International Economic Disintegration

Chapter VII: The Non-Economic Aims of Economic Nationalism

CHAPTER VII THE NON-ECONOMIC AIMS OF ECONOMIC NATIONALISM

IN the preceding chapter international economic disintegration has been interpreted as part of the international disintegration of society in general, which, in its turn, must be understood as the ultimate outcome of highly complex and deep-set forces, which will be studied at the end of this enquiry. Now, in this chapter, another approach will be made in order to demarcate the field of study in the widest and most general terms.

It is obvious that present economic nationalism cannot be understood without proper regard to what is happening to the sociopolitical framework of international economic relations. But it is also common knowledge that it cannot be correctly interpreted either, unless proper weight is given to the fact that, perhaps, the greater part of economic nationalism to-day must be traced to reasoning of a so-called non-economic character. What is meant by this has been rather well expressed in a semi-official German publication, in which the author says:

“During the period when the free profit economy and the international division of labour Were apparently developed to greatest perfection, the scientific discussion on the possibilities, aims, and methods of a general system of protection started from the assumption that the exploitation of mineral wealth, the use of raw materials, the development of national industries, &c., follow the principles of the private profit motive, i.e. with due regard to cost-revenue conditions. . . . The situation is entirely different if the question of what system of economic policy should be chosen is more or less pre-determined by new fundamental conceptions of the relation between the state and economic life, by political fiat and also by necessity imposed from outside. In such a situation as to-day already exists in a number of countries, the factor of profitability, though it has not lost all its validity, must share its dominating influence with other principles lying outside the economic sphere.”1

While the old debate on free trade and protection has been conducted predominantly in terms of material marketable wealth, of prices and costs, the new economic nationalism largely prefers to dodge this inconvenient issue by turning frankly to a “sic volo, sic jubeo.” Its exponents say in substance: “Economic isolation may or may not be uneconomic, in the sense that it diminishes the national wealth in terms of things which can be bought on the market under the price system, or that it increases the labour effort necessary to produce a given amount of those things. We do not care. What we want is to get something which cannot be bought on the market: national security; military preparedness; freedom from outside disturbances; preservation of classes and professions desirable for the sound structure of society as we conceive it; the fostering of a definite line of external and internal politics; enhancement of the power of the state, no matter what happens to the individual in his private capacity as consumer or producer—if he says that he must live, we are prepared to tell him in the famous words of the Comte d’Argenson: “Je n’en vois pas la nécessité.” We proclaim the primacy of politics over economics. It is in this sphere, outside of market, costs, profits and material well-being, that the ends of our economic policy are to be sought.”2

How is it possible to understand this attitude scientifically? As far as it goes, we see that it is no longer a question of whether a nation derives “economic” advantages from protection and autarky—now or later. Indeed, none of the more respectable arguments for protection can be stretched so far as to prove that a nation gets richer by autarky; and any attempt to do so becomes intolerable from the very beginning. But, if we are told that we simply must have autarky—for military or other reasons—in spite of and in full consciousness of the cost involved, it is hard to see how the discussion can be pursued within the sphere of Social Science. In view of the extreme importance of the “non-economic” aims of present economic nationalism, this impression that Social Science is being tricked out of any part in the discussion is very discouraging; and not a few of those struggling with the subject of present economic nationalism seem to believe that there is nothing left but to stop here, and regretfully leave the recovery of world economy to a possible change in the political climate.3 It is, however, part and parcel of the philosophy of the present enquiry, that Social Science can and must go beyond this stage of helpless resignation, for it is just here that the really interesting and promising field of study begins.

There are four possible ways in which Social Science can take part in the scientific discussion of the non-economic aims of present economic nationalism. The first is that of mere descriptive analysis of the non-economic objectives and of the reasoning behind them. The second, that which may be called the “ideological” interpretation, an interpretation which does not take the reasons given for the non-economic aims at their face value, but which applies to them the treatment, which German sociologists call ideologiekritisch, a procedure which brings to light the hidden and often muddled or conflicting desires, interests and irrational elements behind them. A third possibility is offered by instrumental analysis, which takes the aim of economic policy for granted and simply examines the usefulness of the proposed measures as instruments for attaining that aim. While this procedure does not need any further explanation, the fourth possibility—though it is perhaps the most important of all—will not be so easily understood. For want of a better term we shall, for the time being, call it the socioeconomic interpretation and propose to leave its rather lengthy explanation till later.

