CHAPTER VIII

SOCIAL AND ECONOMIC ASPECTS OF THE WAR

"And the economic ravages of war are also much greater with civilised

nations than with barbarians. A war nowadays may have stern, fearful

consequences, especially through the destruction of the ingenious credit

system."--TREITSCHKE.

"Those who have fallen have consecrated deaths. They have taken their part

in the making of a new Europe, a new world. I can see signs of its coming

in the glare of the battlefield. The people will gain more by this struggle

in all lands than they comprehend at the present moment.... A great flood

of luxury and of sloth which had submerged the land is receding, and a new

Britain is appearing. We can see for the first time the fundamental things

that matter in life and that have been obscured from our vision by the

tropical growth of prosperity."--MR.D. LLOYD GEORGE.

It is obvious that a great war must profoundly disturb every side of the

national life of the peoples taking part in it, and that these disturbances

must react upon neutral States. The exact character and extent of these

changes, however, are by no means easy to understand, and the present

chapter does not pretend to offer an exhaustive treatment of them. It is

impossible to appreciate the full significance of the immediate social and

economic reactions of the war, whilst an attempt to state the ultimate

effects of the war leads us along the slippery paths of prophecy.

Nevertheless, we are not likely to grasp the importance of the various

phenomena which have followed so closely upon the heels of the declaration

of war, nor to adapt ourselves to the new situation which will arise out

of the war, unless we give our attention to the things which are happening

around us.

Unfortunately we can gain little guidance from the past. The South African

War inevitably disturbed the normal course of our industrial life, but it

involved us in conflict with a nation of relatively little general economic

importance; and so, costly and prolonged though it was, it bears no

comparison in its magnitude and in the character of its main issues to the

present war in Europe. The Crimean War of sixty years ago, though waged

between four European nations--Great Britain, France, Turkey, and

Russia--cost Great Britain much less in money than the Boer War; the issues

so far as this country was concerned were not so momentous; and industry

and commerce, though important, were not then nearly so highly developed

and complicated as they are now. The Napoleonic wars, though comparable to

the present war in fundamental importance, lasted for a generation, which

the war of to-day can hardly do; the effects of the wars with Napoleon were

complicated by the Industrial Revolution; the industrial system and the

commercial fabric erected on it were then only in process of formation and

the power of the people was small.

These differences enable us to see the new factors which have come into

play during the past century. The present war is being fought

under conditions which were non-existent during the struggle with

Napoleon--conditions which on the one hand add to the waste and loss and

misery of war, but on the other give rise to the hope that many of its evil

consequences may be averted. Firstly, industry and commerce are world-wide;

the remotest countries are bound together by economic ties; invisible

cords link the Belgian iron worker with the London docker and the Clyde

shipwright, the Californian fruit grower with the Malay tin miner and the

German dye worker. The economic effects of modern warfare, therefore,

reverberate throughout the whole world, and widespread dislocation ensues.

In the next place, the gigantic scale on which war between great powers is

conducted, though it tends to shorten the duration of wars, increases the

intensity of the shock to human society.

But besides these new material conditions, modern warfare is carried on

under the eyes of more enlightened peoples than in the past. The struggle

which is now being pursued is the first great war watched by a conscious or

at any rate partly conscious democracy. It is the first modern war waged

(except in our own case) by national armies constituting practically the

entire fit male population. The masses of the people have in most civilised

countries some measure of political power. And though to the elector

diplomacy and the conduct of foreign affairs are a closed book, war once

declared is war by the people; and their voice must be heard in matters

connected with it and arising out of it. Then, further, in the past the

aftermath of war was in many ways as horrible as war itself, whilst the

period during war witnessed an enormous amount of privation and suffering

among non-combatants almost as ghastly as that of the battlefield. This was

due not so much to inaction resulting from callousness as to unwise action

and ignorance. During the past century political science and economic

inquiry have made vast strides, and consequently the injurious social

effects of warfare may be minimised, though not averted; and a considerable

body of public opinion, far more enlightened than during any previous

European war, is almost certain to exercise some pressure in the direction

of wise and far-reaching action both during the war and after it is ended.

These considerations must be borne in mind in discussing both the present

position and possible future developments.

It is clear that four great European Powers and some smaller ones cannot

engage in war without shaking the fabric of European civilisation to its

foundations. The tramp of fifteen million armed men is the greatest social

and economic fact of the present day, and indeed of the present generation.

These millions of combatants have to be clothed, fed, armed, transported,

and tended in health and in sickness; they are non-producers for the time,

consuming in large quantities the staple commodities of life, and calling

in addition for all the paraphernalia of war; sooner or later, they will

desire to return to the plough and the mine, the factory and the railroad.

These two facts alone are of tremendous importance. But besides this,

the activity of those who stay at home is called into play in a thousand

different ways, and economic and social life leave their well-trodden paths

in answer to the imperious call of national necessity. Social institutions

of all kinds are inevitably led into new fields of thought and action, and

States are driven to untried experiments in communal activity. The usual

channels of thought dry up, the flood of new ideas and of old ideas

throbbing with a new life rushes on unconfined, here in the shallows, there

in the deeps, presently to overflow into the old channels, cleansing their

beds and giving them a new direction, and linking up in fruitful union but

remotely connected streams. When fighting ceases and there comes the calm

of peace, society will tend to revert to its normal functions, based on

peace; but the society of yesterday can never return. Social life cannot be

the same as it was before, not merely because those activities called forth

by the war may persist in some form, but because of the growth of new ideas

under the stimulus of the war. The struggle will almost certainly set in

progress trains of thought not only connected with questions of war and

peace, but with the wider questions of human destiny.

Coming to a closer view of the question, we must distinguish between the

immediate effects of the war which are already in evidence and the ultimate

effects which will but begin to unfold themselves after the return of

peace. Some of the latter results will grow out of the immediate effects;

others will be more directly due to the events following on the conclusion

of the war. It will also be advisable to distinguish between the economic

reactions of the war, and the broader social consequences. At such an

early stage it would be presumptuous and tempting Providence to attempt to

forecast the future in any detail or to try to trace the play and interplay

of the various forces going towards the making of the future. This chapter

will be concerned with broad tentative generalisations on quite simple

lines.

One of the things which struck the intelligent working man during the early

days of the war was the rapidity with which the State acted in the face of

the crisis. In next to no time large measures of State control and

action were put successfully into operation and those who had advocated

co-operative action in the past with but indifferent success were amazed

at the swiftness with which the nation can act in the hour of need. The

drastic action of the State cannot be better illustrated than by the steps

which were taken to meet the sudden commercial deadlock which the war

precipitated. A discussion of these financial measures will at the same

time enable us to understand how, through credit, war strikes at the

industry and trade of the modern world.

A. STATE ACTION IN INDUSTRY AND COMMERCE

The Austrian ultimatum to Servia was followed by the paralysis of the

world's international system of finance. Before the end of July many

important stock exchanges were closed, and by the 31st the London Stock

Exchange for the first time in its history was also compelled to close. The

remittance market collapsed and with it the fabric of international trade.

Widespread bankruptcy and ruin seemed imminent; so serious did the state of

affairs become that moratoria were declared not only in several European

countries but in parts of America, and in many continental countries specie

payments were suspended. In a word, the possibility of war had thrown the

delicately poised credit system of the commercial world out of gear; the

declaration of war had brought it to a standstill. Into an explanation of

its working it is not possible to enter; it is sufficient for our immediate

purpose to realise that the foreign exchange machinery by which the supply

of commodities from other countries becomes practicable on a large scale

was for a time altogether unworkable. London as the financial centre of the

world has immense sums owing to it and in its turn owes large sums. The

ultimate effect of the collapse of credit, which depends on confidence, was

that London could neither receive nor make payment. The big finance houses,

who had "accepted" bills of exchange and rendered themselves liable to meet

the payments for the things they represented, on the understanding that the

means to pay them were to be promptly despatched, found that these means

were not forthcoming; their own resources were far from sufficient to meet

these payments. Utter ruin stared them in the face. At home also a run on

the banks seemed probable, which would have meant ruin to large numbers of

people. In this grave crisis the State acted with commendable promptness.

The bank holiday was extended; State notes for 10s. and £1 were issued; a

moratorium was declared, legalising the postponement of the due payment of

debts, with certain exceptions; the Bank of England under a guarantee from

the Government that the latter would meet the loss, began discounting,

or buying for cash, approved bills of exchange accepted before war was

declared, many of which are hardly likely to be met by the people liable

for payment. These steps were taken swiftly and boldly and allayed the

panic. But more was needed; such measures were not in themselves sufficient

to put the machinery of foreign exchange into operation again and the

suspension of this method of settling international indebtedness was having

serious effects. To carry on international trade, and to supply ourselves

with the produce on which the very existence of the community depends,

without the machinery, is a thousand times more difficult than to conduct

our home trade by means of direct barter. Without going into technical

details, it may be said that the purchase of bills by the Bank of England,

whilst relieving the last holder from loss, did not extinguish the

liability of persons whose names had appeared on the bills as acceptors,

endorsers and drawers. This was true of traders and commercial people not

only in this country but also in other parts of the world. In the face of

these liabilities, in most cases unexpected, it was hardly likely that

they would increase their liabilities under new bills. Consequently the

remittances coming to London shrank to next to nothing. As bills of

exchange--or their equivalent--are the means by which both importers

and exporters get paid for their goods, the difficulty of getting paid

naturally began to have a serious effect on trade. As the figures of

foreign trade during August show, cargoes were being held up. It was clear,

therefore, that if this country were to continue to receive supplies of

corn and meat, of cotton and wool, of hides and timber, something further

must be done. The question the Government had to decide was what steps

could be taken to safeguard the food of the people, and to avoid a crushing

volume of unemployment through the lack of the raw materials of industry.

