After the War—What?

By Henry C. Emery
Yale University

[Collier's, March 11, 1916]

A year ago everyone was asking the question: "What will be the effect of the war on American business?" Today everyone is asking the question: "What will be the effect of peace?"

The puzzle of a year ago is now pretty well solved. We are fed up on figures of war orders which, though often exaggerated, are undoubtedly largely responsible for the general business revival. High prices and high wages in some industries have checked expansion in- others* The great foreign demand has delayed domestic development in some lines or made it more costly, But, in general, increased, demand has caused increased activity even in those industries which do not export to the belligerents. Great crops are being marketed at high prices. The one great exception works to increase the general feeling of well-being. Ten months ago the low price of cotton and the contraction of the foreign market through the English blockade seemed to threaten disaster to the South. An unexpectedly short crop led to an upward price movement at the psychological moment and to the revival of confidence which always comes to the producer when prices advance. In general, American business faces the new year with a very smiling countenance.'

What readjustment will come with peace? What will be the industrial conditions of Europe after the war? How will this condition affect American interests? On these points there prevails the widest divergence of opinion. Extreme statements of quite opposite character appear daily from various authorities. One sees Europe crushed for half a century to come and the United States dominating the financial and commercial markets of the world. Another sees Europe pursuing the arts of peace with the same energy and sacrifice with which she has prosecuted war, and the United States recoiling in confusion before the conquering phalanxes of foreign-made goods. One sees our productive capacity checked by the total cessation of immigrant labor; another sees our shores black with refugees from the taxes and poverty of desolated lands. In most cases these opinions seem mere guesses and the public is prone to take the attitude that one guess is as good another. This is not am intelligent attitude. There is nothing so overwhelming about this war, when calmly considered, as to make the predictions of careful reasoning and still more the inferences from past experience less valuable than they always have been.

Right here, indeed, is the first step necessary to a sane consideration of the question. We must get rid of the idea that the world has never faced such an economic cataclysm as this in the past. Of course this war is the "biggest ever," but then the world is a great deal bigger than it ever was before. The totals of men engaged and of casualties are staggering, but if we are to consider the effect of the struggle on economic conditions we must consider these factors in the light of relative population, wealth, and resources. True, the war may continue so long as to make all comparisons with the past futile. If it should endure for ten years, no prediction made now could be based on any intelligent data. Consequently any attempt to answer the question as to probable conditions after the war involves at the outset assuming some definite limit to the conflict. The assumption of this article is that the war will not continue beyond another twelve months and that its prosecution for that period will be no more destructive of life or property than it has been in the last twelve months. Such an assumption may not be warranted, but any other makes all present discussion of the economic problem impossible.

Casualties Comparatively Few

Even if two years of the present war represent a greater relative strain than any equal length of warfare in the past, the comparison may be fairly made with the corresponding total results of longer wars. It will take many years of fighting before a devastation results relatively as great as that of the Thirty Years' War. We have already been assured by the bankers' syndicate selling the Anglo-French bonds that the financial burden involved, relatively to the means of payment, is a mere bagatelle compared with the burdens of the Napoleonic Wars. In this article comparison will be confined chiefly to our own Civil War.

Obviously the question of the condition in which our own country will find herself at the close of such a struggle comes to the question of the condition in which the belligerents will find themselves when peace is declared. Their condition will depend on three factors: the effect of the loss of human life on labor supply, the condition of soil and natural resources, and the available supply of capital in the form of factories and machinery.

Consider first, then, the matter of loss of life in relation to productive capacity. The January English figures give total casualties for British forces as 549,467 after sixteen months of war. Taking the white population of the empire (disregarding India and South Africa) as 60,000,000, this is less than 1 per cent of the total population. The white population of the Confederacy in our Civil War was 5,500,000. In three days' fighting at Gettysburg they lost over 20,000, or nearly four-tenths of 1 per. cent of the white population. Such a startling comparison is, of course, not typical of the general situation, but, since most of us have been hypnotized by the aggregates of this war, it is well that we should be a bit jolted but of this condition of mind by realizing at the outset that in proportion to population the South lost four-tenths as many in three days as the British did in sixteen months.

