The Cash Nexus: Money and Politics in Modern History, 1700-2000

by Niall Ferguson

  Yet the history of modern Europe has exposed Mazzini’s vision as a chimera. For one thing, the process of state-building in the nineteenth century owed little, if anything, to nationalism: new states like Greece, Bulgaria or Romania were more the products of great power rivalry than of indigenous aspirations; while the most famous of the unifiers – Cavour and Bismarck – were in many ways playing the old game of extending their royal masters’ domains. The entities that emerged were as much Greater Piedmont and Greater Prussia as Italy and Germany. Moreover, there were few parts of Eastern Europe where the ideal of a homogeneous nation-state was easily applicable. It was no coincidence that the First World War had its roots in the Balkans, where the notion of a Serb-led South Slav state not only clashed with the patchwork ethnography of Bosnia-Herzegovina but struck at the very heart of the Austro-Hungarian system of dual power. There is a telling scene at the end of Joseph Roth’s Radetsky March when the news of the Archduke Franz Ferdinand’s assassination by a Serb terrorist is broken at a riotous ball in provincial Hungary. The first response of the local Magyar nobility is delight – particularly in the case of the former Jew among them, who is especially eager to affirm his Hungarian chauvinism. Meanwhile in far-off Bohemia, Jaroslav Hašek’s Good Soldier Švejk is incensed, but erroneously holds the Turks responsible for ‘our Ferdinand’s’ death.

  It was Woodrow Wilson who unwittingly exposed the impracticality of the Mazzinian model. As early as December 1914 Wilson had argued that any peace settlement ‘should be for the advantage of the European nations regarded as Peoples and not for any nation imposing its governmental will upon alien people’.12 In May 1915 he went further in a speech to the League to Enforce Peace, stating unequivocally that ‘every people has a right to choose the sovereignty under which they shall live’.13 He repeated the point in January 1917: ‘Every people should be left free to determine its own polity’;14 and elaborated on its implications in points five to thirteen of his Fourteen Points.15 The League of Nations was not simply to guarantee territorial integrity of its member states but was empowered to accommodate future territorial adjustments ‘pursuant to the principle of self-determination’.16 This was not novel, of course. British Liberals since John Stuart Mill had been arguing that the homogeneous nation-state was the only proper setting for a liberal polity, and British politicians had spasmodically stuck up for the right to independence of their pet minorities (notably the Greeks and the Italians, whom they tended to romanticize). But never before had the principle been accorded such international recognition as it was at the Paris peace conference in 1919.

  Applying self-determination to the map of Europe proved far from easy, however, especially in view of the ethnic heterogeneity of Central and Eastern Europe. For one thing, there were at least nine and a half million Germans outside the borders of the post-1919 Reich – around 13 per cent of the total German-speaking population of Europe. The adoption of ‘self-determination’ as a guiding principle of the peace was perilous because it could not be applied to Germany without aggrandizing her far beyond the territory of the pre-1919 Reich. From the outset there had to be inconsistency, if not hypocrisy: no Anschluss of the rump Austria to the Reich; but plebiscites to determine the fate of North Schleswig, eastern Upper Silesia, Eupen-Malmedy and later the Saarland. In addition to Istria, part of Dalmatia and the Dodecanese islands (added in 1923), Italy acquired South Tyrol, which included numerous Germans. France reclaimed Alsace and Lorraine, lost in 1871, despite the fact that the map of Alsace-Lorraine used by the American expert Charles Homer Haskins showed the ‘vast majority of districts with at least 75 percent German speakers’.17

  There were other exceptions too. Several million Hungarians found themselves outside the rump Hungary. The creation of what became Yugoslavia was a negation of self-determination, as it lumped together Serbs, Croats, Slovenes, Bosnian Muslims, Kosovar Albanians and Vojvodina Hungarians. And no serious objections were raised when Turkey (in breach of the Treaty of Sèvres) partitioned briefly independent Armenia with Russia.18 This was ‘self-determination’ in the British sense: a Victorian veneer for whatever borders suited the great powers. As James Headlam-Morley, the assistant director of the Political Intelligence Department of the Foreign Office, sardonically noted: ‘Self determination is quite demodé.’ He and his clever colleagues ‘determine[d] for them [the nationalities] what they ought to wish …’19 There were, it is true, serious attempts to write ‘minority rights’ into the various peace treaties, beginning with Poland. But here again British cynicism and self-interest played an unconstructive role. Revealingly, Headlam-Morley was as sceptical of minority rights as he was of self-determination. As he noted in his Memoir of the Paris Peace Conference:

  Some general clause giving the League of Nations the right to protect minorities in all countries which were members … would give [it] the right to protect the Chinese in Liverpool, the Roman Catholics in France, the French in Canada, quite apart from more serious problems, such as the Irish … Even if the denial of such a right elsewhere might lead to injustice and oppression, that was better than to allow everything which means the negation of the sovereignty of every state in the world.20

  If the League was not going to act to protect minority rights, then who would? The Greek premier Venizelos pointed the way ahead when he sought, with Italian connivance, to grab additional Greek-inhabited territory from the Turks. The ensuing war ended in victory for the Turks under the leadership of Kemal in August 1922; its most tangible consequence was the ‘repatriation’ of 1.2 million Greeks and half a million Turks.21 Similar transfers of population happened with varying degrees of compulsion all over Central and Eastern Europe. Three-quarters of a million German-speakers had quit the ‘lost territories’ for the Reich by 1925.22 Between 1919 and 1924, 200,000 Hungarians left the enlarged Romania; 80,000 left Yugoslavia. Around 270,000 Bulgarians left their homes in Greece, Yugoslavia, Turkey and Romania.23

  This was only the beginning of the bloody process of ethnic conflict and forced population transfers that would culminate in the horrors of the 1940s. The Germans were without question the worst offenders. In addition to murdering between five and six million Jews, their racial policies were responsible for the deaths of around three million Ukrainians, 2.4 million Poles, 1.6 million Russians, 1.4 million Belorussians and a quarter of a million gypsies.24 All this was done in a fulfilment of a vast plan to transform the ethnic map of Europe, extending the ‘living space’ of the Aryan ‘master race’ thousands of miles eastwards, expelling, starving or ultimately murdering the Jewish and Slav ‘sub-humans’ who lived there. The scale and sophistication of Nazi policy sets it apart; that and the fact that it emanated from a highly developed and apparently civilized society. Nevertheless, ‘ethnic cleansing’ was not a Nazi invention. The Turkish genocide against the Armenians during the First World War was an influence Hitler acknowledged. Nor should we overlook the fact that over one and a half million members of ethnic minorities – Poles, Germans, Chechens, Tatars, Meskhetians, Koreans, Kalmyks, Ingushi, Karachai and Greeks – perished as a result of Stalin’s version of ethnic cleansing. Formally, they were sentenced to deportation, but under such harsh conditions and to such inhospitable terrain that between 10 and 30 per cent of the peoples affected did not survive.25

  The motivations for these murderous policies were myriad; but economics played a part. For example, the new states established after the First World War were more likely to harass minorities when they were wealthy. ‘Land reform’ became a device for expropriation in the interests of the less well-off members of the majority people. There is no question that a significant part of the appeal of anti-Jewish policy to those without strong racialist prejudices was quite simply that it was an opportunity to plunder the richest of all Europe’s minorities. From the first boycott of Jewish stores through the ‘Aryanization’ of Jewish firms and the ‘taxation’ of emigrants to the final pitiless extraction of gold rings and tooth-fillings at the death camps
, the Nazis wasted no opportunity to mulct their victims. The art collections of the Rothschilds were only the crowning glory of a vast heap of stolen goods. According to one recent estimate, the total value of the property stolen by the Nazis from the Jews of Europe amounted to between $8 and $12.6 billion.26 Table 23 offers some intriguing evidence of the extent of Jewish ‘over-representation’ within the economic élites of various countries for which statistics are available on wealth ownership by ethnic group. The ratio in the last column is no more than a very rough indication, since the definition of the economic élite varies significantly from country to country. Nevertheless, the statistics have their uses. The German and American ends of the spectrum make it tempting to argue that anti-Semitism was more severe where the Jews were over-represented within the economic élite. But the British and Polish figures seem to be the wrong way round if such a theory is to be sustained.

