excerpts from the book
Tragedy & Hope
A History Of The World In Our
Time
by Carroll Quigley
MacMillan, 1966, haardcover
p4
In Mesopotamian Civilization (6000 B.C.-300 B.C.) the core area
was the lower valley of Mesopotamia; the semiperipheral area was
the middle and upper valley, while the peripheral area included
the highlands surrounding this valley, and more remote areas like
Iran, Syria, and even Anatolia. The core area of Cretan Civilization
(3500 B.C.-i ioo B.c.) was the island of Crete, while the peripheral
area included the Aegean islands and the Balkan coasts. In Classical
Civilization the core area was the shores of the Aegean Sea; the
semiperipheral area was the rest of the northern portion of the
eastern Mediterranean Sea, while the peripheral area covered the
rest of the Mediterranean shores and ultimately
Spain, North Africa, and Gaul. In Canaanite Civilization (2200
B.C.-I00 B.C.) the core area was the Levant, while the peripheral
area was in the western Mediterranean at Tunis, western Sicily,
and eastern Spain. The core area of Western Civilization (A.D.
400 to some time in the future) has been the northern half of
Italy, France, the extreme western part of Germany, and England;
the semiperipheral area has been central, eastern, and southern
Europe and the Iberian peninsula, while the peripheral areas have
included North and South America, Australia, New Zealand, South
Africa, and some other areas.
This distinction of at least two geographic
areas in each civilization is of major importance. The process
of expansion, which begins in the core area, also begins to slow
up in the core at a time when the peripheral area is still expanding.
In consequence, by the latter part of the Age of Expansion, the
peripheral areas of a civilization tend to become wealthier and
more powerful than the core area. Another way of saying this is
that the core passes from the Age of Expansion to the Age of Conflict
before the periphery does. Eventually, in most civilizations the
rate of expansion begins to decline everywhere.
It is this decline in the rate of expansion
of a civilization which marks its passage from the Age of Expansion
to the Age of Conflict. This latter is the most complex, most
interesting, and most critical of all the periods of the life
cycle of a civilization. It is marked by four chief characteristics:
(a) it is a period of declining rate of expansion; (b) it is a
period of growing tensions and class conflicts; (c) it is a period
of increasingly frequent and increasingly violent imperialist
wars; and (d) it is a period of growing irrationality, pessimism,
superstitions, and otherworldliness. All these phenomena appear
in the core area of a civilization before they appear in more
peripheral portions of the society.
The decreasing rate of expansion of the
Age of Conflict gives rise to the other characteristics of the
age, in part at least. After the long years of the Age of Expansion,
people's minds and their social organizations are adjusted to
expansion, and it is a very difficult thing to readjust these
to a decreasing rate of expansion. Social classes and political
units within the civilization try to compensate for the slowing
of expansion through normal growth by the use of violence against
other social classes or against other political units. From this
come class struggles and imperialist wars. The outcomes of these
struggles within the civilization are not of vital significance
for the future of the civilization itself. What would be of such
significance would be the reorganization of the structure of the
civilization so that the process of normal growth would be resumed.
Because such a reorganization requires the removal of the causes
of the civilization's decline, the triumph of one social class
over another or of one political unit over another, within the
civilization, will not usually have any major influence on the
causes of the decline, and will not (except by accident) result
in such a reorganization of structure as will give rise to a new
period of expansion. Indeed, the class struggles and imperialist
wars of the Age of Conflict will probably serve to increase the
speed of the civilization's decline because they dissipate capital
and divert wealth and energies from productive to nonproductive
activities.
In most civilizations the long-drawn agony
of the Age of Conflict finally ends in a new period, the Age of
the Universal Empire. As a result of the imperialist wars of the
Age of Conflict, the number of political units in the civilization
are reduced by conquest. Eventually one emerges triumphant. When
this occurs we have one political unit for the whole civilization.
