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

Part IV

The Future of Western Civilization

XI

The Delusions of World Planning

1.

The Term “Planning”

It is obvious that in this age of international division of labor, on the one hand, and of government interference with business on the other, unrestricted sovereignty for each nation must lead to economic nationalism and through it to conflict. No one ventures to deny that economic nationalism and peace are incompatible. Therefore all projects for the establishment of a more satisfactory state of world affairs include proposals for the substitution of some kind of international coöperation for the permanent antagonisms of economic nationalism. The most popular of these suggestions are labeled World Planning or International Planning. Planning is the patent medicine of our day. People are convinced that it will cure all the evils of domestic and foreign affairs. The prestige of the catchword “planning” is so great that the mere mention of it is considered a solution of all economic problems.

In dealing with domestic affairs planning is used as a synonym for socialism. Sometimes only the German pattern of socialism—Zwangswirtschaft—is called planning, while the term socialism proper is reserved for the Russian pattern. At any rate planning always means planning by government authorities and execution of these plans by order of the government enforced by the police power. Planning is the antithesis of free enterprise and private ownership of the means of production. Planning and capitalism are utterly incompatible. Within a system of planning production is conducted according to the government’s orders, not according to the plans of capitalist enterpreneurs eager to profit by best serving the wants of consumers.

It is a delusion to believe that planning and free enterprise can be reconciled. No compromise is possible between the two methods. Where the various enterprises are free to decide what to produce and how, there is capitalism. Where, on the other hand, the government authorities do the directing, there is socialist planning. Then the various firms are no longer capitalist enterprises; they are subordinate state organs bound to obey orders. The former entrepreneur becomes a shop manager like the Betriebsführer in Nazi Germany.

The idea of planning by the organized groups of the various branches of production is very popular with some businessmen. This would amount to a substitution of compulsory cartels for free enterprise and competition. It would set aside capitalism and put entrepreneur syndicalism in its place, something like a replica of the medieval guild system. It would not bring socialism, but all-round monopoly with all its detrimental consequences. It would impair supply and put serious obstacles in the way of technical improvements. It would not preserve free enterprise but give a privileged position to those who now own and operate plants, protecting them against the competition of efficient newcomers. It would mean a partial abdication of the state for the benefit of small groups of wealthy men.

In reference to international affairs the word planning sometimes means world socialism with a unitary world management. More often, however, it means the substitution of coöperative interventionism of all or many governments for the independent interventionism of every national government. We will have to deal with both of these conceptions.

But before beginning an economic examination of the problems involved it is desirable to make a few observations concerning the psychological roots of the popularity of the idea of planning.

2.

The Dictatorship Complex

Man is born an asocial and antisocial being. The newborn child is a savage. Egoism is his nature. Only the experience of life and the teachings of his parents, his brothers, sisters, playmates, and later of other people force him to acknowledge the advantages of social coöperation and accordingly to change his behavior. The savage thus turns toward civilization and citizenship. He learns that his will is not almighty, that he has to accommodate himself to others and adjust his actions to his social environment, and that the aims and the actions of other people are facts with which he must reckon.

The neurotic lacks this ability to adapt himself to his environment. He is asocial; he never arrives at an adjustment with the facts. But whether he likes it or not, reality has its own way. It is beyond the neurotic’s power to eliminate the will and the actions of his fellowmen and to sweep everything before him. Thus he escapes into daydreams. The weakling, lacking the strength to get on with life and reality, indulges in reveries on dictatorship and on the power to subdue everybody else. The land of his dreams is the land in which his will alone decides; it is the realm in which he alone gives orders and all others obey. In this paradise only that happens which he wants to happen. Everything is sound and reasonable, i.e., everything corresponds exactly to his ideas and wishes, is reasonable from the viewpoint of his reason.

In the secrecy of these daydreams the neurotic assigns to himself the role of the dictator; he himself is Caesar. When addressing his fellow citizens he must be more modest. He depicts a dictatorship operated by somebody else. But this dictator is only his substitute and handy-man; he acts only as the neurotic wants him to act. A daydreamer who refrained from this cautious restriction and proposed himself for the post of the dictator, would risk being considered and treated as a lunatic. The psychiatrists would call his insanity megalomania.

Nobody ever recommended a dictatorship aiming at ends other than those he himself approved. He who advocates dictatorship always advocates the unrestricted rule of his own will, although operated by an intermediary, an amanuensis. He wants a dictator made in his own image.

Now we may grasp the causes of the popularity of planning. Everything that men do has to be planned, is the realization of plans. In this sense all economic activity means planning. But those disparaging anarchic production and advocating planned economy are eager to eliminate the plans of everybody else. One will alone should have the right to will, one plan alone should be realized, namely, the plan which the neurotic approves, the reasonable plan, the only plan. All obstacles should be removed, all other people’s power should be broken, nothing should prevent the wretched neurotic from arranging the world according to his whims. Every means is right if it helps to raise the daydreamer’s reason to the throne.

The unanimous approval of planning by our contemporaries is only apparent. The supporters of planning disagree with regard to their plans. They agree only in the refutation of the plans brought forward by other people.

Many popular fallacies concerning socialism are due to the mistaken belief that all friends of socialism advocate the same system. On the contrary, every socialist wants his own socialism, not the other fellow’s. He disputes the other socialists’ right to call themselves socialists. In the eyes of Stalin the Mensheviks and the Trotskyists are not socialists but traitors, and vice versa. The Marxians call the Nazis supporters of capitalism; the Nazis call the Marxians supporters of Jewish capital. If a man says socialism, or planning, he always has in view his own brand of socialism, his own plan. Thus planning does not in fact mean preparedness to coöperate peacefully. It means conflict.

3.

A World Government

The establishment of a supernational world government is an old idea of pacifists.

Such a world government is not needed for the maintenance of peace, however, if democracy and an unhampered market economy prevail everywhere. Under free capitalism and free trade no special provisions or international institutions are required to safeguard peace. Where there is no discrimination against foreigners, when everyone is free to live and to work where he likes, there are no longer causes for war.

We may grant to the socialists that the same holds true for a socialist world state, provided the rulers of this state do not discriminate against any races, linguistic groups, or religions. But if, on the contrary, discrimination is applied, nothing can hinder the outbreak of wars if those who are injured by it believe that they are strong enough to sweep it away.

All talk about the establishment of a world authority to prevent armed conflicts by the aid of a world police force is vain if favored groups or nations are not prepared to renounce their special privileges. If these privileges are to be maintained, a world state can be conceived only as the despotic rule of the privileged nations over the underprivileged. A democratic commonwealth of free nations is incompatible with any discrimination against large groups.

A world parliament elected by the universal and equal suffrage of all adults would obviously never acquiesce in migration and trade barriers. It is absurd to assume that the peoples of Asia would be prepared to tolerate the immigration laws of Australia and New Zealand, or that the predominantly industrial nations of Europe would agree to a policy of protectionism for the countries producing raw materials and foodstuffs.

One should not allow oneself to be misled by the fact that within individual countries minority groups have succeeded in obtaining privileges beneficial to themselves and detrimental to the majority of the nation. We have dealt sufficiently with this phenomenon. Suppose we assume that the intricacy of the problem of the economic consequences of protectionism should so confuse the minds of the international lawmakers that the representatives of those injured by trade barriers were temporarily deluded into withdrawing their opposition. It is not very likely, but it could happen. But it is certain that a world parliament, in which the representatives of those injured by the working of immigration barriers would form a compact majority, would never consent to their permanent preservation. Such are the hard facts which render the ambitious plans for a democratic world state or world federation illusory. Under present conditions it is utopian to indulge in such projects.

We have already pointed out that the maintenance of migration barriers against totalitarian nations aiming at world conquest is indispensable to political and military defense. It would undoubtedly be wrong to assert that under present conditions all kinds of migration barriers are the outcome of the misguided selfish class interests of labor. However, as against the Marxian doctrine of imperialism, almost generally accepted today, it is necessary to emphasize that the capitalists and entrepreneurs in their capacity as employers are not at all interested in the establishment of immigration barriers. Even if we were to agree to the fallacious doctrine that profits and interest come into existence because the entrepreneurs and capitalists withhold from the worker a part of what should rightly be paid to him, it is obvious that neither their short-run nor their long-run interests push the capitalists and entrepreneurs toward measures which raise domestic wage rates. Capital does not favor immigration barriers any more than it does Sozialpolitik, whose inextricable outcome is protectionism. If the selfish class interests of big business were supreme in the world, as the Marxians tell us, there would be no trade barriers. The owners of the most efficient plants are—under domestic economic freedom—not interested in protection. They would not ask for import duties were it not to compensate for the rise in costs caused by pro-labor policies.

As long as there are migration barriers, wage rates fixed on the domestic labor market remain at a higher level in those countries in which physical conditions for production are more favorable—as, for instance, in the United States—than in countries offering less favorable conditions. Tendencies toward an equalization of wage rates are absent when the migration of workers is prevented. Under free trade combined with migration barriers there would prevail in the United States a tendency toward an expansion of those branches of production in which wages form a comparatively small part of the total costs of production. Those branches which require comparatively more labor (for instance, the garment trade) would shrink. The resulting imports would bring about neither bad business nor unemployment. They would be compensated by an increase in the export of goods which can be produced to the greatest advantage in this country. They would raise the standard of living both in America and abroad. While some enterprises are menaced by free trade, the interests of the bulk of industry and of the whole nation are not. The main argument advanced in favor of American protectionism, namely, that protection is needed to maintain the nation’s high standard of living, is fallacious. American wage rates are protected by the immigration laws.

Pro-labor legislation and union tactics result in raising wage rates above the level secured by the immigration laws. The social gains brought about by such methods are only apparent. If there is no tariff, they result either in a drop in wage rates or in unemployment, because the competitive power of domestic industries is weakened and because their sales drop concomitantly. If there is a protective tariff, they raise the prices of those commodities which on account of the increase in domestic production costs require protection. Thus the workers are hurt in their capacity as consumers.

Investors would not suffer if protection were denied to domestic industries. They are free to invest in those countries in which conditions seem to offer the best chances of profit. Only the interests of the capital already invested in some branches of industry are favored by protection.

