International Economic Disintegration

IF this picture of the international economic disintegration be accepted as fairly clear and reasonably correct, it only remains to round it off and balance it with a number of general qualifications and precisions, which may meet some obvious objections.

In the first place, there is the obvious fact that the different countries and parts of the world are involved in these disintegrating tendencies to a different degree, some playing an active and others a more passive part, some leading and others following more or less reluctantly, some joyously forging ahead and others bravely or even successfully fighting against the general trend. At one end of the scale there is Russia, entrenched in its economic and political isolation, and at the other a country like the United States, which sticks to its traditional commercial policy and is making great efforts to restore the old liberal foundations of world economy. Between these two extremes there is every shade and variety. Here is the “free sector” and there the “blocked sector” of world economy, both of which have been mentioned in connexion with the trend toward bilateralism. And what has become a conspicuous part of the commercial system of the one country, is a mere tendency or a thing bitterly combated in the other, like the quota system or the clearing machinery. In view of these differences, it is sometimes very difficult to arrive at a general appraisal by striking a balance and weighing up the general significance of this or that tendency.

There is another qualification suggested by the very uncertainty involved in any tendency. Judgments may be divided between the one view that this or that tendency is exceptional or temporary, and the other that it is significant for the whole direction in which the world will go for an appreciable time. At this stage of the enquiry it is much too early to express any definite opinion, because the final judgment must depend on a deeper diagnosis and etiology of the tendencies in question. It is obvious that the tendencies will be the more lasting or, at least, the more difficult to check, the more deep-rooted are their causes.

Leaving this problem aside for the time being, it is nevertheless possible to make two observations. The one is that the tendencies described contain a certain cumulative and self-inflammatory element, with the result that they are, to some extent, being strengthened by their own momentum. Inside the countries they create vested interests which add to or replace the original forces, and, between them, they are apt to lead to retaliation and imitation. The beginning of such policies may also prove the last straw in a situation where everything was prepared for a lasting and permanent change in the new direction. To understand this, we may well remember that most of the changes described here took shape in the international crisis of 1931, and were conceived as merely temporary emergency measures in the whirlpool of upset balances of payment. Finally, it should be noted that an essential feature of these new devices of commercial policy is that, being non-conformable measures, they are apt to start a chain of repercussions which necessitate more and more radical acts of intervention, with the result that the country in question sinks deeper into the quagmire of nationalist planning,1 unless there is a complete restoration of the status quo. The deeper it has sunk, however, the more difficult this restoration is, so that the existence of the new state of things becomes an additional reason for its continuance. There are some social processes that are nearly or practically irreversible: the way in is easy, but the way out extremely difficult.

That is the first consideration. The other takes quite the opposite direction. The tendencies toward international economic disintegration, which have been described, contain not only cumulative but also compensatory and self-adjusting elements. They are provoking certain reactions which tend to nullify their effect to a certain extent and to restore equilibrium as far as can reasonably be expected, in accordance with the adage naturam expellas furca tamen usque recurret. This point is so important, and also generally so much neglected, that it deserves some elaboration.

It is a well-known experience that no economic intervention can be made without a certain discount. Its effectiveness is never 100% since there is always some leakage and some evasion intra, praeter and contra legem. For this there are some very deeply rooted reasons connected with the fact that there exists a certain natural gravitation towards the competitive price-system.2 The more state intervention is directed against this natural gravitation, the more formidable is the pressure that has to be exerted, but the greater, also, the tendency for the reaction to become strong, and it is by no means easy to predict the final outcome of this tug-of-war between the state and the competitive price-system. As has already been stated, it is a peculiar feature of that group of non-conformable interventions to which most of the new measures of commercial policy belong, that it sets in motion a series of reactions which forces the government to cope with them by ever more drastic measures. A good example of this is exchange control. Here one usually has only to choose between having no exchange control at all and going the whole length toward an hermetically sealed economic system. It is a case of aut Caesar aut nihil.

Now, there is a special reason why the present tendencies in foreign trade policy appear particularly forced and artificial, and that the greatest pressure has to be exerted to achieve the desired object in spite of the strong counterforces. The disintegration and contraction of world economy means that retrogression of economic development occurs only at one arbitrarily chosen point, i.e. at the national frontiers, whereas, inside the countries, the line of development toward greater integration remains unbroken. In spite of certain ideologies, autarky does not and cannot mean a romantic retreat of the whole economic system to the idyllic stage of economic development of a century ago; it is only the international sector which is forced to go in this direction.

