When the project of European economic unity was launched after 1945, it was presented by its supporters primarily as a response to Europe’s political failures. Much less was made of the fact that before the Second World War ravaged the continent, it had been plagued by almost 30 uninterrupted years of economic crises. Jean Monnet, a founding father of European union, presented the European Coal and Steel Community to the world in 1952, in the following terms: ‘The divisions and national rivalries of Europe have twice lately led to appalling destruction and human suffering… Europe’s peoples must unite, if there is to be an end to the state rivalries which have already precipitated these nations into two world wars and also ruined Europe itself.’
At the time, Monnet, like most European liberal democrats, did not want to draw undue attention to the crisis of capitalism, especially as its shortcomings in the interwar period were many and the lessons of its history complex.
Let us remind ourselves of a few of those failures. After 1914, the financial pressures of fighting the world’s first ‘total war’ had placed the fiscal structures of the British and French empires under enormous strain and caused them to incur large war debts to the United States, which resulted in the balance of global financial power shifting across the Atlantic. For the Central Powers – the Austro-Hungarian, German and Ottoman Empires, and the Kingdom of Bulgaria, which did not have access to US loans and which were equally unable to generate sufficient revenue to wage the war from their own resources, the conflict triggered the beginnings of inflationary pressures that would become acute.
With the coming of peace in 1918, the inflation unleashed by the war was exacerbated by the challenges of reconstruction (without foreign aid) in the West and the requirement to build new nation states in Central and Eastern Europe. By the early 1920s, a potent combination of financial, political and social pressures culminated in episodes of acute hyper-inflation that devastated the successor republics of the Central Powers, notably those of Austria, Hungary, Germany and Poland. Austria descended into hyperinflation as early as October 1921, with a monthly inflation rate of 46 per cent and unemployment running at over 33 per cent; in Hungary, inflation grew by 33 per cent a month between March 1923 and February 1924, with rising levels of unemployment and poverty to match. Across central and eastern Europe, inflation peaked at over 2000 per cent a year, but even in the comparatively stable setting of postwar Britain, the rate of inflation moved at a giddy rate, reaching 15.4 per cent in 1920.
The experience of inflation had a profound impact around the world. Governments now made currency stability the primary goal and their efforts centred on resurrecting the international gold standard, a fixed exchange mechanism, because it was widely believed it had facilitated the great expansion of the international economy in the 19th century. Between 1924 and 1929, 45 countries joined the gold standard (most of the British Empire and Commonwealth joined in 1926). At first, the gold standard appeared to bring stability and it certainly bound the fate of national economies more closely together. So, too, did the increase in international lending after 1924, which was essential to its reconstruction.
But the period of stability and growth in Europe was only brief. The first signs of renewed problems were evident in the patterns of world trade. Tariffs and quota systems, employed on an unprecedented level during the war, were never abolished, despite the lofty aspirations to global free trade expressed in Woodrow Wilson’s Fourteen Points and in the Covenant of the League of Nations. Instead, after 1920, levels of protection began to creep up, fed in particular by the emergent crisis in European agriculture in the face of stiff competition from North America to the west and by the USSR’s drive to collectivise and export production to the east. So severe was the crisis in international trade, that the League of Nations called a world conference in 1927 to address it. This resulted in a two-year tariff truce that sought to fix states’ current levels of protection to provide breathing space in which multilateral tariff agreements could be initiated. It was in the context of these debates at the League that, to break through the economic deadlock, French Prime Minister Aristide Briand called for a ‘United States of Europe’ at a meeting of the assembly on September 3, 1929. But within days of the announcement of the Briand Plan and the tariff truce, the Dow Jones Industrial Average peaked at a level it was not to reach again until 1954; a month later, Briand was no longer prime minister and the US Stock Exchange on Wall Street had crashed.
The Wall Street Crash of October 1929 precipitated and reflected the rising economic and financial pressures on Europe. Already in 1928, as trade channels between European states closed up, financial pressures were also building. The continent, led by Germany, experienced a marked downturn in the levels of US and British investment. At the same time, deflationary pressures of the gold standard exchange system on currencies that were overvalued (notably the German Reichsmark and the British pound sterling) became especially acute. After 1929, the collapse of US market confidence, combined with operations of the gold standard to tighten the deflationary vice on Europe. As the United States experienced its greatest economic depression of the 20th century, the European continent lurched in a new direction.
The collapse of liberal democracy and Europe’s descent into an age of extremes is well-known. At the time, observers were in no doubt that it was the economic and financial crisis which had provided nascent authoritarian, fascist and communist movements with a path to power. In 1931, a series of banking crises swept through Austria and then Germany, while a flight from the pound saw sterling and allied currencies abandon the gold standard and create a sterling bloc. Throughout the 1930s, tariff walls and quotas continued to rise, until the continent was a regional economy at war, with successive economic crises following on as currencies and states successively succumbed to the mounting deflationary pressures. The Netherlands, Belgium and France all experienced severe financial problems between 1933 and 1936.
