The Great Illusion Part 4

Germany has quickened production with the help of English credit, and so has every other economically civilized country in the world. It is a fact that all of them, including our own colonies, develop their resources with the help of British capital and credit, and then do their utmost to keep out our productions by means of tariffs, which make it appear to superficial observers that England provides capital for the destruction of its own business. But in practice the system works quite otherwise, for all these countries that develop their resources with our money aim at developing an export trade and selling goods to us, and as they have not yet reached the point of economic altruism at which they are prepared to sell goods for nothing, the increase in their production means an increasing demand for our commodities and our services. And in the meantime the interest on our capital and credit, and the profits of working the machinery of exchange, are a comfortable addition to our national income.

But what is a further corollary of this situation? It is that Germany is to-day in a larger sense than she ever was before England's debtor, and that her industrial success is bound up with English financial security.

What would be the situation in Britain, therefore, on the morrow of a conflict in which that country was successful?

I have seen mentioned the possibility of the conquest and annexation of the free port of Hamburg by a victorious British fleet. Let us a.s.sume that the British Government has done this, and is proceeding to turn the annexed and confiscated property to account.

Now, the property was originally of two kinds: part was private property, and part was German Government, or rather Hamburg Government, property. The income of the latter was earmarked for the payment of interest of certain Government stock, and the action of the British Government, therefore, renders the stock all but valueless, and in the case of the shares of the private companies entirely so. The paper becomes unsaleable. But it is held in various forms--as collateral and otherwise--by many important banking concerns, insurance companies, and so on, and this sudden collapse of value shatters their solvency. Their collapse not only involves many credit inst.i.tutions in Germany, but, as these in their turn are considerable debtors of London, English inst.i.tutions are also involved. London is also involved in another way.

As explained previously, many foreign concerns keep balances in London, and the action of the British Government having precipitated a monetary crisis in Germany, there is a run on London to withdraw all balances. In a double sense London is feeling the pinch, and it would be a miracle if already at this point the whole influence of British finance were not thrown against the action of the British Government. a.s.sume, however, that the Government, making the best of a bad job, continues its administration of the property, and proceeds to arrange for loans for the purpose of putting it once more in good condition after the ravages of war. The banks, however, finding that the original t.i.tles have through the action of the British Government become waste paper, and British financiers having already burned their fingers with that particular cla.s.s of property, withhold support, and money is only procurable at extortionate rates of interest--so extortionate that it becomes quite evident that as a Governmental enterprise the thing could not be made to pay. An attempt is made to sell the property to British and German concerns. But the same paralyzing sense of insecurity hangs over the whole business. Neither German nor British financiers can forget that the bonds and shares of this property have already been turned into waste paper by the action of the British Government. The British Government finds, in fact, that it can do nothing with the financial world unless first it confirms the t.i.tle of the original owners to the property, and gives an a.s.surance that t.i.tles to all property throughout the conquered territory shall be respected. In other words, confiscation has been a failure.

It would really be interesting to know how those who talk as though confiscation were still an economic possibility would proceed to effect it. As material property in the form of that booty which used to const.i.tute the spoils of victory in ancient times, the gold and silver goblets, etc., would be quite inconsiderable, and as Britain cannot carry away sections of Berlin and Hamburg, she could only annex the paper tokens of wealth--the shares and bonds. But the value of those tokens depends upon the reliance which can be placed upon the execution of the contracts which they embody. The act of military confiscation upsets all contracts, and the courts of the country from which contracts derive their force would be paralyzed if judicial decisions were thrust aside by the sword. The value of the stocks and shares would collapse, and the credit of all those persons and inst.i.tutions interested in such property would also be shaken or shattered, and the whole credit system, being thus at the mercy of alien governors only concerned to exact tribute, would collapse like a house of cards. German finance and industry would show a condition of panic and disorder beside which the worst crises of Wall Street would pale into insignificance. Again, what would be the inevitable result? The financial influence of London itself would be thrown into the scale to prevent a panic in which London financiers would be involved. In other words, British financiers would exert their influence upon the British Government to stop the process of confiscation.