The best evidence that big business does not derive an advantage from protection is provided by the fact that the biggest firms are operating plants in various countries. This is precisely the characteristic feature of large-scale enterprises in this age of hyper-protectionism.* However, it would be more profitable for them (and, of course, at the same time more advantageous for consumers) if they were able to concentrate their entire production in plants located where conditions are most favorable.

The real barrier to a full use of the productive forces is not, as the Marxians say, capital or capitalism, but those policies designed to reform and to check capitalism which Marx branded as petty bourgeois. At the same time these policies beget economic nationalism and substitute international conflict for peaceful coöperation under the international division of labor.

4.

Planned Production

The more realistic suggestions for world planning do not imply the establishment of a world state with a world parliament. They propose international agreements and regulations concerning production, foreign trade, currency and credit, and finally foreign loans and investments.

Planners sometimes describe their proposals as measures to combat poverty and want. The description is ambiguous. All economic policies are designed as remedies for poverty. Laissez faire too is a method of abolishing poverty. Both history and economic theory have demonstrated that it has been more successful than any other policy. When the Japanese tried to expand their exports by underselling, they too sought to improve the lot of the Japanese masses. If economic nationalism in other countries had not hindered their endeavors, they would not only have attained this end but would at the same time have raised the standards of living in the importing countries by providing their peoples with cheaper goods.

It is necessary to emphasize that we are not dealing here with plans for international charity. It would relieve much suffering if some nations were prepared to aid the starving masses in the poor countries by gratuitously distributing food and clothing. But such actions are outside the scope of strictly economic considerations. They are modes of consumption, not of production of goods.

We may first examine the proposals for regulating—by international agreements of various governments or by the order of an international authority established for that task—the production of various commodities.

In the unhampered market the prices are the guides and regulators of production. Goods are produced whenever they can be produced at a profit and are not produced when production involves a loss. A profitable industry tends to expand and an unprofitable one to shrink. An industry is unprofitable if the prices which the producer can obtain for the products do not cover the cost of the materials and labor required for their production. The consumers therefore determine by their buying or nonbuying how much should be produced in every branch of industry. The amount of wheat produced is determined by the price which the consumers are ready to pay. An expansion of production beyond these limits would mean that factors of production (labor and capital), which in accordance with the demands of the consumers are needed for the production of other commodities, would be diverted to the satisfaction of needs which the consumers consider less urgent. There prevails under unhampered capitalism a tendency to fix the amount of production in every field at a level at which the marginal producer or producers, i.e., those working under the least favorable conditions, neither make a profit nor incur a loss.

Conditions being such, a regulation providing for the expansion of production of a commodity would be to no purpose if the government or international authority did not subsidize the submarginal producers in order to indemnify them for the losses incurred. But this would result in a corresponding restriction of the output of other commodities. Factors of production would be withdrawn from other branches to be used to expand the industry subsidized. The consumers, who as taxpayers provide the means needed for the subsidies, must restrict their consumption. They get smaller amounts of commodities of which they want to get more, and have the opportunity to get more of other commodities for which their demand is less intense. The intervention of the government does not comply with their individual wishes. At bottom they cannot consider its result an improvement of their condition.

It is not in the power of governments to increase the supply of one commodity without a corresponding restriction in the supply of other commoditiesmore urgently demanded by consumers. The authority may reduce the price of one commodity only by raising the prices of others.

There are of course hundreds of millions of people who would be ready to consume more wheat, sugar, rubber, or tin if the prices were lower. The sales of every commodity increase with falling prices. But no government interference could make these commodities cheaper without raising the prices of other commodities, e.g., meat, wool, or pulp. A general increase of production can be obtained only by the improvement of technical methods, by the accumulation of additional capital, and by a more efficient use of all factors of production. No planning—whether national or international—can effect a general lowering of real prices and redress the grievances of those for whom prices are too high.

But most supporters of international planning have not the least intention of making raw materials and foodstuffs cheaper. On the contrary. What they really have in mind is raising prices and restricting supply. They see the best promise in the policies by which various governments—mainly in the last twenty years—have tried to put into effect restrictions and price increases for the benefit of special groups of producers and to the disadvantage of consumers. True, some of these schemes worked only for a short time and then collapsed, while many did not work at all. But this, according to the planners, was due to faults in technical execution. It is the essence of all their projects for postwar economic planning that they will so improve the methods applied as to make them succeed in the future.

The dangerous fact is that while government is hampered in endeavors to make a commodity cheaper by intervention, it certainly has the power to make it more expensive. Governments have the power to create monopolies; they can force the consumers to pay monopoly prices; and they use this power lavishly.

Nothing more disastrous could happen in the field of international economic relations than the realization of such plans. It would divide the nations into two groups—the exploiting and the exploited; those restricting output and charging monopoly prices, and those forced to pay monopoly prices. It would engender insoluble conflicts of interests and inevitably result in new wars.

The advocates of these schemes try to justify their suggestions by pointing out that conditions are very unsatisfactory for the producers of raw materials and foodstuffs. There is overproduction, in these lines, they insist, and prices are so low that the producers lose money. The aim of their plans, they say, is to restore the profitability of production.

It is true that a good deal of the production of these commodities does not pay. The trend toward autarky makes it harder for the industrial nations to sell their manufactures abroad; consequently they have to restrict their buying of food and raw materials. Hence it is necessary to retrench production of food and raw materials; the sub-marginal producers must go out of business. It is very unfortunate for them, but they can blame only the politicians of their own countries who have been responsible for the hyper-protectionist policies. The only way to increase the sales of coffee and to make prices go up on a nonmonopolized market is to buy more products from those countries in which coffee consumption would expand if their exports increased. But the pressure groups of the producers reject this solution and work for monopoly prices. They want to substitute monopolistic schemes for the operation of an unhampered market. On an un-hampered market the restriction in the output of raw materials and foodstuffs, made unavoidable by the protectionist policies of the producing countries, would take place automatically by the elimination of the submarginal producers—i.e., those for whom production does not pay at the market price. But the governments want to put into effect a much greater restriction for the sake of establishing monopoly prices.

It is often said that the mechanism of the capitalist market no longer works under present conditions. The submarginal producers, the argument runs, do not go out of business; they continue production; thus prices go down to a level at which production no longer pays any producer. Therefore government intervention is needed.

The fact is true; but its interpretation and the conclusions drawn from the interpretation are entirely wrong. The reason the submarginal producers do not stop producing is that they are confident that government intervention will render their business profitable again. Their continued production gluts the market so that prices no longer cover the costs even of the other producers. In this as in so many other instances the unsatisfactory effects of a previous government intervention are put forward as arguments for further intervention. Export sales drop because imports have been checked; thus the prices of export goods also drop; and then a demand arises for measures to make prices go up.

Let us look once again at conditions in American agriculture. From its early colonial beginnings there has been a continuous shifting of farming from less fertile to more fertile soil. There have always been submarginal farms on which production had to be discontinued because the competition of farmers producing at lower costs rendered them unprofitable. But with the New Deal things took a new turn. The government interfered to the advantage of the submarginal farmers. All farmers had to submit to a proportional restriction of output. The government embarked upon a vast scheme for restricting output, raising prices, and subsidizing the farmers. In interfering for the special benefit of the submarginal farmer it did so to the disadvantage of everyone consuming food and cotton and to the disadvantage of the taxpayer. It burdened the rest of the nation in order to pay bounties to some groups. Thus it split the nation into conflicting classes—a class of bounty receivers and a more numerous class of bounty payers. This is the inevitable outcome of interventionism. The government can give to one group only what it takes from another.

The domestic conflicts engendered by such policies are very serious indeed. But in the sphere of international relations they are incomparably more disastrous. To the extent that monopoly prices are charged for food and raw materials the grievances of the have-nots are justified.

Such are the prospects of international or world planning in the sphere of production of raw materials and foodstuffs. It would be difficult to imagine any program whose realization would contribute more to engendering future conflicts and wars.

5.

Foreign Trade Agreements

In the age of laissez faire commercial treaties were considered a means of abolishing, step by step, trade barriers and all other measures of discrimination against foreigners. In those days the most-favored-nation clause was a requisite of such treaties.

Then the tide turned. With the ascendancy of interventionism imports were deemed disastrous to a nation’s economic prosperity. Discrimination against foreigners then came to be regarded as a good means for promoting the well-being of a country. The meaning of commercial treaties changed radically. Governments became eager to overreach one another in negotiations. A treaty was valued in proportion as it hindered the other nation’s export trade and seemed to encourage one’s own. Most-favored-nation treatment gave way to hostile discrimination.

In the long run there cannot be such a thing as “moderate” protectionism. If people regard imports as an injury, they will not stop anywhere on the way toward autarky. Why tolerate an evil if there seems to be a way to get rid of it? Protectionism was bound to evolve into the license and quota system and into foreign exchange control. The ultimate goal of nearly every nation’s foreign-trade policy today is to prevent all imports. This means autarky.

It is vain to expect anything from purely technical changes in the methods applied in international negotiations concerning foreign-trade matters. If Atlantis is resolved to bar access to cloth manufactured abroad, it is of no importance whether its delegates must negotiate directly with the delegates of Thule, or whether the subject can be dealt with by an international board in which other nations are represented. If Atlantis is prepared to admit a limited amount—a quota—of cloth from Thule only because it wants to sell a corresponding quota of wheat to Thule, it is not likely to yield to a suggestion that it allot a part of this quota to other nations. If pressure or violence is applied in order to force Atlantis to change its import regulations so that greater quantities of cloth can be imported, it will take recourse to other methods of interventionism. Under a regime of government interference with business a government has innumerable means at hand to penalize imports. They may be less easy to handle but they can be made no less efficacious than tariffs, quotas, or the total prohibition of imports.

Under present conditions an international body for foreign-trade planning would be an assembly of the delegates of governments attached to the ideas of hyper-protectionism. It is an illusion to assume that such an authority would be in a position to contribute anything genuine or lasting to the promotion of foreign trade.