  The crucial point about ethnic or religious minorities is that they have often been associated with entrepreneurial aptitude. It was not just the Jews who out-performed majority groups in the countries where they settled; it was also island Greeks, overseas Chinese, Armenians, Parsees and, for that matter, Germans in Eastern Europe and Scots in the British Empire.27 For majority populations, the difficulty is to choose between the long-run indirect benefits that flow from accommodating such over-achieving minorities; and the short-run temptation to give in to feelings of envy and pillage them. In Britain the minorities were tolerated and the economy as a whole reaped the benefit. In Central and Eastern Europe armed robbery prevailed, with the predictable consequence of long-term impoverishment.

  Table 23. The Jews in economic élites: selected statistics

  Source: Rubinstein, ‘Jewish Participation’, tables 1 and 6.

  UNTYING THE NATIONS

  The upshot of the Paris peace treaties of 1919–20 was that Europe consisted of twenty-six sovereign states. Looking at the map more than eighty years after the Treaty of Versailles, it is tempting to conclude that the continent has come full circle. The new states created in the ruins of the Romanov and Ottoman empires remain much as they were after 1919. In north-eastern Europe Poland has shifted westwards, but Lithuania, Latvia, Estonia and Finland are much as they were in 1919, namely independent of Russia. In the Middle East the map reads Israel where once it read Palestine, and Jordan has lost its prefix ‘Trans-’, but otherwise not much has changed, save for the fact that the British and French ‘mandates’ are no more, just as they have disappeared in the former German colonies in Africa. Even more striking, the republics of Armenia, Georgia, Azerbaijan, Ukraine and Belorus, which by 1921 had been restored to Russian rule by the Bolsheviks, have regained their independence. Only the post-Habsburg order in central and south-eastern Europe looks significantly different. Gone are those multi-ethnic compounds, Czechoslovakia and the ‘Kingdom of Serbs, Croats and Slovenes’ (as Yugoslavia was originally and cumbersomely known). Gone too are the large ethnic minorities of the main Central European states: from 30 per cent of the population of Poland in the 1930s to just 2.7 per cent today; from 33 per cent of the population of Czechoslovakia to just 4.5 per cent.28 By mainly foul means, the nationalist utopia of ethnically homogeneous states has been brought closer.

  And, like some unstoppable process of fission, ‘self-determination’ continues to generate yet more sovereign states. In all, there are as many as forty-eight separate entities in Europe today on the broadest definition of geography and autonomy (including Russia and Turkey): more than four times the number Mazzini had in mind.29 Moreover, it is perfectly possible that the process of fragmentation is not over yet. From Scotland to Montenegro, would-be nation-states are waiting in the wings.

  This fissiparous tendency is not confined to Europe. Excluding sub-Saharan Africa, there were 64 independent countries in the world in 1871. Forty-three years later, on the eve of the First World War, imperialism had reduced the number to 59. The aftermath of the First World War was not as dramatic globally as it was for Europe. In all, including Africa, there were 69 countries in 1920. But since the Second World War there have been sustained increases. In 1946 there were 74 independent countries; in 1950, 89. By 1995, as Table 24 shows, the number was 192, with the two biggest increases coming in the 1960s (mainly Africa, where 25 new states were formed between 1960 and 1964) and the 1990s (mainly Eastern Europe).

  Table 24. World population and the number of independent states since 1871

  Source: www.census.gov/ipc/www/worldhis.html; Alesina, Spolaore and Wacziarg, ‘Economic Integration’, pp. 1, 23.

