The Destiny of Europe



MAY 1937

[THE author of this paper, an expert in finance and government, has returned from Europe after having held a series of penetrating conversations with officials, statisticians, and economists of rank. Beginning with the hard knot of international credit, he discloses secrets of national destiny. — THE EDITORS]


IN the autumn of 1936 a financial arrangement was contrived by the three great commercial nations that have for one hundred years dominated war-making and peace-making in Western Europe and the North Atlantic. By virtue of this compact between the United States, France, and Great Britain, no one of the participating governments would countenance, much less assist, any effort on the part of its own citizens or on that of foreigners to depress its currency in international markets. Each participating country would be prepared to furnish gold from its exchange fund or central bank, at the market price of gold, to balance its accounts with the exchange fund or central bank of each of the other participating countries, in terms of their currencies. Each country might or might not be called upon to furnish gold, but it must be ready to do so. Each country would see to it that enough of the currency of each of the other participating countries would be purchased from the central bank or exchange fund of that country to meet the legitimate trade requirements of its own citizens. There was virtually a free market for gold as between the three treasuries and three central banks, with the basic limitation that the Treasury of the United States had a rigid commitment to take all gold entering this country, or produced within it, at thirty-five dollars an ounce.

The understanding — implemented by administrative measures in subsequent months — was extended later to include three other countries, the Netherlands, Belgium, and Switzerland; but there are no reciprocal commitments between any one of the last-named countries and either Great Britain or France — only between each of the three countries ‘adhering’ to the agreement and the United States. Other countries may later see fit to adhere to the arrangement, assuming reciprocal commitments with the United States. Such countries will assume the responsibility for furnishing dollars for the needs of trade between their citizens and those of the United States, and their own currencies when the American Treasury’s Stabilization Fund wishes to accumulate holdings therein so as to satisfy requirements of American importers from those countries or American capital exploiting natural resources in those countries. But the American Treasury insists upon the right to convert its holdings of such currencies into gold at a day’s notice, when it deems it wise to lighten accumulations that have grown too heavy.

Copyright 1937, by The Atlantic Monthly Company, Boston, Mass. All rights reserved.

Of course there are countries that find it indispensable to fall in with the humor in which our government happens to be. France had to find some international mask for the devaluation of last September, and any arrangement with Washington would have been useful then, perhaps later serving as a bridge to more satisfactory coöperation. Great Britain was willing to support the franc for a number of reasons, and did not wish to be left out of any understanding between Washington and Paris. Switzerland, the Netherlands, and Belgium were vitally concerned with large capital movements; and they could therefore bring themselves to take a step which involved some serious disadvantages. But countries with small gold reserves cannot commit themselves to provide for the convertibility of their currencies into gold at the request of Washington. After all, only creditor countries can have much interest in Washington’s undertaking to furnish enough of their currencies to American interests having payments to make to their citizens.

There was no commitment assumed by anyone, explicitly or collaterally, with respect to the relative values of the currencies concerned. The hope was expressed that the exchange rates then prevailing would be maintained; but no one undertook to see that they would continue to prevail. Apparently Washington authorities felt that the pound could remain worth $4.90 or $5.00, or somewhat less, more or less indefinitely; and that a range of from four to five cents for the franc would be equally practicable to maintain. But in London a distinctly different view prevailed. If the normal pressure of trade or of capital movements (including the pressure of the repatriation of funds held abroad by American banks and investors) should tend to weaken the pound in terms of dollars, Great Britain would not resist it to the extent of sacrificing her resources, merely to guarantee any given ratio of pound to dollar. The British could not do more than smooth out the ‘natural’ process if the pound should drift down to $4.70 or $4.50, because of heavy commodity movements from the United States to England, or because of transfers of funds from England to the United States.

