IV 
 
 ^ 
 
 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES
 
 THE SAFETY OF THE NATION
 
 THE SAFETY OF 
 THE NATION 
 
 SHOWING HOW OUR SECURITY 
 RESTS UPON OUR INDUSTRIES 
 
 BY 
 
 IAN D.c^COLVIN 
 
 AUTHOR OF 
 
 THE GERMANS IN ENGLAND," "THE UNSEEN HAND IN ENGLISH 
 HISTORY." "take COVER," ETC. 
 
 LONDON : 
 JOHN MURRAY, ALBEMARLE STREET, W. 
 
 1919
 
 [All rights reserved]
 
 s 
 
 >- 
 or 
 
 m To the Memory of my friend^ Charles Kerr Marr, I 
 dedicate this book, which he persuaded me to write. In 
 life he supported the high ideal and the great tradition of 
 the British merchant, and it is my sole consolation for his 
 death that his modesty cannot prevent me from saying so. 
 
 o 
 
 Ul 
 
 ex 
 
 CS3 

 
 CONTENTS 
 
 CHAPTER PAGE 
 
 I. THE POLE STAR OF POLICY - - - ~ i 
 
 (i) The Object of a National Policy - - i 
 
 (2) The Struggle for Existence - - - 2 
 
 (3) The Essentials of National Security - 4 
 
 (4) Economic Aspects of Security - - 14 
 
 (5) Evolution of Economic Systems - - 16 
 
 II. THE ECONOMIC SYSTEM- - - - - 21 
 
 (i) Agriculture ------ 21 
 
 (2) Industry ------ 29 
 
 (3) Trade 38 
 
 (4) Shipping 45 
 
 (5) Colonisation - - - - - 49 
 
 (6) Banking ------ 55 
 
 III. A POLICY OF WEALTH ----- 65 
 
 (i) Rise of New German Economic System 65 
 
 ^2) Surrender of English Navigation Laws - 72 
 
 (3) New Beginning of German Sea Power - 78 
 
 {4) Surrender of English Agriculture - - 84 
 
 IV. A STRUGGLE OF SYSTEMS - - - • 92 
 
 V. LESSONS OF THE STRUGGLE - - - - 1 04 
 
 (i) Factors in the Growth of German Power 104 
 
 (2) Value of Organisation - - - 108 
 
 (3) The Weakness of Concession • - no
 
 xii CONTENTS 
 
 CHAPTER PAQE 
 
 VI. THE GERMAN SYSTEM II4 
 
 (i) Agriculture 114 
 
 (2) Banking - 120 
 
 (3) Industrial Combination - - - 127 
 
 (4) State Interest in Industry - - - 132 
 
 (5) National Organisation of Industry and 
 
 Commerce 133 
 
 (6) Control of Raw Material - - - i43 
 
 VII. A CONFLICT OF POLICY 149 
 
 (i) England's Ancient Imperial Policy - 149 
 
 (2) Adoption of Free Trade - - - 152 
 
 (3) Colonial Policy ----- 158 
 
 (4) Preference without Reciprocity - - 170 
 
 VIII. THE PROCESS OF PENETRATION - - - l8l 
 
 (i) Shipbuilding 181 
 
 (2) Sea-Carriage 187 
 
 (3) Textiles 191 
 
 (4) Metals 192 
 
 (5) Leather ------ 195 
 
 (6) Rice ------ 197 
 
 (7) Margarine 198 
 
 (8) Sugar - 200 
 
 (9) Finance 204 
 
 (10) The Loss of Security - - - - 205 
 
 Conclusion - - - - - - 207 
 
 Index 232
 
 THE SAFETY OF THE NATION 
 
 CHAPTER I 
 
 THE POLE STAR OF POLICY 
 
 The Object of a National Policy. — If we are 
 to conduct wisely our national affairs, it is 
 clear that we must have some guiding prin- 
 ciple. As the needle of the mariners' compass 
 is governed by the Pole, to which it always 
 returns, however it may be shaken, so we 
 must have our Pole Star to fix our course in 
 this our little voyage of inquiry. What, then, 
 is the object of a national policy ? 
 
 Various inquirers give various answers. 
 Some say happiness, some riches, others 
 liberty, still others an equal division of the 
 national wealth. " The greatest happiness of 
 the greatest number " is probably the favour- 
 ite guiding principle of our modern statesmen. 
 
 Yet if we fairly consider the matter, happi- 
 ness is no Pole Star but a will-o'-the-wisp.
 
 2 THE POLE STAR OF POLICY 
 
 For a nation may be happy upon the edge of 
 danger. It may be happy without consider- 
 ing its safety. It may be happy without any 
 guarantee of continuance. Let us suppose a 
 nation of which every man and woman had 
 their fill of liberty, of happiness, and of con- 
 tent. Such a nation would be the ideal of 
 our utilitarian philosophers. Yet it might be 
 robbed and enslaved or utterly destroyed at 
 a stroke by some poor and savage race well 
 disciplined in arms and skilfully led to war. 
 
 The Struggle for Existence. — Life is a strug- 
 gle for existence. This is a law in nature 
 which civilisation does not altogether conceal. 
 And nations are not exempt from this law. 
 A nation is a species of man, as man is a 
 species of animal. The history of the species 
 is one long struggle for survival. This in- 
 spires its actions : this shapes its upward 
 course. It is with nations as with the rest 
 of nature, the fit rise and increase, the unfit 
 dwindle and disappear, or remain only as 
 hewers of wood and drawers of water. The 
 history of nations is the story of their struggle 
 for existence. It has not yet been discovered 
 by the slavish followers of our classical school 
 of economy that Darwin has- undermined 
 their foundations and brought down their 
 whole system.
 
 SECURITY OF SURVIVAL 3 
 
 The survival of the nation, then, must be 
 the foundation of our policy. Some of us 
 have a clear faith in a life eternal : to others 
 the grave is the gate of the unknown. But 
 there is at least this species of eternity in 
 which all live and hope — the past, the present, 
 and the future of their race and nation. Our 
 fathers continue to live in us : we continue to 
 live in our children. We desire to hand on 
 the torch of life as we received it. Over and 
 over again in British history the British 
 people have been willing to sacrifice the 
 happiness and riches and, indeed, the very 
 life of a whole generation, that the nation 
 might survive. 
 
 Our soldiers and sailors who fought in the 
 narrow seas and the battlefields of Flanders 
 sank down upon the graves of uncounted 
 generations of Britons who had fought and 
 died before them in the same cause — the 
 survival and security of the nation. In peace 
 this struggle is carried on by the operations 
 of industry, of commerce, of diplomacy. War 
 is an intensification of peace. 
 
 Security of survival is the foundation of our 
 national policy. To be happy without being 
 secure is foU}^ ; to be rich without being 
 secure is danger. Those who offer people 
 happiness, or liberty, or cheapness, or an
 
 4 THE POLE STAR OF POLICY 
 
 equal division of riches, without offering them 
 security, offer them the means of destruction. 
 
 The security of the nation, then, is our 
 guiding principle. By that principle we are 
 to steer our course and to that test we are 
 to apply the policy and the proposals of our 
 statesmen. It is to precede and govern in 
 our mind all ideas of the pursuit of wealth 
 or happiness or even liberty. It is to be the 
 touch-stone of all measures for what is called 
 the " Reconstruction " of our country ; it is 
 to be applied to our commerce, our industry, 
 our education, our social state, and is to be 
 the scales in which we weigh leagues and 
 alliances. 
 
 The object of a national policy is to make 
 ourselves secure as a nation, and the purpose 
 of this book is to discover in what lies national 
 security. 
 
 Essentials of National Security. — If we 
 believe that the history of nations is a struggle 
 for survival, we can hardly dare to hope that 
 there will never be another war. There has 
 been a war in every century and almost every 
 generation since the x^orld began, and we may 
 take it that war is the extreme form of the 
 struggle for existence. Nor can we hope for 
 security in any agreement between nations 
 to suspend that struggle.
 
 THE LEAGUE OF NATIONS 5 
 
 Those who propose with most confidence to 
 force arbitration between nations cannot even 
 guarantee to settle by arbitration the minor 
 animosities of employers and employed. 
 National interests and national instincts are 
 forces of terrible strength which are some- 
 times beyond the control of the most pacific 
 statesmen. In one century a Walpole wrings 
 his hands ; in another a Grey. 
 
 Even if there should be a long peace by the 
 consent of the pacific part of mankind, the 
 struggle between nation and nation, between 
 species and species, between system and 
 system will continue. Even if nations were 
 to contrive some arrangement to avoid wars 
 of violence, the struggle would continue in 
 other forms no less fatal to the security and 
 independence of the weaker national systems, 
 for a nation strong in its economic organisa- 
 tion could still enslave other nations without 
 a battle and sack them without an invasion. 
 
 The League of Nations to ensure peace is 
 founded upon certain plausible fallacies, it 
 rests upon a franchise of present military and 
 naval power, ignoring the growth and decay 
 of nations. It ignores also the eternal struggle 
 between separate national and economic 
 systems which are the root of war. In sum, 
 it permits the cause while forbidding the effect. 
 
 B
 
 6 THE POLE STAR OF POLICY 
 
 The nation which desires to survive must 
 keep itself in good health and strength, just 
 as the individual. The calamity of war ma}^ 
 be avoided by the strong : it cannot be 
 averted by the weak. 
 
 In what, then, does our national security 
 consist ? Before the war we placed our faith in 
 the strength of the Navy — we even measured 
 our security in terms of Dreadnoughts. A 
 few, dissatisfied with this protection, pro- 
 posed a National Army, and our statesmen 
 sought to strengthen our position with alliances 
 and agreements. But we now see that with 
 a strong Navy, a strong Army, and many 
 Allies, we are still insecure. 
 
 A nation may be defeated by a failure in 
 spirit or a failure in material, as well as by 
 the defeat of its armed forces. 
 
 Spirit and material in a nation are as 
 closely knit together as the spirit and body 
 of man. How far the spirit affects the bod}^ 
 and how far the body the spirit will always 
 be in dispute between doctors and divines. 
 So in a nation. How far spirit inspires 
 material and how' far material supports spirit 
 is difficult and perhaps impossible to decide. 
 
 Yet it is certain that the spirit affects the 
 destinies of nations as of men. In the nursery 
 we learn that by a superiority in spirit the
 
 THE SPIRIT OF THE NATION 7 
 
 dwarf ma}^ kill the giant. Invincible will, 
 moral courage, mental resource — these spirit- 
 ual qualities decide no less the fate of nations 
 than of men, and history is strewn with the 
 bones of giants defeated by dwarfs. The 
 giant Russia fell because she was betrayed by 
 what was false within. 
 
 Upon our national spirit our existence 
 depends. Yet our Minister of Education said 
 some little time ago that for schoolmasters to 
 teach patriotism to our children was contrary 
 to the idea of British liberty. Fortunate and 
 unfortunate are we in this, that the instinct 
 of our people is sounder than the intelligence 
 of our rulers ! 
 
 Security depends upon the national spirit ; 
 but the spirit grows like a flower out of the 
 soil of material things. It is like our English 
 rose. Tlie blossom is in the sun but the roots 
 strike down into the heavy clay, from which 
 by some natural chemistry its fragrance and 
 colour and strength are drawn. So the 
 national spirit blooms from the national life. 
 
 The spirit is the patriotism of the nation, 
 or its instinct of survival. Its strength must 
 in some measure depend upon the purity of 
 the national breed. For that reason easy 
 naturalisation is dangerous to the security of 
 a nation.
 
 8 THE POLE STAR OF POLICY 
 
 We do not know how many generations it 
 takes to make a patriot, but he is not often 
 made in one. Hence a large population of 
 alien birth is a weakness to a nation. But a 
 nation is not onlj^ or altogether, or sometimes 
 even at all, a racial unit. It is also a political 
 and economic unit. We might indeed define 
 a nation as a body of people bound together 
 by common instincts and common interests. 
 
 Common instincts depend upon common 
 interests. And opposing interests in a nation 
 may divide and weaken the national spirit. 
 Interest we may define as the means of life. 
 And the means of life govern the instinct of 
 men and nations. 
 
 If the means of life in a nation are in the 
 main common to the whole nation, the instinct 
 of the nation will be strong : if they conflict 
 the instinct of the nation \\dll be weak, in 
 the measure which the conflicting interest 
 bears to the common interest. Thus, if a 
 part of the British nation were to have their 
 interest in Germany rather than in England, 
 the spirit of England would be diminished 
 by that part. And if the Government of 
 England were to depend in any measure upon 
 that part of the nation whose interest lay in 
 Germany, the Government would share in 
 that weakness.
 
 THE CASE OF RUSSIA 9 
 
 Let us take again the example of Russia. 
 There were two conflicting interests in Russia. 
 The national interest sought to make itself 
 secure and independent of Germany by using 
 its own raw materials for its own manufac- 
 tures. But this national interest conflicted 
 with the great interest of Russia in the 
 exportation of grain to, and the importation 
 of goods from Germany. Germany succeeded 
 in preventing a transfer of this interest to 
 Russia's allies by closing the Baltic and the 
 Black Sea. And this great interest of Russia 
 working against the national policy of in- 
 dependence reduced her to civil war and 
 defeat. The agents of the German commerce 
 were the agents of the Revolution and the 
 agents of the peace. If Russia had possessed 
 an industrial system of her own, which would 
 have consumed her own grain and produced 
 her own munitions, she would not thus have 
 been defeated. Her interests being common, 
 her spirit would have been united, her spirit 
 being united would have been strong. 
 
 The security ot a nation will be found to 
 rest upon its economic sufficiency, and upon 
 the unity of its interests. 
 
 A nation may live altogether upon the 
 production of raw material, or partly upon 
 the production of raw material and partly
 
 10 THE POLE STAR OF POLICY 
 
 * 
 
 upon manufactures and commerce, or alto- 
 gether upon commerce. 
 
 If a nation lives altogether upon the pro- 
 duction of raw material, its commerce will be 
 in the hands of foreign nations and it will be 
 divided and weak. England in earl}^ times 
 produced wool, hides and tin. Her commerce 
 was in the hands of the Hansa and Lombard 
 towns. She was both insecure and divided 
 in spirit, for ships, arms and money were the 
 monopolies of those who exported her raw 
 material. Her foreign and domestic policy 
 were dictated by the Empire and Rome. 
 Manufactures and commerce had to be created 
 before England won her national security and 
 independence under the Tudors. 
 
 At the beginning of Elizabeth's reign, 
 according to Dr. Cunningham, the Spaniards 
 " contemptuously calculated that it would be 
 an easy matter to conquer England because 
 she lacked armour." By the end of her reign 
 the making of ordnance had been brought to 
 such a pitch that the Spaniards were reduced 
 to smuggling English cannon into Spain. 
 
 If a nation lives partly by production and 
 partly by commerce, she will be united and 
 strong if her commerce depends upon her 
 production ; but she will be divided and 
 weak if her commerce is in conflict with her
 
 A CONFLICT OF INTEREST ii 
 
 production. And in commerce we may here 
 include banking, which is the commerce of 
 money, and shipping, which is the commerce 
 of freight. Thus, if the commerce of a nation 
 depends in the main upon the exportation of 
 raw materials and the importation of manu- 
 factures, there is a conflict of interest. For 
 part of the nation will desire to use their 
 own raw materials for their own manufactures 
 and to protect their own productions against 
 the productions of foreign nations. They will 
 also desire to use their savings, which are the 
 stored energy of their production, for the 
 development of their productive power, and 
 their ships for the service of their mdustries. 
 But those merchants whose interest is the 
 export of raw material and the import of 
 manufactures will desire the contrary. There 
 will thus be a conflict of interest, and a 
 division and weakening of spirit. 
 
 If, on the contrary, a nation uses its own 
 raw materials in its own manufactures, the 
 commerce of the country will then depend 
 upon its production : its surplus will then be 
 exported in exchange for those things which 
 it cannot produce, and its resources will 
 be used to the highest power of support 
 and security. Its merchants will find their 
 main profit in the sale of its wares, since
 
 12 THE POLE STAR OF POLICY 
 
 manufactures are in general of higher value 
 and less bulk than raw material. The produc- 
 ing, manufacturing, and mercantile interests of 
 the country will belong to a common system 
 and have a common interest. The nation will 
 be united and therefore strong in spirit. 
 
 This unity and strength of spirit will be 
 supported by material and the skill and energy 
 to use it, and the more complete the produ- 
 cing, manufacturing, and commercial system 
 the greater will be the security of the nation. 
 
 For let us take the last case, of the nation 
 which lives altogether upon commerce. Its in- 
 terests will be divided between those nations 
 which produce the materials of its traiftc. 
 From one nation it may take its arms, from 
 a second its ships, from a third its food, from 
 a fourth its clothes and so on. Or it may take 
 arms, ships, food and clothes from a single 
 nation. It will then depend upon a foreign 
 nation or nations for its means of existence ; 
 its existence will in fact depend not upon itself 
 but upon others. In itself it will have no 
 security. The interest of Holland was founded 
 upon her fisheries and her manufactures. 
 She developed a great trade and neglected 
 her manufactures. This trade came to depend 
 in the main upon the sale of English cloth, 
 French linens and lawns and other foreign
 
 A MEASURE OF SECURITY 13 
 
 wares. WTien England and France passed 
 navigation laws and marketed their own 
 manufactures in their own ships, the founda- 
 tions of the Dutch system were destroyed. 
 When the Dutch retaliated they were over- 
 run on land by the French and defeated at 
 sea by the English, and were neither suffi- 
 ciently strong nor united to protect them- 
 selves. They were deprived of their main 
 wealth and continued to exist merely upon 
 the sufferance of their neighbours. 
 
 Thus we see the security of a nation both 
 in spirit and in material depends upon pro- 
 duction, and that national security depends 
 upon economic security. That is to say, 
 the security of the nation depends upon the 
 materials essential to security, and the measure 
 of the security is the measure of the nation's 
 control over these materials. For complete 
 security there must be complete control. 
 
 Thus if a nation is in control of its own 
 food but not of its own steel, it may be 
 defeated. If it produces its own steel but 
 cannot feed itself it may be starved. If it 
 lives on an island and depends on shipping, 
 but lacks the plates and steel forgings of 
 which ships are built, it is insecure. If it 
 lives by the sale of woollens or cottons but 
 does not control sheep's wool and cotton wool
 
 14 THE POLE STAR OF POLICY 
 
 it may be robbed of its livelihood. If part of 
 the people live by making sweetmeats, jams, 
 biscuits and pickles but do not control the 
 sugar essential to these manufactures, that 
 part of the nation is a source of weakness and 
 insecurity. So if part of the nation lives by 
 making boots and shoes but cannot find the 
 leather, we have another source of insecurity 
 and weakness. If we can found our own 
 cannon but cannot harden our own steel ; 
 if we can weave but cannot dye ; if we depend 
 upon electricity but cannot produce electrical 
 machinery, we are in these respects insecure. 
 
 As all industries are based upon raw mater- 
 ials, the security of the raw material is the 
 foundation of industrial security. But as 
 industries also depend upon one another for 
 their security as much as upon themselves, 
 it is essential to the security of the nation 
 that it should command not only the raw 
 materials which are essential to its industries, 
 but those industries which are essential to 
 one another. When a nation controls both 
 the raw materials and the industries necessary 
 to its safety, only then has it a complete 
 economic system. In other words, it has a 
 complete economic system only when it is 
 secure. 
 
 Economic Aspects of Security— Rqxq, then,
 
 DEFENCE AND OPULENCE 15 
 
 we are faced with a new element in economics 
 — Security. Adam Smith indeed discovered 
 it, but treated it as an exception, not as 
 a ruhng principle. In considering the Navi- 
 gation Laws he admitted that Defence 
 is of much more importance than opulence. 
 But if security is of more importance than 
 cheapness in one necessity, it is more im- 
 portant than cheapness in all necessities. 
 Let us ask ourselves this question : Which 
 should a nation desire more in its economic 
 system — cheapness or security ? We must 
 answer that security is more important than 
 cheapness. 
 
 But if security comes before cheapness, it 
 follows that security before cheapness must be 
 our guide in shaping our economic system. This 
 principle of security must supersede the prin- 
 ciple of the natural division of labour and 
 the principle of buying in the cheapest and 
 selling in the dearest market. 
 
 We must subordinate cheapness to secu- 
 rity. If a raw material is necessary to our 
 security we must seek to obtain command of 
 that raw material, even though it may be 
 cheaper to buy it from a source outside our 
 control ; if an industry is necessary to our 
 security we must seek to plant that industry 
 inside our own system even although it might
 
 i6 THE POLE STAR OF POLICY 
 
 be cheaper to buy the product of that industry 
 abroad. 
 
 Thus, for example, under the principle of 
 the division of labour it might be profitable for 
 England to devote her energies entirely to 
 banking and trading, and for Germany to 
 devote her energies entirely to steel pro- 
 duction and manufacture. England might 
 then have all the gold and Germany all the 
 means of taking the gold. In the hand 
 of the one is the money-bag ; in the hand 
 of the other the revolver ; the one has the 
 strong-box, the other has the pickaxe, the 
 jemmy and the dynamite. If Life is a strug- 
 gle for exisence it is clear that such a division 
 of labour could not last. Those who held 
 the steel would either take the gold or take 
 tribute of the gold. 
 
 We see then that the consideration of 
 cheapness may come in conflict with the 
 consideration of security, and that security 
 comes before cheapness. 
 
 Evolution of Economic Systems.- — If there 
 is a struggle between nations, there is also 
 a struggle between the economic systems 
 of these nations. The economic system 
 is the organisation of the national life. 
 It is composed of basic and secondary in- 
 dustries, commerce and banking, and in a
 
 THE GROWTH OF A NATION 17 
 
 national system all these activities are inter- 
 knit and interdependent. If the organisation 
 is strong the nation is strong : if it is weak 
 the nation is weak. 
 
 We might compare a national system of 
 industry and commerce to a natural organisa- 
 tion, sa}^ a tree. It is in a constant state of 
 evolution, of growth or of decay. When it is 
 young and weak, its life is precarious. It 
 may be deprived of light and soil by a greater 
 and older tree under whose shade it vainly 
 struggles to grow. But if it survives it 
 pushes its branches upwards and outwards 
 far and wide and kills rival growths by 
 its own roots and its own shade. And so we 
 might speak of our British oak whose roots 
 go down through the soil and lay hold upon 
 the rock, whose unseen alchemy changes 
 the raw material of earth, air and water into 
 the nourishment of life. And we might per- 
 haps compare its million leaves which are 
 taken on every spring and shed every autumn, 
 to the successive generations of our people ; 
 they live by the tree and by them the tree 
 lives. If we go back into the histov}- of this 
 oak we shall hnd it was once a sapling strug- 
 gling for air and sun under overshadowmg 
 growths of more ancient timber ; if we follow 
 its prime we shall see that its victorious rise
 
 i8 THE POLE STAR OF POLICY 
 
 and spreading branches conquered great 
 rivals and that its roots have constantly made 
 new soil their own. If we were to press 
 the analogy further we might say that its 
 acorns taking root carried its victory farther 
 and grew up to be its shield against the gales 
 of war ; but might themselves sometimes 
 become the rivals of its sway and sovereignty. 
 This is not merely a fanciful view of a 
 national economic system. For if we study 
 a nation's industry and commerce we see 
 that— 
 
 (i) They make up a living and developing 
 organism ; 
 
 (2) That they struggle with other such 
 organisms for existence, and 
 
 (3) That in this struggle the security of the 
 whole nation is involved. 
 
 Here again we find ourselves in conflict 
 with Adam Smith's conception of industry 
 and commerce. For Adam Smith saw nothing 
 organic in either ; he did not see their mutual 
 interdependence ; he regarded commerce with 
 other nations as an operation of exchange 
 of equal benefit to both sides and not as a 
 struggle and exploitation ; he was so far 
 opposed to industrial and commercial organi- 
 sation that he objected even to jomt stock 
 companies except for public purposes ; and
 
 THE MARXIAN ERROR 19 
 
 he made a sharp division between the pro- 
 ducers and the consumers of a nation, con- 
 sidering that the interest of the leaves was 
 opposed to the interests of the roots. 
 
 We find ourselves equally in conflict with 
 Karl Marx's conception of industry and 
 commerce. For Karl Marx took the struggle 
 to be not between one national economic 
 system and another but between one part of 
 that system and another part, between the 
 roots, let us say, and the leaves, or between 
 the trunk and the branches. There is cer- 
 tainly this basis of truth in the ^larxian 
 conception, that a struggle may be traced 
 between one part of an organism and another 
 part. Branch may struggle against branch, 
 leaf against fruit, for its share in the general 
 sustenance ; as labour against capital or 
 class against class in an economic system. 
 But this struggle is subordinate to the 
 greater struggle of the whole organism against 
 other organisms, of the whole tree against 
 other trees. For, again, the greater contains 
 the less : root and branch and leaf must die 
 if the tree die. Labour and capital alike fall 
 if the industry fall ; and the industry is likely 
 to fall with the fall of the national organisation 
 of which it is a part. 
 
 The struggle for the division of the means
 
 20 THE POLE STAR OF POLICY 
 
 of life must be subordinate to the struggle 
 for the means of Ufe. For if the industry or 
 the nation is deprived of the means of life, 
 there is nothing to divide.* 
 
 As nations depend on their economic sys- 
 tems for life we arrive at this conclusion : 
 
 That the struggle between nations is a 
 struggle between economic systems, and that 
 national security therefore depends upon the 
 strength of the economic system. 
 
 * Here it may be noted that divisions and hatreds 
 between classes are most apt to flourish in nations which 
 neglect or betray their industries. The cause of the 
 French Revolution was not political but economic, and 
 arose from the destruction of the French manufactures 
 by reason of the Eden Treaty. John Wheeler in his 
 " Treatise of Commerce" (1601) tells how the Duke of 
 Parma and the Hanse Towns hoped to produce " a 
 commotion of the Commons" in England " for want of 
 work " by their embargo on English cloth. And Francis 
 Bacon in his essay, " Of Seditions and Troubles," suggests 
 as the best rcmed}'- for what we now call Bolshevism, 
 " to remove by all means possible that material cause 
 of sedition whereof we spake which is want and poverty 
 in the estate. To which purpose serveth, the opening 
 and well-balancing of trade 5 the cherishing of manu- 
 factures ; the banishing of idleness ; the repressing of 
 waste and excess by sumptuary laws ; the improvement 
 and husbanding of the soil ; the regulating of prices of 
 things vendible ; the moderating of taxes and tributes, 
 and the hke."
 
 CHAPTER II 
 
 THE ECONOMIC SYSTEM 
 
 Agriculture. — The foundation of our security 
 lies in the control of raw material. Industry 
 without control of raw material is a building 
 without foundation. And here we must 
 begin with agriculture, since it yields the 
 raw material of the nation itself. It is the 
 land upon which our national life has grown, 
 the soil in which our English oak has its 
 roots. A nation cut off from its own land is 
 like a ringed tree which no longer draws life 
 from the earth. It must soon die. A nation 
 which neglects tillage is like a town dweller 
 who has forgotten the country. Growth and 
 production, the progress of the seasons, seed- 
 time and harvest, these natural processes, 
 upon which the very life of man depends, 
 have lost all meaning to him. He has fallen 
 out of touch with reality, and is in danger of 
 forgetting the meaning of things. He may 
 seem to thrive for a time and grow fat, l)ut 
 
 21 C
 
 22 THE ECONOMIC SYSTEM 
 
 if his children are like him, his family will 
 decline and dwindle and disappear, for the 
 country is the great renewer and invigorator 
 of the town, and tillage may be called the 
 tap-root of the nation. It yields not only 
 food, but manhood. It gives to industries 
 their workers and to the State its defenders. 
 
 So important is it to the national economy 
 that some economists have called it the only 
 productive industry, and have been willing 
 to see their countries depend altogether upon 
 agriculture. In France, the philosopher 
 Rousseau and the economist Quesnay followed 
 the statesman Sully in this exaggeration, 
 from which Adam Smith hardly escaped. 
 
 Yet it is certain that a nation which de- 
 pends altogether upon agriculture will be 
 both poor and weak. Its food will depend 
 upon the precarious gifts of its own seasons, 
 a bad harvest may bring dearth, and two bad 
 harvests famine, and, as other things are 
 necessary to life, and the produce of agri- 
 culture is of great bulk in comparison with 
 its exchange value, it may have to go short 
 even in plenty, for it will have to sell a great 
 part of its production in exchange for these 
 other necessities. Some part it must sell to 
 clothe itself, some part to provide itself with 
 iron and the implements of war.
 
 PROTECTION OF HUSBANDRY 23 
 
 The agricultural nation will be poor be- 
 cause the exchange will generally be against 
 it. Moreover, if it cannot provide weapons, 
 what remains to it of its produce may be 
 taken from it by armed force. The nation 
 which depends altogether upon agriculture 
 will be poor, weak, and tributary. So we see 
 that Russia, depending too much upon tillage, 
 became the helpless victim of Germany. 
 
 A nation cannot be secure without agri- 
 culture, but agriculture alone will not give 
 it security-. 
 
 Agriculture is an industry, and, like all 
 industries, struggles for its existence against 
 similar industries in other nations. In early 
 times, nations which depended mainly on the 
 land waged war for soil, but the produce of 
 the soil had at first its protection in the 
 scarcity of land and sea carriage. Yet we 
 may trace the struggle between systems of 
 tillage very far back in our economic history. 
 Thus Stow, in his " Survey of London," says 
 that the German merchants of the Steelyard 
 " were great merchants of corn brought out 
 of the east parts hither, in so much that the 
 occupiers of husbandry in this land were 
 enforced to complain of them for bringing 
 in such abundance when the corn of this 
 realm was at such an easy price ; whereupon
 
 24 THE ECONOMIC SYSTEM 
 
 it was ordained by Parliament that no person 
 should bring into any part of this realm by 
 way of merchandise, wheat, rye, or barley, 
 grown out of the said realm, when the quarter 
 of wheat exceed not the price of 6s. 8d., 
 rye, 4s. the quarter, and barley, 3s. the 
 quarter, upon forfeiture the one half to the 
 King, the other half to the seizor thereof." 
 
 Throughout the seventeenth and eighteenth 
 centuries our agriculture thus protected itself 
 by sliding scales and duties against the agri- 
 culture of Northern Europe, and even against 
 the produce of our own colonies. In our wars 
 of the eighteenth century the sufficiency of 
 our agriculture was one main source of our 
 security. We could subsist upon our own 
 corn. This sufficiency of food was a chief 
 part of the national self-sufficiency which 
 enabled us to face in arms an alliance of 
 almost the whole world, whether in war or 
 in armed neutrality against us. We could 
 shut our markets to Russian grain, and we 
 thus forced Russia out of the armed neutrality 
 and brought down Napoleon's continental 
 system. 
 
 Yet, if we look close into our history of the 
 eighteenth century, we see a conflict between 
 tillage and manufactures, which afterwards 
 developed to the weakening of the State.
 
 N 
 
 BALTIC CORN 25 
 
 The English farmer had most to fear from the 
 grain of the Baltic, and looked upon France 
 as a customer for his occasional surplus of 
 corn. The manufacturer of English cloth 
 had most to hope from Northern Europe, 
 which was the first market for woollens, and 
 most to fear from France, which was the 
 rival manufacturer. Thus the country in- 
 terest was, in the main, Tory, and favoured 
 France ; the manufacturing interest was, in 
 the main, Whig, and favoured Hanover. The 
 dangers of war to the existence of a nation 
 united the two great interests under Chat- 
 ham and the younger Pitt, but when France 
 was defeated at Waterloo, and England 
 seemed secure, this great conflict broke out 
 again and destroyed our national economic 
 system. 
 
 In 1826, one, William Jacob, was sent by 
 the British Government to report upon 
 Northern Europe and " all facts that bear on 
 the subject of the changes that might be 
 produced if such an alteration was made in 
 our laws as would leave our markets at all 
 times accessible to the corn grown in Poland." 
 Jacob reported that in maritime Prussia the 
 people lived upon rye bread from necessity, 
 and grew wheat entirely for export. Such is 
 the fate of a people which depends solely
 
 26 THE ECONOMIC SYSTEM 
 
 upon agriculture. Our manufacturers, fearing 
 nothing from a poor country like Prussia, 
 proposed that the Prussian should supplant 
 the English farmer in the production of food 
 for the English manufacturer. 
 
 This proposal was supported by a new 
 argument when Prussia took to protecting 
 her industries. Sir John Bo wring was sent 
 to report upon Germany by Lord Palmerston, 
 in the year 1840, and here is the sum of his 
 report : " Were foreign markets accessible 
 to the German agriculturist, there is no 
 doubt the flow of capital towards German 
 manufactures would be checked, first by the 
 increased demand for agricultural labour, 
 and secondly by the loss of the advantages 
 which the German artisan now possesses in 
 the comparative cheapness of food." 
 
 It was a false train of argument. Germany 
 both sold us her corn and protected her 
 manufactures, and when American corn made 
 the export of Prussian wheat unprofitable, 
 the Prussian farmer supplied us with sugar. 
 Thus Germany secured her manufactures 
 without abandoning her agriculture. In so 
 doing, if she lost in wealth she gained in 
 security. England, on the other hand, aban- 
 doned security in the pursuit of riches, and 
 if she gained in wealth, she lost in sa'fety.
 
 TILLAGE AND SECURITY 27 
 
 We need not attempt to make a sum of 
 the loss or gain in wealth, since we have put 
 security before cheapness as the object of 
 our policy. Yet, here we may say that even 
 if we consider wealth alone and define wealth 
 narrowly in terms of exchange values, it is 
 still doubtful if Germany lost by her policy 
 and we gained by ours, for a decline in tillage 
 means decay in the home market for manu- 
 factures, and decrease in the supply of in- 
 dustrial labour. But if we put the question 
 to our test of security, we cannot doubt that 
 the neglect of our agriculture weakened us 
 in a double sense : it weakened us and 
 it strengthened Germany. 
 
 Germany supported a good part of her 
 man-power on the beet fields of Prussia. 
 
 As we depended upon Germany for part of 
 our food, mostly sugar, so war with Germany 
 deprived us of that part. 
 
 As we depended upon foreign countries for 
 part of our food, so we feared to stop the 
 trade between these foreign countries and 
 our enemy. 
 
 A country which depends upon other 
 countries for food cannot be strong in its 
 naval policy. It is the excuse of our Blockade 
 Ministry for the failure of our blockade that 
 we did not dare to offend America, as we
 
 28 THE ECONOMIC SYSTEM 
 
 depended upon America for food. If this 
 excuse be valid, it proves that dependence 
 upon other nations for necessities leads to 
 weakness in war, even when those other 
 nations are neutral.* 
 
 As we depended upon countries in the 
 power of Germany for food, so war with 
 Germany deprived us of that food. 
 
 Denmark and Holland were both in the 
 power of Germany. Before the war our 
 policy turned these two countries into high- 
 power food factories. When we went to war 
 with Germany these factories were diverted 
 from our service to the service of our enemy. 
 We created a power of food production which 
 Germany used. 
 
 Further, we depended partly for our food 
 upon Sweden and Russia. Germany was 
 able to cut off these sources of supply by 
 closing the Baltic and the Black Seas. 
 
 In other ways the decay of our agriculture 
 led to insecurity. It weakened our national 
 spirit and it weakened our man-power. 
 
 The weakening of our national spirit was 
 seen chiefly in Ireland. As Ireland depended 
 
 * It is, however, only fair to Americans to say that 
 according to some authorities we were unable to enforce 
 a strict blockade upon the trade oi neutrals because we 
 had not the virtue to enforce it upon our own.
 
 ENGLISH WOOL 29 
 
 most upon agriculture, so Ireland felt most 
 the destruction of agriciilture by free im- 
 ports. 
 
 The Irish famine and the emigration of 
 Irish peasants were both results of the Man- 
 chester policy. The root of the bitterness 
 between Ireland and England is this injury 
 to Irish agriculture. 
 
 In our wars with Napoleon Irish infantry 
 and Irish grain were two main sources of 
 British strength and security. 
 
 In the present war Ireland has required 
 more grain for her food and more men for 
 her defence than she has produced. 
 
 Thus, both at home and abroad, in spirit 
 and in material, our security has been dimin- 
 ished by the decay of our agriculture. 
 
