Studies in Economic Nationalism

CHAPTER I

WHAT IS ECONOMIC NATIONALISM?

I

C. K. Ogden, the great semanticist and inventor of “Basic English”, is reported to have commented on the saying: “words are convenient noises” by remarking that no more than one thousand of them have any precise meaning. This is particularly true of words relating to human affairs! The reason for this unsatisfactory state of affairs is not hard to find. Social relationships (political and economic) are extremely complex and involved; social “realities” are changing almost as fast as a student can commit their description to paper — or faster; emotions become involved in matters affecting the happiness, the prosperity, and the future of individuals and groups; and words often acquire explosive political qualities even before they are clearly defined. Add the fact that the situation, condition or relationship covered by a term changes frequently — and often imperceptibly — thereby causing an eventual need for redefinition, recognized only after more or less delay — if at all. Life has a way of breading homonyms without anyone becoming aware of them for a long time. The verbal jungle in which the man in the street and the social scientist both live has become in recent decades a very dangerous place indeed.

Words, as was well observed during the past war, are weapons. Indeed, there are words which are sticks of dynamite, just awaiting detonation. The “dynamite words” are the stock-in-trade of the demagogue and the scholar’s nightmare. Among them there are words which exist for evil purposes alone; and there are words which have a Jekyll-and-Hyde existence, now respectable terms with every appearance of objectivity (if not always of clarity), now slogan-like fighting words with which to inflame the mob. It has been my endeavour to avoid, as far as possible, all such terms. In this book, the principal theme of which is economic nationalism, I am concerned with the problems of collectivism and liberalism as well, an area in which many emotional words are in current use. For my part I use the term “collectivism”, rather than “socialism”, “fascism”, or “communism”. And I speak of “free enterprise”, of “liberalism”, and of the “market economy”, but avoid using the ambiguous term “capitalism”, especially without qualification. Concern for the clarity of the terms used in this book leads me, as I have been led in earlier writings, to devote particular attention to the problem of definitions. Both this and the following chapter have unavoidably a considerable “semantic” tinge. Yet to avoid misunderstanding is worth a moderate amount of what may strike some of my readers as excessive “pedantry”. Indeed the use of ambiguous words without a definition ought to come to be regarded as intellectual bad manners, and this not in academic circles alone.

II

After these preliminary observations, my first task is to define the term economic nationalism. Let us note in the first place that it relates to a set of national policies which regulate the relations between a country and the rest of the world. The policies covered by this term are very ancient, the term itself is of very recent origin. In the seventeenth and eighteenth centuries — indeed from the sixteenth century onward — one spoke of mercantilism or of the “mercantile system”. When the system was dismantled in the early part of the nineteenth century, the opposite to free trade was known as “protectionism”. During the reconstruction period which followed the end of World War I, “protectionism” was still the most widely used phrase. Although there may have been earlier uses of the term “economic nationalism”, the first instance that I have found, prominently displayed, is in the title of a book by Leo Pasvolsky, published by the Brookings Institution in Washington in 1928: Economic Nationalism of the Danubian States. It was after the outbreak of the Great Depression and the collapse of the precarious reconstruction of world economy achieved during the twenties, that the term economic nationalism began to be more widely used. It is found for example — and this is symptomatic — as the title of a small volume published in a reference series in New York, in 1933.1 It was in the thirties that the term economic nationalism, and the concept it covers came into general use as something considerably at variance with what was called “protectionism” during the nineteenth and the earlier part of the twentieth centuries. Wherein the difference lies will be seen presently. It may be briefly suggested here that the new notion of economic nationalism is closely bound up with the new collectivist philosophies — and policies — of the inter-war decades and expecially of the decades following 1930. Protectionism, in the older sense of the word, belonged to a liberal age. It was in conformity — and not in contradiction — with the operations of the price system, of the market economy and of individual private enterprise. Collectivism, as will also be shown below, is based on a philosophy of society at variance with the entire liberal tradition of the West.

