The American Empire Part 14

The immense productivity of the present-day system of industry has added greatly to the amount of surplus seeking investment. Each invention, each labor saving device, each subst.i.tution of mechanical power that multiplies the productive capacity of industry at the same time increases the surplus at the disposal of the plutocracy.

The surplus must be disposed of. There is no other alternative. If hats, flour and gasoline are piled up in the warehouses or stored in tanks, no more of these commodities will be made until this surplus has been used.

The whole economic system proceeds on the principle that for each commodity produced, a purchaser must be found before another unit of the commodity is ordered. Demand for commodities stimulates and regulates the machinery of production.

Those in control of the modern economic system have no choice but to produce surplus, and once having produced it, they have no choice except to dispose of it. An inexorable fate drives them onward--augmenting their burdens as it multiplies their labors.

Investment opportunities, of necessity, are eagerly sought by the plutocracy, since the law of their system is "Invest or perish"!

Invest? Where? Where there is some demand for surplus capital--that is in "undeveloped countries."

The necessity for disposing of surplus has imposed upon the business men of the world a cla.s.sification of all countries as "developed" or "undeveloped." "Developed" countries are those in which the capitalist processes have gone far enough to produce a surplus that is sufficient to provide for the upkeep and for the normal expansion of industry. In "developed" countries mines are opened, factories are built, railroads are financed, as rapidly as needed, out of the domestic industrial surplus. "Undeveloped" countries are those which cannot produce sufficient capital for their own needs, and which must, therefore, depend for industrial expansion upon investments of capital from the countries that do produce a surplus.

"Developed" countries are those in which the modern industrial system has been thoroughly established.

The contrast between developed and undeveloped countries is made clear by an examination of the investments of any investing nation, such as Great Britain. Great Britain in 1913 was surrounded by rich, prosperous neighbors--France, Germany, Holland, Belgium. Each year about a billion dollars in English capital was invested outside of the British Isles.

Where did this wealth go? The chief objectives of British investment, aside from the British Dominions and the United States, were (stated in millions of pounds) Argentine 320; Brazil 148; Mexico 99; Russia 67; France 8 and Germany 6. The wealth of Germany or France is greater than that of Argentine, Brazil and Mexico combined, but Germany and France were developed countries, producing enough surplus for their own needs, and, therefore, the investable wealth of Great Britain went, not to her rich neighbors, but to the poorer lands across the sea.

Each nation that produces an investable surplus--and in the nature of the present economic system, every capitalist nation must some day reach the point where it can no longer absorb its own surplus wealth--must find some undeveloped country in which to invest its surplus. Otherwise the continuity of the capitalist world is unthinkable. Great Britain, Belgium, Holland, France, Germany and j.a.pan all had reached this stage before the war. The United States was approaching it rapidly.

3. _"Undeveloped Countries"_

Capitalism is so new that the active struggle to secure investment opportunities in undeveloped countries is of the most recent origin. The voyages which resulted in the discovery, by modern Europeans, of the Americas, Australia, j.a.pan, and an easy road to the Orient, were all made within 500 years. The actual processes of capitalism are products of the past 150 years in England, where they had their origin. In France, Germany, Italy and j.a.pan they have existed for less than a century. The great burst of economic activity which has pushed the United States so rapidly to the fore as a producer of surplus wealth dates from the Civil War. Only in the last generation did there arise the financial imperialism that results from the necessity of finding a market for investable surplus.

The struggle for world trade had been waged for centuries before the advent of capitalism, but the struggle for investment opportunities in undeveloped countries is strictly modern. The matter is strikingly stated by Amos Pinchot in his "Peace or Armed Peace" (Nov. 11, 1918).

"If you will look at the maps following page 554 of Hazen's 'Europe since 1815,' or any other standard colored map showing Africa and Asia in 1884, you will see that, but for a few rare spots of coloration, the whole continent of Africa is pure white. Crossing the Red Sea into Arabia, Persia, Mesopotamia and Asia Minor, you will find the same or rather a more complete lack of color. This is merely the cartographer's way of showing, by tint and lack of tint, that at that time Africa and Western Asia were still in the hands of their native populations.

"Let us now turn to the same maps thirty years later, i.e., in 1914. We find them utterly changed. They are no longer white, but a patch work of variegated hues....

"From 1870 to 1900, Great Britain added to her possessions, to say nothing of her spheres of influence, nearly 5,000,000 square miles with an estimated population of 88,000,000. Within a few years after England's permanent occupation of Egypt, which was the signal for the renaissance of French colonialism, France increased hers by 3,500,000 square miles with a population of 37,000,000, not counting Morocco added in 1911. Germany, whose colonialism came later, because home and nearby markets longer absorbed the product of her machines, brought under her dominion from 1884 to 1899 1,000,000 square miles with an estimated population of 14,000,000."

