Lecture eight: The 1920s—the road to depression and fascism
8 October 2005
The following is the fourth part of the lecture “The 1920s—the road to depression and fascism.” It was delivered by Nick Beams, the national secretary of the Socialist Equality Party of Australia and a member of the WSWS Editorial Board, at the Socialist Equality Party/WSWS summer school held August 14 to August 20, 2005, in Ann Arbor, Michigan. The lecture will be presented in five parts.
This is the eighth lecture given at the school. The first, entitled “The Russian Revolution and the unresolved historical problems of the 20th century” was posted in four parts, from August 29 to September 1. The second, “Marxism versus revisionism on the eve of the twentieth century,” was posted in three parts on September 2, 4 and 5. The third, “The origins of Bolshevism and What Is To Be Done?” was posted in seven parts from September 6 to September 13. The fourth, “Marxism, history and the science of perspective,” was posted in six parts from September 14 to September 20. These lectures were authored by World Socialist Web Site Editorial Board Chairman David North.
The fifth lecture, “World War I: The breakdown of capitalism,” was delivered by Nick Beams, the national secretary of the Socialist Equality Party of Australia and a member of the WSWS Editorial Board. It was posted in five parts, from September 21 to September 26. The sixth, “Socialism in one country or permanent revolution” was delivered by Bill Van Auken and posted in three parts, from September 27 to September 29. The seventh, “Marxism, art and the Soviet debate over ‘proletarian culture,’ ” was given by David Walsh, the arts editor of the World Socialist Web Site, and posted in four parts from September 30 to October 4. The ninth, “The rise of fascism in Germany and the collapse of the Communist International,” was delivered by Peter Schwarz, the secretary of the International Committee of the Fourth International and a member of the WSWS Editorial Board, and posted in three parts from October 11-13.
Europe and America in the post-war crisis
The unviability of the reparations scheme did not take long to become apparent. German inflation, which had escalated rapidly during the war and its immediate aftermath, began to take off during 1922. In January 1923, in retaliation for German non-payment of reparations, French forces occupied the Ruhr, setting into motion a political crisis that was to continue until October.
During this period the German currency collapsed into hyperinflation, bankrupting entire sections of the middle class, but benefiting sections of industry which were able to liquidate their debts. There is no question that by the summer months, with the collapse of the Cuno government, brought down by a general strike in Berlin in August, the political crisis was assuming revolutionary proportions.
The German Social Democratic Party and its associated trade unions, which had provided the chief prop for the capitalist order in the postwar period, were rapidly losing support in the working class to the German Communist Party (KPD). But at no stage during this period did the KPD advance a worked-out revolutionary strategy and develop the tactics to implement it.
This is not the place to undertake an analysis of the role of the KPD. Suffice it to say that it was a product of the deep-going crisis of leadership which had afflicted the party ever since the murder of Rosa Luxemburg in January 1919. The problems of the party were further exacerbated by the onset of a political degeneration within the Comintern leadership, bound up with mounting attacks on Leon Trotsky from the emerging bureaucracy under the leadership of Stalin.
The political crisis in Germany came to a head in October, when the KPD leadership called off a proposed insurrection after its proposal for a general strike was turned down by a meeting of trade union and factory delegates in Chemnitz. The political paralysis of the KPD was summed up later by Heinrich Brandler, its leader at the time, who explained that while he “did not oppose the preparations for the uprising of 1923” he did not “view the situation as acutely revolutionary yet.” 
The experiences of the January-October crisis prompted a reassessment in ruling circles, both in France and Germany. The French occupation of the Ruhr had been sparked by the continued German defaults throughout 1922 on reparation payments. But occupation had solved nothing. Rather than receive additional payments, the French collected just $625,000 over costs in the first four months of 1923, compared with $50 million in the same period of 1922. 
For the German bourgeoisie, the policy of passive resistance against the French occupation and the inflation of the currency had only created a deep-going political crisis—with threats to the stability of the bourgeois order from the right, in the shape of the fascists, and the more serious threat from the left, in the form of the KPD.
A tactical turn was undertaken by both sides. The French government agreed to international mediation of the reparations payments, to bring them more into line with Germany’s capacity to pay, while the German ruling elites moved to stabilise the currency and accept the obligation to undertake reparations payments.
