Glimpses of World History

by Jawaharlal Nehru

  All industries, I have said, came under the shadow of the depression. But there was one that did not; this was the armaments industry, which supplied arms and war material to the different national armies and navies and air services. This trade prospered, and paid fat dividends to its shareholders. It was not affected by the depression, for it trafficked in national rivalries and conflicts, and these grew worse under the crisis.

  One great area also escaped the direct effects of the depression—the Soviet Union. There was no unemployment there, and work went on harder than ever under the Five Year Plan. It was outside the area controlled by capitalism, and its economy was different. But, as I have told you, it suffered indirectly from the depression because of the fall in prices of agricultural produce which it sold abroad.

  What was the cause of this great depression, this world crisis, which in its own way was almost as terrible as the World War itself? It is called the crisis of capitalism because the vast and intricate capitalist machine cracked badly under it. Why did capitalism behave in this way? And was it a temporary crisis which capitalism will survive, or was it rather the beginnings of the final death agony of this great system which has dominated the world for so long? Many such questions arise, and they fascinate us, for on their answer depends the future of humanity, and incidentally ourselves. In December 1932 the British Government sent a note to the American Government pleading to be let off the payment of their war debt. In this note they pointed out how the remedies that had been tried had aggravated the disease. “Everywhere,” they said, “taxation has been ruthlessly increased and expenditure drastically curtailed, and yet the control restrictions intended to remedy the trouble have merely aggravated it.” Further, they pointed out, that “this loss and suffering is not due to the niggardliness of Nature. The triumphs of physical science are growing and the vast potentialities of the production of real wealth remain unimpaired.” The fault did not lie in Nature, but in man and in the system he had created.

  It is not easy to give a correct diagnosis of this disease of capitalism or to prescribe a remedy for it. Economists, who ought to know all about it, differ among themselves and suggest a variety of causes and remedies. The only people who are quite clear in their minds about it seem to be the communists and socialists, who find a justification for their views and theories in the breakdown of capitalism. Capitalist experts were frankly puzzled and perplexed. One of the greatest and ablest of British financiers, Montagu Norman, who is the Governor of the Bank of England, said at a public function: “The economic problem is too great for me. The difficulties are so vast, so novel, precedents so lacking, that I approach the whole subject in ignorance and humility. It is too great for me. When it comes to the future, I hope that we may see the light at the end of the tunnel which some are able already to point out to us.” But this light is, like the will-o’-the-wisp, a deceptive phantom, raising hopes in us only to disappoint. A well-known British politician, Sir Auckland Geddes, has said that “thinking people believe that the disintegration of society has begun. In Europe we know that an age is dying.”

  The Germans used to hold that the real cause of the crisis was Reparations; many others held that the depression came because of the war debts, between nations as well as within nations, which have become too great a burden to be borne and are crushing all industry. Thus the war is made primarily responsible for the world’s troubles. Some economists were of opinion that the real trouble lay in the strange behaviour of money and the great fall in prices which, in turn, was caused by the scarcity of gold, gold having become scarce partly because enough is not produced from the mines for the world’s needs, and more so because of the hoarding of gold by different governments. Yet others said that all troubles were due to economic nationalism, to tariffs and heavy duties which prevent international trade. Another suggested cause was the advance in technology or scientific technique which has reduced the number of workers required, and thus increased unemployment.

  Much may be said for all these and other suggestions, and it may be that all of them have contributed to the world’s distemper. But it seems hardly right or reasonable to lay the blame for the crisis on any one of them or all of them. Indeed, many of these so-called causes were the results of the crisis, though each one of them helped to aggravate it. The basic trouble must lie deeper. It was not due to defeat in war, as the victors were themselves involved in it; it was not due to national poverty, because the richest country in the world, America, was one of the worst sufferers. There can be no doubt that the World War has been a powerful factor in hastening the crisis, both because of the great burden of debt and the manner of its distribution among the creditors. Also because the high prices of commodities during the war and some years after the war were artificial and there was bound to be a collapse. But let us look deeper.

  Over-production, it is said, is the trouble. This is a misleading word, for there can be no over-production when millions suffer from lack of even absolutely necessary articles. Hundreds of millions of people in India have not got enough clothes to wear, and yet one hears of large stocks in Indian cloth mills and khadi stores, and of “over-production” of cloth. The real explanation is that the people are much too poor to buy the cloth, not that they do not require it. It is lack of money among the masses. This lack of money does not mean that money has disappeared from the world. It means that the distribution of money among the world’s people has changed and is continually changing—that is, there is inequality in the distribution of wealth. On the one side there is an excess of wealth and the owners of it do not know how to utilize all of it; they merely save it up and swell up their bank accounts. This money is not used for buying commodities in the market. On the other side there is a greater lack of wealth, and even the commodities that are required cannot be bought, for want of money.

