imported would seem to show that the United States resembled the
countries of western Europe in being unable to nourish its population
from its own resources. Such an idea would be wide of the facts. The
figures of the previous chapter have shown that the country could
spare for export immense quantities of the staple foods, such as wheat
and meat, and the item of food imports covered mainly luxuries, which
the country could afford to buy abroad in increasing quantities as it
gained in spending power. We may take as characteristic the case of the
so-called Zante currants, seedless raisins which are used in cakes,
puddings, etc., and which are so clearly a superfluous luxury that in
England they are made the object of a revenue tax. The imports of Zante
currants into the United States were small and scattering before the
Civil War, rarely exceeding a thousand tons in a year. The imports rose
rapidly to five thousand tons after the war, and at the close of the
century were about fifteen thousand, in spite of the fact that part of
the supply was now raised in the country, and imports were restricted
by protective duties. Other similar cases might be mentioned to show
the peculiar character of our food imports.
=698. Question of producing these foods in the United States.
Sugar.=—The chief items among the imported foods were the products of
tropical or semi-tropical agriculture, their values in millions of
dollars being as follows in 1913: coffee 119, sugar 104, fruits and
nuts 43, tea 17, cacao 17. Some of these articles could be produced in
this country, and would undoubtedly be grown at home if they could not
be procured so cheaply abroad. In general it has paid the American
farmer better to cultivate crops like cotton and wheat, which are
peculiarly adapted to the conditions of soil, climate, and labor in the
United States, rather than those crops which can be grown as well or
better abroad.
There has been a determined effort, lasting for more than a century,
to raise the necessary supplies of sugar at home. The growing of
sugar cane was an established industry in Louisiana by 1800, and has
been continued ever since in that State. During most of the time the
industry has received the help of protective duties or of bounties, but
it suffers in this country from the danger of early frosts, and it has
never grown strong enough to relieve the United States from dependence
on foreign sources of supply.
Better prospects seem to favor the beet-sugar industry. Sugar-beets
were first grown successfully on a commercial scale in California
about 1890. Since that time the culture of sugar-beets spread to the
prairie and mountain States, and after 1907 beets furnished more sugar
than American cane. Including all sources of supply, however, the
sugar product of the continental United States was still less than one
quarter of the amount required by the people.
=699. Increase in raw materials imported.=—Turning now to other classes
of imports we are faced by the great increase in articles, both crude
and manufactured, used to supply the needs not of consumers but of
producers. Articles of this character had always formed a part of our
imports, but the growing use of them in this period is clear testimony
to the internal development of the country. American industries, which
previously had attained strength only when they were supported by a
generous supply of raw materials close at hand, were prepared now
to reach out to all parts of the world for the supplies which they
required.
It is significant, also, that the great increase in these supplies took
the form of raw materials. Articles wholly or partially manufactured
were imported still for use in American industries. These articles
were of many different kinds; to name one very important class, that
of chemicals and dyes, will suggest their general character. These
articles increased greatly both in absolute value and in relative
importance, but in neither respect did they keep pace with the increase
of crude materials imported.
=700. The chief raw materials among imports.=—Of the raw materials
imported for domestic industries in 1913 nearly five sixths in value
were comprised in the wares enumerated in this section. Values are
stated in round millions of dollars.
The revolution in the metal trade of the country since 1860 is shown by
the fact that tin was the only metal which was imported in the crude
state in considerable quantities (53 millions); the country could
now supply itself with most of the necessary mineral substances. An
exception must, however, be made in the case of precious stones, 50.
Of the products of the animal and vegetable kingdoms the raw materials
for the textile industry were most prominent. The first place was
taken by raw silk, 85; then follow the vegetable fibers, 49 (sisal
grass, Manila hemp, jute, flax); wool, 36, cotton, 23. The single item
of greatest value in the whole list was that of hides, 117; while
India rubber, 101, represented the importance of an industry that was
still comparatively new, but that was rapidly growing to a place of
prominence.
=701. Decline in importance of finished manufactures imported.=—While
the imports of raw materials increased greatly in value, the imports
of finished manufactures, ready for the consumer, showed a great
relative decline. Taking first the textiles, the most important group
among the finished manufactures imported, we find that the total value
in 1913 was indeed greater than the value in 1860, but the increase
was only about two-thirds while the increase in the import trade
as a whole was over four-fold. In round millions the value of the
manufactures imported was as follows in 1913: cotton 60, vegetable
fibers and grasses 77, silk 31, wool 16. Between the two dates there
had been a great growth of population and of wealth in the country,
but the increase in consumption was met mainly by the development of
home manufactures. The list of textile raw materials imported for
manufacture in America, given in the preceding section, shows a great
gain in every staple. The growth of domestic manufactures had caused
in the case of two important textiles, wool and silk, an absolute
decline in the value of the manufactured imports; while the only case
of a great increase is to be noted in the manufactures of the vegetable
fibers, jute, etc., which had not come into extensive use until after
the middle of the century.
=702. Variety of imported manufactures.=—If we seek to explore the
imports of manufactures, outside the single group of the textiles,
we are confronted by the same bewildering variety of articles as in
previous periods. We find earthenware, china, and glass; jewelry,
clocks, works of art, and books; paper and leather wares; matting,
manufactured furs, and various manufactures of metal. Roughly, a
round dozen of articles like those named above can be found, of which
each showed imports ranging in value from two or three to ten or more
millions of dollars.
It is probable that the United States will always continue to import
manufactured wares like those named above, in great variety and
amounting in the total to considerable value. We cannot afford to
refuse the contributions of peoples who have specialized in various
lines, and by reason of inherited taste and skill, or with the aid of
exceptional natural resources, can offer us what we cannot readily
produce ourselves. Since 1860, however, we have come to depend less and
less on our foreign trade for the manufactures which serve the simpler
household needs, and the home product of many of the wares named
greatly exceeds the amount imported from abroad.
=703. Change in tariff policy since the Civil War.=—The growth of
American manufactures, to which I have alluded frequently in preceding
sections, has often been explained by the change in tariff policy which
came at the time of the Civil War. The reader must look in other books
for a discussion of that question, on which opinions differ so widely.
I shall attempt here merely a brief summary of our recent tariff
history.
At the outbreak of the war a tariff with moderate protective duties
was in force. The strain of the conflict forced the government
at Washington to adopt every available means of raising revenue.
Heavy taxes were laid on manufacturers and other producers in the
country, and the tariff was raised, to secure increased revenue from
the importers and consumers of foreign wares. Such an increase was
necessary, not only to raise revenue but also to enable the American
manufacturers to hold their own in the home market, in spite of the
taxes which they paid. Actually, however, the increase was greater than
was necessary for these purposes, and by the act of 1864 the average
rate on dutiable commodities had risen to nearly 50 per cent.
=704. Increase in protective duties.=—The high duties of the war period
were imposed with the idea that they should be repealed when the war
was over and the country had returned to normal business conditions. At
the return of peace, however, when the internal taxes on manufactures
were repealed, and the peculiar conditions which had formed the
occasion for the high tariff no longer existed, the protective duties
were kept unchanged or were actually raised. The people in general
did not pay so much attention to the tariff as to other questions of
politics, and did not realize that it was a tax on them as consumers;
while the manufacturers vigorously opposed any reduction. Duties which
had been raised by 10 per cent to 30 per cent during the war were
kept at the higher level which they had reached, and duties on some
special articles were arranged so that they furnished the unprecedented
protection of 100 per cent or even 150 per cent. The duty on steel
rails, for example, amounted to more than the cost of the product which
England was ready to sell us, and Americans who built railroads about
1880 had to pay $61 to $67 per ton for rails which could have been
purchased in England for $31 to $36.
=705. The tariff at the close of the century.=—After 1880 a reduction
of the tariff was seriously urged by various individuals and parties
in the country. The tariff was changed in details, but the general
tendency was rather toward increase than reduction of the protective
duties. At the close of the century the average duty was not far from
50 per cent of the value of the goods. The British Board of Trade
estimated that the important wares imported into this country from
England paid about 70 per cent. Such a high tariff was unheard of in
earlier times, in the United States or in Europe; and was exceeded in
1900 only by the tariff of Russia. The Payne-Aldrich act of 1909, the
first general revision of the tariff that had taken place for twelve
years, amended some details but left its general character unchanged;
the Underwood act of 1913 went further, and is credited by a competent
authority with making the greatest change in the tariff system since
the Civil War. It made considerable reductions on some items, but left
rates as high as before on about half of the chief dutiable commodities
imported. Before the effect of this last measure could fairly be judged
the outbreak of the war in Europe set loose forces which changed the
currents of the world’s trade with little regard to the policies of
lawmakers.
=706. Leading ports, 1860-1914.=—The continued importance of the
eastern seaboard, in the foreign trade of the country, is shown by the
fact that in 1913 nearly two-thirds (64 per cent) of the total commerce
in merchandise passed through the Atlantic ports. It should however be
noted that these ports were declining in relative importance; in 1900
they enjoyed nearly three quarters (73 per cent) of the whole. Next in
rank were the ports of the Gulf of Mexico (1913, 15 per cent), and the
customs houses on the northern frontier, (12 per cent); commerce by
the southern and northern gateways was growing more rapidly than the
old established trade by the Atlantic. In comparison the trade of the
Pacific Coast (6 per cent) was unimportant.
The port of New York still stood without a rival in importance. Over
one half of the total imports was received through its harbor, and
though its share of exports was smaller, it conducted nearly half (46
per cent) of the total trade of the country. No other port had as much
as 10 per cent. New York stood even higher, however, in the middle of
the period (56 per cent in 1882), and the tendency of recent years had
been to distribute among other ports an increasing share of our great
foreign trade. The concentration of traffic at the New York gateway
had apparently led to congestion, entailing heavy charges and delays,
and encouraging the use of transportation lines to other ports whose
facilities were not so thoroughly exploited. There have been many
changes in the relative standing of the individual ports; the order
of their importance in 1913 was as follows, the figures giving the
percentage of the total commerce of the country (values of merchandise
imports and exports) passing through each: Galveston, 7; New Orleans,
6; Boston, 5; Philadelphia, 4; Baltimore, San Francisco, and Puget
Sound, 3 each. The Gulf ports owed their position mainly to their
export trade, in which cotton was the leading item; the secondary ports
on the Atlantic seaboard had a more diversified traffic, by which the
pressure on the port of New York was somewhat relieved.
=707. Direction of commerce abroad.=—The changes in the distribution
of our foreign trade from 1860 to 1913 are apparent in the following
table, which gives the _percentage_, in round numbers, of the total
exports and imports of the United States in its commerce with the great
divisions of the world. For convenience of comparison the figures for
1800 are included:
==============+=======================++=======================
|Imports of U.S. from --|| Exports of U.S. to --
+-------+-------+-------++-------+-------+-------
| 1800 | 1860 | 1913 || 1800 | 1860 | 1913
--------------+-------+-------+-------++-------+-------+-------
Europe | 51 | 60 | 49 || 58 | 78 | 60
North America | 35 | 21 | 20 || 38 | 13 | 25
South America | -- | 10 | 12 || -- | 4 | 6
Asia | 13 | 7 | 15 || 2 | 3 | 5
Oceania | -- | 1 | 2 || -- | 1 | 3
Africa | 1 | 1 | 1 || 2 | 1 | 1
==============+=======+=======+=======++=======+=======+=======
=708. Relative commercial importance of different parts of the
world.=—The figures bring out in a striking manner the close connection
of commerce and civilization. The continent of Europe, in spite of
its small area and in spite of its inferiority to Asia in population,
contributed far more than half of our commerce throughout the century.
The proportion of our trade with Europe grew during the first part
of the century, to decline again during the latter part, leaving the
figures for 1913 very nearly equal to those of 1800. The percentage
share of imports from Europe reached its peak before the Civil War
(1850, 70 per cent); the greatest concentration of exports in the
direction of Europe came later (1880, 86 per cent). Even in 1913 the
trade with Europe exceeded in importance that with all other parts of
the world together.
