Not Just Another Recession
Why the Global Economy May Never Be the Same
IN the seventeenth and eighteenth centuries countries within whose boundaries were produced important raw materials commonly controlled the export of such commodities with the objectives either of stimulating their fabrication at home or of exacting higher prices from foreign consumers. During the nineteenth century such export controls shrank greatly in range and importance, though they never completely disappeared. During the war period, however, there was an extensive, though temporary, revival of export controls, mainly as emergency measures.
Since the close of the war, and in a few instances antedating the war, there have been established new export controls of commodities whose production is largely confined to single countries, and these new controls have had much the same objectives as those of the seventeenth and eighteenth centuries. These controls have given rise to expressions of great alarm in some quarters, and especially in countries which are themselves dependent in great degree upon foreign sources of supply for the raw materials which they need. Thus Italy, Belgium, and Japan, densely populated countries comparatively poor in natural resources, have been urging upon the League of Nations the search for a solution of the problem of the fair apportionment among the nations of the world's supplies of essential raw materials. Germany, always dependent on outside sources of supply for many of the raw materials needed by her industries, and now more so than ever because of the loss of her colonies and of part of her iron- and coal-bearing areas, is also showing great concern over the problem of free access to raw materials. That Germany seeks a solution of this problem in a redistribution of the colonial territories of the world is indicated by the statement of Dr. Schacht, President of the Reichsbank, in a recent speech:[i] "The fight for raw materials plays the most important part in world politics, an even greater rôle than before the war . . . . Germany's only solution is her acquisition of colonies." It is in the United States, however, that the export controls appear to have caused the greatest degree of concern, largely due to the panic among the American rubber-using industries which followed the establishment of the British export control of rubber, and to the efforts of Secretary Hoover, who for several years has been issuing repeated warnings to the effect that the establishment of these export controls is a "problem of great gravity" and a "growing menace in international commerce and relations" which "threatens not only the sane progress of the world but contains in it great dangers to international goodwill."[ii]
The United States is in some respects in a peculiarly vulnerable position. Richly endowed in mineral resources, in a wide range of climatic and soil conditions, and in the productive capacities of our people, we are nevertheless because of our very prosperity so tremendous a consumer, and we have devoted so much of our productive effort to manufacturing, that there are comparatively few raw materials of which we produce a supply adequate for our own needs. Of all the important raw materials at present subject to foreign export controls, we are not only in each individual case the largest single consumer, but for most of the controlled commodities, and for all of them in the aggregate, we purchase over 50 percent of the world's total output.
Strangely enough also, in the light of our extremely varied range and bountiful supply of natural resources, it is difficult to name a single raw material, unless it be the colonial case of manila hemp, of which our export surplus is sufficient to be a dominating influence on the world market. Secretary Hoover, it is true, lists cotton, copper, and oil as affording possibilities of retaliation in kind by the United States against foreign export controls, but these seem doubtful cases. Though we produce a large fraction of the world's supply of these products, we are a correspondingly large consumer, and it is by no means certain that we have export surpluses sufficient to control world prices of these products.
The problem of the nationalistic exploitation of raw material monopolies does contain in it some degree of menace to international goodwill and to international economic prosperity, both because of conditions as they actually are or may become, and because what people are led to believe the state of affairs to be is often more conducive to international friction than what it actually is. There is, moreover, no easy solution of the problem. Nevertheless, I feel convinced, for reasons which will in due course be presented, that there has been shown undue alarm over the actual and potential situation.
