General introduction

The analysis of European trade policy in the nineteenth century is of particular interest. This was not only the century in which the various mechanisms, institutions, and theories of modern trade policy took shape, but also a time when the growth of foreign trade was not just extremely rapid, but actually exceeded the growth in production. It has perhaps not been sufficiently recognized that at the end of the nineteenth century (which we take to end in 1914, as is the usual practice) the relative importance of exports in relation to the Gross National Product reached a level in Europe that it has not equalled since (if one excepts the period of upheaval linked to the recent oil price increases).

The nineteenth century saw both the flourishing of liberalism in theories of international trade, and the development of modern protectionism. The nature and structures of tariff legislation changed considerably. Former prohibitions on imports and exports disappeared almost entirely, as did export duties and the very wide-ranging privileges granted to national shipping interests. But, at the same time, new networks of preference were set up, as a result of the creation of numerous colonial empires.

The rapid expansion of trade was the cause but also partly the result of these changes of policy. Between 1815 and 1914 the total volume of exports in Europe probably multiplied by nearly forty-fold, whereas during the previous century it had at the most doubled or trebled.

Introduction: principles of economic structure, theory, and policy in Germany, 1815–1939

Profound changes in manifestation and intensity have taken place in the relations between state and economy in Germany during the nineteenth and twentieth centuries. It could not have been otherwise in an age during which Germany passed through a violent and permanent upheaval of its economic and social structures and traditions, and repeatedly and fundamentally recast its political constitution. These upheavals had profound effects on the future development of economic and social policy. It would be unprofitable to consider at length whether it was economic change, sometimes more, sometimes less dynamic, or political decisions and turning-points which constituted the outstanding sign-posts marking off stages of development. There is no common denominator by which to measure one against the other. Undoubtedly many threads of development have stretched almost without interruption across political turning-points; equally indisputably, others have thereat gained new importance and orientation. Changes of direction in economic and social development have had similar effects. Where one period ends and another begins depends on individual evaluation and presentation; there are no objectively compelling divisions.

This was the case particularly since at no moment of time between 1815 and 1930 was there an all-embracing, purposive, and decisive determination of economic and socio-political principles, means, and objectives. A gradual increase and strengthening of the arsenal of economic and social policy and an extension of its range are characterized by a high degree of continuity in development.

The background: objectives and environment

Soviet policy throughout the inter-war years was dominated by the unprecedented endeavour to construct a radically new social and economic order, using the economic and political power of the state and the authority of the Bolshevik, or Communist, Party. Soviet economic and social policy – in the sense of the management and allocation of resources by government for economic and social purposes – was subordinate to the wider goal of establishing and consolidating a new type of society. By 1936, with the adoption of the Stalin constitution, this task had been accomplished. But the outcome was ambiguous: the new society was in many respects radically different from the vague and optimistic notions about the socialist future held by Marx and Engels and by their Russian successor Lenin.

Soviet policy is discussed in this chapter against this background. The main issues examined are the successes and difficulties of Soviet policy in attempting to reach the long-term objectives, and the modifications of objectives and policy which resulted from the mutual impact of policy and economic environment. Special attention is devoted to those ‘moments of choice’, or of apparent choice, when the course of policy changed substantially.

Marx and Engels, in their scattered comments on the nature of the society which would be established after the conquest of political power by the proletariat (the wage-earning working class), anticipated that the factories, the land, and the other means of production would be transferred into social ownership.

Introduction

Industrialization requires major adaptations and readjustments of the labouring population. The workers drawn into industry must learn not only new skills and techniques, they must also become accustomed to new rhythms and hours of work and submit to new forms of discipline and control. Typically, they must also change their habitual styles of life and their customary environments. All of these changes tend to involve considerable economic and psychological hardships, against which the workers seek to protect themselves. The present chapter is an historical survey of the responses of governments in the major industrial countries of the continent to the problems faced by industrial labour and to the workers' organized efforts to improve their situation. If industrialization created a need for workers to combine for the defence of their interests, it also improved their capability to create common-interest organizations. But the collective actions of workers in the form of strikes, trade unions, and political movements represented an economic threat to employers as well as a challenge to the prevailing system of power and authority. In a broader sense, the inevitable strife was a threat to economic efficiency and to social stability. The basic historical task of labour policy was therefore to provide the means and institutions which would meet the essential demands of the workers and at the same time promote efficiency and preserve law and order. Over time, labour policy necessarily mirrored the changing balance of economic and social forces and was articulated in ways which reflected the ideological commitments of the engaged parties.