It is not alone to the United States that the British politely decline to give hostages for fixed exchange rates. The unanimous view of the Continental authorities has been for a year that England should fix a new gold content of the pound and be done with it. But England, so far as any concrete and articulate expression of policy is to be had, maintains that she cannot fix that content so long as London has some 350 to 400 million pounds in the form of demand deposits of foreign origin, or foreign holdings of British securities — money of which much may be poised and ready to take flight as soon as the pound is fixed. Such an outflow would derange the exchange machinery severely, and send up short-term money rates in a fashion altogether out of keeping with the objectives of British Treasury floating-debt operations and rearmament financing.

Formulas like that of the financial coöperation of last September acquire a meaning only after circumstances and events have poured a content into them. Time and the growth of mutual confidence will be required to have this arrangement mean anything more than a transitory act to assist France without curbing, even for a day, the appetite of Washington’s Golden Hoard.

If, gradually, a sufficient degree of reciprocal confidence is built up between the respective treasuries and central banks, it is possible that fluctuations in exchange can be ironed out to the minimum, even though the American Fund has to acquire very large holdings of European currencies, forbearing to convert these at once into gold.

If this state of affairs were to last long enough, presumably the American Government could one day bring itself to announce the permanent stabilization of the dollar, so as to represent about 13 1/2 grains of fine gold, provided that the pound were then given a value of, say, $4.80. The way would then be clear for other countries to adjust their currencies, if not already ‘aligned’ with the debased dollar and depreciated pound, to calculable international ratios.

But if the understanding of September is not destined to operate successfully, what may occur? The Treasury at Washington may accumulate foreign currencies in volume, and from time to time press hard on the London free market, actually weakening in the future the monetary structures it professes to wish to strengthen. Our resources are such that we can go on creating an imposing fabric of public and private indebtedness for a long time before the first ominous rumble of collapse would be heard. That indebtedness bears no direct or contractual relation to the precious metal legally represented by our currency. If we implacably absorb the gold and silver that the rest of the world owns, or can produce (and produce from deposits deeper or harder to work than those prudently worth while operating when 23 1/5 grains of gold brought only $20.67), then are we not running the risk of trying the patience of the rest of the world beyond endurance? Gradually it may dawn on us that for this gold and silver we are giving goods and services, and thereby interweaving our economic life more closely with that of the rest of the world while both we and they profess and practise varying types of aggressive economic nationalism.

But no practical value can attach to a discussion of the future of monetary and financial cooperation between the United States and other countries which leaves out of account four topics: the trade balance, the armament race, the budgetary outlook, and the wardebt negotiations. The briefest summary of certain aspects of these factors seems in order in this place.


The recovery of trade, in terms of volume, is observable throughout Western Europe. It has been most rapid in England, where its start was rooted in the policies of domestic nationalism in 1931-1932 and later. A great demand for housing accommodations made itself felt in the last ten years: for there were more marriages per thousand inhabitants than in any previous period, owing to the fact that the demographic distribution in England just prior to the war showed an exceptional number of children, in spite of the already declining reproduction rate. This housing demand, together with the large-scale municipal and cooperative improvements in housing, will probably account for the investment, all told, from 1933 to 1937 of over 200 million pounds, according to authoritative calculations. It has been the chief stimulation that English industry has enjoyed, and it has set going all sorts of secondary activities. Low interest rates have prevailed, thanks in part to the good sense of the Building Societies, and thanks, too, to the presence in London of fugitive money.

Apart from housing, there has been in England a recovery in shipbuilding, and in the so-called engineering trades. Agriculture, too, has improved remarkably, as a result of market regulation, grading standards, and a number of subsidies. This improvement in agriculture has been at heavy cost, as the London taxpayers view it, for it has steadily invited collision with the interests of countries normally heavy consumers of British manufactures paid for in agricultural products. But the selfsufficiency argument, based on military and naval considerations, now outweighs every adverse economic point.