Some people cling to the belief that while universal free trade and a world-embracing division of labor are quite wrong, at least neighboring countries should enter into closer economic coöperation. Their economies could complement each other, it is argued, if they were prepared to form regional economic blocs. This doctrine, first developed by German nationalism, is fallacious.

As a rule neighboring countries offer similar natural conditions for production, especially in agriculture. Their economic systems are less likely to complement each other than to make them competitors on the world market. A customs union between Spain and Portugal, or between Bulgaria and Yugoslavia, or between Germany and Belgium would mean little. The main problems of foreign trade are not regional. The conditions for Spanish wine export could not be improved through free trade with Portugal, or vice versa. The same holds true for the production of machines in Germany and Belgium, or for agricultural production in Bulgaria and Yugoslavia.

6.

Monet ary Planning

The gold standard was an international standard. It safeguarded the stability of foreign exchange rates. It was a corollary of free trade and of the international division of labor. Therefore those who favored etatism and radical protectionism disparaged it and advocated its abolition. Their campaign was successful.

Even at the height of liberalism governments did not give up trying to put easy money schemes into effect. Public opinion is not prepared to realize that interest is a market phenomenon which cannot be abolished by government interference. Everybody values a loaf of bread available for today’s consumption higher than a loaf which will be available only ten or a hundred years hence. As long as this is true, every economic activity must take it into account. Even a socialist management would be forced to pay full regard to it.

In a market economy the rate of interest has a tendency to correspond to the amount of this difference in the valuation of future goods and present goods. True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.

The gold standard put a check on governmental plans for easy money. It was impossible to indulge in credit expansion and yet cling to the gold parity permanently fixed by law. Governments had to choose between the gold standard and their—in the long run disastrous—policy of credit expansion. The gold standard did not collapse. The governments destroyed it. It was as incompatible with etatism as was free trade. The various governments went off the gold standard because they were eager to make domestic prices and wages rise above the world market level, and because they wanted to stimulate exports and to hinder imports. Stability of foreign exchange rates was in their eyes a mischief, not a blessing.*

No international agreements or international planning is needed if a government wants to return to the gold standard. Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard. The only condition required is the abandonment of an easy money policy and of the endeavors to combat imports by devaluation.

The question involved here is not whether a nation should return to the particular gold parity that it had once established and has long since abandoned. Such a policy would of course now mean deflation. But every government is free to stabilize the existing exchange ratio between its national currency unit and gold, and to keep this ratio stable. If there is no further credit expansion and no further inflation, the mechanism of the gold standard or of the gold exchange standard will work again.

All governments, however, are firmly resolved not to relinquish inflation and credit expansion. They have all sold their souls to the devil of easy money. It is a great comfort to every administration to be able to make its citizens happy by spending. For public opinion will then attribute the resulting boom to its current rulers. The inevitable slump will occur later and burden their successors. It is the typical policy of après nous le déluge. Lord Keynes, the champion of this policy, says: “In the long run we are all dead.”† But unfortunately nearly all of us outlive the short run. We are destined to spend decades paying for the easy money orgy of a few years.

Inflation is essentially antidemocratic. Democratic control is budgetary control. The government has but one source of revenue—taxes. No taxation is legal without parliamentary consent. But if the government has other sources of income it can free itself from this control.

If war becomes unavoidable, a genuinely democratic government is forced to tell the country the truth. It must say: “We are compelled to fight for our independence. You citizens must carry the burden. You must pay higher taxes and therefore restrict your consumption.” But if the ruling party does not want to imperil its popularity by heavy taxation, it takes recourse to inflation.

The days are gone in which most persons in authority considered stability of foreign exchange rates to be an advantage. Devaluation of a country’s currency has now become a regular means of restricting imports and expropriating foreign capital. It is one of the methods of economic nationalism. Few people now wish stable foreign exchange rates for their own countries. Their own country, as they see it, is fighting the trade barriers of other nations and the progressive devaluation of other nations’ currency systems. Why should they venture to demolish their own trade walls?

Some of the advocates of a new international currency believe that gold is not fit for this service precisely because it does put a check on credit expansion. Their idea is a universal paper money issued by an international world authority or an international bank of issue. The individual nations would be obliged to keep their local currencies at par with the world currency. The world authority alone would have the right to issue additional paper money or to authorize the expansion of credit by the world bank. Thus there would be stability of exchange rates between the various local currency systems, while the alleged blessings of inflation and credit expansion would be preserved.

These plans fail, however, to take account of the crucial point. In every instance of inflation or credit expansion there are two groups, that of the gainers and that of the losers. The creditors are the losers; it is their loss that is the profit of the debtors. But this is not all. The more fateful results of inflation derive from the fact that the rise in prices and wages which it causes occurs at different times and in different measure for various kinds of commodities and labor. Some classes of prices and wages rise more quickly and to a higher level than others. While inflation is under way, some people enjoy the benefit of higher prices on the goods and services they sell, while the prices of goods and services they buy have not yet risen at all or not to the same extent. These people profiteer by virtue of their fortunate position. For them inflation is good business. Their gains are derived from the losses of other sections of the population. The losers are those in the unhappy situation of selling services and commodities whose prices have not yet risen at all or not in the same degree as the prices of things they buy for their own consumption. Two of the world’s greatest philosophers, David Hume and John Stuart Mill, took pains to construct a scheme of inflationary changes in which the rise of prices and wages occurs at the same time and to the same extent for all commodities and services. They both failed in the endeavor. Modern monetary theory has provided us with the irrefutable demonstration that this disproportion and nonsimultaneousness are inevitable features of every change in the quantity of money and credit.*

Under a system of world inflation or world credit expansion every nation will be eager to belong to the class of gainers and not to that of the losers. It will ask for as much as possible of the additional quantity of paper money or credit for its own country. As no method could eliminate the inequalities mentioned above, and as no just principle for the distribution could be found, antagonisms would originate for which there would be no satisfactory solution. The populous poor nations of Asia would, for instance, advocate a per capita allotment, a procedure which would result in raising the prices of the raw materials they produce more quickly than those of the manufactured goods they buy. The richer nations would ask for a distribution according to national incomes or according to the total amount of business turnover or other similar standards. There is no hope that an agreement could be reached.

7.

Planning International Capital Transactions

The most amazing suggestions for international planning concern foreign loans or investments. They aim at a fair distribution of the capital available.

Let us assume that American capitalists are prepared to grant a loan to the government of Venezuela or to invest money in a mine in Chile. What can an international body do in this case? Certainly it will not have the power to force the American capitalists to lend the money to China rather than Venezuela, or to make the investment in Persian railroads instead of in Chilean mining.

Or the American Government might want for various reasons to subsidize the construction of motor roads in Mexico. Would the international authority order it to subsidize Greek textile plants instead?

The international capital market has been disintegrated by economic nationalism, as has every other branch of economic internationalism. As investments and loans mean business and not charity, capitalists have lost the incentive to invest abroad. It will be hard work, and it will take a good while, to rebuild the international money and capital market. The interference of international authorities would not further these endeavors; it would be more likely to hinder them.

Labor unions are likely to be hostile to capital export because they are eager to raise as far as possible the domestic marginal productivity of labor. Many governments put a general embargo on capital export; foreign loans and investments are not permitted without a special government license. It is not probable that a change will occur immediately after the war.

The poorer countries have done all that they could to promote the disintegration of the international capital market. Having inflicted as much harm as possible upon foreign capitalists and entrepreneurs, they are now anxious to get new foreign capital. However, today they meet only with reluctance. Capitalists shun unreliable debtors, and labor is unwilling to let capital emigrate.

XII

Peace Schemes

1.

Armament Control

It would be an illusion to assume that any nation today is prepared to abandon protectionism. As the ruling parties favor government interference with business and national planning, they cannot demolish the trade barriers erected by their own countries. Thus the incentives for war and conquest will not disappear. Every nation will have to be ready to repel aggression. War preparedness will be the only means of avoiding war. The old saying Si vis pacem para bellum1 will be true again.

But even the abolition of trade barriers would not safeguard peace if migration barriers were not abolished too. The comparatively overpopulated nations will hardly acquiesce in a state of affairs which results in a lower standard of living for them. On the other hand, it is obvious that no nation could, without imperiling its independence, open its frontiers to the citizens of totalitarian states aiming at conquest. Thus, we are forced to recognize that under present conditions no scheme can eliminate the root causes of war. Prospects are not bright for more friendly international relations in the coming postwar period.

It is even very doubtful whether it would be of any value at all to conclude a formal peace treaty with Germany after its defeat. Things have changed considerably in these last thirty years. International treaties in general, and especially peace treaties, are not what they used to be. This is not only the fault of those Germans who boast that treaties are but scraps of paper. The Allies too are not free from guilt.

One of the worst blunders committed by the Allied Powers in 1919 was the awkward arrangement of the peace negotiations. For centuries it had been the custom to conduct peace negotiations in accordance with the usages of gentlemen. The delegates of both parties, the victorious and the defeated, would meet as civilized people meet to conduct business. The victors neither humiliated nor insulted the vanquished; they treated them as gentlemen and equals. They discussed their mutual problems in quiet and polite language. Such were the age-old rules and observances of diplomacy.

The Allied Powers broke this usage. They took delight in treating the German delegates with contempt and insults. The delegates were confined in the houses assigned to them; guards were posted at the doors; no delegate had the right to leave the house. They were taken like prisoners from the railway station to their lodgings, and from the lodgings to the meeting hall, and back again in the same manner. When they entered the assembly room, the delegates of the victors answered their greetings with manifest disdain. No conversation between the German delegates and those of the victors was permitted. The Germans were handed a draft of the treaty and asked to return a written answer at a fixed date.

This conduct was inexcusable. If the Allies did not wish to comply with the old-established rule of international law requiring oral discussion between the delegates, they should have so informed the German Government in advance. The Germans could have been spared the sending of a delegation of eminent men. For the procedure chosen by the Allies a letter carrier would have sufficed as German delegate. But the successors of Talleyrand and Disraeli wished to enjoy their triumph to the full.

