Leon Trotsky

The First Five Years of the Communist International

Volume 1


Report on the World Economic Crisis and
the New Tasks of the Communist International

[Part I]

Second Session, June 1921

1917 – 1921

WITH THE IMPERIALIST war we entered the epoch of revolution, that is, the epoch when the very mainstays of capitalist equilibrium are shaking and collapsing. Capitalist equilibrium is an extremely complex phenomenon. Capitalism produces this equilibrium, disrupts it, restores it anew in order to disrupt it anew, concurrently extending the limits of its domination. In the economic sphere these constant disruptions and restorations of the equilibrium take the shape of crises and booms. In the sphere of inter-class relations the disruption of equilibrium assumes the form of strikes, lockouts, revolutionary struggle. In the sphere of inter-state relations the disruption of equilibrium means war or – in a weaker form – tariff war, economic war, or blockade. Capitalism thus possesses a dynamic equilibrium, one which is always in the process of either disruption or restoration. But at the same time this equilibrium has a great power of resistance, the best proof of which is the fact that the capitalist world has not toppled to this day.

The last imperialist war was an event which we rightfully appraised as a colossal blow, unequaled in history, to the equilibrium of the capitalist world. Out of the war has actually risen the epoch of the greatest mass movements and revolutionary battles. Russia, the weakest link in the capitalist chain, was the first to lose her equilibrium and the first to enter the road of revolution in 1917 – in the month of February. Our February Revolution had great repercussions among the working masses of England. 1917 in England was the year of the greatest strike struggles through which the English proletariat succeeded in checking the war – produced process of declining living conditions among the toiling masses. In October 1917 the working class of Russia took power. Strike struggles extended throughout the entire capitalist world, beginning with the neutral countries. In the autumn of 1918 Japan passed through a zone of tumultuous “rice” disorders, which according to some figures involved upwards of 25 percent of the population and which were met with cruel repressions on the part of the Mikado’s government. In January 1918, mass strikes took place in Germany. Toward the end of 1918, following the collapse of German militarism, revolutions took place in Germany and Austria-Hungary. The revolutionary movement keeps expanding. The most critical year for capitalism – at any rate for European capitalism – arrives: the year 1919. In March 1919 a Soviet Republic is formed in Hungary. In January and March 1919 fierce battles between the revolutionary workers and the bourgeois republic break out in Germany. In France there is tension in the atmosphere during the period of demobilization, but the illusions of victory and the hopes for its golden fruits still remain too strong; the struggle does not even begin to approximate here the proportions it assumes in the conquered countries. In the United States toward the end of 1919 the strikes acquire a mighty sweep, embracing the railway workers, the miners, the steel workers, etc. Wilson’s government unleashes wild repressions against the working class.

In the spring of 1920 in Germany an attempt to install counter-revolution through the Kapp putsch mobilizes and drives the working class to struggle. The intense but formless movement of the German workers is again mercilessly crushed by Ebert’s republic, which they had saved. In France the political situation reaches the pitch of intensity in May of last year during the proclamation of the general strike which, incidentally, proved to be far from general and which was poorly prepared and betrayed by the opportunist leaders who did not want the strike but didn’t dare admit it ... In August the Red Army’s advance on Warsaw – likewise a part of the international revolutionary struggle – meets with failure. In September the Italian workers, taking seriously the verbalistic-revolutionary agitation of the Socialist Party, seize plants and factories, but are shamefully betrayed by the party, suffer defeat all along the line, and are then subjected to a ruthless counter-offensive by the unified reaction. In December the revolutionary mass strike unfolds in Czechoslovakia. Finally, at the beginning of the current year, revolutionary battles with their toll of mass victims erupt in Central Germany; England witnesses the resumption of the stubborn miners’ strike, which hasn’t ended to this very day; and a general strike breaks out in Norway.

When in the initial postwar period we observed the unfolding revolutionary movement, it might have seemed to many of us – and with ample historical justification – that this ever-growing and ever-strengthening movement must terminate directly in the conquest of power by the working class. But now almost three years have already elapsed since the war. Throughout the world, with the single exception of Russia, power continues to remain in the hands of the bourgeoisie. In the interim the capitalist world did not, of course, remain standing still. It has been undergoing change. Europe and the entire world have lived through a period of postwar demobilization, an extremely acute and dangerous period for the bourgeoisie – the demobilization of people and the demobilization of things, i.e., industry – the period of wild postwar commercial boom followed by a crisis which has yet to terminate. And now we are confronted in its full scope by the question: Does development actually proceed even now in the direction of revolution? Or is it necessary to recognize that capitalism has succeeded in coping with the difficulties arising from the war? And if it has not already restored, is it either restoring or close to restoring capitalist equilibrium upon new post-war foundations?
 

The Bourgeoisie Gains Appeasement

If, before analyzing this question from its main economic aspects, we approach it purely politically, we shall have to set down a whole number of symptoms, facts and statements which attest to this, that the bourgeoisie has become stronger and more stable as the class in power, or at all events feels that way. In 1919 the European bourgeoisie was in a state of extreme confusion. Those were the days of panic, the days of a truly insane fear of Bolshevism, which then loomed as an extremely misty and therefore all the more terrifying apparition and which used to be portrayed on Parisian posters as a killer clenching a knife in his teeth, etc., etc. As a matter of fact, incarnated in this specter of Bolshevism with a knife was the European bourgeoisie’s fear of retribution for its war crimes. The bourgeoisie at any rate was aware how little the results of the war corresponded with the promises it had made. It knew the exact cost in lives and wealth. It feared an accounting. The year 1919 was, without doubt, the most critical year for the bourgeoisie. In 1920 and 1921 we observe a gradual influx of self-assurance among the bourgeoisie and along with this an undeniable consolidation of its state apparatus, which immediately following the war was actually on the verge of disintegration in various countries, for example, Italy. The bourgeoisie’s recovery of its self-assurance took on especially graphic forms in Italy after the cowardly treachery of the Socialist Party in September. The bourgeoisie had imagined itself to be confronted with horrible bandits and assassins; it found instead – cowards.