Where there is produced within a single country's territory the great bulk of the outside world's supply of an important commodity, such a country is normally tempted to seek a monopolistic profit at the expense of the foreign consumers. The concentration of all the production within a given area will not, of itself, be sufficient to raise its price above the level which would prevail if production were of the same volume but widely distributed throughout the world. To raise the price there must be organized restriction of output. Where the producers are few, they can ordinarily be relied upon to establish monopoly control through formal or informal association without waiting for governmental encouragement or assistance. But where the producers are many, scattered and individually small, monopolistic organization becomes difficult to establish and even more difficult to maintain, and governmental intervention may be necessary if the possibilities of exploitation of the national monopoly are to be fully realized. National monopolies are more likely to be present in the case of raw materials than in the case of manufactured products. The production of raw materials can be carried on only in accordance with the territorial distribution of climatic and soil conditions and mineral resources. The production of most manufactured products can be carried on almost anywhere, though not, of course, with uniform degrees of effectiveness. The problem of national monopolies is, therefore, primarily a problem of raw materials.
Where a national monopoly is being exploited at the expense of the foreign consumer and under government auspices, the method used is usually the establishment of restrictions on export. But export restrictions may be applied in the absence of even an approach to national monopoly, and they may have any one, or any combination, of a number of objectives. The export of a raw material may be restricted in order to stimulate its domestic fabrication. Such is the main purpose of the Canadian restrictions on the exports of logs and pulp wood and of hydro-electric power and of the restrictions in a number of European countries on the export of scrap iron and rags. Where the raw material is produced in a colony, the mother country, with a view to keeping the fabricating industry within the Empire, may impose prohibitions or export taxes on its export to a foreign country, which are not applied in case of export to other portions of the Empire. The British preferential export taxes on hides from India, and palm-kernels from the West African Colonies, established during the war but soon repealed; the British preferential export tax on tin ore from the Federated Malay States, established in 1903 and still in effect, and which has been instrumental in preventing the development of a smelting industry in the United States; the American preferential export tax on manila hemp from the Philippines, in effect from 1902 to 1913; are illustrative instances.
The export of a raw material or natural resource may be restricted in the interest of conservation, though where it is not accompanied by a corresponding restriction of production for domestic use there is an obvious intention to throw the cost of such conservation as is effected wholly upon the foreigner. Such is the objective of the restrictions on the export of rare animals common in Africa, and, in part, of the Canadian restrictions on the export of crude products of the forest. Export taxes may be levied also from a purely revenue motive, especially in tropical countries where there may be no other effective or economical method of reaching the mass of the native population.
The newest export restrictions, and especially those which have recently become the subject of widespread discussion, have still another objective, namely, to "stabilize" prices on the world market of the products subjected to export control. "Price stabilization" or, as it has sometimes been called, "valorization," may mean either the attempt to assure to the producers a "fair" price for their product, which will afford them a reasonable rate of profit on their investment, or it may mean the attempt to extort from the consumer as high a price as the traffic can be made to bear without resulting in too sharp a reduction in the volume of output.
The methods of export control have been even more varied than the objectives, but they fall into two main classes, sometimes used singly and sometimes, as in the case of rubber, in conjunction, namely, export taxes and direct restrictions on the volume of exports. Where price-stabilization is the aim of the export control, export taxes are likely to be less flexible and otherwise less effective than control of the volume of exports.
There can be no serious objections against export controls intended to produce moderate revenues for the government, or to conserve natural resources. The instances of export controls established to stimulate domestic fabrication are few and as a rule unimportant, though in the three outstanding instances, the export restrictions on Canadian logs and power and on Federated Malay States tin ore, it is the United States which is the chief sufferer. But the main issue in the current controversy is in connection with the export controls which have "price-stabilization" as their objective.
The possibilities of effective price control on the world market for any appreciable length of time through export control by a single country are subject to very real and narrow limitations. In order that there shall be a sufficient national motive to export control of this kind the domestic consumption must be but a small proportion of the domestic production. Otherwise, the chances of shifting a substantial proportion of the cost of price-stabilization to the foreign consumer will be small, and the resistance of the domestic consumers to any measure which will operate to raise price together with the general mercantilistic prejudice against any measure which obviously tends to cut down the volume of exports will effectively prevent the establishment under government auspices of rigorous export control. Secondly, the country applying the export control must have not only a preponderant part of the world's actual output but also of the world's readily available potential output. Otherwise, though perhaps after some interval, the export control will exhaust most of its influence in stimulating new production in other countries, and will have no appreciable effect on price. Third, the controlled commodity must not have what in the technical language of economics is known as a very elastic demand, namely, one which reacts sharply to price-changes, reducing its purchases substantially when price rises, whether by resorting to substitutes or by cutting down on consumption.
