Z0*6 UC SOUTHERN REGIONAL LIB THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES PRICE ONE PENNY FISCAL POLICY AFTER THE WAR BY J. M. ROBERTSON, M.P. Published by the COBDEN CLUB, Broadway Court, Westminster, S.W., and Printed by CASSELL AND COMPANY, LTD., La Belle Sauvage, Ludgatk Hill, London, E.C. 1916 Cobden Club Publications. The Revolt in Canada against the New Feudalism. Tariff History from the Revision of 1907 to the Uprising of the Farmers and Graingrowers of the West in 1910. By Edward Porritt. Price is. net, bound in red cloth and fully indexed. The Collapse of Tariff Reform : Mr. Chamberlain's Case Exposed. By J. M. Robertson, M.P., with an Introduction by the Right Hon. Russell Rea, M.P. Price is. net, bound in red cloth and fully indexed. My "Two Capitals" Theory: An Interpretation. By Adam Smith, Redivivus. Price id. The Revolt in Canada against Protection. Price id. The Tariff Swindle. By John M. Robertson, M.P. Price 6d. net. FISCAL POLICY AFTER THE WAR BY J. M. ROBERTSON, M.P. Published by the COBDEN CLUB, Broadway Court, Westminster, S.W. 1916 HP FISCAL POLICY AFTER THE WAR i It was inevitable that the Fiscal Question should be revived during the war, despite the understanding as to a party truce. At a time when no sense of patriotic duty could restrain a number of excited publicists from venting statements that could encourage the enemy and could in no way promote national defence, it was not to be expected that a fiscal doctrine which always prospered largely as an appeal to jealousy of "the foreigner" should cease to be heard of. The war with Germany was a new and great opportunity for a propaganda, which in the past largely lived upon resentment of German fiscal and trade tactics. In so far as the old doctrine gains new adherents through the new indignation at German militarism and at German savagery in war, there is still less cause for wonder. Such a sentiment leans to virtue's side. Indeed, those who can tranquilly contemplate speedy resumption of normal business relations with the people who have been exulting in the sinking of passenger ships and the slaughter of women and children by Zeppelin bombs, would seem to be rather lacking in the sympathy which is the atmosphere of human progress. But we are to remember that the German people were before, morally, what they are now ; that we and neutrals traded with them; and that neutrals will certainly trade with them as 3 39807' I FISCAL POLICY AFTER THE WAR soon as the war is over, whatever we may do. Many English men of business trade habitually with non- European savages at all times. The view, then, that European savages should not be traded with may fail to stand the test of peace experience. The recent fiscal propaganda, it is important to note, takes two different and indeed incompatible lines. On the one hand there is a demand for a specifically anti-German trade policy, to be carried out either by an absolute veto on imports from Germany or by prohibitive customs duties, leaving Free Trade to subsist as between us and other nations; on the other hand, it is expressly insisted by some that we shall set up a general tariff, in which most-favoured nation treatment is given to our Allies and Dominions, medium treatment to those neutral during the war, and hostile but not prohibitive treatment to all enemy Powers. The tariff programme varies, as we shall see ; but that is its broadest outline. The aims of the two main policies are fundamentally different from an economic point of view, yet both alike gain support from the natural disposition to keep at a distance in future the peoples and Powers (for it is not proposed to discriminate between Germany, Turkey, and Austria-Hungary) which are responsible alike for the general devastation of the World War and the worst atrocities connected with it. As regards that disposition, it is important at the outset to make it clear that, though it takes an economic colour, it does not proceed upon economic grounds. That is to say, it cannot be pretended that the policy proposed will redound to the enrichment either of ourselves or of our Allies. We and they may indeed in part compensate our- selves for an abandonment of German and neutral trade by increased trade with each other; but as the very aim of the policy is to depress German production, it follows that it seeks to lessen the total output of the world. The ideal in view, to put it plainly, is an impoverished Ger- many. Now, an impoverished Germany must mean, for 4 FISCAL POLICY AFTER THE WAR trade purposes, partially impoverished neutrals. If she remains a bad market for them, they, deprived of that market, will have less total power of trading with us and our Allies. All recent wars have made this sequence clear : The Russo-Japanese war and the Balkan war alike inflicted depression on the world's trade not merely while they lasted, but in respect of the reduced purchasing power of the belligerents for years afterwards. It is true that the Franco-German war was followed by a large demand on the part of F ranee for British products when France proceeded to her work of reconstruction. But the France of the early 'seventies was a far less exhausted State, financially speaking, than will be the belligerents of this war when it is over; and the economic activity of France, as it happened, was accompanied by an economic depression in Germany, the victor State, precisely because she in turn could not find markets for the products to which she turned part of the capital secured by the French indemnity. And the German depression in turn reacted on the trade of the rest of the world. There is no escape, in short, from the conclusion that severe industrial im- poverishment in any country must affect other countries. A policy of keeping Germany impoverished, then, means an infliction of economic loss upon ourselves. No increase in Allies' production can countervail the reaction of per- sistent German depression on the trade of our neutral customers. II Of course, such a policy may be strongly supported on grounds of national expediency, though no definite case can be made out till peace terms are come to, or, indeed, till the post-war attitude and policy of Germany are out- lined. Certainly we ought not to be controlled by any consideration of the effects of our policy on Germany 5 FISCAL POLICY AFTER THE WAR apart from our clear interests. There has been some un- profitable discussion as to whether peace terms should be framed with a view to minimising German resentment in the future. It is really impossible to imagine any surrender terms that would obviate the resentment of a Germany which continued to live by the existing creed of German- ism. For a nation remaining in that temper, all defeat is humiliation, and future revenge a necessary faith. That being so, the limitation of demand for compensation on the score that bad blood will be bred in the future would be idle. The Germany which has made the war was full of bad blood to begin with. To plead that the German people were "misinformed" as to the causation of the war is equally idle. If a whole nation can be "misinformed" on a great crisis of which the essentials are made public in the press of all the rest of the world, their case is ipso facto hopeless. They must remain misinformed. If the German