The War and Democracy Part 17

The die has been cast, and even those who most regret Turkey's action cannot shut their eyes to the fact that it inevitably raises the whole question of Constantinople and the Dardanelles. If Germany should emerge victorious, Turkey is likely to fall under a more or less veiled German protectorate. In the event of the victory of the Allies, Turkey may continue to exist as an Asiatic power, but there is little doubt that she will be eliminated from Europe. The only real question is, Who is to replace her? Bulgaria will, it is to be hoped, recover Adrianople and the Enos-Midia line, of which she was so cruelly robbed last year. The fact that the Turks on their re-entry systematically wiped out the entire Bulgarian population of northern Thrace does not weaken, but enormously strengthens, the case for its restoration. But to offer Constantinople to Bulgaria would be a fatal gift. She has absolutely no historic claim to the great city of the Caesars (Tsarigrad, as it is rightly known to every Slav); nor is there even any considerable Bulgarian population which could rally round the new government. The administrative task is obviously far beyond the powers of a small peasant state, most of whose present leaders were born under a foreign yoke. Nor is Greece a serious candidate for the vacant post. The Greeks, of course, unlike the Bulgarians, have a definite claim, based on the traditions of the Byzantine Empire, and there is a large Greek population in the city--at present close upon 350,000, though their numbers are likely to be materially reduced before this war is over.

But in their case also Constantinople would be a fatal gift. The resources even of the enlarged h.e.l.lenic kingdom would inevitably prove unequal to the task. Moreover, it must not be forgotten that a Greek occupation would be opposed on many grounds by the entire commercial community of every other nation in Europe.

In some ways the ideal arrangement would be that Roumania should a.s.sume the administration of the city, as trustee for a reconst.i.tuted Balkan League, with proper guarantees for the commercial rights of all the Powers. But it is to be feared that such a solution would please n.o.body, perhaps not even Roumania herself. A league of the five Balkan kings, with Roumania as _primus inter pares_, is the dream of a remote future, and until it can be realised, Constantinople cannot a.s.sume its natural position as capital of the Balkan peninsula.

--14. _Russia and Constantinople._--In short, as matters stand to-day, there is only one power which can replace the Turks as master of Constantinople, and that power is Russia. The Russians could not of course incorporate the city in their empire for reasons of geography; and this fundamental fact destroys at a blow the numerous objections which might have told against the occupation, if Constantinople had been contiguous to the Russian dominions. It would obviously be necessary to establish a special autonomous administration under a Russian governor. It is by no means impossible that Russia would be satisfied with the expulsion of the Turks and the internationalisation of Constantinople as a free port under a Christian prince or a commission of the Powers. But, though admirable in theory, such a solution would give rise to endless complications and disputes. Unless the Western Powers can trust Russia sufficiently to leave her in full possession, they must make up their minds to bolstering up the impossible Turk for a further period of years. Such a surrender to the unreasoning and ignorant prejudices of a previous generation would be a sure prelude to the collapse of our alliance with Russia, which it is the vital interest of all British patriots to uphold at all costs. Happily, "the fear of Russia," as of a strange and unknown colossus, is dying out, vague fancies inevitably yielding to the hard logic of facts. The Disraeli policy in the Near East must give place once and for all to the broader conceptions of Gladstone, tempered by the cautious statesmans.h.i.+p of Salisbury. The greatest of the Christian Powers must be allowed to replace the cross upon the dome of Saint Sofia. The religious appeal of such a change is clear enough, nor need there be any anxiety on economic grounds.

There is nothing to prevent Constantinople from becoming a free port under the Russian flag, and filling a similar place to that which the free port of Trieste would occupy under the flag of United Italy. Indeed it may be confidently a.s.sumed that the change would give an extraordinary impetus to trade in the whole eastern Mediterranean. The recent history of Batum and Baku is a faint indication of what might be expected.

The fate of the Dardanelles cannot be separated from that of the capital; both must be in the same hands. At the same time a reasonable compensation for their cession to Russia would be the dismantlement of their forts. In any case, whatever their fate may be, it is clear that an end must be put to the galling restrictions upon Russia's Black Sea fleet. The essential point to bear in mind is that if the war goes well with the Allies, and if Russia expresses a definite desire to occupy Constantinople and the straits, resistance on our part would be alike difficult, pointless, and undesirable. Those who oppose have no arguments, so long as the special international needs and conditions of the city are properly recognised and guaranteed. With true Oriental fatalism, the Turk has always regarded his ultimate disappearance from Europe as a certainty; the superst.i.tion which led the inhabitants of Stamboul to prefer burial across the straits in Asia has its parallel in the alarm aroused in the bazaars by the Young Turks'

decision to exterminate the pariah dogs which have for centuries supplied the place of scavengers in the streets of the capital. To-day the prophecy which made their removal the prelude to the departure of their masters seems on the point of fulfillment, and all who believe in the retributive justice of history will re-echo Mr. Asquith's hope that the fall of Ottoman rule will remove "the blight which for generations has withered some of the fairest regions of the world."

