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THE DIMINISHING FACTOR OF PHYSICAL FORCE: PSYCHOLOGICAL RESULTS

261

VI.

THE STATE AS A PERSON: A FALSE ANALOGY AND ITS CONSEQUENCES

296

PART III

THE PRACTICAL OUTCOME

I. THE RELATION OF DEFENCE TO AGGRESSION 329

II. ARMAMENT, BUT NOT ALONE ARMAMENT 341

III. IS THE POLITICAL REFORMATION POSSIBLE? 353

IV. METHODS 368

APPENDIX ON RECENT EVENTS IN EUROPE 383

[Pg xvi]

PART I

THE ECONOMICS OF THE CASE

CHAPTER I

STATEMENT OF THE ECONOMIC CASE FOR WAR PAGES

Where can the Anglo-German rivalry of armaments end?--Why peace advocacy fails--Why it deserves to fail--The attitude of the peace advocate--The presumption that the prosperity of nations depends upon their political power, and consequent necessity of protection against aggression of other nations who would diminish our power to their advantage--These the universal axioms of international politics 3-13

CHAPTER II

THE AXIOMS OF MODERN STATECRAFT

Are the foregoing axioms unchallengeable?--Some typical statements of them--German dreams of conquest--Mr. Frederic Harrison on results of defeat of British arms and invasion of England--Forty millions starving 14-27

CHAPTER III

THE GREAT ILLUSION

These views founded on a gross and dangerous misconception--What a German victory could and could not accomplish--What an English victory could and could not accomplish--The optical illusion of conquest--There can be no transfer of wealth--The prosperity of the little States in Europe--German Three per Cents. at 82 and Belgian at 96--Russian Three and a [Pg xvii] Half per Cents. at 81, Norwegian at 102--What this really means--If Germany annexed Holland, would any German benefit or any Hol-

lander?--The "cash value" of Alsace-Lorraine 28-49

CHAPTER IV

THE IMPOSSIBILITY OF CONFISCATION

Our present terminology of international politics an historical survival--Wherein modern conditions differ from ancient--The profound change effected by Division of Labor--The delicate interdependence of international finance--Attila and the Kaiser--What would happen if a German invader looted the Bank of England--German trade dependent upon English credit--Confiscation of

an enemy's property an economic impossibility under modern conditions--Intangibility of a community's wealth 50-67

CHAPTER V

FOREIGN TRADE AND MILITARY POWER

Why trade cannot be destroyed or captured by a military Power--What the processes of trade really are, and how a navy affects them--Dreadnoughts and business--While Dreadnoughts protect British trade from hypothetical German warships, the real Ger-man merchant is carrying it off, or the Swiss or the Belgian--The "commercial aggression" of Switzerland--What lies at the bottom of the futility of military conquest--Government brigandage becomes as profitless as private brigandage--The real basis of commercial honesty on the part of Government 68-87

CHAPTER VI

THE INDEMNITY FUTILITY

[Pg xviii]The real balance-sheet of the Franco-German War--Disregard of Sir Robert Giffen's warning in interpreting the figures-- What really happened in France and Germany during the decade following the war--Bismarck's disillusionment--The necessary discount to be given an indemnity--The bearing of the war and its result on German prosperity and progress 88-106

CHAPTER VII

HOW COLONIES ARE OWNED

Why twentieth-century methods must differ from eighteenth--The vagueness of our conceptions of statecraft--How Colonies are "owned"--Some little-recognized facts--Why foreigners could not fight England for her self-governing Colonies--She does not "own" them, since they are masters of their own destiny--The paradox of conquest: England in a worse position in regard to her own Colonies than in regard to foreign nations--Her experience as the oldest and most practised colonizer in history--Recent French experience--Could Germany hope to do what England cannot do 107-130

CHAPTER VIII

THE FIGHT FOR "THE PLACE IN THE SUN"

How Germany really expands--Where her real Colonies are--How she exploits without conquest--What is the difference between

an army and a police force?--The policing of the world--Germany's share of it in the Near East 131-151 [Pg xix]

PART II

THE HUMAN NATURE AND MORALS OF THE CASE

CHAPTER I

THE PSYCHOLOGICAL CASE FOR WAR

The non-economic motives of war--Moral and psychological--The importance of these pleas--English, German, and American exponents--The biological plea 155-167

CHAPTER II

THE PSYCHOLOGICAL CASE FOR PEACE

The shifting ground of pro-war arguments--The narrowing gulf between the material and moral ideals--The non-rational causes of war--False biological analogies--The real law of man's struggles: struggle with Nature, not with other men--Outline sketch

of man's advance and main operating factor therein--The progress towards elimination of physical force--Co-operation across frontiers and its psychological result--Impossible to fix limits of community--Such limits irresistibly expanding--Break-up of State homogeneity--State limits no longer coinciding with real conflicts between men 168-197

CHAPTER III

UNCHANGING HUMAN NATURE

The progress from cannibalism to Herbert Spencer--The disappearance of religious oppression by Government--Disappearance of the duel--The[Pg xx] Crusaders and the Holy Sepulchre--The wail of militarist writers at man's drift away from militancy

198-221

CHAPTER IV

DO THE WARLIKE NATIONS INHERIT THE EARTH?

The confident dogmatism of militarist writers on this subject--The facts--The lessons of Spanish America--How conquest makes for the survival of the unfit--Spanish method and English method in the New World--The virtues of military training--The Dreyfus case--The threatened Germanization of England--"The war which made Germany great and Germans small" 222-260

CHAPTER V

THE DIMINISHING FACTOR OF PHYSICAL FORCE: PSYCHOLOGICAL RESULTS

Diminishing factor of physical force--Though diminishing, physical force has always had an important role in human affairs-- What is underlying principle, determining advantageous and disadvantageous use of physical force?--Force that aids co-operation in accord with law of man's advance: force that is exercised for parasitism in conflict with such law and disadvantageous for both parties--Historical process of the abandonment of physical force--The Khan and the London tradesman--Ancient Rome and modern Britain--The sentimental defence of war as the purifier of human life--The facts--The redirection of human pugnacity

261-295

CHAPTER VI

THE STATE AS A PERSON: A FALSE ANALOGY AND ITS CONSEQUENCES

[Pg xxi]Why aggression upon a State does not correspond to aggression upon an individual--Our changing conception of collective responsibility--Psychological progress in this connection--Recent growth of factors breaking down the homogeneous personality

of States 296-325

PART III

THE PRACTICAL OUTCOME

CHAPTER I

THE RELATION OF DEFENCE TO AGGRESSION

Necessity for defence arises from the existence of a motive for attack--Platitudes that everyone overlooks--To attenuate the motive for aggression is to undertake a work of defence 329-340

CHAPTER II

ARMAMENT, BUT NOT ALONE ARMAMENT

Not the facts, but men's belief about facts, shapes their conduct--Solving a problem of two factors by ignoring one--The fatal outcome of such a method--The German Navy as a "luxury"--If both sides concentrate on armament alone 341-352

CHAPTER III

IS THE POLITICAL REFORMATION POSSIBLE?

Men are little disposed to listen to reason, "therefore we should not talk reason"--Are men's ideas immutable? 353-367

CHAPTER IV METHODS

[Pg xxii]Relative failure of Hague Conferences and the cause--Public opinion the necessary motive force of national action--That opinion only stable if informed--"Friendship" between nations and its limitations--America's role in the coming "Political Reformation" 368-382

Appendix on Recent Events in Europe 383-406

Index 407-416 [Pg 1]

PART I

THE ECONOMICS OF THE CASE [Pg 2]

[Pg 3] CHAPTER I

STATEMENT OF THE ECONOMIC CASE FOR WAR

It is generally admitted that the present rivalry in armaments in Europe--notably such as that now in progress between England and Germany--cannot go on in its present form indefinitely. The net result of each side meeting the efforts of the other with similar efforts is that at the end of a given period the relative position of each is what it was originally, and the enormous sacrifices of both have gone for nothing. If as between England and Germany it is claimed that England is in a position to maintain the lead because she has the money, Germany can retort that she is in a position to maintain the lead because she has the population, which must, in

the case of a highly organized European nation, in the end mean money. Meanwhile, neither side can yield to the other, as the[Pg 4]

one so doing would, it is felt, be placed at the mercy of the other, a situation which neither will accept.

There are two current solutions which are offered as a means of egress from this impasse. There is that of the smaller party, regarded in both countries for the most part as one of dreamers and doctrinaires, who hope to solve the problem by a resort to general disarmament, or, at least, a limitation of armament by agreement. And there is that of the larger, which is esteemed the

more practical party, of those who are persuaded that the present state of rivalry and recurrent irritation is bound to culminate in an armed conflict, which, by definitely reducing one or other of the parties to a position of manifest inferiority, will settle the thing for at least some time, until after a longer or shorter period a state of relative equilibrium is established, and the whole process will be recommenced da capo.

This second solution is, on the whole, accepted as one of the laws of life: one of the hard facts of existence which men of ordinary courage take as all in the day's work. And in every country those favoring the other solution are looked upon either as people who fail to realize the hard facts of the world in which they live, or as people less concerned with the security of their country than with upholding a somewhat emasculate ideal; ready to weaken the defences of their own country on no better assurance than that the prospective enemy will not be so wicked as to attack them.

To this the virile man is apt to oppose the law of[Pg 5] conflict. Most of what the nineteenth century has taught us of the evolution of life on the planet is pressed into the service of this struggle-for-life philosophy. We are reminded of the survival of the fittest,

that the weakest go to the wall, and that all life, sentient and non-sentient, is but a life of battle. The sacrifice involved in armament is the price which nations pay for their safety and for their political power. The power of England has been the main condition of her past industrial success; her trade has been extensive and her merchants rich, because she has been able to make her political and military force felt, and to exercise her influence among all the nations of the world. If she has dominated the commerce of the world,

it is because her unconquered navy has dominated, and continues to dominate, all the avenues of commerce. This is the currently

accepted argument.

The fact that Germany has of late come to the front as an industrial nation, making giant strides in general prosperity and well-being, is deemed also to be the result of her military successes and the increasing political power which she is coming to exercise in Continental Europe. These things, alike in England and in Germany, are accepted as the axioms of the problem, as the citations given in the next chapter sufficiently prove. I am not aware that a single authority of note, at least in the world of workaday politics, has ever challenged or disputed them. Even those who have occupied prominent positions in the propaganda of peace are at one with the veriest fire-eaters[Pg 6] on this point. Mr. W.T. Stead was one of the leaders of the big navy party in England. Mr. Frederic Harrison, who all his life had been known as the philosopher protagonist of peace, declared recently that, if England allowed Germany to get ahead of her in the race for armaments, "famine, social anarchy, incalculable chaos in the industrial and financial world, would be the inevitable result. Britain may live on ... but before she began to live freely again she would have to lose half her population, which she could not feed, and all her overseas Empire, which she could not defend.... How idle are fine words about retrenchment, peace, and brotherhood, whilst we lie open to the risk of unutterable ruin, to a deadly fight for national existence, to war in its most destructive and cruel form." On the other side we have friendly critics of England, like Professor von Schulze-Gaevernitz, writing: "We want

our [i.e. Germany's] navy in order to confine the commercial rivalry of England within innocuous limits, and to deter the sober sense of the English people from the extremely threatening thought of attack upon us.... The German navy is a condition of our bare existence and independence, like the daily bread on which we depend not only for ourselves, but for our children."

Confronted by a situation of this sort, one is bound to feel that the ordinary argument of the pacifist entirely breaks down; and it breaks down for a very simple reason. He himself accepts the premise which has just been indicated--viz., that the victorious party in the struggle for political predominance gains[Pg 7] some material advantage over the party which is conquered. The proposition even to the pacifist seems so self-evident that he makes no effort to combat it. He pleads his case otherwise. "It cannot be denied, of course," says one peace advocate, "that the thief does secure some material advantage by his theft. What we plead is that if the two

parties were to devote to honest labor the time and energy devoted to preying upon each other, the permanent gain would more than offset the occasional booty."

Some pacifists go further, and take the ground that there is a conflict between the natural law and the moral law, and that we must

choose the moral even to our hurt. Thus Mr. Edward Grubb writes:

Self-preservation is not the final law for nations any more than for individuals.... The progress of humanity may demand the extinction (in this world) of the individual, and it may demand also the example and the inspiration of a martyr nation. So long as the Divine providence has need of us, Christian faith requires that we shall trust for our safety to the unseen but real forces of right dealing, truthfulness, and love; but, should the will of God demand it, we must be prepared, as Jeremiah taught his nation long ago, to give up even our national life for furthering those great ends "to which the whole creation moves."

