been retired to a largely 
religious seclusion whence it reigned but did not rule. Beneath the shogun the country 
was organized in a hereditary hierarchy, headed by local feudal lords. Beneath these lords 
there were, in descending ranks, armed retainers (samurai), peasants, artisans, and 
merchants. The whole system was, in theory at least, rigid and unchanging, being based 
on the double justification of blood and of religion. This was in obvious and sharp 
contrast with the social organization of China, which was based, in theory, on virtue and 
on educational training. In Japan virtue and ability were considered to be hereditary 
rather than acquired characteristics, and, accordingly, each social class had innate 
differences which had to be maintained by restrictions on intermarriage. The emperor 
was of the highest level, being descended from the supreme sun goddess, while the lesser 
lords were descended from lesser gods of varying degrees of remoteness from the sun 
goddess. Such a point of view discouraged all revolution or social change and all 



"circulation of the elites," with the result that China's multiplicity of dynasties and rise 
and fall of families was matched in Japan by a single dynasty whose origins ran back into 
the remote past, while the dominant individuals of Japanese public life in the twentieth 
century were members of the same families and clans which were dominating Japanese 
life centuries ago. 

All Non-Japanese Are Basically Inferior Beings 

From this basic idea flowed a number of beliefs which continued to be accepted by 
most Japanese almost to the present. Most fundamental was the belief that all Japanese 
were members of a single breed consisting of many different branches or clans of 
superior or inferior status, depending on their degree of relationship to the imperial 
family. The individual was of no real significance, while the families and the breed were 
of major significance, for individuals lived but briefly and possessed little beyond what 
they received from their ancestors to pass on to their descendants. In this fashion it was 
accepted by all Japanese that society was more important than any individual and could 
demand any sacrifice from him, that men were by nature unequal and should be prepared 
to serve loyally in the particular status into which each had been born, that society is 
nothing but a great patriarchal system, that in this system authority is based on the 
personal superiority of man over man and not on any rule of law, that, accordingly, all 
law is little more than some temporary order from some superior being, and that all non- 
Japanese, lacking divine ancestry, are basically inferior beings, existing only one cut 
above the level of animals and, accordingly, having no basis on which to claim any 
consideration, loyalty, or consistency of treatment at the hands of Japanese. 

Japanese World View Is Anti-thetical to Christian World View 

This Japanese ideology was as anti-thetical to the outlook of the Christian West as any 
which the West encountered in its contacts with other civilizations. It was also an 
ideology which was peculiarly fitted to resist the intrusion of Western ideas. As a result, 
Japan was able to accept and to incorporate into its way of life all kinds of Western 
techniques and material culture without disorganizing its own outlook or its own basic 
social structure. 

The Tokugawa Shogunate was already long past its prime when, in 1853, the "black 
ships" of Commodore Matthew Perry sailed into Tokyo Bay. That these vessels could 
move against the wind, and carried guns more powerful than any the Japanese had ever 
imagined, was a great shock to the natives of Nippon. The feudal lords who had been 
growing restive under Tokugawa rule used this event as an excuse to end that rule. These 
lords, especially the representatives of four western clans, demanded that the emergency 
be met by abolishing the shogunate and restoring all authority to the hands of the 
emperor. For more than a decade the decision whether to open Japan to the West or to try 
to continue the policy of exclusion hung in the balance. In 1863-1866 a series of naval 
demonstrations and bombardments of Japanese ports by Western Powers forced the 
opening of Japan and imposed on the country a tariff agreement which restricted import 
duties to 5 percent until 1899. A new and vigorous emperor came to the throne and 



accepted the resignation of the last shogun (1867). Japan at once embarked on a policy of 
rapid Westernization. 

Shift in Power from the Shogun to Four Western Japanese Clans 

The period in Japanese history from the so-called Meiji Restoration of 1867 to the 
granting of a constitution in 1889 is of the most vital importance. In theory what had 
occurred had been a restoration of Japan's rule from the hands of the shogun back into the 
hands of the emperor. In fact what occurred was a shift in power from the shogun to the 
leaders of four western Japanese clans who proceeded to rule Japan in the emperor's 
name and from the emperor's shadow. These four clans of Satsuma, Choshu, Hizen, and 
Tosa won the support of certain nobles of the imperial court (such as Saionji and Konoe) 
and of the richer mercantile families (such as Mitsui) and were able to overthrow the 
shogun, crush his supporters (in the Battle of Uemo in 1868), and win control of the 
government and of the emperor himself. The emperor did not assume control of the 
government, but remained in a semi-religious seclusion, too exalted to concern himself 
with the functioning of the governmental system except in critical emergencies. In such 
emergencies the emperor generally did no more than issue a statement or order ("imperial 
rescript") which had been drawn up by the leaders of the Restoration. 

The Meiji Oligarchy 

These leaders, organized in a shadowy group known as the Meiji oligarchy, had 
obtained complete domination of Japan by 1889. To cover this fact with camouflage, they 
unleashed a vigorous propaganda of revived Shintoism and of abject submission to the 
emperor which culminated in the extreme emperor worship of 1941-1945. To provide an 
administrative basis for their rule, the oligarchy created an extensive governmental 
bureaucracy recruited from their supporters and inferior members. To provide an 
economic basis for their rule, this oligarchy used their political influence to pay 
themselves extensive pensions and governmental grants (presumably as compensation for 
the ending of their feudal incomes) and to engage in corrupt business relationships with 
their allies in the commercial classes (like Mitsui or Mitsubishi). To provide a military 
basis for their rule, the oligarchy created a new imperial army and navy and penetrated 
the upper ranks of these so that they were able to dominate these forces as they 
dominated the civil bureaucracy. To provide a social basis for their rule, the oligarchy 
created an entirely new peerage of five ranks of nobility recruited from their own 
members and supporters. 

The Japanese Oligarchy Draw Up a Constitution That Would Conceal Their 

Political Domination of the Country 

Having thus assured their dominant position in the administrative, economic, military, 
and social life of Japan, the oligarchy in 1889 drew up a constitution which would assure, 
and yet conceal, their political domination of the country. This constitution did not 
pretend to be a product of the Japanese people or of the Japanese nation; popular 



sovereignty and democracy had no place in it. Instead this constitution pretended to be an 
emission from the emperor, setting up a system in which all government would be in his 
name, and all officials would be personally responsible to him. It provided for a 
bicameral Diet as a legislature. The House of Peers consisted of the new nobility which 
had been created in 1884, while the House of Representatives was to be elected 
"according to the law." All legislation had to pass each house by majority vote and be 
signed by a minister of state. 

These ministers, established as a Council of State in 1885, were responsible to the 
emperor and not to the Diet. Their tasks were carried out through the bureaucracy which 
was already established. All money appropriations, like other laws, had to obtain the 
assent of the Diet, but, if the budget was not accepted by this body, the budget of the 
preceding year was repeated automatically for the following year. The emperor had 
extensive powers to issue ordinances which had the force of law and required a minister's 
signature, as did other laws. 

Japanese Constitution Based upon the Constitution of Imperial Germany 

This constitution of 1889 was based on the constitution of Imperial Germany and was 
forced on Japan by the Meiji oligarchy in order to circumvent and anticipate any future 
agitation for a more liberal constitution based on British, American, or French models. 
Basically, the form and functioning of the constitution was of little significance, for the 
country continued to be run by the Meiji oligarchy through their domination of the army 
and navy, the bureaucracy, economic and social life, and the opinion-forming agencies 
such as education and religion. In political life this oligarchy was able to control the 
emperor, the Privy Council, the House of Peers, the judiciary, and the bureaucracy. 

The Oligarchy's Chief Aim Was to Westernize Japan 

This left only one possible organ of government, the Diet, through which the oligarchy 
might be challenged. Moreover, the Diet had only one means (its right to pass the annual 
budget) by which it could strike back at the oligarchy. This right was of little significance 
so long as the oligarchy did not want to increase the budget, since the budget of the 
previous year would be repeated if the Diet rejected the budget of the following year. 
However, the oligarchy could not be satisfied with a repetition of an earlier budget, for 
the oligarchy's chief aim, after they had ensured their own wealth and power, was to 
westernize Japan rapidly enough to be able to defend it against the pressure of the Great 
Powers of the West. 

Controlling the Elections to the Diet 

All these things required a constantly growing budget, and thus gave the Diet a more 
important role than it would otherwise have had. This role, however, was more of a 
nuisance than a serious restriction on the power of the Meiji oligarchy because the power 
of the Diet could be overcome in various ways. Originally, the oligarchy planned to give 
the Imperial Household such a large endowment of property that its income would be 



sufficient to support the army and navy outside the national budget. This plan was 
abandoned as impractical, although the Imperial Household and all its rules were put 
outside the scope of the constitution. Accordingly, an alternative plan was adopted: to 
control the elections to the Diet so that its membership would be docile to the wishes of 
the Meiji oligarchy. As we shall see, controlling the elections to the Diet was possible, 
but ensuring its docility was quite a different matter. 

The Meiji Oligarchy Controls the Police and the Government 

The elections to the Diet could be controlled in three ways: by a restricted suffrage, by 
campaign contributions, and by bureaucratic manipulation of the elections and the 
returns. The suffrage was restricted for many years on a property basis, so that, in 1900, 
only one person in a hundred had the right to vote. The close alliance between the Meiji 
oligarchy and the richest members of the expanding economic system made it perfectly 
easy to control the flow of campaign contributions. And if these two methods failed, the 
Meiji oligarchy controlled both the police and the prefectural bureaucracy which 
supervised the elections and counted the returns. In case of need, they did not hesitate to 
use these instruments, censoring opposition papers, prohibiting opposition meetings, 
using violence, if necessary, to prevent opposition voting, and reporting, through the 
prefects, as elected candidates who had clearly failed to obtain the largest vote. 

The Meiji Oligarchy Controls the Emperor 

These methods were used from the beginning. In the first Diet of 1889, gangsters 
employed by the oligarchy prevented opposition members from entering the Diet 
chamber, and at least twenty-eight other members were bribed to shift their votes. In the 
elections of 189: violence was used, mostly in districts opposed to the government, so 
that 25 persons were killed and 388 were injured. The government still lost that election 
but continued to control the Cabinet. It even dismissed eleven prefectural governors who 
had been stealing votes, as much for their failure to steal enough as for their action in 
stealing any. When the resulting Diet refused to appropriate for an enlarged navy, it was 
sent home for eighteen days, and then reassembled to receive an imperial rescript which 
gave 1.8 million yen over a six-year period from the Imperial Household for the project 
and went on to order all public officials to contribute one-tenth of their salaries each year 
for the duration of the naval building program which the Diet had refused to finance. In 
this fashion, the Diet's control of increased appropriations was circumvented by the Meiji 
oligarchy's control of the emperor. 

In view of the dominant position of the Meiji oligarchy in Japanese life from 1867 
until after 1992, it would be a mistake to interpret such occurrences as unruly Diets, the 
growth of political parties, or even the establishment of adult manhood suffrage (in 1925) 
as such events would be interpreted in European history. In the West we are accustomed 
to narrations about heroic struggles for civil rights and individual liberties, or about the 
efforts of commercial and industrial capitalists to capture at least a share of political and 
social power from the hands of the landed aristocracy, the feudal nobility, or the Church. 
We are acquainted with movements by the masses for political democracy, and with 



agitations by peasants and workers for economic advantages. All these movements, 
which fill the pages of European history books, are either absent or have an entirely 
different significance in Japanese history. 

Shintoism Was Promoted by the Meiji Oligarchy to Control the People 

In Japan history presents a basic solidarity of outlook and of purpose, punctuated with 
brief conflicting outbursts which seem to be contradictory and inexplicable. The 
explanation of this is to be found in the fact that there was, indeed, a solidarity of outlook 
but that this solidarity was considerably less solid than it appeared, for, beneath it, 
Japanese society was filled with fissures and discontents. The solidarity of outlook rested 
on the ideology which we have mentioned. This ideology, sometimes called Shintoism, 
was propagated by the upper classes, especially by the Meiji oligarchy but was more 
sincerely embraced by the lower classes, especially by the rural masses, than it was by 
the oligarchy which propagated it. This ideology accepted an authoritarian, hierarchical, 
patriarchal society, based on families, clans, and nation, culminating in respect and 
subordination to the emperor. In this system there was no place for individualism, self- 
interest, human liberties, or civil rights. 

Shintoism Allowed the Meiji Oligarchy to Pursue Policies of Self-Aggrandizement 

In general, this system was accepted by the mass of the Japanese peoples. As a 
consequence, these masses allowed the oligarchy to pursue policies of selfish self- 
aggrandizement, of ruthless exploitation, and of revolutionary economic and social 
change with little resistance. The peasants were oppressed by universal military service, 
by high taxes and high interest rates, by low farm prices and high industrial prices, and by 
the destruction of the market for peasant handicrafts. They revolted briefly and locally in 
1884-1885, but were crushed and never revolted again, although they continued to be 
exploited. All earlier legislation seeking to protect peasant proprietors or to prevent 
monopolization of the land was revoked in the 1870's. 

In the 1880's there was a drastic reduction in the number of landowners, through 
heavy taxes, high interest rates, and low prices for farm products. At the same time the 
growth of urban industry began to destroy the market for peasant handicrafts and the rural 
"putting-out system" of manufacture. In seven years, 1883-1890, about 360,000 peasant 
proprietors were dispossessed of 5 million yen worth of land because of total tax arrears 
of only 114,178 yen (or arrears of only one-third yen, that is, 17 American cents, per 
person). In the same period, owners were dispossessed of about one hundred times as 
much land by foreclosure of mortgages. This process continued at varying rates, until, by 
1940, three-quarters of Japanese peasants were tenants or part-tenants paying rents of at 
least half of their annual crop. 

Pressures on Japanese Peasants 

In spite of their acceptance of authority and Shinto ideology, the pressures on 
Japanese peasants would have reached the explosive point if safety valves had not been 



provided for them. Among these pressures we must take notice of that arising from 
population increase, a problem arising, as in most Asiatic countries, from the introduction 
of Western medicine and sanitation. Before the opening of Japan, its population had 
remained fairly stable at 28-30 million for several centuries. This stability arose from a 
high death rate supplemented by frequent famines and the practice of infanticide and 
abortion. By 1870 the population began to grow, rising from 30 million to 56 million in 
1920, to 73 million in 1940, and reaching 87 million in 1955. 

Meiji Oligarchy Controls Shipping, Railroads, Industry and Services 

The safety valve in the Japanese peasant world resided in the fact that opportunities 
were opened, with increasing rapidity, in nonagricultural activities in the period 1 870- 
1920. These nonagricultural activities were made available from the fact that the 
exploiting oligarchy used its own growing income to create such activities by investment 
in shipping, railroads, industry, and services. These activities made it possible to drain the 
growing peasant population from the rural areas into the cities. A law of 1873 which 
established primogeniture in the inheritance of peasant property made it evident that the 
rural population which migrated to the cities would be second and third sons rather than 
heads of families. This had numerous social and psychological results, of which the chief 
was that the new urban population consisted of men detached from the discipline of the 
patriarchal family and thus less under the influence of the general authoritarian Japanese 
psychology and more under the influence of demoralizing urban forces. As a 
consequence, this group, after 1920, became a challenge to the stability of Japanese 
society. 

Exploitation of Japanese Society 

In the cities the working masses of Japanese society continued to be exploited, but 
now by low wages rather than by high rents, taxes, or interest rates. These urban masses, 
like the rural masses whence they had been drawn, submitted to such exploitation without 
resistance for a much longer period than Europeans would have done because they 
continued to accept the authoritarian, submissive Shintoist ideology. They were excluded 
from participation in political life until the establishment of adult manhood suffrage in 
1925. It was not until after this date that any noticeable weakening of the authoritarian 
Japanese ideology began to appear among the urban masses. 

Resistance of the urban masses to exploitation through economic or social 
organizations was weakened by the restrictions on workers' organizations of all kinds. 
The general restrictions on the press, on assemblies, on freedom of speech, and on the 
establishment of "secret" societies were enforced quite strictly against all groups and 
doubly so against laboring groups. There were minor socialistic and laborers' agitations in 
the twenty years 1890-1910. These were brought to a violent end in 1910 by the 
execution of twelve persons for anarchistic agitations. The labor movement did not raise 
its head again until the economic crisis of 1919-1922. 

The Low-Wage Policy of Japanese Originated in the Self-interest of the Elite 



The low-wage policy of the Japanese industrial system originated in the self-interest 
of the early capitalists, but came to be justified with the argument that the only 
commodity Japan had to offer the world, and the only one on which it would construct a 
status as a Great Power, was its large supply of cheap labor. Japan's mineral resources, 
including coal, iron, or petroleum, were poor in both quality and quantity; of textile raw 
materials it had only silk, and lacked both cotton and wool. It had no natural resources of 
importance for which there was world demand such as were to be found in the tin of 
Malaya, the rubber of Indonesia, or the cocoa of West Africa; it had neither the land nor 
the fodder to produce either dairy or animal products as Argentina, Denmark, New 
Zealand, or Australia. The only important resources it had which could be used to provide 
export goods to exchange for imported coal, iron, or oil were silk, forest products, and 
products of the sea. All these required a considerable expenditure of labor, and these 
products could be sold abroad only if prices were kept low by keeping wage rates down. 

Since these products did not command sufficient foreign exchange to allow Japan to 
pay for the imports of coal, iron, and oil which a Great Power must have, Japan had to 
find some method by which it could export its labor and obtain pay for it. This led to the 
growth of manufacturing industries based on imported raw materials and the 
development of such service activities as fishing and ocean shipping. At an early date 
Japan began to develop an industrial system in which raw materials such as coal, wrought 
iron, raw cotton, or wool were imported, fabricated into more expensive and complex 
forms, and exported again for a higher price in the form of machinery or finished textiles. 
Other products which were exported included such forest products as tea, carved woods, 
or raw silk, or such products of Japanese labor as finished silks, canned fish, or shipping 
services. 

The Meiji Oligarchy Is Controlled by a Small Group of Men 

The political and economic decisions which led to these developments and which 
exploited the rural and urban masses of Japan were made by the Meiji oligarchy and their 
supporters. The decision-making powers in this oligarchy were concentrated in a 
surprisingly small group of men, in all, no more than a dozen in number, and made up, 
chiefly, of the leaders of the four western clans which had led the movement against the 
shogun in 1867. These leaders came in time to form a formal, if extralegal, group known 
as the Genro (or Council of Elder Statesmen). Of this group Robert Reischauer wrote in 
1938: "It is these men who have been the real power behind the Throne. It became 
customary for their opinion to be asked and, more important still, to be followed in all 
matters of great significance to the welfare of the state. No Premier was ever appointed 
except from the recommendation of these men who became known as Genro. Until 1922 
no important domestic legislation, no important foreign treaty escaped their perusal and 
sanction before it was signed by the Emperor. These men, in their time, were the actual 
rulers of Japan." 

The Eight Members of the Genro Control Japan 



The importance of this group can be seen from the fact that the Genro had only eight 
members, yet the office of prime minister was held by a Genro from 1885 to 1916, and 
the important post of president of the Privy Council was held by a Genro from its creation 
in 1889 to 1922 (except for the years 1890-1892 when Count Oki of the Hizen clan held 
it for Okuma). If we list the eight Genro with three of their close associates, we shall be 
setting down the chief personnel of Japanese history in the period covered by this 
chapter. To such a list we might add certain other significant facts, such as the social 
origins of these men, the dates of their deaths, and their dominant connections with the 
two branches of the defense forces and with the two greatest Japanese 

industrial monopolies. The significance of these connections will appear in a moment. 

The Meij Oligarchy 

Name Date 

Social (Genro of Linked 

Origin Marked*) Death Dominated With 

*Ito 1909 



Choshu *Yamagata 1922 Army 

*Inoue 1915 



Mitsui 



*Katsura 



1913 



*Oyama 1916 

*Matsukata 1924 



Satsuma Kuroda 

Yamamoto 



Navy 



Hizen 

Tosa 
Noble 



Progressive 
Okuma 1922 Party from 1882 

Liberal Party 
Itagaki 1920 from 1881 Mitsubishi 



Saionji 



1940 



Last of the 



Court Genro" Sumitomo 

(1924-1940) 

The Unofficial Rules of Japan 

Japanese history from 1890 to 1940 is largely a commentary on this table. We have 
said that the Meiji Restoration of 1868 resulted from an alliance of four western clans and 
some court nobles against the shogunate and that this alliance was financed by 
commercial groups led by Mitsui. The leaders of this movement who were still alive after 
1890 came to form the Genro, the real but unofficial rulers of Japan. As the years passed 
and the Genro became older and died, their power became weaker, and there arose two 
claimants to succeed them: the militarists and the political parties. In this struggle the 
social groups behind the political parties were so diverse and so corrupt that their success 
was never in the realm of practical politics. In spite of this fact, the struggle between the 
militarists and the political parties looked fairly even until 1935, not because of any 
strength or natural ability in the ranks of the latter but simply because Saionji, the "Last 
of the Genro" and the only non-clan member in that select group, did all he could to delay 
or to avoid the almost inevitable triumph of the militarists. 

All the factors in this struggle and the political events of Japanese history arising from 
the interplay of these factors go back to their roots in the Genro as it existed before 1900. 
The political parties and Mitsubishi were built up as Hizen-Tosa weapons to combat the 
Choshu-Satsuma domination of the power nexus organized on the civilian-military 
bureaucracy allied with Mitsui; the army-navy rivalry (which appeared in 1912 and 
became acute after 1931) had its roots in an old competition between Choshu and 
Satsuma within the Genro; while the civilian-militarist struggle went back to the personal 
rivalry between Ito and Yamagata before 1900. Yet, in spite of these fissures and 
rivalries, the oligarchy as a whole generally presented a united front against outside 
groups (such as peasants, workers, intellectuals, or Christians) in Japan itself or against 
non-Japanese. 

Ito — the Most Powerful Man in Japan 

From 1882 to 1898 Ito was the dominant figure in the Meiji oligarchy, and the most 
powerful figure in Japan. As minister of the Imperial Household, he was charged with the 
task of drawing up the constitution of 1889; as president of the Privy Council, he guided 
the deliberations of the assembly which ratified this constitution; and as first prime 
minister of the new Japan, he established the foundations on which it would operate. In 
the process he entrenched the Sat-Cho oligarchy so firmly in power that the supporters of 
Tosa and Hizen began to agitate against the government, seeking to obtain what they 
regarded as their proper share of the plums of office. 

Political Parties Arise in Japan 



In order to build up opposition to the government, they organized the first real 
political parties, the Liberal Party of Itagaki (1881) and the Progressive Party of Okuma 
(1882). These parties adopted liberal and popular ideologies from bourgeois Europe, but, 
generally, these were not sincerely held or clearly understood. The real aim of these two 
groups was to make themselves so much of a nuisance to the prevailing oligarchy that 
they could obtain, as a price for relaxing their attacks, a share of the patronage of public 
office and of government contracts. Accordingly, the leaders of these parties, again and 
again, sold out their party followers in return for these concessions, generally dissolving 
their parties, to re-create them at some later date when their discontent with the prevailing 
oligarchy had risen once again. As a result, the opposition parties vanished and 
reappeared, and their leaders moved into and out of public office in accordance with the 
whims of satisfied or discontented personal ambitions. 

The Great Monopolies of Japan 

Just as Mitsui became the greatest industrial monopoly of Japan on the basis of its 
political connections with the prevalent Sat-Cho oligarchy, so Mitsubishi became Japan's 
second greatest monopoly on the basis of its political connections with the opposition 
groups of Tosa-Hizen. Indeed, Mitsubishi began its career as the commercial firm of the 
Tosa clan, and Y. Iwasaki, who had managed it in the latter role, continued to manage it 
when it blossomed into Mitsubishi. Both of these firms, and a handful of other 
monopolistic organizations which grew up later, were completely dependent for their 
profits and growth on political connections. 

The Rise of the Zaibatsu 

The task of building Japan into a modern industrial power in a single lifetime required 
enormous capital and stable markets. In a poor country like Japan, coming late into the 
industrial era, both of these requirements could be obtained from the government, and in 
no other way. As a result business enterprise became organized in a few very large 
monopolistic structures, and these (in spite of their size) never acted as independent 
powers, even in economic matters, but cooperated in a docile fashion with those who 
controlled government expenditures and government contracts. Thus they cooperated 
with the Meiji oligarchy before 1922, with the political party leaders in 1922-1932, and 
with the militarists after 1932. Taken together, these monopolistic industrial and financial 
organizations were known as zaibatsu. There were eight important organizations of this 
kind in the period after World War I, but three were so powerful that they dominated the 
other five, as well as the whole economic system. These three were Mitsui, Mitsubishi, 
and Sumitomo (controlled by Saionji's relatives). These competed with one another in a 
halfhearted fashion, but such competition was political rather than economic, and always 
remained within the rules of a system which they all accepted. 

The Elite Oligarchy Maintains Control of Japan 

In the period 1885-1901, during which Ito was premier four times, Matsukata twice, 
and Yamagata twice, it became evident that the oligarchy could not be controlled by the 



Diet or by the Tosa-Hizen political parties but could always rule Japan through its control 
of the emperor, the armed forces, and the civil bureaucracy. This victory was hardly 
established before a rivalry appeared between Ito, supported by the civil bureaucracy, and 
Yamagata, supported by the armed services. By 1900 Yamagata won a decisive victory 
over Ito and formed his second Cabinet (1898-1900), from which the Ito group was, for 
the first time, completely excluded. During this administration Yamagata extended the 
franchise from half a million to a million voters in order to obtain city support for 
imposing taxes on rural lands to pay for military expansion. Far more important than this, 
he established a law that the ministries of the army and the navy must be headed by 
Cabinet posts held by active generals and admirals of the highest rank. This law made 
civilian rule of Japan impossible thereafter because no prime minister or member of the 
Cabinet could fill the two defense posts unless they made concessions to the armed 
services. 

Internal Feuds for Power 

In retaliation for this defeat, Ito made an alliance with the Liberal Party of Itagaki 
(1900) and took office as prime minister for the third time (1900-1901). But he had little 
freedom of action, since the minister of war, in accordance with the new law, was 
Yamagata's man, Katsura, and the minister of the navy was Admiral Yamamoto. 

In 1903 Yamagata obtained an imperial rescript forcing Ito to retire from active 
political life to the shelter of the Privy Council. Ito did so, leaving the Liberal Party and 
the leadership of the civilian forces to his protege, Saionji. Yamagata had already retired 
behind the scenes, but still dominated political life through his protege, Katsura. 

The period 1901-1913 saw an alternation of Katsura and Saionji governments, in 
which the former clearly controlled the government, while the latter, through the Liberal 
Party, won large and meaningless victories at the polls. Both in 1908 and in 1912 
Saionji's party won easy victories in general elections held while he was in office, and in 
both cases Katsura forced him out of office in spite of his majority in the Diet. 

At this point Katsura's ruthless use of the emperor and the militarists to increase the 
size and power of the army brought a new factor into Japanese political life by leading to 
a split with the navy. In 1912, when Saionji and Katsura had each headed two 
governments since 1901, the former refused to increase the army by two divisions (for 
service in Korea). Katsura at once threw the Saionji government out of office by having 
the minister of war resign. When Saionji could find no eligible general willing to serve, 
Katsura formed his third Cabinet (1912-1913) and created the new divisions. 

The navy, alienated by the army's high-handed political tactics, tried to keep Katsura 
out of office in 1912 by refusing to provide an admiral to serve as minister of the navy. 
They were defeated when Katsura produced an imperial rescript from the new Emperor 
Taisho (1912-1926) ordering them to provide an admiral. The navy retaliated the 
following year by forming an alliance with the Liberals and other anti-Katsura forces, on 
the grounds that his frequent use of imperial intervention in behalf of the lowest partisan 



politics was an insult to the exalted sanctity of the imperial position. For the first and only 
time, in 1913, an imperial rescript was refused acceptance, by the Liberal Party; Katsura 
had to resign, and a new Cabinet, under Admiral Yamamoto, was formed (1913-1914). 
This alliance of the navy, the Satsuma clan, and the Liberal Party so enraged the Choshu 
clan that the military and civilian wings of that group came together on an anti-Satsuma 
basis. 

Japanese Officials Receive Bribes from Foreign Munitions Firms 

In 1914 it was revealed that several high admirals had accepted bribes from foreign 
munitions firms such as German Siemens and British Vickers. Choshu used this as a club 
to force Yamamoto to resign, but since they could not form a government themselves 
they called Okuma out of retirement to form a temporary government completely 
dependent on them. The old man was given a majority in the Diet by turning the existing 
Liberal Party majority out of office and, in a completely corrupt election, providing a 
majority for a new Constitutional Believers' Party, which Katsura had created in 1913. 
Okuma was completely dependent on the Choshu oligarchy (which meant on Yamagata, 
as Ito died in 1909 and Inoue in 1915). He gave them two new army divisions and a 
strong anti-Chinese policy, but was replaced by General Terauchi, a Choshu militarist 
and favorite of Yamagata, in 1916. To provide this new government with less obviously 
corrupt party support, a deal was made with the Liberal Party. In return for seats in the 
Diet, places in the bureaucracy, and Mitsui money, this old Tosa party sold out to Choshu 
militarism, and was provided, by the prefectural governors, with a satisfying majority in 
the general election of 1916. 

Control of Japan under Domination of One Man 

Under the Terauchi government, Choshu militarism and Yamagata's personal power 
reached their culmination. By that time every high officer in the army owed his position 
to Yamagata's patronage. His old civilian rivals, like Ito or Inoue, were dead. Of the four 
remaining Genro, only Yamagata, aged eighty-one in 1918, still had his hands on the 
tiller; Matsukata, aged eighty-four, was a weakling; Okuma, aged eighty-one, was an 
outsider; and Saionji, aged seventy, was a semi-outsider. The emperor, as a result of the 
protests of 1913, no longer intervened in political life. The political parties were 
demoralized and subservient, prepared to sacrifice any principle for a few jobs. The 
economic organizations, led by the great zaibatsu, were completely dependent on 
government subsidies and government contracts. In a word, the controls of the Meiji 
oligarchy had come almost completely into the hands of one man. 

The Incredible Degree of Concentration of Power in Japan 

It would be difficult to exaggerate the degree of concentration of power in Japan in the 
period covered by this chapter. In thirty-three years of Cabinet government, there had 
been eighteen Cabinets but only nine different premiers. Of these nine premiers, only two 
(Saionji and Okuma) were not of Choshu or Satsuma, while five were military men. 



The growing militarization of Japanese life in the period ending in 1918 had ominous 
implications for the future. Not only did militarists control growing sectors of Japanese 
life; they had also succeeded in merging loyalty to the emperor and subservience to 
militarism into a single loyalty which no Japanese could reject without, at the same time, 
rejecting his country, his family, and his whole tradition. Even more ominous was the 
growing evidence that Japanese militarism was insanely aggressive, and prone to find the 
solution for internal problems in foreign wars. 

Japan Becomes Aggressive 

On three occasions in thirty years, against China in 1894-1895, against Russia in 
1904-1905, and against China and Germany in 1914-1918, Japan had entered upon 
warlike action for purely aggressive purposes. As a consequence of the first action, Japan 
acquired Formosa and the Pescadores and forced China to recognize the independence of 
Korea (1895). The subsequent Japanese penetration of Korea led to a rivalry with Russia, 
whose Trans-Siberian Railway was encouraging her to compensate for her rebuffs in the 
Balkans by increasing her pressure in the Far East. 

In order to isolate the approaching conflict with Russia, Japan signed a treaty with 
Britain (1902). By this treaty each signer could expect support from the other if it became 
engaged in war with more than one enemy in the Far East. With Russia thus isolated in 
the area, Japan attacked the czar's forces in 1904. These forces were destroyed on land by 
Japanese armies under the Satsuma Genro Oyama, while the Russian fleet of thirty-two 
vessels, coming from Europe, was destroyed by the Satsuma Admiral Togo in Tsushima 
Straits. By the Treaty of Portsmouth (1905) Russia renounced her influence in Korea, 
yielded southern Sakhalin and the lease on Liaotung to Japan, and agreed to a joint 
renunciation of Manchuria (which was to be evacuated by both Powers and restored to 
China). Korea, which had been made a Japanese protectorate in 1904, was annexed in 
1910. 

Outbreak of War in 1914 

The outbreak of war in 1914 provided a great opportunity for Japanese expansion. 
While all the Great Powers were busy elsewhere, the Far East was left to Japan. 
Declaring war on Germany on August 23, 1914, Nipponese troops seized the German 
holdings on the Shantung Peninsula and the German Pacific islands north of the equator 
(Marshall Islands, Marianas, and Carolines). This was followed, almost immediately 
(January 1915), by presentation of "Twenty-one Demands" on China. These demands at 
once revealed Japan's aggressive ambitions on the continent of Asia, and led to a decisive 
change in world opinion about Japan, especially in the United States. As preparation for 
such demands Japan had been able to build up a very pro-Japanese feeling in most of the 
Great Powers. Formal agreements or notes had been made with these, recognizing, in one 
way or another, Japan's special concern with East Asia. In respect to Russia a series of 
agreements had established spheres of influence. These gave northern Manchuria and 
western Inner Mongolia as spheres to Russia, and southern Manchuria with eastern Inner 
Mongolia as spheres for Japan. 



Japanese Agree upon an Open-Door Policy in China 

A number of diplomatic notes between the United States and Japan had arranged a 
tacit American acceptance of the Japanese position in Manchuria in return for a Japanese 
acceptance of the "Open-Door" or free-trade policy in China. The Twenty-one Demands 
broke this agreement with the United States since they sought to create for Japan a 
special economic position in China. In combination with the injury inflicted on Japanese 
pride by the rigid American restrictions on Japanese immigration into the United States, 
this marked a turning point in Japanese-American feeling from the generally favorable 
tone which it had possessed before 1915 to the growing unfavorable tone it assumed after 
1915. 

Unfavorable world opinion forced Japan to withdraw the most extreme of her Twenty- 
one Demands (those which were concerned with the use of Japanese advisers in various 
Chinese administrative functions), but many of the others were accepted by China under 
pressure of a Japanese ultimatum. The chief of these permitted Japan to arrange with 
Germany regarding the disposition of the German concessions in China without 
interference from China itself. Other demands, which were accepted, gave Japan 
numerous commercial, mining, and industrial concessions, mostly in eastern Inner 
Mongolia and southern Manchuria. 

Japan Was the Preeminent Power in East Asia 

In spite of her growing alienation of world opinion in the years of the First World 
War, the war brought Japan to a peak of prosperity and power it had not previously 
attained. The demand for Japanese goods by the belligerent countries resulted in a great 
industrial boom. The increase in the Japanese fleet and in Japanese territories in the 
northern Pacific, as well as the withdrawal of her European rivals from the area, gave 
Japan a naval supremacy there which was formally accepted by the other naval Powers in 
the Washington Agreements of 1922. And the Japanese advances in northern China made 
her the preeminent Power in East Asian economic and political life. All in all, the 
successors of the Meiji Restoration of 1868 could look with profound satisfaction on 
Japan's progress by 1918. 

Part Five— The First World War: 1914: 1918 

Chapter 11 — The Growth of International Tensions, 1871-1914 

Introduction 

The unification of Germany in the decade before 1871 ended a balance of power in 
Europe which had existed for 250 or even 300 years. During this long period, covering 
almost ten generations, Britain had been relatively secure and of growing power. She had 
found this power challenged only by the states of western Europe. Such a challenge had 
come from Spain under Philip II, from France under Louis XrV and under Napoleon, 



and, in an economic sense, from the Netherlands during much of the seventeenth century. 
Such a challenge could arise because these states were as rich and almost as unified as 
Britain herself, but, above all, it could arise because the nations of the West could face 
seaward and challenge England so long as central Europe was disunited and 
economically backward. 

The unification of Germany by Bismarck destroyed this situation politically, while the 
rapid economic growth of that country after 1871 modified the situation economically. 
For a long time Britain did not see this change but rather tended to welcome the rise of 
Germany because it relieved her, to a great extent, from the pressure of France in the 
political and colonial fields. This failure to see the changed situation continued until after 
1890 because of Bismarck's diplomatic genius, and because of the general failure of non- 
Germans to appreciate the marvelous organizing ability of the Germans in industrial 
activities. After 1890 Bismarck's masterful grip on the tiller was replaced by the 
vacillating hands of Kaiser William II and a succession of puppet chancellors. These 
incompetents alarmed and alienated Britain by challenging her in commercial, colonial, 
and especially naval affairs. In commercial matters the British found German salesmen 
and their agents offering better service, better terms, and lower prices on goods of at least 
equal quality, and in metric rather than Anglo-Saxon sizes and measurements. In the 
colonial field after 1884, Germany acquired African colonies which threatened to cut 
across the continent from east to west and thus checkmate the British ambitions to build a 
railway from the Cape of Good Hope to Cairo. These colonies included East Africa 
(Tanganyika), South-West Africa, Cameroons, and Togo. The German threat became 
greater as a result of German intrigues in the Portuguese colonies of Angola and 
Mozambique, and above all by the German encouragement of the Boers of the Transvaal 
and the Orange Free State before their war with Britain in 1899-1902. In the Pacific area 
Germany acquired by 1902 the Caroline, Marshall, and Marianas Islands, parts of New 
Guinea and Samoa, and a base of naval and commercial importance at Kiaochau on the 
Shantung Peninsula of China. In naval affairs Germany presented her greatest threat as a 
result of the German Naval bills of 1898, 1900, and 1902, which were designed to be an 
instrument of coercion against Britain. Fourteen German battleships were launched 
between 1900 and 1905. As a consequence of these activities Britain joined the anti- 
German coalition by 1907, the Powers of Europe became divided into two antagonistic 
coalitions, and a series of crises began which led, step by step, to the catastrophe of 1914. 

International affairs in the period 1871-1914 can be examined under four headings: (1) 
the creation of the Triple Alliance, 1871-1890; (2) the creation of the Triple Entente, 
1890-1907; (3) the efforts to bridge the gap between the two coalitions, 1890-1914; and 
(4) the series of international crises, 1905-1914. These are the headings under which we 
shall examine this subject. 

The Creation of the Triple Alliance, 1871-1890 

The establishment of a German Empire dominated by the Kingdom of Prussia left 
Bismarck politically satisfied. He had no desire to annex any additional Germans to the 
new empire, and the growing ambitions for colonies and a worldwide empire left him 



cold. As a satisfied diplomat he concentrated on keeping what he had, and realized that 
France, driven by fear and vengeance, was the chief threat to the situation. His immediate 
aim, accordingly, was to keep France isolated. This involved the more positive aim to 
keep Germany in friendly relations with Russia and the Habsburg Empire and to keep 
Britain friendly by abstaining from colonial or naval adventures. As part of this policy 
Bismarck made two tripartite agreements with Russia and Austro-Hungary: (a) the Three 
Emperors' League of 1873 and (b) the Three Emperors' Alliance of 1881. Both of these 
were disrupted by the rivalry between Austria and Russia in southeastern Europe, 
especially in Bulgaria. The Three Emperors' League broke down in 1878 at the Congress 
of Berlin because of Habsburg opposition to Russia's efforts to create a great satellite 
state in Bulgaria after her victory in the Russo-Turkish War of 1877. The Three 
Emperors' Alliance of 1881 broke down in the "Bulgarian crisis" of 1885. This crisis 
arose over the Bulgarian annexation of Eastern Rumelia, a union which was opposed by 
Russia but favored by Austria, thus reversing the attitude these Powers had displayed at 
Berlin in 1878. 

The rivalry between Russia and Austria in the Balkans made it clear to Bismarck that 
his efforts to form a diplomatic front of the three great empires were based on weak 
foundations. Accordingly, he made a second string for his bow. It was this second string 
which became the Triple Alliance. Forced to choose between Austria and Russia, 
Bismarck took the former because it was weaker and thus easier to control. He made an 
Austro-German alliance in 1879, following the disruption of the Three Emperors' League, 
and in 188: expanded it into a Triple Alliance of Germany, Austria, and Italy. This 
alliance, originally made for five years, was renewed at intervals until 1915. After the 
disruption of the Three Emperors' Alliance in 1885, the Triple Alliance became the chief 
weapon in Germany's diplomatic armory, although Bismarck, in order to keep France 
isolated, refused to permit Russia to drift completely out of the German sphere, and tried 
to bind Germany and Russia together by a secret agreement of friendship and neutrality 
known as the Reinsurance Treaty (1887). This treaty, which ran for three years, was not 
renewed in 1 890 after the new Emperor, William II, had discharged Bismarck. The 
Kaiser argued that the Reinsurance Treaty with Russia was not compatible with the 
Triple Alliance with Austria and Italy, since Austria and Russia were so unfriendly. By 
failing to renew, William left Russia and France both isolated. From this condition they 
naturally moved together to form the Dual Alliance of 1 894. Subsequently, by 
antagonizing Britain, the German government helped to transform this Dual Alliance into 
the Triple Entente. Some of the reasons why Germany made these errors will be 
examined in a subsequent chapter on Germany's internal history. 

The Creation of the Tripe Entente, 1890-1907 

The diplomatic isolation of Russia and France combined with a number of more 
positive factors to bring about the Dual Alliance of 1 894. Russian antagonism toward 
Austria in the Balkans and French fear of Germany along the Rhine were increased by 
Germany's refusal to renew the Reinsurance Treaty and by the early renewal of the Triple 
Alliance in 1891. Both powers were alarmed by growing signs of Anglo-German 
friendship at the time of the Heligoland Treaty (1890) and on the occasion of the Kaiser's 



visit to London in 1891. Finally, Russia needed foreign loans for railroad building and 
industrial construction, and these could be obtained most readily in Paris. Accordingly, 
the agreement was closed during the New Year celebrations of 1 894 in the form of a 
military convention. This provided that Russia would attack Germany if France were 
attacked by Germany or by Italy supported by Germany, while France would attack 
Germany if Russia were attacked by Germany or by Austria supported by Germany.. 

This Dual Alliance of France and Russia became the base of a triangle whose other 
sides were "ententes," that is, friendly agreements between France and Britain (1904) and 
between Russia and Britain (1907). 

To us looking back on it, the Entente Cordiale between France and Britain seems 
inevitable, yet to contemporaries, as late as 1898, it must have appeared as a most 
unlikely event. For many years Britain had followed a policy of diplomatic isolation, 
maintaining a balance of power on the Continent by shifting her own weight to whatever 
side of Europe's disputes seemed the weaker. Because of her colonial rivalries with 
France in Africa and southwest Asia and her disputes with Russia in the Near, Middle, 
and Far East, Britain was generally friendly to the Triple Alliance and estranged from the 
Dual Alliance as late as 1902. Her difficulties with the Boers in South Africa, the 
growing strength of Russia in the Near and Far East, and Germany's obvious sympathy 
with the Boers led Britain to conclude the Anglo-Japanese Alliance of 190 in order to 
obtain support against Russia in China. About the same time, Britain became convinced 
of the need and the possibility of an agreement with France. The need arose from 
Germany's direct threat to Britain's most sensitive spot by Tirpitz's naval-building 
program of 1898. The possibility of agreement with France emerged in the wake of the 
most acute Anglo-French crisis of modern times, the Fashoda crisis of 1898. At Fashoda 
on the Nile, a band of French under Colonel Jean Marchand, who had been crossing the 
Sahara from west to east, came face to face with a force of British under General 
Kitchener, who had been moving up the Nile from Egypt in order to subdue the tribes of 
the Sudan. Each ordered the other to withdraw. Passions rose to fever heat while both 
sides consulted their capitals for instructions. As a consequence of these instructions the 
French withdrew. As passions cooled and the dust settled, it became clear to both sides 
that their interests were reconcilable, since France's primary interest was on the 
Continent, where she faced Germany, while Britain's primary interest was in the colonial 
field w here she increasingly found herself facing Germany. France's refusal to engage in 
a colonial war with Britain while the German Army sat across the Rhine made it clear 
that France could arrive at a colonial agreement with Britain. This agreement was made 
in 1904 by putting all their disputes together on the negotiation table and balancing one 
against another. The French recognized the British occupation of Egypt in return for 
diplomatic support for their ambitions in Morocco. They gave up ancient rights in 
Newfoundland in return for new territories in Gabon and along the Niger River in Africa. 
Their rights in Madagascar were recognized in return for accepting a British "sphere of 
interests" in Siam. Thus, the ancient Anglo-French enmity was toned down in the face of 
the rising power of Germany. This Entente Cordiale was deepened in the period 1906- 
1914 by a series of Anglo-French "military conversations," providing, at first, for 
unofficial discussions regarding behavior in a quite hypothetical war with Germany but 



hardening imperceptibly through the years into a morally binding agreement for a British 
expeditionary force to cover the French left wing in the event of a French war with 
Germany. These "military conversations" were broadened after 1912 by a naval 
agreement by which the British undertook to protect France from the North Sea in order 
to free the French fleet for action against the Italian Navy in the Mediterranean. 

The British agreement with Russia in 1907 followed a course not dissimilar to that of 
the British agreement with France in 1904. British suspicions of Russia had been fed for 
years by their rivalry in the Near East. By 1904 these suspicions were deepened by a 
growing Anglo-Russian rivalry in Manchuria and North China, and were brought to a 
head by Russian construction of the Trans-Siberian Railway (finished in 1905). A violent 
crisis arose over the Dogger Bank incident of 1904, when the Russian fleet, en route from 
the Baltic Sea to the Far East, fired on British fishing vessels in the North Sea in the 
belief that they were Japanese torpedo boats. The subsequent destruction of that Russian 
fleet by the Japanese and the ensuing victory of Britain's ally in the Russo-Japanese War 
of 1905 made clear to both parties that agreement between them was possible. German 
naval rivalry with Britain and the curtailment of Russian ambitions in Asia as a result of 
the defeat by Japan made possible the agreement of 1907. By this agreement Persia was 
divided into three zones of influence, of which the northern was Russian, the southern 
was British, and the center was neutral. Afghanistan was recognized as under British 
influence; Tibet was declared to be under Chinese suzerainty; and Britain expressed her 
willingness to modify the Straits Agreements in a direction favorable to Russia. 

