II. The War, Artificial Business Stimulation, the Crisis, and the Countries of Europe

4. The high tide of capitalism was reached in the two decades preceding the war. The intervals of prosperity were superseded by periods of depression of comparatively shorter duration and intensity. The general trend was that of an upward curve; the capitalist countries growing rich.

Having scoured the world market through their trusts, cartels, and combines, the masters of world-capitalism well realized that this mad growth of capitalism would finally strike a dead wall confining the limits of the capacity of the market created by themselves. They therefore tried to get out of the difficulty by a surgical method. In place of a lengthy period of economic depression which was to follow and result in wholesale destruction of productive resources, the bloody crisis of the world war was ushered in to serve the same purpose.

But the war proved not only extremely destructive in its methods, but also of an unexpectedly lengthy duration. So that besides the economic destruction of the “surplus” productive resources, it also weakened, shattered, and undermined the fundamental apparatus of European production. At the same time it gave a powerful impetus to the capitalist development of the United States and quickened the aggrandisement of Japan. Thus the centre of gravity of world industry was shifted from Europe to America.

5. The period following upon the termination of the four years’ slaughter, the demobilisation of the armies, the transition to a peaceful state of affairs, and the inevitable economic crisis coming as a result of the exhaustion and chaos caused by the war—all this was regarded by the bourgeoisie with the greatest anxiety as the approach of a most critical moment. As a matter of fact during the two years following the war, the countries involved became the arena of a mighty movement of the proletariat.

One of the chief causes which enabled the bourgeoisie to preserve its dominant position was furnished by the fact that the first months after the war, instead of bringing about the seemingly unavoidable crisis, were marked by economic prosperity. This lasted approximately for one year and a half. Nearly all the demobilised workers were absorbed in industry. As a general rule wages did not catch up with the cost of living, but they nevertheless kept rising, and that created the illusion of economic gains.

It was just this commercial and industrial revival of 1919 and 1920, which to some extent, relieved the tension of the post-war period, that caused the bourgeoisie to assume an extremely self-confident air, and to proclaim the advent of a new era of organic capitalist development. But as a matter of fact, the industrial revival of 1919-20 was not in essence the beginning of the regeneration of capitalist industry, but a mere prolongation of the artificially stimulated state of industry and commerce, which was created by the war, and which undermined the economy of capitalism.

6. The outbreak of the imperialist war coincided with the industrial crisis which had its origin in America (1913) and began to hover menacingly over Europe. The normal development of the industrial cycle was checked by the war which had itself become the most powerful economic factor. It created an unlimited market for the basic branches of industry and secured them against competition. The war played the part of a solid customer ever in want of goods. The manufacture of productive commodities was supplanted by the fabrication of means of destruction. Millions of people not engaged in production, but in work of destruction, were continuously using up necessities of life at ever-increasing prices. This process is the cause of the present economic decline. By the contradictions of capitalist society the masters lent the cloak of prosperity to this ruinous prospect. The State kept issuing loan after loan, one issue of paper money following upon another, till State accounting began to be carried on in billions instead millions. The wear and tear of machinery and of equipment was not repaired. The cultivation of land was in a bad state. Public constructions in the cities and on the high-roads were discontinued. At the same time the number of government bonds, credit and treasury bills and notes, kept growing incessantly. Fictitious capital increased in proportion as productive capital kept diminishing. The credit system instead of serving as a medium for the circulation of goods, became the means whereby national property, including that which is to be created by the growing generations, was being mobilised for military purposes.

The capitalist State, dreading the impending crisis, continued after the war to follow the same policy as it did during the war, namely: new issues of paper money, new loans, regulation of prices of prime necessities, guaranteeing of profits, government subsidies, and other additions of salaries and wages, plus military censorship and military dictatorship.

7. At the same time the termination of hostilities and the renewal of international relations, limited though it was, brought out a demand for various commodities from all parts of the globe. Large stocks of products were left without use during the war, and the enormous sums of money centred in the hands of dealers and speculators, were mobilised by them to where they could produce the largest profits. Hence the feverish boom accompanied by an unusual rise of prices and fantastic dividends, while in reality none of the basic branches of industry, anywhere in Europe, approached the pre-war level.