Let us consider all these possibilities in more detail. As regards the first, that of descriptive analysis, we can be rather brief. After defining the “non-economic” aims of economic nationalism, we would have to ask the question, what are the openly declared and advertised reasons for a policy of autarky and excessive protectionism in the different countries? We would have to bring some order into them, find out the most important and most popular ones, group them according to nations, forms of government, political creeds and classes of population, connect them with the general situation in internal and external policies and with the general currents of thought and the spiritual environment of our times, observe their migrations from one country or from one class to another, and examine reciprocal influences, follow up their historical genesis, and make comparisons with earlier periods of economic and spiritual history.4 It is an immense task, and to accomplish it in a really comprehensive manner is beyond the scope of the present enquiry. Nevertheless, we shall have occasion to come back to this problem in later chapters dealing with the outstanding forms of present economic nationalism, viz. the industrialization of agrarian countries and the agrarianization of the old industrial countries.

Descriptive analysis, however, cannot take us very far. There is, indeed, even a real danger of being misled by this sort of work. It is a fact that we would, more often than not, miss the real significance of the “non-economic” reasons of economic isolationism if we were to take them at their face value and pompously philosophize about them, without first asking ourselves to what extent they are nothing but “ideologies”—in the sociological sense—which serve quite different and often far less respectable purposes. With the recent development of the art of playing on mass emotions, the whole world has become a gigantic fancy-dress ball of masquerading ideologies, which leaves to the economist and the sociologist the unpleasant task of unmasking the beauties and exposing the usually disappointing reality behind. All too often the alluring veil of high-sounding phrases is only a covering for the reality of political aims or sectional interests, which have every reason to fear nakedness. By thus going behind the advertised “non-economic” reasons, we are getting to the second possible method of dealing scientifically with our problem: that of ideological interpretation.

On entering the underworld of ideologies, we find ourselves in a curious twilight between appearance and reality.5 We hear catchwords cleverly worded to evoke desired mental associations; but by studying them more closely, by examining their background, their origins and their contexts, by comparing them with other proclaimed ideas and with actual practice, our eyes are opened and we cannot help seeing that the label does not belong to the bottle. We sense the pseudological or, to say the least, the irrational element in them and end by discovering a curious lack of sincerity and consistency. In the end, we realize the truth of William Blake’s saying:

“Do what you will, this world’s a fiction
And is made up of contradiction.”

To put it crudely, society has its “conventional lies”; but in this twilight of ideologies it is extremely difficult to discern who is fooling and who being fooled. What deception there is is at the same time also largely self-deception, if only for the reason that it is, in the end, very uncomfortable to go on telling lies deliberately and consciously. Thus even those, who may be reasonably said to be pulling the strings, may be justified in claiming a certain amount of good faith. An ideology usually starts life as an absolutely sincere theory, developed by one of those “freely floating intellectuals” who have no axe to grind. True to their social function, they experiment with new ideas, and these ideas are then quickly utilized for the benefit of economic interests or political creeds, but still without entirely losing the quality of good faith with which they were born. If circumstances are propitious, they finally become the object of mass emotions and mass instincts, which makes it appear a rather hopeless task to analyse them rationally. Thus, in the ’nineties, a German professor of Economics at the University of Göttingen, following Fichte’s notion of the “Geschlossener Handelsstaat,” launched the idea that—for some rational, though very debatable, reasons which had already been developed by Malthus—the highly industrialized countries, like Germany, should strive for Economic Independence.6 Thirty years later this idea, strangely labelled “autarky,” became the shibboleth of a formidable ideological wave, which it is extremely difficult to analyse rationally because of the process just explained.7 The original idea became covered with all kinds of interests and sentiments, like barnacles on a ship’s bottom, but, of course, there is no means of telling how far it had already been influenced by some ideology when the “intellectual” conceived it, i.e., how far he had been driven to it for reasons not clear to himself. “Le cæur a ses raisons que la raison ne connaît point” (Pascal). The same story could be told of a host of other ideologies, e.g. the “class struggle” and the “historical mission of the proletariat” of Karl Marx (the arch-type of the “floating intellectual”), the “Planwirtschaft” of Walther Rathenau or Georges Sorel’s “general strike.”