International trade, as between European countries themselves, was better in volume at the beginning of 1937 than it had been at the end of 1935; earnings were beginning to show an improvement reflecting the debasement of currencies and the corresponding rise in prices. Expansion has had to struggle against some fairly formidable obstacles in the last two years, for even rearmament programmes serve initially to derange other and less spectacularly profitable industrial and commercial activities. Since devaluation, the shipbuilding industry of the Netherlands has received encouraging orders for motor ships of from five to ten thousand tons, from Scandinavia, Poland, and elsewhere; and the Dutch engineering trades have picked up some business. Switzerland and France have also received some additional foreign business for their characteristic products, and their tourist trade is recovering. Long before devaluation, commodity prices and railroad and hotel rates had all been reduced in both countries. Although not yet in sight of compensating fully for the devaluation of the French franc, prices in France are markedly higher than they were last spring. In the case of building contracts, automobiles, and other capital items or quasi-capital expenditures, the upswing has been causing uneasiness and much shaking of heads over the wisdom of the ‘indeterminate’ devaluation, whereby an elastic ratio of one franc representative of something between 43 and 49 milligrams of gold was established. From the beginning, the French themselves have generally felt that the experimental value of 46 milligrams would be abandoned, and the franc ultimately lowered to 43 milligrams. This reduction may have to be resorted to if the latest step to create a free market for gold should prove ineffective.

With Latin America and North America, Africa, Australia, and the Far East, European trade is genuinely better, even in terms of volume. Devaluation all round has once more enhanced the purchasing power of those countries which produce raw materials. The Argentine, South Africa, and Australia lead the way. South Africa’s recovery has been, of course, a by-product of the rise in the price of gold brought about by the Government of the United States since 1933. Just as raw-material countries are the first to be prostrated by slumps, and the victims of really acute paralysis of money economy in any form, just so are they the first to experience abrupt and radical recovery through all branches of production. Europe is increasing her exports to the raw-material countries. It is quite apparent that if labor costs stay down in Europe, taken as a whole, while they are rising in the United States, Canada, Australia, South Africa, and Latin America (at different rates, of course), nothing can prevent Europe, as a whole, from recovering the bulk of her former export trade with the countries mentioned — even with the United States and Canada. The imports into the United States of European manufactured goods during 1937 are destined to be substantial.

On the other hand, Europe as a whole is beginning to import increased quantities of raw materials. Partly is this the case because of manufacturing requirements of ordinary industry, but more particularly is it the consequence of programmes for rearmament.


The nature and extent of rearmament are beyond the scope and purpose of this discussion. Yet everyone in Europe is aware that much is going on. A quiet exodus from city dwellings into houses inconspicuous from the air and relatively distant has been under way for a year or two in more than one capital; and the construction of bombproof cellars is now a common occurrence. There are thousands and thousands of planes in Europe and Asia, as a whole, many of them capable of a speed of two hundred miles an hour even though carrying one or more immense bombs, each of which is capable of leveling a good-sized city block. Great subterranean airports have been constructed, with capacities for hundreds of planes, together with plants for their repair, for the manufacture of munitions, and for the generation of power, as well as living accommodations for large forces of men. It is known that behind certain frontiers cannon of vast range have been placed. Along other frontiers all the intersecting roads are mined, while an almost unbroken wall of steel rails, deeply imbedded in the soil and interlocked so as to be heavily charged with electricity, will arrest, if only for a few days, the progress of tanks and trucks. What one country develops, with no matter what secrecy, the others find out. Espionage is rampant. And each country must have at least as good an equipment as its potential enemy. The race in preparation must in a short time reach a point, for all but the richest nations, where the risks of war itself are no greater than those of obsolescence.

For what are they all preparing? England wants no war anywhere; France wants none. Italy, surely, has had enough of war and has a generation of developmental work in an unresponsive area ahead of her; and Germany — no one really knows her wishes. The German Government constantly insists that it wishes only peace and to be left alone; but in the next breath it heaps provocative abuse and menaces on Russia. German efforts to absorb Austria have been abandoned, and so far Mussolini has won the game over the control of Central and Southeastern Europe. He has blocked Germany by force and brutal negative while he has sought to outbid her in Vienna, Budapest, Athens, Ankara, Bucharest, Sofia, and even Prague and Beograd. But the two great totalitarian States have one thing in common — determination that Communism shall not triumph in Spain. They appear ready to go far to prevent it; the action of each will be independent of that of the other, but if action by both comes it will come so promptly as to seem concerted. The French authorities know this; and they are sincerely doing their best to hold Europe back from war.

