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History of Banking and Money
Key Excerpts From Carroll Quigley's Tragedy and Hope

History of Banking, Money: Carroll Quigley.

"There does exist ... an international Anglophile network ... which we may identify as the Round Table Groups. I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960's, to examine its papers and secret records.

"I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. I have objected ... to a few of its policies ... but in general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known."
  -- Quote from Caroll Quigley's Tragedy and Hope, Chapter 65

A brilliant and highly esteemed professor of history at Georgetown University from 1941 to 1976, Carroll Quigley also taught at Princeton and at Harvard, and lectured at the Brookings Institution. He was a frequent lecturer at the U.S. Naval Weapons Laboratory, the Foreign Service Institute, and the Naval College at Norfolk, Virginia.

In 1958, Prof. Quigley served as a consultant to the Congressional Select Committee which set up the National Space Agency. In 1964, he was a consultant at the Navy Post-Graduate School, Monterey, California on Project Seabed. The project was created to visualize the status of future American weapons systems. Below are key excerpts on the history of money and banking from Prof. Quigley's masterpiece Tragedy and Hope: A History of the World in Our Time.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences."
  -- Quote from Caroll Quigley's Tragedy and Hope, Chapter 20

Note: The below excerpts are taken from chapters 5, 9, 20, 65, and 77 of Tragedy and Hope, with a focus on Prof. Quigley's excellent discussion of the role of money and banking in world history. This is a 40-page summary. To read to a more concise 10-page summary, click here.

Chapter 5 – European Economic Developments

Commercial Capitalism

Western Civilization is the richest and most powerful social organization ever made by man. One reason for this success has been its economic organization, [which] has passed through six successive stages, of which at least four are called "capitalism." Three features are notable about this development as a whole.

In the first place, each stage created the conditions which tended to bring about the next stage. The [first stage] of self-sufficient agrarian units (manors) was in a society organized so that its upper ranks—the lords, lay and ecclesiastical—found their desires for necessities so well met that they sought to exchange their surpluses of necessities for luxuries of remote origin.

This gave rise to a trade in foreign luxuries (spices, fine textiles, fine metals) which was the first evidence of the stage of commercial capitalism. In this second stage, mercantile profits and widening markets created a demand for textiles and other goods which could be met only by application of power to production.

This gave the third stage: industrial capitalism. The stage of industrial capitalism soon gave rise to such an insatiable demand for heavy fixed capital, like railroad lines, steel mills, shipyards, and so on, that these investments could not be financed from the profits and private fortunes of individual proprietors. New instruments for financing industry came into existence in the form of limited-liability corporations and investment banks. These were soon in a position to control the chief parts of the industrial system, since they provided capital to it.

This gave rise to financial capitalism. The control of financial capitalism was used to integrate the industrial system into ever-larger units with interlinking financial controls. This made possible a reduction of competition with a resulting increase in profits. As a result, the industrial system soon found that it was again able to finance its own expansion from its own profits, and, with this achievement, financial controls were weakened, and the stage of monopoly capitalism arrived.

In this fifth stage, great industrial units, working together either directly or through cartels and trade associations, were in a position to exploit the majority of the people. The result was a great economic crisis which soon developed into a struggle for control of the state—the minority hoping to use political power to defend their privileged position, the majority hoping to use the state to curtail the power and privileges of the minority. Both hoped to use the power of the state to find some solution to the economic aspects of the crisis. This dualist struggle dwindled with the rise of economic and social pluralism after 1945.

A Depression Accompanies Transition to Various Stages

The second notable feature of this whole development is that the transition of each stage to the next was associated with a period of depression or low economic activity. This was because each stage, after an earlier progressive phase, became later, in its final phase, an organization of vested interests more concerned with protecting its established modes of action than in continuing progressive changes by the application of resources to new, improved methods. This is inevitable in any social organization, but is peculiarly so in regard to capitalism.

The Primary Goal of Capitalism

The third notable feature of the whole development is closely related to this special nature of capitalism. Capitalism provides very powerful motivations for economic activity because it associates economic motivations so closely with self-interest. But this same feature, which is a source of strength in providing economic motivation through the pursuit of profits, is also a source of weakness owing to the fact that so self-centered a motivation contributes very readily to a loss of economic coordination. Each individual, just because he is so powerfully motivated by self-interest, easily loses sight of the role which his own activities play in the economic system as a whole, and tends to act as if his activities were the whole, with inevitable injury to that whole.

Capitalism, because it seeks profits as its primary goal, is never primarily seeking to achieve prosperity, high production, high consumption, political power, patriotic improvement, or moral uplift. Any of these may be achieved under capitalism, and any (or all) of them may he sacrificed and lost under capitalism, depending on this relationship to the primary goal of capitalist activity—the pursuit of profits. During the nine-hundred-year history of capitalism, it has, at various times, contributed both to the achievement and to the destruction of these other social goals.

Commercial Capitalism

The different stages of capitalism have sought to win profits by different kinds of economic activities. The original stage, which we call commercial capitalism, sought profits by moving goods from one place to another. In this effort, goods went from places where they were less valuable to places where they were more valuable, while money, doing the same thing, moved in the opposite direction.

This valuation, which determined the movement both of goods and of money and which made them move in opposite directions, was measured by the relationship between these two things. Thus the value of goods was expressed in money, and the value of money was expressed in goods. Goods moved from low-price areas to high-price areas, and money moved from high-price areas to low-price areas, because goods were more valuable where prices were high and money was more valuable where prices were low.

Money and Goods Are Different

Thus, clearly, money and goods are not the same thing but are, on the contrary, exactly opposite things. Most confusion in economic thinking arises from failure to recognize this fact. Goods are wealth which you have, while money is a claim on wealth which you do not have. Thus goods are an asset; money is a debt. If goods are wealth; money is not wealth, or negative wealth, or even anti-wealth. They always behave in opposite ways, just as they usually move in opposite directions. If the value of one goes up, the value of the other goes down, and in the same proportion. The value of goods, expressed in money, is called "prices," while the value of money, expressed in goods, is called "value."

The Rise of Commercial Capitalism

Commercial capitalism arose when merchants, carrying goods from one area to another, were able to sell these goods at their destination for a price which covered original cost, all costs of moving the goods, including the merchant's expenses, and a profit. This development, which began as the movement of luxury goods, increased wealth because it led to specialization of activities both in crafts and in agriculture, which increased skills and output, and also brought into the market new commodities.

The Development of Mercantilism

Eventually, this stage of commercial capitalism became institutionalized into a restrictive system, sometimes called "mercantilism," in which merchants sought to gain profits, not from the movements of goods but from restricting the movements of goods. Thus the pursuit of profits, which had earlier led to increased prosperity by increasing trade and production, became a restriction on both trade and production, because profit became an end in itself rather than an accessory mechanism in the economic system as a whole.

The way in which commercial capitalism (an expanding economic organization) was transformed into mercantilism (a restrictive economic organization) twice in our past history is very revealing not only of the nature of economic systems, and of men themselves, but also of the nature of economic crisis and what can be done about it.

Merchants Restrict Trade to Increase Profits

Under commercial capitalism, merchants soon discovered that an increasing flow of goods from a low-price area to a high-price area tended to raise prices in the former and to lower prices in the latter. Every time a shipment of spices came into London, the price of spices there began to fall, while the arrival of buyers and ships in Malacca gave prices there an upward spurt.

This trend toward equalization of price levels between two areas because of the double, and reciprocal, movement of goods and money jeopardized profits for merchants, however much it may have satisfied producers and consumers at either end. It did this by reducing the price differential between the two areas and thus reducing the margin within which the merchant could make his profit.

It did not take shrewd merchants long to realize that they could maintain this price differential, and thus their profits, if they could restrict the flow of goods, so that an equal volume of money flowed for a reduced volume of goods. In this way, shipments were decreased, costs were reduced, but profits were maintained.

Two things are notable in this mercantilist situation. In the first place, the merchant, by his restrictive practices, was, in essence, increasing his own satisfaction by reducing that of the producer at one end and of the consumer at the other end; he was able to do this because he was in the middle between them. ln the second place, so long as the merchant, in his home port, was concerned with goods, he was eager that the prices of goods should be, and remain, high.

Merchants Became Concerned with Lending of Money

In the course of time, however, some merchants began to shift their attention from the goods aspect of commercial interchange to the other, monetary, side of the exchange. They began to accumulate the profits of these transactions, and became increasingly concerned, not with the shipment and exchange of goods, but with the shipment and exchange of moneys. In time they became concerned with the lending of money to merchants to finance their ships and their activities, advancing money for both, at high interest rates, secured by claims on ships or goods as collateral for repayment.

The New Bankers Were Eager for High Interest Rates

In this process the attitudes and interests of these new bankers became totally opposed to those of the merchants (although few of either recognized the situation). Where the merchant had been eager for high prices and was increasingly eager for low interest rates, the banker was eager for a high value of money (that is, low prices) and high interest rates. Each was concerned to maintain or to increase the value of the half of the transaction (goods for money) with which he was directly concerned, with relative neglect of the transaction itself (which was of course the concern of the producers and the consumers).

The Operations of Banking and Finance Were Concealed So They Appeared Difficult to Master

In sum, specialization of economic activities, by breaking up the economic process, had made it possible for people to concentrate on one portion of the process and, by maximizing that portion, to jeopardize the rest. The process was not only broken up into producers, exchangers, and consumers but there were also two kinds of exchangers (one concerned with goods, the other with money), with almost antithetical, short-term, aims.The problems which inevitably arose could be solved and the system reformed only by reference to the system as a whole.

Unfortunately, however, three parts of the system, concerned with the production, transfer, and consumption of goods, were concrete and clearly visible so that almost anyone could grasp them simply by examining them, while the operations of banking and finance were concealed, scattered, and abstract so that they appeared to many to be difficult. To add to this, bankers themselves did everything they could to make their activities more secret and more esoteric. Their activities were reflected in mysterious marks in ledgers which were never opened to the curious outsider.

The Relationship Between Goods and Money Is Clear to Bankers

In the course of time the central fact of the developing economic system, the relationship between goods and money, became clear, at least to bankers. This relationship, the price system, depended upon five things: the supply and the demand for goods, the supply and the demand for money, and the speed of exchange between money and goods.

An increase in three of these (demand for goods, supply of money, speed of circulation) would move the prices of goods up and the value of money down. This inflation was objectionable to bankers, although desirable to producers and merchants. On the other hand, a decrease in the same three items would be deflationary and would please bankers, worry producers and merchants, and delight consumers (who obtained more goods for less money). The other factors worked in the opposite direction, so that an increase in them (supply of goods, demand for money, and slowness of circulation or exchange) would be deflationary [and vice versa].

Inflationary and Deflationary Prices Have Been a Major Force in History for 600 Years

Such changes of prices, either inflationary or deflationary, have been major forces in history for the last six centuries at least. Over that long period, their power to modify men's lives and human history has been increasing. This has been reflected in two ways. On the one hand, rises in prices have generally encouraged increased economic activity, especially the production of goods, while, on the other hand, price changes have served to redistribute wealth within the economic system.

Inflation, especially a slow steady rise in prices, encourages producers, because it means that they can commit themselves to costs of production on one price level and then, later, offer the finished product for sale at a somewhat higher price level. This situation encourages production because it gives confidence of an almost certain profit margin. On the other hand, production is discouraged in a period of falling prices, unless the producer is in the very unusual situation where his costs are falling more rapidly than the prices of his product.

Bankers Obsessed With Maintaining Value of Money

The redistribution of wealth by changing prices is equally important but attracts much less attention. Rising prices benefit debtors and injure creditors, while falling prices do the opposite. A debtor called upon to pay a debt at a time when prices are higher than when he contracted the debt must yield up less goods and services than he obtained at the earlier date, on a lower price level when he borrowed the money.

A creditor, such as a bank, which has lent money—equivalent to a certain quantity of goods and services—on one price level, gets back the same amount of money—but a smaller quantity of goods and services—when repayment comes at a higher price level, because the money repaid is then less valuable. This is why bankers, as creditors in money terms, have been obsessed with maintaining the value of money, although the reason they have traditionally given for this obsession—that "sound money" maintains "business confidence"—has been propagandist rather than accurate.

The Two Major Goals of Bankers

Hundreds of years ago, bankers began to specialize, with the richer and more influential ones associated increasingly with foreign trade and foreign-exchange transactions. Since these were richer and more cosmopolitan and increasingly concerned with questions of political significance, such as stability and debasement of currencies, war and peace, dynastic marriages, and worldwide trading monopolies, they became the financiers and financial advisers of governments.