people remain, as they are said to be, "convinced" that the war was forced upon Germany by the Allies, it would be worse than futile to attempt by peace negotiations to convince them that the facts were otherwise. Practically speaking, a nation pictured as thus misinformed is only another version of the "nation gone mad"; and we cannot reason with a mad elephant. But we may take cool precautions in our dealings with it. A continuously rabid Germany, then, may make necessary for us and our Allies a fiscal policy which, so far as in us lies, will tend to keep her financially crippled, •while in large measure curtailing our oivn possibilities of wealth. If that is the situation contemplated by the members of the Government who have been forecasting a future policy of exclusion, it deserves the most dispassion- ate consideration from all good citizens, among whom Fret 1 Traders specially claim to be ranked. Free Trade has been practised for the sake of the nation : the nation does not exist for the sake of Free Trade; and when we are reckoning with a militarism which has to a great extent 6 FISCAL POLICY AFTER THE WAR suspended all trade, we must recognise in it the first factor in the situation. If the grounds are decisive, the sacrifice made in time of war may have to be continued in time of peace. It will not be a "sacrifice of principle," but a sacrifice of potential gain. The "principle " of Free Trade is that it makes for the well-being of mankind, alike as regards peace and as regards prosperity. If peace is broken, ipso facto Free Trade is instantly put under limi- tation. If after a stupendous war there should appear good grounds for special precaution against another breach of the world's peace by the people guilty of the last, Free Trade will fall to be put under limitation precisely in so far as that can be shown to be a sound military or political measure. But a military or political measure it will be. By no logic can it be shown that the curtailment of the total output of the world can promote the enrichment of any entire nation, to say nothing of half a dozen. The policy of "boycott," if it could be maintained, might be desirable in the future "peace," as it was seen to be a matter of course in the war. But the policy in that case will remain one of political and military self-preservation : it will not be, and should not be pretended to be, one of economic advantage. Before, then, former Free Traders commit themselves to any concessions, they will do well to weigh the possi- bilities of the case. And, first and foremost, they should ask themselves how exactly a policy of boycott can be made compatible with any exaction from Germany of an indemnity for Belgium and Serbia, to say nothing of any claims that might be justly made by ourselves or any other Power. It seems clear that the amount required to com- pensate Belgium for the mere material destruction inflicted upon her, plus the money exacted from her, apart from any "compensation" exigible for the immeasurable wrong she has endured, must be far in excess of the total amount of gold in the possession of the German Government after all its efforts to collect bullion. Even then, if we thought 7 FISCAL POLICY AFTER THE WAR it desirable to meet Belgium's claims by a simple transfer of specie, they could not be so met. If, indeed, they were, it is obvious that the first result would be an exodus of much of the specie to other countries to purchase the products of which Belgium will have need in the day of reconstruction. What she wants at least as much as specie is material — raw and manu- factured. Now, the "boycott " policy in effect contemplates that Germany shall contribute no material to the recon- struction and recuperation of the country she has so brutally wrecked and plundered. If she is to pay wholly in specie, and if she could be denuded of all she possesses, it will hardly be disputed that, unless she can contrive to work on a currency of paper and non-precious metal, she will simply have to repurchase her specie from those neutrals into whose hands goes the surplus not retained by Belgium. If then the aim of the boycott policy is to check German exportation, it must clearly fail at the start, seeing that it will be as much in the interest of the neutrals to sell back superfluous gold to Germany for goods as for Germany to buy it with goods. If, on the other hand, Germany should find herself able to subsist in peace with a paper and cheap-metal currency, it would be hard to see wherein, on this side, she had seriously suffered. Of course, such a transmutation in the case of a single State is far from likely; but if it should occur, the State concerned would be apt to figure ultimately as having had the best of the transaction. Ill Simple economic common sense, then, seems to lead to the conclusion that Germany should be compelled to indemnify her victims, in so far as she has any power of payment left, by the handing over of whatever negotiable economic quantities she can produce. And inasmuch as 8 FISCAL POLICY AFTER THE WAR all specie payment and all transfer of German scrip to neutrals ultimately means foreign demand for German goods, the desired restriction of German trade is apparently not compatible with the extortion from her of adequate indemnities even for her victims, to say nothing of the loss inflicted by her upon the chief belligerent States. One would suppose, further, that one of the most satisfactory ways of enabling Belgium, Poland, Serbia, Montenegro, Russia and France to reconstruct would be to compel Germany to supply them with the raw and manufactured materials which they require. She has probably robbed Belgium and France of (for instance) millions' worth of furniture, and destroyed perhaps much more. Furniture being obviously necessary, and there being no prospect of a speedy production of the missing wealth by the curtailed labour power that will go to work after the war in the devastated countries, it would seem the obviously right course to exact the delivery by Germany of furniture of satisfactory quality, whether old or new (old, for choice), at a pre-war valuation, rather than to take the roundabout way of exacting specie and paper which would have to be exchanged for furniture in neutral markets, thereby immediately raising prices indefinitely against the new purchasers. In the same way, it would seem to be clearly in the interest of our Allies to exact from Germany as far as possible all the supplies they immediately require in the way of coal, iron and manu- factured metals. We are not, of course, considering her interests : it would simply be the most economical course for them. And if it should be found, as seems highly probable, that the indemnities righteously due by Germany to the States she has devastated cannot be paid by her, for the most part, save in actual things, what should be the policy of the Allies as regards the disposal of any goods so acquired which the receiving States may desire to dispose of? If, for instance, Belgium should receive * n FISCAL POLICY AFTER THE WAR quantities of German ore or manufactured goods in excess of her immediate home requirements, is she to be told that she must sell these to neutrals, or that she must not sell them at all ? Or, supposing the indemnity to be defrayed bv way