CHAPTER III. Hinc Usura Uorax Auidumque in Tempora Fenus Et Concussa Fides Et

Hinc usura uorax auidumque in tempora fenus et concussa fides et MULTIS UTILE BELLUM.

Lucan, I, 181.

Individuals are constantly trying to decrease supply for their own advantage.--Fabian Essays, 1889, p. 17.

Sec. 1

Trade during the War

Trade during the war seems to have had a remarkably good time. In the first year of warfare I began to collect a few facts in support of what then seemed the paradoxical view that war was, in essence if not in origin, a very profitable capitalistic manoeuvre; a view deduced from the opinion I had formed a priori of the nature of all modern warfare. Instead of a few corroborating voices I found testimony abundant in every paper I picked up, besides the live evidence received in private letters and conversations. This pamphlet being rather philosophic than statistical, I have taken the easy course of printing a selection of these testimonies, crude and undigested, in an appendix--a cold storage of facts and figures that allows me to repeat with a quiet conscience that trade is booming. The greater the war, apparently, the greater the profits. In the words of the Manchester Guardian:--

The first full calendar year of war has been a period of unparalleled industrial activity and, generally speaking, prosperity in this country. Heavy losses and bad times have been encountered in a few important industries, but these are balanced by unprecedented profits made by a large variety of industries, whether directly or indirectly affected by the war. ... But it would be a mistake to suppose that, while war manufactures prospered, all other

FOOTNOTES:

"England and the rest of Western Europe have outgrown by about three hundred years the time in the development of nations when fighting is natural and even necessary. England, of course, continues to contemplate war, and to be bluffed by the threat of war in the circumlocutions of diplomacy. But her national welfare no longer requires war; and, if she ever undertakes it, it will be at the bidding of merchants and usurers, who do not represent even the baser instincts of the specifically national spirit, but are wholly foreign and parasitic. On that occasion the Daily Mail and the Foreign Office will no doubt assure the British people that the war in question involves the whole honour and welfare of the State; and the people will believe it. But it will not be true. For England is happily not, or not yet, a nation of shopkeepers; and it will be only the shopkeepers whose welfare is concerned."]

industry languished and decayed. To prove the contrary and show that only here and there were there heavy losses, we may quote some figures compiled by the Economist....

And so forth.

To this I will add only two typical paragraphs as a text for my subsequent remarks, as I believe they suggest the general economic process which enriches the particular industries to which they refer. The first is taken from the Sunday Pictorial, of all papers.

Immense increases in the profits of two shipping companies are, as a result of the ceaseless rise in freights, disclosed in the reports of two Newcastle lines published yesterday. The high cost of freights is largely responsible for the dearness of food, coal, and other necessities of life. The gross profits of the Cairn Line of Steamships, Ltd., amounted to L292,108, and the net profits, after deducting the special war taxation and other items, were L162,689. A dividend of 10 per cent, with bonus of 4s. per share, is recommended. This makes a total of 30 per cent, free of income tax, as against 10 per cent last year, when the total profits amounted to L97,335. Less than half of this company's capital is paid up, the total authorised being L600,000; there are also debentures of about L150,000.

The next quotation is from the New Statesman:--

Glasgow is exceedingly prosperous, and iron and steel manufacturers tell me that the next three or four years, peace or war, must mean a period of prosperity for them. Government orders now absorb so large a proportion of output that outside requirements are simply not being met. Owing to the scarcity of shipping this deficiency is not being filled by imports from America (the only other possible source of supply), so that unfilled orders are accumulating. A waggon manufacturer told me he had sufficient work in sight to keep him going for five years. It must be remembered that part of the cost of the war is being met temporarily by depreciation--railway tracks, rolling stock, locomotives, etc., to mention only one industry, not being replaced as they wear out, or being maintained to the minimum degree necessary. This means that, although less obvious than the reconstruction of ruined parts of Belgium, France, Poland, and Eastern Prussia, repairs and replacements aggregating many millions sterling in cost will have to be carried out after the war in countries that have not been invaded. A peace boom in the iron and steel and shipbuilding trades appears certain.

