The Online Library of Liberty

A project of Liberty Fund, Inc.

• The Liberty Fund Library of the Works of Ludwig Von Mises
• Foreword to the Liberty Fund Edition
• Preface
• Omnipotent Government
• Introduction
• Part I: The Collapse of German Liberalism
• I: German Liberalism
• 1.: The Ancien Régime and Liberalism
• 2.: The Weakness of German Liberalism
• 3.: The Prussian Army
• 4.: The Constitutional Conflict In Prussia
• 5.: The “little German” Program
• 6.: The Lassalle Episode
• II: The Triumph of Militarism
• 1.: The Prussian Army In the New German Empire
• 2.: German Militarism
• 3.: The Liberals and Militarism
• 4.: The Current Explanation of the Success of Militarism
• Part II: Nationalism
• III: Etatism
• 1.: The New Mentality
• 2.: The State
• 3.: The Political and Social Doctrines of Liberalism
• 4.: Socialism
• 5.: Socialism In Russia and In Germany
• 6.: Interventionism
• 7.: Etatism and Protectionism
• 8.: Economic Nationalism and Domestic Monopoly Prices
• 9.: Autarky
• 10.: German Protectionism
• IV: Etatism and Nationalism
• 1.: The Principle of Nationality
• 2.: The Linguistic Group
• 3.: Liberalism and the Principle of Nationality
• 4.: Aggressive Nationalism
• 5.: Colonial Imperialism
• 6.: Foreign Investment and Foreign Loans
• 7.: Total War
• 8.: Socialism and War
• V: Refutation of Some Fallacious Explanations
• 1.: The Shortcomings of Current Explanations
• 2.: The Alleged Irrationality of Nationalism
• 3.: The Aristocratic Doctrine
• 4.: Misapprehended Darwinism
• 5.: The Role of Chauvinism
• 6.: The Role of Myths
• Part III: German Nazism
• VI: The Peculiar Characteristics of German Nationalism
• 1.: The Awakening
• 2.: The Ascendancy of Pan-germanism
• 3.: German Nationalism Within an Etatist World
• 4.: A Critique of German Nationalism
• 5.: Nazism and German Philosophy
• 6.: Polylogism
• 7.: Pan-germanism and Nazism
• VII: The Social Democrats In Imperial Germany
• 1.: The Legend
• 2.: Marxism and the Labor Movement
• 3.: The German Workers and the German State
• 4.: The Social Democrats Within the German Caste System
• 5.: The Social Democrats and War
• VIII: Anti-semitism and Racism
• 1.: The Role of Racism
• 2.: The Struggle Against the Jewish Mind
• 3.: Interventionism and Legal Discrimination Against Jews
• 4.: The “stab In the Back”
• 5.: Anti-semitism As a Factor In International Politics
• IX: The Weimar Republic and Its Collapse
• 1.: The Weimar Constitution
• 2.: The Abortive Socialization
• 3.: The Armed Parties
• 4.: The Treaty of Versailles
• 5.: The Economic Depression
• 6.: Nazism and German Labor
• 7.: The Foreign Critics of Nazism
• X: Nazism As a World Problem
• 1.: The Scope and Limitations of History
• 2.: The Fallacy of the Concept of “national Character”
• 3.: Germany’s Rubicon
• 4.: The Alternative
• Part IV: The Future of Western Civilization
• XI: The Delusions of World Planning
• 1.: The Term “planning”
• 2.: The Dictatorship Complex
• 3.: A World Government
• 4.: Planned Production
• 5.: Foreign Trade Agreements
• 6.: Monet Ary Planning
• 7.: Planning International Capital Transactions
• XII: Peace Schemes
• 1.: Armament Control
• 2.: A Critique of Some Other Schemes Proposed
• 3.: The Union of the Western Democracies
• 4.: Peace In Eastern Europe
• 5.: The Problems of Asia
• 6.: The Role of the League of Nations
• Conclusion

6.

Foreign Investment and Foreign Loans

The main requisite of the industrial changes which transformed the world of handicraftsmen and artisans, of horses, sailing ships, and windmills into the world of steam power, electricity, and mass production was the accumulation of capital. The nations of Western Europe brought forth the political and institutional conditions for safeguarding saving and investment on a broader scale, and thus provided the entrepreneurs with the capital needed. On the eve of the industrial revolution the technological and economic structure of Western economy did not differ essentially from conditions in the other parts of the inhabited surface of the earth. By the second quarter of the nineteenth century a broad gulf separated the advanced countries of the West from the backward countries of the East. While the West was on the road of quick progress, in the East there was stagnation.