of paper obligations, which can be liquidated only by subsequent exports of German goods, is there any particular point in saying that such goods shall not be received by us or our Allies, but must go to neutrals, in whose hands they will release other and equivalent goods which we and our Allies will purchase, if our trade with those neutrals is to continue as we desire? In short, would not the policy of boycott, thus carried out, simply mean a veto on the payment by Germany of an adequate indemnity to her victims in the only forms in which she can possibly pay it? And in that case, would not the Allied Powers who imposed the veto be morally bound to make good the indemnity them- selves ? In particular, would not such an obligation clearlv lie upon the British Government, which is ex- pressly committed to the indemnification of Belgium and Serbia ? When the real economic process of things is thus considered in detail, it will perhaps begin to appear to the open-minded reader that a policy of boycott after the war is really not so simple as it seems. The case may usefully be thus summarised : — i. A demand for indemnities from Germany is in effect a demand for German goods. 2. The export of German goods on a large scale is necessarily a stimulation of German industry. 3. Nevertheless, we all desire that Germany shall be compelled to indemnify her victims to the utmost possible extent. 4. A policy of boycott, then, clashes with one of indemnification of Germany's victims. xo FISCAL POLICY AFTER THE WAR IV If, further, we consider the policy actually followed by Germany towards her victims, it will appear that not only in German opinion, but in theirs and ours, the State which obtains materials, raw or manufactured, from another State is thereby gaining". Germany has brutally exacted money contributions again and again from the towns and villages of the districts she has occupied, and we all agreed that she had thereby revealed herself in her true colours. But when she proceeded further to work the Belgian and French mines for her own supply, and to attempt to work Belgian and French factories in the same fashion, few of us failed to realise that she was thus still more effectually pursuing her own advantage. If the Allies should enter upon German territory in the course of the war, they would presumably pursue a similar course. Yet, further, when the German military authori- ties have compelled their military prisoners to work for them, it has been generally recognised that they were pursuing their own economic advantage; and a similar course has been intelligently adopted by the French Government with its German prisoners, whatever may have been done by ourselves. It is recognised, in short, that specie, scrip, raw material, manufactures and labour are all economic quantities, and that a transfer of these is a gain to the transferee. The tactic of retaliation, presumably, is at its maximum activity in time of war; and it would appear that it includes the exaction of goods and labour as well as specie and scrip from the enemy. Yet the policy of boycott, which is assuredly a policy of retaliation, appears ^^^j;*^ to contemplate an express refusal to exact goods and - labour from a conquered Germany. There would seem, then, to be something wrong with the economic logic of the policy in question. It would appear that the tendency ii FISCAL POLICY AFTER THE WAR (so productive of economic fallacy in times of peace) to think of all imports as debit, and of all exports as credit, has simply reasserted itself under the guise of patriotic calculation. If for the moment the reader will suppose an adequate German indemnity to be paid to the Allies, according to their individual needs, in specie, scrip, and goods and foods (supposing her to have any foods, such as sugar, to spare), he will realise that if the produce received could be distributed without hindrance or derangement of the home trade of the Allies, it would be so much pure gain to them all round. If, again, indemnity goods should take the form of raw material handed over to the Allied Governments, and they should dispose of it at moderate prices to those of their manufacturers who re- quire it, the transaction, it will be admitted, would be a pure gain — a process of compensation— to both manu- facturers and Governments, and consequently to the Allied peoples in general. Why, then, should not some such policy be pursued in their self-interest? The first objection, probably, will be that such a pro- cedure would mean the turning of the Governments into great traders in time of peace, even as ours has been in time of war in respect of its sugar transactions, among other things; that such work cannot be so economically and usefully done by Governments in peace time as by traders in the ordinary way; and that a continuance of it would amount to a partial establishment of State Socialism in a hurry, without any proper consideration of the manifold consequences. And in such an objection there would be great force, though the case should not be taken to be thereby absolutely closed. The alternative, however, would seem to be to leave to the ordinary process of trade the distribution of such produce as should be exacted from Germany by way of indemnity. And this method, in turn, appears to be incompatible with the policy of boycott. 12 FISCAL POLICY AFTER THE WAR If the case is not clear so far, it may be. made more so by putting the question : How would Germany be likely to act towards the Allies if she should have had the fortune to defeat them ? Would she have been likely to propose a trade boycott ? Would she not rather have insisted upon their supplying her with whatever produce she required ? And would she not thereby be promoting her own interests ? Whether or not she would exact a trade tribute, tem- porary or perpetual, in addition to the largest payments in specie and scrip that she could wring, or whether she would prefer to extort an indemnity and leave trade to its normal course, with tariff provisions to the disadvan- tage of the Allies, may be left an open question. But it will perhaps now be admitted that if she took the latter course she would be forcing on the beaten Allies the utmost possible exportation of their produce to neutral markets by way of redeeming their specie and scrip and meeting their further obligations in the way of payment of interest on debt held by foreigners. If, then, that would be the effect of the exaction of an indemnity by Ger- many, it would follow that the same kind of consequences the other way would flow from the exaction of a specie and scrip indemnity from Germany. That is to say, the defeated State will be forced to export on a large scale to neutrals, thereby competing more strongly than ever in the neutral markets with the trade of the victors. Thus again the policy of boycott would seem to be futile for the purposes for which it is understood to be established. V Let us consider for a moment what is implied in restricting the defeated belligerents to the neutral markets of the world and their own. The former are, broadly speaking : (i) the United States, (2) Central and South America, (3) FISCAL POLICY AFTER THE WAR China, (4) Spain, Portugal, Switzerland, Holland, Nor- way, Sweden, and Denmark. As regards ourselves, it seems