This may be "fanaticism," but, if so, it is the fanaticism of Christ and of the prophets, and we are willing to take our places along with them.[1]

[Pg 8]

The foregoing is really the keynote of much pacifist propaganda. In our own day, Count Tolstoi has even expressed anger at the sug-

gestion that any reaction against militarism, on other than moral grounds, can be efficacious.

The peace advocate pleads for "altruism" in international relationships, and in so doing admits that successful war may be to the interest, though the immoral interest, of the victorious party. That is why the "inhumanity" of war bulks so largely in his propaganda, and why he dwells so much upon its horrors and cruelties.

It thus results that the workaday world and those engaged in the rough and tumble of practical politics have come to look upon the peace ideal as a counsel of perfection, which may one day be attained when human nature, as the common phrase is, has been improved out of existence, but not while human nature remains what it is. While it remains possible to seize a tangible advantage by a man's strong right arm the advantage will be seized, and woe betide the man who cannot defend himself.

Nor is this philosophy of force either as conscienceless, as brutal, or as ruthless as its common statement would make it appear. We know that in the world as it exists to-day, in spheres other than those of international[Pg 9] rivalry, the race is to the strong, and the weak get scant consideration. Industrialism and commercialism are as full of cruelties as war itself--cruelties, indeed, that are longer drawn out, more refined, though less apparent, and, it may be, appealing less to the common imagination than those of war. With whatever reticence we may put the philosophy into words, we all feel that conflict of interests in this world is inevitable, and that what is an incident of our daily lives should not be shirked as a condition of those occasional titanic conflicts which mould the history of the world.

The virile man doubts whether he ought to be moved by the plea of the "inhumanity" of war. The masculine mind accepts suffering, death itself, as a risk which we are all prepared to run even in the most unheroic forms of money-making; none of us refuses

to use the railway train because of the occasional smash, to travel because of the occasional shipwreck, and so on. Indeed, peaceful industry demands a heavier toll even in blood than does a war, fact which the casualty statistics in railroading, fishing, mining and seamanship, eloquently attest; while such peaceful industries as fishing and shipping are the cause of as much brutality.[2] The peaceful administration[Pg 10] of the tropics takes as heavy a toll in the health and lives of good men, and much of it, as in the West of Africa, involves, unhappily, a moral deterioration of human character as great as that which can be put to the account of war.

Beside these peace sacrifices the "price of war" is trivial, and it is felt that the trustees of a nation's interests ought not to shrink from paying that price should the efficient protection of those interests demand it. If the common man is prepared, as we know he is, to risk his life in a dozen dangerous trades and professions for no object higher than that of improving his position or increasing his income, why should the statesman shrink from such sacrifices as the average war demands, if thereby the great interests which have been confided to him can be advanced? If it be true, as even the pacifist admits that it may be true, that the tangible material interests of a nation can be advanced by warfare; if, in other words, warfare can play some large part in the protection of the interests of humanity, the rulers of a courageous people are justified in disregarding the suffering and the sacrifice that it may involve.

Of course, the pacifist falls back upon the moral[Pg 11] plea: we have no right to take by force. But here again the common sense of ordinary humanity does not follow the peace advocate. If the individual manufacturer is entitled to use all the advantages which great financial and industrial resources may give him against a less powerful competitor, if he is entitled, as under our present industrial scheme he is entitled, to overcome competition by a costly and perfected organization of manufacture, of advertisement, of sales-manship, in a trade in which poorer men gain their livelihood, why should not the nation be entitled to overcome the rivalry of other nations by utilizing the force of its public services? It is a commonplace of industrial competition that the "big man" takes advantage of all the weaknesses of the small man--his narrow means, his ill-health even--to undermine and to undersell. If it were true that industrial competition were always merciful, and national or political competition always cruel, the plea of the peace man might be unanswerable; but we know, as a matter of fact, that this is not the case, and, returning to our starting-point, the common man feels that he is obliged to accept the world as he finds it, that struggle and warfare, in one form or another, are among the conditions of life, conditions which he did not make. Moreover he is not at all sure that the warfare of arms is necessarily either the hardest or the most cruel form of that struggle which exists throughout the universe. In any case, he is willing to take the risks, because he feels that military predominance gives him a real and tangible advantage,[Pg 12] a material advantage translatable into terms of general social well-being, by enlarged commercial opportunities, wider markets, protection against the aggression of commercial rivals, and

so on. He faces the risk of war in the same spirit as that in which a sailor or a fisherman faces the risk of drowning, or a miner that

of the choke damp, or a doctor that of a fatal disease, because he would rather take the supreme risk than accept for himself and

his dependents a lower situation, a narrower and meaner existence, with complete safety. He also asks whether the lower path is altogether free from risks. If he knows much of life he knows that in very many circumstances the bolder way is the safer way.

That is why it is that the peace propaganda has so signally failed, and why the public opinion of the countries of Europe, far from restraining the tendency of their Governments to increase armaments, is pushing them into still greater expenditure. It is universally assumed that national power means national wealth, national advantage; that expanding territory means increased opportunity for industry; that the strong nation can guarantee opportunities for its citizens that the weak nation cannot. The Englishman, for instance, believes that his wealth is largely the result of his political power, of his political domination, mainly of his sea power; that Germany with her expanding population must feel cramped; that she must fight for elbow-room; and that if he does not defend himself he will illustrate that universal law which makes of every stomach a graveyard.[Pg 13] He has a natural preference for being the diner rather than the dinner. As it is universally admitted that wealth and prosperity and well-being go with strength and power and national greatness, he intends, so long as he is able, to maintain that strength and power and greatness, and not to yield it even

in the name of altruism. And he will not yield it, because should he do so it would be simply to replace British power and greatness by the power and greatness of some other nation, which he feels sure would do no more for the well-being of civilization as a whole than he is prepared to do. He is persuaded that he can no more yield in the competition of armaments, than as a business man or as

a manufacturer he could yield in commercial competition to his rival; that he must fight out his salvation under conditions as he finds

them, since he did not make them, and since he cannot change them.

Admitting his premises--and these premises are the universally accepted axioms of international politics the world over--who shall say that he is wrong?

[Pg 14] CHAPTER II

THE AXIOMS OF MODERN STATECRAFT

Are the axioms set out in the last chapter unchallengeable?

Is it true that the wealth, prosperity and well-being of a nation depend upon its military power, or have necessarily anything whatever to do therewith?

Can one civilized nation gain moral or material advantage by the military conquest of another? Does conquered territory add to the wealth of the conquering nation?

Is it possible for a nation to "own" the territory of another in the way that a person or corporation would "own" an estate? Could Germany "take" English trade and Colonies by military force?

Could she turn English Colonies into German ones, and win an overseas empire by the sword, as England won hers in the past? Does a modern nation need to expand its political[Pg 15] boundaries in order to provide for increasing population?

If England could conquer Germany to-morrow, completely conquer her, reduce her nationality to so much dust, would the ordinary

British subject be the better for it?

If Germany could conquer England, would any ordinary German subject be the better for it?

The fact that all these questions have to be answered in the negative, and that a negative answer seems to outrage common sense,

shows how much our political axioms are in need of revision.

The literature on the subject leaves no doubt whatever that I have correctly stated the premises of the matter in the foregoing chapter. Those whose special vocation is the philosophy of statecraft in the international field, from Aristotle and Plato, passing by Machiavelli and Clausewitz down to Mr. Roosevelt and the German Emperor, have left us in no doubt whatever on the point. The

whole view has been admirably summarized by two notable writers--Admiral Mahan, on the Anglo-Saxon side, and Baron Karl von

Stengel (second German delegate to the First Hague Conference) on the German. Admiral Mahan says:

The old predatory instinct that he should take who has the power survives ... and moral force is not sufficient to determine issues unless supported by physical. Governments[Pg 16] are corporations, and corporations have no souls; governments, moreover, are trustees, and as such must put first the lawful interests of their wards--their own people.... More and more Germany needs the assured importation of raw materials, and, where possible, control of regions productive of such materials. More and more she requires assured markets and security as to the importation of food, since less and less comparatively is produced within her own borders by her rapidly increasing population. This all means security at sea.... Yet the supremacy of Great Britain in European seas means a perpetually latent control of German commerce.... The world has long been accustomed to the idea of a predominant naval power, coupling it with the name of Great Britain, and it has been noted that such power, when achieved, is commonly often associated with commercial and industrial predominance, the struggle for which is now in progress between Great Britain and Germany. Such predominance forces a nation to seek markets, and, where possible, to control them to its own advantage by preponderant force, the ultimate expression of which is possession.... From this flow two results: the attempt to possess and the organization of force by which to maintain possession already achieved.... This statement is simply a specific formulation of the general necessity stated; it is an inevitable link in the chain of logical sequences--industrial markets, control, navy bases....[3]

But in order to show that this is no special view, and that this philosophy does indeed represent the[Pg 17] general public opinion of Europe, the opinion of the great mass which prompts the actions of Governments and explains their respective policies, I take the following from the current newspapers and reviews ready to my hand:

It is the prowess of our navy ... our dominant position at sea ... which has built up the British Empire and its commerce.--London

Times leading article.

Because her commerce is infinitely vulnerable, and because her people are dependent upon that commerce for food and the wages with which to buy it.... Britain wants a powerful fleet, a perfect organization behind the fleet, and an army of defence. Until they are provided this country will exist under perpetual menace from the growing fleet of German Dreadnoughts, which have made the North Sea their parade-ground. All security will disappear, and British commerce and industry, when no man knows what the morrow will bring forth, must rapidly decline, thus accentuating British national degeneracy and decadence.--H.W. Wilson in the National Review, May, 1909.

Sea-power is the last fact which stands between Germany and the supreme position in international commerce. At present Germany sends only some fifty million pounds worth, or about a seventh, of her total domestic produce to the markets of the world outside Europe and the United States.... Does any man who understands the subject think there is any power in Germany, or, indeed, any power in the world, which can prevent Germany, she having thus accomplished the first stage of her work, from now closing with Great Britain for her ultimate share of this 240 millions of[Pg 18] overseas trade? Here it is that we unmask the shadow which looms like a real presence behind all the moves of present-day diplomacy, and behind all the colossal armaments that indicate the present preparations for a new struggle for sea-power.--Mr. Benjamin Kidd in the Fortnightly Review, April 1, 1910.

It is idle to talk of "limitation of armaments" unless the nations of the earth will unanimously consent to lay aside all selfish ambi-tions.... Nations, like individuals, concern themselves chiefly with their own interests, and when these clash with those of others, quarrels are apt to follow. If the aggrieved party is the weaker he usually goes to the wall, though "right" be never so much on his side; and the stronger, whether he be the aggressor or not, usually has his own way. In international politics charity begins at home, and quite properly; the duty of a statesman is to think first of the interests of his own country.--United Service Magazine, May,

1909.

Why should Germany attack Britain? Because Germany and Britain are commercial and political rivals; because Germany covets the trade, the colonies, and the Empire which Britain now possesses.--Robert Blatchford, "Germany and England," p. 4.

Great Britain, with her present population, exists by virtue of her foreign trade and her control of the carrying trade of the world; defeat in war would mean the transference of both to other hands and consequent starvation for a large percentage of the wage-earners.--T.G. Martin in the London World.

We offer an enormously rich prize if we are not able to defend out shores; we may be perfectly certain that the prize which we offer will go into the mouth of somebody powerful enough to overcome our resistance and to[Pg 19] swallow a considerable portion of us up.--The Speaker of the House of Commons in a speech at Greystoke, reported by the London Times.

What is good for the beehive is good for the bee. Whatever brings rich lands, new ports, or wealthy industrial areas to a State en-

riches its treasury, and therefore the nation at large, and therefore the individual.--Mr. Douglas Owen in a letter to the Economist, May 28, 1910.

Do not forget that in war there is no such thing as international law, and that undefended wealth will be seized wherever it is exposed, whether through the broken pane of a jeweller's window or owing to the obsession of a humanitarian Celt.--London Referee, November 14, 1909.

We appear to have forgotten the fundamental truth--confirmed by all history--that the warlike races inherit the earth, and that Na-ture decrees the survival of the fittest in the never-ending struggle for existence.... Our yearning for disarmament, our respect for the tender plant of Non-conformist conscience, and the parrot-like repetition of the misleading formula that the "greatest of all British interests is peace" ... must inevitably give to any people who covet our wealth and our possessions ... the ambition to strike a swift

and deadly blow at the heart of the Empire--undefended London.--Blackwood's Magazine, May, 1909.