  This seems to be a roundabout way of saying that there are rich and poor; a very obvious fact that requires no argument. These rich and poor have existed all along from the beginning of history. Why, then, should they be made responsible for the present crisis? I think I have told you in some previous letter that the whole tendency of the capitalist system is to aggravate inequalities in the distribution of wealth. Under feudal conditions the position was almost static or slowly changing; capitalism, with the big machine and the world market, was dynamic, and swift changes took place as wealth was accumulated by individuals and groups. The growth of inequality in the distribution of wealth, added to some other factors, led to the new struggle between labour and capital in the industrial countries. The capitalists in these countries eased the tension by various concessions to labour—higher wages, better living conditions, etc.—at the expense of the exploitation of colonial and backward areas. In this way the exploitation of Asia and Africa and South America and eastern Europe helped the industrial countries of western Europe and North America to accumulate wealth and pass on a bit of it to their workers. As new markets were discovered, new industries were developed or old industries grew. Imperialism took the form of an aggressive search for these markets and for raw materials, and the rivalries of different industrial Powers brought them into conflict. When the whole world was practically under capitalist exploitation, this process of spreading out came to an end, and the conflicts of the Powers led to war.

  I have already told you all this, but I am repeating it to help you to understand the world crisis. During this period of a developing capitalism and a growing imperialism there were many crises in the West, due to too much saving on the one side and too little money to spend on the other. But these crises passed off because the spare money with the capitalists went to develop and exploit backward areas, and thus created new markets there, which increased consumption of goods. Imperialism was called the final phase of capitalism. Ordinarily this process of exploitation might have gone on till the whole world had been industrialized. But difficulties and checks arose. The chief difficulty was the fierce competition of the imperialist Powers,
each wanting the biggest share for itself. Another was the new nationalism in the colonial countries and the growth of colonial industries, which began to supply their own markets. All these processes, as we have seen, led to the war. But the war did not and could not solve the difficulties of capitalism. One huge area, the Soviet Union, went out of the capitalist world completely and ceased to be a market which could be exploited.

  In the East nationalism grew more aggressive and industrialization spread. The tremendous advance in scientific technique during and after the war also helped in the unequal distribution of wealth and in creating unemployment. The war debts were also a powerful factor.

  These war debts were enormous, and it is worth remembering that they represented no solid wealth of any other kind. If a country borrows money to build a railway or irrigation works, or anything else beneficial for the country, it has got something solid in exchange for the money borrowed and spent. Indeed, these works may actually produce more wealth than was spent on them; they are therefore called “productive works”. The money borrowed in war-time was not spent for any such purpose. It was not only unproductive, but it was destructive. Vast amounts were spent, and they left a trail of destruction behind. The war debts were thus a pure and unmitigated burden. There were three kinds of war debts: Reparations, which the defeated countries were forced to agree to pay; inter-governmental debts, which the Allied countries owed to each other, and especially to America, and national debts, which each country had borrowed from its own citizens.

  Each of these three different kinds of debts was huge, but the biggest of all for each country was its national debt. Thus the British national debt after the war amounted to the prodigious figure of £6,500,000,000. Even to pay interest on such debts was a great burden and meant very heavy taxation. Germany wiped off her big internal debt by the inflation which put an end to the old mark, and so, in this respect, she escaped a burden at the expense of the people who had lent her money. France, adopting the same method of inflation, but not to the same extent, reduced the value of her franc to almost a fifth of what it was, and thus at one stroke reduced her internal national debt to one-fifth. It was not possible to play this game with the debts owing to other countries (the Reparations or inter-governmental debts), which had to be paid in solid gold.

  The payment of these inter-governmental debts by one country to another meant that the paying country lost so much money and became poorer. But the repayment of the internal national debt did not make any such difference to the country, as the money remained in the country anyhow. And yet it made a big difference. Such debts were paid by raising money by taxation from all the taxpayers in the country, rich and poor. The bond-holders who had lent money to the State were the rich. So that the result was that the rich and poor were both taxed to pay the rich; the rich got back what they paid in taxation to the State and much more; the poor paid, but did not get back anything. The rich became richer, and the poor poorer.

  If the European debtor countries paid up some of their debts to America, all this money went to the big bankers and financiers there. Thus the war debts resulted in aggravating an already bad situation and in over-burdening the rich people with money at the expense of the poor. The rich wanted to invest this, for no business man likes to see his money idle. They over-invested this money in fresh factories and machinery and other capital expenditure, which was not justified by the impoverished state of the people generally. They also went in for speculation on the Stock Exchange. They prepared to produce goods on a bigger and bigger mass scale, but what was the good of it when the masses had no money to buy? So there was over-production, and goods could not be sold, and industries began losing money, and many of them shut up shop. Businessmen, frightened by their losses, stopped investing in industry and held on to their money, which lay idle in banks. And thus unemployment became general and the depression world-wide.

