Glimpses of World History

by Jawaharlal Nehru

  France was now in a strong position; its cautious policy had paid. While America, and even more so England, had their credits frozen in Germany and were in need of money, France had plenty of money in foreign bills as well as in gold francs. Both the American and British governments made love to France and tried hard to induce her to side with each against the other. But France, overcautious, refused to fall in with either scheme, and so let the chance of bargaining go by.

  In England there was a General Election for Parliament at the end of 1931, and this resulted in an overwhelming victory for the “National Government”, in reality for the Conservative Party. The Labour Party was almost wiped out. Frightened by stories that Labour might confiscate their capital, and perhaps also terrified by the short-lived mutiny of the British sailors of the Atlantic Fleet over wage reductions, the British bourgeoisie flocked to the Conservative National Government.

  In spite of crisis and danger, after the fall of the pound, the three leading nations, America, Britain, and France, or their bankers, could not co-operate together. Each played a lone hand, hoping to better its own position at the cost of the others. Instead of fighting for financial leadership, they could have joined together to form a joint international exchange market. But each preferred to go its own way. The Bank of England set out to recover for London its lost position and, to the world’s astonishment, it succeeded to a large extent in doing so, although the pound was still off gold.

  When England went off the gold standard, the official banks of other countries (these banks are called central banks) sold off the sterling bills of exchange that they possessed to get gold instead. They had kept the sterling bills so far because they were at any time changeable into gold, and could thus be counted as gold. When large numbers of these bills were sold suddenly, the value of the pound fell rapidly by 30 per cent. This fall in value induced debtors (including some governments and big businesses) who owed their debts in sterling to pay up in gold, as they had to pay 30 per cent, less now. A good deal of gold thus came into England.

  But the real flow of gold to England was from India and Egypt. These poor and dependent countries were made to come to rich England’s assistance, and their hidden resources were utilized to strengthen England’s financial position. They had not much say in the matter; their desire or interests counted for little in face of England’s need.

  The story of the poor rupee in India is a long and sad one from India’s point of view. It has been made to change about in value repeatedly to serve the interests of the British Government and British financiers. I am not going into these currency matters here, except to tell you that the post-war activities of the British Government in India in regard to currency matters cost India vast sums of money. Then in 1927 a great controversy arose in India about the fixing of the value of the rupee in relation to the pound sterling and gold (the pound was then on the gold standard). This was called the “ratio controversy”, because the government wanted to fix the value at one shilling and sixpence and Indian opinion almost unanimously wanted it fixed at one shilling and fourpence. The question was the old one of giving a higher value to money, and thus profiting bankers and creditors and holders of money and encouraging foreign imports, or a lower value and lessening the burden on debtors and encouraging home industries and exports. The government, of course, had its way in spite of Indian opinion, and one and six was fixed as the gold rupee value. There was thus, in the opinion of many, a slight deflation, an over-valuation of the rupee. Only England had gone in for deflation, when bringing the pound on the gold standard in 1925, and this was, as we have seen, to retain her financial leadership of the world, for which she was prepared to sacrifice much. France, Germany, and other countries preferred inflation to ease their economic situation.

  This higher value of the rupee meant an increased value of the British capital invested in India. It also meant a burden on Indian industry, as the prices of Indian goods went up slightly. Above all, it meant an added burden on all the peasants and landowners who were indebted to the moneylender, for, as the value of money went up, the value of these debts also went up. The difference between eighteen pence and sixteen pence—that is twopence—represented a rise of 12½ per cent. Suppose the agricultural indebtedness of India is 10,000 million rupees; a 12½ per cent addition to it means an addition of the enormous sum of 1250 million rupees.

  In terms of money, of course, the debts remained the same as before. But in terms of prices of agricultural produce the debts went up. The real value of money is what it will buy, so much wheat, or clothes, or other articles or commodities. This value adjusts itself if allowed to do so. A fall in the buying power of money results in a fall in currency. To fix an artificially higher value is to give it an artificial buying power which it does not really possess. Thus the peasant found that more of his income now went to the payment of his debts and interest on them, and he had less left over. In this way the one and six ratio added to the depression in India.

  When the pound sterling was forced off gold in September 1931, the rupee also went off, but it was kept tied to the pound. Thus the one and six ratio remained, but this now represented a smaller amount of gold. The rupee was kept linked to sterling so that British capital might not suffer in India, for if the rupee had been left to itself, it might have fallen lower, and thus caused loss to sterling capital. As it was, loss was only caused to non-British foreign capital in India—American, Japanese, etc., because of the lesser gold value. Another great advantage to England in having the rupee linked with the pound was that this enabled her to pay for raw material purchased for her industries in British currency. The bigger the sterling area, the better for the pound.

