MAINLY COMMERCIAL
Nothing surprised me more, as the war developed, than the discovery
of the great variety and amount of goods exported from Germany to
the United States.
Goods sent from the United States to Germany are mainly prime
materials: approximately one hundred and sixty million dollars a
year of cotton; seventy-five million dollars of copper; fifteen
millions of wheat; twenty millions of animal fats; ten millions
of mineral oil and a large amount of vegetable oil. Of course,
the amount of wheat is especially variable. Some manufactured
goods from America also find their way to Germany to the extent
of perhaps seventy millions a year, comprising machinery such as
typewriters and a miscellaneous line of machinery and manufactures.
The principal exports from Germany to America consist of dye
stuffs and chemical dyes, toys, underwear, surgical instruments,
cutlery, stockings, knit goods, etc., and a raw material called
potash, also known as kali. The last is a mineral found nowhere
in the world except in Germany and a few places in Austria. Potash
is essential to the manufacture of many fertilizers, fertilizer
being composed as a rule of potash, phosphates and nitrates.
The nitrates in past years have been exported to all countries
from Chile. Phosphate rock is mined in South Carolina and Florida
and several other places in the world. Curiously enough, both
nitrates and potash are essential ingredients also of explosives
used in war. Since the war, the German supply from Chile was
cut off; but the Germans, following a system used in Norway for
many years before the war, established great electrical plants
for the extraction of nitrates from the atmosphere. Since the
war, American agriculture has suffered for want of potash and
German agriculture has suffered for want of phosphates, possibly
of nitrates also; because I doubt whether sufficient nitrogen
is extracted from the air in Germany to provide for more than
the needs of the explosive industry.
The dyestuff industry had been developed to such a point in Germany
that Germany supplied the whole world. In the first months of the
war some enterprising Americans, headed by Herman Metz, chartered
a boat, called _The Matanzas_, and sent it to Rotterdam
where it was loaded with a cargo of German dyestuffs. The boat
sailed under the American flag and was not interfered with by
the English. Later on the German Department of the Interior,
at whose head was Delbrück, refused to allow dyestuffs to leave
Germany except in exchange for cotton, and, finally, the export of
dyestuffs from Germany ceased and other countries were compelled
to take up the question of manufacture. This state of affairs
may lead to the establishment of the industry permanently in the
United States, although that industry will require protection
for some years, as, undoubtedly, Germany in her desperate effort
to regain a monopoly of this trade will be ready to spend enormous
sums in order to undersell the American manufacturers and drive
them out of business.
The commercial submarines, _Deutschland_ and _Bremen_,
were to a great extent built with money furnished by the dyestuff
manufacturers, who hoped that by sending dyestuffs in this way to
America they could prevent the development of the industry there.
I had many negotiations with the Foreign Office with reference
to this question of dyestuffs.
The export of toys from Germany to the United States forms a
large item in the bill which we pay annually to Germany. Many
of these toys are manufactured by the people in their own homes
in the picturesque district known as the Black Forest. Of course,
the war cut off, after a time, the export of toys from Germany;
and the American child, having in the meantime learned to be
satisfied with some other article, his little brother will demand
this very article next Christmas, and thus, after the war, Germany
will find that much of this trade has been permanently lost.
Just as the textile trade of the United States was dependent upon
the German dyestuffs for colours, so the sugar beet growers of
America were dependent upon Germany for their seed. I succeeded,
with the able assistance of the consul at Magdeburg and Mr. Winslow
of my staff, in getting shipments of beet seed out of Germany. I
have heard since that these industries too, are being developed
in America, and seed obtained from other countries, such as Russia.
Another commodity upon which a great industry in the United States
and Mexico depends is cyanide. The discovery of the cyanide process
of treating gold and silver ores permitted the exploitation of
many mines which could not be worked under the older methods.
At the beginning of the war there was a small manufactory of
cyanide owned by Germans at Perth Amboy and Niagara Falls, but
most of the cyanide used was imported from Germany. The American
German Company and the companies manufacturing in Germany and
in England all operated under the same patents, the English and
German companies having working agreements as to the distribution
of business throughout the world.