There is far less sympathy with Largo Caballero and his Communist-Anarchist allies in France than is generally supposed in the United States. French Communist leaders seem disposed to try to persuade the workers that Blum is another bourgeois politician in disguise, and that the Socialist deputies should be replaced by Communist deputies in the next election. The bitterness between the Communists and Socialists in the Chamber exceeds that between Socialists and Republicans. Blum is gravitating toward a loose and tacit working arrangement with the liberal groups in the Centre. His domestic policies show this; his foreign policies more sharply still. French Socialists realize that a Communist victory in Spain would permanently place French Socialism between two fires at home — militant Communism desirous of copying Spain, and a terrifying recrudescence of man-on-horseback sentiment. What they would wish in Spain now is a compromise of such a character as to preserve the radical structure of government, but to subordinate greatly the extreme elements (Communistic or Anarchistic).

Does Russia want war now? What are the real objectives of Japan? Does the German-Japanese treaty offset the Franco-Russian? Here we approach the most critical and at the same time most complex problems that to-day confront mankind. The writer shares the conviction of many observers of the trend of European affairs that Russia is destined to be the dominant figure in world politics over most of the next twoscore years, in the sense in which the British Empire held that role from the eclipse of the Second Empire in France until the eve of the Great War.

Russia is neither European nor Asiatic, but Eurasian. For twenty years her destinies have been in the hands of personalities fundamentally Asiatic in background and outlook; and her chief significance in the world has been that of an Asiatic revolt against European systems of thought, philosophy, religion, morality, economics, and politics. Like Japan, she has availed herself of Western technology in any obtainable way — dumping her raw materials over the world this last decade, just as Japan dumped her cheap textiles and other products, to get dollars, sterling, and other currencies. The foreign exchange thus scooped together has been invested in the apparatus of capitalgoods production: hydroelectric installations, mining machinery, textile machinery, steel plants, chemical plants, laboratories, agricultural experiment stations, model fisheries, and so on. It is not good will looking to permanent markets at which Japan and Russia aim; it is immediate cash proceeds available to be invested in the technological developments of the Western World, in turn intended to extract the raw materials of Asia so as to create great, new, independent economic systems of their own. They may or may not fight now, or within a half-dozen years, for the leadership of Asia; but whether they fight or not, they will eventually divide between them the huge field of Asiatic exploitation, and together exert the power of attraction over subsidiary areas of economic activity, such as those of Southeastern Asia and that great stretch of land between Egypt and the Persian Gulf which for forty centuries has been the meeting place of ideas and races and a starting point of history, and which to-day constitutes such a reservoir of mineral wealth.


The great nations of Europe really sense, if they do not clearly perceive, this rearrangement of the constellations of earthly power. The German nervousness is not merely the result of the accidental associations of Adolf Hitler and his fellow adventurers before arriving in power; it is a recognition of something the statesman Bismarck and the theorist Naumann saw a half century ago, when the former sought so to navigate as never to have Germany and Russia on opposite sides. The British Government senses uneasily, and has sensed for three generations, the menace to the Empire’s Asiatic position in the rise of the foremost Slavic power. The Dominions dislike Japan, some of them to the point of incurable suspicion and abhorrence; and English mercantile interests in India and China likewise detest Japan’s cutthroat competition. But the Imperial Government sees the picture as a whole, and considers Russia the more pervasive and dangerous foe. In France and Holland there are no illusions as to what the fate of their great colonial areas in Asia will be when the Japanese Empire reaches full growth; and the Russophil sentiments of France are partly explainable in terms of the less direct source of danger to France’s position in the Far East represented by Russia.

