International Economic Disintegration

CHAPTER VIII INSTRUMENTAL ANALYSIS OF THE MILITARY ARGUMENT1

No example has been given so far of the kind of scientific approach to non-economic nationalism, which we called instrumental analysis. This was deemed unnecessary for an explanation of the meaning of the method, but now it seems advisable to give a particular one, in order to clear up as far as possible that most important argument which is always cropping up: the military argument.

This is an argument which rarely fails to make a deep impression, even on those who are generally reluctant to bow to the reasoning of economic nationalism and collectivism. Not only has war once more become such an ever-present possibility, as to make the utmost preparedness for it a matter of life and death for every nation, but at the same time its nature has changed to such an extent that it threatens to become a monster whose appetite is boundless. The “limited war” (Lippmann) of the nineteenth century is giving way to total war. Total war has no well-defined and limited issue like the wars of the last century; it is a merciless war for supremacy or extinction.2 It is a war which will defy norms, principles and all other bounds; and it is the war which corresponds to the close interdependence characteristic of our worldwide civilization in all its spheres, to the dissolution of norms and principles, and to the wholesale democratization of our society, which makes war the affair of the whole nation.3

It is a war which claims everything that constitutes, directly or indirectly, the military force of the nation. At the same time, modern warfare and its technique have become more and more elaborate, more expensive, and subject to innovations. Whether we like it or not, we are mercilessly drifting in the direction of a war that has ceased to be the affair of armies alone and has become a matter of gigantic masses of men and goods, making the military machine an up-to-date capitalistically rationalized enterprise, with the officers as engineers. The full significance of the monstrous consumption of goods and man-power, which a total war would involve, seems to beggar imagination, as various calculations based on the experience of the Great War demonstrate. Let us illustrate this by a few figures.4 Towards the end of the Great War the British army took 90% of the total production of wool in England; Austria-Hungary lost, during the war, more rifles than the total production of rifles during the same period; and the army demand for iron and steel in Germany amounted, in 1918, to metric ton per man and month. These experiences, together with the development since the end of the Great War, are being reflected in the enormous increase of the total expenditure of the world on armaments, which to-day may be safely assumed to be five times the total of 1913. Armaments have become so elaborate and expensive that the production of a simple 10 cm. field howitzer requires double the amount of total working time necessary for a locomotive engine (110 man-years), while the production of a submarine takes 4000 man-years, that of a destroyer 5400 and a cruiser 18,000. American sources indicate that, on the average, 17 workers are necessary to equip and maintain a soldier at the front. In addition to the “round-about” (capitalistic) character of modern armament, the speed of progress in armament technique is enormous, and in time of war the rate of loss appalling.5

In consequence of all this, it is widely held that even the preparation for a war must, under present conditions, inevitably lead to autarky and planned economy under military aspects. Only in this way, it is thought, can the maximum of the war potential be reached. Economic liberalism, consequently, would come into bitter conflict with the demands of national defence, and be compelled to submit—honourably, but irrevocably. If this view had to be accepted, the case of international trade would be hopeless. It is obvious, therefore, how important it is to examine the question carefully.

It is neither possible nor necessary, on this occasion, to enter into a thorough discussion of all the consequences of modern war requirements on economic policy.6 That they are far reaching and that there is much scope for a wide divergence of views goes without saying. We propose to follow up the problem only so far as the immediate consequences for foreign trade are concerned, and even this as briefly as possible, confining ourselves to the fundamental points which are generally only too liable to be overlooked.7

