How We Lost the Peace in 1937

by RAYMOND SWING

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THE opportunities of this generation to avoid World War Two are by now common knowledge. They began with the failure of the United States to join the League of Nations and make it effective, and they ended with the appeasement at Munich. Among the earlier moments was the Stimson-Simon negotiation in 1932 for an AngloAmerican demarche to warn Japan. The Nazis could have been forced to withdraw the armies they had sent in to occupy the Rhineland, and they could have been called to account for abrogating the Locarno Treaty. Vigorous action to curb German-Italian intervention in Spain would have made the world climate less inviting to the aggressor. If Italy had been punished for its attack on Ethiopia, Hitler would not have ventured on an expansionist program.

In this sequence, the Brussels Conference of October, 1937, can now be recognized as having been perhaps the last really promising opportunity. Here the nations could have acted as they were unable to do later. The momentum toward catastrophe had not gathered a speed too great to be checked. If it was not to be done at Brussels, it plainly could not be done at Munich. One reason is that at Brussels the Western democracies gave up the hope of cooperation from the Soviet Union in preserving the peace. Munich not only was a surrender to Hitler, it also was the de facto termination of the Franco-Soviet alliance. Britain and France made the deal without consulting Russia, although that country was pledged to come to the aid of Czechoslovakia. In effect they consigned Russia to become an object of German designs.

But the year before, at Brussels, Russia might have been retained as participant in any genuine effort to save the peace. Moreover, the failure of the Brussels Conference meant defeat inside Russia for the men who favored cooperation with the West. Brussels was Litvinov’s last chance to remain at the helm of Russian foreign policy. Some months were to pass before he was removed, but his policy was shattered at Brussels, and it was there that the subsequent Ribbentrop-Molotov pact of 1939 was made possible. Later, when Great Britain gave to Poland the guarantee that proved to be the move which made the war inevitable, the Soviet Union again was not consulted, though without Russia’s aid the guarantee was meaningless.

Aside from severing Russia from the Western democracies, the Brussels Conference gave substantial encouragement to aggressors. It demonstrated that no possibility remained for an active Anglo-American collaboration to police the world.

The Brussels Conference was not wrecked by diplomacy. The most careful plans had been laid. The British, having learned with increasing dismay how shortsighted had been Sir John Simon’s rejection of Secretary Stimson’s offer in 1932, were ready this time to go as far as the United States to stop Japan. Winston Churchill, at that time not in the Government, but as always well-informed about British policy, made the British attitude plain before the conference convened. “There is one simple rule,” he told his constituents in making an impassioned attack on Japanese ruthlessness; “we must act in support of the United States. If they are prepared to act, you are quite safe working with that great branch of the English-speaking countries. If our two countries go together, I doubt whether any great harm could come to either of us. Alone we cannot intervene effectively. It is too far off and we are not strong enough. Our rule must be to give more support to the United States. As far as they go, we will go.”

Lord Halifax outlined the objective of the Brussels Conference in a more subdued statement on behalf of the Government. “The policy we intend to pursue,” he said, “is such a policy which may lead, if it can, to the termination of conflict between China and Japan on a basis that the moral opinion of the world would accept, a basis which would offer the hope of being durable, and a basis for the development of China in which all countries could play their part.”

But neither of these statements gave the real text of the Brussels Conference. That had been supplied by President Roosevelt in the celebrated “quarantine” speech of October 5, 1937. Read today, the quarantine passage of the speech may not appear so explicit as the times called for. Having expatiated on the spreading epidemic of lawlessness in the world, Mr. Roosevelt had merely said: “When an epidemic of physical disease starts to spread, the community approves and joins in a quarantine of the patients.” But the President intentionally kept this passage vague. The purpose of the Brussels Conference was not to devise a quarantine, but to draw up a settlement of the Far Eastern crisis for Japan to accept. Only if the Japanese declined, would a quarantine come into consideration. The fact that the power of a quarantine was envisaged, and had been publicly referred to, was counted on to induce the Japanese to accept.

