The Dark Side Part III Chapter I - Fritz the Cat

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The Dark Side Part III
Chapter 1

The Roman and Germanic peoples have had a history of conflict since they first encountered each other at the beginning of our common era. The modern era, beginning with the French and American revolutions, has seen first Napoleon's innovative democratic conscript army dominating Germany, then Otto Von Bismarck's equally innovative bureaucratic welfare state turning the tables, with the mineral rich Alsace-Lorraine border region traded back and forth. The dates for those wars were 1795 and 1871.

Napoleon used the rhetoric of rule by the people and rights of man both to inspire his army and dispirit his opponents. Bismarck used free health care to build stronger, healthier workers and soldiers, and old-age pensions to both reward the old for a lifetime's work and to free the young from the responsibility of caring for their parents.

Neither side had an innovation during WWI, perhaps explaining the mutual bloodletting along a stagnant battle-line that characterized that war. It had cost the French 1,357,800 killed in action, and 537,000 made prisoner or missing, and it lasted four years.

25 years later, another innovation, tanks, air, and motorized infantry, allowed Germany to roll over that same ground in a scant six weeks. The fact that it was the French who developed the tank and plane and the battle tactics that would make them effective, but yet the Germans who mass-produced the tanks and planes and drilled the appropriate tactics into its officer corps is at the heart of the book I am reading: Collapse of the Third Republic, by William Shirer. Shirer was an American newspaper man stationed in Europe post WWI and through WWII. What was it about France that prevented the mechanization and would sap their strength and toughness during the interwar period, so that the third republic floundered and expired at the first adversity?

The French bourgeoisie, the aspiring middle class, had used the slogan "Liberty, Equality, Fraternity" as a battle ax to literally chop the heads of the French royalty, then they began fighting amongst themselves for power, the slogans being forgotten, having served their purpose. Predictably, a soldier came out on top and blundered from victory to victory, crowning himself emperor along the way until he eventually blundered into defeat outside Moscow.

This was the capstone of French glory, extending the French language and culture beyond the bounds of the Bourbon or Orleans royal conquest. Fraternity and Equality once again reasserted themselves long enough to oust Napoleon and then once again gave way to venality and corruption.

The Germans, under French domination and tutelage, finally forged a nation out of 23 principalities and city states, and their own set of much more complex slogans glorifying not abstract ideals, but the Prussian state and their own soldier on horseback, the previously mentioned Bismarck. Tit for tat, the French used Bismarck's success in overthrowing France, up to but not including the Paris commune of 1871, to kick out yet another authoritarian leader, Napoleon's nephew, I believe, and set up yet another republic, this one the third, which is the subject of Schrier's book and this paper. The Paris Commune was drowned in blood by the latest French aristocracy shortly after Bismarck's departure, showing once again that hierarchy and money trump fraternity and equality.

Political theory had advanced considerably since the first republic, largely as embodied in the US constitution, and the French third republic incorporated some of these advances in their new constitution. It was a parliament in which elected representatives themselves elected a leader or premiere, instead of the US system, where the leader or president is elected directly by the people.  The judiciary, the executive (the premiere) and the legislative (chamber and senate) are separate as in the US. The third republic's constitution, in order to guard against yet another soldier on horseback, purposely made the legislative branch stronger than the executive. Unfortunately, this made for a weak, divided, and easily manipulated government which in time would lead to another soldier, not on horseback, but in a tank, taking power.

What hadn't changed under the new constitution was the traditional grasp money had on power. This period of history shows the perhaps inevitable tendency of representatives voted in by the left to end up passing laws favoring the right. Leading up to  WW1, the French government, instead of raising taxes to pay for armament, raised loans. Taxes paid for only 17% of total war expenditures.

As mentioned, the third republic's constitution guaranteed a weak government. Between 1870 and 1940 there were 108 ministries. Deputies could bring down a government without calling general elections, and as a ministry became more precarious it became more inclined to generosity. Thus, the personal interest of the deputies lay on the side of instability.