From a narrow military point of view, it would be natural to apply military principles to the organization of national economy, so that a maximum of economic regimentation and autarky would seem to be just the right thing for maximizing the war potential. About this the economist will have two remarks to make: first, that the principles of maximizing material wealth hold good for waras well as for peace-time economics and, second, that cost is nothing else than an indicator of the limits of material wealth. Considering the first point, it is clear that a maximum of material wealth is the prime condition for obtaining a maximum of war potential. It is hard to see, however, why we should abandon the conviction, equally established by experience and reasoning, that the “market economy” tends to give maximum satisfaction of all wants presenting themselves on the market, including those of a military character represented on the market by the state as a consumer equipping himself, by taxes, loans or inflation, with the necessary amount of purchasing power. The structures of an army and of a national economy, after all, are entirely different; and to copy the hierarchical regimentation necessary for the efficiency of the former, is a sure way seriously to impair the efficiency of the latter. This is in itself already a very serious objection to the military usefulness of autarky which, necessarily, goes together with planning and regimentation. Equally serious is the second point. In war-economics as well as in peace-time economics, there is no getting away from the fact that, in view of the eternal shortage of economic means, the use of means in one direction precludes their use in another. This is reflected by “cost.” If a country wants to have a maximum of men for the purpose of war, it is bound in the end to come up against the problem of feeding them, and this can only be solved by industrialization and imports of foodstuffs. If it wants to remove this dependence on agricultural imports and achieve “Nahrungsfreiheit,” it will be forced by the law of diminishing returns to spend more labour and capital on agriculture, and to do so will have to divert them from industry and the army itself. This will be particularly inevitable where artificial aid from the state is needed to bring about the desired increase in agricultural production. The same holds true in the case of an artificial development of industries, let us say, in order to replace by synthetic production raw materials which had previously been imported. After all, it is impossible for a country to have at the same time the largest possible and the qualitatively best population, the largest possible industry and the greatest possible independence in respect of food and raw materials, brought about by all kinds of governmental intervention. Too much doctoring of a country’s economic structure is the surest way to make it less fit even for military purposes—just as a wholesale militarization of society is apt to dull exactly the qualities most needed for successful warfare.8 The very total character of modern warfare leaves hardly any sector of the community unimportant from a military point of view. There is, therefore, hardly anyone left who can be made to pay the cost of military autarky and planning without seriously weakening the war potential. Consequently, by calculating the cost of military autarky and planning, we are forced to the conclusion that such a policy is very likely to defeat its own purpose, by grasping at immediate military advantages at the cost of a serious indirect weakening of the war potential, including the physical and moral reserves of the population, which are such a decisive factor in war.

Those who recommend autarky as a useful policy for the purpose of war, seem to be impressed by the idea that the dependence of a country on regular imports of raw materials, foodstuffs or other products may most dangerously impair its war chances if it can easily be blockaded. There is no denying the fact that this is so. On the other hand, however, it must not be overlooked that we are facing here a real and insoluble antinomy. For the very fact that autarky can be carried through only by force and regimentation, proves irrefutably that the domestic production, which takes the place of imports, involves costs which make the domestic production impossible without those coercive methods. The productive forces of the country are rearranged in a sense contrary to the optimum arrangement, and this is tantamount to an enormous diminution of the national dividend or to an enormous increase in the amount of labour needed for the production of the previous national dividend. In the latter case, autarky invariably means, as an anonymous author of more than 200 years ago has said, “that the work which is done by few may rather be done by many.”9 That this may be called “full employment” does not alter the fact itself, which is, of course, of the gravest consequence for the war potential, as it means that more workers will be needed at home and so not be available for the trenches. The numerical relation between the army and the amount of labour necessary to provide it with everything it needs—a relation which, as we saw, has already been changed greatly to the disadvantage of the army by the special character of modern warfare—would become still more unfavourable. So we get the result that the gain of greater independence with regard to imports of important commodities would, in the military balance-sheet, be offset on the other side by a loss in the quantity and quality of goods available and/or a loss in the number of men available for the army.

Moreover, the greater the degree of dependence previously, the more gigantic the loss will be. An economic policy which aims at replacing one raw material after another by home production—synthetic or otherwise—may mean, then, that long before the outbreak of the war the whole population will suffer the shortage and bad quality of war time, that it will be put under the slowly exhausting strain of regimentation, militarization, undernourishment, strenuous work and long working hours, and, in addition to all this, that whole army corps will be needed for the additional labour engendered by autarky. If synthetic petrol and rubber cost several times as much as the natural products, if the iron ore found within the country is of the lowest possible quality, and if the most expensive investments have to be made on the widest scale in order to develop home production of every kind, it would be an inadmissible naïveté to believe that there is some fourth dimension or some large civilian sector to which the consequences of such a policy can be shifted. They have to be borne by the national economy as a whole in the manner indicated.10