Owing to an illness which removed me from active work in the last period, I have had an opportunity to read many foreign newspapers and I have accumulated a whole file of clippings that graphically characterize the shift in the bourgeoisie’s mood and its new appraisal of the world political situation. All the evidence points to one thing: the bourgeoisie’s self-assurance is undeniably firmer today than in 1919, or even 1920.

With your permission I shall adduce a few very instructive citations.

The Neue Züricher Zeitung, a rather sober Swiss bourgeois conservative newspaper, which has been following with great interest and considerable perspicacity the political developments in Germany, France and Italy, stated the following in connection with the March action in Germany:

Germany of 1921 bears no resemblance to Germany of 1918. Governmental consciousness has become so strong that Communist methods meet with opposition among almost all the layers of the population, although the number of Communists, who during the revolutionary days comprised a small and resolute handful, has since grown inordinately.

On April 28, when both camps were preparing for May Day, the Paris newspaper, Le Temps, wrote:

It suffices to survey the road traversed since last year in order to become completely reassured: Last year’s May Day was set as the beginning of a general strike which was in its turn to usher in the first phase of the revolution. Today, absolute confidence prevails in the nation’s effort to surmount all the crises consequent upon the war.

The selfsame Neue Züricher Zeitung wrote in April of this year concerning the situation in Italy as follows:

The year 1919: the bourgeois parties, verging on complete collapse, in a state of hopeless division and suicidal resignation are in full retreat before the energetic onslaught of well-disciplined Red forces; the year 1921: the bourgeois cohorts firmly coalesced and imbued with faith in victory enter into battle with the Bolsheviks, who are completely dispirited and hardly dare stir. And this thanks to the fascists.

My next illustration comes from an entirely different source, namely, a quotation from a resolution of our sister Communist Party of Poland.

If I am not mistaken, this party held a conference in April where a decision was adopted to participate in the forthcoming parliamentary elections. The motivation for this decision reads as follows:

After the turn in the winter of 1918 when the struggle began to favor the bourgeoisie which had by then succeeded in setting its state apparatus in order; after the Workers’ Soviets had been crushed by the government, with the cooperation of the PPS (the Polish Socialist Party) – after this, the party is obliged to utilize the electoral struggle and the rostrum of the Sejm.

There cannot of course be any talk here to the effect that the Polish Communist Party intends to change its principled position. It is simply evaluating the current situation as different from that of 1919.

The objective situation of the Social-Democratic parties in relation to the state and to the bourgeois parties has likewise correspondingly altered. Social Democrats are everywhere being pushed out of the government. If they are again drawn into the government, it is only temporarily and owing to outside pressure, as was the case in Germany. The Independent Party [of Germany] has made a complete turn to the right, likewise under the direct or indirect influence of the new situation, whose meaning it tends greatly to exaggerate. The Independents of all countries and the Social Democrats of all countries, who seemed to differ so much a year or a year and a half ago, have been brought closer together today, with the cooperation of Amsterdam. [1]

Thus the enhancement of the bourgeoisie’s self-assurance as a class is absolutely undeniable; and equally undeniable is the actual consolidation of the police-state apparatus after the war. But in and of itself this fact – important though it is – does not by far settle the question; and, in any case, our enemies are overhasty in trying to draw from it the conclusion that our program is bankrupt. We had, of course, hoped that the bourgeoisie would be overthrown in 1919. But, of course, we were not sure of it; nor did we build and rest our program of action upon this date. When Herr Otto Bauer [2] and other theoreticians of the Second and Two-and-a-Half Internationals say that our predictions have been proved bankrupt, one might think that involved here were predictions concerning some astronomical event. It is as if we have been mistaken in our mathematical calculations that a solar eclipse would occur on such and such a day, and were consequently proved to be poor astronomers. But that is not at all how the matter stands in reality. We had not predicted a solar, eclipse, i.e., an event beyond our will and entirely independent of our actions. Involved is a historical event which can and will occur with our participation. When we spoke of the revolution resulting from the World War, it meant that we were and are striving to utilize the consequences of the World War in order to speed the revolution in every way possible. That the revolution hasn’t taken place to this very day throughout the world, or at least in Europe, does not at all signify “the bankruptcy of the Communist International,” for the program of the Comintern is not based on astronomical data. Every Communist who has to any measure thought out his ideas understands this. But inasmuch as the revolution has not come hot on the tracks of war, it is absolutely self-evident that the bourgeoisie has utilized the breathing space afforded it, if not to surmount and eliminate the most frightful and terrible consequences of the war, then at least to camouflage them, patch them up, etc., etc. Has it succeeded in accomplishing this? In part, yes. To what extent? It is here that we touch the essence of the question which involves the restoration of capitalist equilibrium.
 

Has World Equilibrium Been Restored?

What is the meaning of capitalist equilibrium concerning which international Menshevism speaks nowadays with such complete assurance? For their part, the Social Democrats provide no analysis of this concept of equilibrium. They neither separate out its component parts or give any clear exposition. The equilibrium of capitalism contains a great many factors, events and facts – some basic, others secondary, and still others tertiary. Capitalism is a world phenomenon. Capitalism has succeeded in embracing the entire terrestrial globe; and this manifested itself most acutely during the war and during the blockade when one country, bereft of a market, was producing surpluses, while another, in need of commodities, lacked access to them. And today this interdependence of the dismembered world market manifests itself here and everywhere. Capitalism, at the stage attained before the war, is based on a world division of labor and a world exchange of products. America has to produce a certain quantity of grain for Europe. France has to produce a certain quantity of luxury goods for America. Germany has to produce a certain quantity of cheap consumer goods for France. This division of labor is in its turn not something constant, something given once and for all. It takes shape historically; it is constantly disrupted by crises and competition – let alone tariff wars. And it is restored over and over again only to be again and again disrupted. But world economy on the whole rests on a lesser or greater division among the respective countries of the production of corresponding necessities. Now it is this world division of labor that has been severed at its roots by the war. Has it been restored or no? This is one aspect of the question.