Commodities which can satisfactorily meet all of these tests are few. Of the nine commodities cited by Secretary Hoover as subject at present to foreign export controls which are a menace to American consumers, namely; Egyptian long-staple cotton, rubber, coffee, nitrates, potash, camphor, iodine, mercury, and sisal, there are important alternative sources of supply outside the controlling countries for coffee, nitrates, camphor, and iodine, and there are available substitutes for long-staple cotton and sisal, which are sufficient in each case to set narrow limits to the possibilities of price extortion through export control of these commodities by single countries. Some of these commodities, moreover, may have highly elastic demands, though on this point reliable information is extremely difficult to obtain. The potash control represents the ominous phenomenon of a joint export control by two countries, Germany and France, though the fact that all of the potash deposits were German before the war, and that all of the industry had learned the methods and the benefits of export control in pre-war days made the coöperation between the two countries easier to establish than it would ordinarily be. The American imports of potash are not of great proportions, and its use in agriculture is highly variable, depending upon its price, so that the possibilities of extortion in this case are also not serious. Mercury presents another instance of a commodity which is under the joint control of two countries, but in terms of values it is of very minor significance.
There remains the case of rubber. The British export control of rubber, because of the economic importance of the commodity, the excited discussion of which it has recently been the subject, and the clear light which its few years of history throw on the various angles of the export control problem, merits consideration in more detail.
Until 1900 all rubber was the product of the tapping of wild trees in the tropical jungles, but about that time English capitalists became interested in the possibility of growing rubber trees in plantations and from experimental beginnings the plantation rubber industry grew rapidly until by 1914 its output exceeded the output of wild rubber. By 1924 the plantation rubber output was over 93 percent of the total rubber production, and was over fivefold the maximum production of wild rubber in any preceding year.
The advent of the automobile, with its rubber tires, created a market for this great increase in rubber output. But the increase in demand for rubber did not fully keep pace with the increase in production, and from 1910 on the general trend of rubber prices was downward, in contrast to the upward trend in the price level as a whole. Plantation rubber, however, cost much less than wild rubber to produce, and until the marked slump of rubber prices in 1920 to 1922 the rubber plantations were highly prosperous. In 1921 and 1922 the New York price of crude rubber fluctuated between 16 and 17 cents a pound, as compared to an average price of 65 cents in 1913, 60 cents in 1918, and 36 cents in 1920, and as compared to a price of 30 to 36 cents estimated by the rubber growers to be necessary to assure to the industry a generous margin of profit from its operations. At one time in 1921 the price fell as low as 14 cents.
In the light of these circumstances, the British Colonial Secretary in 1921 appointed the so-called Stevenson Committee, upon which the rubber-growing interests were largely represented, with instructions to investigate and report upon the rubber situation in the British Colonies. Following the recommendations of this Committee, the Colonial Secretary put into effect on November 1, 1922, by ordinances of all the rubber-growing colonies, an export control, under which the actual output for 1920 of each producer was taken as his "standard production." Each producer was assigned for the first quarter of the operation of the plan an export quota of 60 percent of his "standard production." At the end of each ensuing quarter the export quota was to be raised over the quota for the preceding quarter by 5 percent of "standard production" if the price during the preceding quarter had averaged between one shilling and three pence and one shilling and six pence, and by 10 percent if it had averaged in excess of one shilling and six pence, but was to be lowered by corresponding percentages if the price had fallen below one shilling and three pence. Exporting was to be by license only, and any producer who exported in excess of the prescribed quota was subject on his entire export to a heavy export tax varying in rate with the percentage of excess of his export over the prescribed quota.