--15. _Asiatic Turkey._--What then will be the subsequent fate of the Turks if they are once driven "bag and baggage" across the straits. The Sultan will doubtless transfer his capital to Brussa, or even to Konieh. But can the Khalifate survive such a loss of prestige on the part of the Ottoman dynasty? It would be altogether premature to discuss in anything approaching detail the vast issues of the fate of Turkey's Asiatic dominions, but it is necessary to indicate that even after settling the fate of the straits we shall still be confronted by issues of appalling magnitude. It is the conjunction of the spiritual and temporal power in a single person which has given the Khalifate its importance, and its expulsion from the Golden Horn would transform its whole political status.

Above all, it is necessary to reckon with the Arab nationalist movement which is already a reality and a factor of permanent importance. Here, too, the principle of nationality must be applied, though in a very different sense, for national feeling is of course at a much earlier stage of development among the Arabs than in Central Europe. Hitherto they have accepted the Khalifate of the House of Othman, though without enthusiasm; but recent events are likely to bring to a head the resentment with which they view the spectacle of the Khalif as the helpless tool of a clique which in no way represents Islam. Will they repudiate him and restore the Khalifate to some more authentic descendant of the Prophet? Is there to be an independent Arab power? Will it be practicable to create a central authority amid the virtual anarchy of so vast and primitive a country? Or will Britain, as the chief Mahommedan power, be obliged to a.s.sume a loose protectorate over Arabia and Mesopotamia? If so, will she share this with the French in Syria, and will Lebanon be able to preserve its autonomy?

Only the course of events can provide an answer to such questions; only one fixed point emerges from the surrounding uncertainty--the firm pledge of the British Government that the Holy Places of Islam shall be respected.

Even this does not exhaust the possibilities of the immediate future. Is Palestine to become a Jewish land? In recent years there has been a steady emigration of Moslem and Christian and an equally marked Jewish immigration, and among other factors in the movement the potentialities of Jewish nationalism in the United States deserve especial notice. America is full of nationalities which, while accepting with enthusiasm their new American citizens.h.i.+p, none the less look to some centre in the Old World as the source and inspiration of their national culture and traditions. The most typical instance is the feeling of the American Jew for Palestine, which may well become a focus for his _decla.s.se_ kinsmen in other parts of the world. The Jews quite realise that they can have no exclusive claim to the possession of such a religious centre as Jerusalem, and it is clear that whatever happens to the Holy Land as a whole, the city itself must be subject to an impartial administration, which would be neither Jewish, Catholic, Orthodox, Protestant nor Moslem in any exclusive sense, but would secure free play to the religious and educational aspirations of them all.

Herzl himself, the founder of modern Zionism, dreamt of Jerusalem as the shrine of all religions and never looked forward to the day when it would be a purely Jewish city.

Lastly, what is to be the fate of Asia Minor? There can be no question that the Russians must be allowed to occupy and retain the whole of Turkish Armenia. They will thus be conferring a benefit upon humanity and ending one of the most grinding and barbarous tyrannies that the modern world has ever seen; the progress made by the Armenians under Russian rule during the past twenty years is a happy augury for the future of this race when once united in common allegiance to the Tsar, under a wise system of local autonomy. But will the Ottoman Empire be able to survive when shorn of its European possessions, of its Armenian and Arab populations? Will not Italy demand her share of the spoils, and side by side with the French in Syria, a.s.sume in friendly rivalry the protectorate of Cilicia from a point east of Adalia as far as the gulf of Alexandretta? Will it be possible to arrest the process of disintegration even at this stage? Will not Greece attempt to annex Smyrna and at least a portion of its hinterland, or has she not at least as good a t.i.tle as any other compet.i.tor? Here, again, it would be absurd to attempt any answer for the present, but we must at least be prepared for the possibility of a transformation as rapid and as overwhelming in Asiatic Turkey as that which freed the Balkans from the Turkish nightmare two short years ago. In Asia, as in Europe, the war is the prelude to a new era, and Britain is faced with the alternative of weakly abandoning her Imperial mission or a.s.suming still greater responsibilities. "The Turkish Empire has committed suicide, and dug with its own hand its grave," and to Britain will fall more fully than ever before the leaders.h.i.+p of the Mahommedan world. The loyalty and devotion of the Moslem community in India can best be repaid by the most scrupulous and sympathetic attention to the interests of Islam throughout the world.