Does England to-day view the German-Japanese understanding as a greater or lesser menace than the Franco-Russian? It is hard to say. Probably no consensus of opinion really exists as yet in governmental circles, for both combinations have elements that conflict with British points of view. The totalitarian ideal is distasteful to the aristocratic and bureaucratic rulers of the Empire; and the British would like to see France ‘in better company.’

The French are not afraid of Germany, but they are coming to believe that they made a mistake at the Peace Conference in yielding from the position of Foch that Germany must once for all be rendered innocuous. They are convinced that all the German talk about Russia is merely to distract attention from Germany’s preparations to overwhelm France without even a declaration of war. They declare that 80 per cent of the German army is already massed in Western Germany, ready to strike so swiftly that no aid could be had for France. But France is not unprepared. Her military men and those of Great Britain have been carrying on conferences at intervals for some months, reviewing decisive aspects of common action in the event of unprovoked attack on France by Germany. When the British Foreign Secretary, last December, gave such categorical assurances of British intervention on Germany’s behalf in the event of unprovoked attack on Germany, he did so with the foreknowledge and consent of France. The truth would seem to be that, little by little, unity of control over foreign policy is being restored to the Foreign Office in England, and the Admiralty’s invasion of that field with the Ribbentrop Naval Agreement (whereby England recognized Germany’s right to a navy 35 per cent as strong as England’s), which exasperated the French at the time, is being quietly played down. Germany seems now to realize that England’s policy, if shunted off the middle of the road, is far more likely to veer toward France than toward Germany.

England may not know her own mind yet on everything, but she does on two things: she wants no war anywhere if it is at all possible to prevent it, and she wants no autocratic regime set up in France. So the British Government will go a long way in bolstering the conglomerate regime over which Leon Blum presides. It was the realization that Blum’s failure to solve the monetary problem might lead to internal tension and the collapse of representative government in France that drew the British Treasury, no matter with what reluctance, to commit Great Britain (in a very limited degree, to be sure) to cooperation in support of the franc.

Throughout Europe, budgetary orthodoxy is tacitly shelved. For the last half-dozen years the British Government has made commendable efforts to live within income. Its policy of genuine frugality was almost the only gleam of light on the dull gray expanse of fiscal hopelessness. But now England, too, is financing defense preparation from floating-debt operations, which are in turn greatly facilitated as long as the London money market has all the fugitive capital to which allusion has been made. It is this discouraging fact which stands in the way of any readiness to stabilize the pound so long as that action might render floating-debt operations materially more expensive, by causing the outflow of funds likely to be on deposit in London provided the British policy of not forcing events continues in effect.

On the Continent, budgetary disorder is rampant. The Netherlands and Scandinavia are still able to live within income, but the rest of Europe is borrowing against the future. Tax evasion and currency depreciation, both on a reckless and demoralizing scale, will be the certain fruit of it all. But ‘national defense’ comes before everything, and the advocates of sound finance (unhappily never very numerous anywhere) are hardly to be heard in the din of munitions and airplane manufacture.


Long as this digression over the political aims and possible conflict of European and Asiatic powers may have seemed, it serves to explain, first the growing volume of European imports of raw materials, secondly the effect of rearmament on national budgets. Only Great Britain and France are rich enough to go on buying war materials very long for cash, and even they will soon need credit.

At this point there climbs on the stage the unshriven ghost of the intergovernmental War Debt Agreements made between 1923 and 1927. There was one consolation in the Quadrennium of Insolvency that opened in 1929 — namely, that the war debts seemed certain to be buried forever, along with the tribute known as reparation payments. The last ounce of bargaining value which the war debts possessed had evaporated when Messrs. Coolidge and Hoover failed to make use of the opportunity to negotiate material reductions in military and related expenditure in Europe through the offer of corresponding reductions of the debts. Since no one high in public office has ever had the courage to tell the American people the unpalatable truth about the war debts, it is better circumspectly to avoid the subject, which is apparently what Mr. Roosevelt has sought to do. But the default in payment is a barrier to further credit operations on a funded basis in the American money market, by reason of the Johnson Act. Hence American interests chiefly concerned with the rapid expansion of such credit operations are eager to see something done soon to remove the barrier of default; and they have pressed European officials to make some move toward a fresh settlement of the war debts such as would get them out of the way a ‘decent interval’ before any new borrowing, or the funding of ordinary banking indebtedness, has to be undertaken. Sooner or later, we may conclude, a formula will be found which will look enough like a refunding to lift the curse of the Johnson Act. Then, in the course of a reasonable time thereafter, the effort to effectuate borrowing on long terms may be expected.