One influence which worked to create and strengthen the Triple Entente was that of 
the international banking fraternity. These were largely excluded from the German 
economic development, but had growing links with France and Russia. Prosperous 
enterprises like the Suez Canal Company, the Rothschild copper enterprise, Rio Tinto, in 
Spain, and many newer joint activities in Morocco created numerous unobtrusive links 
which both preceded and strengthened the Triple Entente. The Rothschilds, close friends 
of Edwards VII and of France, were linked to the French investment bank, Banque de 
Paris et des Pays Bas. This, in turn, was the chief influence in selling nine billion rubles 
of Russian bonds in France before 1914. The most influential of London bankers, Sir 
Ernest Cassel, a great and mysterious person (1852-1921), had come from Germany to 
England at the age of seventeen, built up an immense fortune, which he gave away with a 
lavish hand, was closely connected with Egypt, Sweden, New York, Paris, and Latin 
America, became one of King Edward's closest personal friends and employer of the 
greatest wire-puller of the period, the ubiquitous mole, Lord Esher. These generally anti- 
Prussian influences around King Edward played a significant part in building up the 
Triple Entente and in strengthening it when Germany foolishly challenged their projects 
in Morocco in the 1904-1912 period. 

Efforts to Bridge the Gap between the Two Coalitions, 1890-1914 

At the beginning, and even up to 1913, the two coalitions on the international scene 
were not rigid or irreconcilably alienated. The links between the members of each group 
were variable and ambiguous. The Triple Entente was called an entente just because two 



of its three links were not alliances. The Triple Alliance was by no means solid, 
especially in respect to Italy, which had joined it originally to obtain support against the 
Papacy over the Roman question but which soon tried to obtain support for an aggressive 
Italian policy in the Mediterranean and North Africa. Failure to obtain specific German 
support in these areas, and continued enmity with Austro-Hungary in the Adriatic, made 
the Italian link with the Central Powers rather tenuous. 

We shall mention at least a dozen efforts to bridge the gap which was slowly forming 
in the European "concert of the Powers." First in chronological order were the 
Mediterranean Agreements of 1887. In a series of notes England, Italy, Austria, and 
Spain agreed to preserve the status quo in the Mediterranean and its adjoining seas or to 
see it modified only by mutual agreement. These agreements were aimed at the French 
ambitions in Morocco and the Russian ambitions at the Straits. 

A second agreement was the Anglo-German Colonial Treaty of 1 890 by which 
German claims in East Africa, especially Zanzibar, were exchanged for the British title to 
the island of Heligoland in the Baltic Sea. Subsequently, numerous abortive efforts were 
made by the Kaiser and others on the German side, and by Joseph Chamberlain and 
others on the British side, to reach some agreement for a common front in world affairs. 
This resulted in a few minor agreements, such as one of 1898 regarding a possible 
disposition of the Portuguese colonies in Africa, one of 1899 dividing Samoa, and one of 
1900 to maintain the "Open Door" in China, but efforts to create an alliance or even an 
entente broke down over the German naval program, German colonial ambitions in 
Africa (especially Morocco), and German economic penetration of the Near East along 
the route of the Berlin-to-Baghdad Railway. German jealousy of England's world 
supremacy, especially the Kaiser's resentment toward his uncle, King Edward VII, was ill 
concealed. 

Somewhat similar negotiations were conducted between Germany and Russia, but 
with meager results. A Commercial Agreement of 1894 ended a long-drawn tariff war, 
much to the chagrin of the German landlords who enjoyed the previous exclusion of 
Russian grain, but efforts to achieve any substantial political agreement failed because of 
the German alliance with Austria (which faced Russia in the Balkans) and the Russian 
alliance with France (which faced Germany along the Rhine). These obstacles wrecked 
the so-called Bjorko Treaty, a personal agreement between the Kaiser and Nicholas made 
during a visit to each other's yachts in 1905, although the Germans were able to secure 
Russian consent to the Baghdad Railway by granting the Russians a free hand in northern 
Persia (1910). 

Four other lines of negotiation arose out of the French ambitions to obtain Morocco, 
the Italian desire to get Tripoli, the Austrian ambition to annex Bosnia, and the Russian 
determination to open the Straits to their warships. All four of these were associated with 
the declining power of Turkey, and offered opportunities for the European Powers to 
support one another's ambitions at the expense of the Ottoman Empire. In 1898 Italy 
signed a commercial treaty with France, and followed this up, two years later, by a 
political agreement which promised French support for the Italian ambitions in Tripoli in 



return for Italian support for the French designs in Morocco. The Italians further 
weakened the Triple Alliance in 1902 by promising France to remain neutral in the event 
that France was attacked or had to fight "in defense of her honor or of her security." 

In a somewhat similar fashion Russia and Austria tried to reconcile the former's desire 
to obtain an outlet through the Dardanelles into the Aegean with the latter's desire to 
control Slav nationalism in the Balkans and reach the Aegean at Saloniki. In 1897 they 
reached an agreement to maintain the status quo in the Balkans or, failing this, to 
partition the area among the existing Balkan states plus a new state of Albania. In 1903 
these two Powers agreed on a program of police and financial reform for the disturbed 
Turkish province of Macedonia. In 1908 a disagreement over Austrian efforts to 
construct a railway toward Saloniki was glossed over briefly by an informal agreement 
between the respective foreign ministers, Aleksandr Izvolski and Lexa von Aehrenthal, to 
exchange Austrian approval of the right of Russian warships to traverse the Straits for 
Russian approval of an Austrian annexation of the Turkish provinces of Bosnia and 
Herzegovina. All this tentative goodwill evaporated in the heat of the Bosnian crisis of 
1908, as we shall see in a moment. 

After 1905 the recurrent international crises and the growing solidarity of the 
coalitions (except for Italy) made the efforts to bridge the gap between the two coalitions 
less frequent and less fruitful. However, two episodes are worthy of attention. These are 
the Haldane Mission of 1912 and the Baghdad Railway agreement of 1914. In the former, 
British Secretary of State for War Lord Haldane went to Berlin to try to restrain Tirpitz's 
naval program. Although the German Navy had been built in the hope that it would bring 
England to the conference table, and without any real intention of using it in a war with 
England, the Germans were not able to grasp the opportunity when it occurred. The 
Germans wanted a conditional promise of British neutrality in a continental war as a price 
for suspension of the new naval bill. Since this might lead to German hegemony on the 
Continent, Haldane could not agree. He returned to London convinced that the Germany 
of Goethe and Hegel which he had learned to love in his student days was being 
swallowed up by the German militarists. The last bridge between London and Berlin 
seemed down, but in June, 1914, the two countries initialed the agreement by which 
Britain withdrew her opposition to the Baghdad Railway in return for a German promise 
to remain north of Basra and recognize Britain's preeminence on the Euphrates and 
Persian Gulf. This solution to a long-standing problem was lost in the outbreak of war six 
weeks later. 

The International Crisis, 1905-1914 

The decade from the Entente Cordiale to the outbreak of war witnessed a series of 
political crises which brought Europe periodically to the brink of war and hastened the 
growth of armaments, popular hysteria, nationalistic chauvinism, and solidity of alliances 
to a point where a relatively minor event in 1914 plunged the world into a war of 
unprecedented range and intensity. There were nine of these crises which must be 
mentioned here. In chronological order they are: 



1905-1906 The First Moroccan Crisis and the Algeciras Conference 

1908 The Bosnian Crisis 

1911 Agadir and the Second Moroccan Crisis 

1912 The First Balkan War 

1913 The Second Balkan War 
1913 The Albanian Crisis 

1913 The Liman von Sanders Affairs 

1914 Sarajevo 

The first Moroccan crisis arose from German opposition to French designs on 
Morocco. This opposition was voiced by the Kaiser himself in a speech in Tangier, after 
the French had won Italian, British, and Spanish acquiescence by secret agreements with 
each of these countries. These agreements were based on French willingness to yield 
Tripoli to Italy, Egypt to Britain, and the Moroccan coast to Spain. The Germans insisted 
on an international conference in the hope that their belligerence would disrupt the Triple 
Entente and isolate France. Instead, when the conference met at Algeciras, near 
Gibraltar, in 1906, Germany found herself supported only by Austria. The conference 
reiterated the integrity of Morocco but set up a state bank and a police force, both 
dominated by French influence. The crisis reached a very high pitch, but in both France 
and Germany the leaders of the more belligerent bloc (Theophile Delcasse and Friedrich 
von Holstein) were removed from office at the critical moment. 

The Bosnian crisis of 1908 arose from the Young Turk revolt of the same year. 
Fearful that the new Ottoman government might be able to strengthen the empire, Austria 
determined to lose no time in annexing Bosnia and Herzegovina, which had been under 
Austrian military occupation since the Congress of Berlin (1878). Since the annexation 
would permanently cut Serbia off from the Adriatic Sea, Aehrenthal, the Austrian foreign 
minister, consulted with Serbia's protector, Russia. The czar's foreign minister, Izvolski, 
was agreeable to the Austrian plan if Austria would yield to Izvolski's desire to open the 
Straits to Russian warships, contrary to the Congress of Berlin. Aehrenthal agreed, 
subject to Izvolski's success in obtaining the consent of the other Powers. While Izvolski 
was wending his way from Germany to Rome and Paris in an effort to obtain this 
consent, Aehrenthal suddenly annexed the two districts, leaving Izvolski without his 
Straits program (October 6, 1908). It soon became clear that he could not get this 
program. About the same time, Austria won Turkish consent to its annexation of Bosnia. 
A war crisis ensued, fanned by the refusal of Serbia to accept the annexation and its 
readiness to precipitate a general war to prevent it. The danger of such a war was 
intensified by the eagerness of the military group in Austria, led by Chief of Staff Conrad 
von Hotzendorff, to settle the Serb irritation once and for all. A stiff German note to 



Russia insisting that she abandon her support of Serbia and recognize the annexation 
cleared the air, for Izvolski yielded and Serbia followed, but it created a very bad 
psychological situation for the future. 

The second Moroccan crisis arose (July, 1911) when the Germans sent a gunboat, the 
Panther, to Agadir in order to force the French to evacuate Fez, which they had occupied, 
in violation of the Algeciras agreement, in order to suppress native disorders. The crisis 
became acute but subsided when the Germans gave up their opposition to French plans in 
Morocco in return for the cession of French territory in the Congo area (November 4, 
1911). 

As soon as Italy saw the French success in Morocco, it seized neighboring Tripoli, 
leading to the Tripolitan war between Italy and Turkey (September 28, 1911). All the 
Great Powers had agreements with Italy not to oppose her acquisition of Tripoli, but they 
disapproved of her methods, and were alarmed to varying degrees by her conquest of the 
Dodecanese Islands in the Aegean and her bombardment of the Dardanelles (April, 
1912). 

The Balkan States decided to profit from the weakness of Turkey by driving her out of 
Europe completely. Accordingly, Serbia, Bulgaria, Greece, and Montenegro attacked 
Turkey in the First Balkan War and had considerable success (1912). The Triple Alliance 
opposed the Serbian advance to the Adriatic, and suggested the creation of a new state in 
Albania to keep Serbia from the sea. A brief war crisis died down when Russia again 
abandoned the Serbian territorial claims and Austria was able to force Serbia and 
Montenegro to withdraw from Durazzo and Scutari. By the Treaty of London (1913) 
Turkey gave up most of her territory in Europe. Serbia, embittered by her failure to 
obtain the Adriatic coast, attempted to find compensation in Macedonia at the expense of 
Bulgaria's gains from Turkey. This led to the Second Balkan War, in which Serbia, 
Greece, Romania, and Turkey attacked Bulgaria. By the ensuing treaties of Bucharest and 
Constantinople (August-September, 1913), Bulgaria lost most of Macedonia to Serbia 
and Greece, much of Dobruja to Romania, and parts of Thrace to Turkey. Embittered at 
the Slavs and their supporters, Bulgaria drifted rapidly toward the Triple Alliance. 

Ultimatums from Austria and from Austria and Italy jointly (October, 1913), forced 
Serbia and Greece to evacuate Albania, and made it possible to organize that country 
within frontiers agreeable to the Conference of Ambassadors at London. This episode 
hardly had time to develop into a crisis when it was eclipsed by the Liman von Sanders 
Affair. 

Liman von Sanders was the head of a German military mission invited to the Ottoman 
Empire to reorganize the Turkish Army, an obvious necessity in view of its record in the 
Balkan Wars. When it became clear that Liman was to be actual commander of the First 
Army Corps at Constantinople and practically chief of staff in Turkey, Russia and France 
protested violently. The crisis subsided in January, 1914, when Liman gave up his 
command at Constantinople to become inspector-general of the Turkish Army. 



The series of crises from April, 1911, to January, 1914, had been almost 
uninterrupted. The spring of 1914, on the contrary, was a period of relative peace and 
calm, on the surface at least. But appearances were misleading. Beneath the surface each 
power was working to consolidate its own strength and its links with its allies in order to 
ensure that it would have better, or at least no worse, success in the next crisis, which 
everyone knew was bound to come. And come it did, with shattering suddenness, when 
the heir to the Habsburg throne, Archduke Francis Ferdinand, was assassinated by Serb 
extremists in the Bosnian city of Sarajevo on the 28th of June, 1914. There followed a 
terrible month of fear, indecision, and hysteria before the World War was begun by an 
Austrian attack on Serbia on July 28, 1914. 

Whole volumes have been written on the crisis of July, 1914, and it is hardly to be 
expected that the story could be told in a few paragraphs. The facts themselves are woven 
into a tangled skein, which historians have now unraveled; but more important than the 
facts, and considerably more elusive, are the psychological conditions surrounding these 
facts. The atmosphere of nervous exhaustion after ten years of crisis; the physical 
exhaustion from sleepless nights; the alternating moods of patriotic pride and cold fear; 
the underlying feeling of horror that nineteenth century optimism and progress were 
leading to such a disaster; the brief moments of impatient rage at the enemy for starting 
the whole thing; the nervous determination to avoid war if possible, but not to be caught 
off guard when it came and, if possible, to catch your opponent off guard instead; and, 
finally, the deep conviction that the whole experience was only a nightmare and that at 
the last moment some power would stop it — these were the sentiments which surged to 
and fro in the minds of millions of Europeans in those five long weeks of mounting 
tension. 

A number of forces made the crises of the period before the outbreak of war more 
dangerous than they would have been a generation or so earlier. Among these we should 
mention the influence of the mass army, the influence of the alliance system, the 
influence of democracy, the effort to obtain diplomatic ends by intimidation, the mood of 
desperation among politicians, and, lastly, the increasing influence of imperialism. 

The influence of the mass army will be discussed more extensively in the next chapter. 
Briefly, the mass army in a period in which communication was generally by telegraph 
and travel was by rail was an unwieldy thing which could be handled only in a rather 
rigid and inflexible fashion. As worked out by the Germans, and used with such success 
in 1866 and in 1870, this fashion required the creation, long before the war began, of 
detailed plans executed in sequence from an original signal and organized in such a way 
that every single person had his fixed role like a part in a great and intricate machine. As 
used by the Germans in early wars, extended by them and copied by others in the period 
before 1914, each soldier began to move from his home at a given signal. As they 
advanced, hour by hour, and day by day, these men assembled their equipment and 
organized into larger and larger groups, at first in platoons, companies, and regiments, 
then in divisions and armies. As they assembled they were advancing along lines of 
strategic attack made long before and, as likely as not, the convergence into armies would 
not be accomplished until the advance had already penetrated deep into enemy territory. 



As formulated in theory, the final assembly into a complete fighting machine would take 
place only a brief period before the whole mass hurled itself on an, as yet, only partially 
assembled enemy force. The great drawback to this plan of mobilization was its 
inflexibility and its complexity, these two qualities being so preponderant that, once the 
original signal was given, it was almost impossible to stop the forward thrust of the whole 
assemblage anywhere short of its decisive impact on the enemy forces in their own 
country. This meant that an order to mobilize was almost equivalent to a declaration of 
war; that no country could allow its opponent to give the original signal much before it 
gave its own signal; and that the decisions of politicians were necessarily subordinate to 
the decisions of generals. 

The alliance system worsened this situation in two ways. On the one hand, it meant 
that every local dispute was potentially a world wear, because the signal to mobilize 
given anywhere in Europe would start the machines of war everywhere. On the other 
hand, it encouraged extremism, because a country with allies would be bolder than a 
country with no allies, and because allies in the long run did not act to restrain one 
another, either because they feared that lukewarm support to an ally in his dispute would 
lead to even cooler support from an ally in one's own dispute later or because a 
restraining influence in an earlier dispute so weakened an alliance that it was necessary to 
give unrestrained support in a later dispute in order to save the alliance for the future. 
There can be little doubt that Russia gave excessive support to Serbia in a bad dispute in 
1914 to compensate for the fact that she had let Serbia down in the Albanian disputes of 
1913; moreover, Germany gave Austria a larger degree of support in 1914, although 
lacking sympathy with the issue itself, to compensate for the restraint which Germany 
had exercised on Austria during the Balkan Wars. 

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 the 
electorate 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, "a place in the sun," "outlets to the sea," and other real or imagined benefits. At the 
same time, the popular newspaper press, in order to sell papers, played on the same 
motives and issues, arousing their peoples, driving their own politicians to extremes, and 
alarming neighboring states to the point where they hurried to adopt similar kinds of 
action in the name of self-defense. Moreover, democracy made it impossible to examine 
international disputes on their merits, but instead transformed every petty argument into 
an affair of honor and national prestige so that no dispute could be examined on its merits 
or settled as a simple compromise because such a sensible approach would at once be 
hailed by one's democratic opposition as a loss of face and an unseemly compromise of 
exalted moral principles. 

The success of Bismarck's policy of "blood and iron" tended to justify the use of force 
and intimidation in international affairs, and to distort the role of diplomacy so that the 
old type of diplomacy began to disappear. Instead of a discussion between gentlemen to 
find a workable solution, diplomacy became an effort to show the opposition how strong 
one was in order to deter him from taking advantage of one's obvious weaknesses. 



Metternich's old definition, that "a diplomat was a man who never permitted himself the 
pleasure of a triumph," became lost completely, although it was not until after 1930 that 
diplomacy became the practice of polishing one's guns in the presence of the enemy. 

The mood of desperation among politicians served to make international crises more 
acute in the period after 1904. This desperation came from most of the factors we have 
already discussed, especially the pressure of the mass army and the pressure of the 
newspaper- reading electorate. But it was intensified by a number of other influences. 
Among these was the belief that war was inevitable. When an important politician, as, for 
example, Poincare, decides that war is inevitable, he acts as if it were inevitable, and this 
makes it inevitable. Another kind of desperation closely related to this is the feeling that 
war now is preferable to war later, since time is on the side of the enemy. Frenchmen 
dreaming of the recovery of Alsace and Lorraine, looked at the growing power and 
population of Germany and felt that war would be better in 1914 than later. Germans, 
dreaming of "a place in the sun" or fearing an "Entente encirclement," looked at the 
Russian rearmament program and decided that they would have more hope of victory in 
1914 than in 1917 when that rearmament program would be completed. Austria, as a 
dynastic state, had her own kind of desperation based on the belief that nationalistic 
agitation by the Slavs doomed her anyway if she did nothing, and that it would be better 
to die fighting than to disintegrate in peace. 

Lastly, the influence of imperialism served to make the crises of 1905-1914 more 
acute than those of an earlier period. This is a subject which has given rise to much 
controversy since 1914 and has, in its crudest form, been presented as the theory that war 
was a result of the machinations of "international bankers" or of the international 
armaments merchants, or was an inevitable result of the fact that the European capitalist 
economic 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. 
However, one fact seems to be beyond dispute. This is the fact that international 
economic competition was, in the period before 1914, requiring increasing political 
support. British gold and diamond miners in South Africa, German railroad builders in 
the Near East, French tin miners in the southwest Pacific, American oil prospectors in 
Mexico, British oil prospectors in the Near East, even Serbian pork merchants in the 
Habsburg domains sought and expected to get political support from their home 
governments. It may be that things were always thus. But before 1914 the number of such 
foreign entrepreneurs was greater than ever, their demands more urgent, their own 
politicians more attentive, with the result that international relations were exasperated. 

It was in an atmosphere such as this that Vienna received news of the assassination of 
the heir to the Habsburg throne on June 28, 1914. The Austrians were convinced of the 
complicity of the Serbian government, although they had no real proof. We now know 
that high officials of the Serbian government knew of the plot and did little to prevent it. 
This lack of activity was not caused by the fact that Francis Ferdinand was unfriendly to 
the Slavs within the Habsburg Empire but, on the contrary, by the fact that he was 
associated with plans to appease these Slavs by concessions toward political autonomy 
within the Habsburg domains and had even considered a project for changing the Dual 



Monarchy of Austrian and Hungarian into a Triple Monarchy of Austrian, Hungarian, 
and Slav. This project was feared by the Serbs because, by preventing the disintegration 
of Austria-Hungary, it would force postponement of their dreams of making Serbia the 
"Prussia of the Balkans." The project was also regarded with distaste by the Hungarians, 
who had no desire for that demotion associated with a shift from being one of two to 
being one of three joint rulers. Within the Hapsburg Cabinet there was considerable doubt 
as to what action to take toward Serbia. Hungary was reluctant to go to war for fear that a 
victory might lead to the annexation of more Serbs, thus accentuating the Slav problem 
within the empire and making the establishment of a Triple Monarchy more likely. 
Ultimately, they were reassured by the promise that no more Slavs would be annexed and 
that Serbia itself would, after its defeat, be compelled to stop its encouragement of Slav 
nationalist agitation within the empire and could, if necessary, be weakened by transfer of 
part of its territory to Bulgaria. On this irresponsible basis, Austria, having received a 
promise of support from Germany, sent a forty-eight-hour ultimatum to Belgrade. This 
document, delivered on July 23rd, was far-reaching. It bound Serbia to suppress anti- 
Habsburg publications, societies, and teaching; to remove from Serbian official positions 
persons to be named later by Austria; to allow Hapsburg officials to cooperate with the 
Serbs inside Serbia in apprehending and trying those implicated in the Sarajevo plot; and 
to offer explanations of various anti-Austrian utterances by Serbian officials. 

Serbia, confident of Russian support, answered in a reply which was partly favorable, 
partly evasive, and in one particular at least (use of Austrian judges in Serbian tribunals) 
negative. Serbia mobilized before making her reply; Austria mobilized against her as 
soon as it was received, and, on July 28th, declared war. The Russian czar, under severe 
pressure from his generals, issued, retracted, modified, and reissued an order for general 
mobilization. Since the German military timetable for a two-front war provided that 
France must be defeated before Russian mobilization was completed, France and 
Germany both ordered mobilization on August 1st, and Germany declared war on Russia. 
As the German armies began to pour westward, Germany declared war on France 
(August 3rd) and Belgium (August 4th). Britain could not allow France to be defeated, 
and in addition was morally entangled by the military conversations of 1906-1914 and by 
the naval agreement of 1912. Moreover, the German challenge on the high seas, in 
commercial activities throughout the world, and in colonial activities in Africa could not 
go unanswered. On August 4th Britain declared war on Germany, emphasizing the 
iniquity of her attack on Belgium, although in the Cabinet meeting of July 28th it had 
been agreed that such an attack would not legally obligate Britain to go to war. Although 
this issue was spread among the people, and endless discussions ensued about Britain's 
obligation to defend Belgian neutrality under the Treaty of 1839, those who made the 
decision saw clearly that the real reason for war was that Britain could not allow 
Germany to defeat France. 

Chapter 12— Military History, 1914-1918 

For the general student of history, the military history of the First World War is not 
merely the narration of advancing armies, the struggles of men, their deaths, triumphs, or 
defeats. Rather, it presents an extraordinary discrepancy between the facts of modern 



warfare and the ideas on military tactics which dominated the minds of men, especially 
the minds of military men. This discrepancy existed for many years before the war and 
began to disappear only in the course of 1918. As a result of its existence, the first three 
years of the war witnessed the largest military casualties in human history. These 
occurred as a result of the efforts of military men to do things which were quite 
impossible to do. 

The German victories of 1 866 and 1 870 were the result of theoretical study, chiefly by 
the General Staff, and exhaustive detailed training resulting from that study. They were 
emphatically not based on experience, for the army of 1 866 had had no actual fighting 
experience for two generations, and was commanded by a leader, Helmuth von Moltke, 
who had never commanded a unit so large as a company previously. Moltke's great 
contribution was to be found in the fact that, by using the railroad and the telegraph, he 
was able to merge mobilization and attack into a single operation so that the final 
concentration of his forces took place in the enemy country, practically on the battlefield 
itself, just before contact with the main enemy forces took place. 

This contribution of Moltke's was accepted and expanded by Count von Schlieffen, 
chief of the Great General Staff from 1891 to 1905. Schlieffen considered it essential to 
overwhelm the enemy in one great initial onslaught. He assumed that Germany would be 
outnumbered and economically smothered in any fighting of extended duration, and 
sought to prevent this by a lightning war of an exclusively offensive character. He 
assumed that the next war would be a two-front war against France and Russia 
simultaneously and that the former would have to be annihilated before the latter was 
completely mobilized. Above all, he was determined to preserve the existing social 
structure of Germany, especially the superiority of the Junker class; accordingly, he 
rejected either an enormous mass army, in which the Junker control of the Officers' Corps 
would be lost by simple lack of numbers, or a long-drawn war of resources and attrition 
which would require a reorganized German economy. 

The German emphasis on attack was shared by the French Army command, hut in a 
much more extreme and even mystical fashion. Under the influence of Ardant Du Picq 
and Ferdinand Foch, the French General Staff came to believe that victory depended only 
on attack and that the success of any attack depended on morale and not on any physical 
factors. Du Picq went so far as to insist that victory did not depend at all on physical 
assault or on casualties, because the former never occurs and the latter occurs only during 
flight after the defeat. According to him, victory was a matter of morale, and went 
automatically to the side with the higher morale. The sides charge at each other; there is 
never any shock of attack, because one side breaks and flees before impact; this break is 
not the result of casualties, because the flight occurs before casualties are suffered and 
always begins in the rear ranks where no casualties could be suffered; the casualties are 
suffered in the flight and pursuit after the break. Thus the whole problem of war resolved 
itself into the problem of how to screw up the morale of one's army to the point where it 
is willing to fling itself headlong on the enemy. Technical problems of equipment or 
maneuvers are of little importance. 



These ideas of Du Picq were accepted by an influential group in the French Army as 
the only possible explanation of the French defeat in 1870. This group, led by Foch, 
propagated throughout the army the doctrine of morale and the offensive a outrance. Foch 
became professor at the Ecole Superieure de Guerre in 1 894, and his teaching could be 
summed up in the four words, "Attaquez! Attaquez! Toujours, attaquez! " 

This emphasis on the offensive a outrance by both sides led to a concentration of 
attention on three factors which were obsolete by 1914. These three were (a) cavalry, (b) 
the bayonet, and (c) the headlong infantry assault. These were obsolete in 1914 as the 
result of three technical innovations: (a) rapid-fire guns, especially machine guns; (b) 
barbed-wire entanglements, and (c) trench warfare. The orthodox military leaders 
generally paid no attention to the three innovations while concentrating all their attention 
on the three obsolete factors. Foch, from his studies of the Russo-Japanese War, decided 
that machine guns and barbed wire were of no importance, and ignored completely the 
role of trenches. Although cavalry was obsolete for assault by the time of the Crimean 
War (a fact indicated in Tennyson's "The Charge of the Light Brigade"), and although 
this was clearly demonstrated to be so in the American Civil War (a fact explicitly 
recognized in The Army and Navy Journal for October 31, 1868), cavalry and cavalry 
officers continued to dominate armies and military preparations. During the War of 1914- 
1918 many commanding officers, like John French, Douglas Haig, and John J. Pershing, 
were cavalry officers and retained the mentality of such officers. Haig, in his testimony 
before the Royal Commission on the War in South Africa (1903), testified, "Cavalry will 
have a larger sphere of action in future wars." Pershing insisted on the necessity to keep 
large numbers of horses behind the lines, waiting for the "breakthrough" which was to be 
obtained by bayonet charge. In every army, transportation was one of the weakest points, 
yet feed for the horses was the largest item transported, being greater than ammunition or 
other supplies. Although transport across the Atlantic was critically short throughout the 
war, one-third of all shipping space was in feed for horses. Time for training recruits was 
also a critical bottleneck, but most armies spent more time on bayonet practice than on 
anything else. Yet casualties inflicted on the enemy by bayonet were so few that they 
hardly appear in the statistics dealing with the subject. 

The belief of military men that an assault made with high morale could roll through 
wire, machine guns, and trenches was made even more unrealistic by their insistence that 
such an offensive unit maintain a straight front. This meant that it was not to be permitted 
to move further in a soft spot, but was to hold back where advance was easy in order to 
break down the defensive strong points so that the whole front could precede at 
approximately the same rate. This was done, they explained, in order to avoid exposed 
flanks and enemy cross fire on advanced salients. 

There was some opposition to these unrealistic theories, especially in the German 
Army, and there were important civilians in all countries who fought with their own 
military leaders on these issues. Clemenceau in France, and, above all, Lord Esher and 
the members of the Committee on Imperial Defence in England should be-mentioned 
here. 



At the outbreak of war in August 1914, both sides began to put into effect their 
complicated strategic plans made much earlier. On the German side this plan, known as 
the Schlieffen Plan, was drawn up in 1905 and modified by the younger Helmuth von 
Moltke (nephew of the Moltke of 1870) after 1906. On the French side the plan was 
known as Plan XVII, and was drawn up by Joffre in 1912. 

The original Schlieffen Plan proposed to hold the Russians, as best as could be done, 
with ten divisions, and to face France with a stationary left wing of eight divisions and a 
great wheeling right and center of fifty-three divisions going through Holland and 
Belgium and coming down on the flank and rear of the French armies by passing west of 
Paris. Moltke modified this by adding two divisions to the right wing (one from the 
Russian front and one new) and eight new divisions to the left. He also cut out the 
passage through Holland, making it necessary for his right wing to pass through the Liege 
gap, between the Maastricht appendix of Holland and the forested terrain of the 
Ardennes. 

The French Plan XVII proposed to stop an anticipated German attack into eastern 
France from Lorraine by an assault of two enlarged French armies on its center, thus 
driving victoriously into southern Germany whose Catholic and separatist peoples were 
not expected to rally with much enthusiasm to the Protestant, centralist cause of a 
Prussianized German Empire. While this was taking place, a force of 800,000 Russians 
was to invade East Prussia, and 150,000 British were to bolster the French left wing near 
Belgium. 

The execution of these plans did not completely fulfill the expectations of their 
supporters. The French moved 3,781,000 men in 7,000 trains in 16 days (August 2-18), 
opening their attack on Lorraine on 29 August 14th. By August 20th they were shattered, 
and by August 25th, after eleven days of combat, had suffered 300,000 casualties. This 
was almost 25 percent of the number of men engaged, and represented the most rapid 
wastage of the war. 

In the meantime the Germans in 7 days (August 6-12) transported 1,500,000 men 
across the Rhine at the rate of 550 trains a day. These men formed 70 divisions divided 
into 7 armies and forming a vast arc from northwest to southeast. Within this arc were 49 
French divisions organized in 5 armies and the British Expeditionary Force (B.E.F.) of 4 
divisions. The relationship of these forces, the commanding generals of the respective 
armies, and their relative strength can be seen from the following list: 

Entente Forces (North to South) 

Army Commander Divisions 

B. E. F. Sir John French 4 

V Lanrezac 10 



IV De Langle de Cary/ 

IE Ruffey 20 

II Castelnau/ 

I Dubail 19 

German Forces (North to South) 

Army Commander Divisions 

I von Kluck/ 

II von Biilow/ 

in von Hausen/ 34 

IV Prince Albrecht of Wurttemberg/ 

V Crown Prince Frederick 21 

VI Prince Rupprecht of Bavaria/ 

VII von Heeringen 15 

The German right wing passed Liege, without reducing that great fortress, on the night 
of August 5-6 under the instructions of General Erich Ludendorff of the General Staff. 
The Belgian Army, instead of retreating southwestward before the German wave, moved 
northwestward to cover Antwerp. This put them ultimately on the rear of the advancing 
German forces. These forces peeled off eight and a half divisions to reduce the Belgian 
forts and seven divisions to cover the Belgian force before Antwerp. This reduced the 
strength of the German right wing, which was increasingly exhausted by the rapidity of 
its own advance. When the German plan became clear on August 1 8th, Joffre formed a 
new Sixth Army, largely from garrison troops, under Michel-Joseph Maunoury but really 
commanded by Joseph Gallieni, Minitary Governor of Paris. By August 22nd the whole 
French line west of Verdun was in retreat. Three days later, Moltke, believing victory 
secure, sent two army corps to Russia from the Second and Third armies. These arrived 
on the Eastern Front only after the Russian advance into Prussia had been smashed at 
Tannenberg and around the Masurian Lakes (August 26th-September Isth). In the 
meantime in the west, Schlieffen's project swept onward toward fiasco. When Lanrezac 
slowed up Billow's advance on August 28th, Kluck, who was already a day's march ahead 
of Biilow, tried to close the gap between the two by turning southeastward. This brought 
his line of advance east of Paris rather than est of that city as originally planned. Gallieni, 
bringing the Sixth Army from Paris in any vehicles he could commandeer, threw it at 
Kluck's exposed right flank. Kluck turned again to face Gallieni, moving northwestward 



in a brilliant maneuver in order to envelop him within the German arc before resuming 
his advance southeastward. This operation was accompanied hy considerable success 
except that it opened a gap thirty miles wide between Kluck and Blilow. Opposite this 
gap was the B.E.F., which was withdrawing southward with even greater speed than the 
French. On September 5th the French retreat stopped; on the following day they began a 
general counterattack, ordered by Joffre on the insistence of Gallieni. Thus began the 
First Battle of the Marne. 

Kluck was meeting with considerable success over the Sixth French Army, although 
Blilow was being badly mauled by Lanrezac, when the B.E.F. began to move into the gap 
between the First and Second German armies (September 8th). A German staff officer, 
Lieutenant-Colonel Hentsch, ordered the whole German right to fall back to the Aisne 
River where a front was formed on September 13th by the arrival of some of the German 
forces which had been attacking the Belgian forts. The Germans were willing to fall back 
to the Aisne because they believed the advance could be resumed when they wished to do 
so. In the next few months the Germans tried to resume their advance, and the French 
tried to dislodge the Germans from their positions. Neither was able to make any 
headway against the firepower of the other. A succession of futile efforts to outflank each 
other's positions merely succeeded in bringing the ends of the front to the English 
Channel on one extreme and to Switzerland on the other. In spite of millions of 
casualties, this line, from the sea to the mountains across the fair face of France, remained 
almost unchanged for over three years. 

During these terrible years, the dream of military men was to break through the enemy 
line by infantry assault, then roll up his flanks and disrupt his rearward communications 
by pouring cavalry and other reserves through the gap. This was never achieved. The 
effort to attain it led to one experiment after another. In order these were: (1) bayonet 
assault, (2) preliminary artillery barrage, (3) use of poison gas, (4) use of the tank, (5) use 
of infiltration. The last four of these innovations were devised alternately by the Allies 
and by the Central Powers. 

Bayonet assault was a failure by the end of 1914. It merely created mountains of dead 
and wounded without any real advance, although some officers continued to believe that 
an assault would be successful if the morale of the attackers could be brought to a 
sufficiently high pitch to overcome machine-gun fire. 

An artillery barrage as a necessary preliminary to infantry assault was used almost 
from the beginning. It was ineffectual. At first no army had the necessary quantity of 
munitions. Some armies insisted on ordering shrapnel rather than high-explosive shells 
for such barrages. This resulted in a violent controversy between Lloyd George and the 
generals, the former trying to persuade the latter that shrapnel was not effective against 
defensive forces in ground trenches. In time it should have become clear that high- 
explosive barrages were not effective either, although they were used in enormous 
quantities. They failed because: (1) earth and concrete fortifications provided sufficient 
protection to the defensive forces to allow them to use their own firepower against the 
infantry assault which followed the barrage; (2) a barrage notified the defense where to 



expect the following infantry assault, so that reserves could be brought up to strengthen 
that position; and (3) the doctrine of the continuous front made it impossible to penetrate 
the enemy positions on a wide-enough front to break through. The efforts to do so, 
however, resulted in enormous casualties. At Verdun in 1916 the French lost 350,000 and 
the Germans 300,000. On the Eastern Front the Russian General Aleksei Brusilov lost a 
million men in an indecisive attack through Galicia (June- August, 1916). On the Somme 
in the same year the British lost 410,000, the French lost 190,000, and the Germans lost 
450,000 for a maximum gain of 7 miles on a front about 25 miles wide (July-November, 
1916). The following year the slaughter continued. At Chemin des Dames in April, 1917, 
the French, under a new commander, Robert Nivelle, fired 1 1 million shells in a 10-day 
barrage on a 30-mile front. The attack failed, suffering losses of 1 18,000 men in a brief 
period. Many corps mutinied, and large numbers of combatants were shot to enforce 
discipline. Twenty-three civilian leaders were also executed. Nivelle was replaced by 
Petain. Shortly afterward, at Passchendaele (Third Battle of Ypres), Haig used a barrage 
of 4 1/4 million shells, almost 5 tons for every yard of an 1 r-mile front, but lost 400,000 
men in the ensuing assault (August-November, 1917). 

The failure of the barrage made it necessary to devise new methods, but military men 
were reluctant to try any innovations. In April, 1915, the Germans were forced by civilian 
pressure to use poison gas, as had been suggested by the famous chemist Fritz Haber. 
Accordingly, without any effort at concealment and with no plans to exploit a 
breakthrough if it came, they sent a wave of chlorine gas at the place where the French 
and British lines joined. The junction was wiped out, and a great gap was opened through 
the line. Although it was not closed for five weeks, nothing was done by the Germans to 
use it. The first use of gas by the Western Powers (the British) in September, 1915, was 
no more successful. At the terrible Battle of Passchendaele in July 1917, the Germans 
introduced mustard gas, a weapon which was copied by the British in July 1918. This 
was the most effective gas used in the war, but it served to strengthen the defense rather 
than the offense, and was especially valuable to the Germans in their retreat in the 
autumn of 1918, serving to slow up the pursuit and making difficult any really decisive 
blow against them. 

The tank as an offensive weapon devised to overcome the defensive strength of 
machine-gun fire was invented by Ernest Swinton in 1915. Only his personal contacts 
with the members of the Committee of Imperial Defence succeeded in bringing his idea 
to some kind of realization. The suggestion was resisted by the generals. When continued 
resistance proved impossible, the new weapon was misused, orders for more were 
canceled, and all military supporters of the new weapon were removed from responsible 
positions and replaced by men who were distrustful or at least ignorant of the tanks. 
Swinton sent detailed instructions to Headquarters, emphasizing that they must be used 
for the first time in large numbers, in a surprise assault, without any preliminary artillery 
barrage, and with close support by infantry reserves. Instead they were used quite 
incorrectly. While Swinton was still training crews for the first 150 tanks, fifty were 
taken to France, the commander who had been trained in their use was replaced by an 
inexperienced man, and a mere eighteen w-ere sent against the Germans. This occurred 
on September 15, 1916, in the waning stages of the Battle of the Somme. An unfavorable 



report on their performance was sent from General Headquarters to the War Office in 
London and, as a result, an order for manufacture of a thousand more was canceled 
without the knowledge of the Cabinet. This was overruled only by direct orders from 
Lloyd George. Only on November 20, 1917, were tanks used as Swinton had instructed. 
On that day 381 tanks supported by six infantry divisions struck the Hindenburg Line 
before Cambrai and burst through into open country. These forces were exhausted by a 
five-mile gain, and stopped. The gap in the German line was not utilized, for the only 
available reserves were two divisions of cavalry which were ineffective. Thus the 
opportunity was lost. Only in 1918 were massed tank attacks used with any success and 
in the fashion indicated by Swinton. 

The year 1917 was a bad one. The French and British suffered through their great 
disasters at Chemin des Dames and Passchendaele. Romania entered the war and was 
almost completely overrun, Bucharest being captured on December 5th. Russia suffered a 
double revolution, and was obliged to surrender to Germany. The Italian Front was 
completely shattered by a surprise attack at Caporetto and only by a miracle was it 
reestablished along the Piave (October-December, 1917). The only bright spots in the 
year were the British conquests of Palestine and Mesopotamia and the entrance into the 
war of the United States, but the former was not important and the latter was a promise 
for the future rather than a help to 1917. 

Nowhere, perhaps, is the unrealistic character of the thinking of most high military 
leaders of World War I revealed more clearly than in the British commander in chief, 
Field Marshal Sir Douglas (later Earl) Haig, scion of a Scottish distillery family. In June, 
1917, in spite of a decision of May 4th by the Inter-Allied Conference at Paris against 
any British offensive, and at a time when Russia and Serbia had been knocked out of the 
war, French military morale was shattered after the fiasco of the Nivelle offensive, and 
American help was almost a year in the future, Haig determined on a major offensive 
against the Germans to win the war. He ignored all discouraging information from his 
intelligence, wiped from the record the known figures about German reserves, and 
deceived the Cabinet, both in respect to the situation and to his own plans. Throughout 
the discussion the civilian political leaders, who were almost universally despised as 
ignorant amateurs by the military men, were proved more correct in their judgments and 
expectations. Haig obtained permission for his Passchendaele offensive only because 
General (later Field Marshal and Baronet) William Robertson, Chief of the Imperial 
General Staff, covered up Haig's falsifications about German reserves and because First 
Sea Lord Admiral John Jellicoe told the Cabinet that unless Haig could capture the- 
submarine bases on the Belgian coast (an utterly impossible objective) he considered it 
"improbable that we could go on with the war next year for lack of shipping." On this 
basis, Haig won approval for a "step by step" offensive "not involving heavy losses." He 
was so optimistic that he told his generals that "opportunities for the employment of 
cavalry in masses are likely to offer." The offensive, opened on July 31st, developed into 
the most horrible struggle of the war, fought week after week in a sea of mud, with 
casualties mounting to 400,000 men after three months. In October, when the situation 
had been hopeless for weeks, Haig still insisted that the Germans were at the point of 
collapse, that their casualties were double the British (they were considerably less than 



the British), and that the breakdown of the Germans, and the opportunity for the tanks 
and cavalry to rush through them, might come at any moment. 

One of the chief reasons for the failure of these offensives was the doctrine of the 
continuous front, which led commanders to hold back their offensives where resistance 
was weak and to throw their reserves against the enemy's strong points. This doctrine was 
completely reversed by Ludendorff in the spring of 1918 in a new tactic known as 
"infiltration." By this method advance was to be made around strong points by 
penetrating as quickly as possible and with maximum strength through weak resistance, 
leaving the centers of strong resistance surrounded and isolated for later attention. 
Although Ludendorff did not carry out this plan with sufficient conviction to give it full 
success, he did achieve amazing results. The great losses by the British and French in 
1917, added to the increase in German strength from forces arriving from the defunct 
Russian and Romanian fronts, made it possible for Ludendorff to strike a series of 
sledgehammer blows along the Western Front between Douai and Verdun in March and 
April 1918. Finally, on May 27th, after a brief but overwhelming bombardment, the 
German flood burst over Chemin des Dames, poured across the Aisne, and moved 
relentlessly toward Paris. By May 30th it was on the Marne, thirty-seven miles from the 
capital. There, in the Second Battle of the Marne, were reenacted the events of September 
1914. On June 4th the German advance was stopped temporarily by the Second American 
Division at Chateau-Thierry. In the next six weeks a series of counterattacks aided by 
nine American divisions were made on the northern flank of the German penetration. The 
Germans fell back behind the Vesle River, militarily intact, but so ravaged by influenza 
that many companies had only thirty men. The crown prince demanded that the war be 
ended. Before this could be done, on August 8, 1918 — "the black day of the German 
Army," as Ludendorff called it — the British broke the German line at Amiens by a 
sudden assault with 456 tanks supported by 13 infantry and 3 cavalry divisions. When the 
Germans rushed up 1 8 reserve divisions to support the six which were attacked, the 
Allied Powers repeated their assault at Saint-Quentin (August 31st) and in Flanders 
(September 2nd). A German Crown Council, meeting at Spa, decided that victory was no 
longer possible, but neither civil government nor army leaders would assume the 
responsibility for opening negotiations for peace. The story of these negotiations will be 
examined in a moment, as the last of a long series of diplomatic conversations which 
continued throughout the war. 

Looking back on the military history of the First World War, it is clear that the whole 
war was a siege operation against Germany. Once the original German onslaught was 
stopped on the Marne, victory for Germany became impossible because she could not 
resume her advance. On the other hand, the Entente Powers could not eject the German 
spearhead from French soil, although they sacrificed millions of men and billions of 
dollars in the effort to do so. Any effort to break in on Germany from some other front 
was regarded as futile, and was made difficult by the continuing German pressure in 
France. Accordingly, although sporadic attacks were made on the Italian Front, in the 
Arab areas of the Ottoman Empire, on the Dardanelles directly in 1915, against Bulgaria 
through Saloniki in 1915- 1918, and along the whole Russian Front, both sides continued 



to regard northeastern France as the vital area. And in that area, clearly no decision could 
be reached. 