--16. _Russia and Poland._--It is no mere accident that Germany, Austria-Hungary, and Turkey should be ranged on the same side in the great European struggle; for they represent, each in its own way, those false conceptions of nationality which have so long envenomed the public life of Europe, and which, for want of better words, have been described as Germanisation, Magyarisation, and Turkification. It would, however, be flagrantly untrue to suggest that those three States enjoyed a monopoly of racial intolerance; for the ideas on nationality which dominated official Russia under the old absolutist regime and which so rapidly regained the upper hand under Stolypin and the triumphant bureaucracy, struck at the very root of tolerance and political liberty. But recent years have revealed a subtle change of att.i.tude. The policy of Russification had not been abandoned; indeed in Finland and the Ukraine it survived in its most odious form. But it was none the less possible to detect a growing note of interrogation even among the bureaucracy, and still more an increasing movement of impatient protest on the part of thinking Russians. Without in any way ignoring what has happened in Persia, we have every right to point to the essential fact that Russia has of her own accord raised the question of nationality and thus set in motion vast forces which are already shaking Europe to its foundations. In proclaiming as one of her foremost aims the restoration of Polish Unity, Russia did not, it is true, commit herself to any concrete project of autonomy. But whether her action represents genuine feeling on the part of the Tsar and his advisers, as M. Gabriel Hanotaux so positively a.s.serts, or whether it was originally a mere manoeuvre to prevent the Polish question being raised against her, it is at least certain that Russia has entered upon a new path from which it will be very difficult if not impossible to recede. The Russian Poles, under the leaders.h.i.+p of M. Dmowski, have rallied loyally round the Tsar; and there are many signs that the long-deferred Russo-Polish _rapprochement_ is at length on the point of fulfillment. Here economic interests play their part, for in recent years the district between Warsaw and Lodz has become one of the chief industrial centres of the Russian Empire, and its annexation to Austria or to Prussia would place a tariff wall between it and the South Russian markets upon which it chiefly depends. The Poles of Galicia, having enjoyed the utmost liberty under Austrian rule, have naturally been almost immune from the discontent so noticeable among their kinsmen in Russia and Prussia, and have indeed for a generation past formed the backbone of all parliamentary majorities in the Austrian Reichsrat.

But even among them the first faint signs of Russophil feeling have been noticeable in the last two years. This is partially due to the encouragement given by the Austrian Government to the Ruthenes in Galicia, but also to the disintegrating effect of universal suffrage upon the Polish political parties, the growth of democratic tendencies at the expense of the Austrophil n.o.bility, and the consequent increased influence of the Poles of Warsaw. Though the Polish parties in Galicia issued declarations of loyalty to Austria at the beginning of the war, and though their _franc-tireurs_ are fighting in the Austrian ranks, there is a growing perception of the fact that the only serious prospect of attaining Polish Unity lies in a Russian victory. Austria, they argue, might, if successful, unite the Russian and Austrian sections (at the expense of the former's economic future!), but never the Prussian; and Prussia, out of loyalty to her ally, could at best add _Russian_ Poland to her own territory: Russia alone can hope, in the event of a victory, to unite all three fragments in a single whole. However profoundly they may differ on points of detail, all Poles agree that the first essential is the attainment of that unity without which they may at any moment become, as now, the battleground of three great Empires, and which provides the key with which they themselves can unlock the portals of their future destiny. Should their dream be fulfilled, the valley of the Vistula, restored to geographical unity, may soon play an important part in the political and economic life of Europe.

Russia, then, is faced by one of the greatest choices in history. An opportunity will present itself after this war, for solving her own racial question which has in the past presented scarcely less grave embarra.s.sment than the parallel problem of Austria-Hungary, and which, if left unsolved, may at no distant date endanger the unity and welfare of the Empire. The grant of Polish autonomy, the restoration of the Finnish const.i.tution, the recognition of the special position of the Ukraine or Ruthene language and cultural traditions, the relaxation of linguistic restrictions among the lesser races of the Empire, and the adoption of a humaner att.i.tude towards the Jews of the Pale--these are steps which follow logically from the proclamation of the Grand Duke Nicholas, and indeed from the alliance with the Western Powers. Incidentally much will depend upon the att.i.tude adopted by the Russian Government towards its new Catholic subjects. Its relations with the Vatican will require to be placed upon an entirely new footing, and due respect must be accorded to the Uniate Catholic Church of the four million Ruthenes of Galicia. In this respect the Concordat signed a few weeks before the outbreak of war between Serbia and the Vatican should form a very valuable precedent for the whole future relations of the Catholic and Orthodox Churches, relations which are likely to a.s.sume increasing importance in the not too far distant future. And here it is worth while to emphasise, for the benefit of those who still regard Russia with misgiving or dislike, the indisputable fact that it is just the most democratic and enlightened of the smaller Slavonic States, and the most intellectual and enlightened politicians and thinkers in those States, who have always looked with the greatest confidence and enthusiasm to Russia, and who to-day are most unanimous in welcoming her as the herald of a new era of humanity and progress.

