Front Page Titles (by Subject) CHAPTER I.: DIFFERENT TYPES OF EFFECT - The Continental System: An Economic Interpretation
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CHAPTER I.: DIFFERENT TYPES OF EFFECT - Eli F. Heckscher, The Continental System: An Economic Interpretation 
The Continental System: An Economic Interpretation, ed. Harald Westergaard (Oxford: Clarendon Press, 1922).
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DIFFERENT TYPES OF EFFECT
THE Napoleonic wars occurred during a period of far-reaching importance for the material development of Europe. That implies that during this period the economic life of Europe must have undergone a great transformation which can be ascribed only in part to the system under discussion. The problem will therefore be not only too widely extended, but also—which is of more consequence—altogether erroneously stated from the very outset, if we regard it as identical with the task of showing the general changes in the economic life of Western Europe during the first decade and a half of the nineteenth century. Instead of that, what we have to do is to isolate those aspects of the development which can be connected in any way with the Continental System. This is a problem of a more or less theoretical nature, which presupposes a knowledge of the general connexion that exists between cause and effect in the sphere of economics, and which can therefore not be solved by purely historical methods.
The point which offers the greatest interest in such a problem is the working of the blockade policy in so far as it became effective. Consequently, we now lay aside the weakness (proved in detail in the preceding part) of the Continental System as a measure of blockade, and turn to the results of the policy.
On the Continent proper the Continental System necessarily came to work as a gigantic protectionist policy pursued to the limit. By excluding foreign goods it stimulated the domestic production of all kinds of goods which found any general use within the country or even within the Continent. To this extent, the Continental System, like the system that prevailed during the recent war, affords an occasion of studying the effects of a high protectionism enforced with the greatest violence and with all the resources of the state for a short period. The difference between this and the régime which characterized the blockaded states of the Continent during the recent war lies solely in the fact that such a system of protection was then freely chosen, while in our own day it was imposed from without. On the other hand, the Continental System, like the state of affairs prevailing during the recent war, exhibits one significant and very fatal dissimilarity from the ordinary kind of protection that prevails in peace time, namely, that under the latter régime the obstacles in the way of imports usually embrace only the products of industry and agriculture, not the raw materials of industry, whereas the nature of the Continental System as a general self-blockade compelled, or at least should have compelled, equally rigorous embargo against all kinds of commodities imported by sea. The efforts of the all-important individual who dominated the Continent had consequently to be directed toward procuring of raw materials within his own territories, a task which always encounters more insuperable limits than that of working up materials which are to be found within one's own borders. And so far as such an effort failed, there was an irremediable self-contradiction within the policy itself. Either, in fact, it was necessary to sacrifice the industrial development by which the position of Great Britain as the workshop of the world was intended to be crushed, or it was necessary to accept raw materials through the co-operation of the ruler of the seas and thereby fail in the object of destroying the commercial and maritime power of Great Britain and consequently fail also in the object of 'conquering her by excess'. When Mollien speaks of the inexplicable 'contradiction' between the obstacles in the way of the supply of raw materials and the prohibition of British manufactures, because the former benefited British industry more than the latter damaged it, consequently he puts his finger on this irremediable doubleness of the very principle of the Continental System.1
On the Continent, however, there existed a further contrast, which was not at all implicit in the idea of the Continental System, but was a consequence of the fact that the overthrow of Great Britain was not the all-dominating thought of Napoleon or his system to the extent that he usually pretended. As has already been shown in several places in the preceding account, in fact, the purely protectionistic aims of the system for France herself practically took the same rank as the object of conquering the enemy. It was for that reason that Napoleon not only neglected what otherwise ought to have been done, in the interest of the first object, to form an economic combine of continental Europe, but even directed his policy against the countries of his own continental vassals and allies.
It follows that the effects of the Continental System in the country of Napoleon's heart, that is, in France itself, were all that a protectionist policy pursued with absolute ruthlessness can involve for a country that adopts it. When we say 'France' here we use it as an abbreviation for the old French monarchy and the French acquisitions of the revolutionary period, i.e., including Belgium and the left bank of the Rhine but not, in the main, the conquests of the consulate and the empire, which were otherwise treated. The effects here were bound to be the typical consequences of an embargo policy; and, as appears from what has just been said, such a policy directed not only against the supply of goods by sea and from lands beyond the seas, but also to a large extent against the supply of goods by land and from the other continental states. We might here foresee that the situation must be characterized as that of economic self-sufficiency and of a hothouse development of industrial production.
