AT this stage of the last war, friend and foe alike knew the main general principles of the world order that would follow on an Allied victory. The world would be made up of self-determined, independent, sovereign states, linked together by a League of Nations founded on the principles of collective security, arbitration and disarmament. The normal pattern for a state would consist of a two-chamber legislature elected by universal suffrage, a responsible executive, an independent judiciary and guarantees of the civil liberties. Financial relationships between nations would be regulated by the gold standard, buttressed by central banks. Commercial policy would permit only moderate protective tariffs and would frown on such expedients as quotas, discriminations, dumping and official trading. Internally, every state would be dedicated to the principles of free individual enterprise, with a minimum of state interference or control.

It is beside the point that these principles were not completely applied and that some of them which were applied were unsuccessful. In 1918-19 that all lay in the future. The point is that, at the end of the last war, the world knew what an Allied victory would mean. The "triumph of democracy" then had a fairly detailed intellectual substance as well as an emotional content.

But who knows today what an Allied victory would mean? Of the four major Allies, two are democracies, but, apart from the general conviction that people should be allowed to settle their own affairs, how much of the formulae of democracy do the Americans and British regard as articles of export? To take a specific case, should we recommend the Germans to set up a replica of the Weimar Republic, or the French to restore the Third Republic -- supposing that our advice were asked for in either case? And, if not, what do we recommend? Moreover, the other two major Allies do not, in their own affairs, practise anything that we should recognize as democracy. Some allege that the real preference of the western Allies is for legitimist, conservative, monarchist governments in Europe. One may think that it is not so. But can anyone of us say, of full knowledge, that it is not so? We want governments to be democratic, yes. But we want them to avoid the mistakes that were made in the name of democracy after the last war. And where does that leave us? Does anyone know?

The confusion is hardly less in the sphere of international organization. The League of Nations is still alive, and the many small nations of the world will not abandon without a very fierce struggle the doctrines of sovereign equality and equal sovereignty on which the League was founded, or the principles of arbitration (i.e., willing submission to arbitration), collective security (i.e., security by the consenting coöperation of all) and disarmament (i.e., equalization of advantages and burdens) by which it hoped to secure peace. But there has been much talk of other conceptions. Much has been heard of the international police force. Some conceive it as a genuinely international body, responsible to a world agency, to which, consequently, the essential attributes of sovereignty would have to be ceded. Others conceive it more in the light of a continuance into the peace of the concept of the present major allies. This latter has become almost a majority concept; and even most of those who criticize the idea of an Anglo-American alliance (should anyone propose it, which no one in authority has done thus far) are usually content if it is enlarged to cover only four of the nations of the world. Does anyone know whether the system to be created will be a "Great Power system" or a generally collective one? If a compromise, will it lean more one way or the other? And do we believe in disarmament, for ourselves, in the practically foreseeable future?

Our economic principles are equally indefinite. Do we still believe in free individual enterprise as the basis of economic activity? Many Americans -- probably the majority -- say they do, though the vehemence and frequency with which they say it seem to suggest the existence of a doubt. (It was not necessary to make any such profession of faith in 1919.) Most Englishmen have very serious doubts whether private enterprise can any longer be regarded as the sole, or even as the principal, determinant of economic activity. And the Russians have no doubt at all that it cannot. In this supremely important aspect of human society, what would an Allied victory mean? Do we believe in the gold standard? In the old sense, clearly not (for the minority of the faithful is very small). But do we believe in the possibility of universal currency standards in any sense? It is the question that has underlain the recent international discussions, and no answer that is given can be more than experimental. Do we believe in a return to a commercial régime of moderate tariffs only, with the abolition of all the other obnoxious obstructions to world trade that have grown up in the last generation? The American and British Governments share some hopes, but not much confidence. The Russians have not been heard from. And if we do not believe that the international economy of which free trade and the gold standard were the chief symbols can, or should, be re-created, what do we believe in to take its place?


