International Economic Disintegration

CHAPTER XXVII EPILOGUE

1. THE AGE OF TYRANNY

“My conception of the terribles simplificateurs who will come over our old Europe is not pleasant, and now and then in my imagination I can see these ruffians already in flesh and blood before my eyes. I will describe them to you when we drink our pint of beer in September.”

Jacob Burckhardt, letter to F. von Preen, 24th July, 1889.

THE manuscript of this book had reached the present point when the catastrophe of war fell upon Europe. Almost overnight the question presented itself how the world picture sketched in the preceding pages was affected by that disturbing event and what the author, from his point of view, might contribute towards establishing the deeper significance of the calamity.

The uncanny, nerve-racking thing about the present situation is that not a single proved formula for interpreting, experience holds good any longer. The war which has come upon us is not of the kind familiar in history nor a conflict in which the aims of both sides are as clear as their opposing national fronts; it is almost—though not completely—a world-wide civil war in which the horizontal and the vertical fronts criss-cross confusedly. The very conduct of the war shows no longer any clear outline: the sole characteristic it would seem like developing is that of conforming to no recognized norms. There can be no doubt, however, that this second world war is the manifestation of a stupendous social catastrophe that is working itself out in the whole Western World and can be understood only in the light of the special internal structure of certain countries.

What is that structure and how did it come about? To answer that question satisfactorily is to hold the key to any understanding of the pass to which the world has come to-day, and, therewith, to its lasting liberation and pacification.

E. Halévy, the great French historian and sociologist, in his interesting work, l’Ere des Tyrannies, maintains that since 1914 the Western World has entered upon “the age of tyrannies,” and that, contrary to the liberal, humanitarian ideals of most socialists, it is socialism that has brought us, by a logic seemingly inexorable, along that road.

Quite deliberately, Halévy chose the word “tyranny” to characterize in the clearest possible way what seems essential in the structure of the new collectivist governments and to draw a sharp distinction between that state structure on the one hand and dictatorship or despotism on the other. If a fairly clear, widespread knowledge of the forms assumed by the Greek tyrannies, or even of the passages in which Aristotle describes them, might be taken for granted, then the expression chosen would certainly not be bad. The structure of the modern collectivist state has indeed a quite amazing resemblance to that of some city states of antiquity in the period of despotisms known to us as tyrannies, such as Corinth or Megara, in their geneses, their main characteristics and perhaps, too, in the way they came to an end.1 In each case there is the same reckless, violent usurpation of the functions of the state by a minority rising from the masses and leaning upon them while flattering and at the same time intimidating them. This minority is headed by a “charismatic”2 leader and, in contrast with genuine dictatorship, considers its rule by force as the normal, permanent form of state organization, and not as a temporary mandate to be restored to the legitimate authority once the emergency for the state is over. It is, then, a very dangerous, though none the less prevalent, misuse of words to label the blatant instances of tyranny found to-day “dictatorship.”

Every well-knit state comprises some more or less powerful elements of a hierarchic and authoritarian nature, and it would serve no useful purpose to consider as characteristic of the modern “ochlocratic” tyranny a peculiar form of authoritarian government like dictatorship. Kemal Atatürk, for instance, was certainly a dictator in the sense of being the head of a state that he governed practically without opposition. However, it would be quite false and a grave injustice, alike to that great man and to the Turkey he created, to place him, as so many unreflecting journalists have done, among the modern usurpers risen from the masses. His historical rôle is much more that of the “Dictator” of ancient Rome, as opposed to the real tyrants, Sulla or Caesar, who, significantly enough, gave themselves the title of “Dictator Perpetuus.” Thus, after Kemal’s death, the direction of the state could indeed pass without any breach of continuity into the intelligent, moderate hands of Ismet Inönü. In the Turkey of Kemal there is no praetorian guard, no hierarchic, exclusive party alone allowed to bear arms and insolently identifying itself with the state. Neither is there any high-pitched self-advertisement, no striving after new ways of stimulating the masses so as to prevent their slipping back to the humdrum daily round, to the balanced, normal, steady community life. This normal course of life is, indeed, rightly considered the gravest menace to a régime reposing on an ever intenser excitement of the people’s nerves, an excitement which, as Max Weber discerns with great clarity in the passage already quoted, is the outstanding characteristic of “charismatic” government. Where, as in Turkey and in other modern dictatorships, such as Portugal or Greece, those essential signs are lacking, we cannot speak of tyranny, but at most of dictatorships, whether we refer to ancient or to modern times.3

If the ancient, like the modern tyrannies, are clearly different from dictatorship, it is not less false to confound them with the idea of a government that is hierarchic, aristocratic or authoritarian or to set them up as the opposites of democracy. It is hard to imagine any more grave or fateful confusion. It is, of course, easy to understand—since modern democracy grew out of an ardent, passionate fight against arbitrary rule and despotism—that the idea of democracy should awaken in our minds certain associations that are not quite in accord with its real nature and inherent possibilities. Surely no one could read without the deepest emotion Abraham Lincoln’s famous oration on the battlefield of Gettysburg, one worthy to rank with that Pericles pronounced two thousand years ago over the Athenian dead. And is it not real blasphemy for Oscar Wilde to parody Lincoln in the words: “bludgeoning of the people by the people for the people”? Surely with regard to Abraham Lincoln; but also with regard to the conception of pure democracy and to its inherent dangers? Tocqueville, John Stuart Mill, Calhoun, and many others who cannot be suspect of reactionary leanings, acknowledge that democracy can lead to the worst despotism and intolerance unless it is limited by other principles and institutions, and it is such limitations, taken as a whole, that may be called the liberal element of the state.4 There is little need to recall the germs of the modern collectivist doctrine found in Rousseau or in the more extreme theorists among the Jacobins to explain why collectivism—the “tyranny,” according to Halévy—is rooted in a democracy that is unrestricted and not sufficiently counterbalanced by liberalism, a genuine aristocracy, or federalism. The characteristic, in fact, of tyranny ancient or modern is that it is always borne along on the tide of great mass movements, and can only thus survive. Mobilizing all its energy, its inventiveness and propaganda technique to show itself to the masses in a favourable light, it adopts by preference the most plebeian methods, knowing well that in the long run its domination cannot be assured by even the most refined terrorism. It was then, not unreasonable to maintain, as did Ortega y Gasset, that tyranny is the form of government in which the revolt of the masses against the moral and intellectual élite finds expression. Wherever a tyranny has come to power it has governed with the masses, preferably with the crapule, against the élite that carries civilization on, and is on the look-out for their reactions in every slightest word or gesture. The antithesis of tyranny is not democracy—a word that only indicates where power is vested—but the liberal principle which, now as always, imposes on every government, however constituted, the limits required by tolerance and respect for inalienable rights of the individual. It is thus compatible with different forms of state structure: it is the principle symbolized in Magna Charta, in the Bill of Rights, and in the Declaration of the “droits de l’homme et du citoyen.” That is doubtless what most people have in mind when they speak of democracy as the antithesis of tyranny, but it would be well that they should realize the dangers of the ambiguity. Clearly nobody would wish to expose himself to ridicule by arguing that the so-called democracies to-day are not the leading antagonists of tyranny: that they are, however, is due less to the democratic principle than to that other which is still best described as liberal. It would not, on the other hand, occur to us to speak of any tyranny as a democracy; but that we shrink from doing so is due far more to the absence of liberal than of democratic characteristics. The masses may well feel more or less at ease for a while under such a regime, but not the élite. Whether or not a given individual does feel at ease under it is purely and simply a question of whether he belongs really to the mass or to the élite; and those who know anything about sociology need not be told that “mass” minds may be found among university professors just as workers, artisans and peasants may belong to the élite. If that be the case and if, in fact, tyranny strikes root among the masses and can do so only in a state of society that may, sociologically speaking, be called a mass-society, if in history tyranny invariably follows the maxim: “panem et circenses”—as who can doubt?—then we arrive at precisely the conclusion for which Halévy’s thesis had prepared us, the intimate connexion between tyranny and socialism.

