IN a passage on the commercial policy of Alexander Hamilton, the late F. S. Oliver, that profound and original modern political philosopher, remarks that Hamilton was out of sympathy with the economists -- particularly the orthodox French economists of his time. Hamilton, he says, "disbelieved in economic man -- a being without bowels, with an interior like a clock, accurately ticking the progress of the human race under the impulse of the magic spring of enlightened self-interest, and never needing to be wound or regulated. The besetting sin of the economists was their preference for argument over observation. They based their reasoning upon axioms when they should have gone to the facts. At each stage they became more and more the victims of words that did not correspond with realities, of syllogisms that under analysis were little more than arrangements of phrases."

Today, once again, the newspapers are full of phrases and the commentators and economists in catchpenny slogans pronounce upon the necessity of free governments freely elected and of a "more abundant life" and "full employment," and little is spared us except the facts. But these, like other necessities of life, are in very short supply.

The purpose of this article is prosaic and limited. It is, in a short compass and by the frequent use of examples, to try to state some of the facts which, inevitably, influence the policies and political behavior of some of the governments of the liberated and conquered countries of Europe. Before this is attempted, however, it may perhaps be of value to make a start some little way back and, in considering the present, to take account of the past, and view the accident of the rise and fall of Hitler against other similar cataclysms.

In A.D. 632, Mohammed died, and in the 150 years which followed, the Roman world -- the world -- collapsed. In that space of time, the Moslems conquered the Persian Empire and, in turn, the Provinces of the Byzantine Empire -- Syria, Egypt, Africa, Spain. The tide of conquest finally was turned back by Charles Martel at Poitiers, exactly 100 years after Mohammed's death. Christianity, which had covered the littoral of the whole Mediterranean, was left clinging precariously to its northern shores, and the highway -- the grand trunk road of the world's commerce -- passed into Moslem control so absolutely that eastern Europe was cut off from western Europe and the Christian states of the west became a world apart, able to count on their own resources alone.

Driven from the Mediterranean, the Frankish Kingdom turned north and east and broke onto the shores of the North Sea and across the Rhine to the unexplored and undeveloped "frontier" of Germany. A new Europe under Charlemagne followed, and this Europe was unlike the old. The towns having become depopulated for lack of seaborne trade, and the finances of the state having shrunk for the same reason, there was virtually no state budget -- none at any rate of the sort known to Byzantium and to the Empire of the Caliph; their economies were still monetary economies with a centralized treasury which paid for the upkeep of public works and paid for the army and navy and the large civil service. Now instead of a money economy there was only one form of wealth: land and labor. The great domain of the Middle Ages was created in which the idea of "profit" was wholly unknown; and an "economy without outlets" was born.

The political and economic consequences of the Moslem invasions are so clearly described by a well-known Belgian historian, Henri Pirenne, that the lesson which he draws from them should not be wasted upon us today:

An unforeseen event is always followed by a catastrophe in proportion to its importance. It flings itself, so to speak, across the current of historic life, interrupting the series of causes and effects of which this current is constituted, damming them up in some sort and by their unexpected repercussions overturning the natural order of things. This was what happened at the time of the Moslem invasions. For centuries Europe had gravitated about the Mediterranean. . . . Now, under the impact of Islam, this unity was shattered. . . . East and West were suddenly separated. The community in which they had lived so long was destroyed for centuries to come and even today Europe is still suffering from the consequences of its destruction.

We live today in a world where are occurring events which, in some respects, can be likened to the Moslem invasion. In the pages of recorded time, Hitler will rank as a man who changed history. But the extent to which he permanently changed history lies largely with us -- with the United States, the United Kingdom and their allies.


We must understand the proportions of the problem in the liberated and conquered countries of Europe before we can describe constituent elements.