--17. _General Aims._--It would lead us much too far afield to consider the possible effects of the war upon colonial development and upon the political and commercial development of the Far East. Here again, the central fact to remember is that we may, indeed, that we must, defeat Germany or perish in the attempt, but that a nation of 65 million inhabitants cannot be effaced or permanently reduced to impotence. After the war the two nations will have to live peaceably side by side once more, and repair so far as possible the wreckage to which this gigantic struggle has reduced their political, social, and commercial intercourse. Any peace settlement will be good only so far as it avoids placing obstacles in the path of so difficult an achievement. It will be the first duty of our statesmen to watch over the alliance between Russia and the Western Powers, sealed as it is by the fiery ordeal of war, and to neutralise the occult influences which are even now working to undermine it, to the advantage of interests which are anything but British. But it will also be their duty to create a situation which, while safeguarding the Empire's vital interests, shall not render improved relations with the central European Powers impossible from the very outset. It is one thing to abandon our allies and friends, it is quite another thing to perpetuate a feud which, though converted by circ.u.mstances into a struggle between two unanimous nations, was in the first instance the work of mischievous if powerful minorities.

The final settlement will inevitably bring many disappointments and errors in its train. We can best guard against such a result by preparing ourselves for all eventualities and giving the most careful consideration to each of the many problems at issue. Our obvious aim must be a settlement which shows some reasonable prospect of permanence, and this can best be achieved if we respect so far as possible the wishes of the populations concerned. The principle of Nationality is not a talisman which will open all gates, for in some parts of Europe the different races are so inextricably intermingled as to defy all efforts to create ethnographic boundaries. This does not, however, affect the central fact that Nationality is the best salve for existing wounds, and that its application will enormously reduce the infected area. But if the peoples are to make their wishes felt there must be a regeneration of diplomatic methods throughout Europe. Attempts will be made to revive the pernicious principles of the Congress of Vienna, by which a few autocrats and aristocrats carved out the fate of millions according to their dynastic appet.i.tes or fancies, and thus tied a whole series of unnecessary knots for subsequent wars to sever. A healthy and informed public opinion--especially in the West--must watch over the doings of those who represent it at the fateful Congress, according loyal support to their declared policy, but promptly checking the reactionary tendencies which are certain to reveal themselves. It is still unhappily possible for the arrogant impatience of a single ruler or the persistent intrigue and misrepresentation of an amba.s.sador to embroil the European situation. Unless the nations in council can devise some practical checks upon irresponsible meddling, the flower of their manhood will have ma.s.sacred each other in vain. The antecedents of Sir Edward Grey, and more especially his att.i.tude during the crisis which led to war, justify us in the hope that his entire influence will be employed in the right direction when the decisive moment arrives, and that he will insist upon such crucial questions as the reduction of armaments, the subst.i.tution of "citizen" for "conscript" armies, the control of armament firms and their occult influence, the effective extension of arbitration and the elimination of impossible time-limits, being discussed in all seriousness, and not merely dismissed with a few ironic plat.i.tudes and expressions of hypocritical goodwill. We must not be unduly discouraged if some of these ideals prove impossible of realisation, for it would be childish to suppose that when the great war is over the nations will at once convert their swords into ploughshares and proclaim for the first time in history the sway of Right over Might. But it is obvious that in a world which has long ceased to be merely European, the European Powers cannot long continue with impunity such internecine strife, and that unless some real shape and substance can be given to the Concert of Europe--so long and so justly a byword among all thinking men--our continent (and with it these islands) will inevitably forfeit the leaders.h.i.+p which has. .h.i.therto been theirs and surrender the direction of the world's affairs into the hands of the extra-European powers. It will be remembered that Sir Edward Grey, in a last despairing effort to preserve peace,[1] broached the idea of "some more definite rapprochement between the Powers," and though admittedly "hitherto too Utopian to form the subject of definite proposals," it may be hoped that the enormous difficulty of the task will not deter him from pleading before the future Congress the outraged cause of international goodwill.