Moreover, since their relationships with governments were always in monetary terms and not real terms, and since they were always obsessed with the stability of monetary exchanges between one country's money and another, they used their power and influence to do two things: (1) to get all money and debts expressed in terms of a strictly limited commodity—ultimately gold; and (2) to get all monetary matters out of the control of governments and political authority, on the ground that they would be handled better by private banking interests in terms of such a stable value as gold.

These efforts ... [were accelerated] with the shift of commercial capitalism into mercantilism and the destruction of the whole pattern of social organization based on dynastic monarchy, professional mercenary armies, and mercantilism, in the series of wars which shook Europe from the middle of the seventeenth century to 1815. Commercial capitalism passed through two periods of expansion each of which deteriorated into a later phase of war, class struggles, and retrogression.

The first stage, associated with the Mediterranean Sea, was dominated by the North Italians and Catalonians but ended in a phase of crisis after 1300, which was not finally ended until 1558. The second stage of commercial capitalism, which was associated with the Atlantic Ocean, was dominated by the West Iberians, the Netherlanders, and the English. It had begun to expand by 1440, was in full swing by 1600, but by the end of the seventeenth century had become entangled in the restrictive struggles of state mercantilism and the series of wars which ravaged Europe from 1667 to 1815.

Supremacy of Charter Companies

The commercial capitalism of the 1440-1815 period was marked by the supremacy of the Chartered Companies, such as the Hudson's Bay, the Dutch and British East Indian companies, the Virginia Company, and the Association of Merchant Adventurers (Muscovy Company). England's greatest rivals in all these activities were defeated by England's greater power, and, above all, its greater security derived from its insular position.

Industrial Capitalism 1770-1850

Britain's victories over Louis XIV in the period 1667-1715 and over the French Revolutionary governments and Napoleon in 1792-1815 had many causes, such as its insular position, its ability to retain control of the sea, its ability to present itself to the world as the defender of the freedoms and rights of small nations and of diverse social and religious groups. Among these numerous causes, there were a financial one and an economic one. Financially, England had discovered the secret of credit. Economically, England had embarked on the Industrial Revolution.

The Founding of the Bank of England Is One of the Great Dates in World History

Credit had been known to the Italians and Netherlanders long before it became one of the instruments of English world supremacy. Nevertheless, the founding of the Bank of England by William Paterson and his friends in 1694 is one of the great dates in world history. For generations men had sought to avoid the one drawback of gold, its heaviness, by using pieces of paper to represent specific pieces of gold. Today we call such pieces of paper gold certificates.

Such a certificate entitles its bearer to exchange it for its piece of gold on demand, but in view of the convenience of paper, only a small fraction of certificate holders ever did make such demands. It early became clear that gold need be held on hand only to the amount needed to cover the fraction of certificates likely to be presented for payment; accordingly, the rest of the gold could be used for business purposes, or, what amounts to the same thing, a volume of certificates could be issued greater than the volume of gold reserved for payment of demands against them. Such an excess volume of paper claims against reserves we now call bank notes.

Bankers Create Money Out of Nothing

In effect, this creation of paper claims greater than the reserves available means that bankers were creating money out of nothing. The same thing could be done in another way, not by note-issuing banks but by deposit banks. Deposit bankers discovered that orders and checks drawn against deposits by depositors and given to third persons were often not cashed by the latter but were deposited to their own accounts. Thus there were no actual movements of funds, and payments were made simply by bookkeeping transactions on the accounts.

Accordingly, it was necessary for the banker to keep on hand in actual money (gold, certificates, and notes) no more than the fraction of deposits likely to be drawn upon and cashed; the rest could be used for loans, and if these loans were made by creating a deposit for the borrower, who in turn would draw checks upon it rather than withdraw it in money, such "created deposits" or loans could also be covered adequately by retaining reserves to only a fraction of their value.

Such created deposits also were a creation of money out of nothing, although bankers usually refused to express their actions, either note issuing or deposit lending, in these terms. William Paterson, however, on obtaining the charter of the Bank of England in 1694, to use the moneys he had won in privateering, said, "The Bank hath benefit of interest on all moneys which it creates out of nothing." This was repeated by Sir Edward Holden, founder of the Midland Bank, on December 18, 1907, and is, of course, generally admitted today.

The Creation of Credit

This organizational structure for creating means of payment out of nothing, which we call credit, was not invented by England but was developed by her to become one of her chief weapons in the victory over Napoleon in 1815. The emperor, as the last great mercantilist, could not see money in any but concrete terms, and was convinced that his efforts to fight wars on the basis of "sound money," by avoiding the creation of credit, would ultimately win him a victory by bankrupting England. He was wrong, although the lesson has had to be relearned by modern financiers in the twentieth century.

Britain's Victory Over Napoleon

Britain's victory over Napoleon was also helped by two economic innovations: the Agricultural Revolution, which was well established there in 1720, and the Industrial Revolution, which was equally well established there by 1776, when Watt patented his steam engine. The Industrial Revolution, like the Credit Revolution, has been much misunderstood, both at the time and since. This is unfortunate, as each of these has great significance, both to advanced and to underdeveloped countries, in the twentieth century.

The Industrial Revolution was accompanied by a number of incidental features, such as growth of cities through the factory system, the rapid growth of an unskilled labor supply (the proletariat), the reduction of labor to the status of a commodity in the competitive market, and the shifting of ownership of tools and equipment from laborers to a new social class of entrepreneurs. None of these constituted the essential feature of industrialism, which was, in fact, the application of nonliving power to the productive process.

This application, symbolized in the steam engine and the water wheel, in the long run served to reduce or eliminate the relative significance of unskilled labor and the use of human or animal energy in the productive process (automation) and to disperse the productive process from cities, but did so, throughout, by intensifying the vital feature of the system, the use of energy from sources other than living bodies.

The Rise of Large Industrial Enterprises in Britain

In this continuing process, Britain's early achievement of industrialism gave it such great profits that these, combined with the profits derived earlier from commercial capitalism and the simultaneous profits derived from the unearned rise in land values from new cities and mines, made its early industrial enterprises largely self-financed or at least locally financed. They were organized in proprietorships and partnerships, had contact with local deposit banks for short-term current loans, but had little to do with international bankers, investment banks, central governments, or corporative forms of business organization.

This early stage of industrial capitalism, which lasted in England from about 1770 to about 1850, was shared to some extent with Belgium and even France, but took quite different forms in the United States, Germany, and Italy, and almost totally different forms in Russia or Asia. The chief reason for these differences was the need for raising funds (capital) to pay for the rearrangement of the factors of production (]and, labor, materials, skill, equipment, and so on) which industrialism required. Northwestern Europe, and above all England, had large savings for such new enterprises. Central Europe and North America had much less, while eastern and southern Europe had very little in private hands.

The Role of the International Investment Banker

The more difficulty an area had in mobilizing capital for industrialization, the more significant was the role of investment bankers and of governments in the industrial process. In fact, the early forms of industrialism based on textiles, iron, coal, and steam spread so slowly from England to Europe that England was itself entering upon the next stage, financial capitalism, by the time Germany and the United States (about 1850) were just beginning to industrialize.

This new stage of financial capitalism, which continued to dominate England, France, and the United States as late as 1930, was made necessary by the great mobilizations of capital needed for railroad building after 1830. The capital needed for railroads, with their enormous expenditures on track and equipment, could not be raised from single proprietorships or partnerships or locally, but, instead, required a new form of enterprise—the limited-liability stock corporation—and a new source of funds—the international investment banker who had, until then, concentrated his attention almost entirely on international flotations of government bonds. The demands of railroads for equipment carried this same development, almost at once, into steel manufacturing and coal mining.

Financial Capitalism, 1850 - 1931

This third stage of capitalism is of such overwhelming significance in the history of the twentieth century, and its ramifications and influences have been so subterranean and even occult, that we may be excused if we devote considerate attention to its organization and methods. Essentially what it did was to take the old disorganized and localized methods of handling money and credit and organize them into an integrated system, on an international basis, which worked with incredible and well-oiled facility for many decades.

The center of that system was in London, with major offshoots in New York and Paris, and it has left, as its greatest achievement, an integrated banking system and a heavily capitalized—if now largely obsolescent—framework of heavy industry, reflected in railroads, steel mills, coal mines, and electrical utilities.

This system had its center in London for four chief reasons. First was the great volume of savings in England, resting on England's early successes in commercial and industrial capitalism. Second was England's oligarchic social structure (especially as reflected in its concentrated landownership and limited access to educational opportunities) which provided a very inequitable distribution of incomes with large surpluses coming to the control of a small, energetic upper class.

Third was the fact that this upper class was aristocratic but not noble, and thus, based on traditions rather than birth, was quite willing to recruit both money and ability from lower levels of society and even from outside the country, welcoming American heiresses and central-European Jews to its ranks, almost as willingly as it welcomed monied, able, and conformist recruits from the lower classes of Englishmen, whose disabilities from educational deprivation, provincialism, and Nonconformist (that is non-Anglican) religious background generally excluded them from the privileged aristocracy.

Fourth (and by no means last) in significance was the skill in financial manipulation, especially on the international scene, which the small group of merchant bankers of London had acquired in the period of commercial and industrial capitalism and which lay ready for use when the need for financial capitalist innovation became urgent.

The Dynasties of International Bankers

The merchant bankers of London had already at hand in 1810-1850 the Stock Exchange, the Bank of England, and the London money market when the needs of advancing industrialism called all of these into the industrial world which they had hitherto ignored. In time they brought into their financial network the provincial banking centers, organized as commercial banks and savings banks, as well as insurance companies, to form all of these into a single financial system on an international scale which manipulated the quantity and flow of money so that they were able to influence, if not control, governments on one side and industries on the other.

The men who did this, looking backward toward the period of dynastic monarchy in which they had their own roots, aspired to establish dynasties of international bankers and were at least as successful at this as were many of the dynastic political rulers. The greatest of these dynasties, of course, were the descendants of Meyer Amschel Rothschild (1743-1812) of Frankfort, whose male descendants, for at least two generations, generally married first cousins or even nieces. Rothschild's five sons, established at branches in Vienna, London, Naples, and Paris, as well as Frankfort, cooperated together in ways which other international banking dynasties copied but rarely excelled.

The Financial Activities of International Bankers

In concentrating, as we must, on the financial or economic activities of international bankers, we must not totally ignore their other attributes. They were, especially in later generations, cosmopolitan rather than nationalistic.... They were usually highly civilized, cultured gentlemen, patrons of education and of the arts, so that today colleges, professorships, opera companies, symphonies, libraries, and museum collections still reflect their munificence. For these purposes they set a pattern of endowed foundations which still surround us today.

The Key International Banking Families

The names of some of these banking families are familiar to all of us and should he more so. They include Raring, Lazard, Erlanger, Warburg, Schroder, Seligman, the Speyers, Mirabaud, Mallet, Fould, and above all Rothschild and Morgan.

Even after these banking families became fully involved in domestic industry by the emergence of financial capitalism, they remained different from ordinary bankers in distinctive ways: (1) they were cosmopolitan and international; (2) they were close to governments and were particularly concerned with questions of government debts, including foreign government debts; (3) their interests were almost exclusively in bonds and very rarely in goods, since they admired "liquidity" and regarded commitments in commodities or even real estate as the first step toward bankruptcy; (4) they were, accordingly, fanatical devotees of deflation (which they called "sound" money from its close associations with high interest rates and a high value of money) and of the gold standard, which, in their eyes, symbolized and ensured these values; and (5) they were almost equally devoted to secrecy and the secret use of financial influence in political life.

These bankers came to be called "international bankers" and, more particularly, were known as "merchant bankers" in England, "private bankers" in France, and "investment bankers" in the United States. In all countries they carried on various kinds of banking and exchange activities, but everywhere they were sharply distinguishable from other, more obvious, kinds of banks, such as savings banks or commercial banks.

The International Banking Fraternity Operates As Secretive Private Firms

One of their less obvious characteristics was that they remained as private unincorporated firms, usually partnerships, until relatively recently, offering no shares, no reports, and usually no advertising to the public. This risky status, which deprived them of limited liability, was retained, in most cases, until modern inheritance taxes made it essential to surround such family wealth with the immortality of corporate status for tax-avoidance purposes.

This persistence as private firms continued because it ensured the maximum of anonymity and secrecy to persons of tremendous public power who dreaded public knowledge of their activities. As a consequence, ordinary people had no way of knowing the wealth or areas of operation of such firms, and often were somewhat hazy as to their membership.

