Dark Continent: Europe's Twentieth Century (20 page)

The basic problem across Europe was that the war had bred in the bourgeoisie a desire to return to pre-war stability at the same time that it had led governments to promise working-class and peasant recruits a new, higher standard of living. “Homes fit for heroes” did not square easily with a return to gold, and democracy suffered as a result. Conflicts between labour and capital—loosely patched up during the war—acquired a new intensity which would ease off only with the abandonment of laissez-faire after 1932. Some industrialists and trade unionists called for a very different industrial policy—based on an American model of high wages, high-volume production and high productivity. But fears of inflation ruled this out and it would not be tried until the Americanization of western Europe after 1950.

Most critical of all for the fragile recovery of the 1920s was its dependence upon an inherently unstable international flow of capital. Britain, which had been the world’s banker before 1914, was able to lend less than ever before. German reparations to the Allies, and Allied war debt repayments to the USA, were all contingent upon the willingness of Americans to lend to Europe. Because nearly half of the lending to Germany after 1924 was short-term, international financial stability was made dependent upon the decisions of thousands of small investors. After 1945 the Americans learned their lesson, and helped rebuild Europe through government loans, but in the 1920s this would not have fitted with prevailing conceptions of the state’s role in international finance, where it was supposed loosely to act as guarantor rather than direct provider of funds. In 1928 investors shifted capital back across the Atlantic to take advantage of a stock exchange boom then developing; the following year, they liquidated
what remained of their assets in Europe for the opposite reason. The result was an unparalleled international financial disaster.

The 1929 Wall Street crash led to bank closures, currency depreciations and monetary chaos. In turn, the financial crisis provoked bankruptcies, lower output, shortened working weeks and growing dole queues. International trade was collapsing, helping to provoke an agrarian crisis of immense proportions as sharply falling farm prices drove farmers into debt, leading surpluses of unwanted produce to mount up, reducing the domestic demand for manufactured goods and accelerating the flight of unemployed hands from the country areas into Europe’s cities. As food stocks ran to waste or were deliberately destroyed, while hunger and poverty increased, market-driven capitalism seemed less and less rational.

The way governments responded has been a source of controversy ever since. Most followed the conventional wisdom, which was to tighten belts, reduce public spending and wait for investor confidence to return. There was no direct policy to tackle unemployment since it was feared that increasing government spending—and therefore debt—in a slump would only drain confidence further in the state’s handling of the economy. The position of the British government, a senior civil servant advised Prime Minister Ramsay MacDonald, was like that of “the captain and officers of a great ship which has run aground on a falling tide; no human endeavour will get the ship afloat until in the course of nature the tide again begins to flow.”
¹⁰

In the meantime, the gold standard remained sacrosanct. “Industry crucified on a Cross of Gold?” asked one newspaper. When the Bank of England announced an interest rate rise in February 1929, the press saw this as “the complete and final condemnation of the gospel of deflation, dear money and the exaltation of the paper value of the pound over the practical needs of British industry.” Among policymakers, though, what in Britain was known as “the Treasury view” was dominant: wages should fall, and unemployment benefits be cut.
¹¹

A similar official fatalism was evident in Germany. Might the Brüning government have averted Hitler’s rise to power and preserved the Weimar Republic by following a policy of reflation in 1930–32? Some Keynesian economic historians have argued this way. Others point out that the criticism takes no heed of the intellectual climate of
the day: interventionists were few in number and defensive about the costs of their schemes. In Germany, as in Poland, Austria and elsewhere, the memory of hyperinflation just a few years earlier made governments very cautious about doing anything that might jeopardize monetary stability. Even so, it is now clear that the deflationary policies pursued by most governments in 1929–31 almost certainly deepened the depression. Governments stumbled across alternatives by accident not design, when forced by the crisis itself to abandon gold.

