EDWIN J. CLAPP
ECONOMIC ASPECTS OF THE WAR
THE EXPORT SITUATION
A discussion of the effect of the Great War upon American interests would be lacking if it were not to include a consideration of our war exports. They demand attention for several reasons. There is general misinformation regarding their nature and extent and regarding the prosperity which they promise the country. The large extent of our exports during the war period has been frequently cited in the notes of Great Britain, both openly and by implication, as a factor which should influence the minds of the American public in their opinion regarding the stoppage of our normal trade with other belligerents in the war. Finally, the dependence of the Allies upon the United States for great quantities of war supplies, especially of munitions, gives us a vast economic power which might be used by this country, under clearly demonstrated necessity, for the protection of its proper rights and interests upon the seas.
During the greater part of the fiscal year 1915 (the year ended June 30), our exports were very large. The great extent of exports, together with a sharp falling off in imports---more marked than ever since the "blockade" of Germany---resulted in a large monthly balance of trade in our favor; that is, a large excess of exports over imports. In the five months ending August, 1914, we had an adverse balance of trade each month, meaning greater imports than exports. From September on, exports exceeded imports. By September, 1914, those factors were working which were to expand our foreign sales to very large totals, and which operated with increasing effect for many months. This development since September may be illustrated as follows:
EXPORTS AND IMPORTS BY MONTHS, SEPTEMBER 1, 1914 TO JUNE 30, 1915
|Excess of Exports|
This increase in our exports was entirely to Europe (including England) for Europe alone had the money to buy. Other continents buy from us, normally, with money loaned by Europe, or with the proceeds of their sales to Europe. Since the war, the monied European powers have been so drawn upon by war expenses that they have had no surplus to lend away from home, and no money to spend for anything but the necessities of life. Germany was prevented by British sea power from getting anything that was on the British absolute or conditional contraband list, and this included nearly every article in trade. The blockade affected other large sellers to Germany exactly as it affected us. And when the purchasing power of South America, for example, is crippled, we too are touched. All this meant that South America, Africa and Asia could not sell their chief customers nor borrow from their customary bankers. Hence they had no money with which to buy from us.
It is this condition that has disappointed the optimists who at the beginning of the war prophesied that America was going to sell to the oversea world what England and Germany used to sell. But the world in question could not buy from anyone. So, though we may sell them a larger proportion of their whole purchases than formerly, it turns out that our actual sales to this extra-European world are smaller than before the war. International trade is a great co-operative venture. No such disturbance as the present can occur among certain of the partners without adversely affecting all the others.
Our increased sales, then, have been to Europe. But the increase has not meant for us that prosperity which it would bring in normal times. Normally such a growth in exports would be extended to our whole field of industries and agriculture. In the present case, the large increase in some articles is met by a large decrease in others, a decrease in articles whose producers are absolutely dependent for their prosperity upon the state of the export trade. Such an article is cotton.
Our exports are "spotty." It is a condition that can no more mean prosperity to the country than an industrial community can be called prosperous when a part of its men are working overtime earning high wages and the other part are unemployed and growing poorer each day.
Contrary to the general impression, our main exports to Europe have not been the weapons of war. It is not possible to find the exports of big guns; they are not listed in the government statistics. But our ordnance shipments have not been large. For the nine months from September 1, 1914, to May 31, 1915, we shipped $34,000,000 of munitions, compared with $6,000,000 in the same nine months of the previous year. In munitions are included: firearms, cartridges, gunpowder and other explosives except dynamite. The increase in munitions exports is seen to be only $28,000,000. To be sure, shrapnel is not included in the munitions list; it also cannot be found in the official export figures. Even if we could add the statistics for ordnance and shrapnel, the larger figure would not go far towards explaining the vast growth of our export balance since November, 1914.
The explanation for our great increase in exports is found rather in the group we call food, especially in breadstuffs. By breadstuff's are meant flour and grain, except oats, the latter cereal being more correctly classed as forage. Some of the reasons why the European demand for our food was especially heavy have already been noted. Excepting for North America, the grain crops of extra-European countries in 1914 were below normal. The closing of the Dardanelles and German control of the Baltic held the great Russian and Balkan supplies of grain away from belligerent Western Europe. Neutrals like Scandinavia, Holland, Italy and Greece, which had always bought largely from the Black Sea, now turned to America. The great rise in the exports and the price of breadstuffs, especially wheat and wheat flour, were reviewed in Chapter II. In the nine months ended with May we shipped $431,000,000 of breadstuffs, compared with $107,000,000 in the previous year. The growth of $324,000,000 showed that the disappearance of Germany as an export market for our wheat was far more than counterbalanced by the great demand of the rest of Europe. In this one item the growing balance of trade is chiefly explained.
In the case of meat products, a similar development occurred. For some time the communication of the Allies with the Argentine was unsafe, owing to German cruisers in the South Atlantic. Even when those seas were cleared, our shipments continued large, the vast supplies required to provision the armies of the Allies causing a recovery of our export meat trade, which for a decade had been on the decline. The demands for a fighting army are far above those for the same number of men in peaceful occupations.(26) The European population in the field has advanced to a scale of living which it never knew before. Further contributing causes to the large meat orders from this country included the German occupation of part of the producing area of France; and the large. purchases made by American relief bodies on behalf of the Belgians. We exported in the nine months $160,000,000 of meat products, $54,000,000 more than in the same months of the previous year. We sent $11,000,000 of dairy products, an increase of $9,000,000.
A similar advance was in our shipments of sugar. The stoppage of German exports to England resulted in keeping nearly half a million tons of German sugar at home, where it was made into cattle fodder. England therefore had to turn to us for her supply. To prevent a too great increase in price, she tried the experiment, which was not altogether happy, of a government monopoly of the purchase and distribution of sugar. Our sugar exports in the nine months to the end of May amounted to $21,000,000, which was $20,000,000 more than in the same months of the year before. Finally, there was a growth of $4,600,000 in our shipments of vegetables.
In forage there has been another remarkable increase. In the nine months' period we exported $71,000,000 of forage: oats, hay, cottonseed cake and meal. This was $60,000,000 more than in the same months of the year before. Five-sixths of the increase was in the item of oats alone. As will appear later, our exports of forage were paralleled by our shipments of horses and mules to eat the forage; that is, to eat it for the brief period during which an army horse or mule continues to enjoy the gustatory pleasures of this world.
Another great group of exports was hides, leather and, footwear, not including harness and saddlery, which belong better in the category of war supplies. The largest increase was in unworked leather and miscellaneous leather products, though there has been a notable movement of men's shoes and of hides. In the whole group we exported $68,000,000 or $48,000,000 more than in the same months a year ago.
Somewhat closer to the business of war were our exports of textile manufactures, mostly the result of great equipment orders from the Allies. Probably the largest single item was blankets, then woolen uniforms, then cotton knit goods. Of these items and of wool and woolen rags we sent abroad $35,000,000, which is $30,000,000 more than last year.
Nearer yet to the direct equipment of war we may make a group called war supplies. It includes horses, mules, harness and saddles, aeroplanes, commercial automobiles, automobile tires, wagons, gas oil and fuel oil, barbed wire, horseshoes and surgical appliances. The largest increase in this group was in the means of transport: horses, mules, commercial automobiles. In nine months ending May 31, 1915, we sent to the war 250,000 horses, compared with 18,000 in the same period of the year before. We sent 53,000 mules, compared with 4,000 in 1913-1914. We exported $30,000,000 of commercial automobiles, which is $29,000,000 more than in the previous year. In the whole group of war supplies we sent abroad $148,000,000, an increase of $119,000,000 over the year before.
It is apparent that up to the present time our great contributions to the carrying on of the war have been indirect contributions rather than munitions. Greater than the increase in munitions exports has been the increase in material for making munitions. Under this head should be included lead, zinc, brass and brass manufactures, wire rods, steel billets and metal working machinery. The last item means lathes for turning out shrapnel. American lathe makers have been totally unable to meet the demand for their product on the part of those in this country and abroad who have shell orders to fill. In this whole group the exports of zinc---generally called spelter---overshadow all others. This is because the German and Belgian stocks of spelter, which normally supply the world outside the United States, are cut off from the Allies. Spelter accounts for over one-third of the increase in the group, the foreign sales of which amounted to $62,000,000 in the nine months ending May 31, $46,000,000 more than in the same months of the year before.
Combining these groups and comparing them with the whole exports of the United States, we have a picture of the present situation.
EXPORTS OF UNITED STATES,
CLASSIFIED COMPARISON OF NINE MONTHS' PERIODS
ENDING MAY 31, 1914 AND 1915
Nine Months Ending May 31, 1914
Nine Months Ending May 31, 1915
Increase in 1915
|Group 1. Munitions||
|Group II. Material for making munitions||
|Group III. War Supplies||
|Group IV. Textile manufactures||
|Group V. Hides, leather and footwear||
|Group VI. Foodstuffs||
|Group VII. Forage||
|Total, Groups I-VII||
|All other Exports||
|Total Exports, U.S.A.||
What is evident is that our total exports for the nine months' period did not grow to any amazing degree. There was a shifting of our output. We were making and selling what we never made and sold before. We were not selling much that we have always sold. A huge decrease is seen in the exports of articles not included in Groups I-VII. For example, there was a great falling off in cotton exports, a decrease of $216,000,000 for the nine months' period. Naval stores decreased. Iron and steel manufactures fell off $17,000,000. Agricultural implements decreased $20,000,000, Lumber and manufactures of wood dropped $41,000,000. There were similar decreases in many other articles such as phosphate rock, mineral oils, electrical machinery and copper (copper fell off $36,000,000) ; though the lower exports of copper were, as we know, finally compensated by higher sales at home to the ammunition makers. These things went to make up the decrease of $382,000,000 in our exports outside of the seven groups.
It may be doubted whether such a situation is a healthy one. It is a poor consolation to the pinched cotton farmers to know that the ammunition makers in Bridgeport are working day and night, that the machine tool works in Hartford cannot fill their lathe orders, that the railroads haul trainloads of war auto trucks from Detroit, that the harness makers of Cincinnati are full of business, or even that the wheat farmers of the West and the packers of Chicago are rich. Lumbermen cannot be shifted to a shoe factory and the tobacco raisers of Kentucky and Tennessee are not trained to make shrapnel shells.(27)
Until those who sell lumber, tobacco, phosphate rock, cotton, mineral oil, agricultural implements, and naval stores reach their accustomed foreign markets, we shall not again be a prosperous country. It is noted that most of our distress products come from the South. To a large degree the distress of these products is due to the ban which England laid upon the important German market. The removal of that ban will be the largest single step towards a return to prosperity.
