American acceptance of Fascism was also based on distortion of the facts. In the early 1920's, one state department official wrote "if we are not careful, we will have a second Russian on our hands."[15] But reports by Ambassador Robert Johnson, which conflicted with the assessment of imminent communist revolution, were ignored. Johnson did not believe revolution was imminent in Italy. He reported that most of Italy's left was social democratic. In violent outbreaks between fascists and communists, he wrote, "in general, the fascisti seem to be the aggressors," and reported an increasing struggle between the fascists and a left wing union of communists and socialists. Fascist aggression was polarizing Italian society.[16]
In 1921 a new ambassador was sent to Italy, and suddenly the tone changed. Now the reports claimed it was left-wing, labor, and Bolshevik parties that threatened Italy. The new ambassador Richard Child, had a very different interpretation of the fascists than Johnson's interpretation. Child submitted a report to the State department that glossed over the illegality and violence of the fascist movement. Instead, "by appealing to the national spirit of all Italians to assist in saving the country from Bolshevism, the fascisti soon won the favor, if not the enlistment, of all patriotic Italians." But it was more than just Bolsheviks who were the enemies of "patriotic Italians." The report also included as enemies socialists, anarchists, even anyone advocating the continuance of a democratic republic.[17]
American businessmen were also pleased about Mussolini's taking over of power in late 1922. Thomas Lamont of JP Morgan met with Mussolini and remarked that Mussolini was "a very upstanding chap" and that Italy would be a "great country even despite its very limited natural resources." At a meeting of the International Chamber of Commerce it was said that in Italy under Mussolini, an "efficient and energetic government" had replaced "parliamentary wrangling and wasteful impotent bureaucracy". Elbert Gary of United States Steel remarked "we have here a wonderful renaissance of youthful energy and activity," making him feel "like turning to my American friends and asking them whether they don't think we, too, need a man like Mussolini."[18] In spite of several political crises, Mussolini remained in power, and by 1930, American capital was streaming into Italy in the form of loans and investment. American policymakers felt these flows would provide needed leverage to prevent excursions toward Bolshevism.[19]
The US political establishment's favorable judgment of Mussolini eventually formed the basis for appeasing Hitler. Roosevelt himself referred to Mussolini as "that admirable Italian gentleman," and was "deeply impressed by what [Mussolini] had accomplished." While in Germany anti-Semitism and the repressive nature of the Nazi regime concerned some officials, the pattern established with Mussolini would continue: only foreign and economic policy would influence decisions; the nature of the regime would be ignored. Once again fascist dictatorship was preferable to the risk, however remote, of communist advances. Frederic Sackett, the American Ambassador to Germany, commented on Hitler's rise to power "it is perhaps well that Hitler is now in a position to wield unprecedented power." If Hitler and the Nazis failed, the door to communism in central Europe would be opened wide.[20]
The embassy reported that the Nazi "moderate" Hjalmar Schacht promised that "American business in Germany had nothing to fear," and that "inflammatory statements regarding foreign policy and Germany's mission to expand in the East" were propaganda and were "simply designed to impress their followers and should be discounted." In 1937 the State Department issued a report on fascism. In it, it was decided that fascism was in fact compatible with "free trade." The report defined what frightened policymakers the most: "When there is suffering, the dissatisfied masses, with the example of the Russian revolution before them, swing to the Left."[21]
However, there are many caveats when evaluating history. Officials change their minds, or ought to, as new information becomes available and challenges previously held beliefs. Even Chamberlain eventually recognized the failure of appeasement. Roosevelt may have admired Mussolini in the 1930's, but he was a leading proponent of US involvement in the European theatre, which many Americans viewed as a strictly European struggle.[22]
Not all American officials viewed the Nazis so favorably. The American charge' in Berlin, George A. Gordon, reported upon the resurgent Nazi victory in 1930 that a "dangerous mentality" had dealt a "body blow" to the struggling Weimar Republic.[23] In response to one of Hitler's Reichstag speeches in 1933, Gordon, "recognizing that Hitler had taken a statesmanlike and conciliatory position, suspected it might well be a ruse to gain time to secure control at home, and then the world might see what Nazis privately had described to Gordon as 'the real Hitler - the advocate of the doctrine of force, as laid down in his book My Struggle.'"[24]
Maintenance of export-led economic growth in BritainIn the 1930's most European governments continued a tight monetary policy and were not pursuing state-led economic growth. For example, in Britain between 1932 and 1936, government spending remained roughly unchanged at about 20% of GNP (Gross National Product). This was a very different policy than in Germany, where government spending on goods and services rose from 16 per cent to 26 per cent of the GNP in the same period.[25] Hitler himself demanded an easy money policy to help finance rapid rearmament,[26] and made political appointments to accommodate his wishes.
