"Well, I'll be damned!" muttered Perry. "I don't believe that was in the record."
"You only saw the summary records," explained Diana.
"Edward had returned home at the start of the war and demanded to be assigned to military duty. He displayed surprising talent, particularly as a creator of morale. It was largely due to him that the repeated losses of battles did not result in capitulation to the fascist governments. When his name was proposed, he was nominated by acclamation. He was reluctant to accept but finally agreed to do so provided his wife was given equal formal rank with him. This was agreed to over the protests of the British delegation and they were crowned in a ceremony that marked the end of the Bordeaux conference on 1944 June 12. He assumed the title of Edward, King of States and Emperor of Europe. Wallis was of course Queen and Empress. They say that the English queen never got over it."
"Swell!" Perry chortled.
"Edward made an able ruler. He had helped to draw the constitution of the new super-state and had insisted on several things, free trade among the sister states, a common currency, a joint army and navy, and a small one at that. All international disputes to be settled by the Imperial Tribune. The system worked well enough for a quarter of a century, in spite of creakings and adjustments."
"What put an end to it?"
"His death. He died in 1970, and left no heirs. Even while the Tribune was declaring Wallis regent, pending the selection of a successor, a company of local guards crossed a bridge in eastern Europe and seized a little town of less than a thousand inhabitants. There was some vague historical claim based on a battle nearly five hundred years before. They were resisted by the local constabulary who were joined by the veterans' organizations. In two days that whole border was in a state of guerrilla warfare and within a fortnight there was fighting all over the continent. It was hastened at least by Great Britain's refusal to recognize the regency of Wallis in spite of the Tribune's authority, and calling home her ships and troops."
"And that was the start of the Forty Years War?"
"Approximately. Some of the States stayed out at first and various ones dropped out from time to time. But for all practical purposes Europe was at war for the next forty years."
"How did it end?"
"It didn't end, not formally. It burnt out like a fire that has consumed all of its fuel. In 1970 Europe contained over four hundred million people, exclusive of the Soviet Union, Sweden, and Norway, none of which were heavily involved in the war. The Soviet Union of course had not been a part of United Europe anyhow. In 2010 which marks the approximate end of the war Europe is believed to have had a population of less than twenty-five million."
Diana blanched. Perry spoke up. "Do you mean to say that over a third of a billion people were killed in thirty years?"
"Not all by shot or poison. More people starved than were killed in battle. It was the breakdown of the economic organization that killed the masses rather than deadly weapons. People hardly ever realize the completeness of our economic interdependence. Communications were destroyed by the fighting. Distribution was upset. The credit system expanded and then collapsed, leaving people to depend on barter. Barter was about as adequate to take care of the involved economic structure as oars would have been for one of their battleships. Governments resorted to the exercise of angary and expropriation to provide for troops, but it amounted to foraging and the people regarded it as such. This dog-eat-dog system ran its natural course. The farmers hoarded and the city dwellers starved. From time to time the city dweller killed the farmer and took what he had. When that was gone the city dweller died for he had never learned the arts of husbandry. And the armies ran over them all. Of course this breakdown didn't occur all at once. For the first few years the industrial civilization ran faster than ever, but in the high fever of war, living on its own substance. But when enough crops had been destroyed, or not planted, enough granaries emptied, enough water works bombed that the pangs of hunger became general, then dissolution set in. A modern city is an almost incredibly helpless and delicate organism. It has lost its power to produce the actual essentials of life. In spite of its transportation systems, it cannot move as they found out in the evacuation of London. It is like an overgrown idiot baby in an incubator. It is completely helpless without the aid of the many servants that succor it. It cannot even think except in a slow ponderous collective fashion and it cannot think at all in an emergency. Its individuals can think, but a city is an organism in itself and must have a directing brain and nervous system. Destroy its waterworks. It dies. Stop its food supply. It dies. Remove its directing intelligence, it commits suicide. The cities went to pieces first.
"And the birth rate fell to lowest ebb in history. Part of this was due to contagious abortion, one of the many epidemics that swept the continent. Some of the sociologists find evidence that a large number of women refused to bear children. And lots of the men were sterilized, even when they weren't killed, by exposure to the rays that a beneficent science had handed to the field marshals. And so Europe died."
"How in the world did we stay out of it?"