At issue are the economic and social habits, and therefore the political life, of some 180,000,000 people, [i] a population four-and-one-half times the size of that of the United Kingdom, approximately equal to the combined populations of the United States, Canada and Mexico. The peoples of these countries have, to a greater or lesser degree, developed modern exchange economies in which their life depends in a literal sense, as did that of the Roman Empire, on transportation, import and export, purchase and sale, credit and banking. The economies of France, Belgium and Holland in particular have the same general characteristics as those of the United Kingdom and the United States, and the continuous processes, the blood stream of their economic life, cannot be interfered with or interrupted for long without paralysis, unemployment, destitution, political distempers and the creation of conditions of unstable and undemocratic government.

How did these countries trade and have their being before 1939? By imports. All imported large quantities of raw materials and foodstuffs from overseas, and the amounts involved were very large. Annually, France imported from overseas about 50,000,000 tons, Belgium 30,000,000, Holland 20,000,000, Denmark 10,000,000, Italy 20,000,000, Poland 3,000,000, Czechoslovakia 5,000,000 and Jugoslavia 3,000,000. Their total annual imports came to about 141,000,000 tons, or nearly one ton per person per year. These figures compare with imports into the United States of some 16,000,000 to 20,000,000 tons per year, or about one-eighth to one-seventh of a ton per person.

Moreover, these imports, together with those of the United Kingdom and Germany were the exports of the primary producing countries of the world -- Australia, New Zealand, Latin America, Africa, the East Indies and North America. Thus these exports largely produced the foreign exchange by which the economies of the primary producers were fed with manufactured goods, a large part of which were obtained not from Europe but by converting the currencies of Europe into dollars.

The reverse side of this picture was the export trade of these European countries with the Oceanic, Atlantic and Pacific worlds. It is too often supposed that they were, so to speak, always "in the red." The margin between exports and imports was often much smaller than is commonly supposed. Exports very largely paid for imports, and loans and gold movements were frequently far less important than the "invisibles" of tourist, shipping and investment earnings.


During the war, a great change came over the trading habits of Europe. Though this change was fundamental it cannot yet be documented. The facts, if they are known in full, are known only to those who directed the "New Order" from Berlin and gave the instructions whereby the imports received by the conquered countries on the periphery of Europe were put in motion. The essential point is simple, however, and needs no statistical underwriting. There was a New Order, and it worked. The German talent for organization was never seen to better advantage. There was a production plan for Europe, controlled in the center and developed solely to meet the military and political purposes of the Greater Reich.

The German High Command faced the now familiar problems of developing the largest possible war production of the weapons they wanted, of conserving their manpower, of employing as few garrison troops as they could, and of obtaining and distributing the foodstuffs they required. They were very successful. Under their management Europe largely defied the blockade, largely became self-sufficient, and for four years provided the Reich with an army equipped with weapons second to none.

In the process, the Germans changed the economic life of Europe as completely as did the Moslems 1,200 years earlier. Moreover, most of the countries did not lack for employment -- and, economically, the standard of life of the western European nations was fixed at a tolerable level. Indeed, the degree to which Germany sustained some countries was remarkable. Thus, France received imports on the order of 7,000,000 tons a year, Belgium on the order of 5,000,000, and coal shipments by rail to Italy ran at the high figure of 1,000,000 tons a month for long periods.

Everything, of course, was subordinated to the purposes of the German High Command and rested upon force. But the fact remains that the whole economy of Europe was poured into a new mold which fitted very exactly the purposes for which it was made. And, unlike the "Continental System" of Napoleon, the New Order of Hitler worked.


What is the position today in the countries which have been liberated by Anglo-American force of arms? As usual, it is dangerous to generalize. Conditions vary from country to country and in some are still in large measure unknown. Nevertheless, in all countries in which there is a combined Anglo-American military responsibility some features recur and should be touched on before the general pattern is embroidered in more detail. This article attempts a survey in detail only of France, Belgium and Italy. Were it possible, it would be profitable and illuminating to attempt a "close up" not only of those countries, but of Jugoslavia and Albania also. But since it is not, France and Belgium must serve as an example of what is happening, and is likely to happen, in the Allied countries of the west; while Italy serves as an example of the fate of a former satellite Power.