 Industry. — If we go back far enough in the 
 history of England we shall find that our 
 economic system is based upon English wool. 
 For centuries Engand was the producer of 
 wool for the looms of Lombardy and Flanders. 
 English wool was famous throughout Christen- 
 dom. The wool of Spain might be softer and 
 finer, but the wool of England was necessary 
 to strengthen the warp of the Flemish cloth. 
 Flanders and Lombardy struggled for the 
 English clip. The Hanseatic League, the 
 great sea carrier of Europe in the Middle
 
 30 THE ECONOMIC SYSTEM 
 
 Ages, in allying herself with Flanders gave 
 her the victory. Thus, the weavers of Ghent 
 and Bruges based their industry upon a 
 foreign raw material, and the economic his- 
 tory of England is a long and persistent 
 struggle to turn from the export of wool to 
 the export of cloth, to use her own wool for 
 her own looms and to export her cloth in her 
 own ships. The older economic systems of 
 the Empire and of Flanders used all means to 
 stop and retard the growth of the younger 
 and weaker system, but at last we shall see 
 the victory of that system which controlled 
 its own raw material, and the defeat of that 
 system whose raw material depended on the 
 grace and courtesy of others. 
 
 We may suspect that as William the Nor- 
 man was allied with the Count of Flanders, 
 one of the objects of the Norman Conquest 
 was to secure English wool for Flemish looms. 
 A decay in the rude EngHsh weaving industry 
 has been traced from that time, and our 
 oldest English ballads are a complaint of the 
 export of our means of livelihood. Simon de 
 Montfort, the greatest of our early English 
 patriots, ordered his followers to wear as the 
 badge of their party and the emblem of their 
 policy the rough undyed English cloth which 
 was then the only product of our looms, and
 
 IN FOREIGN HANDS 31 
 
 his first act when he secured the control of 
 English government was to set an embargo 
 upon the export of English wool at Dover. 
 It is interesting to remember that the reply 
 to this embargo was a papal bull of excom- 
 munication, the weapon no doubt of the 
 cities of Lombardy, and the invasion of 
 England by Richard of Cornwall, King of 
 Germany, the protector, or the tool, of the 
 Hanseatic cities. As our looms were not 
 then sufficient to take up our EngUsh wool 
 clip, the great flockmasters joined the royaUsts, 
 and Simon de Montfort was overthrown and 
 killed at the battle of Evesham. 
 
 So completely did this English wool trade 
 fall into the hands of foreign merchants that 
 Courts Merchant were appointed by the 
 Edwards to settle disputes between natives 
 and aliens, and these Courts Merchant 
 consisted of two Italians, two Germans, and 
 two Englishmen. Thus in his own country 
 and in his own courts the Englishman was 
 placed in a minority by the overshadowing 
 strength of the two greater commercial 
 systems. 
 
 We find that Edward the Third, when he 
 failed to win the Flemings over to his cause 
 in his wars with France, took his revenge by 
 planting Flemish weavers in England. We
 
 32 THE ECONOMIC SYSTEM 
 
 find also that the Hanseatic League, bemg 
 given a preference in the export of English 
 cloth over both natives and all other foreign 
 merchants, deserted the cause of Flanders 
 and took to exporting English cloth. When 
 Bruges protested in the interests of Flemish 
 weaving, the City of Antwerp was ready to 
 make easy wealth by the importation. Thus 
 the great weaving mdustry of Burgundy was 
 betrayed by its own fundamental weakness 
 of depending upon foreign raw material.* 
 
 We find, however, that for a very long 
 time the Flemings maintained a secondary 
 industry in the finishing, dressing and dyeing 
 of English cloth. EngUsh cloth was ex- 
 ported as " whites." The Flemings prepared 
 it for market, set their own seals upon it, 
 and re-exported it throughout Europe, and 
 in the sixteenth and seventeenth centuries 
 the English made the same fight for the 
 dressing, the finishing and the dyeing of 
 English cloth as they had made in earher 
 
 * " The King and State began now to grow sensible 
 of the great gain the Netherlands got by our English 
 wool, in memory whereof the Duke of Burgundy not 
 long after instituted the order of the Golden Fleece, 
 wherein indeed the Fleece was ours, the Golden theirs, 
 so vast their emolument by the trade of clothing. Our 
 King, therefore, resolved if possible to reduce the trade 
 to our own country who as yet were ignorant of that 
 a.it" — FnlleK
 
 GROWTH OF WEAVING 33 
 
 times for the weaving of English wool. Thus 
 Elizabeth ordained that every thirteenth 
 cloth exported from England should be 
 " rowed, barbed, first-coursed and shorn." 
 This measure failed to attain its end, and 
 James the First totally prohibited the export 
 of " whites." The Dutch repHed by an 
 embargo upon English cloth and carried their 
 point, but in the end Cromwell by a war 
 forced upon the Netherlands the free im- 
 portation of English cloth, and by the time 
 of Charles the Second English cloth was 
 carried through all the stages to the finished 
 article in England. The Dutch were reduced 
 to the position of carriers and merchants, 
 but that position was also weak for the 
 reason that those who produce the wares 
 are in the best position to market them, 
 and in the end the Dutch commercial system 
 was destroyed by the attacks of the two 
 great cloth producers of the eighteenth cen- 
 tury, England and France. 
 
 Thus in the evolution of our system we 
 see wool changing to cloth and cloth develop- 
 ing from rough, undyed frieze into all the 
 exquisite varieties of modern weaving. And 
 we learn these lessons : 
 
 That the security of an industry rests on 
 the control of its raw material, and that the
 
 34 THE ECONOMIC SYSTEM 
 
 development of an industry is a constant 
 struggle against the industries of other nations. 
 
 But we trace from wool also many secondary 
 industries. We find, for example, in the 
 sixteenth century the English exploring all 
 countries for dyes, discovering the secrets 
 of woad in France, of sumach in Spain, of 
 reds in Turkey, of indigo in the East, and 
 thus establishing in England an industry of 
 dyeing upon a sound foundation ; and we 
 find the English Government smuggling in 
 Italian and German prospectors to discover 
 deposits of alum and copperas necessary to 
 the dyeing and dressing of cloth. 
 
 In the same wa^^ our brass industry was 
 based upon our wool. Wool cards of brass 
 were at first imported from the Continent, 
 but in the time of Elizabeth we find German 
 metallurgists brought into England to pro- 
 spect for spelter wdth which to make brass 
 wire for the production of wool cards. Two 
 great companies organised by the English 
 Government, the Society of Mines Royal 
 and the Mineral and Battery Works, pro- 
 duced this brass from English spelter, copper 
 and iron. The importation of wool cards 
 was prohibited, and the brass wire industry 
 placed upon the secure foundation of the 
 home market for English wool cards. Learn-
 
 ENGLISH METALS 35 
 
 ing the secrets of brass manufacture, the 
 Mineral and Battery Works took to founding- 
 brass ordnance, and English cannon were 
 soon famous over Europe. 
 
 Here, then, we see both the true foundation 
 of industry in the command of raw material 
 and the interdependence of one industry 
 with another. 
 
 S-o we might follow the history of our other 
 raw materials and trace their evolution into 
 industries. 
 
 In early times our tin mines were leased to 
 German capitalists, and our tin was exported 
 to Germany. Thus the Black Prince leased 
 the tin mines of Cornwall to Tidman von 
 Limbergh for a hundred years. Iron mines 
 in Yorkshire were also w^orked by the German 
 merchants. 
 
 The German merchants imported steel in 
 blooms, called osmund iron, and they also 
 imported the products of steel and iron. 
 
 At the beginning of Elizabeth's reign the 
 Spaniards calculated that they could easily 
 defeat England because she lacked armour. 
 
 English adventurers under the protection 
 of Government thereupon organised an " in- 
 tegrated industry " on the basis of the 
 English mines. 
 
 The Society of tlie Mines Royal and the
 
 36 THE ECONOMIC SYSTEM 
 
 Mineral and Battery Works formed together 
 an " integrated industry." 
 
 It owned zinc mines in Somersetshire, 
 copper mines near Keswick, and brass was 
 made from the two ores at brass factories 
 in London and Nottingham. 
 
 In Monmouthshire the company had iron 
 mines for the production of osmund iron, 
 and from the iron pockets of Sussex iron 
 cannon were made. 
 
 The organisation of this industry was 
 bitterly opposed by Burgundy and the Han- 
 seatic League, both at that time part of a 
 great imperial system, which included Ger- 
 many, Burgundy, Spain, and Italy. 
 
 When Queen Elizabeth protected the arms 
 and allied industries, the Duchess of Parma, 
 then Governess of the Netherlands, pro- 
 hibited the export of all raw materials 
 necessary to those industries, and the im- 
 portation of English cloth. 
 
 The English merchants sought to evade 
 this embargo on their cloth trade by exporting 
 to German ports, and the prohibition was 
 thereupon extended to the Empire. 
 
 The end of this struggle was the Spanish 
 Armada, in which the English arms industry 
 had its first great victory. 
 
 This victory rested upon the sure founda-
 
 A NEW POWER 37 
 
 tion of the raw material. Just as English 
 cloth gained a victory over Flemish cloth 
 by the control of English wool, so English 
 arms gained a victory over Spanish arms by 
 the control of English iron, copper, and zinc. 
 
 The Spaniards had depended for most of 
 their metals and arms upon the Empire, and 
 by the end of Elizabeth's reign the Spanish 
 Government was offering great bribes to 
 those who could smuggle in English cannon. 
 
 The great Enghsh industry of mechanical 
 engineering grew from the English weaving 
 and mining industries. Arkwright , of Preston , 
 invented his spinning frame before 1769, 
 and steam was applied to it by 1785. The 
 atmospheric pressure engine was invented by 
 Newcomen in 1705, and w^as used to pump 
 water out of the Cornish mines. James 
 Watt's steam-engine came half a century 
 later, and was developed Hke Newcomen's 
 on the basis of the mining industry. 
 
 These humble mechanics, Watt in his little 
 room in Glasgow College, Arkwright in his 
 barber's shop at Preston, the Stephensons in 
 their Northumberland cottage, worked be- 
 tween them what is called a revolution in 
 industry. It might be more accurate to 
 call it an intensification. They gave to 
 industry a new power, but they did not
 
 38 THE ECONOMIC SYSTEM 
 
 change the principles upon which it 
 rests. 
 
 The new power first strengthened the 
 industries for which they worked, but the 
 strength spread from industry to industry 
 throughout the British industrial system. 
 The new industrial power multiplied the 
 economic power, and the economic power 
 the political power. England rose suddenly 
 like a giant over all rival nations. In 1786 
 the French were so rash as to open their 
 markets to British products. The new 
 British power rushed in and overwhelmed 
 French industry, and the fall of the French 
 State in the ruins of the Revolution was the 
 natural consequence. The industrial system 
 of India, founded on the hand loom, fell back 
 with hardly a struggle into agriculture. 
 
 This defeat of rival industrial systems gave 
 to England her supremacy over the world, 
 and this supremacy lasted until other nations 
 learned its secrets and built up their strength 
 upon the same principles. 
 
 For England the victory and the security 
 gained thereby were so complete that she 
 forgot the foundations upon which it rested. 
 
 Trade. — Just as industry is founded upon 
 raw material, so trade is founded upon in- 
 dustry. English trade was founded upon
 
 FOUNDATIONS OF COMMERCE 39 
 
 English cloth. This was a truth well known 
 to our ancestors. Thus, in an Elizabethan 
 pamphlet called" The Golden Fleece," written 
 by one " W. S., Gent," the writer concludes 
 his examination of the English woollen trade 
 by making what he calls a short survey of 
 some principal " immunities " which clothing 
 has conferred upon England : "It hath 
 produced such opulent and magnificent 
 societies of merchants as the whole world 
 cannot again demonstrate, that is to say, 
 the Merchant Adventurers' Company, whose 
 governors, presidents, consulls, and like 
 officers are not of less esteem (where they 
 please to seat themselves) than are the resi- 
 dentiaries of the greatest princes." He might, 
 indeed, have said that our ambassadors and 
 consuls were in several cases maintained 
 and housed by these national companies, 
 but he proceeds : " This company hath 
 by their policy and order supplanted those 
 societies of the Hans towns," who controlled 
 our markets and shipping in spite of the 
 small amount of our cloth they had exported ; 
 "whereas," he goes on, " at this day the 
 Merchant Adventurers had uttered ten times 
 as many cloths annually and at farre better 
 prices." Moreover, " this trade of clothing 
 and this company of Merchant Adventurers
 
 40 THE ECONOMIC SYSTEM 
 
 have furnished the Navy Royall " wkh so 
 many ships that they had no reason to fear 
 the greatest naval forces sailing the seas, 
 " especially," the writer says, " in the year 
 '88," when, as a matter of fact, the Merchant 
 Adventurers' Company contributed a hundred 
 armed ships to defeat the Armada. The 
 writer goes on to enumerate the other com- 
 panies : the Eastland Company, which " well 
 supplied the trade of clothing all about the 
 Baltic Seas and employed many war-like 
 ships and great numbers of mariners in that 
 trade " ; the Muscovia Company, which had 
 discovered the passage of the North Cape ; 
 the Levant and Turkey Companies, and the 
 East India Company. The trade with France 
 and Spain had helped to make England's 
 sea power. ..." This France and Spain had 
 found to their cost and England to its great 
 security." And the writer proceeds to point 
 out that as these blessings had befallen to 
 England by the trade of clothing "politiquely 
 and providently drawTi into societies, com- 
 panies and corporations, so loose transactions 
 of trade in these countries have rendered 
 them so poore at sea as were it not for the 
 ships of England and Holland the very Hfe 
 of commerce would perish." 
 
 Let us confirm the general truth of this
 
 THE MERCHANT ADVENTURERS 41 
 
 summary. The origin of the Merchant Ad- 
 venturers was the Brotherhood of St. Thomas 
 of Canterbury, and Canterbury was the cradle 
 of EngUsh weaving. The charters and con- 
 stitution of the Company showed that a 
 Freeman must be a wholesale cloth-merchant. 
 He was forbidden to deal in " retayle or 
 cutting out " or to " keepe open shoppe or 
 shewhouse upon paine of three skore pounds," 
 and he was forbidden also to trade in wool. 
 The Company was formed of " almost all who 
 traded in the woollen manufacture to Germany 
 or the Netherlands." Only wholesale mer- 
 chants in English cloth could be members of 
 the great organised Company which conducted 
 our foreign trade. What " the common weale 
 of this realme doth require," says Hakluyt, 
 was " an ample and full vent ot this noble 
 and rich commodity of English cloth." Such 
 was the foundation of our foreign commerce. 
 It rested upon the basis of English industry. 
 But just as the evolution of industry was a 
 constant struggle against foreign industry, so 
 the evolution of trade was a constant struggle 
 against the foreign trader. In this struggle 
 the individual merchant had no chance of 
 surviving. The Society of German Merchants 
 uf the Holy Roman Empire, now commonly 
 called the Hanseatic League, had at one time
 
 42 THE ECONOMIC SYSTEM 
 
 almost the monopoly of English commerce. 
 They were a confederation of seventy German 
 cities led by Lubeck ; they had a monopoly 
 of the Russian trade and of the trade of the 
 Baltic ; they had command of all naval 
 stores and therefore of shipping ; they con- 
 trolled silver which was then the currency of 
 Europe. By the ruthless use of these advan- 
 tages and by the strength of their combination 
 they sought to crush the native trade of 
 England. 
 
 The early history of English trade is the 
 history of the struggle between the English 
 Company of the Merchant Adventurers and 
 the Society of German Merchants. If we 
 examine the constitution of the Merchant 
 Adventurers' Company we find it to be an 
 imitation of the Hanseatic League. Thus 
 the Merchant Adventurers were like the 
 Hanseatic League upon a national basis. 
 Only natural-born Englishmen " of father and 
 mother both English " were admitted to the 
 fellowship. No Merchant Adventurer could 
 marry a foreign wife or hold real property 
 abroad. All the chief towns of England — 
 London, Norwich, Bristol, Boston, York, 
 Hull, Exeter, and so forth, had their societies 
 of Merchant Adventurers, and although these 
 Merchants traded with their own stock, they 
 
 /-
 
 STRUGGLE WITH THE HANSA 43 
 
 combined for purposes of common defence. 
 In the time of Elizabeth there were some 
 three thousand five hundred Merchant Ad- 
 venturers in all. They were united by an 
 oath to be true to their King and country. 
 They fought the Germans at sea whenever 
 they met them and just as the Hanseatic 
 League made loans to the kings of England 
 in order to secure its commercial privileges, 
 so the Merchant Adventurers raised money 
 among their members to make a loan to the 
 Emperor and thereby influence his policy. 
 We may say that they fought step by step 
 for their right of marketing English cloth in 
 the North of Europe and that at every step 
 they were opposed by every weapon which 
 the wealth and power of the Hanseatic League 
 could bring against them. 
 
 Thus we see the organisation of trade 
 evolving as a weapon in the struggle between 
 nations. 
 
 But we find in tracing this stiuggle that the 
 victory rested with the trading organisation 
 which was founded upon industry. The 
 Hanseatic League had traded first in English 
 wool and then in English cloth. They had 
 not sought to support either German wool 
 growing or German weaving. The English 
 founded themselves upon Enghsh cloth, and
 
 44 THE ECONOMIC SYSTEM 
 
 secure in this foundation they drove the 
 German traders first out of their own markets, 
 then out of the markets of the Netherlands, 
 and lastly out of their home markets in 
 Dantzig and Hamburg. The Alderman of 
 the London Guildhall of the Society of Ger- 
 man Merchants of the Holy Roman Empire 
 wrote from the Steelyard to the Senate of 
 Liibeck on the 23rd JFebruary, 1581 : " How 
 abominable that such a Company (the Mer- 
 chant Adventurers) could suppress the Hanse 
 considering that at other times a few Hanse 
 towns have kept the whole Kingdom of 
 England under their thumbs." At the end 
 of the struggle, in the seventeenth century, 
 the English Merchant Adventurers were su- 
 preme, not only in Antwerp but in Hamburg. 
 By the eighteenth century Dantzig had also 
 become a depot of the English cloth trade, 
 and a hewer of wood for the English Navy. 
 
 The organisation of trade is necessary to 
 the security of a nation. 
 
 The two main objects of trade, the supply 
 of raw material and the sale of the finished 
 article, are both in the nature of a struggle 
 and both require to be supported by the 
 strength of a national organisation. 
 
 Shipping is a branch of commerce and 
 should be founded on the national industry.
 
 NAVAL POWER 45 
 
 Shipping. — We have seen that the Han- 
 
 seatic League founded its security on its 
 
 monopoly ot marine stores which at that 
 
 time came from the Baltic. Hemp, pitch, 
 
 tar, timber and other naval provisions, 
 
 were under the control of Liibeck and were 
 
 used by the League to secure a monopoly of 
 
 sea carriage. To break this monopoly the 
 
 Merchant Adventurers organised a subsidiary 
 
 Russia Company in the reign of Edward the 
 
 Sixth. The Russia Company obtained for a 
 
 time an independent supply of naval stores 
 
 by sailing round the North Cape to Archangel 
 
 and obtaining a charter from the Czar at 
 
 Moscow. But when the " badde dealings of 
 
 the Easterhngs," in other words the intrigues 
 
 of the Germans, almost drove us out of that 
 
 trade, our Merchant Adventurers explored 
 
 Newfoundland and North America for an 
 
 independent supply of shipping material. 
 
 \\^en the Germans ruled the seas, German 
 ships were strongly manned and heavily 
 armed. They drew their crews from the 
 Baltic Fisheries in the days when the herring 
 sought refuge in the Baltic from its enemy 
 the whale. When the Dutch whalers chased 
 the whale northwards, the herring changed 
 his habits and came down into the Channel. 
 Then Dutch shipping grew strong on the
 
 46 THE ECONOMIC SYSTEM 
 
 herring fisheries ; but the Germans abandoned 
 fisheries for trade and sailed their great hoyers 
 with three or four men and a boy, " depending 
 on their amity with the Spaniard." 
 
 When Englishmen began to sail the sea 
 they were crushed by the armed strength of 
 the German. The German towns, upon vari- 
 ous occasions, drove the English (and the 
 Scotch) out of Bergen, out of Iceland, out of 
 the Baltic and out of Russia. They block- 
 aded London, Lynn, Boston, and Hull, and 
 so destroyed our shipping by organisation 
 and armed force. 
 
 The Hanse Towns had their Navigation 
 Law of " Hanse goods in Hanse ships," and 
 maintained a j ealous monopoly. The Edwards, 
 who depended on the Hanse for loans and for 
 the carriage of their armies, supported the 
 German sea supremacy, and even forbade 
 English ships to carry English goods. Rich- 
 ard the Second passed the first English 
 Navigation Law and declared war against 
 the Hanse with a Navy of three ships. He 
 was defeated. Henry of Lancaster made a 
 peace with his old comrades the Teutonic 
 Knights, which was in effect a surrender of 
 the English shipping interest. Warwick the 
 Kingmaker took up the quarrel when he was 
 Lord High Admiral ; he captured a Hanseatic
 
 THE CRADLE OF SEA POWER 47 
 
 fleet in 1458, and for that reason was dismissed 
 from office. We may trace this quarrel be- 
 tween English and German shipping through 
 the wars of the Roses. Thus the Dantzig 
 Chronicler writes of the year 1469 : " There 
 was great discord in England amongst the 
 Lords, one of the reasons being the (German) 
 merchant ... as for many nobles and the 
 common folk who hated the German mer- 
 chant (den deiitschen Koffmann hagerden) they 
 went with any lord who did what they 
 wanted." Edward IV., when he quarrelled 
 with Warwick, was supported by the Hanseatic 
 fleet, and Pauli and Lappenberg agree in 
 ascribing the victory of Edward to German 
 sea-power. 
 
 The English Merchant Adventurers, deserted 
 by their Government, organised themselves 
 for a warlike commerce, and carried their 
 cloth in armed fleets. By the time of the 
 Tudors they were equal to the struggle. 
 
 Our shipping grew in the same conflict as 
 our industry and our trade, and was founded 
 like them upon production. Fishery and 
 woollens were the cradle and the swaddling 
 clothes of English shipping. 
 
 The Germans in pursuit of profit economised 
 in men, depending on the protection of the 
 Spanish Navy, the EngUsh sent out tlieir
 
 48 THE ECONOMIC SYSTEM 
 
 cloth fleets heavily armed and strongly 
 manned, and when they defeated the Spanish 
 Navy drove the unarmed Germans from the 
 sea. 
 
 In shipping as in commerce organised 
 strength defeats cheapness. 
 
 The Dutch then took over sea carriage 
 between nations, forsaking fisheries and in- 
 dustry, and resting their supremacy on cheap 
 shipbuilding and low freights ; but the 
 English and the French based themselves on 
 production and trained great companies of 
 seamen on the Newfoundland cod-fisheries. 
 
 Then the English and French passed Navi- 
 gation Laws and carried their own wares in 
 their own ships. The Dutch who depended 
 upon French and English industry for their 
 cargoes were destroyed at their foundations, 
 and lost their sea traffic. 
 
 The base of French shipping was Canada 
 and the Atlantic fisheries whence she drew 
 her timber and her seamen. The English 
 strength rested on the Newfoundland banks. 
 There the Seven Years' War gave to England 
 the mastery of the sea. 
 
 Cromwell's Navigation law, which was 
 directed chiefly against Dutch shipping, com- 
 pleted the ruin of Hanseatic shipping. Shut 
 out of the ports of England, the Hanseatic
 
 STRENGTH AND CHEAPNESS 49 
 
 vessels, which had at one time as their sailing 
 orders, " Mein Felt is die Welt," now fell back 
 upon the coasting trade. But when we 
 aboUshed the Navigation Acts, we let the 
 German genie out of the bottle, and " reopened 
 to the Hamburgers the limitless horizon of 
 long distance shipping." * 
 
 Shipping rests more on strength than on 
 cheapness ; shipping may subsist for a time 
 on the traffic of other nations ; but in the 
 end it will be found that the industries of a 
 nation are the only security for its shipping. 
 
 Shipping must rest upon national security : 
 when it becomes international it is doomed 
 to perish. 
 
 Four things are necessary for shipping, a 
 nursery for seamen, a strong naval power, 
 the materials for shipbuilding, and a national 
 industry. 
 
 Colonisation. — We have seen that the in- 
 dustry of a nation rests (i) upon control of 
 raw materials, and (2) upon the vent or 
 market of its manufactures secured by its 
 shipping and commerce. 
 
 When the industries of a nation outstrip 
 its raw material and its market, that nation 
 seeks to secure both by colonies. 
 
 * Henri Hauser, " Germany's Commercial Grip on the 
 World," p. 132.
 
 50 THE ECONOMIC SYSTEM 
 
 Colonies are generally founded with these 
 two main objects, to secure supplies of 
 raw material and to secure a market for 
 wares. 
 
 The planting of colonies is part of the 
 struggle between nations. In early times 
 England planted a colony in Bergen in order 
 to secure a supply of naval stores ; but this 
 colony was driven out by the German mer- 
 chants. English attempts to gain a footing 
 in Dantzig and in Russia were defeated by 
 the same enemies. 
 
 That great and gallant Elizabethan, Captain 
 Christopher Carleill, wrote in 1583 a " brief 
 and summary discourse upon the intended 
 voyage to the hithermost parts of America " 
 in order to persuade the London merchants 
 of the Muscovy Company to put capital into 
 a venture then being supported by the 
 merchants of Bristol. 
 
 He pointed out that the intrigues of 
 " Dutchmen," i.e., Germans, were prevailing 
 with the Czar and driving them out of Russia, 
 and went on : 
 
 " The badde deahngs of the Easterhngs 
 (Hanseatics) are sufficiently known to be 
 such towards our Merchants of that trade as 
 they do not only offer them many injuries 
 overlong to be written, but do seek all the
 
 THE PLANTING OF COLONIES 51 
 
 means they can to deprive them wholly of 
 then- occupying that way (by the North Cape 
 to Archangel) and to the same purpose have 
 of late clean debarred them from their 
 accustomed and ancient privileges in all their 
 great towns." 
 
 And Carleill goes on to remind the London 
 merchants that not only for fish, but for 
 " pitch, tar hemp and thereof cordage masts 
 losshe (seal) skins, rich furs, and other such 
 like " they were at present beholden to the 
 King of Denmark and the other Princes who 
 commanded the Sound. 
 
 These commodities they might expect to 
 find in North America. Moreover, as America 
 was bigger than all Europe, and " the larger 
 part thereof bending to the northwards," 
 they might expect " a very liberal utterance 
 of our English cloth." 
 
 And we shall find this same policy to be 
 the main text of all our Adventurers who took 
 part in those voyages — a secure supply of fish 
 and naval stores and a " hberal utterance " 
 of English cloth. 
 
 To the south we sailed to obtain a secure 
 supply of gold of Gumea and " graines " for 
 dyeing our English cloth. 
 
 We hesitated long before we sailed to the 
 East, as Asia had no market for English
 
 52 THE ECONOMIC SYSTEM 
 
 woollens and might, therefore, consume our 
 scanty supply of" treasure." 
 
 But in the end we adventured into Asia to 
 secure an independent supply ol spices and 
 sugar. These groceries were then almost 
 vital to us because in the winter we lived 
 so largely upon spiced beef and preserved 
 provisions. 
 
 At that time, Venice and Genoa, the chief 
 centres of the grocery trade, had so far fallen 
 under the influence of Spain and the Empire, 
 that our Itahan merchants were forced to 
 look elsewhere for their commodities. 
 
 Newfoundland, that stern nurse of our 
 seaman, was our first colony, since it gave us 
 a secure supply of salt cod, then the staple 
 food of sailors. But, wherever there was a 
 market or a supply of raw material, we 
 sought to secure ourselves by planting colonies. 
 
 In settled and closely-populated countries 
 these colonies were what the Romans called 
 " Collegia," the Germans " Kontors," and our 
 people " colleges "or" factories." They were 
 settlements of merchants, in fortified houses, 
 guarded by armed servants. 
 
 But where the countries were unsettled 
 we planted populations which grew such 
 commodities as the Mother Country desired 
 — sugar, cotton, and tobacco, for example —
 
 THE WAR OF THE COD-FISH 53 
 
 thereby affording us a supply independent 
 both of the Dutch and the Spanish systems. 
 
 So it came about that our national system 
 became an Imperial system. The British 
 Imperial system was formed in the struggle 
 with the German, the Spanish, the Dutch, 
 and the French Imperial systems. 
 
 The German system had been built on the 
 control of shipping and silver ; the Spanish 
 on the control of gold and sugar ; the Dutch 
 on the control of shipping and spices ; the 
 French on cod fish, furs, and sugar. In all 
 these and other commodities the British 
 Imperial system waged war mth the other 
 systems. 
 
 Thus, for example, Pitt swore in 1761 that 
 he would fight six or seven years more in 
 America to obtain the fishery, and Choiseul, 
 his hardly less great opponent, as resolutely 
 refused to yield. " La peche est ma folie," 
 said Choiseul. 
 
 The fight for the West Indian Islands was 
 the fight for the control of the sugar industry. 
 France at one time supplied all Europe, save 
 England, with sugar. England secured for 
 her sugar islands a monopoly of her home 
 markets, believing an independent supply of 
 sugar to be necessary to her security in 
 war. 
 
 E
 
 54 THE ECONOMIC SYSTEM 
 
 \Vlaen the British Imperial system con- 
 trolled and interchanged all commodities, its 
 security was complete. 
 
 When colonies g'row they may become in 
 themselves nations with their own economic 
 systems. England lost her thirteen colonies 
 because she halted between the two policies 
 of encouraging and preventing this growth. 
 She encouraged their shipbuilding but pro- 
 hibited their iron and cloth industries. She 
 allowed them to build ships but prevented 
 them frorai using those ships in foreign trade. 
 
 Either one of two policies might have 
 succeeded : a total prohibition or a frank 
 encouragement. The former policy would 
 have meant continual strife with our own 
 sons ; by the latter policy we might have 
 lost colonies but gained allies. Distance, 
 kinship, and a mutual preference might 
 together have prevented conflict. 
 
 The security of market and raw material 
 lost in the thirteen colonies was regained in 
 Canada, AustraUa, South Africa, and New 
 Zealand, which together with India and the 
 tropical dependencies formed the second 
 British Empire. The motives in the second 
 case were substantially the same as in the first. 
 
 When a nation grows it looks to foreign 
 countries for markets and for raw material.
 
 BANKING AND SECURITY 55 
 
 It finds everywhere a struggle for exist- 
 ence, and it seeks to support this struggle 
 by armed strength and the planting of 
 colonies. 
 
 The security of overseas markets and raw 
 material is better founded in colonies than in 
 foreign nations. 
 
 Banking. — The trade in money, which is 
 called banking, depends upon the security of 
 the nation. Walter Bagehot defines money 
 as economic power, and we might liken 
 it to electricity. Just as electricity is stored- 
 up energy, and can be kept for use in a cell, 
 so capital is the stored-up energy of industry 
 which may be concentrated for use in a 
 bank. 
 
 Those who make money will store it in 
 that place which they take to be most secure. 
 De Witt, in his " Interest of Holland," says 
 that in the Thirty Years' War money was 
 stored for safety in the sea-girdled and well- 
 fortified towns of the Netherlands. The 
 Netherlands, by this security, became a 
 great banking nation, and they used this 
 cheap and ready money to support their 
 world commerce. When the French armies 
 invaded Holland and reduced their strong 
 cities, the Dutch banks were no longer 
 secure, and capital then flowed to Paris and
 
 56 THE ECONOMIC SYSTEM 
 
 to London.* Wars and revolutions shook 
 the security of Paris, and Bagehot notes that 
 after the Franco-German War Paris ceased 
 to be the European settHng-house. London 
 then became the sole great clearing-house 
 and bank of Europe. Bagehot, therefore, 
 found that note issues and deposit banking 
 were only possible in a country exempt from 
 invasion and free from revolution. " During 
 an invasion note-issuing banks must stop 
 payment, a run is nearly inevitable at such 
 a time and in a revolution, too. In such 
 great and close civil dangers a nation is 
 always demoralised, and every one looks to 
 himself, and every one likes to possess him- 
 self of the precious metals. These are sure 
 to be valuable, invasion or no invasion, 
 
 * Adam Smith writes of the Bank of Amsterdam with 
 an enthusiasm which its history makes ludicrous. When 
 the Army of the Revolution, eager for plunder, invaded 
 Amsterdam, they found nothing in those coffers of which 
 Smith speaks with awe, and William Jacob, when he 
 visited Holland in 1820, says "that Dutch capital, owing 
 to French exactions, had been partly hoarded, partly 
 transferred to England, and partly sunk in agriculture." 
 The dependence of banking upon national security is 
 illustrated by Jacob's remark that under the rule of Louis 
 Buonaparte the Dutch capitalists, " appearing to abandon 
 all hope of employing their money again in commerce, 
 directed it to agriculture and made large investments in 
 land." The prosperity of Dutch agriculture, however, 
 depended on the war, and with the peace it became 
 unproductive.
 
 HISTORY OF BANKING 57 
 
 revolution or no revolution, but the goodness 
 of the bank notes depends upon the solvency 
 of the banker, and that solvency may be 
 impaired if the invasion is not repelled or 
 the revolution resisted." And Bagehot goes 
 on : " Hardly any continental nation has 
 been till now exempt for long periods both 
 from revolution and invasion. In Holland 
 and Germany — two countries where note 
 issues and deposit banking would seem as 
 natural as in Scotland or England, there seems 
 never any security from foreign war." 
 
 Thus the industry of banking depends upon 
 national security. 
 
 But we have already shown that the 
 security of a nation depends upon its in- 
 dustries. Therefore, it is in the interest of 
 banking to support the industries of the 
 nation. 
 
 If we trace the history of banking in 
 England we shall find that it was founded 
 upon the national industry, and that it was 
 used for the support of that industry and 
 for the defence of the kingdom. 
 
 In the Middle Ages our country was 
 almost without money, and depended upon 
 the capital brought into the country by the 
 merchants of Lombardy and the Hanse 
 towns. It was the pohcy of these merchants
 
 58 THE ECONOMIC SYSTEM 
 
 to keep the exchanges against this country, 
 so that they might buy our natural produce 
 at the cheapest possible rates. They suc- 
 ceeded so well that in the Middle Ages you 
 could buy a horse or an ox for a few shillings. 
 In the middle of the thirteenth century a 
 goose cost a shilling and a hen threepence. 
 
 These foreign merchants were the king's 
 bankers, and they financed our foreign com- 
 merce. As the borrower is the servant of 
 the lender, so the kings of England shaped 
 our national policy as these foreign money- 
 lenders and merchants directed. They were 
 paid, not only in interest, but in licences to 
 export wool and in franchises of trade. 
 
 The Merchant Adventurers organised them- 
 selves in order to secure the control of the 
 national policy, and to secure that control 
 they organised a fund, from which they 
 offered to support the English Government. 
 By the time of the Tudors we find them 
 beginning to supplant the foreign merchants 
 as the king's bankers, and as the controllers 
 of his policy. Henry VII. both supported 
 his merchants and was supported by them. 
 When Germany and Burgundy made Perkin 
 Warbeck their tool for the destruction of 
 the English Government, Henry replied by 
 moving the market of our English cloth
 
 BANKING AND INDUSTRY 59 
 
 from Antwerp to Calais. This removal was 
 the removal of the mart or college or 
 headquarters of the Merchant Adventurers' 
 Company. 
 
 Flanders replied by closing her ports to 
 English cloth, 
 
 " The Merchant Adventurers," says Bacon, 
 " being a strong company (at that time) and 
 well dressed with rich men in good order, 
 did hold out bravely ; taking off the com- 
 modities of the kingdom, though they lay 
 dead upon their hands for want of vent." 
 
 In other words, the Merchant Adventurers, 
 with their stored energy of capital, financed 
 our national cloth trade and maintained our 
 weavers, while the king fought for their 
 markets in Europe. The king won, the 
 Flemings were beaten, English cloth was 
 admitted, so that the bank of the Merchant 
 Adventurers won a national victory for 
 England. 
 
 But this bank was founded upon the 
 English woollen industry. 
 
 So when Elizabeth came to the throne, 
 Sir Thomas Gresham, one of her chief Mer- 
 chant Adventurers, gave her this advice : 
 " Come in as small debt as you can beyond 
 seas, and to keep up your credit and 
 especially with your own merchants, for it
 
 6o THE ECONOMIC SYSTEM 
 
 is they who must stand b}^ you at all events 
 in your necessity." 
 
 And this great merchant laid it down 
 clearly that financial independence and in- 
 dustrial strength went together, for in the 
 same letter he advises Queen Elizabeth 
 " never again to allow " the great freedom 
 of the Steelyard (that is to say, of the Ger- 
 man merchants), " for the carrying of your 
 wool," which freedom " hath been the chiefest 
 point of the undoing ot this your realm and 
 the merchants of the same." The German 
 merchants exported English wool to the looms 
 of Flanders, starved the English industry of 
 its raw material, and thereby kept England 
 poor and weak. 
 