Thus, people of considerable political knowledge might not associate the names Walter Burns, Clinton Dawkins, Edward Grenfell, Willard Straight, Thomas Lamont, Dwight Morrow, Nelson Perkins, Russell Leffingwell, Elihu Root, John W. Davis, John Foster Dulles, and S. Parker Gilbert with the name "Morgan," yet all these and many others were parts of the system of influence which centered on the J. P. Morgan office at 23 Wall Street.

This firm, like others of the international banking fraternity, constantly operated through corporations and governments, yet remained itself an obscure private partnership until international financial capitalism was passing from its deathbed to the grave. J. P. Morgan and Company, originally founded in London as George Peabody and Company in 1838, was not incorporated until March 21, 1940, and went out of existence as a separate entity on April 24, 1959, when it merged with its most important commercial bank subsidiary, the Guaranty Trust Company. The London affiliate, Morgan Grenfell, was incorporated in 1934, and still exists.

International Bankers Felt Politicians Could Not Be Trusted With Control of the Monetary System

The influence of financial capitalism and of the international bankers who created it was exercised both on business and on governments, but could have done neither if it had not been able to persuade both these to accept two "axioms" of its own ideology. Both of these were based on the assumption that politicians were too weak and too subject to temporary popular pressures to be trusted with control of the money system; accordingly, the sanctity of all values and the soundness of money must be protected in two ways: by basing the value of money on gold and by allowing bankers to control the supply of money. To do this it was necessary to conceal, or even to mislead, both governments and people about the nature of money and its methods of operation.

The Gold Standard

For example, bankers called the process of establishing a monetary system on gold "stabilization," and implied that this covered, as a single consequence, stabilization of exchanges and stabilization of prices. It really achieved only stabilization of exchanges, while its influence on prices were quite independent and incidental, and might be un-stabilizing (from its usual tendency to force prices downward by limiting the supply of money). As a consequence, many persons, including financiers and even economists, were astonished to discover, in the twentieth century, that the gold standard gave stable exchanges and unstable prices. It had, however, already contributed to a similar, but less extreme, situation in much of the nineteenth century.

Exchanges were stabilized on the gold standard because by law, in various countries, the monetary unit was made equal to a fixed quantity of gold, and the two were made exchangeable at that legal ratio. These relationships were established by the legal requirement that a person who brought gold, gold coins, or certificates to the public treasury (or other designated places) could convert any one of these into either of the others in unlimited amounts for no cost.

As a result, on a full gold standard, gold had a unique position: it was, at the same time, in the sphere of money and in the sphere of wealth. In the sphere of money, the value of all other kinds of money was expressed in terms of gold: and, in the sphere of real wealth, the values of all other kinds of goods were expressed in terms of gold as money. If we regard the relationships between money and goods as a seesaw in which each of these was at opposite ends, so that the value of one rose just as much as the value of the other declined, then we must see gold as the fulcrum of the seesaw on which this relationship balances, but which does not itself go up or down.

It Is Impossible to Understand World History Without an Understanding of Money

Since it is quite impossible to understand the history of the twentieth century without some understanding of the role played by money in domestic affairs and in foreign affairs, as well as the role played by bankers in economic life and in political life, we must take at least a glance at each of these four subjects.

Central Banks Were Private Institutions Owned by Shareholders

In each country the supply of money took the form of an inverted pyramid or cone balanced on its point. In the point was a supply of gold and its equivalent certificates; on the intermediate levels was a much larger supply of notes; and at the top, with an open and expandable upper surface, was an even greater supply of deposits. Each level used the levels below it as its reserves, and, since these lower levels had smaller quantities of money, they were "sounder."

A holder of claims on the middle or upper level could increase his confidence in his claims on wealth by reducing them to a lower level, although, of course, if everyone, or any considerable number of persons, tried to do this at the same time the volume of reserves would be totally inadequate. Notes were issued by "banks of emission" or "banks of issue," and were secured by reserves of gold or certificates held in their own coffers or in some central reserve. The fraction of such a note issue held in reserve depended upon custom, banking regulations (including the terms of a bank's charter), or statute law.

There were formerly many banks of issue, but this function is now generally restricted to a few or even to a single "central bank" in each country. Such banks, even central banks, were private institutions, owned by shareholders who profited by their operations. In the 1914-1939 period, in the United States, Federal Reserve Notes were covered by gold certificates to 40 percent of their value, but this was reduced to 25 percent in 1945. The Bank of England, by an Act of 1928, had its notes uncovered up to 250 million, and covered by gold for 100 percent value over that amount. The Bank of France, in the same year, set its note cover at 35 percent. These provisions could always be set aside or changed in an emergency, such as war.

Determining the Volume of Money in the Community

Deposits on the upper level of the pyramid were called by this name, with typical bankers' ambiguity, in spite of the fact that they consisted of two utterly different kinds of relationships: (1) "lodged deposits," which were real claims left by a depositor in a bank, on which the depositor might receive interest, since such deposits were debts owed by the bank to the depositor; and (2) "created deposits," which were claims created by the bank out of nothing as loans from the bank to "depositors" who had to pay interest on them, since these represented debt from them to the bank.

In both cases, of course, checks could be drawn against such deposits to make payments to third parties, which is why both were called by the same name. Both form part of the money supply. Lodged deposits as a form of savings are deflationary, while created deposits, being an addition to the money supply, are inflationary. The volume of the latter depends on a number of factors of which the chief are the rate of interest and the demand for such credit.

These two play a very significant role in determining the volume of money in the community, since a large portion of that volume, in an advanced economic community, is made up of checks drawn against deposits. The volume of deposits banks can create, like the amount of notes they can issue, depends upon the volume of reserves available to pay whatever fraction of checks are cashed rather than deposited.

These matters may be regulated by laws, by bankers' rules, or simply by local customs. In the United States deposits were traditionally limited to ten times reserves of notes and gold. In Britain it was usually nearer twenty times such reserves. In all countries the demand for and volume of such credit was larger in time of a boom and less in time of a depression. This to a considerable extent explains the inflationary aspect of a depression, the combination helping to form the so-called "business cycle."

Central Banks Surrounded by Invisible Private Investment Banking Firms

In the course of the nineteenth century, with the full establishment of the gold standard and of the modern banking system, there grew up around the fluctuating inverted pyramid of the money supply a plethora of financial establishments which came to assume the configurations of a solar system; that is, of a central bank surrounded by satellite financial institutions.

In most countries the central bank was surrounded closely by the almost invisible private investment banking firms. These, like the planet Mercury, could hardly be seen in the dazzle emitted by the central bank which they, in fact, often dominated. Yet a close observer could hardly fail to notice the close private associations between these private, international bankers and the central bank itself.

In France, for example, in 1936 when the Bank of France was reformed, its Board of Regents (directors) was still dominated by the names of the families who had originally set it up in 1800; to these had been added a few more recent names, such as Rothschild (added in 1819); in some cases the name might not be readily recognized because it was that of a son-in-law rather than that of a son. Otherwise, in 1914, the names, frequently those of Protestants of Swiss origin (who arrived in the eighteenth century) or of Jews of German origin (who arrived in the nineteenth century), had been much the same for more than a century.

The Bank of England and Its Private Banking Firms

In England a somewhat similar situation existed, so that even in the middle of the twentieth century the Members of the Court of the Bank of England were chiefly associates of the various old "merchant banking" firms such as Baring Brothers, Morgan Grenfell, Lazard Brothers, and others.

Commercial Banks Operate Outside Central Banks and Private Banking Firms

In a secondary position, outside the central core, are the commercial banks, called in England the "joint-stock banks," and on the Continent frequently known as "deposit banks." These include such famous names as Midland Bank, Lloyd's Bank, Barclays Bank in England, the National City Bank in the United States, the Credit Lyonnais in France, and the Darmstädter Bank in Germany.

Savings Banks, Insurance Funds and Trust Companies Operate on the Outside Ring

Outside this secondary ring is a third, more peripheral, assemblage of institutions that have little financial power but do have the very significant function of mobilizing funds from the public. This includes a wide variety of savings banks, insurance firms, and trust companies.

Naturally, these arrangements vary greatly from place to place, especially as the division of banking functions and powers are not the same in all countries. In France and England the private bankers exercised their powers through the central bank and had much more influence on the government and on foreign policy and much less influence on industry, because in these two countries, unlike Germany, Italy, the United States, or Russia, private savings were sufficient to allow much of industry to finance itself without recourse either to bankers or government.

In the United States much industry was financed by investment bankers directly, and the power of these both on industry and on government was very great, while the central bank (the New York Federal Reserve Bank) was established late (1913) and became powerful much later (after financial capitalism was passing from the scene). In Germany industry was financed and controlled by the discount banks, while the central bank was of little power or significance before 1914. In Russia the role of the government was dominant in much of economic life, while in Italy the situation was backward and complicated.

The Supply of Money

We have said that two of the five factors which determined the value of money (and thus the price level of goods) are the supply and the demand for money. The supply of money in a single country was subject to no centralized, responsible control in most countries over recent centuries. Instead, there were a variety of controls of which some could be influenced by bankers, some could be influenced by the government, and some could hardly be influenced by either. Thus, the various parts of the pyramid of money were but loosely related to each other. Moreover, much of this looseness arose from the fact that the controls were compulsive in a deflationary direction and were only permissive in an inflationary direction.

This last point can be seen in the fact that the supply of gold could be decreased but could hardly be increased. If an ounce of gold was added to the point of the pyramid in a system where law and custom allowed 10 percent reserves on each level, it could permit an increase of deposits equivalent to $2067 on the uppermost level. If such an ounce of gold were withdrawn from a fully expanded pyramid of money, this would compel a reduction of deposits by at least this amount, probably by a refusal to renew loans.

Money Power Persuaded Governments to Establish a Deflationary Monetary Unit

Throughout modern history the influence of the gold standard has been deflationary, because the natural output of gold each year, except in extraordinary times, has not kept pace with the increase in output of goods. Only new supplies of gold, or the suspension of the gold standard in wartime, or the development of new kinds of money (like notes and checks) which economize the use of gold, have saved our civilization from steady price deflation over the last couple of centuries.

Banker Policies Lead to Inflation and Deflation

[A] paradox of banking practice arose from the fact that bankers, who loved deflation, often acted in an inflationary fashion from their eagerness to lend money at interest. Since they make money out of loans, they are eager to increase the amounts of bank credit on loan. But this is inflationary. The conflict between the deflationary ideas and inflationary practices of bankers had profound repercussions on business.

The bankers made loans to business so that the volume of money increased faster than the increase in goods. The result was inflation. When this became clearly noticeable, the bankers would flee to notes or specie by curtailing credit and raising discount rates. This was beneficial to bankers in the short run (since it allowed them to foreclose on collateral held for loans), but it could be disastrous to them in the long run (by forcing the value of the collateral below the amount of the loans it secured). But such bankers' deflation was destructive to business and industry in the short run as well as the long run.

Changing the Quality of Money

The resulting fluctuation in the supply of money, chiefly deposits, was a prominent aspect of the "business cycle." The quantity of money could be changed by changing reserve requirements or discount (interest) rates. In the United States, for example, an upper limit has been set on deposits by requiring Federal Reserve member banks to keep a certain percentage of their deposits as reserves with the local Federal Reserve Bank. The percentage (usually from 7 to 26 percent) varies with the locality and the decisions of the Board of Governors of the Federal Reserve System.

Central Banks Vary Money in Circulation

Central banks can usually vary the amount of money in circulation by "open market operations" or by influencing the discount rates of lesser banks. In open market operations, a central bank buys or sells government bonds in the open market. If it buys, it releases money into the economic system; if it sells it reduces the amount of money in the community. The change is greater than the price paid for the securities. For example, if the Federal Reserve Bank buys government securities in the open market, it pays for these by check which is soon deposited in a bank. It thus increases this bank's reserves with the Federal Reserve Bank. Since banks are permitted to issue loans for several times the value of their reserves with the Federal Reserve Bank, such a transaction permits them to issue loans for a much larger sum.

Central Banks Raise and Lower Interest Rates

Central banks can also change the quantity of money by influencing the credit policies of other banks. This can be done by various methods, such as changing the re-discount rate or changing reserve requirements. By changing the re-discount rate we mean the interest rate which central banks charge lesser banks for loans backed by commercial paper or other security which these lesser banks have taken in return for loans. By raising the re-discount rate the central bank forces the lesser bank to raise its discount rate in order to operate at a profit; such a raise in interest rates tends to reduce the demand for credit and thus the amount of deposits (money). Lowering the re-discount rate permits an opposite result.

Central Banks Force Local Banks to Decrease Credit

Changing the reserve requirements as a method by which central banks can influence the credit policies of other banks is possible only in those places (like the United States) where there is a statutory limit on reserves. Increasing reserve requirements curtails the ability of lesser banks to grant credit, while decreasing it expands that ability.