"Partly luck, but mostly the genius and strength of character of one man. Franklin Roosevelt had proposed and partially developed laws that were intended to keep the United States out of war. These were strengthened by LaGuardia until the President had the power to completely withdraw the United States from a danger zone. In 1970 the United States had enjoyed many years of useful economic relations with Europe. But at the time of the death of Edward, there was in the chair at Washington, President John Winthrop, elected by the Conservative Party and a man who might have been expected to repeat the mistakes of 1914. But at the first outbreak of trouble he suspended all shipping. When it became evident that a general war was likely he used the naval and air forces to evacuate our nationals and promulgated the Non-Intercourse Proclamation. Our diplomatic and fiscal agents were all withdrawn. Our commerce with Europe stopped in every respect. With minor exceptions, for twenty years no American citizen made a legal visit to Europe. Naturally it produced terrific economic dislocations in the United States. But he stood firm. At the time of the proclamation Congress was not in session and no regular was scheduled for five months. He refused to call Congress and his legal authority to do what he did was upheld by the Supreme Court. It seems likely that he would have defied the court if necessary. He was hanged in effigy, but by the time Congress met his action appeared justified to many. He was impeached but acquitted in his trial by a narrow vote, and the United States was saved in spite of itself. However before we talk too much about Winthrop we should go back a little in United States history."
"Just a second before we leave Europe entirely. What happened after the war?"
"We don't know, Perry. Not in any great detail. The Non-Intercourse rule has never been fully lifted and we have never resumed commercial or diplomatic relations. The population is increasing slowly. It is largely agrarian and the economy is mostly of the village and countryside character. Most of the population is illiterate and technical skill is almost lost. Our knowledge is incomplete although we maintain missions in several places for ethnological and sociological study. But now can you tell me what happened after the assassination of Malone?"
"Well, LaGuardia took office in 1951 and served two terms. The chap that directed the recording seemed to think that his biggest achievement was a change in the banking system. He called it the Battle of the Banks."
"Yes, and it is important for it was a change that made possible our present economic system."
"Wait a second, please. What is the present economic system? Diana says it isn't socialism. Is it capitalism?"
"You can call it that if you like. I would suggest that you think of it as privately owned industrialism for the time being. LaGuardia destroyed capitalism as you knew it. He started out to found a publicly owned bank, the Bank of the United States."
"Wasn't the Federal Reserve Bank still in existence?"
&nb
sp; "Yes, but the Federal Reserve was not, despite its title, a publicly owned bank. Nor was it a bank in the common use of the term. A private citizen couldn't borrow money from it nor place money in it. Only bankers could use it and they owned it. LaGuardia wanted to set up a real bank that would be owned by and used by the people. But the bankers fought him in every way. They controlled most of the newspapers, owned a good piece of the wealth in the country, and held mortgages of one sort or another on the rest. Their position was very strong in machine politics, too. So they set out to defeat him. And that got him angry. It appears from what we can find out that it was never safe to get the 'Little Flower' angry. He jammed his banking bill through by a combination of personality and intimidation and announced to the whole country that he was ready to lend money to all and sundry who might be refused credit at the private banks. You see the banks had created a panic and a wave of fear by calling loans and refusing to loan more money. LaGuardia restored confidence even before he was able to set up the machinery for handling a banking business. And by now LaGuardia was not willing to let things drop just by setting up his new bank. He had intended it primarily as a fiscal agent of the government to aid in the manifold financial dealings of the government with the citizens, started by Franklin Roosevelt. LaGuardia became determined to break the private bankers. He called in several students of finance and studied the theory of credit himself. He became convinced that ordinary commercial financing could be done for a service charge plus an insurance fee amounting to much less than the current rates of interest charged by banks, whose rates were based on supply and demand, treating money as a commodity rather than as a sovereign state's means of exchange. He proceeded to lend money on this theory. His cost accountants figured pretty accurately the service charge necessary and estimates were made to cover insurance. As the system developed the insurance feature was simply the pro-rate of the losses of the preceding fiscal period. The types of loans the government would make and the quality of paper it would discount kept the losses low and within a year the federal government would loan money to its citizens at an average interest of three-quarters of one per cent per annum.
"Then he dealt his final blow. His new banking law permitted the government to regulate the percentage of fractional reserves that private banks were required to keep on hand to meet withdrawals by depositors. As you may know if you have studied the banking laws of your period, the so-called fractional reserve was a dodge whereby a banker could loan money he didn't have and never had. It actually permitted him to create new money, based not on gold, nor on his own credit, but on the credit of his customers. LaGuardia proceeded to regulate with a vengeance. He ordered fractional reserves increased in a program that called for one hundred per cent reserves at the end of three years. The disgruntled bankers made a test case and took it to the Supreme Court. The Solicitor-General argued that the law and the order made under its authority were not only constitutional but that fractional reserves as hitherto used were clearly in violation of the constitutional provision giving Congress the sole right to coin money and regulate the value thereof. The Court upheld the administration on all counts in a famous decision written by Mr. Justice Frankfurter, and the manipulation of the money power was destroyed in the United States."
"Then private banks were destroyed?"
"Not entirely. They remained a useful institution for some people as depositories for they soon offered services to their customers that the Bank of the United States did not give. If you like to have your deposits received by messenger at your home or want to cash a check in the middle of the night, the private bankers will gladly oblige. And there was still plenty of room for speculative credit pools for people who wished to risk their capital in expectation of high return. The banks continue to lend money at high rates where the risk is great and not easily figured, but they have to lend real money now, not stuff that they draw out of the ink well. The fractional reserves decision put an end to that. You will find what an important part the speculative bankers played in the penetration of South America. They still play an important role. They supply an element of private initiative and enterprise in industry that government cannot hope to provide."