III

To revert, however, to the task of providing a definition of the phrase: economic nationalism. We can do no better, to begin with, than to turn to the most authoritative student of this subject, Professor William E. Rappard. In his address on “Economic Nationalism” delivered at the Harvard Tercentenary Conference of Arts and Sciences, he made the following pertinent comments:

To define economic nationalism as the economics of nationalism would be neither accurate nor illuminating.

It would be inaccurate, because the policies which some acclaim as economic nationalism in their own country and which all denounce as such in their neighbours’ are today practised by all nations, not all of whom are animated by the spirit of nationalism. Nor would such a definition be illuminating, because nationalism itself would remain to be defined. Economic and political nationalism, if they cannot be regarded merely as two aspects of one and the same reality, are, however, so closely related one to the other that we can in no case avoid the necessity of defining the latter if we wish fully to understand the former.

Nationalism, then, is the doctrine which places the nation at the top of the scale of political values, that is, above the three rival values of the individual, of regional units, and of the international community.2

Professor Rappard goes on to say that “a nationalistic ruler of a nationalistic state will be more tempted to practise economic nationalism than a liberal ruler of an individualistic state”, but also observes that “contemporary economic nationalism… is by no means characteristic of nationalistic states alone.” It follows that “it can obviously not be correctly defined solely by reference to [political] nationalism.” 3 And so, having discarded the “obvious”, but incorrect, definition, our author pursues an inquiry into the economic literature of the past two centuries, and finally arrives at the following definition:

Il we wished to define economic nationalism by its underlying purpose, we should say that it was a doctrine destined to serves the nation by making it not richer, but freer, by promoting not its material welfare, but its independence of foreign influences. Economic nationalism is the policy of national self-sufficiency.4

Professor Rappard then proceeds to show how this definition of economic nationalism as a policy destined to promote national self-sufficiency may be justified both by the pronouncements of its leading exponents and by the analysis of the measures taken to attain its aims. The latter are summarized as follows:

First, economic nationalism seeks to limit the nation’s consumption to those goods which are the fruit of its own soil and labour. By appeals to patriotism, as well as by the more drastic and effective means of tariffs, quotas, exchange controls, and outright prohibitions, nations are urged to prefer national products and constrained to forgo the enjoyment of foreign commodities and services.

Secondly, economic nationalism seeks to promote the domestic production of all those commodities for which the national needs are imperative. …

Thirdly, … economic nationalism is apt to raise the cry for more space, that is, for annexations of neighboring or colonial territories….

As no measure of restriction of imports, of stimulation of home products, and of territorial expansion can possibly make any state entirely self-sufficient under modern conditions, economic nationalism seeks, fourthly, to secure a favourable balance of payments, and thereby to promote an influx of gold. In this, as all other respects, present-day economic nationalists show themselves to be the legitimate offspring of their mercantilist ancestry.5

Thus economic nationalism is not only defined with precision but also illustrated through its major policies. Some further elucidations may, however, be in order. In the first place, let us distinguish between self-sufficiency (or autarky 6), as an objective of policy, and self-sufficiency as a by-product of a policy which has primarily other objectives in mind. Thus, for example, tariff protection granted to some industry for the sake of conciliating politically influential elements results in reducing the country’s imports of corresponding foreign-made products and, accordingly, increases the country’s self- sufficiency — but autarky is not the deliberate aim of most policies of “straight” tariff protection. The protection of “vested interests” apart (which, although it leads to an aggravation of economic nationalism, is not essenially an expression of it), these are the three principal reasons why a country might strive for self-sufficiency:

(a) The desire to be as independent as possible of sources of supply that lie outside the country’s control, in order to be strong in war. For most governments which contemplate aggressive warfare, autarky is a prelude to conquest — and, as will be shown later7, conquest is a means to achieve autarky.

(b) The desire to achieve a greater degree of diversification of production and a better-balanced national economy. Such diversification is here regarded as a means of increasing both national prosperity and national power. These policies are often considered by their advocates to be temporary, albeit of indefinitely long duration. 8

(c) The desire to plan the economic life of the country as independently as possible of the condition of the world economy. Here autarky becomes a policy, if not of economic isolation, at least of economic insulation.

