The New Empire of Debt: The Rise and Fall of an Epic Financial Bubble (18 page)

George Orwell wondered how England could ever triumph over Germany in World War II since socialism was so much better at marshaling the resources of a people in wartime. What he didn’t realize was that in wartime, England and America quickly took on many of the attributes of a socialist society such as rationing, censorship, economic planning, and price controls. He also didn’t realize that it is not merely the percentage of a society’s output that the state is able to grab that counts; what also matters is the total gross amount to grab from. Both of these points were to become critical to the development of global politics in the twentieth century.

Approaching the subject from another angle, we ask ourselves: If democracy was such a good idea, why did people put up with other forms of government for so many hundreds of years? We turn to the dead and ask the question.The answer we get is that most never considered it.Those who did thought democracy a bad system of government.

The Greeks invented it. But their democracy was nothing like our definition of the word. Even America’s founders had a deep mistrust of popular democracy. “Democracies,” wrote James Madison, “have ever been found incompatible with personal security or the rights of property; and have been as short in their lives as they have been violent in their deaths.” Thomas Jefferson believed that “the majority, oppressing an individual, is guilty of a crime, abuses its strength . . . and breaks up the foundations of society.” After the Revolutionary War was over, the crafter of the Declaration of Independence also argued that “an elective despotism was not the government we fought for.” In the republic they designed and anticipated, few people voted. And then, only for one chamber of the national government: the House of Representatives. The Senate was chosen by the states.

If it was so apparent that American-style democracy was the best system of government ever invented, why didn’t the Chinese pick it up? Why did the Chinese never try it in over 4,000 years of civilized community? Surely someone must have thought of it. And how can we be so sure that it really is the best form of government? Isn’t it an insult to our ancestors? To the hundreds of generations who never thought of it, or never tried it? And what about all the smart people in all the other countries of the world from the moment man first stood up on two legs to the day before yesterday—why did they so rarely experiment with such a gloriously successful form of government, which as we all know, not only promotes peace and prosperity, but also lifts man up and ennobles him into the most perfect being who ever walked the earth?

We have an answer to propose. Democracy is not really God’s choice. It is not really a universal constant; it is not perfect for all people at all times. It is merely an evolutionary development—like a business suit or rap music—sometimes suitable for some people. What has made democracy triumph in the modern world is probably that it is better than monarchy or dictatorship at taking resources from citizens, but rarely takes too much. Totalitarian regimes, such as the Soviet Union, could take nearly all the resources their citizens produced, but it was still not enough to compete with the smaller percentages taken from more democratic regimes. It is also worth noting that democracy has evolved spectacularly over the past 200 years, and especially since Woodrow Wilson redefined it. The American system of the twenty-first century has no more in common with the system set up by the Founding Fathers than, say, a new Mercedes Maybach has with a Tin Lizzie.

In the Great War, almost all the innovations and advances that were thought to prevent war actually made it longer and more brutal—including democracy.

Interlocking treaties were said to prevent any one nation from going to war; instead the system brought in more combatants. Modern methods of production were supposed to make war too economically destructive; instead they brought more weapons with greater killing power to the battlefield. Booming economies had the wealth to spend far more on war than ever before, and to sustain the spending for a longer period of time. Medieval armies could only take the field for a few months. After that, they were exhausted. It was also rare for them to make war in bad weather; they simply didn’t have the means to stay at it. Even in modern wars, intensely bad weather puts an end to the fighting, as it did every winter in the Wehrmacht’s campaigns in Russia. Modern technology, modern transportation, and modern methods of production all helped put more resources at the warriors’ disposal. So did modern democracy. The awakened and awakening democracies in all the major war makers in World War I brought far more popular participation to the war effort—more money, more resources, more soldiers. And all these factors contributed toward keeping nations at war for a much longer period.

But even with all these things, the ability of Germany, Austria-Hungary, Russia, England, and France to sustain a war was still far more limited than one might have thought. Especially in the matter of finance.