  As the rupee fell in value with the pound, the internal price of gold naturally went up—that is, gold could fetch more rupees. The great hardships and privation in the country induced people to sell whatever gold they possessed in the shape of ornaments, etc., to get more rupees for it in order to pay their debts. So gold flowed in innumerable tiny streamlets from all over the country to the banks, and the banks made a profit by selling it on the London market. In this way Indian gold flowed continuously to England and a vast quantity was sent. The process still continues. It is this gold, as well as the gold that came from Egypt, that saved the situation for the Bank of England and British finance, and enabled them to pay back the money borrowed in September 1931 from America and France.

  Now, it is a strange fact that while every country in the world, including the richest countries, is trying hard to keep its own gold and to add to it, India is doing the very opposite. The American and French governments have hoarded up a huge amount of gold in their bank vaults. It has been a strange process of digging out the gold from the mine only to bury it again deep down in the underground bank vaults. Many countries, including British Dominions, have declared embargoes on gold—that is, no one is permitted to take it out of the country. England went off the gold standard to preserve her gold. But not so India, because India’s financial policy is governed in the interests of England.

  There is often talk of gold and silver hoarding in India, and to some extent, among the handful of the rich, this is correct. But the masses are far too poor to hoard anything. The better-class peasantry have a few odd ornaments which represent their “hoard”. They have no banking facilities. These petty ornaments and reserves of gold in India have been drawn away by the depression and the rise in the price of gold. A national government would have kept this gold in the country as a reserve, as gold is the only recognized international medium of payment.

  To go back to our story of the pound’s struggle with the dollar. By these methods and other clever devices, which I need not mention here, the Bank of England strengthened its position greatly. Early in 1932 it had a bit of luck, as there was a banking crisis in the United States owing to American money also being frozen in Germany. During this crisis many Americans sold their dollars and bought sterling bonds. Thus the British Governmen
t got plenty of foreign bills of exchange in dollars, which it then presented in New York to the government bank there and took gold instead. The dollar being on the gold standard, anyone could demand gold for it. In this way the British gold reserve mounted up without any mishap or further decline of the pound, which remained unstable and off gold. With plenty of foreign bills of exchange and securities also, the City of London became again the great central market of international exchange. New York was defeated for the time being, chiefly because of its great banking crisis, in which, as I have told you in an earlier letter, thousands of small banks perished.

  188

  The Capitalist World Fails to Pull together

  July 28, 1933

  What a long story of financial rivalry and manoeuvring I have told you, and I am afraid you will not thank me for it! It is such a tangled web of international intrigue that it is no easy matter to unravel it or, having entered it, to get out of it. I have only tried to give you the barest glimpse of what appears more or less on the surface, and much of what happens never sees the surface or the light of day.

  In the modern world the banker’s and financier’s part is a tremendous one. Even the days of the lords of industry are past; it is the big banker who controls industry, agriculture, railways, and the transport system, indeed, to some extent everything, including the government. For as industry and trade have advanced they have required ever-increasing sums, and the banks have supplied them. Much of the world’s work is now done on credit, and it is the big bank that enlarges or restricts and controls credit. The industrialist and the agriculturist both have to go to the bank for loans of money to carry on work. Not only is this lending business a profitable one for the bankers, but it increases their control gradually over industry and agriculture. By refusing to lend or by demanding their money back at a critical moment, they can upset the borrower’s business or force him to agree to any terms. This applies both within a country and in the international sphere, for the big central banks lend money to the governments of different countries, and thus exercise pressure on them. New York bankers in this way control many of the governments of Central and South America.

  A remarkable feature of these big banks is that they prosper both in good times and bad. In good times they share in the general prosperity of business, and money rolls in, and is lent out by them at profitable rates. In bad times of depression and crises they hold tight to money and do not risk it (and thus add to the depression for without credit it is difficult to run many businesses), but they profit in another way. Prices of everything fall—of land, factories, etc.—and many industries go bankrupt. The bank thereupon comes and buys everything up cheap! It is thus to the bankers’ interest to have cycles of prosperity and depression.

  In the present great depression the big banks have continued to do well and have paid good dividends. It is true that thousands of banks have failed in the United States, and some big ones in Austria and Germany. The banks that have failed in America were all small ones; the American banking system seems to have been wrong. But even so the big banks of New York have done fairly well. There was no bank failure in England.

  Bankers therefore are the real bosses in the capitalist world today, and people have called our times the “Financial Age”, coming after the purely Industrial Age. Millionaires and multi-millionaires crop up in Western countries, and especially in America, the land of millionaires, and are much admired. But daily it is becoming more evident that the methods of “high finance” are most shady, and differ from what is usually considered robbery and deception only in the big scale of their operations. Huge monopolies crush all small concerns, and big financial operations, which few people can understand, fleece the poor confiding investor. Some of the biggest financiers in Europe and America have been exposed recently, and the sight was not a pleasant one.