It is appropriate, perhaps, to summarize the monetary situation of the world at this stage, before venturing upon general conclusions.

1. Virtually all currencies of commercial importance are now from a quarter to two-fifths debased, thanks to the unprovoked recklessness of the American gold ‘policy’ since 1933.

I say virtually all, since only a few currencies maintain their old nominal standards, and no country in the world is converting its paper currency into the gold which that currency represents.

2. A loose arrangement exists whereby the secretly operated exchange funds of the United States, France, and Great Britain, and certain other stabilizing agencies, profess to coöperate in holding fairly close those exchange levels which political expediency in each country seems to prescribe.

3. The arrangement in question may be ended at brief notice, after serving as little more than a new source of controversy, according to the way the statesmen concerned proceed to ‘coöperate.’

4. Nearly all European budgets are out of balance now or on the point of becoming so; and the chief cause is rearmament.

5. The world’s total volume of international trade is increasing, not so rapidly as its aggregate money value, but enough to absorb more and more of the unemployed; but the chief cause of the expansion is again rearmament.

6. War may come over Spain, or may not come for several years, but the tension of its imminence and the strain of getting ready for it will be destructive enough.


‘In the long run, there is nothing more practical than sound theory,’ as the Swedish monetary expert, Gustav Cassel, once succinctly expressed it. And in no period is there greater need for a clear grasp of theoretical principle than when everything seems afloat, drifting anchorless. The war developed no great leadership, in the military, economic, constructive, or moral fields: it developed a planetary plague of bureaucracy and State-worship. Equally leaderless, the United States and Europe drifted into formulas worked out now by lawyers and now by business men’s organizations; and finally into financial demoralization, when the thoroughly unsound structure of Central European business resting upon the American financing of reparation payments (and, indirectly, of war-debt payments) broke down. The events of June 1931 were easily predictable after those of October 1929, those of September 1931 equally predictable in June 1931, while those of March 1933 were the clear consequence of those of September 1931. And in the summer of 1933 it was reasonable to point out that we were headed for a prolonged decline in the purchasing power of the dollar, which would take our price levels and labor costs incredibly high. Mr. Roosevelt’s wires were crossed in such appalling confusion in 1934, in consequence of his improvised experiments with control of industry, that his monetary policies failed to lift prices as he had expected would be the case; and in 1935 and 1936 an enormous influx of foreign capital cluttered up the banks, stimulated Stock Exchange operations, and delayed again the price rise.

We now have in the United States all the ingredients for a rise in both wholesale and retail prices, very great in degree and prolonged in duration. There is no better prospect in Europe, although until about a year ago there was a chance of Europe’s remaining reasonably steadfast, despite all her rancors and rivalries, and preventing the wholesale wastage of savings and the ruin of private property. But one leaves Europe in these days greatly depressed. Those men of foresight and ripe judgment who have been left in control of central banking and economic policy are crowded each day more and more by the exigencies of military or agrarian or some other special interest; and there is as ineffective control by the central banks over these special interests as in the United States in recent years.

Night has fallen over a great cultural area before, a long night in which little light flickered and few memories survived. The very knowledge itself which men in one part of the world had of remote regions disappeared, and left almost no trace, when generation succeeded generation without a reason for going outside the ever-narrowing limits of local trade. Night seems destined to settle down over Europe, slowly, imperceptibly, but none the less completely. It will not come at once. There will be the same atmosphere of enduring peace in British cathedral towns and Swiss valleys next year and later, the same refined cosmopolitanism in the best restaurants of Paris that we have seen before; but Europe seems to be coming into that twilight zone which follows the midday glory of her centuries as the Grande Dame of all the continents, the Queen of Civilization, and will perhaps precede the rapid shrinkage of querulous decrepitude.