This is a formidable list of questions, and if there is any one of my readers who can answer any one of them -- answer it, that is to say, not for himself alone, but as expressing the dominant view of the United Nations, or even of the two democratic Great Powers -- then he is a far bolder man than I am. It has often been pointed out that there has been nothing in the present war to compare with Woodrow Wilson's magnificent series of definitive and expository speeches in the latter phase of the first World War. The Atlantic Charter was very vague, and subsequent pronouncements have been even less precise. But this is a very small part of the story. It was easy for President Wilson to make his speeches because he knew what to say and he knew that it would command general agreement. He knew this because the western democratic world knew in 1918 what it was after. Last time, we knew what our ideas were. We were putting the finishing touches to a triumphant program. The war of 1914-18 was to be the means of plucking good out of evil, an opportunity to finish off the job on which the western democracies had been engaged for more than a century. The Armistice and the peace were to register the final victory of everything in which the nineteenth century liberal believed. Wilson and everybody else knew what the ideas were because a hundred years had been spent in working them out.

Now nobody knows for sure. We have not yet made up our collective mind (and not many people have made up their individual minds over the whole range) whether there is life in the old dogmas yet, or whether our problems are so different that they cannot be handled by the former body of doctrine, however amended. Is the twentieth century an extension of the nineteenth century, or something different? We do not know, and it is very foolish to cavil at Mr. Roosevelt and Mr. Churchill because they have not taken an afternoon off to tell us. They do not know either. The western democratic world is perilously close to a vacuum of faith.

It is the thesis of E. C. Carr's influential book, "Conditions of Peace," that the dominant ideas of the nineteenth century are dead -- or at least that they no longer have sufficient validity to serve as our guiding lights. He defines these dominant ideas as being, in domestic politics, representative democracy; in economics, free individual enterprise; and in international affairs, the sovereignty of self-determined nations. For myself, I would not admit that either representative democracy or free capitalism was dead. But even in our domestic affairs, it seems to me to be very difficult to affirm that they are still the sole or the dominant principles. And as articles for export they are even more doubtful, while between nations it has become clear that national sovereignty, so far from being the only valid principle, is the only certainly disastrous principle. In general, though I would differ from Mr. Carr in matters of degree, I find it impossible to refute the substance of his charge. The twentieth century is not simply an extension of the nineteenth. The problems of the postwar world will not be those of the nineteenth century. In many respects they will be directly opposite (e.g., the pressure to create maximum employment rather than maximum income, the need to curb the freedom of nation-states rather than to create them), and in every case they will be different.

Moreover, the people who will face them will be different. Hitherto, the world has been run by men and women who were born in the nineteenth century. Only one man born in the twentieth century has yet sat in an American or British Cabinet. The Russians and Chinese leaders are nineteenth-century-born. So are the chief Nazis. It happens that the children of the nineteenth and twentieth centuries are divided by much more than the accident of a numeral. The eldest child of the twentieth centurya man who was born on January 1, 1901 -- was within a few weeks of the draft age when the last war came to an end. He stands just on this side of that great dividing line -- a borderline of much greater psychological importance than any that will be created by this war, for all but the very youngest of those who fought in the last war had been brought up to a world of security. They had come to accept a set of absolutes which crumbled in front of their eyes, while the children of the twentieth century have never known what a secure world is. In Britain, though not in America, there is also the great chasm of the "missing generation" dividing the children of the twentieth century from their fathers.

This is not the only accident of history that sets them off. The great technical inventions of the nineteenth century were industrial processes, which the individual rarely saw; they were ways of producing familiar objects in greater numbers and at lower cost, ways of providing for the poor what had formerly been the prerogative of the rich. They extended the spread of comfortable living, but they did not greatly change its content. Round about the turn of the century, however, technical progress began to have a direct impact on social customs and modes of thought. The men and women born in the twentieth century are the first generation to have been familiar, for the whole of their lives, with such revolutionary molders of thought and custom as air travel, individual transport on land by means of the automobile, the moving picture, the radio. They have been influenced by the decline in formal religion. They are the first generation in which it has been more than an impiety to think that the human race could or should control its numbers. In America, they are the first generation in which high-school education has been universal and college education general. In England, the creation of a complete educational ladder from bottom to top dates from 1902.

The historians of the future will have to judge whether these changes were, on balance, for good or evil. My present point is that they make for a greater cleavage of instincts and of instinctive ideas between old and young than has perhaps ever before existed. And just when this strange new generation would in any case be beginning to push its way into the driving seat, there comes the vast catastrophe of the present war to accentuate still further the difference between its environment and that of its fathers. In view of all these facts, I do not believe it is an exaggeration to say that we stand at one of the grand climacterics of world history. If there is any carry-over of dominant principles from the former age to the latter, it will be a matter for marvelling.

