International Economic Disintegration

CHAPTER VI ECONOMIC AND SOCIO-POLITICAL INTEGRATION AND DISINTEGRATION IN THE INTERNATIONAL FIELD

WE saw that an intensive economic intercourse, which involves a wide scale of division of labour and a high degree of mutual dependence of individuals, is possible only under a number of conditions, which all fall under the head of “socio-political” integration. It is this latter which, in the last resort, sets the limits to the extent and degree of economic integration. There must be a framework of institutions and of a strong legal order, and behind them, there must be a generally observed and undisputed code of moral norms and principles of behaviour. In this way, it is possible to have a society in which all its members may feel sheltered in an atmosphere of mutual confidence, security and continuity. Only in this way is it possible to reduce and make bearable the enormous risks involved in the high degree of dependence, which is inevitably connected with the division of labour. Every page of economic history proclaims the truth of this statement, which is, indeed, the ultimate principle explaining the rise and decay, the expansion and contraction of economic organization.1

In the course of history, it has as a rule proved possible to provide a minimum of socio-political integration within the borders of a well-organized community or state, which would last long periods without serious interruptions. The great problem, however, has always been to provide this necessary minimum of sociopolitical integration beyond the borders of the sovereign state, and thus make stable international economic relations possible. Where the sovereignty of the state ends, there also ends the law-community, in the strict sense of a community bound by a common legal order which is enforced by an undisputed authority and its sanctions. Though, in its economic substance, international trade is not essentially different from national trade, it is clear that it has always been handicapped by the greater frailty and precariousness of its socio-political framework. Consequently, international economic integration has, in the course of history, normally lagged behind national economic integration. Since there is no world state, world economy lacks the strict legal order provided by the sovereignty, which sets the norms and enforces them immediately and indisputably.

The problem is to a certain extent solved by the existence of some sort of a super-state like the empires of Alexander the Great, Rome, and the Han dynasty, or those of the Carolingians and Stauffen, the Arabs and the great Mongol rulers. The Pax Romana, Arabica or Mongolica made possible an economic integration far beyond the territorial extent of the individual states, and the rise and decay of this integration invariably coincided with the rise and decay of an international economy. A similar effect was had by such strong political affiliations as that of the Pope and the Mongol Empire2 and other power combinations, which were usually the result of an alliance against a common adversary.

How, then, can we explain the fact that during the last centuries international economic integration was able to develop in such a stupendous fashion? The political predominance of the British Empire since her historical struggle with France during the middle of the eighteenth century was never a negligible factor in the situation. It is, indeed, doubtful whether the development of modern world economy can be satisfactorily explained without due reference to the Pax Britannica; and there is much scope for speculation on the importance of the British rule of the seas for the rise of world-wide capitalism. But parallel to the rise of the British Empire went a much more important development, which really explains why the international economic integration of our time has been possible in spite of the absence of a world state and its powerful socio-political framework. This was the spread of a commonly accepted ordre public international, based on international standards of conduct in peace and war, and on a network of international treaties or unwritten rules of international law, which were respected because there was an undisputed moral code behind them.

It was an unique feature of the development of the last 200 years that economic integration could pass national frontiers as never before, because the world had succeeded in finding a working substitute for the non-existent world state or world-wide empire. Just as the universal gold standard was, to all intents and purposes, equivalent to a world money, so the high degree of moral and legal community of the different nations, which united the civilized world, was the nearest approach to an international super-state, despite all its glaring shortcomings and relapses, which it is, perhaps, easy to underrate at the present moment, when distance is beginning to lend its proverbial enchantment. It is a fact that the nations were held together by a system of long-term treaties based on a generally accepted international law and on a far-reaching community of fundamental legal conceptions. This system was possible because it was embedded in an atmosphere of a minimum of loyalty, fairness and chivalry.