The produce was there; what was needed was to start the flow of the

particular kind of currency--"credit money"--which would expedite exchange.

The course taken by the State was to advance money to the large bill

bankers or "accepting houses" in London to allow of the due payment of the

enormous number of bills falling due in the three months succeeding the

outbreak of war. The audacity of the step will be understood when it is

realised that probably something like £300,000,000 of bills fall due over a

period of three months.[1] The necessary money was lent without security,

the Government promising not to demand repayment until twelve months after

the end of the war. A proportion of this advance will be in the nature of

a loss, though how much it is quite impossible to say. By this measure,

in the event of the bills not being met by those who have promised to pay

them--the acceptors--the liability which would ordinarily have fallen upon

the drawers and endorsers through whose hands the bills had passed has been

removed. The State has advanced to the commercial community a huge sum of

money, risking the total loss of some part of it, in order to set in motion

the machinery of international exchange. Further steps, however, were

taken. The general moratorium expired on November 4. Useful as it had

been, it still left many traders in financial difficulties because of

the impossibility of collecting debts owing to them in enemy and other

countries. The Government, therefore, appointed a committee representing

the Treasury, the Bank of England, the Joint Stock Banks, and the

Association of Chambers of Commerce of the United Kingdom to authorise

advances in approved cases to British traders carrying on an export

business in respect of debts outstanding in foreign countries and colonies,

including unpaid foreign and colonial accepted bills which cannot be

collected for the time being. It is safe to say that no Government ever

took such gigantic measures to meet a great crisis.[2] The Prime Minister,

speaking at the Guildhall on November 9, 1914, summarised as follows the

effects of the steps taken: "The foreign exchanges are working in the case

of most countries quite satisfactorily, and the gold reserves at the Bank

of England, which were 40 millions on July 22, and which had fallen on

August 7 to 27 millions, now stand at the unprecedented figure of 69-1/2

millions. The central gold reserve of the country after three months of the

war amounts to £80,000,000, almost exactly twice the amount at which it

stood at the beginning of the crisis. The bank rate, which rose, as you

know, to 10 per cent, has now come down to 5, a figure, I think, not in

excess of that at which it stood this time last year. Food prices have been

kept at a fairly normal level, and though trade has been curtailed in some

directions, unemployment has been rather below than above the average."

[Footnote 1: Mr. J.M. Keynes (_Economic Journal,_ Sept. 1914) estimates the

aggregate value of outstanding bills in London at £350,000,000.]

[Footnote 2: In addition to these various financial measures, the State has

lent Belgium £10,000,000 and the Union of South Africa £7,000,000, whilst

it has also guaranteed £5,000,000 of the new Egyptian cotton loan.]

But this is by no means the only example of State action. The Government

has established temporarily a State-aided system of marine insurance, by

undertaking 80 per cent of the war risk, in order to encourage overseas

trade. It has given substantial aid to the joint-stock banks "for the sole

purpose that they might be fit to aid in every way possible the country's

trade and finance."[1] It made arrangements for the direct purchase of

forage and vegetables, etc., from farmers.[2] It took over the control of

the railways. When, owing to panic, there was a rush for the purchase of

food-stuffs, which was used to force up prices unduly, the Government

intervened to prevent exorbitant charges. Particularly interesting is the

action of the State regarding sugar, two-thirds of our supply of which

comes from Germany and Austria. In the days immediately following the

declaration of war wholesale prices were trebled. The Government,

therefore, decided to take upon itself the task of ensuring an adequate

supply of sugar, and a Royal Commission was appointed. The leading refiners

were approached and an arrangement was made with the whole body of refiners

that they should stand aside from the market for raw sugars, leaving it

free for the operations of the Government. The Royal Commission pledged the

refiners to buy their sugar from the Commission, _i.e._ from the State;

sugar was to be offered to them at a fixed price, and the refiners were to

sell the refined product to the dealers also at a fixed price sufficient to

yield the refiners a fair profit on manufacture. As a result of the corner,

a big rise in the price of sugar, which is not only an important domestic

commodity but the raw material of several industries, was averted. This

merits the description given of it in _The Nation_--"a really dashing

experiment in State Socialism." [3] On the other hand, it has done nothing

to increase the world's supply of sugar, but has merely commandeered a

part of the existing stock. The aid of the State has been invoked in other

directions. Already the Government has assisted experimental cultivation of

beet in this country. The suggestion has been made that the State should

build two beet-sugar factories, which would cost about £200,000 each; in

this way it is suggested that our home supply of sugar would in the future

be assured, and that agriculture would benefit considerably.[4]

[Footnote 1: _Round Table_, Sept. 1914, p. 705.]

[Footnote 2: This was done through the Board of Agriculture for the War

Office. On the other hand, in the purchase of clothing, boots, blankets,

etc., the War Office approached the producers directly instead of through

the Board of Trade.]

[Footnote 3: It was reported in the Press on October 8, 1914, that the Home

Secretary had purchased 900,000 tons of sugar at about £20 per ton, the

transaction involving an outlay of about £18,000,000.]

[Footnote 4: See an article by Mr. Robertson Scott in _The Nineteenth

Century_, October 1914.]

Sir Charles Macara has put forward a scheme of State aid for the cotton

industry. Owing to the war, a third of the total cotton crop (usually taken

by the continental countries) was thrown on the market. Prices naturally

fell, and there was a danger that the cotton planters might not be able to

pay the debts they had contracted to enable them to grow their crops, in

which case there would be a likelihood of the land being used for other

saleable commodities, and the efforts which have been made in the past to

increase the cotton crop would be nullified. In the meantime, the surplus

cotton on the market created an uncertainty regarding prices, and buying

came to a standstill, with the result that the position of the industry as

a whole became very critical. The suggestion of Sir Charles Macara is

that the Governments of this country and the United States, acting in

conjunction, should take the temporarily unsaleable surplus of raw cotton

off the market and store it for use in years when the crop is short. In

other words, it is proposed to establish a permanent national cotton

reserve. It is estimated that the cost of the scheme would mean an outlay

of sixty to seventy millions sterling. If the plan were put into operation,

however, it is claimed that it would restore confidence, prevent the

wholesale stoppage of mills, and at the same time establish a cotton

reserve to counteract the fluctuations of crops in the future.[1] These

matters need but to be stated as examples of the remarkable adaptability

of the State and the possibility of drastic action under the pressure of

imperative needs.[2]

[Footnote 1: It should be pointed out that the serious condition of the

cotton industry is not due to the war. The overstocking of the Eastern and

Indian markets during the trade boom of 1913, together with the financial

crisis in India last year, has reduced the demand for cotton goods. The

war has merely emphasised a depression which had already fallen on the

industry. Sir Charles Macara's scheme, whilst it may be desirable on other

grounds, cannot compensate for the shrinkage in the demand for Lancashire

products. The Government, it is interesting to note, have commissioned

certain firms in Alexandria "to buy cotton extensively from small

proprietors at a reasonable rate, on Government account, to be stored until

the arrival of more prosperous times." (Press Association Telegram, _Daily

Press,_ Nov. 2, 1914).]

[Footnote 2: The voluntary gifts of different parts of the Empire should

not be overlooked. Besides these other steps have been taken. The

Australian Government, for example, in order to induce farmers to extend

the area of cultivation, has guaranteed "a fixed minimum price of 4s." for

all wheat grown on the newly cultivated land. (Reuter's Correspondent,

_Daily Press_, Oct. 27, 1914).]

The course of events has shown the temporary collapse of economic

individualism in the face of the European crisis. The economic system,

which works during times of peace, could not meet successfully the crushing

effects of a European war. It lacked not only adequate resources but the

necessary power of corporate action and co-ordination. Immediate State

action seemed to be the only way to avert disaster. In a month, Britain

came nearer than ever before to being a co-operative commonwealth. It has

been realised that industry and commerce are not primarily intended as a

field for exploitation and profit, but are essential national services in

as true a sense as the army and navy. The complexity of the modern economic

world and the large individual gains which have been made in it have

obscured the fact that the economic structure exists to serve the needs of

the community. It was recognised by the Government, at any rate to some

extent, that the success of our armies in the field would be nullified if,

in the economic sphere, the production of commodities and services were

seriously diminished and if their interchange were hampered in a large

degree. People have felt that the spinner, the miner, the weaver, the

machinist, are all by following their occupations performing a valuable

service to the community. How far this attitude of mind will persist after

the war, when normal conditions in industry and commerce gradually return,

remains to be seen.

B. IMMEDIATE SOCIAL AND ECONOMIC EFFECTS OF THE WAR

1. _Foreign Trade_.--The effects of the war on industry and commerce will

be complicated and far reaching. The British and German Empires together

transact about two-fifths of the international trade of the world, the

British Empire doing over a quarter and Germany almost exactly an eighth.