The case of such countries as Germany and France is far different, since they have put much larger armies in the field in proportion to population. Ten per cent of the total population is a normal proportion for nations exerting all their strength. The Confederacy did better. The total Union enlistments were greater than this, but, reduced to the equivalent of three years' continuous service (by Livermore, a recognized authority), the strength was 1,500,000, or 7 per cent. If France and Germany reach the 10 per cent figure before the belligerents as a whole shall have done this, more than 40,000,000 men will be engaged. Estimates of losses differ widely. Properly to judge any of these estimates, however, several points must be kept in mind. It is clear that the item Prisoners is of no importance for us, as these return to the industrial army at the conclusion of hostilities. The item Wounded would have been of great importance in earlier wars. In this war, however, the proportion of wounded who return to the front, and who, if not later entered in the list of killed, will return finally to the ranks of industry, is truly astounding. German hospital returns show 88.9 per cent returned to the ranks, 1.9 per cent dead, and 9.2 per cent incapacitated. French figures for a shorter period show of wounded in hospitals 54.5 per cent fit to be returned immediately, 24.5 per cent on leave, 17 per cent still in hospital, 3.5 per cent dead of wounds, 1.5 per cent totally disabled. These figures have been challenged by prominent surgeons who have been on the ground and accepted by equally prominent surgeons. They may be accepted for what they are worth. Even the incapacitated may be fit for business activities later. Clearly we must not be misled by "total casualties'." A man may be wounded, sent to hospital, returned to the front, wounded again, and so on. In the list of casualties he may appear as three or four "losses," while at the end of the war he is one able-bodied mechanic. We are forced, then, to deal primarily with the list of killed with some slight addition. In our Civil War the deaths due to disease were more than the deaths in battle from wounds. This has been practically eliminated in the present contest.

A word must be inserted here as to the use of the phrase "permanent losses" by military—writers as distinguished from economic writers, Mr. Belloc in his brilliant articles in England uses the phrase "the permanent ratio of temporary loss" to show that even if ten wounded men are returned to the ranks to-day, ten more recently wounded take their places in hospital. This is important from the military point of view. But possibly all twenty will return to industrial life. In this country we all read Mr. Frank Simonds on these questions. But he again uses the phrase "permanent loss" in the military sense, including, for example, prisoners in that list. Permanent military losses are not permanent economic losses. The military issue is one of wastage of men, and this is the great handicap of the Central Powers.

Much has been said in the press as to the high ratio of killed to wounded in this war. Figures showing this ratio exist only for England, but there is every reason to believe that both in France and at Gallipoli the British have suffered their fair share in proportion to numbers. The figures do not bear out the popular statements. In France up to January 9, 1916, of enlisted men the English killed were 82,130; the wounded, 248,990, or 1 to 3. In the Mediterranean field 26,455 were killed and 84,952 wounded, or 1 to 3.3. In our Civil War the ratio was 1 to 2.5, including in killed those who "died of wounds." The English figures for killed include those "dead from wounds and other causes."

Confederacy's Losses Greater

Estimates of German losses in killed and mortally wounded up to January vary from 700,000 up. At this figure the loss would be slightly more than 1 per cent of the total population; The Parliamentary Under Secretary for War, in Parliament, January 19, gave total German casualties as 2,500,000, of which 588,986 were killed. These were given as including the whole German army, though they come close to figures given earlier for Prussia alone. If such an error was made, these figures should be increased by about 60 per cent.

If it should reach a million men, it would be about 1% per cent. This is a tremendous toll. Suppose it reached the enormous total of 1,600,000 after two years' fighting. This would be 2% per cent. In our Civil War it has been estimated by not a few historians that the Union losses from death plus total disabilities from disease were about 2% per cent of the population. On the assumption, then of deaths of a million and a half or more, Germany in two years' fighting would meet a loss proportional to that of the North in the Civil War, but less than that of the South.