In some cases, the pseudological element of a catch-phrase covering an ideology is so glaring that it is hard to believe that anybody could be deceived by it. The naked reality is, as it were, hastily covered by a rag for the sake of a minimum of decency, and no further trouble taken to make the deception convincing. This is especially the case when the deceptive phrase is backed by sufficient brute force to take care of the rest, and make it unnecessary to expend too much effort on framing it. This may happen in regard to internal politics with a totalitarian regime, while with external policy imperialism is the favourite field of this sort of catch-phrase and ideology. Nobody will take “protectorates” or “leases of ninety-nine years” seriously, and it is also very doubtful whether some of the traditional catch-phrases of imperialism—like the “white man’s burden” and other phrases which deck it in the garb of unselfish missionary work—have not by now lost any deceptive value they may have had for preceding generations. It seems, indeed, that to-day imperialists have rather a hard task to present their policy in an ideological covering which will not be taken ironically, provided they care to make such an effort instead of speaking frankly of “living space.”

On the other hand, there are ideological catch-phrases which are by no means as transparent as that. The man who launched the idea of “Empire Free Trade,” must have meant it as pure propaganda, designed to enlist the associations going with “free trade” for the very opposite of such a commercial policy, but the deceptive value of this phrase is so great, that even the inventor may have believed it to some extent. In other cases, the situation is even much more complex. This may be illustrated by the ideological coverings of monopoly which—like “co-ordination,” “rationalization,” “orderly marketing,” “ending wasteful competition,” “Planning,” &c.—are as numerous as they are attractive, and deceptive to the degree of being highly self-deceptive. An early example of pro-monopolistic ideology is the decree which, in 1525, the Emperor Charles V issued in order to whitewash the Fuggers (published by Jacob Strieder, Studien Zur Geschichte Kapitalistischer Organisationsformen, 2nd edn., Munich, 1925,. Appendix). The arguments have not been much varied since.

In this connexion, it is extremely interesting to observe the influence of the mere magic of a suggestive word and to follow the sometimes stupendous career it has, thanks to this magic, the vagueness and ambiguity of the catch-phrase and its usefulness for different purposes. After a while, however, the glory wanes, until it may become almost a word of opprobrium. These different phases have been run through, for example, by “Liberalism,” which was coined one hundred years ago in Spain to denote the opposite of “Servilism.” Even at the beginning of the present century Lord Rosebery called it “the most beautiful word of the English language”; but to-day it seems to have lost, at least in Continental Europe, most of its attractive sound, so that the majority of people find it difficult to imagine the irresistible attraction it had for previous generations. To-day we can observe the rapid ascent of words like “Planning” or “Stabilization,” which are so characteristic of the ideological climate of our times. The seductive sound of “Corporativism” should also be noted, though it may already have passed its zenith.

