Not Just Another Recession
Why the Global Economy May Never Be the Same
THE crisis in Europe may be compromised temporarily. War may not be so imminent as the day-by-day headlines indicate. But with two "unofficial wars" in progress in the world, with men under arms in many of the great European countries, with chancelleries perplexed and anxious, with virulent press campaigns going on between several nations, Americans cannot shut their eyes to the risks of these days or imagine that if the worst comes they will remain unaffected. That they are not unmindful of the risks is evidenced by the effort made in Congress during the past few years to assure peace by legislative means.
As the World War drew into perspective, it left only one clear determination in most American minds: "Never again!" At first the hope which these words implied seemed reasonable enough. No direct danger threatened our shores. If the government were careful to steer clear of entangling alliances, it could avoid becoming involved, the average American thought, in any future troubles that might arise abroad. In 1919-1920, then, we rejected the task of participating in the postwar political reconstruction of Europe and refused to take responsibility for the execution of the peace settlement. We assumed that in some manner the war-wearied European nations would manage to organize themselves for peace, and we hoped that the League of Nations would become effective even without our participation. Secretary Hughes laid what seemed at the time a secure basis for maintenance of peace in the Pacific. Successive Administrations tried to help indirectly by working with the League for disarmament; and our government joined in a solemn declaration renouncing war as an instrument of national policy. Simultaneously, we let our military machine deteriorate as a part of the general world relaxation and our desire to economize and pay off the costs of the war.
Then came successive blows. The disarmament efforts proved a dismal failure. Instead of all-round disarmament we saw the opposite. The armed dictatorships which arose, and the democracies which tried to catch up with them, both alike had to mortgage their financial future in the race to arm and faced ever-increasing inflation (so destructive of the middle class -- the great reservoir of sobriety and balance). The League of Nations proved inadequate to deal with the heavy tasks laid upon it and the Briand-Kellogg Pact became virtually a dead letter.
The cumulative effect of these developments was to make the American people begin to feel genuinely alarmed. A great war was no longer the remote danger it once had seemed. It had become a very real and very threatening possibility. We were not prepared to do anything very concrete to make it less likely; in fact, it was not easy to see just what we could do, except to carry forward Secretary Hull's vigorous and courageous efforts to create a more normal psychology by restoring world trade to its usual channels. The "Never again" philosophy still was the dominating influence with the American public, and the counsel which it gave was still the same -- that the country insulate itself in every way possible from the dangers appearing on several horizons in Europe, Africa and the Far East. The two chief attempts in this direction were the Neutrality Legislation of 1935-1937 and the Ludlow Resolution which was debated in Congress early in 1938.
The Ludlow Resolution can be disposed of summarily. It was based on the theory that if the Constitution were made to require that a popular referendum be held before Congress could declare war, the United States would keep clear of trouble. The idea that it was a feasible proposal or that if adopted it would have the result expected was thoroughly exploded and the plan is not likely to be soon revived.
The Neutrality Legislation falls in a very different category. It was the product not of a brainstorm but of careful and conscientious study by the Department of State and by thoughtful citizens both in and out of Congress.[i]
The Neutrality Act -- or rather, the 1935 predecessor of the present Act -- suffered from having been drawn too much with a single situation in view, namely, the war which was impending as a result of Italian pressure on Ethiopia. The earliest public discussion of Neutrality Legislation had aimed at "keeping us out of the last war." The concrete situation now presented was rather different from what had been foreseen. The threatened war in Ethiopia was not one which, in itself, could conceivably involve the United States. However, Europe's attempt to prevent the war threatened to complicate our relations with the states belonging to the League of Nations. Thus mixed motives were behind the support given the legislation finally adopted by Congress on August 24, 1935. Some thought that a legislative straitjacket, if it were tight enough, would serve to keep us out of any war. Others were interested more in the particular war then impending; they wanted to put legislation on the statute books as speedily as possible, so that we could throw our moral and possibly some material help on the side of the League states which were then preparing to bring pressure on Italy in order to keep her out of Ethiopia. In this particular instance the Neutrality Act, though in form applicable to both belligerents, bore down in practice solely on one side -- Italy -- and hence served as a measure of aid to Ethiopia.
