THE IMPOSSIBILITY OF CONFISCATION
Our present terminology of international politics an historical
survival--Wherein modern conditions differ from ancient--The
profound change effected by Division of Labor--The delicate
interdependence of international finance--Attila and the
Kaiser--What would happen if a German invader looted the Bank of
England--German trade dependent upon English credit--Confiscation
of an enemy's property an economic impossibility under modern
conditions--Intangibility of a community's wealth.
During the Victorian Jubilee procession an English beggar was heard to
say:
I own Australia, Canada, New Zealand, India, Burmah, and the
Islands of the Far Pacific; and I am starving for want of a
crust of bread. I am a citizen of the greatest Power of the
modern world, and all people should bow to my greatness. And
yesterday I cringed for alms to a negro savage, who repulsed me
with disgust.
What is the meaning of this?
The meaning is that, as very frequently happens in the history of ideas,
our terminology is a survival of conditions no longer existing, and our
mental conceptions follow at the tail of our vocabulary. International
politics are still dominated by terms applicable to conditions which the
processes of modern life have altogether abolished.
In the Roman times--indeed, in all the ancient world--it may have been
true that the conquest of a territory meant a tangible advantage to the
conqueror; it meant the exploitation of the conquered territory by the
conquering State itself, to the advantage of that State and its
citizens. It not infrequently meant the enslavement of the conquered
people and the acquisition of wealth in the form of slaves as a direct
result of the conquering war. In mediaeval times a war of conquest meant
at least immediate tangible booty in the shape of movable property,
actual gold and silver, land parcelled out among the chiefs of the
conquering nation, as it was at the Norman Conquest, and so forth.
At a later period conquest at least involved an advantage to the
reigning house of the conquering nation, and it was mainly the squabbles
of rival sovereigns for prestige and power which produced the wars of
many centuries.
At a still later period, civilization, as a whole--not necessarily the
conquering nation--gained (sometimes) by the conquest of savage peoples,
in that order was substituted for disorder. In the period of the
colonization of newly-discovered land, the preemption of territory by
one particular nation secured an advantage for the citizens of that
nation, in that its overflowing population found homes in conditions
preferable socially, or politically, to the conditions imposed by alien
nations. _But none of these considerations applies to the problem with
which we are dealing._ We are concerned with the case of fully civilized
rival nations in fully occupied territory or with civilizations so
firmly set that conquest could not sensibly modify their character, and
the fact of conquering such territory gives to the conqueror no material
advantage which he could not have had without conquest. And in these
conditions--the realities of the political world as we find it
to-day--"domination," or "predominance of armament," or the "command of
the sea," can do nothing for commerce and industry or general
well-being: England may build fifty _Dreadnoughts_ and not sell so much
as a penknife the more in consequence. She might conquer Germany
to-morrow, and she would find that she could not make a single
Englishman a shilling's worth the richer in consequence, the war
indemnity notwithstanding.
How have conditions so changed that terms which were applicable to the
ancient world--in one sense at least to the mediaeval world, and in
another sense still to the world of that political renaissance which
gave to Great Britain its Empire--are no longer applicable in _any_
sense to the conditions of the world as we find them to-day? How has it
become impossible for one nation to take by conquest the wealth of
another for the benefit of the people of the conqueror? How is it that
we are confronted by the absurdity (which the facts of the British
Empire go to prove) of the conquering people being able to exact from
conquered territory rather less than more advantage than it was able to
do before the conquest took place?
I am not at this stage going to pass in review all the factors that have
contributed to this change, because it will suffice for the
demonstration upon which I am now engaged to call attention to a
phenomenon which is the outcome of all those factors and which is
undeniable, and that is, the financial interdependence of the modern
world. But I will forecast here what belongs more properly to a later
stage of this work, and will give just a hint of the forces which are
the result mainly of one great fact--the division of labor intensified
by facility of communication.
