The Great Illusion / A Study of the Relation of Military Power to National Advantage

The necessity for armament is put in other than fictional form by so serious a writer as Dr. Gaevernitz, Pro-Rector of the University of Freiburg. Dr. Schulze-Gaevernitz is not unknown in England, nor is he imbued with inimical feelings towards her. But he takes the view that the commercial prosperity of Germany depends upon her political domination.[5]

After having described in an impressive way the astonishing growth of Germany's trade and commerce, and shown how dangerous a competitor Germany has become for England, he returns to the old question, and asks what might happen if England, unable to keep down the inconvenient upstart by economic means, should, at the eleventh hour, try to knock him down. Quotations from the National Review, the Observer, the Outlook, the Saturday Review, etc., facilitate the professor's thesis that this presumption is more than a mere abstract speculation. Granted that they voice only the sentiments of a small minority, they are, according to our author, dangerous for Germany in this—that they point to a feasible and consequently enticing solution. The old peaceful Free Trade, he says, shows signs of senility. A new and rising Imperialism is everywhere inclined to throw the weapons of political warfare into the arena of economic rivalry.

How deeply the danger is felt even by those who sincerely desire peace and can in no sense be considered Jingoes may be judged by the following from the pen of Mr. Frederic Harrison. I make no apology for giving the quotations at some length. In a letter to the London Times he says:

Whenever our Empire and maritime ascendancy are challenged it will be by such an invasion in force as was once designed by Philip and Parma, and again by Napoleon. It is this certainty which compels me to modify the anti-militarist policy which I have consistently maintained for forty years past.... To me now it is no question of loss of prestige—no question of the shrinkage of the Empire; it is our existence as a foremost European Power, and even as a thriving nation.... If ever our naval defence were broken through, our Navy overwhelmed or even dispersed for a season, and a military occupation of our arsenals, docks, and capital were effected, the ruin would be such as modern history cannot parallel. It would not be the Empire, but Britain, that would be destroyed.... The occupation by a foreign invader of our arsenals, docks, cities, and capital would be to the Empire what the bursting of the boilers would be to a Dreadnought. Capital would disappear with the destruction of credit.... A catastrophe so appalling cannot be left to chance, even if the probabilities against its occurring were 50 to 1. But the odds are not 50 to 1. No high authority ventures to assert that a successful invasion of our country is absolutely impossible if it were assisted by extraordinary conditions. And a successful invasion would mean to us the total collapse of our Empire, our trade, and, with trade, the means of feeding forty millions in these islands. If it is asked, "Why does invasion threaten more terrible consequences to us than it does to our neighbors?" the answer is that the British Empire is an anomalous structure, without any real parallel in modern history, except in the history of Portugal, Venice, and Holland, and in ancient history Athens and Carthage. Our Empire presents special conditions both for attack and for destruction. And its destruction by an enemy seated on the Thames would have consequences so awful to contemplate that it cannot be left to be safeguarded by one sole line of defence, however good, and for the present hour however adequate.... For more than forty years I have raised my voice against every form of aggression, of Imperial expansion, and Continental militarism. Few men have more earnestly protested against postponing social reforms and the well-being of the people to Imperial conquests and Asiatic and African adventures. I do not go back on a word that I have uttered thereon. But how hollow is all talk about industrial reorganization until we have secured our country against a catastrophe that would involve untold destitution and misery on the people in the mass—which would paralyze industry and raise food to famine prices, whilst closing our factories and our yards!

CHAPTER III

I think it will be admitted that there is not much chance of misunderstanding the general idea embodied in the passage quoted at the end of the last chapter. Mr. Harrison is especially definite. At the risk of "damnable iteration" I would again recall the fact that he is merely expressing one of the universally accepted axioms of European politics, namely, that a nation's financial and industrial stability, its security in commercial activity—in short, its prosperity and well being depend, upon its being able to defend itself against the aggression of other nations, who will, if they are able, be tempted to commit such aggression because in so doing they will increase their power, prosperity and well-being, at the cost of the weaker and vanquished.

