International Economic Disintegration

BEFORE the Great War, and even for some time after it, protectionism was preponderantly what the term suggests: a policy aiming at the protection of certain groups of producers against foreign competition on the home market. The reasons put forward to defend this policy against the plausible argument of the free trade doctrine were various, but the plain end was invariably the same, the defence of producers’ profitability against adverse influences coming from abroad. It was a policy directed toward limited aims, but very rarely was it made the instrument of a policy aiming at regulating the whole economic process within the national economy. Up to the Great War protectionism in the more advanced countries was hardly ever based on considerations of a monetary character and worries about the balance of payments as became the fashion after the war. In general the regulation of external equilibrium was left to that mechanism of automatic self-adjustment which has been described by the classical theory of international trade. This does not mean that no attention was paid to the problem of internal economic equilibrium in connexion with protectionism. On the contrary, the condition of industries in times of depression was a powerful stimulus to protectionism, so much that there can be discovered a close correlation between the waves of depression and prosperity on the one hand and the increase or decrease of protectionism on the other. But this was so because depression only strengthened the sectional motives of protection and not because the idea of stabilizing the whole economic process by protection played any important part. Also the argument of protection as a means of creating employment was used extensively, but generally in a manner which did not make it too difficult for the advocates of free trade to dispose of it. The notion that economic nationalism might be instrumental in or conducive to smoothing out the business cycle was rarely of any practical importance at that time.

This aspect of protectionism has completely changed since the war and especially since the outbreak of the great depression in 1929. The old arguments and motives of economic nationalism are as forceful as ever, but more important than any of them has become the idea that, whatever the advantages or disadvantages of economic nationalism in other respects, it will be indispensable for a policy of regulating the whole economic process in order to achieve economic stabilization for the national economy independently of the rest of the world. For example, one wants agricultural protection more than ever for all the traditional reasons, and it is highly fruitful to study agricultural nationalism of to-day still from this more restricted and conventional point of view; but the important point is that this policy cannot be fully understood except as an integral part of a more comprehensive policy of national autonomy in regulating the economic process as a whole. The same applies to industrial protection. It is equally clear that the fundamental changes in monetary policies which have occurred since 1931 have their deepest origin in the consideration that the gold standard with its features of exchange stability and exchange liberty and with its mechanism of automatic self-adjustment is believed to be incompatible with a policy of national economic stabilization. Monetary nationalism of to-day, therefore, is to be understood as the corollary of ideologies and policies of national stabilization. Since the responsibility of monetary nationalism in all its forms, especially that of exchange control, for international economic distintegration is obvious, these policies and ideologies of national economic stabilization are again revealed as the ultimate agent. This is true not only for the period after 1931. It can be shown, indeed, that the unsatisfactory working of the gold standard which was so responsible for the 1931 breakdown was due to the fact that principal countries did not “play the game”—to do so was already at that time deemed to interfere with a policy of economic stabilization. The situation thus created became dramatically manifest in the well-known failure of the World Economic Conference in 1933, which is to be explained by the triumph of the argument of national stabilization over the considerations of international monetary stabilization and international economic co-operation.

The conclusion to be drawn from these observations is self-evident. Under the influence of the ideal of national economic stabilization, dominating all other goals of economic policy, economic nationalism has ceased to be limited in aim and character, and now it tends to become “total” (i.e. all-embracing) in its scope, with a view to supporting or to making possible a policy of regulating the national economic process as a whole. Economic nationalism of to-day can hardly be understood without taking into due consideration this ultimate objective which has become so important.