[Footnote 1: White Paper, No. 101.]

CHAPTER VIII

SOCIAL AND ECONOMIC ASPECTS OF THE WAR

"And the economic ravages of war are also much greater with civilised nations than with barbarians. A war nowadays may have stern, fearful consequences, especially through the destruction of the ingenious credit system."--TREITSCHKE.

"Those who have fallen have consecrated deaths. They have taken their part in the making of a new Europe, a new world. I can see signs of its coming in the glare of the battlefield. The people will gain more by this struggle in all lands than they comprehend at the present moment.... A great flood of luxury and of sloth which had submerged the land is receding, and a new Britain is appearing. We can see for the first time the fundamental things that matter in life and that have been obscured from our vision by the tropical growth of prosperity."--MR.D. LLOYD GEORGE.

It is obvious that a great war must profoundly disturb every side of the national life of the peoples taking part in it, and that these disturbances must react upon neutral States. The exact character and extent of these changes, however, are by no means easy to understand, and the present chapter does not pretend to offer an exhaustive treatment of them. It is impossible to appreciate the full significance of the immediate social and economic reactions of the war, whilst an attempt to state the ultimate effects of the war leads us along the slippery paths of prophecy.

Nevertheless, we are not likely to grasp the importance of the various phenomena which have followed so closely upon the heels of the declaration of war, nor to adapt ourselves to the new situation which will arise out of the war, unless we give our attention to the things which are happening around us.

Unfortunately we can gain little guidance from the past. The South African War inevitably disturbed the normal course of our industrial life, but it involved us in conflict with a nation of relatively little general economic importance; and so, costly and prolonged though it was, it bears no comparison in its magnitude and in the character of its main issues to the present war in Europe. The Crimean War of sixty years ago, though waged between four European nations--Great Britain, France, Turkey, and Russia--cost Great Britain much less in money than the Boer War; the issues so far as this country was concerned were not so momentous; and industry and commerce, though important, were not then nearly so highly developed and complicated as they are now. The Napoleonic wars, though comparable to the present war in fundamental importance, lasted for a generation, which the war of to-day can hardly do; the effects of the wars with Napoleon were complicated by the Industrial Revolution; the industrial system and the commercial fabric erected on it were then only in process of formation and the power of the people was small.

These differences enable us to see the new factors which have come into play during the past century. The present war is being fought under conditions which were non-existent during the struggle with Napoleon--conditions which on the one hand add to the waste and loss and misery of war, but on the other give rise to the hope that many of its evil consequences may be averted. Firstly, industry and commerce are world-wide; the remotest countries are bound together by economic ties; invisible cords link the Belgian iron worker with the London docker and the Clyde s.h.i.+pwright, the Californian fruit grower with the Malay tin miner and the German dye worker. The economic effects of modern warfare, therefore, reverberate throughout the whole world, and widespread dislocation ensues.

In the next place, the gigantic scale on which war between great powers is conducted, though it tends to shorten the duration of wars, increases the intensity of the shock to human society.

But besides these new material conditions, modern warfare is carried on under the eyes of more enlightened peoples than in the past. The struggle which is now being pursued is the first great war watched by a conscious or at any rate partly conscious democracy. It is the first modern war waged (except in our own case) by national armies const.i.tuting practically the entire fit male population. The ma.s.ses of the people have in most civilised countries some measure of political power. And though to the elector diplomacy and the conduct of foreign affairs are a closed book, war once declared is war by the people; and their voice must be heard in matters connected with it and arising out of it. Then, further, in the past the aftermath of war was in many ways as horrible as war itself, whilst the period during war witnessed an enormous amount of privation and suffering among non-combatants almost as ghastly as that of the battlefield. This was due not so much to inaction resulting from callousness as to unwise action and ignorance. During the past century political science and economic inquiry have made vast strides, and consequently the injurious social effects of warfare may be minimised, though not averted; and a considerable body of public opinion, far more enlightened than during any previous European war, is almost certain to exercise some pressure in the direction of wise and far-reaching action both during the war and after it is ended.

These considerations must be borne in mind in discussing both the present position and possible future developments.

It is clear that four great European Powers and some smaller ones cannot engage in war without shaking the fabric of European civilisation to its foundations. The tramp of fifteen million armed men is the greatest social and economic fact of the present day, and indeed of the present generation.

These millions of combatants have to be clothed, fed, armed, transported, and tended in health and in sickness; they are non-producers for the time, consuming in large quant.i.ties the staple commodities of life, and calling in addition for all the paraphernalia of war; sooner or later, they will desire to return to the plough and the mine, the factory and the railroad.

