CHAPTER II
Europe Before the War
Before 1870 different parts of the small continent of Europe had
specialised in their own products; but, taken as a whole, it was
substantially self-subsistent. And its population was adjusted to this
state of affairs.
After 1870 there was developed on a large scale an unprecedented
situation, and the economic condition of Europe became during the next
fifty years unstable and peculiar. The pressure of population on food,
which had already been balanced by the accessibility of supplies from
America, became for the first time in recorded history definitely
reversed. As numbers increased, food was actually easier to secure.
Larger proportional returns from an increasing scale of production
became true of agriculture as well as industry. With the growth of the
European population there were more emigrants on the one hand to till
the soil of the new countries and, on the other, more workmen were
available in Europe to prepare the industrial products and capital
goods which were to maintain the emigrant populations in their new
homes, and to build the railways and ships which were to make
accessible to Europe food and raw products from distant sources. Up to
about 1900 a unit of labour applied to industry yielded year by year a
purchasing power over an increasing quantity of food. It is possible
that about the year 1900 this process began to be reversed, and a
diminishing yield of nature to man's effort was beginning to reassert
itself. But the tendency of cereals to rise in real cost was balanced
by other improvements; and one of many novelties the resources of
tropical Africa then for the first time came into large employ, and a
great traffic in oilseeds began to bring to the table of Europe in a
new and cheaper form one of the essential foodstuffs of mankind. In
this economic Eldorado, in this economic Utopia, as the earlier
economists would have deemed it, most of us were brought up.
That happy age lost sight of a view of the world which filled with
deep-seated melancholy the founders of our political economy. Before
the eighteenth century mankind entertained no false hopes. To lay the
illusions which grew popular at that age's latter end, Malthus
disclosed a devil. For half a century all serious economical writings
held that devil in clear prospect. For the next half century he was
chained up and out of sight. Now perhaps we have loosed him again.
What an extraordinary episode in the economic progress of man that
age was which came to an end in August 1914! The greater part of the
population, it is true, worked hard and lived at a low standard of
comfort, yet were, to all appearances, reasonably contented with this
lot. But escape was possible, for any man of capacity or character at
all exceeding the average, into the middle and upper classes, for whom
life offered, at a low cost and with the least trouble, conveniences,
comforts, and amenities beyond the compass of the richest and most
powerful monarchs of other ages. The inhabitant of London could order
by telephone, sipping his morning tea in bed, the various products of
the whole earth, in such quantity as he might see fit, and reasonably
expect their early delivery upon his doorstep; he could at the same
moment and by the same means adventure his wealth in the natural
resources and new enterprises of any quarter of the world, and share,
without exertion or even trouble, in their prospective fruits and
advantages; or he could decide to couple the security of his fortunes
with the good faith of the townspeople of any substantial municipality
in any continent that fancy or information might recommend. He could
secure forthwith, if he wished it, cheap and comfortable means of
transit to any country or climate without passport or other formality,
could despatch his servant to the neighbouring office of a bank for
such supply of the precious metals as might seem convenient, and could
then proceed abroad to foreign quarters, without knowledge of their
religion, language, or customs, bearing coined wealth upon his person,
and would consider himself greatly aggrieved and much surprised at the
least interference. But, most important of all, he regarded this state
of affairs as normal, certain, and permanent, except in the direction
of further improvement, and any deviation from it as aberrant,
scandalous, and avoidable. The projects and politics of militarism and
imperialism, of racial and cultural rivalries, of monopolies,
restrictions, and exclusion, which were to play the serpent to this
paradise, were little more than the amusements of his daily newspaper,
and appeared to exercise almost no influence at all on the ordinary
course of social and economic life, the internationalisation of which
was nearly complete in practice.
It will assist us to appreciate the character and consequences of
the peace which we have imposed on our enemies, if I elucidate a little
further some of the chief unstable elements, already present when war
broke out, in the economic life of Europe.
I. Population
In 1870, Germany had a population of about 40 million. By 1892 this
figure had risen to 50 million, and by 30 June 1914 to about 68
million. In the years immediately preceding the war the annual increase
was about 850,000, of whom an insignificant proportion emigrated.(1*)
This great increase was only rendered possible by a far-reaching
transformation of the economic structure of the country. From being
agricultural and mainly self-supporting, Germany transformed herself
into a vast and complicated industrial machine dependent for its
working on the equipoise of many factors outside Germany as well as
within. Only by operating this machine, continuously and at full blast,
could she find occupation at home for her increasing population and the
means of purchasing their subsistence from abroad. The German machine
was like a top which to maintain its equilibrium must progress ever
faster and faster.