Finally the question arises wherein lies the difference between the tyrannies, old and new, and the despotic reign, let us say, of Louis XIV. That there must be a world of difference we cannot for a moment doubt. To begin with, the lack of liberty, seemingly common to both, must not only have been less in degree, but also of quite a different kind. How otherwise explain the magnificent blossoming of the arts and sciences in the one case and the striking sterility in the other? Some explanation of that difference in spiritual atmosphere may be found in what has just been said about the mass-society character of tyranny. Moreover, tyranny differs fundamentally from all other forms of monarchist absolutism in that it is an illegitimate, usurping power, and is consequently devoid of a certain feeling on which the most indolent or incapable king can depend—the feeling of its being rooted in tradition.5 It can proffer no sort of established legal title, and so must regard as the supreme end of the whole art of government, an end camouflaged in every word and deed, to find some substitute for that legal title and for that hold on the affections of the governed which the government entirely lacks. Hence the need to enforce uniformity of opinion and the unscrupulous imposition of the will of the state; hence, too, the nervous desire to please, the continuous quest of ostensible success, and then the anxious watching for the crowd’s approbation; the absence of that calm poise that is the appanage of legitimate government and excessive susceptibility to approval and reproach, coupled with an inferiority complex over-compensated by bombast. Not less characteristic of all tyrannies is a weakness for dissimulating their illegitimate, ephemeral tenure of power in monuments which strain to make up for the centuries they lack in the past, in architecture suggesting magnificent centuries ahead. That is the source also of their dread of routine, recognized so clearly by Max Weber and familiar to every student of contemporary collectivism, their search for ever-new contrivances to prevent the deliberately over-stimulated population from calming down or looking at things soberly with the eyes of common sense. So will a top maintain its balance only so long as you keep it spinning round and round.6

So far we have followed Halévy; all that we have said about the essence of tyranny is just a series of variations on the simple thesis sketched in his book. It would appear, however, that there still is lacking from the picture of tyranny one essential trait that Halévy does not mention, although the experiences of his time had already taught a lesson. To the essential characteristics of tyranny that he observed must be added the complete disappearance of norms and ultimate values, without which our society or any society cannot in the long run survive—the pernicious moral anaemia, the cynical caprice in the choice of means that for lack of genuine aims become an end in itself—in short, that attitude that can be deliberately called the political pragmatism characteristic of every real tyranny.

Everything breaks up and falls into ruin until at last there remains the one constant aim of tyranny to which are unscrupulously sacrificed all moral principles, all promises, treaties, guarantees and ideals: the naked lust of power (“libido dominandi” of Sallust —Cataline War, Chapter I); the endeavour to keep and to increase the power that is for ever challenged and that, in the last resort, serves no other purpose than to be relished with unreserved gusto. That being so, there is no limit to the violence or falsehood to be expected of such a government. All the ideals and sentiments appealed to and precisely those deserving the deepest respect—social justice, the solidarity of the nation, peace, religion, the purity of family life, the well-being of the masses, the claims of international law, the return to simpler, more natural ways of life, the cultivation of art, science, and literature—all reveal themselves in the end only as glaringly painted and interchangeable coulisses of propaganda. The tyrant becomes the most unscrupulous publicity agent, always and only concerned with effect. The worst of it is perhaps that it soon changes no small part of the population into scoffing cynics—as Benjamin Constant has shown with striking clarity when dealing with the events of the Napoleonic era in the work already cited.7 It is easy to understand why a form of government with the characteristics described thus far is at the same time the embodiment of such moral nihilism: no nation can fall a victim to such government until it is itself in an advanced stage of social and moral disintegration, and apparently only he can become a tyrant and maintain his power for long who is a political nihilist possessed of a searing libido dominandi. Other qualities are, no doubt, required, but this is assuredly an essential condition. Thus considered, tyranny appears as the most appalling manifestation of the breakdown of the society it attacks. Any society that lets tyranny get into its system must already be extremely enfeebled, and once tyranny has the mastery it quickly transforms the moral decay into galloping consumption. If, then, the real tyranny is to-day in such evidence and so widespread that we can speak (with some exaggeration) of an “age of tyranny,” we can realize now to its full extent the alarming character of this statement. For, after all, tyranny is clearly no more than the most naked manifestation of a process of moral dissolution whose origins reach very far back and which threatens to engulf our whole civilization. We must recognize that the countries that have fallen to tyranny are those which—for reasons still to be elucidated—first lost their inner cohesion whilst the others were still enjoying more or less considerable reserves that gave them the force to resist.8 No one will nurse the illusion, however, that the process of disintegration is not going on everywhere or that anything short of the most vigorous reaction can possibly stave it off.

Now, there is no modern tyranny which—whether from the outset or in a slow development, or even while combating socialist ideas—has not subjected the economic life of the nation to a system which, if words are to retain their meaning, can only be called socialistic. More than that—these are the only countries in which socialism has so far been completely established. All the tyrannies of to-day are socialistic, and, conversely, complete socialism has never been realized anywhere if not in the form of a tyranny.

