Toward The Great Cleansing

Chapter 1 (Part 4 of 4) of the book

The Discovery of First Principles, Volume 3

Edward J. Dodson

The Keynesian Revolution Gains Momentum

By the early 1930s, Keynes reached the conclusion that the operation of the global economy had gone beyond the analytical capacity of neoclassical economic theory. He lived in a time characterized by an anomaly -- enough output to provide a decent standard of well-being for virtually all people everywhere, while potential workers remained unemployed in such large numbers so as to guarantee a continuous imbalance between supply and demand. What Keynes observed was that contrary to neoclassical assertions price did not effectively clear markets. Moreover, even when the wage demands of labor fell low enough full employment was not the result. Yet, as with most of his colleagues, he did not see that those who controlled locations or natural resource-laden lands (and appropriated all or some good portion of the rental value thereof) generally occupied a highly advantageous position vis a vis those who did not. On the relative competitive position of the producer and rent-seeker, Keynes made the same mistake as Schumpeter, writing:

Since that part of his profit which the entrepreneur has to hand on to the rentier is fixed in terms of money, rising prices, even though unaccompanied by any change in output, will re-distribute incomes to the advantage of the entrepreneur and to the disadvantage of the rentier, which may have a reaction on the propensity to consume.[117]

During the Depression, a buyers' market in industrial, retail and commercial space existed for those businesses not yet bankrupt. As tenants, business owners had an easier time renegotiating leases to lower annual payments, and the owners of buildings and their locations experienced lower profits. As individuals, they cared not at all whether the lost income came out of location rent, wages or interest, or in what proportion. Buildings still needed to be maintained, even though the leasing fees commanded in the market were sometimes bringing in less revenue than the cost of owning and maintaining the property. A building owner could take on more of the management and maintenance responsibility in order to reduce costs, or defer maintenance until cash flow improved. If the building had been purchased using bank financing, debt service on the mortgage loan had to be kept current or the owner risked foreclosure. In the Depression climate, other banks were reluctant to offer to refinance mortgage loans when the value of collateral seemed to be on a continuous decline. The pure land speculator, generally speaking, had only one ongoing cost to worry about - taxes paid to whatever level of government taxed land based on assessed value. In the United States and around the globe, land tended to be taxed lightly or not at all. Thus, the well-capitalized land speculator with other sources of cash flow could hold on to land through recession and depression (and even acquire additional land parcels from bankrupt companies or at depression-prices from the banks. Determining in advance who would be the winners and losers would not be easy but the tendencies are evident in the history of the period.

If this is so, why was it that only the Georgist remnant, bolstered by the outspokenness of Harry Gunnison Brown, saw so clearly how market dysfunctions could be materially corrected? George Raymond Geiger asked this question in 1936:

When this matter of the holding of land out of use for expected rises in land value was formerly introduced by single taxers, the stock answer of many economists was to deny that there was any significant failure to use land. However, since 1929 that stock answer is not being heard so often, especially if the economists have paid attention to the many technical studies that have appeared in the last few years. These studies have demonstrated that a major item in our present deflation has been the collapse of inflated and speculative land values.[118]

Geiger went on to make his case, citing from the studies mentioned in the above quotation. He also referred readers to the book Land and Unemployment by James F. Muirhead, published the year before by Oxford University Press. Still, despite a considerable amount of market data and analytical literature on the operation of land markets available to economists, the conclusions obvious to Geiger and Harry Gunnison Brown continued to be ignored by those looking at the operation of economies.

John Maynard Keynes had his own ideas of how to pull Britain and other nations out of Depression. He observed that the wealthy were apt to convert currency into hard assets, such as precious metals, gems, collectibles or land, rather than expose their financial reserves to risk of losses during this time of great uncertainty. This led him to conclude, "in contemporary conditions the growth of wealth, so far from being dependent on the abstinence of the rich, as is commonly supposed, is more likely to be impeded by it."[119] Unwilling to shift the cost of government to the wealthy by imposing heavier taxation on higher marginal incomes or other assets, this left two courses of actions: borrow from those who possessed financial reserves or have the central banks print more currency in exchange for government bonds. Fear of runaway inflation kept most governments from pursuing the second course of action. Still, in order to attract investment in government bonds, the rate of return had to compensate investors for inflation (i.e., for falling purchase power). In other words, the rate of interest would have to be high or indexed to some base. Absent the ability to attract funds by issuing government debt, the public policies Keynes favored were those being followed, remarkably, by the British government: a progressive income tax, surtaxes on luxury goods and reasonably high death duties on large estates. These revenue measures, properly implemented, minimized taxes on those of modest means while still rewarding the inventive and entrepreneurial spirit of those who possessed such superior abilities. Without pausing to reflect on the idea that control over locations was a form of privilege yielding imputed and actual rent to the holder, Keynes argued for an end to all forms of unearned income:

I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. ...

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest to-day rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.[120]

What Keynes misses here is the reason why people employ capital (i.e., capital goods of whatever form). Capital goods increase productivity over what labor alone is able to produce. The owner of capital goods has a legitimate claim on that portion of production associated with capital. In a severe recession or depression, the demand for what is produced might be low not because there is no desire for the goods produced but because aggregate purchasing power has disappeared.

Keynes looked to progressive tax policy to generate revenue sufficient in quantity to fully employ labor. At full employment, the demand for consumer goods would also translate into a demand for capital goods, which would in turn stimulate further demand for labor. From this point on, government would merely need to adjust tax policy and spending to maintain a full employment economy. Insofar as the source of income for many corporations and wealthy individuals was derived from both rent and a protectionist level return on capital goods, Keynesian intervention looks a bit Georgist by its net capture of unearned income. Unfortunately, a good deal of earned income is also captured by imposing high tax rates on earned cash flows. What saves Keynes is his directive that tax rates ought to be increased in periods of prosperity in order to build a surplus that could be used by government for spending during periods of downturn in the private sector, when tax rates need to be lowered to sustain purchasing power. In the decades that followed, a new generation of economists broke with Keynes to become proponents of deficit spending in order to fund social welfare programs while also maintaining a capable national defense. They put their faith in an unending upward climb in productivity and innovation to outpace the growth in a nation's outstanding debt, and in wise use of monetary policy to keep interest rates high enough to attract investors in government bonds, yet low enough not to put an undue strain on government's ability to handle its debt service.

One of the more intriguing contemporary analyses of the Depression and its consequences on the immediate and longer-term future was provided in 1939 by a young Austrian named Peter F. Drucker, whose career had already included several years as economist for a leading international banking house in London. In 1937 he arrived in the United States as correspondent for a number of British newspapers. In his book, The End of Economic Man, Drucker offered his explanation of how and why Fascism was spreading across the European continent. Economics and economists had played a role:

Up to 1929 depression was regarded not only as entirely rational but almost as desirable - or at least as necessary. Its sacrifices and sufferings were the price of economic progress toward ever-greater economic achievement and the realization of the free and equal society of Economic Man, either through the economic harmony of capitalism or through the dialectic automatism of Marxism. …

At the onset of the depression this traditional view of the function of the trade cycle was still deeply ingrained in the automatic routine mentality. It disappeared almost overnight in all European countries when the routine was broken by the crisis. This shows that the people are no longer willing to make sacrifices for the sake of economic progress, that they do not consider economic progress worth the price. …The monetary theories of the business cycle - such as those of Keynes, Irving Fisher, or Major Douglas - by denying the necessity and the salutary effects of depression, deny that depressions are rational parts of a rational order. It is highly significant that these theories did not become widely accepted or even widely known until late in the twenties; then they captured like wildfire the imagination of masses and leaders alike.[121]

What Keynes, Fisher, Douglas and others were offering to a desperate world were the theoretical justifications for new policies to move the world beyond laissez-faire capitalism and beyond Marxism. War and the economic engine that preparing for war ignites intervened before their insights could effectively be put to the test.