Spending in the war exceeded everyone’s expectations. After Germany defeated France in 1871, it used the money it received from France in settlement to create a war chest of 120 million marks held in the Julius Tower at Spandau. On the eve of World War I, the amount was doubled to 240 million gold marks, along with an additional 120 million in silver. It seemed like a lot of money. Yet, in 1913, the Reichsbank figured that mobilization alone (to say nothing of wartime losses) would cost 1,800 million marks. Actual expenditure August 1914 was 2,047 million marks. And the war had hardly begun. During the war, Germany’s annual expenditure averaged 45,700 million marks, a sum two hundred times greater than the entire contents of the war chest. And the war continued four years. The situation on the Entente side was little different. The war cost far more than expected and needed not only the support of the citizenry, but also of the world’s largest democracy—the United States.

No one can know for sure what might have happened. But it seems very likely that without U.S. financial and material support, the Great War would have ended much sooner.

The democratization of the war extended it in another way, as well.The rulers of Britain, Germany, and Russia were all related. Wilhelm II of Germany and George V of England were both grandsons of Queen Victoria. Tsar Nicholas II of Russia was married to their cousin. Nicholas was the cousin of George V through his mother, the Dowager Empress Marie. Before the war, Wilhelm tried to bring Russia into common cause with Germany, sending him a series of letters addressed to “Nicky,” from “Willy.” Both Willy and Nicky, we soon find, were prepared to make war on each other if need be. But neither they, nor their cousin George V, would do so to such an extent as to endanger their empires, their positions, or destroy the royal houses of Europe. It was precisely because their powers had been weakened that the war continued and expanded to such an extent that two out of three of them not only lost their thrones, their royal houses were extinguished completely.We can’t know, but we can imagine that if democracy and Woodrow Wilson had not transformed the war into a bigger event, Willy might have written to Nicky and Georgy and called the whole thing off. But it was too late for that. This was a war between peoples, not royal houses. It was already a largely democratic war, in other words, even before Wilson stuck his nose in it.

The progressive left steadfastly maintained that growing socialism would also make war impossible. Pacifism had always been a major headline in the socialist agenda. They saw war as a by-product of capitalist competition and bourgeois nationalism. Both would be eliminated, “come the revolution.” But when push came to shove, socialists in all countries started swinging. The Kerensky government in Russia, after the Tsar’s arrest, decided to stay in the war. It called on citizens to fight:“Peasants and workers, all who desire the happiness and welfare of Russia, . . . harden your spirits, collect all forces, and when you have defended the country, liberate it.”

Later, in World War II, after Russia had been completely liberated, Stalin found that he, too, had to call on atavistic national sentiments to rally the country behind him. After years of purges, starvation, gulags, and Communist claptrap, the Russians were no longer willing to fight for socialist ideology. But they would still fight for the Motherland.

Both Russia and Germany (and Italy, too) took soft, well-intentioned intellectuals of socialism and put them in uniform.The transformation was a huge success. As an evolutionary strain, National Socialism was much more robust and aggressive than the dreamy, internationalist idealism of the Second International. Here again, the results were just the opposite of what had been expected. Instead of promoting peace, socialism became the most militaristic, warmongering creed on the planet.

Twenty years after World War I, the U.S. government was still scratching its head—wondering how it ever got involved in such a pointless and costly exercise.A committee was set up in Congress to look into the matter. Two years later, the Nye Committee reported that between 1915 and April 1917, the United States loaned Germany 27 million dollars ($470,000,000 adjusted for inflation in 2005 dollars). During that same period, U.S. loans to Britain and its allies totaled 2.3 billion dollars ($40,000,000,000 adjusted for inflation in 2005 dollars). The committee concluded that Americans had entered the war for commercial reasons and on the side of the Allies because it had 85 times as much money at stake.