Is not that in itself a convincing proof of the thesis that complete socialism and modern tyranny are of necessity most closely related? Just here lies the inner tragedy of socialism, known to anybody who at any time of his life has shared socialist ideas, and torturing all socialists who are as sincere as they are intelligent. It is the tragedy of the insoluble inner contradiction inherent in a movement which wants to complete radically the liberation of men started by democracy and liberalism, but in doing so must transform the state into a Leviathan. In other words, complete socialism cannot but be anti-liberal in the worst and fullest sense of the term. While it wants to ensure for the individual complete emancipation, all that in reality it can do is to impose on him the most exacting and intolerable form of slavery.

Not all socialists are prepared, like the anti-democratic socialists, to get round this contradiction by pretending, with Lenin, that liberty is a bourgeois prejudice. For the liberal-democratic socialists, however, the antinomy of socialism is a real stumbling-block. They make every imaginable effort to refute the disagreeable truth, yet experience and reflection alike argue so irresistibly against them that it only remains for them, if they want to be honest with themselves, to choose between the liberal principle of freedom and the socialist principle of “organization” (and all that euphemism covers). The reasons for the dilemma have been put forward so often and clearly of late that we may confine ourselves here to a few observations.

It is necessary to start from the irrefutable proposition that complete socialism, of whatever shade, always involves a complete planned economy. The economy of what plan? we must at once ask. Who draws up the plan and who plans the planners? A plan for the whole national economy means that the productive forces of the community are disposed of in a certain way. That is to say, the plan decides in detail which goods shall be produced and in what quantity. In the present economic system, production (apart from the public sector) is essentially determined by those to whom this right cannot very well be denied, namely the consumers. The economic process based on the competitive market is, so to speak, a “plébiscite de tous les jours” in which every shilling spent by the consumer represents a ballot-paper and in which the producer, by advertising, does election propaganda for an undetermined number of parties (i.e., classes of goods). This consumers’ democracy has, it is true, the disadvantage, largely remediable, however, of distributing the ballot-papers very inequitably; it has also the great advantage of securing complete proportional representation. The minority is not eliminated, each voting paper retaining its value. A socialist planned economy means nothing other than that the democracy of the consumers is done away with and replaced by command from above. Decision as to the use of the productive factors of the community would be transferred from the market to the office of a government authority and become a matter of politics. The unfortunate population would have to submit to such use of those factors as might be deemed right by the group dominating the state for the time being. Can it be seriously believed that not only the selection of this group, but also the millions of decisions to be taken can be done with democratic machinery and with respect for the liberty of each individual? Is it deemed possible to extend this method to gramophone records and hot-water bottles? Is it credible that a socialist government would expose its economic plans to the caprices of a changing majority? However categorically these questions may be answered in the negative, it is not less certain that such a dictatorship in charge of national production can only be acquired and maintained by a group resolved to use it unscrupulously to the utmost limit of its political power and to trample over all rights and liberties to maintain itself in power. “The probability of the people in power being individuals who would dislike the possession and exercise of power is on the level with the probability that an extremely tender-hearted person would get the job of whipping-master on a slave plantation.”9

The impossibility of drawing up an economic plan by democratic methods is due not to technical reasons alone, but resides rather in the nature of the thing itself. Everybody knows that democracy can really function properly only when there is a certain minimum of agreement about all the essential problems of national life. Only on the basis of such “unitas in necessariis,” such a unity between all classes, ranks and parties in the essential national problems and in the ultimate aims of policy, are the consultations and discussions that are the characteristic of liberal democracy possible. If that essential integration of the nation no longer exists, democracy necessarily falls victim either to anarchy or to collectivism (tyranny). But how is it possible to reach even half agreement about all the details of an economic plan affecting directly and painfully all private interests? Since the decisions to be taken always profit one group of interests and injure another—how can the democratic method effect the compromise called for? Those decisions cannot in fact be taken except in an authoritarian way, arbitrarily, that is to say, and under the pressure of an interested minority. But since the suspicion of arbitrariness or even of favouritism would injure the government’s prestige, it adorns its decision with the halo of some principle and gets its propaganda going. It will do all it can to degrade in the public mind the victims of its arbitrary decisions and grossly abuse what it chooses to call the public interest.

But there is yet another and more decisive consideration. The competitive market system is a process made up of innumerable, individual economic acts. These are under the control of the market which affords to those concerned indications for the most rational use of productive capacity. An automatic system of rewards and punishments in the form of profit and loss ensures early and rapid action on those indications. Our economic system punishes disobedience to market rules by sanctions extending from negligible losses to bankruptcy, that is to say, to the exclusion of the offender from the body of those responsible for the process of production. Socialism (collectivism or communism) implies that the democratic sovereign, the Market, has been replaced by the autocratic sovereign, the State. This new sovereign assures respect for itself by the means proper to its political character: draconian penalties for a long list of “economic crimes,” secret police, concentration camps and executions. Actions which in the reign of the old sovereign were inoffensive from the penal point of view, since they carried within themselves their own very effective penalties, become the gravest of crimes. Suddenly hosts of “economic traitors,” “profiteers,” “parasites,” people guilty of “sabotage,” “devisen crooks,” and other riff-raff are discovered. What is happening in reality is that the attraction of the old sovereign is so great that the new is at the utmost pains to ensure respect for his orders. If we recall how often in history—from Diocletian to the French revolution—capital punishment itself has proved incapable of combating rising prices, one will understand the extraordinary power of the old sovereign of economic life, the Market. From all this might be drawn the conclusion, self-evident and confirmed by experience through history, that socialism is an economic system in which the headsman beats the time. The headsman is in fact for this economic system a figure quite as important as the bailiff in the economic system where the Market is sovereign.10

There is no reasonable room for doubt. Socialism and tyranny are correlated to each other, notwithstanding all the emphasis of socialist theorists who dream of realizing a socialist state without infringing liberty in any but the economic sphere and notwithstanding the promises of tyrants at the beginning of their career to preserve liberty at least in the economic sphere. Whether a state sets out from anti-tyrannical socialism or from anti-socialist tyranny, the natural logic of events will finally lead the two states to the same end: thorough-going tyranny that leaves its impress on every sphere of social life and has all the charming traits we have already described. Like peace, tyranny is indivisible, and in the long run economic dictatorship cannot any more exclude political and intellectual dictatorship, than the other way around. It is in fact unpardonable naïveté to believe that a state can be collectivist in economic matters without being so in political and spiritual matters also and vice versa. “If there are Governments armed with economic power, if in a word we are to have Industrial Tyrannies, then the last state of man will be worse than the first” (Oscar Wilde). Then what Hölderlin wrote a century ago would come true: in wishing to make the state paradise, man has made it hell.