When the division of labor was so little developed that every homestead
produced all that it needed, it mattered nothing if part of the
community was cut off from the world for weeks and months at a time. All
the neighbors of a village or homestead might be slain or harassed, and
no inconvenience resulted. But if to-day an English county is by a
general railroad strike cut off for so much as forty-eight hours from
the rest of the economic organism, we know that whole sections of its
population are threatened with famine. If in the time of the Danes,
England could by some magic have killed all foreigners, she would
presumably have been the better off. If she could do the same thing
to-day, half her population would starve to death. If on one side of the
frontier a community is, say, wheat-producing, and on the other
coal-producing, each is dependent for its very existence, on the fact of
the other being able to carry on its labor. The miner cannot in a week
set to and grow a crop of wheat; the farmer must wait for his wheat to
grow, and must meantime feed his family and dependents. The exchange
involved here must go on, and each party have fair expectation that he
will in due course be able to reap the fruits of his labor, or both must
starve; and that exchange, that expectation, is merely the expression in
its simplest form of commerce and credit; and the interdependence here
indicated has, by the countless developments of rapid communication,
reached such a condition of complexity that the interference with any
given operation affects not merely the parties directly involved, but
numberless others having at first sight no connection therewith.
The vital interdependence here indicated, cutting athwart frontiers, is
largely the work of the last forty years; and it has, during that time,
so developed as to have set up a financial interdependence of the
capitals of the world, so complex that disturbance in New York involves
financial and commercial disturbance in London, and, if sufficiently
grave, compels financiers of London to co-operate with those of New York
to put an end to the crisis, not as a matter of altruism, but as a
matter of commercial self-protection. The complexity of modern finance
makes New York dependent on London, London upon Paris, Paris upon
Berlin, to a greater degree than has ever yet been the case in history.
This interdependence is the result of the daily use of those
contrivances of civilization which date from yesterday--the rapid post,
the instantaneous dissemination of financial and commercial information
by means of telegraphy, and generally the incredible increase in the
rapidity of communication which has put the half-dozen chief capitals of
Christendom in closer contact financially, and has rendered them more
dependent the one upon the other than were the chief cities of Great
Britain less than a hundred years ago.
A well-known French authority, writing recently in a financial
publication, makes this reflection:
The very rapid development of industry has given rise to the
active intervention therein of finance, which has become its
_nervus rerum_, and has come to play a dominating role. Under
the influence of finance, industry is beginning to lose its
exclusively national character to take on a character more and
more international. The animosity of rival nationalities seems
to be in process of attenuation as the result of this
increasing international solidarity. This solidarity was
manifested in a striking fashion in the last industrial and
monetary crisis. This crisis, which appeared in its most
serious form in the United States and Germany, far from being
any profit to rival nations, has been injurious to them. The
nations competing with America and Germany, such as England and
France, have suffered only less than the countries directly
affected. It must not be forgotten that, quite apart from the
financial interests involved, directly or indirectly, in the
industry of other countries, every producing country is at one
and the same time, as well as being a competitor and a rival, a
client and a market. Financial and commercial solidarity is
increasing every day at the expense of commercial and
industrial competition. This was certainly one of the principal
causes which a year or two ago prevented the outbreak of war
between Germany and France _a propos_ of Morocco, and which led
to the understanding of Algeciras. There can be no doubt, for
those who have studied the question, that the influence of this
international economic solidarity is increasing despite
ourselves. It has not resulted from conscious action on the
part of any of us, and it certainly cannot be arrested by any
conscious action on our part.[11]
A fiery patriot sent to a London paper the following letter:
When the German army is looting the cellars of the Bank of
England, and carrying off the foundations of our whole national
fortune, perhaps the twaddlers who are now screaming about the
wastefulness of building four more _Dreadnoughts_ will
understand why sane men are regarding this opposition as
treasonable nonsense.