THE REST OF THE CONTINENT
As regards the other continental states within Napoleon's more or less undisputed realm of power, on the other hand, the effects were bound to be far more varied, differing not only according to the degree of their political independence and to their actual observance of the Continental decrees within their territories, but also according to the relative importance of the two opposite tendencies of which they were the object. A moment's consideration will show that their position had features in common both with that of France and with that of Great Britain. It resembled the former in so far as they, like France, had to abstain from supply by sea; it resembled the latter inasmuch as they, like Great Britain, were shut out from sales in the markets which were under the direct sway of Napoleon. Consequently, the effects in the non-French parts of Central and Southern Europe cannot be expected to have the same self-evident, consistent appearance as in France; but they have a practical and historical interest of their own.
Moreover, the effects on the Napoleonic mainland were bound to vary with the position of foreign trade and of the production of goods intended for foreign sale. In this connexion, however, we must emphasize at the outset the limitation in the effects which follow from the fact that in scarcely any of the continental states was economic life centred on international exchange. The great commercial cities of Hamburg, Bremen, Amsterdam, Rotterdam, Antwerp, and, in France, Bordeaux, Marseilles, Nantes, Havre, and La Rochelle, were, it is true, entirely dependent on foreign trade and suffered proportionately from the blockade in so far as it became effective; but this point has been already so fully illustrated in the preceding part that it is not necessary to dwell further upon it here. Among the non-French states, countries which, like Saxony, Switzerland, the Grand Duchy of Berg, Bohemia, and Silesia, had already reached the industrial stage and were therefore very dependent on international intercourse, were those most affected by the Continental System; however, they too were affected very differently, according to their political position.
The difference between industrial countries and countries especially given over to agriculture and the yielding of raw materials, namely, North Germany and especially the Baltic States, Prussia, Mecklenburg, Russia, Austria, and Hungary, did not primarily consist in the fact that the latter were independent of foreign trade, since they also had exports. It consisted, rather, in the fact that, from the standpoint of the Continental System, the industrial life of the two groups of countries was affected quite differently by the blockade. The industrial countries, on the one side, found obstacles placed in the way of their supply of raw materials; but, on the other hand, owing to the strangling of British supply, they increased the possibilities of sale for their own manufactures outside of France and Italy. It was as regards sales that the agrarian countries were more or less hard hit, partly through the general obstacles in the way of navigation, which offered almost the only possibility for the conveyance of their bulky goods, and partly also through the prohibition of intercourse with Great Britain, who was their chief buyer.2 Owing to the tendency of the Continental System to render difficult only imports into the Continent, however, the effect of this factor was considerably diminished for the countries producing raw materials and corn. For instance, it practically did not make itself felt in Mecklenburg during this first period. But, as will be explained more fully later on in this book, Napoleon's attitude toward the supplying of England with foodstuffs was so opportunistic, that it is not worth while to attempt to draw any conclusions in principle as to the results that might have ensued. So much may be asserted, however: the difficulties of the agrarian countries were due, not to Napoleon's deliberate intention to cut off England from the supply of foodstuffs or raw materials, but to his very well-grounded apprehension that an export to England from countries which were not directly under his sway would give rise to the importation of colonial goods and English manufactures. In this way, primarily, the situation for both Prussia and Russia is explained. During the second period of the Continental System, it is true, the difficulties for the agrarian countries were increased; but that was because all maritime trade within Napoleon's sphere of power was now made dependent on French licences, that is to say, on the Emperor's need of money or his favour. The particular ill-will with which the Continental System was manifestly regarded in the agrarian countries is explained less by the actual damage it did to the economic life of those countries than by the fact that the policy did not contain any protectionist elements, and consequently did not offer the popular imagination any compensation whatever for the incessant and intensely irritating intervention that it caused.
As regards all the continental states within Napoleon's realm of power, the Continental System had a restrictive effect on exports by throwing difficulties in the way of imports, which it is the sole business of exports to pay for. One may also express the matter in this way: increased self-sufficiency must diminish the need of exports by diminishing imports. The only reasonably conceivable exception from this might be if in any case imports by land increased more than imports by sea diminished; and it is not impossible that the greatly extended intercourse of Saxony with Eastern Europe led to such a result.
Such, from the standpoint of general principles, must have been the position of the continental states. In regard to Great Britain, on the other hand, one may express oneself more briefly at this stage. The prime object of Napoleon's policy, of course, was to bring about a dislocation, to prevent the sale both of manufactured products and of the colonial goods imported with a view to re-export, and consequently to ruin the credit system and create unemployment in industry. So long as it was a question only of such ephemeral phenomena, the contrast between Great Britain and the Continent must have been very great, with excess of goods prevailing on the island kingdom and scarcity of goods prevailing on the Continent. On the other hand, in so far as the exclusion of goods from the Continent proved to be lasting and was not made unimportant through increased sales in other parts of the world, the economic life of Great Britain necessarily aimed in the same direction as that of the Continent, namely, toward increased self-sufficiency. The losses incurred in foreign trade, shipping and export industry, indeed, must have made production for sale at home more profitable and thus have given a backward wrench to the unprecedented development which Great Britain was just then undergoing. There is nothing to indicate that Napoleon thought so far ahead; on the contrary, any such speculations would undoubtedly have been answered by one of his usual candid expressions about 'ideologues'. But that would not have prevented the results from being what we have indicated.