Mr. Asquith in a Parliamentary statement estimated the total deaths in the first year of war as 2,228,000, The total population of the belligerents, excluding Japan , the Asiatic population of Russia, and, as before, restricting the British Empire, is over 400,000,000. This is nearly twenty times the population of the Northern States in 1860, so that a loss of 2,000,000 represents the equivalent of 100,000 to the North in the Civil War. The number "killed and died from wounds" in the Union ranks was 110,000, Mr. Frederic Huidekoper, the latest and best authority, in his book on "Military Unpreparedness of the United States," gives the figures of total Union loss in killed and dead from wounds, or disease in the field and in prisons as 380,100. Probably an additional 100,000 died soon after or became a total economic loss, bringing the number close to the 500,000 mark. The same authority gives Confederates dead of wounds or disease in the field or prisons as 163,973. To these should be added at least 80,000 killed in battle, which would bring the Confederate loss up to 4 per cent of the white population. We may conclude these brief figures by the general statement that though the economic loss, due to deaths, of such countries as France and Germany in two years' warfare will equal or even exceed those of the North in the Civil War, in proportion to population, the loss of the belligerents as a whole, including Russia and Great Britain, will be less than this proportion. In the case of all countries to date it may be stated that whether in numbers engaged or in numbers dead they have not yet approached the record of the Confederacy.

It will be seen that the Civil War offers quite pertinent figures for comparison. What, then, is the lesson of that earlier conflict? The South, not only decimated in numbers, but without manufacturing capital and her territory devastated, was prostrated for decades. On the other hand, even in the midst of the conflict, the agricultural and industrial activity of the North advanced rapidly. In 1864 Indiana, with one-tenth of her total population in the battle fields instead of the wheat fields, produced more wheat than in any year before the war. In 1863 and 1864 the Union States with 1,000,000 men under arms not only produced more wheat but had a larger surplus for export than at any previous time in their history. Similar conditions prevailed in manufacturing.

With the exception of the cotton industry, the output of staple manufactures increased steadily throughout the war. The industrial organization was kept intact, and a great period of expansion set in immediately upon its close. Many prophets were in panic over the prospect of disbanding a million men and throwing them into the industrial market. Both economic and political disruption was predicted. Their alarm was unfounded. As Lowell so finely expressed it, the nation simply "sent all her handmaid armies back to spin." Such facts should not occasion so much surprise as they commonly do. Their explanation lies in the simple fact that in normal times the productive power of a people is never exerted to anything like its full capacity, while their powers of consumption are expanded far beyond actual needs. Here is a tremendous economic reserve which can be called, upon in time of crisis. The population of any progressive industrial state can get along and even maintain efficiency on a far smaller expenditure for consumption than takes place in times of peace. The seeming loss of labor power is made up by more continuous and more strenuous labor on the part of those who are left and by enrollment in the industrial army of large classes who normally contribute nothing to productive power. It is well expressed by a popular verse of our Civil War:

Just take your gun arid go!
For Ruth can drive the oxen, John,
And I can wield the hoe.

It is this great margin between maximum production and minimum consumption which makes wars possible and which usually upsets the calculations of financial statisticians as to their possible duration or their destructive economic effects.

Destruction Worse Than Conquest

Labor power is not, however, the only factor in production. The productive capacity of mines, forests, and farms is yet to be reckoned with. Here there is no such reserve as in the case of labor, nor such possibility of early recuperation from natural increase. If natural resources are seriously impaired, quick revival is far less probable.

I think it was Mr. Bryan who years ago addressed a New York audience in words something like this: "Leave this city standing and destroy the fertility of the Mississippi Valley and in three months grass will be growing in Wall Street. But raze this city to the ground, and leave undiminished the fertility of the Mississippi Valley and, almost overnight a new city will rise from the ruins." Making allowance for the exaggeration of oratory, the statement contains a profound truth. It is not possible to estimate now how far military operations may have diminished what is sometimes called "natural wealth." In some sections the loss may be great; Serbia, for instance, and Poland, though the best authority lately returned from Serbia thinks the popular idea of the extent of devastation in that country is exaggerated. In relation to the total natural resources of the belligerents it is as yet small; certainly not comparable with the devastation of the Thirty Years' War or of the South in our Civil War. We should not make the mistake of confusing conquest with destruction. If the Germans for the time being hold a large part of the iron mines of France—or if they hold them permanently for that matter—the economic situation from the world point of view is not changed. The vast resources of the British Empire remain untouched. France has not been seriously ravaged. As yet Germany's natural productivity has not been impaired. Normal crops have been grown during the war. If the promises of the statesmen of the Allies are genuine and the war is to be prosecuted till German imperialism is destroyed beyond hope of resurrection, another story will be told; for this can be accomplished only by such a devastation of Germany's resources as will greatly delay her economic resurrection. But, as already said, a war of such endurance would make all present calculations meaningless.

