The War of the World: History's Age of Hatred (35 page)

The Armenian genocide, the massacres of the Pontic Greeks and the agreed ‘exchanges’ of Greek and Turkish populations after the sack of Smyrna illustrated with a terrible clarity the truth of the Archbishop of Aleppo’s warning: when a multi-ethnic empire mutated into a nation state, the result could only be carnage. It was as if, for the sake of a spuriously modern uniformity, the basest instincts of ordinary men were unleashed in a kind of tribal bloodletting. There was certainly no meaningful economic rationale for what happened. Along the Anatolian coast it is still possible to find ruined villages whose inhabitants were forced to flee in 1922 but which were never subsequently reoccupied. At least five hundred people must once have lived in the village of Sazak, not far from what is now the holiday resort of Karaburun. With its well-built stone houses and its steep cobbled streets, Sazak has the air of vanished peasant prosperity. Now it is a ghost town, visited only by wandering goats and sea mists – a desolate memorial to the death throes of an empire.

The old multi-national empires of continental Europe had been the architects of their own destruction. Like train drivers knowingly steaming full tilt towards one another, they themselves had caused the great train crash of 1914. But though it spelt the end of four dynasties and the creation of ten new independent nation states, the end of the war did not mean the end of empire. The British and French empires grew fatter on the remnants of their foes’ domains. Meanwhile, two of the defunct empires were able to reconstitute themselves with astonishing
speed and violence. A new and more ruthless Russian empire emerged behind the façade of the Union of Soviet Socialist Republics. A new and less tolerant Turkey was born in Ankara, abandoning the ruins of the Sublime Porte, just as the Bolsheviks had moved their capital eastwards to Moscow.

And what of the Germans, who had lost not one but two empires in the débâcle of 1918 and who now found themselves divided up between two rump republics, with a diaspora scattered across more than seven other states? Keynes, who proved to be the most influential of all the critics of the Paris Peace, was quite right to foresee a period of severe economic crisis in Germany, though how far the hyperinflation of 1922–3 was a direct consequence of the Versailles Treaty, as opposed to German fiscal and monetary mismanagement, remains debatable. Keynes’s remedy was clear: reparations should be set at the relatively modest level of £4 billion, to be paid in thirty annual instalments starting in 1923.
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Germany should be lent money, allowed to trade freely, encouraged to rebuild her economy. This was not a matter of altruism, but enlightened self-interest. For there could be no stability in Central Europe without a German economic recovery.

‘Unless her great neighbours are prosperous and orderly,’ Keynes remarked in the final chapter of his
Economic Consequences
, ‘Poland is an economic impossibility with no industry but Jew-baiting.’ With Russia in chaos, the only salvation could come through ‘the agency of German enterprise and organisation’. Hence the Western powers must ‘encourage and assist Germany to take up again her place in Europe as a creator and organiser of wealth for her eastern and southern neighbours’. The alternative would be ‘a final civil war between the forces of reaction and the despairing convulsions of revolution, before which the horrors of the late… war will fade into nothing, and which will destroy, whoever is victor, the civilisation and the progress of our generation’.

Yet what would a German recovery mean for the politics of
Mittel-europa
– for the new states created by the peacemakers and for the
minorities within them? If the transition from Ottoman Empire to Turkish Republic had been attended by genocide and mass expulsions, what was to prevent similar things happening in the fractious patchwork-quilt of nation states that the peacemakers had made in Central and Eastern Europe? As the German-Jewish physician Alfred Döblin succinctly put it: ‘Today’s states are the graves of nations.’

I know all too well that great plans, great ideas and great interests take precedence over everything, and I know it would be petty of me to place the question of my own person on a par with the universal-historical tasks resting, first and foremost, on your shoulders.

Nikolai Bukharin in his last letter to Stalin

We shake your hand, beloved father,
For the happiness you have given us.
You are a vital ray of the sun
And now the peasant is well fed
The warrior is strong in battle.

Poem addressed to Stalin by the workers
of the South Ossetian Autonomous Oblast

We shall destroy such enemies, be he an old Bolshevik or not, we will destroy his kin, his family.