It is to be noted that the control of the central bank over the credit policies of local banks are permissive in one direction and compulsive in the other. They can compel these local banks to curtail credit and can only permit them to increase credit. This means that they have control powers against inflation and not deflation—a reflection of the old banking idea that inflation was bad and deflation was good.

The Powers of Government Over Money

The powers of governments over the quantity of money are of various kinds, and include (a) control over a central bank, (b) control over public taxation, and (c) control over public spending. The control of governments over central banks varies greatly from one country to another, but on the whole has been increasing. Since most central banks have been (technically) private institutions, this control is frequently based on custom rather than on law. In any case, the control over the supply of money which governments have through centra! banks is exercised by the regular banking procedures we have discussed.

The powers of the government over the quantity of money in the community exercised through taxation and public spending are largely independent of banking control. Taxation tends to reduce the amount of money in a community and is usually a deflationary force; government spending tends to increase the amount of money in a community and is usually an inflationary force. The total effects of a government's policy will depend on which item is greater. An unbalanced budget will be inflationary; a budget with a surplus will be deflationary.

A government can also change the amount of money in a community by other, more drastic, methods. By changing the gold content of the monetary unit they can change the amount of money in the community by a much greater amount. If, for example, the gold content of the dollar is cut in half, the amount of gold certificates will be able to be doubled, and the amount of notes and deposits reared on this basis will be increased many fold, depending on the customs of the community in respect to reserve requirements. Moreover, if a government goes off the gold standard completely—that is, refuses to exchange certificates and notes for specie—the amount of notes and deposits can be increased indefinitely because these are no longer limited by limited amounts of gold reserves.

Money Power – Controlled by International Investment Bankers – Dominates Business and Government

In the various actions which increase or decrease the supply of money, governments, bankers, and industrialists have not always seen eye to eye. On the whole, in the period up to 1931, bankers, especially the Money Power controlled by the international investment bankers, were able to dominate both business and government. They could dominate business, especially in activities and in areas where industry could not finance its own needs for capital, because investment bankers had the ability to supply or refuse to supply such capital. Thus, Rothschild interests came to dominate many of the railroads of Europe, while Morgan dominated at least 26,000 miles of American railroads.

Such bankers went further than this. In return for flotations of securities of industry, they took seats on the boards of directors of industrial firms, as they had already done on commercial banks, savings banks, insurance firms, and finance companies. From these lesser institutions they funneled capital to enterprises which yielded control and away from those who resisted. These firms were controlled through interlocking directorships, holding companies, and lesser banks. They engineered amalgamations and generally reduced competition, until by the early twentieth century many activities were so monopolized that they could raise their noncompetitive prices above costs to obtain sufficient profits to become self-financing.

But before that stage was reached a relatively small number of bankers were in positions of immense influence in European and American economic life. As early as 1909, Walter Rathenau, who was in a position to know (since he had inherited from his father control of the German General Electric Company and held scores of directorships himself), said, "Three hundred men, all of whom know one another, direct the economic destiny of Europe and choose their successors from among themselves."

The Power of Investment Bankers Over Governments

The power of investment bankers over governments rests on a number of factors, of which the most significant, perhaps, is the need of governments to issue short-term treasury bills as well as long-term government bonds. Just as businessmen go to commercial banks for current capital advances to smooth over the discrepancies between their irregular and intermittent incomes and their periodic and persistent outgoes (such as monthly rents, annual mortgage payments, and weekly wages), so a government has to go to merchant bankers (or institutions controlled by them) to tide over the shallow places caused by irregular tax receipts.

As experts in government bonds, the international bankers not only handled the necessary advances but provided advice to government officials and, on many occasions, placed their own members in official posts for varied periods to deal with special problems. This is so widely accepted even today that in 1961 a Republican investment banker became Secretary of the Treasury in a Democratic Administration in Washington without significant comment from any direction.

The Money Power Reigns Supreme and Unquestioned

Naturally, the influence of bankers over governments during the age of financial capitalism (roughly 1850-1931) was not something about which anyone talked freely, but it has been admitted frequently enough by those on the inside, especially in England. In 1852 Gladstone, chancellor of the Exchequer, declared, "The hinge of the whole situation was this: the government itself was not to be a substantive power in matters of Finance, but was to leave the Money Power supreme and unquestioned."

On September 26, 1921, The Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills." In 1924 Sir Drummond Fraser, vice-president of the Institute of Bankers, stated, "The Governor of the Bank of England must be the autocrat who dictates the terms upon which alone the Government can obtain borrowed money."

Montagu Norman and J. P. Morgan Dominate the Financial World

In addition to their power over government based on government financing and personal influence, bankers could steer governments in ways they wished them to go by other pressures. Since most government officials felt ignorant of finance, they sought advice from bankers whom they considered to be experts in the field. The history of the last century shows, as we shall see later, that the advice given to governments by bankers, like the advice they gave to industrialists, was consistently good for bankers, but was often disastrous for governments, businessmen, and the people generally.

Such advice could be enforced if necessary by manipulation of exchanges, gold flows, discount rates, and even levels of business activity. Thus Morgan dominated Cleveland's second administration by gold withdrawals, and in 1936-1938 French foreign exchange manipulators paralyzed the Popular Front governments. As we shall see, the powers of these international bankers reached their peak in the last decade of their supremacy, 1919-1931, when Montagu Norman and J. P. Morgan dominated not only the financial world but international relations and other matters as well.

On November I l, 1927, the Wall Street Journal called Mr. Norman "the currency dictator of Europe." This was admitted by Mr. Norman himself before the Court of the Bank on March 21, 1930, and before the Macmillan Committee of the House of Commons five days later. On one occasion, just before international financial capitalism ran, at full speed, on the rocks which sank it, Mr. Norman is reported to have said, "I hold the hegemony of the world." At the time, some Englishmen spoke of "the second Norman Conquest of England" in reference to the fact that Norman's brother was head of the British Broadcasting Corporation. It might be added that Governor Norman rarely acted in major world problems without consulting with J. P. Morgan's representatives, and as a consequence he was one of the most widely traveled men of his day.

The Development of Monopoly Capitalism

This conflict of interests between bankers and industrialists has resulted in most European countries in the subordination of the former either to the latter or to the government (after 1931). This subordination was accomplished by the adoption of "unorthodox financial policies"—that is, financial policies not in accordance with the short-run interests of bankers. This shift by which bankers were made subordinate reflected a fundamental development in modern economic history—a development which can be described as the growth from financial capitalism to monopoly capitalism. This took place in Germany earlier than in any other country and was well under way by 1926. It came in Britain only after 1931 and in Italy only in 1934. It did not occur in France to a comparable extent at all, and this explains the economic weakness of France in 1938-1940 to a considerable degree.

Elimination of the Gold Standard

The flow of gold from country to country resulting from unbalanced trade tends to create a situation which counteracts the flow. If a country exports more than it imports so that gold flows in to cover the difference, this gold will become the basis for an increased quantity of money, and this will cause a rise of prices within the country sufficient to reduce exports and increase imports. At the same time, the gold by flowing out of some other country will reduce the quantity of money there and will cause a fall in prices within that country. These shifts in prices will cause shifts in the flow of goods because of the obvious fact that goods tend to flow to higher-priced areas and cease to flow to lower-priced areas.

These shifts in the flow of goods will counteract the original unbalance in trade which caused the flow of gold. As a result, the flow of gold will cease, and a balanced international trade at slightly different price levels will result. The whole process illustrates the subordination of internal price stability to stability of exchanges. It was this subordination which was rejected by most countries after 1931. This rejection was signified by (a) abandonment of the gold standard at least in part, (b) efforts at control of domestic prices, and (c) efforts at exchange control. All these were done because of a desire to free the economic system from the restricting influence of a gold-dominated financial system.

Major Countries Forced to Abandon Gold Standard

This wonderful, automatic mechanism of international payments represents one of the greatest social instruments ever devised by man. It requires, however, a very special group of conditions for its effective functioning and, as we shall show, these conditions were disappearing by 1900 and were largely wiped away as a result of the economic changes brought about by the First World War. Because of these changes it became impossible to restore the financial system which had existed before 1914. Efforts to restore it were made with great determination, but by 1933 they had obviously failed, and all major countries had been forced to abandon the gold standard and automatic exchanges.

When the gold standard is abandoned, gold flows between countries like any other commodity, and the value of foreign exchanges (no longer tied to gold) can fluctuate much more widely. In theory an unbalance of international payments can be rectified either through a shift in exchange rates or through a shift in internal price levels. On the gold standard this rectification is made by shifts in exchange rates only between the gold points. When the unbalance is so great that exchanges would be forced beyond the gold points, the rectification is made by means of changing internal prices caused by the fact that gold flows at the gold points, instead of the exchanges passing beyond the gold points.

On the other hand, when a currency is off the gold standard, fluctuation of exchanges is not confined between any two points but can go indefinitely in either direction. In such a case, the unbalance of international payments is worked out largely by a shift in exchange rates and only remotely by shifts in internal prices. In the period of 1929-1936, the countries of the world went off gold because they preferred to bring their international balances toward equilibrium by means of fluctuating exchanges rather than by means of fluctuating price levels. They feared these last because changing (especially falling) prices led to declines in business activity and shifts in the utilization of economic resources (such as labor, land, and capital) from one activity to another.

Reestablishing the Balance of International Payments

The reestablishment of the balance of international payments when a currency is off gold can be seen from an example. If the value of the pound sterling falls to $4.00 or $3.00, Americans will buy in England increasingly because English prices are cheap for them, but Englishmen will buy in America only with reluctance because they have to pay so much for American money. This will serve to rectify the original excess of exports to England which gave the great supply of pound sterling necessary to drive its value down to $3.00. Such a depreciation in the exchange value of a currency will cause a rise in prices within the country as a result of the increase in demand for the goods of that country.

The Situation before 1914

The key to the world situation in the period before 1914 is to be found in the dominant position of Great Britain. This position was more real than apparent. In many fields (such as naval or financial) the supremacy of Britain was so complete that it almost never had to be declared by her or admitted by others. It was tacitly assumed by both. As an unchallenged ruler in these fields, Britain could afford to be a benevolent ruler. Sure of herself and of her position, she could be satisfied with substance rather than forms. If others accepted her dominance in fact, she was quite willing to leave to them independence and autonomy in law.

The Supremacy of Britain

This supremacy of Britain was not an achievement of the nineteenth century alone. Its origins go back to the sixteenth century—to the period in which the discovery of America made the Atlantic more important than the Mediterranean as a route of commerce and a road to wealth. In the Atlantic, Britain's position was unique, not merely because of her westernmost position, but much more because she was an island. This last fact made it possible for her to watch Europe embroil itself in internal squabbles while she retained freedom to exploit the new worlds across the seas.

On this basis, Britain had built up a naval supremacy which made her ruler of the seas by 1900. Along with this was her preeminence in merchant shipping which gave her control of the avenues of world transportation and ownership of 39 percent of the world's oceangoing vessels (three times the number of her nearest rival).

To her supremacy in these spheres, won in the period before 1815, Britain added new spheres of dominance in the period after 1815. These arose from her early achievement of the Industrial Revolution. This was applied to transportation and communications as well as to industrial production. In the first it gave the world the railroad and the steamboat; in the second it gave the telegraph, the cable, and the telephone; in the third it gave the factory system.

The Industrial Revolution

The Industrial Revolution existed in Britain for almost two generations before it spread elsewhere. It gave a great increase in output of manufactured goods and a great demand for raw materials and food; it also gave a great increase in wealth and savings. As a result of the first two and the improved methods of transportation, Britain developed a world trade of which it was the center and which consisted chiefly of the export of manufactured goods and the import of raw materials and food.

At the same time, the savings of Britain tended to flow out to North America, South America, and Asia, seeking to increase the output of raw materials and food in these areas. By 1914 these exports of capital had reached such an amount that they were greater than the foreign investments of all other countries put together. In 1914 British overseas investment was about $20 billion (or about one-quarter of Britain's national wealth, yielding about a tenth of the total national income). The French overseas investment at the same time was about $9 billion (or one-sixth the French national wealth, yielding 6 percent of the national income), while Germany had about $5 billion invested overseas (one-fifteenth the national wealth, yielding 3 percent of the national income). The United States at that time was a large-scale debtor.

