Not Just Another Recession
Why the Global Economy May Never Be the Same
"WILL this terrible convulsion when it has subsided bequeath war or peace as its heritage? In any case one would think there must be a generation of exhaustion. But will that generation bestir itself to find some guarantee against the recurrence of the curse, or will it silently pile up armaments for hoarded vengeance? That is the question on which depends the future of the human race."
So with prophetic vision wrote Lord Rosebery in the second year of the Great War. "A generation of exhaustion." That at first sight is a fair definition of our own generation. After twelve years' struggle with the political and economic consequences of the war, which dislocated the finances of every belligerent state, loaded it with debts internal and external and exacerbated the prejudices of nation against nation, western civilization seems to have reached a period of lassitude which has culminated in a crisis of unexampled severity.
Let us realize what has happened. First, there was the long continued economic depression which wrought such havoc in many countries, including yours and mine. Then on the top of that has come the new crisis in Germany connected with the first, no doubt, but yet distinct from it. For whatever may be the cause of our economic difficulties, the reason for the financial crash in Germany is plain enough. It is simply the loss of trust in German solvency. It is just like a run on a bank on an international scale -- one of those phenomena of human panic not uncommon in many of the relations of men, but none the less disastrous. Wellington once said that all troops were subject to panics and that the difference between good and bad troops was that the first recovered from the panic and the second did not. In financial panics experience shows that if destruction can be warded off for a certain time the panic will subside. And I have very little doubt that that is what will happen in the present case.
Nevertheless, the occurrence of the panic is a disquieting symptom. When all allowance has been made for the special circumstances which gave rise to it -- German banking rashness combined with political unwisdom, and the like -- it would not have occurred if the moral and intellectual conditions of the world had been healthy. A sudden loss of confidence on the scale we have recently witnessed is abnormal. The normal thing is for men to trust one another. It is on that assumption that our commercial and financial system has been built up. It depends on credit, and credit is in essence psychological. The German crisis is a crisis of psychology and if we wish to prevent its recurrence we must apply psychological remedies.
There is evidence that that is now being attempted. The generation of exhaustion is beginning, as Lord Rosebery hoped, to bestir itself. The peoples are realizing at last that they are faced with the choice between blessing and cursing, death and life, with the condition of life the curbing of that sinister accumulation of the weapons of mutual destruction. "Hoarded vengeance." Is that too strong a term to describe the object for which a for-midable body of men in Germany, exasperated by unemployment, uncertainty, the prolonged humiliation of their nation and the failure of the Allies to redeem their promises, is beginning to clamor for the right to rearm? It is the outcome characteristic of war. As Field-Marshal Sir William Robertson said recently: "War hurts everybody, benefits nobody but the profiteer, and settles nothing." History has shown that each war is but an incident in an international vendetta.
The present world situation illustrates this truth. There is the incessant demand for the revision of the peace treaties among the defeated Powers, with a corresponding nervousness of the new nations of Europe and those enlarged by the treaties regarding the integrity of their frontiers. There is the deliberate fomenting of a war psychology in Soviet Russia because of the supposed impending onslaught of the capitalist states. Poland and Rumania, divided from Russia by a frontier which has no natural defensive feature, feel driven by the menace of the half-known military machine of the Soviets to maintain strong armies and air forces. National pride militates in the United States and in Britain against the movement to reduce navies, and in Italy dictates the demand for parity with any one other Continental Power. Who will say that any one of these motives is wholly unworthy of respect, that any one of these pretexts for maintaining, developing or restoring national armaments is wholly without some foundation in reason? Yet together they contribute to create a general condition of military danger, political insecurity, industrial depression, and financial instability which is but a sorry caricature of peace. And this will continue until we can cast out the civil demons of nationalistic hatred and jealousy by the establishment of mutual confidence and good will and the definite substitution of right for might, guaranteed by international disarmament.