These motivations and their implications are examined in later chapters of this book. For the present it will suffice to identify each line of thought by the name or names of its leading exponents. Thus the autarky of power and conquest goes back to the days of the mercantilists, but its most consistent intellectual framework was formulated by the German philosopher Joham Gottlieb Fichte (1800). Policies aimed at developing a country’s industries by deliberately restricting its imports were first consistently formulated by Alexander Hamilton (1791) and later — and more fully — by the German economist Friedrich List (1841). The concept of economic insulation is much more recent and has many modern advocates, none of whom has been more brilliant or more influential than the la Lord Keynes. 9

In this century, argument (b) was very often used in the twenties, argument (a) in the thirties (especially by Fascist Italy and Nazi Germany, not forgetting the Soviet Union, which uses it still), while a combination of arguments (a) and (c) is a “creed” very widely accepted since the Great Depression and to the present day. It is a combination typical of the contemporary convergence of economic nationalism and collectivism. Its adherents favour policies of autarky not so much because they desire national insulation for its own sake as because they want to be free from the “disturbing effects” of international economic interdependence. Believing, as they do, in the virtues of States control over economic life, they distrust economic developments which, because they occur abroad, cannot be subjected to national control in the way in which purely domestic developments are so subjected.

IV

Before pursuing any further this inquiry into the nature of economic nationalism, let me comment very briefly on nationalism tout court. The subject is wide — too wide indeed to be treated here in any detail. The following two quotations, however, taken from the writings of careful and profound students of nationalism, express a point of view which should be submitted to the readers of these pages.

The first quotation is from Professor Toynbee’s A Study of History:

Industrialism and Nationalism, rather than Industrialism and Democracy, are the two forces which have exercised domination de facto over our Western Society in our age; and during the century that ended about A.D. 1875, the Industrial Revolution and the contemporary emergence of Nationalism in the Western World were working together to build up “Great Powers” each of which claimed to be a universe in itself. Of course this claim was false… Every Great Power also aspired to be a substitute for Society in the sense of being self-contained and self-sufficient, not only in politics and economic but even in spiritual culture. The state of mind thus engendered among the people of communities which constituted Great Powers spread to communities of lesser calibre. In that age in the history of our Western Society all national states, from the greatest down to the least, put forward the same claim to be enduring entities, each sufficient unto itself and independent of the rest of the world.10

This tendency, Professor Toynbee noted, was checked through the consequences of World War I. Writing in the early thirties he found that “all States alike are feeling less and less able to stand by themselves economically”, and that “all but the strongest or the most recalcitrant states are also beginning to feel the same lack of self-sufficiency on the political plane and are displaying a readiness… to accomodate their sovereign independence to the international procedure of the League of Nations Council and Assembly or to some other form of international limitation and control…” 11

In the later thirties this hopeful tendency was again reversed and autarky became the most potent and widespread slogan; and since the end of World War II the quest for a revival of an international consciousness in all nations is marred by the virulence of nationalism in general and economic nationalism in particular.

The second quotation is from the pen of Professor Rappard:

Nationalism has been defined as a scheme of moral values in which the nation or the nation state stands supreme. On the one hand, the nation is superior to the individual—hence, in totalitarian nationalisms, the repudiation of all political freedoms and the denial of all constitutional rights. On the other hand, the nation is also superior to humanity—hence the opposition to all efforts to organize the international community, the revolt against all endeavours to limit national sovereignty. The deliberate subordination of the individual and of humanity at large to the nation, administrative centralization too, that is to say, the sacrificing of all regionalism to national unity, such, it appears to me, is the fundamental doctrine of philosophic and political nationalism which today dominates and disrupts the world.12

This, then, in all its distressing rawness, is the moral climate of modern nationalism.