My quarrel with Mr. Carr is not, then, that I wish to refute his main thesis but that I do not like being left where he leaves me. The dominant doctrines of the nineteenth century, if not dead, are so battered that they will not serve us any longer as our main props. We are, indeed, living in a vacuum of faith. But the trouble about a vacuum is that it gets filled, and if there are no angels available to fill it, fools -- or worse -- rush in. Let us, then, take Mr. Carr's threefold division of politics, economics and international relations, and consider in each case the alternatives to the old principles which he condemns. What are, not merely the theoretical alternatives, but the actual enemies that have been pushing them off their thrones?

The trend away from liberal democracy has been a trend towards totalitarian dictatorship. The trend away from individualist capitalism has been a trend toward rigid state control exercised in the interest of a war economy -- or at least of a war-minded economy. The trend away from the sovereignty of the nation-state has been a trend towards the concentration of aggressive strength in the hands of a few Great Powers. These are not, of course, the only conceivable alternatives; but they are the alternatives that the pressure of the age has been forcing upon us.

That pressure, it will be objected, is about to be lifted by a victory for the United Nations. I am not so certain. I have the suspicion that the Nazi alternatives, diabolical though they are, have far too much of the logic of events in them to be brushed aside by the military defeat of Hitler. If we are realistic, we shall recognize, even though it increases the difficulty of our task, that there is a great deal in the circumstances of our century that leads straight to Fascism. The enormous development in the technique of propaganda and advertising, in the power to sway the minds of people in the mass, plays straight into the hands of the would-be dictator or any other manipulator who, for large ends or small, seeks to muddy the waters of democracy. The growth of large-scale industry, the need for gigantic aggregations of capital, the implications of a maximum employment policy -- all these create the danger of a concentration of economic power. The technique of modern war, with its emphasis on the possession of certain complicated weapons which only a handful of highly industrialized states can produce, makes the small nations, or even the league of small nations, quite helpless, and compels the Great Powers to devote quite unprecedented proportions of their resources to the barren purposes of war. We cannot abolish these things, we cannot dodge them. We cannot cancel the invention of the radio and aircraft or unlearn the technique of mass production. But if we accept their existence, we must also accept their consequences. Propaganda plus the concentration of economic power plus Blitzkrieg technique add up to Fascism; or they may be made to add up to something new that will be compatible with democratic ideals. But whatever else they add up to, they certainly do not add up to the sort of democracy that our fathers thought of. The plain truth is that Hitler has an answer to the problems of the twentieth century and we, as yet, have not. It follows that whatever happens in the present war, Hitler will be hot on our heels for the rest of our lives. We shall have to think very fast, and run very fast, to keep ahead of him. One slip, one stumble, and he will be on our necks.

The central dilemma of the present age is that we can no longer rely on the old principles alone, but that we abominate the alternatives that time and tide, if it is left to them, will produce. This dilemma can be solved in only one way, by the birth of a new faith, adjusted in its instrumentalities to the needs of the new century, but preserving the ultimate objectives of the old. The only way to avoid the murder of nineteenth-century Liberalism by twentieth-century Fascism is through the birth of a twentieth-century democratic faith by the new out of the old. The biological analogy with the conflict of the sexes is exact. If one kills the other, no continuing life is possible. This is what would happen if the crude, raw impact of changed conditions were merely to remove the tried doctrines of an earlier age. Nor is the future to be secured by some hermaphroditic compromise, in which the two elements are so much in conflict that the result is, as Disraeli said of the mule, "without pride of ancestry or hope of posterity." No, the only solution is to take what is strong and good and lasting in the new ideas, to mate it with the old and to conceive something that has elements of both, but has its own life, is new, harmonious, growing, integral. What we need is not a compromise between the old ideas and the new, but a fusion; not a mixture but an amalgam. The nineteenth century, before it dies, must take what is virile in the hostile movements and give birth to something new. Only then can it die in peace.