Toast proposed by Stalin

In the immediate aftermath of the First World War, most of the world danced to an American rhythm. A victorious latecomer to the war, the United States was the unquestioned winner of the peace. Despite legal restrictions like the prohibition of alcohol introduced in 1920 and the older system of racial segregation, America stood for new freedoms in economic, social and political life. Nothing captured the
ambivalent quality of the new freedom better than jazz, a music born in the black communities of the Mississippi delta, transported by black migration to the industrial cities of the Mid-West and North-East, and transformed on Broadway into mood music for a decade-long global party. As F. Scott Fitzgerald suggested in his novel
The Great Gatsby
, this flight into hedonism suited everyone: not only those who had suffered during the war and wanted to forget it, but also those who only visited the trenches as post-war tourists and invented their own war stories out of guilt or vanity. Cinema and short skirts, cocktails and convertible cars, speakeasies and chain-smoked cigarettes: New York, Chicago and Los Angeles offered all these pleasures and more. But the American mood of post-war hedonism was as contagious as the influenza before it. The once austere Prussian capital, Berlin, was transformed into ‘Chicago on the Spree’. In Tokyo, too, the 1920s were the
eroguro
age –
ero
for erotic,
guro
for grotesque; at night the Ginza district seethed with American sounds and styles.

Shanghai, above all, was a garden of earthly delights: ‘Nothing more intensely living can be imagined,’ enthused the English author Aldous Huxley, who succumbed to nearly every temptation it had to offer. The Viennese-born film director Josef von Sternberg – whose oeuvre in the 1920s included
Underworld
,
Street of Sin
and
The Dragnet
, and who would later make Marlene Dietrich a star with
The Blue Angel
and
Shanghai Express
– was at once fascinated and appalled by the city’s Great World Centre, a veritable cornucopia of consumption:

On the first floor were gambling tables, singsong girls, magicians, pick pockets, slot machines, fireworks, birdcages, fans, stick incense, acrobats, and ginger. One flight up were the restaurants, a dozen barbers, and earwax extractors. The third floor had jugglers, herb medicines, ice cream parlors, photographers, a new bevy of girls, their high-collared gowns slit to reveal their hips… and, under the heading of novelty, several rows of exposed toilets.

The trumpeter Buck Clayton and his Harlem Gentlemen were among the American bands who played the Canidrome Ballroom, the self-styled ‘Rendezvous of Shanghai’s elite’. Among that elite’s most debauched members was a young man named Chiang Kai-shek, who married his second wife (bigamously) in the Great Eastern Hotel in the Wing On department store building. (On their honeymoon he
introduced her to his first wife and to gonorrhoea.) Just a few years later he married again, this time the wealthy, Wellesley-educated heiress Soong Meiling. A thousand people attended the reception in the rose-bedecked Majestic Hotel. The date was December 1, 1927, just a few days after the tenth anniversary of the Russian Revolution, and the party was, regrettably, marred when a crowd of down-at-heel Russian émigrés pelted the Soviet consulate with sticks and stones.

December 1927 was also the month Louis Armstrong and the Hot Five recorded ‘Got No Blues’ and ‘Hotter than That’. The good times were indeed rolling; between 1921 and 1929 the US economy grew at an average annual rate of 6 per cent. Yet they rolled mainly for a wealthy elite. By 1928 nearly 20 per cent of total US income was being earned by the top 1 per cent of taxpayers, and more than 3 per cent by the top 0.01 per cent. A staggering 40 per cent of American wealth was in the hands of the top 1 per cent of households, and more than 10 per cent of it belonged to just 0.01 per cent. This partly reflected the unprecedented rise in stock prices between 1919 and 1929. Between August 1921 and August 1929 the Dow Jones Industrial index increased by a factor of 4.4. Other prices, however, had not risen so far. Some were already falling. For those fortunate enough not to be fighting it, the First World War had been a two-fold boon. The temporary diversion of so much European production into the business of destruction had allowed Asian and American producers to expand mightily, but they could not wholly compensate for the disruption caused by the war. It was a global seller’s market. At the same time, the inflationary financing of the war, as governments printed money to pay for their deficits, pushed up world prices. The spot price of wheat in the Chicago market – a reasonably good proxy for traded primary commodity prices – hit roughly treble its pre-war average in 1917 and again in 1920. The twin stimuli of dearth and currency depreciation ended thereafter, and a global recession in 1920–21 saw steep declines in the prices of primary products and manufactures. Thereafter, they barely recovered. The price of wheat peaked in February 1925 at 182 cents a bushel (compared with 294 cents in May 1920) and by May 1929 it was down to 102 cents. Similar forces were driving down the world prices of other key commodities like iron and steel. This deflation was the overture to the Great
Depression. In the 1920s it meant poverty for farmers, but easy living for those who received the profits of industry and finance.