In the Austro-Hungarian empire, which grew from about 40 million in
1890 to at least 50 million at the outbreak of war, the same tendency
was present in a less degree, the annual excess of births over deaths
being about half a million, out of which, however, there was an annual
emigration of some quarter of a million persons.
To understand the present situation, we must apprehend with
vividness what an extraordinary centre of population the development of
the Germanic system had enabled Central Europe to become. Before the
war the population of Germany and Austria-Hungary together not only
substantially exceeded that of the United States, but was about equal
to that of the whole of North America. In these numbers, situated
within a compact territory, lay the military strength of the Central
Powers. But these same numbers for even the war has not appreciably
diminished them(2*) if deprived of the means of life, remain a
hardly less danger to European order.
European Russia increased her population in a degree even greater
than Germany from less than 100 million in 1890 to about 150 million
at the outbreak of war;(3*) and in the years immediately preceding 1914
the excess of births over deaths in Russia as a whole was at the
prodigious rate of two million per annum. This inordinate growth in the
population of Russia, which has not been widely noticed in England, has
been nevertheless one of the most significant facts of recent years.
The great events of history are often due to secular changes in the
growth of population and other fundamental economic causes, which,
escaping by their gradual character the notice of contemporary
observers, are attributed to the follies of statesmen or the fanaticism
of atheists. Thus the extraordinary occurrences of the past two years
in Russia, that vast upheaval of society, which has overturned what
seemed most stable religion, the basis of property, the ownership of
land, as well as forms of government and the hierarchy of classes
may owe more to the deep influences of expanding numbers than to Lenin
or to Nicholas; and the disruptive powers of excessive national
fecundity may have played a greater part in bursting the bonds of
convention than either the power of ideas or the errors of autocracy.
II. Organization
The delicate organisation by which these peoples lived depended
partly on factors internal to the system.
The interference of frontiers and of tariffs was reduced to a
minimum, and not far short of three hundred millions of people lived
within the three empires of Russia, Germany, and Austria-Hungary. The
various currencies, which were all maintained on a stable basis in
relation to gold and to one another, facilitated the easy flow of
capital and of trade to an extent the full value of which we only
realise now, when we are deprived of its advantages. Over this great
area there was an almost absolute security of property and of person.
These factors of order, security, and uniformity, which Europe had
never before enjoyed over so wide and populous a territory or for so
long a period, prepared the way for the organisation of that vast
mechanism of transport, coal distribution, and foreign trade which made
possible an industrial order of life in the dense urban centres of new
population. This is too well known to require detailed substantiation
with figures. But it may be illustrated by the figures for coal, which
has been the key to the industrial growth of Central Europe hardly less
than of England; the output of German coal grew from 30 million tons in
1871 to 70 million tons in 1890, 110 million tons in 1900, and 190
million tons in 1913.
Round Germany as a central support the rest of the European
economic system grouped itself, and on the prosperity and enterprise of
Germany the prosperity of the rest of the continent mainly depended.
The increasing pace of Germany gave her neighbours an outlet for their
products, in exchange for which the enterprise of the German merchant
supplied them with their chief requirements at a low price.
The statistics of the economic interdependence of Germany and her
neighbours are overwhelming. Germany was the best customer of Russia,
Norway, Holland, Belgium, Switzerland, Italy, and Austria-Hungary. she
was the second-best customer of Great Britain, Sweden, 'and Denmark;
and the third-best customer of France. She was the largest source of
supply to Russia, Norway, Sweden, Denmark, Holland, Switzerland, Italy,
Austria-Hungary, Roumania, and Bulgaria; and the second largest source
of supply to Great Britain, Belgium, and France.
In our own case we sent more exports to Germany than to any other
country in the world except India, and we bought more from her than
from any other country in the world except the United States.
There was no European country except those west of Germany which
did not do more than a quarter of their total trade with her; and in
the case of Russia, Austria-Hungary, and Holland the proportion was far
greater.
Germany not only furnished these countries with trade but, in the
case of some of them, supplied a great part of the capital needed for
their own development. Of Germany's pre-war foreign investments,
amounting in all to about £31,250 million, not far short of £3500
million was invested in Russia, Austria-Hungary, Bulgaria, Roumania,
and Turkey. And by the system of 'peaceful penetration' she gave these
countries not only capital but, what they needed hardly less,
organisation. The whole of Europe east of the Rhine thus fell into the
German industrial orbit, and its economic life was adjusted
accordingly.
