The Continental System: An Economic Interpretation

Heckscher, Eli F.
(1879-1952)
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Editor/Trans.
Harald Westergaard, ed. C. S. Fearenside, trans.
First Pub. Date
1918
Publisher/Edition
Oxford: Clarendon Press
Pub. Date
1922
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PART IV, CONCLUSION.
COMPARISON WITH THE PRESENT DAY

IV.C.1

THE Continental System had little success in its mission of destroying the economic organization of Great Britain, and most of the things it created on the Continent lasted a very short time. The visible traces that it left in the economic history of the past century are neither many nor strong. Indeed, it is difficult to find any more obvious and lasting effect than that of prolonging the existence of the prohibitive system in France far beyond what was the case, not only in Great Britain, but also in Prussia. Thus there are good grounds for doubting that the material development of our civilization would have been essentially different if this gigantic endeavour to upset the economic system of Europe had never been made. In general, it is true that what sets its mark on the course of economic development—largely in contrast with what is political in the narrower sense—is that which can be used as a foundation for further building, where cause can be laid to cause. Isolated efforts to destroy the texture of economic society, even if they are made with a giant's strength, can generally do little more than retard the process of development, and gradually they disappear under the influence of what may be called in the fine—perhaps too fine—phrase, 'the self-healing power of nature' (vis medicatrix naturae).

IV.C.2

However, the Continental System mainly had immediate ends in view. It was in the first place a link in a life-and-death struggle, where, as is always the case under such circumstances, the thought of the future had to be relegated to the background. The fact that the future effects were small, therefore, is a thing which, strictly speaking, touches the heart of the Continental System no more than it touches the heart of other trade wars. It is true that in all such struggles people count on the most far-reaching and profound effects in the future from the victory that they wish to win to-day; but the only thing that they understand clearly is their desire to win the victory. First and foremost, therefore, the question is, to what degree the Continental System served this its immediate aim.

IV.C.3

So far as the answer to this question lies in the sphere of economics—and the present book has no concern with what lies outside that sphere—the answer has already been given in the preceding pages, and is mainly in the negative. But no detailed explanations need be given as to why just the failure of the Continental System, even as a pure measure of trade war, makes it especially important to confront it with the phenomenon that corresponds to it in our own day, the trade war in the shadow of which we still live at the time of this writing. If any point should have stood out clearly from the foregoing survey, it is surely the paradoxical character of the Continental System; and so far the contrast with the present day has consisted in the very setting here given to the subject. But from a purely economic point of view every trade war is, strictly speaking, a paradox, for it is directed against intercourse which is profitable to both parties and therefore inevitably inflicts sufferings on its author no less than its intended victims. Consequently, the property of the Continental System of being an economic paradox does not render superfluous a comparison with the present time. Perhaps such a comparison derives still greater interest from the light it seems to cast over the general development of society during the past century in its connexion with economic conditions. But as the materials for such a survey have been largely given in the preceding chapters, these last few pages will to some extent have the character of a summary.

IV.C.4

The relatively limited effect of the Continental System on the economic life of Europe was primarily due to the autarchy of the different countries, that is, their far-reaching economic self-sufficiency in all vital matters. The speedy conclusion of the blockade of France at the outbreak of the revolutionary wars was undoubtedly connected, not only with the particular ideas with which we have become acquainted, but also with the slenderness of the prospects of starving a country in the position of France; and to a lesser degree the circumstances were the same with regard to a food blockade of the British Isles. On the other hand, it may be taken for granted that a blockade of the latter kind would now be effective if it could be carried out. But even with regard to its practicability the situation is altered. Nowadays such a blockade demands, almost inevitably, the command of the seas, as the countries that now produce corn are so many and so scattered that it can hardly be possible to command them all by land; and the same holds good of the majority of products other than foodstuffs, even of the majority of raw materials. The possibility of blockading a country simply by power over the sources of supply has therefore been enormously reduced since the time of Napoleon with regard to all the main commodities of world commerce. Such a possibility is mainly reduced to a number of important, but quantitatively insignificant, articles, such as certain special metals, potassium, and indigo. Therefore, the possibilities of an effective blockade have been so far diminished that nowadays, to a much greater extent than a hundred years ago, they require power over the transport routes, while formerly there were greater possibilities of becoming master over production itself. In the opposite scale we have the fact that the damage done by blockade, when it can be carried out, is many times greater now than then. Consequently, it is obvious that the blockade of the Continent, which was never even attempted seriously during the Napoleonic wars, is now susceptible of a much wider range.