If, then, it be conceded that the labor loss can be made good in large measure, and that natural resources will not be seriously impaired, there remains only the question of productive capital in the form of buildings, factories, machinery, railroads, and the like. Here again we must not confuse devastation and desolation. Belgium may be desolated, but she is not devastated. If the great Belgian machine works and textile mills are being run under German direction, their productive capacity has not been reduced. Our problem is simply to consider what kind of a commercial and industrial Europe we shall be facing in competition at the end of the war. On this problem injustices, invasions, violations of right, national distresses, have no bearing save as they involve the physical destruction of capital. Residences may have been looted, but this loot is wealth east of the Meuse as well as west of it.

Machinery may have been shipped home by the conquerors, but it is still productive capital. In no war of the past have the needs of productive power been more apparent as an element of victory. Railroads and factories are too valuable to be destroyed. Germany could not afford to treat Liege as Sherman treated Atlanta. Perhaps Liege was an important point in military strategy. Certainly it was an important point in economic strategy. Whether or not Belgium was the shortest road, it was, anyway, the richest road to Paris. It may be asserted that if forced to retreat the Germans will devastate Belgium and the Allies will ravage Germany. These are predictions too far from present actualities to concern us here.

War's Stimulation

Let us grant, however, genuine destruction of capital, especially in the form of buildings, and a diversion of other capital to the production of war goods rather than to the increase of comforts of peace. Viewed in the light of previous wars such loss has been light compared with the stupendous character of the military operations. Even in past wars the rapid recovery from such losses has always occasioned surprise to most observers. The reason for the recovery, often pointed out but as often forgotten, is that in the ordinary course of our economic life wealth is being constantly consumed—i. e. destroyed—in enormous quantities and as constantly replaced. The destruction in time of war is rather different in kind than in amount. Much is destroyed that would have been preserved in times of peace, but, on the other hand, much is not consumed which would have been used up if war had not come. That margin between maximum production and minimum consumption makes it possible for these losses to be offset during the very war period itself by a more Spartan rigor of life on the part of the people affected. The capacity of a people to produce as much as before is left nearly intact. In another place I have ventured to say that the industrial position of the Northern States was as advanced in 1870 as it would have been had there been no war. The reason was that sacrifices of comfort were made in this decade which would not have been made had peace prevailed. Lest such assertions may seem to offend against elementary principles of political economy, and to represent only a personal vagary, let me cite the authority of John Stuart Mill. One of the most famous chapters of his great treatise published in 1848 is entitled "Fundamental Propositions Respecting Capital." The third of these propositions is that capital, though saved, is constantly consumed. In the course of the discussion he says that this proposition explains a nation's capacity to recover quickly from the effects of war, a capacity, he says, which has been the subject of much "sterile astonishment." After seemingly terrible devastation, in a few years everything is much as it was before. Mill says:

"There is nothing at all wonderful in the matter. What the enemy have destroyed would have been destroyed in a little time by the inhabitants themselves; the wealth which they so rapidly reproduce would have needed to be reproduced and would have been reproduced in any case, and probably in as short an interval. Nothing is changed except that during the reproduction they have not now the advantage of consuming what had been produced previously. The possibility of a rapid repair of their disasters mainly depends on whether the country has been depopulated. If its effective population have not been extirpated at the time, and are not starved afterward, then, with the same skill and knowledge that they had before, with their land and its permanent improvements undestroyed, and the more durable buildings probably unimpaired, or only partially injured, they have nearly all the requisites for their former amount of production. If there is much of food left to them, or of valuables to buy food, as enables them by any amount of privation to remain alive and in working condition, they will in a short time have raised as great a produce and acquired collectively as great wealth and as great a capital as before."