The commerce with our immediate neighbors in North America shrank
in importance in the first half of the nineteenth century, when the
countries of this continent were rivals in the export of raw materials
to Europe, but showed a recovery in more recent years, when the
diversification of industries in the United States encouraged exports
from this country of a kind that had formerly been obtained from the
Old World. In comparison with these two most important parts of our
trade the remaining branches showed a gain, but one which was in
absolute figures so small that it gave no reason to expect any sweeping
change in the direction of our commercial interests. In the markets of
South America and Asia we appeared still as buyers rather than sellers,
importing from those continents special foodstuffs and raw materials
for industry, but exporting to them a relatively small share of our own
products. Trade with Oceania and Africa had grown, with the growth of
a civilized population in those parts, but remained still only a small
fraction of our aggregate commerce.
=709. Importance of the English trade.=—England still headed the
list of the countries with which we traded. Our imports from the
United Kingdom in 1913 formed 16 per cent of our total import trade,
exceeding, therefore, our imports from the whole continent of Asia
or from the continents of South America, Oceania and Africa together;
while our exports to the United Kingdom formed nearly one quarter (24
per cent) of the total exports, and exceeded the aggregate of our
exports to all four continents named above. The country which stood
next in importance in our commercial relations in 1913 was another
English-speaking country, our Canadian neighbor, and the value of
our commerce with these two members of the British Empire was almost
exactly one-third of the total value of our foreign trade.
[Illustration:
COURSE OF
STEAMSHIP LINES
IN 1880
]
=710. Trade with other countries: Europe.=—The relative importance of
other countries in their commercial relations with the United States
can be seen in the following list, which gives the share each took in
our total commerce in merchandise in 1913: United Kingdom, 21 per cent;
Canada, 13; Germany, 12; France, 7; Cuba, 5; Netherland, Brazil and
Japan, 4 each; Mexico, British East India, Italy and Belgium, 3 each.
An extension of this list would confuse rather than aid the student. If
we divide the twelve countries named into groups of four we find that
the first group, four countries, accounted for more than one half of
our total commerce; the first two groups, eight countries, accounted
for more than two-thirds; the whole twelve together accounted for more
than three-quarters.
Among the European states we note that France had not kept her place of
relative importance; commerce with that country had grown but slowly,
and Germany had won precedence among our customers in Continental
Europe by her high industrial development and her growing demand for
our raw materials. Reviewing the other states of Europe the reader
will note the absence from the list of the great empires of Russia
and Austria-Hungary, and the presence of such little states as the
Netherlands and Belgium. Area and population are obviously factors
which have no decisive influence on the commercial importance of a
country.
=711. The Americas and Asia.=—Attention has already been directed to
the fact that although the major part of our commercial interests
still lay in Europe the concentration of our interests there had
grown gradually less with the passage of time. The reader will note
the evidence of this tendency to dispersion in the fact that of the
twelve countries named as the most important in their commercial
relations with the United States in 1913, six were extra-European. Two
of these were our immediate neighbors in North America; exchange with
these countries became more active as the United States took on the
character of an industrial state, offering finished products for the
raw materials of industry. The other two American states on the list
owed the importance of their position in our trade largely to their
ability to meet special demands of the American consumer, for sugar
and for coffee respectively. These and other states to the south of us
made relatively small purchases in the American market. Our relations
with British East India were of the same kind; that group of countries
bought from us in 1913 less than one tenth of the value of the products
(coarse textile fibers, burlap, skins, etc.) which it sold to the
American importer. A tendency similar but less marked showed itself in
the trade with Japan which supplied 5 per cent of the total American
imports, but took less than 3 per cent of our exports. Noteworthy
is the absence from the list of China, numbering over three hundred
million inhabitants, but accounting for less than 2 per cent of the
trade of the United States in 1913.
QUESTIONS AND TOPICS
1. Chart the figures, sect. 695, and note the changes in the
_relative_ as well as the absolute importance of different classes of
imports.
2. Contrast the import trade of the United States in 1913 with that of
England or of Germany. Study the indications of trade between the U.
S. and other countries given by these comparisons.
3. The decline in import of manufactured wares implied either that the
country was growing poorer, and so was unable to buy finished products
abroad, or else was growing more competent to supply its own needs.
Which is the correct view?
4. What food supplies, used in the household in which you live, come
from foreign countries?
5. Has there been any change in the relative amount of foreign food
products consumed in your household in the past generation?
6. If an American farmer can get more sugar by raising cotton or wheat
and exchanging his surplus, is there any reason why he should raise
sugar?
7. The American cane sugar industry. [Depew, chap. 37 by Searles; Pub.
Amer. Econ. Assoc., 1904, 5: 79-98; Census, 1900, 6: 443-494; 1910,
10: 477-483; U. S. Bureau of Manufactures, Misc. Series, no. 53, 1917.]
8. The beet sugar industry. [Census, 1900, 9: 543-555; 1910, 10;
471-477; Rep. Ind. Comm., 1900, 10: ccli-cclxxiv; House Doc. 396, 55th
Cong., 2d Session; Poole’s Index.]
9. The chemical industry of the U. S. [Depew, chap. 63 by Bowers:
Census, 1880, 2: 985-1028; 1900, 7: clii, 10: 523-569; 1910, 10:
531-550; Bureau of Foreign and Dom. Commerce, Misc. Series, no. 82,
1919.]
10. Write a report on the history, sources of supply, commerce and
uses, of one of the raw materials mentioned in sect. 700. [Encyc.,
commercial geographies, U. S. Census.]
11. Write a report on one of the following industries, with respect to
production at home and importation from abroad:
(_a_) Glass. [Depew, chap. 40 by Gillinder; Census, 1880, 2:
1029-1152, 1900, 9: 947 ff.; 1910, 10: 975-884; U. S. Bureau of
manufactures, Misc. Series, no. 60, 1917.]
(_b_) Earthenware and potteries. [Depew, chap. 41 by Moses; Census,
1900, 9: 899 ff.; 1910, 10: 849-871; U. S. Bureau of Manufactures,
Misc. Series, no. 16, no. 21.]
(_c_) Hides and manufactures of leather. [Depew, chap. 75 by
Foerderer; Census, 1900, 9: 699-738; 1910, 10: 717-732.]
(_d_) Boots and shoes. [Depew, chap. 87 by Rice; Census, 1900, 9:
739-767; 1910, 10: 697-714; U. S. Bureau For. and Dom. Commerce, Misc.
Series, no. 76.]
[See Depew and Census for many other industries; see Statistical
Abstract for exports and imports of products of industries.]
12. Study in detail one of the following chapters in recent tariff
policy:
(_a_) The war tariff.
(_b_) The failure to reduce the tariff after the war.
(_c_) Increase of duties above war rates.
(_d_) The Act of 1883.
(_e_) The Act of 1890 (McKinley Tariff).
(_f_) The Act of 1894 (Wilson Tariff).
(_g_) The Act of 1897 (Dingley Tariff).
(_h_) The Act of 1909 (Payne-Aldrich).
(_i_) The Act of 1913 (Underwood).
[Taussig or Mayo-Smith and Seligman. The student may also consult
tariff histories by Stanwood, Rabbeno, etc., narrative histories and
contemporary periodical articles.]
13. The following figures give, in millions of dollars, the commerce
in merchandise passing through the eight principal ports in 1900.
On a sketch map of the country draw lines from the different ports
proportional to the figures and extending out to sea; thus giving
graphic representation of relative importance of the ports. The first
figure is that of imports, the second that of exports. New York,
1,048, 918; Galveston, 8, 281; New Orleans, 82, 170; Boston, 147, 70;
Philadelphia, 93, 76; Baltimore, 33, 116; San Francisco, 63, 66; Puget
Sound, 51, 63.
14. The figures, sect. 707, may best be charted by the use of colored
crayons, giving each grand division its own color. Draw a line composed
of 100 equal units, by the use of dividers or a scale; a foot rule,
divided into sixteenths of an inch, may be employed, making the line
6-1/4 inches long (16 × 6-1/4 = 100). Chart imports and exports
separately, and study the charts as representing the _relative_
importance of our trade with the different continents at different
periods.
15. Note carefully that the figures of the text, page 585, are
percentages, not total values. The total values are given below, with a
slight difference of arrangement; each unit of the figures represents
ten million dollars, and dashes are inserted when the values do not
come within one decimal place of a unit.
(Units of ten million dollars.)
===================================================================
| 1800 || 1860 || 1913
|----------------||----------------||----------------
|Imports| Exports||Imports| Exports||Imports| Exports
--------------|-------|--------||-------|--------||-------|--------
Europe | 5 | 4 || 22 | 31 || 89 | 148
North America | 3 | 3 || 8 | 5 || 36 | 62
Asia | 1 | 0.1 || 3 | 1 || 28 | 12
South America | -- | -- || 4 | 2 || 22 | 15
Oceania | -- | -- || 0.3 | 0.5 || 4 | 8
Africa | 0.1 | 0.1 || 0.4 | 0.3 || 3 | 3
====================================================================
To illustrate the use of the figures: the imports from Oceania in 1860
were roughly three million dollars in value, in 1913, forty millions
(the precise figure was $37,543,441).
The figures may be used in studying our commercial relations in the
following ways:
(_a_) To show the development of our commerce with different continents
take three large sheets of paper, for the three different dates. Lay
off the largest figures (Europe, 1913, 89 imports plus 148 exports) to
a convenient scale at the top of one sheet, and below it draw other
lines showing the total commerce with each of the other grand divisions
at that date. Distinguish either imports or exports by the use of wavy
or dotted lines. Prepare the other charts, using the same scale. These
charts will show the _growth_ of American commerce, while the charts
based on figures in the text show only changes in _proportion_.
(_b_) To show the relative commercial importance of the continents
(excluding Oceania) at a certain time, as in 1913, the following
method may be adopted. Rule a sheet of paper in equal squares, or
procure a sheet of plotting paper already ruled. Draw on the paper
a map of Europe to such a scale that the land area will include
as nearly as possible 237 squares (89 imports plus 148 exports.)
Exactness is impracticable, but a few experiments should make the
result sufficiently accurate; an error of 10 or 20 squares is of little
importance. Draw then the maps of the other continents so that each
one contains the number of squares corresponding to its share in our
trade (North America, exclusive of U. S., 98; Asia, 40; South America,
37, etc.). The contrast between the continents will be sufficiently
striking even if other maps, showing the continents in their true
proportions, are not made for comparison.
16. Methods similar to those already employed may be used in studying
the commerce of the U. S. with separate countries. Full statistical
information is comprised in the Reports on Commerce and Navigations.
BIBLIOGRAPHY
See chapter li.
TOPICS FOR REVIEW
The following topics are suggested for use in a general review
of American commerce: (_a_) history of American shipping; (_b_)
transportation by road, river, canal and lake; (_c_) transportation
by railroad; (_d_) production and exchange of wheat and flour; (_e_)
cotton; (_f_) animal products; (_g_) textiles, (cotton, wool, silk);
(_h_) iron and steel; (_i_) other mineral products; (_j_) commerce
with European countries; (_k_) commerce with Asia; (_l_) commerce with
the West Indies and South America; (_m_) history of American seaports;
(_n_) tariff history.
PART VI.—THE WORLD WAR
CHAPTER LIV
COMMERCE AND THE WORLD WAR, 1914-1918
=712. Commercial antecedents of the war.=—To picture the World War
of 1914-18 as a necessary result of the commercial conditions in the
period immediately preceding would be a distortion of the facts.
The recourse to arms is a voluntary act, and this war, like others
preceding it, would not have taken place if one party to it had not
consciously chosen to use force to obtain what it wanted. War is
never a necessary and inevitable result of economic conditions. On
the other hand, there are periods in which commercial competition is
so intense that it puts a strain on international relations, tempting
one or another party in the struggle to further the interests of its
people by threats of force or by force itself. The economic strain is
particularly likely to lead to rupture if the political system of the
period is faulty, if international politics provide no effective way
for the just settlement of differences, and if national politics fail
to represent the interests of the people as a whole but sacrifice these
to the selfish interests of a group. Keen competition does not cause
war, but keen competition and faulty politics in combination are apt to
do so.
=713. Germany and the outbreak of war.=—The danger-spot in the
international situation before 1914 was Germany. That country had
achieved extraordinary success in its recent economic development.
Its progress, moreover, was due only in minor degree to its endowment
of natural resources; it proceeded from the industrial virtues of
the people, from the efficiency of the organization, and from the
leadership of scientific experts. The Germans were proud, and had a
right to be proud, of their success. They could not complain of the
reward which had been accorded them. They were troubled, however,
about their future. They had come to depend upon world-trade, and
found the world largely under the political control of rival states.