One caveat must first be entered, however. Hard and difficult as the life of France and Belgium has been since liberation, and is today, it is as nothing to that of western Holland, whose people have undergone hardships greater even than those visited upon them in the Spanish wars.

The common factors, the "normal" consequences of liberation, are these:

A breakdown of the New Order, coupled with a complete cessation of imports from Germany, and of raw material imports from any source.

Cessation of movement or communication of any kind, since bridges, tunnels and railway lines were destroyed by the Allied Armies or by the Germans.

Each country, therefore, thrown at once onto its own resources; factories running on accumulated stocks, and gradually ceasing to run at all as some part of these became exhausted; gradual but growing unemployment.

Monetary troubles of some sort, due largely to the difficulty of tax collection, to increasing scarcity of consumer goods, to the highly inflationary effect of the presence of large Allied Armies with almost unlimited spending power in the direct interest of the war, and very large incidental private expenditures on the part of individual Allied soldiers.

A shortage of all forms of power and light and heat.

A shortage of food, a large black market and higher food prices.

A destruction of port handling and reception capacity.

An inability to purchase overseas except against gold holdings, foreign exchange reserves, or by commercial loans.

Above all, the absence of the conditions which would permit any government of any shade, color or character to make any economic plans at all since (at any rate in the earlier stages of Allied occupation) power lay not with them but with the Allied Commander-in-Chief.


If France is studied in the light of these general factors, an outline of the state of things there will quickly begin to take shape. France averaged 50,000,000 tons of imports per year before the war. She averaged 7,000,000 tons of imports per year under the Germans. Because of a lack of port capacity for other than direct military supplies, she received from D-Day to January 1, 1945, only a small percentage of the latter figure. Belgium was in a similar position.

To get the feel of this, imagine what would happen to the economic, social and political life of the various states of the United States east of the Alleghenies -- which correspond roughly in population to France and Belgium -- if, after four years of enemy occupation during which vital imports had been running at 20 percent of the 1935 level, liberation occurred, and as its immediate consequence all communication broke down completely and vital imports fell to a very small percentage of the level maintained by the enemy. Add to this an Allied Army of Occupation talking another strange language; severe war damage; inadequate and very expensive food; an exceptionally hard winter; insufficient coal; no transport; and growing unemployment -- and there begins to emerge a picture of the problems which the French Provisional Government faces today.

France needs more transport, coal, raw materials, fertilizers and a better diet. In December last, the French estimated that, with the exception of Bordeaux, the intake capacity of their great ports had been largely destroyed. They estimated that of 19 marshalling yards, 15 had been destroyed; and that of 16,000 locomotives, only 6,000 were effective, of which a high proportion had been imported by the Allied Armies. In 1939, they had 450,000 freight cars. As the war ended, all freight cars in France, Belgium and liberated Holland were pooled; there were only some 200,000 of them and on these the military still have a first claim. Before the war, there were some 500,000 motor trucks in France. Today, only some 125,000 are usable and most of them are more than ten years old.

In such circumstances, it is impossible for the French Government to put the resources of France to fully effective use. For instance, the 1944-1945 sugar beet crop should, in present circumstances, yield 600,000 tons (the prewar total was some 900,000 tons). However, to process this year's crop, 500,000 tons of coal were needed. This amount was not available, so only some 300,000 tons of beet sugar will be produced. The French are, therefore, including substantial amounts of sugar in their import program; and this at a moment when the world sugar position is critically tight.