The World's Great Commercial Markets Were in Britain

The dominant position of Britain in the world of 1913 was, as I have said, more real than apparent. In all parts of the world people slept more securely' worked more productively, and lived more fully because Britain existed. British naval vessels in the Indian Ocean and the Far East suppressed slave raiders, pirates, and headhunters. Small nations like Portugal, the Netherlands, or Belgium retained their overseas possessions under the protection of the British fleet. Even the United States, without realizing it, remained secure and upheld the Monroe Doctrine behind the shield of the British Navy. Small nations were able to preserve their independence in the gaps between the Great Powers, kept in precarious balance by the Foreign Office's rather diffident balance-of-power tactics.

Most of the world's great commercial markets, even in commodities like cotton, rubber, and tin, which she did not produce in quantities herself, were in England, the world price being set from the auction bidding of skilled specialist traders there. If a man in Peru wished to send money to a man in Afghanistan, the final payment, as like as not, would be made by a bookkeeping transaction in London. The English parliamentary system and some aspects of the English judicial system, such as the rule of law, were being copied, as best as could be, in all parts of the world.

Britain Was the Center of World Finance and World Trade

The profitability of capital outside Britain—a fact which caused the great export of capital—was matched by a profitability of labor. As a result, the flow of capital from Britain and Europe was matched by a flow of persons. Both of these served to build up non-European areas on a modified European pattern. In export of men, as in export of capital, Britain was easily first (over 20 million persons emigrating from the United Kingdom in the period 1815-1938). As a result of both, Britain became the center of world finance as well as the center of world commerce.

The system of international financial relations, which we described earlier, was based on the system of industrial, commercial, and credit relationships which we have just described. The former thus required for its existence a very special group of circumstances—a group which could not be expected to continue forever. In addition, it required a group of secondary characteristics which were also far from permanent. Among these were the following: (1) all the countries concerned must be on the full gold standard; (2) there must be freedom from public or private interference with the domestic economy of any country; that is, prices must be free to rise and fall in accordance with the supply and demand for both goods and money; (3) there must also be free flow of international trade so that both goods and money can go without hindrance to those areas where each is most valuable; (4) the international financial economy must be organized about one center with numerous subordinate centers, so that it would be possible to cancel out international claims against one another in some clearinghouse and thus reduce the flow of gold to a minimum; (5) the flow of goods and funds in international matters should be controlled by economic factors and not be subject to political, psychological, or ideological influences.

These conditions, which made the international financial and commercial system function so beautifully before 1914, had begun to change by 1890. The fundamental economic and commercial conditions changed first, and were noticeably modified by 1910; the group of secondary characteristics of the system were changed by the events of the First World War. As a result, the system of early international financial capitalism is now only a dim memory. Imagine a period without passports or visas, and with almost no immigration or customs restrictions. Certainly the system had many incidental drawbacks, but they were incidental. Socialized if not social, civilized if not cultured, the system allowed individuals to breathe freely and develop their individual talents in a way unknown before and in jeopardy since.

Chapter 9 – The British Imperial Crisis: Africa, Ireland, & India to 1926


The old statement that England acquired its empire in a fit of absentmindedness is amusing but does not explain very much. It does, however, contain an element of truth: much of the empire was acquired by private individuals and commercial firms, and was taken over by the British government much later. The motives which impelled the government to annex areas which its citizens had been exploiting were varied, both in time and in place, and were frequently much different from what an outsider might believe.

Britain acquired the world's greatest empire because it possessed certain advantages which other countries lacked. We mention three of these advantages: (1) that it was an island, (2) that it was in the Atlantic, and (3) that its social traditions at home produced the will and the talents for imperial acquisition.

England Developed an Aristocracy

While the landed upper class of England was unable to become a nobility (that is, a caste based on exalted birth), it was able to become an aristocracy (that is, an upper class distinguished by traditions and behavior). The chief attributes of this aristocratic upper class in England were (1) that it should be trained in an expensive, exclusive, masculine, and relatively Spartan educational system centering about the great boys' schools like Eton, Harrow, or Winchester; (2) that it should imbibe from this educational system certain distinctive attitudes of leadership, courage, sportsmanship, team play, self-sacrifice, disdain for physical comforts, and devotion to duty; (3) that it should be prepared in later life to devote a great deal of time and energy to unpaid tasks of public significance, as justices of the peace, on county councils, in the county militia, or in other services.

Since all the sons of the upper classes received the same training, while only the oldest, by primogeniture, was entitled to take over the income-yielding property of the family, all the younger sons had to go out into the world to seek their fortunes, and, as likely as not, would do their seeking overseas. At the same time, the uneventful life of the typical English village or county, completely controlled by the upperclass oligarchy, made it necessary for the more ambitious members of the lower classes to seek advancement outside the county and even outside England. From these two sources were recruited the men who acquired Britain's empire and the men who colonized it.

The British Empire

The English have not always been unanimous in regarding the empire as a source of pride and benefit. In fact, the middle generation of the nineteenth century was filled with persons, such as Gladstone, who regarded the empire with profound suspicion. They felt that it was a source of great expense; they were convinced that it involved England in remote strategic problems which could easily lead to wars England had no need to fight; they could see no economic advantage in having an empire, since the existence of free trade (which this generation accepted) would allow commerce to flow no matter who held colonial areas.

They were convinced that any colonial areas, no matter at what cost they might be acquired, would eventually separate from the mother country, voluntarily if they were given the rights of Englishmen, or by rebellion, as the American colonies had done, if they were deprived of such rights. In general, the "Little Englanders," as they were called, were averse to colonial expansion on the grounds of cost.

Colonies Could Be a Source of Riches

Although upholders of the "Little England" point of view, men like Gladstone or Sir William Harcourt, continued in political prominence until 1895, this point of view was in steady retreat after 1870. There were many factors which led to the growth of imperialism after 1870, and many obvious manifestations of that growth. The Royal Colonial Institute was founded in 1868 to fight the "Little England" idea; Disraeli as prime minister (1874-1880) dramatized the profit and glamour of empire by such acts as the purchase of control of the Suez Canal and by granting Queen Victoria the title of Empress of India.

After 1870 it became increasingly evident that, however expensive colonies might be to a government, they could be fantastically profitable to individuals and companies supported by such governments; moreover, with the spread of democracy and the growing influence of the press and the expanding need for campaign contributions, individuals who made fantastic profits in overseas adventures could obtain favorable support from their governments by contributing some part of their profits to politicians' expenses.

The efforts of King Leopold II of Belgium, using Henry Stanley, to obtain the Congo area as his own preserve in 1876-1880, started a contagious fever of colony-grabbing in Africa which lasted for more than thirty years; the discovery of diamonds (in 1869) and of gold (in 1886) in South Africa, especially in the Boer Transvaal Republic, intensified this fever.

John Ruskin

The new imperialism after 1870 was quite different in tone from that which the Little Englanders had opposed earlier. The chief changes were that it was justified on grounds of moral duty and of social reform and not, as earlier, on grounds of missionary activity and material advantage. The man most responsible for this change was John Ruskin.

Until 1870 there was no professorship of fine arts at Oxford, but in that year ... John Ruskin was named to such a chair. He hit Oxford like an earthquake, not so much because he talked about fine arts, but because he talked also about the empire and England's downtrodden masses, and above all because he talked about all three of these things as moral issues.

Until the end of the nineteenth century the poverty-stricken masses in the cities of England lived in want, ignorance, and crime very much as they have been described by Charles Dickens. Ruskin spoke to the Oxford undergraduates as members of the privileged, ruling class. He told them that they were the possessors of a magnificent tradition of education, beauty, rule of law, freedom, decency, and self-discipline but that this tradition could not be saved, and did not deserve to be saved, unless it could be extended to the lower classes in England itself and to the non-English masses throughout the world.

If this precious tradition were not extended to these two great majorities, the minority of upper-class Englishmen would ultimately be submerged by these majorities and the tradition lost. To prevent this, the tradition must be extended to the masses and to the empire.

Cecil Rhodes Sets Up a Monopoly Over the Gold and Diamond Mines in South Africa

Ruskin's message had a sensational impact. His inaugural lecture was copied out in longhand by one undergraduate, Cecil Rhodes, who kept it with him for thirty years. Rhodes (1853-1902) feverishly exploited the diamond and goldfields of South Africa, rose to be prime minister of the Cape Colony (1890-1896), contributed money to political parties, controlled parliamentary seats both in England and in South Africa, and sought to win a strip of British territory across Africa from the Cape of Good Hope to Egypt and to join these two extremes together with a telegraph line and ultimately with a Cape-to-Cairo Railway.

Rhodes inspired devoted support for his goals from others in South Africa and in England. With financial support from Lord Rothschild and Alfred Beit, he was able to monopolize the diamond mines of South Africa as De Beers Consolidated Mines and to build up a great gold mining enterprise as Consolidated Gold Fields. In the middle 1890's Rhodes had a personal income of at least a million pounds sterling a year [equivalent to about $100 million a year in current U.S. dollars] which was spent so freely for his mysterious purposes that he was usually overdrawn on his account.

These purposes centered on his desire to federate the English-speaking peoples and to bring all the habitable portions of the world under their control. For this purpose Rhodes left part of his great fortune to found the Rhodes Scholarships at Oxford in order to spread the English ruling class tradition throughout the English-speaking world.

Cecil Rhodes Organized a Secret Society in 1891

Among Ruskin's most devoted disciples at Oxford were a group of intimate friends including Arnold Toynbee, Alfred (later Lord) Milner, Arthur Glazebrook, George (later Sir George) Parkin, Philip Lyttelton Gell, and Henry (later Sir Henry) Birchenough. These were so moved by Ruskin that they devoted the rest of their lives to carrying out his ideas. A similar group of Cambridge men ... were also aroused by Ruskin's message and devoted their lives to extension of the British Empire and uplift of England's urban masses as two parts of one project which they called "extension of the English-speaking idea."

They were remarkably successful in these aims because England's most sensational journalist William T. Stead (1849-1912), an ardent social reformer and imperialist, brought them into association with Rhodes. This association was formally established on February 5, 1891, when Rhodes and Stead organized a secret society of which Rhodes had been dreaming for sixteen years. In this secret society Rhodes was to be leader; Stead, Brett (Lord Esher), and Milner were to form an executive committee; Arthur (Lord) Balfour, (Sir) Harry Johnston, Lord Rothschild, Albert (Lord) Grey, and others were listed as potential members of a "Circle of Initiates"; while there was to be an outer circle known as the "Association of Helpers" (later organized by Milner as the Round Table organization).

Financial Backing of the Secret Society

This group was able to get access to Rhodes's money after his death in 1902 and also to the funds of loyal Rhodes supporters. With this backing they sought to extend and execute the ideals that Rhodes had obtained from Ruskin and Stead. Milner was the chief Rhodes Trustee and Parkin was Organizing Secretary of the Rhodes Trust after 1902. They were joined in their efforts by other Ruskinite friends of Stead's like Lord Grey, Lord Esher, and Flora Shaw (later Lady Lugard). In 1890, by a stratagem too elaborate to describe here, Miss Shaw became Head of the Colonial Department of The Times while still remaining on the payroll of Stead's Pall Mall Gazette. In this post she played a major role in the next ten years in carrying into execution the imperial schemes of Cecil Rhodes, to whom Stead had introduced her in 1889.

The Toynbee Hall Is Set Up

In the meantime, in 1884, acting under Ruskin's inspiration, a group which included Arnold Toynbee, Milner, Gell, Grey, Seeley, and Michael Glazebrook founded the first "settlement house," an organization by which educated, upper-class people could live in the slums in order to assist, instruct, and guide the poor, with particular emphasis on social welfare and adult education. The new enterprise, set up in East London with P. L. Gell as chairman, was named Toynbee Hall after Arnold Toynbee who died, aged 31, in 1883. This was the original model for the thousands of settlement houses, such as Hull House in Chicago, now found throughout the world, and was one of the seeds from which the modern movement for adult education and university extension grew.

Roundtable Group Established

As governor-general and high commissioner of South Africa in the period 1897-1905, Milner recruited a group of young men, chiefly from Oxford and from Toynbee Hall, to assist him in organizing his administration. Through his influence these men were able to win influential posts in government and international finance and became the dominant influence in British imperial and foreign affairs up to 1939. In 1909-1913 they organized semi-secret groups, known as Round Table Groups, in the chief British dependencies and the United States. These still function in eight countries. They kept in touch with each other by personal correspondence and frequent visits, and through an influential quarterly magazine, The Round Table, founded in 1910 and largely supported by Sir Abe Bailey's money.

The Royal Institute and Council on Foreign Relations Are Set Up

In 1919 they founded the Royal Institute of International Affairs (Chatham House) for which the chief financial supporters were Sir Abe Bailey and the Astor family (owners of The Times). Similar Institutes of International Affairs were established in the chief British dominions and in the United States (where it is known as the Council on Foreign Relations) in the period 1919-1927.