In each country agriculture supplies industry with prime necessities for the workers and with goods for productive use (raw materials), whereas industry supplies the village with household goods, consumer goods and the means of agricultural production. Here, too, certain reciprocal relations become established. Finally, within industry itself there is the production of the means of production and the production of the means of consumption, and between these two main branches of industry a certain interrelationship is established, which undergoes constant disruption in order to be regenerated over and over again on new foundations. The war has drastically disrupted all these interrelations and proportions if only by virtue of this single fact, that during the war Europe’s industry and to a large measure also that of America and Japan produced not consumer goods and the means of production so much as the means of destruction. To the extent that consumer goods continued to be produced, they were utilized not so much by the workers who produce as by those who destroy the soldiers of imperialist armies. Now, has this disrupted harmonious relationship between city and country, between the various branches of industry within each country – has this been restored or no?

Next follows the class equilibrium which rests upon the economic equilibrium. In the pre-war period a state of so-called armed truce prevailed in international relations. But not alone there, for between the bourgeoisie and the proletariat we also had by and large a reign of armed truce, maintained by a system of collective wage agreements concluded between the centralized unions and the ever more centralized industrial capital. This equilibrium has likewise been wholly disrupted by the war – and it was this that led to the colossal strike movement throughout the world. The relative class equilibrium of bourgeois society without which production is unthinkable – has this been restored or no? And if it has, upon what foundation?

Class equilibrium is closely bound up with political equilibrium. During the war and even prior to the war the bourgeoisie kept its mechanism in balance – although this escaped our notice at the time – through the medium of the Social Democrats, the social-patriots, who were the bourgeoisie’s most important agency and who kept the working class within the bounds of bourgeois equilibrium. Only thanks to this was the bourgeoisie enabled to venture into the war. Has it restored anew the equilibrium of its political system today? And to what extent have the Social Democrats preserved or squandered their influence over the masses and how much longer can they play their part as guardians of the bourgeoisie?

Next in order is the question of the international equilibrium, i.e., the world co-existence of capitalist states separate and apart from which the restoration of capitalist economy is, of course, impossible. Has equilibrium in this sphere been reached or no?

One must evaluate all these varied aspects of the question before it is possible to answer whether the world situation remains revolutionary, or whether they are correct who consider our revolutionary perspectives to be utopian.

An analysis of each aspect of this question must be illustrated by a great many facts and figures which are difficult to report to a large gathering and which are hard to remember. I shall therefore try to give only the basic data required for an orientation on this question.
 

Europe’s Economic Decline – in Figures

Has a new world division of labor been established? Of decisive importance in this sphere is the fact that the center of gravity of capitalist economy and bourgeois power has shifted from Europe to America. This is a fundamental fact which every comrade must firmly and clearly bear in mind in order to understand the events now unfolding before us and those which will unfold in the course of the next few years. Prior to the war Europe was the heart of the capitalist world, it was the globe’s chief market place, its main factory and its main bank. The European industrialist – first the English and next the German; the European merchant – primarily the English; the European usurer – first the English and next the French – these were the actual directors of world economy and, therefore, of all world politics as well. Today this is no longer the case. Europe has been hurled back.

Let us try to fix in figures, even if these are extremely approximate, the shift of the economic center of gravity and the proportions of Europe’s economic decline.

I shall begin with the simplest and most elementary facts, with the world production of material values. First, let us take agriculture. If we compare the 1920 crop with the average crop for the last five pre-war years, we shall find that it is almost 20 million double-quintals [4,408,800 tons] below the average. Moreover, in the belligerent European countries the crop is 37 percent below the pre-war average; in the neutral countries it remains at its previous levels, while in the trans-Atlantic countries it is 21 percent above. Russia is not included in this calculation. Before the war Russia used to supply the world market with about 100 million double-quintals on the average. The world market was poorer this year by some 120 million double-quintals. In spite of this, however, on American farms one can to this day find great quantities of grain which remain unsold because of the decline in prices on the world market.

If we turn to cattle-raising, we get almost an identical picture. World production of cattle remains virtually in the same condition as before the war. Cattle-raising among the belligerent European countries has been considerably reduced. The neutral countries have retained their pre-war levels, while the trans-Atlantic countries have greatly raised theirs. But now we find that meat prices on the Chicago meat market – the most important in the world – are today below the pre-war prices. Despite the war and its casualties, the population of the belligerent countries is today greater than before the war. There are 80 million individuals more. The quantity of grain in the market has been reduced by 120 million double-quintals.

Meat and grain products are actually available, but remain scarce – for lack of money. This means that the world has become poorer and hungrier. This is the first fact, bare and simple.

If we analyze the world’s coal consumption, we shall find almost the same picture, but in even bolder outline. The total world co-sumption of coal in 1920 amounted to 97 percent of the total consumed in 1913; consequently, it has dropped. In comparison with the pre-war period, Europe produced 18 percent less, while North America stepped up her output 13 percent. The same thing applies to cotton. The sum total of all products has declined. Europe has gone down. America has gone up.

Before the war, the national wealth, that is, the aggregate possessions of all the citizens and states participating in the last war was estimated at approximately 2,400 billion gold marks. The annual income of all these countries, that is, the quantity of products produced by them in a year, was estimated at 340 billion gold marks. How much did the war expend and destroy? In the neighborhood of 1,200 billion gold marks, i.e., not less than one-half of what all the belligerent countries had accumulated in the course of their entire existence. Naturally, the war expenditures were in the first place covered by levies on current revenue. But if we assume that in each country the national income during the war dropped even by one-third because of the huge diversion of labor, it follows that it then amounted to 225 billion gold marks; and if we further assume that all the non-military expenditures swallowed 55 percent, it follows that war expenditures could be covered out of current national revenues to the sum of not more than 100 billion gold marks a year. For the four war years this comes to 400 billion gold marks. Which means that the deficit of 800 billion had to be made up by dipping into the basic capital of the belligerent nations, primarily by failing to replenish their productive apparatus. It therefore follows that after the war the total wealth of the belligerent countries amounted not to 2,400 billion gold marks, but only to 1,600 billion, i.e., one-third less.