Just at the core area passes from the Age of Expansion to the
Age of Conflict earlier than the peripheral areas, sometimes the
core area is conquered by a single state before the whole civilization
is conquered by the Universal Empire. When this occurs the core
empire is generally a semiperipheral state, while the Universal
Empire is generally peripheral state.
p7
Of approximately twenty civilizations which have existed in all
of human history ... fourteen, are already dead or dying, their
cultures destroyed by outsiders able to come in with sufficient
power to disrupt the civilization, destroy its established modes
of thought and action, and eventually wipe it out. Of these twelve
dead or dying cultures, six have been destroyed by Europeans bearing
the culture of Western Civilization. When we consider the untold
numbers of other societies, simpler than civilizations, which
Western Civilization has destroyed or is now destroying, societies
such as the Hottentots, the Iroquois, the Tasmanians, thc Navahos,
the Caribs, and countless others, the full frightening power of
Western Civilization becomes obvious.
p8
This society became a civilization when it became organized, in
the period 7oo-97o, so that there was accumulation of capital
and the beginnings of the investment of this capital in new methods
of production. These new methods are associated with a change
from infantry forces to mounted warriors in defense, from manpower
(and thus slavery) to animal power in energy use, from the scratch
plow and twofield, fallow agricultural technology of Mediterranean
Europe to the eight-oxen, gang plow and three-field system of
the Germanic peoples, and from the centralized, state-centered
political orientation of the Roman world to the decentralized,
private-power feudal network of the medieval world. In the new
system a small number of men, equipped and trained to fight, received
dues and services from the overwhelming majority of men who were
expected to till the soil. From this inequitable but effective
defensive system emerged an inequitable distribution of political
power and, in turn, an inequitable distribution of the social
economic income. This, in time, resulted in an accumulation of
capital, which, by giving rise to demand for luxury goods of remote
origin, began to shift the whole economic emphasis of the society
from its earlier organization in self-sufficient agrarian units
(manors) to commercial interchange, economic specialization, and,
by the thirteenth century, to an entirely new pattern of society
with towns, a bourgeois class, spreading literacy, growing freedom
of alternative social choices, and new, often disturbing, thoughts.
From all this came the first period of
expansion of Western Civilization, covering the years 970-1270.
At the end of this period, the organization of society was becoming
a petrified collection of vested interests, investment was decreasing,
and the rate of expansion was beginning to fall. Accordingly,
Western Civilization, for the first time, entered upon the Age
of Conflict. This period, the time of the Hundred Years' War,
the Black Death, the great heresies, and severe class conflicts,
lasted from about 1270 to 1420. By the end of it, efforts were
arising from England and Burgundy to conquer the core of Western
Civilization. But, just at that moment, a new Age of Expansion,
using a new organization of society which circumvented the old
vested interests of the feudal-manorial system, began.
This new Age of Expansion, frequently
called the period of commercial capitalism, lasted from about
1440 to about i68o. The real impetus to economic expansion during
the period came from efforts to obtain profits by the interchange
of goods, especially semiluxury or luxury goods, over long distances.
In time, this system of commercial capitalism became petrified
into a structure of vested interests in which profits were sought
by imposing restrictions on the production or interchange of goods
rather than by encouraging these activities. This new vestedinterest
structure, usually called mercantilism, became such a burden on
economic activities that the rate of expansion of economic life
declined and even gave rise to a period of economic decline in
the decades immediately following 1690. The class struggles and
imperialist wars engendered by this Age of Conflict are sometimes
called the Second Hundred Years' War. The wars continued until
1815, and the class struggles even later.
p10
The new Age of Expansion ... appeared as the Agricultural Revolution
about 1725 and as the Industrial Revolution about 1775, but it
did not get started as a great burst of expansion until after
1820. Once started, it moved forward with an impetus such as the
world had never seen before, and it looked as if Western Civilization
might cover the whole globe. The dates of this third Age of Expansion
might be fixed at 1770-1929, following upon the second Age of
Conflict of 1690-1815. The social organization which was at the
center of this new development might be called "industrial
capitalism." In the course of the last decade of the nineteenth
century, it began to become a structure of vested interests to
which we might give the name "monopoly capitalism."
As early, perhaps, as 1890, certain aspects of a new Age of Conflict,
the third in Western Civilization, began to appear, especially
in the core area, with a revival of imperialism, of class struggle,
of violent warfare, and of irrationalities.