Nor is it a matter for the South alone. Our inland business dwarfs our foreign trade. No one knows the exact figures of our interior exchanges but it is estimated that the volume of our inland trade is sixty times the volume of our foreign trade. The figures of export trade are published by the government and flashed in the papers. But most manufacturers know that on their books the foreign orders are a small quota of the whole. Most of our producers, especially of our industries, are perhaps sixty times more interested in market conditions at home than those abroad. The fact that some makers of clothing can sell to Europe does not compensate the clothing industry for not being able to sell to the South. So with the wagon and leather industries. We are all interested in the state of the South, and in its relief, not merely in some abstract way or even from humanitarian motives. We are also interested because we want the South to be able again to buy from the rest of the country.
Our main problem will not be in any way solved by the entrance into the export trade of the vast supplies of ammunition contracted for and now in the course of manufacture. They will go simply to make the rich richer.
THE IMPORT SITUATION
One of the outstanding features of this war is its amazing demonstration of the economic power of England. Once Sir Walter Raleigh said that the nation which controlled the shipping of the world controlled the trade of the world and so the world itself. Sir Walter Raleigh stated the principle; the proof was in the great European War.
England at the outset of the war owned over half the merchant shipping in the world. This she withdrew from all service that might aid her enemies. She controlled the marine insurance business. The withdrawal of English companies from participation in the underwriting of risks on German-American trade was one of the obstacles to the recovery of that trade. The London discount market, through which most of international trade had been financed, was withdrawn from the service of England's enemies.
All this was a legitimate use of British economic power. For a belligerent to forbid trading with the enemy is as old as Tar itself. But England went further than this. We see uses of her power that strike us as more novel. The British naval power was used so to threaten with starvation the neutral nations of Europe that they agreed not only not to allow goods to pass through their territories in transit to Germany, but they even agreed not to supply Germany with their own products. Neutral merchants submit their books to English accountants who satisfy themselves that none of the neutral imports are resold into Germany.
Early in the war the British cut the German cable, leaving us largely dependent on British and French cables for communication with northern Europe. When Italy entered the war, our dependence was complete. No message to European neutrals is allowed to reach its destination if the British censor imagines that it refers to a transaction that may be benefiting Germany. Sweden has complained that this exercise of the censor's imagination has seriously impaired her legitimate trade with us. In August, 1915, the packers were in Washington complaining of the cable censorship. They complained that, after creating the Netherlands Oversea Trust and designating it as the sole consignee for our exports to Holland, Britain was refusing to let our cables reach even the Trust.
These cases represent unprecedented interference with the course of neutral trade. And yet Americans do not excite themselves unduly because of what Britain is doing to Denmark or Holland, even though it is our exports which are there being subjected to British supervision.
Another set of cases comes nearer. Some of them are detailed in this chapter. Rubber from the British empire was withheld from the American trade until Americans signed an agreement not to manufacture rubber goods---from any rubber whatever---for the enemies of England. So with wool. So with tin.
Because of a blockade which we do not recognize, we are cut off from imports from Germany, and we face serious industrial disturbance through the failure of the potash and dyestuffs supply.
We already have seen that the Admiralty forced our copper exporters to place in its hands the direction of our copper trade. The Liverpool Cotton Exchange now apparently blacklists all Americans who do not sign an agreement not to deal with the enemies of Britain.
It is indicated by Great Britain to the steamship lines carrying our exports that American shipments to neutral countries, if approved by British consuls, are less likely to be detained. Steamship lines refuse to take shipments until they are so approved. British consuls in American ports are engaged in accepting affidavits from American shippers that none of our exports for neutral countries will get through to Germany; though in our official protest to England we assert that for us to accede to the purpose of the ineffective British blockade would be to violate our neutral obligation to trade with both belligerents.
It is impossible to reach this point without feeling that our American sovereignty is involved.
In 1793 E. C. Genet, an agent of the French Government, was operating in this country, France then being at war with Great Britain. Thomas Jefferson wrote to him in June, 1793:
"It is the right of every nation to prohibit acts of sovereignty from being exercised by others within its limits, and the duty of a neutral nation to prohibit such as would injure one of the warring powers."
It is not far from an act of sovereignty when a British consul decides whether we may ship anything contraband, ---conditional contraband or "free list"---to neutral countries in Europe. When this sort of sovereignty is permitted and is exercised for the purpose of injuring the Germanic Allies, those Germanic Allies might perhaps justly feel they have cause for complaint against us as a neutral nation.
The present chapter and the following are the story of the strange documents we had to sign to get certain necessary imports from the British empire or even from the neutral world, of the stoppage of our imports from Germany and Austria, especially dyestuffs and potash, and of the pending loss to our Federal treasury from the disappearance of custom revenues from German goods.
First with regard to imports that do not come from Germany. The most important of these are rubber, wool and tin. At least part of our supplies of each of these comes from British colonies. Great Britain allows us to get supplies from British colonies only on condition that our manufacturers refuse to ship to Germany either these materials or the products of them. In practice we may not ship raw materials or their products even if the materials do not come from British colonies; even if they come from the United States itself. This policy of Great Britain has been aided by her manipulation of the contraband list, particularly by her making absolute contraband of wool and rubber, both on the free list of the Declaration of London.
The United States normally consumes about one-half the world's output of rubber, whose production has increased rapidly with each succeeding year. Over half of our material is grown in British colonies.
Apart from the obstacles in finance and transportation, soon overcome, there was no difficulty in getting rubber in the early months of the war. In August, 1914, we received 6,500,000 pounds less rubber than in the previous August, but after that month our imports steadily reached higher figures than in the corresponding period of the previous year with the single exception of January, which will be explained.
The chief excitement in the rubber trade during the first four months of the war was provided by the exploits of the German cruiser Emden, which in the course of her destructive career sank two dozen merchant vessels, three of them carrying $1,000,000 worth of rubber. The indirect influence which the Emden exerted, in the way of discouraging shipments from Ceylon and Singapore, was considerable. When the cruiser was sunk November 10, rubber prices declined, because these Far East supplies were free to move. Values were soon to recover, however, because of England's embargo on the exportation of rubber from the British empire.
On September 21, London had declared rubber and rubber goods to be conditional contraband, making it impossible for our dealers to export rubber and its products to Germany, and difficult to ship it to adjacent neutrals because of the suspicion which England cast upon such cargoes. For example, the rubber and copper for Italy in the cargo of the American steamship Kroonland led England to unload this steamer partly and subject her to a long detention at Gibraltar near the end of October. On October 29 rubber tires were made absolute contraband.
Still England was not content. The British officials believed that rubber goods and raw rubber were going through to Germany from this country, via adjacent neutrals, under false declarations on the ship manifests. Therefore on November 12 the exportation of raw rubber was forbidden, from all parts of the British empire to all destinations except England. The rubber trade at once became worried and appealed to the State Department. The State Department did not seem able to help the situation, and though American dealers offered re-exportation guarantees as a condition of being allowed to receive raw rubber, Great Britain seemed unwilling to accept them.
Because of the large volume of rubber on the seas for America at the end of November, this prohibition did not at once affect our receipts. Not until January did the imports sink below the corresponding month of the year before. Meantime, however, the rubber trade was getting alarmed. The Rubber Club issued a statement saying that the employment of 250,000 men was imperiled, and that, if the embargo continued, half of the 65,000 tons of rubber which the trade needed for 1915 would be cut off.
By the end of December a peculiar problem had arisen, due to the high prices ruling and the uncertainty as to how long the embargo would last. It was apparent that if the embargo continued long there would be a large accumulation of raw rubber in the British market, and that the release of this supply would so depress the price as to occasion serious loss to prudent American manufacturers who had bought supplies at the higher December prices, compared with those who took a risk, waited until the ban was lifted and later bought their rubber cheaper.
In December the large rubber interests arranged that B. G. Work, president of B. F. Goodrich and Company, should visit London and attempt to arrange for rubber imports into this country. He found the British Government none too eager to cooperate with him, because of its conviction that rubber goods were reaching British enemies from the United States, and because of what it evidently considered as the suspicious action of the American Government in withholding the publication of ships' manifests for thirty days after the ship sailed. Nevertheless, the negotiations of Mr. Work were successful, partly owing to a promise on the part of the Rubber Club and the Rubber Association of America jointly to seek the co-operation of the Treasury Department in investigating and preventing illicit practices, such as false declarations of exports to neutrals adjacent to Germany.
In his January 7 note, Sir Edward Grey, in answer to our protest of December 26, speaks of an arrangement by which Americans were to be allowed to get rubber. Under proper guarantees, provisional licenses to ship to the United States were, he said, being granted to British rubber exporters.
On January 8 Washington despatches, inspired by the British Embassy, announced the conditions which Americans must fulfill. Large manufacturers were allowed to have rubber consigned to them direct, upon condition of their giving a bond in London which would be forfeited if they were caught exporting or allowing exportation to Europe. American dealers in rubber, as distinct from manufacturers, were to be allowed to get rubber only by having it consigned to a New York bank, to be delivered to the buyer when he filed with the British consul general in New York a guarantee against re-export which was satisfactory to that official.
The leading manufacturers in the country signed a guarantee, undertaking not to sell or export any raw, waste or reclaimed rubber, except to England and British possessions. Raw rubber then in the hands of American producers was to be used in their factories, and not sold to anyone. The manufacturer bound himself to execute no orders for manufactured goods for any enemy of Great Britain. Orders for European neutrals were to be filled from stocks previously accumulated in Europe, or, if manufactured in America, were to be shipped first to London and re-exported thence under license. A distinctive mark was to be put upon all products exported or sold for export and notice was to be given to His Majesty's consul general of shipments destined for non-European countries. The manufacturer pledged himself not to sell rubber manufactures to any person in the United States without first ascertaining that the person would not export the goods to Europe except to Great Britain or her Allies.
This guarantee was published in May by the Rubber Club, with a request to customers to cooperate with the manufacturers in preventing rubber from getting to the Teutonic Allies, and so avoiding a second British embargo.
But more than good will on the part of dealers was required. The manufacturers, having obligated themselves, proceeded to bind their customers, the latter being required to sign an agreement of which the following is a copy:
"We hereby agree that any quotation asked for, and any purchases made by us from you or another of any of your products, shall be in each and every case only for domestic use or shipment to Great Britain, France or Russia. We pledge ourselves to this fact, and agree that the execution of this document shall be binding on us for such length of time as you shall consider it to be effective, and cancellable only by you.
"We further agree to submit to any and all investigations that may be necessary on your part, and to give free access to any and all of our books, if called on so to do, to establish the fact of our nonexporting, or selling to another to export, in violation of this agreement.
"And further, we agree that any order, even though accepted by you, may be cancelled without redress on our part at your option, for any cause whatsoever, during the period that a state of war exists abroad, between Great Britain and any other country.
"In case we tender any order that is for shipment out of this country, we will in each instance state thereon its destination."