However, not all of the belligerent countries became impoverished at the same rate. On the contrary, there are among the belligerents – as we shall presently see – countries that have grown richer, namely, the United States and Japan. This means that the European countries which participated in the war have lost more than a third of their national wealth, and some of them – Germany, Austria-Hungary, Russia, the Balkans – considerably more than half.

Capitalism as an economic system is, you know, full of contradictions. During the war years these contradictions have reached monstrous proportions. To obtain the resources required for war, the state resorted primarily to two measures: first, issuance of paper money; second, flotation of loans. Thus an ever-increasing amount of the so-called “valuable paper” (securities) entered into circulation, as the means whereby the state pumped real material values out of the country in order to destroy them in the war. The greater the sums expended by the state, i.e., the more real values it destroyed, the larger the amount of pseudo-wealth, of fictitious values accumulated in the country. State-loan paper has piled up mountain-high. Superficially it might seem that a country had grown extremely rich, but in reality the ground was being cut under the economic foundation, shaking it apart, bringing it to the verge of collapse. State debts have climbed to approximately 1,000 billion gold marks, which adds up to 62 percent of the present national wealth of the belligerent countries. Before the war, the world total of paper and credit money approximated 28 billion gold marks, today the amount is between 220 and 280 billion, i.e., ten times as much. And this, of course, does not include Russia, for we are discussing only the capitalist world. All this applies primarily, if not exclusively, to European countries, mainly continental Europe and particularly Central Europe. On the whole, as Europe kept growing poorer and poorer – as she has to this very day – she became and is still becoming incased in ever-thicker layers of paper values, or what is known as fictitious capital. This fictitious capital-paper currency, treasury notes, war bonds, bank notes, and so on – represent either mementos of deceased capital or expectations of capital yet to come. But at the present time they are in no way commensurate to genuine existing capital. However, they function as capital and as money and this tends to give an incredibly distorted picture of society and modern economy as a whole. The poorer this economy becomes, all the richer is the image reflected by this mirror of fictitious capital. At the same time, the creation of this fictitious capital signifies, as we shall see, that the classes share in different ways in the distribution of the gradually constricting national income and wealth. National income, too, has become constricted, but not to the same extent as the national wealth. The explanation for this is quite simple: The candle of capitalist economy was being burned at both ends. In order to finance the war and the postwar state economy, they drained not only the national income but the basic funds of national wealth as well.

When a government issues a loan for productive purposes, say, for the Suez Canal, behind the particular government bonds there is a corresponding real value. The Suez Canal supplies passageway for ships, collects tolls, provides revenue and, in general, participates in economic life. But when a government floats war loans, the values mobilized by means of these loans are subjected to destruction, and in the process additional values are obliterated. Meanwhile, the war bonds remain in the citizens’ pockets and portfolios. The state owes hundreds of billions. These hundreds of billions exist as paper wealth in the pockets of those who made loans to the government. But where are the real billions? They no longer exist. They have been burned. They have been destroyed. What can the owner of these securities hope for? If he happens to be a Frenchman, he hopes that France will be able to wring billions out of German hides, and pay him.

In many respects the havoc among the mainstays and the productive apparatuses of the capitalist nations has been more far-reaching than can be established by means of statistics. This is most clearly to be seen in housing. All the energies of capitalism had been directed – because of the frenzied war and postwar profits – toward the production of new items for personal or military use. But the restoration of the basic productive apparatus was neglected more and more. This applies wholly to urban housing. Old houses were poorly repaired while new ones were erected in insignificant numbers. Hence the terrible housing shortage throughout the capitalist world. Owing to the current crisis the destruction of the productive apparatus may not be so noticeable today because the major capitalist countries are utilizing not more than one-half or one-third of their productive capacities. But in the sphere of housing, owing to the constant increase of population, the disorganization of the economic apparatus manifests itself with full force. America, England, Germany, France need hundreds of thousands and even millions of apartments. But the necessary work cannot be undertaken in the face of the insurmountable obstacles arising from the universal impoverishment. Capitalist Europe must and will tighten its belt, reduce the scope of its operations and drop to a lower level for many years to come.

As I have said, within the framework of Europe’s universal impoverishment, different countries have become impoverished at different rates. Let us take Germany as the country that has suffered the most among the major capitalist powers. I shall adduce key figures which characterize Germany’s economic position as it was before the war and as it is today. These figures are not very exact. A statistical computation of national wealth and national income is a very difficult thing under capitalist anarchy. A real audit of revenue and property will be possible only under socialism, an audit in terms of units of human labor, and taken naturally under a socialist society with a well organized and well functioning mechanism, from which we are still very, very far removed. But even inexact figures are of service to us inasmuch as they enable us to roughly approximate the changes that have occurred in the economic position of Germany and other countries during the past 6 or 7 years.

On the eve of war Germany’s national wealth was estimated at 225 billion gold marks, while the highest pre-war national income was 40 billion. Prior to the war Germany was, as you know, growing rich very swiftly. In 1896 her income was 22 billion. Within 18 years (from 1896 to 1913) it had increased by 18 billion, that is, at an average rate of a billion a year. These 18 years generally marked a period of great capitalist prosperity throughout the world, and especially in Germany. Today her national wealth is estimated at 100 billion marks, while her national income is 16 billion, i.e., 40 percent of the pre-war level. True enough, Germany has lost a part of her territory, but the main losses are bound up with the war expenditures and the postwar rape of Germany. According to the calculations of the German economist Richard Calwer [3] commodity production in 1907 is equivalent to the labor productivity of 11.3 million workers. Working conditions have since then undergone a drastic change. There has been a reduction in working time, the intensity of labor has dropped, and so forth and so on. He therefore arrives at the conclusion that Germany’s labor force expressed in 1907 units amounts to 4.8 million, i.e., not more than 42 percent.