Even if the Allies had behaved in a less offensive way, of course the Treaty of Versailles would not have been essentially different. If a war results not in a stalemate but in one party’s victory, the peace treaty is always dictated. The vanquished agree to terms which they would not accept under other circumstances. The essence of a peace treaty is compulsion. The defeated yield because they are not in a position to continue the fight. A contract between citizens can be annulled by the courts if one of the parties can prove that it was forced to sign under duress. But these notions of civil law do not apply to treaties between sovereign nations. Here the law of the strongest still prevails.

German propaganda has confused these obvious matters. The German nationalists maintained the thesis that the Treaty of Versailles was null because it was dictated and not spontaneously accepted by Germany. The cession of Alsace-Lorraine, of the Polish provinces, and of northern Schleswig is invalid, they said, because Germany surrendered to coercion. But they were inconsistent enough not to apply the same argument to the treaties by which Prussia had acquired, since 1740, its provinces of Silesia, West Prussia, Posen, Saxony, Rhineland, Westphalia, and Schleswig-Holstein. They neglected to mention the fact that Prussia had conquered and annexed, without any treaty, the kingdom of Hanover, the electorate of Hessen, the duchy of Nassau, and the republic of Frankfurt. Out of the twelve provinces which in 1914 formed the kingdom of Prussia, nine were the spoils of successful wars between 1740 and 1866. Nor did the French, in 1871, surrender Alsace-Lorraine to the Reich of their own free will.

But you simply cannot argue with nationalists. The Germans are fully convinced that compulsion applied by them to other nations is fair and just, while compulsion applied to themselves is criminal. They will never acquiesce in a peace treaty that does not satisfy their appetite for more space. Whether they wage a new war of aggression will not depend on whether or not they have duly signed a peace treaty. It is vain to expect German nationalists to abide by the clauses of any treaty if conditions for a new assault seem propitious.

A new war is unavoidable if the United Nations do not succeed in establishing a world order preventing the Germans and their allies from rearming. As long as there is economic nationalism, the United Nations will have to watch their ramparts day and night.

The alliance of the victorious nations must be made lasting. Germany, Italy, and Japan must be totally disarmed. They must be deprived of the right to maintain armies, navies, or air fleets. A small police force, armed with rifles only, can be permitted to them. No kind of armament production should be tolerated. The guns and the ammunition for their policemen should be given to them by the United Nations. They should not be permitted to fly or build any planes. Commercial aviation in their countries should be operated by foreign companies using foreign planes and employing foreign pilots. But the main means to hinder their rearmament should be a strict control of imports on the part of the United Nations. No imports should be permitted to the aggressor nations if they dedicate a part of their production to armaments or if they try to pile up stocks of imported raw materials. Such a control could easily be established. Should any country, under the pretext of neutrality, not be prepared to coöperate unconditionally in this scheme, it would be necessary to apply the same methods against this country as well.

No ersatz production could frustrate the efficacy of this scheme. But if a change in technological possibilities imperils the working of the control system, it will be easy to force the country concerned to surrender. The prohibition of all food imports is a very effective weapon.

This is not a very pleasant solution of the problem, but it is the only one that could work satisfactorily, provided the victorious nations maintain their alliance after the war.

It is wrong to regard unilateral disarmament as unfair to the vanquished. If they do not plan new aggressions, they are not in need of arms. If they dream of new wars and are stopped by lack of arms, unilateral disarmament will favor them no less than the victorious nations. Even if they were to be deprived of the instruments to assault other peoples, their independence and their right to rule themselves would remain untouched.

We must see conditions as they really are, not as we want them to be. If this war does not result in making it forever impossible for the Germans to wage a new war, they will try, sooner or later, to kindle a new conflict. As the victorious nations will not concede them what they want, world hegemony, they will not renounce their aggressive plans so long as the two strategical advantages of high population figures and interior lines remain unchanged. Nazism would be resurrected in a new form and under a new name.

The peace settlement will further have to make special provisions for the punishment of those Nazis responsible for murdering and torturing innocent people. It will have to force the German nation to pay indemnities for the robberies committed by their rulers and mobs. This will not revive those murdered. It will be impossible, after the passage of years, to allot to every individual injured the fair amount of compensation. But it is of the greatest importance to hold the Germans answerable for all their acts. It would be absurd to allow all their atrocities to go unpunished. The Nazis would consider it both a success and a justification of their conduct. They would think: “After all, we have attained at least a partial success; we have reduced the population and the wealth of the † ‘inferior’ races; the main burden of this war falls on them, not on us.” It would be scandalous indeed if the Germans suffer less from the consequences of their aggression than those assaulted.

The Kellogg Pact outlawed war. Germany, Italy, Japan, Hungary, and Rumania signed this document. If there was any meaning at all in this compact, then it was that aggressors are guilty of an illegal act and must bear the responsibility for it. Those citizens of these nations who did not openly oppose the dictators cannot plead their innocence.

Every endeavor to make peace last will be futile unless people abandon spurious hero worship and cease to pity the defeated aggressor more than his victims. The cult of Napoleon I, almost universal in nineteenth-century Europe, was an insult to common sense. He certainly had no excuse for the invasions of Spain and Russia; he was not a martyr; he enjoyed infinitely more comfort in his exile in St. Helena than the many thousands he had caused to be maimed and mutilated. It was an outrage that those responsible for the violation of Belgian neutrality in 1914 escaped punishment. It gave a belated justification to their contemptuous description of treaties as scraps of waste paper. The attitude of public opinion—outside of France and Belgium—with regard to German reparations was a serious mistake. It encouraged German nationalism. These blunders must be avoided in the future.

2.

A Critique of Some Other Schemes Proposed

It is vain to expect that defeat will change the mentality of the defeated and make them peace loving. They will cling to peace only if conditions are such that they cannot hope to conquer. Any schemes based on the assumption that any German party will immediately after the defeat renounce aggression and voluntarily embark upon a policy of sincere coöperation are futile. A German politician opposing war, if there were any real chance of success of a new aggression, would meet the fate of Erzberger and Rathenau.2

The Germans will one day recover their reason. They will remember that modern civilization was to some extent an achievement of their own. They will find the way back to the ideals of Schiller and Goethe. But this process of recovery must come from within. It cannot be forced upon Germany—nor upon Italy or Japan—by a victorious army or by compulsory education on the part of foreign teachers. The Germans must learn that their aggressive nationalism is suicidal, and that it has already inflicted irreparable evils upon themselves. They will have spontaneously to reject their present tenets and to adopt again all those ideas which they dismiss today as Christian, Western, and Jewish. Out of the midst of their own people men will have to emerge who address them with the words once used by Saint Remigius at the baptism of King Clovis: “Adore what you used to burn, and burn what you used to adore.”

Some groups have hatched out a plan for the political dismemberment of Germany. They recall that Germany in the days of the Deutscher Bund (1815–66) was divided into about forty sovereign states and that at that time the Germans did not venture upon aggression. In those years the nation was prosperous. If all the German princes had fulfilled the obligation, imposed on them by the settlement of Vienna, to grant their citizens parliamentary institutions, the Germans would have had no reason to change their political organization. The German Confederation safeguarded them against foreign aggression while preventing them from waging wars of conquest. Thus the system proved beneficial both to Germany and to the whole of Europe.

These belated eulogists of Prince Metternich ignore the most important facts of German history. They do not realize that the Germans of those days were liberal, and that their ideas of national greatness differed radically from those of modern nationalism. They cherished the values which Schiller had praised. “The German Empire and the German nation,” said Schiller in the draft of his unfinished poem “German Greatness,” are “two different things. The glory of Germany was never vested in the persons of its leaders. The German has established his own values quite apart from political values. Even if the Empire goes astray, German dignity would remain untouched. It is a moral eminence, vested in the nation’s civilization and character, which do not depend on political vicissitudes.”* Such were the ideas of the Germans of the early nineteenth century. In the midst of a world marching toward genuine liberalism the Germans also were enthusiastically liberal. They would have viewed the Deutscher Bund as a satisfactory solution of the political problem if it had not been the realm of despotic princes. Today, in this age of nationalism, the Germans also are nationalists. They have to face a very serious economic problem, and their etatistic prejudices prevent them from seeing any solution other than the conquest of Lebensraum. They worship the “brute force” whose elimination Schiller had hoped for. Under such conditions nationalism could not be overthrown by a partition of the Reich into a score of independent states. In each of these states the heat of nationalist passions would flare up; the bellicose spirit would virtually coördinate and unify their political and military activities, even if formally the independence of each section were to be preserved up to the day of the new mobilization.

The history of Central Europe could have taken a different course. A part of those people who today get their education in classical German, taught in school or learned at home, and used in conversation with people whom they do not address in their local dialect, might be using another of the present-day languages or a language of their own. One group of the people using the Low German dialect (Platt) has created the Dutch language; another, more numerous group of the Low Germans has joined the linguistic community of the High Germans. The political and economic process which made the Dutch people into a nation with a language of its own could have resulted in a more important diminishing of the German linguistic group. If the Counter-Reformation and Jesuitism had not crippled all spiritual, intellectual, and literary freedom in Bavaria and in Austria, the idiom of the Saxon chancellery, which owes its supremacy to Luther’s version of the Bible and to the Protestant writings of the first two centuries of the Reformation, might have found a serious rival in a literary language developed out of the Bavarian dialect. One could indulge even further in such reveries, whether with regard to the Swabian dialect or to the Slavonic and Baltic idioms of the northeast. But such dreams cannot change historical facts and political reality. The Germans are today the most numerous linguistic group in Europe. The age of etatism and nationalism must recognize the importance of this fact. The greater part of the German-speaking group affirm the principle of nationality; they want a unified German state including all German-speaking men. France and Great Britain deserve no credit for the fact that the Austrians and the Swiss reject these plans and are anxious to stay outside the Reich. On the contrary. In suicidal infatuation the French, and later the English, have done much to weaken Austria and to strengthen Prussian aspirations. The Bourbon kings associated in their fight against Austria not only with Prussia but even with the Turks. Great Britain was Prussia’s ally in the Seven Years’ War. What business had Napoleon III to attack Austria? It should be noted that the present-day Axis constellation was but a revival of the league of 1866, when Prussia and Italy assailed Austria, Hungarian nationalists prepared an upheaval with Bismarck’s aid, and the Hohenzollern Prince of Rumania tried to arm for the purpose of giving the finishing stroke. At that time governments and public opinion both in Paris and in London sympathized with the aggressors. The French and the English learned only later that they had been working pour le roi de Prusse.