By 1930 it was clear that Western Civilization
was again in an Age of Conflict; by 1942 a semiperipheral state,
Germany, had conquered much of the core of the civilization. That
effort was defeated by calling into the fray a peripheral state
(the United States) and another, outside civilization (the Soviet
society). It is not yet clear whether Western Civilization will
continue along the path marked by so many earlier civilizations,
or whether it will be able to reorganize itself sufficiently to
enter upon a new, fourth, Age of Expansion. If the former occurs,
this Age of Conflict will undoubtedly continue with the fourfold
characteristics of class struggle, war, irrationality, and declining
progress. In this case, we shall undoubtedly get a Universal Empire
in which the United States will rule most of Western Civilization.
This will be followed, as in other civilizations, by a period
of decay and ultimately, as the civilization grows weaker, by
invasions and the total destruction of Western culture.
p16
The conquest of the problem of producing food, known as the Agricultural
Revolution, began in England as long ago as the early eighteenth
century, say about 1725. The conquest of the problem of producing
manufactured goods, known as the Industrial Revolution, also began
in England, about fifty years after the Agricultural Revolution,
say about 1775. The relationship of these two "revolutions"
to each other and to the "revolution" in sanitation
and public health and the differing rates at which these three
"revolutions" diffused is of the greatest importance
for understanding both the history of Western Civilization and
its impact on other societies.
p37
At the beginning, in the early Middle Ages, Western Civilization
had an economic system which was almost entirely agricultural,
organized in selfsufficient manors, with almost no commerce or
industry. To this manorial-agrarian system there was added, after
about 1050, a new economic system based on trade in luxury goods
of remote origin for the sake of profits. This we might call commercial
capitalism. It had two periods of expansion, one in the period
l050-1270, and the other in the period Io-169o. The typical organization
of these two periods was the trading company (in the second we
might say the chartered trading company, like the Massachusetts
Bay Company, the Hudson's Bay Company, or the various East India
companies). The next period of economic organization was the stage
of industrial capitalism, beginning about 1770, and characterized
by owner management through the single-proprietorship or the partnership.
The third period we might call flnancial capitalism. It began
about 1850 reached its peak about 1914, and ended about 1932.
Tipical forms of economic organization were the limited-liability
corporation and the holding company. It was a period of financial
or banker management rather than one of owner management as in
the earlier period of industrial capitalism. This period of financial
capitalism was followed by a period of monopoly capitalism. In
this fourth period, typical forms of economic organization were
cartels and trade associations. This period began to appear about
18890, took over control of the economic system from the bankers
about 1932, and is distinguished as a period of managerial dominance
in contrast with the owner management and the financial management
of the two periods immediately preceding it. Many of its characteristics
continue, even today, but the dramatic events of World War II
and the post-war period put it in such a different social and
historical context as to create a new, sixth, period of economic
organization which might called "the pluralist economy."
p43
CapitaIism, because it seeks profits as its primary goal, is never
primarily seeking to achieve prosperity, high production, high
consumption, political power, patriotic improvement, or moral
uplift. Any of these may be achieved under capitalism, and any
(or all) of them may he sacrificed and lost under capitalism,
depending on this relationship to the primary goal of capitalist
activity - the pursuit of profit.
p44
Money and goods are not the same thing but are, on the contrary,
exactly opposite things. Most confusion in economic thinking arises
from failure to recognize this fact. Goods are wealth which you
have, while money is a claim on wealth which you do not have.
Thus goods are an asset; money is a debt. If goods are wealth;
money is not-wealth, or negative wealth, or even anti-wealth.
They always behave in opposite ways, just as they usually move
in opposite directions. If the value of one goes up, the value
of the other goes down, and in the same proportion. The value
of goods, expressed in money, is called "prices," while
the value of money, expressed in goods, is called "value."
p48
The founding of the Bank of England by William Paterson and his
friends in 1694 is one of the great dates in world history. For
generations men had sought to avoid the one drawback of gold,
its heaviness, by using pieces of paper to represent specific
pieces of gold. Today we call such pieces of paper gold certificates.
Such a certificate entitles its bearer to exchange it for its
piece of gold on demand, but in view of the convenience of paper,
only a small fraction of certificate holders ever did make such
demands. It early became clear that gold need be held on hand
only to the amount needed to cover the fraction of certificates
likely to he presented for payment; accordingly, the rest of the
gold could be used for business purposes, or, what amounts to
the same thing, a volume of certificates could be issued greater
than the volume of gold reserved for payment of demands against
them. Such an excess volume of paper claims against reserves we
now call bank notes.
In effect, this creation of paper claims
greater than the reserves available means that bankers were creating
money out of nothing. The same thing could be done in another
way, not by note-issuing banks but by deposit banks. Deposit bankers
discovered that orders and checks drawn against deposits by depositors
and given to third persons were often not cashed by the latter
but were deposited to their own accounts. Thus there were no actual
movements of funds, and payments were made simply by bookkeeping
transactions on the accounts. Accordingly, it was necessary for
the banker to keep on hand in actual money (gold, certificates,
and notes) no more than the fraction of deposits likely to be
drawn upon and cashed; the rest could be used for loans, and if
these loans were made by creating a deposit for the borrower,
who in turn would draw checks upon it rather than withdraw it
in money, such "created deposits" or loans could also
be covered adequately by retaining reserves to only a fraction
of their value. Such created deposits also were a creation of
money out of nothing, although hankers usually refused o express
their actions, either note issuing or deposit lending, in these
terms. William Paterson, however, on obtaining the charter of
the Bank of England in 1694, to use the moneys he had won in privateering,
said, "The Bank hath benefit of interest on all moneys which
it creates out of nothing." This was repeated by Sir Edward
Holden, founder of the Midland Bank, on December 18, 1907, and
is, of course, generally admitted today.
This organizational structure for creating
means of payment out of nothing, which we call credit, was not
invented by England but was developed by her to become one of
her chief weapons in the victory over Napoleon in 1815.
p50
[Financial capitalism] is of such overwhelming significance in
the history of the twentieth century, and its ramifications and
influences have been so subterranean and even occult, that we
may be excused if we devote considerate attention to its organization
and methods. Essentially what it did was to take the old disorganized
and localized methods of handling money and credit and organize
them into an integrated system, on an international basis, which
worked with incredible and welloiled facility for many decades.
The center of that system was in London, with major offshoots
in New York and Paris, and it has left, as its greatest achievement,
an integrated banking system and a heavily capitalized-if now
largely obsolescent-framework of heavy industry, reflected in
railroads, steel mills, coal mines, and electrical utilities.
This system had its center in London for
four chief reasons. First was the great volume of savings in England,
resting on England's early successes in commercial and industrial
capitalism. Second was England's oligarchic social structure (especially
as reflected in its concentrated landownership and limited access
to educational opportunities) which provided a very inequitable
distribution of incomes with large surpluses coming to the control
of a small, energetic upper class. Third was the fact that this
upper class was aristocratic but not noble, and thus, based on
traditions rather than birth, was quite willing to recruit both
money and ability from lower levels of society and even from outside
the country, welcoming American heiresses and central-European
Jews to its ranks, almost as willingly as it welcomed monied,
able, and conformist recruits from the lower classes of Englishmen,
whose disabilities from educational deprivation, provincialism,
and Nonconformist (that is nonAnglican) religious background generally
excluded them from the privileged aristocracy. Fourth (and by
no means last) in significance was the skill in financial manipulation,
especially on the international scene, which the small group of
merchant bankers of London had acquired in the period of commercial
and industrial capitalism and which lay ready for use when the
need for financial capitalist innovation became urgent.
The merchant bankers of London had already
at hand in 1810-1850 the Stock Exchange, the Bank of England,
and the London money market when the needs of advancing industrialism
called all of these intc the industrial world which they had hitherto
ignored. In time they brought into their financial network the
provincial banking centers, organized as commercial banks and
savings banks, as well as insurance companies, to form all of
these into a single financial system on an international scale
which manipulated the quantity and flow of money so that they
were able to influence, if not control, governments on one side
and industries on the other. The men who did this, looking backward
toward the period of dynastic monarchy in which they had their
own roots, aspired to establish dynasties of international bankers
and were at least as successful at this as were many of the dynastic
political rulers. The greatest of these dynasties, of course,
were the descendants of Meyer Amsehel Rothschild (1743-1812) of
Frankfort, whose male descendants, for at least two generations,
generally married first cousins or even nieces. Rothschild's five
sons, established at branches in Vienna, London, Naples, and Paris,
as well as Frankfort, cooperated together in ways which other
international banking dynasties copied but rarely excelled.