The German Vice-Chancellor and head of the Department of the
Interior, Delbrück, put an export prohibition on cyanide early in
the war; and most pigheadedly and obstinately claimed that cyanide
was manufactured nowhere but in Germany, and that, therefore, if
he allowed cyanide to leave Germany for the United States or
Mexico the English would capture it and would use it to work
South African mines, thus adding to the stock of gold and power
in war of the British Empire. It was a long time before the German
manufacturers and I could convince this gentleman that cyanide
sufficient to supply all the British mines was manufactured near
Glasgow, Scotland. He then reluctantly gave a permit for the
export of a thousand tons of cyanide; and its arrival in the
United States permitted many mines there and in Mexico to continue
operations, and saved many persons from being thrown out of
employment. When Delbrück finally gave a permit for the export
of four thousand tons more of cyanide, the psychological moment
had passed and we could not obtain through our State Department
a pass from the British.
I am convinced that Delbrück made a great tactical mistake on
behalf of the German Government when he imposed this prohibition
against export of goods to America. Many manufacturers of textiles,
the users of dyestuffs, medicines, seeds and chemicals in all forms,
were clamouring for certain goods and chemicals from Germany. But it
was the prohibition against export by the Germans which prevented
their receiving these goods. If it had been the British blockade
alone a cry might have arisen in the United States against this
blockade which might have materially changed the international
situation.
The Germans also refused permission for the export of potash
from Germany. They hoped thereby to induce the United States
to break the British blockade, and offered cargoes of potash
in exchange for cargoes of cotton or cargoes of foodstuffs. The
Germans claimed that potash was used in the manufacture of munitions
and that, therefore, in no event would they permit the export
unless the potash was consigned to the American Government, with
guarantees against its use except in the manufacture of fertilizer,
this to be checked up by Germans appointed as inspectors. All
these negotiations, however, fell through and no potash has been
exported from Germany to the United States since the commencement
of the war. Enough potash, however, is obtained in the United
States for munition purposes from the burning of seaweed on the
Pacific Coast, from the brines in a lake in Southern California
and from a rock called alunite in Utah. Potash is also obtainable
from feldspar, but I do not know whether any plant has been
established for its production from this rock. I recently heard
of the arrival of some potash from a newly discovered field in
Brazil, and there have been rumours of its discovery in Spain.
I do not know how good this Spanish and Brazilian potash is, and
I suppose the German potash syndicate will immediately endeavour
to control these fields in order to hold the potash trade of the
world in its grip.
It was a long time after the commencement of the war before England
declared cotton a contraband. I think this was because of the fear
of irritating the United States; but, in the meantime, Germany
secured a great quantity of cotton, which, of course, was used or
stored for the manufacture of powder. Since the cotton imports
have been cut off the Germans claim that they are manufacturing
a powder equally good by using wood pulp. Of course, I have not
been able to verify this, absolutely.
Germany had endeavoured before the war in every way to keep American
goods out of the German markets, and even the Prussian state
railways are used, as I have shown in the article where I speak
of the attempt to establish an oil monopoly in Germany, in order
to discriminate against American mineral oils. This same method
has been applied to other articles such as wood, which otherwise
might be imported from America and in some cases regulations
as to the inspection of meat, etc., have proved more effective
in keeping American goods out of the market than a prohibitive
tariff.
The meat regulation is that each individual package of meat must
be opened and inspected; and, of course, when a sausage has been
individually made to sit up and bark no one desires it as an
article of food thereafter. American apples were also discriminated
against in the custom regulations of Germany. Nor could I induce
the German Government to change their tariff on canned salmon,
an article which would prove a welcome addition to the German diet.
The German workingman, undoubtedly the most exploited and fooled
workingman in the world, is compelled not only to work for low
wages and for long hours, but to purchase his food at rates fixed
by the German tariff made for the benefit of the Prussian Junkers
and landowners.