Since the Ethiopian affair, Spain and China have served in succession as proving-grounds of American popular ideas about how to keep out of war and have tested the legislation adopted to give effect to those ideas. The Congress which convenes in January 1939 will have the task of drawing the deductions from these experiences. Already it is evident that there will be formal proposals to amend or even to repeal the 1937 law. Congress can hardly fail to take account of the fact that the 1937 Act has not worked to the satisfaction of many of its sponsors in the Spanish civil war, and that in the Chinese war it has not even been invoked. Further, the so-called "cash and carry" features of the law are due to expire on May 1, 1939. These various factors will force the issue into prominence this coming winter even though Congress were disposed to postpone it.
The wording of the 1937 law provides that it shall enter into effect upon a finding by the President "that there exists a state of war" between two foreign states, or a state of serious civil strife in a foreign state. Certain consequences follow. In particular, the trade in arms, the sale of securities of belligerents, and travel by American citizens on belligerent vessels are prohibited. These consequences are mandatory. In addition, under the so-called "cash and carry" provisions of the law the President is given the discretionary right to impose further restrictions on the carrying of goods other than arms, and he may also require that title to goods destined for belligerents shall pass to the foreign purchaser before the goods leave the United States.
This, as students of international law have conclusively pointed out, is not primarily a neutrality act. We are not called upon to impose on ourselves these various restrictions in order to comply with the so-called requirements of international law and practice. International law in this field has wisely been modest in its requirements. About all that it demands is that a neutral state shall not allow itself to become a base of direct military operations for the belligerents, and that the governments of neutral states shall not participate in any aid or comfort given to belligerents. As yet there is nothing in international law which calls upon a neutral to prohibit the private trade of its nationals, private financing by its nationals for the benefit of belligerents, or travel by neutrals on belligerent vessels. We do not, therefore, need these self-imposed restrictions in order to meet the requirements of neutrality in international law. In fact, there are certain situations where such restrictions might result, not in our being "unneutral" in the legal sense of the term, but in our failing to be "impartial" -- a word and attitude which public opinion mistakenly identifies with the legal position of "neutrality."
The measures which we propose to take under the Act, if they are to be justified at all, must be justified on some other basis than that of a legalistic neutrality. In view of the debates in Congress which led to the adoption of the law, we must assume that the legislators considered the Act as a statute to "keep us out of war." It is legislation providing for American isolation rather than for American neutrality.
Now this country may profit by legislation designed to help keep it out of war. For it is a delusion to think that American repugnance to war is really fundamental. In theory we Americans are all opposed to war. We all argue eloquently and with conclusive logic as to the madness and folly of war and we persuade ourselves, as people have been persuaded in each generation, that the next war will be the end of civilization. The facts of the matter are, if we would be really candid with ourselves, that we are as prone to get excited to the point of war as almost any people on earth -- probably more so than the war-hardened veterans of Europe. We are temperamental and sentimental. We allow our sympathies to become aroused for issues, however remote, and we espouse with a fervent partisanship oppressed races and lost causes which have no direct relationship to our own welfare. These characteristics are not mentioned here for the purpose of criticizing them. Undoubtedly there is much about them that is fine. But they entail dangers which we should be equally frank to recognize.
In this country, furthermore, we enjoy, and we must continue to enjoy, the privileges of a completely free press and freedom of speech. In recognizing the inestimable benefits of these privileges we should equally recognize that we pay a price for them, that dangers are inherent in them. Freedom of speech and the press has been used, and doubtless in the future will be used again, to arouse this country to a point where war may result. In a democratic society such as ours we deceive ourselves if we think that war is generally imposed on the people by the government. That is the usual course in a dictatorship. In a democracy, war is much more likely to be imposed upon the government by an aroused public opinion; the government is more keenly alive to the perils of war than is the man in the street.
We could not change our temperamental outlook if we would. We should not and will not forego a free press and free speech. It is quite proper, however, that in this vital matter of war and peace our government should try through legislation to see that our enthusiasms do not involve its prestige and possibly provoke the use of its armed power except over issues where real national interests are at stake.