  We have seen that the struggle for financial leadership between England and America ended for the time being in the City of London’s victory. But what was the prize of this victory? While the struggle had gone on for a dozen years this prize itself had been gradually vanishing. As international trade declined, the profits attaching to financial leadership also declined. Bills of exchange became scarcer, and, at the same time, securities fell in value, and fresh shares and securities were seldom issued. And yet the interest payments on huge public and private debts remained constant, and the debtor countries found it exceedingly difficult to pay them. There being little else available for international payments, the demand for gold increased. But gold flowed away from the poor countries to the richer ones with stabler currencies.

  But all the accumulation of gold and wealth, and the latest technique of industry, did not help America much when the depression grew. The great land of opportunity, which had attracted men and women from afar, became a land of despair. Big Business, which had ruled the country, was found to be thoroughly corrupt, and confidence in the leaders of finance and industry was shaken. President Hoover, who had been the friend of Big Business, became very unpopular, and at the presidential election held in November 1932, he was defeated by Franklin Roosevelt.

  Early in March 1933 another banking crisis attacked America. This led the United States to abandon the gold standard and to allow the dollar to fall in value, although America had more gold than any other country. The object of this was to lessen the burden on industry and agriculture and to relieve the debtors at the cost of the banks and the creditors. This was the exact opposite of what the British Government had done in India, in spite of the unanimous opposition of the Indian people.

  In June 1933 another attempt was made to get the capitalist world to co-operate together for the solution of the many problems that were crushing it. A World Economic Conference was held in London, and delegates to it talked of the “panic-ridden world” and issued warnings that “if the conference fails, the whole capitalist structure will go smash”. But in spite of all these warnings and dangers, the great Powers could not co-operate, and each tried to pull its own way. The Conference failed, and left each country to pursue its policy of economic nationalism.

  It was impossible for England to be self-sufficient, as she did not grow enough food for herself, and the raw materials for her industries came from abroad. So the British Government tried to develop economic nationalism on an empire basis, trying to make the British Empire one economic unit based on sterling prices. With this idea in view, a British Empire Conference was held in Ottawa in 1932. But even there difficulties arose, as Canada, Australia, and South Africa were not prepared to give up anything for the benefit of England. It was England that had to concede their demands. India, however, was officially made to agree to give preferential treatment to British goods, although there was strong popular opposition to this. Subsequent events have shown that the Ottawa Agreement has not been a success, and there has been much friction over it, both between the Dominions and England, and India and England.

  Meanwhile a new terror arose for Empire industries and markets. Cheap Japanese goods flooded in everywhere, and they were so exceedingly cheap that even tariffs could not keep them out. This cheapness was due to the fall of the yen, as well as to the low wages paid to the girl factory-workers in Japan. Japanese industry was also helped by government subsidies, and by Japanese shipping companies charging very low freights. It was also a fact that Japanese industry was very efficient, which many of the older British industries were not.

  Tariffs failing to keep out Japanese goods, markets were definitely closed to them or a quota system was introduced, under which only a limited quantity of goods was allowed in. If Japanese goods were thus to be shut out from other countries, what was to happen to Japan’s enormous industries? Her whole economic system would be upset, and attempts to find outlets would lead to economic reprisals, and even to war. This is the inevitable course of events under the wasteful competition of capitalism.

  In the same way if the British markets were closed to the other countries of Euro
pe, it would mean the ruin of some of these countries. So that we find that all the steps that each country takes for its own immediate good hurt other countries and international trade, and lead to friction and trouble.

  189

  Revolution in Spain

  July 29, 1933

  I shall take you away now from the long and depressing account of the trade slump and crisis, and tell you of two outstanding events of recent times. These two events are: the revolution in Spain and the triumph of the Nazis in Germany.

  Spain and Portugal form the south-western corner of Europe, and, as we have seen, they have played an important part in European and world history. They exhausted themselves in their adventures in empire and, while western Europe progressed industrially and otherwise in the nineteenth century, they remained backward and priestridden. Nationalist Spain had triumphed over Napoleon, but it did not profit by the ideas released by the French Revolution. While France rid herself of feudalism and changed her land system completely, Spain remained semi-feudal, with nobles owning vast estates and having all manner of special privileges. The Roman Catholic Church was dominant, not only in religion, but on the land, in trade, and in education. The Church was the largest landowner, and carried on trade on an extensive scale. Education was completely controlled by it.

  The army officers were a caste by themselves with special privileges. The proportion of officers to other ranks was very great; it was one in seven. Among the intellectuals there were progressive, liberal-minded elements; and a labour movement, split up into syndicalists, socialists, and anarchists, was growing. But all real power rested with the Church, the Army, and the Nobles. In Catalonia and the Basque country in the north there were strong movements aiming at autonomy.