China Is Done Biding Its Time
The End of Beijing’s Foreign Policy Restraint?
Editor's Note. This article has grown out of discussions held in New York on October 23 and 24, 1933, under the auspices of the Council on Foreign Relations. The group was non-partisan in character and was composed of persons holding a variety of views. Its membership was as follows: Benjamin M. Anderson, Jr., James W. Angell, Isaiah Bowman, Randolph Burgess, W. W. Cumberland, Edmund E. Day, Wallace B. Donham, Lewis Douglas, John Foster Dulles, Herbert Feis, Walter Lippmann, Ogden L. Mills, Winfield Riefler, Beardsley Ruml, Whitney H. Shepardson, Walter W. Stewart, Henry L. Stimson, F. W. Taussig, Henry A. Wallace and John H. Williams.
The meetings of this group were private and the article is in no sense a report of the proceedings. Even where certain ideas are recognizable as similar to those which members of the group have publicly expressed, the emphasis and the implications are entirely the author's own.
IT IS apparent that men approach the problem of economic self-sufficiency with differing intuitions as to how human societies can and ought to be governed. These intuitions are composed of differing fears and hopes. Thus those who embrace gladly the idea of self-sufficiency are almost invariably, I find, deeply impressed with the disturbances which can be caused within a country by uncontrollable forces originating in the outer world and in the undirected activity of men. The true believers in autarchy will be found arrayed, with varying emphasis and even with different objectives, against "internationalism" and against "individualism."
The simplest of all the reasons why men come to desire self-sufficiency is the fear of military encirclement and naval blockade: to be prepared adequately for war is to have all essential supplies under national control and, preferably, within an easily defended strategic area. It is easy to pass from this to the fear of economic aggression. Self-sufficiency, then, appeals to men as a method of protecting themselves against the vicissitudes of international trade: against imports which disrupt domestic industries and vested interests and established occupations; against tariffs in foreign lands which disrupt industries devoted to export; against embargoes or monopolies abroad which cut off essential supplies or exact exorbitant tribute.
This does not exhaust the appeal of self-sufficiency. From fear of military and economic aggression men pass gradually to a general sense that the more they are entangled in an international economy the less they are masters of their fate. So they begin to object to the international gold standard of the nineteenth century on the ground that in so far as it stabilized exchanges it unstabilized domestic prices and all economic relationships governed by the price structure. They look upon the international gold standard as a circuit through which the rise and fall of prices communicates itself to all nations within the system of the gold standard. Since this seems to mean that the national economy may be violently upset by forces originating in other lands, they look rather sourly at the international gold standard. From this they pass to distrust of international finance: if they are a creditor people, they are disposed to feel that the national savings should be invested primarily with a view to enhancing the national standard of life, rather than with a view to profit abroad; if they are a debtor people, they are disposed to resent their dependence upon other capitalists, and to feel that foreign capital, though convenient, is a danger to their independence and often humiliating to their pride.
In the next stage of the evolution of the ideal, men take the view that in so far as their economy is enmeshed with a world economy they are inhibited from experimenting with the possibilities of a more just and more stable social order. If industrial and agricultural prices are fixed in world markets, if domestic costs must compete with foreign costs, if capital can flee from one country and take refuge in another, if the national credit is dependent upon the confidence or lack of confidence of cosmopolitan capital, the reformer and the revolutionist is in chains and hardly dares to act.
Thus there is a whole spectrum of fears from military blue to revolutionary red which makes men interested in extricating the national economy from the intrusive and the binding forces of interdependence. But fears are not the only motives at work. There are also hopes. In varying degree those who are disposed to the ideal of self-sufficiency believe in the beneficent possibilities of a directed and planned social order. The most perfectly planned society is an army, and planned societies, whether fascist, communist, or state capitalist, all tend to approximate the pattern of military organization: a general staff to do the planning, a hierarchy to command, a rank and file under strict discipline. It is then easy to idealize such an order: to argue that it would transform the civilian into a civic soldier and would endow him with the nobler qualities of the military life: for he would work not for profit but in the service of the state; he would not indulge in the vagaries of his mind but would think the high common thoughts; he would be secure in his status, and the whole of which he was a part would be secure because it was disciplined, and could therefore be directed without the confusion of debate, of divided opinion, of private ambition, and of private greed.
Thus in the logical evolution of the self-sufficient ideal men distrust not only extra-national influences but the intra-national anarchy of individualism. They distrust foreigners and they distrust the individuals who compose the mass of men. On the other hand they have an enormous faith in the capacity of some men to govern other men. They believe that some men have the capacity to plan the activities of a whole society and then to direct those activities. Their faith in the capacity of some men to plan rests, of course, on the assumption that all other men will submit to the plan. For nobody honestly believes that planning can be carried out consistently among free men, that is to say among men who have their own plans for their own lives; or that planning, in the full sense of the term, is possible where discussion is free; or that a social order can be managed if those who compose it are not regimented. In a planned society no liberty is tolerable which would delay or hinder the execution of the plans. To manage a whole social order according to a central plan, human behavior must be predictable. The planner must know what men will produce and what they will consume: the only way to make sure of knowing this is to regiment men as producers and ration them as consumers. For you can confidently predict how men will behave only when you have power to order their behavior. Thus a completely planned economy calls for an authoritarian state.
These, it seems to me, are the broad characteristics of the ideal of self-sufficiency. I do not mean to suggest that everyone who is disposed to embrace the ideal embraces all its implications. I mean merely to indicate the boundaries and the main contours of the land one enters in opting for autarchy.
On the other side stand those who intuitively prefer a free international economy. Here one finds, it seems to me, two major premises. The first is that division of labor is necessary to the maximum increase of wealth. This is, of course, the time-honored argument for free trade, the revelation of Adam Smith, and all those who possess it are, therefore, disposed to regard any interference with the division of labor as uneconomic. Even when they assent to interference, either on the ground of military, political, or social necessity, they assent reluctantly and with the inner conviction that they are sinning against the light of economic righteousness.
But one would be doing scant justice to this philosophy by insisting that its whole inspiration is the desire to increase material wealth. There is another insight here which has a profound bearing upon the claims of autarchy. It is an insight into the limitations of the human capacity to govern. No one has stated this point more cogently than Dr. Benjamin M. Anderson, Jr.:
The actual direction of industry, the decision whether more wheat shall be planted and less corn, or more shoes shall be produced and less hats, is not made by the state or by collective society, but is left to the choice of independent producers. These independent producers make their decisions with reference to the state of the markets. . . . If a government of a collective system undertakes to regulate the business of a country as a whole and to guide and control production, there is required a central brain of such vast power that no human being who has yet lived, or can be expected to live, can supply it. When millions of people are working, each at his own special problem, studying his own special market, making his readjustment piecemeal, under the guidance of market prices, the problem is manageable. If a central brain must do the thinking for all of them, chaos is inevitable. . . .
Here, then, is the central contrast between our present system and a planned economy -- in the problem of coördinating the economic activities of men and making a social order. Our present system relies upon the unconscious, automatic functioning of the markets. A "controlled economy" must do it, if at all, by conscious public planning, a central brain guiding, controlling and regimenting the masses of men. . . .[i]
The essence of the argument is that the decisions of markets as expressed in rising and falling prices are better regulators of human energy than any centralized planning authority could be. Those who hold this view argue that prices in the market places are in effect a continual referendum on what men wish to produce, what they wish to consume, where they wish to work, and where they wish to invest their savings. They insist that these competitive prices provide a more reliable method of collective judgment on the direction of industry than can be obtained in any other way, and they are disposed to resist all measures which interfere with the free encounter of buyers and sellers in the various markets. So they dislike tariffs. They dislike price fixing by government or by pools and combinations. They dislike wage fixing by law or by collective bargains. They dislike monetary policies designed to alter or stabilize the price level. They like the international gold standard because it enlarges the area within which prices are competitive. And in theory at least they ought to prefer complete freedom of migration throughout the world. For, as Dr. Anderson has put it, "the success of this system . . . depends upon the flexibility and the quickness with which readjustments can be made, and this, in turn, depends largely upon the extent to which it is competitive and free from unified conscious control." Freedom from conscious control would require not only freedom from "planning" in the current sense of the term, but freedom from tariffs and immigration laws and from almost all forms of domestic interference with prices, rates, wages, working conditions.
Now it is plain that this ideal is not embodied in any existing society. Not only are there tariffs and immigration laws, central banking policies and credit controls, but throughout the structure of industry there operate laws, collective bargains, gentlemen's agreements, as well as fixed bonded indebtedness, long term contracts, fixed rentals, fixed salaries, which impose rigidity where Dr. Anderson calls for flexibility, and inhibit those quick readjustments which the success of his social philosophy calls for. Nor is that all. The most rigid elements of the existing system arise from the fact that so many men prefer to live where they have always lived, and to do the kind of work they have always done. The perfectly free economy requires perfectly mobile human beings. But in spite of Adam Smith's revelation, men cling to their homes and their trades, and have a way of becoming highly infuriated when under the pressure of free markets they are compelled to move on. The rigidities which have been introduced into the existing systems, the tariffs, immigration laws, the social regulation and the trade unionism, the tendency to make long term contracts as to debts, salaries, rents, the efforts to "stabilize" prices -- the whole conglomeration of sins against laissez-faire -- are rooted in the conservatism of the human race, in its resistance to quick readjustments, in its dislike of changing its way of life, in its unwillingness, in short, to submit to the compulsions of free markets.
Thus in comparing the ultimate implications of a planned economy with those of a laissez-faire economy, the regimentation by central authority must be weighed in the scales against the anonymous compulsions of the markets. "Quick readjustments" and "the free movement of capital and labor from industry to industry" must be translated into human actualities before one can really understand why the resistance to laissez-faire is so general and so profound. One must imagine the farmer who is forced to give up his farm in order to effect a "readjustment;" the miner who must find a new trade in a strange place; the textile worker who must move on. One must picture to oneself what it means to uproot a family in order to readjust it, -- to leave a home, to say farewell to friends, to take children out of their schools and away from the places where they play, and to wander off from warm, familiar things into the cold unknown. Then only can one begin to understand why the masses of mankind are disposed to flee from the evils they know to evils which, though they may be greater, are not yet known.
And so it may be said, perhaps, that the difficulty of a self-sufficient controlled economy would lie in the lack of wisdom for centralized direction and the necessity for regimentation; that the difficulty of international laissez-faire has been found to lie in the immense human resistance which has developed to the consequences of free competition. And one may perhaps conclude that, given human capacities and human dispositions, the ideal of a planned society, of a competitive society, are both, in any rigorous sense, incompatible with our reality. We must, therefore, it seems to me, look upon these two ideals as two poles between which it is necessary to navigate, and as, like the poles, both of them interesting to the explorer but exceedingly unpleasant as a permanent habitation. The degree to which an actual social economy, the American economy, for example, should and must move toward one or the other of these two ideals cannot be deduced from the theoretical pretensions of either of them. The course has to be determined by the pressure of preferences among the limited choices that circumstances provide.
For the American economy is obviously not now organized for a policy of self-containment. Very important producing interests both in agriculture and in industry are adapted to world markets, and must face enormous losses and human misery if those markets are permanently lost. Those who argue that the exports of the United States are a negligible fraction of the total production are using statistics to obscure the realities. To reduce American agriculture to a self-contained market would, it is estimated, call for reducing the productive acreage by 40,000,000 acres of average land or by 60-70,000,000 acres of poor land. This is not a negligible readjustment. What would be required, in the way of loss of capital and displacement of labor in order to reduce American industry to a basis of self-sufficiency, I do not know, though it was estimated in 1928 that two and a half million families were dependent upon industrial production for export.
Obviously, only a fanatic would deliberately choose to go through the social difficulties of such a vast readjustment in order to attain the theoretical advantages of a closed economy. But though the American system is not now adapted to autarchy, it is no less evident that the world economy is not now adapted to the American system. The markets to which the American producers for export are adapted have become greatly restricted, partly no doubt because of the emergency, but in some important part, permanently. It is perhaps possible to believe that eventually the foreign trade of the United States will be greater than it was in the post-war period; it is impossible to believe that it will be composed of the same commodities. More particularly does it seem improbable that the United States can hope again to export much food, for the secular trend, though perverted by the war, is deeply against this trade. Nor does the prospect seem promising for a permanent resumption of the mass production of consumers' goods for export.
Therefore, one must conclude, I should think, that profound readjustments of capital and labor will be called for quite regardless of whether one prefers an open or a closed economy. I strongly suspect that the amount of planning, of centralized control, and of regimentation which we adopt will be determined by the amount of readjustment which circumstances force upon us. Secretary Wallace has pointed out in public speeches that the choices open to us are these: to increase foreign purchasing power in the United States by accepting at least one billion dollars more imports than we did in 1929; or to take from forty to seventy million acres out of production; or to take a middle course, admitting perhaps half a billion more of imports, and returning some land, but not the whole of the forty to seventy million acres, to the public domain. The first alternative, which is to admit large imports, would throw the main burden of readjustment on industry and a lesser burden on agriculture; the second alternative would throw an enormous burden on agriculture as well as industry; the third, or compromise, alternative would distribute the burden. By no one of the alternatives do we escape from the necessity of great adjustment.
I do not know how reliably the magnitude of the readjustments can be estimated. The fact that it is so difficult to estimate them tends to show how difficult it is to conduct a planned society; yet the fact that vast readjustments have to be made, whatever course we pursue, shows that for the process of the readjustment much planning and much control are bound to be necessary. For it is not conceivable that a readjustment in such vast amount can be carried out peaceably by private initiative and by concentrating the losses on the individuals directly concerned.
It seems to me reasonably clear that in the United States the movement toward a closed and controlled economy derives its main impetus not from a new social gospel but from the necessity of overcoming the consequences of agrarian and industrial dislocation. There has been no mass conversion from individualism to collectivism. Thus far, at least, there are only collective expedients to assist the individual farmers and private industry to readjust themselves. It may be that these collective expedients will work in such a way that they will establish themselves permanently. It may be that they will work so badly that they will be discredited. It may be that they will work so quickly and so well that they will seem unnecessary. I do not see how anyone can know enough to prophesy. The essential characteristic of the whole movement is its extreme empiricism, at least from the point of view of the mass of the people. There are enthusiasts, to be sure, to whom it is the realization of a doctrine. But whatever the doctors may think, the patient, that is the nation composed of individuals, tests the medicine by its effects.
So, if at this moment in the autumn of 1933, I had to testify in answer to the question: Is the United States passing through a social revolution which will bring into being a closed and controlled economy?, I should have to answer in some such way as this: The economy of the United States is dislocated. Since the economic relationships which existed before 1929 cannot for various reasons be restored, "recovery" involves certain deep readjustments. The system of free enterprise has become too rigid and the sense of social obligations too acute to permit the carrying out of these readjustments by individual action and individual sacrifice. Therefore, by the logic of the circumstances, the United States has been driven to experiment in collective control designed to facilitate the necessary readjustments. These experiments have their roots in the desire for recovery rather than in a popular enthusiasm for the ideal of an authoritarian state and a planned economy. They are, therefore, practical expedients rather than revolutionary processes. But it is possible that the dislocation may not yield to the expedients, thus compelling resort to more drastic ones. It is possible that the expedients may themselves deepen the dislocation by inhibiting the free enterprise upon which an essential part of recovery depends. It is possible that the expedients will seem admirable and equally possible that they will seem detestable.
And therefore the only conclusion that is now justified, it seems to me, is that as long as the expression of opinion remains free, it will be immediate experience rather than theory which will dictate the course of policy. Indeed, the more I reflect upon the problem, the better I understand why revolutionists bent upon a radical transformation of human society do, and in fact must, begin by abolishing freedom of expression. There is no other way in which a complete transition can be effected swiftly except by preventing the people from impeding, deflecting, and limiting the change in accordance with their experience.
[i] "A Planned Economy and a Planned Price Level." Chase Economic Bulletin, July 9, 1933.