The European War, Vol. 1, January 9, 1915 Part 47 (1/2)
We are too nearly self-supporting to be prostrated. Our foreign trade is and always has been a trifling matter compared with our internal commerce. The internal commerce paid for by money and checks annually in the United States amounts to nearly five hundred billions of dollars, which is more than a hundred times as much as our combined exports and imports.
Almost all of what has been said so far had grown out of the prospect that the prices of foods and other materials needed in Europe will be high, while the prices of securities which Europe does not need and cannot afford will be low. Other prices will rise or fall according to special circ.u.mstances. Like a bomb-sh.e.l.l, the effect of the war will be to disperse or scatter prices at all angles of rises and falls. The prices of luxuries will be lowered. The prices of chemicals will be raised. The same article will fall in price in one country and rise in another if the transportation from the former to the latter is interfered with. This is true today of cotton.
There has already been a speculative movement to antic.i.p.ate these changes and arbitrarily to mark some prices up and some prices down. But as this is guesswork, and will be subject to frequent revision, one of the striking phenomena will doubtless be an increase in the variability of prices. The general level of prices will tend to rise. The rise will probably be greatest in little countries like Belgium, which are in the war zone and largely dependent on foreign trade. The rise will be less in England and in the United States than on the Continent. In fact, it is conceivable that in England the h.o.a.rding of money and the shock to credit, which is as predominant there as it is here, may actually lower the general level of prices during the war, especially if we could include in the index number the prices of securities, luxuries, and articles of English internal trade. If any nation tries the old experiment of paying its bills in irredeemable paper money, that desperate expedient will have the same result that it did with us during the civil war. Inflation of the currency will expel gold from that country and raise its price level higher than elsewhere.
After the war is over prices will probably not retreat, but will move upward even faster than before. There may then come the familiar ”boom”
period, which may culminate in a commercial crisis in a few years after the close of the war, as was true after the Crimean war, the American civil war, and the Franco-Prussian war. The rebound will probably be fastest in England. Statistical price curves of many nations usually show an upward turn when war begins and another when it ends. The war will thus aggravate a rise of prices already in prospect.
It would take considerable s.p.a.ce to give, completely, the reasons for these prognostications, but I have tried to justify them in a brief addendum to a book to be issued this week on ”Why Is the Dollar Shrinking?”
The sudden lightning bolt of war produced as one of its first economic effects a general dislocation of credit machinery in Europe and to some extent in this country. We heard at once that letters of credit of travelers in Europe were uncashable. Gold was h.o.a.rded everywhere. It is estimated that about $30,000,000 in gold was h.o.a.rded in New York in the first week in August. Runs on banks were frequent. Bank reserves were depleted.
The moratorium was resorted to to avoid a general cataclysm of bankruptcies which might have occurred--not from actual insolvency but from mere insufficiency of cash.
To me one of the most striking phenomena was the promptness and effectiveness of the co-operative actions by which, so far, any business cataclysm has been avoided. The closure of Stock Exchanges perhaps saved us from general financial panic. Most striking of all is the manner in which the Governments of the world have come to the rescue of business.
Those of us who were brought up in the old laissez-faire school have to rub our eyes. Had the world been guided by laissez-faire ideas, in this emergency we should in all probability have witnessed by this time the greatest collapse of credit the world has ever seen. Almost all the large and effective measures to meet the many emergencies arising were taken by Governments. The moratorium must be counted among the Governmental acts which, so far at least, have saved the day for business credits. In England the Government permitted suspension of the Bank act, (not of the Bank, as many Americans seem to imagine.)
Improvised Accounting Methods.
The Bank of England has been enabled to rediscount a great ma.s.s of acceptances by the guarantee of the British Government against loss in so doing. These in the end will amount to several hundred millions of dollars. Emergency notes were issued by Governmental authority on both sides of the Atlantic, and in the arrangements made for special gold funds in Canada and in France the Governments of England and France played the important parts. Thus have been improvised methods of international accounting by which the transportation of gold balances may be deferred and largely dispensed with. Our own Government has co-operated in the currency exchange and credit situation in many ways.
It made provision for sending gold to Europe for our stranded countrymen. It promptly revised the banking and s.h.i.+pping laws.