But are Europe’s children able to preserve the heritage of thought and action she can — and must — assign to them? The Western Hemisphere, the fringes of Africa and Asia, are to-day extensions and adaptations of dynamic racial forces and creative ideas of Hellenic, Roman, Celtic, Germanic, and Semitic origin. Those regions were the frontiers of Europe, ever receding, ever drawing the most restless, the most energetic, the most enterprising elements from the original matrix — drawing them, in some cases, such as Spain and Ireland, to the point of exhaustion, so that a definitely different breed was left to shape the future of the particular stock. Are the daughter nations mature enough now to carry on, and to lift the fragile mechanism of civilized order, internal and external, to higher and safer levels? This is the vital question. For Europe, despite her populousness at this moment, will not have a great deal more to give her daughter peoples in the way of physical endowment, and perhaps her once so imposing fund of creative ideas will grow thin and intermittent.

Everywhere in Europe to-day one has the impression of dealing with a social order that no longer has an income, so to speak, but is living on its capital. England is living on her capital. London’s impressive residential and official setting is all suggestive of successive waves of additions to the physical capital of the nation — down to a generation or so ago; and since then only rehabilitation, improvement, if you like, but not the exuberant expansion, the confidence in the future, of a social order which sees itself growing. The British population, predominantly of middle age and advancing years, is on the point of showing an excess of deaths over births. Its outlook on life is colored accordingly. France too, and Holland, Switzerland, to a less extent Belgium, may be said to be living on capital. Germany has a fading concept of ‘capital’ in the old sense, and considers her human capital as her only capital. In a certain sense, this is the sound position to take. But, from the current commercial and financial point of view, Germany’s resources consist chiefly of the remnants of capital left over from the days when she could still borrow, and before the fusion of her economy with militaristic totalitarianism.

Think what this means for the survival of private property. To an extent that is rarely comprehended, the economic structure of Central and Western Europe, and the Western Hemisphere (leaving collectivized and discredited Mexico out of account), rests upon a foundation of mortgages. Much, perhaps half, of the cultivated soil in the regions just enumerated is mortgaged. Far more than half the residential space of the urban communities therein is mortgaged. Most of the business premises, industrial or commercial, the world over are mortgaged. The mortgage dominates the means of transportation, of diversion; and charity, education, religion, and institutional facilities for health conservation and restoration all depend for their maintenance or extension directly upon the readiness of part of the community to advance initial capital funds. The institution of insurance has developed in step with the progress men have made in safeguarding contracts for mortgages; and the mortgage investment of, say, the life insurance companies of Switzerland, Great Britain, the United States, and Canada, taken together, far outweighs any other category, perhaps all other categories, of their investment.

When nations cease to grow, and arrive at the ‘settling down’ stage, the structure of mortgages just alluded to undergoes a profound transformation. If the nation is living on its capital, and fewer and fewer children under five years are recorded in its successive censuses, the old houses suffice, the old buildings will serve until their repair exceeds the cost of replacement, just as the man in upper middle years generally grows more and more indifferent to the up-to-dateness of his clothes, prefers the old chair, and does n’t pine for expensive travel. It is n’t lack of imagination, and it is far less often than people suppose a sentimental attachment to the ‘monuments’ and family houses and so on. It is a subconscious realization of progressive enfeeblement which runs through every vital chord in the aging individual, or, in somewhat analogous fashion, through every aging society. Even nations can come to realize (without anyone’s saying so, or even articulately thinking the whole situation through) that they can’t do the things that were done decades, generations, or centuries earlier. History is full of fascinating revivals, as they appear to be, when prophets and leaders have risen up to ‘restore all things as they were in the days of our fathers.’ The Old Testament is one long record of such inspiring zeal, and the history of Islam, and the mystical epic of the ‘Holy Roman Empire of the German Nation,’ and so on. But when the ‘revivals’ occur, what is ‘revived’ is essentially distinct from its ideal objective. Mussolini has perfected and rendered far more efficient the eighteenthand nineteenth-century bureaucracies of Tuscany, of the House of Savoy, of Cavour and Giolitti: he has not re-created the Roman Empire, no matter how many stretches of what once composed that Empire he should pick up. How could it be otherwise? Vast racial changes have taken place, and new interests have been created. Italy’s dramatic ‘resurgence’ is ever reaching after an ideal never again capable of materialization. So with the other nations in Europe, one in one way, the next in another way, all going in for nationalism, and discipline, and exaltation, like middle-aged men taking up ‘setting-up’ exercises or diets or social work and other lofty occupations.