Mere acquaintance with Western methods of production, transportation, and marketing would have proved useless for the backward nations. They did not have the capital for the adoption of the new processes. It was not difficult to imitate the technique of the West. But it was almost impossible to transplant the mentalities and ideologies which had created the social, legal, constitutional, and political milieu from which these modern technological improvements had sprung. An environment which could make for domestic capital accumulation was not so easy to produce as a modern factory. The new industrial system was but the effect of the new spirit of liberalism and capitalism. It was the outcome of a mentality which cared more about serving the consumer than about wars, conquest, and the preservation of old customs. The essential feature of the advanced West was not its technique but its moral atmosphere which encouraged saving, capital formation, entrepreneurship, business, and peaceful competition.

The backward nations perhaps might have come to understand this basic problem and might have started to transform their social structures in such a way that autochthonous capital accumulation would have resulted. Even then it would have been a slow and troublesome process. It would have required a long time. The gulf between West and East, between advanced nations and backward nations, would have broadened more and more. It would have been hopeless for the East to overtake the head start gained by the West.

But history took another course. A new phenomenon appeared—the internationalization of the capital market. The advanced West provided all parts of the world with the capital needed for the new investments. Loans and direct investments made it possible to outfit all countries with the paraphernalia of modern civilization. Mahatma Gandhi expresses a loathing for the devices of the petty West and of devilish capitalism. But he travels by railroad or by motor car and, when ill, goes for treatment to a hospital equipped with the most refined instruments of Western surgery. It does not seem to occur to him that Western capital alone made it possible for the Hindus to enjoy these facilities.

The enormous transfer of capital from Western Europe to the rest of the world was one of the outstanding events of the age of capitalism. It has developed natural resources in the remotest areas. It has raised the standard of living of peoples who from time immemorial had not achieved any improvement in their material conditions. It was, of course, not charity but self-interest which pushed the advanced nations to the export of capital. But the profit was not unilateral; it was mutual. The once backward nations have no sound reason to complain because foreign capitalists provided them with machinery and transportation facilities.

Yet in this age of anticapitalism hostility to foreign capital has become general. All debtor nations are eager to expropriate the foreign capitalist. Loans are repudiated, either openly or by the more tricky means of foreign exchange control. Foreign property is liable to discriminatory taxation which reaches the level of confiscation. Even un-disguised expropriation without any indemnification is practiced.

There has been much talk about the alleged exploitation of the debtor nations by the creditor nations. But if the concept of exploitation is to be applied to these relations, it is rather an exploitation of the investing by the receiving nations. These loans and investments were not intended as gifts. The loans were made upon solemn stipulation of payment of principal and interest. The investments were made in the expectation that property rights would be respected. With the exception of the bulk of the investments made in the United States, in some of the British dominions, and in some smaller countries, these expectations have been disappointed. Bonds have been defaulted or will be in the next few years. Direct investments have been confiscated or soon will be. The capital-exporting countries can do nothing but wipe off their balances.

Let us look at the problem from the point of view of the predominantly industrial countries of Europe. These comparatively overpopulated countries are poorly endowed by nature. In order to pay for badly needed foodstuffs and raw materials they must export manufactures. The economic nationalism of the nations which are in a position to sell them these foodstuffs and raw materials shuts the doors in their face. For Europe the restriction of exports means misery and starvation. Yet there was one safety valve left, as long as the foreign investments could be relied upon. The debtor nations were obliged to export some quantities of their products as payment of interest and dividends. Even if the goal of present-day foreign-trade policies, the complete prevention of any import of manufactures, were to be attained, the debtor nations would still have to provide the creditor nations with the means to pay for a part of the formers’ excess production of food and raw materials. The consumers of the creditor nations would be in a position to buy these goods on the sheltered home market, as it were, from the hands of those receiving the payments from abroad. These foreign investments represented in a certain manner the share of the creditor nations in the rich resources of the debtor nations. The existence of these investments softened to some extent the inequality between the haves and the have-nots.

In what sense was prewar Great Britain a have nation? Surely not in the sense that it “owned” the Empire. But the British capitalists owned a considerable amount of foreign investments, whose yield made it possible for the country to buy a corresponding quantity of foreign products in excess of that quantity which was the equivalent of current British exports. The difference in the economic structures of prewar Great Britain and Austria was precisely that Austria did not own such foreign assets. The British worker could provide for a considerable quantity of foreign food and raw materials by working in factories which sold their products on the sheltered British market to those people who received these payments from abroad. It was as if these foreign wheat fields, cotton and rubber plantations, oil wells and mines had been situated within Great Britain.

After the present war, with their foreign assets gone either through the methods applied in financing the war expenditure or by default and confiscation on the part of the governments of the debtor nations, Great Britain and some other countries of Western Europe will be reduced to the status of comparatively poor nations. This change will affect very seriously the conditions of British labor. Those quantities of foreign food and raw materials which the country could previously procure by means of the interest and dividend payments received from abroad will in the future be sought by desperate attempts to sell manufactures to which every country wants to bar access.