To state the need for such a new democratic faith is one thing. To meet it is another. The task of developing the thesis here presented in every sphere of public policy, political and economic, domestic and international, is probably beyond the power of a single pen; and certainly far beyond the reach of a single article. It may, however, be permissible to proceed a little way further in one particular direction, that of economic organization. What I have to say is chiefly directed to the internal economic problems of nations such as the United States and the United Kingdom -- though it is, of course, impossible to treat of these problems in isolation from their international implications.

The air is full at present of wordy warfare on the relative merits of unhampered private enterprise and of government planning of economic developments. Both are being argued in extreme and absolute terms -- that is, as principles capable of being applied universally and in unadulterated form. Possibly the protagonists have reservations and modifications in mind, but, if so, they escape but rarely into print or speech. Not often does an advocate of private enterprise make the admission that there are certain economic problems (and among the largest) which must either be tackled by the organizing powers of the government or else left untackled. Still less frequently does an advocate of "planning" pause to concede that over a vast range of industries and occupations either the mainspring of activity will (in any easily foreseeable future) remain that of individual enterprise and ambition or there will be no mainspring at all. No, the argument proceeds in absolutes: the free enterprise party has no use for "bureaucracy" anywhere at any time; and the planners will not admit that a businessman, by serving the interest of his own profit, can ever serve the general interest.

It is, of course, a sham fight. I do not mean that the contestants are not sincere; many of them doubtless (and unhappily) are passionately sincere. It is a sham fight because there is not the slightest chance of either side winning its fight. In the circumstances of the twentieth century, there is no prospect whatever of an industrial democratic state basing its affairs on the principle of unrestricted individual enterprise to the exclusion, or even to the subordination, of other principles. Even less can an industrial democracy contemplate governmental "planning" of the bulk of its activities -- at least it cannot do so and remain a democracy.

Perhaps it is worth while pausing for a moment to justify these dogmatic statements. The reasons why unrestricted private enterprise is insufficient by itself are perhaps clearer to a British observer than to an American. The United States, after all, is still in the period of rapid expansion. It is wholly reasonable to suppose that by the end of the present century the American national income may be at least double what it is now -- that is to say, at least three times what it was in the late 1930s. And the frontiers of possible achievement are more distant still. The supreme necessity of the American economy remains that of expansion and there is an almost automatic source of demand for great masses of capital. The pioneer is no longer, perhaps, the American archetype -- but he is still a socially necessary type, and it is, of course, in a pioneering environment that unregulated private enterprise shows to maximum advantage.

In Great Britain, on the other hand, the end of the rising national income is in sight, owing to the imminence of a stable and even a falling population. It is unlikely that the British national income will ever be more than 50 percent higher than it is now, and even that moderate increase requires optimistic assumptions on the trend both of population and of individual productivity. The peak will be reached in about a generation from now, and thereafter the national income will be preserved from falling only if the rise in individual productivity succeeds in outpacing the fall in total numbers. Clearly, this puts the pioneer and the builder at a discount and the administrator and allocator at a premium. Moreover, there are other problems, hardly more important but possibly more urgent. Britain needs her foreign purchases to live, and the war has knocked a series of holes in the credit side of what was at best a somewhat precarious balance. The task of the postwar years will be not merely to get back the prewar trade, but to find markets for something like a 50 percent increase in the prewar volume of exports. No one but a fanatic would believe uncoördinated private enterprise capable of outfacing these difficulties.

Thus there are reasons why there is less talk in Britain than in America of the sovereign virtues of unregulated individualism. But this does not mean, in my judgment, that there is the slightest possibility of a return to laissez-faire even in America. For one thing, I remain obstinately skeptical about the possibility of making any appreciable headway against the menace of recurrent depressions except by the road of government action. The present attempt, sponsored by the Committee for Economic Development, to demonstrate that a regular and adequate flow of savings into physical investment can be organized by business itself, is a gallant rearguard action. I wish it well, but my money is on the other horse. Secondly, I remain even more obstinately skeptical about the ability of a free-enterprise economy -- that is, of an economy where the requirements of free enterprise have priority over other objectives -- to bring about any substantial improvement in the unequal distribution of wealth and welfare. Yet if there are two things in the sphere of economic policy that the electorate is going to impose as categorical imperatives on its representatives, regardless of party, they are contained in the current expressions Full Employment and Social Security. Walter Bagehot, the great apostle of the free economy, wrote nearly eighty years ago that "the coöperative, if not the compulsory, agency of the state ought to be used far more than now in applying to our complicated society those results of science which are new to our age." He was thinking, in the main, of physical science. But his remark applies with even greater force to those results of social science (and of social experience) which are new to our age and which must be incorporated into our economy and policy without damaging delay. There are certain objects that society can attain -- it has been demonstrated -- by means of "the coöperative, if not the compulsory, agency of the state." The Russians have shown that it is possible to secure a very rapid increase in the national income; the Germans have shown that it is possible for a highly industrialized state to remove within a few years one of the largest masses of unemployment known to economic history. We may abominate the methods by which these achievements were secured. But we cannot pretend they do not exist. On the contrary, the electorate is going to insist on emulation of the results, if not on imitation of the methods. Employment of "the coöperative, if not the compulsory, agency of the state" is an inescapable consequence.