But these internal factors would not have been sufficient to enable
the population to support itself without the co-operation of external
factors also and of certain general dispositions common to the whole of
Europe. Many of the circumstances already treated were true of Europe
as a whole, and were not peculiar to the central empires. But all of
what follows was common to the whole European system.
III. The Psychology of Society
Europe was so organised socially and economically as to secure the
maximum accumulation of capital. While there was some continuous
improvement in the daily conditions of life of the mass of the
population, society was so framed as to throw a great part of the
increased income into the control of the class least likely to consume
it. The new rich of the nineteenth century were not brought up to large
expenditures, and preferred the power which investment gave them to the
pleasures of immediate consumption. In fact, it was precisely the
inequality of the distribution of wealth which made possible those vast
accumulations of fixed wealth and of capital improvements which
distinguished that age from all others. Herein lay, in fact, the main
justification of the capitalist system. If the rich had spent their new
wealth on their own enjoyments, the world would long ago have found
such a regime intolerable. But like bees they saved and accumulated,
not less to the advantage of the whole community because they
themselves held narrower ends in prospect.
The immense accumulations of fixed capital which, to the great
benefit of mankind, were built up during the half century before the
war, could never have come about in a society where wealth was divided
equitably. The railways of the world, which that age built as a
monument to posterity, were, not less than the pyramids of Egypt, the
work of labour which was not free to consume in immediate enjoyment the
full equivalent of its efforts.
Thus this remarkable system depended for its growth on a double
bluff or deception. On the one hand the labouring classes accepted from
ignorance or powerlessness, or were compelled, persuaded, or cajoled by
custom, convention, authority, and the well-established order of
society into accepting, a situation in which they could call their own
very little of the cake that they and nature and the capitalists were
co-operating to produce. And on the other hand the capitalist classes
were allowed to call the best part of the cake theirs and were
theoretically free to consume it, on the tacit underlying condition
that they consumed very little of it in practice. The duty of 'saving'
became nine-tenths of virtue and the growth of the cake the object of
true religion. There grew round the non-consumption of the cake all
those instincts of puritanism which in other ages has withdrawn itself
from the world and has neglected the arts of production as well as
those of enjoyment. And so the cake increased; but to what end was not
clearly contemplated. Individuals would be exhorted not so much to
abstain as to defer, and to cultivate the pleasures of security and
anticipation. Saving was for old age or for your children; but this
was only in theory the virtue of the cake was that it was never to
be consumed, neither by you nor by your children after you.
In writing thus I do not necessarily disparage the practices of
that generation. In the unconscious recesses of its being society knew
what it was about. The cake was really very small in proportion to the
appetites of consumption, and no one, if it were shared all round,
would be much the better off by the cutting of it. Society was working
not for the small pleasures of today but for the future security and
improvement of the race in fact for "progress." If only the cake
were not cut but was allowed to grow in the geometrical proportion
predicted by Malthus of population, but not less true of compound
interest, perhaps a day might come when there would at last be enough
to go round, and when posterity could enter into the enjoyment of our
labours. In that day overwork, overcrowding, and underfeeding would
come to an end, and men, secure of the comforts and necessities of the
body, could proceed to the nobler exercises of their faculties. One
geometrical ratio might cancel another, and the nineteenth century was
able to forget the fertility of the species in a contemplation of the
dizzy virtues of compound interest.
There were two pitfalls in this prospect: lest, population still
outstripping accumulation, our self-denials promote not happiness but
numbers; and lest the cake be after all consumed, prematurely, in war,
the consumer of all such hopes.
But these thoughts lead too far from my present purpose. I seek
only to point out that the principle of accumulation based in on
equality was a vital part of the pre-war order of society and of
progress as we then understood it, and to emphasise that this principle
depended on unstable psychological conditions, which it may be
impossible to re-create. It was not natural for a population, of whom
so few enjoyed the comforts of life, to accumulate so hugely. The war
has disclosed the possibility of consumption to all and the vanity of
abstinence to many. Thus the bluff is discovered; the labouring classes
may be no longer willing to forgo so largely, and the capitalist
classes, no longer confident of the future, may seek to enjoy more
fully their liberties of consumption so long as they last, and thus
precipitate the hour of their confiscation.
IV. The Relation of the Old World to the New
The accumulative habits of Europe before the war were the necessary
condition of the greatest of the external factors which maintained the
European equipoise.
