This passage dealing with the reparation arrangements made following the First War appears on page 8 of the first volume of Churchill’s The Second World War:
The multitudes remained plunged in ignorance of the simplest economic facts, and their leaders, seeking their votes, did not dare to undeceive them. The newspapers, after their fashion, reflected and emphasised prevailing opinions. Few voices were raised to explain that payment of reparations can only be made by services or by the physical transportation of goods in wagons across land frontiers or in ships across salt water; or that when these goods arrive in the demanding countries they dislocate the local industry except in very primitive or rigorously-controlled societies. In practice, as even the Russians have now learned, the only way of pillaging a defeated nation is to cart away any movables which are wanted, and to drive off a portion of its manhood as permanent or temporary slaves. But the profit gained from such processes bears no relation to the cost of the war. No one in great authority had the wit, ascendency or detachment from public folly to declare these fundamental, brutal facts to the electorates; nor would anyone have been believed if he had. The triumphant Allies continued to assert that they would squeeze Germany “till the pips squeaked”. All this had a potent bearing on the prosperity of the world and the mood of the German race.1
You may ask what is so remarkable about this paragraph. No doubt it is considered to be particularly dry amidst Churchill’s prose and the violence of the period. But this paragraph, if examined closely, alludes to many of the broader economic and financial concerns that plague our modern economy.
It is not unfair to say of today, as Churchill said of the populations following the Great War, that ‘the multitudes remain plunged in ignorance of the simplest economic facts.’ Many may dispute this because they make some effort to read the papers or study the stock market and so on, but the media simply ‘reflect and emphasise prevailing opinions.’ Offence is likely the result if people are told they are ignorant, but the root word of ignorance is ignore, which aptly describes the approach of our fast food information system to the role and functions of finance. If one does not search for answers beyond establishment sources, one will not come into contact with the information required to constitute realistic conclusions. That it is not the business of politics to disinherit the public of the myths on which the government of nations rests is a matter of such prolific precedence we will consider it as generally known.
A chief misconception that pervades financial thought is the relationship between real and financial credit. Real credit refers to the rate at which goods and services can be delivered as, when and where required. Financial credit is the rate at which money is created by banks. The relationship between the two can be described thus; real credit is the material wealth of a given community who require money to organise and distribute it. Money has no value whatsoever in the absence of the material wealth people want.
The central theme in this passage is the confusion between real and financial credit. The populations of the victor nations were under the impression that real credit was financial credit and so Germany might be made to pay for the war by presenting her with a big bill for damages. At the time, and unfortunately since, little consideration was given to the real credit side of the economic coin. How was Germany to service this new debt? What would be the result of the debt as it drained Germany of its chance to recover in the years just after the war and what would be the effect of such an influx of goods on the economies of the receiving nations? This misconception explains why Churchill belabours the point of the material delivery of ‘services or by the physical transportation of goods in wagons across land frontiers or in ships across salt water.’ The relationship between real and financial credit remains confused in the minds of the electorate and is a root cause of our financial and economic dysfunction.
The relationship between real and financial credit is largely a question of what we want. Do we want money or do we want goods and services? If we decide the latter then we will cease to allow those who deal in money to dictate the terms of the distribution of our real wealth to the legitimate owners of it; the community that associate to produce it, for the same community who demand it.
Continuing with our analysis I would draw your attention to this phrase ‘or that when these goods arrive in the demanding countries they dislocate the local industry…’ While Churchill is referring to the goods arriving from Germany as payment of reparations, this dislocation occurs in varying degrees when any goods arrive from abroad that are being produced locally. In the current setup access to goods and services does not depend on their availability, which is ample as any trip to the shopping centre will make clear, but on access to money through employment. The acceptance of goods from abroad endangers local employment because the local production must compete with the production from abroad. If local industry cannot sell their product because they cannot compete with imports, local industry will cease to exist, as will the incomes it distributed. Unemployment has a depressing and dislocating effect on all concerned and causes an irritation which becomes the predominant concern of politics. So the problem of markets (places to sell goods to get money to keep people working) dominates public and political discussion. There are two methods for the opening of markets; Arundati Roy describes them as the ‘chequebook and the cruise missile.’
Douglas makes the connection between economic competition and war when he says ‘economic war has always lead to military war and probably always will,’ and the globalisation of trade brings about this economic war on a global scale. Worrying correlations can be drawn between the assembly of treaty obligations that contributed to the First and Second World Wars, and the national relationships currently being formed through so-called free trade instruments. An examination of the conditions that lead to war validates this connection, but peoples’ perception of history is conspicuously devoid of the contribution of financial and economic factors to military war, which is simply ‘an intensification of economic war, and differs only in method and not in principle.’
So we come to the ‘potent bearing on the prosperity of the world and the mood of the German race’. Douglas writes in his The Monopoly of Credit;
The so-called psychological causes of war are the response of human nature to irritations which can be traced to this cause either directly or indirectly. To say that all men will fight if sufficiently irritated seems to me to be an argument against irritating them, rather than an argument against human nature. It is not the irritation which causes the economic war it is the economic war that causes the irritation.2
Of course we could address the irritation by distributing incomes so people may buy goods without producing more goods that add to the global surplus problem, but that would be prioritising the material world above the abstract world of finance. In this phony world the purpose of production is not consumption but the provision of employment because work is good and moralising especially when it churns out those cruise missiles that we’ll make our reluctant markets swallow.
For a summary of this aspect of the problem I recommend Douglas’ BBC address, The Causes of War, available on this website.
Churchill, W.S. 1950. The Second World War Vol. 1, Cassell & Co. Ltd, Melbourne.
Douglas, C. H. 1979. The Monopoly of Credit, 3rd Edition, Bloomfield Publishers, England.