It will be noted that the guarantee signed by the manufacturers with the British Government bound them not to manufacture any goods for the enemies of Great Britain, whether made of British-grown rubber or not. It is supposable that a manufacturer might have refused to sign the agreement on the ground that it was a combination in restraint of trade, and might have declared that he would work with Brazil rubber and sell his products where he chose. But Brazilian rubber is of a different quality from plantation rubber from Ceylon and the Straits; and manufacturers cannot do without the British material.
Moreover, without signing the agreement with the British Government, no American manufacturer could get Brazilian rubber. The product of Brazil could get to the United States at this time only via England; or, if it came direct, via the Booth Line. But the Booth Line was an English concern and would accept no rubber for New York unless consigned to the order of the British consul general. The latter would deliver, naturally, only to the faithful.
It is true that rubber or its manufactures did get into the hands of dealers who would have been willing to sell to Germany. But they could not ship it. There were no steamship lines to Germany, and from September 21, when rubber was declared conditional contraband, the lines to adjacent neutrals had refused rubber that by any chance might be destined for Germany, out of fear that its presence on board would subject their ships to long detention by the British cruisers.
After American manufacturers were prohibited from exporting to neutral countries except via England, lines to those countries refused to accept articles with any rubber in their composition, even rejecting American exports of carpet sweepers and of the harmless necessary clothes wringer.
The export of American automobiles and motor cycles to European neutrals was greatly hindered, because their tires were not allowed to go with them. A motor cycle for a customer in Sweden had to be shipped tot him without tires. The American company found it necessary to deliver the tires from stock in England, or to send the tires to its London agent with instructions to request a license for their shipment to the Swedish buyer. Whether the tires were allowed to be exported depended upon the state of mind of the duly authorized British official. If the official thought that the name of the Swedish buyer had a German sound---and most Scandinavian names have to British ears---he would refuse the tire license and the Swedish buyer would find himself with an automobile or a motor cycle for which he bad no particular use. If he was wise, next time, he would order his motor cycle from England, whence the motor cycle would not be exported unless the tires were licensed to follow. The acquaintance of the British license officer with the British exporter gave the exporter the opportunity to explain that it was a racial and not necessarily a personal or business relationship between a gentleman in Gothenburg and a gentleman in Hamburg which made their names sound alike.
Naturally, the market for rubber products which our manufacturers had built up in European neutral countries disappeared, excepting so far as the British would still allow us to supply that market through English agencies; and for this loss an increase in our exports to the Allies could be hardly a legitimate compensation.
On December 23 Great Britain declared rubber and its products absolute contraband. To be sure, this was practically no more effective than the ruling of September 21 which made such goods conditional contraband. But just as in the case of copper, placing rubber in the absolute contraband list was designed to "keep the record straight."
Rubber is one of the items on the free list of the Declaration of London. That is, it is so necessary for the arts of peace, and has so little direct connection with the uses of war, that nations are forbidden to hinder its movement to a belligerent. There is nothing in the use of rubber today that was not known in 1909; hence the reasons for listing it as a free article of commerce must still exist.
And when one examines the connection of rubber with the operations of war, the justification for declaring it contraband does not appear. One of the uses of rubber is for automobile tires. These tires may be used upon machines that are part of the military equipment of the enemy. Rubber, just as oils, hides and copper, should be free, listed according to the Declaration of London, an international code to which Great Britain was the leading contributor.
As to Great Britain's course in restricting our reexport of rubber goods made from British materials, this embargo must be accepted as a necessary incident of war, on the ground that for Britain to allow such trade would be to allow an indirect form of "trading with the enemy." But for a system that prevents us from furnishing without hindrance rubber and rubber goods to European neutrals, and from furnishing to Germany Brazilian rubber and such products as we can make from other than British materials, there is no logical defense.
As for the British measures exerting any pressure upon Germany which will influence the outcome or duration of the war, this is out of the question. Not even in England does anyone think of that. As usual, the pressure is being exerted upon a civil population, and upon the manufacturers in Germany and elsewhere by whom this population is supplied. At the outbreak of the war all tires in the empire are said to have been commandeered for the use of the military. Does anyone think that there were not enough tires in Germany to serve the military for an indefinite period? In a country with such an old and developed rubber industry there is a great store of old rubber which can be reclaimed and used. Finally, synthetic or artificial rubber is a fact, not an experiment. It cannot yet be produced so as to be a commercial competitor of natural rubber, but with the element of cost disregarded, it can be produced in large quantities. In the production of synthetic rubber for military purposes cost is not considered.
So much for rubber. The history of wool is similar. Of the wool which our manufacturers make into dress goods and manufactured clothing, we import more than we produce. Our imports fall into two divisions: Class I and Class II wool, which are the finer sorts used for clothing and blankets; and carpet wool. Carpet wool comes from China, Russia and Turkey. Russia and Turkey placed embargoes on the exportations of carpet wool but this resulted in no material embarrassment to our mills because by far our largest supply of this wool is from China and our trade with that country was not disturbed. Our difficulties were concerned chiefly with the better classes of wool, of which we obtain normally about 60 per cent from the British empire, and the rest mostly from South America.
The war came at an opportune time for the woolen manufacturers. The Underwood-Simmons tariff law had placed raw wool on the free list on December 1, 1913, and there were large importations of foreign wool up to the time that the war began. From December 1, 1913, to August 1, 1914, we received 35,000,000 pounds more of raw wool than in the same period of the preceding year. At the opening of the war there was a considerable supply of wool afloat for this country or contracted to be delivered here, so until the end of October the wool receipts continued in large volume.
But with the opening of the wool auction sales in London, early in October, Great Britain announced an embargo on wool exports from the United Kingdom. The wool trade was not alarmed, assuming that the imports from Australia and New Zealand would not be affected. Anxiety began to be felt, however, when despatches from Washington early in November announced that Australia and New Zealand had imposed embargoes on wool exports; and it was asserted that England had forbidden British vessels to carry South American wool to the United States. As a result of these factors, our receipts of wool declined in November and fell to a very low level in December. They did not reach their normal volume again until March, after the February agreement of our importers with the British Government.
That we were allowed to get as much wool as we did in those winter months was due partly to the clamor of the Australians at being deprived of their customary American market. Some shipments of Australian merino wool moved forward under temporary licenses granted American firms; but nobody knew how long the system would last, or what there might be in the future.
The difficulty in the negotiations between the American woolen manufacturers and the British Government arose from the nature of the required guaranty, namely, that the wool would not reach Germany in any way or form. Americans considered it impracticable and unfair to be asked to put up a bond supporting such a guarantee, because of the numerous stages and the many hands through which the wool must pass in its progress to the ultimate user. Meantime, the woolen manufacturers complained that the Allies were overwhelming them with war orders and were not letting enough wool supplies come forward to make the filling of those orders possible.
The Textile Alliance comprises the four leading textile associations in America and was originally formed to correct certain abuses connected with the purchase of mill supplies. It was through this organization that the plan was eventually worked out which allowed wool to come forward.
Under this plan a license to receive wool in America could be had by an American only after approval of the purchaser by the Textile Alliance, acting through its president, A. M. Patterson. Theoretically, it was possible to apply to London direct for a license, but the British Government let it be understood with quite sufficient distinctness that it would grant no license not approved by the Alliance.
The plan required that a separate application must be made for each shipment. The application was to be forwarded by Mr. Patterson to the British authorities. If the wool was to be shipped to an American, he must sign a non-export guarantee before delivery could be had. All imported wool, it was provided, must be consigned to Mr. Patterson or to one of a group of banks approved by the British Government. The banks, however, could release the wool only upon written word from Mr. Patterson.
The Textile Alliance, in explaining the plan to the wool trade, stated that it had assumed strong moral obligations towards the British Board of Trade, to discourage by every lawful means the export of wool, tops or yarns from the United States. If such exportation occurred it would be considered by England as prima facie evidence that the United States was supplied with more than enough wool for its own use, and the imports would be restricted by the British Government. Therefore all wool users and dealers were urged to refrain from such action. That is, even wool raised in Montana might not be exported without bringing upon this country a British embargo on wool from Australasia, and possibly other measures that would shut us off from supplies from South America in British ships.
In addition to the measures already reviewed, the export of wool products to Germany was prevented, and export to adjacent neutrals hindered by Great Britain's August 4 contraband lists, and the treatment which the August 20 Order in Council prescribed for conditional contraband. Blankets were listed as absolute contraband in the August 4 lists; woolen clothing was absolute when of obviously military nature, and otherwise conditional. This policy reached its full effectiveness on March 11, when raw wool, wool tops and noils and woolen and worsted yarns were suddenly made absolute contraband. Again, in the making of raw wool contraband, the situation arose of Britain forbidding us to trade with Germany in innocent American products, necessary for the German civilian population. Wool was on the free list of the Declaration of London.
The measures taken regarding wool and rubber were paralleled by those regarding tin. Tin comes from England and the Straits Settlements. All of it now comes through London. After a period of complete embargo, we were allowed to import the metal under license, with a guarantee that tin and its products would be sold only to our own country and the Allies.
THE IMPORT SITUATION (CONTINUED)
Passing from commodities imported largely from British possessions, it is of interest to consider the effect of the war as to articles for which our great source of supply is Germany, notably potash and dyestuffs.
One of the most important and necessary of our imports is potash, in which Germany has a monopoly of the world's supply. Potash is an essential ingredient of commercial fertilizer, which becomes increasingly necessary for soils that have been worked long and have had extracted from them, by the growing crops, important chemical properties. Our use of fertilizer is naturally most extended in the older parts of the country, especially in the southeastern cotton states where the land has been tilled without interruption for a century.
Commercial fertilizer is compounded of phosphoric acid, lime, nitrogen and potash. All the necessary elements are present and readily available in this country, except potash. We import from Germany 1,000,000 tons annually of salts with various percentages of potash, containing about 240,000 tons of the pure chemical. In normal times this material is used principally in making fertilizer, though it is also employed in making various chemical products, among them gunpowder.
The war came at a bad time for the fertilizer manufacturers in this country. The annual supply of potash from the German Syndicate comes in eight installments, running from May to December. The manufacturers ask for small installments during the early months, as they do not begin to ship the fertilizer until the following February, and large takings in the early months mean a corresponding tying up of money during the summer and fall. Hence, on August 1, 1914, little had been shipped to us.
At the outbreak of the war Germany declared an embargo on the export of muriate of potash, the sort used in gunpowder. This restriction lasted only five or six weeks, but its relaxation was not followed by large imports, owing to difficulties in arranging payments, lack of transportation, and shortage of labor at the German mines.
Potash comes from the Potash Syndicate. The contracts under which our manufacturers had been supplied contained a war clause, and so had become invalid.
The Syndicate offered, however, to continue shipping at contract prices if the Americans would carry part of the higher cost of delivering potash in America. The higher cost consisted of a larger inland freight rate from the mines to Rotterdam, since the German ports were closed---a higher ocean rate and war risk insurance. The Syndicate offered to carry the higher ocean rate, if the Americans paid the higher inland rate and assumed the war risk insurance. The effect was to make potash cost us only $4 per ton more than before; which meant for muriate, for example, a price of $37.50, instead of $33.50 per ton delivered.
