[ 252 ] The Great Transformation
stored as by miracle; the Dawes Plan had taken politics out of repara-
tions; Locarno was in the offing; and Germany was starting out on
seven fat years. Before the end of 1926 the gold standard ruled again
from Moscow to Lisbon.
It was in the third period—after 1929—that the true significance
of fascism became apparent. The deadlock of the market system was
evident. Until then fascism had been hardly more than a trait in Italy's
authoritarian government, which otherwise differed but little from
those of a more traditional type. It now emerged as an alternative solu-
tion of the problem of industrial society. Germany took the lead in a
revolution of European scope and the fascist alignment provided her
struggle for power with a dynamic which soon embraced five conti-
nents. History was in the gear of social change.
An adventitious but by no means accidental event started the de-
struction of the international system. A Wall Street slump grew to
huge dimensions and was followed by Great Britain's decision to go off
gold and, another two years later, by a similar move on the part of the
United States. Concurrently, the Disarmament Conference ceased to
meet, and, in 1933, Germany left the League of Nations.
These symbolic events ushered in an epoch of spectacular change
in the organization of the world. Three Powers, Japan, Germany, and
Italy, rebelled against the status quo and sabotaged the crumbling in-
stitutions of peace. At the same time the factual organization of world
economy refused to function. The gold standard was at least tempo-
rarily put out of action by its Anglo-Saxon creators; under the guise of
default, foreign debts were repudiated; capital markets and world
trade dwindled away. The political and the economic system of the
planet disintegrated conjointly.
Within the nations themselves the change was no less thorough.
Two-party systems were superseded by one-party governments,
sometimes by national governments. However, external similarities
between dictatorship countries and countries which retained a demo-
cratic public opinion merely served to emphasize the superlative im-
portance of free institutions of discussion and decision. Russia turned
to socialism under dictatorial forms. Liberal capitalism disappeared
in the countries preparing for war like Germany, Japan, and Italy, and,
to a lesser extent, also in the United States and Great Britain. But the
emerging regimes of fascism, socialism, and the New Deal were simi-
lar only in discarding laissez-faire principles.
History in the Gear of Social Change [ 253 ]
While history was thus started on its course by an event external to
all, the single nations reacted to the challenge according to whither
they were bound. Some were averse to change; some went a long way
to meet it when it came; some were indifferent. Also, they sought for
solutions in various directions. Yet from the point of view of market
economy these often radically different solutions merely represented
given alternatives.
Among those determined to make use of a general dislocation to
further their own interests was a group of dissatisfied Powers for
whom the passing of the balance-of-power system, even in its weak-
ened form of the League, appeared to offer a rare chance. Germany was
now eager to hasten the downfall of traditional world economy, which
still provided international order with a foothold, and she anticipated
the collapse of that economy, so as to have the start of her opponents.
She deliberately cut loose from the international system of capital,
commodity, and currency so as to lessen the hold of the outer world
upon her when she would deem it convenient to repudiate her politi-
cal obligations. She fostered economic autarchy to ensure the freedom
required for her far-reaching plans. She squandered her gold reserves,
destroyed her foreign credit by gratuitous repudiation of her obliga-
tions and even, for a time, wiped out her favorable foreign trade bal-
ance. She easily managed to camouflage her true intentions since nei-
ther Wall Street nor the City of London nor Geneva suspected that the
Nazis were actually banking on the final dissolution of nineteenth-
century economy. Sir John Simon and Montagu Norman firmly be-
lieved that eventually Schacht would restore orthodox economics in
Germany, which was acting under duress and which would return to
the fold, if she were only assisted financially. Illusions such as these
survived in Downing Street up to the time of Munich and after. While
Germany was thus greatly assisted in her conspirative plans by her
ability to adjust to the dissolution of the traditional system, Great
Britain found herself severely handicapped by her adherence to that
system.
Although England had temporarily gone off gold, her economy
and finance continued to be based on the principles of stable ex-
changes and sound currency. Hence the limitations under which she
found herself in respect to rearmament. Just as German autarchy was
an outcome of military and political considerations that sprang from
her intent to forestall a general transformation, Britain's strategy and
[ 254 ] The Great Transformation
foreign policy were constricted by her conservative financial outlook.
The strategy of limited warfare reflected the view of an island empo-
rium, which regards itself safe as long as its Navy is strong enough to
secure the supplies that its sound money can buy in the Seven Seas.
Hitler was already in power when, in 1933, Duff Cooper, a die-hard, de-
fended the cuts in the Army budget of 1932 as made "in the face of the
national bankruptcy, which was then thought to be an even greater
danger than having an inefficient fighting service." More than three
years later Lord Halifax maintained that peace could be had by eco-
nomic adjustments and that there should be no interference with
trade since this would make such adjustments more difficult. In the
very year of Munich, Halifax and Chamberlain still formulated Brit-
ain's policy in terms of "silver bullets" and the traditional American
loans for Germany. Indeed, even after Hitler had crossed the Rubicon
and had occupied Prague, Sir John Simon approved in the House of
Commons of Montagu Norman's part in the handing over of the
Czech gold reserves to Hitler. It was Simon's conviction that the integ-
rity of the gold standard, to the restoration of which his statesmanship
was dedicated, outweighed all other considerations. Contemporaries
believed that Simon's action was the result of a determined policy of
appeasement. Actually, it was an homage to the spirit of the gold stan-
dard, which continued to govern the outlook of the leading men of the
City of London on strategic as well as on political matters. In the very
week of the outbreak of the war the Foreign Office, in answer to a ver-
bal communication of Hitler to Chamberlain*, formulated Britain's
policy in terms of the traditional American loans for Germany. En-
gland's military unpreparedness was mainly the result of her adher-
ence to gold standard economics.
Germany reaped the advantages of those who help to kill that
which is doomed to die. Her start lasted as long as the liquidation of
the outworn system of the nineteenth century permitted her to keep
in the lead. The destruction of liberal capitalism, of the gold standard,
and of absolute sovereignties was the incidental result of her maraud-
ing raids. In adjusting to an isolation sought by herself and, later, in the
course of her slave-dealer's expeditions, she developed tentative solu-
tions of some problems of the transformation.
Her greatest political asset, however, lay in her ability to compel
* British BlueBook, No. 74, Cmd. 6106,1939.
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