D 635 .S4 Copy 1 AN ECONOMIC INTERPRETATION OF THE WAR BY EDWIN R. A. 3ELIGMAN McVickar Professor of Political Economy, Columbia University TifipTinted from ' PROBLEMS OF READJUSTMENT AFTER THE WAR ' D. APPLETON AND COMPANY NEW YORK 1915 ^\ II AN ECONOMIC INTEEPRETATION OF THE WAR Edwin R, A. Seligman There have been almost as many explanations of the great war as there have been writers. The explanations, moreover, have ranged over a very wide field : personal jealousies, dynastic differences, militarism, wounded pride, the en- deavor to round out political boundaries, racial antagonism, not to speak of such high-sounding phrases as struggle for liberty, or fight for na- tional existence — all these and many more have been advanced for popular consumption. What is lacking in them all, however, is a realiza- tion of the fact that a conflict on this gigantic scale must be explained on broader lines than any of those mentioned. Wherever our sym- pathies may lie in the present struggle, it be- hooves us, as students of the philosophy of his- 37 PROBLEMS OF READJUSTMENT tory, to take a position far removed from the petty interests of any of the contending par- ties. Servia tells us that she is fighting for independence; Austria maintains that she is struggling against political disruption; Russia asserts that she is contending for the liberties of the smaller Balkan States ; France urges that she is endeavoring to restore freedom to her lost provinces ; England puts in the foreground resistance to the insolent pretensions of mili- tarism and protection of small nationalities; Germany claims a place in the sun; and Japan — well, Japan is fighting to defend large rather than small nationalities, that is, to free China from German domination. In each country, with scarcely a single exception, there has been a truly national uprising. Each of the contestr ants considers that he is fighting for a hol^ cause, and is thoroughly convinced not only of the justice of his own claims but of the infamy of his adversary's. Rarely in the world's his- toiy has there been presented such a spectacle of genuine and universal enthusiasm penetrat- ing every nook and cranny of the belligerent countries, combined not only with an utter in- ability on the part of each to understand the position of the other, but also with a fierce and 38 Gift AN ECONOMIC INTERPRETATION implacable hatred between tbe more prominent contestants. But if, amid the actual clash of arms, it is impossible for any of the belligerents to see the situation in its true light, is there any excuse for us, as neutrals and would-be philosophers, to content ourselves with the explanations, that are born of mutual prejudice! Is it not rather incumbent upon us to realize that there are deeper world forces at work which are respon- sible for the present titanic conflict ; and if so, is it not somewhat hasty to endeavor to appor- tion praise or blame for what is the inevitable!*^ result of world forces? The starting-point of our analysis is the ex- istence of nationality. Modern, as distinct from medieval, and in part from ancient, political, life, is erected on national foundations. The city states of classic antiquity or of the Middle Ages, although forming political entities, had no direct relation to the facts of nationality. There were in fact no nations : there were peo- ples and races and states, but no nations. The Greek states warred with each other, and there was an Hellenic people; but there was no Greek nation. Rome overran the world, and the Roman Empire included many peoples and 39 PROBLEMS OF READJUSTMENT races ; but we cannot properly speak of a Roman nation. In the later Middle Ages, the Italian and the German cities were often at war with their neighbors; but there was no Italian state or German state, and still less an Italian nation or a German nation. Modern political organi- zation, on the other hand, is framed on national lines ; and it is now universally recognized that the creation in the seventeenth century of the first great national states on the continent, as well as the solidification of the British common- wealth, was due to economic forces. It was now that what the economists call the local or town economy gave way to the national economy ; it was now that land as a predominant economic force was replaced or supplemented by com- mercial and industrial capital. Land in its very nature is local; capital, in its essence, trans- cends local bounds. The rise of the national state was an accompaniment of the change in economic conditions. From that time to this the basis of national life has been economic in character. I do not, of course, desire for a moment to deny that other factors have contributed. National con- sciousness is a subtle product of many forces, among which geographical situation, common 40 AN ECONOMIC INTERPRETATION language, inherited traditions and similar so- cial and political ideals have all contributed to perpetuate the racial characteristics which differentiate one nation from another. That racial and even religious differences have in the past frequently led to sanguinary contests goes mthout saying; and he would be ven- turesome indeed who would dare to predict that the future has not in store for the world many a conflict referable to these same causes. If, however, we trace the history of the world during the past few centuries we are struck by the fact that, on the one hand, nations of dif- ferent races have lived together in complete amity, and