I have quoted, it is true, largely journalistic authorities because I desired to indicate real public opinion, not merely scholarly opinion. But Mr. Harrison has the support of other scholars of all sorts. Thus Mr. Spenser Wilkinson, Chichele Professor of Military History at Oxford, and a deservedly respected authority on the subject, confirms in almost every point in his various writings the opinions that I have quoted, and gives emphatic confirmation to all that Mr. Frederic Harrison has expressed. In his book, "Britain at Bay," Professor Wilkinson says: "No one thought when in 1888 the American observer, Captain Mahan, published his volume on the influence of sea-power upon history, that other nations beside the British read from that book the lesson that victory at sea carried with it a prosperity and influence and a greatness obtainable by no other means."

Well, it is the object of these pages to show that this all but universal idea, of which Mr. Harrison's letter is a particularly vivid expression, is a gross and desperately dangerous misconception, partaking at times of the nature of an optical illusion, at times of the nature of a superstition—a misconception not only gross and universal, but so profoundly mischievous as to misdirect an immense part of the energies of mankind, and to misdirect them to such degree that unless we liberate ourselves from this superstition civilization itself will be threatened.

And one of the most extraordinary features of this whole question is that the absolute demonstration of the falsity of this idea, the complete exposure of the illusion which gives it birth, is neither abstruse nor difficult. This demonstration does not repose upon any elaborately constructed theorem, but upon the simple exposition of the political facts of Europe as they exist to-day. These facts, which are incontrovertible, and which I shall elaborate presently, may be summed up in a few simple propositions stated thus:

1. An extent of devastation, even approximating to that which Mr. Harrison foreshadows as the result of the conquest of Great Britain, could only be inflicted by an invader as a means of punishment costly to himself, or as the result of an unselfish and expensive desire to inflict misery for the mere joy of inflicting it. Since trade depends upon the existence of natural wealth and a population capable of working it, an invader cannot "utterly destroy it," except by destroying the population, which is not practicable. If he could destroy the population he would thereby destroy his own market, actual or potential, which would be commercially suicidal.[6]

2. If an invasion of Great Britain by Germany did involve, as Mr. Harrison and those who think with him say it would, the "total collapse of the Empire, our trade, and the means of feeding forty millions in these islands ... the disturbance of capital and destruction of credit," German capital would also be disturbed, because of the internationalization and delicate interdependence of our credit-built finance and industry, and German credit would also collapse, and the only means of restoring it would be for Germany to put an end to the chaos in England by putting an end to the condition which had produced it. Moreover, because of this delicate interdependence of our credit-built finance, the confiscation by an invader of private property, whether stocks, shares, ships, mines, or anything more valuable than jewellery or furniture—anything, in short, which is bound up with the economic life of the people—would so react upon the finance of the invader's country as to make the damage to the invader resulting from the confiscation exceed in value the property confiscated. So that Germany's success in conquest would be a demonstration of the complete economic futility of conquest.

3. For allied reasons, in our day the exaction of tribute from a conquered people has become an economic impossibility; the exaction of a large indemnity so costly directly and indirectly as to be an extremely disadvantageous financial operation.

4. It is a physical and economic impossibility to capture the external or carrying trade of another nation by military conquest. Large navies are impotent to create trade for the nations owning them, and can do nothing to "confine the commercial rivalry" of other nations. Nor can a conqueror destroy the competition of a conquered nation by annexation; his competitors would still compete with him—i.e., if Germany conquered Holland, German merchants would still have to meet the competition of Dutch merchants, and on keener terms than originally, because the Dutch merchants would then be within the German's customs lines; the notion that the trade competition of rivals can be disposed of by conquering those rivals being one of the illustrations of the curious optical illusion which lies behind the misconception dominating this subject.

5. The wealth, prosperity, and well-being of a nation depend in no way upon its political power; otherwise we should find the commercial prosperity and social well-being of the smaller nations, which exercise no political power, manifestly below that of the great nations which control Europe, whereas this is not the case. The populations of States like Switzerland, Holland, Belgium, Denmark, Sweden, are in every way as prosperous as the citizens of States like Germany, Russia, Austria, and France. The wealth per capita of the small nations is in many cases in excess of that of the great nations. Not only the question of the security of small States, which, it might be urged, is due to treaties of neutrality, is here involved, but the question of whether political power can be turned in a positive sense to economic advantage.

