Chapter VIII: Social and Economic Aspects of the War (1)

"And the economic ravages of war are also much greater with civilised nations than with barbarians. A war nowadays may have stern, fearful consequences, especially through the destruction of the ingenious credit system."--TREITSCHKE.

"Those who have fallen have consecrated deaths. They have taken their part in the making of a new Europe, a new world. I can see signs of its coming in the glare of the battlefield. The people will gain more by this struggle in all lands than they comprehend at the present moment.... A great flood of luxury and of sloth which had submerged the land is receding, and a new Britain is appearing. We can see for the first time the fundamental things that matter in life and that have been obscured from our vision by the tropical growth of prosperity."--MR.D. LLOYD GEORGE.

It is obvious that a great war must profoundly disturb every side of the national life of the peoples taking part in it, and that these disturbances must react upon neutral States. The exact character and extent of these changes, however, are by no means easy to understand, and the present chapter does not pretend to offer an exhaustive treatment of them. It is impossible to appreciate the full significance of the immediate social and economic reactions of the war, whilst an attempt to state the ultimate effects of the war leads us along the slippery paths of prophecy. Nevertheless, we are not likely to grasp the importance of the various phenomena which have followed so closely upon the heels of the declaration of war, nor to adapt ourselves to the new situation which will arise out of the war, unless we give our attention to the things which are happening around us.

Unfortunately we can gain little guidance from the past. The South African War inevitably disturbed the normal course of our industrial life, but it involved us in conflict with a nation of relatively little general economic importance; and so, costly and prolonged though it was, it bears no comparison in its magnitude and in the character of its main issues to the present war in Europe. The Crimean War of sixty years ago, though waged between four European nations--Great Britain, France, Turkey, and Russia--cost Great Britain much less in money than the Boer War; the issues so far as this country was concerned were not so momentous; and industry and commerce, though important, were not then nearly so highly developed and complicated as they are now. The Napoleonic wars, though comparable to the present war in fundamental importance, lasted for a generation, which the war of to-day can hardly do; the effects of the wars with Napoleon were complicated by the Industrial Revolution; the industrial system and the commercial fabric erected on it were then only in process of formation and the power of the people was small.

These differences enable us to see the new factors which have come into play during the past century. The present war is being fought under conditions which were non-existent during the struggle with Napoleon--conditions which on the one hand add to the waste and loss and misery of war, but on the other give rise to the hope that many of its evil consequences may be averted. Firstly, industry and commerce are world-wide; the remotest countries are bound together by economic ties; invisible cords link the Belgian iron worker with the London docker and the Clyde shipwright, the Californian fruit grower with the Malay tin miner and the German dye worker. The economic effects of modern warfare, therefore, reverberate throughout the whole world, and widespread dislocation ensues. In the next place, the gigantic scale on which war between great powers is conducted, though it tends to shorten the duration of wars, increases the intensity of the shock to human society.

But besides these new material conditions, modern warfare is carried on under the eyes of more enlightened peoples than in the past. The struggle which is now being pursued is the first great war watched by a conscious or at any rate partly conscious democracy. It is the first modern war waged (except in our own case) by national armies constituting practically the entire fit male population. The masses of the people have in most civilised countries some measure of political power. And though to the elector diplomacy and the conduct of foreign affairs are a closed book, war once declared is war by the people; and their voice must be heard in matters connected with it and arising out of it. Then, further, in the past the aftermath of war was in many ways as horrible as war itself, whilst the period during war witnessed an enormous amount of privation and suffering among non-combatants almost as ghastly as that of the battlefield. This was due not so much to inaction resulting from callousness as to unwise action and ignorance. During the past century political science and economic inquiry have made vast strides, and consequently the injurious social effects of warfare may be minimised, though not averted; and a considerable body of public opinion, far more enlightened than during any previous European war, is almost certain to exercise some pressure in the direction of wise and far-reaching action both during the war and after it is ended. These considerations must be borne in mind in discussing both the present position and possible future developments.

It is clear that four great European Powers and some smaller ones cannot engage in war without shaking the fabric of European civilisation to its foundations. The tramp of fifteen million armed men is the greatest social and economic fact of the present day, and indeed of the present generation. These millions of combatants have to be clothed, fed, armed, transported, and tended in health and in sickness; they are non-producers for the time, consuming in large quantities the staple commodities of life, and calling in addition for all the paraphernalia of war; sooner or later, they will desire to return to the plough and the mine, the factory and the railroad. These two facts alone are of tremendous importance. But besides this, the activity of those who stay at home is called into play in a thousand different ways, and economic and social life leave their well-trodden paths in answer to the imperious call of national necessity. Social institutions of all kinds are inevitably led into new fields of thought and action, and States are driven to untried experiments in communal activity. The usual channels of thought dry up, the flood of new ideas and of old ideas throbbing with a new life rushes on unconfined, here in the shallows, there in the deeps, presently to overflow into the old channels, cleansing their beds and giving them a new direction, and linking up in fruitful union but remotely connected streams. When fighting ceases and there comes the calm of peace, society will tend to revert to its normal functions, based on peace; but the society of yesterday can never return. Social life cannot be the same as it was before, not merely because those activities called forth by the war may persist in some form, but because of the growth of new ideas under the stimulus of the war. The struggle will almost certainly set in progress trains of thought not only connected with questions of war and peace, but with the wider questions of human destiny.