The structure of tyranny and its close relations with socialism having been examined, it still remains to characterize briefly its relations with the war and with the international disintegration now in progress. If the connexion between socialism and tyranny is a reciprocal one, so is that which exists between tyranny and the present international disintegration. On the one hand it was the world war that ripened the seeds of modern tyranny; on the other—and this is more important still—the very structure of tyranny tends towards imperialistic expansions and finally to war, again notwithstanding all the more or less sincere assertions to the contrary. Indeed, each characteristic of tyranny that has been analysed so far involves the inclination to war.

2. THE ECONOMIC OUTLOOK AFTER THE PRESENT WAR.

About the ultimate fate of the Western liberal system in a world confronted by collectivist states, there has grown up in recent years a sort of fatalistic opinion which, under the impact of war, now seems to carry even more conviction. There seemed to be strong grounds for believing that the liberal world found itself on the defensive, resisting more and more feebly and rapidly succumbing to the tempting idea of an autarkic-collectivist economy. The collectivist states seemed to be setting the pace and, partly by their example and partly through the reaction of world economy to their policies, to be preparing the way to economic collectivism and international economic disintegration. For a time it could hardly be doubted that tendencies of the kind were very strong.

Does not the present situation prove, in fact, that the war leaves no longer any choice and that the liberal countries, belligerent or neutral, are simply obliged to adapt themselves to the economic structure of the collectivist countries? And is not therefore the danger very real that this war, whatever the issue may be, favours the ultimate triumph of the modern collectivist principle in economic and possibly also in political life? It is questions of just that kind that—unless we are fundamentally mistaken—are distressing people everywhere, perplexing their feelings and judgments, and robbing them perhaps of that very minimum of confidence in the future that men require if they are to find any sense at all in making the present sacrifice.

An examination of this point must certainly begin by acknowledging that war presents an exceptional situation which at the same time calls for extraordinary measures in both the economic and political spheres. Yet anyone who would maintain that the authoritarian direction of state and economic life—rendered more necessary than heretofore by the war—represents an approximation to the collectivist principle of society, makes it thereby clear that he cannot distinguish between dictatorship and the collectivist state and has understood nothing about the real structure of the latter. The question was considered in an earlier section. When a democracy in time of need places a dictator at its head, it in no way surrenders itself: much more is it obeying the counsel of necessity and the precept of history. Apart from all else it is, in the case of a democratic dictatorship, a matter of transmitting a mandate which is restored after the period of state emergency has passed, but not a normal, permanent form of the direction of state and economic life. This is shown precisely by the fact that it required first of all the dire necessities of war and the highest concordance of individual aims and feelings brought about by that necessity, to render possible a democratic dictatorship of the state and its economy. Conversely, it appears probable that it will liquidate itself with the ending of the state of emergency, unless a real revolution in state or economic life has taken place in the meantime.

Let us be as clear as possible on this point by adding a more general consideration. In fact, the philosophers of all ages have been unanimous in pointing out the contradictory character of the relationship between the individual and the community. Two souls are residing in his breast, one tending towards the community, the other seeking segregation. As Kant has said, there is “an antagonism of the unsocial sociability of man” which puts society under a constant strain, the strain between the tendency towards social integration and the other towards individual segregation. Man is neither an ant nor a beast of prey; he has chosen instead the more difficult course of that constant strain which his unsocial sociability engenders, but which is the origin of all civilization. There is no denying the stubborn fact that man is always seeking a normal moderate measure of contact with society, not too much but also not too little. It is this normal degree of integration—the wish to “belong somewhere,” the sense of social duties, the mild patriotism, the sentiment to be part of a larger whole and to fill one’s place there—which neither the individual nor society itself can afford to lose without getting “socially ill.” On the other hand, however, our nature is such that we have not the least inclination: to be used as mere stones in the structure of society. We are ready to render unto Caesar what is Caesar’s, provided we may keep the rest for God, for our family, for our neighbour, for ourselves. Whereas, in the first case, we shall suffer from social under-integration, in the second we shall suffer from social over-integration, and in the end the one is just as intolerable to us as the other. What social under-integration means will be clear to the reader, for it is that pathological condition of western society which developed during the last hundred years and led finally to our present mass society. We also know that social under-integration makes man extremely unhappy, and there exists even an interesting theory which explains suicide as a mass phenomenon of our civilization by what the French sociologist Halbwachs calls social “désencadrement.” In this hunger for social reintegration, man becomes ready for almost any rescue, but, of course, it may easily happen to him as happened to the frogs in the fable who wanted a king and were finally devoured by a crane.

As far as the other extreme of social over-integration is concerned, we observe that it occurs like the fever of the human body in a quite normal and beneficent manner whenever an emergency like an earthquake or a great fire requires all the defensive forces of society. At once, as it were, the temperature of society goes up, and quite naturally we are sacrificing our privacy in order to be absorbed by the community and to give our best wherever we are needed. Without asking any questions we obey whoever assumes undisputed authority, and we think it quite normal if in an earthquake district martial law is declared. Exactly the same, though on a much larger scale, happens in the case of war. Society at once reaches feverish degrees of integration, and that is the reason why it becomes possible not only to suspend civic liberties protecting the private sphere of the individual, but also to carry through socialist measures which are nothing else than the economic counterpart of social over-integration. All that appears quite natural so as to give no reason for alarm. It makes all the difference, however, if socialism is to be kept as a permanent peace-time institution, for this would mean that the social over-integration which is the prerequisite of socialism must be made the normal condition of society. To achieve this is a gigantic task which must be carried through against human nature. If it is at all possible it is only by ruthless terror and by a policy which, artificially, is keeping the population in that abnormal feverish condition which is the result of earthquakes and wars. In other words, the war atmosphere must be made permanent. Now, whereas there is comfort in the thought that for the normal degree of social integration the positive moral sentiments of mild patriotism and benevolence are enough, it seems that these are quite insufficient for the excessive integration of a collectivist society. In order to extinguish individuality to the degree demanded by collectivism, the collectivist government must inflame sentiments which are negative, i.e., directed against something or somebody, and if there are no real targets for the hatred of the masses or no real sources of fright they must be invented. Consequently, if socialism is to be made a permanent condition, it supposes a state which, in the absence of war, earthquakes or other calamities, is keeping up by artificial means the necessary over-integration of society.