Some years later, Harry Gunnison Brown finally got around to taking on the first generation of postwar Keynesians who were diverging from the master's teachings. By the 1950s, an increasing number of economists repeated as Keynesian the notion that when necessary, employment ought to be stimulated by government spending, whether or not the revenue had to be raised by borrowing. To be sure, one assumption was that the interest to be paid on an expanding national debt would come from those with higher incomes. This raised a red flag in Brown's mind:

In practice, when such a system of "transfer" is established, the purchasing power is not always transferred from the rich to the poor. Some of it is transferred from the poor to the rich -- for example, from workers in the cities, where the cost of living is relatively high, and who, because of this "transfer," find it more difficult to feed, clothe and comfortably house their children, to such persons as bonanza farmers and other well-to-do farmers enjoying crop loans, support prices and subsidies.[122]

In 1936, these controversies were only just beginning to surface in the discussions between economists. In the midst of the Depression, a growing number of thoughtful individuals in the United States came to the conclusion that the only salvation for the republic was to become a real social-democracy. In fits and starts, Roosevelt seemed to be pulling the nation toward that objective, and Keynes gave to planning, to policies of centralized control, wealth transfer and progressive taxation an intellectual pedigree.

At about the same time, George Geiger was putting the finishing touches on his manuscript (reviewed by both John Dewey and Harry Gunnison Brown). His book lifted briefly the torch of cooperative individualism. Geiger, the philosopher son of Oscar Geiger (founder of the Henry George Schools) hoped in some way to redirect the thinking and energies of those who studied economics from "the glare of economic technicalities" toward the idea "that there may possibly be a basic, unifying, and indeed simple explanation of the constantly recurring social paradoxes"[123] that troubled societies. George Geiger was convinced the land question had to be resolved if the socio-political arrangements and institutions of society were to guarantee a just distribution of wealth. This would not, perhaps could not, be accomplished without broad acceptance of basic principles of justice on the part of the intellectual, academic and professional communities. Yet, everywhere he turned the supposedly learned persons he attempted to engage discharged his views as "over-simplified rationalization"[124] of very complex and dynamic processes. In response, Geiger covered very much the same ground as had Henry George, bringing to light the inconsistencies in thought revealed by a close examination of the writings of the generation of economists who followed George as well as those who studied under them and were now Geiger's contemporaries. For the most part, Geiger observed, the generation of "pre-New Deal anti-ethicist" professionals believed that "moralizing in economics is taboo."[125] He recognized that something new was certainly in the air by the 1930s (even if very much off the mark):

[T]he willingness of economists to cooperate in national and political programs -- whether or not that cooperation is recognized as sound -- is a welcome change from the affected insistence upon purely descriptive economics that featured so much of pre-"depression" theory. ...[126]

[T]he "over-production" complex found in certain brands of contemporary economics is not being taken seriously here. It is felt that the most vicious ... contribution of New Deal economists is their not-so-subtle attack upon an "economy of abundance." A study of under-consumption, of effective demand, of the consumer -- it is this path, pointed out by men like Stuart Chase, that must be substituted for the one leading to an inverted, but just as pernicious, Malthusianism.[127]

The bottom line for Geiger -- for all those who found harmony in principles of political economy espoused by Henry George -- was that New Deal politics were being driven by an attempt to mitigate rather than resolve the problems associated with monopoly privilege. The laws of the land were significantly responsible for creating disincentives to produce, incentives to hoard and speculate and extraordinary forms of economic license for the relative few at the expense of the many. "No sane economic system, Geiger wrote, "can accept as normal a general curtailment of production, just as no sane economic system can accept a condition of permanent unemployment."[128] By adopting policies that met the test of justice, a society would simultaneously experience the benefits of economic efficiency. A state of affairs would develop where full employment became and remained the norm. Geiger argued that widespread unemployment has nothing to do with overproduction; rather, whenever large numbers of individuals are without work, "[i]t can mean only that men do not have the ability to buy the things they make -- the distributive process has broken down, not the productive."[129] And, as if the ghost of Frederick Jackson Turner (dead just four years) haunted the minds of the world's more thoughtful observers, Geiger could point even to the writing of Walter Lippmann as evidence of how close some had come to the truth while letting it roll over them without lasting result. In 1934, Lippmann had written in The Method of Freedom:

[W]hen do proletariat and plutocracy appear in a society? They appear, do they not, when there is no more free land, when the existing resources have been pre-empted? The social disease of proletarianism is not serious where the frontier is still open. ...It is necessary somehow to construct within the framework of our complicated machine civilization the moral equivalent of the opportunity to stake out private property in virgin territory.[130]

Adolf Berle, Gardiner Means and other New Dealers tried to do just that by gaining for the Federal government the power to create a social democracy and welfare state. Stuart Chase and George Soule, leaning further in the direction of state socialism, disdained what they viewed as unnecessary failures brought on by competition. By introducing central planning and adopting strict regulation of business activity, they believed the conflict-prone market system would gradually fall victim to the more powerful cooperative urge of people living in society with one another. Individualism would succumb to the lure of mutual dependence. H.L. Mencken dismissed the lot as "completely incompetent" and "a truly astounding rabble of impudent nobodies."[131] They were, nonetheless, agents in the vanguard of a new movement to subordinate the remaining powers of the states to that of the Federal government. Stalwarts of the Progressive brand of idealism such as Louis D. Brandeis and Felix Frankfurter warned that without ridding the nation of business concentrations all else would be for naught. Two Frankfurter recruits, Benjamin Cohen and Thomas Corcoran, went about the task of attracting talent to government jobs in the new agencies. In their quest to redistribute power from the industrial landlords to [those who held in trust the interests of] the common citizens, they participated in establishing a framework for exponential growth in government. They had little patience with the Veblenesque social engineers and central planners. Yet, together they moved in tandem to give government ever more power. Those who found in history reasons for concern began to organize in opposition.

