The Super Summary of World History (60 page)

Capitalism started yet another economic theory that gained popularity in the 1980s under President
Ronald
Reagan
—supply side economics. Under
supply
side
economics, high taxes and government spending are economic negatives because they destroy incentives that encourage work and savings. Supply side economists think governments must scale back significantly, thereby allowing investments, savings, and innovation to pull the economy along or out of a depression. This theory wants the government to encourage high production, savings, and productivity through low taxes, few regulatory restrictions, and an improved infrastructure. It differs from
laissez
faire
economics because it believes government must work toward encouraging high production and productivity with proper taxing and regulatory policies.
Laissez
faire
economics wanted a super small government doing nothing to encourage or discourage economic outcomes. Supply side ideas seem to originate with theories advanced by Ludwig von Mises and Friedrich Hayek in 1974, then termed the
business
cycle
theory.
Business cycle theory claims action by a central bank harms the economy, and interest rates are better set by free markets. Only free markets can truly determine the rates of saving and borrowing that can safely take place. Mises and Hayek thought central banks commonly set interests rates improperly, usually causing quick economic upturns (bubbles) that eventually collapse. By allowing the markets to take care of themselves they can better regulate the credit markets and prevent the cycles of boom and bust.
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One great difference between classical and Keynesian economics revolves around the
theory
of
wages
. Should government allow wages to fall during an economic downturn? Classical economist argue wages must drop to keep people employed; conversely, Keynes argued that if wages drop it decreases incomes followed by in a drop in demand, which in turn decreases production further dropping income and demand in a never-ending downward spiral. Keynes theorized the way forward was to stop the downward cycle by a jolt of government intervention, translation—the government should spend a lot of money. Keynes’ theory, for the first time in economic history, attempted to show why classical economics could not reverse a depression cycle. Classical economists claim both Hoover and Roosevelt tried Keynes’ methods, to different extents, and they flopped. Keynesian economists argue his ideas were not properly implemented by either administration, and they say Roosevelt’s actions did work to relieve the depression.

Modern liberal economists argue that classical economics failed in the Great Depression, and that Keynes’ methods were not really tried as the government did not spend enough money. The student of history should note that
classical
economics
were
not
tried
at
all.
Hoover did not decrease taxes, lower regulations, lower tariffs, or otherwise get the government out of the economy as recommended by classical economics. In fact, Hoover
and
Roosevelt raised taxes, increased tariffs, increased regulatory intervention, increased uncertainty in the business world and did everything the classical economists said NOT to do. Even today, governments the world over do not respond to economic trouble by getting out of the way and decreasing taxes and regulations. Some of this stems from the Great Depression and the concept that classical economics failed. If they knew history they would know otherwise.
This
false
concept
still
influences
government
economic
decisions
. History, and a real understanding of what actually happened, is critical for decision making.

European
Government’s
under
Stress:
Fascist
and
Communist

The economic chaos of the Great Depression led to disillusionment with democratic governments in Europe, and radical governments began to replace democracies. Pushing this change was a new ideology supported by a major world power, the USSR. The communists in Moscow formed revolutionary cells in nations throughout Europe and the world. These cells agitated for the overthrow of capitalist governments and their replacement with communist regimes. Communists preached that capitalism had led to World War I and the economic disaster that engulfed the world following the Great War. People seemed ripe for a change.

In response, radical movements grew up to oppose communism. Fascist parties appeared with the idea that government should control major industries and insure full employment, but the fascist rejected revolutionary change pushed by the communists. Owners of industries feared a workers revolution seizing their property. The fascists made headway, in part, because propertied people feared communism. They had good reason to, because in the USSR millions of murders followed the implementation of communist ideology. Fascists came to power in Italy (1922—Mussolini), Germany (1933—Hitler), and Spain (1934—Franco). How could the people of Europe know they were opting for one group of dictators and murderers, the fascists, over another group of dictators and murderers, the communists?

The Western Democracies: England, Canada, France, and the United States being the major ones, faced a frightening future. In a very few years, the world changed spectacularly with new untried economic and social philosophies being implemented, and murdering dictators running major world powers. England was frightened of Communist Russia (the USSR) and wanted a strong power in Central Europe to offset growing Soviet power. Since WWI dismembered Austria-Hungary into a hive of competing small nations, only Germany remained to potentially offset the USSR. Hitler assumed power in 1933, and immediately began rebuilding Germany’s military; nonetheless, Britain and France restrained their objections hoping Germany could counterbalance Soviet power. And so Germany could have if someone other than a demented dictator had assumed the helm.

Hammered in WWI, France wanted to avoid another war, especially against Germany. They wanted to stop Hitler’s rebuilding Germany, but they could not muster backing from their voters, or England, to oppose Hitler’s violations of the Versailles Treaty. Without England, France could not move. Hitler’s words were soothing, praising peace, but his actions threatened war. Hitler was rebuilding his army along with developing a large, modern air force and navy. The world’s newest weapon, the airplane, became war’s focal point. Germany could not rival England’s massive navy; however, airplanes could render the Royal Navy irrelevant. For the first time in history England’s navy could be leapfrogged by a major weapon system—the airplane. France expended vast sums on defense by constructing the Maginot Line, leaving little for aircraft and tanks.