To weaken Germany the Entente Powers began a blockade of the Central Powers, 
controlling the sea directly, in spite of the indecisive German naval challenge at Jutland 
in 1916, and limiting the imports of neutrals near Germany, like the Netherlands. To 
resist this blockade, Germany used a four-pronged instrument. On the home front every 
effort was made to control economic life so that all goods would be used in the most 
effective fashion possible and so that food, leather, and other necessities would be 
distributed fairly to all. The success of this struggle on the home front was due to the 
ability of two German Jews. Haber, the chemist, devised a method for extracting nitrogen 
from the air, and thus obtained an adequate supply of the most necessary constituent of 
all fertilizers and all explosives. Before 1914 the chief source of nitrogen had been in the 
guano deposits of Chile, and, but for Haber, the British blockade would have compelled a 
German defeat in 1915 from lack of nitrates. Walter Rathenau, director of the German 
Electric Company and of some five dozen other enterprises, organized the German 
economic system in a mobilization which made it possible for Germany to fight on with 
slowly dwindling resources. 

On the military side Germany made a threefold reply to the British blockade. It tried 
to open the blockade by defeating its enemies to the south and east (Russia, Romania, and 
Italy). In 1917 this effort was largely successful, but it was too late. Simultaneously, 
Germany tried to wear down her Western foes by a policy of attrition in the trenches and 
to force Britain out of the war by a retaliatory submarine blockade directed at British 
shipping. The submarine attack, as a new method of naval warfare, was applied with 
hesitation and ineffectiveness until 1917. Then it was applied with such ruthless 
efficiency that almost a million tons of shipping was sunk in the month of April 1917, 
and Britain was driven within three weeks of exhaustion of her food supply. This danger 
of a British defeat, dressed in the propaganda clothing of moral outrage at the iniquity of 
submarine attacks, brought the United States into the war on the side of the Entente in 
that critical month of April, 1917. In the meantime the Germany policy of military 
attrition on the Western Front worked well until 1918. By January of that year Germany 
had been losing men at about half her rate of replacement and at about half the rate at 
which she was inflicting losses on the Entente Powers. Thus the period 1914-1918 saw a 
race between the economic attrition of Germany by the blockade and the personal 
attrition of the Entente by military action. This race was never settled on its merits 
because three new factors entered the picture in 1917. These were the German counter- 
blockade by submarines on Britain, the increase in German manpower in the West 
resulting from her victory in the East, and the arrival on the Western Front of new 
American forces. The first two of these factors were overbalanced in the period March- 
September, 1918, by the third. By August of 1918 Germany had given her best, and it had 
not been adequate. The blockade and the rising tide of American manpower gave the 
German leaders the choice of surrender or complete economic and social upheaval. 
Without exception, led by the Junker military commanders, they chose surrender. 

Chapter 13— Diplomatic History, 1914-1 918 



The beginnings of military action in August 1914 did not mark the end of diplomatic 
action, even between the chief opponents. Diplomatic activity continued, and was aimed, 
very largely, at two goals: (a) to bring new countries into the military activities or, on the 
contrary, to keep them out, and (b) to attempt to make peace by negotiations. Closely 
related to the first of these aims were negotiations concerned with the disposition of 
enemy territories after the fighting ceased. 

Back of all the diplomatic activities of the period 1914-1918 was a fact which 
impressed itself on the belligerents relatively slowly. This was the changed character of 
modern warfare. With certain exceptions the wars of the eighteenth and early nineteenth 
centuries had been struggles of limited resources for limited objectives. The growth of 
political democracy, the rise of nationalism, and the industrialization of war led to total 
war with total mobilization and unlimited objectives. In the eighteenth century, when 
rulers were relatively free from popular influences, they could wage wars for limited 
objectives and could negotiate peace on a compromise basis when these were objectives 
were 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 vitally 
affecting its morale or its fighting qualities. The arrival of democracy and of the mass 
army required that the great body of the citizens give wholehearted support for any war 
effort, and made it impossible to wage wars for limited objectives. Such popular support 
could be won only in behalf of great moral goals or universal philosophic values or, at the 
very least, for survival. At the same time the growing industrialization and economic 
integration of modern society made it impossible to mobilize for war except on a very 
extensive basis which approached total mobilization. This mobilization could not be 
directed toward limited objectives. From these factors came total war with total 
mobilization and unlimited objectives, including the total destruction or unconditional 
surrender of the enemy. Having 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. It became almost axiomatic that "who is 
not with me is against me." At the same time, it became almost impossible to 
compromise sufficiently to obtain the much more limited goals which would permit a 
negotiated peace. As Charles Seymour put it: "Each side had promised itself a peace of 
victory. The very phrase 'negotiated peace' became synonymous with treachery." 
Moreover, the popular basis of modern war required a high morale which might easily be 
lowered if the news leaked out that the government was negotiating peace in the middle 
of the fighting. As a consequence of these conditions, efforts to negotiate peace during 
the First World War were generally very secret and very unsuccessful. 

The change from limited wars with limited objectives fought with mercenary troops to 
unlimited wars of economic attrition with unlimited objectives fought with national 
armies had far-reaching consequences. The distinction between combatants and 
noncombatants and between belligerents and neutrals became blurred and ultimately 
undistinguishable. International law, which had grown up in the period of limited 
dynastic wars, made a great deal of these distinctions. Noncombatants had extensive 
rights which sought to protect their ways of life as much as possible during periods of 



warfare; neutrals had similar rights. In return, strict duties to remain both noncombatant 
and neutral rested on these "outsiders." All these distinctions broke down in 1914-1915, 
with the result that both sides indulged in wholesale violations of existing international 
law. Probably on the whole these violations were more extensive (although less widely 
publicized) on the part of the Entente than on the part of the Central Powers. The reasons 
for this were that the Germans still maintained the older traditions of a professional army, 
and their position, both as an invader and as a "Central Power" with limited manpower 
and economic resources, made it to their advantage to maintain the distinctions between 
combatant and noncombatant and between belligerent and neutral. If they could have 
maintained the former distinction, they would have had to fight the enemy army and not 
the enemy civilian population, and, once the former was defeated, would have had little 
to fear from the latter, which could have been controlled by a minimum of troops. If they 
could have maintained the distinction between belligerent and neutral, it would have been 
impossible to blockade Germany, since basic supplies could have been imported through 
neutral countries. It was for this reason that Schlieffen's original plans for an attack on 
France through Holland and Belgium were changed by Moltke to an attack through 
Belgium alone. Neutral Holland was to remain as a channel of supply for civilian goods. 
This was possible because international law made a distinction between war goods, 
which could be declared contraband, and civilian goods (including food), which could not 
be so declared. Moreover, the German plans, as we have indicated, called for a short, 
decisive war against the enemy armed forces, and they neither expected nor desired a 
total economic mobilization or even a total military mobilization, since these might 
disrupt the existing social and political structure in Germany. For these reasons, Germany 
made no plans for industrial or economic mobilization, for a long war, or for 
withstanding a blockade, and hoped to mobilize a smaller proportion of its manpower 
than its immediate enemies. 

The failure of the Schlieffen plan showed the error of these ideas. Not only did the 
prospect of a long war make economic mobilization necessary, but the occupation of 
Belgium showed that national feeling was tending to make the distinction between 
combatant and noncombatant academic. When Belgian civilians shot at German soldiers, 
the latter took civilian hostages and practiced reprisals on civilians. These German 
actions were publicized throughout the world by the British propaganda machine as 
"atrocities" and violations of international law (which they were), while the Belgian 
civilian snipers were excused as loyal patriots ( although their actions were even more 
clearly violations of international law and, as such, justified severe German reactions). 
These "atrocities" were used by the British to justify their own violations of international 
law. As early as August 20, 1914, they were treating food as contraband and interfering 
with neutral shipments of food to Europe. On November 5, 1914, they declared the whole 
sea from Scotland to Iceland a "war zone," covered it with fields of explosive floating 
mines, and ordered all ships going to the Baltic, Scandinavia, or the Low Countries to go 
by way of the English Channel, where they were stopped, searched, and much of their 
cargoes seized, even when these cargoes could not be declared contraband under existing 
international law. In reprisal the Germans on February 18, 1915 declared the English 
Channel a "war zone," announced that their submarines would sink shipping in that area, 
and ordered shipping for the Baltic area to use the route north of Scotland. The United 



States, which rejected a Scandinavian invitation to protest against the British war zone 
closed with mines north of Scotland, protested violently against the German war zone 
closed with submarines on the Narrow Seas, although, as one American senator put it, the 
"humanity of the submarine was certainly on a higher level than that of the floating mine, 
which could exercise neither discretion nor judgment." 

The United States accepted the British "war zone," and prevented its ships from using 
it. On the other hand, it refused to accept the German war zone, and insisted that 
American lives and property were under American protection even when traveling on 
armed belligerent ships in this war zone. Moreover, the United States insisted that 
German submarines must obey the laws of the sea as drawn for surface vessels. These 
laws provided that merchant ships could be stopped by a war vessel and inspected, and 
could be sunk, if carrying contraband, after the passengers and the ships' papers were put 
in a place of safety. A place of safety was not the ships' boats, except in sight of land or 
of other vessels in a calm sea. The merchant vessel so stopped obtained these rights only 
if it made no act of hostility against the enemy war vessel. It was not only difficult, or 
even impossible, for German submarines to meet these conditions; it was often 
dangerous, since British merchant ships received instructions to attack German 
submarines at sight, by ramming if possible. It was even dangerous for the German 
submarines to apply the established law of neutral vessels; for British vessels, with these 
aggressive orders, frequently flew neutral flags and posed as neutrals as long as possible. 
Nevertheless, the United States continued to insist that the Germans obey the old laws, 
while condoning British violations of the same laws to the extent that the distinction 
between war vessels and merchant ships was blurred. Accordingly, German submarines 
began to sink British merchant ships with little or no warning. Their attempts to justify 
this failure to distinguish between combatants and noncombatants on the ground that 
British floating mines, the British food blockade, and the British instructions to merchant 
ships to attack submarines made no such distinction were no more successful than their 
efforts to show that their severity against the civilian population of Belgium was justified 
by civilian attacks on German troops. They were trying to carry on legal distinctions 
remaining from an earlier period when conditions were entirely different, and their 
ultimate abandonment of these distinctions on the grounds that their enemies had already 
abandoned them merely made matters worse, because if neutrals became belligerents and 
noncombatants became combatants, Germany and her allies would suffer much more 
than Britain and her friends. In the final analysis this is why the distinctions were 
destroyed; but beneath all legal questions was to be found the ominous fact that war, by 
becoming total, had made both neutrality and negotiated peace almost impossible. We 
shall now turn our attention to this struggle over neutrality and the struggle over 
negotiated peace. 

So far as legal or diplomatic commitments went, Germany, in July, 1914, had the right 
to expect that Austria-Hungary, Italy, Romania, and perhaps Turkey would be at her side 
and that her opponents would consist of Serbia, Montenegro, Russia, and France, with 
England maintaining neutrality, at the beginning, at least. Instead, Italy and Romania 
fought against her, a loss which was not balanced by the accession of Bulgaria to her 
side. In addition, she found her opponents reinforced by England, Belgium, Greece, the 



United States, China, Japan, the Arabs, and twenty other "Allied and Associated Powers." 
The process by which the reality turned out to be so different from Germany's legitimate 
expectations will now take our attention. 

Turkey, which had been growing closer to Germany since before 1890, offered 
Germany an alliance on July 27, 1914, when the Sarajevo crisis was at its height. The 
document was signed secretly on August 1st, and bound Turkey to enter the war against 
Russia if Russia attacked Germany or Austria. In the meantime, Turkey deceived the 
Entente Powers by conducting long negotiations with them regarding its attitude toward 
the war. On October 29th it removed its mask of neutrality by attacking Russia, thus 
cutting her off from her Western allies by the southern route. To relieve the pressure on 
Russia, the British made an ineffectual attack on Gallipoli at the Dardanelles (February- 
December, 1915). Only at the end of 1916 did any real attack on Turkey begin, this time 
from Egypt into Mesopotamia, where Baghdad was captured in March 1917, and the way 
opened up the valley as well as across Palestine to Syria. Jerusalem fell to General 
Allenby in December 1917, and the chief cities of Syria fell the following October 
(1918).. 

Bulgaria, still smarting from the Second Balkan War (1913), in which it had lost 
territory to Romania, Serbia, Greece, and Turkey, was from the outbreak of war in 1914 
inclined toward Germany, and was strengthened in that inclination by the Turkish attack 
on Russia in October. Both sides tried to buy Bulgaria's allegiance, a process in which the 
Entente Powers were hampered by the fact that Bulgaria's ambitions could be satisfied 
only at the expense of Greece, Romania, or Serbia, whose support they also desired. 
Bulgaria wanted Thrace from the Maritsa River to the Vardar, including Kavalla and 
Saloniki (which were Greek), most of Macedonia (which was Greek or Serbian), and 
Dobruja (from Romania). The Entente Powers offered Thrace to the Vardar in November 
1914, and added some of Macedonia in May 1915, compensating Serbia with an offer of 
Bosnia, Herzegovina, and the Dalmatian coast. Germany, on the other hand, gave 
Bulgaria a strip of Turkish territory along the Maritsa River in July 1915, added to this a 
loan of 200,000,000 francs six weeks later, and, in September 1915, accepted all 
Bulgaria's demands provided they were at the expense of belligerent countries. Within a 
month Bulgaria entered the war by attacking Serbia (October II, 1915). It had 
considerable success, driving westward across Serbia into Albania, but exposed its left 
flank in this process to an attack from Entente forces which were already based on 
Saloniki. This attack came in September 1918, and within a month forced Bulgaria to ask 
for an armistice (September 30th). This marked the first break in the united front of the 
Central Powers. 

When war began in 1914, Romania remained neutral, in spite of the fact that it had 
joined the Triple Alliance in 1883. This adherence had been made because of the 
Germanic sympathies of the royal family, and was so secret that only a handful of people 
even knew about it. The Romanian people themselves were sympathetic to France. At 
that time Romania consisted of three parts (Moldavia, Wallachia, and Dobruja) and had 
ambitions to acquire Bessarabia from Russia and Transylvania from Hungary. It did not 
seem possible that Romania could get both of these, yet that is exactly what happened, 



because Russia was defeated by Germany and ostracized by the Entente Powers after its 
revolution in 1917, while Hungary was defeated by the Entente Powers in 1918. The 
Romanians were strongly anti-Russian after 1878, but this feeling decreased in the course 
of time, while animosities against the Central Powers rose, because of the Hungarian 
mistreatment of the Romanian minority in Transylvania. As a result, Romania remained 
neutral in 1914. Efforts by the Entente Powers to win her to their side were vain until 
after the death of King Carol in October 1914. The Romanians asked, as the price of their 
intervention on the Entente side, Transylvania, parts of Bukovina and the Banat of 
Temesvar, 500,000 Entente troops in the Balkans, 200,000 Russian troops in Bessarabia, 
and equal status with the Great Powers at the Peace Conference. For this they promised to 
attack the Central Powers and not to make a separate peace. Only the heavy casualties 
suffered by the Entente Powers in 1916 brought them to the point of accepting these 
terms. They did so in August of that year, and Romania entered the war ten days later. 
The Central Powers at once overran the country, capturing Bucharest in December. The 
Romanians refused to make peace until the German advance to the Marne in the spring of 
1918 convinced them that the Central Powers were going to win. Accordingly, they 
signed the Treaty of Bucharest with Germany (May 7, 1918) by which they gave Dobruja 
to Bulgaria, but obtained a claim to Bessarabia,, which Germany had previously taken 
from Russia. Germany also obtained a ninety-year lease on the Romanian oil wells. 

Though the Entente efforts to get Greece into the war were the most protracted and 
most unscrupulous of the period, they were unsuccessful so long as King Constantine 
remained on the throne (to June 1917). Greece was offered Smyrna in Turkey if it would 
give Kavalla to Bulgaria and support Serbia. Prime Minister Eleutherios Venizelos was 
favorable, but could not persuade the king, and soon was forced to resign (March 1915). 
He returned to office in August, after winning a parliamentary election in June. When 
Serbia asked Greece for the 150,000 men promised in the Serb-Greek treaty of 1913 as 
protection against a Bulgarian attack on Serbia, Venizelos tried to obtain these forces 
from the Entente Powers. Four French-British divisions landed at Saloniki (October 
1915), but Venizelos was at once forced out of office by King Constantine. The Entente 
then offered to cede Cyprus to Greece in return for Greek support against Bulgaria but 
were refused (October 20, 1915). When German and Bulgarian forces began to occupy 
portions of Greek Macedonia, the Entente Powers blockaded Greece and sent an 
ultimatum asking for demobilization of the Greek Army and a responsible government in 
Athens (June, 1916). The Greeks at once accepted, since demobilization made it less 
likely they could be forced to make war on Bulgaria, and the demand for responsible- 
government could be met without bringing Venizelos beck 'to office. Thus frustrated, the 
Entente Powers established a new provisional Greek government under Venizelos at their 
base at Saloniki. There he declared war on the Central Powers (November 1916). The 
Entente then demanded that the envoys of the Central Powers be expelled from Athens 
and that war materials within control of the Athenian government be surrendered. These 
demands were rejected (November 30, 1916). Entente forces landed at the port of Athens 
(Piraeus) on the same day, but stayed only overnight, being replaced by an Entente 
blockade of Greece. The Venizelos government was recognized by Britain (December 
1916), but the situation dragged on unchanged. In June 1917, a new ultimatum was sent 
to Athens demanding the abdication of King Constantine. It was backed up by a seizure 



of Thessaly and Corinth, and was accepted at once. Venizelos became premier of the 
Athens government, and declared war on the Central Powers the next day (June 27, 1917) 
This gave the Entente a sufficient base to drive up the Vardar Valley, under French 
General Louis Franchet d'Esperey, and force Bulgaria out of the war. 

At the outbreak of war in 1914, Italy declared its neutrality on the grounds that the 
Triple Alliance of 1882, as renewed in 1912, bound it to support the Central Powers only 
in case of a defensive war and that the Austrian action against Serbia did not fall in this 
category. To the Italians, the Triple Alliance was still in full force and thus they were 
entitled, as provided in Article VII, to compensation for any Austrian territorial gains in 
the Balkans. As a guarantee of this provision, the Italians occupied the Valona district of 
Albania in November 1914. Efforts of the Central Powers to bribe Italy into the wear 
were difficult because the Italian demands were largely at the expense of Austria. These 
demands included the South Tyrol, Gorizia, the Dalmatian Islands, and Valona, with 
Trieste a free city. A great public controversy took place in Italy between those who 
supported intervention in the war on the Entente side and those who wished to remain 
neutral. By skillful expenditure of money, the Entente governments were able to win 
considerable support. Their chief achievement was in splitting the normally pacifist 
Socialist Party by large money grants to Benito Mussolini. A rabid Socialist who had 
been a pacifist leader in the Tripolitan War of 191 1 Mussolini was editor of the chief 
Socialist paper, Avanti. He was expelled from the party when he supported intervention 
on the Entente side, but, using French money, he established his own paper, Popolo 
d'ltalia, and embarked upon the unprincipled career which ultimately made him dictator 
of Italy. 

By the secret Treaty of London (April 26, 1915), Italy's demands as listed above were 
accepted by the Entente Powers and extended to provide that Italy should also obtain 
Trentino, Trieste, Istria (but not Fiume), South Dalmatia, Albania as a protectorate, the 
Dodecanese Islands, Adalia in Asia Minor, compensatory areas in Africa if the Entente 
Powers made any acquisitions on that continent, a loan of £50 million, part of the war 
indemnity, and exclusion of the Pope from any of the negotiations leading toward peace. 
For these extensive promises Italy agreed to make war on all the Central Powers within a 
month. It declared war on Austria-Hungary on May 23, 1915, but on Germany only in 
August, 1916. 

The Treaty of London is of the utmost importance because its ghost haunted the 
chancelleries of Europe for more than twenty-five years. It was used as an excuse for the 
Italian attack on Ethiopia in 1935 and on France in 1940. 

The Italian war effort was devoted to an attempt to force the Habsburg forces back 
from the head of the Adriatic Sea. In a series of at least twelve battles on the Isonzo 
River, on very difficult terrain, the Italians were notably unsuccessful. In the autumn of 
1917 Germany gave the Austrians sufficient reinforcements to allow them to break 
through on to the rear of the Italian lines at Caporetto. The Italian defense collapsed and 
was reestablished along the Piave River only after losses of over 600,000 men, the 
majority by desertion. Austria was unable to pursue this advantage because of her war- 



weariness, her inability to mobilize her domestic economy successfully for war purposes, 
and, above all, by the growing unrest of the nationalities subject to Habsburg rule. These 
groups set up governmental committees in Entente capitals and organized "Legions" to 
fight on the Entente side. Italy organized a great meeting of these peoples at Rome in 
April 1918. They signed the "Pact of Rome," promising to work for self-determination of 
subject peoples and agreeing to draw the frontier between the Italians and the South Slavs 
on nationality lines. 

Russia, like Romania, was forced out of the war in 1917, and forced to sign a separate 
peace by Germany in 1918. The Russian attack on Germany in 1914 had been completely 
shattered at the battles of Tannenberg and the Masurian Lakes in August and September, 
but their ability to hold their own against Austrian forces in Galicia made it impossible to 
bring the war in the east to a conclusion. Russian casualties were very heavy because of 
inadequate supplies and munitions, while the Austrians lost considerable forces, 
especially of Slavs, by desertion to the Russians. This last factor made it possible for 
Russia to organize a "Czech Legion" of over 100,000 men. German reinforcements to the 
Austrian front in Galicia in 1915 made possible a great Austro-German offensive which 
crossed Galicia and by September had taken all of Poland and Lithuania. In these 
operations the Russians lost about a million men. They lost a million more in the 
"Brusilov" counterattack in 1916 which reached the Carpathians before it was stopped by 
the arrival of German reinforcements from France. By this time the prestige of the czarist 
government had fallen so low that it was easily replaced by a parliamentary government 
under Kerensky in March 1917. The new government tried to carry on the war, but 
misjudged the temper of the Russian people. As a result the extreme Communist group, 
known as Bolsheviks, were able to seize the government in November 1917, and hold it 
by promising the weary Russian people both peace and land. The German demands, 
dictated by the German General Staff, were so severe that the Bolsheviks refused to sign 
a formal peace, but on March 3, 1918, were forced to accept the Treaty of Brest-Litovsk. 
By this treaty Russia lost Finland, Lithuania, the Baltic Provinces, Poland, the Ukraine 
and Transcaucasia. German efforts to exploit these areas in an economic sense during the 
war were not successful. 

The Japanese intervention in the war on August 23, 1914, was determined completely 
by its ambitions in the Far East and the Pacific area. It intended to use the opportunity 
arising from the Great Powers' concern with Europe to win concessions from China and 
Russia and to replace Germany, not only in its colonial possessions in the East but also to 
take over its commercial position so far as possible. The German island colonies north of 
the equator were seized at once, and the German concession at Kiaochow was captured 
after a brief siege. In January 1915, "Twenty-one Demands" were presented to China in 
the form of an ultimatum, and largely accepted. These demands covered accession to the 
German position in Shantung, extension of Japanese leases in Manchuria, with complete 
commercial liberty for the Japanese in that area, extensive rights in certain existing iron 
and steel enterprises of North China, and the closing of China's coast to any future 
foreign concessions. A demand for the use of Japanese advisers in Chinese political, 
military, and financial matters was rejected, and withdrawn. On July 3, 1916, Japan won 
Russian recognition of its new position in China in return for her recognition of the 



Russian penetration into Outer Mongolia. New concessions were won from China in 
February 1917, and accepted by the United States in November in the so-called Lansing- 
Ishii Notes. In these notes the Japanese gave verbal support to the American insistence on 
the maintenance of China's territorial integrity, political independence, and the "Open 
Door" policy in commercial matters. 

The outbreak of the Bolshevik Revolution in Russia, followed by the German victory 
over that country, and the beginning of civil war, gave the Japanese an opportunity in the 
Far East which they did not hesitate to exploit. With the support of Great Britain and the 
United States, they landed at Vladivostok in April 1918, and began to move westward 
along the route of the Trans-Siberian Railway. The Czech Legion on the Russian front 
had already rebelled against Bolshevik rule and was fighting its way eastward along the 
same railroad. The Czechs were eventually evacuated to Europe, while the Japanese 
continued to hold the eastern end of the railroad, and gave support to the anti-Bolshevik 
factions in the civil war. After a year or more of confused fighting, it became clear that 
the anti-Bolshevik factions would be defeated and that the Japanese could expect no 
further concessions from the Bolsheviks. Accordingly, they evacuated Vladivostok in 
October 1922. 

Undoubtedly, the most numerous diplomatic agreements of the wartime period were 
concerned with the disposition of the Ottoman Empire. As early as February 1915, Russia 
and France signed an agreement by which Russia was given a free hand in the East in 
return for giving France a free hand in the West. This meant that Russia could annex 
Constantinople and block the movement for an independent Poland, while France could 
take Alsace-Lorraine from Germany and set up a new, independent state under French 
influence in the Rhineland. A month later, in March 1915, Britain and France agreed to 
allow Russia to annex the Straits and Constantinople. The immediate activities of the 
Entente Powers, however, were devoted to plans to encourage the Arabs to rebel against 
the sultan's 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 
Ottoman Empire, while nominally subject to the sultan, were already breaking up into 
numerous petty spheres of authority, some virtually independent. The Arabs, who were a 
completely separate people from the Turks, speaking a Semitic rather than a Ural-Altaic 
language and who had remained largely nomadic in their mode of life while the Turks 
had become almost completely a peasant people, were united to the Ottoman peoples by 
little more than their common allegiance to the Muslim religion. This connection had 
been weakened by the efforts to secularize the Ottoman state and by the growth of 
Turkish nationalism which called forth a spirit of Arabic nationalism as a reaction to it. 

In 1915-1916 the British high commissioner in Egypt, Sir Henry McMahon, entered 
into correspondence with the Sherif Hussein of Mecca. While no binding agreement was 
signed, the gist of their discussions was that Britain would recognize the independence of 
the Arabs if they revolted against Turkey. The area covered by the agreement included 
those parts of the Ottoman Empire south of the 37th degree of latitude except Adana, 
Alexandretta, and "those portions of Syria lying to the west of the districts of Damascus, 
Horns, Hama, and Aleppo, [which] cannot be said to be purely Arab." In addition, Aden 



was excepted, while Baghdad and Basra were to have a "special administration." The 
rights of France in the whole area were reserved, the existing British agreements with 
various local sultans along the shores of the Persian Gulf were to be maintained, and 
Hussein was to use British advisers exclusively after the war. Extended controversy has 
risen from this division of areas, the chief point at issue being whether the statement as 
worded included Palestine in the area which was granted to the Arabs or in the area 
which was reserved. The interpretation of these terms to exclude Palestine from Arab 
hands was subsequently made by McMahon on several occasions after 1922 and most 
explicitly in 1937. 

While McMahon was negotiating with Hussein, the Government of India, through 
Percy Cox, was negotiating with Ibn-Saud of Nejd, and, in an agreement of December 26, 
1915, recognized his independence in return for a promise of neutrality in the war. 
Shortly afterward, on May 16, 1916, an agreement, known as the Sykes-Picot agreement 
from the names of the chief negotiators, was signed between Russia, France, and Britain. 
Early in 1917 Italy was added to the settlement. It partitioned the Ottoman Empire in 
such a way that little was left to the Turks except the area within 200 or 250 miles of 
Ankara. Russia was to get Constantinople and the Straits, as well as northeastern 
Anatolia, including the Black Sea coast; Italy was to get the southwestern coast of 
Anatolia from Smyrna to Adalia; France was to get most of eastern Anatolia, including 
Mersin, Adana, and Cilicia, as well as Kurdistan, Alexandretta, Syria, and northern 
Mesopotamia, including Mosul; Britain was to get the Levant from Gaza south to the Red 
Sea, Transjordan, most of the Syrian Desert, all of Mesopotamia south of Kirkuk 
(including Baghdad and Basra), and most of the Persian Gulf coast of Arabia. It was also 
envisaged that western Anatolia around Smyrna would go to Greece. The Holy Land 
itself was to be internationalized. 

The next document concerned with the disposition of the Ottoman Empire was the 
famous "Balfour Declaration" of November 1917. Probably no document of the wartime 
period, except Wilson's Fourteen Points, has given rise to more disputes than this brief 
statement of less than eleven lines. Much 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 "McMahon Pledge" to Sherif Hussein. The Balfour 
Declaration took the form of a letter from British Foreign Secretary Arthur James Balfour 
to Lord Rothschild, one of the leading figures in the British Zionist movement. This 
movement, which was much stronger in Austria and Germany than in Britain, had 
aspirations for creating in Palestine, or perhaps elsewhere, some territory to which 
refugees from anti-Semitic persecution or other Jews could go to find "a national home." 
Balfour's letter said, "His Majesty's Government view with favor the establishment in 
Palestine of a national home for the Jewish people and will use their best endeavours to 
facilitate the achievement of this object, it being clearly understood that nothing shall be 
done which may prejudice the civil and religious rights of existing non-Jewish 
communities in Palestine, or the rights and political status enjoyed by Jews in any other 
country." It is to be noted that this was neither an agreement nor a promise but merely a 
unilateral declaration, that it did not promise a Jewish state in Palestine or even Palestine 
as a home for the Jews, but merely proposed such a home in Palestine, and that it 



reserved certain rights for the existing groups in the area. Hussein was so distressed when 
he heard of it that he asked for an explanation, and was assured by D. G. Hogarth, on 
behalf of the British government, that "Jewish settlement in Palestine would only be 
allowed in so far as would be consistent with the political and economic freedom of the 
Arab population." This reassurance apparently was acceptable to Hussein, but doubts 
continued among other Arab leaders. In answer to a request from seven such leaders, on 
June 16, 1918, Britain gave a public answer which divided the Arab territories into three 
parts: (a) the Arabian peninsula from Aden to Akabah (at the head of the Red Sea), where 
the "complete and sovereign independence of the Arabs" was recognized; (b) the area 
under British military occupation, covering southern Palestine and southern 
Mesopotamia, where Britain accepted the principle that government should be based "on 
the consent of the governed"; and (c) the area still under Turkish control, including Syria 
and northern Mesopotamia, where Britain assumed the obligation to strive for "freedom 
and independence." Somewhat similar in tone was a joint Anglo-French Declaration of 
November 7, 1918, just four days before hostilities ended in the war. It promised "the 
complete and final liberation of the peoples who have for so long been oppressed by the 
Turk and the setting up of national governments and administrations that shall derive 
their authority from the free exercise of the initiative and choice of the indigenous 
populations." 

There have been extended discussions of the compatibility of the various agreements 
and statements made by the Great Powers regarding the disposition of the Ottoman 
Empire after the war. This is a difficult problem in view of the inaccuracy and ambiguity 
of the wording of most of these documents. On the other hand, certain facts are quite 
evident. There is a sharp contrast between the imperialist avarice to be found in the secret 
agreements like Sykes-Picot and the altruistic tone of the publicly issued statements; 
there is also a sharp contrast between the tenor of the British negotiations with the Jews 
and those with the Arabs regarding the disposition of Palestine, with the result that Jews 
and Arabs were each justified in believing that Britain would promote their conflicting 
political ambitions in that area: these beliefs, whether based on misunderstanding or 
deliberate deception, subsequently served to reduce the stature of Britain in the eyes of 
both groups, although both had previously held a higher opinion of British fairness and 
generosity than of any other Power; lastly, the raising of false Arab hopes and the failure 
to reach any clear and honest understanding regarding Syria led to a long period of 
conflict between the Syrians and the French government, which held the area as a 
mandate of the League of Nations after 1923. 

As a result of his understanding of the negotiations with McMahon, Hussein began an 
Arab revolt against Turkey on June 5, 1916. From that point on, he received a subsidy of 
£225,000 a month from Britain. The famous T. E. Lawrence, known as "Lawrence of 
Arabia," who had been an archaeologist in the Near East in 1914, had nothing to do with 
the negotiations with Hussein, and did not join the revolt until October 1916. When 
Hussein did not obtain the concessions he expected at the Paris Peace Conference of 
1919, Lawrence sickened of the whole affair and eventually changed his name to Shaw 
and tried to vanish from public view. 



The Arab territories remained under military occupation until the legal establishment 
of peace with Turkey in 1923. Arabia itself was under a number of sheiks, of which the 
chief were Hussein in Hejaz and Ibn-Saud in Nejd. Palestine and Mesopotamia (now 
called Iraq) were under British military occupation. The coast of Syria was under French 
military occupation, while the interior of Syria (including the Aleppo-Damascus railway 
line) and Transjordan were under an Arab force led by Emir Feisal, third son of Hussein 
of Mecca. Although an American commission of inquiry, known as the King-Crane 
Commission (1919), and a "General Syrian Congress" of Arabs from the whole Fertile 
Crescent recommended that France be excluded from the area, that Syria-Palestine be 
joined to form a single state with Feisal as king, that the Zionists be excluded from 
Palestine in any political role, as well as other points, a meeting of the Great Powers at 
San Remo in April 1920 set up two French and two British mandates. Syria and Lebanon 
went to France, while Iraq and Palestine (including Transjordan) went to Britain. There 
were Arab uprisings and great local unrest following these decisions. The resistance in 
Syria was crushed by the French, who then advanced to occupy' the interior of Syria and 
sent Feisal into exile. The British, who by this time were engaged in a rivalry (over 
petroleum resources and other issues) with the French, set Feisal up as king in Iraq under 
British protection (1921) and placed his brother Abdullah in a similar position as King of 
Transjordan (1923). The father of the two new kings, Hussein, was attacked by Ibn-Saud 
of Nejd and forced to abdicate in 1924. His kingdom of Hejaz was annexed by Ibn-Saud 
in 1924. 

After 1932 this whole area was known as Saudi Arabia. 

The most important diplomatic event of the latter part of the First World War was the 
intervention of the United States on the side of the Entente Powers in April 1917. The 
causes of this event have been analyzed at great length. In general there have been four 
chief reasons given for the intervention from four quite different points of view. These 
might be summarized as follows: (1) The German submarine attacks on neutral shipping 
made it necessary for the United States to go to war to secure "freedom of the seas"; (2) 
the United States was influenced by subtle British propaganda conducted in drawing 
rooms, universities, and the press of the eastern part of the country where Anglophilism 
was rampant among the more influential social groups; (3) the United States was 
inveigled into the war by a conspiracy of international bankers and munitions 
manufacturers eager to protect their loans to the Entente Powers or their wartime profits 
from sales to these Powers; and (4) Balance of Power principles made it impossible for 
the United States to allow Great Britain to be defeated by Germany. Whatever the weight 
of these four in the final decision, it is quite clear that neither the government nor the 
people of the United States were prepared to accept a defeat of the Entente at the hands of 
the Central Powers. Indeed, in spite of the government's efforts to act with a certain 
semblance of neutrality, it was clear in 1914 that this was the view of the chief leaders in 
the government with the single exception of Secretary of State William Jennings Bryan. 
Without analyzing the four factors mentioned above, it is quite clear that the United 
States could not allow Britain to be defeated by any other Power. Separated from all other 
Great Powers by the Atlantic and Pacific oceans, the security of America required either 
that the control of those oceans be in its own hands or in the hands of a friendly Power. 



For almost a century before 1917 the United States had been willing to allow British 
control of the sea to go unchallenged, because it was clear that British control of the sea 
provided no threat to the United States, but on the contrary, provided security for the 
United States at a smaller cost in wealth and responsibility than security could have been 
obtained by any other method. The presence of Canada as a British territory adjacent to 
the United States, and exposed to invasion by land from the United States, constituted a 
hostage for British naval behavior acceptable to the United States. The German 
submarine assault on Britain early in 1917 drove Britain close to the door of starvation by 
its ruthless sinking of the merchant shipping upon which Britain's existence depended. 
Defeat of Britain could not be permitted because the United States was not prepared to 
take over control of the sea itself and could not permit German control of the sea because 
it had no assurance regarding the nature of such German control. The fact that the 
German submarines w-ere acting in retaliation for the illegal British blockade of the 
continent of Europe and British violations of international law and neutral rights on the 
high seas, the fact that the Anglo-Saxon heritage of the United States and the 
Anglophilism of its influential classes made it impossible for the average American to see 
world events except through the spectacles made by British propaganda; the fact that 
Americans had lent the Entente billions of dollars which would be jeopardized by a 
German victory, the fact that the enormous Entente purchases of war materiel had created 
a boom of prosperity and inflation which would collapse the very day that the Entente 
collapsed — all these factors were able to bring weight to bear on the American decision 
only because the balance-of-power issue laid a foundation on which they could work. The 
important fact was that Britain was close to defeat in April 1917, and on that basis the 
United States entered the war. The unconscious assumption by American leaders that an 
Entente victory was both necessary and inevitable was at the bottom of their failure to 
enforce the same rules of neutrality and international law against Britain as against 
Germany. They constantly assumed that British violations of these rules could be 
compensated with monetary damages, while German violations of these rules must be 
resisted, by force if necessary. Since they could not admit this unconscious assumption or 
publicly defend the legitimate basis of international power politics on which it rested, 
they finally went to war on an excuse which w as legally weak, although emotionally 
satisfying. As John Bassett Moore, America's most famous international lawyer, put it, 
"What most decisively contributed to the involvement of the United States in the war was 
the assertion of a right to protect belligerent ships on which Americans saw fit to travel 
and the treatment of armed belligerent merchantmen as peaceful vessels. Both 
assumptions were contrary to reason and to settled law, and no other professed neutral 
advanced them." 

The Germans at first tried to use the established rules of international law regarding 
destruction of merchant vessels. This proved so dangerous, because of the peculiar 
character of the submarine itself, British control of the high seas, the British instructions 
to merchant ships to attack submarines, and the difficulty of distinguishing between 
British ships and neutral ships, that most German submarines tended to attack without 
warning. American protests reached a peak when the Lusitania was sunk in this way nine 
miles off the English coast on May 7, 1915. The Lusitania was a British merchant vessel 
"constructed with Government funds as [an] auxiliary cruiser, . . . expressly included in 



the navy list published by the British Admiralty," with "bases laid for mounting guns of 
six-inch caliber," carrying a cargo of 2,400 cases of rifle cartridges and 1,250 cases of 
shrapnel, and with orders to attack German submarines whenever possible. Seven 
hundred and eighty-five of 1,257 passengers, including 128 of 197 Americans, lost their 
lives. The incompetence of the acting captain contributed to the heavy loss, as did also a 
mysterious "second explosion" after the German torpedo struck. The vessel, which had 
been declared "unsinkable," went down in eighteen minutes. The captain was on a course 
he had orders to avoid; he was running at reduced speed; he had an inexperienced crew; 
the portholes had been left open; the lifeboats had not been swung out; and no lifeboat 
drills had been held. 

The propaganda agencies of the Entente Powers made full use of the occasion. The 
Times of London announced that "four-fifths of her passengers were citizens of the 
United States" (the actual proportion was 15.6 percent); the British manufactured and 
distributed a medal which they pretended had been awarded to the submarine crew by the 
German government; a French paper published a picture of the crowds in Berlin at the 
outbreak of war in 1914 as a picture of Germans "rejoicing" at news of the sinking of the 
Lusitania. 

The United States protested violently against the submarine warfare while brushing 
aside German arguments based on the British blockade. It was so irreconcilable in these 
protests that Germany sent Wilson a note on May 4, 1916, in which it promised that "in 
the future merchant vessels within and without the war zone shall not be sunk without 
warning and without safeguarding human lives, unless these ships attempt to escape or 
offer resistance." In return the German government hoped that the United States would 
put pressure on Britain to follow the established rules of international law in regard to 
blockade and freedom of the sea. Wilson refused to do so. Accordingly, it became clear 
to the Germans that they would he starved into defeat unless they could defeat Britain 
first by unrestricted submarine warfare. Since they were aware that resort to this method 
would probably bring the United States into the war against them, they made another 
effort to negotiate peace before resorting to it. When their offer to negotiate, made on 
December 12, 1916, was rejected hy the Entente Powers on December 27th, the group in 
the German government which had been advocating ruthless submarine warfare came 
into a position to control affairs, and ordered the resumption of unrestricted submarine 
attacks on February 1, 1917. Wilson was notified of this decision on January 31st. He 
broke off diplomatic relations with Germany on February 3rd, and, after two months of 
indecision, asked the Congress for a declaration of war April 3, 1917. The final decision 
was influenced by the constant pressure of his closest associates, the realization that 
Britain was reaching the end of her resources of men, money, and ships, and the 
knowledge that Germany was planning to seek an alliance with Mexico if war began. 

While the diplomacy of neutrality and intervention was moving along the lines we 
have described, a parallel diplomatic effort was being directed toward efforts to negotiate 
peace. These efforts were a failure but are, nonetheless, of considerable significance 
because they reveal the motivations and war aims of the belligerents. They were a failure 
because any negotiated peace requires a willingness on both sides to make those 



concessions which will permit the continued survival of the enemy. In 1914-1918, 
however, in order to win public support for total mobilization, each country's propaganda 
had been directed toward a total victory for itself and total defeat for the enemy. In time, 
both sides became so enmeshed in their own propaganda that it became impossible to 
admit publicly one's readiness to accept such lesser aims as any negotiated peace would 
require. Moreover, as the tide of battle waxed and waned, giving alternate periods of 
elation and discouragement to both sides, the side which was temporarily elated became 
increasingly attached to the fetish of total victory and unwilling to accept the lesser aim 
of a negotiated peace. Accordingly, peace became possible only when war weariness had 
reached the point where one side concluded that even defeat was preferable to 
continuation of the war. This point was reached in Russia in 1917 and in Germany and 
Austria in 1918. In Germany this point of view was greatly reinforced by the realization 
that military defeat and political change were preferable to the economic revolution and 
social upheaval which would accompany any effort to continue the war in pursuit of an 
increasingly unattainable victory. 

From the various efforts to negotiate peace it is clear that Britain was unwilling to 
accept any peace which would not include the restoration of Belgium or which would 
leave Germany supreme on the Continent or in a position to resume the commercial, 
naval, and colonial rivalry which had existed before 1914; France was unwilling to accept 
any solution which did not restore Alsace-Lorraine to her; the German High Command 
and the German industrialists were determined not to give up all the occupied territory in 
the west, but were hoping to retain Lorraine, part of Alsace, Luxembourg, part of 
Belgium, and Longwy in France because of the mineral and industrial resources of these 
areas. The fact that Germany had an excellent supply of coking coal with an inadequate 
supply of iron ore, while the occupied areas had plenty of the latter but an inadequate 
supply of the former, had a great deal to do with the German objections to a negotiated 
peace and the ambiguous terms in which their war aims were discussed. Austria was, 
until the death of Emperor Francis Joseph in 1916, unwilling to accept any peace which 
would leave the Slavs, especially the Serbs, free to continue their nationalistic agitations 
for the disintegration of the Habsburg Empire. On the other hand, Italy was determined to 
exclude the Habsburg Empire from the shores of the Adriatic Sea, while the Serbs were 
even more determined to reach those shores by the acquisition of Habsburg-ruled Slav 
areas in the Western Balkans. After the Russian revolutions of 19,7, many of these 
obstacles to a negotiated peace became weaker. The Vatican, working through Cardinal 
Pacelli (later Pope Pius XII) sought a negotiated peace which would prevent the 
destruction of the Habsburg Empire, the last Catholic Great Power in Europe. Prominent 
men in all countries, like Lord Lansdowne (British foreign secretary before 1914), 
became so alarmed at the spread of Socialism that they were willing to make almost any 
concessions to stop the destruction of civilized ways of life by continued warfare. 
Humanitarians like Henry Ford or Romain Rolland became increasingly alarmed at the 
continued slaughter. But, for the reasons we have already mentioned, peace remained 
elusive until the great German offensives of 1918 had been broken. 

After what Ludendorff called "the black day of the German Army" (August 8, 1918), a 
German Crown Council, meeting at Spa, decided victory was no longer possible, and 



decided to negotiate for an armistice. This was not done because of a controversy 
between the crown prince and Ludendorff in which the former advised an immediate 
retreat to the "Hindenburg Line" twenty miles to the rear, while the latter wished to make 
a slow withdrawal so that the Entente could not organize an attack on the Hindenburg 
Line before winter. Two Entente victories, at Saint-Quentin (August 31st) and in Flanders 
(September 2nd) made this dispute moot. The Germans began an involuntary retreat, 
drenching the ground they evacuated with "mustard gas" in order to slow up the Entente 
pursuit, especially the tanks. The German High Command removed the chancellor, 
Hertling, and put in the more democratic Prince Max of Baden with orders to make an 
immediate armistice or face military disaster (September 29-October 1, 1918). On 
October 5th a German note to President Wilson asked for an armistice on the basis of the 
Fourteen Points of January 8, 1918, and his subsequent principles of September 27, 1918. 
These statements of Wilson had captured the imaginations of idealistic persons and 
subject peoples everywhere. The Fourteen Points promised the end of secret diplomacy; 
freedom of the seas; freedom of commerce; disarmament; a fair settlement of colonial 
claims, with the interests of the native peoples receiving equal weight with the titles of 
imperialist Powers; the evacuation of Russia; the evacuation and restoration of Belgium; 
the evacuation of France and the restoration to her of Alsace-Lorraine as in 1 870; the 
readjustment of the Italian frontiers on nationality lines; free and autonomous 
development for the peoples of the Habsburg Empire; the evacuation, restoration, and 
guarantee of Romania, Montenegro, and Serbia, with the last-named securing free access 
to the sea; international guarantees to keep the Straits permanently opened to the ships 
and commerce of all nations; freedom for the autonomous development of the non- 
Turkish nationalities of the Ottoman Empire, along with a secure sovereignty for the 
Turks themselves; an independent Polish state with free access to the sea and with 
international guarantees; a League of Nations to afford "mutual guarantees of political 
independence and territorial integrity to great and small states alike"; and no destruction 
of Germany or even any alteration of her institutions except those necessary to make it 
clear when her spokesmen spoke for the Reichstag majority and when they "speak for the 
military party and the men whose creed is imperial domination." 