 Elizabeth followed this policy of supporting 
 English industry and English merchants. 
 
 Instead of borrowing from Antwerp, Genoa, 
 and the Hanseatic cities she turned to the 
 city of London and borrowed from her own 
 Merchant Adventurers, and this close co- 
 operation, despite one or two misunder- 
 standings between Queen and merchants, is 
 one of the most notable things in the history 
 of England. 
 
 It is even said that the Merchant Adven- 
 turers organised a run on the Bank of Genoa 
 before the Armada was to sail, and delayed
 
 FINANCE AND POLICY 6i 
 
 it for a whole year thereby, during which 
 time England prepared her defences, and it 
 is certain that when the Armada at last 
 came, the Merchant Adventurers contributed 
 no less than a hundred ships to the defence 
 of England. 
 
 We see the financial and the political 
 power drifting apart in the seventeenth 
 century. King James quarrelled with his 
 merchants, and turned to Germany, Den- 
 mark, and Spain. King Charles fell into 
 debt with the Dutch, and paid them with 
 English cannon — an act of treason in days 
 when our cannon were as jealously guarded 
 as the Golden Fleece or the apples of the 
 Hesperides. Further than this. King Charles 
 raided the treasure of the Merchant Adven- 
 turers, which was stored in the Mint, and 
 took by force the capital with which they 
 supported the cloth trade. It was this rup- 
 ture between merchants and Government 
 that started the Civil Wars. 
 
 Cromwell at first leaned upon the mer- 
 chants and was by them supported with 
 money for his wars in Ireland and Scotland 
 and against Holland. But he quarrelled with 
 his merchants when he went to war with 
 Spain, for by that time English coromerce 
 had penetrated the Spanish Empire, and
 
 62 THE ECONOxMIC SYSTEM 
 
 Spain was no longer feared. Cromwell then 
 turned to the goldsmiths, who had gone some 
 way to develop a banking business in London. 
 Charles II. also went to these moneylenders, 
 and ended by cheating them of over a million 
 by stopping the payments of the Exchequer 
 in 1672. When William III. came over to 
 England he found the credit of the Govern- 
 ment destroyed by revolution and insecurity. 
 But the merchants of London were behind 
 the Revolution, for France was at that time 
 the great rival of England in industry and 
 commerce, and to support the war with 
 France the merchants of London organised 
 the Bank of England. 
 
 The Bank of England, according to the 
 statute of 1694, was established " for the pur- 
 pose of carrying on the wars with France," 
 and the Bank of England should be proud to 
 remember the death of their first Deputy- 
 Governor, Michael Godfrey, who went over 
 to Namur to arrange with the King as to the 
 payment of the troops and was killed by his 
 side by a cannon shot at the siege of that city. 
 
 McLeod, in his " Theory and Practice of 
 Banking," says : " The immense profit which 
 accrued to the State by the establishment of 
 the Bank was shown by the increased vigour 
 with which the war was carried on,"
 
 MONEY MAKES WAR 63 
 
 And so if we trace the history of banking we 
 shall find that its main end was the security 
 of England in war. The struggle being of 
 life and death everything was subordinated to 
 that end. In 1798 the loans advanced by 
 Pitt to Austria drained the country of money 
 and produced a crisis. The Bank had to sus- 
 pend payment, but the Government came to 
 the rescue with an issue of paper currency. 
 In this way Bank and State worked together 
 for the security of the nation. 
 
 But the Bank drew its power from our 
 merchants, as our merchants drew their power 
 from our manufacturers, and in turn they 
 supported our merchants and our manu- 
 facturers. Thus, in 1763 our cloth trade 
 was almost brought to a standstill by a 
 suspension of payments in Antwerp and 
 Amsterdam, and the Bank of England came 
 to the rescue of the merchants with advances 
 for about a million — a great sum in those 
 days. But in the crisis of 1793, which was 
 produced by over-trading with France after 
 the Eden treaty and before the declaration of 
 war, the Bank failed the merchants. Fearing 
 for its reserves it contracted its issues and 
 Parliament had to come to the support of our 
 commerce. 
 
 Thus we see the action and inter-action,
 
 64 THE ECONOMIC SYSTEM 
 
 the working and inter-working, of a national 
 system. The wars with France were wars 
 of commerce. They were a conflict between 
 two industrial systems. In this conflict the 
 energy of the British economic system was 
 stored in the banks to be used by the Govern- 
 ment. Our armies and our navies were the 
 steel point of our industries.
 
 CHAPTER III 
 
 A POLICY OF WEALTH 
 
 Rise of New German Economic System. — 
 We have now traced in their main lines the 
 foundations and the growth of the British 
 system. First it was laid upon the bed rock 
 of production and shaped by a continual 
 struggle with rival systems. In early times 
 England was the " wool farm of the Hansa." 
 The cloth industry was founded upon English 
 wool and grew from stage to stage under the 
 enmity of Flanders and of Lombardy. Eng- 
 lish commerce was founded upon English 
 cloth and organised itself upon a national 
 basis to fight the older commerce of the Hansa 
 League and of Italy. The Hansa towns invoked 
 the aid first of the Emperor and then of the 
 King of Spain. The Spanish Armada was in the 
 main built and equipped by the cities of Ger- 
 many and Italy. The struggle ended in the 
 total defeat of the Imperial system. The 
 Netherlands organised themselves for trade 
 
 65
 
 66 A POLICY OF WEALTH 
 
 upon an obscure corner of the old Empire. The 
 conflict between Holland and England was a 
 conflict between English and Dutch shipping 
 and between the English and Dutch East 
 Indian trades. In this conflict the system 
 founded upon trade and sea carriage went 
 down before the system founded upon pro- 
 duction and industry. France, imitating Eng- 
 land, founded herself upon industry and pro- 
 duction, and in the long and doubtful conflict 
 which followed England at last won by virtue 
 of the superior power of her economic system. 
 England emerged to world supremacy after 
 the defeat of Napoleon. 
 
 In this long seiies of struggles every part of 
 the economic system bore its share. Pro- 
 duction secured industry, industry supported 
 commerce, commerce, banking and shipping 
 supplied power, energy and mobility, and the 
 State put in action the sum of the national 
 strength. 
 
 It follows that wars are not campaigns 
 merely of fleets and of armies but the struggles 
 of economic systems. In these struggles the 
 instinct of survival, the desire for security, 
 is the ruling principle. 
 
 When England was at last supreme this 
 principle was forgotten m the completeness 
 of her victory. A new school of economics
 
 RISE OF INDIVIDUALISM 67 
 
 arose whose interest was not the security of 
 the State but the happiness or the wealth of 
 the individual. 
 
 In their systems the State was almost 
 ignored or was treated as an organisation for 
 eleemosynary purposes. 
 
 In the same way the great organisations 
 which had been founded to support the 
 national trade and industry in these conflicts 
 with rival systems, either disappeared alto- 
 gether or became charitable institutions. 
 The Mercers and the Merchant Adventurers, 
 which had at one time supported the cause 
 of English weaving against the weaving in- 
 dustries of Flanders and Holland, turned their 
 resources to the establishment of schools. 
 
 Our commerce and our industries, our bank- 
 ing and our shipping, turned from the conflict 
 for national existence to the pursuit of wealth. 
 Organisations broke up into individuals. And 
 in this disorganisation born of security which 
 we call individualism the scattered and broken 
 States of the old German Empire found their 
 opportunity. They set themselves, while we 
 wandered freely over the earth our fathers 
 had conquered, to create the New German 
 Empire on the ruins of the old. 
 
 The history of the new German economic 
 system is like our own, the history of a struggle
 
 68 A POLICY OF WEALTH 
 
 for survival. As in the Middle Ages the 
 British economic system grew to power in 
 conflict with the Hanseatic system, so in 
 the nineteenth century the German economic 
 system grew to power in conflict with the 
 British system. 
 
 As in the Middle Ages, England copied and 
 improved the organisation of the German 
 system, so in the nineteenth century Germany 
 copied and improved upon the British system. 
 
 As at first England was a producer of raw 
 material for the German system, so modern 
 Germany began as a producer of raw material 
 for the British system. 
 
 And as England was under the control of 
 the Hanseatic League when she was the wool 
 farm of the Hansa, so modern Germany was 
 dominated by Great Britain while she served 
 the needs of British industry. 
 
 In the eighteenth century Germany was 
 the serf of England and France. Hamburg 
 was a port of entry for British manufactures ; 
 Hanover was the " bridge-head of England " ; 
 and Prussia, Brunswick and Hanover fought 
 with money and weapons provided by England 
 to support British policy. In the same way 
 the German states of the Rhine Confederation 
 were the economic and political vassals of 
 France.
 
 THE POVERTY OE PRUSSIA 69 
 
 Frederick the Great had sought to give 
 Prussia industries by seizing Silesia and to 
 give Prussia shipping b}^ seizing Dantzig ; 
 but Ins system was killed in its infancy by 
 Napoleon. Stein, the Prussian statesman 
 who had sought refuge in England, supported 
 the British policy of a free market in Germany 
 for British manufactures. 
 
 In 181 7 Frederick William the Third de- 
 creed tliat the free import of foreign manu- 
 factures should be the basis of the legislation 
 of the Prussian State " for all future time." 
 
 Prussia lived at that time upon the export 
 of her corn to England and upon English loans. 
 
 William Jacob, who was sent to Germany 
 by the British Government in 1819 and again 
 in 1826, notes the desperate poverty of the 
 country, and the inferiority not only of 
 Prussian manufactures but of Prussian agri- 
 culture : " everything inferior to ours," " the 
 deadness of all business," iron smelted with 
 charcoal, the absence of steam power. 
 
 " The extent of Prussia," he says, " is 
 greater than that of great Britain, its popu- 
 lation only one-sixth less, and yet the surplus 
 productions are not more than one-twentieth 
 of ours and probably the domestic consump- 
 tion of the various commodities produced 
 from the soil and the labour of men does not 
 
 F
 
 70 A POLICY OF WEALTH 
 
 amount to more than one-third of what is 
 consumed in this island.* 
 
 And again in his report on the trade in 
 foreign corn of 1826 Jacob describes the 
 Prussian peasantry as listless and slovenly. 
 The implements of their husbandry were as 
 poor as their working cattle ; their ploughs 
 were made chiefly of wood with very little 
 iron ; the use of rollers was unknown and the 
 clods were broken with wooden mallets. 
 There was little other capital than that of the 
 land which had vastly depreciated in value. 
 Four-fifths of the inhabitants subsisted by 
 producing food, and as they depended for all 
 their conveniences on the price which they 
 could get for their surplus corn, the rate at 
 which that surplus could be disposed of 
 governed their existence. The working classes 
 could not be compared to any class of 
 persons in England. They lived in miserable 
 dwellings, on the lowest and coarsest food, 
 
 * German labour was then, and for many years 
 afterwards, inferior in all respects to British labour. 
 The German economist, Brentano, in his " Relation of 
 Hours and Wages to Production" (first published in 
 1875), makes this admission : " The German operative's 
 efficiency in production is inferior to that of the English- 
 man to a degree corresponding to his inferior conditions 
 of labour." The quality and status of labour rises or 
 falls according as the industry of which it is a part 
 rises or falls in the economic struggle.
 
 ENGLISH POLICY IN PRUSSIA 71 
 
 many of them eating onty potatoes and rye. 
 An earthen pot was the most vahiable article 
 of their furniture and they wore coarse home- 
 spun wool or linen as long as their garments 
 could hold together. There were a few manu- 
 factories encouraged by the Government, the 
 chief of them being the making of a coarse 
 blue cloth which was finished in Berlin and 
 was " calculated for negro clothing." 
 
 It was the pohcy of England to keep Prus- 
 sia an agricultural State, both that it might 
 produce cheap corn and remain a free market 
 for British manufactures. 
 
 It was also British policy to keep the vari- 
 ous States of Germany from uniting together. 
 As there were no less than 39 States, each with 
 its own Customs, no single system could gain 
 strength enough to make headway against 
 British manufacturing power. 
 
 The National Party in Germany sought to 
 unite and protect, and British policy in Ger- 
 many sought to keep apart and to maintain 
 Free Trade. 
 
 Prussia defeated British policy. She kept 
 England friendly by supporting Free Trade 
 until she had secured German unity ; she 
 then abandoned Free Trade and adopted 
 Protection. 
 
 In this conflict the British Government
 
 72 A POLICY OF WEALTFI 
 
 abandoned British agriculture and British 
 shipping as a bribe to Prussia and to the 
 United States — a pohcy which invited and 
 deserved defeat. 
 
 Surrender of English Navigation Laws. — 
 Let us first see how in this conflict England 
 surrendered one part of her security, her 
 Navigation Laws, which protected her ship- 
 ping and her seamen. 
 
 If we were to trace the history of these 
 Navigation Laws we should find that they 
 had their origin in the struggle with Germany 
 on the sea. The Hanseatic Navigation Law 
 was " Hanse goods on Hanse ships." 
 
 This law was made English by Richard II. 
 in 1381* ; but he had not the strength to 
 enforce it. We may suppose that it was 
 directed against the Hanseatic League, for 
 Richard afterwards declared war upon that 
 power with a pitifully small fleet of three 
 ships. The war ended disastrously for 
 Richard and for England. 
 
 The law, however, continued to be the 
 policy on which our Merchant Adventurers 
 
 * " That for increasing the shipping of England of late 
 much diminished none of the King's subjects shall 
 hereafter ship any kind of merchandise, either outward 
 or homeward, but only on ships of the King's subject?, 
 on forfeiture of ships and merchandise, in which ships 
 also the great part of the crews shall be the King's 
 subjects."
 
 OUR NAVIGATION LAWS 73 
 
 acted and was enforced with rigour both by 
 Queen EHzabeth and Cromwell. By the time 
 of Cromwell the Dutch, following a traders' 
 policy, had made themselves the sea-carriers 
 of the world ; but Cromwell used the Navi- 
 gation Laws to protect English shipping and 
 forced the Dutch into war. As the Dutch had 
 five Boards of Admiralty and " could not 
 spare ships from their traffic " they were 
 heavily defeated, and England took over 
 the greater part of their carrying trade. 
 France, which followed England in navigation 
 policy, secured by her Navigation Laws and 
 her industrial policy another large slice of 
 the Dutch sea-carriage. In the war which 
 followed the Navigation Laws were thought 
 even by Adam Smith to be an important part 
 of our defence. 
 
 British policy in shipping was fourfold : it 
 gave a preference to home and Canadian over 
 foreign timber in order to secure our ship- 
 building ; it limited the right of importing 
 the production of foreign countries either to 
 ships of the producing country or to British 
 ships ; it protected British seamen by the 
 provision that the masters and the greater 
 part of the crew must be British born ; and it 
 provided also that British ships must be owned 
 by British owners.
 
 74 A POLICY OF WEALTH 
 
 The United States made the first breach in 
 this system. In 1787 Congress imposed equiv- 
 alent taxes upon British ships and British 
 cargoes ; England ended a long struggle with 
 the Reciprocity Treaty of 1815, and thus 
 secured for a time the American market for 
 her manufactures. 
 
 In 1820 England again modified her Navi- 
 gation Laws by allowing the importation of 
 certain enumerated articles in ships of any 
 country into which they had been imported. 
 This change was made in order that England 
 might follow a trading policy and become — 
 as she did become — a place of entrepot for 
 all foreign commodities. 
 
 In 1822 the British Consul at Dantzig 
 (Gibson) reported that the Prussian Govern- 
 ment had raised the charges on British ships, 
 and had made reciprocal arrangements with 
 Holland, Denmark and America. Not only 
 were the harbour dues to be raised on British 
 vessels, but the coasting trade was to be 
 confined to Prussian vessels. 
 
 Our Vice-Consul at Konigsberg (Tuke) and 
 our Vice-Consul at Memel (Fowler), reported 
 to the same effect. They suggested that 
 British trade, then supreme in those parts, 
 would be driven out if the new laws were 
 enforced.
 
 HUSKISSON'S SURRENDER 75 
 
 Huskisson, then President of the Board of 
 Trade, expostulated with the Prussian Minis- 
 ter, but the Prussian Minister replied that his 
 Government was only following the example 
 of England, and they meant to go further : 
 so far they had only imitated England in 
 her port and tonnage duties, " but it is 
 the intention of my Government to imitate 
 you still more closely by imposing discrimi- 
 nating duties on goods imported by your 
 ships." 
 
 Mr. Huskisson immediately entered into 
 " amicable negotiations " with the Prussian 
 Government, with the result that all dis- 
 criminatory duties on ships and goods were 
 abolished on both sides. 
 
 Mr. Huskisson gave a full account of the 
 surrender to the House of Commons on 
 i2th May, 1826. He admitted that the 
 Navigation Laws were " founded on the first 
 and paramount law of every State — the 
 highest ground of political necessity — the 
 necessity to provide for our own safety and 
 defence." 
 
 He also laid down the principle that : 
 " wherever the interests of commerce and 
 navigation cannot be reconciled, the interests 
 of commerce ought to give way and those of 
 navigation have the preference."
 
 76 A POLICY OF WEALTH 
 
 That is to say, he paid lip- worship to our 
 ancient National Policy of Security. 
 
 But it was lip-worship only. If they were 
 to enter into a conflict with all the commercial 
 powers of Europe, " would this country have 
 the firmness and fortitude necessary to go 
 through with it ? " 
 
 Moreover, " when England began her Navi- 
 gation Laws she was a poor country," whereas 
 " she had now become the great seat of 
 manufactures, and trading wealth, frequently 
 importing and never exporting corn, drawing 
 raw materials from and sending manufactured 
 goods to all parts of the world." Would it be 
 wise to enter into a conflict with '' poor 
 unmanufacturing countries ? " "It may 
 possibly be a wise policy to divert countries 
 from that system (manufactures) rather than 
 to goad them on, or even leave them a pretext 
 for going into it." 
 
 We took from Prussia timber, hemp, pitch, 
 tar, occasionally corn and other raw materials, 
 and we exported cottons and woollens. We 
 must try to maintain that system. 
 
 Further, we were secure in the largest 
 mercantile marine in the world, so that there 
 was nothing to fear. He had been in logic 
 driven to extend the agreement to Denmark 
 and Sweden. Moreover, *' I should have
 
 A FALSE PROPHET yy 
 
 been ashamed of the councils of this country 
 if we had hesitated to enter into a similar 
 agreement with the free Hanseatic towns of 
 Hamburg, Bremen, and Liibeck." He paid 
 a passing tribute to the part played by these 
 ''little communities" in the "feudal ages," 
 in evident ignorance of the fact that " in 
 former times a few Hanse towns had England 
 under their thumb." 
 
 And he proceeded also to misread the 
 future : 
 
 " If we look at the present question, as 
 connected with our maritime struggle, I 
 contend that there can be little or no danger 
 from the arrangements which I have now 
 described. . . . The States to which these 
 arrangements extend, from their situation, 
 and from many other circumstances, which 
 it is not necessary for me to mention, never 
 can become formidable as maritime powers ; 
 they never can dispute with us the ascendancy 
 on the ocean, nor have they an interest in 
 assisting others to obtain that ascendancy. 
 Their commercial interests and regard to their 
 own security must alike incline them to our 
 side." 
 
 The shipping community protested ; but 
 Huskisson carried his point. The Treaty was 
 signed in April, 1824, and two years later
 
 78 A POLICY OF WEALTH 
 
 it was extended to Prussian trade with our 
 Colonies. The interests of trade triumphed 
 over the interests of shipping. According to 
 Treitschke, the Enghsh exports to Prussia at 
 that time amounted to £7,000,000 while 
 Prussia exported to England barely half that 
 amount. 
 
 " For the first time," says Treitschke, 
 *' since the re-establishment of world peace, 
 an effective blow had been delivered upon the 
 bulwark of British rule of the seas." 
 
 New Beginning of German Sea-Power. — 
 By 1839, according to Clouston, in his " Letters 
 from Germany," Prussia's ships had become, 
 or were now becoming, the carriers of nearly all 
 her bulky produce to British shores. He even 
 feared for our naval supremacy as a result of 
 the growth of Prussian shipbuilding. 
 
 In judging Huskisson it is fair to remember 
 that England then possessed an easy suprem- 
 acy in power and in commerce over the rest 
 of the world ; that her security was so com- 
 plete as to give the impression of a natural 
 order of things ; that Prussia was contempt- 
 ible in manufactures and in shipping ; and 
 that the practical problem before British 
 statesmen was the payment of the debts 
 incurred in the Napoleonic wars. 
 
 There is some evidence that even at this
 
 THE ENGLISH IN HAMBURG 79 
 
 time the Germans were already working for 
 naval supremacj^ — that naval supremacy 
 which they had possessed in the iar-off days 
 of the Hanseatic League. There were two 
 main obstacles, Denmark which divided the 
 German North Sea from the German Baltic, 
 and Hamburg, which remained resolutely 
 outside the Zollverein. 
 
 In the reign of Queen Elizabeth the port of 
 Hamburg had deserted the Hanseatic League, 
 being bribed thereto by the monopoly of the 
 English cloth trade which she secured by 
 separate negotiation with our Merchant Ad- 
 venturers. From that time on she had 
 flourished as the great North Europeon depot 
 of British manufactures. Napoleon, as one 
 of his three great plans for the destruction of 
 England, conquered Prussia and overran 
 Hanover in order to secure Hamburg. Our 
 Merchant Adventurers thereupon removed 
 the seat of their trade to the Island of 
 Heligoland, taken for that purpose from 
 Denmark, on which island base they organ- 
 ised a great centre of contraband. When 
 Napoleon was defeated Hamburg again be- 
 came the bridgehead of British manufactures. 
 Dr. Soetveer, in his " Commerce of Hamburg," 
 boasted that Hamburg granted every facility 
 to the free exercise of trade " so that it may
 
 8o A POLICY OF WEALTH 
 
 now with perfect right claim the appellation 
 of a great free port in which free competition 
 was impeded by no differential duties." The 
 manifold advantages of this system to all 
 Germany, Dr. Soetveer remarks, are fre- 
 quently misapprehended and seldom im- 
 partially estimated. As a matter of fact the 
 import duty on British manufactures was 
 only one half per cent. Hamburg thereby 
 had obtained a supremacy in German com- 
 merce and had a considerable shippmg of her 
 own. The problem for Prussian statesman- 
 ship was to link the Baltic and the German 
 North Sea and to force Hamburg within the 
 Zollverein. A means of reaching both ends 
 was the German claim to the Danish provinces 
 of Holstein and Schleswig. 
 
 The author of Unsre Gegenwart und Zukimft 
 (Our Present and Future), which was published 
 in Leipzig in 1846, makes the German plan 
 clear. " Germany," he wrote, " is impeded 
 in its efficiency by the want of sufficient 
 harbours of war (Kriegshafen) in the North 
 and the Baltic Seas, and particularly by the 
 obstacles in the way of communication be- 
 tween the two seas occasioned by the divided 
 Scandinavian kingdoms or by the power 
 which controls them." The North and Baltic 
 Seas, he pointed out, belonged in an especial
 
 THE DESIGN ON DENMARK 8i 
 
 manner to Germanv and Scandinavia in 
 common. United, he said, these two nations 
 might readily erect the first naval power in 
 Europe, therefore the Schleswig-Holstein 
 problem must be " settled in accordance with 
 German views." " When the crisis arrives," 
 said this Pan-German of the forties, " all will 
 act with decision." 
 
 Again the Allgemcine Zeitung of the 23rd 
 September, 1846, urged the separation of the 
 Duchies from Denmark under a sovereign 
 German prince of the collateral line. Thereby, 
 this paper hoped, they would become members 
 of the Zollverein, and as a consequence 
 Germany would secure the two important 
 ports of Altona and Kiel on the Elbe and the 
 Baltic respectively, together with the navi- 
 gation of the Eider connecting the Baltic and 
 the North Seas. 
 
 It was plain that if this took place such 
 powerful competition could be brought to 
 bear upon Hamburg that she would be forced 
 into the Zollverein, and not only Hamburg 
 but the northern States of Hanover and 
 Brunswick would be forced into the Zollverein 
 with Hamburg. 
 
 Another part of the German plan was the 
 treaty with Belgium of 1844. By this treaty 
 Antwerp became in practice a port of the
 
 82 A POLICY OF WEALTH 
 
 Zollverein, " a suburb of Cologne." Antwerp 
 was given preference over Hamburg in the 
 German trade, another means of forcing the 
 Hanseatic port into the Zollverein. Ham- 
 burg, as an English pamphleteer put it, was 
 to be confined as in a net.* 
 
 Now it has to be noted that the treaty of 
 trade and navigation between England and 
 the Zollverein and also the treaty which 
 England had with the Northern States out- 
 side the Zollverein ended in 1848. Prussia 
 gave notice that she could not renew her 
 treaty on the same terms. She thus held 
 over the head of England the threat of closing 
 German markets to British manufactures 
 and before the British nose the bribe of 
 opening them to British manufactures. 
 
 By such and other means England was 
 persuaded to look on while Denmark was 
 attacked and defeated, the Duchies seized 
 and the means given to Prussia to force 
 Hamburg, Bremen and the Northern States 
 into the German Zollverein. It was a bold 
 and successful stroke of statecraft which 
 
 * " Germany Unmasked," London, 1848. This very 
 able pamphlet, from which I have gathered much of my 
 information on this subject, was written as a reply to 
 Chevalier Bunsen, the Prussian Minister in London, who 
 had undertaken the defence of the German attack on 
 Denmark.
 
 IRON SHIPS 83 
 
 threatened to give Prussia the mastery of 
 the seas. British statesmen who had con- 
 ceded the Navigation Laws permitted also the 
 destruction of British influence and power in 
 Northern Europe. 
 
 But British industry averted the conse- 
 quences of British statesmanship. 
 
 The Baltic, as we have seen, had the 
 advantage of producing all the materials for 
 the building and furnishing of wooden sailing 
 ships. Timber, resin, pitch, turpentine, hemp, 
 and flax, all were produced in the Baltic, and 
 gave to the Prussian Baltic ports a great 
 advantage over England. But England had 
 her raw materials of coal and iron. Syming- 
 ton, Boulton, Watt, and Bell worked out 
 the problems of marine engines. By 1812 
 Bell's Comet was running betw^een Glasgow 
 and Greenock, and by 1822 the first iron 
 steamship was steaming between London 
 and Paris. Before the middle of the century 
 iron ships were crossing the Atlantic, and 
 Brunei was building iron steamers with screw 
 propellers. These inventions left Prussia far 
 behind : Huskisson's policy only gave her a 
 tantalising glimpse of that mastery of the 
 seas which had belonged to the merchants of 
 the old German Empire. 
 
 In 1850 /jur Navigation Act was more
 
 84 A POLICY OF WEALTH 
 
 completely swept away, our shipping industry 
 no doubt feeling itself once more secure in 
 a development which outwitted the Prussian. 
 Yet Germany also had her coal and iron, 
 and the Hamburgers, long condemned to 
 coasting traffic, lifted their eyes to the 
 " limitless horizon of long-distance shipping."* 
 
 Surrender of English Agriculture. — By 1819 
 a party of manufacturers and merchants had 
 bound themselves together in the German 
 Commercial and Industrial Association of 
 which Friedrich List was secretary, with the 
 object of supporting a German economic 
 policy based on German economic interests 
 and a free market for Germans within 
 Germany. 
 
 And Mr. Jacob notes that " of late attempts 
 had commenced on a large scale and projects 
 were in agitation ... for making wool and 
 cotton in manufactories where the aid of 
 machinery was to be applied." Mr. Jacob 
 suspected that these projects were not 
 supported by Prussian capital, but were 
 rather " the creation " of the Prussian 
 Government. 
 
 * Henri Haiiser, " Germany's Commercial Grip on the 
 World " : " The abolition of the Navigation Act in 1850 
 and the French legislation of 1867 reopened to the 
 Hamburgers the limitless horizon of long distance 
 shipping."
 
 MR. JACOB'S FEARS 85 
 
 He quotes also a report from Mr. Alexander 
 Gibson, our Consul at Dantzig, dated 17th 
 August, 1825, drawing the attention of our 
 Government to the low rate of wages and of 
 living in Prussia. " The machinery and 
 capital of England," he went on, " may at 
 present balance the advantages of cheaper 
 food and thus a cheaper labour, but will it 
 always remain so ? Would it not be more 
 beneficial to England as a mercantile country 
 to induce agricultural nations to remain so 
 as long as possible and not force them to 
 become manufacturers ? " 
 
 Mr. Jacob was only a little disturbed by 
 these rumours and tendencies. German agri- 
 culture and British mfluencc worked together. 
 The Landschaft of Prussia was urging the 
 King " in very melancholy strains " to " take 
 measures of a decided nature respecting the 
 introduction of British goods " in order to 
 induce the British Government to " make 
 some alteration in the corn laws." 
 
 And on the 26th November, 1825, the 
 Correspondent, a Hamburg paper in the 
 English interest, announced that : " With 
 regard to the prayer for the intercession with 
 the English Government to repeal the Corn 
 Bill, his Majesty expressed a hope that to 
 improve the intercourse between the two 
 
 G
 
 86 A POLICY OF WEALTH 
 
 nations, a change will take place in the 
 English Corn Law." 
 
 We shall not attempt to follow every step 
 of this conflict. By 1834 ^ Zollverein was 
 formed which included seventeen States with 
 a population of thirty-three millions. " Great 
 Britain," says Ashley, " was fully aUve to 
 the danger which threatened her position in 
 the German market, and attempted to check 
 the formation of a great German customs 
 area by treaties with various small German 
 States. The treaty completed with the free 
 city of Frankfurt did for some time prevent 
 that city from joining the Zollverein." 
 
 We do not know how far England had a 
 hand in the Steuerverein, formed by Hanover, 
 Oldenburg and Brunswick in 1834 ^^"^ ^ ^^^"^ 
 tariff basis. Treitschke says that this move- 
 ment to found a union of the coast States 
 was the work of Grote (who was probably 
 a relative of the Gei man-English bankers of 
 that name), and he adds, " Hanover was 
 not free from subordination to English 
 commercial policy." 
 
 If the attempt had succeeded it would have 
 made a barrier between Prussia and South 
 Germany and a landing place for British 
 goods. But it failed. 
 
 In 1836 Frankfort, the great depot of
 
 SIR JOHN BOWRING'S REPORT S7 
 
 English manufactures, joined the Zollverein, 
 and the tariff alterations of 1838 had " a 
 stronger protective tendency." In 1840 the 
 British Government sent Sir John Bowring, 
 a disciple of Cobden, to report on the situa- 
 tion. Sir John Bowring reported that the 
 Zollverein was protecting German industries. 
 
 Prussia had deceived England. " The 
 avowal of the Prussian Government that it 
 was their intention only to levy a moderate 
 duty of from 10 to 15 per cent, is by no 
 means carried into effect by the rate of the 
 duties levied." Cotton goods had to pay 
 from 30 to 120 per cent. ; woollens from 
 20 to 50 per cent. 
 
 As a result, " the shifting of demand from 
 the foreign to the native fabrics is everywhere 
 obvious." The sale of British cotton goods 
 at Frankfort had diminished by one-third in 
 a single year, and British warehouses were 
 being closed in both Frankfort and Berlin. 
 
 Sii John Bowring put his faith in the 
 German Free Trade party, the party of 
 Prussian agiiculture and the Hanse towns. 
 His counsel was to strengthen the Free 
 Trade party in Germany by admitting Ger- 
 man corn into the English market free of 
 
 duty. 
 
 He proposed to check the flow of capital
 
 88 A POLICY OF WEALTH 
 
 towards German manufactures by opening 
 the British market to German corn. 
 
 We have seen that National Security rests 
 upon Agriculture. But the cotton manu- 
 facture, though it adds to the wealth and 
 population of England, and is therefore to 
 be cherished, is not essential to its security. 
 Rather on the contrary, as the raw material 
 of the cotton industry is controlled by a 
 foreign nation, the cotton industry is a 
 source of anxiety and weakness. 
 
 Therefore the proposal was in effect to sur- 
 render the security of the nation in order 
 to add to its wealth and population. 
 
 Yet the proposal was eagerly taken up by 
 our cotton industry, at that time aspiring to 
 the control of our national policy. It might 
 not be just to assert that they foresaw the 
 decay of English agriculture ; they could 
 hardly foresee the great development of corn- 
 growing in America, and of American railways 
 and ocean freights. Sir Robert Peel did not 
 anticipate that the price of corn would ever 
 fall below forty- two shillings. 
 
 " We find," said Richard Cobden, " that 
 at this moment Prussia is building a wall of 
 tariffs which she has been steadily construct- 
 ing for years, and which will more effectively 
 than did Napoleon exclude us from the
 
 COBDEN'S REMEDY 89 
 
 German market — Prussia — for which we bled 
 and for whose subsidies we are still taxed." 
 
 And again : " I believe that if you abolish 
 the Corn Laws honestly and adopt Free 
 Trade in its simplicity, there will not be a 
 tariff in Europe that will not be changed in 
 less than five years to follow your example." 
 
 The Prussian Government gave some more 
 twdsts to the Protectionist screw. In 1843 
 the duty on snuff and cigars was increased ; 
 in 1844 a duty on pig-iron was imposed and 
 the duties on manufactures ot iron increased. 
 
 In 1846 the German duties were again 
 raised, and in 1846 England abolished the 
 Corn Laws. 
 
 It would be absurd to suggest that the 
 desire to maintain our market in Prussia 
 was the only cause of the aboHtion of the 
 Corn Laws, but it is certain that it was one 
 of the principal causes. And we followed 
 the same policy also for the same reason in the 
 case of America. Prussia was at that time 
 the main source of cheap foreign corn. Prussia 
 was the leader of the German Zollverein. 
 The German Zollverein included the principal 
 market of British woollens, and a consider- 
 able market for British cottons and hardware. 
 The access to the markets of the German 
 Empire for English -woollens had been the
 
 go 
 
 A POLICY OF WEALTH 
 
 mainspring of British policy ever since Eng- 
 land had become a manufacturing power. 
 Sir Robert Peel in his speeches on the Bill 
 for the repeal of the Corn Laws quotes Jacob 
 at length on the price and the supply of corn, 
 and it is plain that he refers to Bowring's 
 report, although he does not mention it by 
 name. 
 
 Thus Sir Robert Peel 
 says : " When your ex- 
 ample could be quoted in 
 favour of restrictiou-s it was 
 quoted largely." 
 
 Again Sir Robert Peel 
 says : " I fairly avow to 
 you that in making this 
 great reduction upon the 
 import of articles the pro- 
 duce and manufacture of 
 foreign countries I have no 
 guarantee to give you that 
 other foreign countries will 
 immediately follow our ex- 
 ample. We have had no 
 communications with any 
 foreign government upon 
 the subject of these reduc- 
 tions . . . but depend upon 
 it your example will ulti- 
 mately prevail. Austria 
 too shows some disposition 
 
 Sir J ohn Bowring says : 
 " Our own restrictions, our 
 own high duties, our own 
 prohibitions were constant- 
 \y thrown into my path, 
 and were undoubtedly the 
 greatest difficulties with 
 which I had to grapple in 
 the progress of discussion." 
 
 And Sir John Bowring 
 says : " There is in fact 
 only one course to be 
 adopted, unless it is in- 
 tended that a trade of 
 many millions sterling per 
 annum shall be finally 
 sacrificed. The tariffs of 
 Great Britain must be 
 modified pari passu with 
 the tariffs of the Com- 
 mercial I.eague. Such 
 modifications are so ob- 
 viously, so essentially, so 
 permanently in the interest 
 of the fifty millions of 
 Britons and Germans 
 whom they would bring
 
 PEEL AND BOWRING 91 
 
 at least to follow other more closely and unite 
 countries in their restrict- more firmly together that 
 ive policy. Hanover also ... I cannot but persuade 
 has taken her own course myself that important 
 and I do not despair of the changes will be welcomed 
 early arrival of the period on both sides." 
 when your example shall 
 tell on the conduct of o'.her 
 countries and when they 
 shall quote our example of 
 relaxation as a course for 
 their governments in com- 
 mercial affairs. 
 
 How far these hopes were justified we shall 
 see in our next chapter.
 
 CHAPTER IV 
 
 A STRUGGLE OF SYSTEMS 
 
 Political influence is the reflection of eco- 
 nomic power. \\Tien the British commercial 
 system was supreme in Germany, British 
 political influence was also supreme. When 
 the Corn Laws were abolished the British 
 commercial power was still strong in Germany, 
 and British influence was correspondingly 
 great. 
 