After 1925 a somewhat similar structure of organizations, known as the Institute of Pacific Relations, was set up in twelve countries holding territory in the Pacific area, the units in each British dominion existing on an interlocking basis with the Round Table Group and the Royal Institute of International Affairs in the same country.

The power and influence of this Rhodes-Milner group in British imperial affairs and in foreign policy since 1889, although not widely recognized, can hardly be exaggerated. We might mention as an example that this group dominated The Times from 1890 to 1912, and has controlled it completely since 1912 (except for the years 1919-1922). Because The Times has been owned by the Astor family since 1922, this Rhodes-Milner group was sometimes spoken of as the "Cliveden Set," named after the Astor country house where they sometimes assembled.

Numerous other papers and journals have been under the control or influence of this group since 1889. They have also established and influenced numerous university and other chairs of imperial affairs and international relations. Some of these are the Beit chairs at Oxford, the Montague Burton chair at Oxford, the Rhodes chair at London, the Stevenson chair at Chatham House, the Wilson chair at Aberystwyth, and others, as well as such important sources of influence as Rhodes House at Oxford.

Roundtable Groups Seek to Extend the British Empire

From 1884 to about 1915 the members of this group worked valiantly to extend the British Empire and to organize it in a federal system. They were constantly harping on the lessons to be learned from the failure of the American Revolution and the success of the Canadian federation of 1867, and hoped to federate the various parts of the empire as seemed feasible, then confederate the whole of it, with the United Kingdom, into a single organization. They also hoped to bring the United States into this organization to whatever degree was possible.

Stead was able to get Rhodes to accept, in principle, a solution which might have made Washington the capital of the whole organization or allow parts of the empire to become states of the American Union. The varied character of the British imperial possessions, the backwardness of many of the native peoples involved, the independence of many of the white colonists overseas, and the growing international tension which culminated in the First World War made it impossible to carry out the plan for Imperial Federation, although the five colonies in Australia were joined into the Commonwealth of Australia in 1901 and the four colonies in South Africa were joined into the Union of South Africa in 1910.

In spite of the terms of the Rhodes wills, Rhodes himself was not a racist. Nor was he a political democrat. He worked as easily and as closely with Jews, black natives, or Boers as he did with English. But he had a passionate belief in the value of a liberal education, and was attached to a restricted suffrage and even to a non-secret ballot. In South Africa he was a staunch friend of the Dutch and of the blacks, found his chief political support among the Boers, until at least 1895, and wanted restrictions on natives put on an educational rather than on a color basis.

These ideas have generally been held by his group since and have played an important role in British imperial history. His greatest weakness rested on the fact that his passionate attachment to his goals made him overly tolerant in regard to methods. He did not hesitate to use either bribery or force to attain his ends if he judged they would be effective. This weakness led to his greatest errors, the Jameson Raid of 1895 and the Boer War of 1899-1902, errors which were disastrous for the future of the empire he loved.

The British tradition of fair conduct toward natives and nonwhites generally was found most frequently among the best educated of the English upper class and among those lower-class groups, such as missionaries, where religious influences were strongest. This tradition was greatly strengthened by the actions of the Rhodes-Milner group, especially after 1920. Rhodes aroused considerable ill-feeling among the whites of South Africa when he announced that his program included "equal rights for all civilized men south of the Zambezi," and went on to indicate that "civilized men" included ambitious, literate Negroes.

Making the Commonwealth, 1910-1926

As soon as South Africa was united in 1910, the [Rhodes group] returned to London to try to federate the whole empire by the same methods. They were in a hurry to achieve this before the war with Germany which they believed to be approaching. With Abe Bailey money they founded The Round Table under Kerr's (Lothian's) editorship, met in formal conclaves presided over by Milner to decide the fate of the empire, and recruited new members to their group, chiefly from New College, of which Milner was a fellow.

For several years (1910 to 1916) the Round Table groups worked desperately trying to find an acceptable formula for federating the empire. Three books and many articles emerged from these discussions, but gradually it became clear that federation was not acceptable to the English-speaking dependencies. Gradually, it was decided to dissolve all formal bonds between these dependencies, except, perhaps, allegiance to the Crown, and depend on the common outlook of Englishmen to keep the empire together.

This involved changing the name "British Empire" to "Commonwealth of Nations," as in the title of Curtis's book of 1916, giving the chief dependencies, including India and Ireland, their complete independence (but gradually - and by free gift rather than under duress), working to bring the United States more closely into this same orientation, and seeking to solidify the intangible links of sentiment by propaganda among financial, educational, and political leaders in each country.

As soon as Milner became one of the four members of the War Cabinet in 1915 his influence began to be felt everywhere. He established a Cabinet secretariat in 1916-1917. At the same time he gave the Prime Minister, Lloyd George, a secretariat from the Round Table, consisting of Kerr (Lothian), Grigg (Lord Altrincham), W. G. S. Adams (Fellow of All Souls College), and Astor. He created an Imperial War Cabinet by adding Dominion Prime Ministers (particularly Smuts) to the United Kingdom War Cabinet.

As the war drew to a close in 1918, Milner took the office of Colonial Secretary, with Amery as his assistant, negotiated an agreement providing independence for Egypt, set up a new self-government constitution in Malta, sent Curtis to India (where he drew up the chief provisions of the Government of India Act of 1919), appointed Curtis to the post of Adviser on Irish Affairs (where he played an important role in granting dominion status to southern Ireland in 1921), gave Canada permission to establish separate diplomatic relations with the United States (the first minister being the son-in-law of Milner's closest collaborator on the Rhodes Trust), and called the Imperial Conference of 1921.

During this decade 1919-1929 the Rhodes-Milner group gave the chief impetus toward transforming the British Empire into the Commonwealth of Nations and launching India on the road to responsible self-government. The creation of the Round Table groups ... in 1909-1913 opened a new day in both these fields, although the whole group was so secretive that, even today, many close students of the subject are not aware of its significance.

Chapter 20 – The Period of Stabilization, 1922-1930

As soon as the [the first world] war was finished, governments began to turn their attention to the problem of restoring the prewar financial system. Since the essential element in that system was believed to be the gold standard with its stable exchanges, this movement was called "stabilization." Because of their eagerness to restore the prewar financial situation, the "experts" closed their eyes to the tremendous changes which had resulted from the war. These changes were so great in production, in commerce, and in financial habits that any effort to restore the prewar conditions or even stabilize on the gold standard was impossible and inadvisable.

Instead of seeking a financial system adapted to the new economic and commercial world which had emerged from the war, the experts tried to ignore this world, and established a financial system which looked, superficially, as much like the prewar system as possible. This system, however, was not the prewar system. Neither was it adapted to the new economic conditions. When the experts began to have vague glimmerings of this last fact, they did not begin to modify their goals, but insisted on the same goals, and voiced incantations and exhortations against the existing conditions which made the attainment of their goals impossible.

These changed economic conditions could not be controlled or exorcised by incantations. They were basically not results of the war at all, but normal outcomes of the economic development of the world in the nineteenth century. All that the war had done was to speed up the rate of this development. The economic changes which in 1925 made it so difficult to restore the financial system of 1914 were already discernible in 1890 and clearly evident by 1910.

Britain's Supremacy as the Financial Center of the World Is Threatened

The chief item in these changes was the decline of Britain. What had happened was that the Industrial Revolution was spreading beyond Britain to Europe and the United States and by 1910 to South America and Asia. As a result, these areas became less dependent on Britain for manufactured goods, less eager to sell their raw materials and food products to her, and became her competitors both in selling to and in buying from those colonial areas to which industrialism had not yet spread. By 1914 Britain's supremacy as financial center, as commercial market, as creditor, and as merchant shipper was being threatened.

A less obvious threat arose from long-run shifts in demand—shifts from the products of heavy industry to the products of more highly specialized branches of production (like chemicals), from cereals to fruits and dairy products, from cotton and wool to silk and rayon, from leather to rubber, and so on. These changes presented Britain with a fundamental choice—either to yield her supremacy in the world or reform her industrial and commercial system to cope with the new conditions.

The latter was difficult because Britain had allowed her industrial system to become lopsided under the influence of free trade and international division of labor. Over half the employed persons in Britain were engaged in the manufacture of textiles and ferrous metals. Textiles accounted for over one-third of her exports, and textiles, along with iron and steel, for over one-half. At the same time, newer industrial nations (Germany, the United States, and Japan) were growing rapidly with industrial systems better adapted to the trend of the times; and these were also cutting deeply into Britain's supremacy in merchant shipping.

America Becomes the World's Greatest Creditor

At this critical stage in Britain's development, the World War occurred. This had a double result as far as this subject is concerned. It forced Britain to postpone indefinitely any reform of her industrial system to adjust it to more modern trends; and it speeded up the development of these trends so that what might have occurred in twenty years was done instead in five.

In the period 1910-1920, Britain's merchant fleet fell by 6 percent in number of vessels, while that of the United States went up 57 percent, that of Japan up 130 percent, and that of the Netherlands up 58 percent. Her position as the world's greatest creditor was lost to the United States, and a large quantity of good foreign credits was replaced by a smaller amount of poorer risks. In addition, she became a debtor to the United States to the amount of over $4 billion.

The change in the positions of the two countries can be summarized briefly. The war changed the position of the United States in respect to the rest of the world from that of a debtor owing about $3 billion to that of a creditor owed $4 billion. This does not include intergovernmental debts of about $10 billion owed to the United States as a result of the war. At the same time, Britain's position changed from a creditor owed about $18 billion to a creditor owed about $13.5 billion. In addition, Britain was owed about $8 billion in war debts from her Allies and an unknown sum in reparations from Germany, and owed to the United States war debts of well over 54 billion. Most of these war debts and reparations were sharply reduced after 1920, but the net result for Britain was a drastic change in her position in respect to the United States.

Modification of the Basic Economic Organization of the World

The basic economic organization of the world was modified in other ways. As a result of the war, the old organization of relatively free commerce among countries specializing in different types of production was replaced by a situation in which a larger number of countries sought economic self-sufficiency by placing restrictions on commerce. In addition, productive capacity in both agriculture and industry had been increased by the artificial demand of the war period to a degree far beyond the ability of normal domestic demand to buy the products of that capacity.

And, finally, the more backward areas of Europe and the world had been industrialized to a great degree and were unwilling to fall back to a position in which they would obtain industrial products from Britain, Germany, or the United States in return for their raw materials and food. This refusal was made more painful for both sides by the fact that these backward areas had increased their outputs of raw materials and food so greatly that the total could hardly have been sold even if they had been willing to buy all their industrial products from their prewar sources.

These prewar sources in turn had increased their industrial capacity so greatly that the product could hardly have been sold if they had been able to recapture entirely all their prewar markets. The result was a situation where all countries were eager to sell and reluctant to buy, and sought to achieve these mutually irreconcilable ends by setting up subsidies and bounties on exports, tariffs, and restrictions on imports, with disastrous results on world trade.

The only sensible solution to this problem of excessive productive capacity would have been a substantial rise in domestic standards of living, but this would have required a fundamental reapportionment of the national income so that claims to the product of the excess capacity would go to those masses eager to consume, rather than continue to go to the minority desiring to save. Such a reform was rejected by the ruling groups in both "advanced" and "backward" countries, so that this solution was reached only to a relatively small degree in a relatively few countries.

International Bankers Began to Set Gold Aside

Changes in the basic productive and commercial organization of the world in the period 1914-1919 were made more difficult to adjust by other less tangible changes in financial practices and business psychology. The spectacular postwar inflations in eastern Europe had intensified the traditional fear of inflation among bankers. In an effort to stop rises in prices which might become inflationary, bankers after 1919 increasingly sought to "sterilize" gold when it flowed into their country. That is, they sought to set it aside so that it did not become part of the monetary system.

As a result, the unbalance of trade which had initiated the flow of gold was not counteracted by price changes. Trade and prices remained unbalanced, and gold continued to flow. Somewhat similar was a spreading fear of decreasing gold reserves, so that when gold began to flow out of a country as a result of an unfavorable balance of international payments, bankers increasingly sought to hinder the flow by restrictions on gold exports. With such actions the unfavorable balance of trade continued, and other countries were inspired to take retaliatory actions.

The situation was also disturbed by political fears and by the military ambitions of certain countries, since these frequently resulted in a desire for self-sufficiency (autarchy) such as could be obtained only by use of tariffs, subsidies, quotas, and trade controls. Somewhat related to this was the widespread increase in feelings of economic, political, and social insecurity. This gave rise to "flights of capital"—that is, to panic transfers of holdings seeking a secure spot regardless of economic return.