Of course, the Prussian Junkers excuse the imposition of the
tariff on food and the regulations made to prevent the entry
of foodstuffs on the ground that German agriculture must be
encouraged, first, in order to enable the population to subsist
in time of war and blockade; and, secondly, in order to encourage
the peasant class which furnishes the most solid soldiers to
the Imperial armies.
The nations and business men of the world will have to face after
the war a new condition which we may call socialized buying and
socialized selling.
Not long after the commencement of the war the Germans placed a
prohibitive tariff upon the import of certain articles of luxury
such as perfumes; their object, of course, being to keep the
German people from sending money out of the country and wasting
their money in useless expenditures. At the same time a great
institution was formed called the Central Einkauf Gesellschaft.
This body, formed under government auspices of men appointed from
civil life, is somewhat similar to one of our national defence
boards. Every import of raw material into Germany falls into the
hands of this central buying company, and if a German desires
to buy any raw material for use in his factory he must buy it
through this central board.
I have talked with members of this board and they all unite in
the belief that this system will be continued after the war.
For instance, if a man in Germany wishes to buy an automobile
or a pearl necklace or a case of perfumery, he will be told,
"You can buy this if you can buy it in Germany. But if you have
to send to America for the automobile, if you have to send to
Paris for the pearls or the perfumery, you cannot buy them."
In this way the gold supply of Germany will be husbanded and
the people will either be prevented from making comparatively
useless expenditures or compelled to spend money to benefit home
industry.
On the other hand, when a man desires to buy some raw material,
for example, copper, cotton, leather, wheat or something of that
kind, he will not be allowed to buy abroad on his own hook. The
Central Einkauf Gesellschaft will see that all those desiring to
buy cotton or copper put in their orders on or before a certain
date. When the orders are all in, the quantities called for will
be added up by this central board; and then one man, representing
the board, will be in a position to go to America to purchase
the four million bales of cotton or two hundred million pounds
of copper.
The German idea is that this one board will be able to force the
sellers abroad to compete against each other in their eagerness
to sell. The one German buyer will know about the lowest price at
which the sellers can sell their product. By the buyer's standing
out alone with this great order the Germans believe that the
sellers, one by one, will fall into his hands and sell their
product at a price below that which they could obtain if the
individual sellers of America were meeting the individual buyers
of Germany in the open market.
When the total amount of the commodity ordered has been purchased,
it will be divided up among the German buyers who put in their
orders with the central company, each order being charged with
its proportionate share of the expenses of the commission and,
possibly, an additional sum for the benefit of the treasury of
the Empire.
Before the war a German manufacturer took me over his great factory
where fifteen thousand men and women were employed, showed me
great quantities of articles made from copper, and said: "We buy
this copper in America and we get it a cent and a half a pound
less than we should pay for it because our government permits us
to combine for the purpose of buying, but your government does
not allow your people to combine for the purpose of selling.
You have got lots of silly people who become envious of the rich
and pass laws to prevent combination, which is the logical
development of all industry."
The government handling of exchange during the war was another
example of the use of the centralised power of the Government
for the benefit of the whole nation.
In the first year of the war, when I desired money to spend in
Germany, I drew a check on my bank in New York in triplicate
and sent a clerk with it to the different banks in Berlin, to
obtain bids in marks, selling it then, naturally, to the highest
bidder. But soon the Government stepped in. The Imperial Bank
was to fix a daily rate of exchange, and banks and individuals
were forbidden to buy or sell at a different rate. That this
fixed rate was a false one, fixed to the advantage of Germany, I
proved at the time when the German official rate was 5.52 marks
for a dollar, by sending my American checks to Holland, buying
Holland money with them and German money with the Holland money,
in this manner obtaining 5.74 marks for each dollar. And just
before leaving Germany I sold a lot of American gold to a German
bank at the rate of 6.42 marks per dollar, although on that day
the official rate was 5.52 and although the buyer of the gold,
because the export of gold was forbidden, would have to lose
interest on the money paid me or on the gold purchased, until
the end of the war. What the Germans thought of the value of
the mark is shown by this transaction.