Monnet, in common with many members of the generation of government advisers, statesmen, industrialists, agricultural lobbyists and social scientists to whom he related and who built the EEC, were forged in this history. Thanks to his involvement during the First World War in the Allied wartime maritime transport council and the Supreme Economic Council in Paris, alongside Sir Arthur Salter, Britain’s Minister for Shipping, Monnet had a deep awareness of the relationship between the health of the European economy and its security. This was cemented and developed by his appointment as deputy secretary-general of the League of Nations in 1920, where, again working alongside Salter, he was involved in the league’s financial rescue of Austria, Hungary, Greece and Bulgaria and in the creation of the Economic and Financial Organisation within the league.
This organisation brought the essential constituent parts of the world economy together in pioneering ways. It hosted two major world economic conferences in 1927 and 1933, attended by 65 empire and nation states, bankers, financial and economic experts, businessmen, agricultural lobbyists and representatives of organised labour. Although these events and the endless round of intergovernmental meetings and specialist commissions hosted by the league produced immediate outcomes, the focus on the centrality of economic prosperity to European prosperity and security was pronounced. Significant, too, was the way the Economic and Financial Organisation operated. It increasingly preferred to short-circuit the league’s commitment to open diplomacy for meetings in camera that brought together social scientists with statesmen. After 1931, its sister organisation in the league, the International Labour Organization, which still exists today, was an important collaborator. Both organisations undertook groundwork that would be essential to the EEC. The famous tripartite structure of the ILO, for example, in which nation states, businessmen and organised labour were represented in equal measure, highlighted the value given to labour rights understood in relation to labour productivity in the European economy.
By the 1930s, the League of Nations’ work in economic and financial co-operation was at the heart of its operations. Part of this trend reflected the fact that much of the league’s work in the field of hard security had come to naught. But it was also because, despite the fact that, by 1934, a tentative global recovery in the wake of the financial shocks of 1929 and 1931 had set in, the economic nationalism which now gripped the world proved profoundly limiting. The world economy continued to exist in a state of quasi-emergency, which lasted until the early 1950s.
The outbreak of the Second World War in September, 1939, underlined – if underlining were needed – that the member states of the League of Nations had failed to adhere to their contractual obligation in the organisation’s covenant ‘not to resort to war’. Yet when it came to planning new organisations to replace the league, military security gave way to a preoccupation with economic security. Most officials employed in the League of Nations’ secretariat, which Monnet had helped to establish 20 years earlier, reflected a wider view among social scientists that the core function of any future international organisation was first to mitigate economic and financial turmoil and, in so doing, safeguard democratic values and peace. By then, Monnet no longer worked for the league, but he remained apprised of its work and close to many of the figures who did. This group privileged technocratic co-operation – an early precursor to the principles underpinning the Bretton Woods institutions and the European Economic Community, for which many of its staff members went to work – and one which was predicated on a world divided between capitalism and command economies. Equally significantly, many secretariat members and the social scientists with whom they worked had become trenchant critics of the actions and powers marshalled by nation states of whatever political hue, which they believed had worked against international coordination, cooperation and peace.
That explains why, during the course of the 1920s and, especially, the subsequent decade of ultra-nationalism of the 1930s, despite the league’s shortcomings, many became more, not less convinced as to the utility of regional and global organisations, especially in the field of economic and financial relations.
Schools of economics and political science, which grew at a significant rate in the West between 1919 and 1946, also made important contributions in the search for what were described as ‘pragmatic’ and ‘practical’ solutions to restore the liberal capitalist economy to health. Especially significant were an influential set of lectures delivered by David Mitrany in Europe and the US in 1932 and 1933. Although never formally employed in the League of Nations, the Romanian-born, naturalised British Mitrany had been employed by Monnet on the league mission in Austria in 1922, when he worked with the Carnegie Foundation on a number of projects relating to the economic and social impact of the war; and the league frequently consulted him for his expertise on European peasantry. Mitrany’s lectures, which were published in 1933 as The Progress of International Government, called for international organisations to work with and for people; to cooperate on issues and matters that united, rather than divided; to consider the common interests of individuals and peoples; and to look for solutions by function and form. Although more commonly associated with the 1950s, this functionalist view – that technical collaboration was an antidote to brute realism – was a child of the interwar period.
This stress on the practical and intellectual interdependencies of regional and world politics was the guiding light in the postwar project of European economic co-operation. Monnet’s pragmatic approach was the same as that which he had inculcated in the League of Nations in its search for ‘practical’ economics in a Europe bitterly divided by ‘impractical’ ideologies. In some respects, it harked back to an Enlightenment faith in reason, individual liberty, social openness and human progress.