As one contemplates the daughter nations, particularly in the New World, on the eve as it were of the division of a grand estate which Old Lady Europe, after long years of strenuous use (and abuse) of what she inherited from antiquity, is about to pass on to them, he asks himself whether the division and transfer of the estate of European civilization can take place without greatly impairing its essential unities and values. And must the world yearn again for centuries for the realization of the ideal of universality as it did from the fourth century until the Age of Discovery altered the vision and structure of society?

Put in practical terms, this query may be translated to mean that there is real reason to question whether the next twenty-five or forty years will not see a progressive recession of Europe from the economic power it has so long exerted, while the natural units of the Western Hemisphere, and in Asia, Africa, and Australia, begin to create new focal points of economic activity, new economic ‘solar systems,’ as it were. Some of them, more advanced than others, may for a while seem to have inherited the matriarchal primacy of Mother Europe, but only in appearance. Have we, in the United States, looking at ourselves objectively, the intellectual and moral qualities for which such a primacy will call, the spiritual responsiveness to those demands which are made in the name of the Rule of Law? Judging ourselves fairly from what we are to-day, are we going to be ready, when Europe as a whole sinks into contemplation of the past, to take up the responsibility for formulating not so much the law as the moral sanction on which the law rests?

We cannot even acquire a leadership in the Western Hemisphere in decades and decades unless changes, now remote, first come to pass. For example, our whole attitude toward long-term investment in the other countries of the hemisphere will have to change; and it is not easy to imagine the use of our accumulations of gold as the basis of a comprehensive and enlightened policy when it can serve as the bulwark for the permanent entrenchment of Collectivism, and the machine that administers it, at home. We must go through a long ordeal of internal growth and suffering, perhaps attaining the degree of veritable paroxysm, before we reach the maturity of character and serenity of view that alone in the record of mankind have earned the seat of lawgiver and interpreter. That ordeal will begin with a prolonged period of currency depreciation, all the worse because the Old World will not be in condition to check or even reprove our excesses. Such an experience implies lasting uncertainty as to the security of long-term engagements, — that is, essentially, of mortgages, — and so the trend of the real interest rate, the earning power of saved capital, will become difficult to predict, because of the double affliction of arrested growth in population and the gradual breakdown of the inviolability of private property.

It is better to try to look through all the smoke and squalor of this half century ahead of us and to know how long and difficult the road is which we must traverse. Fear is universal, and generates violence of thought, word, and action. Confidence in the dependability of long-term engagements is no greater to-day than five years ago over most of the world. Security, not liberty, is now the paramount concern of the individual, of groups, of nations. The sanction of confidence has given way to the sanction of force. Abroad men have either actively aided or passively accepted the transformation of representative governments of various types into authoritarian governments. At home a quarter century of treatment of legislative bodies as fit objects for ridicule has prepared the way for an analogous apotheosis of the Presidency. Years of constitutional controversy probably lie ahead of us. Through all of this, and much more, we must go on, soberly conscious of the perils on every side, yet unflinching in the serene belief that some road to humane, enlightened, and selfdisciplined Social Order there must be.