But if the wholly free economy is an impossibility, the wholly controlled economy is no less unacceptable. There are two main reasons for this. In the first place, experience seems to show -- and common sense would confirm -- that it is considerably less efficient in the production of wealth for consumption. The planned economy has had its triumphs. But none of them, I think, has been a triumph in supplying in large quantities at low prices consumption goods of the kinds and in the variety that people want. Yet that must remain one of the fundamental and co-equal objects of any democratic economy. There are examples of planned economics where the strength of the state has been increased, where the capital equipment of the community has been enriched, where mass unemployment has been avoided. I do not know of a wholly planned economy where the consumer has been satisfied. And, in the second place, a wholly planned economy is incompatible with any degree of political freedom. The possibility of a man's earning his own living in his own way, without let or hindrance, is the essential condition of there being any freedom of discussion, any freedom to oppose. If more than a fraction of the electorate come to depend for their livelihood upon the temporary masters of the mechanism of the state -- that is, upon the politicians -- then democracy is at an end.

It follows from this discussion that the economic system of the next few decades will inevitably have elements both of individual freedom of enterprise and also of purposive direction by the state. This conclusion, by now, is almost a commonplace. What is not so generally realized is that it matters most vitally how the two elements are combined. Neither can, it is true, remove the other; democratic society is not going to be either wholly planned or wholly unplanned. But each opposing principle can very effectively obstruct the other. A society which is based on an active coöperation of the two principles will be a vastly different place from a society based on a deadlock between them.

Deadlock is what the western democracies have been threatened with in the past thirty years. It is easy to see how the desire to plan economic development, the desire to make it follow motives more socially respectable than the incentive of profit, the desire to ensure security in an insecure world -- it is easy to see how these desires have clogged and frustrated the free economy. Over far the greater part of the economy, the businessman is still left with the responsibility of initiating activity. He has to make up his mind whether an enterprise is worth the risks involved in it, and unless he gives the word to start the wheels turning, no one else will or can. But the risks of loss have been increased by the great load of prior charges that has been put upon him in the way of rigid wage-rates, wasteful labor practices, social security contributions and the like, while his incentive to take these risks has been dulled by heavy and differential taxation, and his arm has been jogged by all manner of inspectors, controls, regulations, inquisitions, prohibitions and indictments.

The impact on our economy of the idea of planning and of the motive of social welfare has hitherto been almost wholly negative. Few industries have been planned, but a vast number have been bedevilled by planning. In many cases, the approach has been more than negative, it has been punitive, and the entrepreneur has been abused and penalized precisely in proportion to his success in performing his duty of running economic activity at a profit. To date, we are certainly far more planned against than planning.

The other side of the medal is very similar. Wherever the state has tried, by the use of collective methods, to make headway against the problems that beset it, it has been held back by a hundred visible and invisible strings of timidity and orthodoxy. If it wishes to close the deflationary gap by deficit financing, it can do so only within the very narrow field that runs no risk of competing with private enterprise. And every step is taken to the accompaniment of charges ranging from corruption and dictatorship to red ruin.


The result has been deadlock, and if we sometimes wonder why it is that our economy seems to have lost its elasticity, its power to respond to opportunity, if we complain that only in wartime are its potentialities realized, the reason is that we have been busy putting brakes on both the two possible springs of initiative. We make it difficult for the profit motive to work lest it should be anti-social in its effect, and we make it difficult for the social motive to work lest it be too wasteful.