The inter-war gold standard, along with most other aspects of economic experience for that period, has a relatively bad name in the literature. In part, this bad name has been a product of the myth-making about the ‘bad old days’ which accompanied the birth of such post-1930s institutions as the International Monetary Fund. In part, inter-war gold standard experience acquired its reputation through a process of guilt by association which suggested that it must have played a significant role in the economic difficulties of the period, most notably in the years after 1928–9. This guilt-by-association view of the standard is perhaps strongest in Great Britain, where references to the return to gold in 1925 or subsequent, related events recur in articles or letters in the press to this day.

The purpose of this chapter is to examine the construction, operation and disintegration of the inter-war gold standard system. In doing so, I shall pay particular attention to the interrelationships between the system as a whole and its constituent countries. The focus throughout will be predominantly European, but events in overseas economies will enter the story where appropriate and, of course, the United States remains omnipresent.

The war

The inter-war gold standard had its origins in the effects of the First World War on the pre-war gold standard regime. Although ‘no simple statement with respect to the breakdown of the gold standard during the war can be true’, it is clear that in most countries the forms of the prewar system were sufficiently altered that significant changes in the bases of the old system were possible.

The four transitions

British public policy in the century and a half or so before the Second World War was characterized by four simultaneous transitions. The first was from landed rule in the eighteenth century, via dominance by the middle classes in the high Victorian age, to an uneasy and sometimes tense confusion between middle and working classes in the 1920s and 1930s. The second carried economic policy from the British form of mercantilism, via a period of state abdication unique among industrial nations, to the sudden adoption of an elaborate system of macro-controls in the 1930s. The third moved social policy from a provision that was minimal and local, via a complex set of struggles over particular issues between philanthropists and workers on the one hand, and cost- and profit-conscious business men on the other (mediated by parliament, the bureaucrats and the intellectuals), to a far-reaching commitment to welfare. The fourth was the elaboration of a system of implementation and control such that policy-making came to be shared between parliament and the senior members of the bureaucracy. The circumstances governing these four concurrent evolutions, their timing, and the relationships between them, provide the outline agenda for a consideration of the course of state action on the economy and society. So complex a pattern is best viewed in terms of successive time spans, five in all.

Policy, industrialization, and war, 1776–1815

In the 40 years between the publication of Adam Smith's The Wealth of Nations in 1776 and Waterloo in 1815 Britain gestated the first industrial society. But no obvious and systematic policy shift is perceptible. Policy did, of course, change in significant ways, but it did so mainly by a mixture of inadvertence and wartime improvization. For in spite of the emergence of new forms in the economy and society, a longer-term continuity in terms of power was present.

Introduction

This chapter is concerned with the economic history of the countries east of the Elbe and along the Danube (Poland, Czechoslovakia, Hungary, Romania, Yugoslavia, and Bulgaria) with special consideration of the social and economic policies of their states. Their different levels of industrialization show a marked west to east-south-east gradient. Only Czechoslovakia's development did not conform to that of the other relatively economically backward Central and south-east European countries but progressed on a pattern similar to Western European economies. Under the Habsburg monarchy the western regions of Czechoslovakia – Bohemia and Moravia – had already undergone an industrial revolution essentially of the nineteenth-century type, starting with the textile industry, then penetrating to the agricultural industries (sugar, brewing, distilling), to heavy industry (iron and steel, coal), and to engineering (agricultural and textile machinery). In all its phases the industrialization of the Czech Lands was supported by a continuous inflow of labour and by a fairly substantial level of domestic capital accumulation derived mainly from a relatively advanced agriculture which had developed simultaneously. Such a gradual rise of industrial development permeating the whole economy was largely bypassed in the other countries as they were faced with the need to industrialize in twentieth-century conditions alongside and in unequal competition with high-powered industrial nations.

The main obstacle to modern economic development remained the overwhelming weight of agriculture in the economies of that region, and any assessment of economic growth can only be made by taking into account the basic relationship between agriculture and industry.