It is here that war prevention legislation of the general nature of that enacted in 1937 can play a useful rôle. Given the conditions which inevitably surround modern warfare, it is proper for us to reëxamine in the light of those conditions whether the United States should allow its honor or its prestige to become involved because of accidental damage to American property or the accidental loss of American lives in war zones. A belligerent, even if well-intentioned, has no easy task in distinguishing between alien enemies and alien friends. Modern warfare has both extended the range of war zones and changed the character of the attack. An incident such as the Panay bombing is a very serious matter; but once that bombing is formally disavowed as an accident and reparation made, is American prestige any longer involved? Tragic as was the loss of the Lusitania, should we permit a similar catastrophe in the future to result in a popular call to arms in the United States? Unjustifiable as was the British treatment of American cargoes during the World War, at least under the then existing tenets of international law, should such treatment in a future conflict again lead us to the brink of war? We must try to distinguish between deliberate attacks on American interests and the loss which everyone, whether belligerent or neutral, suffers in the zone of operations in any major modern conflict.
The Neutrality Legislation of 1937 was framed to eliminate in a future war between foreign states some of the various provocative incidents which we encountered during the period 1914 to 1917. It also aimed to prevent the creation of an American economic and financial stake in the victory of one side or the other. In certain instances it may be useful to these ends. For example, Americans are forbidden to travel on belligerent vessels. (An absolute prohibition, with penalties for infringement, is probably unwise; a warning against such travel, and notice that those who neglect it are not to expect governmental help or redress, would seem sufficient.) Further, if the conditions of 1914-1917 were repeated, loans to belligerents would be banned and the government would be able to invoke, and it might be wise to invoke, the "cash and carry" provisions of the Act. This would help to prevent issues arising over trade interference and also reduce somewhat the danger of loss of American lives through belligerent action. If we can keep a reasonable composure, at least until a situation arises where a vital interest of the United States is at stake, we may have cut down some of the potential causes of war.
There is a great deal of homely truth in Miss Dorothy Thompson's humorous remark that "you keep out of war by being sound in the head and light on the feet." The provisions of the Neutrality Law just mentioned may help to keep us "sound in the head." The real difficulty with the law as it stands at present is that it also makes us "heavy footed." In its present form the law shackles in advance those who make our policy. It may force the Executive to take actions which have little or no relation to the preservation of peace. In certain situations, due to the so-called mandatory provisions of the Act, it may even operate in quite the opposite direction.
Our ability to keep out of war depends upon more than our ability to control our passions. It may depend upon our ability to help prevent the spread of war to a point where the maintenance of neutrality becomes impossible. Again, we may find war forced upon us by an attack upon what may in all truth be vital interests of the United States. Neutrality legislation which does not permit the Executive to direct policy along lines calculated to protect these vital interests in advance, and help to prevent a war from spreading to the point where we may become involved, is worse than useless -- it contains definite dangers. Here is where the Neutrality Law as at present written is open to criticism. Yet it could easily be amended to reduce those dangers and remove that criticism, preserving all its good features and at the same time giving back to the Administration the liberty of action essential to the conduct of foreign policy.
The Neutrality Law obligates the President to declare an arms embargo and to invoke all of the major provisions of the Act, except the "cash and carry" features, whenever he finds that a "state of war exists." Certainly it was the intent of the Congress in passing the law that it should come into effect whenever a real state of war arose. However, it was left to the Executive to determine whether or not a state of war existed. In the Chinese situation, this right has been interpreted as authorizing the President to withhold action in the absence of any formal declaration of war by one of the belligerents. Congress has tacitly assented to this interpretation, doubtless because in the Chinese situation the President's decision had the general approval of public opinion. This interpretation of the law, however, leaves us in the uncomfortable position that if either belligerent should for any reason desire to see our Neutrality Law come into effect, it could bring this about by the purely formal act of declaring war. In other words, we really lose control of the conduct of our own foreign policy and leave to other Powers the opportunity of determining what our own course of action should be. This is absurd. It would be a different matter, perhaps, if the law we are discussing were really a law to keep us legally "neutral." But it is an isolationist measure affecting our commercial and financial relationships and broad issues of foreign policy. Under these circumstances there is every reason for us to keep in our own hands the decision as to the wise moment to apply the restrictions.
It is often suggested that to bring the 1937 Act into effect in connection with the war in China would tend to aid Japan, a result which would be considered contrary to our policy and interests. Certainly it would be resented by China, and consequently would render even more difficult than at present the protection of American interests in that country. At the present time, moreover, there is nothing to show that the Act would help to keep us out of war in the Far East. By permitting Japan, in effect, to legislate for us, it would force us to impose on ourselves restrictions possibly detrimental to the very policies which the State Department is endeavoring to carry out.
This unsatisfactory situation is the result of the insistence in Congress on putting mandatory features into the law to bring it automatically into effect in certain circumstances and automatically to terminate its effectiveness in certain other circumstances. However, as it was impossible for the draftsmen of the Act to foresee or define with absolute precision the conditions under which the law ought to come into effect, they perforce had to leave to the President the right to determine when a state of war exists. As a result, they have introduced more uncertainty and confusion than if they had left it to the President to determine both that a state of war exists and also that the interests of the United States and the preservation of peace justify us in assuming the restrictions imposed by the Act, or certain of them.
The war in Spain has brought out another defect in the law. Once a state of war has been found to exist and the law has been invoked, there appears to be no way, short of new legislation, by which its applicability can be revoked so long as that state of war continues, even though in its operation the law may have proven definitely harmful in some important aspect of our international relations.
Even Senator Nye, who was most insistent upon making the law as rigid as possible, became restive when he saw how the American arms embargo actually was working out in Spain, and he endeavored to have the law modified. The Senator and others seemed to feel that the only practical effect of that embargo has been to close our door to possible purchases of arms by the recognized Government of Spain, while its antagonists are kept supplied by certain European governments.
We have not yet had occasion to test the operation of the Act in a war between two South American countries. But it would be strange if we did not find the results there even more surprising and unfortunate than in the Spanish civil war. We would feel very chagrined if we found that after we had tied our hands with an arms embargo, some European nation -- Germany, for example -- took advantage of this situation to determine the result of the conflict by supplying arms to one or the other of the belligerents. And might not the operation of the Act be found to conflict with some of the inter-American treaties condemning aggression and providing for consultation in case of a conflict in Latin America?
Secretary of State Hull has correctly pointed out that under our present legislation a proclamation prohibiting the exportation of arms cannot be revoked unless there is a change in the factual situation which caused it to be put into effect. The general international situation may have changed, but the Administration has been left no liberty of action to deal with the altered situation unless the state of war which led to the imposition of the embargo has meanwhile terminated. New belligerents may have come into the picture, the attitude of other neutrals may have altered: our attitude is frozen, unless the President chooses to ask, and can obtain, further legislation from Congress. This is unsatisfactory. Congress may or may not be in session at the moment. Besides, if you intend to change a general law to meet particular occasions why have that general law? To meet this situation the law should promptly be amended to permit the President to revoke any section of the Act which he finds no longer required to promote the peace and security of the United States.
As a matter of fact, the arms embargo has no utility as a general peace measure unless it is imposed not only by the United States but by the other important munition-producing countries as well. As a measure to keep the United States out of war, it entails definite risks; and these are increased if we do not leave the government free to revoke the embargo whenever desirable. There is unlikely to be any practical reason for placing an embargo on arms unless conditions are such as to make it desirable to impose on our trade broad restrictions like those contemplated under the "cash and carry" provisions -- which are not mandatory but may be invoked at the discretion of the President. Further, the distinction between trade in arms and in the various other sinews of war is sentimental rather than real. Actually, trade in arms is less likely to get us into trouble than trade in other commodities, as the right of belligerents to seize and confiscate arms as absolute contraband is so clear that diplomatic controversy is unlikely to ensue if American arms cargoes are stopped.
The conclusions to which we are led seem to be the following:
The arms embargo and the other mandatory provisions of the Act should, like the "cash and carry" provisions, come into effect only when the President finds both that a state of war exists and that the legislation is necessary "to promote the security or preserve the peace of the United States or to protect the lives of citizens of the United States." This is the finding now required under the "cash and carry" provisions of the Act.
Further, it would be a wise precaution to make the provisions of the Act severable. Then the President could determine whether it was necessary under the above finding of fact to invoke the arms embargo, the restrictions on loans, the restrictions on travel on belligerent vessels, and the "cash and carry" provisions, or any one of them. At the present time only the "cash and carry" provisions are severable and discretionary. The others must be imposed if the President finds that a "state of war" exists.