IV.C.5

In addition to these fairly self-evident material reasons for the greater efficacy of a blockade in our own day, there are other reasons which lie in the social or spiritual sphere, and are therefore far less obvious and generally known, but by no means less important. Foremost among these should be placed the increased power of governments in comparison with a hundred years ago. If there is anything which forms the burden of all discussions under the Continental System it is the hopelessness of enforcing obedience to the blockade decrees. 'Why not prevent the skin from sweating?' was King Louis's despairing cry in answer to the threatening complaints about the smuggling in Holland; and an anonymous report of 1811 in the Berlin national archives expressed the matter in the following way: 'To keep the English away from the Continent by blockade without possessing fleets is just as impossible as to forbid the birds to build their nests in our country.' In the same way a French report to Bonaparte in 1802 declared it to be a hopeless undertaking to prevent the importation of English manufactures that everybody wanted; and as we know, Napoleon himself justified his failure to try to prevent the export of corn to England on the ground that such measures were futile.*54 No one who has followed the foregoing account can doubt the correctness of these opinions; and as has been said already, the food supply of Norway during the years of rigid blockade depended on blockade-breaking. In contrast with all this, we are confronted with the fairly indisputable fact that during the recent war both the belligerent parties were able, without any noteworthy leakages, both to exclude the enemy's goods, when they deemed it expedient, and to prevent their own goods from leaving the country. No country has been able to get her food supply through blockade-breaking.

IV.C.6

In a manner corresponding to the utterances just cited, Stephen speaks of the great difficulties involved in preventing the conveyance across the sea of enemy goods disguised as neutral; while, on the other side, those who had command of the sea during the recent war revealed a remarkable capacity to prevent, not only this, but also the exportation to the enemy from neutral territory of goods produced from imported raw materials, and even the exportation of a neutral country's own goods when they had to be replaced in some way or other by goods imported by sea. The 'import trusts' that have been established in different countries created guaranties which were altogether lacking during the Napoleonic wars, and which fundamentally changed the nature of neutral trade. Highly significant, too, is the insurance of enemy cargoes, which developed into a perfect system under the Continental System, with a special provision for the underwriter that he should abstain from the right to have the insurance annulled on the ground of the enemy origin of the cargo, while there was no mention of anything of the kind during the recent war.

IV.C.7

Most striking of all is the contrast with regard to the export of gold and transactions in gold at rates above par. There is a famous eighteenth-century utterance by Bishop Berkeley to the effect that it is impossible to make a prohibition of the export of precious metals effective without building a brass wall round the whole country; and the majority of writers on the monetary system a hundred years ago were agreed on this point. Thus, for instance, the somewhat lower value of gold in specie than gold in bullion in England was explained by the existence of somewhat greater risk of exporting the former, because it was forbidden by law; 'but,' says Ricardo, 'it is so easily evaded, that gold in bullion has always been of nearly the same value as (i.e., very little above) gold in coin'.*55 During the recent war, on the other hand, in Germany and France, for instance, gold was seen pouring into the coffers of the banks of issue in spite of its far higher value than the paper money given in exchange; and consequently there has been scarcely any mention of smuggling gold out of the country, although such export would have yielded a large profit if it could have been successfully performed.

IV.C.8

This general weakness of governments a hundred years ago constitutes the constantly recurring justification for the frequent concessions toward disobedience to the prohibitive regulations existing on paper. Thus, for instance, Perceval in the House of Commons in 1812 justified the licences for the importation of lace and muslin on the ground that they would be imported illegally if permission were not given for it; and about the same time Lord Bathurst declared in the House of Lords that the only effect of the abolition of licences would be that British subjects would continue the trade with neutral foreigners as dummies and resort to every conceivable dodge and device to avoid detection. 'In fact,' concluded the British minister of commerce, in words which might stand as a motto for the entire policy of licences, 'we only permitted him (the merchant) to do that openly which he would surely [sic] do clandestinely'.*56

IV.C.9

It is of great moment to determine the causes of this enormous difference in the effectiveness of governments then and now. Some of the causes are more or less temporary, that is to say, they are due to the peculiar conditions governing the carrying-on of wars both then and now, especially then; but others, so far as one can judge, express a tendency in development which deserves particular attention. When, in discussions as to the possibilities of state intervention in some respect or other, reference has been made to older precedents, people have usually failed to see to what an extent those old measures were ineffective, and have therefore completely misunderstood the connexion between cause and effect.

