The Interdependence of
the Economic Causes of War
and of Industrial Depression
Charles O'Connor Hennessy
[An address to the International Economic Conference
of the League of Nations,
held at Geneva, May 1927, on behalf of the International Union for
Land-Value Taxation and Free Trade]
The essential objects of the International Economic Conference
convened by the League of Nations are to consider means of (A)
removing the economic causes which lead to war, and (B) promoting the
improvement of the economic position of the peoples of all nations.
These objects are closely related, and cannot be attained
independently of each other. The means which will promote the economic
prosperity of the people of any country will also help to promote the
prosperity of other countries and secure the peace of the world.
The world of to-day constitutes a single economic organization. In
the changing conditions of modern times there is no longer any nation
which is self-sufficient. Even the United States of America, which
constitutes one of the largest and most diverse political States in
the world, is vitally dependent upon foreign countries for a great
variety of things which are essential to modern industrial processes.
Mr. Herbert Hoover, who is a recognized authority, has stated that the
United States is dependent upon other parts of the world for no less
than seventy vital articles of commerce.
The division of labour has long ago transcended national boundaries,
and the arguments propounded by Adam Smith in "The Wealth of
Nations" for the necessity of free intercourse between nations
and for freedom of trade have now acquired an overwhelming
significance because the interdependence of nations is immensely
greater than any person in his day might have foreseen. This
international division of labour is the economic basis of civilized
life, and the duty of governments now is to reconcile the legitimate
claims of nationalism with the economic internationalism which has
grown up almost in spite of them.
In order that the organization of production should be carried on
with the maximum of economy and efficiency, it is necessary that the
raw materials should be grown or extracted in those places where it is
relatively easiest to do so, and that they should be transported with
the minimum of expense and interference to those places where it is
cheapest to manufacture them and to those places where they are
required for consumption. The serious injury caused to the economic
structure of the world by tariffs and other restrictions on the
freedom of transportation and exchange is obtaining increasing
recognition by the most authoritative commercial and financial
authorities, as witness the Report Statement on Raw Materials,
Trade Information Bulletin, No. 385, Department of Commerce,
Washington, January, 1926, of the Trade Barriers Committee of the
International Chamber of Commerce and the Manifesto issued last year
by bankers and industrialists of many countries.
Even more vital than the obstructions to the transport and exchange
of raw materials and manufactured articles are the conditions
affecting the production and distribution of wealth. The
impoverishment of the peoples of Europe, the growth of unemployment,
the reduction of wages and the gross inequalities in the distribution
of wealth give rise to problems -of more than national importance.
They create a state of mind among the masses of every country which on
the one hand threatens the stability of governments and on the other
hand encourages the idea of economic improvement by means of
territorial expansion. The improvement of the material condition of
the people is essential not only from a purely national standpoint,
but also because it will produce that psychology of belief in the
advantages of rewarded toil which will make possible the intellectual
and spiritual emancipation of mankind and make the idea of war alien
to their thoughts.
(A) ECONOMIC CAUSES OF WAR
Apart from the general influence of the economic condition of the
peoples, the specific economic incentives to war may be roughly
classified into two groups:
(1) The antagonism and friction caused by interference with exchange
and especially by tariffs ; and
(2) The struggle for new markets and sources of raw materials,
especially the demand for colonial expansion, concessions, and
protectorates.
THE TARIFF PROBLEM
The present economic difficulties of Europe are in a large measure
due to tariff barriers. The new States which have been set up since
the war have in many cases had basic industries separated from the
source of raw material which remained in the parent State, or vice
versa. In the absence of a tariff, this might not have had much
economic effect. It is the tariff which forms the frontier and makes
effective the separation.
The detachment of territory from one State for the benefit of another
or to form an independent State will inevitably cause some resentment
in that State whose area is reduced. But if the transfer of territory
is accompanied by no interference with the economic life of both
States the feeling of resentment is less likely to persist and to
become a menace to the peace of the world. It was not without reason
that President Wilson, in his desire to prevent future wars, included
as one of the Fourteen Points:
"The removal so far as possible of all economic
bar-
riers and the establishment of an equality of trade
conditions among all the nations consenting to the peace
and associating themselves for its maintenance."
The very existence of a tariff or other artificial obstacles to trade
is an implicit betrayal of the spirit of the League of Nations. The
use of a tariff for the purpose of boycotting or putting pressure to
bear upon some other nation is still more so.