V

Additional light may be thrown on the notion of economic nationalism by relating this concept to that of “national economic policy”. It would seem superfluous to elaborate what surely ought to be clear to all, were it not that symptoms of unexpected confusion occasionally appear in this connection. Thus, to quote from personal experience, a reviewer discussing a previous book of mine13 and having reproached me with “never clearly defining” the concept of nationalism, went on as follows:

If we take it [the concept of nationalism] to mean broadly promotion of national interest, it is difficult to square its alleged maleficence with the persuasive argument made for international cooperation as the means of enhancing the selfsame interest. If only the narrow manifestations of nationalism are being attacked and a distinction is inferred between the pursuit of real and illusory self-interest, the wholesale condemnation must be qualified. Although a policy of co-operation is more prudent than one of isolation, both can be considered nationalistic.14

The above is an illuminating instance of how greatly the notions of “nationalism” and “national policy” can become mixed. To resolve the confusion and thereby provide the reader with a further insight into what economic nationalism is, may I be excused for quoting the following observations from an earlier volume of mine; they were written twenty years ago and express the attitude I have maintained throughout my studies of economic nationalism:

In a world divided into a certain number of sovereign States, policies are national. They are national not only when they are independent of policies carried out by other States, but also when national policies of the different States (some or all) are co-ordinated and harmonized with one another. It may seem a commonplace, but it is essential to realize that even policies resulting from an international agreement are national policies. What can be called an “international policy” is a set of co-ordinated national policies, the aims and means of which are combined into an alleged harmonius whole. We can then describe the individual national policies as “internationalism”. The difference between that and nationalism is to be found in the fact that the latter subordinates the state of international relations to the realization of purely national objectives. 15

All policies, then, are national policies16 — but they can be guided by a nationalistic concept of national interest or by an internationally inspired concept. A government can adopt policies of autarky, of insulation, of protectionism — or policies of international cooperation or even free trade. The former will be an expression of economic nationalism — not the latter. The relationship between the individual and the state also has a great impact upon the nature of national economic policies directed towards the outside world. The smaller the powers of the government in economic matters, the freer are individuals in their commercial and financial relations, and the less opportunity there exists for practices of economic nationalism. The larger, on the other hand, the government’s powers to control and restrict the economic activities of individuals, the more scope there is for nationalistic policies. Indeed, there is a clear connection between economic internationalism and liberalism, on the one hand, and economic nationalism and collectivism, on the other. It is these two concepts, collectivism and liberalism, which I shall endeavour to define, in Chapter II, in their relation to economis nationalism.

VI

The line of thought developed in the previous section of this chapter might lead to a definition of economic nationalism wider than that proposed by Professor Rappard. Thus economic nationalism might be defined as all those national policies which tend to make the economic intercourse between residents of a country and people living beyond its boundaries more difficult than is economic intercourse among people living within the country. Now this definition would include protectionism within the concept of economic nationalism, which thus might appear at first glance to be a distinct advantage. The more restrictive definition, by equating economic nationalism with policies aimed at national self-sufficiency, excludes from its scope policies which interfere with international economic relations but without effectively insulating a country from the outside world. For a long time my own preference has run to the wider concept, which seemed to me to be “operationally” simpler and more objective than the concept covered by the narrower definition. By degrees, however, I have reached the conclusion that the narrower definition is more helpful for the understanding of the modern world. This is so because the major modern phenomenon, that of collectivism, ties in closely with the narrower, but does not necessarily tie in at all with the broader, definition of economic nationalism. The crux of the matter is the interpretation of the nineteenth century brand of protectionism. Is it or is it not to be brought under the definition of economic nationalism?

At first glance the question may surprise or even shock; for was not the long nineteenth century controversy between protectionism and free trade, a controversy between economic nationalism and economic internationalism? In an earlier book17, I made a distinction between what I called “old-fashioned protectionism” and what I described as “the new economic nationalism”. The dividing line between the two I found, historically, to lie in the crisis of economic liberalism in the course of the Great Depression of the thirties. By following that approach to its logical conclusions we are led to a distinction between the nineteenth century type of protectionism, respectful of the free market mechanism, of international interdependence and of private enterprise, and the economic nationalism of an autarkic kind, characteristic of the past three decades and very prevalent today.

