International Economic Disintegration

CHAPTER V THE IMPORTANCE OF THE EXTRA-ECONOMIC FRAMEWORK FOR THE WORKING OF THE ECONOMIC PROCESS

THE problem to be discussed here is deemed so important, that it should be used as the starting point of any causal analysis of the present disintegration of world economy worthy of the name. At the same time, however, it is, one must be afraid, one of those numerous problems which to many people appear startlingly new and rather incomprehensible. Even to regard it as a problem worthy and capable of analysis is so contrary to the traditional spirit of economic science, as created by the classical school, that some words of introduction seem indispensable.

As has been remarked earlier, no one will seriously dispute that this traditional spirit of economic science was, and still is, largely coloured by belief in not only the sociological autonomy, but also the sociologically regulating influence of the market economy. Implicitly and explicitly, it was and still is held that a market economy based on competition and essentially unhampered by any agency outside the competitive market is an ordre naturel which, once freed from all impediments, is able to stand indefinitely on its own feet, steered by that “invisible hand” which Adam Smith made famous and which, looked at closely, is nothing else than the “logos” of Heraclitus or the “divine reason” of deistic philosophy. Thus the competitive market appeared to be a “philosopher’s stone,” which turned the base metal of callous business sentiments into the pure gold of common welfare and solidarity; social wisdom and morality were the surprising products of countless individual actions not primarily commanded by either; and private vices were turned into public virtues.

So far the competitive market economy was considered sociologically autonomous: it needed no special laws, no special state or special society, required neither a special morality nor any other irrational and extra-economic forces and sentiments. Rarely or never was this belief stated so crudely, but surely few will to-day deny that the general tendency of the liberal philosophy ran—and in some quarters still runs—in this direction.1 It was supplemented, however, by the other belief that the competitive market economy, while standing on its own feet sociologically and obeying its own laws, exerted a strong regulating, integrating and educating influence on society as a whole, and worked for peace, good will, solidarity and a mild, but general morality with its motto “honesty is the best policy.” Far from consuming and being dependent on socio-political integration from outside the economic sphere, the competitive market economy produces it—or so runs the argument. When Cobden coined his famous slogan: “free trade, good will and peace among nations,” he may have meant that all three condition each other, but there is a strong suspicion that the main emphasis was on “free trade” as the agent, which brought peace and good will in its wake.

If views like these were ever held at all, it has become obviously impossible to continue to hold them to-day. We are not going to dispute the all-important discovery made by the pioneer economists of the eighteenth century that the competitive system with its unconscious tendency toward equilibrium follows its own well-established laws. But we are forced emphatically to deny that this order is anything like an ordre naturel independent of the extra-economic framework of moral, political, legal and institutional conditions, without which the competitive market system can no more work than any other economic system characterized by a high degree of economic integration. Under the system of the competitive market economy, as well as under any other economic system, economic integration cannot, in the end, go further than the socio-political integration based on laws, institutions and psycho-moral forces. The latter is the indispensable condition of the former, whereas it is highly doubtful, as will be seen, that economic integration can be sufficiently relied upon to produce automatically the degree of socio-political integration it requires.

It is certainly true that the competitive market system—the “business economy”—keeps itself at an equal distance from both the ethically negative system of violence or ruse and the ethically positive one of altruism and charity. It reduces both to the common level of a mild standard of commercial good behaviour, but it would be a great mistake to think that that would make the market system an ethically neutral sphere. On the contrary, it is a highly sensitive artefact of occidental civilization, with all the latter’s ingredients of Christian and pre-Christian morality and its secularized forms; and it should not be forgotten that the “economic man” of the classics was really an English gentleman of the eighteenth or nineteenth century, whose normal code was fixed by the church and by tradition. In fact, the market economy is an economic system which cannot exist without a minimum of mutual trust, confidence in the stability of the legal-institutional framework of the economic process (including money), contractual loyalty, honesty, fair play, professional honour, and that pride which considers it beneath one to cheat, bribe, or misuse the authority of the state for one’s own egoistic purposes. Above all, there must be a “creed” in the most general sense of the term, a belief in a definite scale of ultimate values giving sense and purpose to the ordinary doings of all participating in the economic process, and, finally, at least a provisional understanding of the meaning and working of this economic process.2

Thus the market economy is living on certain psycho-moral reserves, which are taken for granted when everything is going well, and only reveal their supreme importance when they are giving out. From this we see at once that the ultimate conditions for the working of the economic process lie outside the strictly economic sphere. Where there is a slight ailment of the body, a local treatment is enough, but modern medicine has learned that major troubles are usually bound up with the ultimate somatic and mental conditions of our existence, conditions which must be changed if there is to be any definite cure.

To abandon as unfounded the tenacious idea of the economic sphere as an autonomous sphere of rational behaviour, is to conform to the general trend of modern sociology. Whether it is Max Scheler showing that the contractual co-operation of men (Gesellschaftliche Verbände) cannot work without genuine communities (Gemeinschafts-Verbände), like the family, the moral bonds of neighbourhood, the church, &c.,3 the conservative philosopher Friedrich Julius Stahl telling us that society as a whole must be surrounded by a penumbra of reverence for genuine authority, C. G. Jung suspecting the existence of a “collective subconscience,” Ch. Blondel speaking of the “representations collectives” regulating individual consciences, or M. Halbwache pointing out the necessity of social “encadrement” for the mental balance of the individual—it all comes down to the same thing, that even in the most ordinary aspects of life, for the correct balance of his volitions and actions, man must consciously or subconsciously be embedded in a vitally satisfying milieu and be integrated into a stable and well-balanced community which is based on social sentiments and institutions.

It is difficult to imagine how the leading thinkers of former generations could have been more or less blind to this fundamental truth, which seems so obvious and even trivial to us to-day. The reason why it was so, is perhaps to be sought in the fact that an important part of this same social philosophy of the past was its strong belief in the sociologically positive effects of the business economy—a belief which has already been mentioned and which found its most glaring expression in the social philosophy of Herbert Spencer. If the business economy was educating and domesticating mankind—slowly and with occasional relapses into a more primitive behaviour—if the mutual dependence of individuals and nations brought about by division of labour and exchange could be relied upon to lead men to peace, confidence, order and honesty, then all was well with the world. If reactionary philosophers made themselves unpleasant by insisting on the dominant importance of forces and sentiments outside the economic sphere—why, the business economy was providing itself with just this lubricant of morals, sentiments and institutions! Here is a sociological problem of the first order, which is still far from being generally understood. Impossible as it is to go into it more thoroughly on this occasion, the least that can be said is that the Spencerian Optimism—which is closely akin to the Economic Determinism of Karl Marx—would appear to be shaken to the core; and after what has been said on the character of the extra-economic framework of the market economy, it is easy to understand why that must be so. True, there is no gainsaying the fact that the mutual dependence engendered by an intensive division of labour is, to a certain extent, moulding the mind toward a more civilized behaviour, so much so that the division of labour can be conceived as one of the most potent civilizing factors.4 But in granting this we must not overlook the fact that it is only one of other civilizing factors, which are even more important because they are ones without which a high degree of division of labour would be altogether impossible. Were it otherwise, it would be rather puzzling why world history fails so conspicuously to offer us the gratifying spectacle of a steady upward movement of civilization, and, above all, the present situation of the world would be utterly incomprehensible.5 More important even for the present, is the fact that a clear distinction must be made between the sociological effect of mutual economic dependence as such, and that of competition. It is hard to see how competition, much as it is indispensable and beneficial from the point of view of the production of material wealth, can be capable of breeding social integration. It should be obvious that, morally, it is a highly dangerous arrangement, and one which must be balanced by the strongest of counter-forces from outside the economic sphere.6 It is, indeed, no principle on which society as a whole can safely be based in the long run. It assumes that there is enough integration outside the competitive market to keep society in general and competition in particular from collapsing, and this is more or less what we are witnessing to-day.

We may conclude, then, that it is social integration on which economic integration depends, and not the other way round. The latter supposes the former as a largely independent condition, and the reversal of causation due to Spencerism seems, to-day, no more than a very significant symptom of an age which was in the habit of overstressing the dominating and determining role of the economic side of society.

 

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7 Cf., among others, the study by Arthur Salz, “Die irrationale Grundlage der kapitalistischen Wirtschafts und Gesellschaftsordnung,” Festschrift für Alfred Weber, Soziologische Studien, Potsdam, 1930, pp. 34-79.

8 See, on this point, especially: L. Romier, Si le capitalisme disparaissait, Paris, 1933, pp. 171-183. It is important to note that all this has a special bearing on private investment activity, the pivotal rôle of which has been duly stressed by the modern business cycle theory, though most workers in this field still ignore its extra-economic roots.

9 Max Scheler, Der Formalismus in der Ethik und die materiale Wertethik, Halle, 1916; C. Bouglé, Bilan de la sociologie franςaise contemporaine, Paris, 1938; R. Behrendt, “Psychologie et sociologie du radicalisme politique,” Revue des Sciences Politiques, October-December, 1933. In the sociological writings referred to, there is a certain tendency to exaggerate the collective and to neglect the individual component of social integration. This question cannot be discussed at this juncture.

10 Especially illuminating in this respect is the linguistic and ethnological analysis of words like “hospes,” “Gast” and others. Cf. 0. Schrader, Linguistisch-historische Forschungen zur Handelsgeschichte und Warenkunde, Part I, Jena, 1886, pp. 1-159. The development of Roman law from the narrow code of a peasant tribe to the jus gentium points in the same direction.

11 Or has it been the lack of education in the principles of Spencerism? That seems to have been the idea of the young J. B. Say, who tells us in his juvenile work on a Liberal Utopia (Olbie ou Essai sur les moyens de réformer les moeurs d’une nation, Paris, 1800, p. 25): “Aussi le premier livre de morale fut-il, pour les Olbiens, un bon traité d’économie politique.”

12 Cf. F. H. Knight, The Ethics of Competition, London, 1935, pp. 41-75.

• 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.
• 3See also: W. Röpke, Die entscheidenden Probleme des weltwirtschaftlichen Verfalls, Zeitschrift für schweizerische Statistik und Volkswirtschaft, 1938, No. 4.
• 4In current literature there is already some evidence that the understanding of the scientific situation outlined above is growing. See E. F. M. Durbin, “Methods of Research—A Plea for Co-operation in the Social Sciences,” Economic Journal, June, 1938; A. Löwe, Economics and Sociology: a Plea for Co-operation in the Social Sciences, London, 1935: F. Akerman, Das Problem der sozialökonomischen Synthese, Lund, 1938. The essential things have been said on a wider scientific scale by A. N. Whitehead, Science and the Modern World, New York, 1926; and by Ortega y Gasset, El Tema de Nuestro, Tiempo, Madrid, 1923.
• 5See Der deutsche Aussenhandel unter der Einwirkung weltwirtschaftlicher Strukturwandlungen, l.c., pp. 362-363.
• 6The vast literature on this subject has recently been enriched by M. J. Bonn, The Crumbling of Empire, The Disintegration of World Economy, London, 1938; and by Lionel Robbins, The Economic Causes of War, London, 1939.
• 7The 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.
• 8(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.
• 9As the present historical crisis finds its first, its most painful and its most conspicuous manifestation in the economic sphere, and since the nineteenth century has accustomed us to treat the economic problems as the main ones, it is easy to understand why the crisis is conceived primarily as an economic one and why, therefore, the traditional approaches of economics have been relied upon thus far. Whether or not this traditional conception corresponds to the inner convictions of our scholars and statesmen, it is at least exemplified in the character of by far the greater part of scientific activity in our field. Accordingly, men and means have been mobilized, during the last ten years, on an unprecedented scale. Facts have been piled up sky-high; conferences have been held in endless succession; economic analysis has been brought to an ever greater degree of refinement (and, incidentally, to an ever greater degree of unreality); vast and detailed programmes of research have been elaborated; a complicated machinery of institutionalized science has been set up; and questionnaires have been sent to almost every country and to every section of the population. It would surely be no pessimistic over-statement to say that nobody feels that this hectic activity has brought us any nearer the fundamental diagnosis which alone could serve as the basis for effective therapy.
• 10The real cause of this deficiency in the social sciences seems to lie just in the narrowness of our economic conception and the lack of courage and ability in really synthetic interpretation to connect the economic phenomena with the wider aspects of society. There is, in fact, increasing evidence that the real epicentre of the earthquake does not lie by any means in the strictly economic sphere, but rather that the economic disturbances are only the external manifestations of a deeper organic disease, of which overemphasis on economic matters—a legacy of the nineteenth century—is only one of the many symptoms. If that is true, then it becomes clear that the traditional approach is doomed to failure and that a new point of departure has to be found.
• 11That the development of world economy has been, first of all, a process of intensification is as important as it is evident. It can be deduced from the fact that the most highly developed countries showed the greatest percentage of world trade, which, in view of the reciprocal nature of trade, proves that the bulk of world trade must have belonged to economic interchange within the high-capitalistic sphere itself. This deduction is corroborated by a number of calculations of the relative intensity of this “intraindustrial” economic interchange. One of these calculations, made by the Kiel Institut für Weltwirtschaft und Seeverkehr, shows that the commodity trade between the industrial countries of Europe (Belgium, Germany, France, Great Britain and Ireland, Italy, Austria and Switzerland) amounted in 1913 to 30.2 milliard RM (=$7.2 milliard), which was equal to about one-third of the total reciprocal trade between all industrial and agricultural countries of the world. The same story is told by the calculation that out of average total exports of industrial Europe (comprising the same countries) during the years 1909–1913 slightly more than one half (51%) constituted an exchange of goods among these countries themselves. It is also a well-known fact that such leading countries as England and Germany were practically each other’s best customers. In 1913, for example, exports from the United Kingdom to Germany formed 7.74% of the total export trade of the former (higher than the percentage of any other country except British India), while imports from Germany into the United Kingdom as a percentage of the total import trade (11.56%) were surpassed only by those from the United States. Another very interesting illustration of the same tendency is to be found in the development of reciprocal trade between the two leading industrial countries outside of Europe, i.e. the United States and Japan.
• 12There is no denying the fact that world economy and capitalism have been to a large extent forced upon the “new” countries by political pressure and in some cases—as in the opening-up of China—by undisguised war. The problems thus presented are, at the present moment, far from a universally accepted solution; but it seems clear that no satisfactory study of international economic integration and disintegration could evade them. This holds especially true for one of the many aspects of the problem of economic imperialism—the difficult question of whether and how far extensification and intensification of world economy were, and perhaps still are, correlated to each other. In other words, was it not just the spatial expansion of capitalism which kept the whole mechanism of dynamic development going, by providing more and more new markets for the surplus production which constantly increased as productive technique improved, by giving the necessary stimulus to entrepreneurial initiative and speculative optimism and by allowing the “play” essential for any working mechanism? Allowance must also be made for the possibility that the existence of an economic “frontier” in world economy may have been instrumental in providing that psychological atmosphere essential for the breadth of outlook, which is the basis of a liberal commercial policy. This refers not only to the exploitation of new markets, but also to the opening of overseas territories to human settlement. Thus the vast problem of international migrations would also have to be studied in this context.