From that the following conclusions may be drawn. It is a dangerous fundamental error to think that the introduction of an authoritarian régime, such as has now happened under the overwhelming pressure of war in the countries most involved, has given a definite turn to the later development in economic or political life. The error is so exceedingly dangerous because it encourages fatalism and will only render easier the task of the forces that are everywhere making for collectivism. Yet not only do these tendencies in the liberal countries have nothing really in common with collectivism; what is much more true is that it is of their very essence to become superfluous and disappear when normal conditions return. Nobody can for a moment doubt that it is far from the intention of the leading democratic countries to consider as a permanent arrangement the exchange control which, contrary to the fundamental character of their peace-time economy, they have introduced to-day. To do so in peace time would in fact carry their political and economic life irresistibly down the slippery slope of collectivist authoritarian totalitarianism. At a time, however, when “the whole population able to bear arms is called on to risk its life for the defence of its dearest possessions, it may well be expected to accept also, without concentration camps or secret police, prescribed limitations concerning exchange transactions, production, price fixing or the purchase of consumers’ goods. Is it, on the other hand, conceivable that, short of revolution, this coercive system could be made permanent after the war?

It is doubtful whether those considerations will quite satisfy our pessimists. Must we not take it for granted, they will still ask, that economic conditions after the war will render more than probable a victory for the collectivist principle? Must we not expect a very serious economic depression which would call for precisely a planned economy? How can we think of imposing on humanity, while everything is lying in ruin, the sacrifices that would follow the restoration of normal economic conditions, particularly in international trade? In a word, do we not run the risk once the war is over of having such confusion, impoverishment and paralysis as to make next to hopeless any attempt at restoring an essentially liberal economic structure?

These are depressing questions that cannot be easily answered. Nobody knows the future or can foretell the factors on which it will depend. Nor can anyone say where the impossible begins. There are considerations, however, which, given certain conditions, make it by no means probable that there must be a particularly long and serious depression after the war.

To understand those considerations we must get back to fundamentals, a thing which ought to be done far more to-day. Let us start from a truth which is not very palatable to some people, i.e. that the real ultimate cause of the breakdown of international economic life as well as of the functional disorders of the liberal economic system is to be found in the far-reaching disturbances, moral and material, caused by the collectivist principle. The modern collectivist principle is such a complete assault in every way upon our world of values, ideas and feelings and the practical policy of the collectivist states has been so upsetting and disturbing in its effect, that the psychic reactions on which the liberal economic system rests were almost bound to fail. All the more or less intelligent analyses of the economic crisis of the last decade that seek the causes in purely economic factors leave out the principal one, namely, the collapse of the moral and political bases of our economic system.

Once the developments of recent years are seen and understood from that angle, the conclusions to be drawn for the present situation seem obvious. The conflict between the modern collectivist and the liberal principles has entered to-day on its last decisive phase. The opposition in question, we need not emphasize, is only partly military; it is much more spiritual. That is why it is so hard to predict anything whatsoever as to the ultimate issue. Making, however, at this point the not too bold assumption that the liberal world will succeed in stemming the collectivist deluge, we are entitled to expect after the war a much less strained situation that would give rise to an economic upward movement of a quite inconceivable range. The torpor that for years has frustrated the world would be relaxed and a new, more hopeful life pulse through all its veins. The natural reflexes and the old elasticity of the economic system again come into play and enable it to dispense with patent medicines. We can hazard this optimistic view, it should be noted, since what is at stake in the present war is, above all, the fate of the liberal economic and cultural system: is it to be crippled or restored to health? That view will be more justified if reasonable steps are taken to see that the war-time inflation and the consequent post-war deflation are kept within reasonable bounds, as, e.g., by such measures as those recently recommended by Mr. Keynes.11

What has just been said should not be taken for facile, soothing optimism, but rather as a very serious warning. The easing of the strain referred to can only occur when the nature of the present, uncompromising clash between the liberal and the collectivist-anti-liberal principles has been clearly grasped and brought to an end. The non-collectivist world must to-day realize all the conditions on which the cessation of strain depends—the principal one being not to flirt with collectivism nor to make any concessions to it which go beyond the necessities of war economy. This is surely not an unreasonable demand, especially if it can be proved that the phantoms of economic chaos and paralysing depression after this war need not be dreaded, provided the line between the liberal and the collectivist anti-liberal principles is drawn with utmost firmness. The conviction that this confidence is well founded will contribute in no small measure to its being sanctioned by events, whereas a fatalist lack of faith in the future cannot but sustain the forces of collectivism and, by so doing, seem increasingly justified.

If our view is justified at all, it will also be necessary to drop the idea that the world must sink back after the war to the primitive, poverty of centuries past; that should be taken for the exaggeration it is, even if the war were to last for years and entail heavy material destruction. Every modern war—and not least the earlier world war—demonstrates the extraordinarily swift powers of regeneration inherent in our economic system, provided that its inner driving energy and ultimate material forces are left intact and that the actual loss in man-power does not amount to a sort of anaemia in the body of the nation. The heavy debts that must be expected to burden the countries most involved in the war need not prevent the enormous productive capacity of the capitalist world, little as it could be used during the depression of the last ten years, from getting into full swing once the tension is over, and coping with the gigantic demand for reconstruction following the war and ensuring more than adequate supplies for the whole population.

In all these directions we can easily worry unduly. The real problem lies elsewhere. We cannot really hope to oppose the collectivist anti-liberal doctrine successfully except by such a revival of the liberal principle as will offer a thoroughly satisfactory solution of all the recognized ills and defects of capitalism to-day without, however, impairing its essential working capacity. The liberal world will have done for good with international economic disintegration, with collectivism and the political tyranny bound up with it only when it shows it can solve in its own way the problems of the proletariat, the problems of big industry, monopoly, unemployment, and exploitation and all those mechanizing and devitalizing effects of capitalist civilization. What the economic system of the post-war period shall be depends largely upon our success in confronting collectivism with some really satisfactory and attractive alternative. Once the ultimate consequences of collectivism in this concluding phase of the conflict have become obvious to everybody, is it too much to hope that the world will be ready to hail the alternative as the word which breaks the spell?

The alternative programme is that which I have termed the “Third Way.” Its main outlines have already been indicated several times in this book. Let us conclude, however, by looking at it more closely and thus satisfying a desire which perhaps many readers will feel.