In concentrating, as we must, on the financial
or economic activities of international bankers, we must not totally
ignore their other attributes. They were, especially in later
generations, cosmopolitan rather than nationalistic; they were
a constant, if weakening, influence for peace, a pattern established
in 1830 and 1840 when the Rothschilds threw their whole tremendous
influence successfully against European wars. They were usually
highly civilized, cultured gentlemen, patrons of education and
of the arts, so that today colleges, professorships, opera companies,
symphonies, libraries, and museum collections still reflect their
munificence. For these purposes they set a pattern of endowed
foundations which still surround us today.
The names of some of these banking families
are familiar to all of us and should he more so. They include
Baring, Lazard, Erlanger, Warburg, Schröder, Seligman, the
Speyers, Mirabaud, Mallet, Fould, and above all Rothschild and
Morgan. Even after these banking families became fully involved
in domestic industry by the emergence of financial capitalism,
they remained different from ordinary bankers in distinctive ways:
(i) they were cosmopolitan and international; (2) they were close
to governments and were particularly concerned with questions
of government debts, including foreign government debts, even
in areas which seemed, at first glance, poor risks, like Egypt,
Persia, Ottoman Turkey, Imperial China, and Latin America; ()
their interests were almost exclusively in bonds and very rarely
in goods, since they admired "liquidity" and regarded
commitments in commodities or even real estate as the first step
toward bankruptcy; () they were, accordingly, fanatical devotees
of deflation (which they called "sound" money from its
close associations with high interest rates and a high value of
money) and of the gold standard, which, in their eyes, symbolized
and ensured these values; and () they were almost equally devoted
to secrecy and the secret use of financial influence in political
life. These bankers came to be called "international bankers"
and, more particularly, were known as "merchant bankers"
in England, "private bankers" in France, and "investment
bankers in the United States.
p53
The influence of financial capitalism and of the international
bankers who created it was exercised both on business and on governments,
but could have done neither if it had not been able to persuade
both these to accept two "axioms" of its own ideology.
Both of these were based on the assumption that politicians were
too weak and too subject to temporary popular pressures to be
trusted with control of the money, system; accordingly, the sanctity
of all values and the soundness of money must be protected in
two ways: by basing the value of money on gold and by allowing
bankers to control the supply of money.
p58
Bankers, who loved deflation, often acted in an inflationary fashion
from their eagerness to lend money at interest. Since they make
money out of loans, they are eager to increase the amounts of
bank credit on loan. But this is inflationary. The conflict between
the deflationary ideas and inflationary practices of bankers had
profound repercussions on business. The bankers made loans to
business so that the volume of money increased faster than the
increase in goods. The result was inflation. When this became
clearly noticeable, the bankers would flee to notes or specie
by curtailing credit and raising discount rates. This was beneficial
to bankers in the short run (since it allowed them to foreclose
on collateral held for loans), but it could be disastrous to them
in the long run (by forcing the value of the collateral below
the amount of the loans it secured).
p60
On the whole, in the period up to 1931, bankers, especially the
Money Power controlled by the international investment bankers,
were able to dominate both business and government. They could
dominate business, especially in activities and in areas where
industry could not finance its own needs for capital, because
investment bankers had the ability to supply or refuse to supply
such capital. Thus, Rothschild interests came to dominate many
of the railroads of Europe, while Morgan dominated at least 26,000
miles of American railroads. Such bankers went further than this.
In return for flotations of securities of industry, they took
seats on the boards of directors of industrial firms, as they
had already done on commercial banks, savings banks, insurance
firms, and finance companies. From these lesser institutions they
funneled capital to enterprises which yielded control and away
from those who resisted. These firms were controlled through interlocking
directorships, holding companies and lesser banks. They engineered
amalgamations and generally reduced competition, until by the
early twentieth century many activities were so monopolized that
they could raise their noncompetitive prices above costs to obtain
sufficient profits to become self-financing and were thus able
to eliminate the control of bankers. But before that stage was
reached a relatively small number of bankers were in positions
of immense influence in European and American economic life.