What would be the result of such an action on the part of a German army
in London? The first effect, of course, would be that, as the Bank of
England is the banker of all other banks, there would be a run on every
bank in England, and all would suspend payment. But London being the
clearing-house of the world, bills drawn thereon but held by foreigners
would not be met; they would be valueless; the loanable value of money
in other centres would be enormously raised, and instruments of credit
enormously depreciated; prices of all kinds of stocks would fall, and
holders would be threatened by ruin and insolvency. German finance would
represent a condition as chaotic as that of England. Whatever advantage
German credit might gain by holding England's gold it would certainly be
more than offset by the fact that it was the ruthless action of the
German Government that had produced the general catastrophe. A country
that could sack bank reserves would be a good one for foreign investors
to avoid: the essential of credit is confidence, and those who repudiate
it pay dearly for their action. The German Generalissimo in London might
be no more civilized than Attila himself, but he would soon find the
difference between himself and Attila. Attila, luckily for him, did not
have to worry about a bank rate and such-like complications; but the
German General, while trying to sack the Bank of England, would find
that his own balance in the Bank of Germany would have vanished into
thin air, and the value of even the best of his investments dwindled as
though by a miracle; and that for the sake of loot, amounting to a few
sovereigns apiece among his soldiery, he would have sacrificed the
greater part of his own personal fortune. It is as certain as anything
can be that, were the German army guilty of such economic vandalism,
there is no considerable institution in Germany that would escape grave
damage--a damage in credit and security so serious as to constitute a
loss immensely greater[12] than the value of the loot obtained. It is
not putting the case too strongly to say that for every pound taken from
the Bank of England German trade would pay many times over. The
influence of the whole finance of Germany would be brought to bear on
the German Government to put an end to a situation ruinous to German
trade, and German finance would only be saved from utter collapse by an
undertaking on the part of the German Government scrupulously to respect
private property, and especially bank reserves. It is true the German
Jingoes might wonder what they had made war for, and this elementary
lesson in international finance would do more than the greatness of the
British navy to cool their blood. For it is a fact in human nature that
men will fight more readily than they will pay, and that they will take
personal risks much more readily than they will disgorge money, or, for
that matter, earn it. "Man," in the language of Bacon, "loves danger
better than travail."
Events which are still fresh in the memory of business men show the
extraordinary interdependence of the modern financial world. A financial
crisis in New York sends up the English bank rate to 7 per cent., thus
involving the ruin of many English businesses which might otherwise have
weathered a difficult period. It thus happens that one section of the
financial world is, against its will, compelled to come to the rescue
of any other considerable section which may be in distress.
From a modern and delightfully lucid treatise on international
finance,[13] I take the following very suggestive passages:
Banking in all countries hangs together so closely that the
strength of the best may easily be that of the weakest if
scandal arises owing to the mistakes of the worst.... Just as a
man cycling down a crowded street depends for his life not only
on his skill, but more on the course of the traffic there....
Banks in Berlin were obliged, from motives of self-protection
(on the occasion of the Wall Street crisis), to let some of
their gold go to assuage the American craving for it.... If the
crisis became so severe that London had to restrict its
facilities in this respect, other centres, which habitually
keep balances in London which they regard as so much gold,
because a draft on London is as good as gold, would find
themselves very seriously inconvenienced; and it thus follows
that it is to the interest of all other centres which trade on
those facilities which London alone gives to take care that
London's task is not made too difficult. This is especially so
in the case of foreigners, who keep a balance in London which
is borrowed. In fact, London drew in the gold required for New
York from seventeen other countries....
Incidentally it may be mentioned in this connection that German commerce
is in a special sense interested in the maintenance of English credit.
The authority just quoted says:
It is even contended that the rapid expansion of German trade,
which pushed itself largely by its elasticity and adaptability
to the wishes of its customers, could never have been achieved
if it had not been assisted by the large credit furnished in
London.... No one can quarrel with the Germans for making use
of the credit we offered for the expansion of the German trade,
although their over-extension of credit facilities has had
results which fall on others besides themselves....
