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at the time when it would have been most needed. If the United States were ever great enough and wise enough to accept the principle of compulsory arbitration, I cannot name the state that would not follow her. Can any arbitral decision, even against the claims of any one of us, cause one millionth part of the ruin and loss of life and treasure of the late war? And, on the other hand, compulsory arbitration is a sure means of sterilizing armaments, since, once international arbitration becomes our settled rule in diplomacy, the use of force must end; for no state would be so foolish as to keep up expensive forces for long when there was no use for them. On these lines, and I believe on these lines only, can the design that must stand behind the assembly of the Washington Conference be carried out to its logical completion.
I suppose that we shall not hear very much of the League of Nations at Washington. It was mainly American handiwork, but America's refusal to recognize her own child has relegated it to the political workhouse. No worldauthority can exist when the United States, Germany, and Russia have no share in it. There are League enthusiasts here, as there doubtless are in America, and we must admire the devotion with which the League works and accumulates mountains of documents and reports. But we must also admit that it makes little progress and has scant authority. Some say that the Council of the League is a mere creature of the French and British Foreign Offices. Others declare Geneva to be a focus of international intrigue. In any case, it is common ground that the League has no authority, and no force at its back except that of moral persuasion; and that it can do nothing but report, warn, or recommend. With difficulty it has at last agreed that the election of judges to an International
Court of Justice shall be placed on its agenda at its second assembly, which is taking place as I write; but I do not know why this Court should be any better than, or even so good as, our Hague Court of the first Peace Conference. To take two years to begin to duplicate the machinery that we finished twenty-two years ago does not strike me as an achievement of great merit. The real practical international diplomacy of the moment, in all but American affairs, is controlled by the Supreme Council and by the Council of Ambassadors in Paris, both of which are, in effect, instruments for registering the decisions of the Allied cabinets. The League is left to its pious aspirations, and the main stream of diplomacy passes it by. Even when it has taken up a question like that of Armenia, with passionate earnestness, the only result has been that its protégé has become either Kemalist or Red; while in the matter of mandates, the United States has protested against decisions made. without its approval, and the whole question is consequently hung up. Well may a French statesman have said to himself sarcastically every morning in the spring of 1919, as he rose from his bed: 'Georges Clemenceau, you believe in the League of Nations.'
The Sorrows of Europe
In what particular manner President Harding and Mr. Hughes will change the situation for the better, we shall all learn presently; but that the old Continent of Europe is beset with immense difficulties, political, social, economic, and commercial, is manifest to a traveler in every country that he visits. I place the question of exchange first among the anxieties of Europe; and it is needless to remark how gravely British and American trade have been affected by it. It is not only the depre
ciation that has hit the world so hard, but the constant fluctuations, which have ruined confidence, caused every trader to think many times before he closes a deal, and involved, not only foreign merchants, but many British and American ones as well, in very severe losses. The foreigner, except in the case of a few neutrals, cannot afford to buy from us at the present rates, and consequently purchases only what he cannot produce or buy elsewhere. In many cases, foreigners refuse to pay for our goods on arrival, because the local exchange has fallen since the order was given. In some cases, notably in Rumania, the inefficiency and inadequacy of the railway service preclude the forwarding of our goods from ports when they are landed; and there the goods remain for months, on the quays, often perishing from exposure.
Is there no remedy against this deadly injury of the depreciated European exchanges? I know of none except work, thrift, retrenchment, and time. But I think that we should explore the repudiation of old currencies, the replacement of old units by new, and currency reform based on the international redistribution of gold. Sound currency stands at the base of sound trade; but as America holds most of the gold of the world, it is up to her to initiate reform.
People curse Versailles for not having stabilized exchanges at the time of the Peace Conference; but when one looks into the procedure recommended, it is usually evident that the remedy is to declare that one crown, mark, franc, dinar, or lewa, is worth five, or possibly ten. Artificial stabilization is financial quack medicine. International finance may be very clever, but apparently it is disarmed in presence of conditions with which it had no previous acquaintance. Some people think, seeing how the hard-working countries like Germany
undersell us owing to their depreciated exchanges, that their governments promote this depreciation. I have seen no evidence of it. The fall makes it enormously more difficult for countries to pay their foreign debts; and those countries at all dependent on foreign imports naturally have to pay through the nose for them. The depreciation, or, at least, the fluctuations, may be in part accounted for by speculation and gambling, which proceed on a vast scale; but, taking the situation as a whole, the fall seems generally justified by foreign debts, by inflation, by internal exhaustion, by reduced output per man per day, by consequent failure of productivity, and by the inability of many countries to complete the reconstruction of their state machinery, without which their wealth cannot be fully exploited.
The countries doing best are those in which Labor is most moderate in the standards of wages and living it accepts, and in which governments provide cheap coal and relatively cheap food. This is Germany's strength. She is resolutely setting to work, and all classes are accepting a standard of living and of wages far below ours and even farther below the American scale. Compare the seventeen shillings per ton for German coal at the Ruhr pitheads with the price we have to pay; and compare the fifty pounds a year of the German bank-clerk with the pay of the English or American clerk! This difference runs through all German social and industrial life, and there is, besides, a rigid elimination of waste, which is unknown with us.
The combination of the benefit from a depreciated exchange and that derived from low wages and poor living is enough to account for our difficulty in competing with German trade. In many other countries the scale of remuneration of the highest dignitaries
is preposterously small. In Austria the President of the Republic draws only eighty pounds a year, and heads of departments in the Foreign Office tell me that they cannot afford a new suit of clothes. The High Court Judge in Bucharest draws sixteen pounds a month, and the lieutenant four pounds. How they manage to live at all, with prices at their present height in these countries, is one of those mysteries which I have not been able to penetrate, though we must, of course, admit that the purchasing power of the local currency in the country itself is much higher than the English or American equivalent of it would be in London or New York. A few countries have checked inflation and are bravely facing their liabilities; but in many and Poland and Austria are the worst cases inflation goes on, and selfishness often prevents the imposition of taxes needed for reconstruction.
Generally speaking, I regard this question of the rates of exchange as much more vital to England and America than to Continental Europe, though in one way or another all suffer from the present situation. We are really in presence of a state of chaos which injures all the world, and only the union of the world for the purpose of mending matters can improve conditions. In this matter, America might take the lead, and, by collecting the best practical exports, endeavor to formulate a solution. The Brussels Economic Conference gave us the most excellent advice upon the questions of state finance and economics; but something more is needed before we can go ahead. Unless some financial genius can discover a remedy, one must regard British and American trade with Continental Europe as almost dead for a long time to come.
Second only to the exchanges, there comes the urgent need of freeing international trade by every possible means
from the very great obstacles which are at present accumulated in its path. I refer especially to passports, customhouses, tariffs, permits, and all the vast machinery for selfish national isolation which seems especially devised, not to assist trade, but to hamper it. The grand tour of Europe is no joke in these days. One's passport becomes a formidable document. One must get a visé in advance for every country through which one passes, even if one does not propose to stop there. One must carry only a very limited amount of the local money out of each country; and in traveling across a number of states one must carry the coinage, or rather the horrible paper, of each. The trader is greatly handicapped by a system of permits, and export and import duties, and the wonder is how any trader gets a ton of goods into, or out of, any country. This arises from state control of trade, and everything shows that, whatever else the state may be, it is a failure as a merchant.
We see the system at work to kill trade in full perfection in the Succession States of Austria. The old AustroHungarian Empire was favorably situated economically, because different parts of it supplied things that other parts lacked, and everything passed freely from one province to another. There was internal free trade, and the Empire was almost self-supporting. Hungary sent her wheat and her timber, Bohemia sent her coal and sugar, Styria and the other parts all their products. It was less the Austrian marriages that made Austria happy than the very shrewd business sense which realized that certain provinces were needed to supply Austria's deficiencies.
Now all this economically happy state of affairs has terminated. The Succession States have all closed their frontiers against Austria and against each other. Each has its own currency.
and has set to work to build up customs barriers on every side against the territories with which it once traded freely. This has injured the present Austria most, and has indeed reduced her state finance almost to extremities by compelling her to pay vast sums for wheat and coal. But before long the selfish Succession States found that, in injuring Austria, they were losing their customers and injuring themselves; so, by the natural force of circumstances, we shall in due course see a change of policy for which Austria, Hungary, and even Czechoslovakia are almost ripe.
But the big idea of Dr. Benes, the Foreign Minister of Czechoslovakia, to create the United States of Central Europe by a series of tariff agreements between half a dozen states in this part of the world, may take long to be carried out; for in some quarters the tendency is still to pile on duties, chiefly in order to collect money, but also to protect home industries.
The broad fact remains that international trade is grievously hampered, and that it should be our object to free it from its fetters, both for our own sakes and for the sake of these small countries which are busy strangling each other to no possible benefit for themselves. I believe that the quickest and most drastic cure for the evils of Europe, and failing currency and exchange reform, would be a year of completely free trade, with no tariffs at all, inward or outward; but one must confess that the nations concerned, not to speak of others, have not yet reached such a state of grace as to accept a remedy of so novel and so violent a kind. The tendencies, on the whole, are the other way. Even on the international rivers, the smaller riverain states are most tenacious of what they call their rights, and claim powers which the régime of international law does not allow them.
All governments want money, wheth
er to administer the state or to reward political friends. Therefore the rule is to tax everybody and everything, but especially the foreigner. The export duty on Rumanian oil is a typical case; for, if it hits directly the foreign capital invested in this industry, it also injures a source of local wealth, and gives a subsidy to other states which supply oil. The idea of a fixed export tax, laid on regardless of worldprices and falling-values, is one which must have originated in a lunatic asylum. In other places we discover a consortium, or government trading-machine, which supplies posts for political adherents, usually ignorant of trade needs and practices; and it need scarcely be said that it trades badly, and imposes on the produce of the country quite needless losses, often failing to find markets at all. In short, there is every grade of incompetence to be found as we pursue our inquiry; while, of course, the immense loss and damage of the war has thrown numerous states into a disorganized condition and communications have particularly suffered.
Another change, which we in England, at all events, watch with some anxiety, is the agrarian policy, which has taken the form, in several states, of distributing the land among the peasants. It may have been, and it was in some cases, a political necessity, and may have prevented an agrarian revolution; but the effect which it will have upon the export of cereals is of considerable interest to the world. The great estates are being broken up and replaced by small holdings, which usually run from some three acres in Alpine regions up to twenty acres in average arable land, rising again to six hundred acres at most for the old proprietors. There is no universal scale, nor even the same scale in all the provinces of each separate country; but the general effect is to replace large landed properties by
small ones, with various scales of compensation all very low- to the former landlords. Most of these laws were passed in the first flush of revolutionary enthusiasm after the war. In some cases they have been widely applied, in some partially, and in others scarcely at all. But all the laws stand, and it is the general belief that the exportable surplus of cereals, and especially of wheat, will diminish with a generalized peasant-proprietorship. The tendency of the small holder is to grow patchy crops, primarily for his own food and that of his family; and there will not be the capital necessary for rich manuring, for providing modern agricultural machinery, or for purchasing high-class stock. On the other hand, a plurality of landowners means more stable political conditions, and may lead, some hope, to increased production, owing to the personal interest of each small farmer in his land.
Some attempts have been made by the proletariat, notably in North Italy, to seize factories and to exploit them for the exclusive benefit of the workers. These attempts have failed, because the new men in possession found themselves quite incapable of managing the administrative part of the work, the contracts, and the sales. They, there fore, in many cases, invited the old proprietors and managers to return, while the bourgeois parties created the fascisti in Italy, and took other measures to defend themselves.
In general, the tyranny, the excesses, and the fearful results of the Russian Revolution, have sunk deeply into the minds of the workers in Europe. If Bolshevism had been specially designed to expose the futility and uneconomic absurdity of the theories of Karl Marx, it could not have more appropriately carried out its mission than it has done during the last four years. The error, and the tragedy of the error, have been
denounced to the workers of Europe by many missions to Russia composed of men of extreme views. With few exceptions these men have confessed themselves horror-stricken by the conditions they have found; and though Communism is not everywhere dead in Europe, there has been a powerful reaction against the disruptive theories of a few years ago. The affair really came to a head in the Bolshevist invasion of Poland; and if the failure of that attack did not convince Lenin and his dupes of the futility of their theories, it conveyed to them, at all events, a sense of their weakness against even partially trained troops; and since then Bolshevism has been steadily losing ground in countries other than Russia. There are some communistic centres in Europe where outbreaks of this disease may recur, but I do not know the country in Europe which has any serious fear now that its people can be stampeded by the fanatics of Moscow. The experiences of Berlin and Munich, Vienna and Budapest, have sufficed. The country has one hold over the towns: it can always starve them.
The disruption of four great historic empires, and the substitution for them of various forms of democratic rule, have naturally caused immense disturbance in the political atmosphere, and the political weather is most uncertain. Bulgaria keeps her dynasty, and Austria thinks more of joining Germany than of recalling the Hapsburgs; but Hungary is monarchical, and would have a king to-morrow if she dared; while a large and influential part of the German population remains in principle monarchical, and desires to revert to that form of government. The German Empire acquired its former great position under a kaiser, and every German is regretful of the past.
The present government of Dr. Wirth and the personality of this honest