that, on the other hand, separate nations belonging to the same race and the same religion have often indulged in the most vio- lent conflicts. Examples like the war between England and the United States, between Chile and Peru, between Prussia and Austria, could easily be multiplied. If in these cases the old explanation of racial antagonism obviously does not suffice ; if on the contrary the political con- tests in such cases were due to more fundamen- tal economic causes, is it not fair to assume that as between nations of different races as well, 41 PROBLEMS OF READJUSTMENT similar economic causes often lie at the bottom of the controversy? While economic considerations indeed do not by any means explain all national rivalry, they often illumine the dark recesses of history and afford on the whole the most weighty and satis- factory interpretation of modern national con- tests which are not clearly referable to purely racial antagonisms alone. The present strug- gle is without doubt to be put into the same category. To say, however, that nationalism in its economic aspects is the root of the present trouble is not yet adequate. For we have still to explain why there should have been such a recrudescence of nationalism of recent years. On the contrary, it might be asked, if the mod- ern age is essentially a capitalist age, why should we not, in the face of the international aspects of capitalism, have a growth of inter- nationalism rather than of nationalism? Why should we not be on the brink of that era of imiversal free trade, of permanent peace and of international -brotherhood for which Adam Smith and the Manchester School so valiantly contended ? Why is it that after the downfall of the Mercantile System — which was nothing but the economic side of the great national move- 42 AN ECONOMIC INTERPRETATION ment of the seventeenth and the eighteenth cen- turies — we should witness, hand in hand with the undoubted growth of international inter- course and mutual understanding, the revival of the so-called Neo-mercantilism, as found a generation ago in almost all the continental nations of Europe as well as in the United States? And why should we at this very mo- ment be in the presence of an almost universal emergence of national consciousness which threatens to destroy well-nigh everything that has been won during the nineteenth century, and which in its deplorable aspects is typified no less by the Oxford pamphlets of the English scientists than by the fulminations of the German professors or the decisions of the French learned societies? What are the world forces which compel human beings, almost per- haps against their will, to act as do the foremost representatives of our present-day civiliza- tion? If I read history aright, the forces that are chiefly responsible for the conflicts of political groups are the economic conditions affecting the group growth. These conditions have of course assumed a different aspect in the course of history. The first and most obvious reason 43 PROBLEMS OF READJUSTMENT leading to an expansion of a political group is the desire to insure a food suppl}^ for the grow- ing population. It is today a fairly well estab- lished fact that the forces which set in move- ment the migration of the peoples from Asia to Europe and which were responsible for the so-called irruption of the barbarians were pri- marily the inability to maintain the flocks and herds, owing to the gradual desiccation of the original home, and the necessity of seeking fresh pastures abroad. We have recently been taught that the secret of the implacable enmity between Rome and Carthage was the desire to retain Sicily as the granary of the world. The need of an adequate food supply is the first con- cern of every political entity. The next step in the economic basis of po- litical expansion is the desire to develop the productive capacity of the community. This al- ways assumes one of two forms. Where agri- cultural methods are still primitive and agri- cultural capital insignificant, the system of cul- tivation is necessarily extensive. As a conse- quence, and especially in those countries where slavery has developed, the need of a continual supply of fresh land as a basis for profitable slave cultivation, becomes imperative. It is this 44 AN ECONOMIC INTERPRETATION fact which explains the Mexican War in the history of the United States, as well as number- less conflicts of former ages in other parts of the w^orld. On the other hand, where agriculture has been supplemented by an active commercial in- tercourse, and especially in the case of coun- tries contiguous to the sea, the desire for the in- crease of wealth based on commercial profits has in the past everywhere led to a struggle for the control of the trade routes. From the time of Phoenicia down to the domination re- spectively of the Hanse towTis and of Venice, the grandeur and decay of civilization may al- most be written in terms of sea power. All these changes, however, were anterior to the growth of modern nationalism. What, then, are the points in which modern struggles differ from their predecessors? From this point of view it may be said that the first stage of modern nationalism represents an analogy rather than a contrast ; and that it is only in the later stages that the real differ- ences are to be sought. In the first stage of modern nationalism we find in fact a combina- tion of the three forces which, as we have seen, played so important a role in former times. 