The only thing that can maintain a fair price after the war for
the products of American firms, miners and manufacturers is
permission to combine for selling abroad. There is before Congress
a bill called the Webb Bill permitting those engaged in export
trade to combine, and this bill, which is manifestly for the
benefit of the American producer of raw materials and foods and
manufactured articles, should be passed.
It was also part of our commercial work to secure permits for
the exportation from Belgium of American owned goods seized by
Germany. We succeeded in a number of cases in getting these goods
released. In other cases, the American owned property was taken
over by the government, but the American owners were compensated
for the loss.
Germany took over belligerent property and put it in the hands
of receivers. In all cases where the majority of the stock of a
German corporation was owned by another corporation or individuals
of belligerent nationality, the German corporation was placed in
the hands of a receiver. The German Government, however, would
not allow the inquiry into the stock ownership to go further than
the first holding corporation. There were many cases where the
majority of the stock of a German corporation was owned by an
English corporation and the majority of the stock of the English
corporation, in turn, owned by an American corporation or by
Americans. In this case the German Government refused to consider
the American ownership of the English stock, and put the German
company under government control.
With the low wages paid to very efficient workingmen who worked
for long hours and with no laws against combination, it was always
a matter of surprise to me that the Germans who were in the process
of getting all the money in the world should have allowed their
military autocracy to drive them into war.
I am afraid that, after this war, if we expect to keep a place for
our trade in the world, we may have to revise some of our ideas as
to so-called trusts and the Sherman Law. Trusts or combinations
are not only permitted, but even encouraged in Germany. They are
known there as "cartels" and the difference between the American
trust and the German cartel is that the American trust has, as
it were, a centralised government permanently taking over and
combining the competing elements in any given business, while in
Germany the competing elements form a combination by contract for
a limited number of years. This combination is called a cartel
and during these years each member of the cartel is assigned a
given amount of the total production and given a definite share
of the profits of the combination. The German cartel, therefore,
as Consul General Skinner aptly said, may be likened to a
confederation existing by contract for a limited period of time
and subject to renewal only at the will of its members.
It may be that competition is a relic of barbarism and that one
of the first signs of a higher civilisation is an effort to modify
the stress of competition. The debates of Congress tend to show
that, in enacting the Sherman Law, Congress did not intend to forbid
the restraint of competition among those in the same business but
only intended to prohibit the forming of a combination by those
who, combined, would have a monopoly of a particular business or
product. It is easy to see why all the coal mines in the country
should be prohibited from combining; but it is not easy to see
why certain people engaged in the tobacco business should be
prohibited from taking their competitors into their combination,
because tobacco is a product which could be raised upon millions
of acres of our land and cannot be made the subject of a monopoly.
The German courts have expressly said that if prices are so low
that the manufacturers of a particular article see financial
ruin ahead, a formation of a cartel by them must be looked upon
as a justified means of self-preservation. The German laws are
directed to the end to which it seems to be such laws should
logically be directed; namely, to the prevention of unfair
competition.
So long as the question of monopoly is not involved, competition
can always be looked for when a combination is making too great
profits; and the new and competing corporation and individuals
should be protected by law against the danger of price cutting
for the express purpose of driving the new competitor out of
business. However, it must be remembered that a combination acting
unfairly in competition may be more oppressive than a monopoly.
I myself am not convinced by the arguments of either side. It
is a matter for the most serious study.
The object of the American trust has been to destroy its competitors.
The object of the German cartel to force its competitors to join the
cartel.
In fact the government in Germany becomes part of these cartels
and takes an active hand in them, as witness the participation
of the German Government in the potash syndicate, when contracts
made by certain American buyers with German mines were cancelled
and all the potash producing mines of Germany and Austria forced
into one confederation; and witness the attempt by the government,
which I have described in another chapter, to take over and
make a monopoly of the wholesale and retail oil business of the
country.