Coming to a closer view of the question, we must distinguish between the immediate effects of the war which are already in evidence and the ultimate effects which will but begin to unfold themselves after the return of peace. Some of the latter results will grow out of the immediate effects; others will be more directly due to the events following on the conclusion of the war. It will also be advisable to distinguish between the economic reactions of the war, and the broader social consequences. At such an early stage it would be presumptuous and tempting Providence to attempt to forecast the future in any detail or to try to trace the play and interplay of the various forces going towards the making of the future. This chapter will be concerned with broad tentative generalisations on quite simple lines.

One of the things which struck the intelligent working man during the early days of the war was the rapidity with which the State acted in the face of the crisis. In next to no time large measures of State control and action were put successfully into operation and those who had advocated co-operative action in the past with but indifferent success were amazed at the swiftness with which the nation can act in the hour of need. The drastic action of the State cannot be better illustrated than by the steps which were taken to meet the sudden commercial deadlock which the war precipitated. A discussion of these financial measures will at the same time enable us to understand how, through credit, war strikes at the industry and trade of the modern world.

A. STATE ACTION IN INDUSTRY AND COMMERCE

The Austrian ultimatum to Servia was followed by the paralysis of the world's international system of finance. Before the end of July many important stock exchanges were closed, and by the 31st the London Stock Exchange for the first time in its history was also compelled to close. The remittance market collapsed and with it the fabric of international trade. Widespread bankruptcy and ruin seemed imminent; so serious did the state of affairs become that moratoria were declared not only in several European countries but in parts of America, and in many continental countries specie payments were suspended. In a word, the possibility of war had thrown the delicately poised credit system of the commercial world out of gear; the declaration of war had brought it to a standstill. Into an explanation of its working it is not possible to enter; it is sufficient for our immediate purpose to realise that the foreign exchange machinery by which the supply of commodities from other countries becomes practicable on a large scale was for a time altogether unworkable. London as the financial centre of the world has immense sums owing to it and in its turn owes large sums. The ultimate effect of the collapse of credit, which depends on confidence, was that London could neither receive nor make payment. The big finance houses, who had "accepted" bills of exchange and rendered themselves liable to meet the payments for the things they represented, on the understanding that the means to pay them were to be promptly despatched, found that these means were not forthcoming; their own resources were far from sufficient to meet these payments. Utter ruin stared them in the face. At home also a run on the banks seemed probable, which would have meant ruin to large numbers of people. In this grave crisis the State acted with commendable promptness. The bank holiday was extended; State notes for 10s. and £1 were issued; a moratorium was declared, legalising the postponement of the due payment of debts, with certain exceptions; the Bank of England under a guarantee from the Government that the latter would meet the loss, began discounting, or buying for cash, approved bills of exchange accepted before war was declared, many of which are hardly likely to be met by the people liable for payment. These steps were taken swiftly and boldly and allayed the panic. But more was needed; such measures were not in themselves sufficient to put the machinery of foreign exchange into operation again and the suspension of this method of settling international indebtedness was having serious effects. To carry on international trade, and to supply ourselves with the produce on which the very existence of the community depends, without the machinery, is a thousand times more difficult than to conduct our home trade by means of direct barter. Without going into technical details, it may be said that the purchase of bills by the Bank of England, whilst relieving the last holder from loss, did not extinguish the liability of persons whose names had appeared on the bills as acceptors, endorsers and drawers. This was true of traders and commercial people not only in this country but also in other parts of the world. In the face of these liabilities, in most cases unexpected, it was hardly likely that they would increase their liabilities under new bills. Consequently the remittances coming to London shrank to next to nothing. As bills of exchange--or their equivalent--are the means by which both importers and exporters get paid for their goods, the difficulty of getting paid naturally began to have a serious effect on trade. As the figures of foreign trade during August show, cargoes were being held up. It was clear, therefore, that if this country were to continue to receive supplies of corn and meat, of cotton and wool, of hides and timber, something further must be done. The question the Government had to decide was what steps could be taken to safeguard the food of the people, and to avoid a crushing volume of unemployment through the lack of the raw materials of industry. The produce was there; what was needed was to start the flow of the particular kind of currency--"credit money"--which would expedite exchange. The course taken by the State was to advance money to the large bill bankers or "accepting houses" in London to allow of the due payment of the enormous number of bills falling due in the three months succeeding the outbreak of war. The audacity of the step will be understood when it is realised that probably something like £300,000,000 of bills fall due over a period of three months.[1] The necessary money was lent without security, the Government promising not to demand repayment until twelve months after the end of the war. A proportion of this advance will be in the nature of a loss, though how much it is quite impossible to say. By this measure, in the event of the bills not being met by those who have promised to pay them--the acceptors--the liability which would ordinarily have fallen upon the drawers and endorsers through whose hands the bills had passed has been removed. The State has advanced to the commercial community a huge sum of money, risking the total loss of some part of it, in order to set in motion the machinery of international exchange. Further steps, however, were taken. The general moratorium expired on November 4. Useful as it had been, it still left many traders in financial difficulties because of the impossibility of collecting debts owing to them in enemy and other countries. The Government, therefore, appointed a committee representing the Treasury, the Bank of England, the Joint Stock Banks, and the Association of Chambers of Commerce of the United Kingdom to authorise advances in approved cases to British traders carrying on an export business in respect of debts outstanding in foreign countries and colonies, including unpaid foreign and colonial accepted bills which cannot be collected for the time being. It is safe to say that no Government ever took such gigantic measures to meet a great crisis.[2] The Prime Minister, speaking at the Guildhall on November 9, 1914, summarised as follows the effects of the steps taken: "The foreign exchanges are working in the case of most countries quite satisfactorily, and the gold reserves at the Bank of England, which were 40 millions on July 22, and which had fallen on August 7 to 27 millions, now stand at the unprecedented figure of 69-1/2 millions. The central gold reserve of the country after three months of the war amounts to £80,000,000, almost exactly twice the amount at which it stood at the beginning of the crisis. The bank rate, which rose, as you know, to 10 per cent, has now come down to 5, a figure, I think, not in excess of that at which it stood this time last year. Food prices have been kept at a fairly normal level, and though trade has been curtailed in some directions, unemployment has been rather below than above the average."