A growing minority of economists, as well as Federal Reserve officials, had been quietly observing the gradual recovery of the British economy -- and their decision to finance deficit spending with borrowing. Jude Wanniski (who, since the 1970s has been a consistent proponent of supply-side economic policies and a reduction in taxation, generally) notes the irony in the ascendancy of Keynes as a dominant figure in economics at a time when "he was surrounded in Britain by both mass unemployment and the highest tax rates on personal incomes in the world, yet he made no connection between the two."[132] In fairness to Keynes, we need to remember that the measures he proposed to get the British economy out of its Depression were, he felt, required by the depth of the problem of mass unemployment. "Keynes produced The General Theory as a proof - by the standards of the prevailing economic orthodoxy itself - that, contrary to orthodox beliefs, the normal state of economic society was not full employment, but general unemployment,"[133] write Elizabeth and Harry Johnson. Keynes came to understand that some government intervention was required to achieve what most mainstream economists thought impossible - full employment without inflation. Unfortunately, Keynes failed to recognize that economic instability was caused by laws that created privilege and economic license on behalf of landed (i.e., rent-seeking) interests.

In part, the debate was and has remained over whose incomes ought to be taxed rather than on what incomes (i.e., earned versus unearned). Wanniski's own analysis of business cycle dynamics, coming in the 1970s during a time of the heaviest weight of government regulation and taxation in the social democracies, presented the supply-side case for lowering tax rates and regulation to stimulate investment. However, both supply-side proponents, generally, and Keynesians, generally, failed to distinguish between income generated by the production of goods and services and income derived from static ownership of locations, natural resource-laden lands, the broadcast spectrum and other forms of natural monopolies. The reaction to taxation by those who control nature is quite different from those who labor or own capital goods. The former are pressured by the resulting increased carrying costs to bring their assets to market, whereas high taxes on producers penalizes production, commerce and consumption. None of these distinctions entered into the public dialogue; nor where they explored by economists in any systematic way.

The new generation of advisers and agency staff employed by the U.S. government remembered that on December 31, 1933 Keynes had publicly urged Franklin Roosevelt to stimulate purchasing power by deficit spending and observed that British authorities had taken this advice with good results. A second tier of economists and researchers, including Simon Kuznets, Alvin Hansen, John Kenneth Galbraith and Paul Samuelson, had independently reached the same conclusions. Marriner Eccles, a Utah banker who was brought onto the Federal Reserve Board in 1934, had already convinced Roosevelt that an active monetary and fiscal program was essential to a sustained recovery. Eccles and former Harvard University professor Lauchlin Currie, now a Treasury Department official, put their ideas into a long memorandum detailing the virtues of immediate government borrowing in order to prime the nation's economic pump - to get currency circulating again and stimulate orders for capital and consumer goods.

Roosevelt had survived the counterattack of those who, for reasons of either narrow self-interest or principle (misguided or legitimate), opposed the New Deal. However, he began his second term of office with a new inner circle of advisers less concerned with remedial measures targeted to sustain the recovery than with the future balance of power between government and private interests. There were those such as NRA chief economist, Leon Henderson, who still believed government oversight could serve the interests of free trade and competitive markets, but the pendulum was swinging in the direction of those who believed government needed to have at least some control over basic industrial production. In response to the changing governmental landscape, Walter Lippmann, for one, became an outspoken critic, fearful that Roosevelt was opening the door to state socialism and a serious erosion of republican virtues. In The Good Society, Lippmann offered his own plan for creating a social democracy and later suggested that the courts, rather than a regulatory bureaucracy, could ensure adherence to laws:

There are two ways of doing this thing. One leads to a centralized state administered by government office holders, and the other leads to a system of law in which corporations and everything else are accountable and can be sued, and the judiciary decides the issues. It is the second which I proposed as the change by which liberalism could disembarrass itself of laissez faire and still remain liberal.[134]

The difference in perspective is one of remedy versus prevention. Creating new agencies of government with regulatory and enforcement powers is justified by the view that harmful behavior must be prevented. Lippmann's perspective is based on the assumption that the threat of penalties imposed by the courts will direct most people to behave appropriately or suffer the consequences. We have subsequently learned how difficult is the challenge of determining the correct balance between reliance on remedy and prevention. Moreover, to borrow from Galbraith, the development of countervailing power in the social democracies did not occur quickly or smoothly. In the 1930s there were no well-financed and well-organized citizen-based organizations actively monitoring the behavior of urban or industrial landlords or government officials and agencies.

Faced with the harsh realities of the 1930s and a system that had obviously succumbed to excesses, Lippmann was among the minority who believed the path to recovery and the maintenance of recovery required reconciliation between the Keynesian proposals and a better understanding of market forces. Neither the old-line Progressives nor New Dealers (of various stripes) thought much of this marriage. John Dewey, for example, expressed the view that Lippmann's book encouraged reactionaries, by which he meant the defenders of laissez-faire protectionism and the pre-New Deal status quo. Yet, Dewey also presented a study in contradictions. In 1932, he had accepted Oscar Geiger's invitation to serve as honorary president of the newly-established Henry George School of Social Science. Dewey admired Henry George and at least on the surface seemed to understand George's analysis of the road to full employment. In 1932 he delivered a radio address in New York City that embraced Henry George's proposals. And yet, he failed to grasp the serious attack on individual liberty at work in Russia under the Bolshevik regime. While visiting Russia in 1928 to assess the changes being made in the nation's educational system, Dewey wrote:

…the final significance of what is taking place in Russia is not to be grasped in political or economic terms, but is found in change, of incalculable importance, in the mental and moral disposition of a people, an educational transformation. This impression, I fear, deviates widely from the belief of both the devotees and the enemies of the Bolshevik regime. But it is stamped in my mind and I must record it for what it is.[135]

This was a time of tremendous upheaval throughout the Old World, when the promise of socialism engaged a great many serious minds. Dewey observed and listened in Russia, then expressed the hope that the Russian people could somehow avoid catastrophe. "I find it more instructive to regard it as an experiment whose outcome is quite undetermined," Dewey continued, "but that is, just as an experiment, by all means the most interesting one going on upon our globe - though I am quite frank to say that for selfish reasons I prefer seeing it tried in Russia rather than in my own country."[136] Dewey was far from alone in this regard. Still, I am hard-pressed to understand how, on the one hand, he could champion the philosophy of Henry George, while, at the same time, holding out any hope that state socialism could result in anything but yet one more form of tyranny.

As President of the United States, Roosevelt was in the not very enviable position of having to navigate this mine field of confused intellectuals. Practical men, such as the banker Marriner Eccles were struggling to survive cascading events caused to a large extent, Eccles concluded, because "a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth."[137] Wealth concentration destroyed the ability of the population to continue to consume what mass production was able to produce. Eccles agreed with Keynes that the first priority was to get the economy moving in the right direction. Once this occurred there would be opportunity to work toward balancing the budget. Whether or not government had been seriously at fault in bringing about the Depression, the nation was now dependent upon all parties to work with government to adopt practical solutions. As Eccles described the situation:

All parties other than the federal government are obliged to play according to the established rules of the private financial game. Unless their outgo balances their income, they ultimately go broke. But the federal government is in a different category. To begin with, it can make and change the rules of the game according to the needs of the nation. It alone has the power to issue money and credit and thus influence the price structure. Through its power of taxation it has the means to control the accumulation and distribution of wealth-production. And, finally, it has the power to mobilize the resources of the whole nation for the benefit of all the people in it. Neither an individual, a family, a corporation nor a single state of the Union has any one of these powers.[138]