In a series of notes between Germany and the United States, Wilson made it clear that 
he would grant an armistice only if Germany would withdraw from all occupied territory, 
make an end to submarine attacks, accept the Fourteen Points, establish a responsible 
government, and accept terms which would preserve the existing Entente military 
superiority. He was most insistent on the responsible government, warning that if he had 
to deal "with military masters or monarchical autocrats" he would demand "not 
negotiations but surrender." The German constitution was changed to give all powers to 
the Reichstag; Ludendorff was fired; the German Navy at Kiel mutinied, and the Kaiser 
fled from Berlin (October 28th). In the meantime, the Entente Supreme War Council 
refused to accept the Fourteen Points as the basis for peace until Colonel House 
threatened that the United States would makes a separate peace with Germany. They then 
demanded and received a definition of the meaning of each term, made a reservation on 
"the freedom of the seas," and expanded the meaning of "restoration of invaded territory" 
to include compensation to the civilian population for their war losses. On this basis an 
armistice commission met German negotiators on November 7th. The German 



Revolution was spreading, and the Kaiser abdicated on November 8th. The German 
negotiators received the Entente military terms and asked for an immediate ending of 
hostilities and of the economic blockade and a reduction in the Entente demand for 
machine guns from 30,000 to 25,000 on the grounds that the difference of 5,000 was 
needed to suppress the German Revolution. The last point was conceded, but the other 
two refused. The armistice was signed on November 11, 1918, at 5:00 a.m. to take effect 
at 1 1 :00 a.m. It provided that the Germans must evacuate all occupied territory (including 
Alsace-Lorraine) within fourteen days, and the left bank of the Rhine plus three 
bridgeheads on the right bank within thirty-one days, that they surrender huge specified 
amounts of war equipment, trucks, locomotives, all submarines, the chief naval vessels, 
all prisoners of war, and captured merchant ships, as w-ell as the Baltic fortresses, and all 
valuables and securities taken in occupied territory, including the Russian and Romanian 
gold reserves. The Germans were also required to renounce the treaties of Brest-Litovsk 
and of Bucharest, which they had imposed on Russia and on Romania, and to promise to 
repair the damage of occupied territories. This last point was of considerable importance, 
as the Germans had systematically looted or destroyed the areas they evacuated in the last 
few months of the war. 

The negotiations with Wilson leading up to the Armistice of 1918 are of great 
significance, since they formed one of the chief factors in subsequent German resentment 
at the Treaty of Versailles. In these negotiations Wilson had clearly promised that the 
peace treaty with Germany would be negotiated and would be based on the Fourteen 
Points; as we shall see, the Treaty of Versailles was imposed without negotiation, and the 
Fourteen Points fared very poorly in its provisions. An additional factor connected with 
these events lies in the subsequent claim of the German militarists that the German Army 
was never defeated but was "stabbed in the back" by the home front through a 
combination of international Catholics, international Jews, and international Socialists. 
There is no merit whatever in these contentions. The German Army was clearly beaten in 
the field; the negotiations for an armistice were commenced by the civilian government at 
the insistence of the High Command, and the Treaty of Versailles itself was subsequently 
signed, rather than rejected, at the insistence of the same High Command in order to 
avoid a military occupation of Germany. By these tactics the German Army was able to 
escape the military occupation of Germany which they so dreaded. Although the last 
enemy forces did not leave German soil until 1931, no portions of Germany were 
occupied beyond those signified in the armistice itself (the Rhineland and the three 
bridgeheads on the right hank of the Rhine) except for a brief occupation of the Ruhr 
district in 1932. 

Chapter 14— The Home Front, 1914-1918 

The First World War was a catastrophe of such magnitude that, even today, the 
imagination has some difficulty grasping it. In the year 1916, in two battles (Verdun and 
the Somme) casualties of over 1,700,000 were suffered by both sides. In the artillery 
barrage which opened the French attack on Chemin des Dames in April 1917, 1 1,000,000 
shells were fired on a 30-mile front in 10 days. Three months later, on an 1 1-mile front at 
Passchendaele, the British fired 4,250,000 shells costing £22,000,000 in a preliminary 



barrage, and lost 400,000 men in the ensuing infantry assault. In the German attack of 
March 1918, 62 divisions with 4,500 heavy guns and 1,000 planes were hurled on a front 
only 45 miles wide. On all fronts in the whole war almost 13,000,000 men in the various 
armed forces died from wounds and disease. It has been estimated by the Carnegie 
Endowment for International Peace that the war destroyed over $400,000,000,000 of 
property at a time when the value of every object in France and Belgium was not worth 
over $75,000,000,000. 

Obviously, expenditures of men and wealth at rates like these required a tremendous 
mobilization of resources throughout the world, and could not fail to have far-reaching 
effects on the patterns of thought and modes of action of people forced to undergo such a 
strain. Some states were destroyed or permanently crippled. There were profound 
modifications in finance, in economic life, in social relations, in intellectual outlook, and 
in emotional patterns. Nevertheless, two facts should be recognized. The war brought 
nothing really new into the world; rather it sped up processes of change which had been 
going on for a considerable period and would have continued anyway, with the result that 
changes which would have taken place over a period of thirty or even fifty years in 
peacetime were brought about in five years during the war. Also, the changes were much 
greater in objective facts and in the organization of society than they were in men's ideas 
of these facts or organization. It was as if the changes were too rapid for men's minds to 
accept them, or, what is more likely, that men, seeing the great changes which were 
occurring on all sides, recognized them, but assumed that they were merely temporary 
wartime aberrations, and that, when peace came, they would pass away and everyone 
could go back to the slow, pleasant world of 1913. This point of view, which dominated 
the thinking of the 1920's, was widespread and very dangerous. In their efforts to go back 
to 1913, men refused to recognize that the wartime changes were more or less permanent, 
and, instead of trying to solve the problems arising from these changes, set up a false 
facade of pretense, painted to look like 1913, to cover up the great changes which had 
taken place. Then, by acting as if this facade were reality, and by neglecting the 
maladjusted reality which was moving beneath it, the people of the 1920'S drifted in a 
hectic world of unreality until the world depression of 1929-1935, and the international 
crises which followed, tore away the facade and showed the horrible, long-neglected 
reality beneath it. 

The magnitude of the war and the fact that it might last for more than six months were 
quite unexpected for both sides and were impressed upon them only gradually. It first 
became clear in regard to consumption of supplies, especially ammunition, and in the 
problem of how to pay for these supplies. In July 1914, the military men were confident 
that a decision would be reached in six months because their military plans and the 
examples of 1 866 and 1 870 indicated an immediate decision. This belief was supported 
by the financial experts who, while greatly underestimating the cost of fighting, were 
confident that the financial resources of all states would be exhausted in six months. By 
"financial resources" they meant the gold reserves of the various nations. These were 
clearly limited; all the Great Powers were on the gold standard under which bank notes 
and paper money could be converted into gold on demand. However, each country 
suspended the gold standard at the outbreak of war. This removed the automatic 



limitation on the supply of paper money. Then 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 size against which the government could draw 
checks. 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. Naturally, as governments borrowed to pay for their needs, private businesses 
borrowed in order to be able to fill the government's orders. The gold which could no 
longer 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. 

Naturally, when the supply of money was increased in this fashion faster than the 
supply of goods, prices rose because a larger supply of money was competing for a 
smaller supply of goods. This effect was made worse by the fact that the supply of goods 
tended to be reduced by wartime destruction. People received money for making capital 
goods, consumers' goods, and munitions, but they could spend their money only to buy 
consumers' goods, since capital goods and munitions were not offered for sale. Since 
governments tried to reduce the supply of consumers' goods while increasing the supply 
of the other two products, the problem of rising prices (inflation) became acute. At the 
same time the problem of public debt became steadily worse because governments were 
financing such a large part of their activities by bank credit. These two problems, 
inflation and public debt, continued to grow, even after the fighting stopped, because of 
the continued disruption of economic life and the need to pay for past activities. Only in 
the period 1920-1925 did these two stop increasing in most countries, and they remained 
problems long after that. 

Inflation indicates not only an increase in the prices of goods but also a decrease in the 
value of money (since it will buy less goods). Accordingly, people in an inflation seek to 
get goods and to get rid of money. Thus inflation increases production and purchases for 
consumption or hoarding, but it reduces saving or creation of capital. It benefits debtors 
(by making a fixed-money debt less of a burden) but injures creditors (by reducing the 
value of their savings and credits). Since the middle classes of European society, with 
their bank savings, checking deposits, mortgages, insurance, and bond holdings, were the 
creditor class, they were injured and even ruined by the wartime inflation. In Germany, 
Poland, Hungary, and Russia, where the inflation went so far that the monetary unit 
became completely valueless by 1924, the middle classes were largely destroyed, and 
their members were driven to desperation or at least to an almost psychopathic hatred of 
the form of government or the social class that they believed to be responsible for their 
plight. Since the last stages of inflation which dealt the fatal blow to the middle classes 
occurred after the war rather than during it (in 1923 in Germany), this hatred was directed 
against the parliamentary governments which were functioning after 1918 rather than 
against the monarchical governments which functioned in 1914-1918. In France and 
Italy, where the inflation went so far that the franc or fire was reduced permanently to 
one-fifth of its prewar value, the hatred of the injured middle classes was directed against 



the parliamentary regime which had functioned both during and after the war and against 
the working class which they felt had profited by their misfortunes. These things were not 
true in Britain or the United States, where the inflation was brought under control and the 
monetary unit restored to most of its prewar value. Even in these countries, prices rose by 
200 to 300 percent, while public debts rose about 1,000 percent. 

The economic effects of the war were more complicated. Resources of all kinds, 
including land, labor, and raw materials, had to be diverted from peacetime purposes to 
wartime production; or, in some cases, resources previously not used at all had to be 
brought into the productive system. Before the war, the allotment of resources to 
production had been made by the automatic processes of the price system; labor and raw 
materials going, for example, to manufacture those goods which were most profitable 
rather than to those goods which were most serviceable or socially beneficial, or in best 
taste. In wartime, however, governments had to have certain specific goods for military 
purposes; they tried to get these goods produced by making them more profitable than 
nonmilitary goods using the same resources, but they were not always successful. The 
excess of purchasing power in the hands of consumers caused a great rise in demand for 
goods of a semi-luxury nature, like white cotton shirts for laborers. This frequently made 
it more profitable for manufacturers to use cotton for making shirts to sell at high prices 
than to use it to make explosives. 

Situations such as these made it necessary for governments to intervene directly in the 
economic process to secure those results which could not be obtained by the free price 
system or to reduce those evil effects which emerged from wartime disruption. They 
appealed to the patriotism of manufacturers to make things that were needed rather than 
things which were profitable, or to the patriotism of consumers to put their money into 
government bonds rather than into goods in short supply. They began to build 
government-owned plants for war production, either using them for such purposes 
themselves or leasing them out to private manufacturers at attractive terms. They began 
to ration consumers' goods which were in short supply, like articles of food. They began 
to monopolize essential raw materials and allot them to manufacturers who had war 
contracts rather than allow them to flow where prices w ere highest. The materials so 
treated were generally fuels, steel, rubber, copper, wool, cotton, nitrates, and such, 
although they varied from country to country, depending upon the supply. Governments 
began to regulate imports and exports in order to ensure that necessary materials staved in 
the country and, above all, did not go to enemy states. This Jed to the British blockade of 
Europe, the rationing of exports to neutrals, and complicated negotiations to see that 
goods in neutral countries were not re-exported to enemy countries. Bribery, bargaining, 
and even force came into these negotiations, as when the British set quotas on the imports 
of Holland based on the figures for prewar years or cut down necessary shipments of 
British coal to Sweden until they obtained the concessions they wished regarding sales of 
Swedish goods to Germany. Shipping and railroad transportation had to be taken over 
almost completely in most countries in order to ensure that the inadequate space for cargo 
and freight would be used as effectively as possible, that loading and unloading would be 
speeded up, and that goods essential to the war effort would be shipped earlier and faster 
than less essential goods. Labor had to be regulated and directed into essential activities. 



The rapid rise in prices led to demands for raises in wages. This led to a growth and 
strengthening of labor unions and increasing threats of strikes. There was no guarantee 
that the wages of essential workers would go up faster than the wages of nonessential 
workers. Certainly the wages of soldiers, who were the most essential of all, went up very 
little. Thus there was no guarantee that labor, if left solely to the influence of wage levels, 
as was usual before 1914, would flow to the occupations where it was most urgently 
needed. Accordingly, the governments began to intervene in labor problems, seeking to 
avoid strikes but also to direct the flow of labor to more essential activities. There were 
general registrations of men in most countries, at first as part of the draft of men for 
military service, but later to control services in essential activities. Generally, the right to 
leave an essential job was restricted, and eventually people were directed into essential 
jobs from nonessential activities. The high wages and shortage of labor brought into the 
labor market many persons who would not have been in it in peacetime, such as old 
persons, youths, clergy, and, above all, women. This flow of women from homes into 
factories or other services had the most profound effects on social life and modes of 
living, revolutionizing the relations of the sexes, bringing women up to a level of social, 
legal, and political equality closer than previously to that of men, obtaining for them the 
right to vote in some countries, the right to own or dispose of property in other more 
backward ones, changing the appearance and costume of women by such innovations as 
shorter skirts, shorter hair, less frills, and generally a drastic reduction in the amount of 
clothing they wore. 

Because of the large number of enterprises involved and the small size of many of 
them, direct regulation by the government was less likely in the field of agriculture. Here 
conditions were generally more competitive than in industry, with the result that farm 
prices had shown a growing tendency to fluctuate more widely than industrial prices. 
This continued during the war, as agricultural regulation was left more completely to the 
influence of price changes than other parts of the economy. As farm prices soared, 
farmers became more prosperous than they had been in decades, and sought madly to 
increase their share of the rain of money by bringing larger and larger amounts of land 
under cultivation. This was not possible in Europe because of the lack of men, 
equipment, and fertilizers; but in Canada, the United States, Australia, and South 
America land was brought under the plow which, because of lack of rainfall or its 
inaccessibility to peacetime markets, should never have been brought under cultivation. 
In Canada the increase in wheat acreage was from 9.9 million in the years 1909-1913 to 
22.1 million in the years 1921-25. In the United States the increase in wheat acreage was 
from 47.0 million to 58.1 million in the same period. Canada increased her share of the 
world's wheat crop from 14 percent to 39 percent in this decade. Farmers went into debt 
to obtain these lands, and by 1920 were buried under a mountain of mortgages which 
would have been considered unbearable before 1914 but which in the boom of wartime 
prosperity and high prices was hardly given a second thought. 

In Europe such expansion of acreage was not possible, although grasslands were 
plowed up in Britain and some other countries. In Europe as a whole, acreage under 
cultivation declined, by 15 percent for cereals in 1913-1919. Livestock numbers were 
also reduced (swine by 22 percent and cattle by 7 percent in 1913-1920). Woodlands 



were cut for fuel when importation of coal was stopped from England, Germany, or 
Poland. Since most of Europe was cut off from Chile, which had been the chief prewar 
source of nitrates, or from North Africa and Germany, which had produced much of the 
prewar supply of phosphates, the use of these and other fertilizers was reduced. This 
resulted in an exhaustion of the soil so great that in some countries, like Germany, the 
soil had not recovered its fertility by 1930. When the German chemist Haber discovered a 
method for extracting nitrogen from the air which made it possible for his country to 
survive the cutting off of Chilean nitrates, the new supply was used almost entirely to 
produce explosives, with little left over for fertilizers. The declining fertility of the soil 
and the fact that new lands of lesser natural fertility were brought under cultivation led to 
drastic declines in agricultural output per acre (in cereals about 15 percent in 1914-1919). 

These adverse influences were most evident in Germany, where the number of hogs 
fell from 25.3 million in 1914 to 5.7 million in 1918; the average weight of slaughtered 
cattle fell from 250 kilos in 1913 to 130 in 1918; the acreage in sugar beets fell from 
592,843 hectares in 1914 to 366,505 in 1919, while the yield of sugar beets per hectare 
fell from 31,800 kilos in 1914 to 16,350 kilos in 1920. German's prewar imports of about 
6 Vi million tons of cereals each year ceased, and her home production of these fell by 3 
million tons per year. Her prewar imports of over 2 million tons of oil concentrates and 
other feed for farm animals stopped. The results of the blockade were devastating. 
Continued for nine months after the armistice, it caused the deaths of 800,000 persons, 
according to Max Sering. In addition, reparations took about 108,000 horses, 205,000 
cattle, 426,000 sheep, and 240,000 fowl. 

More damaging than the reduction in the number of farm animals (which was made up 
in six or seven years), or the drain on the fertility of the soil (which could be made up in 
twelve or fifteen years), was the disruption of Europe's integration of agricultural 
production (which was never made up). The blockade of the Central Powers tore the 
heart out of the prewar integration. When the war ended, it was impossible to replace this, 
because there were many new political boundaries; these boundaries were marked by 
constantly rising tariff restrictions, and the non-European world had increased both its 
agricultural and industrial output to a point where it was much less dependent on Europe. 

The heavy casualties, the growing shortages, the slow decline in quality of goods, and 
the gradual growth of the use of substitutes, as well as the constantly increasing pressure 
of governments on the activities of their citizens — all these placed a great strain on the 
morale of the various European peoples. The importance of this question was just as great 
in the autocratic and semi-democratic countries as it was in the ones with fully 
democratic and parliamentary regimes. The latter did not generally permit any general 
elections during the war, but both types required the full support of their peoples in order 
to maintain their battle lines and economic activities at full effectiveness. At the 
beginning, the fever of patriotism and national enthusiasm was so great that this was no 
problem. Ancient and deadly political rivals clasped hands, or even sat in the same 
Cabinet, and pledged a united front to the enemy of their fatherland. But disillusionment 
was quick, and appeared as early as the winter of 1914. This change was parallel to the 
growth of the realization that the war was to be a long one and not the lightning stroke of 



a single campaign and a single battle which all had expected. The inadequacies of the 
preparations to deal with the heavy casualties or to provide munitions for the needs of 
modern war, as well as the shortage or disruption of the supply of civilian goods, led to 
public agitation. Committees were formed, but proved relatively ineffective, and in most 
activities in most countries were replaced by single-headed agencies equipped with 
extensive controls. The use of voluntary or semi-voluntary methods of control generally 
vanished with the committees and were replaced by compulsion, however covert. In 
governments as w holes a somewhat similar shifting of personnel took place until each 
Cabinet came to be dominated by a single man, endowed with greater energy, or a greater 
willingness to make quick decisions on scanty information than his fellows. In this way 
Lloyd George replaced Asquith in England; Clemenceau replaced a series of lesser 
leaders in France; Wilson strengthened his control on his own government in the United 
States; and, in a distinctly German way, Ludendorff came to dominate the government of 
his country. In 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 Central 
Powers and Russia where there were long traditions of extensive police authority, but no 
less effectively in France and Britain. In France a State of Siege was proclaimed on 
August 2, 1914. This gave the government the right to rule by decree, established 
censorship, and placed the police under military control. In general, French censorship 
was not so severe as the German nor so skillful as the British, while their propaganda was 
far better than the German but could not compare with the British. The complexities of 
French political life and the slow movement of its bureaucracy allowed all kinds of 
delays and evasions of control, especially by influential persons. When Clemenceau was 
in opposition to the government in the early days of the war, his paper, L'homme libre, 
was suspended; he continued to publish it with impunity under the name L'homme 
enchaine. The British censorship was established on August 5, 1914, and at once 
intercepted all cables and private mail which it could reach, including that of neutral 
countries. These at once became an important source of military and economic 
intelligence. A Defence of the Realm Act (familiarly known as DORA) was passed 
giving the government the power to censor all information. A Press Censorship 
Committee was set up in 1914 and was replaced by the Press Bureau under Frederick E. 
Smith (later Lord Birkenhead) in 1916. Established in Crewe House, it was able to 
control all news printed in the press, acting as the direct agent of the Admiralty and War 
Offices. The censorship of printed books was fairly lenient, and was much more so for 
books to be read in England than for books for export, with the result that "best sellers" in 
England were unknown in America. Parallel with the censorship was the War 
Propaganda Bureau under Sir Charles Masterman, which had an American Bureau of 
Information under Sir Gilbert Parker at Wellington House. This last agency was able to 
control almost all information going to the American press, and by 1916 was acting as an 
international news service itself, distributing European news to about 35 American papers 
which had no foreign reporters of their own. 

The Censorship and the Propaganda bureaus worked together in Britain as well as 
elsewhere. The former concealed all stories of Entente violations of the laws of war or of 



the rules of humanity, and reports on their own military mistakes or their own war plans 
and less altruistic war aims, while the Propaganda Bureau widely publicized the 
violations and crudities of the Central Powers, their prewar schemes for mobilization, and 
their agreements regarding war aims. The German violation of Belgian neutrality w as 
constantly bewailed, while nothing was said of the Entente violation of Greek neutrality. 
A great deal was made of the Austrian ultimatum to Serbia, while the Russian 
mobilization which had precipitated the war was hardly mentioned. In the Central Powers 
a great deal was made of the Entente "encirclement," while nothing was said of the 
Kaiser's demands for "a place in the sun" or the High Command's refusal to renounce 
annexation of any part of Belgium. In general, manufacture or outright lies by 
propaganda agencies was infrequent, and the desired picture of the enemy was built up by 
a process of selection and distortion of evidence until, by 1918, many in the West 
regarded the Germans as bloodthirsty and sadistic militarists, while the Germans regarded 
the Russians as "subhuman monsters." A great deal was made, especially by the British, 
of "atrocity" propaganda; stories of German mutilation of bodies, violation of women, 
cutting off of children's hands, desecration of churches and shrines, and crucifixions of 
Belgians were widely believed in the West by 1916. Lord Bryce headed a committee 
which produced a volume of such stories in 1915, and it is quite evident that this well- 
educated man, "the greatest English authority on the United States," was completely 
taken in by his own stories. Here, again, outright manufacture of falsehoods was 
infrequent, although General Henry Charteris in 1917 created a story that the Germans 
were cooking human bodies to extract glycerine, and produced pictures to prove it. 
Again, photographs of mutilated bodies in a Russian anti-Semitic outrage in 1905 were 
circulated as pictures of Belgians in 1915. There were several reasons for the use of such 
atrocity stories: (a) to build up the fighting spirit of the mass army; (b) to stiffen civilian 
morale; (c) to encourage enlistments, especially in England, where volunteers were used 
for one and a half years; (d) to increase subscriptions for war bonds; (e) to justify one's 
own breaches of international law or the customs of war; (f) to destroy the chances of 
negotiating peace (as in December 1916) or to justify a severe final peace (as Germany 
did in respect to Brest-Litovsk); and (g) to win the support of neutrals. On the whole, the 
relative innocence and credulity of the average person, who was not yet immunized to 
propaganda assaults through mediums of mass communication in 1914, made the use of 
such stories relatively effective. But the discovery, in the period after 1919, that they had 
been hoaxed gave rise to a skepticism toward all government communications which was 
especially noticeable in the Second World War. 

Part Six — The Versailles System and the Return to Normalcy: 1919-1929 

Chapter 15— The Peace Settlements, 1919-1923 

The First World War was ended by dozens of treaties signed in the period 1919-1923. 
Of these, the five chief documents were the five treaties of peace with the defeated 
Powers, named from the sites in the neighborhood of Paris where they were signed. 
These were: 

Treaty of Versailles with Germany, June 28, 1919 



Treaty of Saint-Germain with Austria, September 10, 1919 

Treaty of Neuilly with Bulgaria, November 27, 1919 

Treaty of Trianon with Hungary, June 4, 1920 

Treaty of Sevres with Turkey, August 20, 1920 

The last of these, the Treaty of Sevres with Turkey, was never ratified and was 
replaced by a new treaty, signed at Lausanne in 1923. 

The peace settlements made in this period were subjected to vigorous and detailed 
criticism in the two decades 1919-1939. This criticism was as ardent from the victors as 
from the vanquished. Although this attack was largely aimed at the terms of the treaties, 
the real causes of the attack did not lie in these terms, which were neither unfair nor 
ruthless, were far more lenient than any settlement which might have emerged from a 
German victory, and which created a new Europe which was, at least politically, more 
just than the Europe of 1914. The causes of the discontent with the settlements of 1919- 
1923 rested on the procedures which were used to make these settlements rather than on 
the 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 used, 
as well as between the high-minded principles which were supposed to be applied and 
those which really were applied 

The peoples of the victorious nations had taken to heart their wartime propaganda 
about the rights of small nations, making the world safe for democracy, and putting an 
end both to power politics and to secret diplomacy. These ideals had been given concrete 
form in Wilson's Fourteen Points. Whether the defeated Powers felt the same enthusiasm 
for these high ideals is subject to dispute, but they had been promised, on November 5, 
1918, that the peace settlements would be negotiated and would be based on the Fourteen 
Points. When it became clear that the settlements were to be imposed rather than 
negotiated, that the Fourteen Points 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 small 
nations had been excluded and in which power politics played a much larger role than the 
safety of democracy, there was a revulsion of feeling against the treaties. 

In Britain and in Germany, propaganda barrages were aimed against these settlements 
until, by 1929, most of the Western World had feelings of guilt and shame whenever they 
thought of the Treaty of Versailles. There was a good deal of sincerity in these feelings, 
especially in England and in the United States, but there was also a great deal of 
insincerity behind them in all countries. In England the same groups, often the same 
people, who had made the wartime propaganda and the peace settlements were loudest in 
their complaint that the latter had fallen far below the ideals of the former, while all the 
while their real aims were to use power politics to the benefit of Britain. Certainly there 
were grounds for criticism, and, equally certainly, the terms of the peace settlements were 



far from perfect; 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 they 
violated them daily, and necessarily violated them. The settlements were clearly made by 
secret negotiations, by the Great Powers exclusively, and by power politics. They had to 
be. No settlements could ever have been made on any other bases. The failure of the chief 
negotiators (at least the Anglo-Americans) to admit this is regrettable, but behind their 
reluctance to admit it is the even more regrettable fact that the lack of political experience 
and political education of the American and English electorates made it dangerous for the 
negotiators to admit the facts of life in international political relationships. 

It is clear that the peace settlements were made by an organization which was chaotic 
and by a procedure which was fraudulent.... The normal way to make peace after a war in 
which the victors form a coalition would be for the victors to hold a conference, agree on 
the terms they hope to get from the defeated, then have a congress with these latter to 
impose these terms, either with or without discussion and compromise. It was tacitly 
assumed in October and November, 1918, that this method was to be used to end the 
existing war. But this congress method could not be used in 1919 for several reasons. The 
members of the victorious coalition were so numerous (thirty-two Allied and Associated 
Powers) that they could have agreed on terms only slowly and after considerable 
preliminary organization. This preliminary organization never occurred, largely because 
President Wilson was too busy to participate in the process, was unwilling to delegate 
any real authority to others, and, with a relatively few, intensely held ideas (like the 
League of Nations, democracy, and self-determination), had no taste for the details of 
organization. Wilson was convinced that if he could only get the League of Nations 
accepted, any undesirable details in the terms of the treaties could be remedied later 
through the League. Lloyd George and Clemenceau made use of this conviction to obtain 
numerous provisions in the terms which were undesirable to Wilson but highly desirable 
to them. 

The time necessary for a preliminary conference or preliminary planning was also 
lacking. Lloyd George wanted to carry out his campaign pledge of immediate 
demobilization, and Wilson wanted to get back to his duties as President of the United 
States. Moreover, if the terms had been drawn up at a preliminary conference, they would 
have resulted from compromises between the many Powers concerned, and these 
compromises would have broken down as soon as any effort was made to negotiate with 
the Germans later. Since the Germans had been promised the right to negotiate, it became 
clear that the terms could not first be made the subject of public compromise in a full 
preliminary conference. Unfortunately, by the time the victorious Great Powers realized 
all this, and decided to make the terms by secret negotiations among themselves, 
invitations had already been sent to all the victorious Powers to come to an Inter- Allied 
Conference to make preliminary terms. As a solution to this embarrassing situation, the 
peace was made on two levels. On one level, in the full glare of publicity' the Inter- Allied 
Conference became the Plenary Peace Conference, and, with considerable fanfare, did 
nothing. On the other level, the Great Powers worked out their peace terms in secret and, 



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

As late as February 22nd, Balfour, the British foreign secretary, still believed they 
were working on "preliminary peace terms," and the Germans believed the same on April 
15th. 

While the Great Powers were negotiating in secret the full conference met several 
times under rigid rules designed to prevent action. These sessions were governed by the 
iron hand of Clemenceau, who heard the motions he wanted, jammed through those he 
desired, and answered protests by outright threats to make peace without any consultation 
with the Lesser Powers at all and dark references to the millions of men the Great Powers 
had under arms. On February 14th the conference was given the draft of the Covenant of 
the League of Nations, and on April 1 1th the draft of the International Labor Office; both 
were accepted on April 28th. On May 6th came the text of the Treaty of Versailles, only 
one day before it was given to the Germans; at the end of May came the draft of the 
Treaty of Saint-Germain with Austria. 

While this futile show was going on in public, the Great Powers were making peace in 
secret. Their meetings were highly informal. When the military leaders were present the 
meetings were known as the Supreme War Council; when the military leaders were 
absent (as they usually were after January 12th) the group was known as the Supreme 
Council or the Council of Ten. It consisted of the head of the government and the foreign 
minister of each of the five Great Powers (Britain, the United States, France, Italy, and 
Japan). This group met forty-six times from January 12th to March 24, 1919. It worked 
very ineffectively. At the middle of March, because a sharp dispute over the German- 
Polish frontier leaked to the press, the Council of Ten was reduced to a Council of Four 
(Lloyd George, Wilson, Clemenceau, Orlando). These four, with Orlando frequently 
absent, held over two hundred meetings in a period of thirteen weeks (March 27th to June 
28th). They put the Treaty of Versailles into form in three weeks and did the preliminary 
work on the treaty with Austria. 

When the treaty with Germany was signed on June 2 8, 1919, the heads of 
governments left Paris and the Council of Ten ended. So also did the Plenary Conference. 
The five foreign ministers (Balfour, Lansing, Pichon, Tittoni, and Makino) were left in 
Paris as the Council of Heads of Delegations, with full powers to complete the peace 
settlements. This group finished the treaties with Austria and Bulgaria and had them both 
signed. They disbanded on January lo, 1920, leaving behind an executive committee, the 
Conference of Ambassadors. This consisted of the ambassadors of the four Great Powers 
in Paris plus a French representative. This group held two hundred meetings in the next 
three years and continued to meet until 1931. It supervised the execution of the three 
peace treaties already signed, negotiated the peace treaty with Hungary, and performed 
many purely political acts which had no treaty basis, such as drawing the Albanian 
frontier in November 1921. In general, in the decade after the Peace Conference, the 
Conference of Ambassadors was the organization by which the Great Powers ruled 
Europe. It acted with power, speed, and secrecy in all issues delegated to it. When issues 



arose which were too important to be treated in this way, the Supreme Council was 
occasionally reunited. This was done about twenty- five times in the three years 1920- 
1922, usually in regard to reparations, economic reconstruction, and acute political 
problems. The most important of these meetings of the Supreme Council were held at 
Paris, London, San Remo, Boulogne, and Spa in 1920; at Paris and London in 1921; and 
at Paris, Genoa, The Hague, and London in 1922. This valuable practice was ended by 
Britain in 1923 in protest against the French determination to use force to compel 
Germany to fulfill the reparations clauses of the peace treaty. 

At all of these meetings, as at the Peace Conference itself, the political leaders were 
assisted by groups of experts and interested persons, sometimes self-appointed. Many of 
these "experts" were members or associates of the international -banking fraternity. At the 
Paris Peace Conference the experts numbered thousands and were organized into official 
staffs by most countries, even before the war ended. These experts were of the greatest 
importance. They were formed into committees at Paris and given problem after problem, 
especially boundary problems, usually without any indication as to what principles 
should guide their decisions. The importance of these committees of experts can he seen 
in the fact that in every case hut one where a committee of experts submitted a 
unanimous report, the Supreme Council accepted its recommendation and incorporated it 
in the treaty. In cases where the report was not unanimous, the problem was generally 
resubmitted to the experts for further consideration. The one case where a unanimous 
report was not accepted was concerned with the Polish Corridor, the same issue which 
had forced the Supreme Council to be cut down to the Council of Four in 1919 and the 
issue which led to the Second World War twenty years later. In this case, the experts 
were much harsher on Germany than the final decision of the politicians. 

The treaty with Germany was made by the Council of Four assembling the reports of 
the various committees, fitting the parts together, and ironing out various disagreements. 
The chief disagreements were over the size and nature of German reparations, the nature 
of German disarmament, the nature of the League of Nations, and the territorial 
settlements in six specific areas: the Polish Corridor, Upper Silesia, the Saar, Fiume, the 
Rhineland, and Shantung. When the dispute over Fiume reached a peak, Wilson appealed 
to the Italian people over the heads of the Italian delegation at Paris, in the belief that the 
people were less nationalistic and more favorable to his idealistic principles than their 
rather hard-boiled delegation. This appeal was a failure, but the Italian delegation left the 
conference and returned to Rome in protest against Wilson's action. Thus the Italians 
were absent from Paris at the time that the German colonial territories were being 
distributed and, accordingly, did not obtain any colonies. Thus Italy failed to obtain 
compensation in Africa for the French and British gains in territory on that continent, as 
promised in the Treaty of London in 1915. This disappointment was given by Mussolini 
as one of the chief justifications for the Italian attack on Ethiopia in 1935. 

The Treaty of Versailles was presented to the Plenary Conference on May 6, 1919, 
and to the German delegation the next day. The conference was supposed to accept it 
without comment, but General Foch, commander in chief of the French armies and of the 
Entente forces in the war, made a severe attack on the treaty in regard to its provisions for 



enforcement. These provisions gave little more than the occupation of the Rhineland and 
three bridgeheads on the right bank of the Rhine as already existed under the Armistice of 
November II, 1918. According to the treaty, these areas were to be occupied for from five 
to fifteen years to enforce a treaty whose substantive provisions required Germany to pay 
reparations for at least a generation and to remain disarmed forever. Foch insisted that he 
needed the left bank of the Rhine and the three bridgeheads on the right bank for at least 
thirty years. Clemenceau, as soon as the meeting was over, rebuked Foch for disrupting 
the harmony of the assembly, but Foch had put his finger on the weakest, yet most vital, 
portion of the treaty. 

The presentation of the text of the treaty to the Germans the next day was no happier. 
Having received the document, the chief of the German delegation, Foreign Minister 
Count Ulrich von Brockdorff-Rantzau, made a long speech in which he protested bitterly 
against the failure to negotiate and the violation of the pre-armistice commitments. As a 
deliberate insult to his listeners, he spoke from a seated position.. 

The German delegation sent the victorious Powers short notes of detailed criticism 
during May and exhaustive counter-proposals on May 28th. Running to 443 pages of 
German text, these counter-proposals, criticized the treaty, clause by clause, accused the 
victors of bad faith in violating the Fourteen Points, and offered to accept the League of 
Nations, the disarmament sections, and reparations of 100 thousand million marks if the 
Allies would withdraw any statement that Germany had, alone, caused the war and would 
readmit Germany to the world's markets. Most of the territorial changes were rejected 
except where they could be shown to be based on self-determination (thus adopting 
Wilson's point of view). 

These proposals led to one of the most severe crises of the conference as Lloyd 
George, who had been reelected in December on his promise to the British people to 
squeeze Germany dry and had done his share in this direction from December to May, 
now began to fear that Germany would refuse to sign and adopt a passive resistance 
which would require the Allies to use force. Since the British armies were being 
disbanded, such a need of force would fall largely on the French and would be highly 
welcome to people like Foch who favored duress against Germany. Lloyd George was 
afraid that any occupation of Germany by French armies would lead to complete French 
hegemony on the continent of Europe and that these occupation forces might never be 
withdrawn, having achieved, with British connivance, what Britain had fought so 
vigorously to prevent at the time of Louis XIV and Napoleon. In other words, the 
reduction in German's power as a consequence of her defeat was leading Britain back to 
her old balance-of-power policies under which Britain opposed the strongest Power on 
the continent by building up the strength of the second strongest. At the same time, Lloyd 
George was eager to continue the British demobilization in order to satisfy the British 
people and to reduce the financial burden on Britain so that the country could balance its 
budget, deflate, and go back on the gold standard. For these reasons, Lloyd George 
suggested that the treaty be weakened by reducing the Rhineland occupation from fifteen 
years to two, that a plebiscite be held in Upper Silesia (which had been given to Poland), 
that Germany be admitted to the League of Nations at once, and that the reparations 



burden be reduced. He obtained only the plebiscite in Upper Silesia and certain other 
disputed areas, Wilson rejecting the other suggestions and upbraiding the prime minister 
for his sudden change of attitude. 

Accordingly, the Allied answer to the German counter-proposals (written by Philip 
Kerr, later Lord Lothian) made only minor modifications in the original terms (chiefly the 
addition of five plebiscites in Upper Silesia, Allenstein, Marienwerder, North Schleswig, 
and the Saar, of which the last was to be held in 1935, the others immediately). It also 
accused the Germans of sole guilt in causing the war and of inhuman practices during it, 
and gave them a five-day ultimatum for signing the treaty as it stood. The German 
delegation at once returned to Germany and recommended a refusal to sign. The Cabinet 
resigned rather than sign, but a new Cabinet was formed of Catholics and Socialists. Both 
of these groups were fearful that an Allied invasion of Germany would lead to chaos and 
confusion which would encourage Bolshevism in the east and separatism in the west; 
they voted to sign if the articles on war guilt and war criminals could be struck from the 
treaty. When the Allies refused these concessions, the Catholic Center Party voted 64-14 
not to sign. At this critical moment, when rejection seemed certain, the High Command 
of the German Army, through Chief of Staff Wilhelm Groener, ordered the Cabinet to 
sign in order to prevent a military occupation of Germany. On June 28, 1919, exactly five 
years after the assassination at Sarajevo, in the Hall of Mirrors at Versailles where the 
German Empire had been proclaimed in 1871, the Treaty of Versailles was signed by all 
the delegations except the Chinese. The latter refused, protest against the disposition of 
the prewar German concessions in Shantung. 

The Austrian Treaty was signed by a delegation headed by Karl Renner but only after 
the victors had rejected a claim that Austria was a succession state rather than a defeated 
PoYver and had forced the country to change its name from the newly adopted "German 
Austria" to the title "Republic of Austria." The new country was forbidden to make any 
movement toward union with Germany without the approval of the League of Nations. 

The Treaty of Neuilly was signed by a single Bulgarian delegate, the Peasants' Party 
leader Aleksandr Stamboliski. By this agreement Bulgaria lost western Thrace, her outlet 
to the Aegean, which had been annexed from Turkey in 1912, as well as certain mountain 
passes in the west which were ceded from Bulgaria to Yugoslavia for strategic reasons. 

The Treaty of Trianon signed in 1920 was the most severe of the peace treaties and the 
most rigidly enforced. For these and other reasons Hungary was the most active political 
force for revision of treaties during the period 1924-1934 and was encouraged in this 
attitude by Italy from 1927 to 1934 in the hope that there might he profitable fishing in 
such troubled waters. Hungary had good reason to he discontented. The fall of the 
Habsburg dynasty in 1918 and the uprisings of the subject peoples of Hungary, like the 
Poles, Slovaks, Romanians, and Croatians, brought to power in Budapest a liberal 
government under Count Michael Karolyi. This government was at once threatened by a 
Bolshevik uprising under Bela Kun. In order to protect itself, the Karolyi government 
asked for an Allied occupation force until after the elections scheduled for April 1919. 
This request was refused by General Franchet d'Esperey, under the influence of a 



reactionary Hungarian politician, Count Stephen Bethlen. The Karolyi regime fell before 
the attacks of Bela Kun and the Romanians in consequence of lack of support from the 
West. After Bela Kun's reign of Red terrorism, which lasted six months (March-August, 
1920), and his flight before a Romanian invasion of Hungary, the reactionaries came to 
power with Admiral Miklos Horthy as regent and head of the state (1920 1944) and 
Count Bethlen as prime minister (1921-1931). Count Karolyi, who was pro-Allied, anti- 
German, pacifist, democratic, and liberal, realized that no progress was possible in 
Hungary without some solution of the agrarian question and the peasant discontent 
arising from the monopolization of the land. Because the Allies refused to support this 
program, Hungary fell into the hands of Horthy and Bethlen, who were anti-Allied, pro- 
German, undemocratic, militaristic, and unprogressive. This group was persuaded to sign 
the Treaty of Trianon hy a trick and ever afterward repudiated it. Maurice Paleologue, 
secretary-general of the French Ministry of Foreign Affairs (but acting on behalf of 
France's greatest industrialist, Eugene Schneider), made a deal with the Hungarians that if 
they would sign the Treaty of Trianon as it stood and give Schneider control of the 
Hungarian state railways, the port of Budapest, and the Hungarian General Credit Bank 
(which had a stranglehold on Hungarian industry) France would eventually make 
Hungary one of the mainstays of its anti-German bloc in eastern Europe, would sign a 
military convention with Hungary, and would, at the proper time, obtain a drastic revision 
of the Treaty of Trianon. The Hungarian side of this complex deal was largely carried 
out, but British and Italian objections to the extension of French economic control into 
central Europe disrupted the negotiations and prevented Hungary from obtaining its 
reward. Paleologue, although forced to resign and replaced at the Quai d'Orsay by the 
anti-Hungarian and pro-Czech Philippe Berthelot, received his reward from Schneider. 
He was made a director of Schneider's personal holding company for his central- 
European interests, the Union europeene industrielle et financiere. 

The Treaty of Sevres with Turkey was the last one made and the only one never 
ratified. There w-ere three reasons for the delay: (1) the uncertainty about the role of the 
United States, which was expected to accept control of the Straits and a mandate for 
Armenia, thus forming a buffer against Soviet Russia; (2) the instability of the Turkish 
government, which was threatened hy a nationalist uprising led by Mustafa Kemal; and 
(3) the scandal caused by the Bolshevik publication of the secret treaties regarding the 
Ottoman Empire, since these treaties contrasted so sharply with the expressed war aims 
of the Allies. The news that the United States refused to participate in the Near East 
settlement made it possible to draw up a treaty. This was begun by the Supreme Council 
at its London Conference of February 1920, and continued at San Remo in April. It was 
signed by the sultan's government on August 20, 1920, but the Nationalists under 
Mustafa Kemal refused to accept it and set up an insurgent government at Ankara. The 
Greeks and Italians, with Allied support, invaded Turkey and attempted to force the 
treaty of the Nationalists, but they were much weakened by dissension behind the facade 
of Entente solidarity. The French believed that greater economic concessions could be 
obtained from the Kemalist government, while the British felt that richer prospects were 
to be obtained from the sultan. In particular, the French were prepared to support the 
claims of Standard Oil to such concessions, while the British were prepared to support 
Royal-Dutch Shell. The Nationalist forces made good use of these dissensions. After 



buying off the Italians and French with economic concessions, they launched a 
counteroffensive against the Greeks. Although England came to the rescue of the Greeks, 
it received no support from the other Powers, while the Turks had the support of Soviet 
Russia. The Turks destroyed the Greeks, burned Smyrna, and came face-to-face with the 
British at Chanak. At this critical moment, the Dominions, in answer to Curzon's 
telegraphed appeal, refused to support a war with Turkey. The Treaty of Sevres, already 
in tatters, had to be discarded. A new conference at Lausanne in November 1922 
produced a moderate and negotiated treaty which was signed by the Kemalist government 
on July 24, 1923. This act ended, in a formal way, the First World War. It also took a 
most vital step toward establishing a new Turkey which would serve as a powerful force 
for peace and stability in the Near East. The decline of Turkey, which had continued for 
four hundred years, was finally ended. 

By this Treaty of Lausanne, Turkey gave up all non-Turkish territory except 
Kurdistan, losing Arabia, Mesopotamia, the Levant, 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 Straits were demilitarized 
and were to be open to all ships except those of belligerents if Turkey was at war. Turkey 
accepted a minorities treaty and agreed to a compulsory exchange with Greece of Greek 
and Turkish minorities judged on the basis of membership in the Greek Orthodox or 
Muslim religions. Under this last provision, over 1,250,000 Greeks were removed from 
Turkey by 1930. Unfortunately, most of these had been urban shopkeepers in Turkey and 
were settled as farmers on the un-hospitable soil of Macedonia. The Bulgarian peasants 
who had previously lived in Macedonia were unceremoniously dumped into Bulgaria 
where they were tinder for the sparks of a revolutionary Bulgarian secret society called 
the Internal Macedonian Revolutionary Organization (EVIRO), whose chief method of 
political action was assassination. 

