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September 22, 2006

Bush Believes in the Bogeyman


by Ann Berg

President Bush believes in the bogeyman the bogeyman theory of history, that is. In order to frighten Americans, he paints the War on Terror as a rematch between the free world and the fascist monsters of the 1930s. But fascism wasn't confined to a few errant nations, such as Germany and Italy. Propelled by the collapse of the global economy and the gold standard monetary system, it was a universal phenomenon.

WWI shattered Europe. Three empires collapsed: the German, the Austro-Hungarian, and the Russian. Ruling dynasties, such as the Hohenzollerns and the Habsburgs, imploded into multiple states throughout the eastern and central region. A pact between France and Britain carved up the last unclaimed dominion of the crumbled Ottoman Empire, creating the mandates of Syria, Lebanon, Iraq, and Palestine. The upheaval claimed 15 million lives in battle or famine.

The economic ruin quickly unfolded. At war's end, Great Britain, previously the world's largest overseas investor, was one of its biggest debtors, its interest payments devouring 40 percent of all government spending. Czarist Russia, formerly a magnet for foreign investment, experienced a flight of capital as the Bolsheviks seized control of industry, agriculture, banking, and foreign trade. France and Belgium, devastated from the German land invasion, became hoarders of bullion. Forced to pay reparations, Germany saw its coffers drained of gold and its land emptied of coal and steel. Hyperinflation, unknown on the continent in the preceding century, ravaged the economies of Russia, Austria, Hungary, Poland, Bulgaria, and Germany.

Amid this monetary chaos, nations of every political stripe desired the restoration of the gold standard. Lenin's communist Russia was the first country to stabilize the ruble to gold in 1923. Mussolini waged a nationalistic battle Quota Novanta vowing to restore the weakened Italian lira to the prewar level of 90 against the British pound (itself fixed to gold in 1924). In an opposite move, France devalued its currency to one-fifth its former level in order to gain a competitive export advantage. Germany miraculously restored the reichsmark in 1924. When debt-ridden Britain fixed the pound sterling at the lofty prewar level, it quickly saw a 12-percent surge in unemployment, which had held steady at 3 percent for nearly 70 years. An unstable world discovered that a single money standard, previously considered a purely economic institution, was also a social mechanism, underpinning the welfare of swaths of agriculturalists and workers.

When The Economist declared in 1932, "Unemployment reaches 25 million," adding that trade had been cut in half in two years, the impossibility of restoring the prewar order was clear. In addition to the 1929 stock market crash and the enactment of prohibitive tariffs, the curtailment of credit by the U.S. and France (which together held 62 percent of the world's monetary gold) to the infant European countries triggered a global monetary crisis. As prices nose-dived, the Creditanstalt Bank of Austria saddled with loans to businesses awash with unsellable inventories collapsed, causing banking panics across the world. Britain, fearing a run on sterling, went off the gold standard in 1931. Between 1929 and 1932, one-third of U.S. banks failed, forcing America off gold in 1933. The world ceased to have a single medium of exchange, and sterling fractured off as a block for countries under British influence.

Under these dismal conditions, the world retrenched from liberal economic ideals, and fascism and autarchy became the paths to salvation. The state and only the state could redirect economic and social life. National and racial identity were its organizing principles. Ten years after Keynes damned it as a barbarous relic, the gold standard a supranational phenomenon was dead.

World Pattern

A review of the interwar situation in Italy shows the pattern of change under Mussolini. After the March on Rome secured his premiership from the King Vittorio Emanuele III in 1922, Mussolini strove for capitalistic reforms. He advocated tax cuts, corporate vitality, and a return to the gold standard, achieving all three. Not until the 1930s did Italy, which had allied with the U.S. during the First War, exhibit the politics normally associated with the fascist ideology. It took 10 years after his ascent to power for Mussolini to define a comprehensive view of fascism, which he memorialized in the Italian Encyclopedia in 1932. The former draft dodger primarily glorified war and sacrifice for the state.

By 1935, Italy was struggling on its path to self-sufficiency. One of the few countries still clinging to the gold standard, it lacked essential raw materials like coal and oil and devalued its currency to improve its export earnings. As a 1935 analyst noted, however, "No government, whatever its political complexion, [can] escape from Italy's fundamental dilemma the disproportion between the country's limited resources and the needs and aspirations of a prolific race. Should international stabilization fail to materialize, Italy under fascism might come to regard territorial expansion as the only escape from its economic problems." The same year, Italy invaded Ethiopia.