Moreover, the situation was disturbed by the arrival in the foreign-exchange market of a very large number of relatively ignorant speculators. In the period before 1914 speculators in foreign exchange had been a small group of men whose activities were based on long experience with the market and had a stabilizing effect on it. After 1919 large numbers of persons with neither knowledge nor experience began to speculate in foreign exchange. Subject to the influence of rumors, hearsay, and mob panic, their activities had a very disturbing effect on the markets.

Finally, within each country, the decline in competition arising from the growth of labor unions, cartels, monopolies, and so on, made prices less responsive to flows of gold or exchange in the international markets, and, as a result, such flows did not set into motion those forces which would equalize prices between countries, curtail flows of gold, and balance flows of goods.

Most Countries Leave the Gold Standard

As a result of all these factors, the system of international payments which had worked ... before 1914 worked only haltingly after that date, and practically ceased to work at all after 1930. The chief cause of these factors was that neither goods nor money obeyed purely economic forces and did not move as formerly to the areas in which each was most valuable. The chief result was a complete mal-distribution of gold, a condition which became acute after 1928 and which by 1933 had forced most countries off the gold standard.

Modifications of productive and commercial organization and of financial practices made it almost impossible after 1919 to restore the financial system of 1914. Yet this is what was attempted. Instead of seeking to set up a new financial organization adapted to the modified economic organization, bankers and politicians insisted that the old prewar system should be restored. These efforts were concentrated in a determination to restore the gold standard as it had existed in 1914.

The Money Power Seeks to Create a World System of Financial Control in Private Hands Able to Dominate Every Nation on Earth

The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.

Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.

International Bankers Seek and Make Agreements on All the Major Financial Problems of the World

In each country the power of the central bank rested largely on its control of credit and money supply. In the world as a whole the power of the central bankers rested very largely on their control of loans and of gold flows. In [this] system, these central bankers were able to mobilize resources to assist each other through the B.I.S. [Bank for International Settlements], where payments between central banks could be made by bookkeeping adjustments between the accounts which the central banks of the world kept there.

The B.I.S. as a private institution was owned by the seven chief central banks and was operated by the heads of these, who together formed its governing board. Each of these kept a substantial deposit at the B.I.S., and periodically settled payments among themselves (and thus between the major countries of the world) by bookkeeping in order to avoid shipments of gold. They made agreements on all the major financial problems of the world, as well as on many of the economic and political problems, especially in reference to loans, payments, and the economic future of the chief areas of the globe.

The Bank for International Settlements Becomes the Mechanism for Allowing theThree Financial Centers of the World to Act As One

The B.I.S. is generally regarded as the apex of the structure of financial capitalism whose remote origins go back to the creation of the Bank of England in 1694 and the Bank of France in 1803. As a matter of fact its establishment in 1929 was rather an indication that the centralized world financial system of 1914 was in decline. It was set up ... to remedy the decline of London as the world's financial center by providing a mechanism by which a world with three chief financial centers in London, New York, and Paris could still operate as one. The B.I.S. was [an] effort to cope with the problems arising from the growth of a number of centers. It was intended to be the world cartel of ever-growing national financial powers by assembling the nominal heads of these national financial centers.

Montagu Norman Was the Commander-in-Chief of the World System of Banking Control

The commander in chief of the world system of banking control was Montagu Norman, Governor of the Bank of England, who was built up by the private bankers to a position where he was regarded as an oracle in all matters of government and business. In government, the power of the Bank of England [created] a considerable restriction on political action as early as 1819, but an effort to break this power by a modification of the bank's charter in 1844 failed.

In 1852, Gladstone, then chancellor of the Exchequer and later prime minister, declared, "The hinge of the whole situation was this: the government itself was not to be a substantive power in matters of Finance, but was to leave the Money Power supreme and unquestioned."

The Currency Dictator of Europe

This power of the Bank of England and of its governor was admitted by most qualified observers. In January, 1924, Reginald McKenna, who had been chancellor of the Exchequer in 1915-1916, as chairman of the board of the Midland Bank told its stockholders: "I am afraid the ordinary citizen will not like to be told that the banks can, and do, create money.... And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hands the destiny of the people."

In that same year, Sir Drummond Fraser, vice-president of the Institute of Bankers, stated, "The Governor of the Bank of England must be the autocrat who dictates the terms upon which alone the Government can obtain borrowed money." On September 26, 1921, The Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills."

Vincent Vickers, who had been a director of the bank for nine years, said, "Since 1919 the monetary policy of the Government has been the policy of the Bank of England and the policy of the Bank of England has been the policy of Mr. Montagu Norman." On November Il, 1927, the Wall Street Journal called Mr. Norman "the currency dictator of Europe." This fact was admitted by Mr. Norman himself before the court of the bank on March 21, 1930, and before the Macmillan Committee five days later.

Montagu Norman's position may be gathered from the fact that his predecessors in the governorship, almost a hundred of them, had served two-year terms, increased rarely, in time of crisis, to three or even four years. But Norman held the position for twenty-four years (1920-1944), during which he became the chief architect of the liquidation of Britain's global preeminence.

Norman Viewed Governments and Democracy As Threats to the Money Power

Norman was a strange man whose mental outlook was one of successfully suppressed hysteria or even paranoia. He had no use for governments and feared democracy. Both of these seemed to him to be threats to private banking, and thus to all that was proper and precious in human life. Strong-willed, tireless, and ruthless, he viewed his life as a kind of cloak-and-dagger struggle with the forces of ... [sound] money.

When he rebuilt the Bank of England, he constructed it as a fortress prepared to defend itself against any popular revolt, with the sacred gold reserves hidden in deep vaults below the level of underground waters which could be released to cover them by pressing a button on the governor's desk. For much of his life Norman rushed about the world by fast steamship, covering tens of thousands of miles each year, often traveling incognito, concealed by a black slouch hat and a long black cloak, under the assumed name of "Professor Skinner." His embarkations and debarkations onto and off the fastest ocean liners of the day, sometimes through the freight hatch, were about as unobserved as the somewhat similar passages of Greta Garbo in the same years, and were carried out in a similarly "sincere" effort at self-effacement.

Montagu Norman's Devoted Colleague in New York City

Norman had a devoted colleague in Benjamin Strong, the first governor of the Federal Reserve Bank of New York. Strong owed his career to the favor of the Morgan Bank, especially of Henry P. Davison, who made him secretary of the Bankers Trust Company of New York (in succession to Thomas W. Lamont) in 1904, used him as Morgan's agent in the banking rearrangements following the crash of 1907, and made him vice-president of the Bankers Trust (still in succession to Lamont) in 1909. He became governor of the Federal Reserve Bank of New York as the joint nominee of Morgan and of Kuhn, Loeb, and Company in 1914. Two years later, Strong met Norman for the first time, and they at once made an agreement to work in cooperation for the financial practices they both revered.

These financial practices were explicitly stated many times in the voluminous correspondence between these two men and in many conversations they had, both in their work and at their leisure (they often spent their vacations together for weeks, usually in the south of France).

Norman and Strong Seek to Operate Central Banks Free from Any Political Control

In the 1920's, they were determined to use the financial power of Britain and of the United States to force all the major countries of the world to go on the gold standard and to operate it through central banks free from all political control, with all questions of international finance to be settled by agreements by such central banks without interference from governments.

Norman and Strong Were Mere Agents of the Powerful Bankers Who Remained Behind the Scenes and Operated in Secret

It must not be felt that these heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down.

The substantive financial powers of the world were in the hands of these investment bankers (also called "international" or "merchant" bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks.

This dominance of investment bankers was based on their control over the flows of credit and investment funds in their own countries and throughout the world. They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans, the discount rate, and the re-discounting of commercial debts; they could dominate governments by their control over current government loans and the play of the international exchanges.

Almost all of this power was exercised by the personal influence and prestige of men who had demonstrated their ability in the past to bring off successful financial coupe, to keep their word, to remain cool in a crisis, and to share their winning opportunities with their associates. In this system the Rothschilds had been preeminent during much of the nineteenth century, but, at the end of that century, they were being replaced by J. P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838).

Old J. P. Morgan died in 1913, but was succeeded by his son of the same name (who had been trained in the London branch until 1901), while the chief decisions in the firm were increasingly made by Thomas W. Lamont after 1924. But these relationships can be described better on a national basis later. At the present stage we must follow the efforts of the central bankers to compel the world to return to the gold standard of 1914 in the postwar conditions following 1918.

International Banker's Viewpoints Expressed in Government Reports and Conferences

The bankers' point of view was clearly expressed in a series of government reports and international conferences from 1918 to 1933. Among these were the reports of the Cunliffe Committee of Great Britain (August 1918), that of the Brussels Conference of Experts (September 1920), that of the Genoa Conference of the Supreme Council (January 1922), the First World Economic Conference (at Geneva, May 1927), the report of the Macmillan Committee on Finance and Industry (of 1931), and the various statements released by the World Economic Conference (at London in 1933).

These and many other statements and reports called vainly for a free international gold standard, for balanced budgets, for restoration of the exchange rates and reserve ratios customary before 1914, for reductions in taxes and government spending, and for a cessation of all government interference in economic activity either domestic or international. But none of these studies made any effort to assess the fundamental changes in economic, commercial, and political life since 1914. And none gave any indication of a realization that a financial system must adapt itself to such changes. Instead, they all implied that if men would only give up their evil ways and impose the financial system of 1914 on the world, the changes would be compelled to reverse their direction and go back to the conditions of 1914.

Financial Capitalists Discover New Ways to Make Money Out of Nothing

[Financial capitalism] invested capital not because it desired to increase the output of goods or services but because it desired to float issues (frequently excess issues) of securities on this productive basis. It built railroads in order to sell securities, not in order to transport goods; it constructed great steel corporations to sell securities, not in order to make steel, and so on. But, incidentally, it greatly increased the transport of goods, the output of steel, and the production of other goods.

By the middle of the stage of financial capitalism, however, the organization of financial capitalism had evolved to a highly sophisticated level of security promotion and speculation which did not require any productive investment as a basis. Corporations were built upon corporations in the form of holding companies, so that securities were issued in huge quantities, bringing profitable fees and commissions to financial capitalists without any increase in economic production whatever.

Indeed, these financial capitalists discovered that they could not only make killings out of the issuing of such securities, they could also make killings out of the bankruptcy of such corporations, through the fees and commissions of reorganization. A very pleasant cycle of flotation, bankruptcy, flotation, bankruptcy began to be practiced by these financial capitalists. The more excessive the flotation, the greater the profits, and the more imminent the bankruptcy. The more frequent the bankruptcy, the greater the profits of reorganization and the sooner the opportunity of another excessive flotation with its accompanying profits. This excessive stage reached its highest peak only in the United States. In Europe it was achieved only in isolated cases.

Finance Capitalism Opened the Way for Centralization of World Economic Control in the Hands of the International Banking Fraternity

The growth of financial capitalism made possible a centralization of world economic control and a use of this power for the direct benefit of financiers and the indirect injury of all other economic groups. This concentration of power, however, could be achieved only by using methods which planted the seeds which grew into monopoly capitalism.

Financial control could be exercised only imperfectly through credit control and interlocking directorates. In order to strengthen such control, some measure of stock ownership was necessary. But stock ownership was dangerous to banks because their funds consisted more of deposits (that is, short-term obligations) than of capital (or long-term obligations). This meant that banks which sought economic control through stock ownership were putting short-term obligations into long-term holdings.

This was safe only so long as these latter could be liquidated rapidly at a price high enough to pay short-term obligations as they presented themselves. But these holdings of securities were bound to become frozen because both the economic and the financial systems were deflationary. The economic system was deflationary because power production and modern technology gave a great increase in the supply of real wealth. This meant that in the long run the control by banks was doomed by the progress of technology. The financial system was also deflationary because of the bankers' insistence on the gold standard, with all that this implies.

Money Power Creates an Ingenious Plan to Create and Control Giant Monopolies

To escape from this dilemma, the financial capitalists acted upon two fronts. On the business side, they sought to sever control from ownership of securities, believing they could hold the former and relinquish the latter. On the industrial side, they sought to advance monopoly and restrict production, thus keeping prices up and their security holdings liquid.

The efforts of financiers to separate ownership from control were aided by the great capital demands of modern industry. Such demands for capital made necessary the corporation form of business organization. This inevitably brings together the capital owned by a large number of persons to create an enterprise controlled by a small number of persons. The financiers did all they could to make the former number as large as possible and the latter number as small as possible. The former was achieved by stock splitting, issuing securities of low par value, and by high-pressure security salesmanship. The latter was achieved by plural-voting stock, nonvoting stock, pyramiding of holding companies, election of directors by cooptation, and similar techniques. The result of this was that larger and larger aggregates of wealth fell into the control of smaller and smaller groups of men.