As a result of the rising tide of aggression in the 1930'5, the clause regarding the 
demilitarization of the Straits was revoked at the Montreux Convention of July 1936. 
This gave Turkey full sovereignty over the Straits, including the right to fortify them. 

All the original peace treaties consisted of five chief parts: (a) the Covenant of the 
League of Nations; (b) the territorial provisions; (c) the disarmament provision; (d) the 
reparations provisions; and (e) penalties and guarantees. The first of these must be 
reserved until later, but the others should be mentioned here. 

In theory, the territorial provisions of the treaties were based on "self-determination," 
but in fact they were usually based on other considerations: strategic, economic, punitive, 
legal power, or compensation. By "self-determination" the peacemakers usually meant 
"nationality," and by "nationality" they usually meant "language," except in the Ottoman 
Empire where "nationality" usually meant "religion." The six cases where self- 
determination (that is, plebiscites) was actually used showed that the peoples of these 
areas were not so nationalistic as the peacemakers believed. Because in Allenstein, where 
Polish-speaking people were 40 percent of the population, only 2 percent voted to join 
Poland, the area was returned to Germany; in Upper Silesia, where the comparable 



figures were 65 percent and 40 percent, the area was split, the more industrial eastern 
portion going to Poland, while the more rural western part was returned to Germany; in 
Klagenfurt, where Slovene-speakers formed 68 percent of the population, only 40 percent 
wanted to join Yugoslavia, so the area was left in Austria. Somewhat similar results 
occurred in Marienwerder, but not in northern Schleswig, which voted to join Denmark. 
In each case, the voters, probably for economic reasons, chose to join the economically 
more prosperous state rather than the one sharing the same language. 

In addition to the areas mentioned, Germany had to return Alsace and Lorraine to 
France, give three small districts to Belgium, and abandon the northern edge of East 
Prussia around Memel to the Allied Powers. This last area was given to the new state of 
Lithuania in 1924 by the Conference of Ambassadors. 

The chief territorial disputes arose over the Polish Corridor, the Rhineland, and the 
Saar. The Fourteen Points had promised to establish an independent Poland with access 
to the Baltic Sea. It had been French policy, since about 1500, to oppose any strong state 
in central Europe by seeking allies in eastern Europe. With the collapse of Russia in 
1917, the French sought a substitute ally in Poland. Accordingly, Foch wanted to give all 
of East Prussia to Poland. Instead, the experts (who were very pro-Polish) gave Poland 
access to the sea by severing East Prussia from the rest of Germany by creating a Polish 
Corridor in the valley of the Vistula. Most of the area was Polish-speaking, and German 
commerce with East Prussia was largely by sea. However, the city of Danzig, at the 
mouth of the Vistula, was clearly a German city. Lloyd George refused to give it to 
Poland. Instead, it was made a Free City under the protection of the League of Nations. 

The French wished to detach the whole of Germany west of the Rhine (the so-called 
Rhineland) to create a separate state and increase French security against Germany. They 
gave up their separatist agitation in return for Wilson's promise of March 14, 1919 to give 
a joint Anglo-American guarantee against a German attack. This promise was signed in 
treaty form on June 28, 1919, but fell through when the United States Senate did not 
ratify the agreement. Since Clemenceau had been able to persuade Foch and Poincare to 
accept the Rhine settlement only because of this guarantee, its failure to materialize 
ended his political career. The Rhineland settlement as it stood had two quite separate 
provisions. On the one hand, the Rhineland and three bridgeheads on the right bank of the 
Rhine were to be occupied by Allied troops for from five to fifteen years. On the other 
hand the Rhineland and a zone fifty kilometers wide along the right bank were to be 
permanently demilitarized and any violation of this could be regarded as a hostile act by 
the signers of the treaty. This meant that any German troops or fortifications were 
excluded from this area forever. This was the most important clause of the Treaty of 
Versailles. So long as it remained in effect, the great industrial region of the Ruhr on the 
right bank of the Rhine, the economic backbone of Germany's ability to wage warfare, 
was exposed to a quick French military thrust from the west, and Germany could not 
threaten France or move eastward against Czechoslovakia or Poland if France objected. 

Of these two clauses, the military occupation of the Rhineland and the bridgeheads 
was ended in 1930, five years ahead of schedule. This made it possible for Hitler to 



destroy the second provision, the demilitarization of western Germany, by remilitarizing 
the area in March 1936. 

The last disputed territorial change of the Treaty of Versailles was concerned with the 
Saar Basin, rich in industry and coal. Although its population was clearly German, the 
French claimed most of it in 1919 on the grounds that two-thirds of it had been inside the 
French frontiers of 1814 and that they should obtain the coal mines as compensation for 
the French mines destroyed by the Germans in 1918. They did get the mines, but the area 
was separated politically from both countries to be ruled by the League of Nations for 
fifteen years and then given a plebiscite. When the plebiscite was held in 1935, after an 
admirable League administration, only about 2,000 out of about 528,000 voted to join 
France, while about go percent wished to join Germany, the remainder indicating their 
desire to continue under League rule. The Germans, as a result of this vote, agreed to buy 
back the coal mines from France for goo million francs, payable in coal over a five-year 
period. 

The territorial provisions of the treaties of Saint-Germain and Trianon were such as to 
destroy completely the Austro-Hungarian Empire. Austria was reduced from 1 15,000 
square miles with 30 million inhabitants to 32,000 square miles with 6.5 million 
inhabitants. To Czechoslovakia went Bohemia, Moravia, parts of Lower Austria, and 
Austrian Silesia. To Yugoslavia went Bosnia, Herzegovina, and Dalmatia. To Romania 
went Bukovina. To Italy went South Tyrol, Trentino, Istria, and an extensive area north 
of the Adriatic, including Trieste. 

The Treaty of Trianon reduced Hungary from 125,000 square miles with 21 million 
inhabitants to 35,000 square miles with 8 million inhabitants. To Czechoslovakia went 
Slovakia and Ruthenia; to Romania went Transylvania, part of the Hungarian plain, and 
most of the Banat; to Yugoslavia went the rest of the Banat, Croatia-Slavonia, and some 
other districts. 

The treaties of peace set the boundaries of the defeated states but not those of the new 
states. These latter were fixed by a number of treaties made in the years following 1918. 
The process led to disputes and even to violent clashes of arms, and some issues are still 
subjects of discord to the present time. 

The most violent controversies arose in regard to the boundaries of Poland. Of these, 
only that with Germany was set by the Treaty of Versailles. The Poles refused to accept 
their other frontiers as suggested by the Allies at Paris, and by 1920 were at war with 
Lithuania over Vilna, with Russia over the eastern border, with the Ukrainians over 
Galicia, and with Czechoslovakia over Teschen. The struggle over Vilna began in 1919 
when the Poles took the district from the Russians but soon lost it again. The Russians 
yielded it to the Lithuanians in 1920, and this was accepted by Poland, but within three 
months it was seized by Polish freebooters. A plebiscite, ordered by the League of 
Nations, was held in January 1922 under Polish control and gave a Polish majority. The 
Lithuanians refused to accept the validity of this vote or a decision of the Conference of 



Ambassadors of March 1923, giving the area to Poland. Instead, Lithuania continued to 
consider itself at war with Poland until December 1927. 

Poland did not fare so well at the other end of its frontier. There fighting broke out 
between Czech and Polish forces over Teschen in January 1919. The Conference of 
Ambassadors divided the area between the two claimants, but gave the valuable coal 
mines to Czechoslovakia (July ). 

Poland's eastern frontier was settled only after a bloody war with the Soviet Union. 
The Supreme Council in December 1919 had laid down the so-called "Curzon Line" as 
the eastern boundary of Polish administration, but within six months the Polish armies 
had crossed this and advanced beyond Kiev. A Russia n counterattack soon drove the 
Poles back, and Polish territory Was invaded in its turn. The Poles appealed in panic to 
the Supreme Council, which was reluctant to intervene. The French, however, did not 
hesitate, and sent General Weygand with supplies to defend Warsaw. The Russian 
offensive was broken on the Vistula, and peace negotiations began. The final settlement, 
signed at Riga in March 1921, gave Poland a frontier 150 miles farther east than the 
Curzon Line and brought into Poland many non-Polish peoples, including one million 
White Russians and four million Ukrainians. 

Romania also had a dispute with Russia arising from the Romanian occupation of 
Bessarabia in 1918. In October 1920, the Conference of Ambassadors recognized 
Bessarabia as part of Romania. Russia protested, and the United States refused to accept 
the transfer. In view of these disturbances Poland and Romania signed a defensive 
alliance against Russia in March 1921. 

The most important dispute of this kind arose over the disposition of Fiume. This 
problem was acute because one of the Great Powers was involved. The Italians had 
yielded Fiume to Yugoslavia in the Treaty of London of 1915 and had promised, in 
November 1918, to draw the Italian-Yugoslav boundary on lines of nationality. Thus they 
had little claim to Fiume. Nevertheless, at Paris they insisted on it, for political and 
economic reasons. Having just excluded the Habsburg Empire from the Adriatic Sea, and 
not wishing to see any new Power rise in its place, they did all they could to hamper 
Yugoslavia and to curtail its access to the Adriatic. Moreover, the Italian acquisition of 
Trieste gave them a great seaport with no future, since it was separated by a political 
boundary from the hinterland whence it could draw its trade. To protect Trieste, Italy 
wanted to control all the possible competing ports in the area. The city of Fiume itself 
was largely Italian, but the suburbs and surrounding countryside were overwhelmingly 
Slav. The experts at Paris wished to give Italy neither Fiume nor Dalmatia, but Colonel 
House tried to overrule the experts in order to obtain Italian support for the League of 
Nations in return. Wilson overruled House and issued his famous appeal to the Italian 
people which resulted in the temporary withdrawal of the Italian delegation from Paris. 
After their return, the issue was left unsettled. In September 1919 an erratic Italian poet, 
Gabriele DAnnunzio, with a band of freebooters, seized Fiume and set up an independent 
government on a comic-opera basis. The dispute between Italy and Yugoslavia continued 
with decreasing bitterness until November 1920, when they signed a treaty at Rapallo 



dividing the area but leaving Fiume itself a free city. This settlement was not satisfactory. 
A group of Fascists from Italy (where this party was not yet in office) seized the city in 
March 1922 and were removed by the Italian Army three weeks later. The problem was 
finally settled by the Treaty of Rome of January 1924, by which Fiume was granted to 
Italy, but the suburb of Port Baros and a fifty-year lease on one of the three harbor basins 
went to Yugoslavia. 

These territorial disputes are of importance because they continued to lacerate 
relationships between neighboring states until well into the period of World War II and 
even later. The names of Fiume, Thrace, Bessarabia, Epirus, Transylvania, Memel, Vilna, 
Teschen, the Saar, Danzig, and Macedonia were still echoing as battle-cries of overheated 
nationalists twenty years after the Peace Conference assembled at Paris. The work of that 
conference had undoubtedly reduced the numbers of minority peoples, but this had only 
served to increase the intensity of feeling of the minorities remaining. The numbers of 
these remained large. There were over 1,000,000 Germans in Poland, 550,000 in 
Hungary, 3,100,000 in Czechoslovakia, about 700,000 in Romania, 500,000 in 
Yugoslavia, and 250,000 in Italy. There were 450,000 Magyars in Yugoslavia, 750,000 in 
Czechoslovakia, and about 1,500,000 in Romania. There were about 5,000,000 White 
Russians and Ukrainians in Poland and about 1,100,000 of these in Romania. To protect 
these minorities the Allied and Associated Powers forced the new states of central and 
eastern Europe to sign minority treaties, by which these minorities were granted a certain 
minimum of cultural and political rights. These treaties were guaranteed by the League of 
Nations, but there was no power to enforce observation of their terms. The most that 
could be done was to issue a public reprimand against the offending government, as was 
done, more than once, for example, against Poland. 

The disarmament provisions of the peace treaties were much easier to draw up than to 
enforce. It was clearly understood that the disarmament of the defeated Powers was but 
the first step toward the general disarmament of the victor nations as well. In the case of 
the Germans this connection was explicitly made in the treaty so that it was necessary, in 
order to keep Germany legally disarmed, for the other signers of the treaty to work 
constantly toward general disarmament after 1919 lest the Germans claim that they were 
no longer bound to remain disarmed. 

In all of the treaties, certain weapons like tanks, poisonous gas, airplanes, heavy 
artillery, and warships over a certain size, as well as all international trade in arms, were 
forbidden. Germany was allowed a small navy fixed in number and size of vessels, while 
Austria, Hungary, and Bulgaria were allowed no navy worthy of the name. Each army 
was restricted in size, Germany to 100,000 men, Austria to 30,000, Hungary to 35,000, 
and Bulgaria to 20,000. Moreover, these men had to be volunteers on twelve-year 
enlistments, and all compulsory military training, general staffs, or mobilization plans 
were forbidden. These training provisions were a mistake, forced through by the Anglo- 
Americans over the vigorous protests of the French. The Anglo-Americans regarded 
compulsory military training as "militaristic"; the French considered it the natural 
concomitant of universal manhood suffrage and had no objections to its use in Germany, 
since it would provide only a large number of poorly trained men; they did, however, 



object to the twelve-year enlistment favored by the British, since this would provide 
Germany with a large number of highly trained men who could be used as officers in any 
revived German Army. On this, as in so many issues where the French were overruled by 
the Anglo-Americans, time was to prove that the French position was correct. 

The reparations provisions of the treaties caused some of the most violent arguments 
at the Peace Conference and were a prolific source of controversy for more than a dozen 
years after the conference ended. The efforts of the Americans to establish some rational 
basis for reparations, either by an engineering survey of the actual damage to be repaired 
or an economic survey of Germany's capacity to pay reparations, were shunted aside, 
largely because of French objections. At the same time, American efforts to restrict 
reparations to war damages, and not allow them to be extended to cover the much larger 
total of war costs, were blocked by the British, who would have obtained much less under 
damages than under costs. By proving to the French that the German capacity to pay was, 
in fact, limited, and that the French would get a much larger fraction of Germany's 
payments under "damages" than under "costs," the Americans were able to cut down on 
the British demands, although the South African delegate, General Smuts, was able to get 
military pensions inserted as one of the categories for which Germany had to pay. The 
French were torn between a desire to obtain as large a fraction as possible of Germany's 
payments and a desire to pile on Germany such a crushing burden of indebtedness that 
Germany would be ruined beyond the point where it could threaten French security again. 

The British delegation was sharply divided. The chief British financial delegates, 
Lords Cunliffe and Sumner, were so astronomically unrealistic in their estimates of 
Germany's ability to pay that they were called the "heavenly twins," while many younger 
members of the delegation led by John Maynard (later Lord) Keynes, either saw 
important economic limits on Germany's ability to pay or felt that a policy of fellowship 
and fraternity should incline Britain toward a lo\v estimate of Germany's obligations. 
Feeling was so high on this issue that it proved impossible to set an exact figure for 
Germany's reparations in the treaty itself. Instead a compromise, originally suggested by 
the American John Foster Dulles, was adopted. By this, Germany was forced to admit an 
unlimited, theoretical obligation to pay but was actually bound to pay for only a limited 
list of ten categories of obligations. The former admission has gone down in history as 
the "war-guilt clause" (Article 231 of the treaty). By it Germany accepted "the 
responsibility of Germany and her allies for causing all the loss and damage to which the 
Allied and Associated Governments and their nationals have been subjected as a 
consequence of the war imposed upon them hy the aggression of Germany and her 
allies." 

The following clause, Article 232, was concerned with the reparations obligation, 
listing ten categories of damages of which the tenth, concerned with pensions and 
inserted hy General Smuts, represented a liability larger than the aggregate of the 
preceding nine categories together. Since a considerable period was needed for the 
Reparations Commission to discover the value of these categories, the Germans were 
required to begin immediate delivery to the victors of large quantities of property, chiefly 
coal and timber. Only in May 1921 was the full reparations obligation presented to the 



Germans. Amounting to 132 thousand million gold marks (about 32.5 billion dollars), 
this bill was accepted by Germany under pressure of a six-day ultimatum, which 
threatened to occupy the Ruhr Valley. 

The reparations clauses of the other treaties were of little significance. 

Austria was unable to pay any reparations because of the weakened economic 
condition of that stump of the Habsburg Empire. Bulgaria and Hungary paid only small 
fractions of their obligations before all reparations were wiped out in the financial 
debacle of 1931-1932. 

The treaties made at Paris had no enforcement provisions worthy of the name except 
for the highly inadequate Rhineland clauses which we have already mentioned. It is quite 
clear that the defeated Powers could be made to fulfill the provisions of these treaties 
only if the coalition which had won the war were to continue to work as a unit. This did 
not occur. The United States left the coalition as a result of the Republican victory over 
Wilson in the congressional elections of 1918 and the presidential election of 1920. Italy 
was alienated by the failure of the treaty to satisfy her ambitions in the Mediterranean and 
Africa. But these were only details. If the Anglo-French Entente had been maintained, the 
treaties could have been enforced without either the United States or Italy. It was not 
maintained. Britain and France saw the world from points of view so different that it was 
almost impossible to believe that they were looking at the same world. The reason for this 
was simple, although it had many complex consequences and implications. 

Britain, after 1918; felt secure, while France felt completely insecure in the face of 
Germany. As a consequence of the war, even before the Treaty of Versailles was signed, 
Britain had obtained all her chief ambitions in respect to Germany. The German Navy 
was at the bottom of Scapa Flow, scuttled by the Germans themselves; the German 
merchant fleet was scattered, captured, and destroyed; the German colonial rivalry w-as 
ended and its areas occupied; the German commercial rivalry was crippled by the loss of 
its patents and industrial techniques, the destruction of all its commercial outlets and 
banking connections throughout the world, and the loss of its rapidly growing prewar 
markets. Britain had obtained these aims by December 1918 and needed no treaty to 
retain them. 

France, on the other hand, had not obtained the one thing it wanted: security. In 
population and industrial strength Germany was far stronger than France, and still 
growing. It was evident that France had been able to defeat Germany only hy a narrow 
margin in 1914-1918 and only because of the help of Britain, Russia, Italy, Belgium, and 
the United States. France had no guarantee that all these or even any of them would be at 
its side in any future war with Germany. In fact, it was quite clear that Russia and Italy 
would not be at its side. The refusal of the United States and Britain to give any guarantee 
to France against German aggression made it dubious that they would be ready to help 
either. Even if they were prepared to come to the rescue ultimately, there was no 
guarantee that France would be able to withstand the initial German assault in any future 
war as she had withstood, by the barest margin, the assault of 1914. Even if it could be 



withstood, and if Britain ultimately came to the rescue, France would have to fight, once 
again, as in the period 1914-1918, with the richest portion of France under enemy 
military occupation. In such circumstances, what guarantee would there be even of 
ultimate success? Doubts of this kind gave France a feeling of insecurity which 
practically became a psychosis, especially as France found its efforts to increase its 
security blocked at every turn by Britain. It seemed to France that the Treaty of 
Versailles, which had given Britain everything it could want from Germany, did not give 
France the one thing it wanted. As a result, it proved impossible to obtain any solution to 
the two other chief problems of international politics in the period 1919-1929. To these 
three problems of security, disarmament, and reparations, we now turn. 

Chapter 16— Security, 1919-1935 

France sought security after 1918 by a series of alternatives. As a first choice, it 
wanted to detach the Rhineland from Germany; this was prevented by the Anglo- 
Americans. As a second choice, France wanted a "League with teeth," that is, a League of 
Nations with an international police force empowered to take automatic and immediate 
action against an aggressor; this was blocked by the Anglo-Americans. As compensation 
for the loss of these first two choices, France accepted, as a third choice, an Anglo- 
American treaty of guarantee, but this was lost in 1919 by the refusal of the United States 
Senate to ratify the agreement and the refusal of Britain to assume the burden alone. In 
consequence, the French were forced back on a fourth choice — allies to the east of 
Germany. The chief steps in this were the creation of a "Little Entente" to enforce the 
Treaty of Trianon against Hungary in 1920-1921 and the bringing of France and Poland 
into this system to make it a coalition of "satisfied Powers." The Little Entente was 
formed by a series of bilateral alliances between Romania, Czechoslovakia, and 
Yugoslavia. This was widened by a French-Polish Treaty (February 1921) and a French- 
Czechoslovak Treaty (January 1924). This system contributed relatively little to French 
security because of the weakness of these allies (except Czechoslovakia) and the 
opposition of Britain to any French pressure against Germany along the Rhine, the only 
way in which France could guarantee Poland or Czechoslovakia against Germany. In 
consequence, France continued its agitation both for a British guarantee and to "put teeth" 
into the League of Nations. 

Thus France wanted security, while Britain had security. France needed Britain, while 
Britain regarded France as a rival outside Europe (especially in the Near East) and the 
chief challenge to Britain's customary balance-of-power policy in Europe. After 1919 the 
British, and even some Americans, spoke of "French hegemony" on the Continent of 
Europe. The first rule of British foreign policy for four centuries had been to oppose any 
hegemony on the Continent and to do so by seeking to strengthen the second strongest 
Power against the strongest; after 1919 Britain regarded Germany as the second strongest 
Power and France as the strongest, a quite mistaken view in the light of the population, 
industrial productivity, and general organizations of the two countries. 

Because France lacked security, its chief concern in every issue was political; because 
Britain had security, its chief concern was economic. The political desires of France 



required that Germany should be weakened; the economic desires of Britain required that 
Germany should be strengthened in order to increase the prosperity of all Europe. While 
the chief political threat to France was Germany, the chief economic and social threat to 
Britain was Bolshevism. In any struggle with Bolshevist Russia, Britain tended to regard 
Germany as a potential ally, especially if it were prosperous and powerful. This was the 
primary concern of Lord D'Abernon, British ambassador in Berlin in the critical years 
1920-1926. On the other hand, while France was completely opposed to the economic 
and social system of the Soviet Union and could not easily forget the immense French 
investments which had been lost in that country, it still tended to regard the Russians as 
potential allies against any revival of Germany (although France did not make an alliance 
with the Soviet Union until 1935). 

Because of its insecurity France tended to regard the Treaty of Versailles as a 
permanent settlement, wh le Britain regarded it as a temporary arrangement subject to 
modification. Although dissatisfied with the treaty, France felt that it was the best it could 
hope to get, especially in view of the narrow margin by which Germany had decided to 
sign it, even when faced with a worldwide coalition. Britain, which had obtained all of 
her desires before the treaty was signed, had no reluctance to modify it, although it was 
only in 1935 (with the Anglo-German naval agreement) that it attempted to modify the 
colonial, naval, or merchant-marine clauses from which it had benefitted. But in 1935 it 
had, for more than fifteen years, been seeking to modify the clauses from which France 
had benefitted. 

The French believed that peace in Europe was indivisible, while the British believed 
that it was divisible. That means that the French believed that the peace of eastern Europe 
was a primary concern of the states of western Europe and that the latter states could not 
allow Germany to move eastward because that would permit her to gain strength to strike 
back westward. The British believed that the peace of eastern Europe and that of western 
Europe were quite separate things and that it was their concern to maintain peace in the 
west but that any effort to extend this to eastern Europe would merely involve the West in 
"every little squabble" of these continually squabbling "backward" peoples and could, as 
happened in 1914, make a world war out of a local dispute. The Locarno Pacts of 1925 
were the first concrete achievement of this British point of view, as we shall see. To the 
French argument that Germany would get stronger and thus more able to strike westward 
if allowed to grow eastward the British usually replied that the Germans were equally 
likely to become satisfied or get mired down in the great open spaces of the East. 

France believed that Germany could be made to keep the peace by duress, while 
Britain believed that Germany could be persuaded to keep the peace by concessions. The 
French, especially the political Right in France, could see no difference between the 
Germans of the empire and the Germans of the Weimar Republic: "Scratch a German and 
you will find a Hun," they said. The British, especially the political Left, regarded the 
Germans of the Weimar Republic as totally different from the Germans of the empire, 
purified by suffering and freed from the tyranny of the imperial autocracy; they were 
prepared to clasp these new Germans to their hearts and to make any concession to 
encourage them to proceed on the path of democracy and liberalism. When the British 



began to talk in this fashion, appealing to high principles of international cooperation and 
conciliation, the French tended to regard them as hypocrites, pointing out that the British 
appeal to principles did not appear until British interests had been satisfied and until these 
principles could be used as obstacles to the satisfaction of French interests. The British 
tended to reply to the French remarks about the dangers of English hypocrisy with a few 
remarks of their own about the dangers of French militarism. In this sad fashion, the core 
of the coalition which had beaten Germany dissolved in a confusion of 
misunderstandings and recriminations. 

This contrast between the French and the British attitudes on foreign policy is an 
oversimplification of both. About 1935 there appeared a considerable change in both 
countries, and, long before that date, there were differences between different groups 
within each country. 

In both Britain and France (before 1935) there was a difference of opinion in 
international politics which followed general political outlooks (and even class lines) 
rather closely. In Britain, persons who were of the Left tended to believe in revision of 
the Treaty of Versailles in favor of Germany, collective security, general disarmament, 
and friendship with the Soviet Union. In the same period, the Right were impatient with 
policies based on humanitarianism, idealism, or friendship for the Soviet Union, and 
wanted to pursue a policy of "national interest," by which they meant emphasis on 
strengthening the empire, conducting an aggressive commercial policy against outsiders, 
and adopting relative isolationism in general policy with no European political 
commitments except west of the Rhine (where Britain's interests were immediate). The 
groups of the Left were in office in Britain for only about two years in the twenty years 
1919-1939 and then only as a minority government (1924, 1929-1931); the groups of the 
Right were in power for eighteen of these twenty years, usually with an absolute 
majority. However, during these twenty years the people of Britain were generally 
sympathetic to the point of view of the Left in foreign policy, although they generally 
voted in elections on the basis of domestic rather than foreign politics. This means that 
the people were in favor of revision of Versailles, of collective security, of international 
cooperation, and of disarmament. 

Knowing this, the British governments of the Right began to follow a double policy: a 
public policy in which they spoke loudly in support of what we have called the foreign 
policy of the Left, and a secret policy in which they acted in support of what we have 
called the foreign policy of the Right. Thus the stated policy of the government and the 
policy of the British people were based on support of the League of Nations, of 
international cooperation, and of disarmament. Yet the real policy was quite different. 
Lord Curzon, who was foreign secretary for four years (1919-1923) called the League of 
Nations "a good joke"; Britain rejected every effort of France and Czechoslovakia to 
strengthen the system of collective security; while openly supporting the Naval 
Disarmament Conference at Geneva (1927) and the World Disarmament Conference 
(1926-1935), Britain signed a secret agreement with France which blocked disarmament 
on land as well as on the sea (July 1928) and signed an agreement with Germany which 
released her from her naval disarmament (1935). After 1935 the contrast between the 



public policy and the secret policy became so sharp that the authorized biographer of 
Lord Halifax (foreign secretary in 1938-1940) coined the name "dyarchy" for it. Also, 
after 1935, the policies of both Right and Left were changed, the Left becoming anti- 
revisionist as early as 1934, continuing to support disarmament until (in some cases) 
1939, and strengthening its insistence on collective security, while the Right became 
more insistent on revisionism (by that time called "appeasement") and opposition to the 
Soviet Union. 

In France the contrasts between Right and Left were less sharp than in Britain and the 
exceptions more numerous, not only because of the comparative complexity of French 
political parties and political ideology, but also because foreign policy in France was not 
an academic or secondary issue but was an immediate, frightening concern of every 
Frenchman. Consequently, differences of opinion, however noisy and intense, were really 
rather slight. One thing all Frenchmen agreed upon: "It must not happen again." Never 
again must the Hun be permitted to become strong enough to assault France as in 1870 
and in 1914. To prevent this, the Right and the Left agreed, there were two methods: by 
the collective action of all nations and by France's own military power. The two sides 
differed in the order in which these two should be used, the Left wanting to use collective 
action first and France's own power as a supplement or a substitute, the Right wanting to 
use France's own power first, with support from the League or other allies as a 
supplement. In addition, the Left tried to distinguish between the old imperial Germany 
and the new republican Germany, hoping to placate the latter and turn its mind away 
from revisionism by cooperative friendship and collective action. The Right, on the other 
hand, found it impossible to distinguish one Germany from another or even one German 
from another, believing that all were equally incapable of understanding any policy but 
force. Accordingly, the Right wanted to use force to compel Germany to fulfill the Treaty 
of Versailles, even if France had to act alone. 

The policy of the Right was the policy of Poincare and Barthou; the policy of the Left 
was the policy of Briand. The former was used in 1918-1924 and, briefly, in 1934-1935; 
the latter was used in 1924-1929. The policy of the Right failed in 1924 when Poincare's 
occupation of the Ruhr in order to force Germany to pay reparations was ended. This 
showed that France could not act alone even against a weak Germany because of the 
opposition of Britain and the danger of alienating world opinion. Accordingly, France 
turned to a policy of the Left (1924-1929). In this period, which is known as the "Period 
of Fulfillment," Briand, as foreign minister of France, and Stresemann, as foreign 
minister of Germany, cooperated in friendly terms. This period ended in 1929, not, as is 
usually said, because Stresemann died and Briand fell from office, but because of a 
growing realization that the whole policy of fulfillment (1924-1929) had been based on a 
misunderstanding. Briand followed a policy of conciliation toward Germany in order to 
win Germany from any desire to revise Versailles; Stresemann followed his policy of 
fulfillment toward France in order to win from France a revision of the treaty. It was a 
relationship of cross-purposes, because on the crucial issue (revision of Versailles) 
Briand stood adamant, like most Frenchmen, and Stresemann was irreconcilable, like 
most Germans. 



In France, as a result of the failure of the policy of the Right in 1924 and of the policy 
of the Left in 1929, it became clear that France could not act alone toward Germany. It 
became clear that France did not have freedom of action in foreign affairs and was 
dependent on Britain for its security. To win this support, which Britain always held out 
as a bait but did not give until 1939, Britain forced France to adopt the policy of 
appeasement of the British Right after 1935. This policy forced France to give away 
every advantage which it held over Germany: Germany was allowed to rearm (1935); 
Germany was allowed to remilitarize the Rhineland (1936); Italy was alienated (1935); 
France lost its last secure land frontier (Spain, 1936-1939); France lost all her allies to the 
east of Germany, including her one strong ally (Czechoslovakia, 19381939); France had 
to accept the union of Austria with Germany which she had vetoed in 1931 (March 
1938); the power and prestige of the League of Nations was broken and the whole system 
of collective security abandoned (1931-1939); the Soviet Union, which had allied with 
France and Czechoslovakia against Germany in 1935, was treated as a pariah among 
nations and lost to the anti-German coalition (1937-1939). And finally, when all these 
had been lost, public opinion in England forced the British government to abandon the 
Right's policy of appeasement and adopt the old French policy of resistance. This change 
was made on a poor issue (Poland, 1939) after the possibility of using the policy of 
resistance had been destroyed by Britain and after France itself had almost abandoned it. 

In France, as in Britain, there were changes in the foreign policies of the Right and the 
Left after Hitler came to power in Germany (1933). The Left became more anti-German 
and abandoned Briand's policy of conciliation, while the Right, in some sections, sought 
to make a virtue of necessity and began to toy with the idea that, if Germany was to 
become strong anyway, a solution to the French problem of security might be found by 
turning Germany against the Soviet Union. This idea, which already had adherents in the 
Right in Britain, was more acceptable to the Right than to the Left in France, because, 
while the Right was conscious of the political threat from Germany, it was equally 
conscious of the social and economic threat from Bolshevism. Some members of the 
Right in France even went so far as to picture France as an ally of Germany in the assault 
on the Soviet Union. On the other hand, many persons of the Right in France continued to 
insist that the chief, or even the only, threat to France was from the danger of German 
aggression. 

In France, as in Britain, there appeared a double policy but only after 1935, and, even 
then, it was more of an attempt to pretend that France was following a policy of her own 
instead of a policy made in Britain than it was an attempt to pretend it was following a 
policy of loyalty to collective security and French allies rather than a policy of 
appeasement. While France continued to talk of her international obligations, of 
collective security, and of the sanctity of treaties (especially Versailles), this was largely 
for public consumption, for in fact from the autumn of 1935 to the spring of 1940 France 
had no policy in Europe independent of Britain's policy of appeasement. 

Thus French foreign policy in the whole period 1919-1939 was dominated by the 
problem of security. These twenty years can be divided into five sub-periods as follows: 



1919-1924, Policy of the Right 

1924-1929, Policy of the Left 

1929-1934, Confusion and Transition 

1934-1935, Policy of the Right 

1935-1939, Dual Policy of Appeasement 

The French feeling that they lacked security was so powerful in 1919 that they were 
quite willing to sacrifice the sovereignty of the French state and its freedom of action in 
order to get a League of Nations possessing the powers of a world government. 
Accordingly, at the first meeting of the League of Nations Committee at the Paris Peace 
Conference in 1919, the French tried to establish a League with its own army, its own 
general staff, and its own powers of police action against aggressors without the 
permission of the member states. The Anglo-Americans were horrified at what they 
regarded as an inexcusable example of "power politics and militarism." They rode 
roughshod over the French and drew up their own draft Covenant in which there was no 
sacrifice of state sovereignty and where the new world organization had no powers of its 
own and no right to take action without the consent of the parties concerned. War was not 
outlawed but merely subjected to certain procedural delays in making it, nor were 
peaceful procedures for settling international disputes made compulsory but instead were 
merely provided for those who wished to use them. Finally, no real political sanctions 
were provided to force nations to use peaceful procedures or even to use the delaying 
procedures of the Covenant itself. Economic sanctions were expected to be used by 
member nations against aggressor states which violated the delaying procedures of the 
Covenant, but no military sanctions could be used except as contributed by each state 
itself. The League was thus far from being a world government, although both its friends 
and its enemies, for opposite reasons, tried to pretend that it was more powerful, and 
more important, than it really was. The Covenant, especially the critical articles 1 o- 16, 
had been worded by a skillful British lawyer, Cecil Hurst, who filled it with loopholes 
cleverly concealed under a mass of impressive verbiage, so that no state's freedom of 
action was vitally restricted by the document. The politicians knew this, although it was 
not widely publicized and, from the beginning, those states which wanted a real 
international organization began to seek to amend the Covenant, to "plug the loopholes" 
in it. Any real international political organization needed three things: (1) peaceful 
procedures for settling all disputes, (2) outlawry of non-peaceful procedures for this 
purpose, and (3) effective military sanctions to compel use of the peaceful procedures and 
to prevent the use of warlike procedures. 

The League of Nations consisted of three parts: (1) the Assembly of all members of 
the League, meeting generally in September of each year; (2) the Council, consisting of 
the Great Powers with permanent seats and a number of Lesser Powers holding elective 
seats for three-year terms; and (3) the Secretariat, consisting of an international 
bureaucracy devoted to all kinds of international cooperation and having its headquarters 



in Geneva. The Assembly, in spite of its large numbers and its infrequent meetings, 
proved to be a lively and valuable institution, full of hard-working and ingenious 
members, especially from the secondary Powers, like Spain, Greece, and Czechoslovakia. 
The Council was less effective, was dominated by the Great Powers, and spent much of 
its time trying to prevent action without being too obvious about it. Originally, it 
consisted of four permanent and four nonpermanent members, the former including 
Britain, France, Italy, and Japan. Germany was added in 1926; Japan and Germany 
withdrew in 1933; the Soviet Union was admitted in 1934 and was expelled in 1939 after 
its attack on Finland. Since the number of nonpermanent members was increased during 
this period, the Council ended up in 1940 with two permanent and eleven nonpermanent 
members. 

The Secretariat was slowly built up and, by 1938, consisted of more than eight 
hundred persons from fifty-two countries. Most of these were idealistically devoted to the 
principles of international cooperation, and displayed considerable ability and amazing 
loyalty during the brief existence of the League. They were concerned with every type of 
international activity, including disarmament, child welfare, education, the drug traffic, 
slavery, refugees, minorities, the codification of international law, the protection of wild 
life and natural resources, cultural cooperation, and many others. 

Attached to the League were a number of dependent organizations. Two, the 
Permanent Court of International Justice and the International Labor Office, were semi- 
autonomous. Others included the Economic and Financial Organization, the Organization 
for Communications and Transit, the International Health Organization with offices in 
Paris, and the Intellectual Cooperation Organization with branches in Paris, Geneva, and 
Rome. 

Many efforts were made, chiefly by France and Czechoslovakia, to "plug the gaps in 
the Covenant." The chief of these were the Draft Treaty of Mutual Assistance (1923), the 
Geneva Protocol (1924), and the Locarno Pacts (1925). The Draft Treaty bound its 
signers to renounce aggressive war as an international crime and to bring military 
assistance to any signer the Council of the League designated to be the victim of an 
aggression. This project was destroyed in 1924 by the veto of the British Labour 
government on the grounds that the agreement would increase the burden on the British 
Empire without increasing its security. The Assembly at once formulated a better 
agreement known as the Geneva Protocol. This sought to plug all the gaps in the 
Covenant. It bound its signers to settle international disputes by methods provided in the 
treaty, defined as aggressor any state which refused to use these peaceful procedures, 
bound its members to use military sanctions against such aggressors, and ended the 
"veto" power in the Council by providing that the necessary unanimity for Council 
decisions could be achieved without counting the votes of the parties to the dispute. This 
agreement was destroyed by the objections of a newly installed Conservative government 
in London. The chief British opposition to the Protocol came from the Dominions, 
especially from Canada, which feared that the agreement might force them, at some time, 
to apply sanctions against the United States. This was a very remote possibility in view of 
the fact that the British Commonwealth generally had two seats on the Council and one at 



least could use its vote to prevent action even if the vote of the other was nullified by 
being a party to the dispute. 

The fact that both the Draft Treaty and the Geneva Protocol had been destroyed by 
Britain led to an adverse public opinion throughout the world. To counteract this, the 
British devised a complicated alternative known as the Locarno Pacts. Conceived in the 
same London circles which had been opposing France, supporting Germany, and 
sabotaging the League, the Locarno Pacts were the result of a complex international 
intrigue in which General Smuts played a chief role. On the face of it, these agreements 
appeared to guarantee the Rhine frontiers, to provide peaceful procedures for all disputes 
between Germany and her neighbors, and to admit Germany to the League of Nations on 
a basis of equality with the Great Powers. The Pacts consisted of nine documents of 
which four were arbitration treaties between Germany and her neighbors (Belgium, 
France, Poland and Czechoslovakia); two were treaties between France and her eastern 
allies (Poland and Czechoslovakia); the seventh was a note releasing Germany from any 
need to apply the sanctions clause of the Covenant against any aggressor nation on the 
grounds that Germany, being disarmed by the Treaty of Versailles, could not be expected 
to assume the same obligations as other members of the League; the eighth document 
v.: as a general introduction to the Pacts j and the ninth document was the "Rhine Pact," 
the real heart of the agreement. This "Rhine Pact" guaranteed the frontier between 
Germany and Belgium-France against attack from either side. The guarantee was signed 
by Britain and Italy, as well as by the three states directly concerned, and covered the 
demilitarized condition of the Rhineland as established in 1919. This meant that if any 
one of the three frontier Powers violated the frontier or the demilitarized zone, this 
violation would bring the four other Powers into action against the violator. 

The Locarno Pacts were designed by Britain to give France the security against 
Germany on the Rhine which France so urgently desired and at the same time (since the 
guarantee worked both ways) to prevent France from ever occupying the Ruhr or any 
other part of Germany, as had been done over the violent objections of Britain in 1923- 
1924. Moreover, by refusing to guarantee Germany's eastern frontier with Poland and 
Czechoslovakia, Britain established in law the distinction between peace in the east and 
peace in the west, on which she had been insisting since 1919, and greatly weakened the 
French alliances with Poland and Czechoslovakia by making it almost impossible for 
France to honor her alliances with these two countries or to put pressure on Germany in 
the west if Germany began to put pressure on these French allies in the east, unless 
Britain consented. Thus, the Locarno Pacts, which were presented at the time throughout 
the English-speaking world as a sensational contribution to the peace and stability of 
Europe, really formed the background for the events of 1938 when Czechoslovakia was 
destroyed at Munich. The only reason why France accepted the Locarno Pacts was that 
they guaranteed explicitly the demilitarized condition of the Rhineland. So long as this 
condition continued, France held a complete veto over any movement of Germany either 
east or west because Germany's chief industrial districts in the Ruhr were unprotected. 
Unfortunately, as we have indicated, when the guarantee of Locarno became due in 
March 1936 Britain dishonored its agreement, the Rhine was remilitarized, and the way 
was opened for Germany to move eastward. 



The Locarno Pacts caused considerable alarm in eastern Europe, especially in Poland 
and Russia. Poland protested violently, issued a long legal justification of her own 
frontiers, sent her foreign minister to take up residence in Paris, and signed three 
agreements with Czechoslovakia (ending the dispute over Teschen, as well as a 
commercial treaty and an arbitration convention). Poland was alarmed by the refusal to 
guarantee her frontiers, the weakening of her alliance with France, and the special status 
given to Germany within the League of Nations and on the Council of the League (where 
Germany could prevent sanctions against Russia, if Russia ever attacked Poland). To 
assuage this alarm a deal was made with Poland by which this country also received a 
seat on the Council of the League for the next twelve years (1926-1938). 

The Locarno Pacts and the admission of Germany into the League also alarmed the 
Soviet Union. This country from 1917 had had a feeling of insecurity and isolation which 
at times assumed the dimensions of mania. For this, there was some justification. Subject 
to the attacks of propaganda, diplomatic, economic, and even military action, the Soviet 
Union had struggled for survival for years. By the end of 1921, most of the invading 
armies had withdrawn (except the Japanese), but Russia continued in isolation and in fear 
of a worldwide anti-Bolshevik alliance. Germany, at the time, was in similar isolation. 
The two outcast Powers drifted together and sealed their friendship by a treaty signed at 
Rapallo in April 1922. This agreement caused great alarm in western Europe, since a 
union of German technology and organizing ability with Soviet manpower and raw 
materials would make it impossible to enforce the Treaty of Versailles and might expose 
much of Europe or even the world to the triumph of Bolshevism. Such a union of 
Germany and Soviet Russia remained the chief nightmare of much of western Europe 
from 1919 to 1939. On this last date it was brought into existence by the actions of these 
same western Powers. 

In order to assuage Russia's alarm at Locarno, Stresemann signed a commercial treaty 
with Russia, promised to obtain a special position for Germany within the League so that 
it could block any passage of troops as sanctions of the League against Russia, and signed 
a nonaggression pact with the Soviet Union (April 1926). The Soviet Union, in its turn, as 
a result of Locarno signed a treaty of friendship and neutrality with Turkey in which the 
latter country was practically barred from entering the League. 

The "Locarno spirit," as it came to be called, gave rise to a feeling of optimism, at 
least in the western countries. In this favorable atmosphere, on the tenth anniversary of 
America's entry into the World War, Briand, the foreign minister of France, suggested 
that the United States and France renounce the use of war between the two countries. 
This was extended by Frank B. Kellogg, the American secretary of state, into a 
multilateral agreement by which all countries could "renounce the use of war as an 
instrument of national policy." France agreed to this extension only after a reservation 
that the rights of self-defense and of prior obligations were not weakened. The British 
government reserved certain areas, notably in the Middle East, where it wished to be able 
to wage wars which could not be termed self-defense in a strict sense. The United States 
also made a reservation preserving its right to make war under the Monroe Doctrine. 



None of these reservations was included in the text of the Kellogg-Briand Pact itself, and 
the British reservation was rejected by Canada, Ireland, Russia, Egypt, and Persia. The 
net result was that only aggressive war was renounced. 

The Kellogg-Briand Pact (1928) was a weak and rather hypocritical document and 
advanced further toward the destruction of international law as it had existed in 1900. We 
have seen that the First World War did much to destroy the legal distinctions between 
belligerents and neutrals and between combatants and noncombatants. The Kellogg- 
Briand Pact took one of the first steps toward destroying the legal distinction between 
war and peace, since the Powers, having renounced the use of war, began to wage wars 
without declaring them, as was done by Japan in China in 1937, by Italy in Spain in 
1936-1939, and by everyone in Korea in 1950. 

The Kellogg-Briand Pact was signed by fifteen nations which were invited to do so, 
while forty-eight nations were invited to adhere to its terms. Ultimately, sixty- four 
nations (all those invited except Argentina and Brazil) signed the pact. The Soviet Union 
was not invited to sign but only to adhere. It was, however, so enthusiastic about the pact 
that it was the first country of either group to ratify and, when several months passed with 
no ratifications by the original signers, it attempted to put the terms of the pact into effect 
in eastern Europe by a separate agreement. Known as the Litvinoff Protocol after the 
Soviet foreign minister, this agreement was signed by nine countries (Russia, Poland, 
Latvia, Estonia, Romania, Lithuania, Turkey, Danzig, and Persia, but not by Finland, 
which refused), although Poland had no diplomatic relations with Lithuania and the 
Soviet Union had none with Romania. 