The eruption of the 1923 crisis signified the exhaustion of the capacities of the European ruling classes to organise a political and economic restabilisation of the continent after the war. The antagonisms that had led to the war remained, while economic and political turmoil led to confrontations with the working class which continually threatened the stability of bourgeois order.
The period since the armistice had seen a series of upheavals, not only in Germany, but in Italy, Britain and France. The post-war revolutionary upsurge had been contained, above all because of the role of the social democratic parties in providing the chief prop for the bourgeoisie in the name of preventing the spread of “Bolshevism.” But, as the events in German crisis of 1923 had demonstrated, continued political and economic instability would make this task increasingly difficult. It was at this point that a new power entered the postwar European scene—the United States.
America had intervened in the war to protect its own economic interests, prevent the spread of social revolution and effect a reorganisation of the world in line with its increasingly global interests. Those motivations were at the centre of its intervention in the reparations crisis.
A commission was established under the chairmanship of Charles Dawes, the first director of the US Bureau of the Budget, to consider ways of balancing the German budget, stabilising its currency and devising a viable system of annual reparations payments. The plan provided for a schedule of annual payments starting at 1 billion gold marks in the first year and rising to 2.5 billion in the fifth, with variations according to changes in the world economic situation and the gold price. A Reparations Agency was to be established in Berlin to oversee the process and a loan of 800 million marks was to be raised for the German government, with collateral provided by German railroad securities to stabilise budget finances and launch the process.
The Dawes Plan and the restabilisation of the German economy saw the creation of a new currency, the Reichsmark, converted from the old mark at a trillion to one, in August 1924. Under the agreement, the Reichsbank became independent of the German government, maintaining a reserve of gold and foreign currencies and pursuing a high interest rate regime as the basis of a deflationary program.
The Dawes Plan was just as necessary for the stability of the United States economy as it was for the economies of Germany and the rest of Europe. The reparations system, as first devised, was unworkable.
The system of debts and reparations depended on Germany and the other European powers being able to earn foreign currencies through exports. But the United States was not inclined to return the markets it had won from its rivals in the war, nor was it prepared to open the US market to European exports. In fact, in 1921 it raised US tariffs in anticipation of an attempt by Germany and other European exporters to increase their penetration of the US market by depreciating their currencies.
But the US economy, having become dependent on the markets provided by Europe, could not allow Europe to slide into economic chaos. How then to supply Germany and the European debtors with dollars to pay their reparations and loans without impinging on the economic position of the United States? The Dawes Plan appeared to provide the answer.
A triangular system of payments was established—from the United States to Germany, from Germany to the Allies, and then from the Allies back to the United States, with Wall Street the chief beneficiary. In 1926, the leading British Labour MP, Philip Snowden, observed that the US would receive $600 million a year on account of European debts. The estimate of German reparations was $250 million per year.
“Therefore, what all this amounts to is that America is going to take the whole of the German reparations and probably an equal sum in addition. This is not a bad arrangement for a country that entered the war with ‘No indemnities, and no material gain’ emblazoned on its banners.” 
The system of loans and repayments not only demonstrated the predatory character of US finance capital—Uncle Sam was increasingly denounced as Uncle Shylock—it was, more fundamentally, an expression of the historic crisis of the global capitalist economy.
The resort to financial activities—debt enslavement, share market speculation, financial arbitrage—is always a manifestation of problems at the heart of the capitalist economy, in the mechanisms for the accumulation of surplus value. That is, when capital is unable to extract surplus value at a rate sufficient to increase, or at least maintain, the average rate of profit, it attempts to overcome this problem through purely financial methods, without having to undertake the arduous and complex tasks associated with industrial production. And so it was in this case.
The Dawes Plan, which sought to stabilise the German economy, and more generally the European economy, opened the way for a rush of capital from the US to Europe. At the same time, another precondition for this process was set in place—the return to the gold standard and the institution of deflationary policies to ensure monetary stability. In the case of Germany, deflation was necessary to attract funds from the US. In Britain, the push for a return to the gold standard came from the City of London, where it was recognised to be essential if the City were to have any chance of maintaining its position in the global financial system in the face of the ever-greater challenge coming from New York.