This is a picture of the political effects that followed the economic causes summed up in the term "financial imperialism."

In the seventeenth and eighteenth centuries it was the trader, dealing in raw stuff; in the nineteenth century it was the manufacturer, producing at low cost to cut under his neighbor's price. During the past thirty years the investment banker has occupied the foreground with his efforts to find safe, paying opportunities for the disposal of the surplus committed to his care. British bankers, French bankers, German bankers, Belgian bankers, Dutch bankers--all intent upon the same mission--because behind all, and relentlessly driving, were the acc.u.mulating surpluses, demanding an outlet. European bankers found that outlet in Africa, Asia, Australia and the Americas. The stupendous strides in the development of the resources in these countries would have been impossible but for that surplus of European capital.

The undeveloped countries to-day have the same characteristics,--virgin resources, industrial and commercial possibilities, and in many cases cheap labor. This is true, for example, in China, Mexico and India. It is true to a less extent in South America and South Africa. The logical destination of capital is the point where the investment will "pay."

The investor who has used up the cream of the home investment market turns his eyes abroad. As a recent writer has suggested, "There is a glamor about the foreign investment" which does not hold for a domestic one. Foreign investments have yielded such huge returns in the past that there is always a seeming possibility of wonderful gains for the future.

The risk is greater, of course, but this is more than offset by the increased rate of return. If it were not so, the wealth would be invested at home or held idle.

4. _The Great Investing Nations_

The great industrial nations are the great investing nations. An agriculture community produces little surplus wealth. Land values are low, franchises and special privileges are negligible factors. There can be relatively little speculation. Changes in method of production are infrequent. Changes in values and total wealth are gradual. The owning cla.s.s in an agriculture civilization may live comfortably. If it is very small in proportion to the total population it may live luxuriously, but it cannot derive great revenues such as those secured by the owning cla.s.ses of an industrial civilization.

Industrial civilization possesses all of the factors for augmenting surplus wealth which are lacking in agricultural civilizations. Changes in the forms of industrial production are rapid; special privilege yields rich returns and is the subject of wide speculative activity; land values increase; labor saving machinery multiplies man's capacity to turn out wealth. As much surplus wealth might be produced in a year of this industrial life as could have been turned out in a generation or a century of agricultural activity or of hand-craft industry.

England, France, Germany, Holland, Belgium, j.a.pan and the United States, the great industrial nations, have become the great lending nations.

Their search for "undeveloped territory" and "spheres of influence" is not a search for trade, but for an opportunity to invest and exploit. If these nations wished to exchange cotton for coffee, or machinery for wheat on even terms, they could exchange with one another, or with one of the undeveloped countries, but they demand an outlet for surplus wealth--an outlet that can only be utilized where the government of the developed country will guarantee the investment of its citizens in the undeveloped territory.

The investing nations either want to take the raw products of the undeveloped country, manufacture them and sell them back as finished material (the British policy in India), or else they desire to secure possession of the resources, franchises and other special privileges in the undeveloped country which they can exploit for their own profit (the British policy in South America).

The Indians, under the British policy, are thus in relatively the same position as the workers in one of the industrial countries. They are paid for their raw material a fraction of the value of the finished product. They are expected to buy back the finished product, which is a manifest impossibility. There is thus a drastic limitation on the exploitation of undeveloped countries, just as there is a limitation on the exploitation of domestic labor. In both cases the people as consumers can buy back less in value than the exploiters have to sell.

Obviously the time must come when all the undeveloped sections of the world have been exploited to the limit. Then surplus will go a-begging.

Some of the investors in the great exploiting nations have abandoned the idea of making huge returns by way of the English policy in India.

Instead the investors in every nation are buying up resources, franchises and concessions and other special privileges in the undeveloped countries and treating them in exactly the same way that they would treat a domestic investment. In this case the resources and labor of the undeveloped country are exploited for the profit of the foreign investor.

The Roman conquerors subjugated the people politically and then exacted an economic return in the form of tribute. The modern imperialists do not bother about the political machinery, so long as it remains in abeyance, but content themselves with securing possession of the economic resources of a region and exacting a return in interest and dividends on the investment. Political tribute is largely a thing of the past. In its place there is a new form--economic tribute--which is safer, cheaper, and on the whole far superior to the Roman method of exploiting undeveloped regions.

5. _The American Home Field_

A hundred years ago the United States was an undeveloped country. Its resources were virgin. Its wealth possibilities were immense. Both domestic and foreign capitalists invested large sums in the ca.n.a.ls, the railroads and other American commercial and industrial enterprises. The rapid economic expansion of recent years has involved the outlay of huge sums of new capital.