Let us hope that our German friends are duly grateful, and let
us avoid the mistake of supposing that we have done ourselves
any permanent harm by giving this assistance. It is to the
economic interests of humanity at large that production should
be stimulated, and the economic interest of humanity at large
is the interest of England, with its mighty world-wide trade.
Germany has quickened production with the help of English
credit, and so has every other economically civilized country
in the world. It is a fact that all of them, including our own
colonies, develop their resources with the help of British
capital and credit, and then do their utmost to keep out our
productions by means of tariffs, which make it appear to
superficial observers that England provides capital for the
destruction of its own business. But in practice the system
works quite otherwise, for all these countries that develop
their resources with our money aim at developing an export
trade and selling goods to us, and as they have not yet reached
the point of economic altruism at which they are prepared to
sell goods for nothing, the increase in their production means
an increasing demand for our commodities and our services. And
in the meantime the interest on our capital and credit, and the
profits of working the machinery of exchange, are a comfortable
addition to our national income.
But what is a further corollary of this situation? It is that Germany is
to-day in a larger sense than she ever was before England's debtor, and
that her industrial success is bound up with English financial security.
What would be the situation in Britain, therefore, on the morrow of a
conflict in which that country was successful?
I have seen mentioned the possibility of the conquest and annexation of
the free port of Hamburg by a victorious British fleet. Let us assume
that the British Government has done this, and is proceeding to turn the
annexed and confiscated property to account.
Now, the property was originally of two kinds: part was private
property, and part was German Government, or rather Hamburg Government,
property. The income of the latter was earmarked for the payment of
interest of certain Government stock, and the action of the British
Government, therefore, renders the stock all but valueless, and in the
case of the shares of the private companies entirely so. The paper
becomes unsaleable. But it is held in various forms--as collateral and
otherwise--by many important banking concerns, insurance companies, and
so on, and this sudden collapse of value shatters their solvency. Their
collapse not only involves many credit institutions in Germany, but, as
these in their turn are considerable debtors of London, English
institutions are also involved. London is also involved in another way.
As explained previously, many foreign concerns keep balances in London,
and the action of the British Government having precipitated a monetary
crisis in Germany, there is a run on London to withdraw all balances. In
a double sense London is feeling the pinch, and it would be a miracle if
already at this point the whole influence of British finance were not
thrown against the action of the British Government. Assume, however,
that the Government, making the best of a bad job, continues its
administration of the property, and proceeds to arrange for loans for
the purpose of putting it once more in good condition after the ravages
of war. The banks, however, finding that the original titles have
through the action of the British Government become waste paper, and
British financiers having already burned their fingers with that
particular class of property, withhold support, and money is only
procurable at extortionate rates of interest--so extortionate that it
becomes quite evident that as a Governmental enterprise the thing could
not be made to pay. An attempt is made to sell the property to British
and German concerns. But the same paralyzing sense of insecurity hangs
over the whole business. Neither German nor British financiers can
forget that the bonds and shares of this property have already been
turned into waste paper by the action of the British Government. The
British Government finds, in fact, that it can do nothing with the
financial world unless first it confirms the title of the original
owners to the property, and gives an assurance that titles to all
property throughout the conquered territory shall be respected. In other
words, confiscation has been a failure.
It would really be interesting to know how those who talk as though
confiscation were still an economic possibility would proceed to effect
it. As material property in the form of that booty which used to
constitute the spoils of victory in ancient times, the gold and silver
goblets, etc., would be quite inconsiderable, and as Britain cannot
carry away sections of Berlin and Hamburg, she could only annex the
paper tokens of wealth--the shares and bonds. But the value of those
tokens depends upon the reliance which can be placed upon the execution
of the contracts which they embody. The act of military confiscation
upsets all contracts, and the courts of the country from which contracts
derive their force would be paralyzed if judicial decisions were thrust
aside by the sword. The value of the stocks and shares would collapse,
and the credit of all those persons and institutions interested in such
property would also be shaken or shattered, and the whole credit system,
being thus at the mercy of alien governors only concerned to exact
tribute, would collapse like a house of cards. German finance and
industry would show a condition of panic and disorder beside which the
worst crises of Wall Street would pale into insignificance. Again, what
would be the inevitable result? The financial influence of London itself
would be thrown into the scale to prevent a panic in which London
financiers would be involved. In other words, British financiers would
exert their influence upon the British Government to stop the process of
confiscation.