It could be objected that Alexander Hamilton, the father of the “infant industries” argument for tariff protection, and Friedrich List, as well as their numerous followers in the nineteenth century, all argued on national and even nationalistic grounds in favour of promoting the industrial development of what would be called to-day “underdeveloped countries”, by means of tariff protection. The aim of these writers was to foster industrialization and the diversification of production in the less advanced countries beyond what could be achieved under free trade conditions. Yet not even List — who was by far the greater nationalist of the two — advocated national self-sufficiency. He did not even refer in his writings to Fichte’s book Der geschlossne Handelsstaat (1800), that early blueprint for the extreme forms of modern economic nationalism (see below, Chapter V). Although Professor Jacob Viner described List as “the apostle of economic nationalism” 18, the latter did not advocate any means of economic action more restrictive than customs duties. Specifically, List did not advocate reviving the “direct” controls practiced by mercantilist states, which would interfere with the functioning of the price mechanism, nor, indeed any of the more authoritarian measures favoured by Fichte. Accordingly, while agreeing that List was one of the main apostles of protectionism in the nineteenth century, I hesitate to declare him a forefather of economic nationalism within the more restricted and more recent definition of that term adopted in the present book.

VII

I now turn to what is one of the most important aspects of economic nationalism in the contemporary world, namely, monetary nationalism. There is no better way to insulate a national economy from the rest of the world than to cut off its currency from organic links with the currencies of other countries. This can be accomplished either by freely fluctuating exchange rates, or, more expeditiously, by exchange control. It is not my object in the present book to discuss the problem of monetary nationalism in detail19, but its basic importance in the present context must be emphasized at this point. The monetary systems of the mercantilist era, consisting of, rather than based on, precious metals, did not really lend themselves to policies of national monetary insulation. One cannot but marvel at the intuition and foresight of Fichte, whose blueprint includes (as will presently be shown) the principal tenets of modern monetary nationalism. In brief, national economic planning (for whatever purpose), as widely practised in the modern world, requires the insulation of the national economy from outside influences by means of direct controls on foreign trade and the pursuit of “independent” national monetary policies. Accordingly, there is a basic conflict in our day between, on the one hand, the pursuit of the objectives of economic nationalism and, on the other, the maintenance of currency convertibility and of membership in an international monetary system based on the gold standard. It is not surprising, therefore, to see that the modern advocates of stimulating by national planning the industrial development of a country, favour monetary nationalism along with other measures, indeed as a condition for effective national planning. More about this in Chapter VII.

To conclude this long discussion of the concept of economic nationalism, the following definition may be proposed: economic nationalism is a body of economic policies aimed at the loosening of the organic links between economic processes taking place within the boundaries of a country and those taking place beyond these boundaries. This definition involves the notion of insulating — though not necessarily isolating — a country from the rest of the world. It involves the notion of a country’s seeking more “autonomy” in its economic life than it would have in a well-knit system of economic internationalism. Even though self-sufficiency, in the fullest implications of that term, is not within the reach of most countries (if of any country at all!), a movement in the direction of greater self-sufficiency is possible for any country if it accepts the loss of living standards which such a policy entails. In other words, whereas self-sufficiency is largely unattainable, a quest for self-sufficiency is always possible. This is what is meant by “insulation” as distinct from “isolation”. The aims of such policy may, as has been noted above, be military, or they may be peaceable. In the former case the objectives are those of preparing for a war of aggression while remaining able to withstand enemy blockade; or of being in a better position to resist foreign aggression of which one is the victim; or of maintaining one’s position in a war to which one is not a party. In the latter case the policy may be determined by objectives of economic development or of full employment or any other aims that national economic planning may have. Whatever their purpose, policies of economic nationalism are most effectively carried out behind the screen of monetary controls, such as exchange restrictions, or of direct controls over a country’s external trade. Tariffs are a relatively inefficient method of insulating a national economy and play only a subsidiary role in countries which have embarked on the path of all-out economic nationalism.

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