Whether further instability will be found to need such bolstering we cannot be sure. The present outlook is that business conditions are fairly sound and stable. In which direction across the Atlantic the t.i.tle to gold will tend to change cannot as yet be foreseen. It will depend largely on how much Europe wants our products and how large a sacrifice she is willing to make in selling us her securities. It will also depend on possible issues of paper money. Fortunately, we are the happy possessors of over $1,500,000,000 in gold, and it is inconceivable that any large part of this should flow out--unless we should be so insensate as to inflate the currency.
If we keep our heads, we shall at the end of the war be in the proud position of being the only great nation whose economic resources have not even been strained.
Effects of War on America
By Roland G. Usher.
Head of Department of History at Was.h.i.+ngton University; author of ”Pan-Germanism,” ”The Rise of the American People,” &c.
_From The Boston Transcript, Sept. 2, 1914._
The events of the last few days of July, 1914, showed the Americans the far-reaching effects of a state of war. There are now few who would say, as used to be so common, that a European war would make no difference to us. The closing of the New York Stock Exchange, the great s.h.i.+pments of gold and its consequent scarcity in the United States, the closing of the New England cotton mills, the cessation of export to Europe and of transatlantic communication with the Continent were instantaneous effects of a war 3,000 miles away obvious even to the apathetic and the heedless. With these we have not here to do; such are already past history. There is, however, a legitimate field for speculation as to the probable effects on the United States of the continuation of the state of war in Europe for months or years. The permanent results of a war naturally cannot be predicted in advance, but in the light of the history of the past, certain changes and developments in the United States appear so probable if the war continues as to reach almost the realm of certainty.
Needless to say, the European war will not involve the United States in actual hostilities. It is highly improbable that either our army or our navy will see service. We are too distant from the seat of war; too entirely devoid of interests the combatants might seriously injure which a resort to war could remedy; too completely incapable of aiding or abetting one or the other in arms to cause them to a.s.sail us. Even were we not as a nation of a peaceable disposition, even had we not a President blessed with a singularly clear head and able to keep his temper, we should still stand little chance of going to war. One eventuality alone might affect us--j.a.pan might attempt some measures of aggression in the Far East which would interest us as possessors of the Philippines, but that is practically foreclosed by her official announcement that she will side with England. The effects of the war upon the United States will be indirect effects; they will be economic in character, though far-reaching and significant for every man, woman, and child in the country.
The economic structure of the United States rests today upon the a.s.sumption of the interdependence of international trade, upon an international division of labor, where England makes some things, Germany others, and we still more, all of which are exchanged. In a sense each country manufactures and produces for the whole world, and in turn expects the rest of the world to buy its products and to manufacture and produce things for its consumption. While something of this sort has always been true in international trade, the process reached during the nineteenth century an unprecedented development which actually made countries interdependent, or, if you will, actually dependent for the necessities of life upon each other's prosperity and continued activity. Hand in hand went the expansion of the international credit structure, based upon public confidence in the mutual honesty of merchants, until finally personal checks have begun to be exchanged (between the United States and England at least) at par and without investigation or previous indors.e.m.e.nt by the banks on which they were drawn.
With the outbreak of war a striking and artificial change, a totally uneconomic and unnatural factor, came to transform the situation and leave the United States for all practical purposes in contact with only two of her really large customers. We have no merchant marine and cannot therefore avail ourselves of our neutral status to trade with the belligerents. We shall be compelled (for a time at least) to s.h.i.+p in English bottoms to such ports as English s.h.i.+ps can make--which will practically be limited to England, France, Portugal, Spain, and the Mediterranean ports. The ordinary commercial roads to Russia through the Baltic are automatically closed by the location of the German fleet, and probably England and France, deprived of other outlets for their own trade, will nearly monopolize the trade with Russia through the Mediterranean and the Black Sea.
On the other hand, the mobilization of armies and fleets in Europe will draw millions of men from the field and factories where they have been accustomed to make what we have usually bought. The war will vastly diminish and in many cases stop altogether the stream of imports to the United States. These millions of men in the field and on the sea will not possess most of the economic wants they had in time of peace and will become conscious of many which they usually did not feel. The war will diminish and in many cases entirely stop the stream of ordinary American exports to Europe. Because of the stoppage of the European supply of things we have usually bought of them, and the cessation of a European demand for things we have usually sold to them, the conditions of the home market, both in regard to what we must buy in it, and to what we must sell in it, will be vitally changed. When our present supplies of European importations are exhausted, we shall be obliged to make for each other and buy from each other the things which we happen to be no longer able to import or export. A great readjustment of the economic fabric in the United States will take place if the war lasts longer than a comparatively short time.