The more total modern war becomes, the greater will be the military significance of every part of economic life and of every section of the community; the smaller also will be the “civilian” sector to which the burden of cost can be shifted without danger for the war potential. This will be seen in the right perspective if it is remembered how gigantic are the quantities of iron, steel, petrol, rubber and all other commodities which are needed for a modern war. These quantities are such that it is doubtful in any case whether any country, be it the richest and best equipped, can in the long run stand the terrible strain involved; to multiply this strain by autarky appears altogether unreasonable from the military point of view.11 Such a policy will be all the more unreasonable, the fewer are the chances of achieving even approximately the desired aim of all-round independence, for this will mean an even smaller gain on the assets side of the military balance-sheet, i.e. the chance of avoiding the danger of a successful blockade. Any important holes left in the armour of autarky may make every effort vain, and, in the last resort, it is more or less immaterial whether the country in question succumbs from a shortage of food, molybdenum or whatever it may be. Military autarky must, indeed, reduce dependence on non-essential imports, if there is to be any substantial gain to offset the obvious weakening of the war potential. All too often, however, it is a clear case of “parturiunt montes, nascetur ridiculus mus.” More often than not it is an optical illusion, where sight is lost of the fact that to replace one imported commodity by home production may only mean that the imports of another have been increased, as in the case of the synthetic production of textile fibres, which makes it necessary to import more casein (for the Italian “Lanital”) or timber (for the German “Zellwolle”) or to increase domestic timber production to the point of rapid deforestation of the country. If the blanket is too short, no nervous tugging and tossing will prevent it leaving some part of the body exposed.

We see, then, that military autarky for the purposes of “total war” is on the horns of an insoluble dilemma: dependence upon continued imports of essential commodities is dangerous in case of war, but so is autarky. It could not be otherwise, for it is not without deep significance that we are living in a society which owes its enormous resources in material wealth to a highly differentiated system of national and international division of labour. It is just the richest, the most populous and the most advanced nations which are the most insolubly bound up with this world-wide system. The dilemma in which they find themselves is not dissimilar to the position of a big city in relation to the rest of the country.12 The dilemma is insoluble, because a war, which has to be waged against world economy, is tantamount to a war against one of the principle pillars on which the wealth-providing system of the country rests. It is by division of labour that society has become what it is to-day (including the unprecedented possibilities of modern warfare offered by our present economic system), but division of labour means, after all, the mutual dependence of all participating in the system. If a country wants to shake off the “shackles” of mutual dependence by means of autarky, it is shutting itself off from the source of wealth and power which international division of labour is. If it insists on making war under these circumstances, it will be forced to do so on a level of economic development, which, in an essential aspect, is centuries behind that of the other countries which remain faithful to world economy. It would, so to speak, combine the military technique of to-day with the social technique of 1700. The situation of an isolated country engaged in a war against the powers standing for world economy is next to hopeless, and it would be a serious error to believe that anything will be gained by anticipating that situation through the self-inflicted peace-time blockade called autarky. The only solution is to avoid that situation by a corresponding external policy.

This is the argument against military autarky in its bare essentials, and these must be grasped before we can go on to any further analysis of particular problems and qualifications. It also gives the direction in which a positive programme for an economic policy of war-preparation should be developed, a subject which cannot be pursued within the limits of the present enquiry.13 Attention, however, must be given here to a number of important qualifications of the main argument.14

The first point is that autarky, besides the negative effects mentioned above, has the further consequence that it must inevitably lead to planning and to a more or less rigid regimentation of the whole national economy. The whole economic life of the nation is bound to be canalized according to a definite plan based on the assumed character of the future war. This, however, is another element of great danger from a strictly military point of view, quite apart from the general objections against planning as a useful economic policy. For, on the one hand, military planning means that there is only one plan to the exclusion of all other possibilities and that it is extremely difficult to change this plan of production for another, if the whole economic life has become rigid and moulded to a definite strategic and technical conception of the future war. On the other hand, however, it seems that, in spite of the recent experiences in Abyssinia, in Spain and in China, experts are to-day more than ever divided in their opinions on the character of a future war. Prince Andrej’s remark in Tolstoy’s War and Peace that “in war even the most minutely elaborated plans are of no importance,” seems to contain a momentous element of truth. The experiences of the Great War have already proved that too minutious military plans are apt to make politics and warfare their slaves; and it may well be that, in the future, this danger will be even greater. This makes obvious the advantage of the greater elasticity of a national economy which, in peace time, has been spared the strait-jacket of military planning.