Under these conditions potash was brought to this country, subject only to the limitation imposed by scarcity of ocean tonnage, until at the end of January Germany forbade its further export. Yet it had never moved freely. Only in January and February did our receipts equal as much as one-quarter of the corresponding receipts in the previous year. In October, because the German railroads had been largely used for military purposes in August and September, we received only 1,800 tons of potash compared with 92,000 tons in October, 1913.
The German Government ostensibly looked with increasing concern upon the amount of muriate of potash being used in this country for exportation to England as pure gunpowder, or as gunpowder in ammunition; and therefore, on January 29, declared an absolute embargo on the export of all potash salts.
The British blockade action on March 1 showed that England was prepared to stop potash or anything else from Germany. Against our receiving further shipments there was apparently a double bar.
It so happened, however, that at the beginning of the war there were three cargoes of potash in Hamburg: two in ships of British registry, one in a German ship. With the outbreak of the war these vessels were tied up in port. The German boat could not venture out for fear of capture; the English boats were detained by the Hamburg authorities. These cargoes had been bought before the beginning of the war. In March, after the British Order in Council, potash in this country was very scarce; so the users urged the State Department to obtain from Britain permission for these cargoes to be barged from Hamburg to Rotterdam and there put on ships for America. It was explained to London that these goods, like other imports allowed to pass in March, had been bought before the Order in Council went into effect.
In April, after long negotiations, Great Britain's permission was obtained. It was agreed that potash on its way to Rotterdam and America should not be molested. In America, provision was made for supervising the distribution of this potash by a government official, to assure the German authorities that it would reach only fertilizer factories and chemical manufacturers, who would put it to other use than the making of explosives.
Though apparently suspicious as to the possibility of keeping muriate away from American powder manufacturers, who were willing to pay high prices for it, Germany agreed to let the potash go to Rotterdam and be exported thence, on condition that we would send three American ships, loaded with cotton, to take it away. This our government declared itself unable to do, in view of conflict with the British blockade Order.
The result was that the potash was still withheld. Because we would not send Germany the things she wanted, that country in effect set out to deny us the things we wanted. She apparently was looking for a pressure which would make us feel the inconvenience as keenly as we felt the illegality of the British blockade. The withholding of potash as a measure of pressure against us was no doubt the real reason for the January 29 embargo, rather than any hope of crippling our exports of explosives by that action. Potash is not used for smokeless powder.
As a result of these conditions the use of fertilizer in this country for the agricultural season of 1915 was greatly curtailed. This was especially true of the cotton states, where a reduction of 40 to 50 per cent was reported. Such fertilizer as was used contained less potash than usual. The effect on the cotton crop may not be noticeably great for the year 1915; but if the war continues and in 1916 no more potash is available than this year, the results, according to agricultural experts, will be very marked.
Apparently the resumption of our potash imports is dependent upon the successful assertion of our right to ship our products to Germany. It may be an additional incentive for us to start the movement of cotton to Germany, if that movement is the price we must pay for potash to raise more cotton.
We Americans are fond of saying that we are a self-sufficient nation, independent of the world. We raise everything we need. No one can hurt us, we say, for we are a complete world in ourselves. The war will serve to awaken us from this self-hypnotism. Of some products, such as cotton, we raise a great deal more than we need, and a war that cuts off our exports brings us distress. Of some vital products like potash we produce less than we need, or none at all; and war cuts us off from the necessary raw material. We suffer as to potash because German mines have a monopoly of the supply. We suffer as to dyestuffs because German industry has created a practical monopoly of their production.
In olden days our textile manufacturers did their coloring with vegetable or animal products from such sources as logwood or the cochineal bug. These natural dyes have been displaced by synthetic dyes which are derived from coal-tar. We have no longer the apparatus and trained men for making and applying the old natural dyes. And the development of the synthetic dyes, their manufacture on a vast scale and the supplying of them to the rest of the world, have been an achievement of industrial Germany.
The manufacture of coal-tar dyes is complex. By distilling coal-tar ten products called crudes are produced. By treating these crudes with non-coal-tar products, like acid and gases, 300 intermediates are produced. These intermediates are assembled or combined to form, all told, some 900 finished dyes, of which a considerable proportion are in use in the United States. It is as if ten fibers were used to make 300 yarns, these in turn being woven into 900 patterns.
There are several reasons why no dyestuff industry has developed in America. One difficulty is in the production of intermediates. The making of some of these is a process kept secret or patented by the Germans. In the case of others, by-products are developed for which the Germans alone have found a use and a market. The German industry is largely in the hands of four great concerns which produce all of the intermediates and finished dyes, and use all of the by-products. To compete with such industries, it would be necessary to operate upon the same scale. Some of the intermediates and finished dyes could not be made in this country until secret processes were discovered or until the expiration of German patents. We could not operate with efficiency until we had trained the thousands of chemists who watch over every division and subdivision of the dyemaking process in Germany.
While the shortage of dyestuffs has given some stimulus to the industry in this country, it is a perilous business to embark upon the manufacture of dyes for the war period alone, only to encounter disastrous competition with the lower-cost German product upon the return of peace. The development of a real dyestuff industry in America would be a slow matter at best, but even much of a beginning is dependent largely upon a heavy protective duty and perhaps a change in our laws to prevent foreigners from dumping their products here at famine prices after the war. An increased protective duty would be opposed by many of the manufacturers who use dyestuffs. It would be unfavorably received, at present, by the American public and be out of line with the policy of a Democratic administration.
There are a few dyestuff plants in America, but these have been employed largely on intermediates imported from Germany. To solve the problem of war shortage they can help but little. It is vain to say that we have the largest supplies of raw material for dyes in the world. It is true that by collecting the great quantities of coal-tar which we could collect from our enormous coking industry, we could produce more of this material than anyone else. But the problem is to make the intermediates. It is a problem of processes, patents, trained men, organization and markets. To meet the war situation there is no prospect of American substitutes taking the place of German dyes; the difficulty that confronts dye users must be solved by regaining the German supply.
At the outbreak of the war Germany put an embargo on the export of dyestuffs, but in the latter part of August shipments were allowed to come forward to the United States via Rotterdam. Before the end of September, however, German consular agents here reported to their home office that we were shipping dyes to England. This seems indeed to have been the case, though the extent of such direct re-exports was small. For the nine months ending March 31, 1915, we re-exported to England $54,000 of dyes or dyestuffs, compared with $23,000 in the same months of the year before. More important than this, the export of American dyes increased from $244,000 in 1913-1914 to $538,000 in 1914-1915. These American dyes are largely made from imported German intermediates, and hence may be looked upon mostly as re-exports of German dyes to England. The figures given show only the declared movement of dyes from here to England, and do not indicate a movement which is said to have occurred under false declaration of the contents of shipments. Whatever the actual extent of the re-exports, they occurred in spite of obligation assumed by those who imported dyes, not to reship them to England.
Since England is as dependent as we are upon the importation of German dyes, Germany was bending every effort to keep her products from England, and so to bring pressure to bear upon the dyeing industry in England and upon the people employed. It was the same game that England was playing with rubber. After the discovery of the movement of dyes from here to Great Britain, already apparent in September, the German relaxation of the dye export embargo, when it did come, was so arranged that American manufacturers said it was designed to keep our industries in a chronic state of "dyestuff hunger," in order to prevent us from re-exporting. Our embarrassment was, in fact, probably due to another cause. From July, 1914, to the end of March, 1915, we received $1,700,000 more of dyes and dyestuffs than in the same months of the previous year. To be sure, prices were higher, and this accounted for part of the increase in the value of imports. Yet the quantity imported was heavy and apparently sufficient. There was no marked increase in the home demand for dyes. So, if, in spite of large imports, our industries were in a "chronic state of dyestuff hunger," it was either because the supplies were held off the market by speculators or sent across to England.
When negotiations took place with the German Government, in early October, 1914, to induce Berlin to allow dyes to be shipped to us, the German authorities insisted in return that the dyes should be called for by American ships and that these ships should bring cotton, or something equally desired, to Germany. This demand had much to do with the starting of direct shipments of cotton to Germany, and the use of American boats therefor. American vessels were insisted upon, because it was assumed that England would be less likely to stop our returning ships, and requisition their desirable dyestuffs cargo, than it would be in the case of ships carrying a less imposing neutral flag.
By a mistake which was probably due to excessive timidity, the Matanzas, the first American steamer that went over for dyes (in October), left America in ballast. The German Government nevertheless allowed the boat to bring back a cargo of dyes. The Matanzas arrived with her first cargo on November 15, brought another in January and a third in March. In the meantime, other American boats sailed with cotton, some of them direct to the German ports. Dyestuffs were sent to us theoretically in an amount equal to our average monthly receipts in recent years; practically we received more than this average. Shipments came to this country in good volume until the British Order in Council, announced March 1, shut off all movement to and from Germany. The Order in Council, above all else, stopped the movement of our cotton; and it was in return for our cotton shipments that the dyes had been sent to us.
On March 23, the steamer George E. Warren arrived in New York with a large cargo of dyestuffs and at about the same time the Matanzas came with her last load. The skipper of the Warren said that his were the last German dyestuffs that would reach us until after the war, and until the present writing (August) his prediction has proved practically true. American vessels which were in Bremen on March 1 loading dyes and other German exports, received the announcement of the British Order in Council and at once discharged what they had loaded and came back to America empty. The American steamers were afraid to sail with goods in the face of the Order in Council, and the shippers were afraid to ship, in view of the danger of detention or confiscation of their shipments. Moreover, the Germans, who were doing everything possible to keep dyestuffs out of the hands of Britain, were unwilling to let dyestuffs be exported while a British Order was in effect which allowed one of His Majesty's cruisers to take into a British port any cargo from Germany, unload it there and sell it in the British market.
When the shipment of dyestuffs ceased, Americans who were interested began to appeal to Washington. Congressman Herman Metz of New York sent out letters of inquiry to about 1,000 users of imported dyes: manufacturers of textiles, leather, paper, wall paper, colors and printing inks. Replies from 270, he said, indicated that about 250,000 employees would be affected by an interruption of dye imports. He estimated that the total number of workers affected directly and indirectly would be not under 2,000,000. Whether or not such figures were too large, it was certain that the threatened effects were serious. To some extent it was possible to substitute white goods for colored, but even that meant deprivation of employment for those ordinarily engaged in the coloring process.
In April it was estimated that the supplies of dyestuffs in the country would take care of our demands until July 31. The pressure brought to bear at Washington was strong. The British Government perhaps shunned the odium of bringing disaster upon dyestuff users; moreover it was not in a good position to resist the pressure. England had declared herself willing to allow the export of cotton which had been contracted for before March 1. She was now asked to allow the importation from Germany of dyestuffs under similar terms. Such a concession was suggested not only by her own policy with regard to exports, but also by her own interests as a dyestuff user, for experience had taught her that she could buy German dyes that reached America.