Here, before passing on to more general considerations, we may notice incidentally--it is brought out in the first quotation--that the taxation of war profits reduces them proportionately but can never annul or quite overtake them. That is sufficiently obvious; but the fact must be preliminarily emphasised because it is quite commonly assumed that the mere imposition of a tax of 50 or 60 or 75 per cent automatically solves the problem of war profits. As a matter of fact, taxation so far from solving the problem leaves it essentially unchanged, and really connives at and recognises the practice. The problem remains, in spite of taxation, that one section of the nation is enriched by a process which necessitates the misery and death of other sections. We may therefore in a broad discussion of the problem leave out of account the proposed and adopted palliatives of taxation.

Secondly, we may notice--this is brought out in the second quotation--that profits directly produced by the war are not limited to the period of the war. This again is really axiomatic, being only another form of the platitude that it takes longer to construct than to destroy: but it means that even a short war of sufficient intensity will ensure a long period of profits, and therefore it noticeably aggravates the conclusions to which I hope to lead.

A fundamental point is that the profit on freights, excused immediately by the destruction of shipping, leads indirectly to profits on such other commodities as food and coal, not only on account of the actual scarcity resulting, but also because any reason for increasing prices is made a pretext for increasing profits.

But the scarcity of all general commodities is caused not only indirectly by the primary scarcity of ships, but also directly by the same conditions of warfare as those which affect shipping. That is to say, just as the intensified activity of the nation at war creates a livelier demand for ships, so it also creates a greater demand for all the ordinary commodities of living: and just as war by destroying ships reduces the available supply, so by its general destructiveness it reduces the supply of other commodities: and just as war by destroying ships makes extraordinary profits for shipowners, so by destroying tables and teacups it makes unusual profits for the makers of tables and teacups. In short, destruction creates demand, and demand gives occasion for profit.

This is a disquieting statement; because though one might hesitate to deduce from it that any particular merchant must be in his commercial capacity a conscious advocate of war for the sake of gain, it certainly suggests that the body of trade must automatically and by a sort of instinct of self-preservation be an element in the nation that makes for war.

That is the kernel of my thesis; and it is certainly a happy coincidence that the possibility of its truth seems at last to be dawning on another writer, and one more expert than myself in the handling of commercial theory. On the very morning after the last few sentences were written the following paragraph occurred in Mr. Emil Davies' "City" article in the New Statesman:--

It is only as the reports and accounts for 1915 come out that a correct idea can be formed of the benefit this catastrophic war has been to the majority of our large industrial concerns. The following is a list of companies whose reports and accounts have appeared during the past few days. The difference between the profits for the two years shown is even greater than appears, for in practically every case the 1915 profit is stated after allowing for the excess profits tax, additional depreciation or extra reserves, most companies now adopting these and other devices to render less conspicuous their war-time prosperity.

1914 1915 L L Smithfield and Argentine Meat Co. 25,732 142,055 Waring and Gillow 35,217 100,885 Projectile Co. 30,739 194,136 Lanarkshire Steel 28,144 45,985 Frederick Leyland Steamship 337,188 1,196,683 Sutherland Steamship 94,600 295,200

Waring and Gillow's sudden prosperity is not due to any better business in the ordinary furniture trade, but to war contracts. The Projectile Company figures are astonishing even for an armament company; after applying L47,500 in satisfying the balance of the prior claims of the Debentures, the Ordinary Shares receive their first dividend--one of 50 per cent. No sane man would accuse leaders of these great industrial concerns of doing anything to bring about an outbreak of war; many of them have, indeed, paid a heavy price for their prosperity in the shape of the loss of sons or near relatives; but when all is said and done, the fact that a war should put many half-bankrupt concerns on their legs, and make fairly prosperous companies three or four times more prosperous than before the war, is an influence in an undesirable direction.

