Mail December 21st, 1931
The World in 1931.
A Retrospect of
the Banking Crisis.
By Gareth Jones
ON New Year’s Eve a year ago a Welshman was walking
down the most famous and most elegant street of Berlin when he heard shouting
and scuffling. Turning round, he
saw a pale-faced, white-collared clerk shrieking hysterically, “We’ve been
betrayed! We’ve been betrayed by
the capitalists and betrayed by the Versailles Powers.
The capitalists and the French are out for our blood!
We’ve not got enough bread and next year it will be worse.
It’s New Year’s Day to-morrow and I tell you it will dawn on the
worst year since the war.” Police,
pushing their way through the gathering crowd, took hold of him, and trundled
him away, but above the murmurs of the passers-by one could hear him repeating
time and time again, “It’s going to be a hunger year, a hunger year.”
The unemployed German was right.
For many millions in all continents 1931 was a year of hunger.
The forces which were driving the trade and business activity of the
world towards collapse gathered momentum, but few people foresaw with what speed
events would move, and it was only in the middle of the summer that the leaders
of the world realised with a shock that a new crisis had come upon them, far
more dangerous than the crisis which had haunted the world in 1929 and 1930.
The story of 1931 is the story of how, creeping unawares upon an
unsuspecting world, this new crisis, the world-banking crisis, came to add its
burden to the already heavy load which trade and politics had placed on mankind.
A Tragedy in Two Parts.
drama of 1931 is a tragedy in two parts, the first covering events up to May and
the second opening a series of events which held Wall Street, the City, Paris,
and Berlin aghast, and which led to January, 1932, booming as decisive a month
in world history as July, 1914.
first period of this historic year from January to May, saw the producers and
the politicians deep in depression. Two
of the three columns upon which the structure of the civilisation of today
stands, that is, world trade and the Treaty of Versailles, seemed to be
tottering, and the blows upon them came swift and sure.
The first column, world trade, was the first to show cracks.
In November, 1929, the panic which spread from the crash of stocks and
bonds in Wall Street, when vast fortunes were swept away overnight, had shown
that all was not well on the economic front.
Higher and higher had risen the tariffs, stopping world trade.
Quicker and quicker became the gold rush to the cellars of the Bank of
France and of the Federal Reserve Banks of the United States.
Deeper and deeper sank the prices of wheat and cotton, steel and copper,
sugar and coffee. Heavier and
heavier became the burden of international debts.
These evil signs became more and more gloomy in this first period of 1931
and I remember that my first impression of the streets of America was arrow of
shops each with the ominous signs of “Bankruptcy Sale,” “Liquidation after
50 years of business and “Forced to sell.”
Treaty of Versailles.
column of world trade was, therefore, decidedly insecure in early 1931.
second column, upholding the world in which we live namely the Treaty of
Versailles, was fated to receive an equally potent shock.
“Down with the leeches of Versailles!
Down with the payment of tribute to the French!
Give the Polish Corridor back to Germany!” shouted millions of the
followers of Hitler.
the French, however, the Treaty of Versailles remained something sacred,
untouchable, and they shrieked with wrath whenever they heard those words wafted
from across the Rhine - “Revision of the Treaty.”
They would permit no change in the Europe which had emerged from the war,
they would not hear of giving any territory back to Germany, and to mention the
uniting of Germany and Austria was to them a sacrilege.
something startling happened, which made Frenchmen tremble with excitement and
fear. The news that made some Frenchmen exclaim, “C’est la
guerre” (That means war!) was the proposal by the German Government to unite
Germany and Austria in a Customs Union. Prepared in secret negotiations, this
blow at the Treaty of Versailles, so sacred to France, stiffened the French
statesmen, fanned the flames of French nationalism, and spread the sense of
insecurity through Europe. The
curtain goes down on the first period of 1931 with the Austro-German Customs
Union challenging French supremacy and shaking the whole bases of Europe’s
already rickety structure.
At Point of Pistol.
top of these economic political troubles the month of May, the beginning of the
second period, was to add a vast banking crisis.
Just as a pistol shot in Serbia in 1914 was to set Europe afire, so a
little spark in a small country, Austria, was to set flame to the financial
framework of the world. The leading
bank of Austria, the Credit-Anstalt, upon which the industry of that country
depended, shouted for help! The
whole life of a country, the question of food or hunger for millions was at
stake. Would France save Austria? That
little country was at the mercy of Europe’s dominant Power, but the Bank of
France pointed a pistol at the Austrian Government and said: “We’ll help you
and give you a loan, but only on certain conditions,” and those conditions
would have made Austria almost into a vassal State of France.
The Austrian Government had to refuse or accept before five o’clock on
a certain afternoon. A race with
time followed, with the life of nation banging on a. matter of moments.
Suddenly, not many minutes before the French ultimatum was to end, a
telephone cal1, came from London and news came through that the Bank of England
would give the Credit-Anstalt a loan. The
independence of Austria was saved.
the bankers of the world had received a blow to their confidence.
Cable after cable was tapped from across the Atlantic, “Withdraw our
money from Germany,” and the “gold rush” began. Germany had borrowed too
much money which would be recalled at short notice, and the short-term credits
were now flowing full speed out of the country.
Wagons sped from the Reichsbank to the station packed full of gold
leaving the country, and the life-blood of German finances was running dry.
Hoover Steps In.
disaster staring world banking in the face, Hoover decided to take a step which
he had up to the last moment been too timid to advocate.
He proposed that for one year there should be a postponement of all
inter-Government debts. Hoover, who
expected to find sullen opposition in his own country, suddenly woke up to find
himself a world hero. Stocks rushed
upwards in Wall Street. The crisis
was over, everything was bright again and prosperity would come back, thought
the man in the street. But America
and Britain had reckoned without France, who sulked and insisted on her rights.
The bubble of hope burst with the French delay and the gold rush
continued to drain Germany, causing the downfall of one of her greatest banks.
Finally, the outflow of gold was stopped by the “Stand-still Agreement”
which froze the short-term credits in Germany.
in a small interdependent world economic diseases are catching and the mistrust
spread to England. Banks abroad,
especially in Paris and Wall Street, began to withdraw their holdings in London
and the stock of the ye1low metal in the Bank of England grew smaller and
smaller. The Labour Government came
down with a crash. The National
Government was formed but it was too late to save the £, and on September 21st,
a day which will stand out as one of the most striking in financial history,
Britain went off the gold standard. It
was the end of an epoch.
then the rumblings of disaster have grown more ominous.
Japan took advantage of trouble in Europe to send troops into Manchuria.
The forces of Hitler, the Fascist, mounted in Germany.
December two committees of vital importance met, one in Basle to talk about
reparations, the other in Berlin to discuss short-term credits in Germany.
Before long the statesmen of the world will meet to decide on reparations
and inter-Allied debts. Will they
save Germany, and thus the world? Or will Germany collapse and bring down the whole economic
structure, which gives us bread and shelter?
What is now a grim mystery, 1932 will reveal.