It is true that in that very world they enjoyed abounding prosperity;
but the foundations of their prosperity appeared to them uncertain.
Inheriting antiquated ideas about the power of the state to guide
economic development and to further commercial interests, they imputed
to other countries political designs which were the products of their
own peculiar ways of thought. They saw in the high tariffs of the
United States and Russia, in the spread of the idea of a customs union
in the British Empire, in the expansion of French influence in Morocco,
so many evidences of a plan of their rivals to hem them in, and misuse
political power to rob them of their deserts. Should they not, before
it was too late, “break through the iron circle,” establish a great
state in central Europe extending down to the Mediterranean and the
Persian Gulf, take the place in “world-politics” which accorded with
their economic merits, and so—for this was the sincere conviction of
many Germans—not merely win their own “place in the sun,” but also
direct in the right path the civilization of the world as a whole?
Given the prevalence of ideas like these, given an antiquated political
system that allowed exaggerated influence to dynastic and military
interests, and the forces impelling Germany to war were strong; given
the old-fashioned and outworn system of international diplomacy, the
stress was irresistible and the rupture came.
=714. Direct costs of the war.=—For generations to come the effects
of the World War will be working themselves out. This chapter and the
following will attempt merely a survey of some of the more obvious
effects upon the history of commerce. It will be convenient to have
at hand for reference some estimates of the costs of the war, and the
table gives those that were represented by the direct expenditure
of money by the states involved. Some of the states advanced funds
to their allies for the prosecution of the war, so a distinction is
made between the gross sums raised, and the sums directly expended by
each country; the cost of the war would be exaggerated if the same sum
were counted twice. On the other hand it is apparent that the table of
net cost is an accurate measure of the burden of the war on different
countries only on condition that the advances to allies are treated as
interest-bearing loans. To assist in an appreciation of the meaning
of the costs estimates are supplied for some countries of the total
national wealth in 1914.
(_Approximate figures in milliards of dollars_)
==============================================================
| National | Gross | Advances| Net cost
| wealth | cost |to allies|
-----------------------|--------------------------------------
United States | 204 | 32 | 9 | 23
United Kingdom | 71 | 44 | 9 | 35
Rest of British Empire | ... | 4 | .. | 4
France | 58 | 26 | 2 | 24
Russia | 58 | 23 | .. | 23
Italy | 22 | 12 | .. | 12
Other Entente allies | ... | 4 | .. | 4
| |-------|---------|---------
Total | ... | 145 | 20 | 125
| | | |
Germany | 81 | 40 | 2 | 38
Austria-Hungary | 30 | 21 | .. | 21
Turkey and Bulgaria | ... | 2 | .. | 2
| |-------|---------|---------
Total | ... | 63 | 2 | 61
| | | |
Grand total | ... | 208 | 22 | 186
==============================================================
=715. Indirect costs of the war.=—Even the figures of direct costs are
subject to correction on various accounts, and must be taken merely as
approximate indications of the value of the wealth that was devoted to
destruction. Still more uncertain, necessarily, are the estimates of
losses due to the war which were not recorded in the expenditures of
governments. Figures in the accompanying table give some idea of the
nature and extent of these indirect costs.
INDIRECT COSTS OF THE WAR
(_Figures in milliards of dollars_)
Money value of lives lost, military 34
Money value of lives lost, civilian 34
Property losses on land 30
Property losses at sea 7
Loss of production by diversion of labor 45
Voluntary war relief 1
Loss to neutrals 2
—-
Total 153
Grand total, direct and indirect costs 339
A few words of explanation will make some of the items more clear.
Human beings have not, since the days of slavery, been counted in a
census of national wealth, but they represent nevertheless in every
country the heaviest investment and the largest source of income. The
figures in the text are based on the assumption of about 13 million
deaths in military service, and a money value of the individual ranging
from about $2,000 (southern and eastern Europe) to $5,000 (United
States). The assumption that the war caused at least as heavy a loss in
the civil as in the military population is probably conservative. The
loss due to the diversion of labor from production is figured on the
basis of 20 million men, of an average productive capacity of $500 a
year, withdrawn from industry for four and one half years.
=716. Effects of the war on commerce.=—In a modern country there is a
small group of men known as wreckers, whose business it is to tear down
and destroy. During the war the world went into the wrecking business
on a grand scale. The figure of twenty million men engaged in it is an
average for the whole period; at the close of the war nearly double
that number were under arms. We have now to study some of the effects
of this situation on commerce.
In every country that entered the war there was an immediate and
imperative demand for the tools of the wrecking trade, first of all for
guns and ammunition. The wrecker was engaged in an arduous occupation;
he demanded more food than he had been used to consume, and wasted
more; he used up clothes and shoes and implements at an appalling
rate; he was always on the road, requiring subsistence and shelter in
all sorts of out-of-the-way places. War therefore put an immediate
strain on the industries serving these needs: chemical, metallurgical,
agricultural, textile, and the industries providing and operating the
equipment of transportation on land and water. On the other hand war
withdrew workers from constructive industry, and restricted supply at
the very time it intensified demand. Every country at war, therefore,
sought by means of commerce to relieve the strain on its own resources,
importing needed supplies from abroad; each group of belligerents
sought to prevent the other group from profiting by this process. The
tendency to an increase of imports was accompanied by a tendency to a
decline in exports. A country at war could not afford to do business as
usual in its foreign trade. If it could supply its military necessities
by paying actual cash for its imports, or by promising to pay for them
at some future time, it could withdraw workers from export industries,
serving the needs of foreigners, and make them serve more pressing
needs at home.
=717. Commercial position of the Central Powers and of the
Entente.=—Germany and her allies, Austria-Hungary, Bulgaria, Turkey,
enjoyed a great military advantage of which the character is suggested
by their name, the Central Powers; they had interior lines of
communication and could move their forces from one to another front
much more easily than could their opponents. They would have enjoyed
a corresponding commercial advantage if they could have brought the
war to a conclusion with stocks of supplies accumulated at home or
acquired in invaded territory, which they could mobilize in one part or
another of their territory as they pleased. The powers of the Entente,
on the other hand, desired in vain to effect an exchange of the wheat
of Russia for the guns and ammunition of France or England. In a long
war, however, in which the decision was to be effected not by stocks
accumulated in the countries immediately engaged but by a mobilization
of the resources and activities of the whole world, the Central Powers
were at a critical disadvantage. They had immediately open to them only
the territory of small neutral states (the Netherlands, Switzerland,
the Scandinavian states); the path to richer sources of supply lay
across the sea; and control of the sea rested, from the beginning to
the end of the war, in the hands of the Entente.
=718. The war against commerce.=—The conditions were much like those
of a hundred years before, when England was engaged in the desperate
struggle with Napoleon. In neither period had the belligerents any
scruple in departing from established principles of international law.
The Entente proposed to starve Germany into surrender. It stopped the
outlets of Germany across the territory of neutral states by edicts
which amounted in substance to a rationing of the people of those
states; these people might have enough food, fodder, cotton, etc., for
their own immediate needs, but no surplus that they might transfer to
Germany. Germany protested against this infraction of the principle of
freedom of the seas, and retaliated by proclaiming a war zone about the
British islands, within which German submarines ruthlessly destroyed
the merchant shipping on which England depended for her supply of
food. These measures on either side, took shape in the early years of
the war. The measures of the Entente were effective in sealing the
Central Powers from commercial intercourse with the outside world. The
German policy failed. It remained a menace, which grew more serious in
the latter part of the war when the danger to England was very real,
but in its moral influence, instead of breaking the spirit of the
English, it did much to rouse the spirit of neutral countries. As the
occasion for the entry into the war of the United States on the side
of the Entente it was a decisive factor in bringing the conflict to a
conclusion.
=719. The war on shipping.=—The war on shipping resulted in the
destruction by enemy action of a tonnage amounting to more than one
quarter of the world’s total tonnage in 1914. The figures in the
following table indicate the extent and distribution of the losses,
and show at the same time how rapidly they were repaired by the
construction of new ships. Changes in the relative standing of the
different countries, were affected also by another factor, namely by
the distribution among other countries of ships of the Central Powers,
taken during and after the war. Germany was second in rank among
maritime nations in 1914, with a tonnage of 5.5 million; in 1920 its
tonnage had been reduced to less than 1 million, almost entirely by
forced transfer.
(_Figures in millions of gross tons_)
==================================================================
|Tonnage, 1914| War losses |Tonnage, 1920
-------------------------|-------------|------------|-------------
United Kingdom | 21.0 | 7.8 | 20.6
United States[2] | 5.4 | 0.4 | 16.0
France | 2.3 | 0.9 | 3.2
Japan | 1.7 | 0.1 | 3.0
Italy | 1.7 | 0.8 | 2.2
Norway | 2.5 | 1.2 | 2.2
|-------------|------------|-------------
Total of these items | 34.6 | 11.2 | 47.2
| | |
Total for world | 49.1 | 13.0 | 57.3
==================================================================
=720. Influence of the war on the issue of paper money.=—War is itself
abnormal. Naturally, the World War gave a peculiar cast to the commerce
of the period and left behind it commercial conditions very different
from those that had prevailed in the earlier period of peace. These
results of the war involve reference to questions of currency and
foreign exchange which can be treated only superficially in a book on
the history of commerce, but which were of such practical importance
that they cannot be omitted altogether.
The governments involved in the war had, of course, to strain every
resource to get the funds for their necessary expenditures. An
expedient which they all adopted was the issue of paper money. Let
us consider, to illustrate the matter, the case of a country which
had been doing business with a gold currency of say 100, using that
figure to express the number of million francs, marks, dollars or
other unit. If the government now printed 10 of paper money and used
these to meet its extraordinary expenses, there would be a total of
110 in circulation. Price would rise roughly to correspond; that is,
the unit would buy less than before. The gold unit would, however, be
worth roughly as much in other countries as it was before, and would
be sent abroad to make purchases, instead of being used at home where
its purchasing power was diluted, as it were, by the issue of the paper
units. After a period of readjustment 10 of gold would have gone out;
the currency would have returned to its former level. The government
has made a net gain of 10, for the paper money cost practically nothing
to print. Has anybody lost? No; not if the paper money circulates
readily at home, and does the work which an equal amount of gold money
had formerly done. The country has simply “realized” part of its gold
stock, using a cheap substitute for money purposes, and selling the
dear gold to other people who were glad to exchange products for it.
=721. Effect upon the flow of gold.=—From the very beginning of the
war the governments of the European states practised this expedient,
paying out paper money and getting in return for it the goods and
services which they needed for military operations. Gold went out of
circulation and was replaced by paper. The government did not choose,
however, to let private individuals profit by the exchange of this
gold with people abroad. By an appeal to patriotism and by the threat
of penalties each government sought to bring into its own treasury[3]
the gold which had been in the pockets and in the cash-boxes of its
people. It opened the way for the circulation of its paper as well by
locking up gold in its vaults as by sending it abroad. It cherished the
gold as a precious asset: a sign of solvency and a ready resource in
time of need. The gold reserves of some of the belligerents increased
considerably in the course of the war.
GOLD RESERVES OF EUROPEAN BELLIGERENTS
(_Figures in millions of dollars_)
_1913_ _1918_
---- ----
United Kingdom 170 528
France 679 664
Italy 288 244
Germany 279 539
Austria-Hungary 251 53
These gold reserves, as the name implies, were _not_ in active
circulation. Gold passed entirely out of circulation. It flowed into
the treasury, and part of it was retained there. The larger part flowed
_through_ the treasury, and was employed by the government in purchase
of war material abroad. Some part of this outflow from the belligerent
states remained in Europe; Spain and the Netherlands showed in the
course of the war a notable increase in their gold holdings. By far the
greater part of the gold left Europe altogether, most of it going to
the United States, very considerable amounts going to the Far East and
to South America.
=722. Over-issue of paper money; worldwide inflation.=—Let us return
now to a consideration of the case which was assumed to illustrate the
working of paper money. If we suppose the government issues 10 units,
20 units, and so on up to 100 units we may assume in each case that
a corresponding amount of gold is driven out of circulation, to be
impounded in the treasury or sent abroad; in either event the number
of units in circulation and the price level remain the same as before.