At least the numbers made sense, from the Americans’ point of view. What never quite made sense was why the Europeans went to war in the first place. Many unsatisfying books have been written on the subject. The problem is not that they are incorrect or are not useful explanations; they are reasons as good as any. It is just that they are not sufficient. Looking back nearly 100 years later, we can’t see what people got so worked up about. It might just as well have been a religious war, a War of the Roses, or the crusade against the Albigensians.

War is rarely taken up with a cool head. And looking in the head for reasons is as futile as looking for dignity on television. A better place to look is in the heart. Once the mob’s sentiment is roused for war, there is practically no stopping it. Mass emotions—whether in the stock market or in war—are infectious. In practically no time, the whole population clamors for uniforms and murder.

“My darling One and beautiful . . .” Winston Churchill began a letter to his wife on July 28, 1914, “Everything tends toward catastrophe, and collapse. I am interested, geared-up and happy.”
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What a rush of excitement swept through Europe in the summer of 1914. Something new. Something big. Something magnificent was underway.

“Strangers spoke to one another in the streets,” wrote Stefan Zweig. The Austrian author was a Jew. Later, he would flee another mass movement, but this one, in 1914, he found to his tastes:“People who had avoided each other for years shook hands, everywhere one saw excited faces. Each individual experienced an exaltation of his ego, he was no longer the isolated person of former times, he had been incorporated into the mass, he was part of the people, and his person, his hitherto unnoticed person, had been given meaning.”
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There’s nothing like a good war to give meaning to empty lives.

“War is the health of the state,” Bismarck had said.
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The European states never felt better than at the beginning of World War I. The words of politicians were reported in all the papers. People who would otherwise have never been noticed by the masses, were treated as though they were rock stars or sports heroes.Young men lined up to volunteer in the state’s armies.Young women joined nursing associations, whose goals were not to take care of people, but to fix up the injured warriors so they could return to battle as quickly as possible. Mothers were honored for their willingness to sacrifice sons to the war effort. Even factory workers were encouraged to think of their work as noble, even glorious—for they were supplying the materiel that made the war possible. Suddenly, everyone had a job to do, an important job.

There was a sense that a war would be good for the spirit and maybe the soul. Poets longed for war to end the “opulence of peace.” They saw themselves as suffering from bourgeois prosperity—growing pale, rotting at desks, growing effete over polite dinner conversation. “Today’s man,” wrote Dezso Kosztolanyi just after the war broke out,“. . . grown up in a hothouse, pale and sipping tea—greets this healthy brutality enthusiastically. Let the storm come and sweep out our salons.” Philosopher Max Scheler welcomed the war as “an almost metaphysical awakening from the empty existence of a leaden sleep.” Wyndham Lewis wrote that “killing somebody must be the greatest pleasure in existence: either like killing yourself without being interested by the instinct of self-preservation—or exterminating the instinct of self-preservation itself.”

While the intellectuals saw the war as “deadly enlivening” to use Rainer Rilke’s phrase, the common men and women were titillated, too. Butchers and clerks went home in crisp new uniforms and wives fell in love with them all over again. Freud remarked that his libido had been mobilized for war.

The leaders had their own private joys and sorrows . . . and their own empty lives to fill. Wilson’s first wife died in early 1914. German Chancellor Theobald von Bethmann-Hollweg’s wife had died in May 1914.Would he have been so eager for war in July if she had still been alive in June? General Count Franz Conrad von Hotzendorf longed to be a war hero, it was said, so he could win the heart of his beloved Gina von Reininghaus, inconveniently married to someone else. And poor Kaiser Wilhelm, would he have been better at avoiding war if his mother had not rejected him? (The Kaiser had a withered arm, said to be the cause of his mother’s coldness toward him.) Wilhelm was “not quite sane,” in the judgment of more than one observer at the time. “The Kaiser is like a balloon,” Bismarck had said of him.“If you don’t hold onto the string you never know quite where he will be off to.”
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