This is a commonplace. It is none the less true. I recall it here because I believe the armament situation at the present time to be not only the consequence, but the cause of this lack of mutual understanding and trust. The worst aspect of that situation is not so much the vast volume of armaments itself (with two or three exceptions the principal nations are spending about the same as they did in 1913, allowing for the altered cost of living); it is the political and moral significance of those armaments. Two ominous facts stare us in the face. The first is that twelve years after the League of Nations was founded, three years after the signature of the Pact for the Renunciation of War, the nations are spending over $4,500,000,000 a year on preparations to fight one another, and this vast expenditure is still growing. That is a colossal and sinister fact, a proof in the eyes of ordinary men and women of governmental insincerity and inconsistency which saps their faith in all covenants and pacts and obliges the organization of international society to proceed painfully and fitfully in an atmosphere of cynicism and unreality. The second fact which particularly merits the attention of serious students of international politics is the inequality of armaments as between the defeated and the victorious countries. There are few who realize the magnitude of the humiliation inflicted on Germany and her former associates, or the vast amount of their military material that was destroyed. From being the greatest military Power in the world she has become inferior to Poland or Czechoslovakia. The military clauses of the peace treaties completely suppressed the military air forces of Germany and Austria-Hungary and the navy of the latter empire. The greater part of the German fleet was also taken from her; she was forbidden any warship over 10,000 tons, any tank or heavy artillery on land. She was forced to give up conscription. The Austrian, Hungarian and Bulgarian armies were reduced to negligible proportions.
One great mitigation of the severity of these terms was given to the vanquished nations, without which it is doubtful if they could ever have been imposed upon them. A perfectly definite assurance was given to the German plenipotentiaries at Versailles by M. Clemenceau on behalf of the Allied and Associated Powers in May, 1919:
The Allied and Associated Powers wish to make it clear that their requirements in regard to German Armaments were not made solely with the object of rendering it impossible to resume her policy of military aggression. They are also the first step towards the reduction and limitation of armaments which they seek to bring about as one of the most fruitful preventives of war, and which will be one of the first duties of the League of Nations to promote.
This essential condition of the German reductions is reproduced in the opening words of Part V of the Versailles Treaty:
In order to render possible the initiation of a general limitation of the armaments of all nations, Germany undertakes strictly to observe the military, naval and air clauses which follow.
The obligation to join in general disarmament has never been denied by responsible statesmen on the side of the Allies. American Presidents have shown by deeds as well as by words that they acknowledge that moral obligation. Only the other day the Prime Minister of Great Britain and two former Premiers, Mr. Baldwin and Mr. Lloyd George, reasserted it in most vigorous terms from the same platform in London. Yet though some progress has been made, largely through American and British coöperation, and though the League of Nations has doggedly pursued the attempt to prepare a general treaty for the limitation of all armaments, practically nothing has really been done by the Allies to implement their promises to the Germans unless the Washington and London naval treaties can be regarded as steps in that direction.
Nothing poisons and destroys mutual confidence so much in international, as in private life, as the failure to keep troth. Unquestionably, one source of the disquieting symptoms in Central Europe is the Allied failure to disarm. The acute economic distress of Germany, which as in other countries has caused a wave of xenophobia, has served to increase and popularize indignation on this point until the assumption that Germany was perfidiously tricked by the Allies into a position of humiliating inferiority has become the commonplace of German political journalism. This has created a desire among the Germans to rearm, which is by no means confined to Herr Hitler and his extreme nationalist followers. It is a demand which is a cause of embarrassment to any German Government, even though they may know from their international experience that it is a counsel of desperate insanity. This emergence of truculent indignation in Germany has in turn had its consequence in the new fortification of the French and Belgian eastern frontiers and the stiffening of political opposition in those countries to any new military reductions. And so the vicious circle is all but complete.
It must be broken and broken now, if Europe and the world are to be saved from the almost certain dangers of a revival of the competition of armaments in its most pernicious form. If we are to find a remedy both for the immediate German crisis and for the even more serious international menace in the background, two main facts must be borne in mind. There is a general disposition in Germany to trust no one. That is one of them. The other is the answering mistrust of France, Poland and the Little Entente. And both are in great part due to the failure to effect international disarmament up till now.
Necessary as it is to cure immediate evils, it is even more imperative to remove the cause of them. It is because I am convinced that the armament situation is among the primary causes of these present discontents that I accept whole-heartedly President Hoover's repeated pronouncements that the restoration of world confidence depends chiefly on the success of the Disarmament Conference.
But it is not enough to appreciate the cogent moral and political reasons for disarmament and to clamor for the fulfilment of the victors' promises. We are not dealing with virgin ground, but with ground partly but incompletely tilled, partly encumbered with the bindweed of political habits and prejudices. The French security complex is one of those mental habits; the German equality complex another; the obsession of the Russian menace is another; and in all countries the established tradition of a military class and the vested interests of the armaments manufacturers and their press.