Suppose the issue of an additional 100. The paper money has no value
abroad. The government will not keep it in the treasury. The government
would not have issued it except as a means of purchasing services or
supplies, and must reissue it when it comes back to the treasury in
the payment of taxes, else it would renounce all its advantages in the
collection of the tax. There would be left then double the number of
units in circulation; prices would double; the unit would buy only half
as much as before. Depreciation would follow inflation. The government
would gain still by the issue of paper money, but it would have to
issue twice as many units as before to get a given purchasing power;
the dose would need to be constantly increased to produce a given
effect. Furthermore, the government from now on would get its gain only
at the expense of its people. Its gain would be offset all along the
line by the losses of individuals who would receive for their services
and products perhaps a greater number of monetary units but certainly a
smaller actual purchasing power.
Not even the neutral countries could escape the effects of the issue
of paper money by the belligerents. Even when they remained on a gold
basis they had now so many more units, driven out from the belligerent
countries, that the gold unit itself depreciated. The dilution of
currency spread over the world and resulted in a world-wide inflation.
=723. Statistics of currency inflation and of prices.=—I have described
conditions, in preceding sections, in an artificially simple form, and
have neglected many elements that would have to be included if there
were space for a more precise and complete treatment. The general
tendencies and results were in rough accordance with the description
given, as may be seen from the figures of the table below. In both
columns the year 1913 is taken as the basis of comparison; the increase
of currency of all kinds, and of wholesale prices, may be measured by
comparing the figures given for 1919 with par, 100, in 1913.
_Units of _Average of
currency_ wholesale prices_
United Kingdom 244 257
France 365 330
United States 173 206
The inflation of currency and prices presented in these figures was
moderate in comparison with conditions in central and eastern Europe,
where the flood of paper money broke all bounds; the quantity of
currency in 1919, compared with 1913, was in Germany 875, in Rumania
over 1,100, in Austria and in Poland higher still.
=724. Effect upon foreign exchange.=—Leaving aside the grave effects
of these rapid changes in the price level on the earnings and income
of different classes, there is a particular reason for studying them
in their relation to international trade. We have had occasion to note
previous changes in the price level, such as the rise in prices before
1914; but these earlier changes were more moderate, and what is still
more important, were about the same in different countries. The changes
resulting from the issue of paper money were not only more abrupt; they
were different in individual countries, as can be seen from the figure
in the last section. The price level in any country depended upon the
particular amount of paper money which the government of that country
felt obliged to issue. The prices of Europe were no longer gold prices,
steadied at a common level by the inflow and outflow of gold; they had
no common level, they lost their former steadiness. With these changes
the time-honored basis of international transactions, the old par of
foreign exchange, disappeared.
=725. Par of exchange on the gold standard.=—The significance of the
change can be most readily appreciated if we consider a simple case,
say that of an English spinner who buys raw cotton in the United
States. The American wants dollars; the Englishman has pounds sterling
to offer. It does not matter in which unit the bargain is expressed,
whether the American gets the right to draw an order on the Englishman
for so many pounds sterling and sells this to a bank for dollars, or
whether the price is fixed at so many dollars, and the Englishman makes
payment by buying a bill for that amount with his pounds sterling. In
either event one party to the bargain must deal in the monetary unit
of the other. Under the old system both units were perfectly definite
weights of gold. A merchant knew, within narrow limits, how much he
had to pay or to receive. The gold in £1,000 was equal to the gold in
$4,866. Sterling exchange was at par in New York when the pound was
quoted at 4.866. Exchange could not vary far from par, for the cost of
shipping the gold itself was only about two cents per pound sterling,
and the gold of either country was perfectly acceptable in the other.
=726. Foreign exchange on a paper standard.=—Consider now the situation
after England has driven gold out of circulation by the over-issue
of paper money. The pound sterling has become a “paper pound,” of
which the value stands in no fixed relation to a definite weight of
gold, but is determined by a new set of factors, particularly by the
condition of the English treasury and the prospect of an expansion or
contraction of the paper currency. The American can no longer count
with any assurance on the value to him in dollars of a sum due him
in pounds sterling three months hence; the Englishman is no longer
in a position to calculate how many pounds sterling he will need to
pay a debt contracted in dollars. The rate of exchange, instead of
being fixed close to 4.866, may go down to 4.50, 4.00, 3.00—there is
no limit to its depression or to the sharpness of its fluctuations.
The student should note particularly two elements which are important
in an analysis of the situation. First, international transactions
involve a considerable time interval, say three months, within which
events may occur that will make sweeping changes in rates. Second, the
purchasing power of paper money at home, where prices are fixed by
contract or affected by custom, does not change in accordance with the
rate at which it is estimated in foreign exchange. As a result there is
a “spread” in the factors determining profit or loss in international
transactions which makes foreign trade extremely speculative, and makes
its flow fitful and irregular.
QUESTIONS AND TOPICS
1. Dangers arising from the German political constitution. [W. H.
Dawson, What is wrong with Germany?, London, 1915; Veblen, Imperial
Germany, Chap. 5.]
2. “German industry considered as a factor making for war.” [H.
Hauser, Economic Germany, London, 1915, a pamphlet of 33 pages.]
3. Commercial aims of Germany in the war. [Snow and Kral, German trade
and the war, Washington, 1918, pp. 11-14.]
4. How do you explain the fact that the direct expenditures for war by
the Entente were more than double those of the Central Powers?
5. What portion of the cost of the war fell upon your individual
family? [Tabulate money costs under taxes, contributions, losses. Who
bears the cost of government bonds? Estimate “real” costs in the form
of extra exertion, diminished consumption, decline in purchasing power
of the family income.]
6. The question of neutral rights, 1914-1916. [Ogg, National progress,
chap. 18; Paxson, Recent history of U. S., chap. 44.]
7. Assuming that both parties to the European conflict departed from
established principles of international law, why did the United States
choose the side of the Entente?
8. Have previous wars led to the issue and over-issue of paper money?
What was the experience of the United States in the Revolution; in the
Civil War?
9. Did your family gain or lose by the inflation of currency and the
rise of prices? Does the country as a whole gain or lose by these
movements?
BIBLIOGRAPHY
James D. Whelpley, *The trade of the world, N. Y., 1913, is an
account, popularly written, of the commerce of the more important
European states just before the outbreak of the war. General histories
of the war give incidental attention to the course of commerce, but
treat fully only the topic of submarine activity.
Of the references on the responsibility of Germany, given under
Chapter XL and in the Questions and Topics above, Veblen, Imperial
Germany and the industrial revolution, London, 1915, is the most
thoughtful; the work by Snow and Kral is a government report, Bureau
of Foreign and Domestic Commerce, Misc. Series no. 65, useful for
matters of fact.
Preliminary economic studies of the war, published for the Carnegie
Endowment for International Peace by the Oxford University Press, and
cited hereafter under the heading Carnegie Peace, comprise careful
studies in various parts of the field, of which the most important for
present purposes are no. 24, Ernest L. Bogart, Direct and indirect
costs of the great World War, N. Y., 1919, and no. 9, J. Russell
Smith, Influence of the great war upon shipping, N. Y., 1919.
The topics of money, prices, and foreign exchange lead the student
into a great mass of literature quite apart from his usual sources.
On questions of fact a convenient compilation is presented by the
Secretariat of the League of Nations, Currencies after the war,
London, 1920, and a wealth of material is comprised in the reports
of the Brussels International Financial Conference of 1920. For
current facts and discussion see Bulletin of the Federal Reserve Board
(Washington, monthly), The Annalist, a weekly publication of the N.
Y. Times, and, besides the other financial papers, the bulletins of
New York banks (Federal Reserve, National City, Guaranty Trust).
The ordinary student will best employ his time by a careful review
of the principles of paper money and of foreign exchange, as they
are presented in manuals of economics. F. W. Taussig, **Principles
of economics, 2 vol., 3d ed., N. Y., 1921-1922, deserves particular
recommendation.
CHAPTER LV
THE UNITED KINGDOM, 1914-1920
=727. Statistics of English trade, 1913-1919.=—Statistics of the
general trade of the United Kingdom in the war period are given in the
following table, to which is added a column showing the excess value of
the imports of merchandise and a column showing the excess value of the
import (I), or export (E), of gold.
(_Figures in millions of pounds sterling._)
=========================================================
| Total | Domestic | Foreign | Excess | Excess
| imports | exports | exports | imports | gold
-------|---------|----------|---------|---------|--------
1913 | 769 | 525 | 110 | 134 | I 13
1914 | 697 | 431 | 95 | 170 | I 28
1915 | 852 | 385 | 99 | 368 | E 29
1916 | 949 | 506 | 98 | 345 | E 21
1917 | 1,064 | 527 | 70 | 467 | E 150
1918 | 1,316 | 501 | 31 | 790 | I 51
1919 | 1,626 | 799 | 165 | 662 |[4]
=========================================================
=728. Interpretation of the statistics.=—Statistics of commerce in the
war period are necessarily inaccurate, and two points particularly
should be borne in mind in analyzing these figures. (1) The statistics
omitted an immense trade in government-owned goods; figures of the
actual movement of merchandise should be much larger to give an
accurate idea of the facts. The correction would apply particularly
to the earlier years of the war, and would affect imports more than
exports.[5]
(2) Prices were rising rapidly, with the inflation of the currency;
in 1919 they were about two-and-one-half-fold the prices of 1913. The
correction to be applied, to ascertain the physical volume of trade,
would affect both imports and exports.
Clearly the trade of the United Kingdom, if measured not in paper
values or in gold values but in quantities of physical goods, declined
during the war. The shrinkage was most marked in re-exports, of foreign
and colonial merchandise. The English had to renounce most of the
business that they had been used to transact as middlemen, distributing
through the world the goods of other countries. The values of domestic
exports also declined at the beginning of the war, and though they
returned later to about their former level, the volume of actual
wares must have shrunk seriously, to half or less. Only in the case
of imports do we find a rise in value that keeps pace with the rise
in prices, and indicates a flow of goods that persisted and perhaps
increased in amount. These results are what we should anticipate.
“Business as usual” is a motto favored by the private merchant, but one
which spells ruin for a people engaged in war. To make war effectively
they must abandon their usual employments, turn away their regular
customers, seek from outsiders only the things that offer a military
advantage, but seek all that they can get of those things.
=729. Problem of acquiring and of paying for the imports.=—The most
serious problem for England was to get the goods across a sea infested
by submarines, in ships that had constantly to be renewed, through
terminals choked by an extraordinary congestion of traffic. This was
the vital problem, which strained the energies both of the military and
industrial forces of the country, but which by their cooperation was
solved. A problem of secondary importance at the time, but important
always, was that of paying for the goods.
England had long been used to import goods in excess of those exported.
The figures for 1913, £134 million excess value of imports over
exports, may be taken as a normal measure of conditions in the recent
period of peace. Let the reader, however, glance down the column giving
the excess of imports in the years following, amounting 1914-1918 to
more than £2,000 million, and he will appreciate the magnitude of the
problem involved.
=730. Details of the method of payment.=—One mode of payment is
indicated in the table, in the column of gold shipments. £200 million
of gold were exported (in excess of imports) in the three years
1915-1917. The fact that in the year 1914 and particularly in 1918
England was able to add to the government’s gold reserve is striking
evidence of the country’s financial strength. The net excess of gold
exported, 1914-1918, amounted only to about £120 million, and went but
a little way toward payment for the excess of merchandise imported.
Reference to an earlier chapter (section 448) will indicate other
resources which the country had at its disposal. British ships which
carried freight for foreigners during the war received extraordinarily
high rates, but many ships were pressed into government service, many
were lost, and considerable sums had to be paid to neutral carriers.
Net earnings on shipping could hardly have maintained the level of
the period before the war, although in one estimate they are credited
with a contribution, 1914-1918, of £600 million. A more considerable
resource, ideal as a “liquid” asset and adequate in amount to more than
any demand that was made upon it, lay in the vast investments that
England had made in other countries. The sum of these investments is
estimated to have amounted in 1914 to £4,000 million—twice the total
adverse balance of merchandise imports. If they had been kept intact
the annual returns from them in the five years 1914-1918 would have
amounted to nearly half of the bill to be met. Actually they were
“mobilized” by the government early in the war, by an arrangement under
which the holders exchanged them for government bonds; they were then
used as collateral for loans abroad or were sold outright. Estimates of
the amount of foreign investments thus sold vary from £500 to £1,000
million. Finally the government borrowed abroad over £1,000 million;
that is, it paid the foreigner for the merchandise which he had shipped
by getting another foreigner to advance the money to him.