In analyzing agriculture Calwer gets the same result.

Caiwer’s calculations thus completely corroborate the figures cited by me. Meanwhile Germany’s national debt has grown to 250 billion marks, i.e., it is two and a half times greater than Germany’s national wealth today. In addition, reparations to the sum of 132 billion marks have been imposed on Germany. Were the English and the – French to demand full and immediate payment of these sums – they would have to put in their pockets all of Germany, beginning with Stinnes’ mines and ending with President Ebert’s cuff-links. Germany’s emission of paper currency amounts today to 81 billion marks. Of these not more than 5 billion are secured by gold. Consequently, the German mark is worth 6-7 pfennigs today.

True, following the war Germany scored great successes on the world market, exporting her commodities at very cheap prices. While this cheapness meant big profits for the German merchants and exporters, for the German population as a whole it spelled in the final analysis ruin, since cheap prices on the world market were contingent upon low wages and malnutrition for the workers, state subsidies for grain, and rent regulations – which in their turn were accompanied by a complete stoppage of house-building, minimum of repairs, etc., etc. Thus with every German product dumped on the world market a certain part of Germany’s national wealth is carried away for which she receives no equivalent in exchange.

In order to “revive” German economy it is necessary to stabilize her currency, i.e., it is necessary to halt the emission of more paper money and to reduce the quantity already in circulation. And to do that, it is necessary to renounce debt payments, i.e., declare state bankruptcy. [1*]

But this measure in and of itself implies a dire disruption of the equilibrium, for it involves a transfer of property from the present holders to other hands and it must therefore provoke a fierce class

struggle over the new distribution of the national income. Meanwhile Germany grows poorer and keeps declining.

Let us next take a victor country – France.

France, according to the ballyhoo in her bourgeois newspapers, is a country whose wounds are healing. It is undeniable that in certain fields France has achieved some successes during the postwar period. But to exaggerate them is to commit a very great blunder. It is very difficult to adduce statistics relating to French economy because much more is kept hidden there than in other countries. This is done both by the French bourgeoisie and by the French government. It must be said that more lying is done by the French capitalist press than by any other, and this probably includes the field of economic statistics.

I shall now cite some figures which the French bourgeois econ-omists are boastfully using in an attempt to prove that capitalist economy has been restored. Let us take the sphere of agriculture. Before the war France used to produce annually 86 million quintals of wheat (a quintal is 100 kilograms, a little over 220 pounds); oats – 52 million; potatoes – 132 million. In 1919 her wheat crop was 50 million, and the last crop (1920) – 63 million. In 1919, potatoes – 77 million, and the last year – l03 million.

Now let us take cattle-raising. In 1913 there were approximately 15 million head of horned cattle, but today – l2.8. Horses in 1913 numbered 7 million, today – 4.6. Sheep in 1913 numbered 16 million, today – 9. Pigs were 7 million, today – 4. A sharp decrease.

Let us take coal, a very important product and a key factor in industry. In 1913 France mined 41 million tons of coal; in 1919 – 22 million; in 1920 – 25. And if we include Alsace-Lorraine and the Saar Basin [4], then the 1919 output will come to 35.6 million tons of coal. We have here an increase. But this increase still leaves coal production far below its pre-war level. But how have these rather modest successes been achieved? In agriculture they have been achieved primarily through the stubborn and diligent labor of the French peasant. But in the purely capitalist sphere these successes were achieved primarily by looting Germany, by taking away her cows, seed, machinery, locomotives, gold and especially coal.

From the general economic standpoint there is nothing positive here, for instead of creating new values there was primarily a transposition of old values. Moreover it ought to be added that Germany’s losses were 1½ to 2 times as great as France’s gains.

We thus discovered that having stripped Germany of her key metallurgical and coal areas, France has nevertheless far from reached her pre-war levels. Let us now take France’s foreign trade. Trade balances are highly symptomatic of world economic equilibrium, i.e., of the existing state of exchange among the various countries. A capitalist country considers itself to be in a good position if 1i exports more than it imports. The difference is paid off in gold. Such a balance is called favorable. When a country is compelled to import more than it exports, the balance is unfavorable, and such a country must add a part of its gold reserve to its exports. The gold reserve begins melting away and the ground is gradually cut under the country’s monetary and credit system. If we take France during the last two years – 19l9 and 1920, that is, during the French bourgeoisie’s two years’ work of “reconstruction” – we shall find that in 1919 the trade balance was unfavorable to the tune of 24 billion francs, while in 1920 the deficit amounted to 13 billion. Before the war, the French bourgeois never saw such figures, not even in his wildest dreams. In two years the trade deficit totals 27 billions. True enough, for the first quarter of the current year France managed to keep her trade balance without a deficit, that is, her exports equaled her imports. Certain bourgeois economists started beating the drums in this connection: France was, mind you, restoring her trade balance. But the leading organ of the French bourgeoisie Le Temps had the following to say on this score on May 18:

You are mistaken, we didn’t have to pay out gold during these three months only because we imported very little raw material. But that simply means that in the latter part of the year we shall export few products which we manufacture from foreign raw materials in general and American raw materials in particular. Consequently, while we have managed to keep a favorable trade balance during these three months, in the next period the trade deficit will inescapably begin to grow.

And so the trade balance has not been improved through either the revival of economy or an increase in exports, but through a decrease in raw material imports, i.e., at the cost of lowering tomorrow’s productivity.