FOOTNOTES:

Sec. 2

Trade lives on Increasing Demand

All war, whatever temporary dislocation of business it may involve, must ultimately, as a principal form of destruction, assist the intensive cultivation of demand which constitutes nearly the whole of modern trade. The industrial revolution of the nineteenth century with all its labour-saving machines was originally an economy of necessary production; by the middle of the century it overshot its mark, and hastened the world to the brink of the opposite disaster of over-production. In the present commercial era we are still suspended over that dreadful brink. Nothing can stop the accelerated flux of mechanical production; and we are saved from falling into the abyss only by the unnatural increase of ordinary consumption. The consumption of the ordinary markets, even when stimulated by the most violent tonics of advertisement, is strictly limited, and the limits have long been overtaken. The accelerated consumption could only be maintained by the discovery of new markets, which was undertaken by means of the political catch-words of Imperialism and Colonial Expansion; or else by the wholesale destruction of existing supplies. As the number of new markets and their capacity for consuming things they don't want is ultimately just as limited as the number and capacity of home markets (for obviously the time must come when all the Chinamen and Koutso-Vlachs and South Sea Islanders have already been supplied with ready-made brown boots and tinned salmon), only one method remained by which Commerce and Industry might escape, or at least postpone, the penalty of half a century of over-production. This was by the partial destruction of the world's existing supplies. If this could be arranged, there might be a genuine demand for them to be replaced.

Sec. 3

War a form of Destruction

Now as a form of destruction war is easily first. Quite apart from the obvious destruction of commodities that takes place when a country is ravaged and invaded, as in the case of Belgium and Northern France, it should be remembered that the methods of supplying an army in the field involve the sheer waste or destruction of very nearly half the food and equipment provided. This is not necessarily the result, as might be expected, of official incompetence. It may on the contrary be the result of official foresight, which must allow in warfare for all the changes and chances of communication, and knows that it is better to waste a million tons of beef than to risk the starvation of a single regiment. Such waste, in other words, is a condition of warfare. Add to this the preventive destruction of stores and baggage which takes place whenever troops are compelled to retreat: in this way about a million pounds' worth of stores were carefully burned before the evacuation of Gallipoli; and not a hundred yards of trench is ever abandoned without the jettison of about a hundred pounds' worth of equipment. Add to this the fact that every shot fired, from the mere rifle bullet to the largest shell, does a proportionate amount of material damage when it finds its billet: the bursting of a six-inch shell will do, I suppose, on an average, as much damage in half a second as an ordinary fire can do in twenty-four hours. Add to this again the fact that the very force which propels every bullet and every shell is released by destroying by instantaneous combustion a certain amount of valuable chemical products. Then, besides all this direct destruction of commodities which must ultimately be replaced, or which at least some kind contractor may plausibly offer to replace, consider for a moment the increased wear and tear of every sort of equipment both civil and military, from steam-rollers and rolling-stock to boots and bandages and walking-sticks, which a state of war must involve. Or consider again that the mere mobilisation of an army implies that several hundred thousand men, whose annual income before was less than L100 a year, are now living at the rate of L400 a year.

Anyone who cares to examine in detail all these forms of waste and destruction, and all these forms of unnatural and feverish consumption, will begin to understand to what an extent war stimulates the demand by which alone Trade can survive.

FOOTNOTES:

Sec. 4

War stands to benefit Neutral as well as Belligerent Nations but not to the same extent

In Western Europe at least all markets are practically open markets. No tariff however scientifically graduated will really divert the natural flow of trade to any considerable extent. Consequently it might appear that all nations stand to benefit in the same way, but in varying degrees, from the intense local demand set up in the nation at war. Thus British Trade was exhorted in a sincerely rapacious article by Captain Dixon-Johnson to snatch the opportunity presented by the Balkan War; and the unparalleled boom in American trade during the present war is another obvious example. This suggests at once that the benefit occasioned by war is not a national benefit, diffused vertically through every class of the belligerent nation; but a class benefit diffused as it were horizontally through the commercial strata of all nations within supplying distance of the centre of disturbance. On the other hand, of course, the immediate local demand is stronger than the demand communicated to remoter markets and more easily supplied; in other words the commercial class of the belligerent nation are more immediately and more intensely benefited by the state of war than the same classes of neighbouring nations, although in war as in peace the commercial classes of every nation are one. Also the outbreak of war, even if it does not entirely sever a country from foreign sources of supply, is bound to cause a certain dislocation; if communications are not altogether interrupted they are more difficult and uncertain than in normal times; so that the trade of the belligerent country is always given a greater impetus than that of its neutral neighbours, and in such cases a particular industry which has been threatened by the competition of foreign imports may be actually rescued from extinction. Even the temporary dislocation of trade is a benefit to trade in the nation at war; for it enables existing stocks to be sold at exaggerated prices.