From the point of view of war or peace there can only be one
conclusion as to the desirability of abolishing all tariffs, and other
barriers to international trade. The removal of the tariff is in the
best interests of the peace of the world. No argument can be raised
against it so far as international peace is concerned, and any
objection must be raised on other grounds.
THE COLONIAL QUESTION
It is a truism of historical study that the struggle for raw
materials and new markets, expressing itself in colonization,
annexation of territories, establishment of treaty ports, and in wars
for colonial possessions has been one of the chief souices of
international jealousy and discord. The same force is still at work in
the world to-day; and as the less civilized or less highly developed
parts of the earth's surface have now been largely appropriated, the
danger is all the greater though less openly acknowledged.
It is true that the possession of a certain colony by one country
rather than by another need not necessarily be to the advantage or
disadvantage of either. But at present fiscal and other
discriminations are made in favor of the traders, settlers and
industrialists of the possessing country. Most important of all,
grants of concessions to work raw materials over large areas of the
most productive territory are often made to individuals and companies
who may be able to establish a virtual monopoly and become enriched,
while neither the colony nor the parent country gains any appreciable
advantage.
It is therefore the duty of those who desire to remove the economic
incentives to war to make certain that the citizens of all nations
receive equality of treatment in respect of access to raw mateiials.
This can be obtained without detracting from the independence and
self-government of any nation, if each government will take steps to
secure that the territory under its control may be developed to the
fullest extent.
(B) IMPROVEMENT OF THE ECONOMIC POSITION
The removal of the causes of the present stagnation of trade and the
improvement of the economic position of the peoples depends upon three
main factors:
(1) A sound system of public finance;
(2) Removal of obstacles to exchange, particularly tariffs;
and
(3) Increasing the opportunities for the production of
wealth.
PUBLIC FINANCE
The more violent fluctuations of the foreign exchanges have been
mainly due to the inflation of the currency as a substitute for
taxation. If means can be found to balance the Budget, the currency
can be stabilized and with it the rate of exchange.
The difficulty of balancing the Budget is to find sources of taxation
which will be adequate to meet the national expenditure. The
repercussion on industry of the main existing sources of taxation is
so serious that a further increase in the rate of taxation is dreaded.
A new source of revenue must be found. There is one of the greatest
importance which is as yet practically unused by every European and
most other governments, namely the value of land apart from buildings
and other improvements. Land-Value Taxation is capable of yielding a
great volume of revenue. It has no injurious effect upon production,
exchange or international trade because it is not added to the price
of commodities. It is a source of revenue which automatically expands
as society progresses and the need of revenue becomes greater; and it
falls upon a value which is pre-eminently unearned by any individual
but is created solely by the presence and activities of the Community.
REMOVAL OF TARIFF BARRIERS
The abolition of tolls, octrois, and internal obstacles to trade has
never been regretted in any country. The constitutional prohibition of
such barriers to free production and exchange over the vast and
diversified territory occupied by the 48 States of the American Union
is an unques tionable factor in the relatively great prosperity of the
United States. If the whole world constituted one State, no
intelligent person would advocate tariffs between its administrative
units. There is an evident inconsistency in supporting a League of
Nations pledged to world peace, while at the same time advocating the
maintenance of national tariffs on the theory that the producers in
different nations are (in the economic field) enemies. In fact the
whole tenor of protectionist literature is that tariffs are a means of
making one nation rich at the expense of another. (It might be
inquired what nation has made itself rich in this way and what would
happen if all the nations of the world endeavoured simultaneously to
make themselves rich at the expense of each other?)
The arguments against removal of the tariff barriers are familiar
enough, but there is one that requires special attention; namely, that
the tariff supplies an important part of national revenues which
cannot be obtained otherwise.
It is true that in practically all countries the tariff supplies a
large fraction of the public revenue. But it is not true that the
necessary revenue cannot be obtained otherwise. The revenue of any
country must be obtained from the annual produce of its land, labour
and capital. The system of taxation adopted is merely a means of
determining what amount shall come out of the pocket of each
individual citizen and the method by which it shall be collected. The
tariff is a method which imposes the load in the most burdensome way,
interfering with and handicapping the international division of
labour. It also has the vicious effect of concealing how much each
citizen does in the end pay, and of enabling some citizens to make an
actual profit out of it by setting up monopolies. The necessary public
revenue can be collected without placing obstacles on trade or
production. In fact, public revenue can be raised in a manner that
will relieve industry of the burdens of taxation and stimulate
national production.