Because of its multiple nature, the crisis cannot be precisely dated. Although world commodity prices started falling around 1926, and export volumes a year or so after, the starting point is usually taken to be 1929. Some countries abandoned gold then, more followed in 1930: by the summer of 1932 only a few countries had not devalued or blocked their exchanges. One of these was France, which was hoarding gold and was not seriously affected by the slump until 1934, by which time most other countries had begun to recover. Its desperate bid to cling to the old order thus weakened its ability to resist the rise of the Third Reich.

The crisis symptoms, too, varied greatly from one country to another. Abandoning fixed exchange rates was more or less universal: countries either moved to a lower rate or allowed their currency to float. Severe drops in trade were also registered across the board, intensified by tariff increases and other forms of protectionism. In Germany, one of the worst-affected countries, the depression was marked by a 46 per cent drop in industrial output, and six million unemployed; in Britain, where unemployment had remained high through the 1920s, the scale of the increase after 1929 was not quite so marked. But industrial output sank between 1929 and 1932 by 28 per cent in France, 33 per cent in Italy and 36 per cent in Czechoslovakia. In the more agrarian economies of central and eastern Europe, the crisis took the form of spiralling farm debt and growing peasant unemployment that was less visible than its industrial counterpart. France cushioned the impact by expelling its foreign labour force, and by sending urban workers back to their smallholdings or villages.

Everywhere, of course, there were hidden costs in terms of deteriorating physical and psychological health. “Inter-war unemployment
bred in the poor the fear that they might be left on the margins,” recalls Dimitri Kazamias, who grew up in the refugee quarters of 1930s Athens. “You saw the ‘bum’ fear he was losing his worth, and the ‘scab’ his faith in the law and justice.” The slump changed the very rhythms of social and family life. Men out of work walked more slowly than women, who still had housework to do, and stood around aimlessly. “Nothing is urgent anymore; they have forgotten how to hurry,” noted observers of the unemployed in one German town. “For the men, the division of the days into hours has long since lost its meaning. Of one hundred men, eighty-eight were not wearing a watch and only thirty-one had a watch at home. Getting up, the midday meal, going to bed, are the only remaining points of reference. In between, time elapses without anyone really knowing what has taken place.”
¹²

“Stop This Starvation of Mother and Child!” was a slogan used in Britain by the National Unemployed Workers’ Movement. It may not have been greatly exaggerating, as there was real hunger in unemployed families. Although British censors cut pictures of NUWM marchers from cinema newsreels, and held up films about workers’ suffering like
Love on the Dole
, the impact of mass unemployment could not be so easily hidden: dragooning unemployed men into labour platoons or forced workfare schemes did not take many off the streets. In
Down and Out in Paris and London
, and
The Road to Wigan Pier
, George Orwell described the soup kitchens, the hostels and the sheer sense of despair which capitalism’s failure had created.
¹³

Yet governments responded only slowly and disjointedly and were reluctant to abandon the market wisdoms of the past. Neither the Stresa Conference of 1932 nor the still more ambitious World Monetary and Economic Conference that met in London the following year led to coordinated action: on the contrary, they showed ever more clearly the disarray and growing nationalism which existed among the participants. With the collapse of international cooperation came the end of the gold standard (now confined to France, with her immense gold reserves, and Belgium, the Netherlands, Switzerland, Czechoslovakia and Poland) and the cessation of lending from London and New York. In effect, the drying up of the money markets meant ending the decade-long effort to rebuild Europe’s economy
through liberal capitalism. France remained on gold, while Britain’s attention turned to trade with its empire. Both started to think seriously about colonial development and the economic exploitation of their imperial territories in Africa and Asia. The rest of Europe was left to its own devices.

Thus in the 1930s the financial facts of life forced a new economic nationalism on Europe. This was clearly incompatible with the liberal model of free trade and international capital movements advanced by Britain and France. But it was not incompatible either with Soviet-style communism, or with nationalist capitalism, along the lines developed first in Italy and subsequently in the Third Reich. Both Left and Right thus offered a means of escape from the stranglehold of Anglo-American “plutocracy”; both placed economic growth above financial rectitude, the nation above the global economy, and production above stable prices and the interests of the rentier class. Above all, both provided
work
and eradicated mass unemployment. Capitalism’s great crisis thus carried with it powerful political implications: was there a democratic alternative to fascism and communism that could face up to the economic challenges of the 1930s?