Introduction

Japan entered a new era in its economic history in 1868, when the Tokugawa regime ended and the Emperor Meiji was installed as the head of state. This is not to say that the Tokugawa period (1603–1868) was one lacking in economic and social change. There had been substantial population growth in the seventeenth century, considerable urban development, growth in agricultural productivity, industrial growth on a domestic system basis, and, most spectacular of all, the rise of the merchant class, whose economic power had increased greatly relative to that of the samurai and the peasants. At the end of the Tokugawa period, from the 1840s, there had also been efforts to introduce modern naval armaments industries, and also, after Perry forced Japan open to international intercourse in 1853–4, negotiations to conclude commercial treaties with the great powers, treaties which from 1858, brought Japan into the network of foreign trade. But Japan remained in 1868 an economically and politically backward nation compared with the industrial nations of Europe.

What was needed was a new government determined to introduce modern economic and political structures; this government was provided by the lower and middle samurai of, principally, the Choshu and Satsuma han, or domains, which had led the fight to overthrow the Tokugawa regime. These domains had already made substantial progress in reforming their own financial and economic organization and in introducing new strategic industries for their military and naval forces.

The general character of American economic policy

‘Laissez-faire’ and the welfare state

Many historians have said that the whole history of American economic policy is a movement from laissez-faire to the welfare state or alternatively from capitalism to a mixed economy, the turn having been briskly executed by the New Deal between 1933 and 1939. As the raw material for this history consists of a mass of evidence, overabundant yet fragmentary, much of it dubious and more contradictory, it is no wonder that historians try to extract from it a compact digestible capsule. But the necessary work of distillation can go too far, as it has in this instance.

The critical terms used in the common summary of American economic policy are misleading because they were alien to American experience. ‘Capitalism’ and ‘laissez-faire’ do not appear in the Constitution of the United States, nor do any even remote synonyms, contrary to the suggestion by Charles Beard and others that the Constitution was chiefly intended to guarantee a capitalist economic order. It is not surprising, in any event, that those particular terms are absent from the Constitution. Capitalism, as the name for one kind of economic order, was not invented until the middle of the nineteenth century. Laissez-faire, to be sure, was available for use by the founders of American economic policy, but there was no strong reason why Americans should reach out for a French term, or that French term, when Adam Smith had supplied a perfectly good English one, ‘the system of natural liberty’, to go with the economic policy worked out in The Wealth of Nations, published, as it happened, in the same year as the Declaration of Independence.

The year 1924 marked a turning point in the history of Japanese domestic politics. In January, Kiyoura Keigo, the incumbent president of the Privy Council, was nominated as prime minister and chose all his cabinet except for the military service ministers from the membership of the House of Peers. The House of Representatives had been by passed in the selection of cabinets since the fall of the Takahashi Korekiyo cabinet in June 1922. Angered by this, the leaders of the three major opposition parties in the lower house – Katō Takaaki (Kenseikai), Takahashi Korekiyo (Seiyūkai), and Inukai Tsuyoshi (Kakushin Club) – met in February 1924 to organize a united front to bring down Kiyoura's “cabinet of peers.” Because the first Labour Party government had been organized in England just a few weeks before, the general public as well as many party politicians felt that the Kiyoura government was swimming against the tides of history.

In the general election of May 1924, the three-party coalition, brandishing the slogan of “protecting constitutional government,” won a majority in the House of Representatives. Faced with the prospect of intransigent opposition in the lower house, Kiyoura chose to resign. In June the three opposition parties formed a coalition cabinet under the premiership of Katō Takaaki, president of the Kenseikai, the plurality party in the House of Representatives. The formation of this “cabinet to protect constitutional government” (goken sanpa naikaku) was of great significance. For the first time in modern Japanese history, the result of a general election, that is, a change in the majority in the House of Representatives, had brought about a change of cabinets in Japan.

INTRODUCTION

As Taichirō Mitani showed in Chapter 2, Japan's conservative political parties (kisei seitō) surmounted the obstacles to parliamentary influence in the Meiji constitution and during the 1920s occupied a prominent position in both the lower house of the Diet and the cabinet. From 1924 to 1932, the two conservative parties monopolized the premiership and extended their influence among other political elite groups. Between 1932 and 1940, however, party influence declined swiftly and steeply. In its wake, the opinions of administrative specialists in the civilian and military bureaucracies, joined by the views of a newly emergent business elite, became paramount in the determination of Japan's foreign and domestic policies.