The Litvinoff Protocol was one of the first concrete evidences of a shift in Soviet 
foreign policy which occurred about 1927-1928 Previously, Russia had refused to 
cooperate with any system of collective security or disarmament on the grounds that 
these were just "capitalistic tricks." It had regarded foreign relations as a kind of jungle 
competition and had directed its own foreign policy toward efforts to foment domestic 
disturbances and revolution in other countries of the world. This was based on the belief 
that these other Powers were constantly conspiring among themselves to attack the Soviet 
Union. To the Russians, internal revolution within these countries seemed a kind of self- 
defense, while the animosity of these countries seemed to them to be a defense against 
the Soviet plans for world revolution. In 1927 there came a shift in Soviet policy: "world 
revolution" was replaced by a policy of "Communism in a single country" and a growing 
support for collective security. This new policy continued for more than a decade and 
was based on the belief that Communism in a single country could best be secured within 
a system of collective security. Emphasis on this last point increased after Hitler came to 
power in Germany in 1933 and reached its peak in the so-called "Popular Front" 
movement of 1935-1937 

The Kellogg Pact gave rise to a proliferation of efforts to establish peaceful methods 
for settling international disputes. A "General Act for the Pacific Settlement of 
International Disputes" was accepted by twenty-three states and came into force in 
August 1929. About a hundred bilateral agreements for the same purpose were signed in 



the five years 1924-1929, compared to a dozen or so in the five years 1919-1924. A 
codification of international law was begun in 1927 and continued for several years, but 
no portions of it ever came into force because of insufficient ratifications. 

The outlawry of war and the establishment of peaceful procedures for settling disputes 
were relatively meaningless unless some sanctions could be established to compel the use 
of peaceful methods. Efforts in this direction were nullified by the reluctance of Britain to 
commit itself to the use of force against some unspecified country at some indefinite date 
or to allow the establishment of an international police force for this purpose. Even a 
modest step in this direction in the form of an international agreement providing financial 
assistance for any state which was a victim of aggression, a suggestion first made by 
Finland, was destroyed by a British amendment that it was not to go into effect until the 
achievement of a general disarmament agreement. This reluctance to use sanctions 
against aggression came to the forefront in the fall of 1931 at the time of the Japanese 
attack on Manchuria. As a result the "peace structure" based on Versailles, which had 
been extended by so many well-intended, if usually misdirected, efforts for twelve years, 
began a process of disintegration which destroyed it completely in eight years (1931- 
1939). 

Chapter 17— Disarmament, 1919-1935 

The failure to achieve a workable system of collective security in the period 1919- 
1935 prevented the achievement of any system of general disarmament in the same 
period. Obviously, countries which feel insecure are not going to disarm. This point, 
however obvious, was lost on the English-speaking countries, and the disarmament 
efforts of the whole period 1919-1935 were weakened by the failure of these countries to 
see this point and their insistence that disarmament must precede security rather than 
follow it. Thus disarmament efforts, while continuous in this period (in accordance with 
the promise made to the Germans in 1919), were stultified by disagreements between the 
"pacifists" and the "realists" on procedural matters. The "pacifists," including the 
English-speaking nations, argued that armaments cause wars and insecurity and that the 
proper way to disarm is simply to disarm. They advocated a "direct" or "technical" 
approach to the problem, and believed that armaments could be measured and reduced by 
direct international agreement. The "realists," on the other hand, including most of the 
countries in Europe, led by France and the Little Entente, argued that armaments are 
caused by war and the fear of war and that the proper way to disarm is to make nations 
secure. They advocated an "indirect" or "political" approach to the problem, and believed 
that once security had been achieved disarmament would present no problem.. 

The reasons for this difference of opinion are to be found in the fact that the nations 
which advocated the direct method, like Britain, the United States, and Japan, already had 
security and could proceed directly to the problem of disarmament, while the nations 
which felt insecure were bound to seek security before they would bind themselves to 
reduce the armaments they had. Since the nations with security were all naval powers, the 
use of the direct method proved to be fairly effective in regard to naval disarmament, 



while the failure to obtain security for those who lacked it made most of the international 
efforts for disarmament on land or in the air relatively futile. 

The history of naval disarmament is marked by four episodes in the period between 
the wars: (1) the Washington Conference of 1922; (2) the abortive Geneva Conference of 
1927; (3) the London Conference of 1930; and (4) the London Conference of 1936. 

The Washington Conference was the most successful disarmament conference of the 
inter-war period because such a variety of issues came together at that point that it was 
possible to bargain successfully. Britain wished (1) to avoid a naval race with the United 
States because of the financial burden, (2) to get rid of the Anglo-Japanese alliance of 
1902, which was no longer needed in view of the collapse of both Germany and Russia, 
and (3) to reduce the Japanese naval threat in the southwestern Pacific. The United States 
wished (1) to get Japan out of East Asia and restore the "open door" in China, (2) to 
prevent the Japanese from fortifying the German-mandated islands which stretched 
across the American communications from Hawaii to the Philippines, and (3) to reduce 
the Japanese naval threat to the Philippines. Japan wanted (1) to get out of eastern Siberia 
without appearing to retreat, (2) to prevent the United States from fortifying Wake Island 
and Guam, its two bases on the route from Pearl Harbor to Manila, and (3) to reduce 
American naval power in the extreme western Pacific. By bargaining one of these for 
another, all three Powers were able to obtain their wishes, although this was possible only 
because of the goodwill between Britain and the United States and, above all, because at 
that time, before the use of fleet-tankers and the present techniques of supplying a fleet at 
sea, the range of any battle fleet was limited by the position of its bases (to which it had 
to return for supplies at relatively short intervals). 

Probably the key to the whole settlement rested in the relative positions of the British 
and American navies. At the end of 1918, the United States had in its battle line 16 
capital ships with 168 guns of 12 to 14 inches; Britain had 42 capital ships with 376 guns 
of 12 to 15 inches, but the building programs of the two Powers would have given the 
United States practical equality by 1926. In order to avoid a naval race which would have 
made it impossible for Britain to balance its budget or get back on the prewar gold 
standard, that country gave the United States equality in capital ships (with 15 each), 
while Japan was given 60 percent as much (or 9 capital ships). This small Japanese fleet, 
however, provided the Japanese with naval supremacy in their home waters, because of 
an agreement not to build new fortifications or naval bases within striking distance of 
Japan. The same 10-10-6 ratio of capital ships was also applied to aircraft carriers. France 
and Italy were brought into the agreements by granting them one-third as much tonnage 
as the two greatest naval Powers in these two categories of vessels. The two categories 
themselves were strictly defined and thus limited. Capital ships were combat vessels of 
from 10,000 to 35,000 tons displacement with guns of not over 16 inches, while carriers 
were to be limited to 27,000 tons each with guns of no more than 6 inches. The five great 
naval Powers were to have capital ships and carriers as follows: 

Tons of Number of Tons of 



Country Ratio Capital Ships Capital Ships Carriers 

U.S.A. 5 525,000 15 135,000 

Britain 5 525,000 15 135,000 

Japan 3 315,000 9 81,000 

France 1.67 175,000 not fixed 60,000 

Italy 1.67 175,000 not fixed 60,000 

These limits were to be achieved by 1931. This required that 76 capital ships, built or 
projected, be scrapped by that date. Of these the United States scrapped 15 built and 13 
building, or 28; the British Empire scrapped 20 built and 4 building, or 24; and Japan 
scrapped lo built and 14 building, or 24. The areas in which new fortifications in the 
Pacific were forbidden included (a) all United States possessions west of Hawaii, (b) all 
British possessions east of 1 10° East longitude except Canada, New Zealand, and 
Australia with its territories, and (c) all Japanese possessions except the "home islands" 
of Japan. 

Among the six treaties and thirteen resolutions made at Washington during the six 
weeks of the conference (November 1921 — February 1922) were a Nine-Power Treaty to 
maintain the integrity of China, an agreement between China and Japan over Shantung, 
another between the United States and Japan over the Mandated Pacific Islands, and an 
agreement regarding the Chinese customs. In consequence of these, the Anglo-Japanese 
Treaty of 1902 was ended, and Japan evacuated eastern Siberia. 

Efforts to limit other categories of vessels at Washington failed because of France. 
This country had accepted equality with Italy in capital ships only on the understanding 
that its possession of lesser vessels would not be curtailed. France argued that it needed a 
larger navy than Italy because it had a world empire (while Italy did not) and required 
protection of its home coasts both in the Atlantic and in the Mediterranean) (while Italy 
could concentrate its navy in the Mediterranean). The same objections led both of these 
Powers to refuse the American invitation to the Geneva Disarmament Conference of 
1927. 

The Geneva Conference of 1927 tried to limit other categories of vessels beyond 
capital ships and carriers. It failed because of a violent dispute between Britain and the 
United States regarding cruisers. The United States, with few offshore bases and a "high- 
seas" navy, wanted "heavy" cruisers of about 10,000 tons each, carrying 8-inch guns. The 
British, with many scattered naval bases, wanted many "light" cruisers of 7,500 tons each 
with 6-inch guns, and were eager to limit "heavy" cruisers in order to increase the naval 
importance of their million tons of fast merchant ships (which could be armed with 6- 
inch guns in an emergency). The United States accepted the British division of cruisers 
into two classes, but asked for limitation of both in accordance with the Washington 



ratios and with the lowest possible maximum tonnage. Britain wished to limit only 
'heavy" cruisers, and fixed her own "absolute" cruiser needs at 70 vessels aggregating 
562,000 tons, or twice the total suggested by the Americans. The British argued that their 
cruiser needs had nothing to do with the relative size of the American cruiser fleet, but 
depended on such "absolute" values as the size of the earth and the miles of shipping 
lanes to be patrolled. On this point Winston Churchill was adamant and was able to force 
the chief British delegate to the Geneva Conference (Lord Robert Cecil, who wanted to 
compromise) to resign from the Cabinet. 

The conference broke up in a recriminatory atmosphere, to the great joy of the 
lobbyists of shipbuilding companies and "patriotic" societies. These had harassed the 
delegates throughout the conference. Three American shipbuilding companies stood to 
lost contracts worth almost $54 million if the conference had been a success, and they did 
not hesitate to spend part of that sum to ensure that it would not be a success. Later they 
were sued for more money by their chief lobbyist at the conference, Mr. William B. 
Shearer. As a sequel to the conference, Britain signed a secret agreement with France by 
which France promised to support Britain against the United States on the cruiser and 
other issues, and Britain promised to support France in preventing limitation of trained 
infantry reserves at the approaching World Disarmament Conference. This agreement, 
signed in July 1928, was revealed by pro-American employees of the French Foreign 
Ministry to William Randolph Hearst and published in his newspapers within two months 
of its signature. France deported the Hearst reporter in Paris at once, deported Hearst 
himself on his next visit to France in 1930, and published the text of the agreement with 
Britain (October 1928). 

The London Naval Conference of 1930 was able to reach the agreement which 
Geneva had failed to achieve. The publicity about Shearer's activities and about the 
Anglo-French agreement, as well as the arrival of the world depression and the advent of 
a more pacifist Labour government to office in London, contributed to this success. 
Cruisers, destroyers, and submarines were defined and limited for the three greatest naval 
Powers, and certain further limitations were set in the categories fixed at Washington. 
The agreements were as follows (in tons): 

Typed U. S. Britain Japan 

Heavy cruisers 

with guns over 

6.1 inches 180,000 146,800 108,400 

Light cruisers 

with guns below 

6.1 inches 143,500 192,200 100,450 



Destroyers 150,000 150,000 105,500 

Submarines 52,700 52,700 52,700 

This allowed the United States to have 18 heavy cruisers, Britain 15, and Japan 12, 
while in light cruisers the three figures would allow about 25, 35, and 18. Destroyers 
were limited at 1,850 tons each with 5.1-inch guns, and submarines to 2,000 tons each 
with 5.1-inch guns. This settlement kept the Japanese fleet where it was, forced Britain to 
reduce, and allowed the United States to build (except in regard to submarines). Such a 
result could, probably, have been possible only at a time when Japan was in financial 
stringency and Britain was under a Labour government. 

This treaty left unsolved the rivalry in the Mediterranean between Italy and France. 
Mussolini demanded that Italy have naval equality with France, although his financial 
straits made it necessary to limit the Italian navy. The claim to equality on such a small 
basis could not be accepted by France in view of the fact that it had two seacoasts, a 
worldwide empire, and Germany's new 10,000-ton "pocket battleships" to consider. The 
Italian demands were purely theoretical, as both Powers, for motives of economy, were 
under treaty limits and making no effort to catch up. France was willing to concede 
Italian equality in the Mediterranean only if it could get some kind of British support 
against the German Navy in the North Sea or could get a general nonaggression 
agreement in the Mediterranean. These were rejected by Britain. However, Britain 
succeeded in getting a French-Italian naval agreement as a supplement to the London 
agreement (March 1931). By this agreement Italy accepted a total strength of 428,000 
tons, while France had a strength of 585,000 tons, the French fleet being less modern than 
the Italian. This agreement broke down, at the last moment, because of the Austro- 
German customs union and Germany's appropriation for a second pocket battleship 
(March 1931). No evil effects emerged from the breakdown, for both sides continued to 
act as if it were in force. 

The London Naval Conference of 1936 was of no significance. In 1931 the Japanese 
invasion of Manchuria violated the Nine-Power Pacific Treaty of 1922. In 1933 the 
United States, which had fallen considerably below the level provided in the Washington 
agreement of 1922, authorized the construction of 132 vessels to bring its navy to treaty 
level by 1942. In 1934 Mussolini decided to abandon orthodox financial policies, and 
announced a building program to carry the Italian fleet to treaty level by 1939. This 
decision was justified by a recent French decision to build two battle cruisers to cope 
with Germany's three pocket battleships. 

All these actions were within treaty limitations. In December 1934, however, Japan 
announced its refusal to renew the existing treaties when they expired in 1936. The Naval 
Conference called for that date met in a most unfavorable atmosphere. On June 18, 1935, 
Britain had signed a bilateral agreement with Hitler which alloy, ed Germany to build a 
navy up to 35 percent of Britain's naval strength in each class and up to 100 percent in 
submarines. This was a terrible blow to France, which was limited to 33 percent of the 



British Navy in capital ships and carriers and had to distribute this lesser fleet on two 
coasts (to deal with Italy as well as Germany) as well as around the world (to protect the 
French colonial empire). This blow to France was probably the British answer to the 
French alliance with the Soviet Union (May 2, 1935), the increased German threat on the 
French northwest coast being intended to deter France from honoring the alliance with 
the Soviet Union, if Germany struck eastward. Thus France was once again reduced to 
dependence on Britain. Germany took advantage of this situation to launch twenty-one 
submarines by October 1935, and two battleships in 1936. 

Under these conditions the Naval Conference at London in 1936 achieved nothing of 
importance. Japan and Italy refused to sign. As a result, the three signers soon were 
compelled to use the various escape clauses designed to deal with any extensive building 
by non-signatory Powers. The maximum size of capital ships was raised to 45,000 tons in 
1938, and the whole treaty was renounced in 1939. 

The success achieved in naval disarmaments, limited as it was, was much greater than 
the success achieved in respect to other types of armaments, because these required that 
nations which felt politically insecure must be included in the negotiations. We have 
already indicated the controversy between the proponents of the "direct method" and the 
advocates of the "indirect method" in disarmament. This distinction was so important that 
the history of the disarmament of land and air forces can be divided into four periods: (a) 
a period of direct action, 1919-1922; (b) a period of indirect action, 1922-1926; (c) a new 
period of direct action, 1926-1934; and (d) a period of rearmament, 1934-1939. 

The first period of direct action was based on the belief that the victories of 1918 and 
the ensuing peace treaties provided security for the victorious Powers. Accordingly, the 
task of reaching a disarmament agreement was turned over to a purely technical group, 
the Permanent Advisory Commission on Disarmament of the League of Nations. This 
group, which consisted exclusively of officers of the various armed services, was unable 
to reach agreement on any important issues: it could not find any method of measuring 
armaments or even of defining them; it could not distinguish actual from potential 
armaments or defensive from offensive. It gave answers to some of these questions, but 
they did not win general assent. For example, it decided that rifles in the possession of 
troops were war materials and so, also, were wood or steel capable of being used to make 
such rifles, but rifles already made and in storage were not war materials but "inoffensive 
objects of peace." 

As a result of the failure of the Permanent Advisory Commission, the Assembly of the 
League set up a Temporary Mixed Commission on which only six of twenty-eight 
members were officers of the armed services. This body attacked the problem of 
disarmament by the indirect method, seeking to achieve security before asking anyone to 
disarm. The Draft Treaty of Mutual Guarantee (1922) and the Geneva Protocol (1924) 
emerged from this commission. Both of these were, as we have said, vetoed by Britain, 
so that the disarmament portions of the negotiations were never reached. The 
achievement of the Locarno Pacts, however, provided, in the minds of many, the 
necessary security to allow a return to the direct method. Accordingly, a Preparatory 



Commission to the World Disarmament Conference was set up in 1926 to make a draft 
agreement which was to be completed at a World Disarmament Conference meeting at 
Geneva in 1932. 

The Preparatory Commission had delegates from all the important countries of the 
world, including the defeated Powers and the chief nonmembers of the League. It held six 
sessions over three years and drew up three drafts. In general, it encountered the same 
difficulties as the Permanent Advisory Committee. This latter group, acting as a 
subcommittee of the Preparatory Commission, used up 3,750,000 sheets of paper in less 
than six months but still was not able to find answers to the same questions which had 
baffled it earlier. The chief problems arose from political disputes, chiefly between 
Britain and France. These two countries produced separate drafts which diverged on 
almost every point. 

The French wanted war potential counted but wanted trained reserves of men 
excluded from limitation; the British wanted war potential excluded but wanted to count 
trained reserves; the French wanted supervision by a permanent commission to enforce 
fulfillment of any agreement, while the Anglo-Americans refused all supervision. 
Eventually a draft was prepared by including all divergences in parallel columns. 

The Preparatory Commission lost more than one full session in denouncing the 
disarmament suggestions of Litvinoff, the Soviet representative. His first draft, providing 
for immediate and complete disarmament of every country, was denounced by all. A 
substitute draft, providing that the most heavily armed states would disarm by 50 percent, 
the less heavily armed by 33 percent, the lightly armed by 25 percent, and the "disarmed" 
by o percent, with all tanks, airplanes, gas, and heavy artillery completely prohibited, was 
also rejected without discussion, and Litvinoff was beseeched by the chairman of the 
commission to show a more "constructive spirit" in the future. After an impressive 
display of such constructive spirit by other countries, a Draft Convention was drawn up 
and accepted by a vote which found only Germany and the Soviet Union in the negative 
(December 1930). 

The World Disarmament Conference which considered this draft was in preparation 
for six years (1926-1932) and was in session for three years (February 1932 to April 
1935), yet it achieved nothing notable in the way of disarmament. It was supported by a 
tremendous wave of public opinion, but the attitudes of the various governments were 
becoming steadily less favorable. The Japanese were already attacking China; the French 
and Germans were deadlocked in a violent controversy, the former insisting on security 
and the latter on arms equality; and the world depression was growing steadily worse, 
with several governments coming to believe that only a policy of government spending 
(including spending on arms) could provide the purchasing power needed for economic 
revival. Once again, the French desire for an international police force was rebuffed, 
although supported by seventeen states; the British desire to outlaw certain "aggressive" 
armaments (like gas, submarines, and bombing planes) was rejected by the French, 
although accepted by thirty states (including the Soviet Union and Italy). 



Discussion of these issues was made increasingly difficult by the growing demands of 
the Germans. When Hitler came to office in January 1933, he demanded immediate 
equality with France, at least in "defensive" arms. This was refused, and Germany left the 
conference. 

Although Britain tried, for a time, to act as an intermediary between Germany and the 
Disarmament Conference, nothing came of this, and the conference eventually dispersed. 
France would make no concessions in regard to armaments unless she obtained increased 
security, and this was shown to be impossible when Britain, on February 3, 1933 (just 
four days after Hitler came to office), publicly refused to make any commitments to 
France beyond membership in the League and the Locarno Pacts. In view of the verbal 
ambiguities or these documents and the fact that Germany withdrew from both the 
League and the Disarmament Conference in October 1933, these offered little security to 
France. The German budget, released in March 1934, showed an appropriation of 210 
million marks for the air force (which was forbidden entirely by Versailles) and an 
increase from 345 million to 574 million marks in the appropriation for the army. A 
majority of the delegates wished to shift the attention of the Disarmament Conference 
from disarmament to questions of security, but this was blocked by a group of seven 
states led by Britain. Disarmament ceased to be a practical issue after 1934, and attention 
should have been shifted to questions of security. Unfortunately, public opinion, 
especially in the democratic countries, remained favorable to disarmament and even to 
pacifism, in Britain until 1938 at least and in the United States until 1940. This gave the 
aggressor countries, like Japan, Italy, and Germany, an advantage out of all proportion to 
their real strength. The rearmament efforts of Italy and Germany were by no means great, 
and the successful aggressions of these countries after 1934 were a result of the lack of 
will rather than of the lack of strength of the democratic states. 

The total failure of the disarmament efforts of 1919-1935 and the Anglo-American 
feeling that these efforts handicapped them later in their conflicts with Hitler and Japan 
have combined to make most people impatient with the history of disarmament. It seems 
a remote and mistaken topic. That it may well be; nevertheless, it has profound lessons 
today, especially on the relationships among the military, economic, political, and 
psychological aspects of our lives. It is perfectly clear today that the French and their 
allies (especially Czechoslovakia) were correct in their insistence that security must 
precede disarmament and that disarmament agreements must be enforced by inspection 
rather than by "good faith." That France was correct in these matters as well as in its 
insistence that the forces of aggression were still alive in Germany, although lying low, is 
now admitted by all and is supported by all the evidence. Moreover, the Anglo- 
Americans adopted French emphasis on the priority of security and the need for 
inspection in their own disarmament discussions with the Soviet Union in the early 
1960's. The French idea that political questions (including military) are more 
fundamental than economic considerations is now also accepted, even in the United 
States, which opposed it most vigorously in the 1920's and early 1930's. The fact that the 
secure states could have made errors such as these in that earlier period reveals much 
about the nature of human thinking, especially its proclivity to regard necessities as 



unimportant when they are present (like oxygen, food, or security), but to think of 
nothing else when they are lacking. 

Closely related to all this, and another example of the blindness of experts (even in 
their own areas), is the disastrous influence which economic, and especially financial, 
considerations played in security, especially rearmament, in the Long Armistice of 1919- 
1939. This had a double aspect. On the one hand, balanced budgets were given priority 
over armaments; on the other hand, once it was recognized that security was in acute 
danger, financial considerations were ruthlessly subordinated to rearmament, giving rise 
to an economic boom which showed clearly what might have been achieved earlier if 
financial consideration had been subordinated to the world's economic and social needs 
earlier; such action would have provided prosperity and rising standards of living which 
might have made rearming unnecessary. 

Chapter 18— Reparations, 1919-1932 

No subject occupied a larger portion of statesmen's energies than reparations during 
the decade after the war. For this reason, and because of the impact which reparations had 
on other issues (such as financial or economic recovery and international amity), the 
history of reparations demands a certain portion of our attention. This history can be 
divided into six stages, as follows: 

1. The preliminary payments, 1919-1921 

2. The London Schedule, May 1921 -September 1924 

3. The Dawes Plan, September 1924-January 1930 

4. The Young Plan, January 1930-June 1931 

5. The Hoover Moratorium, June 193 1-July 1932 

6. The Lausanne Convention, July 1932 

The preliminary payments were supposed to amount to a total of 20,000 million marks 
by May 1921. Although the Entente Powers contended that only about 8,000 million of 
this had been paid, and sent Germany numerous demands and ultimatums in regard to 
these payments, even going so far as to threaten to occupy the Ruhr in March 1921 in an 
effort to enforce payment, the whole matter was dropped in May when the Germans were 
presented with the total reparations bill of 132,000 million marks. Under pressure of 
another ultimatum, Germany accepted this bill and gave the victors bonds of 
indebtedness to this amount. Of these, 82 billions were set aside and forgotten. Germany 
was to pay on the other 50 billion at a rate of 2.5 billion a year in interest and 0.5 billion a 
year to reduce the total debt. 



Germany could pay these obligations only if two conditions prevailed: (a) if it had a 
budgetary surplus and (b) if it sold abroad more than it bought abroad (that is, had a 
favorable balance of trade). Under the first condition there would accumulate in the hands 
of the German government a quantity of German currency beyond the amount needed for 
current expenses. Under the second condition, Germany would receive from abroad an 
excess of foreign exchange (either gold or foreign money) as payment for the excess of 
her exports over her imports. By exchanging its budgetary surplus in marks for the 
foreign-exchange surplus held by her citizens, the German government would be able to 
acquire this foreign exchange and be able to give it to its creditors as reparations. Since 
neither of these conditions generally existed in the period 1921-1931, Germany could not, 
in fact, pay reparations. 

The failure to obtain a budgetary surplus was solely the responsibility of the German 
government, which refused to reduce its own expenditures or the standards of living of its 
own people or to tax them sufficiently heavily to yield such a surplus. The failure to 
obtain a favorable balance of trade was the responsibility equally of the Germans and of 
their creditors, the Germans making little or no effort to reduce their purchases abroad 
(and thus reduce their own standards of living), while the foreign creditors refused to 
allow a free flow of German goods into their own countries on the argument that this 
would destroy their domestic markets for locally produced goods. Thus it can be said that 
the Germans were unwilling to pay reparations, and the creditors were unwilling to 
accept payment in the only way in which payments could honestly be made, that is, by 
accepting German goods and services. 

Under these conditions, it is not surprising that the London Schedule of reparations 
payments was never fulfilled. This failure was regarded by Britain as proof of Germany's 
inability to pay, but was regarded by France as proof of Germany's unwillingness to pay. 
Both were correct, but the Anglo-Americans, who refused to allow France to use the 
duress necessary to overcome German unwillingness to pay, also refused to accept 
German goods to the amount necessary to overcome German inability to pay. As early as 
1921, Britain, for example, placed a 26 percent tax on all imports from Germany. That 
Germany could have paid in real goods and services if the creditors had been willing to 
accept such goods and services can be seen in the fact that the real per capita income of 
the German people was about one-sixth higher in the middle 1920's than it had been in 
the very prosperous year 1913. 

Instead of taxing and retrenching, the German government permitted an unbalanced 
budget to continue year after year, making up the deficits by borrowing from the 
Reichsbank. The result was an acute inflation. This inflation was not forced on the 
Germans by the need to pay reparations (as they claimed at the time) but by the method 
they took to pay reparations (or, more accurately, to avoid payment). The inflation was 
not injurious to the influential groups in German society, although it was generally 
ruinous to the middle classes, and thus encouraged the extremist elements. Those groups 
whose property was in real wealth, either in land or in industrial plant, were benefitted by 
the inflation which increased the value of their properties and wiped away their debts 
(chiefly mortgages and industrial bonds). The German mark, which at par was worth 



about 20 to the pound, fell in value from 305 to the pound in August 1921 to 1,020 in 
November 1921. From that point it dropped to 80,000 to the pound in January 1923, to 20 
million to the pound in August 1923, and to 20 billion to the pound in December 1923. 

In July 1922, Germany demanded a moratorium on all cash payments of reparations 
for the next thirty months. Although the British were willing to yield at least part of this, 
the French under Poincare pointed out that the Germans had, as yet, made no real effort 
to pay and that the moratorium would be acceptable to France only if it were 
accompanied by "productive guarantees." This meant that the creditors should take 
possession of various forests, mines, and factories of western Germany, as well as the 
German customs, to obtain incomes which could be applied to reparations. On January 9, 
1923, the Reparations Commission voted 3 to 1 (with Britain opposing France, Belgium, 
and Italy) that Germany was in default of her payments. Armed forces of the three 
nations began to occupy the Ruhr two days later. Britain denounced this act as illegal, 
although it had threatened the same thing on less valid grounds in 1921. Germany 
declared a general strike in the area, ceased all reparations payments, and adopted a 
program of passive resistance, the government supporting the strikers by printing more 
paper money. 

The area occupied was no more than 60 miles long by 30 miles wide but contained 10 
percent of Germany's population and produced 80 percent of Germany's coal, iron, and 
steel and 70 percent of her freight traffic. Its railway system, operated by 170,000 
persons, was the most complex in the world. The occupation forces tried to run this 
system with only 12,500 troops and 1,380 cooperating Germans. The non-cooperating 
Germans tried to prevent this, not hesitating to use murder for the purpose. Under these 
conditions it is a miracle that the output of the area was brought up to one-third its 
capacity by the end of 1923. German reprisals and Allied countermeasures resulted in 
about 400 killed and over 2,100 wounded — most of the casualties (300 and 2,000 
respectively) being inflicted by Germans on Germans. In addition almost 150,000 
Germans were deported from the area. 

The German resistance in the Ruhr was a great strain on Germany, both economically 
and financially, and a great psychological strain on the French and Belgians. At the same 
time that the German mark was being ruined, the occupying countries were not obtaining 
the reparations they desired. Accordingly, a compromise was reached by which Germany 
accepted the Dawes Plan for reparations, and the Ruhr was evacuated. The only victors in 
the episode u, ere the British, who had demonstrated that the French could not use force 
successfully without British approval. 

The Dawes Plan, which was largely a J. P. Morgan production, was drawn up by an 
international committee of financial experts presided over by the American banker 
Charles G. Dawes. It was concerned only with Germany's ability to pay, and decided that 
this would reach a rate of 2.5 billion marks a year after four years of reconstruction. 
During the first four years Germany would be given a loan of $800 million and would 
pay a total of only 5.17 billion marks in reparations. This plan did not supersede the 
German reparations obligation as established in 1921, and the difference between the 



Dawes payments and the payments due on the London Schedule were added to the total 
reparations debt. Thus Germany paid reparations for five years under the Dawes Plan 
(1924-1929) and owed more at the end than it had owed at the beginning. 

The Dawes Plan also established guarantees for reparations payments, setting aside 
various sources of income within Germany to provide funds and shifting the 
responsibility for changing these funds from marks into foreign exchange from the 
German government to an agent-general for reparations payments who received marks 
within Germany. These marks were transferred into foreign exchange only when there 
was a plentiful supply of such exchange within the German foreign-exchange market. 
This meant that the value of the German mark in the foreign-exchange market was 
artificially protected almost as if Germany had exchange control, since every time the 
value of the mark tended to fall, the agent-general stopped selling marks. This allowed 
Germany to begin a career of wild financial extravagance without suffering the 
consequences which would have resulted under a system of free international exchange. 
Specifically, Germany was able to borrow abroad beyond her ability to pay, without the 
normal slump in the value of the mark which would have stopped such loans under 
normal circumstances. It is worthy of note that this system was set up by the international 
bankers and that the subsequent lending of other people's money to Germany was very 
profitable to these bankers. 

Using these American loans, Germany's industry was largely reequipped with the 
most advanced technical facilities, and almost every German municipality was provided 
with a post office, a swimming pool, sports facilities, or other nonproductive equipment. 
With these American loans Germany was able to rebuild her industrial system to make it 
the second best in the world by a wide margin, to keep up her prosperity and her standard 
of living in spite of the defeat and reparations, and to pay reparations without either a 
balanced budget or a favorable balance of trade. By these loans Germany's creditors were 
able to pay their war debts to England and to the United States without sending goods or 
services. Foreign exchange went to Germany as loans, back to Italy, Belgium, France, 
and Britain as reparations, and finally back to the United States as payments on war 
debts. The only things wrong with the system were (a) that it would collapse as soon as 
the United States ceased to lend, and (b) in the meantime debts were merely being shifted 
from one account to another and no one was really getting any nearer to solvency. In the 
period 1924-1931, Germany paid 10.5 billion marks in reparations but borrowed abroad a 
total of 18.6 billion marks. Nothing was settled by all this, but the international bankers 
sat in heaven, under a rain of fees and commissions. 

The Dawes Plan was replaced by the Young Plan at the beginning of 1930 for a 
variety of reasons. It was recognized that the Dawes Plan was only a temporary 
expedient, that Germany's total reparations obligation was increasing even as she paid 
billions of marks, because the Dawes Plan payments were less than the payments 
required by the London Schedule; that the German foreign-exchange market had to be 
freed in order that Germany might face the consequences of her orgy of borrowing, and 
that Germany "could not pay" the standard Dawes payment of 2.5 billion marks a year 
which was required in the fifth and following years of the Dawes Plan. In addition, 



France, which had been forced to pay for the reconstruction of her devastated areas in the 
period 1919-1926, could not afford to wait for a generation or more for Germany to repay 
the cost of this reconstruction through reparations payments. France hoped to obtain a 
larger immediate income by "commercializing" some of Germany's reparations 
obligations. Until this point all the reparations obligations were owed to governments. By 
selling bonds (backed by German's promise to pay reparations) for cash to private 
investors France could reduce the debts she had incurred for reconstruction and could 
prevent Britain and Germany from making further reductions in the reparations 
obligations (since debts to private persons would be less likely to be repudiated than 
obligations between governments). 

Britain, which had funded her war debts to the United States at 4.6 billion dollars in 
1923, was quite prepared to reduce German reparations to the amount necessary to meet 
the payments on this war debt. France, which had war debts of 4 billion dollars as well as 
reconstruction expenses, hoped to commercialize the costs of the latter in order to obtain 
British support in refusing to reduce reparations below the total of both items. The 
problem was how to obtain German and British permission to "commercialize" part of 
the reparations. In order to obtain this permission France made a gross error in tactics: 
she promised to evacuate all of the Rhineland in 1930, five years before the date fixed in 
the Treaty of Versailles, in return for permission to commercialize part of the reparations 
payments. 

This deal was embodied in the Young Plan, named after the American Owen D. 
Young (a Morgan agent), who served as chairman of the committee which drew up the 
new agreements (February to June 1929). Twenty governments signed these agreements 
in January 1930. The agreement with Germany provided for reparations to be paid for 59 
years at rates rising from 1.7 billion marks in 1931 to a peak of 2.4 billion marks in 1966 
and then declining to less than a billion marks in 1988. The earmarked sources of funds 
in Germany were abolished except for 660 million marks a year which could be 
"commercialized," and ail protection of Germany's foreign-exchange position was ended 
by placing the responsibility for transferring reparations from marks to foreign currencies 
squarely on Germany. To assist in this task a new private bank called the Bank for 
International Settlements was established in Switzerland at Basle. Owned by the chief 
central banks of the world and holding accounts for each of them, the Bank for 
International Settlements was to serve as "a Central Bankers' Bank" and allow 
international payments to be made by merely shifting credits from one country's account 
to another on the books of the bank. 

The Young Plan, which was to have been a final settlement of the reparations 
question, lasted for less than eighteen months. The crash of the New York stock market 
in October 1929 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 Germany and 
thus cut off the flow of foreign exchange which made it possible for Germany to appear 
as if it were paying reparations. In seven years, 1924-1931, the debt of the German 
federal government went up 6.6 billion marks while the debts of German local 
governments went up 1 1.6 billion marks. Germany's net foreign debt, both public and 



private, was increased in the same period by 18.6 billion marks, exclusive of reparations. 
Germany could pay reparations only so long as her debts continued to grow because only 
by increasing debts could the necessary foreign exchange be obtained. Such foreign loans 
almost ceased in 1930, and by 1931 Germans and others had begun a "flight from the 
mark," selling this currency for other monies in which they had greater confidence. This 
created a great drain on the German gold reserve. As the gold reserve dwindled, the 
volume of money and credit erected on that reserve had to be reduced by raising the 
interest rate. Prices fell because of the reduced supply of money and the reduced demand, 
so that it became almost impossible for the banks to sell collateral and other properties in 
order to obtain funds to meet the growing demand for money. 

At this point, in April 1931, Germany announced a customs union with Austria. 
France protested that such a union was illegal under the Treaty of Saint-Germain, by 
which Austria had promised to maintain its independence from Germany. The dispute 
was referred to the World Court, but in the meantime the French, to discourage such 
attempts at union, recalled French funds from both Austria and Germany. Both countries 
were vulnerable. On May 8, 1931, the largest Austrian bank, the Credit-Anstalt (a 
Rothschild institution), with extensive interests, almost control, in 70 percent of Austria's 
industry, announced that it had lost 140 million schillings (about 520 million). The true 
loss was over a billion schillings, and the bank had really been insolvent for years. The 
Rothschilds and the Austrian government gave the Credit-Anstalt 160 million to cover 
the loss, but public confidence had been destroyed. A run began on the bank. To meet 
this run the Austrian banks called in all the funds they had in German banks. The German 
banks began to collapse. These latter began to call in all their funds in London. The 
London banks began to fall, and gold flowed outward. On September 21st England was 
forced off the gold standard. During this crisis the Reichsbank lost 200 million marks of 
its gold reserve and foreign exchange in the first week of June and about 1 ,000 million in 
the second week of June. The discount rate was raised step by step to 15 percent without 
stopping the loss of reserves but destroying the activities of the German industrial system 
almost completely. 

Germany begged for relief on her reparations payments, but her creditors were 
reluctant to act unless they obtained similar relief on their war-debt payments to the 
United States. The United States had an understandable reluctance to become the end of a 
chain of repudiation, and insisted that there was no connection between war debts and 
reparations (which was true) and that the European countries should be able to pay war 
debts if they could find money for armaments (which was not true). When Secretary of 
the Treasury Mellon, who was in Europe, reported to President Hoover that unless relief 
was given to Germany immediately on her public obligations, the whole financial system 
of the country would collapse with very great loss to holders of private claims against 
Germany, the President suggested a moratorium on inter-governmental debts for one 
year. Specifically, America offered to postpone all payments owed to it for the year 
following July 1, 1931, if its debtors would extend the same privilege to their debtors. 

Acceptance of this plan by the many nations concerned was delayed until the middle 
of July by French efforts to protect the payments on commercialized reparations and to 



secure political concessions in return for accepting the moratorium. It sought a 
renunciation of the Austro-German customs union, suspension of building on the second 
pocket battleship, acceptance by Germany of her eastern frontiers, and restrictions on 
training of "private" military organizations in Germany. These demands were rejected by 
the United States, Britain, and Germany, but during the delay the German crisis became 
more acute. The Reichsbank had its worst run on July 7th; on the following day the North 
German Wool Company failed with a loss of 200 million marks; this pulled down the 
Schroder Bank (with a loss of 24 million marks to the city of Bremen where its office 
was) and the Darmstadter Bank (one of Germany's "Big Four Banks") which lost 20 
million in the Wool Company. Except for a credit of 400 million marks from the Bank 
for International Settlements and a "standstill agreement" to renew all short-term debts as 
they came due, Germany obtained little assistance. Several committees of international 
bankers discussed the problem, but the crisis became worse, and spread to London. 

By November 1931 all the European Powers except France and her supporters were 
determined to end reparations. At the Lausanne Conference of June 1932 German 
reparations were cut to a total of only 3 billion marks, but the agreement was never 
ratified because of the refusal of the United States Congress to cut war debts equally 
drastically. Technically this meant that the Young Plan was still in force, but no real 
effort was made to restore it and, in 1933, Hitler repudiated all reparations. By that date, 
reparations, which had poisoned international relations for so many years, were being 
swallowed up in other, more terrible, problems. 

Before we turn to the background of these other problems, we should say a few words 
about the question of how much was paid in reparations or if any reparations were ever 
paid at all. The question arose because of a dispute regarding the value of the reparations 
paid before the Dawes Plan of 1924. From 1924 to 1931 the Germans paid about 10.5 
billion marks. For the period before 1924 the German estimate of reparations paid is 
56,577 billion marks, while the Allied estimate is 10,426 billion. Since the German 
estimate covers everything that could possibly be put in, including the value of the naval 
vessels they themselves scuttled in 1918, it cannot be accepted; a fair estimate would be 
about 30 billion marks for the period before 1924 or about 40 billion marks for 
reparations as a whole. 

It is sometimes argued that the Germans really paid nothing on reparations, since they 
borrowed abroad just as much as they ever paid on reparations and that these loans were 
never paid. This is not quite true, since the total of foreign loans w as less than 19 billion 
marks, while the Allies' own estimate of total reparations paid was over 21 billion marks. 
However, it is quite true that after 1924 Germany borrowed more than it paid in 
reparations, and thus the real payments on these obligations were all made before 1924. 
Moreover, the foreign loans which Germany borrowed could never have been made but 
for the existence of the reparations system. Since these loans greatly strengthened 
Germany hy rebuilding its industrial plant, the burden of reparations as a whole on 
Germany's economic system was very slight. 

Part Seven — Finance, Commercial and Business Activity: 1897-1947 



Chapter 19— Reflation and Inflation, 1897-1925 

We have already seen that valiant efforts were made in the period 1919-1929 to build 
up an international political order quite different from that which had existed in the 
nineteenth century. On the basis of the old order of sovereignty and international law, 
men attempted, without complete conviction of purpose, to build a new international 
order of collective security.... 

For these reasons, a real understanding of the economic history of twentieth century 
Europe is imperative to any understanding of the events of the period. Such an 
understanding will require a study of the history of finance, commerce, and business 
activity, of industrial organization, and of agriculture. The first three of these will be 
considered in this chapter from the beginning of the twentieth century to the 
establishment of the pluralist economy about 1947. 

The whole of this half-century may be divided into six subdivisions, as follows: 

1. Reflation, 1897-1914 

2. Inflation, 1914-1925 

3. Stabilization, 1922-1930 

4. Deflation, 1927-1936 

5. Reflation, 1933-1939 

6. Inflation, 1939-1947 

These periods have different dates in different countries, and thus overlap if we take 
the widest periods to include all important countries. But in spite of the difference in 
dates, these periods occurred in almost every country and in the same order. It should 
also be pointed out that these periods were interrupted by haphazard secondary 
movements. Of these secondary movements, the chief were the depression of 1921-1922 
and the recession of 1937-1938, both periods of deflation and declining economic 
activity. 

The Financial Capitalists At Their Worst 

Prices had been rising slowly from about 1 897 because of the increased output of gold 
from South Africa and Alaska, thus alleviating the depressed conditions and agricultural 
distress which had prevailed, to the benefit of financial capitalists, from 1873. The 
outbreak of war in 1914 showed these financial capitalists at their worst, narrow in 
outlook, ignorant, and selfish, while proclaiming, as usual, their total devotion to the 
social good. They generally agreed that the war could not go on for more than six to ten 



months because of the "limited financial resources" of the belligerents (by which they 
meant gold reserves). This idea reveals the fundamental misunderstanding of the nature 
and role of money on the part of the very persons who were reputed to be experts on the 
subject. Wars, as events have proved since, are not fought with gold or even with money, 
but by the proper organization of real resources. 

The International Bankers Devise a Secret 

Scheme to Enrich Themselves 

The attitudes of bankers were revealed most clearly in England, where every move 
was dictated by efforts to protect their own position and to profit from it rather than by 
considerations of economic mobilization for war or the welfare of the British people. The 
outbreak of war on August 4, 1914, found the British banking system insolvent in the 
sense that its funds, created by the banking system for profit and rented out to the 
economic system to permit it to operate, could not be covered by the existing volume of 
gold reserves or by collateral which could be liquidated rapidly. Accordingly, the bankers 
secretly devised a scheme by which their obligations could be met by fiat money (so- 
called Treasury Notes), but, as soon as that crisis was over, they then insisted that the 
government must pay for the war without recourse to fiat money (which was always 
damned by bankers as immoral), but by taxation and by borrowing at high interest rates 
from bankers. The decision to use Treasury Notes to fulfill the bankers' liabilities was 
made as early as Saturday, July 25, 1914, by Sir John Bradbury (later Lord Bradbury) and 
Sir Frederick Atterbury at the latter's home. The first Treasury Notes were run off the 
presses at Waterlow and Sons the following Tuesday, July 28th, at a time when most 
politicians believed that Britain would stay out of the war. The usual Bank Holiday at the 
beginning of August was extended to three days during which it was announced that the 
Treasury Notes, instead of gold, would be used for bank payments. The discount rate was 
raised at the Bank of England from 3 percent to 10 percent to prevent inflation, a figure 
taken merely because the traditional rule of the bank stated that a lo percent bank rate 
would draw gold out of the ground itself, and gold payments need be suspended only 
when a 10 percent rate failed. 

Governments Accept the Secret Plan of the Bankers 

At the outbreak of the war, most of the belligerent countries suspended gold payments 
and, to varying degrees, accepted their bankers' advice that the proper way to pay for the 
war was by a combination of bank loans with taxation of consumption. The period within 
which, according to the experts, the war must cease because of limited financial resources 
eventually passed, and the fighting continued more vigorously than ever. The 
governments paid for it in various ways: by taxation, by fiat money, by borrowing from 
banks (which created credit for the purpose), and by borrowing from the people by 
selling war bonds to them. Each of these methods of raising money had a different effect 
upon the two chief financial consequences of the war. These were inflation and public 
debt. The effects of the four ways of raising money upon these two can be seen from the 
following table: 



a. Taxation gives no inflation and no debt. 

b. Fiat money gives inflation and no debt. 

c. Bank credit gives inflation and debt. 

d. Sales of bonds give no inflation but give debt. 

Paying for the War 

It would appear from this table that the best way to pay for the war would be by 
taxation, and the worst way would be by bank credit. However, taxation sufficient to pay 
for a major war would have such a severe deflationary effect upon prices that economic 
production would not increase enough or fast enough. Any rapid increase in production is 
spurred by a small amount of inflation which provides the impetus of unusual profits to 
the economic system. Increase in public debt, on the other hand, contributes little of value 
to the effort toward economic mobilization. 

From this point of view, it is not easy to say what method of financing a war is best. 
Probably the best is a combination of the four methods mixed in such a way that at the 
end there is a minimum of debt and no more inflation than was necessary to obtain 
complete and rapid economic mobilization. This would probably involve a combination 
of fiat money and taxation with considerable sales of bonds to individuals, the 
combination varying at different stages in the mobilization effort. 