A further important point to be considered is the special problem of food autarky. Prima facie, there seems to be a strong case for the great industrial countries striving for the utmost independence of food imports, particularly by fostering their national production of cereals, i.e. by pursuing the policy of agricultural hyper-protection, which is surely one of the main reasons for the present dislocation of world economy. To keep the population from starvation during the war seems, after all, to be the conditio sine qua non for avoiding a defeat like Germany’s in the Great War. And is not this case of Germany a great lesson for that country and any other of a similar character? The general objections to this argument need not to be repeated here, but there are a number of special considerations which still further weaken the argument in favour of food autarky.

There is, first, the fact that the very case of Germany itself shows that the aim of food autarky is positively unattainable, for, in spite of the most energetic efforts made in that country during the last decade, the goal is not yet in sight and will hardly be so even in time of peace. In time of war, moreover, there is every likelihood that the degree of food autarky will fall appreciably below that reached in peace time, for then there will be even a greater shortage of man-power in agriculture, and, if the present efforts are pursued, the danger of soil exhaustion will have to be seriously reckoned with. All the greater, then, appear the advantages of a policy which consists of letting agriculture in the industrial countries follow its natural course toward a system of mixed farming, based largely on live-stock farming, and of accumulating large stocks of non-perishable foodstuffs. This would be the policy which would give the maximum insurance against the risk of war famine with a minimum of deviation from what is economically rational. Live stock itself represents an important war reserve which, in the case of England, is said to enable that country to do without meat imports for a whole year.15 “Furthermore, grassland farming, under certain conditions, affords a substantial reserve of fertility which is lacking in land that has been under the plough and which has been used to the utmost for any length of time.”16 As for the second part of this rational programme for securing food supplies in time of war, it must be stressed that, by a happy coincidence, it is just those foodstuffs which it is more reasonable to import, because of the well-known laws governing the localization of the different types of agriculture, that are non-perishable (cereals, sugar and kindred foodstuffs).17 Against this we have, of course, to set the cost of storage, but this is incommensurably lower than that of correspondingly raising the home production of cereals by artificial means.18

Finally, it must be said that a final judgment of the military argument for autarky is possible only in connexion with considerations concerning the strategic character of a future war. Of importance in this respect is the question whether it is more likely that it will be a short fierce war, crushing the adversary like lightning (“Blitzkrieg”), taking him by surprise (“Überfallskrieg”), and perhaps having been cold-bloodedly prepared for a fixed date (“guerre à échéance”), or that it will be a long war of exhaustion like the last one. The answer to be given to this question has an obvious bearing on the question of the right kind of military economy. Much as it seems certain that an essentially liberal economy will, in the long run, possess the greater war potential, there is no gainsaying the fact that a country, which had already entirely militarized its society and economy in peace time, may have an advantage in a short “Blitzkrieg.” The longer, however, the war lasts, the more this advantage will turn into a clear disadvantage, as the decision will more and more pass from the “actuel de guerre” to the “potentiel de guerre,” or to what may be called the “structural reserves” of a country, and nobody can be in doubt as to which system will develop the greater strength of endurance then. The country which completely adopts the philosophy of military autarky and planning and, therefore, lives under conditions of permanent mobilization, would be in the position of a sprinter who, after excessive training, reaches the track exhausted and tired but in his sports clothes, while his rivals are still taking their breakfast in their ordinary clothes. In a 100 m. sprint they will lose, but in a 50 km. marathon they are bound to win.

Finally, it may well be asked, how it is possible that military autarky has to-day become a practical issue despite all the plausible arguments against it. In point of fact, the evidence is not wanting that military leaders share the view which has been presented here.19 It must not be forgotten, however, that the military argument for autarky might, like any other argument, be used as an ideological coulisse for quite different aims and that, even in the military sphere, decisions are not always the result of rational considerations.20

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21 The reader should bear in mind that this chapter, like the greater part of the whole book, was written before the present war. In some respects, it may now appear a good example for some errors held until very recently, but the essentials are still believed to be correct. It is possible to misinterpret the late experiences of the war in Norway, Holland, Belgium and France and to give too little weight to the fact that gross negligence on the one side will always add to the forces of the other side. As Demosthenes told the Athenians: they were doomed in their happy-go-luckiness and corruption whether there was a Philip of Macedonia or not.

