( Originally Published 1917 )
NOTHING surprised me more, as the war developed, than the discovery of the great variety and amount of goods exported from Germany to the United States.
Goods sent from the United States to Germany are mainly prime materials : approximately one hundred and sixty million dollars a year of cotton; seventy-five million dollars of copper; fifteen millions of wheat; twenty millions of animal fats; ten millions of mineral oil and a large amount of vegetable oil. Of course, the amount of wheat is especially variable. Some manufactured goods from America also find their way to Germany to the extent of perhaps seventy millions a year, comprising machinery such as typewriters and a miscellaneous line of machinery and manufactures. The principal exports from Germany to America consist of dye stuffs and chemical dyes, toys, underwear, surgical instruments, cutlery, stockings, knit goods, etc., and a raw material called potash, also known as kali. The last is a mineral found nowhere in the world except in Germany and in a few places in Austria. Potash is essential to the manufacture of many fertilizers, fertilizer being composed as a rule of potash, phosphates and nitrates. The nitrates in past years have been exported to all countries from Chile. Phosphate rock is mined in South Carolina and Florida and several other places in the world. Curiously enough, both nitrates and potash are essential ingredients also of explosives used in war. Since the war, the German supply from Chile was cut off ; but the Germans, following a system used in Norway for many years before the war, established great electrical plants for the extraction of nitrates from the atmosphere. Since the war, American agriculture has suffered for want of potash and German agriculture has suffered for want of phosphates, possibly of nitrates also; because I doubt whether sufficient nitrogen is extracted from the air in Germany to provide for more than the needs of the explosive industry.
The dyestuff industry had been developed to such a point in Germany that Germany supplied the whole world. In the first months of the war some enterprising Americans, headed by Herman Metz, chartered a boat, called The Matanzas, and sent it to Rotterdam where it was loaded with a cargo of German dyestuffs. The boat sailed under the American flag and was not interfered with by the British. Later on the German Department of the Interior, at whose head was Delbrück, refused to allow dyestuffs to leave Germany except in exchange for cotton, and, finally, the export of dyestuffs from Germany ceased and other countries were compelled to take up the question of manufacture. This state of affairs may lead to the establishment of the industry permanently in the United States, although that industry will require protection for some years, as, undoubtedly, Germany in her desperate effort to regain a monopoly of this trade will be ready to spend enormous sums in order to undersell the American manufacturers and drive them out of business.
The commercial. submarines, Deutschland and Bremen, were to a great extent built with money furnished by the dyestuff manufacturers, who hoped that by sending dye-stuffs in this way to America they could prevent the development of the industry there. I had many negotiations with the Foreign Office with reference to this question of dyestuffs.
The export of toys from Germany to the United States forms a large item in the bill which we pay annually to Germany. Many of these toys are manufactured by the people in their own homes in the picturesque district known as the Black Forest. Of course, the war cut off, after a time, the export of toys from Germany; and the American child, having in the meantime learned to be satisfied with some other article, his little brother will demand this very article next Christmas, and thus, after the war, Germany will find that much of this trade has been permanently lost.
Just as the textile trade of the United States was dependent upon the German dyestuffs for colours, so the sugar beet growers of America were dependent upon Germany for their seed. I succeeded, with the able assistance of the consul at Magdeburg and Mr. Winslow of my staff, in getting shipments of beet seed out of Germany. I have heard since that these industries too, are being developed in America, and seed obtained from other countries, such as Russia.
Another commodity upon which a great industry in the United States and Mexico depends is cyanide. The discovery of the cyanide process of treating gold and silver ores permitted the exploitation of many mines which could not be worked under the older methods. At the beginning of the war there was a small manufactory of cyanide owned by Germans at Perth Amboy and Niagara Falls, but most of the cyanide used was imported from Germany. The American German Company and the companies manufacturing in Germany and in Great Britain all operated under the same patents, the British and German companies having working agreements as to the distribution of business throughout the world.
The German Vice-Chancellor and head of the Department of the Interior, Delbrück, put an export prohibition on cyanide early in the war; and most pigheadedly and obstinately claimed that cyanide was manufactured nowhere but in Germany, and that, therefore, if he allowed cyanide to leave Germany for the United States or Mexico the English would capture it and would use it to work South African mines, thus adding to the stock of gold and power in war of the British Empire. It was a long time before the German manufacturers and I could convince this gentleman that cyanide sufficient to supply all the British mines was manufactured near Glasgow, Scotland. He then reluctantly gave a permit for the export of a thousand tons of cyanide; and its arrival in the United States permitted many mines there and in Mexico to continue operations, and saved many persons from being thrown out of employment. When Delbrück finally gave a permit for the export of four thousand tons more of cyanide, the psychological moment had passed and we could not obtain through our State Department a pass from the British.
