‘THE MOST SERIOUS BANKING CRISIS SINCE THE OUTBREAK OF THE FIRST WORLD WAR’ says Bank of England governor King

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Miners ballot for strike action in 1912
Miners ballot for strike action in 1912

MERVYN KING, the Governor of the Bank of England (BoE), said on Wednesday that Britain was already in a recession.

He added that he expected the British economy to shrink by two per cent over the next year.

The Governor was introducing the BoE’s quarterly inflation report, just after it was revealed that unemployment had hit an 11-year high of 1.82m.

King then added that ‘following the failure of Lehman Brothers, the most serious banking crisis since the outbreak of the First World War reduced the supply of credit to the real economy and, in some cases, led to a cessation of lending altogether.

‘Confidence has been badly affected. All this will restrain demand looking into next year.’

This is the second time that King has spoken of the outbreak of World War I in a major speech. He referred to it in his address in Leeds on October 22.

Many people, in commenting on the present world banking crisis, have spoken about the 1929 Wall Street Crash and the Depression which followed it.

However, King leapt over this and referred to the earlier financial meltdown at the outbreak of World War I, in August 1914.

Professor Niall Ferguson, of Harvard, Stanford and Oxford universities, also thinks that the world capitalist financial system was most at risk of complete collapse during the 20th century in August 1914.

For the workers’ movement and socialists it is even more important to know what happened to the capitalist system at the beginning of World War I and its economic, military and political results.

In the 30 years prior to the war there had been an unprecedented period of economic growth embracing all the advanced capitalist countries – Britain, France, Germany and the United States.

This was accompanied by a major expansion of imperialist colonialism and its consolidation in Africa, the Middle East and Asia.

In Britain the class struggle escalated in 1912 and 1913 reaching insurrectionary proportions, a process only cut short by the war.

Many bourgeois academic economists today refer to the period 1870-1914 as the first period of ‘globalisation’.

The City of London was the financial colossus of the world as a result of the British Empire.

In 1911, in a book called The Great Illusion, Norman Angell dismissed the chances of a war between Britain and Germany because of what is called ‘globalisation’ today – integrated commodity and capital markets and free trade.

It was not until July 22, 1914 that the The Times in Britain began to feature prominently the threat of war, less than three weeks before the guns began firing.

Stock markets closed in Vienna, then St Petersburg, then Berlin, then Paris, then London and finally in New York on August 1.

Ferguson has said: ‘Everybody thinks the biggest financial crisis was the Wall Street Crash and its aftermath, but it is not true.

‘1914 was far, far worse. It was so disastrous that if they had allowed the markets to re-open that Monday there would have been a complete wipe-out; prices would have fallen through the floor.’

On August 4, 1914, the day that Britain declared war on Germany, Gaspard Farrer, one of the Baring Brothers’ merchant bank partners, noted in a letter: ‘It is mortifying in the extreme to find how instantaneously the credit edifice which we have built for generations could tumble to pieces in a single night.’

The capitalist state had to step in to defend and preserve the capitalist order.

The London Stock Exchange closed on August 1, 1914 and did not re-open until January 4, 1915. Wall Street in New York closed on the same day.

In Britain, the government organised for the Bank of England to support commercial banks, who feared mass withdrawals of funds. In Paris withdrawals were strictly limited.

The Gold standard was abandoned and was not restored in the European countries, including Britain, until the mid-1920s.

World War I brought an abrupt end to the expansion in world financial transactions and the supremacy of the City of London.

In the war between the Anglo-French Entente and the Central Powers headed by Germany, a war for the redivision of the world, what was at stake for the ruling classes was their very survival.

The Bolshevik leader V I Lenin analysed the underlying forces involved in this conflict in his classic work Imperialism, the Highest Stage of Capitalism (1916).

‘Business as usual’ ceased completely and the capitalist state directed finances and industries during World War I.

This is why King refers to the events at the outbreak of World War I in searching for parallels with today, when governments, with the Labour government in the lead, are handing over billions to the bankers and capitalist states are buying shares in the banks.

What is at stake today, as far as the ruling classes are concerned, is the very survival of capitalism, in the US, across Europe and in Japan.

These ruling classes caused millions of people to be killed during World War I, in brutal trench warfare, including 800,000 British troops, in order to impose their dominance over their rivals.

Whole sections of industry, under the direction of the state, were turned over to arms production – productive forces geared to destruction.

The cost of the war amounted to billions on armaments that were destroyed in the fighting. The British had to borrow $4.2bn and the French $2.7bn from the US, the French having to get another $2.5bn from the British.

As a result of the war, Germany lost all its overseas investments, France most of its and Britain lost $3bn, mostly its investments in the US.

In 1914, the Labour and trade union leaders backed their own ruling classes and acted as recruiting sergeants for the imperialist armies, directing workers to the slaughter.

Today they support the Labour government handing billions over to the bankers to ‘save the economy’ and stamp on every attempt by their members to fight pay cuts and job losses.

The most farsighted bourgeois ideologues are acutely aware that World War I resulted in the victorious October Revolution in Russia in 1917, the failed German Revolution in 1918-1919 and that British workers returned from the war demanding ‘a land fit for heroes’.

They know that the financial meltdown that is taking place today in the advanced capitalist countries and a deepening slump is provoking an escalation of the class struggle, which is revolutionary through and through.

King’s reference to World War I was not accidental, but a coded warning to the rest of the ruling class concerning the revolutionary threat facing them today.

However, in this period of capitalism’s death agony, the crisis is deeper than it was in 1914.

The Gold Standard has gone for ever, the US is a debtor state not a creditor state as Britain was in 1914, and there is not another state waiting in the wings to replace America as capitalism’s guardian.

At the same time, the international working class is stronger and more capable of completing the World Socialist Revolution than at any time in the 20th century.