Of the surplus capital goods accumulated by Europe a substantial
part was exported abroad, where its investment made possible the
development of the new resources of food, materials, and transport, and
at the same time enabled the Old World to stake out a claim in the
natural wealth and virgin potentialities of the New. This last factor
came to be of the vastest importance. The Old World employed with an
immense prudence the annual tribute it was thus entitled to draw. The
benefit of cheap and abundant supplies, resulting from the new
developments which its surplus capital had made possible was, it is
true, enjoyed and not postponed. But the greater part of the money
interest accruing on these foreign investments was reinvested and
allowed to accumulate, as a reserve (it was then hoped) against the
less happy day when the industrial labour of Europe could no longer
purchase on such easy terms the produce of other continents, and when
the due balance would be threatened between its historical
civilisations and the multiplying races of other climates and
environments. Thus the whole of the European races tended to benefit
alike from the development of new resources whether they pursued their
culture at home or adventured it abroad.
Even before the war, however, the equilibrium thus established
between old civilisations and new resources was being threatened. The
prosperity of Europe was based on the facts that, owing to the large
exportable surplus of foodstuffs in America, she was able to purchase
food at a cheap rate measured in terms of the labour required to
produce her own exports, and that, as a result of her previous
investments of capital, she was entitled to a substantial amount
annually without any payment in return at all. The second of these
factors then seemed out of danger but, as a result of the growth of
population overseas, chiefly in the United States, the first was not so
secure.
When first the virgin soils of America came into bearing, the
proportions of the population of those continents themselves, and
consequently of their own local requirements, to those of Europe were
very small. As lately as 1890 Europe had a population three times that
of North and South America added together. But by 1914 the domestic
requirements of the United states for wheat were approaching their
production, and the date was evidently near when there would be an
exportable surplus only in years of exceptionally favourable harvest.
Indeed, the present domestic requirements of the United States are
estimated at more than ninety per cent of the average yield of the five
years 1909-13.(4*) At that time, however, the tendency towards
stringency was showing itself, not so much in a lack of abundance as in
a steady increase of real cost. That is to say, taking the world as a
whole, there was no deficiency of wheat, but in order to call forth an
adequate supply it was necessary to offer a higher real price. The most
favourable factor in the situation was to be found in the extent to
which Central and Western Europe was being fed from the exportable
surplus of Russia and Roumania.
In short, Europe's claim on the resources of the New World was
becoming precarious; the law of diminishing returns was at last
reasserting itself, and was making it necessary year by year for Europe
to offer a greater quantity of other commodities to obtain the same
amount of bread; and Europe, therefore, could by no means afford the
disorganisation of any of her principal sources of supply.
Much else might be said in an attempt to portray the economic
peculiarities of the Europe of 1914. I have selected for emphasis the
three or four greatest factors of instability the instability of an
excessive population dependent for its livelihood on a complicated and
artificial organisation, the psychological instability of the labouring
and capitalist classes, and the instability of Europe's claim, coupled
with the completeness of her dependence, on the food supplies of the
New World.
The war had so shaken this system as to endanger the life of Europe
altogether. A great part of the continent was sick and dying; its
population was greatly in excess of the numbers for which a livelihood
was available; its organisation was destroyed, its transport system
ruptured, and its food supplies terribly impaired.
It was the task of the peace conference to honour engagements and
to satisfy justice; but not less to re-establish life and to heal
wounds. These tasks were dictated as much by prudence as by the
magnanimity which the wisdom of antiquity approved in victors. We will
examine in the following chapters the actual character of the peace.
NOTES:
1. In 1913 there were 25,843 emigrants from Germany, of whom 19,124
went to the United States.
2. The net decrease of the German population at the end of 1918 by
decline of births and excess of deaths as compared with the beginning
of 1914, is estimated at about 2,700,000.
3. Including Poland and Finland, but excluding Siberia, central
Asia,and the Caucasus.
4. Even since 1914 the population of the United States has increased by
seven or eight million. As their annual consumption of wheat per head
is not less than six bushels, the pre-war scale of production in the
United States would only show a substantial surplus over present
domestic requirements in about one year out of five. We have been saved
for the moment by the great harvests of 1918 and 1919, which have been
called forth by Mr Hoover's guaranteed price. But the United States can
hardly be expected to continue indefinitely to raise by a substantial
figure the cost of living in its own country, in order to provide wheat
for a Europe which cannot pay for it.
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