So in the middle of April a London representative of the Textile Alliance obtained from England a free passage from Rotterdam for two cargoes of dyes, consisting of goods said to have been purchased before March 1. The dyes were to be consigned to Secretary Redfield of the Department of Commerce, and by him distributed to the members of the Textile Alliance. Many in this country were dissatisfied with the arrangement, because the membership of the Textile Alliance by no means comprises all those entitled to receive dyes. The German Government was dissatisfied, and refused to let the dyes come forward under such an arrangement. Berlin is said to have claimed that the dyes must move not by the grace of England, as an extraordinary shipment, but by right of the United States as a part of the free commerce with Germany which was being illegally obstructed by England. The dyes in question did not come forward.
All this meant, in plain English, that Germany was determined to hold up our supplies of dyestuffs until we re-established regular communication with her; to keep from us something that we wanted until, in accordance with what we claimed as our clear rights, we should begin to send our goods to her. It was believed that dyes were a more powerful inducement to us than potash, for we could see in the immediate future the result of a dye shortage, whereas the result of a potash famine probably would not be fully felt until the gathering of the 1916 crops.
As in the case of potash, so with dyes, we cannot say that Britain was directly responsible for the threatened shortage. Britain was willing to allow us to bring a small quantity of both potash and dyes through the blockade. But Britain must be held responsible for the sudden stoppage, on March 1, of all commerce between us and Germany, a commerce of which potash and dyestuffs form an inseparable part.
With regard to the stoppage of imports from Germany other than dyes and potash, the British Government bears the full responsibility. These imports are normally very large and serve a wide range of manufacturers, dealers and consumers. They include hides, skins and furs, toys, crockery, linens, hosiery, laces, woolen and silk goods and gloves.
It has been noted above that when the March 11 Order was promulgated, all American boats loading German goods discharged what they had loaded and came home. Moreover, the lines of steamers from European neutral ports gave notice that henceforth no goods of German or Austrian ownership or origin would be accepted for transportation, and discharged whatever goods of this nature they had aboard. Such lines included the Holland-American, Scandinavian-American, Swedish-American and Norwegian-American. Their refusal to bring any more goods was natural, since their doing so would expose them to detention and to whatever penalty His Majesty's Government might choose to impose for disobeying the British Order.
This Order decreed that no vessels sailing from a German port after March 1 should be allowed to proceed. All goods aboard must be discharged in a British or Allied port. If discharged in a British port, the goods were to be turned over to the marshal of the prize court, and, if not requisitioned for the use of His Majesty, they should be detained or sold under the court's direction, the proceeds of such sale to be dealt with as the court deemed just. However, no money should be paid over by the court before the conclusion of peace, unless it were shown that the goods became neutral property before the issue of the Order. "The proper officer of the crown" was authorized to modify this last provision, and also to authorize the release of neutral property laden at a German port.
The provisions of the Order thus far cited affected shipments direct from Germany. Further provisions concerned shipments of German goods via neutrals. Any vessel sailing after March 1 from a neutral European port with goods of German ownership or origin, was similarly to be stopped and required to discharge its cargo. If the goods were not requisitioned by the British Government, they might be sold and the proceeds paid to the court. The court, however, was not to pay over any of these proceeds until after the conclusion of the peace, unless it were shown that the goods became neutral property before March 1. The "proper officer of the crown" was empowered also in this case to release neutral property of enemy origin.
It is recalled that we protested with vigor against this tie-up of exports from Germany to this country, in our note of March 30 directed against the Order in Council. We asserted the
"rule sanctioned by general practice, that even though a blockade should exist and the doctrine of contraband as to unblockaded territory be rigidly enforced, innocent shipments may be freely sent to and from the United States through neutral countries to belligerent territory without being subject to the penalties of contraband traffic or breach of blockade, much less to detention, requisition, or confiscation."
That is, we denied the right of Britain, even if she were maintaining a blockade of Germany, to stop the movement of German traffic to us through neutral countries adjacent to Germany.
This communication, as shown elsewhere, was not answered until the end of July. By a series of events, however, the original decree was somewhat modified.
It is recalled that the English Government first modified its Order by allowing us to export through neutral countries, until March 31, cotton which we had sold to Germany before the first of that month. The cargoes were to be allowed to proceed, or else bought at contract prices. It was natural for Britain to grant American importers a similar modification of the Order so far as it affected westbound traffic; namely, to allow us to receive goods which had been paid for before March 1. The object of the westbound blockade being to deprive Germany of the opportunity to make profits by exporting, there was no insuperable objection to letting those exports come forward for which Germany had already been paid, and whose detention would injure only the American buyers.
This was the nature of the British modification. The period during which such goods might be brought out of Germany was twice extended, but the principle was adhered to that nothing should go forward which had not been paid for before March 1.
The efforts of Washington to help importers without compromising the government on legal questions resulted in a curious official complication. Although our State Department never recognized the legality of the blockade, two of its officials, its Foreign Trade Advisers, were deputized to act as representatives of American shippers in presenting to the British Embassy at Washington proofs that their desired imports from Germany were paid for before March 1. It was specifically stated that these Advisers did not officially represent the, government, and that nothing they might do could legally bind their superiors. Yet they were government officials, and they were acting with the British Embassy in its method of enforcing what their Department said as an illegal stoppage of our commerce.(28)
Early in April the Foreign Trade Advisers received a note from the British Embassy at Washington, containing the following:
"The British Embassy are authorized to state that in cases where a merchant vessel sails from a port other than a German port, carrying goods of enemy origin for which American importers claim to have made payment prior to March 1, 1915, proof that such goods were paid for before March 1 may be submitted for examination to the Embassy. If such proofs are presented at a sufficiently early stage to enable the report thereon to be communicated in time to the British authorities, the result of the investigations will be taken into account and due weight attached to them in deciding whether the goods concerned should be discharged under the provisions of Article 4 of the Order in Council of March 11."
The Foreign Trade Advisers sent to importers a statement containing this note and a list of the documents or affidavits which would be considered as evidence by the British Embassy.(29) Proofs were afterward submitted as fast as received.
However, perhaps greater relief was afforded elsewhere. The British Government saw that it must not cut off short all commerce from Germany to the United States. So it appointed the Holland-American Line as the route for such traffic as might be allowed to move. The Holland-American Line is the one most amenable to England, because of necessity it runs through the Channel and is at the mercy of British cruisers. This line was allowed to issue a notice that upon certain conditions it would accept German and Austrian goods after March 1. The conditions were that the goods should be of American ownership, and should have been paid for before the first of March. Moreover, this fact had to be sworn to before an American consul in Germany, and certified by him. It was not simply a question of attesting an oath; the consul must certify the fact.
Under this arrangement there was no doubt that American consuls gave their certification in some cases where nothing but ownership had changed hands before March 1; that is, where an order had been given but no payment had been made. If the British requirement had been strictly met, few goods would have come out of Germany after the first of March. The very important reason for this was the fact that imports are not generally paid for before they are shipped. In the case of 90 per cent of them a bill is drawn by the seller on the buyer, or his banker, at the time the goods are shipped. This draft does not become payable---i.e., the goods are not paid for---until at least 30 days later. One of the largest import firms in New York had placed heavy orders in Germany, but on March 1 had only ten cases of goods in that country for which it had actually paid.
Probably because of this freedom with which the American consuls interpreted the circular of the Holland-American Line, the British Government caused the company to require the certification of the Netherlands Oversea Trust in addition to that of the American consul. During May the United States Government notified its consuls that they had no authority to certify, but merely to attest the oaths of others.
The time limit within which German goods could be taken from Rotterdam was extended to June 1, and then to July 15. It was definitely announced that after June 15, nothing more would be certified by the Netherlands Oversea Trust, and hence nothing more would be accepted by the Holland-American Line. On July 1 the Foreign Trade Advisers notified our importers that on June 15 the British Government had ceased issuing permits for the importation of German goods into America.
This final announcement, which had cast its shadow before it, stirred the New York importers of general merchandise to action. They met in New York on June 10 and thence some of them proceeded to Washington. They claimed that before March 1 they had ordered over $50,000,000 of merchandise for the fall trade. German manufacturers had proceeded with these orders, and the American buyers would have to pay for them.(30) In opposition to this view it was asserted by the British that ample time had been given to get all legitimate and bona fide purchases out of Germany. In the case of orders placed after August 1, 1914, when war began, ordinary business prudence---the British said---must have caused the buyers to have in their contracts war clauses absolving them from liability in cases such as this. That may be doubted. Nobody foresaw, until shortly before March 1, an attempt to blockade even German ports. A policy that forbade German shipments through neutral ports was undreamed of.
However this may be, our importers seem entitled to protection, whether they should have foreseen the British action or not. Their business is an established trade in German goods, upon which our manufacturers and our people have become dependent. The livelihood of the dealers, the prosperity of manufacturers and the comfort of many people are conditioned upon a continuance of this trade.
Further, in this as in many other matters arising from the European War, it is a question of more than our right. If we continue to trade with England and allow our trade with Germany to be stifled, we violate an obligation of neutrality. We can no more rightly refuse to buy from one belligerent and not from another than we can rightly refuse to sell to one belligerent while continuing to sell to another. Failing to enforce our neutral right to trade with Germany is not in strict terms a refusal to trade; yet the principle is as true today as when clearly stated by Jefferson, that between restraining commerce ourselves and allowing belligerent countries to restrain it there is no difference.
On July 23, as we saw in Chapter VI, the British answered with a complete refusal our protest of March 30 against the blockade. The essence of its contention was necessity, and the application of the inapplicable Civil War cases.
In addition to this general denial of our contentions, we received a specific denial. On July 15 we protested against the seizure and continued detention of the Belgian cargo of the American steamer Neches.
In our July 15 note, the issue was first stated. The American steamer Neches with a general cargo sailed from Rotterdam for the United States. She was held up at the Downs, taken to London and compelled to discharge goods which belonged to American citizens. The British had justified the seizure on the ground of the March 11 Order in Council, prohibiting German commerce from moving via neutral ports. (The Neches cargo was of Belgian origin and as Belgium was in German hands this was considered as German commerce.)
Our note stated that we considered the Neches case an illustration of the international invalidity of the March 11 Order in Council. We declared illegal the seizure of goods from a neutral port merely because they originated with an enemy of Great Britain. Our Ambassador was requested to communicate to England our desire that goods on the Neches, the property of American citizens, be expeditiously released and forwarded to destination.