Eccles was not expressing a majority view from within the banking establishment, of course. In February of 1933, a chance meeting with Stuart Chase in Utah pulled Eccles into the circle of advisers close to Roosevelt. He had been invited to Washington, D.C. to present his views before the Senate Committee on Finance. Eccles was already advocating actions that would later find favor with economists influenced by Keynes. Yet, at the beginning of Roosevelt's first term in office, the President and his brains trust headed by Raymond Moley were committed to reducing government spending and to balancing the budget. As Eccles recalled:

With the exception of [Mordecai] Ezekiel and Tugwell, I doubt whether any of the men in my room had ever heard of John Maynard Keynes, the English economist who has frequently been referred to as the economic philosopher of the New Deal. At least none of them cited his writing to support his own case, and the concepts I formulated, which have been called "Keynesian," were not abstracted from his books, which I had never read. My conceptions were based on naked-eye observation and experience in the intermountain region.[139]

Eccles and Tugwell agreed on the steps that needed to be taken but nothing was done to move their interventionist agenda forward until Henry Morgenthau, Jr. replaced Will Woodin as Secretary of the Treasury. Eccles was asked to come to Washington, D.C. and prepare a report for Morgenthau detailing his views on appropriate monetary policy. Morgenthau then asked Eccles to join the government as a special assistant. They succeeded in convincing Roosevelt that some government spending was needed to stimulate private sector demand and employment-creating investment. Eccles next turned his attention to the Federal Reserve and prevention of future bank liquidity problems. In November 1934 he was appointed by Roosevelt as Governor of the Federal Reserve Board. Months of very tough political fighting followed before passage of the Banking Act of 1935. Many economists of the day - including Edwin W. Kemmerer (Princeton), Oliver M.W. Sprague (Harvard) and Henry Willis (Columbia) lined up against Title II of the legislation, which comprised the reforms Eccles proposed to the Federal Reserve System. Over their objections the act was passed by the U.S. Congress and signed into law by Franklin Roosevelt in August.

Stock prices began to recover in the Spring of 1935. Opponents of Roosevelt began expressing their fears of inflation. Industrial output had recovered considerably but millions of workers remained out of work. As far as Eccles was concerned there was still much to do to improve and stabilize the nation's banking system. Others were convinced recovery was well underway and that the government should now withdraw for actively stimulating investment. Then, not long after Roosevelt's election to his second term as President, the economy slid back into recession. Unemployment increased by nearly two million in the second half of 1937. Plans to gradually dismantle emergency relief and balance the budget were upset. With ten million people out of work and the threat of more to come, Roosevelt also faced new external pressures and an upsurge in isolationist opposition at home. Japan was now at war against the Chinese. In Japan, the military was firmly in control of the government. Mussolini's fascist army was not only in Ethiopia but also put at the disposal of General Franco in Spain. Hitler was rapidly rearming, and neither the British nor the French felt they were in any position to act. In the face of these challenges, Roosevelt needed strong support from his party and made a public announcement of his intent to work for the defeat of any candidate in the primary elections who did not support the New Deal agenda. The result, writes Ted Morgan, was that: "Instead of liberalizing the party, FDR had further split it."[140] The President now faced a Congress less inclined than ever to acknowledge his mandate, and a citizenry running out of patience with its leadership. With the benefit of so many decades now gone by, one sees clearly that the opportunity for transnational values to compete successfully with ethnic nationalism and cultural relativism -- even the United States or Britain -- had to wait for the terrible cleansing of warfare to exact its toll. By 1936, Einstein demonstrated that he, more so than Roosevelt and most U.S. pacifists, saw the handwriting on the wall:

I am convinced that the British Commonwealth is correct in asserting that only a powerful and well-organized international military force will insure enduring peace. By the same token I consider the American policy of nonparticipation in the solution of international problems an unfortunate mistake. Such aloofness can only increase the danger of war. Besides, once a war has broken out and spread, America is bound to become involved, as she was in the past. To my mind the principal task of American pacifists today is to make these facts known.[141]

What Einstein did not understand fully was the strength of isolationist feeling among American pacifists. There was not yet a broad realization in the United States that the Old and New Worlds were forever interconnected. Few had any knowledge of the work being done on rocket technology, the development of jet power for airplanes or the quest to unlock the secrets of the atom. Few advocated or supported creation of a supranational organization of nation-states to replace the failed League of Nations. Sovereignty and isolationism were intimately related. Only a series of offensive strikes against U.S. citizens and territory would turn the United States into a committed participant for a New World Order.


In a speech made on November 12, 1936 in the British House of Commons, Winston Churchill presented a sobering assessment of conditions in the Old World. " The efforts at rearmament which France and Britain are making will not by themselves be sufficient," he warned. "It will be necessary for the Western democracies, even at some extension of their risks, to gather round them all the elements of collective security or of combined defensive strength against aggression ... which can be assembled on the basis of the Covenant of the League of Nations."[142] None of the nations to which Churchill alluded could easily claim to hold the high ground of moral righteousness. The fascists of Germany, Italy and Spain, the militarists of Japan and the Bolsheviks in Russia were all brutally aggressive in their quest for absolute dominion over whatever lands and peoples force enabled them to seize and hold. Force and the threat of force was also at the heart of empire and colonialism practiced by Britain, France and other Old World nations. Successive generations of leaders in the United States had invoked the principles of manifest destiny to claim the Hawaiian Islands and Puerto Rico, occupy the Philippines, demand trade concessions from the Chinese and erect barriers against the free exchange of wealth.

Around the globe people braced for the inevitable outbreak of war. The Japanese militarists (with the exception of Admiral Yamamoto) discounted the industrial might of the United States because of a failure to understand the reality of a national crisis to unite Americans. And, of course, the great weakness of the German military effort was its subordination to the whims and excesses of Adolf Hitler and others at the top of the Nazi hierarchy. Another variable not fully appreciated by the Axis leaders was the ultimate power of language, tradition and custom to eventually unite the English-speaking peoples against them.

The idea of a world transformed by the ideals and culture of Britain, spread by commerce and educational institutions as well as by a colonial and imperial presence had been long on the minds of a powerful and wealthy elite in Britain and the United States. As the twentieth century began, the synergy for this grand vision was injected with the financial means provided by the personal fortunes of Cecil Rhodes and William T. Stead. Prior to the First World War they advanced the funds and established an organizational framework to advance their ideals. As John Bowles concludes, the institutions they created increased in influence with the passage of time:

For Rhodes money meant power. He wanted nothing less than Anglo-Saxon world domination to impose world peace, an objective now much denigrated as typical of the racialist social Darwinism of the day. But it compares well with the ideas of other racialists like Gobineau and Treitschke; and in fact Anglo-American world power would decide two World Wars. Better co-ordinated it might have prevented the First, and in fact it stabilized the situation after the Second.[143]

Building on the activities of what were called Round Table Groups -- formed in the early 1900s by Britain's Alfred Milner -- U.S. and British intellectuals, financiers, public officials and wealthy industrial-landlords forged a close association. An Institute of International Affairs emerged in Britain; and, in the U.S. an existing organization, the Council on Foreign Relations, was gradually taken over and guided into the role of think tank and publisher. The Council began publishing Foreign Affairs in 1924, with Harvard University's Archibald C. Coolidge as editor. Walter Lippmann regularly contributed articles and was also among the Council's inner group. During the 1930s, Council members adopted a more or less free trade posture and an internationalist view of the role to be played by the United States. Under the influence of Council members, Roosevelt resisted pressures to bring centralized planning into the American System. While both Ted Morgan and James MacGregor Burns are silent on the influence of Council thinking on Roosevelt's positions, Marxist historians Laurence Shoup and William Minter point to the Council as "[p]roviding the intellectual rationale and leading th[e] thrust toward global power"[144] pursued by U.S. leaders from this point on. As early as 1934, Walter Lippmann echoed in his writings the Council's view that the U.S. ought to withdrawal all troops from China and the Philippines and make a firm commitment to support Britain should war erupt with any continental power or powers. No doubt the U.S. would support and itself be supported by the English-speaking populations of Canada, Australia, New Zealand and South Africa.