At the End of the War the Governments Are 

in Debt to the Bankers 

In the period 1914-1918, the various belligerents used a mixture of these four 
methods, but it was a mixture dictated by expediency and false theories, so that at the end 
of the war all countries found themselves with both public debts and inflation in amounts 
in no wise justified by the degree of economic mobilization which had been achieved. 
The situation was made worse by the fact that in all countries prices continued to rise, 
and in most countries public debts continued to rise long after the Armistice of 1918. 

The causes of the wartime inflation are to be found in both financial and economic 
spheres. In the financial sphere, government spending was adding tremendous amounts of 
money to the financial community, largely to produce goods which would never be 
offered for sale. In the economic sphere, the situation was different in those countries 
which were more completely mobilized than in those which were only partly mobilized. 
In the former, real wealth was reduced by the diversion of economic resources from 
making such wealth to making goods for destruction. In the others, the total quantity of 
real wealth may not have been seriously reduced (since much of the resources utilized in 
making goods for destruction came from resources previously unused, like idle mines, 



idle factories, idle men, and so on) but the increase in the money supply competing for 
the limited amounts of real wealth gave drastic rises in prices. 

The Financial Leaders Use Deceptive Methods 

While prices in most countries rose 200 to 300 percent and public debts rose 1,000 
percent, the financial leaders tried to keep up the pretense that the money of each country 
was as valuable as it had ever been and that as soon as the war was ended the situation 
existing in 1914 would be restored. For this reason they did not openly abandon the gold 
standard. Instead, they suspended certain attributes of the gold standard and emphasized 
the other attributes which they tried to maintain. In most countries, payments in gold and 
export of gold were suspended, but every effort was made to keep gold reserves up to a 
respectable percentage of notes, and exchanges were controlled to keep them as near 
parity as possible. These attributes were achieved in some cases by deceptive methods. In 
Britain, for example, the gold reserve against notes fell from 52 percent to 18 percent in 
the month July- August 1914; then the situation was concealed, partly by moving assets of 
local banks into the Bank of England and using them as reserves for both, partly by 
issuing a new kind of notes (called Currency Notes) which had no real reserve and little 
gold backing. In the United States the percentage of reserves required by law in 
commercial banks was reduced in 1914, and the reserve requirements both for notes and 
deposits were cut in June 1917; a new system of "depositary banks" was set up which 
required no reserves against government deposits created in them in return for 
government bonds. Such efforts were made in all countries, but everywhere the ratio of 
gold reserves to notes fell drastically during the war: in France from 60 percent to 1 1 
percent; in Germany from 59 percent to 10 percent; in Russia from 98 percent to 2 
percent; in Italy from 60 percent to 13 percent; in Britain from 53 percent to 32 percent. 

Inflation and Public Debts Continue after the War 

The inflation and increase in public debts continued after the war ended. The causes 
for this were complicated, and varied from country to country. In general, (1) price fixing 
and rationing regulations were ended too soon, before the output of peacetime goods had 
risen to a level high enough to absorb the accumulated purchasing power in the hands of 
consumers from their efforts in war production; thus, the slowness of reconversion from 
war production to peace production caused a short supply at a time of high demand; (2) 
the Allied exchanges, which had been controlled during the war, were unpegged in 
March 1919 and at once fell to levels revealing the great price disequilibrium between 
countries; (3) purchasing power held back during the war suddenly came into the market; 
(4) there was an expansion of bank credit because of postwar optimism; (5) budgets 
remained out of balance because of reconstruction requirements (as in France or 
Belgium), reparations (as in Germany), demobilization expenses (as in the United States, 
Italy, and so on); and (6) production of peacetime goods was disrupted by revolutions (as 
in Hungary, Russia, and so on) or strikes (as in the United States, Italy, France, and so 
on). 

Postwar Inflation Had Evil Results 



Unfortunately, this postwar inflation, which could have accomplished much good (by 
increasing output of real wealth) was wasted (by increasing prices of existing goods) and 
had evil results (by destroying capital accumulations and savings, and overturning 
economic class lines). This failure was caused by the fact that the inflation, though 
unwanted everywhere, was uncontrolled because few persons in positions of power had 
the courage to take the steps necessary to curtail it. In the defeated and revolutionary 
countries (Russia, Poland, Hungary, Austria, and Germany), the inflation went so far that 
the former monetary units became valueless, and ceased to exist. In a second group of 
countries (like France, Belgium, and Italy), the value of the monetary unit was so reduced 
that it became a different thing, although the same name was still used. In a third group of 
countries (Britain, the United States, and Japan), the situation was kept under control. 

Public Debt and Economic Depression in America 

As far as Europe was concerned, the intensity of the inflation increased as one moved 
geographically from west to east. Of the three groups of countries above, the second 
(moderate inflation) group was the most fortunate. In the first (extreme inflation) group 
the inflation wiped out all public debts, all savings, and all claims on wealth, since the 
monetary unit became valueless. In the moderate-inflation group, the burden of the public 
debt was reduced, and private debts and savings were reduced by the same proportion. In 
the United States and Britain the effort to fight inflation took the form of a deliberate 
movement toward deflation. This preserved savings but increased the burden of the 
public debt and gave economic depression. 

Chapter 20— The Period of Stabilization, 1922-1930 

As soon as the war was finished, governments began to turn their attention to the 
problem of restoring the prewar financial system. Since the essential element in that 
system was believed to be the gold standard with its stable exchanges, this movement 
was called "stabilization." Because of their eagerness to restore the prewar financial 
situation, the "experts" closed their eyes to the tremendous changes which had resulted 
from the war. These changes were so great in production, in commerce, and in financial 
habits that any effort to restore the prewar conditions or even stabilize on the gold 
standard was impossible and inadvisable. Instead of seeking a financial system adapted to 
the new economic and commercial world which had emerged from the war, the experts 
tried to ignore this world, and established a financial system which looked, superficially, 
as much like the prewar system as possible. This system, however, was not the prewar 
system. Neither was it adapted to the new economic conditions. When the experts began 
to have vague glimmerings of this last fact, they did not begin to modify their goals, but 
insisted on the same goals, and voiced incantations and exhortations against the existing 
conditions which made the attainment of their goals impossible. 

These changed economic conditions could not be controlled or exorcised by 
incantations. They were basically not results of the war at all, but normal outcomes of the 
economic development of the world in the nineteenth century. All that the war had done 



was to speed up the rate of this development. The economic changes which in 1925 made 
it so difficult to restore the financial system of 1914 were already discernible in 1890 and 
clearly evident by 1910. 

Britain's Supremacy as the Financial Center of the 

World Is Threatened 

The chief item in these changes was the decline of Britain. What had happened was 
that the Industrial Revolution was spreading beyond Britain to Europe and the United 
States and by 1910 to South America and Asia. As a result, these areas became less 
dependent on Britain for manufactured goods, less eager to sell their raw materials and 
food products to her, and became her competitors both in selling to and in buying from 
those colonial areas to which industrialism had not yet spread. By 1914 Britain's 
supremacy as financial center, as commercial market, as creditor, and as merchant 
shipper was being threatened. A less obvious threat arose from long-run shifts in 
demand — shifts from the products of heavy industry to the products of more highly 
specialized branches of production (like chemicals), from cereals to fruits and dairy 
products, from cotton and wool to silk and rayon, from leather to rubber, and so on. 
These changes presented Britain with a fundamental choice — either to yield her 
supremacy in the world or reform her industrial and commercial system to cope with the 
new conditions. The latter was difficult because Britain had allowed her industrial system 
to become lopsided under the influence of free trade and international division of labor. 
Over half the employed persons in Britain were engaged in the manufacture of textiles 
and ferrous metals. Textiles accounted for over one-third of her exports, and textiles, 
along with iron and steel, for over one-half. At the same time, newer industrial nations 
(Germany, the United States, and Japan) were growing rapidly with industrial systems 
better adapted to the trend of the times; and these were also cutting deeply into Britain's 
supremacy in merchant shipping. 

America Becomes the World's Greatest Creditor 

At this critical stage in Britain's development, the World War occurred. This had a 
double result as far as this subject is concerned. It forced Britain to postpone indefinitely 
any reform of her industrial system to adjust it to more modern trends; and it speeded up 
the development of these trends so that what might have occurred in twenty years was 
done instead in five. In the period 1910-1920, Britain's merchant fleet fell by 6 percent in 
number of vessels, while that of the United States went up 57 percent, that of Japan up 
130 percent, and that of the Netherlands up 58 percent. Her position as the world's 
greatest creditor was lost to the United States, and a large quantity of good foreign credits 
was replaced by a smaller amount of poorer risks. In addition, she became a debtor to the 
United States to the amount of over $4 billion. The change in the positions of the two 
countries can be summarized briefly. The war changed the position of the United States 
in respect to the rest of the world from that of a debtor owing about $3 billion to that of a 
creditor owed $4 billion. This does not include intergovernmental debts of about $10 
billion owed to the United States as a result of the war. At the same time, Britain's 



position changed from a creditor owed about $18 billion to a creditor owed about $13.5 
billion. In addition, Britain was owed about $8 billion in war debts from her Allies and an 
unknown sum in reparations from Germany, and owed to the United States war debts of 
well over 54 billion. Most of these war debts and reparations were sharply reduced after 
1920, but the net result for Britain was a drastic change in her position in respect to the 
United States. 

Modification of the Basic Economic Organization of the World 

The basic economic organization of the world was modified in other ways. As a result 
of the war, the old organization of relatively free commerce among countries specializing 
in different types of production was replaced by a situation in which a larger number of 
countries sought economic self-sufficiency by placing restrictions on commerce. In 
addition, productive capacity in both agriculture and industry had been increased by the 
artificial demand of the war period to a degree far beyond the ability of normal domestic 
demand to buy the products of that capacity. And, finally, the more backward areas of 
Europe and the world had been industrialized to a great degree and were unwilling to fall 
back to a position in which they would obtain industrial products from Britain, Germany, 
or the United States in return for their raw materials and food. This refusal was made 
more painful for both sides by the fact that these backward areas had increased their 
outputs of raw materials and food so greatly that the total could hardly have been sold 
even if they had been willing to buy all their industrial products from their prewar 
sources. These prewar sources in turn had increased their industrial capacity so greatly 
that the product could hardly have been sold if they had been able to recapture entirely all 
their prewar markets. The result was a situation where all countries were eager to sell and 
reluctant to buy, and sought to achieve these mutually irreconcilable ends by setting up 
subsidies and bounties on exports, tariffs, and restrictions on imports, with disastrous 
results on world trade. The only sensible solution to this problem of excessive productive 
capacity would have been a substantial rise in domestic standards of living, but this 
would have required a fundamental reapportionment of the national income so that claims 
to the product of the excess capacity would go to those masses eager to consume, rather 
than continue to go to the minority desiring to save. Such a reform was rejected by the 
ruling groups in both "advanced" and "backward" countries, so that this solution was 
reached only to a relatively small degree in a relatively few countries (chiefly the United 
States and Germany in the period 1925-1929) 

International Bankers Began to Set Gold Aside 

Changes in the basic productive and commercial organization of the world in the 
period 1914-1919 were made more difficult to adjust by other less tangible changes in 
financial practices and business psychology. The spectacular postwar inflations in eastern 
Europe had intensified the traditional fear of inflation among bankers. In an effort to stop 
rises in prices which might become inflationary, bankers after 1919 increasingly sought 
to "sterilize" gold when it flowed into their country. That is, they sought to set it aside so 
that it did not become part of the monetary system. As a result, the unbalance of trade 
which had initiated the flow of gold was not counteracted by price changes. Trade and 



prices remained unbalanced, and gold continued to flow. Somewhat similar was a 
spreading fear of decreasing gold reserves, so that when gold began to flow out of a 
country as a result of an unfavorable balance of international payments, bankers 
increasingly sought to hinder the flow by restrictions on gold exports. With such actions 
the unfavorable balance of trade continued, and other countries were inspired to take 
retaliatory actions. The situation was also disturbed by political fears and by the military 
ambitions of certain countries, since these frequently resulted in a desire for self- 
sufficiency (autarchy) such as could be obtained only by use of tariffs, subsidies, quotas, 
and trade controls. Somewhat related to this was the widespread increase in feelings of 
economic, political, and social insecurity. This gave rise to "flights of capital" — that is, to 
panic transfers of holdings seeking a secure spot regardless of economic return. 
Moreover, the situation was disturbed by the arrival in the foreign-exchange market of a 
very large number of relatively ignorant speculators. In the period before 1914 
speculators in foreign exchange had been a small group of men whose activities were 
based on long experience with the market and had a stabilizing effect on it. After 1919 
large numbers of persons with neither knowledge nor experience began to speculate in 
foreign exchange. Subject to the influence of rumors, hearsay, and mob panic, their 
activities had a very disturbing effect on the markets. Finally, within each country, the 
decline in competition arising from the growth of labor unions, cartels, monopolies, and 
so on, made prices less responsive to flows of gold or exchange in the international 
markets, and, as a result, such flows did not set into motion those forces which would 
equalize prices between countries, curtail flows of gold, and balance flows of goods. 

Most Countries Leave the Gold Standard 

As a result of all these factors, the system of international payments which had worked 
... before 1914 worked only haltingly after that date, and practically ceased to work at all 
after 1930. The chief cause of these factors was that neither goods nor money obeyed 
purely economic forces and did not move as formerly to the areas in which each was 
most valuable. The chief result was a complete mal-distribution of gold, a condition 
which became acute after 1928 and which by 1933 had forced most countries off the gold 
standard. 

Modifications of productive and commercial organization and of financial practices 
made it almost impossible after 1919 to restore the financial system of 1914. Yet this is 
what was attempted. Instead of seeking to set up a new financial organization adapted to 
the modified economic organization, bankers and politicians insisted that the old prewar 
system should be restored. These efforts were concentrated in a determination to restore 
the gold standard as it had existed in 1914. 

The Money Power Seeks to Create a World System of Financial 

Control in Private Hands Able to Dominate Every Nation on Earth 

In 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 world 
as 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 frequent private meetings 
and conferences. The apex of the system was to be the Bank for International Settlements 
in Basle, Switzerland, a private bank owned and controlled by the world's central banks 
which were themselves private corporations. Each central bank, in the hands of men like 
Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal 
Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the 
Reichsbank, 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 country, 
and to influence cooperative politicians by subsequent economic rewards in the business 
world. 

International Bankers Seek and Make Agreements on 

All the Major Financial Problems of the World 

In each country the power of the central bank rested largely on its control of credit and 
money supply. In the world as a whole the power of the central bankers rested very 
largely on their control of loans and of gold flows. In the ... system, these central bankers 
were able to mobilize resources to assist each other through the B.I.S., where payments 
between central banks could be made by bookkeeping adjustments between the accounts 
which the central banks of the world kept there. The B.I.S. as a private institution was 
owned by the seven chief central banks and was operated by the heads of these, who 
together formed its governing board. Each of these kept a substantial deposit at the B.I.S., 
and periodically settled payments among themselves (and thus between the major 
countries of the world) by bookkeeping in order to avoid shipments of gold. They made 
agreements on all the major financial problems of the world, as well as on many of the 
economic and political problems, especially in reference to loans, payments, and the 
economic future of the chief areas of the globe. 

The Bank for International Settlements Becomes the Mechanism for Allowing the 

Three Financial Centers of the World to Act As One 

The B.I.S. is generally regarded as the apex of the structure of financial capitalism 
whose remote origins go back to the creation of the Bank of England in 1694 and the 
Bank of France in 1803. As a matter of fact its establishment in 1929 was rather an 
indication that the centralized world financial system of 1914 was in decline. It was set 
up rather to remedy the decline of London as the world's financial center by providing a 
mechanism by which a world with three chief financial centers in London, New York, 
and Paris could still operate as one. The B.I.S. was a ... effort to cope with the problems 
arising from the growth of a number of centers. It was intended to be the world cartel of 
ever-growing national financial powers by assembling the nominal heads of these 
national financial centers. 



Montagu Norman Was the Commander-in-Chief of the 

World System of Banking Control 

The commander in chief of the world system of banking control was Montagu 
Norman, Governor of the Bank of England, 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. In 
government the power of the Bank of England was a considerable restriction on political 
action as early as 1819 but an effort to break this power by a modification of the bank's 
charter in 1844 failed. In 1852, Gladstone, then chancellor of the Exchequer and later 
prime minister, declared, "The hinge of the whole situation was this: the government 
itself was not to be a substantive power in matters of Finance, but was to leave the Money 
Power supreme and unquestioned." 

The Currency Dictator of Europe 

This power of the Bank of England and of its governor was admitted by most qualified 
observers. In January, 1924, Reginald McKenna, who had been chancellor of the 
Exchequer in 1915-1916, as chairman of the board of the Midland Bank told its 
stockholders: "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." In that 
same year, Sir Drummond Fraser, vice-president of the Institute of Bankers, stated, "The 
Governor of the Bank of England must be the autocrat who dictates the terms upon which 
alone the Government can obtain borrowed money." On September 26, 1921, The 
Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could upset 
the whole fabric of government finance by refraining from renewing Treasury Bills." 
Vincent Vickers, who had been a director of the bank for nine years, said, "Since 1919 
the monetary policy of the Government has been the policy of the Bank of England and 
the policy of the Bank of England has been the policy of Mr. Montagu Norman." On 
November II, 1927, the Wall Street Journal called Mr. Norman "the currency dictator of 
Europe." This fact was admitted by Mr. Norman himself before the court of the bank on 
March 21, 1930, and before the Macmillan Committee five days later. 

Montagu Norman's 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, in 
time of crisis, to three or even four years. But Norman held the position for twenty-four 
years (1920-1944), during which he became the chief architect of the liquidation of 
Britain's global preeminence. 

Norman Viewed Governments and Democracy As 

Threats to the Money Power 

Norman was a strange man whose mental outlook was one of successfully suppressed 
hysteria or even paranoia. He had no use for governments and feared democracy. Both of 



these seemed to him to be threats to private banking, and thus to all that was proper and 
precious in human life. Strong-willed, tireless, and ruthless, he viewed his life as a kind 
of cloak-and-dagger struggle with the forces of ... [sound] money .... When he rebuilt the 
Bank of England, 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 the 
governor's desk. For much of his life Norman rushed about the world by fast steamship, 
covering 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 "Professor Skinner." 
His embarkations and debarkations onto and off the fastest ocean liners of the day, 
sometimes through the freight hatch, were about as unobserved as the somewhat similar 
passages of Greta Garbo in the same years, and were carried out in a similarly "sincere" 
effort at self-effacement. 

Montagu Norman's Devoted Colleague in New York City 

Norman had a devoted colleague in Benjamin Strong, the first governor of the Federal 
Reserve Bank of New York. Strong owed his career to the favor of the Morgan Bank, 
especially of Henry P. Davison, who made him secretary of the Bankers Trust Company 
of New York (in succession to Thomas W. Lamont) in 1904, used him as Morgan's agent 
in the banking rearrangements following the crash of 1907, and made him vice-president 
of the Bankers Trust (still in succession to Lamont) in 1909. He became governor of the 
Federal Reserve Bank of New York as the joint nominee of Morgan and of Kuhn, Loeb, 
and Company in 1914. Two years later, Strong met Norman for the first time, and they at 
once made an agreement to work in cooperation for the financial practices they both 
revered. 

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 in 
the south of France). 

Norman and Strong Seek to Operate Central Banks Free from 

Any Political Control 

In the 1920's, they were determined to use the financial power of Britain and of the 
United States to force all the major countries of the world to go on the gold standard and 
to operate it through central banks free from all political control, with all questions of 
international finance to be settled by agreements by such central banks without 
interference from governments. 

Norman and Strong Were Mere Agents of the Powerful Bankers 

Who Remained Behind the Scenes and Operated in Secret 



It must not be felt that these heads of the world's chief central banks were themselves 
substantive powers in world finance. They were not. Rather, they were the technicians 
and agents of the dominant investment bankers of their own countries, who had raised 
them 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 called 
"international" or "merchant" bankers) who remained largely behind the scenes in their 
own unincorporated private banks. These formed a system of international cooperation 
and national dominance which was more private, more powerful, and more secret than 
that of their agents in the central banks. This dominance of investment bankers was based 
on their control over the flows of credit and investment funds in their own countries and 
throughout 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, the 
discount rate, and the re-discounting of commercial debts; they could dominate 
governments by their control over current government loans and the play of the 
international exchanges. Almost all of this power was exercised by the personal influence 
and prestige of men who had demonstrated their ability in the past to bring off successful 
financial coupe, to keep their word, to remain cool in a crisis, and to share their winning 
opportunities with their associates. In this system the Rothschilds had been preeminent 
during much of the nineteenth century, but, at the end of that century, they were being 
replaced by J. P. Morgan whose central office was in New York, although it was always 
operated as if it were in London (where it had, indeed, originated as George Peabody and 
Company in 1838). Old J. P. Morgan died in 1913, but was succeeded by his son of the 
same name (who had been trained in the London branch until 1901), while the chief 
decisions in the firm were increasingly made by Thomas W. Lamont after 1924. But 
these relationships can be described better on a national basis later. At the present stage 
we must follow the efforts of the central bankers to compel the world to return to the gold 
standard of 1914 in the postwar conditions following 1918. 

International Banker's Viewpoints Expressed in 

Government Reports and Conferences 

The bankers' point of view was clearly expressed in a series of government reports and 
international conferences from 1918 to 1933. Among these were the reports of the 
Cunliffe Committee of Great Britain (August 1918), that of the Brussels Conference of 
Experts (September 1920), that of the Genoa Conference of the Supreme Council 
(January 1922), the First World Economic Conference (at Geneva, May 1927), the report 
of the Macmillan Committee on Finance and Industry (of 1931), and the various 
statements released by the World Economic Conference (at London in 1933). 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 1914, for reductions in taxes and government spending, and for a cessation of all 
government interference in economic activity either domestic or international. But none 
of these studies made any effort to assess the fundamental changes in economic, 
commercial, and political life since 1914. And none gave any indication of a realization 
that a financial system must adapt itself to such changes. Instead, they all implied that if 



men would only give up their evil ways and impose the financial system of 1914 on the 
world, the changes would be compelled to reverse their direction and go back to the 
conditions of 1914. 

Restoration of the Gold Standard of 1914 

Accordingly, the financial efforts of the period after 1918 became concentrated on a 
very simple (and superficial) goal — to get back to the gold standard — not "a" gold 
standard but "the" gold standard, by which was meant the identical exchange ratios and 
gold contents that monetary units had had in 1914. 

Restoration of the gold standard was not something which could be done by a mere act 
of government. It was admitted even by the most ardent advocates of the gold standard 
that certain financial relationships would require adjustment before the gold standard 
could be restored. There were three chief relationships involved. These were (1) the 
problem of inflation, or the relationship between money and goods; (2) the problem of 
public debts, or the relationship between governmental income and expenditure; and (3) 
the problem of price parities, or the relationship between price levels of different 
countries. That these three problems existed was evidence of a fundamental 
disequilibrium between real wealth and claims on wealth, caused by a relative decrease in 
the former and increase in the latter. 

Paying the Public Debt 

The problem of public debts arose from the fact that as money (credit) was created 
during the war period, it was usually made in such a way that it was not in the control of 
the state or the community but was in the control of private financial institutions which 
demanded real wealth at some future date for the creation of claims on wealth in the 
present. The problem of public debt could have been met in one or more of several 
fashions: (a) by increasing the amount of real wealth in the community so that its price 
would fall and the value of money would rise. This would restore the old equilibrium 
(and price level) between real wealth and claims on wealth and, at the same time, would 
permit payment of the public debt with no increase in the tax rates; (b) by devaluation — 
that is, reduce the gold content of the monetary unit so that the government's holdings of 
gold would be worth a greatly increased number of monetary units. These latter could be 
applied to the public debt; (c) by repudiation — that is, a simple cancellation of the public 
debt by a refusal to pay it; (d) by taxation — that is, by increasing the tax rate to a level 
high enough to yield enough income to pay off the public debt; (e) by the issuance of fiat 
money and the payment of the debt by such money. 

These methods were not mutually exclusive, and in some cases overlapped. It might, 
for example, be argued that devaluation or use of fiat money were forms of partial 
repudiation. Nor were all these methods equally practical. For example, the first (increase 
real wealth) was by far the soundest method to achieve a re-stabilization.... The fourth 
(taxation) would have put a burden on the economic system so great as to be self- 
defeating. In Britain, the public debt could have been paid only by a tax of 25 percent for 



about three hundred years. Such heavy taxes might have had such a depressing effect on 
production of real wealth that national income would decline faster than tax rates rose, 
making payment by taxation impossible. Nor were all these alternative methods of paying 
the public debt of equal practicality in respect to their effects on the two other financial 
problems occupying the minds of experts and statesmen. These other two problems were 
inflation and price parities. These problems were just as urgent as the public debt, and the 
effects upon them of the different methods for paying the public debt could have been 
completely different. Efforts to pay the public debt by fiat money would have made the 
inflation problem and perhaps the price-parity problem worse. Taxation and increasing 
real wealth, on the other hand, would have reduced the inflation problem at the same time 
as they reduced the public debt, since both would have increased the value of money (that 
is, they were deflationary). Their effects on the problem of price parity would differ from 
case to case. 

Use of Taxation to Pay Public Debt 

Finally, these methods of paying the public debt were not of equal value in theory. 
Orthodox theory rejected repudiation, devaluation, and fiat money as solutions to the 
problem, and, since it showed no way of increasing the production of real wealth, only 
taxation was left as a possible method of paying public debts. But the theorists, as we 
have shown, could call taxation a possible way only if they neglected the economic 
consequences. These consequences in most countries were so disastrous that taxation, if 
tried, soon had to be supplemented by other, unorthodox, methods. Great Britain and the 
United States were the only Great Powers which continued to use taxation as the chief 
method of paying the public debt. 

The Problem of Inflation 

The second problem which had to be faced before stabilization was possible was the 
problem of inflation. This was caused by the great increase in claims on wealth (money), 
and showed itself in a drastic increase in prices. There were three possible solutions: (a) 
to increase the production of real wealth; (b) to decrease the quantity of money; or (c) to 
devaluate, or make each unit of money equal to a smaller amount of wealth (specifically 
gold). The first two would have forced prices back to the lower prewar level but would 
have done it in entirely different ways, one resulting in prosperity and a great rise in 
standards of living, the second resulting in depression and a great fall in standards of 
living. The third method (devaluation) was essentially a recognition and acceptance of 
the existing situation, and would have left prices at the higher postwar level permanently. 
This would have involved a permanent reduction in the value of money, and also would 
have given different parities in foreign exchanges (unless there was international 
agreement that countries devaluate by the same ratio). But it would have made possible 
prosperity and a rising standard of living and would have accepted as permanent the 
redistribution of wealth from creditors to debtors brought about by the wartime inflation. 

International Bankers Regarded Deflation as a Good Thing 



Since the third method (devaluation) was rejected by orthodox theorists, and no one 
could see how to get the first (increase of real wealth), only the second (deflation) was 
left as a possible method for dealing with the problem of inflation. To many people it 
seemed axiomatic that the cure for inflation was deflation, especially since bankers 
regarded deflation as a good thing in itself. Moreover, deflation as a method for dealing 
with the problem of inflation went hand in hand with taxation as a method for dealing 
with the problem of public debts. Theorists did not stop to think what the effects of both 
would be on the production of real wealth and on the prosperity of the world. 

The Problem of Price Parities 

The third financial problem which had to be solved before stabilization became 
practical was the problem of price parities. This differed because it was primarily an 
international question while the other two problems were primarily domestic. By 
suspending the gold standard and establishing artificial control of foreign exchanges at 
the outbreak of war, the belligerent countries made it possible for prices to rise at 
different rates in different countries. This can be seen in the fact that prices in Britain rose 
200 percent in seven years (1913-1920), while in the United States they rose only 100 
percent. The resulting disequilibrium had to be rectified before the two countries went 
back on the old gold standard, or the currencies would be valued in law in a ratio quite 
different from their value in goods. By going back on gold at the old ratios, one ounce of 
fine gold would, by law, become equal to $20.67 in the United States and about 84s. 1 1 Vi 
d. in Britain. For the $20.67 in the United States you could get in 1920 about half of what 
you could have bought with it in 1913; for the 84s. 1 1 Vi d. in Britain you could get in 
1920 only about a third of what it would buy in 1913. The ounce of gold in the United 
States would be much more valuable than in Britain, so that foreigners (and British) 
would prefer to buy in the United States rather than in Britain, and gold would tend to 
flow to the United States from Britain with goods flowing in the opposite direction. In 
such conditions it would be said that the pound was overvalued and the dollar 
undervalued. The overvaluation would bring depression to Britain, while the United 
States would tend to be prosperous. Such disequilibrium of price parities could be 
adjusted either by a fall of prices in the country whose currency was overvalued or by a 
rise in prices in the country whose currency was undervalued (or by both). Such an 
adjustment would be largely automatic, but at the cost of a considerable flow of gold 
from the country whose currency was overvalued. 

Because the problem of price parities would either adjust itself or would require 
international agreement for its adjustment, no real attention was paid to it when 
governments turned their attention to the task of stabilization. Instead, they concentrated 
on the other two problems and, above all, devoted attention to the task of building up 
sufficient gold reserves to permit them to carry out the methods chosen in respect to these 
two problems. 

America Returns to the Gold Standard 



Most countries were in a hurry to stabilize their currencies when peace was signed in 
1919. The difficulties of the three problems we have mentioned made it necessary to 
postpone the step for years. The process of stabilization was stretched over more than a 
decade from 1919 to 1931. Only the United States was able to return to the gold standard 
at once, and this was the result of a peculiar combination of circumstances which existed 
only in that country. The United States had a plentiful supply of gold. In addition it had a 
technological structure quite different from that of any other country, except perhaps 
Japan. American technology was advancing so rapidly in the period 1922-1928 that even 
with falling prices there was prosperity, since costs of production fell even faster. This 
situation was helped by the fact that prices of raw materials and food fell faster than 
prices of industrial products, so that production of these latter was very profitable. As a 
result, America achieved to a degree greater than any other country a solution of inflation 
and public debt which all theorists had recognized as possible, but which none had 
known how to obtain — the solution to be found in a great increase in real wealth. This 
increase made it possible simultaneously to pay off the public debt and reduce taxes; it 
also made it possible to have deflation without depression. A happier solution of the 
postwar problems could hardly have been found — for a time, at least. In the long run, the 
situation had its drawbacks, since the fact that costs fell faster than prices and that prices 
of agricultural products and raw materials fell faster than prices of industrial products 
meant that in the long run the community would not have sufficient purchasing power to 
buy the products of the industrial organization. This problem was postponed for a 
considerable period by the application of easy credit and installment selling to the 
domestic market and by the extension to foreign countries of huge loans which made it 
possible for these countries to buy the products of American industry without sending 
their own goods into the American market in return. Thus, from a most unusual group of 
circumstances, the United States obtained an unusual boom of prosperity. These 
circumstances were, however, in many ways a postponement of difficulties rather than a 
solution of them, as the theoretical understanding of what was going on was still lacking. 

Taxation as a Cure for Public Debts 

In other countries the stabilization period was not so happy. In Britain, stabilization 
was reached by orthodox paths — that is, taxation as a cure for public debts and deflation 
as a cure for inflation. These cures were believed necessary in order to go back on the old 
gold parity. Since Britain did not have an adequate supply of gold, the policy of deflation 
had to be pushed ruthlessly in order to reduce the volume of money in circulation to a 
quantity small enough to be superimposed on the small base of available gold at the old 
ratios. At the same time, the policy was intended to drive British prices down to the level 
of world prices. The currency notes which had been used to supplement bank notes were 
retired, and credit was curtailed by raising the discount rate to panic level. The results 
were horrible. Business activity fell drastically, and unemployment rose to well over a 
million and a half. The drastic fall in prices (from 307 in 1920 to 197 in 1921) made 
production unprofitable unless costs were driven down even faster. This could not be 
achieved because labor unions were determined that the burden of the deflationary policy 
should not be pushed onto them by forcing down wages. The outcome was a great wave 
of strikes and industrial unrest. 



Britain Goes Back on the Gold Standard 

The British government could measure the success of their deflation only by 
comparing their price level with world price levels. This was done by means of the 
exchange ratio between the pound and the dollar. At that time the dollar was the only 
important currency on gold. It was expected that the forcing down of prices in Britain 
would be reflected in an increase in the value of the pound in terms of dollars on the 
foreign exchange market. Thus as the pound rose gradually upward toward the pre-war 
rate of $4.86, this rise would measure the fall in British prices downward to the American 
(or the world) price level. In general terms, this was true, but it failed to take into 
consideration the speculators who, knowing that the value of the pound was rising, sold 
dollars to buy pounds, thus pushing the dollar down and the pound upward faster than 
was justified in terms of the changes in price levels in the two countries. Thus the pound 
rose to $4.86, while the British price level had not yet fallen to the American price level, 
but the Chancellor of the Exchequer, Winston Churchill, judging the price level by the 
exchange rate, believed that it had and went back on the gold standard at that point. As a 
result, sterling was overvalued and Britain found itself economically isolated on a price 
plateau above the world market on which she was economically dependent. These higher 
British prices served to increase imports, decrease exports, and encourage an outflow of 
gold which made gold reserves dangerously low. To maintain the gold reserve at all, it 
was necessary to keep the discount rate at a level so high (4 Yi percent or more) that 
business activity was discouraged. The only solution which the British government could 
see to this situation was continued deflation. This effort to drive down prices failed 
because the unions were able to prevent the drastic cutting of costs (chiefly wages) 
necessary to permit profitable production on such a deflationary market. Nor could the 
alternative method of deflation — by heavy taxation — be imposed to the necessary degree 
on the upper classes who were in control of the' government. The showdown on the 
deflationary policy came in the General Strike of 1926. The unions lost the strike — that 
is, they could not prevent the policy of deflation — but they made it impossible for the 
government to continue the reduction of costs to the extent necessary to restore business 
profits and the export trade. 

Britain Goes into Financial Bondage to France 

As a result of this financial policy, Britain found herself faced with deflation and 
depression for the whole period 1920-1933. These effects were drastic in 1920-1922, 
moderate in 1922-1929, and drastic again in -1933. The wholesale price index 
(1913=100) fell from 307 in 1920 to 197 in 1921, then declined slowly to 137 in 1928. 
Then it fell rapidly to 120 in 1929 and go in 1933. The number of unemployed averaged 
about 13/4 millions for each of the thirteen years of 1921-1932 and reached 3 million in 
1931. At the same time, the inadequacy of the British gold reserve during most of the 
period placed Britain in financial subjection to France (which had a plentiful supply of 
gold because of her different financial policy). This subjection served to balance the 
political subjection of France to Britain arising from French insecurity, and ended only 
with Britain's abandonment of the gold standard in 1931. 



Britain was the only important European country which reached stabilization through 
deflation. East of her, a second group of countries, including Belgium, France, and Italy, 
reached stabilization through devaluation. This was a far better method. It was adopted, 
however, not because of superior intelligence but because of financial weakness. In these 
countries, the burden of war-damage reconstruction made it impossible to balance a 
budget, and this made deflation difficult. These countries accepted orthodox financial 
ideas and tried to deflate in 1920-1921, but, after the depression which resulted, they 
gave up the task. Belgium stabilized once at 107 francs to the pound sterling, but could 
not hold this level and had to devaluate further to 175 to the pound (October 1926). 
France stabilized at 124.21 francs to the pound at the end of 1926, although the 
stabilization was made de jure only in June 1928. Italy stabilized at 92.46 fire to the 
pound sterling in December 1927. 

Achieving Stabilization through Devaluation 



The group of countries which reached stabilization through devaluation prospered in 
contrast with those who reached stabilization through deflation. The prosperity was 
roughly equal to the degree of devaluation. Of the three Latin countries — Belgium, 
France, and Italy — Belgium devalued the most and was most prosperous. Her 
stabilization was at a price level below the world level so that the belga was undervalued 
by about one-fifth. This served to encourage exports. For an industrial country such as 
Belgium, this made it possible for her to profit by the misfortunes of Britain. France was 
in a somewhat similar position. Italy, on the contrary, stabilized at a figure which made 
the lira considerably overvalued. This was done for purposes of prestige — Mussolini 
being determined to stabilize the lira at a value higher than that of the French franc. The 
effects of this overvaluation of the lira on the Italian economy were extremely adverse. 
Italy was never as prosperous after stabilization as she had been immediately before it. 

Not only did the countries which undervalued their money prosper; they decreased the 
disequilibrium between wealth and money; they were able to use the inflation to increase 
production; they escaped high taxes; they moderated or escaped the stabilization crisis 
and the deflationary depression; they improved their positions in the world market in 
respect to high-cost countries like Britain; and they replenished their gold stocks. 

America Rebuilds the Industrial Structure of Germany 

through the Dawes Plan 

A third group of countries reached stabilization through reconstruction. These were 
the countries in which the old monetary unit had been wiped out and had to be replaced 
by a new monetary unit. Among these were Austria, Hungary, Germany, and Russia. The 
first two of these were stabilized by a program of international assistance worked out 
through the League of Nations. The last was forced to work out a financial system by 



herself. Germany had her system reorganized as a consequence of the Dawes Plan. The 
Dawes Plan, as we have seen in our discussion of reparations, provided the gold reserves 
necessary for a new currency and provided a control of foreign exchange which served to 
protect Germany from the accepted principles of orthodox finance. These controls were 
continued until 1930, and permitted Germany to borrow from foreign sources, especially 
the United States, the funds necessary to keep her economic system functioning with an 
unbalanced budget and an unfavorable balance of trade. In the period 1924-1929, by 
means of these funds, the industrial structure of Germany was largely rebuilt so that, 
when the depression arrived, Germany had the most efficient industrial machine in 
Europe and probably the second most efficient in the world (after the United States). The 
German financial system had inadequate controls over inflation and almost none over 
deflation because of the Dawes Plan restrictions on the open-market operations of the 
Reichsbank and the generally slow response of the German economy to changes in the 
discount rate. Fortunately, such controls were hardly necessary. The price level was at 
137 in 1924 and at the same figure in 1929 (1913=100). In that six-year period it had 
reached as high as 142 (in 1925) and fallen as low as 134 (in 1926). This stability in 
prices was accompanied by stability in economic conditions. While these conditions were 
by no means booming, there was only one bad year before 1930. This was 1926, the year 
in which prices fell to 134 from the 1925 level of 142. In this year unemployment 
averaged 2 million. The best year was 1925, in which unemployment averaged 636,000. 
This drop in prosperity from 1925 to 1926 was caused by a lack of credit as a result of the 
inadequate supplies of domestic credit and a temporary decline in the supplies of foreign 
credit. It was this short slump in business which led Germany to follow the road to 
technological reorganization. This permitted Germany to increase output with decreasing 
employment. The average annual increase in labor productivity in the period 1924-1932 
in Germany was about 5 percent. Output per labor hour in industry rose from 87.8 in 
1925 to 115.6 in 1930 and 125 in 1932 (1928=100). This increase in output served to 
intensify the impact of the depression in Germany, so that unemployment, which 
averaged about three million in the year 1930, reached over six million late in 1932. The 
implications of this will be examined in detail in our study of the rise to power of Hitler. 

The Use of the Gold Bullion Standard Instead of the 

Old Gold Standard 

The stabilization period did not end until about 1931, although only minor Powers 
were still stabilizing in the last year or so. The last Great Power to stabilize de jure was 
France in June, 1928, and she had been stabilized de facto much earlier. In the whole 
period, about fifty countries stabilized their currencies on the gold standard. But because 
of the quantity of gold necessary to maintain the customary reserve ratios (that is, the pre- 
1914 ratios) at the higher prices generally prevailing during the period of stabilization, no 
important country was able to go back on the gold standard as the term was understood in 
1914. The chief change was the use of the "gold exchange standard" or the "gold bullion 
standard" in place of the old gold standard. Under the gold exchange standard, foreign 
exchange of gold standard countries could be used as reserves against notes or deposits in 
place of reserves in gold. In this way, the world's limited supplies of gold could be used 



to support a much greater volume of fictitious wealth in the world as a whole since the 
same quantity of gold could act as bullion reserve for one country and as gold exchange 
reserve for another. Even those countries which stabilized on a direct gold standard did so 
in a quite different way from the situation in 1914. In few countries was there free and 
gratuitous convertibility between notes, coin, and bullion. In Great Britain, for example, 
by the Gold Standard Act of May 1925, notes could be exchanged for gold only in the 
form of bullion and only in amounts of at least 400 fine ounces (that is, not less than 
$8,268 worth at a time). Bullion could be presented to the mint for coinage only by the 
Bank of England, although the bank was bound to buy all gold offered at 77s. 10 Vi d. per 
standard ounce. Notes could be converted into coin only at the option of the bank. Thus 
the gold standard of 1925 was quite different from that of 1914. 

The Money Power Creates a Facade of Cardboard and Tinsel 

This would indicate that even in its most superficial aspects the international gold 
standard of 1914 was not reestablished by 1930. The legal provisions were different; the 
financial necessities and practices were quite different; the profound underlying 
economic and commercial conditions were entirely different, and becoming more so. Yet 
financiers, businessmen, and politicians tried to pretend to themselves and to the public 
that they had restored the financial system of 1914. They had created a facade of 
cardboard and tinsel which had a vague resemblance to the old system, and they hoped 
that, if they pretended vigorously enough, they could change this facade into the lost 
reality for which they yearned. At the same time, while pursuing policies (such as tariffs, 
price controls, production controls, and so on) which drove this underlying reality ever 
farther from that which had existed in 1914, they besought other governments to do 
differently. Such a situation, with pretense treated as if it were reality and reality treated 
as if it were a bad dream, could lead only to disaster. This is what happened. The period 
of stabilization merged rapidly into a period of deflation and depression. 

Financial Capitalists Focus Entirely on Wealth 

As we have said, the stage of financial capitalism did not place emphasis on the 
exchange of goods or the production of goods as the earlier stages of commercial 
capitalism and industrial capitalism had done. In fact, financial capitalism had little 
interest in goods at all, but was concerned entirely with claims on wealth — stocks, bonds, 
mortgages, insurance, deposits, proxies, interest rates, and such. 

Financial Capitalists Discover New Ways to Make Money Out of Nothing 

It invested capital not because it desired to increase the output of goods or services but 
because it desired to float issues (frequently excess issues) of securities on this productive 
basis. It built railroads in order to sell securities, not in order to transport goods; it 
constructed great steel corporations to sell securities, not in order to make steel, and so 
on. But, incidentally, it greatly increased the transport of goods, the output of steel, and 
the production of other goods. By the middle of the stage of financial capitalism, 
however, the organization of financial capitalism had evolved to a highly sophisticated 



level of security promotion and speculation which did not require any productive 
investment as a basis. Corporations were built upon corporations in the form of holding 
companies, so that securities were issued in huge quantities, bringing profitable fees and 
commissions to financial capitalists without any increase in economic production 
whatever. Indeed, these financial capitalists discovered that they could not only make 
killings out of the issuing of such securities, they could also make killings out of the 
bankruptcy of such corporations, through the fees and commissions of reorganization. A 
very pleasant cycle of flotation, bankruptcy, flotation, bankruptcy began to be practiced 
by these financial capitalists. The more excessive the flotation, the greater the profits, and 
the more imminent the bankruptcy. The more frequent the bankruptcy, the greater the 
profits of reorganization and the sooner the opportunity of another excessive flotation 
with its accompanying profits. This excessive stage reached its highest peak only in the 
United States. In Europe it was achieved only in isolated cases. 

Finance Capitalism Opened the Way for Centralization of World 

Economic Control in the Hands of the International Banking Fraternity 

The growth of financial capitalism made possible a centralization of world economic 
control and a use of this power for the direct benefit of financiers and the indirect injury 
of all other economic groups. This concentration of power, however, could be achieved 
only by using methods which planted the seeds which grew into monopoly capitalism. 
Financial control could be exercised only imperfectly through credit control and 
interlocking directorates. In order to strengthen such control, some measure of stock 
ownership was necessary. But stock ownership was dangerous to banks because their 
funds consisted more of deposits (that is, short-term obligations) than of capital (or long- 
term obligations). This meant that banks which sought economic control through stock 
ownership were putting short-term obligations into long-term holdings. This was safe 
only so long as these latter could be liquidated rapidly at a price high enough to pay 
short-term obligations as they presented themselves. But these holdings of securities were 
bound to become frozen because both the economic and the financial systems were 
deflationary. The economic system was deflationary because power production and 
modern technology gave a great increase in the supply of real wealth. This meant that in 
the long run the control by banks was doomed by the progress of technology. The 
financial system was also deflationary because of the bankers' insistence on the gold 
standard, with all that this implies. 

The Money Power Creates an Ingenious Plan to Create and 

Control Giant Monopolies 

To escape from this dilemma, the financial capitalists acted upon two fronts. On the 
business side, they sought to sever control from ownership of securities, believing they 
could hold the former and relinquish the latter. On the industrial side, they sought to 
advance monopoly and restrict production, thus keeping prices up and their security 
holdings liquid. 



The efforts of financiers to separate ownership from control were aided by the great 
capital demands of modern industry. Such demands for capital made necessary the 
corporation form of business organization. This inevitably brings together the capital 
owned by a large number of persons to create an enterprise controlled by a small number 
of persons. The financiers did all they could to make the former number as large as 
possible and the latter number as small as possible. The former was achieved by stock 
splitting, issuing securities of low par value, and by high-pressure security salesmanship. 
The latter was achieved by plural-voting stock, nonvoting stock, pyramiding of holding 
companies, election of directors by cooptation, and similar techniques. The result of this 
was that larger and larger aggregates of wealth fell into the control of smaller and smaller 
groups of men. 