The unsatisfactory British answer was sent on July 31. With regard to what Britain considered its legal rights, this note referred us back to the British communication of July 23. Our attention was called to the inhumanity of Germany's submarine warfare on merchant vessels and it was asserted that this contrasted with the humane British procedure with regard to vessels seized. It was stated that Britain was unaware, except for the published correspondence of America and Germany, to what extent neutrals had demanded damages for the unlawful acts of submarines. So long as this German warfare continued, the note went on, Britain could hardly be expected to abandon her rights and allow goods of German origin to pass freely through waters patrolled by British cruisers.
However, it was stated that in particular cases of hardship in neutral countries England was willing to examine the facts with a spirit of consideration for the interests of neutrals. England declared herself willing so to proceed, if the Neches were held to be such a special case.
In preventing a stoppage of imports our government has an especial interest, because customs duties furnish the largest single item of our national revenue. In recent years we have collected each year approximately $700,000,000 in the form of taxes, nearly one-half of this sum, about $300,000,000, being duties levied on imported goods. German goods are, as a rule, manufactures; they are thus subject to duty and are sources of revenue to the Federal Government. In the last four years Germany has furnished 10 1/2 per cent of all of our imports. She has furnished 14 1/2 per cent of our imports subject to duty.
Precisely how much revenue is collected upon imports from Germany it is impossible to say. The statistics of the customs service are not kept in such a manner as to show import revenues by countries, nor can the figures be so combined as to produce this result. However, it is possible to get a fairly close estimate of the amount so collected.
We know our total imports from Germany, and we know the value of our imports of a certain number of the leading articles in this trade, thirteen in all, some of them dutiable and some of them free. In the calendar years 1912, 1913 and 1914 these specified articles represented one-half of all imports from Germany. The average rate of duty applicable to these goods was 25 per cent in 1912, and 26 per cent in 1913 and 1914. It is a fair assumption that the average duty we collect on all German imports is 25 per cent. Before the war we were importing from Germany at the rate of $120,000,000 per year. A 25 per cent duty on this amount would yield us an annual revenue of $30,000,000. In reality we probably collect more than this. Germany sends us 14 1/2 per cent of all the dutiable goods that we import. If these goods pay the average rate of duty they would yield 14 1/2 per cent of the total we collect. That total is over $300,000,000 per year. So the German imports would contribute over $45,000,000. The true amount lies somewhere between the estimates of $30,000,000 and $45,000,000.
It may be objected that imports from Germany would in any case have fallen off during the war, and that our revenues from these imports would inevitably have decreased even if Britain did not interfere with our trade. In a degree, that is true. In the eight months ending March 1, when the Order in Council went into effect, we imported $76,000,000 of goods from Germany, compared with $127,000,000 in the same period of the previous year. That is, our imports were 60 per cent of normal. Presumably we were collecting that proportion of the normal amount of duties or at the rate of $20,000,000 per year on German goods.
But with an absolute stoppage of German imports, our revenues will decline from $20,000,000 to nothing. And this $20,000,000 is a sum whose prospective disappearance has concerned those in the Federal Government who must take care of our revenue. No one will be popular who suggests taxes to meet a $20,000,000 deficit, which is the contribution England demands that our government should pay towards the enforcement of a non-intercourse policy, though that policy, we officially contend, violates our rights and our neutrality.
THE PRACTICABILITY OF STARVING GERMANY
A sentiment has existed among many people, not excessively partisan in their views as to the general merits of the war, in favor of allowing England a free hand in the treatment of commerce for Germany. They feel that a policy on the part of Great Britain which would tend to end the struggle quickly by bringing to bear upon Germany not only the force of heavy military odds but also the force of severe economic pressure ought, perhaps, to meet the approval of neutral countries, even though these countries might suffer in their own material interests.
This point of view is expressed in an editorial of the New York Journal of Commerce of March 2, the day after the British announced their ban on our trade with Germany.
"If it is in the power of the Allies to keep from Germany the supplies which would enable it to maintain its hostile operations against them indefinitely, whether these supplies are intended for the direct support of armies or to replace those taken for their support from such as would otherwise sustain the civil population, that may be the most effective and humane means of shortening the ruthless process of slaughter, desolation and misery, the destruction of all manner of values and the huge losses which neutral nations cannot escape sharing.
"All can afford to share in the cost and the sacrifice to secure this consummation as speedily and effectively as possible."
In the discussion of Great Britain's action with respect to cotton, and also as to copper, some attention was given to the practical effect of the British policy in bringing to bear upon Germany pressure which might shorten the war. It was seen that in neither case was there any considerable probability of such a result.
It is now proposed to consider further the efficiency of England's "attrition" measures, especially with regard to foodstuffs. It will be instructive to note the resourcefulness with which Germany has negatived the English policy. Not only is it probable that Germany will "get through"; but it is also possible that, under the English economic pressure, she will develop permanent substitutes for some of the products we formerly sent her.
The common opinion is about as follows. Everyone knows that at the time of the Franco-Prussian War Germany had a population of 40,000,000. In 1870 Germany bad about as many people as its farms would feed. Everyone knows that this population has in the meantime grown to nearly 70,000,000. Germany's land area has not increased. Therefore, there must be about 30,000,000 people supported by imported food, mostly from Russia and from oversea. If Germany were deprived of Russia's exports, and if England shut off the supplies from oversea, then, it is reasoned, a population of 70,000,000 would be left with food materials sufficient for less than 60 per cent of that number.
It is generally assumed that the 30,000,000 people added to the German population since 1870 have been supplied with food brought into Germany by the great expansion of that country's trade, which has advanced along with the growth of population. This is the more easily believable, because it is the explanation of the feeding of the increasing British population. Britain, like Germany, is an industrial country and is the only foreign land that we know much about.
There are, however, important differences in the economic situation in the two countries as regards foreign trade and the food supply.
Britain was the first "industrial nation," for the great industrial inventions were made there. In Britain the steam engine was invented and first applied to the manufacture of goods. The old order of production by hand was here replaced by the new order of production by machinery. This great advance so cheapened goods that, aided by the low transportation charges brought about by the steamship and the steam railroad, England began to supply with manufactures that part of the world which could be reached by modern means of communication and which did not erect a tariff wall high enough to keep England's products out.
In return for these manufactures, England took food to supply her rapidly growing population, and raw materials---such as our cotton---to work up into more manufactures. But the undeveloped countries could not pay England with their own products for the enormous supplies she delivered to them. So they went into debt to her and sent to her stocks and bonds and mortgages for the railroad equipment, the harbor cranes and the mining machinery delivered to them. For instance, it is estimated that we owe England three and one-half billion dollars or more; that is the sum of English "investments" in this country.
The British population, which grew from eleven to forty-four million in the nineteenth century, was being fed from abroad. British agriculture positively declined, especially after a policy of free trade in the fifties left it defenseless against the cheap grain of the American prairies, the cattle of Texas (later the Argentine), the mutton of Australia, the dairy products of the thrifty Dutch and the Danes. Cheap transportation worked against the British agriculturists just as it worked in favor of the British manufacturers. Britain became a vast industrial town, with the rest of the world as the surrounding country.
If Germany had followed the course Britain pursued she would be as vulnerable as Britain is today in her dependence on food from across the sea.
The German states, like other European nations, had not been able to meet the competition of the established British industries. Germany was an agricultural land when it came into existence in 1871. It was supporting about as large a population as its land would maintain, in the agricultural stage. Every year a larger number of natives had to emigrate. German emigration to the United States reached 110,000 in 1870; 149,000 in 1873. It rose to 210,000 in 1881, and 250,000, the high-water mark, in 1882. By 1882 the influences were already at work by which the exodus of Germans was to be checked.
The annual loss during the seventies of emigrating soldiers, taxpayers and laborers was regarded by Bismarck with grave misgivings. He decided that further growth of Germany and the retention of its increasing population depended upon a development of its industries. These industries would employ the increasing numbers of Germans. The products of these industries, just as in the case of England, would pay for the food of those employed in them. In 1879, therefore, Bismarck consented to the establishment of a protective tariff, to shield infant German industries from being overwhelmed by British manufactures.
It took time for the effect of this tariff to be seen. The industries had to grow up before they could compete with England on international markets. Emigration was still high during the eighties and early nineties. Prices were low and trade depressed everywhere during the period of 1880-1894. But in 1895 a recovery set in. The German industries were established and ready to take advantage of the recovery. In 1895 emigration to America dropped to 32,000, and it has never since passed 50,000 in any one year. Since 1906 the total German emigration to all lands has not exceeded 32,000 in any year.
Every year this outward movement has been more than balanced by an immigration into Germany of Poles, Galicians and Italians, to work in the industries. That is, Germany has been able to take care of her normal increase in population, and more. It has been the popular impression that Germany has needed land to care for her teeming millions, and that a huge military establishment has stood ready to seize more territory when the least opportunity offered. The truth is that she did not need more land for her people but more people for her land.
The growth of German export trade, a growth larger than that of the other great nations, is indicated by the following table:
EXPORTS OF LEADING COUNTRIES 1880 AND 1912
|U. S. A||
Germany, then, has proceeded along the same paths as England in developing herself into a nation that manufactures for foreign countries. Germany differs from England, however, in not having become dependent on oversea lands for food supplies.
This would have been the result had Bismarck followed the British policy of free trade in food. Unprotected, the old high-priced German farms could no more have competed against American grain than could the English farms.
When in 1879 a protective tariff was levied to protect industries, the German manufacturers clamored to have foodstuffs on the free list. They said that they could not compete with the English manufacturer, if the English workmen were allowed to buy their food in the cheapest markets, while the German workmen could not. The argument was sound, if the sole object was to become a great industrial country like England, importing food from abroad. Germany's purely industrial development would no doubt have proceeded more rapidly if no duty had been levied on grain and meat. But German agriculture would have declined, as did that of England.
Bismarck considered that dependence on foreign food supply was perhaps a tolerable situation for a country like England, commanding the seas, but an intolerable one for Germany. Such a dependence would put Germany at the mercy of any nation with a stronger navy, and Germany did not have a navy of any size, nor did she then propose to have one.
Therefore the Chancellor determined upon a high protective duty on meat and grain (particularly wheat). The duty kept German agriculture in the field. The duty was later increased with the purpose of stimulating intensive production and keeping this production adequate to the needs of the growing industrial population. The attempt has been largely successful.
Protective tariffs generally bring burdens in the shape of higher prices paid by the people who live under the tariffs. So in Germany. The German laborer has paid more for his meat and bread than the Englishman. Through the payment of higher prices for food, the German laborer has been taxed to supply the nation with the economic equivalent of England's navy; namely, assurance of food supply in the time of war. But England's people, meantime, have been taxed in other ways to support their navy.
To be sure, England uses her navy for other purposes than the protection of food supply. But, on the other hand, Germany's policy has attained a desirable result that England misses; namely, the retention of a large population on the land. This has a great and definite social value. The country is the tired city's recruiting ground. The possession of very large agricultural contingents in Germany's armies is of not inconsiderable importance to her in the terrible strain of modern warfare.
