The Fruits of Victory / A Sequel to The Great Illusion

by Norman Angell

With a public debt of 233,729 million of francs (about £9,300,000,000, at the pre-war rate of exchange); with the permanent problem of a declining population accentuated by the loss of millions of men killed and wounded in the war, and complicated by the importation of coloured labour; with the exchange value of the franc reduced to sixty in terms of the British pound, and to fifteen in terms of the American dollar,[127] the position of victorious France in the hour of her complete military predominance over Europe seems wellnigh desperate.

She could of course secure very considerable alleviation of her present difficulties if she would consent to the only condition upon which Germany could make a considerable contribution to Reparations; the restoration of German industry. But to that one indispensable condition of indemnity or reparation France will not consent, because the French feel that a flourishing Germany would be a Germany dangerous to the security of France.

In this condition one may recall a part of The Great Illusion case which, more than any other of the ‘preposterous propositions,’ excited derision and scepticism before the War. That was the part dealing with the difficulties of securing an indemnity. In a chapter (of the early 1910 Edition) entitled The Indemnity Futility, occurred these passages:—

‘The difficulty in the case of a large indemnity is not so much the payment by the vanquished as the receiving by the victor ...

‘When a nation receives an indemnity of a large amount of gold, one or two things happens: either the money is exchanged for real wealth with other nations, in which case the greatly increased imports compete directly with the home producers, or the money is kept within the frontiers and is not exchanged for real wealth from abroad, and prices inevitably rise.... The rise in price of home commodities hampers the nation receiving the indemnity in selling those commodities in the neutral markets of the world, especially as the loss of so large a sum by the vanquished nation has just the reverse effect of cheapening prices and therefore, enabling that nation to compete on better terms with the conqueror in neutral markets.’—(p. 76.)

The effect of the payment of the French indemnity of 1872 upon German industry was analysed at length.

This chapter was criticised by economists in Britain, France, and America. I do not think that a single economist of note admitted the slightest validity in this argument. Several accused the author of adopting protectionist fallacies in an attempt to ‘make out a case.’ It happens that he is a convinced Free Trader. But he is also aware that it is quite impracticable to dissociate national psychology from international commercial problems. Remembering what popular feeling about the expansion of enemy trade must be on the morrow of war, he asked the reader to imagine vast imports of enemy goods as the means of paying an indemnity, and went on:—

‘Do we not know that there would be such a howl about the ruin of home industry that no Government could stand the clamour for a week?... That this influx of goods for nothing would be represented as a deep-laid plot on the part of foreign nations to ruin the home trade, and that the citizens would rise in their wrath to prevent the accomplishment of such a plot? Is not this very operation by which foreign nations tax themselves to send abroad goods, not for nothing (that would be a crime at present unthinkable), but at below cost, the offence to which we have given the name of “dumping”? When it is carried very far, as in the case of sugar, even Free Trade nations like Great Britain join International Conferences to prevent these gifts being made!...’

The fact that not one single economist, so far as I know, would at the time admit the validity of these arguments, is worth consideration. Very learned men may sometimes be led astray by keeping their learning in watertight compartments, ‘economics’ in one compartment and ‘politics’ or political psychology in another. The politicians seemed to misread the economies and the economists the politics.

What are the post-war facts in this connection? We may get them summarised on the one hand by the Prime Minister of Great Britain and on the other by the expert adviser of the British Delegation to the Peace Conference.