These are taken from English sources, but there is not a straw to choose between them and other European opinion on the subject. Admiral Mahan and the other Anglo-Saxons of his school have their counterpart in every European country, but more especially in

Germany. Even so[Pg 20] "Liberal" a statesman as Baron Karl von Stengel, the German delegate to the First Hague Peace Conference, lays it down in his book that--

Every great Power must employ its efforts towards exercising the largest influence possible, not only in European but in world politics, and this mainly because economic power depends in the last resort on political power, and because the largest participation possible in the trade of the world is a vital question for every nation.

The writings of such classic authorities as Clausewitz give full confirmation of this view, while it is the resounding note of most

popular German political literature that deals with "Weltpolitik." Grand Admiral von Koster, President of the Navy League, writes:

The steady increase of our population compels us to devote special attention to the growth of our overseas interests. Nothing but the strong fulfilment of our naval programme can create for us that importance upon the free-world-sea which it is incumbent upon us to demand. The steady increase of our population compels us to set ourselves new goals and to grow from a Continental into a world power. Our mighty industry must aspire to new overseas conquests. Our world trade--which has more than doubled in twenty years, which has increased from 2500 million dollars to 4000 million dollars during the ten years in which our naval programme was fixed, and 3000 million dollars of which is sea-borne commerce--only can flourish if we continue honorably to bear the[Pg 21] burdens of our armaments on land and sea alike. Unless our children are to accuse us of short-sightedness, it is now our duty to se-cure our world power and position among other nations. We can do that only under the protection of a strong German fleet, a fleet which shall guarantee us peace with honor for the distant future.

One popular German writer sees the possibility of "overthrowing the British Empire" and "wiping it from the map of the world in less than twenty-four hours." (I quote his actual words, and I have heard a parallel utterance from the mouth of a serious English public man.) The author in question, in order to show how the thing could come about, deals with the matter prophetically. Writing from the standpoint of 1911,[4] he admits that--

At the beginning of the twentieth century Great Britain was a free, a rich, and a happy country, in which every citizen, from the Prime Minister to the dock-laborer, was proud to be a member of the world-ruling nation. At the head of the State were men possessing a general mandate to carry out their programme of government, whose actions were subject to the criticism of public opinion, represented by an independent Press. Educated for centuries in self-government, a race had grown up which seemed born

to rule. The highest triumphs attended England's skill in the art of government, in her handling of subject peoples.... And this[Pg 22] immense Empire, which stretched from the Cape to Cairo, over the southern half of Asia, over half of North America and the fifth continent, could be wiped from the map of the world in less than twenty-four hours! This apparently inexplicable fact will be intel-ligible if we keep in sight the circumstances which rendered possible the building up of England's colonial power. The true basis of her world supremacy was not her own strength, but the maritime weakness of all the other European nations. Their almost complete lack of naval preparations had given the English a position of monopoly which was used by them for the annexation of all those dominions which seemed of value. Had it been in England's power to keep the rest of the world as it was in the nineteenth century, the British Empire might have continued for an unlimited time. The awakening of the Continental States to their national possibilities and to political independence introduced quite new factors into Weltpolitik, and it was only a question of time as to how long England could maintain her position in the face of the changed circumstances.

And the writer tells how the trick was done, thanks to a fog, efficient espionage, the bursting of the English war balloon, and the

success of the German one in dropping shells at the correct tactical moment on to the British ships in the North Sea:

This war, which was decided by a naval battle lasting a single hour, was of only three weeks' duration--hunger forced England into peace. In her conditions Germany showed a wise moderation. In addition to a war indemnity in accordance with the wealth of the two conquered[Pg 23] States, she contented herself with the acquisition of the African Colonies, with the exception of the southern States, which had proclaimed their independence, and these possessions were divided with the other two powers of the Triple Alliance. Nevertheless, this war was the end of England. A lost battle had sufficed to manifest to the world at large the feet of clay on which the dreaded Colossus had stood. In a night the British Empire had crumbled altogether; the pillars which English diplomacy had erected after years of labour had failed at the first test.

A glance at any average Pan-Germanist organ will reveal immediately how very nearly the foregoing corresponds to a somewhat prevalent type of political aspiration in Germany. One Pan-Germanist writer says:

"The future of Germany demands the absorption of Austria-Hungary, the Balkan States, and Turkey, with the North Sea ports. Her realms will stretch towards the east from Berlin to Bagdad, and to Antwerp on the west."

For the moment we are assured there is no immediate intention of seizing the countries in question, nor is Germany's hand actually

ready yet to catch Belgium and Holland within the net of the Federated Empire.

"But," he says, "all these changes will happen within our epoch," and he fixes the time when the map of Europe will thus be rearranged as from twenty to thirty years hence.[Pg 24]

Germany, according to the writer, means to fight while she has a penny left and a man to carry arms, for she is, he says, "face to face

with a crisis which is more serious than even that of Jena."

And, recognizing the position, she is only waiting for the moment she judges the right one to break in pieces those of her neighbors who work against her.

France will be her first victim, and she will not wait to be attacked. She is, indeed, preparing for the moment when the allied Powers

attempt to dictate to her.

Germany, it would seem, has already decided to annex the Grand Duchy of Luxemburg, and Belgium, incidentally with, of course, Antwerp, and will add all the northern provinces of France to her possessions, so as to secure Boulogne and Calais.

All this is to come like a thunderbolt, and Russia, Spain, and the rest of the Powers friendly to England will not dare to move a finger

to aid her. The possession of the coasts of France and Belgium will dispose of England's supremacy for ever.

In a book on South Africa entitled "Reisen Erlebnisse und Beobachtungen," by Dr. F. Bachmar, occurs the passage:

"My second object in writing this book is that it may happen to our children's children to possess that beautiful and unhappy land of whose final absorption (gewinnung) by our Anglo-Saxon cousins I have not the least belief. It may be our lot to unite this land with the German Fatherland, to be equally a blessing to Germany and South Africa."

[Pg 25]

The necessity for armament is put in other than fictional form by so serious a writer as Dr. Gaevernitz, Pro-Rector of the University of Freiburg. Dr. Schulze-Gaevernitz is not unknown in England, nor is he imbued with inimical feelings towards her. But he takes the view that the commercial prosperity of Germany depends upon her political domination.[5]

After having described in an impressive way the astonishing growth of Germany's trade and commerce, and shown how dangerous a competitor Germany has become for England, he returns to the old question, and asks what might happen if England, unable to keep down the inconvenient upstart by economic means, should, at the eleventh hour, try to knock him down. Quotations from the National Review, the Observer, the Outlook, the Saturday Review, etc., facilitate the professor's thesis that this presumption is more than a mere abstract speculation. Granted that they voice only the sentiments of a small minority, they are, according to our author, dangerous for Germany in this--that they point to a feasible and consequently enticing solution. The old peaceful Free Trade, he says, shows signs of senility. A new and rising Imperialism is everywhere inclined to throw the weapons of political warfare into the arena of economic rivalry.

How deeply the danger is felt even by those who sincerely desire peace and can in no sense be considered Jingoes may be judged by

the following from the pen of Mr. Frederic Harrison. I make no apology[Pg 26] for giving the quotations at some length. In a letter

to the London Times he says:

Whenever our Empire and maritime ascendancy are challenged it will be by such an invasion in force as was once designed by Philip and Parma, and again by Napoleon. It is this certainty which compels me to modify the anti-militarist policy which I have consistently maintained for forty years past.... To me now it is no question of loss of prestige--no question of the shrinkage of the Empire; it is our existence as a foremost European Power, and even as a thriving nation.... If ever our naval defence were broken through, our Navy overwhelmed or even dispersed for a season, and a military occupation of our arsenals, docks, and capital were effected, the ruin would be such as modern history cannot parallel. It would not be the Empire, but Britain, that would be destroyed.... The occupation by a foreign invader of our arsenals, docks, cities, and capital would be to the Empire what the bursting of the boilers would be to a Dreadnought. Capital would disappear with the destruction of credit.... A catastrophe so appalling cannot be left to chance, even if the probabilities against its occurring were 50 to 1. But the odds are not 50 to 1. No high authority ventures to assert that a successful invasion of our country is absolutely impossible if it were assisted by extraordinary conditions. And a successful invasion would mean to us the total collapse of our Empire, our trade, and, with trade, the means of feeding forty millions in these islands. If it is asked, "Why does invasion threaten more terrible consequences to us than it does to our neighbors?" the answer is that the British Empire is an anomalous[Pg 27] structure, without any real parallel in modern history, except in the history of Portugal, Venice, and Holland, and in ancient history Athens and Carthage. Our Empire presents special conditions both for attack and for destruction. And its destruction by an enemy seated on the Thames would have consequences so awful to contemplate that it cannot be

left to be safeguarded by one sole line of defence, however good, and for the present hour however adequate.... For more than forty years I have raised my voice against every form of aggression, of Imperial expansion, and Continental militarism. Few men have more earnestly protested against postponing social reforms and the well-being of the people to Imperial conquests and Asiatic and African adventures. I do not go back on a word that I have uttered thereon. But how hollow is all talk about industrial reorganization until we have secured our country against a catastrophe that would involve untold destitution and misery on the people in the mass--which would paralyze industry and raise food to famine prices, whilst closing our factories and our yards!

[Pg 28] CHAPTER III

THE GREAT ILLUSION

81, Norwegian at 102--What this really means--If Germany annexed Holland, would any German benefit or any Hollander?--The

"cash value" of Alsace-Lorraine.

I think it will be admitted that there is not much chance of misunderstanding the general idea embodied in the passage quoted at the end of the last chapter. Mr. Harrison is especially definite. At the risk of "damnable iteration" I would again recall the fact that he is merely expressing one of the universally accepted axioms of European politics, namely, that a nation's financial and industrial stabil-ity, its security in commercial activity--in short, its prosperity and well being depend, upon its being able to defend itself against the aggression of other nations, who will, if they are able, be tempted to commit such aggression because in so doing they will increase their[Pg 29] power, prosperity and well-being, at the cost of the weaker and vanquished.

I have quoted, it is true, largely journalistic authorities because I desired to indicate real public opinion, not merely scholarly opinion. But Mr. Harrison has the support of other scholars of all sorts. Thus Mr. Spenser Wilkinson, Chichele Professor of Military History at Oxford, and a deservedly respected authority on the subject, confirms in almost every point in his various writings the opinions that I have quoted, and gives emphatic confirmation to all that Mr. Frederic Harrison has expressed. In his book, "Britain at Bay," Professor Wilkinson says: "No one thought when in 1888 the American observer, Captain Mahan, published his volume on the influence of sea-power upon history, that other nations beside the British read from that book the lesson that victory at sea carried with it a prosperity and influence and a greatness obtainable by no other means."

Well, it is the object of these pages to show that this all but universal idea, of which Mr. Harrison's letter is a particularly vivid expression, is a gross and desperately dangerous misconception, partaking at times of the nature of an optical illusion, at times of the nature of a superstition--a misconception not only gross and universal, but so profoundly mischievous as to misdirect an im-

mense part of the energies of mankind, and to misdirect them to such degree that unless we liberate ourselves from this superstition civilization itself will be threatened.[Pg 30]

And one of the most extraordinary features of this whole question is that the absolute demonstration of the falsity of this idea, the complete exposure of the illusion which gives it birth, is neither abstruse nor difficult. This demonstration does not repose upon any elaborately constructed theorem, but upon the simple exposition of the political facts of Europe as they exist to-day. These facts, which are incontrovertible, and which I shall elaborate presently, may be summed up in a few simple propositions stated thus:

1. An extent of devastation, even approximating to that which Mr. Harrison foreshadows as the result of the conquest of Great Britain, could only be inflicted by an invader as a means of punishment costly to himself, or as the result of an unselfish and expensive desire to inflict misery for the mere joy of inflicting it. Since trade depends upon the existence of natural wealth and a population capable of working it, an invader cannot "utterly destroy it," except by destroying the population, which is not practicable. If he could destroy the population he would thereby destroy his own market, actual or potential, which would be commercially suicidal.[6]

2. If an invasion of Great Britain by Germany did involve, as Mr. Harrison and those who think with him say it would, the "total collapse of the Empire, our trade, and the means of feeding forty [Pg 31]millions in these islands ... the disturbance of capital and destruction of credit," German capital would also be disturbed, because of the internationalization and delicate interdependence of our credit-built finance and industry, and German credit would also collapse, and the only means of restoring it would be for Germany to put an end to the chaos in England by putting an end to the condition which had produced it. Moreover, because of this delicate interdependence of our credit-built finance, the confiscation by an invader of private property, whether stocks, shares, ships, mines, or anything more valuable than jewellery or furniture--anything, in short, which is bound up with the economic life of the people--would so react upon the finance of the invader's country as to make the damage to the invader resulting from the confiscation exceed in value the property confiscated. So that Germany's success in conquest would be a demonstration of the complete economic futility of conquest.