The figures given above are in most cases rough estimates, but even
at the minimum they amount to a total considerably above the £2,000
million which was suggested as the sum required. In fact, England was
herself lending large amounts abroad in the very period in which she
was herself borrowing. She found it necessary to support some of her
dominions and allies by loans which amounted altogether to about
£1,800 million.[6]
=731. Character of exports and imports.=—In general character the
trade of the United Kingdom remained unchanged through the war.
Four-fifths of the exports, roughly, continued to be articles wholly
or mainly manufactured; coal was the all-important item among the
raw materials. On the other side of the account three-quarters of
the imports continued to consist of food-stuffs, raw materials and
articles mainly un-manufactured. On both sides of the account, however,
there were great changes in the relative standing of the items in
detail, to accord with the shifts in demand occasioned by the war. The
exports of textiles were fairly well maintained; they were largely
produced by women, and the factories were not adapted to serve other
military needs. The exports of iron and steel and their products to
all countries except France declined sharply. The production of iron
remained nearly constant, and the production of steel increased by
one-half, but the metal was urgently needed for military purposes, the
shops that worked it up were turned into military establishments, and
their products were in large part withdrawn from general trade. In
recent years before the war the United Kingdom had exported every year
nearly 5 million tons of iron and steel and manufactures thereof. The
quantity fell in 1914 to below 4, in 1915-1916 to about 3, in 1917-1918
to about 2. The metal was still leaving the country in this period,
but it was destined to a more grim purpose than money-making, and was
not recorded in the statistics. Among the imports those items showed
the most marked increase which served the primary needs of subsistence
(rice, wheat flour, bacon and hams, cheese, milk, cocoa, etc.), or were
directly available for military use (fuel oil, gasoline, copper, arms
and ammunition, chemicals, etc.).
=732. Sources of imports.=—The war entailed changes even more sweeping
in the direction of English trade than in the items composing it.
Among the countries of the world Germany had an importance second only
to that of the United States as a source of imports into the United
Kingdom. If to Germany be added the other Central Powers, and Belgium,
of which all but a small fragment was soon occupied, a territory was
cut out which in 1913 had furnished over one-sixth of the imports for
consumption in the United Kingdom. The following table indicates how
these losses were made good, and where the additional supplies were
procured which the war demanded.
PERCENTAGE OF VALUE OF IMPORTS FOR CONSUMPTION
===================================================================
| 1913| 1914| 1915| 1916| 1917| 1918| 1919
--—--—--—--—-|---|---|---|---|---|---|---
From British Possessions | 20 | 23 | 28 | 29 | 32 | 32 | 34
From United States | 20 | 21 | 30 | 33 | 37 | 40 | 35
From all other | 60 | 56 | 42 | 38 | 31 | 28 | 31
===================================================================
The extent to which England satisfied her needs, within the Empire
is the more remarkable because of the distance of some of the most
important possessions, which put an additional strain on shipping
that already had to do double duty.[7] Most striking, however, of any
feature of the table, is the position of extraordinary importance it
gives to the United States, to be explained by the fact that this
country was relatively near, was blessed with an abundance of the
commodities required, and was inclined to the Entente even before
it entered the war. In the years 1917 and 1918 the United States is
credited with having “furnished from 50 to 95 per cent of the United
Kingdom’s total imports of wheat, wheat flour, corn, oats, barley,
bacon, hams, glucose, kerosene, motor spirits, lubricating oil, fuel
oil, pig iron and crude steel, raw copper, spelter, raw cotton,
tobacco, etc.”
=733. Markets for exports.=—In times of peace a country is in general
more interested in markets for its exports than in sources from which
to supply its imports. The condition is reversed in time of war, for
reasons that have already been suggested. The Central Powers and
Belgium took 13 per cent of the exports of the United Kingdom in 1913,
but the closing of this market was of relatively slight consequence
at the time. The volume of British products available for export
diminished so much that there were few markets to which the flow of
goods was maintained. Exports even to the United States barely held
their own, in spite of the phenomenal increase of imports from this
country.
One country, France, was an outstanding exception to the general rule.
The United Kingdom had been used to import from that country more in
value than it exported thither. The war effected an abrupt reversal of
the situation; imports from France declined, exports thither increased
enormously.
SPECIAL TRADE OF UNITED KINGDOM WITH FRANCE, 1913-1919.
=================================+====+====+====+====+====+====+====
|1913|1914|1915|1916|1917|1918|1919
---------------------------------+----+----+----|----+----+----+----
Imports into U. K., £ million | 41 | 33 | 27 | 22 | 20 | 32 | 44
Exports from U. K., £ million | 29 | 26 | 70 | 93 |112 |131 |147
Per cent total exports from U. K.| 5 | 6 | 18 | 18 | 21 | 26 | 18
=================================+====+====+====+====+====+====+====
The interpretation of these changes is simple. France was the
battlefield on the western front. British exports thither were either
supplies for the front, or were destined to relieve French labor and
products for military service.[8] Toward the end of the war France was
taking about two-thirds of the total British export of iron and steel
manufactures.
By a concentration of resources and energies such as pictured here
the war was won. Meanwhile, however, England was neglecting her
old customers in various parts of the world, both in the British
Possessions and foreign countries. The countries of South America were
forced to turn to the United States for manufactures which had formerly
reached them from Germany or England; the countries of the Far East
were forced to turn to Japan. One of the most serious of the problems
of the period following the war was to England the recovery of the
markets which she had had to sacrifice in the stress of the conflict.
=734. Effects of the war on agriculture.=—To follow out the influence
of the World War on the internal organization of the countries engaged
is beyond the scope of this book. A revolution in commerce such as that
described in the last few pages reflected, of course, a corresponding
change in internal conditions. The war dissolved old traditions and
loosed new forces; the countries engaged in it will never be again what
they were before 1914. There is space here only to sketch briefly a few
of the changes.
The imperative demand for food, when incoming cargoes were constantly
being sunk before they reached port, put on British agriculture a
strain which was felt more keenly because of the large proportion of
agricultural laborers drawn into military service. One result which
promised to have a lasting effect was the introduction of improved
mechanical equipment, particularly the modern tractor. The heavy
taxes on the owners of large estates forced into the market great
areas of land which had been held as a social rather than an economic
investment; and laws were passed designed to put agriculture on a more
businesslike basis, and particularly to further the growth of small
holdings. So deeply rooted, however, are the traditions of English
rural life that it would be hazardous to predict the issue of these
changes.
=735. Effects on industrial organization.=—In the more important field
of manufacturing industry the changes were likewise sweeping and the
permanence of their effect appears to be more certain. Government
control was general and despotic. It was heavy-handed, and was often
ineffective. It was attended by much friction and waste. It did at
least accumulate and disseminate the best technical information and it
was ruthless in scrapping antiquated equipment. It stimulated original
and constructive thought, if only by reaction against its own arbitrary
rules. When manufacturers escaped from it at the close of the war they
had already learned much about their business that was new and valuable
to them, and were in the way of learning more by their own initiative.
The English, like other peoples, had depended very largely on Germany
for synthetic dyes; that is, those dyes which are manufactured in the
laboratory by chemical processes, and which have driven most of the
natural coloring matters from the field of industry. After the outbreak
of the war they suffered for this dependence on two accounts; first
in their textile industry by the lack of dyes of good quality and of
the requisite variety, second in the field of military operations
by the superiority of the Germans in the manufacture of explosives,
to which the plant of dye factories is well adapted. Early in the
war, therefore, in 1915, “British Dyes, Limited” was formed with the
encouragement and financial support of the government. This was a
combination of manufacturers using dyes, designed to organize the
production of synthetic dye-stuffs by the most advanced methods and
with a liberal provision for scientific research. This company did
not drive from the field individual producers, who actually made great
progress during the war. It is significant, however, of a tendency
toward combination, which had been less marked in England than in
Germany or in the United States, and which had hampered the English
in competition with their rivals. Government control during the war
greatly facilitated the movement, which appeared in other industries
and promised to break down the separatism of the old-fashioned English
manufacturers.
=736. Effects on mercantile and financial organization.=—In the broader
fields of marketing and finance the English took stock of their
deficiencies and set to work to remedy them. There was a noteworthy
movement toward amalgamation in the banking business, reducing the
number of competing units and making more effective the resulting
institutions. Particularly significant was the organization under royal
charter of the British Trade Corporation, with an authorized capital
of £10 million. This company was actually a bank, much like the great
German banks of the period before the war, but it was not officially
so styled, because it was meant to offer services which had not been
characteristic of conservative English banking.
“It will not endeavour to compete with the business of existing British
banks and merchants, and it will not accept deposits at call or short
notice, except from parties who are proposing to make use of its
overseas facilities. Its aim will be to assist with the co-operation
of banks and other institutions the inception of new undertakings, and
for this purpose it will promote the formation of syndicates and the
placing of issues. When British capital is raised by its means for
overseas enterprises, it will seek to secure that orders in connection
with new undertakings are placed in this country. It will pay special
attention to the study of new schemes, and for this purpose it will
develop an Information Bureau with representatives abroad which will
keep in touch with the Department of Commercial Intelligence of the
Board of Trade. It will also be ready to give financial assistance
to arrangements for promoting the better organisation of British
industries.”
=737. Effects on labor.=—In the world of labor, as in the sphere of
leaders, the war wrought far-reaching changes. The sudden demand for
men in the field necessitated the withdrawal of laborers from industry
at the very time when the demand for service at home to support the
military establishment was most urgent. There followed a strain on
the forces of labor which in some cases was allowed to over-tax the
capacity of the worker, not only to his own personal injury but also to
the disadvantage of the public; while in some cases the laborer, not
properly educated in patriotism and thrift, exploited the situation
to extort high wages which he spent extravagantly. In the course of
time these extremes were evened out, but they illustrate the stresses
which permeated the whole industrial structure and which persisted in
one form or another until the end of the war. There was necessarily
a great “dilution” of skilled labor, with the labor of women and of
unskilled men and youths. Trade unions for a time renounced the strict
application of their rules, while at the same time they extended
greatly their membership. Conflict with employers was postponed, in
general, during the course of the war. But the feeling grew strong in
the ranks of labor that an undue share of the burden was thrown upon
the worker, and that the capitalist-employer had an undue share of
the returns and too nearly absolute control. The Russian revolution
appears to have had only a very slight influence on the spread of these
doctrines, which can fairly be considered the natural product of war
conditions in an industrial democracy. With the close of the war a
number of labor conflicts came to a head, and one in coal-mining which
was long continued, had a particularly serious effect upon industry in
general.
=738. Control of commerce and commercial policy.=—Early in the war the
trade of the United Kingdom was placed by the government under strict
control. In the emergency of the war it was obviously proper to assure
the priority of national over private interests, and the shortage of
ships made regulation doubly important. The importation of some wares
was prohibited outright, of some wares was restricted to a definite
quantity, of some wares was allowed under government license. Similarly
exports were placed under control, to keep the needed stocks at home,
and to make sure that enemy powers did not profit by British trade.
All these measures had a military object, and had no significance with
regard to the traditional policy of free trade. In the second war
budget, however, taking effect in 1915, the list of dutiable imports
was extended to include some manufactured wares (cinema films, clocks
and watches, motor cars, and musical instruments), which were subjected
in general to an import duty of 33-1/3%. The measure was designed to
give revenue, not protection, and it had little practical importance;
the importation of most of these articles was soon absolutely
prohibited. As a departure from the principles that had been followed
in the preceding half century it had considerable significance.
Significance attached also to the arrangement in a later budget by
which preferential rates, usually two-thirds or five-sixths of the full
rate, were established on most of the articles subject to duty, and
an opportunity was thus afforded to make some return to the British
dominions for the preferences which they had long allowed.
=739. Report of the Committee on Commercial Policy.=—An Economic
Conference of the Allies was held at Paris in 1916, at which was
discussed the commercial policy to be pursued by the allied powers
at the close of the war. The conference was probably designed to
frighten the Germans into making peace, and had no practical results
of importance. It did, however, bring to the attention of the English
the questions of policy which they must face, and occasioned the
appointment of a Committee on Commercial and Industrial Policy after
the War, including a number of prominent and influential members, which
made its final report in 1918. The substance of the report was as
follows.