The purpose of the Stevenson Plan was to stabilize prices in the neighborhood of 30 cents a pound. It was not, however, until towards the end of 1924 that the price of rubber reached this level. But in 1925 the rubber market went wild. The price of crude rubber rose to an average of 41 cents in March, 77 cents in June, $1.03 in July, and $1.04 in November, the peak price, $1.19, having been reached on July 18th. Late in December the price began to fall, and in the latter part of April, 1926, it fluctuated about the 50-cent level. In accordance with the provisions of the control, the export quotas had meanwhile been periodically increased, and on February 1, 1926, the maximum quota of 100 percent "standard production," estimated by American officials to approximate about 85 percent of productive capacity, was prescribed for the following quarter.
This spectacular rise in rubber prices, following upon the establishment of the export control, caused a tremendous stir in the United States. It is indisputable that the export control was one of the major factors responsible for the rise. But there were other factors at work. The demand for rubber had been constantly increasing. During the first half of 1924, when the price of rubber was low, the American rubber interests held off their purchases, anticipating still further declines. In 1925, when the price of rubber began its sharp ascent, there was a panicky rush for supplies. The alarmist interpretations of the situation issued by the Department of Commerce and by the American rubber industries added to the panic, stimulated speculative operations for a further rise, and further accentuated the upward trend of price. Characteristic of the type of publicity matter issued by the American rubber-consuming interests during the period of peak prices was a widely circulated estimate by one of the trade statisticians purporting to show the probability that within a few years the available supply of rubber would fall short of meeting the needs of the rubber-using industries. The state of mind of the rubber trade is revealed by the following cable:[iii]
May 12, 1925.
Chairman: Servitude, Bilgate, London
Can you cable statement for use in quieting present panic in industry? We are besieged with inquiries and would like to exert stabilizing influence to offset present excitement and general talk of disaster.
RUBBER ASSOCIATION OF AMERICA.
The conditions were ideal for a runaway bull market. When this cable was sent, the price of rubber stood at 59 cents. In the next month it rose to 89 cents, and in July to $1.19.
Though the basic factor in the situation was the export control, the response in official quarters and in the rubber trade was such as to accentuate the effect of the control much beyond the inherent necessities of the situation. Without any important change in the basic situation the price has fallen, from its 1925 peak to its level at the time of writing, by over 60 percent. The credit for this fall in price has been claimed by Washington officials for the Hoover campaign to arouse public opinion against the export control and to urge rubber reclamation, economy in use of rubber, and the organization of ambitious projects for the extension of rubber-growing under American auspices.[i] A different interpretation of the effect of the Hoover campaign seems more plausible. All of the official publicity dealing with rubber issued since the establishment of the export control tended to magnify beyond its due proportions the power of the control, of itself, to raise prices. The sharp rise in price came after, and not before Secretary Hoover embarked upon his campaign against the foreign export controls. The matter issued by the Department of Commerce was by its nature such as to nourish the panic in the rubber market, and thus to reinforce the factors making for still higher prices. When the effects of the official and trade publicity wore off, and the export restrictions, under the routine operation of the control, were relaxed, a calmer view of the situation began to prevail on the rubber market, and it soon became apparent that the power of the export control over prices had been overestimated.
Economies in the utilization of rubber contributed, no doubt, to the decline in price, but consumers do not ordinarily require artificial stimulus to economize when prices are extraordinarily high. It is probable that the most effective economizing measures employed were the use by the tire manufacturers of larger percentages of reclaimed rubber and the sharp increase in the price of tires, measures whose profitability under the circumstances made artificial incentives to their employment somewhat redundant. In any case, despite the higher prices and the economy campaign, the American imports and the American consumption of rubber were each greater in 1925 than in 1924 by over 20 percent.