But the intangibility of wealth can be shown in yet another fas.h.i.+on. I once asked an English chartered accountant, very subject to attacks of Germanophobia, how he supposed the Germans would profit by the invasion of England, and he had a very simple programme. Admitting the impossibility of sacking the Bank of England, they would reduce the British population to practical slavery, and make them work for their foreign taskmasters, as he put it, under the rifle and lash. He had it all worked out in figures as to what the profit would be to the conqueror. Very well, let us follow the process. The population of Great Britain are not allowed to spend their income, or at least are only allowed to spend a portion of it, on themselves. Their dietary is reduced more or less to a slave dietary, and the bulk of what they earn is to be taken by their "owners." But how is this income, which so tempts the Germans, created--these dividends on the railroad shares, the profits of the mills and mines and provision companies and amus.e.m.e.nt concerns? The dividends are due to the fact that the population eat heartily, clothe themselves well, travel on railroads, and go to theatres and music-halls. If they are not allowed to do these things, if, in other words, they cannot spend their money on these things, the dividends disappear. If the German taskmasters are to take these dividends, they must allow them to be earned. If they allow them to be earned, they must let the population live as it lived before--spending their income on themselves; but if they spend their income on themselves, what is there, therefore, for the taskmasters? In other words, consumption is a necessary factor of the whole thing. Cut out consumption, and you cut out the profits. This glittering wealth, which so tempted the invader, has disappeared. If this is not intangibility, the word has no meaning. Speaking broadly and generally, the conqueror in our day has before him two alternatives: to leave things alone, and in order to do that he need not have left his sh.o.r.es; or to interfere by confiscation in some form, in which case he dries up the source of the profit which tempted him.

The economist may object that this does not cover the case of such profit as "economic rent," and that dividends or profits being part of exchange, a robber who obtains wealth without exchange can afford to disregard them; or that the increased consumption of the dispossessed English community would be made up by the increased consumption of the "owning" Germans.

If the political control of economic operations were as simple a matter as in our minds we generally make it, these objections would be sound.

As it is, none of them would in practice invalidate the general proposition I have laid down. The division of labor in the modern world is so complex--the simplest operation of foreign trade involving not two nations merely, but many--that the mere military control of one party to an operation where many are concerned could ensure neither s.h.i.+fting of the consumption nor the monopolization of the profit within the limits of the conquering group.

Here is a German manufacturer selling cinematograph machines to a Glasgow suburb (which, incidentally, lives by selling tools to Argentine ranchers, who live by selling wheat to Newcastle boiler-makers).

a.s.suming even that Germany could transfer the surplus spent in cinematograph shows to Germany, what a.s.surance has the German manufacturer in question that the enriched Germans will want cinematograph films? They may insist upon champagne and cigars, coffee and Cognac, and the French, Cubans, and Brazilians, to whom this "loot"

eventually goes, may not buy their machinery from Germany at all, much less from the particular German manufacturer, but in the United States or Switzerland. The redistribution of the industrial roles might leave German industry in the lurch, because at best the military power would only be controlling one section of a complex operation, one party to it out of many. When wealth was corn or cattle, the transference by political or military force of the possessions of one community to another may have been possible, although even then, or in a slightly more developed period, we saw the Roman peasantry ruined by the slave exploitation of foreign territory. How far this complexity of the international division of labor tends to render futile the other contrivances of conquest such as exclusive markets, tribute, money indemnity, etc., succeeding chapters may help to show.

CHAPTER V

FOREIGN TRADE AND MILITARY POWER

Why trade cannot be destroyed or captured by a military Power--What the processes of trade really are, and how a navy affects them--_Dreadnoughts_ and business--While _Dreadnoughts_ protect British trade from hypothetical German wars.h.i.+ps, the real German merchant is carrying it off, or the Swiss or the Belgian--The "commercial aggression" of Switzerland--What lies at the bottom of the futility of military conquest--Government brigandage becomes as profitless as private brigandage--The real basis of commercial honesty on the part of Government.

Just as Mr. Harrison has declared that a "successful invasion would mean to the English the total eclipse of their commerce and trade, and with that trade the means of feeding forty millions in their islands," so I have seen it stated in a leading English paper that "if Germany were extinguished to-morrow, the day after to-morrow there is not an Englishman in the world who would not be the richer. Nations have fought for years over a city or right of succession. Must they not fight for 1250 million dollars of yearly commerce?"

What does the "extinction" of Germany mean? Does it mean that Britain shall slay in cold blood sixty or seventy millions of men, women, and children? Otherwise, even though the fleet and army were annihilated the country's sixty millions of workers would still remain,--all the more industrious, as they would have undergone great suffering and privation--prepared to exploit their mines and workshops with as much thoroughness and thrift and industry as ever, and consequently just as much trade rivals as ever, army or no army, navy or no navy.