clear that no probable increase in our trade with our Allies would make negligible for us either (1) a consider- able forestalling of our trade in these markets by the desperate exports of a Germany which could in no other way redeem her specie and scrip than by selling there at any price, or (2) such a depression in the trade of those countries as must result from the continuous industrial stagnation of Germany. Our choice, in short, would be between having our own trade restricted by forced under- selling in the neutral markets on the part of Germany, and having it restricted by decline in their purchasing power through collapse of their trade with her. In the former case, there would naturally take place trade agreements between Germany and the neutrals which would have just the kind of effect aimed at by the trade agreements proposed to be set up by the Allies. She would give them her very best terms and get the same from them. The world would tend to settle down into two vast trading groups : Germany, Austria, Bulgaria, dealing with all the neutrals ; the British Empire, France, Russia, Belgium, Italy, dealing with each other and getting what neutral trade they could. It will, of course, be contended that trade could not cease between the Allies and the neutrals, and that the self-interest of the latter would ensure their buying from our group in order to sell to it. But be it remembered, first, that our group is now heavily indebted to the United States, and must export thither to pay its debts if it is not to have a heavy exchange against it; and that the driving of the main force of German competition into that market will make it all the harder for us. As regards the European neutrals and China and South America, the economic arrangement works out similarly. They would tend to take from Germany whatever goods she could supply on terms advantageous to them, and in M FISCAL POLICY AFTER THE WAR the terms of the case would do the less trade with the Allies. It is perhaps hardly now worth while to consider further the hypothesis of a Germany kept industrially stagnant in perpetuity by a boycott on the part of the Allies. Her trade with the neutrals will be resumed, though neither for her nor for the rest of us will prosperous trade on the old scale be speedily recoverable. Do what we will, the world's total production cannot soon recover the old level, and luxury-produce in particular will long have to be restricted, for sheer lack of purchasing power. And this raises the question whether even a sore and rancorous Germany, baffled and despoiled, will be in a position for many a vear to resume the policy of menace and militarism by which she has so long burdened and finally devastated Europe, her own world like that of her antagonists and her victims. The question arises, in short, whether the true path to betterment for Europe is not to leave defeated Germany to trade how she will, to pay her indemnity through all the channels by which she can pay, and to win her way back to peaceful trade relations with her neighbours as best she may. For in any event she cannot return in our day to her old military footing. All withholding of men from industrv will now mean for her prolongation of poverty and indebtedness : by the utmost stress of production she cannot for many years roll off her mountain of debt. And in this state of things, with a discredited Junkerdom, a beaten military caste, a Government branded with defeat, there is a chance that there may grow up a saner genera- tion, born to the knowledge that past German policy was the cause of German calamities, and that only with the goodwill of neighbours can a European State now prosper. It will be hard enough at the best for the defeated Ger- many to recover the trade with her "enemy" neighbours, which is her first natural economic line. It needs no official boycott to make the peoples of Belgium, France, Russia, Italy, and Britain chary of dealing with the FISCAL POLICY AFTER THE WAR ruffian nation that bludgeoned Belgium and put all civilisa- tion to the hazard of a World War, or the ignoble Austria which began the whole vast embroilment, at Germany's behest, in pursuance of her eternal policy of dominating alien races whom she is unfit to rule. If the Allied peoples, as consumers, desire to have no unnecessary trade with Germany, they have simply to abstain from buying Ger- man goods. If their traders buy German raw materials, let the general consumers either leave the finished produce to go abroad or consider whether it is the final consumer or the first producer who gets the "benefit " of any nation's produce. It will be long before German traders are welcome in any Allied State; and till then German trade will be a thing maimed and downcast, do what it will. Some speculate on a revolution in German government as a result of German defeat. The French precedent is in favour of the forecast ; but the German national temper, the product of ages of autocratic rule, followed by a mili- tarist State system equally destructive of political initiative, is not hopefully to be relied upon to work a deliverance for itself in the French manner. It will probably be granted that if a really decisive change of governmental system should take place, the position of the Allies in regard to it would be essentially different. After the fall of the first Napoleon, the new French Government was friend and not enemy for the victors. It would clearly be folly to plan our policy in advance upon any expectation of such an outcome in Germany. The Social Democrats who for so many years have boasted in the German manner of what they are going to do, have thus far revealed only their utter impotence to check or control the militarist mania which has brought Germany to the verge of destruction. And the visionary minority of our own Socialists, who seem to have contracted the hallucination of their German brethren to the extent of believing that the triumph, or at least the escape from FISCAL POLICY AFTER THE WAR humiliation, of Germany would mean the triumph of Social Democracy there, will never persuade their saner colleagues here, much less their countrymen in mass, to share in their delusion. If the Social Democrats had either vision of their own possibilities or capacity to seize them, they would realise that it is only through the col- lapse of German militarism that their cause has any chance of practical advancement. The German ruling class went to war in the hope (among others) of overthrowing Socialism by military triumph. It knew what it was about, so far as that part of its programme was concerned. Even with a complete defeat of the present German system of government, it is probably only by a gradual growth of democratic control — which in any case is the safest way — that the German people can be transformed from a menacing aggregate of racial egotists into a chastened community of truly civilised men. Nor should even an expectation of that manner and amount of reform lead us to sway our policy in any direction that is not clearly consonant with the total interest of the Allies. But our whole survey of the hard facts of the case goes to show that no policy really in the interest of the Allies can emerge from any plan to "keep Germany down" by a trade boycott. If a plan could be framed to that end which could promise success without inevitably injuring the Allies themselves, they would, as matters stand, be perfectly justified in acting upon it. Germany's development to the stage of menacing all her neighbours has gone on step for step with her rapid advance in industrial prosperity; and if there could be a guarantee that industrial depression would keep her harmless without at the same time de- pressing the national life of the Allies and so of the rest of the world in general, a policy to that end would stand justified. Whatever ideal-loving individuals may do in the way of self-abnegation, that is not a course possible for nations. If one should attempt it, it would be forsaken of 17 FISCAL POLICY AFTER THE WAR its children, and so disappear. The policy of the nations must be shaped in their own continuing interest. But we have seen that not only can there be no prospect of success for a policy aiming at the continuous industrial paralysis of a naturally industrial State like Germany : there is a plain economic certainty that such a policy will injure the nations who attempt it. The interest of the Allies, however disenchanting be the dis- covery, is ultimately consonant with the industrial interest of Germany, simply because all the nations of the world are industrially conditioned by each other, and the misery of one infects the rest. And it is probably much better for mankind as a whole that it is so. Were it otherwise, policies of extermination would become thinkable, after Germany's initiative. VI Thus far we have considered only the ideal and plan of a boycott of German trade by the Allies after the war. There remains to be contemplated the very different ideal ■of a resort on our part to an all-round tariff system in which we shall merely give preferential terms to our AlHes and the self-governing Dominions, or to the latter above all, with worse terms to neutrals, and still worse to the enemy States.' This is simply the adaptation of the old propaganda of "Tariff Reform" so-called to the new situation ; and whereas we find some former Free Traders declaring for the policy of boycott, ostensibly contempla- ting a continuance of Free Trade either with our Allies or with all the rest of the world, a number of the former Tarifrists, seeking a tariff by way of systematic Protection of home trade, violently insist upon their policy as against the other. A tariff, they argue, can secure what is wanted in the way of a boycott of Germany, and can at the same ]8 FISCAL POLICY AFTER THE WAR time secure Protection for home industry and for home agriculture against all foreign competition. The new campaign is being carried on with their customary unscrupulousness by the chorus leaders of the old. The Morning Post, for instance, describes every opponent of a tariff as "the German importer," and an anti- tariffist journal as "pro-German." Not content with thus resorting to the foulest forms of demagogism, the same journal thus asperses Free Traders in general : " In particular, the importer (after the war) will have again resumed his ascendancy, will again be bribing the politicians, and will again be preaching the doctrine of the cheap loaf, the interests of the consumer, and all the rest of the insidious and corrupting cant with which this country was debauched in the years before the war." 1 It will be felt by the sane reader that a cause which calls for such weapons as these is not inspired by economic reason. If there were sound economic arguments for the adoption of a tariff system, it would not be supported by calumnies and scurrilities which outgo the tactics of the reptile press of Germany. Those Free Traders who have with insufficient reflection committed themselves to the policy of a trade boycott after the war may already begin to realise that to appeal to the "war temper " on a question of the fiscal policy for the period of peace is to put in jeopardy the whole national future. We are already being told by the fuglemen of Protection that the cost of living for the worker is nothing in comparison with the security of the nation, which is to be achieved by a tariff on food that will secure the British farmer against all competition, and so enable him to raise corn enough for all the needs of our population. In the same fashion we are exhorted to place such a tariff on manufactures as shall make our engineering firms capable of supplying an abundance of munitions in time of war. Every problem of trade com- 1 Leading article, 2ist Feb. :gi6. FISCAL POLICY AFTER THE WAR petition in neutral markets is kicked aside in the passion which calls itself patriotism. On this issue, let it be observed at the outset that during the present war Germany, Austria, France and Italy have been compelled to suspend either some or all of their duties on food imports. That is to say, a policy which is expressly advocated on military grounds is found unworkable in time of war. Furthermore, the chief military Power, the Power that is guilty of the war, in whose polity food protection has been an established principle for a generation, is at the supreme crisis found incapable of feeding itself adequately by its own produce, simply because its industrial population has, under industrial conditions, multiplied beyond the possibilities of being fed by even a highly protected agriculture. What Germany, with its larger area, could not do, Britain is called upon to attempt to do; and to that end we are furiously commanded, in time of war, to revolutionise the fiscal system tried by three generations of peace, and to impose food duties now, though the most rabid of Protectionists would not dare to propose a food tax in the House of Commons at this moment. The new Protectionist movement, in short, is partly in the hands of men devoid of understanding no less than of honour in controversy. Thus stands the situation at the outset. The fate of Germany has shown that an ever-expanding industrial State, which does not relieve itself of a rapidly increasing population by large emigration, simply cannot feed itself even under a system of rigorous agricultural Protection, even at a considerably lower standard of comfort than ours. The proportion of area to population in Britain is even now smaller than in Germany, so that it is plainly impossible for Britain to succeed where Germany has failed, save by a still more extensive removal of surplus population — a course which in itself is open on military grounds to the strongest objection. A self-feeding Britain FISCAL POLICY AFTER THE WAR would be a Britain with much less than its present popula- tion ; that is to say, a Britain of greatly reduced industrial power, and therefore incapable of maintaining its present naval strength. France, with almost exactly the same area as Germany, had only 40,000,000 of population to the German 65,000,000 before the war. France, therefore, of the three chief western Powers, stands by far the highest in her capacity to feed herself ; and she does so because not only is her population the most nearly stationary, but her in- dustrial expansion has been by far the slowest. And yet France, like other Protectionist belligerent rowers, was compelled by the war to suspend duties on food imports. Thus the new campaign for agricultural Protection is founded from