The rubber episode throws a great deal of light on the possibilities and the limitations of export controls as a means of raising prices. That the Stevenson Plan was honestly intended to raise prices only to a "fair" level is shown by the fact that it called for increases in the export quotas whenever the price of rubber should have averaged for three months in excess of one shilling and three pence, which American authorities concede not to be in excess of the price necessary to give a reasonable return on the capital invested in the rubber plantations. In actual operation, however, the export control resulted in the maintenance of price for a period of as yet undetermined duration at a grossly extortionate level. Though in the case of rubber this result can be shown to have been due to defects in the original scheme of control which can easily be remedied, such defects are not likely to become apparent for each different type of export control, until after some period of experience under that type of control.
There is no guarantee, moreover, whatever the original objective of the control may have been, that it will be modified if it does produce extortionate prices. The Stevenson Plan was clearly defective in that it was too inflexible to adjust itself quickly to increases in the demand for rubber. The restriction of increases in export quotas to a maximum of 10 percent at one time, to quarterly intervals, and to an ultimate maximum of 100 percent of the actual output in 1920, made the control ill-adapted to conditions of rapidly rising demand for rubber unless there was no objection on the part of the British Government to price rising to, and continuing for an indefinite period on, an extortionate level. Whatever the original intent of the British, their refusal to modify the plan after it had become evident that it was producing extortionate prices convicts them, at the least, of not regarding this result as a serious defect of the plan. Moreover, the British Government has just announced some changes in the plan which make the export restrictions more instead of less severe.
The experience under the rubber export control confirms, also, the expectation that except under highly unusual circumstances of complete control over the commodity, of no substitutes, and of an inelastic demand, no scheme of export control can maintain prices at an extortionate level for a long period. The rubber-control is unquestionably breeding the germs which will eventually bring about its collapse. The resistance of consumers to high prices through economies and through the search for substitutes is almost always a powerful limiting factor. Still more important in the case of rubber is the stimulus of the high prices to expansion of production outside the control. There may be some genuine prospects of increased production of rubber in the early future in the various American projects for great rubber plantations in the Philippines, Liberia, Panama, and elsewhere, but let us confine ourselves to the more immediate possibilities. As the accompanying table shows, the establishment of export control in the British rubber colonies was accompanied immediately by a substantial and progressive increase in the production in uncontrolled areas, chiefly the Dutch East Indies. In two years under the control the British share of the total production of plantation rubber dropped from 72 to 53 percent.
|PRODUCTION OF PLANTATION RUBBER|
|(Net Exports in Tons)|
Many of the rubber plantations in the Dutch East Indies are owned by British capital, and were voluntarily subjected to export restrictions corresponding to those legally in force in the British Colonies. Segregation of the output of these plantations from the output of the plantations wholly free from the export restrictions would show results indicating an even more marked diversion of production from the controlled to the uncontrolled sources of supply. It is not likely that the British will long continue their control without substantial relaxation thereof if the trend shown in the table persists.
The criticisms in the United States of the foreign export controls have centered mainly about four points, namely: (a) that the export controls force American consumers to pay extortionate prices; (b) that they are violations, usually under government auspices, of free competition and the law of supply and demand; (c) that nothing analogous to them is possible in the United States; and (d) that they are a menace to international goodwill.
Export controls, under favoring circumstances, can undoubtedly raise prices to extortionate levels, and extortionate prices, whatever their cause, are fit objects of resentment and protest. The export control, however, is objectionable only if it aims at, or results in extortionate prices. Every country permits some degree of organized control of prices in some branches of the economic structure, and most governments participate in the organization and administration of these controls. In the United States, combinations among laborers to raise the price of labor, among employers to lower the price of labor, among farmers to raise the prices of their products, are free from any serious legal restrictions. The government itself participates in the control of public utility prices. It is true that in the United States, where specific exceptions are not provided by the law, combinations to fix price are illegal, irrespective of what the prices may be which result from such combinations. It is only in this country, however, that any serious attempt is made to enforce price competition upon industry, and even in this country the success of this attempt and its wisdom are both seriously questioned. It is not price control, therefore, but the abuse of price control which is open to objection. If safeguards are to be developed against such abuse, it is necessary that fairly precise standards of reasonableness in price be formulated, and that the prices of controlled commodities be measured by these standards before they are condemned.