Germany could not maintain such an expansionary policy without strict controls on trade and foreign exchange.[27] This problem faces any nation wanting to emphasize production of domestic producers. To keep consumers buying from domestic producers, the cost of imports must be kept high in relation to domestic products. The high price is maintained by an import tax, called a tariff. Capital is kept inside the country through use of bans on foreign currency exchange and by regulating the type and extent of financial instruments that are allowed for exchange into other currencies. Without such controls, the owners of capital will send their funds to external opportunities, depriving the national markets of needed resources.
But if Germany enacted controls, asserting state authority and isolating German markets from world markets, that would mean fewer sales of British goods in Germany. Without such sales, British economic recovery would be made more difficult.[29] It was viewed both in the US and Britain that Nazi "moderates" would keep Germany open to the international markets. The theory was that if Hitler was appeased, the Nazi "moderates" would gain power, and the German government would avoid policies of self-sufficiency, meaning they would not tax imports of British goods as highly.[30] German consumers would thus buy more British goods, supporting an export-led recovery in Britain.
The appeasers eventually learned that Germany's core leadership was committed to economic self-sufficiency,[31] a policy that conflicted directly with free international trade. Shortly after the Nazi takeover in 1933, central, state, and municipal governments were forced by the Nazis to either buy only from German firms, or buy only from foreign firms that had signed an affidavit stating that the company was not owned or directed primarily by foreigners or Jews.[28]
Maintenance of British financial supremacyRegardless of political orientation, the British ruling class never abandoned a central tenant of foreign policy: whatever happened in the world, "the [British] response had to reconcile national security with the critical importance, accepted by all administrations since 1920, of preserving London's international financial position." Maintaining such a position meant ensuring high demand for sterling, the British currency. If international loans, trade, and currency reserves were denominated in sterling, Britain would maintain financial supremacy. The penetration of German markets by British capital would increase business for "the City" (London financiers) as well as ensure that a thriving capitalist state would grow in central Europe to thwart, once again, the ubiquitous "threat" of communism.[32]
Not just trade but also the profits gained from London's provision of loans, which would be halted if war occurred, ensured a bias for appeasement. Britain's insistence on maintaining sterling as the currency of international finance meant that the financial interests of the City led to the government pursuing any policy that would maintain the flow of capital from international loans. Since Britain held a substantial portion of Germany's debt, it was imperative to ensure the continuance of debt service. Appeasement ultimately failed to ensure the service of debt. The British political and financial establishment would get a rude awakening when Germany threatened to repudiate Austria's loans after Germany and Austria were united.[33]
As in trade, financiers viewed the Nazis in terms of extremists and moderates. Montagu Norman, governor of the Bank of England, viewed the Nazi, Hjalmar Schacht at the Reichsbank, as a "moderating" influence, and Norman saw him as someone who would bring German policy back to financial "respectability."[34] For financiers such as Norman, "respectability" meant small government (low spending), disarmament, and the end of German economic self - sufficiency.
Reliance on limited deterrence strategiesIn spite of its appeasement policy, the Chamberlain government did attempt a rearmament program. In fact, by 1939, the ratios of British and German GNP (Gross National Product) spent on the military were nearly equal, at 21.4 and 23 percent, respectively. The next year, portion of British GNP spent by the Chamberlain government on the military was almost 52 percent; for Germany, it was only 38 percent.[38]
The rearmament strategy probably saved England from Nazi occupation. The so-called "Chain Home" radar network built beginning in 1937 was decisive in the defeat of the Luftwaffe in the Battle of Britain. The Chamberlain government supported reliance on the RAF,[35] providing funds for the construction of the radar stations. For the first time in history, air force commanders were able to direct ("vector"), fighter defense against attacking enemy air formations. German radar technology was primitive and useless in the air over Britain.[36] Such "vectoring" did not stop German attacks outright but greatly increased German losses. Also, the Germans lacked a persistent, concentrated effort to destroy the radar stations, airfields, shipping, factories, or docks. They switched strategic targets often, before critical levels of damage were caused. Decisive damage was therefore not inflicted.[37]
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