Even if the British could annihilate Germany, they would annihilate such an important section of their debtors as to create hopeless panic in London, and that panic would so react on their own trade that it would be in no sort of condition to take the place which Germany had previously occupied in neutral markets, leaving aside the question that by the act of annihilation a market equal to that of Canada and South Africa combined would be destroyed.

What does this sort of thing mean? Am I wrong in saying that the whole subject is overlaid and dominated by a jargon which may have had some relation to facts at one time, but from which in our day all meaning has departed?

The English patriot may say that he does not mean permanent destruction, but only temporary "annihilation." (And this, of course, on the other side, would mean not permanent, but only temporary acquisition of that 1250 millions of trade.)

He might, like Mr. Harrison, put the case conversely--that if Germany could get command of the sea she could cut England off from its customers and intercept its trade for her benefit. This notion is as absurd as the other. It has already been shown that the "utter destruction of credit" and "incalculable chaos in the financial world,"

which Mr. Harrison foresees as the result of Germany's invasion, could not possibly leave German finance unaffected. It is a very open question whether her chaos would not be as great as the English. In any case, it would be so great as thoroughly to disorganize her industry, and in that disorganized condition it would be out of the question for her to secure the markets left unsupplied by England's isolation. Moreover, those markets would also be disorganized, because they depend upon England's ability to buy, which Germany would be doing her best to destroy. From the chaos which she herself had created, Germany could derive no possible benefit, and she could only terminate financial disorder, fatal to her own trade, by bringing to an end the condition which had produced it--that is, by bringing to an end the isolation of Great Britain.

With reference to this section of the subject we can with absolute certainty say two things: (1) That Germany can only destroy British trade by destroying British population; and (2) that if she could destroy that population, which she could not, she would destroy one of her most valuable markets, as at the present time she sells to it more than it sells to her. The whole point of view involves a fundamental misconception of the real nature of commerce and industry.

Commerce is simply and purely the exchange of one product for another.

If the British manufacturer can make cloth, or cutlery, or machinery, or pottery, or s.h.i.+ps cheaper or better than his rivals, he will obtain the trade; if he cannot, if his goods are inferior or dearer, or appeal less to his customers, his rivals will secure the trade, and the possession of _Dreadnoughts_ will make not a whit of difference. Switzerland, without a single _Dreadnought_, will drive him out of the market even of his own colonies, as, indeed, she is driving him out.[14] The factors which really const.i.tute prosperity have not the remotest connection with military or naval power, all our political jargon notwithstanding. To destroy the commerce of forty million people Germany would have to destroy Britain's coal and iron mines, to destroy the energy, character, and resourcefulness of its population; to destroy, in short, the determination of forty million people to make their living by the work of their hands. Were we not hypnotized by this extraordinary illusion, we should accept as a matter of course that the prosperity of a people depends upon such facts as the natural wealth of the country in which they live, their social discipline and industrial character, the result of years, of generations, of centuries, it may be, of tradition and slow, elaborate, selective processes; and, in addition to all these deep-seated elementary factors, upon countless commercial and financial ramifications--a special technical capacity for such-and-such a manufacture, a special apt.i.tude for meeting the peculiarities of such and-such a market, the efficient equipment of elaborately constructed workshops, the existence of a population trained to given trades--a training not infrequently involving years, and even generations, of effort. All this, according to Mr. Harrison, is to go for nothing, and Germany is to be able to replace it in the twinkling of an eye, and forty million people are to sit down helplessly because Germany has been victorious at sea. On the morrow of her marvellous victory Germany is by some sort of miracle to find s.h.i.+pyards, foundries, cotton-mills, looms, factories, coal and iron mines, and all their equipment, suddenly created in order to take the trade that the most successful manufacturers and traders in the world have been generations in building up. Germany is to be able suddenly to produce three or four times what her population has. .h.i.therto been able to produce; for she must either do that or leave the markets which England has supplied heretofore still available to English effort. What has really fed these forty millions, who are to starve on the morrow of Germany's naval victory, is the fact that the coal and iron exported by them have been sent in one form or another to populations which need those products. Is that need suddenly to cease, or are the forty millions suddenly to be struck with some sort of paralysis, that all this vast industry is coming to an end? What has the defeat of English s.h.i.+ps at sea to do with the fact that the Canadian farmer wants to buy English manufactures and pay for them with his wheat? It may be true that Germany could stop the importation of that wheat. But why should she want to do so? How would it benefit her people to do so? By what sort of miracle is she suddenly to be able to supply products which have kept forty million people busy? By what sort of miracle is she suddenly to be able to double her industrial population?