3. For allied reasons, in our day the exaction of tribute from a conquered people has become an economic impossibility; the exaction of a large indemnity so costly directly and indirectly as to be an extremely disadvantageous financial operation.

4. It is a physical and economic impossibility to capture the external or carrying trade of another nation by military conquest. Large navies are impotent to create trade for the nations owning them, and can do nothing to "confine the commercial rivalry" of other nations. Nor can a conqueror destroy the competition of a conquered nation by[Pg 32] annexation; his competitors would still compete with him--i.e., if Germany conquered Holland, German merchants would still have to meet the competition of Dutch merchants, and on keener terms than originally, because the Dutch merchants would then be within the German's customs lines; the notion that the trade competition of rivals can be disposed of by conquering those rivals being one of the illustrations of the curious optical illusion which lies behind the misconception dominating this subject.

5. The wealth, prosperity, and well-being of a nation depend in no way upon its political power; otherwise we should find the commercial prosperity and social well-being of the smaller nations, which exercise no political power, manifestly below that of the great nations which control Europe, whereas this is not the case. The populations of States like Switzerland, Holland, Belgium, Denmark, Sweden, are in every way as prosperous as the citizens of States like Germany, Russia, Austria, and France. The wealth per capita of the small nations is in many cases in excess of that of the great nations. Not only the question of the security of small States, which, it might be urged, is due to treaties of neutrality, is here involved, but the question of whether political power can be turned in a positive sense to economic advantage.

6. No other nation could gain any advantage by the conquest of the British Colonies, and Great Britain could not suffer material damage by their loss, however much such loss would be regretted on[Pg 33] sentimental grounds, and as rendering less easy a certain useful social co-operation between kindred peoples. The use, indeed, of the word "loss" is misleading. Great Britain does not "own" her Colonies. They are, in fact, independent nations in alliance with the Mother Country, to whom they are no source of tribute or economic profit (except as foreign nations are a source of profit), their economic relations being settled, not by the Mother Country, but by the Colonies. Economically, England would gain by their formal separation, since she would be relieved of the cost of their defence. Their "loss" involving, therefore, no change in economic fact (beyond saving the Mother Country the cost of their defence), could not involve the ruin of the Empire, and the starvation of the Mother Country, as those who commonly treat of such a contingency are apt to aver. As England is not able to exact tribute or economic advantage, it is inconceivable that any other country, necessarily less experienced in colonial management, would be able to succeed where England had failed, especially in view of the past history of the Spanish, Portuguese, French, and British Colonial Empires. This history also demonstrates that the position of British Crown Colonies, in the respect which we are considering, is not sensibly different from that of the self-governing ones. It is not to be presumed, therefore, that any European nation, realizing the facts, would attempt the desperately expensive business of the conquest of England for the purpose of making an experiment[Pg 34] which all colonial history shows to be doomed to failure.

The foregoing propositions traverse sufficiently the ground covered in the series of those typical statements of policy, both English and German, from which I have quoted. The simple statement of these propositions, based as they are upon the self-evident facts of

present-day European politics, sufficiently exposes the nature of those political axioms which I have quoted. But as men even of the

calibre of Mr. Harrison normally disregard these self-evident facts, it is necessary to elaborate them at somewhat greater length.

For the purpose of presenting a due parallel to the statement of policy embodied in the quotations made from the London Times and Mr. Harrison and others, I have divided the propositions which I desire to demonstrate into seven clauses, but such a division is quite arbitrary, and made only in order to bring about the parallel in question. The whole seven can be put into one, as follows: That as the only possible policy in our day for a conqueror to pursue is to leave the wealth of a territory in the complete posses-

sion of the individuals inhabiting that territory, it is a logical fallacy and an optical illusion to regard a nation as increasing its wealth when it increases its territory; because when a province or State is annexed, the population, who are the real and only owners of the wealth therein, are also annexed, and the conqueror gets nothing. The facts of modern history abundantly demonstrate this. When Germany[Pg 35] annexed Schleswig-Holstein and Alsatia not a single ordinary German citizen was one pfennig the richer. Although England "owns" Canada, the English merchant is driven out of the Canadian markets by the merchant of Switzerland, who does

not "own" Canada. Even where territory is not formally annexed, the conqueror is unable to take the wealth of a conquered territory, owing to the delicate interdependence of the financial world (an outcome of our credit and banking systems), which makes the financial and industrial security of the victor dependent upon financial and industrial security in all considerable civilized centres;

so that widespread confiscation or destruction of trade and commerce in a conquered territory would react disastrously upon the conqueror. The conqueror is thus reduced to economic impotence, which means that political and military power is economically futile--that is to say, can do nothing for the trade and well-being of the individuals exercising such power. Conversely, armies and navies cannot destroy the trade of rivals, nor can they capture it. The great nations of Europe do not destroy the trade of the small nations for their own benefit, because they cannot; and the Dutch citizen, whose Government possesses no military power, is just

as well off as the German citizen, whose Government possesses an army of two million men, and a great deal better off than the Russian, whose Government possesses an army of something like four million. Thus, as a rough-and-ready though incomplete indication of the[Pg 36] relative wealth and security of the respective States, the Three per Cents. of powerless Belgium are quoted at

96, and the Three per Cents. of powerful Germany at 82; the Three and a Half per Cents. of the Russian Empire, with its hundred and twenty million souls and its four million army, are quoted at 81, while the Three and a Half per Cents. of Norway, which has not an army at all (or any that need be considered in this discussion), are quoted at 102. All of which carries with it the paradox that the more a nation's wealth is militarily protected the less secure does it become.[7]

The late Lord Salisbury, speaking to a delegation of business men, made this notable observation: The conduct of men of affairs acting individually in their business capacity differs radically in its principles and application from the conduct of the same men when they act collectively in political affairs. And one of the most astonishing things in politics is the little trouble business men take to bring their political creed into keeping with their daily behavior;[Pg 37] how little, indeed, they realize the political implication of

their daily work. It is a case, indeed, of the forest and the trees.

But for some such phenomenon we certainly should not see the contradiction between the daily practice of the business world

and the prevailing political philosophy, which the security of property in, and the high prosperity of, the smaller States involves. We are told by all the political experts that great navies and great armies are necessary to protect our wealth against the aggression of powerful neighbors, whose cupidity and voracity can be controlled by force alone; that treaties avail nothing, and that in international politics might makes right, that military and commercial security are identical, that armaments are justified by the necessity

of commercial security; that our navy is an "insurance," and that a country without military power with which their diplomats can "bargain" in the Council of Europe is at a hopeless disadvantage economically. Yet when the investor, studying the question in its purely financial and material aspect, has to decide between the great States, with all their imposing paraphernalia of colossal armies and fabulously costly navies, and the little States, possessing relatively no military power whatever, he plumps solidly, and with what is in the circumstances a tremendous difference, in favor of the small and helpless. For a difference of twenty points, which we find as between Norwegian and Russian, and fourteen as between Belgian and German securities, is the difference[Pg 38] between a safe and a speculative one--the difference between an American railroad bond in time of profound security and in time of widespread panic. And what is true of the Government funds is true, in an only slightly less degree, of the industrial securities in the national comparison just drawn.

Is it a sort of altruism or quixotism which thus impels the capitalists of Europe to conclude that the public funds and investments of powerless Holland and Sweden (any day at the mercy of their big neighbors) are 10 to 20 per cent. safer than those of the greatest Power of Continental Europe. The question is, of course, absurd. The only consideration of the financier is profit and security, and he has decided that the funds of the undefended nation are more secure than the funds of one defended by colossal armaments. How does he arrive at this decision, unless it be through his knowledge as a financier, which, of course, he exercises without reference to the political implication of his decision, that modern wealth requires no defence, because it cannot be confiscated?

If Mr. Harrison is right; if, as he implies, a nation's commerce, its very industrial existence, would disappear if it allowed neighbors who envied it that commerce to become its superiors in armaments, and to exercise political weight in the world, how does he

explain the fact that the great Powers of the Continent are flanked by little nations far weaker than themselves having nearly always a commercial development equal to, and in most cases greater than[Pg 39] theirs? If the common doctrines be true, the financiers would not invest a dollar in the territories of the undefended nations, and yet, far from that being the case, they consider that a Swiss or a Dutch investment is more secure than a German one; that industrial undertakings in a country like Switzerland defended by an army of a few thousand men, are preferable in point of security to enterprises backed by two millions of the most perfectly trained soldiers in the world. The attitude of European finance in this matter is the absolute condemnation of the view commonly taken by the statesman. If a country's trade were really at the mercy of the first successful invader; if armies and navies were really necessary for the protection and promotion of trade, the small countries would be in a hopelessly inferior position, and could only exist on

the sufferance of what we are told are unscrupulous aggressors. And yet Norway has relatively to population a greater carrying trade than Great Britain,[8] and Dutch, Swiss, and Belgian merchants compete in all the markets of the world successfully with those of Germany and France.

The prosperity of the small States is thus a fact which proves a good deal more than that wealth can be secure without armaments. We have seen that the exponents of the orthodox statecraft--notably such authorities as Admiral Mahan--plead that armaments are a necessary part of the industrial[Pg 40] struggle, that they are used as a means of exacting economic advantage for a nation which would be impossible without them. "The logical sequence," we are told, is "markets, control, navy, bases." The nation without political and military power is, we are assured, at a hopeless disadvantage economically and industrially.[9]

Well, the relative economic situation of the small States gives the lie to this profound philosophy. It is seen to be just learned nonsense when we realize that all the might of Russia or Germany cannot secure for the individual citizen better general economic conditions than those prevalent in the little States. The citizens of Switzerland, Belgium, or Holland, countries without "control," or navy, or bases, or "weight in the councils of Europe," or the "prestige of a great Power," are just as well off as Germans, and a great deal better off than Austrians or Russians.

Thus, even if it could be argued that the security of the small States is due to the various treaties guaranteeing their neutrality, it cannot be argued that those treaties give them the political power and "control" and "weight in the councils of the nations" which Admiral Mahan and the other exponents of the orthodox statecraft assure us are such necessary factors in national prosperity.

I want, with all possible emphasis, to indicate the limits of the argument that I am trying to enforce. That argument is not that the facts just cited show armaments or the absence of them to be the sole or[Pg 41] even the determining factor in national wealth. It does show that the security of wealth is due to other things than armaments; that absence of political and military power is on the one hand no obstacle to, and on the other hand no guarantee of, prosperity; that the mere size of the administrative area has no relation to the wealth of those inhabiting it.

Those who argue that the security of the small States is due to the international treaties protecting their neutrality are precisely those who argue that treaty rights are things that can never give security! Thus one British military writer says:

The principle practically acted on by statesmen, though, of course, not openly admitted, is that frankly enunciated by Machiavelli: "A prudent ruler ought not to keep faith when by so doing it would be against his interests, and when the reasons which made him bind himself no longer exist." Prince Bismarck said practically the same thing, only not quite so nakedly. The European waste-paper basket is the place to which all treaties eventually find their way, and a thing which can any day be placed in a waste-paper basket is

a poor thing on which to hang our national safety. Yet there are plenty of people in this country who quote treaties to us as if we could depend on their never being torn up. Very plausible and very dangerous people they are--idealists too good and innocent for a hard, cruel world, where force is the chief law. Yet there are some such innocent people in Parliament even at present. It is to be hoped that we shall see none of them there in future.[10]

[Pg 42]

Major Murray is right to this extent: the militarist view, the view of those who "believe in war," and defend it even on moral grounds as a thing without which men would be "sordid," supports this philosophy of force, which flourishes in the atmosphere which the militarist regimen engenders.

But the militarist view involves a serious dilemma. If the security of a nation's wealth can only be assured by force, and treaty rights are mere waste paper, how can we explain the evident security of the wealth of States possessing relatively no force? By the mutual jealousies of those guaranteeing their neutrality? Then that mutual jealousy could equally well guarantee the security of any one of the larger States against the rest. Another Englishman, Mr. Farrer, has put the case thus:

If that recent agreement between England, Germany, France, Denmark, and Holland can so effectively relieve Denmark and Hol-

land from the fear of invasion that Denmark can seriously consider the actual abolition of her army and navy, it seems only one further step to go, for all the Powers collectively, great and small, to guarantee the territorial independence of each one of them severally.