the start on demonstrably false pretences. It is not true that a system of even high Protection can enable Britain at the same time to feed herself and remain, a powerful and populous maritime State as before. Her very food imports are among the conditions of mainten- ance of her mercantile marine. The experience of highly protected and highly prepared Germany proves that in time of war the very security by claiming to provide which Protectionism has justified itself is a broken reed. With the collapse of the ruinous delusion before their eyes, our Protectionists call upon this country to tread the same road to ruin, and foully charge with national treason those who resist their insensate counsel. Those who thus advocate an insane policy of agricul- tural Protection naturally seek to cover the nakedness of their case by promising at the same time to multiply manufactures on Protectionist lines. Once more, dear food is to go hand in hand with high wages. Those Free Traders who retain a grasp of the economic elements of their case do not need to be reminded that we have here a repetition of the very sophism which maintained a policy of manufacturing and agricultural Protection in England until Peel, enlightened by Cobden, renounced 21 FISCAL POLICY AFTER THE WAR the delusion. The great difficulty to be faced by industry in Britain after the war is precisely that of competing with some of the neutral as well as the enemy countries when everything- will be much dearer than before the war. The journalist who actually proposes the imposition of food duties during the war, when Protectionist bel- ligerents have suspended them, counts, of course, on their being in full force after the war, when every relief from present high prices will be of the utmost importance to competitive production. Let the reader remember what took place during the Boer War. A small duty on cereals had the effect of raising the price of flour, then one of the requisites in the manufacture of cotton goods, with the result that Dutch manufacturers at once obtained an advantage against ours in neutral markets and were able to under- sell them. Now it is demanded that we shall impose not only a high duty on cereals, but a protective duty on manufactures in general, with the inevitable result of handicapping every form of manufacture. The arguments for Protection of all crop produce obviously involve a similar protection of leather and wool ; for how are sheep and cattle to be multiplied to the desired maximum if we let in wool and hides free? At a time when cheap metals and machinery are all important we are to make them dear by duties alike on ores and on metals. Then, under the burden of exporting heavily to the United States to pay our debts, we are to compete, under the further burden of dear food and raw material and machinery, with a Germany driven to making special terms with the United States, possessing far greater natural resources in point of ores than we, and striving to the utmost to produce cheaply in order to maintain her in- dustrial existence. For there is a considerable probability that Germany,. after the war, will nut maintain her system of food Pro- lection. The food duties there are now off. Under what FISCAL POLICY AFTER THE WAR conditions are they to be reimposed ? For years past the pressure of these duties has been the main factor in the growth of the German Social Democratic party, millions of voters supporting it solely because it is the one strong party that opposes food taxes. At the close of the war, will the Government be able to reimpose upon a people that for two or more years has been half starved the hated burden of the food duties which enriched only the land-owning class, pinched the workers even in time of prosperity, and finally had failed calamitously to secure the very food supply for which they were professedly maintained ? It is thus precisely at a time when Germany, already freed from food duties in war, is in sight of free food imports in peace, that our Protectionist zealots furiously demand re-establishment of food taxes in Britain. Mad- ness could no farther go. Not content with asking for a post-war tariff, they expressly insist that it shall be imposed immediately. At a time when the home farmer is making- extra profits through high food prices they propose to lay on the food duties which Protectionist belligerents have taken off. And at a time when it is of the utmost importance to us to produce as cheaply as may be they scream for the imposition of import duties on semi-manufactured material, not for the politic purpose of checking luxurious consumption in war time, but avowedly by way of pulling manufacturers above the risk of foreign competition in the home market in time of peace. As for the effect on our powers of competition in neutral markets, they are, as ever, simply blind to the whole problem. VII We have thus far considered the tariff plan in its purely general aspect with regard to its avowed aims and its economic sequence. But every tariff is a matter of end- 23 FISCAL POLICY AFTER THE WAR less adjustment and compromise, and that now proposed for Britain would be one of the must complicated ever seen. At the outset there are divergences of plan among its advocates. Some desire that a special preference shall be given to our self-governing Dominions, as usual with- out saying whether they propose to give the same prefer- ence to India, with the same powers of Protection. Others, realising that a special preference to the Dominions will be likely to set up heart-burnings among our Allies, seem inclined to put on the same level the Allies and the Dominions. They perhaps realise that a higher duty on Russian than on Australian and Canadian corn will be an anomalous sequel to a war in which Russia has been our most powerful military Ally, and has spared no sacrifice to defeat the common foe ; and that Russia will hardly give us "most-favoured-nation " treatment if she does not receive it. As was to be expected, the claim of the Dominions to "reciprocity" is exploited to the utmost, in utter dis- regard of the fact that in the Dominions, and particularly in Canada, there is a strong Free Trade movement. The example of Australia is pointed to as proving that protection of manufactures is a policy maintained by workers and not by employers. As before, no heed is taken of the facts (i) that Australia is self-feeding, (2) that labour in Australia, where the population is in itself nearly stationary, exercises an absolute control over emigration ; and (3) that Australia is in no wise so dependent as Britain for manufacturing prosperity on the power to compete in neutral markets. Thus the Dominions are expressly in- vited by our factionists to put upon us a pressure which is unfair to our industrial population, and which cannot fail to injure them as well as our trade in general. The whole tactic can only tend to promote friction between us and our Allies after the war. Either Allies and Dominions are to be on the same level or they are not. If not, we shall be wounding France by giving prefer- 24 FISCAL POLICY AFTER THE WAR ential treatment to Australian -wines as against hers, and R ussia by giving preferential treatment to Empire-grown corn as against hers. If, on the other hand, the Dominions arelo he on