This is a very sweeping and generous description of the sociopolitical framework of international economic integration during the last centuries, as may be seen from the perspective of the present Iron Age, from which we look back on that period as the Golden Age. It would need a more competent pen than mine to fill in all the details of this picture, and employ all the available material of diplomatic history and contemporary literature in making it vivid and convincing. Nor does it lie within the scope of this book to show the origin and laborious development of the socio-political integration of the civilized world during the eighteenth and nineteenth centuries and its working in the different fields of international contact. Only a few points ought to be mentioned. There is first the well-known fact that nationalism was no red-hot passion3 as it is to-day: one’s own nation was not the highest value, nor was the state a god-like authority. People were so little jealous of the absolute sovereignty of their nation, that even a great patriot like the Baron von Stein found no real harm in the idea of putting the German Bund under the guarantee of the Great Powers after the Napoleonic wars.4 The character of war during this period and the neat distinction between peace and war, which became customary in the eighteenth century, were in accordance with this spirit. That is to say, that in war itself certain fixed rules and norms were obeyed, which it was unchivalrous to break. It is, indeed, a far cry from the days when the French and British commanders, before the battle of Fontenoy in 1745, urged each other to shoot first—“Messieurs les Anglais, tirez les premiers!”5—to the Christmas offensive of General Franco or to the Italian aggression on Albania on Good Friday of 1939. In general, wars were waged for well-defined and limited objectives; they were limited, not total, and the peace that followed was bearable and therefore durable; war indemnities were rare and moderate.6 Soldiering was nowhere in great esteem and in several countries openly despised; while war itself was an undisputed abomination, and armies were something apart from the rest of society. With the exception of the Napoleonic period, there was no imperialistic struggle for world hegemony, and after the battle of Waterloo the European state-system, based on the balance of power, was restored.7 The principle of the balance of power, misused as it was like every other principle, was a foundation of the international order, which not even a man like Bismarck could disturb. In all these respects the career of Napoleon I constituted a bloody, but short episode of international anarchy and disorder, which, because it was relatively short, did not change the general character of the period.

This spirit was reflected in the various institutions which regulated the international economic relations of that time, especially the international monetary order, which finally culminated in the universal gold standard. This international monetary system was possible on the basis of the ordre public international described above, because it is a system which presupposes just that spirit of playing the game, which was characteristic of the period; and this system, in its turn, provided that necessary condition of economic integration, the stability of money. As we have seen, the gold standard made the world practically a payment community, and in doing so it established a universal confidence in the solidity of the basis of international economic transactions. It was also in this atmosphere that flourished the great financial centres of the world, without which the development of world economy can hardly be imagined.8 Last, but not least, we find the same spirit in the commercial policy of the nations, which was characterized by long-term treaties, an unusual degree of loyalty in keeping them and, above all, by the predominance of the most-favourednation treatment. This latter was perhaps the most characteristic symbol of an international order which, in creating security, continuity, confidence and fairness, assimilated as far as possible the conditions of international trade to those of national trade. Most-favoured-nation treatment and the gold standard were, indeed, the main pillars of world economy; but both were equally rooted in the general international order of that period and in the spirit which gave it life. In the last resort, both were more than technical arrangements: they were moral institutions and could only subsist as such.

Enough has been said to show how international economic integration and international socio-political integration have grown up together during the last two centuries. There was a close correspondence between the growth of world economy on the one hand and such facts as the balance of power, chivalry in peace and war, or the belief in the sanctity of written or unwritten international obligations on the other. Those facts, and the spirit behind them, were much more important for international economic relations than all the technical arrangements and strictly economic conditions, whose description fills the text-books on international trade. Here was the source of the vital force which moved the whole complex system. Here was the electric battery that supplied the current.

The fact we have to face to-day is that, during the last fifty years or so and especially since 1914, this battery has been allowed to run down and the current has become more and more feeble. We have long since entered a phase of international socio-political disintegration, which international economic disintegration has not hesitated to follow. Just as the international socio-political integration lay at the bottom of the international economic integration, so is the contemporary disintegration in the socio-political sphere the ultimate reason for the disintegration in the economic sphere of international relations. “Goodwill and peace among nations” are gone, and so not only “free trade,” but even the international economic order had to go too. That is the whole story in a nut-shell. In the international sphere, everything is in a state of dissolution: unpunished and even without loss of honour a country may nowadays do almost anything it likes; disregard treaties and conventions with frank cynicism or ingenious cunning, monkey with currencies, seize foreign balances, stop payments, practise dumping of every description, direct imports and exports here or there according to its almost daily change of friendship, and manage duties, quotas or embargoes as it pleases.