In either case, the plea of the militarist stands condemned: national safety can be secured by means other than military force.

But the real truth involves a distinction which is essential to the right understanding of this phenomenon: the political security of the small States is[Pg 43] not assured; no man would take heavy odds on Holland being able to maintain complete political independence if Germany cared seriously to threaten it. But Holland's economic security is assured. Every financier in Europe knows that if Germany conquered Holland or Belgium to-morrow, she would have to leave their wealth untouched; there could be no confiscation. And that is why the stocks of the lesser States, not in reality threatened by confiscation, yet relieved in part at least of the charge of armaments, stand fifteen to twenty points higher than those of the military States. Belgium, politically, might disappear to-morrow; her wealth would remain practically unchanged.

Yet, by one of those curious contradictions we are frequently meeting in the development of ideas, while a fact like this is at least subconsciously recognized by those whom it concerns, the necessary corollary of it--the positive form of the merely negative truth that a community's wealth cannot be stolen--is not recognized. We admit that a people's wealth must remain unaffected by conquest, and yet we are quite prepared to urge that we can enrich ourselves by conquering them! But if we must leave their wealth alone, how can we take it?

I do not speak merely of "loot." It is evident, even on cursory examination, that no real advantage of any kind is achieved for the mass of one people by the conquest of another. Yet that end is set up in European politics as desirable beyond all others. Here, for instance, are the Pan-Germanists of Germany.[Pg 44] This party has set before itself the object of grouping into one great Power

all the peoples of the Germanic race or language in Europe. Were this aim achieved, Germany would become the dominating Power of the Continent, and might become the dominating Power of the world. And according to the commonly accepted view, such an achievement would, from the point of view of Germany, be worth any sacrifice that Germans could make. It would be an object so great, so desirable, that German citizens should not hesitate for an instant to give everything, life itself, in its accomplishment. Very good. Let us assume that at the cost of great sacrifice, the greatest sacrifice which it is possible to imagine a modern civilized nation making, this has been accomplished, and that Belgium and Holland and Germany, Switzerland and Austria, have all become part of the great German hegemony: is there one ordinary German citizen who would be able to say that his well-being had been increased by such a change? Germany would then "own" Holland. But would a single German citizen be the richer for the ownership? The Hollander, from having been the citizen of a small and insignificant State, would become the citizen of a very great one. Would the individual Hollander be any the richer or any the better? We know that, as a matter of fact, neither the German nor the Hollander would be one whit the better; and we know also, as a matter of fact, that in all probability they would be a great deal the worse. We may, indeed, say that the Hollander would be certainly the worse, in that he would have[Pg 45] exchanged the relatively light taxation and light military service of Holland for the much heavier taxation and the much longer military service of the "great" German Empire.

The following, which appeared in the London Daily Mail in reply to an article in that paper, throws some further light on the points elaborated in this chapter. The Daily Mail critic had placed Alsace-Lorraine as an asset in the German conquest worth $330,000,000 "cash value," and added: "If Alsace-Lorraine had remained French, it would have yielded, at the present rate of French taxation, a revenue of $40,000,000 a year to the State. That revenue is lost to France, and is placed at the disposal of Germany."

To which I replied:

Thus, if we take the interest of the "cash value" at the present price of money in Germany, Alsace-Lorraine should be worth to the Germans about $15,000,000 a year. If we take the other figure, $40,000,000. Suppose we split the difference, and take, say, 20. Now, if the Germans are enriched by 20 millions a year--if Alsace-Lorraine is really worth that income to the German people-- how much should the English people draw from their "possessions"? On the basis of population, somewhere in the region of

$5,000,000,000; on the basis of area, still more--enough not only to pay all English taxes, wipe out the National Debt, support the

army and navy, but give every family in the land a fat income into the bargain. There is evidently something wrong.

Does not my critic really see that this whole notion of national possessions benefiting the individual is founded[Pg 46] on mystification, upon an illusion? Germany conquered France and annexed Alsace-Lorraine. The "Germans" consequently "own" it, and enrich themselves with this newly acquired wealth. That is my critic's view, as it is the view of most European statesmen; and it is all false. Alsace-Lorraine is owned by its inhabitants, and nobody else; and Germany, with all her ruthlessness, has not been able to dispossess them, as is proved by the fact that the matricular contribution (matrikularbeitrag) of the newly acquired State to the Imperial treasury (which incidentally is neither 15 millions nor 40, but just over five) is fixed on exactly the same scale as that of the other States of the

Empire. Prussia, the conqueror, pays per capita just as much as and no less than Alsace, the conquered, who, if she were not paying this $5,600,000 to Germany, would be paying it--or, according to my critic, a much larger sum--to France; and if Germany did not "own" Alsace-Lorraine, she would be relieved of charges that amount not to five but many more millions. The change of "ownership" does not therefore of itself change the money position (which is what we are now discussing) of either owner or owned.

In examining, in the last article on this matter, my critic's balance-sheet, I remarked that were his figures as complete as they are absurdly incomplete and misleading, I should still have been unimpressed. We all know that very marvellous results are possible with figures; but one can generally find some simple fact which puts them to the supreme test without undue mathematics. I do not know whether it has ever happened to my critic, as it has happened to me, while watching the gambling in the casino of a Continental watering resort, to have a financial genius present weird columns of figures, which demonstrate conclusively, irrefragably, that by the system[Pg 47] which they embody one can break the bank and win a million. I have never examined these figures, and never shall,

for this reason: the genius in question is prepared to sell his wonderful secret for twenty francs. Now, in the face of that fact I am not interested in his figures. If they were worth examination they would not be for sale.

And so in this matter there are certain test facts which upset the adroitest statistical legerdemain. Though, really, the fallacy which regards an addition of territory as an addition of wealth to the "owning" nation is a very much simpler matter than the fallacies lying behind gambling systems, which are bound up with the laws of chance and the law of averages and much else that philosophers

will quarrel about till the end of time. It requires an exceptional mathematical brain to refute those fallacies, whereas the one we are dealing with is due simply to the difficulty experienced by most of us in carrying in our heads two facts at the same time. It is so much easier to seize on one fact and forget the other. Thus we realize that when Germany has conquered Alsace-Lorraine she has "captured" a province worth, "cash value," in my critic's phrase, $330,000,000. What we overlook is that Germany has also captured the people who own the property and who continue to own it. We have multiplied by x, it is true, but we have overlooked the fact that we have had to divide by x, and that the result is consequently, so far as the individual is concerned, exactly what it was before. My critic remembered the multiplication all right, but he forgot the division. Let us apply the test fact. If a great country benefits every time it annexes a province, and her people are the richer for the widened territory, the small nations ought to be immeasurably poorer than the great, instead[Pg 48] of which, by every test which you like to apply--public credit, amounts in savings banks, standard of living, social progress, general well-being--citizens of small States are, other things being equal, as well off as, or better off than, the citizens of great States. The citizens of countries like Holland, Belgium, Denmark, Sweden, Norway are, by every possible test, just as well off as the citizens of countries like Germany, Austria, or Russia. These are the facts which are so much more potent than any theory. If it is true that a country benefits by the acquisition of territory, and widened territory means general well-being, why do the facts so eternally deny it? There is something wrong with the theory.

In every civilized State, revenues which are drawn from a territory are expended on that territory, and there is no process known to modern government by which wealth may first be drawn from a territory into the treasury and then be redistributed with a profit to the individuals who have contributed it, or to others. It would be just as reasonable to say that the citizens of London are richer than the citizens of Birmingham because London has a richer treasury; or that Londoners would become richer if the London County Council were to annex the county of Hertford; as to say that people's wealth varies according to the size of the administrative area which they inhabit. The whole thing is, as I have called it, an optical illusion, due to the hypnotism of an obsolete terminology. Just

as poverty may be greater in the large city than in the small one, and taxation heavier, so the citizens of a great State may be poorer than the citizens of a small one, as they very often are. Modern government is mainly, and tends to become entirely, a matter of administration. A mere jugglery[Pg 49] with the administrative entities, the absorption of small States into large ones, or the breaking up of large States into small, is not of itself going to affect the matter one way or the other.

[Pg 50] CHAPTER IV

THE IMPOSSIBILITY OF CONFISCATION

an enemy's property an economic impossibility under modern conditions--Intangibility of a community's wealth. During the Victorian Jubilee procession an English beggar was heard to say:

I own Australia, Canada, New Zealand, India, Burmah, and the Islands of the Far Pacific; and I am starving for want of a crust of

bread. I am a citizen of the greatest Power of the modern world, and all people should bow to my greatness. And yesterday I cringed

for alms to a negro savage, who repulsed me with disgust. What is the meaning of this?

The meaning is that, as very frequently happens in the history of ideas, our terminology is a survival of conditions no longer existing, and our mental conceptions[Pg 51] follow at the tail of our vocabulary. International politics are still dominated by terms applicable to conditions which the processes of modern life have altogether abolished.

In the Roman times--indeed, in all the ancient world--it may have been true that the conquest of a territory meant a tangible advantage to the conqueror; it meant the exploitation of the conquered territory by the conquering State itself, to the advantage of that State and its citizens. It not infrequently meant the enslavement of the conquered people and the acquisition of wealth in the form

of slaves as a direct result of the conquering war. In mediaeval times a war of conquest meant at least immediate tangible booty in the shape of movable property, actual gold and silver, land parcelled out among the chiefs of the conquering nation, as it was at the Norman Conquest, and so forth.

At a later period conquest at least involved an advantage to the reigning house of the conquering nation, and it was mainly the squabbles of rival sovereigns for prestige and power which produced the wars of many centuries.

At a still later period, civilization, as a whole--not necessarily the conquering nation--gained (sometimes) by the conquest of sav-age peoples, in that order was substituted for disorder. In the period of the colonization of newly-discovered land, the preemption of territory by one particular nation secured an advantage for the citizens of that nation, in that its overflowing population found homes in conditions[Pg 52] preferable socially, or politically, to the conditions imposed by alien nations. But none of these considerations applies to the problem with which we are dealing. We are concerned with the case of fully civilized rival nations in fully oc-

cupied territory or with civilizations so firmly set that conquest could not sensibly modify their character, and the fact of conquering such territory gives to the conqueror no material advantage which he could not have had without conquest. And in these conditions--the realities of the political world as we find it to-day--"domination," or "predominance of armament," or the "command

of the sea," can do nothing for commerce and industry or general well-being: England may build fifty Dreadnoughts and not sell so much as a penknife the more in consequence. She might conquer Germany to-morrow, and she would find that she could not make a single Englishman a shilling's worth the richer in consequence, the war indemnity notwithstanding.

How have conditions so changed that terms which were applicable to the ancient world--in one sense at least to the mediaeval world,

and in another sense still to the world of that political renaissance which gave to Great Britain its Empire--are no longer applicable in any sense to the conditions of the world as we find them to-day? How has it become impossible for one nation to take by conquest the wealth of another for the benefit of the people of the conqueror? How is it that we are confronted by the absurdity (which the facts of the British Empire go to prove) of the conquering[Pg 53] people being able to exact from conquered territory rather less than more advantage than it was able to do before the conquest took place?

I am not at this stage going to pass in review all the factors that have contributed to this change, because it will suffice for the demonstration upon which I am now engaged to call attention to a phenomenon which is the outcome of all those factors and which is undeniable, and that is, the financial interdependence of the modern world. But I will forecast here what belongs more properly to

a later stage of this work, and will give just a hint of the forces which are the result mainly of one great fact--the division of labor

intensified by facility of communication.

When the division of labor was so little developed that every homestead produced all that it needed, it mattered nothing if part of the community was cut off from the world for weeks and months at a time. All the neighbors of a village or homestead might be slain or harassed, and no inconvenience resulted. But if to-day an English county is by a general railroad strike cut off for so much as forty-eight hours from the rest of the economic organism, we know that whole sections of its population are threatened with fam-ine. If in the time of the Danes, England could by some magic have killed all foreigners, she would presumably have been the better off. If she could do the same thing to-day, half her population would starve to death. If on one side of the frontier a community is, say, wheat-producing, and on the[Pg 54] other coal-producing, each is dependent for its very existence, on the fact of the other being able to carry on its labor. The miner cannot in a week set to and grow a crop of wheat; the farmer must wait for his wheat to grow, and must meantime feed his family and dependents. The exchange involved here must go on, and each party have fair expectation

that he will in due course be able to reap the fruits of his labor, or both must starve; and that exchange, that expectation, is merely the expression in its simplest form of commerce and credit; and the interdependence here indicated has, by the countless developments of rapid communication, reached such a condition of complexity that the interference with any given operation affects not merely the parties directly involved, but numberless others having at first sight no connection therewith.