Between them they own over half the merchant shipping of the world. A war

in which they are both engaged, therefore, must have serious consequences

not only to these countries themselves but to the countries with whom they

carry on business relations, and through them, in a lesser degree, to all

other commercial countries. But this is not all: France has a foreign trade

amounting to £615,000,000 a year; Belgium's is valued at £326,000,000,

Russia's at £275,000,000, and Austria-Hungary's at £256,000,000. Besides

a gigantic foreign trade there is a domestic trade, which is on a larger

scale than the external trade of these countries. Let us consider in more

detail the case of Germany. Half her foreign trade is transacted with the

nations now engaged in the great war. The trade of Britain, Russia, and

France with the German Empire is now at a standstill, except possibly for

a very small amount transacted via neutral countries; her trade with

Austria-Hungary must seriously decline. Moreover, her imports from neutral

countries and her exports to them have dwindled very considerably, and must

remain small as long as British naval supremacy continues. More than one

half of Germany's total imports are raw materials for manufactures, about

two-thirds of her exports being manufactured goods. Assuming that she

continues o conduct foreign trade through Norway and Sweden, Denmark,

Holland, Switzerland, and Austria-Hungary, the volume will be small, and

even if her whole trade with neutral countries could be maintained she

would still be without the trade of her enemies. For example, in 1913 this

country sold goods to the value of £40,000,000 to Germany and purchased

from her goods to the value of £80,000,000.[1]

[Footnote 1: The following list indicates some of the chief articles of

trade between the two countries:

German Imports into the United | British Exports to Germany, 1912

Kingdom, 1912. |

|

£ million. | £ million.

Sugar 6·2 | Cottons and yarn 8·3

Cottons and yarn 5·9 | Woollens and yarn 6·6

Iron and steel and | Coal, coke, etc. 4·4

manufactures 5·7 | Herrings 2·4

Woollens and yarn 2·6 | Ironwork 2·1

Machinery 2·4 | Machinery 2·1

Glass and Manufactures 1·1 |

It is not true, as Dr. R.G. Usher says, that Germany is "literally

self-sufficing" (_Pan Germanism_, p. 65).]

In Great Britain, economic activity has been developed on the assumption

of continued peace. In Germany, however, though there were those who

would "base all economic policy on an imaginary permanent peace,"[1] the

Government has had in view the possibility of war. "Every conscientious

Government," writes von Bülow, "seeks to avoid [war] so long as the honour

and vital interests of the nation permit of so doing. But every State

department should be organised as if war were going to break out tomorrow.

This applies to economic policy as well."[2] It is with this idea in mind

that the German Government has striven to maintain the importance of

agriculture. "Economic policy must foster peaceful development; but it must

keep in view the possibility of war, and, for this reason above all, must

be agrarian in the best sense of the word."[3] It is held that in the

event of war the home market in Germany would be an important factor in

maintaining intact the fabric of industry. "The home market," we are told,

"is ... of very great importance. It would be called upon to replace the

foreign market if in time of war our national frontiers should be wholly

or partly closed. But in the home market agriculture is by far the most

important customer of industry; only if agriculture is able to buy, if

it earns enough itself to enable others to earn too, will it be able, in

critical times, to consume a part of the products which cannot be disposed

of abroad. The old proverb, "If the peasant has money then every one else

has too," is literally true, as soon as industry is forced, to a greater

extent than is necessary in times of peace, to find its customers at

home."[4] "As in time of war industry is dependent on the buying power of

agriculture, the productive power of agriculture is a vital question for

the nation."[5]

[Footnote 1: _Imperial Germany_, by Prince Bernhard von Bülow, p. 221.]

[Footnote 2: _Ibid._ p. 220. See also Bernhardi, _Germany and the Next

War_, pp. 157-159 and 260 _et seq._]

[Footnote 3: _Imperial Germany_, pp. 220-221.]

[Footnote 4: _Imperial Germany_, p. 219.]

[Footnote 5: _Ibid_. p. 221.]

The importance of agriculture in Germany is undoubtedly great; it may be,

as Bülow says, that "the value of its produce is equal to that of the

produce of industry, or even surpasses it."[1] But if the demand for it

were to shrink because the industrial population lost their work through

a shortage of raw materials or in any other way, agriculture would also

suffer. The population at present engaged in agriculture will in times of

peace buy up to the practical limits of its purchasing power, and is hardly

likely, especially in the early stages of a war, to "consume a part of the

products which cannot be disposed of abroad," except in so far as they buy

German goods (the production of which the declaration of the war may have

seriously impeded), instead of commodities produced abroad. But it is

questionable whether they will be able to maintain their aggregate

purchasing power. Prince Bülow ignores the fact that production for the

home market will be hampered by the possible non-arrival of foreign raw

materials in war time; yet Germany imported raw cotton to the value of over

£29,000,000 in 1913. Her foreign purchases of hides and skins amounted to

over £22,500,000 and of wool to £10,000,000. With even a partial suspension

of imports of these and similar commodities, industries dependent on

foreign products must be severely hit; unemployment must increase and the

purchasing power of the urban workers diminish. The agricultural community

must suffer also, and in all likelihood will not be able to take their

normal share of goods off the market. It is true, of course, that Germany

buys large quantities of food-stuffs from abroad, and that home produce

will be required to take their place; but they cannot be grown immediately;

in the interval, industrial disorganisation must result, and before

agriculture can begin to profit by the lack of foreign supplies the harm

will have been done. Moreover, agriculture must be impeded, as, owing to

the size of the German Empire, the transport of troops must seriously

interfere with the conveyance of goods to the larger centres of population.

It would seem, therefore, that the policy of developing German agriculture

at the same time that her dependence on foreign commerce is increasing is

not an effective reply to the British Navy. The position in Germany then is

that she must for the present be satisfied with a much smaller amount of

imported food-stuffs and of the raw materials of industry; and that in any

case, even if the industrial machine could be kept at work, there will be

practically no outlet for goods abroad. Commercially isolated, she must,

therefore, suffer an industrial and commercial collapse. On the other hand,

the total volume of unemployment, which would have been enormous during

the first weeks of the war, has of course been considerably reduced by the

withdrawal of great masses of men to join the colours, and by the stimulus

which the war has given to industries supplying the needs of the German

armies. Then also Rotterdam, through which Germany does a great deal of

its trade, remains open, whilst a fraction of her foreign trade is being

carried on through Denmark, Scandinavia, and Switzerland. Nevertheless, the

amount of economic distress within a very few weeks after the outbreak of

war, especially in the large towns, was considerable even on the showing of

German newspapers.[2] The amount of distress was increased and intensified

by steadily rising prices. As the rise has taken place not only in

commodities of which there is a shortage, but in others such as sugar, it

may be concluded that it is due largely to the inflation of the currency,

owing to the adoption of the fatally easy expedient of issuing large masses

of paper money.

[Footnote 1: _Ibid_. p. 217.]

[Footnote 2: "Let us imagine," says Bernhardi, "the endless misery which

a protracted stoppage or definite destruction of our oversea trade would

bring upon the whole nation, and in particular on the masses of the

industrial classes who live on our export trade" _(Germany and the Next

War,_ p. 232).

According to _The Times_ (Sept. 18, 1914) the German nautical newspaper

_Hansa_ on Sept. 12 admitted that England had captured many millions of

marks worth of German shipping, and that "the cessation of business will

cost our shipowners many millions more." "It will hold up the development

of our shipping trade for years." The _Neue Freie Presse_ of Vienna on

Sept. 11 admitted that the activity of the exporters in Germany had been

crippled. According to _The Times_ (Oct. 7), the German Socialist paper

_Vorwaerts_, stated that "the state of want has reached an alarming extent,

even though we are now only at the beginning of the catastrophe which has

befallen the people of Europe." "Masses of unemployment grow every month."]

Austria-Hungary, which is not an advanced industrial country, will not

suffer quite so keenly, though even here the German newspapers admit that

trade has come almost to a standstill.[1] In the western theatre of war the

fighting has centred largely round the Franco-Belgian Coalfield, on or near

which stand on both sides of the frontier many industrial towns. Lille,

Nancy, Epinal, Belfort, Reims, Amiens, and Valenciennes on one side, and

Liège and Charleroi on the other, are all of economic importance. Even

apart from the actual destruction due to the war which in some of these

towns has been serious, the mere presence of the contending armies will

have a more or less paralysing effect on industrial and commercial life in

both France and Belgium.[2] The position in Belgium, however, is much more

serious than in France. It may best be described in the words of Professor

Sarolea, written after a visit of five weeks to his native country. "Other

belligerent nations may suffer from unemployment. In Belgium alone there

has been created a whole nation of unemployed. In other countries trade

and industry are dislocated. In Belgium they have come to a complete

standstill. Out of a population of eight millions, seven millions are under

the heel of the invader. Railwaymen are starving, for railways have ceased

to work. Office clerks are starving, for banks and offices are closed.

Public officials are starving, for no salaries can be paid.... Journalists

and printers are starving, for newspapers and books have ceased to appear.

Mill hands and coal miners and ironworkers are starving, for mills and

coal mines and iron works are closed."[3] Bad as this is, the condition of

affairs is somewhat relieved so far as France and Belgium are concerned by

the fact that the seas are open to them, but even then we must add these

areas to Germany and Austria-Hungary as regions where industry and trade

are at the best severely hampered, regions all of which are important

factors in the markets of Europe, and whose commercial paralysis will

re-echo through the whole commercial world.