Nothing similar to the Rhodes-financed effort to Anglo-Americanize the world existed among the Nazis, Fascists or Marxist-Leninists. Force and terror were the accepted means of crushing opponents - internal and external. Persuasion and rational argument were purged from political discourse. The rule of men displaced the rule of law in a significant portion of the world. Whatever potential there had been for a liberating overthrow of aristocratic privilege in Russia was lost to the excesses of the Bolshevik leaders. Elsewhere, socialists and communists employed whatever means they could to destabilize existing governments. Conservative elements turned to political or military leaders who promised order and stability. Spain, Portugal and Poland succumbed to military dictators. Police states emerged in the Balkans. Mussolini assumed total power in Italy in 1930. Franco emerged in control of Spain in 1939. The Nazis gained control over Germany in 1933 by less violent but hardly democratic means, after which the level of violence against opponents was systematically increased.

Long before Hitler came to power the German militarists worked secretly to maintain the German General Staff. All training and plans contemplated the rebuilding of a massive and thoroughly modernized armed force. Their future allies, the Japanese, flexed their muscles against the Chinese in Manchuria during 1931 and 1932. In the Spring of 1935, the Germans formally denounced the Treaty of Versailles and accelerated their program of rearming. Later that same year the Italians invaded Ethiopia and in May of 1936 captured the capital, Addis Ababa.

Remarkable as this sounds, as early as 1937 Adolf Hitler had already declared to the German generals and his inner circle his decision to take the nation to war if his territorial aspirations were resisted. After their unopposed reoccupation of the Rhineland, he was convinced he would not be challenged by France or Britain. Austria was occupied in March of 1938. The generals warned Hitler that the army was not ready for a continental war. Hitler ignored them. Britain and France were even less prepared for war.

In May of 1937, Neville Chamberlain was summoned by the King to serve as Britain's Prime Minister, and Chamberlain took tentative steps to prepare for the defense of the empire. He continued to hope, or believe, that a new world order could yet be negotiated into existence. Winston Churchill, on the other hand, knew that the time for rapprochement had long past, and that appeasement merely sacrificed others without strengthening Britain. Equally important, he also knew that Britain no longer possessed the productive capacity to build and maintain a defensive force powerful enough to discourage German and Japanese militarism. More than ever, Britain needed full partners:

We wish to make our country safe and strong -- she can only be safe if she is strong -- and we wish her to play her part with other Parliamentary democracies on both sides of the Atlantic Ocean in warding off from civilization, while time yet remains, the devastating and obliterating horrors of another world war. We wish to see inaugurated a reign of international law, backed, as it must be in these turbulent times, by ample and, if possible, super-abundant strength.[145]

There was little chance that the non-Fascist nations of Europe could for long resist the combined aggression of Germany and Italy. Not even Churchill held out any hope that the peoples of Europe might respond favorably to a plan of unified resistance. Britain's future, therefore, rested on establishing close ties with the United States and the rest of the English-speaking nations. Britain's life-and-death struggle depended on its ability to somehow overcome widespread support in the U.S. for isolationist policies. The attitude among many persons of influence in the United States was that the corruption of the Old World powers had reached the point where an era of upheaval was inevitable. The was no tradition of effective participatory government in Spain, Italy and Germany. France and Britain now had their own Fascist parties to contend with, and there was considerable doubt whether those who had long held power through institutionalized privilege would yield to a true expansion of social democracy. Even Britain and France might yet succumb to the tyranny of the one party state. As late as October 1939, John Foster Dulles argued that cries against German aggressions were more of the same "stock in trade of those who have vested interests which they want to preserve against those in revolt against a rigid system."[146] Roosevelt heard similar views expressed by Adolph Berle and Joseph Kennedy.

Although Franklin Roosevelt was less than anxious to assume a leading role against the aggressor nations when those far more directly affected opted for appeasement, he was at the same time extremely concerned by the failure of Cordell Hull, his Secretary of State, to find a solution to the emerging crisis of Japanese aggression - and the Japanese challenge to U.S. interests -- in Asia. At the same time, many within the State Department continued to recognize the expansion of Bolshevism as the gravest threat to the republic. A permanent anti-communist contingent was emerging within the U.S. foreign policy establishment, individuals willing to support all manner of dictatorships so long as they declared themselves to be anti-communist. Hans Morgenthau, on the other hand, urged Roosevelt to unite with the Old World's constitutional republics and other willing nations to blockade Germany while there was yet time. Allen Dulles, who had recently been to Germany and recognized in Hitler the menace he posed to world peace, thoroughly agreed. Then came the so-called Crystal Night ("Kristallnacht") of November 7, 1938, when the Nazis systematically burned Jewish synagogues and businesses, killing hundreds of Jews in their shops and homes. Many leading public figures in the U.S. joined with transnationals in a condemnation of the Fascist regimes and began to modify their isolationist views.

One of the more creative efforts to strengthen the social democracies was advanced in the late 1930s by a journalist working for the New York Times, Clarence K. Streit. In a series of articles (and eventually in book form) he made his case for the formation of a union of democratic peoples:

Merely by the elimination of excessive government, needless bureaucracy, and unnecessary duplication which Union would automatically effect, the democracies could easily balance budgets while reducing taxation and debt. To an appalling degree taxes and government in the democracies today are devoted only to the maintenance of their separate sovereignties as regards citizenship, defense, trade, money and communications. To a still more appalling degree they are quite unnecessary and thwart instead of serve the purpose for which we established those governments and voted those taxes, namely, the maintenance of our own freedom and sovereignty as individual men and women.[147]

Streit had a great deal of faith in the citizens of a democratic society to accomplish dramatic change. "The democracy that permits a book such as this one to be freely written by any simple citizen and freely read by any individual," he declared, "makes the speed with which the common will can be formed depend only on the book's truth and clarity, and the need for action."[148] What history also suggests, however, is that windows of opportunity are left opened only so long and that even the clearest of expositions, the most irrefutable presentations, coming from one or a few individuals are seldom sufficient to generate action. Henry George understood that real change during his lifetime was unlikely. He trusted that eventually truth would prevail. Sustained action on behalf of change, constrained by processes of democratic decision-making, requires a steadily widening constituency of support and frequent restatement of principles by individuals of diverse backgrounds. World events were working against the kind of action Streit proposed. However, a remarkable list of transnationals joined with Streit to form the Federal Union, Inc. One supporter was Columbia University's Harold C. Urey, who in 1934 had won the Nobel Prize for his discovery of heavy hydrogen; and, in August of 1940, Urey urged Einstein to give the project his support. In reply, Einstein asked:

Do you believe that America's intellectual leaders would ever openly subscribe to a policy which was clearly antithetical to the feelings of the average American? I am convinced they would not do so. Rather, they will choose, as they have done in the past, to remain passive while one bulwark of culture and justice after another is being destroyed -- passive, that is, until their own turn comes. Intellectuals are cowards, even more so than most people. They have always failed miserably when called upon to fight on behalf of dangerous convictions.[149]

Urey confirmed Einstein's general assessment of intellectuals as a group. He had written to numerous scientists urging support for Streit's plan, largely without result. A few years earlier, Albert Jay Nock had observed that the two great English-speaking democracies -- Britain and the U.S. -- were moving not closer but further apart in customs and attitude. The "burden of some two million laws," regulating the behavior of U.S. citizens had, according to Nock, brought about a "serious and debilitating deterioration of individual responsibility..."[150] The burdens of widespread unemployment, the losses of homes and farms were, at the same time, the immediate concerns of most people in the United States. Few had a very deep understanding of what had gone wrong with the American System. They would not have understood at all my reference to the set of socio-political arrangements and institutions of the country as fostering laissez-faire protectionism and landlordism. They understood corporate greed and the corruption of public officials. Increasingly, it seemed that only the deeper involvement of a strengthened national government could turn things around. This was not the opportune time for internationalists to appeal to mainstream America to think very far into the future. Streit's efforts would have to wait until the defeat of Italy, Germany and Japan became inevitable. Churchill was by this time convinced that only an overwhelming show of military strength could prevent the outbreak of a second global conflict:

Civilization will not last, freedom will not survive, peace will not be kept, unless a very large majority of mankind unite together to defend them and show themselves possessed of a constabulary power before which barbaric and atavistic forces will stand in awe.[151]

The Old World powers poised to do battle with the Germans, Italians, Japanese - and, possibly, Russians -- had become the victims of their own, longstanding internal discord. Britain's government, now headed by Neville Chamberlain, was firmly controlled by Conservatives, and many within the Conservative ranks were outspokenly pro-German. In particular, they had few objections to the creation of a strong German state in Central Europe to contain the spread of Bolshevism. In France, Leon Blum's socialist experiment had failed, and since June of 1937 the French lived on the brink of political anarchy. One should not be surprised, therefore, that neither the French nor the British conservatives reacted with concern when German troops moved across the Austrian border in March 1938 to bring the Austrians within the greater German state. From this point on until the declaration of war, foreign policy by the constitutional republics toward Germany, Japan and Italy relied on appeasement as the only alternative to war. The promise of an Anglo-American alliance on some level -- the only real means of giving the Axis powers reason for second thought -- disappeared when Chamberlain declined an invitation extended in January 1938 by Roosevelt to meet in Washington, D.C. Frustrated by Chamberlain's intransigence and disdain for an Anglo-American alliance, Anthony Eden resigned as Foreign Secretary.

Despite their apparent overwhelming military superiority in 1938, the French leaders despaired at the thought of having to face the Germans in defense of Czechoslovakian sovereignty. With each passing month, the Germans prepared to put ever more troops in the field and were producing four times the number of fighters and bombers each month as the French and British combined. Plagued by tentative military leaders and political upheaval, the French desperately sought a British commitment to stand with them. Chamberlain refused, believing there was nothing to be done for the Czechs if Hitler really wanted their territory. At the same time, senior officers within the German army's General Staff and members of the aristocracy plotted to put Hitler under arrest and revealed to the British the Fuhrer's intentions to take, by force, if necessary, the Sudetenland from the Czechs. They finally understood that allowing Hitler to gain power had been a terrible miscalculation. Germany was not ready for war and, they were sure, would suffer a terrible defeat. Ewald von Kleist was dispatched by the conspirators to London, where he met with Churchill, who assured him that any attack on Czechoslovakia would initiate a new global war. Chamberlain, informed of Kleist's visit but still unwilling to accept the truth, decided the time had come to meet face to face with Hitler. Meanwhile, German preparations went forward for the invasion of Czechoslovakia. Hitler was certain there would be no interference from the French, British or Russians.

Chamberlain made the trip to Berchtesgaden on September 15, 1938, promising Hitler all that he wanted if only war could be averted. Negotiations, threats, conciliatory gestures and the mobilization of troops by all the powers involved continued throughout the rest of September. Hitler wanted war, wanted the Czechs to resist his demands so that he could invade and take Czechoslovakia. Chamberlain's desire to somehow avoid a second world war drove him to sacrifice the Czechs without any real promise of lasting peace. Hitler was growing increasingly impatient and remained adamant that he would have all of Czechoslovakia, and more. Although he would become momentarily diverted by the details of removing those of the Jewish faith from German society and German lands, Hitler soon returned to his plans for the conquest of Eurasia.

In March of 1939 the Czech government was forced by separatist agitation to declare martial law. Hitler countered by forcing the Slovaks to declare their independence and put themselves under German protection. Surrounded and threatened with annihilation, the Czech leaders now surrendered without a fight to the Germans. Initially, the British took no action and made almost no protest. The French protested to the Germans but also took no action. Within a few days, however, the political situation in Britain dramatically changed. Chamberlain finally awoke to Hitler's true nature and objectives, and on March 31 he declared Britain's commitment to protect Polish independence. This change in attitude was, perhaps, all the more remarkable given the fact that the Poles had been more than happy to take part of Czechoslovakia for themselves.

Hardly concerned with British threats, Hitler opened his propaganda attack on the Poles. His first demand was the return of the port city of Danzig to Germany. Though pro-German in attitude, the Polish Foreign Minister, Colonel Jozef Beck, resisted German demands but had little in the way of military capability to back up his words. Polish resistance would depend to a very great extent on the timely intervention of the French and British. In the east, the Poles faced the anger of a rapidly strengthening Soviet Union, where Stalin had not forgotten that in 1920 the Poles had taken advantage of the Russian civil war to expand eastward at Russia's expense. In March of 1939 Ribbentrop informed the Polish ambassador that Hitler would accept no further delays or resistance; Poland must give up Danzig, grant the Germans access through the corridor and commit to an anti-Soviet alliance. Days later Lithuania was forced to return the port of Memel to Germany, a clear indication that Hitler's threats were real. Convinced they would receive help, the Poles mobilized and declared their determination to resist all German demands. On April 3 Chamberlain restated the British commitment to come to the aid of the Poles if attacked. On the same day, Hitler set September 1 or earlier for his invasion of Poland.