And by what sort of miracle is she to be able to consume the wheat, because if she cannot take the wheat the Canadian cannot buy her products? I am aware that all this is elementary, that it is economics in words of one syllable; but what are the economics of Mr. Harrison and those who think like him when he talks in the strain of the pa.s.sage that I have just quoted?

There is just one other possible meaning that the English patriot may have in his mind. He may plead that great military and naval establishments do not exist for the purpose of the conquest of territory or of destroying a rival's trade, but for "protecting" or indirectly aiding trade and industry. We are allowed to infer that in some not clearly defined way a great Power can aid the trade of its citizens by the use of the prestige which a great navy and a great army bring, and by exercising bargaining power, in the matter of tariffs, with other nations. But again the condition of the small nations in Europe gives the lie to this a.s.sumption.

It is evident that the neutral does not buy English products and refuse Germany's because England has a larger navy. If one can imagine the representatives of an English and a German firm meeting in the office of a merchant in Argentina, or Brazil, or Bulgaria, or Finland, both of them selling cutlery, the German is not going to secure the order because he is able to show the Argentinian, or the Brazilian, or the Bulgarian, or the Finn that Germany has twelve _Dreadnoughts_ and England only eight. The German will take the order if, on the whole, he can make a more advantageous offer to the prospective buyer, and for no other reason whatsoever, and the buyer will go to the merchant of any nation whatever, whether he be German, or Swiss, or Belgian, or British, irrespective of the armies and navies which may lie behind the nationality of the seller. Nor does it appear that armies and navies weigh in the least when it comes to a question of a tariff bargain.

Switzerland wages a tariff war with Germany, and wins. The whole history of the trade of the small nations shows that the political prestige of the great ones gives them practically no commercial advantage.

We continually talk as though carrying trade were in some special sense the result of the growth of a great navy, but Norway has a carrying trade which, relatively to her population, is nearly three times as great as Britain's, and the same reasons which would make it impossible for another nation to confiscate the gold reserve of the Bank of England would make it impossible for another nation to confiscate British s.h.i.+pping on the morrow of a British naval defeat. In what way can her carrying trade or any other trade be said to depend upon military power?

As I write these lines there comes to my notice a series of articles in the London _Daily Mail_, written by Mr. F.A. McKenzie, explaining how it is that England is losing the trade of Canada. In one article he quotes a number of Canadian merchants:

"We buy very little direct from England," said Mr. Harry McGee, one of the vice-presidents of the company, in answer to my questions. "We keep a staff in London of twenty, supervising our European purchases, but the orders go mostly to France, Germany, and Switzerland, and not to England."

And in a further article he notes that many orders are going to Belgium.

Now the question arises: What more can a navy do that it has not done for England in Canada? And yet the trade goes to Switzerland and Belgium. Is England going to protect herself against the commercial "aggression" of Switzerland by building a dozen more _Dreadnoughts_?

Suppose she could conquer Switzerland and Belgium with her _Dreadnoughts_, would not the trade of Switzerland and Belgium go on all the same? Her arms have brought her Canada--but no monopoly of the Canadian orders, which go, in part, to Switzerland.

If the traders of little nations can snap their fingers at the great war lords, why do British traders need _Dreadnoughts_? If Swiss commercial prosperity is secure from the aggression of a neighbor who outweighs Switzerland in military power a hundred to one, how comes it that the trade and industry, the very life-bread of her children, as Mr.

Harrison would have us believe, of the greatest nation in history is in danger of imminent annihilation the moment she loses her military predominance?

If the statesmen of Europe would tell us _how_ the military power of a great nation is used to advance the commercial interest of its citizens, would explain to us the _modus operandi_, and not refer us to large and vague phrases about "exercising due weight in the councils of the nations," we might accept their philosophy. But, until they do so, we are surely justified in a.s.suming that their political terminology is simply a survival--an inheritance from a state of things which has, in fact, pa.s.sed away.

It is facts of the nature of those I have instanced which const.i.tute the real protection of the small State, and which are bound as they gain in general recognition to const.i.tute the real protection from outside aggression of all States, great or small.

One financial authority from whom I have quoted noted that this elaborate financial interdependence of the modern world has grown up in spite of ourselves, "without our noticing it until we put it to some rude test." Men are fundamentally just as disposed as they were at any time to take wealth that does not belong to them, which they have not earned. But their relative interest in the matter has changed. In very primitive conditions robbery is a moderately profitable enterprise.

Where the rewards of labor, owing to the inefficiency of the means of production, are small and uncertain, and where all wealth is portable, raiding and theft offer the best reward for the enterprise of the courageous; in such conditions the size of man's wealth depends a good deal on the size of his club and the agility with which he wields it.

But to the man whose wealth so largely depends upon his credit and on his paper being "good paper" at the bank, dishonesty has become as precarious and profitless as honest toil was in more primitive times.

The instincts of the business man may, at bottom, be just as predatory as those of the cattle-lifter or the robber baron, but taking property by force has become one of the least profitable and the most speculative forms of enterprise upon which he could engage. The force of commercial events has rendered the thing impossible. I know that the defender of arms will reply that it is the police who have rendered it impossible.

This is not true. There were as many armed men in Europe in the days when the robber baron carried on his occupation as there are in our day.

To say that the policeman makes him impossible is to put the cart before the horse. What created the police and made them possible, if it was not the general recognition of the fact that disorder and aggression make trade impossible?

Just note what is taking place in South America. States in which repudiation was a commonplace of everyday politics have of recent years become as stable and as respectable as the City of London, and have come to discharge their obligations as regularly. These countries were during hundreds of years a slough of disorder and a never-ending sanguinary scramble for the spoils, and yet in a matter of fifteen or twenty years the conditions have radically changed. Does this mean that the nature of these populations has fundamentally altered in less than a generation?

In that case many a militarist claim must be rejected. There is a simpler explanation.

These countries, like Brazil and the Argentine, have been drawn into the circle of international trade, exchange, and finance. Their economic relations.h.i.+ps have become sufficiently extensive and complex to make repudiation the least profitable form of theft. The financier will tell you "they cannot afford to repudiate." If any attempt at repudiation were made, all sorts of property, either directly or indirectly connected with the orderly execution of Governmental functions, would suffer, banks would become involved, great businesses would stagger, and the whole financial community would protest. To attempt to escape the payment of a single loan would involve the business world in losses amounting to many times the value of the loan.

It is only where a community has nothing to lose, no banks, no personal fortunes dependent upon public good faith, no great businesses, no industries, that the Government can afford to repudiate its obligations or to disregard the general code of economic morality. This was the case with Argentina and Brazil a generation ago; it is still the case, to some extent, with some Central American States to-day. _It is not because the armies in these States have grown_ that the public credit has improved. Their armies were greater a generation ago than they are now. It is because they know that trade and finance are built upon credit--that is, confidence in the fulfilment of obligations, upon security of tenure in t.i.tles, upon the enforcement of contract according to law--and that if credit is seriously shaken, there is not a section of the elaborate fabric which is not affected.

The more our commercial system gains in complication, the more does the common prosperity of all of us come to depend upon the reliance which can be placed on the due performance of all contracts. This is the real basis of "prestige," national and individual; circ.u.mstances stronger than ourselves are pus.h.i.+ng us, despite what the cynical critics of our commercial civilization may say, towards the unvarying observance of this simple ideal. When we drop back from it--and such relapses occur as we should expect them to occur, especially in those societies which have just emerged from a more or less primitive state--punishment is generally swift and sure.

What was the real origin of the bank crisis of 1907 in the United States, which had for American business men such disastrous consequences? It was the loss by American financiers and American bankers of the confidence of the American public. At bottom there was no other reason. One talks of cash reserves and currency errors; but London, which does the banking of the universe, works on the smallest cash reserve in the world, because, as an American authority has put it, English bankers work with a "psychological reserve."

I quote from Mr. Withers:

It is because they (English bankers) are so safe, so straight, so sensible, from an American point of view so unenterprising, that they are able to build up a bigger credit fabric on a smaller gold basis, and even carry this building to a height which they themselves have decided to be questionable. This "psychological reserve" is the priceless possession that has been handed down through generations of good bankers, and every individual of every generation who receives it can do something to maintain and improve it.

But it was not always thus, and it is merely the many ramifications of the English commercial and financial world that have brought this about.

In the end the Americans will imitate it, or they will suffer from a hopeless disadvantage in their financial compet.i.tion with England.