The committee condemned the plan of establishing a comprehensive
tariff to be used in bargaining with other countries, to force
concessions in rates from them; and also the plan to impose duties
on manufactured imports as a source of revenue. On the other hand it
favored duties in specific instances to prevent “dumping,” the sale
of goods in a foreign market at prices lower than in the country of
manufacture; and it urged, in the light of experience of the war that
protection should be afforded, “at all hazards and at any expense,”
to industries which it described as “key” or “pivotal.” Such were the
industries providing synthetic dyes, zinc, tungsten (for high-speed
steel), magnetos, optical and chemical glass, hosiery needles,
precision gages, and certain drugs and chemicals. The United Kingdom
had depended on other countries, particularly Germany, for the supply
of these products, and had then paid dearly for the lack of them.
Finally, the Committee approved the principle of imperial preference,
and advised that preferential treatment be accorded to the British
Possessions in the case of all customs duties established.
=740. Safeguarding of Industries Act, 1921.=—By an act of Parliament
which went into effect in 1921 the most important recommendations of
the committee were given the force of law. The act imposed an import
duty of 33-1/3% _ad valorem_ on a long list of articles, perhaps 3,000
altogether, defined in detail by the government Board of Trade. The
general character of these articles has been already indicated in
the preceding section; they were the products of “key industries,”
without which other and larger branches of industry would be lamed
in operation. Another section of the act was designed to prevent
“dumping.” It empowered the Board of Trade to protect industries in the
United Kingdom by a duty of 33-1/3% from the competition of articles
offered for sale there at prices below the cost of production in
the country of origin, or at prices abnormally low by reason of the
depreciation of the currency in that country.
QUESTIONS AND TOPICS
1. Chart the statistics of British trade, 1913-1919, continuing if
practicable the graph previously constructed.
2. Immediate effects of the war on the course of British trade.
[British oversea commerce in war time, Quarterly Rev., Jan. 1915, 223:
252-265; Trade in war time, Polit. Quarterly, 1916, no. 7, 99-121.]
3. The balance of trade in 1916. [H. J. Jennings in Fortnightly Rev.,
1917, 107: 302-312.]
4. In what way did each of the imports in the list of those supplied
by the United States contribute to maintain military efficiency?
5. Effects of the war on agriculture. [J. B. Firth in Fortnightly
Rev., 1917, 107: 595-605; A. W. Ashby, in Edinburgh Review, 1917, 225:
343-363; H. Wyatt, Development of the agricultural motor, Quarterly
Rev., 1917, 227: 194 ff.]
6. Agricultural policy. [L. Smith Gordon in Quarterly Rev., 1917, 227:
178 ff.; F. D. Acland in Contemp. Rev., May, 1917, 111: 570-578; E.
Lipson in Fortn. Rev., 1917, 107: 100 ff.]
7. Industrial efficiency in the war. [A. Shadwell in Edinb. Rev.,
Jan. 1915, 221: 151-177; B. S. Rowntree, Nineteenth Cent., 1917, 81:
399-412.]
8. The British Trade Corporation. [H. J. Jennings in Fortn. Rev.,
1916, 106: 841-851; R. H. I. Palgrave in Quart. Rev., Jan., 1918, 229:
143-153; C. S. Addis in Edinb. Rev., July, 1918, 228: 43-58.]
9. The labor movement during the war. [G. D. H. Cole in Amer. Econ.
Rev., Sept., 1918, 8: 485-505; J. A. Hobson in Contemp. Rev., Nov.,
1920, 118: 638-645; R. S. Rowntree in Contemp. Rev., Oct., 1917, 112:
368-379.]
10. Railroads in and after the war. [E. A. Pratt in Nineteenth Cent.,
1916, 80: 398-410; J. H. Balfour-Browne in Nineteenth Cent., 1918,
83: 619-636; Edinb. Rev., Jan., 1917, 225: 84-103; W. M. Acworth in
National Rev., 1919-20, 74: 256 ff.]
11. Shipping at the close of the war. [J. Hilton in Edinb. Rev.,
Apr. 1918, 227: 359-382; S. Brooks in Nineteenth Century, 1918, 84:
1116-1129; C. Maughan in Quart. Rev., Oct., 1919, 232: 471-488; A.
Hurd in Fortn. Rev., 1920, 113: 584-597.]
12. Proposals of the Paris Conference of 1916, regarding trade policy
after the war. [H. Cox in Edinb. Rev., July, 1916, 224: 189-208; J. A.
R. Marriott in Nineteenth Century, 1916, 80: 1097-1112.]
13. Report of the Committee on Commercial Policy. [Beauchamp in
Contemp. Rev., May, 1917, 111: 545-552; L. J. Reid in same, July,
1918, 114: 35-40.]
14. Tariff policy at the close of the war. [H. Cox in Edinb. Rev.,
Apr. 1917, 225: 379-408, and Oct., 1918, 228: 387 ff., with many
references to contemporary opinion.]
BIBLIOGRAPHY
Most of the statistical facts of primary commercial importance are
to be found in the annual volumes of the Statistical Abstract of the
United Kingdom. A useful compilation is offered by William A. Paton,
*The economic position of the United Kingdom, 1912-1918, Washington,
1919, Bur. of For. and Dom. Commerce, Misc. Series no. 96.
Of the publications of the Carnegie Peace Endowment the following
pay special attention to the United Kingdom: vol. 11, B. H. Hibbard,
Effects upon agriculture; vol. 18, C. W. Baker, Government control and
operation of industry; vol. 7, F. L. McVey, Financial history; vol. 4,
F. H. Dixon and J. H. Parmelee, War administration of the railways;
vol. 14, M. B. Hammond, British labor conditions and legislation. J.
A. Salter, Allied Shipping Control, Oxford, 1821, is the first of a
British series of publications of the Carnegie Peace Endowment which
promises to make important contributions to our knowledge of the war
period. Howard L. Gray, War time control of industry: the experience
of England, N. Y., 1918, is accepted by competent British critics as
an excellent presentation of the subject.
The British Association for the Advancement of Science stimulated
inquiries into “Labour, finance and the war,” which have been edited
by A. W. Kirkaldy and published under that title.
The National Civic Federation published a report on The labor
situation in Great Britain and France, N. Y., 1919, which aimed to
describe impartially conditions and policies. In the writings of G.
D. H. Cole (Labour in war time, London, 1915, etc., etc.) will be
found a vigorous criticism of the existing system; for a corrective
see L. L. Price, Mr. Cole on labour problems, Economic Journal, June,
1919, 29: 186-201. Space is lacking here for reference to the many
publications on Whitley Councils, Gild Socialism, etc., and to the
various aspects of “reconstruction.” A brief report entitled Economic
reconstruction, from the Bureau of For. and Dom. Commerce, Misc.
Series no. 73, Washington, 1918, attends particularly to commerce and
commercial policy, and is relatively full on the United Kingdom; it
can if necessary be made to serve as a substitute for the full report
of Lord Balfour of Burleigh’s committee on commercial and industrial
policy [Cd. 9035], which was published in the parliamentary set for
1918, vol. 13, with an extensive report on shipping and other reports
on special industries.
CHAPTER LVI
FRANCE AND THE PROBLEM OF REPARATIONS
=741. Effects of the war upon the commerce of belligerent and of
neutral states.=—The commerce of the United Kingdom in the period of
the war has been treated at considerable length not only because it was
itself an important factor in determining the outcome of the struggle,
but also because it illustrated the general conditions of the period.
War brought to the other belligerent states the same urgent need of
imports, affected in a similar way the organization of production, and
restricted exports. To the neutral states the war brought some dangers
and some losses, but it brought also a great commercial opportunity.
If they were in a position to supply the needs of the belligerents
they could charge unheard of sums for their services. Individual
merchants who seized the opportunity made great fortunes, in the
Netherlands, in the Scandinavian states and in Spain. In neutral as
well as in belligerent states, however, the waste of war brought loss
and suffering; while some few individuals grew richer the mass of the
people grew poorer.
=742. Statistics of French commerce, 1913-1919.=—The most important
features in the commerce of France in the period of the war appear in
the accompanying table. As the table does not take into account the
depreciation of the French currency in the course of the war and gives
merely nominal exchange equivalents, the reader should be cautious in
the comparison of figures in the upper and lower part of a column, and
in the comparison of these “paper” figures with figures representing
actual gold dollars, as given in the statistics of the United
States.[9] Figures in any horizontal row are strictly comparable, since
they represent an equal amount of depreciation.
TRADE OF FRANCE, 1913-1919.
(_Figures in hundred millions of dollars; 1 signifies approximately
$100,000,000. The left-hand column under every heading gives imports;
the right hand column gives exports._)
=======+===============+==============+==============+=============
| Food products | Material for | Manufactures | Total trade
| | industry | |
+-------+-------+-------+------+-------+------+-------+-----
| I. | E. | I. | E. | I. | E. | I. | E.
-------+-------+-------+-------+------+-------+------+-------+-----
1913 | 4 | 2 | 10 | 4 | 3 | 7 | 16 | 13
1914 | 4 | 1 | 7 | 3 | 2 | 5 | 12 | 9
1915 | 6 | 1 | 9 | 1 | 6 | 5 | 21 | 8
1916 | 8 | 1 | 13 | 2 | 9 | 7 | 29 | 10
1917 | 13 | 1 | 23 | 2 | 17 | 8 | 53 | 12
1918 | 10 | 1 | 18 | 2 | 12 | 5 | 40 | 8
1919 | 12 | 1 | 18 | 3 | 11 | 7 | 41 | 12
=======+=======+=======+=======+======+=======+======+=======+=====
=743. Changes in imports and exports.=—Attending first to the
horizontal row giving conditions in 1913 we find France able to
enjoy a surplus of imports by reason of her foreign investments,
in Russia and other countries; the imports consisted mainly of
industrial raw materials, to a less extent of food products, still
less of manufactures. The country made payment for its imports mainly
by finished manufactures, but exported also raw materials and food
products. Now following down the vertical columns the reader will
note an absolute decline of the value of exports, even in terms of a
depreciated currency; this implied, of course, a much more serious
shrinkage in the quantities of wares sold abroad. Accompanying this
movement was a rapid expansion in the nominal value of the imports,
sufficient in some branches to indicate an actual increase in the
volume of trade, and resulting in a divergence in the values of imports
and exports which signified that France was incurring a heavy debt
abroad.
=744. Changes in the direction of trade.=—From Germany France had
received in 1913 about 13 per cent of the total value of her imports,
from Belgium about half as much; so that the closing of those two
countries alone involved the source of one-fifth of the French import
trade. Russia had not been so important as a source of supply,
and trade with the Central Powers aside from Germany had not been
considerable. The following table indicates the sources to which France
turned to obtain the means for carrying on the war.
IMPORTS INTO FRANCE, BY COUNTRY FROM WHICH OBTAINED
(_Figures in hundred millions of dollars; .1 signifies approximately
$10,000,000._)
================+=====+=====+=====+=====+=====+=====+=====
| 1913| 1914| 1915| 1916| 1917| 1918| 1919
----------------+-----+-----+-----+-----+-----+-----+-----
United States | 2 | 2 | 6 | 9 | 19 | 13 | 11
United Kingdom | 2 | 2 | 6 | 8 | 13 | 11 | 10
Spain | .5 | .4 | 1 | 1 | 3 | 1 | 1
Italy | .5 | .3 | 1 | 1 | 2 | 1 | 1
Argentine | .7 | .4 | 1 | 1 | 2 | 2 | 2
Algiers | .6 | .6 | 1 | 1 | 1 | 1 | 1
================+=====+=====+=====+=====+=====+=====+=====
The exports of France, measured even in the inflated value of
the period, declined in the case of most countries of commercial
importance; the noteworthy exception was Italy, to which, in the course
of the war, exports were double or triple the usual value of the
preceding period of peace.