At the beginning of 1924, the treasury could not meet its short-term obligations, and parliament finally approved Premier Poincaré's demand for a rise in all taxes, direct and indirect. This fell hardest on the poor, since indirect taxes on consumption counted for nearly half the state's revenues, with income tax, full of glaring loopholes, accounting for less than 1/4. By 1925, there was a headlong flight of capital abroad.

In April 1925, the banks refused further loans, even for one day, so that the surpassing of the legal limit of advances for the bank of France had to be published, causing a further fall in the franc. The more liberal lower chamber threatened to approve raising the debt limit from 41 to 45 billion francs, and to force a 10% loan on all capital, and the more conservative senate voted a perhaps unconstitutional vote of no confidence, bringing down the government. The influence of the French press, dominated by large business and financial interests, undermined both the elected government and the third republic.

A small elite which possessed most of the wealth was determined to preserve its privileged position. There was a virtual alliance between the possessor class and the republic, which it manipulated through its control of the press, the financing of political parties, and the handling of its vast funds to influence the financial policies of the government. The banks and businessmen had learned the technique of manipulating a democratic society. In the election of 1924, 1932, and 1936 the voters sent leftist majorities to the chamber that quickly shifted its support to the right.

As the 3rd Republic began to flounder, the wealthy found it difficult to put the interests of the nation ahead of that of their class. If the politicians understood that the tax burden was for others to bear, the republic could continue. If not the fascist experiments in Italy and Germany might be more appealing. The wealthy wanted a government of technicians.  The politicians had little understanding of modern finance and showed themselves to be inept at running a government, and the rich themselves were far too busy making money to run a country at the same time.

The wealthy began to feel alienated from France, and since the bulk of the working class also felt itself somewhat cut off, for opposite reasons, the republic was obviously in more trouble than many realized. The high bourgeoisie had held democracy dear when they used it to overthrow the monarchy, but the events of 1848, the 1871 Commune, the 1917 Russian revolution, and the founding of communist parties in Western Europe aggravated upper middle class fears.

If the possessing class in France was too greedy, selfish, and short-sighted to consent to a fair and decent solution to the state's financial crisis, the leftist cartel majority in the chamber of Deputies, representing Frenchmen of modest means, was at the same time too ignorant, too confused, and too timid to force a solution on the country, as it had the constitutional right and power to do. It could have cured inflation and put a break on the flight of capital and the widespread evasion of the income tax. By threatening to do something, such as carrying out a forced loan on capital, converting short-term into long-term bonds, raising the income tax, and decreasing its evasions, it frightened the rich and drove its money abroad. By doing nothing despite its threats, it helped to empty the treasury, weaken the currency, and add greatly to the chaos. The left lacked the toughness to fight through to the end for their beliefs and their program.

After the war the government spent billions more than it took in.  In the end the state, in effect, repudiated most of its debt by allowing the franc to fall until it was stabilized in 1928 at one fifth of its pre-war value. The rich converted their francs to gold while the franc still held its value, but the middle class lost most of its savings.

The argument that I am trying to make in this paper, in continuance of the Dark Side 2 argument, is that there was a series of steps that were taken, surely consciously at some level, that set the stage for WWII.  Taken at the level of high finance in a concordance between the government and the very wealthy, these steps were designed to provoke the opponent, in this case Germany, to either initiate an aggressive war it was not ready for or capitulate to diplomatic agreements that would inevitably weaken it over time.

At first glance this scapegoats the rich and their lackeys in government, but going back to Dark Side I, I have repeatedly insisted that the problem is not one of class but one of human nature, i.e. progress at all cost, and the devil take the hindmost. The problem was not initiated with capitalism as the left holds, or with man's fall from grace as the religious right would have it. If the rich consciously ruined the middle class, the middle class had long been driving the French working class into deeper and deeper poverty. The slums of Paris were some of the worst in Europe, yet in 1932 France's central bank held one quarter of the world's gold. It was a game everyone was playing, with the better players getting richer and those not so adept falling behind.

Moreover, the facile socialist do-good, feel-good solution of a more equitable distribution of wealth will hardly serve in this cutthroat world with its billions of poor and its tens of thousands of rich.  Indeed it is quite possible that socialism is a subtle trap laid by the rich for the poor, the leftist who study how the world of their dreams works hardly being serious business competitors for the right who study how the everyday world here and now works. The dialectics of mode of production and means of production have nothing to do running a business or a country, an awareness that gradually dawns on the revolutionaries who have expropriated the expropriators, as the wealth they stole gradually runs out. Is it any wonder that people who dream of having enough to eat elect dreamers with promises and no ideas, who then learn soon enough what makes the world go round and round? But this is a topic for another paper.

(page 163)  By mid July 1926 the Treasury was empty and the franc had fallen to fifty to the dollar. Renaud Poincaré was approved Premiere by 358 votes to 131 by the same chamber of Deputies who had been elected two years earlier to throw him out. To refund government loans he set up a Sinking Fund run by an agency made independent from the Treasury. In the crisis he pushed through tax reform that would never have been accepted from a less "conservative" Premier.  For the first time real estate capital, when it changed hands, was taxed, a tax on business profits was raised from 10 to 15%, and income from non-registered foreign securities was raised from 14% to 25%.

(pg. 165) In six months, the franc rose from 50 to the dollar to 25 to the dollar and that rate was tied to gold 2 year later. The cost of living rose for the next 3 years, but most Frenchmen were thankful that the state had been saved from bankruptcy, that the franc had not lost all value, and that business generally prospered. But families who had bought government bonds before and during the war saw them reduced by four fifths by the devaluation in the currency. A good many solid middle class citizens dropped into the working class at this time. These people, unlike the workers, turned to the right in hope of salvation.  The middle class became obsessed with the idea that the franc must never be devalued again. When the world wide depression came in the early 30s, the British and Americans devalued their currency, but the French did not, with disastrous results.

The upper class and even the prosperous middle class and prosperous peasants and shop keepers became concerned that the left, almost entirely middle of the road and reformist, was incapable of governing the country. The conservatives, who could not see their shortcomings, above all their selfishness and reluctance to share the sacrifices necessary, resisted the measures of social security, and more equitable distribution of wealth and taxes necessary  in a modern industrial society. One of the most profound results of the failure to modernize was the much more rapid decline in the birthrate than in Germany or indeed, almost anywhere else.

The left felt that the recovery of the late 20s had been largely at their expense, and that the left government they had voted in in 1924 had been ousted by big money only two years later. They overlooked the fact that that government had been undecided and unable to agree on - let alone enforce - any policy which would have prevented the economic collapse. The left and the right each became convinced the other was unfit to govern the republic.

If the various governments of France could muddle through the 20's, the more serious problems of the 30's, the world wide depression and he rise of fascism in Italy and Germany, proved much more challenging. Moreover, many of the leaders, some inept but some talented selfless and dedicated, were dying off. Also dying were the illusions that life could go on much as it always had.  The rapid succession of governments hardly got a grip on problems before a chamber or senate voted them out of power on the slightest pretext.  As Hitler gained and consolidated power the Chamber and Senate elected lesser men to the Presidency, presumably because they felt them to be easier to manipulate. Perhaps adequate in a time of peace, during war they proved not good enough.

(pg. 172-175)  The military leadership was also aging. Having risen rapidly to generalship during WWI, they held on, clinging to posts and blocking the rise of younger officers with new outlooks. Charles de Gaulle remained a captain for 12 years. Thousands of lower grade officers, unable to support their families during the inflation years, resigned. Some one thousand officers were let go in 1933-34 as the full effect of the depression hit France and the military budget was cut by 2 billion francs. As de Gaulle pointed out, for every French male between the age of 20 and 30, there were two Germans. French men were drafted for one year only, and the 62,000 professional soldiers mostly were detailed training these recruits. Added to these were 72,000 colonial troops, resulting in a very small standing army.

Though the French had pioneered tank and plane warfare during WWI, the majority of French generals, as indeed the majority of French farmers, resisted mechanization. A French general, Estienne, delivered a series of lectures to younger officers in 1920 predicting that tanks and trucks would dominate 20th century warfare, a concept backed by General de Gaulle in 1934, and the Panzer force launched by Germany against Belgium and France in May 1940. Estienne was also a pioneer aviator, and stressed the importance of collaboration between independent armor and air units, the latter providing reconnaissance for the tanks and joining in battle and pursuit. The French high command would have nothing of it. As late as 1938 it insisted that the tanks remain an auxiliary of the foot soldier. By 1921 General Estienne had designed a heavily armored and gunned tank. Since the Germans were forbidden by treaty since 1919, to build tanks, the French ruling class, with more vision and less stinginess, could have built an invincible tank army. The French tank was superior in almost every way to the German tank of the blitzkrieg, and the U.S. and Britain were content to copy it a full two decades after it had been designed. The army lacked all direction, with some 60% of its armaments credits remaining unspent in 1933-35.

Unfortunately for the French, the German general staff had, by 1936, laid down a new set of tactics that would completely overwhelm the French, a set of tactics evolved by a French General (Estienne) and refined by a French Lt. Colonel (de Gaulle). But these men were not in power. Marshal Pétain was, and he believed in defense and trench warfare. In his (and France's) defense, Pétain had replaced General Nivelle, whose disastrous promotion of ill-prepared, ill-conceived, and futile offensives had led to the bloodletting early in the First World War. Another war like that and France would be finished.  

(pg. 184-187)  The French prepared their defense with the famous Maginot line, designed to protect the north-east French border with Germany. Yet for 1000 years the Germans had invaded France through Belgium. It was the shortest and easiest way, level and with few large rivers, and the way Germany had come in 1914. To extend the Maginot line to the sea would offend Belgium, much too small to offer serious resistance to Germany, and anyway, too expensive for France.

After fortifying a small section of the border, the French relaxed into a complacency that was impossible to overcome. Their wills, hearts, and minds, the real defense of a nation, were left untouched.  On March 15, 1935, in a great debate over French military policy, it was decided to remain behind the Maginot line, and the unprotected Belgian border was forgotten. On the very next day Adolf Hitler tore up the Versailles treaty and began the conscription of a half a million-man-army, and young officers began planning a great offensive Panzer force.

The World Depression shakes the 3rd Republic, 1931-34.

(pg. 188-189)  It was not until the autumn of 1931, following the crash of the great Kreditanstalt Bank in Vienna, and the financial panic in Germany and above all, the abandonment by Great Britain, on September 21, of the Gold standard and the 40% devaluation of the pound sterling, that the depression really hit France. In 1933 the U.S. devalued their currency by 40% and it was obvious that France must follow suit or be shut out of world markets, dwindling though they may be.

(pg. 190-191)  In 1914 Pierre Laval was being watched by the government as an extreme left wing socialist and pacifist. Like all socialists he welcomed the Russian Revolution in 1917, but he was already showing signs of a turn from the far left to the far right. His ambition for office and his greed for wealth got the better of his left-wing convictions. In 1920 the Socialist Party split with conservative and radical factions, and Laval dropped out and drifted steadily to the right, amassing a considerable fortune and wining the confidence of big business and finance. As the 30s unfolded trade unionism was still bitterly fought by the employers and scarcely encouraged by the socialist governments, and the unions weakened themselves by splitting into two hostile groups. The collapse of the general strike in May 1920 had almost destroyed the trade-union movement in France. The C G T (General Confederation of Labor) was outlawed, and before 1920 was out, membership fell from 2,400,000 to 600,000. For the next 16 years, 90% of French workers remained unorganized. By the end of the 20s the Parliament had revoked the 8 hour day and social insurance, instituted in 1919.

(pg. 192)  After the depression hit, wages fell by one third and unemployment rose. This was accepted by labor, but with increasing alienation, and many became quite indifferent to the fate of the Republic whose Parliament, dominated by the countryside, seemed to have combined with the employers and moneyed interests to shut them out of the French community. This was partly their own fault, as they had split in two after the Bolshevik Revolution of November 1917, with the more radical faction as hostile to the less radical faction as it was to the employers. On the other hand the capitalist class had become more united in the face of such a remarkable event.

(pg. 193)  The Russian communists had set out to capture the Western Socialist parties and Socialist dominated trade unions. In 1920, at a special Party congress at Tours, the communist party took over the French Socialist Party by a 3-1 vote, retaining not only the majority of the members, but also the party apparatus and its newspaper, L'Humanité. Leon Blum led the minority into an independent French Socialist party. He and a few colleagues had refused to accept Lenin's 21 demands, which would have put the French Party completely under orders from Moscow.

By 1923 the Moscow-dominated party had fallen in membership. Whereas the old socialist party leadership had been middle class and intellectual, the new leadership was genuinely proletariat. Moscow also tried to capture the socialist dominated trade unions, but was successful only in persuading a minority of the CGT to break away and form the CGTU Unitairé which was soon beset with dissension and torn by purges. For 15 years it split and weakened the trade union movement until in 1936 it collapsed and was re-absorbed by the CGT.

(pg. 194) In 1932 the voters returned the left to power. The socialists under Leon Blum refused to join the Radicals in forming an all left government (excluding the communists who had lost a quarter million votes) and indeed voted with the conservatives four times in the next year and a half to bring down a Radical government. There were six governments in two years under the left majority elected in 1932, none of which could keep the government afloat financially or bring the country out of the depression. The citizens, especially those in Paris, were losing patience. A financial scandal involving a handful of government officials, inflamed by a sensationalist and unscrupulous press and  mushrooming fascist and anti-parliamentarian leagues, led an explosion of violence in the streets of Paris.

(pg. 200)  Powerful business and financial groups furnished money to the street hooligans and began calling openly for an authoritarian government, on the lines of Italy and Germany, who could put things in order. Large sections of the French Army's officer corps had been infected by the intellectual revolt of the right, including the hero of Verdun, Marshal Pétain. The street thugs were middle and upper class youth, and the best organized of the anti-parliamentarian leagues was Action Francaise, secretly funded by the 26 year-old count of Paris who felt an opportunity to restore the Orleans monarchy. Other anti-parliamentarian groups were formed, and two large (each approaching  a million members) associations of war veterans were becoming politicized.

On Jan. 3, 1934 L'Action Francaise lanced a boil that had festered for years among the highest reaches of the French government, the so-called Stavisky affair. Stavisky was a career criminal, running Ponzi schemes and promoting dubious city bonds backed by stolen jewels and forged documents. He owned two newspapers, one on the left and one on the right, opera houses, and racehorses. Between 1926 and 1934 he had drawn the attention of the police on 45 different occasions. He was then on release from jail awaiting trial which had been postponed 19 times by the Paris chief of police, brother-in-law of the current French Premier. L'Action Francaise printed two letters from two years earlier in which Albert Dalimier, current minister of colonies and then minister of labor, promoted one of Stavisky's municipal bond schemes.

Stavisky went into hiding and when the police closed in on him five days later he committed suicide. The press and populace accused the police of "suiciding" him to limit damage to the government, and riots broke out. The French Premier, compromised not only by his brother-in-law, but also by a brother who was a lawyer in one of Stavinsky's companies, refused to investigate. He then threw oil on the fire by demanding the muzzling of the press. The riots grew in size on Jan 22, 23, and 27, the last fed by a new revelation that the Minister of Justice was involved with a bankrupt bank. The premier stepped down.

(pg. 210-213)  The French President asked three politicians to form a government, all refused. He went back to the Radical-Socialist party who had just been kicked out, and Edouard Daladier accepted, promising to clean up the mess. His first move was against the two police chiefs and a court prosecutor who were deeply involved, but instead of firing them and bringing them to trial, he tried to kick them upstairs. But one of the police chiefs was the darling of the right, and new riots broke out over his displacement. At that time resentment broke out over the police's gentle treatment of the right-wing demonstrators versus the treatment of left-wing demonstrators, with policemen coming forward to verify that such orders came down.

On February 5 all the major newspapers save one called the population to the streets for vengeance, with time and assembly points for the various leagues, with the false information that black colonial troops were being assembled with orders to fire on the demonstrators.  At the last moment, the communist paper L'Humanité called on its members to support the right wing attack on the bourgeois government, just as had happened when German Communists joined German Nazis in a transport strike to topple the Weimar government.

(pg. 214)  The scheduled Feb 6 demonstration started off slowly at the Place de la Concorde, across the Seine river from the Chamber of Deputies where Daladier's new government was to be sworn in. All day the anti-parliamentarian shock troops had been trying to force the bridge, which the police had been told to hold at all costs. In the chamber, pandemonium broke loose at 3 p.m. when Daladier attempted to read his ministerial declaration, being shouted down by conservatives and communists. By 6:30 the demonstration had gained intensity and ferocity as the crowd grew in size, sabers by the police and razors on staffs by the demonstrators gave way to gunfire by both sides as the last police barricade threatened to fall. The toll was six dead and 40 wounded.

As the turmoil grew louder the Deputies began to slink away until by 8:30 p.m. there were only 5 deputies and the cabinet members left. Before adjourning, the chamber had voted in Daladier by 343 to 237, the socialists providing the majority of the government's votes. By 9 pm, thousands of ex-servicemen had joined the crowd, becoming more militant as they suffered wounds. By 10:30 the demonstration was some 10,000 strong. At 11:30 the security forces defending the bridge began fleeing and the police once again opened fire.  Shortly thereafter a policeman, and former military officer, arrived with 500 reinforcements from the suburbs and led a charge across the bridge and into the Place de la Concorde, routing the demonstrators and clearing the square. The toll was 16 rioters dead and 655 wounded, and among the police 1 dead and 1600 wounded. It was the bloodiest day in the streets of Paris since the Commune of 1871.  

The police, who had infiltrated all of the leagues, predicted the next day would be worse, with the rioters equipped with revolvers and hand grenades. All of the city's gun shops had sold out by noon. Daladier, whose steadfast ministry of the morning became timid by afternoon, was reviled in the press. He could have called in the Army, but feared setting off a civil war. By evening he had taken the advice of everyone around him and resigned.

(pg. 223)   The new premier was the former president of the Republic Gaston Doumergue, seventy-one years old, a vain and mediocre old man. At first turning the job down, he was later persuaded by Pierre Laval to accept, and to appoint as Minister of War the hero of Verdun, Marshal Petain, aged 78. Laval himself became minister of Colonies. Doumergue, with seven former Premiers in his all party cabinet (except communists and socialists) gradually calmed the country, though several thousand of the right wing shock troops continued breaking windows and looting for a week after the leaders had called them to stop.

The communists, confused and embarrassed at having fought alongside fascists, called a "protest against fascism" rally for February 9. The police threw 1200 into jail and fired into the crowd without warning, killing four and wounding 24. The popular press, which had castigated the police for brutality against the fascists, praised them for their firmness against the communists. On February 12 the predominantly socialist CGT staged a 24-hour general strike, joined at the last minute by the still embarrassed communists. The strike was impressive, shutting down public services and industry across the country.

(pg 228-230)  After the February 6 riot a series of weekly magazines opened .  Anti-republican, anti-Semitic, and increasingly pro-fascist, they sowed their poison and with the great daily newspapers contributing their full share, it is little wonder the Parisian public was manipulated more and more to become scornful of the Republic. In the countryside, outside the sway of the right-wing press, the people were surprised and even shocked at the Feb 6 riots, but it was in Paris where governments were made and destroyed.

(pg.231-232) Popular anti-fascist group began to form, determined that France would not follow Italy and Germany. Revealingly, three prominent politicians who formed such a group were immediately expelled from their various parties, the Socialist, Radical-Socialist, and Communist parties. The communists would not make common cause with the less radical socialists, calling them social-fascists. The right was also split. Just as in the Chinese and Spanish civil wars, the leaders were interested in seizing personal power first and foremost, with social and political gains secondary, to be doled out as required to consolidate personal power. Nevertheless, slowly and painfully, an anti-fascists common left wing group, the Popular Front, began to form.

(pg.233-234)  A year and a half after Hitler seized power, Stalin finally became alarmed at Hitler´s growing power and instructed the French communists to drop their policy of "revolutionary defeatism." Under this policy, as first formulated by Lenin, all capitalist governments were equally repugnant to working class and no worker should lift a finger in their defense. The French communist and socialists had repeatedly voted against war credits under this policy. Recall that the Czarist Russian Army had collapsed during WWI, allowing the Bolsheviks to seize power. Lenin felt that any change of government, even for the worst, should enhance chances of a successful socialist revolution.