President Roosevelt saw that the hope of peace lay in collective action. In the speech he said: “If we are to have a world in which we can breathe freely and live in amity without fear, the peaceloving nations must make a concerted effort to uphold laws and principles on which alone peace can rest secure. The peace-loving nations must make a concerted effort in opposition to those violations of treaties and those ignorings of humane instincts which today are creating a state of international anarchy and instability from which there is no escape through mere isolation or neutrality. . . . The peace, the freedom, and the security of 90 per cent of the population of the world are being jeopardized by the remaining 10 per cent who are threatening a breakdown of all international law and order.” And he continued: “The will for peace on the part of peace-loving nations must express itself to the end that nations that may be tempted to violate their agreements and the rights of others will desist from such a course. There must be positive endeavors to preserve peace.”

Mr. Roosevelt no doubt felt that he could not recommend explicit action before he had aroused home opinion to the peril of the disintegrating world. And one objective of this address was to arouse his countrymen. “Let no one imagine,” the President warned, “that America will escape, that America may expect mercy, that this Western Hemisphere will not bo attacked, and that it will continue tranquilly and peacefully to carry on the ethics and the arts of civilization.” And if the worst should come, he said, borrowing from an anonymous warning, “‘there will be no safety by arms, no help from authority, no answer in science. The storm will rage till every flower of culture is trampled and all human beings are leveled in a vast chaos.’ ”

We had remained outside the League and thus had contributed to its failure to save Ethiopia from Italy. Now Mr. Roosevelt saw the need of achieving the original purpose of the League. As an instrument the League was discredited. But the Wilsonian principle was undimmed and must be applied. Time was late, but peace might be saved if we and the British were willing to lead. President Roosevelt was willing.

So were the British. Inside the British Government the facts had only been learned belatedly about the Stimson offer to Sir John Simon. Sir John had rejected this offer without referring it to the British cabinet, doing so after personal consultation with only a few of his colleagues. This had been presumptuous treatment to accord a great and friendly nation, though much in the story was forgivable. Mr. Stimson made his offer by transatlantic telephone, the first time it was used to initiate a major policy, and the British, who were not accustomed to transact state business by telephone at home, were even less ready to do so internationally. Sir John was at Geneva and had to receive one of the calls in a booth at the League of Nations. He had not been able to arrange for stenographic notes to be taken of the conversations, and so could not study the precise words of what had been said, and weigh their implications. Mr. Stimson had been subdued in outlining a joint course for the United States and Great Britain to pursue, with the result that Sir John had doubts about the proposal’s having substance. Also he had grave and not unjustified question about the willingness of the American public, then in the throes of the depression, to support a policy that might lead to the use of force against Japan. And he was all the more inclined to be skeptical because, at a press conference at Geneva and on other occasions, he himself warmly defended the Japanese aggression in Manchuria.

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THE real story of the Stimson offer was not known in London in 1932. Only later was it to be realized that the United States had foreseen the gathering of the storm over China and had offered to do something about it. The episode was cause for humiliation and remorse. When the facts became known inside the Government, they expedited the transfer of Sir John to the Home Office. And at last the British were alert for the coming of a second American offer. It came, and as Mr. Churchill expressed it, the British would go just as far as the United States was ready to go.

Mr. Roosevelt did not need to make his quarantine speech more explicit for the British, and he did not care to be more outspoken for his own public. He knew that the new policy would encounter strong resistance in this country. He would have to do battle for it, as he was to have to fight for his policy of aiding the Allies in 1940 and 1941. But if no other deep trouble preoccupied the country, he was confident he could gather support as he needed it. The Brussels Conference gave him his occasion, and he laid hands on his opportunity.

Norman Davis was to be the American representative at Brussels. He had been spokesman for the United States on many occasions, and had become a master of dissimulating the lack of commensurate concern on the part of the American government as the world went from bad to worse. He was elated to learn the broad outlines of the new policy of Anglo-American coöperation. For a change he could represent the United States at a conference which was to do something positive. The week-end before he sailed for Europe he spent with President Roosevelt at Hyde Park, and the details of the new policy were worked out. There was no commitment of a formal nature to Great Britain, a fact that enabled President Roosevelt to announce: “Mr. Davis will enter the conference without any commitments on the part of this government to any other government.” And the evening before Mr. Davis’s arrival at Hyde Park, Mr. Roosevelt explained: “Mr. Davis is going to Brussels to represent the country at a meeting of the signatories of the Nine-Power Treaty. . . . The purpose of the conference is in conformity with the original pledge by the parties in 1922 to have a full and frank exchange of views with regard to the Far Eastern situation. ... As I said in my broadcast of October 12, [1937], the purpose of the conference will be to seek by agreement a solution of the present situation in China.” These were guarded words, but in their context they were unmistakable. Sol Levinson, the Chicago attorney who had been chief architect of the Kellogg-Briand Pact, remarked that in the light of the quarantine speech Mr. Davis would not be a mediator at Brussels but prosecuting attorney.