Of the 80,000,000 tons of coal which France consumed annually before the war, about 20,000,000 tons came from overseas imports. Today, France is producing at the rate of about 22,000,000 tons a year, a little more than one-third of her prewar production, but she cannot distribute it. In all forms of agricultural and industrial life in France, there is, therefore, a vicious circle. For example, more coal cannot be produced for lack of freight cars to carry it from pithead and more freight cars cannot be produced for lack of coal. Without coal, of course, many other manufactures cannot be made. In December 1944, therefore, industrial production had fallen to one-quarter of what it had been under German occupation, nor has it risen very substantially since.

Of France's 50,000,000 tons of prewar imports, coal and oil accounted for nearly 30,000,000 tons. But the following imports were also significant, since their absence vitally affects the economic blood stream of the country.

Prewar Imports In tons
Manganese ore 500,000
Copper 120,000
Lead 120,000
Zinc ore and metal 180,000
Sulphur 250,000
Phosphate rock 1,000,000
Raw wool 100,000
Raw cotton 280,000
Raw jute 100,000

For good and substantial reasons, virtually none of these raw materials has been brought in by the military and a small trickle is only now beginning to flow to France in her supplementary "National Import Program." Meanwhile, the relatively highly industrialized economy of France is in danger of running down from lack of sustenance. This is a somber fact. We would do well to keep it in mind if we should -- on other grounds and for other reasons -- see fit to criticize the French Provisional Government. Political bricks cannot be made without economic straw.

In one respect, France is fortunate. Unlike the United Kingdom, she retains the greater part of her former holdings of gold and foreign exchange balances. She has also been the beneficiary of a Lend-Lease Agreement for 2.5 billion dollars, of which some $900,000,000, on loan terms, can be applied to longer term reconstruction. Since her imports in 1938 cost on the order of one billion dollars, France has a good chance, if she can obtain the imports with which to pay her way, of quickly becoming once again a going concern. The question is, can she get these imports?


All the factors already mentioned as applicable to nearly all countries apply with exaggerated force to Italy south of Bologna. For many months Italy was divided into three parts -- Italian Government Italy, Allied Military Government Italy and German-occupied Italy. Because of this, it is impossible to present a picture of conditions in Italy in terms comparable to those used for France. We do not know, in terms of tons of imports, what the Germans made available. Recently, however, it cannot have been very much, since for some time the volume of traffic through Switzerland has been small.

Before the war, Italy imported some 20 million tons a year, of which coal and oil products amounted to about 13 million tons. Since the landings in Sicily in 1943, Allied-occupied Italy has received imports amounting to about 8 percent of what she would have received in a similar period before the war, mostly in the form of coal and wheat. We must presume that, for political reasons and because they could get a direct contribution to their war effort from the industrial north, the German High Command decided to make a special effort to keep unemployment down and some selected plants going, and that therefore they pursued as liberal an import policy toward Italy as their strained transport facilities would permit. It might be assumed, then, that the Germans succeeded in equalling these amounts. On this hypothesis, Italy might have received in the 22 months following the landings in Sicily perhaps 16 percent of her prewar normal imports. However, the facts about German imports are so little known that the true position may be very much worse than this. It therefore is more profitable to turn to that part of Italy where the facts are better known and to see what they disclose.

The picture is discouraging. The economic life of the country as it existed before the war has been changed, and normal internal channels of trade have ceased to exist. The physical destruction of roads, bridges, telephones and railways, and the operation by military authorities for their own purposes of such as remain, have enforced a way of life in the country districts not dissimilar to that of the eighteenth century. That trade is able to take place at all, given the difficulty of communication, is a tribute to the sturdiness of the Italian spirit of private enterprise, for which, of course, the black market offers the largest profits.

Sicily, Sardinia and the far south are relatively intact. The south-central region contains areas of more or less total destruction. Cassino, Velletri and Pescara are destroyed, for example, and their habitants gone. There is little destruction in Rome Province, and none in Rome itself. Further north the damage begins again: Rimini and other towns are badly damaged, and in the final assault the devastation in this region was increased. In many areas also, mines in large numbers are in the ground and constitute a serious deterrent to agricultural and pastoral production.