These two facts alone are of tremendous importance. But besides this, the activity of those who stay at home is called into play in a thousand different ways, and economic and social life leave their well-trodden paths in answer to the imperious call of national necessity. Social inst.i.tutions of all kinds are inevitably led into new fields of thought and action, and States are driven to untried experiments in communal activity. The usual channels of thought dry up, the flood of new ideas and of old ideas throbbing with a new life rushes on unconfined, here in the shallows, there in the deeps, presently to overflow into the old channels, cleansing their beds and giving them a new direction, and linking up in fruitful union but remotely connected streams. When fighting ceases and there comes the calm of peace, society will tend to revert to its normal functions, based on peace; but the society of yesterday can never return. Social life cannot be the same as it was before, not merely because those activities called forth by the war may persist in some form, but because of the growth of new ideas under the stimulus of the war. The struggle will almost certainly set in progress trains of thought not only connected with questions of war and peace, but with the wider questions of human destiny.

Coming to a closer view of the question, we must distinguish between the immediate effects of the war which are already in evidence and the ultimate effects which will but begin to unfold themselves after the return of peace. Some of the latter results will grow out of the immediate effects; others will be more directly due to the events following on the conclusion of the war. It will also be advisable to distinguish between the economic reactions of the war, and the broader social consequences. At such an early stage it would be presumptuous and tempting Providence to attempt to forecast the future in any detail or to try to trace the play and interplay of the various forces going towards the making of the future. This chapter will be concerned with broad tentative generalisations on quite simple lines.

One of the things which struck the intelligent working man during the early days of the war was the rapidity with which the State acted in the face of the crisis. In next to no time large measures of State control and action were put successfully into operation and those who had advocated co-operative action in the past with but indifferent success were amazed at the swiftness with which the nation can act in the hour of need. The drastic action of the State cannot be better ill.u.s.trated than by the steps which were taken to meet the sudden commercial deadlock which the war precipitated. A discussion of these financial measures will at the same time enable us to understand how, through credit, war strikes at the industry and trade of the modern world.

A. STATE ACTION IN INDUSTRY AND COMMERCE

The Austrian ultimatum to Servia was followed by the paralysis of the world's international system of finance. Before the end of July many important stock exchanges were closed, and by the 31st the London Stock Exchange for the first time in its history was also compelled to close. The remittance market collapsed and with it the fabric of international trade.

Widespread bankruptcy and ruin seemed imminent; so serious did the state of affairs become that moratoria were declared not only in several European countries but in parts of America, and in many continental countries specie payments were suspended. In a word, the possibility of war had thrown the delicately poised credit system of the commercial world out of gear; the declaration of war had brought it to a standstill. Into an explanation of its working it is not possible to enter; it is sufficient for our immediate purpose to realise that the foreign exchange machinery by which the supply of commodities from other countries becomes practicable on a large scale was for a time altogether unworkable. London as the financial centre of the world has immense sums owing to it and in its turn owes large sums. The ultimate effect of the collapse of credit, which depends on confidence, was that London could neither receive nor make payment. The big finance houses, who had "accepted" bills of exchange and rendered themselves liable to meet the payments for the things they represented, on the understanding that the means to pay them were to be promptly despatched, found that these means were not forthcoming; their own resources were far from sufficient to meet these payments. Utter ruin stared them in the face. At home also a run on the banks seemed probable, which would have meant ruin to large numbers of people. In this grave crisis the State acted with commendable promptness.

The bank holiday was extended; State notes for 10s. and 1 were issued; a moratorium was declared, legalising the postponement of the due payment of debts, with certain exceptions; the Bank of England under a guarantee from the Government that the latter would meet the loss, began discounting, or buying for cash, approved bills of exchange accepted before war was declared, many of which are hardly likely to be met by the people liable for payment. These steps were taken swiftly and boldly and allayed the panic. But more was needed; such measures were not in themselves sufficient to put the machinery of foreign exchange into operation again and the suspension of this method of settling international indebtedness was having serious effects. To carry on international trade, and to supply ourselves with the produce on which the very existence of the community depends, without the machinery, is a thousand times more difficult than to conduct our home trade by means of direct barter. Without going into technical details, it may be said that the purchase of bills by the Bank of England, whilst relieving the last holder from loss, did not extinguish the liability of persons whose names had appeared on the bills as acceptors, endorsers and drawers. This was true of traders and commercial people not only in this country but also in other parts of the world. In the face of these liabilities, in most cases unexpected, it was hardly likely that they would increase their liabilities under new bills. Consequently the remittances coming to London shrank to next to nothing. As bills of exchange--or their equivalent--are the means by which both importers and exporters get paid for their goods, the difficulty of getting paid naturally began to have a serious effect on trade. As the figures of foreign trade during August show, cargoes were being held up. It was clear, therefore, that if this country were to continue to receive supplies of corn and meat, of cotton and wool, of hides and timber, something further must be done. The question the Government had to decide was what steps could be taken to safeguard the food of the people, and to avoid a crus.h.i.+ng volume of unemployment through the lack of the raw materials of industry.