Japan underwent a similar pattern. As a WWI American ally, Japan was a parliamentary (albeit weak) democracy from 1889 to 1930. After 1931, the military battled for control, culminating in a 1936 bloody coup, when 1,400 troops stormed the heart of Tokyo and assassinated four public officials. In 1938, Thomas A. Bisson, an American expert on Japan, wrote that the term fascism applied to "the most reactionary elements of the ruling classes to defend their position against an economic crisis by overthrowing parliamentary government, establishing a terroristic [sic] dictatorship oppressing working class organizations, and engaging in a chauvinistic program of military expansion."

By 1938, Japan's fascist government held sway over the entire domestic economy. The Cabinet Planning Board could conscript workers, prohibit strikes and lockouts, and fix wages, hours, and working conditions. Then engaged in its second war with China, Japan's ruling military clique made a bargain with Mitsui, Mitsubishi, and Nissan to double the war budget. Even though Japan had signed an anti-Comintern pact with Germany in 1936 (Italy joined in 1937), by 1938 Japan was receiving over 50 percent of its war materials (including 60 percent of its petroleum) from the U.S., an indication that the U.S. didn't perceive fascism as a threat.

In a 1937 article entitled "Fascism and Communism in South America," Stephen Naft reported, "President Vargas established a semi-fascist dictatorship in Brazil Nov. 10, 1937" and went on to name five countries Brazil, Ecuador, Peru, Bolivia, and Paraguay governed by dictatorial regimes, listing Uruguay and Venezuela as borderline. Naft observed, "The decline in the prices of coffee, copper, tin, nitrates and rubber all but shattered the economic structure of South America. Budget deficits, [an] inability to pay the salaries of government employees, numerous bankruptcies, and mass unemployment called forth general discontent and bewilderment. One of the consequences was a large crop of military revolts and similar uprisings."

Central Europe, the center of nascent states, saw a trend toward democratic or socialist governments in the war's immediate aftermath. After 1929, however, Yugoslavia, Germany, Austria, and Bulgaria switched successively to one-party dictatorships. To the west, Spain spawned its fascist movement, which ultimately led to a showdown between the Falangists and the socialists, from which the right-wing Generalissimo Francisco Franco emerged victorious in 1938.

Even the U.S., France, and Britain saw the creation of fascist parties, though they did not garner much political influence, owing in part to these countries' wealth and long experience with republican governments. However, some commentators of the time compared the New Deal to Mussolini's corporative model, arguing that Roosevelt sought to "control or regulate industry, agriculture, credit, and other branches of economic activity."

And although the Red Menace and fascism faced off in deadly warfare, their political ideologies were one regarding totalitarianism, terror tactics, and purges. State control over populations enduring the misery of deflationary economics was paramount. Most experts estimate that Chiang Kai-shek, Mao, Stalin, and Hitler murdered over a hundred million of their own citizens.

The president's claim that we are confronting fascism in the Middle East is absurd. Fascism grew out of a unique historical context that empowered the secular state as an economic savior. It transcended geography and historical ties, and used race and religion as expedients. The fight the U.S. has picked may be a clash of worldviews, but it is hardly a fight between democracy and totalitarianism. It's a conflict between a statist military power that perceives itself as omnipotent and a decentralized jumble of factions that, unlike a state, cannot be bombed or bribed into submission. And that's why Bush must conjure up the bogeyman.

Unless otherwise noted, quotes are taken from Foreign Policy Reports, a bimonthly journal published 1925-51 by the Foreign Policy Association, New York, N.Y.

 

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Ann Berg has spent a 30-year career in commodities and capital markets as a trader, consultant, and writer. While a commodity futures trader and Director of the Chicago Board of Trade, she advised foreign governments, NGOs (the United Nations, World Bank), think tanks (Catalyst Institute), and multinational and foreign corporations on a variety market-related issues. She was also a frequent conference speaker at international derivatives markets forums. In recent years, she has contributed articles to several commodities/capital markets publications, including Futures Magazine, Traders Source, Financial Exchange, and the Financial Times editorial page. Berg is also an artist. She is currently working on a body of work entitled The Unknown Unknowns – The Things You Don’t Know You Don’t Know, which explores U.S. national security policy.

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