In general, then, it is highly characteristic of ideological catch-phrases that they serve as an attractive and deceptive cloak for entirely different aims of economic policy. It is also, however, quite common for them to serve merely as a means of presenting as the realization of a preconceived idea what, as a matter of cold fact, was the less imposing result of a development which was partly a simple drift, partly an unsystematic and haphazard series of makeshifts, emergency measures and piecemeal policies. Hand-to-mouth economic policy, then, is being turned ex post into the bold execution of a long-term programme. In other words, the original lack of rational cohesion is being remedied by an ideological afterthought. One cannot altogether suppress the suspicion that this is largely what happened recently in the case of “Autarky.” Not a few countries resemble in this respect a man who, having inadvertently started a motor-car and not knowing how to stop it, is compelled to drive round and round and pretend that he is doing it of his own free will and enjoying it immensely. Indeed, economic policy confirms what is a common experience in every field of human activity, that there is a strong inclination to rationalize actions after the event. On the other hand, it also happens quite often that there is only the ideological terminology with little or no reality behind it, in which case we have to do with that curious category, a terminological economic policy—if this somewhat caustic expression be allowed. “Potemkin villages” of this kind are, of course, a time-honoured part of the art of governing. There is a strong suspicion that, at the present time, the ideological catch-phrase “Corporativism” comes largely under this head. Finally, ideologies claiming “non-economic” objectives of economic policy can often be interpreted as a mere flight from the realities of economic life, as a fear of clearly expressing the issue involved in terms of price and cost, a fact which explains why the science of economics is so bitterly hated in some quarters.

It is a special feature of the “anti-capitalist” ideologies used by the collectivist-totalitarian governments of to-day, that they quite often provide them with an alibi when their efforts in the field of economic well-being have failed. In this way economic policy is running on two tracks: either there is an increase of economic prosperity, which is claimed as the result of the energy and foresight of the government, or else the contrary is only too obvious, in which case the philosophy of the priority of non-economic aims to banal economic ones will be promptly applied, or—as in Russia—the blame will be put on the population.8 So far as this interpretation is true, the lack of consistency and sincerity in putting non-economic aims above economic ones should be obvious.

While it is impossible to do more here than indicate the problems awaiting us in the field of ideological interpretation of the non-economic aims of economic policy, and to suggest a few of the conceivable answers, our survey would be utterly incomplete without mention of a final problem, which is of the widest scope and the greatest importance. It is the problem of the exploitation of ideologies by strong sectional interests. The fact itself has already been stressed several times, but this seems the appropriate place to point out its great complexity. This should not be overlooked, if we wish to avoid getting an exaggerated and distorted view, which might lead us dangerously astray.

To play the game of the free competitive market is, indeed, such an inconvenient strain and the temptation to get a privileged economic position so strong, that it is almost always safe to surmise that some of the sentiments and passions aroused by a certain ideology owe their origin to private interests, that there is somebody with an axe to grind, and some individual or group appetite to be satisfied.9 This tendency is greatly helped by the popularity of economic sophisms of all kinds, and by the utter ignorance of the public about economics. That this is especially true of all questions concerning foreign trade is so striking as to prompt Alfred Marshall to coin his famous phrase, that it is extremely difficult for an economist to be a patriot and at the same time to have the reputation of being one.10

It does not make a great difference whether ideologies are exploited for private ends, by interest groups in a market economy, or by political leaders in a collectivist or semi-collectivist economy. The two cases are more closely akin than is commonly supposed, for, as one astute observer remarked, “these questions of advantage arise out of the variety of life itself. They spring up in any society, capitalist or communist. But since a communist society is politically administered, and highly centralized in all vital matters, the social conflict is concentrated in the field of politics. Because everything is decided politically, all conflict becomes political, and the possession of power becomes the key to all other possessions. . . . Thus the struggle for wealth is transmuted into a struggle for power.”11

There is an important and undeniable truth in all this, but there are two considerations to be set against it. First of all, it would be a great mistake and altogether bad psychology to overrate the influence of purely economic interests on the contents of ideologies and the belief extended to them. Man does not live by bread alone, and the materialistic conception of human convictions and ideas is certainly no longer in accordance with the opinion held by present-day sociologists. It is true that there is exploitation of ideologies. It is still more true, however, that the deepest strata in the human soul do not consist of economic interests, which set individuals, groups and classes against each other, but of all sorts of sentiments, passions, fundamental desires and creeds, which, as anthropological constants, are common to all groups and classes, and more likely than not to prevail over economic interests and motives should they come into conflict with them. These are the instincts of social integration, patriotism, sense of solidarity and hatred, hunger for power and self-assertion, desire of “vital satisfaction,” longing for the natural milieu, preference for peace and order, elementary sense for common justice, &c. Man is a crystal of which these sentiments, instincts and passions are the innumerable facets, some positive, some negative, some making for social integration and others for social disintegration, and which will sparkle depends on which sentiment is appealed to by the circumstances.