Money Power Used Monopoly Capitalism to Increase Wealth and Power

While financial capitalism was thus weaving the intricate pattern of modern corporation law and practice on one side, it was establishing monopolies and cartels on the other. Both helped to dig the grave of financial capitalism and pass the reins of economic control on to the newer monopoly capitalism. On one side, the financiers freed the controllers of business from the owners of business, but on the other side, this concentration gave rise to monopoly conditions which freed the controllers from the banks.

The date at which any country shifted to financial capitalism and later shifted to monopoly capitalism depended on the supply of capital available to business. These dates could be hastened or retarded by government action. In the United States the onset of monopoly capitalism was retarded by the government's antimonopoly legislation, while in Germany it was hastened by the cartel laws.

The real key to the shift rested on the control of money flows, especially of investment funds. These controls, which were held by investment bankers in 1900, were eclipsed by other sources of funds and capital, such as insurance, retirement and investment funds, and, above all, by those flows resulting from the fiscal policies of governments.

Efforts by the older private investment bankers to control these new channels of funds had varying degrees of success, but, in general, financial capitalism was destroyed by two events: (1) the ability of industry to finance its own capital needs because of the increased profits arising from the decreased competition established by financial capitalism, and (2) the economic crisis engendered by the deflationary policies resulting from financial capitalism's obsession with the gold standard.

Chapter 65 – American Confusions, 1945-1950

The Right's Fairy Tale Does Have a Modicum of Truth

There does exist, and has existed for a generation, an international Anglophile network which operates, to some extent, in the way the radical Right believes the Communists act. In fact, this network, which we may identify as the Round Table Groups, has no aversion to cooperating with the Communists, or any other groups, and frequently does so.

I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960's, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. I have objected, both in the past and recently, to a few of its policies (notably to its belief that England was an Atlantic rather than a European Power and must be allied, or even federated, with the United States and must remain isolated from Europe), but in general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known.

The Round Table Groups Have Played a Very Significant Role in the History of the U.S.

The Round Table Groups have already been mentioned in this book several times, notably in connection with the formation of the British Commonwealth in chapter 4 and in the discussion of appeasement in chapter 12 ("the Cliveden Set"). At the risk of some repetition, the story will be summarized here, because the American branch of this organization (sometimes called the "Eastern Establishment') has played a very significant role in the history of the United States in the last generation.

The Original Purpose of the Round Table Groups

The Round Table Groups were semi-secret discussion and lobbying groups organized by Lionel Curtis, Philip H. Kerr (Lord Lothian), and (Sir) William S. Marris in 1908-1911. This was done on behalf of Lord Milner, the dominant Trustee of the Rhodes Trust in the two decades 1905-1925. The original purpose of these groups was to seek to federate the English-speaking world along lines laid down by Cecil Rhodes (1853-1902) and William T. Stead (1849-1912), and the money for the organizational work came originally from the Rhodes Trust.

By 1915 Round Table groups existed in seven countries, including England, South Africa, Canada, Australia, New Zealand, India, and a rather loosely organized group in the United States (George Louis Beer, Walter Lippmann, Frank Aydelotte, Whitney Shepardson, Thomas W. Lamont, Jerome D. Greene, Erwin D. Canham of the Christian Science Monitor, and others). The attitudes of the various groups were coordinated by frequent visits and discussions and by a well-informed and totally anonymous quarterly magazine, The Round Table, whose first issue, largely written by Philip Kerr, appeared in November 1910.

The Leaders of the Round Table Groups

The leaders of this group were: Milner, until his death in 1925, followed by Curtis (1872-1955), Robert H, (Lord) Brand (brother-in-law of Lady Astor) until his death in 1963, and now Adam D. Marris, son of Sir William and Brand's successor as managing director of Lazard Brothers bank.

The original intention had been to have collegial leadership, but Milner was too secretive and headstrong to share the role. He did so only in the period 1913-1919 when he held regular meetings with some of his closest friends to coordinate their activities as a pressure group in the struggle with Wilhelmine Germany.

After Milner's death in 1925, the leadership was largely shared by the survivors of Milner's "Kindergarten," that is, the group of young Oxford men whom he used as civil servants in his reconstruction of South Africa in 1901-1910. Brand was the last survivor of the "Kindergarten"; since his death, the greatly reduced activities of the organization have been exercised largely through the Editorial Committee of The Round Table magazine under Adam Marris.

Financial Backers of the Found Table Groups

Money for the widely ramified activities of this organization came originally from the associates and followers of Cecil Rhodes, chiefly from the Rhodes Trust itself, and from wealthy associates such as the Beit brothers, from Sir Abe Bailey, and (after 1915) from the Astor family. Since 1925 there have been substantial contributions from wealthy individuals and from foundations and firms associated with the international banking fraternity, especially the Carnegie United Kingdom Trust, and other organizations associated with J. P. Morgan, the Rockefeller and Whitney families, and the associates of Lazard Brothers and of Morgan, Grenfell, and Company.

The Existing Financial Network in New York and London

The chief backbone of this organization grew up along the already existing financial cooperation running from the Morgan Bank in New York to a group of international financiers in London led by Lazard Brothers. Milner himself in 1901 had refused a fabulous offer, worth up to $100,000 a year, to become one of the three partners of the Morgan Bank in London, in succession to the younger J. P. Morgan who moved from London to join his father in New York.

Instead, Milner became director of a number of public banks, chiefly the London Joint Stock Bank, corporate precursor of the Midland Bank. He became one of the greatest political and financial powers in England, with his disciples strategically placed throughout England in significant places, such as the editorship of The Times, the editorship of The Observer, the managing directorship of Lazard Brothers, various administrative posts, and even Cabinet positions. Ramifications were established in politics, high finance, Oxford and London universities, periodicals, the civil service, and tax-exempt foundations.

Front Organizations Established in Key Countries

At the end of the war of 1914, it became clear that the organization of this system had to be greatly extended. Once again the task was entrusted to Lionel Curtis who established, in England and each dominion, a front organization to the existing local Round Table Group. This front organization, called the Royal Institute of International Affairs, had as its nucleus in each area the existing submerged Round Table Group.

In New York it was known as the Council on Foreign Relations, and was a front for J. P. Morgan and Company in association with the very small American Round Table Group. The American organizers were dominated by the large number of Morgan "experts," including Lamont and Beer, who had gone to the Paris Peace Conference and there became close friends with the similar group of English "experts" which had been recruited by the Milner group.

J. P. Morgan and Company Were the Center of the Round Table Group in America

On this basis, which was originally financial and goes back to George Peabody, there grew up in the twentieth century a power structure between London and New York which penetrated deeply into university life, the press, and the practice of foreign policy. In England the center was the Round Table Group, while in the United States it was J. P. Morgan and Company or its local branches in Boston, Philadelphia, and Cleveland.

Some rather incidental examples of the operations of this structure are very revealing, just because they are incidental. For example, it set up in Princeton a reasonable copy of the Round Table Group's chief Oxford headquarters, All Souls College. This copy, called the Institute for Advanced Study, and best known, perhaps, as the refuge of Einstein, Oppenheimer, John von Neumann, and George F. Kennan, was organized by Abraham Flexner of the Carnegie Foundation and Rockefeller's General Education Board after he had experienced the delights of All Souls while serving as Rhodes Memorial Lecturer at Oxford.

The American Branch Exerted Its Influence Through Five American Newspapers

The American branch of this "English Establishment" exerted much of its influence through five American newspapers (The New York Times, New York Herald Tribune, Christian Science Monitor, the Washington Post, and the lamented Boston Evening Transcript). In fact, the editor of the Christian Science Monitor was the chief American correspondent (anonymously) of The Round Table, and Lord Lothian, the original editor of The Round Table and later secretary of the Rhodes Trust (1925-1939) and ambassador to Washington, was a frequent writer in the Monitor. It might be mentioned that the existence of this Wall Street, Anglo-American axis is quite obvious once it is pointed out. It is reflected in the fact that such Wall Street luminaries as John W. Davis, Lewis Douglas, Jock Whitney, and Douglas Dillon were appointed to be American ambassadors in London.

The Double International Network Extended into New Countries through Institute of International Affairs

This double international network in which the Round Table groups formed the semi-secret or secret nuclei of the Institutes of International Affairs was extended into a third network in 1925, organized by the same people for the same motives. Once again the mastermind was Lionel Curtis, and the earlier Round Table Groups and Institutes of International Affairs were used as nuclei for the new network. However, this new organization for Pacific affairs was extended to ten countries, while the Round Table Groups existed only in seven.

The new additions, ultimately China, Japan, France, the Netherlands, and Soviet Russia, had Pacific councils set up from scratch. In Canada, Australia, and New Zealand, Pacific councils, interlocked and dominated by the Institutes of International Affairs, were set up. In England, Chatham House served as the English center for both nets, while in the United States the two were parallel creations (not subordinate) of the Wall Street allies of the Morgan Bank.

The financing came from the same international banking groups and their subsidiary commercial and industrial firms. In England, Chatham House was financed for both networks by the contributions of Sir Abe Bailey, the Astor family, and additional funds largely acquired by the persuasive powers of Lionel Curtis. The financial difficulties of the IPR Councils in the British Dominions in the depression of 1929-1935 resulted in a very revealing effort to save money, when the local Institute of International Affairs absorbed the local Pacific Council, both of which were, in a way, expensive and needless fronts for the local Round Table groups.

The Chief Aim of the Elaborate and Semi-secret Organization

The chief aims of this elaborate, semi-secret organization were ... to coordinate the international activities and outlooks of all the English-speaking world into one (which would largely, it is true, be that of the London group); to work to ... help backward, colonial, and underdeveloped areas to advance toward stability, law and order, and prosperity along lines somewhat similar to those taught at Oxford and the University of London.

These organizations and their financial backers were in no sense reactionary or Fascistic persons, as Communist propaganda would like to depict them. Quite the contrary. They were gracious and cultured gentlemen of ... social experience who were much concerned with the freedom of expression of minorities and the rule of law for all, who constantly thought in terms of Anglo-American solidarity, of political partition and federation, and who were convinced that they could gracefully civilize the Boers of South Africa, the Irish, the Arabs, and the Hindus, and who are largely responsible for the partitions of Ireland, Palestine, and India, as well as the federations of South Africa, Central Africa, and the West Indies.

Their desire to win over the opposition by cooperation worked with Smuts but failed with Hertzog, worked with Gandhi but failed with Menon.... If their failures now loom larger than their successes, this should not be allowed to conceal the high motives with which they attempted both.

Chapter 77 – Conclusion

Tragedy and Hope? The tragedy of the period covered by this book is obvious, but the hope may seem dubious to many. Only the passage of time will show if the hope I seem to see in the future is actually there or is the result of mis-observation and self-deception.

The historian has difficulty distinguishing the features of the present, and generally prefers to restrict his studies to the past, where the evidence is more freely available and where perspective helps him to interpret the evidence. Thus the historian speaks with decreasing assurance about the nature and significance of events as they approach his own day.

The hope of the twentieth century rests on its recognition that war and depression are man-made and needless. They can be avoided in the future by turning from ... nineteenth-century characteristics ... and going back to other characteristics that our Western society has always regarded as virtues: generosity, compassion, cooperation, rationality, and foresight, and finding an increased role in human life for love, spirituality, charity, and self-discipline.

We now know fairly well how to control the increase in population, how to produce wealth and reduce poverty or disease. We may, in the near future, know how to postpone senility and death. It certainly should be clear to those who have their eyes open that violence, extermination, and despotism do not solve problems for anyone and that victory and conquest are delusions, as long as they are merely physical and materialistic.

Some things we clearly do not yet know, including the most important of all, which is how to bring up children to form them into mature, responsible adults. But on the whole we do know now, as we have already shown, that we can avoid continuing the horrors of 1914-1915, and on that basis alone we may be optimistic over our ability to go back to the tradition of our Western society and to resume its development along its old patterns of Inclusive Diversity.

Note: This is a 40-page summary. For a more concise 10-page summary, click here. For a 128-page summary, click here. A full copy of Carroll Quigley's Tragedy and Hope can be found online by clicking here or here. To purchase this landmark book (1,348 pages), click here. A revealing 1974 interview with Prof. Quigley about the suppression of his book is available here. For two other short, excellent summaries which touch on the power of the banking elite, click here and here. For key news articles filled with revealing information about powerful secret societies, click here.

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