I am convinced that Delbrück made a great tactical mistake on behalf of the German Government when he imposed this prohibition against export of goods to America. Many manufacturers of textiles, the users of dye stuffs, medicines, seeds and chemicals in all forms, were clamouring for certain goods and chemicals from Germany. But it was the prohibition against export by the Germans which prevented their receiving these goods. If it had been the British blockade alone a cry might have arisen in the United States against this blockade which might have materially changed the international situation.
The Germans also refused permission for the export of potash from Germany. They hoped thereby to induce the United States to break the British blockade, and offered cargoes of potash in exchange for cargoes of cot-ton or cargoes of foodstuffs. The Germans claimed that potash was used in the manufacture of munitions and that, therefore, in no event would they permit the export unless th potash was consigned to the American Government, with guarantees against its use except in the manufacture of fertilizer, this to be checked up by Germans appointed as inspectors. All these negotiations, however, fell through and no potash has been exported from Germany to the United States since the commencement of the war. Enough potash, however, is obtained in the United States for munition purposes from the burning of seaweed on the Pacific Coast, from the brines in a lake in Southern California and from a rock called alunite in Utah. potash is also obtainable from feldspar, but I do not know whether any plant has been established for its production from this rock. I recently heard of the arrival of some potash from a newly discovered field in Brazil, and there have been rumours of its discovery in Spain. I do not know how good this Spanish and Brazilian pot-ash is, and I suppose the German potash syndicate will immediately endeavour to control these fields in order to hold the potash trade of the world in its grip.
It was a long time after the commencement of the war before Great Britain declared cotton a contraband. I think this was because of the fear of irritating the United States; but, in the meantime, Germany secured a great quantity of cotton, which, of course, was used or stored f r the manufacture of powder. Since the cotton imports have been cut off the Germans claim that they are manufacturing a powder equally good by using wood pulp. of course, I have not been able to verify this, absolutely.
Germany had endeavoured before the war in every way to keep American goods out of the German markets, and eve the Prussian state railways are used, as I have shown i' the chapter where I speak of the attempt to establish an oil monopoly in Germany, in order to discriminate against American mineral oils. This same method as been applied to other articles such as wood, which otherwise might be imported from America and in some cases regulations as to the inspection of meat, etc., have proved more effective in keeping American goods out of the market than a prohibitive tariff.
The meat regulation is that each individual package of meat must be opened and inspected; and, of course, when a sausage has been individually made to sit up and bark no one desires it as an article of food thereafter. American apples were also discriminated against in the custom regulations of Germany. Nor could I induce the German Government to change their tariff on canned salmon, an article which would prove a welcome addition to the German diet.
The German workingman, undoubtedly the most exploited and fooled workingman in the world, is compelled not only to work for low wages and for long hours, but to purchase his food at rates fixed by the German tariff made for the benefit of the Prussian Junkers and land-owners.
Of course, the Prussian Junkers excuse the imposition of the tariff on food and the regulations made to prevent the entry of foodstuffs on the ground that German agriculture must be encouraged, first, in order to enable the population to subsist in time of war and blockade; and, secondly, in order to encourage the peasant class which furnishes the most solid soldiers to the Imperial armies.
The nations and business men of the world will have to face after the war a new condition which we may call socialized buying and socialized selling.
Not long after the commencement of the war the Germans placed a prohibitive tariff upon the import of certain articles of luxury such as perfumes; their object, of course, being to keep the German people from sending money out of the country and wasting their money in useless expenditures. At the same time a great institution was formed called the Central Einkauf Gesellschaft. This body, formed under government auspices of men appointed from civil life, is somewhat similar to one of our national defence boards. Every import of raw material into Germany falls into the hands of this central buying company, and if a German desires to buy any raw material for use in his factory he must buy it through this central board.
I have talked with members of this board and they all unite in the belief that this system will be continued after the war.
For instance, if a man in Germany wishes to buy an automobile or a pearl necklace or a case of perfumery, he will be told, "You can buy this if you can buy it in Germany. But if you have to send to America for the automobile, if you have to send to Paris for the pearls or the perfumery, you cannot buy them." In this way the gold supply of Germany will be husbanded and the people will either be prevented from making comparatively useless expenditures or compelled to spend money to benefit home industry.