an exact level with the Allies, the "imperial" faction will take advantage of every diplomatic difficulty in our relations with our Allies to raise issues fraught with danger to a good understanding. All the while, on either alternative, we shall be putting an injurious obstacle in the way of our trade with neutrals. If the United States get from us worse terms for food and raw materials than we give to Russia and the Dominions, they will infallibly give better terms to Germany, thus disastrously handicapping our exports to them. And whereas it is the course of commonsense to make the most of our trade with the European neutrals, to the end of keeping them our friends, a tariff policy which is to their disadvantage will simply drive them into the arms of Germany, the last thing to be contemplated on political grounds. And all this ruinous folly is urged upon us on the blind and unthinking assumption that our Allies will ad- here in perpetuity to any anti-German trade policy which they may see fit to adopt either now or at the conclusion of the war. While there is solid goodwill among the Allies, there is no occasion for a preferential system to promote trade between them. But the supposition that Russia will for ever minimise to the utmost her natural trade with Germany is one that can be made only by men devoid of foresight. If after the war a changed German policy should offer free entrance to Russian food produce, the Russian Government will be put in the position of choosing between the plain advantage of her great agri- cultural mass and a policy of retaliation for the past which year by year may lose its motive power. Meanwhile, we should have staked our manufacturing prosperity on the unstable basis. It is extremely unfortunate that the discussion of such FISCAL POLICY AFTER THE WAR issues should be forced upon us in time of war, when every risk of division of feeling should be anxiously avoided. But our Ta'riffists compel the discussion. They will not keep truce; they will not hold their peace. For the sake of a factious triumph they propose to commit the country to Protectionism at the very time when our Allies and our enemies alike have been driven to abandon it, and when our worst enemies are visibly likely to find themselves forced to continue on that path. The disin- terested and really patriotic idea of a trade combination against Germany — patriotic, however misguided — is being exploited to ends which will lead to permanent disaster, whereas the simple boycott policy would inevitably and speedily collapse when its futility was made plain by ex- perience. It is doubly unfortunate that the "war temper" among a number of Free Traders should thus have led them into a position where they are simply playing into the hands of enemies who stick at no aspersion upon all who ever followed the Free Trade flag. It is time that they should ask themselves whether men who in time of peace showed themselves devoid of civil wisdom are likely to develop it in the tempest of war, and whether they themselves have not lost the clear light of economic science in the same perturbing atmosphere. And still we have not considered one of the worst over- sights in the new Tariffist policy, in so far as it takes the shape of a demand for specially high duties against Ger- many. Those Tariffists who propose equal duties against Germany and against neutrals — a course symptomatic of the wisdom of those concerned- — escape the particular dilemma in question, while impaling themselves upon others. But as the present Tariffist feeling is undoubtedly fed mainly by natural resentment against Germany, it is fairly certain that in the main it runs to a policy of anti- German boycott. Now, German capital before the war was already largely at work in neutral countries — in Scandinavia, Holland, =6 FISCAL POLICY AFTER THE WAR Switzerland, as well as in the United States. After the war it seems likely- — what there is left of it — to press thither to the utmost possible extent, to escape the "fright- ful " burdens of taxation which the German Finance Minister sombrely promises to his compatriots. The Ger- man Government will doubtless take drastic measures to prevent such an exodus. But if trade is ruinously bad, the Government cannot prevent an exodus of German men, who will seek to repair their fortunes in whatever neutral countries offer a chance of livelihood. These men will seek to set up German manufactures wherever they go; and if there is to be discrimination in a British tariff as between enemies and neutrals, it will fail in its object. Yet further, even if there be no exodus of German capital and men, German producers will of necessity sell their products to neutrals as extensively as they can ; and the same dilemma will arise. Either way, we shall have German-made goods offered to us from Switzerland, from Holland, and from Scandinavia; and a tariff framed to hit in particular Germany will — in so far as there is a disposi- tion here to buy the goods in question — have to be made an all-round one, hampering and burdening all our foreign trade alike. Once more we are faced with an "anti- neutral " trade policy; there is no standing-ground short cf the whole policy which in time of peace the majority of the nation perceived to be one of commercial ruin. The real difficulties for our future trade, it is clear, are not thus to be surmounted. One of the foremost is that of the German supremacy in certain forms of chemical production — notably dyes. In 1915 the Government made a special attempt to meet this difficulty in advance by set- ting up a nationally assisted factory for dye-production. To that undertaking the Tariffists offered nothing but factious opposition ; the then Opposition leaders in par- ticular proposed the impossible alternative of a Govern- ment pledge to set up a tariff upon that one form of German -product at the conclusion of the war. As such a tariff 27 FISCAL POLICY AFTER THE WAR could be instantly met by the establishment of German works in Switzerland, and the further extension of the single-duty tariff would simply involve us in tariff troubles with the neutral State, it was of course not promised. If it should be found that, by reason of the manifold hindrances set up by war, the National Dye Company should not have got sufficiently "on its feet" when peace is made, the difficulty will assuredly be made a ground for further agitation. Some experts speak of a term of ten years as being necessary to establish such an industry. If such experts could give a solid pledge that in ten years' time the protected industry would stand successfully on its own feet, they would have a case that would certainly appeal to many. But no such pledge ever has been given, or ever can be given, for a protected industry. Always the protection was to be indefinite in term, and always its continuance is zealously striven for when there is any proposal for suspension. In any such case, if it is seen to be nationally important to maintain the special industry, the proper and economical course is not protection by import duties but subsidy. But to make a quite problematic future need a ground for national commitment to a new tariff policy in time of war would be to exhibit in a supreme degree that very lack of practical wisdom and enterprise which has set up the diffi- culty in the past. British industry in future can probably be much advantaged by a revision of our patent laws ; and reform in that direction may be incumbent upon us at an early date. We shall then be developing our real strength, the spontaneous energy and enterprise of our trading class, which has kept Britain up till now the foremost trading nation of the world in proportion to its population, its area, and its natural resources. 