22 Cf. Walter Lippmann, The Good Society, pp. 146-150; G. Ferrero, “Forms of War and International Anarchy,” The World Crisis (ed. by the Graduate Institute of International Studies, Geneva), London, 1938, pp. 85-97.

23 German literature has been particularly prolific in developing the idea of the total war (whose name itself seems to go back to Ernst Jünger’s book, Die totale Mobilmachung, Berlin, 1931, which, for the first time, made the term “totalitarian” popular). Cf. Hermann Rauschning, The Revolution of Destruction, London, 1939.

24 Sources: F. Friedensburg, Die mineralischen Bodenschätze als weltpolitische und militärische Machtfaktoren, Stuttgart, 1936; Emeny, The Strategy of Raw Materials, New York, 1937; S. Possony, To-morrow’s War, Hodge, London, 1938; Kurt Hesse, Industrielle Mobilmachung, Hamburg, 1937.

25 The rate of loss is greatest in the case of airplanes and tanks. According to Russian sources, the monthly replacement demand for airplanes is to be assessed at 40-50%, for tanks at 30-40%. The loss of specialized man-power is correspondingly great. It has been estimated that the yearly war demand for airplanes of an army having 3500 airplanes of the first line may reach 50,000 (R. Wagenführ, Die Flugzeugindustrie der anderen, Sonderheft des Instituts für Konjunkturforschung, No. 46, Hamburg, 1939, p. 10).

26 It is a telling symptom of our times that the literature on this subject of Defence Economics has become so abundant that only the specialist can keep abreast of it. It is, however, of deep significance that, especially in those countries where most is made of this topic, the intellectual level of this literature is rather low, because it is here that it is most thickly wrapped up in ideology. Cf. W. Röpke, “Fascist Economics,” Economica, February, 1935.

27 Let us note that war economics involves two principal problems: (1) the problem of having a maximum quantity of the right things, and (2) the problem of the maximum security of supply in time of war. The first problem leads to the question of military planning, while the second entails the question of autarky. It cannot be denied that the first problem suggests some recourse to measures of planning and state control, since a strictly liberal structure of economy will, from the military viewpoint, suffer from a number of defects.

28 Cf. W. Röpke, “Wehrsystem und Wirtschaftssystem,” Friedenswarte, No. 12, 1935; W. Röpke, “Fascist Economics,” op. cit., pp. 92-94.

29Considerations on the East India Trade, London, 1701, where we find the remark referred to above in the following significant passage (pp. 56-57):

“We are very fond of being restrain’d to the consumption of English Manufactures, and therefore contrive Laws either directly or by high Customs, to prohibit all that come from India: By this time, ’tis easy to see some of the natural Consequences of this Prohibition.

It is to oblige the things to be provided by the Labour of many, which might as well be done by few; ’tis to oblige many to labour to no purpose, to no profit of the Kingdom, nay, to throw away their Labour, which otherwise might be profitable . . . To provide the conveniences of Life at the dearest and most expensive Rates, to labour for things that might be had without. ’Tis all one as to bid us refuse Bread or cloaths, tho’ the Providence of God or Bounty of our Neighbours wou’d bestow them on us; ’tis all one as to destroy an Engine or a Navigable River, that the work which is done by few may rather be done by many. Or, all these things may be comprehended in this, to prohibit the consumption of Indian Manufactures, is by Law to establish vain and unprofitable Labour.”

30 In viewing the economic significance of synthetic production, two sorts of fallacy seem to be rather popular. The one is the common one of mixing the technical and the economic aspect of the problem (cf. W. Röpke, “German Commercial Policy,” op. cit., pp. 37-38), the other lies in the emotional stress laid on the cheap or—in the case of the synthetic production of nitrogen—even gratuitous material used in the process, while the fact is obscured that the fixed capital needed is all the more expensive. The latter is the same fallacy which underlies the popular enthusiasm for water-power plants. On the whole, it is rather difficult to get reliable data on the cost of synthetic production. On the synthetic production of petrol see especially the report of the British Falmouth Committee (Committee of Imperial Defence, Sub-Committee on Oil from Coal, Cmd. 5665, 1938). Regarding the case of synthetic rubber, a German official source (Vierteljahrshefte zur Wirtschaftsforschung, Schriften des Instituts für Konjunkturforschung, 1938-39, No. 1, p. 84) states that it costs about 260 Reichsmark to produce 100 kg. of synthetic rubber (“Buna”) while the price of imported rubber c.i.f. Hamburg moves around 100 Reichsmark. Cf. also W. Silbermann, Chemie-Industrie und Aussenhandel, Hamburg, 1938.

31 See on this point the interesting calculations made by S. Possony, op. cit., ch. vii.

32 L. v. Mises, “The Disintegration of the International Division of Labour,” The World Crisis, London, 1938, p. 254.

33 Important elements of such a positive programme would probably be the accumulation of stocks of strategic raw materials and of liquid international assets (gold, exchange and gilt edged securities), the careful preservation of international trade and a number of international measures in the field of the production of armaments. The useful literature on such a “liberal” Wehrwirtschaft is limited. Cf. besides Possony’s book: L. Einaudi, La condotta e gli effetti sociali della guerra italiana, Bari, 1933; S. Streiff, Schweizerische Wehrwirtschaft, Frauenfeld, 1938. It should be noted that there is a strong tendency for autarky to diminish the amount of stocks available in time of war, and further that the desire to accumulate gold as a war treasure will, on the other hand, add fuel to monetary nationalism.

34 For what follows in the text it appears particularly interesting to leave everything as it was written just before the present war.

35 Keith A. H. Murray, “Food Supplies in Peace and War,” Lloyds Bank Limited Monthly Review, October, 1938, p. 491.

36 Ibid., p. 491.

37 Cereals will, generally, keep about two years in the silos or 4-5 years in the well-supervised granaries of the farmer, while sugar can be stored indefinitely.

38 For England it has been calculated that, if the money spent on silos is regarded as capital expenditure, the cost of storing a year’s wheat requirements (about 120 million cwt.) estimated at about £4 million would be less than is spent each year on increasing the home output by only ten million cwt. (Murray, op. cit., p. 491).

39 Especially revealing in this respect is a lecture given on 21st June, 1938, by the leader of war economy in Germany, Major General Thomas, where he said (according to the Frankfurter Zeitung of the same day): “It must be borne in mind that autarky often has to have recourse to procedures of production involving increasing costs and decreasing returns, that it makes necessary large investments and finally, that in many cases much more workers are needed than is necessary if the commodities are bought on the world market. . . . The World War proved that the countries most active in world economy possessed the greatest economic force of resistance in contrast to countries more orientated toward autarky. The great economic force of Germany was the result of the growing international economic integration of this country. . . . Whether a country is on the gold standard or not, it is necessary to have a reserve of gold and devisen, which will play a great rôle also in modern war, as the Italo-Abyssinian and the Chinese Japanese war proved. This reserve, however, cannot be earned but by a continuous development of foreign trade. Therefore Germany must, by necessity, join world economy. Summing up, it must be said that, from the soldier’s point of view, the necessity and the advantages of the international division of labour are recognized.”

40 Cf. Hermann Rauschning, op. cit., Part II; W. Röpke, Die neue Wirtschaftstruktur Deutschlands als Grundlage seiner künftigen Handelspolitik, Schriften des Vereins für Sozialpolitik, vol. 171/1, München, 1925, p. 19.

