National Power and the Structure of Foreign Trade

Publications of the

Bureau of Business and Economic Research

University of California

National Power

and the Structure

of Foreign Trade

By

ALBERT O HIRSCHMAN

U N I V E R S I T Y O F C A L I F O R N I A P R E S S

B E R K E L E Y A N D L O S A N G E L E S

1 9 4 5

U N I V E R S I T Y O F C A L I F O R N I A P R E S S

B E R K E L E Y A N D LOS A N G E L E S

C A L l F O R N I A

- O

C A M B R I D G E U N I V E R S I T Y P R E S S

L O N D O N , E N G L A N D

C O P V R I C H T , 1945, B T

t H E R E G E N T S O F T H E U N I V E R S I T Y O F C S L I F O R N ] *

F K 1 N T E D I N T H E U N I T E D S T A T E S O F A M E R I C A

B Y T H E U N I V E R S I T Y O P C A L I F O R N I A P R E S S

P t B U C A T I O N S O F T H f Bl RFAti O F B l ' S I N E U A N P E C O N O M I C R E S E A R C H

Frnnnuily publuhrd in this trtirs:

A TREAFISE O N WAR I N K I J M I O N

by Wil l iam J. Fcllncr ( i ^ t )

BRFAH AND nF:M<>CRACY IN G E R M A N Y

bv Alexander Gcfwhenltron ( 1 ^ 3 )

T H E E C O N O M I C S O F T H E PACIFIC COAST F F T R O I E U M INDUSTRY:

PART 1: M A R K F T STRICTURF,

by Juc S. Bain (1944)

LAND T E N U R E PROBLEMS IN T H E SANTA FE RAII Rt>AD GRAN I AREA

by Sanford A- Mosk ( 1 ^ )

PUBLICATIONS OF THE BUREAU OF BUSINESS AND ECONOMIC RESEARCH

Previously published in this series:

A T R E A T I S E O N WAR I N F L A T I O N

b y W i l l i a m J. F e l l n e r (194a)

B R E A D AND D E M O C R A C Y I N G E R M A N Y

b y A l e x a n d e r G e r s c h e n k r o n {1943)

T H E E C O N O M I C S O F T H E PACIFIC C O A S T P E T R O L E U M I N D U S T R Y :

P A R T 1: M A R K E T S T R U C T U R E

b y J o e S . B a i n (1944)

L A N D T E N U R E P R O B L E M S IN T H E S A N T A F E R A I L R O A D G R A N T A R E A

b y S a n f o r d A . M o s k (1944)

Foreword

T _LHE FOLLOWING STUDY by Albert O. Hirschman is one in

a series of research studies conducted under the auspices of the

Bureau of Business and Economic Research of the University. The

Bureau is under the general direction of a presidential committee

consisting at present of the following members of the Department

of Economics: Professors J. B. Condliffe (chairman), Norman S.

Buchanan, Stuart Daggett, and Malcolm M. Davisson; and E. T.

Grether, Dean of the School of Business Administration.

The opinions expressed in this study are those of the author. The

functions of the Bureau of Business and Economic Research are

confined to facilitating the prosecution of independent scholarly

research by members of the faculty. FRANK L . KIDNER,

Director.

Preface

T J.HIS ESSAY was written in 1942 at the University of Cali

fornia, Berkeley, under a fellowship granted by the Rockefeller

Foundation. It is an outgrowth of my collaboration with the Trade

Regulation Project. Professor J. B. Condliffe directed this research

project, and to him I owe my deepest gratitude, first, for enabling

me to come from France to the United States in and, then, for

giving me, after my arrival, the benefit of Ins advice and constant

encouragement. I am also very greatly indebted to Professor How

ard S. Ellis for his detailed criticism and numerous suggestions with

respect to the content and form which this essay has taken. At

successive stages of the work I was greatly helped by numerous dis

cussions with my co-workers of the Trade Regulation Project, Dr.

Alexander Gerschenkron, Dr. Peter Franck, and Mr. Alexander

Stevenson. Mr. Stevenson is also responsible for many stylistic im

provements. A trip to the Middle West and the East late in 1^42

gave me an opportunity to place my manuscript before persons in a

number of universities, and I wish to express my thanks to all those

who took time to discuss my ideas with me. Finally, I am indebted

to Dr. Fausto M. Ricci for calculating the indices and tables in Part

2. Chapter VII appeared in a slightly altered form, but under the

same title, in the "Quarterly Journal of Economics',' Volume LVII

(August, ip43). ALBERT O . HIRSCHMAN

Introduction

'NLY THREE MONTHS b e f o T c he b e g a n w o r k on The Prince,

M a c h i a v e l l i wrote in a letter to his f r iend and co l league , the Floren

tine d i p l o m a t Francesco V e t t o r i : " F o r t u n e has decreed that, as I d o

not k n o w h o w to reason ei ther a b o u t the art of silk or a b o u t the art

of w o o l , e i ther a b o u t profits or a b o u t losses, it befits m e to reason

a b o u t the s t a t e . T h e Machiave l l ians of today w o u l d p r o b a b l y be

astonished by this, since it reveals the c o m p l e t e fa i lure of Machia

vel l i to perceive any c o n n e c t i o n b e t w e e n economics a n d polit ics.

A t e x t b o o k for the m o d e r n p r i n c e should i n d e e d contain, in addi

t ion to Machiave l l i ' s classic chapters, extensive n e w sections on the

most efficient use of quotas, e x c h a n g e controls , capital investment ,

a n d other instruments of e c o n o m i c warfare. I n this respect, pract ice

has preceded theory. T h e extensive use of internat ional e c o n o m i c

relat ions as an ins trument of nat ional p o w e r policies has been, to

gether w i t h the " w a r of nerves , " o n e of the m a i n characteristics of

the per iod p r e c e d i n g the o u t b r e a k of the present war .

Discussion of this d e v e l o p m e n t has not general ly proceeded from

a r e e x a m i n a t i o n of the various theories of imper ia l i sm. T h e pro

ponents of these theories have tr ied to prove that the " i n n e r contra

dict ions of c a p i t a l i s m " lead inevi tably to a struggle for markets a n d

sources of raw materials . T h i s s truggle has b e e n p i c t u r e d as the

m a i n u n d e r l y i n g cause of the bel l icose pol icy of g o v e r n m e n t s a n d

of the e n s u i n g wars. B u t present-day i n q u i r i e s mostly take as pos

sible or as g iven a p o w e r - m i n d e d policy, w h a t e v e r may b e its politi

cal, economic , or psychological or igins, and e x a m i n e the use w h i c h

such a pol icy makes of the e c o n o m i c instruments at its disposal.

T h o u g h not direct ly c o n c e r n e d w i t h the " e c o n o m i c causes of w a r , "

this type of analysis can m a k e c lear i m p o r t a n t i n t e r m e d i a t e l inks

in the process of causat ion of m o d e r n war.''

•"La fortuna ha fallo che non sapcndo ragionare nfe dell'arte della seta nt dell'arte della laiia nc de'guadagni, delle perdiie, e'mi convicne ragionare dello stato."— Letter of April 9 . 1 5 1 3 , in Machiavelli, Opere complete (Florence, 1833). p. 856.

•See below, pp. 72 ff.

X Introduction

What might be called the New Machiavellism has already received a good deal of attention. T h e German trade offensive and economic penetration in such areas as southeastern Europe and Latin America has been thoroughly investigated by many economists. T h e processes and technical devices by which Germany achieved partial or total success and the poUtical, social, and economic circumstances which favored her during the 'thirties have been given careful study.

T h e present inquiry is directed to a more fundamental problem.

It is concerned with the nature of a system of international trade

that can very easily be exploited for purposes of national power

policy. Is there in the trading system some inherent weakness which

makes it vulnerable to the will of any government so minded to

use it in the pursuit of power? Very httle attention seems to have

been given to this question. Yet its importance is obvious, since it

points to an element in the international situation which is not

necessarily temporary nor confined merely to tlie techniques and

circumstances of which the Nazis took such good advantage. Upon

the answer to this question may depend our position concerning

the kind, extent, and organization of foreign trade which it will be

desirable to reconstruct when the present war ends.

O u r purpose is therefore to analyze the political aspect of inter

national trade, the most important constituent of international eco

nomic relations. In this analysis we have found it useful to appeal

to a variety of approaches—theoretical, historical, and statistical—

which, it is hoped, wi l l not blur the unity of our purpose.

W e begin our study with a brief survey of economic thought on

the relationship between foreign trade and national power, from

the Mercantilists on. Chapter II attempts a systematic theoretical

approach to the subject. It first makes clear tlie fundamental basis of

the possible use of foreign trade as an instrument of national power

policy. Using well-known concepts of economic analysis, it proceeds

to show under what conditions and by means of what policies this

instrument is likely to attain its highest efficiency. T h e principles

of power policy thus deduced theoretically are then compared with

the actual practices followed by German trading methods in recent

years. Toward the end of this chapter the reader will be carried into

Introduction xi

a detailed discussion of certain problems of the theory of interna

tional trade which are touched upon earlier in the chapter.

Chapter III is applied to the historical background of our prob

lem. It gives a survey of the literature on "economic aggression"

before and during World War I and brings out the importance of

the Paris Economic Conference of the AlHes in i g i 6 for the Ver

sailles Treaty and postwar economic policies. We shall see how

opinion was divided in the main between two equally unsatisfactory

positions: (i) the politicians, historians, and journalists, who, aided

by protectionist economists, proposed to avert the danger of eco

nomic aggression by increased economic nationalism, and (2) the

free trade economists who, answering on purely economic grounds,

failed to see or denied the reality of the danger pointed out by their

adversaries.

In the fourth chapter we review in the light of our theoretical and

historical analyses certain safeguards or remedies which could be

or have been proposed to prevent the use of foreign trade as an in

strument of national power policies. W e arrive at the conclusion

that nothing short of a severe restriction of economic sovereignty

can achieve this purpose effectively.

Certain questions raised in Part 1 can be answered in quantitative

terms. Part 2 consists, therefore, of an exposition of various trends

of international trade in recent years disclosed by statistical analysis.

W e find that the total volume of trade handled by a country is

an important factor in determining its powerposition in its dealings

with any other single country. In Chapter V we therefore calculate

an index number expressing the extent to which the trade of the

large trading nations is or has been directed by preference toward

the smaller trading countries.

T h e ability of a country to spread its imports and exports equally

over a large number of countries affects in an important way its

"economic independence." Since this point is especially important

for the smaller countries. Chapter VI gives index numbers for the

degree of concentration of t!ieir foreign trade on one or a few big

markets or sources of supply.

Finally, in Chapter V I I , we measure the extent to which world

trade has been based primarily on an exchange of manufactures

against raw materials and foodstuffs. W e arrive at the result that

x i i Introduction

the importance of this type of exchange has been much overrated

relatively to other types: the exchange of (some) foodstuffs and raw

materials against {some other) foodstuffs and raw materials, the

exchange .of (some) manufactures against (some other) manufac

tures, and the exchange of commodities in general against the so-

called "invisible items" of the balances of payments. It is shown

that the incorrect belief about the dominating position of the ex

change of manufactures against foodstuffs and raw materials has led

the old industrial countries, and in particular Germany, to fear

the collapse of their foreign trade as a consequence of the industrial

ization of the agricultural countries. T h i s fear contributes to the

understanding of certain economic policies of Imperial as well as

of Nazi Germany.

Contents

P A R T O N E : T H E O R E T I C A L A N D

H I S T O R I C A L A S P E C T S

C H A I T E R P A G E

I. Economic T h o u g h t on the Relationship Between

Foreign Trade and National Power 3

II . Foreign Trade As an Instrument of National Power 13

T h e T w o Effects of Foreign Trade 14

T h e Influence Effect of Foreign Trade (Section 1) . . . . 17

Gain from Trade and Dependence on Trade, 18. Adjust

ment Difficulties and Vested Interests, 26.

T h e Influence Effect of Foreign Trade (Section 2) . . . . 2 9

An IHustration: German Trading Methods under National

Socialism 34

Notes on the Theory of International Trade 40 Equilibrium in International Trade under Varying Assumptions in the Institutional Framework, 4 1 . A Note on Bargaining Power, 45. A Note on Gain from Trade, 48.

H I . T h e Question of "Economic Aggression" Dtiring

World W a r I 53

IV. Problems of Reconstrtiction 71

P A R T T W O : T H R E E S T A T I S T I C A L I N Q U I R I E S

I N T O T H E S T R U C T U R E O F W O R L D T R A D E

Introduction to Part T w o 85

V. T h e Preference of Large Trading Countries for Com

merce with Small Trading Countries 87

Method of Measurement 87

Interpretation of the Statistics g i

[xi i i ]

xiv Contents

C H A P T E R P A G E

V I . Concentration upon Markets and Supply Sources of

tfie Foreign Trade of Small or Weak Nations . . . 98

Method of Measurement 9^

Interpretation of the Statistics l O i Concentration of Imports Compared to the Concentration of Exports, 101. Analysis According to Groups of Countries: Europe, log; British Empire, 1 1 4 ; South America, 1 1 5 .

/II. T h e Commodity Structure of World Trade . . . - 1 1 7

Method of Measurement 1 1 7

T h e Main Result of the Calculations 124

Detailed Analysis of the Statistics for Countries and Groups of Countries 129

T h e Commodity Structure of British Foreign Trade Since

1854 143

Historical Importance of the Traditional View of the Commodity Structure of World Trade 146

Appendix A. Note on Statistical Methods 155

Appendix B. Resolutions of the Paris Economic Confer

ence of the Allies, June, 1 9 1 6 163

[ndex 169

Part One

THEORETICAL AND HISTORICAL

ASPECTS

C H A P T E R I

Economic Thought on the Relationship

Between Foreign Trade and

National Power

'ECAUSE OF an enduring l iberal tradition, the conflict of

social purposes which has been popularized by Goering's blunt

statement of the choice to be made between guns and butter sur

prised great numbers of people in the democratic countries. Often-

heard phrases, like the perversion of normal economic activities or

the diversion of national wealth from its true economic purposes,

indicate that in spite of the experience of the First W o r l d W a r the

pursuit of power was still largely considered as a subordinate or

exceptional aim of economic policy.

T r u e it is that ever since M a x W e b e r economists have had some

doubts about the meaningfulness of the term economic when ap

plied to ends and not to means. Nevertheless, academic discussion

has sought mainly to determine which of tlie possible and sometimes

conflicting dehnitions of welfare should be adopted as an objective

of policy and what means would be most suitable to the kind of

welfare desired.'

It is not surprising therefore that at first sight the pursuit of so

different an objective as national power should have been deemed

irreconcilable with the pursuit of any type of welfare. T h e alterna

tive between guns and butter became, in academic language, the

opposition between two economic systems, the economics of welfare

and the economics of power.^

If tlie proposal to make the power of the state a primary- aim of

^ With respect to monetary policy, this self-imposed limitation of academic discnssion has been pointed out recently by H. S. Ellis, " T h e Problem of Exchange Systems in the Post-War World," The American Economic Review, Supplement, Vol, X X X I I (March, 1912). PP-

' For a criticism of this lerminolog)', see below, pp. 78 f.

[ 3 1

4 National Power and Foreign Trade

economic policy was a shock to many contemporary minds, it nevertheless formed the basis and even the raison d'etre of earlier schools of economic thought, Machiavelli to the contraiy notwithstanding. Perhaps Machiavelli's discounting of the connection between economics and politics might be explained by his desire to establish still better the complete autonomy of political science which he had separated so emphatically from its traditional metaphysical and ethical framework. But soon after him, writers on economic subjects were to point out the excellent use to which external and internal economic relations might be put by a state anxious to increase its power.

T h e policies advocated by the Mercantilists were to a large extent inspired by the double objective of increasing the wealth and the power of their own particular country. T h e reference by Bacon of a possible conflict between these two aims of economic policy seems to have been the one exception in a vast literature.' In general, the aim of increased national power at the expense of rival states, on the one hand, and the aim of increased wealth, on the other, were brought into complete harmony by the balance of trade doctrine, which led the Mercantilists to assume that in its external economic relations a nation can increase its wealth only by decreasing the wealth of other nations. T h e instrument of the shift was thought to be a balance of payments leading to an influx of gold and silver. An increase in the stock of precious metals would contribute indeed to the power of the state either directly by the accumulation of treasure or indirectly by enriching the country, which would thus be in a better position to contribute to the power of the state by taxes and services. T h e connection established by the Mercantilists between wealth and national power may therefore be put in the form of a perfect syllogism:

Major premise: A n increase of wealth of any cotmtry is an increase of its absolute power, and vice versa.

Minor premise: A n increase of wealth of any country, if brought about by foreign trade, is necessarily a loss of wealth for other

• countries.

"Speaking of the Navigation Laws. Bacon said ft was the "ancient policy of this estate" to bow "from considerations of plenty lo considerations of power."—Cluoted from Bacon's History of the Reign of King Henry the Seventh, in E. F. Heckscher, Mercantilism, Vol, II (London, 1935), p. 16. Cf. also the discussion on the place of

Theoretical and Historical Aspects 5

Conclusion: A n increase of wealth through foreign trade leads

to an increase of power relative to that of other countries—precisely

the pohtical aim of Mercantilist policy. W i t h i n the Mercantilist

conception of wealth, a conflict between the wealtli and power aims

of the state is well-nigh unthinkable,

A d a m Smith's best-known statement on our subject is, of course,

that "defence is of much more importance than opulence." ' If at

tention, however, is given only to this famous formula, his thought

is easily seen in a false perspective. Before Smith, H u m e had elab

orately discussed in his Essay on Commerce the relationship be

tween the "greatness of a state" and the "happiness of its subjects."

H e had reached the conclusion that " in the common course of

human affairs" the two are in complete harmony, but he mentioned

the possibility of exceptions to the rule,'' A d a m Smith's endorse

m e n t of "defence" in place of "opulence" is to be regarded as pre

cisely such an exception. T h e Navigation Laws were indeed the

only governmental interference with economic life in England to

escape his criticism. In general, A d a m Smith seems not to be con

cerned about the probability of a conflict between welfare and

power. In one of his definitions of political economy, he states that

"the great object of the political economy of every country is to

increase the riches and the power of that country."^ Al though his

emphasis with respect to these two aims is different from that of the

Mercantilists, he declares expressly in his chapter on " T h e Expence

of Defence": "In modern war the great expence of fire arms gives

an evident advantage to the nation which can best afford this ex-

pence and consequently to an opulent and civilized over a poor and

barbarous nation." ' T h u s , A d a m Smith upheld the major premise

of the Mercantilist syllogism even though wealth had not the same

meaning for him as it had for the mercantilists.

It was tlie minor premise which crumbled under the weight of

A d a m Smith's proof that the gain of one nation is not necessarily

the loss of another, but that, on the contrary, trade always benefits

all participating nations. Therefore, the conclusion concerning the

power considerations in Mercantilist doctrines in Jacob Viner's review of Hcckscber's work, in Economic History Revieu',Vo\. II (1935), p . 1 0 0 , and Heckscher's reply, op. cit., Vol. VII (1936), p. 481.

• A d a m Smith, \VeaUh of Nations, Modern Library ed. (New York, 1937), p. 431. "David Hume, Esiays and Trratisrs on Several Subjects, V o l . I {Edinl>\irgh, i8o(»),

pp. 271-882. • Smith, op. cit., p. 352. ' Smith, op. cit., p. 669.


relative power of the country after the increase of wealth by foreign

trade was no longer certain.^ )

T h i s argument is at the root of the intellectual opposition of wel

fare and power which has been so wel l expressed by M r . Hawtrey:

So long as welfare is the end, different communities may cooperate happily together. Jealousy there may be and disputes as to how the material means of welfare should be shared. But there is no inherent divergence of aim in the pursuit of welfare. Power, on the other hand, is relative. T h e gain of one country is necessarily loss to others, its loss is gain to them. Conflict is the essence of the pursuit of power.*

A l t h o u g h the free trade argument is not logically conclusive from

the point of view of a policy the main objective of which is relative

power, it has not been exposed to m u c h attack on this score. T h e

main argument of the protectionists against free trade has long been

directed to the supposed dangers inherent in excessive specializa

tion. T h e inabil ity under free trade conditions to develop national

resources which would contribute to the economic and military

power of the state and the apprehension of being cut off from essen

tial supplies during an emergency have again and again proved two

essential supports of protectionist and autarkic policy.

It would , of course, be a drastic oversimplification to view the

conflict between protection and free trade as merely a struggle be

tween the welfare and tlie power motives of commercial policy. If

this were so, the antagonists in the field of foreign trade policy would

have been talking entirely at cross-purposes. A n examination of the

reasons given for free trade or protection shows that both theories,

never afraid of proving too much, have claimed:

i) that they are to be recommended on purely economic grounds; 3) that they lead to international peace; 3) that they are best fitted to prepare a coimtry for war.

T h e numerous and often conflicting arguments advanced on either

side made possible the charge of hypocrisy, with which the protec

tionists have been especially fond of taxing the free traders.

* Indeed, immediately after having proved chat nations derive a mutual benefit from foreign trade, Adam Smith points to an instance in which welfare may be increased to the detriment of the power position of the country: "The wealth of a neighboring nation, however, though dangerous in war and politics, is certainly advantageous in trade."—Smith, op cit., p. 461.

• R. G. Hawtrey, The Economic Aspects 0/ Sovereignty (London, 1930), p. 27.


W e are not concerned here with the economic arguments.'" As to the noneconomic arguments for protectionism, it is historically interesting to note that they have not always been concerned with the conservation of certain social groups or with war preparedness. Lack of sympathy with foreign trade, because it might involve the nation in foreign entanglements, is a characteristic feature of American isolationism; an early and radical exponent of this idea was Fichte, who proposed his Closed Commercial State because he was convinced that commerce led inevitably to war. This ideal is a polyphonic humanity in which each nation, having closed its frontiers, achieves the full expression of its individuality."

Among the noneconomic arguments for tree trade, the main contention was of course that trade would prove a "bond of friendship between nations." When derided as Utopians or accused of lack of patriotism, however, free traders have usually fallen back upon the argument that foreign trade enriches a country and thus helps its defense. This argument, which goes back to Adam Smith, has been repeated in defense of free trade ever since his day, especially in times of actual or impending war.'^ It is definitely linked with the somewhat outmoded theories stressing the potentiel de guerre as tlie main factor of war preparedness.

In addition, free traders have tried to belittle the danger of dependence pointed out by their adversaries. Thus, in the course of the Parliamentary Debates on the Corn Laws, Macaulay found an interesting counterargument to t!ie charge of dependence arising out of free trade: "Next to independence, and indeed, amounting to practically the same thing," he argued, "is a very wide dependence, a dependence on the whole world, on every state and climate.""

T h e mention of climate is particularly revealing for the state of

^"For a systematic analysis, see Gottfried Haberler, The Theory of International Trade (New York, 1937), pp. 221-295.

" J . G. Fichte. Sanimlliche IVerke, Vol. I l l (Berlin, 1845), pp. 46';»-469, -18 ,̂ 512. " C f . Ludwig V. Mises, "Vom Ziele tier Handel s pel it ik," Arckiv jiir Soziaiwissen-

schafl. Vol. XLII (1916). p. 576: Lionel Robbins, " T h e Fundamental Reasons for Increased Protectionism," in The Improvement of Commercial Relations Between Nations (Paris, 1936), p. 27; also, Stefan Possony, Tomorrow's War, Its Planning, Management and Cost (London, 1938), pp. 147 f., 201; Wilhelm Ropke, International Economic Disintegration (London, 1942). pp. 101 f.

"Hansard (3d ser.), LX, 469, quoted in Commerce and Industry, ed. by William Page (London, 1919). p. 131. As we shaJI see later {on p. 73), the essence of this argument goes back to Adam Smith.


discussion which prevailed at that time—the advent of Great Britain's free trade policy. T h e connection between the potato famine in Ireland and the repeal of the Corn Laws in 1846 is well known. It was obvious that free trade> by extending the area of commerce, would lessen the dependence on weather and therefore the dangers of famine. T h i s argument has been one of the main weapons of free traders ever since Adam Smith's discussion of the C o m Laws. Fichte felt the weight of the argument so much that in a special section of his Closed Commercial State he tried to show how, in the absence of foreign trade, the danger of famine could be obviated by the piling up of stocks in good years." But for centuries wars and famines had been considered as two very similar and God-sent scourges of mankind. Only exceptional pessimists could imagine that a trend of development which pointed to the elimination of the danger of famine would not check, but would increase the dangers of war."

It was, however, somewhat paradoxical to argue that the increased reliance of Great Britain on the outside world for her wheat supply would actually decrease her dependence in the event of war or in crop failure. Such an argument clearly presupposes either freedom of the seas or a mighty British fleet. Consequently, it has often been argued on the Continent that free trade was the "right" policy for England, but not for other countries. Macaulay's argument in favor of a greater geographical dispersion of commercial relations, however, has the great merit of pointing to the possibility of lessening the dependence created by foreign trade by modifying the distribution of that trade.

T h i s idea could come to its full fruition only after commercial

policy had been provided with the weapons necessary to influence

the geographical distribution of foreign trade. As long as the most-

favored-nation clause was prevalent in commercial treaties and

trade was regulated mostly by tariffs, governments had relatively

little influence upon the geographical course of trade, or, at any

rate, were not fully conscious of possessing this influence. In the

" Fichie, op. cit., pp. 428-431. How, in a world of surpluses, this argument has fallen into oblivion has been pointed out recently by Ropke, op. cit., p. 143,

An example of this kind of pessimism is given by a passage of Flaubert's correspondence: "The great collective (public) works, like the construction of the Suez Canal, might well be, in another form, adumbrations and preparations of ihese monstrous conBicts which we cannot conceive!"—Correspondence, Vol. IV (Paris, 1893), p. sg.

Tlieoretical and Historical Aspects 9

interest of their power policy, they tried to strike a rough balance

between the economic and possible military advantages of foreign

trade on the one side and its dangers on the other.

This is the poUcy actually advocated in a study by Herbert Wergo,

a German economist writing before the advent of Hitler on the

alternative virtues of free trade and protectionism in promoting the

power policy of the state.'* According to Wergo, free trade and pro

tectionism should not be considered as mutually exclusive policies.

Both can be of service to the state. T h e practical outcome of such a

theory would be the division of the national economy into two

parts, a protected one, considered as "essentia!," and a free part, the

aim of which would be to secure a cheap and plentiful supply of

"nonessential" goods. Actually, this was the policy pursued by most

states even before the outbreak of the First World War.

Al l these policies proposed by free traders, protectionists, or eclec

tics as being conducive to more economic power have the com

mon characteristic tliat they do not necessarily lead to an increase

in relative power, which is, after all, the only objective that matters.

It is true that the danger of a nation's falling behind other nations

because of the lack of a proper policy was often pointed out. But if

all nations pursued the "right" policy—whatever this was held lo

be—protectionists and free traders alike could have no reasonable

hope of a change in the balance of economic power in favor of any

particular country. In other words, the contribution of commercial

policy to the power of tlie state was thouglit of more as a necessary

condition for the successful forging of the weapons than as one of

the weapons making po^ver supremacy possible.

T h i s position was a natural one for tiie free traders whose whole

case rested on the demonstration of the mutual benefit accruing

from commercial intercourse to the various countries trading to

gether. But the protectionists had their eyes fixed exclusively upon

the dependence incurred through foreign trade by their respec

tive national economies. T h u s , they overlooked the fact that the

dependence created by trade, like the benefit derived from it, has

a double aspect."

Herbert Wergo, frcihandel und Srhiitzzolt als M'Utel staatUchfr Machtentfaliung, Prolileitie der WeUwinscdafl. Vol. r̂, (Jena. 192H).

" In inleriiational investments exactly the opposite neglect has been prevalent. i.e., only ibc influence ar()uired through investments in other countries has generally been

l o National Power and Foreign Trade

T h i s d o u b l e aspect—the fact that d e p e n d e n c e of country A on

country B impl ies at the same t ime d e p e n d e n c e of B on A — h a d on

the contrary b e e n seized u p o n by the international ists ivho saw in

it the basis for their hope that trade w o u l d create nat ional or at least

s trong sectional interests opposed to w a r . " T o convey this idea they

used the terms m u t u a l d e p e n d e n c e , interdependence , inextr icable

network of markets, etc. T h i s l ine of t h o u g h t has a l o n g history

w h i c h can be traced back to M o n t e s q u i e u . ' ' Its best-known expo

nents are C o b d e n a n d Sir N o r m a n A n g e l l , a l t h o u g h the latter's out

look is far less optimist ic than that of C o b d e n , because Sir N o r m a n

n o longer takes it for g r a n t e d that m a n w i l l a lways eventual ly per

ce ive and fol low his real interests.

I n his famous eulogy of internat ional trade, J o h n Stuart M i l l

adhered to the v i e w that c o m m e r c e caused m u t u a l d e p e n d e n c e and

w o u l d thereby constitute a force for p e a c e . ' ' B u t by his contr ibut ions

to e c o n o m i c theory h e u n d e r m i n e d at the same t ime these very

hopes. T h e necessary basis for the idea that the interdependence

created by trade w o u l d o r should lead to a peaceful co l laborat ion

b e t w e e n nat ions, is, indeed, the bel ief that the d e p e n d e n c e of A

o n B is r o u g h l y the same as the d e p e n d e n c e of B o n A . M i l l was o n e

of the first to show that the mater ia l benefit der ived from interna

t ional trade is not necessarily d i v i d e d equal ly between the various

t rading nations.^ E v e r since M i l l ' s t ime A n g l o - S a x o n economists

given consideration. Soley has pointed out that by investing abroad a nation also becomes more or less dependent upon the country in vhich it invests. He writes: "Objectively, one can think of respects in which American policy becomes subject to influences £rom Etirope as a result of capital investments in Europe, as well as of ways in which European policy becomes subject to influences from America—in fact in the realm of foreign policy and as between advanced countries, there is strong reason for believing (hat (he borrowing nation has more leverage on the policies of the creditor nation than vice versa,"—Eugene Sialey, War and the Private Investor (New York, 1935), p, 406.

" T h i s argument is distinct from, though related to, the idea that commerce, bringing about the very enrichment which is the aim or pretext of most wars, would render war unnecesiary. (See below, pp. 2S f.)

" "The natural effect of commerce is to bring about peace. Two nations which trade together, render themselves reciprocally dependent: if the one has an interest in buying the other has an interest in selling; and all unions are based upon mutual needs."— Montesquieu. De I'Esprit de& Lois, Rook XX, Chap, II. in Q-.uvres, Vol. I (Amsterdam and Leipzig), p. 446.

^"It is commerce which is rapidly rendering war obsolete, by strengthening and multiplying the personal interests which are in natural opposi(ion to it,"—John Stuart

Mill, Principles of Political Economy, ^ih ed. (London, 1929). p. 58a.

^ J. S. Mill, Essays on Some Unsettled Questions of Political Economy, Essay I (London, 1844), pp, 1-46,


have given much thought to the ways in which the terms of trade

might be altered by changing conditions or by adopting policies

favorable to one nation. Bastable later showed how, under the hy

pothesis of trade between two socialist states, the theory of bilateral

monopoly would become applicable.°° T h e country with superior

bargaining power might, on this basis, be able to obtain the wiiole

gain from trade. Similar situations were found to prevail when

trade takes place between two countries of different size or with

different degrees of specialization." Preoccupation with questions

of this type iias even led Edgeworth to affirm that "the principal

characteristic peculiar to international trade is, I think, the possi

bility of a nation benefiting itself by a tax on exports and imports.""

T h u s , although the reasoning of the Mercantilist balance of trade

theory had been decisively discredited by the criticism of Hume

and Adam Smith, some of its main conclusions were rehabilitated,

not as a certainty, but as a possibility by the theory of the terms of

trade: It was shown that international trade might work to the ex

clusive or disproportionate benefit of one or a few of the trading

nations.

It need not surprise us that the obvious power implications of

these findings for the political dependence arising from trade,

somewhat neglected by English economists, have been seized upon

by their German colleagues. T h u s , Max Sering wrote as early as

1900: "It has been wrongly contended that in the economic inter

course of nations the dependence is always a mutual one, that always

equal values are exchanged. As between private persons, there exist

between national economies relations of exploitation and of sub

jection."^ But Sering, engaged in giving plausible reasons for the

building of a German fleet, did not pay much attention to the eco

nomic conditions and techniques which would lead to such an

unequal distribution of the mutual dependence arising from trade.

••C. F. Bastable, The Theory of Intemaliona! Trade, 4th ed. (London, 1903), pp. a^-ag; see also criticism by F. Y. Edgeworth, "The Theory of International Vaiues," Economic Journal, Vol, IV (1894), p. 622,

"Cf. J. S. Nicholson. Principles of Political Economy (London. 1897), pp. 309-311; see also Haberler, op. cit., pp. 148-149.

••F. V. Edgeworth, papers Relating to Political Economy, Vol. II (London, 1925), P- >9-

" Max Sering. "Die Handelspolitik der Grossmachte und die Kriegsflotte," in Han-dcls- und Machlpolitik,'Vo\. 11 (Stuttgart, 1900), p. 31.


Only scattered thoughts on this subject can be found in the subsequent literature. We shall attempt here a systematic exposition of the question of why and how foreign trade might become or might consciously and efficiently be used as an instrument of national power policy. T h e main contributions in this field have been practical ones, the German trade offensive in southeastern Europe being the outstanding and most recent example. We believe that by a theoretical analysis we may arrive at a fundamental diagnosis and ultimate cure of the ills which under the names of "economic penetration" and "bloodless invasion" have repeatedly afflicted recent history.

C H A P T E R I I

Foreign Trade As an Instrument of

National Power

LN THIS WORK the term national power is used in the sense

of power of coercion which one nation may bring to bear upon

other nations, the method of coercion being military or "peaceful."

In trying to expand its power a nation must take account of many

factors—historical, political, military, psychological, and economic.

Among the economic determinants of power, foreign trade plays an

important part. In order to analyze the way in which foreign trade

contributes to a certain distribution of power among the various

nations, it must be isolated temporarily from the other determi

nants; for the purpose of our inquiry these other determinants may

be impounded in a vast ceteris paribus upon which, for the sake of

rendering our analysis more realistic, we shall have to draw from

time to time.

It will then be our aim to understand why and how relationships

of dependence, of influence, and even of domination can arise out

of trade relations. W e are not concerned with the opposite line of

causation which also exists and which may even have had a greater

historical importance: the question of how a given distribution of

power influences trade relations. It will, however, be well for the

reader to remember that frequently the adoption of certain eco

nomic policies leading to greater power for a given nation is possible

only if there exists an initial power disequilibrium in favor of that

nation.

Colonial trade often gives us the opportunity of observing this

type of cumulative effect. An initial power supremacy enables the

imperial power to shape the direction and composition of the col

ony's trade, and the trade relations which are thus estabUshed in

turn strengthen markedly the original power position held by the

imperial power.

[>3l


THE T w o EFFECTS OF FOREIGN TRADE

Foreign trade has two main effects upon the power position of a

country. T h e first effect is certain to be positive: By providing a

more plentiful supply of goods or by replacing goods wanted less

by goods wanted more (from the power standpoint), foreign trade

enhances the potential military force of a country. T h i s we may

call the supply effect of foreign trade. It not only serves to strengthen

the war machine of a country, but it uses the threat of war as a

weapon of diplomacy. Although we have seen that free traders have

advised statesmen to rely on the supply effect of foreign trade, pro

tectionists have warned them of the dangers of its cessation during

war, which, they say, is precisely when it will be most needed. But

this danger might be lessened and the supply effect safeguarded:

1 ) by securing control of the oceanic trade routes; 2) by a policy of extensive prevendve accumulation of stock piles in

times o{ peace; g) by redirecting trade toward those countries from which the danger

of being cut off is minimized.

T h e attempt to trade more with neighboring, friendly, or subject countries is largely inspired by this consideration, and it has been one of the most powerful motive forces behind the policies of regionalism and empire trade.

All these points are obvious and hardly need further elaboration.

As far as the supply effect is concerned, foreign trade serves as a

means of increasing the efficiency of the military pressure which one

country might bring to bear upon other countries. But, just as war

or the threat of war can be considered in turn as a means of obtain

ing a certain result, so the supply effect of foreign trade is an indirect

instrument of poxver, the direct instrument being war or the ttneat

of war. In its final result, therefore, the supply effect of foreign

trade requires at least the possibility of war.

T h e second effect of foreign trade from the power standpoint is

that it may become a direct source of power. It has often been hope

fully pointed out that commerce, considered as a means of obtaining

a share in the wealth of another country, can supersede war.^ But

'This idea, which points lo trade as an "economic equivalent to war," appears, for example, in the following characteristic passage from the famous anti-Napoleon tract

Theoretical and Historical Aspects 1 5

c o m m e r c e can b e c o m e a n a l ternat ive to w a r also—and this leads to

a less opt imist ic o u t l o o k — b y p r o v i d i n g a m e t h o d of coercion of its

o w n in the relations b e t w e e n sovereign nations. E c o n o m i c warfare

can take the p lace of b o m b a r d m e n t s , e c o n o m i c pressure that of saber

ratt l ing. I t can i n d e e d be s h o w n that even if w a r c o u l d be e l im

inated, foreign trade w o u l d lead to relat ionships of d e p e n d e n c e and

inf luence b e t w e e n nat ions. L e t us call this the influence effect of

foreign trade, and, because of its importance , g i v e the greater part

of this chapter to its analysis.

T h e terms d e p e n d e n c e and influence have h i therto b e e n used

indiscr iminate ly to describe the s i tuat ion w h i c h seems invar iably

to arise o u t of the trade relat ions b e t w e e n t w o sovereign states. B u t

why does such a s i tuat ion arise at all? In other words, w h a t is the root

cause of the pol i t ical o r p o w e r aspect of internat ional e c o n o m i c rela

tions? T o answer this quest ion w e m u s t concede that the e x p l a n a t i o n

of the great p o w e r h e l d in the past by G r e a t Br i ta in was the fact

that she possessed strategic bases, such as G i b r a l t a r , Suez, and Singa

pore . T h e possession of these bases had t w o consequences: First, it

guaranteed the security of Brit ish trade; second, as a w e l c o m e by

product , it e n a b l e d G r e a t B r i t a i n to cut off the trade of o ther coun

tries passing t h r o u g h these points, be it trade w i t h G r e a t B r i t a i n or

trade b e t w e e n two other countr ies . T h i s second consequence gave

her considerable direct p o w e r over , a n d influence in, o t h e r coun

tries, in that they w e r e always exposed to the potent ia l threat of a

s u d d e n stoppage of their trade at Br i ta in 's w i l l .

B u t every sovereign n a t i o n has some influence of this k i n d , since

t h r o u g h the control of its frontiers a n d the p o w e r over its citizens

it can at any t ime interrupt its own export and import trade, w h i c h

is at the same t ime the i m p o r t and e x p o r t trade of some o t h e r coun

tries. T i i e stoppage of this trade obHges the other countr ies to find

of Benjamin Constant: "War and commerce are but tivo different means of arriving at the same aim which is to possess what is desired. Trade is nothing but a homage paid to the strength of the possessor by him who aspires to the possession; it is an attempt to obtain by mutual agreement that which one does not hope any longer to obtain by violence. The idea ot commerce would never occur to a man who would always be the strongest. Ji is experience, proving to him that war. ie. , the use of his force against the force of others, is exposed to various resistances and various failures, which makes him have recourse to commerce, that is, to a means more subtle and better filled to induce ibe inicrcst ot others lo consent lo what is his own interest. "-De t'Esprit de Conqutle el de i'Usurpation dans leurs rapports avec la Civilisa

tion EuTQpeenne, Part I, Chap. II.

i 6 National Power and Foreign Trade

alternative markets and sources of supply and, should this prove impossible, it forces upon them economic adjustments and lasting impoverishment. T r u e , the stoppage of trade will also do harm to the economy of the country taking the initiative in bringing about the stoppage, but this is not unlike the harm an aggressive country can do to itself in making war on another. A country trying to make the most oiu of its strategic position with respect to its own trade will try precisely to create conditions which make the interruption of trade of much graver concern to its trading partners than to itself. Tariff wars and interruptions of trade rarely occur, but the awareness of their possibility is sufficient to test the influence of the stronger country and to shape the policy of the weaker.

T h a t economic pressure upon a country consists mainly of the threat of severance and ultimately of actual interruption of external economic relations with that country was clearly recognized by Article 16 of the Covenant of the League of Nations. T h e intention of Article 16 was to coordinate and combine the power positions which the various member states of the League had acquired in the aggressor country by entertaining commercial and financial relations with it.

T h u s , the power to interrupt commercial or financial relations

with any country, considered as an attribute of national sovereignty,

is the root cause of the influence or power position which a country

acquires in other countries, just as it is the root cause of the "de

pendence on trade." It should be noted that the only condition for

the emergence of these political aspects of trade relations is that

of unfettered national sovereignties. It has often been pointed out

that central regulation by separate sovereign units leads to a danger

ous "politicalization" of trade.' Undoubtedly the identification of

every private interest with national interest and prestige may add

a heavy strain on international relations. But state regulation by

no means creates the political aspects of international economic rela

tions (as the term politicalization seems to imply). It merely empha

sizes them or makes them more apparent and exploitable. For the

political or power implications of trade to exist and to make them-

^ J, B. Condliffe, The Reconstruction of World Trade (New York. 1940), p. 56; Lionel Robbins, Economic Planning and International Order (London, 1937), pp. 90 i.; Sir Arthur Sailer, "The Future of Economic Nationalism," Foreign Affairs, Vol. X (October, 1932), p. 18; Eugene Staley, World Economy in Transition (New York, 1939). p. 178.


se lves fe l t , i t is n o t essent ia l that t h e state s h o u l d e x e r c i s e p o s i t i v e

a c t i o n , i .e. , o r g a n i z e a n d d i r e c t t r a d e c e n t r a l l y ; t h e n e g a t i v e r i g h t o f

v e t o o n t r a d e w i t h w h i c h every s o v e r e i g n state is i n v e s t e d is q u i t e

sufficient." W e shal l n o w e x a m i n e t h e c o n d i t i o n s m a k i n g this r i g h t o f

v e t o o r the p o w e r to i n t e r r u p t t r a d e a n ef fect ive w e a p o n i n the

s t r u g g l e f o r p o w e r . T o b r i n g these c o n d i t i o n s a b o u t w i l l o b v i o u s l y

b e t h e g o a l o f a n a t i o n u s i n g f o r e i g n t r a d e as a n i n s t r u m e n t o f

p o w e r p o l i c y . '

T H E I N F L U E N C E E F F E C T O F F O R E I G N T R A D E (Sectio:^ i )

W h a t w e h a v e c a l l e d the i n f l u e n c e effect o f f o r e i g n t r a d e d e r i v e s

f r o m the fac t t h a t t h e t r a d e c o n d u c t e d b e t w e e n c o u n t r y A , o n t h e

o n e h a n d , a n d c o u n t r i e s B , C , D , etc. , o n t h e o t h e r , is w o r t h some

thing to B , C , D , etc . , a n d t h a t t h e y w o u l d t h e r e f o r e c o n s e n t to g r a n t

A c e r t a i n a d v a n t a g e s — m i l i t a r y , p o l i t i c a l , e c o n o m i c — i n o r d e r to re

t a i n the p o s s i b i l i t y o f t r a d i n g w i t h A . I f A w a n t s to i n c r e a s e its h o l d

o n B , C , D , e t c , i t m u s t c r e a t e a s i t u a t i o n i n w h i c h these c o u n t r i e s

w o u l d d o anything i n o r d e r to r e t a i n t h e i r f o r e i g n t r a d e w i t h A .

S u c h a s i t u a t i o n arises w h e n i t is e x t r e m e l y di f f icult a n d o n e r o u s for

t h e s e c o u n t r i e s :

1) to dispense entirely wi th the trade they conduct wi th A , or

2 ) to replace A as a market and a source ot supply wi th other countries.

T h e p r i n c i p l e s of a p o w e r p o l i c y r e l y i n g o n t h e i n f l u e n c e effect

of f o r e i g n t r a d e a r e i n t h e i r essence e x t r e m e l y s i m p l e : They are all

designed to bring about this "ideal" situation.

' T h e poivcrs of t h e state w i t h respect to f o r e i g n t r a d e c o n d u c t e d by p r i v a t e e n t e r p r i s e m a y b e c o m p a r e d lo t h e p o w e r s of a l a b o r u n i o n w h i c h , t h o u g h r e f r a i n i n g f r o m collect ive b a r g a i n i n g , w o u l d h a v e t h e p o w e r to call a s t r i k e a n d to d e t e r m i n e its l e n g t h . It wi l l p r o b a b l y b e g r a n t e d t h a t , in this case, most of t h e effects of c o m b i n a t i o n w o u l d still o b t a i n .

* Since t h e p o w e r p o s i t i o n o f a c o u n t r y w i l l b e of i m p o r t a n c e in its c o m m e r c i a l n e g o

t i a t i o n s , t h e i n q u i r y w h i c h f o l l o w s gives i n c i d e n t a l l y a n analys is of w h a t is c o m m o n l y

c a l l e d b a r g a i n i n g p o w e r . T h i s t e r m , h o w e v e r , for t h r e e d is t inct reasons , is i n a i t e q u a t e

for o u r p u r p o s e s . F irs t , t h e a c h i e v i n g of tariff a n d s i m i l a r concessions is o n l y o n e of the

m a n y uses to w h i c h t h e p o l i t i c a l p o w e r a r i s i n g f r o m fore ign t r a d e m i g h t he p u t ; cf.,

i l l t h i s c o n n e c t i o n . H a n s S t a u d i n g c r , " T h e F u i m e o f T o t a l i t a i i a n B a r t e r T r a d e , " Social

Research, V o l . V I I ( N o v e m b e r . 1940), p . 426. In t h e second p l a c e , b a r g a i n i n g p o w e r in

c o m m e r c i a l n e g o t i a t i o n s is t r a d i t i o n a l l y associated w i t h a c e r t a i n p o s i t i o n of t h e t r a d e

b a l a n c e b e t w e e n t h e t w o c o u n t r i e s in n e g o t i a t i o n , a v i e w w h i c h wi l l b e e x p l a i n e d a n d

cr i t ic ized b e l o w ( p p . 3a f .) . T h i r d , t h e t e r m b a r g a i n i n g p o w e r has a def in i te m e a n i n g in

t h e t h e o r y of b i l a t e r a l m o n o p o l y w h i c h is m a r k e d l y d i i l e r e n t from t h e m e a n i n g w h i c h

it w o u l d a s s u m e in o u r analys is . Thi.s d i l f c r e n c e a n d its i m p l i c a t i o n s a r e s h o w n on p a g e s

45-46 of this c h a p t e r .

National Power and Foreign Trade

Our analysis of these principles is divided into two parts. In the first, it is assumed that the countries which are the objects of the power policy have no possibility of shifting their trade with A to each other or lo third countries, whereas country A remains free to trade with whatever country it desires. Given this assumption, which will be dropped in the second part of our analysis, we have to pay attention only to the first characteristic of the "ideal" situation.

T h e difficulty for country B, C, D, etc., of dispensing with the trade conducted with A seems to depend o n three main factors:

x) The total net gain to B, C, D, etc., of their trade with A; 2) The length and the painfulness of the adjustment process which A

may impose upon B, C, D, etc., by interrupting trade; g) The strength of the vested interests which A has created by its trade

within the economies of B, C, D, etc.

GAIN FROM TRADE AND DEPENDENCE ON TRADE

T h e influence which country A acquires in country B by foreign trade depends in the first place upon the total gain which B derives from that trade; the total gain from trade for any country is indeed nothing but another expression for the total impoverishment which would be inflicted upon it by a stoppage of trade. In this sense the classical concept, gain from trade, and the power concept, dependence on trade, now being studied are seen to be merely two aspects of the same phenomenon, and this connection can serve as a modern application of the ancient saying fortuna est servitus.

T h e whole theory of the gain from trade and its distribution therefore becomes relevant to our subject. T h e gain from trade has been defined by Marshall in the following terms: " T h e direct gain which a country derives from her foreign trade is the excess of the value to her of the things which she imports over the value to her of the things which she could have made for herself with the capital and labour devoted to producing the things which she exported in exchange for them."^ This definition brings out clearly that the gain from trade cannot be measured either by comparing the satisfaction derived from the consumption of the imports with the satisfaction which could be derived from the consumption at home of the exports or by comparing the hypothetical domestic cost of the imported com-

^ Alfred Marshall, Money, Credit and Commerce (London, 1923), pp. 109-110.


modif ies wi th their actual cost." If a country was shut off f r o m trade

it w o u l d n o r m a l l y nei ther c o n t i n u e to p r o d u c e the goods formerly

e x p o r t e d n o r try t o p r o d u c e at h o m e a l l t h e goods formerly im

ported, but , g i v e n the r e d u c e d resources, an adjustment w o u l d take

place toward the p r o d u c t i o n of the goods most desired.

Professor V i n e r has e l a b o r a t e d a n e v e n m o r e c o m p l e x c o n c e p t

of the gain from trade. H e has s h o w n that differences in satisfaction

between the trade a n d the n o t r a d e s i tuat ion m i g h t occur not only

t h r o u g h a dif ferent c o m p o s i t i o n of the goods to b e c o n s u m e d i n the

two situations, b u t also because of differences in the occupat ional

pattern o r i n the general ba lance between work a n d leisure in the

country concerned. '

P r o v i d e d w e k e e p i n m i n d the qual i f icat ion ar is ing from these

considerations, Marshal l 's def init ion still g ives a good a c c o u n t of

the v a l u e of trade to a country or, in other words, of that part of a

country 's we l l -be ing w h i c h it is in the p o w e r of its t rading partners

to take away.

T h e first conclus ion w h i c h c o u l d be d r a w n from the c o n n e c t i o n

w h i c h w e have established b e t w e e n gain from trade and d e p e n d e n c e

on trade is that in o r d e r to increase its influence in other nat ions,

nat ion A should s imply b r i n g a b o u t an e x p a n s i o n of its fore ign

trade. I n accordance w i t h a general p r e s u m p t i o n established by

theory, a vo luntary increase of trade on the part of A ' s t rading part

ners is indeed indicat ive of an increase of their gains from trade

and, hence, of their d e p e n d e n c e o n A . B u t this reasoning over looks

the fact that in this way the influence w i n c h the other nations h o l d

in country A w o u l d also be increased. S o m e countr ies m i g h t be a b l e

to neg lect this considerat ion because of their g c o g i a p h i c a l posit ion,

their mil i tary power, or other n o n e c o n o m i c e lements . B u t , in gen

eral , a country e m b a r k i n g on a p o w e r pol icy wi l l have fixed for the

a m o u n t of its trade re lat ions w i t h fore ign countr ies a certa in m a x i

m u m l i m i t w h i c h it wi l l think unsafe to exceed."

" T h e latter error was at tr ibuted by M a l t h u s to R i c a r d o . Cf. Jacob V i n e r , Studies in the Theory of International Trade (New York , 1937), p- 528.

' Viner, of>. cit., pp. 519 ff.

' It remains true that complete autarky can hardly be considered as an element of an intel l igent power policy. A n d if the nations which have procla imed autarky as their u l t imate goal have remained far off the mark , this may be d u e not only to tiic economic difficulties w h i c h they have exper ienced in trying to dispense wi th foreign u a d e . b u t al.so because they have found it polit ical ly inexpedient to do without trade relations.


If we take account of tfiis objection, another method might be proposed: country A, seeking to increase its influence in country B, might have an interest in altering the terms of trade in B's favor. Here, then, it would seem, we have an ideal instance of the opposition between a policy trying to maximize national income and a policy setting out to maximize national power.

T h i s statement, however, needs qualification and elaboration. In the first place, the functional relationship between gain from trade and dependence on trade points to a potential clash, not only between national income or welfare and power, but also between the two different types of power policy, the one relying mostly on the supply effect of foreign trade and the other relying upon the influence effect. It is indeed clear that a policy using foreign trade as its instrument may sometimes have to choose between better terms of trade, i.e., more plentiful supply of needed materials for a given quantity of home products, on the one hand, and more influence on the trading partner, on the otiier.

But is there an inevitable conflict between national welfare and national power, or, within a power policy, between the supply effect and the influence effect of foreign trade? This is a necessary conclusion only if we accept the common conception that a given amount of trade results in a fixed total gain to be distributed between the trading countries according to some ratio determined by the terms of trade. A n increase of tlie gain of A can then only be procured at the cost of a decrease of the gain of B. T h i s view, however, should be suspect if only because of its resemblance to the cruder Mercantilist idea that A's gain is B's loss.

Actually we have here to clear up a terminological confusion

which is at the root of the whole matter. What is commonly called

total gain from trade is by no means, as one might expect, the sum

of the gains from trade as defined by Marshall for the individual

participating countries. T h e term total gain, as used generally, is

rather to be understood as the physical surplus of goods made pos

sible by the international division of labor. T h i s physical surplus

is indeed fixed under given cost and demand conditions. It might

be called the total objective gain from trade. But a moment's reflec

tion should show that although this objective gain might be wholly

nonexistent (as in the absence of any international specialization


f o l l o w i n g the o p e n i n g u p of trade), a substantial subjective gain as

def ined by Marshal l m i g h t still accrue to the var ious countries , pro

v i d e d only that they d o not p r o d u c e the same range of commodit ies . '

If, therefore, an o b j e c t i v e g a i n from trade i n the f o r m o f a physica l

surplus of goods is not e v e n a necessary c o n d i t i o n for the emergence

of a subject ive ga in f r o m trade, the existence of a close relation

ship b e t w e e n the d is t r ibut ion of the object ive a n d the subject ive

gains as b e t w e e n the countr ies t r a d i n g together m a y b e legi t imately

d o u b t e d . T h e theory of the terms of trade has succeeded in showing

h o w the object ive ga in is d is t r ibuted a n d h o w its d is tr ibut ion can

be affected by changes in tastes and techniques o r by c o m m e r c i a l

pohcies . I t has general ly b e e n t h o u g h t that the terms of trade g ive

a b r o a d indicat ion of the gain from trade; and i n spite of its m a n y

l imitat ions po inted o u t by Professor V i n e r , " this m e t h o d of ap

proach still seems f ru i t fu l if o n e is interested m a i n l y i n k n o w i n g

w h e n a country increases or decreases the ga in f r o m its trade w i t h

a n o t h e r specified country , as this can u n d e r static conditions—i.e. ,

w i t h tastes a n d t e c h n i q u e s constant—occur only t h r o u g h a move

m e n t of the terms of trade in its favor. B u t the m e t h o d fails us de

cisively if we are interested, not in the increments of the subject ive

ga in from trade, b u t i n its total a m o u n t for any g i v e n situation. I t

is indeed not possible to assert that the respective extents of the sub

ject ive gains f rom trade correspond to the divis ion of the object ive

ga in w i t h o u t assuming for the t w o countr ies a s imilarity of tastes

a n d of the levels of satisfaction p r i o r to trade—in other words, with

o u t assuming the w h o l e p r o b l e m away. I n the absence of such

assumptions there is n o reason whatsoever w h y a country should not

o b t a i n a smal ler part of the physical surplus of goods o b t a i n e d by

internat ional special izat ion whilst d e r i v i n g a larger increase in satis

faction from trade than its t rad ing p a r t n e r . "

• Even under the very simplest classical assumptions of two commodities of similar importance, two countries of similar size, constant costs, absence of transport costs, and similar tastes in (he two countries, it can he shown that further specialization after the opening up of trade, as recjuired by the principle of comparative cost, is not a prerequisite for the existence of wme subjeciive increase in satisfaction from trade, Cf. diagrammatical exposition of this case on pages 49-52 of this chapter.

'0 Viner. op. cit.. pp. 555-582. " The belief that the position of the terms of trade gives a due to the respective

extent of the subjective gains from trade has been much strengthened bv the often-quoted case of two countries of unequal size trading in two commodities. In this hypothesis the larger country specializes only partly, its pre-trade ratio of exchange

2 2 National Power and Foreign Trade

T h e i n q u i r y i n t o t h e factors w h i c h d e t e r m i n e the a m o u n t OF t h e

s u b j e c t i v e g a i n f r o m t r a d e has to b e m a d e d i r e c t l y . I t has b e e n

u n d e r t a k e n w i t h t h e h e l p of d i a g r a m m a t i c a l i l l u s t r a t i o n s b y t h e

n e o c l a s s i c a l w r i t e r s , E d g e w o r t h " a n d , i n p a r t i c u l a r , M a r s h a l l . " M a r

shal l ' s c o n c l u s i o n , w h i c h is u n a f f e c t e d b y t w o errors i n his m e t h o d , "

IS t h a t " t h e s u r p l u s (of c o u n t r y G ) is the g r e a t e r , t h e m o r e u r g e n t

IS G'S d e m a n d for a s m a l l a m o u n t OF E's g o o d s a n d t h e m o r e o f t h e m

she c a n r e c e i v e w i t h o u t any g r e a t m o v e m e n t of t h e r a t e of inter

c h a n g e i n h e r f a v o r . " I n o t h e r w o r d s , w i t h a g i v e n v o l u m e o f t r a d e

the s u b j e c t i v e g a i n is smal les t if the s u p p l y - d e m a n d s c h e d u l e of a

c o u n t r y m a i n t a i n s a h i g h e las t ic i ty t h r o u g h o u t i ts r e l e v a n t p a r t ;

w h e r e a s t h e g a i n w o u l d b e largest if a c o u n t r y ' s d e m a n d , a f t e r hav

i n g b e e n v e r y e last ic for s m a l l a m o u n t s o f t h e o t h e r c o u n t r y ' s g o o d s ,

b e c o m e s ine las t ic i n its la ter ( a n d r e l e v a n t ) stages."^

between the two commodities remains unchanged and the whole physical surplus of production due to specialization accrues to the smaller country whilst the supply in goods of the larger country remains unchanged. But so far from being an illustration ot the general correspondence between the position of the terras of trade and the extent of the subjective gains, this is actually the only case in which the correspondence holds—a quite paradoxical case—as trade leads neither to an increase in quantity nor to a change in composition of the goods consumed in one of the trading countries.

F. Y. Edgeworth, " O n the Application of Mathematics to Political Economy." Jour

nal of the Royal Statistical Society, Vol. LI l (1889), pp. 558-560, Edgeworth reproduces in the main the "beautiful reasoning" of Auspitz and Lichen, Untersuchungen iiber

die Thearie der Preise (Leipzig, 18K9). pp. 4 1 3 - 4 1 5 . In a later work, " T h e Theory of International Values," Economic Journal, Vol. IV (1894), Edgeworth deals essentially with the increments in the gain from trade, not with the total amount; cf. Viner, op. cit., p. 576 and footnote 3.

"Marsha l l , op. cit.. Appendix J, pp. 338-340,

" As pointed out with respect to the algebraic illustration by Allyn A. Young. "Marshall on Consumer's Surplus in International Trade." Quarterly Journal of Economics, Vol. X X X I X (1924). pp. 1 4 4 - 1 5 0 . and with respect 10 the diagrammatical exposition by Viner. op. cit., pp. 5 7 0 - 5 7 5 . Viner also shows that the more general objection of Allyn A, Young against the whole concept of Marshall's "surplus" in international trade (which is nothing but another expression for the subjective gain from trade) does not hold.

" In this context elasticity means die response of the imported quantity to a change in the terms of trade. Although it is not identical with the ordinary concept of demand elasticity, it is related to it. Cf. T . O. Yntema, A Mathematical Reformulation of the

General Theory of International Trade (Chicago, 1933), pp. 5 2 - 5 6 . Professor Kindle-bcrger has shown ihe inconsistent use made by various economists of the term urgent dem a n d and has proposed the terms flexible and inflexible demand instead of not urgent and Urgent demand; cf. C, P. Kindleberger. "Flcxihih'ty of Demand in [nternational Trade Theory," Quarterly Journal of Economics, Vol. LI (February. 1937), pp. 3 5 2 - 3 6 1 .

He, however, as our quotation shows, is incorrect in contending that Marshall did not use the term urgent demand; paying attention only to the ordinary Marshallian price elasticity, Professor Kindleberger does not realize that Marshall's elasticity concepts, as developed in connection with his foreign trade curves, can take care of the various situ-


T h i s s t a t e m e n t m a y s e e m s u r p r i s i n g , as a c o u n t r y w h i c h finds

i tsel f i n t h e l a t t e r s i t u a t i o n is g e n e r a l l y s a i d t o b e i n a n i n f e r i o r

s t ra teg ic p o s i t i o n a n d to b e e x p o s e d t o a m a n i p u l a t i o n of the t e r m s

o f t r a d e against i t . A c t u a l l y , h o w e v e r , th is is o n l y a n o t h e r a s p e c t o f

t h e s a m e s i t u a t i o n : A c o u n t r y w h i c h g a i n s m u c h f r o m the e x c h a n g e

of its h o m e p r o d u c e a g a i n s t i m p o r t s m a y b e m a n e u v e r e d m o r e easi ly

i n t o c o n c e s s i o n s a c c o r d i n g to t h e r a t e o f i n t e r c h a n g e t h a n a c o u n t r y

for w h i c h t r a d e is o n l y b a r e l y p r o f i t a b l e u n d e r e x i s t i n g c o n d i t i o n s .

W e h a v e m e n t i o n e d a b o v e t h e p o s s i b i l i t y t h a t a c o u n t r y , t h o u g h

o b t a i n i n g a s m a l l e r o b j e c t i v e g a i n f r o m t r a d e , m a y st i l l e n j o y a

g r e a t e r s u b j e c t i v e g a i n ; it is n o w seen t h a t th is s i t u a t i o n is n o t neces

s a r i l y a n o d d i t y , b u t m a y , o n the c o n t r a r y , b e c o n s i d e r e d as p r o b a b l y

t r u e . "

T h e s e t h e o r e t i c a l c o n s i d e r a t i o n s a r e d i r e c t l y r e l e v a n t to t h e t w o

f o l d o b j e c t o f a p o w e r p o l i c y b y f o r e i g n t r a d e w h i c h w e h a v e de

s c r i b e d . C o u n t r y A m a y p o s s i b l y i n c r e a s e the g a i n f r o m t r a d e a n d

t h e r e f o r e t h e d e p e n d e n c e of its t r a d i n g p a r t n e r s e i t h e r by a c h a n g e

ations which arise in international trade and are denoted by the terms urgent or inflexible. It remains true that these special terms are useful in shortening the description of the shape of a Marshallian demand-supply curve which is at first extremely responsive to favorable clianges in the terms of trade and becomes inelastic for further changes in these terms. T h e conflicting interpretations of the term urgent demand derive from llie fact that the various writers have considered different stretches of the same supply-demand curve. Professor Kindlcberger rightly shows the connection between the concept of urgency of demand and iliat of income elasticity. T h e two. however, are not identical, since income elasticity means responsiveness of the demand of a commodity to income incicases, whereas the elasticity o£ the Marshallian curve means responsiveness o( demand of a commotliiy to a favorable change of its rate of exchange for another commodity.

U seems that J. S. Mill had this situation in mind when he wrote in his Essays on

Some Umclllrd ()u<'shVjns; "If the question be now asked, which of the countries of the world gains most by foreign commerce, the following will be the answer. If by gain be meant advantage, in the most enlarged sense, that country will generally gain the most, which stands most in need of foreign commodities. But if by gain be meant saving of labor and capital in obtaining the commodities which the country desires to have, whatever they may be; the country ivill gain, not in proportion to its OWJJ need of foreign articles, but to the need which foreigners have of the articles which itself produces."—J. S. Mill, ofi. cit., p. ,| j ; cf. also p. 46. Mill has not reproduced this passage in (he Priticif'i^s ultcre he has ehiboiatcd only (he second concept of gain; indeed, the fu-st one hardly fits in with bis value theory. Jevons obviously ignored MiiJ's earlier writings when, as exposed in the Principles, he attacked the concept of gain in the following terms: "So far is Mill's statement (about the distribution of the gain from trade> from l>eing fundamcnially coircct that I believe the truth lies in the opposite direction. As a general rule, the greatness of the price which a country is willing and able to pay for the production of other countries measures or at least manifests, the greatness of the benefit which it derives from such imports."—Stanley Jevons, The Theory oj Political Economy, 4 l h ed. (London. 1 9 1 1 ) . p. 145,


in the composi t ion of trade or by a change in partners w i t h o u t hav

ing to submit to more u n f a v o r a b l e terms of trade. T o resolve in this

way the conflict b e t w e e n the supply effect and the influence effect

of foreign trade w h i c h at first seemed inevi table , A has to seek trad

i n g partners w i t h an " u r g e n t " d e m a n d for its e x p o r t goods.

I n the first place, A w i l l therefore t u r n to countr ies w h i c h have

no possibil it ies of themselves p r o d u c i n g the c o m m o d i t i e s country

A exports . A second and more general case, w h i c h has b e e n pointed

o u t by Marshal l , is the trade w i t h "poor countr ies , " that is, countr ies

w i t h l o w rea l i n c o m e s before the o p e n i n g u p of trade. Marshal l has

a p p l i e d to this case the " l a w of the d i m i n i s h i n g m a r g i n a l ut i l i ty of

i n c o m e " in the f o l l o w i n g terms: " T h e r ich country can w i t h l i tt le

effort supply a poor country wi th i m p l e m e n t s for agr icu l ture or the

chase w h i c h d o u b l e d the effectiveness of h e r labor, a n d w h i c h she

c o u l d n o t m a k e for herself; w h i l e the r i c h country c o u l d w i t h o u t

great t rouble m a k e for herself most of the things w h i c h she pur

chased from the poor nat ion o r at all events c o u l d get fairly g o o d

substitutes for them. A stoppage of the trade w o u l d therefore gener

ally cause m u c h m o r e real loss to the poor than to the r ich n a t i o n . " "

A nat ion p u r s u i n g a p o w e r pol icy may b e assumed t o e x p o r t in

dustrial goods a n d to i m p o r t main ly those articles for w h i c h i t has

e i ther no substitutes at h o m e or only poor and expensive ones. It

must be prepared to i n c u r a certain d e p e n d e n c e on foreign coun

tries in order to o b t a i n these articles—or, in o u r terminology , in order

to profit f r o m the supply effect o£ fore ign trade. Its p r o b l e m is there-

" Marshall, op. cit., p. 168. It will be noted that, for Marshall, the case of a rich country trading with a poor country and the case of a country having a monopoly in some article trading with another country having no such monopoly are somcwhai intertwined. A conclusion similar to that of Marshall follows from Edgeworth's comment on his own assumption in the analysis of foreign trade that "the hedonic worth o£ money is the same in both countries"; he conceded indeed that "when we know that one party is much better off than another, the assumption may be illegitimate."— "The Theory of International Values," Economic Journal, Vol. IV (1894}, p. 436. That the comparison of utilities between two collective groups, such as countries, is less rather than more hazardous than intrapersonal comparisons of utility has been shown by a recent contribution (I,. G. Melville, "Economic Welfare," Economic Journal, Vol. XLIX [September, 1939], pp. 552-553). The possible exceptions to the case which have been pointed out by Marshall are not likely to arise from the difference in the "capacity for enjoyment" of the citizens of the two countries, but rather from the difference in the effect of foreign trade upon the distribution of income in the two countries. If, indeed, the goods imported into the relatively poor country add mainly to the enjoyment of its wealthier classes, whereas tiie contrary happens in the relatively rich country, the effect described by Marshall may well be neulralized.—1 am indebted to Dr. Fellner for this point.


fore h o w to i n d u c e a m a x i m u m d e p e n d e n c e of fore ign countr ies ,

g i v e n a fixed d e p e n d e n c e of its o w n . I n s o l v i n g this p r o b l e m i t can

avai l itself of o u r findings by d e t e r m i n i n g w h a t to export a n d by

choosing the countr ies f r o m w h i c h to i m p o r t . " I t can see to it, first,

that it possesses a monopol i s t i c posit ion in its e x p o r t articles by di

rect ing trade to those countr ies w h i c h are relat ively poorly suited to

p r o d u c e these o r s imi lar articles. I n o u r case this m e a n s the agricul

tura l countr ies ; and the p r e v e n t i o n of industr ia l izat ion or even the

removal of a lready ex is t ing industries is an i m p o r t a n t part of a

policy of t ry ing to preserve or to increase the inf luence a c q u i r e d in

these countr ies by an industr ia l nat ion .

I n the second place, the n a t i o n c o n d u c t i n g a p o w e r pol icy has an

interest in d i v e r t i n g its trade to poor countr ies i n w h i c h the mar

ginal ut i l i ty of i n c o m e is h igh. T h u s , if n a t i o n A , e m b a r k i n g o n a

p o w e r pol icy, has had a certain a m o u n t of trade w i t h g r o u p B of

o ther r ich industr ia l nations, it m i g h t of course try to enlarge its

inf luence i n these covmtries by g r a n t i n g t h e m bet ter terms of trade.

B u t this w o u l d interfere w i t h its o w n p r o d u c t i o n and, in addi t ion,

these countr ies m i g h t not v a l u e very h ighly the addi t ional supplies

c o m i n g f r o m A . If, on the o t h e r l iand, the nat ion diverts its trade to

g r o u p C of p o o r a n d a g r i c u l t u r a l countr ies f r o m w h i c h it can receive

the same suppl ies , the ga in f r o m trade o b t a i n e d b y g r o u p C w i l l

exceed w h a t g r o u p B's gain had been, and consequent ly A ' s influ

ence in g r o u p C w i l l be mucl i greater than it was in g r o u p B . A l -

t l iough the real costs of the suppl ies m a y b e h i g h e r in g r o u p C t h a n

in g r o u p B, A w i l l then have l i tt le difliculty in m a n i p u l a t i n g the

terms of trade in such a way that she gives no m o r e of her h o m e

p r o d u c e in e x c h a n g e for her imports than formerly .

R e n e w e d at tent ion has b e e n g i v e n recent ly to the analysis of ex-

^ ' W e .issumc here, as stated in the b e g i n n i n g of (his section (p. ly), that only the country conduct ing a power policy is at l iberty to choose its trading partners, whereas the latter fiave no opt ion b u t to trade wi th that country. T h i s assumption will be d r o p p e d below. H e r e we a lso disregard the fact that the power-seeking nat ion may prefer to obtain a small influence in a n e i g h b o r i n g state rather than a large one in a distant country. In a sense, o u r analysis considers every country as an ccpially interesting object of a power policy. T o t a l influence is for us the sum of the influences secured in i b e indiv idual coujHrJes, ivhereas actual ly every influence .should be w e i g h t e d according to strategic or other considerations. B u t this means only that the role played liv the economic determinants of power must eventual ly be combined with a n d be ([ualified by the other determinants . T h e reader must j u d g e whether the results reached by our analysis w a i r a n t the admittedly artificial isolation of the economic factor.


ploitation, both with respect to the factor of production in the domestic economy and to that of one country by another in international economic relations. For the latter subject it has been shown what conditions and what policies are required for a country to turn the terms of trade in its favor. A t the outset this type of inquiry seems to be the exact opposite of our analysis of the influence effect, which depends on the gain from trade of the trading partners. T h e possibility of a conflict between the policy of maximization of national income, on the one hand, and the policy of securing the greatest position of influence with the trading partners, on the other, certainly deserves to be pointed out. But our subsequent analysis has shown that these two types of policies are not necessarily alternatives. T h e successful pursuit of the one policy may even condition the emergence of the other. T h e ability to manipulate the terms of trade in one's favor depends, indeed, on the gain from trade derived by the trading partners, and the policies we have described are directed precisely to increase this gain. T h e monopolistic exploitation of a trading partner can then be considered as one of the uses to which the power secured through the influence effect may be put. W e are here concerned only with the methods and conditions leading to this power, not with its possible uses which may be the reaping of advantages of any kind—military and political, as well as economic.

ADJUSTMENT DIFFICULTIES AND VESTED INTERESTS

T h e threat of an interruption of trade—the ever-present charac

teristic of commerce between sovereign states—has two main effects

upon the economy of the country the trade of which is interrupted:

It impoverishes this country and also imposes a process of adjust

ment, since, when imports are no longer forthcoming, the goods

formerly exported will no longer be consumed in the home market.

Marshall's definition of the gain from trade; the excess of utility of

the imports over the utility of the goods produced by the resources

othenvise devoted to exports if there were no imports—compares the

utilities of two nonsimultaneous sets of goods and thus obviously

includes a time element. T h e immediate loss from the stoppage of

trade is much greater than the ultimate loss after resources have

been fully reallocated. T h e classical theory of international trade


was aware of this d i s t i n c t i o n ; " b u t it concentrated u p o n the u l t imate

loss and considered the t ime e lapsing from i n t e r r u p t i o n of trade to

real locat ion of resources w i t h i n the country as a short-run p e r i o d .

M o d e r n theory insists that this is not necessarily true; a n d even if it

were true, o u r analysis w o u l d h a v e to take i n t o account the fact that

harassed statesmen general ly have a short-run vie^v. G i v e n a certain

u l t i m a t e loss, the influence w h i c h o n e country exercises u p o n an

other t h r o u g h foreign trade is therefore l ikely to b e larger the

greater the i m m e d i a t e loss w h i c h it can inflict by a stoppage of trade.

F o r a c o u n t r y c u t off f rom foreign trade the most urgent p r o b l e m

is to produce at h o m e or to find substitutes for goods w h i c h w e r e

fonner ly i m p o r t e d a n d to find new e m p l o y m e n t for the factors

of p r o d u c t i o n f o n n e r l y e m p l o y e d in export industries. T h e first

p r o b l e m is definitely c o n n e c t e d w i t h the u l t imate loss f rom the in

terrupt ion of trade, whereas the second is a short-run p r o b l e m .

Nevertheless , the " d a n g e r of losing a m a r k e t " if polit ical condi t ions

deteriorate makes for as m u c h c o n c e r n as the danger of losing sup

plies. A c c o r d i n g to classical theory the act ive side of the gain from

trade derives only f rom the imports , and tlie exports are set as a

passive i tem against them. M o d e r n theory, on the o t h e r hand, has

presented an analysis w h i c h , w i t h i n the f ramework of a nat ional

pol icy a i m i n g at full e m p l o y m e n t , considers exports as an incent ive

to e m p l o y m e n t and nat ional i n c o m e , a n d imports as " l e a k a g e s "

w h i c h to a certain degree prevent the w o r k i n g of this incentive.^"

T h e classical and the m o d e r n approaches are of course based on

q u i t e different assumptions, and each is v a l u a b l e in its o w n field for

the e x p l a n a t i o n of some relevant e c o n o m i c facts. T h e m o d e r n ap

proach, w i t h its empiiasis on i m m o b i l i t y , overhead costs, a n d in

complete use of resources, leads to an u n d e r s t a n d i n g of w h y the

c o m m o n belief that the real benefit aris ing from trade lies in exports

rather t h a n imports is m o r e t h a n a m e r e " p o p u l a r fa l lacy."

O b v i o u s l y , the difficulties aris ing o u t of a cessation of exports

be greater the greater tlie exports {and consequent ly the imports) ;

and the short-run p r o b l e m is thus i n t i m a t e l y connected w i t h the

e x t e n t of the long-run gain f r o m trade. B u t wit l i a g iven q u a n t i t y

" R i c a r d o , in his Principles oj Political Economy, stales it thus at the b e g i n n i n g of the chapter on '•Sudden Changes in the Channels of T r a d e . "

™ For a discussion of the "Fore ign T r a d e M u l t i p l i e r , " see Gottfr ied Haberler , Pros-perity and Depression, gd ed. (Geneva, 1942). p p . 461-473. and l i terature quoted in that work.


of exports the problem created by an interruption of trade wil l be

the more difficult, because (i) the smaller the mobility of resources

within the country, (2) the more the economic activities leading to

exports have been concentrated in certain lines of production or in

certain regions.

T h e mobility of resources includes the possibility of diverting

capital goods to new purposes (i.e., their more or less "specific"

character), the geographical mobility of the factors of production,

and, above all, the ability of labor to turn to new tasks. T h e inherent

advantage with respect to all these aspects of the mobility of re

sources lies overwhelmingly with the great manufacturing and trad

ing countries as opposed to countries in which agriculture or mining

predominates. Here again the prevention of industrialization would

be the aim of a power trying to make the adjustment problem ap

pear insoluble to the countries with which it trades.*^

T h e second factor having a definite bearing upon the relative ease

of adjustment after an interruption of trade is the extent to which

production for export is concentrated in certain products or in cer

tain regions. If most of the exports are made up of one particular

product, there is very little probability that any great part of it can

be consumed at home if the foreign outlet fails; if the exports all

come from certain specialized regions within the country, there will

be "distressed areas" and a need for large-scale relief and resettle

ment. It is highly unlikely that the pattern of the economic activities

devoted to exports will follow closely the distribution of general

economic activity among geographical regions and lines of produc

tion. But the discrepancy of the two patterns may be more or less

pronounced, and, accordingly, the contribution of exports to de

pendence upon foreign trade will be large or small.

This subject is directly linked with the vested interests created

by trade: a greater concern with the maintenance and expansion of

trade in certain quarters than in the country as a whole. T h e actual

going volume of trade, indeed, produces its own vested interests,

^We are considering the mobility of resources only so far as it influences the distribution of power created by foreign trade. Of course the mobility of resources has an extremely important direct bearing upon political and economic power. This aspect has been pointed out very clearly by Mr. Hawtrey, op. cit., pp. 83-92. For a good discussion of the various factors influencing ibe mobjjjiy of resources wilbin an industrialized country with special reference lo the trade cycle, see C. M. Wright, Economic Adaptation to a Changing World Market, Chapter V (Copenhagen, 1939).

Theoretical and Historical Aspects sg

just as does the Umitation of trade through protection; and the his

tory of commercial policy offers convincing evidence that the pro

tectionists would have been still more successful than they have

been if they had had to contend only with the opposition of the

"consumers at large."

If conditions are such that the possible loss from a stoppage of

trade would fall with special weight upon certain groups within the

country, these groups are likely to form a sort of "commercial fifth

column." Aside from the purely commercial groups, such as import

and export companies, the influence of which is generally meager,

the vested interests will consist of the producers for export and of

the industries using-imported raw materials. If exports are concen

trated in some region or some industry, not only will the difficulty

of adjustment in the case of loss of tliese exports weigh upon the de

cisions of the government, but these regions or industries will exert

a powerful influence in favor of a "friendly" attitude toward the

state to the imports of which they owe their existence. Creation of

potential adjustment difficulties and of vested interests is thus the

twofold result of a commercial policy which aims at an intensive

specialization of the trading partner's economy and which tries to

prevent the diversification of the partner's exports with respect) to

regions and to products. In the social pattern of each country there

exist certain powerful groups the support of which is particularly

valuable to a foreign country in its power policy; the foreign country

will therefore try to establish commercial relations especially with

these groups, in order that their voices wil l be raised in its favor.

THE INFLUENCE EFFECT OF FOREIGN TRADE (SECTION 2) W e must now drop a simplifying assumption under which we have

worked hitherto and allow for the possibility of alternative mar

kets or sources of supply. A country menaced with an interrup

tion of trade with a given country has tlie alternative of diverting

its trade to a third country; by so doing it evades more or less com

pletely the damaging consequences of the stoppage of its trade with

one particular country. T h e stoppage or the threat of it would tfius

lose all its force. In order to prevent this, the country wishing to

conserve the influence derived from foreign trade in the real world

of many nations must therefore take some precautions. T h e prin-

go National Power and Foreign Trade

ciples which we have formulated for power policy through the

instrumentality of foreign trade retain their full validity. They were

aimed at rendering it difficult for the other countries to dispense

with foreign trade; but if we wish these principles to be effective in

the real world, they must be supplemented by measures which make

it difficult for other countries to shift the trade conducted with them

by the nation trying to increase its power by foreign trade.

Any switching of trade would, of course, be rendered impossible

by a monopoly of trade imposed by one nation upon another. In

the old colonial system a colony was not permitted to turn to other

buyers or sellers, even though the mother country had no obligation

at all to provide the colony with goods or to buy from it. Under

modern conditions subtler methods must be devised in order to

arrive at similar results. A country may still hope to create condi

tions in which the diversion of trade to a third country will be much

more difficult for its partner than for itself."^

In a very general way the difficulty of substituting country A as a

market or supply source for country B may be said to depend not

only on the absohue amount of A's trade with B, but also on the

importance of this trade relatively to B's total trade. If, for instance,

a country loses 5 per cent of its export trade, it should be able to

find additional outlets in the markets which account normally for

95 per cent of its exports and where a sales organization for its prod

ucts is likely to exist already. Similarly, if the country loses a rela

tively small fraction of its import trade, it is probable not only that

its economic activity is not based to an undue degree upon these

supplies, but also that other countries will be able and eager to

make up for them. T l ie greater the percentage of exports and im

ports involved in a dominant market, the more difficult it will be

to provide substitute markets and sources of supply.

If a nation with an absolutely large volume of trade imports from,

or exports to, a small trading nation, the trade they conduct to

gether will inevitably result in a much higher percentage for the

small than for the large trading nation. German-Bulgarian trade in

1938, for example, represented 52 and 59 per cent of Bulgarian

imports and exports, respectively, but only 15 and i . i per cent of

'̂ How important this problem is even in simple commerdal bargaining is repeatedly brought out by N. F. Hall, ''Trade Diversion—An Australian Interlude," Econotnica, Vol. V, new series (February, 1938).


the G e r m a n imports and exports . T h e s e figures indicate that al

t h o u g h the same absolute a m o u n t is i n v o l v e d , it wi l l be m u c h m o r e

difficult for B u l g a r i a to shift her trade w i t h G e r m a n y to o t h e r coun

tries t h a n it w i l l b e for G e r m a n y to replace B u l g a r i a as a se l l ing mar

ket a n d a source of supplies. ' ' In the real w o r l d of m a n y sovereign

states it w i l l therefore be an e lementary p r i n c i p l e of tlie p o w e r

pol icy of a state to direct its trade away from the large lo the smaller

trading states. T h i s p r i n c i p l e must then be a d d e d to the o n e estab

lished above , viz. , that trade should be directed t o w a r d the poorer

countr ies . T h e t w o are by n o m e a n s contradictory, as there are m a n y

states w h i c h are b o t h poor and small .

Similarly , it w i l l be an e lementary defensive p r i n c i p l e of the

smal ler t rading countr ies not to have too large a share of their trade

w i t h any s ingle great t rading country , that the integrat ion of their

economies w i t h those of the great countries (for w h i c h no rec iprocal

integrat ion is for thcoming) m a y be kept at a m i n i m u m c o m p a t i b l e

w i t h their e c o n o m i c wel l -being. T h e idea that d e p e n d e n c e can be

d iminished by d i s t r i b u t i n g the trade a m o n g m a n y countr ies has

been clearly e n u n c i a t e d by Macaulay . T h e s e two principles , the one

offensive for the large countr ies , the other defen.sive for the small

countr ies , gave rise to the first t w o inquir ies of o u r statistical section.

A m o r e specific policy by w h i c h a c o u n t r y c o u l d try to p r e v e n t its

t rad ing partners f rom d i v e r t i n g their trade to o t h e r countr ies w o u l d

consist in the creat ion of monopol is t ic o r monopsonist ic condit ions

with regard to certain p r o d u c t s . "

W i t h respect to exports , country A may try to change tlie structure

of country B's e c o n o m y so as to make it h ighly a n d artificially com

plementary to A ' s o w n economy. First, A may encourage the produc

tion of products h a v i n g but l i n l e d e m a n d in other countries . T h i s

amounts to the creat ion of what might be called "exc lus ive conipJe-

m e n t a r i t y " b e t w e e n the economy of country B and country A .

F u r t h e r m o r e , country B m a y have a c o m p a r a t i v e advantage in

tiie p r o d u c t i o n o f a cer ta in c o m m o d i t y -with respect t o country A ,

but not w i t h respect to countr ies C, D , E, etc. If by some preferent ia l

" Not only is it m o r e difficult for B idgar ia than for G e r m a n y to shift trade, b u t it is also harder for Bulgaria to dispense entirely with the trade conducted with G e r m a n y , hecaii"^ (his t rade is m u c h more •esseni ia l" io her . ' Ihi '- is. however , not a consc()uence o[ her comparat ive smallncss, b u t of factors pointed out in section i of this c b a p t e i .

* Cf. H. K. Hcuser, The Control of International Trade (London, 1939), p p . 250-351.


treatment, A induced B to produce this commodity for export, A

becomes B's only market, and the dependence of B upon A thus

created may be well worth to A the economic cost involved in not

buying in the cheapest market. In general, any attempt to drive the

prices of exports from trading partners above world prices, whether

by the direct encouragement of production contrary to the com

parative cost principle or by general monetary manipulations, will

fit in with the policy of increasing their dependence.

T h e paying of a higher price is only the most obvious way ofjcen-

dering more arduous the diversion of a trading partner's exports to

third markets. T h e offer of some special advantage relating to the

conditions of the contract other than the price works toward the

same effect. Firms often reward loyalty on the part of their customers

by rebates and other devices.°^ T h e economies of regularity and the

considerations of risk which explain this practice play an even

greater role in foreign trade; with prices uniform, exports will there

fore be directed preferably to those countries which are able and

willing to guarantee stable prices for a prolonged period.

W i t h respect to imports, the substitution of the imported prod

ucts from any country will be more difficult in the absence of a

natural monopoly the more highly differentiated are the products.

Such products tend to create fixed consumption habits and produc

tion techniques, and difficulties arise when these products have to

be replaced by similar but not identical products from other coun

tries. Hence, it is generally easier for an industrial country to change

the source of its supply of foodstuffs and raw materials than it is for

a country producing foodstuffs or raw materials to change its tradi

tional supplier of industrial goods."

Under conditions of incomplete use of resources, however, it wil l

generally be much easier to switch imports than exports, all coun

tries being ready to sell and none ready to buy. T h i s fact has indeed

tended to dominate the wiiole discussion of the determinants of bar

gaining power between tivo trading countries. It was held that

superior bargaining power is always on the side of the country hav

ing a passive trade balance with its trading partner. In other words,

^Cf. W. A. Lewis, "Notes on the Economics of Loyalty," Economica, VoL IX, new series (November, 194a), pp. 333-348,

^ Cf, R. F. Harrod's distinction of A. B, and C goods in his International Economics, new ed. (London, 1939), pp. 60 f£.


the difficulty of shifting imports was entirely discounted, whereas

in assessing the difficulty of shifting exports no account was taken

of the various factors enumerated above. It was thought that the

country having the greater absolute volume of exports would auto

matically experience the greater difficulties of diversion and thereby

find itself in an inferior bargaining position." T h i s is, of course,

far too great a simplification; but the fact remains that an intelligent

power policy must take account of the greater difficulty which is

generally experienced in diverting exports.

Let us suppose then that country A buys a percentage of B's

exports sufficiently large to render a substitution of these exports

well-nigh impossible for B. Is there any means of extending this

impossibility to the switching of B's imports as well? W e see imme

diately that the policy of bilateralism is perfectly fitted to take care

of this problem. Indeed, under conditions of bilateralism, a real

impossibility of switching exports induces a technical impossibility

of switching imports. In this way the device of bilateralism is seen

to be an important link in the policies by which the aim of maxi

mum power through foreign trade may be attained.

In all our analysis we have spoken exclusively of direct import

and export trade. Transit trade plays a special and somewhat con

tradictory role when we try to answer the question: Should a coun

try, from the point of view of power policy, aim at a large transit

trade? O n the one hand it would seem that transit trade can always

be replaced by direct trade and that therefore the country handling

the transit trade is in a rather weak position. B u t if the replacement

of the transit trade is impracticable for geographical, technical, or

contractural reasons, transit trade is immediately seen to be an ideal

means of increasing power by trade. Indeed, the economy of the

country handling this trade is only superficially affected by the

trade; whereas it acquires the influence normally deriving from

exports and imports both in the country of origin and the country

of final destination of the transit commodities. In other words, pro-

" Relatively early the German economist Dietzel attacked this view: 'Tn respect to the question of the strength of the (bargaining) position, it does not matter so much whicii one of the two nations waging a tariff war buys more from the other; it matters mure which of the two nati<ins can better do without the market of (he other, and is able in the case of loss of this market, to sell nearly as much elsewhere."—Karl Dietzel. Der deiitsch-amerikanische Handclsverlrag und das Phantom der amerikanischen In-

dustriekonkurrenz (Berlin, 1905), p. 20.


vided only that its services are indispensable, the country handling

the transit trade acquires from that trade a twofold influence and at

the same time evades almost entirely any dependence of its own

economy.

AN ILLUSTRATION: GERMAN TRADING METHODS UNDER NATIONAL SOCIALISM

T h e conditions or policies which have been described as being

conducive to increased national power by means of foreign trade can

be summarized by the fol lowing synoptical table:

Principles of a Power Policy Using Foreign Trade as Its Instrument

I. Policies relying on the supply effect of foreign trade and trying to insure its working even in times of war.

A. Concentrate imports on goods needed for the war machine.

B. Accumulate large stocks of strategic materials.

C. Redirect trade to neighboring politically friendly or subject nations.

D. Secure control of the oceanic trade routes.

11. Policies relying on the influence effect of foreign trade.

A. Policies designed to make it more difficult for the trading partner to dispense entirely with the trade.

1. Increase the trading partners' gain from trade (without impairing the supply effect).

a. Develop exports in articles enjoying a monopolistic position in other countries and direct trade to such countries.

b. Direct trade toward poorer countries.

2. Increase the trading partners' adjustment difficulties in case of stoppage of trade.

a. Trade with countries with little mobility of resources.

b. Induce a wide discrepancy between the pattern of production for exports and the pattern of production for home consumption.

3. Create vested interests and tie the interests of existing powerful groups to the trade.

B. Policies designed to make it difficult for the trading partners to shift trade to each other or to third countries.

1. In general: Direct trade toward the small trading countries.


2. W i t h respect to the exports of the trading partners:

a. Import products for w h i c h there is ht t le d e m a n d in

other countries.

b . Drive prices of ihe e x p o r t products of the trading part

ners above world prices:

i. By fostering high-cost product ion.

ii. By monetary manipulat ions .

c. G r a n t lo the irat l ing partners ' exports advantages n o t

relat ing to the price of their products.

3. W i t h respect to the imports of the trading partners:

a. Export highly dilferentiated goods c i e a t i n g consumption a n d produci ioi i habits.

b . D e v e l o p trade on a bi lateral basis.

4. D e v e l o p transit trade.

P r a c t i c a l l y a l l the o u t s t a n d i n g f e a t u r e s of G e r m a n f o r e i g n eco

n o m i c p o l i c y s i n c e 1933 c a n b e s u b s u m e d u n d e r th is s c h e m e . T h i s '

does n o t m e a n , as w i l l b e e x p l a i n e d b e l o w , that G e r m a n y has con

sc ious ly w o r k e d o u t s u c h a m a s t e r p l a n . K e e p i n g t l i i s i n m i n d f r o m

the o u t s e t , w e s h a l l s h o w v e r y brief ly the c o r r e s p o n d e n c e in e a c h

p o i n t b e t w e e n G e r m a n p o l i c i e s a n d t h e g e n e r a l p r i n c i p l e s of a

p o w e r p o l i c y t h r o u g h f o r e i g n t r a d e w h i c h w e h a v e e s t a b l i s h e d . W e

shal l l ist t h e G e r m a n p o l i c i e s in the o r d e r i n d i c a t e d by t h e s y n o p t i

cal t a b l e a n d r e f e r b a c k to i t e a c h t i m e b y its o w n s y m b o l s . I n o u r

a c c o u n t of G e r m a n p o h c i e s , w e r e l y o n n u m e r o u s s t u d i e s o f G e r m a n

t r a d i n g m e t h o d s t o w h i c h t l i e r e a d e r m a y t u r n f o r fu l l i n f o r m a t i o n . "

'^Antoiiin Basch, The New Economic Warfare, Chapter I (New Vork, 1941);

H. M. Bratter, "Foreign Exchange Control in Latin America," Foreign Policy Reports

(February 15 , 1939); J. B. CondlifEe, The Reconstruction of World Trade (New Vork, 1940), pp . 2 5 6 - 2 6 2 , 2 9 1 - 2 9 4 . 323-324; "Germany's T r a d e Offensive," The. Errmomist

(London. November 5, 1938); Paul Einzig, Bloodless Int'nsion (London, 1938); Howard S. Ellis, Exchange Control in Central Europe (Cambridge, Mass., 19.(1); A. G. B. Fisher, " T h e German Trade Drive in South-Eastern Europe," International Affairs, Vol. X V U I (March-April, 1939); \fargaret S. Gordon, Barriers to World Trade, Part IV

(New York, 1 9 4 1 ) ; H . C. Hillmann, "Analysis of Germany's Foreign Trade and the War." Economica, new series. Vol. VII (February, ig.^o): Europe's Trade (League of

Nations, Geneva, 1941): Fritz Meyer, "Devisenbewirtschaftung als neue AVahrungs-form," Welt-wirtschaftlisches Archiv, Vol, X L I X (May, 1939); von Mickwitz, " T h e Economic Structure of Capital Exports to Soutli-F.astern Europe," Mimeographed for the International Studies Conference (Bergen, 1939); Douglas Miller, "You Can't Do

Business With Hitler (New York. J941); Mark MitnJizky, "Germany s Trade Monopoly in Eaacrn Europe," Social Research, Vol. VI (February, 1939); Soulh-Eastern Europe

(Ro\al Institute of International Affairs, London, 1939); South-Eastern Europe (Royal Institute of International Affairs, London, Deceitiber, 1940), (this is a separate and distinct work from the previous same-nained publication): Hans Staudingcr, " T h e Future of Totalitarian Barter Frade," Social Research, Vol. V l l (November, 1940).


Little need be said concerning the policies relating to the supply

effect of foreign trade. Germany considered her exports a means of

obtaining in exchange certain imports deemed essential for her pur

poses (I A.) ; she accumulated large stocks of strategic materials

(I B.); and she directed her trade toward countries from which she

hoped not to be cut off in the case of war (1 C.). T h e two latter poli

cies, coupled with the autarkic program, were considered as a substi

tute for tiie control of the oceanic trade routes (I D.) which Germany

could not hope to achieve.

Let us now turn to the influence effect. Germany's attempt to

concentrate on exports of finished products, on the one hand, and

on exports to agricultural countries, on the other, had obviously

the result of giving her exports a quasi-monopolistic position so

far as the productive system of her trading partners was concerned

(II A.I .a.) . In addition, to maintain this position, it was one of the

great principles of German foreign economic policy to prevent the

industrialization of her agiicultural trading partners. Particular

insistence on this point has been noted in all the commercial nego

tiations of Germany with her southeastern neighbors and even, to

some degree and some success, with Italy.

T h e policy of trading with agricultural countries and, further

more, of preventing the establishment of industries in these

countries is indeed prompted, not only by the consideration just

mentioned, but also by the fact that agricultural countries have

generally but little mobility of resources (II A.2.a.), and that manu

factured products, being highly differentiated, are often diffictdt to

replace immediately by similar products from other countries (II

B.3.a.). Here we have an example of the above-mentioned cumula

tive effect of poxver. Germany could never have hampered or pre

vented the industrialization of the Danubian countries if she had

not had an initial political and economic ascendancy over them,

and the prevention of industrialization in turn served to enhance

or to maintain Germany's initial power position.

T h e modification of the structure of German trade can also be

interpreted as a shift of trade from the relatively rich to the rela

tively poor countries (II A. i .b . ) . In order to give a statistical illustra

tion, we have computed the shares in German trade for the eleven

countries which, according to the thesis expounded by Colin Clark,


a r e " r i c h e r " t h a n G e r m a n y i n t h e sense t h a t r e a l i n c o m e p e r h e a d o f

t h e e m p l o y e d p o p u l a t i o n is higher.™

L o o k i n g at the p e r c e n t a g e s of t h e s i n g l e c o u n t r i e s , o n e n o t i c e s

that , w i t h diG exception o f E i r e , D e n m a r k , a n d S w e d e n , a n a l l - r o u n d

d e c r e a s e f r o m 1929 to 1938 is e v i d e n t . F o r D e n m a r k a n d S w e d e n

the i n c e n t i v e o f r e g i o n a l i s m m a y h a v e o u t w e i g h e d o t h e r c o n s i d e r a

t i o n s . T h e t r a d e w i t h E i r e is r e l a t i v e l y i n s i g n i f i c a n t .

T h e p o l i c y o f t r a d i n g w i t h c o u n t r i e s h a v i n g b u t l i t t l e m o b i l i t y o f

r e s o u r c e s ( I I A . a . a . ) has a l r e a d y b e e n c o m m e n t e d u p o n . G e r m a n y

has a l s o i n d u c e d t h e s o u t h e a s t e r n c o u n t r i e s t o u s e st i l l m o r e re

sources i n t h e p r o d u c t i o n of c e r t a i n c r o p s (o i l seeds, fiber p l a n t s )

SHARES HELD BY ELEVEN COUNTRIES "RICHER" THAN GERMANY

IN TOTAL GERMAN IMPORT AND EXPORT TRADE*

Imports Exports Year per cent per cent

1929 4 ' -9 4 9 0

1932 39-1 48.9

1937 29.9 38.6

193B • • 31-3 S7-1 • In 193* Avitris is cxdudcd Scorn the foreign traitr sCacistks. In order to Ihtr figures

for the other yeais comparable lo those o( 1938, Austria has been excluded ihroughoui, i.e., the figures are percentages of the total German trade minus Austrian trade. The figures have been computed from German sources (Siatiilisihet I'thrbuih jiir dai Deunche keicfi and Wirlschaft und SiatiiliK).

a n d m i n e r a l r e s o u r c e s w h i c h w o u l d p r a c t i c a l l y b e e x p o r t e d i n t h e i r

e n t i r e t y ( I I A . a . b . ) . B y o f f e r i n g a s t a b l e m a r k e t for the a g r i c u l t u r a l

s u r p l u s p r o d u c t i o n o f these c o u n t r i e s , s h e t ied l a n d o w n e r s a n d peas

ants , the m o s t p o w e r f u l socia l g i o u p s i n tliese c o u n t r i e s , t o h e r o w n

interests ( I I A . 3 . ) .

C o m i n g to t h e p o l i c i e s r e n d e r i n g a d i v e r s i o n of t r a d e m o r e

di f f icult f o r t h e t r a d i n g p a r t n e r s , w e s h a l l s h o w i n C h a p t e r V h o w

G e r m a n y c o n c e n t r a t e d h e r t r a d e o n the r e l a t i v e l y s m a l l t r a d i n g

c o u n t r i e s ( I I B . i . ) . T h e f o s t e r i n g of s p e c i a l p r o d u c t s s u c h as o i l seeds

a n d fiber p l a n t s is a lso a n e x a m p l e o f t h e c r e a t i o n o f e x p o r t s for

w h i c h t h e r e w o u l d b e l i t t le d e m a n d i n o t h e r c o u n t r i e s ( I I B.2.a .) .

G e r m a n y ' s e n c o u r a g e m e n t o f c u l t i v a t i o n of c o t t o n i n B r a z i l , T u r -

""Colin Clark. The Conditions of Economic Progress (London, 1940), p . 4 1 . T h e eleven countries are, in the order indicated by the author: United States. Canacla, New /.caland. Great Brilain, Switzerland, Australia, Holland, Eire, France. Denmark, Sweden, r h e margin o[ error of such calculations is admittedly very wide, but, over a short range of years, a computation such as we give on this page may serve our purposes.


key, and Greece, and her exploitation of low-grade mineral resources

in Rumania and Yugoslavia can be sbown to be contrary to the

comparative cost principle (II B.2.b.i.). In general, Germany sup

ported the agricultural economies of southeastern Europe without

insisting upon the adjustments necessary to render them competi

tive on a world level. T h i s had the effect of adding to basic cost dis-

equilibria a monetary disequilibrium which drove the price system

of these countries upward by the device of overvaluation of the

reichsmark (II B.s.b.ii.). In this connection it must also be recalled

that Germany has not only paid prices higher than those which

could be had in the world market, but that trade with Germany

offered to tlie southeastern countries another substantial advantage

over trade with other countries; Germany had promised to these

countries conditions of stability in both price and volume of their

exports (II B.a.c.).""

With respect to imports which create consumption and produc

tion habits (II B.3.a.), we have already mentioned the general ad

vantage of industrial countries in comparison with agricultural

countries. T h e export of armaments to the Balkan countries, ex

tensively practiced by Germany, is an item very much to the point,

since a retraining of personnel is a necessary accompaniment of

any improved style or variety of aims. In addition, once the main

weapons had been accepted from Germany, the importing countries

had to rely on her for ammunition and spare and repair parts. Bi

lateralism (II B.g.b.) has not only been the most evident new prin

ciple introduced by Germany into trade relations, but it has also

had exactly tlie same function which we have attributed to it in our

exposition: forcing the countries selling a substantial share of their

exports to Germany to grant Germany a similarly dominating posi

tion in their imports. Finally, Germany has made the most sustained

efforts to increase the amount of transit trade ivhich she traditionally

handled as a result of her geographical position (II B.4.). She tried

to sell to the world the Balkan products, and to the Balkans she

attempted to sell such "colonial" products as coffee, cocoa, etc.

T h e r e is nothing paradoxical about the fact that the power of the state to interrupt trade may be made into a more effective weapon by graTiting to its trading partners certain advantages, e.g., of security—for a time. T h e security, indeed, is revokabte; and the power of tlie state granting security in trade relations is precisely born of the desire of its trading partners to prevent the loss of this security. Here again fortuna est servitus.


T h e correspondence between German policies and the principles

of a power poUcy carried on through foreign trade, which we have

deduced from simple premises, will now have become clear. Just as

these principles were originally derived by us from the single postu

late of maximum power, German policies can be understood as a

coherent whole by reference to this postulate.

Only future research into the proceedings of the inner councils

of Nazi leaders will show how far their plans for economic conquest

were actually laid down in advance. It seems probable, however,

that the amazing coherence of German policies was due only in part

to detailed planning springing from economic analysis and that an

important role was left to experimentation in the elaboration of

actual policies. But if we assume only that in every decision of com

mercial policy the political power standpoint was given due con

sideration, the coherence of German policies need not surprise us,

for, in every case, tliis power, so far as it is based on foreign trade at

all, goes back in the last analysis either to the strength which foreign

trade lends to the German war machine (supply effect) or to Ger

many's power to menace her trading partners with a stoppage of

trade (influence effect). It is therefore only natural that by exam

ining in a general way the processes through which these two sources

of power through foreign trade could be best developed, we should

at the same time have described the actual policies of a state which

had made power the primary object of its actions in every field.

It will have been noted that a single policy such as the prevention

of industrialization realized simultaneously several distinct features

of the power policy outlined in different parts of the present anal

ysis. Similarly, v̂e have seen how an apparent conflict between the

supply effect and the influence effect of foreign trade could find a

solution. Furthermore, a shift of trade toward the poorer countries

will often be foimd to implement the other principle of power

policy which impels a country to divert its trade toward the smaller

trading coimtries. All these instances tend to show that there is a

real danger of attributing too much cleverness to German policy

by supposing a motive behind certain effects of policy which, though

welcome, may not have been actually aimed at.

Economists have often dwelt upon situations in which a policy is

self-defeating, i.e., leads to certain unforeseen repercussions which


foil the aim at which the policy was originally directed. It is, Iiow-

ever, equally possible that a policy has unforeseen effects which re

inforce rather than destroy the result which the policy had tried to

bring about. It may well be—here again only future documents will

give us an even approximate knowledge—that in German trading

methods we are confronted by precisely such a situation. T h i s would

detract somewhat from our opinion of the thoroughness and the

astuteness of the Nazis, but it would also raise in our minds a ques

tion of grave importance: Are the conditions in the actual world

such as to make the pursuit of power a relatively easy task?

Undoubtedly, conflicts between the policies implementing the

different principles of a power policy with foreign trade as an in

strument are conceivable and do occur; but they seem to be less

important than the situations in which it is possible to realize con

currently several power objectives by a single policy.

Finally, it must be remembered that the conditions which we

have described as leading to power relationships are not necessarily

brought about by any conscious policy at all. Indeed, the initial

impetus to German policies in the 'thirties was given even before

Hitler's advent to power, not by political motives, but by the eco

nomic fact that Germany, a debtor country with a weak currency,

found herself attracted to the central and southeastern European

countries which were in a similar position. T h e important point is

that power elements and disequilibria are potentially inherent in

such "harmless" trade relations as have always taken place, e.g., be

tween big and small, rich and poor, agricultural and industrial

countries—relations which could be fully in accord wi'tli the prin

ciples taught by the theory of international trade. Political power

may only be latent in such commercial relations. But so long as war

remains a possibility and so long as the sovereign nation can inter

rupt trade with any country at its own will, the contest for more

national power permeates trade relations, and foreign trade pro

vides an opportunity for power which it wil l be tempting to seize.

NOTES ON THE THEORY OF INTERNATIONAL TRADE T h e following remarks serve to elaborate for the technical reader

certain questions in the theory of international trade connected

with the analysis given in the preceding pages.


E Q U I L I B R I U M IN I N T E R N A T I O N A L T R A D E UNDER V A R Y I N G

A S S U M P T I O N S in T H E I N S T I T U T I O N A L FRAMEWORK*"

F o r o u r purpose i t is use fu l to dist inguish b e t w e e n three types of

trade organizat ion within a g iven country:

a) Competitive conditions and absence of any state intervention; b) Competitive conditions and possibility of unilateral state interven

tion, e.g., imposition of tariffs; c) State monopoly of foreign trade.

If we c o n t e m p l a t e trade b e t w e e n t w o states, trade may be carried

on i m d e r any o n e of six possible c o m b i n a t i o n s . B u t o n l y f o u r of

these, w h i c h m i g h t be cal led aa, b b , cc, ab, ac, be, need be analyzed.

If we assume that the trade is in t w o commodit ies , the apparatus of

the Marshal l ian foreign trade curves, together w i t h the theory of

bilateral m o n o p o l y d e v e l o p e d by E d g e w o r t h , P i g o u , a n d Bowley,^

permit us to i l lustrate these cases by a s imple d iagrammatica l device.

I n f igure 1 the abscissa measures the a m o u n t s of a c o m m o d i t y

p r o d u c e d by country X , a n d the ordinate the a m o u n t s of a n o t h e r

c o m m o d i t y p r o d u c e d by country Y . O Q ^ is the indifference curve

of X , s h o w i n g the bargains wli ich w o u l d leave X as badly off as if

it d id not trade at all . L e t us call this curve , w i t h Professor Viner,^'

the no-gain-from-trade curve. T o this c u r v e , correspond other in

difference curves ivhich w i l l c u t the Y ordinate (the dotted curves

in o u r figure). A s imilar indifference m a p exists for Y , a n d O Q 2 is

V's no-gain-from-trade curve . T h e locus of the points at ivhich any

t w o indifference curves of these two systems are tangentia l to each

o t h e r is the c u i v e Q,Q^, w h i c h is ca l led the contract c u r v e in the

theory of bi lateral m o n o p o l y . T h e c u r v e O P j P is a Marshal l ian sup

ply-demand c u r v e , i.e., the locus of the points at w h i c h straight l ines

draAvn in any d irect ion from the or ig in and indicat ing a certain posi

tion of tlie terms of trade touch tlie indifference curves of Y . T h e

" A very interesting article by Tibor de Scitovsky, "A Reconsideration of the Theory of Tariffs," Review of Economic Studies, Vol. I X (Summer, 19(2), has come to my notice after the above notes h.id been vtrittcn. De Scitovsky s maii\ contribution is an eUicida-tion of liie precise meaning of comraunilvindilference curves; but he also gives (ibid.,

pp. J02-105) a comparison of iradc under barter awi-ecmenis and of trade when tariffs arc the main weapon of commercial policy, which has much in common with the analysis prcsentetl here.

^•Cf. bibliography given by Gerhard Tinlner. "Note on the Problem of Bilateral Monopoly." Journal of Political Economy, Vol. XLVII (April, 1939). p. 2G3.

" Viner, op. cit., p. 576.


p

I

0 Fig. 1 .

Case aa (classical case of perfect competition): Every party con

siders the terms of trade as a datum and moves along its supply-

demand curve until the quantity offered is equal to the quantity

demanded. Determinate equilibrium is established at P. It can be

proved that P lies on the contract curve.

Case cc (classical case of bilateral monopoly): T h e terms of trade

lose their regulatory function and two monopolists drive a bargain

which will lie somewhere on the contract curve. This curve is, in

deed, the locus for all bargains which, with a given satisfaction from

trade of the one partner, maximize the satisfaction of the other.

Which particular point will be arrived at by the two countries trad

ing together depends on "bargaining power."

curve OP2P is the corresponding locus for X. T h e supply-demand

curve of Y (OP^P) touches an indifference curve of X at the point

Pj , and similarly the supply-demand curve of X (OP2P) touches an

indifference curve of Y at P .̂ W e can now proceed to the analysis

of the various cases.


Case ab (foreign trade b e t w e e n two countr ies , eacii o f w h i c h has

a compet i t ive t rading system, b u t only one , say X , e n j o y i n g tariff

autonomy, which is an a t t r i b u t e of sovereignty) : I n this case the

terms of trade Jose their regulatory f u n c t i o n for country X , b u t not

for Y . L i k e any monopol is t , country X can a im at e v a l u a t i n g the

d e m a n d c u r v e of its t rad ing partner a n d at finding o u t the point

most advantageous from its o w n standpoint.*' T h i s p o i n t is P,, at

which , as we said before, an indifference c u r v e of X touches the

supply-demand curve of Y . By i m p o s i n g a duty u p o n its goods, X

wi l l be able to shift its d e m a n d curve so that it cuts Y ' s d e m a n d curve

at precisely tliis p o i n t . I t is n o t possible here to c o m p a r e the total

uti l i ty o b t a i n e d at P and that o b t a i n e d at P̂ by the t w o trading

countr ies taken together. A l l o n e can say is that at P̂ , X is better off

and Y worse off than at P. B u t by d r a w i n g the indifference curves

g o i n g t h r o u g h P^ u n t i l they c u t the contract curve at R a n d at R',

we see that there is a stretch, RR', on the contract curve , each point

of w h i c h offers to b o t h part ies m o r e satisfaction than ei ther can

o b t a i n at Pi.

Case bb:** If b o t h countr ies have ful l e c o n o m i c sovereignty whilst

re ta in ing their c o m p e t i t i v e t rading system, they may b o t h try to

influence the terms of trade by the impos i t ion of tariffs. In other

words, so far as the absence of the parametr ic f u n c t i o n of pr ice for

the country as a w h o l e is concerned, the posit ion is very s imilar to

case cc, in w h i c h the theory of bi lateral m o n o p o l y b e c a m e applica

ble . O b v i o u s l y , w i t h any g i v e n system of tariff rates, e q u i l i b r i u m is

aga in d e t e r m i n a t e . B u t a l thougti tariff rates have the same e c o n o m i c

effect as transport costs, the usual procedure of s imply i n c l u d i n g

tariffs a m o n g the data of internat ional e c o n o m i c e q u i l i b r i u m seems

i l legi t imate , the reasons for w h i c h w e wi l l presently point out .

T h e history of c o m m e r c i a l negotiat ions gives a b u n d a n t proof

that tariffs are the manifestat ion of b a r g a i n i n g p o w e r i m d e r condi

tions of pr ivate trading. If tariffs are considered as data, b a r g a i n i n g

power should in all cases be treated in the same way, and equi l ib-

" T l i i s has been recently recalled by Nicholas Kaldnr. " A N o t e on Tariffs and the T e r m s of T r a d e . " Economica. \o\. V I I , new series (November. 1910), pp- 379-3^0.

" C f . . in connection with the fo l lowing section, the article of ,\. C. P i g o u , " E q u i l i b r i u m under Bilateral M o n o p o l y . " Economic Journal, V o l . X V I I I (1908), p p . 205 ff. .Miliough our approach has m u c h in common with Pigou's analysis, Pigou was not interested in the applications of the theory of bilateral monopoly to international trade, but rather lo wage theory.


rium under conditions of bilateral monopoly would be perfectly

determinate. If, on the other hand, tariffs are not treated as data,

equilibrium in our case is just as indeterminate as it was in case cc.

In other words, even with entirely competitive markets, the institu

tion of national economic sovereignty implants elements of monop

oly and indeterminateness in the trading system.

T h i s indeterminateness is, however, different in kind from that

which we have analyzed under cc- Every country can influence the

terms of trade by the imposition of tariffs. But once thts has been

done, the market is left to adjust itself to the new conditions. T h e

price and the terms of trade remain objective data for the traders,

and therefore the equilibrium positions all lie on the possible inter

sections of the supply and demand curves as modified by government

intervention. Since an imposition of a duty on exports or a subsidy

on imports may be considered unlikely, the Marshallian curves wi l l

shift nearer to each other. W e obtain thus a surface of indetermin

ateness, OPjPPi , bounded by the two original curves of case aa. Any

point lying on the surface, including the point of origin, may be

the outcome of successive impositions of tariffs. T h e shaded area

indicates the possible position at which one of the two trading part

ners will be better off than at the free trade position P. At all other

points of the surface both countries would be worse off than they

were before they started to impose tariffs and to retaliate. What we

pointed out for point P^ in connection with case ab holds here gen

erally also. For every point of the surface OP2PP1 (with the excep

tion of P) there exists a segment on the contract curve every point

of which yields to both countries a higher amount of satisfaction.

T h e imposition of tariffs is therefore seen to be a rather inefficient

weapon for a country desiring to obtain an increase in satisfaction

from a movement of the terms of trade in its favor. It seems a sig

nificant confirmation of the foregoing analysis that countries which

have had a foreign economic policy which considers exports as a

means to obtain imports (and not imports as a necessary evil to

secure export markets) have generally reverted from a tariff policy

to a policy of direct bargaining.

There exists, then, a difference between a policy relying on auton

omous tariffs and a policy of direct state trading. But this difference

is far from being as fundamental as has often been believed. Auton-


omous tariff policy, we have shown, introduces into the interna

tional market elements of indeterminateness which differ from such

elements under bilateral monopoly mainly in the fact that they lead

to a range of possibilities which, from the standpoint of tlie satisfac

tion of both countries, is much inferior to the range offered by bar

gaining of two countries each with a foreign trade monopoly. In

addition, our analysis shows that, by supposing international trade

to result in determinate equilibrium, the theory of international

trade assumes, not only perfect competition, but also the absence of

economic sovereignty.

A NOTE ON BARGAINING POWER

In the theory of bilateral monopoly the term bargaining power

has a definite technical meaning. It denotes the forces which, with

given indifference systems of the two monopolists, make for equi

librium at one rather than another point on the contract curve. T h e

components of bargaining power in this sense are somewhat vague;

they are generally believed to be bargaining skill, information on

the indifference system of the partner, deception of the partner

about one's own indifference system, and simple force, which, how

ever, is limited by the shape of the partner's no-gain-from-trade

curve. Indeed, it is not possible for either of the monopolists to ex

ploit the other in the sense that by exchange the one is made to he

less well off than he was before the exchange took place. It is not

even possible to draw from the location of the equilibrium point on

the contract curve any conclusion for a comparison of the advan

tages derived by the two monopolists from the exchange. If, for

instance, the exchange takes place at the center of the contract curve,

we could say that the advantages derived by both monopolists are

equal only if we assume: (1) that the indifference systems of the two

monopolists are identical, and (2) that the two no-gain-from-trade

curves express equal levels of satisfaction for both monopolists.

It noiild therefore be incorrect to say that superior bargaining

power enables one monopolist to gain more satisfaction than his

partner; all we may affirm is that it enables him to increase his gain

at the expense of that of his partner.

T h e term bargaining power is, however, used in contexts imply

ing a different meaning. Thus , if we say that the bargaining power


of the entrepreneur is superior to that of the nonunionized w o r k e r -considered as an individual factor of production with some elasticity of substitution—ive think not only of tJie differences in bargaining skill, cunning, information, etc., but mainly of the fact that the worker "needs" the entrepreneur more than the entrepreneur "needs" him. This , in turn, means that we are here implicitly comparing two utility gains or, at least, the levels of satisfaction of the two opponents if there is no contract. Similarly, if we say that adherence to a trade union enhances the bargaining power of the worker, we imply not only that the trade union has more information, skill in negotiation, etc., than the individual worker could possibly have, but also that the wage at which it would be a matter of indifference to the worker to be idle or to work is higher after than before his adherence to the union. We have here essentially a dynamic problem, since the indifference system of the worker is supposed to have shifted so as to form a 7^ew contract curve with the indifference sybteui of the entrepreneur. Even if the bargaining skill of the two parties has remained the same, the wage will be higher under the new conditions because the range of possibilities offered by the new contract curve to the worker is better than tlie old one.""

In other words, there are two methods to better one's position:

either by working toward a better point on a given contract curve,

or by bringing about a new and more favorably situated contract

curve. T h i s latter aim may be realized, as in the familiar case of

unionization, by shifting one's own indifference system, i.e., by

enabling the worker, backed by the financial resources of tiie union,

better to withstand an interruption of his employment. But it may

also be realized by shifting the indifference system of one's partner

by rendering it more difficult for him to dispense with the contract.

Thus, we see the connection betxveen the theory of bilateral mo

nopoly and our analysis of the influence-effect of foreign trade. T h e

shifting of the indifference systems, however, has been considered

until now only as a means toward theattainment of a better bargain.

" T h a t changes in bargaining power in llie traditional sense are much less important than changes in bargaining power which are the outcome of changes in indifference maps has Ijcen pointed out recently in connection wiih wage theory by J, T . Dunlop and Benjamin Higgins, "Bargaining Power and Market Structures," Journal oj Polili-cal Economy, Vol. L (February, 194a), pp. 4-5,

Theoretical and Historical Aspects • 4 7

I n o u r analysis the possibil i ty of d r i v i n g a bet ter b a r g a i n w a s only

inc identa l to the m a i n a i m , w h i c h consisted of ty ing the trading

partner to a country us ing foreign trade for purposes of nat ional

p o w e r . W e have s h o w n h o w this m a y be accompl ished:

]) with an unchanged indifference system of the trading partner, by making him better off, i.e., by granting him better terms of trade;

•i) with an unchanged total level of satisfaction of the trading partner, by changing his indifference system so as to make him worse off in the eventuality of interruption of trade.*'^

Because we have seen that the first solut ion w o u l d conflict wi th

tiie supply effect of foreign trade, we have therefore m a i n l y d w e l t

u p o n the second solut ion. O u r analysis has thus led us to d r o p two

of the basic assumptions of the theory of bi lateral m o n o p o l y :

1) that we are in the presence of f ixed indifference systems; 2) " t h a t the one exchanger is insulated from the other in the sense that

his economic conduct is not influenced in any way by the satisfaction which he conceives to be obtained by his correspondent."*

B u t in o u r p r o b l e m , A is vital ly concerned a b o u t B's satisfaction,

for, by such concern, B's d e p e n d e n c e on A is increased and the in

crease of satisfaction o f B is b r o u g h t a b o u t m a i n l y by a change of

B's indifference system. T h e difficulty of shift ing trade to a third

country may readily be taken account of in the construct ion of these

indifference systems. T h e no-gain-from-trade c u r v e of B becomes

then a tio-gain-from-trade-with-A curve , i.e., expresses the var ious

bargains at Avhich it w o u l d barely pay B to shift its trade w i t h A to

a t h i r d country . T h i s c u r v e w i l l general ly express a h i g h e r leve l of

satisfaction of B than the ordinary no-gain-from-trade curve , b u t

wi l l co inc ide w i t h it if no subst i tut ion is possible.

AU o u r analysis of the influence effect of fore ign trade m a y t h e n

be summarized by the f o l l o w i n g pr inc iple : G i v e n a certain ga in

from trade of A a n d a fixed indifference system of A , create condi

t ions such as to m a x i m i z e the difference i n satisfaction b e t w e e n the

In the first case, the i rading partner arrives at a h igher indiiFerence curve and ihe level of satisfaction expressed by the no-gain-from-trade curve remains the same; in the second ca^e, the trading partner remains at the same indiiference curve, but ilie tio-gain-fvoin-trade curve expresses a lower level of satisfaction t h a n before. I n both cases, his gain from trade increases, c i ther because be actually gains more by the trade or because he w o u l d stand to lose more from a stoppage of trade,

*" Pigou, op. cit., p . 207.


indifEerence curve w h i c h B actually reaches by trading w i t h A and

B's no-gain-from-trade-with-A curve.

As w e shall later have occasion to p o i n t out (p. 79), an e c o n o m i c

system g u i d e d by the object ive of wel fare m u s t also prov ide for a n d

organize the use of e c o n o m i c power . A t present w e see that the

"economics of p o w e r " may use welfare analysis to great advantage.

A n d moralists m a y w e l l p o n d e r over the fact that concern a b o u t

the trading partner's satisfaction becomes relevant for e c o n o m i c

analysis w h e n it is considered as a step toward eventual d o m i n a t i o n .

A N O T E ON GAIN F R O M T R A D E

W e shall b e concerned here w i t h the re lat ion of the welfare gain

to some object ive measures or indicators of the gain from trade.

O u r first p o i n t wi l l be to prove that u n d e r the simplest assumptions

a subjective gain from trade is possible w i t h o u t any specialization

u p o n o p e n i n g of trade, i.e., w i t h o u t any increase of aggregate pro

d u c t i o n of die t w o countr ies . Because it is possible to simplify the

diagrammatica l exposi t ion, w e shall n o w use the c o m m o n indiffer

ence m a p . U n d e r the assumption of s imilar tastes in the t w o coun

tries, the d i a g i a m n e e d represent only o n e system of indifference

cun'es.*' I n accordance w i t h other assumptions w h i c h have been

seen to be i m p l i c i t in classical theory,*" w e shall suppose in addi t ion

that the t w o products e x c h a n g e d are of e q u a l i m p o r t a n c e . T h i s

somewhat imprecise concept may be defined in the f o l l o w i n g way:

T h e i n c o m e elasticity for b o t h commodit ies is uni ty t h r o u g h o u t

the indif ference m a p and, if the terms of e x c h a n g e are fixed so that

a unit of the one c o m m o d i t y exchanges against o n e u n i t of the other

commodity , then, w h a t e v e r the real income, e x p e n d i t u r e w i l l be

d i v i d e d equal ly b e t w e e n the t w o commodit ies . T h e s e assumptions

yield an indifference m a p w h i c h is ent ire ly symmetr ica l w i t h respect

'^Cf., in particular, tlie models given by W. W. Leontief, "The Use of Indifference Curves in the Analysis of Foreign Trade," Quarterly Journal oj Economics, Vol, XLVII (May, 1933), pp. 493-503. The objections to this method, as formulated by Professor Viner {op. cit., pp. 521 ff.), could be taken account of partly by interpreting the indifference curves of the community so as to include in their shape, not only the satisfaction derived from the consumption of the commodities, but. in addition, the satisfaction derived from their production. As to the meaningfulness of the concept "community indifference curves," see Kaldor, op. cit., pp. 377-378, and De Scitovsky, op. cit., pp. 89-95-

"CE. F. D. Graham, "The Theory of International Values Reexamined," Quarterly

Journal oj Economics, Vol. XXXVIII (November, 1923), pp. 56 ff.


Fig. 2

whereas country B can produce y units of a, or x units of b. These

assumptions are graphically presented in figure 2, in which the

abscissa represents the amounts of commodity a, and the coordinate

the amounts of commodity b . T h e curves are indifference curves

common to both countries. D E is the substitution line of country A

enjoying a comparative advantage in production of commodity a.

FG is the substitution line of country B. T h e y are straight lines be

cause of our assumption of constant costs. T h e n , with no trade, the

equi l ibr ium for each country wil l be estabhshed at points H and L,

at which an indifference curve touches the respective substitution

lines. If trade now opens and specialization does not yet set in, both

to the two coordinates. Let us assume also that each of two countries

of equal size has its own constant costs levels, but that these levels,

as between the two, are different. For our purposes the concept

"countries of equal size" means that country A can produce in com

plete specialization either x units of commodity a, or y units of b .


countries can move to a point M lying on a higher indifference curve—country A by exchanging R H of a for R M of b, and country B by exchanging Q L (= RM) of b for Q M {= R H ) of a. If A specializes in the production of a, and B in the production of b, they can of course get to a point N lying on a still higher indifference curve.

In our graph the two countries start from the same indifference curve, and by trade reach a higher indifference curve common to them (either at M or at N) . T h e assumptions through which we have obtained an equal gain from trade for both countries are extremely rigid and unrealistic. It is sufficient to drop one of these assumptions in order to obtain different welfare-gains for both countries.

If the substitution lines of countries A and B are not D E and FG, but O D and O G (A can produce only commodity a, and B only commodity b), both countries will be, in the absence of trade, at a lower level of satisfaction than in our previous case. If trade opens, they will immediately move to point N without any further specialization being possible. T h e volume of trade will be the same as in our previous case after speciahzation had taken place, but the gain from trade will be greater, as the two countries have started from lower indifference curves. Generally, the gain from trade is thought to be intimately associated with international specialization. So far as more specialization permits a greater volume of trade, this association, at least as a presumption, is warranted. But it is often forgotten that specialization is, after all, only a pis-aller, i.e., a course which has to be taken if the diversity of products produced in the two countries does not permit a continued profitable exchange. A presumption exists, therefore, that with a given volume of trade the gain from trade is the greater the less specialization there has been after the opening up of trade. T h i s does not contradict established theory in any way; in fact, it is mentioned only because the connection between specialization and gain from trade is ingrained in most minds in too rigid a manner.

Short-run and long-run gain from trade and the requirements of

a comprehensive theory of the gain from trade will be our next

concern. T h e gain from trade is always the difference in satisfaction

between two situations in equilibrium, the one before opening of

trade or after the stoppage of trade and the other when trade is in


full swing. T h e change i n the p r o d u c t i v e structure of the country

b e t w e e n the t w o points is expressed by a m o v e m e n t a l o n g the sub

st i tut ion c u r v e . If, in figure a, w e consider the subst i tut ion l ine D E ,

and suppose tliat trade is suddenly interrupted , the c o u n t r y w o u l d

revert f rom N to D and w o u l d then a i m at p o i n t H . T h e short-run

gain from trade is thus the di f ference in satisfaction b e t w e e n p o i n t

N a n d p o i n t D , whereas the long-run gain from trade—the only gain

w h i c h has h i therto received at tent ion—is smaller, since it is indi

cated by the difference in satisfaction between p o i n t N and p o i n t H .

If there is a s u d d e n w o r s e n i n g of the terms of trade so that the pro

d u c t i v e s tructure c a n n o t be adapted , a s i tuat ion m a y t l ierefore arise

in w h i c h trade, w h i l e still y i e l d i n g a short-run gain, results in a long-

r u n loss. I n this part icu lar case, w h a t is true in general a b o u t the

a b o l i t i o n of protect ion holds for the stoppage of trade: It w o u l d

result in i m m e d i a t e loss, b u t i n u l t i m a t e benefit.

In the static theory of internat ional trade, no account is taken of

the t ime w h i c h is i n v o l v e d in c h a n g i n g the p r o d u c t i v e structure.

T h e subst i tut ion c u r v e is a l o n g - m n c u r v e , i.e., its shape is not

l imited by any finite per iod of t ime, b u t only by the avai lable tech

n i q u e s and factors of p r o d u c t i o n . If w e i n t r o d u c e t ime i n t o o u r

analysis, w e see i m m e d i a t e l y that the shape of the subst i tut ion c u r v e

itself is changed. W e w i l l have two ent ire ly different subst i tut ion

curves a c c o r d i n g as we a l l o w tlie p e r i o d of two years or ten years for

changes in the product ive s tructure to take p lace ." T h i s means that

we have no longer a single gain from trade n o r a s imple subdiv is ion

i n t o short-run a n d long-run gains, b u t a w h o l e array of dated gains

from trade of wl i ich the long-run and the short-run gains are the

t w o e x t r e m e items. B u t all those dated gains w o u l d still relate to a

g i v e n degree of e m p l o y m e n t and of ut i l izat ion of resources in gen

eral. W e o b t a i n a new family of subst i tut ion curves by consider ing

this degree of e m p l o y m e n t as a var iable .

T o compl icate matters further , the gains thus i n d e x e d by length

of adjustment t ime and by degree of e m p l o y m e n t are subject ive i n

two senses: ( i ) because they are related to the comparison of t w o

levels of satisfaction, a n d (2) because o n e of these levels is necessar

ily the result of expectat ions. Because of this fact the gain from

" P r o f e s s o r H a b e r l e r m e m i o n s t h e fact thai the s u b s i i t m i o n curve will be m o r e " b u l g e d " the less the t ime a l lowed for. Cf. H a b e r l e r , op cil.. p . 179,


t r a d e lo se s i t s u n i t y f o r a t h i r d t i m e ; i n d e e d , t h e r e i s n o t o n l y a

d i f f e r e n t g a i n f r o m t r a d e for e v e r y a d j u s t m e n t p e r i o d a n d l e v e l o f

e m p l o y m e n t c o n t e m p l a t e d , b u t f o r e v e r y s i n g l e c a s e t h e r e m a y b e

d i f f e r e n t e x p e c t a t i o n s of g a i n s . F u r t h e r m o r e , t h e s e e x p e c t a t i o n s

r e l a t e , n o t o n l y to t h e r e s o u r c e s w i t h i n a c o u n t r y a n d t o t h e i r m o

b i l i t y , b u t a l s o t o t h e d e g r e e t o w h i c h i t w i l l b e p o s s i b l e to d r a w o n

t h e r e s o u r c e s o f o t h e r c o u n t r i e s b y m e a n s of l o a n s , i m m i g r a t i o n ,

e t c . A c o m p r e h e n s i v e t h e o r y o f t h e g a i n f r o m t r a d e w o u l d t h u s t a k e

a c c o u n t of t h e t i m e e l e m e n t , of t h e l e v e l o f e m p l o y m e n t w i t h i n

t h e c o u n t r y , of a l l t y p e s of i n t e r n a t i o n a l e c o n o m i c a l r e l a t i o n s , a n d

w o u l d b e l a r g e l y b u i l t u p o n a t h e o r y of e x p e c t a t i o n s .

C H A P T E R I I I

The Question of ^'Economic Aggression^^

During World War I

IN THE PRECEDING CHAPTER w e h a v e t r i e d t o s h o w i n d e t a i l

w h y a n d h o w i t is p o s s i b l e t o t u r n f o r e i g n t r a d e i n t o a n i n s t r u m e n t

of p o w e r , of p r e s s u r e , a n d e v e n of c o n q u e s t . T h e N a z i s h a v e d o n e

n o t h i n g b u t e x p l o i t t o t h e f u l l e s t p o s s i b i l i t i e s inherent i n f o r e i g n

t r a d e w i t h i n t h e t r a d i t i o n a l f r a m e w o r k of i n t e r n a t i o n a l e c o n o m i c

r e l a t i o n s . T h i s is t h e g e n e r a l l e s s o n w l i i c h s h o u l d e m e r g e f r o m t h e

e x p e r i e n c e of e c o n o m i c p e n e t r a t i o n of s u c h c o u n t r i e s as H u n g a r y ,

B u l g a r i a , R u m a n i a , a n d o t h e r c o u n t r i e s less s u c c e s s f u l l y p e n e t r a t e d

b y " b l o o d l e s s i n v a s i o n . " W h a t a r e t h e c o n c l u s i o n s w h i c h c a n b e

d r a w n f r o m t h i s e x p e r i e n c e w h e n t h e p r e s e n t w a r w i l l b e w o n b y

t h e U n i t e d N a t i o n s ? S h o u l d w e , b e c a u s e of i t s e v i l p o t e n t i a l i t i e s , t ry

t o l i m i t i n t e r n a t i o n a l i n t e r c o u r s e ? S h o u l d s p e c i a l s a f e g u a r d o r boy

c o t t m e a s u r e s b e e r e c t e d a g a i n s t G e r m a n t r a d e o n c e t h e w a r is o v e r ?

S h o u l d w e b e c o n t e n t w i t h p r o h i b i t i n g c e r t a i n p r a c t i c e s a n d tech

n i c a l d e v i c e s , s u c h a s b i l a t e r a l c l e a r i n g s , d i f f e r e n t i a l e x c h a n g e r a t e s ,

e tc . , w h i c h h a v e b e e n a p r o m i n e n t f e a t u r e o f G e r m a n p o l i c i e s i n t h e

' t h i r t i e s ? O r s h o u l d w e r a t h e r e n d e a v o r t o b u i l d a n e w f r a m e w o r k

of i n t e r n a t i o n a l r e l a t i o n s i n w h i c h th i s u s e of f o r e i g n t r a d e for p u r

p o s e s of n a t i o n a l p o w e r w o u l d e n c o u n t e r m o r e d i f f i cu l t i e s t h a n

h i t h e r t o ? A n d h o w c o u l d t h i s e n d b e a c h i e v e d ?

B e f o r e a t t e m p t i n g t o g i v e a n a n s w e r t o t h e s e m o m e n t o u s q u e s

t i o n s , w e s h a l l try t o g a i n p e r s p e c t i v e b y r e c a l l i n g h o w s i m i l a r p r o b

l e m s w e r e r e c o g n i z e d b u t n o t r e s o l v e d d u r i n g a n d a f t e r W o r l d W a r I .

T h e l i t e r a t u r e o n t h e c o m m e r c i a l a n d e c o n o m i c p o l i c i e s o f N a z i

G e r m a n y b e i n g r a t h e r v o l u m i n o u s , i t is s u r p r i s i n g n o t t o find i n

i t—so f a r a s t h e a u t h o r i s a w a r e — a s i n g l e r e f e r e n c e t o t h e p a r a l l e l

a n d e q u a l l y c o p i o u s l i t e r a t u r e w h i c h w a s p u b l i s h e d b e f o r e a n d d u r

i n g W o r l d "War I . T h e a c c u s a t i o n s v o i c e d a g a i n s t G e r m a n y a t t h a t

t i m e ivere i n t h e i r s u b s t a n c e v e r y s i m i l a r t o t h o s e w e h e a r t o d a y .

[531


T h e i n t e l l e c t u a l l e v e l o f t h e w r i t i n g s o n t h i s s u b i e c t , h o w e v e r , c o m

p a r e s r a t h e r u n f a v o r a b l y w i t h t h e c o n t e m p o r a r y l i t e r a t u r e ; t h i s m a y

b e o n e o f t h e r e a s o n s f o r w h i c h t h e s e b o o k s , l i k e d i s c r e d i t a b l e r e l a

t i v e s , h a v e b e e n p e r m i t t e d t o f a l l i n t o o b l i v i o n . I n a d d i t i o n , t h e

methods b y w h i c h G e r m a n y w a s s a i d t o a c h i e v e h e r e n d o f e c o n o m i c

c o n q u e s t b e f o r e W o r l d W a r I w e r e d i f f e r e n t f r o m t h o s e w h i c h s h e

h a s u s e d m o r e r e c e n t l y .

T h e f o l l o w i n g f e a t u r e s o f G e r m a n t r a d e a t t r a c t e d m o s t a t t e n t i o n i n t h e d a y s b e f o r e t h e F i r s t W o r l d W a r ;

1) T h e r a p i d e x p a n s i o n of G e r m a n e x p o r t s , b o t h a b s o l u t e l y a n d re latively, to o f h e r c o u n t r i e s ;

2) T h e sc ient i f ic m e t h o d s b y w h i c h th i s e x p a n s i o n w a s a c h i e v e d — i n p a r t i c u l a r , t h e s y s t e m a t i c s t u d y of t h e n e e d s a n d h a b i t s o f f o r e i g n cons u m e r s ;

3 ) U n f a i r c o m p e t i t i o n a n d , i n p a r t i c u l a r , t h e d u m p i n g o f s o m e G e r m a n e x p o r t s . C o n t r a r y to th i s , t h e s e l l i n g of p o t a s h a b r o a d a t p r i ce s h i g h e r t h a n t h e h o m e p r i c e ;

4 ) T h e a t t e m p t by G e r m a n y , in c o n n e c t i o n with t h e d u m p i n g , to pre v e n t i n d u s t r i a l i z a t i o n in o t h e r c o u n t r i e s a n d to d e s t r o y c o m p e t i t i v e i n d u s t r i e s w h i c h h a d a l r e a d y b e e n e s t a b l i s h e d ;

5) T h e e x p o r t of G e r m a n c a p i t a l , b u s i n e s s e n t e r p r i s e s , a n d of m a n a g e r i a l a n d sc ient i f ic p e r s o n n e l ;

6) G e r m a n m e t h o d s of financial c o n t r o l o v e r f o r e i g n e n t e r p r i s e s .

T h e first t w o p o i n t s w e r e d i s c u s s e d a s e a r l y a s t h e 1890 's i n E n g

l a n d a n d F r a n c e a n d w e r e m o o t e d i n a n i n t e n s e l y a l a r m i s t l i t e r a t u r e

o f w h i c h E. E . W i l l i a m s ' Made in Germany w a s t h e m o s t c e l e b r a t e d

s p e c i m e n . ' A l t h o u g h t h i s l i t e r a t u r e o f t e n a d o p t s s u c h m i l i t a r y fig

u r e s o f s p e e c h a s " c o n q u e s t " o r " c a p t u r e " o f f o r e i g n m a r k e t s , t h e

d a n g e r a g a i n s t w h i c h i t s e e k s t o m o b i l i z e i s n o t g e n e r a l l y t h e e c o

n o m i c o r p o l i t i c a l d e p e n d e n c e o f t h e c o u n t r i e s e x p o s e d t o t h e G e r

m a n " t r a d e o f f e n s i v e " b u t t h e l a g g i n g o f B r i t i s h o r F r e n c h e x p o r t s

i n t h e s e c o u n t r i e s . F o r e i g n a n d , i n p a r t i c u l a r , e x p o r t t r a d e is v i e w e d

a s a n e n d i n i t s e l f a n d n o t a s a m e a n s t o p o l i t i c a l p e n e t r a t i o n a n d

e c o n o m i c s u b j u g a t i o n . ' '

^ For a detailed description and bibliography of the English writings, see Ross ], S. Hoffmann, Great Britain and the German Trade Rivalry i8y^-i^i^ (Philadelphia, 1953). The French are represented by Marcel Schwob, Le Danger Allemand (Paris, 1898); Georges Blondel, Vessor industricl et commercial du peuple allemand (Paris. 1898); Maurice Lair, L'imperialisme allemand (Paris, 1902).

^It is interesting to note that the same factual background, i.e., the rapid advance of German foreign trade, provided the subject of great anxiety, not only for England


O n l y a t a l a t e r s t a g e w a s G e r m a n y a c c u s e d o£ c o n s c i o u s l y u s i n g

h e r f o r e i g n e c o n o m i c r e l a t i o n s a s a n i n s t r u m e n t o f d o m i n a t i o n . S o

m u c h w a s s t i l l m a d e o f t h e G e r m a n t r a d i n g m e t h o d s , t h e p e r s o n a l

c o n t a c t , t h e t h o r o u g h s t u d y o f c o n s u m e r s ' n e e d s , t h e a b i l i t y o f h e r

r e p r e s e n t a t i v e s a b r o a d t o l e a r n f o r e i g n l a n g u a g e s , e t c . , t h a t o n e

o f t e n w o n d e r s w h e t h e r t h e a u t h o r s ' p u r p o s e s w e r e o n e o f p r a i s e f o r

o r d e n u n c i a t i o n o f G e r m a n y . " B u t t h e e m p h a s i s s h i f t e d f r o m t h e s e

a s p e c t s o f G e r m a n c o m m e r c i a l p o l i c y t o t h e o t h e r p o i n t s {3 t o 6)

e n u m e r a t e d a b o v e . T h e f r e q u e n t d u m p i n g o f G e r m a n g o o d s a b r o a d

w a s n o t s e e n a s a n i n s t a n c e o f d i f f e r e n t i a l p r i c e p o l i c y p r a c t i c e d b y

a d i s c r i m i n a t i n g m o n o p o l y . I t w a s s u p p o s e d t f i a t d u m p i n g s e r \ ' e d a

p o l i c y b e n t u p o n d e s t r o y i n g c o m p e t i t i o n i n t h e f o r e i g n m a r k e t s o

a s t o s e c u r e a m o n o p o l i s t i c p o s i t i o n f o r t h e G e r m a n e x p o r t e r s a n d

t o e n a b l e t h e m l a t e r t o r a i s e t h e i r p r i c e . T h i s c l a i m b e a r s a s t r i k i n g

s i m i l a r i t y t o t h e r e c e n t a c c u s a t i o n s a g a i n s t G e r m a n y a c c o r d i n g t o

w h i c h s h e h a s b o u g h t s u p p l i e s a t a r t i f i c i a l l y h i g h p r i c e s i n o t h e r

c o u n t r i e s i n o r d e r t o s e c u r e t h e r e a m o n o p s o n i s t i c p o s i t i o n a n d t o b e

a b l e l a t e r t o lower t h e p r i c e s — e i t h e r d i r e c t l y o r b y m a n i p u l a t i o n o f

e x c h a n g e r a t e s .

N o d e t a i l e d s t u d y s e e m s t o e x i s t a b o u t t h e q u e s t i o n o f f i o w f a r

G e r m a n d u m p i n g b e f o r e W o r l d W a r I w a s a c t u a t e d b y s o - c a l l e d

" p r e d a t o r y " m o t i v e s . A c c o r d i n g t o P r o f e s s o r V i n e r , w h o , a f t e r t h e

w a r , r e n d e r e d a b a l a n c e d j u d g m e n t o n t h e m a t t e r , G e r m a n d u m p

i n g h a s r e c e i v e d f a r m o r e a t t e n t i o n t h a n i t d e s e r v e s . H e c o n t e n d s

t h a t a l l n a t i o n s h a v e e n g a g e d i n d u m p i n g a t o n e t i m e o r a n o t h e r ,

a n d , i n g e n e r a l , h e l o o k s u p o n t h e a c c u s a t i o n s l e v e l e d a g a i n s t G e r

m a n y o n t h i s a c c o u n t w i t h s o m e s k e p t i c i s m . * H e s t a t e s , h o w e v e r ,

t h a t " t h e r e is g e n e r a l a g r e e m e n t t h a t b e f o r e 1914 e x p o r t d u m p i n g

w a s m o r e w i d e s p r e a d a n d w a s m o r e s y s t e m a t i c a l l y p r a c t i s e d i n G e r

m a n y t h a n i n a n y o t h e r c o u n t r y , " " a n d " i t i s e v e n p r o b a b l e t h a t

p r e d a t o r y m o t i v e s w e r e a m o r e i m p o r t a n t f a c t o r i n G e r m a n d u m p

i n g t h a n i n t h e d u m p i n g o f o t h e r c o u n t r i e s . " I n p a r t i c u l a r , a " w e l l

s u b s t a n t i a t e d a n d i m p o r t a n t i n s t a n c e o f d u m p i n g w i t h a d e l i b e r a t e

.ind France, fearful of German competition, but also for Germany, apprehensive of her increasing dependence on foreign couniries. (See below, pp. 146 ff.)

' See . e.g.. P. P. Gourvitch, How Cermnny Does Business (Mew Vork, 1917). This little book gives some interesting examples of the German trading methods in Russia.

* Jacob Viner, Dumping: A Problem of International Trade (Chicago, 1924), p . 52. "Ibid.p.^i.


i n t e n t of c r u s h i n g t h e d o m e s t i c i n d u s t r y in t h e m a r k e t d u m p e d o n is to b e r e c o r d e d a g a i n s t t h e S t a h l w e r k s v e r b a n d i n i ts e x p o r t p o l i c y w i t h r e s p e c t t o I t a l y . " "

O f c o u r s e , a s s o o n a s o n e i n t e r p r e t s d u m p i n g a s a n a t t e m p t t o s e c u r e a m o n o p o l i s t i c p o s i t i o n in t h e m a r k e t of a f o r e i g n c o u n t r y , t h e s u s p i c i o n of a n " u l t r a - e c o n o m i c " m o t i v e o f d o m i n a t i o n f o l l o w s a l m o s t a u t o m a t i c a l l y .

A n o t h e r f e a t u r e i n G e r m a n e x t e r n a l e c o n o m i c p o l i c i e s w h i c h l e d t o th i s s u s p i c i o n w a s t h e e x p o r t o f G e r m a n e n t e r p r i s e s a n d sc i en t i f i c p e r s o n n e l a n d t h e p e n e t r a t i o n of G e r m a n c a p i t a l i n t o f o r e i g n en te r p r i s e . T h e m o s t v i g o r o u s b o o k o n th i s s u b j e c t w a s p u b l i s h e d i n I t a l y b y G . P r e z i o s i u n d e r t h e i m p r e s s i v e t i t l e , Germany Poised to Con-

quer Italy.'' T h e o ^ v n e r s h i p a n d o p e r a t i o n b y a g r o u p o f G e r m a n b a n k e r s of t h e B a n c a C o m m e r c i a l e I t a l i a n a p r o v i d e d t h e c e n t r a l p o i n t o f t h i s b o o k , w h i c h w a s w i d e l y r e a d a n d a r o u s e d m u c h i n t e r e s t a t t h e t i m e . I t p i c t u r e d w i t h a g o o d d e a l o f e x a g g e r a t i o n , b u t t h e m o r e v i v i d l y , t h e d i s a s t r o u s c o n s e q u e n c e s of t h e c o n t r o l b y G e r m a n y o f I t a l y ' s m o s t i m p o r t a n t c o m m e r c i a l b a n k , w h i c h , o n t h e p a t t e r n of G e r m a n b a n k s , c a r r i e d o n a n e x t e n s i v e financing b u s i n e s s . A c c o r d i n g t o P r e z i o s i , G e r m a n y d i d h e r b e s t t o p r e v e n t t h e i n d u s t r i a l i z a t i o n of I t a l y a n d , w h e r e th i s w a s i m p o s s i b l e , s h e s o u g h t t o o b t a i n b y financial d e v i c e s t h e c o n t r o l o f I t a ly ' s k e y i n d u s t r i e s — t e x t i l e , m e t a l l u r g i c a l , a n d s h i p p i n g . I n a d d i t i o n , t h e B a n c a C o m m e r c i a l e , which h a d " i t s a n n s i n I t a l y b u t i ts h e a d i n B e r l i n ^ f a v o r e d G e r m a n t r a d e b y a l l k i n d s of s t r a t a g e m s a n d i n v e s t e d I t a l i a n s a v i n g s a b r o a d i n e n t e r p r i s e s c o n t r o l l e d b y G e r m a n y . P r e z i o s i a c c u s e s t h e G e r m a n s of i n d u s t r i a l e s p i o n a g e a n d t h e B a n c a C o m m e r c i a l e of s t o p p i n g c r e d i t f a c i l i t i e s t o firms w h i c h s h o w a n a n t i - G e r m a n a t t i t u d e . H e p o i n t s o u t c a s e s of o p e n o r v e i l e d p o l i t i c a l c o r r u p t i o n a n d s u s p e c t s t h e h a n d o f G e r m a n y i n i n d u s t r i a l s t r i k e s , e m p l o y i n g fo r a l l t h e s e a c t i v i t i e s o f t h e B a n c a C o m m e r c i a l e t h e f a m i l i a r t e r m , " t h e T r o j a n H o r s e . "

I n g e n e r a l , P r e z i o s i ha s th i s to s ay a b o u t G e r m a n m e t h o d s :

P a n - G e r m a n i s m acts everywhere a p p l y i n g always the s a m e ra t iona l a n d well s t u d i e d p r o c e d u r e , which consists in the f o u n d a t i o n of one or sev-

^ Ibid., p. 64, Bibliograptiy concerning this case of dumping is given there. ' Giovanni Preziosi, La Germania alia conquista deWltalia (Florence, 1914), intro

duction by Maffeo Pantaleoni, the well-known economist; I am referring to the second, the 1916, edition. ' Ibid., p, 11.


eral banks, in the capture thereby of the credit system, of savings, trade, industry, and the merchant marine, and in the creation oi a dense network of interests and customers—with the result of rendering other nations subservient to Germany."

If Preziosi w r o t e the most sensational b o o k o n the methods of Ger

m a n economic p e n e t r a t i o n before the First W o r l d W a r , the m o s t

deta i led a n d author i ta t ive s tatement on the same subject is that of

the F r e n c h historian H e n r i Hauser. '" H i s book, w r i t t e n i n 1 9 1 5 ,

is w h o l l y dedicated to the proposi t ion that " e c o n o m i c war , conquest

of markets ,—words a p p l i e d to G e r m a n y — a r e n o t at a l l metaphors .

M o r e than ever w e have the fee l ing that G e r m a n y m a d e w a r i n the

midst of peace w i t h the instruments of peace. D u m p i n g , e x p o r t

subsidies, i m p o r t certificates, measures wi th respect to e m i g r a t i o n ,

etc., a l l these various methods w e r e used not as n o r m a l methods of

e c o n o m i c activity, b u t as means to suffocate, to crush, and to ter

rorize G e r m a n y ' s adversar ies .""

H a v i n g descr ibed these methods in detai l wi th special emphasis

on d u m p i n g a n d on the export of capi ta l as pract iced by G e r m a n y ,

he conc ludes: " B y this concentrat ion of all its energies, by this u n i t y

of d irect ion, e c o n o m i c G e r m a n y has b e c o m e a p o w e r at least as

formidable as mi l i tary G e r m a n y a n d of the same order: a p o w e r of

d o m i n a t i o n and of conquest ."" '

It w o u l d b e easy to a d d to these q u o t a t i o n s examples from other

authors."* It is not o u r task here to e x a m i n e h o w m u c h truth there

was in the accusations of Preziosi , H a u s e r , and others, a n d h o w

far the fore ign e c o n o m i c policies of I m p e r i a l G e r m a n y had b e e n

centra l ly a n d systematical ly p l a n n e d in advance w i t h the " u k r a -

" / t / d . , p . 3 5 . ' " H e n r i H a u s e r , Les methodes allemandes d'expansion iconomique (Par i s , 1915),

( E n g l i s h t r a n s l a t i o n , Germany's Commercial Grip on the World [New Yoric, 1917]). " Ihid., 8th ed . (Par i s , 1919), p . 4. " Ibid., p p . 258-259. '* E.g.. M a u r i c e ^ l i I l i o u d , The Ruling Caste and Frenzied Trade in Germany, t rans

l a ted f rom the F r e n c h (Bos ton , 1916); H e n r i L i c h t e n b e r g c r a n d Paul Pet i t , L'im-pirialisme ^conomique allemand (Par i s , 1918); S i eg f r i ed Herzog , The Future of German Industrial Exports ( N e w Vork, i g i S ) ; a l so see helow, p . 60. F o r factua l surveys , cf. V. S. B u i e a u of F o r e i g n a n d D o m e s t i c C o m m e r c e , German Foreign Trade Organimlion ( W a s h i n g t o n , >9i7l, a n d German Trade and the War ( W a s h i n g t o n , 1918). A n interes t ing s tudy in national se l f-cri t ic ism, which tries to e x p l a i n the reasons for w o r l d w i d e su sp ic ion a n d h a t r e d a g a i n s t G e r m a n y in general a n d G e r m a n t r a d e in particHlar, was g iven by the p h i l o s o p h e r . M a x Scheler , Die Vrsachen des Deutschen-hasses (Le ipz ig , 1917).


e c o n o m i c " a i m o f d o m i n a t i o n a n d e v e n t u a l c o n q u e s t . I n t h e m a i n ,

t h e s e w r i t i n g s w e r e t r a c t s w h i c h a d d e d t h e e c o n o m i c a s p e c t to t h e

l i t e r a t u r e o n G e r m a n y ' s d i p l o m a t i c p r e p a r a t i o n s for w a r . T h e y g i v e

o n l y o n e s i d e of t h e p i c t u r e , f o r g e t t i n g t h a t f o r e i g n t r a d e a n d e x p o r t

of c a p i t a l i m p l i e d a l s o a d e p e n d e n c e of G e r m a n y o n o t h e r n a t i o n s ;

i n g e n e r a l t h e y w e r e e n t i r e l y l a c k i n g i n s y s t e m a t i c a n a l y s i s of t h e

c o n n e c t i o n b e t w e e n n a t i o n a l p o w e r a n d i n t e r n a t i o n a l e c o n o m i c

r e l a t i o n s .

T h i s m u c h is c e r t a i n ; T h e p o s s i b i l i t y of i i s i n g e x t e r n a l economic

r e l a t i o n s for p u r p o s e s of p o w e r p o l i c y w a s c l e a r l y r e c o g n i z e d ; w h a t

e v e r i t s o b j e c t i v e f o u n d a t i o n i n e c o n o m i c h i s t o r y o r t h e o r e t i c a l

a n a l y s i s , i t h a d b e c o m e a v e r y s t r o n g s u b j e c t i v e reah' ty . F o r m a n y

p e r s o n s i t t u r n e d i n t o a n o b s e s s i o n , p e o p l e a l w a y s b e i n g p r o n e to

b e l i e v e b o t h t h a t t h e y a r e b e i n g m a n e u v e r e d b y h i d d e n f o r c e s a n d

t h a t t h e w o r s t h a s b e e n p r e v e n t e d j u s t a t t h e l a s t m o m e n t . T h u s ,

B r i a n d , t h e n F r e n c h P r i m e M i n i s t e r , d e c l a r e d a t t h e o p e n i n g of

t h e P a r i s E c o n o m i c C o n f e r e n c e o f t h e A l l i e s i n 1 9 1 6 : " T h e w a r ha s

o p e n e d o u r eyes t o t h e p e r i l ; i t h a s a b u n d a n t l y d e m o n s t r a t e d t h e

e c o n o m i c s l a v e r y i n t o w h i c h t h e e n e m y s o u g h t t o d r a g u s ; w e m u s t

r e c o g n i z e t h a t . . , o u r a d v e r s a r i e s c a m e very n e a r t o s u c c e s s . " " S i m i

l a r l y , M r . H u g h e s , A u s t r a l i a n P r i m e M i n i s t e r , i s s u e d a s t a t e m e n t

a f t e r t h e c o n f e r e n c e i n w h i c h h e s a i d : " S o m e A l l i e s w e r e b e f o r e t h e

W a r s o c o m p l e t e l y e n m e s h e d i n t h e to i l s of G e r m a n y t h a t they h a d

l o s t a l l b u t t h e s h a d o w o f t h e i r n a t i o n a l i t y , a n d e v e n n o w they a r e

o b s e s s e d w i t h t h e f e a r t h a t p e a c e w i l l find t h e m a g a i n in t h e g r i p o f

t h e e n e m y . " " ^ I t w a s i n d e e d a t t h i s v e r y c o n f e r e n c e t h a t t h e a n x i e t i e s

of a p o s s i b l e r e n e w a l of " s i l e n t e c o n o m i c p e n e t r a t i o n " a f t e r t h e w a r

f o u n d a n official e x p r e s s i o n of f a r - r e a c h i n g i m p o r t a n c e . A n x i e t i e s

of th i s s o r t h a d b e e n i n t e n s i f i e d d u r i n g t h e w a r b y G e r m a n p r o j e c t s

fo r M i t t e l e u r o p a a n d b y p e r s i s t e n t r e p o r t s t h a t G e r m a n w a r e h o u s e s

w e r e o v e r f l o w i n g w i t h g o o d s i n t e n d e d for a t r a d e o f f e n s i v e i m m e d i

a t e l y u p o n t h e c e s s a t i o n of h o s t i l i t i e s .

L e i u s n o w i n q u i r e h o w p o l i t i c a l l e a d e r s a n d e c o n o m i s t s r e a c t e d

t o t h e d i s c o v e r y t h a t f o r e i g n e c o n o m i c r e l a t i o n s c o u l d b e , h a d b e e n ,

a n d p r o b a b l y w o u l d a g a i n b e u s e d a s a n i n s t r u m e n t of n a t i o n a l

p o w e r p o l i c y . H o w w a s t h e d a n g e r t o b e a v e r t e d ? I n o t h e r w o r d s ,

" Le Temps, June 15,1916. " Times (London), June a j , igjS.


h o w d i d t h e e x p e r i e n c e a f f e c t t h i n k i n g o n p o s t w a r e c o n o m i c r e c o n

s t r u c t i o n a n d t h u s p o s t w a r e c o n o m i c p o U c y ?

I n t h e m a i n , i t i s p o s s i b l e t o d i s t i n g u i s h t w o s c h o o l s o f t h o u g h t .

T h e w r i t e r s w h o h a d a r o u s e d t h e p u b l i c t o t h e d a n g e r o f " s i l e n t

economic p e n e t r a t i o n " i v e r e a r d e n t a d v o c a t e s o f p r e p a r i n g d e f e n

s i v e o r o f f e n s i v e w e a p o n s f r o m t h e a r s e n a l o f e c o n o m i c n a t i o n a l i s m .

A l i g n e d a g a i n s t t h e m w e r e t h e d e f e n d e r s o f t h e v i r t u e s o f f r e e t r a d e

w h o i g n o r e d o r d e n i e d t h e d a n g e r t o w h i c h t h e i r a d v e r s a r i e s h a d

p o i n t e d .

I t w a s o n l y t o o e a s y t o e x p l o i t t h e p o s s i b i l i t y o f " e c o n o m i c a g g r e s

s i o n " b y s o v e r e i g n n a t i o n s a s a n a r g u m e n t a g a i n s t f r e e c o m m e r c i a l

i n t e r c o u r s e . T h e d e m a n d f o r i n c r e a s e d p r o t e c t i o n s e e m e d t o b e

m u c h m o r e c o m p e l l i n g a n d m u c h les s o r i e n t e d t o w a r d m e r e v e s t e d

i n t e r e s t s i f t h e e v i l p o r t r a y e d b y t h e p r o t e c t i o n i s t w a s e c o n o m i c

a g g r e s s i o n a n d p e n e t r a t i o n r a t h e r t h a n f o r e i g n c o m p e t i t i o n . T h e

n e c e s s i t y o f r e v i s i o n o f a c c e p t e d t h i n k i n g o n f r e e t r a d e a n d p r o t e c

t i o n i n f a v o r o f t h e l a t t e r w a s e m p h a s i z e d b y H a u s e r , w h o d e c l a r e d

t h a t " n o t h e o r y c a n p r e v a i l o v e r t h e f a c t s . " ' " T h e s a m e n o t e WAS

s t r u c k b y B r i a n d i n h i s a l r e a d y - q u o t e d s p e e c h a t t h e P a r i s E c o n o m i c

C o n f e r e n c e : " Y o u w i l l b e l e s s a t t e n t i v e t o t h e t r a d i t i o n a l t h e o r e t i c a l

d o c t r i n e s a n d t o o l d c u s t o m s t h a n t o t h e n e w r e a l i t i e s w h i c h a r e

i n i p o s i n g t h e m s e l v e s u p o n u s . I f i t i s p r o v e d t h a t o l d e r r o r s h a v e

a l m o s t p e r m i t t e d o u r e n e m i e s t o e s t a b l i s h a n i r r e t r i e v a b l e t y r a n n y

o v e r t h e p r o d u c t i v e f o r c e s o f t h e w o r l d , y o u w i l l a b a n d o n t h e s e

e r r o r s a n d e n t e r n e w r o a d s . " A n d t h e L o n d o n Times w a s i n h a p p y

a g r e e m e n t w i t h " t h e t r u t h t h a t t h e e c o n o m i c s i t u a t i o n a r i . s i n g o u t

o f t h e w a r a n d t h e p r o b l e m s a t t e n d i n g i t c a n n o t b e d e a l t w i t h b y

m u t t e r i n g a n y s h i b b o l e t h . " "

T h e u n i v e r s a l e n d o r s e m e n t o f " r e a l i s m , " a s a g a i n s t t h e o r i e s a n d

a b s t r a c t i o n s c o n s i d e r e d a s " s h i b b o l e t h , " i s a n a s p e c t o f w h a t B e n d a

w a s t o d e s c r i b e a f t e r t h e F i r s t W o r l d W a r a s t h e i n t e l l e c t u a l v i c t o r y

o f G e r m a n y . ' * T h i s v i c t o r y w e n t e v e n s o f a r t h a t s o m e o f t h e v e r y

a u t h o r s w h o d e n o u n c e d G e r m a n c o m m e r c i a l m e t h o d s h a d n o t h i n g

b e l t e r t o p r o p o s e t h a n t o u s e t h e s e m e t h o d s o n b e h a l f o f t h e i r o w n

c o u n t r i e s a n d f o r t h e v e r y a i m s f o r w h i c h G e r m a n y h a d u s e d t h e m .

" Hauser. op. cit. p. iv. " Times (I.ondrmV June 23, 1916, editorial. " Julieii Bcnda, La trahison des clercs (Paris, 1927), p. 72.

6o National Power and Foreign Trade

T h u s , P r e z i o s i w a n t e d t o b u i l d u p s t r o n g I t a l i a n i n d u s t r i e s s o t h a t

t h e y m a y " i n t h e i r o w n t i m e p r a c t i c e d u m p i n g , t u r n i n g a g a i n s t the

G e r m a n s t h e i r o w n f a v o r i t e w e a p o n s . " " S i m i l a r l y , h e w i s h e d t o f r e e

t h e B a n c a C o m m e r c i a l e f r o m G e r m a n i n f l u e n c e b e c a u s e " t h e b a n k

i n g s y s t e m h a s to b e o n e of t h e m o s t p o w e r f u l i n s t r u m e n t s w h i c h

t h e s t a t e h a s a t i t s d i s p o s a l i n o r d e r t o d i r e c t i n t e r n a t i o n a l p o l i c y

a c c o r d i n g t o i t s o w n a i m s . " " T h u s , i t is n o t s u r p r i s i n g t o b e i n f o r m e d

b y t h e Enciclopedia Italiana t h a t P r e z i o s i e a r l y j o i n e d t h e F a s c i s t

p a r t y a n d h a d a n i m p o r t a n t p a r t i n t h e e l a b o r a t i o n of i ts e c o n o m i c

p r o g r a m b e f o r e t h e m a r c h o n R o m e .

I n a m o r e b a l a n c e d f a s h i o n , H a u s e r m a d e a d i s t i n c t i o n i n h i s final

c h a p t e r b e t w e e n " w h a t w e s h a l l n o t i m i t a t e f r o m G e r m a n y " a n d

" w h a t w e s h a l l h a v e t o i m i t a t e . " T h i s s h o w s r a t h e r s i g n i f i c a n t l y t h e

w a y i n w h i c h t h e w h o l e p r o b l e m w a s r a i s e d . B u t i n s p i t e o f h i s

m o d e r a t e p o s i t i o n — h e r e j e c t e d t h e m o r e a g g r e s s i v e G e r m a n m e t h

o d s , s u c h a s d u m p i n g , a n d d i d n o t f a v o r a c o m p l e t e b o y c o t t o f

G e r m a n y a f t e r t h e w a r ' s e n d — h e a d v o c a t e d a n " e c o n o m i c o f f e n s i v e "

e v e n a f t e r t h e w a r a s t h e o n l y p o s s i b l e a n s w e r t o G e r m a n m e t h o d s . ^

T h e s e i n s t a n c e s suffice t o s h o w t h e g e n e r a l f e a t u r e s o f a c u r r e n t

o f t h o u g h t w h i c h r e c e i v e d i t s p r a c t i c a l e x p r e s s i o n a n d off icial c o n s e

c r a t i o n a t t h e P a r i s E c o n o m i c C o n f e r e n c e . T h i s w a s , s i g n i f i c a n t l y ,

t h e o n l y A l l i e d c o n f e r e n c e d u r i n g t h e w a r a t w h i c h p r o b l e m s of

p o s t w a r e c o n o m i c r e c o n s t r u c t i o n w e r e u n d e r c o n s i d e r a t i o n . A s h o r t

s u r v e y o f i t s r e s o l u t i o n s a n d i t s i n f l u e n c e u p o n l a t e r e v e n t s s e e m s

t h e r e f o r e t o b e w a r r a n t e d . ^

T h e r e s o l u t i o n s a d o p t e d b y s i x A l l i e d n a t i o n s — E n g l a n d , F r a n c e , I t a l y , R u s s i a , B e l g i u m , J a p a n — f e l l i n t o t h r e e p a r t s : m e a s u r e s fo r t h e w a r p e r i o d ; m e a s u r e s fo r t h e t r a n s i t i o n p e r i o d a f t e r t h e w a r ; a n d p e r m a n e n t m e a s u r e s . T h e a i m o f t h e c o n f e r e n c e i s c l e a r l y s t a t e d i n t h e p r e a m b l e t o t h e r e s o l u t i o n s :

T h e representa t ives of the A l l i e d g o v e r n m e n t s . . . dec l a re that , after forc ing u p o n t h e m the m i l i t a r y contest in sp i te of al l the efforts to a v o i d the conflict, the E m p i r e s of C e n t r a l E u r o p e are today p r e p a r i n g , in concert wi th their a l l ies , for a contest on the e c o n o m i c p l a n e , which will no t

1' Preziosi, op. cit., p. 43. 5" Preziosi, op. cit., p, 58,

Hauser, op. cit., p. ix. ^For a history of the genesis of the conference, see Etienne CliJmentel, La France

et la Politique Economique Interalliee (Paris-New Haven, 1931), pp. 74-78.


onJy survive the reestabljshment of peace, but will at that moment attain its full scope and intensity.

T h e y cannot therefore conceal from themselves that the agreements which are being prepared for this purpose between their enemies have the obvious object of establishing the domination of the latter over the produclion and the markets of the whole world and of imposing on other countries an intolerable yoke.

In the face of so great a peril, the representatives of the All ied governments consider that it has become their duty, on grounds of necessary and legitimate defense, to adopt and realize from now onward all the measures requisite on the one hand to secure for themselves and for the whole of the markets of neutral couniries full economic independence and respect for sound commercial practice and, on the other hand, to facilitate the organization on a permanent basis of their economic alliance.^

I n this p r e a m b l e t!ie spirit w h i c h d o m i n a t e d the conference be

comes c lear . T h e e c o n o m i c sovere ignty , e v e n of the defeated e n e m y ,

is not quest ioned, and it is supposed that e c o n o m i c war wi l l c o n t i n u e

after the e n d of mil i tary war , U n d e r this assumption the m a i n pre

occupat ion of the Al l ies b e c a m e " e c o n o m i c defense ," w h i c h is very

often indist inguishable from e c o n o m i c warfaie.'^

W e are interested here i n the resolutions of the conference only

so far as they deal w i t h the transit ion p e r i o d o r wi th the p e r m a n e n t

arrangements after the war. T h e s e sections, r e p r o d u c e d in A p p e n

d i x B, should be read in their entirety. I n d e e d , they m a k e famil iar

reading.

O n e after a n o t h e r ^ve find e n u m e r a t e d all the f u n d a m e n t a l poli

cies of refined e c o n o m i c nat ional ism w i t h w h i c h w e have b e c o m e

so ivell a c q u a i n t e d in the per iod b e t w e e n the t w o wars—restricted

access to raw materials a n d resources, preferent ia l treatments a n d

discr iminat ions, restrictions on the activit ies of aliens, a n t i d u m p i n g

legislation, differential transport rates, autarky, not only w i t h re

spect to key industries, b u t on a practical ly universal scale by means

' ^ Q u o t e d f rom H . W. V. T e m p c r l e y , A History of the Peace Conference of Paris, Vol, V { L o n d o n , 1921), p . 3G7.

»• Le Teji\f)s h a d a s o m e w h a t Iv ikcwa im a t t i t u d e t o w a r d t h e conference a n d s h o w e d the a b s u r d i t y of this pos i t ion even f rom a n a t i o n a l i s t i c po int of view, " W e think that the m a i n e c o n o m i c task of the C o n f e r e n c e is not to e l a b o r a t e this m o d e s t r^ply to a pro jec t which is a s s u m e d to be a l r eady rea l ized , b u t on the contrary by all m e a n s to prevent the rea l i za t ion of this pro jec t a n d Ihe f o r m a t i o n of this M i t t e l e u r o p a , a l t h o u g h s o m e per sons a p j i a r e n t l v w o u l d l ike to confine themse lves l o p r e p a r i n g a sh ie ld a g a i n s t its b lows . "—/.e Temps, Jime 15, 191C.


o f s u b s i d i e s , tar i f fs , p r o h i b i t i o n s , e tc . E v e n a c u r s o r y v i e w of t h i s

a m a z i n g P a n d o r a ' s b o x r a i s e s d o u b t s w h e t h e r t h e s e m e a s u r e s w e r e

d e v i s e d for d e f e n s e o n l y .

T h e P a r i s R e s o l u t i o n s w e r e t o b e c o n s i d e r e d a s a b a s i c p r o g r a m .

E a c h of t h e A l l i e s p r o m i s e d t o w o r k o u t i ts o w n p r o g r a m i n t e r m s of

n a t i o n a l p o l i c i e s . E a c h , f u r t h e r m o r e , w a s t o b e i n f o r m e d o f the p r o

g r a m d e c i s i o n s o f t h e o t h e r . T h e a g r e e m e n t h a d n o t b e e n r e a c h e d

ea s i ly . T h e F r e n c h a n d E n g l i s h d e l e g a t i o n s m e t w i t h s o m e res i s t

a n c e f r o m the R u s s i a n a n d I t a h a n d e l e g a t i o n s . B e f o r e t h e w a r t h e

t w o l a t t e r c o u n t r i e s h a d r e l i e d h e a v i l y o n t h e G e r m a n m a r k e t a n d

v i e w e d w i t h s o m e a p p r e h e n s i o n t h e p o s s i b i l i t i e s of G e r m a n re

p r i s a l s . T h e R u s s i a n d e l e g a t e s o p p o s e d t h e p e r i o d o f five y e a r s

w h i c h h a d b e e n p r o p o s e d b y t h e E n g l i s h d e l e g a t i o n a s t h e m i n i m u m

p e r i o d d u r i n g w h i c h G e r m a n y w a s t o b e e x c l u d e d f r o m m o s t -

f a v o r e d - n a t i o n t r e a t m e n t ; R u s s i a o b t a i n e d t h e m u c h v a g u e r w o r d

i n g " f o r a n u m b e r o f y e a r s t o b e fixed by m u t u a l a g r e e m e n t . " ^

T h e R u s s i a n g o v e r n m e n t , h o w e v e r , w a s m a i n l y f e a r f u l les t t o o

i n t i m a t e a n u n d e r s t a n d i n g w i t h t h e A l l i e s o n p o s t w a r e c o n o m i c

p o l i c y m i g h t , b y t h e e s t a b l i s h m e n t o f c o n v e n t i o n a l tar i f fs , r e s t r i c t

R u s s i a ' s c o n t e m p l a t e d fu l l u s e o f e c o n o m i c s o v e r e i g n t y . T h i s is evi

d e n t f r o m the g o v e r n m e n t a l i n s t r u c t i o n t o t h e d e l e g a t e s , w h i c h

u n d e r l i n e d " t h e n e c e s s i t y o f a t h o r o u g h - g o i n g , u n h i n d e r e d d e v e l o p

m e n t o f o u r p r o d u c t i v e f o r c e s a n d o r g a n i z a t i o n o n a s l a r g e a s c a l e

a s w i l l b e p r a c t i c a b l e of o u r v a s t n a t u r a l r e s o u r c e s . . . . I n o r d e r t o

a v o i d t h e e n s l a v e m e n t o f o u r i n d u s t r y b y f o r e i g n e n t e r p r i s e s a n d

t o m a k e it a b s o l u t e l y i n d e p e n d e n t w e m u s t , a s a j u s t m e a s u r e , c r e a t e

a u t o n o m o u s tar i f fs , w h e r e t h e tarif f o n g o o d s is n o t fixed b y a g r e e

m e n t w i t h i n d i v i d u a l c o u n t r i e s b u t is e s t a b l i s h e d b y l e g i s l a t i v e

c h a m b e r s in a c c o r d a n c e w i t h t h e n e e d s o f t h e c o u n t r y , l e a v i n g u s

c o m p l e t e f r e e d o m t o a l t e r t h e tar i f f s in o r d e r t o p r o t e c t w h a t e v e r

b r a n c h of n a t i o n a l i n d u s t r y m a y n e e d i t . " " A s w e see , s u c h o p p o

s i t i o n a s e x i s t e d w i t h i n t h e c o n f e r e n c e a g a i n s t t h e A n g l o - F r e n c h

p r o p o s a l s w a s m o t i v a t e d b y t h e f e a r t h a t t h e p r o s p e c t e d p o l i c y d i d

n o t g o f a r enough i n t h e d i r e c t i o n of e c o n o m i c n a t i o n a l i s m . W h a t

R u s s i a r ea l ly o b j e c t e d to w a s n o t d i s c r i m i n a t i o n a g a i n s t G e r m a n y

^ Baron Boris E. Noide, Russia in the Economic War (New Haven. 1928), pp. 167-168.

* Quoted in Nolde, op. cit., p. 163.


a s m u c h a s it w a s p o s t w a r e c o n o m i c c o l l a b o r a t i o n b e t w e e n G e r m a n y

a n d R u s s i a ' s w a r t i m e A l l i e s .

A l t h o u g h l e s s e v i d e n t o n t h e s u r f a c e , a s i m i l a r t e n d e n c y w a s

n o t i c e a b l e i n G r e a t B r i t a i n , w h e r e t h e e m p h a s i s s h i f t e d s l o w l y f r o m

A l l i e d e c o n o m i c s o l i d a r i t y a g a i n s t t h e e n e m y t o B r i t i s h p r o t e c t i o n

a g a i n s t t h e f o r e i g n e r a n d t o t h e p r o b l e m of i m p e r i a l s u p p l y . "

O n e o f t h e d r i v i n g s p i r i t s b e h i n d t h e B r i t i s h d e l e g a t i o n w a s , in

d e e d , W . A . S . H e w i n s , a p r o m i n e n t t a r i f f r e f o r m e r a n d i m p e r i a l i s t . *

S e e i n g i n t h e P a r i s R e s o l u t i o n s a p o w e r f u l l e v e r f o r e v e n t u a l l y

a c h i e v i n g t a r i f f p r o t e c t i o n a n d i m p e r i a l p r e f e r e n c e , h e a t t r i b u t e d

t o t h e m a n e n o r m o u s a n d b e n e f i c i a l i m p o r t a n c e ; t h i s , i n s p i t e o f t h e

h a r m f u l e f f e c t s f e l t f r o m t h e m i n t h e m i d s t o f t h e w a r .

T h e r e s o l u t i o n s , i n d e e d , l e n t s u b s t a n c e t o t h e G e r m a n c l a i m t h a t

E n g l a n d l i a d e n g i n e e r e d a n d e n t e r e d t h e w a r o u t o f j e a l o u s y f o r

G e r m a n t r a d e ; ^ a n d L l o y d G e o r g e h i m s e l f p o i n t e d o u t l a t e r t o

H e w i n s t h a t i h e y h a d p r o l o n g e d t h e w a r b y d r a w i n g t h e G e r m a n

p e o p l e c l o s e r t o g e t h e r , i m p r e s s e d b y t h e f e a r o f e c o n o m i c s t r a n g u

l a t i o n a f t e r t h e w a r , ° " A g a i n , t h e r e s o l u t i o n s c a u s e d s t r o n g m i s g i v

i n g s i n n e u t r a l c o u n t r i e s a n d , i n p a r t i c u l a r , m o m e n t a r i l y e s t r a n g e d

t h e U n i t e d S t a t e s . T h u s w e r e a d i n B a k e r ' s Woodrow Wilson, Life

and Letters:

W h e n c o n f i d e n t i a l t e l e g r a m s b r o u g h t r e p o r t s o f t h e a g r e e m e n t s b e i n g n e g o t i a t e d at t h e P a r i s E c o n o m i c C o n f e r e n c e , J u n e 14th to f u n e 1 7 t h ,

t h e S t a t e D e p a r t m e n t b e c a m e e x c e e d i n g l y a p p r e h e n s i v e . T h e m o r e L a n s i n g t h o u g h t a b o u t t h e m a t t e r , t h e m o r e p o s i t i v e h e w a s t h a t the A l l i e s w e r e d e l i b e r a t e l y m a k i n g e n c r o a c h m e n t s u p o n i h e r i g h t s of neut ra l s u n d e r t h e g u i s e o f m e a s u r e s a g a i n s t G e r m a n y . H e w a r n e d t h e Pres i d e n t J u n e 23 tha t t h e r e s u h s o f the P a r i s p a c t s m i g h t b e " v e r y f a r - r e a c h i n g o n t h e c o m m e r c e a n d t r a d e of t h e w h o l e w o r l d a f t e r the w a r is o v e r . " " T h e d r a s t i c m e a s u r e s of the A l l i e s p u r p o s e t o p r e v e n t a s far as p o s s i b l e the r e b u i l d i n g of indi i scr ic s a n d c o m m e r c e (of the C e n t r a l P o w e r s ) a f ter the war... d i e k n o w l e d g e of this i n t e n t i o n to c o n t i n u e t h e w a r i n d u s t r i a l ly . . . wi l l c a u s e t h e C e n t r a l P o w e r s to h e s i t a t e in t a k i n g s t e p s t o w a r d a r e s t o r a t i o n of p e a c e . . . . I n v i e w of these p o s s i b i l i t i e s w o u l d it n o t b e

^ W, K. Hancock, Survey of British Commonwealth Affairs, Vol. II, Part I (London, 1940), p. 96.

" Hancock, op. cit., p. 138: W. A, S. Hewins, The Apologia of an Imperialist (mostly in diary form), Vol- II fLotidon, ifiaQ). passim.

•".Alfred Marshall, "National Taxation after the War." in After-Wnr Problems, ed. by W. W. Dawson (London, 1917), p. 344,

" Hewins, op. cit.. p. 133-133.


w e l l to c o n s i d e r the a d v i s a b i l i t y o f h o l d i n g a C o n g r e s s of N e u t r a l s to . . . d e t e r m i n e u p o n w a y s a n d m e a n s t o r e l i e v e t h e p r e s e n t s i t u a t i o n a n d to p r o v i d e for the f u t u r e - . . t h e b e s t w a y to f ight c o m b i n a t i o n is comb i n a t i o n " ?

T h e s a m e fear s c r o p p e d o u t in a S e n a t e r e s o l u t i o n . . . i n q u i r i n g o f the P r e s i d e n t w h a t w a s t h e " c h a r a c t e r , f o r m a n d ful l p u r p o s e o f th i s n e w a c t i o n b y t h e A l l i e s . " "

T h e P a r i s R e s o l u t i o n s w e r e s u b m i t t e d i n E n g l a n d i n J u l y , 1916,

" f o r s p e c i a l r e f e r e n c e " t o a n e w l y a p p o i n t e d " C o m m i t t e e o n C o m

m e r c i a l a n d I n d u s t r i a l P o l i c y A f t e r t h e W a r . " T h e c h a i r m a n o f t h i s

c o m m i t t e e w a s L o r d B a l f o u r o f B u r l e i g h , a n d M r , H e w i n s w a s o n e

of i t s m e m b e r s . T h e c o m m i t t e e ' s f i n a l r e p o r t i s d a t e d D e c e m b e r 3 ,

1917, i . e . , e i g h t m o n t h s a f t e r t h e e n t r y o f t h e U n i t e d S t a t e s i n t o t h e

w a r . A t t h a t t i m e t h e w o r l d - w i d e e x t e n s i o n o f t h e E n t e n t e , t o g e t h e r

w i t h t h e letter o f t h e P a r i s R e s o l u t i o n s w h i c h , a f t e r a l l , h a d f o r e s e e n

a p o s t w a r e c o n o m i c a l l i a n c e b e t w e e n t h e E n t e n t e c o u n t r i e s , c o u l d

h a v e l e d t o t h e p l a n n i n g o f a s t r o n g n u c l e u s f o r f u t u r e i n t e r n a t i o n a l

e c o n o m i c c o l l a b o r a t i o n . B u t i t w a s t h e n a t i o n a l i s t i c a n d r e s t r i c -

t i o n i s t spirit o f t h e P a r i s C o n f e r e n c e w h i c h p r e v a i l e d . I n s p i t e o f a

n u m b e r o f q u a l i f i c a t i o n s t h e e m p h a s i s o f t h e B a l f o u r C o m m i t t e e ' s

r e p o r t i s o n i m p e r i a l p r e f e r e n c e , p o s t w a r r e s t r i c t i o n s o f t r a d e w i t h

f o r m e r e n e m y c o u n t r i e s , p r o t e c t i o n o f e s s e n t i a l i n d u s t r i e s , p r o t e c

t i o n a g a i n s t d u m p i n g a n d " s i v e a t e d goods," c o n t r o l of e c o n o m i c

a c t i v i t i e s e x e r c i s e d b y a l i e n s , a n d , finally, t h e r e j e c t i o n o f t h e d e c i

m a l s y s t e m i n w e i g h t s , m e a s u r e s , a n d c o i n a g e !

O n l y t h r e e m o n t h s e a r l i e r . P r e s i d e n t W i l s o n h a d a l r e a d y f o r e s h a d o w e d h i s o w n p r o g r a m o f p o s t w a r e c o n o m i c r e c o n s t r u c t i o n i n t h e A m e r i c a n r e p l y t o t h e P o p e ' s o f f e r o f m e d i a t i o n : R e s p o n s i b l e s t a t e s m e n m u s t n o w e v e r y w h e r e see , if they n e v e r s a w b e f o r e , tha t n o p e a c e can rest s ecure ly u p o n p o l i t i c a l o r e c o n o m i c restr ict i o n s m e a n t t o benef i t s o m e n a t i o n s a n d c r i p p l e o r e m b a r r a s s o ther s , u p o n v i n d i c t i v e a c t i o n of a n y sort , o r a n y k i n d of r e v e n g e o r d e l i b e r a t e i n j u r y . . . . P u n i t i v e d a m a g e s , t h e d i s m e m b e r m e n t o f e m p i r e s , the e s tabl i s h m e n t o f sel f ish a n d e x c l u s i v e e c o n o m i c l e a g u e s w e d e e m i n e x p e d i e n t a n d , in the e n d , w o r s e t h a n fut i l e , n o p r o p e r b a s i s for a p e a c e of a n y k i n d , leas t of a l l for a n e n d u r i n g p e a c e . ^

" Ray Scaniiard Baker, Woodiaw Wilson, Life and Letters, Vol. VI (New York, 1957), pp. 229-230.

'^New York Times, August 39, 1917. In ihe original draft of his reply, the President had used the word "childish" instead of "inexpedient." In deference to Allied senti-


I n a d d i t i o n to his p o s i t i o n o n g r o u n d s o f p r i n c i p l e , W i l s o n r e p e a t

e d l y p o i n t e d o u t h o w i m p o l i t i c i t w a s t o m e n a c e G e r m a n y w i t i t

p u n i t i v e m e a s u r e s aga inst h e r t r a d e a f t e r t h e ivar, s i n c e s u c h t l ireats

w o u l d i n e v i t a b l y stiffen t h e G e r m a n s p i r i t of r e s i s t a n c e . "

T h u s , a c l e a r - c u t o p p o s i t i o n is o b v i o u s b e t w e e n t h e s p i r i t o f the

P a r i s R e s o l u t i o n s a n d the B a l f o u r C o m m i t t e e ' s r e p o r t , o n t h e o n e

h a n d , a n d the p o l i c y of t h e A m e r i c a n P r e s i d e n t , o n the other.** T h i s

o p p o s i t i o n r e m a i n e d u n r e s o l v e d a n d w a s b r o u g h t i n t o the o p e n

o n e y e a r l a t e r a t V e r s a i l l e s .

T h e k e r n e l o f t h e e c o n o m i c r e c o n s t r u c t i o n a f t e r t h e F i r s t W o r l d

W a r s h o u l d h a v e b e e n the t h i r d of W i l s o n ' s F o u r t e e n P o i n t s , tvhich

c a l l e d f o r " t h e r e m o v a l , so f a r as poss ib le , of a l l e c o n o m i c b a r r i e r s

a n d t h e e s t a b l i s h m e n t of a n e q u a l i t y of t r a d e c o n d i t i o n s a m o n g a l l

t h e n a t i o n s c o n s e n t i n g to the p e a c e , a n d a s s o c i a t i n g t h e m s e l v e s for

its m a i n t e n a n c e . " B u t t w o m o n t h s b e f o r e the A r m i s t i c e , C l e m e n t e t ,

the F r e n c h w a r t i m e M i n i s t e r of C o m m e r c e , w h o i n 1 9 1 5 h a d in i t i

a t e d t h e P a r i s E c o n o m i c C o n f e r e n c e , a d d r e s s e d a d e t a i l e d l e t t e r

to C l e m e n c e a u a n d W i l s o n o u t l i n i n g t h e F r e n c h p r o g r a m o f post

w a r e c o n o m i c organization.'^^ T h i s p r o g r a m w a s d i r e c t l y i n s p i r e d

b y the P a r i s R e s o l u t i o n s , b e i n g a n a r d e n t p lea for c lose p o s t w a r

e c o n o m i c c o l l a b o r a t i o n a m o n g t h e A l l i e s a n d for d i s c r i m i n a t i n g

m e a s u r e s a n d s a f e g u a r d s a g a i n s t G e r m a n y ,

A c t u a l l y , A l l y n A . Y o u n g , w i t h his firsthand k n o w l e d g e as the

E c o n o m i c . \ d v i s e r to t h e .Vmer ican P e a c e C o m m i s s i o n , w a s l a t e r

to d e s c r i b e the t h i r d o f W i l s o n ' s F o u r t e e n P o i n t s a n d t h e P a r i s

R e s o l u t i o n s as t h e t w o c o n f l i c t i n g f o u n t a i n h e a d s o f the e c o n o m i c

m e i i t a n d upt>n t h e a d v i c e of C o l o n e l H o u s e , he suhsTituied t h e l a t t e r t e r m . Cf. C h a r l e s S e y m o u r , The lulimate Papers of Colonel House, V o l . I l l ( N e w Y o r k , 1928) p . 164.

*^ Cf., e.g. , B a k e r , op. cit.. Vol. Vll. p p . 3 1 1 - 3 4 2 -

" A m e r i c a n o p i n i o n a n d p o l i c y , h o w e v e r , w a s not f r e e f r o m t h e i n f l u e n c e s w h i c h h a d s h a p e d t h e P a r i s R e s o l u t i o n s . A p u b l i c a t i o n o f t l ie B u r e a u of F o r e i g n a n d D o m e s tic C o n n n c r c c o n Cerrufiii Trade and lite War { W a s h i n g t o n , 1918) q u o t e s a p p r o v i n g l y in its c o n c l u s i o n a s p e e c h b y a n I t a l i a n i n d t i s t r i a l i s t , f i o m w h i c h we e x t r a c t t h e fo l lowi n g c h a r a c i e r i s i i c pas5 . ige : "The Ccrnun p e o p l e , f e e l i n g t h e b i t t e r l e s s o n of tho i r d e f e a t , will r e n o u n c e , l e t u s h o p e , for a l o n g t i m e , t h e i r m a d i d e a s o f r e c o n q u c s t o r of r e v e n g e , b u t it wi l l b e n e c e s s a r y in e v e r y w a y for u s t o m a k e h a s t e in defense a g a i n s t the i r m e t h o d s of e c o n o m i c i n v a s i o n . " — O p . cit., p. [-,3. Cf . a l s o t h e i n t r o d u c t i o n , by

H e r b e r t H o o v e r , V e r n o n K e l l o g g , a n d F i c d c i i c k C . W a l c o t t , in t h e b o o k by S i e g f r i e d H e r z o g {|iJoicd a b o v e . T h e m o s t v i o l e n t b o o k on t h e G e r m a n e c o n o m i c m e n a c e k n o w n l o t h e p r e s e n t w r i t e r w a s w r i t t e n after the end of the war by a n A m e r i c a n j o u r n a l i s t , •Stanley F r o s t , u n d e r t h e t i t l e , Germany's New War Against America ( N e u ' Y o r k . tgig).

" C l e m e n l e l . op. cil., p p . 5 3 7 - 3 1 8 .


s e c t i o n s of t h e t r e a t y . " T h e r e a l n a t u r e o f t h e c o m p r o m i s e is , h o w

ever , v i s i b l e in a r t i c l e s 264 a n d 265, w h i c h i m p o s e m o s t - f a v o r e d -

n a t i o n t r e a t m e n t u p o n G e r m a n y w i t h o u t s t i p u l a t i n g a n y t h i n g w i t h

r e s p e c t t o t h e c o m m e r c i a l p o l i c y o f t h e A l l i e s , A c c o r d i n g t o t h e

P a r i s R e s o l u t i o n s , t h e A l l i e s s h o u l d h a v e r e f u s e d m o s t - f a v o r e d -

n a t i o n t r e a t m e n t t o G e r m a n y " f o r a n u m b e r o f y e a r s , " w h e r e a s ,

a c c o r d i n g t o W i l s o n ' s T h i r d P o i n t , they s h o u l d o b v i o u s l y h a v e

g r a n t e d h e r " e q u a l i t y o f t r a d i n g c o n d i t i o n s . " T h e s i l e n c e c o n c e r n

i n g t h e c o m m e r c i a l p o l i c y o f t h e A l l i e s m e a n t t h a t t h e r e w a s n o

o p e n c o n t r a d i c t i o n b e t w e e n the t r e a t y a n d W i l s o n ' s T h i r d P o i n t ,

b u t t h a t i n p r a c t i c e t h e d o o r w a s o p e n f o r t h e a p p l i c a t i o n o f t h e

P a r i s R e s o l u t i o n s . I t w a s a l s o i n t h e s p i r i t o f t h e P a r i s C o n f e r e n c e

to act a s if t h e p o l i t i c a l i n d e p e n d e n c e of t h e r e s t o r e d o r n e w l y cre

a t e d n a t i o n s c o u l d b e n o t h i n g b u t a " s h a m i n d e p e n d e n c e " u n l e s s

s u p p l e m e n t e d b y fu l l " e c o n o m i c i n d e p e n d e n c e , " w h i c h n o t o n l y

m e a n t fu l l e c o n o m i c s o v e r e i g n t y b u t e v e n i m p l i e d ef forts t o b e self-

suf f ic ient w i t h r e g a r d t o a l l e s s e n t i a l e c o n o m i c a c t i v i t i e s .

T h e s y s t e m p r o p o s e d b y W i l s o n w a s b a s e d u p o n t h e r e l a t i v e l y

l i b e r a l p o l i c i e s — r e d u c i n g t r a d e b a r r i e r s a n d s u p p o r t i n g n o n d i s c r i m -

i n a t i o n — t o b e c o n d u c t e d i n d e p e n d e n t l y b y t h e v a r i o u s n a t i o n s re

t a i n i n g , in a l l o t h e r r e s p e c t s , t h e i r fu l l e c o n o m i c s o v e r e i g n t y . B u t

t h e P a r i s R e s o l u t i o n s h a d o u t l i n e d a r e s t r i c t i o n i s t a n d d i s c r i m i n a t

i n g p o l i c y w h i c h w a s to b e i m p l e m e n t e d b y a n e n d u r i n g a s s o c i a t i o n

o f t h e A l l i e d p o w e r s e v e n a f t e r t h e w a r . B e t w e e n t h e s e t w o p o l e s ,

t h e e c o n o m i c g r o u n d w o r k l a i d a t V e r s a i l l e s a n d t h e c o m m e r c i a l a n d

e c o n o m i c p o l i c i e s w o r k e d o u t d u r i n g t h e p r e - 1 9 3 9 p e a c e y e a r s , a

c o m p r o m i s e o f t h e w o r s t k i n d w a s e v o l v e d , c o m b i n i n g a s i t d i d t h e

p r i n c i p l e o f fu l l economic s o v e r e i g n t y a n d t h e p r a c t i c e s o f res t r ic

t i o n a n d d i s c r i m i n a t i o n .

W i t h t h a t r e f i n e d i n s t i n c t w h i c h c a n o n l y b e c r e a t e d by p a s s i o n a t e

p a r t i s a n s h i p , H e w i n s d e t e c t e d t h e i n t r i n s i c w e a k n e s s of t h e W i l -

s o n i a n p o s i t i o n a s e a r l y a s 1 9 1 7 . C o m m e n t i n g o n W i l s o n ' s r e p l y t o

t h e P o p e ' s o f fe r o f m e d i a t i o n , H e w i n s a s s e r t e d w h a t w a s t o b e c o m e

^ Allyn A. Young, "The Economic Settlement," in What Really Happened at Paris, ed- by Colonel E. M. House (New York, 1921), pp- 309-317; cf. also the same author on "Commercial Policy in German, Austrian, Hungarian and Bulgarian Treaties," in <4 History of the Peace Conferer^ce of Paris, ed. by H. W. V. Temperley, Vol. V (London, igsi), p. 65, and Bernard M. Baruch, The Making of the Reparation and the Economic Sections of the Treaty (New York, 1930), p. 82.


the standard a r g u m e n t against A m e r i c a n c o m m e r c i a l pol icy: " I n

effect W i l s o n invites the Powers to adopt a policy of internat ional

free trade to protect the isolation of the U. S. A . " " Since that t ime

m u c h has been said a b o u t the fai lure of the U n i t e d States after 1 9 1 8

to adjust the structure of its foreign trade to its new posit ion as a

creditor nat ion. A n d it is certainly true that the U n i t e d States, con

st i tut ing an i m m e n s e a n d highly protected e c o n o m i c e m p i r e , was in

an u n f a v o r a b l e posit ion to c o m b a t " t h e establ ishment of selftsh

and exclusive e c o n o m i c leagues." W i l s o n himself, w h e n pressed to

c o m m e n t o n the t h i r d of his F o u r t e e n Points , interpreted it in a

l imited sense by saying that he insisted only u p o n the pol icy of non

discr iminat ion. H e dec l ined to m a k e any reference w h a t e v e r to the

" r e m o v a l , as far as possible, of a l l e c o n o m i c barriers ."^

T h e unwi l l ingness of the U n i t e d States to m a k e a c o n t r i b u t i o n

to the rehabi l i ta t ion of internat ional e c o n o m i c relat ions by tariff

reduct ions or, at least, by an a g r e e m e n t to stabil ize ex is t ing tariffs,

however , can be considered as only o n e reason for the U t o p i a n flavor

and the eventual defeat of W i l s o n ' s pol icy. A n even m o r e i m p o r t a n t

factor c o n t r i b u t i n g to the weakness of the A m e r i c a n — o r ratlier, W i l -

sonian—posit ion has been pointed o u t more recently . T h i s was the

p r e m a t u r e b r e a k i n g u p of the agencies of A l l i e d e c o n o m i c col labo

rat ion w h i c h had b e e n created for w a r purposes b u t w h i c h c o u l d

have b e e n t u r n e d to the tasks of relief and reconstruction.™

A t h i r d e l e m e n t w h i c h made for the victory of e c o n o m i c national

ism in the per iod between the t w o wars was an insufficient apprecia

tion of the very earnest motives w h i c h had led to the adopt ion of the

Paris Resolut ions . I n descr ib ing these motives in detai l , w e have

seen how events before 1914, h o w G e r m a n p l a n s for M i t t e l e u r o p a

d u r i n g t h e war , a n d h o w a b o d y of wri t ings on these subjects h a d

i m b u e d p u b l i c and statesmen al ike wi th the fear that external eco

n o m i c relations m i g h t be used as instruments of p o w e r policy. N o t

only G e r m a n y , w h i c h had gone t h r o u g h the e x p e r i e n c e of A l l i e d

" H c n i n s . op. cit.. Vo?. I I , p . 165. B a k e r , op. ctt.. Vol . V I I I , p p . 503-504, 524-525. Cf., a l so , S e y m o u r , op. cit., V o ' . IV,

PP- 193-194-

Cf- J . B . Condl i f fe , Agenda for a Posl-War World (New Y o r k . 1942), p p . 58 f-. a n d E. H, Carr , Conditions of Peace ( N e w York , 1942'), p p . 249 f. F o r d e t a i l e d reference, see Hc-nrv B. B r o d i e a n d Kar l \V. K a p p , " T h e B r e a k d o w n of Iiiter-.AUied E c o n o m i c C o l l a b o r a t i o n in 1919," in N a t i o n a l P l a n n i n g .Association. United Stales' Coiiperation with British Nations, P l a n n i n g P a m p h l e t s , N o . 6 ( A u g u s t , 1941).


e c o n o m i c b l o c k a d e , b u t a l l n a t i o n s h a d b e c o m e c o n s c i o u s a n d a f r a i d

o f t h e p o s s i b i h t i e s o f e c o n o m i c d o m i n a t i o n . T h i s c o n s c i o u s n e s s a n d

t h i s f e a r — c a r e f u l l y n o u r i s h e d a n d e x p l o i t e d b y a h o s t o f s e c t i o n a l

i n t e r e s t s — w e r e t o d e t e n n i n e t h e i r e x t e r n a l e c o n o m i c p o l i c y j u s t a s

t h e i r i n t e r n a l p o l i c y w a s v i t a l l y a f f e c t e d b y t h e R u s s i a n R e v o l u t i o n ,

w h i c h h a d r e n d e r e d t h e m i d d l e c l a s s e s t h e w o r l d o v e r c o n s c i o u s a n d

f e a r f u l o f s o c i a l r e v o l u t i o n .

A c o n s i d e r a b l e a m o u n t o f o p p o s i t i o n t o t h e P a r i s R e s o l u t i o n s w a s

e v i d e n t i n a l l t h e A l l i e d c o u n t r i e s , p a r t i c u l a r l y i n E n g l a n d a n d t h e

U n i t e d S t a t e s ; b u t t h i s o p p o s i t i o n , a l t h o u g h f u l l y a w a r e o f t h e d a n

g e r o u s e c o n o m i c a n d p o l i t i c a l c o n s e q u e n c e s i n v o l v e d , g e n e r a l l y

i g n o r e d o r d e n i e d t h e p r o b l e m w h i c h t h e P a r i s R e s o l u t i o n s h a d a t

l e a s t a t t e m p t e d t o s o l v e . L e t u s s u m m a r i z e b r i e f l y t h i s s e c t i o n o f

o p i n i o n , w h i c h f o r m e d t h e i d e o l o g i c a l b a c k g r o u n d o f P r e s i d e n t

W i l s o n ' s p o s i t i o n .

T h e P a r i s R e s o l u t i o n s w e r e g e n e r a l l y i n t e r p r e t e d b y t h e i r o p p o

n e n t s a s a w a r t i m e o f f e n s i v e o f t h e p r o t e c t i o n i s t s ; c r i t i c a l a p p r a i s a l

w a s o f t e n r e s t r i c t e d t o a m e r e r e s t a t e m e n t o f t h e m e r i t s o f f r e e t r a d e ,

o f t h e m o s t - f a v o r e d - n a t i o n c l a u s e , a n d o f t h e o p e n - d o o r p r i n c i p l e . "

A t t h e t i m e s i t w a s t o u c h e d u p o n , t h e i d e a t h a t t h e s t a t e c o u l d u s e

c o m m e r c i a l r e l a t i o n s f o r e n d s o f n a t i o n a l p o w e r w a s e n t i r e l y d i s

m i s s e d . A s e a r l y a s 1904 W i l l i a m S m a r t s t r u c k t h i s n o t e i n a b o o k

d i r e c t e d a g a i n s t t h e t a r i f f r e f o r m e r s : " A l l t h e n o n s e n s e o n e h e a r s

a b o u t d u m p i n g a s a ' n a t i o n a l c o n s p i r a c y ' i s d e r i v e d f r o m t h e f a l l a

c i o u s i d e a w h i c h t h i n k s o f a n o t h e r n a t i o n a s a n i n d u s t r i a l u n i t . " "

S t i l l m o r e o u t s p o k e n w a s J . A . H o b s o n , w h o d e v o t e d a b o o k l e t t o t h e

r e f u t a t i o n o f t h e t h e s i s a d o p t e d a t t h e P a r i s E c o n o m i c C o n f e r e n c e . * ^

I n t h e c h a p t e r e n t i t l e d " H o w to M e e t T r a d e A g g r e s s i o n , " h e w r i t e s ;

T h e G e r m a n S t a t e h a d a p o w e r f u l s ec re t serv ice in m a n y f o r e i g n countr ies , a n d m a y h a v e u t i l i z e d b r a n c h e s of G e r m a n f irms a b r o a d a s s o u r c e s of p o l i t i c a l i n f o r m a t i o n . T h e w i d e s p r e a d e m p l o y m e n t of Germ a n c lerks in f o r e i g n c o m m e r c i a l h o u s e s h a s u n d o u b t e d l y g i v e n G e r m a n f i rms a fu l l e r k n o w l e d g e o£ t h e b u s i n e s s c o n d i t i o n s of the i r f o r e i g n com-

»" The Economist of July 8, 1916, p. 55, reproduced in full a letter of protest by liberal peers and Members of Parliament. For a general review of the opposition in various countries, cf. E. M. Friedmann, International Commerce and Reconstruction {New York, iguo), pp. 108-116.

William Smart, The Return to Proleclion (London, 1904), p. 161 , quoted in Viner, Dumping, etc., op. cit., p. 61.

^ J . A. Hobson, The New Protectionism (New York, 1916),

ineoretical and Historical Aspects 69

petitors than commercial firms in England possess. But all these arts and practices are nothing else than an intelligent seizure of legitimate business o p p o r t u n i t i e s . . . . T h e notion that all this expanding trade and finance have been the cat's-paw of the aggressive German state is baseless. . . . T h e suggestion that German traders, bankers, colonists, are merely advance agents of the German state is one of those impositions upon credulity which would not have been possible in any other atmosphere than (hat of war."

T h i s start l ing statement was wri t ten w h e n several internat ional

crises and wars l e a d i n g u p to the First W o r l d W a r had occurred,

crises in w h i c h , as future research was to show, trade and finance

had often b e e n m o r e the instruments than the determinants of

d i p l o m a c y . "

Even Professor C a n n a n , w h o h a d so c lear a v i e w of the necessities

of effective internat ional g o v e r n m e n t , saw in the " n e w protect ion

i s m " " n o t h i n g b u t the o l d protect ionism u t i l i z i n g the i l l-feeling

created by the w a r a n d its u n c h i v a l r o u s incidents ."^

O f p r o m i n e n t free trade economists at the t ime of the First W o r l d

W a r , E d g e w o r t h a lone seems to have recognized the existence and

the i m p o r t a n c e of the p r o b l e m . T h i s may be an o u t c o m e of his close

contact wi th C o n t i n e n t a l d i i n k i n g , on the o n e hand, and of his pre

o c c u p a t i o n wi th the theory of the terms of trade, o n the other.**

H e clearly recognized and, to some extent , de fended "the motives

of those free traders w h o took part in the C o n f e r e n c e of Paris. T h e

d a n g e r w h i c h they had in v i e w ^ '̂as not the bogey of the c o m m o n

protectionist , not the act ion of normal ly c o m p e t i n g merchants , but

' d u m p i n g ' or some other form of 'penetrat ion ' engineered a n d sub

sidized by a hostile g o v e r n m e n t act ing in monopol is t ic fashion, l ike

a trust w h e n it 'freezes o u t ' its r i v a l s . " " It should be noted that Edge-

w o r t h p l e a d e d here only for a bet ter appraisa l of the motives o f

those responsible for the Paris Resolut ions , not for the resolutions

themselves. H e was far from agree ing ^vith tl iem, b u t he recognized

" H o b s o n , op. cit., p p . 78-79.

" Cf. E u g e n e Sta ley, Il'rtr and the Private Investor (Sew York , 1935), passim. " In t h e review of Mr . H o b s o n ' s l iook r e p r i n t e d in An Economist's Protest ( L o n d o n ,

1927). p . 89, Cf. a l so his bUint s t a t e m e n t : " O f all the d i s c r e d i t a b l e tomfooler ies o f which we h a v e b e e n the v ic t ims , the "war on G e r m a n t rade" was the most id iot ic . "— Ibid., p . (13.

' " S e e a b o v e , p . i i . " F . Y . E d g e w o r t h . Papers Relating to Political Economy, \ ' o l . I l l ( L o n d o n . 1945).

p . 385-

National Power and Foreign Trade

"/fcid., Vol.III.p. 203.

c l e a r l y t h e r e a l i t y of t h e q u e s t i o n r a i s e d b y h i m i n a n o t u n f a v o r

a b l e r e v i e w of P r e z i o s i ' s b o o k : " H o w a r e w e t o d e f i n e t h e a r t s a n d

a i m s t o w h i c h t h e o d i o u s c h a r a c t e r o f ' c o n q u e s t ' i s p r o p e r l y a t t r i b

u t a b l e f r o m a ' p e n e t r a t i o n ' w h i c h is r e a l l y p e a c e f u l a n d c o n d u c i v e

t o t h e i n c r e a s e of t h e w o r l d ' s w e a l t h a n d t h e s u r v i v a l of t h e e c o n o m

i c a l l y fit?""

E d g e w o r t h t h u s s t a n d s b e t w e e n t h e t w o g r o u p s w h i c h o u r a n a l y s i s

o f W o r l d W a r I d i s c u s s i o n s o n p o s t w a r e c o n o m i c p o l i c y h a s r e v e a l e d .

B e t w e e n t h o s e w h o i g n o r e t h e d a n g e r of e x t e r n a l e c o n o m i c r e l a t i o n s

b e c o m i n g a n i n s t r u m e n t of n a t i o n a l p o w e r a i m s a n d t h o s e w h o s e e

t h e d a n g e r b u t t ry t o r e m e d y i t b y t h e d e f e n s i v e a n d o f f e n s i v e

w e a p o n s of e c o n o m i c n a t i o n a l i s m , a p l a c e s h o u l d i n d e e d b e left t o

t h o s e w h o , f a c e d w i t h t h e d a n g e r , r e f u s e t o f o l l o w t h e p o l i c y e i t h e r

o f t h e o s t r i c h o r of G r i b o u i l l e .

C H A P T E R I V

Problems of Reconstruction

Be ̂OTH OUR THEORETICAL a n d h i s t o r i c a l a n a l y s e s — s u p p l e

m e n t e d i n P a r t I I b y s t a t i s t i c a l e v i d e n c e — p e r m i t c e r t a i n c o n c l u s i o n s

w i i i c h c a n b e m a d e a v a i l a b l e fo r t h e c u r r e n t d i s c u s s i o n o n p o s t w a r

r e c o n s t r u c t i o n .

T h e s i t u a t i o n wi t l i w h i c h w e a r e c o n f r o n t e d t o d a y a n d w h i c h w i l l

h a v e t o b e m e t a f t e r t h e e n d o f t h e w a r i s i n m a n y w a y s s i m i l a r t o

t h a t w h i c h r e s u l t e d d u r i n g a n d a f t e r W o r l d W a r I . A s a t t h e P a r i s

E c o n o m i c C o n f e r e n c e o f i g i 6 a n d s u b s e q u e n t l y a t V e r s a i l l e s , t h e

f e a r o f " e c o n o m i c a g g r e s s i o n " a n d t h e p r e v e n t i o n o f i t s r e c u r r e n c e

w i l l b e a m a j o r p r e o c c u p a t i o n o f o u r f u t u r e p e a c e m a k e r s .

W e s h a l l e x a m i n e t h r e e p o s s i b l e a t t e m p t s t o s o l v e t h e q u e s t i o n :

( i ) t h e i m p o s i t i o n of c e r t a i n r e s t r a i n t s u p o n t h e c o m m e r c i a l a n d

e c o n o m i c p o l i c y of G e r m a n y a n d h e r a l l i e s ; {2) u n i v e r s a l f r e e t r a d e ;

a n d (3) t h e a b o l i t i o n o f d i s c r i m i n a t i n g p r a c t i c e s a n d t h e r e s t r i c t i o n

of s t a t e i n t e r v e n t i o n . T h e a p p r a i s a l of t h e s e p r o p o s a l s w i l l l e a d u p

t o t h e p r i n c i p l e w h i c h , i n m y o p i n i o n , s h o u l d g u i d e t h e r e c o n s t r u c

t i o n of i n t e r n a t i o n a l e c o n o m i c r e l a t i o n s .

T h e d i s a r m a m e n t of G e r m a n y , I t a l y , a n d J a p a n w i l l c e r t a i n l y

h a v e t o i n c l u d e a n e c o n o m i c d i s a r m a m e n t w h i c h w i l l p r e v e n t t h e

u s e o f t h e p r o d u c t i v e p o w e r s of t h e s e c o u n t r i e s f o r a g g r e s s i v e

p u r p o s e s . A d i s t i n c t i o n s h o u l d , h o w e v e r , b e m a d e in t h i s r e s p e c t

b e t w e e n t h e e c o n o m i c b a s i s o f m i l i t a r y a g g r e s s i o n a n d e c o n o m i c

a g g r e s s i o n p r o p e r . A l t h o u g h t h e t a s k of s e c u r e l y p r e v e n t i n g a t t h e

s o u r c e a n y f u t u r e r e a r m a m e n t of t h e A x i s c o u n t r i e s i s a d m i t t e d l y a

d i f f ic idt o n e , it is n o t w i t h o u t p r o s p e c t of a r e a s o n a b l e s o l u t i o n . T l i e

c r u c i a l i m p o r t a n c e of g a s o l i n e a s a r a w m a t e r i a l , o f t h e a i r p l a n e a s

a w e a p o n , a n d of t h e m a c h i n e - t o o l i n d u s t r y a s t h e i n d u s t r i a l b a s i s

of m o d e r n ^varfare p o i n t s to t h e p o s s i b i l i t y t h a t a t i g h t c o n t r o l in a

f ew s t r a t e g i c p o i n t s w i t h i n a c o u n t r y ' s e c o n o m y m i g l i t p a r a l y z e i ts

p o w e r t o p r e p a r e f o r w a r w i t h o u t i m p a i r i n g i t s c a p a c i t y t o p r o d u c e

f o r t h e p u r p o s e s of c i v i l i a n c o n s u m p t i o n .

[7»]


B u t t h e t a s k b e c o m e s f a r m o r e c o m p l i c a t e d if we t u r n o u r a t t e n t i o n t o e c o n o m i c a g g r e s s i o n as a substitute f o r a n d c o m p l e m e n t to m i l i t a r y a g g r e s s i o n . W i l l it b e suf f ic ient to g u a r d a g a i n s t i t b y p r o h i b i t i n g c e r t a i n spec i f i c m e t h o d s w h i c h h a v e b e e n p r o m i n e n t in t h e ' t h i r t i e s , s u c h a s c l e a r i n g s , d i f f e r e n t i a l e x c h a n g e r a t e s , o v e r v a l u a t i o n , e x p o r t s u b s i d i e s , e x c h a n g e d u m p i n g , a n d m o n o p o l i z a t i o n of t h e t r a d e o f s m a l l c o u n t r i e s ?

I t f o l l o w s f r o m o u r p r e v i o u s a n a l y s i s t h a t t h i s r e m e d y a g a i n s t f u t u r e e c o n o m i c a g g r e s s i o n w o u l d b e insu f f i c i ent . I n t h e first p l a c e , i t i s b y n o m e a n s c e r t a i n t h a t t h e s e v a r i o u s d e v i c e s e x h a u s t t h e a r s e n a l o f e c o n o m i c a g g i e s s i o n . D u r i n g a n d a f t e r W o r l d W a r I m a n y c o u n t r i e s , f o l l o w i n g t h e r e c o m m e n d a t i o n s of t h e P a r i s E c o n o m i c C o n f e r e n c e , e s t a b l i s h e d r e s t r i c t i v e l e g i s l a t i o n a g a i n s t t h e c o m m e r c i a l a c t i v i t i e s o f f o r e i g n e r s a n d t r i e d to l i m i t c u r r e n t c a p i t a l inves tm e n t s . T h e p r e s e n c e of f o r e i g n p e r s o n n e l a n d c a p i t a l h a d i n d e e d b e e n a p r o m i n e n t f e a t u r e of " p e n e t r a t i o n " in the p e r i o d b e f o r e 1 9 1 4 . ' W l i a t w a s t h e r e s u l t a n d t h e e f f ec t ivenes s of t h e n e w r e g u l a t i o n s ? T w o e x a m p l e s m a y b e c i t e d : T h e m a i n effect o f F r e n c h a n t i -a l i e n l e g i s l a t i o n o f 1 9 1 9 w a s to r e n d e r l i fe diffictilt f o r r e f u g e e s ; a n d t h e e x t e n s i v e ef forts o f t h e T u r k i s h g o v e r n m e n t to g e t r i d of f o r e i g n capital a p p e a r t o b e r a t h e r f u t i l e w h e n i t i s r e m e m b e r e d h o w G e r m a n y in a f e w y e a r s h a s s u c c e e d e d i n t a k i n g o v e r m o r e t h a n ha l f o f t h e T u r k i s h f o r e i g n trade. I n s h a p i n g o u r f u t u r e e c o n o m i c p o l i c y , l e t u s n o t i m i t a t e t h e F r e n c h G e n e r a l Staff, t h e m i s t a k e o f w h i c h f o r t h e las t e i g h t y y e a r s h a s b e e n t o b e a l w a y s p e r f e c t l y w e l l p r e p a r e d — f o r t h e l a s t w a r .

T h e r e is , m o r e o v e r , a n o v e r w h e l m i n g p r o b a b i l i t y t h a t n a t i o n s w i l l n o t p u t suf f ic ient t r u s t i n t h e eff icient w o r k i n g of t h e c o n t r o l o v e r t h e t r a d e of t h e i r f o r m e r e n e m i e s . T h e y w i l l w a n t to r e n d e r i m p o s s i b l e f u t u r e a t t e m p t s a t e c o n o m i c d o m i n a t i o n , n o t o n l y b y r e s t r a i n t s o n G e r m a n y a n d h e r a l l i e s , b u t b y p o s i t i v e a c t i o n of t h e i r o w n . A n d i n t h e f r a m e w o r k of n a t i o n a l s o v e r e i g n t i e s , th i s a c t i o n s p e l l s t h e r e c r u d e s c e n c e of t h e v e r y p o l i c y w h i c h r e s u l t e d f r o m W o r l d W a r I : m o r e e c o n o m i c n a t i o n a l i s m , m o r e r e s t r i c t i o n , a n d m o r e d i s c r i m i n a t i o n .

H e r e w e e n t e r a v i c i o u s c i r c l e . R e s t r i c t i o n a n d d i s c r i m i n a t i o n u n d o u b t e d l y s h a r p e n n a t i o n a l a n t a g o n i s m s . T h e y p r o v i d e a l s o exce l -

^ See above, p. 55,


l e n t o p p o r t u n i t i e s f o r n a t i o n a l i s t l e a d e r s t o a r o u s e p o p u l a r r e s e n t

m e n t . A n d i f t h e s e l e a d e r s , o n c e i n p o w e r , s h o u l d f e e l t h e s l i g h t e s t

d o u b t c o n c e r n i n g t h e b e s t p o l i c y t o a d o p t , t h e y w i l l b e m u c h e n c o u r

a g e d i n t h e i r a g g r e s s i v e i n t e n t i o n s b y r e a l i z i n g t h a t i n t e r n a t i o n a l

e c o n o m i c r e l a t i o n s p r o v i d e t h e m w i t h a n e x c e l l e n t i n s t r u m e n t t o

a c h i e v e t h e i r e n d s , j u s t a s a p r o m i s e o f a q u i c k a n d c r u s h i n g v i c t o r y

b y m e a n s o f a e r i a l s u p e r i o r i t y u n d o u b t e d l y c o n t r i b u t e d i n a m o s t

i m p o r t a n t w a y t o t h e o u t b r e a k o f t h e p r e s e n t w a r .

H o w c a n w e e s c a p e f r o m a p r o c e s s o f c a u s a t i o n l e a d i n g d i r e c t l y

f r o m o n e w a r t o a n o t h e r ? T h e first s t e p t o w a r d t h e s o l u t i o n o f t h e

p r o b l e m is t o r e c o g n i z e f u l l y i t s e x i s t e n c e i n a l l i t s i m p l i c a t i o n s . W e

h a v e s e e n i n o u r C h a p t e r I I h o w t h e p o l i t i c a l a s p e c t o f i n t e r n a t i o n a l

t r a d e r e l a t i o n s a r i s e s o u t o f t h e s y s t e m o f n a t i o n a l s o v e r e i g n t i e s . T h e

c l o s e i n t e r c o n n e c t i o n o f p o l i t i c a l c o n c e p t s , s u c h a s " d e p e n d e n c e o n

f o r e i g n c o u n t r i e s , " a n d o f c o n c e p t s o f e c o n o m i c a n a l y s i s , s u c h a s

" g a i n f r o m t r a d e " o r " s u b s t i t u t e m a r k e t s . " h a s b e e n m a d e c l e a r .

I d o n o t t h i n k t h a t t h e c l a s s i c a l e c o n o m i s t s h a v e e n t i r e l y o v e r

l o o k e d t h e p o l i t i c a l a s p e c t o f i n t e r n a t i o n a l e c o n o m i c r e l a t i o n s . T h e y

m a y h a v e g i v e n l i t t l e t h o u g h t t o t h e s u b j e c t , b u t n o o n e h a s y e t g i v e n

a b e t t e r p i c t u r e o f t h e n a t u r e o f " d e p e n d e n c e o n t r a d e " t h a n A d a m

S m i t h , w h o , i n h i s c h a p t e r o n c o l o n i e s , d e s c r i b e d t h e d a n g e r s r e s u l t

i n g t o G r e a t B r i t a i n f r o m h e r o v e r i n f l a t e d t r a d e w i t h t h e A m e r i

c a n c o l o n i e s . A d a m S m i t h , i n d e e d , a t t a c k s B r i t a i n ' s c o l o n i a l t r a d e

m o n o p o l y , not o n l y o n p u r e l y e c o n o m i c o r " w e l f a r e " g r o u n d s , b u t

a l s o b e c a u s e " t h e w h o l e s y s t e m o f h e r i n d u s t r y a n d c o m m e r c e h a s

t h e r e b y b e e n r e n d e r e d l e s s s e c u r e ; t h e w h o l e s t a t e o f h e r b o d y p o l i t i c

l e s s h e a l t h f u l t h a n i t o t h e r w i s e w o u l d h a v e b e e n . " A n d h e c o n t i n u e s

w i t h a n a n a l o g y f r o m t h e h u m a n o r g a n i s m , w h i c h w e s h a l l q u o t e

i n f u l l :

I n h e r p r e s e n t c o n d i t i o n , G r e a t B r i t a i n r e s e m b l e s o n e of those u n w h o l e s o m e b o d i e s in w h i c h s o m e of the v i t a l p a r t s a r e o v e r g r o w n a n d wl i i ch , u p o n t h a t a c c o u n t , a r e l i a b l e to m a n y d a n g e r o u s d i s o r d e r s s c a r c e i n c i d e n t t o t h o s e in w h i c h a l l t h e p a r t s a r c m o r e p r o p e r l y p r o p o r t i o n e d . . \ s m a l l s t o p in tha t g r e a t b l o o d vessel , w h i c h h a s b e e n ar t i f i c i a l ly s w e l l e d b e y o n d its n a t u r a l d i m e n s i o n s , a n d throug J i wl i i ch a n u n n a t u r a l p r o p o r t i o n of t h e i n d u s t r y a n d c o m m e r c e of the c o u n t r y h a s b e e n f o r c e d t o circ u l a t e , is very l ike ly t o b r i n g o n the m o s t d a n g e r o u s d i s o r d e r s u p o n t h e w h o l e b o d y p o l i t i c . T h e e x p e c t a t i o n of a r u p t u r e w i t h t h e c o l o n i e s , a c c o r d i n g l y , h a s s t r u c k the p e o p l e of G r e a t B r i t a i n w i t h m o r e t e r r o r t h a n


they have ever felt for a S p a n i s h A r m a d a or for a F r e n c h invas ion . I t was this terror, whether well or ill g r o u n d e d which r e n d e r e d the repea l of the S t a m p A c t a p o p u l a r m e a s u r e a m o n g the m e r c h a n t s at least. I n the total exc lu s ion f rom the colony m a r k e t , was it to last only for a few years , the grea ter p a r t of our m e r c h a n t s u s e d to fancy that they foresaw a n ent i re s top to their t r ade ; the g rea te r p a r t of our mas te r m a n u f a c t u r e r s the ent i re r u i n of their bus ines s ; a n d the grea ter p a r t of our w o r k m e n a n end of their e m p l o y m e n t . A r u p t u r e wi th any of o u r ne ighbor s u p o n the cont inent , t h o u g h likely, too , to occas ion some s top or i n t e r r u p t i o n in the e m p l o y m e n t s of some of a l l these different orders of p e o p l e , is foreseen, however , wi thout any such genera l e m o t i o n . T h e b l o o d of which the c i rcu la t ion is s topt in s o m e of the sma l l e r vessels, easi ly d i sgorges itself i n t o the grea ter wi thout o c c a s i o n i n g a n y d a n g e r o u s d i s o r d e r ; b u t , w h e n it is s topt in any of the g rea te r vessels, convuls ions , a p o p l e x y , or dea th , a r e the i m m e d i a t e a n d u n a v o i d a b l e consequences.^

A d a m S m i t h i s t h u s q u i t e a w a r e o f t h e p o l i t i c a l d e p e n d e n c e i n t o

w h i c h o n e c o u n t r y m i g h t f a l l b y h e r t r a d e r e l a t i o n s ; b u t h e p i c t u r e s

th i s d e p e n d e n c e a s t h e c o n s e q u e n c e of a n u n h e a l t h y t r a d i n g s y s t e m ,

a c o n s e q u e n c e w h i c h w i l l d i s a p p e a r w i t h t h e a b o l i t i o n o f t h a t sys

t e m . H e t h i n k s t h a t w i t h o u t t h e m o n o p o l y of t h e c o l o n i a l t r a d e , i .e . ,

u n d e r f r e e t r a d e , t h e r e w o u l d r e s u l t " a n a t u r a l b a l a n c e . . . a m o n g

a l l t h e d i f f e r e n t b r a n c h e s of B r i t i s h i n d u s t r y " ; t r a d e w o u l d r u n " i n

a g r e a t n u m b e r of s m a l l c h a n n e l s " ; a n d t h e r e w o u l d o b v i o u s l y b e

n o n e e d t o w o r r y a b o u t t h e i n t e r r u p t i o n of a n y o n e o f t h e s e c h a n

n e l s , a s " t h e b l o o d , o f w h i c h t h e c i r c u l a t i o n is s t o p t i n s o m e o f t h e

s m a l l e r ve s se l s , e a s i l y d i s g o r g e s i t se l f i n t o t h e g r e a t e r . " ^ A s w e s a w

a b o v e , M a c a u l a y w a s l a t e r t o t a k e u p a very s i m i l a r a r g u m e n t fo r

f r e e t r a d e d u r i n g t h e d i s c u s s i o n s o n t h e C o r n L a w s . '

I t s e e m s t h e r e f o r e t h a t t h e e a r l y E n g l i s h f r e e t r a d e e c o n o m i s t s ,

u n l i k e m a n y o f t h e i r l a t e r d i s c i p l e s , d i d n o t i g n o r e e n t i r e l y t h e

p o w e r a s p e c t of i n t e r n a t i o n a l e c o n o m i c r e l a t i o n s . T h e y c e r t a i n l y

d i d n o t s i m p l y a s s u m e t h e p r o b l e m a w a y b y p r e s u p p o s i n g a " p e a c e

f u l a t t i t u d e " i n men.^ I t w a s r a t h e r t h e i r b e l i e f t h a t t h e p o l i t i c a l o r

p o w e r a s p e c t of f o r e i g n t r a d e c o u l d b e neutralized e f f ic iently b y a

u n i v e r s a l f r e e t r a d e s y s t e m , b e c a u s e t h e t r a d e of e v e r y c o u n t r y w o u l d

b e so w i d e l y s p r e a d o v e r t h e v a r i o u s m a r k e t s t h a t it n e e d n o t w o r r y

" Adam Smith, Wealth of Nations, p. 571. ^Ibid,pp. 570, 571. * See above, p. 7. ^This has been comeiided recently by Louis Baudin, Free Trade and Peace (Paris,

1939), p. 26 and passim.


a b o u t t h e i n t e r r u p t i o n of the t r a d e w i t h a n y p a r t i c u l a r c o u n t r y . U n d e r u n i v e r s a l f r e e t r a d e a n y c o u n t r y w o u l d h o l d o n l y a s m a l l p r o p o r t i o n of t h e t o t a l t r a d e of a n y o t h e r c o u n t r y , a n d s u b s t i t u t e m a r k e t s o r s o u r c e s o f s u p p l y w o u l d a l w a y s b e r e a d i l y a v a i l a b l e .

S i m i l a r l y , i t w a s a s s u m e d w i t h r e s p e c t to t h e i n t e r n a l m a r k e t , n o t t h a t t h e p r o d u c e r s w o u l d h a v e a n " a t t i t u d e " o p p o s e d t o t l ie c o n t r o l o f m a r k e t p r i c e , b u t t h a t a n y s i n g l e p r o d u c e r w o u l d h a n d l e o n l y so s m a l l a s h a r e o f t h e t o t a l o u t p u t t h a t h e w o u l d b e unable t o c o n t r o l t h e p r i c e of t h e p r o d u c t b y a l t e r i n g t h e s c a l e o f h i s o u t p u t . T h e t h e o r y of i m p e r f e c t c o m p e t i t i o n h a s shown that th i s s i t u a t i o n is o n l y v e r y r a r e l y r e a l i z e d . B u t t h e c o n d i t i o n s w h i c h w e r e s u p p o s e d to l e a d to a n e u t r a l i z a t i o n o f the p o w e r a s p e c t s o f i n t e r n a t i o n a l econ o m i c r e l a t i o n s a r e n o t m e r e l y " u n r e a l i s t i c , " b u t e n t i r e l y f a n t a s t i c . T h e y p r e s u p p o s e , i n d e e d , a m u l t i t u d e o f s t a te s o f a p p r o x i m a t e l y e q u a l i m p o r t a n c e e a c h w i t h a p p r o x i m a t e l y t h e s a m e v o l u m e o f f o r e i g n t r a d e , t h e t r a d e o f e a c h c o u n t r y b e i n g s p r e a d e q u a l l y o v e r a l l t h e o t h e r c o u n t r i e s a n d n o c o u n t r y p o s s e s s i n g a m o n o p o l y w i t h r e s p e c t t o a n y p e c u l i a r s k i l l o r n a t u r a l e n d o w m e n t . I n s u c h a w o r l d t h e r e w o u l d b e n o s p e c i a l n e e d t o g u a r d a g a i n s t t h e o f f e n s i v e w e a p o n s o f n a t i o n a l e c o n o m i c s o v e r e i g n t i e s . I f u n i v e r s a l f r e e t r a d e c o u l d g i v e r e a l i t y t o t h i s w o r l d , i t w o u l d i m d o u b t e d l y b e t h e s o l u t i o n to t h e p r o b l e m .

A c t u a l l y , t h e d i v i s i o n o f the w o r l d i n t o b i g a n d s m a l l , r i c h a n d p o o r p o l i t i c a l u n i t s c o m b i n e d w i t h t h e fac t t h a t t h e p o o r a n d s m a l l c o u n t r i e s t r a d e b u t l i t t l e a m o n g t h e m s e l v e s r e n d e r s th i s s o l u t i o n c o m p l e t e l y i m p r a c t i c a b l e . M o r e o v e r , a s w e h a v e s e e n in o u r C h a p t e r I I , s o i m p o r t a n t a f o r m o f t h e i n t e r n a t i o n a l d i v i s i o n o f l a b o r a s t h a t b e t w e e n a g r i c u l t u r a l a n d i n d u s t r i a l c o u n t r i e s l e a d s t o c e r t a i n p o w e r d i s e q u i l i b r i a . T h e s t a t i s t i c a l a n a l y s i s w i l l s h o w t h a t t h e d e p e n d e n c e o n o n e o r a few m a r k e t s a n d t h e d e p e n d e n c e o n o n e o r a f ew p r o d u c t s a r e g e n e r a l l y c u m u l a t i v e . I n th i s w a y , f o r e i g n t r a d e b r i n g s a b o u t a m a x i m i m i d e g r e e of d e p e n d e n c e f o r c e r t a i n c o u n t r i e s w h i c h is b y n o m e a n s a l w a y s t h e r e s u l t o f c o n s c i o u s p o l i c y o n t h e p a r t o f o t h e r c o u n t r i e s . ' A s i m i l a r c u m u l a t i v e effect o p e r a t e s i n t h e m a n y c o u n t r i e s w h i c h a r e b o t h r e l a t i v e l y p o o r a n d s m a l l .

I t w o u l d h a v e b e e n easy t o t a k e t h e p o s i t i o n w i t h r e s p e c t t o t h e i s s u e b e f o r e u s t h a t w e c a n n o t w a i t f o r t h e r e c o n s t r u c t i o n of a m o r e

• See above, p. 13.


p e a c e f u l w o r l d u n t i l u n i v e r s a l f r e e t r a d e is e s t a b l i s h e d . B u t w e h a v e n o t b e e n a r g u i n g h e r e o n a n y s u c h " r e a l i s t i c " g r o u n d s . A p p r o x i m a t i o n to t h e f r e e t r a d e p r i n c i p l e , w h i c h i s b y n o m e a n s t i e d u p necess a r i l y w i t h t h e i n s t i t u t i o n o f p r i v a t e e n t e r p r i s e , ' r e m a i n s a g o a l fo r w h i c h , d e s p i t e a l l t h e d i f h c u l t i e s of r e a l i z a t i o n , i t i s i m p o r t a n t t o s t r i v e o n t h e g r o u n d s o f e c o n o m i c w e l f a r e . B u t i f t h e c a s e fo r f r e e t r a d e , o n e c o n o m i c o r w e l f a r e g r o u n d s , h a s r e m a i n e d u n a n s w e r a b l e s i n c e A d a m S m i t h a n d R i c a r d o , o u r a n a l y s i s s h o w s t h a t i t d o e s n o t h a v e t h e a d d i t i o n a l m e r i t of d o i n g a w a y w i t h t h e p o l i t i c a l a s p e c t of i n t e r n a t i o n a l e c o n o m i c r e l a t i o n s .

I f th i s is so , a n a r g u m e n t a fortiori a p p l i e s t o t h e s i m p l e a b o l i t i o n o f d i s c r i m i n a t i n g t r e a t m e n t s s u c h as q u o t a s , p r e f e r e n t i a l o r d i s c r i m i n a t i n g d u t i e s , o r e x c h a n g e r a t e s v a r y i n g a c c o r d i n g t o t h e t y p e o f t r a n s a c t i o n a n d t h e c o u n t r y i n v o l v e d . T h i s p r o g r a m is m u c h less a m b i t i o u s t h a n t h a t o f u n i v e r s a l f r e e t r a d e , as , p r o v i d e d t h e r e i s o n l y o n e f o r e i g n e x c h a n g e r a t e , it a d m i t s g e n e r a l tari f fs a n d o u t r i g h t p r o h i b i t i o n s a s w e l l a s m o n e t a r y m a n i p u l a t i o n s . T h e m o s t - f a v o r e d -n a t i o n c l a u s e is o n e o f t h e t y p i c a l e x p r e s s i o n s of th i s s y s t e m w h i c h is g e n e r a l l y i m p l i e d i n s u c h p h r a s e s a s " e q u a l i t y o f t r a d i n g c o n d i t i o n s " o r " e q u a l i t y of t r a d i n g o p p o r t u n i t y . " I t w a s t h e a i m o f W i l s o n ' s e c o n o m i c r e c o n s t r u c t i o n p r o g r a m a n d , s o f a r a s t h e r e c o n s t r u c t i o n of i n t e r n a t i o n a l t r a d e is c o n c e r n e d , s e e m s s t i l l t o b e t h e o n l y official p o s t w a r a i m o f t h e U n i t e d N a t i o n s . T h i s p r o g r a m is g e n e r a l l y c o u p l e d w i t h s o m e a t t e m p t t o l i m i t r e s t r i c t i v e s t a t e i n t e r v e n t i o n a n d s t a t e t r a d i n g i n g e n e r a l .

N o d o u b t c a n e x i s t t h a t t h e u s e o f d i s c r i m i n a t o r y m e t h o d s a s w e l l a s t h e p o w e r o f n a t i o n a l g o v e r n m e n t s t o d e t e r m i n e d i r e c t l y t h e d i r e c t i o n a n d t h e c o m p o s i t i o n o f f o r e i g n t r a d e e n a b l e s t h e m t o m a k e t h e m o s t of t h e p o w e r p o t e n t i a l i t i e s of t h e i r e x t e r n a l e c o n o m i c r e l a t i o n s . W i t h o u t t h e s e m e t h o d s a n d th i s p o w e r i t w o u l d b e diffic u l t to e n f o r c e m a n y o f t h e p o l i c i e s w h i c h w e h a v e d e s c r i b e d i n C h a p t e r I I a s c o n d u c i v e t o a n i n c r e a s e in p o w e r . F r i c t i o n s a l s o a r i s e ve ry e a s i l y o u t of d i s c r i m i n a t i n g t r e a t m e n t s a n d o u t of t h e ident i f i c a t i o n o f a l l p r i v a t e i n t e r e s t s w i t h t h e i n t e r e s t s o f t h e s t a t e .

B u t , i n t h e first p l a c e , p r o t e c t i o n i s m w i t h o u t d i s c r i m i n a t i o n is q u i t e suf f ic ient t o i n c r e a s e t h e e x i s t i n g i n e q u a l i t i e s of n a t u r a l a n d h u m a n r e s o u r c e s a n d to c r e a t e t h e r e b y f o r s o m e n a t i o n c o n d i t i o n s

Cf. J. E. Meade, The Economic Basis for a Durable Peace (London, 1940), p. 94.


o f p r i v i l e g e w h i c h a r e a f a c t o r m a k i n g for a n a g g r e s s i v e p o l i c y o n

the p a r t o f o t h e r n a t i o n s . S e c o n d l y , e v e r y tariff i m p l i e s a c e r t a i n

a m o u n t o f d i s c r i m i n a t i o n a g a i n s t a p a r t i c u l a r c o u n t r y or g r o u p o f

c o i m t r i e s ; ' a n d b y s k i l l f u l c o o r d i n a t i o n a n d t i m i n g o f tariffs, p r o

h i b i t i o n s , a n d e x c h a n g e m a n i p u l a t i o n s , it s h o u l d b e p o s s i b l e to

o b t a i n , w i t h respect to the d i r e c t i o n a n d the c o m p o s i t i o n o f t rade ,

effects s i m i l a r to those w h i c h can b e r e a c h e d m o r e easi ly b y q u o t a s ,

b i l a t e r a l c l e a r i n g s , etc. T h i r d l y , the " p o l i t i c a l i z a t i o n o f t r a d e " has

its p r i m a r y r o o t s , as w e h a v e s e e n , n o t i n t h e c o n t r o l o v e r t h e flow

o f t r a d e , b u t i n t h e n e g a t i v e p o w e r o f t h e nat ion-state to s t o p t r a d e . '

T h i s p o w e r is a n a t t r i b u t e o f n a t i o n a l s o v e r e i g n t y w h a t e v e r m a y b e

the d e g r e e o f p o s i t i v e state i n t e r v e n t i o n . W h e r e a p o s s i b i l i t y o f u s i n g

f o r e i g n t r a d e as a n i n s t r u m e n t o f n a t i o n a l p o w e r p o l i c y ex is ts , o f

c o u r s e , a s t r o n g i n c e n t i v e is g i v e n to use this i n s t r u m e n t i n its m o s t

e f fect ive w a y , i .e. , d i s c r i m i n a t i o n a n d state i n t e r v e n t i o n . T h e s e t w o

f o r m s o f e x t r e m e e c o n o m i c n a t i o n a l i s m d o not t h e r e f o r e a p p e a r to

us to b e the c a u s e of t h e p o l i t i c a l aspects of i n t e r n a t i o n a l e c o n o m i c

r e l a t i o n s , b u t , r a t h e r , t h e y a p p e a r to b e t h e i r s y m p t o m a n d u l t i m a t e

o u t c o m e . ' "

S p e a k i n g p r i m a r i l y o f i n t e r n a l t r a d e , J o h n S t u a r t M i l l sa id t h a t

^ Cf. S, H . B a i l c ) ' , " T h e P o l i t i c a ] A s p e c t s o f D i s c r i m i n a t i o n in I n t e r n a t i o n a l E c o n o m i c R e l a t i o n s . " Economictt,Vo\. X X X V ( F e b r u a r y , 1932). p p . 90-91-

" S e e a b o v e , p p . 1 5 - 1 7 .

F i n a l l y , f r o m t h e e c o n o m i c p o i n t o f v i e w , t h e a b o l i t i o n o f a l l types o f d i s c r i m i n a -t i t in m i g h t b e b o t h i m p r a c t i c a b l t ; a n d u n d e s i r a b l e . T h e t e r m d i s c r i m i n a t i o n l o s e s m u c h o t i t s m e a n i n g if it is a p p l i e d to a s t a t e w h i c h h a s a c e n t r a l l y p l a n n e d e c o n o m y , t h e r e a s o n b e i n g t h a t in s u c h a s t a t e t h e m e t h o d s of c o m m e r c i a l p o l i c y m.-iy e a s i l y b€ re-phice<l b y p o l i c i e s r e l a t i n g t o t h e i n t e r n a l s t r u c t u r e of p r o d u c t i o n . B u t e v e n in n o n -p l a n n e d economics h may b e e x t r e m e l y di/TfcuJl to d e t e r m i n e w h e t h e r p r i c e d i f f e r e n c e s for s i m i l a r p r o d u c t s a r e d u e to d i s c r i m i n a t i o n p r o p e r or to d i f f e rence s in t h e t e r m s a n d c o n d i t i o n s o f t h e s a l e in t w o d i f f e r e n t m a r k e t s . Cf . , o n t h i s p o i n t , t h e i m p r e s s i v e l i s t o f p o s s i b l e w a r r a n t e d p r i c e d i s c r e p a n c i e s b e t w e e n d i f f e rent m a r k e t s in t h e T e m p o r a r y N a t i o n a l E c o n o m i c C o m m i t t e e , M o n o g r a p h N o . 6, Export Prices and Export Cartels

( W e h h - P o m c r e n e A s s o c i a t i o n s ) , ( W a s h i n g t o n . 1940), p p . i 6 - a 8 . I t m a y a l s o b e e c o n o m ical ly undesirable 10 o u t l a w p r i c e d i s c r i m i n a t i o n w h i c h m i g h t s e rve w e l f a r e a s wel l a s p o w e r p u r p o s e s . P r i c e d i s c r i m i n a t i o n is, i n d e e d , i m p l i c i t in t h e n u m e r o u s p r o p o s a l s to p r o l o d g J c a s e - f e n d a i d for r e l i e f a n d r e c o n s t r t i c t i o n a f t e r t h e w a r a n d to c r e a t e e v e n p e r m a n e n t l y a f o o d s t a m p p l a n o n a n i n t e r n a t i o n a l ba s i s . ( T h i s i d e a is b e i n g e x p l o r e d in d e t a i l in a n u n p u b l i s h e d m a n u s c r i p t b y D r . P e t e r F r a n c k ; cf. a l s o J. B . C o n d l i f f e , Agenda for a PosllVar World [ N e w V o r k . 1942], p . 1 1 3 , a n d X a f i o n a J P l a n n i n g A s s o c i a t i o n . L'niled States' Coiiperation with British Nations, P l a n n i n g P a m p h l e i s , N o . 6, p p . 23-25.) W e p e r c e i v e in t h e d i f f e r e n c e in a t t i t u d e w i t h r e s p e c t to d i s c r i m i n a t i o n a c o n flict b e t w e e n t h e p o l i t i c a l e c o n o m i s t s of l i b e r a l t r a d i t i o n a n d t h e e c o n o m i c t e c h n i c i a n s e a g e r to avitil t h e m s e l v e s of n e w l y d i s c o v e r e d w e a p o n s of e c o n o m i c p o l i c y — a conf l ic t w h i c h s h o u l d b e r e s o l v e d in t h e i n t e r e s t o f c o n s i s t e n t p o s t w a r p o l i c y .


" t r a d e is a social act.""^ W e have now reached the result that interna

t ional trade remains a pol i t ical act whether it takes place u n d e r a sys

tem of free trade or protect ion, of state t rading or pr ivate enterprise,

of most-favored-nation clause, or of d iscr iminat ing treatments.

Stil l , the bel ief is widespread that it is possible somehow to escape

this int imate connect ion b e t w e e n internat ional trade and " p o w e r

pol i t ics" a n d to restore trade to its " n o r m a l and beneficial economic

funct ions ." H o w deep-rooted this convict ion is, especially in A n g l o -

S a x o n tradit ion, m a y be seen by the famous sentence of Washing

ton's Farewel l Address : " T h e great rule of c o n d u c t for us, in regard

to foreign nations, is, in e x t e n d i n g o u r commerc ia l relations, to

have wi th t h e m as little polit ical connect ion as possible ." It is cer

tainly this " r u l e of c o n d u c t " w h i c h echoes in the m i n d of D o u g l a s

M i l l e r w h e n he renders his verdict o n N a z i business methods by

dec lar ing: " W e must get this straight once a n d for al l : T h e r e is no

such t h i n g as h a v i n g purely economic relat ions w i t h the total itarian

states. E v e r y business deal wi th t h e m carries w i t h it pol i t ical , mili

tary, social, propaganda implicat ions."^ M r . M i l l e r does not define

" p u r e l y e c o n o m i c re lat ions" ; nor does he seem to stispect that, l ike

the purely " e c o n o m i c m a n , " they are an abstraction useful for eco

n o m i c analysis b u t seldom e n c o u n t e r e d in real l ife, especially in

deal ings b e t w e e n sovere ign nations, b e they total i tar ian o r not .

T h e spirit in w h i c h M r . M i l l e r has wri t ten is also ev ident when

he makes a dist inct ion, w h i c h has recently b e c o m e fashionable, be

tween the "economics of wel fare" and the "economics of p o w e r " or

the "economics of force." T h i s opposit ion is apt to be very mislead

i n g if it implies that p o w e r relationships can be b a n n e d entirely

f rom some ideal economic system. T h e distinction w o u l d be legiti

mate if i t were i n t e n d e d t o p o i n t o u t t w o different short-run aims

of economic activity. B u t then o n e m i g h t better contrast the "eco

n o m i c policy of w e l f a r e " and the " e c o n o m i c policy of power.""^ T h e

economic relationships exist ing in a society dedicated to the pursuit

" J . S. Mi l l , 0?i Liberty (Bos ton , 1865), p . 183.

^ D o u g l a s Mil ler , You Can't Do Business With Hitler (New York , 1941), p p . 88-89. ^ ' T h e d i c h o t o m y of the economics of power a n d of wel fare has b e e n s u p e r i m p o s e d

u p o n [he m u c h o lder a n d n e a t e r d i s t inct ion between economics of welfare a n d pos i t i ve e c o n o m i c s ; t h e l a t t e r e x p l a i n s the w o r k i n g o f t h e e c o n o m i c sys tem, ivhereas t h e f o r m e r is concerned with policy. T h i s d i s t inct ion was systemat ica l ly deve loped by E d g e w o r t h , who , in his Mathematical Psychics, contras ted the " e c o n o m i c a l " to the " u t i l i t a r i a n c a l c u l u s . "


of wel fare inevi tably g ive rise to various forms of e c o n o m i c p o w e r ;

a n d this is by no means necessarily an evil , since such a society m u s t

d e v e l o p p o w e r , both pol i t ical and economic , against those w h o d o

not ag iee wi th its a im of welfare. T h e Nazis h a v e merely s h o w n us

the t r e m e n d o u s p o w e r potential i t ies inherent in internat ional eco

n o m i c relat ions, just as they have g iven us the first practical demon

stration of the powers of propaganda. I t is n o t possible to ignore

or to neutral ize these relat ively new powers of m e n over m e n ; the

only a l ternat ive o p e n to us is to prevent their use for the purposes

of war and ens lavement a n d to m a k e them w o r k for o u r o w n pur

poses of peace and wel fare . "

T h i s can be d o n e only by a frontal attack u p o n the inst i tut ion

w h i c h is at the root of the possible use of internat ional e c o n o m i c

relations for nat ional p o w e r aims—the inst i tut ion of nat ional eco

n o m i c sovereignty.

T h e conclusions w h i c h we have reached are far f r o m revo lut ion

ary. B u t o u r c o n t r i b u t i o n to the increasing tide of attack against

nat ional e c o n o m i c sovereignty is not based merely u p o n the wide

spread oppos i t ion against the indisputable evils of e c o n o m i c nat ion

al ism: It proceeds even more from a frank r e c o g n i t i o n of the risks

connected with expanding trade if this trade is organized on strictly

separate national lines. E c o n o m i c national ism receives o n e of its

m a i n impulses f r o m this risk, f r o m the fear of entrust ing nat ional

we l l -be ing to factors b e y o n d the nation's c o n t r o l . I n the present

organizat ional and inst i tut ional sett ing of internat ional trade, the

choice w i t h w h i c h w e are confronted is thus q u i t e unattract ive: O n

the o n e h a n d , a decrease of trade d u e to restrict ionism increases the

p r o b a b i l i t y of nat ional jealousies a n d desires for territorial e x p a n

sion; whereas, on the other hand, more c o m m e r c e means greater

potential i t ies of us ing trade as an instrument of mi l i tary prepara

tion, e c o n o m i c pressure, a n d b l a c k m a i l . If w e w a n t to turn from the

sterile a l ternatives b e t w e e n autarky a n d " e c o n o m i c p e n e t r a t i o n " t o

the achievement of internat ional economic co l laborat ion, the ex

clusive poiver to organize, regulate , a n d interfere w i t h trade must

be taken away from the hands of single nations, ft must be trans-

" W i t h r c s p e t t t o t h e mechani '-nis of social coiitrol in genera l , th i s h a s b e e n p o i n t e d o u t convinc ing ly by Kar l M a n n h e i m , A/aii and Society in an Age of Recomtruction ( L o n d o n , 1940), p p . 199-320, in p a r t i c u l a r .

8o National Power and Foreign Trade

f e r r e d t o a n i n t e r n a t i o n a l a u t h o r i t y a b l e t o e x e r c i s e t h i s p o w e r a s

a s a n c t i o n a g a i n s t a n a g g r e s s o r n a t i o n .

T o a r r i v e a t a n i n t e r n a t i o n a l i z a t i o n o f t h e p o w e r a r i s i n g o u t o f

f o r e i g n t r a d e , t w o c o n d i t i o n s m u s t b e f u l f i l l e d :

i ) T h e c o m p l e t e a u t o n o m y of n a t i o n a l c o m m e r c i a l p o l i c i e s m u s t b e effectively l i m i t e d , a n d th i s l i m i t a t i o n m u s t cover , n o t o n l y a few r e s t r i c t e d fields of a c t i o n , b u t the w h o l e of i n t e r n a t i o n a l e c o n o m i c r e l a t i o n s .

2) T h e i n s t i t u t i o n a l f r a m e w o r k of f o r e i g n t r a d e ( c o n s u l a r services , c h a m b e r s of c o m m e r c e , i m p o r t - a n d e x p o r t - b a n k s , o r g a n i z a t i o n s of intern a t i o n a l t r a n s p o r t a t i o n , etc.) m u s t b e d r a f t e d o n i n t e r n a t i o n a l o r s u p r a n a t i o n a l l ines . I n o t h e r w o r d s , t h e i n t e r n a t i o n a l a u t h o r i t y s h o u l d b e n o t o n l y t h e u l t i m a t e s u p e r v i s o r of t h e m a c h i n e r y of i n t e r n a t i o n a l t r a d e , b u t s h o u l d a l s o p r o v i d e s e v e r a l o f t h e m o s t e s s e n t i a l m e c h a n i s m s of this m a c h i n e r y . B y p r o v i d i n g serv ices e s s e n t i a l to t h e t r a d e r s , the intern a t i o n a l a u t h o r i t y w o u l d a c q u i r e a l a r g e m e a s u r e of d i rec t c o n t r o l o v e r t r a d e . T h e l ack of s u c h a c o n t r o l w a s l a r g e l y r e s p o n s i b l e for the i n a d e q u a c y a n d inefficiency of A r t i c l e 16 of the C o v e n a n t o f t h e L e a g u e of N a t i o n s .

I t i s n o t o u r t a s k h e r e t o i m p l e m e n t b y d e t a i l e d p r o p o s a l s t h e s e t w o p r i n c i p l e s . B u t i t m a y b e u s e f u l t o s t r e s s t h e i m p o r t a n c e o f p l a n n i n g i n t h i s d i r e c t i o n . M o s t p r e s e n t p o s t w a r r e c o n s t r u c t i o n s c h e m e s i n t h e e c o n o m i c field s e e m t o b e i n s p i r e d b y t h e b e l i e f t h a t t h e a c h i e v e m e n t o f p l e n t y a n d o f s t a b i l i t y c o n s t i t u t e t h e n e c e s s a r y a n d s u f f i c i e n t c o n d i t i o n f o r a l a s t i n g p e a c e . T h a t i t i s a n e c e s s a r y c o n d i t i o n f e w w o u l d d e n y ; a n d i t i s c e r t a i n l y a m o s t e n c o u r a g i n g f e a t u r e o f t h e p r e s e n t s t a t e o f t h o u g h t a n d a c t i o n i n t h i s field t h a t , a l t h o u g h i n t h e F i r s t W o r l d W a r t h e A l l i e s l i v e d i n t h e p e r p e t u a l f e a r o f a G e r m a n e x p o r t o f f e n s i v e a f t e r t h e w a r , t o d a y t h e U n i t e d N a t i o n s a r e a c t i v e l y p r e p a r i n g a n o f f e n s i v e o f f o o d , c l o t h i n g , a n d m e d i c a l a n d o t h e r s u p p l i e s f o r t h e p o p u l a t i o n s f r e e d f r o m A x i s c o n t r o l .

T h e e l i m i n a t i o n o f v i o l e n t fluctuations o f e c o n o m i c a c t i v i t y a n d t h e r a i s i n g o f n a t i o n a l s t a n d a r d s o f l i v i n g , h o w e v e r e s s e n t i a l , a r e o n l y o n e a s p e c t o f t h e p r o b l e m b e f o r e u s . P e a c e , i t h a s b e e n s a i d , i s a " v i r t u a l m u t e , c o n t i n u o u s v i c t o r y o f t h e p o s s i b l e f o r c e s o v e r t h e p r o b a b l e a p p e t i t e s . ' " ' T w o t a s k s , i n d e e d , c o n f r o n t t h e o r g a n i z a t i o n o f p e a c e . T h e y a r e : (1) t o p r e v e n t , s o f a r a s p o s s i b l e , t h e f o r m a t i o n

^ Paul Val^ry, Regards sur le monde actuet (Paris, 1931), p. 5 1 .


of a p p e t i t e s i m p e l l i n g t o w a r ; a n d (2) t o w e a k e n t h e f o r c e s w h i c h a r e

a t t h e c o m m a n d o f s u c h a p p e t i t e s w h i l e s t r e n g t h e n i n g t h e f o r c e s b y

w h i c h p e a c e c a n b e m a i n t a i n e d . T h e s e c o n d t a s k , t h o u g h le s s f u n d a

m e n t a l t h a n t h e first, r e m a i n s i m p o r t a n t s o l o n g a s t h e c a u s e s o f

w a r l i k e a t t i t u d e s a r e n o t e n t i r e l y k n o w n a n d e x t i r p a t e d .

I n a r o u g h w a y t h i s t a s k c o r r e s p o n d s t o t h e a t t a i n m e n t o f w h a t

P r e s i d e n t F r a n k l i n D . R o o s e v e l t h a s t e r m e d " f r e e d o m f r o m f e a r , "

w h e r e a s " f r e e d o m f r o m w a n t " i s a p r e l i m i n a r y c o n d i t i o n for a c h i e v

i n g t h e first o b j e c t i v e . M o s t r e c e n t s t u d i e s c o n c e r n e d w i t h f r e e d o m

f r o m w a n t for a l l p e o p l e s h a v e p u t f o r w a r d s t r o n g a r g u m e n t s a g a i n s t

t h e t r a d i t i o n a l c o n c e p t i o n of n a t i o n a l s o v e r e i g n t y w i t h r e s p e c t t o

e c o n o m i c p o l i c y . W e h a v e t r i e d h e r e to s h o w t h a t t h i s c o n c l u s i o n

i s e v e n m o r e c o m p e l l i n g i f w e a r e l o o k i n g for w a y s o f d i m i n i s h i n g

o r a b o l i s h i n g f ea r s o f a g g r e s s i o n a n d o f p e n e t r a t i o n a r i s i n g o u t o f

i n t e r n a t i o n a l t r a d e . T h e i n t e r n a t i o n a l i z a t i o n of p o w e r o v e r e x t e r n a l

e c o n o m i c r e l a t i o n s w o u l d g o f a r t o w a r d t h e g o a l of a p e a c e f u l w o r l d .

Part Two

THREE STATISTICAL INQUIRIES INTO

THE STRUCTURE OF WORLD TRADE

Three Statistical Inquiries into the

Structure of World Trade

IN CHAPTER II w e h a v e d e s c r i b e d t h e g e n e r a l c o n d i t i o n s

l e a d i n g t o g r e a t e r n a t i o n a l p o w e r b y m e a n s of f o r e i g n t r a d e . C e r

t a i n of t h e s e c o n d i t i o n s w e r e f o u n d t o h a v e d e f i n i t e q u a n t i t a t i v e

c h a r a c t e r i s t i c s . I t is t h e r e f o r e p o s s i b l e t o tes t s t a t i s t i c a l l y t l ie p re s

e n c e a n d e v o l u t i o n of t h e s e c o n d i t i o n s , e s p e c i a l l y fo r t h e p e r i o d

b e t w e e n t h e t w o w a r s , e x c e l l e n t , e a s i l y a v a i l a b l e , a n d h o m o g e n e o u s

s t a t i s t i c s h a v i n g b e e n p r e p a r e d b y t h e L e a g u e o f N a t i o n s . '

W e h a v e u n d e r t a k e n t h r e e d i s t i n c t i n q u i r i e s , t w o o f w h i c h c o n

c e r n t h e d i s t r i b u t i o n . o f f o r e i g n t r a d e w i t h r e s p e c t t o c o u n t r i e s , t h e

t h i r d b e i n g d i r e c t e d t o a n a n a l y s i s o f t h e c o m m o d i t y - c o m p o s i t i o n

o f w o r l d t r a d e f r o m a c e r t a i n s t a n d p o i n t .

E x a m i n i n g t h e c o n d i t i o n s u n d e r w h i c h c o u n t r y A w i l l e x p e r i e n c e

m o s t d i f f i cu l t i e s in s h i f t i n g i ts t r a d e f r o m o n e c o u n t r y B t o o t h e r

c o u n t r i e s , w e f o u n d t h a t t h e f r a c t i o n w h i c h B h o l d s i n A ' s t o t a l t r a d e

i s a n i m p o r t a n t e l e m e n t i n e v a l u a t i n g t h e s i t u a t i o n . ' ' T h i s f r a c t i o n

d e p e n d s o n t h e s ize of i ts n u m e r a t o r , t h e t r a d e of B w i t h A , a n d o n

t h e s ize o f i ts d e n o m i n a t o r , A ' s t o t a l t r a d e . I t s e e m s , t h e r e f o r e , t h a t

c o u n t r y B c o u l d i n c r e a s e i ts t r a d i n g p a r t n e r s ' d i f f i cu l t i e s in s h i f t i n g

t h e i r t r a d e w i t h B t o o t h e r c o u n t r i e s , e i t h e r b y i n c r e a s i n g i t s t r a d e

w i t h t h e s a m e t r a d i n g p a r t n e r s o r b y r e d i r e c t i n g t r a d e t o w a r d c o u n

t r i e s w i t h a s m a l l e r t o t a l v o l u m e of t r a d e . O u r first s t a t i s t i c a l i n q u i r y

s e e k s , t h e r e f o r e , t o m e a s u r e t h e e x t e n t t o w h i c h t h e t r a d e of t h e

g r e a t e r t r a d i n g c o u n t r i e s is s p o n t a n e o u s l y , o r h a s b e e n a c t i v e l y ,

o r i e n t e d t o w a r d t h e s m a l l e r t r a d i n g c o u n t r i e s .

I f t h e g r e a t e r t r a d i n g c o u n t r i e s h a v e a p o w e r i n t e r e s t i n m o n o p o

l i z i n g t h e t r a d e of t h e s m a l l e r c o u n t r i e s , t h e l a t t e r , a s a d e f e n s i v e

m e a s u r e , s h o u l d a i m a t s p l i t t i n g t l i e i r t r a d e e q u a l l y a m o n g a s m a n y

c o u n t r i e s a s p o s s i b l e i n o r d e r t o e s c a p e t o o g r e a t a d e p e n d e n c e o n

' Review of World Trade and Inleriiational Trade Statistics. »See above, pp. 30-31. ^̂ ^̂


o n e o r t w o g r e a t m a r k e t s o r s u p p l y s o u r c e s . O u r s e c o n d s t a t i s t i c a l inq u i r y a t t e m p t s , a c c o r d i n g l y , t o g i v e a m e a s u r e f o r t h e c o n c e n t r a t i o n o f t h e t r a d e of t h e s m a l l e r t r a d i n g n a t i o n s a c c o r d i n g t o c o u n t r i e s .

W i t h r e s p e c t t o t h e c o m m o d i t y - c o m p o s i t i o n of t r a d e , w e J i a v e s e e n t h a t t h e d i v i s i o n of l a b o r b e t w e e n i n d u s t r i a l a n d a g r i c u l t u r a l c o u n t r i e s ha s a b e a r i n g o n t h e p o w e r r e l a t i o n s h i p s b e t w e e n s u c h c o u n t r i e s . I n a d d i t i o n , t h e p r e v e n t i o n of i n d u s t r i a l i z a t i o n of a g r i c u l t u r a l c o u n t r i e s h a s o f t e n b e e n f o u n d e d u p o n t h e c l a i m t h a t s u c h a n i n d u s t r i a l i z a t i o n w o u l d p u t a n e n d t o a n y " s o u n d " i n t e r n a t i o n a l d i v i s i o n o f l a b o r , a n d th i s v i e w h a s b e e n a n i m p o r t a n t f a c t o r i n s h a p i n g t h e tconomic a n d f o r e i g n p o l i c y o f v a r i o u s c o u n t r i e s . I n o u r c o n c l u d i n g c h a p t e r w e try, t h e r e f o r e , to m e a s u r e t h e e x t e n t t o w h i c h w o r l d t r a d e h a s a c t u a l l y b e e n b a s e d in t h e p a s t u p o n t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s .

S o f a r a s I a m a w a r e , t h e m e t h o d s w h i c h h a v e b e e n u s e d for the a n a l y s i s o f these q u e s t i o n s a r e n e w . S i n c e t h e a n a l y s i s of t h e first t w o m a y h a v e a m o r e g e n e r a l u s e f u l n e s s a n d m a y r e q u i r e a s p e c i a l j u s t i f i c a t i o n , we h a v e a t t e m p t e d , i n A p p e n d i x A , t o f u l l y set f o r t h t h i s j u s t i f i c a t i o n . A l l t h e m e t h o d s a r e e x t r e m e l y s y n t h e t i c , s i n c e they a t t e m p t t o s u m m a r i z e b y a s i n g l e i n d e x o n e s p e c i a l c h a r a c t e r i s t i c of a n e x t e n d e d s t a t i s t i c a l s e r i e s . A s a l w a y s , th i s m e t h o d h a s i t s a d v a n t a g e s a n d its d r a w b a c k s . T h e a d v a n t a g e l i e s i n b r i n g i n g o u t c e r t a i n g e n e r a l d e v e l o p m e n t s w h i c h , b e c a u s e of t h e m a s s o f t h e d a t a a n d b e c a u s e of o u r l i m i t e d p o w e r s of p e r c e p t i o n , w o u l d o t h e r w i s e h a v e r e m a i n e d h i d d e n . T h e d r a w b a c k o f e v e r y s y n t h e t i c m e t h o d is t h e loss of c o n c r e t e n e s s . I n o t h e r w o r d s , a m o v e m e n t of t h e i n d e x m a y m e a n m a n y d i f f e r e n t t h i n g s i n t e r m s of the o r i g i n a l d a t a ; i n o r d e r to e x p l a i n a d e q u a t e l y t h e d i f f e r e n c e b e t w e e n a n y t w o i n d i c e s , o n e h a s , t h e r e f o r e , t o g o b a c k t o t h e o r i g i n a l d a t a f r o m w h i c h t h e i n d i c e s w e r e c o m p u t e d . B y t h e v e r y n a t u r e of o u r i n q u i r y , h o w e v e r , w e a r e i n t e r e s t e d h e r e m a i n l y i n g e n e r a l t r e n d s a n d in t h e i r c o m p a r i s o n for v a r i o u s c o u n t r i e s , or , i n t h e t h i r d i n q u i r y , i n t h e i r c o m p u t a t i o n f o r w o r l d t r a d e a s a w h o l e . T h e i n d i c e s h a v e t h e f u n c t i o n of a f f o r d i n g a c l e a r e r p e r c e p t i o n o f c e r t a i n p r o c e s s e s i n the s t r u c t u r e of w o r l d t r a d e . W e d o n o t t h e r e f o r e a t t e m p t t o i n t e r p r e t e v e r y s i n g l e m o v e m e n t in t h e i n d i c e s , b u t o n l y t h o s e m o v e m e n t s w h i c h s e e m r e l e v a n t f r o m t h e s t a n d p o i n t f r o m w h i c h t h e c a l c u l a t i o n o f t h e i n d i c e s i n i t i a l l y p r o c e e d e d .

C H A P T E R V

The Preference of Large Trading

Countries for Commerce with Small

Trading Countries

I METHOD OF MEASUREMENT

.F A COUNTRY h a s a c q u i r e d e q u a l p e r c e n t a g e s h a r e s i n t h e

t r a d e o f a l l i t s t r a d i n g p a r t n e r s , it h a s a p p a r e n t l y s h o w n n o p r e f e r

e n c e f o r e i t h e r l a r g e o r s m a l l t r a d i n g c o u n t r i e s . I n a n i n d e x w e h a v e

d e v i s e d , lOO i s t h e v a l u e g i v e n f o r t h i s c a s e . If t h e p e r c e n t a g e s h a r e s

a r e o n t h e w h o l e l a r g e r i n t h e s m a l l t r a d i n g c o u n t r i e s , t h e f i g u r e

r i s e s a b o v e l o o ; if s m a l l e r , t h e f i g u r e f a l l s b e l o w l o o .

L e t u s s u p p o s e t h a t c o u n t r y X t r a d e s w i t h n c o u n t r i e s t h e t o t a l

i m p o r t s a n d e x p o r t s ( i n c l u d i n g i m p o r t s a n d e x p o r t s f r o m X ) o f

w h i c h a r e r e p r e s e n t e d b y t h e s y m b o l s I^, L , • • • , I„ a n d E^, E^, • • • , En. T h e i m p o r t s o f X ( o r t h e e x p o r t s o f t h e o t h e r c o u n t r i e s t o X ) a r e i i , ia, • • • , in. L e t t h e i r s u m b e Is. S i m i l a r l y , t h e e x p o r t s o f X a r e

e^, C j , • • • , Cn, a n d t h e i r s u m is E^. L e t w o r l d e x p o r t s ( t h e o r e t i c a l l y

e q u a l t o w o r l d i m p o r t s ) b e

= El + E2 + • • • + E„ + E , * = I, + I2 + • • • + In + Ix = Iw

T h e n , b y i m p o r t i n g f r o m o t h e r c o u n t r i e s , X o b t a i n s t h e f r a c t i o n s

A i l . . . i l L

El E2 En

o r t h e p e r c e n t a g e s h a r e s

il 12 in • 100, — • 100, • • • 100

E, E . E„

i n t h e t o t a l e x p o r t s o f t h e s e c o u n t r i e s . W e c a n f o r m t w o a r i t h m e t i c • The values of the exports and the imports of the various countries are assumed

to have been reduced to a common currency. [ 8 7 ]


s h a r e s " i s :

( i ) W . A . =

W . A . = El + E2 + . . . + E„

il + 12 + • • • + in = . 100

El + Ea + • • • + En

100

Ew E]c Iw I i

T h e " u n w e i g h t e d a v e r a g e o f t h e s h a r e s " I s :

(.) u.A. = i . ( i H 4 - + . . . + i : ^ n \ E i £2 En

W e a d o p t , a s i n d e x o f p r e f e r e n c e o f t h e i m p o r t s o f X f o r t h e

s m a l l e r c o u n t r i e s , t h e e x p r e s s i o n

(3) R = ^ — • t o o ^ W . A .

f o r t h e f o l l o w i n g r e a s o n s : T h e u n w e i g h t e d a v e r a g e d e p e n d s u p o n

t h e s u m o f t h e i n d i v i d u a l p e r c e n t a g e s s e c u r e d b y X i n t h e t o t a l

e x p o r t s o f t h e o t h e r c o u n t r i e s . E v e r y i n d i v i d u a l p e r c e n t a g e c a r r i e s

t h e s a m e w e i g h t w h e t h e r i t r e l a t e s t o t h e t o t a l t r a d e , s a y , o f G r e a t

B r i t a i n o r o f B u l g a r i a . T h e s v i m o f t h e r a t i o s s e c u r e d i n b o t h t h e s e

c o u n t r i e s d e p e n d s , t h e r e f o r e :

1) w i t h a g i v e n d i s t r i b u t i o n of X ' s t r a d e a s b e t w e e n G r e a t B r i t a i n a n d B u l g a r i a , u p o n che t o t a l t r a d e of these t w o c o u n t r i e s ^ s we l l as o n t h e c o m b i n e d t r a d e of X w i t h t h e m . M ^ " ,

2) w i t h g i v e n to ta l s of G r e a t B r i t a i n ' s a n d B u l g a r i a ' s t r a d e a n d w i t h a fixed a m o u n t o f X ' s t r a d e w i t h these t w o c o u n t r i e s t a k e n t o g e t h e r , u p o n t h e r e l a t i v e d i s t r i b u t i o n of X ' s t r a d e as b e t w e e n G r e a t B r i t a i n a n d B u l g a r i a . B y t r a n s f e r r i n g t r a d e f r o m B r i t a i n to B u l g a r i a , X increa se s , i n d e e d , t h e p e r c e n t a g e s e c u r e d in B u l g a r i a ' s t o t a l t r a d e b y m o r e t h a n i t de-creases t h e p e r c e n t a g e h e l d i n G r e a t B r i t a i n ' s t o t a l t r a d e .

T h e w e i g h t e d a v e r a g e i s c o m p u t e d p r e c i s e l y t o e l i m i n a t e t h e

s e c o n d t y p e o f b e h a v i o r o f t h e u n w e i g h t e d a v e r a g e ; i t r e s p o n d s

a v e r a g e s o f t h e f r a c t i o n s o r o f t h e p e r c e n t a g e s h a r e s , a s i m p l e a v e r a g e

a n d a w e i g h t e d a v e r a g e . T h e " w e i g h t e d a v e r a g e o f t h e ( p e r c e n t a g e )

Statistical Inquiries into Structure 89

o n l y to c h a n g e s o£ t h e first t y p e . I t is t h e r e f o r e p o s s i b l e to i so late

the factors u n d e r e x p r e s s i o n (2) b y d i v i d i n g t h e u n w e i g h t e d b y t h e

w e i g h t e d a v e r a g e .

I f b o t h a v e r a g e s a r e e q u a l , a n d o u r i n d e x c o n s e q u e n t l y is e q u a l

t o 100, t h e r e l a t i v e d i s t r i b u t i o n of X ' s t r a d e as b e t w e e n l a r g e a n d

s m a l l t r a d i n g c o u n t r i e s d o e s n o t e x e r t a n y " d i s t o r t i n g " effect u p o n

t h e v a l u e o f t h e u n w e i g h t e d a v e r a g e . I n this case t h e r e ex is ts , o n the

w h o l e , n o p r e f e r e n c e for e i t h e r s m a l l o r l a r g e c o u n t r i e s . I f t h e i n d e x

rises a b o v e t o o , th is m e a n s that , o n the whoJe, h i g h e r p e r c e n t a g e s

a r e s e c u r e d i n the s m a l l e r t r a d i n g c o u n t r i e s ; a n d if it fal ls b e l o w 100,

h i g h e r p e r c e n t a g e s a r e s e c u r e d i n the l a r g e r t r a d i n g countries .^

T h e c a l c u l a t i o n o f t h e i n d e x w a s d o n e b y c o m p u t i n g first t h e

w e i g h t e d a n d t h e u n w e i g h t e d a v e r a g e of the s i n g l e shares h e l d b y

a c o u n t r y ' s t r a d e i n t h e total t r a d e of the o t h e r c o u n t r i e s . " C e r t a i n

d e f i n i t e m e a n i n g s c a n b e a t t a c h e d to these i n t e r m e d i a t e steps o f o u r

c a l c u l a t i o n .

P u t t i n g G e r m a n y f o r X , t h e w e i g h t e d a v e r a g e o f t h e p e r c e n t a g e

shares w h i c h she h o l d s i n the t o t a l e x p o r t s o f o t h e r c o u n t r i e s is

s i m p l y t h e s h a r e she o c c u p i e s t h r o u g h h e r i m p o r t s in t h e e x p o r t s

o f a l l o t h e r c o u n t r i e s l u m p e d t o g e t h e r . I t is to b e n o t e d that this is

n o t t h e q u a n t i t y w h i c h is g e n e r a l l y c a l l e d " G e r m a n s h a r e in w o r l d

i m p o r t s . " T h i s l a t t e r q u a n t i t y h a s b e e n c a l c u l a t e d a n n u a l l y b y t h e

^ S e e A p p e n d i x A for a m o r e e x t e n d e d d i s c u s s i o n of t h e i n d e x . " T h u s , in c a s e of t h e c o m p u t a t i o n o f t h e i n d e x for , s a y . G e r m a n i m p o r t s , w e n e e d ,

f o r t h e unweighted average, t h e p e r c e n t a g e s h c i d hy t h e e x p o r t s t o G e r m a n y i n t h e tota l e x p o r t s of t h e U n i t e d S t a t e s , G r e a t B r i t a i n , e t c . T h e s e p e r c e n t a g e s n c r e t a k e n t h r o u g h o u t f r o m t h e a n n u a l pubMcation. International Trade Statistics, oi t h e E c o n o m i c I n t e l l i g e n c e S e r v i c e o f t h e L e a g u e of N a t i o n s . T h e " S u m m a r y T a l l i e s b y C o u n t r i e s of P r o v e n a n c e a n d D e s t i n a t i o n " at t h e e n d of t h e v o l u m e s w e r e f o u n d p a r t i c u l a r l y u s e f u l in s p e e d i n g u p t h e w o r k of w r i t i n g d o w n t h e p e r c e n t a g e s . F o r the c o m p u t a t i o n o f t h e weighted average, w e n e e d : ( i ) as d e n o m i n a t o r , t h e s u m o f t h e e x p o r t s o f t h e c o u n t r i e s w i t h w h i c h G e r m a n y t r a d e s , e x p r e s s e d in a c o m m o n c u r r e n c y ; t h i s s u m w a s c a l c u l a t e d f r o m t h e t r a d e s t a t i s t i c s in g o l d d o l l a r s p u b l i s h e d i n i h e a n n u a l Review of World

Trade by t h e E c o n o m i c f n t e l l i g e n c e S e r v i c e of t h e L e a g u e of N a t i o n s . A n d w e n e e d : (2) a s n u m e r a t o r , t h e t o t a l i m p o r t s of G e r m a n y f r o m the U n i t e d S l a t e s , G r e a t B r i t a i n , e t c . . e x p r e s s e d i n t h e s a m e c o m m o n c u r r e n c y a s t h e d e n o m i n a t o r . T h i s figure w a s n o t t a k e n f r o m G e r m a n s t a t i s t i c s , b u t , for r e a s o n s o f h o m o g e n e i t y , f r o m t h e t r a d e s t a t i s t i c s of G e r m a n y ' s t r a d i n g p a r t n e r s . T h e t w o p r e v i o u s s t e p s in o u r c a l c u l a t i o n s p r o v i d e d t h e n e c e s s a r y m a t e r i a l for th i s s e e m i n g l y c u m b e r s o m e p r o c e d u r e . T h u s , in o r d e r to o b t a i n , f o r e x a m p l e . B r i t i s h e x p o r t s t o G e r m a n y e x p r e s s e d i n g o l d d o l l a r s , w e m u l t i p l i e d t h e p e r c e n t a g e h e l d by G e r m a n y in G r e a t B r i t a i n ' s e x p o r t s (a s r e c o r d e d p r e v i o u s l y for t h e c o m p u t a t i o n o f t h e u n w e i g h t e d a v e r a g e ) by t h e g o l d d o l l a r v a l u e of G r e a t B r i t a i n ' s to ta l e x p o i t s (as r e c o r d e d p r e v i o u s l y for t h e c o m p u t a t i o n o f t h e d e n o m i n a t o r o f the w e i g h t e d a v e r a g e ) a n d d i v i d e d by Joo.

go National Power ani Foreign Trade

I n t h i s f o r m w e c a n c o n s i d e r t h e u n w e i g h t e d a v e r a g e a s a n e x p r e s s i o n of t h e i m p o r t a n c e of G e r m a n y ' s t r a d e to t h e o t h e r c o u n t r i e s , a s s h o w n by t h e w e i g h t e d a v e r a g e c o r r e c t e d b y t h e i n d e x o f p r e f e r e n c e f o r s m a l l c o u n t r i e s .

I n d e e d , if w e c o n s i d e r t h a t t h i s i m p o r t a n c e d e p e n d s n o t o n l y

u p o n t h e a m o u n t of t r a d e c o n d u c t e d w i t h o t h e r c o u n t r i e s , b u t a l s o

u p o n t h e w a y i n w h i c h th i s t r a d e is d i s t r i b u t e d b e t w e e n l a r g e a n d

s m a l l c o u n t r i e s , t h e i n t r o d u c t i o n of t h e i n d e x of p r e f e r e n c e a s a

c o r r e c t i v e f a c t o r is f u l l y j u s t i f i e d . I n th i s w a y t h e u n w e i g h t e d aver

a g e m a y b e l o o k e d a t , n o t a s a n i n t e i - m e d i a t e s t e p i n o u r calcvi I a t i o n s ,

b u t a s i ts final o u t c o m e . I t s h o w s , so f a r a s p o s s i b l e b y p u r e l y q u a n

t i t a t i v e m e t h o d s , t h e a g g r e g a t e " i m p o r t a n c e " of a c o u n t r y ' s t r a d e to

*C£., in particular, the annual publication, Review of World Trade. * See above, n. 2, p- 89, ^ Since [he answer to the first question only is given by the available statistics, it is

easily confused wj[h the answer to the second question. The denominator of the fraction thus used is larger than it ought to be, and this leads to an underestimate of a country's importance to the rest of the world. The underestimate may be serious if the country holds an important place jn world trade.

Economic Intelligence S e r v i c e o f t h e L e a g u e o f N a t i o n s ^ a n d is f o u n d b y d i v i d i n g t h e i m p o r t s , a s g i v e n b y t h e G e r m a n s t a t i s t i c s ( b u t c o n v e r t e d i n t o a n i n t e r n a t i o n a l c u r r e n c y ) , b y w o r l d i m p o r t s .

T h e figure r e l e v a n t fo r o u r a n a l y s i s is o b t a i n e d b y d i v i d i n g G e r m a n i m p o r t s , as g i v e n b y t h e export statistics of the other countries*

t h r o u g h t o t a l w o r l d e x p o r t s minus German exports. W h e r e a s t h e figure g e n e r a l l y c a l c u l a t e d g i v e s a n a n s w e r to t h e q u e s t i o n : H o w m u c h of e v e r y t h i n g w h i c h is i m p o r t e d o r e x p o r t e d is i m p o r t e d o r e x p o r t e d b y G e r m a n y ? , t h e figure h e r e c o m p u t e d a n s w e r s t h e q u e s t i o n : A l l c o u n t r i e s e x c e p t G e r m a n y b e i n g c o n s i d e r e d t o g e t h e r , w h a t is t h e p r o p o r t i o n of t h e i r i m p o r t s o r e x p o r t s a c c o u n t e d for b y G e r m a n y ?

T h i s l a t t e r q u e s t i o n s e e m s t o t h e w r i t e r t o b e a s i m p o r t a n t a s t h e first o n e , a s it p o i n t s o u t t h e i m p o r t a n c e of a c e r t a i n c o u n t r y ' s t r a d e for t h e r e s t o f t h e wor ld .^

T h e u n w e i g h t e d a v e r a g e is s e e n t o h a v e a m e a n i n g if w e w r i t e e x p r e s s i o n (3) a b o v e i n t h e f o l l o w i n g f o r m :

U . A . = W . A . - —

Statistical Inquiries into Structure GI

the economies of the other countr ies , the " i m p o r t a n c e " b e i n g con

ceived as the c o m b i n e d r e s u k of the a m o u n t of the country 's trade

and of its preference for small countr ies .

Before c o m i n g to the e x p l a n a t i o n of the figures, w e have still to

define clearly w h a t we m e a n by a small o r a large country . O u r i n d e x

is an i n d e x of preference for countr ies h a v i n g a small foreign trade.

T h i s is actual ly w h a t w e w o u l d have had to measure if w e had

w a n t e d to i l lustrate statistically the ideas expressed on and f o l l o w i n g

page 29. If re l iable statistics were avai lable s h o w i n g the levels of real

incomes of the var ious states at different epochs, ^\e c o u l d have

ca lculated an i n d e x of preference of, say, G e r m a n , Engl ish , etc.,

trade for countr ies w i t h small real incomes, a n d in this way w e c o u l d

have tested o u r ideas w i t h respect to the re lat ionship of a p o w e r

policy a n d the diversion of trade to poor countr ies . In the present

unsatisfactory state of statistics of nat ional real income, w e e m p l o y e d

at an earl ier j u n c t u r e a rough-and-ready m e t h o d re ly ing on C o l i n

C lark ' s c o m p a r a t i v e study of nat ional incomes." A s the states wli ich

are small w i t h respect to territory and p o p u l a t i o n b u t enjoy a h i g h

level of real i n c o m e (for e x a m p l e , B e l g i u m , H o l l a n d , Switzerland,

D e n m a r k , N e w Zealand, etc.) general ly handle a considerable vol

u m e of foreign trade, however , an i n d e x of preference for the small

t rad ing nations turns o u t to be r o u g h l y representat ive for an i n d e x

of preference for the countr ies w h i c h are both small and poor.

I N T E R P R E T A T I O N O F T H E S T A T I S T I C S

T h e i n d e x has b e e n c o m p u t e d for six great powers: the U n i t e d

States, the U n i t e d K i n g d o m , G e r m a n y , France, Italy, a n d Japan,

for the per iod f r o m 1925 to 1938 and for 1913. T h e calculat ions are

based on data for fifty-one countr ies w h i c h control f rom 90 to 95

per cent of w o r l d trade. I n order to m a k e the i n d e x m o r e meaning

ful , no account was taken of the colonial or semicolonial countries ,

w i t h the e x c e p t i o n of India and the Southwest Pacific area. In 1938

A u s t r i a n trade, if reported separately, was added to G e r m a n trade,

l e a v i n g us for that year only fifty countr ies .

In the f o l l o w i n g we shall refer to the i n d e x of preference for small

countr ies as s imply " the i n d e x , " to the u n w e i g h t e d average of the

shares as the "average i m p o r t or export share," a n d to the w e i g h t e d

' Sec a b o v e , p . 37.


T A B L E I

INDICES OF PKEFERENCE FOR SMALL OR LARGE TRADING COUNTRIES I 9 I 3 192s 1927 1929 1930

IMPORIS OF

G e r m a n y U.A.* W . A . t

12 .70 1 6 . 1 2 7 S . S

1 0 . 6 4 8 , 4 6

1 2 5 . 8

9 , 8 1 7 , 5 5

1 2 9 , 9

1 2 . 3 7 1 0 . 2 2

1 2 1 . 0

1 2 . 8 2 9 , 7 8

1 3 1 , 1

1 1 . 9 5 9 , 2 3

1 2 8 . 8

1 1 . 2 0 8.39

1 3 3 . 5 E n g l a n d u . a .

W . A . I.

2 4 . 3 4 2 2 . 2 7

1 0 9 . 3

2 3 , 9 2 2 1 . 6 1

1 1 0 , 7

2 3 . 8 0 2 0 , 8 0

1 1 4 . 4

2 3 . 2 9 2 0 . 0 4

1 1 6 , 2

2 2 . 1 0 18 ,93

1 1 6 . 7

2 2 , 0 9 18 ,63

1 1 8 , 4

2 3 , 4 4 2 0 . 1 5

1 1 6 . 3 U. S. A . U.A.

W . A . I .

1 3 . 6 5 9 . 2 2

1 4 8 . 1

1 7 . 0 9 1 5 , 5 2

1 1 0 . 1

1 7 , 6 5 1 5 . 9 9

1 1 0 , 4

1 6 . 5 4 1 4 , 7 0

1 1 2 . 5

1 6 , 0 3 1 3 , 8 5

1 1 5 . 7

J 6 . 6 9 1 4 . 3 1

1 1 6 . 6

1 5 . 3 2 12 .03

1 2 7 . 3 F r a n c e U.A.

W . A . I .

6 . 7 0 6 . 6 8

1 0 0 . 3

4 , 7 3 5 , 0 9

9 2 . 9

4 . 7 7 5 , 1 6

9 2 . 4

4 , 3 9 4 , 7 3

9 2 , 8

4.73

5 , 0 7 9 3 . 3

4 . 9 7 5 . 4 3

9 1 . 5

5 . 3 1 6 . 1 9

8 5 . 8 I t a l y U.A.

W . A . I.

2 . 2 1 3 . 0 5

7 2 . 5

3 , 8 9 3 , 4 0

1 1 4 . 4

3 ,78 3 , 0 2

1 2 5 , 2

3 . 5 4 2 . 8 1

1 2 6 . 0

3 . 6 6 3 . 2 1

1 1 4 . 0

3 , 7 9 3 . 1 5

1 2 0 . 3

3 . 9 4 3 , 0 9

127 . S J a p a n U.A.

W.A. I .

1.33 1 .83

7 2 . 7

1 ,85 3 , 3 1

5 5 , 9

1.98 3 . 4 3

5 7 . 7

1 .79 3 . 0 5

5 8 . 7

1.78 3 . 1 1

5 7 . 2

1 .84 2 . 8 2

6 5 . 2

1 .70 2 . 4 9

6 3 . 3 EXPORTS OF:

GERMANY U.A. W . A . I.

? 7 . 0 2 16 ,89

1 0 0 . 8

1 2 , 8 3 8 , 1 4

1 5 7 . 6

13 .63 9 , 4 0

1 4 5 , 0

13 .58 9 . 3 5

1 4 5 . 2

1 4 . 5 4 10 .48

1 3 8 . 7

1 4 . 9 8 1 0 . 7 1

1 3 9 . 9

1 5 . 3 4 12 .14

1 2 6 , 4 E n g l a n d U.A.

W . A . I .

2 1 . 0 8 17 .28

1 2 2 . 0

1 8 . 6 1 1 6 . 2 9

1 1 4 , 2

1 6 , 4 5 1 4 , 4 1

1 1 4 , 2

1 6 , 7 5 1 4 . 3 5

1 1 6 . 7

1 6 , 1 5 1 3 , 8 2

1 1 6 , 9

15 .79 1 3 . 4 0

1 1 7 . 8

15 .78 13 .26

1 1 9 . 0 U . S. A . U.A.

W . A . I .

13 .64 1 3 . 4 0

1 0 1 . 8

19 ,28 19 ,23

1 0 0 , 3

1 9 , 3 1 19 ,33

1 0 0 , 0

1 9 . 0 0 I S . 4 0

1 0 3 . 3

19 ,19 1 8 , 1 2

1 0 5 , 9

1 9 . 5 5 18 .43

1 0 6 . 1

18 .20 16 ,88

1 0 7 . 8 F r a n c e U.A.

W.A. I .

5 . 1 4 5 . 7 2

8 9 , 9

4 , 5 1 4 , 8 9

9 2 , 2

5 . 0 2 4 . 8 2

1 0 4 , 2

5 , 0 5 5 . 3 1

9 5 , 1

4 , 9 2 5 , 2 5

9 3 . 7

4 . 6 0 4.94

9 3 . 1

4 . 6 0 4 , 9 1

9 3 , 7 I t a l y U.A.

W.A. I.

2 , 2 2 2 , 1 7

1 0 2 . 3

3 , 7 0 2 , 7 5

1 3 4 , 5

3 . 4 8 2 . 5 5

1 3 6 . 5

3 . 2 1 2 , 5 0

1 2 8 . 4

3 , 0 2 2 . 3 8

1 2 6 , 9

2 . 9 6 2 . 3 8

1 2 4 , 4

3 . 1 4 2 , 4 1

1 3 0 . 3 J a p a n U.A.

W . A , X.

1.27 1.56

8 1 . 4

1 .98 2 . 9 9

6 6 . 2

1 .97 3 . 1 4

6 2 . 7

2 , 0 2 2 , 9 2

6 9 , 2

1.86 2 , 8 5

6 5 . 3

2 . 0 2 2 . 8 7

7 0 . 4

2 , 1 6 2 ,75

7 8 , 5

impam (e.pom) OI^T^YZRCOZZL f'''"""' Germany, England, etc., In total

imp/rt^(^lJon«) o f ' f t y l f c o ^ ' r t r ' ' " ^ '"^^^^ ''""^ Germ. . , . E«.)and. .TC, I. total t Indei of preference for large or small Wading countries ( = • IOO\

\ W.A. J '


1931 l9iZ 1933 1934 193 S 1936 1937 1938

Imports of: 9 . 8 3 9 95 10 07 11 47 11 48 11 89 11 92 14 94 G e r m a n y 7-81 7 96 8 00 8 65 8 31 7 43 7 53 9 87

G e r m a n y

1 2 5 . 9 125 0 133 8 134 7 138 2 160 0 158 3 161 4

2 5 . 4 8 25 41 26 23 25 57 24 87 25 25 23 92 24 67 E n g l a n d 2 2 . 1 8 21 41 21 99 21 87 22 07 22 65 20 06 21 13

E n g l a n d

1 1 4 , 9 118 7 119 3 116 9 112 7 111 5 119 2 116 8

1 4 . 7 3 13 74 13 70 13 63 14 84 15 56 15 61 13 79 U . S. A. 11 .47 11 22 10 89 10 40 14 68 14 41 13 70 11 0 2

1 2 6 . 4 122 5 125 8 131 1 1 0 1 1 108 0 113 9 125 1

5 . 6 9 5 62 5 63 4 67 4 31 4 62 4 20 3 79 F r a n c e 6 .51 6 63 6 69 5 53 4 86 4 89 4 65 4 12

8 7 . 4 8 4 8 8 4 1 84 4 8 8 7 9 4 5 9 0 3 92 0

3 . 7 2 3 93 3 81 3 70 3 54 2 09 2 96 2 55 I t a l y 2 . 8 9 3 07 3 19 3 27 3 14 1 89 2 63 2 35

I t a l y

1 2 8 . 7 128 0 119 4 113 2 112 7 110 6 112 5 108 5

2 . 1 5 2 01 1 89 2 10 2 13 2 56 2 30 I 88 J a p a n 2 . 8 0 2 94 2 93 3 32 3 22 3 48 3 28 2 73

J a p a n

7 8 . 8 6 8 4 6 4 5 63 3 6 6 1 73 6 7 0 1 68 4

Exports of: 1 6 . 0 0 15 05 14 18 13 03 14 25 16 56 15 80 17 70 G e r m a n y 1 3 . 6 0 12 04 11 46 10 09 9 82 10 0 4 9 66 10 88

G e r m a n y

1 1 7 . 6 125 0 123 7 129 1 145 1 164 9 163 6 162 7

15 .13 16 47 17 85 17 80 17 69 16 31 15 45 15 41 E n g l a n d 12 .25 13 04 13 88 14 21 14 52 14 19 13 10 13 29

E n g l a n d

1 2 3 . 5 126 3 128 6 125 3 121 8 114 9 117 9 116 0

1 6 . 8 2 15 85 14 92 15 88 16 00 16 27 17 04 18 35 U . S . A . 14 .48 14 13 13 01 13 34 13 37 13 91 14 66 15 73

1 1 6 . 2 112 2 114 7 119 0 119 7 117 0 116 2 116 7

4 . 4 7 4 20 4 27 4 12 3 52 2 88 2 68 2 97 F r a n c e 4 . 9 0 4 23 4 49 5 05 3 80 3 18 2 98 3 12

9 1 . 2 99 3 95 1 8 1 6 9 2 6 9 0 6 8 9 9 9 5 2

3 . 3 4 3 46 3 34 3 00 2 4 0 1 29 2 05 2 29 I t a l y 2 . 7 1 2 66 2 61 2 39 2 07 1 32 1 68 1 97

I t a l y

123 6 130 1 128 0 125 6 115 9 97 7 122 0 112 1

2 . 4 1 2 75 3 31 3 91 4 15 3 79 3 30 3 00 J a p a n 2 78 2 83 2 97 3 0 0 3 31 3 10 2 85 2 41

J a p a n

86 7 97 2 1 1 1 5 130 3 125 4 122 3 115 8 124 4


a v e r a g e o f t h e s e s h a r e s a s t h e " p e r c e n t a g e i n w o r l d t r a d e , " b e a r i n g i n m i n d t h e d i f f e r e n c e b e t w e e n o u r t h i r d e x p r e s s i o n a n d t h e u s u a l m e a n i n g o f t h i s t e rm. ' '

T h e f o l l o w i n g m a i n r e s u l t s a p p e a r f r o m t a b l e i:

^ I n g e n e r a l a de f in i t e r e g u l a r i t y a p p e a r s to e x i s t i n t h e p h e n o m e n o n the i n d e x i n t e n d s to m e a s u r e : I n m o s t of t h e ser ies i t is h i g h l y s t a b l e d u r i n g t h e p e r i o d 1925 t o 1938, w h i c h o t h e r w i s e h a s b e e n m a r k e d b y t r e m e n d o u s e c o n o m i c u p h e a v a l s . T h e higf ies t v a l u e of t h e i n d e x obt a i n e d is 164.9 for G e r m a n e x p o r t s in 19,^6. T o find o u t o n e of t h e poss i b l y l o w e s t v a l u e s , w e h a v e c o m p u t e d s e p a r a t e l y t h e i n d e x for C a n a d a , the t r a d e f r o m w h i c h g o e s m a i n l y to t h e two l a r g e s t t r a d i n g c o u n t r i e s ; for C a n a d a w e o b t a i n e d a v a l u e of 37 for b o t h imports a n d e x p o r t s in the year 1937.

T h e r e is g e n e r a l l y a r a t h e r c lo se c o n n e c t i o n for a n y o n e c o u n t r y bet w e e n the level a n d m o v e m e n t s o f t h e i n d e x for i m p o r t s a n d f o r e x p o r t s . O n e n o t a b l e e x c e p t i o n is J a p a n (see p o i n t 5).

S o far a s a p r e f e r e n c e for the s m a l l t r a d i n g c o u n t r i e s is c o n c e r n e d , w e n o t e t h a t it p r e v a i l s in t h e i n d i c e s for al l t h e b i g p o w e r s w i t h t h e e x c e p t i o n of F r a n c e a n d , w i t h r e s p e c t to i m p o r t s , w i t h the e x c e p t i o n of J a p a n . A n y t r a d e b e t w e e n a l a r g e a n d a s m a l l t r a d i n g c o u n t r y l e a d s to the p o w e r d i s e q u i l i b r i u m w h i c h w e h a v e d e s c r i b e d , s ince , w h a t e v e r t h e volu m e of t r a d e , it w i l l a l w a y s b e m o r e diff icult for t h e s m a l l t r a d i n g c o u n t r y to d i v e r t its t r a d e t h a n it w i l l b e for t h e l a r g e o n e . B u t w e see n o w that the s t r u c t u r e of t h e t r a d e of m o s t l a r g e c o u n t r i e s is s u c h as to e m p h a s i z e this e l e m e n t o f p o w e r a l r e a d y i n h e r i n g in t r a d e r e l a t i o n s .

^ T h e m o s t i n t e r e s t i n g s i n g l e ser ies is the G e r m a n o n e . F o r b o t h i m p o r t s a n d e x p o r t s , t h e i n d e x r ises a b r u p t l y b e t w e e n 1913 a n d 1925. T o a l a r g e e x t e n t th i s is to b e e x p l a i n e d b y t h e fact that t w o of t h e m a i n t r a d i n g a r e a s of G e r m a n y , i .e., e a s t e r n a n d s o u t h e a s t e r n E u r o p e , w e r e d i v i d e d b y t h e p e a c e t rea t i e s o f 1918 i n t o a l a r g e n u m b e r of s m a l l c o u n tries . N e i t h e r B r i t a i n n o r t h e U n i t e d S t a te s n o r F r a n c e h a d a l a r g e t r a d e w i t h these a r e a s ; c o n s e q u e n t l y t h e i r indi^ces w e r e n o t g r e a t i y a f fected w h e n they w e r e b r o k e n u p i n t o s m a l l p o l i t i c a l u n i t s . N o t u n l i k e the Germ a n i n d e x , t h e I t a l i a n a l s o r o s e s u b s t a n t i a l l y f r o m 1913 to 1925. T h e i n d e x t h u s b r i n g s o u t w i t h p a r t i c u l a r c l a r h y the fact t h a t the t e r r i t o r i a l s t i p u l a t i o n s of t h e p e a c e t rea t i e s a c t u a l l y h e l p e d G e r m a n y a n d Ita ly— t h e v a n q u i s h e d a n d t h e so-ca l l ed " f r u s t r a t e d v i c t o r " — t o i n c r e a s e the i r p o t e n t i a l i t i e s o f e c o n o m i c p o w e r .

T h e G e r m a n i n d i c e s r e a c h t l ieir l o w e s t v a l u e d u r i n g the d e p r e s s i o n year s , b u t it is n o t i c e a b l e t h a t the i r g e n e r a l level is h i g h e r in a n d foll o w i n g 1925 t h a n tl ie i n d i c e s o f a n y o t h e r c o u n t r y , t h e I t a l i a n i n d i c e s c o m i n g n e a r e s t t o t h e G e r m a n level . T h u s , e v e n b e f o r e t h e c o n s c i o u s p o l i c y of i n c r e a s i n g i n f l u e n c e t h r o u g h a r e d i s t r i b u t i o n of f o r e i g n t r a d e

' See above, p. 88.

Statistical Inquiries into Structure 9 5

c a m e i n t o b e i n g , G e r m a n c o m m e r c e w a s s t r u c t u r a l l y d i r e c t e d t o w a r d t h e s m a l l c o u n t r i e s m o r e t h a n it w a s t o l a r g e c o u n t r i e s . I n s h o r t , Germ a n y f o i m d hersel f , i u 1933, we l l s i t u a t e d to p u r s u e a p o w e r p o l i c y t h r o u g h f o r e i g n t r a d e .

F r o m 1934 to 1936 t h e i n d i c e s for G e r m a n e x p o r t s a n d for G e r m a n i m p o r t s b o t h a r r i v e b y t w o a b r u p t j u m p s at r e c o r d levels f a r b e y o n d t h e i n d i c e s o f a n y o t h e r c o u n t r y . I m p o r t s l e a d i n t h i s p r o c e s s , b u t in t i m e a r c o u t d i s t a n c e d by t h e e x p o r t s . T h i s s h o w s a g a i n t h a t G e r m a n y i n i t i a t e d h e r t r a d e d r i v e b y i n c r e a s i n g i m p o r t s f r o m o t h e r c o u n t r i e s , m a i n l y t h o s e of s o u t h e a s t e r n E u r o p e . T h o u g h the d r i v e c o n t i n u e d ti l l 1938, the i n d e x , w i t h s o m e s l i g h t d o w n w a r d t e n d e n c y , is m o r e or less s t a b l e I r o m 1936 o n . T h i s s t a b i l i t y c a n b e e x p l a i n e d b y G e r m a n y ' s e x p a n d i n g t r a d e d r i v e i n t h e s o m e w h a t l a r g e r S o u t h A m e r i c a n c o u n t r i e s a n d by her i n c r e a s e d b u y i n g for i n v e n t o r y f r o m t h e U n i t e d S u t e s d u r i n g 1938.

«* T u r n i n g n o w t o the a v e r a g e s h a r e in i m p o r t s a n d e x p o r t s , t a k e n a s a n a p p r o x i m a t i o n to t h e a g g r e g a t e " i m p o r t a n c e " of a c o u n t r y ' s t r a d e to the e c o n o m i e s o t t h e o t h e r c o u n t r i e s , ' w e d i s c o v e r t h a t t h e a v e r a g e G e r m a n i m p o r t s h a r e in o t h e r c o u n t r i e s is l a r g e r in 1938, for t h e first t i m e , t h a n t h e A m e r i c a n s h a r e , a h h o u g h the A m e r i c a n p e r c e n t a g e in w o r l d i m p o r t s ( the " w e i g h t e d a v e r a g e " ) i s T a r g r e a t e r t h a n t h e G e r m a n o n e . A s i m i l a r r e l a t i o n s h i p h o l d s for the G e r m a n a v e r a g e s h a r e in e x p o r t s w i t h r e g a r d t o t h e E n g l i s h sharcTrbmT936~tl3 i p ^ a a T i d t o l T T c A n i e r i c a n s h a r e in ] 936.

I n b o t h s i t u a t i o n s , t h e c o n s i d e r a b l e i n f e r i o r i t y of G e r m a n y w i t h r e s p e c t t o the a c t u a l v o l u m e of her t r a d e w a s m o r e t h a n c o m p e n s a t e d by the p a r t i c u l a r c o u n t r y - d i s t r i b u t i o n she h a d s u c c e e d e d in g i v i n g to h e r t r a d e , so t h a t the a v e r a g e s h a r e h e l d in o t h e r c o u n t r i e s w a s s u p e r i o r to t h a t h e l d by E n g l a n d a n d t h e U n i t e d Sta tes .

T h e b e h a v i o r of t h e G e r m a n i n d i c e s s i n c e the r i se t o p o w e r of N a t i o n a l S o c i a U s m g i v e s as g o o d a n i n s t a n c e a s c o u l d b e d e s i r e d t o i l l u s t r a t e the g e n e r a l p r i n c i p l e s of a p o w e r p o l i c y u s i n g f o r e i g n t r a d e a s its i n s t r u m e n t .

^ T h c m o s t s t a b l e scr ie s a r e the E n g l i s h a n d t h e F r e n c h . T h e l o w level o f the E r c n c h i n d i c e s is e x p l a i n e d by t h e fact t h a t the F r e n c h colo n i e s a r c n o t i n c l n t l e d i n o u r c a l c u l a t i o n s . T h e F r e n c h s c r i e s t h e r e f o r e h a v e to b e c o n s i d e r e d a s p e r t a i n i n g to t h e v o l u m e a n d t h e count ry-d i s t r i b u t i o n of n o n c o l o n i a l F r e n c h t r a d e ; a n d it is i n t e r e s t i n g to n o t e tha t this t r a d e s h o w e d o n t h e w h o l e a p r e f e r e n c e for l a r g e t r a d i n g c o u n -n i c s . T h i s is a c o n s e q u e n c e of the s l i ght in f luence of F r e n c h t r a d e in t h e s m a l l t r a d i n g c o u n t r i e s of E u r o p e a n d S o u t h A m e r i c a .

T h e I t a l i a n i n d i c e s , as a l r e a d y n o t e d , m o v e in g e n e r a l o n a h i g h level , g i v i n g s o m e s u p p o r t to the thes i s tha t I t a l y was t h e o n l y p o w e r w h i c h , b e c a u s e of the s t r u c t u r e of its f o r e i g n t r a d e , c o u l d h a v e effectively o p p o s e d t h e G e r m a n t r a d e d r i v e t o w a r d s m a l l E u r o p e a n c o u n t r i e s , e s p e c i a l l y t h o s e in s o u t h e a s t e r n E u r o p e , O n e s h o u l d not , h o w e v e r , overr a t e t h e i m p o r t a n c e of t h e h i g h level o f t h e I t a l i a n i n d i c e s ; it i s c o m b i n e d w i t h a r a t h e r l o w p e r c e n t a g e in w o r l d t r a d e , s o tha t t h e a v e r a g e share—

STATISTICAL INQUIRIES INTO STRUCTURE 97

p o n s a n d 2.67 p e r c e n t (2 .75 p e r c e n t ) f o r e x p o r t s t o o n l y 3.88 (3.28) a n d 3,65 (3-31) , r e s p e c t i v e l y . ^ I f w c l o o k , i n s t e a d , a t t h e u n w e i g h t e d a v e r a g e s h a r e o f J a p a n e s e e x p o r t s i n t h e i m p o r t s o f o t h e r c o u n t r i e s , w e s e c t h a t t h i s f i g u r e h a s a p p r o x i m a t e l y d o u b l e d i n t h e s a m e i n t e r v a l , a n d b e g i n n i n g in 1935 w a s g r e a t e r t h a n b o t h t h e F r e n c h a n d I t a l i a n a v e r a g e s h a r e s . T h u s , t h e m o d e r a t e i n c r e a s e in t h e r e l a t i v e v o l u m e o f J a p a n e s e e x p o r t s d i d n o t te l l t h e w h o l e s t o r y ; b y d i r e c t i n g t h e i n c r e a s e o f h e r t r a d e m o r e t o w a r d s m a l l e r countries, J a p a n s u c c e e d e d in i n c r e a s i n g h e r i n f l u e n c e i n f o r e i g n c o u n t r i e s m o r e t h a n w o u l d h a v e c o r r e s p o n d e d t o t h e r e l a t i v e i n c r e a s e i n v o l u m e o f h e r e x p o r t s .

(SJ W h e r e a s f o r J a p a n ' s e x p o r t s t h e r e is a s i m u l t a n e o u s i n c r e a s e o f h e r s h a r e i n w o r l d e x p o r t s a n d of t h e i n d e x , f o r m o s t o f t h e o t h e r c o u n t r i e s , a n d p a r t i c u l a r l y f o r t h e t h r e e l a r g e s t o n e s ( U n i t e d S t a t e s , U n i t e d K i n g d o m , a n d G e r m a n y ) , w e f i n d a n e g a t i v e c o r r e k u i o n b e t w e e n t h e m o v e m e n t o f t h e i n d e x a n d t h e p e r c e n t a g e i n w o r l d t r a d e r e l a t i n g t o o n e c o u n t r y ' s i m p o r t s o r e x p o r t s . T h i s is p a r t i c u l a r l y e v i d e n t f o r U n i t e d S t a t e s i m p o r t s , f o r w h i c h t h e i n d e x s h o w s i m p o r t a n t fluctuations a l m o s t e x a c t l y o p p o s e d t o t h o s e o f t h e p e r c e n t a g e in w o r l d t r a d e . A s a r e s u l t o f t h e s e c o n t r a r y m o v e m e n t s , t h e u n w e i g h t e d a v e r a g e s h a r e is v e r y s t a b l e . I n p a r t i c u l a r , t h e d r o p in t h e A m e r i c a n i m p o r t i n d e x f r o m 1934 t o 1935

n m s t b e v i e w e d in c o n j u n c t i o n w i t h i l i c s u d d e n a n d i m p o r t a n i r e v i v a l o f A m e r i c a n i m p o r t s i n 1935- T h i s w i l l g i v e a v e r y r o u g h i n d i c a t i o n : O f s e v e n t y - e i g h t p o s s i b l e y e a r l y v a r i a t i o n s l o r t h e i m p o r t a n d e x p o r t i n d i c e s f o r G e r m a n y , t h e U n i t e d K i n g d o m , a n d t h e U n i t e d S t a t e s f r o m 1925 t o 1938, it w a s f o u n d t h a t f i f ty-seven (73 p e r c e n t ) w e r e i n t h e d i r e c t i o n o p p o s i t e t o t h e c o r r e s p o n d i n g c h a n g e o f the p e r c e n t a g e i n w o r l d t r a d e . S o m e m o r e s p e c i f i c e v i d e n c e i n t h e s a m e s e n s e is t h a t b r o u g h t o u t b y t h e f a c t t h a t w h e n t h e G e r m a n e x p o r t p e r c e n t a g e r e a c h e d i t s p e a k i n 1 9 3 1 , t h e i n d e x r e a c h e d i t s l o w e s t p o i n t ; t h e s a m e h o l d s f o r t h e i m p o r t s o f t h e U n i t e d K i n g d o m i n 1936, h e r e x p o r t s i n 1925 , F r e n c h i m p o r t s i n 1933, a n d a p p r o x i m a t e l y f o r t l ie o t h e r s e r i e s , w i t h t h e e x c e p t i o n o f I t a l i a n e x p o r i s a n d b o t h J a p a n e s e s e r i e s . T h e c o n t e n t i o n t l i a t a n i n c r e a s e o f t h e s h a r e o f t h e l a r g e s t t r a d i n g c o u n t r i e s in w o r l d t r a d e w a s p o s s i b l e m a i n l y t h r o u g h a n i n c r e a s e o f t f i c i r t r a d e a m o n g s t t h e m s e l v e s t h u s s e e m s l o b e w e l l s u p p o r t e d b y s t a t i s t i c a l e v i d e n c e . T h i s a c c o r d s w i t h t h e a

priori e x p e c t a t i o n o f a g r e a t e r e l a s t i c i t y o n t h e p a r t o f t h e m a r k e t s o f t h e l a r g e c o u n t r i e s .

" T h e figures in parentheses relate to our weighted average of the shares, the others are the usual percentages given by the League of Nations.

C H A P T E R V I

Concentration upon Markets and Supply

Sources of the Foreign Trade of Small or

Weak Nations

L LN CHAPTER V w e h a v e s e e n t h e d i f f e r i n g e x t e n t s to w h i c h

e a c h of t h e l a r g e t r a d i n g n a t i o n s h a v e d i r e c t e d t h e i r t r a d e t o w a r d

t h e s m a l l e r t r a d i n g c o u n t r i e s . B y t h e s a m e p r o c e s s w e a l s o c o v e r e d

t h e t r e n d s of t h e f o r e i g n t r a d e o f t h o s e c o u n t r i e s w h i c h w e r e l i k e l y

t o b e t h e subjects o f a p o l i c y u s i n g f o r e i g n t r a d e a s i ts i n s t r u m e n t .

N o w w e t u r n t o t h e c o u n t r i e s l i k e l y t o h a v e b e e n t h e objects o f s u c h

a p o l i c y . W e s h a l l try t o e x a m i n e w h a t t h e p a r t i c u l a r p o s i t i o n o f

t h e s e c o u n t r i e s h a s b e e n w i t h r e s p e c t to t h e a t t e m p t of o n e , o r of a

f ew, b i g t r a d i n g n a t i o n s t o m o n o p o l i z e t h e i r t r a d e .

METHOD OF MEASUREMENT T h e c o n c e n t r a t i o n o f a n a t i o n ' s t r a d e d e p e n d s o n t h e n u m b e r o f

c o u n t r i e s w i t h w h i c h i t t r a d e s a n d o n t h e m o r e o r le s s e q u a l d i s t r i b u

t i o n of i ts t r a d e a m o n g t h e s e c o u n t r i e s . I n o t h e r w o r d s , t h e p h e n o m

e n o n w h i c h w e w a n t t o m e a s u r e p r e s e n t s i d e a l l y t h e c h a r a c t e r i s t i c s

n e c e s s a r y f o r the a p p l i c a t i o n of o u r i n d e x o f c o n c e n t r a t i o n , w h i c h

i s e x p l a i n e d i n A p p e n d i x A .

T h e i m p o r t s ( o r e x p o r t s ) o f a c o u n t r y f r o m ( o r to ) t h e o t h e r

c o u n t r i e s c a n b e e x p r e s s e d a s p e r c e n t a g e s of i ts t o t a l i m p o r t s (or

e x p o r t s ) . T h e i n d e x is o b t a i n e d b y f o r m i n g t h e s u m o f t h e s q u a r e s

of t h e s e p e r c e n t a g e s a n d b y e x t r a c t i n g t h e s q u a r e r o o t o f th i s s u m .

I t b e h a v e s i n the f o l l o w i n g w a y : W h e n a c o u n t r y ' s t r a d e is c o m

p l e t e l y m o n o p o l i z e d b y a n o t h e r c o u n t r y , t h e v a l u e of t h e i n d e x is

V i o o ^ = l o o . T h e i n d e x w o u l d a s s u m e t h e v a l u e of z e r o if w e h a d a n

i n f i n i t e n u m b e r of c o u n t r i e s p o s s e s s i n g e a c h a n i n f i n i t e l y s m a l l s h a r e

i n t h e t r a d e o f t h e c o u n t r y e x a m i n e d . I f a n a t i o n t r a d e s w i t h fifty

c o u n t r i e s , t h e s m a l l e s t p o s s i b l e v a l u e of t h e i n d e x w o u l d b e r e a c h e d

[ 9 8 ]

Statistical Inquiries into Structure 9 9

i f a l l t h e fifty c o u n t r i e s o c c u p y t h e s a m e p e r c e n t a g e i n t h e n a t i o n ' s

t r a d e , i . e . , 2 p e r c e n t . T h e i n d e x w o u l d t h e n b e V 5 0 - 2 ' = 14.14. T h e

u p p e r l i m i t o f t h e i n d e x is , o f c o u r s e , a g a i n 100, w h i c h w o u l d b e

a p p r o a c h e d i f f o r t y - n i n e o f t h e fifty s t a t e s h a n d l e n e g l i g i b l e a m o u n t s

o f t r a d e w i t h t h e n a t i o n c o n s i d e r e d , w h i l e o n e s t a t e h a s a v i r t u a l

m o n o p o l y . T h u s , w h e n t h e n u m b e r o f c o u n t r i e s i n c r e a s e s , t h e u p p e r

l i m i t o f t h e i n d e x r e m a i n s t h e s a m e , w h i l e t h e l o w e r l i m i t d e c r e a s e s

g r a d u a l l y . I f t h e n u m b e r o f c o u n t r i e s i s c o n s t a n t , t h e i n d e x i n c r e a s e s

w h e n e v e r a p e r c e n t a g e x i n c r e a s e s a t t h e e x p e n s e o f s o m e p e r c e n t a g e

s m a l l e r t h a n x , i . e . , w h e n e v e r a r e l a t i v e l y s m a l l p e r c e n t a g e b e c o m e s

s t i l l s m a l l e r a n d a r e l a t i v e l y l a r g e p e r c e n t a g e s t i l l l a r g e r .

T o a v o i d m i s i n t e r p r e t a t i o n , w e m u s t a d d o n e e x p l a n a t i o n . T h e

i n d e x d o e s not m e a s u r e t h e s t r e n g t h o f t h e m o n o p o l y p o s i t i o n o f t h e

largest exporting or importing country. T h i s m o n o p o l y p o s i t i o n i s

t h e s t r o n g e r :

1) t h e greater t h e p e r c e n t a g e h e l d b y the m o n o p o l i s t c o u n t r y in t h e t r a d e of a c o u n t r y X ,

2) t h e smaller the c o n c e n t r a t i o n of t h e r e m a i n i n g p a r t o f X ' s t r a d e , i .e., t h e less t h e m o n o p o l y c o u n t r y is c o n f r o n t e d by o t h e r c o u n t r i e s h o l d i n g s m a l l e r b u t st i l l i m p o r t a n t s h a r e s of t h e t r a d e of c o u n t r y X .

A n i n d e x o f t h e s t r e n g t h o f t h e m o n o p o l i s t i c p o s i t i o n o f t h e

l a r g e s t e x p o r t i n g o r i m p o r t i n g c o u n t r y s h o u l d t h u s : ( i ) v a r y d i

r e c t l y w i t h t h e p e r c e n t a g e h e l d b y t h i s c o u n t r y i n . t h e t r a d e o f X ,

a n d (2) v a r y inversely w i t h t h e c o n c e n t r a t i o n o f t h e r e m a i n i n g p a r t

o f X ' s t r a d e .

O u r i n d e x s a t i s f i e s t h e first o f t h e s e c o n d i t i o n s , b u t n o t t h e s e c o n d .

A s a n i n d e x o f c o n c e n t r a t i o n o f a c o u n t r y ' s t r a d e , i t v a r i e s d i r e c t l y

w i t h t h e c o n c e n t r a t i o n of t h e t o t a l t r a d e a n d w i t h t h e c o n c e n t r a t i o n

o f a n y p a r t o f t h i s t r a d e . I t s h o u l d t h e r e f o r e b e c o n s i d e r e d a s e x p r e s s

i n g t h e d e g r e e o f oligopoly, or oligopsony existing in a country's

external market, monopoly being considered as a limiting case of

oligopoly.

F r o m t h e c o n s t r u c t i o n o f t h e i n d e x i t w i l l b e c l e a r t h a t i t i s a l w a y s

h i g h e r t h a n t h e p e r c e n t a g e h e l d b y t h e l a r g e s t i m p o r t i n g o r e x p o r t

i n g c o u n t r y . I t w i l l b e h e l p f u l t o k e e p t h i s i n m i n d .

A f u r t l i e r d i f l i c u l t y i s c o n n e c t e d w i t h t h e d e f i n i t i o n o f a " c o u n t r y "

f o r t h e p u r p o s e s o f o u r i n d e x . I f c o u n t r y X t r a d e s w i t h B e l g i u m a n d

w i t h t h e B e l g i a n C o n g o , s h o u l d t h e C o n g o b e c o n s i d e r e d a s a s e p a -

1 0 0 National Power and Foreign Trade

rate c o u n t r y , o r s h o u l d its p e r c e n t a g e b e a d d e d to t h e B e l g i a n per

c e n t a g e ? T h i s q u e s t i o n has a p r a c t i c a l i m p o r t a n c e i n o u r s t u d y

m a i n l y b e c a u s e t h e c o l o n i a l t e r r i t o r i e s of I n d i a a n d the N e t h e r l a n d s

I n d i e s o f t e n h o l d i m p o r t a n t p e r c e n t a g e s i n the t r a d e of the c o u n

tries w h i c h w e h a v e e x a m i n e d . W e h a v e f o l l o w e d t h r o u g h o u t t h e

p r o c e d u r e o f c o n s i d e r i n g these t e r r i t o r i e s as s e p a r a t e c o u n t r i e s ,

s ince o u r i n d e x m e a s u r e s n o t o n l y the p o l i t i c a l b u t a lso t h e g e o

g r a p h i c a l d i s t r i b u t i o n of the t r a d e of the v a r i o u s c o u n t r i e s . I n d e e d ,

i f o n l y t h e p o l i t i c a l d i s t r i b u t i o n h a d b e e n c o n s i d e r e d , w e s h o u l d

p r o b a b l y h a v e l u m p e d t o g e t h e r in o n e c o u n t r y the w h o l e B r i t i s h

E m p i r e , t h e c o u n t r i e s of the L i t t l e E n t e n t e d u r i n g the years i n

w h i c h i t c o u l d b e c o n s i d e r e d as a p o l i t i c a l u n i t , a n d G e r m a n y a n d

I t a l y f r o m 1936 o n , etc. W e h a v e r e v e r s e d t h e r u l e o n l y w h e n c o m

p l e t e f u s i o n o r a n n e x a t i o n took p l a c e . T h u s , i n the y e a r 1938, A u s

t r i a h a s b e e n c o n s i d e r e d as b e i n g p a r t o f G e r m a n y . ^

^ O u r s o u r c e t h r o u g h o u t h a s b e e n t h e a n n u a l p u b l i c a t i o n . International Trade

Statistics, e d i t e d b y t h e E c o n o m i c I n t e l l i g e n c e .Service of t h e L e a g u e o f N a t i o n s . A p u r e l y s t a t i s t i c a l diff iculty was p r e s e n t e d by t h e e v e r - p r e s e n t p e r c e n t a g e under the

h e a d i n g o f " o t h e r c o u n t r i e s . " F o r t u n a t e l y , th i s i t e m is i m p o r t a n t m a i n l y in t h e l a r g e t r a d i n g c o u n t r i e s for w h i c h t h e i n d e x h a s n o t b e e n c a l c u l a t e d . F o r t h e c o u n t r i e s w h i c h h a v e b e e n c o n s i d e r e d in o u r c a l c u l a i i o n s , t h e i t e m " o t h e r c o u n t r i e s " is g e n e r a l l y s m a l l a n d s e l d o m e x c e e d s 5 p e r c e n t o f t h e to ta l . T h e c o n c e n t r a t i o n w'ouid , o f c o u r s e , h a v e b e e n o v e r s t a t e d if w e h a d c o n s i d e r e d t h e i t e m " o t h e r c o u n t r i e s " as a s i n g l e c o u n t r y . W e h a v e m a d e t h e a r b i t r a r y a s s u m p t i o n t h a t it w a s c o n s t i t u t e d b y a cert a i n n u m b e r of c o u n t r i e s h o l d i n g e a c h 0.5 p e r cent of t h e i m p o r t s o r e x p o r t s of t h e n a t i o n c o n s i d e r e d . S u p p o s e , e.g., t h a t t h e i t e m " o t h e r c o u n t r i e s " a m o u n t s to 5.2 p e r c e n t ; t h e n , w e a s s u m e t h a t it i s c o m p o s e d o f ten c o u n t r i e s h o l d i n g 0.5 p e r cent p l u s o n e c o u n t r y h o l d i n g 0.2 p t r c e n t . I n s t e a d of 5.2^ = 27.01^, w e a d d e d , t h e r e f o r e , o n l y 1 0 x 0 . 5 ^ + 0.2^ = 2.54 to t h e s u m o f the s q u a r e s o f the o t h e r p e r c e n t a g e s .

O u r a s s u m p t i o n p r o b a b l y s t i l l o v e r s t a t e s t h e c o n c e n t r a t i o n , for , even a m o n g t h e p c r c e n l a g e s f o r i n d i v i d u a l c-ountries, w e o f t e n find figures s m a l l e r t h a n 0.5 p e r c e n t o f t h e e x p o r t s o r i m p o r t s . B u t , by e x p a n d i t t g the f o r e g o i n g e x a m p f e , w e s e e h o w s m a l l i s I h e p r a c t i c a l i m p o r t a n c e o f t h e a p p a r e n t di f f iculty . L e t m s u p p o s e t h a t t h e s u m o f t h e s q u a r e s of the p e r c e n t a g e s r e l a t i n g to i n d i v i d u a l c o u n t r i e s a m o u n t s to 900 (we c h o o s e p u r p o s e l y a r a t h e r l o w c o n c e n t r a t i o n ) ; then the tota] sum oi the squares is:

1) 927.04, if we c o n s i d e r t h e " o t h e r c o u n t r i e s " a s o n e s i n g l e c o u n t r y , 2) 902.54, w i t h o u r a s s u m p t i o n , a n d 3) 900.00, w h e n w e c o n s i d e r a l l t h e p e r c e n t a g e s a s in f in i te ly s m a l l .

T h e i n d i c e s o f c o n c e n t r a t i o n a r e g i v e n by t h e s q u a r e r o o t o f t h e s e figures a n d a r e , r e s p e c t i v e l y ;

1)30.45 2)30.04 3)30-00

A s t h e t r u e i n d e x c e r t a i n l y l ies n e a r e r to the s e c o n d t h a n to t h e first figure a n d p r o b a b l y s o m e w h e r e b e t w e e n t h e s e c o n d a n d t h e t h i r d , w-e see t h a t o r d i n a r i l y t h e r a n g e of e r r o r is e x t r e m e l y s m a l l , e s p e c i a l l y i f we d i . s regard in our i n t e r p r e t a t i o n s m a J i m o v e m e n t s o£ t h e i n d e x . W h e n t h e i t e m " o t h e r c o u n t r i e s " e x c e e d e d 10 p e r c e n t , a s , e.g., i n A r g e n t i n a 5 e x p o r t s in a n d 1935, we h a v e not c a l c u l a t e d t h e i n d e x . ( See a l s o A p p e n d i x A. )

Statistical Inquiries into Structure l O i

INTERPRETATION OF THE STATISTICS

T h e i n d e x h a s b e e n c a l c u l a t e d for a t o t a l o f f o r t y - f o u r r e l a t i v e l y s m a l l a n d w e a k c o u n t r i e s h a v i n g for t h e y e a r s 1 9 1 3 , 1925, 1929, 1932,

1937, a n d 1938 b u t l i t t l e t r a d e . W e m a y r e m i n d tlie r e a d e r t h a t 1932

is a p a r t i c u l a r l y c r u c i a l yea r , a s it is m a r k e d by t h e b o t t o m of the

g r e a t d e p r e s s i o n , b y t h e O t t a w a A g r e e m e n t s , a n d by t h e l a s t s t r u g g l e s of t h e W e i m a r R e p u b l i c .

T o t h e r e s u l t s of o u r c a l c u l a t i o n s , w h i c h a r e r e p r o d u c e d i n t a b l e

2, w e h a v e a l s o c a l c u l a t e d t h e i n d e x l o r G r e a t B r i t a i n , t h e c o u n t r y

t h e t r a d e o f w h i c h p r o b a b l y s h o w s t h e w i d e s t s p r e a d a n d t h e r e f o r e

g i v e s a n i n d i c a t i o n of t h e l o w e r l i m i t a c t u a l l y r e a c h e d b y o u r i n d e x .

T h e a v e r a g e v a l u e f o r t h e E n g l i s h i n d e x for b o t h i m p o r t s a n d ex

p o r t s is 20. T h e h i g h e s t v a l u e a s c e r t a i n e d for t h e i n d e x i s t h a t f o r

I r i s h e x p o r t s , a m o u n t i n g to 97 in 1925 a n d n e v e r f a l l i n g b e l o w 90.

A Avide r a n g e of v a r i a t i o n is t i ius o p e n t o t h e i n d e x .

CONCENTRATION OF IMPORTS COMPARED TO THE CONCENTRATION OF EXPORTS

I t w i l l b e n o t e d t h a t f o r e v e r y c o u n t r y t h e i n d e x i s e i t h e r s t a b l e

o r h a s a d e f i n i t e t r e n d . S u d d e n j u m p s a r e v e r y r a r e . T h e t r e n d s o f

t h e v a r i o u s n a t i o n a l i n d i c e s a r e , h o w e v e r , f a r f r o m b e i n g u n i f o r m ,

a n d n o d e f i n i t e g e n e r a ! r e l a t i o n s h i p c o u l d b e e s t a b l i s h e d b e t w e e n

t h e m o v e m e n t s of t h e i n d e x a n d t h e b u s i n e s s cyc le . "

B u t o n e g e n e r a l f e a t u r e c a n b e p o i n t e d o u t : T h e c o n c e n t r a

t i o n o f e x p o r t s ha s a t e n d e n c y t o b e s t r o n g e r — a n d o f t e n m a r k e d l y

s t r o n g e r — t h a n t h e c o n c e n t r a t i o n o f i m p o r t s . O f a l l t h e f o r t y - f o u r

c o u n t r i e s e x a m i n e d ( w e d o n o t c o u n t t h e U n i t e d K i n g d o m ) , o n l y

five—Lithuania. S w i t z e r l a n d , R u m a n i a , C a n a d a , a n d N i g e r i a — e x

h i b i t i n g e n e r a l t h e o p p o s i t e r e l a t i o n s h i p . F o r t h e c o u n t r i e s w i t h

a r e l a t i v e l y l o w c o n c e n t r a t i o n , t h e l eve l o f t h e e x p o i t a n d t h e i m p o r t

i n d i c e s of c o n c e n t r a t i o n m o v e a t a r o u g h l y s i m i l a r l eve l . T h i s i s t r u e

for N o r w a y , S w e d e n , B e l g i u m , N e t h e r l a n d s , C z e c h o s l o v a k i a , P o r t u

g a l , A u s t r i a , H u n g a r y , Y u g o s l a v i a , T u r k e y , B r i t i s h M a l a y a , N e t l i e r -

l a n d s I n d i e s , a n d , r e c e n t l y , I n d i a . I n a d d i t i o n , P e r u , E c u a d o r , a n d

M e x i c o , t h e f o r e i g n t r a d e o f w h i c h i s s t r o n g l y c o n c e n t r a t e d , w e r e i n

t h e s a m e p o s i t i o n .

*See, however, below, p. 109.


T A B L E 2

INDICES OF CONCENTRATION OF TRADE 1913 192s 1929 1932 '937 1938

EUROPE—GROUP 1 B u l g a r i a I * 4 1 . 7 3 2 . 3 3 1 . 7 3 2 , 1 5 6 , 4 5 4 , 0

E f 3 1 . 9 3 1 . 8 3 7 . 3 3 5 , 5 4 6 , 7 6 0 - 3

H u n g a r y I 3 8 . 9 3 5 . 2 3 4 , 0 3 5 , 8 4 4 , 5 E 4 3 . 9 3 8 . 4 3 7 , 4 3 3 , 9 4 8 , 2

R u m a n i a I 4 8 , 6 3 3 . 5 3 4 . 1 3 5 . 1 3 7 , 3 4 2 , 1

E 3 6 . 7 2 8 . 4 3 4 . 8 2 9 . 1 2 7 , 6 3 3 , 2

Y u g o s l a v i a I 5 4 . 6 t 3 5 . 4 3 3 . 3 3 2 . 5 3 8 , 4 4 3 , 6

E 5 0 . OJ 3 7 . 7 3 5 . 6 3 7 . 4 3 2 , 0 4 5 , 5

G r e e c e I 3 6 . 9 2 9 . 8 2 7 . 4 2 8 . 3 3 4 . 1 3 6 , 5

E 3 4 . 3 3 9 . 5 3 7 . 1 3 6 - 2 3 8 . 1 4 5 . 3

T u r k e y I 3 1 . 2 2 9 . 1 3 3 , 2 4 6 , 3 5 0 . 6

E 3 7 . 3 3 3 . 5 2 9 , 6 4 1 , 3 4 7 . 6

EURO PE—GROUP 2 N e t h e r l a n d s I 3 7 . 8 3 4 . 9 3 6 . 6 3 6 , 2 2 9 , 8 3 0 . 3

E 5 4 . 1 3 9 . 5 3 4 . 9 3 4 , 6 3 1 . 7 3 2 . 2

B e l g i u m I 3 1 . 1 3 2 . 2 3 1 . 8 3 1 , 3 2 5 . 6 2 7 . 1

E 3 7 . 3 3 1 . 8 3 0 . 0 3 1 . 2 2 8 . 8 2 8 . 8

A u s t r i a I 3 1 , 7 3 2 . 7 3 1 , 1 2 6 . 7

E 2 7 . 9 2 7 - 8 2 7 , 9 2 7 . 2

C z e c h o s l o v a k i a I 3 5 . 8 3 2 . 2 3 1 , 6 2 3 , 4 2 6 . 0

E 3 2 . 5 2 9 . 2 2 6 , 3 2 3 , 7 2 6 . 6

S w i t z e r l a n d I 4 0 . 8 3 2 . 1 3 4 . 7 3 5 , 2 3 0 , 3 3 2 . 8

E 3 3 . 4 3 1 . 6 2 7 . 9 2 6 , 5 2 6 . 6 2 6 . 9

P o l a n d I 3 7 . 4 3 4 , 2 2 8 , 7 2 5 , 5 3 0 . 3

E 4 4 , 9 3 7 . 2 2 9 , 1 2 8 . 7 3 3 . 2

• Imports. t Exports. X 1912 figures.

Statistical Inquiries into Structure 1 0 3

1913 192s 1929 1931 1937 1938

EUROPE—GROUP 3 N o r w a y I 43-8 35.8 36 ,6 34,3 34.6 34,5

E 33.8 3 5 . 1 33,6 32.7 35 .6 35 .9

Sweden I 44.2 38.2 39,7 3 7 . 2 32.3 35 ,7

E 39.6 3 5 . 1 33,5 32.3 3 3 . 2 33,9

D e n m a r k I 44.1 36.8 39,9 36-8 46 .2 44 ,1

E 62.4 59.9 60,4 65.9 56.7 59,4

E s t o n i a I 40.8 36.7 38.0 34.3 38.5

E 4 3 . 2 4 7 . 7 46.4 46.7 4 7 , 4

L a t v i a I 45.6 44.7 40.9 36.8 44.8

E 45 .3 42-4 44 ,1 53.2 55,0

L i t h u a n i a I 57.0 62,8 57.3 50.5 48.9

E 58,4 5 1 . 2 44.0 38,3 4 1 . 5

Fin land I 5 1 . 9 40.8 4 3 , 9 3 7 , 6 34.6 34.9

E 42.9 42.7 43 ,4 49.6 48.9 48,9

OTHER EUROPEAK COUNTRIES Por tuga l I 36.3 3 7 . 2 3 7 . 2 33,7 30.9 30.6 Por tuga l

E 36.9 35 .9 33.4 3 3 . 4 3 1 . 7 3 1 . 3

I 3 1 . 1 30.0 28.4 25.7

E 34.8 32.7 34.1 35 .2

Alban ia I 78,0 49.7 43 .6 3 2 . 6 4 1 . 2

E 65.1 65.6 67.8 79 .6 70.2

United K i n g d o m I 2 7 . 7 25-4 23.6 2 1 . 5 2 1 , 0 2 1 . 8

E 22.0 20,5 20.2 19.1 19,5 19,6

T A B L E 2-(Contintied)

1 0 4 National Poxver and Foreign Trade

1913 1925 1929 1932 1937 1938

BRITISH EMPIRE Eire I 8 1 . 3 7 8 . 7 7 7 . 0 5 1 , 5 5 2 . 5

E 9 7 . 2 9 2 . 2 9 6 . 3 9 0 . 9 9 2 . 7

C a n a d a I 6 7 . 6 6 8 , 3 7 0 . 5 6 2 . 0 6 3 , 5 65-3 E 6 2 . 7 5 3 . 2 5 1 . 1 5 1 . 4 5 6 . 1 5 3 . 5

Ceylon I 5 2 . 2 4 2 , 0 3 6 . 6 3 6 . 7 3 6 , 6 3 5 . 5 E 50-0 5 0 . 1 4 5 , 7 5 1 . 9 4 9 . 4 5 5 . 4

Ind ia I 6 5 . 2 5 4 , 2 4 5 . 5 4 1 . 6 3 8 , 6 3 8 . 5 E 3 1 . 4 3 2 . 0 3 0 . 4 3 2 . 9 3 7 . 9 3 7 . 8

Br i t i sh M a l a y a I 3 3 . 8 4 5 . 0 3 8 . 4 4 2 . 0 4 0 , 2 3 8 . 3 E 3 8 . 3 5 3 . 2 4 6 . 5 3 3 . 5 4 7 , 5 3 7 . 0

I 5 4 . 7 5 1 . 1 4 7 , 7 4 4 . 9 4 6 . 6 4 6 . 2 E 4 8 . 2 4 6 . 9 4 1 . 4 5 5 . 3 5 1 . 7 5 6 . 3

N e w Z e a l a n d I 6 2 . 1 5 6 . 3 5 3 . 7 5 4 , 8 5 4 . 0 5 2 . 8 E 7 9 - 7 8 0 . 4 7 4 . 5 8 8 . 0 7 6 . 6 8 4 . 0

E g y p t I 3 6 . 1 3 1 . 5 2 8 , 8 3 0 . 1 2 9 . 1 2 9 . 9 E 4 7 . 2 4 8 . 5 4 0 . 4 4 2 . 2 3 6 . 3 3 8 . 1

I 7 0 . 2 7 4 . 8 7 1 . 2 74-8 6 5 . 3 6 7 . 1 E 6 6 . 0 6 0 . 6 5 1 . 9 4 6 . 1 5 0 . 5 6 8 . 3

Union o f South Afr ica . I 5 8 . 6 5 2 . 9 4 7 . 8 4 9 , 2 4 7 . 9 4 7 . 8 E 8 8 . 8 5 8 . 7 6 6 . 7 8 2 , 5 7 9 . 4 7 5 . 9

T A B L E 2-{Continued)

Statistical Inquiries into Structure

1913 192s 1919 1931 •937 1938

SOUTH AMERICA§ Argentina^ I 4 0 . 7 36 .8 3 6 . 2 3 1 . 5 3 1 . 3 3 0 , 6 Argentina^

E 4 0 . 2 4 2 . 5 3 6 . 6 3 7 , 6

Bolivia I 4 5 . 1 3 8 . 9 4 2 . 3 3 7 . 5 3 8 . 3 3 7 . 3

E 8 1 . 5 8 1 . 2 7 8 . 6 83.0 6 4 . 9 6 6 . 5

Brazil I 3 7 . 1 3 8 , 9 4 0 . 3 3 8 . 7 3 8 , 7 3 9 . 0

E 4 0 . 9 4 9 , 0 4 6 . 2 4 9 . 0 4 2 . 6 4 1 . 8

Chilell I 4 3 . 4 3 8 . 7 4 1 . 3 3 4 . 2 4 1 . 8 4 0 . 6

E 4 9 . 5 5 3 . 2 3 2 . 0 4 4 . 2

Colombia I 4 2 . 1 5 5 . 3 5 1 , 0 4 9 . 4 5 3 . 9 55 .8

E 5 9 . 0 82.9 7 5 . 8 7 6 . 4 5 9 . 9 6 1 . 5

Ecuador I 4 7 - 6 5 1 . 6 4 7 . 8 6 0 . 4 4 8 . 0 4 4 . 3

E 4 6 . 6 4 5 . 9 4 9 . 0 4 8 . 5 4 2 . 9 4 4 , 0

Peru I 4 3 . 9 4 5 . 4 50,6 3 7 . 1 4 3 , 1 4 2 . 2

E 5 2 . 4 5 0 . 9 4 1 . 6 4 3 . 1 3 7 . 3 3 7 . 7

Uruguay I 3 6 . 9 3 7 . 7 3 8 . 7 3 2 . 6 3 1 , 6 2 9 , 1

E 3 5 . 8 3 7 . 0 3 6 . 1 3 8 , 6 3 5 , 1 3 8 . 3

OTHER COUNTRIES Cuba I 5 6 . 2 63 .8 60,0 5 6 . 0 6 9 . 1 7 1 . 3

E 80.8 7 7 . 7 7 6 . 3 7 3 , 1 8 1 . 5 7 7 . 3

Mexico I 5 5 . 0 7 1 . 3 7 0 . 1 6 5 . 6 6 4 . 6 6 1 , 1

E 7 8 . 2 7 6 . 4 6 2 . 7 6 6 . 5 5 8 . 4 6 8 . 7

Netherlands I n d i e s . . . . I 4 2 . 1 3 2 . 8 3 2 , 8 3 4 . 2 3 6 . 4 3 4 . 1

E 3 8 . 1 3 7 . 2 3 3 . 3 3 2 . 7 3 5 . 7 3 2 . 4

Philippines I 52-5 5 9 . 7 6 4 , 6 6 6 . 0 6 0 . 6 6 9 . 4

E 4 3 , 0 7 3 . 9 7 6 . 3 8 7 . 1 82 .2 7 8 . 0

i The INDCI could not be calculated for ParaBuay and Venezuela because of the imporunt transit trade OF thete countrie», handled by Argentina and Aruba, respectively. The ultimate destination or origin of thia trade ij not given.

I The data for 1913 and IQI? are not sufficiently detailed to warrant the computation of the indci. II The index has not been computed for the exports of 1937 and 193S because of tbc important itcni

guano, which is left undetailed with respect to countries.

T A B L E 2-(Concluded)

io6 National Power and Foreign Trade

F i n a l l y , w e h a v e c o u n t e d t w e n t y - t h r e e c o u n t r i e s f o r w h i c h t h e

e x p o r t - c o n c e n t r a t i o n i s u s u a l l y o r o f t e n m a r k e d l y h i g h e r t h a n t h e

i m p o r t - c o n c e n t r a t i o n . ^ M o s t of t h e s e a r e c o u n t r i e s w i t h h i g h l y con

c e n t r a t e d t r a d e . T o b r i n g t h i s o u t m o r e c l e a r l y , le t u s t a k e a l l t h e

c o u n t r i e s t h e c o n c e n t r a t i o n of w h i c h , e i t h e r f o r e x p o r t s o r i m p o r t s ,

i s u s u a l l y a b o v e 40. W e find t w e n t y s u c h c o u n t r i e s , ' o f w h i c h fifteen

s h o w a g r e a t e r s p r e a d for i m p o r t s t h a n for e x p o r t s . O u r s t a t i s t i c s

t h e r e f o r e w a r r a n t t h e c o n c l u s i o n t h a t , for s m a l l c o u n t r i e s w i t h a

r e l a t i v e l y h i g h f o r e i g n t r a d e c o n c e n t r a t i o n , i m p o r t s h a v e a g r e a t e r

t e n d e n c y t o s p r e a d o v e r v a r i o u s c o u n t r i e s t h a n e x p o r t s .

T h i s g i v e s a c u e c o n c e r n i n g t h e c o n n e c t i o n b e t w e e n t h e c o n c e n

t r a t i o n of t r a d e u p o n c o u n t r i e s a n d u p o n c o m m o d i t i e s . A l t h o u g h

t h e l a t t e r t y p e o f c o n c e n t r a t i o n h a s d e f i n i t e m e a n i n g , it is a w k w a r d

t o d e a l w i t h i t s t a t i s t i c a l l y b e c a u s e of the d i f f icul ty of d e f i n i n g a

c o m m o d i t y o r a p r o d u c t . B u t w e k n o w t h a t t h e g r e a t e r p a r t o f t h e

e x p o r t s o f c o i m t r i e s w i t h w h i c h w e a r e c o n c e r n e d c o n s i s t s m a i n l y

o f a f e w s t a p l e p r o d u c t s u p o n w h i c h t h e s e c o u n t r i e s h a v e s p e c i a l i z e d ,

w h e r e a s t h e i r i m p o r t s i n c l u d e a w i d e v a r i e t y of finished p r o d u c t s ,

r a w m a t e r i a l s , a n d f o o d s t u f f s . T h e r e f o r e , the c o n c e n t r a t i o n of t h e i r

e x p o r t s a c c o r d i n g t o c o m m o d i t i e s i s h i g h e r t h a n t h a t of t h e i r i m

p o r t s . S i n c e w e find t h a t t h e s a m e r e l a t i o n s h i p p r e v a i l s f o r t h e con

c e n t r a t i o n a c c o r d i n g t o c o u n t r i e s , w e r e a c h t h e c o n c l u s i o n t h a t t h e r e

is a p o s i t i v e c o r r e l a t i o n b e t w e e n t h e c o n c e n t r a t i o n of f o r e i g n t r a d e

a c c o r d i n g t o c o u n t r i e s a n d t h e c o n c e n t r a t i o n o f f o r e i g n t r a d e a c c o r d

i n g t o c o m m o d i t i e s .

T h i s r e l a t i o n s h i p h o l d s w i t h r e s p e c t t o e x p o r t s o n l y . W e find, in

d e e d , t h a t a l l t h e c o u n t r i e s h a v i n g a v a r i e d c o m m o d i t y - c o m p o s i t i o n

of t h e i r e x p o r t as well as o f t h e i r i m p o r t t r a d e s h o w a l s o a l o w e x p o r t -

c o n c e n t r a t i o n w i t h r e s p e c t t o c o u n t r i e s .

T h e c o n c l u s i o n w h i c h w e r e a c h conf l ic t s w i t h w h a t m i g h t at first

s i g h t b e c o n s i d e r e d a p l a u s i b l e v i e w : t h a t s p e c i a l i z a t i o n of a c o u n

t ry ' s p r o d u c t i o n f o r e x p o r t s u p o n o n e o r a v e r y f ew c o m m o d i t i e s

w o u l d p e r m i t th i s c o u n t r y to s u p p l y t h e w h o l e w o r l d w i t h t h e s e

' Finland, Estonia, Latvia, Denmark, Eire, Poland, Albania, Bulgaria, Spain, Greece, Ceylon, Australia, New Zealand, Egypt, South Africa, Philippines, Argentina, Bolivia, Brazil, Colombia. Cuba, Chile, Uruguay.

* Albania, Finland, Estonia, Latvia, Lithuania, Denmark, Eire, Bolivia, Brazil, Colombia, Ecuador, Cuba, Mexico, Canada, Ceylon, Australia, New Zealand, Nigeria, South Africa, Philippines.


c o m m o d i t i e s . O n t h e o t h e r h a n d , i t w o u l d s e e m n a t u r a l t h a t if a

c o u n t r y t r a d e s m o s t l y w i t h a n o t h e r s i n g l e c o u n t r y it A v o u l d h a v e a

c o m p a r a t i v e a d v a n t a g e in a l a r g e n u m b e r o f p r o d u c t s a n d w o u l d

t h e r e f o r e h a v e r a t h e r d i v e r s i f i e d e x p o r t s . I t w o u l d f o l l o w , t h e n , t h a t

a d e p e n d e n c e o f e x p o r t s u p o n o n e p r o d u c t w o u l d b e t e m p e r e d b y a

l a r g e g e o g r a p h i c a l s p r e a d o f e x p o r t s , w h e r e a s a d e p e n d e n c e o f ex

p o r t s u p o n o n e c o u n t r y w o u l d b e s o m e w h a t c o m p e n s a t e d b y a

d i v e r s i f i e d s t r u c t u r e o f t h e commodhy-composition o f e x p o r t s .

I n t h e a c t u a l w o r l d we s e e t h a t t h e c o n t r a r y h a p p e n s ; T h e cor

r e l a t i o n b e t w e e n t h e c o u n t r y - c o n c e n t r a t i o n a n d t h e c o m m o d i t y -

c o n c e n t r a t i o n o f f o r e i g n t r a d e is p o s i t i v e i n s t e a d of n e g a t i v e . I n

p r o c e e d i n g t o a n e x p l a n a t i o n o f th i s , w h i c h w e n e e d n o t seek, f a r

t o find, le t u s r e c a l l t l i a t t h e f o r e g o i n g r e a s o n i n g is built on u n r e a l i s

t i c a s s u m p t i o n s if i t s h o u l d o v e r l o o k t h e e n o r m o u s d i f f e r e n c e s i n

i n d u s t r i a l i z a t i o n a n d i n s ize of t h e v a r i o u s c o i m t r i e s .

A l t h o u g h , a s w e s h a l l see l a t e r , a c o n s i d e r a b l e p r o p o r t i o n o f w o r l d

t r a d e c a n b e c o n s i d e r e d as a n e x c h a n g e of f o o d s t u f f s a n d r a w m a

t e r i a l s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s , t h e r e is g e n e r a l l y b u t

l i t t l e d i r e c t e x c h a n g e b e t w e e n c o u n t r i e s t h e p r o d u c t i v e s t r u c t u r e

o f w h i c h is m a i n l y b u i l t u p o n t h e g e n e t i c a n d e x t r a c t i v e i n d u s t r i e s . ^

A s , i n a d d i t i o n , t h e n u m b e r of a g r i c u l t u r a l c o u n t r i e s is v e r y l a r g e ,

a n a t i o n t a k e s u p w i t h e v e r y s t e p i n i ts i n d u s t r i a l i z a t i o n a w i d e r a n g e

o f n e w t r a d e c o n n e c t i o n s w i t h o u t l o s i n g i ts o l d o n e s , s i n c e i t m a y

c o n t i n u e t o s e n d a b r o a d s u b s t a n t i a l a m o u n t s of ra iv m a t e r i a l s a n d

f o o d s t u f f s a n d b u i l d p a r t o f i ts t r a d e u p o n t h e e x c h a n g e o f m a n u

f a c t u r e s a g a i n s t m a n u f a c t u r e s . B u t s i n c e t h e e x p o r t s o f a n i n d u s

t r i a l i z e d c o u n t r y a r e a l w a y s m o r e d i v e r s i f i e d t h a n t h o s e o f a n

a g r i c u l t u r a l o r r a w - m a t e r i a l - p r o d u c i n g c o u n t r y , t h e c o n n e c t i o n o f

' " l o w c o u n t r y - c o n c e n t r a t i o n a n d fow c o m m o d i t y - c o n c e n t r a t i o n f o r

t h e e x p o r t s o f i n d u s t r i a l c o u n t r i e s is ea s i ly e x p l a i n e d .

B u t , if a s m a l l c o u n t r y s p e c i a l i z e s in a fe^v s t a p l e s , i ts p r o d u c e

m i g h t b e in su f f i c i en t t o sat i s fy t h e e n t i r e d e m a n d of e v e n a s i n g l e

l a r g e c o i m t r y , w h e r e a s the v a r i e d d e m a n d o f t h e s m a l l c o u n t r y

m i g h t b e s t b e filled b y s u p p l i e s f r o m a l a r g e n u m b e r of c o u n t r i e s .

T l i e s e c o n s i d e r a t i o n s b r i n g o u t o n c e m o r e t h e i m p o r t a n c e of t a k i n g

a c c o u n t m o r e f r e q u e n t l y , in t h e r e a s o n i n g a b o u t i n t e r n a t i o n a l t r a d e ,

of t h e f a c t o r of d i f f e r e n c e i n s ize o f t h e v a r i o u s c o u n t r i e s .

•See below, pp. 126 ft.

i o 8 National Power and Foreign Trade

W e s e e h e r e t h a t t h e c o m p l e m e n t a r i t y b e t w e e n t w o e c o n o m i e s

i s v e r y o f t e n , a t l e a s t f o r t h e e x p o r t s of o n e of t h e t w o c o u n t r i e s , o f

t h e t y p e w h i c h w e h a v e t e r m e d e x c l u s i v e / I n o t h e r w o r d s , w e d o n o t

h a v e a c o m p l e m e n t a r i t y b e t w e e n b r o a d t y p e s of e c o n o m i e s , t h e o n e

a g r i c u l t u r a l a n d t h e o t h e r m a n u f a c t u r i n g , s o t h a t a g i v e n a g r i c u l

t u r a l c o u n t r y c a n b e c o n s i d e r e d a s c o m p l e m e n t a r y t o any one o f

t h e m a n u f a c t u r i n g c o u n t r i e s . W o r l d t r a d e is b u i l t , r a t h e r , i n l a r g e

p r o p o r t i o n u p o n t h e r e l i a n c e of t h e e x p o r t p r o d u c t s of o n e p a r t i c u

l a r c o u n t r y u p o n t h e p r o s p e r i t y a n d ta s te s of o n e o t h e r i n d i v i d u a l

c o u n t r y . N e w Z e a l a n d b u t t e r , P h i l i p p i n e s u g a r , a n d B u l g a r i a n to

b a c c o w e r e n o t , i n g e n e r a l , m a r k e t e d i n " i n d u s t r i a l c o u n t r i e s , " b u t

t h e y w e r e v e r y s p e c i f i c a l l y m a r k e t e d i n E n g l a n d , t h e U n i t e d S t a t e s ,

a n d G e r m a n y , r e s p e c t i v e l y ; p o s s i b i l i t i e s of d i v e r s i o n f r o m o n e of

t h e s e c o u n t r i e s t o a n o t h e r h a r d l y e x i s t e d to a n y r e l e v a n t e x t e n t .

T h e s e findings l e a d t o a n i m p o r t a n t c o n c l u s i o n ; T h e e x i s t i n g pat

t e r n o f w o r l d t r a d e t e n d s t o c o r r e l a t e d e p e n d e n c e u p o n a f ew c o i m

t r i e s w h i c h i n t u r n d e p e n d u p o n a few p r o d u c t s ; it a l s o b r i n g s a b o u t

c o n d i t i o n s in w h i c h t h e a v a i l a b i l i t y of a l t e r n a t i v e m a r k e t s is ser i

o u s l y i m p a i r e d . U n d e r t h e c o n d i t i o n of u n c h e c k e d n a t i o n a l sover

e i g n t i e s , th i s p a t t e r n t h e r e f o r e p r o v i d e s l a r g e o p p o r t u n i t i e s fo r t h e

e x e r c i s e of e c o n o m i c p r e s s u r e s .

T h e t e n d e n c y o f e x p o r t s o f t h e s m a l l e r c o u n t r i e s t o b e m o r e con

c e n t r a t e d t h a n t h e i r i m p o r t s i s c e r t a i n l y i n p a r t n a t u r a l . I t c o u l d

h a r d l y b e c o n s i d e r e d a s a n effect o f c o n s c i o u s p o l i c y o n t h e p a r t o f

s u c h c o u n t r i e s a s A u s t r a l i a o r N e w Z e a l a n d . I n m a n y i n s t a n c e s ,

h o w e v e r , i t m i g h t b e t h e o u t c o m e of a p o l i c y w h i c h , t r y i n g t o s p r e a d

t r a d e m o r e e v e n l y o v e r t h e v a r i o u s c o u n t r i e s , w a s , b e c a u s e of t h e

u n d e r l y i n g n a t u r a l t e n d e n c y , m o r e s u c c e s s f u l in i m p o r t i n g t h a n i n

e x p o r t i n g . I n th i s c a t e g o r y t h e figures for E i r e a r e e s p e c i a l l y r e v e a l

i n g . I t c a n b e a s s u m e d t h a t t h e I r i s h g o v e r n m e n t e n d e a v o r e d to dis

e n t a n g l e t h e e c o n o m y o f t h e c o u n t r y f r o m its e x t r e m e d e p e n d e n c e

u p o n G r e a t B r i t a i n . I n 1925, t h e y e a r f o l l o w i n g t h e I r i s h i n d e

p e n d e n c e , w e find b o t h t h e I r i s h i n d i c e s a t e x t r e m e l y h i g h l eve l s

( a l t h o u g h a l r e a d y t h e e x p o r t i n d e x w a s a t 9 7 . 2 — h i g h e r t h a n t h e

i m p o r t i n d e x , w h i c h s t o o d a t 81 .3) . I n 1938 t h e i m p o r t i n d e x h a d

f a l l e n t o 52 .2 , w h e r e a s t h e e x p o r t i n d e x h a d d e c r e a s e d o n l y a f ew

p o i n t s , to 92.7. T h e a t t e m p t s o f S o u t h A m e r i c a n n a t i o n s to d i v e r s i f y

^ See above, p. 31.


the commodity-structure of t l ieir exports £or reasons of e c o n o m i c

security are wel l k n o w n . T h e same mot ive may w e l l i n d u c e a coun

try to spread its trade a m o n g m a n y countr ies , since the m o v e m e n t s

of the business cycle a n d cl ianges in d e m a n d are not l ikely to coin

cide exactly in all countr ies . 1 n addit ion, the desire to a v o i d pol i t ical

d e p e n d e n c e o n o n e country pushes pol icy in the same direct ion.

Because of tlie "exc lus ive c o m p l e m e n t a r i t y " w h i c h w e have n o t e d ,

however , this pol icy was not very successful so far as exports are

concerned. T h i s fai lure, together w i t h the relat ive success of the

policy wi th respect to imports , lends support to o u r c o n t e n t i o n that

bi lateral ism is an i m p o r t a n t means of d e v e l o p i n g a p o w e r pol icy.

Indeed, if county A holds an important share in country B's exports,

it can rely to a large degree upon the inability of B to divert its ex

ports to third countries. By the device of bilateralism, a country may

then artificially secure or m a i n t a i n a s imilarly d o m i n a t i n g posi t ion

in the imports oi'Q, a posit ion w h i c h w o u l d have b e e n difficult if not

impossible t o o b t a i n or to reta in by n o r m a l t r a d i n g metl iods.

A N A L Y S I S A C C O R D I N G T O G R O U P S O F C O U N T R I E S

W e shall now e x a m i n e i n m o r e detai l the indices of concentrat ion

of various countr ies , d i v i d i n g o u r i n q u i r y into three headings:

E u r o p e , Br i t ish E m p i r e , and S o u t h A m e r i c a .

Europe.—We have ca lculated the indices for all the smal ler E u r o

pean states, i.e., for all E u r o p e a n coimtr ies e x c e p t Great Br i ta in ,

G e r m a n y , U. S. S. R., France, a n d Italy. T h e indices for Portuga l ,

Spain, a n d A l b a n i a have b e e n c o m p u t e d for the sake of complete

ness, but tliey wi l l not be c o m m e n t e d u p o n here. E i r e is c o u n t e d

w i t h Brit ish E m p i r e countr ies . T h i s gives a total of n ineteen coun

tries (eighteen in 1938 because of the Anschluss). Since every country

yields t w o indices, o n e for imports and o n e for exports , w e h a v e in

all, thirty-eight indices (thirty-six in 1938) the m o v e m e n t s of w h i c h ,

from year to year, can be analyzed as in the table on the n e x t page.

T h u s , f rom 1925 to 1932. the smal ler E u r o p e a n countr ies s h o w

on the w h o l e a tendency to lessen the concentrat ion of their trade.

T h e r e is not a single country showing an increase of b o t h its i m p o r t

and export concentrat ion e i ther from 1925 to 1929 or from 1929

to 1932. T h i s indicates that the range of markets was w i d e n i n g for

E u r o p e a n countries, the trade of w h i c h was general ly compressed


Number of Number of countries showing countries showing countries showing no significant

decrease increase change* Total 1925-1929 21 8 9 38 1929-1932 20 6 12 38 1932-1937 19 12 7 38 1932-1938 12 19 5 36 1937-1938 3 24 9 36

" Change ot less tlian unity.

of c o u n t r i e s t h e t r a d e of w h i c h i s d i s t r i b u t e d a c c o r d i n g t o t h r e e

d i s t i n c t p a t t e r n s . T h e first c o n s i s t s of t h o s e c o u n t r i e s i n w h i c h t h e

p o s i t i o n o f G e r m a n y h a s a l w a y s b e e n o r h a s b e c o m e d o m i n a n t t o

t h e p o i n t t h a t n o o t h e r n a t i o n s h o l d a n y t h i n g a p p r o a c h i n g a s u b

s t a n t i a l s h a r e i n t h e i m p o r t s o r e x p o r t s o f t h e s e c o u n i r i e s . T o t h i s

c a t e g o r y b e l o n g a l l t h e c o u n t r i e s of s o u t h e a s t e r n E u r o p e w i t h t h e

e x c e p t i o n of A l b a n i a . S e c o n d l y , w e h a v e a g r o u p of n a t i o n s t h e t r a d e

of w h i c h is r a t h e r e v e n l y s p r e a d o v e r a n u m b e r of c o u n t r i e s . T h i s

i n c l u d e s t h e five s m a l l i n d u s t r i a l c o u n t r i e s , B e l g i u m , N e t h e r l a n d s ,

S w i t z e r l a n d , A u s t r i a , C z e c h o s l o v a k i a , a n d a l s o P o l a n d . T h i r d l y ,

t h e r e is a g r o u p i n w h i c h p r a c t i c a l l y a n A n g l o - G e r m a n d u o p o l y

p r e v a i l e d , t h e s h a r e s o f G e r m a n a n d E n g l i s h t r a d e t a k e n t o g e t h e r

e x c e e d i n g 50 p e r c e n t of t h e t o t a l t r a d e . T h i s g r o u p is m a d e u p o f

t h e B a l t i c a n d S c a n d i n a v i a n c o u n t r i e s . T h e f u n d a m e n t a l r e s u l t of

o u r figures s h o w s t h a t f r o m 1925 to 1938 t h e c o n c e n t r a t i o n of t r a d e

h a s i n c r e a s e d s u b s t a n t i a l l y fo r t h e first g r o u p o f c o u n t r i e s , h a s de

c r e a s e d for t h e s e c o n d g r o u p , h a s h a d n o d e f i n i t e t r e n d for t h e t h i r d .

I f w e c o m p a r e t h e m o v e m e n t s of t h e v a r i o u s n a t i o n a l i n d i c e s f r o m

1929 t o 1938, t h e m o s t s t r i k i n g d i f f e r e n c e is s een t o b e b e t w e e n t h e

first a n d t h e s e c o n d g r o u p of c o u n t r i e s . T h e s t e e p i n c r e a s e s of t h e

w i t h i n n a r r o w r e g i o n a l l i m i t s a f te r W o r l d W a r I. F o r c e r t a i n c o u n tr ie s , th i s m o v e m e n t c o n t i n u e d a f te r 1932, b u t , fo r a n o t h e r g r o u p , it is r e v e r s e d . C o m p a r e d w i t h 1932, this g r o u p is s t i l l a m i n o r i t y i n 1937 , b u t b e c o m e s a m a j o r i t y i n 1938 o w i n g to w h a t w a s p r a c t i c a l l y a n a l l - r o u n d i n c r e a s e in t h e i n d e x f r o m 1937 to 1938.

T h e d e t a i l e d e x a m i n a t i o n of t h e m o v e m e n t of t h e i n d i c e s f o r t h e i n d i v i d u a l c o u n t r i e s is f a c i l i t a t e d if w e d i s t i n g u i s h t h r e e g r o u p s

CHANGES IN TRADE CONCENTRATION INDICES OF EUROPEAN COUNTRIES Number of


indices for the southeastern E u r o p e a n countr ies reflect, of course,

the increase of the G e r m a n percentage in their trade and, as such,

tel l us n o t i i i n g n e w . B u t by its general i ty the i n d e x p e r m i t s a n in

structive comparison w i t h the deve lopments w h i c h took place simul

taneously in other countr ies .

T h e indices of the second g r o u p show an al l -round dec l ine , w h i c h

is still m o r e ev ident w h e n w e c o m p a r e the figures for 1937 with the

" p r e - H i t l e r " indices. I n 1938, i n d e e d , the a n n e x a t i o n of A u s t r i a

a n d the e n s u i n g c o m b i n a t i o n of the G e r m a n and A u s t r i a n trade per

centages m a k e for a u n i f o r m increase i n the indices, w h i c h is rather

m a r k e d in Chechoslovakia a n d Pol«nd.^ T h e Czechoslovakian in

dices for 1937 are the lowest w h i c h w e have f o u n d for any of the

countr ies w h i c h m i g h t be considered as the " o b j e c t s " of a p o w e r

pol icy. T h e i r level even approaches that of the Brit ish indices. Since

G e r m a n y also holds the biggest percentage in the trade of the coun

tries of the second g r o u p , the fall of the indices means general ly that

the r e d u c t i o n in G e r m a n y ' s share was m a d e possible by an increase

in the percentages of m a n y other countr ies concurrent ly .

T h e difference in the behavior of the concentrat ion indices for

the first a n d second groups of countr ies can be ascr ibed to three fac

tors. I n the first place, t h e southeastern E u r o p e a n countr ies h a d n o

c o m m o n front ier wit l i G e r m a n y unt i l 1938, a n d may therefore not

have h e l d a part icular ly grave v i e w of the effect of G e r m a n com

mercia l penetrat ion. B u t the countr ies in the second g r o u p w e r e

all i m m e d i a t e ne ighbors of G e r m a n y and, as such, were the first

potent ia l v ic t ims of G e r m a n aggression. It is also in this g r o u p that

w e find the only small E u r o p e a n countr ies , wi th the e x c e p t i o n of

Sweden, w h i c h , in an effort to increase their overseas trade, have

negot ia ted a n d s igned agreements w i t h the U n i t e d States u n d e r the

R e c i p r o c a l T r a d e A g r e e m e n t s Program.* Ev idence , however , also

exists that the countr ies in the first g r o u p , after h a v i n g w e l c o m e d

at first the massive G e r m a n purchases of their agr icu l tura l surplus

' T t i e a n n e x a t i o n of .Austria is a l so in grea t par t re spons ib le for the s u d d e n increase in t h e H u n g a r i a n i n d e x f rom i<)37 10 ig^**, whereas for the B a l k a n countr ie s it s imply a d d s inipei i i s lo a trend a l r eady mani fe s t in t h e f o r m e r years,

8 T h e fo l lowing a r e the countr ie s a n d the d a t e s on which they s igned the a g r e e m e n t s : B e l g i u m , F e b r u a r y 27, ' 0 3 5 ; N e t h e r l a n d s f a g r e e m e n i s c o m p r i s i n g a l so the D u t c h colonial terr i tor ies ) , D e c e m b e r 20, 1935; Swi t ze r l and . D e c e m b e r 20, 19115; Czechoslovak ia . .March 7, 1938, Cf. Afargaret S. G o r d o n , Barriers Co U'orid Trade (Sew York, ' 9 4 0 . P- 393-


p r o d u c t s , s o o n r e a l i z e d t h e d a n g e r s of an e x c l u s i v e G e r m a n d o m i n a

t i o n of t h e i r t r a d e . T h e y t r i e d r e p e a t e d l y to r e v e r s e t h e t r e n d t o

w h i c h t h e i r f o r e i g n t r a d e a n d t h e r e b y t h e i r e n t i r e e c o n o m i c s t r u c

t u r e w a s s u b j e c t e d , m a i n l y b y d e v a l u i n g t h e i r c u r r e n c i e s in t h e

t r a n s a c t i o n s w i t h t h e f r e e c o u n t r i e s a n d by g r a n t i n g t o e x p o r t e r s

t h e p r i v i l e g e o f r e t a i n i n g a c e r t a i n p r o p o r t i o n o f the " d e v i s e n "

o b t a i n e d . B u t these p o l i c i e s w e r e l a r g e l y u n s u c c e s s f u l . "

T h i s b r i n g s us t o t h e s e c o n d f a c t o r . T h e c o u n t r i e s of t h e s e c o n d

g r o u p , a l t h o u g h c o n c e r n e d o v e r t h e d a n g e r s of t o o g r e a t a con

c e n t r a t i o n o f t h e i r t r a d e u p o n G e r m a n y , w e r e e c o n o m i c a l l y b e t t e r

p r e p a r e d t o re s i s t it . T h e i r e c o n o m i e s w e r e i n d u s t r i a l i z e d a n d t h e i r

e x p o r t s a b l e t o c o m p e t e w i t h s i m i l a r e x p o r t s f r o m o t h e r r e g i o n s

o f t h e w o r l d . A l t h o u g h t h e l e v e l o f t h e c o n c e n t r a t i o n of t h e i r t r a d e

w a s n o t g e n e r a l l y l o w e r i n 1929 t h a n t h a t of t h e s o u t h e a s t e r n E u

r o p e a n c o u n t r i e s , t h e r a n g e of t h e i r t r a d e c o n n e c t i o n s i n w e s t e r n

E u r o p e a n d i n o v e r s e a s c o u n t r i e s w a s m u c h w i d e r . F i n a l l y , h e r e

a g a i n t h e fac t t h a t t h e i r e x p o r t s w e r e m o r e v a r i e d h a s h e l p e d t h e

c o u n t r i e s o f t h e s e c o n d g r o u p t o s p r e a d t h e i r e x p o r t s m o r e e v e n l y

o v e r t h e i r v a r i o u s t r a d i n g p a r t n e r s .

U n t i l n o w om- e x p l a n a t i o n h a s t a k e n i n t o a c c o u n t o n l y t h e i n t e n

t i o n s o f t h e v a r i o u s s m a l l c o u n t r i e s a n d t h e i r c a p a c i t y t o c a r r y o u t

t h e i r i n t e n t i o n s . W h e n , h o w e v e r , w e try to s l iow w h y c e r t a i n a n i m a l s

a r e t h e v i c t i m s of t h e wol f , i t i s n o t su f f i c ient t o a n a l y z e t h e w i l l i n g

n e s s a n d t h e c a p a c i t y o f t h e v a r i o u s p o s s i b l e v i c t i m s t o e s c a p e f r o m

t h e wol f , b u t i t is n e c e s s a r y t o i n v e s t i g a t e t h e v a r y i n g a p p e t i t e of

t h e w o l f w i t h r e g a r d t o h i s p r o s p e c t i v e victims. H e r e , a g a i n , t h e

a v a i l a b l e e v i d e n c e f a v o r s t h e c o u n t r i e s o f t h e s e c o n d g r o u p . T h e i r

e c o n o m i e s , i n d e e d , d i d n o t p r e s e n t t h a t t y p e o f complementarity to

t h e G e r m a n e c o n o m y w h i c h w a s c o n s i d e r e d e s s e n t i a l b y N a z i e c o n

o m i s t s fo r t h e b u i l d i n g u p of " s o u n d " t r a d e r e l a t i o n s . T h e i r e x p o r t s

t o G e r m a n y c o n s i s t e d t o a c o n s i d e r a b l e d e g r e e o f m a n u f a c t u r e d

a r t i c l e s , a n i t e m w h i c h G e r m a n y e n d e a v o r e d t o e l i m i n a t e a s far a s

p o s s i b l e . ' " T h e s e f a c t o r s a n d t h e c l o s e e c o n o m i c c o n t a c t o f t h e c o u n

tr ie s i n q u e s t i o n w i t h t h e W e s t e r n w o r l d d i d n o t m a k e t h e m v e r y

s u i t a b l e o b j e c t s for t h e G e r m a n m e t h o d s of e c o n o m i c p e n e t r a t i o n .

^Cf. Royn] Institute of International Affairs, South Eastern Europe (London, 1940), pp. 116-118.

" S e e below,pp. 137-138.


T h e s i t u a t i o n i s s o m e w h a t d i f f e r e n t w i t h t h e B a l t i c a n d S c a n d i

n a v i a n c o u n t r i e s , w h i c h f o r m o u r t h i r d E u r o p e a n g r o u p . T h e i r

e c o n o m i e s , b e i n g r i c h i n a g r i c u l t u r a l a n d r a w m a t e r i a l r e s o u r c e s ,

m e t t h e e s s e n t i a l c o n d i t i o n s for G e r m a n p e n e t r a t i o n . P o l i t i c a l l y ,

a l s o , they w e r e c o n s i d e r e d a s l y i n g i n t h e " G e r m a n s p a c e . " T h e

t r e n d of t h e c o n c e n t r a t i o n i n d e x of t h e s e c o u n t r i e s is n o t a defi

n i t e o n e . L i t t l e v a r i a t i o n e x i s t s fo r N o r w a y , S w e d e n , F i n l a n d , a n d

E s t o n i a . T h e m a r k e d i n c r e a s e s o f t h e i n d i c e s f o r L a t v i a n e x p o r t s

a n d D a n i s h i m p o r t s a r e d u e t o a s t r o n g r i s e i n t h e E n g l i s h p e r c e n t

a g e s . F i n a l l y , w e n o t i c e a m a r k e d d e c r e a s e i n t h e L i t h u a n i a n i n d e x

b e c a u s e o f a heavy d e c l i n e i n t h e G e r m a n s h a r e , w h i c h w a s n o t

e n t i r e l y c o m p e n s a t e d b y t h e c o n c o m i t a n t r i s e o f t h e B r i t i s h s h a r e .

T h u s , t h e p i c t u r e p r e s e n t e d b y o u r figures s h o w s t h e l a c k o f s u c c e s s

of G e r m a n e c o n o m i c p e n e t r a t i o n i n th i s g r o u p o f c o u n t r i e s . T h e

p r e s e n c e o f G r e a t B r i t a i n a s a b i g a l t e r n a t i v e m a r k e t i n t h e i r ex

t e r n a l t r a d e p r o v i d e d for t h e m t h e d e f e n s i v e w e a p o n w h i c h w a s

e n t i r e l y a b s e n t i n t h e B a l k a n s .

O f c o u r s e , a n a c t i v e p o h c y o f o p p o s i t i o n to t h e G e r m a n t r a d e

d r i v e o n t h e p a r t o f G r e a t B r i t a i n a n d F r a n c e w o u l d h a v e c h a n g e d

m a t t e r s i n the B a l k a n s a n d w o u l d h a v e r e l i e v e d t h e p r e c a r i o u s

e c o n o m i c s i t u a t i o n of L i t h u a n i a , w h i c h , b e c a u s e o f i ts e n e r g e t i c

h a n d l i n g of the N a z i a g i t a t o r s in M e m e l , w e n t t h r o u g h a p e r i o d o f

G e r m a n b l o c k a d e f r o m 1933 t o J936. B u t how f a r s u c h a p o l i c y w a s

r e m o v e d f r o m t h e i n t e n t i o n s o f B r i t i s h p o l i c y a t t h a t e p o c h m a y

b e s e e n f r o m t h e f o l l o w i n g p a s s a g e o f a n a u t h o r i t a t i v e r e p o r t o n t h e

B a l t i c states' . " T h e p r i n c i p a l f e a t u r e o f i n t e r e s t d u r i n g t h e s e y e a r s

( 1 9 3 0 - 1 9 3 7 ) w a s t h e s t r u g g l e b e t w e e n G e r m a n y a n d t h e U n i t e d

K i n g d o m for m a r k e t s in th i s a r e a . I n this t h e U n i t e d K i n g d o m w a s

h e l p e d b y t h e fact t h a t s t e r l i n g was , a n d t h e R e i c h s m a r k w a s n o t , a

c o n v e r t i b l e c u r r e n c y . I t c o n s e q u e n t l y b e c a m e v i t a l l y i m p o r t a n t ,

f r o m a m o n e t a r y p o i n t of v i e w , t h a t t h e B a l t i c S t a t e s s h o u l d in

c r e a s e t h e i r e x p o r t s t o t h e U n i t e d K i n g d o m b y e v e r y m e a n s i n t h e i r

p o w e r , o r a t a n y r a t e p r e v e n t t h e m . . . f a i l i n g off. . . . T h i s i n c r e a s e d

t h e b a r g a i n i n g p o w e r of t h e U n i t e d K i n g d o m w h e n t h e t i m e c a m e

t o n e g o t i a t e c o m m e r c i a l a g r e e m e n t s w i t h t h e s e c o u n t r i e s . " "

T h i s q u o t a t i o n is p a r t i c u l a r l y r e v e a l i n g in its c h a r a c t e r i z a t i o n o f

B r i t i s h p o l i c y i n t h e c o u n t r i e s s e l e c t e d a s o b j e c t s f o r G e r m a n eco-

" Royal Instiiuie of International Affairs, The Baltic States (London, 1938), p. 164.


n o m i c p e n e t r a t i o n . I t i n t i m a t e s t h a t G r e a t B r i t a i n n o t o n l y f a i l e d t o a s s i s t t h e s e c o u n t r i e s i n t h e i r d e s i r e t o c o u n t e r t h e G e r m a n d r i v e b y s u b m i t t i n g of fers to t h e m a t l ea s t a s a t t r a c t i v e a s t h e G e r m a n o n e s , b u t t h a t G r e a t B r i t a i n a c t u a l l y d r o v e a b a r g a i n o u t of t h e d e s i r e of t h e s e c o u n t r i e s t o t r a d e w i t h h e r , a d e s i r e w h i c h s h e c o n s i d e r e d m e r e l y a s a " m o n e t a r y " p h e n o m e n o n . I t i s i n d e e d s u r p r i s i n g , a n d e x p l i c a b l e o n l y b y t h e d e s p e r a t e a t t e m p t s of t h e s m a l l e r E u r o p e a n c o u n t r i e s t o e s c a p e G e r m a n c o m m e r c i a l d o m i n a t i o n , t h a t w i t h t h i s s h o r t s i g h t e d p o l i c y G r e a t B r i t a i n d i d n o t l o s e m o r e g r o u n d t o G e r m a n y t h a n s h e a c t u a l l y d i d .

British Empire.—IJndev t h i s h e a d i n g w e c o n s i d e r t e n c o u n t r i e s : C a n a d a , C e y l o n , I n d i a , B r i t i s h M a l a y a , A u s t r a l i a , N e w Z e a l a n d , Union oi S o u t h A f r i c a , E g ) ' p i , N i g e r i a , a n d E i r e .

F o r a l l t h e s e c o u n t r i e s , w i t h t h e e x c e p t i o n o f B r i t i s h M a l a y a , G r e a t B r i t a i n is t h e m o s t i m p o r t a n t e x p o r t m a r k e t . F o r C a n a d a , t h e B r i t i s h a n d A m e r i c a n p e r c e n t a g e s a r e a b o u t e q u a l , t h e A m e r i c a n s h a r e h a v i n g a t e n d e n c y to b e s l i g h t l y h i g h e r . W i t h r e s p e c t t o i m p o r t s , G r e a t B r i t a i n r a n k s s e c o n d to t h e U n i t e d S t a t e s i n C a n a d a , t o I n d i a in C e y l o n , a n d t o t h e D u t c h E a s t I n d i e s i n M a l a y a .

T h e m o s t i n t e r e s t i n g f e a t u r e of t h e c o n c e n t r a t i o n i n d i c e s f o r t h e c o u n t r i e s o f t h e B r i t i s h E m p i r e i s t h e d i v e r g e n c e i n b e h a v i o r o f t h e i m p o r t a n d e x p o r t i n d i c e s . W h e n w e c o m p a r e 1937 w i t h 1 9 1 3 w e f ind t h a t t h e e x p o r t i n d i c e s m a i n t a i n , o n t h e w h o l e , t h e i r r a t h e r h i g h l eve l , w h e r e a s t h e i m p o r t i n d i c e s a l l s h o w m o r e o r le s s i m p o r t a n t d e c r e a s e s . T h i s r e s u l t is b r o u g h t a b o u t i n t w o p e r i o d s : f r o m 1 9 1 3

t o 1929 a n d f r o m 1929 t o 1938. W i t h o n e e x c e p t i o n , t h a t o f B r i t i s h M a l a y a , w h i c h i n c r e a s e s i t s o r i e n t a t i o n t o w a r d t h e U n i t e d S t a t e s , t h e 1 9 1 3 t o 1 9 2 9 p e r i o d s h o w s a g e n e r a l d e c r e a s e i n b o t h t h e i m p o r t a n d e x p o r t i n d i c e s . F r o m 1929 t o 1938 m o s t of t h e i m p o r t i n d i c e s a r e s t a t i o n a r y , w h e r e a s t h e e x p o r t i n d i c e s r i s e s u b s t a n t i a l l y f o r a l l c o u n t r i e s , w i t h t h e e x c e p t i o n o f M a l a y a a n d E g y p t . I t i s n o t e w o r t h y t h a t t h e u p w a r d t r e n d of t h e e x p o r t i n d i c e s is m o s t i n e v i d e n c e f r o m 1929 to 1932, i .e . , b e f o r e t h e O t t a w a A g r e e m e n t c o u l d m a k e i t se l f fe l t . A c t u a l l y , i t s e e m s t h a t t h e e c o n o m i c a n d m o n e t a r y d e v e l o p m e n t of t h e d e p r e s s i o n w a s r e s p o n s i b l e fo r t h e r e v e r s a l o f t h e d o w n w a r d t r e n d a n d t h a t , w i t h t h e e x c e p t i o n o f N i g e r i a , t h e O t t a w a A g r e e m e n t d i d n o t e x e r c i s e a n a p p r e c i a b l e i n f l u e n c e u p o n t h e c o n c e n t r a t i o n o f t h e f o r e i g n t r a d e i n B r i t i s h c o l o n i e s a n d d o m i n i o n s .


T i l l s m e a n s t h a t i t w a s t h e d e p r e s s i o n w i t h i t s n e w t r a d e b a r r i e r s

w h i c h f o i l e d t h e p r e v i o u s l y n o t i c e a b l e t e n d e n c y t o d e v e l o p n e w

m a r k e t s f o r t h e c o u n t r i e s o f t h e B r i t i s h E m p i r e . I t m a y a l s o b e i n t e r

e s t i n g t o n o t e t h a t i n c o m p a r i s o n w i t h 1913 t h e r e l a t i v e p o s i t i o n s

o f t h e i m p o r t a n d e x p o r t i n d i c e s h a v e b e e n c h a n g e d i n a n u m b e r

o f c o u n t r i e s : f o r C a n a d a , C e y l o n , I n d i a , A u s t r a l i a , a n d N i g e r i a , t h e

i m p o r t i n d e x e x c e e d e d t h e e x p o r t i n d e x i n 1913, w h e r e a s t h e o p p o

s i t e r e l a t i o n s h i p p r e v a i l e d b y 1938."^ T h i s i l l u s t r a t e s f u i t h e r o u r

p r e v i o u s r e m a r k s a b o u t t h e d i f f i c u l t y o f s h i f t i n g e x p o r t s a n d t h e

t e n d e n c y o f i m p o r t s t o s p r e a d o u t m o r e e v e n l y o v e r a n u m b e r o f

c o u n t r i e s .

South America.—Thc p e r i o d f r o m 1913 t o 1925 i s t h e o n l y o n e

d u r i n g w h i c h a n u p w a r d m o v e m e n t o f t h e i n d i c e s s e e m s t o h a v e

b e e n p r e v a l e n t . T h i s i s a n o b v i o u s r e f l e c t i o n o f t h e i n c r e a s e o f t h e

U n i t e d S t a t e s ' p o s i t i o n i n t h e f o r e i g n t r a d e o f t h e c o u n t r i e s u n d e r

c o n s i d e r a t i o n . I n a l l t h e f o l l o w i n g p e r i o d s a s o m e w h a t i r r e g u l a r

t e n d e n c y t o w a r d a d e c r e a s e p r e d o m i n a t e s . F r o m 1925 t o 1929 i t i s

s l i g h t , t h o u g h v i s i b l e , f o r t h e e x p o r t i n d i c e s a n d r e f l e c t s t h e w i d e n

i n g o f t h e m a r k e t s f o r t h e v a r i o u s S o u t h A m e r i c a n c o u n t r i e s d u r i n g

t h e p r o s p e r i t y p e r i o d . E x a c t l y t h e o p p o s i t e m o v e m e n t o c c u r s f r o m

1929 t o 1932, w h e n t h e d e p r e s s i o n f o r c e d t h e r e d u c e d e x p o r t s o f

t h e s e c o u n t r i e s b a c k t o t h e i r t r a d i t i o n a l c u s t o m e r s . A s i m i l a r m o v e

m e n t w a s n o t e d p r e v i o u s l y f o r t h e c o u n t r i e s o f t h e B r i t i s h E m p i r e .

B u t , f r o m 1929 t o 1932 w e o b s e r v e a d e c r e a s e i n m o s t o f t h e i m p o r t

i n d i c e s , w h i c h is t r a c e a b l e t o t h e s h a r p d e c l i n e o f t h e u s u a l l y d o m i

n a t i n g s h a r e o f t h e U n i t e d S t a t e s . E x p o r t s f r o m t h e U n i t e d S t a t e s

t o t h e s e c o u n t r i e s , b e i n g g e n e r a l l y g o o d s w i t h a h i g h i n c o m e e l a s

t i c i t y , w e r e t h e first t o s u f f e r f r o m t h e c u r t a i l m e n t o f t h e p u r c h a s i n g

p o w e r o f t h e s e c o u n t r i e s . I n t h e r e v i v a l , w h i c h c a m e a f t e r 1932, t h e

U n i t e d S t a t e s r e g a i n e d o n l y p a r t l y t h e p o s i t i o n i t h a d l o s t i n 1929,

t r a d e d r i v e s b y G e r m a n y a n d J a p a n i n t h e m e a n t i m e h a v i n g g a i n e d

t h i s t r a d e . " T h i s l a t t e r d e v e l o p m e n t m u s t b e s e e n a g a i n s t t h e b a c k

g r o u n d o f t r a d i t i o n a l A n g l o - A m e r i c a n d o m i n a t i o n o f t h e e x t e r n a l

t r a d e o f L a t i n A m e r i c a , E n g l a n d a n d t h e U n i t e d S t a t e s t o g e t h e r

" For Malaya tlie inverse development took plate, but the 1938 import index is clearly exceptionally low because of the reduction of the American share due lo the ifjlR recession.

In addition, the regional trade between the South .\merican countries has increased somewhat in numerous instances.


a c c o u n t for 40 t o 80 p e r c e n t o f t h e e x p o r t s a n d i m p o r t s of t h e c o u n

tr ie s d u r i n g t h e y e a r s u n d e r c o n s i d e r a t i o n , t h e U n i t e d S t a t e s g e n

e r a l l y h o l d i n g t h e first p l a c e , e x c e p t i n A r g e n t i n a a n d U r u g u a y .

U n d e r t h e s e c i r c u m s t a n c e s t h e G e r m a n a n d J a p a n e s e a d v a n c e s d u r

i n g t h e ' th i r t i e s n e c e s s a r i l y l e d t o a d e c r e a s e of t h e c o n c e n t r a t i o n of

t h e f o r e i g n t r a d e o f t h e s e c o u n t r i e s . "

I n d e e d , i n o n e i m p o r t a n t r e s p e c t t h e p a r a l l e l b e t w e e n G e r m a n y ' s

t r a d i n g p o l i c y i n t h e B a l k a n s a n d t h a t i n S o u t h A m e r i c a d o e s n o t

h o l d . A l t h o u g h i t is t r u e t h a t , e x c e p t f o r t e c h n i c a l i t i e s , h e r t r a d i n g

m e t h o d s a n d t h e i r e c o n o m i c b a s i s a n d s u c c e s s h a v e b e e n t h e s a m e

i n t h e t w o a r e a s , i n t h e B a l k a n s G e r x n a n y ' s a i m w a s c o m p l e t e eco

n o m i c d o m i n a t i o n , w h e r e a s in t h e L a t i n A m e r i c a n c o u n t r i e s i t

c o u l d b e o n l y t h e u n d e r m i n i n g o f t h e t r a d i t i o n a l A n g l o - A m e r i c a n

d o m i n a t i o n . T h i s , i n c o n j u n c t i o n w i t h t h e g e o g r a p h i c a l f a c t o r , m a y

a l s o e x p l a i n w h y t h e l a t t e r c o u n t r i e s r e s o r t e d m u c h less t o d e f e n s i v e

m e a s u r e s s u c h a s t h o s e e m p l o y e d — u n s u c c e s s f u l l y — b y t h e B a l k a n

c o u n t r i e s a g a i n s t G e r m a n penetra t ion . ' ' ^ T h e d i f f e r e n c e i n t h e s i tua

t i o n is w e l l b r o u g h t o u t b y t h e i n c r e a s e o f t h e c o n c e n t r a t i o n i n d i c e s

i n t h e B a l k a n c o u n t r i e s a n d t h e i r s i m u l t a n e o u s d e c r e a s e i n t h e m a j o r

i ty of t h e L a t i n A m e r i c a n c o u n t r i e s s u b j e c t t o G e r m a n p e n e t r a t i o n .

I n c o m p u t i n g o u r i n d e x of c o n c e n t r a t i o n , w e w i s h e d t o b r i n g o u t ,

fo r p u r p o s e s o f c o m p a r i s o n , o n e s i n g l e f e a t u r e i n t h e s t r u c t u r e of

t h e f o r e i g n t r a d e of t h e v a r i o u s s m a l l c o u n t r i e s w h i c h w e r e p a t e n t l y

t h e o b j e c t s of a p o l i c y of c o m m e r c i a l d o m i n a t i o n o n t h e p a r t of t h e

b i g t r a d i n g n a t i o n s . B e y o n d t h e r e l a t i o n s h i p b e t w e e n c o n c e n t r a t i o n

of e x p o r t s a n d c o n c e n t r a t i o n of i m p o r t s u p o n w h i c h w e h a v e c o m

m e n t e d , o u r i n v e s t i g a t i o n h a s n o t p e r m i t t e d u s t o f ind a g r e a t

n u m b e r of c o m m o n t r e n d s . O n l y f r o m 1925 t o 1929 c a n w e s p e a k

o f a g e n e r a l t e n d e n c y p o i n t i n g t o w a r d a d e c r e a s e o f t h e f o r e i g n t r a d e

c o n c e n t r a t i o n of t h e v a r i o u s c o u n t r i e s . S u b s e q u e n t l y , t h e t r a d e of

t h e c o u n t r i e s of s o u t h e a s t e r n E u r o p e o n l y s h o w s a s h a r p l y r i s i n g

c o n c e n t r a t i o n . W i t h t h i s i m p o r t a n t e x c e p t i o n t h e f o r m a t i o n of c o m

m e r c i a l e m p i r e s , w h i c h h a s o f t e n b e e n c o n s i d e r e d a s a c h a r a c t e r i s t i c

o f t h e ' th i r t i e s , h a s n o t m a t e r i a l l y a f f e c t e d t h e c o n c e n t r a t i o n o f t h e

f o r e i g n t r a d e of t h e o t h e r s m a l l c o u n t r i e s w h i c h w e h a v e e x a m i n e d .

" T h i s decrease is particularly evident if we compare the figures of 1958 with those o£ J929, a decrease of the import indices, a insult of cyclical phenomena, having, in 1929, already taken place.

^ See above, p. 112,

C H A P T E R V I I

The Commodity Structure ofWorldTrade

IN THE TWO p r e c e d i n g c h a p t e r s w e h a v e t r i e d t o a n a l y z e

s t a t i s t i c a l l y c e r t a i n f e a t u r e s of t h e g e o g r a p h i c a l d i s t r i b u t i o n o f w o r l d

t r a d e . W e s h a l l n o w t u r n o u r a t t e n t i o n t o t h e s t a t i s t i c a l a n a l y s i s

of a q u e s t i o n c o n c e r n i n g t h e c o m m o d i t y s t r u c t u r e o f w o r l d t r a d e

w h i c h h a s g r e a t p o l i t i c a l a s w e l l as e c o n o m i c i m p o r t a n c e .

A c c o r d i n g t o a t r a d i t i o n a l c o n c e p t i o n , w o r l d t r a d e i s b a s e d essen

t i a l l y u p o n t h e d i v i s i o n of l a b o r b e t w e e n i n d u s t r i a l a n d a g r i c u l t u r a l

c o u n t r i e s , o r , d i f f e r e n t l y e x p r e s s e d , u p o n t h e e x c h a n g e of m a n u f a c

t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s . T h i s c h a r a c t e r i z a t i o n o f

w o r l d t r a d e h a s o f t e n b e e n d i s p u t e d o n t h e g r o u n d t h a t m u c h of t h e

t r a d e o f t h e i n d u s t r i a l c o u n t r i e s g o e s t o o t h e r i n d u s t r i a l c o u n t r i e s

a n d t h a t w o r l d t r a d e c o n s i s t s , t h e r e f o r e , t o a l a r g e e x t e n t , i n a n ex

c h a n g e o f m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s . A l t h o u g h b o t h t h e s e

o p i n i o n s a r e s i m p l e a s s e r t i o n s o f f a c t s w i t h a n e s s e n t i a l l y q u a n t i t a

t i ve c o n t e n t , they h a v e n o t yet h a d t h o r o u g h s t a t i s t i c a l t e s t i n g .

I n t h e f o l l o w i n g w e first p r e s e n t t h e n a t u r e o f o u r test . W e t h e n

g i v e t h e m a i n r e s u l t b r o u g h t o i U b y o u r c a l c u l a t i o n s f o r w o r l d t r a d e

a s a w h o l e . T h e s e f i gure s a r e t h e n b r o k e n u p i n t o t h e s t a t i s t i c s for

g r o u p s o f c o u n t r i e s a n d f o r s e v e r a l s i n g l e i m p o r t a n t c o u n t r i e s . T h e

s p e c i a l h i s t o r i c a l i n t e r e s t c e n t e r i n g a r o u n d B r i t i s h f o r e i g n t r a d e ,

t o g e t h e r w i t h t h e e a s y a v a i l a b i l i t y o f a d e q u a t e s t a t i s t i c a l m a t e r i a l ,

i n d u c e s u s , i n a d d i t i o n , t o a p p l y o u r m e t h o d t o E n g l i s h f o r e i g n

t r a d e s t a t i s t i c s f i 'om t h e m i d d l e o f t h e n i n e t e e n t h c e n t u r y o n w a r d .

I n a final s e c t i o n w e try t o b r i n g o u t t h e r a t h e r m i s c h i e v o u s r o l e

p l a y e d in r e c e n t h i s t o r y b y t h e t r a d i t i o n a l c o n c e p t i o n of t h e s t r u c t u r e

of w o r l d t r a d e , e s p e c i a l l y w i t h r e s p e c t t o G e r m a n e c o n o m i c p o l i c y .

METHOD OF MEASUREMENT T h e s t a t e m e n t t h a t w o r l d t r a d e c o n s i s t s m a i n l y o f a n e x c h a n g e o f

m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s is s o m e w h a t a m

b i g u o u s . A m o r e p r e c i s e f o r m u l a t i o n of i t s a c t u a l m e a n i n g c a n b e

f u ? ]


g i v e n i n t h e f o l l o w i n g t e r m s : M o s t c o u n t r i e s , a c c o r d i n g t o t h e i r

" a g r i c u l t u r a l " o r " i n d u s t r i a l " c h a r a c t e r , either e x p o r t f o o d s t u f f s

a n d r a w m a t e r i a l s a g a i n s t i m p o r t s o f m a n u f a c t u r e s or i m p o r t food

stuffs a n d r a w m a t e r i a l s a g a i n s t e x p o r t s of m a n u f a c t u r e s . W h e n , i n

t h e f o l l o w i n g , w e s p e a k of t h e s h a r e of t h e e x c h a n g e of m a n u f a c t u r e s

a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s ( w h i c h w e s h a l l c a l l a l s o t h e

" t r a d i t i o n a l t y p e o f e x c h a n g e " ) i n t o t a l w o r l d t r a d e , t h i s s h o u l d b e

i n t e r p r e t e d a s t h e d e g r e e t o w h i c h t h e t r a d i t i o n a l v i e w of t h e stiTJc-

t u r e o f w o r l d t r a d e is f o u n d to b e t r u e .

T h e m e a s u r e m e n t of t h e e x t e n t t o w h i c h w o r l d t r a d e i s b a s e d o n

t h e " t r a d i t i o n a l t y p e o f e x c h a n g e " c a n p r o c e e d a l o n g l i n e s m a d e

f a m i l i a r b y t h e m e a s u r e m e n t o f b i l a t e r a l i s m u s e d b y t h e E c o n o m i c

I n t e l l i g e n c e S e r v i c e of t h e L e a g u e of N a t i o n s . '

T h e m e t h o d c o n s i s t s i n d i v i d i n g t h e t r a d e of e a c h c o u n t r y i n t o t h r e e c a t e g o r i e s :

1) to ta l i m p o r t o r e x p o r t b a l a n c e ; 2) i m p o r t s a n d expor t s which offset o n e ano ther in t rade with indi

v i d u a l countr ie s ; 3) ba l ances in t rade with i n d i v i d u a l countr ies not reflected by the

aggrega te b a l a n c e (category 1), i.e., ba l ances with o p p o s i t e s ign, offse t t ing one another .

T h e s e c o n d c a t e g o r y c o m p r i s e s t h e t r a d e w h i c h b a l a n c e s b i l a t e r a l l y ; t h e t h i r d , t h e t r a d e w h i c h b a l a n c e s t r i a n g u l a r l y , w h e r e a s t h e first c a t e g o r y c o n t a i n s t h e t r a d e i n c o m m o d i t i e s w h i c h d o e s n o t b a l a n c e a t a l l a g a i n s t o t h e r c o m m o d i t i e s , b u t w h i c h i s b a l a n c e d — b i l a t e r a l l y o r t r i a n g u l a r l y — a g a i n s t o t h e r i t e m s i n t h e b a l a n c e of p a y m e n t s .

I f o n e c a l c u l a t e s t h e t h r e e c a t e g o r i e s f o r a l l c o u n t r i e s , h e finds

b y a d d i t i o n t h e p r o p o r t i o n s i n t o t a l w o r l d t r a d e o f t r a d e b a l a n c i n g

b i l a t e r a l l y , t r a d e b a l a n c i n g t r i a n g u l a r l y , a n d t r a d e b a l a n c e d b y t h e

s o - c a l l e d " i n v i s i b l e i t e m s " of t h e b a l a n c e of p a y m e n t s .

A s i m i l a r m e t h o d c a n b e a p p l i e d t o the p r o b l e m b e f o r e u s . T h e

i m p o r t a n d e x p o r t t r a d e o f e v e r y c o u n t r y m a y b e s u b d i v i d e d b y

c o m m o d i t y g r o u p s i n s t e a d of b y c o u n t r i e s . I n p a r t i c u l a r , t h e Inter

national Classification of Brussels, e s t a b l i s h e d i n 1 9 1 3 , p r o v i d e s s u c h

^Ci. Review of World Trade, 1932-1936 (annual volumes); cf. also Folke Hilgerdt. "The Approach to Bilateralism—A Change in the Structure of World Trade," Index, Vol. X (1935), pp. 175-188.


a s u b d i v i s i o n i n b r o a d classes o£ m e r c h a n d i s e : ( i ) l i v e a n i m a l s , (2)

foodstuffs , ( 3 ) m a t e r i a l s , r a w a n d p a r t l y m a n u f a c t u r e d , ( 4 ) m a n u

f a c t u r e d a r t i c l e s , ( 5 ) p r e c i o u s m e t a l s . B y c o n s i d e r i n g m e r c h a n d i s e

o n l y (i .e. , b y e x c l u d i n g t h e fifth class), a n d b y l u m p i n g t o g e t h e r

classes ( i ) , (2), a n d ( 3 ) i n the i m p o r t a n d e x p o r t statist ics of e a c h

c o u n t r y , w e o b t a i n a b r o a d d i c h o t o m y o f foodstuf fs a n d r a w m a

ter ia ls ( p r o d u c t s o f p r i m a r y i n d u s t r y ) , o n t h e o n e h a n d , a n d m a n u

f a c t u r e s ( p r o d u c t s of s e c o n d a r y i n d u s t r y ) , o n t h e o t h e r .

I f w e n o w e x t e n d t h e c o n c e p t o f b i l a t e r a l i s m t o t h e t w o c o m

m o d i t y g r o u p s i m d e r c o n s i d e r a t i o n , w e h a v e a g a i n a d i v i s i o n o f to ta l

t r a d e i n t h r e e c a t e g o r i e s :

j ) the trade balance, positive or negative, i.e., that a m o u n t of trade w h i c h does not consist of exchange of commodit ies against commodit ies b u t of commodit ies against " invis ible i tems."

2) the compensated commodity trade which might be called "bi lateral w i t h respect to commodity groups.'" It falls in to two classes:

a) the exchange of foodstuffs a n d raw materials against foodstuffs a n d raw materials,

b) the exchange of manufactured products against manufactured products.

3 ) the compensated c o m m o d i t y trade w h i c h b y analogy m i g h t b e called tr iangular wi th respect to commodity groups . It comprises that part of trade w h i c h is not offset by "bi lateral b a l a n c i n g " within the two commodity groups (a and b of class 2) b u t w h i c h is balanced between them. T h i s part represents precisely the "tradit ional t y p e " of exchange of m a n u f a c t u r e d products against foodstuffs and raw materials.^

" T h i s i n c l u d e s t h e e x c h a n g e b e t w e e n m a n u f a c t u r e d i n d u s t r i a l p r o d u c t s a n d m a n u f a c t u r e d f o o d s t u f f s , i h e l a t t e r b e i n g i n c l u d e d in c la s s (a ) o f t h e B r u s s e l s c l a s s i f i c a t i o n . T h e i m p o r t a n c e o f m a n u f a c t u r e d f o o d s t u f f s h a s p r o b a b l y g r e a t l y i n c r e a s e d in r e c e n t y e a r s , a l t h o u g h , in t h e a b s e n c e o f sufTicienf statistical m a t e r i a l , it i s difficult to e s t i m a t e t h e m a g n i t u d e of t h i s i n c r e a s e . O f the l a r g e r c o u n t r i e s , o n l y t h e U n i t e d S t a t e s l i s t s m a n u f a c t u r e d f o o d s t u f f s a s a s e p a r a t e c o m m o d i t y g r o u p . B u t t h e i n t r o d u c t i o n of i n d u s t r i a l m e t h o d s i n t o a g r i c u l t u r e , or of n e w s t a g e s of t r a n s f o r m a t i o n of c r u d e a g r i c u l t u r a l p r o d u c t s , o n l y d i f f e r e n t i a t e s t h e a g r i c u l t m a l c h a r a c t e r of a c o u n t r y ; it d o e s n o t i m p a i r it. If f l o u r i n s t e a d o f g r a i n is s h i p p e d i n e x c h a n g e for i n d u s t r i a l m a c h i n e r y , i b i s d o e s n o t a f fect m a t e r i a l l y t h e t r a d i t i o n a l p a t t e r n of t h e i n t e r n a t i o n a l d i v i s i o n o f l a b o r . I n t e s t i n g t h e e x t e n t t o w h i c h t h i s t y p e o f d i v i s i o n o f l a b o r s t i l l p r e d o m i n a t e s , it is nece s s a ry t o c las s i fy m a n u f a c t u r e d f o o d s t u f f s w i t h f o o d s t u f f s a n d n o t w i t h m a n u -factures. T h e i n c l u s i o n o f ( h e p a r t l y m a n u f a c t u r e d m a t e r i a l s w i t h r a w m a t e r i a l s by t h e B r u s s e l s c l a s s i i i f a t i o n i s f r o m o u r p o i n t of v i e w a l s o w a r r a n t e d . T h e p a r t l y m a n u f a c t u r e d a r t i c l e s i n c l u d e , i n d e e d , m a i n l y c r u d e m e t a l s ( i n s t e a d of m i n e r a l s ) , s c r a p m . i i e r i a l s , a n d c r u d e c h e m i c a l m a t e r i a l s , s u c h a s p o t a s h , a m m o n i a , e tc .

T h e d r a w i n g of a d i v i d i n g l i n e b e t w e e n m a n u f a c t u r e s a n d i n d u s t r i a l m a t e r i a l s i u v o l v e s , o f c o u r s e , a c e r t a i n a m o u n t o f at l> i t^a^ine^s , b u t , a s wi l l b e s e e n , i b i s d e g r e e of a r b i t r a r i n e s s is c e r t a i n l y less t h a n t h a t i m p l i e d in t h e o n l y o t h e r m e t h o d a v a i l a b l e for t h e m e a s u r e m e n t o f o u r p h e n o m e n o n .


100 100

I n t h e n o r m a l c a s e w e o b t a i n t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s b y d o u b l i n g the s m a l l e r i t e m of t h e t w o o p p o s i t e figures r e l a t i n g to i m p o r t s a n d e x p o r t s o f m a n u f a c t u r e s . T h e exchange o f foodstuffs a n d r a w m a t e r i a l s a g a i n s t foods tuf f s a n d r a w m a t e r i a l s is o b t a i n e d in a s i m i l a r way , a n d the t r a d i t i o n a l type of e x c h a n g e is f o u n d by b a l a n c e . T h u s , let u s a s s u m e t h a t t h e t r a d e s ta t i s t i c s p r e s e n t t h e f o l l o w i n g p i c t u r e :

Scheme III f„p„^,^ e^p„,„

Foodsttiffs and raw materials 80 30

Manufactured products 20 70

100 100

T h e t o t a l t r a d e o f 2 0 0 c a n t h e n by s u b d i v i d e d a s f o l l o w s : Exchange of foodstuffs and ra^v materials against foodstuffs and raw

materials 60 Exchange of manufactures against manufactures 40 Exchange of manufactures against foodstuffs and raw materials.. . - 100

200

I f t r a d e d o e s n o t b a l a n c e , o u r m e t h o d r e m a i n s u n c h a n g e d e x c e p t for the a d d i t i o n of a n e w c a t e g o r y , " e x c h a n g e of c o m m o d i t i e s a g a i n s t inv i s i b l e i t e m s , " w h i c h a c c o u n t s for t h e u n b a l a n c e d p a r t of t r a d e . T h e foll o w i n g s c h e m e w o u l d r e p r e s e n t t h e n o r m a l ca se in w h i c h a l l c a t e g o r i e s of e x c h a n g e a r e p r e s e n t : IV ^̂^̂^̂^̂ ^̂ ^̂ ^̂ ^

Foodstuffs and raw materials 75 3**

Manufactured products 45 7**

i20 (OO

T o m a k e o u r p r o c e d u r e c l earer , let u s g i v e a few s c h e m a t i c i l lus t rat ions . I f w e s u p p o s e d , first, t h e e x i s t e n c e of a t r a d e b a l a n c e i n e q u i l i b r i u m a n d t o o k t h e l i m i t i n g c a s e i n w h i c h t r a d e c o n s i s t e d of n o t h i n g b u t a n e x c h a n g e of foods tu f f s a n d r a w m a t e r i a l s a g a i n s t m a n u f a c t u r e d p r o d uct s , t h e n , the t r a d e s ta t i s t i c s of the c o u n t r y w o u l d r e s u l t i n the fo l low-

^ " g P * " ' ^ ^ " ^ SCHEME!

Foodstuffs and raw materials loo o

Manufactured products o lOO

lOO 100

B u t t h e " t r a d i t i o n a l t y p e of e x c h a n g e " w o u l d b e e l i m i n a t e d if t h e t w o c o m m o d i t y g r o u p s b a l a n c e d i n d e p e n d e n t l y , as, e.g., in t h e f o l l o w i n g

^''^•^P'^^ SCHEME II

Foodstuffs and raw materials 20 20

Manufactured products 80 80

Statistical Inquiries into Structure i 2 i

A c c o r d i n g to o u r method, trade in this case can be subdiv ided as fol lows;

E x c h a n g e o f c o m m o d i t i e s a g a i n s t " i n v i s i b l e i t e m s " 20

E x c h a n g e o f foods tu lFs a n d r a w m a t e r i a l s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s 60

E x c h a n g e o f m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s 90

E x c h a n g e oE m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s . . . . 50

230

If there is a deficit (or surplus), trade obviously cannot consist only of the " t radi t ional type of exchange-" T h u s , in the fo l lowing e x a m p l e :

SCHEME V ^xro',, f o o d s t u f f s a n d r a w m a t e r i a l s 120 o M a n u f a c t u r e d p r o d u c t s o 100

120 ino

the total trade of 220 must be subdiv ided into t w o parts, 20, the excl iange of goods against " invis ible i tems," a n d 200, the " t radi t ional tyjie of e x c h a n g e . "

It remains, however , qui te possible for the " t radi i iona l type of exc h a n g e " to shrink to zero. T h i s happens whenever both commodity groups sliQw a deficit (or a surplus), as in the fo l lowing e x a m p l e :

SCHEME VI ,„,„„„^

F o o d s t u f f s a n d r a w m a t e r i a l s 70 6g

M a n u f a c t u r e d p r o d u c t s 50 35

120 100

In this case the total trade is subdivided into:

E x c h a n g e o f g o o d s a g a i n s t " i n v i s i b l e i t e m s " ao E x c h a n g e of f o o d s t u l l s a n d r a w m a t e r i a l s a g a i n s t f o o d s t u f f s a n d r a w

m a t e r i a l s 130

E x c h a n g e of m a n u f a c t u r e d p r o d u c t s a g a i n s t m a n u f a c t u r e d p r o d u c t s 70

2ao

As we shall see, this pattern could actual ly be observed in a n u m b e r of countries d u r i n g recent years. I t was characteristic of Italy for a long per iod r u n n i n g from 1892 to 1912. D u r i n g this time Italy's trade bala n c e was negative, n o t only as a whole , b i n also f o r the balances of a l l commodity groups taken separately. T h e opposite picture obta ined for the foreign trade of the U n i t e d States from 1898 to 1922. D u r i n g this period, indeed, the Unit<;d Stales foreign trade statistics show a surplus [or each of the m a i n commodity groups into w h i c h licr foreign trade is subdivided.^

It is easy to give a more concrete m e a n i n g to the various categories o f interchange in each part icular case, as die compensated trade in a

' . A c c o r d i n g to t h e n a t i o n a l t r a d e s t a t i s t i c s of b o t h t h e U n i t e d S t a l e s a n d I t a l y , w h i c h a r e b o t h b a s e d n | j o n a c l a s s i f i c a t i o n s o m e w h a t d i f f e r e n t f r o m t h e B r u s s e l s c l a s s i f i c a t i o n .


c o m m o d i t y g r o u p i s a l w a y s o b t a i n e d b y d o u b l i n g t h e s m a l l e r o f t h e two o p p o s i t e f igures r e l a t i n g to i m p o r t s a n d e x p o r t s . T h e r e f o r e , t h e exc h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s , for a c o u n t r y having an

active balance with respect to manufactures (cf. S c h e m e I V ) , is a f u n c t i o n o f t h e imports o f m a n u f a c t u r e s . B u t for a c o u n t r y h a v i n g a p a s s i v e ba l a n c e in m a n u f a c t u r e s (cf. S c h e m e V I ) , t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s is e q u a l t o twice t h e a m o u n t of the exports o f m a n u f a c t u r e s .

A n a l o g o u s m e a n i n g s c a n b e a t t a c h e d t o t h e e x c h a n g e of r a w m a t e r i a l s a n d foods tu f f s a c c o r d i n g to w h e t h e r t h e t r a d e b a l a n c e w i t h re spec t to these two c o m m o d i t y g r o u p s is p a s s i v e o r ac t ive .

T h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t foods tuf f s a n d r a w m a t e r i a l s , a c c o r d i n g t o t h e case , is e i ther imports o f m a n u f a c t u r e s a g a i n s t exports

of r a w m a t e r i a l s a n d foods tuf f s o r t h e o p p o s i t e . S i m i l a r l y , t h e e x c h a n g e of c o m m o d i t i e s a g a i n s t " i n v i s i b l e i t e m s " s t a n d s e i t h e r for a def ic i t or f o r a s u r p l u s o f t h e t r a d e b a l a n c e .

T h e m e t h o d w h i c h w e h a v e d e v i s e d f o r t h e s u b d i v i s i o n o f t h e

f o r e i g n t r a d e o f i n d i v i d u a l c o u n t r i e s i n t o t h e v a r i o u s c a t e g o r i e s o f

i n t e r c h a n g e c a n b e a p p l i e d t o w o r l d t r a d e a s a w h o l e . F o r t h i s p u r

p o s e w e h a v e t o s u m u p b y c a t e g o r i e s o f i n t e r c h a n g e t h e r e s u l t s

o b t a i n e d i n t h e a n a l y s i s o f t h e t r a d e s t a t i s t i c s o f t h e i n d i v i d u a l c o u n

t r i e s , t h e v a l u e s b e i n g e x p r e s s e d i n a n i n t e r n a t i o n a l c u r r e n c y .

A l t h o u g h a n a l t e r n a t i v e a p p r o a c h t o o u r p r o b l e m m i g h t s e e m

m o r e n a t u r a l a t first s i g h t , i t i s n o t o f g r e a t v a l u e a n d l i t t l e m e n t i o n

o f ir n e e d b e m a d e . I t c o n s i s t s i n t h e d i v i s i o n o f c o u n t r i e s i n t o " i n

d u s t r i a l " a n d " r a w m a ' t e r i a l a n d f o o d s t u f f - p r o d u c i n g " c o u n t r i e s .

O n c e t h i s d i v i s i o n is e s t a b l i s h e d , o n e m i g h t c a l c u l a t e t h e p e r c e n t a g e

i n w o r l d t r a d e o f t h e i n t e r c h a n g e w i t h i n " i n d u s t r i a l " c o u n t r i e s ,

w i t h i n t h e " r a w m a t e r i a l a n d f o o d s t u f f - p r o d u c i n g " c o u n t r i e s , a n d

b e t w e e n b o t h g r o u p s o f c o u n t r i e s . *

I t m a y b e s a i d g e n e r a l l y t h a t t h i s m e t h o d i s i n f e r i o r t o t h e o n e

p r o p o s e d h e r e , a s a g r e a t e r d e g r e e o f a b s t r a c t i o n i s i n v o l v e d i n l a

b e l i n g a n y g i v e n c o u n t r y a s " i n d u s t r i a l " t h a n i n l a b e l i n g a n y g i v e n

c o m m o d i t y a s " m a n u f a c t u r e d . " T h u s , t h e i n t e r c h a n g e b e t w e e n i n

d u s t r i a l c o u n t r i e s d o e s n o t c o n s i s t w h o l l y o f i n d u s t r i a l p r o d u c t s ,

n o r d o e s t h e i n t e r c h a n g e b e t w e e n i n d u s t r i a l a n d a g r i c u l t u r a l c o u n

t r i e s c o n s i s t e x c l u s i v e l y o f a n i n t e r c h a n g e o f m a n u f a c t u r e d p r o d u c t s

a g a i n s t f o o d s t u f f s . I f a c o u n t r y h a v i n g b e e n p r e d o m i n a n t l y " a g r i -

* T h i s method has been applied by the Institut fur Weltwirtschafl in its important inquiry into the structural changes of world economy (see below, pp. 127 £.).


c u l t u r a l " c o m e s to b e p r e d o m i n a n t l y " i n d u s t r i a l , " t h e d i l e m m a

a r i s e s w h e t h e r t o k e e p it in t h e c l a s s of " r a w m a t e r i a l a n d foodstuf f-

p r o d u c i n g c o u n t r i e s " o r to t r a n s f e r it t o t l ie " i n d u s t r i a l c o u n t r i e s . "

I f t h e first c o u r s e i s a d o p t e d , t h e s t a t i s t i c s b e c o m e m e a n i n g l e s s ; i f

t h e s e c o n d c o u r s e is f o l l o w e d , t h e i r h o m o g e n e i t y is i m p a i r e d . N o n e

o f t h e s e d i f f i cu l t i e s i s m e t w i t h if o u r m e t h o d is a p p l i e d . A l l t y p e s

of i n t e r c h a n g e a r e t a k e n a c c o u n t of fo r e v e r y s i n g l e c o u n t r y . A n d

t h e i n d u s t r i a l i z a t i o n o f a n a g r i c u l t u r a l c o u n t r y , w h i c h i s e v i d e n t l y

a g r a d u a l p r o c e s s , finds i ts e x p r e s s i o n i n a g r a d u a l c h a n g e i n t h e

i m p o r t a n c e o f t h e v a r i o u s t y p e s o f i n t e r c h a n g e f o r t h e f o r e i g n t r a d e

of t h i s c o u n t r y .

F i n a l l y , w e m u s t w a r n t h e r e a d e r a g a i n s t a p o s s i b l e m i s i n t e r p r e

t a t i o n o f t h e figures a r r i v e d a t b y o u r m e t i i o d . I f w e find, f o r in

s t a n c e , t h a t t h e e x c h a n g e o f m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s fo r

c o u n t r y A a m o u n t s t o fifty m i l l i o n d o l l a r s , t h i s d o e s n o t n e c e s s a r i l y

m e a n t h a t c o u n t r y A b o u g h t twenty- f ive m i l l i o n s o f m a n u f a c t u r e s

f r o m c o u n t r i e s B , C , a n d D a n d s o l d twenty- f ive m i l l i o n s of m a n u

f a c t u r e s i n e x c h a n g e t o t h e s e s a m e c o u n t r i e s . I t m i g i i t a l s o m e a n t h a t

c o u n t r y A b r o u g h t twenty- f ive m i l l i o n s o f m a n u f a c t u r e s f r o m c o u n

t r i e s B , C , a n d D a n d s o l d twenty- f ive m i l l i o n s of m a n u f a c t u r e s t o

c o u n t r i e s E , F , a n d G . I n o t h e r w o r d s , w h a t w e ca l l e x c h a n g e o f

m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s c o m p r i s e s n o t o n l y t l ie e x c h a n g e

o f m a n u f a c t u r e s b e t w e e n i n d u s t r i a l c o u n t r i e s , b u t a l s o a n e x c l i a n g e

o f m a n u f a c t u r e s w h i c h is t r i a n g u l a r whh r e s p e c t t o c o u n t r i e s . A n

e x a m p l e of t h i s i s J a p a n ' s t r a d i t i o n a l p r a c t i c e of o f f s e t t i n g i m p o r t s

of m a n u f a c t u r e s f r o m t h e W e s t e r n c o u n t r i e s b y e x p o r t s o f J a p a n e s e

m a n u f a c t u r e s t o A s i a a n d A f r i c a .

T o t h i s c o n s i d e r a t i o n t h e f o l l o w i n g c o r o l l a r y m a y b e a d d e d : W h a t

w e c a l l t h e " t r a d i t i o n a l t y p e of e x c h a n g e , " i .e . , t h e e x c h a n g e o f m a n

u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s , m a y b e s u b d i v i d e d

i n t o t w o c l a s s e s a c c o r d i n g to w h e t h e r a c o u n t r y is e x p o r t i n g o r im

p o r t i n g m a n u f a c t u r e s a g a i n s t i m p o r t s o r e x p o r t s of f o o d s t u f f s a n d

r a w m a t e r i a l s . I t is g e n e r a l l y t h o u g h t t h a t t h e " i n d u s t r i a l " o r " a g r i -

c i d t u r a l " c h a r a c t e r o f a c o u n t r y m a k e s for a u n i f o r m s t r u c t u r e o f i t s

f o r e i g n t r a d e w i t h a l l o t h e r c o u n t r i e s , so t h a t it e x p o r t s m a n u f a c

t u r e s t o a l l o f t h e m a n d i m p o r t s s i m i l a r l y f o o d s t u f f s a n d r a w m a t e

r i a l f r o m a l l a l i k e , o r i n v e r s e l y . I t is , h o w e v e r , q u i t e p o s s i b l e fo r a

c o u n t r y , s u c h a s J a p a n , to i m p o r t r a w m a t e r i a l s (o i l , t i n , r u b b e r )


f rom o n e country (Dutch East Indies) against export of manufac

tures, a n d at the same t ime to e x p o r t r a w mater ia ls (silk) against

import of manufactures f rom a n o t h e r country ( U n i t e d States). I n

this case the tradit ional type of e x c h a n g e in the bi lateral relations

of J a p a n w i t h the D u t c h East Indies and the U n i t e d States has the

opposite sign. T h e amounts whicl i thus cancel o u t are precisely the

e x c h a n g e of raw materials against raw materials a n d of manufac

tures against manufactures o n a tr iangular basis, and only the bal

ance, according to the m e a n i n g assigned to this t e n n , constitutes a

true excl iange of manufactures against raw materials.^ It w o u l d be

very interest ing to calculate subclasses of the various types of inter

change according to w h e t h e r they are b i la tera l o r t r iangular w i t h

respect to countries; this w o u l d certainly b r i n g o u t still better the

c o m p l e x i t y of internat ional trade relations. Such an inquiry , how

ever, w o u l d be feasible only if the trade statistics of the various

countr ies w e r e subdiv ided s imultaneously according to b o t h coun

tries a n d to the Brussels c o m m o d i t y groups . T o m y k n o w l e d g e Ger

m a n y is the only country to have p u b l i s h e d this information.*

T H E M A I N R E S U L T O F T H E C - ^ L C U L A T I O N S

B y o u r calculat ions w e have established for w o r l d trade as a w h o l e

tlie i m p o r t a n c e of the various types of interchange between g r o u p s

of commodit ies . A l t h o u g h the c o m p i l a t i o n of this data was the most

interest ing feature of our calculat ions, the gather ing of the neces

sary statistics was, however , by n o means an easy matter . B y draw

i n g from var ious sources we have b e e n able to find c o n t i n u o u s and

homogeneous series f rom 1925 to 1937 for forty-seven countries,

a c c o u n t i n g for approximate ly 92 p e r cent of w o r l d trade. T h e result

for these forty-seven countries appears in table 11 (p. 151) . B u t in

table 3 w e r e p r o d u c e a slightly modif ied c o m p i l a t i o n for w o r l d trade

as a w h o l e w h i c h assumes a certain d is tr ibut ion of the trade not

accounted for by the forty-seven countries.' '

^ See a b o v e , p p . 1 2 0 - 1 2 3 .

^ Cf. Statisliches Jahrbuch (Berl in, 1938), p p . 286-287,

' T h e only a v a i l a b l e bas i s for a n in terna t iona l c o m p a r i s o n is the a l r e a d y - q u o t e d International Classification of Brussels, wh ich was a d o p t e d in 15)13. M a n y i m p o r t a n t countr ie s , however , c o n t i n u e d after that d a t e to t a b u l a t e their t rade stat ist ics in a f o r m m o r e or less different f rom this classif ication. T h e Bulletin du Bureau International de Statistique Commerciale (Brusse l s , 1922, a n d fo l lowing years), which was s u p p o s e d lo centrahze the t r ade stat ist ics t a b u l a t e d a c c o r d i n g to the In te rna t iona l Clas s ihca-


F o r 1 9 1 3 , statist ics for o n l y t w e n t y - t w o c o u n t r i e s (73 p e r c e n t o f

w o r l d t r a d e ) c o u l d b e c o l l e c t e d . I n o r d e r to o b t a i n c o m p a r a b l e fig

ures for t h e years a f t e r t h e First W o r l d W a r , w e h a v e s u m m e d u p

the figures for t h e s a m e c o u n t r i e s f o r 1925 a n d 1929 ( t a b l e 4).*

t i o n , c a r r i e s a d i s a p p o i n t i n g l y s m a l l n u m b e r o f c o u n t r i e s , m a n y o f w h i c h a r e q u i t e u n i m p o r t a n t . T h e be s t w o r k in t h i s f ield h a s b e e n d o n e by i h e G e r m a n Statistischcs

Hcichsamt w h i c h , in t h e a b s e n c e o f i n f o r m a t i o n in t h e n a t i o n a l s t a t i s t i c s , h a s i t se l f c a r r i e d o u t t h e c a l c u l a t i o n s fo r a l a r g e n u m b e r o f c o u n t r i e s . T h e r e s u l t s c a n b e f o u n d in t h e s u c c e s s i v e e d i t i o n s of t h e Slathtisches Jahrbuch (sd p a r t , i n i e n i a t i o i i a l t a b l e s ) an t i in tl io Slatislischcs Handbuch der Wellwirschaft ( B e r l i n , 1936). T h e d a t a p u b l i s h e d by t h e Slatislisches Jahrbuch a r e o n t h e b a s i s of a c o m m o n c u r r e n c y ( m a r k ) , w h i c h f a c i l i t a t e d t h e c a l c u l a t i o n of t o t a l s fo r ( h e w o r l d a n d v a r i o u s s u b g r o u p s o f c o i m t r ie s . T h e i n f o r m a t i o n c o n t a i n e d in t h e a n n u a l v o l u m e s o f Iriternaiional Trade Statis

tics led. by t h e L e a g u e o f N a t i o n s ) i s e i t h e r c o m p i l e d f r o m t h e n a t i o n a l p u b l i c a t i o n s or f r o m t h e G e r m a n s o u r c e s , Tn 193a t h e International Trade Statistics d r o p p e d t h e t a b l e s g i v i n g t h e d i v i s i o n o f t h e t r a d e a c c o r d i n g t o t h e B r u s s e l s c l a s s i f i c a t i o n b e c a u s e of I h e a d o p t i o n o f a n e w i n t e r n a t i o n a l c l a s s i f i c a t i o n k n o w n a s " m i n i m u m l i s t . " I n t h e o p i n i o n of t h e a u t h o r , t h e B r u s s e l s c l a s s i f i c a t ion st i l l ful f i l l s a d e f i n i t e a n d v a l u a b l e p u r p o s e a n d , r a t h e r t h a n b e i n g e n t i r e l y a b a n d o n e d , it s h o u l d b e c o m p l e m e n t e d .

T h e c o u i i t r i c s n o t i n c l u d e d in ( h e f o r t y - s e v e n c o u n t r i e s for w h i c h c o m p l e t e s t a t i s t i c s w e r e a v a i l a b l e a r e s o m e A s i a t i c ( F o r m o s a , K o r e a , M a n c h u k u o ) b u t m a i n l y A f r i c a n a n d L a t i n A m e r i c a n c o u n t r i e s . T h e Slatislischcs Jahrbuch o f 193S c a r r i e s fo r t h e first t i m e d e t a i l e d s t a t i s t i c s f o r t e n o f t h e s e c o u n t r i e s , a c c o u n t i n g for a p p r o x i m a t e l y 5 p e r cent o f w o r l d t r a d e , a n d , a s was to b e e x p e c t e d , s h o w s t h e s h a r e in t o t a l t r a d e o f t h e ex

change of manufactures against manufactures 10 b e m u c h l o w e r (only a b o u t 5 p e r c e n t ) fo r t h e s e c o u n t r i e s t h a n for t h e f o r t y - s e v e n c o u n t r i e s fo r w h i c h w e h a d b e e n a b l e to co l l ec t c o n t i n u o u s s t a t i s t i c s . T h e r e f o r e , w e s h o u l d h a v e g i v e n t o o m u c h i m p o r t a n c e t o t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s if w e h a d s i m p l y a s s u m e d t h a t t h e d i s t r i b u t i o n o f w o r l d t r a d e a c c o r d i n g to t h e v a r i o u s t y p e s o f i n t e r c h a n g e is t h e s a m e a s t h a t f o u n d for t h e f o r t y - s e v e n c o u n t r i e s . B u t t h e i m p o i t a n c e o f t h e e x c h a n g e o f f o o d s t u f f s a n d r a w m a t e r i a l s a g a i n s t f o o d s t u l l s a n d r a w m a t e r i a l s in t h e to ta l t r a d e o f t h e ten c o u n t r i e s m e n t i o n e d a i j o v e w a s f o u n d to ]te a p p r o x i m a t e l y e q u a l t o t h a t c a l c u l a t e d for t h e for ty- seven c o u n t r i e s . In t h e e s t i m a t e o f t h e d i s t r i b u t i o n o f w o r l d t r a d e , we h a v e , t h e r e f o r e , p r o c e e d e d in l l ie f o l l o w i n g w a y :

(1) I t w a s a s s u m e d t h a t o n l y 5 p e r c e n t o f t h a t p a r t o f w o r l d t r a d e w h i c h w a s n o t a c c o i m t e d for by t h e t r a d e o f t h e for ty- seven c o u n t r i e s c o n s i s t e d i n e x c h a n g e o f m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s .

(2) I t w a s a s s u m e d t h a t t h e p e r c e n t a g e o f t h e e x c h a n g e o f f o o d s t u f f s a n d r a w m a t e r i a l s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s r e m a i n e d for t h e w o r l d a t t h e s a m e figure w h i c h w a s c a l c u l a t e d for t h e f o r t y - s e v e n c o u n t r i e s .

(3) T h e e x c h a n g e of c o m m o d i t i e s a g a i n s t i n v i s i b l e i t e m s o f t h e b a l a n c e s of p a y m e n t s , b e i n g n o t h i n g b u t t h e s u m of t h e de f i c i t s a n d s u r p l u s e s o f t h e i n d i v i d u a l t r a d e b a l a n c e s , c o u l d b e c a l c u l a t e d w i t h o u t r e c o u r s e to e s t i m a t i o n s , s i n c e c o m p l e t e s t a t i s t i c s a r e a v a i l a b l e for t h e a g g r e g a t e i m p o r t s a n d e x p o r t s of all c o u n t r i e s .

(4) T h e e x c h a n g e o f m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s i s f o u n d a s the b a l a n c e o f w o r l d t r a d e a n d t h e t h r e e c a t e g o r i e s c a l c u l a t e d a c c o r d i n g to t h e m e t h o d j u s t e x p l a i n e d .

T h e p o s s i b l e r a n g e o f e r r o r o f t h e r e s u l t s e e m s , i n t h i s w a y . i n c a p a b l e o f a f f e c t i n g a n y o f t h e c o n c l u s i o n s w h i c h w e d r a w in t h e tex t .

» T h e c o u n t r i e s a r e G e r m a n y . B e l g i u m , B u l g a r i a , D e n m a r k , F r a n c e , I t a l y , P o r t u g a l , R u m a n i a , S w e d e n , S p a i n , U n i t e d K i n g d o m a n d I r e l a n d , R u s s i a , T u n i s i a , E g y p t , A u s t r a l i a . I n d i a , C i i i n a , I r a n , J a p a n . U n i t e d S l a t e s , C a n a d a , P e r u . N o a c c o u n t c o u l d b e t a k e n o f f r o n t i e r c h a n g e s .


Year •

(3)1 un Total Is)

192S 1 3 . 9 39-6 1 7 . 2 2 9 . 3 100-0 J 926 1 0 . 7 39-1 1 8 , 1 3 2 . 9 100-0 1927 1 1 . 7 3 8 . 7 1 8 , 9 3 0 , 7 100,0 1928 1 1 . 3 3 8 . 9 1 9 . 2 3 0 . 6 100-0 1929 9 . 3 38-3 1 9 , 4 3 3 . 0 100.0 1930 1 2 . 4 3 8 . 2 2 0 . 6 2S.8 100.0 1931 1 6 , 5 3 7 . 1 2 1 . 5 2 4 . 9 100,0 1932 1 6 . 7 3 7 - 1 1 9 , 0 2 7 . 2 100.0 1933 1 5 . 6 3 6 . 5 1 8 , 7 2 9 . 2 100.0 1934 1 5 . 1 3 5 . 6 1 8 . 6 3 0 . 7 100.0 1935 1 3 - 7 3 6 . 0 1 8 . 1 3 2 . 2 100.0 1936 1 4 . 3 3 4 , 4 1 7 . 0 3 4 , 3 100.0 1937 1 4 . 7 3 4 . 8 1 7 . 2 3 3 . 3 100-0

' Enchan^f of commodities against "invisible itema.' + EichaRe oi foodstufTs and raw materials against (oodstufFB and raw materials, t Eichange of manufacturea against manufactures. I Exchange of manufactures against foodstuffs and raw matetials.

T A B L E 4

PERCENTAGE DisTRiijuTroN OF THE TRADE OF TWENTY-TWO COUNTRIES IN 1 9 1 3 ,

AND 1929 IN ACCORDANCE WITH THE VARIOUS TYPES OF INTLRCHANCE ' 9 2 5 .

Year (2)t (3)1 (4)§ Total (s)

1913 10,8

1 2 . 5

9-4

40-0

3 9 . 2

3 8 , 0

1 9 - 4

1 9 , 7

2 1 - 8

29-8

2 8 . 6

30-8

100.0

100.0

100-0

1925 10,8

1 2 . 5

9-4

40-0

3 9 . 2

3 8 , 0

1 9 - 4

1 9 , 7

2 1 - 8

29-8

2 8 . 6

30-8

100.0

100.0

100-0 1929

10,8

1 2 . 5

9-4

40-0

3 9 . 2

3 8 , 0

1 9 - 4

1 9 , 7

2 1 - 8

29-8

2 8 . 6

30-8

100.0

100.0

100-0

10,8

1 2 . 5

9-4

40-0

3 9 . 2

3 8 , 0

1 9 - 4

1 9 , 7

2 1 - 8

29-8

2 8 . 6

30-8

100.0

100.0

100-0

' Exchange of commoditi«i againtt "invisible items," Eschagc of foodsluffs a n j raw malcriah against foodstuffs and csw aiatenaU. Exchange of manufactures against manufactures.

§ Exchange of manufactures against foodstuffs and raw materials.

t h a n o n e - t h i r d o f total w o r l d t rade . T h i s is b y n o m e a n s a negligible

p r o p o r t i o n , b u t i t is a l s o far f r o m o c c u p y i n g the d o m i n a t i n g posi

t i o n o f t e n a t t r i b u t e d to i t . O n t h e o t h e r h a n d , the o p p o s i t e thesis ,

t h a t t r a d e is b a s e d l a r g e l y u p o n t h e d i v i s i o n o f l a b o r b e t w e e n na

t i o n a l i n d u s t r i e s , is o n l y p a r t l y v e r i f i e d b y o u r figures. D u r i n g t h e

p e r i o d u n d e r r e v i e w , t h e e x c h a n g e o f m a n u f a c t u r e s a g a i n s t m a n u -

T h e s t r i k i n g fact w h i c h e m e r g e s f r o m tab les 3 a n d 4 is t h a t t h e

" t r a d i t i o n a l type of e x c h a n g e , " i.e., t h e e x c h a n g e of m a n u f a c t u r e s

a g a i n s t foodstuffs a n d r a w m a t e r i a l s , a m o u n t s o n l y to s o m e w h a t less

T A B L E 3

ESTIMATED PERCENTAGE DISTRIBUTION OF WORLD TRADE IN ACCORDANCE WITH THE VARIOUS TYPES OF INTERCIIANC.E


Year Foreign trade

between "agricul. tural" countries

Foreign trade between "induatriaP'

Countries

Foreign trade between

"agricultural" and "industrial"

countries

1913 10 .7 2 9 - 2 5 8 , 8 1925 1 1 . 5 2 5 . 0 6 2 , 2 1929 1 2 , 0 2 3 . 9 6 2 . 6

'From Institut fur Weltwirtschaft und Seeverkehr, "Die Aussenhandelsentwicklung und das Problem der dcutschen Ausfubrpolitik," WtlnaittschajlUchts Arcktv, Vol. XXXVI (Juir, P- J4-

tlie respective i m p o r t a n c e in w o r l d trade of ( i ) the trade b e t w e e n

a g r i c u l t u r a l countr ies , (2) the trade b e t w e e n industr ia l countr ies ,

a n d ( 3 ) the trade b e t w e e n agr icu l tura l and industr ia l countr ies .

W e reproduce in table 5 the findings of the Kie l Inst i tute for 1913,

1925, a n d 1929.

T h e s e figures are instruct ive so far as they go. B u t they are entirely

mis leading if one equates " t rade b e t w e e n industrial c o u n t r i e s " w i t h

" e x c h a n g e of m a n u f a c t u r e s against m a n u f a c t u r e s , " " t r a d e b e t w e e n

agr icul tural and raw mater ia l -producing c o u n t r i e s " w i t h " e x c h a n g e

of foodstuffs and raw materials against foodstuffs and raw mate

rials ," and if one considers the trade between agr icul tural (and raw

mater ia l -producing) countr ies and industrial countr ies as merely

a n o t h e r expression for the e x c h a n g e of foodstuffs a n d raw materials

against manufactures . In 1929, for instance, the interchange be

tween agr icu l tura l a n d raw mater ia l -producing countr ies a m o u n t e d

to 12.0 per cent of w o r l d trade, whereas the e x c h a n g e of foodstuffs

and raw materials against foodstuffs a n d raw materials a m o u n t e d

factures d id not account for m o r e than one-fifth or one-sixth of

w o r l d trade. Instead, a n o t h e r category w h i c h is hardly e v e r men

t ioned in discussions a b o u t the s tructure of w o r l d trade takes o n

q u i t e impressive p r o p o r t i o n s : the e x c h a n g e of foodstuffs and raw

materials against foodstuffs and raw materials. B e i n g consistently

the largest s ingle i tem of the four classes i n t o w h i c h w e h a v e sub

d i v i d e d w o r l d trade, it oscil lates b e t w e e n two-fifths a n d one-third

of the total.

It is instruct ive to c o m p a r e our statistics w i t h those c o m p i l e d for

a s imi lar p u r p o s e by the Inst i tut f iir Wel twir tschaf t in Kie l s h o w i n g

T A B L E 5 *

WORLD TRADE DIVIDED INTO TRADE BETWEEN VARIOUS TYPES OF COUNTRIES


t o 38.3 p e r c e n t — m o r e t h a n t h r e e t i m e s a s m u c h . T h e e x p l a n a t i o n of t h i s d i s c r e p a n c y is , o f c o u r s e , t h a t t h e t r a d e b e t w e e n t h e i n d u s t r i a l c o u n t r i e s a n d b e t w e e n i n d u s t r i a l a n d a g r i c u l t u r a l c o u n t r i e s to a s u b s t a n t i a l e x t e n t c o n s i s t e d o f a n e x c h a n g e o f f o o d s t u f f s a n d r a w m a t e r i a l s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s . T h e figures of t a b l e 5 s e e m a l s o t o a d m i t o f t h e c o n c l u s i o n t h a t t h e d i v i s i o n of l a b o r b e t w e e n t h e v a r i o u s n a t i o n a l i n d u s t r i e s d i m i n i s h e d c o n t i n u o u s l y f r o m 1913 t o 1929." O u r d a t a , o n t h e c o n t r a i 7 , s h o w a c o n t i n u o u s i n c r e a s e of t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s fo r t h e t w e n t y - t w o c o u n t r i e s f r o m 1 9 1 3 to 1925 a n d 1929 ( t a b l e 4) a n d a l s o c o n s p i c u o u s l y f o r w o r l d t r a d e as a w h o l e f r o m 1925 t o 1929

( t a b l e 3) . T h e a p p a r e n t c o n t r a d i c t i o n b e t w e e n t h e t w o s e r i e s o f figu r e s i s ea s i ly r e s o l v e d . O n t h e o n e h a n d , t h e d e c r e a s e of t h e t r a d e b e t w e e n i n d u s t r i a l c o u n t r i e s m a y h a v e b e e n d u e e n t i r e l y to a dec r e a s e o f t h e t r a d e of r a w m a t e r i a l s a n d f o o d s t u f f s a m o n g t h e m , a n d , o n t h e o t h e r h a n d , t h e " a g r i c u l t u r a l " c o u n t r i e s m a y h a v e i n c r e a s e d t h e i r e x p o r t o f m a n u f a c t u r e s a m o n g t h e m s e l v e s o r e v e n t o t h e " i n d u s t r i a l " c o u n t r i e s .

I n a n y c a s e , a l t h o u g h t h e r e l a t i v e i m p o r t a n c e of t h e d i v i s i o n o f

l a b o r b e t w e e n t h e c o u n t r i e s g e n e r a l l y l a b e l e d a s " i n d u s t r i a l " d i m i n

i s h e d f r o m 1 9 1 3 to 1929, the r e l a t i v e i m p o r t a n c e o f t h e d i v i s i o n o f

l a b o r b e t w e e n t h e m a n u f a c t u r i n g i n d u s t r i e s o f t h e v a r i o u s n a t i o n s

i n c r e a s e d . I t i s o n l y t h e l a t t e r d e v e l o p m e n t w h i c h i s s i g n i f i c a n t

fo r a n a p p r e c i a t i o n o f t h e c h a n c e s of f u t u r e d e v e l o p m e n t of in te r

n a t i o n a l i n d u s t r i a l s p e c i a l i z a t i o n . If, a s a w h o l e , t h e p e r c e n t a g e

i n c l u d e d u n d e r t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s

a p p e a r s to b e r a t h e r l o w , w e m u s t r e m e m b e r t h a t m a n u f a c t u r e d

p r o d u c t s o c c u p y less t h a n 40 p e r c e n t o f w o r l d t r a d e , t h e rest b e i n g

m a d e u p b y r a w m a t e r i a l s a n d foods tu f f s .

W e c a n , i n d e e d , c o m b i n e f r u i t f u l l y o u r t a b l e w i t h t h e d a t a cov

e r i n g t h e r e s p e c t i v e p a r t s p l a y e d i n t o t a l w o r l d t r a d e b y m a n u f a c

t u r e d p r o d u c t s , f o o d s t u f f s , a n d r a w m a t e r i a l s . I n t a b l e 3, c o l u m n

(2) r e f e r s e x c l u s i v e l y t o f o o d s t u f f s a n d r a w m a t e r i a l s , a n d c o l u m n

•This conclusion, with its obvious pessimistic implications, has been drawn by the Institut ftir Weltwirtschaft und Seeverkehr, "Die Aussenhandelsentwicklung und das Problem de deutscben AiisfuhrpolUik." Wcltwirlschafclkhes Aichiv. Vol. XXXVt (July, 1932), p. 34, and in a signed article by one of its authors; cf. Max Victor, "Das sogenannte Gesetz der abnehmenden Aussenhandelsbedeutung," WeltwirtschaftUches Archiv, Vol. XXXVI (July, 1932), p. 73.


(3) refers exclusively to manufactures. C o l u m n (4), showing the

exchange of manufactures against foodstuffs and raw materials, in

cludes equal amounts of both groups of commodities. Only for

column (i)—the exchange of commodities against "invisible i tems"—

do we not know the proportions of one or the other of the two com

modity groups. But . knowing the total proportion in world trade of

each group of commodities,'" and the part played by each group in

columns (2), (3), and (4) of table 3, we obtain the subdivision of our

c o l u m n (1) by subtraction. T h u s we arrive at the conclusions pre

sented in tables 6 and 7.

From these tables we see clearly the importance of the exchange

of manufactures against manufactures. T h o u g h i t represents not

more than 17 to 19 per cent of total world trade (table 6), it has con

stituted approxirnately one-half of the total trade in manufactures

throughout the period under consideration (table 7). Its importance

with respect to the total trade in manufactures is thus only slightly

smaller than the importance of the exchange of foodstuffs and raw

materials against foodstuffs and raw materials within the total irade

in these two groups of commodities.

D E T A I L E D A N A L Y S I S OF T H E STATISTICS FOR COUNTRIES

AND G R O U P S O F COUNTRIES

Before we proceed to the general significance of our statistical

results, v̂e must imdertake a more detailed and rather tedious analy

sis. From table 3 the following main tendencies are apparent for the

period under consideration (1925-1937):

i ) The sums of the deficits and surpluses of commercial balances which represent the noncompensated commodity trade is subject to rather sudden change. T h e heavy contraction of trade accentuates the disequilibrium of nearly all trade balances. Only gradually is this disequilibrating effect of the crisis absorbed and, in 1937, the relative importance of what wc have called the "exchange of commodities against invisible items" is still much higher than it was in 1929, though it does approach the 1925 figure.

" O e r m a n siaiistics having provided Ihe basis for the g;rcater pa r t of our calcuhuions , these figtires have also been calculated from a G e r m a n source : STATISLHRHES JALIRBUCH, which gives deta i led figures for world imports and world evports (e.g.. JAHRHUCH, 1938, p, 119) . We have averaged the two figures and from this have obta ined the percentages of t.Tblc 6. which coii ir ide n i l h the da ta of the L e a g u e of Nat ions ' REVIEW OF WORLD TRADE (1938), p . 61 . N o da ta appear for the years from 1926 to J928,

T A B L E 6

D i v i s i o n o f W o r l d T r a d e i n t o T r a d e i n MANUFACTURES AND TRADE IN F o o d s t u f f s AND RAW M a t e r i a l s , a n d S u b d i v i s i o n o f E a c h

CATEGORY INTO VARIOUS TYPES o f INTERCHANGE ( i n P e r c e n t a g e o f W o r l d T r a d e )

192s 1929 1931 1932 193 J 1934 193s 1935 1917

WORLD TRADE IN FOODSTUFFS AND RAW MATERIALS—FOODSTUFFS AND RAW MATERIALS EXCHANGED AGAINST:

39.6 38,3 37,1 37,1 36.5 35,6 36,0 34.4 34,8 14.7 16,5 12.S 13.6 14.6 15,4 16.1 17.5 16.7 9.9 5,8 10,1 11.5 11.3 10,7 10,0 11.0 11-0

64.1 60,6 56.6 62.2 62.4 61.6 62.1 62,5 62,4

WORLD TRADE IN MANUFACTURES—MANUFACTURES EXCHANGED AGAINST:

17.2 19,4 21.5 19.0 18.7 18,6 18,1 17,0 17,2 14.7 16.5 12,5 13,6 14.6 15.4 16,1 17.2 16.7

"INVISIBLE ITEMS"! 4.1 3,5 6,5 5,2 4.3 4.5 3,7 3.4 3,8

35-9 39.4 40.4 37,8 37.6 38.4 37.9 37,5 37.6

100.0 100.0 100,0 100.0 100.0 100.0 100.0 100.0 100,0

• Figures in this row correspond to thoae in column (2), table 3. t Figures in these two rows correspond lo those in column (4), table 3, divided by two. i Figures in these two rows added together correspond to those in cofumn ( l ) , table 3, 5 Figures in this row correspond to those in column (3), table 3.

T A B L E 7

DIVISION OF WORLD TRADE IN FOODSTUFFS AND RAW MATERIALS AND OF WORLD TRADE IN MANUFACTURES INTO VARIOUS TYPES OF INTERCHANGE

( in P e r c e n t a g e o f T o t a l W o r l d T r a d e i n F o o d s t u f f s a n d R a w M a t e r i a l s a n d T o t a l W o r l d T r a d e i n M a n u f a c t u r e s ) 191s 1929 »93l 1932 1933 1934 1 9 3 ; 1936 1937

W o r l d t r a d e in f o o d s t u f f s a n d r a w m a t e r i a l s — F o o d

s t u f f s a n d r a w m a t e r i a l s e x c h a n g e d a g a i n s t : 6 1 . 8 6 3 . 2 6 2 , 2 5 9 . 6 5 8 , 5 5 7 , 8 5 8 , 0 5 5 . 0 5 5 . 8

2 2 . 8 2 7 . 2 2 0 , 9 2 1 . 9 2 3 , 4 2 4 , 9 2 5 . 9 2 7 . 4 2 6 . 7

1 5 . 4 9 , 6 1 6 , 9 1 8 , 5 1 8 , 1 1 7 - 3 1 6 , 1 1 7 , 6 1 7 , 5

T o t a l f o o d s t u f f s a n d r a w m a t e r i a l s 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 1 0 0 , 0 1 0 0 , 0 1 0 0 . 0 1 0 0 . 0 1 0 0 , 0 1 0 0 , 0

W o r l d t r a d e in m a n u f a c t u r e s — M a n u f a c t u r e s

e x c h a n g e d a g a i n s t :

4 7 - 9 4 9 , 2 5 3 , 2 5 0 . 3 4 9 . 7 4 8 . 4 4 7 , 8 4 5 , 3 4 5 . 7

F o o d s t u f f s a n d r a w m a t e r i a l s 4 0 - 8 4 1 . 9 3 9 , 8 3 6 . 0 3 8 . 8 4 0 . 0 4 2 , 5 4 5 , 7 4 4 , 3

1 1 . 3 8 . 9 1 6 , 0 1 3 . 7 1 1 , 5 1 1 , 6 9 , 7 9 , 0 1 0 . 0

1 0 0 . 0 1 0 0 . 0 1 0 0 - 0 1 0 0 , 0 1 0 0 , 0 1 0 0 , 0 1 0 0 , 0 1 0 0 , 0 1 0 0 , 0

1^2 National Power and Foreign Trade

2) T h e e x c h a n g e of foodstuf f s a n d r a w m a t e r i a l s a g a i n s t foodstuf f s a n d r a w m a t e r i a l s (or , a s w e sha l l c a l l it a l so , t h e " c o m p e n s a t e d t r a d e in foodstuffs a n d r a w m a t e r i a l s " ) e x h i b i t s a r a t h e r s t e a d y d o w n w a r d t e n d e n c y .

3) T h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s (or t h e " c o m p e n s a t e d t r a d e in m a n u f a c t u r e s " ) s h o w s a s t e a d y i n c r e a s e i n i m p o r t a n c e i n e a c h of t h e s i x year s f i o m 1925 t o 1 9 3 1 , a n d a s t e a d y fa l l i n t h e s i x f o l l o w i n g year s , r e s u l t i n g in a figure for 1937 (17.2 p e r cent ) e x a c t l y t h e s a m e a s the i n i t i a l figure of t h e ser ies .

A s t h e d a t a of t a b l e 4 show, h o w e v e r , t h e r e w a s a s l i g h t i n c r e a s e f r o m 1913 t o 1925 for the c o m b i n e d s ta t i s t ic s of twenty- two c o u n t r i e s , a n d the

p e r c e n t a g e i n c l u d e d in this type of e x c h a n g e in w o r l d t r a d e w a s , for these c o u n t r i e s , s t i l l g r e a t e r i n 1937 t h a n it h a d b e e n i n 1913 .

4) T h e m o v e m e n t s o f t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t foods tuf f s a n d r a w m a t e r i a l s a r e inver se ly r e l a t e d to t h e m o v e m e n t s of t h e s u m of def ici ts a n d s u r p l u s e s . T h e s h a r e of t h e " t r a d i t i o n a l type of e x c h a n g e " i n w o r l d t r a d e r e a c h e s i t s low p o i n t in 1931 (24.9 p e r c e n t ) a n d f r o m t h e n o n r e c o v e r s s p e e d i l y to a level e v e n a b o v e its 1929 i m p o r t a n c e ; it prof i t s , i n d e e d , f r o m t h e c o n c o m i t a n t fa l l o f a l l o t h e r c a t e g o r i e s of i n t e r c h a n g e .

I n o r d e r t o e x p l a i n t h e s e v a r i o u s m o v e m e n t s , w e r e t u r n t o t h e

d e t a i l e d s t a t i s t i c s f r o m w h i c h o u r a g g r e g a t e s h a v e b e e n c o m p i l e d .

F r o m t h e s t a n d p o i n t o f o u r a n a l y s i s , i t s e e m s b e s t t o c l a s s i f y a l l c o u n

t r i e s i n t o f o u r g r o u p s o r c l a s s e s :

C l a s s I . — T h o s e w h i c h h a v e a n a c t i v e b a l a n c e in m a n u f a c t u r e s a n d a p a s s i v e b a l a n c e in foodstuf f s a n d r a w m a t e r i a l s . T h e " t r a d i t i o n a l t y p e of e x c h a n g e " cons i s t s , t h e r e f o r e , for these c o u n t r i e s i n a n e x p o r t of m a n u f a c t u r e s a g a i n s t i m p o r t s o f foods tuf f s a n d r a w m a t e r i a l s .

C l a s s I I . — T h o s e w h i c h h a v e a p a s s i v e b a l a n c e i n m a n u f a c t u r e s a n d a n a c t i v e b a l a n c e in foods tuf f s a n d r a w m a t e r i a l s . T h e " t r a d i t i o n a l t y p e of e x c l i a n g e " cons i s t s h e r e o f i m p o r t s o f m a n u f a c t u r e s a g a i n s t foods tuf f s a n d r a w m a t e r i a l s .

C l a s s I I I . — T h o s e w h i c h h a v e a n a c t i v e b a l a n c e i n b o t h m a n u f a c t u r e s a n d in foods tuf f s a n d r a w m a t e r i a l s .

C l a s s I V . — T h o s e w h i c h h a v e a p a s s i v e b a l a n c e in b o t h m a n u f a c t u r e s a n d in foods tuf f s a n d r a w m a t e r i a l s . For the l a t t e r t w o classes of c o u n t r i e s , the " t r a d i t i o n a l type o f t r a d e " is n o n e x i s t e n t , a s w e h a v e s h o w n a b o v e , p a g e 1 2 1 .

O b v i o u s l y , t h e g r e a t m a j o r i t y o f c o u n t r i e s b e l o n g t o t h e first t w o

c l a s s e s . T h e t r a d e s t a t i s t i c s o f m o s t c o u n t r i e s s h o w a t l e a s t some o f

t h e " t r a d i t i o n a l t y p e of e x c h a n g e . " N o t a s i n g l e c o u n t r y f o r t h e

w h o l e p e r i o d u n d e r c o n s i d e r a t i o n b e l o n g e d t o C l a s s I I I . T h e U n i t e d

S t a t e s a l o n e b e l o n g e d t o t h i s c l a s s i n 1 9 1 3 a n d f e l l b a c k i n t o i t i n


1932 a n d 1933. D u r i n g t h e s e d e p r e s s i o n y e a r s , t h e f o o d s t u f f s a n d

r a w m a t e r i a l s b a l a n c e b e c a m e a c t i v e o n c e m o r e b e c a u s e t h e i m p o r t s

h a d b e e n r e d u c e d a t a p a c e f a s t e r t h a n t h a t o f t h e e x p o r t s . T h e o n l y

o t h e r c o u n t r y i n C l a s s I I I i s H u n g a r y , w h i c h i n 1937 f e l l f o r t h e

f irst t i m e i n t o t h i s c l a s s w h e n h e r e x p o r t s o f m a n u f a c t u r e s s l i g h t l y

e x c e e d e d h e r i m p o r t s .

C l a s s I V is r e p r e s e n t e d b y f o u r E u r o p e a n c o u n t r i e s , t h e N e t h e r

l a n d s , S w e d e n , G r e e c e , a n d P o r t u g a l , e a c h o f w h i c h h a v e t r a d i t i o n

a l l y p a s s i v e t r a d e b a l a n c e s in m a n u f a c t u r e s a s w e l l a s in f o o d s t u f f s

a n d r a w m a t e r i a l s . " C h i n a a l s o b e l o n g s t o t h i s c a t e g o r y f r o m 1930

t o 1935, a n d o t h e r c o u n t r i e s , S p a i n , S w i t z e r l a n d , E i r e , a n d N o r w a y ,

e n t e r i n t o i t o c c a s i o n a l l y .

W e h a v e t h e n o n l y f o u r c o u n t r i e s f o r w h i c h t h e " t r a d i t i o n a l t y p e

o f e x c h a n g e " i s c o n s i s t e n t l y a b s e n t . O f t h e f o r t y - t h r e e ( o r f i f t y - t h r e e )

remaining countries, ten, g e n e r a l l y t e r m e d " i n d u s t r i a l , " b e l o n g t o

C l a s s I . T h e s e a r e t h e U n i t e d S t a t e s , E n g l a n d , G e r m a n y , E r a n c e ,

I t a l y , B e l g i u m , A u s t r i a , C z e c h o s l o v a k i a , S w i t z e r l a n d , a n d J a p a n .

A l l o t h e r c o u n t r i e s f o r w h i c h w e h a v e a n a l y z e d t h e t r a d e s t a t i s t i c s

b e l o n g e s s e n t i a l l y t o C l a s s I I .

I f w e c o m p i l e s e p a r a t e l y t h e d a t a f o r t h e t e n c o u n t r i e s b e l o n g i n g

t o C l a s s I a n d f o r t h e t h i r t y - t h r e e ( o r f o r t y - t h r e e ) c o u n t r i e s b e l o n g i n g

t o C l a s s I I , t h e v a r i o u s t y p e s o f i n t e r c h a n g e a c q u i r e a m o r e c o n c r e t e

m e a n i n g . F o r t h e c o u n t r i e s h a v i n g a n a c t i v e b a l a n c e i n m a n u f a c

t u r e s , t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s m e a s u r e s e s s e n t i a l l y

t h e r e l a t i v e i m p o r t a n c e o f t h e imports o f m a n t i f a c t u r e s , w h e r e a s f o r

c o i m t r i e s h a v i n g a p a s s i v e b a l a n c e i n m a n u f a c t u r e s , t h e c o m p e n

s a t e d t r a d e i n m a n u f a c t u r e s i s n o t h i n g b u t t w i c e t J i e p e r c e n t a g e

e m b r a c e d b y t h e exports o f m a n u f a c t u r e s i n t h e t o t a l t r a d e o f t h e s e

c o u n t r i e s . " T h e s a m e a p p l i e s , mutatis mutandis, t o t h e c o m p e n s a t e d

t r a d e i n r a w m a t e r i a l s a n d f o o d s t u f f s .

I n t a b l e 8 s t a t i s t i c s a r e g i v e n f o r t h e t e n c o u n t r i e s b e l o n g i n g t o

C l a s s I a n d f o r t h e t h i r t y - t h r e e c o u n t r i e s b e l o n g i n g t o C l a s s I I f o r

1925, 1929, I 9 3 i , a n d 1 9 3 7 . F o r i 9 2 9 a n d 1937 w e w e r e a b l e t o c a l c u

l a t e s t a t i s t i c s f o r t e n a d d i t i o n a l c o u n t r i e s b e l o n g i n g t o C l a s s I I .

T h e i r i n c l u s i o n d o e s n o t a l t e r s u b s t a n t i a l l y t h e p i c t u r e g i v e n b y t h e

" D u r i n g the period under consideration this is tme iWthottC exception for the Netherlands and for Portugal. Exceptions for Sweden and Greece are rare and insignificant.

" S e e above, p. is2.


E x c h a n g e o f commodi t ie s aga ins t " inv i s ib le i t e m s "

C l a s s I (10 " i n d u s t r i a l " countries) C l a s s U (33 " a g r i c u l t u r a l " countries) C l a s s I I (43 " a g r i c u l t u r a l " countries) T o t a l (10 " i n d . " plus 33 " a g r . " countries) To ta l (10 " J n d . " plus 43 " a g r . " c o u n t r i e s ) . . . •

E x c h a n g e of foodstuffs and raw mater ia l s aga ins t foodstuffs a n d raw m a t e r i a l s :

C l a s s I (10 " i n d u s t r i a l " countries) , C l a s s I f (33 " a g r i c u l t u r a l " countr ies ) C la s s H (43 " a g r i c u l t u r a l " countries) T o t a l (10 " i n d . " p lus 33 " a g r . " countries) T o t a l (10 " i n d . " plus 43 " a g r . " c o u n t r i e s ) . . . .

E x c h a n g e o f manufac tures aga ins t m a n u f a c t u r e s : C la s s I (10 " i n d u s t r i a l " countries) C l a s s I I (33 " a g r i c u l t u r a l " countries) C la s s I I (43 " a g r i c u l t u r a l " countries) T o t a l (10 " i n d . " p i u s 33 " a g r . " countr ie s ) . . . . T o t a l (10 " i n d . " plus 43 " a g r . " countr ie s ) . . . .

E x c h a n g e o f manufac ture s aga ins t foodstuffs arid raw m a t e r i a l s :

C l a s s I (10 " i n d u s t r i a l " countries) C l a s s I I (3.3 " a g r i c u l t u r a l " countries) C l a s s I I (43 " a g r i c u l t u r a l " countries) T o t a l (10 " i n d . " plus 33 " a g r . " c o u n t r i e s ) . . . T o t a l ( 1 0 " i n d . " plus 43 " a g r . " countries) . . .

i9»S 1929 1931 19J7

11 .9 1 0 . 0 1 7 . 2 13-9 13 .3 8 . 6 1 2 . 9 1 5 . 0

8 . 9 1 5 . 5 12 ,4 9 . 5 1 5 . 7 1 4 , 3

9 . 6 1 4 . 5

3 7 . 7 3 5 . 4 3 3 . 2 3 1 . 0 4 0 . 1 4 0 . 7 4 1 . 4 3 7 . 4

4 0 . 5 3 6 . 3 3 8 . 6 3 7 . 3 3 6 - 0 3 3 . 3

3 7 . 3 3 3 . 1

2 1 . 1 2 4 , 3 2 7 . 3 2 0 . 2 1 2 . 2 12 .3 1 2 . 7 1 3 , 3

1 1 . 7 1 2 , 3 17 .8 2 0 . 0 22-3 1 7 . 7

1 9 . 5 17-1

2 9 . 3 3 0 . 3 2 2 , 3 3 4 . 9 3 4 . 4 3 8 . 4 3 3 . 0 3 4 - 3

3 8 , 9 3 5 - 9 3 1 . 2 3 3 - 2 2 6 . 0 3 4 - 7

3 3 - 6 3 5 - 3

In table 8 the figures for the forty-three (or the fifty-three) coun

tries correspond b o t h in their level and in their m o v e m e n t s very

closely to the results of table 3 , w h i c h at tempted an estimate for the

w h o l e of w o r l d trade. W e can, therefore, expla in the increasing and

figures for t h e thirty-tfiree countr ies only. T h e t e n countr ies of

Class I and the forty-three countr ies of Class II account on the aver

age for 5 5 and 3 5 p e r cent of w o r l d trade, respectively. T h e ten

countr ies of Class I i n c l u d e the most important t rading nations,

T A B L E 8

PERCENTAGES HELD BY THE VARIOUS CATEGORIES OF INTERCHANGE IN THE TOTAL TRADE OF DIFFERENT CLASSES OF COUNTRIES


d e c r e a s i n g i m p o r t a n c e of t h e v a r i o u s t y p e s o f i n t e r c h a n g e a s s h o w n

i n t a b l e 3 b y r e f e r e n c e to t h e p r e s e n t t a b l e .

T h e m o s t s t r i k i n g r e s u l t is t h e g r e a t d i s c r e p a n c y b o t h in l e v e l a n d

i n m o v e m e n t w h i c h i s r e v e a l e d f o r t h e t w o g r o u p s o f c o u n t r i e s i n

t h e figures r e l a t i n g t o t h e c o m p e n s a t e d e x c h a n g e in m a n u f a c t u r e s .

T h i s t y p e o f i n t e r c h a n g e is n e a r l y t w i c e a s i m p o r t a n t fo r t h e t e n

c o u n t r i e s h a v i n g a n a c t i v e b a l a n c e in m a n u f a c t u r e s a s f o r t h e th i r ty-

t h r e e ( o r f o r t y - t h r e e ) c o u n t r i e s h a v i n g a p a s s i v e b a l a n c e in m a n u

f a c t u r e s . I n o t h e r w o r d s , i m p o r t s o f m a n u f a c t u r e s a r e m u c h m o r e

i m p o r t a n t f o r t h e c o i m t r i e s p r e v a l e n t l y e x p o r t i n g m a n u f a c t u r e s

t h a n a r e t h e e x p o r t s o f m a n u f a c t u r e s f o r t h e c o u n t r i e s p r e v a l e n t l y

i m p o r t i n g m a n u f a c t u r e s . T h i s r e s u l t i s n o t u n e x p e c t e d , a n d it i s

e v e n s u r p r i s i n g t o n o t e t h a t , f o r t h e f o r t y t h r e e c o u n t r i e s g e n e r a l l y

c l a s s i f i e d a s " a g r i c u l t u r a l , " t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t

m a n u f a c t u r e s s t i l l a m o u n t e d t o a s m u c h a s 29 p e r c e n t o f t h e i r

t o t a l t r a d e .

T h e m o r e s i g n i f i c a n t r e s u l t i s t h a t t h e s e l a t t e r c o u n t r i e s a r e c h a r a c t e r i z e d b y a s l o w b u t c o n t i n u o u s i n c r e a s e o f t h e p r o p o r t i o n i n t h e t o t a l t r a d e o f t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s . T h i s re f lects t h e very g r a d u a l i n c r e a s e of t h e i r e x p o r t s of m a n u f a c t u r e d p r o d u c t s , i n i t s e l f a n o u t g r o w t h of t h e i n d u s t r i a l i z a t i o n of t h e s e c o u n t r i e s . O n t h e o t h e r h a n d , t h e p r o p o r t i o n i n t o t a l t r a d e o f t h e c o m p e n s a t e d t r a d e in m a n u f a c t u r e s c h a n g e s v e r y m a r k e d l y f o r t h e t e n c o i m t r i e s h a v i n g a n a c t i v e b a l a n c e in m a n u f a c t i n e s . T h e s e c h a n g e s d o m i n a t e t h e m o v e m e n t s of t h e t o t a l c o m p e n s a t e d t r a d e in m a n u f a c t u r e s , s i n c e t w o - t h i r d s t o t h r e e - f o u r t h s of th i s t o t a l i s h a n d l e d b y t h e t e n i n d u s t r i a l c o u n t r i e s .

W e m a y d i s t i n g u i s h t w o p e r i o d s f r o m th i s a n g l e . T h e first, e x t e n d

i n g f r o m 1 9 2 5 t o 1 9 3 1 , i s m a r k e d b y a n i m p o r t a n t i n c r e a s e i n t h e

p a r t p l a y e d b y t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s i n t h e t o t a l

t r a d e of t h e " i n d u s t r i a l " c o u n t r i e s . A s u b s e q u e n t s t r o n g d e c r e a s e

r e d u c e s t h e p r o p o r t i o n of th i s t y p e of t r a d e b e l o w t h e i n i t i a l p e r

c e n t a g e o f 1925, G o i n g b a c k t o t h e s t a t i s t i c s of t h e i n d i v i d u a l c o u n

t r i e s , w e find t h a t m o s t of t h e m f o l l o w th i s s a m e p a t t e r n . G e r m a n y

a n d J a p a n , t h e o n l y e x c e p t i o n s , h a v e t h e i r m a x i m a d u r i n g 1927 a n d

1928, r e s p e c t i v e l y . T h e p e a k i n 1 9 3 1 i s e x p l a i n e d b y t h e r e l a t i v e l y

s t r o n g i n d u s t r i a l e x p o r t s of G e r m a n y w h i c h h a d a l a r g e a c t i v e t r a d e

b a l a n c e d u r i n g t h i s y e a r . A c o n s i d e r a b l e p a r t o f G e r m a n y ' s I n d u s -

1 ^ 6 National Power and Foreign Trade

t r i a l e x p o r t s g o e s t r a d i t i o n a l l y t o t h e o t h e r i n d u s t r i a l c o u n t r i e s . B u t , 1931 b e i n g t h e las t f r e e t r a d e y e a r f o r G r e a t B r i t a i n , t h e s u b s t a n t i a l a d v a n c e b u y i n g of m a n u f a c t u r e s c a r r i e d t h e p r o p o r t i o n of t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s i n t o t a l B r i t i s h t r a d e t o a n a l l - t i m e h i g h p o i n t of 33 p e r c e n t .

T h e s u b s e q u e n t d e c l i n e of t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s i s a c c o m p a n i e d b y a d e c l i n e o f t h e c o m p e n s a t e d t r a d e i n r a w m a t e r i a l s a n d f o o d s t u f f s , a n d t h e " t r a d i t i o n a l t y p e of e x c h a n g e " g a i n s c o n s i d e r a b l y i n i m p o r t a n c e . W h e r e a s t h e i n c r e a s e i n w o r l d t r a d e f r o m 1925 t o 1929 w a s m a r k e d by a m o r e t h a n p r o p o r t i o n a l i n c r e a s e of t h e c o m p e n s a t e d e x c h a n g e of m a n u f a c t u r e s , t h e shor t l i v e d r e v i v a l of w o r l d t r a d e a f t e r t h e g r e a t d e p r e s s i o n , w i t h i ts i n t e n s i f i ed e c o n o m i c n a t i o n a l i s m , w i t n e s s e d a r e l a t i v e d e c l i n e of t h i s t y p e o f i n t e r c h a n g e .

T h e ten i n d u s t r i a l c o u n t r i e s a l s o e x h i b i t a c o n t i n u o u s d e c l i n e i n

t h e r e l a t i v e i m p o r t a n c e o f t h e c o m p e n s a t e d e x c h a n g e i n r a w m a t e

r i a l s a n d f o o d s t u f f s . T h i s i s t a n t a m o u n t t o a d e c l i n e i n t h e r e l a t i v e

i m p o r t a n c e o f t h e exports o f r a w m a t e r i a l s a n d f o o d s t u f f s i n t h e s e

c o u n t r i e s , a n d i t m a y b e e x p l a i n e d b y t h e i r f u r t h e r i n d u s t r i a l i z a

t i o n a n d b y t h e d e s i r e o f G e r m a n y , I t a l y , a n d J a p a n t o m a k e t h e

m o s t o f t h e n a t u r a l r e s o u r c e s w i t h i n t h e i r o w n t e r r i t o r i e s .

W i t h r e s p e c t t o i n d i v i d u a l c o u n t r i e s , t h e a r r a n g e m e n t w h i c h w e

h a v e d e v i s e d f o r t h e a n a l y s i s o f t o t a l t r a d e i n t o t h e v a r i o u s t y p e s o f

i n t e r c h a n g e c a n n o t a d d m a t e r i a l l y t o t h e i n f o r m a t i o n c o n t a i n e d i n

t h e t r a d i t i o n a l d e v i c e o f g i v i n g s e p a r a t e figures f o r i m p o r t s a n d ex

p o r t s . B u t fo r a n a n a l y s i s f r o m a c e r t a i n s t a n d p o i n t i t c o n v e n i e n t l y

s u m s u p t h e i n f o i m a t i o n c o n t a i n e d in t h e o r d i n a r y a r r a n g e m e n t .

F o r t h e l a r g e r i n d u s t r i a l c o u n t r i e s , s u c h as t h e U n i t e d S t a t e s ,

G r e a t B r i t a i n , F r a n c e , J a p a n , a n d I t a l y , t h e p r o p o r t i o n of t h e c o m

p e n s a t e d t r a d e i n m a n u f a c t u r e s i s g e n e r a l l y s o m e w h e r e b e t w e e n

20 a n d 25 p e r c e n t of t o t a l t r a d e . I t is d i s t i n c t l y l o w e r f o r G e r m a n y . ' ^

R e a l l y h i g h p e r c e n t a g e s c a n b e f o u n d for s u c h s m a l l i n d u s t r i a l c o u n

tr ie s a s S w i t z e r l a n d (49 p e r c e n t ) , A u s t r i a (32 p e r c e n t ) , C z e c h o s l o

v a k i a (28 p e r c e n t ) , a n d f o r s o m e c o u n t r i e s h a v i n g a p a s s i v e b a l a n c e

i n m a n u f a c t u r e s , s u c h a s S w e d e n (41 p e r c e n t ) , N e t h e r l a n d s (27

p e r c e n t ) , a n d e v e n i n s o m e of t h e c o u n t r i e s g e n e r a l l y c l a s s i f i ed a s

" a g r i c u l t u r a l , " s u c h a s C h i n a (33 p e r c e n t ) , H u n g a r y (53 p e r c e n t ) ,

" S e e below, pp. 137-138.


C a n a d a (32 p e r cent) , a n d India (31 p e r c e n t ) . " O n the other h a n d ,

for a great n u m b e r of " a g r i c u l t u r a l " countr ies the compensated

trade i n m a n u f a c t u r e s represents a very low p r o p o r t i o n . F o r twenty-

o n e of the thirty-three countr ies of Class I I it d i d not exceed 5 p e r

cent in 1937-

T h e p r o p o r t i o n in total trade of the c o m p e n s a t e d trade i n food

stuffs a n d raw materials is, on the contrary, m u c h more steady from

country to country . I n 1937 it lies b e l o w 20 p e r cent of total trade

for f o u r countr ies o n l y , Swi tzer land ( 1 3 p e r cent) , R u m a n i a ( 1 7 p e r

cent) , T u r k e y (16 p e r cent), and N e t h e r l a n d s Indies (14 p e r cent).

T h e r e is a surpris ingly large n u m b e r of countr ies for w h i c h this

type of trade represents m o r e than or a p p r o x i m a t e l y one-half of

total trade."^

T h e s e countr ies are not q u i t e e q u a l e d w i t h respect to aggre

g a t e i m p o r t a n c e by those the trade pat tern of w h i c h is preva lent ly

the e x c h a n g e of manufactures against foodstuffs and raw mater ia ls . "

A s to the m o v e m e n t s of o u r figures for i n d i v i d u a l countr ies , the

most interest ing series is again the G e r m a n one. In the first place,

w i t h the e x c e p t i o n of the " r a t i o n a l i z a t i o n " years of tJie ' twenties,

the p r o p o r t i o n of the compensated e x c h a n g e of manufactures in

G e n n a n trade has always b e e n by far the smallest of all the countr ies

h a v i n g an e x p o r t surplus in manufactures . F u r t h e r m o r e , since Ger

many 's c o m m e r c i a l deficit was general ly smal ler than that of the

other " i n d u s t r i a l " countr ies , she carries on a larger a m o u n t of ex

change of manufactures against foodstuffs and raw materials than

these countr ies . S ince 1933 the p r o p o r t i o n of this type of e x c h a n g e

" Parentheiical percentages here relate to 1937. " T h e s e countries were in 1937: Spain (73 per cent), Greece (72 per cent), Poland

(C8 per cent), Eire (65 per cent), Denmark {6a per cent), British Malaya (60 per cent), Portugal (58 per cent), Netherlands {58 per cent), Hungary (57 per cent), Norway {54 per cent). L'nited States ('52 per cent), V. S. S. R. (52 per tent), Sweden (52 per cent), Betsiuin (49 per cent). Latvia {47 per cent), Tunis ia {.\6 per cent). In light o£ these fig-mcs. the statement of Professor Howard S. Ellis (Exchange Control ht Central Europe [Camhridge, Mass., ig . f i] , p. gig) that "if autarky becomes universal, it would seem to imply the virtual cessation of international trade in finished goods and the reduction of ttade in raw materials to the exchange of goods without close substitutes" is seen to be based on real possibiJitics. Cf,. however, tables 1 and 2 for the tendency toivard a decline of this type of interchange in world trade as a whole.

1 ^8 National Power and Foreign Trade

i n c r e a s e d f u r t i i e r , f r o m a b o u t o n e - h a l f t o t w o - t h i r d s o f G e r m a n y ' s

to t a l t r a d e , d u e t o t h e d e l i b e r a t e p o l i c y o f t h e N a t i o n a l S o c i a l i s t

g o v e r n m e n t o f r e s t r i c t i n g i m p o r t s of m a n u f a c t u r e s a n d e x p o r t s of

r a w m a t e r i a l s a n d f o o d s t u f f s . A g a i n , a s in o u r a n a l y s i s of t h e d i r e c

t i o n o f G e r m a n t r a d e t o w a r d t h e s m a l l e r c o u n t r i e s , w e w i t n e s s h e r e

a c o n s i d e r a b l e c h a n g e i n t h e s t r u c t u r e of G e r m a n t r a d e s i n c e 1933;

a n d a g a i n th i s d e v e l o p m e n t c a n b e v i e w e d a s a n a c c e n t u a t i o n of

p r e v i o u s t e n d e n c i e s .

T h e t r a d e o f J a p a n d i s p l a y s s t r u c t u r a l t e n d e n c i e s s i m i l a r t o t h o s e

s h o w n b y t h e G e r m a n t r a d e . W e n o t e , i n d e e d , a t e n d e n c y t o w a r d

a d e c r e a s e of t h e c o m p e n s a t e d t r a d e b o t h i n m a n u f a c t u r e s a n d i n

r a w m a t e r i a l s a n d foods tu f f s . A s a c o n s e q u e n c e , t h e i m p o r t a n c e o f

t h e " t r a d i t i o n a l t y p e o f e x c h a n g e " i n c r e a s e s s h a r p l y f r o m one-f i f th

of to t a l t r a d e i n t h e ' t w e n t i e s t o o n e - h a l f i n t h e ' t h i r t i e s . I t a l i a n

t r a d e , o n t h e c o n t r a r y , d o e s n o t s h a r e t h e s e m o v e m e n t s .

I n F r a n c e o n e n o t i c e s m a i n l y a s t r o n g d e c r e a s e i n the i m p o r t a n c e

o f t h e " t r a d i t i o n a l t y p e o f e x c h a n g e , " e x p l a i n e d p a r t l y b y a n in

c r e a s e i n t h e c o m p e n s a t e d t r a d e in m a n u f a c t u r e s b u t m a i n l y b y

i n c r e a s e of " i n v i s i b l e i t e m s " of t h e b a l a n c e o f p a y m e n t s , i .e . , b y t h e

r i s i n g de f i c i t o f F r e n c h f o r e i g n t r a d e .

L i k e G e r m a n y a n d J a p a n , t h e U n i t e d S t a t e s s h o w s a d e c r e a s e i n

t h e c o m p e n s a t e d t r a d e i n r a w m a t e r i a l s a n d f o o d s t u f f s , w h i c h , a f t e r

h a v i n g c o n s t i t u t e d a b o u t 7 0 p e r c e n t o f to t a l t r a d e i n 1925, d e c l i n e d

t o a p p r o x i m a t e l y 50 p e r c e n t i n 1937. T h i s d e v e l o p m e n t b r o u g h t

a b o u t a n i n c r e a s e of t h e " t r a d i t i o n a l t y p e of e x c h a n g e , " w h i c h i s

e x p l a i n e d b y t h e f a c t t h a t t h e U n i t e d S t a t e s w a s s t i l l i n c r e a s i n g

t h e e x p o r t s o f m a n u f a c t u r e s a t t h e e x p e n s e of t h e e x p o r t s of r a w

m a t e r i a l s a n d foods tu f f s w i t h o u t m a t e r i a l l y a l t e r i n g t h e s t r u c t u r e

of i m p o r t s .

I n t h e U . S. S. R . t h e m o s t i n t e r e s t i n g d e v e l o p m e n t i s t h e i n c r e a s e

of t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s f r o m 4.4 p e r cent i n 1925

to b e t w e e n 20 a n d 30 p e r c e n t in the ' t h i r t i e s . B e c a u s e R u s s i a h a s a

p a s s i v e b a l a n c e i n m a n u f a c t u r e s , t h e c o m p e n s a t e d t r a d e in m a n u

f a c t u r e s s t a n d s f o r e x p o r t s of m a n u f a c t u r e s , a n d i t s i n c r e a s e s h o w s

t h e r i s i n g i m p o r t a n c e of R u s s i a n i n d u s t r i a l e x p o r t s .

I n E n g l a n d t h e r e is f r o m 1925 t o 1931 a s t e a d y i n c r e a s e o f t h e

c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s a s a p r o p o r t i o n of t o t a l t r a d e .

A s u d d e n j u m p u p w a r d i n 1931 b r i n g s t h i s t y p e of t r a d e t o 33 p e r


c e n t of to t a l t r a d e . " S i n c e , a t t h e s a m e t i m e , t h e c o m m e r c i a l de f i c i t

r e a c h e s a p e a k figure of 33 p e r c e n t of t o t a l t r a d e , t h e " t r a d i t i o n a l

t y p e of e x c h a n g e " s h r i n k s i n t h i s y e a r t o o n e - s i x t h of t o t a l t r a d e , a

r e c o r d l o w l e v e l . S u b s e q u e n t l y , t h i s t y p e o f t r a d e r e c o v e r s , b u t d o e s

n o t q u i t e r e a c h i ts f o r m e r l eve l . A n s w e r i n g t o t i te n e w p r o t e c t i o n i s t

p o l i c y , t h e c o m p e n s a t e d t r a d e i n m a n u f a c t u r e s f a l l s off d e c i s i v e l y

f r o m 1931 t o 1932 a n d m a i n t a i n s i t s e l f f r o m t h e n o n a t a l eve l w h i c h

i s s l i g h t l y l o w e r t h a n t h a t r e a c h e d i n 1925. T h e r e l a t i v e m a g n i t u d e

o f t h e de f i c i t r e m a i n s i m p o r t a n t t h r o u g h o u t t h e ' t h i r t i e s , w h e r e a s

n o p a r t i c u l a r c h a n g e i s n o t i c e a b l e f o r t h e c o m p e n s a t e d t r a d e in

r a w m a t e r i a l s a n d foods tu f f s .

T h e g e n e r a l i m p r e s s i o n f r o m o u r s h o r t s u r v e y of t h e t r a d e s tat i s

t ics o f i n d i v i d u a l c o u n t r i e s is t h a t n o s i n g l e p a t t e r n c a n d e s c r i b e

t h e c o m m o d i t y s t r u c t u r e o f t h e (oreign trade o f a l l o f t h e m . T h e

t r a d i t i o n a l c o n c e p t i o n t h a t t h e e x c h a n g e o f m a n u f a c t u r e s a g a i n s t

f o o d s t u f f s a n d r a w m a t e r i a l s is t h e b a c k b o n e of f o r e i g n t r a d e is

v e r i f i e d o n l y b y a l i m i t e d n u m b e r o f c o u n t r i e s . A t l e a s t a s i m p o r

t a n t a r e t h o s e c o u n t r i e s t h e t r a d e of w h i c h is in t h e m a i n a n ex

c h a n g e of f o o d s t u f f s a n d r a w m a t e r i a l s a g a i n s t f o o d s t u f f s a n d r a w

m a t e r i a l s a n d t h o s e t h e t r a d e of w h i c h is m o r e o r less e q u a l l y s u b

d i v i d e d i n t o t h e v a r i o u s c a t e g o r i e s of i n t e r c h a n g e w h i c h w e h a v e

h e r e d i s t i n g u i s h e d .

I t i s t h e r e f o r e a l s o ve ry di f f icul t t o p o i n t t o a n y d e f i n i t e " l a w " ac

c o r d i n g t o w h i c h t h e c o m m o d i t y s t r u c t u r e of f o r e i g n t r a d e c h a n g e s

in t h e c o u r s e of a n e c o n o m i c d e v e l o p m e n t s u c h a s i n d u s t r i a l i z a t i o n .

T h i s p r o c e s s d o e s n o t n e c e s s a r i l y l e a d t o e i t h e r a d e c r e a s e o f i n d u s

t r i a l i m p o r t s o r a n i n c r e a s e o f i n d u s t r i a l e x p o r t s , n o r d o e s it l e a d

t o e i t h e r a n i n c r e a s e of the i m p o r t s o r a d e c r e a s e of t h e e x p o r t s o f

r a w m a t e r i a l s . I t is , h o w e v e r , l i k e l y t o b r i n g a b o u t a t l ea s t o n e o f

t h e s e d e \ ' e l o p m e n t s ; a n d t h e r e f o r e t h e e x c l i a n g e o f m a n u f a c t u r e s

a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s , w h i c h b e f o r e t h e s t a r t o f t h e

p r o c e s s s t a n d s f o r i m p o r t s o f m a n u f a c t u r e s a g a i n s t e x p o r t s o f food

stuffs a n d r a w m a t e r i a l s , is l i k e l y t o d i m i n i s h a n d m a y e v e n v a n i s h

in t l ie first p h a s e of i n d u s t r i a l i z a t i o n a n d e m e r g e w i t h r e v e r s e d

c o n d i t i o n s ( e x p o r t s o f m a n u f a c t u r e s a g a i n s t i m p o r t s o f f o o d s t u f f s

a n d r a w m a t e r i a l s ) a t a l a t e r s t a g e . H o w far t h i s d e v e l o p m e n t g o e s

d e p e n d s e n t i r e l y o n t h e p a r t i c u l a r c o u n t r y . I t m a y e v e n n e v e r c o m e

See above, p. 136.


T A B L E 9

PERCENTAGE DISTRIBUTION OF THE TRADE OF SOME IMPORTANT COUNTRIES IN ACCORDANCE WITH THE VARIOUS TYPES OF INTERCHANGE ( 1 9 1 3 - 1 9 3 7 )

Y e a r CO- U ) t (3 ) t (4)1 T o t a l (5)

G E R M A N Y

1913 3 . 2 3 2 2 13 3 51 3 1 0 0 . 0

1925 1 4 . 2 23 4 18 5 43 9 1 0 0 . 0

1926 1 .1 28 5 13 8 56 6 1 0 0 , 0

1927 1 6 . 4 21 9 2 0 8 4 0 9 1 0 0 - 0

1928 9 . 3 2 2 9 19 9 48 7 1 0 0 - 0

1929 0 . 1 27 1 16 9 55 9 1 0 0 . 0

1930 7 . 4 26 7 16 0 4 9 9 1 0 0 . 0

1931 1 7 . 6 27 2 I S 0 40 2 1 0 0 , 0

1932 1 0 . 3 24 0 14 0 51 7 1 0 0 , 0

1933 7 - 3 23 9 14 8 54 0 1 0 0 , 0

1934 3 . 3 21 2 17 4 58 1 1 0 0 . 0

1935 1-3 20 2 13 4 65 1 1 0 0 - 0

1936 6 . 1 18 3 11 7 63 9 1 0 0 - 0

1937 3 . 9 18 6 10 2 67 3 1 0 0 . 0

j a p a n

1913 7 . 3 65 3 18 4 9 0 1 0 0 , 0

1925 5 . 7 49 0 22 5 22 8 1 0 0 - 0

1926 9 . 2 4 5 6 24 0 21 2 1 0 0 . 0

1927 6 , 5 48 3 2 4 2 21 0 1 0 0 - 0

1928 5 , 6 49 4 26 0 19 0 1 0 0 , 0

1929 3 , 0 46 1 21 7 29 2 1 0 0 , 0

1930 3 . 5 41 3 20 7 34 5 1 0 0 . 0

1931 6 , 6 4 0 4 2 0 3 32 7 1 0 0 , 0

1932 3 , 7 37 8 17 6 4 0 9 1 0 0 - 0

1933 2 . 4 33 0 16 3 48 3 1 0 0 , 0

1934 3 , 2 2 6 9 15 8 54 1 1 0 0 - 0

1935 0 , 1 3 0 9 13 9 55 1 1 0 0 , 0

1936 0 , 8 3 0 5 12 4 56 3 1 0 0 , 0

1937 6 , 5 26 7 21 0 4 5 8 1 0 0 . 0

• EjTchange of commodities against "invisible ilems." + Exchange of foodstuffs and raw maicrials against foodstuffs and raw materials, J Exchange of manufactures against manufactures, (| Exchange of manufactures against foodstuffs and raw materials.


Y e a r ( [ ) • an U)5 T o t a l f ;)

I T A L Y

1913 1 8 . 4 55 7 25 9 1 0 0 . 0

1925 1 7 - 8 42 5 2 6 3 13 4 1 0 0 . 0

1926 1 3 , 2 3 4 8 2 5 0 27 0 1 0 0 . 0

1927 1 6 , 2 3 2 2 26 1 2 5 5 1 0 0 . 0

1928 2 0 . 1 3 7 3 2 9 3 13 3 1 0 0 . 0

1929 1 7 . 7 3 7 8 31 6 12 9 1 0 0 . 0

1930 1 7 . 7 3 9 8 33 2 9 3 1 0 0 - 0

1931 6 , 4 4 4 0 2 9 0 2 0 6 1 0 0 , 0

1932 9 . 5 4 5 3 2 9 3 15 9 1 0 0 . 0

1933 1 0 , 6 4 6 3 3 0 7 12 4 1 0 0 . 0

1934 1 8 . 8 42 3 31 1 7 8 1 0 0 . 0

1935 1 9 - 5 38 3 29 2 13 0 1 0 0 , 0

1936 4 . 2 47 7 28 2 19 9 1 0 0 . 0

1937 1 4 . 0 37 3 22 8 2 5 9 1 0 0 . 0

FRANCE 1913 1 0 . 1 3 5 2 21 7 33 0 1 0 0 - 0

1925 2 - 3 3 0 6 12 5 54 6 1 0 0 - 0

1926 0 - 3 31 8 13 2 54 7 1 0 0 . 0

1927 2 . 0 3 5 4 13 7 48 9 1 0 0 . 0

1928 1 . 5 31 1 19 1 48 3 1 0 0 . 0

1929 7 . 5 31 1 18 9 4 2 5 1 0 0 , 0

1930 1 0 , 2 3 0 0 2 6 4 33 4 1 0 0 , 0

1931 1 6 . 2 2 6 6 2 6 5 3 0 7 1 0 0 . 0

1 9 3 2 2 0 . 4 2 6 1 23 5 3 0 0 1 0 0 . 0

1933 2 1 . 2 26 4 2 2 4 3 0 0 1 0 0 . 0

1934 1 2 . 8 31 1 21 6 3 4 5 1 0 0 . 0

1935 1 5 . 0 33 9 19 5 31 6 1 0 0 . 0

1936 2 4 . 3 31 8 18 8 25 1 1 0 0 . 0

1937 2 7 . 7 3 2 2 19 8 2 0 3 1 0 0 . 0

• Eichangc of commodities against "invisible ileitis." t Exchange of foodsiuffs and raw maleriali against foodstuffs and raw materials. I Exchange of manufactures against manufactures. t Exchange o( manufacCuces against foodstulfs and raw materials.

T A B L E 9--(CoTitinued)


Y e a r ( i) ' (2)t (3)1 (4)5 Total (s)

U N I T E D STATES

1913 15.9 64 7 19,4 100.0

1925 7.6 69 7 20,3 2 4 100.0 1926 3.1 64 4 22,3 10 2 100,0 1927 6.4 64 4 23,4 5 8 100,0 1928 11 .5 64 7 22,9 0 9 100,0 1929 8.9 59 2 23.8 8 1 100,0 1930 11 .5 61 8 22,5 4 2 100,0 1931 7.6 60 6 24,8 7 0 100,0 1932 10.1 65 6 24,3 100.0 1933 7.3 69 1 23,6 100,0 1934 12.5 66 0 20,9 0 6 100,0 1935 4.8 59 1 20-7 15 4 100-0 1936 0.1 52 1 2 1 , 4 26 4 100.0 1937 4.5 52 3 19,4 23 8 100.0

U. S. S. R,

1913 5.0 63 8 5-9 25 3 100,0

1925 13.8 72 9 4,4 8 9 100,0 1926 5.5 66 9 4,2 23 4 100,0 1927 6.1 64 8 5,1 24 0 100,0 1928 9.1 72 3 9,8 8 8 100,0 1929 2.4 52 5 16,1 29 0 100,0 1930 1.1 36 7 15,0 47 2 100,0 1931 15.3 29 7 14.5 40 5 100,0 1932 10,8 29 3 21 ,4 38 5 100.0 1933 13-0 29 5 28,4 28 5 100,0 1934 28.6 37 8 30,7 2 9 100,0 1935 20-7 44 8 23.0 11 5 100-0 1936 0,3 45 4 19,9 34 4 100.0 1937 12,6 52 2 20.8 14 4 100-0

• Exchange of commodities against "invisible items." t Exchange of foodstuffs and raw materials against foodstuffs and raw materials. X Exchange of manufactures against manufacluies, S Exchange of manufactures against foodstuffs and raw materials.

T A B L E ^-{Continued)

Statistical Inquiries into Structure

Year (2)t (3)t m Total {5}

UNITED KINGDOM

1913 12,2 17 1 29 3 41 4 100.0

1925 20.3 17 8 22 1 39 8 100.0 1926 26.2 14 0 23 4 36 4 100.0 1927 21-4 17 8 24 2 36 6 100.0 1928 19-6 17 0 25 0 38 4 100.0 1929 20.7 18 1 25 5 35 7 100.0 1930 25,3 17 5 27 8 29 4 100,0 1931 34 .2 16 3 33 0 16 5 100,0 1932 28.1 17 9 20 2 13 8 100-0 1933 26.0 19 0 19 6 35 4 100.0 1934 26.4 IS 3 20 4 34 9 100,0 1935 24.4 19 3 20 6 35 7 100,0 1936 28.2 17 9 21 8 32 1 100.0 1937 29.3 17 8 21 3 31 6 100.0

• Exchange of commodities against "invisible items-" t Exchange of foodstuffs and raw materials against foodstuffs and raw materials. I E>:change of manufactures against manufactures. i Exchange of manufactures against fuodstuSs and raw materials.

a b o u t . N e i t h e r S w e d e n n o r the N e t h e r l a n d s , even t h o u g h they m u s t

be n u m b e r e d a m o n g the industr iahzed nations, has reached the

stage at w h i c h it exports m a n u f a c t u r e s against foodstuffs and raw

materia ls . T h a t the structure of the fore ign trade of an o ld indus

trial country may be strongly affected by the industr ia l izat ion of

n e w countr ies w e shall n o w show by r e v i e w i n g the fore ign trade

of G r e a t B r i t a i n d u r i n g the n i n e t e e n t h century .

T H E C O M M O D I T Y S T R U C T U R E O F B R I T I S H F O R E I G N T R A D E

S I N C E 1 8 5 4

In a recent v a l u a b l e study the yearly fore ign trade statistics of

the U n i t e d K i n g d o m have b e e n s u b d i v i d e d into the c o m m o d i t y

classes of the Brussels classification from 1814 on. Figures for ex

ports and reexports as wel l as for imports are, h o w e v e r , avai lable

only since 1854."

Werner Schlote. Entwicklungen und Slrukturwandlungen des englischen Aussen-handels von ijoo bis zur Gegenwart (Probleme der Weltwirtschaft), Vol. 6a (Jena, 1938), pp. 125-138. This work points out (on pp. 11-13) 'he dirterence between the Brussels classification and the official Board of Trade classification. Schlote gives hgures for

T A B L E 9-iConcluded)

144 National Poroer and Foreign Trade

W e h a v e t h o u g h t i t i n t e r e s t i n g t o s u m m a r i z e t h e s e s t a t i s t i c s ac

c o r d i n g t o o u r m e t h o d b y d i s t i n g u i s h i n g t h e v a r i o u s c a t e g o r i e s of

i n t e r c h a n g e b e t w e e n c o m m o d i t y g r o u p s . H e r e a g a i n w e m u s t e m

p h a s i z e t h a t w e a t t r i b u t e t o t h i s m e t h o d o f p r e s e n t i n g t h e s t a t i s t i c s

o f a n i n d i v i d u a l c o u n t r y n o o t h e r i n t e n t o r m e r i t t h a n to r e v e a l a t

a g l a n c e t h e s t r u c t u r a l d e v e l o p m e n t o f i t s f o r e i g n t r a d e f r o m a

c e r t a i n s t a n d p o i n t .

E v e r s i n c e 1854 B r i t a i n h a s h a d a n a c t i v e b a l a n c e in t h e t r a d e

i n m a n u f a c t u r e d p r o d u c t s , a p a s s i v e b a l a n c e i n t h e t r a d e i n r a w

m a t e r i a l s a n d foods tu f f s , a n d a p a s s i v e g e n e r a l b a l a n c e of t r a d e . C o n

s e q u e n t l y , t h e m e a n i n g o f t h e v a r i o u s c a t e g o r i e s o f i n t e r c h a n g e

i s the f o l l o w i n g : T h e e x c h a n g e of c o m m o d i t i e s a g a i n s t " i n v i s i b l e

i t e m s " i n d i c a t e s t h e r e l a t i v e i m p o r t a n c e i n t h e t o t a l t u r n o v e r of

t r a d e of t h e g o o d s i m p o r t e d , t h a n k s t o t h e a c t i v e b a l a n c e of t h e " i n

v i s i b l e i t e m s . " T h e e x c h a n g e of f o o d s t u f f s a n d r a w m a t e r i a l s a g a i n s t

foods tu f f s a n d r a w m a t e r i a l s s t a n d s fo r t h e r e l a t i v e i m p o r t a n c e of

t w i c e t h e exports o f r a w m a t e r i a l s a n d f o o d s t u f f s . T h e e x c h a n g e of

m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s i n d i c a t e s t h e i m p o r t a n c e i n

t o t a l t r a d e of t w i c e t h e imports o f m a n u f a c t u r e s . A n d t h e e x c h a n g e

of m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s s t a n d s o b v i

o u s l y f o r exports o f m a n u f a c t u r e s against imports o f r a w m a t e r i a l s

a n d foods tu f f s . W e h a v e c a l c u l a t e d t h e a v e r a g e p e r c e n t a g e s of t h e s e

v a r i o u s c a t e g o r i e s f o r p e r i o d s o f t e n y e a r s f r o m 1854 t o 1 9 1 3 . F o r

t h e five y e a r s , 1 9 2 5 - 1 9 2 9 , i n o r d e r t o b r i n g a b o u t a h i g h e r d e g r e e

o f c o m p a r a b i l i t y w i t h p r e w a r figures, w e g i v e figures in w h i c h t h e

p o l i t i c a l s e p a r a t i o n of I r e l a n d f r o m G r e a t B r i t a i n is i g n o r e d . "

T a b l e 10 b r i n g s o u t t h e f u n d a m e n t a l c h a n g e w h i c h h a s t a k e n

p l a c e i n t h e s t r u c t u r e o f B r i t i s h f o r e i g n t r a d e d u r i n g t h e p e r i o d

u n d e r r e v i e w . T h e o u t s t a n d i n g fac t i s t h e d e c r e a s e o f t h e " t r a d i

t i o n a l t y p e of e x c h a n g e " — t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t

f o o d s t u f f s a n d r a w m a t e r i a l s — f r o m t w o - t h i r d s o f t o t a l t r a d e t o a

p r o p o r t i o n v a r y i n g b e t w e e n o n e - t h i r d a n d two-f i f ths . T h i s r e s u l t

is p r o d u c e d b y t h e c o n c o m i t a n t i n c r e a s e o f a l l t h e o t h e r t y p e s o f

general imports, special exports, and reexports. To get figures for special imports, we have subtracted reexports from general imports, and our method of subdividing trade into the various classes of interchange has then been applied to the figures for special imports thus found and to the figures for special exports directly given by Schlote.

' "The basic figures are given by Schlote, loc. cit. See also op. cit., pp. 40-41. For annual figures from 1925 to 1937 (excluding Eire), see table g.


Years ( I ) ' (i)t (3)t (4)5 Totals (5)

per cent £ 1854-1863 14.2 11.1 8,8 65.9 100,0 2,820,000,000 1864-1873 12.1 10,9 13.2 63,8 100,0 4,553,000,000 1874-1883 20.3 12.1 17.2 50.4 100.0 5,486,000,000 1884-1893 18,2 14.3 20.1 47.4 100,0 5,675,000,000 1894-1903 23.9 16,3 25,3 34.5 100-0 6,723,000,000 1904-1913 IS.l 20,0 22,7 42.2 100.0 9,620,000. (M)0 1925-1929 23.1 15,8 25.7 35.4 100.0 8,880,000,000

• Eichange of commodities against "invisible items-"

S Exchange of (oodstutTs and raw materials against foodstuffs and raw inatcriab. Exchange ol manufactures aRainst manufactiires.

i Eichangi ol manuiacturrs against ipodstuflt and raw roalc/)a5».

the increase of coal exports a n d of m a n u f a c t u r e d foodstuffs such as

c a n n e d goods and beverages.

T h e increase of the " t radi t ional type of e x c h a n g e " f rom 1894-

1903 to 1 9 0 4 - 1 9 1 3 is the consequence of a s trong decrease i n the

re lat ive—and a b s o l u t e — m a g n i t u d e of the commerc ia l deficit. A g a i n ,

this d e v e l o p m e n t is b r o u g h t a b o u t by the favorable d e v e l o p m e n t

of Engl ish exports in the decade p r e c e d i n g W o r l d W a r I. T h e slight

decrease of the compensated trade in manufactures is m o r e than

offset by the c o n t i n u i n g increase in the compensated trade in raw

materials and foodstuffs. It should be noted that the p r o p o r t i o n of

imports of manufactures i n total imports decreased only slightly

( from 20.5 p e r c e n t in 1894-1903 to 19.7 p e r c e n t in 1 9 0 4 - 1 9 1 3 ) ,

\vhile increasing substantial ly in absolute terms. T h e someivhat

greater fa l l ing off of the compensated trade in manufactures as a

percentage i n total imports and exports i n the same p e r i o d is ex

p la ined by the increase in total exports relat ively to total imports.

interchange, a n d is absolute ly clear-cut unt i l the decade 1894-1903.

T h e increase in the share of the e x c h a n g e of manufactures against

manufactures is a part icular ly s tr ik ing consequence of the "catch

ing u p " of countr ies l ike G e r m a n y and the U n i t e d States, w h i c h sold

increasing a m o u n t s of m a n u f a c t u r e d products o n the Engl ish mar

ket. T h e increase of the compensated e x c h a n g e i n raw materials a n d

foodstuffs, t h o u g h less conspicuous, is i m p o r t a n t a n d interest ing

for a country so p u r e l y industr ia l as E n g l a n d . It is d u e mainly to

T A B L E 10

PERCENTAGE DISTRIBUTION OF BRITISH FOREIGN TRADE IN AccORnANCE WITH VARIOUS TYPES OF INTF,RCHAN(;E (1854-1929)

1^6 National Power and Foreign Trade

I n 1 9 2 5 - 1 9 2 9 t h e d i s t r i b u t i o n o f B r i t i s h t r a d e a c c o r d i n g t o t h e

v a r i o u s type s o f i n t e r c h a n g e h a d r e v e r t e d very n e a r l y t o t h e p a t t e r n

o f 1 8 9 4 - 1 9 0 3 .

T h u s , w e s e e t h a t t o w a r d t h e e n d of t h e n i n e t e e n t h c e n t u r y t h e

s t r u c t u r e o f , B r i t i s h f o r e i g n t r a d e h a d b e c o m e m u c h m o r e c o m p l e x

t h a n i t h a d b e e n fifty y e a r s e a r l i e r . T h e s t a t e m e n t t h a t B r i t i s h t r a d e

c o n s i s t e d m a i n l y i n e x p o r t s of m a n u f a c t u r e s a g a i n s t i m p o r t s of food

stuffs a n d r a w m a t e r i a l s w a s s t i l l a v a l i d g e n e r a l i z a t i o n f o r t h e p e r i o d

1 8 5 4 - 1 8 6 3 . F o r the d e c a d e 1 8 9 4 - 1 9 0 3 i t h a d b e c o m e a d i s t o r t i o n

o f t h e facts .

HISTORICAL IMPORTANCE OF THE TRADITIONAL VIEW OF THE COMMODITY STRUCTURE OF WORLD TRADE

O u r c a l c u l a t i o n s for w o r l d t r a d e a s a w h o l e s h o w t h a t t h e t r ad i

t i o n a l v i e w t h a t w o r l d t r a d e i s b a s e d p r i m a r i l y u p o n t h e e x c h a n g e

o f m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a t e r i a l s i s n o t e v e n a p

p r o x i m a t e l y connect. T h e p r e c e d i n g s t a t i s t i c a l a n a l y s i s h a s b r o u g h t

o u t t h e i m p o r t a n c e of t w o a d d i t i o n a l t y p e s of t h e i n t e r n a t i o n a l d iv i

s i o n of l a b o r , o n e c o n s i s t i n g i n a n e x c h a n g e of c e r t a i n f o o d s t u f f s a n d

r a w m a t e r i a l s a g a i n s t o t h e r foodstuff^s a n d r a w m a t e r i a l s , a n d t h e

o t h e r t h e e x c h a n g e of m a n u f a c t u r e s a g a i n s t m a n u f a c t u r e s .