THE COMMUNIST ACHIEVEMENT

Commuters from the suburbs of north-east London who use the London Underground station of Gants Hill may be struck by the huge and magnificent underground concourse with its vaulted roof and chrome-yellow banding. Built in 1937, the station was a British tribute to the Moscow Metro, which had just opened the previous year. Today, after communism’s defeat in 1989, the inter-war “mystique of the Soviet Union” is harder than ever to understand. Yet its traces are scattered widely across Europe. During the 1930s, communism was a success to set against capitalist breakdown, an example of how to tackle the economic difficulties of modern society. It had turned the war-torn Tsarist empire into a major industrial power within a few years: it was a system that worked.

Nowhere had the task of post-war economic reconstruction been more awesome than in Russia, for the wartime collapse there went much further and lasted longer than anywhere else in Europe. The
fighting itself only ended in 1921, with a casualty total higher even than that of the First World War. Between 1914 and 1926 an estimated fourteen million civilians died of unnatural causes, with five million victims of the famine of 1921–2 which swept southern Russia at the end of the civil war. Famine on this scale was—as a British relief worker put it—“a famine of everything,” which forced people to eat horses and their harnesses, ground bones, acorns, sawdust and even supposedly the dead. This was human suffering which dwarfed even that produced by the collapse of the other great empires—the Ottoman and Habsburg dynasties—and put western Europe’s postwar problems in sobering perspective.
¹⁴

Millions of refugees were on the move: by 1921, 20,000 refugees
a day
were pouring through the city of Omsk on the route eastwards. An estimated seven million young orphans wandered through the country. Bandits and other armed groups terrorized the villages and railways. Harvests had plummeted to below pre-war levels, with peasants subjected to conscription and requisitioning from Reds, Whites and Greens alike. Through this chaos the Soviet leadership tried to steer towards socialism. As their efforts to foment revolution in central Europe failed, they were forced to focus upon the lands of the former Tsarist empire. Communism began to emerge as a radical
national
alternative to international capitalism.

The Bolsheviks had at one and the same time to build socialism
and
to create a genuinely unified national economy. This was a country where the spring thaw made roads impassable, where the average speed of a commercial train in 1923 was under ten miles an hour, and where the number of train passengers had fallen to half the 1913 figure. Post offices closed down for lack of snow-cleaners in winter; telegraph lines in rural areas were often cut. Educational backwardness hindered the state as much as poor transport: illiteracy was widespread. Even a twenty-seven-year-old Red Army veteran and Party cadre who read the press regularly was found not to understand such words as “class enemy” or the letters “USSR”!
¹⁵

The regime may have adopted Lenin’s characteristic tone of dogmatic omniscience towards the outside world, but in fact everything about its colossal new venture remained to be defined, not least in the minds of the leaders. From the outset, it was not clear how quickly
and how far capitalism and private property should be abandoned. At first the Bolsheviks adopted a radical approach—with extensive nationalization of the means of production, and an early version of central planning. This helped them win the civil war, but threatened to lose them the peace, as production and distribution dried up, and rural resistance grew. In 1921, in the face of fierce internal opposition, Lenin opted for pragmatism: his New Economic Policy—with its relaxation of central controls—was a retreat from hardline War Communism and an effort to kick-start a ravaged economy. It represented the regime’s effort to regain the trust of the peasantry, to regroup politically after the hardships of the previous decade, and perhaps also to try to profit from international trade, business and technology. For a few years, private business was tolerated on a small scale. Agriculture—the mainstay of the Soviet economy—began to recover. The leadership won a breathing space in which to consolidate itself politically and to build up federal institutions.