The total capital invested in manufactures was 8,975 millions in 1899 and 22,791 millions in 1914. The total of railway capital was 11,034 millions in 1899 and 20,247 millions in 1914. Manufacturing and railroading alone secured a capital outlay of over 20 billions in 15 years. Some idea of the increase in investments may be gained from the amount of new stocks and bonds listed annually on the New York Stock Exchange. The total amount of new stocks listed for the five years ending with 1914 was 1,420 millions; the total of new bonds was 2,226 million. (_The Financial Review Annual_, 1918, p. 67.) The total capital of new companies (with an authorized capital of at least $100,000) was in 1918, $2,599,753,600; in 1919, $12,677,229,600, and in the first 10 months of 1920, $12,242,577,700. (Bradstreets, Nov. 6, 1920, p. 731.) The figures showing the amount of stocks and bonds issued do not by any means exhaust the field of new capital. Reference has already been made to the fact that the United States Steel Corporation, between 1903 and 1918 increased its issues of stocks and bonds by only $31,600,000, while, in the same time its a.s.sets increased $987,000,000. The same fact is ill.u.s.trated, on a larger scale, in a summary (_Wall Street Journal_, August 7, 1919) of the finances of 104 corporations covering the four years, December 31, 1914, to December 31, 1918. During this time, six of the leading steel companies of the United States increased their working capital by $461,965,000 and their surplus by $617,656,000. This billion was taken out of the earnings of the companies. Concerning the entire 104 corporations, the _Journal_ notes that, "After heavy expenditures for new construction and acquisitions, and record breaking dividends, they added a total of nearly $2,000,000,000 to working capital." In addition, these corporations, in four years, showed a gain of $1,941,498,000 in surplus and a gain in inventories of $1,522,000,000.

Considerable amounts of capital are invested in private industry, by individuals and partners.h.i.+ps. No record of these investments ever appears. Farmers invest in animals, machinery and improved buildings--investments that are not represented by stocks or bonds.

Again, the great corporations themselves are constantly adding to their a.s.sets without increasing their stock or bond issues. In these and other ways, billions of new capital are yearly absorbed by the home investment market.

Although most of the enterprises of the United States have been floated with American capital, the investors of Great Britain, Holland, France and other countries took a hand. In 1913 the capitalists of Great Britain had larger investments in the United States than in any other country, or than in any British Dominion. (The U. S., 754,617,000 pounds; Canada and Newfoundland, 514,870,000 pounds; India and Ceylon, 378,776,000 pounds; South Africa, 370,192,000 pounds and so on.) (_Annals_, 1916, Vol. 68, p. 28, Article by C. K. Hobson.) The aggregate amount of European capital invested in the United States was approximately $6,500,000,000 in 1910. Of this sum more than half was British. ("Trade Balance of the United States," George Paisch. National Monetary Commission, 1910, p. 175.)

By the beginning of the present century (the U. S. Steel Corporation was organized in 1901) the main work of organization inside of the United States was completed. The bankers had some incidental tasks before them, but the industrial leaders themselves had done their pioneer duty. There were corners to be smoothed off, and bearings to be rubbed down, but the great structural problems had been solved, and the foundations of world industrial empire had been laid.

6. _Leaving the Home Field_

The Spanish-American War marks the beginning of the new era in American business organization. This war found the American people isolated and provincial. It left them with a new feeling for their own importance.

The worlds at home had been conquered. The transcontinental railroads had been built; the steel industry, the oil industry, the coal industry, the leather industry, the woolen industry and a host of others had been organized by a whole generation of industrial organizers who had given their lives to this task.

Across the borders of the United States--almost within arm's reach of the eager, stirring, high-strung men of the new generation, there were tens of thousands of square miles of undeveloped territory--territory that was fabulously rich in ore, in timber, in oil, in fertility. On every side the lands stretched away--Mexico, the West Indies, Central America, Canada--with opportunity that was to be had for the taking.

Opportunity called. Capital, seeking new fields for investment, urged.

Youth, enthusiasm and enterprise answered the challenge.

The foreign investments of the United States at the time of the Spanish-American War were negligible. By 1910 American business men had two billions invested abroad--$700,000,000 in Mexico; $500,000,000 in Canada; $350,000,000 in Europe, and smaller sums in the West Indies, the Philippines, China, Central and South America. In 1913 there was a billion invested in Mexico and an equal amount in Canada. ("Commercial Policy," W. S. Culbertson, New York, Appleton, 1919, p. 315.)

Capital flowed out of the United States in two directions:

1. Toward the resources which were so abundant in certain foreign countries.

2. Toward foreign markets.

7. _Building on Foreign Resources_