[Footnote 1: Mr. J.M. Keynes (_Economic Journal,_ Sept. 1914) estimates the aggregate value of outstanding bills in London at £350,000,000.]

[Footnote 2: In addition to these various financial measures, the State has lent Belgium £10,000,000 and the Union of South Africa £7,000,000, whilst it has also guaranteed £5,000,000 of the new Egyptian cotton loan.]

But this is by no means the only example of State action. The Government has established temporarily a State-aided system of marine insurance, by undertaking 80 per cent of the war risk, in order to encourage overseas trade. It has given substantial aid to the joint-stock banks "for the sole purpose that they might be fit to aid in every way possible the country's trade and finance."[1] It made arrangements for the direct purchase of forage and vegetables, etc., from farmers.[2] It took over the control of the railways. When, owing to panic, there was a rush for the purchase of food-stuffs, which was used to force up prices unduly, the Government intervened to prevent exorbitant charges. Particularly interesting is the action of the State regarding sugar, two-thirds of our supply of which comes from Germany and Austria. In the days immediately following the declaration of war wholesale prices were trebled. The Government, therefore, decided to take upon itself the task of ensuring an adequate supply of sugar, and a Royal Commission was appointed. The leading refiners were approached and an arrangement was made with the whole body of refiners that they should stand aside from the market for raw sugars, leaving it free for the operations of the Government. The Royal Commission pledged the refiners to buy their sugar from the Commission, _i.e._ from the State; sugar was to be offered to them at a fixed price, and the refiners were to sell the refined product to the dealers also at a fixed price sufficient to yield the refiners a fair profit on manufacture. As a result of the corner, a big rise in the price of sugar, which is not only an important domestic commodity but the raw material of several industries, was averted. This merits the description given of it in _The Nation_--"a really dashing experiment in State Socialism." [3] On the other hand, it has done nothing to increase the world's supply of sugar, but has merely commandeered a part of the existing stock. The aid of the State has been invoked in other directions. Already the Government has assisted experimental cultivation of beet in this country. The suggestion has been made that the State should build two beet-sugar factories, which would cost about £200,000 each; in this way it is suggested that our home supply of sugar would in the future be assured, and that agriculture would benefit considerably.[4]

[Footnote 1: _Round Table_, Sept. 1914, p. 705.]

[Footnote 2: This was done through the Board of Agriculture for the War Office. On the other hand, in the purchase of clothing, boots, blankets, etc., the War Office approached the producers directly instead of through the Board of Trade.]

[Footnote 3: It was reported in the Press on October 8, 1914, that the Home Secretary had purchased 900,000 tons of sugar at about £20 per ton, the transaction involving an outlay of about £18,000,000.]

[Footnote 4: See an article by Mr. Robertson Scott in _The Nineteenth Century_, October 1914.]

