Jamie Martin, The Meddlers: Sovereignty, Empire, and the Birth of Global Economic Governance, Harvard University Press, 2022. Hbk $39.5, £31.95.
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RATING: 60
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This is a useful book, complementing Patricia Clavin's excellent Securing the World Economy, but in one crucial respect it misses the point. In his zeal for pursuing the theme of sovereignty versus 'meddling' or interference from abroad, Martin fails to capture the global dimension, and particularly the character and significance of efforts to make global capitalism work. His focus is on the period of transition from UK to US hegemony, his world is one of states subject to some degree of global governance, and his aim is to look back before Bretton Woods (1944) to the years after the end of the First World War, 'when international economic institutions - for the first time in history - began to intervene in the most consequential domestic economic decisions of some of their member states ... [and] oversaw a major transformation in sovereignty and international order, as they reshaped tools of informal empire for a new era of self-determination'. 'The first international economic institutions,' he adds, were designed to defend capitalism and stabilize a European-dominated international order that the First World War had thrown into turmoil' (2): 'Across various domains, international intervention in economic processes became routine, as global markets were embedded in new legal and institutional frameworks, underwritten by a handful of powerful states, empires and banks' (3). Martin looks at the councils created by the allied powers during the First World War to manage supplies of raw materials, foodstuffs and ships; the Economic and Financial Organization of the League of Nations; the League's attempt to promote development in Greece and Nationalist China; the Bank for International Settlements; the interwar regulation of the global production and exchange of tin; and the founding of the IMF. Overall, he says, 'The Meddlers explains how the first international economic institutions developed the power to open the internal economic spaces of sovereign states to the involvement of "outsiders," while attempting to legitimate their actions as a reproducible form of international cooperation, not outright coercion. The challenge faced by the architects of these institutions was to transform potential insults to sovereignty and self-governance into practices of international cooperation that could win broad acceptance, even when these institutions were clearly used for the sake of the strategic interests of rival empires or the profit-making of powerful capitalists' (5).
The basic problem here is that Martin imposes on the inter-war period an analytical framework central to contemporary critical IPE - sovereignty versus 'meddling', or interference - without first approaching the earlier period on its own merits. He does not draw out hints thrown up by his own assiduous archival work - reflected for example in the worry expressed by Montagu Norman, the influential Governor of the Bank of England in 1931, that the failure to restore growth 'would destroy the foundations of the world economy, as countries abandoned the gold standard and even capitalism itself' (129, emphasis mine, and ft. 123, p. 301) - that there was a larger issue at stake. While there is something of interest in each of the case study chapters, they fail to register the extent to which elite actors based in leading states diagnosed a fundamental and perhaps terminal crisis of global capitalism, and therefore came to be concerned primarily not with finding ways to impose on rival states, but rather with creating, often out of the wreck of empire, a world of viable bourgeois states who shared their commitment to capitalist development and had the capacity to hold the line against potentially revolutionary alternatives.
Chapter One, on wartime controls, is interesting in its own right, particularly as regards the significance for munitions and agriculture of nitrates mined in the north of Chile, and the use of the English merchant house of Gibbs to manage price and supply. Predictably, though, these and other controls did not long outlast the war. The US socialist Jessie Hughan was presumably not alone in seeing managed distribution according to need as a precursor of communism, and an un-named official of the British Economic Offensive Committee reflected that the continuation or extension of controls would demand 'a complete change of commercial and industrial opinion throughout the world' (48). It was entirely unacceptable to the United States, and the political and civil society groups that pressed for the League of Nations to be empowered to manage some key commodities, such as the Industrial Women's Organisation, the International Congress of Working Women, and some in the British Labour Party (56-7) were swiftly outflanked. As Martin sharply comments: 'The inter-Allied system had not been an experiment in international administration for its own sake; it was an experiment in inter-imperial economic collusion for the sake of industrialized slaughter' (61).
Chapter Two centres on the collapse of the Austro-Hungarian Empire after the First World War, which 'caused a formerly vast region of free exchange in Europe to shatter into competing national units' (63), and the development, by the Financial Committee of the League of Nations, of 'extensive powers to reach into the domestic realms of a select number of member states' as a consequence of the facilitation of 'stabilisation loans' made conditional on 'domestic schemes of fiscal austerity, the establishment of independent central banks, and the international oversight of sources of public revenue' (65). The first case Martin considers came to nothing. Albania, initially under international control in the wake of its formal independence from the Ottoman Empire in 1913, sought political and financial support from the League, but in the end the mission, headed by Jan Hunger, a Dutch national who been a colonial administrator in Java, failed to make headway and was ended by the Albanian government early in 1924 (71-6). The case of Austria would prove far more substantial. The Austrian Chancellor, Ignaz Seipel, heading the Christian Social party that had only recently replaced the radical Social Democrats in power in circumstances of instability, hyperinflation, and widespread starvation, signed up to a comprehensive programme of financial reconstruction managed by the League that covered the government budget for two years in return for commitments to cease the issue of paper money, achieve a balanced budget, and in the process dismiss 100,000 officials - the latter a significant issue, as Vienna had been the seat of the Empire, and home to a large imperial bureaucracy that was now left without a role.
Martin's account is fine as far as it goes, but it does not identify the nature of the forces and alliances at work, at a moment when the Bolshevik revolution was in its infancy, and class polarisation in Vienna in particular was intense. He addresses class politics only in relation to the issue of foreign interference, and says very little about political economy, returning instead to the question of intervention in a European state, and closing the chapter with a (rather compressed) comparative discussion of 'The Specter of Foreign Control across Europe' (91-8) and beyond. But if he had consulted the very hefty collection of documents relating to the loan published by the League in 1926 he would have come face to face with another dimension to the episode. The 'General Survey' that introduced it was the work of Sir (James) Arthur Salter, the British civil servant and long-time collaborator with Jean Monnet who served as director of the Economic and Financial Section of the League Secretariat; the collection also contained a set of official documents and a brief but important summary of a report on the economic situation of Austria produced by Walter Layton and Professor Charles Rist, commissioned in June 1925 and presented in September.
Salter, whose name crops up repeatedly in The Meddlers, began his survey by identifying the economic consequences of the transition from the empire to a set of independent states:
'This new Austria was not so much the creation of a new country as the remnant left after the frontiers of new adjacent states had been defined. Its attainment of a new economic equilibrium was difficult, for its great capital Vienna included a concentration of population dependent on a system of banking, trade and industry originally adapted to the requirements not of a small country but a great empire. The new frontiers, along which formidable economic barriers were quickly erected, separated the city population from a large part of their normal food supply and the main industries from both their raw materials and their markets' (League of Nations 1926, 9-10, emphasis mine).
And he went on to address the implications, offering at the same time the caution that the economic issues arising were 'outside the Financial Committee's province' (ibid: 20). In doing so, he drew on a 'General Statement as to Austria’s Position' that concluded a Report of the Financial Committee from September 1922, 'Reply of the Financial Committee to Questions Referred by the Austrian Committee of the Council':
'The Financial Committee has necessarily confined its examination of the measures required to re-establish Austrian finances within the sphere of financial considerations. It recognises that, apart from these considerations, there remains the problem of the fundamental economic position of Austria. Austria cannot permanently retain a sound financial position, even if she attains it for the time, and maintain her present population, unless her production is so increased and adapted as (with due allowance, of course, for her important invisible exports) to give her an equilibrium also in her trade balance. This balance is at present seriously adverse, partly, but certainly not wholly, as a result of inflation and currency dislocation. All possible measures, whether by the amelioration of the international economic relations, the encouragement of the conditions which would increase Vienna’s entrepot, financial, and transit business, and of those which will attract further private capital towards the development of her productive resources, are, therefore, of the greatest importance. These are, however, outside the Financial Committee’s province. If the appropriate financial policy is adopted and maintained, the Austrian economic position will adjust itself to an equilibrium, either by the increase of production and the transfer of large classes of its population to economic work, or economic pressure will compel the population to emigrate or reduce it to destitution. At the worst, this would be better than the wholesale chaos and impoverishment of the great mass of the town population which must result from the continuance of the present financial disorganisation, which affords no basis for such economic adaptation as is possible' (ibid: 186).
And in an article contributed to Foreign Affairs in 1924, Salter characterised the context in terms that similarly went beyond the simple issue of 'foreign interference' to highlight class politics at local and international levels. Describing the Austrian loan as ‘a scheme at once constructive and international in character’ (Salter 1924, 630), deployed in a potentially revolutionary situation, he offered the following analysis:
‘A … criticism sometimes made against the scheme is that it has impeded social legislation. During the socialist regime Austria proceeded to enact very rapidly a series of social measures. Five main laws included provision for an eight-hour day, unemployment insurance, workmen’s councils, collective contracts, and a system of conciliation boards. With the passage of these laws social legislation in Austria was, except for the absence of any scheme of old age pensions, advanced by comparison with that of most countries of Europe. These laws have not been annulled, or seriously modified, since the scheme of reconstruction has been in force. But already, before that scheme was begun, the socialist government had been replaced by a bourgeois government, which was naturally not inclined to apply the laws as completely as their predecessors would have wished, still less to pass new measures involving additional expense. The arrest in the development of social measures therefore came originally not from the scheme of reconstruction but from the rejection of the socialist government by the Austrian people. It is of course true that any scheme of which the main basis is economy such as will enable the budget to be balanced, must operate as a restraining force against proposals involving new expense. It is, however, an idle question to ask whether the scheme has impeded social progress. Social measures, however desirable for a country which can afford them, must obviously bear some relation to a country’s financial resources. A more pertinent question is whether the progress achieved is permanent in character, - whether there is any assurance that when the control is terminated Austria can and will remain in the position of self-supporting independence. This is a much more difficult question to answer. All the indications are to the effect that the fundamental economic resources and earning capacity of Austria are such as to enable her to live on a reasonable standard of life and with no impossible changes in the life and occupations of her people. Vienna has been clearly shown to be a source of earning power, a net asset to the country and not a drain upon the resources of the provinces. At the same time it is possible, for the reasons given above, that Austria’s present prosperity is to some extent fictitious and temporary. It is doubtful whether her permanent economic resources are yet sufficiently developed to give her a permanently stable basis of prosperity and independent life, though it is fairly clear that they are capable of such development. It is also true that the maintenance of a budget equilibrium will need a succession of reasonably strong and strict governments, and political conditions which will enable them to avoid unjustified expenditure. Here, again, only the future can give a definite answer’ (ibid, 641-2, emphasis mine).
There is a harsh logic here, right enough. But it clearly reflects a shared bourgeois rather than a rival national perspective, and the ultimate objective, self-evidently too, is to establish Austria as a self-supporting independent bourgeois state. Its logic is the logic of an uncompromising politics of global competitiveness, with the gold standard its point of reference as a disciplinary force - an institution strongly supported not only by Salter but also by Montagu Norman, for whom 'the Austrian crisis provided an opportunity for realizing his broader goals for reshaping postwar Europe by creating independent central banks, insulated from mass politics and linked closely to the Bank of England, to facilitate a return to the gold standard' (82). The thinking here is not captured by the idea of sovereignty versus foreign interference: Norman's goal, achieved in 1925 with catastrophic consequences, was to restore the gold standard as a disciplinary force for the UK too. Nor is it captured by the idea of stabilising capitalism. Rather, those concerned, whether in Austria's bourgeois government or abroad, saw themselves as seeking to establish a new bourgeois state on what they regarded as a sound footing, in what they understood as a potentially revolutionary context in which bourgeois hegemony and global capitalism itself were at risk. All of this was in due course spelled out by the report on the economic situation produced by Layton and Rist (equally strong devotees of the gold standard), in terms that reflected, in my language, whole-hearted acceptance of the global 'laws of motion' of capital.
Salter's introduction itself quoted directly from the report, endorsing its insistence on the need for: ‘the maintenance of a financial policy of strict budgetary equilibrium and monetary stability’, and ‘the continuation of the work already begun in the direction of reducing cost prices throughout industry': 'The reduction in purchasing power all over the world means that in every country competition is keener than before the war, and that the reward will go only to those who can succeed in cutting their costs to the minimum by a combination of economy, efficient administration and scientific development’ (ibid: 66, from p. 45 of the report).
And the short summary of the report included later in the document gave pride of place to this issue of cost reduction:
‘In spite of the severe unemployment of the winter, wages have risen substantially during the last twelve months and the consumption of commodities in common use shows that there has been an improvement in the standard of living. It might seem that there is an apparent contradiction between this statement and the fact that unemployment was higher in 1925 than in 1924, and indeed more severe than at any time since the war, but the explanation is that since the stabilisation of the currency there has been a strong tendency to dispose of superfluous work-people and employees and to re-organise the factories with a view to diminishing the cost of production. In other words the increase of unemployment is a sign not only of deterioration in the economic position but of improvement’ (ibid: 241).
Many of the unemployed, it commented, came from ‘occupations which are over-stocked in proportion to Austria’s present needs,’ and for whom ‘the present Austria offers no economic outlet’; the problem, then, was ‘whether the recovery of her economic life to a normal level will be very protracted or whether it can be hastened in any way’; and Austria's difficulties were exacerbated by high tariff barriers across ‘natural’ markets due to break-up of empire and ‘protectionism of Central Europe’, and by lack of capital, high interest rates, and over-staffing in banking sector. The key requirements in the circumstances, the authors insisted, were for ‘absolute confidence in the stability of the crown [the Austrian currency, the krone, stabilised in 1922-3 and replaced by the schilling in 1925]’, and confidence too in the monetary policy of the national Bank’; the standing of 'the large banking institutions of Vienna whose influence extends over a very wide field in Central and South-eastern Europe’; and ‘the internal political conditions of the country’ (ibid: 242-4). It then adressed doubts as to whether ‘the internal conditions affecting Austria’s industries are such as to permit them to compete effectively in the international market’, concluding that ‘output per head of the workers in the factories … has now recovered to a point which in many cases is equal to pre-war output and in some cases even higher’; that the burdens of social insurance and taxation were high, but no more so, and sometimes less, than in Germany, Czechoslovakia and Italy; and that in short, ‘although there are a number of adjustments which might still be made internally, the factor which will decide whether Austria remains in poverty or is able to recover to a more normal standard of comfort, is her ability to sell her goods abroad. … There is … every reason to think that her economic recovery will be rapid if the tariff barriers of Central Europe are appreciably reduced’ 244-5. When the Economic Committee met on 5 December 1925, it considered the report, stressed the need to provide short- and long-term credits in order to improve productivity in agriculture, and reinforced the need to pursue commercial agreements that would bring tariffs down across the former empire (ibid: 252-7). In short, in his primary focus on sovereignty versus interference it's not that Martin has hold of the wrong end of the stick, but that he has the wrong stick in the first place.
The following chapter, on the creation of the Bank for International Settlements (BIS), is something of a dead end, as Martin covers the period only up to the founding of the Bank in 1930, then reports that with European Central Banks 'sidelined by governments from the center of policy-making' after the collapse of the gold standard, the BIS mostly functioned during the 1940s 'as a meeting place for central bankers, a data collector, and a means of exchanging information. Its larger policy goals were put on ice’ (129). With restoration of the gold standard central to the goal of Montagu Norman and others to 'oversee a return to what they claimed were the sound financial practices required for a capitalist world economy' (99-100), the BIS was envisaged as providing 'smoothing' coordination between individual European central banks (and private investment banks in the US) in such a context. Despite strong minority voices in favour of the envisaged bank being enabled to make loans to develop poor and rebuilding economies (an objective Martin construes in terms of 'the mobilization of capital for particular strategic aims or profit-making opportunities'), 'few of the central bankers involved imagined this was appropriate business for it' (119, 121; cf. 128-9), and it was given no power to do so. As Martin comments, 'the bank was unlikely to be used to realize the internationalist aims of channeling capital into public investment or development projects' (127; cf. 132). Overall, we do not see the Bank in action to any significant extent, and the contribution of the chapter to the question of intervention in sovereign states is indeterminate.
Equally in Chapters Four and Five, on 'The Origins of International Development' ('interventions' in Greece and Nationalist China) and on 'Controlling Commodities' (the efforts of the International Tin Committee to enforce production quotas in order to boost prices), the theme of sovereignty versus intervention conceals as much as it illuminates. For convenience of exposition, I deal briefly with Chapter Five first. Considered in isolation, it offers a fascinating account of the complexity of colonial production and administration. However, it is not a clear-cut case of sovereignty versus international interference, but rather one, in Martin's own judgement, of 'power struggles in the ruling apparatus of the British Empire' (205), in a context in which 'an empire was inviting a partial erosion of its sovereignty for the sake of its prosperity and stability' (208). It registers the catastrophic effect of depression on commodity exporting countries, and valuably details the character of the largely female informal labour force in mining in Malaya (188-9), and the predominance of Indian and Chinese workers. The British government instigated the production control scheme itself, interfering in doing so with the local administration, the Federated Malay States (FMS) government, which 'claimed that the Colonial Office was, in effect, demanding policies that exacerbated local unemployment for the sake of stabilizing global commodity markets' (198). In Martin's words, again, it was 'a conflict between the combined interests of City banks and the Colonial Office against the FMS government' (200). In short, the British Colonial Office acted 'in concert with its Dutch and Bolivian counterparts, without allowing their decisions to be influenced by any political consequences that they had in Malaya. Stabilizing global markets took priority over stabilizing the politics of this particular colony' (204). This was not a case of interference in a sovereign state, but one where considerations of sovereignty took second place to the greater imperative to get global commodity markets working again.
Turning back now to Chapter Four, we find, as with Austria, two more cases of collaborative action to initiate self-sustaining capitalist development. In Greece, the League oversaw a Refugee Loan in 1924, with the intention of settling the population arriving in the wake of the 1919-22 war with Turkey. This was, according to Martin 'the first instance of an international institution attempting to finance the agricultural development of a sovereign member state and enhance the productivity of a vast labor force through private loans that it controlled' (136, emphasis mine). While it is pertinent to register and trace out the manner in which state sovereignty was over-ridden, it is equally important to examine the logic at work. As in the case of Austria, the purpose was to embed capitalist development, in this case by turning refugees into viable small farmers in circumstances where the settlement of over a million people into housing and productive work 'was beyond the financial capacity of the Greek state' (138). Martin pays much more attention to the genuine but at times peripheral tensions created than to the shared interests of the League and the fledgling Greek Republic. And in the case of Nationalist China, he reports, Salter 'thought it was unlikely that conditions were ripe for a large international loan to China', and was of the view that 'financial control had to give way to advising' (167). When invited in 1931, he went to Shanghai to help set up a National Economic Council with Chinese officials and capitalists on its staff 'to design a massive project of economic and infrastructural development' (168):
'When Salter arrived in Shanghai in the spring of 1931, he aimed to involve the League in the domestic economic affairs of a member state in new ways: not only by providing the services of experts without controls, but also by attempting to help the Nationalist government innovate an altogether new form of national economic administration. His immediate task was to help Finance Minister T.V. Soong (Song Ziwen), a US-educated Nationalist technocrat and brother-in-law of Chiang [Kai-Shek], set up an economic council to execute what was effectively a capitalist version of the Soviet Five Year Plan. This council was to have Chinese officials and capitalists on staff and draw on foreign experts to design a massive project of economic and infrastructural development. Unlike the RSC in Greece the Chinese National Economic Council (NEC) would not be removed from government control. Its members would have only advisory, not executive, powers. Soong hoped that centralizing economic policy-making in this council would ameliorate the bureaucratic fragmentation of the state and win the support of powerful domestic capitalists for the development plans that he and Nationalist leader Wang Jingwei sought to prioritize over Chiang's drive for rearmament' (168). As Martin notes, this 'new kind of Sino-foreign joint venture ... involved no derogation of Chinese sovereignty' (170).
Councils of this kind had proliferated across Europe after the war, and Martin comments that: 'Salter had come to support the idea of a limited form of capitalist planning, and was becoming an influential proponent of the idea in Britain. He saw Europe's councils as promising a a way to make economic decision-making more democratic. In a book first published in 1932, and cited here, Recovery: The Second Effort, Salter suggested that linking these councils together through the medium of the League, leading ultimately to the creation of a "world economic council," would make international governance more responsive to the demands of different national interest groups and parties' (169, citing pp. 245-6).
What is missing here, then, is any sustained exploration of the extent to which the interwar period was seen as one in which the survival of capitalism itself was in doubt, lodged as Martin is within a perspective that makes practically everything about tensions between state sovereignty and international governance. So, characteristically, he concludes here that: 'These two League projects represented a vanguard moment in the longer history of international development. In neither case was the institution attempting to innovate a universalizable practice but was instead responding to specific crises and seizing on the opportunities they presented for expanding its powers, reputation, and reach' (175, emphasis mine). This is plain wrong. Further systematic exploration of the League and Foreign Office archives would, I suspect, provide rich evidence that a project was taking shape for the establishment of global capitalism on a sound footing. In the meantime, Salter's Recovery: The Second Effort (2nd edition, 1933, used here) itself provides compelling evidence of precisely the perspective that Martin dismisses. I discuss it at length - two reviews for the price of one.
Salter identifies himself in the opening pages as being among ‘those who have been attempting to re-establish the framework of the world's economic structure’ (5), and later identifies ‘the general world situation’ as ‘the real theme of this book’ (289). Its content bears this out. ‘The clue to the maze of intricate problems through which we have to find our way,’ he suggests, ‘is to be found in the fact that we are now in a stage intermediate between … two systems - the self-regulating, automatic system in which supply adjusted itself to demand under the stimulus of competitive gain, with the guidance of changing prices, and the system under which future needs are estimated, production is directed and controlled, and distribution is organised’ (14). And later:
‘Underlying all the confusions and complications of the present situation we shall find two major causes of disturbance. The first is [that] the conditions no longer exist under which a freely working competitive system can secure an automatic adjustment of the world's economic activities to changing needs; and we have not yet found how best to supplement it by collective guidance and planned direction. And secondly, the authorities through which existing regulation is exercised are, with few and partial exceptions, national, whereas the range of the activities on which their action impinges is world wide. There is thus a constant clash between the normal development of man's economic enterprise, which is independent of national limits, and the national frontiers at which it is impeded and diverted (20, emphasis mine).
The gold standard as an automatic regulator was failing, and the principal cause for Salter was ‘the greater resistance of economic forces to its influences’: ‘It can only achieve its purposes in a flexible economic system which allows its influence to permeate through prices; and if its action is not impeded through deliberate acts of economic policy’ (69). He could as easily have said ‘social’ or ‘political’ forces. From his global perspective, he cast national governments as culprits if they imposed tariffs specifically to protect products and wages that were proving uncompetitive in global markets, thereby distorting the operation of the global price system. Equally, he condemned bankers who lent imprudently, took their commissions, and passed the liability on as soon as possible, and industrialists and workers who lobbied for protection rather than adapt themselves to the imperatives of free global markets:
‘No international currency control … can be satisfactory in a world whose commercial policies are essentially national, and some control or direction of foreign lending also is probably an essential counterpart of it. … Moreover, even if the requisite reforms are achieved in both these spheres, and monetary policy itself is directed wisely, it is difficult to see how it can function as in the past, if the structure of prices and the wage level is, as it is now in varying degrees in different countries, rigid and inflexible. … Monetary policy will in future, as in the past, prove incapable of compelling a change in a national price level and wages level against the determined resistance of both industrialists and wage-earners. Yet there must be occasions on which such changes are necessitated by the international situation. A country which does not make the change will first lose its export trade and then be forced off gold. The only solution, if a stable medium of world trade is to be again established by the restoration of the gold standard, is that both industrialists and the leaders of the workers shall under- stand the position, and co-operate in creating the conditions which will make adjustment possible.’ 80
So while there were technical problems that needed addressing,
‘Much more important … than these technical difficulties are the economic interests and the political forces inevitably created by a protectionist system. When the economic life of a country has been built on a basis of tariffs, it creates a situation which makes radical reform almost impossible. It is not just a matter of a few vested interests (as it is when new tariffs are first proposed); for a vast capital expenditure has been incurred which, if the basis were removed, might be largely lost. A mass of population has become trained and specialised in certain occupations, which they cannot easily change. A national psychology inimical to reform has been created. A prospect of greater but uncertain prosperity is weaker than the apparently certain loss of something already possessed’ (178).
The core argument here, then, is one that long precedes but is familiar from the OECD’s hostility to protectionism and advocacy for product and labour market reforms, World Bank critiques of rent-seeking over decades, and in the hostility of the current guardians of the global logic of capital to ‘populism’:
‘After several years of trying to get into the minds of those who were nominally in control of commercial policies, I came to the conclusion that the secret calculation in most minds was one of the strength of political groups and political pressures on the Government. Nearly all of them were habitually thinking in terms not of the economic policy which they considered, rightly or wrongly, the best for their country, but in terms of the reactions of any given policy upon the groupings of parties and sections on which their political support depended. Nor is this a mere unworthy clinging to office; it is often the only condition under which it is possible to carry on the Government of countries in which preferential protection for sectional interests has become the reward of those who can organise sufficient pressure’ (179).
Understandable as it was, this was the road to ruin:
‘So long as our system is based at all upon competition, the first task of Government is to determine and enforce the rules under which that competition takes place. It is a task of a policeman who maintains an equal law, or of an umpire who keeps the ring. But if the policeman is to spend half his time in dexterously transferring money from one citizen's pocket to another, if the umpire is expected on sufficient persuasion to jump the ropes and administer a stimulant to one of the contestants and a sudden blow or kick to the other, he will have neither the time, nor the character, nor the public respect, which he needs for his primary duties. And the complexity of the essential tasks of Government under modern conditions strains to the utmost the limited resources of man's regulative wisdom, competence and public honesty; there is no margin to spare’ (183-4).
Salter’ objective was ‘stability in the general level of world prices’. He called on the gold-surplus countries, led by the United States, to import more rather than protect their domestic industries in the face of falling prices (185, cf. 294), welcomed proposals then current for a United States of Europe (185-92). And, turning to ‘the permanent foundations of the world’s economic structure’ (194), he described unemployment as ‘at once reflect[ing] the defects of organisation at any given moment and also accompan[ying] the process of reform’ (196), echoing exactly the analysis previously made in the Austrian case:
‘The task of maintenance during intervals of varying activity, and of absorption elsewhere when the number of workers required in a given enterprise is reduced through rationalisation, is thus an integral part of the problem of industrial organisation. We can, however, deal here with none of these special aspects of industrial organisation. We are not now concerned with the way in which productive capacity can be increased, desirable though that is as the means of normal progress, but with the special defects which prevent existing capacity from being utilised. Nor is the particular position of different countries our theme; but the general world depression. The displacement of labour again, from whatever cause it arises, is also from this point of view a part of the general question of the elasticity, the expansive and adaptive quality of the whole economic mechanism. The organisation of industry here concerns us so far as it has contributed to the maladjustments which constitute the depression and may help to correct them’ (197).
In short, competitive nationalism was ‘the world’s chief danger’ (207), as it hindered economic adjustment in a period of rapid change:
‘The world’s economic mechanism has lost its self-adjusting quality. And never was it so much needed. New process succeeds new process; the public taste and demand alter incalculably; and every improvement in the transmission of news and in transport increases both the range and the rapidity of the reactions of every change. The mechanism which adjusts production to new demands; which corrects sporadic excesses of supply; which moves capital where it is needed; which stops, or directs or expands enterprise; which adapts every activity to this shifting environment, needs to be flexible and rapid. And everywhere we see that it is precisely these qualities which it has been losing’ (208).
This in turn threatened the survival of capitalism itself:
The defects of the capitalist system have been increasingly robbing it of its benefits. They are now threatening its existence. A period of depression and crisis is one in which its great merit, the expansion of productive capacity under the stimulus of competitive gain, seems wasted; and its main defect, an increasing inability to utilise productive capacity fully and to distribute what it produces tolerably, is seen at its worst. And, in the mood of desperation caused by impoverishment and unemployment, the challenge of another system becomes more formidable. No one can expect that even if we now get through without disaster, we can long avoid social disintegration and revolution on the widest scale if we have only a prospect of recurring depressions, perhaps of increasing violence’ (209; cf. 281).
Salter’s proposed solution was a system of National Economic Councils, co-ordinating their activity through a general World Economic Council under the aegis of the League of Nations: ‘The National Economic Council in turn needs, to the extent to which economic life is international, to be related to the similar institutions of other countries, and for this purpose a World Economic Council is required, drawing its membership from the National Councils, and associated with the League of Nations as a National Council is with its own Government’ (221).
Much of the book was concerned with the management of reparations and war debts, and I have left that aside. But in the concluding pages Salter returned to the idea of a ‘managed world currency, without the support, or the cost, of gold’ as ‘the ultimate ideal: ‘A concerted world monetary policy, with an International Bank as an instrument to help in applying it, would be of inestimable value to world trade’ (292). On trade, tariffs should be as low as possible, and generally aimed only to raise revenue: ‘They will not however be based upon the fallacy that “difference of cost” should be compensated for by duties, which is destructive of the very foundation of world trade; they will not be “scientifically” adjusted to the varying needs of differing industries, which in practice means offering the powers of government as a spoil to those who organise themselves most efficiently to corrupt it, and endowing an industry in proportion to the incompetence of those who conduct it’ (294). Government was failing ‘because it has become enmeshed in the task of giving discretionary, partial, preferential privileges to competitive industry, by methods which involve detailed examination and subject it to sectional pressure’, and this had to end:
‘Government can again fit itself for its ultimate guardianship of the public good, which cannot either safely or justly be entrusted to any other institution, in five ways. It can rid itself of the task of giving preferential and changing assistance to sectional interests, and so liberate itself at once from an impossible task and from a fatal source of corruption. It can decentralise, by delegation to local authorities under rules which delimit their responsibility and co-ordinate it with the central policy. It can simplify its duties by resolutely confining its decisions (where it does not assume complete responsibility for an enterprise) to a framework of main principles, within which economic activity must find its own adjustments. It can extend its own mechanism by the establishment of varying kinds of mixed institutions in which private management is diluted by an element of public representation. Lastly, Government can, as we have seen, draw into the service of the public the great private institutions which represent the organised activities of the country (Chambers of Commerce, Banking Institutions, Industrial and Labour Organisations, etc.). … And national organisation so developed in each country can be further integrated into an organ of world policy through the great international institutions, the League of Nations and an enlarged and developed International Central Bank’ (297).
Returning briefly to Martin, the final point above foreshadows the thinking that dominated in the establishment of the International Monetary Fund, reflected in Keynes' insistence that the object was 'to reconcile the international economy with new national economic policies' (cited 231). Martin's narrative continues to privilege sovereignty versus interference, without ever grasping the central issues with which the 'meddlers' were concerned in the period.
References
League of Nations. 1926. The Financial Reconstruction of Austria: General Survey and Principal Documents. Geneva.
Salter, Sir Arthur. 1924. 'The reconstruction of Austria', Foreign Affairs, 2, 2, pp. 630-641.
Salter, Sir Arthur. 1933. Recovery: The Second Effort, 2nd edition, London: G. Bell & Sons.
The basic problem here is that Martin imposes on the inter-war period an analytical framework central to contemporary critical IPE - sovereignty versus 'meddling', or interference - without first approaching the earlier period on its own merits. He does not draw out hints thrown up by his own assiduous archival work - reflected for example in the worry expressed by Montagu Norman, the influential Governor of the Bank of England in 1931, that the failure to restore growth 'would destroy the foundations of the world economy, as countries abandoned the gold standard and even capitalism itself' (129, emphasis mine, and ft. 123, p. 301) - that there was a larger issue at stake. While there is something of interest in each of the case study chapters, they fail to register the extent to which elite actors based in leading states diagnosed a fundamental and perhaps terminal crisis of global capitalism, and therefore came to be concerned primarily not with finding ways to impose on rival states, but rather with creating, often out of the wreck of empire, a world of viable bourgeois states who shared their commitment to capitalist development and had the capacity to hold the line against potentially revolutionary alternatives.
Chapter One, on wartime controls, is interesting in its own right, particularly as regards the significance for munitions and agriculture of nitrates mined in the north of Chile, and the use of the English merchant house of Gibbs to manage price and supply. Predictably, though, these and other controls did not long outlast the war. The US socialist Jessie Hughan was presumably not alone in seeing managed distribution according to need as a precursor of communism, and an un-named official of the British Economic Offensive Committee reflected that the continuation or extension of controls would demand 'a complete change of commercial and industrial opinion throughout the world' (48). It was entirely unacceptable to the United States, and the political and civil society groups that pressed for the League of Nations to be empowered to manage some key commodities, such as the Industrial Women's Organisation, the International Congress of Working Women, and some in the British Labour Party (56-7) were swiftly outflanked. As Martin sharply comments: 'The inter-Allied system had not been an experiment in international administration for its own sake; it was an experiment in inter-imperial economic collusion for the sake of industrialized slaughter' (61).
Chapter Two centres on the collapse of the Austro-Hungarian Empire after the First World War, which 'caused a formerly vast region of free exchange in Europe to shatter into competing national units' (63), and the development, by the Financial Committee of the League of Nations, of 'extensive powers to reach into the domestic realms of a select number of member states' as a consequence of the facilitation of 'stabilisation loans' made conditional on 'domestic schemes of fiscal austerity, the establishment of independent central banks, and the international oversight of sources of public revenue' (65). The first case Martin considers came to nothing. Albania, initially under international control in the wake of its formal independence from the Ottoman Empire in 1913, sought political and financial support from the League, but in the end the mission, headed by Jan Hunger, a Dutch national who been a colonial administrator in Java, failed to make headway and was ended by the Albanian government early in 1924 (71-6). The case of Austria would prove far more substantial. The Austrian Chancellor, Ignaz Seipel, heading the Christian Social party that had only recently replaced the radical Social Democrats in power in circumstances of instability, hyperinflation, and widespread starvation, signed up to a comprehensive programme of financial reconstruction managed by the League that covered the government budget for two years in return for commitments to cease the issue of paper money, achieve a balanced budget, and in the process dismiss 100,000 officials - the latter a significant issue, as Vienna had been the seat of the Empire, and home to a large imperial bureaucracy that was now left without a role.
Martin's account is fine as far as it goes, but it does not identify the nature of the forces and alliances at work, at a moment when the Bolshevik revolution was in its infancy, and class polarisation in Vienna in particular was intense. He addresses class politics only in relation to the issue of foreign interference, and says very little about political economy, returning instead to the question of intervention in a European state, and closing the chapter with a (rather compressed) comparative discussion of 'The Specter of Foreign Control across Europe' (91-8) and beyond. But if he had consulted the very hefty collection of documents relating to the loan published by the League in 1926 he would have come face to face with another dimension to the episode. The 'General Survey' that introduced it was the work of Sir (James) Arthur Salter, the British civil servant and long-time collaborator with Jean Monnet who served as director of the Economic and Financial Section of the League Secretariat; the collection also contained a set of official documents and a brief but important summary of a report on the economic situation of Austria produced by Walter Layton and Professor Charles Rist, commissioned in June 1925 and presented in September.
Salter, whose name crops up repeatedly in The Meddlers, began his survey by identifying the economic consequences of the transition from the empire to a set of independent states:
'This new Austria was not so much the creation of a new country as the remnant left after the frontiers of new adjacent states had been defined. Its attainment of a new economic equilibrium was difficult, for its great capital Vienna included a concentration of population dependent on a system of banking, trade and industry originally adapted to the requirements not of a small country but a great empire. The new frontiers, along which formidable economic barriers were quickly erected, separated the city population from a large part of their normal food supply and the main industries from both their raw materials and their markets' (League of Nations 1926, 9-10, emphasis mine).
And he went on to address the implications, offering at the same time the caution that the economic issues arising were 'outside the Financial Committee's province' (ibid: 20). In doing so, he drew on a 'General Statement as to Austria’s Position' that concluded a Report of the Financial Committee from September 1922, 'Reply of the Financial Committee to Questions Referred by the Austrian Committee of the Council':
'The Financial Committee has necessarily confined its examination of the measures required to re-establish Austrian finances within the sphere of financial considerations. It recognises that, apart from these considerations, there remains the problem of the fundamental economic position of Austria. Austria cannot permanently retain a sound financial position, even if she attains it for the time, and maintain her present population, unless her production is so increased and adapted as (with due allowance, of course, for her important invisible exports) to give her an equilibrium also in her trade balance. This balance is at present seriously adverse, partly, but certainly not wholly, as a result of inflation and currency dislocation. All possible measures, whether by the amelioration of the international economic relations, the encouragement of the conditions which would increase Vienna’s entrepot, financial, and transit business, and of those which will attract further private capital towards the development of her productive resources, are, therefore, of the greatest importance. These are, however, outside the Financial Committee’s province. If the appropriate financial policy is adopted and maintained, the Austrian economic position will adjust itself to an equilibrium, either by the increase of production and the transfer of large classes of its population to economic work, or economic pressure will compel the population to emigrate or reduce it to destitution. At the worst, this would be better than the wholesale chaos and impoverishment of the great mass of the town population which must result from the continuance of the present financial disorganisation, which affords no basis for such economic adaptation as is possible' (ibid: 186).
And in an article contributed to Foreign Affairs in 1924, Salter characterised the context in terms that similarly went beyond the simple issue of 'foreign interference' to highlight class politics at local and international levels. Describing the Austrian loan as ‘a scheme at once constructive and international in character’ (Salter 1924, 630), deployed in a potentially revolutionary situation, he offered the following analysis:
‘A … criticism sometimes made against the scheme is that it has impeded social legislation. During the socialist regime Austria proceeded to enact very rapidly a series of social measures. Five main laws included provision for an eight-hour day, unemployment insurance, workmen’s councils, collective contracts, and a system of conciliation boards. With the passage of these laws social legislation in Austria was, except for the absence of any scheme of old age pensions, advanced by comparison with that of most countries of Europe. These laws have not been annulled, or seriously modified, since the scheme of reconstruction has been in force. But already, before that scheme was begun, the socialist government had been replaced by a bourgeois government, which was naturally not inclined to apply the laws as completely as their predecessors would have wished, still less to pass new measures involving additional expense. The arrest in the development of social measures therefore came originally not from the scheme of reconstruction but from the rejection of the socialist government by the Austrian people. It is of course true that any scheme of which the main basis is economy such as will enable the budget to be balanced, must operate as a restraining force against proposals involving new expense. It is, however, an idle question to ask whether the scheme has impeded social progress. Social measures, however desirable for a country which can afford them, must obviously bear some relation to a country’s financial resources. A more pertinent question is whether the progress achieved is permanent in character, - whether there is any assurance that when the control is terminated Austria can and will remain in the position of self-supporting independence. This is a much more difficult question to answer. All the indications are to the effect that the fundamental economic resources and earning capacity of Austria are such as to enable her to live on a reasonable standard of life and with no impossible changes in the life and occupations of her people. Vienna has been clearly shown to be a source of earning power, a net asset to the country and not a drain upon the resources of the provinces. At the same time it is possible, for the reasons given above, that Austria’s present prosperity is to some extent fictitious and temporary. It is doubtful whether her permanent economic resources are yet sufficiently developed to give her a permanently stable basis of prosperity and independent life, though it is fairly clear that they are capable of such development. It is also true that the maintenance of a budget equilibrium will need a succession of reasonably strong and strict governments, and political conditions which will enable them to avoid unjustified expenditure. Here, again, only the future can give a definite answer’ (ibid, 641-2, emphasis mine).
There is a harsh logic here, right enough. But it clearly reflects a shared bourgeois rather than a rival national perspective, and the ultimate objective, self-evidently too, is to establish Austria as a self-supporting independent bourgeois state. Its logic is the logic of an uncompromising politics of global competitiveness, with the gold standard its point of reference as a disciplinary force - an institution strongly supported not only by Salter but also by Montagu Norman, for whom 'the Austrian crisis provided an opportunity for realizing his broader goals for reshaping postwar Europe by creating independent central banks, insulated from mass politics and linked closely to the Bank of England, to facilitate a return to the gold standard' (82). The thinking here is not captured by the idea of sovereignty versus foreign interference: Norman's goal, achieved in 1925 with catastrophic consequences, was to restore the gold standard as a disciplinary force for the UK too. Nor is it captured by the idea of stabilising capitalism. Rather, those concerned, whether in Austria's bourgeois government or abroad, saw themselves as seeking to establish a new bourgeois state on what they regarded as a sound footing, in what they understood as a potentially revolutionary context in which bourgeois hegemony and global capitalism itself were at risk. All of this was in due course spelled out by the report on the economic situation produced by Layton and Rist (equally strong devotees of the gold standard), in terms that reflected, in my language, whole-hearted acceptance of the global 'laws of motion' of capital.
Salter's introduction itself quoted directly from the report, endorsing its insistence on the need for: ‘the maintenance of a financial policy of strict budgetary equilibrium and monetary stability’, and ‘the continuation of the work already begun in the direction of reducing cost prices throughout industry': 'The reduction in purchasing power all over the world means that in every country competition is keener than before the war, and that the reward will go only to those who can succeed in cutting their costs to the minimum by a combination of economy, efficient administration and scientific development’ (ibid: 66, from p. 45 of the report).
And the short summary of the report included later in the document gave pride of place to this issue of cost reduction:
‘In spite of the severe unemployment of the winter, wages have risen substantially during the last twelve months and the consumption of commodities in common use shows that there has been an improvement in the standard of living. It might seem that there is an apparent contradiction between this statement and the fact that unemployment was higher in 1925 than in 1924, and indeed more severe than at any time since the war, but the explanation is that since the stabilisation of the currency there has been a strong tendency to dispose of superfluous work-people and employees and to re-organise the factories with a view to diminishing the cost of production. In other words the increase of unemployment is a sign not only of deterioration in the economic position but of improvement’ (ibid: 241).
Many of the unemployed, it commented, came from ‘occupations which are over-stocked in proportion to Austria’s present needs,’ and for whom ‘the present Austria offers no economic outlet’; the problem, then, was ‘whether the recovery of her economic life to a normal level will be very protracted or whether it can be hastened in any way’; and Austria's difficulties were exacerbated by high tariff barriers across ‘natural’ markets due to break-up of empire and ‘protectionism of Central Europe’, and by lack of capital, high interest rates, and over-staffing in banking sector. The key requirements in the circumstances, the authors insisted, were for ‘absolute confidence in the stability of the crown [the Austrian currency, the krone, stabilised in 1922-3 and replaced by the schilling in 1925]’, and confidence too in the monetary policy of the national Bank’; the standing of 'the large banking institutions of Vienna whose influence extends over a very wide field in Central and South-eastern Europe’; and ‘the internal political conditions of the country’ (ibid: 242-4). It then adressed doubts as to whether ‘the internal conditions affecting Austria’s industries are such as to permit them to compete effectively in the international market’, concluding that ‘output per head of the workers in the factories … has now recovered to a point which in many cases is equal to pre-war output and in some cases even higher’; that the burdens of social insurance and taxation were high, but no more so, and sometimes less, than in Germany, Czechoslovakia and Italy; and that in short, ‘although there are a number of adjustments which might still be made internally, the factor which will decide whether Austria remains in poverty or is able to recover to a more normal standard of comfort, is her ability to sell her goods abroad. … There is … every reason to think that her economic recovery will be rapid if the tariff barriers of Central Europe are appreciably reduced’ 244-5. When the Economic Committee met on 5 December 1925, it considered the report, stressed the need to provide short- and long-term credits in order to improve productivity in agriculture, and reinforced the need to pursue commercial agreements that would bring tariffs down across the former empire (ibid: 252-7). In short, in his primary focus on sovereignty versus interference it's not that Martin has hold of the wrong end of the stick, but that he has the wrong stick in the first place.
The following chapter, on the creation of the Bank for International Settlements (BIS), is something of a dead end, as Martin covers the period only up to the founding of the Bank in 1930, then reports that with European Central Banks 'sidelined by governments from the center of policy-making' after the collapse of the gold standard, the BIS mostly functioned during the 1940s 'as a meeting place for central bankers, a data collector, and a means of exchanging information. Its larger policy goals were put on ice’ (129). With restoration of the gold standard central to the goal of Montagu Norman and others to 'oversee a return to what they claimed were the sound financial practices required for a capitalist world economy' (99-100), the BIS was envisaged as providing 'smoothing' coordination between individual European central banks (and private investment banks in the US) in such a context. Despite strong minority voices in favour of the envisaged bank being enabled to make loans to develop poor and rebuilding economies (an objective Martin construes in terms of 'the mobilization of capital for particular strategic aims or profit-making opportunities'), 'few of the central bankers involved imagined this was appropriate business for it' (119, 121; cf. 128-9), and it was given no power to do so. As Martin comments, 'the bank was unlikely to be used to realize the internationalist aims of channeling capital into public investment or development projects' (127; cf. 132). Overall, we do not see the Bank in action to any significant extent, and the contribution of the chapter to the question of intervention in sovereign states is indeterminate.
Equally in Chapters Four and Five, on 'The Origins of International Development' ('interventions' in Greece and Nationalist China) and on 'Controlling Commodities' (the efforts of the International Tin Committee to enforce production quotas in order to boost prices), the theme of sovereignty versus intervention conceals as much as it illuminates. For convenience of exposition, I deal briefly with Chapter Five first. Considered in isolation, it offers a fascinating account of the complexity of colonial production and administration. However, it is not a clear-cut case of sovereignty versus international interference, but rather one, in Martin's own judgement, of 'power struggles in the ruling apparatus of the British Empire' (205), in a context in which 'an empire was inviting a partial erosion of its sovereignty for the sake of its prosperity and stability' (208). It registers the catastrophic effect of depression on commodity exporting countries, and valuably details the character of the largely female informal labour force in mining in Malaya (188-9), and the predominance of Indian and Chinese workers. The British government instigated the production control scheme itself, interfering in doing so with the local administration, the Federated Malay States (FMS) government, which 'claimed that the Colonial Office was, in effect, demanding policies that exacerbated local unemployment for the sake of stabilizing global commodity markets' (198). In Martin's words, again, it was 'a conflict between the combined interests of City banks and the Colonial Office against the FMS government' (200). In short, the British Colonial Office acted 'in concert with its Dutch and Bolivian counterparts, without allowing their decisions to be influenced by any political consequences that they had in Malaya. Stabilizing global markets took priority over stabilizing the politics of this particular colony' (204). This was not a case of interference in a sovereign state, but one where considerations of sovereignty took second place to the greater imperative to get global commodity markets working again.
Turning back now to Chapter Four, we find, as with Austria, two more cases of collaborative action to initiate self-sustaining capitalist development. In Greece, the League oversaw a Refugee Loan in 1924, with the intention of settling the population arriving in the wake of the 1919-22 war with Turkey. This was, according to Martin 'the first instance of an international institution attempting to finance the agricultural development of a sovereign member state and enhance the productivity of a vast labor force through private loans that it controlled' (136, emphasis mine). While it is pertinent to register and trace out the manner in which state sovereignty was over-ridden, it is equally important to examine the logic at work. As in the case of Austria, the purpose was to embed capitalist development, in this case by turning refugees into viable small farmers in circumstances where the settlement of over a million people into housing and productive work 'was beyond the financial capacity of the Greek state' (138). Martin pays much more attention to the genuine but at times peripheral tensions created than to the shared interests of the League and the fledgling Greek Republic. And in the case of Nationalist China, he reports, Salter 'thought it was unlikely that conditions were ripe for a large international loan to China', and was of the view that 'financial control had to give way to advising' (167). When invited in 1931, he went to Shanghai to help set up a National Economic Council with Chinese officials and capitalists on its staff 'to design a massive project of economic and infrastructural development' (168):
'When Salter arrived in Shanghai in the spring of 1931, he aimed to involve the League in the domestic economic affairs of a member state in new ways: not only by providing the services of experts without controls, but also by attempting to help the Nationalist government innovate an altogether new form of national economic administration. His immediate task was to help Finance Minister T.V. Soong (Song Ziwen), a US-educated Nationalist technocrat and brother-in-law of Chiang [Kai-Shek], set up an economic council to execute what was effectively a capitalist version of the Soviet Five Year Plan. This council was to have Chinese officials and capitalists on staff and draw on foreign experts to design a massive project of economic and infrastructural development. Unlike the RSC in Greece the Chinese National Economic Council (NEC) would not be removed from government control. Its members would have only advisory, not executive, powers. Soong hoped that centralizing economic policy-making in this council would ameliorate the bureaucratic fragmentation of the state and win the support of powerful domestic capitalists for the development plans that he and Nationalist leader Wang Jingwei sought to prioritize over Chiang's drive for rearmament' (168). As Martin notes, this 'new kind of Sino-foreign joint venture ... involved no derogation of Chinese sovereignty' (170).
Councils of this kind had proliferated across Europe after the war, and Martin comments that: 'Salter had come to support the idea of a limited form of capitalist planning, and was becoming an influential proponent of the idea in Britain. He saw Europe's councils as promising a a way to make economic decision-making more democratic. In a book first published in 1932, and cited here, Recovery: The Second Effort, Salter suggested that linking these councils together through the medium of the League, leading ultimately to the creation of a "world economic council," would make international governance more responsive to the demands of different national interest groups and parties' (169, citing pp. 245-6).
What is missing here, then, is any sustained exploration of the extent to which the interwar period was seen as one in which the survival of capitalism itself was in doubt, lodged as Martin is within a perspective that makes practically everything about tensions between state sovereignty and international governance. So, characteristically, he concludes here that: 'These two League projects represented a vanguard moment in the longer history of international development. In neither case was the institution attempting to innovate a universalizable practice but was instead responding to specific crises and seizing on the opportunities they presented for expanding its powers, reputation, and reach' (175, emphasis mine). This is plain wrong. Further systematic exploration of the League and Foreign Office archives would, I suspect, provide rich evidence that a project was taking shape for the establishment of global capitalism on a sound footing. In the meantime, Salter's Recovery: The Second Effort (2nd edition, 1933, used here) itself provides compelling evidence of precisely the perspective that Martin dismisses. I discuss it at length - two reviews for the price of one.
Salter identifies himself in the opening pages as being among ‘those who have been attempting to re-establish the framework of the world's economic structure’ (5), and later identifies ‘the general world situation’ as ‘the real theme of this book’ (289). Its content bears this out. ‘The clue to the maze of intricate problems through which we have to find our way,’ he suggests, ‘is to be found in the fact that we are now in a stage intermediate between … two systems - the self-regulating, automatic system in which supply adjusted itself to demand under the stimulus of competitive gain, with the guidance of changing prices, and the system under which future needs are estimated, production is directed and controlled, and distribution is organised’ (14). And later:
‘Underlying all the confusions and complications of the present situation we shall find two major causes of disturbance. The first is [that] the conditions no longer exist under which a freely working competitive system can secure an automatic adjustment of the world's economic activities to changing needs; and we have not yet found how best to supplement it by collective guidance and planned direction. And secondly, the authorities through which existing regulation is exercised are, with few and partial exceptions, national, whereas the range of the activities on which their action impinges is world wide. There is thus a constant clash between the normal development of man's economic enterprise, which is independent of national limits, and the national frontiers at which it is impeded and diverted (20, emphasis mine).
The gold standard as an automatic regulator was failing, and the principal cause for Salter was ‘the greater resistance of economic forces to its influences’: ‘It can only achieve its purposes in a flexible economic system which allows its influence to permeate through prices; and if its action is not impeded through deliberate acts of economic policy’ (69). He could as easily have said ‘social’ or ‘political’ forces. From his global perspective, he cast national governments as culprits if they imposed tariffs specifically to protect products and wages that were proving uncompetitive in global markets, thereby distorting the operation of the global price system. Equally, he condemned bankers who lent imprudently, took their commissions, and passed the liability on as soon as possible, and industrialists and workers who lobbied for protection rather than adapt themselves to the imperatives of free global markets:
‘No international currency control … can be satisfactory in a world whose commercial policies are essentially national, and some control or direction of foreign lending also is probably an essential counterpart of it. … Moreover, even if the requisite reforms are achieved in both these spheres, and monetary policy itself is directed wisely, it is difficult to see how it can function as in the past, if the structure of prices and the wage level is, as it is now in varying degrees in different countries, rigid and inflexible. … Monetary policy will in future, as in the past, prove incapable of compelling a change in a national price level and wages level against the determined resistance of both industrialists and wage-earners. Yet there must be occasions on which such changes are necessitated by the international situation. A country which does not make the change will first lose its export trade and then be forced off gold. The only solution, if a stable medium of world trade is to be again established by the restoration of the gold standard, is that both industrialists and the leaders of the workers shall under- stand the position, and co-operate in creating the conditions which will make adjustment possible.’ 80
So while there were technical problems that needed addressing,
‘Much more important … than these technical difficulties are the economic interests and the political forces inevitably created by a protectionist system. When the economic life of a country has been built on a basis of tariffs, it creates a situation which makes radical reform almost impossible. It is not just a matter of a few vested interests (as it is when new tariffs are first proposed); for a vast capital expenditure has been incurred which, if the basis were removed, might be largely lost. A mass of population has become trained and specialised in certain occupations, which they cannot easily change. A national psychology inimical to reform has been created. A prospect of greater but uncertain prosperity is weaker than the apparently certain loss of something already possessed’ (178).
The core argument here, then, is one that long precedes but is familiar from the OECD’s hostility to protectionism and advocacy for product and labour market reforms, World Bank critiques of rent-seeking over decades, and in the hostility of the current guardians of the global logic of capital to ‘populism’:
‘After several years of trying to get into the minds of those who were nominally in control of commercial policies, I came to the conclusion that the secret calculation in most minds was one of the strength of political groups and political pressures on the Government. Nearly all of them were habitually thinking in terms not of the economic policy which they considered, rightly or wrongly, the best for their country, but in terms of the reactions of any given policy upon the groupings of parties and sections on which their political support depended. Nor is this a mere unworthy clinging to office; it is often the only condition under which it is possible to carry on the Government of countries in which preferential protection for sectional interests has become the reward of those who can organise sufficient pressure’ (179).
Understandable as it was, this was the road to ruin:
‘So long as our system is based at all upon competition, the first task of Government is to determine and enforce the rules under which that competition takes place. It is a task of a policeman who maintains an equal law, or of an umpire who keeps the ring. But if the policeman is to spend half his time in dexterously transferring money from one citizen's pocket to another, if the umpire is expected on sufficient persuasion to jump the ropes and administer a stimulant to one of the contestants and a sudden blow or kick to the other, he will have neither the time, nor the character, nor the public respect, which he needs for his primary duties. And the complexity of the essential tasks of Government under modern conditions strains to the utmost the limited resources of man's regulative wisdom, competence and public honesty; there is no margin to spare’ (183-4).
Salter’ objective was ‘stability in the general level of world prices’. He called on the gold-surplus countries, led by the United States, to import more rather than protect their domestic industries in the face of falling prices (185, cf. 294), welcomed proposals then current for a United States of Europe (185-92). And, turning to ‘the permanent foundations of the world’s economic structure’ (194), he described unemployment as ‘at once reflect[ing] the defects of organisation at any given moment and also accompan[ying] the process of reform’ (196), echoing exactly the analysis previously made in the Austrian case:
‘The task of maintenance during intervals of varying activity, and of absorption elsewhere when the number of workers required in a given enterprise is reduced through rationalisation, is thus an integral part of the problem of industrial organisation. We can, however, deal here with none of these special aspects of industrial organisation. We are not now concerned with the way in which productive capacity can be increased, desirable though that is as the means of normal progress, but with the special defects which prevent existing capacity from being utilised. Nor is the particular position of different countries our theme; but the general world depression. The displacement of labour again, from whatever cause it arises, is also from this point of view a part of the general question of the elasticity, the expansive and adaptive quality of the whole economic mechanism. The organisation of industry here concerns us so far as it has contributed to the maladjustments which constitute the depression and may help to correct them’ (197).
In short, competitive nationalism was ‘the world’s chief danger’ (207), as it hindered economic adjustment in a period of rapid change:
‘The world’s economic mechanism has lost its self-adjusting quality. And never was it so much needed. New process succeeds new process; the public taste and demand alter incalculably; and every improvement in the transmission of news and in transport increases both the range and the rapidity of the reactions of every change. The mechanism which adjusts production to new demands; which corrects sporadic excesses of supply; which moves capital where it is needed; which stops, or directs or expands enterprise; which adapts every activity to this shifting environment, needs to be flexible and rapid. And everywhere we see that it is precisely these qualities which it has been losing’ (208).
This in turn threatened the survival of capitalism itself:
The defects of the capitalist system have been increasingly robbing it of its benefits. They are now threatening its existence. A period of depression and crisis is one in which its great merit, the expansion of productive capacity under the stimulus of competitive gain, seems wasted; and its main defect, an increasing inability to utilise productive capacity fully and to distribute what it produces tolerably, is seen at its worst. And, in the mood of desperation caused by impoverishment and unemployment, the challenge of another system becomes more formidable. No one can expect that even if we now get through without disaster, we can long avoid social disintegration and revolution on the widest scale if we have only a prospect of recurring depressions, perhaps of increasing violence’ (209; cf. 281).
Salter’s proposed solution was a system of National Economic Councils, co-ordinating their activity through a general World Economic Council under the aegis of the League of Nations: ‘The National Economic Council in turn needs, to the extent to which economic life is international, to be related to the similar institutions of other countries, and for this purpose a World Economic Council is required, drawing its membership from the National Councils, and associated with the League of Nations as a National Council is with its own Government’ (221).
Much of the book was concerned with the management of reparations and war debts, and I have left that aside. But in the concluding pages Salter returned to the idea of a ‘managed world currency, without the support, or the cost, of gold’ as ‘the ultimate ideal: ‘A concerted world monetary policy, with an International Bank as an instrument to help in applying it, would be of inestimable value to world trade’ (292). On trade, tariffs should be as low as possible, and generally aimed only to raise revenue: ‘They will not however be based upon the fallacy that “difference of cost” should be compensated for by duties, which is destructive of the very foundation of world trade; they will not be “scientifically” adjusted to the varying needs of differing industries, which in practice means offering the powers of government as a spoil to those who organise themselves most efficiently to corrupt it, and endowing an industry in proportion to the incompetence of those who conduct it’ (294). Government was failing ‘because it has become enmeshed in the task of giving discretionary, partial, preferential privileges to competitive industry, by methods which involve detailed examination and subject it to sectional pressure’, and this had to end:
‘Government can again fit itself for its ultimate guardianship of the public good, which cannot either safely or justly be entrusted to any other institution, in five ways. It can rid itself of the task of giving preferential and changing assistance to sectional interests, and so liberate itself at once from an impossible task and from a fatal source of corruption. It can decentralise, by delegation to local authorities under rules which delimit their responsibility and co-ordinate it with the central policy. It can simplify its duties by resolutely confining its decisions (where it does not assume complete responsibility for an enterprise) to a framework of main principles, within which economic activity must find its own adjustments. It can extend its own mechanism by the establishment of varying kinds of mixed institutions in which private management is diluted by an element of public representation. Lastly, Government can, as we have seen, draw into the service of the public the great private institutions which represent the organised activities of the country (Chambers of Commerce, Banking Institutions, Industrial and Labour Organisations, etc.). … And national organisation so developed in each country can be further integrated into an organ of world policy through the great international institutions, the League of Nations and an enlarged and developed International Central Bank’ (297).
Returning briefly to Martin, the final point above foreshadows the thinking that dominated in the establishment of the International Monetary Fund, reflected in Keynes' insistence that the object was 'to reconcile the international economy with new national economic policies' (cited 231). Martin's narrative continues to privilege sovereignty versus interference, without ever grasping the central issues with which the 'meddlers' were concerned in the period.
References
League of Nations. 1926. The Financial Reconstruction of Austria: General Survey and Principal Documents. Geneva.
Salter, Sir Arthur. 1924. 'The reconstruction of Austria', Foreign Affairs, 2, 2, pp. 630-641.
Salter, Sir Arthur. 1933. Recovery: The Second Effort, 2nd edition, London: G. Bell & Sons.