6. No other nation could gain any advantage by the conquest of the British Colonies, and Great Britain could not suffer material damage by their loss, however much such loss would be regretted on sentimental grounds, and as rendering less easy a certain useful social co-operation between kindred peoples. The use, indeed, of the word "loss" is misleading. Great Britain does not "own" her Colonies. They are, in fact, independent nations in alliance with the Mother Country, to whom they are no source of tribute or economic profit (except as foreign nations are a source of profit), their economic relations being settled, not by the Mother Country, but by the Colonies. Economically, England would gain by their formal separation, since she would be relieved of the cost of their defence. Their "loss" involving, therefore, no change in economic fact (beyond saving the Mother Country the cost of their defence), could not involve the ruin of the Empire, and the starvation of the Mother Country, as those who commonly treat of such a contingency are apt to aver. As England is not able to exact tribute or economic advantage, it is inconceivable that any other country, necessarily less experienced in colonial management, would be able to succeed where England had failed, especially in view of the past history of the Spanish, Portuguese, French, and British Colonial Empires. This history also demonstrates that the position of British Crown Colonies, in the respect which we are considering, is not sensibly different from that of the self-governing ones. It is not to be presumed, therefore, that any European nation, realizing the facts, would attempt the desperately expensive business of the conquest of England for the purpose of making an experiment which all colonial history shows to be doomed to failure.

The foregoing propositions traverse sufficiently the ground covered in the series of those typical statements of policy, both English and German, from which I have quoted. The simple statement of these propositions, based as they are upon the self-evident facts of present-day European politics, sufficiently exposes the nature of those political axioms which I have quoted. But as men even of the calibre of Mr. Harrison normally disregard these self-evident facts, it is necessary to elaborate them at somewhat greater length.

For the purpose of presenting a due parallel to the statement of policy embodied in the quotations made from the London Times and Mr. Harrison and others, I have divided the propositions which I desire to demonstrate into seven clauses, but such a division is quite arbitrary, and made only in order to bring about the parallel in question. The whole seven can be put into one, as follows: That as the only possible policy in our day for a conqueror to pursue is to leave the wealth of a territory in the complete possession of the individuals inhabiting that territory, it is a logical fallacy and an optical illusion to regard a nation as increasing its wealth when it increases its territory; because when a province or State is annexed, the population, who are the real and only owners of the wealth therein, are also annexed, and the conqueror gets nothing. The facts of modern history abundantly demonstrate this. When Germany annexed Schleswig-Holstein and Alsatia not a single ordinary German citizen was one pfennig the richer. Although England "owns" Canada, the English merchant is driven out of the Canadian markets by the merchant of Switzerland, who does not "own" Canada. Even where territory is not formally annexed, the conqueror is unable to take the wealth of a conquered territory, owing to the delicate interdependence of the financial world (an outcome of our credit and banking systems), which makes the financial and industrial security of the victor dependent upon financial and industrial security in all considerable civilized centres; so that widespread confiscation or destruction of trade and commerce in a conquered territory would react disastrously upon the conqueror. The conqueror is thus reduced to economic impotence, which means that political and military power is economically futile—that is to say, can do nothing for the trade and well-being of the individuals exercising such power. Conversely, armies and navies cannot destroy the trade of rivals, nor can they capture it. The great nations of Europe do not destroy the trade of the small nations for their own benefit, because they cannot; and the Dutch citizen, whose Government possesses no military power, is just as well off as the German citizen, whose Government possesses an army of two million men, and a great deal better off than the Russian, whose Government possesses an army of something like four million. Thus, as a rough-and-ready though incomplete indication of the relative wealth and security of the respective States, the Three per Cents. of powerless Belgium are quoted at 96, and the Three per Cents. of powerful Germany at 82; the Three and a Half per Cents. of the Russian Empire, with its hundred and twenty million souls and its four million army, are quoted at 81, while the Three and a Half per Cents. of Norway, which has not an army at all (or any that need be considered in this discussion), are quoted at 102. All of which carries with it the paradox that the more a nation's wealth is militarily protected the less secure does it become.[7]

The late Lord Salisbury, speaking to a delegation of business men, made this notable observation: The conduct of men of affairs acting individually in their business capacity differs radically in its principles and application from the conduct of the same men when they act collectively in political affairs. And one of the most astonishing things in politics is the little trouble business men take to bring their political creed into keeping with their daily behavior; how little, indeed, they realize the political implication of their daily work. It is a case, indeed, of the forest and the trees.