Sir Charles Macara has put forward a scheme of State aid for the cotton industry. Owing to the war, a third of the total cotton crop (usually taken by the continental countries) was thrown on the market. Prices naturally fell, and there was a danger that the cotton planters might not be able to pay the debts they had contracted to enable them to grow their crops, in which case there would be a likelihood of the land being used for other saleable commodities, and the efforts which have been made in the past to increase the cotton crop would be nullified. In the meantime, the surplus cotton on the market created an uncertainty regarding prices, and buying came to a standstill, with the result that the position of the industry as a whole became very critical. The suggestion of Sir Charles Macara is that the Governments of this country and the United States, acting in conjunction, should take the temporarily unsaleable surplus of raw cotton off the market and store it for use in years when the crop is short. In other words, it is proposed to establish a permanent national cotton reserve. It is estimated that the cost of the scheme would mean an outlay of sixty to seventy millions sterling. If the plan were put into operation, however, it is claimed that it would restore confidence, prevent the wholesale stoppage of mills, and at the same time establish a cotton reserve to counteract the fluctuations of crops in the future.[1] These matters need but to be stated as examples of the remarkable adaptability of the State and the possibility of drastic action under the pressure of imperative needs.[2]

[Footnote 1: It should be pointed out that the serious condition of the cotton industry is not due to the war. The overstocking of the Eastern and Indian markets during the trade boom of 1913, together with the financial crisis in India last year, has reduced the demand for cotton goods. The war has merely emphasised a depression which had already fallen on the industry. Sir Charles Macara's scheme, whilst it may be desirable on other grounds, cannot compensate for the shrinkage in the demand for Lancashire products. The Government, it is interesting to note, have commissioned certain firms in Alexandria "to buy cotton extensively from small proprietors at a reasonable rate, on Government account, to be stored until the arrival of more prosperous times." (Press Association Telegram, _Daily Press,_ Nov. 2, 1914).]

[Footnote 2: The voluntary gifts of different parts of the Empire should not be overlooked. Besides these other steps have been taken. The Australian Government, for example, in order to induce farmers to extend the area of cultivation, has guaranteed "a fixed minimum price of 4s." for all wheat grown on the newly cultivated land. (Reuter's Correspondent, _Daily Press_, Oct. 27, 1914).]

The course of events has shown the temporary collapse of economic individualism in the face of the European crisis. The economic system, which works during times of peace, could not meet successfully the crushing effects of a European war. It lacked not only adequate resources but the necessary power of corporate action and co-ordination. Immediate State action seemed to be the only way to avert disaster. In a month, Britain came nearer than ever before to being a co-operative commonwealth. It has been realised that industry and commerce are not primarily intended as a field for exploitation and profit, but are essential national services in as true a sense as the army and navy. The complexity of the modern economic world and the large individual gains which have been made in it have obscured the fact that the economic structure exists to serve the needs of the community. It was recognised by the Government, at any rate to some extent, that the success of our armies in the field would be nullified if, in the economic sphere, the production of commodities and services were seriously diminished and if their interchange were hampered in a large degree. People have felt that the spinner, the miner, the weaver, the machinist, are all by following their occupations performing a valuable service to the community. How far this attitude of mind will persist after the war, when normal conditions in industry and commerce gradually return, remains to be seen.

B. IMMEDIATE SOCIAL AND ECONOMIC EFFECTS OF THE WAR

1. _Foreign Trade_.--The effects of the war on industry and commerce will be complicated and far reaching. The British and German Empires together transact about two-fifths of the international trade of the world, the British Empire doing over a quarter and Germany almost exactly an eighth. Between them they own over half the merchant shipping of the world. A war in which they are both engaged, therefore, must have serious consequences not only to these countries themselves but to the countries with whom they carry on business relations, and through them, in a lesser degree, to all other commercial countries. But this is not all: France has a foreign trade amounting to £615,000,000 a year; Belgium's is valued at £326,000,000, Russia's at £275,000,000, and Austria-Hungary's at £256,000,000. Besides a gigantic foreign trade there is a domestic trade, which is on a larger scale than the external trade of these countries. Let us consider in more detail the case of Germany. Half her foreign trade is transacted with the nations now engaged in the great war. The trade of Britain, Russia, and France with the German Empire is now at a standstill, except possibly for a very small amount transacted via neutral countries; her trade with Austria-Hungary must seriously decline. Moreover, her imports from neutral countries and her exports to them have dwindled very considerably, and must remain small as long as British naval supremacy continues. More than one half of Germany's total imports are raw materials for manufactures, about two-thirds of her exports being manufactured goods. Assuming that she continues o conduct foreign trade through Norway and Sweden, Denmark, Holland, Switzerland, and Austria-Hungary, the volume will be small, and even if her whole trade with neutral countries could be maintained she would still be without the trade of her enemies. For example, in 1913 this country sold goods to the value of £40,000,000 to Germany and purchased from her goods to the value of £80,000,000.[1]

[Footnote 1: The following list indicates some of the chief articles of trade between the two countries:

German Imports into the United | British Exports to Germany, 1912 Kingdom, 1912. | | £ million. | £ million. Sugar 6·2 | Cottons and yarn 8·3 Cottons and yarn 5·9 | Woollens and yarn 6·6 Iron and steel and | Coal, coke, etc. 4·4 manufactures 5·7 | Herrings 2·4 Woollens and yarn 2·6 | Ironwork 2·1 Machinery 2·4 | Machinery 2·1 Glass and Manufactures 1·1 |

It is not true, as Dr. R.G. Usher says, that Germany is "literally self-sufficing" (_Pan Germanism_, p. 65).]