It is only owing to these non-economic sentiments, and not to economic interests and competition, that any fairly integrated society is possible at all. It was the common and fatal error of the dominant social philosophies of the recent past, of the old-time Liberalism and of Marxism, that they were rather blind to this essential truth and laid too much emphasis on economic interests. On the other hand, it is one of the decisive reasons for the stupendous success of fascism and its kindred movements that they have been able to make the widest use of this very error, a fact which it is well to remember, if wrong interpretations of the non-economic aims of economic nationalism are to be avoided.

That is one consideration. The other is that it would be wrong, whenever interest groups make use of ideological pretexts, invariably to heap all the blame on them, instead of studying the possible legitimacy of their claims and complaints. It would seem unconstructive always to dismiss the self-assertion of “vested interests” as illegitimate and to leave the matter there. Not all interest groups are greedy conspirators against the commonweal. Some of them are the victims of the cruel and crude working of competition, and to leave them to their fate would serve no purpose. Some are really weak; they need guidance and possibly other help during a period of painful transition from one equilibrium to another (“liberal interventionism”). If that is denied to them, they are driven to exasperation and out of exasperation they may turn to the more or less conscious exploitation of ideologies. This, at least, is a possibility which should not be ignored.

So much for the general lines on which the ideological interpretation of the non-economic aims of economic nationalism might be usefully conducted. On the assumption that the third possible way of scientifically approaching this subject, i.e. that of instrumental analysis, does not need any further explanation, we turn to the fourth, the so-called socio-economic interpretation, which is all the more in need of elucidation. It is the direct continuation of the ideological interpretation, its aim being to explore the fundamental social and economic conditions which give rise to the proclamation of the non-economic ends of an isolationist economic policy.

The military argument may well illustrate this point. According to the possibilities of scientific approach mentioned so far, we may deal with this argument by a mere descriptive analysis, or we may try to bring to light the ideologies behind it, or we may take it for granted and examine autarky merely as a useful instrument for attaining a maximum war potential. Lastly, however, we may legitimately ask what are social and economic reasons for the present situation becoming such, that the danger of war appears imminent and general. In this way, we would study the social and economic elements of the peace problem in the light of the present situation, and arrive at what can be called an applied sociology of war and peace.12 There should be no doubt that, if our present diagnosis of our time in its international aspect is to make any progress and if the attempts at remedying the situation are to loose any of their present hopelessness, such a study is extremely desirable and within the range of legitimate scientific activity. Special attention must be given in this respect to the economic aspects of political tensions to-day, so that the theory of economic imperialism would have to be re-examined in the light of the present situation, along with the problem of raw materials and colonies, which has recently given rise to a number of studies.13 It has become quite clear, among other things, that it is just this growth of economic nationalism which is so enormously enhancing the economic importance of political boundaries and, therefore, of the extent of the space states dominate politically. If the different nations not only have political control of parts of the earth, which differ tremendously in size, but also block them up economically, there is, with the highly differentiated character of modern economy and the unequal pressure of population, every chance that the grievances of the “have-nots” might seem justifiable as a legitimate desire for justice. Thus, in the end, an intolerable situation will arise, which will lead to an endless struggle for the political control of the earth’s surface—unless the hedges are torn down again. This, then, is the alternative: either a never-ending fight among the nations for the largest possible extent of hedged-in space they can obtain, or a return to the old-fashioned principles of a liberal world economy with bearable duties, most-favoured-nation treatment, an open-door policy and no economic empires. If the latter seems utopian, the situation must appear nothing short of hopeless. In other words, the present progress of economic nationalism, which is fostered so much by the growth of political tension and, therefore, largely based on the argument of military “defence,” is itself a powerful agent in increasing that very tension, since it goes far towards justifying the belief, absurd in a liberal world, that political domination (imperium) is necessary for economic exploitation (dominium).