Hitler realized he now needed some sort of rapprochement with the Soviet Union, whose armies -- having fought Japanese encroachments in eastern Asia to standstill -- were largely free to engage any foe in the West. Hitler decided to agree to a joint declaration by the French and German governments guaranteeing existing borders. Stalin sensed that German territorial designs would soon head in the direction of the Soviet Union and decided Russia would not risk war with Germany over what were largely the interests of the French and British. Stalin publicly suggested as much in March of 1939 during a speech before the Eighteenth Party Congress. Stalin's desire for an accommodation with Hitler moved forward after a proposal for a conference with Britain, France, Rumania and Turkey was rejected by Chamberlain. Chamberlain, by this decision, left the Bolsheviks free to reach the appropriate conclusions about the West's attitude should the Germans move through Poland and against them.

The process of a German-Soviet rapprochement began late in 1938 with negotiations for the expansion of trade, then moved ahead in fits and starts through May of 1939. Stalin then decided to accelerate the course of events by replacing Maxim Litvinov (who was Jewish) as Foreign Commissar with Vyacheslav Molotov. Anglo-French fears were heightened later in May when a German-Italian military alliance was announced. Considerable effort was then made by the British and French to bring the Soviet Union into an anti-German alliance, but this proved impossible for two primary reasons. The first was their failure to simultaneously negotiate political and military protocols in conjunction with the Poles themselves, once again showing a callous disregard for peoples whose fate was most directly at risk. The second was a perception conveyed of a continuing tentativeness to commit to a ground war directed immediately against Germany. Thus, when the Poles refused to allow Soviet troops to enter their territory, Stalin reached his decision. On August 23 the Soviet Union entered into a ten-year non-aggression pact with Germany, an agreement that also included the partitioning of Poland between them. Hitler once again managed to isolate his next intended victim from any significant outside military intervention.

As German troops moved during the last days of August to the Polish border, as the outbreak of war seemed clearer and clearer to even casual observers, the basis for peaceful resolution of tensions evaporated. Still, the British and French did little to position themselves to come to the aid of the Poles. Precious hours and thousands of Polish lives were lost on the day of attack, September 1, while the great allied governments continued to ponder their entry into a second world war. As the attack continued into its second day, Chamberlain was severely attacked in the House of Commons for delaying Britain's declaration of war. Chamberlain had been pressing the French for joint action -- without result; and, now, his own political career was in serious jeopardy. At noon on September 3 the British finally declared war on Germany; France followed suit shortly thereafter. They nevertheless did nothing on the battlefield.

There were, as yet, no British troops in France, and the French had no intention of moving against the Germans alone. Within the first few days of war the Polish air force was destroyed (almost all on the ground). By mid-month, Warsaw was surrounded and the Polish armies virtually annihilated. At the beginning of the fighting, Churchill declared before the House of Commons:

This is not a question of fighting for Danzig or fighting for Poland. We are fighting to save the whole world from the pestilence of Nazi tyranny and in defense of all that is most sacred to man. This is no war of domination or imperial aggrandizement or material gain; no war to shut any country out of its sunlight and means of progress. It is a war, viewed in its inherent quality, to establish, on impregnable rocks, the rights of the individual, and it is a war to establish and revive the stature of man.[152]

Many Americans were not so sure. Francis Neilson, not among Churchill's admirers, authored an unpublished pamphlet titled Why Hitler? circulated among his friends and acquaintances. During the war he kept a journal, and eventually completed a rather controversial history of the war, a five-volume work titled, The Tragedy of Europe. Neilson was extremely fearful once the war began of governmental measures to prevent or penalize any expression of opposition to war policies. He later recorded that those who encouraged him in this writing, including Robert M. Hutchins, President of the University of Chicago, "did not realize that, if the volume fell into the hands of the government propagandists, it might be suppressed" as similar "speeches and books"[153] were during the First World War. The first volume of The Tragedy of Europe was published late in 1940 without government interference but was distributed quietly and without promotion. Even at this early stage of the war, Neilson expressed grave concerns over what would occur once peace again returned. The second, third and fourth volumes appeared during the war years; the final volume appeared in October of 1946. Friends then encouraged Neilson to prepare a condensed edition. He decided instead to work on a new book that examined the "events before Hitler's onslaught on Poland,"[154] which was published in 1950 with the title The Makers of War.

Churchill's expressed hope the war would finally serve "to establish and revive the stature of man failed to take into account the consequences of having Stalin as an ally. On October 1, after Soviet forces poured across eastern Poland to share in the division of territory, Churchill was hesitant to condemn the Russian actions, preferring to describe the occupation as "clearly necessary for the safety of Russia against the Nazi menace."[155] Poland was gone, and many of its citizens were now destined to be killed at the hands of Nazi fanatics and Bolshevik-led occupation forces. Millions more were forced into slavery to work for the Third Reich.

While one cannot by any logic defend the actions of Hitler and the Nazi regime, there is certainly room for discussion on the question of whether the socio-political systems of the warring states were inherently different or merely seemed to be. Ethnic nationalism had replaced tribalism as the basis for declarations of superior claim to portions of the earth; however, wars of annihilation in pursuit of absolute control over territory were hardly a German or Nazi creation. The weapons available to the belligerents were simply more destructive than ever before. From the perspective of countless peoples scattered around the globe, the best thing that could happen was for Britain, France, Germany, Italy, Japan, the Soviet Union and even the United States to wear themselves out in an all out war against one another. Then, perhaps, sovereignty might be regained by the less industrially advanced and militarily unprepared societies whose people had come under external domination. When Roosevelt attempted to pressure Germany on moral grounds, Hitler was quick to remind Roosevelt of the recent and past history of the United States:

Mr. Roosevelt declares that it is clear to him that all international problems can be solved at the council table.

I would be very happy if these problems could really find their solution at the council table. My skepticism, however, is based on the fact that it was America herself who gave sharpest expression to her mistrust in the effectiveness of conferences. For the greatest conference of all time was the League of Nations ... representing all the peoples of the world, created in accordance with the will of an American President. The first State, however, that shrank from this endeavor was the United States. ...

The freedom of North America was not achieved at the conference table any more than the conflict between the North and the South was decided there. I will say nothing about the innumerable struggles which finally led to the subjugation of the North American continent as a whole.

I mention all this only in order to show that your view, Mr. Roosevelt, although undoubtedly deserving of all honor, finds no confirmation in the history of your own country or of the rest of the world. ...

I must draw Mr. Roosevelt's attention to one or two historical errors. He mentioned Ireland, for instance, and asks for a statement that Germany will not attack Ireland. Now, I have just read a speech by De Valera, the Irish Taoiseach [Prime Minister], in which, strangely enough, and contrary to Mr. Roosevelt's opinion, he does not charge Germany with oppressing Ireland but he reproaches England with subjecting Ireland to continuous aggression. ...

In the same way, the fact has obviously escaped Mr. Roosevelt's notice that Palestine is at present occupied not by German troops but by the English; and that country is having its liberty restricted by the most brutal resort to force. ...[156]

Hitler went on to make other points, the logic of which would have had greater weight had they come from an individual at least moderately supportive of social democracy and individual liberty. Words spoken by a demagogue, even when true, are easily ignored by those who have not come under the emotional spell of the true believer.