In Great Britain, economic activity has been developed on the assumption of continued peace. In Germany, however, though there were those who would "base all economic policy on an imaginary permanent peace,"[1] the Government has had in view the possibility of war. "Every conscientious Government," writes von Bülow, "seeks to avoid [war] so long as the honour and vital interests of the nation permit of so doing. But every State department should be organised as if war were going to break out tomorrow. This applies to economic policy as well."[2] It is with this idea in mind that the German Government has striven to maintain the importance of agriculture. "Economic policy must foster peaceful development; but it must keep in view the possibility of war, and, for this reason above all, must be agrarian in the best sense of the word."[3] It is held that in the event of war the home market in Germany would be an important factor in maintaining intact the fabric of industry. "The home market," we are told, "is ... of very great importance. It would be called upon to replace the foreign market if in time of war our national frontiers should be wholly or partly closed. But in the home market agriculture is by far the most important customer of industry; only if agriculture is able to buy, if it earns enough itself to enable others to earn too, will it be able, in critical times, to consume a part of the products which cannot be disposed of abroad. The old proverb, "If the peasant has money then every one else has too," is literally true, as soon as industry is forced, to a greater extent than is necessary in times of peace, to find its customers at home."[4] "As in time of war industry is dependent on the buying power of agriculture, the productive power of agriculture is a vital question for the nation."[5]

[Footnote 1: _Imperial Germany_, by Prince Bernhard von Bülow, p. 221.]

[Footnote 2: _Ibid._ p. 220. See also Bernhardi, _Germany and the Next War_, pp. 157-159 and 260 _et seq._]

[Footnote 3: _Imperial Germany_, pp. 220-221.]

[Footnote 4: _Imperial Germany_, p. 219.]

[Footnote 5: _Ibid_. p. 221.]

The importance of agriculture in Germany is undoubtedly great; it may be, as Bülow says, that "the value of its produce is equal to that of the produce of industry, or even surpasses it."[1] But if the demand for it were to shrink because the industrial population lost their work through a shortage of raw materials or in any other way, agriculture would also suffer. The population at present engaged in agriculture will in times of peace buy up to the practical limits of its purchasing power, and is hardly likely, especially in the early stages of a war, to "consume a part of the products which cannot be disposed of abroad," except in so far as they buy German goods (the production of which the declaration of the war may have seriously impeded), instead of commodities produced abroad. But it is questionable whether they will be able to maintain their aggregate purchasing power. Prince Bülow ignores the fact that production for the home market will be hampered by the possible non-arrival of foreign raw materials in war time; yet Germany imported raw cotton to the value of over £29,000,000 in 1913. Her foreign purchases of hides and skins amounted to over £22,500,000 and of wool to £10,000,000. With even a partial suspension of imports of these and similar commodities, industries dependent on foreign products must be severely hit; unemployment must increase and the purchasing power of the urban workers diminish. The agricultural community must suffer also, and in all likelihood will not be able to take their normal share of goods off the market. It is true, of course, that Germany buys large quantities of food-stuffs from abroad, and that home produce will be required to take their place; but they cannot be grown immediately; in the interval, industrial disorganisation must result, and before agriculture can begin to profit by the lack of foreign supplies the harm will have been done. Moreover, agriculture must be impeded, as, owing to the size of the German Empire, the transport of troops must seriously interfere with the conveyance of goods to the larger centres of population. It would seem, therefore, that the policy of developing German agriculture at the same time that her dependence on foreign commerce is increasing is not an effective reply to the British Navy. The position in Germany then is that she must for the present be satisfied with a much smaller amount of imported food-stuffs and of the raw materials of industry; and that in any case, even if the industrial machine could be kept at work, there will be practically no outlet for goods abroad. Commercially isolated, she must, therefore, suffer an industrial and commercial collapse. On the other hand, the total volume of unemployment, which would have been enormous during the first weeks of the war, has of course been considerably reduced by the withdrawal of great masses of men to join the colours, and by the stimulus which the war has given to industries supplying the needs of the German armies. Then also Rotterdam, through which Germany does a great deal of its trade, remains open, whilst a fraction of her foreign trade is being carried on through Denmark, Scandinavia, and Switzerland. Nevertheless, the amount of economic distress within a very few weeks after the outbreak of war, especially in the large towns, was considerable even on the showing of German newspapers.[2] The amount of distress was increased and intensified by steadily rising prices. As the rise has taken place not only in commodities of which there is a shortage, but in others such as sugar, it may be concluded that it is due largely to the inflation of the currency, owing to the adoption of the fatally easy expedient of issuing large masses of paper money.

[Footnote 1: _Ibid_. p. 217.]

[Footnote 2: "Let us imagine," says Bernhardi, "the endless misery which a protracted stoppage or definite destruction of our oversea trade would bring upon the whole nation, and in particular on the masses of the industrial classes who live on our export trade" _(Germany and the Next War,_ p. 232).