Ironically, both the successes and failures of party politicians in amassing political influence were predicated on the development of a political culture in late Tokugawa and Meiji Japan that supported the proposition that those with a demonstrated practical ability to govern should be given the reins of political power. This conviction was first manifested in the bakumatsu era, when the muffled ideological tensions erupted between the hereditary principle of power transfer and the Confucian concept of “rule by the talented.” The leaders of the Meiji Restoration also believed in the principle of meritocracy. They recruited talented young followers into their personal political factions (hanbatsu) and established institutions of higher learning (Tokyo Imperial University, the Army and Navy war colleges) to teach future leaders the expertise requisite to Japan's survival in the modern world. By 1910, these institutions had become the primary sources for the nation's civilian and military administrative leaders.

From 1945 to 1973, the Japanese economy maintained an annual growth rate of nearly 10 percent. Because the standards for measuring national income changed during this period, there is no continuous statistical series. However, when the existing data are linked and recalculated, Japan's real GNP shows an annual growth rate of 9.6 percent from 1946 to 1973.

The first decade of this high economic growth was a period of recovery from the economic dislocations brought about by Japan's defeat in World War II. During the war, Japan's maritime transport was cut off by the Allied powers, and it had been difficult to obtain raw materials. In effect, this blockade was continued by postwar restrictions that the American occupying forces imposed on foreign trade, and it was exacerbated by social and economic disorder. Real GNP per capita in 1946 declined to 55 percent of the 1934–6 level as a result, and it did not recover that level until 1953.

The tempo of Japan's postwar recovery from the wartime destruction appears rapid in comparison with that of the countries of Western Europe, because the postwar collapse in Japan was so great, but it actually took the prewar per capita GNP longer to recover in Japan than it did in Europe. In 1951 the per capita national income, based on the prevailing exchange rates, was one-twelfth that of the United States and two-fifths that of West Germany. But once the postwar recovery was complete, Japan maintained an extremely high rate of growth for more than fifteen years.

INTRODUCTION

Japan's “first industrial revolution,” led by the textile industries (cotton spinning, silk reeling, and fabrics), had lost momentum by about 1910. The outbreak of World War I, however, thrust Japan into the position of supplying the warring nations of Europe with war matériel and supplying the markets of Asia with consumer manufactures. As a result, the Japanese economy began to move toward a “second industrial revolution” with the sudden growth in heavy industries such as metal working, machines and equipment, and shipbuilding. But the economy could not absorb the output of this sector once the overseas demand decreased. When peace was restored and production resumed in Europe, the Japanese economy was forced into a period of retrenchment and reorganization. During a series of adjustments in the 1920s, the economy slowed down its development toward an advanced industrial structure. When this second industrial revolution finally arrived in the 1930s, the leading industries were those heavy industries geared to the requirements of war and imperial expansion overseas. With Japan's defeat in World War II, it was forced back to its prewar economic level, from which it recovered by about 1952 to the “normal” level of the 1930s. By 1955, economic forces and institutional arrangements were well in place to launch a new era in Japanese economic history.

During this half-century of steady but uneven growth, manufacturing plants employing a large number of workers played a central role. Employment management in these large enterprises evolved in many directions different from those of other advanced modern capitalist economies.

HYPOTHETICAL ENEMIES

The general staffs of the Japanese armed forces, like those elsewhere in the world, devised contingency plans each year to cope with the possibility of hostilities against one or more powers. The Japanese army's war plans, reflecting emphases rather than strict numerical priorities, ascribed first importance to the Russians as the potential enemy from the time of the Russo-Japanese War until the birth of the Soviet Union. With the increase in American influence in the Far East attending a deterioration in U.S.-Japanese relations, the United States replaced Russia after 1918 as the main national enemy. The Japanese army was never as serious as the navy was concerning anti-American operations because hostilities did not appear imminent. Nevertheless, as early as 1918, Japanese war plans included an army-navy seizure of the Philippines to deny advanced bases to the United States Fleet in the western Pacific.

In the mid-1920s, civilian politicians pushed forward a program of reduction and budgetary retrenchment. Ugaki Kazushige, war minister between 1924 and 1927, feared that the lion's share of the limited national defense budget would go to the navy if the United States remained the prime national foe. To counteract this domestic pressure, the Japanese army began to draft new operational plans against the Soviet Union. In the late 1920s, however, the army general staff became more serious about the “northern threat.” The first Soviet five-year plan was begun in 1928, and the Red Army's offensive against Chang Hsueh-liang's forces in Manchuria in 1929 was unexpectedly successful.