Our problem would be simpler if all men spoke the same language or if the various linguistic groups were at least more equal in size. But the presence of seventy million German nationalists in the Reich is a datum, a necessary point of beginning, of present-day politics. It cannot be brushed aside by the dismemberment of the Reich. It would be a fatal delusion to assume that the problem could be solved in this way. To safeguard the independence of Austria and Switzerland must, it is true, be the foremost aim of all future plans for a reconstruction of Europe. But the dismemberment of the old Reich (the Altreich, as the Germans say, in order to distinguish it from Gross-Deutschland including Austria and the Sudetenland) would be a futile measure.

Clemenceau has been credited with the dictum that there are twenty million Germans too many. Some fanatics have suggested as the panacea the wholesale extermination of all Nazis. This would solve the problem in a way which from the Nazi point of view would be the logical result of total war. The Nazi concept of total victory implies the radical extermination of the French, Czechs, Poles, Jews, and other groups; and they have already started to execute this plan. They therefore could not logically call it unfair or barbarous if the United Nations profited from their victory to exterminate the “Aryan” citizens of the Reich. Neither could the Italians, the Japanese, the Magyars, and the Rumanians. But the United Nations are not brutes like the Nazis and Fascists.

Some authors believe that the problem of linguistically mixed populations could be solved by forcible transplantation and exchange of minorities. They refer to the allegedly favorable results of this procedure as applied in the case of Turkey and Greece. It seems indeed to be a very obvious method of dealing with the unpleasant consequences of linguistic promiscuity. Segregate the quarreling groups and you will prevent further struggles.

These plans, however, are untenable. They disregard the fundamental problem of present-day antagonisms—the inequality of the various parts of the earth’s surface. Linguistic promiscuity is the result of migrations on the part of men eager to improve their standard of living. Workers move from places where the marginal productivity of labor is low to where it is higher—in other words, from comparatively overpopulated areas to those comparatively underpopulated. To prevent such migrations or to try to undo them by forcible expulsion and repatriation of the immigrants does not solve the problem but only aggravates the conflicts.

The same holds true for peasants. There are, for instance, the German farmers in the Banat, one of the most fertile districts of Europe. These people immigrated in the eighteenth century. At that time the region was at a very low stage of civilization, thinly populated, devastated by Turkish misrule and continuous wars. Today the Banat is a bone of contention between the Serbs, Rumanians, and Hungarians. The German minority is a thorn in the side of all three claimants. They would all be glad to get rid of the Germans. But what kind of compensation could they offer them in exchange for their farms? There are no farms in the countries inhabited by German majorities that are owned by Serbs or Rumanians, and no equivalent farms owned by Hungarians on the borders of Germany. The expropriation and expulsion of the German peasants would not be a step toward pacification; it would only create new grievances. Similar conditions prevail all over Eastern Europe.

Those who are under the illusion that segregation could solve the international problems of our day are blind to reality. The very fact that the Australians succeeded in maintaining linguistic and racial homogeneity in their country helped to push the Japanese into aggression. The closed-door policy is one of the root causes of our wars.

In Great Britain and America many people are frightened by the prospect of a communist Germany. They are afraid of contagion. But these anxieties are unfounded. Communism is not a disease and it does not spread through germs. No country will catch communism because it has moved nearer to its frontiers. For whatever chance there is of a communist regime coming to power in America or Great Britain the mentalities of the citizens of these countries are responsible. Pro-communist sympathies within a country have nothing to do with whether its neighbors are communist or not.

If Germany turns toward communism it cannot be the task of foreign nations to interfere. The numerous friends of communism in the Anglo-Saxon countries will oppose preventing a country from adopting a system which they themselves consider the only beneficial one and advocate for their own countries. The intelligent opponents of communism, on the other hand, will not understand why their nation should essay to prevent the Germans from inflicting harm upon themselves. The shortcomings of communism would paralyze and disintegrate Germany’s industrial apparatus and thereby weaken its military power more effectively than any foreign intervention could ever do.

Russia’s military strength lies in the remoteness and the vastness of its land. It is impregnable because it is so spacious and impassable. Invaders have defeated the Russian armies; but no one has succeeded in overcoming the geographical obstacles. Charles XII, Napoleon, Hindenburg, and Hitler penetrated deep into Russia; their victorious advance itself spelled the doom of their armies. The British and the French in the Crimean War and the Japanese forty years ago only excoriated the edge of the Czar’s Empire. The present war has proved anew the thesis of old Prussia’s military doctrine that it is futile to beat the Russian forces. After having easily conquered hundreds of thousands of square miles, the Nazi armies were broken by the vastness of the country. The main problem that an invading general has to face in Russia is how to withdraw his forces safely. Neither Napoleon nor Hitler has solved this problem.

Communist economic management did not weaken Russia’s ability to repel aggression; it did not interfere with geographical factors. Communism in Germany, i.e., the wholesale liquidation of the bourgeoisie and the substitution of bureaucratic socialism of the Soviet pattern for Zwangswirtschaft, would seriously impair or even destroy Germany’s capacity to export manufactures. Those who believe that a communist Germany could rearm as easily as Russia fail to recognize the fundamental difference between the two countries. While Russia is not forced to import foreign raw materials, Germany must. But for the export of manufactured goods Germany would not have been in a position to import all the raw materials needed for its rearmament. The reason why the Nazis preferred the Zwangswirtschaft system to the Soviet system was that they fully recognized the fact that plants directly managed by government clerks cannot compete on the world market. It was German export trade that provided the materials required for the building of the formidable Blitz machine. Bolshevism did not impair Russia’s potential of defense. It would annihilate Germany’s potential of aggression.

The real danger of communism in Germany lies in the probability that its inevitable economic failure may restore the prestige of Nazism lost by the defeat in this war. Just as the unsatisfactory results of the Nazi regime are now making communism popular with the German masses, the bad consequences of communism could possibly contribute to a rehabilitation of Nazism. The German problem is precisely this, that Germany has no party ready to support liberalism, democracy, and capitalism and that it sees only the two alternatives: Nazism, i.e., socialism of the German pattern of all-round planning (Zwangswirtschaft), on the one hand, or Bolshevism, i.e., socialism of the Russian pattern of immediate state management, on the other. Neither of these two systems could solve Germany’s economic problem. Both of them will push Germany toward a policy of conquering more Lebensraum.

3.

The Union of the Western Democracies

The main need is a lasting coöperation among the nations today united in their efforts to smash the totalitarian aggression. No plan can work if the nations concerned do not transform their present alliance into a permanent and lasting union. If they resume their prewar policies after the victory, if they return to political rivalries and to economic warfare, the result will be a repetition of the developments of 1919–39. There can be neither effective political coöperation nor solidarity and collective security among nations fighting each other in the economic sphere.

If the Western democracies do not succeed in establishing a permanent union, the fruits of victory will be lost again. Their disunity will provide the defeated aggressors with the opportunity to enter anew the scene of political intrigues and plots, to rearm and to form a new and stronger coalition for another assault. Unless they choose effective solidarity, the democracies are doomed. They cannot safeguard their way of life if they seek to preserve what the terminology of diplomacy calls “national sovereignty.”* They must choose between vesting all power in a new supernational authority or being enslaved by nations not prepared to treat them on an equal footing. The alternative to incorporation into a new democratic supernational system is not unrestricted sovereignty but ultimate subjugation by the totalitarian powers.

This is obvious in the case of small nations like the Dutch, the Danes, the Norwegians. They could live in peace only as long as the much-abused system of the European balance of power protected them. Their independence was safeguarded by the mutual rivalry and jealousy of the big powers. The countries of Latin America enjoyed their autonomy because the Monroe Doctrine and the British Navy prevented any attempts at invasion. Those days are gone. Today these small nations must themselves guard their independence. They will have to renounce their proud isolationism and their intransigent pretensions in any case. The only real question is whether they will become slaves in a totalitarian system or free men in a supernational democracy.

As for Great Britain and France, there can be no doubt at all that they will spell their own doom if they are not prepared to abandon their traditional aspirations for unrestricted national sovereignty. This may be still more true for Australia and New Zealand.

Then there are the United States and Canada. In the course of the nineteenth century they were in the happy position of islanders. Thousands of miles of ocean separated them from potential invaders. They were safe because technical conditions made aggression impossible. But in this age of air power they have become close neighbors of dangerous foes. It is not impossible that in ten or twenty years more an invasion of the North American continent will be technically as easy for Germany or Japan as was the occupation of the Netherlands, in 1940 and that of the Philippines in 1941 and 1942. The citizens of the United States and of Canada will have to realize that there is no other way for them to live in peace than to coöperate with all other democratic peoples.

It is therefore obvious that the Western democracies must desist from all further measures of economic warfare in their mutual relations. True, it is still the firm public conviction that it is absurd to hope for a general return to free trade all over the world. But if trade barriers are not removed between the individual countries forming the suggested democratic union, there will be no union at all. In this respect all plans proposed for a postwar settlement agree. All are based on the expectation that the democracies will stop warring upon one another with the methods of economic nationalism. But they fail to realize what such a solution requires and what its consequences must be.

It must be emphasized again and again that economic nationalism is the corollary of etatism, whether interventionism or socialism. Only countries clinging to a policy of unhampered capitalism, today generally derided as reactionary, can do without trade barriers. If a country does not want to abandon government interference with business, and nevertheless renounces protectionism in its relations with the other member nations of the new union to be formed, it must vest all power in the authority ruling this union and completely surrender its own sovereignty to the supernational authority. But our contemporaries are not at all likely to accept this.