The world economy of the recent past is certainly something altogether abnormal in economic history, but so is the whole economic and social system connected with it. Yet, autarky may be a more or less normal stage in economic history, but it was never connected with an economic system which, in its entirety, was so integrated, rationalized and technically advanced as the present one. Consequently, it is altogether unconvincing to present the world economy of the recent past as something transient and extraordinary, which is bound to wither like a very short-lived flower, and to make autarky out as being the normal state of affairs. That is why highly advanced countries are to-day having to move heaven and earth in order to achieve even a relative degree of autarky, and why the gigantic efforts they have to make are leading the countries in question into the severest economic, social and political upheavals and spasms, and, above all, into internal collectivism with all its paraphernalia. That is also why the sacrifice made to romanticism by autarky is apt to find its compensation in the utmost increase of highly unromantic regimentation and rationalization within the national economies. That is the reason, too, why this policy has a dynamics of its own, which leads to repercussions that are for ever presenting new problems and new disequilibria which have to be coped with. And that is, finally, why there is good reason to expect that somehow, in the present situation of world trade, that which has been suppressed will develop a strong tendency to re-establish itself as far as possible. It is, indeed, difficult to dam up the forces of world trade: in some way or another the river will carve itself out a new bed—with all the damaging consequences such a process involves.

It is beyond the scope of this chapter to give a detailed idea of the ways in which we can observe this process going on to-day, though to do so would surely be a very interesting study. To illustrate it, however, we may mention the fact that even multilateralism, after being suppressed by clearing treaties, is being restored in some of its functions by re-exports to third countries (so that, e.g., Persian carpets brought into Switzerland under the Swiss-Persian clearing treaty may be re-exported to the United States), or that, when imports are replaced by home production, the imports of other commodities used as raw materials for that production increase (e.g., timber in Germany or casein in Italy), or that the competition of synthetic products has proved an effective spur in decreasing the cost of production of the natural raw materials whose place they were to take (e.g., the recent restoration of the competitive strength of Chilean saltpetre compared with synthetic nitrates, which to-day could probably not withstand the competition of the natural product without strong protection). Finally, it is not without interest to observe that the reduction of international trade to mere barter, by strict bilateralism (especially by clearing treaties), has had the somewhat paradoxical effect of making everybody realize the truth of the old maxim of the theory of international trade, that imports foster exports, and of thus changing the psychological climate favourably for the development of foreign trade.

If, however, the reader were left under the impression of the last paragraph, it is not altogether unlikely that he might take it in a too optimistic sense. Therefore, it seems advisable to emphasize that, in drawing attention to some self-adjusting and compensating factors in the situation, it is by no means our intention to pretend that they are important enough to change the situation essentially. We must not neglect them; but, on the other hand, we are bound to face the disquieting truth that, in the net result, international economic disintegration is liable to go on, unless something is done to deal with its fundamental causes. This brings us to the problems dealt with in the following chapters.

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3 W. Röpke, Crises and Cycles, p. 195.

4 The point has been elaborated by the author on several occasions. See e.g. his book Die Lehre von der Wirtschaft, Vienna, 1937, pp. 27-38.

• 1Cf. my paper “A Value Judgment on Value Judgments” in which I am explaining my attitude in this very important methodological question. It will probably be published in the “American Economic Review.”
• 2The following pages are largely based on a memorandum which the author wrote together with Professor Alexander Rüstow (University of Istanbul) in the summer of 1938.
• 3The purpose of this book is to make a new and more promising approach to the diagnostics of that long-run crisis in international economic relations which is one of the most striking symptoms of the general economic, social, and political crisis of occidental society. I believe that the urgent necessity of such an approach has been enhanced rather than diminished by the outbreak of the war. However, I would betray my own philosophy if I regarded this book as anything more than a mere beginning, an invitation to constructive criticism, and a way of opening or furthering a discussion for which the world seems to be ripe. In submitting this book to criticism, I am not afraid to expose myself as one who believes not only in the scientific legitimacy but even in the utmost scientific necessity of employing a measure of judgments, which is ultimately based on a definite conception of what is wrong with the world, and of what should be done in order to put it right again. Those who are shocked by such an attitude may be reassured that I gave more thought to this methodological problem than I am able to explain on this occasion.
• 4(b) This crisis puts social science in a new situation, which is itself highly critical and which no partial investigation in any field of this science whatever can ignore without running the risk of missing its aim. Nobody conversant with the current development of the social sciences can overlook the fact that the feeling of being on insecure ground is becoming more and more widespread, until even the most tenacious followers of the traditional lines of approach sense the need for reorientation. The growing literature on methodological questions even in countries like England, where it was formerly distinctly unpopular, is a sure token of this scientific situation, as is also the fact that it has been felt necessary to open the present report in such a roundabout way as would have appeared rather strange even five years ago.