Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

Financial capitalism in Britain, as elsewhere, was marked not only by a growing financial control of industry but also by an increasing concentration of this control and by an increasing banking control of government. As we have seen, this influence of the Bank of England over the government was an almost unmitigated disaster for Britain. The power of the bank in business circles was never as complete as it was in government, because British businesses remained self-financing to a greater extent than those of other countries. This self-financing power of business in Britain depended on the advantage which it held because of the early arrival of industrialism in England. As other countries became industrialized, reducing Britain’s advantage and her extraordinary profits, British business was forced to seek outside financial aid or reduce its creation of capital plant. Both methods were used, with the result that financial capitalism grew at the same time as considerable sections of Britain’s capital plant became obsolete.

The control of the Bank of England over business was exercised indirectly through the joint-stock banks. These banks became increasingly concentrated and increasingly powerful in the twentieth century. The number of such banks decreased through amalgamation from 109 in 1866 to 35 in 1919 and to 33 in 1933. This growth of a “money trust” in Britain led to an investigation by a Treasury Committee on Bank Amalgamations. In its report (Colwyn Report, 1919) this committee admitted the danger and called for government action. A bill was drawn up to prevent further concentration but was withdrawn when the bankers made a “gentlemen’s agreement” to ask Treasury permission for future amalgamations. The net result was to protect the influence of the Bank of England, since this might have been reduced by complete monopolization of joint-stock banking, and the bank was always in a position to influence the Treasury’s attitude on all questions. Of the 33 joint-stock banks excising in 1933, 9 were in Ireland and 8 in Scotland, leaving only 16 for England and Wales. The 33 together had over £ 2,500 million in deposits in April 1933, of which £ 1,773 million were in the so-called “Big Five” (Midland, Lloyds, Barclays, Westminster, and National Provincial). The Big Five controlled at least 7 of the other 28 (in one case by ownership of 98 percent of the stock). Although competition among the Big Five was usually keen, all were subject to the powerful influence of the Bank of England, as exercised through the discount rate, interlocking directorships, and above all through the intangible influences of tradition, ambition, and prestige.

In Britain, as elsewhere, the influence of financial capitalism served to create the conditions of monopoly capitalism not only by creating monopoly conditions (which permitted industry to free itself from financial dependency on banks) but also by insisting on those deflationary, orthodox financial policies which eventually alienated industrialists from financiers. Although monopoly capitalism began to grow in Britain as far back as the British Salt Union of 1888 (which controlled 91 percent of the British supply), the victory of monopoly capitalism over financial capitalism did not arrive until 1931. By that year the structure of monopoly capitalism was well organized. The Board of Trade reported in 1918 that Britain had 500 restrictive trade associations. In that same year the Federation of British Industries (FBI) had as members 129 trade associations and 704 firms. It announced that its goals would be the regulation of prices, the curtailment of competition, and the fostering of cooperation in technical matters, in politics, and in publicity. By 1935 it had extended this scope to include (a) elimination of excess productive capacity, (b) restrictions on entry of new firms into a field, and (c) increasing duress on both members and outsiders to obey minimum-price regulations and production quotas. This last ability was steadily strengthened in the period 1931-1940. Probably the greatest achievement in this direction was a decision of the House of Lords, acting as a Supreme Court, which permitted the use of duress against outsiders in order to enforce restrictive economic agreements (the case of Thorne v. Motor Trade Association decided June 4, 1937).

The year 1931 represented for Britain the turning point from financial to monopoly capitalism. In that year financial capitalism, which had held the British economy in semi-depression for a decade, achieved its last great victory when the financiers led by Montagu Norman and J. P. Morgan forced the resignation of the British Labour government. But the handwriting was already on the wall. Monopoly had already grown to such a degree that it aspired to make the banking system its servant instead of its master. The deflationary financial policy of the bankers had alienated politicians and industrialists and driven monopolist trade unions to form a united front against the bankers.

This was clearly evident in the Conference on Industrial Reorganization and Relationships of April 1928. This meeting contained representatives of the Trade Union Congress and the Employers’ Federation and issued a Memorandum to the chancellor of the Exchequer signed by Sir Alfred Mond of Imperial Chemicals and Ben Turner of the trade unions. Similar declarations were issued by other monopolist groups, but the split of monopolist capitalists and of financial capitalists could not become overt until the latter were able to get rid of the Labour government. Once that was achieved, labor and industry were united in opposition to the continuance of the bankers’ economic policy with its low prices and high unemployment. The decisive event which caused the end of financial capitalism in Britain was the revolt of the British fleet at Invergordon on September 15, 1931, and not the abandonment of gold six days later. The mutiny made it clear that the policy of deflation must be ended. As a result, no real effort was made to defend the gold standard.

With the abandonment of gold and the adoption of a protective tariff, monopolist capital and labor joined in an effort to raise both wages and profits by a program of higher prices and restrictions on production. The old monopolies and cartels increased in strength and new ones were formed, usually with the blessing of the government. These groups enforced restrictive practices on their members and on outsiders even to the extent of buying up and destroying productive capacity in their own lines. In some cases, as in agricultural products and in coal, these efforts were based on statute law, but in most cases they were purely private ventures. In no case did the government make any real effort to protect consumers against exploitation. In 1942 a capable observer, Hermann Levy, wrote, “Today Britain is the only highly industrialized country in the world where no attempt has yet been made to restrict the domination of quasi-monopolist associations in industry and trade.” It is true that the government did not accept the suggestions of Lord Melchett and of the Federation of British Industries that cartels and trade associations be made compulsory, but it gave such free rein to these groups in the use of their economic power that the compulsory aspect became largely unnecessary. By economic and social pressure individuals who refused to adopt the restrictive practices favored by the industry as a whole were forced to yield or were ruined. This, for example, was done to a steel manufacturer who insisted on constructing a continuous-strip steel mill in 1940.

Among the producing groups, social pressures were added to economic duress to enforce restrictive practices. A tradition of inefficiency, high prices, and low output became so entrenched that anyone who questioned it was regarded as socially unacceptable and almost a traitor to Britain. As The Economist, the only important voice in the country which resisted this trend, said (on January 8, 1944) “ … too few British business men are trying to compete. In these days, to say that a firm has so increased its efficiency that it can sell at low prices is not to give praise for initiative and enterprise, but to criticize it for breaking the rules of ‘fair’ trading and indulging in the ultimate sin of ‘cut-throat’ competition.”