Many roads have been repaired and many bridges rebuilt by the Allied Armies and by the Italians; but priority has had to be given to those essential to military movement, with the result that often only the main roads and railway lines have been restored. Till the fall of Genoa, Naples was the only important port in Allied hands, which meant that the flow of traffic by road or rail was northward from Naples full, southward to Naples more or less empty.

Motor transport is very scarce. Before the war some 125,000 trucks were in commission. Today, only some 6,000 to 7,000 Italian vehicles complainingly travel the roads. It is the same with the railways. Passenger and freight rolling stock is equally scarce; and the trains moving in this part of Italy are largely drawn by locomotives imported by the Allies. Nor do the railways reach all of the big towns. Nearly everything that moves by rail travels from Naples over the two rebuilt single-track lines to Rome, thence north to railhead, whence it is mainly distributed by truck.

In these circumstances, there is little passenger movement by rail. Only some three passenger trains a week run from Naples to Rome. Passenger traffic by road is therefore highly remunerative and probably takes up 50 percent of the reduced truck space. The exchange of food and raw materials produced locally is in consequence greatly reduced. In short, a lack of transport entirely dominates and determines military and civilian life in Italy, and inevitably it will continue so to do.

In this part of Italy power is almost more scarce. As is well known, the principal source of Italian manufacturing power came from large hydroelectric stations. A grid system covered the country and power flowed from the north to the south. Wherever the Germans could -- meaning if they had time, or if the R.A.F. or the American Air Forces had not already done it for them -- they systematically destroyed all hydroelectric stations and dynamited mile upon mile of transmission towers. In the south, 60 percent of the kilowatt capacity was destroyed. In the center (Naples to Pisa) the destruction was even more serious, and only some 10 percent of the kilowatt capacity was left. By the time these words appear in print there is hope that local repairs will restore capacity to about 25 percent. But it should be noted that in November the then existing kilowatt capacity more than sufficed to meet Allied military workshop demands (which were considerable) to light Rome, run its tramways and leave a balance which was about equal to what Italian factories in that area could use. The factories are badly depleted of small dynamos (taken away by the Germans in truck loads), industrial belting and other small but necessary moving parts without which no plant can run.

Even this, however, is not the whole story. Northern Italy produced the greater part of the hydroelectric power of the country. At the time of writing, it is impossible to tell whether the Germans succeeded in blowing the generators and dams of the hydroelectric stations in Piedmont, Liguria and Lombardy. If they did, Italy might be left without sufficient motive power with which to run her factories and, as will be seen in a moment from the statement of Italy's balance of payments position, this would be serious indeed.

In Sicily, Sardinia and the south there is no starvation. In Tuscany conditions are worse; everything there depends upon imported military wheat and flour reaching the big towns -- Florence, Pisa, Pistoia and Lucca. The shipments, moreover, have mostly to be taken in by truck. Imported bread is the keystone of Italy's sickly economy. If wheat and flour imports were to stop, there would at once be a breakdown in Italy's economic life. Wages, costs, the internal value of the lira, life itself depend upon a continuance of the ration of 250 to 300 grams per day of imported bread which the Allied armies bring in and for which the United States, the United Kingdom and Canadian Governments pay.

The social and political significance of the position as to transport, power and food in Italy is thrown into further relief if the country's financial position is also taken into account. At present, the purchasing power of the lira is remarkably steady. Increases in bank borrowings by the Italian Government from the Bank of Italy and increased disbursements by Allied paymasters continue to grow, but the peasant and the trader firmly believe in the lira and the Government can still borrow by treasury bill subscriptions.