The vital interdependence here indicated, cutting athwart frontiers, is largely the work of the last forty years; and it has, during that

time, so developed as to have set up a financial interdependence of the capitals of the world, so complex that disturbance in New York involves financial and commercial disturbance in London, and, if sufficiently grave, compels financiers of London to co-op- erate with those of New York to put an end to the crisis, not as a matter of altruism, but as a matter of commercial self-protection. The complexity of modern finance makes New York dependent on London, London upon Paris, Paris upon Berlin, to a greater degree than has ever yet been the case in history. This interdependence[Pg 55] is the result of the daily use of those contrivances of civilization which date from yesterday--the rapid post, the instantaneous dissemination of financial and commercial information

by means of telegraphy, and generally the incredible increase in the rapidity of communication which has put the half-dozen chief capitals of Christendom in closer contact financially, and has rendered them more dependent the one upon the other than were the chief cities of Great Britain less than a hundred years ago.

A well-known French authority, writing recently in a financial publication, makes this reflection:

The very rapid development of industry has given rise to the active intervention therein of finance, which has become its nervus rerum, and has come to play a dominating role. Under the influence of finance, industry is beginning to lose its exclusively national character to take on a character more and more international. The animosity of rival nationalities seems to be in process of attenuation as the result of this increasing international solidarity. This solidarity was manifested in a striking fashion in the last industrial and monetary crisis. This crisis, which appeared in its most serious form in the United States and Germany, far from being any profit to rival nations, has been injurious to them. The nations competing with America and Germany, such as England and France, have suffered only less than the countries directly affected. It must not be forgotten that, quite apart from the financial interests involved, directly or indirectly, in the industry of other countries, every producing[Pg 56] country is at one and the same time, as well as being

a competitor and a rival, a client and a market. Financial and commercial solidarity is increasing every day at the expense of commercial and industrial competition. This was certainly one of the principal causes which a year or two ago prevented the outbreak of war between Germany and France a propos of Morocco, and which led to the understanding of Algeciras. There can be no doubt, for those who have studied the question, that the influence of this international economic solidarity is increasing despite ourselves. It has not resulted from conscious action on the part of any of us, and it certainly cannot be arrested by any conscious action on our part.[11]

A fiery patriot sent to a London paper the following letter:

When the German army is looting the cellars of the Bank of England, and carrying off the foundations of our whole national fortune, perhaps the twaddlers who are now screaming about the wastefulness of building four more Dreadnoughts will understand why sane men are regarding this opposition as treasonable nonsense.

What would be the result of such an action on the part of a German army in London? The first effect, of course, would be that, as the Bank of England is the banker of all other banks, there would be a run on every bank in England, and all would suspend payment. But London being the clearing-house of the world, bills drawn thereon but held by foreigners would not be met; they would

be valueless; the[Pg 57] loanable value of money in other centres would be enormously raised, and instruments of credit enormously depreciated; prices of all kinds of stocks would fall, and holders would be threatened by ruin and insolvency. German finance would represent a condition as chaotic as that of England. Whatever advantage German credit might gain by holding England's gold it would certainly be more than offset by the fact that it was the ruthless action of the German Government that had produced the general catastrophe. A country that could sack bank reserves would be a good one for foreign investors to avoid: the essential of credit is confidence, and those who repudiate it pay dearly for their action. The German Generalissimo in London might be no more civilized than Attila himself, but he would soon find the difference between himself and Attila. Attila, luckily for him, did not have to worry about a bank rate and such-like complications; but the German General, while trying to sack the Bank of England, would find that his own balance in the Bank of Germany would have vanished into thin air, and the value of even the best of his investments dwindled as though by a miracle; and that for the sake of loot, amounting to a few sovereigns apiece among his soldiery, he would have sacrificed the greater part of his own personal fortune. It is as certain as anything can be that, were the German army guilty of such economic vandalism, there is no considerable institution in Germany that would escape grave damage--a damage in credit and security[Pg 58] so serious as to constitute a loss immensely greater[12] than the value of the loot obtained. It is not putting the case too strongly to say that for every pound taken from the Bank of England German trade would pay many times over. The influence

of the whole finance of Germany would be brought to bear on the German Government to put an end to a situation ruinous to German trade, and German finance would only be saved from utter collapse by an undertaking on the part of the German Government scrupulously to respect private property, and especially bank reserves. It is true the German Jingoes might wonder what they had made war for, and this elementary lesson in international finance would do more than the greatness of the British navy to cool their blood. For it is a fact in human nature that men will fight more readily than they will pay, and that they will take personal risks much more readily than they will disgorge money, or, for that matter, earn it. "Man," in the language of Bacon, "loves danger better than travail."

Events which are still fresh in the memory of business men show the extraordinary interdependence of the modern financial world. A financial crisis in New York sends up the English bank rate to 7 per cent., thus involving the ruin of many English businesses which might otherwise have weathered a difficult period. It thus happens that one section of the financial world is, against its will, compelled to come[Pg 59] to the rescue of any other considerable section which may be in distress.

From a modern and delightfully lucid treatise on international finance,[13] I take the following very suggestive passages:

Banking in all countries hangs together so closely that the strength of the best may easily be that of the weakest if scandal arises owing to the mistakes of the worst.... Just as a man cycling down a crowded street depends for his life not only on his skill, but more on the course of the traffic there.... Banks in Berlin were obliged, from motives of self-protection (on the occasion of the Wall

Street crisis), to let some of their gold go to assuage the American craving for it.... If the crisis became so severe that London had to restrict its facilities in this respect, other centres, which habitually keep balances in London which they regard as so much gold, because a draft on London is as good as gold, would find themselves very seriously inconvenienced; and it thus follows that it is to the interest of all other centres which trade on those facilities which London alone gives to take care that London's task is not made too difficult. This is especially so in the case of foreigners, who keep a balance in London which is borrowed. In fact, London drew in the gold required for New York from seventeen other countries....

Incidentally it may be mentioned in this connection that German commerce is in a special sense[Pg 60] interested in the maintenance

of English credit. The authority just quoted says:

It is even contended that the rapid expansion of German trade, which pushed itself largely by its elasticity and adaptability to the wishes of its customers, could never have been achieved if it had not been assisted by the large credit furnished in London.... No one can quarrel with the Germans for making use of the credit we offered for the expansion of the German trade, although their over-extension of credit facilities has had results which fall on others besides themselves....

Let us hope that our German friends are duly grateful, and let us avoid the mistake of supposing that we have done ourselves any permanent harm by giving this assistance. It is to the economic interests of humanity at large that production should be stimulated, and the economic interest of humanity at large is the interest of England, with its mighty world-wide trade. Germany has quickened production with the help of English credit, and so has every other economically civilized country in the world. It is a fact that all

of them, including our own colonies, develop their resources with the help of British capital and credit, and then do their utmost

to keep out our productions by means of tariffs, which make it appear to superficial observers that England provides capital for the destruction of its own business. But in practice the system works quite otherwise, for all these countries that develop their resources with our money aim at developing an export trade and selling goods to us, and as they have not yet reached the point of economic altruism at which they are prepared to sell goods for nothing, the increase in their production means an[Pg 61] increasing demand for our commodities and our services. And in the meantime the interest on our capital and credit, and the profits of working the machinery of exchange, are a comfortable addition to our national income.

But what is a further corollary of this situation? It is that Germany is to-day in a larger sense than she ever was before England's

debtor, and that her industrial success is bound up with English financial security.

What would be the situation in Britain, therefore, on the morrow of a conflict in which that country was successful?

I have seen mentioned the possibility of the conquest and annexation of the free port of Hamburg by a victorious British fleet. Let us assume that the British Government has done this, and is proceeding to turn the annexed and confiscated property to account.

Now, the property was originally of two kinds: part was private property, and part was German Government, or rather Hamburg Government, property. The income of the latter was earmarked for the payment of interest of certain Government stock, and the action of the British Government, therefore, renders the stock all but valueless, and in the case of the shares of the private companies entirely so. The paper becomes unsaleable. But it is held in various forms--as collateral and otherwise--by many important banking concerns, insurance companies, and[Pg 62] so on, and this sudden collapse of value shatters their solvency. Their collapse not only involves many credit institutions in Germany, but, as these in their turn are considerable debtors of London, English institutions are also involved. London is also involved in another way. As explained previously, many foreign concerns keep balances in London, and the action of the British Government having precipitated a monetary crisis in Germany, there is a run on London

to withdraw all balances. In a double sense London is feeling the pinch, and it would be a miracle if already at this point the whole influence of British finance were not thrown against the action of the British Government. Assume, however, that the Government, making the best of a bad job, continues its administration of the property, and proceeds to arrange for loans for the purpose of putting it once more in good condition after the ravages of war. The banks, however, finding that the original titles have through the action of the British Government become waste paper, and British financiers having already burned their fingers with that particular

class of property, withhold support, and money is only procurable at extortionate rates of interest--so extortionate that it becomes quite evident that as a Governmental enterprise the thing could not be made to pay. An attempt is made to sell the property to British and German concerns. But the same paralyzing sense of insecurity hangs over the whole business. Neither German nor British financiers can forget that the bonds and shares of this property have[Pg 63] already been turned into waste paper by the action of

the British Government. The British Government finds, in fact, that it can do nothing with the financial world unless first it confirms the title of the original owners to the property, and gives an assurance that titles to all property throughout the conquered territory shall be respected. In other words, confiscation has been a failure.

It would really be interesting to know how those who talk as though confiscation were still an economic possibility would proceed to effect it. As material property in the form of that booty which used to constitute the spoils of victory in ancient times, the gold and silver goblets, etc., would be quite inconsiderable, and as Britain cannot carry away sections of Berlin and Hamburg, she could only annex the paper tokens of wealth--the shares and bonds. But the value of those tokens depends upon the reliance which can be placed upon the execution of the contracts which they embody. The act of military confiscation upsets all contracts, and the courts of the country from which contracts derive their force would be paralyzed if judicial decisions were thrust aside by the sword. The value of the stocks and shares would collapse, and the credit of all those persons and institutions interested in such property would also be shaken or shattered, and the whole credit system, being thus at the mercy of alien governors only concerned to exact tribute, would collapse like a house of cards. German finance and industry would show a condition of panic and disorder[Pg 64] beside which the worst crises of Wall Street would pale into insignificance. Again, what would be the inevitable result? The financial influence of London itself would be thrown into the scale to prevent a panic in which London financiers would be involved. In other words, British financiers would exert their influence upon the British Government to stop the process of confiscation.

But the intangibility of wealth can be shown in yet another fashion. I once asked an English chartered accountant, very subject

to attacks of Germanophobia, how he supposed the Germans would profit by the invasion of England, and he had a very simple programme. Admitting the impossibility of sacking the Bank of England, they would reduce the British population to practical slavery, and make them work for their foreign taskmasters, as he put it, under the rifle and lash. He had it all worked out in figures as to what the profit would be to the conqueror. Very well, let us follow the process. The population of Great Britain are not allowed

to spend their income, or at least are only allowed to spend a portion of it, on themselves. Their dietary is reduced more or less to a slave dietary, and the bulk of what they earn is to be taken by their "owners." But how is this income, which so tempts the Germans, created--these dividends on the railroad shares, the profits of the mills and mines and provision companies and amusement concerns? The dividends are due to the fact that the population eat heartily, clothe themselves well, travel on railroads,[Pg 65] and go to theatres and music-halls. If they are not allowed to do these things, if, in other words, they cannot spend their money on these things, the dividends disappear. If the German taskmasters are to take these dividends, they must allow them to be earned. If they allow them to be earned, they must let the population live as it lived before--spending their income on themselves; but if they spend their income on themselves, what is there, therefore, for the taskmasters? In other words, consumption is a necessary factor of the whole thing. Cut out consumption, and you cut out the profits. This glittering wealth, which so tempted the invader, has disappeared. If this is not intangibility, the word has no meaning. Speaking broadly and generally, the conqueror in our day has before him two alternatives: to leave things alone, and in order to do that he need not have left his shores; or to interfere by confiscation in some form, in which case he dries up the source of the profit which tempted him.