45 PROBLEMS OF READJUSTMENT The closing of the land route to India, through the Mohammedan conquest of Con- stantinople, and the discovery of the New World were the two chief factors which led to the development of nationality in the sixteenth and seventeenth centuries. It was at this time that the great colonial empires of Spain, Por- tugal, Holland, France and England were formed. The struggle to protect the economic interests involved in the colonial system led necessarily to an organization on a national scale. The real basis of the early colonial sys- tem, however, was the attempt to secure either raw materials for the incipient manufactures of the mother country, or crude articles like the spices from the East Indies, or treasure from America. The early colonial system, which itself marks the transition from medieval feudalism to modern capitalism, thus represents an attempt to increase the area of the supply of certain kinds of food, or the endeavor to expand the basis of productivity by the acquisi- tion of fresh land calculated to yield raw ma- terials or, finally, the effort to secure what was considered the essence of wealth itself in the shape of the precious metals. In order to ac- complish each of these results, a great navy 46 AN ECONOMIC INTERPRETATION was necessary, and such a navy could be pro- vided and maintained only along national lines. Before long, however, the accumulation of capital derived from the profits of the colonial empire found its chief utilization in an appli- cation to industry; and as this capital grad- ually percolated through business enterprise, the whole form of economic organization was changed. In the place of the medieval guild system where the same individual bought the raw material, fashioned the commodity, and sold the product to the consumer, there now' grew up what was later on known as the do- mestic system, that is, the system where the first and third stages of the process were in the hands of capitalists who could both buy the raw material and sell the product on a large scale, while the second stage in the process was still carried on by the individual workman in his own home. The emphasis was consequently now put upon the protection of this national industry against its rivals, and the colonies henceforth became important, not so much as sources of raw material as, on the other hand, favorable markets for the commodities manu- factured in the mother country. The so-called Mercantile System was badly named: because 47 PROBLEMS OF READJUSTMENT although it is true that the prosperity of both colonies and mother country depended on the interchange of products carried on through overseas commerce, the essence of the system was the development of domestic industry on a national scale. The great wars of the seven- teenth and eighteenth centuries, fought in or- der to contt'ol the sea and to expand the colonial empire, all had in view the development of the nascent industry on capitalist lines. Protec- tion of industry was, therefore, the character- istic mark of nationalism during this period. With the advent of the nineteenth century, however. Great Britain was ready to enter upon the next stage of development. Having built up her industry by the most extreme and ruth- less system of protection that the world has ever known, and having wrested a large part of her world empire from her competitors, Eng- land now found it to her interest to go over from a system of protection to one of free trade. The free-trade movement, as is almost always the case with great economic transitions, was only ostensibly in the interests of the consumer, but actually in the interests of the producer. Thanks to a favorable conjuncture of events fa- miliar to all scholars, the industrial revolution 48 AN ECONOMIC INTERPRETATION — which means the complete application of cap- italism to every stage of the productive process — took place first in England, and thus consoli- dated her position of industrial primacy. But as free trade and universal peace were obvi- ously the means best calculated to perpetuate this industrial monopoly, we find Great Britain from this time onward desirous of living in amity with all those countries which had for- merly been her rivals, but which were now hope- lessly distanced in the industrial race and which were henceforth to be regarded as the most desirable markets for the output of British fac- tories. With the gradual spread of the factory sys- tem, however, into the continental countries, a new situation was engendered. In the first place, economic pressure upon Germany and Italy gradually resulted in the creation of a political nationality in order to mobilize the economic forces on a national scale. As a con- sequence, we find emanating from those coun- tries, as soon as nationality was achieved, pre- cisely the same movement of protection to in- dustry which had characterized the Mercantile System several centuries earlier. Just as na- tionalism was the real basis of the early Mer- 49 PROBLEMS OF READJUSTMENT cantilism, so this movement now came to be called Neo-mercantilism. In France, indeed, where, as we know, nationalism had been achieved at an earlier date, the new move- ment assumed a slightly different form, namely, that of competition for the mar- kets of the world. It was this competi- tion for the world market which now, after the period of quiescence and universal good will during the sixties and seventies, led in the eighties to the new movement for the in- crease of