The Great Illusion Part 3

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 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 a.s.sured, 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 a.s.sure 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 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]

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 a.s.sured 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 Holland 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 _not_ a.s.sured; 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_ a.s.sured.

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 ma.s.s 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. 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 a.s.sume 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 owners.h.i.+p?_ 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 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 a.s.set 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 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 n.o.body 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 "owners.h.i.+p" 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 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 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 with the administrative ent.i.ties, 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.

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.

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 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 savage peoples, in that order was subst.i.tuted 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 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 occupied 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 s.h.i.+lling'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 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 pa.s.s 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 hara.s.sed, 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 famine. 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 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-operate 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 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 fas.h.i.+on 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 country is at one and the same time, as well as being a compet.i.tor and a rival, a client and a market. Financial and commercial solidarity is increasing every day at the expense of commercial and industrial compet.i.tion. This was certainly one of the princ.i.p.al 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 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 inst.i.tution in Germany that would escape grave damage--a damage in credit and security so serious as to const.i.tute 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 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 pa.s.sages:

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 a.s.suage 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 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 a.s.sisted 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 a.s.sistance. 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.