The core of the matter has been neglected because the belief prevails that the establishment of a federal union would solve the problem. Some powers, people assert, should be given to the supernational union government, the rest should remain with the governments of the member nations. Federal government has succeeded very well in many countries, especially in the United States and Switzerland. There is no reason, people say, to suspect that it would not prove very satisfactory in the great federal union of the Western democracies suggested by Clarence Streit.*

Unfortunately neither Mr. Streit nor the advocates of similar projects take into account the changes that have occurred in the structure of these two federal governments (as in that of all other federations) with the spread of economic interventionism and socialism. The federative systems both in America and in Switzerland were founded in an age which did not consider it the task of civil government to interfere with the business of the citizens. There were in the United States federal customs duties, a federal postal service, and a national currency system. But in almost every other respect civil government was not concerned with the control of business. The citizens were free to run their own affairs. The government’s only task was to safeguard domestic and external peace. Under such conditions it was simple to divide powers between the federal government and the governments of the various member states. To the federal government those matters were assigned which went beyond the boundaries of the states: foreign affairs, defense against foreign aggression, the safeguarding of trade between the states, the management of the postal service and of customs. Moreover the federal government did not interfere with the local affairs of the states, and the states did not interfere with what were considered the private affairs of the citizen.

This equilibrium in the distribution of jurisdictional powers was entirely upset by the policy of interventionism. New powers accrued not to the member states but to the federal government. Every step toward more government interference and toward more planning means at the same time an expansion of the jurisdiction of the central government. Washington and Berne were once the seats of the federal governments; today they are capitals in the true sense of the word, and the states and the cantons are virtually reduced to the status of provinces. It is a very significant fact that the adversaries of the trend toward more government control describe their opposition as a fight against Washington and against Berne, i.e., against centralization. It is conceived as a contest of state’s rights versus the central power.

This evolution is not accidental. It is the inevitable outcome of policies of interference and planning. Such measures must be put on a national basis when there are no trade barriers among the member states. There can be no question of adopting these measures for only one state. It is impossible to raise production costs within a territory not sheltered by trade walls. Within a system of interventionism the absence of interstate trade barriers shifts the political center of gravity to the federal government. Seen from the formalistic viewpoint of constitutional law, the United States and the Swiss Confederation may doubtless still be classified as federations, but in actual fact they are moving more and more toward centralization.

This is still more the case within a socialist system. The various republics which nominally form the Soviet Union have only a spurious existence. The Soviet Union is a wholly centralized government.* The same is true for Germany. The Nazis have replaced the federal constitution with a unitary government.

It would be a mistake to believe that resistance to an international unification of government would arise only out of considerations of national pride and vanity. Such obstacles would not be unsurmountable. The main source of opposition would be more deeply rooted. The shift of sovereignty from the national authorities to a supernational authority implies a total change in the structure of political forces. Pressure groups which were very powerful in the national frame and were in a position to shape policies may become impotent in the supernational frame, and vice versa. Even if we are prepared to set aside the ticklish question of migration barriers, the fact is evident. The American cotton producers are eager for higher prices of cotton and, although they are only a minority in the United States, are in a position to force a policy of high cotton prices upon their nation. It is doubtful whether within a union including many countries importing cotton their influence would be the same. On the other hand, British motor-car producers are sheltered against American competition through very effective protectionist measures. They would not like to lose this advantage. Examples could be multiplied indefinitely.

The most serious and dangerous opposition to the supernational unification of government would come from the most powerful of all modern pressure groups, labor. The workers of those countries in which wage rates are higher would feel injured by the competition of countries with lower wages. They would find this competition unfair; they would denounce it as dumping. But they would not agree to the only measure which could raise wage rates in the countries with less favorable conditions of production: freedom of migration.

Modern government interference with business is a policy of protecting influential pressure groups from the effects of free competition in an unhampered market economy. The pressure groups concerned have taken it as a more or less unalterable fact that in the absence of trade barriers between the various parts of a nation they cannot be protected against the competition within their own country. The New York dairy farmer does not ask for import duties on Wisconsin cheese and butter, and the workers of Massachusetts do not ask for immigration laws against the intrusion of cheap labor from the South. They submit more or less to the fact that there are neither trade barriers nor migration barriers within the United States. The attempts to erect interstate trade barriers have succeeded only to a small degree; public opinion is opposed to such endeavors.*

On the other hand, people are so much under the influence of the generally accepted tenets of economic nationalism that they acquiesce in the disadvantages inflicted upon them by protectionism. The consumer makes little protest against an import duty which forces him to pay more than the world market price for the benefit of the producers of some commodity within his own country. But it is very doubtful whether he would put up in the same way with an import duty levied for the benefit of producers in other parts of a supernational union. Would the American consumer be ready to pay higher prices for a commodity in order to further the interests of English manufacturing? Would he not find that the discrimination thus applied against cheaper products of German, Italian, or Japanese origin was prejudicial to his interests? We may wonder whether a supernational policy of protectionism would not lack the ideological foundations which render national protectionism feasible.

The main obstacle to the establishment of a supernational customs union with internal free trade among the member nations is the fact that such a customs union requires unlimited supremacy of the supernational authorities and an almost complete annihilation of the national governments if etatism is to be retained. Under present conditions it makes little difference whether the constitution of the suggested union of the Western democracies is shaped according to the legal pattern of unitary or of federal government. There are only two alternatives open: trade barriers among the member states, with all their sinister consequences, economic nationalism, rivalries and discord; or free trade among the member states and (whatever the constitutional term adopted for it) strictly centralized government. In the first case there would be not union but disunion. In the second case the President of the United States and the Prime Minister of Great Britain would be virtually reduced to the status of provincial governors, and Congress and Parliament to provincial assemblies. It is unlikely that the Americans or the British will easily agree to such a solution of the problem.*

The policies of government interference with business and of national planning beget economic nationalism. The abandonment of economic nationalism, an indispensable condition for the establishment of lasting peace, can only be achieved through a unification of government, if people do not want to return to the system of unhampered market economy. This is the crux of the matter.

The weakness of Mr. Streit’s plan lies in the fact that he is not aware of this fundamental problem. It is impossible to avoid this difficulty by a mere legalistic solution. The precariousness of the union project is not of a constitutional character. It lies in the essence of interventionist and socialist policies; it stems from present-day social and economic doctrines; and it cannot be disposed of by some special constitutional scheme.

But let us not forget that such a union must be established if any peace scheme is to work. The alternative to the realization of a union of the Western democracies is a return to the ominous conditions prevailing from 1918 to 1939, and consequently to new and still more dreadful wars.

4.

Peace in Eastern Europe

The attempts to settle the political problems of Eastern Europe by the application of the principle of nationality have met with complete failure. In that corner of the world it is impossible to draw boundaries which would clearly and neatly separate the various linguistic groups. A great part of this territory is linguistically mixed, that is, inhabited by people of different languages. The rivalries and the mutual hatreds of these nations make them an easy prey for the “dynamism” of the three big adjacent powers, Germany, Russia, and Italy. If left alone they will sooner or later lose their independence unless they cease from discord.

Both world wars originated in this area. Twice the Western democracies have drawn the sword to defend the threatened independence of these nations. Yet the West has no real material interest in preserving the integrity of these peoples. If the Western democracies succeed in establishing an order that safeguards them against new aggressions, it will make no difference to them whether Warsaw is the capital of an independent Polish state or a provincial town of Russia or Germany, or whether Athens is a Greek or an Italian city. Neither the military nor the economic power of the Western democracies would be seriously imperiled if Russia, Germany, and Italy were to partition these lands among them. Nor will it matter for them whether a Lithuanian language and literature persist or whether they disappear.

The interest of the Western democracies in East European affairs is altruistic and unselfish. It is the outcome of a disinterested sympathy, of an enthusiasm for freedom, and of a sense of justice. These feelings have been grossly exploited by all these Eastern nations. Their friends in the West did not want to help them oppress minorities or make inroads upon their weaker neighbors. When the Western democrats hailed Kossuth,3 it did not occur to them that they favored ruthless oppression of Slovaks, Croats, Serbs, Ukrainians, and Rumanians. When they expressed their sympathies for Poland, they did not mean to approve the methods applied by the Poles against Ukrainians, Lithuanians, and Germans. They sought to promote liberalism and democracy, not nationalistic tyranny.

It is probable that the political leaders of the East European linguistic groups have not yet become aware of the change going on in the attitudes of the Western nations. They are right in expecting that their nations will be restored to political independence after the victorious end of the war. But they are badly mistaken if they assume that the Western nations will fight a third world war for them. They themselves will have to establish a political order which enables them to live in peace with their immediate neighbors, and to defend their independence against future aggression on the part of the great powers Russia, Germany, and Italy.

All the plans suggested in the past for the formation of an East European or Danubian customs union or federation, or for a simple restoration of the Austro-Hungarian Empire, were doomed to fail because they were based on erroneous assumptions. Their authors did not recognize that a customs union, in this age of government interference with business, is incompatible with maintaining the sovereignty of the member nations. They did not grasp the fact that under present conditions a federation means that virtually all power is vested in the supernational federal government, and the national governments are reduced to the status of provinces. The only way to substitute peace and coöperation for the existing disunion in Eastern Europe, or in any other part of the world, is the establishment of a unitary government—unless the nations will return to laissez faire.

Unitary government is the more adequate and indispensable in Eastern Europe in that it also provides the only solution for the peculiar problem of boundaries and linguistic minorities. A federation could never succeed in this respect. Under a federative system the constitution assigns some governmental powers to the federal government and others to the local governments of the member states. As long as the constitution remains unchanged the federal government does not have the power to interfere in questions which are under the jurisdiction of the member states. Such a system can work and has worked only with homogeneous peoples, where there exists a strong feeling of national unity and where no linguistic, religious, or racial differences divide the population.

Let us assume that the constitution of a supposed East European federation grants to every linguistic minority group the right to establish schools where its own language is taught. Then it would be illegal for a member state to hinder the establishment of such schools directly or openly. But if the building code or the administration of public health and fire fighting are in the exclusive jurisdiction of the member states, a local government could use its powers to close the school on the ground that the building did not comply with the requirements fixed by these regulations. The federal authorities would be helpless. They would not have the right to interfere even if the grounds given proved to be only a subterfuge. Every kind of constitutional prerogative granted to the member states could be abused by a local government.