  To be sure, the degree of fragmentation should not be exaggerated, given the acceleration of population growth in the period since 1871. The ‘average country’ has not in fact shrunk at all since Bismarck’s day: it has grown from 22 to 28 million inhabitants. However, there does appear to have been an increase in the number of very small states. Of the 192 independent states in existence in 1995, 87 had fewer than 5 million inhabitants, 58 fewer than 2.5 million and 35 fewer than 500,000. More than half of the world’s countries have fewer inhabitants than the state of Massachusetts.30 Iceland (the population of which is around 270,000) has about as large a population as Leicester; yet it is a fully fledged member of the OECD, with its own language, currency and airline.31

  Between the wars, political fragmentation came with a high price-tag in terms of economic growth and political stability. Could world ‘Balkanization’ have the same negative consequences? Eric Hobsbawm likens the new map of the world to that of the Middle Ages when interstitial economic centres flourished as territorial enclaves: in this view, city-states, extraterritorial ‘industrial zones’ and ‘tax-havens [on] otherwise valueless islands’ signify a regression to the days of the Hanseatic League.32 Alberto Alesina and his collaborators make the point that, from a purely economic point of view, the process of political disintegration leads to ‘an inefficiently large number of countries’.33 To be sure, small can be beautiful, in the sense that the richest country in the world (in terms of per capita GDP) is among the smallest: Luxembourg. On the other hand, the public sector of small states tends to be larger, since the per capita cost of providing public goods will be higher than in big countries.34

  Moreover, the number of regional conflicts may be higher as large countries fragment, and this may mean an increase in the per capita cost of defence.35 This is because fission in the world of politics, as in the world of particles, is explosive: for many of the new states, the transition to independence has involved at least some measure of conflict with neighbours or former colonial powers. It has been argued persuasively that ‘the formation of many new countries may actually increase the mass of observed conflicts’ because an increase in the number of countries ‘increases the mass of international interactions that can, potentially, lead to conflict’.36 The case of the Balkans is only the best-known example in our own time. In Rwanda the massacre of around 800,000 Tutsis by Hutu interahamwe in April–July 1994 took place after international efforts to democratize the regime.37 In Indonesia the most bitter fighting in East Timor came after the collapse of President Suharto’s dictatorship in May 1998 and the island’s democratic vote for independence in August the following year.

  Figure 36 gives annual figures for the number of wars covered by the Singer and Small ‘Correlates of War’ database between 1816 and 1992. It will be seen at once that the late 1980s and early 1990s saw more wars in progress than at any time since the defeat of Napoleon. To be sure, this increase may be partly due to bias in the data: minor wars outside Europe were no doubt rather better reported in the late twentieth century than in the nineteenth. And of course the number of wars tells us nothing about the scale of global conflict since many of the most recent wars have been little more than border skirmishes, barely passing the Singer–Small threshold of a thousand casualties a year.

  On the other hand, it is incontestable that nearly all of the increase in the number of wars in the world since 1945 is due to the
spread of civil war. Throughout the period covered by the figure, civil wars account for just under half of all wars. For the period since 1945, however, the proportion is closer to two-thirds. It may be that civil war is more closely associated with undemocratic than with democratic regimes; it is certainly more closely associated with poor states than with rich ones, and the latter, as we have seen, are more inclined to be democratic. Nevertheless, there is some evidence to suggest that steps in the direction of democratization – especially in ethnically polarized societies – increase the likelihood of civil war as the minority takes up arms against a feared tyranny of the majority.38 Civil wars are in fact often the preludes to those secessions which produce new countries; and may well be followed by further conflict between the now separate states.

  Figure 36. Number of wars in progress per year, 1816–1992

  Source: Correlates of War database.

  UNITING THE NATIONS?

  In many ways, the metaphor of ‘Balkanization’ does not do justice to the phenomenon of global fragmentation. Perhaps we need to think of the world’s political geography in the terms astronomers have used to describe the cosmos. Usually historians confine themselves to the metaphor of the satellite to describe a client state, but there are wider parallels to be drawn. The bigger nation states, like stars, are formed by powerful centripetal forces. During their lives, they give off heat and light in varying degrees. To push the analogy a little further, some radiate goods, some radiate people and some radiate money. Around them, while they are strong, mini-states orbit like planets. But after a time their lustre begins to fade. As their lustre dims, they become ‘red dwarves’. Ultimately they explode into supernovae. Some may even become black holes.