the colonial empire on the part of both England and France, and which at one time almost threatened to bring those two great na- tions into collision in Africa. Moreover, the advent of the industrial revolution in Germany and the transition from the domestic to the factory system immensely increased the tempo of the evolution. Whereas in the first decade after the formation of the German Empire the chief emphasis was put by Bismarck upon pro- tection, now towards the close of the century the national industry had been built up to such an extent that Germany soon joined France in competing for the world market against Eng- land. This transition from a period of protection 50 AN ECONOMIC INTERPRETATION to a period of competition for markets would not, however, have sufficed to bring about the present gigantic struggle. The most important phase of modern industrial capitalism still re- mains to be explained. After national industry has been built up through a period of protec- tion, and after the developed industrial coun- tries have replaced the export of raw materials by the export of manufactured commodities, there comes a time when the accumulation of industrial and commercial profits is such that a more lucrative use of the surplus can be made abroad in the less developed countries than at home with the lower rates usually found in an older industrial system. In other words, the emphasis is now transferred from the export of goods to the export of capital. England reached this stage a generation or two ago. For England, as is well known, has largely financed not only North and South America, but also many other parts of the world as well. In fact, the chief explanation of Eng- land's immense excess of imports is to be found in the profits from her surplus capital annually invested over the seas. Because of her later transition to the factory system, France fol- lowed at a subsequent period, but even then 51 PROBLEMS OF READJUSTMENT only to an inconsiderable degree. For in the first place, the virtual cessation in the growth of population prevented any such increase of output as in England, although naturally aug- menting the per capita wealth, and especially the prosperity of the peasant. And in the sec- ond place, since the French are far more con- servative, largely for the reasons just men- tioned, their annual surplus, such as it is, has been invested chiefly in contiguous countries like Spain and Belgium, and later on, for obvi- ous reasons, in Russia. Thus France did not develop into any serious competitor of Eng- land in the capital market of the world. On the other hand, the significant aspect of recent development is the entrance of Germany upon this new stage of development. The industrial progress of Germany has been so prodigious and the increase of her population so great, that with the opening years of the present century she also began on a continually larger scale to export capital as well as goods. It was this attempt to enter the preserves hith- erto chiefly in the hands of Great Britain that really precipitated the trouble. For if tihe growth of national wealth depends upon the tempo of the accumulation of national 52 AN ECONOMIC INTERPRETATION profits, and if the rate of profits is, as we have seen, far greater in the application of capital to industrially undeveloped coun- tries, it is clear that the struggle for the con- trol of the international industrial market is even more important than was the previous competition for the commercial market. Other and more familiar phases of the eco- nomic struggle have no doubt played their role in the various countries. It is indubitable, for instance, that Russia, still a predominantly agricultural community, is endeavoring to se- cure Constantinople partly in order to obtam an unrestricted vent for her wheat, partly iu order to acquire a port which will not be ice- bound for the greater part of the year, and partly in order further to consolidate the basis of her national wealth. Austria, which is some- what further advanced in industrial develop- ment, is assuredly interested in preventing in- terference with her economic hegemony in the Balkan States. Germany, because of her close union with Austria, is almost equally con- cerned in resisting the Russian pretensions. France, finally, would naturally seek to recover her lost provinces whenever the opportunity for an effective cooperation with Russia pre- 53 PROBLEMS OF READJUSTMENT sented itself. So that those who desire to inter- pret the war on the lines of an economic strug- gle between the Teuton and the Russian civi- lizations would find no little basis for their con- tentions. All these, however, would not suffice to explain the one thing which needs elucida- tion : Why has the present contest attained the dimensions of a veritable world war, and why has it become clear, not only to the dispassion- ate observer, but to the contestants themselves, that the real struggle is between England and Germany ? If, however, Germany and England are the real antagonists, the true interpretation of the war must rest on this antagonism. From this point of view it is significant that England should now for more than three centuries have fought her way up with successive rivals in turn. In the seventeenth century, England's chief fight was against Holland ; in the eighteenth cen- tury her greatest antagonist was France, and now, finally, she has locked horns with Germany. To the student of economic history, the present war, however, was