 In 1840 Friedrich List charged the British 
 Government with employing " an immense 
 army of correspondents and leader-writers " 
 in Hamburg and Bremen, Leipsig, and Frank- 
 fort, to support the cause of Free Trade in 
 Germany. 
 
 " In vain," he said, " did the Germans 
 humble themselves to the position of hewers 
 of wood and drawers of water to the Britons. 
 The latter treated them worse than a subject 
 people. ... To fill up the measure of their 
 contempt, the doctrine was taught from a 
 hundred chairs, that nations could only 
 
 92
 
 THE UNSEEN HAND 93 
 
 attain to wealth and power by means of 
 universal free trade." 
 
 The agents of British manufactures were 
 the agents of British policy. " Many Hamburg 
 merchants," says Treitschke, " did not trouble 
 to conceal that they had no desire for the 
 strengthening of German industry, since they 
 feared that this would mean the sacrifice of 
 the customary English export trade." 
 
 In the nineteenth century England sup- 
 ported the German Liberal party because it 
 supported the British Free Trade policy in 
 Germany, just as in the twentieth Germany 
 supported the British Liberal party because 
 it supported the German Free Trade policy 
 in England. 
 
 We know that the British Government sent 
 William Jacob and Sir John Bo wring to Ger- 
 many. We do not know who sent John 
 Prince Smith. 
 
 Prince Smith was born in London in 1809 
 and was the son of a governor of British 
 Guiana. He went to Germany in 1830, and 
 for some years employed himself in teaching 
 English and learning German. His iibey 
 Handelsjchidfeligkeit was published in Konis- 
 berg in 1843. In 1846 he settled in Berhn. 
 He was " the founder, and for a long time 
 the leader, of the German Free Trade party."
 
 94 A STRUGGLE OF SYSTEMS 
 
 "He expounded," says Palgrave, "the doc- 
 trines of Adam Smith, Say, and Bastiat, 
 popularised by Cobden and others during the 
 English anti-corn law agitation. Those doc- 
 trines he put forward in their most absolute 
 form. . . . He paid no attention to moral 
 considerations or patriotic motives, and held 
 that private profit implies public gain." 
 
 " He travelled," says Dawson, " a large 
 part of the country as an apostle of the 
 Free Trade gospel, imparting everywhere 
 some at least of his own enthusiasm and 
 conviction, organising societies, encouraging 
 the establishment of literary sheets in the 
 service of the new faith, and successfully 
 identifying economic with political and Par- 
 liamentary Liberalism. Not only so, but 
 like all enthusiasts, he contended for the 
 immediate introduction of unequivocal Free 
 Trade, without half measures or compromise 
 of any kind." 
 
 " In the late fifties," says Mr. Ashley, 
 " there was something approaching to a real 
 agitation for Free Trade in Northern Ger- 
 many. It found its theoretical expression in 
 the writings of Prince Smith, to whose energy 
 and influence was due the foundation of the 
 German Economic Congress, which gathered 
 together after 1858 all the reforming forces."
 
 MORIER'S POLICY 95 
 
 From 1 861 to 1866 Prince Smith repre- 
 sented Stettin in the Prussian House of 
 Representatives. From 1871 to 1873 he sat 
 for the division of Anhalt in the German 
 Reichstag. He died in 1874. 
 
 It does not occur to any of these writers 
 to ask themselves why Prince Smith devoted 
 his Hfe to the preaching of Free Trade in 
 Germany. 
 
 May we hope that in future time the 
 German economist will record with an equal 
 candour and an equal innocence the lives and 
 activities of certain eminent Germans now 
 naturalised in England, who play an equally 
 disinterested part in our national life? 
 
 We get a closer view of this conflict from 
 the " Memoirs " of Sir Robert Morier. The 
 value of this book to us is that Morier was 
 both a member of our diplomatic service in 
 Germany and a member of the Cobden Club. 
 He was inspired by Cobden's policy, and 
 worked with energy and ability to shape 
 Germany to the Free Trade pattern. He 
 proposed an alliance with the Free Trade 
 party in France which had secured great 
 concessions to English policy in the Cobden 
 Treaty of i860. In a memorandum to 
 Count Benedetti, the French Ambassador at 
 Berlin, written in 1866, he explains liow
 
 96 A STRUGGLE OF SYSTEMS 
 
 " international dependence " may be substi- 
 tuted for " national independence," and 
 eternal peace and disarmament secured by 
 means of Free Trade.* 
 
 British influence was still strong in the 
 Court of Prussia, and Morier made himself 
 the friend and adviser of the Crown Prince 
 and Princess. He even secured for their 
 son, afterwards the Emperor WilHam, a 
 tutor named Hintzpeter, who was an eccentric 
 pedagogue, but a sound Free Trader. We 
 are not surprised that in this crusade 
 Morier drew upon himself the hatred of 
 Bismarck. 
 
 Bismarck, it appears, attempted to get rid 
 of Morier by denouncing him to the British 
 Government as an anti-German agitator. This 
 direct attack failing, Bismarck took another 
 line. He became a Free Trader himself. 
 
 The German Liberal party, as we have 
 seen, had been skilfully shepherded by Prince 
 Smith into the Free Trade fold. Bismarck 
 required the support of the German Liberal 
 
 * It is one of the fallacies of our classical school of 
 political economy that Free Trade makes for peace. 
 Tariffs are part "^of the defences of a country and to 
 abolish a nation's defences does not procure peace : it 
 invites attack. As human nature is, the weakness of 
 one nation is hardly less a provocation of war than the 
 strength of another.
 
 BISMARCK AS COBDENITE 97 
 
 party for the work of unifying Germany. 
 He also required the neutrahty of France 
 and of England during his wars with Den- 
 mark and Austria. He therefore concluded 
 a commercial treaty with France and followed 
 a low tariff policy in Germany. 
 
 Bismarck, says Schaffle, was at that time 
 (in the sixties) " at once the pohtical guar- 
 dian and the political favourite of the Free 
 Trade party." 
 
 Bismarck carried things so far that in 
 February, 1870, the Cobden Club actually 
 proposed to make him a member, and would 
 have done so had not Morier threatened to 
 resign if Bismarck were elected. Morier was 
 disarmed but not altogether deceived by 
 these tactics. 
 
 " I am totally at a loss to understand," he 
 wrote to Mallet, " on what principle of 
 ' unnatural selection ' you propose to elect 
 Bismarck, of all God's creatures under the 
 sun, a member of the Cobden Club. . . . 
 When our great-grandchildren have to get up 
 the history of the nineteenth century, they 
 will to a certainty find Cobden labelled as 
 the representative of the one doctrine — ex- 
 change of cotton goods and Christian love 
 internationalism — and Bismarck as the repre- 
 sentative of the opposite doctrine — exchange
 
 98 A STRUGGLE OF SYSTEMS 
 
 of hard knocks and blood and iron nation- 
 alism." 
 
 A rude awakening came with the Fianco- 
 Prussian War. Morier saw to his horror the 
 whole fabric of German Liberalism swept 
 away in a single night. His cheek was 
 scorched by a sudden and terrible blast of 
 German hatred of England. He set it down 
 to our manufacturers who were selling arms 
 to the French. 
 
 In vain he tried to assuage the feeling. 
 
 " I have pointed out," he wrote, " that in 
 a country in which Free Trade had become 
 a cardinal point of the national faith it was 
 next to impossible for the executive to 
 tamper with the unfettered circulation of 
 commodities. I have urged that the British 
 manufacturer had no political sympathies, and 
 that his object was to make a profit on his 
 merchandise, and that he was ready with 
 perfect impartiality to sell his engines of 
 destruction alike to German and to French- 
 men." 
 
 He was shocked to hear from Dr. Faucher, 
 the Prussian Free Trader, with whom Morier, 
 since Vienna days, had kept up relations, 
 that Alsace and Lorraine were to be annexed, 
 and that Faucher was delighted at the pros- 
 pect.
 
 MORIER DESPAIRS 99 
 
 His account of the attitude of the Cobden 
 Club and the British Government adds to 
 the picture of surprise ?.nd confusion : 
 
 " In the meantime, the Ministry is going 
 about asking here and there what pubUc 
 opinion wishes. I heard how Gladstone went 
 about on the steamer of the Cobden Club, 
 collecting opinions from individual members 
 Hke a monkey asking for ha'pence, asking 
 this one if he really believed England would 
 be ready to go to war, that one whether 
 he considered England's honour engaged in 
 Belgium, etc., etc." 
 
 Morier pours out his despairing soul to 
 Stockmar, the son of that Baron Stockmar 
 who had helped to govern England from 
 behind the chair of the Prince Consort. 
 Stockmar had rebuked him for his hatred of 
 Bismarck, and our British diplomatist thus 
 defends himself : 
 
 " My cultiis of Germany and everything 
 German, and the idealism which I have 
 thrown into it have been the raison d'etre of 
 my existence during the last twenty years. 
 I don't regret it, as to this cuUns I owe, after 
 all, the best bits ol my life, your father's 
 friendship and the intercourse and sympathy 
 of the very few friends I have succeeded in 
 making. But that this idealism has, on the
 
 100 A STRUGGLE OF SYSTEMS 
 
 other hand, brought very many bitter dis- 
 appointments with it cannot be denied." 
 And again : "It may seem strange to you 
 that I should be glad to leave Germany. . . . 
 My joy, however, is mixed with no little 
 bitterness, I have worked haid and con- 
 scientiously at an idea for the last fifteen, 
 I might almost say twenty years. It was 
 the political and heart union of England and 
 Germany, ... I must make up my mind to 
 go to my grave a useless fool who never 
 succeeded in learning the rudimentary prin- 
 ciple of his craft, that of lying for the good 
 of his country." 
 
 We need dwell no further upon this painful 
 picture of an Englishman calling upon his 
 German friends to pity him as he sits among 
 the potsherds of internationalism. But it is 
 necessary to tell the end of this sad story. 
 Morier returned to England to find England 
 either indifferent or anti- German and pro- 
 French. It was the awakening sense of the 
 national danger ; but it made Morier feel 
 more than ever an exile. He was an exile in 
 both countries, for Bismarck would never 
 allow him to return to Germany. 
 
 But let us come at once to the sequel. 
 Prussia was now secure : the Imperial Crown 
 was on the brows of a Hohenzollern, and the
 
 BISMARCK SHOWS HIS HAND loi 
 
 Empire of Germany was supreme in Europe. 
 The German political system was for the 
 first time in a position to protect the German 
 economic system. 
 
 German industries weie still weak. British 
 manufacturers were dumping their goods on 
 the German market. In 1873 the German 
 Economic Union was founded, and petitioned 
 Bismarck to revise the conventional tariff. 
 Bismarck replied that he meant to return to 
 the old Prussian policy of Protection. 
 
 The German manufacturers had been hostile 
 to agriculture. He proposed that they should 
 unite their interests. A general system of 
 protective duties, he said, would avoid such 
 jealousy, as it would give the entire home 
 production preference over foreign production 
 on the home market, without any expense 
 whatever. The entire country would profit 
 by the increased prosperity, and the import 
 duty would either be partly or entirely paid 
 by the foreigner. " The clear proof of this 
 is the concern and discomfort of foreign 
 countries which is shown against all import 
 duties on any articles they want to import 
 into Germany." 
 
 Then they must arrange new commercial 
 treaties with foreign countries, and " in order 
 to carry out these negotiations in a manner
 
 102 A STRUGGLE OF SYSTEMS 
 
 favourable to Germany it is necessary to 
 complete the new tarift of import duties, 
 considering only our own wants and pro- 
 tecting the entire home production from the 
 competition of the foreign manufacturer." 
 
 Such was the reply of the Chancellor to 
 the manufacturers, and when the Reichstag 
 opened, the Emperor William proclaimed the 
 new policy to the German people. " I con- 
 sider it my duty," said the Emperor, " to 
 reclaim the German markets for our home 
 production, so far as it is possible and con- 
 sistent with our general interests." 
 
 The Free Trade opposition was swept away 
 by the national enthusiasm. When the Free 
 Traders charged Bismarck with inconsistency, 
 he replied that he had changed his mind for 
 the good of his country, and he explained 
 also the political ends of his economic policy. 
 His Free Trade Treaty with France was to 
 keep France quiet when he attacked Den- 
 mark ; and, again, when he attacked Austria, 
 "The restraints of France," he said, "would 
 certainly not have continued as far as the 
 point which, happily for us, it reached if I 
 had not cultivated relationships with her in 
 every way open to me." 
 
 Then he turned to England. Poor Ger- 
 many, he said, must be no longer the
 
 BISMARCK'S TAUNT 103 
 
 dumping ground for the production of foreign 
 countries. " Let us close our doors, let us 
 put up our fence a little higher. Even the 
 great mighty England which, after strength- 
 ening his muscles by Protection, had stepped 
 forward and said, * Who will take up with 
 me ? I am ready for anyone,' even he would 
 soon have to return to Protection to secure 
 for himself the English market."
 
 CHAPTER V 
 
 LESSONS OF THE STRUGGLE 
 
 Factors in the Growth of German Power. — 
 We may gather even from this brief history 
 certain lessons of importance to our subject. 
 
 We saw at first the British industrial 
 system overshadowing Germany. The in- 
 dustries of Silesia and Saxony maintained 
 themselves by their remoteness from the sea, 
 their native supply of raw material, and the 
 support of the State ; but they supplied only 
 a small part of the German market, and no 
 part of the world market, where the British 
 system reigned supreme. The German sea- 
 ports and the German carrying trade and the 
 German raw materials were in British hands. 
 German industry was choked and stifled by 
 the vigorous outgrowth of branch and leaf 
 which overarched the North Sea and threw 
 its shade over German soil. 
 
 Even the growth of German corn was 
 governed by England, for England only 
 
 104
 
 THE ZOLLVEREIN 105 
 
 opened her gates to Prussian wheat when her 
 own agriculture could not supplj^ her needs, 
 and Prussian agriculture was depressed or 
 prosperous according as the Enghsh sliding 
 scale was raised or lowered. 
 
 And so with the raw materials of shipping. 
 The Prussian supply was in British hands. 
 British State policy protected its own forests 
 of Canada, and Prussia was only permitted 
 to supply what these forests could not afford. 
 
 We saw that the Prussian State based its 
 policy upon its raw materials. It worked, no 
 doubt in concert with the United States, to 
 force open the British market for its corn, 
 and to break down the British Navigation 
 Laws, and so clear a space on which Prussian 
 shipping and shipbuilding could grow. To 
 secure these ends the State cunningly used 
 its power of toll on British goods. 
 
 But this power of toll had first to be 
 strengthened, extended, and unified into the 
 German Zollverein before it could be used 
 effectively to protect German industries. 
 At the beginning of our period there were 
 no less than thirty-nine separate customs 
 systems ; the German soil was so divided 
 up that the German tree could not grow. 
 The area had first to be cleared and fenced, 
 and this work had to be done gradually and
 
 lo6 LESSONS OF THE STRUGGLE 
 
 by stealth, because of the latent hostility 
 of foreign systems. 
 
 The fact that the Prussian State did this 
 work without being attacked by the British 
 State disguises, but does not refute, my 
 postulate that the history of national economic 
 systems is the history of a struggle for exist- 
 ence. Prussia contrived by statecraft to dis- 
 arm the hostility of England until she had 
 destroyed the minor rivalries of Denmark, 
 Austria, and France. England endeavoured 
 to stop the growth both of the German 
 Zollverein and German industry, not by blows 
 nor by organisation, but by the weaker 
 weapons of concession and propaganda. 
 
 The wars undertaken by Prussia were a 
 part nevertheless of this struggle. The war 
 with Denmark weakened England and 
 strengthened Germany in the North Sea 
 and the Baltic. The war with Austria 
 secured for Prussia a union with the Southern 
 German States. This union added greatly to the 
 strength of the German system and weakened 
 the British system in proportion. The union 
 between the North and South of Germany had 
 always been opposed for this reason by 
 British diplomacy. It secured for the German 
 system control over the direct commercial 
 road to Austria, and cut off Austria from
 
 THE GROWTH OF GERMANY 107 
 
 England except by a circuitous route. 
 Bavaria, Frankfort, and the Rhine States 
 uniting with Prussia in manifold ways com- 
 plemented and strengthened the German 
 economic system. 
 
 Lastly, the war with France doubled the 
 strength of the German industrial system. 
 In 1868 Germany had 3,000,000 cotton spind- 
 les and 37,000 weaving looms. In Alsace- 
 Lorraine there were 23X31,000 cotton spindles 
 and 48,536 looms. Not only so, but Germany 
 by that war gained control of the Minette 
 iron-fields, the largest of their type in the 
 world. 
 
 In this period between 1815 and 1879 
 three industrial systems, the Silesian, the 
 Saxon, and the Westphalian were consolidated 
 into one, and given a common market protect- 
 ed against foreign systems. These economic 
 powers were consolidated by political and 
 military power in the process of a struggle 
 which ended victoriously in the protective 
 tariff of 1879. 
 
 How far was this policy the policy of the 
 Prussian State and how far was it the poHcy of 
 the German industries ? It is a difficult 
 question. We gather that the Prussian State 
 was at various times dominated by British 
 influence, and that the German industries
 
 lo8 LESSONS OF THE STRUGGLE 
 
 united to oppose that influence. This is 
 suggested by Jacob and by Bowring and is 
 openly stated by List. 
 
 List was himself the secretary of a League 
 of South German industrialists who com- 
 bined together in order to agitate for the 
 protection of their industries. Bowring re- 
 marks that " the Commercial League is in 
 fact the representative of a sentiment widely, 
 if not universally, spread in Germany — that 
 of national unity." 
 
 Value of Organisation. — Again, we have seen 
 that Bismarck announced his change of policy 
 from Free Trade to Protection not to the 
 Reichstag but to the Economic Union. This 
 Economic Union was a strong organisation of 
 German manufacturers founded to secure revi- 
 sion of the conventional tariff. It was a con- 
 tinuation of the movement which Jacob had 
 seen in its infancy and List had led in its youth. 
 Just as our Merchant Adventurers organised 
 themselves to fight the Hanseatic League, so 
 these Germans organised themselves to fight 
 British commerce. And in both cases the 
 organisation worked to get its government 
 upon its side. 
 
 '' If only," Bismarck exclaimed to Busch, 
 " the manufacturers would not isolate them- 
 selves and split up into fractions, and cut
 
 GERMAN INDUSTRY 109 
 
 themselves off from the agricultural classes : 
 They would like to negotiate respecting indivi- 
 dual items, the iron tariff and so forth — 
 every one for himself. But that will not 
 work. They must hold together."* 
 
 Thus the Germans in the struggle against 
 England learned the lesson of organisation 
 just as we had learnt it in our struggle with 
 them four hundred years before. 
 
 By October, 1879, so well had they learnt 
 this lesson, 204 members (i.e. a majority) 
 of the Reichstag signed a tariff reform reso- 
 lution. 
 
 Here then we see the worth of organisation. 
 
 And we also see the worth of unity between 
 interests. 
 
 The State of Prussia was much under the 
 influence of agriculture which, over many 
 years, had no higher policy than to secure 
 its place in the British market. 
 
 The place was probably secured upon an 
 implied but not explicit understanding that 
 Prussia would keep the German market open 
 for British manufactures. In the tariff con- 
 troversy of 1845 the German industrialists 
 accused the Prussian Government of being 
 under the influence of England, and the Ger- 
 man manufacturers petitioned not only against 
 
 Ashley, " Modern Tariff History," p. 58.
 
 no LESSONS 01^ THE STRUGGLE 
 
 the import of British manufactures but 
 against the export of German grain. 
 
 There was thus a division between the 
 two great interests : Agriculture on the one 
 side and Manufactures on the other. 
 
 As time went on, however, owing to the 
 growth of ocean and rail transport both 
 Russian and American grain invaded the 
 German market. 
 
 Bismarck used this circumstance to 
 reconcile agriculture and the other industries, 
 and the two great interests were united in 
 the 1879 tariff. Thus the German economic 
 system was founded upon a union of all the 
 producing interests of the State. The British 
 system, on the contrary, was founded upon a 
 victory of cotton over corn. 
 
 The Germans in their economic system 
 worked for strength : the British for wealth. 
 
 The Weakness of Concession. — Here we went 
 clean contrary to the policy we had followed 
 in our struggles with the Hanseatic League, 
 with Holland and with France. 
 
 In our struggle to maintain the German 
 market we abandoned national security, both 
 in the Navigation Laws which secured our 
 shipping and the Corn Laws which secured 
 our food. 
 
 In the Navigation Laws the Americans
 
 A POLICY OF DANEGELD in 
 
 made the breach which the Germans entered ; 
 in the Corn Laws the Germans made the 
 breach which the Americans entered. In 
 shipping the position was saved by the build- 
 ing of iron ships, which gave us a fresh start 
 over the German system, but we shall see this 
 advantage disappearing in the course of our 
 story. 
 
 In corn North and South America poured 
 in through the breach, and our agricultural 
 sj^stem, which in the eighteenth and early 
 nineteenth centuries had led the world, fell 
 back under the sod. 
 
 In corn and shipping we exchanged the 
 principle of security for the principle of 
 cheapness. 
 
 If this nation is to be secure it must either 
 grow its own food, or control the production 
 and command the means to carry food. In 
 both respects our security was abandoned in 
 this conflict with Germany. 
 
 We were like a man who should give to his 
 enemy one weapon after another in order to 
 make him a friend. 
 
 The Corn and the Navigation Laws were 
 only two out of many weapons given up in 
 the course ot this conflict. We abandoned, 
 in fact, the whole armoury of our pro- 
 tective system. We abandoned also our
 
 112 LESSONS OF THE STRUGGLE 
 
 Naturalisation Laws which had protected the 
 breed and blood of the Nation itself. 
 
 We abandoned the Colonial system which 
 secured by mutual preference our main sup- 
 plies of raw material. " Only by Free 
 Trade," said Cobden, " can we get rid of our 
 Colonies." 
 
 When we were loosening our organisation 
 and weakening our security in the desire for 
 gain the Germans were adding to their 
 strength in the belief that w^ealth might be 
 secured by dominion. 
 
 There were two ways in which England 
 might have met the growth of the German 
 Empire, (i) by siding \^dth the weaker Powers 
 — Denmark, Austria, France, as they were 
 attacked ; and (2) by maintaining and in- 
 creasing her own security. 
 
 As we followed neither policy but took an 
 opposite course, British power weakened as 
 German power increased. In 1815 Prussia, 
 Hanover and the Hanse towns were mere 
 feudatories and vassals of England : but by 
 1879 the Prussian system was strongly estab- 
 lished. "It is a favourite saying of Prince 
 Bismarck's," says Morier at the end of 
 this period, " that he lost five years of his 
 political life by the foolish belief that England 
 was still a great Power." And Morier saw
 
 MORIER'S FEARS 113 
 
 so clearly the result of our policy that he 
 exclaimed (to Stockmar) in 1873 : 
 
 " We have altogether lost our sense of 
 international existence and I fear it will 
 never come back unless we can have some 
 great national misfortune and disgrace, which 
 I heartily pray may come when we have 
 sufficient strength of reaction left in us." 
 
 And again to Jowett in the same year : 
 " England can maintain her Empire if she 
 wills to do it ; but unless she wills it with 
 all her heart and soul, she will find it difficult 
 to keep even the Isle of Wight." 
 
 At the beginning of this period the Prussian 
 State hardly dared to protect even its own 
 industries ; at the end she threw a wall 
 round all Germany, and made of her one 
 great protected area within which a powerful 
 economic organisation could grow.
 
 CHAPTER VI 
 
 THE GERMAN SYSTEM 
 
 Agriculture. — Agriculture is the foundation 
 of national strength, the unregarded base or 
 groundwork of the economic system. When 
 William Jacob went to Germany British agri- 
 culture was superior to German agriculture. 
 The English farmer was then the best in the 
 world. 
 
 The German farmer was at that time 
 considered apathetic and ignorant : the 
 British farmer progressive and enterprising. 
 By the end of the century these reputations 
 were reversed : the British farmer was blamed 
 for his apathy : the German farmer praised 
 for his enterprise. 
 
 The exchange was not in the nature of the 
 men but in the position of their industry. 
 Enterprise or apathy is not the cause but the 
 result of the rise or decline of an economic 
 system. Security is the foundation of enter- 
 prise. When war broke out and the destruc- 
 tion of shipping gave the British farmer 
 
 U4
 
 THE DECLINE OF TILLAGE 115 
 
 security, his enterprise and energy surprised 
 all who had not considered the economic 
 causes of these qualities. In 1820 German 
 agriculture lived precariously upon the margin 
 beween the British harvest and the British need 
 for corn. If the British farmer could supply that 
 need, the British market was closed to German 
 corn ; if theBritish supply fell short the British 
 market was opened to German corn 
 
 Prussia and the 
 together forced open the British market, and 
 when they had organised their transport, 
 the United States laid waste British agri- 
 culture. The statistics of British corn pro- 
 duction speak more eloquently than words : 
 
 United States working 
 
 1868 
 
 1883 
 1887 
 i8q2 
 
 1897 
 
 1902 
 
 1907 
 
 I9I2 
 
 I9I4 
 
 Acreage under Wheat. 
 United Kingdom. 
 
 3,951,000 acres 
 
 2,713,000 
 
 2,338,000 
 
 2,298,000 
 
 1,939,000 
 
 1,772,000 
 
 1,665,000 
 
 1,971,000 
 
 1,905,000 
 
 With this decline in wheat there was 
 also a decline in almost all other agricultural 
 crops. The total acreage under crops and 
 grass fell from 47,974,914 acres in 1886 to 
 46,763,816 in 1914, that is to say, over a
 
 ii6 THE GERMAN SYSIEM 
 
 million acres of land had gone out of agri- 
 cultural use altogether, whether as tillage or 
 as pasturage. 
 
 The Americans might have laid' waste 
 German agriculture in the same way, but for 
 the action of the German State. 
 
 The German State protected German agri- 
 culture, and German agriculture from the 
 secure base of the German Zollverein shared 
 in the spoils of the British market. 
 
 The light and sandy plains of Prussia and 
 Brandenburg were made, by the enterprise 
 which blossoms from security, to drip with 
 sweetness like a honeycomb. German agri- 
 culture, supported by the State, turned from 
 the export of wheat to the export of sugar. 
 
 The German economic system was thereby 
 strengtliened as much as the British economic 
 system was weakened. 
 
 In the Middle Ages we depended upon 
 Venice for our sugar ; in the sixteenth and 
 part of the seventeentli century upon Spain. 
 The wealth and power of the Spanish Empire 
 were supported largely by the monopoly of 
 cane sugar, and it is a Spanish saying that 
 the Quirinal was built of sugar. England 
 determined to have her own supply under 
 her own control. Through the eighteenth 
 century England and France struggled for 
 
 o -^ ' ^ ; ''
 
 THE BATTLE OF CANE AND BEET 117 
 
 the mastery in the West Indies. France at 
 one time suppHed Continental Europe with 
 sugar, but England maintained her own 
 sugar plantations by securing for them the 
 British market against French competition. 
 
 In the Napoleonic Wars we secured a 
 monopoly of cane sugar and created a sugar 
 famine in France. Sugar was one of the 
 economic weapons used by Pitt for the defeat 
 of Napoleon, and the French in their desper- 
 ation turned to the beet -root for a scanty 
 and meagre supply. 
 
 The beet-root at first produced only about 
 six per cent, ot sugar, and up to the middle 
 of the nineteenth century cane sugar easily 
 held its own. At that time we consumed 
 about 350,000 tons of sugar a year. Of this 
 about 290,000 tons came from British posses- 
 sions. Of foreign refined sugar we imported 
 about i5,.ooo tons, of which 13,000 tons were 
 beet-sugar.* At that time (1853) European 
 beet-sugar amounted to only 14 per cent, of 
 the world's production, and France was the 
 chief grower. 
 
 The British sugar plantations were im- 
 portant to British economic power. They 
 were under our control ; they employed our 
 
 * " A Short History of Sngar," 1856-1916, by George 
 Martineau. 
 
 I
 
 ii8 THE GERMAN SYSTEM 
 
 shipping and our capital ; the raw sugar was 
 refined in the refineries of London, Bristol 
 and Greenock ; and British machinery was 
 used both for the crushing of the cane and 
 the refining of the sugar. As the whole in- 
 dustry was thus under our control we were 
 secure of this commodity in war. 
 
 The British sugar industry was attacked 
 first by the bounty system of France, but 
 after the Franco-German War the German 
 beet-sugar industry took the lead. In 1871 
 Germany produced 186,000 tons of beet sugar, 
 and France 287,000 tons ; in 1884 France 
 produced 273,000 tons and Germany 1,123,000 
 tons ; in the year 1912-1913 Germany pro- 
 duced 2,723,000 tons of sugar, and Great 
 Britain imported, in the twelve months 
 ending 31st December, 1913, 472,000 tons of 
 raw and 467,000 tons of refilled German sugar. 
 
 This great economic victory was won (i) by 
 State protection, and (2) by organisation. 
 The State protected German sugar, and the 
 industry itself, b}^ its cartel sj^stem, made war 
 like an organised economic army upon the 
 helpless, disorganised and unprotected British 
 industry. 
 
 The victory had two main results : it 
 weakened England and strengthened Germany. 
 
 It weakened England not only in the decay
 
 SUGAR AND SECURITY 119 
 
 of the twin industries of growing and refining 
 sugar and the related industries of shipping 
 and machinery, but in the loss of economic 
 security. A country which depends on a 
 foreign nation for sugar loses to that extent 
 ^ its economic and therefore its national security. 
 For we have proved that political security 
 rests on economic security. 
 
 This economic dependence of England upon 
 Germany was increased by the secondary 
 industries which depended upon German beet 
 sugar. The biscuit and confectionery in- 
 dustries rested upon a raw material which 
 was controlled by a foreign nation and there- 
 fore these industries were a source of economic 
 and consequently of national insecurity. 
 
 They formed interests in the State which 
 worked against national independence and 
 for dependence upon Germany. 
 
 The German beet sugar industry strength- 
 ened Germany not only by the profits of the 
 sale of beet sugar, but in other ways. The 
 beet was a rotation crop, and its cultivation 
 increased the yield of the other crops — 
 wheat and rye — grown on the same land by 
 about 25 per cent. As it increased the yield 
 of the land so it increased the prosperity and 
 numbers of those employed on the land. The 
 Prussian armies owe their strength to Prussian
 
 120 THE GERMAN SYSIEM 
 
 agriculture, which provides both their best 
 leaders and their best men.* 
 
 The beet sugar industry required agricul- 
 tural, manufacturing and refining machinery 
 and that machinery was supplied by the Ger- 
 man engineering industry. It is probable also ^ 
 that in time Germany would have taken over 
 those secondary industries which depended 
 upon German beet sugar, and would have 
 supplied England not only with sugar but with 
 confectionery. For it might almost be called 
 an industrial law that that country which 
 produces the raw material — if it has the 
 power to defend itself — will in the end 
 produce the finished article. 
 
 Banking. — The Germans learned by war 
 the power of organisation. They used the 
 power of organisation to create economic 
 power. They had this great advantage over 
 the Englishman at that time — that the 
 Englishman worked for the individual and 
 the class, whereas the German worked for the 
 nation and the organisation. 
 
 If we compare the material conditions of 
 England and Germany in 1880 we find that 
 
 * " If we do not support our agriculture, our power of 
 resistance will be ruined in the same measure as our 
 power of supply. The peasant is the backbone of our 
 Army . . . without peasants, no State, no army." — 
 Bismarck : " Conversations."
 
 POLICY AND NO POLICY 121 
 
 most of the material advantages were still on 
 the side of England. Germany had little 
 capital ; England was well supplied ; Ger- 
 many had but few workmen skilled in modern 
 industry ; England had an abundance of 
 expert artisans ; Germany grew her own food 
 and sugar, and had great forests ; she had 
 beds of iron-ore and coal ; and she grew wool 
 in Saxony and Silesia ; but these resources 
 were undeveloped. British agriculture was 
 decaying, but the whole world supplied Eng- 
 land with cheap food and the British industrial 
 system was in full blast. Germany bad no 
 tropical colonies and no command of tropical 
 products ; England had a great Empire in 
 the tropics, from which she could gather all 
 her industries required ; Germany had no 
 acquaintance with the markets of the world 
 and no ships to carry her goods to those 
 markets ; England was well established in 
 every market and had ships at her command. 
 
 There was, however, this difference : Ger- 
 many had an industrial policy and knew the 
 power of national organisation ; England had 
 no policy save cheapness and the Happiness 
 of the Individual. 
 
 At this point a word may be said of what 
 is called National Consciousness. It is not 
 necessary to our purpose to prove that a
 
 122 THE GERMAN SYSTEM 
 
 nation is conscious of its own policy, or 
 that the German of 1880 saw the war of 1914. 
 Possibly the leaders of German industry 
 remembered that England had once been 
 under the power of Germany ; possibly they 
 worked for a German dominion of the world. 
 Or possibly their eyes did not look so far 
 either backward or forward ; but they worked 
 in accord with the instinct of their race and 
 nation, and that instinct was for growth and 
 power. As they had been given security to 
 grow by three wars and the State organisation 
 expressed in the Tariff law of 1879, so they 
 followed instinctively the methods of com- 
 bined action which in the struggle foi national 
 existence had become the national habit. 
 
 We may trace this instinct in the sphere of 
 Banking. Capital is stored economic energy 
 which may be applied either to the develop- 
 ment of fresh industrial power or distributed 
 among other nations and for other purposes. 
 The Germans developed a system of banking 
 which strengthened and intensified their 
 national and industrial system : they organ- 
 ised their small capital resources to this end, 
 and as they proceeded they even learned how 
 to tap the British banks and divert the stored 
 energy of British industries into the veins of 
 their own system.
 
 VICTORIAN BANKING 123 
 
 Although our national banking system was 
 organised for our wars with France, we look 
 in vain in the literature of Victorian banking 
 for the national point of view. It should 
 have been obvious that the security of bank- 
 ing rested upon national security, but national 
 security was so much a matter of course by 
 1870 that it was hardly as much as considered. 
 There is indeed some realisation of the truth 
 in Walter Bagehot's "Lombard Street." He 
 points out for example that a system of 
 deposit banking is only possible in a country 
 exempt from invasion and free from revolu- 
 tion. He remarks on the fact that hardly 
 any country has been till now " exempt for 
 long periods both from revolution and in- 
 vasion." He suggests that the absence of 
 security from foreign war had prevented both 
 Holland and Germany from developing deposit 
 banking. He notes that after the war of 
 1870 European reserves went to London, 
 and Paris ceased to be a European settling- 
 house. He congratulates London on becom- 
 ing thereby the sole great settling-house of 
 exchange transactions in Europe. He re- 
 marks that the supremacy of Paris " partly 
 arose from a distribution of political power 
 which was already disturbed.'" " But," he 
 goes on to say, " tliat of London depends on
 
 124 THE GERMAN SYSTEM 
 
 the regular course ot commerce which is 
 singularly stable and hard to change." 
 
 It will be seen from this passage that 
 whereas Bagehot recognises national securit}/ 
 as a factor in continental banking, he puts 
 down the pre-eminence of English banking to 
 the regular course of commerce. Without 
 reason assigned he makes England an excep- 
 tion to the general rule. Yet we have seen 
 from histor}^ that English banking no more 
 than continental banking is independent of 
 national security. The probable explanation 
 is that in Bagehot 's time the security of 
 England was as much a matter of course as 
 the stability ot the planet. It was taken for 
 granted. " Indirectly," says Bagehot, " bank- 
 ers will be benefited or injured with the 
 country in which the}^ live, but practically, 
 and for the purposes of their daily hfe, they 
 have no need to think and never do think on 
 theories of currencj^" As he wrote about 1873 
 he could not but see the effect of the loss of 
 security on the banking system of France. 
 
 Among the bankers of that time the only 
 concern was to maintain the security of 
 Enghsh banks. The security of the country 
 on which the security of the English banks 
 rested had ceased to be a consideration. On 
 the 31st September, 1872, the deposits in
 
 A CONTRAST IN POLICY 125 
 
 London amounted to 120 millions sterling, and 
 on the 31st January, 1873, the whole German 
 Empire had only 8 millions sterling on 
 deposit. 
 