Before the war the amount of paper currency in circulation was less than 6 billion francs; today – more than 38 billion. As touches the purchasing power of the franc, it is pointed out by the same newspaper that toward the end of March, when the crisis was already raging throughout the world, American prices were 23 percent above pre-war, i.e., less than one-quarter higher, whereas French prices had gone up 260 percent, that is, more than three and a half times the pre-war levels. This means that the purchasing power of the franc has depreciated several times over. Now let us take up the French budget. It falls into two sections: normal expenditures and emergency funds. The normal budget comes to 23 billion francs – a sum unknown in pre-war times! How are these huge sums allocated? 15 billion are to cover interest on the debt; 5 billion – to maintain the army. A total of 20 billion. That’s all the French government proposed to wring from the taxpayers. In reality they succeeded in wringing out some 17.5 billion. The “normal” government income is, therefore, hardly sufficient to cover even the interest on the debt and the upkeep of the army. But in addition there are emergency expenses to be met: more than 5 billion for the army of occupation, and 23 billion for all sorts of war compensation and work of restoration. These expenses are debited to Germany. But it is quite self-evident that as time goes on Germany is less and less able to pay them. Meanwhile, however, the French government subsists either by floating new loans or by issuing additional paper currency. A prominent French financial journalist, Leon Chavenon, the director of l’Information, the foremost economic periodical in France, is in favor of continuing the issuance of paper money. He declares: “Apart from this, the only other way out is through open bankruptcy.” This means that the only alternative is: either a masked bankruptcy through further emissions of paper money, or an open declaration of bankruptcy. That is how matters stand with France, a victor country which occupies a favorable position in ruined Europe in the sense that she could and can restore her equilibrium at Germany’s expense. The situation in Italy and Belgium is at all events not superior to that of France.

Let us pass now to Great Britain, the richest and most powerful country in Europe. During the war we grew accustomed to saying that England was getting rich from the war, that the British bourgeoisie had plunged Europe into war and was feathering its nest. This was true, but only within certain limits. England made profits in the initial period of the war but began to suffer losses in the second period. The impoverishment of Europe, especially of Central Europe, acted to disrupt trade relations between England and the rest of the continent. In the last analysis this had to hurt and did hurt England’s industry and finances. Moreover, England herself was compelled to shoulder enormous war expenditures. Today England is in a state of decline, and this decline is becoming more and more precipitous. This fact may be illustrated by industrial and commercial indices which I shall presently cite, but the fact itself is incontestable and is corroborated by a whole series of public and wholly official declarations by the most eminent English bankers and industrialists. During the months of March, April and May, the respective English publications carried the annual reports of corporations, banks, and so on. These authoritative gatherings, where the leaders of the various enterprises make their reports, assessing the general tate of affairs in the country or in their own particular branch of industry, provide exceptionally instructive material. I have gathered a whole file of such reports. All of them bear out one and the same thing: England’s national income, i.e., the aggregate income of all her citizens and the state, has dropped considerably below the pre-war total.

England is poorer. The productivity of labor has fallen. Her world trade for 1920 has, in comparison to the last pre-war year, declined by at least one-third, and in some of the most important branches, even more. Especially sudden is the change undergone by the coal industry which used to be the main branch of English economy, or more precisely, the root and trunk on which England’s entire world economic system rested. For the coal monopoly was the root of the power, vigor and prosperity of all other branches of English industry. Not a trace of this monopoly remains today. Here are the basic factual data on the state of English economy. In 1913 England’s coal industry supplied 287 million tons of coal; in 1920 – 233 million tons, i.e., 20 percent less. In 1913, the production of iron amounted to 10.4 million tons; in 1920 – a little more than 8 million tons, i.e., again 20 percent less. The export of coal in 1913 amounted to 73 million tons; in 1920 – all told only 25 million tons, i.e., one-third of the pre-war total. But during the current year, 1921, the slump in the coal industry and coal exports took on absolutely abnormal proportions. In January the coal output was 19 million tons (i.e., below the 1920 monthly average); in February – l7; in March – 16. And then the general strike erupted and the coal output verged on zero. For the first five months of 1921 the exports are 6 times below what they were for the same period in 1913. Expressed in prices England’s entire export for May of this year is three times below that of May of last year. As of August 1, 1914 England’s national debt was 700 million pounds sterling; on June 4 of this year – 7,709 million pounds, i.e., an elevenfold increase. The budget has swelled threefold.

If you thumb through the reports of the directories of banks and industrial enterprises for March and April you will find that England’s national income has declined one-third or one-quarter as against the pre-war period. That is how matters stand in England, the richest country in Europe, a country which suffered the least from military operations and gained the most from the war in its initial period.

The most graphic proof of the decline of English economic life lies in the fact that the English pound sterling is no longer a pound sterling; that is, it is no longer equivalent to the set of figures which once exercised their sway everywhere and which are still imprinted on it. Today it is only 76 percent of what it pretends to be. As against the incumbent sovereign of the money market – the US Dollar – the pound has lost 24 percent of its nominal magnitude. What could better characterize the instability of our epoch than the fact that the most stable, absolute and incontestable thing in the whole world – the English sovereign (in English this word signifies both “pound sterling” and “ruler”) – has lost its former position and has become transfigured into a relative magnitude! Considering that nowadays in Germany the sphere of philosophy has become activated over relativity – and I refer here to Einstein’s philosophy [5] – one ought perhaps to interpret German philosophy as an act of revenge against English economics, inasmuch as the English pound sterling has after all become – relative. Incidentally, it has ever been the custom in Germany to reply to economic poverty by exacting revenge in the field of philosophy.

The data we have cited adequately characterizes the situation throughout Europe. Among the belligerent countries we find Austria at one pole, as the country that has suffered the most (if we leave out Russia), and at the other pole – England. Between them are located Germany, Italy, Belgium, France. The Balkan countries are completely ruined and have been thrown back into the economic and cultural conditions of barbarism. So far as the neutral countries are concerned, in the first period they undoubtedly profited by the war; however, since they cannot play an independent economic role but must live in the interstices among the big countries and are economically dependent upon the latter, it follows that the decline of the major European countries has produced the greatest economic difficulties among the neutral countries who have likewise sunk today far below the levels attained in the first period of the war.