FOOTNOTES:

Sec. 5

The greater the Capital, the greater the War Profit?

The over-production in modern industrial states, from which Trade can only be saved by some such catastrophic remedy as war, may be attributed not only to the tyranny of machines, but also to the financial jugglery known as over-capitalisation. If it could be shown that over-capitalisation were a consequence of national wealth it would follow that the richer nations would enjoy a greater benefit from war than their poorer neighbours. But this will only be true if we do not measure national wealth by the average wealth of every citizen; if we speak in this case of national wealth quite apart from any question of its equitable distribution, and are careful to distinguish it from national welfare; a wealthy nation in this case would have to mean a nation blessed with a class of wealthy capitalists, or supporting a large parasitic colony of the persons described as financiers; and such a nation would have as a corollary to be blessed with a class of workers disproportionately large and disproportionately poor. For if industrial conditions are fair over-production is impossible.

FOOTNOTES:

Sec. 6

The Blessings of Invasion

If war is regarded primarily as a commercial stimulant, we might carry the argument farther and conclude that invasion and even ravage are actually beneficial to the trade of a country that suffers them; for ultimately they must make way for a direct demand on the spot for the primary commodities of life. Houses, fences, roads, factories will all have to be replaced. It is obvious that the war will have to be followed by a time of rebuilding. It might be urged that such a phase of convalescence would be retarded or altogether prevented by the lack of private capital for such an enormous enterprise. But private capital, thanks to the credit system, is practically inexhaustible so long as it is required for a genuinely productive purpose: and even if it failed in this case to come forward, the money required would certainly be advanced out of the indemnity which will have to be provided for the invaded provinces, or would be guaranteed in some other way by the Government concerned. In which case Trade, even after the conclusion of peace, would rejoice in another period of Government contracts. If it be admitted, however, that we have not sufficient data to make this suggestion more than probable, we can at any rate be certain of the effect produced by the mere numbers of an invading army or a defensive garrison. The Jewish traders of Salonica enjoyed a time of unexampled prosperity in 1912 and 1913, owing to the mere presence of the Turkish, the Greek and the Bulgarian armies, to whom they sold out at their own prices. They are now repeating the process with the English and French armies; and in the interval they were kept busy restocking the Macedonian villages depleted or destroyed during the campaign of 1912. As for the small shopkeepers of Flanders any member of the British Expeditionary Force will tell you that they are at present so prosperous that even a German bombardment will hardly drive them from their counters.

FOOTNOTES:

Sec. 7

The Luxury Trades don't do so badly

The most obvious if not the only exception to our tale of war profits is to be found in the case of the parasitic industries which specialise in the production of the unnecessary. It is not easy rigidly to define the luxury trade, for the luxury of one generation is the necessity of the next; but it is enough to suggest a broad idea of the industries that fall under this heading. "The income-tax assessments show," says The Times, speaking of Berlin after nine months of war, "that among the trades which have suffered most are fruiterers, breweries, public-houses, bars, cafes, chemists and perfumers, goldsmiths and silversmiths, jewellers, milliners, furniture and piano dealers, and music and booksellers. Landowners, land speculators, builders and the carrying trade have also suffered." We may also notice that in the early months of the war Florence, the great market of the shoddy "souvenir" and the "tourist's delight," suffered a good deal more than London, although Italy still remained neutral. In London itself a good example of the parasitic industry are the firms which make ingeniously useless silver toys for rich people to give each other at Christmas.