 The English banks felt themselves secure 
 in the supremacy of their wealth and did not 
 even trouble to consider their national found- 
 ations. The}^ tell into the habit of looking at 
 their system as a thing apart from the national 
 life. Their policy concerned only the security 
 of their own deposits and the safest and most 
 profitable uses of money. It did not occur 
 to them that national security rested upon 
 industrial security and that both were there- 
 fore essential to the security of the English 
 banking system. They had become inter- 
 national merchants in gold and in credit. 
 Such was the attitude of the English banker 
 down even to the year 191 4, with the result 
 that when war broke out a great part of our 
 English deposits were found to be invested 
 in German trade and industr}^ and our 
 English bankers had to be rescued from the 
 consequences by the direct action of the 
 State. 
 
 The German banker, on the contrary, never 
 forgot that his security rested on the national 
 security, and that the national security rested 
 on industrial security.
 
 126 THE GERMAN SYSTEM 
 
 The German banker takes an almost mili- 
 tary view ol his national duty. He uses 
 military terms ; he speaks of mobilisation 
 and concentration, and the possibility of 
 war is never out of his mind. For example, 
 Dr. J. Reisser, probably the first authority 
 on German banking and president of the 
 Hansa Bund, writes thus at the beginning 
 of his book, " The Great German Banks " : 
 " Banks have also to make timely provision 
 (as far as possible) in times of peace for the 
 eventualities of war. The marshalling of 
 financial forces must correspond to that of 
 military forces, and just as military mobi- 
 lisation is made possible by careful plans 
 made in times of peace, so, too, the marshal- 
 ling of financial forces should be facihtated 
 by schemes likewise devised in times of 
 peace. Weaknesses and gaps in the financial 
 mobilisation may be paid for as dearly as 
 mistakes in the tactical deploying of forces. 
 For to both applies what I have said else- 
 where, ' It is impossible without severe loss 
 to evolve a battle formation in the face of 
 the enemy.' " 
 
 This he says at the beginning of the book, 
 and at the end he says : "In Germany we 
 have special cause for holding our weapons 
 ready."
 
 THE GERMAN BANKS 127 
 
 The banks were in fact the General Staff 
 of the German economic army. 
 
 They founded their pohcy upon German 
 industry. The Darmstadter Bank was 
 founded in 1853 to this end, and was called 
 the Bank tor Trade and Industry. 
 
 The Deutsche Bank was founded in 1871, 
 and proclaims its policy in its charter : " The 
 object of the Company is the transaction of 
 all sorts of banking business, particularly the 
 fostering and facilitating of commercial re- 
 lations between Germany, the other European 
 countries, and overseas markets." 
 
 The other two great German banks, the 
 Dresdner and the Disconto Gesellschaft, fol- 
 lowed the same pohcy. Their first aim was 
 German industry ; their second, the commerce 
 which rested on that industry. 
 
 Industrial Combination. — It would be false 
 to say that the German banks created German 
 industry : what they did was to help and 
 guide its development from a domestic to an 
 export industry. 
 
 To this end they followed a policy of 
 Organisation and Concentration at home and 
 of Penetration and Exploitation abroad. 
 
 It is important to remember that their Pene- 
 tration and Exploitation abroad depended on 
 their Organisation and Concentration at home.
 
 128 THE GERMAN SYSTEM 
 
 Let us consider, then, the Industrial policy 
 of the banks before we consider their com- 
 mercial policy. 
 
 " The cost of production," says Reisser, 
 " depends, among other things, on the greatest 
 possible diminution of the cost of operation, 
 which, in industry at least, as a rule, diminishes 
 in proportion to the increasing size of the 
 establishment." 
 
 The German banking policy was therefore 
 to support industrial concentration. 
 
 This industrial concentration took several 
 forms. First, single works linked themselves 
 together in cartels. Reisser defines the cartel 
 as an association founded by contract for 
 certain periods of time of independent enter- 
 prises, belonging to kindred branches of 
 industry or of branches of industry with 
 nearly identical interests, the individual mem- 
 bers of the association retaining their inde- 
 pendence but joining for the purpose of regu- 
 lating production and sale according to 
 common points of view and in the common 
 interest. 
 
 In 1879 there were fourteen of these cartels, 
 in 1911 from 550 to 600. 
 
 They took several forms. The lowest de- 
 velopment consisted of agreements covering 
 selling terms ; a further development cartels
 
 GERMAN CARTELS 129 
 
 fixing prices ; and the highest development 
 seUing cartels or syndicates, an organisation 
 so close to complete unity that only the 
 process of proJiiction — and sometimes not 
 even that — was left to members of the syndi- 
 cate. 
 
 If we take the great basic industries of iron 
 and steel we find that the Roheisenverband 
 or Pig-iron Cartel held a monopoly of pig- 
 iron production throughout the entire German 
 Empire. It controlled 97 per cent, of the 
 production and all the producers save four. 
 
 It was closely connected with the Stahl- 
 werksverband, organised in 1904, which had 
 a practical monopoly of the production and 
 distribution of German steel. All the steel 
 works and the rolling mills combined in this 
 syndicate to regulate output, distribution 
 and sale. The members were held together 
 by a double contract, the first governmg re- 
 lations with the selling agency and the second 
 with one another. All orders were distributed 
 among members according to quota, and each 
 member had one vote to every 10,000 tons 
 of production. 
 
 As the selling agency of this vast organisa- 
 tion was concentrated in a single management, 
 the whole power of the German steel industry 
 could be used for the development of a
 
 130 THE CxERMAN SYSTEM 
 
 foreign market or the destruction of a foreign 
 rival. 
 
 But not only was a single industry com- 
 bined in a cartel ; there were also combina- 
 tions and unions of several stages of pro- 
 duction. Thus coal mines combined with 
 furnaces, furnaces with steel works, and steel 
 works with rolhng mills and machine factories. 
 In the German iron and steel industry alone 
 4,962 plants had entered into such com- 
 binations up to 1905, comprising eighteen 
 branches of production. These fusions meant 
 not only economy and insurance, or security, 
 but also power. They were effected either 
 by exchange of stock between related enter- 
 prises or control and absorption of the smaller 
 by the larger. A small number of concen- 
 trated enterprises of vast extent were thus 
 given power over a vast production of staple 
 goods which could be used for the organised 
 invasion of foreign markets. 
 
 Most of these organisations were either 
 supported or carried through by the banks 
 which supported the enterprises concerned. 
 
 The German electrical industry is probably 
 the greatest work of the German banks. 
 
 In 1883 the first German stock company 
 in the electrical industry was established by 
 Emil Rathenau in concert with Siemens and
 
 THE ELECTRICAL INDUSTRY 131 
 
 Halske. The enterprise was supported by a 
 number of German banks working in co- 
 operation. 
 
 In 1884 Rathenau's company separated 
 from Siemens', and in 1887 called itself the 
 Allgemeine Elektricitats Gesellschaft. 
 
 In 1900 there were seven great electrical 
 groups supported by seven groups of banks. 
 Two of these dropped out, and between 1902 
 and 1904 a complete merger took place 
 between the A. E.G. and the Union Company, 
 accompanied by a corresponding combination 
 of banks. In 1903 Siemens and Halske com- 
 bined with Schuckert, and in 1908 the Siemens- 
 Schuckert and the A. E.G. entered into an 
 agreement, and jointly organised the Elektro- 
 Treuhand Gesellschaft, a credit institution. 
 
 The Felten and Guilleaume Lahmeyer Werke 
 Aktien Gesellschaft group combined in much 
 the same way to establish their Electric 
 Bank. 
 
 These combinations would not have been 
 possible without the support of the banks, 
 for the electrical industry is a debtor industry. 
 
 As the industries combined the banks sup- 
 porting them also combined. And there are 
 now only four great groups of German banks — 
 the Deutsche, the Darmstadter, the Dresdner, 
 and the Disconto.
 
 132 THE GERMAN SYSTEM 
 
 Each of these German banks is in itself a 
 cartel or union in the German banking system, 
 and the four together are united in their 
 Consortial Bureau which deals with all those 
 interests which they have in common, and 
 arranges their spheres of influence. 
 
 State Interest in Industry. — In this closely- 
 knit economic system the State takes an 
 active part. The German State is itself a 
 great industrialist. It owns the railways and 
 waterways, and is therefore strong in the 
 transport and export industries. As a great 
 purchaser of iron and steel for transport and 
 for munitions and arms, it is deeply interested 
 in the iron and steel industries. Kindred 
 reasons bring it into touch with the electrical 
 and chemical industries. It is the owner of 
 great coal mines and therefore takes a share 
 in the control of the coal industry. It owns 
 several of the potash deposits, and for that 
 reason is a principal partner in the great 
 potash cartel, which is a peculiar feature of 
 the German industrial system. 
 
 Potash is a natural monopoly of Germany, 
 and as potash is essential to many industries, 
 among them the agricultural, the chemical 
 and the electrical, the potash syndicate 
 spreads its roots and radicles far and wide 
 through the German industrial system.
 
 GERMAN STATE POLICY 133 
 
 Again, the mobilisation of financial power 
 being an important part of war, the State is 
 deeply interested in German banking, and 
 the German Reichbank supervises and controls 
 the activities of all the great German banks. 
 
 So also in commerce, as the revenues of 
 Germany largely depend on its tariff, and as 
 the tariff is the principal factor in the com- 
 mercial system, the State has a vital interest 
 in German trade. In special branches of 
 this trade, as, for example, the importation 
 of the non-ferrous metals required for muni- 
 tions of war, the State takes an active and 
 possibly a predominating share. We may 
 suppose that it directs the industrial policy 
 as far as possible, not only to the strengthen- 
 ing of German industry, but to the weakening 
 of rival economic systems. 
 
 National Organisation of Industry and Com- 
 merce. — We have now seen that the German 
 economic system rested on production. This 
 production developed and organised itself 
 until weak, tender and separated growths 
 became a thick, interwoven mass, so closely 
 knit, so strong of fibre, so hard of skin, that 
 penetration from outside became almost im- 
 possible. We have seen also that this for- 
 mation developed something which approached 
 to a common will or a directing intellect. 
 
 K
 
 134 THE GERMAN SYSTEM 
 
 In the same way we can trace the growth 
 of German world commerce. We can see 
 this growing organism beginning to throw 
 out radicles and suckers at first weak and 
 short, but growing tougher and longer with 
 the living energy of the massed production 
 behind until the strong roots spread, pierced, 
 and intertwined over almost all the world. 
 This powerful system we can hardly describe 
 in the terms of our classical economist as 
 " truck barter and exchange," any more than 
 we can describe the system from which it grew 
 as the division of labour. It is rather a 
 process of invasion, suction, exploitation. 
 
 When the Deutsche Bank was founded in 
 1871, such German foreign commerce as 
 existed was forced to use the English and 
 French machinery of exchange. Bills in 
 German currency had no foreign market ; 
 English bills had an almost boundless and 
 unlimited circulation. London was still " the 
 clearing-house of the world," although English 
 bankers had forgotten that this financial 
 supremacy rested upon industrial supremacy. 
 
 The Deutsche Bank founded its first over- 
 sea branch in London in 1873, and gradually 
 elaborated a process by which British capital 
 was used to finance German commerce and 
 to strengthen German industry. The German
 
 THE CLEARING HOUSE 135 
 
 bank, resting on its knowledge of German 
 industry and commerce, backed German bills 
 with its own credit, which was the whole 
 organised credit of Germany, and this secured 
 for Germany the free use of British capital. 
 
 London was content with the easy profits 
 which it made upon the brokerage of our 
 national energy. 
 
 It forgot that the country which is supreme 
 in industr}/ will in the end be supreme also in 
 finance. 
 
 When war broke out London had served 
 its turn, and was already ceasing to be the 
 German clearing-house. 
 
 " Since," says Reisser, " as a result of con- 
 tinuous efforts, mark bills have gained a 
 respected position in foreign markets along- 
 side of sterling bills, British aid and inter- 
 vention is no longer required in nearly the 
 same proportion to settle the balance of pay- 
 ments on account of German imports and 
 exports. The time may be said to have 
 passed, at least in the majority of cases, wlien 
 German exporters, in order to collect their 
 foreign claims, and foreign exporters, when 
 selling goods to Germany, liad to draw on 
 London, or when German importers had to 
 settle the credits of their sellers via London." 
 
 But while London was no longer necessary
 
 136 THE GERMAN SYSTEM 
 
 to the German economic system, it was still 
 useful, and it was still exploited. The German 
 banks used British credit not only to finance 
 German commerce and industry but to give 
 them an advantage over British commerce 
 and industry. 
 
 It is obvious that when two merchants are 
 competing for an order, credit may be a factor 
 no less important than price. If one mer- 
 chant can offer the customer six months in 
 which to pay for the goods, he has a notable 
 advantage over the other merchant, who can 
 only offer the customer three months' grace. 
 And this advantage was given to the German 
 merchant by his co-operation with the Ger- 
 man bank. But the German bank in this 
 transaction offered not its own credit, but 
 the credit of the British bank. " It is alleged 
 that German distributing houses in Russia, 
 the Levant, Central and South America have 
 been able to offer extended terms of credit 
 and thereby to obtain a considerable amount 
 of trade owing to tiie support the}/ receive 
 from their Banks. The bills drawn upon 
 clients in these markets eventually find their 
 \\ay to London. They are endorsed b}/ the 
 German banks upon whose endorsement they 
 are readilj^ discounted in the London m.arket. 
 In effect, therefore, the longer credits given
 
 A FINANCIAL NETWORK 137 
 
 by German merchants rested ultimately upon 
 British finance."* 
 
 While the German banks were thus sucking 
 the energy from the veins of the British in- 
 dustrial system, they were spreading their 
 own network of agencies, branches and con- 
 trolled houses. 
 
 In this work the German banks acted 
 sometimes separately, but generally together. 
 In 1871, the Darmstadter Bank founded tlie 
 Amsterdamsche Bank which in its turn planted 
 six branches in the chief trading centres of 
 Holland. But the Darmstadter Bank co- 
 operated with the other German banks to 
 found the Bank Internationale de Bruxelles. 
 Six of the great German banks, headed by 
 the Deutsche Bank, founded the Banca Com- 
 merciale Italiana in 1894, with its head 
 office at Milan, which spread fifty-four 
 branches throughout Italy. Seven German 
 banks combined to found the Deutsche Asia- 
 tische Bank. Three German banks formed 
 the Deutsche Orient Bank. The Deutsche 
 Bank organised in 1886 the Deutsche Ueber- 
 seeische Bank with twenty-eight branches in 
 Chih, the Argentine and Spain. By working 
 in close co-operation the banks effected their 
 
 * Report of the Department Committee on the Textile 
 Trades (i9i(S).
 
 138 THE GERMAN SYSTEM 
 
 purpose with the smallest possible outlay of 
 capital. Although they dominated the policy 
 of the Banca Commerciale Italiana, it is cal- 
 culated tliat latterly they had only 2 J per 
 cent, of the stock of that Bank. When they 
 had secured the machinery, and had collected 
 native capital they could withdraw their own 
 for other purposes. 
 
 It is important to remember that this great 
 network of German banks was spread to 
 serve German industry. " The German 
 banks," says Reisser, " regarded it as one of 
 their chief functions actively to support both 
 at home and abroad domestic industry and 
 the export policy. ... On this depends not 
 only the maintenance and the extension 
 of our influence and importance abroad, 
 but what is more, our entire domestic exist- 
 ence." 
 
 " Every German bank abroad," said Sie- 
 mens, " is a pioneer of national industry." 
 
 They served German industry not only by 
 financing the export of German manufactures 
 and the import of raw materials, but in other 
 ways. They lent money to foreign enter- 
 prises and to foreign governments and public 
 bodies, and as a condition of these loans they 
 insisted on the use of German manufactures 
 and machinery. They also supplied German
 
 COMMERCIAL ORGANISATION 139 
 
 manufacturers with the information they ob- 
 tained in the course of their business opera- 
 tions, and they are even charged with sending 
 copies of the invoices they held as securities 
 to German manufacturers. As the German 
 banks are vitally interested in German in- 
 dustries and share in their management it 
 would be surprising if they did otherwise. 
 
 The German banks went further. They 
 financed and organised selling agencies for 
 combinations of German industries. These 
 combinations and agencies are a main part 
 of the German economic system. Thus the 
 Exportverein of Dresden sold in foreign mar- 
 kets the manufactures of a thousand firms. In 
 China, one German organisation represented no 
 less than forty-seven engineering firms, besides 
 Krupp & Co., two shipping houses, one marine 
 insurance company, and one fire insurance 
 company. It had over twenty branches, 
 and had relations with the officials of every 
 Chinese government, central and provincial, 
 Where British competitors offered to take 
 over one branch of a public work, this great 
 organisation could tender for the whole — 
 even if the contract embraced every form 
 of industry. 
 
 A South African witness, on whom I can 
 rely, describes the growth of one of these
 
 140 THE GERMAN SYSTEM 
 
 German circles. Some years before the war 
 a finance company appeared in Johannes- 
 burg. Its advance agent was armed with 
 letters of unlimited credit from the Deutsche 
 Bank. Its first operation was to finance a 
 gold-mine on condition that it shared in the 
 management, and that the orders for plant 
 went to Germany. In exchange for shares 
 issued to the original owners the Company 
 secured complete control of the mine and 
 paid for the machinery with first mortgage 
 or debenture bonds. These bonds were 
 guaranteed by the bank and accepted by the 
 manufacturers. The mine was then floated 
 in London, and more capital obtained, which 
 was used to pay for the German machiner}^ 
 The finance company itself became a British 
 limited liability company, although the 
 whole Board and Staff were either directly 
 or indirectly paid servants of the Deutsche 
 Bank, and commanded over a million of 
 capital, chiefly British and French. It now 
 extended its control over enterprises com- 
 plementary and subsidiary to the mining 
 industry ; these enterprises were supported 
 with credit, and were forced to take a repre- 
 sentative of the Bank on their boards. As a 
 condition of the partnership they were all 
 bound to buy goods from members of the
 
 BANKING AND INDUSTRY 141 
 
 circle if the goods required were to be had 
 within the circle. 
 
 The relations between the Banks and the 
 German selling agencies are sometimes direct 
 and usually indirect ; but they always exist. 
 A Dresden bank was actually the selling agent 
 of the Saxon cellulose combine, and the 
 German wire nail manufacturers combine put 
 their sales in the hands of a Berlin bank. 
 
 It may be said that such enterprises demand 
 expert knowledge that banks cannot possess. 
 But as the German banks are habitually 
 engaged in industry and commerce, it is their 
 business to weigh the worth of men and enter- 
 prises. The}^ have thus developed an in- 
 dustrial and commercial intelligence system 
 which has no counterpart in British banking. 
 
 The sj^stem creates the aptitude. When 
 British banks are contracting men into clerks 
 and accountants, the German banks are 
 expanding them into industrial and com- 
 mercial experts. 
 
 WTaile the great German industrial groups, 
 like the Stahlwerksverband, the A. E.G. and 
 Siemens Halske had their own selling or- 
 ganisations, they were assisted in financing 
 foreign undertakings by the banks with which 
 they were connected. 
 
 An American authority states that the
 
 142 THE GERMAN SYSTEM 
 
 A. E.G. is connected through common direc- 
 tors with banks and banking groups repre- 
 senting 533,234,000 dollars. These banks 
 " have assisted the A. E.G. in financing many 
 foreign undertakings in which electrical equip- 
 ment was required, such as power plants, 
 street railways, electric light plants, etc. 
 They have also assisted in special banks and 
 trust companies for electrical enterprises 
 (Banken fur Elektrische Unternehmungen) 
 preferably abroad, whose especial function is 
 the financing of foreign electrical enterprises 
 through the issuance of bonds."* 
 
 With such financial backing, an industrial 
 enterprise like the A. E.G. was not only in a 
 position to offer its manufactures on long 
 terms of credit ; it could obtain permanent 
 control of foreign enterprises which used its 
 manufactures. 
 
 Thus, for example, the Buenos Ayres tram- 
 way system was in the first case constructed 
 by a British Company with British material. 
 When the system came to be electrified, the 
 A. E.G. offered as part of its tender to guaran- 
 tee a dividend in perpetuity on the share 
 capital of the company, on condition that it 
 
 * Federal Trade Commissioner's Report on Co- 
 operation in American Export Trade, vol. i., p. 276.
 
 GERMAN METHODS 143 
 
 took over the management and supplied all 
 renewals of plant. 
 
 The Compan}^ remained British in name, 
 but in reality had no power save to draw 
 its dividends. Even during the war it could 
 not buy new machinery for its own system in 
 England. It was granted an authorisation 
 by the German Company only to buy 
 machinery in America, and I am informed 
 that this authorisation w^as conveyed through 
 our postal censorship on the back of a postage 
 stamp. 
 
 But these great German enterprises were 
 not only supported by the banks in their 
 foreign trade ; they were allied with com- 
 plementary and subsidiary industries. 
 
 If the A. E.G. takes a contract abroad, not 
 only the electrical machinery, which it sup- 
 plies from its own works, but the chemicals, 
 the glass, the metals, the transport, the 
 insurance, are all carried out by firms which 
 it controls, or with which it is connected. 
 
 Control of Raw Material. — As the Ger- 
 man economic system organised to secure 
 foreign capital and to secure foreign markets, 
 so they organised to secure raw material. 
 The production of raw material in Ger- 
 many itself was organised at first as a 
 separate industry, and the German raw
 
 144 THE GERMAN SYSTEM 
 
 material competed in the markets of the 
 world with British raw material. But as 
 the German economic system progressed, the 
 policy of such selling organisations as the 
 German coal cartel was modified by the in- 
 fluence of those German cartels which de- 
 pended upon coal. And so with the sale of 
 pig-iron. The German industrial system as 
 a whole saw the advantage of using their 
 own raw materials as much as possible for 
 their own industries, and by a modification 
 or' merging of the cartel system, German in- 
 dustries were put at an advantage as against 
 foreign industries in the use of their raw 
 material. 
 
 When the sources of raw material were 
 outside the German State, the Germans set 
 themselves to secure the control of those 
 sources. They merged the needs of German 
 industry in one great buying organisation, 
 and this buying organisation had the same 
 power of capital and concentration as a selling 
 organisation of German manufactures. They 
 were supported by the concentrated capital 
 of the banks, and the resources of all the 
 German industries which used the raw material 
 
 in question. 
 
 The great buying organisations of non- 
 ferrous metals were chiefly in the hands of
 
 THE METALLGESELLSCHAFT 145 
 
 German Jews, and have been described as 
 international. They are in fact German in 
 capital, direction and polic}^ The patriarch 
 of this business was one Philipp Abraham 
 Cohen of Frankfort. Cohen supphed part 
 of the capital with whicli his son-in-law, Henr\/ 
 R. Merton, started business in London. Wil- 
 helm ]\Ierton, son of Henry, founded the Metall- 
 gesellschaft in 1881, in which was merged 
 the metal business of grandfather Cohen. 
 Three years before, both houses had combined 
 to form the American Metal Company. Be- 
 tween them also they formed in 1897 a subsidi- 
 ary company, the Metallurgische Gesellschaft 
 of Frankfort, which held interests of the parent 
 companies in mining and smelting plants. 
 In 1906 the Metallgesellschaft, the Deutsche 
 Gold unci Silberscheidanstalt, the Darm- 
 stadter Bank, the Berliner Handclgesellschaft, 
 11 ic Discontogescllschaft, and several private 
 bankers of Frankfort combined to found the 
 Burg und Metallbank of Frankfort, in whicli 
 the various Merton companies placed from 
 one-quarter to one-third of their capital. 
 In 1910 this Bank was consolidated with the 
 Metallurgische Gesellschaft of Frankfort with 
 a capital of 40,000,000 marks. 
 
 Ibus tlfb financial centre of the Merton 
 group is and always has been Germany, and
 
 146 THE GERMAN SYSTEM 
 
 it never could be said of the Merton Company 
 of London that it had a separate existence. 
 
 This great Frankfort house secured control 
 through shareholdings and directorships both 
 of English companies which traded in or used 
 metal and the Australian and African com- 
 panies which produced it. 
 
 It was associated for certain market opera- 
 tions with the other great German metal 
 dealers, Beer, Sondheimer & Company, and 
 Aaron Hirsch & Son. 
 
 It is true that the London Metal Market 
 was looked upon as the fixer of prices ; but 
 the German combination ruled that market. 
 Thus an important American witness stated 
 to the Federal Trade Commission : 
 
 " The German consumption was such a 
 large proportion of the total amount of copper 
 exported that German buyers had more in- 
 fluence in fixing tlie value of copper than the 
 English buyers. It was very evident to this 
 company that the buyers of Germany worked 
 as a unit. They would repeatedl}^ remain out 
 of the market for weeks at a time and would 
 not accept any offer made, during which time 
 the American sellers would accumulate such 
 amounts of copper that they would be obliged 
 to reduce their offers. The German buyer 
 would wait until the offers were reduced suffi-
 
 ZINC AND LEAD 147 
 
 ciently and tlien would come in again as the 
 unit and buj' in very large quantities. 
 
 By this process the Germans were able to 
 buy at lower prices even than the American 
 buyers. 
 
 The Australian metal producers were en- 
 tirely in the hands of the Merton group through 
 its subsidiary, the Australian Metal Company, 
 and before the war contracts were arranged 
 which bound these producers up to 191 8. 
 
 Zinc was controlled b^/ a syndicate called 
 the Zinkhiittenverband, an organisation con- 
 trolled by the Metailbank, Beer Sondheimer, 
 and xA-aron Hirsch. This syndicate controlled 
 the prices of the international syndicates which 
 included ten Belgian, six English, and some 
 French works. 
 
 The Metallgesellschaft organised the lead 
 market in the International Lead Convention 
 which included the iVustraliaii lead mine 
 owners. The markets in nickel, spelter and 
 aluminium were also controlled by the same 
 combination. The Mond Nickel Company, for 
 example, sold its product even for some time 
 after the war only througli Mei ton's. 
 
 The Metallgesellschaft and the Metailbank 
 are linked by interlocking arrangements with 
 Krupp's and the great steel, shipbuilding, 
 ordnance and munition manufactures.
 
 148 THE GERMAN SYSTEM 
 
 When war broke out all the large German 
 users and traders combined in the Kriegs- 
 metallgesellschaft, which was merely the for- 
 mal expression of a unity which had long 
 existed. 
 
 Here, then, we see that the German economic 
 system, both in industry and commerce, is 
 something altogether different from the con- 
 ceptions of our classical economists. Adam 
 Smith spoke of the division of labour, but 
 here we see the organisation of labour ; Adam 
 Smith postulated competition between indivi- 
 duals, but here there is combination not 
 between individuals merely but between in- 
 dustries. The whole German economic system 
 was becoming, if it had not already become^ 
 a single unit lor purposes of competition with 
 the individual enterprises of foreign nations. 
 
 And behind this economic system, using 
 it and used by it, was the power of the 
 German State. 
 
 It is indeed a disturbing and tremendous 
 phenomenon. And if we keep security be- 
 fore us as the object of our national policy 
 we must admit that against such a power 
 individualism offers no security. The free 
 individual and the organised national system 
 can hardly exist in the same world.
 
 CHAPTER VII 
 
 A CONFLICT OF POLICY 
 
 England's Ancient Imperial Policy. — The 
 conclusion at which \vc arrived in our 
 last chapter was that free individuahsm and 
 an organised national system could hardly 
 exist in the same world. I do not suggest, 
 however, that the British Empire was either 
 founded on or committed to the principle of 
 individualism. On the contrary it is true that 
 the British Empire was founded on principles 
 of organisation and that a great part of the 
 British Empire never abandoned those princi- 
 ples. To make this point clear we must re- 
 trace our steps and follow from the beginning 
 to the end the conflict between these two 
 principles of individualism and organisation 
 in the British Empire. 
 
 Organisation grew by the desire for national 
 security. \Vc And it in the early history of 
 our Colonial Empire when our colonies were 
 planted and our dependencies conquered by 
 
 149 L
 
 150 A CONFLICT OF POLICY 
 
 such corporations as the Virginia Company 
 and the East India Company. These com- 
 panies, which were sometimes regulated and 
 sometimes joint- stock, carried out the 
 national policy and were supported by the 
 State. 
 
 This national policy had two main purposes, 
 to secure supplies of produce and raw mate- 
 rials and to secure a market for manufac- 
 tures. The primary object of the old colonial 
 system, according to Beer, was " to develop 
 the wealth and power of the Empire." This 
 was best to be done by making the Empire 
 " a self-sufftcient economic unit, independent, 
 as far as was possible, of competing national 
 groups." 
 
 In this s3/stem mother country and 
 colony complemented each other, the one 
 supplying manufactures, the other raw mate- 
 rials and tropical produce. This trade was 
 carried on exclusively in British and Colonial 
 shipping, " with the object of increasing the 
 Empire's naval strength."* 
 
 Colonial timber and pitch were given a 
 preference over the timber and pitch of the 
 Baltic in order to secure our shipbuilding ; 
 
 * " British Colonial Policy, 1754-1765," by George 
 Louis Beer.
 
 COLONIAL POLICY 151 
 
 colonial pig-iron was given a preference over 
 the pig-iron of foreign nations to secure our- 
 selves in arms, and British manufactured 
 iron and steel, cordage and sailcloth were 
 protected both in the British and Colonial 
 markets. 
 
 Colonial dyes, potash, sugar and tobacco 
 were given a monopoly of the British market, 
 just as British textiles and manufactures of 
 iron and steel were given a monopoly of the 
 colonial markets. This policy succeeded so 
 well that in our wars with Holland and France 
 we won the victory at sea and were always 
 able to supply ourselves with a sufficiency 
 of colonial produce. 
 
 This polic}^ was sound in principle, but erred 
 in detail. Thus while colonial shipbuilding 
 was permitted, the colonial carrying trade 
 was restricted ; while we encouraged the 
 colonies to produce wool and iron we forbade 
 them to make cloth and horseshoe nails. 
 We attempted to keep our manufactures at 
 one centre and were afraid to allow the colo- 
 nies to develop their own industries. As 
 England legislated for the whole Empire in 
 its trade policy, so England strove to main- 
 tain a monopoly of manufactures within the 
 Empire. 
 
 Even so it is the judgment of Beer that
 
 152 A CONFLICT OF POLICY 
 
 ** the system of trade regulations tended to 
 give greater cohesion to the Empire . . . and 
 ran counter to the strongly marked tendency 
 towards political disintegration." We may 
 suppose that if the colonies had been given 
 a share in the control of this policy, there 
 would have been no War of Independence. 
 
 Our second Colonial Empire, which is to 
 say Canada, Australia and the Cape of Good 
 Hope, with the West Indies and Mauritius; 
 remained true to this polic}^ of economic 
 unity. 
 
 Adoption of Free Trade. — There came a 
 time, however, when the victory of the British 
 Navy and the British Army led our British 
 merchants to forget the principle on which they 
 had founded their Empire. As an army after 
 a complete victory is tempted to scatter and 
 separate into troops and single men in search 
 of plunder, so our merchants when the destruc- 
 tion of the French economic power left no 
 competitor in the field, broke into groups and 
 individuals and thought of nothing but gain. 
 
 British policy abandoned security for profit, 
 and the colonies were thought to be unprofit- 
 able. " I am inclined to think," said Bright, 
 " that, with the little exception of Australia, 
 there is not a single dependency of the Crown, 
 if we come to reckon what it has cost in war
 
 COBDEN AND THE COLONIES 153 
 
 and protection, which would not be found to be 
 a positive loss to the people of this country." 
 
 Bright held that separation from Canada 
 would be good for both countries, and Cobdcn 
 pointed the way : 
 
 "The colonial s^^stem," he said, "with all 
 its dazzling appeals to the passion of the 
 people, can never be got rid of except by the 
 indirect process of Free Trade, which will 
 gradually and imperceptibly loose the bonds 
 which unite our colonies to us by a mistaken 
 notion of self-interest." 
 
 While the Free Traders held these views 
 of our colonies they were tempted to aban- 
 don them by the same consideration which 
 mxoved them to the abandonment of British 
 agriculture. Germany, the United States, 
 and France were protecting their manu- 
 factures. The British Government abandoned 
 their preferential system with the colonies 
 in order to secure a free market in those 
 countries. 
 
 Canada, the West Indies and the Cape suf- 
 fered most by this policy. Canada, by the loss 
 of the preference on timber and corn was 
 brought to the edge of ruhi. In 1849 the 
 business men of Montreal petitioned for 
 annexation to the United States. 
 
 " The reversal," they said, " of the ancient
 
 154 A CONFLICT OF POLICY 
 
 policy of Great Britain whereb}/ she withdrew 
 from the colonies their wonted protection in 
 her markets has produced the most disastrous 
 effects upon Canada, In surveying the actual 
 condition of the country what but ruin and 
 decay meets the eye ? . . . Crippled and 
 checked in the full career of private and public 
 enterprise, this possession of the British 
 Crown — our country — stands before the world 
 in humiliating contrast with its immediate 
 neighbours, exhibiting every symptom of a 
 nation fast sinking to decay." The only 
 remedy, these petitioners concluded, " con- 
 sists in a friendly and peaceful separation 
 from British connection and a union upon 
 equitable terms with the great North Ameri- 
 can Confederacy of Sovereign States." 
 
 The pitiful tone of this memorial reminds 
 us of the indignant words of Bacon : " It is 
 the sinfullest thing in the world to forsake 
 or destitute a plantation once in forwardness, 
 for, besides the dishonour, it is the guiltiness 
 of blood of many commiserable persons." 
 
 So it was also in the Cape Colony. The 
 Cape wine trade with England had been built 
 up on a preference of some shillings a gallon. 
 Upon that foundation the fair mountain 
 valleys of the Western Province had been 
 planted with vineyards, and the Dutchman
 
 WINE AND SUGAR 155 
 
 grew reconciled to the British flag when he 
 reflected that these richly laden morgen 
 depended on the preference given by the 
 British Government. But Cobden, who knew 
 nothing of those " commiserable persons," 
 swept away the whole system at a stroke in 
 order to open the market of France for British 
 manufactures. Without warning and in a 
 single year the Cape wine farmers found their 
 only overseas market lost to them. The 
 fabric they had built up on the faith of the 
 British Government crumpled into ruin.* 
 
 And so with the sugar trade of the West 
 and East Indies. England had made of her 
 tropic islands a great plantation for the grow- 
 ing of her sugar, which was chiefly refined in 
 the factories of Greenock, Liverpool and 
 London. It was a system which gave us a 
 secure supply of sugar, whether in peace or 
 war, as long as we commanded the sea. In 
 1834 the slave trade was abolished ; but a 
 prohibitory tariff against slave-grown sugar 
 helped the West Indies to rebuild their 
 industry on a basis of free labour. But this 
 
 * Dr. Jameson stated at the Imperial Conference of 
 1907 that before the Cobden Treaty (i860) with France 
 the Cape sent to England 800,000 gallons of wine a 
 year, Colonial wine having a preference of 2S. gd. 
 against 5s. 6d. per gallon on foreign wines. This prefer- 
 ence was abolished and the Cape wine trade destroyed.
 
 156 A CONFLICT OF POLICY 
 
 duty was lowered in 1846 from 63s. to 23s. 
 and was then entirely abolished. The slave- 
 owning planteis of Cuba and Brazil were thus 
 allowed to use their advantage to destroy our 
 own plantations, and England having satisfied 
 her conscience with liberation continued to 
 satisfy her stomach with slave-grown sugar.* 
 For two-and-twenty years the West Indies 
 suffered from what Froude justly calls this 
 " iniquitous competition," and when at last 
 slavery was abolished in Cuba and Brazil our 
 planters were faced with a new and more 
 formidable enemy, the " bounty-fed " beet 
 sugar of Europe. 
 
 Here, as elsewhere, tlie German State 
 followed the policy which England had dis- 
 carded, for England had built up her sugar 
 industry in the struggle with Spain and 
 France by State aid and protection. In 1761 
 Joseph Massie estimated that her sugar 
 plantations had cost England £10,000,000, 
 calculated on the difference of price between 
 French and British plantation sugar. But it 
 was a price worth paying if it secured us in 
 an article of food and manufactures which 
 we now find we can ill do without. 
 
 We may pause again to pity those com- 
 miserable people who had established their 
 
 * Froude's " English in the West Indies."
 
 OUR DUTY TO OUR COLONIES 157 
 
 indastry on the faith of the British Govern- 
 ment. " These colonies," said a memorial of 
 the West India Committee in 1885, " have 
 the mortification of feeling that the only bar 
 to their progress and prospeiity lies in their 
 connection with a country in which all their 
 loyalty and affection are centred." 
 