STIMULATING THE PRODUCTION OF WEALTH
Although the removal of tariff barriers will encourage the flow of
commodities and facilitate the division of labour, and the
stabilization of the exchanges will have a similar effect, these
measures are not alone sufficient to ensure prosperity and
international peace. They might lead to a position similar to or
possibly somewhat better than that existing previous to the European
War. But that, although advantageous as compared with the instability
of the present time, leaves much to be desired and hoped for. M.
Loucheur, in proposing the motion which led to the calling of this
Economic Conference, said "Industrial Disorganization led us to
1914 and it may lead us there again." The working masses, upon
whose assent the present system is based, are becoming increasingly
dissatisfied in the knowledge that their condition doe not improve in
the same ratio as science and technical knowledge progresses. Large
bodies of men unemployed and great accumulations of capital lying idle
are a menace to the stability of States and consequently to the peace
of the World. It is imperatively necessary, therefore, to discover
means of stimulating the production and improving the distribution of
wealth.
Modern civilization contains within itself a canker which destroys or
frustrates its own progress. The increase of population, the
improvement in the technique of production and the march of invention
cause a stronger and stronger demand for land to supply the necessary
materials and sites for industry, commerce and agriculture. The more
rapid is the growth of population and the development of industry, the
more rapid is the increase in the value of land. Speculation and
holding of land out of use is therefore most acute just where its
effects are most injurious. The result of land being held out of use
is to diminish the available supply of something already limited in
quantity, and, therefore, to increase the price of what is allowed to
be used. The production of commodities of all kinds is then
restricted, prices rise, and there is in effect an increase in the
cost of production. The distribution of wealth is also affected, more
going to yicomes derived from mere ownership, less to active
producers.
The laws of most countries fail to prevent the speculative holding of
land out of use. Indeed, this is positively facilitated by the
exemption from taxation which valuable unused land generally enjoys.
It is not necessary to elaborate here the argument that the value of
land is particularly suited to be a source of public revenue. This has
been demonstrated by economists of the highest standing. What we are
concerned to show is that Land Value Taxation supplies an essential
link in the solution of most economic problems.
It provides an alternative source of public revenue, by which the
tariff can be abolished, a measure which is vital to the economic
organization of the world to-day and to the cause of peace.
It will enable the Budgets to balance and so obviate the excuse for
inflation and violent fluctuation of the exchanges.
It makes for the economic stability of international trade, and for
closer co-operation between the nations.
It provides a means of stimulating production by forcing unused land
into use, the essence of Land-Value Taxation being that it is levied
on the full value of the land even if unused. The result will be
increase of trade, more employment, less competition for work, higher
purchasing power and higher wages.
Applied in colonies and protectorates this policy means that those
who hold the land there will be obliged to work it and to produce the
raw materials which other countries require. Monopoly based upon
limitation of production will be impossible, because it will not pay
to limit production; it will not pay to keep valuable land idle. Thus
Land- Value Taxation provides a solution of the colonial question, so
far as it is an economic question, by ensuring that the supply of raw
materials is maintained at its maximum; and these under a system of
free trade will be distributed to those who require them by the
ordinary machinery of commerce.
Peace, justice, security and the progress of an ordered civilization
all require that the inter-related problems of international commerce
and of the economic betterment of the common man in every country
should be solved.
To abolish the restrictions that now at every national frontier
hinder and burden trade between peoples, is at once to remove a great
impediment to the production of wealth while promoting those friendly
human contacts that serve so well to dissipate national and racial
misunderstandings.
But beneficial as would be the establishment of Free Trade across
national frontiers, it would not suffice to effect any permanent
elevation of the economic status of the ordinary citizen in any
country so long as the evils of land monopoly and the destructive
internal taxation that now restricts the employment both of capital
and of labour remain untouched.
Both of these evils would disappear if governments could be led, upon
the recommendation of this Economic Conference, to adopt the policy
here advocated. The levy of taxes upon the economic value of all land
apart from improvements would on the one hand immensely stimulate
industry by forcing land into use, and, on the other hand, would
provide a constantly growing source of public revenue, leading
ultimately to the abrogation of the taxes and imposts of various kinds
that in every country so grievously oppress and hamper the free
employment of capital and labour.
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