IV.C.10

The most profound change, so far as one can see, consists in the increased honesty and efficiency of public administration. In the preceding pages sufficient evidence has been given of the corruption of the executive powers under the Continental System, so that no further evidence is necessary. To some extent the situation was undoubtedly affected by the reluctance with which people conformed to the Continental decrees, which was especially the case in the non-French states of the Continent; however, this factor played no part at all in England, and only a small part in France. We must, therefore, search deeper for the causes, and in so doing we can scarcely avoid the conclusion that the majority of European states and also Great Britain—perhaps the latter above all—did not until the nineteenth century attain an executive organization on whose sense of duty and incorruptibility it was possible to rely. Therefore, while in our day it is possible to entrust an executive with functions that put these qualities to the test, such was not the case a hundred years ago, and is even now not the case in countries with an executive organization of the older type. It need not be further elaborated what consequence this involves with regard to the possibility of state intervention and the state management of economic undertakings. As a matter of fact, these possibilities vary largely according to the nature of the executive in each individual country.

IV.C.11

It is true that the palpable overstraining of government functions during the recent war has led to a more or less marked relapse both as to the law-abidingness of subjects and the integrity of officials; and it is quite conceivable that history will thus repeat itself. So far, however, the difference between now and then remains very great; and at least one factor appears to work in the direction of keeping up this distinction. For, furthermore, technical development has played into the hands of the governments to an extent that people in general have not fully appreciated. It is especially the network of cables and lines of communication of every sort, which practically form a completely new factor in the economic life of the nineteenth century, that have brought about this result; for it is obvious that power over this system creates a possibility of control over almost everything that falls under the head of intercourse, and over much that falls under the head of production. Within a country it is especially railways and high-pressure electric transmission lines that create this power, while both within and between countries a part of the same function is performed by the telegraph cables. The last-named have created a possibility for censorship and a possibility for counteracting revolutionary measures on the part of citizens or foreigners, and also on the part of the enemy; and with the help of the railways it is possible to throttle almost all domestic industrial production and most of the imports or exports that it is desired to hinder. It is true that quite recent events have served to show various features which point to a certain degree of emancipation from the supremacy of a rigid system of lines, namely, wireless telegraphy and aerial navigation. But the latter is still, from an economic point of view, little more than the music of the future; and even the part played by wireless telegraphy during the war, though certainly not altogether insignificant, was remarkably restricted, while the former types of communication are the genuine reality which for the present place resources hitherto undreamt of in the hands of governments—so long as they can hold them. Of course, anarchy can throw the system into pieces, or factions can get hold of these engines of power and destroy them; but this in no wise alters the fact that they have increased enormously the strength of an undisputed government.

IV.C.12

It is highly significant, in connexion with this increased strength of governments, that almost the only point one can speak of any real improvement in the treatment of the neutrals since the beginning of the last century is with regard to captures at sea. Here, indeed, a strictly military governmental organization has not only taken the place of the purely private and acquisitive enterprises of the privateers, but at the same time has also put an end to the pecuniary interest of naval officers and crews in the seizure of neutral cargoes; and this means at least the abolition of that kind of high-handed treatment which had its sole root in the desire of private gain.