Imperium and dominium are indeed two separate things, but only in a liberal world. In such a world political boundaries are of little economic significance, the world market being more or less a uniform one with practically equal buying and selling opportunities for everybody, regardless of boundaries and nationality. Otherwise, it would not have been possible for some of the smallest countries like Switzerland or Sweden to gain top rank in wealth and economic activity. In this liberal world, a problem of raw materials would also be decidedly more of a pretext or a hallucination than it is to-day. The problem of raw materials and colonies, as we know it, is only part of that larger problem of the growing “politicalization” of world economy resulting from an illiberal economic policy, which increases the economic significance of political boundaries, and so of the size of the space a state controls.

The foregoing is no more than an example of the sort of research to which the socio-economic interpretation of one of the most important non-economic arguments for economic nationalism, i.e. the military argument, will lead us; and even this is only a first approximation, which only analyses one of many elements of the present situation with regard to armaments and war. It would be, to say the least, entirely wrong to suppose that what has been said represents the definitive explanation of the present growth of political tension in the world. It only gives some explanation of the cumulative element in a situation brought about by the mutual reinforcement of economic, national, and political tensions. It leaves unanswered, however, the question of the ultimate causes and also that of how far the economic argument of the political claims—which we found not entirely unjustified—is, in its turn, only the pseudological pretext, the “rationalization” of purely political schemes and tendencies, which cannot be explained except by a more particular sociological analysis of the general state of society which gives rise to them. That would be the deepest layer of our research, but, at the present stage, it must still be left unexplored. For the moment, it should be enough to have made clear what is meant by this fourth possibility, the socio-economic interpretation.

__________________

14 R. Regul, “Zollschutz, Preisschutz und Subventionen als Mittel der staatlichen Wirtschaftspolitik,” Vierteljahrshefte zur Wirtschaftsforschung (Schriften des Instituts für Konjunkturforschung), 1938-39, No. 1, pp. 71-72.

15 Those who, from considerations of methodological nicety, rightly criticize the distinction of economic and non-economic aims as being a rather loose one, will observe that the text above is so worded that their possible objections are substantially met. To say more would lead us, in this context, to sheer pedantry.

16 For this very comprehensible and intellectually honest attitude, Mr. Van Zeeland’s well-known report, delivered in January, 1938, is a good example.

17 What can be done along this line has been demonstrated, e.g., by Professor Fritz Neumark in his book Neue Ideologien der Wirtschaftspolitik, Vienna, 1936.

18 The sociology of ideologies with its disillusionizing work is almost as old as society itself, since there have always been a few who take an almost cynical delight in exposing the contrast between conventional ideals and social reality. Thus we have, after the Sophists of the ancient world, the great iconoclasts from Machiavelli and the Abbé Galiani to Schopenhauer, Marx, Nietzsche, Georges Sorel and Vilfredo Pareto. Largely influenced by Marx is the modern sociology of knowledge (Max Scheler, Die Wissensformen und die Gesellschaft; Karl Mannheim, Ideologie und Utopie). Also the contributions made by S. Freud and C. G. Jung must be mentioned in this respect. Out of the vast current literature on the subject only a few references can be given: V. Pareto, Manuel d’économie politique, 2nd edn., Paris, 1927, pp. 129 et seq., and Traité de sociologie générale, Paris, 1916; K. Mannheim, Ideologie und Utopie, 1929; L. Rougier, Les mystiques politiques contemporaines et leurs incidences internationales, Paris, 1935, and Les mystiques économiques, Paris, 1938; R. Behrendt, Politischer Aktivismus, Leipzig, 1932; L. Romier, L’explication de notre temps, Paris, 1935; Th. Maulnier, Mythes socialistes, Paris, 1936; F. H. Knight, “Economic Theory and Nationalism,” in The Ethics of Competition, London, 1935; W. H. Hutt, Economies and the Public, London, 1936: Allan G. B. Fisher, The Clash of Progress and Security, London, 1935. The present author himself tried to contribute to an elucidation of the problem on several occasions. Cf. especially his papers on “Fascist Economics,” Economica, February, 1935, and “Tendances actuelles de l’économie politique,” Revue d’Economie Politique, July-August, 1936.