[Footnote 1: "The shortage of raw materials, notably cotton, wool, jute,

and petroleum, is greatly restricting production in many branches of

manufacture in Austria-Hungary. According to official estimates, the

supplies of some of the most necessary raw products are barely sufficient

for two more months. Factories are closing down, and the number of

unemployed is steadily increasing" (Reuter's telegram from Venice, Oct. 21,

1914).]

[Footnote 2: For example, the probable number of French factories in a

position to produce sugar in 1914-15, will be 82 or 83 as against 206

during the year 1913-14 _(Times_, Nov. 3, 1914).]

[Footnote 3: Letter to the Press dated Sept. 12, 1914. Mr. J.H. Whitehouse,

M.P., who visited Belgium says, "The whole life of the nation has been

arrested."]

The most fortunately situated combatants in Europe are Russia and Great

Britain. The former, covering half the area of Europe, has almost limitless

resources, and is much more easily capable of being self-supporting than

any of the other Great Powers engaged in the war. This country still

has the seas open to it.[1] The State subsidy to marine insurance has

encouraged overseas trade, and the re-establishment of the remittance

market has removed an obstacle to the flow of exports and imports. Still,

it is true that the financial world cannot recover all at once. "It is like

a man whose nervous system has been shattered by a great shock. Tonics and

stimulants may save him from complete collapse, but real recovery is a

matter of months and even years."[2] Further, the work hitherto done and

the services performed for Germany and Austria are now no longer called

for; our allies in the west of Europe are suffering acutely from the

immediate economic effects of the war and the large destruction of capital;

our neutral customers have not escaped scot-free. It would seem, therefore,

that in spite of the British command of the seas, production must

necessarily be seriously curtailed and that, therefore, the volume

of unemployment must be very considerable. On the other hand, though

production in France, Belgium and Russia may diminish in many directions,

what goods they do produce for export will find no market in Germany and

Austria-Hungary and a proportion of them will find their way to this

country. Such commodities will not only be valuable as food and raw

material for industry, but will set up a flow of British goods in payment

for them. Further, the production of commodities needed for the prosecution

of the war, will increase the volume of employment. Goods of all kinds are

required not only for the British armies but for the Allies generally. The

manner and extent to which these factors have influenced unemployment will

be considered presently.

[Footnote 1: According to an Admiralty statement, corrected up to Sept. 23,

1914, 12 British ships had been sunk by German cruisers, 8 had been sunk

by mines, whilst a few fishing boats had been destroyed. British ships

detained and captured by Germany numbered 86, with a total tonnage of

229,000. On the other hand, 387 German vessels had been detained or

captured, the total tonnage being 1,140,000. According to _The Times_ (Oct.

9, 1914), up to date 1.6 per cent of the tonnage registered in the United

Kingdom had been lost. The figures for Germany and Austria were 18 and 13

per cent respectively. The Committee which prepared the State War Insurance

Scheme estimated that the loss during the first six months of the war might

be about 10 per cent of all British steamers employed in foreign trade.]

[Footnote 2: _Round Table_, Sept. 1914, p. 704.]

Now the demand for the goods hitherto supplied by Germany to her foreign

customers, though abated, will still continue. As we have seen, she cannot

for the present supply them. By whom will she be superseded?[1] The

Government of this country early in the war took steps to co-operate with

British traders in an attempt to obtain some share of this trade, and the

United States also strove to make the fullest use of the opportunity. In

this country goods previously imported from Germany will, if still needed,

either be bought from the next cheapest importer or produced at home.

Commodities which we have in the past produced for German consumption are

not now required from us. If they continue to be made, it must be for other

countries. In other words, whether the volume of British foreign trade

remains the same or not, a proportion of it will be diverted into new

channels during the progress of the war. In a less degree, the trade of

other states will be deflected from its accustomed channels. Beyond this,

special influences will be felt in the case of certain new countries, as

for example Canada. "Canada's annual balance of trade is probably about

£60,000,000 against her: £30,000,000 being the excess of her trade imports

over her trade exports and the remaining £30,000,000 representing her

annual payment on money borrowed. She has balanced her account hitherto by

borrowing very large sums of money. Now she will be unable to do that any

longer. Nor will she at present, at any rate, obtain the immigrants on

which she is counting to enable her to pay her interest. She cannot redeem

the balance due by the export of gold. The burden would be too great in any

case, and moreover she has suspended specie payments. A part of the balance

due may be covered by the higher value of her exports, such as wheat. The

remainder she can only meet either by increasing her exports or by

reducing her imports. The latter she has already begun to do."[2] This new

readjustment may be accompanied by great economic loss; in any case the

dislocation will be harmful for the time, not only to the new countries,

but to the countries with whom they trade. It is clear that foreign trade

generally will during the war gradually be readjusted to the new conditions

of the times. To what extent the various streams of the world's trade will

be directed into new channels it is impossible to say; the readjustment

will be partly temporary, and partly permanent.[3] This redistribution of

production, if it leads to production under less favourable conditions than

before, will tend to raise prices, and thereby probably diminish the

power to buy other commodities. If it leads to the substitution of a well

organised and well paid industry by an industry of a less skilled kind,

there will be in effect a net lowering of wages. The widespread effects of

the war on industry and commerce must, therefore, have a profound effect on

the whole of the economic world.

[Footnote 1: Towards the end of August, the tin-plate and steel-sheet trade

in this country which had suffered badly on the outbreak of war revived,

and "several mills were reopened, owing to the obtaining of orders which

formerly went to Germany" (_Board of Trade Labour Gazette_, Sept. 1914, p.

330).]

[Footnote 2: _Round Table_, Sept. 1914, pp. 708-9.]

[Footnote 3: This, of course, does not mean that Great Britain will

"capture" German trade and increase its foreign commerce by the amount of

its value.]

2. _Unemployment and Short Time_.--We are now able to understand how the

war has affected the individual workman. As we have seen, the panic caused

by the outbreak of war and the collapse of the remittance market meant

in many industries the holding up of production and the stoppage of the

workman's wages. If it had not been possible to restart the machinery of

exchange, starvation would have walked through the land, and the industries

dependent on foreign raw material would have closed down altogether. As it

was, the inevitable dislocation increased the amount of unemployment.[1]

Whereas the trade union percentage[2] of unemployment amongst their members

was only 2.8 at the end of July, it had reached 7.1 by the end of August.

This figure, however, is considerably below the percentage of unemployed

during many periods of trade depression; the average for the whole of 1908

was 7.8 and for 1909, 7.7, whilst during the month of March 1912 it rose to

11.3 as a result of the coal strike.

[Footnote 1: Note that unemployment prior to the war was showing a tendency

to increase.]

[Footnote 2: It should be observed that these figures relate only to about

a million trade unionists, no non-unionists being included. Further, they

ignore short time.]

The volume of unemployment during August varied considerably from trade to

trade. In the cotton industry, which, however, appeared to be in for a bad

time anyhow, 17.7 per cent of the trade union members were returned as

unemployed during August 1914, whilst in coal mining the percentage was

1.3. As compared with the previous month of July, there was a general

decline in all industries except shipbuilding, which benefited by increased

activity on Government work. The contraction in the volume of employment

was specially marked in the case of tin-plate works and in the textile,

furnishing and woodworking, and pottery trades. Again, in the trades where

the Government scheme of compulsory unemployment insurance applies, the

volume of unemployment at the end of July was 3.6 per cent, but at the end

of August it had reached 6.2 per cent or double the volume recorded in

August 1913.[1] Beyond this, there was during the month of August, an

enormous amount of short time; in several industries for which particulars

are available, thousands of workpeople were working half-time or less.[2]

The rise which took place in the price of certain food-stuffs especially

during the first part of August intensified the evil by reducing "real"

wages.

[Footnote 1: The gradual increase during the month may be observed from the

weekly returns:--Aug. 7, 4.0 per cent; Aug. 14, 5.1 per cent; Aug. 21, 5.8

per cent; Aug. 28, 6.2 per cent.]

[Footnote 2: The Board of Trade receives monthly reports from employers and

others in different industries. These returns, though they do not cover

the whole of the industries, are sufficiently reliable to indicate the

widespread character of short time. During August 1914, in slate quarries

and china clay works, "there was a good deal of short time and some

unemployment in consequence of the war"; in tin-plate and sheet-steel

works, "short time was very general. In some cases discharges were obviated

by the sharing of work at the mills remaining open. The decrease in

employment is to be attributed to the effects of the war, and in particular

to the general restriction of the European market"; some branches of the

engineering trade, particularly agricultural and textile machinery, and the

motor car and cycle trades, were "disorganised by the war; many discharges

took place and a large amount of short time was worked." In the

miscellaneous metal trades, except in the manufacture of articles required

for military and naval purposes, "much short time was reported." In the

cotton industry, "the trade as a whole was working less than three days a

week, and large numbers of workpeople were entirely unemployed." In the

woollen trade, "about 60 per cent of the workpeople covered by the returns

received were on short time, including over 20 per cent who were working

half-time or less." The returns showed a decrease of "21.5 per cent in the

amount of wages paid compared with a month ago." In the worsted industry,

"about 65 per cent of the workpeople covered by the returns were working

short time during the month, including over 30 per cent who were working

only half time or less." The returns showed a decrease "of 26.5 per cent

in the amount of wages paid compared with a month ago." In the linen trade

"short time was reported generally." In the hosiery industry, "short time

was reported by firms employing over 40 per cent of the operatives covered

by the returns." In the silk trade "a great deal of short time was worked

in all the districts." In the levers and curtains branches of the lace

industry "the majority of the operatives ... were only working half time,

and large numbers were altogether unemployed." In the carpet trade "short

time was general, most districts working only half the usual hours." In the

furnishing trades "short time was worked in almost every district." "Short

time was very generally reported" in printing. In the glass trades "short

time was reported in several districts." In the potteries "most of the

firms" were running short time (see the _Board of Trade Labour Gazette_,

Sept. 1914).]