In order to see more clearly what is meant by the alternative programme of the Third Way we may do well first to examine the negative pole, i.e., that of economic and political collectivism. What we shall see there has become generally known by now: liberty and privacy being wiped out; mechanization and proletarianization driven to the extreme; society crushed into an amorphous mass; every individual held in unlimited subjection to the ruling group, with its arbitrary and ever-changing plans and programmes, for which man in his unique individuality and dignity counts for nothing, while power and the machinery of domination mean everything. No further explanation need be wasted on this general aspect of collectivism. There is an end to human dignity, liberty and justice, and to make the misery complete, there is material want and inefficiency into the bargain. We must recognize, however, that this collectivist condition of society is by no means an entirely new and revolutionary one. It is rather the last stage and consequence of a long pre-collectivist development characterized by increasing mechanization and proletarianization, by ever-greater concentration and centralization, by the growing domination of men by the “apparatus,” by the spread of monopolist octopuses, by the continuous decrease of independent modest existences and of vitally satisfactory forms of life and work, by more and more regimentation and organization. While the full story of this process cannot be recounted here, let us add that the whole western world has been living for a century on the cultural and moral reserves carefully accumulated like humus on farm land, and now social erosion is doing its pitiless work until in the worst cases—the collectivist countries—society has been turned into a social Dust-Bowl. The general features of this process are, indeed, common to the whole western world, although the degree to which it has advanced varies widely from country to country, and provides the criterion by which the power of resistance and the constitutional soundness of any given country can be judged. In some countries, however, the development had before the war already reached that last pre-collectivist stage which is characterized by an unhealthy degree of urbanization, a paralysing increase of monopolies, indiscriminate state control, and the infiltration of interest groups as ruthless and insolent as the wooers of Penelope—so much so that even the sensitive system of markets and prices began to fail to perform its constant and silent service.

It is no use denying that this process of creeping arteriosclerosis, which will finally end in the apoplexy of collectivism, has been going on during the period of the “liberal” world order. Nor is it possible for us Liberals to present the apologetic argument that the development in question could have happened only because the liberal programme of economic liberty was not carried through radically enough. Is economic liberty really the decisive issue? It is true enough that economic liberty is a necessary condition of the “Good Society,” but it would be too much to maintain that it is also a sufficient condition. Economic liberty is extremely important, but there is some danger in concentrating attention too exclusively on this point and thereby missing the decisive issue.

This decisive point becomes apparent if we now ask what the opposite pole of collectivism really is. Economic liberty? Hardly. Were the world to return to economic liberty nationally and internationally this would surely imply the end of all collectivism and of most monopolies, but would the other symptoms of disease be much affected? Would a country having scarcely any peasant proprietors, artisans or urban middle-class elements get them by economic liberty? Would the proletariat disappear? Would society become stable economically and socially? Would it be “just” in the most elementary sense? Would work and life recapture more sense and dignity? And if economic liberty cannot claim to achieve these aims, how can it be expected to arouse enthusiasm? Must we not offer something else?

Economic liberty is certainly an essential aspect and condition of personal liberty; it is impossible to imagine a society which is without economic liberty and not collectivist at the same time. Economic liberty, therefore, is an essential part of that constitution of society which is diametrically opposed to collectivism. But it is not the opposite pole itself.

The opposite pole lies in a society where the greatest possible number of men are leading a life based on private property, the sort of life which, providing real independence, enables men to be truly free and to regard economic liberty as a matter of course. At the same time it is a society to which the tone is given, not by pitiable proletarians (with or without white collars), not by the vassals of a new industrial feudalism or by state prebendaries, but by men who, thanks to the specific form of their life and work, have that poise and mental balance which we see in the best types of peasant farmers, craftsmen, small entrepreneurs in commerce and industry, men of the liberal professions, and honest and public-spirited soldiers and civil servants. These give the tone to society, not because they have usurped a dominating influence as a minority, but because they are so numerous as to shape the physiognomy of society. Whatever we may think of such a society, it ought to be impossible to deny that this is the real opposite pole of a modern collectivist society. A society, however, which is agglomerated in over-sized cities and industries, in trusts and monopolies and all the rest of it, is, in spite of economic liberty, already far on the road to collectivism. In the long run, it will hardly escape the fate of drifting to the end of this fatal road. It is the misery of “capitalism” not that some have capital, but that others have not, and for that reason are proletarianized. There are enough millenaries of recorded history behind us to teach us in the most unequivocal manner that whenever in their dark course the light of freedom, progress and humanity shines it was a period when a sufficient number of people had private property to enable them to throw off their economic dependence on the feudal lord, or—even worse perhaps—the state. Those periods of emancipation and enlightenment would have been impossible without the existence of a large bourgeoisie in that noble but now almost forgotten sense which brings it into a more than philological relationship with the term “civilization.” It lies with us whether or not one of the longest and most brilliant of these periods shall now come to an end like all its predecessors.

It is hoped that these remarks will have made clearer the kind of measures with which a policy of defending and restoring economic liberty after this war must be combined if we want to follow the Third Way. They will give a better idea of the salient points, of the underlying philosophy, and of the legitimate claims of men which are so often overlooked but which should at last be satisfied. Economic liberty, competition, private initiative, free trade, and the other principles of traditional liberalism are indispensable parts of any policy combating collectivism and monopolies, but there is hardly any hope, or perhaps even justification, for realizing those aims unless they are combined with a programme of a much wider range.

Such a programme must be comprehensive, multifarious, and elastic, independent of any cut-and-dried formula; and let nobody deceive himself that it will not take a long time before the pathological condition of Western society visibly improves. It is easy to clear a country of forests, but once the humus has been washed away, reforestation is a task which is by necessity slow and difficult and in extreme cases next to impossible. For more than a century we have thoughtlessly and wastefully exploited the mysterious “soil reserves” of society, and finally what happens to the soil has happened to society: it has become crusty and lumpy, the microcosmic organic life has disappeared, there is hyperacidity, and the humus accumulated in the course of centuries has gone. In some countries even the bare granite has come to the surface, but what about the others?

Let nobody deceive himself either as to the very radical nature of such a programme. To believe in collectivism of whatever variety has become rather a matter for indolent and unimaginative reactionaries to-day. It means standing for yesterday and for to-day, but not for to-morrow. It means carrying through to its end a development which has already been going on for a long time, which has given more than doubtful results, but which almost everywhere is being taken for granted in a fatalistic and unreflecting spirit. Collectivism is the exact opposite of something radical in the sense that it is something revolutionary stirring our imagination and making it worth while to set our heart and energy upon its realization; proceeding as it does without our assistance it reduces us to the inglorious rôle of the chorus in a Greek tragedy. It is the last ripple of the nineteenth century in its intellectual and material development, and it has always been somewhat surprising to see collectivism associated with the spirit of youth and intellectual adventure.

To develop in detail a programme of the Third Way would require a whole volume.12 That, however, is no excuse for silence. In addition to what has been said on this programme time and again in the course of the present book, let us, at the risk of tedious repetition, make a rapid survey of what it is all about: decentralization in the most comprehensive sense and in all conceivable fields; a policy of encouraging all natural tendencies working in favour of the smaller units of production and of the sociologically sound forms of life and work; reform of laws and of Jurisdiction for the purpose of preventing monopolies and concentration (by a radical revision of the laws on corporations, patents, bankruptcy, &c.); developing new non-proletarian forms of industry; reducing all dimensions and relations from the monstrous and superhuman to the human level; correcting all excesses in organization, specialization, and division of labour; restoration of property wherever and however possible; rational limitation of state intervention according to the rules and the sense of the market economy (“conformable” or “liberal” interventionism)—these are at least some hints giving a more concrete idea of the general direction in which we should march.