just as inevitable as its pred- ecessors ; in this case, as in the others, it seems unnecessary to advance the minor explanations which are currently found. England's war with 54 AN ECONOMIC INTERPRETATION Holland was a struggle for the control of the seas as a prelude to the expansion of national industry. England's wars with France were contests for colonial empire resting on a com- petition of markets for goods; England's war with Germany marks the final stage of a com- petition involving not simply the export of goods, but the export of capital. While Germany was in the first stage of eco- nomic nationalism she took relatively no inter- est in colonial expansion, but was busily en- gaged in developing her industrial power and in utilizing to that end the same weapon of pro- tection which had served Great Britain in such good stead in preceding centuries. With the consolidation and development of industrial enterprise Germany soon entered upon the sec- ond stage of economic nationalism, that of com- peting for the markets of the world. The ex- port of commodities thus led naturally to co- lonial expansion, as a result of which the early Bismarckian policy was reversed. With the be- ginning of the present century, however, Ger- many entered upon the third stage of economic nationalism, supplementing the export of goods by the export of capital. Now it was that there emerged the real rivalry with England. Now 55 PROBLEMS OF READJUSTMENT for the first time there came into view the pos- sibility of the financial control of large sections of the world, of which Morocco and Asiatic Tur- key are good examples. These efforts for finan- cial control represented a penetration of back- ward countries by a developed capitalism — a peaceful penetration if possible, but a penetra- tion at all costs. For Germany was learning the lesson from England's experience, and was fully aware of the fact that a financial or cap- italistic domination is the surest avenue which leads toward commercial growth and which renders probable the greatest multiplication of profits. This consideration seems of slight weight. Is it not true, it might be urged, that capital is invested in foreign countries by people of all nationalities, and that the stock of modern cor- porations pursuing their activities in any coun- try is distributed among investors of all finan- cial countries'? This criticism, however, does not touch the core of the matter. For in the first place corporation policy is not influenced by the minority stockholders at all ; and it is de- termined, so far as nationality is concerned, by that of the controlling directorate. The fact that the shares of the South African mines were 56 AN ECONOMIC INTERPRETATION traded in on tlie Berlin stock exchange did not affect the close connection of tlie British min- ing corporations with the Boer War. And in the second place, the political influence which goes with financial authority is itself respon- sible for all manner of economic advantages, di- rect and indirect. It would be tedious as well as unnecessary to recite in detail the countless benefits that England has derived from India, or more recently from Egypt, and the number- less subtle ways in which she has contrived, just as every other nation would have done, to retain most of these benefits for herself. For who will in any way doubt that under modem conditions political preferment is the real open sesame to economic advancement! We have only to point to what is taking place at this very moment between China and Japan. The German statesmen were simply learning their lesson from the vast book of English ex- perience. The German economists were, almost to a man, united in the belief that, while it may not always be true that trade naturally follows the flag, it is clearly not open to doubt that political influence paves the way for economic superiority and vastly enhances the opportuni- ties for economic preferment. It was primarily 57 PROBLEMS OF READJUSTMENT to augment this political influence and to clinch these expected financial and commercial advan- tages that a large navy, with coaling places and stations throughout the world, became a neces- sity. This attempt, however, necessarily con- stituted a challenge to England's virtual mo- nopoly of sea power and engendered in both countries the state of mind which has finally re- sulted in the present conflict. To say, then, that either Great Britain or Germany is responsible for the present war, seems to involve a curiously short-sighted view of the situation. Both countries, nay, all the countries of the world, are subject to the sweep of these mighty forces over which they have but slight control, and by which they are one and all pushed on with an inevitable fatality. Eng- land, no less than Germany, Austria no less than Russia, cannot escape this nemesis. How idle is it, therefore, to speculate as to what the particular torch may have been which set fire to the conflagration ! How bootless is it to attempt to estimate from the blue book or the white book or the yellow book which states- man or set of statesmen is responsible for the particular action that led to the declaration of war ! If the war could have been averted now, 58 AN ECONOMIC INTERPRETATION it was bound to break out in the more or less immediate future. Germany like England, Austria like Russia, Italy like Servia, each was simply following the same law which is found in all life from the very beginnings of the indi- vidual cell — the law of expansion or of self- preservation. It is a curious fact that no one should hitherto have attempted to explain the paradox of in- creasing internationalism combined with the recrudescence of the newer nationalism which we are witnessing today. And yet, in the light of the preceding analysis, the explanation is simple. In the earlier days of civilization the stranger was the enemy because the economic unit was the local unit. With the slow growth of trade, these barriers were gradually broken down and the feelings of enmity attenuated, until, as in the Roman Empire, natural law de- veloped as the law common to all peoples. In the same way, in the later Middle Ages, the local antagonisms were disappearing before commercial progress, until we even find dream- ers who several centuries ago welcomed the speedy advent of the universal republic and proclaimed the impending reign of a world citizenship. As we have seen, however, the cre- 59 PROBLEMS OF READJUSTMENT ation of industrial capitalism and the birth of nations in the sixteenth and seventeenth cen- turies consolidated the economic interests along national lines. While individuals now consid- ered themselves citizens of a country rather than of a town, national antagonisms became stronger than the older local antagonisms. Yet after the first fierce onset of national power the forces of internationalism began to assert them- selves, and international law was born, although never becoming a very lusty infant. A little later, however, when Great Britain had com- pleted the first stage of nationalism through protection, it was so clearly to her interest to emphasize the ties that bind nations together, that her philosophers and economists found for a time a more or less ready response to their cosmopolitan teachings among those countries which were not yet quite prepared to start on the road of nationalism. Thus it was that by the middle of the nineteenth century the pre- cepts of Adam Smith were now taken up by Cobden and Bright, and were reechoed in Ger- many, in Italy, in Russia, and in other indus- trially undeveloped parts of the world — with the one significant exception of the United States, which, having entered after the Civil 60 AN ECONOMIC INTERPRETATION War upon her first real stage of nationalism, turned a deaf ear to the preachings of the Man- chester School. With the progress of the industrial revolu- tion in the United States, however, and with her gradual transition from an exporter of food to an exporter of finished products, the United States was ready to take its place side by side with England in preaching the gospel of cosmo- politanism and good will, and in emphasizing the forces which make for the growth of inter- national trade. Had all the nations of the world been on the same level of economic prog- ress, the very existence of capital as an inter- national force would have lent a mighty sup- port to the spread of good feeling and inter- national fellowship. Unfortunately, it was pre- cisely this equality that was lacking. In the absence of such a situation, the exploitation of the capitalistically undeveloped countries by the few nations which had reached the third stage of economic nationalism, that of the ex- port of capital rather than of goods, became the kejmote of a new struggle. Thus it is that modern capital, which on the one hand works toward real internationalism, peace and public morality and which will ultimately be able to 61 PROBLEMS OF READJUSTMENT accomplish its beneficent results, is at the same time responsible for the weakening of inter- national law and the revival of a more con- spicuous and determined nationalism because of the greater prize to be achieved and the fiercer struggle necessary to win it. In the political life of the world today we see the same forces at work as in all life from the very beginning — the forces which we sum up under the terms of the competitive and the cooperative process, the individualistic and the collective movement. Just as the animal or- ganism was built up by a combination of the struggle between the cells and cooperation among them; just as human society has devel- oped through the advance of the individual working hand in hand with the growth of the group ; so the world society that is slowly com- ing to pass is evolving in obedience on the one hand to the competitive spirit of national strug- gle, and on the other, to the cooperative forces of internationalism — both of them inherent in the modern factory system, resting upon indus- trial capitalism. At certain stages in the world's history the one set of forces seems to be in the ascendency, at another stage the opposite set ; but in reality they are complementary and 62 AN ECONOMIC INTERPRETATION are always working together. It is tlie indus- trial revolution with the factory system and the growth of capitalism which has set in motion the mighty forces both of world cooperation and of national antagonism. In the light of what has been said, the pres- ent and the future of the United States form an especially interesting subject for considera- tion. When this nation was born it was for some decades ^veak and puny. It was the genius of Alexander Hamilton which realized the true economic basis of nationality and which at- tempted to start the country on its real career. The gradual dominance of American politics by the South, the economic basis of which was agricultural rather than industrial, was, how- ever, responsible for good as well as for