During the month of September, however, employment revived.[1] Besides

Government work in shipbuilding yards, certain branches of the woollen

industry were working at full pressure on the production of blankets and

cloth for uniforms; the leather and boot and shoe industries on some sides

received an impetus from the large orders placed for army boots; hosiery

and knitted goods were required in large quantities. Speaking generally,

industries whose products were required for the army and navy were strained

to the extent of their resources. But each industry supplies a large

variety of goods of many different grades, and machinery and works

equipment cannot always be easily converted to the production of other

classes of commodities; so that even in the woollen and boot trades, for

example, the whole industries were not uniformly busy. The many industries,

however, to which the war brought no orders, enjoyed but a slight recovery,

and in some cases none at all. As the month of September proceeded,

the newspapers triumphantly referred to the fall in the percentage of

unemployment. The truth is that the decline was by no means general or

uniform, but was brought about, not so much by the gradual revival of

normal activity, but by the rush of Government orders. For instance, the

cotton industry remained in the trough of a deep depression, and the

furniture and piano making trades profited little. Further, no account was

taken of the prevalence of short time, though over a large field it was

widespread especially amongst women. What the real position of the labour

market was after we had been at war two months, cannot be precisely

determined, but it was certainly more serious than the Board of Trade

percentage would seem to indicate.[2]

[Footnote 1: The percentage of unemployment at the beginning of October in

the trades compulsorily insured against unemployment was 5.1, as compared

with 6.3 at the beginning of the previous month.]

[Footnote 2: "Certain confidential statistical enquiries on a large scale

are said to support the inference to be drawn from the figures published

by the Board of Trade, that at least 10 per cent of the fifteen million

wage-earners in the United Kingdom are not at work at all, whilst quite as

large a proportion are on short time. But out of more than a million men

whose services the employers have thus temporarily dispensed with, some

nine hundred thousand are being clothed, or are going to be clothed, in

khaki, and given Government pay. Thus the actual unemployment among men is,

except in (certain) black patches, only sporadic and scarcely more than

we are accustomed to. Very different is the situation of the women

wage-earners. Of these apparently half a million are now unemployed, and

twice as many are working only short time. Though the industrial situation

is considerably better than would have been predicted for the end of the

second month of a world war, it was, in fact, worse than it has been at

any time during the past quarter of a century" _(New Statesman,_ Oct. 3,

1914).]

The month of October saw a further recovery and a more normal state of

affairs. The percentage of unemployment in insured trades continued to

decline;[1] but whilst the number of men on the Labour Exchange registers

fell (from 28,664 on October 2 to 24,690 on October 30), the number of

women registered remained almost stationary. At the end of three months

from the beginning of the war the condition of men's employment was about

normal; but women were suffering from excessive unemployment, whilst

short time was still common in many industries in which women are largely

employed.

[Footnote 1: The percentages are as follows: Oct. 2, 5.11; Oct. 9, 4.80;

Oct. 16, 4.46; Oct. 23, 4.29; Oct. 30, 4.16.]

The large volume of unemployment, which it had been anticipated would

accompany a great war, was avoided, partly because of prompt State action

in maintaining the fabric of commerce and finance, and therefore the supply

of raw materials, and partly because of the large demand for commodities

for the Army and Navy--a war demand vastly in excess of that in any

previous war. In other words, State intervention and the Navy have

placed Great Britain in a much superior economic position to that of her

adversaries.

3. _Trade Unions, Co-operative Societies and Distress_.--Before the

outbreak of the war there were signs that the wave of industrial activity

which reached a high point in 1913 was receding, and that unemployment was

beginning to increase; but the trade unions did not anticipate that the

ordinary ebb and flow of trade was to be disturbed by a great war. Within a

very short time after the declaration of war, the trade unions experienced

a heavy drain on their funds in respect of unemployment benefit. It is,

of course, obvious that the accumulated funds of trade unions were never

intended as a subsidy to the community during a time of war, which is what,

in point of fact, they became. It is true that the unions made efforts

to conserve their resources in various ways, not least by advising their

younger members without dependants to join the army; it is true also that

most of them profited under Section 106 of the National Insurance Act

by the State refund of one-sixth of their payments to their unemployed

members; but these measures--and others--were inadequate to maintain the

unions in a sound financial condition, and many unions trembled on the

verge of bankruptcy.[1] Such a condition of affairs was viewed with

apprehension not only by the trade union movement, but by the State, with

the result that at the beginning of October the Government subsidy of

one-sixth was under certain conditions increased.[2] But even with this

assistance, many unions will undoubtedly experience considerable difficulty

in avoiding financial disaster. Speaking generally, the trade union

movement as a whole will emerge from the war in straitened circumstances.

Some unions may have collapsed, and amongst others the movement in

favour of amalgamation may have received an impetus owing to financial

embarrassments.

[Footnote 1: Speaking generally, it cannot be said that the trade unions

faced the crisis with either wisdom or courage. Their attitude, on the

whole, was one of utter bewilderment. The lack of the power of adaptability

to new circumstances, together with the fact that sufficient pressure was

not brought to bear upon the Government in the first weeks of the war,

accounts for the unfortunate position in which the trade unions found

themselves.]

[Footnote 2: The scheme applies only to unions suffering from abnormal

unemployment. There are also conditions that they "should not pay

unemployment benefit above a maximum rate of 17s. per week, including any

sum paid by way of State unemployment benefit," and that they "should agree

while in receipt of the emergency grant to impose levies over and above the

ordinary contributions upon those members who remain fully employed."

The amount of the emergency grant in addition to the refund of one-sixth

already payable will be either one-third or one-sixth of the expenditure

on out-of-work pay, depending on the amount of the trade union levy. Under

special conditions the grant is to be retrospective. It is, therefore,

possible for trade unions to be subsidised so far as unemployment benefit

is concerned, to the extent of one-half their payments. But this scheme

does nothing to assist trade unions (of which there are many) which get no

unemployment benefit.]

The decrease in earnings accompanying short time, and their total stoppage

in the case of unemployment, mean amongst the workers a restriction of

purchasing power. The shrinkage in the total wages bill, especially in

Lancashire, must lead to a diminution in the income of small traders and

the co-operative societies. Where trade is very bad the societies will be

severely hit; smaller purchases will mean smaller profits, which, where

there is no large reserve to fall back upon, will in turn mean the

declaration of a smaller dividend. The "divi" received by the workers will

be less, and the purchases which the thrifty housewife of the north usually

makes with it in the way of clothing and replacement of household articles

will be less also; where the "divi" has been left in the society, it will

in a large number of cases be used to supplement the scanty wages earned on

short time, or to provide the necessaries of life where the breadwinner

is altogether unemployed. In places where times become very bad, the

co-operative societies during the war, and for some time after, will suffer

because of the conversion of the cash orders which ordinarily go to the

"co-op" into credit orders at the shop round the corner. On the whole,

however, the co-operative societies will probably come better out of the

war than many classes of small shop-keepers. The small tailors, drapers,

earthenware dealers, etc., and others who sell all but indispensable

commodities, will see a shrinkage in their sales, especially if prices

rise. The co-operative societies will also lose in this respect, but they

will lose less on the whole, owing to the fact that a good deal of their

capital is used in the sale of food-stuffs, the consumption of which will

be restricted last. But admitting this, they cannot expect to escape

unscathed, and the blow they suffer will be felt on other sides of their

activity, such as their educational work, the income for which usually

fluctuates with the prosperity of the societies.