The recent closer combination of dyestuff industries of Germany,
with the express purpose of meeting and destroying American
competition after the war, is interesting as showing German methods.
For a number of years the dye-stuff industry of Germany was
practically controlled by six great companies, some of these
companies employing as high as five hundred chemists in research
work. In 1916 these six companies made an agreement looking to a
still closer alliance not only for the distribution of the product
but also for the distribution of ideas and trade secrets. For
years, these great commercial companies supplied all the countries
of the world not only with dyestuffs and other chemical products
but also with medicines discovered by their chemists and made
from coal tar; which, although really nothing more than patent
medicines, were put upon the market as new and great and beneficial
discoveries in medicine. The Badische Anilin and Soda Fabrik,
with a capital of fifty-four million marks has paid dividends
in the ten years from 1903 to 1913, averaging over twenty-six
per cent.
The Farbwerke Meister Lucius und Bruning at Hoeckst, near Frankfort,
during the same period, with a capital of fifty million marks,
has paid dividends averaging over twenty-seven per cent; and
the chemical works of Bayer and Company, near Cologne, during
the same period with a capital of fifty-four millions of marks
has paid dividends averaging over thirty per cent.
Much of the commercial success of the Germans during the last
forty years is due to the fact that each manufacturer, each
discoverer in Germany, each exporter knew that the whole weight
and power of the Government was behind him in his efforts to
increase his business. On the other hand, in America, business
men have been terrorized, almost into inaction, by constant
prosecutions. What was a crime in one part of the United States,
under one Circuit Court of Appeals, was a perfectly legitimate
act in another.
If we have to meet the intense competition of Germany after the
war, we have got to view all these problems from new angles. For
instance, there is the question of free ports. Representative
Murray Hulbert has introduced, in the House of Representatives, a
resolution directing the Secretary of the Treasury, the Secretary
of War and the Secretary of Commerce to report to Congress as
to the advisability of the establishment of free ports within
the limits of the established customs of the United States.
Free ports exist in Germany and have existed for a long time,
although Germany is a country with a protective tariff. In a
free port raw goods are manufactured and then exported, of course
to the advantage of the country permitting the establishment of
free ports, because by this manufacture of raw materials and
their re-export, without being subject to duty, money is earned
by the manufacturers to the benefit of their own country and
employment is given to many workingmen. This, of course, improves
the condition of these workingmen and of all others in the country;
as it is self-evident that the employment of each workingman in
an industry, which would not exist except for the existence of
the free port, withdraws that workingman from the general labour
market and, therefore, benefits the position of his remaining
fellow labourers.
Although free ports do not exist in the United States, an attempt
has been made to give certain industries, by means of what are
known as "drawbacks," the same benefit that they would enjoy
were free ports existant in our country.
Thus the refiners of raw sugar from Cuba pay a duty on this sugar
when it enters the United States, but receive this duty back when
a corresponding amount of refined sugar is exported to other
countries.
There has lately been an attack made upon this system in the
case, however, of the sugar refiners only, and the question has
been treated in some newspapers as if these refiners were obtaining
some unfair advantage from the government, whereas, as a matter
of fact, the allowance of these "drawbacks" enables the sugar
refiners to carry on the refining of the sugar for export much
as they would if their refineries existed in free ports modelled
on the German system.
The repeal of the provision of allowing "drawbacks" in this and
other industries will probably send the industries to Canada or
some other territory where this system, equivalent to the free
port, is permitted to exist.
A few days before I left Germany I had a conversation with a
manufacturer of munitions who employs about eighteen thousand
people in his factories, which, before the war, manufactured
articles other than munitions. I asked him how the government
treated the manufacturers of munitions, and he said that they
were allowed to make good profits, although they had to pay out
a great proportion of these profits in the form of taxes on their
excess or war profits; that the government desired to encourage
manufacturers to turn their factories into factories for the
manufacture of all articles in the war and required by the nation
in sustaining war; and that the manufacturers would do this provided
that it were only a question as to how much of their profits
they would be allowed to keep, but that if the Government had
attempted to fix prices so low that there would have been a doubt
as to whether the manufacturer could make a profit or not, the
production of articles required for war would never have reached
the high mark that it had in Germany.