Germany's production of food, stimulated by the protective tariff, increased more rapidly than the population it was designed to support. In the admiration expressed for Germany's industrial development, this agricultural success has passed unnoticed. In the years 1883-1887 the population of Germany averaged 46,700,000. This grew to 67,000,000 in 1913, an increase of a little less than 50 per cent. An increase has occurred of more than 50 per cent in the production of every important article of food and fodder; namely, wheat, rye, barley, potatoes, oats and hay. This result was due less to an increase of the acreage cultivated than to a more intensive cultivation and hence a greater yield per acre.
In the early eighties Germany was self-supporting in the matter of foods; that is, everyone was fed with the products of German soil. Since then, products of the soil have increased faster than the population. It follows that if the people were satisfied with the same scale of living as they enjoyed in the eighties, they could still be fed from German products. But in Germany, as elsewhere, in these twenty-five years, the standard of living has advanced. People have learned to live better. They eat more. The per capita consumption of wheat and rye was 40 per cent higher in the years 1902-1906 than in the years 1886-1890. Hence the growing food imports in recent years.
The rye, wheat and flour imports for industrial West Germany have been partly balanced by exportation to Scandinavia of rye, wheat, rye flour and wheat flour from agricultural East Germany. These exports were of course stopped when the war broke out, with a view to conserving Germany's home supply. But there was still a clear balance of imports into Germany, a supply which was sure to be missed, and for which no substitute could be found.
It must be recalled that the war broke out on August 1, before Germany was able to import any of the 1914 agricultural products. When Britain cut the German oversea supplies, the problem that faced the Germans was not one of absolute starvation, as the British assumed. But it was the difficult problem of returning to a scale of living that had been outgrown, but which was nevertheless more than sufficient for actual physical needs.
To prevent extortionate prices for the limited supply of food on hand, the German Government early in the war set maximum prices that could be charged for many foodstuffs. The maximum prices served their purpose well. They kept nourishing food within reach of the poor and of the great masses of those dependent on men fighting at the front.
Next, an effort was made to restrict consumption by appealing to the patriotism of the people. The government exhorted the people at home to cut down their use of food and so supplement the work of the soldiers in the field.
Unfortunately this was not sufficient. If there had been no maximum prices set, rising prices would have automatically reduced the use of food as it became apparent that the supply would not last until the next harvest. The government could have controlled the use of food at any time by repealing its maximum price law. But this would not have reduced the consumption equally on the part of the whole population. The rich and the well-to-do would have bought as much as before. The reduction would have fallen entirely on the poor and dependent
One way was left to combine the benefit of maximum prices with the necessity for making the food supply last until the next harvest,---namely, for the government to take over the supply and distribution of the foods of which a shortage was threatening. By the end of the year 1914 such a shortage seemed possible in grain and flour. One serious difficulty had arisen from the circumstance that the maximum prices that could be charged for grain were such that it paid the farmer to feed grain to live stock rather than sell it in the market.
Hence the now famous Decree of the German Federal Council, dated January 25, 1915. This document was 3,500 words long, and bore the title "Announcement concerning the Regulation of the Trade in Bread-Grain and Flour." The essence of the Decree was contained in the first paragraph, which read:
"On and after the first of February, 1915, all supplies within the empire of wheat, rye (oats and barley were later included), pure or mixed with other grain, thrashed and unthrashed, are seized on behalf of the War Grain Society, Limited, in Berlin. In the same way all supplies of flour made of wheat, rye, oats and barley will be seized in behalf of the communities in which they are found."
The terms of the Decree did not apply to supplies belonging to the empire, to a state, to the military or naval authorities or to the Central Bureau which provisioned the army. The Decree was designed to guard, essentially, the food of the civil population.. Moreover, as noted elsewhere, all imported grain and flour were excepted.
The exceptions included, further, farmers' seed grain supplies, and supplies for their households.
Mills and flour dealers were put under regulation as to the amount of their sales. Bakers were restricted to the use of three-quarters of their former amount of flour. Such were the provisions of the ordinance.
Later a special Kriegsbrot (War Bread) was prescribed for the bakers to make, consisting of wheat, rye and potato flour. Pure wheat bread was not to be baked. Above all, a reduced consumption was assured by the bread card system. Each person was given every week a commutation card calling for bread to equal 225 (later 200) grammes of flour per day. Bread could be obtained at bakeries or restaurants only upon the presentation of the card, which was duly punched. When 7 x 225 grammes were punched out of the card, the person could get no more bread until the following week.
It was considered an act of patriotism to, go through the week with some of the bread allowance on the card unused. The equivalent of 225 grammes per day is 150 pounds of flour per year. This is well over the amount that will support life, but far below the amount that had been used by the German population in recent years. For example, in 1902-1906 the average annual German consumption of wheat and rye was 495 pounds per person, over three times as much as was allowed on the bread cards.
It is well to note this reduction. It is a common statement that Germany was never in danger of starvation and that she could not possibly justify her submarine campaign as a proper defense against Britain's plan to starve her. Today we can make light of any plan of starving Germany. But on February 4, when the submarine campaign was launched, starvation was by no means impossible. The danger which the German Government felt is measured by the drastic measures of self-denial which it imposed upon civilians.
Von Loebell, German Minister of the Interior at that time, wrote to Professor Sering of Berlin:
"We shall be able to subsist during the war only if our mode of life is radically different from that to which we have been accustomed during the long period of peace. The soil of Germany is fertile and can maintain the population of the country, but what it produces has not always in the past most appealed to us. We need not starve, but we must be saving and live simply, eating less wheat and white bread and more black bread and potatoes and utilizing what formerly was waste. We must begin our saving now, if it is not too late. Every household must be placed on a war footing. Economy and self-denial at home are like readiness to face death and courage at the front."
A problem quite as serious as that of food for the population was that which confronted Germany with regard to fodder for its live stock. Under normal conditions fodder constitutes a large portion of the cargoes that fill ships going to Germany. The great items are barley, oil-seed and oil cake, bran and corn. Altogether, imports of fodder exceed exports by more than 7,500,000 tons. Evidently, with imports of fodder cut off, there was necessary either a reduction of live stock or a diversion to the feeding of live stock of grain that ought to be reserved for human beings.
Two measures were adopted: one, to reduce the numbers of live stock, and the other, to increase the supply of home fodder.
At the opening of the war there were 25,000,000 swine in Germany. With imports of fodder cut off, farmers tried to keep their swine alive by feeding them grain and potatoes. At the ruling maximum prices of grain, potatoes and meat, it paid the farmer to turn grain and potatoes into pork before selling to the public. By the end of January the swine had eaten most of Germany's oats, and a large portion of the potato crop.
At the same time that the January 25 Decree confiscated supplies of grain and flour, there was passed a Decree of, the Federal Council aiming at a reduction of the number of swine. Towns of 5,000 and over were ordered to purchase and preserve quantities of pork, and for this purpose were empowered to confiscate the swine supply. How many of the 25,000,000 swine were thus appropriated we do not know. In February Professor Schumacher estimated that it would have been possible to save alive 18,000,000 of the 25,000,000 swine, if the precautionary measures described had been taken earlier in the war. As it was, he expected that 9,000,000 would be saved.
In any case, vast quantities of pork have been preserved by the German communities, and swine reduced to the numbers which can be conveniently supported without drawing upon the foods that support men---notably potatoes. All potatoes were needed for men, to help eke out the supply of bread-grain. Potatoes were withdrawn from fodder use, both by the drastic reduction of the number of swine and by a. raising of the price maximum by 35 marks per ton, which occurred February 15. This price increase induced the farmer to sell his potatoes for human use.
So much for the means taken to reduce the supply of swine. The second problem of Germany was to find a way to replace out of her home supplies a large amount of fodder formerly imported, in order to support the remaining live stock. There were two possibilities. First, a large volume of potatoes are ordinarily distilled into alcohol, used in beverages and in the industries. Further, about 400,000 tons of beet sugar are annually exported, mostly to England. This exportation, of course, ceased with the opening of the war.
A determined and successful war has been carried on against alcoholic beverages in Germany; and the industrial demand for alcohol has diminished. This has set free such a mass of potatoes that there is now a quantity available for fodder even after all human wants are met.(31) Moreover, a method was found of making the unexportable raw sugar tonnage available for fodder. Nitrogen in the form of ammonium sulphate, a by-product of the coking industry, has been mixed with the sugar to make a fodder with over 50 per cent of albumen. This discovery was the work of the Institut fuer Gaerungsgewerbe (Institute for the Yeast Industries) in Berlin. It means a substitute for the fodder albumen formerly contained in imported barley. A new straw meal has made the food values in straw available for live stock.
So successful have been the German restrictive measures that at the end of May, 1915, the price of flour was reduced, and the communities were stopped from further slaughtering and pickling their swine. For the first war year the problem is solved. It is now known that several million tons of grain and fodder will be carried over to the next season, along with the crops now being harvested. Any shortage of grain in the future will be met by a reduction in the supplies for food animals. This means a reduction in the German meat consumption which is, however, now far above the physiological minimum.
The best measure of the success of the German policy of price maxima and government distribution is that at present food prices in blockaded Germany are lower than in unblockaded England.
Next year's harvest has already been planned to meet the new conditions. The needs are, compared with last year, more wheat and more fodder. The easiest and most abundant crop of fodder that can be raised is potatoes. Every effort is being made to attain these objects. Only 60 per cent of the normal area devoted to sugar beets is being sown for beets. It is estimated that this will supply the home sugar demand. The remaining 40 per cent of the former beet area was planted with wheat and potatoes. Soil has been sown which under normal conditions was not worth cultivating. Moorlands in Brandenburg, Pomerania, Schleswig-Holstein, Hanover and Westphalia have been drained and planted. We read of potatoes growing on former tennis courts and front lawns.
The occupied regions of Belgium, France and (to a lesser degree) Poland have been planted, and while they will not contribute to the feeding of the civilian population of Germany, they will help feed the 4,000,000 soldiers quartered upon them. Early in the war, large food supplies were found in such centers as Antwerp, and these were available for feeding the German army in the West. The Russian invasions of East Prussia, which produced about 60,000,000 bushels of Germany's wheat, were less destructive to the wheat than to the homes, farm buildings and implements of the owners. The Russian army sweeps clean. However, great efforts have been made to rebuild East Prussia, and certainly a large part of its normal harvest will be gathered.
So many farm laborers were drafted into the army that during the last harvest a shortage of hands was feared. But volunteer helpers nearly swamped the farmers. In addition, this year there are nearly two million prisoners to help gather the harvest and most of these prisoners are Russians, farmers by profession. The supply of farm horses will be 40 per cent less than in peace time. This lack will be met by a large use of colts, oxen and cows, and also by an increase in the employment of motor plows using benzol as fuel.