The produce was there; what was needed was to start the flow of the particular kind of currency--"credit money"--which would expedite exchange.

The course taken by the State was to advance money to the large bill bankers or "accepting houses" in London to allow of the due payment of the enormous number of bills falling due in the three months succeeding the outbreak of war. The audacity of the step will be understood when it is realised that probably something like 300,000,000 of bills fall due over a period of three months.[1] The necessary money was lent without security, the Government promising not to demand repayment until twelve months after the end of the war. A proportion of this advance will be in the nature of a loss, though how much it is quite impossible to say. By this measure, in the event of the bills not being met by those who have promised to pay them--the acceptors--the liability which would ordinarily have fallen upon the drawers and endorsers through whose hands the bills had pa.s.sed has been removed. The State has advanced to the commercial community a huge sum of money, risking the total loss of some part of it, in order to set in motion the machinery of international exchange. Further steps, however, were taken. The general moratorium expired on November 4. Useful as it had been, it still left many traders in financial difficulties because of the impossibility of collecting debts owing to them in enemy and other countries. The Government, therefore, appointed a committee representing the Treasury, the Bank of England, the Joint Stock Banks, and the a.s.sociation of Chambers of Commerce of the United Kingdom to authorise advances in approved cases to British traders carrying on an export business in respect of debts outstanding in foreign countries and colonies, including unpaid foreign and colonial accepted bills which cannot be collected for the time being. It is safe to say that no Government ever took such gigantic measures to meet a great crisis.[2] The Prime Minister, speaking at the Guildhall on November 9, 1914, summarised as follows the effects of the steps taken: "The foreign exchanges are working in the case of most countries quite satisfactorily, and the gold reserves at the Bank of England, which were 40 millions on July 22, and which had fallen on August 7 to 27 millions, now stand at the unprecedented figure of 69-1/2 millions. The central gold reserve of the country after three months of the war amounts to 80,000,000, almost exactly twice the amount at which it stood at the beginning of the crisis. The bank rate, which rose, as you know, to 10 per cent, has now come down to 5, a figure, I think, not in excess of that at which it stood this time last year. Food prices have been kept at a fairly normal level, and though trade has been curtailed in some directions, unemployment has been rather below than above the average."

[Footnote 1: Mr. J.M. Keynes (_Economic Journal,_ Sept. 1914) estimates the aggregate value of outstanding bills in London at 350,000,000.]

[Footnote 2: In addition to these various financial measures, the State has lent Belgium 10,000,000 and the Union of South Africa 7,000,000, whilst it has also guaranteed 5,000,000 of the new Egyptian cotton loan.]

But this is by no means the only example of State action. The Government has established temporarily a State-aided system of marine insurance, by undertaking 80 per cent of the war risk, in order to encourage overseas trade. It has given substantial aid to the joint-stock banks "for the sole purpose that they might be fit to aid in every way possible the country's trade and finance."[1] It made arrangements for the direct purchase of forage and vegetables, etc., from farmers.[2] It took over the control of the railways. When, owing to panic, there was a rush for the purchase of food-stuffs, which was used to force up prices unduly, the Government intervened to prevent exorbitant charges. Particularly interesting is the action of the State regarding sugar, two-thirds of our supply of which comes from Germany and Austria. In the days immediately following the declaration of war wholesale prices were trebled. The Government, therefore, decided to take upon itself the task of ensuring an adequate supply of sugar, and a Royal Commission was appointed. The leading refiners were approached and an arrangement was made with the whole body of refiners that they should stand aside from the market for raw sugars, leaving it free for the operations of the Government. The Royal Commission pledged the refiners to buy their sugar from the Commission, _i.e._ from the State; sugar was to be offered to them at a fixed price, and the refiners were to sell the refined product to the dealers also at a fixed price sufficient to yield the refiners a fair profit on manufacture. As a result of the corner, a big rise in the price of sugar, which is not only an important domestic commodity but the raw material of several industries, was averted. This merits the description given of it in _The Nation_--"a really das.h.i.+ng experiment in State Socialism." [3] On the other hand, it has done nothing to increase the world's supply of sugar, but has merely commandeered a part of the existing stock. The aid of the State has been invoked in other directions. Already the Government has a.s.sisted experimental cultivation of beet in this country. The suggestion has been made that the State should build two beet-sugar factories, which would cost about 200,000 each; in this way it is suggested that our home supply of sugar would in the future be a.s.sured, and that agriculture would benefit considerably.[4]

[Footnote 1: _Round Table_, Sept. 1914, p. 705.]