Hitler then started making unreasonable territorial demands on neighboring nations. This went unchecked by the Western Democracies because their voters and intellectuals opposed arms races, increases in military spending, or standing up to Hitler. Virulent antiwar movements preached “Peace at any price” because of the sacrifices of the First World War.
“How
horrible,
fantastic,
incredible
it
is
that
we
should
be
digging
trenches
and
trying
on
gas
masks
here
because
of
a
quarrel
in
a
faraway
country
between
people
of
whom
we
know
nothing,”
stated England’s Prime Minister,
Neville
Chamberlain
, on September 27, 1938. This sums up the feeling of the antiwar groups. Nothing was worth another conflict. Unfortunately, these attitudes threw away the sacrifices of WWI.

Meanwhile, Axis nations (the Axis: Germany, Italy, Japan) cheated on arms limitations agreements while the Western Democracies disarmed beyond the treaty requirements. Germany developed aircraft, submarines, and tanks in secret. Japan constructed super battleships in violation of the treaties. Unknown to the rest of the world, the Soviet Union was also preparing for war. In total secrecy the USSR developed the world’s best tank (the T-34) and a massive army. Stalin then decided to shoot the army’s officers, and for no reason.

The world stage began grimly drawing back the curtain on a catastrophe surpassing WWI. Once again, the world’s leading nations utterly mishandled the growing crisis, missing several chances to avoid war. Since 1900 Europe’s great powers, and the United States, had failed to stop WWI, the Great Depression, the ascension of brutal dictators, or the invasions of Ethiopia, Korea, and Manchuria. A decade long string of deadly decisions by European leaders triggered WWI, and similar decisions made it impossible to halt. Economic mismanagement produced the Great Depression, and it deepened because of governmental malfeasance. Now the Western Democracies chose to appease Hitler and ignore Japan. The West hoped Hitler and the Japanese warlords were rational, desiring peace, but diplomatic solutions meant nothing to the hungry dictators. Poor decisions by the major democratic powers led the world into a war in which the stakes were far higher than WWI.

English propaganda during the Great War portrayed German and its allies as an utter scourge; however, the Central Powers were more like their opponents than unlike them. Germany was no more a world scourge than England. No matter who prevailed in WWI, the world was safe from murdering, depraved dictators.

The enemies faced by the Western Allies in WWII
were
a scourge. The leaders of Germany, Italy, and Japan despised democracy. Hitler believed world conquest was his destiny, and Japan’s militarists thought Asia should be theirs. Mussolini was visualizing a new Roman Empire for himself around the Mediterranean. The Axis and Soviet dictators murdered massive numbers of people. Mild jokes about the Nazi regime often led to arrests and most unpleasant prison terms. To Hitler, Stalin, and militarist Japan, human life was meaningless. To these godless dictators every aspect of life was a part of the state while the individual was nothing. Life’s sole purpose was to serve the state, because an individual’s life belonged to the state. The modern dictators enjoyed new faces, new technology, new methods, new ideologies, but the same ancient goals of ultimate personal power over vast empires. This danger was very real and far worse than anything faced in WWI.

World War I destroyed the old order, and the new order was frightening beyond all measure. The Soviets, Nazis, and Japanese, using the machinery of the modern state (the bureaucracy), began controlling populations to a degree never before imagined. Their complete ruthlessness eliminated millions with assembly line efficiency. Thus, populations of entire world regions bowed to the whims of one man (or in Japan’s case one group of men—the militarists). Nearly everything done by these dictatorships was racist in nature. In Japan and Germany, the racist populations viewed themselves as deserving an exceptional place in the world. In both nations, those not of a certain assumed superior race were considered much lower forms of life and therefore could be brutally treated. The results included Japanese bayoneting babies in the Philippines, torching American prisoners of war just prior to liberation, and subjecting girls to vile sexual mistreatment. In Europe it meant the destruction of the Jews, gypsies, Slaves, and many more.

In the Soviet Union, the target was control rather than race. The Soviets shot anyone having a capitalist thought. Under the paranoid Stalin each budding rival faced quick eradication. At a party congress with 1,010 members attending, a secret ballot vote resulted in about one hundred (100) delegates voting no confidence in Stalin. Stalin had
all
1,010 delegates murdered. Stalin routinely shot generals for losing a battle. Most consider Hitler the worst dictator of the era, but Stalin easily murdered many more and was more brutal and paranoid. Stalin is the most destructive and evil man who ever walked the face of the earth, especially if we credit the millions of deaths caused by the spread of communism to him.
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The Western Democracies in the 1930s were in real peril. Their economic decline resulted in decreased spending on military training and equipment, and reduced the size of their armed forces. The democratic nations were not keeping pace with technological advances or new combat methods. Many of these new combat methods originally came from the British and French military; however, the Nazis adopted these formally theoretical methods and actually put them to use. Germany rearmed and planned to use aircraft, tanks, artillery, and infantry together on the battlefield in a new kind of lightening war (Blitzkrieg).
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Japan developed a modern aircraft carrier force with some of the best fighters (the Zero), dive-bombers, and torpedo planes in the world. Japan developed the best torpedo used in WWII. Germany developed new methods of submarine warfare (the wolf pack). The West played catch-up from 1936 on. The dictators had no worries about popular opinion and began spending on military expansion as soon as they came to power.