Manifestly, this would have damaged the economic position of Great Britain immensely, quite apart from the great dislocations that occurred during the period of transition. It would have reduced her national income far below what it had been before, inasmuch as such a development would have involved passing over from industries which were excellently suited to her in her then position to other industries which were far less suitable. For this reason, too, the losses consequent upon a lasting mutual embargo between Great Britain and the rest of the world would have been far greater for Great Britain than for the Continent. For the international division of labour, specialization in industry and commerce—to confine ourselves now to what was most typical at the time—formed the fundamental condition for the possibility of Britain to derive benefit from her position as the almost sole possessor of the great new inventions. The position of the continental states, on the other hand, was already, at the outbreak of the great struggle, so much less widely separated from economic self-sufficiency that a return thereto would have involved far more limited sacrifices. They would thereby, it is true, have largely lost the advantages of enjoying, by means of purchase from England, the fruits of the great inventions and of covering their requirements in transmarine goods; and at the same time they would have had, with increased sacrifice and diminished results, to find substitutes for both by a kind of production which was in itself, from an economic point of view, misdirected. But the extent of all this must nevertheless have remained insignificant in comparison with the corresponding reshaping of Great Britain. Evidently this result by no means implies that the position of Great Britain would have been absolutely worse than that of the Continent, but only that Great Britain would thereby have lost far more considerable advantages which she had already gained. The turning back of the clock could only have had its worse effects on the situation in the country where the greatest advances in material development had just previously taken place. Whether Great Britain in the long run, under the suppositions just given, would have been able to preserve her relative precedence, is quite another question, and one which it is difficult to answer. Nevertheless, in this case the answer may quite well be conceived to be in the affirmative, and for the reason that the blockade itself rendered difficult, and would have continued to do so, the spread of the industrial revolution from Great Britain to the Continent. In reality, of course, the development did not at all follow this course; but, nevertheless, the theoretical results following from a given position are being examined in this place, not only to illustrate what the Continental self-blockade, thought out to its logical conclusion, would have involved, but also in order to be able to confront with it the actual course of development in due time.
COUNTRIES HAVING INTERCOURSE WITH GREAT BRITAIN
Finally, what must be made clear is the position of the countries which had unhampered supply from Great Britain, that is, chiefly Sweden and, before the complete carrying through of the American self-blockade, the United States. The position of these countries was necessarily marked by an abnormally facilitated supply, inasmuch as Great Britain was obliged to seek there the greatest possible compensation for the markets from which she was debarred. While the countries of the self-blockade were forced into the greatest possible many-sidedness of production, therefore, the countries now in question fell into a kind of hypertrophy of imports. This means that they were brought to buy industrial products and colonial goods in return for a relatively slight output of their own products—a development in itself very advantageous, in so far as it gives a great indirect result of the productive forces of the country. In contrast with these advantages, however, stand the dislocations in the economic organization of the country which would have been a consequence of the necessary discontinuance of previously existing branches of industry. But this was scarcely the case as regards either Sweden or America. Moreover, it is not really necessary in principle, because, as has been said, the development in itself merely implies that one gets more than usual in exchange for one's own goods. It is therefore of greater importance, from the standpoint of the temporary nature of the whole situation, that the industrial development of those countries was somewhat delayed by the exceptional facility of importing British goods, a matter which was of no little consequence for the United States. To this the workings of the Continental System in those countries would have been confined if the Napoleonic self-blockade of the Continent had been complete and effective. But as this was very far from the case, and as the breaking of the blockade was especially done by countries of the type now in question, there was a huge increase of re-exports, that is to say, of intermediary trade, and this became beyond all comparison the most important factor in the actual situation. Nevertheless, the importance of the former factor was not cancelled by this; there was also a great increase in the imports which remained within the country. Again, with the immense increase of prices for British and colonial goods on the Continent, the occupation of the middleman must obviously have been extremely profitable when successful, but, of course, proportionately speculative and uncertain.
Having set forth the position of the different countries in principle, we may now pass on to a consideration of the concrete development, which offers an abundance of instructive features to illustrate and compare with those of our own day.
[1.] Mollien, Mémoires, &c., vol. II, p. 462; vol. III, pp. 32-3.
[2.] The great advantages accruing to the northern countries in their intercourse with Great Britain constitute the main contention upheld in J. Jepson Oddy's valuable book, European Commerce (London, 1805), and his figures bear out his statements. As regards Russia, he 'cannot help observing how amazingly advantageous its trade is with the British dominions. Not only is the amount of the sales nearly equal to those of all other nations, but it is from Great Britain only that Russia receives a balance in cash' (p. 209).