[Footnote 2: This was done through the Board of Agriculture for the War Office. On the other hand, in the purchase of clothing, boots, blankets, etc., the War Office approached the producers directly instead of through the Board of Trade.]

[Footnote 3: It was reported in the Press on October 8, 1914, that the Home Secretary had purchased 900,000 tons of sugar at about 20 per ton, the transaction involving an outlay of about 18,000,000.]

[Footnote 4: See an article by Mr. Robertson Scott in _The Nineteenth Century_, October 1914.]

Sir Charles Macara has put forward a scheme of State aid for the cotton industry. Owing to the war, a third of the total cotton crop (usually taken by the continental countries) was thrown on the market. Prices naturally fell, and there was a danger that the cotton planters might not be able to pay the debts they had contracted to enable them to grow their crops, in which case there would be a likelihood of the land being used for other saleable commodities, and the efforts which have been made in the past to increase the cotton crop would be nullified. In the meantime, the surplus cotton on the market created an uncertainty regarding prices, and buying came to a standstill, with the result that the position of the industry as a whole became very critical. The suggestion of Sir Charles Macara is that the Governments of this country and the United States, acting in conjunction, should take the temporarily unsaleable surplus of raw cotton off the market and store it for use in years when the crop is short. In other words, it is proposed to establish a permanent national cotton reserve. It is estimated that the cost of the scheme would mean an outlay of sixty to seventy millions sterling. If the plan were put into operation, however, it is claimed that it would restore confidence, prevent the wholesale stoppage of mills, and at the same time establish a cotton reserve to counteract the fluctuations of crops in the future.[1] These matters need but to be stated as examples of the remarkable adaptability of the State and the possibility of drastic action under the pressure of imperative needs.[2]

[Footnote 1: It should be pointed out that the serious condition of the cotton industry is not due to the war. The overstocking of the Eastern and Indian markets during the trade boom of 1913, together with the financial crisis in India last year, has reduced the demand for cotton goods. The war has merely emphasised a depression which had already fallen on the industry. Sir Charles Macara's scheme, whilst it may be desirable on other grounds, cannot compensate for the shrinkage in the demand for Lancas.h.i.+re products. The Government, it is interesting to note, have commissioned certain firms in Alexandria "to buy cotton extensively from small proprietors at a reasonable rate, on Government account, to be stored until the arrival of more prosperous times." (Press a.s.sociation Telegram, _Daily Press,_ Nov. 2, 1914).]

[Footnote 2: The voluntary gifts of different parts of the Empire should not be overlooked. Besides these other steps have been taken. The Australian Government, for example, in order to induce farmers to extend the area of cultivation, has guaranteed "a fixed minimum price of 4s." for all wheat grown on the newly cultivated land. (Reuter's Correspondent, _Daily Press_, Oct. 27, 1914).]

The course of events has shown the temporary collapse of economic individualism in the face of the European crisis. The economic system, which works during times of peace, could not meet successfully the crus.h.i.+ng effects of a European war. It lacked not only adequate resources but the necessary power of corporate action and co-ordination. Immediate State action seemed to be the only way to avert disaster. In a month, Britain came nearer than ever before to being a co-operative commonwealth. It has been realised that industry and commerce are not primarily intended as a field for exploitation and profit, but are essential national services in as true a sense as the army and navy. The complexity of the modern economic world and the large individual gains which have been made in it have obscured the fact that the economic structure exists to serve the needs of the community. It was recognised by the Government, at any rate to some extent, that the success of our armies in the field would be nullified if, in the economic sphere, the production of commodities and services were seriously diminished and if their interchange were hampered in a large degree. People have felt that the spinner, the miner, the weaver, the machinist, are all by following their occupations performing a valuable service to the community. How far this att.i.tude of mind will persist after the war, when normal conditions in industry and commerce gradually return, remains to be seen.

B. IMMEDIATE SOCIAL AND ECONOMIC EFFECTS OF THE WAR

1. _Foreign Trade_.--The effects of the war on industry and commerce will be complicated and far reaching. The British and German Empires together transact about two-fifths of the international trade of the world, the British Empire doing over a quarter and Germany almost exactly an eighth.