Finally, Germany in this crucial year has been helped through by a smuggling trade of large proportions. Probably the smaller part of this trade was in American breadstuffs and provisions moving into Germany via adjacent neutrals. No doubt there has been a considerable volume of this business. No doubt it will continue, no matter how stringent the "blockade." Once goods are in the free channels of commerce in Scandinavia, the sharpest laws and the most industrious British supervision cannot prevent them from being drawn over the borders into Germany by the magnet of high prices. And there can be no scarcity in Germany that is not reflected in attractive prices for imported food, which is exempted from the government grain. monopoly and the government's price maxima.
Yet the largest smuggling trade has been from Roumania and Russia. Roumania is normally a heavy exporter of grain. In the fall of 1914, before her exports were marketed, the Dardanelles were closed. Austria and Germany both had wheat deficits, and were paying high prices for imported wheat.
What else could Roumania do with its grain than sell to the Teutonic Allies? It sold them so much that before the first of 1915 the Roumanian Government put an embargo upon further exportation, and in the spring of 1915 that country was even buying wheat to carry its population through to the summer harvest.
Roumania, having marketed its own grain, turned dealer for Russia. Russia has always been dependent upon her exportation of grain to pay for her imports of other things and the interest on her enormous foreign debts. Her grain crop, harvested, found the Dardanelles closed by the Turks and the Baltic exit held by the Germans. Exportation to western Europe via Vladivostok and the Suez Canal was out of the question, partly by reason of the high freights and partly because of the deterioration due to transportation through the tropics.
Moreover, Russian grain cannot be indefinitely stored, as ours can. That country has few grain elevators like those of the United States and western Europe. Russian grain is usually sacked and stored on the open shipping platform of the country railroad station, covered only with a tarpaulin. At best it is put into an unheated shed. There is no capacity at the Russian seaboard for the storage of any quantity of grain. The successful marketing of the cereal depends upon an unhindered movement from ports like Odessa. Restrict that movement, and the grain backs up on the station platforms and in the farmers' shacks.
The dealers in this grain are mostly Jews. They have no especial love for Russia. They had advanced money to the farmers for which the grain served as security. They could get their money back only by selling the grain. The only countries they could reach, and which wanted to buy grain, were Germany and Austria.
Therefore they sold to Germany and Austria, not direct but via Sweden and Roumania. The early Russian embargo on grain exportation was universal, but this changed to an embargo on exports to Russia's enemies. The New York Journal of Commerce of February 18 contained a despatch from St. Petersburg, in which the Russian Ministry of Commerce and Industry was reported as believing that quantities of foodstuffs were reaching Germany from Russia through Finland and Sweden. The attention of the Russian authorities had been called to unusual shipments which had resulted in flooding Finland with frozen meat, flour, grain, butter and eggs. An inquiry was said to have revealed that Swedish commission merchants, who bought from the Finns, in most cases represented houses in Hamburg. The extraordinary demand for the Russian ruble in coin or in bills---a demand existing in both Sweden and Denmark---and the high prices offered for produce in Finland, were considered clear signs of this illegal trade.
The Russian Government itself must have winked at this trade. It was the only means of letting the Jew dealers make money, so that they would be available for taxation. The February 18 "discovery" of the Russian Ministry of Commerce and Industry may be attributed to pressure exerted on Russia by England to support the British starvation plan. There is plenty of evidence that the Russian trade did not cease on February 18. If the Dardanelles still hold out when the Russian 1915 harvest is gathered, we may expect to see another flood of foodstuffs into Germany, if Germany is in the market. The chances are that the latter country will have far less use for imported food during the coming year.
With respect to Germany's measures for increasing agricultural production, one difficulty has existed of a kind not yet mentioned. This is the loss of foreign supply of fertilizer. The large German agricultural production, on an area only equal in size to the state of Texas, is only possible by a liberal use of fertilizer. Commercial fertilizer is made from potash, lime, nitrogen and phosphoric acid. Germany has the necessary potash and lime. Nitrate has been imported in the form of Chili saltpeter, of which 800,000 tons annually are brought from South America. Some nitrogen has been procured at home from ammonium sulphate, a by-product of coal-tar distillation. Phosphoric acid has come from abroad in the form of phosphate rock. A million tons are annually imported: 400,000 from the United States and 600,000 from Algiers and Tunis.
The oversea supply of nitrate and phosphate was cut with the opening of the war. Fertilizer could not be made without them. If fertilizer could not be made, there was the prospect of a decrease of 25 per cent in the production of German agriculture. One of the German triumphs has been in the meeting of this situation.
The foreign phosphate supply was replaced by reclaiming the phosphate waste in the slag of iron ore smelted in Lorraine from the "minette" ore. The foreign nitrate supply was replaced partly by a larger quota of ammoniates from the coal-tar distilleries, but principally by the extraction of nitrogen from the air. This process had been developed---largely by German capital---in Norway, because there existed in Norway the cheap water power which alone made it commercially possible to produce this artificial nitrate in competition with the natural product of Chili. After the outbreak of the war, five such nitrate factories were established in Germany.---So the fertilizer difficulty has been met.
The new supply of nitrate also solved the powder question for Germany. Chili saltpeter was cut off by England's sea power, and a nitrate is necessary for powder. In ignorance of this substitute Sir John French in May gave an interview to the Havas Agency saying that the Germans were getting chary of ammunition and not wasting shells as before "because the failing supply of nitrates necessary for high explosives is making itself felt in Germany."
So much for the prospect of starving Germany in the matter of foods. How is it with regard to the necessary raw materials of industry? The situation has been considered at other points with respect to cotton, copper, rubber and wool. It was not hard to show that Germany's supply of each of these, or of substitutes for them, is such that there is no prospect of Britain's interference with the oversea supply affecting the duration or outcome of the war.
This applies also as to oil. Germany annually imports 750,000 tons of petroleum, over two-thirds of it from the United States. In the fiscal year 1914, ending June 30, we sold Germany $20,000,000 worth of petroleum or its products. Petroleum was made absolute contraband by Britain on October 29. There is no more flagrant abuse of British manipulation of the contraband list than is afforded by petroleum. Absolute contraband means articles so suited for warlike use that their destination for the military must be assumed. Such articles are guns and powder. But petroleum is used primarily for light, and, moreover, used by the poorer classes. The next largest use of it is in the form of gasoline, for motors. Some motors are mounted in automobiles, and some automobiles are used by the military. Can petroleum, by any stretch of the imagination, be conceived of as conforming to the definition of absolute contraband of war; namely, obviously warlike nature, use and destination? In the Declaration of London petroleum was not even on the conditional contraband list.
As has been the case with much of England's procedure in "starving" Germany, so with oil. The pressure has been heavier on the United States than on Germany. The Germans have found a substitute for the oil they could no longer import from us. The Americans thrown out of work by an enforced decrease in our production and refining of oil were less able to find substitute work in a depressed labor market.
To a considerable extent, gas and electricity have been used to replace petroleum. Moreover, the Germans have a substitute for gasoline as a motor fuel in benzol, a product of the great coking industry which produces coke and coal-tar. From the coal-tar are distilled the various products that are bases for the dyestuff industry, including benzol, which also has other uses. Benzol is an acceptable substitute for gasoline for all motor purposes, except such special uses as submarine and aeroplane engines. For these uses Germany will hardly starve for gasoline. The stock on hand at the opening of the war was 80,000 tons, and in May, 1915, the German forces drove Russia out of the great Galician oil fields.
If we stand aside much longer and see Germany compelled to find substitutes for American products which Britain---according to our interpretation of international law---illegally bars from Germany, it is not impossible that we may force Germany so to develop her substitutes that our old markets will be permanently gone.
We should not be pleased, at the end of the war, to find that Germany had developed a benzol that was a perfect substitute for gasoline, and that she had pipe lines from Galicia to supply such gasoline as she continued to buy. The phosphate rock producers would not be happy if Thomas slag proved a permanent substitute for our Florida rock. The copper miners would suffer if Germany, the largest user of copper, found the new soft steel suitable for many of the old uses of copper. Our farmers may not rejoice to find that we have aided in forcing Germany to raise at home the wheat and meat that we annually sold her in the past. May not Britain be asking us to drive German genius farther than our interests can follow?
Because of the sacrifices which Germany has laid upon herself, because of the genius which devised substitutes for what could not be imported, and because of the skill with which she has thrown her whole industrial organization into the new lines demanded by the state of war, her industries have worked on with perhaps less disturbance than is apparent in any other of the fighting countries. The English themselves admit this. For example, a writer in the March British Technical Journal of Engineering writes:
"In examining into the reasons why German industry has not only escaped being brought to a standstill by the war, but has even worked on with an imposing certainty without any suspicion of nervousness, it becomes clear that the most potent factor is that the German army aided in carrying the war into foreign countries. In addition to, this, the industrial and financial authorities succeeded by wise measures in establishing confidence in the power of resistance of the German industrial organization, which in its turn rested upon military success.
"The causes of the uniform continuity in German industrial growth, however, in the last instance, ought to be found in the fact that German development more than that of any other country has grown systematically and shows no gaps of any moment in the manufacturing process. Germany produces herself all her half-finished goods, and she utilizes the residuary products of her industrial processes for the manufacture of valuable auxiliary commodities, with such financial results that no other industrial nation in the world even approaches her in this respect. What these auxiliary products mean to Germany at the present time is more especially demonstrated by sulphate of ammonium (nitrate) and benzol (fuel). The industrial expansion of Germany, although it is much newer than that of England, has been laid out on more systematic lines and in such a way as to render the country more nearly independent of foreign aid. Under the difficult and strenuous conditions of war are demonstrated the extreme value of system and method and the advantages which they confer on a nation when it is cut off from countries from which it draws raw material."
There is no indication of any industrial collapse in Germany, due to "economic pressure." Unemployment is no greater than in peace times. The freight earnings of the state railways, the surest measure of the movement of business, are nearly normal. There has been a decrease in foreign trade with oversea countries, not with all countries. Adjacent neutrals are still supplied by Germany, some of them in higher degree than ever before. The decrease in foreign trade is compensated, so far as industry in general is concerned, by the vast increase in production for the military.
One of England's mistakes in the war has been the willingness to sit still so long, and to await the silent action of the irresistible "economic pressure" which the siren voice of Winston Churchill told them would defeat Germany as certainly as winter struck the leaves from the trees. Whether Churchill's country can now regain the ground which Germany won while England was lulled by the siren, is the question of the outcome of the great European War.
How the war comes out is none of a neutral's affairs. Our business as a nation is to look after our own interests. If there has been any lurking belief that we could serve those interests by silently aiding Britain's economic pressure and so shortening the war and the period of our sacrifices, knowledge of the facts and the prospects must dissipate the illusion. The war will be shortened by military victory, in which we, as neutrals, cannot be participants.
Our interests dictate a resumption of our peaceful trade with Germany. Our interests speak the same language as our rights, our duty to treat belligerents alike and our need for maintaining precedents under which our children can live.
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