According to _The Times_ (Sept. 18, 1914) the German nautical newspaper _Hansa_ on Sept. 12 admitted that England had captured many millions of marks worth of German shipping, and that "the cessation of business will cost our shipowners many millions more." "It will hold up the development of our shipping trade for years." The _Neue Freie Presse_ of Vienna on Sept. 11 admitted that the activity of the exporters in Germany had been crippled. According to _The Times_ (Oct. 7), the German Socialist paper _Vorwaerts_, stated that "the state of want has reached an alarming extent, even though we are now only at the beginning of the catastrophe which has befallen the people of Europe." "Masses of unemployment grow every month."]

Austria-Hungary, which is not an advanced industrial country, will not suffer quite so keenly, though even here the German newspapers admit that trade has come almost to a standstill.[1] In the western theatre of war the fighting has centred largely round the Franco-Belgian Coalfield, on or near which stand on both sides of the frontier many industrial towns. Lille, Nancy, Epinal, Belfort, Reims, Amiens, and Valenciennes on one side, and Liège and Charleroi on the other, are all of economic importance. Even apart from the actual destruction due to the war which in some of these towns has been serious, the mere presence of the contending armies will have a more or less paralysing effect on industrial and commercial life in both France and Belgium.[2] The position in Belgium, however, is much more serious than in France. It may best be described in the words of Professor Sarolea, written after a visit of five weeks to his native country. "Other belligerent nations may suffer from unemployment. In Belgium alone there has been created a whole nation of unemployed. In other countries trade and industry are dislocated. In Belgium they have come to a complete standstill. Out of a population of eight millions, seven millions are under the heel of the invader. Railwaymen are starving, for railways have ceased to work. Office clerks are starving, for banks and offices are closed. Public officials are starving, for no salaries can be paid.... Journalists and printers are starving, for newspapers and books have ceased to appear. Mill hands and coal miners and ironworkers are starving, for mills and coal mines and iron works are closed."[3] Bad as this is, the condition of affairs is somewhat relieved so far as France and Belgium are concerned by the fact that the seas are open to them, but even then we must add these areas to Germany and Austria-Hungary as regions where industry and trade are at the best severely hampered, regions all of which are important factors in the markets of Europe, and whose commercial paralysis will re-echo through the whole commercial world.

[Footnote 1: "The shortage of raw materials, notably cotton, wool, jute, and petroleum, is greatly restricting production in many branches of manufacture in Austria-Hungary. According to official estimates, the supplies of some of the most necessary raw products are barely sufficient for two more months. Factories are closing down, and the number of unemployed is steadily increasing" (Reuter's telegram from Venice, Oct. 21, 1914).]

[Footnote 2: For example, the probable number of French factories in a position to produce sugar in 1914-15, will be 82 or 83 as against 206 during the year 1913-14 _(Times_, Nov. 3, 1914).]

[Footnote 3: Letter to the Press dated Sept. 12, 1914. Mr. J.H. Whitehouse, M.P., who visited Belgium says, "The whole life of the nation has been arrested."]

The most fortunately situated combatants in Europe are Russia and Great Britain. The former, covering half the area of Europe, has almost limitless resources, and is much more easily capable of being self-supporting than any of the other Great Powers engaged in the war. This country still has the seas open to it.[1] The State subsidy to marine insurance has encouraged overseas trade, and the re-establishment of the remittance market has removed an obstacle to the flow of exports and imports. Still, it is true that the financial world cannot recover all at once. "It is like a man whose nervous system has been shattered by a great shock. Tonics and stimulants may save him from complete collapse, but real recovery is a matter of months and even years."[2] Further, the work hitherto done and the services performed for Germany and Austria are now no longer called for; our allies in the west of Europe are suffering acutely from the immediate economic effects of the war and the large destruction of capital; our neutral customers have not escaped scot-free. It would seem, therefore, that in spite of the British command of the seas, production must necessarily be seriously curtailed and that, therefore, the volume of unemployment must be very considerable. On the other hand, though production in France, Belgium and Russia may diminish in many directions, what goods they do produce for export will find no market in Germany and Austria-Hungary and a proportion of them will find their way to this country. Such commodities will not only be valuable as food and raw material for industry, but will set up a flow of British goods in payment for them. Further, the production of commodities needed for the prosecution of the war, will increase the volume of employment. Goods of all kinds are required not only for the British armies but for the Allies generally. The manner and extent to which these factors have influenced unemployment will be considered presently.

[Footnote 1: According to an Admiralty statement, corrected up to Sept. 23, 1914, 12 British ships had been sunk by German cruisers, 8 had been sunk by mines, whilst a few fishing boats had been destroyed. British ships detained and captured by Germany numbered 86, with a total tonnage of 229,000. On the other hand, 387 German vessels had been detained or captured, the total tonnage being 1,140,000. According to _The Times_ (Oct. 9, 1914), up to date 1.6 per cent of the tonnage registered in the United Kingdom had been lost. The figures for Germany and Austria were 18 and 13 per cent respectively. The Committee which prepared the State War Insurance Scheme estimated that the loss during the first six months of the war might be about 10 per cent of all British steamers employed in foreign trade.]