  I have discussed the different suggested causes of the crisis separately, but, of course, they all worked together, and thus made the trade depression a greater one than any before. Essentially it was due to the unequal distribution of the surplus income produced by capitalism. To put it differently, the masses did not get enough money as wages and salaries to buy the goods they had produced by their work. The value of the products was greater than their total income. The money which, if it had been with the masses, would have gone to buy these goods, was concentrated in the hands of relatively few very rich persons, who did not know what to do with it. It was this superfluous money that flowed out in loans from America to Germany and central Europe and South America. It was this foreign lending that kept war-worn Europe and the capitalist machine functioning for some years, and was yet a cause of the crisis. And it was a stoppage of these foreign loans that finally brought the crash.

  If this diagnosis of the crisis of capitalism is correct, then the remedy can only be one which equalizes incomes, or at least tends in that direction. To do so fully would be to adopt socialism, but capitalists are not likely to do that till circumstances compel them. People talk of a planned capitalism, of international combines to exploit backward areas, but behind this talk, national rivalries and the struggle of imperialist Powers for world markets grows fierce. Planning for what? For profiting one at the expense of another? The motive of capitalism is individual profit, and competition has been its watchword, and competition and planning go ill together.

  Even apart from socialists and communists many thinking people have begun to question the efficacy of capitalism under present conditions. Startling remedies have been suggested by some to do away not only with the present profit system, but also the price system itself, under which one pays for goods with money. These are too intricate to mention here, and some of them are rather fantastic. I am referring to them to make you realize how people’s minds have been shaken up, and revolutionary proposals are being made by men who are far from being revolutionary.

  The I.L.O. (International Labour Office) of Geneva recently made a simple proposal to reduce unemployment immediately by limiting the workers’ hours of work to forty per week. This would have resulted in millions of additional workers being engaged, and thus reducing unemployment to that extent. All the representatives of workers welcomed this, but the British Government opposed it, and with the help of Germany and Japan managed to get the proposal shelved. Britain’s record in the I.L.O. has been a consistently reactionary one during all this post-war period.

  The crisis and depression are world-wide, and one would imagine that the remedy must also be an international world remedy. Attempts have been made by different countries to find some way of co-operation, but they have all failed so far. And so each country, despairing of a world solution, has sought a national remedy in economic nationalism. If world trade is shrinking away, it has been argued, let us at least keep our own country’s trade to ourselves and prevent foreign goods from coming. Export trade being doubtful and variable, each country has tried to concentrate on the home market. Tariffs have been put on or raised to keep out foreign goods, and they have succeeded in doing so. They have also succeeded in injuring international trade, for every country’s tariff was a barrier to world trade. Europe and America and, to some extent, Asia are full of these high tariff walls. Another result of the tariffs was the increased cost of living, for the prices of food-stuffs and everything that was protected by the tariff went up. A tariff creates a national monopoly and prevents, or makes more difficult, competition from outside. Under a monopoly, prices are bound to rise. The particular industry protected by the tariff may benefit, or rather its owners may benefit, by the protection given to it, but this is largely at the cost of the people who buy the goods, as they have to pay higher prices. Tariffs thus bring some relief to certain classes and they create vested interests, for the industries profiting by the tariffs want to keep them. Thus in India the cloth industry is protected very heavily against Japan. This is very profitable to the Indian mill-owners, who could not otherwise
compete with Japan, and who can thus charge higher prices. The sugar industry is also protected here, with the result that large numbers of sugar factories have grown up all over India and especially in the United Provinces and Bihar. A vested interest is thus created, and if the sugar duties were removed, this interest would suffer and many of the new sugar mills might collapse. Two kinds of monopolies increased: external monopolies as between nations helped by tariffs, and internal monopolies, large concerns swallowing up smaller ones. Of course the growth of monopolies was no new process. It had been taking place for many years past, even before the World War. This became swifter now. Tariffs also had been functioning in many countries. England was the one big country that had so far relied on free trade and done without tariffs. But now she had to break her old tradition and fall into line with other countries by imposing tariff duties. These brought some immediate relief to some of her industries. All this, though it brought local and temporary relief, really made matters worse in the world as a whole. Not only did it further lessen international trade, but it maintained and increased the unequal distribution of wealth. It led to continuous friction between rival nations, each raising its tariffs against the other tariff wars, as they are called. As the world markets became fewer and more and more protected, the struggle for them grew harder, and employers began to press for wage-cuts for their workers, so that they might be able to compete with other countries. And so the depression grew and the ranks of the unemployed swelled. Every wage-cut reduced the purchasing power of the workers.