ECONOMICS AND THE WAR. When in the early autumn of the year 1914 the present great war was forced upon the world by the joint action of Germany and Austria Hungary, the great powers had been at peace with each other for a period of nearly 50 years and during this interregnum of the war lords, economic conditions, including especially domestic production, monetary and banking systems, international trade and the various other institutions of an organized economic life had become stabilized by the relatively un changing demands of a world at peace. The mobilization for war radically changed, almost in the twinkling of an eye, the conditions under which the economic life was thenceforth to be carried on, and as a necessary consequence the economic life itself. Economic customs and institutions hoary with age and venerated and perpetuated because they had been useful under other conditions were continued without ques tion, then questioned, then abandoned as the requirements of war were found to differ from those of peace. While war is destructive of human life and the savings of the past, it is also and in no less measure the destroyer of outgrown institutions and customs and the creator of new ones, some of which may prove permanently beneficial, while others may be dis carded as mistaken attempts to meet the changed conditions. When the German War Council met at Potsdam on 5 July 1914, it was attended by the great bankers, railway directors and the captains of industry as well as by the war lords and the representatives of the state. The representatives of every line of activity, finance, transportation, trade and industry as well as the army and navy were solemnly asked by the Kaiser if they were ready for war, and all except the financiers replied in the affirma tive.* The financiers were not ready, they must have two weeks to make the final prepara tions for the great war. The reason given by Wangenheim in his account of this historic conference was that the bankers must have time to sell foreign securities and to make such loans as might be necessary to prepare their banking institutions and their other financial interests for the initial shock of the war. The request of the financiers was granted and the Serbian ultimatum postponed for the period named to give the banking institutions time to arrange their loans and to convert their foreign securities into gold or credits as nearly liquid as they might find feasible. This financial moratorium while not so important as many events which have taken place during the war clearly illustrates an important principle. War separates or tends to separate the nations engaged in the conflict from each other, sever ing the economic ties which bind them, and forcing them to adopt either one or both of the following plans : first, they may seek to establish economic relations with countries other than those with which they have been trading, or second, they may attempt to provide for all their own wants by diversifying their own in dustries until as nations they have become entirely self-sufficient. During the present war
both of these expedients were adopted. For the past half century, Germany has, by the conscious effort of her government, adopted the policy of using economic pressure to force her citizens to provide more and more fully and completely for their own wants. During a much longer period, England has specialized as a producer of a limited number of commodities and has relied upon her ability as an inter national trader to exchange a part of her prod ucts for such other commodities as she needed for a fully developed economic life. When war was declared, Germany ordered her navy and merchant ships to seek safety in the most convenient ports and thereafter she and her allies have relied upon their own diversified production together with such neutral trade as has been able to gain access to her markets to provide for the wants formerly supplied by im ports from all parts of the globe. England, France and the United States on the other hand adopted, partly by necessity, partly by choice, the policy of keeping the seas open to their merchantmen and developing their inter national trade as never before. While Ger many has doubtless been building both battle ships and merchantmen as a preparation for the trade competition that will inevitably fol low the conclusion of the war, the allied nations have been forced to do the same as a necessary condition of carrying on the war at all. This in itself has caused a profound change in the economic life of the United States and has intensified the most marked economic characteristic of Eng lish industry and trade. The change referred to has already begun to have its immediate effects and its after-effects will be even more significant. To carry on international trade, ships are necessary and if a nation is to be at all independent, it must provide its own. At the beginning of the war, the United States possessed a fairly strong navy and a consider able fleet of ships suitable for coastwise traffic. During the first two years and a half of the war, the United States was called upon to supply the warring nations with food, raw materials and such manufactured products as she was able to supply in ever-in creasing ouantities. It is of course stat ing a self-evident fact to say that the United States could not grow wheat and build ships with the same identical labor and capital; that as she built more ships she must grow less wheat and mine less iron and coal and that consequently her creative power was diverted by the demands of war from the pro duction of food and materials to the building and sailing of ships.