If we want to abolish all discrimination against minority groups, if we want to give to all citizens actual and not merely formal freedom and equality, we must vest all powers in the central government alone. This would not cripple the rights of a loyal local government eager to use its powers in a fair way. But it would hinder the return to methods whereby the whole administrative apparatus of the government is used to harm minorities.

A federation in Eastern Europe could never abolish the political implications of the frontiers. In every member state there would remain the problem of minorities. There would be oppression of minorities, hatred, and Irredentism. The government of every member state would continue to consider its neighbors as adversaries. The diplomatic and consular agents of the three great neighboring powers would try to profit from these quarrels and rivalries, and might succeed in disrupting the whole system.

The main objectives of the new political order which has to be established in Eastern Europe must be:

1. To grant every citizen full opportunity to live and to work freely without being molested by any linguistic group within the boundaries of Eastern Europe. Nobody should be persecuted or disqualified on account of his mother tongue or his creed. Every linguistic group should have the right to use its own language. No discrimination should be tolerated against minority groups or their members. Every citizen should be treated in such a way that he will call the country without any reservation “my country” and the government “our government.”

2. Not to lead any linguistic group to expect improvement in its political status by a change in territorial organization. The difference between a ruling linguistic group and oppressed linguistic minorities must disappear. There must be no “Irredenta.”

3. To develop a system strong enough to defend its independence against aggression on the part of its neighbors. Its armed forces must be able to repel, without foreign assistance, an isolated act of aggression on the part of Germany or Italy or Russia. It should rely on the help of the Western democracies only against a common aggression by at least two of these neighbors.

The whole territory of Eastern Europe must therefore be organized as a political unit under a strictly unitary democratic government. Within this area every individual should have the right to choose where he wishes to live and to work. The laws and the authorities should treat all natives—i.e., all citizens of East Europe—alike, without privileges or discrimination for or against individuals or groups.

Let us call this new political structure the “Eastern Democratic Union” (edu). Within its framework the old political units may continue to function. A dislocation of the historically developed entities is not required. Once the problem of borders has been deprived of its disastrous political implications, most of the existing national bodies can remain intact. Having lost their power to inflict harm upon their neighbors and upon their minorities, they may prove very useful for the progress of civilization and human welfare. Of course, these former independent sovereign states will in the framework of the edu be nothing more than provinces. Retaining all their honorary forms, their kings or presidents, their flags, anthems, state holidays, and parades, they will have to comply strictly with the laws and administrative provisions of the edu. But so long as they do not try to violate these laws and regulations, they will be free. The loyal and law-abiding government of each state will not be hindered but strongly supported by the central government.

Special commissioners of the edu will have to oversee the functioning of the local governments. Against all administrative acts of the local authorities injured parties will have the right to appeal to this commissioner and to the central government, provided that such acts do not come under the jurisdiction of a law court. All disagreements between local governments or between the commissioner and the local government will be ultimately adjudicated by the central government, which is responsible only to the central parliament. The supremacy of the central government should not be limited by any constitutional prerogatives of local authorities. Disagreements should be settled by the central government and by the central parliament, which should judge and decide every problem in the light of its implications for the smooth working of the total system. If, for instance, a dispute arises concerning the City of Wilno—one of the innumerable neuralgic points of the East—the solution will be sought not only between the Polish and Lithuanian local governments, or between the Polish and Lithuanian members of the central parliament; the central government and the central parliament will try to find a solution which may also be applied with justice to similar cases arising in Budweis, in Temesvár, or in Salonika.

In this way it may be possible to have a unitary government with a practically satisfactory degree of administrative decentralization.

The edu would have to include all the territories between the eastern borders of Germany, Switzerland, and Italy and the western borders of Russia, including all Balkan countries. It would have to take in the area which in 1933 formed the sovereign states of Albania, Austria, Bulgaria, Czechoslovakia, Danzig, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Rumania, and Yugoslavia. It would have to include the territory that in 1913 comprised the Prussian provinces of East Prussia, West Prussia, Posen, and Silesia. The first three of these provinces belonged neither to the Holy Empire nor to the German Confederation. Silesia was a part of the Holy Empire only as an adjunct of the Kingdom of Bohemia. In the sixteenth and seventeenth centuries it was ruled by dukes who belonged to a branch of the Piasts, the old royal family of Poland. When Frederick the Great in 1740 embarked on the conquest of Silesia, he tried to justify his claims by pointing out that he was the legitimate heir of the Piast family. All four of these provinces are inhabited by a linguistically mixed population.

Italy must cede to the edu all the European countries which it has occupied since 1913, including the Dodecanese Islands, and furthermore the eastern part of the province of Venice, Friuli, a district inhabited by people speaking a Rhaeto-Romanic idiom.

Thus the edu will include about 700,000 square miles with some 120,000,000 people using 17 different languages. Such a country when united will be strong enough to defend its independence against one of the three mighty neighbors, Russia, Germany, and Italy.

The most delicate problem of the edu will be the linguistic problem.

All seventeen languages need, of course, to be treated equally. In every district, county, or community the tribunals, government agencies, and municipalities would have to use every language which in that district, county, or community was spoken by more than 20 per cent of the population.

English ought to be used as an international subsidiary language for dealings among members of the different linguistic groups. All laws would be published in English and in all seventeen national idioms. This system may seem strange and complicated. But we have to remember that it worked rather satisfactorily in old Austria with its eight languages. Contrary to a widespread and erroneous notion, the German language had no constitutional preëminence in imperial Austria.

The governments of Eastern Europe abused the system of compulsory education in order to force minorities to give up their own languages and to adopt the language of the majority. The edu would have to be strictly neutral in this respect. There would be private schools only. Any citizen or group of citizens would have the right to run an educational institution. If these schools complied with standards fixed by the central government, they would be subsidized by a lump sum for every pupil. The local governments would have the right to take over the administration of some schools, but even in these cases the school budgets would be kept independent of the general budget of the local government; no public funds but those allocated by the central government as subsidies for these schools should be used.

The politicians and statesmen of these Eastern nations are united today on only one point: the rejection of such a proposal. They do not see that the only alternative is permanent unrest and war among them, and perhaps partition of their territories among Germany, Russia, and Italy. They do not see it because they rely on the invincibility of the British and American forces. They cannot imagine the Americans and British having any task in this world but to fight an endless sequence of world wars for their benefit.

It would be merely an evasion of reality for the refugee representatives of these nations to try to convince us that they intend to dispose peacefully of their mutual claims in the future. It is true that Polish and Czech refugees, before Germany invaded Russia, made an agreement concerning the delimitation of their boundaries and future political coöperation. But this scheme will not work when actually put into practice. We have ample experience that all agreements of this type fail because the radical nationalists never accept them. All endeavors at an understanding between Germans and Czechs in old Austria met with disaster because the fanatical youth rejected what the more realistic older leaders had proposed. Refugees are, of course, more ready to compromise than men in power. During the first World War the Czechs and Slovaks, as well as the Serbs, Croats, and Slovenes, came to an understanding in exile. Later events proved the futility of their agreements.

In addition, we must remember that the area which is claimed by both the Czechs and the Poles is comparatively small and of minor importance for each group. There is no hope that a similar agreement ever could be effected between the Poles on the one hand and the Germans, Lithuanians, Russians, or Ukrainians on the other hand; or between the Czechs on the one hand and the Germans or Hungarians or Slovaks on the other. What is needed is not delimitation of specific border lines between two groups but a system where the drawing of border lines no longer creates disaffection, unrest, and irredentism among minorities. Democracy can be maintained in the East only by an impartial government. Within the proposed edu no single linguistic group would be sufficiently numerous to dominate the rest. The most numerous would be the Poles and they would comprise about 20 per cent of its whole population.

One could object that the territory assigned to the edu is too large, and that the different linguistic groups involved have nothing in common. It may indeed seem strange that the Lithuanians should coöperate with the Greeks, although they never before have had any other mutual relations than the ordinary diplomatic ones. But we have to realize that the very function of the edu would be to create peace in a part of the world ridden by age-old struggles among linguistic groups. Within the whole area assigned to the edu it is impossible to discover a single undisputed border line. If the edu has to include both Lithuanians and Poles, because there is a large area in which Poles and Lithuanians live inextricably mixed and to which both nations vigorously lay claim, it must include the Czechs too because the same conditions prevail between the Poles and the Czechs as subsist between the Poles and Lithuanians. The Hungarians, again, must be included for the same reasons, and so must the Serbs, and consequently the other nations which claim parts of the territory known as Macedonia, i.e., the Bulgarians, Albanians, and Greeks.

For the smooth functioning of the edu it is not necessary that the Greeks should consider the Lithuanians as friends and brothers (although it seems probable that they would have more friendly feelings for them than for their immediate neighbors). What is needed is nothing else than the conviction of the politicians of all these peoples that it is no longer possible to oppress men who happen to speak another language. They do not have to love one another. They merely have to stop inflicting harm upon one another.

The edu would include many millions of German-speaking citizens, and more than a hundred thousand Italian-speaking citizens. It cannot be denied that the hatred engendered by the methods used by the Nazis and the Fascists during the present war will not disappear at once. It will be difficult for Poles and Czechs to meet for collaboration with Germans, and for Serbs and Slovenes to coöperate with Italians.

But none of these objections can be considered valid. There is no other solution of the East European problem. There is no other solution that could give these nations a life of peace and political independence.

5.

The Problems of Asia

When the age of liberalism dawned, the Western nations began to have scruples about their colonial enterprises. They felt ashamed of their treatment of backward peoples. They became aware of the contrast between the principles of their domestic policies and the methods applied in colonial conquest and administration. What business did they, liberals and democrats as they were, have to govern foreign nations without the consent of those ruled?

But then they had an inspiration. It was the white man’s burden to bring the blessings of modern civilization to backward peoples. It would be unjust to say that this exculpation was mere cant and hypocrisy. Great Britain had reshaped its colonial system radically in order to adjust it to the best possible promotion of the welfare of the natives. In the last fifty years British administration of Indian and colonial affairs has been by and large government for the people.