"What about the South American penetration? The records were rather vague or perhaps I had gotten out of my depth."
"Some historians call it rape rather than penetration. Up until 1970 the United States had been steadily losing ground in South America. During the reign of Edward Europe grew steadily more industrialized and found her greatest market in South America. The Asiatic market had been worthless since the 1930's and South America with its raw materials was in a position to reciprocate. On the other hand the United States was an agricultural export nation, and this annoyed several South American states, especially Argentina. But the Forty Years War changed all this. The United States had undergone an economic improvement as a result of the Banking Act which had decreased the spread between production and consumption by lowering the percentage of the cost charges, in a commercial article, unavailable for purchasing power."
"I don't follow you."
"I suggest that you note it down and wait until you study the current economic system. You were probably educated in the conventional economic theories of your period which were magnificent and most ingenious, but—if you will pardon me saying so—all wrong. But to return to our muttons; the improved economic condition produced the usual political reaction and a conservative administration was elected after LaGuardia. There still remained however considerable spread between production and consumption. It had always been the conventional point of view, especially in the economic beliefs of the Conservative Party, that a prosperous nation required a favorable trade balance or gold balance as it was formerly called. In simple language that means that a country is best off when it exports more than it imports. Phrased in that way it sounds silly, for it is surely evident that a country that ships out more than it takes in gets poorer every year in terms of real wealth. Nevertheless there was an element of truth in it, a very practical truth at that time. The economic life was organized in such a comical fashion that each year the country produced goods of greater value than the people of the country were able to buy back and use up. This was known as over-production and many were the esoteric nonsensical things said about it. But the situation was that simple. The system of necessity produced more than it consumed. Of necessity. You can go into the mathematics of it later. Being an engineer you are bound to see the truth of it, and will probably be vastly amused by it."
"Do you mean to say that that was all there was wrong with business in the United States in my day?"
"That was all. And all of your labor troubles, and poverty, and physical suffering were as unnecessary as they were tragic."
"That seems preposterous. If it was as simple as that it could have been fixed. I could work out some scheme to fix it myself, half a dozen schemes. Why in the navy we wouldn't have put up with any such damn nonsense. Why didn't somebody see it?"
"Some people did, C.H. Douglas, Goulds Gainesborough, Bronson Cutting and a few others, but it was almost as difficult to convince people of the fact as it had been to convince an earlier generation that the world was round. In each case the fact was true and the fact was simple but the sturdy common sense of the man who had been brought up to believe in a flat earth or a 'favorable trade balance', rejected the truth. The socialists understood this truth of course, but they insisted that there was only one solution. There were many good solutions for so simple a problem. We believe nowadays that we have a solution more suited to the United States than socialism. But come, we are getting a long way off from South America.
"From 1970 to the turn of the century a partial solution was found. Our excess wealth was poured into our sister continent and it was developed as a new frontier. Gold mined from the Chilean Andes helped for a while to preserve the fiction of a favorable trade balance. After that and in addition to it, almost any sort of wildcat financing was accep
table that would keep up the flow of goods to the south. The private bankers turned to this rich field of exploitation and convinced the public that the new El Dorado lay under the Southern Cross. The whole shaky business piled up until practically the entire continent was mortgaged to the skies in return for goods that we couldn't use ourselves and would have poisoned us if we had kept them. But the Latin temperament had a simple solution. I sometimes wonder whether it was planned or was the inevitable result of the circumstances. But when the due day came each government folded up and a new government calmly repudiated the commitments of its predecessor.
"The first incident of the A.-B.-C. War occurred in 2002 April. The Argentine government had refused to recognize its debts to us both public and private, and several stiff notes had been exchanged. Our South American squadron was ordered to Buenos Aires. Chile and Brazil each informed the United States that any display of force in Argentina would be regarded as an unfriendly act.
"Nevertheless the squadron was not recalled. It steamed into the harbor and had no more than anchored, two old aircraft carriers and an odd dozen of minor craft, when it was attacked from the air and sunk to the last man, before a plane could rise. We don't know yet who did it, but we do know that both the Chilean and Brazilian navies and air fleets had made a rendezvous some two hundred kilometers off Buenos Aires."
"How did the war work out? I found the record account a bit sketchy for my professional taste."
"Why, Perry, you aren't really interested in killing, are you?" Diana was perturbed and incredulous.
He patted her hand. "No Dian', not at all. But the matters of the strategy and the tactics involved and the weapons used are of intellectual interest to me, just as you might be interested in the ceremonial dances that accompanied the Aztecs' Blood sacrifices.
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