These various changes involve giving the Executive more discretion than he now enjoys under the Act. We must, therefore, accept at the outset the idea of allowing the Executive liberty of action, within certain limits, to conduct the foreign relations of the United States in periods when other nations are at war just as we accord him that liberty when the world is at peace. There is no alternative to giving him this discretion if we are to have a sensible and constructive foreign policy. As between the risk that the Executive may possibly abuse this discretion and the risks inherent in a policy which ties the Executive with legislative restrictions in the conduct of foreign policy, the former alternative seems distinctly preferable. The Constitutional safeguards which already limit Executive action will remain. When we go beyond these, and try to legislate in advance on details of foreign policy, we run the risk of forcing the country to embark on a course which, in unforeseen and absolutely unforeseeable situations, may lead toward war rather than peace, and handicap rather than help those who are trying to protect our real national interests.
With such changes, minor in form though substantial in substance, the so-called Neutrality Act might well be given another period of trial. International conditions change so rapidly that any legislation affecting our foreign relations should have constant review; hence the wisdom of the idea already partially introduced into the Act that it should be reviewed after a period of years.
Finally, we must guard against over-confidence in the effectiveness of any Neutrality Law. Peace cannot be assured through mere legislative processes. Few thoughtful students of international problems have expressed any real confidence in the ability of the United States to avoid being drawn into a prolonged war involving the Great Powers, whatever our Neutrality Legislation might be. Congress nevertheless has been distrustful of every move which implies positive coöperation for peace. It has interested itself only in possible means of keeping the fire from our own domain once it has broken out somewhere; it has refused to join in efforts to prevent the outbreak. The reason for this is, of course, the apprehension that we might become involved in dangerous commitments and lose our independence of judgment and of action. Congress also fears that coöperation on our part with other Powers to prevent war might be deemed an unfriendly act, or even an act of war, by some prospective or actual aggressor.
These apprehensions spring from a failure to appreciate the real position of the United States in the world. We are the most powerful single nation. Our position, if expressed clearly and resolutely, and not in platitudes or preachments, must be listened to with respect. Our influence can be incalculable. After the experience of 1917 no Power on earth, unless it deliberately decided to commit hari-kari, will dare to add us to its list of enemies merely because it does not like our international policy. We do not need to take, or to promise to take, joint action with other nations in order to make our influence felt. But we may need, when and if the occasion arises, to take independent yet parallel action. It is not help for other nations which would be implied in such parallel action, but the protection of our own ultimate stake in the preservation of peace. Further, one can imagine plenty of occasions when we would be glad to have another nation or group of nations take action paralleling ours in the face of some hostile move against us by a third Power or group of Powers. This has been true in the past.
The Neutrality Act, if it can be amended in the light of recent experience, may prove helpful in the peaceful conduct of our foreign relations. But it is far from being enough. As a guaranty that we shall be able to keep out of war it is entirely inadequate. Have not the events of the past few years in Europe and the Far East had a sufficiently sobering effect on public opinion to justify our State Department in now instituting further studies (if it has not already done so) to ascertain whether through legislation or otherwise we can better equip ourselves to make a more positive contribution to peace? Admirable as are Secretary Hull's statements on foreign policy, there is no gainsaying that they are viewed with some cynicism abroad. International trouble-makers are trying to convince themselves that the United States will never do more than give lip service to the cause of peace, that it would not be a factor to be reckoned with unless it were directly attacked. They believe that they can count on a passivity which, as history and current observation show, is quite alien to the American temper. The question is, how can we make them aware of this, and do it effectively and in time? If we are to have an influence in the world's decision as to peace or war, a decision in which every living American has a direct stake, we shall need more effective weapons in our hands. There may not now be much time left in which to forge them.
[i] See Charles Warren's two articles in FOREIGN AFFAIRS, "Troubles of a Neutral," April 1934, and "Safeguards to Neutrality," January 1936. For the historical background, see "Can We Be Neutral?" by Allen W. Dulles and Hamilton Fish Armstrong, published by the Council on Foreign Relations, New York, 1936.