Conservative Twenties, Revolutionary Thirties [ 25 ]
foundation for the Nazi revolution. The prestige of Geneva rested on
its success in helping Austria and Hungary to restore their currencies,
and Vienna became the Mecca of liberal economists on account of a
brilliantly successful operation on Austria's krone which the patient,
unfortunately, did not survive. In Bulgaria, Greece, Finland, Latvia,
Lithuania, Estonia, Poland, and Romania the restoration of the cur-
rency provided counterrevolution with a claim to power. In Belgium,
France, and England the Left was thrown out of office in the name of
sound monetary standards. An almost unbroken sequence of cur-
rency crises linked the indigent Balkans with the affluent United
States through the elastic band of an international credit system,
which transmitted the strain of the imperfectly restored currencies,
first, from Eastern Europe to Western Europe, then from Western Eu-
rope to the United States. Ultimately, the United States itself was en-
gulfed by the effects of the premature stabilization of European cur-
rencies. The final breakdown had begun.
The first shock occurred within the national spheres. Some cur-
rencies, such as the Russian, the German, the Austrian, the Hungarian,
were wiped out within a year. Apart from the unprecedented rate of
change in the value of currencies, there was the circumstance that this
change happened in a completely monetarized economy. A cellular
process was introduced into human society, the effects of which were
outside the range of experience. Internally and externally alike, dwin-
dling currencies spelled disruption. Nations found themselves sepa-
rated from their neighbors, as by a chasm, while at the same time the
various strata of the population were affected in entirely different and
often opposite ways. The intellectual middle class was literally pauper-
ized; financial sharks heaped up revolting fortunes. A factor of incal-
culable integrating and disintegrating force had entered the scene.
"Flight of capital" was a new thing. Neither in 1848, nor in 1866,
nor even in 1871 was such an event recorded. And yet, its vital role in
the overthrow of the liberal governments of France in 1925, and again
in 1938, as well as in the development of a fascist movement in Ger-
many in 1930, was patent.
Currency had become the pivot of national politics. Under a mod-
ern money economy nobody could fail to experience daily the shrink-
ing or expanding of the financial yardstick; populations became
currency-conscious; the effect of inflation on real income was dis-
counted in advance by the masses; men and women everywhere ap-
[ 26 ] The Great Transformation
peared to regard stable money as the supreme need of human society.
But such awareness was inseparable from the recognition that the
foundations of the currency might depend upon political factors out-
side the national boundaries. Thus the social bouleversement which
shook confidence in the inherent stability of the monetary medium
shattered also the naive concept of financial sovereignty in an interde-
pendent economy. Henceforth, internal crises associated with the cur-
rency would tend to raise grave external issues.
Belief in the gold standard was the faith of the age. With some it
was a naive, with some a critical, with others a satanistic creed im-
plying acceptance in the flesh and rejection in the spirit. Yet the belief
itself was the same, namely, that banknotes have value because they
represent gold. Whether the gold itself has value for the reason that it
embodies labor, as the socialists held, or for the reason that it is useful
and scarce, as the orthodox doctrine ran, made for once no difference.
The war between heaven and hell ignored the money issue, leaving
capitalists and socialists miraculously united. Where Ricardo and
Marx were at one, the nineteenth century knew not doubt. Bismarck
and Lassalle, John Stuart Mill and Henry George, Philip Snowden and
Calvin Coolidge, Mises and Trotsky equally accepted the faith. Karl
Marx had gone to great pains to show up Proudhon's Utopian labor
notes (which were to replace currency) as based on self-delusion; and
Das Kapital implied the commodity theory of money, in its Ricardian
form. The Russian Bolshevik Sokolnikoff was the first postwar states-
man to restore the value of his country's currency in terms of gold;
the German Social Democrat Hilferding imperilled his party by his
staunch advocacy of sound currency principles; the Austrian Social
Democrat Otto Bauer supported the monetary principles underlying
the restoration of the krone attempted by his bitter opponent, Seipel;
the English Socialist, Philip Snowden, turned against Labour when he
believed the pound sterling not to be safe at their hands; and the Duce
had the gold value of the lira at 90 carved in stone, and pledged himself
to die in its defense. It would be hard to find any divergence between
utterances of Hoover and Lenin, Churchill and Mussolini, on this
point. Indeed, the essentiality of the gold standard to the functioning
of the international economic system of the time was the one and only
tenet common to men of all nations and all classes, religious denomi-
nations, and social philosophies. It was the invisible reality to which
Conservative Twenties, Revolutionary Thirties [ 27 ]
the will to live could cling, when mankind braced itself to the task of
restoring its crumbling existence.
The effort, which failed, was the most comprehensive the world
had ever seen. The stabilization of the all-but-destroyed currencies in
Austria, Hungary, Bulgaria, Finland, Romania, or Greece was not only
an act of faith on the part of these small and weak countries, which lit-
erally starved themselves to reach the golden shores, but it also put
their powerful and wealthy sponsors—the Western European vic-
tors—to a severe test. As long as the currencies of the victors fluctu-
ated, the strain did not become apparent; they continued to lend
abroad as before the war and thereby helped to maintain the econo-
mies of the defeated nations. But when Great Britain and France re-
verted to gold, the burden on their stabilized exchanges began to tell.
Eventually, a silent concern for the safety of the pound entered into the
position of the leading gold country, the United States. This preoccu-
pation which spanned the Atlantic brought America unexpectedly
into the danger zone. The point seems technical, but must be clearly
understood. American support of the pound sterling in 1927 implied
low rates of interest in New York in order to avert big movements of
capital from London to New York. The Federal Reserve Board accord-
ingly promised the Bank of England to keep its rate low; but presently
America herself was in need of high rates as her own price system be-
gan to be perilously inflated (this fact was obscured by the existence of
a stable price level, maintained in spite of tremendously diminished
costs). When the usual swing of the pendulum after seven years of
prosperity brought on the long overdue slump in 1929, matters were
immeasurably aggravated by the existing state of cryptoinflation.
Debtors, emaciated by deflation, lived to see the inflated creditor col-
lapse. It was a portent. America, by an instinctive gesture of liberation,
went off gold in 1933, and the last vestige of the traditional world econ-
omy vanished. Although hardly anybody discerned the deeper mean-
ing of the event at the time, history almost at once reversed its trend.
For over a decade the restoration of the gold standard had been the
symbol of world solidarity. Innumerable conferences from Brussels to
Spa and Geneva, from London to Locarno and Lausanne met in order
to achieve the political preconditions of stable currencies. The League
of Nations itself had been supplemented by the International Labour
Office partly in order to equalize conditions of competition among
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