A memorandum from the Bank of England to the chancellor of the exchequer in early 1920 declared: “The first and most urgent task before the Country is to get back to the gold standard by getting rid of this specific depreciation of the currency. This end can only be achieved by a reversal of the process by which the specific depreciation was produced, the artificial creation of currency and credit, and for this the appropriate instrument is the rate of interest. The process of deflation of prices that may be expected to follow on the check to the expansion of credit must necessarily be a painful one to some classes of the community, but this is unavoidable.” 
The Dawes Plan loan, $110 million of which was raised in New York, was the spark which set in motion a stream of finance from the US. No longer would New York banks and investment houses wait until applicants came to them. They went out with plans and proposals for loans in a manner not to be seen again until the “recycling” of Arab petro dollars in the 1970s.
The stable currency and high interest rates in Germany encouraged the purchase of German bonds. Between 1924 and 1930 these purchases totalled $2.6 billion, with American investors taking more than 60 percent. By 1930, Germany had a debt of 26 billion Reichmarks, compared to a national income of about 75 billion Reichmarks per year. At the same time, German loans became an important part of the US financial system. During this period, 20 percent of the American capital market comprised the sale of foreign bonds.
The Dawes Plan and the restabilisation of Europe through the intervention of the US raised fundamental questions of perspective which Trotsky began to address.
The strategy which had guided the Bolsheviks in the Russian Revolution was that the World War signified that capitalism had exhausted its historically progressive role and that this posed the objective necessity for the socialist transformation. The task was not to build socialism in one country—the reactionary utopia later advanced by Stalin—but the socialist transformation of the world. The Russian Revolution was therefore the first step in this direction.
But as the first revolutionary wave receded and the bourgeoisie, not without considerable difficulty, managed to hold onto power and effect a certain political and economic restabilisation, the question arose: was the conquest of political power in Russia premature? Had capitalism exhausted itself?
Addressing these issues in a speech delivered in 1926, Trotsky explained: “If it turned out that capitalism is still capable of fulfilling a progressive historical mission, of increasing the wealth of the peoples, of making their labour more productive, that would signify that we, the Communist Party of the USSR, were premature in singing its de profundis; in other words, it would signify that we took power too soon to try to build socialism. Because, as Marx explained, no social system disappears before exhausting all the possibilities latent in it. Confronted with the new economic situation unfolding before us at present, with the ascendancy of America over all capitalist mankind and the radical shift in the correlation of economic forces, we must pose anew this question: Has capitalism outlived itself or has it still before it a perspective of progressive work?”
For Europe, Trotsky continued, the question had been decided in the negative. The war was the outcome of a revolt of the productive forces against the confines of the national state system. But the result of the war was a situation “ten times worse than before”—even more rigid tariff barriers, more frontiers, more numerous armies, increased indebtedness together with more restricted markets. America, however, was undergoing a dynamic development, while in Asia and Africa capitalism had taken only its first major steps.
“The conclusion seems to be the following: capitalism has outlived itself in Europe; in America it still advances the productive forces, while in Asia and Africa it has before it a vast virgin field of activity for many decades if not centuries. Is that really the case? Were it so ... it would mean that capitalism has not yet exhausted its mission on a world scale.
“But we live under conditions of world economy. And it is just this that determines the fate of capitalism—for all the continents. Capitalism cannot have an isolated development in Asia, independent of what takes place in Europe or in America. The time of provincial economic processes has passed beyond recall. American capitalism is far stronger than European capitalism; it can look to the future with far greater assurance. But American capitalism is no longer self-sufficing. It cannot maintain itself on an internal equilibrium. It needs a world equilibrium. Europe depends more and more on America, but this also means that America is becoming increasingly dependent upon Europe.” 
To be continued
 See Isaac Deutscher, Marxism, Wars and Revolutions (London, Verso, 1984), p. 162.
 Kindelberger, The World in Depression 1929-1939, (Harmondsworth, Penguin, 1986), p. 21.
 Michael Hudson, Super Imperialism, p. 14.
 Cited in Feinstein, et. al., The European Economy Between the Wars (Oxford, Oxford University Press, 1997), p. 46.
 Trotsky, Europe and America (New York, Pathfinder, 1970), pp. 57-59.