The export controls do, undoubtedly, interfere with the normal operation of free competition, but in the modern world instances of completely free competition are hard to find and are rarely good to look upon when they are found. It is not the economist who appeals to a supposed economic law of supply and demand, as if it were a rule of conduct always applicable and always providing the right solution for every economic issue. Free competition as manifested in supply and demand sometimes works tolerably well and sometimes produces intolerable evils, and no community, no government, would today allow it to operate without restraint throughout the whole economic sphere. Most of the activity of modern governments consists, in fact, of attempts to guide, to restrain, and to control the operations of supply and demand. In a world in which economic matters were left to the sole guidance of individualistic competition there would be no Departments of Commerce, of Labor, of Agriculture. Except to the uninformed, therefore, it is not a criticism of much weight against the export controls that they are violations of the law of supply and demand, or even that they are violations under government auspices. The real issue is, are the results of these interferences with free competition good or bad?
The claim that nothing analogous to these foreign export controls is possible, or is existent, in this country, would have little effect on other countries, no matter how well founded it might be, except as it deprived them of the right to make a tu quoque rejoinder. But there are fairly close American parallels, in the form of concerted action under government auspices or with governmental encouragement to control prices which foreigners pay for American products or which foreigners receive from American purchasers of their own products.
The Minnesota state tax on iron ore and the Pennsylvania state tax on anthracite are, perhaps, not forceful analogies, because the foreign consumers of these commodities are only a minor factor, but in their aims and modes of operation they have much in common with the foreign export controls. Secretary Hoover, among others, has cited the prohibition against export taxation in the federal constitution as evidence of the opposition of American policy to exploitation of foreigners through export controls. But the prohibition of export taxation was not inserted as a protection to foreigners against American exactions, but upon the insistence of the southern States, as a protection to their tobacco and rice growers from attempts to finance the Union by export taxes on their products. There was no general prejudice at the time against export taxes, which were an important source of revenue of some of the American Colonies and of some of the States prior to the adoption of the Constitution. Many years later, when the United States took over the Philippines, "the export taxes of the Spanish tariff were retained and that on raw manila was increased from 37 1/2 cents to 75 cents per 100 kilos on the ground that the Philippines enjoyed natural monopoly in this produce and the increased tax would consequently be paid by foreigners."[v] In 1902 this export tax was converted by Congress into the most objectionable form of export control, a preferential export tax, under which both foreign consumers and native producers are exploited for the benefit of the consumers in the mother country, and the protests against the measure of Chief Justice Taft, who was then Commissioner of the Philippines, were based on its unfairness to the Filipinos and not to foreign consumers. This measure was not repealed until the first Wilson Administration revised the tariff in 1913.
Another American parallel is the Webb-Pomerene Act, which legalizes American combinations in the export trade, and exempts them from the statutory penalties against restraint of trade and unfair methods of trade provided foreigners and not Americans are the victims thereof. This was not merely an Act of Congress, but the Federal Trade Commission was the most energetic advocate of the measure, and export combinations organized under this law are registered with this federal bureau and are subject to its supervision. Secretary Hoover has stated that the Webb-Pomerene Act is not analogous to the foreign export controls, because its object was not to raise prices of American products to foreigners. In the Report of the Federal Trade Commission urging the passage of a law legalizing export combinations one of the arguments strongly urged in its favor is that under such a law: "By fixing an export price [an American export combination] could prevent the quotation by foreign buyers of one American producer against another and could eliminate harmful price competition among Americans themselves in foreign fields."[vi] What is this but official approval of the suppression of the "law of supply and demand" where foreigners are concerned?