But the intangibility of wealth can be shown in yet another fashion. I
once asked an English chartered accountant, very subject to attacks of
Germanophobia, how he supposed the Germans would profit by the invasion
of England, and he had a very simple programme. Admitting the
impossibility of sacking the Bank of England, they would reduce the
British population to practical slavery, and make them work for their
foreign taskmasters, as he put it, under the rifle and lash. He had it
all worked out in figures as to what the profit would be to the
conqueror. Very well, let us follow the process. The population of Great
Britain are not allowed to spend their income, or at least are only
allowed to spend a portion of it, on themselves. Their dietary is
reduced more or less to a slave dietary, and the bulk of what they earn
is to be taken by their "owners." But how is this income, which so
tempts the Germans, created--these dividends on the railroad shares, the
profits of the mills and mines and provision companies and amusement
concerns? The dividends are due to the fact that the population eat
heartily, clothe themselves well, travel on railroads, and go to
theatres and music-halls. If they are not allowed to do these things,
if, in other words, they cannot spend their money on these things, the
dividends disappear. If the German taskmasters are to take these
dividends, they must allow them to be earned. If they allow them to be
earned, they must let the population live as it lived before--spending
their income on themselves; but if they spend their income on
themselves, what is there, therefore, for the taskmasters? In other
words, consumption is a necessary factor of the whole thing. Cut out
consumption, and you cut out the profits. This glittering wealth, which
so tempted the invader, has disappeared. If this is not intangibility,
the word has no meaning. Speaking broadly and generally, the conqueror
in our day has before him two alternatives: to leave things alone, and
in order to do that he need not have left his shores; or to interfere by
confiscation in some form, in which case he dries up the source of the
profit which tempted him.
The economist may object that this does not cover the case of such
profit as "economic rent," and that dividends or profits being part of
exchange, a robber who obtains wealth without exchange can afford to
disregard them; or that the increased consumption of the dispossessed
English community would be made up by the increased consumption of the
"owning" Germans.
If the political control of economic operations were as simple a matter
as in our minds we generally make it, these objections would be sound.
As it is, none of them would in practice invalidate the general
proposition I have laid down. The division of labor in the modern world
is so complex--the simplest operation of foreign trade involving not two
nations merely, but many--that the mere military control of one party to
an operation where many are concerned could ensure neither shifting of
the consumption nor the monopolization of the profit within the limits
of the conquering group.
Here is a German manufacturer selling cinematograph machines to a
Glasgow suburb (which, incidentally, lives by selling tools to Argentine
ranchers, who live by selling wheat to Newcastle boiler-makers).
Assuming even that Germany could transfer the surplus spent in
cinematograph shows to Germany, what assurance has the German
manufacturer in question that the enriched Germans will want
cinematograph films? They may insist upon champagne and cigars, coffee
and Cognac, and the French, Cubans, and Brazilians, to whom this "loot"
eventually goes, may not buy their machinery from Germany at all, much
less from the particular German manufacturer, but in the United States
or Switzerland. The redistribution of the industrial roles might leave
German industry in the lurch, because at best the military power would
only be controlling one section of a complex operation, one party to it
out of many. When wealth was corn or cattle, the transference by
political or military force of the possessions of one community to
another may have been possible, although even then, or in a slightly
more developed period, we saw the Roman peasantry ruined by the slave
exploitation of foreign territory. How far this complexity of the
international division of labor tends to render futile the other
contrivances of conquest such as exclusive markets, tribute, money
indemnity, etc., succeeding chapters may help to show.