On the other hand, when a man desires to buy some raw material, for example, copper, cotton, leather, wheat or something of that kind, he will not be allowed to buy abroad on his own hook. The Central Einkauf Gesellschaft will see that all those desiring to buy cotton or copper put in their orders on or before a certain date. When the orders are all in, the quantities called for will be added up by this central board; and then one man, representing the board, will be in a position to go to America to purchase the four million bales of cotton or two hundred million pounds of copper.
The 'German idea is that this one board will be able to force the sellers abroad to compete against each other in their eagerness to sell. The one German buyer will know about the lowest price at which the sellers can sell their product. By the buyer's standing out alone with this great order the Germans believe that the sellers, one by one, will fall into his hands and sell their product at a price below that which they could obtain if the individual sellers of America were meeting the individual buyers of Germany in the open market.
When the total amount of the commodity ordered has been purchased, it will be divided up among the German buyers who put in their orders with the central company, each order being charged with its proportionate share of the expenses of the commission and, possibly, an additional sum for the benefit of the treasury of the Empire.
Before the war a German manufacturer took me over his great factory where fifteen thousand men and women were employed, showed me great quantities of articles made from copper, and said: "We buy this copper in America and we get it a cent and a half a pound less than we should pay for it because our government permits us to combine for the purpose of buying, but your government does not allow your people to combine for the purpose of selling. You have got lots of silly people who become envious of the rich and pass laws to prevent combination, which is the logical development of all industry."
The government handling of exchange during the war was another example of the use of the centralised power of the Government for the benefit of the whole nation.
In the first year of the war, when I desired money to spend in Germany, I drew a check on my bank in New York in triplicate and sent a clerk with it to the different banks in Berlin, to obtain bids in marks, selling it then, naturally, to the highest bidder. But soon the Government stepped in. The Imperial Bank was to fix a daily rate of exchange, and banks and individuals were for-bidden to buy or sell at a different rate. That this fixed rate was a false one, fixed to the advantage of Germany, I proved at the time when the German official rate was 5.52 marks for a dollar, by sending my American check to Holland buying Holland money with them and German money with the Holland money, in this manner obtaining 5.4 marks for each dollar. And just before rmany I sold a lot of American gold to a German bank at the rate of 6.42 marks per dollar, in that day the official rate was 5.54 and a buyer of the gold, because the export of gold den, would have to lose interest on the money on the gold purchased, until the end of the t the Germans thought of the value of the wn by this transaction.
The only thing that can maintain a fair price after the products of American firms, miners and man-is permission to combine for selling abroad. fore Congress a bill called the Webb Bill per-se engaged in export trade to combine, and ich is manifestly for the benefit of the Amerer of raw materials and foods and manufaces, should be passed.
It was also part of our commercial work to secure the exportation from Belgium of American ds seized by Germany. We succeeded in a ases in getting these goods released. In other erican owned property was taken over by ent, but the Americaa owners were compensated for the loss.
With the low wages paid to very efficient workingmen who worked for long hours and with no laws against combination, it was always a matter of surprise to me that the Germans who were in the process of getting all the money in the world should have allowed their military autocracy to drive them into war.
I am afraid that, after this war, if we expect to keep a place for our trade in the world, we may have to revise some of our ideas as to so-called trusts and the Sherman Law. Trusts or combinations are not only permitted, but even encouraged in Germany. They are known there as "cartels" and the difference between the American trust and the German cartel is that the American trust has, as it were, a centralised government permanently taking over and combining the competing elements in any given business, while in Germany the competing elements form a combination by contract for a limited number of years. This combination is called a cartel and during these years each member of the cartel is assigned a given amount of the total production and given a definite share of the profits of the combination. The German cartel, therefore, as Consul General Skinner aptly said, may be likened to a confederation existing by contract for a limited period of time and subject to renewal only at the will of its members.
It may be that competition is a relic of barbarism and that one of the first signs of a higher civilisation is an effort to modify the stress of competition. The debates of Congress tend to show that, in enacting the Sherman Law, Congress did not intend to forbid the restraint of competition among those in the same business but only intended to prohibit the forming of a combination by those who, combined, would have a monopoly of a particular business or product. It is easy to see why all the coal mines in t e country should be prohibited from combining; but it is not easy to see why certain people engaged in the tobacco business should be prohibited from taking their competitors into their combination, because tobacco is a product which could be raised upon millions of acres of our land and cannot be made the subject of a monopoly.
The Ge man courts have expressly said that if prices are so low that the manufacturers of a particular article see financial ruin ahead, a formation of a cartel by them must be looked upon as a justified means of self-preservation. The German laws are directed to the end to which it seems to be such laws should logically be directed; namely, to the prevention of unfair competition.
So long as the question of monopoly is not involved, competition can always be looked for when a combination is making too great profits; and the new and competing corporation and individuals should be protected by law against the danger of price cutting for the express purpose of driving the new competitor out of business. However, it must be remembered that a combination acting unfairly i competition may be more oppressive than a monopoly I myself am not convinced by the arguments of either ide. It is a matter for the most serious study.
The object of the American trust has been to destroy its comptitors. The object of the German cartel to force its competitors to join the cartel.
In fact the government in Germany becomes part of these cartels and takes an active hand in them, as witness the participation of the German Government in the pot-ash syndic ate, when contracts made by certain American buyers w th German mines were cancelled and all the potash producing mines of Germany and Austria forced into one confederation; and witness the attempt by the government, which I have described in another chapter, to take over and make a monopoly of the wholesale and retail oil business of the country.
The recent closer combination of dyestuff industries of Germany, with the express purpose of meeting and destroying American competition after the war, is interesting as showing German methods. For a number of years the dyestuff industry of Germany was practically controlled by six great companies, some of these companies employing as high as five hundred chemists in research work. In 1916 these six companies made an agreement looking to a still closer alliance not only for the distribution of the product but also for the distribution of ideas and trade secrets. For years, these great commercial companies supplied all the countries of the world not only with dyestuffs and other chemical products but also with medicines discovered by their chemists and made from coal tar; which, although really nothing more than patent medicines, were put upon the market as new and great and beneficial discoveries in medicine. The Badische Anilin and Soda Fabrik, with a capital of fifty-four million marks has paid dividends in the ten years from '1903 to 1913, averaging over twenty-six per cent.
The Farbwerke Meister Lucius und Bruning at Hoeckst, near Frankfort, during the same period, with a capital of fifty million marks, has paid dividends aver-aging over twenty-seven per cent;' and the chemical works of Bayer and Company, near Cologne, during the same period with a capital of fifty-four millions of marks has paid dividends averaging over thirty per cent.
Much of the commercial success of the Germans during the last forty years is due to the fact that each manufacturer, each discoverer in Germany, each exporter knew that the whole weight and power of the Government was behind him in his efforts to increase his business. On the other hand, in America, business men have been terrorized, almost into inaction, by constant prosecutions. What was crime in one part of the United States, under one Circuit Court of Appeals, was a perfectly legitimate act in another.
If we have to meet the intense competition of Germany after the war, we have got to view all these problems from new angles. For instance, there is the question of free ports. Representative Murray Hulbert has introduced, in the House of Representatives, a resolution directing the Secretary of the Treasury, the Secretary of War and the Secretary of Commerce to report to Congress as it. the advisability of the establishment of free ports within the limits of the established customs of the United St tes. Free ports exist in Germany and have existed fo a long time, although Germany is a country with a protective tariff. In a free port raw goods are manufacture ed and then exported, of course to the advantage of the country permitting the establishment of free ports because by this manufacture of raw materials and their export, without being subject to duty, money is earned by the manufacturers to the benefit of their own country and employment is given to many working-men. T is, of course, improves the condition of these workingmen and of all others in the country; as it is self-evident t at the employment of each workingman in an industry, which would not exist except for the existence of the free port, withdraws that workingman from the general labour market and, therefore, benefits the position of his remaining fellow labourers.
Although free ports do not exist in the United States, an attempt has been made to give certain industries, by means of what are known as "drawbacks," the same benefit that they would enjoy were free ports existent in our country.
Thus he refiners of raw sugar from Cuba pay a duty on this sugar when it enters the United States, but receive this duty back when a corresponding amount of refined sugar is exported to other countries.
There has lately been an attack made upon this system in the case, however, of the sugar refiners only, and the question has been treated in some newspapers as if these refiners were obtaining some unfair advantage from the government, whereas, as a matter of fact, the allowance of these "drawbacks" enables the sugar refiners to carry on the refining of the sugar for export much as they would if their refineries existed in free ports modelled on the German system.