While the internal purchasing power of the lira has been maintained, its external purchasing power has been seriously threatened. In 1938, Italy imported approximately 11.4 billion lira of goods and exported 8 billion. The difference was made good by invisible exports -- gold payments, merchant marine earnings, tourist traffic and remittances. In that year Italian imports were of approximately the following value: foodstuffs, 1.5 billion lira; raw materials, 5.5 billion lira; and manufactures, 4.4 billion lira, a total of 11.4 billion lira. Italian exports in the same year were: foodstuffs, 2.7 billion lira; raw materials, 0.5 billion lira; and manufactures, 5.2 billion lira; plus the invisible exports of shipping earnings, 0.5 billion lira; tourists and remittances, 2.0 billion lira; and gold payments, 0.5 billion lira, a total of 11.4 billion lira.

What do these figures mean in postwar terms? They mean that with no immediate substantial tourist traffic (which is likely), with little or no shipping earnings or gold movements (which is certain), with reduced immigrant remittances (which has happened), with the strong probability that exports of manufactures cannot quickly reach their prewar level, Italy may have immediately available for export, in order to earn the foreign exchange she must have to live, some foodstuffs (vegetables, cheeses, olive oil, wine, and the like) and some insignificant raw materials (sulphur and mercury). With the earnings from these she must pay for the imported cereals and the coal which, in almost any circumstances, she must have, and the raw materials and the manufactured goods which she must have if she is seriously to repair her war damage.

In all probability the task is beyond her powers. If she is again to be an important industrial country, she must first be financed; and she must be financed, it would seem reasonable to suppose, to the tune of some $100,000,000 to $150,000,000 worth of foodstuffs and $300,000,000 to $400,000,000 worth of raw materials and manufactured goods a year for some years.


What conclusions can be drawn from the general statement of fact regarding all countries, and from the detailed statements of the facts in two specific countries -- France, an allied country which has resources and can pay for her imports, and Italy, an ex-enemy country which has slender resources and cannot pay for her imports?

The first is that we must remember to have these facts in mind when we consider our policies both toward our Allies and toward the Axis satellite countries which have surrendered. Do we want the "more abundant life" of an "expanding economy?" Do we want "full employment?" Do we seek peace and wish to pursue it?

If we do, let us take these facts into account: 180,000,000 people living in twilight, on an insufficient diet, largely without coal, without adequate means of communication, and underemployed are neither good customers nor good neighbors and cannot be either good customers or good neighbors unless they are helped to become so. Equally, 180,000,000 people and their daily needs cannot be disregarded. For the moment, the decision lies of necessity with the Governments of the United States and the United Kingdom because between them they command most of the necessary supplies, shipping and financial resources. Our Allies cannot rest content for long. No longer under pressure from the Germans, the governments of these liberated countries will become more exposed to the social pressures of hard times. It is as though the Eastern Seaboard of the United States woke up one morning to find that an invader who had been in occupation for five years had been driven into the Atlantic but that the country was in the throes of the banking crisis of 1933. Since such pressures from 180,000,000 people in Europe cannot be resisted by their governments, our political policy must take the facts into account. That is the starting point.

The second conclusion depends on the first. What do the facts themselves require of Anglo-American policy? Raw materials to provide employment must be made available in relatively large quantities. Food to improve the diet sufficiently to sustain a working population must be provided; and, in some instances, this can be done only at our own expense, since, in the period in which it is wanted, it can be provided in no other way. Finance in the form of foreign exchange credits is needed to tide over the period of pump priming, to get the wheels of industry moving, and to restore the export capacity of the liberated countries. Lastly, the ships to carry the food and raw materials must be found, and this before long.

In sum, the problem of the liberated territories is this: Can the United States and other exporting countries restore, and quickly, the flow of their overseas shipments to something nearer the prewar level, in a period when the war with Japan is still going on, and when the 180,000,000 Europeans involved cannot pay for the food and raw materials they must obtain if they are to have employment and if democratic government is to survive? Or are the rise and fall of Hitler and Nazi Germany something like the Moslem invasions, "flung across the current of historic life, interrupting the series of causes and effects of which this current is constituted and by their unexpected repercussions overturning the order of things?"

[i] The populations of Germany and Austria are not included in this figure.

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