[Footnote 2: _Round Table_, Sept. 1914, p. 704.]

Now the demand for the goods hitherto supplied by Germany to her foreign customers, though abated, will still continue. As we have seen, she cannot for the present supply them. By whom will she be superseded?[1] The Government of this country early in the war took steps to co-operate with British traders in an attempt to obtain some share of this trade, and the United States also strove to make the fullest use of the opportunity. In this country goods previously imported from Germany will, if still needed, either be bought from the next cheapest importer or produced at home. Commodities which we have in the past produced for German consumption are not now required from us. If they continue to be made, it must be for other countries. In other words, whether the volume of British foreign trade remains the same or not, a proportion of it will be diverted into new channels during the progress of the war. In a less degree, the trade of other states will be deflected from its accustomed channels. Beyond this, special influences will be felt in the case of certain new countries, as for example Canada. "Canada's annual balance of trade is probably about £60,000,000 against her: £30,000,000 being the excess of her trade imports over her trade exports and the remaining £30,000,000 representing her annual payment on money borrowed. She has balanced her account hitherto by borrowing very large sums of money. Now she will be unable to do that any longer. Nor will she at present, at any rate, obtain the immigrants on which she is counting to enable her to pay her interest. She cannot redeem the balance due by the export of gold. The burden would be too great in any case, and moreover she has suspended specie payments. A part of the balance due may be covered by the higher value of her exports, such as wheat. The remainder she can only meet either by increasing her exports or by reducing her imports. The latter she has already begun to do."[2] This new readjustment may be accompanied by great economic loss; in any case the dislocation will be harmful for the time, not only to the new countries, but to the countries with whom they trade. It is clear that foreign trade generally will during the war gradually be readjusted to the new conditions of the times. To what extent the various streams of the world's trade will be directed into new channels it is impossible to say; the readjustment will be partly temporary, and partly permanent.[3] This redistribution of production, if it leads to production under less favourable conditions than before, will tend to raise prices, and thereby probably diminish the power to buy other commodities. If it leads to the substitution of a well organised and well paid industry by an industry of a less skilled kind, there will be in effect a net lowering of wages. The widespread effects of the war on industry and commerce must, therefore, have a profound effect on the whole of the economic world.

[Footnote 1: Towards the end of August, the tin-plate and steel-sheet trade in this country which had suffered badly on the outbreak of war revived, and "several mills were reopened, owing to the obtaining of orders which formerly went to Germany" (_Board of Trade Labour Gazette_, Sept. 1914, p. 330).]

[Footnote 2: _Round Table_, Sept. 1914, pp. 708-9.]

[Footnote 3: This, of course, does not mean that Great Britain will "capture" German trade and increase its foreign commerce by the amount of its value.]

2. _Unemployment and Short Time_.--We are now able to understand how the war has affected the individual workman. As we have seen, the panic caused by the outbreak of war and the collapse of the remittance market meant in many industries the holding up of production and the stoppage of the workman's wages. If it had not been possible to restart the machinery of exchange, starvation would have walked through the land, and the industries dependent on foreign raw material would have closed down altogether. As it was, the inevitable dislocation increased the amount of unemployment.[1] Whereas the trade union percentage[2] of unemployment amongst their members was only 2.8 at the end of July, it had reached 7.1 by the end of August. This figure, however, is considerably below the percentage of unemployed during many periods of trade depression; the average for the whole of 1908 was 7.8 and for 1909, 7.7, whilst during the month of March 1912 it rose to 11.3 as a result of the coal strike.

[Footnote 1: Note that unemployment prior to the war was showing a tendency to increase.]

[Footnote 2: It should be observed that these figures relate only to about a million trade unionists, no non-unionists being included. Further, they ignore short time.]

The volume of unemployment during August varied considerably from trade to trade. In the cotton industry, which, however, appeared to be in for a bad time anyhow, 17.7 per cent of the trade union members were returned as unemployed during August 1914, whilst in coal mining the percentage was 1.3. As compared with the previous month of July, there was a general decline in all industries except shipbuilding, which benefited by increased activity on Government work. The contraction in the volume of employment was specially marked in the case of tin-plate works and in the textile, furnishing and woodworking, and pottery trades. Again, in the trades where the Government scheme of compulsory unemployment insurance applies, the volume of unemployment at the end of July was 3.6 per cent, but at the end of August it had reached 6.2 per cent or double the volume recorded in August 1913.[1] Beyond this, there was during the month of August, an enormous amount of short time; in several industries for which particulars are available, thousands of workpeople were working half-time or less.[2] The rise which took place in the price of certain food-stuffs especially during the first part of August intensified the evil by reducing "real" wages.

[Footnote 1: The gradual increase during the month may be observed from the weekly returns:--Aug. 7, 4.0 per cent; Aug. 14, 5.1 per cent; Aug. 21, 5.8 per cent; Aug. 28, 6.2 per cent.]