Many such industries may indeed have suffered in England, although many of the trades mentioned in the Berlin list have not been affected in London, and at least two of them have made conspicuous profits. But in any case it is probable that they suffered if at all only during the first period of the war, when the general feeling of strangeness and insecurity was strong enough to inhibit the shopping instinct of the wealthier classes. As soon as these became accustomed to the state of war they reverted with even greater energy to their old pastime of spending money: and meanwhile the luxury trades had acquired an entirely new set of customers, for a large part of the profits accumulated in other trades were now being spent by a newly enriched class who were unaccustomed to save, for the simple reason that they had never before been in a position to do so. Consequently the luxury trades after a year of war had not only recouped their temporary losses but were doing a bigger business than ever. The natural adaptability of the trades which pander to fashion must also be taken into account. A number of them after the first panic recaptured the failing demand by advertising very simple modifications of their ordinary supply. Some, for instance, turned to the manufacture of equally plausible superfluities of military equipment--such as silver and gold identity disks and watches with luminous dials and queer little hieroglyphs in place of the ordinary figures. Trades already so well organised for exploitation could easily defeat any general attempt at social economy. Thus for women of the upper middle class the most obvious form of war economy was to carry on with only a slight alteration of last year's dresses; and such was their declared intention when their hands were forced by the Dressmakers' revolutionary change in the fashion which substituted the full skirt for the tight skirt of 1913-14. The extraordinary ingenuity of this move was, not only that it thwarted any good intention of not buying a new dress this year, it being manifestly impossible to "alter" a tight skirt into a crinoline, but also that the extra cloth required for the unusually full skirts more than compensated the trade for the continued abstention of a few unfashionable obstinates, as well as for the extra cost of labour.

FOOTNOTES:

Sec. 8

Trade Profits in war not shared by the Nation but confined to Employers

The trade profits which are thus directly stimulated by the conditions of war, do not imply the prosperity of the Trade as a whole, if a Trade is understood to mean a certain section of the nation including in a sort of guild or hierarchy representatives of every class engaged in a particular Trade. They do imply the prosperity of a particular class, for they are all employers' profits, profits on the capital involved. Unfortunately the profits of the Capitalists do not involve the profits of the Labourers, and cannot therefore be tested by statistics of unemployment. But of course the fluctuations of unemployment do very materially affect the opportunities of Trade, and it might reasonably be argued that the apparent profits created by War are really modified by the conditions of the Labour market or otherwise equitably distributed among the general population. Unfortunately it is quite easy to show that the one policy of employers during the present war has been to maintain their profits without any concern for the general population, and that the effect of war has been to increase the profits of Capital not only by increasing the demand but also by making the Employers increasingly independent of the labourers' claims.

At the beginning of War the Employer, on the grounds of general insecurity and "not knowing what was going to happen next," cut down wages and raised the cry of "Business as Usual"; which meant that business was so much better than usual that he was afraid it could not possibly last. So he cut down wages, laughed at buyers who offered him the usual prices, and charged L48 a ton for hides and 6s. 10d. for a yard of cloth that usually cost half a crown. If the private buyer would not pay his prices the Government would. It was indeed too good to last, for such prosperity became impossible to conceal: it also reduced the margin of unemployment on which he had always depended, and he soon found himself obliged to return to the normal rate of wages which he had paid before the war. He was disappointed to find that "Business as Usual" meant wages as usual, but he struggled on, imploring the assistance of the Government in order to "capture Germany's Trade." Worse was to follow: after nine months of war recruiting for the army had begun in earnest, and "there was on the whole less unemployment in Great Britain than at any previous moment in the present century." But he was determined to "carry on," and for the sake of the Government introduced child labour into his workshops. Meanwhile, however, the cost of living was steadily rising, and after a year of war, and of profits, the labourers' demand for an increase of wages could not be altogether ignored. The employer decided to carry the war into the enemy's country. The nation must hang together, he said, and all work was practically national work. So he boldly accused his workmen of lack of patriotism, and roundly declared that "but for the trade unions the war would probably have been over by this time, with a victory for the Allies.... Organised labour is the rotten limb of the body politic, which must be cut off if health is to be restored to the system." It was hard work, but in spite of the shortage of labour and in spite of the rise in the cost of living, he managed to hold wages down by repeating that any demand for a rise in wages was unpatriotic. One by one, on the plea of urgent Government work, he obtained the suspension of all Trade Union rules and thus deprived his workmen of even the natural rights of negotiation; and when after fifteen months of war they again ventured to raise their voices on the Clyde, he openly accused them of being paid by German agitators. On the whole therefore he has been extraordinarily successful in keeping his profits to himself, and as the present demand is likely to continue for some time after the war, his chief anxiety at present is to maintain after the war the compulsory relaxation of Trade Union rules which nothing less than war could accomplish. The slight danger that a prolonged war may kill off a considerable part of his margin of unemployment is more than balanced by his successful introduction of women's labour: and he means that War, in addition to the actual profits of his Trade, shall give him the enormous potential advantage of having broken the Trade Unions.