But for some such phenomenon we certainly should not see the contradiction between the daily practice of the business world and the prevailing political philosophy, which the security of property in, and the high prosperity of, the smaller States involves. We are told by all the political experts that great navies and great armies are necessary to protect our wealth against the aggression of powerful neighbors, whose cupidity and voracity can be controlled by force alone; that treaties avail nothing, and that in international politics might makes right, that military and commercial security are identical, that armaments are justified by the necessity of commercial security; that our navy is an "insurance," and that a country without military power with which their diplomats can "bargain" in the Council of Europe is at a hopeless disadvantage economically. Yet when the investor, studying the question in its purely financial and material aspect, has to decide between the great States, with all their imposing paraphernalia of colossal armies and fabulously costly navies, and the little States, possessing relatively no military power whatever, he plumps solidly, and with what is in the circumstances a tremendous difference, in favor of the small and helpless. For a difference of twenty points, which we find as between Norwegian and Russian, and fourteen as between Belgian and German securities, is the difference between a safe and a speculative one—the difference between an American railroad bond in time of profound security and in time of widespread panic. And what is true of the Government funds is true, in an only slightly less degree, of the industrial securities in the national comparison just drawn.

Is it a sort of altruism or quixotism which thus impels the capitalists of Europe to conclude that the public funds and investments of powerless Holland and Sweden (any day at the mercy of their big neighbors) are 10 to 20 per cent. safer than those of the greatest Power of Continental Europe. The question is, of course, absurd. The only consideration of the financier is profit and security, and he has decided that the funds of the undefended nation are more secure than the funds of one defended by colossal armaments. How does he arrive at this decision, unless it be through his knowledge as a financier, which, of course, he exercises without reference to the political implication of his decision, that modern wealth requires no defence, because it cannot be confiscated?

If Mr. Harrison is right; if, as he implies, a nation's commerce, its very industrial existence, would disappear if it allowed neighbors who envied it that commerce to become its superiors in armaments, and to exercise political weight in the world, how does he explain the fact that the great Powers of the Continent are flanked by little nations far weaker than themselves having nearly always a commercial development equal to, and in most cases greater than theirs? If the common doctrines be true, the financiers would not invest a dollar in the territories of the undefended nations, and yet, far from that being the case, they consider that a Swiss or a Dutch investment is more secure than a German one; that industrial undertakings in a country like Switzerland defended by an army of a few thousand men, are preferable in point of security to enterprises backed by two millions of the most perfectly trained soldiers in the world. The attitude of European finance in this matter is the absolute condemnation of the view commonly taken by the statesman. If a country's trade were really at the mercy of the first successful invader; if armies and navies were really necessary for the protection and promotion of trade, the small countries would be in a hopelessly inferior position, and could only exist on the sufferance of what we are told are unscrupulous aggressors. And yet Norway has relatively to population a greater carrying trade than Great Britain,[8] and Dutch, Swiss, and Belgian merchants compete in all the markets of the world successfully with those of Germany and France.

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 assured, 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 assure 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 assured 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 assured; 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 assured. 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 mass 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 assume 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 ownership? 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 asset 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 nobody 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 "ownership" 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 entities, 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 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 mediæval 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 substituted 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 shilling'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 mediæval 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 pass 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 harassed, 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 rôle. 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 fashion 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 competitor and a rival, a client and a market. Financial and commercial solidarity is increasing every day at the expense of commercial and industrial competition. This was certainly one of the principal causes which a year or two ago prevented the outbreak of war between Germany and France à 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 institution in Germany that would escape grave damage—a damage in credit and security so serious as to constitute 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 passages:

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 assuage 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 assisted 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 assistance. 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. Germany has quickened production with the help of English credit, and so has every other economically civilized country in the world. It is a fact that all of them, including our own colonies, develop their resources with the help of British capital and credit, and then do their utmost to keep out our productions by means of tariffs, which make it appear to superficial observers that England provides capital for the destruction of its own business. But in practice the system works quite otherwise, for all these countries that develop their resources with our money aim at developing an export trade and selling goods to us, and as they have not yet reached the point of economic altruism at which they are prepared to sell goods for nothing, the increase in their production means an increasing demand for our commodities and our services. And in the meantime the interest on our capital and credit, and the profits of working the machinery of exchange, are a comfortable addition to our national income.

But what is a further corollary of this situation? It is that Germany is to-day in a larger sense than she ever was before England's debtor, and that her industrial success is bound up with English financial security.

What would be the situation in Britain, therefore, on the morrow of a conflict in which that country was successful?

I have seen mentioned the possibility of the conquest and annexation of the free port of Hamburg by a victorious British fleet. Let us assume that the British Government has done this, and is proceeding to turn the annexed and confiscated property to account.

Now, the property was originally of two kinds: part was private property, and part was German Government, or rather Hamburg Government, property. The income of the latter was earmarked for the payment of interest of certain Government stock, and the action of the British Government, therefore, renders the stock all but valueless, and in the case of the shares of the private companies entirely so. The paper becomes unsaleable. But it is held in various forms—as collateral and otherwise—by many important banking concerns, insurance companies, and so on, and this sudden collapse of value shatters their solvency. Their collapse not only involves many credit institutions in Germany, but, as these in their turn are considerable debtors of London, English institutions are also involved. London is also involved in another way. As explained previously, many foreign concerns keep balances in London, and the action of the British Government having precipitated a monetary crisis in Germany, there is a run on London to withdraw all balances. In a double sense London is feeling the pinch, and it would be a miracle if already at this point the whole influence of British finance were not thrown against the action of the British Government. Assume, however, that the Government, making the best of a bad job, continues its administration of the property, and proceeds to arrange for loans for the purpose of putting it once more in good condition after the ravages of war. The banks, however, finding that the original titles have through the action of the British Government become waste paper, and British financiers having already burned their fingers with that particular class of property, withhold support, and money is only procurable at extortionate rates of interest—so extortionate that it becomes quite evident that as a Governmental enterprise the thing could not be made to pay. An attempt is made to sell the property to British and German concerns. But the same paralyzing sense of insecurity hangs over the whole business. Neither German nor British financiers can forget that the bonds and shares of this property have already been turned into waste paper by the action of the British Government. The British Government finds, in fact, that it can do nothing with the financial world unless first it confirms the title of the original owners to the property, and gives an assurance that titles to all property throughout the conquered territory shall be respected. In other words, confiscation has been a failure.

It would really be interesting to know how those who talk as though confiscation were still an economic possibility would proceed to effect it. As material property in the form of that booty which used to constitute the spoils of victory in ancient times, the gold and silver goblets, etc., would be quite inconsiderable, and as Britain cannot carry away sections of Berlin and Hamburg, she could only annex the paper tokens of wealth—the shares and bonds. But the value of those tokens depends upon the reliance which can be placed upon the execution of the contracts which they embody. The act of military confiscation upsets all contracts, and the courts of the country from which contracts derive their force would be paralyzed if judicial decisions were thrust aside by the sword. The value of the stocks and shares would collapse, and the credit of all those persons and institutions interested in such property would also be shaken or shattered, and the whole credit system, being thus at the mercy of alien governors only concerned to exact tribute, would collapse like a house of cards. German finance and industry would show a condition of panic and disorder beside which the worst crises of Wall Street would pale into insignificance. Again, what would be the inevitable result? The financial influence of London itself would be thrown into the scale to prevent a panic in which London financiers would be involved. In other words, British financiers would exert their influence upon the British Government to stop the process of confiscation.

But the intangibility of wealth can be shown in yet another fashion. I once asked an English chartered accountant, very subject to attacks of Germanophobia, how he supposed the Germans would profit by the invasion of England, and he had a very simple programme. Admitting the impossibility of sacking the Bank of England, they would reduce the British population to practical slavery, and make them work for their foreign taskmasters, as he put it, under the rifle and lash. He had it all worked out in figures as to what the profit would be to the conqueror. Very well, let us follow the process. The population of Great Britain are not allowed to spend their income, or at least are only allowed to spend a portion of it, on themselves. Their dietary is reduced more or less to a slave dietary, and the bulk of what they earn is to be taken by their "owners." But how is this income, which so tempts the Germans, created—these dividends on the railroad shares, the profits of the mills and mines and provision companies and amusement concerns? The dividends are due to the fact that the population eat heartily, clothe themselves well, travel on railroads, and go to theatres and music-halls. If they are not allowed to do these things, if, in other words, they cannot spend their money on these things, the dividends disappear. If the German taskmasters are to take these dividends, they must allow them to be earned. If they allow them to be earned, they must let the population live as it lived before—spending their income on themselves; but if they spend their income on themselves, what is there, therefore, for the taskmasters? In other words, consumption is a necessary factor of the whole thing. Cut out consumption, and you cut out the profits. This glittering wealth, which so tempted the invader, has disappeared. If this is not intangibility, the word has no meaning. Speaking broadly and generally, the conqueror in our day has before him two alternatives: to leave things alone, and in order to do that he need not have left his shores; or to interfere by confiscation in some form, in which case he dries up the source of the profit which tempted him.

The economist may object that this does not cover the case of such profit as "economic rent," and that dividends or profits being part of exchange, a robber who obtains wealth without exchange can afford to disregard them; or that the increased consumption of the dispossessed English community would be made up by the increased consumption of the "owning" Germans.

If the political control of economic operations were as simple a matter as in our minds we generally make it, these objections would be sound. As it is, none of them would in practice invalidate the general proposition I have laid down. The division of labor in the modern world is so complex—the simplest operation of foreign trade involving not two nations merely, but many—that the mere military control of one party to an operation where many are concerned could ensure neither shifting of the consumption nor the monopolization of the profit within the limits of the conquering group.

Here is a German manufacturer selling cinematograph machines to a Glasgow suburb (which, incidentally, lives by selling tools to Argentine ranchers, who live by selling wheat to Newcastle boiler-makers). Assuming even that Germany could transfer the surplus spent in cinematograph shows to Germany, what assurance has the German manufacturer in question that the enriched Germans will want cinematograph films? They may insist upon champagne and cigars, coffee and Cognac, and the French, Cubans, and Brazilians, to whom this "loot" eventually goes, may not buy their machinery from Germany at all, much less from the particular German manufacturer, but in the United States or Switzerland. The redistribution of the industrial rôles might leave German industry in the lurch, because at best the military power would only be controlling one section of a complex operation, one party to it out of many. When wealth was corn or cattle, the transference by political or military force of the possessions of one community to another may have been possible, although even then, or in a slightly more developed period, we saw the Roman peasantry ruined by the slave exploitation of foreign territory. How far this complexity of the international division of labor tends to render futile the other contrivances of conquest such as exclusive markets, tribute, money indemnity, etc., succeeding chapters may help to show.

CHAPTER V

What does the "extinction" of Germany mean? Does it mean that Britain shall slay in cold blood sixty or seventy millions of men, women, and children? Otherwise, even though the fleet and army were annihilated the country's sixty millions of workers would still remain,—all the more industrious, as they would have undergone great suffering and privation—prepared to exploit their mines and workshops with as much thoroughness and thrift and industry as ever, and consequently just as much trade rivals as ever, army or no army, navy or no navy.

Even if the British could annihilate Germany, they would annihilate such an important section of their debtors as to create hopeless panic in London, and that panic would so react on their own trade that it would be in no sort of condition to take the place which Germany had previously occupied in neutral markets, leaving aside the question that by the act of annihilation a market equal to that of Canada and South Africa combined would be destroyed.

What does this sort of thing mean? Am I wrong in saying that the whole subject is overlaid and dominated by a jargon which may have had some relation to facts at one time, but from which in our day all meaning has departed?

The English patriot may say that he does not mean permanent destruction, but only temporary "annihilation." (And this, of course, on the other side, would mean not permanent, but only temporary acquisition of that 1250 millions of trade.)

He might, like Mr. Harrison, put the case conversely—that if Germany could get command of the sea she could cut England off from its customers and intercept its trade for her benefit. This notion is as absurd as the other. It has already been shown that the "utter destruction of credit" and "incalculable chaos in the financial world," which Mr. Harrison foresees as the result of Germany's invasion, could not possibly leave German finance unaffected. It is a very open question whether her chaos would not be as great as the English. In any case, it would be so great as thoroughly to disorganize her industry, and in that disorganized condition it would be out of the question for her to secure the markets left unsupplied by England's isolation. Moreover, those markets would also be disorganized, because they depend upon England's ability to buy, which Germany would be doing her best to destroy. From the chaos which she herself had created, Germany could derive no possible benefit, and she could only terminate financial disorder, fatal to her own trade, by bringing to an end the condition which had produced it—that is, by bringing to an end the isolation of Great Britain.

With reference to this section of the subject we can with absolute certainty say two things: (1) That Germany can only destroy British trade by destroying British population; and (2) that if she could destroy that population, which she could not, she would destroy one of her most valuable markets, as at the present time she sells to it more than it sells to her. The whole point of view involves a fundamental misconception of the real nature of commerce and industry.

Commerce is simply and purely the exchange of one product for another. If the British manufacturer can make cloth, or cutlery, or machinery, or pottery, or ships cheaper or better than his rivals, he will obtain the trade; if he cannot, if his goods are inferior or dearer, or appeal less to his customers, his rivals will secure the trade, and the possession of Dreadnoughts will make not a whit of difference. Switzerland, without a single Dreadnought, will drive him out of the market even of his own colonies, as, indeed, she is driving him out.[14] The factors which really constitute prosperity have not the remotest connection with military or naval power, all our political jargon notwithstanding. To destroy the commerce of forty million people Germany would have to destroy Britain's coal and iron mines, to destroy the energy, character, and resourcefulness of its population; to destroy, in short, the determination of forty million people to make their living by the work of their hands. Were we not hypnotized by this extraordinary illusion, we should accept as a matter of course that the prosperity of a people depends upon such facts as the natural wealth of the country in which they live, their social discipline and industrial character, the result of years, of generations, of centuries, it may be, of tradition and slow, elaborate, selective processes; and, in addition to all these deep-seated elementary factors, upon countless commercial and financial ramifications—a special technical capacity for such-and-such a manufacture, a special aptitude for meeting the peculiarities of such and-such a market, the efficient equipment of elaborately constructed workshops, the existence of a population trained to given trades—a training not infrequently involving years, and even generations, of effort. All this, according to Mr. Harrison, is to go for nothing, and Germany is to be able to replace it in the twinkling of an eye, and forty million people are to sit down helplessly because Germany has been victorious at sea. On the morrow of her marvellous victory Germany is by some sort of miracle to find shipyards, foundries, cotton-mills, looms, factories, coal and iron mines, and all their equipment, suddenly created in order to take the trade that the most successful manufacturers and traders in the world have been generations in building up. Germany is to be able suddenly to produce three or four times what her population has hitherto been able to produce; for she must either do that or leave the markets which England has supplied heretofore still available to English effort. What has really fed these forty millions, who are to starve on the morrow of Germany's naval victory, is the fact that the coal and iron exported by them have been sent in one form or another to populations which need those products. Is that need suddenly to cease, or are the forty millions suddenly to be struck with some sort of paralysis, that all this vast industry is coming to an end? What has the defeat of English ships at sea to do with the fact that the Canadian farmer wants to buy English manufactures and pay for them with his wheat? It may be true that Germany could stop the importation of that wheat. But why should she want to do so? How would it benefit her people to do so? By what sort of miracle is she suddenly to be able to supply products which have kept forty million people busy? By what sort of miracle is she suddenly to be able to double her industrial population? And by what sort of miracle is she to be able to consume the wheat, because if she cannot take the wheat the Canadian cannot buy her products? I am aware that all this is elementary, that it is economics in words of one syllable; but what are the economics of Mr. Harrison and those who think like him when he talks in the strain of the passage that I have just quoted?