[Footnote 2: The Board of Trade receives monthly reports from employers and others in different industries. These returns, though they do not cover the whole of the industries, are sufficiently reliable to indicate the widespread character of short time. During August 1914, in slate quarries and china clay works, "there was a good deal of short time and some unemployment in consequence of the war"; in tin-plate and sheet-steel works, "short time was very general. In some cases discharges were obviated by the sharing of work at the mills remaining open. The decrease in employment is to be attributed to the effects of the war, and in particular to the general restriction of the European market"; some branches of the engineering trade, particularly agricultural and textile machinery, and the motor car and cycle trades, were "disorganised by the war; many discharges took place and a large amount of short time was worked." In the miscellaneous metal trades, except in the manufacture of articles required for military and naval purposes, "much short time was reported." In the cotton industry, "the trade as a whole was working less than three days a week, and large numbers of workpeople were entirely unemployed." In the woollen trade, "about 60 per cent of the workpeople covered by the returns received were on short time, including over 20 per cent who were working half-time or less." The returns showed a decrease of "21.5 per cent in the amount of wages paid compared with a month ago." In the worsted industry, "about 65 per cent of the workpeople covered by the returns were working short time during the month, including over 30 per cent who were working only half time or less." The returns showed a decrease "of 26.5 per cent in the amount of wages paid compared with a month ago." In the linen trade "short time was reported generally." In the hosiery industry, "short time was reported by firms employing over 40 per cent of the operatives covered by the returns." In the silk trade "a great deal of short time was worked in all the districts." In the levers and curtains branches of the lace industry "the majority of the operatives ... were only working half time, and large numbers were altogether unemployed." In the carpet trade "short time was general, most districts working only half the usual hours." In the furnishing trades "short time was worked in almost every district." "Short time was very generally reported" in printing. In the glass trades "short time was reported in several districts." In the potteries "most of the firms" were running short time (see the _Board of Trade Labour Gazette_, Sept. 1914).]

During the month of September, however, employment revived.[1] Besides Government work in shipbuilding yards, certain branches of the woollen industry were working at full pressure on the production of blankets and cloth for uniforms; the leather and boot and shoe industries on some sides received an impetus from the large orders placed for army boots; hosiery and knitted goods were required in large quantities. Speaking generally, industries whose products were required for the army and navy were strained to the extent of their resources. But each industry supplies a large variety of goods of many different grades, and machinery and works equipment cannot always be easily converted to the production of other classes of commodities; so that even in the woollen and boot trades, for example, the whole industries were not uniformly busy. The many industries, however, to which the war brought no orders, enjoyed but a slight recovery, and in some cases none at all. As the month of September proceeded, the newspapers triumphantly referred to the fall in the percentage of unemployment. The truth is that the decline was by no means general or uniform, but was brought about, not so much by the gradual revival of normal activity, but by the rush of Government orders. For instance, the cotton industry remained in the trough of a deep depression, and the furniture and piano making trades profited little. Further, no account was taken of the prevalence of short time, though over a large field it was widespread especially amongst women. What the real position of the labour market was after we had been at war two months, cannot be precisely determined, but it was certainly more serious than the Board of Trade percentage would seem to indicate.[2]

[Footnote 1: The percentage of unemployment at the beginning of October in the trades compulsorily insured against unemployment was 5.1, as compared with 6.3 at the beginning of the previous month.]

[Footnote 2: "Certain confidential statistical enquiries on a large scale are said to support the inference to be drawn from the figures published by the Board of Trade, that at least 10 per cent of the fifteen million wage-earners in the United Kingdom are not at work at all, whilst quite as large a proportion are on short time. But out of more than a million men whose services the employers have thus temporarily dispensed with, some nine hundred thousand are being clothed, or are going to be clothed, in khaki, and given Government pay. Thus the actual unemployment among men is, except in (certain) black patches, only sporadic and scarcely more than we are accustomed to. Very different is the situation of the women wage-earners. Of these apparently half a million are now unemployed, and twice as many are working only short time. Though the industrial situation is considerably better than would have been predicted for the end of the second month of a world war, it was, in fact, worse than it has been at any time during the past quarter of a century" _(New Statesman,_ Oct. 3, 1914).]

The month of October saw a further recovery and a more normal state of affairs. The percentage of unemployment in insured trades continued to decline;[1] but whilst the number of men on the Labour Exchange registers fell (from 28,664 on October 2 to 24,690 on October 30), the number of women registered remained almost stationary. At the end of three months from the beginning of the war the condition of men's employment was about normal; but women were suffering from excessive unemployment, whilst short time was still common in many industries in which women are largely employed.

[Footnote 1: The percentages are as follows: Oct. 2, 5.11; Oct. 9, 4.80; Oct. 16, 4.46; Oct. 23, 4.29; Oct. 30, 4.16.]

The large volume of unemployment, which it had been anticipated would accompany a great war, was avoided, partly because of prompt State action in maintaining the fabric of commerce and finance, and therefore the supply of raw materials, and partly because of the large demand for commodities for the Army and Navy--a war demand vastly in excess of that in any previous war. In other words, State intervention and the Navy have placed Great Britain in a much superior economic position to that of her adversaries.