The diminution of the purchasing power of the working people because of the

restriction of the national wages bill, however, may be minimised by common

action. The National Relief Fund and the Women's Employment Fund are

intended really for this purpose. The establishment of women's training

workshops and of maintenance grants on condition of attendance at schools

and classes are steps in the same direction. The Government has increased

the disgracefully low payments made to dependants of soldiers on active

service, and its scale of pensions for widows of soldiers and sailors and

for those totally or partially disabled in the performance of military or

naval duties. Arrangements have been made for the payment of allowances of

half wages up to a maximum of £1 a week to dependants of sailors employed

on insured British merchant ships captured or detained by the enemy. More

important from the point of view of industry as a whole are the steps which

have been taken to minimise the effects of a diminution in the volume of

employment by the development of new openings. The Government through the

Board of Trade took the lead in the attempt to secure a share of the trade

hitherto done by Germany and Austria. Special efforts were made to develop

the manufacture of toys, and other industrial experiments were begun by

the Central Committee on Women's Employment. The Government appointed

a Chemical Products Supply Committee with a view to stimulating the

production of dyes and drugs at home. These proposals are in the main an

attempt to divert the trade of foreign countries, especially Germany, into

British channels. The second line of action is fuller provision of home

needs which cannot be satisfied by foreign producers, but are essentially

domestic. Such needs are housing, public parks, roads, etc. Between August

4 and September 21, 1914, the Local Government Board received over 600

applications from local authorities for powers to borrow money amounting

in all to over £2,500,000. About a fifth of this amount it was intended to

expend on housing. During this period the Board sanctioned loans amounting

in the aggregate to more than £3,500,000, as compared with rather under

£2,000,000 in the same period in 1913. The Road Board arranged to put in

hand the construction of certain new highways arranged for before the

beginning of the war. In addition, in the first seven weeks of the war, the

Board arranged to make grants amounting to about £450,000 in aid of new

road construction and road improvements in many different parts of the

country, which will involve a total expenditure of about a million

sterling. The Development Commission began to consider schemes for the

construction of light railways, for the improvement of the navigation of

rivers, etc., in order that work of this kind should be ready to be put

into operation when the necessity arose. The Board of Agriculture has urged

that where practicable the acreage under wheat should be increased. This

suggestion is, of course, valuable, but will not greatly affect the

industrial situation. Even if the schemes sanctioned by the Local

Government Board and those adopted by the Road Board were put into

operation immediately, which is almost impossible, they would not make a

very appreciable difference to the total wages bill of the country. But

perhaps it is thought by the Government that the state of employment is not

sufficiently grave to warrant a greater expenditure at the present time. In

spite of the insistence on forestalling destitution, there is still

among local authorities much confusion of charity and relief work with

anticipation of future needs calling for employment through the ordinary

channels of trade. On the whole the Government has not met the domestic

problems of the war with the unanimity and boldness which has characterised

its actions in the actual prosecution of the war and in dealing with the

financial crisis.

4. _The New Spirit._--The broader social effects which showed themselves in

the early days of the war are illustrated by the remarkable growth of State

Socialism. The nation became a community, united in a single purpose;

breaches which many imagined to be permanent, cleavages which were thought

to be fundamental, no longer existed. None was for a party; all were for

the State. The three political parties formed a Parliamentary Recruiting

Committee, and altogether impossible teams of people appeared on public

platforms with a common aim; Mr. Ben Tillett, in words that might have

fallen from the lips of a Tory ex-Cabinet minister, declared that "every

resource at our command must be utilised for the purpose of preserving our

country and nation"; the anti-militarist trade union movement earnestly

appealed to those of its members who were ex-non-commissioned officers

to re-enlist; the Queen and Miss Mary MacArthur were members of the same

committee. This unanimity, which has pushed into the background for the

present causes of difference, has led the vast majority of people to submit

cheerfully to the will of the State. The unity of to-day must necessarily

make its influence felt even when the reason of its existence has passed

away. In the meantime it is assisting in the growth of a new spirit which

the war itself has fostered. The social outlook of the people and their

attitude towards the larger problems of life is changing, and patriotism

has taken a deeper meaning.

So far we have devoted our attention to some of the immediate effects of

the war. But on the return of peace there will be new influences at work,

the immediate and ultimate effects of which will powerfully affect the

course of future development. The European War will mark an era in

international politics. It may also stand as a landmark in the history of

the social and economic life of Western Europe. It is not unlikely that in

this respect it will surpass in its importance all the wars of the past.

The reasons are to be found in the magnitude and costliness of the war, the

highly developed character and the inter-relatedness of foreign commerce,

the possibility of new industrial forces coming into play, and the

influence of the war on the political and social ideas of the European

peoples. It may be that in this country the war will let loose economic

forces destined to modify industrial organisation very profoundly; and

that social forces, especially on the Continent, will be liberated to work

towards fuller political freedom. These things lie in the veiled future,

and prophecy is dangerous. We may, however, turn to consider some of the

probable effects the war will leave behind it.

C. AFTER THE WAR

1. _General Effects_.--When the war comes to an end, an immediate revival

of commercial relations between the combatant States and a general revival

of foreign trade cannot be reasonably expected. After the Napoleonic Wars,

English manufacturers, assuming the eagerness of continental peoples to buy

their goods, were met with the obvious fact that impoverished nations are

not good customers. When peaceful relations are resumed in Europe, we shall

recognise very vividly the extent to which industry and commerce on the

Continent have been closed down. Even assuming that British production

continues, Germany, Belgium and Austria will have little to send us

in exchange. The closing of the overseas markets of Germany, and the

consequent shrinkage in production, the disruption of normal industrial

life by the withdrawal of millions of men to join the colours, and the

abnormal character of existing trade, due to the needs of the armies in

the field, are not conditions favourable to the easy resumption of normal

commercial relations. The dislocation of the mechanism of industry and

commerce in Europe, on a much larger scale than ever before--a mechanism

which has with growing international relations and interdependence become

more complicated and more sensitive in recent years--cannot be immediately

remedied by a stroke of the pen or the fiat of an emperor. The credit

system upon which modern industry and commerce are built depends upon

mutual confidence. This confidence will not be restored among the combatant

nations immediately on the cessation of war; it will require time to grow.

Further, Europe during the war has been spending its substance and must

emerge much poorer. This applies not only to combatant States, but to

neutral countries, some of which have floated loans to meet the abnormal

expenditure thrown upon them by prolonged mobilisation. The capital and

credit of a large number of people will have suffered great loss or have

vanished into thin air. Houses, shops, and buildings of all kinds, produce

manufactured and unmanufactured, bridges, ships, railway stations and stock

of enormous value will have been destroyed. The community will have

been impoverished, not only by the expenditure of great armies and the

destruction of wealth, but by the utilisation for immediate consumption of

wealth which would have been used as new capital, and by the withdrawal of

probably close upon fifteen million men from production during the period

of the war. Even if we assume that the world has lost the production of

only twelve million men[1], the loss is enormous. If each man were capable

of producing, on the average, wealth to the value of £100 per year, the

loss of production per year during the continuance of the war would be

about £1,200,000,000. The effect of these factors will be heightened by

the fact that the millions of men whose needs during the war have been

satisfied by their non-combatant fellow-countrymen will be thrown upon

their own resources. And though Europe will still need to be fed and clad

and housed, the effectual demand of the population for the goods and

services it needs, a demand which it is able to satisfy because of its

possession of exchangeable wealth, will be smaller than before the war.

The demand will be more or less stifled until the credit system is

re-established and mutual confidence restored, and until industry and

commerce have adjusted themselves to the new situation. The volume of

employment in this country during the war will have been swollen by

temporary demands for war supplies which will cease when the war ends;

foreign trade will be uncertain; a larger number of soldiers will be thrown

on the labour market than ever before. It would seem, therefore, that in

the absence of special steps, the volume of unemployment at the close of

the war will be a good deal greater than during the progress of the war[2].

[Footnote 1: The number must be larger than this, as the mobilisation of

the armies of neutral states should be taken into account.]

[Footnote 2: It is thought by some that the war will be followed by a short

boom, when Europe will make good the necessities of industry and

civilised life, but it is at least doubtful whether there will be a rapid

reproduction of these commodities, owing to the conditions, already

described, which will obtain at the close of the war. In any case, however,

it will be merely a flash in the pan, and there will follow the gloom of a

deep depression, unless there is clear-sighted State action.]

It is just conceivable, though one hopes not probable, that the economic

effects of the war will be complicated by the imposition of war

indemnities. The indemnity is really a means of obtaining booty from a

vanquished State, and has been looked upon as a justifiable means of

further humiliating an already beaten enemy. It has been pointed out[1],

however, that the advantages derived from an indemnity are not an unmixed

gain. The indemnity recoils on the heads of those who impose it. It is

unnecessary here to enter into a consideration of the detailed effects

of huge payments by defeated nations; though it may be remarked that the

ramifications of such payments are so intricate and often so incapable of

measurement, whilst other economic influences are at work at the same

time, that it is impossible to draw an accurate conclusion as to the net

advantage or disadvantage of indemnities to the State which levies them.

But the point to be borne in mind is that the addition of a great debt to

the already large burden of an unsuccessful war reacts upon all countries

with which the defeated state enters into business relations. The losses

due to this cause will not necessarily be counterbalanced by gains from

increased trade with the country receiving the indemnity; and even if they

were, the latter trade might be of a different character. In any case,

countries not parties to the indemnity will be affected by it in some way

or other; war indemnities, like wars, do not pass by neutral countries and

leave them untouched.

[Footnote 1: See Norman Angell, _The Great Illusion_, Part I. chap. vi.]

It is important to remember that, though modern warfare is much more costly

and more exhausting than in the past, there is another side to the matter.

Society has also gained remarkably in its powers of recuperation. The

blight of war is not as terrible as might be expected. The accumulated

knowledge, the vastly increased productivity of industry, and the high

organising ability, which have made the modern industrial and commercial

world, will not be obliterated by the war. And though there will be

difficulties in the way of their full operation when peace returns, they

will aid powerfully in shortening the period of recovery. The forces which

have transformed mediaeval into modern cities in a few short years will

still exist. Though they can hardly be expected to overcome all the many

factors likely to restrain economic activity, they may be relied on to

stimulate the revival of normal economic life. Indeed, the knowledge of

science and the faculty of organisation are likely to be applied more

extensively than in the past to productive processes.