In view of these and many other difficult factors in the situation it is encouraging, if not astonishing, that a definite Draft Convention for General Disarmament was produced at the end of last year by the Preparatory Commission for the World Disarmament Conference, and supported by the majority of its members. I find it difficult to believe that anyone who was familiar with the difficulties which we overcame in that Commission would wish to jettison that draft treaty, as I see so lightheartedly suggested in some quarters. It has, doubtless, its imperfections. I should be delighted to see the World Conference go a great deal further than this Convention. But the Conference will be plunged into a welter of confusion unless it avails itself of at least that which is positive and constructive in this outcome of the Preparatory Commission's work. Its main conception is right and many of its provisions are of great value. For example, I regard as indispensable to a general limitation of armaments the setting up of a permanent Disarmament Commission, on the model of the Permanent Mandates Commission, to watch over the execution of the treaty, to receive and examine regular returns on a uniform model from all states, and to guard against evasion. The creation of such a Commission will insure the continuity of disarmament evolution, and will be a buttress of international confidence. The principle that all effectives, whether conscripted or voluntary, must be subject to limitation, is clearly a good one; and the controversy about trained reserves can be reduced to small proportions when it is realized that the limitation of average daily effectives and the other statistics required by the Convention would make it easy to calculate the number of those who, as a result of previous training, would be capable at any given date of serving with the colors. The essential thing is that in estimating the fighting strength of a nation its trained reserves must be taken into account and this can be done under the Convention. The classification of warships, of airships and airplanes for limitation is also useful as far as it goes.
Perhaps most important of all is the proposal for the limitation of military budgets. That is the essential complement of any measure for direct limitation of men or of military material; for it means the limitation of invention, the curtailing of development. Short of an impracticable system of international inspection, it is the only way of insuring the limitation of material. It gives the ordinary taxpayer the whiphand; and when he realizes this and wakes up to the crushing burden of armaments costs, I believe that he will use it. I have never been very much impressed with the contention that budgetary limitation by international agreement violates the rights of the national parliament. All disarmament treaties restrict the right of national parliaments to increase armaments, and it does not seem any worse from a constitutional point of view to limit the funds necessary to buy or make arms than to limit the arms which are the produce of such funds. On the contrary, those who want international disarmament see under this new form of the most venerable parliamentary right -- the right of the purse -- the most effective way of curbing and reducing expenses upon the implements of war. And that after all is the only way in which the political forces of a country can, in the name of the citizens, force down the level of armaments. The actual reductions of war material and personnel must clearly be worked out by experts.
Here then are some of the good points of the Draft Convention. Its weakness -- and this has become a matter of primary political importance in Germany -- is that it contains and indeed could contain no definite provision for ending that inequality of which I have spoken, between victors and vanquished. In particular, the Germans declined to accept the Draft Convention because of its Article 53, which they think maintains in vigor the military clauses of the peace treaties as well as the Washington and London Treaties which regulate naval armaments. I do not think that was what the American and British delegations intended when they supported that article. They merely meant to prevent unforeseen interference with the existing treaties. But verbally the Germans are right. The article goes too far. It may certainly be read as reaffirming the Versailles Treaty, and it is not to be expected that a German Government would now consent to do that. Yet the actual disarmament of Germany is the main moral basis for the general disarmament movement. It would be folly to destroy that basis. The level of disarmament imposed on certain countries must, as the Allies' engagement at Versailles clearly implies, be taken as the goal at which the World Disarmament Conference should aim, however slow and difficult may be the process of winning agreement from France and her associates to a plan which ultimately means decreasing their armed strength.