In confining ourselves perforce to mere hints at this point, we are fully aware of the danger of being understood only vaguely or even misunderstood. This danger will be the least in the case of readers living in countries where the economic and social structure is, in fundamental respects, rather near to what we have in mind. In this respect, Switzerland suggests itself as a particularly convenient example. It is well known that the conditions in this country are far from being ideal, but the fact should be stressed that the foundations are still essentially sound and that what is wrong and unhealthy appears still capable of being cured without difficulty—in contrast to the heavily pathological conditions in the leading industrial countries. Lately, the political structure of Switzerland in its democratic, multi-national and federal character has attracted the attention of those who are looking for a model to be used in the political reconstruction of Europe after this war. Why should we not similarly regard the economic and social constitution of this country as a model at least as useful for the economic and social reconstruction of the West?

This line of thought could be pursued much further. Let us never forget, however, that even more important than all strictly economic programmes and actions is the gigantic task of the moral, psychological and political “reconditioning” of society—a society which, everywhere, needs to remember the right order of values and the inexorable and universal character of the fundamental norms of human community. We may look forward with confidence to the result of this task if we see to it that society does not consist of men who, compressed by an unfit economic and social environment, have been disfigured to subhuman cripples. To say this may seem a strange way of ending a book on international economic disintegration, but only, we hope, to those who are in the habit of reading no more than the end of a book.

____________

13 The Swedish philologist, M. P. Nilsson, in his essay, The Age of the Early Greek Tyrants (Belfast, 1936), has recently contributed much to a better understanding of the social structure of tyranny in antiquity. The analogy between ancient and modern tyrannies must not, of course, be exaggerated, nor must it be overlooked that in ancient times it assumed very varied forms. The same applies to the well-known tyrants of the Italian Renaissance like Cola di Rienzi or Malatesta.

14 The great German sociologist, Max Weber (Wirtschaft und Gesellschaft, Grundriss der Sozialökonomik, vol. iii, Tübingen, 1921, pp. 140-148), coined the term and analysed the conception of the “charismatic Führer.” This chapter of Max Weber on “charismatic” government remains a locus classicus for an understanding of the modern collectivist state, and is extraordinarily relevant to-day.

15 This necessary distinction between dictatorship (“commissariai” dictatorship, to be more exact) and tyranny disposes also of the pessimistic prophecy that a war against tyrannies would force the democracies, if they want to be equal to their opponents, to adopt collectivism (tyranny). It is obvious that in such a case of extreme emergency a more or less authoritative direction of the state becomes unavoidable, as the present experience proves. But between such a “commissarial” dictatorship and tyranny there is a world of difference.

16 This is very clearly put in Benjamin Constant’s pamphlet: De l’ésprit de conquête et de l’usurpation (1st edn., Hanover, 1814), which is as up to date now as when it was written. This astonishing piece of writing is a reliable guide through all the confusion of our time which—on an infinitely lower level, granted—has so much in common with the Napoleonic period and which may indeed be regarded as its ultimate consequence. Constant rightly draws attention to the fact that genuine democracy can thrive without degenerating only in a restricted circle, one that permits the active collaboration of all the citizens and an effective integration of society—hence the great importance of the federal organization of democracy and of local self-government

17 See Constant’s De l’esprit de conquête et de l’usurpation for the best statement of the distinction between the legitimate and the usurped authority of the state.

18 “Un usurpateur est exposé à toutes les comparaisons que suggèrent les regrets, les jalousies ou les espérances; il est obligé de justifier son élévation: il a contracté l’engagement tacite d’attacher de grands résultats à une si grande fortune: il doit craindre de tromper l’attente du public, qu’il a si puissamment éveillée. L’inaction la plus raisonnable, la mieux motivée, lui devient un danger. Il faut donner aux Français tous les trois mois, disait un homme qui s’y entend bien, quelque chose de nouveau: il a tenu sa parole.” (Constant, op. cit., Part II, Chap. II.)

19 “Des sujets qui soupçonnent leurs maitres de duplicité et de perfidie se forment à la perfidie et à la duplicité: celui qui entend nommer le chef qui le gouverne un grand politique parce que chaque ligne qu’il publie est une imposture vent être à son tour un grand politique, dans une sphére plus subalterne; la vérité lui semble niaiserie, la fraude habilité. . . . Si cette contagion gagne un peuple essentiellement imitateur, un peuple où chacun craigne par-dessus tout de passer pour dupe, la morale privée tardera-t-elle à être engloutie dans le naufrage de la morale publique?” (Constant, op. cit., Part I, Chap. VIII.)

20 It appears relevant to point out here that the extent of the exhaustion of the moral and spiritual reserves varies from one collectivist state to another—a fact which makes it possible to classify them in a certain descending order. The greater the moral and cultural reserves remaining, the greater the inner resistance of the population to the tyranny; the less uncompromising the nature of the tyranny, the greater its moderation in international affairs; and in consequence all the greater will appear the possibility of a smooth return to a more normal form of government.

21 Frank H. Knight, in a review of Lippmann’s book, Journal of Political Economy, December, 1938, p. 869.

22 See especially Walter Lippmann: The Good Society, Boston, 1937, and F. A. von Hayek: Freedom and the Economic System, Chicago, 1939. Similar considerations had been developed in my article, “Sozialismus und politische Diktatur,” Neue, Zürcher Zeitung, 18th and 19th January, 1937.

23 As Mr. Keynes has sometimes been criticized, implicitly and explicitly, in the course of the present book, the author wants to emphasize all the more that with regard to that recent suggestion he is essentially on the side of Mr. Keynes, and against his critics.

24 The author will become more explicit on this point in a book shortly to be published by the Eugen Rentsch Verlag at Zurich.