p61
The power of investment bankers over governments rests on a number
of factors, of which the most significant, perhaps, is the need
of governments to issue short-term treasury bills as well as long-term
government bonds. Just as businessmen go to commercial banks for
current capital advances to smooth over the discrepancies between
their irregular and intermittent incomes and their periodic and
persistent outgoes (such as monthly rents, annual mortgage payments,
and weekly wages), so a government has to go to merchant bankers
(or institutions controlled by them) to tide over the shallow
places caused by irregular tax receipts. As experts in government
bonds, the international bankers not only handled the necessary
advances but provided advice to government officials and, on many
occasions, placed their own members in official posts for varied
periods to deal with special problems.
p61
The influence of bankers over governments during the age of financial
capitalism (roughly 1850-1931) was not something about which anyone
talked freely, but it has been admitted frequently enough by those
on the inside, especially in England. In 1852 Gladstone, chancellor
of the Exchequer, declared, "The hinge of the whole situation
was this: the government itself was not to be a substantive power
in matters of Finance, but was to leave the Money Power supreme
and unquestioned." On September 26, 1921, The Financial Times
wrote, "Half a dozen men at the top of the Big Five Banks
could upset the whole fabric of government finance by refraining
from renewing Treasury Bills." In 1924 Sir Drummond Fraser,
vice-president of the Institute of Bankers, stated, "The
Governor of the Bank of England must be the autocrat who dictates
the terms upon which alone the Government can obtain borrowed
money."
In addition to their power over government
based on government financing and personal influence, bankers
could steer governments in ways they wished them to go by other
pressures. Since most government officials felt ignorant of finance,
they sought advice from bankers whom they considered to be experts
in the field. The history of the last century shows ... that the
advice given to governments by bankers, like the advice they gave
to industrialists, was consistently good for bankers, but was
often disastrous for governments, businessmen, and the people
generally. Such advice could be enforced if necessary by manipulation
of exchanges, gold flows, discount rates, and even levels of business
activity.
p71
[The] period, 1884-1933, was the period of financial capitalism
in which investment bankers moving into commercial banking and
insurance on one side and into railroading and heavy industry
on the other were able to mobilize enormous wealth and wield enormous
economic, political, and social power. Popularly known as "Society,"
or the "400," they lived a life of dazzling splendor.
Sailing the ocean in great private yachts or traveling on land
by private trains, they moved in a ceremonious round between their
spectacular estates and town houses in Palm Beach, Long Island,
the Berkshires, Newport, and Bar Harbor; assembling from their
fortress-like New York residences to attend the Metropolitan Opera
under the critical eye of Mrs. Astor; or gathering for business
meetings of the highest strategic level in the awesome presence
of J. P. Morgan himself.
The structure of financial controls created
by the tycoons of "Big Banking" and "Big Business"
in the period 1880-1933 was of extraordinary complexity, one business
fief being built on another, both being allied with semi-independent
associates, the whole rearing upward into two pinnacles of economic
and financial power, of which one, centered in New York, was headed
by J. P. Morgan and Company, and the other, in Ohio, was headed
by the Rockefeller family. When these two cooperated, as they
generally did, they could influence the economic life of the country
to a large degree and could almost control its political life,
at least on the Federal level. The former point can be illustrated
by a few facts. In the United States the number of billion-dollar
corporations rose from one in 1909 (United States Steel, controlled
by Morgan) to fifteen in 1930. The share of all corporation assets
held by the 200 largest corporations rose from 32 percent in 1909
to 49 percent in 1930 and reached 57 percent in 1939. By 1930
these zoo largest corporations held 49.2 percent of the assets
of all 40,000 corporations in the country ($82 billion out of
$165 billion); they held 38 percent of all business wealth, incorporated
or unincorporated (or $81 billion out of $212 billion); and they
held 22 percent of all the wealth in the country (or $81 billion
out of $367 billion). In fact, in 1930, one corporation (American
Telephone and Telegraph, controlled by Morgan) had greater assets
than the total wealth in twenty-one states of the Union.
The influence of these business leaders
was so great that the Morgan and Rockefeller groups acting together,
or even Morgan acting alone, could have wrecked the economic system
of the country merely by throwing securities on the stock market
for sale, and, having precipitated a stock-market panic, could
then have bought back the securities they had sold but at a lower
price. Naturally, they were not so foolish as to do this, although
Morgan came very close to it in precipitating the "panic
of 1907," but they did not hesitate to wreck individual corporations,
at the expense of the holders of common stocks, by driving them
to bankruptcy.
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