• 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.
• 14For what follows in the text it appears particularly interesting to leave everything as it was written just before the present war.
• 15Keith A. H. Murray, “Food Supplies in Peace and War,” Lloyds Bank Limited Monthly Review, October, 1938, p. 491.
• 16Ibid., p. 491.
• 17Cereals will, generally, keep about two years in the silos or 4-5 years in the well-supervised granaries of the farmer, while sugar can be stored indefinitely.
• 18For England it has been calculated that, if the money spent on silos is regarded as capital expenditure, the cost of storing a year’s wheat requirements (about 120 million cwt.) estimated at about £4 million would be less than is spent each year on increasing the home output by only ten million cwt. (Murray, op. cit., p. 491).
• 19Especially revealing in this respect is a lecture given on 21st June, 1938, by the leader of war economy in Germany, Major General Thomas, where he said (according to the Frankfurter Zeitung of the same day): “It must be borne in mind that autarky often has to have recourse to procedures of production involving increasing costs and decreasing returns, that it makes necessary large investments and finally, that in many cases much more workers are needed than is necessary if the commodities are bought on the world market. . . . The World War proved that the countries most active in world economy possessed the greatest economic force of resistance in contrast to countries more orientated toward autarky. The great economic force of Germany was the result of the growing international economic integration of this country. . . . Whether a country is on the gold standard or not, it is necessary to have a reserve of gold and devisen, which will play a great rôle also in modern war, as the Italo-Abyssinian and the Chinese Japanese war proved. This reserve, however, cannot be earned but by a continuous development of foreign trade. Therefore Germany must, by necessity, join world economy. Summing up, it must be said that, from the soldier’s point of view, the necessity and the advantages of the international division of labour are recognized.”
• 20Cf. Hermann Rauschning, op. cit., Part II; W. Röpke, Die neue Wirtschaftstruktur Deutschlands als Grundlage seiner künftigen Handelspolitik, Schriften des Vereins für Sozialpolitik, vol. 171/1, München, 1925, p. 19.
• 21The 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.
• 22(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.
• 23As 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.
• 24The 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.
• 25That 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.
• 26There 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.
• 27There 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.
• 28Full 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.
• 29There 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.
• 30In 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.
• 31In 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.
• 32No 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.
• 33This 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.
• 34This is the argument against military autarky in its bare essentials, and these must be grasped before we can go on to any further analysis of particular problems and qualifications. It also gives the direction in which a positive programme for an economic policy of war-preparation should be developed, a subject which cannot be pursued within the limits of the present enquiry. Attention, however, must be given here to a number of important qualifications of the main argument.
• 35There is, first, the fact that the very case of Germany itself shows that the aim of food autarky is positively unattainable, for, in spite of the most energetic efforts made in that country during the last decade, the goal is not yet in sight and will hardly be so even in time of peace. In time of war, moreover, there is every likelihood that the degree of food autarky will fall appreciably below that reached in peace time, for then there will be even a greater shortage of man-power in agriculture, and, if the present efforts are pursued, the danger of soil exhaustion will have to be seriously reckoned with. All the greater, then, appear the advantages of a policy which consists of letting agriculture in the industrial countries follow its natural course toward a system of mixed farming, based largely on live-stock farming, and of accumulating large stocks of non-perishable foodstuffs. This would be the policy which would give the maximum insurance against the risk of war famine with a minimum of deviation from what is economically rational. Live stock itself represents an important war reserve which, in the case of England, is said to enable that country to do without meat imports for a whole year. “Furthermore, grassland farming, under certain conditions, affords a substantial reserve of fertility which is lacking in land that has been under the plough and which has been used to the utmost for any length of time.” As for the second part of this rational programme for securing food supplies in time of war, it must be stressed that, by a happy coincidence, it is just those foodstuffs which it is more reasonable to import, because of the well-known laws governing the localization of the different types of agriculture, that are non-perishable (cereals, sugar and kindred foodstuffs). Against this we have, of course, to set the cost of storage, but this is incommensurably lower than that of correspondingly raising the home production of cereals by artificial means.