• 1Cf. my paper “A Value Judgment on Value Judgments” in which I am explaining my attitude in this very important methodological question. It will probably be published in the “American Economic Review.”
• 2The following pages are largely based on a memorandum which the author wrote together with Professor Alexander Rüstow (University of Istanbul) in the summer of 1938.
• 3See also: W. Röpke, Die entscheidenden Probleme des weltwirtschaftlichen Verfalls, Zeitschrift für schweizerische Statistik und Volkswirtschaft, 1938, No. 4.
• 4In current literature there is already some evidence that the understanding of the scientific situation outlined above is growing. See E. F. M. Durbin, “Methods of Research—A Plea for Co-operation in the Social Sciences,” Economic Journal, June, 1938; A. Löwe, Economics and Sociology: a Plea for Co-operation in the Social Sciences, London, 1935: F. Akerman, Das Problem der sozialökonomischen Synthese, Lund, 1938. The essential things have been said on a wider scientific scale by A. N. Whitehead, Science and the Modern World, New York, 1926; and by Ortega y Gasset, El Tema de Nuestro, Tiempo, Madrid, 1923.
• 5See Der deutsche Aussenhandel unter der Einwirkung weltwirtschaftlicher Strukturwandlungen, l.c., pp. 362-363.
• 6The vast literature on this subject has recently been enriched by M. J. Bonn, The Crumbling of Empire, The Disintegration of World Economy, London, 1938; and by Lionel Robbins, The Economic Causes of War, London, 1939.
• 7See my own approaches to these problems given in the article: “Kapitalismus und Imperialismus,” Zeitschrift für schweizerische Statistik und Volkswirtschaft, 1934, pp. 370-386; and in my book Crises and Cycles, pp. 4-6.
• 8Cf. Röpke, Crises and Cycles, London, 1936, p. 88n.
• 9In anticipation of a probable objection, it may be noted that if the development caused by population increase is put under the heading “extensification,” the “intensification” referred to previously (pp. 11-12) appears inexact. In order to get “net intensification” that part would have to be deducted which is due to “vertical extensification,” an operation which is impossible.
• 10F. Hilgerdt (The Approach to Bilateralism—A Change in the Structure of World Trade, Index, August, 1935) gives about 20% as normal.
• 11A somewhat fuller description may be found in the Review of World Trade, 1934, League of Nations, Geneva, 1935, pp. 69-70.
• 12On the distinction between “conformable” and “non-conformable” interventions, see W. Röpke, Crises and Cycles, l.c., p. 195. The distinction has been used expressly with regard to protectionism by L. Einaudi, “Delle origini economiche della grande guerra, della crisi e delle diverse specie di piani,” Rivista de Storia Economica, 1937, No. 3.
• 13The 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.
• 14(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.
• 15As 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.
• 16The 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.
• 17That 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.
• 18There 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.
• 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.
• 20Full 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.
• 21There 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.
• 22World economy as an intercommunicating system was also a multilateral system, and this in a double sense which is not always duly recognized: (1) in the sense that a large part of the world’s commodity trade was actually carried on in a multilateral way; and (2) in the sense that almost the total world trade was virtually multilateral. The latter was at least just as important as the former, since the ever-present latent possibility to change from bilateral to multilateral interchange completed the intercommunicating character of world trade; but, whereas the actual multilateralism can be calculated statistically, the virtual, of course, can not. For this reason the multilateral character of world trade in the combined sense of actual and virtual multilateralism escapes quantitative measurement. All we can say is that it was multilateralism which made world trade possible as an intercommunicating system. It was multilateralism that enabled the industrial countries to procure by roundabout exports via third, fourth and more countries their raw materials and foodstuffs without any difficulties giving rise to a “problem of raw materials,” and at uniform world prices. And it was again multilateralism which enabled the countries producing raw materials to sell their products on a uniform world market, to pay interest and amortization on their foreign debts, and to keep up the value of their currencies without chronic difficulties. It is against this background that a picture of the actual scheme of international division of labour and of the complicated network of international trade relations of that period should be traced, with due emphasis on the basic differentiation between industrial and agricultural countries. At the same time, it should not be forgotten that this multilateral system found support in a number of essential conditions, of which the existence of an international monetary system (gold standard), the prevalence of equalizing clauses in commercial treaties (most-favoured-nation treatment, open-door policy, and in some cases national treatment), bearable duties, smoothness of the international credit machinery and a reasonable co-ordination of the movements of goods and capital were the outstanding ones.
• 23World economy as an intercommunicating system was also a multilateral system, and this in a double sense which is not always duly recognized: (1) in the sense that a large part of the world’s commodity trade was actually carried on in a multilateral way; and (2) in the sense that almost the total world trade was virtually multilateral. The latter was at least just as important as the former, since the ever-present latent possibility to change from bilateral to multilateral interchange completed the intercommunicating character of world trade; but, whereas the actual multilateralism can be calculated statistically, the virtual, of course, can not. For this reason the multilateral character of world trade in the combined sense of actual and virtual multilateralism escapes quantitative measurement. All we can say is that it was multilateralism which made world trade possible as an intercommunicating system. It was multilateralism that enabled the industrial countries to procure by roundabout exports via third, fourth and more countries their raw materials and foodstuffs without any difficulties giving rise to a “problem of raw materials,” and at uniform world prices. And it was again multilateralism which enabled the countries producing raw materials to sell their products on a uniform world market, to pay interest and amortization on their foreign debts, and to keep up the value of their currencies without chronic difficulties. It is against this background that a picture of the actual scheme of international division of labour and of the complicated network of international trade relations of that period should be traced, with due emphasis on the basic differentiation between industrial and agricultural countries. At the same time, it should not be forgotten that this multilateral system found support in a number of essential conditions, of which the existence of an international monetary system (gold standard), the prevalence of equalizing clauses in commercial treaties (most-favoured-nation treatment, open-door policy, and in some cases national treatment), bearable duties, smoothness of the international credit machinery and a reasonable co-ordination of the movements of goods and capital were the outstanding ones.
• 24World economy, with the free trade area of Great Britain as its nucleus, was untrammelled by prohibitive import duties. Protectionism had been on the increase ever since the ‘seventies and was becoming a more and more serious problem, and this increase was sowing the seed of disintegration. It cannot be denied, however, that up to 1914 state interference with foreign trade was kept within limits, which made it compatible with the working of the world economy as a highly integrated and intercommunicating system. Assimilable duties, most-favoured-nation treatment and the relative stabilization of commercial policy by long-term commercial treaties combined to bring this about. In this respect one must not be misled by the bitterness with which the struggle about protectionism was fought before the Great War. The issue was serious enough to justify some of this fierceness, but in the light of present experiences it must be admitted that prewar protectionism usually remained within the sphere of “conformable” interventions, so that the impression is justified that both liberals and protectionists had overrated the importance of the height of duties as such. It is a notable fact that world trade expanded by leaps and bounds just during the last period of pre-war capitalism, when protectionism was practically everywhere in the ascendancy. This proves that, up to 1914, in the race between the restrictive influence of protectionism and the expansive forces of world trade, the latter had kept the upper hand, and that if it was the aim of protectionism to hinder the growth of international economic integration it failed more flagrantly than liberalism in its opposite aim. Here is a problem which, in any case, deserves close and special study.