After the war, when the States of Europe begin to tread the paths of peace

again, one of the first things to be done will be to repair as far as

possible the damage done by the war. Take Belgium as an extreme example;

leaving aside the irreparable destruction of historic buildings and

priceless treasures, there are many million pounds' worth of houses and

farm buildings, shops, warehouses, factories, public buildings, ships,

railway stations, and bridges to be replaced. This work will take

precedence over other kinds of production. Sugar, motor cars, glass, etc.,

will still be manufactured, but chiefly in order to buy the requisite raw

materials and finished goods for the replacement of the wealth destroyed by

the ravages of the war. Speaking generally, Belgium will probably consume

less food than ordinarily, wear less clothes, and consume less luxuries.

Savings, which would normally have been devoted to new industrial

developments, will be needed to make good the losses in existing industrial

establishments. It is clear, therefore, that the economic growth of Belgium

will be retarded in a great degree.[1] The same holds good of Germany,

though probably not to the same extent unless the theatre of war is

extended to cover a considerable part of the Empire. In the case of our own

country, provided it remains free from invasion, there will not be such a

large replacement of lost wealth and capital destroyed by the war, except

in the case of shipping; but in common with other States there will be the

war to pay for, and certain obligations to meet regarding the maimed and

the relatives of the slain. Taxation will be heavy, and therefore, on this

ground alone the accumulation of new capital will be retarded. Industrial

organisation, having been re-arranged and modified to meet the requirements

of the war period, will not resume its old form without a good deal of

creaking and jolting. And even if it could, it will not be able to face

the new conditions arising out of the war at all rapidly. There is every

prospect, therefore, of a time of great difficulty after the war is over,

before the normal course of industrial and commercial activity is fully

resumed. In all likelihood, we shall find that the relative importance

of our various industries will have altered to some extent, and that the

nature of our trade will have been modified also. Then also the relative

positions of our home and foreign trade may shift; in other words, if

the war lasts sufficiently long for new industries to develop and become

efficient, they may survive the competition of foreign goods after the

war; in which case, the goods which have hitherto been produced to buy the

foreign goods will not now be required for foreign trade. It may be that

on the return of peace, some European States, in order to give their

industries an opportunity to recover from the effects of the war, will

inaugurate new tariffs; there is, indeed, a strong possibility that on

these grounds, and because of the dependence of the United Kingdom on the

products of Germany, the Tariff Reform Movement here may be electrified

into life.

[Footnote 1: If Germany be required to compensate Belgium for the damage

done, these effects will in large part disappear; though the burden

would still remain. The difference would be that it would be more widely

distributed.]

2. _Possible Industrial Developments_.--But industrial changes will not be

confined to the direction and form which economic activity will take. As

has been suggested above, there may be far-reaching changes in the methods

of production. It has been said that "there is only one way by which the

wealth of the world will be quickly replaced after the war and that is

by work. The country whose workers show the greatest capacity for

productiveness will be the country which will most rapidly recuperate."[1]

The question goes deeper than the replacement of wealth. The position after

the war will be that production will be retarded because of the diminution

in the rate of accumulation of new capital since the beginning of the war;

there will be a certain amount of leeway to make up. Consequently, there

will be every incentive towards the greatest possible efficiency in

production. It is here that the workers are likely to be affected. Has

labour reached its maximum efficiency? It has been shown by the application

of what is called "scientific management," that the output of labour can be

increased to a remarkable extent. For instance, instead of shovelling 16

tons a day, a man can shovel 59 tons; a man loading pig-iron increased his

total load per day from 12-1/2 to 47-1/2 tons; the day's tale of bricks

laid has been raised from 1000 to 2700. The list could be extended to cover

operatives working at machines. In the endeavour to screw up industry to a

maximum of production, it is not likely that the expedients of "scientific

management" will long remain untried. Already the system is making

considerable headway in the United States, and it is not altogether unknown

in this country. It is not possible to enter into a full explanation of the

methods of "scientific management." Briefly, by a process of scientific

selection it puts each worker in the job for which he is best fitted, and

teaches him exactly how to use the most efficient tools with which he

would be provided. The method of teaching may be illustrated from Mr. F.W.

Taylor's own example: "Schmidt started to work, and all day long and at

regular intervals, was told by the man who stood over him with a watch,

'Now, pick up a pig and walk. Now sit down and rest. Now walk--now rest,'

etc. He worked when he was told to work, and rested when he was told to

rest, and at half-past five in the afternoon had his 47-1/2 tons loaded on

the car."[2] By elaborate experiments the exact shape and size of a shovel

is determined; by long observation useless and awkward movements of a

workman are eliminated or replaced by the correct movements giving the

maximum return for the minimum of effort. In this way, and by a bonus

on wages, a largely increased output is obtained. It is clear that the

adoption of such methods gives the "scientific manager" great power; it

also seems inevitable that the workman should degenerate into an automaton;

it is obvious that in the hands of employers ignorant of the principles

underlying it, and seeing merely a new and highly profitable method of

exploitation, it will be open to serious abuse, as experience has already

shown in America.

[Footnote 1: _Round Table_, Sept. 1914, p. 708.]

[Footnote 2: _Scientific Management_, by F.W. Taylor, p. 47.]

So far the tremendous significance of "scientific management" has not

been fully recognised. Properly understood, it is the complement to the

industrial revolution, which by the more extensive use of machinery, etc.,

increased the efficiency of capital. The present movement aims at a similar

increase in the efficiency of labour as an agent of production. The new

revolution in industry has as yet merely begun, because employers, in spite

of the motive of self-interest, are conservative; but it will receive an

enormous impetus from the conditions arising out of the war. Like the

introduction of machinery and factory industry a century and a half ago and

onward, it may be accompanied by widespread evils and cruel exploitation.

Indeed, there is every likelihood that the methods will be distorted and

misused. By their careful application there is no doubt that the output of

the labourer can be increased without the expenditure of greater effort

than before, but even then there would be the tendency towards becoming

de-humanised. This, however, might be overcome by shorter hours and higher

wages, which would raise the standard of comfort and widen the worker's

interests. Unwisely used, "scientific management" will become an instrument

for shackling the worker, and increasing at a great rate the wealth of the

capitalist. It will be freely admitted that anything that will increase the

productivity of the labourer, and therefore the wealth of the community, is

advantageous, provided there is an equitable distribution of the product,

and that the effects on the working members of the State are not socially

injurious. But the hidden evils that may manifest themselves are very real,

and it is important that not only the workers, but the State should be

prepared to save the good and prevent the evil. There will, however, be

large numbers of employers of labour who will not avail themselves of the

new-fangled methods, and who will endeavour to increase production by the

old policy of "driving." And even without driving, wage-earning labour

under present conditions may be carried on under circumstances unfavourable

to industrial efficiency, and for hours inimical to the welfare of the

community and actually injurious to industrial productivity. In the future

the State will be more closely concerned with industry and commerce than

hitherto; there will probably be a more clearly defined State policy aimed

at the encouragement of production. Its view will be wider than that of the

individual employer, and we may expect therefore, providing there is no

serious reaction after the strain of the war, that the State will impose

working conditions which will favour maximum production in the long run. It

will be to the interest of the community to maximise the efficiency of the

industrial system; and enlightened statesmanship will overhaul our existing

code of industrial laws to achieve this object as far as possible, as well

as to guard the community against the evils inherent in a misapplication of

the principles of "scientific management."[1]

[Footnote 1: See an article on "Next Steps in Factory and Workshop Reform,"

by Arthur Greenwood, in the _Political Quarterly_ for September 1914.]

After the war, unemployment is likely to increase. The work of new

production will be put into operation only gradually; there will be every

inducement to economise the use of labour as far as possible; wages during

the depression will most probably fall; there will be disaffection in the

ranks of the trade unionists; the possible consolidation of industries into

the hands of fewer employers will increase the strength of the masters; the

funds of the trade unions will be depleted by the heavy strain on their

resources, and subject to a further drain after the war. The outlook of the

trade union movement is, therefore, far from bright. It will be generally

agreed that the bankruptcy or serious impoverishment of the unions of this

country would be nothing less than a national disaster; but unless action

of some kind is taken, they will become greatly weakened and almost

impotent, and one great bulwark against unjust encroachments upon the

rights of labour will be removed.

It is not improbable, however, that the community will indirectly assist

the trade unions by the steps taken to mitigate the evils which the war

will leave in its train. The army instead of being immediately disbanded

may be gradually dismissed over a period of, say, five years; the widows

and dependants of soldiers and sailors, and those who have returned maimed

and crippled from the war, may be adequately provided for, and, together

with children of twelve and thirteen, kept off the labour market; the

larger schemes of the Development Commission may be put into operation; the

legal minimum wage may be extended to all low-paid trades. In these and

other ways the community may deal comprehensively with the problems it

has to face. The difficulties of the aftermath period will call for both

clear-sighted action and public spirit; and if it is to be bridged over

successfully, the transition from a war to a peace footing must be gradual;

the community must continue its state of mobilisation in order to meet the

enemy within the gates. Provided the united wisdom of the nation is thrown

into the task, the evil after-effects of the war may be, if not altogether

avoided, restricted within narrow limits. At the bottom, therefore, the

future course of events depends upon the temper and spirit of the people at

the close of the war.

3. _Social Effects and the New Outlook_.--The European conflict will

probably exercise a strong sobering influence upon the minds of the people.

The gravity of the crisis, whatever victories may crown our arms, will

be reflected in the gravity of the people. A new dignity, a greater

self-respect, a deeper earnestness may arise among the mass of the people,

to which the conduct of our soldiers in the field will contribute. High

qualities of leadership win their admiration; but for them they claim no

credit. The army is officered for the most part by people of a higher

social standing, whose qualities they will willingly admit; but the social

gulf debars them from gaining inspiration from their achievements. In the

case of the rank and file, largely drawn from their own class, the effect

is different. The Tommy is flesh of their flesh and blood of their blood.

The qualities he displays reflect credit upon his class. The working man

is not unmindful of the high opinion in which the British private has been

held by a line of continental soldiers from Napoleon to Bernhardi. The

exploits of his fellows in the field have given the lie to stories of

deterioration; and working people are experiencing a sense of pride in

their class which may have no inconsiderable effect on their attitude

regarding social developments in the future.

Already the national temper has not submitted without protest to the

disgraceful sweating of our troops merely because their patriotism has led

them to sacrifice their lives, which are beyond all money payment. But the

feeling in favour of the war and the spirit of trust in the Government has,

up to the present, overridden serious criticism. The result has been that

the Government has often remained inactive when action was needed and has

acted unwisely and ignorantly at times; for example, in the case of the

Local Government Board circular, stating that the Army Council are prepared

to issue allowances through the Soldiers' and Sailors' Families Association

or the Local Representation Committees. It has been said that "the whole

system is an outrage on democratic principles. The State sweats its

servants and then compels them to take the niggardly wages it allows them

from a charitable society[1]." This type of action may pass muster during a

time of stress, but whether the spirit of the people will accept it after

the war is over and there are the dependants of the slain to be maintained

and the permanently crippled to be provided for is a different matter. Not

merely justice, but the new pride of the people will rebel against it.

These are but phases of the larger social problem. There is the question of

poverty in all its ramifications. For the moment, economic injustices and

social evils have fallen into the back of people's minds, and the new

and abnormal causes of destitution are calling forth special measures

of assistance. After the war, the ever-present deep-seated poverty will

reassert its presence, and in the hearts of many people the question will

arise as to whether the community which courageously and whole-heartedly

fought the enemy without the gates will turn with equal courage and

determination when the time comes to fight the enemy within the gates. The

experiences of the war time, the willingness to embark on great projects

in face of a national crisis, will not be forgotten, but will inspire in

social reformers the hope that the country may also face the internal

national peril in a similar spirit. The national--as opposed to the

individual--poverty which the war will cause may itself be a force making

for good. As Mr. Lloyd George well said, "A great flood of luxury and

of sloth which had submerged the land is receding and a new Britain is

appearing. We can see for the first time the fundamental things that matter

in life, and that have been obscured from our vision by the tropical growth

of prosperity."[2] There seems a prospect of an era of social growth and

regeneration following the war. In other European countries there may be

equally important developments. It may well be that in the event of German

defeat the democratic movements of that country will gain a great impetus

from the blow given to the Prussian hegemony. In Russia there is an

expectation of a new freedom. At the first meeting of the Duma after the

opening of hostilities the Labour Party declared its opinion that "through

the agony of the battlefield the brotherhood of the Russian people will be

strengthened and a common desire created to free the land from its terrible

internal troubles."

[Footnote 1: _The Nation,_ Sept. 19, 1914.]

[Footnote 2: Speech at the Queen's Hall, London, Sept. 19, 1914.]

It must be admitted, on the other hand, that there is a possibility of a

period of reaction and torpor after the strain of the war; the country will

be seriously impoverished, and there will be a heavy burden of taxation in

spite of some probable relief from the burden of armaments. Still, social

evils and injustices will be more obvious than ever. There will be many new

national and imperial problems clamouring to be faced. The intellectual

ferment which has had its source in the war will remain at work to widen

the mental outlook and deepen the social consciousness. On the whole, it

will probably be true to say that, though circumstances may postpone it,

there will sooner or later arise a great movement pledged to cleanse our

national life of those features which bar the way to human freedom and

happiness.

It also seems undeniable that the deep interest taken by large numbers of

people in the war will rouse them to a sense of the importance of problems

of government and of foreign policy. The working men's committees on

foreign affairs of half a century ago, which have left no trace behind

them, may be revived in a new form, and the differentiation of economic and

social questions from political and foreign problems may be obliterated.

The importance of the gradually widening area of vision among the more

thoughtful section of the people can hardly be exaggerated. In no respect

is the broadening of outlook more discernible than in the sphere of

imperial affairs. Hitherto the Empire to the working man has been regarded

as almost mythical. In so far as it did exist, it was conceived as a happy

hunting ground for the capitalist exploiter. The spontaneous assistance

given to the mother country by the colonies and dependencies has convinced

him of the reality of the Empire, and vaguely inspired him with a vision of

its possibilities as a federation of free commonwealths. In other words,

the British Empire, contrasted with that of Germany, is gradually being

recognised as standing for Democracy, however imperfect its achievements

may be up to the present. Consequently, the return of peace will see a

deeper interest in imperial questions; indeed, it is not too much to say

that there will be an imperial renaissance, born of a new patriotism, "clad

in glittering white." The change of heart which is taking place in the

people of this country, through the opening of the flood-gates of feeling

and thought by the unsuspecting warrior in shining armour, may bring a new

age comparable in its influence on civilisation with the great epochs of

the past. To-day is seed-time. But the harvest will not be gathered without

sweat and toil. The times are pregnant with great possibilities, but their

realisation depends upon the united wisdom of the people.

BOOKS

In order to understand the machinery of international trade, reference

should be made to Hartiey Withers' _Money Changing_ (5s.), or Clare's

_A.B.C. of the Foreign Exchanges_ (3s.); an outline of the subject will

be found in any good general text-book on Economics. On the financial

situation, see articles on "Lombard Street in War" and "The War and

Financial Exhaustion" (_Round Table,_ September and December 1914); "War

and the Financial System, August 1914," by J.M. Keynes (_Economic Journal_,

September 1914); and articles in the _New Statesman_ on "Why a Moratorium?"

(August 15,1914), and "The Restoration of the Remittance Market" (August

29, 1914). Norman Angell's _The Great Illusion_ (2s. 6d.) should be

consulted for an examination of the relations between war and trade.

The most accessible book dealing with the foreign trade of the European

countries is the _Statesman's Year-Book_, published annually at 10s. 6d.

The chapters reprinted from the _Encyclopaedia Britannica_ are also useful.

A valuable article on "The Economic Relations of the British and German

Empires," by E. Crammond, appeared in the _Journal of the Royal Statistical

Society_, July 1914. The same writer published an article on "The Economic

Aspects of the War" in _The Quarterly Review_ for October 1914 (6s.). A

grasp of the economic development of Germany may be obtained from W.H.

Dawson's _Evolution of Modern Germany_ (5s.) and the same writer's

_Industrial Germany_ (Nation's Library, 1s.). Mr. F.W. Taylor's _Scientific

Management_ (5s.) and Miss J. Goldmark's _Fatigue and Efficiency_ (8s.)

explain scientific management. A short account is also given in Layton's

_Capital and Labour_ (Nation's Library, 1s.).

The course of unemployment in this country may be traced from the returns

published each month in the _Board of Trade Labour Gazette_ (monthly, 1d.).

Proposals for dealing with possible and existing distress during the war

are to be found in a pamphlet on _The War and the Workers,_ by Sidney Webb

(Fabian Society, 1d.). For the possible use of trade unions as a channel

for the distribution of public assistance, see an article in _The Nation_

for September 5, 1914, and Mr. G.D.H. Cole's article on "How to help the

Cotton Operative" in _The Nation_ for November 7, 1914. The same paper

published two suggestive articles on "Relief or Maintenance?" (September 19

and October 3). The situation which has arisen in the woollen and worsted

industries owing to the large demand for cloth for the troops is dealt with

in an article on "The Government and Khaki," by Arthur Greenwood in _The

Nation_ for November 28, 1914. Reference may be made to the official White

Paper on Distress; other official documents of note are the following:

"Separation allowances to the Wives and Children of Seamen,

Marines, and Reservists." Cd. 7619. 1914. 1/2d.

"Increased Rates of Separation Allowance for the Wives and

Children of Soldiers." Cd. 7255. 1914. 1/2d.

"Return of Papers relating to the Assistance rendered by the

Treasury to Banks and Discount Houses since the Outbreak of

War on August 4, 1914, and to the Questions of the Advisability

of continuing or ending the Moratorium and of the Nature of

the Banking Facilities now available." H.C. 457 of 1914. 1d.

"Report, dated April 30, 1914, of a Sub-Committee of the Committee

of Imperial Defence on the Insurance of British Shipping in

Time of War, to devise a scheme to ensure that, in case of war,

British Steamships should not be generally laid up, and that

Oversea Commerce should not be interrupted by reason of

inability to cover war risks of Ships and Cargoes by Insurance,

and which would also secure that the insurance rates should not

be so high as to cause an excessive rise in prices." Cd. 7560.

1914. 2 1/2d.

The Government has issued a _Manual of Emergency Legislation_ (3s.

6d.) containing the statutes, proclamations, orders in council, rules,

regulations, and notifications used in consequence of the war; the

appendices contain other documents (the Declarations of Paris and of

London, the Hague Convention, etc.).