evil. The emphasis upon states ' rights indeed almost destroyed the Union; but the need of a wider basis of productivity under the extensive sys- tem of slave labor was responsible for the Mex- ican War and the rounding out of our imperial domain. It was only with the completion of the Civil War that this country as a whole entered on the first real stage of economic nationalism. Thus it was that the United States, following the example of Great Britain a century before, 63 PROBLEMS OF READJUSTMENT built up an enormous industrial power through a system of national protection. We are now just beginning to reach the stage attained by Great Britain three generations ago, the stage, namely, of transition from the export of agri- cultural products to that of the import of agri- cultural produce and the export of manufac- tured products. We have not yet reached, and it may well be at least another generation be- fore we reach, the third stage of economic na- tionalism, that of the export of capital on a large scale as the typical form of profitable enterprise. When we reach that third stage, which, as we have seen, carries with it the struggle for the exploitation of the relatively undeveloped parts of the world, our real trial will come, and the true conflict between nation- alism and internationalism will begin. Then, and then for the first time since the develop- ment of our national forces, shall we have an opportunity to test the foundation of our his- toric friendship with Great Britain. Then, and then for the first time, will the situation arise when Great Britain, instead of being bound solidly to us by the bonds of her financial in- terest in us, will face the United States as a rival, a rival on the international market for 64 AN ECONOMIC INTERPRETATION the control of tlie capitalistically undeveloped countries. Whether by that time the forces of internationalism will prevail and good will and peace continue, or whether, on the other hand, the United States will be impelled, perhaps against her will, to take the place now occupied by Germany, can be foretold by no one. Finally it may be asked what is to be the outcome of all this? Are wars to go on for- ever? Is the present struggle, gigantic though it be, simply a forerunner of wars still more gigantic! Or, on the other hand, are the dreams of our pacificists to become true, and is universal peace to be realized? If there is any truth in the preceding analy- sis, both of these things are coming in the full- ness of time. That is, we are to have more wars, but we are to have ultimate peace. The reason that we are to have more wars is simply because of the fact that what we call the indus- trial revolution is in reality only a gradual change, and that this change is but slowly per- meating the world. That part of the earth's surface which is occupied by countries with a highly developed industrial capitalism is rela- tively small. Although capitalism is spreading throughout the West and South of the United 65 PROBLEMS OF READJUSTMENT States and effecting a lodgment in Canada and Japan and Russia, it is only beginning in the rest of Asia and Africa as well as in South America and Australia. As long as there are vast stretches of territory still waiting to be developed, so long will they prove to be a lure to the industrially advanced nations of the world. England, and to a much less extent France, have until recently provided this capi- tal. Whatever be the outcome of the present war, however, nothing, if our analysis is cor- rect, can check the ultimate tendency of coun- tries like Germany, and later on Japan and the United States, to be followed still later by other countries, to secure their share of these lucrative opportunities. Whatever may be the immediate results of the present situation, or with whatever great success the attractive and even noble ideal of an imperial British federa- tion may be realized, England can scarcely ex- pect in the long run to retain the monopoly or the domination which it has achieved and which it built up during the nineteenth century as a result of the lucky accident of being the first country to experience the industrial revolution and to exploit her coal supply, England's pri- macy was no doubt deserved, and is assuredly 66 AN ECONOMIC INTERPRETATION welcome to many of us ; but from the point of view of world forces, it is difficult to resist the conclusion that it also is destined to disappear. Rome was able to create a world empire and to maintain it for several centuries because there was no economic expansiveness in the outlying constitutent members of the empire. Great Britain will find it far more difficult to create a world empire permanently dominating all other countries, for the simple reason that in- dustrial capitalism is destined to overrun the world. Even today England is able to retain India only by strict commercial control and by sedulously preventing the growth of any na- tional industry in that huge empire. The above forecast as to the probability of the continuance of war rests indeed on an as- sumption that may be challenged. It might be urged that civilization is progressing so rapidly that the nations of the future will realize the economic waste, the inexpressible horror, and the irreparable ravages of war, and that com- mon decency and ordinary humanity will impel the world into an abandonment of what is essen- tially the mark of savagery. However deeply and even passionately we may desire such a consummation, it must be