It will be seen that the main problem of recuperation is, to-day practically as Mill put it hypothetically; the problem, namely, as to whether the warring countries will have been depopulated to such an extent as to make a normal resumption of economic production impossible. It has already been claimed above that the war can be continued for some time longer before the toll of death exceeds the reserve labor power of the populations involved. This is more clearly true of the Allies than of the Central Powers. Consider the matter, however, from another point of view. Despite the millions of men under arms, agriculture and industry still continue among the belligerents. They do manage to feed and clothe themselves, to warm their houses, and even, have some homely joys. Even Germany keeps up a vigorous industrial activity, and, were it not for the British fleet, would be ready to send us dyes and toys and many other things as well. "We have shipped enormous quantities of goods to Europe, but except in the ease of a very few commodities these have been but a trifling percentage of the European consumption. When the American Woolen Company announced in October that it had received orders for $22,000,000 worth of goods, this meant only 5 cents per capita of the belligerent populations If the war should be brought to a conclusion without an exhaustive drain on industrial workers now employed, there will be a return of millions into the industrial field to take up the great task of producing that surplus necessary to restore some measure of the earlier standard of life and meet the coming demand for taxes.

Dangers We Face

A distinguished English philosopher and mathematician, the Hon. Bertrand Russell, recently said: "If the war continues much longer, all the men in Europe between twenty and forty will be dead or disabled; the ones who return from the war will...have lost energy and initiative and will drift through life helpless and listless. The next generation will be educated by those who are no longer vigorous. It is likely that pestilence will carry off a large proportion of the civil population.... A large proportion of those who return from the war will become criminal or drunken. All this must be obvious to anyone who has reflected upon the economic condition of Europe after the war."

Such a prediction is not supported by sane reflection, still less by past experience. Similar prophecies were made at the time of our Civil War. Again let me repeat that anything may happen if the war continues a decade and that it can be fought to the point of utter exhaustion. But if it should cease within the next twelve months, the United States would face no such stricken and disheartened Europe as this writer portrays. On the contrary, we would face a grave and determined Europe, made serious by her awful experience, accustomed to sacrifices, to economy and to strenuous exertion, and grimly resolved to repair the ravages of war and restore her commercial power.

Such a situation has been recently described by a leading American diplomatist as "an impending danger to the Republic." It certainly is one demanding grave consideration. There is no occasion for panic or the extreme forms of action born of panic. On the other hand, the American business man should not allow himself to live in a fool's paradise. Strong efforts are being made by bankers and by commercial agencies of the Government to improve the present opportunity for the extension of our foreign and especially our South American trade. The belligerent, nations, however, are not blind to the situation and are already planning their organization for the coming campaign in that quarter. This seems to be true especially of the Germans, but we should not concentrate our gaze too much on that people. Dr. Hill, in the article just referred to, deals only with the German economic organization as an impending danger. "What reason is there to suppose that the competition of England will not be even more prompt and vigorous? It must be evident that Great Britain, Germany, and France after the war must do everything to develop their trade in neutral markets. And better than all collective activities is the individual capacity to deliver cheap goods. In the meantime our own market will be the greatest neutral market of all. Assuredly we want an active trade with Europe, but we want to know what form it will take and make sure that it does not have a disorganizing effect upon our own industries. Certainly the demand for many of our products will continue active in the new European construction.

It is equally certain that the demand for others will cease and large quantities of manufactures be offered here at cost prices. Our own costs will doubtless be inflated—due to the active demand for goods and labor now in progress. Will foreign costs be also relatively raised? This question requires a brief word about, the effect of taxes and the probable course of immigration.

By far the major part of the war loans so far have been raised within the borrowing countries. What will be their effect on industry and prices? It seems to be thought in some quarters that this burden of taxes must be added to costs and will act as a deterrent to industrial expansion. Now, in the first place, the amount of outstanding bonds in a country like Germany, say, represents only relations of ownership. Industrial productivity depends on numbers, skill, resources, machinery, and the like. Directly the question of debt and taxes has nothing to do with it. Indirectly it has; and we must recognize, secondly, that this very burden may lead to a more rapid recovery of productive power. A debt is like any other obstacle; it can be a spur to increased effort or the cause of despair and listlessness. It is the same with a nation as with an individual. When not overwhelming, taxes are an obligation that must be met and which necessitates harder effort and greater economy. They must come out of the incomes of employer and employed, and for that reason the productive capacity must at all hazards be kept up. It is quite possible that bondholders will be more saving than those from whom the taxes are drawn. In that ease, while the sacrifice will be a severe burden on all classes, and necessitate the abandonment of luxuries and many comforts, it will lead to a more rapid increase of capital. Just how the annual output is distributed is a problem for each nation at home or for the humanitarian in general, The problems which interest the American business man who faces foreign competition are what the total national output will be, under what conditions it will be produced, and how great a surplus will be available for export at low prices. On all these matters the burden of taxation will almost assuredly work to increase the intensity of competition rather than diminish it. Goods must be produced and sold in ,large quantities, and foreign markets must be regained, since taxes must be paid. If the debt proves so great that it seems to have a disheartening effect on industry, the payment of interest will be suspended in whole or in part. Default is better than destruction, and destruction means ultimate and complete default.