The economist may object that this does not cover the case of such profit as "economic rent," and that dividends or profits being part of exchange, a robber who obtains wealth without exchange can afford to disregard them; or that the increased consumption of the dispossessed English community would be made up by the increased consumption of the "owning" Germans.

If the political control of economic operations were as simple a matter as in our minds we generally make it, these objections would be sound. As it is, none of[Pg 66] them would in practice invalidate the general proposition I have laid down. The division of labor in the modern world is so complex--the simplest operation of foreign trade involving not two nations merely, but many--that the mere military control of one party to an operation where many are concerned could ensure neither shifting of the consumption nor the monopolization of the profit within the limits of the conquering group.

Here is a German manufacturer selling cinematograph machines to a Glasgow suburb (which, incidentally, lives by selling tools to Argentine ranchers, who live by selling wheat to Newcastle boiler-makers). Assuming even that Germany could transfer the surplus spent in cinematograph shows to Germany, what assurance has the German manufacturer in question that the enriched Germans

will want cinematograph films? They may insist upon champagne and cigars, coffee and Cognac, and the French, Cubans, and Brazilians, to whom this "loot" eventually goes, may not buy their machinery from Germany at all, much less from the particular German manufacturer, but in the United States or Switzerland. The redistribution of the industrial roles might leave German industry in the lurch, because at best the military power would only be controlling one section of a complex operation, one party to it out of many. When wealth was corn or cattle, the transference by political or military force of the possessions of one community to another may have been possible, although even then, or in a[Pg 67] slightly more developed period, we saw the Roman peasantry ruined by the

slave exploitation of foreign territory. How far this complexity of the international division of labor tends to render futile the other

contrivances of conquest such as exclusive markets, tribute, money indemnity, etc., succeeding chapters may help to show.

[Pg 68] CHAPTER V

FOREIGN TRADE AND MILITARY POWER

Just as Mr. Harrison has declared that a "successful invasion would mean to the English the total eclipse of their commerce and trade, and with that trade the means of feeding forty millions in their islands," so I have seen it stated in a leading English paper that "if Germany were extinguished to-morrow, the day after to-morrow there is not an Englishman in the world who would not be the richer. Nations have fought for years over a city or right of succession. Must they not fight for 1250 million dollars of yearly commerce?"

What does the "extinction" of Germany mean? Does it mean that Britain shall slay in cold blood sixty[Pg 69] or seventy millions of men, women, and children? Otherwise, even though the fleet and army were annihilated the country's sixty millions of workers would still remain,--all the more industrious, as they would have undergone great suffering and privation--prepared to exploit their mines and workshops with as much thoroughness and thrift and industry as ever, and consequently just as much trade rivals as ever, army or no army, navy or no navy.

Even if the British could annihilate Germany, they would annihilate such an important section of their debtors as to create hopeless panic in London, and that panic would so react on their own trade that it would be in no sort of condition to take the place which Germany had previously occupied in neutral markets, leaving aside the question that by the act of annihilation a market equal to that of Canada and South Africa combined would be destroyed.

What does this sort of thing mean? Am I wrong in saying that the whole subject is overlaid and dominated by a jargon which may have had some relation to facts at one time, but from which in our day all meaning has departed?

The English patriot may say that he does not mean permanent destruction, but only temporary "annihilation." (And this, of course,

on the other side, would mean not permanent, but only temporary acquisition of that 1250 millions of trade.)

He might, like Mr. Harrison, put the case conversely--that if Germany could get command of the sea she could cut England off from its customers and[Pg 70] intercept its trade for her benefit. This notion is as absurd as the other. It has already been shown that the "utter destruction of credit" and "incalculable chaos in the financial world," which Mr. Harrison foresees as the result of

Germany's invasion, could not possibly leave German finance unaffected. It is a very open question whether her chaos would not be as great as the English. In any case, it would be so great as thoroughly to disorganize her industry, and in that disorganized condition it would be out of the question for her to secure the markets left unsupplied by England's isolation. Moreover, those markets would also be disorganized, because they depend upon England's ability to buy, which Germany would be doing her best to destroy. From the chaos which she herself had created, Germany could derive no possible benefit, and she could only terminate financial disorder, fatal to her own trade, by bringing to an end the condition which had produced it--that is, by bringing to an end the isolation of Great Britain.

With reference to this section of the subject we can with absolute certainty say two things: (1) That Germany can only destroy British trade by destroying British population; and (2) that if she could destroy that population, which she could not, she would destroy one of her most valuable markets, as at the present time she sells to it more than it sells to her. The whole point of view involves a fundamental misconception of the real nature of commerce and industry.[Pg 71]

Commerce is simply and purely the exchange of one product for another. If the British manufacturer can make cloth, or cutlery,

or machinery, or pottery, or ships cheaper or better than his rivals, he will obtain the trade; if he cannot, if his goods are inferior or dearer, or appeal less to his customers, his rivals will secure the trade, and the possession of Dreadnoughts will make not a whit of difference. Switzerland, without a single Dreadnought, will drive him out of the market even of his own colonies, as, indeed, she is

driving him out.[14] The factors which really constitute prosperity have not the remotest connection with military or naval power, all our political jargon notwithstanding. To destroy the commerce of forty million people Germany would have to destroy Britain's coal and iron mines, to destroy the energy, character, and resourcefulness of its population; to destroy, in short, the determination of forty million people to make their living by the work of their hands. Were we not hypnotized by this extraordinary illusion, we should accept as a matter of course that the prosperity of a people depends upon such facts as the natural wealth of the country in

which they live, their social discipline and industrial character, the result of years, of generations, of centuries, it may be, of tradition and slow, elaborate, selective processes; and, in addition to all these deep-seated elementary factors, upon countless commercial

and financial ramifications--a special technical capacity for such-and-such a manufacture,[Pg 72] a special aptitude for meeting the peculiarities of such and-such a market, the efficient equipment of elaborately constructed workshops, the existence of a population trained to given trades--a training not infrequently involving years, and even generations, of effort. All this, according to Mr. Harrison, is to go for nothing, and Germany is to be able to replace it in the twinkling of an eye, and forty million people are to sit down helplessly because Germany has been victorious at sea. On the morrow of her marvellous victory Germany is by some sort of miracle to find shipyards, foundries, cotton-mills, looms, factories, coal and iron mines, and all their equipment, suddenly created in order to take the trade that the most successful manufacturers and traders in the world have been generations in building up. Germany is to be able suddenly to produce three or four times what her population has hitherto been able to produce; for she must either do that

or leave the markets which England has supplied heretofore still available to English effort. What has really fed these forty millions, who are to starve on the morrow of Germany's naval victory, is the fact that the coal and iron exported by them have been sent in one form or another to populations which need those products. Is that need suddenly to cease, or are the forty millions suddenly to be struck with some sort of paralysis, that all this vast industry is coming to an end? What has the defeat of English ships at sea to

do with the fact that the Canadian farmer wants to buy English manufactures and pay for them with[Pg 73] his wheat? It may be true that Germany could stop the importation of that wheat. But why should she want to do so? How would it benefit her people to do so? By what sort of miracle is she suddenly to be able to supply products which have kept forty million people busy? By what sort of miracle is she suddenly to be able to double her industrial population? And by what sort of miracle is she to be able to consume the wheat, because if she cannot take the wheat the Canadian cannot buy her products? I am aware that all this is elementary, that it is economics in words of one syllable; but what are the economics of Mr. Harrison and those who think like him when he talks in the strain of the passage that I have just quoted?

There is just one other possible meaning that the English patriot may have in his mind. He may plead that great military and naval establishments do not exist for the purpose of the conquest of territory or of destroying a rival's trade, but for "protecting" or indirectly aiding trade and industry. We are allowed to infer that in some not clearly defined way a great Power can aid the trade of

its citizens by the use of the prestige which a great navy and a great army bring, and by exercising bargaining power, in the matter of tariffs, with other nations. But again the condition of the small nations in Europe gives the lie to this assumption.

It is evident that the neutral does not buy English products and refuse Germany's because England has a larger navy. If one can imagine the representatives[Pg 74] of an English and a German firm meeting in the office of a merchant in Argentina, or Brazil, or Bulgaria, or Finland, both of them selling cutlery, the German is not going to secure the order because he is able to show the Argentinian, or the Brazilian, or the Bulgarian, or the Finn that Germany has twelve Dreadnoughts and England only eight. The German will take the order if, on the whole, he can make a more advantageous offer to the prospective buyer, and for no other reason whatsoever, and the buyer will go to the merchant of any nation whatever, whether he be German, or Swiss, or Belgian, or British, irrespective of the armies and navies which may lie behind the nationality of the seller. Nor does it appear that armies and

navies weigh in the least when it comes to a question of a tariff bargain. Switzerland wages a tariff war with Germany, and wins. The whole history of the trade of the small nations shows that the political prestige of the great ones gives them practically no commercial advantage.

We continually talk as though carrying trade were in some special sense the result of the growth of a great navy, but Norway has a carrying trade which, relatively to her population, is nearly three times as great as Britain's, and the same reasons which would make it impossible for another nation to confiscate the gold reserve of the Bank of England would make it impossible for another nation to confiscate British shipping on the morrow of a British naval defeat. In what way can her carrying trade or any other trade be said to depend upon military power?[Pg 75]

As I write these lines there comes to my notice a series of articles in the London Daily Mail, written by Mr. F.A. McKenzie, explain-

ing how it is that England is losing the trade of Canada. In one article he quotes a number of Canadian merchants:

"We buy very little direct from England," said Mr. Harry McGee, one of the vice-presidents of the company, in answer to my questions. "We keep a staff in London of twenty, supervising our European purchases, but the orders go mostly to France, Germany, and Switzerland, and not to England."

And in a further article he notes that many orders are going to Belgium. Now the question arises: What more can a navy do that it

has not done for England in Canada? And yet the trade goes to Switzerland and Belgium. Is England going to protect herself against the commercial "aggression" of Switzerland by building a dozen more Dreadnoughts? Suppose she could conquer Switzerland and Belgium with her Dreadnoughts, would not the trade of Switzerland and Belgium go on all the same? Her arms have brought her Canada--but no monopoly of the Canadian orders, which go, in part, to Switzerland.

If the traders of little nations can snap their fingers at the great war lords, why do British traders need Dreadnoughts? If Swiss commercial prosperity is secure from the aggression of a neighbor who outweighs Switzerland in military power a hundred to one, how comes it that the trade and industry, the[Pg 76] very life-bread of her children, as Mr. Harrison would have us believe, of the greatest nation in history is in danger of imminent annihilation the moment she loses her military predominance?

If the statesmen of Europe would tell us how the military power of a great nation is used to advance the commercial interest of its citizens, would explain to us the modus operandi, and not refer us to large and vague phrases about "exercising due weight in the councils of the nations," we might accept their philosophy. But, until they do so, we are surely justified in assuming that their political terminology is simply a survival--an inheritance from a state of things which has, in fact, passed away.

It is facts of the nature of those I have instanced which constitute the real protection of the small State, and which are bound as they gain in general recognition to constitute the real protection from outside aggression of all States, great or small.

One financial authority from whom I have quoted noted that this elaborate financial interdependence of the modern world has grown up in spite of ourselves, "without our noticing it until we put it to some rude test." Men are fundamentally just as disposed as they were at any time to take wealth that does not belong to them, which they have not earned. But their relative interest in the mat-ter has changed. In very primitive conditions robbery is a moderately profitable enterprise. Where the rewards of labor, owing to the inefficiency of the means of production, are small and uncertain, and where all[Pg 77] wealth is portable, raiding and theft offer the best reward for the enterprise of the courageous; in such conditions the size of man's wealth depends a good deal on the size of his club and the agility with which he wields it. But to the man whose wealth so largely depends upon his credit and on his paper being "good paper" at the bank, dishonesty has become as precarious and profitless as honest toil was in more primitive times.

The instincts of the business man may, at bottom, be just as predatory as those of the cattle-lifter or the robber baron, but taking property by force has become one of the least profitable and the most speculative forms of enterprise upon which he could engage. The force of commercial events has rendered the thing impossible. I know that the defender of arms will reply that it is the police who have rendered it impossible. This is not true. There were as many armed men in Europe in the days when the robber baron carried on his occupation as there are in our day. To say that the policeman makes him impossible is to put the cart before the horse. What created the police and made them possible, if it was not the general recognition of the fact that disorder and aggression make trade impossible?

Just note what is taking place in South America. States in which repudiation was a commonplace of everyday politics have of recent years become as stable and as respectable as the City of London, and have come to discharge their obligations as regularly. These countries were during hundreds of years a[Pg 78] slough of disorder and a never-ending sanguinary scramble for the spoils, and yet in a matter of fifteen or twenty years the conditions have radically changed. Does this mean that the nature of these populations has fundamentally altered in less than a generation? In that case many a militarist claim must be rejected. There is a simpler explanation.

These countries, like Brazil and the Argentine, have been drawn into the circle of international trade, exchange, and finance. Their economic relationships have become sufficiently extensive and complex to make repudiation the least profitable form of theft. The financier will tell you "they cannot afford to repudiate." If any attempt at repudiation were made, all sorts of property, either directly or indirectly connected with the orderly execution of Governmental functions, would suffer, banks would become involved, great businesses would stagger, and the whole financial community would protest. To attempt to escape the payment of a single loan would involve the business world in losses amounting to many times the value of the loan.

It is only where a community has nothing to lose, no banks, no personal fortunes dependent upon public good faith, no great businesses, no industries, that the Government can afford to repudiate its obligations or to disregard the general code of economic morality. This was the case with Argentina and Brazil a generation ago; it is still the case, to some extent, with some Central American States[Pg 79] to-day. It is not because the armies in these States have grown that the public credit has improved. Their armies were greater a generation ago than they are now. It is because they know that trade and finance are built upon credit--that is, confidence in the fulfilment of obligations, upon security of tenure in titles, upon the enforcement of contract according to law--and that if credit is seriously shaken, there is not a section of the elaborate fabric which is not affected.

The more our commercial system gains in complication, the more does the common prosperity of all of us come to depend upon the reliance which can be placed on the due performance of all contracts. This is the real basis of "prestige," national and individual;

circumstances stronger than ourselves are pushing us, despite what the cynical critics of our commercial civilization may say, towards the unvarying observance of this simple ideal. When we drop back from it--and such relapses occur as we should expect them to occur, especially in those societies which have just emerged from a more or less primitive state--punishment is generally swift and sure.

What was the real origin of the bank crisis of 1907 in the United States, which had for American business men such disastrous consequences? It was the loss by American financiers and American bankers of the confidence of the American public. At bottom there was no other reason. One talks of cash reserves and currency errors; but London, which[Pg 80] does the banking of the universe, works on the smallest cash reserve in the world, because, as an American authority has put it, English bankers work with a "psychological reserve."

I quote from Mr. Withers:

It is because they (English bankers) are so safe, so straight, so sensible, from an American point of view so unenterprising, that they are able to build up a bigger credit fabric on a smaller gold basis, and even carry this building to a height which they themselves have decided to be questionable. This "psychological reserve" is the priceless possession that has been handed down through generations of good bankers, and every individual of every generation who receives it can do something to maintain and improve it.

But it was not always thus, and it is merely the many ramifications of the English commercial and financial world that have brought this about. In the end the Americans will imitate it, or they will suffer from a hopeless disadvantage in their financial competition with England. Commercial development is broadly illustrating one profound truth: that the real basis of social morality is self-inter- est. If English banks and insurance companies have become absolutely honest in their administration, it is because the dishonesty of any one of them threatened the prosperity of all.

Must we assume that the Governments of the world, which, presumably, are directed by men as far-sighted as bankers, are permanently to fall below the[Pg 81] banker in their conception of enlightened self-interest? Must we assume that what is self-evident to the banker--namely, that the repudiation of engagements, or any attempt at financial plunder, is sheer stupidity and commercial suicide--is for ever to remain unperceived by the ruler? Then, when he realizes this truth, shall we not at least have made some progress towards laying the foundations for a sane international polity?

The following correspondence, provoked by the first edition of this book, may throw light on some of the points dealt with in this chapter. A correspondent of London Public Opinion criticized a part of the thesis here dealt with as a "series of half-truths," questioning as follows:

What is "natural wealth," and how can trade be carried on with it unless there are markets for it when worked? Would the writer

maintain that markets cannot be permanently or seriously affected by military conquests, especially if conquest be followed by

the imposition upon the vanquished of commercial conditions framed in the interests of the victor?... Germany has derived, and continues to derive, great advantages from the most-favored-nation clause which she compelled France to insert in the Treaty of Frankfurt.... Bismarck, it is true, underestimated the financial resilience of France, and was sorely disappointed when the French paid off the indemnity with such astonishing rapidity, and thus liberated themselves from the equally[Pg 82] crushing burden of having

to maintain the German army of occupation. He regretted not having demanded an indemnity twice as large. Germany would not repeat the mistake, and any country having the misfortune to be vanquished by her in future will be likely to find its commercial prosperity compromised for decades.

To which I replied:

Will your correspondent forgive my saying that while he talks of half-truths, the whole of this passage indicates the domination of that particular half-truth which lies at the bottom of the illusion with which my book deals?

What is a market? Your correspondent evidently conceives it as a place where things are sold. That is only half the truth. It is a place where things are bought and sold, and one operation is impossible without the other, and the notion that one nation can sell for ever and never buy is simply the theory of perpetual motion applied to economics; and international trade can no more be based upon perpetual motion than can engineering. As between economically highly-organized nations a customer must also be a competitor, a fact which bayonets cannot alter. To the extent to which they destroy him as a competitor, they destroy him, speaking generally, and largely, as a customer.

The late Mr. Seddon conceived England as making her purchases with "a stream of golden sovereigns" flowing from a stock all

the time getting smaller. That "practical" man, however, who so despised "mere theories," was himself the victim of a pure theory,

and the picture which he conjured up from his inner consciousness has no existence in fact. England has hardly enough gold to pay one year's taxes, and if she paid for[Pg 83] her imports in gold she would exhaust her stock in three months; and the process by which she really pays has been going on for sixty years. She is a buyer just as long as she is a seller, and if she is to afford a market to Germany she must procure the money wherewith to pay for Germany's goods by selling goods to Germany or elsewhere, and if that process of sale stops, Germany loses a market, not only the English market, but also those markets which depend in their turn upon England's capacity to buy--that is to say, to sell, for, again, the one operation is impossible without the other.

If your correspondent had had the whole process in his mind instead of half of it, I do not think that he would have written the passages I have quoted. In his endorsement of the Bismarckian conception of political economy he evidently deems that one na-tion's gain is the measure of another nation's loss, and that nations live by robbing their neighbors in a lesser or greater degree. This is economics in the style of Tamerlane and the Red Indian, and, happily, has no relation to the real facts of modern commercial intercourse.

The conception of one-half of the case only, dominates your correspondent's letter throughout. He says, "Germany has derived, and continues to derive, great advantage from the most-favored-nation clause which she compelled France to insert in the Treaty of Frankfurt," which is quite true, but leaves out the other half of the truth, somewhat important to our discussion--viz., that France has also greatly benefited, in that the scope of fruitless tariff war has been by so much restricted.

A further illustration: Why should Germany have been sorely disappointed at France's rapid recovery? The German people are

not going to be the richer for having a poor neighbor--on the contrary, they are[Pg 84] going to be the poorer, and there is not an

economist with a reputation to lose, whatever his views of fiscal policy, who would challenge this for a moment.

How would Germany impose upon a vanquished England commercial arrangements which would impoverish the vanquished and enrich the victor? By enforcing another Frankfurt treaty, by which English ports should be kept open to German goods? But that is precisely what English ports have been for sixty years, and Germany has not been obliged to wage a costly war to effect it. Would Germany close her own markets to our goods? But, again, that is precisely what she has done--again without war, and by a right which we never dream of challenging. How is war going to affect the question one way or another? I have been asking for a detailed answer to that question from European publicists and statesmen for the last ten years, and I have never yet been answered, save by much vagueness, much fine phrasing concerning commercial supremacy, a spirited foreign policy, national prestige, and much else, which no one seems able to define, but a real policy, a modus operandi, a balance-sheet which one can analyze, never. And until such is forthcoming I shall continue to believe that the whole thing is based upon an illusion.

The true test of fallacies of this kind is progression. Imagine Germany (as our Jingoes seem to dream of her) absolute master of Europe, and able to dictate any policy that she pleased. How would she treat such a European empire? By impoverishing its component parts? But that would be suicidal. Where would her big industrial population find their markets?[15] If she set out to develop and enrich the component parts, these would become[Pg 85] merely efficient competitors, and she need not have undertaken the costliest war of history to arrive at that result. This is the paradox, the futility of conquest--the great illusion which the history of our own Empire so well illustrates. We British "own" our Empire by allowing its component parts to develop themselves in their own way, and in view of their own ends, and all the empires which have pursued any other policy have only ended by impoverishing their own populations and falling to pieces.

Your correspondent asks: "Is Mr. Norman Angell prepared to maintain that Japan has derived no political or commercial advantages from her victories, and that Russia has suffered no loss from defeat?"

What I am prepared to maintain, and what the experts know to be the truth, is that the Japanese people are the poorer, not the richer for their war, and that the Russian people will gain more from defeat than they could possibly have gained by victory, since defeat

will constitute a check on the economically sterile policy of military and territorial aggrandizement and turn Russian energies to social and economic development; and it is because of this fact that Russia is at the present moment, despite her desperate internal troubles, showing a capacity for economic regeneration as great as, if not greater than, that of Japan. This latter country is breaking all modern records, civilized or uncivilized, in the burdensomeness of her taxation. On the average, the Japanese people pay 30 per cent.--nearly one-third--of their net income in taxation in one form or another, and so far have they been compelled to push the progressive principle that a Japanese lucky enough to possess an income of ten thousand a year has to surrender over six thousand of it in taxation, a condition of things which would, of[Pg 86] course, create a revolution in any European country in twenty-four hours. And this is quoted as a result so brilliant that those who question it cannot be doing so seriously![16] On the other side, for the first time in twenty years the Russian Budget shows a surplus.

This recovery of the defeated nation after wars is not even peculiar to our generation. Ten years after the Franco-Prussian War

France was in a better financial position than Germany, as she is in a better financial position to-day, and though her foreign trade

does not show as great expansion as that of Germany--because her population remains absolutely stationary, while that of Germany increases by leaps and bounds--the French people as a whole are more prosperous, more comfortable, more economically secure, with a greater reserve of savings, and all the moral and social advantages that go therewith, than are the Germans. In the same way the social and industrial renaissance of modern Spain dates[Pg 87] from the day that she was defeated and lost her colonies, and it is since her defeat that Spanish securities have just doubled in value.[17] It is since England added the "gold-fields of the world" to her "possessions" that British Consols have dropped twenty points. Such is the outcome in terms of social well-being of military success and political prestige!

[Pg 88] CHAPTER VI

THE INDEMNITY FUTILITY

The real balance-sheet of the Franco-German War--Disregard of Sir Robert Giffen's warning in interpreting the figures--What re-ally happened in France and Germany during the decade following the war--Bismarck's disillusionment--The necessary discount to be given an indemnity--The bearing of the war and its result on German prosperity and progress.

In politics it is unfortunately true that ten dollars which can be seen bulk more largely in the public mind than a million which hap-pen to be out of sight but are none the less real. Thus, however clearly the wastefulness of war and the impossibility of effecting by its means any permanent economic or social advantage for the conqueror may be shown, the fact that Germany was able to exact an indemnity of a billion dollars from France at the close of the war of 1870-71 is taken as conclusive evidence that a nation can "make money by war."

In 1872, Sir Robert (then Mr.) Giffen wrote a notable article summarizing the results of the Franco-German War thus: it meant to

France a loss of 3500 million dollars, and to Germany a total net gain of 870 millions, a money difference in favor of Germany[Pg

89] exceeding in value the whole amount of the British National Debt!

An arithmetical statement of this kind seems at first sight so conclusive that those who have since discussed the financial outcome

of the war of 1870 have quite overlooked the fact that, if such a balance-sheet as that indicated be sound, the whole financial history

of Germany and France during the forty years which have followed the war is meaningless.

The truth is, of course, that such a balance-sheet is meaningless--a verdict which does not reflect upon Sir Robert Giffen, because he drew it up in ignorance of the sequel of the war. It does, however, reflect on those who have adopted the result shown on such

a balance-sheet. Indeed, Sir Robert Giffen himself made the most important reservations. He had at least an inkling of the practical

difficulties of profiting by an indemnity, and indicated plainly that the nominal figures had to be very heavily discounted.

A critic[18] of an early edition of this book seems to have adopted most of Sir Robert Giffen's figures, disregarding, however, certain of his reservations, and to this critic I replied as follows:

The Great Illusion - The Original Classic Edition

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