Two Lessons From London In 1933
From London’s “Radio City,” the eminent English economist John Maynard Keynes spoke bluntly of the world as “desperate” and urged “reasonableness and compromise” to the American journalist Walter Lippman, who was broadcasting from New York.
In a spectacularly well-staged “transatlantic talk,” simulcast on the BBC and the National Broadcasting Company of America, just hours before the opening of the World Economic Conference in London on June 12, 1933, the two celebrated pundits exchanged grim views. Lippman felt that, while the unpaid English war debts to America were a problem for the Congress and President Franklin Roosevelt, most Americans believed the “larger nations” could act unilaterally “to combat the depression” without waiting for universal agreement.
It had been thirty months since the start of what came to be known as the “depression” had pushed the industrial states into massive unemployment, crushed commodity prices, and had initiated the belligerent “economic nationalism” of tariffs and currency manipulation. And there was a tone of crisis as sixty-six nations gathered by train, steamer and airplane to find a collective will.
“Civilization itself stands at the crossroads,” announced a full-page advertisement from the Harrod’s department.
Today, after fourteen months of employment declines, a retreat from trade and a roller coaster ride of commodity prices, it is commonplace for prominent commentators such as the Financial Times' Martin Wolf, and MIT’s Simon Johnson to point to the upcoming G20 conference in London as the moment when the big nations must act effectively and collectively to stem the global financial depression.
The London Conference of 1933 is correctly considered a failure that led to a widespread breakdown in national relations, to a helter skelter raising of trade barriers, to random and often sinister currency manipulations, and to a prolonged crushing of commodity prices. It is crucial to understand that the disappointment of the London Conference, the inability of the great powers to find common ground on trade, currency and prices, led to a sense of moral helplessness in Europe.
The breakdown at the Disarmament Conference in Paris in the fall of 1933 was a quick result. So was the steady rearmament of and re-militarization of states with high unemployment that led, within three years, to the military adventurism of German and Italy. However, Britain and America were not exempt from exploiting the industrial demands of war-footing economies, and the observation that the American depression ended when the unemployed went to boot camp is not off the mark. It is crucial to make the connection that failure in economic conferences can and will lead to failure in peace conferences.
So what caused London 1933 to fail? What two lessons can we learn from seventy-six years ago that will guide the G20 as it approaches strikingly similar problems of demand, trade, currency, regulation and collective action?
The first and most helpful lesson is that we are no smarter than our forebears, and they were no less informed than we are of the threats of trade, currency and prices. Our global communications and transportation systems, our swift multilingual video chats, our access to ceaseless data streams watching trillions of dollars of assets and credit, does not give us a clearer vision of the solutions. It is the same world of trade, currency and closely watched commodity prices. It is also the same world with confrontational voices of well informed men who saw in 1933 that the London Conference was headed for trouble because the “larger nations” were selfish, willful and untrustworthy.
The chief problem was the “economic nationalism” of the United States; and this fact was well known at the time. In New York days before the Conference, Benjamin Anderson, economist for Chase National bank, derided the three-month-old Roosevelt administration’s “so called planned economy.” He spoke ruefully of the President’s surprise decision to suspend the gold standard in order to improve commodity prices. "We must get back to gold", Anderson said.
Meanwhile, Congress remained fixated on a sort of “planned economy” that was the opposite of what Keynes and Anderson said was required for success in London. The Senate gave the President what was understood to be sweeping authority -- including the power for FDR to place “an embargo upon all foreign imports which might hinder the successful application of the internal industrial policy…” The report from Washington was clear that “the bestowal of such extraordinary powers suggests the possibility of the United States carrying the policy of economic nationalism to the point of complete isolation.”
The second lesson from the failure of the 1933 London Conference is that no amount of dreadful predictions or chart-based projections, no consensus of economists or brainy professors, can convince the political leadership of powerful states to work together. If the end result does not contain an immediate, tangible, poll-boosting pay-off, the safe course is to loudly restate your fears and do nothing.
In London there was the impression this was a job fair of national brands. It is confounding to see that Ramsay MacDonald’s government chose the dusty reception hall of the Geological Museum to shoehorn in seating for the thousand guests. There was no room for observers, no space for consultations, and by the opening remarks from the King, the proceeding was as dead as the fossils in the museum.
We know now, just as the delegates did then, that there was a supposed secret negotiation going on outside the Hall, between the United States, Britain and France, to solve the currency manipulation crisis. The U.S. Secretary of State, Cordell Hull, arriving on the President Roosevelt a few days before, had given away this secret when he had told the Press Association that the chief problem was trade barriers. By not mentioning what was on everyone’s mind, the gold standard and currency manipulation, Hull was giving away the game.
The delegates knew the formula: economic nationalism led to reduced trade, currency abuse and isolationism. They even had the same alarming words of inflation, deflation, credit drought, capital flight, retaliation. Did they know it would end so badly that not one of them would survive the decade intact?
The host, dour, sober, tidy British Prime Minister Ramsay MacDonald, said on the opening day of the Conference, “The economic life of the world has for years been suffering from a decline which has closed factories, limited employment, reduced standards of living, brought some states to the verge of bankruptcy, and inflicted on others Budgets which cannot be balanced…
“The world is being driven upon a state of things which may well bring it face to face with a time in which the gains of the past are swept away by the forces of despair…”
Watch for two warning notes at the G20 meeting in three weeks' time. If the delegates claim, as a way of asserting confidence, that we today are smarter, wiser, more cautious, more cosmopolitan and communitarian than 1933, then the brain rot has started. If the delegates pronounce, especially if the host, dour, sober, Prime Minster Gordon Brown pronounces, as a way of spurring agreement and success, that the world is on the brink of slipping backwards to a time of protectionism, nationalism, militarism, isolationism, then it is already too late.