=745. French finances during the war.=—French finances were in bad
condition at the outbreak of the war. Expenditures had increased
greatly in the decade before 1914, and the government was slow to
recognize the necessity of heavier taxes. In the years 1908-1914 every
year but one had shown an actual deficit. After mobilization, which
even in August, 1914, had called out nearly 4 million men and early in
1915 had called over 5 million, it was particularly difficult to devise
and apply new taxes; while in the meantime the enemy had occupied
some of the richest industrial districts, contributing normally about
15 per cent of the public revenue. In consequence the government
raised by taxation only a small proportion of the funds required
by the expenditures of the war period (Aug. 1, 1914—Apr. 1, 1919),
about one-eighth, as compared with one-quarter in the United Kingdom
and one-third in the United States. Stating figures approximately in
milliards of francs the government incurred a total expenditure of 181,
and met it as follows: 22 by taxes, 86 by loans placed at home, 26 by
loans from the Bank of France, 27 by foreign loans, leaving a floating
debt of 20 still to be provided for in 1919. The last three items had
an important bearing on the commercial relations of France. Loans from
the Bank of France took the form of bank notes, paper money, which
inflated the currency and tended to raise the rate of foreign exchange
on other countries far above the normal par; the unsettled finances
evidenced by the floating debt tended to cause violent fluctuations of
the rate; a foreign debt would, if interest were paid on it, involve
remittance at high rates and would require an increase of exports if no
other resource were available.
=746. Damage done to the devastated districts.=—The amount of the
damage done to property in that part of France where the fighting took
place will probably never be known with any approach to accuracy. The
area affected was not very large, perhaps 10 per cent at most of the
total area of France, of which the smaller part, perhaps 4 per cent
of the total, lay in the devastated districts where the fighting was
fiercest. Unfortunately for France her best coal and iron mines and
almost one-third of her manufacturing industry lay within the area of
invasion; from one-half to nine-tenths or more of some of the textile
manufactures (woolen, cotton, flax and linen) and half of the metal
workers, were in the occupied zone. France was seriously handicapped
during the war by her inability to draw upon the resources of the
occupied regions. Her dependence on imports from the United States
and the United Kingdom would not have been nearly so great if she had
been able to maintain her productive organization unimpaired. She
suffered from the lack of product, but in spite of that she and her
allies won the war. Then she faced a greater loss, that of plant, the
accumulated capital of generations, represented not only in mines and
factories, but also in dwelling houses, in roads and bridges, in the
very fields themselves. In the devastated districts peace restored to
her not an asset but a grievous liability. She owed to her own people
the obligation of repairing the damage and restoring that which had
been destroyed, at a time when she was crippled by other burdens which
the war had cast upon her. Conservative estimates of the loss ranged
from 10 to 15 milliards of gold francs; other estimates (unquestionably
exaggerated for political purposes) went up to 65 or 75 or more.
=747. Territorial gains of France.=—The treaty of peace rendered France
some benefits that may be put on the other side of the account. Most
important to her, among the territorial changes, was the restoration
of the provinces of Alsace and Lorraine, which Germany had taken and
had held since 1871. Lorraine included the richest bed of iron ore in
Europe; from that province Germany had derived, since the development
of the basic process of steel manufacture, three-fourths of her annual
supply of ore. The phosphate slag, which was a by-product of the basic
process, was a valuable fertilizer; and a great bed of potash in Alsace
offered another important agricultural resource. To atone to some
extent for the wanton damage done to the French coal mines, which could
not be repaired for years, Germany ceded ownership in the coal mines
of the Saar basin, on the border of Lorraine, which did not, however,
become a part of France, but was left under international control.
These changes doubled French capacity for iron production. They left
her still short of coal, particularly of the coking variety needed for
blast furnaces; and promised to render her the greatest return if she
shipped her ore to the Ruhr district of Germany to be smelted.
=748. The question of reparation; Germany’s quick assets.=—Important as
were these territorial changes for the future of France they offered
little help in her present emergency. She needed immediately a great
fund of fluid wealth, which could be used to repair the damage done to
her by the war, and felt that she had the right to look to Germany, the
deliberate aggressor in the conflict, to make good the losses which she
had suffered.
Reference to the table of costs of the war in a preceding chapter
will show the lamentable inadequacy of German resources to make good
the total losses for which Germany was responsible. The costs could
have been met only in small part even if the total national wealth
of Germany as it was before the war could have been expropriated.
Some parts of that wealth, indeed, could be and were taken; such were
securities representing German investments in foreign countries, and
ships, which could be moved to any part of the world without losing
their value. In the aggregate these items went but a little way toward
meeting the total costs. Another item, the stock of precious metals
which the German government had accumulated and retained, was not so
readily available as it appeared to be; on that stock was based the
whole structure of public and private credit in Germany, and a drain
upon it, if excessive, would cause a collapse that would seriously
affect the solvency of the country. Germany was in such desperate
straits at the close of the war that the allies of the Entente were
forced to allow her to buy food from the outside with part of the gold
reserve, and saw it melting away before their eyes. In sum, the “quick
assets” of Germany were pitifully small to meet the bill of costs; they
were estimated to amount to several milliard dollars, but when the
necessary deductions were made they offered scarcely one milliard for
reparations.
=749. Principle conditioning Germany’s capacity to pay.=—Most of the
wealth of Germany was fixed in the country, and was not directly
available for reparation. There was no sense in confiscating and
distributing it. The reader will better understand that essential point
if he will face the question: how could the benefits arising from
the ownership of that wealth be transferred to other countries to be
enjoyed in them? Suppose that you are granted, to repair your losses
in the war, the ownership of a German farm or factory; how will you
get any good from it? You want some real material good, something that
you could enjoy yourself, or could exchange to advantage. A piece of
paper would not satisfy you. Gold would be acceptable, but the Germans
had little of that left, needed a minimum amount to enable them to
continue in business, and could get more only as they bought it abroad.
To pay you something real the Germans would have to ship out something
real, whether they paid it directly to you or bought with it “foreign
exchange,” that is, the right to something real, gold or its material
equivalent, in the country in which you live. After the initial payment
of the country’s quick assets, _Germany could pay only a sum equal in
value to the excess of German exports over imports during any period
of time that might be determined_. This was the fundamental principle
limiting the amount of payment in reparations that could effectively be
imposed.
=750. Practical limits of amount and period of payments.=—There were,
therefore, two factors to be considered in fixing the amount to be
exacted: the amount per year that Germany could pay, and the number
of years over which payments should extend. Trustworthy investigators
reached the conclusion that Germany _before the war_, with its
productive organization unimpaired, would have been able to pay about
one milliard dollars a year. Here was given the maximum for one factor.
Various considerations set a limit to the other factor, the period
of time during which payments should be exacted. On this as on other
points there was no general agreement; the situation at the close
of the war was too tense to permit participants in it to judge the
question calmly. Fair-minded friends of the western allies believed,
however, that the interests of the allies themselves required the
limitation of the period during which the payment should be made to a
definite and reasonably short time, say thirty years, the span of a
human generation. This restriction was prompted by regard to justice,
by the impropriety of visiting on future generations the sins of their
ancestors. It accorded with considerations of political expediency; the
payment of reparations was certain to introduce an element of strain
in international relations, both economic and political, which must
not be too long continued. Finally, and practically of the greatest
importance, the benefit to be derived from reparations grew rapidly
less as the time of payment was extended. The reader doubtless knows
how quickly sums mount up when they are put at compound interest.
He should realize that payments to be made in the future shrink
correspondingly when their present value is computed by a process of
discount. How much will you give for my pledge to pay one dollar fifty
years hence? You are foolish if you offer more than a small fraction
over five cents, when the rate of interest is 6%.
With due regard to all the factors in the settlement sober and
competent students of the question believed that the maximum payment
which should be imposed on Germany might amount to a lump sum in
present value of ten to fifteen milliards of dollars.
=751. Provisions of the Treaty of Versailles regarding reparations.=—By
the Treaty of Versailles (article 231) Germany accepted “the
responsibility of Germany and her allies for causing all the loss
and damage to which the Allied and Associated Governments and their
nationals have been subjected as a consequence of the war imposed
upon them by the aggression of Germany and her Allies.” The treaty
itself recognized that the resources of Germany were not sufficient
for complete reparation, but, most unfortunately, did not itself fix a
definite sum, the maximum which Germany might reasonably be expected to
pay with reference to the practical factors which have been sketched in
the preceding section. Some of the European leaders in the Entente had
held out extravagant prospects of indemnity to their people, and were
unwilling as yet to confess the facts. The exact terms of payment were
therefore left to be settled later by a Reparations Commission which
was given far-reaching powers to get the most it could up to a limit
set so high that it manifestly exceeded German capacity to pay. Then
followed a period of bitter contest in which the Allies by threats, by
fiscal penalties, and by actual occupation of German territory sought
to make good their claims, while the Germans fell behind in payment
and stolidly professed their inability to meet the demands imposed
upon them. Recovery and reconstruction were seriously delayed, both in
western and in central Europe.
=752. London settlement of May, 1921.=—A substantial approach toward
a practicable settlement of the question of reparations was made in
conditions drawn up in London in May, 1921, and imposed on Germany
under threat of an occupation of the district of the Ruhr. The terms
are complicated, and are not worth a detailed description for they will
probably be amended, but they are of interest as indicating the form
that the final settlement may possibly take. A summary of the most
important provisions follows: figures are stated in milliards of gold
marks, a unit roughly equal to 250 million dollars.
Germany was bound to annual payments under two heads: first a fixed
sum of 2 milliards, second, a sum equal in amount to about one quarter
(26%) of the value of German exports for the year, but not less than
1 milliard. On the basis of these annual payments of a minimum of 3
milliard the allies were to issue German bonds of a face value of 50
milliard, on which 5% interest could be paid and still leave available
half a milliard a year to be employed in a sinking fund toward the
extinction of the debt; after a period of about thirty-seven years
Germany would be free. The allies hoped to realize the present value
of the bonds by selling them to investors, and thus get ready funds
for economic reconstruction; while they professed to believe that the
minimum of 3 milliard marks a year was well within the German capacity
to pay. Germany before the war had, indeed, an export trade amounting
to 8 milliard marks and over, while this arrangement assumed only about
4 milliard, but assumed that the exports could carry the burden of a
heavy tax. The provision for the variable payment of 26% of the exports
assured the allies that they would share in Germany’s prosperity if it
actually did return; and arrangements were made for the possible issue
of more bonds on this basis up to the amount of 82 milliard, making the
total capital sum 132 milliard—over thirty thousand million dollars.
The bonds were to be distributed among the allied states in the
following proportions: France 52 per cent of the issue, United Kingdom
22, Italy 10, Belgium 8, and the remainder to other countries.
=753. Objectionable aspect of reparation payments.=—Attention should
now be directed to an interesting and important feature of the
reparation question. Germany, as has been said, could pay an indemnity
only by a surplus of exports over a long period of years. Likewise, the
allies in the long run could receive an indemnity only in the form of
a surplus of imports. Might not this flow of goods, forced by pressure
on Germany, be a curse rather than a blessing to the country receiving
it; might it not undermine home industries? Or, if a tariff protected
the producer at home might it not simply divert this flow to neutral
markets, where the British or French exporter would find himself
crowded out by a competition that was fierce and unyielding because of
the military pressure behind it—the military pressure of his own home
government! If Germany endured the strain would she not at the end of
a generation rule the markets of the world, win the world by losing
the war? The situation sounds so paradoxical that it is hard to realize
how serious is its import. Only by a surplus of exports could Germany
pay. What form could these exports take which would not injure some
interests in the allied countries?
It is probable that considerations of this kind will lead in time to
a considerable moderation of the demands imposed upon Germany. And it
is significant that even in 1921 arrangements were being made for the
payment in kind, by the delivery of coal, timber, building material of
all kinds, of a considerable fraction of the sum due to France.
QUESTIONS AND TOPICS
1. Report upon one of the neutral states during the war:
(_a_) Switzerland. [Report of Bureau of For. and Dom. Commerce, Misc.,
series no. 90.]
(_b_) Netherland. [Same series, no. 91; B. Abraham, in Fortnightly
Rev., 1917, 107: 443 ff., 1918, 110: 110 ff.; P. Geyl in Contemp.
Rev., 1918, 113: 228-294.]
(_c_) Scandinavia. [E. Björkman in American World’s Work, Feb., 1918,
35: 437-447.]
(_d_) Spain. [L. A. Bolin in Edinb. Rev., July, 1917, 226: 134-152; E.