The Depression was an economic catastrophe unmatched before or since. It was signalled by a collapse in American asset prices. On October 29, 1929 – ‘Black Tuesday’ – the Dow Jones Industrial index fell by nearly 12 per cent, one of the steepest one-day declines in its history. The market had in fact begun to slide after September 3; by November 13 it had fallen by nearly 50 per cent. This signified a slump in the confidence of investors in the future profitability of US corporations, magnified by panic selling on the part of speculators who had been trading on margin (in effect, with borrowed money). The subsequent rally, which lasted until April 1930, proved illusory. From then until July 1932 the market slid inexorably downwards. At its nadir on July 8, 1932 stock prices had fallen to just 11 per cent of their 1929 maximum. With the exception of 1914, the stock market had never seen such volatility, and nothing remotely like it has happened since.

The symptoms of the Depression were much easier to discern than its causes. Between 1929 and 1933 American gross national product fell by nearly half in nominal terms, or 30 per cent when allowance is made for the simultaneous decline in prices. The first sector to be severely affected was construction; by 1930, however, the collapse in activity had spread to agriculture, manufacturing and finance. Investment imploded; so did exports. This crisis of capitalism was not confined to the United States; it was a global phenomenon, as Figure 6.1 makes clear. The combined output of the world’s seven biggest economies declined by close to 20 per cent between 1929 and 1932. But there were significant national and, indeed, regional differences in the timing and severity of the Depression. The United States was not the first to suffer, partly because monetary tightening there initially affected other countries by luring short-term capital back to New York, and partly because other central banks were restricting credit for reasons of their own. Argentina, Australia, Brazil, Canada, Germany and Poland all turned down sooner. But only two countries suffered such severe contractions as the United States. One was Germany, where construction had peaked as early as 1927. The other was Austria.

It was the phenomenon of industrial unemployment that shocked
contemporaries most. ‘Next to war,’ remarked
The Times
in an editorial ten years after the nadir of the downturn, ‘unemployment has been the most widespread, the most insidious, and the most corroding malady of our generation: it is the specific social disease of Western civilisation in our time.’ As a percentage of the civilian labour force, unemployment in the United States rose from 3.2 per cent on the eve of the Depression to a peak of 25 per cent in 1933. It remained above 15 per cent for the remainder of the decade. In Germany, which used a somewhat different definition, unemployment exceeded 50 per cent of trade union members in 1932. Yet just as painful for many people was the collapse in prices, which ruined countless farmers all over the world, or the failure of thousands of banks, which took the savings of depositors down with them. Indeed, it was the disintegration of the American banking system, more than anything else, that deepened and prolonged the crisis. Between 1929 and 1933, around 10,000 of the United States’ 25,000 banks closed their doors. There were also major banking crises in Austria and Germany, as well as in France and Switzerland. Figure 6.1 shows that more countries were affected by severe deflation than by severe reductions in output. This tends to confirm the view that the Depression was partly a consequence of a global financial crunch, with banking crises in some countries, currency crises in others and both kinds of crisis in an unlucky few.

Contemporaries struggled to explain what had gone wrong with capitalism. The American President, Herbert Hoover, was no uncritical believer in
laissez-faire
economics. During the 1920s, he had expressed his support for export promotion, collective bargaining, agricultural cooperatives and business ‘conferences’ as ways of tackling economic problems. In Hoover’s eyes, however, there were limits to what government could do. The Depression was a ‘worldwide’ phenomenon due to ‘overproduction of… raw materials’ and ‘over-speculation’; the ensuing ‘retribution’ was similar in its character to what had happened in 1920 and 1921. The country’s ‘fundamental assets’, he argued, were ‘unimpaired’. All that was needed was for the Federal Reserve to continue to supply ‘ample… credit at low rates of interest’, while maintaining the dollar’s price in terms of gold; for the government to expand public works, though without unbalancing the budget; and for the necessary ‘savings in production costs’ to be