The Collapse of Capitalism
World Capitalism seemed to be doing well in early 1929, despite the loss of Russia after the revolution of 1917. There had been a brief depression after the war, but by the late 20s industrial production in Europe was 25% higher than it had been before the war and Britain was back on the gold standard. It was only in the spring and autumn of 1929 that industrial production showed signs of trouble, and prices went down. Then, on the 29th of October came the crash. By 1932 production had halved. Britain went off the gold standard in 1931, the US two years later. In 1933, world trade had shrunk by a third. The US, Germany, Latin America and Eastern Europe were particularly hard hit. The still vast British Empire managed to insulate itself to some extent by erecting tariffs along its borders, but by 1939, the capitalist democracies with lesser empires such as the United States and France in particular, were still at a lower production level in 1939 than they had been in 1929.
Capitalism Goes to War
The countries that had managed to deal most successfully with depression were the fascist-run Germany and Japan. Increasing state spending in armaments, they managed to secure employment for virtually everyone, which led to both fear and admiration in the west. The Soviet Union also avoided the depression as it was not part of global finance to begin with, and went through a period of rapid, and often violent, industrialization.
It was only with the outbreak of war that the US, first as “Arsenal of Democracy” and then as combatant, overcame the effects of depression. War rather than commerce was now the driving force of production. Many assumed that as soon as war was over, depression would return. But capitalism was fortunate in that the end of war did not mean the return of peace. The Cold War began almost as soon as the guns fell silent on the battlefields of Europe. But pressure was strong to bring the boys back home, and demobilization proceeded. It took the Korean War to get rearmament going again.
Blasting Those Yellow Reds to Hell
By the end of World War Two, Soviet troops had advanced to north of the 38th parallel and US troops to south of it. In 1946, a civil war broke out in South Korea, which grew to include border clashes with the north after both US and Soviet troops withdrew in 1948. The fighting died down briefly in early 1950, by which time 100,000 people had been killed. When the North finally launched a full scale invasion in June 1950, the Soviets thought it so unlikely that the United States would intervene that they didn’t even order their veto-holding diplomat at the UN back in place, currently away protesting against Taiwan holding China’s place in the Security Council. But intervene the US did, to the tune of 30,000 killed in action.
Another Good War
Early in 1950, the US National Security Council at the behest of Secretary of State Dean Acheson had drafted a top secret document known as NSC-68, calling for, among other things, the development of hydrogen bombs, rapid building of conventional forces, an increase in taxes to pay for these and the mobilization of American society to create consensus on the necessity of sacrifice. President Truman read the document in April 1950, but the proposals for higher taxes met opposition in Congress and even Secretary of Defence Louis Johnson said that Acheson’s plans would bankrupt the country. And then, as Acheson would later say, “Korea came along and saved us.”
The Cold War Flows, Ebbs and Flows Again
Two years after the end of the Korean War and the death of Stalin, a summit was held in Geneva which de-escalated tensions (the so-called “Spirit of Geneva”), and for the rest of the decade the Cold War seemed at risk of subsiding. By this time, a certain Senator Kennedy was warning of a “missile gap” with the Soviet Union, and upon being elected President increased arms spending significantly. Things were soon close to breaking point with the Cuban missile crisis in 1962. A missile gap did indeed exist, but in the United States’ favour, which never had less than an 8-1 advantage in nuclear missiles.
Another de-escalation of the Cold War came with Nixon’s detente. This time it lasted somewhat longer. The United States went off the gold standard, and the almost unbroken boom of the post-war years came to an end. By the early 80s, Ronald Reagan was warning of the Evil Empire, military spending was increased again, and this time plans were made to take the arms race into outer space. The Soviets couldn’t keep up, and finally showed their cards and folded.
A Good Day for Gun Runners
Optimistic as people from East Berlin to the Ukraine may have felt at being welcomed into the arms of the market system, this might well have spelled disaster to the armaments industry, the very backbone of modern Capitalism.
But again Capitalism got lucky. Saddam Hussein invaded Kuwait. The US brought their latest high-tech weapons to bear on Iraq’s Third World army in front of the world’s TV cameras. Sale of military hardware abroad picked up nicely.
Although failing to get the US involved in any major conflicts, Bill Clinton bombed Serbia, but by now US air power was old news. And then September 11th, one of those dates that happen rather than arrive, happened. And the armaments industry, it seems, will be safe for quite some time to come.
The Bottom Line
Ever since 1939, the capitalist economy has been driven first and foremost by military spending. Military capitalism has replaced market capitalism. Fascism, by any other name. Those who observed Hitler’s success in dealing with depression learned their lesson well.
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