19 Karl Oldenberg, Deutschland als Industriestaat, Göttingen, 1897.

20 As an illustration, let us quote Mussolini (in a speech in November, 1937): “Italian autarky corresponds to necessity, logic and justice. . . . Producers and consumers must make every conceivable effort in order to attain the highest degree of autarky. Moreover, the Italians must acquire an autarkistic mentality and even live, incessantly and intensively, in the mysticism of autarky.” Or Conte Volpi (on the same occasion): “Of course, one must not mechanically compare the cost of the autarkic product with the cost of the product to be replaced. One must keep in mind the indirect wealth created by autarkic measures: the creation of work on national soil and the general national power to be gained, if a nation frees itself from the slave chains of international trade.” A titre de document, see also: Ferdinand Fried, Autarkie, Jena, 1932; B. Laum, Die geschlossene Wirtschaft, Soziologische Grundlegung des Autarkieproblems, Tübingen, 1933.

21 “While in capitalism all good things grow by themselves and the state is called to responsibility only when things go wrong, the state is here made the fountain of all benefits and the population itself is execrated for all failures. State economy fills daily work with public emotion; dictatorship so directs this emotion as to secure loyalty to the state even in the midst of a catastrophe. Under the Soviet system the capitalist relation between private and public motives is turned inside out. Whereas the avowed task of the private owner is self-seeking, and his implied social functions are out of sight, the Soviet ruler is overtly working for the public good only, and his personal ambitions remain behind the scenes. For these reasons the system in the U.S.S.R. is felt to be purposeful considered as social, though its inequalities are striking.” (M. Polanyi, U.S.S.R. Economics. Fundamental Data, System and Spirit, Manchester, 1936, p. 23.)

22 On this aspect see especially Professor Allan G. B. Fisher’s The Clash of Progress and Security, London, 1935; and his inaugural address on “International Problems of Economic Change,” International Affairs, March-April, 1938.

23 Cf. on this point: W. H. Hutt, Economics and the Public, London, 1936; Walter Sulzbach, Nationales Gemeinschaftsgefühl und wirtschaftliches Interesse, Leipzig, 1929; and P. H. Wicksteed, The Common Sense of Political Economy, new edn., London, 1933, vol. i, pp. 186-190.

24 Walter Lippmann, An Inquiry into the Principles of the Good Society Boston, 1937, p. 83.

25 The literature on the sociology of war is large, but far from being satisfactory. The standard book is still to be written. Among the most recent publications, see the symposium on War and Democracy, Essays on the Causes and Prevention of War. (ed. by E. F. M. Durbin, &c.), London, 1938 (cf. my own review of this book, “Krieg und Demokratie,” Friedenswarte, 1938, No. 6), and Alexander Rüstow, “Zur soziologischen Ortsbestimmung des Krieges,” Friedenswarte, 1939, No. 3.

26 Cf. L. Robbins, The Economic Causes of War, London, 1939; W. Röpke, “Die wirtschaftlichen Elemente des Friedensproblems,” Friedenswarte, 1937, Nos. 1, 2, 3-4.

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.
10H. Rittershausen, Die Valorisierung des Goldes als Währungs- und Aussenhandels problem, Weltwirtschaftliches Archiv, January, 1938, p. 32.
11Cf. 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.
12pp. 62-64.
13W. Röpke, Crises and Cycles, London, 1936, pp. 11-12.
14The 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.
15(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.
16As 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.
17The 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.
18That 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.
19There 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.
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.
21Full 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.
22There 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.
23In 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.
24In 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.
25No 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.
26This 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.