In this way – and in many others – the move to European economic integration after 1945, widely heralded as a break with the past, held deep continuities to the interwar and war years. Embedded in the EEC were league-invented classifications, which implied rules about sound capitalist practices and notions of ‘practical’ economics that were sensitive to context and sought to bridge protectionism and free trade, state intervention and market freedom. Monnet and his colleagues’ effort to secure recognition of their economic and financial work inside the league, as the function of a discrete ‘organisation’ within the league, was an indication of their faith in the value of institutionalised cooperation. Indeed, there was strong continuity from interwar to postwar in other successor organisations of the league that were to become known as the ‘UN family’, including the Economic and Social Council of the UN, based in the former Palais des Nations of the league; the League of Nations’ Health Organisation, now the rebranded World Health Organisation; the UN Food and Agricultural Organisation, which was led and staffed largely by former league experts; and, of course, the EEC. And most central of all the skeins tying the world of international organisations after 1945 to that before it was the continued emphasis placed on the value of technocracy. As Salter had put it, the league demonstrated the unparalleled value of bringing together ‘expert advice’ and ‘representative advice’ (the italics are his).
Many of the functions of the postwar organisations were built out of the ideas and practices of the league and the positive, if limited, contribution it could claim. But after 1945, there was a marked shifted away from the League of Nations’ stress on the value of open diplomacy.
Instead, when officials of the league were asked for their views of the organisation’s history, they stressed the limits that the behaviour of individual states could impose on the efficacy of intergovernmental organisations and the ability of international officials and scientists to solve the big challenges facing the world. They also stressed the value of a dedicated international secretariat supported by the worldwide web of science. The scientifically current, apolitical and internationally regarded expert was associated with the generally highly regarded “technical agencies” of the league and became an especially pronounced feature of European institutions that emerged in the second half of the 20th century. The primacy of expert advice in the new specialist agencies represented the continued power of the notion that the world could be directed by using figures, numbers and statistical categories. For the social scientists themselves, involvement in regional and international organisations held out the hope for greater scientific freedom than working inside nation states that seemed increasingly keen on interfering in their activities. And, as we know so famously from Monnet, national statesmen, too, continued to harbour hopes that difficult intergovernmental relations could be circumvented by reaching out to the scientific communities in hostile states.
But, in contrast to expert advice, the place of statesmen was less clear in the pioneering organisations of the new world order after 1945. As the EEC and the work of the International Monetary Fund and the World Bank came to illustrate, avoiding public interest and debate robbed regional and international organisations of their claim to legitimacy and eroded support for their activities at the state level, as attacks on the IMF, the World Bank and the European Union’s democratic deficit, although differently composed in each case, all show. These institutions sought to represent and inculcate notions of good governance, but their distance from ‘the people’ contradicted this claim.
In the interwar period, the league had helped to orientate action and to create a social reality for the secretariat and for the networks of exper- tise and government delegations it sustained. During and after the Second World War, many of the individuals who were members of these groups directed their ideas, their friendships and rivalries and what they had learned from the interwar period into new organisations and networks. In Europe, the promotion of regionalism through the league stretched farther than the former deputy secretary-general and gave a strongly
technocratic direction to efforts to rebalance Franco-German relations and, with it, the prospects for Europe. Technical expertise garnered at the league was deployed by the former league official Pietro Stoppani and the Belgian financial expert Maurice Frère in the European Payments Union and deep experience of international negotiation facilitated by the league was invaluable to government figures such as the Belgian politicians, Paul van Zeeland and Paul-Henri Spaak. Political and ministerial relationships benefited from the experience of the league, as generations of government delegates acquired the habits of international engagement, with much of their experience centred on European economic security.
The EEC also continued the League of Nations’ efforts to insert a third voice into the debate over whether state or market was best for the world economy. The league’s response to the alternative between state and market liberalism that divided the world in the interwar period was to put the problem in the hands of experts. They did not see the choice between market and state in binary opposition to one another. Rather, the answer was to engage both as each challenge needed to be understood in its particular context and in relation to the needs of the world’s economy and of its citizens (as articulated by experts).
But as early as 1945, some among Monnet’s former colleagues in Geneva were anxious about these trends. The growing number of organisations and their increased specialisation brought more resources, but increased the problems the league, too, had experienced in embryonic form: how to ensure equality of access of states and interest groups to the new institutions; how to secure expert advice that was both independent and representative of the state of scientific knowledge; and to make their activities both accountable and accessible to the public. As Alexander Loveday, another of Monnet’s colleague’s in the early days in Geneva, who remained with the organisation until its dissolution in 1946, put it: the future should not ‘substitute for other forms of dictatorship a new dictatorship of scholars. In the democratic world, the final power must always rest with the mass of people, with laymen.’
This essay originally appeared under the title ‘Bread and Butter Politics: economic crises and the making of Europe, 1920-1960′ in ‘The Pursuit of Europe: Perspectives from the Engelsberg Seminar’, Bokförlaget Stolpe, in collaboration with Axel and Margaret Ax:son Johnson Foundation, 2012.