IV.C.13

With these deeper dissimilarities between the past and the present may be associated others which have a more temporary character, but are nevertheless of great interest. One of them, which must strike every careful observer, is how completely that character of 'a political war of religion', which was first noticed by Lars von Engeström, disappeared in the sphere of economics, and to what an extent an open and acknowledged intercourse existed among the belligerents. The licence system as such is one huge example of this, but there are other still more striking ones. Thus, for instance, it appears from many details that journeys to an enemy country were by no means unusual. Napoleon told the deputies of the French Chamber of Commerce in his speech to them in March 1811, that he was well aware of these journeys; and he does not seem to have taken them at all with a tragic air. From the continental states, of course, no feeling of hostility to Great Britain was to be expected; but it is nevertheless remarkable that Englishmen seem to have lost hardly anything by their continental debtors. All this, however, referred to private individuals; but the grandest example of economic co-operation between the enemies occurred on account of the governments themselves. This was what was known as the Ouvrard Affair, which pops up many times in the contemporary sources—most in detail in the memoirs of the great Parisian speculator, Ouvrard, but perhaps most authoritatively in Mollien's memoirs—and which is one of the most astounding of the economic events of the period. The affair had to do with what was, for the conditions of those times, a colossal remittance of silver to an amount of 37,000,000 francs, which Spain was to make to France from Mexico through the mediation of the Anglo-French-Dutch banking firm of Hope & Co. of Amsterdam, with which Baring Brothers of London and the ultraspeculative banker, Ouvrard of Paris, worked. As the British controlled the sea, however, the transference could only be effected by British war-ships fetching the money from Vera Cruz in 1807, and conveying it to a European port on Napoleon's account. Mollien's comment on this is: 'Thus three powers which were waging war à outrance could suddenly make a kind of local truce for an operation which did not seem likely to benefit more than one of them'; and he goes on: 'When Napoleon expressed to me some inquietude regarding the fate of such an important remittance, I was able to answer him, with a confidence that the result fully justified, that the enemy hands that I had chosen would not prove faithless hands.'*57 Even though future researches should reveal many transactions from the recent war of which we now suspect nothing, yet it must be regarded, to put it mildly, as improbable that any of them will prove to show such a measure of working agreement between deadly enemies.

IV.C.14

One very important reason for this lively economic intercourse with the enemy is undoubtedly the distinctively mercantilist nature of the blockade. When exporting to the enemy was regarded as a patriotic action, regardless of the fact that the trade prohibitions with the enemy forbade it on paper, this really cut off the possibility of a political or economic war of religion; and it was no longer possible in that case to avoid forming commercial ties with enemy subjects, so that governments had to take the consequences. Accordingly, the methods of the recent war in severing all commercial ties led, in quite another degree, to the establishment of a gulf between the combatants that was not merely material but also mental.

IV.C.15

The most obvious difference between the past and the present, of course, is precisely this dissimilarity in the object of the blockade, which has been set forth and discussed in the foregoing account. It is impossible to deny that the blockade of the World War, conceived as a means to the end of undermining the enemy's power of resistance by economic pressure, had a far more correct economic object than had that of Napoleon. The recent blockade was primarily directed against the enemy's imports, which procure what can be replaced by neither financial dexterity nor credit, while the Continental System was directed against exports, and therefore had very small prospects of attaining its object. Saying this is not the same as saying under what conditions the present-day policy of trade war may have a chance of attaining its object. Economic life has exhibited a power of adaptation that was completely undreamt of, a possibility of changing its direction with the shortest preparation under pressure of external conditions, which should have greatly diminished hopes of conquering an enemy by such means. In consequence of this the problem of self-sufficiency also has passed into a new phase. The primary thing for a country is, or at any rate should be, no longer to be self-sufficient in peace, but to possess that elasticity throughout its economic organization which creates the power of becoming self-sufficient in war or on the occasion of any other isolation; and in complete contrast to what most people have believed, the development of modern industrial technique and a modern credit system has increased, and not diminished, the prospects of this. But the discussion of these problems does not belong to an historical account, but to an analysis of the economics of the recent war. Such an analysis has been attempted to some little extent in a preceding work by the present writer and therefore need not be repeated here.*58


Notes for this chapter


54.
Duboscq, Louis Bonaparte en Hollande, p. 48; Hoeniger, op. cit., p. 19; Tarle, Kontinental'naja blokada, vol. I, p. 147.
55.
Ricardo, Works (High Price of Bullion), p. 265.
56.
Speeches in the House of Lords, Feb. 28, 1812; in the House of Commons, Apr. 17, 1812. Hansard, vol. XXI, p. 1055; vol. XXII, p. 435.
57.
Mollien, Mémoires, &c., vol. I, pp. 434 et seq., 490 et seq.; vol. II, pp. 129 et seq., 242 (the quotation being from vol. II, p. 132); Ouvrard, Mémoires, &c., vol. I, passim, especially pp. 107 et seq.; Ehrenberg, Grosse Vermögen, &c., vol. I, pp. 72 et seq.; vol. II (1905), pp. 120 et seq. Cf. also, G. Weill, Le financier Ouvrard, loc. cit. (1918), vol. 127, p. 39. An article on Pierre César Labouchère, the head of the Hope firm, in the Revue d'histoire diplomatique for 1913, gives no information on this or related subjects.
58.
Världskrigets ekonomi: en studie af nutidens näringslif under krigets inverkan (Stockholm. 1915).

Appendix I

End of Notes


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