That the war now underway was, indeed, a war of aggression by despotic dictatorships against either hapless peoples and against democratic process was now clear to many intellectuals who had previously looked with some or great favor on Fascist or Bolshevik principles. Stalin's murderous ways were finally becoming known. One can imagine the feeling of betrayal when radical Marxists in the U.S., Britain and around the globe heard that Stalin had signed a treaty with Hitler. The equalitarian objectives championed by many socialists were being ruthlessly subverted by Stalin, who had made a pact with the devil. The promise of a Soviet-directed revolution to bring about international socialism was dead. In its place, the age-old empire-builders were carving out new spheres of influence and domination under new banners and with new slogans.

Communists in the U.S. at first attempted to defend the actions of Stalin by putting all imperialist powers in the same morally bankrupt category. Then came the partitioning of Poland and the war of territorial conquest against the Finnish people. Almost immediately, editorials in the Nation and the New Republic revealed that U.S. intellectuals had turned against the Soviets - or, at least, against the Stalinist regime. Trotsky, guided by moral relativism only moderately less despotic than that of Stalin, declared the revolution betrayed. For his trouble, he was destined to be hunted down by Stalin's agents and murdered in Mexico. Sidney Hook, fairly representative of those intellectuals who had long believed in Marxism as a potentially liberating force, now wrote that "[a]lmost all of the liberating ideals of the Russian Revolution have been abandoned to such an extent that the identification of its cultural and political institutions with those of other totalitarian countries is inescapable to the critical mind."[157] Norman Thomas went even further, declaring that "Lenin, Trotsky, and above all, Stalin, pioneered in that contempt for pity and that Machiavellian ruthlessness in which Hitler has become so adept."[158] All of a sudden democratic processes and institutions, even taking into consideration the power of landlordism in its various forms, were recognized and accepted as key ingredients to constructive societal change. Social democracy, the ex-socialists and ex-communists increasingly observed, could be achieved incrementally within the existing socio-political structure.

The advance toward social democracy was disjointed, at best, and, sadly, too often in conflict with the principles of cooperative individualism. Yet, the Roosevelt era managed to place significant restrictions on the century long experiment in laissez-faire protectionism. In 1975, historian Otis Graham described the U.S. society emerging from the 1930s as "the post-New Deal Broker State," characterized by a "mix of partial planning and ad hoc interventionism."[159] The great cleansing had begun in Britain before the war, and with peace there would be no turning back a reliance on central government planning to counter the influences of entrenched privilege. Government power was to be increasingly relied upon as the primary engine of the British social welfare state. In the U.S. the Keynesian-oriented economists -- Alvin Hansen, James Tobin, John Dunlop, Seymour Harris, John Kenneth Galbraith, Paul Samuelson and others -- produced a steady stream of young disciples who specialized in the art of fine-tuning economies. Many secured positions in the wartime government. The Office of Price Administration became home to John Kenneth Galbraith, Gardner Ackley, Philip H. Coombs and James Tobin. Walter Heller served in the U.S. Treasury, W.W. Rostow worked for the O.S.S. This is not to say that only Keynesians managed to find work within government. Even Milton Friedman, his doctorate not yet completed and his own brand of monetarism still to be developed, spent the war years working in the Division of Tax Research of the U.S. Treasury.

Early in 1941 Roosevelt began in earnest to prepare for the coming war. This the U.S. did in a rather disorganized and overlapping manner. Yet, the final result was nothing short of astounding. By 1945, fully 40 percent of all goods produced were for the war effort. During the same period the nation's Gross National Product expanded from $100 billion to almost $215 billion (a third of which was attributable to inflation). It is worth noting how little relationship the G.N.P. (or G.D.P.) measurements have to increased well-being on the part of a citizenry. The goods produced could not be consumed or utilized to make life easier or more enjoyable; their purpose was to destroy enemy targets, whether those targets were warships, bombers, war factories, soldiers or civilians and their homes. A clear indication of the situation facing the great bulk of mostly propertyless workers in the U.S. was the fact that in the face of rising prices they were forced to resort to the strike on a regular basis. The nation's industrial landlords saw no reason to change the way they operated before the Depression. Labor leaders now called upon government to assume an activist role in balancing the interests of those who controlled land, capital goods and financial reserves, with those who relied on their own labor for survival. Walter Lippmann, among others, forecast the arrival of postwar changes:

Men have always, of course, deplored unemployment and wanted good and profitable work, and they have struggled and fought for it. But in this century, bloody and violent though it has been, mankind has made an epoch-making discovery. It is that involuntary mass unemployment in a modern industrial nation is an unnecessary and preventable evil.

Economists, industrial leaders, public officials are by no means entirely agreed which among the many measures are the best. But never again will they or the mass of the people accept the view, which was the common view thirty years ago, that public policy has nothing to do with and can do nothing effective about the maintenance of reasonably full employment. ...

In our epoch the principle of the division of labor has been modified and supplemented by the discovery that large nations with big resources, skilled labor, and progressive management can, if they insist on it, regulate the cycle of booms and depressions. Since the discovery has been made, the public will no more tolerate a failure to apply it than they would tolerate hospitals which refused to use sulfa drugs and penicillin.

If we can absorb this idea, that by a successful policy of maintaining full employment here at home we make our fundamental contribution to economic stability and prosperity abroad -- if we grasp this idea, then all sorts of vexatious issues will fall into their proper perspective. Here is the real answer to the notion that prosperity depends upon cutthroat competition for international markets; with full employment at home we shall have no frantic desire to export furiously. Here is the real answer to the notion that we can or should restore world prosperity by some kind of vast philanthropy; if the American economy, which is such an immense factor in the world economy, is kept working steadily at reasonably full capacity it will set up a demand for goods which will contribute enormously to prosperity almost everywhere else.[160]

Lippmann was setting the bar rather high, higher in fact than most among the American elite considered acceptable. Much in the same way that the war for independence from Britain in 1776 had required conservatives to give ground to democratic processes and institutions of limited citizen participation, the Second World War established conditions for a similar shift in the balance of power. Full employment generated a new equilibrium, one that promised real benefit to those who received their incomes almost exclusively as wages rather than as rent or interest. A new window of opportunity had opened. How long it would remain open was the great unknown. For transnationals in the U.S. and elsewhere, the question was whether wartime measures would lead to permanent postwar changes in socio-political arrangements. Would legislation finally eliminate entrenched privileges and monopoly licenses? Would the private appropriation of the exchange value of locations and natural resource-laden lands continue unabated? Or, would government finally begin to play its necessary and appropriate role for creating and maintaining a fair field with no favors? In old age, Francis Neilson left this cautionary note for the reformer and political activist of succeeding generations:

The time spent upon the political platform in an attempt to educate the masses was ill spent. The bitter experience of three wars has taught me that the mass is not reformable. Then why should I cudgel my brains about their afflictions? How can I help them, if they are not willing to help themselves?[161]

The war had to be fought and won. This would require mobilization of most of the world's productive capability. Already by early 1940 there was great concern within the Roosevelt cabinet that across large sections of Europe food would be very scarce. Ironically, the rapid German occupation of the European continent enabled European farmers to plant their crops and avoid widespread famine. Britain, on the other hand, was desperately in need of assistance from the U.S. and Canada, whose ships had to travel U-boat infested Atlantic waters.
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