Thus Europe’s income as a whole, that is, the quantity of material values produced by all the European populations, has fallen at least by one-third as compared to pre-war times. But far more decisive, as I have stated before, is the slump in the basic apparatus of economy. The peasant was unable to obtain synthetic fertilizers, agricultural implements and machines; the mine owner, spurred on by high coal prics, did not bother to renovate the equipment in the mines; the stock of locomotives became worn out, the railways remained by and large in a state of disrepair, and so forth and so on. All this has acted upon the main fabric of economy to render it weaker, frailer, less reliable. How to measure and compute all this? Capitalist statistics fall far short of this. Such an inventory, that is, an inventory in terms of values of the productive condition not of an isolated enterprise but of entire countries and the whole of Europe, would undoubtedly show that the war and postwar regimes alike survived and continue to survive at the expense of Europe’s basic productive capital. This means, for example, that Germany instead of allotting 50,000 workers to recondition the pits, consigns 50,000 workers more to mine the coal which must go to France. France, on the other hand, in an attempt to reduce her trade deficit seeks to export the greatest possible volume of goods abroad and does not recondition her equipment to the necessary extent, either. And this applies to all European countries, for Europe as a whole shows a deficit, i.e., an unfavorable trade balance. The debilitation of Europe’s economic foundations will manifest itself on the morrow even more acutely than it has yesterday or today. History’s great mole is burrowing its tunnels ever deeper beneath the very foundations of Europe’s economy.
 

America’s Economic Flowering

We get an entirely different picture when we step into the Western Hemisphere. America has passed through a development of a diametrically opposite character. She has meanwhile enriched herself at a dizzy pace. In the war she participated chiefly as a quartermaster. True, she had to bear expenses herself consequent to the conduct of the war but these expenditures were insignificant as against not merely her war profits but also all the advantages opened up by the war for America’s economic development. The United States not only obtained in the person of warring Europe a virtually unlimited buyer who bought anything and everything, and at higher prices besides; but for a number of years was relieved of her chief competitors in the world market – Germany and England, whose main occupation was the war. Till the very eve of the war the bulk of American exports, that is, two-thirds, consisted of agricultural products and raw materials. During the war US exports grew uninterruptedly and even feverishly. Suffice it to point out that American exports climbed to a total 2½ times greater than the highest pre-war one, and that in 6 years (from the beginning of 1915 to the end of 1920) exports exceeded imports by 18 billion dollars. Furthermore the exports have altered drastically in their nature. Today the United States exports 60 percent manufactured, goods and only 40 percent agricultural produce, meat products, raw materials (cotton, etc.).

To sketch the main outlines of the present role of the United States in world economy I shall cite the following key figures. Within the boundaries of the United States live 6 percent of the world’s population; 7 percent of the earth’s surface falls to the share of the United States. Of the world’s annual gold production the United States supplies 20 percent; the United States’ share of the world’s shipping tonnage is 30 percent, whereas before the war it had not more than 5 percent. Of the world’s iron and coal the United States produces 40 percent; tin – 40 percent; silver – 40 percent; zinc – SO percent; coal – 45 percent; aluminum – 60 percent; the same proportion of copper and cotton; oil from 66 to 70 percent; corn – 75 percent; automobiles – 85 percent. Throughout the whole world there are today a little less than 10 million automobiles. Of these America’s share is 8,500,000, while the rest of the world has 1,400,000. There is one automobile to every twelve Americans. Today the center of gravity of world economy is no longer to be found in Europe, but in the United States. Europe has slumped and continues to drop lower and lower. The United States has all the while experienced an unprecedented growth, whose key data are as follows:

The number of horses has increased from 20 to 22 million. Cattle – from 62 to 68 million. This doesn’t, of course, amount to a great deal. But if we take the coal output, we find that in 1913 it amounted to 517 million tons; in 1920 – 580 million, i.e., a rather appreciable increase. Oil production rose from 248 million barrels in 1913 to 442 million in 1920. Here we already have a large increase. Cotton and iron have remained virtually at pre-war levels; but in sea-going ships, we find a huge increase. In 1913 the ships built for the merchant marine had a freight-carrying capacity of 276,000 tons, while in 1919 – 4,075,000 tons; and in 1920 – 2,746,000 tons. This stepped-up shipbuilding has enabled the United States to catch up with the leading great power in this sphere – England. While before the war Great Britain possessed more than half of the world tonnage, and the United States only 5 percent, today the interrelationship has sharply altered. England now has not more than 35 percent while the United States possesses 30 percent of the world tonnage. Thus the United States is challenging England’s domination of the seven seas.

The United States has completely taken over the domination of the coal market, which England once had. No less important is America’s crushing superiority in the sphere of oil whose role in industrial and military affairs grows apace. But the same change has occurred not only in the sphere of industry and world trade but also in the money market. England was the pre-war world’s chief usurer, next came France. The whole world was in debt to them, including America. Today, however, the only country that owes no one but to whom everybody else is in debt is – the United States. Europe, i.e., European governments, cities and enterprises, owe the United States 18 billion gold dollars. But this is only the beginning. Each passing day sees this debt increased by $10 million, because of failure to pay the accruing interest and through the extension of new American credits. In tune with this, as I have already remarked, the Dollar has become the “Sovereign” of the world financial market. Hitherto, in presenting its references, the Dollar would say: My name is the Dollar and I represent approximately one-fifth of a pound sterling. So far as the latter was concerned, it needed no references; it came and went as the Pound Sterling, and that’s all there was to it. Things have now changed drastically. Nowadays the pound sterling travels with a passport, like all of the other monetary units; and this passport states that the pound sterling is actually not a pound sterling at all but just so many dollars (nearly one-fourth below the figure given in old pre-war financial handbooks).