However, it has not been government by the people. It has been government by an alien master race. Its justification lay in the assumption that the natives are not qualified for self-government and that, left alone, they would fall victim to ruthless oppression by conquerors less civilized and less benevolent than the English. It further implied that Western civilization, with which the British wanted to make the subdued natives happy, was welcome to them. We may take it for granted that this was really the case. The proof is that all these colored races were and are anxious not only to adopt the technical methods of Western civilization but also to learn Western political doctrines and ideologies. It was precisely this acceptance of Western thought that finally led them to cry out against the absolute rule of the invaders.

The demands for liberty and self-determination on the part of the Asiatic peoples are a result of their Westernization. The natives are fighting the Europeans with ideologies borrowed from them. It is the greatest achievement of Europe’s nineteenth-century Asiatic policies that the Arabs, the Hindus, and the Chinese have at length grasped the meaning of Western political doctrines.

The Asiatic peoples are not justified in blaming the invaders for atrocities committed in previous years. Indefensible as these excesses were from the point of view of liberal tenets and principles, they were nothing extraordinary when measured by the standards of oriental customs and habits. But for the infiltration of Western ideas the East might never have questioned the propriety of slaughtering and torturing foes. Their autochthonous methods were much more brutal and abominable. It is paradoxical to bring up these bygone grievances in the very hour when the most numerous Asiatic nations can preserve their civilizations only with the military aid of the Anglo-Saxons.

A defeat of the United Nations would spell the doom of the Chinese, of the Hindus, of the Moslems of Western Asia, and of all the smaller nations of Asia and of Africa. The victory of the United Nations will bring them political autonomy. They will get the opportunity to demonstrate whether they have absorbed more from the West than the modern methods of total war and total destruction.

The problem of the relations between East and West is obscured by the shortcomings and deficiencies of current ways of dealing with political issues. The Marxians purposely ignore the inequality of natural conditions of production in different parts of the world. Thus they eliminate from their reasoning the essential point. They bar their own way to either a satisfactory interpretation of the past or an understanding of the tasks of the future.

In the face of the inequality of natural resources there are today no such things as internal affairs of a country which do not concern the rest of mankind. It is to the vital interests of every nation that all over the earth the most efficient methods of production should be applied. It hurts the well-being of everybody if, for instance, those countries which have the most favorable conditions for the production of rubber do not make the most efficient use of their resources. One country’s economic backwardness may injure everybody else. Autarky in one country may lower the standard of living in every other country. If a nation says: “Let us alone; we do not want to interfere with your affairs, and we will not permit you to mind our business,” it may wrong every other people.

It was these considerations that led the Western nations to force China and Japan to abandon their age-old isolation and to open their ports to foreign trade. The blessings of this policy were mutual. The drop of mortality figures in the East proves it clearly. East and West would both suffer if the political autonomy of the Asiatic nations were to result in a fall in their production, or in their partial or complete withdrawal from international trade.

We may wonder whether the champions of Asiatic home rule have fully grasped the importance of this fact. In their minds modern ideas are in a curious way blended with atavistic ones. They are proud of their old civilizations. They are apt to despise the West. They have a far sharper recognition of the shortcomings of Europe and America, their militarism and nationalism, than of their great achievements. Marxian totalitarianism appeals more to them than “the bourgeois prejudices” of liberty, capitalism, and democracy. Do they realize that there is but one way to prosperity open for their nations, namely, the unconditional adoption of Western industrialism?

Most of the leaders of the oriental nations are convinced that the West will turn toward socialism. But this could not change the main issue. Backwardness in the East would offer the same problems for a socialist West as for a capitalist West.

The age of national isolation of individual countries is gone with the progress of division of labor. No nation can now look with indifference at the internal conditions of other countries.

6.

The Role of the League of Nations

The League of Nations which the Covenant of 1919 established in Geneva was not an international world government. It was mainly an organization for periodical conferences of the delegates of those national governments that were prepared to attend them. There were no international executive offices. There was only a staff whose duty consisted mostly in writing reports and in collecting statistical materials. Further, many of the staff considered themselves not officers of the international body but unofficial representatives of the governments of their own nations. They got their appointments on the recommendation of their own governments. They were eager to serve their own governments well in order some day to get better positions in the civil service of their own countries. Some of these officials were not only not internationally minded but imbued with the spirit of nationalism. There were some strange figures among them. Vidkun Quisling, for example, served for some time as an officer of the League. Rost van Tonningen was for many years a member of the Secretariat and in 1931 became the League’s delegate in Vienna; he left this important position after some years in order to become deputy chief of the Dutch Nazi party, and is today one of the outstanding figures in the puppet administration of the Netherlands. There were in the League also, it is true, some of our most brilliant and high-minded contemporaries. But unfortunately conditions paralyzed their efforts and most of them left disappointed.

It is of little concern whether the League of Nations is restored after the war or not. It contributed very little to the promotion of peace and international coöperation. It will not be any more successful in the future. Nationalism will frustrate its work as it did in the years before 1939.

Many distinguished Americans indict their own country for the failure of the League. If America had joined the League, they say, it would have cloaked this institution with the prestige needed for the fulfillment of its tasks. This is an error. Although formally not a member of the League, the United States gave valuable support to its efforts. It mattered little that America did not contribute to its revenues or send official delegates to its meetings. The world knew very well that the American nation backed the endeavors to maintain peace. American official coöperation in Geneva would not have stopped the aggressor nations.

As all nations today indulge in nationalism, the governments are necessarily supporters of nationalism. Little for the cause of peace can be expected from the activities of such governments. A change of economic doctrines and ideologies is needed, not special institutions, offices, or conferences.

The chief shortcoming of many plans suggested for a durable peace is that they do not recognize this fact. Eminent champions of the League of Nations, such as Professor J. B. Condliffe and Professor J. E. Meade, are confident that the governments will be wise enough to eradicate by common efforts and mutual agreements the most objectionable excrescences of economic nationalism and to mitigate conflicts by granting some concessions to the complainants.* They recommend moderation and restraint in the use of national sovereignty. But at the same time they advocate more government control, without suspecting that this must necessarily push every government toward intransigent nationalism. It is vain to hope that a government committed to the principles of etatism could renounce striving for more insulation. We may assume that there are in every country men ready to endorse the proposals of Messrs. Condliffe and Meade; but they are minorities whose opinions do not find a wide response. The further a nation goes on the road toward public control of business, the more it is forced to withdraw from the international division of labor. Well-intentioned exhortations on the part of internationally minded economists cannot dissuade an interventionist government from measures of economic nationalism.

The League of Nations may continue to combat contagious disease, the drug traffic, and prostitution. It may continue to act in the future as an international bureau of statistics. It may develop its work in the field of intellectual coöperation. But it is an illusion to hope that it could render more than minor services for the promotion of peace.

[* ]For instance, the American motor-car manufacturers or the big oil, margarine, and soap concerns. The American automobile manufacturers do not advocate protection. In Germany the Association of Manufacturers of Machinery was the only organization which (up to 1933) had the courage to fight openly the protectionist program of the nationalist parties.

[* ]Such is the essence of the monetary teachings of Lord Keynes. The Keynesian school passionately advocates instability of foreign exchange rates.

[† ]Lord Keynes did not coin this phrase in order to recommend short-run policies but in order to criticize some inadequate methods and statements of monetary theory (Keynes, Monetary Reform, New York, 1924, p. 88). However, the phrase best characterizes the economic policies recommended by Lord Keynes and his school.

[* ]See Mises, Theory of Money and Credit (New York, 1934), pp. 137–145, and Nationalökonomie (Geneva, 1940), pp. 375–378. [Also in these editions: Theory of Money and Credit (Yale, 1953), pp. 137–145; (Indianapolis, 1980), pp. 160–168. See also Mises’s Human Action (1949; Regnery, 1966; FEE, 1966; and Liberty Fund, 2007), pp. 416–419.—Ed.]

[1. ][“If you want peace prepare for war.”—Ed.]

[2. ][Matthias Erzberger (1875–1921), German statesman, opposed Germany’s war policy and favored acceptance of the Versailles Treaty, was shot and killed by former officers. Walther Rathenau (1867–1922), participated in preparations for the Versailles Peace Conference, served as minister of reconstruction and secured reduction of German reparations, was assassinated by reactionaries.—Ed.]

[* ]Cassirer, Freiheit und Form, Studien zur deutschen Geistesgeschichte (Berlin, 1916), pp. 475 ff.

[* ]Of course, the preservation of every nation’s full sovereignty would not hinder peaceful coöperation if the nations were to return to a free market economy without any trade or migration barriers.

[* ]Union Now (London, 1939); Union Now with Great Britain (London, 1941).

[* ]The decree of the Supreme Soviet of February 1, 1944 (see New York Times, February 3, 1944), does not interfere in any way with the perfect centralization of the Soviet economic management and domestic administration. The conduct of all economic and administrative affairs of the whole territory subject to the Soviets remains in the hands of the central offices of Moscow. They alone have the power and the right to direct all economic and political activities. And now, as before, the central committee of Moscow appoints and removes all officials of all the sixteen nominally independent republics.

[* ]See Buell, Death by Tariff (Chicago, 1938); Melder, State Trade Walls (New York, 1939).

[* ]It is futile to ask people whether they are in favor of a renunciation of their own nation’s sovereignty. Most laymen do not understand the meaning of the term “sovereignty.” The correct formulation for the question would be: Do you advocate a system under which your nation could be forced to submit to a measure which the majority of your fellow citizens oppose? Are you ready to see essential laws of your country (for example, immigration laws) altered by a Union Parliament in which the members returned by your country are a minority only?

[3. ][Lajos Kossuth (1802–1894), Hungarian patriot and statesman, imprisoned on political charges by the Austrian government (1837–40). He led the Hungarian insurrection of 1848–49. In 1848 he was appointed governor of Hungary with dictatorial powers. When in the following year the insurrection was crushed, he resigned and fled into exile.—Ed.]

[* ]J. E. Meade, The Economic Basis of a Durable Peace (New York, 1940); J. B. Condliffe,Agenda for a Postwar World (New York, 1942).