The repeal of the provision of allowing "drawbacks" in this and other industries will probably send the industries to Canada or some other territory where this system, equivalent to the free port, is permitted to exist.
A few days before I left Germany I had a conversation with a manufacturer of munitions who employs about eighteen thousand people in his factories, which, before the war, manufactured articles other than munitions. I asked him how the government treated the manufacturers of munitions, and he said that they were allowed to make good profits, although they had to pay out a great pro-portion of these profits in the form of taxes on their excess or war profits; that the government desired to encourage manufacturers to turn their factories into factories for the manufacture of all articles in the war and required by the nation in sustaining war; and that the manufacturers would do this provided that it were only a question as to how much of their profits they would be allowed to keep, but that if the Government had attempted to fix prices so low that there would have been a doubt as to whether the manufacturer could make a profit or not, the production of articles required for war would never have reached the high mark that it had in Germany.
As a matter of fact, about the only tax imposed in Germany since the outbreak of the war has been the tax upon cost or war profits. It has been the policy of Germany to pay for the war by great loans raised by popular subscription, after authorisation by the Reichstag. I calculate that the amounts thus raised, together with the floating indebtedness, amount to date to about eighty billions of marks.
For a long time the Germans expected that the expenses of the war would be paid from the indemnities to be recovered by Germany from the nations at war with it.
Helfferich shadowed this forth in his speech in the Reichstag, on August 20, 1915, when he said: "If we wish to have the power to settle the terms of peace ac-cording to our interests and our requirements, then we must not forget the question of cost. We must have in view that the whole future activity of our people, so far as this is at all possible, shall be free from burdens. The leaden weight of billions has been earned by the instigators of this war, and in the future they, rather than we, will drag it about after them."
Of course, by "instigators of the war" Helfferich meant the opponents of Germany, but I think that unconsciously he was a true prophet and that the "leaden weight of the billions" which this war has cost Germany will be dragged about after the war by Germany, the real instigator of this world calamity.
In December, 1915, Helfferich voiced the comfortable plea that, because the Germans were spending their money raised by the war loans in Germany, the weight of these loans was not a real weight upon the German people. He said: "We are paying the money almost exclusively to ourselves; while the enemy is paying its loans abroad a guarantee that in the future we shall maintain the advantage."
This belief of the Germans and Helfferich is one of the notable fallacies of the war. The German war loans have been subscribed mainly by the great companies of Germany; by the Savings Banks, the Banks, the Life and Fire Insurance and Accident Insurance Companies, etc.
Furthermore, these loans have been pyramided; that is to say, a man who subscribed and paid for one hundred thousand marks of loan number one could, when loan number two was called for, take the bonds he had bought of loan number one to his bank and on his agreement to spend the proceeds in subscribing to loan number two, borrow from the bank eighty thousand marks on the security of his first loan bonds, and so on.
There is an annual increment, not easily ascertainable with exactness, but approximately ascertainable to the wealth of every country in the world. Just as when a man is working a farm there is in normal years an increment or accretion of wealth or income to him above the cost of the production of the products of the soil which he sells, there is such an annual increment to the wealth of each country taken as a whole. Some experts have told me they calculated that, at the outside, in prosperous peace times the annual increment of German wealth is ten billion marks.
Now when we have the annual interest to be paid by Germany exceeding the annual increment of the country, the social and even moral bankruptcy of the country must ensue. If repudiation of the loan or any part of it is then forced, the loss naturally falls upon those who have taken the loan. The working-man or small capitalist, who put all his savings in the war loan, is without support for his old age, and so with the man who took insurance in the Insurance Companies or put his savings in a bank. If that bank becomes bankrupt through repudiation of the war loan, you then have the country in a position where the able-bodied are all working to pay what they can to-wards the interest of the government loan, after earning enough to keep themselves and their families alive; and the old and the young, without support and deprived of their savings, become mere poor-house burdens on the community.
Already the mere interest of the war loan of Germany amounts to four billions of marks a year; to this must be added, of course, the interest of the previous indebtedness of the country and of each political subdivision thereof, including cities, all of which have added to their before the war debt, by incurring great debts to help the destitute in this war; and, of course, to all this must be added the expenses of the administration of the government and the maintenance of the army and navy.
It is the contemplation of this state of affairs, when he is convince that indemnities are not to be exacted from other countries, that will do most to persuade the average intelligent German business man that peace must be had at any cost.