The proposal which the United States and Great Britain were prepared to commend to the conference has never been officially divulged. The only news about it to be published at the time came from the Japanese Domei Agency, on November 9, 1937. According to this source, it was a “Roosevelt proposal,” and consisted of four points. Japan was to withdraw all its troops from China except legation guards. In return China was to give tacit recognition to the regime in Manchukuo, undertaking to refrain from action against the new state. China also was to recognize Japan’s “economic advance” in China. And the execution of the program was to be watched over by an international committee.

It was foreseen that opposition to this program might arise at the conference. Italy was expected to be hostile to anything that appeared to be embarking once more on the road to possible sanctions. France also might be obstructive, as the French government at that time was conducting an even stronger pro-Japanese policy than had the British under Sir John Simon. But if the conference balked at the plan, the British and Americans were to sponsor the program by themselves if need be, and carry it through. They were in a mood to move forward quietly but with determination, and to give the impression that they were ready to support the settlement by any action required. How clearly they defined to themselves the risks they might run we have yet to learn. But the odds appeared great that a proper firmness at the start of the policy would avoid future trouble, and not only would peace be brought to the Far East but it would be saved for the world. As Mr. Churchill had put it, “ If our two count ries go together, I doubt whether any great harm could come to either of us.”

All this preparation went for naught. Though Mr. Davis had spent his last hours before sailing with President Roosevelt working out the plan for Brussels, by the time he arrived in Europe his instructions had been canceled. Instead he was told to do nothing, and to commit the United States to nothing. Mr. Litvinov came to him privately at the start of the conference and gravely exhorted him to produce a strong policy of international action to curb Japan. He informed him that this was the last chance for the West to obtain the coöperation of the Soviet Union. The sands were running out against the Kremlin’s policy of support for collective security. Mr. Litvinov frankly told Mr. Davis that if the Brussels Conference produced no results, his own days in the Foreign Office were numbered, as Russia would go into isolation. Mr. Davis had to inform him that his instructions made it impossible to take the course Mr. Litvinov desired. The disconsolate Russian Foreign Commissar returned to Moscow even before the conference came to a close.

Though in his opening address at the conference Mr. Davis stated that the United States was prepared to share in the common efforts to find a basis for a peaceful solution of the conflict in Asia, he did not produce the essential concrete proposal. Japan had refused to attend the conference, and this provided the theme of the final resolution. * It went no further than condemning that country for its absence, and reaffirming the principles of the Nine-Power Treaty. Even on this meaningless resolution Italy cast a negative vote. Thus Italy and Japan boldly testified at Brussels to the safety they felt as the fateful years of 1938 and 1939 drew near.

In his poem on the sinking of the Titanic, called “The Convergence of the Twain,” Thomas Hardy described how

The iceberg that sank the Brussels Conference was the business recession of 1937.

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BY 1936 the New Deal could point with gratification to a steadily rising volume of business. In the course of the depression the thoughts of economists and political scientists had been focused on the business cycle and the means by which it might be kept under control. Two lessons had been formulated. One was that the business cycle must not again be allowed to carry the country so far down into the morass of contraction; and the other, that it must not be allowed to expand business too rapidly and beyond a point where it could be sustained.

Though the Roosevelt administration had been roundly abused for its unorthodox spending, its economists were convinced of the basic wisdom of that policy. But they were all the more insistent on the need for controlling the business cycle at the upward end of its gyration, perhaps to demonstrate that they were really conservatives. Since the United States appeared to be well on the way to recovery, they felt strongly that the country must be rescued in good time from another boom to be followed by another bust. So in the workshop of their best intentions they had been busy devising mechanisms to control the upward trend of the business cycle. In devising them they may have been overanxious, but no one can charge them with irresponsibility.