8. By means of a continuous derangement of the economic system, accumulation of inflated capital, depreciation of currency (speculation instead of economic restoration), the bourgeois governments in league with the banking combines and industrial trusts, succeeded in putting off the beginning of the economic crisis till the moment when the political crisis, consequent upon the demobilisation and the first squaring of accounts, was somewhat allayed.

Thus, having gained a considerable breathing space, the bourgeoisie imagined that the dreaded crisis had been removed for an indefinite time. Optimism reigned supreme. It appeared as if the needs of reconstruction had opened up a new era of lasting expansion of industry, commerce, and particularly of speculation. But the year 1920 proved to be a period of shattered hopes.

The crises—financial, commercial, and industrial, began in March, 1920. Japan saw the beginning of it in the month of April. In the United States it opened by a slight fall of prices in January. Then it passed on to England, France, and Italy, (in April). It reached the neutral countries of Europe, then Germany, and extended to all the countries involved in the capitalist sphere of influence during the second half of 1920.

9. Thus the crisis of 1920 was not a periodic stage of “normal” industrial cycle, but a profound reaction consequent upon the artificial stimulation that prevailed during the war and during the two years thereafter, and was based upon ruination and exhaustion.

The upward curve of industrial development was marked by turns of good times followed by crises. During the last seven years, however, there was no rise in the productive forces of Europe, but, on the contrary, they kept at a downward sweep.

The crumbling of the very foundation of industry is only beginning and is going to proceed along the whole line.

European economy is going to contract and expand during a number of years to come. The curve marking the productive forces is going to decline from the present fictitious level. The expansions are going to be short-lived and of a speculative nature to a considerable extent, while the crises are going to be hard and lasting. The present European crisis is one of under-production. It is the form in which destitution reacts against the striving to produce trade, and resume life on the usual capitalist level.

10. Of all the countries of Europe, England is economically the strongest and has been the least damaged by the war but, even with regard to this country, one cannot say that it has, in any way, gained its capitalist equilibrium after the war. Owing to its international organization and to the fact that it came out victorious from the war, England did indeed achieve some commercial and financial success. It improved its commercial balance, it raised the rate of the pound and reached an accounting surplus in its budget. But, in the industrial sphere, England, after the war, not only did not progress, but made big strides backward. The productivity of labour in England today, and her national income, are much below that of the pre-war period. The coal industry, which is the fundamental branch of her national economy, is getting ever worse and worse, pulling down all the other branches of industry. The incessant disturbances caused by the strikes are not the cause but the consequence of the derangement of English economy.

11. The ruin of Belgium, Italy and France brought about by the war is no less than that inflicted on Germany. The post bellum “reconstruction” of France is being parasitically carried on by means of the progressive ruination of Germany, robbing the latter of her coal, machinery, cattle and gold. The French bourgeoisie is striking heavy blows at the entire capitalist order. France is getting much less than what Germany is losing. The so-called reconstruction of France is nothing more than piracy accompanies by diplomatic black-mail. The economic decline of that country is imminent. When the last period of expansion came to its end (in March, 1920) the depreciation of French paper money reached 60 per cent., while that of Italy came down to 75 per cent. of its face value.

12. A striking illustration of the illusory nature of this kind of business expansion is presented by Germany, where a seven-fold increase in prices coincided with a sharp decline of production. Germany won her apparent success in international trade relations at the cost of both the deterioration of the nation’s basic capital (the destruction of industry, transportation and credit systems) and the progressive lowering of the standard of living of her working class. From the social and economic standpoint the profits gained by German exporters represent pure loss. For this export in reality amounts to selling out the country’s resources at a low price, while the capitalist masters of Germany are securing for themselves a constantly increasing share of the ever decreasing national wealth, the workers of the country are becoming the coolies of Europe.

13. As to the smaller neutral countries, they preserve their deceptive political independence thanks to the antagonistic contentions of the great powers. They maintain their economic existence on the fringes of the world market, whose essential nature used to be determined in the ante-bellum period by England, Germany, America and France.

During the war the bourgeoisie of these countries were making enormous profits, but the devastation of those countries which had been involved in the war led to the economic disorganization of the neutral countries as well. Their debts have increased, their currency exchange has dropped. The crisis spares them no blows.