Can a practical policy be evolved which will meet Germany's legitimate desire for equality in status, and at the same time provide the gradual means of attaining the lower level of armaments which alone is practicable in view of the situation in France and Eastern Europe? I believe that just such a policy has been thrashed out by a body whose importance may not be fully appreciated in the United States but which is coming to occupy more and more a place of respect in the political life of Europe. I refer to the International Federation of League of Nations Societies. It is important and encouraging to see the international organizations of workers adopting, as they have done, a radical disarmament policy. They represent, however, only a single school of thought. The Federation of which I speak brings together delegates of very different political and religious views who, though in most cases not officially connected with their governments, do represent in a certain measure the limits to which responsible opinion in their several countries might be expected to go. When, therefore, as in the case of the disarmament program adopted recently by the Congress of the Federation at Budapest, it is found that agreement upon a perfectly definite policy has been reached between such men as Baron von Rheinbaben, the German delegate at Geneva; M. Hennessy, M. Fontaine, M. René Cassin, and M. Pierre Cot, figures well-known in French political and diplomatic life; Count Apponyi, the Hungarian statesman; M. Henri Rolin, who has frequently represented Belgium in League Committees; and myself, as representative of the British League of Nations Union; together with authoritative Italian, Polish and Dutch delegates, the political importance of the measures advocated cannot be ignored. The Resolution begins by postulating that the first World Conference can and should end in a definite treaty involving considerable reductions, which should be the first of a long series of disarmament treaties. It goes on to declare that it is feasible now to reduce the whole of the amount of money spent on armaments per annum by 25 percent during the period of the treaty. It insists that the same principles of reduction and limitation must apply to "victorious" and "vanquished" nations alike, and that next year's Conference "must begin to effect such equality." It lays down that this equality "must not be attained by increasing armaments already reduced by treaties, but by the proportionate reduction of those of other states." The consequence of applying these principles is a bold proposal -- some will say an impracticable one, but I do not believe it, for "logic will out" -- even among Anglo-Saxons. It is that all states must be on the same footing concerning the type of limitation and disarmament to which they are subject. If, therefore, certain methods of limitation, as for instance that of small arms, are held to be impracticable without a costly, irritating and politically impossible system of inspection, then they must be abandoned for all nations. Equally those which will impose an effective and ascertainable check upon the dangers of competition must be imposed upon all.
The three definite points set forth in the conclusions of the Budapest Resolution are as follows:
Each state should be bound to limit the amount budgeted for its navy, army and air force.
The prohibition of certain material, naval, land or air, enjoined in the treaties, would apply to all states signatory to the Convention.
The observance of the obligations thus contracted by the states should be ensured by a Permanent Disarmament Commission established at the seat of the League of Nations and exercising its control equally over all nations.
I make no apology for descending from the general to the particular, from the moral and political arguments for disarmament to a practical plan for attaining it. I believe that the conclusion at which the Federation of League of Nations Societies arrived would be reached by any international gathering of fair-minded men who have had experience of the main facts of the situation and of the evolution of opinion in the principal countries on this subject. And it is of the utmost importance at this time of vigil -- this eve of a great and decisive event in the world's history -- that all those forces, spiritual, moral, intellectual, political and professional, which have perceived the urgent need of fighting this plague of armaments should equip themselves with practical means to gain this end, and in particular with the means of canalizing and directing towards an intelligible and attainable objective the public opinion which they are able to arouse.
The problem is to give satisfaction to the German demand for eventual equality while recognizing that security for France is essential. Obviously the way to do this is to strike at the aggressive powers of the states which have not been disarmed while leaving their defensive powers untouched. No one, for instance, would wish to interfere with French fortification or even with the numbers of their troops provided they are equipped with weapons useless to attack field defenses. On the other hand, who can say that air bombers are anything but aggressive? What is the use of heavy land artillery or tanks except to overwhelm or traverse trenches? In the absence of air attack what reason is there for the existence of marine monsters of thirty and forty thousand tons, except to attack other ships of similar size? How long are we to submit to the cruel and treacherous attacks of submarines on unarmed vessels? All these weapons and machines have been forbidden to Germany and her old allies. Why? Because the expert advisers of the victorious Powers at Paris decided that they were not necessary for strictly defensive purposes. But if in German hands they would be chiefly valuable for aggression, can their character change in the hands of other nationalities? Let us "scrap the lot," and in doing so we shall reduce the cost of armaments by at least the 25 percent suggested.
I have spoken above of the acute financial and economic crisis through which America, in common with the principal nations of Europe, is passing this year. I have stated my conviction that armaments are in large part the cause of the trouble. But I believe no less strongly that if those at the direction of the political and financial destinies of nations have clear heads and a right intention the shock which the peoples have suffered from this crisis can be used to good account in order to create the psychological conditions of success for the first World Conference for the Reduction of Armaments. If such is the result, good will indeed have come out of evil; and the ordinary citizen who has too long allowed cynicism or mental lethargy to excuse him from an active interest in the defeats and victories of peace, may live to bless the material losses and inconveniences which forced him to face the truth.