It is, of course, poetic license to say that the economists devised new mechanisms, for the instrumentalities finally used were not novel. Nor did the financial agencies work together. The Federal Reserve Board took steps of its own, the Treasury resorted to its own measures. The Federal Reserve Board increased the required reserves on demand deposits with the Federal Reserve System. The cover had been set in the summer of 1936 at 50 per cent over statutory rates. Later an increase was announced up to 100 per cent in two more stages. The Treasury for its part started a policy of selling interest-bearing bonds to buy incoming gold, which then was put in storage. Previously the gold had been monetized. Thus a normal expansion ot the currency was to be stopped short.

These were both familiar methods of curbing overexpansion. The question today is not whether they were good but whether they were appropriate. No one can deny that they were resorted to in a sense of apprehension lest the rising prosperity of America should be transformed into a boom. The intent was to assure the country a leveling off to a high plateau of well-being. But if these devices were not new, they had never been used before in such circumstances. In retrospect one can see that the American recovery was not near to a boom, or not in early danger of reaching one. But the economists of that day had no inkling of the vast potentialities of the American system which were to be demonstrated by production during the war. What the Federal Reserve Board and the Treasury did was to put a brake on the American economic machine.

The idea of using a brake was not novel. But American prosperity had been induced by new methods and the idea of applying a brake to control the upward turn of the business cycle was new. No one could be quite sure what the response of the machine would be. A stronger brake might be needed, or the brake might be too strong. We now know it was much too strong. Perhaps it would have been enough to cease monetizing gold. Perhaps the increase of reserves on demand deposits would have sufficed. The two actions together proved to be staggering. They did not bring the economic machine to a full stop, but they shook it seriously. Now we are painfully aware that it is much easier to stop business than to start it. The New Deal had worked for years to get it going, and in a matter of months business was slowed down by what was thought to be no more than a delicate correction.

The stock market was the gauge to watch for the working of the brake. It reached its high in the course of the recovery on March 17, 1937. Then it broke. By August it had recovered nearly enough to achieve its March peak. Then after Labor Day the bottom slid out and stocks started falling. The index (Standard Statistics) of 401 stocks had been 136.6 in March; it was 111.6 on Labor Day, 94 in October, and 87.6 in November. On October 19, 7,287,990 shares were traded on the Stock Exchange and more than seven of every ten declined in price.

It was before Washington could know that the brake had been too strong that President Roosevelt made the quarantine speech. The day of heavy trading on October 19 was the day before Mr. Norman Davis went to Hyde Park to perfect the final plans for the Brussels Conference. We have no record of what was said at Hyde Park, so we do not know if it was suggested there that the plans might have to be canceled because of the threatening economic situation. Mr. Davis in his personal conversation about the Brussels Conference in later years made no attempt to conceal the sense of tragedy that overcame him on finding his instructions withdrawn.

Between the time of Mr. Davis’s departure for Europe and his arrival there, President Roosevelt reached two basic conclusions. One was that the country was headed for a business recession which was sure to monopolize the concern of the American people. The other was that the opposition to the quarantine speech was, if anything, more vigorous than had been anticipated. From one end of the country to the other rose the winds of protest that converged on Washington. The dislike for the New Deal and for President Roosevelt seldom came to stronger expression than over this speech. Opponents felt that the President, having committed all the cardinal sins in his domestic policy, now had added warmongering to his misdeeds.

The overwhelming desire of most Americans in the face of the mounting discord abroad was to cling to neutrality. Only those who realized the futility of this course welcomed the Chicago speech, and they were in a weak minority. President Roosevelt acknowledged to himself that he could not hope to prevail against the double tide of this reaction and the difficulties attendant on a business recession. He could not count on winning support for collective security in the time at his disposal. With a sober bow to the axiom that politics is the science of the possible, he sacrificed the Brussels Conference. He thus gave up his aspiration of carrying the American people with him for an active policy to save the peace.

Who is to say today that the President was mistaken? If he had tried to superimpose on the business recession a strong policy toward Japan, and if the country had not gone with him, the repudiation of the policy might have injured us far more than the failure of the Brussels Conference. If blame is to be assessed, it must be against the overwhelming belief in the country that neutrality was a safe policy in a world disintegrating into anarchy. That, however, was not Mr. Roosevelt’s fault. He acted as wisely as he knew how, both in planning to make the Brussels Conference the beginning of a new era in international relations, and in canceling the plan. It was to take a second world war to convince the majority of the American people that selfinterest is better served by responsibility than by isolation.