FOOTNOTES:

Sec. 9

Trade Profit and National Loss

It need not therefore be supposed that the War Profits, of which there is such abundant evidence, conflict at all with Mr. Norman Angell's contention that all modern war, even if the military operations end in a military success, is futile and unprofitable from the national point of view. The general truth seems to be that War, whether it be apparently victorious or apparently unsuccessful, is always profitable for a small commercial class in each belligerent nation. Unfortunately the profits thus earned by the economic effects of war are not diffused vertically throughout the whole nation from top to bottom, but rather horizontally along a shallow commercial stratum in every nation. In every nation war diminishes the national wealth, but concentrates the residue with greater inequality in one particular class. The representative of this class, commonly called the Capitalist, is the real cosmopolitan, because his interests in each belligerent nation are identical, and the war, successful or not, contributes to his financial advantage. It is an illuminating coincidence that the classes in every nation which most enthusiastically demand the violent prosecution of the war seem to be proportionately anxious to annul the hardly-won privileges of democracy. Thus the Saturday Review, in a passage already quoted, solemnly, openly and unforgettably declares the secret wishes of the militarists; and we may be surprised to consider how many safeguards of democracy, how many rights of free thought and free speech, how many of the precarious limitations of sweating and child-labour and wage-slavery have been quietly suppressed since the beginning of the war. But if war is ultimately unprofitable for the nation as a whole, it might be argued that Trade itself must ultimately be involved in the national loss. The answer is that even if the Trader's interests were identical with those of the nation and were ultimately bound to suffer with the nation as a whole, he would undoubtedly ignore the possibility of a loss so much remoter than his immediate and obvious profits; especially as he is certainly ignorant of the economic fact that in modern times military victory and military defeat are equally unprofitable, and if he ever did pause to consider the results for the whole nation he would certainly, perhaps in good faith, identify the national interest with his own, and assume, for psychological rather than economic reasons, that his own interests demanded a military victory; real ignorance and emotional excitement sufficing to explain his apparently hypocritical professions of patriotism. As a matter of fact however his private interests are not dependent on those of the whole nation; for commercial wealth is not the same as national wealth, and prosperous Trade is quite consistent with national unhappiness. The average citizen of Switzerland is more contented than the average citizen of any of the great commercial powers of the world; and some of the causes that make for commercial prosperity, causes of which War is not the least effective, actually decrease the civic efficiency of the greater number of the population, and reduce their chances of happiness. "If an expanding trade," writes Mr. R. B. Cunninghame Graham, "is the sure sign of national happiness clearly the four countries, the figures of whose trade are tabulated (Chile, Peru, Brazil and Argentine) should be amongst the happiest in the world. Yet still a doubt creeps in whether expanding Trade is the sure test of happiness; for recently I have revisited some of the countries of the River Plate that I knew thirty years ago, and it appears to me that they were happier then. True, they were not so rich.... Wealth has increased, but so has poverty...."

War is an artificial process for accelerating that concentration of wealth in the hands of a small class which distinguishes the present unholy stage of political development.

FOOTNOTES: