PART VI.—THE WORLD WAR
CHAPTER LIV
COMMERCE AND THE WORLD WAR, 1914-1918
712. Commercial antecedents of the war.—To picture the World War of 1914-18 as a necessary result of the commercial conditions in the period immediately preceding would be a distortion of the facts. The recourse to arms is a voluntary act, and this war, like others preceding it, would not have taken place if one party to it had not consciously chosen to use force to obtain what it wanted. War is never a necessary and inevitable result of economic conditions. On the other hand, there are periods in which commercial competition is so intense that it puts a strain on international relations, tempting one or another party in the struggle to further the interests of its people by threats of force or by force itself. The economic strain is particularly likely to lead to rupture if the political system of the period is faulty, if international politics provide no effective way for the just settlement of differences, and if national politics fail to represent the interests of the people as a whole but sacrifice these to the selfish interests of a group. Keen competition does not cause war, but keen competition and faulty politics in combination are apt to do so.
713. Germany and the outbreak of war.—The danger-spot in the international situation before 1914 was Germany. That country had achieved extraordinary success in its recent economic development. Its progress, moreover, was due only in minor degree to its endowment of natural resources; it proceeded from the industrial virtues of the people, from the efficiency of the organization, and from the leadership of scientific experts. The Germans were proud, and had a right to be proud, of their success. They could not complain of the reward which had been accorded them. They were troubled, however, about their future. They had come to depend upon world-trade, and found the world largely under the political control of rival states. It is true that in that very world they enjoyed abounding prosperity; but the foundations of their prosperity appeared to them uncertain. Inheriting antiquated ideas about the power of the state to guide economic development and to further commercial interests, they imputed to other countries political designs which were the products of their own peculiar ways of thought. They saw in the high tariffs of the United States and Russia, in the spread of the idea of a customs union in the British Empire, in the expansion of French influence in Morocco, so many evidences of a plan of their rivals to hem them in, and misuse political power to rob them of their deserts. Should they not, before it was too late, “break through the iron circle,” establish a great state in central Europe extending down to the Mediterranean and the Persian Gulf, take the place in “world-politics” which accorded with their economic merits, and so—for this was the sincere conviction of many Germans—not merely win their own “place in the sun,” but also direct in the right path the civilization of the world as a whole? Given the prevalence of ideas like these, given an antiquated political system that allowed exaggerated influence to dynastic and military interests, and the forces impelling Germany to war were strong; given the old-fashioned and outworn system of international diplomacy, the stress was irresistible and the rupture came.
714. Direct costs of the war.—For generations to come the effects of the World War will be working themselves out. This chapter and the following will attempt merely a survey of some of the more obvious effects upon the history of commerce. It will be convenient to have at hand for reference some estimates of the costs of the war, and the table gives those that were represented by the direct expenditure of money by the states involved. Some of the states advanced funds to their allies for the prosecution of the war, so a distinction is made between the gross sums raised, and the sums directly expended by each country; the cost of the war would be exaggerated if the same sum were counted twice. On the other hand it is apparent that the table of net cost is an accurate measure of the burden of the war on different countries only on condition that the advances to allies are treated as interest-bearing loans. To assist in an appreciation of the meaning of the costs estimates are supplied for some countries of the total national wealth in 1914.
| (Approximate figures in milliards of dollars) | ||||
|---|---|---|---|---|
| National wealth | Gross cost | Advances to allies | Net cost | |
| United States | 204 | 32 | 9 | 23 |
| United Kingdom | 71 | 44 | 9 | 35 |
| Rest of British Empire | ... | 4 | .. | 4 |
| France | 58 | 26 | 2 | 24 |
| Russia | 58 | 23 | .. | 23 |
| Italy | 22 | 12 | .. | 12 |
| Other Entente allies | ... | 4 | .. | 4 |
| Total | ... | 145 | 20 | 125 |
| Germany | 81 | 40 | 2 | 38 |
| Austria-Hungary | 30 | 21 | .. | 21 |
| Turkey and Bulgaria | ... | 2 | .. | 2 |
| Total | ... | 63 | 2 | 61 |
| Grand total | ... | 208 | 22 | 186 |
715. Indirect costs of the war.—Even the figures of direct costs are subject to correction on various accounts, and must be taken merely as approximate indications of the value of the wealth that was devoted to destruction. Still more uncertain, necessarily, are the estimates of losses due to the war which were not recorded in the expenditures of governments. Figures in the accompanying table give some idea of the nature and extent of these indirect costs.
| Indirect Costs of the War (Figures in milliards of dollars) | |
|---|---|
| Money value of lives lost, military | 34 |
| Money value of lives lost, civilian | 34 |
| Property losses on land | 30 |
| Property losses at sea | 7 |
| Loss of production by diversion of labor | 45 |
| Voluntary war relief | 1 |
| Loss to neutrals | 2 |
| Total | 153 |
| Grand total, direct and indirect costs | 339 |
A few words of explanation will make some of the items more clear. Human beings have not, since the days of slavery, been counted in a census of national wealth, but they represent nevertheless in every country the heaviest investment and the largest source of income. The figures in the text are based on the assumption of about 13 million deaths in military service, and a money value of the individual ranging from about $2,000 (southern and eastern Europe) to $5,000 (United States). The assumption that the war caused at least as heavy a loss in the civil as in the military population is probably conservative. The loss due to the diversion of labor from production is figured on the basis of 20 million men, of an average productive capacity of $500 a year, withdrawn from industry for four and one half years.
716. Effects of the war on commerce.—In a modern country there is a small group of men known as wreckers, whose business it is to tear down and destroy. During the war the world went into the wrecking business on a grand scale. The figure of twenty million men engaged in it is an average for the whole period; at the close of the war nearly double that number were under arms. We have now to study some of the effects of this situation on commerce.
In every country that entered the war there was an immediate and imperative demand for the tools of the wrecking trade, first of all for guns and ammunition. The wrecker was engaged in an arduous occupation; he demanded more food than he had been used to consume, and wasted more; he used up clothes and shoes and implements at an appalling rate; he was always on the road, requiring subsistence and shelter in all sorts of out-of-the-way places. War therefore put an immediate strain on the industries serving these needs: chemical, metallurgical, agricultural, textile, and the industries providing and operating the equipment of transportation on land and water. On the other hand war withdrew workers from constructive industry, and restricted supply at the very time it intensified demand. Every country at war, therefore, sought by means of commerce to relieve the strain on its own resources, importing needed supplies from abroad; each group of belligerents sought to prevent the other group from profiting by this process. The tendency to an increase of imports was accompanied by a tendency to a decline in exports. A country at war could not afford to do business as usual in its foreign trade. If it could supply its military necessities by paying actual cash for its imports, or by promising to pay for them at some future time, it could withdraw workers from export industries, serving the needs of foreigners, and make them serve more pressing needs at home.
717. Commercial position of the Central Powers and of the Entente.—Germany and her allies, Austria-Hungary, Bulgaria, Turkey, enjoyed a great military advantage of which the character is suggested by their name, the Central Powers; they had interior lines of communication and could move their forces from one to another front much more easily than could their opponents. They would have enjoyed a corresponding commercial advantage if they could have brought the war to a conclusion with stocks of supplies accumulated at home or acquired in invaded territory, which they could mobilize in one part or another of their territory as they pleased. The powers of the Entente, on the other hand, desired in vain to effect an exchange of the wheat of Russia for the guns and ammunition of France or England. In a long war, however, in which the decision was to be effected not by stocks accumulated in the countries immediately engaged but by a mobilization of the resources and activities of the whole world, the Central Powers were at a critical disadvantage. They had immediately open to them only the territory of small neutral states (the Netherlands, Switzerland, the Scandinavian states); the path to richer sources of supply lay across the sea; and control of the sea rested, from the beginning to the end of the war, in the hands of the Entente.
718. The war against commerce.—The conditions were much like those of a hundred years before, when England was engaged in the desperate struggle with Napoleon. In neither period had the belligerents any scruple in departing from established principles of international law. The Entente proposed to starve Germany into surrender. It stopped the outlets of Germany across the territory of neutral states by edicts which amounted in substance to a rationing of the people of those states; these people might have enough food, fodder, cotton, etc., for their own immediate needs, but no surplus that they might transfer to Germany. Germany protested against this infraction of the principle of freedom of the seas, and retaliated by proclaiming a war zone about the British islands, within which German submarines ruthlessly destroyed the merchant shipping on which England depended for her supply of food. These measures on either side, took shape in the early years of the war. The measures of the Entente were effective in sealing the Central Powers from commercial intercourse with the outside world. The German policy failed. It remained a menace, which grew more serious in the latter part of the war when the danger to England was very real, but in its moral influence, instead of breaking the spirit of the English, it did much to rouse the spirit of neutral countries. As the occasion for the entry into the war of the United States on the side of the Entente it was a decisive factor in bringing the conflict to a conclusion.
719. The war on shipping.—The war on shipping resulted in the destruction by enemy action of a tonnage amounting to more than one quarter of the world’s total tonnage in 1914. The figures in the following table indicate the extent and distribution of the losses, and show at the same time how rapidly they were repaired by the construction of new ships. Changes in the relative standing of the different countries, were affected also by another factor, namely by the distribution among other countries of ships of the Central Powers, taken during and after the war. Germany was second in rank among maritime nations in 1914, with a tonnage of 5.5 million; in 1920 its tonnage had been reduced to less than 1 million, almost entirely by forced transfer.
| (Figures in millions of gross tons) | |||
|---|---|---|---|
| Tonnage, 1914 | War losses | Tonnage, 1920 | |
| United Kingdom | 21.0 | 7.8 | 20.6 |
| United States[2] | 5.4 | 0.4 | 16.0 |
| France | 2.3 | 0.9 | 3.2 |
| Japan | 1.7 | 0.1 | 3.0 |
| Italy | 1.7 | 0.8 | 2.2 |
| Norway | 2.5 | 1.2 | 2.2 |
| Total of these items | 34.6 | 11.2 | 47.2 |
| Total for world | 49.1 | 13.0 | 57.3 |
720. Influence of the war on the issue of paper money.—War is itself abnormal. Naturally, the World War gave a peculiar cast to the commerce of the period and left behind it commercial conditions very different from those that had prevailed in the earlier period of peace. These results of the war involve reference to questions of currency and foreign exchange which can be treated only superficially in a book on the history of commerce, but which were of such practical importance that they cannot be omitted altogether.
The governments involved in the war had, of course, to strain every resource to get the funds for their necessary expenditures. An expedient which they all adopted was the issue of paper money. Let us consider, to illustrate the matter, the case of a country which had been doing business with a gold currency of say 100, using that figure to express the number of million francs, marks, dollars or other unit. If the government now printed 10 of paper money and used these to meet its extraordinary expenses, there would be a total of 110 in circulation. Price would rise roughly to correspond; that is, the unit would buy less than before. The gold unit would, however, be worth roughly as much in other countries as it was before, and would be sent abroad to make purchases, instead of being used at home where its purchasing power was diluted, as it were, by the issue of the paper units. After a period of readjustment 10 of gold would have gone out; the currency would have returned to its former level. The government has made a net gain of 10, for the paper money cost practically nothing to print. Has anybody lost? No; not if the paper money circulates readily at home, and does the work which an equal amount of gold money had formerly done. The country has simply “realized” part of its gold stock, using a cheap substitute for money purposes, and selling the dear gold to other people who were glad to exchange products for it.
721. Effect upon the flow of gold.—From the very beginning of the war the governments of the European states practised this expedient, paying out paper money and getting in return for it the goods and services which they needed for military operations. Gold went out of circulation and was replaced by paper. The government did not choose, however, to let private individuals profit by the exchange of this gold with people abroad. By an appeal to patriotism and by the threat of penalties each government sought to bring into its own treasury[3] the gold which had been in the pockets and in the cash-boxes of its people. It opened the way for the circulation of its paper as well by locking up gold in its vaults as by sending it abroad. It cherished the gold as a precious asset: a sign of solvency and a ready resource in time of need. The gold reserves of some of the belligerents increased considerably in the course of the war.
| Gold Reserves of European Belligerents | ||
|---|---|---|
| (Figures in millions of dollars) | ||
| 1913 | 1918 | |
| United Kingdom | 170 | 528 |
| France | 679 | 664 |
| Italy | 288 | 244 |
| Germany | 279 | 539 |
| Austria-Hungary | 251 | 53 |
These gold reserves, as the name implies, were not in active circulation. Gold passed entirely out of circulation. It flowed into the treasury, and part of it was retained there. The larger part flowed through the treasury, and was employed by the government in purchase of war material abroad. Some part of this outflow from the belligerent states remained in Europe; Spain and the Netherlands showed in the course of the war a notable increase in their gold holdings. By far the greater part of the gold left Europe altogether, most of it going to the United States, very considerable amounts going to the Far East and to South America.
722. Over-issue of paper money; worldwide inflation.—Let us return now to a consideration of the case which was assumed to illustrate the working of paper money. If we suppose the government issues 10 units, 20 units, and so on up to 100 units we may assume in each case that a corresponding amount of gold is driven out of circulation, to be impounded in the treasury or sent abroad; in either event the number of units in circulation and the price level remain the same as before. Suppose the issue of an additional 100. The paper money has no value abroad. The government will not keep it in the treasury. The government would not have issued it except as a means of purchasing services or supplies, and must reissue it when it comes back to the treasury in the payment of taxes, else it would renounce all its advantages in the collection of the tax. There would be left then double the number of units in circulation; prices would double; the unit would buy only half as much as before. Depreciation would follow inflation. The government would gain still by the issue of paper money, but it would have to issue twice as many units as before to get a given purchasing power; the dose would need to be constantly increased to produce a given effect. Furthermore, the government from now on would get its gain only at the expense of its people. Its gain would be offset all along the line by the losses of individuals who would receive for their services and products perhaps a greater number of monetary units but certainly a smaller actual purchasing power.
Not even the neutral countries could escape the effects of the issue of paper money by the belligerents. Even when they remained on a gold basis they had now so many more units, driven out from the belligerent countries, that the gold unit itself depreciated. The dilution of currency spread over the world and resulted in a world-wide inflation.
723. Statistics of currency inflation and of prices.—I have described conditions, in preceding sections, in an artificially simple form, and have neglected many elements that would have to be included if there were space for a more precise and complete treatment. The general tendencies and results were in rough accordance with the description given, as may be seen from the figures of the table below. In both columns the year 1913 is taken as the basis of comparison; the increase of currency of all kinds, and of wholesale prices, may be measured by comparing the figures given for 1919 with par, 100, in 1913.
| Units of currency | Average of wholesale prices | |
|---|---|---|
| United Kingdom | 244 | 257 |
| France | 365 | 330 |
| United States | 173 | 206 |
The inflation of currency and prices presented in these figures was moderate in comparison with conditions in central and eastern Europe, where the flood of paper money broke all bounds; the quantity of currency in 1919, compared with 1913, was in Germany 875, in Rumania over 1,100, in Austria and in Poland higher still.
724. Effect upon foreign exchange.—Leaving aside the grave effects of these rapid changes in the price level on the earnings and income of different classes, there is a particular reason for studying them in their relation to international trade. We have had occasion to note previous changes in the price level, such as the rise in prices before 1914; but these earlier changes were more moderate, and what is still more important, were about the same in different countries. The changes resulting from the issue of paper money were not only more abrupt; they were different in individual countries, as can be seen from the figure in the last section. The price level in any country depended upon the particular amount of paper money which the government of that country felt obliged to issue. The prices of Europe were no longer gold prices, steadied at a common level by the inflow and outflow of gold; they had no common level, they lost their former steadiness. With these changes the time-honored basis of international transactions, the old par of foreign exchange, disappeared.
725. Par of exchange on the gold standard.—The significance of the change can be most readily appreciated if we consider a simple case, say that of an English spinner who buys raw cotton in the United States. The American wants dollars; the Englishman has pounds sterling to offer. It does not matter in which unit the bargain is expressed, whether the American gets the right to draw an order on the Englishman for so many pounds sterling and sells this to a bank for dollars, or whether the price is fixed at so many dollars, and the Englishman makes payment by buying a bill for that amount with his pounds sterling. In either event one party to the bargain must deal in the monetary unit of the other. Under the old system both units were perfectly definite weights of gold. A merchant knew, within narrow limits, how much he had to pay or to receive. The gold in £1,000 was equal to the gold in $4,866. Sterling exchange was at par in New York when the pound was quoted at 4.866. Exchange could not vary far from par, for the cost of shipping the gold itself was only about two cents per pound sterling, and the gold of either country was perfectly acceptable in the other.
726. Foreign exchange on a paper standard.—Consider now the situation after England has driven gold out of circulation by the over-issue of paper money. The pound sterling has become a “paper pound,” of which the value stands in no fixed relation to a definite weight of gold, but is determined by a new set of factors, particularly by the condition of the English treasury and the prospect of an expansion or contraction of the paper currency. The American can no longer count with any assurance on the value to him in dollars of a sum due him in pounds sterling three months hence; the Englishman is no longer in a position to calculate how many pounds sterling he will need to pay a debt contracted in dollars. The rate of exchange, instead of being fixed close to 4.866, may go down to 4.50, 4.00, 3.00—there is no limit to its depression or to the sharpness of its fluctuations. The student should note particularly two elements which are important in an analysis of the situation. First, international transactions involve a considerable time interval, say three months, within which events may occur that will make sweeping changes in rates. Second, the purchasing power of paper money at home, where prices are fixed by contract or affected by custom, does not change in accordance with the rate at which it is estimated in foreign exchange. As a result there is a “spread” in the factors determining profit or loss in international transactions which makes foreign trade extremely speculative, and makes its flow fitful and irregular.
QUESTIONS AND TOPICS
1. Dangers arising from the German political constitution. [W. H. Dawson, What is wrong with Germany?, London, 1915; Veblen, Imperial Germany, Chap. 5.]
2. “German industry considered as a factor making for war.” [H. Hauser, Economic Germany, London, 1915, a pamphlet of 33 pages.]
3. Commercial aims of Germany in the war. [Snow and Kral, German trade and the war, Washington, 1918, pp. 11-14.]
4. How do you explain the fact that the direct expenditures for war by the Entente were more than double those of the Central Powers?
5. What portion of the cost of the war fell upon your individual family? [Tabulate money costs under taxes, contributions, losses. Who bears the cost of government bonds? Estimate “real” costs in the form of extra exertion, diminished consumption, decline in purchasing power of the family income.]
6. The question of neutral rights, 1914-1916. [Ogg, National progress, chap. 18; Paxson, Recent history of U. S., chap. 44.]
7. Assuming that both parties to the European conflict departed from established principles of international law, why did the United States choose the side of the Entente?
8. Have previous wars led to the issue and over-issue of paper money? What was the experience of the United States in the Revolution; in the Civil War?
9. Did your family gain or lose by the inflation of currency and the rise of prices? Does the country as a whole gain or lose by these movements?
BIBLIOGRAPHY
James D. Whelpley, *The trade of the world, N. Y., 1913, is an account, popularly written, of the commerce of the more important European states just before the outbreak of the war. General histories of the war give incidental attention to the course of commerce, but treat fully only the topic of submarine activity.
Of the references on the responsibility of Germany, given under Chapter XL and in the Questions and Topics above, Veblen, Imperial Germany and the industrial revolution, London, 1915, is the most thoughtful; the work by Snow and Kral is a government report, Bureau of Foreign and Domestic Commerce, Misc. Series no. 65, useful for matters of fact.
Preliminary economic studies of the war, published for the Carnegie Endowment for International Peace by the Oxford University Press, and cited hereafter under the heading Carnegie Peace, comprise careful studies in various parts of the field, of which the most important for present purposes are no. 24, Ernest L. Bogart, Direct and indirect costs of the great World War, N. Y., 1919, and no. 9, J. Russell Smith, Influence of the great war upon shipping, N. Y., 1919.
The topics of money, prices, and foreign exchange lead the student into a great mass of literature quite apart from his usual sources. On questions of fact a convenient compilation is presented by the Secretariat of the League of Nations, Currencies after the war, London, 1920, and a wealth of material is comprised in the reports of the Brussels International Financial Conference of 1920. For current facts and discussion see Bulletin of the Federal Reserve Board (Washington, monthly), The Annalist, a weekly publication of the N. Y. Times, and, besides the other financial papers, the bulletins of New York banks (Federal Reserve, National City, Guaranty Trust). The ordinary student will best employ his time by a careful review of the principles of paper money and of foreign exchange, as they are presented in manuals of economics. F. W. Taussig, **Principles of economics, 2 vol., 3d ed., N. Y., 1921-1922, deserves particular recommendation.
CHAPTER LV
THE UNITED KINGDOM, 1914-1920
727. Statistics of English trade, 1913-1919.—Statistics of the general trade of the United Kingdom in the war period are given in the following table, to which is added a column showing the excess value of the imports of merchandise and a column showing the excess value of the import (I), or export (E), of gold.
| (Figures in millions of pounds sterling.) | ||||||
|---|---|---|---|---|---|---|
| Total imports | Domestic exports | Foreign exports | Excess imports | Excess gold | ||
| 1913 | 769 | 525 | 110 | 134 | I | 13 |
| 1914 | 697 | 431 | 95 | 170 | I | 28 |
| 1915 | 852 | 385 | 99 | 368 | E | 29 |
| 1916 | 949 | 506 | 98 | 345 | E | 21 |
| 1917 | 1,064 | 527 | 70 | 467 | E | 150 |
| 1918 | 1,316 | 501 | 31 | 790 | I | 51 |
| 1919 | 1,626 | 799 | 165 | 662 | [4] | |
728. Interpretation of the statistics.—Statistics of commerce in the war period are necessarily inaccurate, and two points particularly should be borne in mind in analyzing these figures. (1) The statistics omitted an immense trade in government-owned goods; figures of the actual movement of merchandise should be much larger to give an accurate idea of the facts. The correction would apply particularly to the earlier years of the war, and would affect imports more than exports.[5]
(2) Prices were rising rapidly, with the inflation of the currency; in 1919 they were about two-and-one-half-fold the prices of 1913. The correction to be applied, to ascertain the physical volume of trade, would affect both imports and exports.
Clearly the trade of the United Kingdom, if measured not in paper values or in gold values but in quantities of physical goods, declined during the war. The shrinkage was most marked in re-exports, of foreign and colonial merchandise. The English had to renounce most of the business that they had been used to transact as middlemen, distributing through the world the goods of other countries. The values of domestic exports also declined at the beginning of the war, and though they returned later to about their former level, the volume of actual wares must have shrunk seriously, to half or less. Only in the case of imports do we find a rise in value that keeps pace with the rise in prices, and indicates a flow of goods that persisted and perhaps increased in amount. These results are what we should anticipate. “Business as usual” is a motto favored by the private merchant, but one which spells ruin for a people engaged in war. To make war effectively they must abandon their usual employments, turn away their regular customers, seek from outsiders only the things that offer a military advantage, but seek all that they can get of those things.
729. Problem of acquiring and of paying for the imports.—The most serious problem for England was to get the goods across a sea infested by submarines, in ships that had constantly to be renewed, through terminals choked by an extraordinary congestion of traffic. This was the vital problem, which strained the energies both of the military and industrial forces of the country, but which by their cooperation was solved. A problem of secondary importance at the time, but important always, was that of paying for the goods.
England had long been used to import goods in excess of those exported. The figures for 1913, £134 million excess value of imports over exports, may be taken as a normal measure of conditions in the recent period of peace. Let the reader, however, glance down the column giving the excess of imports in the years following, amounting 1914-1918 to more than £2,000 million, and he will appreciate the magnitude of the problem involved.
730. Details of the method of payment.—One mode of payment is indicated in the table, in the column of gold shipments. £200 million of gold were exported (in excess of imports) in the three years 1915-1917. The fact that in the year 1914 and particularly in 1918 England was able to add to the government’s gold reserve is striking evidence of the country’s financial strength. The net excess of gold exported, 1914-1918, amounted only to about £120 million, and went but a little way toward payment for the excess of merchandise imported. Reference to an earlier chapter (section 448) will indicate other resources which the country had at its disposal. British ships which carried freight for foreigners during the war received extraordinarily high rates, but many ships were pressed into government service, many were lost, and considerable sums had to be paid to neutral carriers. Net earnings on shipping could hardly have maintained the level of the period before the war, although in one estimate they are credited with a contribution, 1914-1918, of £600 million. A more considerable resource, ideal as a “liquid” asset and adequate in amount to more than any demand that was made upon it, lay in the vast investments that England had made in other countries. The sum of these investments is estimated to have amounted in 1914 to £4,000 million—twice the total adverse balance of merchandise imports. If they had been kept intact the annual returns from them in the five years 1914-1918 would have amounted to nearly half of the bill to be met. Actually they were “mobilized” by the government early in the war, by an arrangement under which the holders exchanged them for government bonds; they were then used as collateral for loans abroad or were sold outright. Estimates of the amount of foreign investments thus sold vary from £500 to £1,000 million. Finally the government borrowed abroad over £1,000 million; that is, it paid the foreigner for the merchandise which he had shipped by getting another foreigner to advance the money to him.
The figures given above are in most cases rough estimates, but even at the minimum they amount to a total considerably above the £2,000 million which was suggested as the sum required. In fact, England was herself lending large amounts abroad in the very period in which she was herself borrowing. She found it necessary to support some of her dominions and allies by loans which amounted altogether to about £1,800 million.[6]
731. Character of exports and imports.—In general character the trade of the United Kingdom remained unchanged through the war. Four-fifths of the exports, roughly, continued to be articles wholly or mainly manufactured; coal was the all-important item among the raw materials. On the other side of the account three-quarters of the imports continued to consist of food-stuffs, raw materials and articles mainly un-manufactured. On both sides of the account, however, there were great changes in the relative standing of the items in detail, to accord with the shifts in demand occasioned by the war. The exports of textiles were fairly well maintained; they were largely produced by women, and the factories were not adapted to serve other military needs. The exports of iron and steel and their products to all countries except France declined sharply. The production of iron remained nearly constant, and the production of steel increased by one-half, but the metal was urgently needed for military purposes, the shops that worked it up were turned into military establishments, and their products were in large part withdrawn from general trade. In recent years before the war the United Kingdom had exported every year nearly 5 million tons of iron and steel and manufactures thereof. The quantity fell in 1914 to below 4, in 1915-1916 to about 3, in 1917-1918 to about 2. The metal was still leaving the country in this period, but it was destined to a more grim purpose than money-making, and was not recorded in the statistics. Among the imports those items showed the most marked increase which served the primary needs of subsistence (rice, wheat flour, bacon and hams, cheese, milk, cocoa, etc.), or were directly available for military use (fuel oil, gasoline, copper, arms and ammunition, chemicals, etc.).
732. Sources of imports.—The war entailed changes even more sweeping in the direction of English trade than in the items composing it. Among the countries of the world Germany had an importance second only to that of the United States as a source of imports into the United Kingdom. If to Germany be added the other Central Powers, and Belgium, of which all but a small fragment was soon occupied, a territory was cut out which in 1913 had furnished over one-sixth of the imports for consumption in the United Kingdom. The following table indicates how these losses were made good, and where the additional supplies were procured which the war demanded.
| Percentage of Value of Imports for Consumption | |||||||
|---|---|---|---|---|---|---|---|
| 1913 | 1914 | 1915 | 1916 | 1917 | 1918 | 1919 | |
| From British Possessions | 20 | 23 | 28 | 29 | 32 | 32 | 34 |
| From United States | 20 | 21 | 30 | 33 | 37 | 40 | 35 |
| From all other | 60 | 56 | 42 | 38 | 31 | 28 | 31 |
The extent to which England satisfied her needs, within the Empire is the more remarkable because of the distance of some of the most important possessions, which put an additional strain on shipping that already had to do double duty.[7] Most striking, however, of any feature of the table, is the position of extraordinary importance it gives to the United States, to be explained by the fact that this country was relatively near, was blessed with an abundance of the commodities required, and was inclined to the Entente even before it entered the war. In the years 1917 and 1918 the United States is credited with having “furnished from 50 to 95 per cent of the United Kingdom’s total imports of wheat, wheat flour, corn, oats, barley, bacon, hams, glucose, kerosene, motor spirits, lubricating oil, fuel oil, pig iron and crude steel, raw copper, spelter, raw cotton, tobacco, etc.”
733. Markets for exports.—In times of peace a country is in general more interested in markets for its exports than in sources from which to supply its imports. The condition is reversed in time of war, for reasons that have already been suggested. The Central Powers and Belgium took 13 per cent of the exports of the United Kingdom in 1913, but the closing of this market was of relatively slight consequence at the time. The volume of British products available for export diminished so much that there were few markets to which the flow of goods was maintained. Exports even to the United States barely held their own, in spite of the phenomenal increase of imports from this country.
One country, France, was an outstanding exception to the general rule. The United Kingdom had been used to import from that country more in value than it exported thither. The war effected an abrupt reversal of the situation; imports from France declined, exports thither increased enormously.
| Special Trade of United Kingdom with France, 1913-1919. | |||||||
|---|---|---|---|---|---|---|---|
| 1913 | 1914 | 1915 | 1916 | 1917 | 1918 | 1919 | |
| Imports into U. K., £ million | 41 | 33 | 27 | 22 | 20 | 32 | 44 |
| Exports from U. K., £ million | 29 | 26 | 70 | 93 | 112 | 131 | 147 |
| Per cent total exports from U. K. | 5 | 6 | 18 | 18 | 21 | 26 | 18 |
The interpretation of these changes is simple. France was the battlefield on the western front. British exports thither were either supplies for the front, or were destined to relieve French labor and products for military service.[8] Toward the end of the war France was taking about two-thirds of the total British export of iron and steel manufactures.
By a concentration of resources and energies such as pictured here the war was won. Meanwhile, however, England was neglecting her old customers in various parts of the world, both in the British Possessions and foreign countries. The countries of South America were forced to turn to the United States for manufactures which had formerly reached them from Germany or England; the countries of the Far East were forced to turn to Japan. One of the most serious of the problems of the period following the war was to England the recovery of the markets which she had had to sacrifice in the stress of the conflict.
734. Effects of the war on agriculture.—To follow out the influence of the World War on the internal organization of the countries engaged is beyond the scope of this book. A revolution in commerce such as that described in the last few pages reflected, of course, a corresponding change in internal conditions. The war dissolved old traditions and loosed new forces; the countries engaged in it will never be again what they were before 1914. There is space here only to sketch briefly a few of the changes.
The imperative demand for food, when incoming cargoes were constantly being sunk before they reached port, put on British agriculture a strain which was felt more keenly because of the large proportion of agricultural laborers drawn into military service. One result which promised to have a lasting effect was the introduction of improved mechanical equipment, particularly the modern tractor. The heavy taxes on the owners of large estates forced into the market great areas of land which had been held as a social rather than an economic investment; and laws were passed designed to put agriculture on a more businesslike basis, and particularly to further the growth of small holdings. So deeply rooted, however, are the traditions of English rural life that it would be hazardous to predict the issue of these changes.
735. Effects on industrial organization.—In the more important field of manufacturing industry the changes were likewise sweeping and the permanence of their effect appears to be more certain. Government control was general and despotic. It was heavy-handed, and was often ineffective. It was attended by much friction and waste. It did at least accumulate and disseminate the best technical information and it was ruthless in scrapping antiquated equipment. It stimulated original and constructive thought, if only by reaction against its own arbitrary rules. When manufacturers escaped from it at the close of the war they had already learned much about their business that was new and valuable to them, and were in the way of learning more by their own initiative.
The English, like other peoples, had depended very largely on Germany for synthetic dyes; that is, those dyes which are manufactured in the laboratory by chemical processes, and which have driven most of the natural coloring matters from the field of industry. After the outbreak of the war they suffered for this dependence on two accounts; first in their textile industry by the lack of dyes of good quality and of the requisite variety, second in the field of military operations by the superiority of the Germans in the manufacture of explosives, to which the plant of dye factories is well adapted. Early in the war, therefore, in 1915, “British Dyes, Limited” was formed with the encouragement and financial support of the government. This was a combination of manufacturers using dyes, designed to organize the production of synthetic dye-stuffs by the most advanced methods and with a liberal provision for scientific research. This company did not drive from the field individual producers, who actually made great progress during the war. It is significant, however, of a tendency toward combination, which had been less marked in England than in Germany or in the United States, and which had hampered the English in competition with their rivals. Government control during the war greatly facilitated the movement, which appeared in other industries and promised to break down the separatism of the old-fashioned English manufacturers.
736. Effects on mercantile and financial organization.—In the broader fields of marketing and finance the English took stock of their deficiencies and set to work to remedy them. There was a noteworthy movement toward amalgamation in the banking business, reducing the number of competing units and making more effective the resulting institutions. Particularly significant was the organization under royal charter of the British Trade Corporation, with an authorized capital of £10 million. This company was actually a bank, much like the great German banks of the period before the war, but it was not officially so styled, because it was meant to offer services which had not been characteristic of conservative English banking.
“It will not endeavour to compete with the business of existing British banks and merchants, and it will not accept deposits at call or short notice, except from parties who are proposing to make use of its overseas facilities. Its aim will be to assist with the co-operation of banks and other institutions the inception of new undertakings, and for this purpose it will promote the formation of syndicates and the placing of issues. When British capital is raised by its means for overseas enterprises, it will seek to secure that orders in connection with new undertakings are placed in this country. It will pay special attention to the study of new schemes, and for this purpose it will develop an Information Bureau with representatives abroad which will keep in touch with the Department of Commercial Intelligence of the Board of Trade. It will also be ready to give financial assistance to arrangements for promoting the better organisation of British industries.”
737. Effects on labor.—In the world of labor, as in the sphere of leaders, the war wrought far-reaching changes. The sudden demand for men in the field necessitated the withdrawal of laborers from industry at the very time when the demand for service at home to support the military establishment was most urgent. There followed a strain on the forces of labor which in some cases was allowed to over-tax the capacity of the worker, not only to his own personal injury but also to the disadvantage of the public; while in some cases the laborer, not properly educated in patriotism and thrift, exploited the situation to extort high wages which he spent extravagantly. In the course of time these extremes were evened out, but they illustrate the stresses which permeated the whole industrial structure and which persisted in one form or another until the end of the war. There was necessarily a great “dilution” of skilled labor, with the labor of women and of unskilled men and youths. Trade unions for a time renounced the strict application of their rules, while at the same time they extended greatly their membership. Conflict with employers was postponed, in general, during the course of the war. But the feeling grew strong in the ranks of labor that an undue share of the burden was thrown upon the worker, and that the capitalist-employer had an undue share of the returns and too nearly absolute control. The Russian revolution appears to have had only a very slight influence on the spread of these doctrines, which can fairly be considered the natural product of war conditions in an industrial democracy. With the close of the war a number of labor conflicts came to a head, and one in coal-mining which was long continued, had a particularly serious effect upon industry in general.
738. Control of commerce and commercial policy.—Early in the war the trade of the United Kingdom was placed by the government under strict control. In the emergency of the war it was obviously proper to assure the priority of national over private interests, and the shortage of ships made regulation doubly important. The importation of some wares was prohibited outright, of some wares was restricted to a definite quantity, of some wares was allowed under government license. Similarly exports were placed under control, to keep the needed stocks at home, and to make sure that enemy powers did not profit by British trade. All these measures had a military object, and had no significance with regard to the traditional policy of free trade. In the second war budget, however, taking effect in 1915, the list of dutiable imports was extended to include some manufactured wares (cinema films, clocks and watches, motor cars, and musical instruments), which were subjected in general to an import duty of 331⁄3%. The measure was designed to give revenue, not protection, and it had little practical importance; the importation of most of these articles was soon absolutely prohibited. As a departure from the principles that had been followed in the preceding half century it had considerable significance. Significance attached also to the arrangement in a later budget by which preferential rates, usually two-thirds or five-sixths of the full rate, were established on most of the articles subject to duty, and an opportunity was thus afforded to make some return to the British dominions for the preferences which they had long allowed.
739. Report of the Committee on Commercial Policy.—An Economic Conference of the Allies was held at Paris in 1916, at which was discussed the commercial policy to be pursued by the allied powers at the close of the war. The conference was probably designed to frighten the Germans into making peace, and had no practical results of importance. It did, however, bring to the attention of the English the questions of policy which they must face, and occasioned the appointment of a Committee on Commercial and Industrial Policy after the War, including a number of prominent and influential members, which made its final report in 1918. The substance of the report was as follows.
The committee condemned the plan of establishing a comprehensive tariff to be used in bargaining with other countries, to force concessions in rates from them; and also the plan to impose duties on manufactured imports as a source of revenue. On the other hand it favored duties in specific instances to prevent “dumping,” the sale of goods in a foreign market at prices lower than in the country of manufacture; and it urged, in the light of experience of the war that protection should be afforded, “at all hazards and at any expense,” to industries which it described as “key” or “pivotal.” Such were the industries providing synthetic dyes, zinc, tungsten (for high-speed steel), magnetos, optical and chemical glass, hosiery needles, precision gages, and certain drugs and chemicals. The United Kingdom had depended on other countries, particularly Germany, for the supply of these products, and had then paid dearly for the lack of them. Finally, the Committee approved the principle of imperial preference, and advised that preferential treatment be accorded to the British Possessions in the case of all customs duties established.
740. Safeguarding of Industries Act, 1921.—By an act of Parliament which went into effect in 1921 the most important recommendations of the committee were given the force of law. The act imposed an import duty of 331⁄3% ad valorem on a long list of articles, perhaps 3,000 altogether, defined in detail by the government Board of Trade. The general character of these articles has been already indicated in the preceding section; they were the products of “key industries,” without which other and larger branches of industry would be lamed in operation. Another section of the act was designed to prevent “dumping.” It empowered the Board of Trade to protect industries in the United Kingdom by a duty of 331⁄3% from the competition of articles offered for sale there at prices below the cost of production in the country of origin, or at prices abnormally low by reason of the depreciation of the currency in that country.
QUESTIONS AND TOPICS
1. Chart the statistics of British trade, 1913-1919, continuing if practicable the graph previously constructed.
2. Immediate effects of the war on the course of British trade. [British oversea commerce in war time, Quarterly Rev., Jan. 1915, 223: 252-265; Trade in war time, Polit. Quarterly, 1916, no. 7, 99-121.]
3. The balance of trade in 1916. [H. J. Jennings in Fortnightly Rev., 1917, 107: 302-312.]
4. In what way did each of the imports in the list of those supplied by the United States contribute to maintain military efficiency?
5. Effects of the war on agriculture. [J. B. Firth in Fortnightly Rev., 1917, 107: 595-605; A. W. Ashby, in Edinburgh Review, 1917, 225: 343-363; H. Wyatt, Development of the agricultural motor, Quarterly Rev., 1917, 227: 194 ff.]
6. Agricultural policy. [L. Smith Gordon in Quarterly Rev., 1917, 227: 178 ff.; F. D. Acland in Contemp. Rev., May, 1917, 111: 570-578; E. Lipson in Fortn. Rev., 1917, 107: 100 ff.]
7. Industrial efficiency in the war. [A. Shadwell in Edinb. Rev., Jan. 1915, 221: 151-177; B. S. Rowntree, Nineteenth Cent., 1917, 81: 399-412.]
8. The British Trade Corporation. [H. J. Jennings in Fortn. Rev., 1916, 106: 841-851; R. H. I. Palgrave in Quart. Rev., Jan., 1918, 229: 143-153; C. S. Addis in Edinb. Rev., July, 1918, 228: 43-58.]
9. The labor movement during the war. [G. D. H. Cole in Amer. Econ. Rev., Sept., 1918, 8: 485-505; J. A. Hobson in Contemp. Rev., Nov., 1920, 118: 638-645; R. S. Rowntree in Contemp. Rev., Oct., 1917, 112: 368-379.]
10. Railroads in and after the war. [E. A. Pratt in Nineteenth Cent., 1916, 80: 398-410; J. H. Balfour-Browne in Nineteenth Cent., 1918, 83: 619-636; Edinb. Rev., Jan., 1917, 225: 84-103; W. M. Acworth in National Rev., 1919-20, 74: 256 ff.]
11. Shipping at the close of the war. [J. Hilton in Edinb. Rev., Apr. 1918, 227: 359-382; S. Brooks in Nineteenth Century, 1918, 84: 1116-1129; C. Maughan in Quart. Rev., Oct., 1919, 232: 471-488; A. Hurd in Fortn. Rev., 1920, 113: 584-597.]
12. Proposals of the Paris Conference of 1916, regarding trade policy after the war. [H. Cox in Edinb. Rev., July, 1916, 224: 189-208; J. A. R. Marriott in Nineteenth Century, 1916, 80: 1097-1112.]
13. Report of the Committee on Commercial Policy. [Beauchamp in Contemp. Rev., May, 1917, 111: 545-552; L. J. Reid in same, July, 1918, 114: 35-40.]
14. Tariff policy at the close of the war. [H. Cox in Edinb. Rev., Apr. 1917, 225: 379-408, and Oct., 1918, 228: 387 ff., with many references to contemporary opinion.]
BIBLIOGRAPHY
Most of the statistical facts of primary commercial importance are to be found in the annual volumes of the Statistical Abstract of the United Kingdom. A useful compilation is offered by William A. Paton, *The economic position of the United Kingdom, 1912-1918, Washington, 1919, Bur. of For. and Dom. Commerce, Misc. Series no. 96.
Of the publications of the Carnegie Peace Endowment the following pay special attention to the United Kingdom: vol. 11, B. H. Hibbard, Effects upon agriculture; vol. 18, C. W. Baker, Government control and operation of industry; vol. 7, F. L. McVey, Financial history; vol. 4, F. H. Dixon and J. H. Parmelee, War administration of the railways; vol. 14, M. B. Hammond, British labor conditions and legislation. J. A. Salter, Allied Shipping Control, Oxford, 1821, is the first of a British series of publications of the Carnegie Peace Endowment which promises to make important contributions to our knowledge of the war period. Howard L. Gray, War time control of industry: the experience of England, N. Y., 1918, is accepted by competent British critics as an excellent presentation of the subject.
The British Association for the Advancement of Science stimulated inquiries into “Labour, finance and the war,” which have been edited by A. W. Kirkaldy and published under that title.
The National Civic Federation published a report on The labor situation in Great Britain and France, N. Y., 1919, which aimed to describe impartially conditions and policies. In the writings of G. D. H. Cole (Labour in war time, London, 1915, etc., etc.) will be found a vigorous criticism of the existing system; for a corrective see L. L. Price, Mr. Cole on labour problems, Economic Journal, June, 1919, 29: 186-201. Space is lacking here for reference to the many publications on Whitley Councils, Gild Socialism, etc., and to the various aspects of “reconstruction.” A brief report entitled Economic reconstruction, from the Bureau of For. and Dom. Commerce, Misc. Series no. 73, Washington, 1918, attends particularly to commerce and commercial policy, and is relatively full on the United Kingdom; it can if necessary be made to serve as a substitute for the full report of Lord Balfour of Burleigh’s committee on commercial and industrial policy [Cd. 9035], which was published in the parliamentary set for 1918, vol. 13, with an extensive report on shipping and other reports on special industries.
CHAPTER LVI
FRANCE AND THE PROBLEM OF REPARATIONS
741. Effects of the war upon the commerce of belligerent and of neutral states.—The commerce of the United Kingdom in the period of the war has been treated at considerable length not only because it was itself an important factor in determining the outcome of the struggle, but also because it illustrated the general conditions of the period. War brought to the other belligerent states the same urgent need of imports, affected in a similar way the organization of production, and restricted exports. To the neutral states the war brought some dangers and some losses, but it brought also a great commercial opportunity. If they were in a position to supply the needs of the belligerents they could charge unheard of sums for their services. Individual merchants who seized the opportunity made great fortunes, in the Netherlands, in the Scandinavian states and in Spain. In neutral as well as in belligerent states, however, the waste of war brought loss and suffering; while some few individuals grew richer the mass of the people grew poorer.
742. Statistics of French commerce, 1913-1919.—The most important features in the commerce of France in the period of the war appear in the accompanying table. As the table does not take into account the depreciation of the French currency in the course of the war and gives merely nominal exchange equivalents, the reader should be cautious in the comparison of figures in the upper and lower part of a column, and in the comparison of these “paper” figures with figures representing actual gold dollars, as given in the statistics of the United States.[9] Figures in any horizontal row are strictly comparable, since they represent an equal amount of depreciation.
| Trade of France, 1913-1919. | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Figures in hundred millions of dollars; 1 signifies approximately$100,000,000. The left-hand column under every heading gives imports;the right hand column gives exports.) | ||||||||
| Food products | Material for industry | Manufactures | Total trade | |||||
| I. | E. | I. | E. | I. | E. | I. | E. | |
| 1913 | 4 | 2 | 10 | 4 | 3 | 7 | 16 | 13 |
| 1914 | 4 | 1 | 7 | 3 | 2 | 5 | 12 | 9 |
| 1915 | 6 | 1 | 9 | 1 | 6 | 5 | 21 | 8 |
| 1916 | 8 | 1 | 13 | 2 | 9 | 7 | 29 | 10 |
| 1917 | 13 | 1 | 23 | 2 | 17 | 8 | 53 | 12 |
| 1918 | 10 | 1 | 18 | 2 | 12 | 5 | 40 | 8 |
| 1919 | 12 | 1 | 18 | 3 | 11 | 7 | 41 | 12 |
743. Changes in imports and exports.—Attending first to the horizontal row giving conditions in 1913 we find France able to enjoy a surplus of imports by reason of her foreign investments, in Russia and other countries; the imports consisted mainly of industrial raw materials, to a less extent of food products, still less of manufactures. The country made payment for its imports mainly by finished manufactures, but exported also raw materials and food products. Now following down the vertical columns the reader will note an absolute decline of the value of exports, even in terms of a depreciated currency; this implied, of course, a much more serious shrinkage in the quantities of wares sold abroad. Accompanying this movement was a rapid expansion in the nominal value of the imports, sufficient in some branches to indicate an actual increase in the volume of trade, and resulting in a divergence in the values of imports and exports which signified that France was incurring a heavy debt abroad.
744. Changes in the direction of trade.—From Germany France had received in 1913 about 13 per cent of the total value of her imports, from Belgium about half as much; so that the closing of those two countries alone involved the source of one-fifth of the French import trade. Russia had not been so important as a source of supply, and trade with the Central Powers aside from Germany had not been considerable. The following table indicates the sources to which France turned to obtain the means for carrying on the war.
| Imports into France, by Country from which Obtained | |||||||
|---|---|---|---|---|---|---|---|
| (Figures in hundred millions of dollars; .1 signifies approximately$10,000,000.) | |||||||
| 1913 | 1914 | 1915 | 1916 | 1917 | 1918 | 1919 | |
| United States | 2 | 2 | 6 | 9 | 19 | 13 | 11 |
| United Kingdom | 2 | 2 | 6 | 8 | 13 | 11 | 10 |
| Spain | .5 | .4 | 1 | 1 | 3 | 1 | 1 |
| Italy | .5 | .3 | 1 | 1 | 2 | 1 | 1 |
| Argentine | .7 | .4 | 1 | 1 | 2 | 2 | 2 |
| Algiers | .6 | .6 | 1 | 1 | 1 | 1 | 1 |
The exports of France, measured even in the inflated value of the period, declined in the case of most countries of commercial importance; the noteworthy exception was Italy, to which, in the course of the war, exports were double or triple the usual value of the preceding period of peace.
745. French finances during the war.—French finances were in bad condition at the outbreak of the war. Expenditures had increased greatly in the decade before 1914, and the government was slow to recognize the necessity of heavier taxes. In the years 1908-1914 every year but one had shown an actual deficit. After mobilization, which even in August, 1914, had called out nearly 4 million men and early in 1915 had called over 5 million, it was particularly difficult to devise and apply new taxes; while in the meantime the enemy had occupied some of the richest industrial districts, contributing normally about 15 per cent of the public revenue. In consequence the government raised by taxation only a small proportion of the funds required by the expenditures of the war period (Aug. 1, 1914—Apr. 1, 1919), about one-eighth, as compared with one-quarter in the United Kingdom and one-third in the United States. Stating figures approximately in milliards of francs the government incurred a total expenditure of 181, and met it as follows: 22 by taxes, 86 by loans placed at home, 26 by loans from the Bank of France, 27 by foreign loans, leaving a floating debt of 20 still to be provided for in 1919. The last three items had an important bearing on the commercial relations of France. Loans from the Bank of France took the form of bank notes, paper money, which inflated the currency and tended to raise the rate of foreign exchange on other countries far above the normal par; the unsettled finances evidenced by the floating debt tended to cause violent fluctuations of the rate; a foreign debt would, if interest were paid on it, involve remittance at high rates and would require an increase of exports if no other resource were available.
746. Damage done to the devastated districts.—The amount of the damage done to property in that part of France where the fighting took place will probably never be known with any approach to accuracy. The area affected was not very large, perhaps 10 per cent at most of the total area of France, of which the smaller part, perhaps 4 per cent of the total, lay in the devastated districts where the fighting was fiercest. Unfortunately for France her best coal and iron mines and almost one-third of her manufacturing industry lay within the area of invasion; from one-half to nine-tenths or more of some of the textile manufactures (woolen, cotton, flax and linen) and half of the metal workers, were in the occupied zone. France was seriously handicapped during the war by her inability to draw upon the resources of the occupied regions. Her dependence on imports from the United States and the United Kingdom would not have been nearly so great if she had been able to maintain her productive organization unimpaired. She suffered from the lack of product, but in spite of that she and her allies won the war. Then she faced a greater loss, that of plant, the accumulated capital of generations, represented not only in mines and factories, but also in dwelling houses, in roads and bridges, in the very fields themselves. In the devastated districts peace restored to her not an asset but a grievous liability. She owed to her own people the obligation of repairing the damage and restoring that which had been destroyed, at a time when she was crippled by other burdens which the war had cast upon her. Conservative estimates of the loss ranged from 10 to 15 milliards of gold francs; other estimates (unquestionably exaggerated for political purposes) went up to 65 or 75 or more.
747. Territorial gains of France.—The treaty of peace rendered France some benefits that may be put on the other side of the account. Most important to her, among the territorial changes, was the restoration of the provinces of Alsace and Lorraine, which Germany had taken and had held since 1871. Lorraine included the richest bed of iron ore in Europe; from that province Germany had derived, since the development of the basic process of steel manufacture, three-fourths of her annual supply of ore. The phosphate slag, which was a by-product of the basic process, was a valuable fertilizer; and a great bed of potash in Alsace offered another important agricultural resource. To atone to some extent for the wanton damage done to the French coal mines, which could not be repaired for years, Germany ceded ownership in the coal mines of the Saar basin, on the border of Lorraine, which did not, however, become a part of France, but was left under international control. These changes doubled French capacity for iron production. They left her still short of coal, particularly of the coking variety needed for blast furnaces; and promised to render her the greatest return if she shipped her ore to the Ruhr district of Germany to be smelted.
748. The question of reparation; Germany’s quick assets.—Important as were these territorial changes for the future of France they offered little help in her present emergency. She needed immediately a great fund of fluid wealth, which could be used to repair the damage done to her by the war, and felt that she had the right to look to Germany, the deliberate aggressor in the conflict, to make good the losses which she had suffered.
Reference to the table of costs of the war in a preceding chapter will show the lamentable inadequacy of German resources to make good the total losses for which Germany was responsible. The costs could have been met only in small part even if the total national wealth of Germany as it was before the war could have been expropriated. Some parts of that wealth, indeed, could be and were taken; such were securities representing German investments in foreign countries, and ships, which could be moved to any part of the world without losing their value. In the aggregate these items went but a little way toward meeting the total costs. Another item, the stock of precious metals which the German government had accumulated and retained, was not so readily available as it appeared to be; on that stock was based the whole structure of public and private credit in Germany, and a drain upon it, if excessive, would cause a collapse that would seriously affect the solvency of the country. Germany was in such desperate straits at the close of the war that the allies of the Entente were forced to allow her to buy food from the outside with part of the gold reserve, and saw it melting away before their eyes. In sum, the “quick assets” of Germany were pitifully small to meet the bill of costs; they were estimated to amount to several milliard dollars, but when the necessary deductions were made they offered scarcely one milliard for reparations.
749. Principle conditioning Germany’s capacity to pay.—Most of the wealth of Germany was fixed in the country, and was not directly available for reparation. There was no sense in confiscating and distributing it. The reader will better understand that essential point if he will face the question: how could the benefits arising from the ownership of that wealth be transferred to other countries to be enjoyed in them? Suppose that you are granted, to repair your losses in the war, the ownership of a German farm or factory; how will you get any good from it? You want some real material good, something that you could enjoy yourself, or could exchange to advantage. A piece of paper would not satisfy you. Gold would be acceptable, but the Germans had little of that left, needed a minimum amount to enable them to continue in business, and could get more only as they bought it abroad. To pay you something real the Germans would have to ship out something real, whether they paid it directly to you or bought with it “foreign exchange,” that is, the right to something real, gold or its material equivalent, in the country in which you live. After the initial payment of the country’s quick assets, Germany could pay only a sum equal in value to the excess of German exports over imports during any period of time that might be determined. This was the fundamental principle limiting the amount of payment in reparations that could effectively be imposed.
750. Practical limits of amount and period of payments.—There were, therefore, two factors to be considered in fixing the amount to be exacted: the amount per year that Germany could pay, and the number of years over which payments should extend. Trustworthy investigators reached the conclusion that Germany before the war, with its productive organization unimpaired, would have been able to pay about one milliard dollars a year. Here was given the maximum for one factor. Various considerations set a limit to the other factor, the period of time during which payments should be exacted. On this as on other points there was no general agreement; the situation at the close of the war was too tense to permit participants in it to judge the question calmly. Fair-minded friends of the western allies believed, however, that the interests of the allies themselves required the limitation of the period during which the payment should be made to a definite and reasonably short time, say thirty years, the span of a human generation. This restriction was prompted by regard to justice, by the impropriety of visiting on future generations the sins of their ancestors. It accorded with considerations of political expediency; the payment of reparations was certain to introduce an element of strain in international relations, both economic and political, which must not be too long continued. Finally, and practically of the greatest importance, the benefit to be derived from reparations grew rapidly less as the time of payment was extended. The reader doubtless knows how quickly sums mount up when they are put at compound interest. He should realize that payments to be made in the future shrink correspondingly when their present value is computed by a process of discount. How much will you give for my pledge to pay one dollar fifty years hence? You are foolish if you offer more than a small fraction over five cents, when the rate of interest is 6%.
With due regard to all the factors in the settlement sober and competent students of the question believed that the maximum payment which should be imposed on Germany might amount to a lump sum in present value of ten to fifteen milliards of dollars.
751. Provisions of the Treaty of Versailles regarding reparations.—By the Treaty of Versailles (article 231) Germany accepted “the responsibility of Germany and her allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her Allies.” The treaty itself recognized that the resources of Germany were not sufficient for complete reparation, but, most unfortunately, did not itself fix a definite sum, the maximum which Germany might reasonably be expected to pay with reference to the practical factors which have been sketched in the preceding section. Some of the European leaders in the Entente had held out extravagant prospects of indemnity to their people, and were unwilling as yet to confess the facts. The exact terms of payment were therefore left to be settled later by a Reparations Commission which was given far-reaching powers to get the most it could up to a limit set so high that it manifestly exceeded German capacity to pay. Then followed a period of bitter contest in which the Allies by threats, by fiscal penalties, and by actual occupation of German territory sought to make good their claims, while the Germans fell behind in payment and stolidly professed their inability to meet the demands imposed upon them. Recovery and reconstruction were seriously delayed, both in western and in central Europe.
752. London settlement of May, 1921.—A substantial approach toward a practicable settlement of the question of reparations was made in conditions drawn up in London in May, 1921, and imposed on Germany under threat of an occupation of the district of the Ruhr. The terms are complicated, and are not worth a detailed description for they will probably be amended, but they are of interest as indicating the form that the final settlement may possibly take. A summary of the most important provisions follows: figures are stated in milliards of gold marks, a unit roughly equal to 250 million dollars.
Germany was bound to annual payments under two heads: first a fixed sum of 2 milliards, second, a sum equal in amount to about one quarter (26%) of the value of German exports for the year, but not less than 1 milliard. On the basis of these annual payments of a minimum of 3 milliard the allies were to issue German bonds of a face value of 50 milliard, on which 5% interest could be paid and still leave available half a milliard a year to be employed in a sinking fund toward the extinction of the debt; after a period of about thirty-seven years Germany would be free. The allies hoped to realize the present value of the bonds by selling them to investors, and thus get ready funds for economic reconstruction; while they professed to believe that the minimum of 3 milliard marks a year was well within the German capacity to pay. Germany before the war had, indeed, an export trade amounting to 8 milliard marks and over, while this arrangement assumed only about 4 milliard, but assumed that the exports could carry the burden of a heavy tax. The provision for the variable payment of 26% of the exports assured the allies that they would share in Germany’s prosperity if it actually did return; and arrangements were made for the possible issue of more bonds on this basis up to the amount of 82 milliard, making the total capital sum 132 milliard—over thirty thousand million dollars. The bonds were to be distributed among the allied states in the following proportions: France 52 per cent of the issue, United Kingdom 22, Italy 10, Belgium 8, and the remainder to other countries.
753. Objectionable aspect of reparation payments.—Attention should now be directed to an interesting and important feature of the reparation question. Germany, as has been said, could pay an indemnity only by a surplus of exports over a long period of years. Likewise, the allies in the long run could receive an indemnity only in the form of a surplus of imports. Might not this flow of goods, forced by pressure on Germany, be a curse rather than a blessing to the country receiving it; might it not undermine home industries? Or, if a tariff protected the producer at home might it not simply divert this flow to neutral markets, where the British or French exporter would find himself crowded out by a competition that was fierce and unyielding because of the military pressure behind it—the military pressure of his own home government! If Germany endured the strain would she not at the end of a generation rule the markets of the world, win the world by losing the war? The situation sounds so paradoxical that it is hard to realize how serious is its import. Only by a surplus of exports could Germany pay. What form could these exports take which would not injure some interests in the allied countries?
It is probable that considerations of this kind will lead in time to a considerable moderation of the demands imposed upon Germany. And it is significant that even in 1921 arrangements were being made for the payment in kind, by the delivery of coal, timber, building material of all kinds, of a considerable fraction of the sum due to France.
QUESTIONS AND TOPICS
1. Report upon one of the neutral states during the war:
(a) Switzerland. [Report of Bureau of For. and Dom. Commerce, Misc., series no. 90.]
(b) Netherland. [Same series, no. 91; B. Abraham, in Fortnightly Rev., 1917, 107: 443 ff., 1918, 110: 110 ff.; P. Geyl in Contemp. Rev., 1918, 113: 228-294.]
(c) Scandinavia. [E. Björkman in American World’s Work, Feb., 1918, 35: 437-447.]
(d) Spain. [L. A. Bolin in Edinb. Rev., July, 1917, 226: 134-152; E. J. Dillon in Nineteenth Cent., 1918, 83: 386-402.]
2. Recovery of Belgium. [E. Cammaerts in Contemp. Rev., March, 1920, 117: 349-365; J. M. Price in Fortnightly Rev., 1920, 113: 467-477.]
3. The financial effort of France during the war. [J. F. Bloch in Annals of Amer. Academy Soc. and Pol. Sci., Jan., 1918, 75: 201-206.]
4. Territorial gains of France in Europe. [Bowman, The new world, 86-91; Haskins, in What really happened, etc., 45-66.]
5. Alsace-Lorraine. [Haskins, Some problems, chap. 3.]
6. The Saar Basin [Haskins, Some problems, chap. 4; Tardieu, chap. 8.]
7. Territorial interests of France outside Europe. [Bowman, 91-118.]
8. Reconstruction in France. [R. L. Buell in Amer. Polit. Sci. Rev., Feb., 1921, 15: 27-51; H. A. Gibbons in Fortnightly Rev., July, 1919, 112: 64-76; Tardieu, chap. 12.]
9. The question of reparations: the French position. [Tardieu, chap 9.]
10. The question of reparations: criticism of the settlement [Keynes, chap. 5.]
11. The question of reparations: the American position. [Lamont, chap. 11, and Young, chap. 12, in What really happened, etc.; Baruch, 13-75.]
12. Working of the reparation settlement. [Tardieu, chap. 10.]
13. Contributions of the peace treaties to the control of commercial practices and policy. [Young, in History of the Peace Conference, ed. by H. W. V. Temperley, vol. 5, London, 1921, chap. 1, part 3.]
BIBLIOGRAPHY
B. M. Anderson, Jr., Effects of the war on money, credit and banking, N. Y., 1919, Carnegie Peace, vol. 15, covers both France and the United States, and describes the course of commercial affairs in connection with the question of foreign exchange. An excellent survey of the course of French finance is provided by Gaston Jèze., *The economic and financial position of France in 1920, in Quarterly Journal of Economics, Feb., 1921, 35: 175-214; see also Gide in Econ. Journal, June, 1919, 29: 129-137, and both the writers named in Annals Amer. Acad. Soc. and Pol. Sci., May, 1921, 95: 151-160.
On the peace settlement, **What really happened at Paris, by American delegates, ed., E. M. House and C. Seymour, N. Y., 1921, is well-informed and represents the American position with regard to points at issue better than any other book. C. H. Haskins and R. H. Lord, **Some problems of the Peace Conference, Cambridge, Harvard Univ. Press, 1920, is restricted to territorial questions. I. Bowman, **The new world, Yonkers, 1921, treats particularly the problems in political geography arising from the settlement, but pays due attention to historical and economic factors, and includes many valuable maps; the book is indispensable.
On the subject of reparations the best brief account is that by Lamont and Young. Bernard M. Baruch, *The making of the reparation and economic sections of the treaty, N. Y., 1920, is more extensive; it reprints all clauses of the Versailles treaty which are of economic interest. Further material will be found in the elaborate History of the Peace Conference, ed. H. W. V. Temperley, of which five volumes had been published in 1921.
André Tardieu, The truth about the treaty, Indianapolis, 1921, is an eloquent plea for French claims in their entirety; J. M. Keynes, The economic consequences of the peace, N. Y., 1920, condemns the reparations settlement as too severe. Either book may mislead an uncritical reader.
Convenient sources of information on the changing conditions of the time will be found in Current History, a review published monthly by the N. Y. Times, and in Economic Review of the Foreign Press, published weekly in London.
CHAPTER LVII
CENTRAL AND EASTERN EUROPE, 1914-1920
754. Territorial losses of Germany.—By the terms of peace Germany ceded territory in the west to France and Belgium, in the north to Denmark, in the east to Poland. The most serious losses were comprised in the provinces of Alsace and Lorraine, and in part of the province of Silesia. Upper Silesia contained mineral deposits, particularly coal, which the Germans asserted to be indispensable to the industrial development of their country, and the contest over the rights involved delayed a decision for more than two years after the signing of the Treaty of Versailles. The final award, rendered by a commission of the League of Nations, divided between Germany and Poland the territory in dispute but arranged that for a period of fifteen years the whole area be kept under the control of a commission which should recognize the mixture of interests and should maintain free economic intercourse.
The total losses of Germany, measured in area, population, agricultural and industrial resources, ranged from 10 to 15 per cent. Losses in particular resources of great industrial importance were still more serious. The country was obliged to abandon mines supplying about one-quarter of the annual output of coal, three-quarters of the iron output, even a higher proportion of the output of zinc.
755. Internal losses of the country.—These losses fixed by the terms of peace were added to the loss which Germany had already suffered in the course of the war. The population in 1914 was 68,000,000. Deaths in the army amounted to 1,800,000, and the number of wounded was over 4,000,000. In the civilian population, also, the mortality in the latter part of the war had been very high and the vitality of survivors was impaired. An indication of the extent and character of the losses is provided by some statistics of Prussia, which show a decline in population, 1914-1919, in every province but three, and show a serious decline in the proportion of males. In 1914 there were 102 women to 100 men; in 1919 the proportion was 109 to 100.
Germany emerged from the war not only short in man power, but also weakened by the depreciation of capital and in serious need of some of the most important raw materials. The demands of the army had taken precedence over any other consideration, and had in the four years of war stripped the country almost bare.
756. Effects of the blockade.—The weakening of German resistance and the final surrender were due in large measure to the inexorable blockade maintained by the allies of the Entente. Germany made an extraordinarily effective use of what resources she had. Her scientists produced nitrates from atmospheric nitrogen and so freed her from dependence on imports from South America for her explosives. Her manufacturers made clothing for the people from paper and nettle fibers. Her officials scoured the country for copper and brass implements, when the stock of copper for munitions was depleted, and gleaned a surprising amount of metal for military use. Her military leaders systematically looted the districts which they occupied. There are limits, however, to the achievements of the most scientific synthetic chemistry, or of the most unscrupulous and efficient administration. A substitute (Ersatz) was provided for almost everything, as the supply of the original good ran low. However successfully the substitute might imitate the original in appearance it rarely proved to have the same efficiency in action. German locomotives deteriorated because they were lubricated with substitute oils and grease; the German people ran down in vigor and power of resistance because they were fed and clothed with substitutes.
757. Commerce of Germany during the war.—Germany maintained active commercial relations with the other Central Powers, importing particularly foodstuffs from the rich plain of the Danube basin, and lignite (brown-coal) from Bohemia. Trade with the more distant allies, Bulgaria and Turkey, proved difficult and relatively unimportant. Railroad facilities were in such demand for the transfer of troops and the movement of munitions to the front, that they could hardly be spared for distant service in southeastern Europe; water carriage on the Danube was preferred but was slow and ineffective.
There was a marked increase in the value of trade with neutral states, of which three, Switzerland, Netherland and Denmark, were directly adjacent, while Norway and Sweden were separated only by water which lay outside the control of navies of the Entente. These states accounted for about one-seventh (14%) of the total trade of Germany in 1913, and took on a new importance when Germany was denied other sources from which to supply her wants. The German government has not supplied statistics by which to measure changes in trade during the war, but they can be traced in the commercial statistics of the neutral states, and are illustrated in the following table.
| Foreign Trade of Denmark, 1913-1919 | ||||||
|---|---|---|---|---|---|---|
| (Values in million crowns; crown equals $.27) | ||||||
| Total imports | Imports from Germany | Total domestic exports | Domestic exports to Germany | Total foreign exports | Foreign exports to Germany | |
| 1913 | 855 | 328 | 637 | 159 | 84 | 20 |
| 1914 | 795 | 265 | 780 | 275 | 87 | 26 |
| 1915 | 1,157 | 200 | 979 | 436 | 150 | 50 |
| 1916 | 1,357 | 265 | 1,177 | 653 | 132 | 38 |
| 1917 | 1,082 | 237 | 968 | 482 | 97 | 6 |
| 1918 | 946 | 316 | 710 | 307 | 48 | 1 |
| 1919 | 2,605 | 335 | 740 | 187 | 268 | 79 |
A feature of the table which deserves particular attention is the relatively small amount of foreign wares which reached Germany through Denmark. Doubtless wares of this kind were smuggled across the border in considerable quantities, and so do not appear in the statistics; but the strictness with which England, in behalf of the Entente, regulated the importation of these wares by the neutral countries, allowed no large surplus for export to Germany, and strangled the overseas trade of that country.
Germany imported from all these neutral countries foodstuffs, especially meat and fats; from particular countries she imported iron ore, metals, and special textiles for military purposes. Payment was made largely in coal and iron products, for which the small states had been used to rely on Germany, and which they sorely needed.
758. Effects of the political revolution.—Sections above enumerated various losses which Germany suffered as a result of the war. To appreciate the condition and prospects of the country after 1918 it is necessary to consider another element of weakness, of which the importance cannot be questioned, even though it may be hard to estimate. This is, namely, the political revolution which accompanied the armistice.
All the faults of the military monarchy of the Hohenzollerns appeared prominently in the outbreak and in the conduct of the war. The world paid a tremendous price to be rid of it, and did not count the cost. The evils inherent in the old political system should not be allowed, however, to blind our eyes to some merits that it had, notably its honest and efficient administration. They should not obscure the important fact that the old system, however bad it might be, was that to which the German people were used, and without which they were at a loss. The monarchical system was deep-rooted in German life. Most of the people accepted it with sincere conviction; the opposition to it, as exemplified in the party of the Social Democrats, was perfunctory rather than popular. In reliance on the monarchy the people had been content to retain a passive attitude; they lacked a sense of individual political responsibility, and lacked political initiative. When, therefore, the people realized at last that their trust had been misplaced, that the war which was to be over (so they had been assured at its beginning) by Christmas, 1914, was never to be ended until they had confessed to utter defeat, they swept away the old system but did not know how to operate the political machine which they erected in its place. Attempts at social revolution by the radical Spartacists, infected by Russian doctrines, and at reaction by adherents of the old military monarchy, rendered the new republic insecure at its foundations; while the desperate conditions of life prevailing at the close of the war shattered the former administrative organization and rendered the new administration costly and ineffective.
759. Peculiar importance to Germany of sound politics.—A decline in political efficiency will have a more serious effect on the productive organization in Germany than it would have in other countries for two reasons. (1). The state has taken a particularly active part in the control of economic affairs. Its power over them was greatly extended in the course of the war, and is still so great that much depends on the wise exercise of this power. (2). The state will transmit to the people by taxation the burden of paying reparations. This burden will be and ought to be a heavy one. The minimum amount to be paid annually, under the terms of the London Settlement of 1921, is variously estimated by German economists to amount to 8 or 16 or 28 per cent of the total real income of the country. The proportion, if we choose the middle figure, does not seem unduly high. Many, perhaps most, American families could sacrifice one-sixth of their income, and still retain the essentials of health and happiness. Conditions were very different in Germany at the close of the war. A considerable part of the people was on a stage of living which may fairly be termed a minimum; depression below that stage implied an actual loss in productive efficiency. Under these conditions it was of peculiar importance that the tax system should be just in principle, economical and impartial in administration. No slight importance, therefore, attaches to the fact that the government even in 1921, three years after the armistice, was still unable to balance its budget, and was meeting its domestic obligations by issuing more and more paper money, a tax which in the long run is of all taxing devices the least effective and in its immediate effects is the most iniquitous.
760. Dismemberment of Austria-Hungary.—Some time before the end of the war, while the power of resistance in Germany still was strong, Austria-Hungary gave evidence of distress. The state had been held together by the military dominance of a minority, and as the end of the war approached and the failure of the military party was evident, the state dissolved into its component parts by a natural process quite independent of any action of the Entente.
Fragments of the old dual monarchy were absorbed by bordering countries. Galicia, the great crescent-shaped province lying to the east of the Carpathian mountains, went to the new state of Poland. It had been grievously ravaged in the course of the war, but promised to develop in time considerable agricultural resources, and was particularly prized for its supply of petroleum in the east and the coal mines of the Teschen district attached to it in the west. Transylvania, with parts of some adjacent provinces, brought to Rumania an area rich in forest products, with some mineral resources and some fertile grain land (Banat of Temesvar). Rumania became by these accessions and by the acquisition of Bessarabia, on the Russian border, one of the larger states of Europe, with a population (about 16 million) double that of Jugo-Slavia, the next largest state in the Balkan peninsula. This new state grew out of the old Kingdom of Serbia, in which the World War began, and which was finally rewarded for its sufferings in the war by union with the kindred people along the Adriatic coast and in the southwest of the old dual monarchy. The trials of Jugo-Slavia were not ended with the war, for it had still to make good its claims to Fiume, its natural outlet at the head of the Adriatic. The justice of its claims were not, in the opinion of the writer, open to serious dispute, but Italy, which had already pushed its Alpine frontier far past the Austrian districts occupied by an Italian population, was jealous of a possible rival in the Adriatic, and refused to agree to the occupation of Fiume by another power. The unfortunate exploits of the Italian bravado, D’Annunzio, complicated the issue, but it was at least settled by a compromise between the two powers which promised in the course of time to give Jugo-Slavia the commercial outlet essential to its prosperity.
761. Czecho-Slovakia.—Of the new states formed within the boundaries of Austria-Hungary that which gave the greatest promise of prosperity was Czecho-Slovakia, comprising the old kingdoms of Bohemia and Moravia, and extending to the southeast to include the Slovak population which had formerly been included in the kingdom of Hungary. This new state took that part of the old monarchy which was most richly endowed with natural resources and which had attained the highest industrial development. Stating the proportions approximately it included only one-fifth of the area of Austria-Hungary, but in that fraction comprised one-third of the factory workers and over one-third of the mining population. The land was fertile and highly cultivated, supporting a dense population and providing a surplus of food for export. The Czechs could look back with pride to a period in the past when they were one of the leading peoples of Europe, and they had prepared themselves for self-government by long struggles against the oppressions of German rulers.
Although Czecho-Slovakia is far distant from the sea it has means of access to it both by the Elbe and by the Danube, and is at the heart of the railroad system of central Europe. Provided with a surplus of products keenly desired in neighboring states, particularly coal, iron and food, its commercial future appears to be assured.
762. Magyar Hungary; German Austria.—Far less favorable was the condition of the two states, Austria and Hungary, which had been the seat of the power of the Hapsburgs in the past, and which had prospered when they had been supported by the labor of subject peoples, but which were now shorn of this support, and given each its own way to make in the world.
The Magyar state of Hungary offered at least tolerable prospects of success. Although it lost the border lands which had formerly supplied practically all its forest products and much of its minerals, it retained a compact and fertile territory, one of the granaries of central Europe, and could hope to exchange its surplus wheat for the products which it needed.
German Austria was left by the terms of peace in a pitiable condition. It retained a population of only 6 million, including less than half of the German-speaking people in the old dual monarchy. Of this total nearly one-third (1.8 million, 1920) was comprised in the single city of Vienna, which had grown to this size largely by the political advantage that it enjoyed as one of the capitals of a great state. Much of the area of the new state was mountainous, suited to grazing but not adapted to intensive agriculture. Before 1914 the territory of the present state was able to produce perhaps two-thirds of the necessary food supplies consumed by its inhabitants; in 1920, with powers depleted by the war, it could render only one-quarter. Endowed with only one mineral resource, iron mines in Styria, Austria could buy the food required for the maintenance of life only by the exchange of industrial products made with imported coal out of imported raw materials. At the close of the war the situation of the country was indeed desperate, for the people had no resource with which to make a start in the process of foreign trade. Gradually markets were opened, and some basis of credit was found for the beginning of commercial transactions, but meanwhile the government had plunged deep in the issue of paper money, which depreciated so far that itself formed a grave obstacle to economic recovery. Austria seemed destined for years to come to rely upon charity, whether private, public or international; and many questioned the wisdom of the peace settlement which forbade the union of this fragment of the German-speaking people with the rest of Germany.
763. Poland; earlier history.—The World War made its greatest change in the map of Europe not by the transfers of territory between bordering states, important as these were to the parties concerned, not by the creation of new states like Czecho-Slovakia but by the resurrection of an old state, Poland. Poland had played no great part in commerce in the previous period of its existence. The surplus supplies of wheat grown on the great estates of its landlords had been carried by road and river to Danzig, to be shipped to western Europe in exchange for metals, manufactured wares and exotic products that made the life of the Polish nobleman more comfortable. The country as a whole was too backward and too far removed from the centers of European progress to become an important member of the commercial system of the time.
The partitions of Poland at the end of the eighteenth century keenly as they were felt by patriots, made little difference in the life of the mass of the people. The divided people went their separate ways: neglected by Austria, schooled and drilled by Prussia, given in Russia at least access to an enormous market which was later to be a great stimulus to manufacture. Most of the people were employed in agriculture under a system of serfdom like the medieval. They were freed from this in the nineteenth century, and acquired in small holdings much of the land which had formerly been held in great estates. A turning point in the economic history of the Polish people came in the last quarter of the nineteenth century, when manufactures developed rapidly in Russian Poland, fostered by the high protective tariff.
764. Resources of the new Poland.—The new state of Poland was welcomed and supported by the Entente as a check on Germany. With a population of about 25 million it had claim to a place among the larger powers of Europe. Its economic endowment was adequate if not abundant; besides a sufficiency of arable land and great forests it had coal supplies comparable in amount to those of France, the oil of Galicia, and other mineral resources. Its gravest lack was that of experience in organization, group-action, both in economics and in politics. In manufactures the Poles have looked to Jews and Germans for leadership; the Poles have supplied labor, but have only by exception taken a place among those responsible for control. Their manufactures showed a high labor cost and heavy capital charge per unit of product. Behind the barrier of the Russian tariff they prospered. They could doubtless be maintained for the supply of domestic needs by protection, but they have shown slight capacity to win in the world market the opening which was formerly afforded to them by Russia.
765. Prospects of Poland.—In the field of politics, as in economic affairs, the Poles have yet to prove their mastery of the complicated problems that arise in the organization of a modern great state. In the years following the armistice that closed the war they showed a readiness for military adventure that boded ill for the future of a country needing all its resources for economic reconstruction. They soon contracted a heavy debt, by the accumulation of huge deficits in the budget and the endeavor to pay their way by printing paper money. The Polish mark, nominally equal to the German and therefore worth about $.24, declined to a point (Sept., 1921) at which 6,700 were exchanged for the American dollar. The position of Poland is difficult at best, and the prospects of the new state will be seriously impaired if a more sober spirit does not prevail in the national councils.
766. Russia and the revolution of 1917.—From the beginning of the war southern Russia was cut off from commercial contact with the Entente by the closing of the straits leading into the Black Sea. In the north the Baltic was likewise closed. Contact was maintained only on Russia’s Arctic coast, and by the Siberian railroad. Means of access by both routes were difficult and expensive; the exchange of products was restricted to those that served imperative military needs.
Since the Russian-Japanese war of 1904 the forces of revolution had been gathering in Russia. The World War brought these to an explosion by the sufferings that it imposed upon the people and by the exposure that it made of the weakness and corruption of the autocratic government. In March, 1917, an outbreak at Petrograd initiated a revolution that in six months ran through nearly as many stages, tending always in a radical direction and leaving the government finally in the control of the Communist or Bolshevik party.
767. Soviets and Bolsheviks.—In the earlier stages of the revolution great influence was exercised by soviets, councils, formed on a democratic basis to represent workers in factories, peasants and soldiers, against the traditional leaders of the old régime. The soviets were features of a world-wide popular movement, which found their counterpart in the shop-councils of England and of the United States. The close of the war left the future of this movement still in doubt, but it appeared to offer a wholesome and welcome change in industrial relations, provided the workers were willing to accept responsibilities corresponding to the powers that they claimed. It is important to an understanding of the Russian revolution to realize that the democratic features of the soviet system were soon abandoned. The Bolsheviks counted less than a million in a population of 120 million; they numbered certainly less than 2 per cent of the adult population. By their boldness and vigor they dominated the situation, and while they maintained the pretence of deferring to the popular will they acted as tyranically and unscrupulously as the autocracy which had preceded them.
768. Difficulties of the Bolsheviks.—The Bolsheviks accepted as gospel the economic doctrines of Karl Marx, the founder of modern socialism, and many enthusiasts for social experiments (“parlor-Bolsheviks”) have expressed regret that they did not have a better field in which to try out these doctrines. Russia was already war-worn to desperation when the revolution took place. Fighting continued, not alone on the external front but now also in civil conflicts which ravaged the face of the country. The states of the Entente found not merely that they had lost an ally, but also that a new enemy to them had arisen, preaching doctrines subversive of the established order and threatening to undermine their power when the struggle with Germany was at its height. They stimulated in Russia opposition to the rule of the Bolsheviks, and sought so far as they were able to seal Bolshevik Russia in isolation lest it profit by the exchange of goods, and spread its doctrines.
769. Failure of Bolshevist communism.—Under the conditions Bolshevism was a disastrous failure. Curiously enough it showed its greatest efficiency in the field of military affairs. In its own particular department, the production and distribution of economic goods, it brought Russia to destitution. Fixed capital inherited from the old order wore out and was not replaced. Railroads and factories ceased to function properly, not only because of depreciation of equipment but also because of a decline in the efficiency of laborers. The yield of agriculture declined so far that a large part of the population was threatened with the starvation that visited whole provinces. Pretensions to forms of social service which other governments did not render were too often found on critical examination to be mere shams; they certainly counted for nothing over against the gross neglect to provide for the elementary needs of the people.
770. Prospects of Russia.—Years after it had begun the Russian revolution was still in process of development, and promised to disturb the life of the people for years to come. By 1921 communism was a recognized failure, but the lines that would be followed in the re-establishment of society on the basis of private property defied prediction. Of this we may be sure, that for decades, perhaps for a generation following the war, Russia will count for little in the history of commerce. Little by little its economic structure will be re-organized. The leaders in the process will be private individuals from other countries, including probably a large proportion of Germans. The process will be slow because it will be retarded by political instability. Russia can hardly be divided into parts; Russia can hardly be governed as a whole. Economic recovery will be a tedious and painful process because it must wait upon the political education of a people who in 1914 had made but the barest beginnings in national self-government.
QUESTIONS AND TOPICS
1. Territorial losses of Germany in the peace settlement. [Haskins in What really happened, etc., chap. 3; Bowman, chap. 10.]
2. Effect of the blockade on Germany. [A. E. Taylor in American World’s Work, Oct., 1919, 38: 590-600; W. J. Ashley in Quart. Rev., Oct., 1915, 224: 444 ff.]
3. German war finance. [W. S. Ford in Fortnightly Rev., Apr., 1919, 111: 616-624.]
4. The new government in Germany. [W. J. Shepard in Amer. Polit. Sci. Rev., Aug., 1919, 13: 361-378.]
5. Partition of Austria-Hungary. [Seymour in What really happened, etc., chap. 5.]
6. The enlarged state of Rumania. [Bowman, chap. 15.]
7. Jugo-Slavia. [Bowman, chap. 14.]
8. Problem of Fiume and the Adriatic. [Johnson in What really happened, etc., chap. 6.]
9. Czecho-Slovakia. [Bowman, chap. 13; M. O. Williams in Nat. Geog. Magazine, Feb., 1921, 39: 111-156.]
10. The new Hungary. [Bowman, chap. 12.]
11. The republic of Austria. [Bowman, chap. 11; Fortnightly Review, April, 1919, 111: 625-635; S. Hoare in Nineteenth Century, 1920, 87: 409-423.]
12. The resurrection of Poland. [Lord in What really happened, etc., chap. 4; in Haskins and Lord, Some problems, chap. 5.]
13. Problems of the new Poland. [Bowman, chap. 19.]
14. Agriculture and landownership in Poland. [Arctowski, Geog. Rev., Apr., 1921, 11: 161-171.]
15. Elements in the Russian revolution. [Sir S. Buchanan in Fortnightly Rev., 1918, 110: 819 ff.; P. Vinogradoff in Quarterly Review, July, 1917, 228: 184-200.]
16. The Soviets. [Spargo, chap. 2, 3.]
17. The land question and the revolution. [Spargo, chap. 5.]
18. Industry under the Soviets. [Spargo, chap. 8.]
19. Nationalization of industry. [Spargo, chap. 9, 10.]
BIBLIOGRAPHY
The German government supplied no official statistics of trade during the period of the war, and the student is obliged to look to the publications of other governments for information. C. D. Snow and J. J. Kral, *German trade and the war, Washington, 1918, Bureau of For. and Dom. Commerce, Misc. Series no. 65, will be found a convenient compilation; this covers trade, manufacture, raw materials and substitutes, cartels, labor, finance, etc.
References to the effect of the peace settlement on the interests of Germany and Austria-Hungary will be found in the Questions and topics, and in the bibliography of the preceding chapter.
Literature on the new states in central and eastern Europe is mainly in foreign languages; readers of English have to depend on accounts in annual encyclopedias, on statistics gathered in annuals such as the Statesman’s Year Book, and on reports of American and English consular agents. On Poland the reader may consult a brief encyclopedic account edited in the English version by E. Piltz, entitled *Poland; her people, history, industries, etc., London, 1916; A. B. Boswell, Poland and the Poles, N. Y., 1919; and an elaborate study on The Polish peasant in Europe and America, by W. S. Thomas and F. Znaniecki, in 5 volumes, Chicago 1918, Boston 1919-1920.
On the Russian revolution John Spargo, **The greatest failure in all history, N. Y., 1920, can be recommended as a book filled with facts, which has in general stood well the criticism of those inclined to favor the Bolsheviks. The failure of Bolshevism is amply evidenced by the writings of honest partisans of the revolution, such as Albert H. Williams, Lenin, N. Y., 1919; Arthur Ransome, The crisis in Russia, London, 1921; C. L. Malone, The Russian republic, N. Y., 1920; Bertrand Russell, The practice and theory of Bolshevism, London, 1920. Maurice G. Hindus, *The Russian peasant and the revolution, N. Y., 1920, gives a good account of the agrarian question, and a questionnaire prepared from documentary material by the International Bureau of Labor, entitled in the English version Labour conditions in Soviet Russia, London, 1920, throws much light on the industrial conditions.
CHAPTER LVIII
THE UNITED STATES, 1914-1920
771. Statistics of American Commerce, 1914-1920.—The course of the commerce of the United States during the war and the few years of peace immediately following appears in the statistics of the accompanying table, in which, for reasons that will appear later, the movement both of merchandise and of specie is indicated.
| Trade of United States, 1914-1920 | |||||||
|---|---|---|---|---|---|---|---|
| (Values in millions of dollars; calendar years, ending Dec. 31)[10] | |||||||
| Merchandise | Gold | Silver | Price level | ||||
| Imports | Exports | Excess of exports | Excess of exports | Excess of imports | Excess of exports | ||
| 1914 | 1,789 | 2,114 | 324 | 165 | 26 | 100 | |
| 1915 | 1,779 | 3,555 | 1,776 | 421 | 19 | 101 | |
| 1916 | 2,392 | 5,483 | 3,091 | 530 | 38 | 124 | |
| 1917 | 2,952 | 6,226 | 3,274 | 181 | 31 | 176 | |
| 1918 | 3,031 | 6,149 | 3,118 | 21 | 181 | 196 | |
| 1919 | 3,904 | 7,920 | 4,016 | 292 | 150 | 212 | |
| 1920 | 5,279 | 8,228 | 2,949 | 107 | 26 | 243 | |
| Total | 21,127 | 39,675 | 18,548 | 457 | 1,259 | 471 | |
772. Interpretation of the Statistics.—With the figures of this table should be compared those given in section 663, covering the course of trade from 1860 to 1913. Attending only to the figures giving the value of merchandise the reader will note that the imports in the early years of the war remained about at their former level, that they increased in the latter part of the war, and particularly after its close. The exports, on the other hand, showed the effect of the war almost from its beginning. They had first exceeded 1 milliard dollars in 1896, and had grown steadily with the growth of population and with the rise in prices due to the increase in gold output, passing the mark of 2 milliards in 1911. From that level they now shot up to 3, 4, 5, 6, 6, 8, 8 milliards in the individual years; history does not provide another example of such prodigious growth. As a result the excess value of exports over imports, which had in recent years been about half a milliard, grew to 1, 2, 3, even 4 milliard dollars a year.
Part of the increase in the value, both of imports and of exports, was of course due to the rise in prices which accompanied the war. To enable the student to make the necessary correction for this factor a column of the table supplies the “index-number” of the Department of Labor, showing what the average wholesale prices were in any year compared with the years 1913-1914. Evidently if prices in 1918-1919 were double what they had been just before the war, the figures for the value of trade in those years should be divided by 2 to give an idea of the actual quantities of goods exchanged. Applying this process of correction the student will note that the volume of imports actually shrank in the course of the war, but that the exports, in spite of this process of reduction, reached a level which had not before been dreamed of. In fact the figures for exports in 1918 and for parts of 1917 and 1919 do not take account of the great quantities of stores shipped from the country in transports of the government, and therefore not reported to the customs officials; the figures should be raised by perhaps one-third to give a comprehensive idea of the total quantity of goods sent out in that period of greatest national exertion.
773. Increase in value of exports to Europe.—Not only did the thoughts of the whole world center in Europe during the war; the wares of the world flowed thither, in unexampled volume, to be used to destroy and to be destroyed. For reasons already given the European belligerents cut down their exports, and strove so far as they could to increase the volume of their imports. The United States was in the reverse position. While it was still neutral, and likewise after it entered the war (April, 1917), it was the great source from which the European states supplied the needs which they had not time or strength to supply themselves. Although the larger part of central and of eastern Europe was cut off by the blockade and by the difficulties of transportation, the exports of the United States to Europe, which before the war had run a little over 1 milliard, increased to 2, 3 and 4 milliards. In the first full year of peace, 1919, when the larger part of Europe was again open to trade, and the exhausted peoples were endeavoring to restock, the value of exports to Europe exceeded 5 milliard dollars in value.
774. Increase in value of exports to other continents.—The figures of the preceding section give, however, but a partial and misleading idea of the peculiar position which the United States assumed in the economy of the world during the war. In spite of the great increase in value, and increase in quantity, of exports to Europe, the proportion of the total exports which went to Europe rose very little. As shown above (sect. 708), the United States had tended, in the years before the war, to distribute its exports more widely. The proportion which exports to Europe formed of the total dropped from four-fifths in the ‘80’s to three-quarters about 1900, then to two-thirds; in 1913 the proportion was 60 per cent.
The figures for the war period were 71, 69, 69, 63; in 1920 the figures dropped to 54. It is apparent that there was a great expansion of exports in this period, not only to Europe but to other parts of the world as well.
To understand this situation we must remember that the United States had not only to meet the demands of the emergency in Europe, but also had to take the place of the great industrial states of Europe in meeting the demands of the rest of the world. England, Germany, and France were unable to sell goods in their usual markets, and the United States for the time took over their old customers.
775. Statistics of distribution of exports.—Exports from the United States, therefore, increased greatly in value, not only to Europe but also to other continents. The following table indicates the distribution of exports in the period of the war; Oceania and Africa, taking together five per cent or less of American exports, are omitted.
| Exports of the United States, in Millions of Dollars, to | ||||
|---|---|---|---|---|
| Europe | North America | South America | Asia | |
| 1914 | 1,486 | 529 | 125 | 113 |
| 1915 | 1,971 | 477 | 99 | 114 |
| 1916 | 2,999 | 733 | 180 | 279 |
| 1917 | 4,325 | 1,164 | 259 | 380 |
| 1918 | 3,732 | 1,236 | 315 | 447 |
| 1919[11] | 5,188 | 1,296 | 442 | 701 |
| 1920[11] | 4,466 | 1,929 | 624 | 772 |
The distribution of American exports in Europe has already been described. Of the countries grouped under the heading North America, Canada accounted for rather more than half of the total; Cuba and Mexico also bought greatly increased amounts of the exports of the United States. In South America, Argentina, Brazil, and Chile increased their purchases three-or four-fold; in Asia, Japan raised the value of its purchases from about 50 to over 300 million dollars.
776. Changes in the composition of exports.—This expansion was shared unequally by the different groups of commodities which together made up the total exports. Raw materials for manufacture declined in importance; before the war they had accounted for about one-third of the total exports, but by 1917 they made up only about one-eighth. On the other hand there was a great increase in the export of foodstuffs. The United States had tended in the period immediately preceding the war to consume an ever-increasing proportion of the foodstuffs that it produced. The export of foodstuffs, raw and manufactured, had declined to about 500 million dollars in the years 1910-1913. In the early years of the war it rose to about 1 milliard; in 1918 it amounted to almost 2 milliards, and in the first two years of peace it exceeded that figure.
That part of American trade which showed the most extraordinary expansion was the export of manufactures. Before the war the value of finished manufactures exported had averaged about 700 million. In 1915 the figure exceeded 1 milliard; in 1916 and succeeding years, 2 milliards; in 1920, 3 milliards. The growth was particularly noticeable in trade with non-industrial countries, which had previously relied in large part on Europe for manufactured wares and found now the supply from that source cut off. Exports of manufactures from the United States to Asia, South America, and Africa increased about five-fold, comparing the years 1914 and 1920. Exports of manufactures increased even to Europe, including such important items as railroad supplies, agricultural implements, machinery, petroleum products, etc.; and it was estimated that in 1920 the United States was supplying one-third of the total demand for manufactured wares in the trade of the world.
777. Effect of the war upon the import trade.—The United States made its commercial contribution to the World War, as has already been said, by following a course which was the reverse of that of the European belligerents; it expanded its exports, and restricted its imports. Of necessity it renounced a very large part of that trade which had been the greatest source of supply, the trade in imports from Europe. Before the war Europe supplied about half of our needs (49 per cent of total value of imports, 1913). In the last year of the war imports from Europe amounted to less than one-seventh of the total (14 per cent in the year ending June 30, 1918). The varied manufactures which we had been used to import from the industrial states of western Europe were no longer in the market. Many of these wares were luxuries appealing indeed to the taste of the consumer, but not involving any serious economic consequences when the supply failed. Others, notably the chemicals and the special kinds of glass and porcelain which had previously been imported from Germany, played an important part in industrial processes, and had if possible to be replaced. American manufacturers entered a field which the Germans had long regarded as their own peculiar province, and which, indeed, they would probably have long continued to dominate if they had not broken the peace.
Forced to an extension and diversification of industry by the demands not only of the American but also of many foreign consumers, the country imported an increased proportion of crude materials for use in manufacturing as the proportion of finished manufactures ready for consumption declined. Raw wool, raw silk, crude rubber and items of that character rose toward the top of the list of wares imported, and gave a new importance to the trade with South America and Asia.
778. The excess value of exports over imports.—The war led, for reasons already given, to an enormous increase in the excess value of exports over imports. The table at the beginning of the chapter presents figures which were without parallel in the history of this, or indeed of any other country: an annual excess in the years 1915-1920 averaging over 3 milliard dollars a year, a total excess for the period 1914-1920 amounting to 18.5 milliards. The following table shows how unequal was our balance in trade with the different continents, and indicates the close connection of the great excess of exports with the European war.
| Balance of Trade in Merchandise of United States, 1913-1920 | ||||||
|---|---|---|---|---|---|---|
| (Calendar years; figures in millions of dollars, giving excess value ofimports,) [-], or of exports,) [+], of the U. S.) | ||||||
| Europe | North America | South America | Asia | Oceania | Africa | |
| 1913 | +635 | +211 | -52 | -155 | +47 | +5 |
| 1914 | +556 | +40 | -139 | -168 | +29 | +6 |
| 1915 | +2,027 | +49 | -178 | -156 | +31 | +3 |
| 1916 | +3,180 | +266 | -207 | -152 | +12 | -8 |
| 1917 | +3,511 | +389 | -287 | -327 | +16 | -27 |
| 1918 | +3,541 | +351 | -308 | -408 | -31 | -26 |
| 1919 | +4,437 | +138 | -246 | -340 | +41 | -14 |
| 1920 | +3,238 | +266 | -137 | -512 | +78 | +15 |
Taking Europe alone the excess of exports to the credit of the United States was over 20 milliards in the years 1914-1920. North America was the only other continent showing a large “favorable” balance, and Canada was the single country that accounted for most of this. The balance in trade with South America and with Asia was against the United States, as had been usual in the past, but to an extent which passed the bounds of any previous experience.
779. Items in the international balance before the war.—In approaching the subject of the balance of trade of the United States during the war it is desirable to have in mind the most important items which, before 1914, constituted the international credits and debits of the country. The table below pictures these items in the form of a simple balance sheet, as they were estimated in 1910.[12] The figures are given in round sums, indicating that they make no pretence to statistical accuracy; they are to be understood merely as showing the tendency of a normal year. In the case of several items no attempt is made to do more than indicate the net balance that might be expected, year in and year out.
| International Balance of the United States Before the War | |||||||
|---|---|---|---|---|---|---|---|
| (Figures in millions of dollars) | |||||||
| Credit | Debit | Balance | |||||
| Credit | Debit | ||||||
| Merchandise | 2,000 | 1,500 | 500 | ||||
| Bullion | 30 | ||||||
| Freight, etc | 25 | ||||||
| Remittances | 150 | ||||||
| Tourists | 30 | 200 | 170 | ||||
| Interest and dividends | 75 | 300 | 225 | ||||
| Investment | 40 | ||||||
| 570 | 570 | ||||||
780. Explanation of the “favorable” balance.—The most important feature of the table is the great credit item due to the excess of exports over imports. Ever since 1873, with rare exceptions (only four years altogether) the United States has shown a credit balance of this kind, a “favorable” balance as it was called in the days when people believed that it would bring precious metals into the country. Actually, the “favorable” balance implied nothing more than that we were a debtor country, bound to export more than we could import from the rest of the world, to meet our obligations. The character of these obligations is indicated in the column of debit balances. Foreigners did more ocean carriage for us than we did for them, and had a balance due to them on that account; the figure in the table would be considerably larger if the freight bill had not been partially offset by the considerable purchases of coal and stores made by foreign ships in our ports, which counted of course to the credit of the United States. The remittances of private persons, largely of immigrants to this country sent to agents or relatives in their old home, amounted to a surprisingly large aggregate. Funds would be remitted, say, by a postal money-order, but of course the foreign government that honored this order would look for payment to the American post-office, which would have to depend on our surplus of exports to meet the debt. So in the case of the other items, expenses of American travelers and the claims for interest and dividends of European investors, we were bound to make heavy payments, and made them by delivering our cotton, copper, petroleum products, and so on, to a value much exceeding the value of our imports.
781. Movement of specie in the period of the war.—Some part of the total exports of the war period was a free gift. The food, clothing, and medical supplies that were donated by private individuals, by associations, and by the government, demanded no commercial return and no acknowledgment of indebtedness from the foreigner. Large as were these gifts in absolute value, they can be omitted from consideration; they may have formed a considerable portion of a milliard and still be negligible. For most of the exports that appear in the commercial returns the foreigner had to pay in the present or promise to pay in the future.
One means of payment was hard cash. In the few years immediately preceding the outbreak of the war the European banks, nervous because of the political outlook, had been trying to build up their reserves, and had been drawing gold from the United States. In the single month of July, 1914, over $40,000,000 were shipped from New York. American bankers and business men owed at this time several hundred million dollars, maturing before the end of 1914; the city of New York owed $80,000,000. For a brief period sterling exchange rose far above the normal par; an American was willing to pay over $5 for the right to a pound sterling payable in London. Soon the tide set in the other direction. The total gold stock of the United States at the outbreak of the war was about 1.8 milliard dollars. In 1920 it was 2.7 milliard, roughly one third of the world’s total stock of gold used for monetary purposes. In the interval the United States received from Europe over 1.2 milliard dollars in gold, of which it kept the larger part.
Reference to the table at the beginning of the chapter will show that silver flowed in the opposite direction. The United States as a silver-producing country, has had regularly a surplus to export, but parted with the very large sums appearing in the table in the years 1918-1919 as a means of liquidating part of the balance owed to Asia. The demand for silver to be shipped to the East was so strong that for a brief period the bullion in the silver dollar, which so recently as 1915 was worth only forty cents, was actually worth more than a dollar in gold.
782. Securities and loans.—Another means of payment employed by the peoples of Europe to meet the balance against them was the sale in the United States of American securities owned abroad. It is supposed that in the period 1914-1920 Americans repurchased 4 to 5 milliards in value of stocks and bonds that had been issued in the United States and held by foreigners. For example, of the common stock of the U. S. Steel Corporation 1,286,000 shares, over one-fourth of the total issue, were in 1914 held abroad. At the end of 1918 the number had dropped to 484,000, and in 1919 it declined still further.
American investors, furthermore, purchased several milliard dollars worth of foreign, mainly European securities, issued by governments, by municipalities, by railroads, and by business enterprises. Evidently the European, in debt to the American for the goods sent across the sea, could square the account by selling his stocks and bonds in this country and paying the proceeds to his creditor here.
Finally, and most important, the American government, after the entry into the war of the United States (April, 1917) took upon itself the task of financing the purchases made by associated European governments in this country, and advanced to them a sum amounting to nearly 10 milliards of dollars. In July, 1921, the account stood as follows, including only the advances made under the Liberty Loan acts, and omitting considerable sums due to the United States for the sale of surplus war material and for grain supplied to impoverished districts.
| (Figures in millions of dollars.) | |
|---|---|
| United Kingdom | 4,166 |
| France | 2,951 |
| Italy | 1,648 |
| Belgium | 348 |
| Total of these items | 9,113 |
| Total including items omitted | 9,435 |
783. Position of the United States as a creditor country.—Although it is not possible to describe with perfect precision the process by which the European peoples arranged to pay for the excess exports of the United States, the general situation is well enough known to warrant one conclusion of the greatest significance. The process resulted in turning the United States from a debtor country to a creditor country. Even if we disregard the 10 milliard loans made by the American government, and take account only of the investments made by private citizens in this country, it is apparent that the United States at the close of the war, instead of owing every year a balance to other countries on account of interest and dividends, was entitled to demand such a balance from abroad. So many items enter into the general international balance that this single one cannot be taken as determining the outcome, and deciding that after the war there would be in normal years an excess of imports over exports. The country will doubtless remain a debtor under some heads (private remittance, tourists). At the close of the war it certainly was not collecting interest and dividends in the form of an excess of imports, as the figures show. It continued to invest capital in foreign countries, particularly in Europe, in North America, and in South America; the capital value of the loans far exceeded any annual interest charge on them. Perhaps this process will continue in the period of reconstruction. So long as the flow of capital for investment in other countries exceeds the annual charges due from them, the surplus of exports (so far as determined by this one item) will continue. It is reasonable to believe, however, that sooner or later the tide will turn, and the United States will have, year in and year out, a surplus of imports over exports. The change will require a readjustment of ideas that have been fixed by generations of habit. Investors, demanding interest payments from foreign debtors, will no longer be able to maintain the attitude that imports menace the prosperity of the country and should be cut down by the restrictions of the tariff. Exporters will find that the current is set against them, and that they can broaden their market only as they stimulate still greater growth in the import trade. The American people will realize at last that, without a conscious exercise of their will, they have become a “world-power,” and that in their own interest, quite apart from humanitarian motives, they must accept new responsibilities and take an active part in international affairs.
784. Shipbuilding before the war.—An excess of imports into the United States, over the exports from this country, will come sooner and will be larger if the country resumes an important position in ocean shipping, as some believe it will. The United States continued, before the World War, to build shipping in considerable volume. The statistics of Lloyds Register show that in the first decade of the twentieth century, American shipyards contributed about one-seventh of the total tonnage built in the world. Most of the vessels built, however, were destined for service on the Great Lakes or in the coasting trade; the tonnage of steamers built for the foreign carrying trade was relatively unimportant. Foreign ships carried regularly about nine-tenths of our sea-borne trade in merchandise.
785. Shipbuilding by the American government.—In the first year of the war the tonnage of ships built actually declined. The provision of adequate cargo space became, however, a matter of urgent importance, as ships were drawn into service as transports and the ravages of the submarine extended. The government established in 1916 a Shipping Board, for the construction of ships as a public enterprise, and when it entered the war in 1917 it proposed to make one of its most important contributions to the war by the supply of new tonnage. The results are presented in the statistics of the accompanying table.
| Vessels Built in the United States, 1914-1920 | |||
|---|---|---|---|
| (Figures in thousands of gross tons; fiscal years ending June thirtieth.) | |||
| Sailing | Steam | Total[13] | |
| 1914 | 14 | 224 | 316 |
| 1915 | 8 | 142 | 225 |
| 1916 | 15 | 238 | 325 |
| 1917 | 43 | 461 | 664 |
| 1918 | 84 | 1,000 | 1,301 |
| 1919 | 79 | 3,107 | 3,327 |
| 1920 | 132 | 3,603 | 3,881 |
786. American shipping at the close of the war.—Comparing the figures of the table with the years of the war (and noting that each year of the table ends June 30, not Dec. 31) it is apparent that the contributions of the United States to relieve the dearth of shipping were of real importance in the last year of the war, but that the new industry developed slowly and reached its maximum of output only after peace had been declared. The peak of monthly production was attained in August, 1919, when about 400,000 tons of sea-going steel steamers were constructed. The sudden expansion of the industry, demanding the training of nearly a million men called from other occupations, was necessarily expensive. In three years, ending in 1920, the Shipping Board expended about 3 milliard dollars, a sum greater than the book value of the total shipping of the world in 1914. As a result of its activity the government owned about 8 million tons of ocean shipping. In the period of depression which followed the war fully half of this amount was idle, and the operation of ships by the government proved to be a losing venture. An act of 1920 directed that the ships be sold to private owners, but the close of the period left their future still in doubt.
787. Foreign exchange at the close of the war.—To understand the commercial position of the United States at the close of the war it is necessary to return again to questions of currency and foreign exchange. The situation appears in the following table.
| Average Annual Rate of Exchange in New York | |||
|---|---|---|---|
| 1913 | 1919 | 1920 | |
| On London | 100 | 90 | 75 |
| On Paris | 100 | 71 | 36 |
| On Rome | 100 | 56 | 26 |
| On Berlin | 100 | 7 | 7 |
The table signifies, for example, that the American in New York could buy in 1919 for $90 or in 1920 for $75 as many pounds sterling as had cost him $100 before the war; that he could pay a debt at Rome with half as many dollars in 1919, with a quarter as many dollars in 1920, as he would have had to pay in 1913. During the war the rate of exchange, like many other prices, was subject to government control; the figures for 1919 and 1920 show the tendency of the rates when they were left free to represent the actual value of the different currencies in international transactions.
788. Effect of depreciation in stimulating exports.—The table shows a great depreciation of the European currencies compared with the American. The United States had had a great expansion of bank credit during and after the war, but, after all, had in its enormous stock of gold the means to maintain the dollar on a gold basis, while the European countries had in circulation varying amounts of irredeemable paper. The reactions of this situation on international transactions were manifold, but two of them are worth particular attention.
When the issue of paper money continued, as in Germany for example, the value of the mark in foreign exchange fell more sharply than its purchasing power in the home market. An American importer would be able to buy more marks for the dollar. The mark would not buy as much as before in Germany, but the dollar’s worth of marks would buy more than before; and the importer would find a transaction profitable which previously he would have been unable to undertake. Unequal depreciation of this kind acted as a stimulus or premium on exports from Germany, which was seriously felt by competing producers in other countries.
789. Effect upon the international money market.—The situation had also an important effect on the course of international loans. Let us assume for example the case of Brazil, desiring to place a loan abroad. If it borrowed in New York it would get gold dollars and would feel assured that when it came to repay the loan it would repay it in the same currency, with units of approximately equal value. If, on the other hand, it borrowed in London, in terms of pounds sterling, it would get paper pounds, at a discount in comparison with gold, but must look forward to repaying the loan with gold units if in the interval the English had succeeded in putting their currency on a gold basis and thereby bringing their exchange to par. Even if Brazil desired to make the loan for financing some expenditure in the European market it would do better to buy dollar credit in the first instance, and buy with that the foreign currency that it needed; and to accomplish this end it would be willing to pay higher rates in New York than in London. It would be hazardous to assert that as a result of the war New York will replace London as the world’s money market, but it is clear that the position of London is seriously prejudiced so long as English currency is at a discount in comparison with gold.
QUESTIONS AND TOPICS
1. Chart the statistics of trade as in previous exercises.
2. Divide the figures of imports and exports by the figure for the price level of the year (1.01, 1.24, etc.,), so reducing values to the level of 1914, and enter results on chart with a dotted line that gives approximately volume of imports and exports.
3. What was the relative importance of foreign and of domestic trade in the United States in this period? [B. M. Anderson, in Annalist of N. Y. Times, Jan. 3, 1921, 17: 9.]
4. What exports of the United States, (a) increased most in value, (b) increased most in quantity, in this period? [Statistical Abstract, 1920, Table of domestic exports, quantities and values, by years 1911-1920.]
5. What exports declined in quantity and in value? Same.
6. Compare the exports from the United States to a particular country at the beginning and at the end of the war. [Use Bureau of Foreign and Domestic Commerce, Misc. Series, no. 38 and no. 106, Trade of U. S. with the world, 1914-15 and 1918-19. The student may, for example, take Argentina, Chile, Japan, or British India.]
7. Using sources given above, report upon the history of a particular import, or on the imports from a particular country, during the war.
8. How the dyestuffs crisis was met. [E. Hendrick in American World’s Work, March, 1918, 35: 531-535.]
9. The problem of potash and nitrates. [F. P. Stockbridge in American World’s Work, May, June, 1918, 36: 28-34, 191-197.]
10. The balance of international payments. [F. W. Taussig, Principles of Economics, vol. 1, chap. 33.]
11. The trade balance of the U. S. before the war. [G. Paish, reference in note to sect. 779.]
12. Probable tendencies in the trade balance of the U. S. [J. R. Smith, The American trade balance, National Foreign Trade Council, N. Y., 1919.]
13. Function of imports in our foreign trade. [G. E. Roberts, National City Bank, Foreign Commerce Series, no. 2, N. Y., 1920.]
14. American loans to Europe. [Noyes in Scribners’ Magazine, 61: 131 ff.; Atwood in American World’s Work, 33: 243-250, 399-403.]
15. Application of American methods to the construction of ships. [Hurley, chap. 5, 8.]
16. Concrete ships. [Mattox, chap. 13.]
17. Development of shipyards. [Hurley, chap. 6; Mattox, chap. 15.]
18. The shipping problem at the close of the war. [E. R. Johnson in Friedman, chap. 13.]
19. Foreign investments. [F. H. Sisson in Friedman, chap. 19.]
BIBLIOGRAPHY
In addition to sources previously cited see the Miscellaneous Series of the Bureau of Foreign and Domestic Commerce, numbers 15, 38, 63, 78, 106, etc., giving details of foreign trade by countries. On the subject of gold movement, foreign exchange and international finance reference must be made to reports of the Secretary of the Treasury, Director of the Mint, and Bulletins of the Federal Reserve Board. References given under chapter 54 are also applicable here. A monograph on Depreciated exchange and international trade was issued by the U. S. Tariff Commission, Washington, 1922.
The student should relate the history of commerce during the war to the military and political history of the period, and should have in mind the narrative as presented in general accounts such as those by Charles Seymour, **Woodrow Wilson, 1921; J. S. Bassett, **Our war with Germany, 1919; J. B. McMaster, *The U. S. in the World War, 1918; F. L. Paxson, *Recent history of U. S., 1921, chap. 44-56.
The most complete account of industrial and commercial activity organized for the conduct of war will be found in Benedict Crowell and R. F. Wilson, **How America went to war, New Haven, Yale University Press, 1921, 6 vols.: The giant hand (mobilization and control of industry and natural resources); The road to France, 2 vols.; The armies of industry, 2 vols.; Demobilization. The subject of shipping is covered by E. N. Hurley, *The new merchant marine, N. Y., 1920, and W. C. Mattox, Building the emergency fleet, Cleveland, 1920. On the various problems of reconstruction see the symposium edited by E. M. Friedman, American problems of reconstruction, N. Y., 1918, and Isaac Lippincott, Problems of reconstruction, N. Y., 1919. Many special topics of commerce, industry and finance are treated in periodicals, in reports of banks (e.g., Foreign commerce series of National City Bank) and in government reports (e.g., dyestuffs in Bureau of For. and Dom. Commerce, Special Agents Series, numbers 96, 11, and 121).
TITLES OF BOOKS CITED BY ABBREVIATIONS
Note.—Books of which the full titles have already been given are not, in most cases, included in the following list, which is supplementary to the bibliographies and by no means a substitute for them. The list includes only titles of those books which have been cited so many times that a repetition of the full title would waste space, and which have been cited in so many different places that the reader’s time would be wasted in hunting for the entry of the full title. I have thought it unnecessary to give full titles of standard narrative histories, of current manuals in the allied subjects of history and economics, and of local sources in the history of the United States.
Adams, Charles F., Jr. Railroads, their origin and problems. N. Y., no date.
Adams, George B. Civilization during the Middle Ages. N. Y., Scribner, 1894.
A. L. A. (American Library Association) Catalogue. Washington, 1904, and later editions.
American railway, The. N. Y., Scribner, 1897.
Armitage-Smith, G. The free-trade movement. London, 1898.
Ashley, William J., editor. British industries. London (N. Y., Longmans), 1903.
Ashley, William J. English economic history. N. Y., Longmans, 1892-3, 2 vol.
Ashley, William J. The Tariff problem. London, 1903.
Baring-Gould, Sabine. Story of Germany. N. Y., Putnam, 1886.
Bastable, C. F. Commerce of nations. N. Y., Scribner, 1899.
Beazley, C. R. Prince Henry the Navigator. N. Y., Putnam, 1895.
Beer, George L. Commercial policy of England toward the American colonies. N. Y., Macmillan, 1893, Columbia Studies, 3, II.
Beer, G. L. The old colonial system, 1660-1774. N. Y., 1912, 2 vol.
Bishop, J. Leander. History of American manufactures. Philadelphia, 1861-68. 3 vol.
Bourne, Edward G. Spain in America. N. Y., Harper, 1904.
Bourne, H. R. Fox. Romance of Trade. London, no date.
Bowker, R. R. and George Iles. Reader’s guide in economic, social, and political science. N. Y., Putnam, 1891.
Bowley, Arthur L. England’s foreign trade in the nineteenth century. London (N. Y., Scribner), 1893.
Bowman, Isaiah. The new world, problems in political geography. Yonkers-on-Hudson, 1921.
Bruce, Philip A. Economic history of Virginia. N. Y., Macmillan, 1896, 2 vol.
Bücher, Carl. Industrial evolution. N. Y., Holt, 1901.
Callender, G. S. Early transportation and banking enterprises of the States. Quarterly Journal of Economics, Boston, 1902-3, 17: 111-162.
Cambridge Modern history. N. Y., Macmillan, 1902 ff.
Carnegie History of domestic and foreign commerce of the United States, by Emory R. Johnson, T. W. Van Metre, G. G. Huebner, and D. S. Hanchett. Washington, 1915, 2 vol.
Chapman, S. J. History of trade between United Kingdom and U. S., London (N. Y., Scribner), 1899.
Chapman, Sydney J. Work and wages. London, Longmans, 1904-1914. 3 vol.
Cheyney, Edward P. European background of American history. N. Y., Harper, 1904.
Clapham, J. H. The economic development of France and Germany, 1815-1914. Cambridge, 1921.
Coman, Katharine. Industrial history of the U. S. N. Y., Macmillan, 1910.
Cornewall-Jones, R. J. British merchant service. London, 1898, 14s.
Cunningham, William. Growth of English industry and commerce. Cambridge (N. Y., Macmillan), 1896-1903, 2 vol. in 3.
Cunningham, William. Rise and decline of the free-trade movement. London, 1904.
DeBow, J. D. B. Industrial resources of the southern and western States. New Orleans, 1853, 3 vol.
Depew, Chauncey M., editor. One hundred years of American commerce. N. Y., 1895, 2 vol.
Edgar, William C. Story of a grain of wheat. N. Y., Appleton, 1903.
Fairlie, J. A. Economic effects of ship canals. Annals of Amer. Acad., Philadelphia, 1898, 11: 54-75.
Fisher, Sydney G. Men, women and manners in colonial times. Phila., 1898, 2 vol.
Fry, Henry. History of North Atlantic steam navigation. N. Y., Scribner, 1896.
Gastrell, W. S. H. Our trade in the world. London, 1897.
Green, Mrs. J. R. Town life in the fifteenth century. N. Y., Macmillan, 1894, 2 vol.
Hadley, Arthur T. Railroad transportation. N. Y., Putnam, 1903.
Hammond, Matthew B. The cotton industry. Pub. Amer. Econ. Assoc., 1897, 2 series, no. 1. N. Y., Macmillan.
Hatfield, Henry R., editor. Lectures on commerce. Chicago, 1904.
Hewins, W. A. S. English trade and finance. London (N. Y., Scribner), 1892.
Hobson, John A. Evolution of modern capitalism. N. Y., Scribner, new ed., 1916.
Homans, J. Smith, editor. Cyclopedia of commerce. N. Y., Harper, 1858.
Hulbert, Archer B. Historic highways of America. Cleveland, 1902-5, 16 vol.
Hunter, William W. History of British India. London (N. Y., Longmans), 1899, 2 vol.
James, Edmund J. The canal and the railway. Pub. Amer. Econ. Assoc., 1890, 5:282-329.
Jeans, J. S. Waterways and water transport. London (N. Y., Spon), 1890.
Jessopp, Augustus. Coming of the friars. London, (N. Y., Putnam), 1889.
Jevons, W. S. The coal question. London, 2 ed., 1866.
Johnson, Emory R. American railway transportation. N. Y., Appleton, 1903 and later editions.
Jusserand, J. J. English wayfaring life. N. Y., Putnam, 1890.
Keller, Albert G. Colonization. Boston, 1908.
Lectures on British commerce, with preface by W. P. Reeves. London, 1912.
Levi, Leone. History of British commerce, 1763-1878. 2 ed., London, 1880.
Lindsay, W. S. History of merchant shipping. London, 1876, 4 vol.
Lippincott, Isaac. Economic development of the United States. N. Y., 1921.
Lord, Eleanor L. Industrial experiments in the British colonies. Bryn Mawr dissertation, 1896.
McCarthy, Justin. History of our own times. N. Y., Harper, 1901, 3 vol. and various other editions.
M’Culloch, J. R. Dictionary of commerce. Philadelphia, 1847, 2 vol.
Macgregor, John. Commercial statistics. 2 ed., London, 1850, 5 vol.
Macpherson, David. Annals of commerce. London, 1805, 4 vol.
Maginnis, A. J. The Atlantic ferry. N. Y., Macmillan, 1900.
Mahan, A. T. Influence of sea power upon history. Boston, Little, 1893.
Marvin, Winthrop L. The American merchant marine. N. Y., Scribner, 1902.
Mayo-Smith, Richmond, and E. R. A. Seligman. Commercial policy of the U. S., 1860-90. Leipzig, 1892, Schriften Ver. f. Soc., XLIX.
Mongredien, Augustus. History of the free-trade movement in England. London, Cassell, no date.
Morley, John. Life of Richard Cobden. London (N. Y., Macmillan), 1881, 2 vol.
Nicholson, J. S. History of the English corn laws. London, 1904.
Nicolls, W. J. Story of American coals. 2 ed., Philadelphia, Lippincott, 1904.
Ocean steamships. N. Y., Scribner, 1891.
Ogg, Frederic A. Economic development of modern Europe. N. Y., 1917.
Oxley, J. M. Romance of commerce. N. Y., Crowell, 1897.
Page, T. W. Earlier commercial policy of the U. S. Journal of Pol. Econ., Chicago, 1901-2, 10:161-192.
Palgrave, R. H. I. Dictionary of political economy. London (N. Y., Macmillan), 1894-99, 3 vol.
Porter, G. R. Progress of the nation. London, 1836 ff., 3 vol.; new ed., London, 1912.
Rand, Benjamin. Selections illustrating economic history, 4 ed., N. Y., Macmillan, 1903.
Report of a Committee of the Lords of the Privy Council on the trade of Great Britain with the U. S., 1791. Reprinted, Washington, 1888.
Ringwalt, J. L. Development of transportation systems in the U. S. Philadelphia, 1888.
Schmoller, Gustav. The mercantile system. N. Y., Macmillan, 1902.
Schooling, J. H. The British trade book. London, 4th issue, 1911.
Seebohm, Frederic. Era of the Protestant Revolution. N. Y., Longmans, 1903.
Seeley, J. B. Expansion of England. Boston, Little, 1900.
Seignobos, Charles. Political history of Europe since 1814. N. Y., Holt, 1899.
Seybert, Adam. Statistical annals. Philadelphia, 1818.
Shadwell, Arthur. Industrial efficiency. London, 1906, 2 vol.; new edition, 1 vol., 1909.
Social England, ed. by H. D. Traill and J. S. Mann. London (N. Y., Putnam), 1894 ff., 1901 ff., 6 vol.
Spears, John R. The story of the American merchant marine. N. Y., 1910, new ed., 1917.
Statesman’s Year-Book. London (N. Y., Macmillan), annual.
Stephens, H. M. Story of Portugal. N. Y., Putnam, 1891.
Swank, J. M. History of the manufacture of iron. 2 ed., Philadelphia, 1892.
Taussig, Frank W. Tariff history of the U. S. N. Y., Putnam, 1897.
Vernon-Harcourt, L. F. Achievements in engineering. N. Y., Scribner, 1891.
Ward, T. H. editor, Reign of Queen Victoria. London, 1887, 2 vol.
Waterston, William. Cyclopedia of commerce. London, 1847.
Weeden, W. B. Economic and social history of New England. Boston, Houghton, 1890, 2 vol.
Wells, David A. Our merchant marine. N. Y., Putnam, 1890.
Wells, David A. Recent economic changes. N. Y., Appleton, 1898.
Williams, Ernest E. “Made in Germany,” 5 ed., London, 1897.
Wilson, A. J. Resources of modern countries. London, 1878, 2 vol.
Wright, Carroll D. Industrial evolution of the U.S. N. Y., Scribner, 1895.
Zimmern, Helen. The Hansa towns. N. Y., Putnam, 1889.