Almost one-half of the world’s gold reserve, on which the entire monetary system rests, is now concentrated in the United States. Almost one-half of the world reserve!

Such is the postwar position of the United States. How was it brought into being? It grew out of Europe’s war market which was unlimited and which bought at any price. In the English colonies, in Asia, in Africa, and in South America, too, there were no competitors to be met, they had almost completely disappeared, and the United States had free play for its fullest development. We thus had, in the space of seven years, a complete reversal in the sphere of world division of labor. For four-odd years Europe became converted into a sheet of fire fed not only by Europe’s income but also by her basic capital, while the American bourgeoisie warmed its hands at the flames. America’s productive capacity has grown extraordinarily but her market has vanished because Europe is impoverished and can no longer buy American goods. It is as if Europe had first done everything in her power to help America climb to the topmost rung and then pulled the ladder out.
 

The Other Countries – The Crisis

Japan has likewise used the war epoch to advantage and her capitalism has achieved great successes which, of course, are in no way commensurate to the development of the United States. Certain branches of Japanese industry blossomed at hothouse tempos. However, while in the absence of competitors Japan proved capable of swiftly expanding individual branches of her industry, today when many of these competitors have returned she has not always been able to retain positions already conquered. The total number of Japanese working men and women (in Japan woman labor is employed on an extremely large scale) runs to 2,370,000, of whom 270,000 (some 12 percent) are organized in trade unions.

In the colonial and semi-colonial countries, in the East Indies, in China, capitalism has scored great conquests during the last seven years. Before the war Asia yielded 56 million tons of coal. In 1920 her yield was 76 million tons, i.e., 36 percent more.

Today the entire world is living through a cruel crisis which began last spring in Japan and America, i.e., precisely in those countries which were on the upgrade and not in decline during the recent period.

The Economist, the most authoritative English economic periodical, tells a rather curious story of how the crisis started. It is a very interesting episode. The American worker, mind you, began rolling in wealth and started buying silk shirts, the manufacture of which is a most important branch of the Japanese textile industry. The Japanese silk industry expanded rapidly in a brief space of time, but since the workers’ purchasing capacity is all in all very limited and took a sudden drop the instant that American industry began its reconversion upon the signing of the peace, the Japanese silk industry fell immediately into the throes of a sharp crisis, which was then transmitted to other branches of industry, pounced upon America and then leaped across the ocean, and today the crisis in the entire world has plumbed depths unprecedented in the history of capitalism. Thus it all started with a trifle – a little silk shirt – and ended up in something big: prices plummeted downward and at a mad pace factories began to close down, workers were thrown out into the streets. In America there are now not less than five million and, according to some, six million unemployed.

In the history of the crisis, the silk shirt episode plays approximately the same part as a flap of a bird’s wings that brings down the avalanche. The avalanche was obviously about to descend anyway. But this episode is likewise of interest because it illustrates an undeniable improvement in living standards, at least among certain categories of American workers, in recent years. Of the 8.5 million automobiles a rather considerable number is owned by skilled American workers; but today and especially in the next period American workers will not have the means for automobiles and silk shirts.

Well, there is a crisis in Europe and a crisis – in America. But these crises are of a different order. Europe is poorer, while America wallows in wealth. America’s productive apparatus remains in comparatively good condition. Her factories are first class. Equipment and supplies are at hand. True, the quality of goods has deteriorated in wartime, the railways have been worn out, since the main concern of the capitalists was to deliver merchandise to the eastern ports. But, on the whole, America has not only preserved her economic apparatus but also expanded it.

Part II


Trotsky’ Footnotes

1. The inevitability of Germany’s state bankruptcy is conceded even by so conservative an economist as Calwer who in his rather interesting pamphlet on state bankruptcy comes to the following conclusion:

“This end-result, pregnant with dire consequences in currency and fiscal policy, will unquestionably come in a violent manner, inasmuch as under the existing economic state of the country, a gradual return to normal conditions of the money market and state finances is absolutely inconceivable. The violent culmination of the entire development is, in the last analysis, nothing else but actual state bankruptcy thereby finally disclosing the long standing insolvency of the state.”

A great many books are being generally published today in Germany which deal with state bankruptcy from the standpoint of philosophy, morality, jurisprudence, etc. Be it moral or immoral, these gentlemen will have to declare state bankruptcy. – L.T.]


Notes

1. Amsterdam – an abbreviation for the Amsterdam International Trade Union Federation also known as the Yellow Trade Union International. – Page 230.

2. Otto Bauer – the most prominent leader of the Austrian Social-Democratic Party. Prior to the war of 1914-18 Bauer was the secretary of the parliamentary fraction of the Austrian party. Author of a number of anti-Marxist books on the national and colonial questions. During the First World War Bauer held a centrist position which did not hinder him from becoming Minister of Foreign Affairs in the coalition government set up after the overthrow of the Hapsburgs. Together with Friedrich Adler and others, Bauer participated both in creating the 2½ International and in burying the latter in 1923 through a fusion with the Second International. [Strictly speaking, Bauer was a leading representative of the Austro-Marxist school. – TIA]

3. Richard Calwer – at one time an eminent German economist. One of a legion of former German Social Democrats who successfully underwent an evolution from Social Democracy to bourgeois democracy.

4. Alsace-Lorraine and the Saar basin were assigned to France by the Versailles Treaty. The Saar basin is one of the richest coal areas in Europe.

5. Albert Einstein – famous German physicist and mathematician. Einstein created a new epoch in science by supplying scientific grounds for the denial of the absolute character of time and space – a doctrine which had been advanced by Newton and which had been accepted for more than a century as one of the immutable laws of nature. Furthermore, Einstein has greatly advanced the natural sciences by supplying mathematical formulations to various processes in nature. In philosophy a materialist; in politics a pacifist.


First 5 Years of the Comintern (Vol.1) Index

History of the Communist International Section


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Last updated on: 5 June 2012