In this struggle, neither side can win. It follows that the most urgent task for all economic statesmen is to work out means by which the two principles of organization can live side by side. If there is to be activity of any sort, there must be some incentive to activity. For a generation or more, we have been hard at work whittling down all incentives, and trying to work out a compromise between freedom and organization on the basis that we shall have as little as possible of either. That is wrong. The right course is to have as much as possible of both, to take the brakes off both the profit incentive and the social incentive.

This is not the place to discuss how this can be done. But the method clearly lies along the way of sorting out the economic activities of the community that are to be powered by each incentive. There are no absolute rules for determining where the line should be drawn, and no doubt it will be drawn in different places in different countries, and at different times in the same country. There are some activities that every country puts on the "organization" side of the line and makes no attempt to run on a profit-earning basis -- justice, education and war-making, for example. There are others that every democracy will put on the "freedom" side -- the press, entertainments and most luxury trades. Between these extremes, the people will draw the line as they choose and the location of the line is a fit and proper subject for party controversy. What is essential is that, on either side of the line, the dominant incentive should be left as free as possible to stimulate activity. Neither one can be quite exclusive: profit-minded enterprise cannot be allowed to be anti-social, nor can social-minded activity be undertaken without any regard to its economic cost. But in each sphere the interloping considerations should be adjusted to interfere as little as possible with the dominant incentive. The businessman, for example, cannot be relieved of taxation; but his taxes can be designed to interfere as little as possible with the earning of profits.

There will be those among the critics of this doctrine who will shake their heads and say that it cannot be done. They will quote Abraham Lincoln to the effect that a nation cannot live half slave and half free. If so, then the prospect is black indeed for all of us; because, for the reasons given above, it seems to me inconceivable that we shall ever be able to pin our faith on either of the alternatives. If they are so instinctively and inevitably antipathetic to each other that they cannot live in peace, side by side, then we must conclude that democracy is incapable of resolving the contradictions to which it gives rise and must surely perish. I take a more optimistic view. It is true that the opposing principles of economic freedom and of economic organization have, in fact, generated frictions which have perceptibly slowed down the progress of the democratic economy. But this is because they have been stupidly handled and the frictions would not arise if the object of all parties were to avoid them, instead of, as at present, to seek battle on all occasions. Both the British and the American democracies have, each in its own way, over the past 150 years resolved the very similar conflict between freedom and order in the political sphere. I see no overriding reason why the same success should not be achieved in the economic sphere, provided the same essential moderation is shown.

There are those also who hold that there is some inevitability of conflict in the international sphere between nations which draw the line between freedom and organization in different places. This seems to me to be even purer defeatism than the former objection. No state is wholly without compulsory organization in its economy and none is wholly without freedom. The differences are of degree, not of kind, and our affairs are in a sorry posture if differences of ideological degree are going to cause irreconcilable conflicts. The battle, it is said, will come on the management of international trade; a country that exercises conscious management of its trade relations will necessarily have an unfair advantage over one that does not, and thus controlled economics are inevitably aggressive. But if there is anything at all in this objection, the way to meet it is directly, by securing agreement on the definition of unfair practices and putting a ban on them, whether perpetrated by governments, by cartels or by individuals.


This economic argument, as has been said, is intended only as an illustration of the wider thesis that, if western democracy is to confront its twentieth-century problems with any hope of success, there is an urgent necessity for hard thinking on first principles. It is not enough either to demonstrate the inadequacy of the old liberalism or to expatiate on the abomination of the Fascist alternative. Both are destructive exercises, necessary as preliminaries perhaps, but contributing nothing to the positive task of construction. That task involves nothing less than the creation of a new faith, a newly articulated set of principles by which the imperishable objectives of a free humanity can be sought by techniques appropriate to this century. And the first step is to realize that it is not only the theses of the nineteenth century that are dead or dying, but the antitheses also.

I am not one of those who holds that a vacuum of faith will be much handicap to us in winning the war. War is fought mainly by material means, and though it would be an advantage to know what we are fighting for, it is enough to know what we are fighting against. It is after the fighting is over that the trouble will begin. For when material force is removed, it is only the force of ideas that can prevail. At present, in the realm of ideas, we are almost completely disarmed. Rearmament, with modern weapons, cannot begin too soon.

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