2S FISCAL POLICY AFTER THE WAR CONCLUSION It is worth while, finally, to note the broad but little- considered fact that the new demand for a reversion to a long ago rejected fiscal policy is simply a matter of calling for "German methods" in international relations during a war which has been forced upon the world by the dominant German spirit. Fas est ab hoste doceri, certainly, in war. But when the war is demonstrably the outcome of the enemy's temper as developed by his methods in time of peace, the maxim surely carries for sane men the sense of a warning against following his example. It is a cult and system of national egotism that has brought the war about. The very expansion of German trade during the past forty years has visibly helped to engender the frame of mind in which a world war was regarded by myriads of Germans as a means of further commercial expansion and supremacy. The system of tariffs, first resorted to as a means of furnishing imperial revenue for military purposes, always visibly checked German trade as soon as, having met the demand of the secured home market, it sought fresh outlets abroad. Saved only in part by lower wages and longer hours from the handicap of the increase in cost set up by Protection, it was always fever- ishly employing speculative finance to aid it in its com- petition with the unprotected trade of Britain. Lower profits, extended credit, dumping experiments, were its normal symptoms ; and before the war its financial footing was such as to set up uneasy apprehension throughout the German world. The fact that German banks financed German trade to an extent never yet reached in Britain has been made a ground of appeal for similar methods here, without due regard to the question whether that very speculative finance was not bringing about a state of things which moved business men to see in war a cure 29 398 :^ FISCAL POLICY AFTER THE WAR for a state of commercial disease that they could in no other way hope to reduce. Always the need grew greater for more secured markets; and the unyielding persistence of British com- petition, the plain impossibility of overtaking it in textiles or of shaking it off in machinery, at last generated among German traders, now following the lead of their militarist megalomaniacs, the malignant dream of breaking down British maritime supremacy by sheer force. First the chief Continental antagonists were to be crushed; Holland and Belgium were to be made subordinate to German com- mercial interests; and then the Navy of Britain was to be marked down for destruction in a struggle to the death ; whereafter Germany was to be free to seek Eastern and Colonial expansion where she would, and to secure markets free from serious competition. The entrance of Britain into the struggle at the start has happily frustrated the -whole murderous plan; but it is now sufficiently plain that modern Germany, under a fiscal system modelled on that of the economically unenlightened eighteenth century, had re-created the national temper which in that age made "trade wars" an outstanding feature in history. The temper of our Tariffists promises a very similar develop- ment for Britain in the future if it should get the upper hand. A policy of trade boycott which would ostensibly begin with Germany and would immediately have to be extended to neutrals would create exactly the situation in which commercial Germany latterly found itself — that of exclusion from many markets and handicap in others, with the inevitable result of generating a demand for the secur- ing of markets by force. With us, as with Germany, the wheel would go full circle. To begin that fatal revolution in this tremendous crisis would be to go far towards mak- ing the World War the beginning of the end of European civilisation. If we mean anything by our declaration that we want this war to be an end of war, that it is a war against war, 30 FISCAL POLICY AFTER THE WAR we -shall be simply playing the fool if we proceed to set up a fiscal system which inevitably makes for ill-will among nations, and this at a time when the omens had been really for a contrary development throughout the world. The recanting Free Traders seem to have for- gotten that just before the war a rapid growth of opinion in favour of restriction of tariffs had exhibited itself alike in Germany and the United States. As we have seen, sheer stress of circumstances promises to forward that movement in Germany after the war, as it has already furthered it in war time. It would be the most lamentable of developments if at this crisis the uncritical temper born of war feeling and natural indignation against an unscru- pulous enemy should set Britain upon a course which can only bring harm on herself and check the world move- **ment towards a freer trade intercourse all round. The United States have thus far escaped the worst consequences of Tariffism in virtue of their immense natural resources, which suffice thus far to sustain the most rapidly increasing population in the world. To head them further on a course from which a large part of the American people are visibly concerned to turn away would be to do a deadly disservice to civilisation. Free Trade, once more, is the way towards peace for the nations ; the contrary path has ever been the way to sunderance and strife. Tariff wars have been seen to be (the prelude to war for markets. Let not such a war, pre- cipitated by a blindly self-seeking Power, be made a pretext for a policy which will but educate other Powers up to the same ideal. Printed by Cassei.l & Company, Limited, La Belle Sauvage, London, E.C. Cobden Club Publications Fallacies of Protection: Being Bastiat's "Sophismes Econo- miques," translated by Dr. Stirling, with an Introductory Note by the Rt. Hon. H. H. Asquith, M.P. Price is. net. Insular Free Trade, Theory and Experience. By Russhll Rea, M.P. 6d. Things Seen and Things Not Seen. Translated from the French of F. Bastiat. Price id. Shipping and Free Trade. By Russell Rea, M.P. Price 3d. The Lessons of History on Free Trade and Protection. By Sir Spencer Walpole. Price 2d. The Colonial Conference: The Cobden Club's Reply to the Preferential Proposals. Price 6d. Tariff Reform as a Means of Raising Revenue. By Lord Strathclyde. Price id. Free Trade and British Commerce. By Augustus Mongredien. Revised Edition. Price 6d. The Fiscal Policy of International Trade. Being a Summary of the Memorandum by Prof. Alfred Marshall, published as a Parliamentary Paper in 1908. By J. M. Robertson, M.P. Price id. The Empire Aspect of Preference. By Senator Pulsford. Price id. Free Trade, Peace, and Goodwill : Being Selections from Bastiat's "Fallacies of Protection." Price 3d. UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. / OF CALIFORNIA AT LOS ANGELES c UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 143 359 6