• 36There is, first, the fact that the very case of Germany itself shows that the aim of food autarky is positively unattainable, for, in spite of the most energetic efforts made in that country during the last decade, the goal is not yet in sight and will hardly be so even in time of peace. In time of war, moreover, there is every likelihood that the degree of food autarky will fall appreciably below that reached in peace time, for then there will be even a greater shortage of man-power in agriculture, and, if the present efforts are pursued, the danger of soil exhaustion will have to be seriously reckoned with. All the greater, then, appear the advantages of a policy which consists of letting agriculture in the industrial countries follow its natural course toward a system of mixed farming, based largely on live-stock farming, and of accumulating large stocks of non-perishable foodstuffs. This would be the policy which would give the maximum insurance against the risk of war famine with a minimum of deviation from what is economically rational. Live stock itself represents an important war reserve which, in the case of England, is said to enable that country to do without meat imports for a whole year. “Furthermore, grassland farming, under certain conditions, affords a substantial reserve of fertility which is lacking in land that has been under the plough and which has been used to the utmost for any length of time.” As for the second part of this rational programme for securing food supplies in time of war, it must be stressed that, by a happy coincidence, it is just those foodstuffs which it is more reasonable to import, because of the well-known laws governing the localization of the different types of agriculture, that are non-perishable (cereals, sugar and kindred foodstuffs). Against this we have, of course, to set the cost of storage, but this is incommensurably lower than that of correspondingly raising the home production of cereals by artificial means.
• 37There is, first, the fact that the very case of Germany itself shows that the aim of food autarky is positively unattainable, for, in spite of the most energetic efforts made in that country during the last decade, the goal is not yet in sight and will hardly be so even in time of peace. In time of war, moreover, there is every likelihood that the degree of food autarky will fall appreciably below that reached in peace time, for then there will be even a greater shortage of man-power in agriculture, and, if the present efforts are pursued, the danger of soil exhaustion will have to be seriously reckoned with. All the greater, then, appear the advantages of a policy which consists of letting agriculture in the industrial countries follow its natural course toward a system of mixed farming, based largely on live-stock farming, and of accumulating large stocks of non-perishable foodstuffs. This would be the policy which would give the maximum insurance against the risk of war famine with a minimum of deviation from what is economically rational. Live stock itself represents an important war reserve which, in the case of England, is said to enable that country to do without meat imports for a whole year. “Furthermore, grassland farming, under certain conditions, affords a substantial reserve of fertility which is lacking in land that has been under the plough and which has been used to the utmost for any length of time.” As for the second part of this rational programme for securing food supplies in time of war, it must be stressed that, by a happy coincidence, it is just those foodstuffs which it is more reasonable to import, because of the well-known laws governing the localization of the different types of agriculture, that are non-perishable (cereals, sugar and kindred foodstuffs). Against this we have, of course, to set the cost of storage, but this is incommensurably lower than that of correspondingly raising the home production of cereals by artificial means.
• 38There is, first, the fact that the very case of Germany itself shows that the aim of food autarky is positively unattainable, for, in spite of the most energetic efforts made in that country during the last decade, the goal is not yet in sight and will hardly be so even in time of peace. In time of war, moreover, there is every likelihood that the degree of food autarky will fall appreciably below that reached in peace time, for then there will be even a greater shortage of man-power in agriculture, and, if the present efforts are pursued, the danger of soil exhaustion will have to be seriously reckoned with. All the greater, then, appear the advantages of a policy which consists of letting agriculture in the industrial countries follow its natural course toward a system of mixed farming, based largely on live-stock farming, and of accumulating large stocks of non-perishable foodstuffs. This would be the policy which would give the maximum insurance against the risk of war famine with a minimum of deviation from what is economically rational. Live stock itself represents an important war reserve which, in the case of England, is said to enable that country to do without meat imports for a whole year. “Furthermore, grassland farming, under certain conditions, affords a substantial reserve of fertility which is lacking in land that has been under the plough and which has been used to the utmost for any length of time.” As for the second part of this rational programme for securing food supplies in time of war, it must be stressed that, by a happy coincidence, it is just those foodstuffs which it is more reasonable to import, because of the well-known laws governing the localization of the different types of agriculture, that are non-perishable (cereals, sugar and kindred foodstuffs). Against this we have, of course, to set the cost of storage, but this is incommensurably lower than that of correspondingly raising the home production of cereals by artificial means.
• 39Finally, it may well be asked, how it is possible that military autarky has to-day become a practical issue despite all the plausible arguments against it. In point of fact, the evidence is not wanting that military leaders share the view which has been presented here. It must not be forgotten, however, that the military argument for autarky might, like any other argument, be used as an ideological coulisse for quite different aims and that, even in the military sphere, decisions are not always the result of rational considerations.
• 40Finally, it may well be asked, how it is possible that military autarky has to-day become a practical issue despite all the plausible arguments against it. In point of fact, the evidence is not wanting that military leaders share the view which has been presented here. It must not be forgotten, however, that the military argument for autarky might, like any other argument, be used as an ideological coulisse for quite different aims and that, even in the military sphere, decisions are not always the result of rational considerations.