confessed, in all hu- 67 PROBLEMS OF READJUSTMENT mility, there seems to be sliglit warrant for its expectation. If indeed the chief nations of the world were to abandon all efforts to secure sel- fish advantage for themselves; if an interna- tional pact could be arranged so that each na- tion would cheerfully divide its opportunities with its neighbors, and would welcome the en- trance of continually new claimants into the agreement ; if, in other words, generosity were to replace selfishness in national arrangements, the outlook might, indeed, be very different. But with the frailty of human nature, as it un- fortunately still exists ; with the undoubted na- tional consciousness which is suffused at pres- ent with the distinctively modern emphasis upon the importance of the material basis of the higher life; and above all with the oppor- tunity afforded to each nation to reach out for its share of almost boundless prosperity by grasping the new opportunities afforded to modern capitalism, it seems hopeless to expect any effective resistance to a temptation which is so compelling, so illimitable, and so promis- ing of success under the conditions of actual economic life. No more striking illustration of the real forces that dominate the foreign policy of modern nations can be found than the vain 68 AN ECONOMIC INTERPRETATION effort recently made by certain Italian states- men to repress the popular feeling and to pre- vent their country from joining a war the hor- rors of which had been for months clearly be- fore the eyes of all. Pacificism seems destined, for the near future at least, to remain an unat- tainable ideal; for it is both blind and deaf to the effect of modern capitalism in accentuating, rather than attenuating, the lure of the eco- nomic life. But if, then, we are likely to see during the next few generations wars on an even greater scale than the present one, will this endure for- ever! Not if our analysis is correct. For when once the time comes that industrial capital will have spread to the uttermost parts of the earth ; when China and India and Africa and the rest will all have been as fully supplied with capital as are now Great Britain and Belgiimi and Ger- many; when, in other words, the industrial revolution will have permeated the world, then the economic basis will have been laid for two supreme events. In the first place, there will no longer be any exploitation of the backward countries, because there will be no industrially undeveloped countries to exploit. Then the whole world will be divided up into a series of 69 PROBLEMS OF READJUSTMENT empires, perhaps a dozen or more, on a level of comparative equality economically, and therefore politically. With such a relative equality of industrial development, and in the absence of any important foreign territory to be exploited, each nation will then find it to its interest to develop what is best within itself in order to carry on a peaceful exchange of com- modities with the other nations. Then, and then only, will Adam Smith's dream be realized, namely, that each nation will be able to utilize its own climatic and other economic advantages in a peaceful struggle with other nations. Then, and then only, will universal free trade become profitable to all, and the rule of inter- national amity become enduring. Then, and then only, shall we have the secure foundation laid for the world republic and for the coopera- tion of all races and of all peoples toward a common ideal. In the second place is the industrial revo- lution. Just as the industrial revolution changed England from an aristocracy to a democracy, just as the industrial revolution in the United States is re-creating a new South on a democratic basis, so the spread of the indus- trial revolution will bring democracy through- 70 AN ECONOMIC INTERPRETATION out the world and will enable every country to turn its efforts to tlie ideals of a political and a social democracy. Then we shall not have to spend more money for dreadnoughts than we do for social progress. To predict how soon this change will come about is idle. All that can be said is that the change is in progress, and that in this change there seems to lie the chief hope of the world's future. "What the particular economic organi- zation of the future is to be, it is not the pur- pose of these pages to discuss. My point will have been attained if we clearly keep in mind the inevitable spread of industrial capitalism, irrespective of the fact by whom the capital is to be controlled. Capitalism on an interna- tional scale may well lead during the next few decades to a strengthening of certain forms of international cooperation and fellowship, so ardently desired by all forward-looking think- ers. But industrial capitalism will not have completed its allotted task until it shall have brought about the reign of national economic equality which alone will serve as the basis of an enduring internationalism. Whatever may be the influence of the other factors, ponderable or imponderable, that contribute to civilization, it 71 PROBLEMS OF READJUSTMENT is scarcely open to doubt that the dominant forces which are actually molding history to- day are primarily economic in character, and are as a consequence intimately associated with the great transition that is at present taking place in the economic organization of the world. Unless the present conflict is studied in the light of these world forces, its lesson will not have been read aright. 021 394 574 9