 If industry be deemed a virtue in a man, 
 so the planting and care of an industry is a 
 virtue in a nation. And conversely as it is 
 shameful in a man to allow his land to fall 
 back under nettles and darnels, so it is shame- 
 ful in a nation to allow her plantations and 
 industries to decay. And if this British 
 nation be the trustee of an Empire, then it is 
 an obligation in the trustee to maintain that 
 Empire in its fruitfulness. Let us at least 
 be sure that Nature — even if we no longer 
 consider the justice of God — will recognise no 
 other title of possession 
 
 Our colonies, however, clung desperately 
 to the old principles of Imperial policy : 
 protection and organisation. 
 
 Canada, as we have seen, had been brought 
 to the edge of ruin when England withdrew 
 the preference to her timber and her grain. 
 Her first despairing impulse was to turn from 
 England to the United States, and in 1854 
 Canada concluded a reciprocity treaty with
 
 158 A CONFLICT OF POLICY 
 
 the United States. But the poUcy was 
 repugnant to the national instinct of Canada. 
 In the Civil War of 1861 this national instinct 
 showed itself so plainly that feeling ran high 
 between the two countries, and the United 
 States denounced the treaty and made an 
 organised attempt to destroy Canadian indus- 
 tries. In 1878 Sir John MacDonald was 
 returned to power upon a national policy of 
 protection, and in 1879 ^^^ Canadian national 
 tariff was established. It" is a coincidence 
 worth remarking that the Dominion of Canada 
 and the Empire of Germany were consolidated 
 by the same means in the same year. 
 
 Colonial Policy. — Here then was a result 
 of Free Trade which the British Government 
 had not anticipated. It created in Canada 
 a new industrial system which protected 
 itself by tariff against British manufactures. 
 South Africa followed a similar course. The 
 Dutch who were alienated by the destruction 
 of their wine trade concluded a customs union 
 with the Orange Free State and attempted to 
 conclude a customs union with the Transvaal. 
 And this is another curious parallel. If the 
 reciprocity treaty between Canada and the 
 United States had succeeded it is probable 
 that there would have been a republic includ- 
 
 * 
 
 ing the whole of North America : if the design
 
 NEGLECTED AND FORGOTTEN 159 
 
 to create a South African customs union had 
 succeeded there would probably have been a 
 republic nicluding the whole of South Africa. 
 Both designs came within an ace of success, 
 but both designs failed. In South Africa the 
 Cape at first commanded the roads into the 
 interior and used this command to levy a toll 
 on the wealth of the Transvaal and to force 
 the Transvaal into the customs union on the 
 terms of the Cape. The Transvaal, however, 
 discovered an alternative route to the sea 
 by way of Delagoa Bay, and the design failed. 
 The result was a long period of economic 
 and political friction bordering on civil war. 
 In Australia the various States heard with 
 dismay and alarm of the destruction of the 
 Imperial trade system. They had no desire 
 and no opportunity to unite with any other 
 system, and they were separated from one 
 another both by their positions along a great 
 length of coast and by their own State Organi- 
 sations. They felt themselves neglected and 
 forgotten in their vast antipodean waste by 
 the only Power to which they could look for 
 protection. Their first thought was to separ- 
 ate, " to cut the painter," as they expressed 
 it, but the invasion of the Pacific by Germany 
 and the existence of possible enemies else- 
 where suggested the danger of that course.
 
 i6o A CONFLICT OF POLICY 
 
 Their second impulse was to unite their 
 forces and to protect themselves. As in 
 Canada so in Australia, the reaction against 
 the cosmopolitanism of Free Trade was the 
 growth of Colonial Nationalism. The Aus- 
 tralian States began to build themselves up 
 first by economic union, then by political 
 union, into a strong Australian- commonwealth, 
 jealously guarding their own manufactures 
 and their own rights of self-government. 
 
 But none of these Dominions gave up hope 
 of re-establishing the old Imperial system. I 
 do not know who suggested the first Colonial 
 Conference of 1887. Probably it was a birth 
 of several minds. It is perhaps worth noting 
 that Cecil Rhodes in 1891 told the wine 
 farmers of the Paarl of a conversation he had 
 had long before with Lord Salisbury. He 
 had said to Lord Salisbury : "If you wish to 
 retain the sentiment of the colonies, you must 
 consider day by day how you can give the 
 people some conmiercial advantage, and thus 
 show them that the tie with England is one 
 that is of practical advantage to themselves." 
 He had told Lord Salisbury of the destruction 
 of the Cape wine trade, and he added : " When 
 I discussed this with Lord Salisbury, I adopted 
 the suggestions I had had from Mr. Hofmeyr 
 about a differential rate, and said the greatest
 
 A POLICY OF UNION i6i 
 
 tie England could make with Cape Colony was 
 to return to the system of 1858." 
 
 However it may have been brought about, the 
 Conference met in 1887, and at that Confer- 
 ence both Queensland and Cape Colony made 
 proposals which go to the very roots of our 
 subject. On behalf of Queensland Sir Samuel 
 Grifhth proposed that the Conference should 
 discuss " the practicability of consolidating 
 and maintaining the unity of the Empire by 
 ... a community of material interests as 
 distinguished from tlie rest of the world." 
 Tiie means he proposed was that " a higher 
 duty should be imposed on goods coming 
 from foreign countries than on those imported 
 from Her Majesty's dominions." And the 
 Cape Colony .put the matter even more 
 definitely : " the feasibihty of promoting 
 closer union between tlie various parts of the 
 British Empire ])y means of an Imperial 
 customs tariff, the revenue derived from such 
 tariff to be devoted to the general defence of 
 tlie Empire." 
 
 Such were the proposals laid before the 
 Colonial Conference of 1887. Their meaning 
 is clear. They were proposals to weld the 
 scattered States of the British Empire into 
 one great economic system using its common 
 resources for the general defence. It was a
 
 i62 A CONFLICT OF POLICY 
 
 policy founded on security. Lord Salisbury 
 was then Prime Minister and made an open- 
 ing speech. It is plain from that speech that 
 he saw the great issues involved. He drew a 
 comparison between the British Empire and 
 the German Empire : " Before the German 
 Empire came to its present condition it had 
 two forms of union, both of which I think 
 might be possible in an Empire such as ours, 
 though both, perhaps, are not possible now. 
 There was the Zohverein, the customs union, 
 and there was the Kriegsverein, the union for 
 military purposes." As to the customs union 
 he feared that for the present it must be put 
 in " the distant and shadowy portion of our 
 task." It was not impossible, as the customs 
 union with Ireland showed, but the Free 
 Trade policy of England made it impossible 
 for the present — " until on one side or the 
 other very different notions with regard to 
 fiscal policy prevail." There remained the 
 Kriegsverein, the " union for purposes of 
 mutual defence " ; that was " the business 
 which the Conference had now before it." 
 
 Here we see a British statesman making a 
 fatal division, a division between the question 
 of defence and the question of industry. He 
 was prepared to see each dominion go its 
 own way in economic policy yet expected
 
 THE TIES OF COMMERCE 163 
 
 that all should go the same way in military 
 policy. 
 
 The colonies never took the same view. 
 They knew that if Canada liad joined the 
 United States in commerce the defence of 
 Canada would have become an American 
 interest ; that if the Cape had joined the 
 Transvaal in a customs union a political 
 union under the republican flag must have 
 followed. As practical men they saw the 
 truth that any system of defence must be 
 based on an economic system. For these 
 reasons thej^ persisted in debating the ques- 
 tion of preference. " I submit," said Sir 
 Samuel Grifhth, " the question for discussion 
 because I believe . . . that material inter- 
 ests have a very great deal to do in keeping 
 a country together. ... I contend that the 
 same principles ought to be applied in dealing 
 with foreign nations in matters of trade as 
 in dealing with foreign nations from any other 
 point of view. A man's first duty is to his 
 family, and then to his country ; and by 
 country I mean it in the largest sense — the 
 whole British Empire ; the first duty of every 
 one of us in every countr}^ in the Empire is 
 a duty to the Empire before our duty to any 
 foreign country." This principle, he pointed 
 out, was recognised everywhere but in
 
 i64 A CONFLICT OF POLICY 
 
 England " in consequence of the prevalence of 
 doctrines in England, which I believe are not 
 recognised in any other country," " Some 
 day perhaps human nature will advance so 
 far that we shall regard all mankind as so 
 truly a brotherhood that we shall no longer 
 have any feelings of rivalry with foreign 
 countries, and it wiU not be necessary to take 
 any steps to protect ourselves against them." 
 But while other countries did not recognise 
 that doctrine and while we did not really 
 recognise it ourselves, whatever we might pro- 
 fess, we should give material advantages to 
 people of our own Empire. 
 
 Jan Hofmeyr made a survey of the whole 
 subject. He pointed out that the West 
 Indies as they could no longer sell their sugar 
 profitabl}^ in the British market were turning 
 to the United States. A market in the United 
 States would have meant prosperity and the 
 alternative meant poverty. The West Indies, 
 he was told, were only prevented from com- 
 mercial union with the United States by the 
 treaties and obligations of the British Empire. 
 " When," he said, " one's loyalty and one's 
 attachment to the Empire are thus divided 
 against one's self-interest, it is only reasonable 
 to expect that one's attachment to the Empire 
 is very likely to suffer." Ilierefore he was not
 
 THE EMPIRE AND THE NAVY 165 
 
 surprised at this feeling in favour of annex- 
 ation to the United States among the West 
 Indian planters. So it had been in Canada, 
 and if the Canadian treaty with the United 
 States had lapsed it had been on account of 
 the unwilhngness of the United States to 
 continue that treaty. Other colonies were 
 going the same way and if they had their 
 libertj^ he feared the unity of the British 
 Empire would suffer. 
 
 Now, what liad tlie Conference done on tlie 
 question of defence ? The Australian colonies 
 had offered a subsidy if a few ships were kept 
 in their waters ; but the rest of the Empire 
 had not agreed to do anything. Yet the 
 German and the French navies were coming 
 up, and the time might come when the Im- 
 perial Government would require greater 
 assistance from the colonies. When that 
 time came the British Empire " should have 
 some other consolidating force in addition 
 to mere sentiment. It should have the force 
 of self-interest." Therefore he proposed a 
 closer fiscal union in order to obtain a revenue 
 which miglit be used to strengthen the navy. 
 " I aim," he said, " at something that shall 
 su])ply a cohesive force to the Empire, and 
 shall at the same time provide revenue for 
 defensive purposes." The other delegates 
 
 M
 
 i66 A CONFLICT OF POLICY 
 
 agreed with Mr. Hofmeyr. " I agree," said 
 Mr. Deakin, " in believing that one of the 
 strongest of the ties than can unite the 
 colonies or peoples together is the tie of self- 
 interest, with all the other ties which flow 
 from intimate commercial relationship in the 
 way of intercom'se and association." 
 
 The proposal fell to the ground because the 
 British Government did not accept it. Tlie 
 British Government, indeed, was now follow- 
 ing a policy which made it impossible. It 
 had entered into treaties with Belgium and 
 the German Empire which forbade British 
 colonies to levy higher duties on the imports 
 from Belgium and the German Empire than 
 on the corresponding imports from Britain. 
 Thus Germany and her treaties contrived to 
 prevent a British ZoUverein. In 1890 Canada 
 petitioned against these treaties, and in 1892 
 the Canadian Parliament prayed the Queen 
 for their termination. It was inexpedient, 
 they said, to preclude the colonies from 
 giving preference " so far as it restricted the 
 power of Britain and the self-governing 
 colonies to take measures for the protection 
 of British trade against the increasingly 
 aggressive policy of foreign countries." At 
 the Imperial Conference of 1894 Mr. Foster 
 put the case for Canada. He agreed " that
 
 THE VEINS OF EMPIRE 167 
 
 the flag is a bond . . . the Queen is a bond 
 . . . the constitution of Great Britain . . . 
 is a bond . . . their common institutions are 
 bonds . . . the army and navy, which em- 
 body the defence of the Empire . . . were a 
 bond of unity and a bond of strength ; but 
 underneath all this there is one thing which 
 is stronger. ... I refer to the common blood 
 of trade and commerce which flows from the 
 heart of the Empire out into the limbs of the 
 dependencies, and back again with its strength 
 and vivifying influence to the heart of the 
 Empire." Trade and commerce carried with 
 them knowledge and sympathy and created 
 the powerful and common bonds of a material 
 and social interest. 
 
 In this influence of commerce Mr. Foster 
 saw " the guarantee of the future unity, the 
 future stability and the future prosperity of 
 the great British Empire." 
 
 And this is no doubt the truth. Commerce 
 supported by industry is the reality of political 
 influence ; the British merchant selling British 
 goods and buying raw material made the 
 British Empire ; if he were to disappear no 
 political machinery or naval and military 
 power could hold it together. Commerce is 
 the true propaganda as industry is the true 
 strength of an Empire,
 
 i68 A CONFLICT OF POLICY 
 
 And conversely the German merchant selUng 
 German goods was the centre and agent of 
 those forces which weaken and destroy. War 
 is the intensification of this struggle of peace. 
 
 *' In matters of trade and commerce," said 
 Mr. Foster, " there is war." Therefore we 
 should treat our own colonies better than 
 foieign countries, so that when war came we 
 should have the strength and unity to defend 
 ourselves. 
 
 And here Mr. Foster quoted Lord Salisbury 
 who had said a little while before : 
 
 " We live in an age of a war of tariffs. . . . 
 Great Britain has deliberately stripped herself 
 of her armour and her weapons by which the 
 battle is to be fought. You cannot do busi- 
 ness in this world of evil and suffering on 
 those terms. If you fight you must fight 
 with the weapons with which those whom 
 you are contending against are fighting." 
 
 Then there was the question of food supply 
 in war : " Put a cordon around England for 
 twenty-four daj^s, and what will become of 
 her people ? " In a great war foreign powers 
 would keep their own food to themselves. 
 
 " The strategic food supply of Great Britain 
 is in her own colonies." 
 
 With them she would never be at war -, 
 between them and herself it was most easy
 
 A SYSTEM OF PREFERENCE 169 
 
 for her to keep continual communication. 
 Therefore it was good pohcy to stimulate 
 her colonies to become the supply centres 
 of food to Great Britain. 
 
 Such were the arguments used at the Im- 
 perial Conference of 1894 for a system of 
 preference within the Empire. But the op- 
 posing forces were again too strong ; they 
 had grown stronger in the intervening years. 
 Jan Hofmeyr feared for his South African 
 Customs Union. That Union united the Cape 
 and the Orange Free State, and he hoped 
 that the Transvaal and the great Northern 
 territory up to the Zambesi would soon be 
 brought into it. He was already tied to a 
 foreign Power, and could not without per- 
 mission of that Power vote for Imperial 
 unity. 
 
 As for England, lier foreign trade was 
 greater than her colonial trade. Imports 
 from the colonies and India were at that 
 time a little less than a quarter of the whole ; 
 and exports to those countries were a little 
 less than a third. The British Government 
 reversed the principle of Adam Smith ; they 
 regarded opulence as of more importance 
 than security, and they therefore decided to 
 do nothing. 
 
 The Conference appeared to have failed,
 
 170 A CONFLICT OF POLICY 
 
 save for its pious resolution ; but the 
 statesmen of the Dominions went forward 
 alone. 
 
 Preference ivithout Reciprocity. — Rhodes put 
 a Preference clause in the Constitution of 
 Rhodesia. " I thought it would be a wise 
 thing," he said to the shareholders in 1895, 
 " to put in the Constitution that the tariff 
 (on British goods) should not exceed the 
 present Cape tariff, which is a revenue and 
 not a protective tariff . . . this clause being 
 in our own charter, would govern the rest 
 of Africa, and therefore vou would have 
 Africa preserved to British goods as one of 
 your markets." 
 
 The British Government had refused to 
 accept this clause ; but he hoped it would 
 be saved. 
 
 " All these big questions, remember, come 
 from little things. If you carry that clause 
 in the Constitution of Matabeleland, you do 
 not know how it will spread, the basis being 
 that your goods shall not be shut out of the 
 markets of the world. That clause will 
 extend from Matabeleland to Mashonaland, 
 throughout Africa, and then, perhaps, Aus- 
 tralia and Canada may consider the question. 
 You will be retaining the market for your 
 goods. You have been actually offered this,
 
 THE GERMANS IN ENGLAND 171 
 
 but have refused it, because you did not 
 understand it." 
 
 Those who are curious in the history of 
 tariffs may care to know that Rhodes' simple 
 device had been used by the Germans in 
 England seven hundred years or so before. The 
 German merchants of the Hanseatic League 
 obtained from Henry the Tliird a charter 
 fixing their customs at the rate of the Old 
 Custom, the Antiqua Custuma, and this 
 roj^al charter was confirmed in every subse- 
 quent reign until the time of the Tudors. 
 As the customs rose witli the needs of the 
 Government, the Germans remained by virtue 
 of their charter, on what financiers call '' the 
 ground floor," so that they had an' advantage 
 in tlie English customs not onl}" over all 
 foreigners, but over Englishmen themselves. 
 
 But to return to these present times. In 
 1897 Canada gave British goods a preference 
 of one-eighth on her general tariff rates, 
 this reduction to be increased to one-fourth 
 in the following year. Canada intended this 
 reduced rate to apply only to Great Britain, 
 but Germany and Belgium claimed to share 
 in it under their British treaties, and the law 
 officers of the British Crown supp(jrted the 
 foreign view. On the ist August, 1898, this 
 reciprocal tariff was therefore repealed, and
 
 172 A CONFLICT OF POLICY 
 
 a new British preferential tariff put in its 
 place. This latter tariff gave the United 
 Kingdom and some of the British colonies a 
 preference of one-fourth of the general tariff 
 rates on all goods with certain specified 
 exceptions. In 1900 the preference was in- 
 creased to one-third, in other words 33 J per 
 cent. 
 
 Thus in 1897, when Joseph Chamberlain 
 called another Imperial Conference together, 
 the colonies had already begun to adopt that 
 preferential system which they had been 
 urging upon the British Government for 
 twenty years, and there was already a hint 
 of the conflict to follow. Germany opposed 
 this unifying movement in the British Em- 
 pire as we long before had opposed the unifying 
 movement in the German Empire. The 
 German Government had been in sharp 
 conflict with Cecil Rhodes in South Africa. 
 It had secured Damaraland, the country 
 which might form a convenient bridgehead 
 for an attack on Kimberley and the Rand. 
 It had sent its agent to Lobengula just too 
 late to secure the concession of Mashonaland. 
 On January 3rd, 1896, the German Emperor 
 sent his famous telegram to President Kruger. 
 The Australasian colonies and the Dominion 
 of Canada replied to that telegram by ranging
 
 A TANGLED WEB 173 
 
 themselves openly on the side of the mother 
 country. 
 
 We are not surprised, then, to find Chamber- 
 lain at the Conference drawing a parallel 
 between the Empire of Germany and the 
 British Empire. He reminded the colonial 
 statesmen that the Zollverein had united 
 the Empire of Germany. " It commenced," 
 he said, " entirely as a commercial conven- 
 tion, dealing in the first instance with the 
 trade of the Empire, it was rapidly extended 
 to include the whole trade of the Empire, 
 and it finally made possible and encouraged 
 the ultimate union of the Empire." He 
 could not but see, however, the difficulties 
 which confronted them if they tried to follow 
 the same course to the same end. The 
 colonies had now developed their own fiscal 
 systems. The German and Belgian treaties 
 stood in the way. Was the Conference pre- 
 pared to advise denunciation ? The British 
 Government had already given notice to 
 Germany of these treaties. The colonial 
 ministers " unanimously and earnestly recom- 
 mended the denunciation," but in the mean- 
 while they could do little or nothing. They 
 were in a tangled web of separate arrange- 
 ments which they would have to cut. 
 
 In 1902 the Conference met again. In the
 
 174 A CONFLICT OF POLICY 
 
 interval England had been down through the 
 deep waters of the South African War, 
 Germany had made its hatred and its hostility 
 visible to the whole world. There was a new 
 note in the deliberations. " Gentlemen," said 
 Chamberlain, " we do want your aid, we do 
 want your assistance in the administration 
 of the vast Empire which is yours as well as 
 ours. ' The weary Titan staggers under the 
 too vast orb of his fate.' We have borne the 
 burden for many years. We think it time 
 that our children should assist us to support 
 it, and whenever you make the request to 
 us, be very sure that we shall hasten gladly 
 to call you to our councils." The colonial 
 statesmen replied as before. Again their 
 main proposal was a preferential trade system 
 to unite the Empire. Canada was already 
 giving a preference of 33 J per cent. She was 
 ready to increase that preference. Australia 
 was willing to give preferential treatment 
 not yet defined. New Zealand offered a 
 general preference of 10 per cent, all round 
 on British manufactured goods and an in- 
 creased preference on selected articles on the 
 lines proposed by Canada. The Cape Colony 
 and Natal offered a preference of 25 per cent. 
 Chamberlain chose to stand or fall by the 
 proposals of his colonial ministers. The
 
 CANADA AND GERMANY 175 
 
 British Government had an opportunity of 
 giving Canada a return for its preference on 
 British manufactures by a rebate on the 
 shilHng duty on corn. The opportunity was 
 rejected in the Budget of 1903, and Chamber- 
 lain thereupon left the Cabinet to fight alone 
 for Imperial unity. 
 
 How far Germany took part in that fight 
 we have no means of knowing. I am told 
 that the German Emperor sent Chamberlain 
 a telegram wishing him success, and thereby 
 disarmed a statesman always generous and 
 simple-minded of his sharpest weapon. It is 
 certainly curious that Chamberlain in the 
 many speeches which he made on this subject 
 seldom or never touched on the chief argu- 
 ment for Imperial Preference, the growth of 
 the German economic and political system. 
 Germany singled out Canada for isolation and 
 attack. In retaliation for the Canadian 
 preference to British manufactures she refused 
 the most-favoured-nation treatment to Cana- 
 dian products. Canada replied by imposing 
 on German goods a surtax of one-third of the 
 general rate of duty, and Germany retired 
 from the field defeated. I need not enter 
 into the details of a struggle which is still in 
 the public mind. When the Colonial Prime 
 Ministers next conferred in London they met
 
 176 A CONFLICT OF POLICY 
 
 Mr. Asquith and his colleagues, all sworn to 
 oppose the Imperial policy. 
 
 The Conference of 1907 was in fact a conflict 
 in which the statesmen of the Dominions 
 took one side and the statesmen of the United 
 Kingdom the other. The one side made their 
 old proposals for an Imperial economic system, 
 founded on the principle of Preference. The 
 other side replied that the United Kingdom 
 must continue in its policy ot Free Trade. 
 
 The colonial case was based both upon 
 Security and upon Interest. 
 
 On the point of security, mutual preference 
 made for unity of interest ; unity of interest 
 made for Imperial organisation, and an Em- 
 pire organised was stronger than the parts of 
 the Empire taken separately. 
 
 " It makes the difference," said Mr. Deakin, 
 " whether j^ou are grains of sand or the same 
 grains compacted into the soHd rock." 
 
 And again : " Every possible increase in 
 co-operation marks a higher stage in civilisa- 
 tion, giving greater opportunities to the in- 
 dividual and greater strength to the nation." 
 
 Germany, Mr. Deakin went on to show, was 
 taking the British Empire in detail, and had 
 been attacking the trade of Australia. 
 
 Therefore they must unite. 
 
 " The power possessed by the British
 
 UNUSED WEAPONS 177 
 
 Empire over foreign nations by its possession 
 of a great market — a market to be opened or 
 closed to some extent or to any extent — is 
 little realised, but the most casual observer 
 must recognise the strength of the Empire's 
 position, which is certainly enormous, should 
 all its component parts, combining together, 
 use their power to meet the fiscal attacks of 
 foreign nations upon an}^ portion of the 
 Empire. It is a case of all for each and each 
 for all. . . ." 
 
 Mr. Deakin did not propose an aggressive 
 commercial policy but a policy of readiness 
 to use our powers over our own markets for 
 our own defence. 
 
 " We should not allow them to He aside 
 like rusty unused weapons, but to hand and 
 ready for use on occasion, employing them as 
 they have been employed by Germany and 
 the United States and other peoples, in order 
 to secure fair business — no more than fair 
 business." 
 
 So much for security. As to profit, the 
 Dominions knew that Germany and America 
 were still great markets of England, and 
 judged by totals might be more important ; 
 but these markets grew more insecure and 
 difficult by reason of the increasing strength 
 of the German and American economic
 
 178 A CONFLICT OF POLICY 
 
 systems. Tlie Dominions on the contrary 
 were expanding markets. They were in their 
 infancy and were bound to produce food and 
 raw materials far beyond their powers of 
 consumption and manufacture. They sold to 
 the mother country not manufactures but 
 food and raw materials, and where other 
 countries sought to keep oat British trade 
 they welcomed British trade and gave it a 
 preference over the trade of every other 
 country. 
 
 Their people were, man for man, far better 
 customers of England than foreign people, 
 as might be proved by figures, thus : 
 
 New Zealanders (1905) 
 South Africans (C.C.) 
 Australians „ 
 
 British Exports 
 purchased per head. 
 
 £ s. d. 
 • • 750 
 •• 450 
 .. 440 
 
 Canadians „ 
 
 220 
 
 Germans ,, 
 
 • • 13 5 
 
 Americans „ 
 
 ..059 
 
 Even if totals were taken Australia and 
 New Zealand bought British goods to the 
 value of £24,900,000 a year against £29,500,000 
 a year — the value of British goods bought by 
 Germany. 
 
 But if England were to increase the wealth 
 a>nd population of the Dominions by buying
 
 MR. ASOUITH REFUSES 179 
 
 from them the produce now bought from 
 foreign countries, the purchase of British 
 goods, under the preferential system, was 
 certain to increase enormously. 
 
 Such were the arguments in favour of 
 Imperial Preference. They failed. Upon the 
 other side Mr. Asquith admitted that Canadian 
 preference had been " beneficial " to British 
 commerce ; but contended that to give prefer- 
 ence in return would be a " flagrant and 
 undeniable departure from the very basis of 
 our principle of Free Trade." 
 
 The preferential S3^stcm, he said, " means 
 that we are to consider the question whether 
 we shall treat the foreigners and the colonies 
 as it were differently, and that we conceive 
 we are not able to do." 
 
 This made an end of any hope. Sir William 
 Lyne, the Australian Minister of Trade and 
 Customs sorrowfully admitted it. Mr. 
 Asquith 's speech was " alien to Britain's 
 colonies : it was treating the British colonies 
 on a par with foreign- nations." 
 
 He warned the British Government that 
 the situation was changing and that the 
 chance might not come again. Foreign 
 nations were gradually " sucking away the 
 trade and with it the employment and life's 
 blood of the people of the mother country."
 
 i8o A CONFLICT OF POLICY 
 
 With British trade British influence de- 
 cayed. He himself was strong for Britain by 
 ties of blood " because my father came from 
 Britain and because my grandfather came 
 from Britain." But a new generation was 
 coming in which the tie of blood was less 
 strong ; there was something else required to 
 supply its place " and nothing will do that 
 so well as closer unity in commerce." 
 
 Here we may say were counsels of wisdom 
 as of devotion ; but they were disregarded. 
 The door was " banged, barred and bolted" 
 in the face of our colonies. 
 
 One result of this refusal was that the 
 Canadian Government turned again to the 
 policy of reciprocity with the United States. 
 The majority of the people of Canada, however, 
 remained true to the ideal of an Imperial 
 system and reciprocity was defeated. We 
 may take it nevertheless as certain that the 
 system of preference upon one side only cannot 
 long continue. 
 
 As well expect one half of an arch to stand 
 without the other arch which should meet it 
 at the keystone. The cement of blood brother- 
 hood may hold together for a time the hanging 
 masonry ; but in the end it must fall of its 
 o\vn weight into the ocean over which it 
 stretches,
 
 CHAPTER VIII 
 
 THE PROCESS OF PENETRATION 
 
 Shipbuilding. — The British Empire had thus 
 no poUcy. The mother country pursued 
 wealth and cheapness without thought of 
 economic security. The dominions left to 
 themselves, were fain to protect their own 
 industries and build up their own economic 
 systems. The Crown Colonies and Depend- 
 encies were not only refused protection, but 
 were prevented from protecting themselves, 
 and lay like rich gardens without fence or 
 wall open to the plunderer. 
 
 This lack of unity, of protection and of 
 organisation in the British Empire gave the 
 German Empire its opportunity. For it is 
 with Empires as with the rest of nature : 
 weakness to defend encourages strength to 
 despoil. The organised German Empire de- 
 veloped a vast system of penetration and 
 exploitation, which burrowed into the vitals 
 of its host, and drew to itself strength and 
 
 i5ii N
 
 i82 THE PROCESS OF PENETRATION 
 
 nourishment through a thousand roots and 
 suckers. 
 
 This process not only exploited the wealth 
 of the British Empire, but weakened its power 
 of resistance and undermined its security. 
 
 It is worth while to examine this process of 
 exploitation in some detail, for we shall see 
 how the destruction and transfer of power 
 proceeds from one industry to another, until 
 an Empire which was strong and secure in 
 the possession of all essential industries is 
 reduced to a position of weakness and depend- 
 ence. 
 
 Whereas British agriculture at the begin- 
 ning of the nineteenth century was far more 
 productive than German, in 1914 German 
 agriculture was far more productive than 
 British. And this despite the fact that 
 German and especially Prussian soil is natur- 
 ally poorer than British soil. 
 
 The Germans nevertheless were not self- 
 supporting in food production. It is calcu- 
 lated that they produced 75 per cent, of their 
 needs ; but they had come to rely dangerously 
 upon Russia for the fodder — barley and other 
 grains — with which they stall-fed their cattle. 
 
 England on the other hand had thought- 
 lessly created two or even three centres of 
 high-power animal fat production over which
 
 A FOREIGN DEPENDENCE 183 
 
 she had no control in war — Holland, Denmark 
 and Sweden.* By relying upon these coun- 
 tries for bacon, eggs, butter and cheese she 
 created food factories on the borders of 
 Germany. They were all within either Ger- 
 man military or naval power, so that England 
 established systems of agriculture which 
 Germany was able to use. 
 
 For the main part of our food we depended 
 either upon foreign countries or our domin- 
 ions, and in both cases the supply depended 
 on sea carriage. 
 
 Our security in this respect of food rested 
 therefore upon our ships and our ship building. 
 Now we have seen that in the middle of the 
 nineteenth century our shipbuilders stole a 
 march upon Prussia. They turned from the 
 shipbuilding materials in which Prussia had 
 the advantage, namely timber, pitch, hemp, 
 flax and wax. to iron and steel, in which 
 England had at that time the advantage. 
 By their engineering skill and their use of 
 great capital they were able to produce also 
 
 * According to Dutch statistics : In 1913 Holland 
 exported 8,000 tons of butter to England and 19,000 tons 
 of butter to Germany ; in 1916 she exported 2,000 tons 
 to England and 31,0(^0 tons to Germany. In 1913 she 
 exported 19,000 tons of cheese to England and 15,500 
 tons to Germany ; in 1916 she exported 6,800 tons to 
 England and 76,400 to Germany.
 
 i84 THE PROCESS OF PENETRATION 
 
 ships of such size that the sliallow seas and 
 estuaries of North Germany were unable to 
 hold them. Thus the Germans had to re- 
 make their harbours and establish their iron 
 and steel industry before they could hope to 
 overtake us. 
 
 We had a long start, for the Germans had 
 to work from the foundation upwards. But 
 this much was plain to them, that if they 
 could overtake us in iron and steel they could 
 in the end overtake us also in shipbuilding. 
 
 We come then to consider the relative 
 strength of the British and German iron and 
 steel industries before the war. In the early 
 jmrt of the nineteenth century and down, 
 indeed, to 1886 Germany took iron and steel 
 from England, and our pig-iron was admitted 
 free of duty. In steel we had a great advan- 
 tage over Germany for this reason, that the 
 Bessemer process was suitable to our Cumber- 
 land ores but was unsuitable to the phosphorus 
 ores of Germany. The discovery of the basic 
 process by Thomas brought that advantage to 
 an end ; from 1890 onwards German basic 
 steel was in a position to compete with British 
 acid steel. To this struggle between British 
 and German steel the Germans applied their 
 national system of organisation, concentration 
 and State support.
 
 IRON AND STEEL 185 
 
 In 1880 Great Britain produced 77 million 
 tons of pig-iron and Germany 27 million 
 tons ; in 1913 Great Britain produced 10.3 
 million tons and German}^ 19 million tons. 
 
 By 1905 Germany had overtaken us in 
 steel production : in that year the United 
 Kingdom produced 9-6 million tons and 
 Germany 107 million tons of steel ; in 1913 
 England produced 10.26 million tons and 
 Germany 18.98 million tons. 
 
 The result of this decisive victory was that 
 England came to rest upon German steel in 
 her shipbuilding. And in the years before 
 the war this dependence had gone further : 
 not only did the British shipbuilder use 
 German steel ; he used German forgings and 
 castings. 
 
 Of the supply of steel forgings delivered 
 to shipbuilders and marine engineers in 1912- 
 1913 some 43 per cent, were foreign, the 
 greater part being German ; for mercantile 
 tonnage the foreign percentage was as high 
 as 60 per cent. Of steel castings about one- 
 quarter of the suppHes came from abroad — 
 from Germany and Austria ; and a smaller 
 proportion of miscellaneous steel forgings 
 for marine engineering and of plates ancl 
 sections was also supplied from abroad." 
 
 These arc the statements of the Depart-
 
 i86 THE PROCESS OF PENETRATION 
 
 mental Committee on Commercial and In- 
 dustrial policy after the war, which reported 
 in 1917. 
 
 Our shipbuilders were becoming the mere 
 assemblers of parts made in Germany. 
 
 It is not easy to imagine a less secure 
 foundation for an industry upon which the 
 , security of the nation depends. 
 
 And the Committee goes further : it states 
 that this dependence was the object of 
 German State policy. 
 
 " The Departmental Committee are satis- 
 fied that the prices were in many cases actually 
 ' dumped ' prices, and express the opinion 
 that in the case of rough machined forgings 
 and finished crank shafts the dumping was 
 governed by political considerations, the ob- 
 ject being to cripple Britain's forge masters 
 with a view to reducing the potential output 
 of guns and other war material." 
 
 Here, then, is evidence of a design so deep 
 against the security of this country, and so 
 nearly successful, that Englishmen who con- 
 sider it cannot but shudder as they look down 
 into the pit which was digged for their feet. 
 
 We were saved in this matter by the policy 
 of our Admiralty. For our Admiralty in- 
 sisted that steel forgings for ships of war must 
 be made by British forge masters of British
 
 AN ASSEMBLING YARD 187 
 
 steel. That stipulation forced our ship- 
 
 builders to maintain forges in spite of the 
 market ; but for these forges when war broke 
 out we might not have been able to fit a 
 propeller with a shaft. 
 
 The position, then, of our shipbuilding 
 industry was that it looked to Germany not 
 only for its materials but for its parts, and 
 our yards assembled what the Germans manu- 
 factuied. The Germans were in a position 
 to take over the assembling of their parts, 
 that is to say, our merchant shipbuilding 
 industry, as soon as they had the capital, the 
 yards, and the mechanics to spare. In the 
 meantime it was convenient to Germany 
 to maintain England in this state of false 
 security and real dependence. 
 
 Sea Carriage. — Shipping or sea carriage is 
 rather a trade than an industry and rests upon 
 shipbuilding and upon production. A nation 
 which cannot both build and load its own ships 
 cannot be secure of its shipping. 
 
 Holland fell because she depended upon 
 sea carriage for other nations. England built 
 up her sea carriage on the secure basis of her 
 own woollen manufacture. 
 
 Our ships were more expensively built, 
 armed and manned than the Hanseatic and 
 the Dutch ; but they were secure of their
 
 i88 THE PROCESS OF PENETRATION 
 
 cargoes. When Drake seized the Hanseatic 
 fleets the Germans had no refuge but verbal 
 protests, which sound thin and weak in the 
 ear of posterity. When Cromwell enforced 
 our Navigation Acts and France followed his 
 example, the Dutch were left with nothing 
 to put in their ships. Every bird took his 
 feather and they were stripped naked. 
 
 Huskisson neglected this true foundation 
 of shipping when he relaxed our navigation 
 laws, in order, he said, to make us the entre- 
 pot of the world. 
 
 England forgot more and more that her 
 shipping rested upon her manufactures until 
 before the war oui shipowners were ready 
 to assist the manufacturing power of rival 
 nations against their own. In this reckless 
 policy they sometimes combined with our 
 railways. The Germans, on the other hand, 
 followed the older English policy, and made 
 their shipping subsidiary to their manu- 
 factures. 
 
