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The Struggle of America and England for Leadership
July 25, 1933
I have told you of the shrinkage of international trade during the depression till only a third of it has remained. Domestic trade also lessened because of the decreasing buying power of the people. Unemployment went on increasing, and the support of these millions of unemployed workers became a great burden on the various governments. In spite of high taxes, many governments found it almost impossible to make both ends meet; their revenue went down; their expenditure, in spite of economy and salary-cuts, remained high. For the greater part of this expenditure was tied up with armies and navies and the air force, and with the payment of debts, internal as well as external. There were deficits in the national budgets—that is, expenditure exceeded income. These deficits, which could only be made good by borrowing more money or diverting money from other reserve funds, weakened the financial position of the countries concerned.
At the same time large stocks of goods remained unsold because people did not have enough money to buy them, and in many instances these “superfluous” food-stuffs and other articles were actually destroyed, though people elsewhere were in sore need of them. The crisis and collapse were world-wide (excluding the Soviet Union), and yet the different nations failed to co-operate internationally to end them. Each country has shifted for itself, has tried to overreach the others, and even attempted to profit by another’s misfortune. This individual and selfish action as well as the other partial remedies tried have only aggravated the situation. Quite apart from this trade depression, but influencing it considerably, are two dominant facts or tendencies in world affairs. One is the rivalry of the capitalist world with the Soviet Union; the other is Anglo-American rivalry. The capitalist crisis has weakened and impoverished all the capitalist countries and, in a sense, has lessened the chances of war. Each country is busy putting its own house in order, and has no money for adventures. And yet, paradoxically, this very crisis has increased the war danger, for it is making nations and their governments desperate, and desperate people often seek a solution for their internal difficulties in war abroad. This is especially so when a dictator or a small oligarchy is in power. Sooner than give up power he will plunge his country into war, and thus divert his people’s attention away from troubles at home. Thus a crusade against the Soviet Union and communism is always likely, as it might be hoped that this will bring many of the capitalist countries together. The Soviet Union, as I have told you, was not directly affected by the crisis of capitalism. Busy with its five-year plans, it was intent on avoiding war at any cost.
Rivalry between England and America was inevitable after the war. They are the two greatest world Powers, and each of them wants to dominate world affairs. England had unchallenged supremacy before the world war. The war made the United States the richest and most powerful nation, and naturally they wanted to take henceforth what they considered was their rightful position in the world—that is, the leading place. They were not going to permit England to boss everything in future. England herself fully realized that times had changed, and she tried to adapt herself to them by seeking the friendship of America. She even went to the length of giving up her Japanese alliance to please America, and made other soothing advances. But England was not prepared to give up her special interests and position, and especially her financial leadership, as her greatness and empire were bound up with these. And it was precisely this financial leadership that America wanted. Friction between the two countries was inevitable. Behind soft words and pleasant phrases, the bankers of the two countries, backed by their governments, fought for this great prize, the world leadership in finance and industry. In this game America seemed to have most of the winning cards and trumps, but long experience and good play were on the side of England.
The war debts added to the bitterness between the two Powers, and Americans were cursed in England for being Shylocks after their pound of flesh. As a matter of fact the American debt was due from the British Government to private bankers who had lent the money, or advanced credit, during war-time. The United States Government had merely guaranteed it. It was thus not a question of the U.S. Government wiping off the debt. If England were excused from paying it, the U.S. Government, who were the guarantors, would have to pay it. The American Congress saw no reason why they should undertake this additional liability, especially in time of crisis.
Thus the economic interests of England and America pulled in different ways, and the pull of economic interest is stronger than any other pull. There is so much in common between the two peoples, and yet there is this inevitable conflict, in which the strength and resources of the United States are far greater. The conflict may result in acuter forms of struggle or, in the alternative, in a gradual but continuous transfer of England’s special privileges and dominating position to the United States. To give up a great deal that they value, to lose their ancient prestige as well as the profits of imperialist exploitation, to take a back place in the world, dependent on the goodwill of America, is no pleasant thought to Englishmen, and they are not likely to submit without a struggle. This is the tragedy of England’s present position. All the sources of her old strength are drying up, and the future seems to point inevitably to decline. But, used to dominion for generations, the English people are not prepared to accept this fate, and they are fighting, and will fight, bravely against it.
I have pointed out to you two dominant rivalries in the world today, as they go to explain much that is happening. There are, of course, ever so many rivalries; the whole capitalist and imperialist system is based on competition and rivalry.
To go back to our account of the progress of events under the depression. The Rhineland was evacuated by the French in June 1930, much to the relief of the Germans. But it had come too late to be accepted as a sign of goodwill, and the shadow of the depression darkened everything. As trade conditions worsened money became scarcer with the debtors, and the payment of reparations and debts more difficult, or even impossible. To get over the difficulty of paying, President Hoover had declared a moratorium for a year. Attempts were made to get the whole question of war debts reviewed, but the United States Congress refused to reconsider it. The French Government were equally hard on the question of reparations from Germany. The British Government, being both creditor and debtor, were in favour of wiping off both reparations and debts, and having a clean slate. Each country thought in its own terms, with the result that there was no common action. About the middle of 1931 there was a financial collapse in Germany and bank failures. This led to a crisis in England, who could not meet her liabilities. The country was on the verge of financial collapse also. Under threat of this, the Labour Government was turned out by its own chief MacDonald, who now appeared as the head of a “National Government”, which was dominated by conservatives. But even this National Government could not save the pound. About that time there was also a mutiny of the British sailors of the Atlantic Fleet on the question of wage-cuts. This peaceful mutiny had a tremendous effect on Britain and Europe. Memories of the Russian Revolution and the mutinies of the sailors there came to people’s minds and put the fear of a coming Bolshevism into them. The British capitalists decided to save their capital before any disaster came, and sent it in large quantities to foreign countries. Patriotism among wealthy people does not apparently stand the strain of a risk to money or vested interest.
As British capital went abroad, the pound fell lower, and at last on September 23, 1931, England had to abandon the gold standard—that is, in order to save her gold, to separate the pound from gold. Henceforth no one who had pounds sterling could claim to be paid in gold, as he could before.
This devaluation of the pound was a tremendous event from the point of view of the British Empire and England’s world position. It meant the abandonment, at least for the time being, of the financial leadership which had made London the centre and capital of the world in money matte
rs. To preserve this England had reverted to the gold standard in 1925, even at the cost of loss to her industry, and had faced unemployment, coal strike, etc. But all this had been of no avail, and the pound was forced away from gold by the actions of other countries. This seemed to mark the beginning of the end of the British Empire, and so it was interpreted the world over. The date, September 23, 1931, became quite important as fixing this historic event.
But England was a tough fighter, and had still a dependent and helpless empire to draw upon. She recovered from the crisis largely by drawing out gold from India and Egypt, two countries under her full control. Her industries benefited by the fall of the pound, as she could sell her goods cheaper abroad. It was a remarkable recovery.
The question of reparations and war debts still remained. It was obvious that Germany could not pay reparations, and indeed she formally refused to do so. At last, at a conference held in Lausanne in 1932, reparations were reduced to a nominal figure in the hope and expectation that the United States would reduce debts similarly also. But the U.S. Government refused to mix up debts with reparations or to write off the former. This upset the apple-cart again, and people in Europe were very angry with America.
The time for payment of the instalments due to the United States came in December 1932, and America insisted on them despite eloquent pleading on behalf of England, France, etc. After a great deal of argument, England paid up, but said it was for the last time. France and some other countries refused to pay and defaulted. No fresh settlement followed this, and last month, in June 1933, the payment of the next instalment of the debt became due. France again refused to pay; America was, however, generous to England and accepted a token payment of a small sum, leaving the larger question to be decided later.1
In this connection, when great and rich capitalist Powers like England and France are trying to get out of the debts they owe, according to their own standards and system, it is interesting to think of the Soviet repudiation of debts which has been so strongly condemned by them. In India also a cry of pious horror goes up from government circles when it is suggested, as has been done on behalf of the Congress, that an impartial tribunal should consider the whole question of India’s debt to England. A similar question of the payment of a nation’s liabilities has led to serious friction between Ireland and England, and to a trade war between them which is still going on.
I have repeatedly referred above to England’s financial leadership and America’s fight for it, and to banking crises, and to the collapse financially of various countries. What does all this jargon mean? You may well ask, for I doubt if you understand it. Perhaps the subject does not interest you. But now that I have said so much about it, I feel I ought to try to explain it more fully. Whether we are interested or not, we are vastly influenced, both nationally and individually, by these financial happenings, and it is as well to understand something that moulds our present and future. Many people look upon the financial system of the capitalist world with awe and reverence, so impressed are they by its mysterious workings. It seems to them too intricate and delicate and complicated for them even to try to understand it, and so they leave it to experts and bankers and the like. It is undoubtedly intricate and complicated, and to be complicated is not necessarily a virtue in anything, but still we must have some idea of it if we are to understand our present world. I am not going to try to explain the whole system to you. That is more than I can do, for I am no expert at it, and am just a learner. I shall just tell you a few facts, which I hope will help you to follow intelligently some of the world happenings and the news that we see in the papers. I shall probably have to repeat much that I have already said, but you will not mind that if it helps to make you understand. Remember that this is the capitalist system, with its private companies with shares, its private banks, and stock exchanges where shares are bought and sold. In the Soviet Union the financial and industrial system is quite different. There are no such companies or private banks or stock exchanges there; almost everything is owned and controlled by the State, and foreign trade is essentially barter.
You know that within each country business is carried on almost entirely by means of cheques and, to a lesser extent, bank-notes; gold and silver are seldom used except for petty purchases (gold indeed is hardly obtainable). This paper money represents credit, and it serves the purpose of hard cash so long as people have confidence in the banks or the government of the country issuing the currency notes. But this paper money is no good in making payments from one country to another, as each country has its own national currency. The basis of international payments is therefore gold, which has an intrinsic value as a rare metal, either gold coins or uncoined gold (bullion it is called in the mass) being used. But if the actual gold had to be used for every payment from one country to another, it would be a tremendous nuisance, and international trade could hardly develop. Besides, the amount of actual gold available in the world would limit the amount or value of international trade, for when this limit was reached, there being no more gold available for payments, no further foreign trade transactions could take place till some of the gold was released and brought back.
But this is not so. In 1929 the total gold money in the world was eleven thousand million dollars. In the same year the total value of goods sent from one country to another was thirty-two thousand million dollars; there were also foreign loans amounting to four thousand million; and other foreign payments, like tourist expenditure, freight charges, money sent home by emigrants, etc., also amounting to about four thousand million. Thus the total international payments amounted to about forty thousand million dollars, which is nearly four times the total amount of gold money.
How were foreign payments made then? Obviously all of them could not be made in gold. Usually they were made in a kind of auxiliary money, or credit papers like cheques or bills of exchange, which merchants sent abroad in acknowledgment of their debts. This business was done through the medium of banks doing exchange business. The exchange bank would be in touch with buyers and sellers in different countries and would adjust its payments and receipts through the bills of exchange received by it. If the bank ran short of bills of exchange at any moment, it could make payments by means of well-known securities, such as government bonds or loans or shares in international companies. These shares could be sold or transferred by a telegraphic message, and so payment could be made at the other end immediately.
Thus actual payments in international trade are made through the medium of the central exchange banks by means of commercial paper (bills of exchange, etc.) and financial paper (securities, etc.). These banks must keep a big supply of both these kinds of paper, bills of exchange and securities, to meet the day-today needs of business. They publish weekly lists showing how much gold and such foreign paper they have got. Ordinarily gold will never be sent abroad for payment abroad. But whenever it so happens that it is actually cheaper to send gold abroad than to make payment in any other way, then the banker will send gold metal.
In the gold-standard countries the value of the national currency was fixed in terms of gold, and anyone could demand payment in gold. These currencies therefore were practically fixed and interchangeable, as they could be converted into gold. The only possible variation was the cost of sending the gold metal from one country to another, for if the price in his own country was higher, a businessman could easily get the gold from another country. This was the gold-standard system. Under this system different national currencies were stable, and international trade grew up in the nineteenth century, right up to the World War. This system has broken down today, and, in consequence, money has behaved strangely, and most national currencies are unstable.
The exports of a country roughly balance its imports. In other words, a country pays for the goods it receives by the goods it sends abroad. But this is not quite true, and often there is a small balance either way, when the imports are greater in value than the exports; this is called an “ad
verse balance”, and the country has to make an extra payment to settle accounts.
The stream of goods moving between the different countries is by no means a regular one. It changes frequently and there are ups and downs, and as this varies, the demand for and supply of bills of exchange also vary. It often happens that a country has plenty of bills of exchange of a kind that it does not need at the time, and not enough of another kind that it needs. Thus France may have more than enough bills of exchange in German marks in Germany, but not enough to settle accounts in dollars with America. France would then want to sell the former and buy instead bills in dollars on the United States. To be able to do this there must be a central market for bills of exchange where these international exchanges can take place. Such a market can only exist in a country which has three qualifications:
1. Its foreign trade must be widespread and of a varied kind, so that it has an abundant supply of bills of exchange of all kinds.
2. Securities of every kind must be available there—that is, it must be the greatest market for capital.
3. It must also be the greatest market for gold, so that in case both bills of exchange and securities are lacking, gold may be easily procurable.
Right through the nineteenth century, England was the only country which satisfied those three conditions. Being first in the field in industry and having a large empire as a monopoly area, she developed the biggest volume of foreign trade in the world. To her growing industry she sacrificed her agriculture. Her ships carried merchandise and bills of exchange from every port. Because of this great industrial development, she naturally became the greatest market for capital and accumulated all kinds of foreign securities. Another factor that helped her was the presence of two-thirds of the gold supply of the world within the British Empire— in South Africa, Australia, Canada, and India. These gold mines found a ready market in London, where the Bank of England bought all the gold they produced at a fixed price.
Glimpses of World History Page 132