Most important of all, however, of the American parallels with the foreign export control is the American customs tariff, the most severe and the most important interference with the law of supply and demand which the world has ever known. The tariff, it is true, is not directly an export control, but it is its replica applied to imports. The purpose of export controls is to monopolize national supplies of raw materials for domestic industries or to raise their prices to foreign buyers. The purpose of the American tariff is to monopolize the American market for American producers or to lower the prices which foreigners shall receive for the products which they sell to Americans. It is good protectionist doctrine that the foreigner pays the import duties, which is equivalent to saying that the tariff forces down the prices which the foreigner gets for his products.
Governmental intervention to monopolize the national market for its nationals is no less objectionable than governmental intervention to monopolize national resources for its nationals. Forcing up through governmental control the prices paid by foreigners for the things they buy is no more objectionable than forcing down the prices paid to foreigners for the things they sell. Restrictions on imports have been, and are, an immeasurably more serious detriment to international prosperity than restrictions on exports. The only real difference between them is that the apparent opportunities for national profit at the expense of foreigners have been much more extensive in the case of import restrictions than in the case of export controls.
Export controls which have as their objective the exaction of extortionate prices from foreigners are a menace to international goodwill, and if there should be any wide extension of control to other important commodities, they may involve a serious danger to American economic interests. Neither the existing situation nor the future prospects, however, quite warrant the alarmist discussions to which they have given rise. The commodities capable of being subjected to effective export control are few, and even the strongest control, as has been pointed out, tends itself to generate the forces which bring about its eventual breakdown. But the economic cost to consumers of even a temporarily successful control may be high enough to justify energetic search for defensive or preventive measures against the evil.
It is important, however, that the remedy adopted be not worse than the disease, and retaliatory measures are clearly in this class. It may easily be possible to stir up so bitter a feeling in this country against the foreign export controls, or to apply so vigorously the great economic, political, and even military power which the United States possesses, that foreign countries will shrink from the threat and will abolish their export controls. But retaliatory measures of this sort are rarely successful where there is no consciousness of guilt on the part of the country against which they are directed, and even when temporarily successful they breed a deep and lasting resentment which awaits but the least opportunity to manifest itself. It requires an extraordinary naïveté to expect that we can convince foreign countries of the injustice of their export controls, even when they do result in extortionate prices, while we insist that our much more important and much harsher import controls are matters of purely domestic concern. The one encouraging feature of the recent discussion of the rubber problem was the quite common refusal of the American press to follow the official leadership on this point.
There is only one method of procedure which gives any real promise of leading to a satisfactory solution of the problem of national exploitation of monopolies in raw materials. If official representatives of the nations will gather around the council table, and frankly appraise the merits and defects of each other's commercial policies and practices as they see them, they may succeed in time in evolving an international code of economic relations, and in setting up a supervising organization to administer this code. It is apparently at some such solution that the League of Nations is aiming, with its investigating committees and its economic conferences. It is a procedure which, to be even moderately successful, demands that each country be prepared to modify such of its own practices as seem to the rest of the world to be objectionable in return for the assurance that it will secure protection against objectionable practices on the part of other countries. It is not to be expected that free trade or low tariff countries will voluntarily abandon export controls unless countries with prohibitory import duties on their products agree in return to moderate these duties.
If the United States were to lend to some such plan the support of its prestige and its strength, it would be a powerful guarantee of its ultimate success. In the absence of American coöperation in such a plan, the probable course of events in the near future will be a continuation of American protests against foreign export controls, foreign resentment against the inconsistency of the American protests, doubtful success in obtaining the abolition of the controls, and complete success only in raising the temperature of international relations.
[i]New York Times, March 26, 1926.
[ii]Hearings before the House Committee on Interstate and Foreign Commerce, Jan. 6, 1926, p. 2.
[iii]Hearings, Jan. 7, 1926, p. 67.
[iv]Cf. New York Times, Feb. 15, 1926.
[v]U. S. Tariff Commission, Report on Colonial Tariff Policies, p. 590.
[vi]Coöperation in American Export Trade, Part 1, p. 298.