 The Committee which reported on the Iron 
 and Steel Trades in 1918 found that " British 
 industry has in the past been severely handi- 
 capped by the unfavourable shipping rates 
 charged upon material despatched for export 
 from the United Kingdom ports. These 
 rates are in many cases far in excess of those
 
 HELPING GERMAN TRADE 189 
 
 charged upon similar goods from continental 
 ports. Indeed, there is evidence that differ- 
 ence in freight charges alone determined the 
 success of the foreign and the failure of the 
 British manufactures in overseas competi- 
 tion." 
 
 The Committee gives many examples of this 
 policy. Thus the general rates from Hull to 
 Buenos Ayres were 17s. ; but from Hamburg 
 or Antwerp to Buenos Ayres lis. 2d. 
 
 " The Lancashire and Yorkshire Railway, 
 Great Central, and North-Eastern Railways 
 had their steamers running from the East 
 coast to Antwerp, and it was possible for 
 German exporters to obtain a freight of 3s. 6d. 
 from port to port ; but if British manufac- 
 turers required to ship from this country to 
 those ports, then they were charged 7s. 6d. 
 per ton." 
 
 Again, " The regular lines from the United 
 Kingdom to Mexico had a freight rate of 17s. 6d. 
 from British to Mexican ports, but the German 
 line from Antwerp to Mexico accepted freights 
 at 5s. a ton. The British line, to try to outdo 
 them, sent boats to Antwerp to compete for 
 business, and also accepted the same freight 
 from there, thus aiding the German efforts 
 to introduce German goods into Mexico, 
 whilst they still charged 17s. 6d. from British
 
 190 THE PROCESS OF PENETRATION 
 
 ports by boats that had already loaded freight 
 at 5s. a ton in Antwerp." 
 
 These examples show that our shipping 
 contrived to maintain itself on a precarious 
 international foundation. 
 
 The Germans based their growing shipping 
 on the secure foundation of production ; upon 
 this basis German shipping forced British 
 shipping to become also the servant of Ger- 
 man industry and to assist German industry 
 to kill British industry, and especially to kill 
 the British iron and steel industry upon which 
 our shipping w^as founded. 
 
 The result of this policy in war was that 
 although we had many ships we were weak 
 in the materials of shipbuilding, and in 
 the means of producing and shaping those 
 materials. 
 
 The advantage in shipping covered a dis- 
 advantage in material. We were forced to use 
 our ships and expend our credit in importing 
 from abroad what we should have produced at 
 home, and we stood at the courtesy of strangers 
 for what we should have been able to command 
 from our own people. 
 
 We were forced to depend upon the United 
 States for a great part of our steel and upon 
 Spain and even upon Sweden for our iron-ore. 
 
 Germany owned or controlled the Swedish
 
 GERMAN DYES 191 
 
 iron-mines, and in order to get a few crumbs 
 from this German table we were fain to relax 
 our blockade and make concessions both to 
 German and Swedisli trade. 
 
 Textiles. — In the textile industries both Ger- 
 man}- and England depended in the main upon 
 sea-carriage for their raw materials. The advan- 
 tage therefore laj^ or seemed to lie with Eng- 
 land. But either the influence of the German 
 economic system in England or the depend- 
 ence of England upon foreign nations robbed 
 England of this advantage. Germany was 
 allow'ed to import great stores both of wool 
 and cotton before these commodities were 
 made contraband. 
 
 Moreover, the British textile industries had 
 come to depend upon Germany for dyes. 
 
 Our ancient policy in this matter was 
 either to naturalise dye-plants, or where that 
 was impossible to grow our own dyes in our 
 own plantations. From the reign of Queen 
 Elizabeth downwards the State assisted our 
 textile industry to secure the naturalisation 
 or control of all known dyes. But in this 
 matter also Cheapness had prevailed over 
 Security. The Germans used their control 
 over potash, their cartel system, and their 
 concentration of capital to establish a mono- 
 poly in synthetic dyes,
 
 192 THE PROCESS OF PENETRATION 
 
 In 1913 we exported dyed textiles to the 
 value of £80,000,000 and to serve this trade 
 we imported 18,000 tons of dyes valued at 
 £1,890,000, of which at least 90 per cent, 
 came from Germany. We produced but one- 
 tenth of the dyes we used, and according to 
 the Departmental Committee's Report on the 
 Textile Trades, " even that percentage does 
 not convey an accurate idea of our dependence 
 upon Germany, for it has been ascertained 
 that a considerable part, probably a greater 
 part . . . was tolerated by the Germans upon 
 conditions which practicall}' made British 
 dye-manufacturers tributary dependents of 
 the gigantic German industry." 
 
 This double dependence upon shipping and 
 upon German dj^es made our textile trades 
 — and especially our cotton trade — a cause 
 rather of weakness than of strength in war.* 
 
 As our shipping wasted our cotton industry 
 was straitened both in raw materials and 
 in marketing. 
 
 Metals. — In the metal industry the Metall- 
 gesellschaf t bought the ores of Australia, carried 
 
 * The needles used in the manufacture of machine- 
 knitted cottons were practically all made in Germany 
 before the war, so that in this respect also our textile 
 industry was founded upon the industry of a possible 
 enemy.
 
 THE SMELTING OF ORES 193 
 
 those ores in their own steamers to German 
 refineries and sold the metals thus produced 
 in the London market. She thus reaped the 
 profits of the entire process of trade. Although 
 the British Empire produced the ores and 
 used the metals, the profits of refining the one 
 and selling the other went to Germany ; and 
 not only the mone}'^ profits but those less 
 tangible assets, the "exquisite knowledges" 
 and aptitudes and the national power which 
 were derived from the metal industry, went 
 also to Germany. 
 
 Here again we see the dependence of one 
 industry upon the other. Germany's chemi- 
 cal industry and Germany's metal industry 
 worked together to make her supreme in 
 munitions. 
 
 Before the war two million tons of spelter 
 were used every year in British industry. 
 Of this spelter only from 50,000 to 60,000 
 tons were produced in this country from 
 native or impoited ores. The balance came 
 chiefly from Germany which controlled and 
 refined the ores of the British Empire. 
 
 As a by-product in the manufacture of zinc 
 Germany obtained a cheap supply of sul- 
 phuric acid, which is essential to the manu- 
 facture of high explosives. 
 
 In glass, which is closely allied to the
 
 194 THE PROCESS OF PENETRATION 
 
 chemical industry, England at one time led 
 the world. Up to 1882, for example, British 
 manufacturers had a monopoly of the glass 
 bottle industry. From that time on, German 
 and Austrian glass forged ahead until by 1907 
 the Germans and Austrians had defeated us 
 in our own markets. And so in other forms 
 of glass ware : we were coming to rely more 
 and more upon the production of rivals and 
 possible enemies. 
 
 Thus, in the whole armoury of modern war, 
 as w^ell as in the necessities of existence, we 
 were unprepared. In food, in steel, in forg- 
 ings, in copper, in zinc, in lead, in nickel, in 
 glass, in chemicals and even, it is said, in 
 some of the actual finished weapons of war 
 we had come to rely upon a nation with 
 which we found ourselves at war, or upon 
 nations within its power. Even ores which 
 we produced within the British Empire we 
 were unable to refine into metals. 
 
 This dependence of England and the 
 British Empire upon Germany was not only 
 industrial but was also commercial, financial 
 and political. 
 
 In all these spheres the dependence was 
 still only partial when war interrupted the 
 process of exploitation ; if it had been com- 
 plete we could not have made war.
 
 INDIAN HIDES 195 
 
 Leather. — How far it had gone in some 
 branches of commerce we may gather trom one 
 or two further examples. The trade in the raw 
 products of the British Empire had once been 
 a monopoly of British trade. Before the war 
 Germany was exploiting one after another, 
 and Hamburg was becoming a greater entre- 
 pot for the tropical produce of the British 
 Empire than Liverpool, Glasgow or London. 
 
 In leather, an industry of hardly less im- 
 portance in war than in peace, England at 
 one time had a monopoly of the Imperial 
 production. If we take the case of India, 
 one of the great sources of hides, we fmd that 
 in 1872 the shipments to the United Kingdom 
 were seven million liides, to other countries 
 none. In 1913 the Continent, that is to say, 
 Germany and Austria, took 6,982,000 hides 
 and the United Kingdom only 17,500. Ger- 
 many and Austria, in other words, had taken 
 over almost our whole supply of raw material 
 from one part of the Empire. 
 
 The commerce in raw material is likely 
 to follow the industry in which that material 
 is used, and Germany captured the trade in 
 hides by protecting her leather industry. 
 
 In 1876-77 the German Government im- 
 posed an import duty on leather of 6 per 
 cent, ad valorem. In 1878 it was increased
 
 196 THE PROCESS OF PENETRATION 
 
 to 10 per cent, ad valorem, and in 1906 it 
 was still further nicreased to from i|d. to 
 2|d. per lb., according to the weight of the 
 tanned hides. While Germany was thus 
 shutting out British leather a German buying 
 organisation was established in India. In 
 1913 the firms composing this ring contained 
 thirty German or Austrian directors, partners, 
 or managers, and four naturalised or not 
 German. Of the European assistants there 
 were thirty-five German and Austrian and 
 only twelve naturalised or not German. In 
 addition to this organisation of German hide 
 merchants in Calcutta tliere were a dealers' 
 association in Hamburg and a tanners' asso- 
 ciation in Germany. 
 
 Sir Henry Ledgard, in his account of the 
 Indian hide trade, sa3^s that the dealers in 
 Hamburg worked with the ring in Calcutta, 
 and any outsider attempting to do business 
 found himself against the Calcutta associa- 
 tion or its counterpart in Hamburg. A 
 German line of steamers carried the hides direct 
 from India to German or Austrian ports. 
 This German monopoly, according to the same 
 authority, was financed by the British banks. 
 While England administered India, Germany 
 had the profit of this trade, and again it was 
 not merely profit, for Sir Henry Ledgard
 
 BURMA RICE 197 
 
 calculates that in the 3I years before the war 
 Germany obtained enough ox, cow, and 
 buffalo hides from India to make close on 
 fifty milhon army boots.* 
 
 Rice. — In Burma our British merchants 
 carried on a long and desperate struggle for the 
 control of the rice trade. By 1906-7 competi- 
 tion had so far reduced prices that the German 
 firm ot Krugef & Co. in Rangoon was almost 
 insolvent. This business was taken over by 
 tlie Reis und Handelsactien-gesellschaft of 
 Bremen and Hamburg, which was supported 
 by the whole strength of the German banks. 
 This great organisation bought and milled the 
 rice in Burma, glazed it in Germany and sold 
 it in England at prices so low that British 
 merchants found it difficult to compete. 
 Thereupon three British and one German- 
 British firm combined to found a rice-mill 
 in the free port of Hamburg, and the condi- 
 tions given by tlie port of Hamburg were so 
 far superior to those of Liverpool and London 
 that British merchants found it profitable 
 to mill their rice in Hamburg and re-export 
 it to England. By such means, the British 
 merchants maintained their position, but it is 
 none the less true that Germany in 1913 had 
 
 * See Sir Henry Ledgard's paper in the Journal of the 
 iioyal Society of Arls for March, 1918. 
 

 
 igS THE PROCESS OF PENETRATION 
 
 secured 40 per cent, of the rice production 
 of Burma, and that Hamburg was pohshing 
 a large part of the remainder for the British 
 market. 
 
 Margarine. — The remarkable case of mar- 
 garine might furnish us with another example 
 of this exploitation of the British Empire. 
 The copra, palm kernel, and other oil nuts 
 and seeds of our tropical colonies yield edible 
 fats which before the war were used by the 
 poor as a substitute for butter. As the 
 Danish and the Dutch supplied us with most 
 of our butter, so they also supplied us with 
 a great part of our margarine, although this 
 margarine was manufactured out of the raw 
 materials of the British Empire. Germany, 
 in order to secure her share of the industry, 
 put a tariff on foreign margarine, and the 
 Dutch makers were compelled to establish 
 factories in Germany. But as our market 
 remained free they took no steps to establish 
 works in Great Britain. The Danes, however, 
 were jealous of their butter industry, and 
 passed a law forbidding the margarine manu- 
 facturers to imitate the colour of butter. 
 This law acted in a curious way as a protective 
 measure for British industry. The English 
 liked to have their margarine coloured, and 
 the largest Danish margarine manufacturer
 
 MARGARINE 199 
 
 set up works in England so as to retain his 
 British customers. These works developed 
 in time into a British company, but in 1913 
 England only produced about half of the 
 margarine which she consumed. In 1913 we 
 were importing 1,460 tons of margarine per 
 week, of which 1,427 tons came from Holland. 
 The payments made to Holland for the 
 margarine we might have manufactured our- 
 selves were a part only of the loss. In the 
 manufacture of margarine, as in the cleaning 
 and polishing of rice and manufacture of beet 
 sugar, the by-products make a valuable food 
 for cattle. This cattle food also was a loss 
 to the British Empire and a gain to the rival 
 economic system of Germany, Vegetable fats 
 were in fact the raw materials of animal fats. 
 These cheap feeding stuffs gave the Dutch 
 and Danish farmers an advantage over the 
 British farmer in butter and cheese. It is 
 remarkable that when the war began Holland 
 sent to Germany the greater part of the butter 
 and cheese which she had formerly sent to 
 England, but her export of margarine to 
 England increased. We have seen that she 
 sent to England 8,000 tons of butter in 1913, 
 and only 2,200 tons in 1916, but whereas she 
 sent to England 6,200 tons of margarine in 
 1913 she sent 8,500 tons in 1916. Now here
 
 200 THE PROCESS OF PENETRATION 
 
 we have an illustration of the bearing of an 
 industry on national security, England had 
 neglected the manufacture of margarine in 
 peace and was therefore unable to provide 
 herself with margarine in war. She was 
 forced, therefore, to send increasing supplies 
 of raw material to Holland, which Holland 
 used partly to turn into margarine for the 
 service of England and partly to turn into 
 butter and cheese for the service of Germany. 
 
 We lost in security what we gained in 
 cheapness. It would have been a better 
 economic policy to have established our own 
 margarine industry before the war and to 
 have used the by-products of the industry 
 for the feeding of our own cattle so as to 
 produce our own butter and our own cheese. 
 We should then have been independent of 
 Dutch supplies and could have prevented 
 Holland from feeding Germany by denying 
 to her the raw materials necessary to her 
 agriculture. As it was, we were forced to 
 assist Holland to provision our enemy, and 
 were fain to content ourselves with the Dutch 
 margarine while Germany had the Dutch 
 butter. 
 
 S'ltgar. — If the strength of an empire de- 
 pends upon its economic self-sufhciency, the 
 history of our sugar industry is the history
 
 SUGAR 2ot 
 
 of a declining power. At the beginning of 
 the nineteenth century we suppUed ourselves 
 and Germany with our own sugar, grown in 
 our own plantations and refined in our own 
 refineries ; in the year before the war we 
 imported 1,800,000 tons, of which Germany 
 and Austria sent us about 1,000,000 tons, 
 mainly refined. We had long ceased to be 
 independent in the refining of sugar ; by 
 1896 we refined only 40 per cent, out of our 
 total consumption. 
 
 The cheap refined sugar which we had 
 from Germany we used in a whole series of 
 secondary industries which all rested upon 
 the supply of German sugar. 
 
 It might interest the political philosopher 
 to observe that these industries were centres 
 of pro-German policy in this country. 
 
 Commercial dependence carries with it 
 political dependence. 
 
 In sugar so nearly complete had the 
 dependence become that our Government 
 was reduced to a state of panic. It appointed 
 a Commission on which the members who 
 could be called experts in sugar were manu- 
 facturers who had depended on German beet- 
 sugar before the war, and a wholesale pro- 
 vision merchant who had bought it. This 
 Commission appointed as their buyer a person
 
 202 THE PROCESS OF PENETRATION 
 
 of German origin, whose firm had imported 
 chiefi}^ German sugar. 
 
 There was no immediate occasion for 
 alarm, as there were from three to four 
 months' supply in the country, and the world's 
 sugar crop was large. The position, had 
 England only realised it, was saved b}^ the 
 United States, which had protected the cane 
 sugar of Cuba. When German}^ was giving 
 a bounty on the export of beet sugar the 
 United States imposed a countervailing duty 
 which had the effect of increasing the Cuban 
 crop from 850,000 to 3,500,000 tons in the 
 space of fifteen years. 
 
 The Sugar Commission, however, was wholly 
 ignorant of cane sugar. It rushed into the 
 market and bought in a few days supplies 
 for six or eight months, much of which was 
 unsuitable for human consumption. One of 
 the imxmediate results of this panic policy 
 was that a Bremen firm which had been 
 buying Havana sugar largely before the war, 
 evidently in anticipation, retired to their 
 native land with £2,000,000 sterling of English 
 money. Tlie Commission bought so badly 
 that it was faced with enormous losses unless 
 it kept up t]ie market and it therefore closed 
 the English ports to the importation of sugar. 
 The British, public were kept short of sugar
 
 A GERMAN CONSPIRACY 203 
 
 by the Commission appointed to buy for 
 it. 
 
 Thus waste and ignorance in war paid for 
 cheapness and profusion in peace. It never 
 profits a nation to secure suppUes at the 
 expense of its own industries and its own 
 knowledge. 
 
 A government with a national policy might 
 have used the occasion to resurrect a national 
 industry ; but when the Commission dis- 
 covered the cane sugar of Cuba it was content 
 to shift tiie centre of our sugar supply from 
 Hamburg to Havana. 
 
 If the policy of the Commission had been 
 to preserve the goodwill of the German sugar 
 trade, it could hardly have acted otherwise. 
 And it is not surprising to learn that as late 
 as 1915 the German interests in Mincing Lane 
 made an organised attempt to secure the 
 post-war trade by a form of contract in which 
 the price ruling at Hamburg was to be the 
 basis. 
 
 Fortunately the British instinct of the 
 City of London revolted against the con- 
 spiracy, and the project was defeated.* That 
 
 * This revolt led to the formation in 1915 of the British 
 Empire Producers' Organisation, an attempt to organise 
 the industries of the Empire for their own security.
 
 204 THE PROCESS OF PENETRATION 
 
 it should have been attempted shows the 
 state to which our dependence upon Germany 
 had brought what was at one time among 
 the most stalwart of our industries. 
 
 A nation which depends rather upon inter- 
 national trade than on national industry 
 never cares to carry war to extremities. 
 
 Finance. — Our dependence upon Germany 
 in finance had results equally unfortunate. 
 Calculations vary ; but the lowest estimate 
 of our outstandings in Germany and Austria 
 at the outbreak of war is £100,000,000 sterling, 
 and I have heard the sum put very much 
 higher. This dependence reduced our finance 
 to such a condition that the Government was 
 forced to intervene and pledge the resources 
 of the nation to meet the liabilities incurred 
 by the banks. 
 
 Those banks which should have been a 
 source of strength to the State became a 
 source of weakness. 
 
 Our dependence on Germany was political 
 as well as financial, commercial, and industrial. 
 So far did this dependence go that, contrary 
 to English law and all the usages of war, 
 we allowed German financial and commercial 
 organisations to continue their activities both 
 in the*outer parts of the Empire and in its 
 capital ; in every operation of war this
 
 A NEGLECTED CALCULUS 205 
 
 dependence exercised its subtle and de- 
 moralising influence. 
 
 The Loss of Security. — Here, then, is a 
 calculus which has been neglected by our 
 political economists who make their reckoning 
 in terms of wealth. They argue that if one 
 nation can produce an article more cheaply 
 than another, it is to the advantage of that 
 nation to depend on the other in that respect. 
 
 But when that article is a weapon or 
 necessity of war, our inability to produce it 
 may be fatal, and our attempts to produce 
 it in war may be far more costly than the 
 difference between the price at which we 
 might have produced it if we had protected 
 the industry and the price at which we 
 bought it from the other nation. A small 
 saving in peace is lost in the vast waste, haste, 
 and extravagance of war. Here is a sum 
 which lies outside the mathematical compu- 
 tations of our classical School of Economics. 
 It may be reckoned in the lives of our young 
 men ; in the loss of our national wealth and 
 credit, and in the sufferings of those nations 
 which rested upon our protection. It may 
 be reckoned even in the loss of political in- 
 dependence and of national freedom, or in 
 the total destruction of the State and the 
 enslavement of its subjects.
 
 2o6 THE PROCESS OF PENETRATION 
 
 It is impossible to set down in figures this 
 tragical calculation, but we may at least 
 say that war discovers a new element — 
 a new dimension in economics, the dimension 
 of security.
 
 CONCLUSION 
 
 We are now arrived at a point when we 
 may bring our principles to a summary and 
 our history to a conchision. 
 
 The condusion of our history and the 
 summary of our principles may be put in a 
 sentence : 
 
 The chief interest of the nation is the 
 security of its industries. That is the rock 
 foundation on whicli our national policy must 
 rest if the nation itself is to be secure. 
 
 To some it may now seem a trite and 
 commonplace moral, yet before the war it 
 was either denied or neglected both by our 
 economists and our statesmen. 
 
 Before the war our economists neglected 
 this foundation of national security almost 
 altogether, and our statesmen when they did 
 not neglect it considered it upon narrow and 
 inadequate lines. They assured the nation 
 that security rested upon armaments — 
 upon the Navy and the Army. Some said 
 that we were secure if we built enough 
 
 207
 
 2o8 CONCLUSION 
 
 Dreadnoughts : others proposed National Ser- 
 vice as a kind of reinsurance. We have now 
 both, and we see that Army and Navy are but 
 the surface of the question. They do not go 
 down to the rock. For if there is one thing 
 certain it is that although we have a great 
 Army and a great Navy we are not secure as 
 a nation, either in the present or in the 
 future. 
 
 We see now that the safety both of the 
 Army and the Navy rests upon the national 
 industries, yet before the war no party in the 
 State ever told the nation that its industries 
 were necessary to its security. One party — 
 the governing party — put cheapness before 
 industry and was satisfied if an article could 
 be obtained at the lowest possible cost, no 
 matter whence it came. We see now that 
 this cheapness was a danger and a snare. We 
 had cheap bacon, butter and cheese ; but 
 they came from Denmark. Sweden and Hol- 
 land, which turned their backs upon us and 
 supplied German3^ We need not blame them. 
 We should rather blame our folly to depend 
 upon countries which lived under the shadow 
 and power of a possible enemy. We had 
 cheap sugar, and that sugar came from the 
 enemy itself. We had cheap steel, most of 
 which came from Germany. We built cheap
 
 CHEAPNESS AND SECURITY 209 
 
 ships to carry cheaply those provisions and 
 that steel ; but the ships were chiefly built 
 from plates and forgings made in Crermany. 
 We had clieap cloth and cotton, which we 
 made ourselves, but the dyes essential to 
 their manufacture we had from our possible 
 enemy. Glass, metals, magnetos, and many 
 of those chemicals essential to our security we 
 were content to take from Germany because 
 they were cheap and our Government assured 
 us that we were wise in so doing. 
 
 Another party in the State urged the 
 Government to adopt a protective tariff, and 
 this x)arty certainly came nearer to our con- 
 ception of a national policy. Yet this party 
 also argued less for security than for wealth 
 and cheapness, which it maintained, upon 
 uncertain and debatable ground, might be 
 better reached through Protection. It also 
 placed wealth and national well-being as the 
 end before the nation, and neglected to instruct 
 the nation in the true foundations of national 
 security. 
 
 A third party argued that the wealth of 
 the nation was unfairly distributed. If only, 
 it argued, the State controlled the means of 
 making wealth and doled it out in equal parts, 
 or if only the manual workers took all the 
 proceeds of their labour and shared it between
 
 210 CONCLUSION 
 
 them, we should have the ideal policy. Hera 
 again the end was wealth or abundance or 
 material happiness or comfort. Such was the 
 universal appeal — the ends which all set before 
 the nation. And none or few paused to 
 consider that cheapness, wealth and happiness 
 were snares and temptations, and might lead 
 either to destruction or to slavery if they were 
 not based upon the security of the nation. 
 
 While our statesmen neglected this main 
 end of national security, certain great inter- 
 ests — branches of our conmierce and industry 
 — ^worked to undermine it. We had whole 
 industries content to depend upon raw mate- 
 rials and partly manufactured articles produced 
 by foreign nations over which they had no 
 control ; we had merchants willing to import 
 foreign wares to undeisell our own ; we had 
 railways and shipping lines which carried the 
 goods of all nations indifferently, and even 
 entered into arrangements to give preference 
 to the wares of foreign nations over our own ; 
 we had bankers who collected our savings in 
 order to lend them to the support and increase 
 of a rival commerce and industry. All these 
 and other British interests which worked 
 against the national security, worked against 
 themselves. For in the last resort the exist- 
 ence of our banking, our commerce and our
 
 THE BETRAYAL 211 
 
 shipping depends upon the security of the 
 nation of which they are a part. When a 
 banker supports the industry of a rival 
 nation to the neglect ot his own he diminishes 
 that security on which his whole busniess 
 rests. In neglecting this consideration our 
 bankers failed not only as Englishmen but as 
 bankers. 
 
 Was this betrayal of our national security 
 the work of the interests or of the statesmen ? 
 That is a question difficult to answer. The 
 truth would seem to be that the most influ- 
 ential of our statesmen in the second quarter 
 of the nineteenth century felt themselves 
 strong enough to neglect national security and 
 to devote themselves to national profit. Our 
 national and especially our naval power had 
 destroyed all our rivals and opened to our 
 wares the markets of the w'hole world. The 
 only national obligation left to consider was 
 how to pay most quickly and most easily the 
 debt incurred in that operation. As we were 
 supreme in industry and commerce a free 
 trade in all markets was to our obvious and 
 immediate gain, and this was won by the 
 surrender of our security in agriculture and 
 shipping. For a time the policy was immensely 
 profitable. The gains could be seen and 
 felt : the dangers could only be discerned
 
 2?2 CONCLUSION 
 
 through a telescope. When these dangers 
 grew nearer the fatal policy was adopted of 
 conceding and surrendering position after 
 position, industry after industry, to rest less 
 and less upon our national and industrial 
 strength and independence and more and 
 more upon our commerce, our banking, and 
 a foreign policy of concessions tempered by 
 alliances. Our Navy remained, the only sur- 
 vival of our ancestral policy, the great and 
 shining exception to our general abandonment 
 of security for gain. 
 
 The fault was not of our statesmen alone 
 but of the interests on which those statesmen 
 depended. But as time went on the growth 
 of the German economic system introduced 
 a new factor into our afiairs. German indus- 
 try and commerce sent their roots and suckers 
 deeper and deeper into our national soil, until 
 it became difficult to distinguish the native 
 from the alien and hostile growth. This in- 
 vading power had its influence upon our 
 policy. How far it went we can only calculate 
 from the visible effects. If the secret accounts 
 of our political parties were published we 
 should probably be in a better position to 
 trace the means by which this influence was 
 exercised. 
 
 These are questions of detail and of history.
 
 THE ROCK FOUNDATION 213 
 
 The result at least is certain. Before the war 
 our national policy rested not on the rock of 
 industiial security but on the shifting sands 
 of international finance and commerce. We 
 were ceasing to be an independent economic 
 power and were becoming a mere annexe of 
 the German system. It is true that we had 
 great apparent wealth ; but it was at the cost 
 of our national security and of our national 
 independence. 
 
 Of this security, it cannot be too often 
 repeated, industries are the root or the rock. 
 It is not merely because they give us wealth 
 that we should cherish -them : we might 
 possibly make a greater profit by jobbing on 
 the Stock Exchanges of the world, by banking, 
 and by trading with the goods of other nations. 
 But these profits would not give us security : 
 there lies the chief value of our industries. If 
 we produce our own food, make our own 
 ships and weapons out of our own steel, 
 weave our own cloth out of our own wool, 
 produce and make for ourselves all essentials 
 of peace and war, then and then only can we 
 feel reasonably secure — and not only ourselves 
 but our children who come after us. But 
 when we say " our own " what do we mean 
 by the term ? The foresight of our ancestors 
 provided that " our own " should include all 
 
 p
 
 214 CONCLUSION 
 
 climates and all commodities. " Our own " 
 means not only England or the United King- 
 dom, but the British Empire. We have there 
 the means of security : the security of one is 
 the security of all. 
 
 We found our policy upon production. And 
 industry is more to a nation than treasures of 
 gold and .silver. For by its industries a nation 
 is secure : without industries it is at the 
 mercy of those other nations which possess 
 industries. 
 
 Every industry is a piece of armour covering 
 some part of the national body. If we throw 
 away an industry in the pursuit of wealth or 
 cheapness, we throw away a piece of our 
 armour. If, for example, we abandon our 
 steel industry because we can get cheaper 
 steel abroad, we are powerless to resist the 
 nation which produces that steel when it 
 chooses to quarrel with us or to claim some 
 of our possessions. So it is in a minor or 
 major degree with every other industry. To 
 the extent that we depend upon another 
 nation for a necessity of life, to that extent 
 we put ourselves at the mercy of that other 
 nation. Even if we were rich in several 
 industries, like shipping or cotton, we might 
 be enslaved, stripped bare and destroyed by the 
 lack 01 other industries vital to our existence.
 
 NO WEALTH WITHOUT INDUSTRY 215 
 
 Our industries, then, are the rock founda- 
 tion of our policy, not only for the wealth 
 but for the security they give us. But if we 
 take the lower point of view and consider only 
 wealth, that wealth can only be secured by 
 production. For a nation which gains profit 
 by dealing in the wares of other nations is 
 like a bird in borrowed plumage. Let every 
 fowl take his feather and it is stripped naked. 
 If the producing countries determine to 
 market their wares, or if war comes to inter- 
 rupt the course of trade, the nation of middle- 
 men is helpless. All the hoarded money of 
 international trade will run off that country 
 as water runs off the roof of a house. So it 
 happened with Holland, which neglected its 
 industries for international commerce, and 
 lived by marketing tlie woollens of England, 
 the silks, hnens and cambrics of France, and 
 the spices and cottons of the East. There 
 came a time when France and England, which 
 had founded their strength on production, 
 extended their energies to the trade which 
 rested on that production, and Holland 
 fell. 
 
 So with Spain, which neglected its indus- 
 tries for the gold of the Indies. Although it 
 became for a time the " fountain of treasure," 
 the money flowed away faster than it came,
 
 2i6 CONCLUSION 
 
 to buy arms, clothing and ships, until in the 
 end Spain became the bloody arena on which 
 was fought the battle between France and 
 England for the succession of its wealth. 
 
 As man lives by the sweat of his brow, so 
 a nation lives by its industries. It must work 
 or fall. Nature offers no security for nations 
 which live by the industries of others. 
 
 It was clear that we had forgotten this 
 governing principle of national policy when 
 war overtook us, for we were willing to barter 
 away any of our industries for an immediate 
 gain in money. In the days before the war 
 a farthing a pound might mean the difference 
 between the life and death of one of our 
 industries. What did a farthing a pound 
 matter during war, when an industry was 
 seen to involve the very existence of the 
 nation ? 
 
 That policy or lack of polic}^ brought us to 
 the edge of the abyss. So far we hav^e escaped 
 destruction only at a ruinous cost and by the 
 assistance of Allies. But unless we change 
 our policy and found our security upon our 
 industries not all the Allies in the world, nor 
 any League of Nations, nor even the most 
 complete naval and military victory, can save 
 us from ultimate destruction. 
 
 Let us get back, then, to the first principles
 
 FIRST PRINCIPLES 217 
 
 of a national policy. What are these prin- 
 ciples ? 
 
 National securit}' rests on economic 
 security. 
 
 Economic security means tlie production of 
 all essentials of life in peace and war. 
 
 This production depends upon the national 
 industries. 
 
 Therefore : 
 
 Tfie welfare of its industries are the chief 
 interest of the nation. 
 
 Our policy therefore is founded on industry 
 and supports all other interests in so far as 
 the}' support industry. 
 
 Commerce is beneficial to a nation when it 
 supports the industries of that nation. 
 
 Commerce is injurious to a nation when it 
 injures those industries. 
 
 The importation of raw materials is bene- 
 ficial. 
 
 The exportation of manufactured goods is 
 beneficial. 
 
 The importation of manufactured goods is 
 injurious if they can be produced by our 
 industries. 
 
 The exportation of raw^ materials is in- 
 jurious if they can be used in our industries. 
 
 So we may say of shipping : it is like 
 commerce — of benefit when it supports our
 
 2i8 CONCLUSION 
 
 industries, injurious when it supports in- 
 dustries which injure our own. 
 
 And so, also, of banking. The banker 
 serves the national interest when he supports 
 the national industries ; when he exports his 
 capital in the service of rival industries he 
 diminishes the national security. 
 
 An interest may profit from the injury of 
 the nation to which it belongs, as a parasite 
 may thrive upon the host in which it lives 
 and which it destroys. Such interests were 
 those connected with the finance, carriage, 
 and importation of German manufactures. 
 They lived by a free entrance into the country 
 whose industries they were injuring. They 
 had, therefore, the most powerful of all 
 motives to maintain the policy of Free 
 Trade. 
 
 The policy of Free Trade was begun as a 
 means of opening German markets to British 
 goods when the British economic system was 
 stronger than the German ; it was continued 
 as a means of opening the British market to 
 German goods when the German economic 
 system became stronger than the British. 
 
 It is one of the fictions of democracy that 
 a Government represents numbers : in fact, 
 it represents interests. A political party 
 represents the interests of those who supply
 
 PRINCIPLE AND INTEREST 219 
 
 it with the means to Hve. The Liberal Party, 
 before the war, was largely maintained by 
 the interests which thrived on the injury of 
 British industries. The opinions of what is 
 called the Free Trade party are not likely to 
 change, for only exceptional men change 
 opinions on which their livelihood depends. 
 
 The Free Trade party has grown weaker 
 in the war not because its opinions have 
 changed but because its means have dimin- 
 ished. 
 
 If the Germans were again to become stiong 
 in British commerce the Free Trade party 
 would again become strong in British politics 
 A political party is the expression of an 
 economic force. 
 
 If the Americans take the place of the 
 Germans in our markets, these arguments 
 apply to them also. 
 
 A nation is likely to be secure and fortu- 
 nate when its government represents its 
 interests. It is likely to be insecure and 
 unfortunate when its government represents 
 a rival economic system, or interests which 
 depend upon that system. 
 
 Organisation means power no less in a 
 popular than in any other form of govern- 
 ment, and we may suppose that the power ot 
 the German and pro- German interest in
 
 220 CONCLUSION 
 
 British politics was derived from the organi- 
 sation of German industry, commerce, and 
 finance. 
 
 The Germans had maintained the industrial 
 and commercial oiganisations which the 
 British had abandoned. Those organisations 
 they used to influence national policy, both at 
 home and abroad, as we had used them when 
 the British economic system was making its 
 place in the world. 
 
 If we are now to regain a national policy 
 founded in the security of our industries they 
 must again organise, and work for national 
 ends. Their object should be to secure a 
 Parliament and a Government faithful to 
 their interests. The Government of the coun- 
 try should again become — what it has long 
 ceased to be — the expression of the sum of 
 its economy. 
 
 To that end, not only should every in- 
 dustry organise, but all should combine in a 
 central organisation which might enable them 
 to support their common interest with a 
 common effort. 
 
 Hitherto the enemies of our industries have 
 worked to divide every industry against itself 
 and one industry against another. 
 
 They have made the conflicting interests of 
 master and man as to wages and hours seem
 
 LABOUR AND CAPITAL 221 
 
 more important than the common interest of 
 existence which should unite the industry as 
 a whole. 
 
 For the whole is greater than the part. If 
 the industry itself is injured, masters and 
 workmen both suffer. 
 
 If the industry is ^destroyed, masters and 
 workmen are both left without employment. 
 
 Whereas, if the industry is secure, the 
 minor differences of wages and hours may be 
 adjusted. 
 
 And so with the industries themselves : 
 one industry may have interests which con- 
 flict with another : wool may have interests 
 which conflict with cotton, cotton with agri- 
 culture, and so forth ; but the interest which 
 unites them is the major interest, for it is 
 nothing less than the interest of a common 
 existence. 
 
 If the industries of a country are divided 
 one against another, or if the national com- 
 merce works against the national industry, 
 the result must be weakness and danger. 
 
 An interest may thrive upon the injury of a 
 nation of which it is, or seems to be, a part, as 
 a parasite thrives upon the host in which it 
 lives ; and it may even come about that 
 these injurious interests may influence State 
 policy out of its true bias in the safety of
 
 222 CONCLUSION 
 
 the nation. History yields examples not a 
 few of governments which have secretly 
 put themselves at the service of alien in- 
 terests. 
 