As a matter of fact, about the only tax imposed in Germany since
the outbreak of the war has been the tax upon cost or war profits.
It has been the policy of Germany to pay for the war by great
loans raised by popular subscription, after authorisation by the
Reichstag. I calculate that the amounts thus raised, together
with the floating indebtedness, amount to date to about eighty
billions of marks.
For a long time the Germans expected that the expenses of the
war would be paid from the indemnities to be recovered by Germany
from the nations at war with it.
Helfferich shadowed this forth in his speech in the Reichstag,
on August 20, 1915, when he said: "If we wish to have the power
to settle the terms of peace according to our interests and our
requirements, then we must not forget the question of cost. We
must have in view that the whole future activity of our people,
so far as this is at all possible, shall be free from burdens.
The leaden weight of billions has been earned by the instigators
of this war, and in the future they, rather than we, will drag
it about after them."
Of course, by "instigators of the war" Helfferich meant the opponents
of Germany, but I think that unconsciously he was a true prophet
and that the "leaden weight of the billions" which this war has
cost Germany will be dragged about after the war by Germany,
the real instigator of this world calamity.
In December, 1915, Helfferich voiced the comfortable plea that,
because the Germans were spending their money raised by the war
loans in Germany, the weight of these loans was not a real weight
upon the German people. He said: "We are paying the money almost
exclusively to ourselves; while the enemy is paying its loans
abroad--a guarantee that in the future we shall maintain the
advantage."
This belief of the Germans and Helfferich is one of the notable
fallacies of the war. The German war loans have been subscribed
mainly by the great companies of Germany; by the Savings Banks,
the Banks, the Life and Fire Insurance and Accident Insurance
Companies, etc.
Furthermore, these loans have been pyramided; that is to say,
a man who subscribed and paid for one hundred thousand marks
of loan number one could, when loan number two was called for,
take the bonds he had bought of loan number one to his bank and
on his agreement to spend the proceeds in subscribing to loan
number two, borrow from the bank eighty thousand marks on the
security of his first loan bonds, and so on.
There is an annual increment, not easily ascertainable with
exactness, but approximately ascertainable to the wealth of every
country in the world. Just as when a man is working a farm there
is in normal years an increment or accretion of wealth or income
to him above the cost of the production of the products of the
soil which he sells, there is such an annual increment to the
wealth of each country taken as a whole. Some experts have told
me they calculated that, at the outside, in prosperous peace times
the annual increment of German wealth is ten billion marks.
Now when we have the annual interest to be paid by Germany exceeding
the annual increment of the country, the social and even moral
bankruptcy of the country must ensue. If repudiation of the loan
or any part of it is then forced, the loss naturally falls upon
those who have taken the loan. The working-man or small capitalist,
who put all his savings in the war loan, is without support for his
old age, and so with the man who took insurance in the Insurance
Companies or put his savings in a bank. If that bank becomes
bankrupt through repudiation of the war loan, you then have the
country in a position where the able-bodied are all working to
pay what they can towards the interest of the government loan,
after earning enough to keep themselves and their families alive;
and the old and the young, without support and deprived of their
savings, become mere poor-house burdens on the community.
Already the mere interest of the war loan of Germany amounts to
four billions of marks a year; to this must be added, of course,
the interest of the previous indebtedness of the country and
of each political subdivision thereof, including cities, all
of which have added to their before-the-war debt, by incurring
great debts to help the destitute in this war; and, of course,
to all this must be added the expenses of the administration
of the government and the maintenance of the army and navy.
It is the contemplation of this state of affairs, when he is
convinced that indemnities are not to be exacted from other
countries, that will do most to persuade the average intelligent
German business man that peace must be had at any cost.