The Money Power Used Monopoly Capitalism to 

Increase Wealth and Power 

While financial capitalism was thus weaving the intricate pattern of modern 
corporation law and practice on one side, it was establishing monopolies and cartels on 
the other. Both helped to dig the grave of financial capitalism and pass the reins of 
economic control on to the newer monopoly capitalism. On one side, the financiers freed 
the controllers of business from the owners of business, hut, on the other side, this 
concentration gave rise to monopoly conditions which freed the controllers from the 
banks. 

The date at which any country shifted to financial capitalism and later shifted to 
monopoly capitalism depended on the supply of capital available to business. These dates 
could be hastened or retarded by government action. In the United States the onset of 
monopoly capitalism was retarded by the government's antimonopoly legislation, while 
in Germany it was hastened by the cartel laws. The real key to the shift rested on the 
control of money flows, especially of investment funds. These controls, which were held 
by investment bankers in 1900, were eclipsed by other sources of funds and capital, such 
as insurance, retirement and investment funds, and, above all, by those flows resulting 
from the fiscal policies of governments. Efforts by the older private investment bankers 
to control these new channels of funds had varying degrees of success, but, in general, 
financial capitalism was destroyed by two events: (1) the ability of industry to finance its 
own capital needs because of the increased profits arising from the decreased competition 
established by financial capitalism, and (2) the economic crisis engendered by the 
deflationary policies resulting from financial capitalism's obsession with the gold 
standard. 

Chapter 21— The Period of Deflation, 1927- 1936 

The period of stabilization cannot be clearly distinguished from the period of 
deflation. In most countries, the period of deflation began in 1921 and, after about four or 
five years, became more rapid in its development, reaching after 1929 a degree which 



could be called acute. In the first part of this period (1921-1925), the dangerous economic 
implications of deflation were concealed by a structure of self-deception which pretended 
that a great period of economic progress would be inaugurated as soon as the task of 
stabilization had been accomplished. This psychological optimism was completely 
unwarranted by the economic facts, even in the United States where these economic facts 
were (for the short term, at least) more promising than anywhere else. After 1925, when 
the deflation became more deep-rooted and economic conditions worsened, the danger 
from these conditions was concealed by a continuation of unwarranted optimism. The 
chief symptom of the unsoundness of the underlying economic reality — the steady fall in 
prices — was concealed in the later period (1925-1929) by a steady rise in security prices 
(which was erroneously regarded as a good sign) and by the excessive lending abroad of 
the United States (which amounted to almost ten billion dollars in the period 1920-1931, 
bringing our total foreign investment to almost 27 billion dollars by the end of 1930). 
This foreign lending of the United States was the chief reason why the maladjusted 
economic conditions could be kept concealed for so many years. Before the World War, 
the United States had been a debtor nation and, to pay these debts, had developed an 
exporting economy. The combination of debtor and exporter is a feasible one. The war 
made the United States a creditor nation and also made her a greater exporter than ever 
by building up her acreage of cotton and wheat and her capacity to produce ships, steel, 
textiles, and so on. The resulting combination of creditor and exporter was not feasible. 
The United States refused to accept either necessary alternative — to reduce debts owed to 
her or to increase her imports. Instead, she raised tariffs against imports and temporarily 
filled the gap with huge foreign loans. But this was hopeless as a permanent solution. As 
a temporary solution, it permitted the United States to be both creditor and exporter; it 
permitted Germany to pay reparations with neither a budgetary surplus nor a favorable 
balance of trade; it permitted dozens of minor countries to adopt a gold standard they 
could not hold; it permitted France, Britain, Italy, and others to pay war debts to the 
United States without sending goods. In a word, it permitted the world to live in a 
fairyland of self-delusions remote from economic realities. 

Economic Realities 

These realities were characterized by (a) fundamental maladjustments, both economic 
and financial, which made it impossible for the financial system to function as it had in 
1914, and (b) the steady deflation. 

The fundamental maladjustments were both economic and financial. The economic 
maladjustments were those which we have already indicated: the industrialization of 
colonial areas; the overproduction of raw materials and food as a result of wartime high 
prices, the overexpansion of heavy industry as a result of wartime needs, the 
obsolescence of much of heavy industry in Europe and in Britain which made it 
impossible to compete with newer equipment or to cope with the shifts in consumer 
demand, and the steadily increasing disadvantage of producers of raw materials and food 
in contrast with producers of industrial goods. To these old factors were added new ones 
such as the great increase in productive efficiency in Germany and the United States, the 
return of Russia and Germany to the European economy about 1924, and the return of 



Europe-to the world economy in the period 1925-1927. Many countries sought to resist 
these factors, both old and new, by adopting political interference with economic life in 
the form of tariffs, import quotas, export subsidies, and so on. 

The financial maladjustments served to create an insufficiency of gold and a mal- 
distribution of gold. The inadequacy of the supply of gold arose from several causes. It 
has been estimated that the world's stock of gold money needed to increase by 3.1 percent 
per year in the 1920's to support the world's economic development with stable prices on 
the gold standard. The production of new gold after 1920 was below this rate. 

Moreover, as a result of the activities of the League of Nations and financial advisers 
like Professor E. W. Kemmerer of Princeton University, every country was encouraged to 
get on the gold standard. This led to a "gold rush" as each country tried to obtain a supply 
of gold large enough to provide adequate reserves. Because there were more countries on 
gold in 1928 than in 1914 and because prices in general were higher, more gold was 
needed in reserves. 

The efforts to get around this by using a gold exchange standard rather than a gold 
standard were helpful in dealing with the problem of inadequate supplies of gold but 
increased the difficulty of the problem of mal-distribution of gold, since the gold 
exchange standard did not respond to the flow of gold as readily and thus did not serve so 
well to stem such flows of gold. The need for gold was made greater by the existence of 
large floating balances of political or panic funds which might well move from one 
market to another independent of economic conditions. The need was increased by the 
fact that in 1920 there were three major financial centers which had to make payments by 
shipments of gold in contrast to the single financial center of 1914 where payments could 
be made by bookkeeping transactions. To rectify this problem to some degree, the Bank 
for International Settlements was created in 1929.... Finally, the need for gold was 
increased by the enormous growth in foreign indebtedness, much of it of a political 
nature such as the war debts and reparations. 

The Financial System of 1914 Had Broken Down 

On top of this insufficiency of gold was superimposed a drastic mal-distribution of 
gold. This was conclusive proof that the financial system of 1914 had broken down, for 
the old system would have operated automatically to distribute gold evenly. This mal- 
distribution resulted from the fact that when gold flowed into certain countries the 
automatic results of such a flow (such as rising prices or falling interest rates) which 
would have restored equilibrium in 1914 were prevented from acting in 1928. In this 
period, about four-fifths of the world's gold supply was in five countries, and over half 
was in two, the United States and France. The gold had been brought to these two for 
quite different reasons — to the United States because it was the world's greatest creditor 
and to France because of its devaluation of the franc. Britain, on the other hand, had 
floating balances of about £800 million, and handled each year £20,000 million in 
transactions with a gold reserve of only £150 million. Such a situation made it possible 
for France to use gold as a political weapon against Britain. 



Wholesale Prices 

As a result of these conditions and the deflationary economic conditions described in 
Chapter 1 1 , prices began to fall, at first slowly and then with increasing rapidity. The 
turning point in most countries was in 1925-1926, with Great Britain one of the earliest 
(January 1925). In the first half of 1929, this slow drift downward began to change to a 
rapid drop. The following table will show the changes in wholesale prices for five 
principal countries: 

Wholesale Price Indices (1913 = 100) 

United Britain France Italy Germany 

1924 141 166 489 554 137 

1925 148 159 550 646 142 

1926 143 148 695 654 134 

1927 137 142 642 527 138 

1928 139 137 645 491 140 

1929 137 120 627 481 137 

1930 124 104 554 430 125 

1931 105 102 520 376 111 

1932 93 90 427 351 97 

1933 95 90 398 320 93 

1934 108 92 376 313 98 

1935 115 93 339 344 102 

1936 116 99 411 385 104 

1937 124 114 581 449 106 

The Facade of Prosperity 

The economic effects of these soft prices after 1925 were adverse, but these effects 
were concealed for a considerable period because of various influences, especially the 



liberal credit policies of the United States (both foreign and domestic) and the optimism 
engendered by the stock-market boom. The facade of prosperity over unsound economic 
conditions was practically worldwide. Only in France and the United States was it a 
boom in real wealth, but in the latter it was by no means as great as one might think from 
a glance at stock prices. In Britain, the boom appeared in the form of the flotation of new 
stocks of unsound and fraudulent companies and a minor stock-market boom (about one- 
third as fast a rise in security prices as in the United States). In Germany and in much of 
Latin America, the boom was based upon foreign borrowing (chiefly from the United 
States) the proceeds of which were largely put into nonproductive construction. In Italy, 
held down by the over-evaluation of the lira in 1927, the boom was of short duration. 

The Crash of 1929 

The history of the slump begins about 1927 when France stabilized the franc de facto 
at a level at which it was devalued and undervalued. This led to a great demand for 
francs. The Bank of France sold francs in return for foreign exchange. The francs were 
created as credit in France, thus giving an inflationary effect which can be seen in the 
behavior of French prices in 1926-1928. The foreign exchange which France received for 
its francs was largely left in that form without being converted into gold. By 1928 the 
Bank of France found that it held foreign exchange to the value of 32 billion francs 
(about $1.2 billion). At this point the Bank of France began to transfer its exchange 
holdings into gold, buying the metal chiefly in London and New York. Because of the 
inadequate gold reserves in London, a meeting of central bankers in New York decided 
that the gold purchases of France and Germany should be diverted from London to New 
York in the future (July 1927). To prevent the resulting outflow of gold from having a 
deflationary effect which might injure business, the New York Federal Reserve Bank 
dropped its discount rate from 4 percent to 3 Yi percent. When the French gold purchases 
became noticeable in 1928, the Federal Reserve Bank adopted open market operations to 
counterbalance them, buying securities to a value equal to the French purchases of gold. 

As a result there was no reduction in money in the United States. This money, 
however, was going increasingly into stock-market speculation rather than into 
production of real wealth. This can be seen from the following table of indices of average 
stock prices for both England and the United States in the years indicated: 

Industrial Shares Prices 

(1924=100) 

Year United Kingdom United States 

1924 100 100 

1925 109 126 

1926 115 143 



1927 124 169 

1928 139 220 

1929 139 270 

1930 112 200 

1931 87 124 

1932 84 66 

1933 103 95 

1934 125 116 

The stock-market boom in the United States was really much more drastic than is 
indicated by these index numbers, because these are yearly averages, and include 
sluggish stocks as well as market leaders. The boom began as far back as 1924, as can be 
seen, and reached its peak in the fall of 1929. By the spring of 1929 it had become a 
frenzy and was having profound effects on business activity, on domestic and 
international finance, on the domestic affairs of foreign countries, and on the psychology 
and modes of life of Americans. 

Credit Was Diverted from Production to Speculation 

Among the financial results of the stock-market boom were the following: In the 
United States credit was diverted from production to speculation, and increasing amounts 
of funds were being drained from the economic system into the stock market, where they 
circulated around and around, building up the prices of securities. In Germany it became 
increasingly difficult to borrow from the United States, and the foreign loans, which kept 
the German financial system and the whole system of reparations and war debts 
functioning, were shifted from long-term loans to precarious short-term credits. The 
results of this have been examined in the chapter on reparations. In other countries, funds 
tended to flow to the United States where they could expect to roll up extraordinary 
earnings in capital gains in a relatively short time. This was especially true of funds from 
Britain where the stock-market boom ceased after the end of 1928. By that time the 
fundamentally unsound economic conditions were beginning to break through the facade. 
The decline in foreign loans by both London and New York began to be noticeable by the 
last half of 1928 and made it evident that the chief support of the facade was vanishing. 
But the continued rise of security prices in New York continued to draw money from the 
rest of the world and from the productive and consumptive systems of the United States 
itself. 

A Financial Disaster of Unparalleled Magnitude 



Early in 1929, the board of governors of the Federal Reserve System became alarmed 
at the stock-market speculation, especially at its draining credit from industrial 
production. To curtail this, in April 1929, the Federal Reserve authorities called upon the 
member banks to reduce their loans on stock-exchange collateral. At the same time, it 
engaged in open-market operations which reduced its holdings of bankers' acceptances 
from about $300 million to about $150 million. The sterilization of gold was made more 
drastic. It was hoped in this way to reduce the amount of credit available for speculation. 
Instead, the available credit went more and more to speculation and decreasingly to 
productive business. Call money rates in New York which had reached 7 percent at the 
end of 1928 were at 13 percent by June 1929. In that month, the election of a Labour 
government in England so alarmed British capital that large amounts flowed to the 
United States and contributed further to the speculative frenzy. In August, the Federal 
Reserve discount rate was raised to 6 percent. By this time it was becoming evident that 
the prices of stocks were far above any value based on earning power and that this 
earning power was beginning to decline because of the weakening of industrial activity. 
At this critical moment, on September 26, 1929, a minor financial panic in London (the 
Hatry Case) caused the Bank of England to raise its bank rate from 4 Vl percent to 6 ¥i 
percent. This was enough. British funds began to leave Wall Street, and the overinflated 
market commenced to sag. By the middle of October, the fall had become a panic. In the 
week of October 21st on the Stock Exchange and the Curb Exchange in New York, total 
stocks sold averaged over 9 million a day, and on Thursday, October 24th, almost 19 1/4 
million shares changed hands. The shrinkage in values was measured by several billion 
dollars a day. Some stocks fell by 100 or even 140 points in a day. Auburn fell 210 
points, General Electric 76 points, and U.S. Steel 26 points in 4 Vi days. By November 
6th these three stocks had fallen respectively 55, 78, and 28 points more. It was a 
financial disaster of unparalleled magnitude. 

The Stock Market Crash Reduces Real Wealth 

The stock-market crash reduced the volume of foreign lending from the United States 
to Europe, and these two events together tore away the facade which until then had 
concealed the fundamental maladjustments between production and consumption, 
between debts and ability to pay, between creditors and willingness to receive goods, 
between the theories of 1914 and the practices of 1928. Not only were these 
maladjustments revealed but they began to be readjusted with a severity of degree and 
speed made all the worse by the fact that the adjustments had been so long delayed. 
Production began to fall to the level of consumption, creating idle men, idle factories, idle 
money, and idle resources. Debtors were called to account and found deficient. Creditors 
who had refused repayment now sought it, but in vain. All values of real wealth shrank 
drastically. 

The Crisis of 1931 

It was this shrinkage of values which carried the economic crisis into the stage of 
financial and banking crisis and beyond these to the stage of political crisis. As values 



declined, production fell rapidly; banks found it increasingly difficult to meet the 
demands upon their reserves; these demands increased with the decline in confidence; 
governments found that their tax receipts fell so rapidly that budgets became unbalanced 
in spite of every effort to prevent it. 

The financial and banking crisis began in central Europe early in 1931, reached 
London by the end of that year, spread to the United States and France in 1932, bringing 
the United States to the acute stage in 1933, and France in 1934. 

The Largest Bank in Austria Collapses 

The acute stage began early in 1931 in central Europe where the deflationary crisis 
was producing drastic results. Unable to balance its budget or obtain adequate foreign 
loans, Germany was unable to meet her reparation obligations. At this critical moment, as 
we have seen, the largest bank in Austria collapsed because of its inability to liquidate its 
assets at sufficiently high prices and with enough speed to meet the claims being 
presented to it. The Austrian debacle soon spread the banking panic to Germany. The 
Hoover Moratorium on reparations relieved the pressure on Germany in the middle of 
1931, but not enough to permit any real financial recovery. Millions of short-term credits 
lent from London were tied up in frozen accounts in Germany. As a result, in the summer 
of 1931, the uneasiness spread to London. 

The Wealthy Were Causing the Panic 

The pound sterling was very vulnerable. There were five principal reasons: (1) the 
pound was overvalued; (2) costs of production in Britain were much more rigid than 
prices; (3) gold reserves were precariously small; (4) the burden of public debt was too 
great in a deflationary atmosphere; (5) there were greater liabilities than assets in short- 
term international holdings in London (about £407 million to £153 million). This last fact 
was revealed by the publication of the Macmillan Report in June 1931, right at the middle 
of the crisis in central Europe where most of the short-term assets were frozen. The bank 
rate was raised from 2 Vi percent to 4 Vi percent to encourage capital to stay in Britain. 
£130 million in credits was obtained from France and the United States in July and 
August to fight the depreciation of the pound by throwing more dollars and francs into 
the market. To restore confidence among the wealthy (who were causing the panic) an 
effort was made to balance the budget by cutting public expenditures drastically. This, by 
reducing purchasing power, had injurious effects on business activity and increased 
unrest among the masses of the people. Mutiny broke out in the British fleet in protest 
against pay cuts. Various physical and extralegal restrictions were placed on export of 
gold (such as issuing gold bars of a low purity unacceptable to the Bank of France). The 
outflow of gold could not be stopped. It amounted to £200 million in two months. On 
September 1 8th New York and Paris refused further credits to the British Treasury, and 
three days later the gold standard was suspended. The bank rate still stood at 4 Vi percent. 
To many experts the most significant aspect of the event was not that Britain went off 
gold, but that she did so with the bank rate at 4 Vi percent. It had always been said in 
Britain that a 10 percent bank rate would pull gold out of the earth. By 1931, the 



authorities in Britain saw clearly the futility of trying to stay on gold by raising the bank 
rate. This indicates how conditions had changed. It was realized that the movement of 
gold was subject to factors which the authorities could not control more than it was under 
the influence of factors they could control. It also shows — a hopeful sign — that the 
authorities after twelve years were beginning to realize that conditions had changed. For 
the first time, people began to realize that the two problems — domestic prosperity and 
stable exchanges — were quite separate problems and that the old orthodox practice of 
sacrificing the former to the latter must end. From this point on, one country after another 
began to seek domestic prosperity by managed prices and stable exchanges by exchange 
control. That is, the link between the two (the gold standard) was broken, and one 
problem was made into two. 

The British Suspension of Gold 

The British suspension of gold was by necessity, not by choice. It was regarded as an 
evil, but it was really a blessing. As a result of this mistake, many of the benefits which 
could have been derived from it were lost by trying to counterbalance the inflationary 
results of the suspension by other deflationary actions. The discount rate was raised to 6 
percent; valiant efforts to balance the budget continued; a protective tariff was established 
and a program of fairly stiff taxes installed. As a result, prices did not rise enough to give 
that spur to production which would have been necessary to increase prosperity and 
reduce unemployment. No system of exchange control was set up. As a result, the 
depreciation of sterling in respect to gold-standard currencies could not be prevented, and 
amounted to 30 percent by December 1931. Such a depreciation was regarded by the 
authorities as an evil — chiefly because of orthodox economic theories which considered 
parity of exchanges as an end in itself and partly because of the need to pay the £130 
million in Franco-American credits — a burden which increased as sterling depreciated in 
respect to dollars and francs. 

The Central Core of the World's Financial System Was Disputed 

As a result of the British abandonment of the gold standard the central core of the 
world's financial system was disrupted. This core, which in 1914 was exclusively in 
London, in 1931 was divided among London, New York, and Paris. London's share 
depended on financial skill and old habits; New York's share depended on her position as 
the world's great creditor; Paris's share depended on a combination of a creditor position 
with an undervalued currency which attracted gold. From 1927 to 1931, these three had 
controlled the world's financial system with payments flowing in to the three, credits 
flowing out, and stable exchanges between them. The events of September 1931 broke up 
this triangle. Stable exchanges continued for dollar-franc, leaving dollar-pound and 
pound-franc to fluctuate. This did not permit an adjustment of the maladjusted exchange 
rates of 1928-1931. Concretely, the undervaluation of the franc in 1928 and the 
overvaluation of the pound in 1925 could not be remedied by the events of 1931. A 
sterling -franc rate which would have eliminated the undervaluation of the franc would 
have resulted in a sterling-dollar rate which would have overcorrected the overvaluation 
of sterling. On the other hand, the depreciation of the pound put great pressure on both 



the dollar and the franc. At the same time, Britain sought to exploit as much as possible 
her economic relations with her home market, the empire, and that group of other 
countries known as the "sterling bloc." The home market was set aside by the 
establishment of customs duties on imports into the United Kingdom (special customs 
duties November 1931, and a general tariff in February 1932). The empire was brought 
into closer economic ties by a group of eleven "Imperial Preference" treaties made at 
Ottawa in August 1932. The sterling bloc was reinforced and enlarged by a series of 
bilateral trade agreements with various countries, beginning with Norway, Sweden, 
Denmark, and Argentina. 

The World Divided into Two Financial Groups 

Thus the world tended to divide into two financial groups — the sterling bloc organized 
about Britain and the gold bloc organized about the United States, France, Belgium, the 
Netherlands, and Switzerland. 

The depreciation of sterling in relation to gold made the currencies of the gold bloc 
overvalued, and relieved Britain of that burdensome status for the first time since 1925. 
As a result, Britain found it easier to export and more difficult to import, and obtained a 
favorable balance of trade for the first time in almost seven years. On the other hand, the 
gold countries found their depressions intensified. 

Britain Frees Herself from Bondage to France 

As a third result of the British abandonment of the gold standard Britain freed herself 
from her financial subjection to France. This subjection had resulted from the vulnerable 
position of the British gold reserves in contrast to the bulging appearance of the French 
reserves. After 1931 the financial positions of the two countries were reversed. When 
Britain was able to add a financial superiority after 1931 to the political superiority she 
had possessed since 1924, it became possible for Britain to force France to accept the 
policy of appeasement. Moreover, the financial crisis of 1931 was to bring to power in 
Britain the national government which was to carry out the policy of appeasement. 

Trade Barriers Arise 

As a fourth result, the countries still on gold began to adopt new trade barriers, such as 
tariffs and quotas, to prevent Britain from using the advantage of depreciated currency to 
increase her exports to them. The countries already off gold began to see the value in 
currency depreciation, and the possibility of races in depreciation began to form in the 
minds of some. 

As a fifth result of the abandonment of gold, it became possible to rearm without the 
resulting unbalancing of the budget leading to financial jeopardy as under a gold 
standard. Little advantage was taken of this, because pacificism on the Left and 
appeasement on the Right were regarded as substitutes for arms. 



Because of the deflationary policy which accompanied the abandonment of gold in 
Great Britain, recovery from depression did not result except to a very slight degree. 
Neither prices nor employment rose until 1933, and, from that year on, the improvement 
was slow. The depreciation of sterling did result in an improvement in the foreign trade 
balance, exports rising very slightly and imports falling 12 percent in 1932 in comparison 
with 1931. This led to a revival of confidence in sterling and a simultaneous decline in 
confidence in the gold-standard currencies. Foreign funds began to flow to London. 

Control of Credit in Britain Left to the Bank of England 

The flow of capital into Britain early in 1932 resulted in an appreciation of sterling in 
respect to the gold currencies. This was unwelcome to the British government since it 
would destroy her newly acquired trade advantage. The pound sterling appreciated in 
respect to the dollar from 3.27 on December 1, 1931, to 3.80 on March 31, 1932. To 
control this, the government, in May 1932, set up the Exchange Equalization Account 
with capital of £175 million. This fund was to be used to stabilize the exchange rates by 
buying and selling foreign exchange against the trend of the market. In this way, the old 
automatic regulation by the market of the internal credit structure through the 
international flow of funds was broken. Control of the credit structure was left to the 
Bank of England, while control of the exchanges went to the Exchange Equalization 
Fund. This made it possible for Britain to adopt a policy of easy and plentiful credit 
within the country without being deterred by a flight of capital from the country. Since 
the Exchange Equalization Fund was not a system of exchange control but merely a 
government management of the regular exchange market, it was not in a position to 
handle any very considerable emigration of capital. The easy credit policies of Britain 
(designed to encourage business activity) had thus to be combined with deflationary 
prices (designed to prevent any powerful flight of capital). The bank rate was dropped to 
2 percent by July 1932, and an embargo was placed on new foreign capital issues to keep 
this easy money at home. The chief exceptions to this embargo arose from loans to be 
used in the general policy of binding the sterling bloc to Britain, and the proceeds of 
these had to be used in Britain. 

On this basis, although sterling fell to 3.14 by the end of November 1932, a mild 
economic revival was built up. Cheap credit permitted a shift of economic activity from 
the old lines (like coal, steel, textiles) to new lines (like chemicals, motors, electrical 
products). The tariff permitted a rapid growth of cartels and monopolies whose process of 
creation provided at least a temporary revival of economic activity. The continued low 
food prices permitted the income from this increase in activity to be diverted to 
necessities of a different kind, especially dwelling construction. The budget was 
balanced, and early in 1934 showed a surplus of £30 million. 

The improvement in Britain was not shared by the countries still on gold. As a result 
of the competition of depreciated sterling, they found their balances of trade pushed 
toward the unfavorable side and their deflation in prices increased. Tariffs had to be 
raised, quotas and exchange controls set up. The United States could hardly do the first of 



these (her tariff of 1930 was already the highest in history), and rejected the others in 
principle. 

The Crisis in the United States, 1933 

As a result of the British crisis, the gold countries of Europe sought to modify their 
financial basis from the gold exchange standard to the gold bullion standard. When 
Britain abandoned gold in September 1931, France was caught with over £60 million in 
sterling exchange. This was equal to about 30 percent of her foreign-exchange holdings 
(7,775 million francs out of 25,194 million). The loss exceeded the total capital and 
surplus of the Bank of France. To avoid any similar experience in the future, France 
began to transfer her holdings of exchange into gold, much of it called from the United 
States. As confidence in the pound rose, that in the dollar fell. It became necessary to 
raise the New York discount rate from 1 Vi percept to 3 Vi percent (October 1932) and to 
engage in extensive open-market buying of securities to counteract the deflationary 
effects of this. However, the gold exports and gold hoarding continued, made worse by 
the fact that the United States was the only gold standard country with gold coins still 
circulating. 

The American Banking System Began to Collapse 

As a result of the decline of confidence and the demand for liquidity, the American 
banking system began to collapse. The Reconstruction Finance Corporation was set up 
early in 1932 with $3 Vi billion in government money to advance to banks and other large 
corporations. By the end of the year, it had lent over $1 Vi billion. When the details of 
these loans were published (in January 1933), runs on the banks were intensified. A bank 
holiday was declared in Nevada in October 1932, in Iowa in January 1933, in six states 
during February, and in sixteen states in the first three days of March. From February 1st 
to March 4th the Federal Reserve Bank in New York lost $756 million in gold; it called 
in $709 million from the other Federal Reserve Banks, which were also subject to runs. 

Banks in the U.S. Were Closed 

The banks of the whole United States were closed by executive order on March 4 to 
be reopened after March 12th if their condition was satisfactory. Export of gold was 
subjected to license, convertibility of notes into gold was ended, and private holding of 
gold was made illegal. These orders, completed on April 20, 1933, took the United States 
off the gold standard. This was done in order that the government could pursue a policy 
of price inflation in its domestic program. It was not made necessary by the American 
international financial position, as this continued very favorable. This was quite different 
from the situation in Britain in 1931. London had left gold unwillingly and had followed 
an orthodox financial program afterward; Washington left gold in 1933 voluntarily in 
order to follow an unorthodox financial program of inflation. 

The Central Exchange Triangle Was Disrupted 



As a result of the abandonment of the gold standard by the United States, the central- 
exchange triangle between London, Paris, and New York was further disrupted. All three 
exchange rates were able to fluctuate, although the Exchange Equalization Account kept 
two of them relatively steady. To the worldwide problem of economic distress was now 
added the problem of exchange stabilization. A dispute ensued among Britain, France, 
and the United States over which of these two problems should be given priority. France 
insisted that no economic recovery was possible until exchanges were stabilized. It surely 
was true that as long as the franc remained on gold at the same valuation, France would 
suffer from the depreciation of the pound and the dollar. The United States insisted that 
economic recovery must have priority over stabilization, since the latter would hamper 
the process of price reflation which the administration considered essential to recovery. 
Britain, which had supported the priority of recovery over stabilization as long as the 
pound was the only one of the three currencies which was depreciated, insisted on the 
importance of stabilization as soon as the advantages of depreciation began to be shared 
by the dollar. This depreciation of both the dollar and the pound put great strain on the 
franc. To keep France from being forced off the gold standard, Britain, on April 28, 1933, 
lent her £30 million to be repaid out of the sterling exchange with which France had been 
caught in September 1931. Until the middle of 1933, the Exchange Equalization Account 
was used by Britain to prevent any appreciation of the pound. This was countered in the 
United States by the inflationary Thomas Amendment to the Agricultural Adjustment Act 
(May 12, 1933). This Amendment gave the president the power to devaluate the dollar up 
to 50 percent, to issue up to $3 billion in fiat money, and to engage on an extensive 
program of public spending. 

The World Economic Conference, 1933 

This dispute over the priority of stabilization or recovery reached its peak in the World 
Monetary and Economic Conference held in London from June 12 to July 27, 1933. A 
Preparatory Commission of Experts drew up a series of preliminary agreements for 
countries on gold or off, with exchange controls or without, but no agreement could be 
obtained at the conference itself. Britain and France tried to get the dollar to join them in 
a temporary de facto stabilization in preparation for a real agreement. The franc and 
pound had already been pegged to each other at 84 francs per pound, which gave a 
London gold price of 122 shillings. The United States refused to join in any temporary 
stabilization because of the success of the administration's domestic recovery program. 
The general price index in the United States rose by 8.7 percent from February to June 
1933, and farm products rose by 30.1 percent. The mere hint of a stabilization agreement 
was sufficient to cause a sharp break in the rise of security and commodity prices (June 
14, 1933), so Roosevelt broke off all negotiations toward stabilization (July 3, 1933). 

Four Great Negatives 

The World Economic Conference, as Professor William Adams Brown wrote, broke 
up on four great negatives: the countries which had adopted trade restrictions refused to 
abandon them without currency stabilization; the countries on the gold standard refused 
to accept price increases as a road to recovery because of fear of inflation; Great Britain 



wanted price increases but refused to permit an unbalanced budget or a public works 
program; and the United States, which was seeking recovery through inflation and public 
works, refused to hamper the program by currency stabilization. 

The Countries of the World Divide into Three Groups 

As a result of the failure of the Economic Conference, the countries of the world 
tended to divide into three groups: a sterling bloc, a gold bloc, and a dollar bloc. The gold 
and sterling blocs were formally organized, the former on July 3rd and the later on July 
8th. A struggle ensued among these three in an effort to shift the economic burdens of 
past mistakes from one to another. 

The Failure of the World Economic Conference 

A great deal has been written since 1933 in an effort to apportion the blame for the 
failure of the World Economic Conference. It is a futile task. From the point of view of 
narrow self-interest in the short run, all countries were correct in their actions. From the 
wider point of view of the world as a whole or of the long-run results, all countries were 
worthy of blame. By 1933, the day in which any country could follow a policy of short- 
run self-interest and remain under liberal capitalism was past. For technological and 
institutional reasons, the economies of the different countries were so intertwined with 
one another that any policy of self-interest on the part of one would be sure to injure 
others in the short run and the country itself in the long run. Briefly, the international and 
the domestic economic systems had developed [by the Money Power] to a point where 
the customary methods of thought and procedure in regard to them were [considered] 
obsolete [by the Money Power]. 

The Whole Banking System in America Is Insolvent 

The reason why a policy of short-run self-interest on the part of one country was in 
such sharp conflict with any similar policy pursued by another country does not rest on 
the fact that the interests of one country were adverse to those of another. That would 
have been a problem to be treated by simple compromise. The conflicts between 
economic nationalisms were based on the fact that, viewed superficially, the crisis took 
entirely different forms in the chief countries of the world. In the United States, the most 
obvious manifestation of the crisis was low prices, which by 1933 made the whole 
banking system insolvent. High prices became, thus, for the United States, the chief goal 
of debtors and creditors alike. In Britain, the most obvious manifestation of the crisis was 
the outflow of gold which jeopardized the gold standard. A rectification of the 
international balance of payments rather than a rise in prices thus became the chief 
immediate aim of British policy. In France, the crisis appeared chiefly as an unbalanced 
internal budget. The French gold supply was more than adequate, and prices, as a result 
of the substantial devaluation of 1928, were considered extremely high. But the 
unbalanced budget created a great problem. If the deficit were filled by borrowing the 
result would be inflationary and injurious to the creditor classes who had suffered so 
greatly in the 1920's. If the deficit were filled by taxation, this would lead to deflation 



(with its decline in business activity) and a flight of capital out of the country. To the 
French government the only way out of this dilemma was to be found in an increase in 
business activity, which would increase the tax yield without any rise in rates. It could 
see no value in the American concern with higher prices or the British concern with trade 
balances as short-run objectives. 

This contrast between the various kinds of impact which the economic and financial 
crisis made on the various countries could be extended to lesser countries. In Switzerland 
(where gold reserves were well over 100 percent) the chief problem was "hot money." In 
Germany, the chief problem was foreign debts, but this soon developed into a 
combination of all the ailments which were afflicting other countries (low prices, 
unfavorable balance of trade, unbalanced budget, panicky short-term loans, and so on). In 
the Netherlands and in the countries of eastern Europe, the chief problem was 
"segmentation of prices" (that is, that prices of food and raw materials, which they sold, 
fell faster than prices of manufactured goods which they bought). 

Nations Begin to Pursue Policies of Economic Nationalism 

As a result of the crisis, regardless of the nature of its primary impact, all countries 
began to pursue policies of economic nationalism. This took the form of tariff increases, 
licensing of imports, import quotas, sumptuary laws restricting imports, laws placing 
national origin, trade-mark, health, or quarantine restrictions on imports, foreign- 
exchange controls, competitive depreciation of currencies, export subsidies, dumping of 
exports, and so on. These were first established on an extensive scale in , and spread 
rapidly as a result of imitation and retaliation. 

World Trade System Breaks into Segregated Markets 

As a result of such economic nationalism, it soon appeared that the disappearance of 
the old multilateral system of world finance centering in London would be followed by 
the breaking of the multilateral system of world trade (also centering in Britain) into a 
number of partially segregated markets operating on a bilateral basis. International trade 
declined greatly as the following figures indicate: 

Value of Trade in Millions of Dollars 

1928 1932 1935 1933 

Europe's Trade 58,082 24,426 20,762 24,065 

World's Trade 114,429 45,469 40,302 46,865 

The Crisis in the Gold Bloc, 1934—1936 

After the breakup of the World Economic Conference, the United States continued its 
policy of domestic inflation. As the dollar depreciated, the pressure on the franc 



increased, while the pound, through the use of the Exchange Equalization Account, tried 
to follow a middle ground in a depreciated, but stable, relationship to the franc. In this 
way, by purely artificial means, the pound was kept at about 85 francs. In the late 
summer of 1933 (September 8th) the United States Treasury began to depreciate the 
dollar by buying gold at constantly increasing prices (about $30 an ounce, compared to 
the old stabilization rate of $20.67). This put pressure on the franc as well as on the 
pound. Deflation became increasingly severe in France, and, in October 1933, a budget 
deficit of over 40 billion francs gave rise to a Cabinet crisis. By the end of 1933, the gold 
price in New York reached $34, and the dollar, which had been at 4.40 in relation to the 
pound in August, fell to 5.50. On February 1, 1934, the United States went back on the 
gold standard at a considerable devaluation under the old price. The gold content was cut 
to 59.06 percent of the 1932 amount. At the same time, the Treasury set up a standing 
offer to buy gold at $35 an ounce. This served to remove much of the uncertainty about 
the dollar, but stabilized it in regard to the franc at a level which put great pressure on the 
franc. At this price for gold, the metal flowed to the United States, France losing about 3 
billion francs' worth in February 1934. 

France 

Thus the world depression and the financial crisis which France had escaped for over 
three years were extended to her. France had been able to escape because of her drastic 
devaluation in the 1920's, her well balanced economy, and her ability to keep down 
unemployment by placing restrictions on the entrance of seasonal labor from Spain, Italy, 
and Poland. The crisis of the pound in September 1931 had begun to spread the crisis to 
France, and the crisis of the dollar in 1933 had made the situation worse. The American 
actions of 1934, which gave the world a 59-cent dollar and $35 gold, made the position of 
the gold bloc untenable. They had to suffer a severe deflation, or abandon gold, or 
devaluate. Most of them (because they feared inflation or because they had foreign debts 
which would increase in weight if their currency was to depreciate) permitted deflation 
with all its suffering. Italy even ordered deflation by decree in April 1934, in order to 
maintain business activity by forcing costs down as much as prices. Eventually, all 
members of the gold bloc had to abandon gold to some extent because of the pressure 
from the dollar. 

Belgium 

Belgium was the first member of the gold bloc to yield, setting up exchange controls 
on March 18, 1935, and devaluating the belga to about 72 percent of its former gold 
content on March 30th. The final blow which forced the change was the British tariff on 
iron and steel established on March 26, 1935. As a result of this quick and decisive 
devaluation, Belgium experienced a considerable amount of economic recovery. Almost 
at once, production and prices rose, while unemployment fell. 

France Defends the Franc 



The other members of the gold bloc did not profit by the example of Belgium, but 
determined to defend the gold content of their currencies to the limit. France was the 
leader in this movement, and by her policy was able to influence the other members of 
the bloc to resist with the same vigor. This determination of France to defend the franc is 
to be explained by the fact that the great mass of Frenchmen were creditors in some way 
or other, and having lost four- fifths of their savings in the inflation of 1914-1926 did not 
view with any pleasure another dose of the same medicine. In this effort to defend the 
franc, France was aided greatly by the activity of the British Exchange Equalization 
Account which bought francs in enormous quantities whenever the currency became very 
weak. By 1935, the resources of the Account capable of being devoted to this purpose 
were largely expended, and the franc fell below the gold export point for long periods. 
The Bank of France raised its discount rate from 2 Vi percent to 6 percent (May 23-28, 
1935) with depressing economic results. Laval in July obtained emergency powers from 
the Assembly, and adopted a policy of deflation by decree, cutting ordinary public 
expenditures for the year from 40 billion to 1 1 billion francs, cutting all public salaries by 
lo percent, and also reducing all rents, the cost of public utilities, and the price of bread. 

Gold Begins to Leave France 

In this way, the strain on the gold reserves (which fell to 16 billion francs during 
1935) was relieved at the cost of increased depression. By September, the franc was still 
overvalued (as far as cost of living was concerned) by about 34 percent as compared to 
the pound and by about 54 percent as compared to the dollar. The deflation necessary to 
bring French prices down to parity with the prices in the depreciated-currency countries 
could not be obtained. By the end of 1935, the government had abandoned the effort, and 
by borrowing to meet budgetary deficits had turned France toward inflation. Gold began 
to leave the country again, and this exit became a flood after a government of the Left led 
by Blum came to power in June 1936. 

The Blum "Popular Front" government tried to follow an impossible program: 
"inflation on gold." It sought inflation to relieve depression and unemployment and 
sought to remain on gold because this was insisted on by both the Communist and 
bourgeois supporters of the government. In an effort to restore confidence and slow the 
"flight from the franc," it became necessary for Blum formally to disavow any intention 
of installing a Socialist program. The Right thus discovered that it could veto any actions 
of the Left government merely by exporting capital from France. The flight of such 
capital continued through the summer of 1936, while Blum negotiated with Britain and 
the United States regarding devaluation of the franc. On September 24, 1936, the bank 
rate was raised from 3 percent to 5 percent, and, on the following day, a Three-Power 
Currency Declaration announced that the franc would be "adjusted," exchange stability 
would be maintained thereafter (through the stabilization funds), and trade restrictions 
would be relaxed. 

The French Devaluation of 1936 



The French devaluation (law of October 2, 1936) provided that the gold content of the 
franc would be reduced to an amount from 25.2 percent to 34.4 percent of the old figure 
of 65 Vi milligrams. From the profits obtained by thus revaluing French gold reserves, an 
exchange stabilization fund of 10 billion francs was set up. 

France Is Blackmailed by the Wealthy 

Although the French devaluation of September 136 shattered the gold bloc and forced 
the other members of the bloc to follow suit, it did not end the period of deflation. The 
reasons for this were chiefly to be found in the complete mismanagement of the French 
devaluation. This decisive event was delayed too long — at least a year after it should 
have been done — a year during which gold steadily flowed from France. Moreover, when 
the devaluation came, it was insufficient and left the franc still overvalued in relation to 
price levels in the other Great Powers. Furthermore, the devaluation was shrouded with 
uncertainty, since the law permitted the government to devalue to any gold content 
between 43 and 49 milligrams. By stabilizing at about 46 milligrams, the government 
prevented any revival of confidence because of the danger of a further devaluation to 43 
milligrams. By the time the government realized that a further devaluation was necessary, 
the situation had deteriorated so far that a devaluation to 43 milligrams was worthless. 
Finally, in the devaluation law the government took punitive measures against gold 
hoarders and speculators, seeking to prevent them from reaping the profits they would 
obtain by converting their gold back into francs at the new value. As a result, the 
exported and hoarded gold did not return but stayed in hiding. Thus the financial, 
budgetary, and economic difficulties in France continued. By the middle of 1937, they 
had become so bad that the only possible solutions were exchange control or a drastic 
devaluation. The former was rejected because of the pressure from Britain and the United 
States based on the Tripartite Agreement of 1936 and the support which their 
stabilization funds afforded the franc; the latter was rejected by all politicians likely to 
obtain power in France. As a result, the franc passed through a series of depreciations and 
partial devaluations which benefitted no one except the speculators and left France for 
years torn by industrial unrest and class struggles. Unable to arm or give foreign affairs 
the attention they needed, the government was subjected to systematic blackmail by the 
well-to-do of the country because of the ability of these persons to prevent social reform, 
public spending, arming, or any policy of decision by selling francs. Only in May 1938 
was a decisive step made. At that time the franc was drastically depreciated to 179 in the 
pound, and pegged at that figure. Its gold content (by a law of November 12, 1938) was 
fixed at about 27.5 milligrams nine-tenths fine. By that time France had suffered years of 
economic chaos and governmental weakness. These conditions had encouraged German 
aggression, and, when a decisive financial action was made in 1938, it was, because of 
the rising international crisis, too late to reap any important economic benefits. 

The Gold Bloc Was Destroyed 

We have said that the gold bloc was destroyed by the French devaluation of 
September 1936. This was accomplished almost immediately. Switzerland, the 
Netherlands, and Czechoslovakia devalued their currencies by about 30 percent and Italy 



by about 40 percent before the end of October. In each case, like Belgium rather than 
France, the devaluation was large enough in amount and abrupt enough in time to 
contribute to a noticeable reflation and improvement in business activity. Each country of 
the former gold bloc set up a stabilization fund to control exchange rates, and joined the 
Tripartite currency agreement of September 1936. 

The Banker-Engendered Deflationary Crisis Became a 

Chief Cause of World War II 

The historical importance of the banker-engendered deflationary crisis of 1927-1940 
can hardly be overestimated. It gave a blow to democracy and to the parliamentary 
system which the later triumphs of these in World War II and the postwar world were 
unable to repair fully. It gave an impetus to aggression by those nations where 
parliamentary government collapsed, and thus became a chief cause of World War n. It 
so hampered the Powers which remained democratic by its orthodox economic theories 
that these were unable to rearm for defense, with the consequence that World War II was 
unduly prolonged by the early defeats of the democratic states. It gave rise to a conflict 
between the theorists of orthodox and unorthodox financial methods.... And, finally, it 
impelled the whole economic development of the West along the road from financial 
capitalism to monopoly capitalism and, shortly thereafter, toward the pluralist economy. 

The Banker's Formula for Treating a Depression 

The controversy between the bankers and the theorists of unorthodox finance arose 
over the proper way to deal with an economic depression. We shall analyze this problem 
later, but here we should say that the bankers' formula for treating a depression was by 
clinging to the gold standard, by raising interest rates and seeking deflation, and by 
insisting on a reduction of public spending, a fiscal surplus, or at least a balanced budget. 
These ideas were rejected totally, on a point-by-point basis, by the unorthodox 
economists (somewhat mistakenly called "Keynesian"). The bankers' formula sought to 
encourage economic recovery by "restoring confidence in the value of money," that is, 
their own confidence in what was the primary concern of bankers. This formula had 
worked in the past only when it had, more or less incidentally, reduced costs (especially 
wages) faster than wholesale prices so that businessmen regained confidence, not in the 
value of money but in the possibility of profits. The unorthodox theorists sought to 
achieve this latter more quickly and more directly by restoring purchasing power, and 
thus prices, by increasing, instead of reducing, the money supply and by placing it in the 
hands of potential consumers rather in the banks or in the hands of investors.... 

Ivar Kreuger Sells Worthless and Fraudulent Securities 

The end of financial capitalism may well be dated at the collapse of the gold standard 
in Britain in September 1931, but, on the personal side, it might be dated at the suicide of 
its most spectacular individual, the "Match King," Ivar Kreuger, in Paris in April 1932. 



Ivar Kreuger (1880-1932), after several years' experience as an engineer in America 
and South Africa, set up in Stockholm in 1911 the contracting firm of Kreuger & Toll. By 
1918 this firm was a financial company with a capital of 12 million kronor, and chiefly 
interested in the Swedish Match Company, a holding company organized by Kreuger. 
Within a decade, Kreuger had control of over 150 match companies in 43 countries. The 
securities of these firms were controlled through a Delaware c