 There is a suspicion widely entertained 
 among our people that certain branches of 
 shipping and finance connected with the 
 German economic system influenced our 
 national policy to the injury of our interests 
 and, therefore, of our security. These sus- 
 picions may be grounded in nothing better 
 than coincidence. Two German financiers 
 come to England. They throw themselves 
 with a generous enthusiasm into our public 
 life : one becomes the Maecenas of the Liberal, 
 the other of the Unionist party, and honours 
 are showered upon both. Their interest in 
 our affairs may be due to their native altruism, 
 but as they retain at least some of their 
 German connections, it is a little difficult to 
 understand why their charity did not begin, 
 and end, at home. The cynicism derived 
 from experience of politics suggests other 
 explanations, and it is at least certain that 
 our secret party fund system offers the easiest 
 and safest means for corruption. 
 
 It would be dangerous to be dogmatic on 
 this subject ; but we may say that the gain 
 to Germany of an open market in England
 
 ORGANISATION 223 
 
 might tempt a more scrupulous Power to 
 tamper with our institutions. 
 
 If the Germans have succeeded in this, as 
 in other matters, thej^ have succeeded by 
 organising upon national Hnes and by follow- 
 ing a national policy. 
 
 It is safe also to predict that it America 
 takes the place of Germany in our commerce, 
 Americans will take the place of Germans in 
 our politics. 
 
 Our organised trades split up into mdi- 
 viduals when Waterloo left us without enemies, 
 or even rivals, in sight. That individualism 
 was not, as some now think, part of the 
 British character. On the contrary, the 
 English had alwaj^s traded in companies — a 
 system which Bacon took to be native to our 
 genius. Our great trading companies, joint 
 stock and regulated, and our industrial and 
 commercial guilds, out of which they de- 
 veloped, had time out of mind conducted the 
 trade and moulded the national polic}^ of 
 England. 
 
 The policy of Elizabeth, of Cromwell, and 
 of Chatham sprang from the closest touch 
 between those great statesmen and the cor- 
 porations wJiich then conducted our export 
 trade. 
 
 But as those corporations broke up into
 
 224 CONCLUSION 
 
 individuals with victory over our rivals, our 
 economic system was left without a national 
 polic}' or any organised defence to meet the 
 rise of the German economic power. 
 
 The Germans, on their side, encouraged and 
 enforced a national economic organisation, 
 which there is reason to suppose they had 
 adapted from our practice of the eighteenth 
 century, as in the fifteenth century our 
 Mercliant Adventurers had improved upon 
 the methods of the Hanseatic League. 
 
 It is interesting, however, to note that as 
 the national dangers became manifest our 
 merchants and our manufacturers began to 
 turn back to their ancient and disused 
 methods of organisation upon national lines 
 for national purposes. 
 
 A great meeting of the Association ol 
 Chambers of Commerce adopted the Norwich 
 Resolutions, which laid it down as a principle 
 that our national policy must be based upon 
 its true foundation in the production of our 
 own soil and industries. These resolutions 
 formed the basis of the more famous Paris 
 Resolutions which were adopted by the Allied 
 Governments, our own among them, and 
 formed for the British Government a definite 
 departure, at least in principle, from the 
 doctrines of Free Trade These resolutions
 
 THE TIMIDITY OF INDUSTRY 225 
 
 have, however, been vetoed by President 
 Wilson. 
 
 Our Cliambers of Commerce are a cumbrous 
 and unwieldy organisation, instituted upon 
 no definite economic principles. They admit 
 to membership the foreigner and the agent 
 of foreign manufacturers, and are thus ill- 
 constituted to fight the battle for a national 
 polic}" founded on production. 
 
 In 1 915 the National Union of Manu- 
 facturers was founded with the general idea 
 of securing a national polic}' more favourable 
 to the manufacturing interest. About the 
 same time the Federation of British Industries 
 was formed by a group of about a hundred of 
 the great manufacturers, chiefly those con- 
 cerned hi the making of munitions. Of their 
 general views on national policy there is no 
 doubt : as manufacturers they desire the State 
 to support the national industries by all means 
 in its power ; but their situation produced in 
 them a certain timidity, and they have been 
 chiefly concerned with the immediate dangers 
 of official interference and control. They set 
 themselves, with a touching timidity and 
 deference, to moderate the more calamitous 
 eccentricities of the Ministry of Munitions ; 
 so far they have had neither leisure nor free- 
 dom to raise their eyes to the wider issues of
 
 226 CONCLUSION 
 
 national policy. When the Federation has * 
 the courage of its opinions it will become the 
 greatest force for good in our industrial 
 system and our political life, for the interests 
 of its members coincide with the security of 
 the nation. 
 
 A similar conception took shape in the 
 British Empire Producers' Organisation, which 
 began in 1915 as a protest against the at- 
 tempt by the German interest in Mincing 
 Lane to bind the British market to German 
 beet sugar after the war. 
 
 Associations of producers of sugar in all 
 parts of the Empire met in London in the 
 early spring of igi6, and bound themselves 
 together in the defence of their industry. 
 As one industry alone could not hope to 
 influence national policy, co-operation with 
 other industries naturally suggested itself, and 
 now the British Empire Producers' Organisa- 
 tion is a federation of many industries in 
 England and in the Dominions, all bound 
 together by the general interest. 
 
 The first object of their policy bears so 
 closely on the subject of this book that I 
 must venture to quote it : "To make the 
 Empire self-supporting in all essential in- 
 dustries." 
 
 Here we get to the heart of the matter.
 
 NEED FOR COMBINATION 227 
 
 and to this end : " the Organisation advo- 
 cates the federation of producing and manu- 
 facturing associations throughout the Empire 
 in this Organisation." 
 
 Thus we see in various directions the 
 symptoms of a national movement that is 
 both old and new, a movement of the in- 
 dustries of the Britisli Empire to direct the 
 Imperial policy. 
 
 Such a direction, if it might be obtained, 
 offers the best guarantee of a government 
 faithful to the national interest. For the chief 
 interest of the nation is its industries. 
 
 The security of our industries implies the 
 security of all concerned in those industries 
 and the security of the nation. 
 
 But if that end is to be reached our in- 
 dustries must be organised upon national 
 lines, and Parliament must no longer consist 
 of the servants of the political parties, but 
 the representatives of our industries. 
 
 Such an end can only be achieved if our 
 industries organise themselves, masters and 
 men together, as industries, and combine 
 upon a common platform of industrial security. 
 
 The first necessity of such a concordat is 
 that the masters and men should recognise 
 their common interest in the security of their 
 industry. This common interest, although
 
 228 CONCLUSION 
 
 generalh^ ignored, is when it is challenged, 
 seen to be of far greater moment than the 
 differences which divide them. Differences 
 concern a division of the means of life ; the 
 common interest is the means of life itself. 
 
 The second necessity is an miderstanding 
 between agriculture and the other great 
 industries of the nation. 
 
 The concordat would include shipping when 
 it is faithful to the interest of the nation, 
 for a large mercantile marine is and always 
 will be essential to the existence of the Empire. 
 
 It would encourage commerce when it is 
 faithful to the interest of the nation. The 
 elimination of the merchant is neither possible 
 nor desirable. The merchant as " the steward 
 of the nation's stock " has a great function in 
 the State. It is only when he becomes the 
 steward of a rival nation's stock that he is 
 dangerous to the commonweal. 
 
 It would include banking when it is faithful 
 to our policy of economic security. All 
 bankers who realise that national security 
 is the foundation of banking, and that 
 national security depends upon production 
 must support such a policy. 
 
 A party founded upon these lines could 
 offer to the working manhood of the State 
 security of employment.
 
 A NATIONAL PARTY 229 
 
 As man lives by work, security of employ- 
 ment is what honest people most value. 
 
 They value also opportunity for their 
 children, and that opportunity is given by 
 the security of the national industry. 
 
 Education has become too often the enemy 
 ol industry ; it must again become its ally. 
 
 The true ideal of a national education is 
 the better service of the industries by which 
 the nation lives. 
 
 Better service means greater reward, and 
 our children should have the opportunity of 
 offering this better service and obtaining this 
 greater reward. 
 
 A national party founded upon industry 
 would have a national inspiration, a national 
 ideal. They would insist that the fruits of 
 British industry went to the British people ; 
 they would oppose the free importation of 
 foreign subjects as much as the free im- 
 portation of foreign wares ; they would 
 recognise British nationality as a birthright 
 which was no longer to be sold for a licensing 
 fee, and they would admit aliens only to 
 teach us those arts and crafts of which our 
 people were ignorant. 
 
 Such a party built upon such foundations 
 and maintaining such principles might renew 
 the strength and establish the security of the
 
 230 ' CONCLUSION 
 
 British Empire. It might cleanse the pol- 
 luted fountain of power and honour ; it 
 might make an end of political caucus, 
 secret party funds and the other engines 
 for the corruption of our national policy. 
 It might drive the money-changers out of 
 the temple and make the new England like 
 the old, strong in its national spirit and 
 faithful to its national cause. 
 
 Here, then, is our national policy. It rests 
 on the principle that the security of the 
 State rests upon thesecuiity of its industries, 
 and it proposes therefore that the State 
 should be the protector of the industries, and 
 their expression in terms of national policy. 
 The means of security will be a matter for 
 the industries themselves to settle. They 
 will not be so foolish as to build a Chinese wall 
 round the British Empire. They will pro- 
 pose to trade with the whole world, but 
 upon this basis, that we are masters in our 
 own house. 
 
 Here surely is a policy to rally and inspire 
 the manhood of this great ancient and valiant 
 nation. What is opposed to it ? There is 
 opposed to it the International ideal, the 
 policy of the League of Nations. That policy 
 is to abandon our sovereignty or the main 
 parts of our sovereignty and to trust our
 
 AN ENGLISH IDEAL • 231 
 
 securitj^ to the unknown and shifting poUtics 
 of an international Council. It is, in fact to 
 place our interests, our affairs, our life itself 
 under the control of other nations. Such in 
 plain English is the ideal of policy now being 
 plausibl}^ offered to a nation of free men, 
 which once claimed and achieved the mastery 
 of the world. If they are to survive they will 
 reject that degrading proposal, and turn to 
 the old and true national ideals of indepen- 
 dence and security. 
 
 The End
 
 INDEX 
 
 Admiralty, insistence on 
 British steel forgings, 
 186-7. 
 
 Agriculture, exaggerated 
 opinion of, by French 
 economists, 22 ; v. manu- 
 factures, 24-25. 
 
 Aliens, presence of, weakens 
 nation, 8. 
 
 Allgemeine Elektricitats 
 Gesellschaft, 141 ; forma- 
 tion of, 131 ; and Buenos 
 Ayres tramway system, 
 142 ; ramifications of, 
 142-3. 
 
 Allgemeine Zeitung, 81. 
 
 Alsace-Lorraine, 98. 
 
 Altona, 81. 
 
 America, see United States. 
 
 American Metal Co., 145. 
 
 Amsterdam, 62- 
 
 Amsterdamsche Bank, 137. 
 
 Antwerp, 32, 59, 6^ ; port 
 of ZoUverein, 81-2. 
 
 Argentine, German banks 
 in, 137. 
 
 Arkwright, Richard, 2>7- 
 
 Army, British, 6, 208. 
 
 Asquith, Rt. Hon. Herbert 
 Henry, M.P., 176 ; speech 
 to Imperial Conference, 
 1907, 179. 
 
 Association of Chambei^s of 
 Commerce, adoption of 
 Norwich Resolutions, 224. 
 
 Austria, 106 ; war with 
 Germany, 97, 102. 
 
 Australia, 152 ; feeling 
 
 against Free Trade, 160 ; 
 offer of subsidy for naval 
 defence, 165 ; willing to 
 give preference on British 
 goods, 174 ; trade at- 
 tacked by Germany, 176 ; 
 purchases of British goods 
 per head, 178 ; German 
 control of metals, 193. 
 
 Australian Metal Company, 
 147. 
 
 Bacon, Sir Francis, 59, 154, 
 223; "Of Seditions and 
 Troubles," 20 note. 
 
 Bagehot, Walter, 55-7 ; 
 "Lombard Street," 123-4. 
 
 Baltic, 42, 80 ; closing of, 
 by Germany, 9, 28 ; 
 fisheries, 45 ; English 
 driven from, by Germans, 
 46 ; production of ship- 
 ping materials, 83. 
 
 Banca Commerciale Itali- 
 ana, 137, 138. 
 
 Bank of England, establish- 
 ment of, 62 ; loans to 
 merchants, 62,. 
 
 Bank Internationale de 
 Bruxelles, foundation of, 
 
 Beer, George Louis, " British 
 Colonial Policy," 150, 
 
 152. 
 Beer, Sondheimer & Com- 
 pany, 146-7. 
 
 232
 
 INDEX 
 
 233 
 
 Belgium, 99 ; German 
 treaty with, 1844, 81 ; 
 British treaty with, 166 ; 
 claim to share in 
 Canadian preference, 
 
 171. 
 
 Bell's Comet, 83. 
 
 Berlin, British warehouses 
 closed, 1840, 87. 
 
 Berliner Handelgesellschaft, 
 
 145- 
 Bergen, English colony in, 
 
 46. 50. 
 
 Bessemer process, 184. 
 
 Bismarck, Prince von, 1 10 ; 
 as Free Trader, 96-7 ; 
 commercial treaty with 
 France, 97, 102 ; adop- 
 tion of Protection, 10 1-3, 
 108 ; on industrial or- 
 ganisation, 108-9 ; on 
 agriculture, 120 note. 
 
 Blockade, 2y, 191. 
 
 Bolshevism, remedy for, 20 
 note. 
 
 Bowring, Sir John, 90-1, 
 108 ; report on Germany, 
 1 840, 26 ; report on ZoU- 
 verein, 87. 
 
 Brass, production under 
 Elizabeth, 34, 36. 
 
 Bremen, ^y. 
 
 Brentano, Lorenz, German 
 economist, 70 note. 
 
 Bright, John, 152-3. 
 
 British Empire Producers' 
 Organisation, formation 
 of, 303 note, 226-7. 
 
 Bruges, 30, 32. 
 
 Brunswick, 68, 86. 
 
 Burg und Metallbank, 
 Frankfort, 145. 
 
 Buenos Ayres, tramway 
 system, 142-3. 
 
 Burgundy, 36. 
 Burma, struggle for control 
 of rice tra!de, 197. 
 
 Calais, English cloth mar- 
 ket, 59. 
 
 Calcutta, German hide-buy- 
 ing ring in, 196. 
 
 Canada, 48 ; forests pro- 
 tected, 105 ; suffering in, 
 caused by English Free 
 Trade policy, 153 ; Reci- 
 procity Treaty with 
 United States, 157-8 ; 
 national tariff established, 
 158 ; lapse of Reciprocity 
 Treaty with United 
 States, 165 ; petition 
 against British tariff 
 treaties, 166 ; Preference 
 to British goods, 171-2, 
 
 174 ; Preference on corn 
 refused by England, 175 ; 
 Germany tariff war on, 
 
 175 ; purchases of British 
 goods per head, 178 ; 
 new movement for reci- 
 procity with United 
 States, 180. 
 
 Canterbury, cradle of 
 English weaving, 41. 
 
 Cape Colony, suffering 
 caused by England's Free 
 Trade policy, 153-4 ; ruin 
 of wine trade with Eng- 
 land, 154-5 ; Imperial 
 customs tariff suggested, 
 161 ; offer of Preference 
 on British goods, 174 ; 
 purchase of British goods 
 per head, 178. 
 
 Carleill, Captain Christopher 
 50.
 
 234 
 
 INDEX 
 
 Cartel system, 132, 191 ; in 
 sugar industry, 118; de- 
 finition of, 128 ; forms of, 
 129 ; modifications of, 
 144. 
 
 Cattle food, 199. 
 
 Chambers of Commerce, 
 225. 
 
 Chamberlain, Rt. Hon. 
 Joseph, 172 ; speeches at 
 Imperial Conferences, i ti- 
 4 ; telegram from German 
 Emperor, 175 ; left Cabi- 
 net, 175. 
 
 Charles I., King of England, 
 61. 
 
 Charles II., King of Eng- 
 land, 62. 
 
 Chili, German banks in, 137. 
 
 Choiseul-Amboise, Etienne 
 Fran90is, Due de, 53. 
 
 China, German exploita- 
 tion, 139. 
 
 Cloth and cloth trade, 
 Flemish competition, 32 ; 
 development under Eliza- 
 beth, 2)1. 
 
 Clouston, " Letters from 
 Germany," 78. 
 
 Cobden, Richard, 97 ; on 
 Prussian tariffs, 88-9 ; on 
 the Colonies, 112, 153; 
 abolition of Colonial 
 Preference, 155. 
 
 Cobden Club, 99 ; proposal 
 to make Bismarck a mem- 
 ber, 97. 
 
 Cobden Treaty, 95. 
 
 Cohen, Philipp Abraham, of 
 Frankfort, 145. 
 
 Co-operation in American 
 Export Trade, Federal 
 Trade Commissioner's Re- 
 port on, 142, 146. 
 
 Corn, sliding scale of duties 
 on, 24, 104-5 i importa- 
 tion from Prussia, 71 ; 
 decline in British pro- 
 duction, 115. 
 
 Corn Laws, abolition of, 89, 
 
 IIO-I. 
 
 Cornwall, tin mines leased to 
 Germany, 35. 
 
 Cotton trade, 192. 
 
 Courts Merchant, 31. 
 
 Cromwell, Oliver, i2» 61 ; 
 Navigation Acts of, 48, 
 71, 188; policy of, 
 223. 
 
 Cuba, sugar industry pro- 
 tected by United States, 
 202 ; English sugar sup- 
 ply from, 203. 
 
 Cunningham, Dr., 10. 
 
 Damaraland, secured by 
 Germany, 172. 
 
 Dantzig, German traders 
 driven out by English, 
 44 ; seizure by Frederick 
 the Great, 69 ; report of 
 British Consul re shipping, 
 
 74- 
 
 Dantzig Chronicler, 47. 
 
 Darmstadter Bank, 131, 
 137 ; foundation of, 127 ; 
 combination with other 
 banks, 145. 
 
 Darwin, Charles, classical 
 school of political eco- 
 nomy undermined by, 
 2. 
 
 Deakin, Hon. Alfred, 166 ; 
 speech to Imperial Con- 
 ference 1907, 176-7. 
 
 Delagoa Bay, 159.
 
 INDEX 
 
 235 
 
 Denmark 76 ; English re- 
 liance on for food 28,183; 
 obstacle to German sea- 
 power, 79 ; war with 
 Germany, 97, 102 ; mar- 
 garine industry, 198. 
 
 Departmental Committee on 
 Commercial and Indus- 
 trial Policy after the War, 
 Report of, 185-6. 
 
 Departmental Committee on 
 the Textile Trades (191 8), 
 Report of, 137, 192. 
 
 Deutsche Asiatische Bank, 
 
 137. 
 
 Deutsche Bank, 127, 131, 
 140 ; foundation of Lon- 
 don branch, 134. 
 
 Deutsche Gold und Sil- 
 berscheidanstalt, 145. 
 
 Deutsche Orient Bank, 137. 
 
 Deutsche Ueberseeische 
 
 Bank, 137. 
 
 Disconto Gesellschaft, 127, 
 
 131. 145- 
 
 Dresden Exportverein, 139. 
 
 Dresdner Bank, 127, 131. 
 
 Dyes, early English policy, 
 34, 191 ; British de- 
 pendence on Germany, 
 
 191-3- 
 
 East Indies, ruin of sugar 
 trade, 155. 
 
 East India Company, 40, 
 150. 
 
 Eastland Company, 40. 
 
 Eden Treaty, 20 note, 63. 
 
 Education, 229. 
 
 Edward III., King of Eng- 
 land, introduction of 
 Flemish weavers, 31. 
 
 Elektro-Treuhand Gesell- 
 schaft, 131. 
 
 Elizabeth, Queen, 72, ; pro- 
 tection of English cloth 
 industry, t,t, ; support of 
 English merchants, 60 ; 
 policy of, 223. 
 
 Engineering, growth of, in 
 England, ^7. 
 
 Faucher, Dr., Prussian Free 
 Trader, 98. 
 
 Federation of British Indus- 
 tries, 225-6. 
 
 Food, England's self-suf- 
 ficiency in, in eighteenth 
 century, 24. 
 
 Foster, Sir George E., speech 
 at Imperial Conference, 
 1894, 166-7. 
 
 France, opening of markets 
 to Britain, 38 ; sugar in- 
 dustry, 53 ; industrial 
 rivalry with England, 62 ; 
 navigation policy, 77, ; 
 Bismarck's commercial 
 treaty with. 97, 102 ; Pro- 
 tection in, 153. 
 
 Franco-Prussian War, 98, 
 107. 
 
 Frankfurt, inclusion in Zoll- 
 verein, 86-7. 
 
 Frederick the Great, 69. 
 
 Frederick - William the 
 Third, Free Trade decree, 
 69. 
 
 French Revolution, ■^B. 
 
 Froude, James A.. " Eng- 
 lish in the West Indies," 
 156. 
 
 Genoa, 52.
 
 236 
 
 INDEX 
 
 German banks, use of 
 British credit, 136; foreign 
 establishments, 137 ; in- 
 dustrial exploitation by, 
 138-9. 
 
 German Commercial and 
 Industrial Association, 84, 
 
 German Economic Con- 
 gress, 94. 
 
 German Economic Union, 
 formation of, 10 1 ; an- 
 nouncement to, by Bis- 
 marck, of change of fiscal 
 policy, 108. 
 
 Germany, Russian grain in, 
 9, 182 ; report on, in 1840, 
 by Sir John Bowring, 
 26 ; National Party in, 
 71 ; English encourage- 
 ment of Free Trade, 92- 
 3 ; conflict between agri- 
 culture and manufactures, 
 109-1 10 ; sugar produc- 
 tion, 1 16-7, 119; condi- 
 tion compared with that 
 of England, in 1 880, 1 20-1 ; 
 bank deposits in 1873, 
 125 ; electrical industry, 
 1 30 ; iron and steel indus- 
 try, 130 ; potash syndi- 
 cate, 132 ; national buy- 
 ing organisation, 144 j 
 Protection in, 153 ; Eng- 
 lish tariff treaty with, 166; 
 claim to share in Canadian 
 Preference, 171 ; conflict 
 with Rhodes in South 
 Africa, 172 ; tariff war 
 with Canada, 175 ; pur- 
 chases of British goods 
 per head, 178 ; protection 
 of leather industry, 19 5-6 ; 
 capture of Indian hide 
 trade, 195-6. 
 
 " Germany Unmasked," S2 
 note. 
 
 Ghent 30. 
 
 Gibson, Alexander, British 
 Consul at Dantzig, report 
 on Prussia, 85. 
 
 Gladstone, William Ewart, 
 99. 
 
 Glass bottle industry, 194. 
 
 Godfrey, Michael, Deputy 
 Governor of Bank of Eng- 
 land, 62. 
 
 " Golden Fleece, The," 39, 
 
 Golden Fleece, Order of, 
 32 note. 
 
 Great Central Railway, 1 89. 
 
 Gresham, Sir Thomas, ad- 
 vice to Queen Elizabeth, 
 
 59- 
 Griffith, Sir Samuel, speech 
 to Imperial Conference, 
 1887, 161, 163. 
 
 Hakluyt, Richard, 41. 
 
 Hamburg, 68, 77 ; German 
 traders driven out by 
 English, 44 ; depot for 
 British manufactures, 79- 
 80 ; plan to force into 
 Zollverein, 81-2 ; entre- 
 pot for produce of British 
 Empire, 195 ; rice-milling 
 in, 197-8 
 
 " Hamburg Correspondent," 
 85. 
 
 Hanover, 68, 86. 
 
 Hanseatic League, 29, ^6, 
 72 ; export of English 
 cloth, 32 ; conflict with 
 Merchant Adventurers, 
 42-4; monopoly of marine 
 stores, 45 ; customs char- 
 ter from Henry III., 171. 
 
 Hauser, Henri, 49 note.
 
 INDEX 
 
 237 
 
 Heligoland, centre of British 
 trade, 79. 
 
 Henry VII., King of Eng- 
 land, support of mer- 
 chants, 58. 
 
 Hirsch, Baron, 146-7. 
 
 Hofme5'r, Jan, 160, 164 ; 
 fear for South African 
 Customs Union, 169. 
 
 Holland, 71 \ f^^^ o^. owing 
 to dependence upon com- 
 merce, 12-13 ; effect on, 
 of our food policy, 28 ; 
 destruction of commercial 
 system, 33 ; tisheries, 45- 
 6 ; banking industry, 5 5 ; 
 conflict with England, OS ; 
 German banks in, 137 ; 
 food exports to England, 
 183 ; butter and mar- 
 garine supply to England 
 and Germany, 198-200. 
 
 Huskisson, William, negotia- 
 tion with Prussia, 75, 78 ; 
 relaxation of Navigation 
 Laws, 188. 
 
 Iceland, English driven from 
 by Germans, 46. 
 
 Imperial Conference of 1 887, 
 1 60-1 ; question of Im- 
 perial defence, 165. 
 
 of 1894, 166-9. 
 
 of 1897, 172. 
 
 of 1902, 173-4- 
 
 of 1907, 176-80. 
 
 India, 38 ; German control 
 
 of hide trade, 195-6. 
 
 International Lead Conven- 
 tion, 147. 
 
 Ireland, injury to agricul- 
 ture in, 28-9 ; customs 
 union with, 162. 
 
 Iron-ore, British dependence 
 on Spain and Sweden, 
 190-1. 
 
 Iron and steel industry, 
 relative strength of British 
 and German, 184-5. 
 
 Iron and Steel Trades Re- 
 port of Committee on, 
 (1918), 188-90. 
 
 Italy, 36 ; German banks in, 
 
 137- 
 
 Jacob, William, report on 
 Northern Europe, 1 826, 
 25 ; on Holland, 56 note ; 
 report on Prussia, 69-70, 
 
 84-5. 
 James I. King of England, 
 
 61 ; protection of English 
 
 cloth industry, T)1. 
 Jameson, Dr., 155. 
 
 Kiel, 81. 
 
 Konigsberg, report of British 
 
 Consul on shipping, 74. 
 Kriegsmetallgesellschaft, 
 
 148 
 Krupp & Company, 139,147. 
 
 Lancashire and Yorkshire 
 
 Railway, 189. 
 Leather, 195-8. 
 Ledgard, Sir Henry, account 
 
 of Indian hide trade, 
 
 196-7. 
 
 League of Nations, 216,230 ; 
 founded on fallacies, 5. 
 
 Liberal Party, 219. 
 
 List, Friedrich, 84, 92, 108. 
 
 London, banking centre, 56, 
 123 ; bank deposits, 1872, 
 125 ; ceasing to be Ger- 
 man clearing-house, 135.
 
 238 
 
 INDEX 
 
 London Metal Market, 146. 
 
 Liibeck, tt. 
 
 Lyne, Sir William. Aus- 
 tralian Minister of Trade 
 and Customs, 179. 
 
 MacDonald, Sir John A., 1 58 
 MacLeod, Henry D, "Theory 
 
 and Practice of Banking," 
 
 62. 
 Margarine, 198-200. 
 Marx, Karl, 19. 
 Mashonaland, concession lost 
 
 by Germany, 172. 
 Matabeleland, 170. 
 Mem el, report of British 
 
 Consul on shipping, 74. 
 Merton, Henry R., 145. 
 
 William, 145. 
 
 Merchant, function of, 228. 
 Merchant Adventurers'Com- 
 
 pany, 72 ; opulence of, 
 
 39 ; contribution of ships 
 against Spanish Armada, 
 
 40 ; organisation, 41 ; 
 struggle with Hanseatic 
 League, 42-4, 47 ; as 
 bankers, 58-60 ; estab- 
 lishment of schools, 67. 
 
 Metallbank, 147. 
 
 Metallgesellschaft, 147, 192 ; 
 foundation of, 145. 
 
 Metallurgische Gesellschaft 
 of Frankfort, 145. 
 
 Metals, 192-4 ; early Eng- 
 lish production, 35-7 ; 
 German control of, 144-8. 
 
 Mineral and Battery Works, 
 
 34-5. 
 Mines Royal, Society of, 
 
 34-5- 
 Minette iron-fields, 107. 
 Mond Nickel Company, 147. 
 Montfort, Simon de, 30-1. 
 
 Montreal, petition for an- 
 nexation to United States, 
 
 153-4- 
 Morier, Sir Robert, Memoirs 
 
 of, 95-100, 112. 
 Munitions, Ministry of, 225. 
 Muscovy Company, 40, 50 
 
 Napoleon, 69, 72, 117 
 
 Natal, offer of preference on 
 British goods, 174 
 
 National Union of Manu- 
 facturers, foundation and 
 objects, 225. 
 
 Navigation Laws, 46, 48 ; 
 Adam Smith on, 15 ; his- 
 tory of, 72-8 ; abandon- 
 ment of, 1 00- 1. 
 
 Navy, English, 6, 208, 212. 
 
 Newcomen, Thomas, 27- 
 
 Newfoundland, 52 ; ex- 
 ploration for shipping 
 material, 45 ; codfisheries, 
 
 48. 53. 
 
 New Zealand, offer of pre- 
 ference on British goods, 
 174 ; purchases of British 
 goods per head of popula- 
 tion, 178. 
 
 North America (see also 
 Canada), exploration for 
 shipping materials, 45 ; 
 market for English cloth, 
 
 51. 
 North Eastern Railway, 189. 
 
 Norwich Resolutions, adop- 
 tion by Association of 
 Chambers of Commerce, 
 224. 
 
 Oldenburg, 86. 
 
 Orange Free State, customs 
 
 union with South Africa, 
 
 158-
 
 INDEX 
 
 239 
 
 Paris, banking in, 55-6, 123. 
 
 Paris Resolutions, 224. 
 
 Patriotism, Minister of Edu- 
 cation on, 7. 
 
 Peel, Sir Robert, 88, 90, 91 . 
 
 Pitt, William, Earl of Chat- 
 ham, 53, 117; loans to 
 Austria, 63 ; policy, 223. 
 
 Potash, syndicate in Ger- 
 many, 132 ; German con- 
 trol over, 191, 
 
 Prince-Smith, John, Free 
 Trade teaching in Ger- 
 many, 93-5. 
 
 Prussia, 68-9 ; poverty of 
 in 1826, 25-6, 70 ; British 
 policy in, 71 ; trade with 
 England, 78 ; Protection 
 adopted, 87-9 ; wars of, 
 97, 102, 106 ; sugar culti- 
 vation, 116. 
 
 Queensland, tariff proposals 
 at Imperial Conference, 
 161. 
 
 Rathenau, EmiJ, 130-1. 
 Reichbank, control of all 
 
 German banks, 133. 
 Reichstag, Tariff Reform 
 
 resolution, 109. 
 Reis und Handelsactien- 
 
 gesellschaft, 197. 
 Reisser, Dr. J., "The Great 
 
 German Banks," 126, 128, 
 
 13s. 138. 
 
 Rhodes, Cecil, 170 ; on Im- 
 perial Preference, 160-1 ; 
 conflict %vith German 
 Government in South 
 Africa, 172. 
 
 Rhodesia, Preference clause 
 in constitution of, 170. 
 
 Rice, 197-8. 
 
 Richard II., King of Eng- 
 land, 46, 72. 
 
 Roheisenverband, 129, 
 
 Russia, 24 ; fall of, due to 
 conflicting interests, 9 ; 
 weakness owing to de- 
 pendence on agriculture, 
 2$ ; our dependence on, 
 for food, 28 ; English 
 driven from, by Germans, 
 46 ; German reliance on, 
 for fodder, 182. 
 
 Russia Company, 45. 
 
 Salisbury, Third Marquis of, 
 160 ; speech to Imperial 
 Conference, 1887, 162 ; 
 on tariff war, 168. 
 
 Saxony, 104, 107. 
 
 Schleswig-Holstein, German 
 claim to, 80, 81 ; seizure 
 of, 82. 
 
 Seven Years' War, 48. 
 
 Shipping rates, unfavour- 
 able to England, examples 
 of. 188-9. 
 
 Siemens-Halske, 131, 141. 
 
 Silesia, 69, 104, 107. 
 
 Smith, Adam, 148 ; on se- 
 curity, 15 ; on industry 
 and commerce, 18 ; on 
 agriculture, 22 ; on the 
 Bank of Amsterdam, 56 
 note. 
 
 Soetveer, Dr., "Commerce 
 of Hamburg," 79-80. 
 
 South Africa, German circle 
 system in, 140 ; customs 
 union with Orange Free 
 State, 158, 169. 
 
 South African War, 174.
 
 240 
 
 INDEX 
 
 Spain, i6 ; bribes to smug- 
 glers of English cannon, 
 37 ; monopoly of cane 
 sugar, 1 16 ; German banks 
 in, 137 ; British depen- 
 dence on, for iron-ore, 
 190 ; neglect of industries, 
 215-6. 
 
 Spanish Armada, 65 ; first 
 victory of English arms 
 industry, 36 ; delayed by 
 Merchant Adventurers, 60. 
 
 Spelter, see Zinc. 
 
 Stahlwerksverband, 1 29, 141 . 
 
 Steel, British dependence 
 upon Germany, 185 ; upon 
 United States and Spain, 
 190 ; 
 
 forgings, German poli- 
 tical object in dumping 
 in England, 186. 
 
 Steelyard, Alderman of, 
 complaint against Mer- 
 chant Adventurers, 44. 
 
 Steuerverein, d>6. 
 
 Stow, John, " Survey of 
 London," 23. 
 
 Sugar, 26-7, 200-4 ; French 
 supply to Europe, 53 ; 
 history, 116-20 ; English 
 consumption, 1 17-8 ; Eng- 
 lish dependence on Ger- 
 many, 1 1 8-20 ; ruin of 
 trade in West and East 
 Indies, 155 ; cost of Eng- 
 lish plantations, 156 ; re- 
 fining, 201 ; German at- 
 tempt to secure post-war 
 trade in England, 203. 
 
 Sugar Commission, 201-3. 
 
 Sulphuric acid, 193. 
 
 Sweden, 76 ; our depen- 
 dence on, for food, 28, St, ; 
 for iron ore, 190. 
 
 Textiles, 191-2. 
 
 Teutonic Knights, Order of, 
 
 46. 
 Tin. export from England 
 
 to Germany, in early 
 
 times, 35. 
 Transvaal, attempt to form 
 
 customs union with, by 
 
 Cape Colony, 158-9. 
 Treitschke, Heinrich von, 
 
 78. 93- 
 
 United States of America, 
 27, 105 ; English Reci- 
 procity Treaty with, 1 8 1 5 , 
 74 ; German purchases 
 of copper in, 146 ; Pro- 
 tection in, 153 ; purchases 
 of British goods per head, 
 178 ; British dependence 
 on, for steel, 190 ; protec- 
 tion of Cuban sugar in- 
 dustry, 202. 
 
 Unsre Gegenwart und Zu- 
 kunft, 80. 
 
 Venice, 52, 116. 
 Virginia Company, 150. 
 
 War, little hope of abolish- 
 ing, 4-5- 
 
 War of Independence, 152. 
 
 Warwick the Kingmaker, 
 quarrel with Hanseatic 
 League, 46. 
 
 Waterloo, Battle of, 223, 
 224. 
 
 Watt, James, 37. 
 
 Weaving, 30, 31. 
 
 West India Committee, 
 157.
 
 INDEX 
 
 241 
 
 West Indies, 53, 117 ; sufier- 
 ing caused by English 
 Free Trade policy, 153, 
 155-6; ruin of sugar 
 trade, 155 ; feeling in 
 favour of annexation to 
 United States, 164-5. 
 
 Westphalia, 107. 
 
 \Vheeler, John, "Treatise 
 of Commerce," 20 note. 
 
 William I., Emperor of 
 Germany, declaration of 
 tariff policy, 102. 
 
 William II., Emperor of 
 Germany, Free Trade tu- 
 tor for, 96 ; telegram to 
 President Kruger, 172 ; 
 telegram to Joseph Cham- 
 berlain, 175 
 
 William III., King of Eng 
 
 land, 62. 
 Wilson, Woodrow, President 
 
 of the United States, 225. 
 Witt, Jan de, " Industries 
 
 of Holland," 55. 
 Wool, economic history of, 
 
 29-34 
 
 Zinc, German control of, 193 . 
 
 Zinkhiittenverband, 147. 
 
 Zollverein, 79, 80, 89 ; plan 
 to force Hamburg into, 
 81-2 ; formation of, 86, 
 105-6 ; protection to 
 German agriculture, 116 ; 
 Lord Salisbury on, 162 ; 
 Joseph Chamberlain on, 
 U3 
 
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