Nationalism, in the sense of intolerant and emotional insistence on the pre-eminent rightness and value of one’s own nation, has gradually become the dominating passion and sentiment, sometimes even to the extent of taking the place of the worn-out religious creeds. The “interest of the nation,” however defined and conceived, tends to become the ultimate measure of what is right or wrong, and this means the end of international law and the beginning of international anarchy.9 The old international system of states, based on the balance of power, is tumbling, and the world has entered again a period of desperate struggle for supremacy and hegemony.10 There are no ultimate and general principles governing the relations of nations; there is no relying on pacts, promises and pledges and no knowledge where the moral dissolution will stop. Foreign property is no more sacred than anything else and is an easy target for enflamed nationalism. To avoid paying interest and amortizations to foreigners has become almost a noble sport, the world champions of which are even enjoying some popularity. How can we expect that, under these conditions, world economy should be in any other state than that described in the preceding chapter, i.e., a state of disintegration and dissolution? The theory of international trade tells us that world economy rests on the law of comparative costs, but recent experience suggests that it would be truer to say that it ultimately rests on the maxim “pacta sunt servanda.”

In the economic field, the socio-political disintegration of the world finds its most immediate and important expression in the dissolution of the old monetary-financial mechanism, which was based on the gold standard and the elaborate machinery of international credit connected with it. The international legal and moral order, as it existed before, was a working substitute for a world state, and the gold standard based on this order similarly functioned as a world money. Now, when the one went by the board, the other had to go too. It is only logical that, in this field too, order and the sense of international community should have been replaced by disorder, arbitrariness and a more or less frank disregard for international relations, though only a few of the advocates of the new monetary trends seem to realize that what they are recommending is part of the general process of international dissolution. The cold-bloodedness and almost rollicking spirit with which leading countries have thrown off the uncomfortable burden of the gold standard is, indeed, in complete accordance with the spirit of our times. If they have any excuse, it is the fact that they pushed over the table when already more than one partner had ceased to play the game. The gold standard, as cannot be repeated too often, assumes that the rules of the game are being strictly observed by the leading countries. It can well be asked what would have been the reaction if, in 1910, a country with an inflow of gold had prevented the gold from engendering the slight increase of the price level, which was necessary to restore the international balance, or vice versa in the case of an outflow of gold.11 To-day, under the regime of paper standards and exchange equalization funds, international gold movements, which formerly were an indispensable agent of international economic integration, have become a factor of disequilibrium rather than of equilibrium; instead of being a link joining the different national economies, they are driving them still further apart; instead of working for international integration, they are working for international disintegration. The mechanism of the exchange equalization funds tends to work in a direction inverse to the gold standard by turning gold inflows into a contraction and gold outflows into an expansion of credit.12 It is not to be wondered at that, under these conditions, the tendency to look on the gold reserve as a war chest, which under no circumstances must be allowed to fall below a certain minimum, is spreading everywhere, now that the old gold mechanism which had given sense to international gold movements has been destroyed.

In whatever direction we look, dissolution and anarchy is everywhere; and the most dangerous thing about it is that it is a highly contagious disease. Crescit eundo. In international relations, too, the “marginal morals” tend to become the average morals. Once great countries have set the example by showing that a country can get away with almost anything, it is natural that the others should begin to ask themselves why they should play the part of the dupe. In any case, it takes an increasing amount of heroism to withstand the temptation of the bad example and stick to the old, unfashionable moral code, the more so since following the bad example usually brings immediate advantages. It is, however, not only a matter of contagion, but also one of sober practical policy. With the increasing insecurity and anarchy of international relations, one country after another may legitimately ask itself whether its relation to world economy must not be thoroughly revised. Since there is no world state, international division of labour, as we know, always has a more unstable and precarious character than its national division. If a country allows its national economy to become closely connected with the network of international division of labour, its economic life comes under the influence of factors which are outside its control and which, for that reason, may lead to unpleasant surprises. A country can only follow this course without danger if the specific risks involved in international economy have been reduced to the minimum in the manner indicated above. This condition had been fulfilled in the immediate past by the international moral and legal order and by the special economic institutions, like the gold standard and the most-favoured-nation treatment, which were based on that order. Now, however, that all that has changed, it has become evident that international economy, with all its immense material advantages, is based on conditions which formerly were so much a matter of course that they were rarely spoken of, and whose enormous importance come to light the moment we notice that they are no longer there.

No wonder that every country, which is not important enough to be able to turn the tide, will tend to revise its position in international economy and pay more attention to the risks involved. Thus, in this sense too, international disintegration is spreading. Moreover, it has to be remembered that international disintegration is likely to be a cumulative process, because present conditions make it imperative that, in spite of the trend toward autarky, international trade must go on somehow, however crippled its form and however reduced its volume. International trade as conducted in this age of economic nationalism, however, will inevitably become an additional source of political conflicts, frictions and jealousies, so that a particularly vicious circle ensues: socio-political disintegration—economic disintegration—more socio-political disintegration and so on. The utmost minimum of international friction is to be expected at the two opposite extremes of complete free trade and of complete autarky. If every nation gave up intercourse with the wicked world and retired into unmitigated autarky, as Japan did during the Tokugawa Period (up to 1868), economics would offer no occasion for friction. But such, is the present state of the world, that the different nations are almost as far from the one extreme of complete autarky as from the other of complete economic freedom, and for the reasons explained earlier13 it cannot be otherwise. The present combination of economic nationalism and the need for a rather large amount of international trade—a necessity brought about by production technique, the enormous growth of population and the wants of this population—is giving international trade just that character, which makes for a maximum of international friction.

There is one final question to be settled, the significance of the present formation of political and economic blocs for the process of international socio-political disintegration. The impression that this is a counteractive development is obviously misleading. On the contrary, it is intimately connected to-day with the process of disintegration, being both its consequence and a cause of still further disintegration. It is just because of the decadence of real international community that, wherever political affinities make it possible, blocs are being formed which alleviate economic nationalism inside, while accentuating it against the rest of the world. The international spirit of to-day does not allow more. Moreover, not a few of the blocs are held together by little more than hatred of other countries and other blocs, so that the moral force behind these affiliations is largely negative, with corresponding consequences for international economic relations in general. Genuine social integration, in this case, is being replaced by propaganda and coercion, just as it happens inside a group of countries.

This interpretation of the formation of economic blocs will be sufficient to shake the widespread belief that, under this form, a new organization of world economy is under way. It cannot be stressed too forcefully that any real reorganization and reconstruction of world economy is impossible without a socio-political reintegration of the world. That applies especially to the idea that some sort of international economic planning is the easiest and most recommendable way toward international economic reconstruction. It should be obvious that a planned world economy is equivalent to a dense network of commercial treaties dealing with the minutiae of international economic relations. Therefore, it is dependent on a high degree of international socio-political integration, even more so than a liberal world economy. In a world like the present, a planned world economy is a fortiori an absolute impossibility, which is irony enough, at this time, when the idea of international planning is reaching the peak of popularity. Still more ironically, the same forces which are undermining the old liberal world economy, are not only at the same time destroying the legal and moral foundations on which a planned world economy must be based, but also not a few of the advocates of planning are the very ones who are doing their utmost to lend their support to those destructive forces.14 That is not to say that there is not wide scope for some real world planning, especially with regard to natural resources.

If it is true, then, that, whichever course we take, everything depends on international socio-political reintegration, it is obvious that the first thing to do is to find the right answer to the question of the ultimate causes of to-day’s disintegration. This answer, however, is not possible before a thorough analysis has been made of our present mass society, which is breeding the seed of disintegration. An attempt to outline such a really Herculean task will be made in the last chapter of the present enquiry.

 

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15 This has been well expressed by A. Salz (op. cit., p. 57): “Die grossen Krisen der Wirtschaftsgesellschaft sind allgemeine Krisen des Vertrauens, die das ganze kunstvolle Gefüge erschüttern und auch den Staat ergreifen. Es handelt sich dabei nicht um eine Erschütterung des Vertrauens in den Einzelnen, dessen Leistungsfähigkeit, Solidität, Ehrlichkeit usw., diese sind ganz nebensächlich, sondern um die Erschütterung des Vertrauens im ganzen, in die ganze Ordnung unserer gesellschaftlichen Existenz.”

16 B. Kuske, Die historischen Grundlagen der Weltwirtschaft, Jena, 1926, pp. 26-27.

17 When, in 1778, France joined the Americans in their war with England, the French government instructed all commanders that if they should meet the English captain, James Cook, on the high seas, they should treat him with all due distinction and further his scientific expedition (J. Huizinga, Nederland’s Geestesmerk, Leiden, 1935, p. 18). In 1810, in the middle of a fierce war between the two countries, the great English scientist, Humphry Davy, together with his disciple Faraday, was invited by French scientific societies; he not only made his lecturing tour through France, but was received everywhere with distinction (Aldous Huxley, L’avenir de l’esprit européen, Entretiens, ed. by the Institut International de Coopération Intellectuelle, Paris, 1934, p. 282). It would be too cruel to compare this with the experiences of the Great War. It goes without saying that the catastrophe of the Great War, with all its consequences, was prepared in the prewar atmosphere. It seems that the gradual change for the worse brought about by moral dissolution, the development of aggressive nationalism and that general attitude, which can be called Activism or Dynamism, started at about 1870. Cf. Benedetto Croce, Storia d’Europa nel secolo decimonono, 3rd edn., Bari, 1932, pp. 349-350; Friedrich Hertz, Nationalgeist und Politik, Beiträge zur Erforschung der tieferen Ursachen des Weltkrieges, vol. 1, Zürich, 1937.

18 Fr. Meinecke, Weltbürgertum und Nationalstaat, 4th edn., Munich, 1917, p. 185, who severely censures Stein for this attitude.

19 O. Guerlac, Les citations francaises, 2nd edn., Paris, 1933, pp. 263-264. Even during the Great War traces of chivalry have been preserved.

20 G. Ferrero, “Forms of War and International Anarchy,” World Crisis, ed. by the Geneva Graduate Institute of International Studies, London, 1938, pp. 85-97; W. Lippmann, The Good Society, Boston, 1937, pp. 131-155; Hans Speier, “Militarism in the Eighteenth Century,” Social Research, August, 1936.

21 See now: G. Ferrero, Reconstruction, Talleyrand à Vienne (1814-1815), Paris, 1940.

22 Cf. R. Nathan, Le rôle international des grands marchés financiers, Paris, 1938, who particularly stresses the dependence of international finance on the sociopolitical framework of international relations.

23 A good account of how the scientists in “dynamic” countries are doing their best to rationalize the dissolution of international law may be found in Eduard Bristler, Die Völkerrechtslehre des Nationalsozialismus, Zürich, 1938.

24 Cf. M. J. Bonn, The Crumbling of Empire, the Disintegration of World Economy, London, 1938.

25 H. Rittershausen, Die Valorisierung des Goldes als Währungs- und Aussenhandels problem, Weltwirtschaftliches Archiv, January, 1938, p. 32.

26 Cf. H. Rittershausen, l.c., p. 34; F. Lutz, “A Note on Gold Movements in the Present International Monetary System,” Review of Economic Studies, October, 1937.

27 pp. 62-64.

28 W. Röpke, Crises and Cycles, London, 1936, pp. 11-12.

• 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.
• 7See my own approaches to these problems given in the article: “Kapitalismus und Imperialismus,” Zeitschrift für schweizerische Statistik und Volkswirtschaft, 1934, pp. 370-386; and in my book Crises and Cycles, pp. 4-6.
• 8Cf. Röpke, Crises and Cycles, London, 1936, p. 88n.
• 9In anticipation of a probable objection, it may be noted that if the development caused by population increase is put under the heading “extensification,” the “intensification” referred to previously (pp. 11-12) appears inexact. In order to get “net intensification” that part would have to be deducted which is due to “vertical extensification,” an operation which is impossible.
• 10F. Hilgerdt (The Approach to Bilateralism—A Change in the Structure of World Trade, Index, August, 1935) gives about 20% as normal.
• 11H. Rittershausen, Die Valorisierung des Goldes als Währungs- und Aussenhandels problem, Weltwirtschaftliches Archiv, January, 1938, p. 32.
• 12Cf. H. Rittershausen, l.c., p. 34; F. Lutz, “A Note on Gold Movements in the Present International Monetary System,” Review of Economic Studies, October, 1937.
• 13pp. 62-64.
• 14W. Röpke, Crises and Cycles, London, 1936, pp. 11-12.
• 15The 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.
• 16(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.
• 17As 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.
• 18The 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.
• 19That 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.
• 20There 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.
• 21There 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.
• 22Full treatment of this set of problems must wait till a later occasion. At this juncture let it suffice to emphasize that this is not only important for a full appraisal of the past development, but even more so for a diagnosis of the present situation of world economy and for a prognosis of its future. It is obvious that it would make a tremendous difference if it were really true that spatial expansion (for both goods and men) has been one of the indispensable and irreplaceable springs behind the development of a highly integrated world economy up to 1914. Here, then, is another of those strategic factors we are looking for, though it seems probable, even at the present stage of enquiry, that the result would be a refutation rather than a corroboration of popular views. But, since here as elsewhere popular views are a very important element in shaping actual policies, a convincing refutation amounts in itself to a constructive action. It may be added that, if there is a grain of truth in this theory, the “saving-investment” approach made familiar by recent developments in business cycle theory will probably indicate the most promising direction of analysis. The problem, therefore, will be encountered again in that part of this investigation reserved for the relationship between economic stabilization and economic nationalism.
• 23There is another, though more unusual, sense in which the development of world economy can be conceived as a process of extensification. Spatial extension of capitalism means, in the last resort, not the incorporation of additional square miles, but of additional men living and working on them. The same effect, however, can be achieved by population increase within the orbit of the old trading area; and this is, of course, what happened during the nineteenth and early twentieth century on an unprecedented scale. Spatial (horizontal) extension, then, finds its counterpart in demographic (vertical) extension; and the analysis of both can be largely, though not entirely, conducted on similar lines. Considering the present slackening in the rate of increase of the population of the Western World and the probability that the time is soon coming when this will remain constant, no proof is needed of the importance of an elucidation of this problem for a diagnosis and prognosis of present developments in international capitalism.
• 24World economy as an intercommunicating system was also a multilateral system, and this in a double sense which is not always duly recognized: (1) in the sense that a large part of the world’s commodity trade was actually carried on in a multilateral way; and (2) in the sense that almost the total world trade was virtually multilateral. The latter was at least just as important as the former, since the ever-present latent possibility to change from bilateral to multilateral interchange completed the intercommunicating character of world trade; but, whereas the actual multilateralism can be calculated statistically, the virtual, of course, can not. For this reason the multilateral character of world trade in the combined sense of actual and virtual multilateralism escapes quantitative measurement. All we can say is that it was multilateralism which made world trade possible as an intercommunicating system. It was multilateralism that enabled the industrial countries to procure by roundabout exports via third, fourth and more countries their raw materials and foodstuffs without any difficulties giving rise to a “problem of raw materials,” and at uniform world prices. And it was again multilateralism which enabled the countries producing raw materials to sell their products on a uniform world market, to pay interest and amortization on their foreign debts, and to keep up the value of their currencies without chronic difficulties. It is against this background that a picture of the actual scheme of international division of labour and of the complicated network of international trade relations of that period should be traced, with due emphasis on the basic differentiation between industrial and agricultural countries. At the same time, it should not be forgotten that this multilateral system found support in a number of essential conditions, of which the existence of an international monetary system (gold standard), the prevalence of equalizing clauses in commercial treaties (most-favoured-nation treatment, open-door policy, and in some cases national treatment), bearable duties, smoothness of the international credit machinery and a reasonable co-ordination of the movements of goods and capital were the outstanding ones.
• 25In the economic field, the socio-political disintegration of the world finds its most immediate and important expression in the dissolution of the old monetary-financial mechanism, which was based on the gold standard and the elaborate machinery of international credit connected with it. The international legal and moral order, as it existed before, was a working substitute for a world state, and the gold standard based on this order similarly functioned as a world money. Now, when the one went by the board, the other had to go too. It is only logical that, in this field too, order and the sense of international community should have been replaced by disorder, arbitrariness and a more or less frank disregard for international relations, though only a few of the advocates of the new monetary trends seem to realize that what they are recommending is part of the general process of international dissolution. The cold-bloodedness and almost rollicking spirit with which leading countries have thrown off the uncomfortable burden of the gold standard is, indeed, in complete accordance with the spirit of our times. If they have any excuse, it is the fact that they pushed over the table when already more than one partner had ceased to play the game. The gold standard, as cannot be repeated too often, assumes that the rules of the game are being strictly observed by the leading countries. It can well be asked what would have been the reaction if, in 1910, a country with an inflow of gold had prevented the gold from engendering the slight increase of the price level, which was necessary to restore the international balance, or vice versa in the case of an outflow of gold. To-day, under the regime of paper standards and exchange equalization funds, international gold movements, which formerly were an indispensable agent of international economic integration, have become a factor of disequilibrium rather than of equilibrium; instead of being a link joining the different national economies, they are driving them still further apart; instead of working for international integration, they are working for international disintegration. The mechanism of the exchange equalization funds tends to work in a direction inverse to the gold standard by turning gold inflows into a contraction and gold outflows into an expansion of credit. It is not to be wondered at that, under these conditions, the tendency to look on the gold reserve as a war chest, which under no circumstances must be allowed to fall below a certain minimum, is spreading everywhere, now that the old gold mechanism which had given sense to international gold movements has been destroyed.
• 26In the economic field, the socio-political disintegration of the world finds its most immediate and important expression in the dissolution of the old monetary-financial mechanism, which was based on the gold standard and the elaborate machinery of international credit connected with it. The international legal and moral order, as it existed before, was a working substitute for a world state, and the gold standard based on this order similarly functioned as a world money. Now, when the one went by the board, the other had to go too. It is only logical that, in this field too, order and the sense of international community should have been replaced by disorder, arbitrariness and a more or less frank disregard for international relations, though only a few of the advocates of the new monetary trends seem to realize that what they are recommending is part of the general process of international dissolution. The cold-bloodedness and almost rollicking spirit with which leading countries have thrown off the uncomfortable burden of the gold standard is, indeed, in complete accordance with the spirit of our times. If they have any excuse, it is the fact that they pushed over the table when already more than one partner had ceased to play the game. The gold standard, as cannot be repeated too often, assumes that the rules of the game are being strictly observed by the leading countries. It can well be asked what would have been the reaction if, in 1910, a country with an inflow of gold had prevented the gold from engendering the slight increase of the price level, which was necessary to restore the international balance, or vice versa in the case of an outflow of gold. To-day, under the regime of paper standards and exchange equalization funds, international gold movements, which formerly were an indispensable agent of international economic integration, have become a factor of disequilibrium rather than of equilibrium; instead of being a link joining the different national economies, they are driving them still further apart; instead of working for international integration, they are working for international disintegration. The mechanism of the exchange equalization funds tends to work in a direction inverse to the gold standard by turning gold inflows into a contraction and gold outflows into an expansion of credit. It is not to be wondered at that, under these conditions, the tendency to look on the gold reserve as a war chest, which under no circumstances must be allowed to fall below a certain minimum, is spreading everywhere, now that the old gold mechanism which had given sense to international gold movements has been destroyed.
• 27No wonder that every country, which is not important enough to be able to turn the tide, will tend to revise its position in international economy and pay more attention to the risks involved. Thus, in this sense too, international disintegration is spreading. Moreover, it has to be remembered that international disintegration is likely to be a cumulative process, because present conditions make it imperative that, in spite of the trend toward autarky, international trade must go on somehow, however crippled its form and however reduced its volume. International trade as conducted in this age of economic nationalism, however, will inevitably become an additional source of political conflicts, frictions and jealousies, so that a particularly vicious circle ensues: socio-political disintegration—economic disintegration—more socio-political disintegration and so on. The utmost minimum of international friction is to be expected at the two opposite extremes of complete free trade and of complete autarky. If every nation gave up intercourse with the wicked world and retired into unmitigated autarky, as Japan did during the Tokugawa Period (up to 1868), economics would offer no occasion for friction. But such, is the present state of the world, that the different nations are almost as far from the one extreme of complete autarky as from the other of complete economic freedom, and for the reasons explained earlier it cannot be otherwise. The present combination of economic nationalism and the need for a rather large amount of international trade—a necessity brought about by production technique, the enormous growth of population and the wants of this population—is giving international trade just that character, which makes for a maximum of international friction.
• 28This interpretation of the formation of economic blocs will be sufficient to shake the widespread belief that, under this form, a new organization of world economy is under way. It cannot be stressed too forcefully that any real reorganization and reconstruction of world economy is impossible without a socio-political reintegration of the world. That applies especially to the idea that some sort of international economic planning is the easiest and most recommendable way toward international economic reconstruction. It should be obvious that a planned world economy is equivalent to a dense network of commercial treaties dealing with the minutiae of international economic relations. Therefore, it is dependent on a high degree of international socio-political integration, even more so than a liberal world economy. In a world like the present, a planned world economy is a fortiori an absolute impossibility, which is irony enough, at this time, when the idea of international planning is reaching the peak of popularity. Still more ironically, the same forces which are undermining the old liberal world economy, are not only at the same time destroying the legal and moral foundations on which a planned world economy must be based, but also not a few of the advocates of planning are the very ones who are doing their utmost to lend their support to those destructive forces. That is not to say that there is not wide scope for some real world planning, especially with regard to natural resources.