J. Dillon in Nineteenth Cent., 1918, 83: 386-402.]
2. Recovery of Belgium. [E. Cammaerts in Contemp. Rev., March, 1920,
117: 349-365; J. M. Price in Fortnightly Rev., 1920, 113: 467-477.]
3. The financial effort of France during the war. [J. F. Bloch in
Annals of Amer. Academy Soc. and Pol. Sci., Jan., 1918, 75: 201-206.]
4. Territorial gains of France in Europe. [Bowman, The new world,
86-91; Haskins, in What really happened, etc., 45-66.]
5. Alsace-Lorraine. [Haskins, Some problems, chap. 3.]
6. The Saar Basin [Haskins, Some problems, chap. 4; Tardieu, chap. 8.]
7. Territorial interests of France outside Europe. [Bowman, 91-118.]
8. Reconstruction in France. [R. L. Buell in Amer. Polit. Sci. Rev.,
Feb., 1921, 15: 27-51; H. A. Gibbons in Fortnightly Rev., July, 1919,
112: 64-76; Tardieu, chap. 12.]
9. The question of reparations: the French position. [Tardieu, chap 9.]
10. The question of reparations: criticism of the settlement [Keynes,
chap. 5.]
11. The question of reparations: the American position. [Lamont, chap.
11, and Young, chap. 12, in What really happened, etc.; Baruch, 13-75.]
12. Working of the reparation settlement. [Tardieu, chap. 10.]
13. Contributions of the peace treaties to the control of commercial
practices and policy. [Young, in History of the Peace Conference, ed.
by H. W. V. Temperley, vol. 5, London, 1921, chap. 1, part 3.]
BIBLIOGRAPHY
B. M. Anderson, Jr., Effects of the war on money, credit and banking,
N. Y., 1919, Carnegie Peace, vol. 15, covers both France and the
United States, and describes the course of commercial affairs in
connection with the question of foreign exchange. An excellent survey
of the course of French finance is provided by Gaston Jèze., *The
economic and financial position of France in 1920, in Quarterly
Journal of Economics, Feb., 1921, 35: 175-214; see also Gide in Econ.
Journal, June, 1919, 29: 129-137, and both the writers named in Annals
Amer. Acad. Soc. and Pol. Sci., May, 1921, 95: 151-160.
On the peace settlement, **What really happened at Paris, by
American delegates, ed., E. M. House and C. Seymour, N. Y., 1921,
is well-informed and represents the American position with regard
to points at issue better than any other book. C. H. Haskins and
R. H. Lord, **Some problems of the Peace Conference, Cambridge,
Harvard Univ. Press, 1920, is restricted to territorial questions.
I. Bowman, **The new world, Yonkers, 1921, treats particularly the
problems in political geography arising from the settlement, but pays
due attention to historical and economic factors, and includes many
valuable maps; the book is indispensable.
On the subject of reparations the best brief account is that by Lamont
and Young. Bernard M. Baruch, *The making of the reparation and
economic sections of the treaty, N. Y., 1920, is more extensive; it
reprints all clauses of the Versailles treaty which are of economic
interest. Further material will be found in the elaborate History of
the Peace Conference, ed. H. W. V. Temperley, of which five volumes
had been published in 1921.
André Tardieu, The truth about the treaty, Indianapolis, 1921, is
an eloquent plea for French claims in their entirety; J. M. Keynes,
The economic consequences of the peace, N. Y., 1920, condemns the
reparations settlement as too severe. Either book may mislead an
uncritical reader.
Convenient sources of information on the changing conditions of the
time will be found in Current History, a review published monthly
by the N. Y. Times, and in Economic Review of the Foreign Press,
published weekly in London.
CHAPTER LVII
CENTRAL AND EASTERN EUROPE, 1914-1920
=754. Territorial losses of Germany.=—By the terms of peace Germany
ceded territory in the west to France and Belgium, in the north to
Denmark, in the east to Poland. The most serious losses were comprised
in the provinces of Alsace and Lorraine, and in part of the province
of Silesia. Upper Silesia contained mineral deposits, particularly
coal, which the Germans asserted to be indispensable to the industrial
development of their country, and the contest over the rights involved
delayed a decision for more than two years after the signing of the
Treaty of Versailles. The final award, rendered by a commission of the
League of Nations, divided between Germany and Poland the territory in
dispute but arranged that for a period of fifteen years the whole area
be kept under the control of a commission which should recognize the
mixture of interests and should maintain free economic intercourse.
The total losses of Germany, measured in area, population, agricultural
and industrial resources, ranged from 10 to 15 per cent. Losses in
particular resources of great industrial importance were still more
serious. The country was obliged to abandon mines supplying about
one-quarter of the annual output of coal, three-quarters of the iron
output, even a higher proportion of the output of zinc.
=755. Internal losses of the country.=—These losses fixed by the terms
of peace were added to the loss which Germany had already suffered in
the course of the war. The population in 1914 was 68,000,000. Deaths
in the army amounted to 1,800,000, and the number of wounded was over
4,000,000. In the civilian population, also, the mortality in the
latter part of the war had been very high and the vitality of survivors
was impaired. An indication of the extent and character of the losses
is provided by some statistics of Prussia, which show a decline in
population, 1914-1919, in every province but three, and show a serious
decline in the proportion of males. In 1914 there were 102 women to 100
men; in 1919 the proportion was 109 to 100.
Germany emerged from the war not only short in man power, but also
weakened by the depreciation of capital and in serious need of some of
the most important raw materials. The demands of the army had taken
precedence over any other consideration, and had in the four years of
war stripped the country almost bare.
=756. Effects of the blockade.=—The weakening of German resistance
and the final surrender were due in large measure to the inexorable
blockade maintained by the allies of the Entente. Germany made an
extraordinarily effective use of what resources she had. Her scientists
produced nitrates from atmospheric nitrogen and so freed her from
dependence on imports from South America for her explosives. Her
manufacturers made clothing for the people from paper and nettle
fibers. Her officials scoured the country for copper and brass
implements, when the stock of copper for munitions was depleted, and
gleaned a surprising amount of metal for military use. Her military
leaders systematically looted the districts which they occupied.
There are limits, however, to the achievements of the most scientific
synthetic chemistry, or of the most unscrupulous and efficient
administration. A substitute (_Ersatz_) was provided for almost
everything, as the supply of the original good ran low. However
successfully the substitute might imitate the original in appearance it
rarely proved to have the same efficiency in action. German locomotives
deteriorated because they were lubricated with substitute oils and
grease; the German people ran down in vigor and power of resistance
because they were fed and clothed with substitutes.
=757. Commerce of Germany during the war.=—Germany maintained active
commercial relations with the other Central Powers, importing
particularly foodstuffs from the rich plain of the Danube basin, and
lignite (brown-coal) from Bohemia. Trade with the more distant allies,
Bulgaria and Turkey, proved difficult and relatively unimportant.
Railroad facilities were in such demand for the transfer of troops
and the movement of munitions to the front, that they could hardly be
spared for distant service in southeastern Europe; water carriage on
the Danube was preferred but was slow and ineffective.
There was a marked increase in the value of trade with neutral states,
of which three, Switzerland, Netherland and Denmark, were directly
adjacent, while Norway and Sweden were separated only by water which
lay outside the control of navies of the Entente. These states
accounted for about one-seventh (14%) of the total trade of Germany
in 1913, and took on a new importance when Germany was denied other
sources from which to supply her wants. The German government has not
supplied statistics by which to measure changes in trade during the
war, but they can be traced in the commercial statistics of the neutral
states, and are illustrated in the following table.
FOREIGN TRADE OF DENMARK, 1913-1919
(_Values in million crowns; crown equals $.27_)
=====+=========+=========+==========+==========+=========+==========
| Total | Imports | Total | Domestic | Total | Foreign
| imports | from | domestic |exports to| foreign |exports to
| | Germany | exports | Germany | exports | Germany
-----+---------+---------+----------+----------+---------+----------
1913 | 855 | 328 | 637 | 159 | 84 | 20
1914 | 795 | 265 | 780 | 275 | 87 | 26
1915 | 1,157 | 200 | 979 | 436 | 150 | 50
1916 | 1,357 | 265 | 1,177 | 653 | 132 | 38
1917 | 1,082 | 237 | 968 | 482 | 97 | 6
1918 | 946 | 316 | 710 | 307 | 48 | 1
1919 | 2,605 | 335 | 740 | 187 | 268 | 79
=====+=========+=========+==========+==========+=========+==========
A feature of the table which deserves particular attention is the
relatively small amount of foreign wares which reached Germany through
Denmark. Doubtless wares of this kind were smuggled across the border
in considerable quantities, and so do not appear in the statistics; but
the strictness with which England, in behalf of the Entente, regulated
the importation of these wares by the neutral countries, allowed no
large surplus for export to Germany, and strangled the overseas trade
of that country.
Germany imported from all these neutral countries foodstuffs,
especially meat and fats; from particular countries she imported iron
ore, metals, and special textiles for military purposes. Payment was
made largely in coal and iron products, for which the small states had
been used to rely on Germany, and which they sorely needed.
=758. Effects of the political revolution.=—Sections above enumerated
various losses which Germany suffered as a result of the war. To
appreciate the condition and prospects of the country after 1918
it is necessary to consider another element of weakness, of which
the importance cannot be questioned, even though it may be hard to
estimate. This is, namely, the political revolution which accompanied
the armistice.
All the faults of the military monarchy of the Hohenzollerns appeared
prominently in the outbreak and in the conduct of the war. The world
paid a tremendous price to be rid of it, and did not count the cost.
The evils inherent in the old political system should not be allowed,
however, to blind our eyes to some merits that it had, notably its
honest and efficient administration. They should not obscure the
important fact that the old system, however bad it might be, was that
to which the German people were used, and without which they were at a
loss. The monarchical system was deep-rooted in German life. Most of
the people accepted it with sincere conviction; the opposition to it,
as exemplified in the party of the Social Democrats, was perfunctory
rather than popular. In reliance on the monarchy the people had
been content to retain a passive attitude; they lacked a sense of
individual political responsibility, and lacked political initiative.
When, therefore, the people realized at last that their trust had been
misplaced, that the war which was to be over (so they had been assured
at its beginning) by Christmas, 1914, was never to be ended until they
had confessed to utter defeat, they swept away the old system but did
not know how to operate the political machine which they erected in
its place. Attempts at social revolution by the radical Spartacists,
infected by Russian doctrines, and at reaction by adherents of the
old military monarchy, rendered the new republic insecure at its
foundations; while the desperate conditions of life prevailing at the
close of the war shattered the former administrative organization and
rendered the new administration costly and ineffective.
=759. Peculiar importance to Germany of sound politics.=—A decline in
political efficiency will have a more serious effect on the productive
organization in Germany than it would have in other countries for two
reasons. (1). The state has taken a particularly active part in the
control of economic affairs. Its power over them was greatly extended
in the course of the war, and is still so great that much depends on
the wise exercise of this power. (2). The state will transmit to the
people by taxation the burden of paying reparations. This burden will
be and ought to be a heavy one. The minimum amount to be paid annually,
under the terms of the London Settlement of 1921, is variously
estimated by German economists to amount to 8 or 16 or 28 per cent of
the total real income of the country. The proportion, if we choose the
middle figure, does not seem unduly high. Many, perhaps most, American
families could sacrifice one-sixth of their income, and still retain
the essentials of health and happiness. Conditions were very different
in Germany at the close of the war. A considerable part of the people
was on a stage of living which may fairly be termed a minimum;
depression below that stage implied an actual loss in productive
efficiency. Under these conditions it was of peculiar importance that
the tax system should be just in principle, economical and impartial
in administration. No slight importance, therefore, attaches to the
fact that the government even in 1921, three years after the armistice,
was still unable to balance its budget, and was meeting its domestic
obligations by issuing more and more paper money, a tax which in the
long run is of all taxing devices the least effective and in its
immediate effects is the most iniquitous.
=760. Dismemberment of Austria-Hungary.=—Some time before the end of
the war, while the power of resistance in Germany still was strong,
Austria-Hungary gave evidence of distress. The state had been held
together by the military dominance of a minority, and as the end of the
war approached and the failure of the military party was evident, the
state dissolved into its component parts by a natural process quite
independent of any action of the Entente.