At the end of May, Pravda, the newspaper of the Soviet Communist Party, called for cooperation between Socialist and Communists, especially in France. It was quickly republished in L'Humanité. On July 14, 1934 France's two labor parties, the Socialists and Communists, agreed to joint action against the Fascist leagues, their disarmament and suspension and an end to their opposition to war preparation. They also agreed to end the government's deflationary decree laws.

And now a pause for some editor´s comments

Deflation is the opposite of inflation. Under inflation there is much more money in circulation than there are things to buy. This allows people with things to sell to increase prices, which allows labor, especially organized labor, to demand cost of living wage increases, resulting in an upward inflationary spiral. In some respects this is good for business because rational people spend their money under the assumption that it will buy less in the future.

Under deflation the government withdraws money from circulation by raising taxes, selling government bonds, or simply not printing as much money. There are many more things for sale than there is money to buy them, so people with things to sell must reduce prices in order to find buyers. The rational person postpones all non-essential purchase on the assumption that money will purchase more in the future, resulting in business stagnation, resulting in unemployment and a downward deflationary spiral. People without money who must make essential purchases, i.e. food or rent, must liquidate personal item - books, jewelry, and furniture - at whatever price it will bring.

This applies not only to the individual who must sell, i.e. a family heirloom, to meet immediate needs, but also the small business that finds itself short of liquidity to meet immediate needs, i.e., in repaying a loan. The stagnation of business under deflation conditions which began with the Wall St. Crash of 1929 forces small business that had counted on sales to repay loans, to instead either sell off nonessential parts of its business or indeed go into bankruptcy.

Notice that the forced sale of a business's assets, typically stock equities or bonds held as capital, under deflationary conditions results in a falling market for those assets, because a depression affects not just this or that business but all businesses. If all distressed businesses put their reserve assets on the market at the same time the law of supply and demand will force the price of those assets down, allowing larger, better capitalized firms to buy up their smaller counterparts at bargain basement prices.

Capital accumulation is, of course, what capitalism is all about. Business is all about taking money out of the pockets of the people below you and putting it in your pocket, meanwhile preventing, to the degree possible, the guy above you from taking money out of your pocket. Money works its way slowly upward during normal times, more quickly during a depression.

Coming into play here we have "economy of scale," that is, a company's ability to buy, i.e., new materials, on the largest possible scale, which will greatly enhance its ability to compete, or ideally, dominate its market by underselling its competitors. Large size has the added advantage of increasing a feeling of security among its workforce regarding future employment, especially important during depressions, larger size enables greater influence with government, be it tax breaks or, counterintuitively, increased regulation which put smaller competitors with a small or no legal department, at a disadvantage.

Banks are business and everything said above goes for them in spades. Their assets are largely the loans they have on their books that they collect interest on. A stagnant economy both increases the probability that those loans will go bad and decrease the probable value of any collateral due to the laws of supply and demand, noted above. In addition all modern banks must hold in cash a fraction of their assets (loans) as a reserve to ensure their ability to repay their creditors (depositors). In times of depression people tend to withdraw money from banks (bank runs) and guard it at home, especially before federal deposit insurance, as during the last great depression. Also, governments tend to raise the fraction of reserve it requires a bank to hold, forcing it to sell its non-loan assets into a depressed market, and/or forcing a cutback in the amount of money it has to loan, not only decreasing its profits, but adding to the general business stagnation.

When the Great Depression hit France, hundreds of banks closed their doors, with their depositors losing their money, with a 60 % increase in French bussiness bankruptsies, with unemployment skyrocketing as noted above. French workers were some of the worst paid, and French slums were some of the most abject, in Europe. They had always gone to the left in search of salvation. Not so the middle class, which had grown much larger during the 3rd Republic, established with the new constitution of 1875, after France's defeat in the France-Prussian war. The fascist leagues which had wreaked such havoc in Paris on the night of Feb 6, 1934, were composed largely of university students and recent graduates. They were increasingly joined by ruined small-businessmen, and out of work bureaucrats.


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