Grave Immigration Problem

What will be the effect of these conditions on European migration into this country? For confusing divergence of opinion on this question the general reader does not have to go to different authorities. He needs only to read two articles by the commissioner of Immigration at the port of New York. In the November "Review of Reviews," Mr. Howe pictures such a demand for labor in Europe after the war that wages will be very high, the labor group will be in the ascendant politically and economically, and migration will not only be checked but the tide may turn from America to Europe. In "Scribner's" for the same month he limits these favorable conditions of labor to such countries as England, Germany, and France (from which we receive but a handful of immigrants). He then portrays conditions of destitution and burdensome taxation in those countries from which we receive most of our immigrants which will drive the disheartened and helpless in such vast numbers to our shores that we are likely to face "the gravest Immigration problem in our history." One thing is certain: that, in the past, European wars have always been followed by emigration to this country by many who have become homeless or impoverished, or who wished to flee the economic burden of the reconstruction period. The same may fairly be expected after this war. Despite the terrible loss in numbers, there will be such a labor reserve to call on, such need of production in fierce competition for the world market, and such a burden of taxation that the condition of labor, even in the most advanced industrial countries, will not, for some years at least, be one to arouse envy on the part of labor in other parts of the world. Patriotism will stand the strain of tremendous sacrifice of life and property in the midst of a struggle for existence. But when "the tumult and the shouting dies" it is hard to pay taxes year after year with patriotic fervor. Furthermore, the patriotic spirit is not strong among a large part of our usual immigrants. It is not likely in any case that we shall receive immigrants from western Europe. If such a movement should start, it would quite likely be stopped by government action at home. Normally most of our immigrants come from Italy, Austria, Russia, and the Balkans. Barring the Italians, most of these are from a subjected or at least non-dominant portion of the population. The Jews of Russia and the Poles and Slovaks of Austria will feel no moral or racial obstacle against migrating to happier lands. Whether in the end Bulgaria annexes Serbia or Serbia annexes Bulgaria, there will be an oppressed population eager to escape. It may be, as Mr. Howe seems to think, that there will be some revolutionary change in the movement of migrating people. It may also happen that the normal emigration to this country will be renewed. In the absence of conclusive reasoning otherwise, this would seem the safest assumption for the moment. In any case, the manufacturer who wants an influx of labor to meet foreign competition has been unduly alarmed. Those who for economic or social reasons oppose immigration will still have their problem before them.

Antidumping Precautions

In view of the probable economic situation in Europe as outlined above on the assumption that the war may end after twelve months, the question of what preparation this country should make to meet it must be a matter of grave concern to business men and to the Government. Every farsighted manufacturer must figure for himself what his own industry is likely to face. If he belongs to the fortunate group whose products must be purchased by Europe in the course of their industrial reorganization, he can await the issue with complacency. If he belongs to the group which in normal times is forced to meet a more or less active competition from abroad, he must prepare for even stronger competition. It is not possible here to analyze industries in detail. In general it should be obvious that the demand for American products will be chiefly for raw materials and what are called "goods partially manufactured for further use in production."

The one market every nation will most desire is our own. Some people wish to put a wall round it altogether. Some wish to give it away gratis. Almost nobody—(that is, of those in a position to dictate policy) wishes to follow the sane principle of letting out portions of it for a fair price in return. Never has there been such an opportunity to make effective use of this principle as there will be in the commercial reorganization after the war. It cannot be done by provisions for reciprocity treaties, as in the present law, but it can be done by a proper use of the maximum and minimum principle. These are matters too complicated for discussion here; far too complicated for satisfactory treatment in the haste of emergency legislation.

© J. Fred MacDonald, 2013



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