O u r finding r e f u t e s t h e i d e a t h a t t h e d i v i s i o n o f l a b o r b e t w e e n

i n d u s t r i a l a n d a g i i c u l t u r a l c o u n t r i e s is t h e o n l y p o s s i b l e e c o n o m i c

b a s i s f o r t h e e x p a n s i o n of w o r l d t r a d e . T h i s b e l i e f h a s f o u n d its

m o s t a r t i c u l a t e e x p r e s s i o n i n t h e s o - c a l l e d " l a w o f t h e d e c l i n i n g

i m p o r t a n c e of e x p o r t t r a d e " w h i c h S o m b a r t f o r m u l a t e d a t t h e b e g i n

n i n g o f t h e c e n t u r y . S o m b a r t c l a i m e d t h a t t h e g r a d u a l i n d u s t r i a l i z a

t i o n o f t h e a g r i c u l t u r a l c o u n t r i e s w o u l d l e a d t o a r e d u c t i o n of t h e

g r o w t h of f o r e i g n t r a d e w i t h r e s p e c t t o t h e g r o w t h of i n t e r n a l t r a d e

a n d p r o d u c t i o n . ^ B u t S o m b a r t ' s " l a w " p r o p h e s i e d o n l y a r e l a t i v e

d e c l i n e of f o r e i g n t r a d e a n d w a s t h e r e f o r e a rather m o d e s t e x p r e s

s i o n o f a p r e o c c u p a t i o n w h i c h p e r v a d e d G e r m a n y a t t h e t u r n of t h e

c e n t u r y . A t t h a t t i m e G e r m a n y h a d b e c o m e a p r e d o m i n a n t l y in

d u s t r i a l n a t i o n , a n d t h e r e a l i z a t i o n of th i s f ac t b r o u g h t a b o u t a g r o w

i n g f e a r of G e r m a n y ' s d e p e n d e n c e o n f o r e i g n c o u n t r i e s . T h i s fear ,

^ Werner Sombart, Di« deufsche Volkswirtschaft im neunzehten Jahrhundert, Chap. XIV (Berlin, 1903), In addition to the industrialization of agricultural countries, Sombart adduced as a reason for his forecast the increasing capacitj" to consume on the part of the home market.


w h i c h , c u r i o u s l y e n o u g h , c o i n c i d e d w i t h t h e first w a v e o f a l a r m i n

E n g l a n d a n d F r a n c e o v e r t h e a d v a n c e s o f G e r m a n i n d u s t r i a l e x p o r t s ,

h a d s e v e r a l o r i g i n s . G e r m a n y w a s , o f c o u r s e , a p p r e h e n s i v e o f b e i n g

s h u t of f f i ' o m h e r f o o d a n d r a w m a t e r i a l s u p p l y i n w a r t i m e . B u t i n

c r e a s i n g d i f f i c u l t i e s a t t e n d i n g e x p o r t s a n d , c o n s e q u e n t l y , i m p o r t s

w e r e f e a r e d e v e n f o r p e a c e f u l t i m e s .

G e n n a n y looked a t t h e r i s i n g A m e r i c a n i n d u s t r i e s a n d a t t h e

g r o w t h o f m a n u f a c t u r i n g i n R u s s i a a n d I t a l y a n d o t h e r " n e w "

c o u n t r i e s w i t h m u c h t h e s a m e a l a r m a s E n g l a n d l o o k e d a t G e r m a n

c o m p e t i t i o n . L e t u s q u o t e o n e p a r t i c u l a r l y n a i v e l y c o n c i s e e x p r e s

s i o n o f t h i s a l a r m :

A m e r i c a w a n t s t o sel l n o t o n l y b r e a d t o E u r o p e , b u t a l s o e v e r y t h i n g e l se b y t h e s a l e of w h i c h E u r o p e c o u l d b u y b r e a d for herse l f . A m e r i c a w a n t s t o se l l n o t o n l y t o E u r o p e , b u i a l s o to a]J t h e o t h e r c o u n t r i e s b u y i n g n o w f r o m E u r o p e so t h a t e v e n t u a l l y E u r o p e wil l h a v e n o t h i n g left w i t h w h i c h t o p a y for t h e b r e a d . S u c h a s t a t e of af fa irs is o f c o u r s e b o u n d to l e a d o n e d a y to a b i g c a t a s t r o p h e . ^

I n a d d i t i o n , t h e p o s s i b i l i t y o f a n a b a n d o n m e n t o f f r e e t r a d e b y

G r e a t B r i t a i n w a s a c o n s t a n t p r e o c c u p a t i o n of G e r m a n g o v e r n

m e n t s . B u t i f o n e a c c e p t s t h e v i e w t h a t w o r l d t r a d e c a n b e b a s e d o n l y

u p o n t h e e x c h a n g e o f m a n u f a c t u r e s a g a i n s t f o o d s t u f f s a n d r a w m a

t e r i a l s , t h e n a n y s p r i n g i n g u p o f n e w i n d u s t r i e s i n " a g r i c u l t u r a l "

c o u n t r i e s , w h e t h e r n u r t u r e d b y t a r i f f s o r n o t , w o u l d e n d a n g e r t h e

e x p o r t p o s s i b i l i t i e s o f t h e o l d i n d u s t r i a l n a t i o n s .

I n p a r t , t h e " t e r r o r o f b e c o m i n g a p r e d o m i n a n t l y i n d u s t r i a l

s t a t e " * ^ h a d o r i g i n s o f a s o c i a l a n d m i l i t a r y o r d e r . B u t e c o n o m i c a l l y

i t w a s t h e o u t c o m e o f a n o t h e r " t e r r o r , " t h e i n d u s t r i a l i z a t i o n o f t h e

r e s t o f t h e w o r l d , w h i c h , i t w a s t h o u g h t , w o u l d s o o n d e p r i v e G e r

m a n y o f h e r m a r k e t s a b r o a d . T h u s , i n t h e m i n d s o f t h e p u b l i c a n d

o f m a n y e c o n o m i s t s , t h e i n c r e a s i n g i m p o r t a n c e o f G e r m a n f o r e i g n

t r a d e w a s c o u p l e d w i t h a n i n c r e a s i n g p r e c a r i o u s n e s s o f i t s e c o n o m i c

b a s i s . T h e s e v i e w s f u r n i s h e d o n e o f t h e m a i n a r g u m e n t s f o r t h e

s t e p p i n g u p o f a g r i c u l t u r a l p r o t e c t i o n u n d e r t h e C h a n c e l l o r s h i p o f

" Emil Schalk, Der Wettkampf der Volkcr mit besonderer Beiugnahme auf Deulsch-fand und die Vereiniglen Staaten von Amerika (Jena, 1905). p. 53. Against these "theories," sec the writings of one of the lone defenders of free trade in Imperial Germany, Karl Diet7el . Der deutsche-amerikanische Handclsverirag und das Phantom der ameri-kanischen Industrirkonkurrent (Berlin, 1903), 1st Mascbinenausfuhr wirtschaftlicher Srihstmordf (Berlin, 1907).

* L u d w i g Rrentano, Die Schrecken des iiberwiegenden Induslriestaates (Berlin, igot).


Bi i low. " " T h e p o l i c y o f a g r i c u l t u r a l p r o t e c t i o n c o u l d , i n d e e d , b e c o n s i d e r e d as i n s u r a n c e a g a i n s t the d a y w h i c h w o u l d s e e t h e cessat i o n o f i n d u s t r i a l e x p o r t s a n d , c o n s e q u e n t l y , o f a g r i c u l t u r a l i m p o r t s .

I t w a s b e l i e v e d , h o w e v e r , t h a t t h e r e w a s a p o s s i b i l i t y of p r e v e n t i n g t h e c o l l a p s e of f o r e i g n t r a d e , e i t h e r b y o b t a i n i n g suf f ic ient c o l o n i e s o r , d i r e c t l y , b y p r e v e n t i n g t h e i n d u s t r i a l i z a t i o n o f f o r e i g n n a t i o n s . B e c a u s e o f t h e i n c r e a s i n g i n d u s t r i a l i z a t i o n o f o t h e r c o u n tr ie s , p a r t i c u l a r l y t h e U n i t e d S t a t e s , R u s s i a , J a p a n , a n d I n d i a , t h e a r g u m e n t w a s m a d e t h a t t h e o n l y m e a n s of o b t a i n i n g f u t u r e o u t l e t s f o r G e r m a n i n d u s t r i a l e x p o r t s w o u l d b e b y a n e x t e n s i o n o f G e r m a n t e r r i t o r y a b r o a d . F o r th i s , in o r d e r t o o b t a i n a n d t o h o l d c o l o n i e s , a s t r o n g fleet w a s i n d i s p e n s a b l e . T h i s r e a s o n i n g c a n b e f o u n d r e p e a t e d l y i n a c o l l e c t i o n of e s s ays i n i g o o b y G e r m a n e c o n o m i s t s t r y i n g t o c o n v i n c e t h e p u b l i c of t h e n e c e s s i t y o f n a v a l a r m a m e n t s . " ^ T h e a l a r m cry , " e x p o r t o r d i e , " i s o n e o f t h e m a n y s l o g a n s w h i c h H i t l e r d i d n o t i n v e n t . A t the t u r n of t h e c e n t u r y , w h e n G e r m a n y first rea l i z e d h e r g r o w i n g d e p e n d e n c e o n f o r e i g n c o u n t r i e s , th i s cry w a s h e a r d c o n t i n u o u s l y . B y t h e f o r e g o i n g r e a s o n i n g i t w a s t u r n e d i n t o " b u i l d a fleet o r d i e , " w i t h o u t , h o w e v e r , b e i n g d r a w n t o i ts u l t i m a t e g l o o m y a n d s o m e w h a t p a r a d o x i c a l c o n s e q u e n c e , w h i c h w o u l d b e " w a g e a w a r o r d i e . "

T h e r e i s e v i d e n c e t h a t t h e f e a r o f t h e u l t i m a t e c o l l a p s e o f fore i g n t r a d e i n s p i r e d a l s o a m o r e d i r e c t p o l i c y : t h e a t t e m p t t o p r e v e n t t h e i n d u s t r i a l i z a t i o n o f o t h e r c o u n t r i e s . H e r e w e m u s t a g a i n r e f e r t o V i n e r ' s s t a t e m e n t t h a t p r e d a t o r y d u m p i n g , i .e . , d u m p i n g w i t h t h e i n t e n t of c r u s h i n g f o r e i g n i n d u s t r y , h a s b e e n p r a c t i c e d by G e r m a n y o n a l a r g e r s c a l e t h a n b y a n y o t h e r c o u n t r y , p a r t i c u l a r l y i n I t a l y . ^

T h e m o n o p o l y o f t h e G e r m a n c h e m i c a l i n d u s t r y b e f o r e W o r l d

W a r I i s a w e l l - k n o w n fac t . A c c u s a t i o n s s i m i l a r t o t h o s e h e a r d

r e c e n t l y w e r e v o i c e d i n 1 9 1 7 i n t h e U n i t e d S t a t e s b y S e c r e t a i 7 of

C o m m e r c e W . C . R e d f i e l d . H e s a i d : " W h e n p e a c e s h a l l c o m e . . . i t

w i l l h a r d l y b e s a i d a g a i n t o a n y S e c r e t a r y o f C o m m e r c e o f t h e U n i t e d

^Alexander Gerschenkron, Bread and Democracy in Germany (Berkeley, 1943), pp. 60-61.

" Paul Voigt, "Deutschland und der Weltmarkt," in Handels- und Machtpolitik, Vol. t (Suaigart, 1900), pp. 196 It.; also, Max Serinj^, "Die Handelspoliiik der Gross-machte und die Kriegsflotie," op. cit.. Vol. II, pp. 32 ff.

^ See above, pp. 55 t.


S t a t e s t h a t t h e G e r m a n D y e s t u f f V e r e i n w i l l n o t ' p e r m i t ' t h e e s t a b

l i s h m e n t of a n A m e r i c a n d y e s t u f f i n d u s t r y . ' " " T h e R u s s i a n s l i k e w i s e

c o m p l a i n e d t h a t t h e c o m m e r c i a l t r e a t y w h i c h w a s i m p o s e d o n t h e m

i n t h e c r i t i c a l y e a r 1904 c o n t a i n e d , n o t o n l y v e r y h i g h G e n m a n tar i f f s

a g a i n s t t h e R u s s i a n a g r i c u l t u r a l e x p o r t s , b u t a l s o ve ry l o w R u s s i a n

tar i f f s fo r i n d u s t r i a l i m p o r t s f r o m G e r m a n y , s o t h a t R u s s i a n " i n f a n t

i n d u s t r i e s " s u f f e r e d f r o m a c o n t i n u o u s i m d e m o u r i s h m e n t .

I d o n o t w i s h t o i m p l y t h a t t h e p o l i c y of t r y i n g t o p r e v e n t in

d u s t r i a l i z a t i o n w a s a s i n t e g r a l a p a r t of G e r m a n f o r e i g n e c o n o m i c

p o l i c i e s b e f o r e t h e F i r s t W o r l d W a r a s i t h a s b e e n r e c e n t l y . B u t

a t t e m p t s i n t h i s d i r e c t i o n c e r t a i n l y e x i s t e d , a n d they w e r e suf f ic ient

t o a r o u s e w i d e s p r e a d a p p r e h e n s i o n a n d n a t i o n a l r e s e n t m e n t a b r o a d .

O f t e n t h e s e t t i n g u p o f G e r m a n i n d u s t r i e s a b r o a d w a s c o n s t r u e d

s i m p l y a s a n a t t e m p t b y G e r m a n y t o s u p e r v i s e t h e i n d u s t r i a l i z a t i o n

of o t h e r c o u n t r i e s w h e n s h e w a s u n a b l e t o p r e v e n t it e n t i r e l y . "

T h u s , t h e m i s t a k e n i d e a t h a t G e r m a n f o r e i g n t r a d e w a s threa t

e n e d w i t h c o l l a p s e i f t h e a g r i c u l t u r a l c o u n t r i e s b e c a m e i n d u s t r i a l

i z e d h a d m o s t s e r i o u s c o n s e q u e n c e s f o r p e a c e f u l i n t e r n a t i o n a l

r e l a t i o n s . A n t i c i p a t i o n of th i s d e v e l o p m e n t p r o d u c e d a w e i g h t y

a r g u m e n t f o r a g r i c u l t u r a l p r o t e c t i o n , w h e r e a s s i m u l t a n e o u s e f fort s

t o s t a v e i t off c o n t r i b u t e d t o t h e p o l i c y of n a v a l a r m a m e n t s a n d l e d

t o a first a t t e m p t o n t h e p a r t o f G e r m a n y t o s h a p e t h e e c o n o m i c

d e v e l o p m e n t of o t h e r s o v e r e i g n c o u n t r i e s . A l l t h e s e p o l i c i e s of I m

p e r i a l G e r m a n y h a v e b e e n c a r r i e d f o r w a r d by t h e N a t i o n a l S o c i a l i s t

g o v e r n m e n t .

W e d o n o t s u g g e s t t h a t t h e t r a d i t i o n a l c o n c e p t o f t h e c o m m o d i t y -

s t r u c t u r e o f w o r l d t r a d e i s a l o n e r e s p o n s i b l e f o r t h e e m e r g e n c e of

t h e s e p o l i c i e s . C o n s i d e r a t i o n s of e c o n o m i c a n d p o l i t i c a l p o w e r

w o u l d a m p l y w a r r a n t a n a t t e m p t t o p r e v e n t t h e i n d u s t r i a l i z a t i o n

o f a g r i c u l t u r a l c o u n t r i e s ; a n d , f r o m t h e p u r e l y e c o n o m i c s t a n d p o i n t ,

i t is a l s o u n d e r s t a n d a b l e t h a t G e r m a n i n d u s t r i e s t r i e d t o b a r t h e

e s t a b l i s h m e n t of p o s s i b l e c o m p e t i t o r s a b r o a d . T h e p o l i c y of a g r i

c u l t u r a l p r o t e c t i o n a n d n a v a l a r m a m e n t s c a n a l s o b e e x p l a i n e d i n

"Speech of Oclober i6, 1917. quoted from Bureau of Foreign and Domestic Commerce, German Trade and the War (Washington, 1918), p. 15; cf. also the preface of A. Mitchell Palmer, wartime United St.Ttes Alien Property Custodian, m Stanley FrcBt, Germany's New War Against America {New Vork, 1919).

" C(. Henri Hauser, Les methodes allemandes d'expansion economique (Paris, '0'5)> (English translation, Germany's Commercial Grip on the World [New York, 1917]), pp. 250-851. Also see above, p. 56.


t e r m s of c l a s s o r n a t i o n a l p o w e r i n t e r e s t s . T h e t r a d i t i o n a l v i e w o f

t h e c o m m o d i t y - s t r u c t u r e of xvorld t r a d e m a y t h e n b e c o n s i d e r e d a s

a r a t i o n a l i z a t i o n o f t h e s e i n t e r e s t s i n t e r m s of e c o n o m i c a n a l y s i s . B u t

u n d o u b t e d l y t h i s v e r y r a t i o n a l i z a t i o n g a v e a n a d d e d w e i g h t a n d im

p e t u s t o t h e i r p u r s u i t .

I f w e r e f e r t o a h i s t o r i c a l p a r a l l e l , w e m a y say t h a t it w o u l d cer

t a i n l y b e w r o n g t o r e g a r d m e r c a n t i l i s t v i e w s o n t h e b a l a n c e of t r a d e

a s e n t i r e l y r e s p o n s i b l e f o r the a g g r e s s i v e c o m m e r c i a l p o l i c i e s of t h e

s e v e n t e e n t h a n d e i g h t e e n t h c e n t u r i e s . B u t s u p p o s e d i n t e r e s t s p l a y

t h e i r p a r t i n s h a p i n g a c t i o n s , a n d e c o n o m i c t h e o r i e s p l a y t h e i r p a r t

i n c r e a t i n g i n t e r e s t s . I n t h i s s e n s e b o t h t h e m e r c a n t i l i s t t h e o r y o f

t h e b a l a n c e of t r a d e a n d t h e i d e a t h a t w o r l d t r a d e c a n o n l y b e b a s e d

u p o n t h e d i v i s i o n of l a b o r b e t w e e n i n d u s t r i a l a n d a g r i c u l t u r a l

c o u n t r i e s h a d a d i s r u p t i v e effect o n i n t e r n a t i o n a l e c o n o m i c a n d p o

l i t i c a l r e l a t i o n s .

A n y f u t u r e r e c o n s t r u c t i o n of w o r l d t r a d e s h o u l d t a k e i n t o a c c o u n t

t h e c o m p l e x i t y o f i ts s t r u c t u r e w h i c h o u r s t a t i s t i c s r e v e a l . O n t h e

o n e h a n d , i t is c e r t a i n l y n e c e s s a r y to e r a d i c a t e t h e a t t i t u d e o f m a n y

n a t i o n s w h i c h feel d e g r a d e d if they d o n o t p r o d u c e t h e i r o w n re

f r i g e r a t o r s a n d t h e i r o w n a u t o m o b i l e s . B u t it is e q u a l l y i m p o r t a n t

f o r t h e i n d u s t r i a l n a t i o n s n o t to fee l a l a r m e d a t t h e e s t a b l i s h m e n t of

a n y n e w i n d u s t r y i n a n y c o u n t r y c l a s s i f i e d a s " a g r i c u l t u r a l . "

W e h a v e t o u c h e d h e r e u p o n t h i s f e e l i n g of a l a r m a n d i t s c o n s e

q u e n c e s o n l y s o f a r a s G e r m a n y is c o n c e r n e d . B u t i t h a s b e e n a

f e a t u r e of a l l c o u n t r i e s w h i c h h a v e a r r i v e d a t i n d u s t r i a l m a t u r i t y .

A n a n c i e n t s t a t u t e , m o r e h o n o r e d b y t h e b r e a c h t h a n by o b s e r v a n c e ,

p r o h i b i t i n g t h e e x p o r t of m a c h i n e r y w a s r e p e a l e d i n E n g l a n d a c e n

t u r y a g o . B u t t h e o l d b e l i e f t h a t e x p o r t s of t h i s c a t e g o r y m e a n s

p o l i t i c a l a n d e c o n o m i c s u i c i d e f o r t h e " o l d " c o u n t r i e s h a s n e v e r

b e e n a b a n d o n e d , i n p a r t , we s u s p e c t , b e c a u s e i t r e i n t r o d u c e s t h e

c l a s s i c a l e l e m e n t o f t r a g i c f a t a l i t y i n t o m o d e m l i fe . T h e p o l i c y of

a l l c o u n t r i e s d u r i n g t h e p e r i o d of m e r c a n t i l i s m w a s t o p r e v e n t t h e

s p r e a d i n g o u t of t h e i r p a r t i c u l a r s k i l l s a n d i n d u s t r i a l a r t s . B u t th i s

v e s t i g e o f m e r c a n t i l i s m h a s a s s u m e d a m o s t b e g u i l i n g d i s g u i s e — t h a t

I o f t h e m a i n t e n a n c e of a " s o u n d " i n t e r n a t i o n a l d i v i s i o n o f l a b o r .

A n e n c o u r a g i n g a s p e c t o f p r e s e n t t h o u g h t o n p o s t w a r r e c o n s t r u c

t i o n i s t h e r e f o r e t h e r a d i c a l c h a n g e f r o m t h e t r a d i t i o n a l o u t l o o k

i n t h i s r e s p e c t . T o d a y , s c h e m e s f o r t h e f u t u r e i n d u s t r i a l i z a t i o n o f


Y e a r C i ) ' (3)t (3)t (4)S T o t a l (s)

1 9 2 5 1 2 . 6 3 9 . 6 1 8 . 2 2 9 , 6 1 0 0 . 0

1 9 2 6 1 0 . 7 3 9 . 1 1 9 . 2 3 1 , 0 1 0 0 . 0

J 9 2 7 1 1 . 6 3 8 . 7 1 9 . 9 2 9 . 8 1 0 0 . 0

1 9 2 8 1 1 . 5 3 8 . 9 2 0 , 4 2 9 . 2 1 0 0 . 0

1 9 2 9 9 . 7 3 8 , 3 2 0 . 5 3 1 . 5 1 0 0 . 0

1 9 3 0 1 2 . 5 3 8 . 2 2 1 . 7 2 7 , 6 1 0 0 . 0

1 9 3 1 1 5 . 9 3 7 . 0 2 2 . 7 2 4 . 4 1 0 0 . 0

1 9 3 2 1 5 . 5 3 7 . 1 2 0 . 1 2 7 . 3 1 0 0 , 0

1 9 3 3 1 4 . 8 3 6 . 5 2 0 . 0 2 8 . 7 1 0 0 , 0

1 5 . 0 3 5 . 7 1 9 . 8 2 9 . 5 1 0 0 . 0

1 9 3 5 1 3 . 0 3 6 . 0 1 8 . 7 3 2 , 3 1 0 0 . 0

1 9 3 6 13.7 3 4 . 4 1 8 . 3 3 3 . 6 1 0 0 . 0

1 9 3 7 . 1 4 . 1 3 4 . 7 1 8 , 5 3 2 . 7 1 0 0 . 0

* Excbflnge of commodities against "invisible items."

5 Exchange of foodatuffa and raw materials againat foodatuils and raw materials. Exchange of manufactures against rnanufacrures.

i Exchange of manufactures against foodstuffs and raw materials.

b e t w e e n the var ious countr ies a n d parts of the w o r l d . B u t it is h ighly

i m p r o b a b l e that any particular p a t t e r n of the internat ional divi

sion of labor w i l l last forever. T h e transit ion from o n e pat tern to

a n o t h e r w i l l certainly i n v o l v e the d r y i n g u p of certain types of com

m o d i t y flows and the o p e n i n g u p of n e w types. Such a transit ion wi l l

present many adjustment difficulties w h i c h m i g h t best be solved by

the establ ishment and extens ion of effective internat ional controls .

B u t to c o n c l u d e that w o r l d trade is d o o m e d because the tradi t ional

pattern of the internat ional division of labor seems i m p e r i l e d is one

of these flights of the i m a g i n a t i o n at the start of w h i c h w e find a lack

of real i m a g i n a t i o n : an incapacity to conceive o f a state of affairs

radically different from that w i t h w h i c h we h a v e b e e n a c q u a i n t e d .

u n d e r d e v e l o p e d countries , such as C h i n a a n d those in southeastern

E u r o p e , are proposed and discussed in many quarters ; a n d the future

e c o n o m i c mission of the o l d e r industr ia l countr ies is conce ived less

as the m e c h a n i c a l v;orkshop of the w o r l d than as the in i t iator and

educator in industrial processes.

Internat ional trade has n o t h i n g to fear f r o m these d e v e l o p m e n t s ,

since there w i l l p r o b a b l y always r e m a i n a frui t ful d iv is ion of labor

T A B L E 1 1

PERCENTAGE DISTRIBUTION OF THE TOTAL TRADE OF FOKTV-SEVEN COUNTRIES IN ACCORDANCE WITH THE VARIOUS TYPES OF INTERCHANGE (1925-1937)

APPENDIXES

A P P E N D I X A

Note on Statistical Methods

The index of preference for small trading countries ( C h a p t e r V ) . — A c c o r d i n g t o t h e n o t a t i o n a d o p t e d o n p a g e 87 a n d f o U o w i n g , w e h a v e t h r e e s e r i e s :

1) T h e t o t a l a m o u n t s o f e x p o r t s o f t h e v a r i o u s c o u n t r i e s w i t h w h i c h X t r a d e s , d e n o t e d b y E^, E^, • • • , E^ ;

2) T h e v a r i o u s a m o u n t s o f i m p o r t s t a k e n b y c o u n t r y X f r o m t h e s e c o u n t r i e s , d e n o t e d b y i , , - • • , \̂ ;̂

3) T h e r a t i o s o f p e r c e n t a g e s r e s u l t i n g f r o m t h e d i v i s i o n o f t h e e l e m e n t s

o f s e r i e s (2) b y t h e e l e m e n t s o f s c r i e s (1) d e n o t e d b y ^ » > ' ' ' > ̂ •

E l E2 E n

I n o r d e r t o s t u d y t h e p r e f e r e n c e o f X ' s i m p o r t s f o r s m a l l t r a d i n g c o u n t r i e s , w e a r e i n t e r e s t e d , n o t i n t h e c o r r e l a t i o n b e t w e e n s e r i e s ( i ) a n d (2),

w h i c h i s a l m o s t c e r t a i n t o b e p o s i t i v e , b u t i n t h e c o r r e l a t i o n b e t w e e n s e r i e s (1) a n d (3). T h e coe f f i c i ent o f c o r r e l a t i o n f o r t h e s e t w o s e r i e s c a n b e w r i t t e n , a c c o r d i n g t o t h e p r o d u c t - m o m e n t f o r m u l a , a s f o l l o w s :

V(EK-ME) f^-Mi/E^

( a ) r = h ^15 L w h e r e ME i s t h e a r i t h m e t i c m e a n o f s e r i e s (1) a n d i t s s t a n d a r d d e v i a t i o n , a n d w h e r e M i / ^ i s t h e a r i t h m e t i c m e a n ( u n w e i g h t e d a v e r a g e ) o f t h e r a t i o s c o m p o s i n g s e r i e s (3) a n d O-,/E t h e i r s t a n d a r d d e v i a t i o n .

B y m u l t i p l y i n g • ffi/E ̂ "^^ d e v e l o p i n g t h e r i g h t s i d e , w e o b t a i n :

( b ) r • ffE • ffi/E = M i - ME • M-JE

w h e r e Mj i s t h e a r i t h m e t i c m e a n o f c o u n t r y X ' s i m p o r t s f r o m t h e v a r i o u s c o u n t r i e s [ s c r ie s (2)].

I n t r o d u c i n g t h e coe f f i c i ent s o f v a r i a t i o n

VE = IVi/E = ME Mi/E

a n d d i v i d i n g b y ME • MJ/E , e x p r e s s i o n ( b ) g i v e s

M , ^ r • VE • Vi/E = - - - I ME • Mi/E

['551

156 Appendix

( c ) : . ^ = I

M j I + r • VE • Vi/E ME

T h e left s ide of th i s e q u a t i o n is t h e q u o t i e n t o f t h e u n w e i g h t e d a n d t h e w e i g h t e d a v e r a g e o f t h e r a t i o s a c q u i r e d b y c o u n t r y X i n t h e e x p o r t s o f its t r a d i n g p a r t n e r s ; or , in o t h e r w o r d s , it is (he a v e r a g e o f the r a t i o s d i v i d e d by the r a t i o o f t h e a v e r a g e s . T h e i n d e x o f p r e f e r e n c e for s m a l l c o u n t r i e s c a l c u l a t e d b y u s is n o t h i n g b u t this e x p r e s s i o n m u l t i p l i e d for c o n v e n i e n c e by 100. T h e r i g h t s i d e of t h e e x p r e s s i o n c o n t a i n s t h e j u s t i fication of the i n d e x . B y r we h a v e e x p r e s s e d t h e c o r r e l a t i o n b e t w e e n t h e t r a d e to ta l s o l t h e v a r i o u s c o u n t r i e s a n d the p e r c e n t a g e s a c q u i r e d in these t o t a l s b y the t r a d e of c o u n t r y X . T h e i n d e x of p r e f e r e n c e is t h e r e f o r e e q u a l t o 100 w h e r e t h e r e is n o c o r r e l a t i o n ; it is s u p e r i o r t o 100 w h e n t h e c o r r e l a t i o n is n e g a t i v e { h i g h p e r c e n t a g e s a s s o c i a t e d w i t h s m a l l t r a d e t o t a l s ) ; a n d it is i n f e r i o r to 100 w h e n t h e c o r r e l a t i o n is p o s i t i v e .

T h e v a l u e o f r d e t e r m i n e s , t h e r e f o r e , w h e t h e r t h e p r e f e r e n c e of a c o u n t r y ' s t r a d e is o n t h e w h o l e for t h e l a r g e o r for t h e s m a l l t r a d i n g c o u n t r i e s , a n d it a l s o d e t e r m i n e s t h e s t r e n g t h of th i s p r e f e r e n c e . T h e p r e s e n c e i n o u r f o r m u l a of the t w o coefficients o f v a r i a t i o n , h o w e v e r , m e a n s tha t , w i t h a g i v e n p o s i t i v e (or n e g a t i v e ) v a l u e o f r, t h e p r e f e r e n c e for l a r g e (or s m a l l ) t r a d i n g c o u n t r i e s i n c r e a s e s w i t h t h e r e l a t i v e disp e r s i o n of the two ser ies . T h a t this is fu l ly ju s t i f i ed , g i v e n t h e p h e n o m e n o n w e w a n t t o m e a s u r e , m a y eas i ly b e s e e n b y s u p p o s i n g t h a t c o u n t r y X t r a d e s o n l y w i t h two c o u n t r i e s o f u n e q u a l s i ze ; t h e n , t h e v a l u e o f r is nece s sa r i ly :±: 1, p r o v i d e d o n l y t h a t the v a l u e o f t h e t w o p e r c e n t a g e s o r o f t h e t w o e x p o r t to t a l s is n o t the s a m e ( in these , r w o u l d b e o ) . B u t t h e p r e f e r e n c e f o r t h e l a r g e o r t h e s m a l l t r a d i n g c o u n t r i e s is t h e m o r e p r o n o u n c e d the g r e a t e r t h e d i f fe rence b e t w e e n t h e two p e r c e n t a g e s a c q u i r e d in the t r a d e o f t h e two c o u n t r i e s a n d a l s o t h e g r e a t e r t h e differe n c e b e t w e e n t h e v o l u m e s o f t o t a l t r a d e of t h e t w o c o u n t r i e s w i t h w h i c h X t r a d e s . T h e first p o i n t i s o b v i o u s , a n d t h e v a l i d i t y o f t h e s e c o n d b e c o m e s c l ea r if w e c o n s i d e r t h a t o u r p h e n o m e n o n increa se s a l s o w h e n , w i t h a n u n c h a n g e d d i s t r i b u t i o n of X ' s t r a d e , the t r a d e to ta l s o f its t r a d i t i g p a r t n e r s c h a n g e so a s to m a k e t h e s m a l l t r a d i n g c o i m t r i e s s m a l l e r a n d t h e l a r g e t r a d i n g c o u n t r i e s s t i l l l a rger .

T h e fact tha t , i n a d d i t i o n t o r, o u r e x p r e s s i o n c o n t a i n s o n l y the two coefficients o f v a r i a t i o n s h o w s t h a t o u r i n d e x is a p u r e n u m b e r h a v i n g n o r e f e r e n c e to a n y u n i t o f m e a s u r e m e n t . T h i s w o u l d n o t h a v e b e e n t r u e if w e h a d f o r m e d t h e d i f fe rence i n s t e a d of t h e q u o t i e n t o f t h e w e i g h t e d a n d u n w e i g h t e d a v e r a g e s . '

^ T h i s difference could have been formed by div iding equat ion (b) above by Mb only. W e w o u l d then have obta ined an expression which is due to Kar l Pearson, the derivat ion of which may be found in G. tl. Y u l e a n d M. G. K e n d a l l , An Introduction to the Theory of Slalisiics {London, 1940), p p . 302-304.

Appendix 5̂7 O u r measure should be capable of render ing services in the measure

m e n t of s imilar p h e n o m e n a in economic and d e m o g r a p h i c statistics. T h u s , for instance, the attraction of certain sections of the p o p u l a t i o n according to re l ig ion, profession, etc., to small or large cities c o u l d be measured in similar ways.

The index of concentration (Chapter I V ) . — T h e statistical treatment of the concept of concentrat ion is historical ly connected wi th the measurem e n t of income concentration. Some indices devised for this purpose.

D X f

R

such as Pareto's, are parameters of certain functions describing the income distr ibution. A m o n g the devices which, on the contrary, are independent of the part icular function to w h i c h the income distribution m i g h t b e fiited, the best k n o w n is the L o r e n z curve which, as has b e e n shown mainly by Ital ian statisticians, is closely connected wi th the various measures of relative dispersions.^

* \n f i g u r e 3, O C B is t h e L o r e n z c u r v e a n d O B t h e e q u i d i s t r i b u t i o n l i n e , i .e. , t h e l i n e w i t h w h i c h the L o r e n z c u r v e w o u l d c o i n c i d e if t h e r e w e r e n o c o n c e n t r a t i o n . T h e l e n g t h o t O A a n d o f A E is u n i t y . T h e n , if we d r a w a l i n e v e r t i c a l l y t h r o u g h the m i d p o i n t (G) o f 0.\, t h e s e g m e n t F E o f t h i s l i n e c o n t a i n e d b e t w e e n t h e L o r e n z c u r v e a n d t h e e q u i -d i s i r i b t j t i o n l i n e i s h a l f t h e q u o t i e n t of t h e m e a n d e v i a t i o n f r o m t h e m e d i a n a n d t h e m e a n . H we d r a w a p a r a l l e l to the e q i n d i s t r i b u t i o n l i n e s o a s t o m a k e it t a n g e n t i a l to t h e L o r e n z c u r v e a n d d r a w a ver t i ca l l i n e t h r o u g h t h e p o i n t o f t a n g e n c y C , t h e s e g m e n t C D o f th i s l i n e is e q u a l to h a l f t h e q u o t i e n t o f i h e m e a n d e v i a t i o n f r o m t h e

158 Appendix

Concentrat ion of income a n d inequal i ty of distr ibution of income are o n e a n d the same thing. T h e n u m b e r of income receivers is irrelevant for the concept of income concentration, as has been stated expl ic i t ly by D. B. Y n t e m a in a study o£ the various indices proposed. ' In various instances, however, the n u m b e r of elements in a series the concentrat ion of w h i c h is be ing measured is an important consideration. T h i s is so whenever concentrat ion means "control by the few," i.e., part icular ly in connect ion w i t h market p h e n o m e n a . C o n t r o l of an industry by few producers can be b r o u g h t about by equal i ty of distr ibution of the indiv iduai o u t p u t shares w h e n there are m a n y producers or by the fact that only few producers exist. O n e of the wel l -known conditions of perfect compet i t ion is that n o i n d i v i d u a l seller s h o u l d c o m m a n d a n i m p o r t a n t share of the total market supply; this condit ion implies the presence of both relative equal i ty of distr ibution and of large numbers. T h e not ion of concentrat ion w h i c h one has in m i n d w h e n speaking of industrial concentrat ion is thus seen to be m o r e c o m p l e x than the concept of income concentrat ion. T h e r e f o r e , the methods w h i c h h a v e b e e n devised to measure the concentrat ion of income are inadequate for the measurement of the concentrat ion p h e n o m e n o n w i t h w h i c h we are here concerned. A n extreme case is this: If we w o u l d try in read off from a Lorenz graph the degree of concentrat ion of an industry in which two firms divided between themselves the total o u t p u t , w e w o u l d h a v e t o conclude that, because the L o r e n z curve w o u l d coincide with the equidistr ibut ion l ine, there is no concentrat ion. '

Concentrat ion of control or of p o w e r over a corporat ion, over the market in one industry, or over the loreign trade is not only a direct funct ion of the relat ive inequal i ty of distribvuion or dispersion, b u t also a reciprocal funct ion of the n u m b e r of stockliolders, of p r o d u c i n g firms in the industry, a n d of i m p o r t i n g a n d e x p o r t i n g coimtries.

m e a n a n d t h e m e a n . F i n a l l y , t h e a r e a b o u n d e d b y the L o r e n z c u r v e a n d t h e e q u i d i s t r i b u t i o n l i n e , i t d i v i d e d b y t h e t r i a n g l e O A B . c a n b e 5 h o w n to r e s u l t in t h e q u o t i e n t ot t h e " m e a n d i f f e r e n c e " a n d t h e m e a n . T h e " m e a n d i i t e r e n c e " is a m e a s u r e o f disp e r s i o n p r o p o s e d by C o r r a d o G i n i ; it c o n s i s t s i n t h e a v e r a g e o f a l l t h e d i f f e rence s w h i c h c a n b e f o r m e d b e t w e e n the e l e m e n t s ot a s t a t i s t i c a l s e r i e s . T h e e a s y p r o o f s of t h e s e t h e o r e m s c a n b e f o u n d i n G i n i , " S u l l a m i s u r a d e l l a c o n c e n t r a i i o n e e s u U a v a r i a -b i l i t a de i c a r a t t e r i , " Jiir del R. Insiiiuto Veneto ds Scienze, Lellere e Arti, V o l . L X X I V , P a r t I I ( 1 9 1 3 - 1 9 1 4 ) , p p . 1 2 2 9 - 1 2 3 3 , a n d G a e t a n o P i e t r a , " D e l l e r e l a z i o n i f r a g l i i n d i c i d i v a r j a b i l i t a , " op. cit., V o L L X X I V , P a r r I I , p p . 775-7*^4.

° D . B . Y n t e m a , " M e a s u r e s o f t h e I n e q u a l i t y in t h e P e r s o n a l D i s t r i b u t i o n o f W e a l t h a n d I n c o m e , " / o u r n a ^ of the American Siafistical Association, V o l . 28 ( D e c e m b e r , 1933),

P - 4 2 s -

• T h i s s h o r t c o m i n g of t h e L o r e n z c u r v e h a s b e e n r e c o g n i z e d i n M o n o g r a p h N o . 30

of t h e Temporary National Economic Committee, " S u r v e y o f S h a r e h o l d i n g s in 1 7 1 0

C o r p o r a t i o n s w i t h S e c u r i t i e s L i s t e d o n a N a t i o n a l S e c u r i t i e s E x c h a n g e " ( W a s h i n g t o n , 1941) , p a g e 48, n o t e 3. A s a r e m e d y t h e a u t h o r s p r o p o s e l o a d d to t h e L o r e n z c u r v e " a s e c o n d a n d e n t i r e l y i n d e p e n d e n t f i g u r e , t h e r e c i p r o c a l of t h e n u m b e r o f s h a r e h o l d e r s . " T h i s c u m b e r s o m e p r o c e d u r e w o u l d b e r e n d e r e d u n n e c e s s a r y b y t h e a d o p t i o n o f a n i n d e x t a k i n g i n t o a c c o u n t b o t h f a c t o r s u p o n w h i c h c o n c e n t r a i i o n d e p e n d s .

Appendix 1 5 9

A s a n i n d e x , m e e t i n g t h e s e t w o r e q u i r e m e n t s , w e p r o p o s e t h e s q u a r e r o o t o f t h e s u m of t h e s q u a r e of t h e e J e m e n t s in t h e s c r i e s w h e n t h e s e e l e m e n t s a r e e x p r e s s e d a s p e r c e n t a g e s of the i r s u m s .

I f a^, a , , • . . , a^, • • • , a r e t h e e l e m e n t s of a n u n g r o u p e d s t a t i s t i ca l

ser ies , a n d if w e h a v e ^ h k = A , t h e n t h e i n d e x is

T o p r o v e t h a t this i n d e x fulf i l ls t h e t w o r e q u i r e m e n t s o u t l i n e d a b o v e , w e s h a l l d e v e l o p t h e s t a n d a r d d e v i a t i o n of t h e ser ies , t h e a r i t h m e t i c mean

of w h i c h i s e q u a l to ~ . n

11 S q u a r i n g a n d m u l t i p l y i n g b y n ,

J \ ri / I n A^

D i v i d i n g b y — , a n d r e a r r a n g i n g , w e h a v e n

. n ( I ) A«

I n o r d e r t o c o m p a r e t h e d i s p e r s i o n s of ser ies w i t h d i f ferent a r i t h m e t i c m e a n s , o n e u s e s the coefficient of v a r i a t i o n

^ ^ s t a n d a r d d e v i a t i o n

m e a n

T h e r e f o r e , b y s u b s d t u t i n g i n ( i )

w e m a y w r i t e v= + i = •

(2) C = i o o , / Z ± I » n

i6o Appendix

T h i s r e s u l t s h o w s c l e a r l y t h a t t h e t w o c o n d i t i o n s w h i c h a n y i n d e x oE o u r c o n c e p t of c o n c e n t r a t i o n s h o u l d m e e t a r e fu l ly r e a l i z e d by t h e m e a s u r e i iere p r o p o s e d : I t i n c r e a s e s w i t h t h e r e l a t i v e d i s p e r s i o n v a n d decreases w i t h t h e n u m b e r n of t h e e l e m e n t s of t h e ser ies .

O b j e c t i o n m i g h t b e r a i s e d t h a t a n y n u m b e r of i n d i c e s s a t i s f y i n g t h e t w o c o n d i t i o n s c o u l d b e d e v i s e d a n d t h a t t h e a d o p t i o n of o u r i n d e x c o u l d o n l y b e t h e r e s u l t o f a n a r b i t r a r y cho ice . O u r r e p l y is t h a t it h a s a l w a y s b e e n t h e p r o b l e m o f d e s c r i p t i v e s t a t i s t i c s t o s u b s t i t u t e s o m e specific a l g e b r a i c f u n c t i o n for a b r o a d t y p e of " b e h a v i o r " r e q u i r e d by the c h a r a c t e r i s t i c s of t h e p h e n o m e n o n w h i c h is to b e m e a s u r e d . T h e cho ice of t h e speci f ic f u n c t i o n is g e n e r a l l y m a d e o n g r o u n d s of s i m p l i c i t y , intell i g i b i l i t y , e x p e d i e n c y , o r c o n n e c t i o n w i t h m a t h e m a t i c a l s ta t i s t ic s . A l l these r e a s o n s f a v o r t h e a d o p t i o n of o u r i n d e x :

1 ) it is d i r e c t l y a n d s i m p l y r e l a t e d to t h e s t a n d a r d d e v i a t i o n w h i c h , for t h e v e r y r e a s o n s j u s t s t a t e d , i s t h e m o s t g e n e r a l l y a c c e p t e d m e a s u r e of d i s p e r s i o n ;

2) it evo lves , as w a s s h o w n a b o v e (p . 156), f r o m o to lOO, a c l e a r a d v a n t a g e for t h e i n t e r p r e t a t i o n of the v a r i o u s v a l u e s of the i n d e x ;

3) t h e i n d e x is eas i ly i n t e l l i g i b l e a n d r e a d i l y c a l c u l a b l e . T h e ser ies t h e c o n c e n t r a t i o n of w h i c h w e w a n t to m e a s u r e is o f ten g i v e n in p e r c e n t a g e f o r m a l r e a d y in t h e s t a t i s t i c a l s o u r c e m a t e r i a l (as , e.g., in t h e s ta t i s t ic s r e l a t i n g t o t h e d i s t r i b u t i o n of f o r e i g n t r a d e a c c o r d i n g t o c o u n t r i e s o f d e s t i n a t i o n a n d o r i g i n ) . I f this is so , t h e c o m p u l a t i o n of o u r i n d e x is c o n s i d e r a b l y ea s i e r t h a n t h a t o f t h e s t a n d a r d d e v i a t i o n , as a l l o n e h a s t o d o is t o s q u a r e t h e p e r c e n t a g e s a n d e x t r a c t the s q u a r e r o o t f r o m the s u m of t h e s q u a r e s .

Applications of the index of concentration to grouped or incomplete data.—A f inal a d v a n t a g e of t h e i n d e x is t h a t it is a p p l i c a b l e to g r o u p e d or i n c o m p l e t e d a t a . I n p r o b l e m s of g e o g r a p h i c a l c o n c e n t r a t i o n , e.g. , c o n c e n t r a t i o n of r e s o u r c e s , o f p r o d u c t i o n , a n d of f o r e i g n t r a d e a c c o r d i n g to c o u n t r i e s , it is o f t e n p o s s i b l e to k n o w the d i s t i n c t v a l u e of every s i n g l e i t e m e n t e r i n g i n t o t h e d i s t r i b u t i o n . A s 10 i n d u s t r i a l c o n c e n t r a t i o n , t h e h e a r i n g s b e f o r e the T e m p o r a r y N a t i o n a l E c o n o m i c C o m m i t t e e h a v e disc l o s e d s o m e of t h e p r o d u c t i o n d a t a for s i n g l e firms in c e r t a i n b r a n c h e s of i n d u s t r y , e.g. , the p e t r o l e u m i n d u s t r y . B u t , g e n e r a l l y , d a t a r e l a t i n g to ac t iv i t i e s of s i n g l e firms or c o r p o r a t i o n s a r e w i t h h e l d f r o m the p u b l i c , a n d s p e c i a l p r e c a u t i o n s a r e o f t e n t a k e n to this e n d in p r e s e n t i n g t h e stat ist ics .^ B u t e v e n w h e n n o i n d i v i d u a l d a t a a r e a c c e s s i b l e the apph'ca-l i o n of t h e i n d e x is p o s s i b l e w h e n s o m e w h a t d e t a i l e d f r e q u e n c y d i s t r i b u t i o n s a r e a v a i l a b l e . T h e s e d i s t r i b u t i o n s g i v e for de f in i te asset c las ses t h e n u m b e r of e n t e r p r i s e s a n d the a m o u n t of assets . A s s u m i n g e q u a l dis tr i-

* In the statistics of income of corporations, two income groups are classed together whenever in one class there is only one corporaton. For an analogous precaution, see National Resources Committee, Tlie Structure oj the American Economy, Part I (Washington, 1939-194*^). P- 262,

Appendix i 6 i

100 100

b u t i o n w i t h i n t h e f r e q u e n c y c l a s s e s — t h e s a m e a s s u m p t i o n is i m p l i e d w h e n i n a L o r e n z g r a p h — o n e d r a w s a s t r a i g h t l i n e f r o m o n e k n o w n p o i n t t o t h e n e x t . I t is t h u s p o s s i b l e t o g i v e d e f i n i t e v a l u e s t o e v e r y s i n g l e i t e m t h r o u g h d i v i d i n g t h e a m o u n t o f a s s e t s b y t h e n u m b e r o f e n t e r p r i s e s t o w h i c h t h e y b e l o n g .

T h i s p r o c e d u r e o f c o u r s e e n t a i l s a c e r t a i n a m o u n t o f e r r o r ( t h e n a r r o w e r t h e f r e q u e n c y c l a s s e s , t h e l e s s t h i s e r r o r w i l l b e ) , b u t t h i s e r r o r is l i m i t e d a n d is a l w a y s i n t h e s a m e d i r e c t i o n , s i n c e t h e v a l u e o f t h e i n d e x w i l l n a t u r a l l y a l w a y s b e l o w e r t h a n i t w o u l d h a v e b e e n h a d t h e e x a c t v a l u e o f t h e s i n g l e i t e m s b e e n k n o w n .

I t s o m e t i m e s h a p p e n s t h a t w e k n o w i n a s e r i e s t h e i n d i v i d u a l s i ze s o f t h e l a r g e s t i t e m s , t h e r e s t b e i n g l u m p e d l o g c i h e r u n d e r t h e h e a d i n g " o t h e r f i r m s , " " o t h e r c o u n t r i e s , " e t c . I n t h i s a l s o t h e a p p r o x i m a t e d e t e r m i n a t i o n o f t h e v a l u e o f t h e i n d e x r e m a i n s f e a s i b l e , a n d w e c a n e v e n s e t a m a x i m u m a n d m i n i m u m l i m i t t o i t s p o s s i b l e v a l u e s . L e t u s s u p p o s e t h a t t h e f o u r l a r g e s t p r o d u c e r s i n a n i n d u s t r y account f o r 40, 25, 10,

a n d 5 p e r c e n t , r e s p e c t i v e l y , o f t h e t o t a l o u t p u t , " o t h e r f i r m s " p r o d u c i n g t h e r e m a i n i n g 20 p e r c e n t . T h e n t h e i n d e x o f c o n c e n t r a i i o n w i l l b e

V 1 6 0 0 -|- 625 -f- 100 + 25 p = \ / 2 g 5 o -f- p , p s t a n d i n g fo r t i i e s u m o f t h e s q u a r e s o f t h e r e m a i n i n g i t e m s . T h e v a l u e o f p d e p e n d s o n t h e s i ze o f t h e s e i t e m s ; a n d ; a s n o i t e m m a y b e l a r g e r " t h a n 5, t h e s m a l l e s t o f t i i e f o u r l a r g e s t p e r c e n t a g e s , t h e u p p e r l i m i t f o r p is 4 X 5 " = l oo- T h e l o w e r l i m i t f o r p is o, w h i c h is a p p r o a c h e d a s w e a s s u m e t h e remaining items a l w a y s to b e s m a l l e r i n s i z e a n d l a r g e r in n u m b e r . I f w e k n o w t h e n u m b e r o f t h e r e m a i n i n g i t e m s , t h e l o w e r l i m i t r i s e s t o t h e v a l u e g i v e n b y t h e a s s u m p t i o n o f n o d i s p e r s i o n , i .e . , o f e q u a l i ty o f a l l i t e m s . T h u s , if t h e r e m a i n i n g i t e m s , m a k i n g u p a t o t a l o f 20 p e r c e n t , a r e t e n i n n u m b e r , t h e l o w e r l i m i t f o r p w o u l d b e 10 X 2^ = 40-

I n o t h e r w o r d s , a s w a s t o b e e x p e c t e d , t h e u p p e r l i m i t o f p i n c r e a s e s w i t h t h e s i ze o f t h e p e r c e n t a g e t o b e a c c o u n t e d fo r b y t h e r e m a i n i n g i t e m s ( le t u s c a l l it k ) . B u t it is o f i n t e r e s t t o n o t e t h a t t h i s u p p e r l i m i t d e p e n d s , f u r t h e r m o r e , o n t h e s i ze o f t h e s m a l l e s t o f t h e k n o w n i t e m s , w h e r e a s t h e l o w e r l i m i t d e p e n d s o n t h e n u m b e r o f t h e r e m a i n i n g i t e m s a n d , g i v e n c o n s t a n t finite n u m b e r s , i n c r e a s e s w i t h k. I t is t h u s s e e n t h a t a n i n c r e a s e o f k d o c s noe lead n e c e s s a r i l y t o a w i d e n i n g o f the h'niits a n d l o a g r e a t e r u n c e r t a i n t y c o n c e r n i n g t h e v a l u e o f t h e c o n c e n t r a t i o n i n d e x . T h i s is s h o w n b y the ioUowing e x a m p l e : ^^^^^^^^ ^ Industry 2

L a r g e s t p r o d u c e r 40 30

S e c o n d l a r g e s t p r o d u c e r . . . 25 20

T h i r d l a r g e s t p r o d u c e r . . . 10 17

F o u r c f i l a r g e s t p r o d u c e r . . . 5 5

T w e n t y r e m a i n i n g i t e m s . . . ^ 20 30

i62 Appendix

S u m o f s q u a r e s o f d e t a i l e d i t e m s 2350 1598

U p p e r l i m i t o f s u m o f s q u a r e s o f u n d e t a i l e d i t e m s 100 90

L o w e r l i m i t o f s u m o f s q u a r e s o f u n d e t a i l e d i t e m s 20 45

I n d e x o f c o n c e n t r a t i o n a s a m e a n o f i t s u p p e r a n d l o w e r l i m i t , w i t h i n d i c a t i o n o f l i m i t s . . 49.1 ± 0.4 40.8 ± 0.3

T h i s e x a m p l e s h o w s a l s o t h a t e v e n w h e n a n a p p a r e n t l y l a r g e p e r c e n t a g e is le f t u n d e t a i l e d b y t h e s t a t i s t i c a l d a t a , a r a t h e r n a r r o w c i r c u m s c r i p t i o n o f t h e v a l u e o f t h e c o n c e n t r a t i o n i n d e x m a y s t i l l b e p o s s i b l e .

A P P E N D I X B

Resolutions of the Paris Economic

Conference of the Allies^ June^ igi6

W E HAVE QUOTED ( on p p . 6 0 -Gi ) the p r e a m b l e t o t h e P a r i s R e s o l u t i o n s . T h e f o l l o w i n g is t h e t e x t o f t h e r e s o l u t i o n s p e r t a i n i n g to p o s t w a r econ o m i c policy.^

B

TRANSITORY MEASURES FOR THE PERIOD OF COMMERCIAL, INDUSTRIAL,

AGRICULTURAL, AND MARITIME RECONSTRUCTION OF

THE ALLIED COUNTRIES

I

T h e A l l i e s d e c l a r e t h e i r c o m m o n d e t e r m i n a t i o n to e n s u r e the re-e s t a b l i s h m e n t of t h e c o u n t r i e s su f f e r ing f r o m acts o f d e s t r u c t i o n , spo l i a t i o n , a n d u n j u s t r e q u i s i t i o n , a n d d e c i d e t o j o i n in d e v i s i n g m e a n s to s e c u r e t h e r e s t o r a t i o n to t h o s e c o u n t r i e s , as a p r i o r c l a i m , of t h e i r r a w m a t e r i a l s , i n d u s t r i a l a n d a g r i c u l t u r a l p l a n t , s tock , a n d m e r c a n t i l e fleet, o r t o ass i s t t h e m to r e - e q u i p t h e m s e l v e s in t h e s e re spec t s .

W h e r e a s t h e w a r h a s p u t a n e n d t o a l l t h e t rea t i e s o f c o m m e r c e b e t w e e n t h e A l l i e s a n d the E n e m y P o w e r s , a n d w h e r e a s it i s o f e s s e n t i a l i m p o r t a n c e t h a t , d u r i n g the p e r i o d of e c o n o m i c r e c o n s t r u c t i o n w h i c h wi l l f o l l ow t h e c e s s a t i o n of hos t i l i t i e s , t h e l i be r ty of n o n e of the A l l i e s s h o u l d b e h a m p e r e d b y a n y c l a i m p u t f o r w a r d b y t h e E n e m y P o w e r s to mostf a v o u r e d - n a t i o n t r e a t m e n t , t h e A l l i e s a g r e e t h a t the bene f i t o f this treatm e n t s h a l l n o t b e g r a n t e d to t h o s e P o w e r s d u r i n g a n u m b e r of y e a r s to b e fixed b y m u t u a l a g r e e m e n t a m o n g t h e m s e l v e s .

D u r i n g th i s n u m b e r of y e a r s t h e A l l i e s u n d e r t a k e to a s s u r e t o e a c h o t h e r so far a s p o s s i b l e c o m p e n s a t o r y o u t l e t s for t r a d e in ca se conseq u e n c e s d e t r i m e n t a l t o the i r c o m m e r c e r e s u l t f r o m t h e a p p l i c a t i o n of the u n d e r t a k i n g r e f e r r e d t o in t h e p r e c e d i n g p a r a g r a p h .

T h e A l l i e s d e c l a r e t h e m s e l v e s a g r e e d t o c o n s e r v e for t h e A l l i e d c o u n tr ies , b e f o r e a l l o t h e r s , the i r n a t u r a l r e s o u r c e s d u r i n g t h e w h o l e p e r i o d

' Quoted from H. W. V, Temperley, A History of the Peace Conference of Paris, Vol. V {Loudon, igai ) ' PP- 3*^7~3^9-

['63]

1 6 4 Appendix

o f c o m m e r c i a l , i n d u s t r i a l , a g r i c u l t u r a l a n d m a r i t i m e r e c o n s t r u c t i o n , a n d for this p u r p o s e they u n d e r t a k e t o e s t a b l i s h s p e c i a l a r r a n g e m e n t s to f a c i l i t a t e t h e i n t e r c h a n g e of these r e s o u r c e s .

IV I n o r d e r to d e f e n d the i r c o m m e r c e , t h e i r i n d u s t r y , t h e i r a g r i c u l t u r e

a n d t h e i r n a v i g a t i o n a g a i n s t e c o n o m i c a g g r e s s i o n r e s u l t i n g f r o m d u m p i n g o r a n y o t h e r m o d e of u n f a i r c o m p e t i t i o n t h e A l l i e s d e c i d e to fix b y a g r e e m e n t a p e r i o d of t i m e d u r i n g w h i c h t h e c o m m e r c e of t h e e n e m y p o w e r s s h a l l b e s u b m i t t e d to s p e c i a l t r e a t m e n t a n d t h e g o o d s o r i g i n a t i n g i n t h e i r c o u n t r i e s s h a l l b e s u b j e c t e d e i t h e r t o p r o h i b i t i o n s o r t o a s p e c i a l r e g i m e of a n effective c h a r a c t e r .

T h e A l l i e s wi l l d e t e r m i n e by a g r e e m e n t t h r o u g h d i p l o m a t i c c h a n n e l s t h e s p e c i a l c o n d i t i o n s to b e i m p o s e d d u r i n g t h e a b o v e - m e n t i o n e d p e r i o d o n t h e s h i p s of the e n e m y p o w e r s .

V T h e A l l i e s wi l l d e v i s e t h e m e a s u r e s t o b e t a k e n j o i n t l y o r s e v e r a l l y for

p r e v e n t i n g e n e m y s u b j e c t s f r o m e x e r c i s i n g , i n the i r t e r r i to r i e s , c e r t a i n i n d u s t r i e s o r p r o f e s s i o n s w h i c h c o n c e r n n a t i o n a l d e f e n c e o r e c o n o m i c i n d e p e n d e n c e .

C

PERMANENT MEASURES OF MUTUAL ASSISTANCE AND COLLABORATION AMONG THE ALLIES I

T h e A l l i e s d e c i d e t o t a k e t h e nece s s a ry s t ep s w i t h o u t d e l a y to r e n d e r t h e m s e l v e s i n d e p e n d e n t of t h e e n e m y c o u n t r i e s i n s o f a r a s r e g a r d s t h e r a w m a t e r i a l s a n d m a n u f a c t u r e d a r t i c l e s e s sent i a l to t h e n o r m a l develo p m e n t of the i r e c o n o m i c ac t iv i t i e s .

T h e s e s t e p s s h o u l d b e d i r e c t e d to a s s u r i n g t h e i n d e p e n d e n c e of the A l l i e s n o t o n l y so f a r as c o n c e r n s t h e i r s o u r c e s of s u p p l y , b u t a l s o a s r e g a r d s the i r financial, c o m m e r c i a l a n d m a r i t i m e o r g a n i z a t i o n .

T h e A l l i e s will a d o p t t h e m e t h o d s w h i c h s e e m to t h e m m o s t s u i t a b l e for the c a r r y i n g o u t of this r e s o l u t i o n , a c c o r d i n g to t h e n a t u r e o f t h e c o m m o d i t i e s a n d h a v i n g r e g a r d to t h e p r i n c i p l e s w h i c h g o v e r n t h e i r e c o n o m i c p o l i c y .

T h e y m a y , for e x a m p l e , h a v e r e c o u r s e e i t h e r t o e n t e r p r i s e s subsid i z e d , d i r e c t e d o r c o n t r o l l e d b y t h e G o v e r n m e n t s t h e m s e l v e s , or t o t h e g r a n t of financial a s s i s t a n c e for t h e e n c o u r a g e m e n t of sc ient i f ic a n d techn ica l r e s e a r c h a n d t h e d e v e l o p m e n t of n a t i o n a l i n d u s t r i e s a n d r e s o u r c e s ; to c u s t o m s d u t i e s o r p r o h i b i t i o n s of a t e m p o r a r y o r p e r m a n e n t c h a r a c ter ; or to a c o m b i n a t i o n of these d i f ferent m e t h o d s .

W h a t e v e r m a y b e t h e m e t h o d s a d o p t e d , t h e o b j e c t a i m e d a t by t h e

Appendix 165

I l l

T h e AHies u n d e r t a k e to c o n v e n e a m e e t i n g of t e c h n i c a l d e l e g a t e s t o d r a w u p m e a s u r e s f o r t h e a s s i m i l a t o n , so f a r a s m a y b e p o s s i b l e , o f the i r l aws g o v e r n i n g p a t e n t s , i n d i c a t i o n s of o r i g i n a n d t r a d e m a r k s .

I n r e g a r d to p a t e n t s , t r a d e m a r k s , a n d l i t e r a r y a n d a r t i s t i c c o p y r i g h t w h i c h h a v e c o m e i n t o e x i s t e n c e d u r i n g the w a r in e n e m y c o u n t r i e s , t h e A l l i e s wi l l a d o p t , so far a s p o s s i b l e , a n i d e n t i c a l p r o c e d u r e , to b e a p p l i e d a s s o o n a s h o s t i l i t i e s cease .

T h i s p r o c e d u r e w i l l b e e l a b o r a t e d b y t h e t e c h n i c a l d e l e g a t e s o f t h e A l l i e s .

D

W h e r e a s for t h e p u r p o s e s of t h e i r c o m m o n d e f e n c e a g a i n s t t h e e n e m y t h e A l l i e d P o w e r s h a v e a g r e e d t o a d o p t a c o m m o n e c o n o m i c p o l i c y , o n t h e l i n e s l a i d d o w n in t h e R e s o l u t i o n s w h i c h h a v e b e e n p a s s e d , a n d w h e r e a s i t i s r e c o g n i z e d t h a t t h e e f fec t ivenes s of t h i s p o l i c y d e p e n d s a b s o l u t e l y u p o n t h e s e R e s o l u t i o n s b e i n g p u t i n t o o p e r a t i o n f o r t h w i t h , t h e R e p r e s e n t a t i v e s of t h e A l l i e d G o v e r n m e n t s u n d e r t a k e t o r e c o m m e n d t h e i r r e s p e c t i v e G o v e r n m e n t s t o t a k e w i t h o u t d e l a y a l l t h e m e a s u r e s , w h e t h e r t e m p o r a r y o r p e r m a n e n t , r e q u i s i t e for g i v i n g f id l a n d c o m p l e t e effect to th i s p o l i c y f o r t h w i t h , a n d to c o m m u n i c a t e to e a c h o t h e r t h e d e c i s i o n s a r r i v e d a t to a t t a i n t h a t o b j e c t .

A l l i e s is t o i n c r e a s e p r o d u c t i o n w i t h i n t h e i r t e r r i tor ie s as a w h o l e to a suff icient e x t e n t t o e n a b l e t h e m t o m a i n t a i n a n d d e v e l o p t h e i r e c o n o m i c p o s i t i o n a n d i n d e p e n d e n c e i n r e l a t i o n to e n e m y c o u n t r i e s .

II

I n o r d e r t o p e r m i t t h e i n t e r c h a n g e of t h e i r p r o d u c t s , t h e A l l i e s u n d e r t a k e t o a d o p t m e a s u r e s for f a c i l i t a t i n g t h e i r m u t u a l t r a d e r e l a t i o n s b o t h by t h e e s t a b h s h m e n t of d i r e c t a n d r a p i d l a n d a n d sea t r a n s p o r t serv ices a t l o w r a t e s , a n d by t h e e x t e n s i o n a n d i m p r o v e m e n t of p o s t a l , teleg r a p h i c , a n d o t h e r c o m m u n i c a t i o n s .

Index

A n g e l l , S i r N o r m a n , l o A u t a r k y , 19 n. , 61 , 79

B a c o n , F r a n c i s , 4

B a l f o u r C o m m i t t e e ' s r e p o r t , 64

B a n c a C o m m e r c i a l e I t a l i a n a , 56, 60

B a r g a i n i n g p o w e r , 17 n. , 32, 43, 45-48

B a s t a b l e , C . F. , 11

B i l a t e r a l i s m , 1 1 , 3 3 , 5 8 , 4 1 , 4 4 f., 1 0 9 , 1 1 8 f,

C l a r k , C o l i n , 36, 91

C l a s s i c a l t h e o r y , 6, 7, 4 8 , 5 9 , 7 3 ff.; a n d n a t i o n a l s o v e r e i g n t y , G6

C o b d e n , R i c h a r d , 10

C o l o n i a l s y s t e m , 30, 73

C o m m o d i t y - c o m p o s i t i o n of t r a d e , 86, 106

ff. C o m p a r a t i v e a d v a n t a g e , 3 1 , 3 8 , 1 0 7

C o m p e n s a t e d t r a d e , 136 If. C o m p l e m e n t a r i t y , 3 1 , 108

C o n c e n t r a t i o n of t r a d e , 28, 8 6 , 9 8

C o r n L a w s , 8

C u m u l a t i v e effect o f f o r e i g n t r a d e , 75

D e p e n d e n c e o n t r a d e , 18, 24, 73 ff. D i s c r i m i n a t i n g t r e a t m e n t , a b o l i t i o n of,

7 6 f. D i v e r s i f i c a t i o n of t r a d e , 29, 3 1 , 85-86, 90,

1 0 7 - 1 0 8 ; see also C o m m o d i t y - c o m p o s i t i o n

D i v e r s i o n of t r a d e , 29 If,, 37, 85, 91

D i v i s i o n of l a b o r . 20, 7 5 , 8 6 , 1 1 7 , 146

D u m p i n g , 5 5 , 158

E c o n o m i c n a t i o n a l i s m , 59 , 6 1 , 67, 69, 72,

7 7 - 8 0

E c o n o m i c s o f w e l f a r e , 3, 7 8 - 7 9

E d g e w o r t h , F . Y. , 1 1 , 2 2 , 6 9 , 78 n , E i r e , 37, 108

E m p l o y m e n t , 27, 51

E x p l o i t a t i o n , 25

F i c h t e . J. G . . 7. 8

G a i n f r o m t r a d e , 18 ft., 48 ff.; a n d s p e c i a l i z a t i o n , 50; d e f i n i t i o n of, 18, 26; d i v i s i o n of, 1 0 - 1 1 ; o b j e c t i v e a n d s u b j e c t i v e , 2 0 -

2 3 , 4 8 , 5 1 ; t o t a l g a i n , 21 f.

G e r m a n y , 94, 110, 137, 146; a n d W o r l d W a r I , 5 3 - 5 8 ; a n d W o r l d W a r I I , 34-40

G r e a t B r i t a i n , 15 , 63, 73, 1 0 1 , 112 if., 143

ff,

H a u s e r , H e n r i , 5 6 - 5 7 , 60

H a w t r y , R . G . , 6

H e w i n s , W . A , S., 63-64, 66

H u m e , D a v i d , 5 , 1 1

I m p e r f e c t c o m p e t i t i o n , t h e o r y of, 75

I n d e x o f c o n c e n t r a t i o n , 98 ff.

I n d e x of p r e f e r e n c e , 88 ff. I n f l u e n c e effect o f f o r e i g n t r a d e , 15, 1 7 -

33. 36, 39, 47 I n t e r n a t i o n a l c l a s s i f i c a t i o n of B r u s s e l s

{1913) , 1 1 8 , i i g n . I t a l y , 36, 56, 60, 121

L e a g u e o f N a t i o n s , 16, 80

L e v e l s o f s a t i s f a c t i o n , 1 8 , 5 1

M a c a u l a y , J o h n , 7, 3 1 , 74

M a c h i a v e l l i , i x , 4

M a r s h a l l , A l f r e d , 18, 22, 24, 26

M e m e l , 1 1 3

M e r c a n t i l i s m , 4, 5, 1 1 , 20, 150

M i l l , J o h n S t u a r t , 10, 23 n. , 77

M i t t e l e u r o p a , 67

M o b i l i t y of r e s o u r c e s , 28, 36, 37

M o n e t a r y m a n i p u l a t i o n s , 7 6 - 7 7 , 112

M o n o p o l y o f t r a d e , 30, 8 5 , 9 8 f. M o s t - f a v o r e d - n a t i o n t r e a t m e n t , 8, 76

N a t i o n a l s o v e r e i g n t y , 16, 66, 7 3 , 7 9 - 8 0 ,

108

N a v i g a t i o n L a w s , 5

O l i g o p o l y , 99

O t t a w a A g r e e m e n t s , 101, 1 1 4

P a r i s E c o n o m i c C o n f e r e n c e , 60-70, 72

P o l i t i c a l e c o n o m y , 5

P r e z i o s i , 5 6 - 5 7 , 60

P r i c e s , c o n t r o l of , 75

P r o h i b i t i o n s , 7 6 - 7 7

P r o t e c t i o n i s m , 6, 5 1 , 5 9 , 69, 76; n o n -e c o n o m i c a r g u m e n t for , 7

[169]

170 Index

S a t i s f a c t i o n , l eve l s of, 1 8 , 5 1

S e r i n g , M a x , 11

S m i t h , A d a m , 5 , 11, yg f. S o r a b a r t , W e r n e r , 146

S p e c i a l i z a t i o n , 6, a o - a i , 29, 48, 106, 128;

a n d g a i n f r o m t r a d e , 50

S t a t e t r a d i n g , 76

S t o c k - p i l i n g , 8, 14

S u b s t i t u t e m a r k e t s , 29-33 , 75> ^ "^ i s u b s t i t u t i o n c u r v e s , 51

S u p p l y effect of f o r e i g n t r a d e , 14, 20, 24,

3 9 . 4 7

T e r m s of t r a d e , 1 1 , 2 1 , 4 2 - 4 3

T o t a l g a i n f r o m t r a d e , 21 f.

T r a n s i t t r a d e , 33

T r i a n g u l a r t r a d e , 123-124

T u r k e y , 72

U n i t e d N a t i o n s , 76 , 80

U n i t e d S t a t e s , 63, 64-65 , 67

U t i l i t y v a l u e , 26

V e r s a i l l e s T r e a t y . 66

W a s h i n g t o n , G e o r g e , 78

W e l f a r e , e c o n o m i c s of, 3 . 7 8 - 7 9

W e r g o , H e r b e r t , 9

W i l s o n , W o o d r o w . 64-68, 76

W o r l d W a r I , 5 5 - 7 0 , 80

National Power and the Structure of Foreign Trade

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