tations were established in British colonies in the Malay Peninsula and Ceylon, and in the Dutch East Indies. Rubber means imperialism.1

Coffee, cocoa, tea, and sugar have also founded empires. Coconuts and coconut oil provided motives for the conquest of sunny islands in the South Pacific. The use of phosphate for fertilization of the soil in France is one of the reasons why France prizes her North-African colonies. To obtain tin the French endeavored to dominate southernmost part of China. Gold mines caused the British conquest of Transvaal. The universal hunger of industrial states for coal, iron, and oil has been a leitmotif in world politics.

Perhaps, one speculates, these objects of desire might have been bought in the normal manner of trade, without imperialism or conquest. Perhaps. But in fact they were not. Sometimes the complaint was that African negroes failed to appreciate the dignity of labor and preferred their accustomed life of sloth; or that South Sea islanders were unwilling to toil; conquest and compulsory labor were demanded. Or sometimes when Europeans laid out plantations, or opened mines, or drilled oil wells, in a backward country, they found the native government little to their liking, and desired the protection of their own imperial flag. Or in another case, one European government believed that only annexation of coconut-bearing islands would secure the output to its own citizens. In short, the northern world's desire for tropical products has been one of the conditions causing imperialism.

66

One more economic factor, the fourth, must be added. It is surplus capital." (Although, as a careful reading of imperialist utterances in the eighties and nineties clearly shows, "surplus manufactures" rather than "surplus capital" provided the chief incentive at the outset, the latter has become the dominant force in twentieth-century imperialism.)

That anyone can possess too much capital will perhaps be denied by impecunious readers, if this volume should have such. !! But by "surplus capital" is meant a superfluity too great for profitable reinvestment at home. That such surpluses must be created by the industrial expansion of the last century was an inevitable result of the economic laws governing capitalist pro1 1Cf. infra, p. 546.

RERE

WAS NO SURPLUS OF CAPITAL

duction. The large incomes from factories, mines, rentals, return a profit on the capital; owners of the capital receive larger profits than they care to spend; wealthy capitalists reinvest most of their income. Fortunes accumulated from rents and finance must also be invested. Now it is a commonplace business law that the capital investment in an industry cannot be indefinitely increased by reinvestment of earnings, and still obtain a profitable return, unless the industry can be indefinitely expanded. But unlimited expansion is usually impossible; the world's demand for cotton stockings or for steel girders cannot be arbitrarily increased. If capital accumulation is proceeding more rapidly than industrial and agricultural expansion, the excess of capital must either be invested in relatively unprofitable enterprises, such as the construction of new railways along comparatively undesirable routes, at a profit lower than in the past, or lent out at lower rates of interest to be used in relatively unprofitable enterprises, or invested in less advanced countries, where capital is scarcer and returns larger.

To make this abstract statement more convincing, we may turn to a French economist, Paul Leroy-Beaulieu, who in 1886 observed: "The same capital which will earn three or four per cent in agricultural improvements in France will bring ten, fifteen, twenty per cent in an agricultural enterprise in United States, Canada, La Plata, Australia, or New Zealand." Sums invested in building new railways in France would hardly earn two or three per cent, but in new countries they would earn ten to twenty per cent.' Here we see plainly enough the reason why the investment of French capital in foreign countries, rapidly increasing after the middle of the nineteenth century, reached a total of fifty billion francs by 1914; why British capitalists before 1914 invested two billion pounds sterling in British HITE colonies or dependencies and almost two in other undeveloped countries; why Germans invested twenty-eight billion marks abroad before 1914. Only a very small percentage of these staggering sums was invested before 1875; the age of large-scale foreign investments, like the age of imperialism, began in the 1870's.

יר

NOT IN COLONIES

Those who like to speculate on the future may find food for thought in the fact that the investment of surplus capital in 1 De la Colonisation (1886 ed.), pp. 628 ff.

RATE OF RETURN ON INVESTMENT

INVESTMENTS IN EUROPE AND NORTH AMERICA
FOREIGN INVESTMENT

MOST

SE

AREAS

COLONES

WELT

colonies and backward countries is still on the increase, and that the accumulated profits of the Great War enabled the United States to become, very suddenly, the foremost investing nation in the world, sending out its capital at the average rate of a billion dollars a year.1 Money-lending countries of Europe, in the past, have shown a marked tendency to annex their debtors in Africa and Asia. Need America do the same? Is investment in backward countries a certain cause of imperialism?

Why investments have so often led to annexations needs just a word of explanation. French bankers lend money, let us say, to Morocco; it is a speculative venture, but the rate of interest is attractive. Morocco, being inefficiently governed by its native rulers, fails to pay interest. The French bankers appeal to their own government. And presently Morocco is a French protectorate, a French colony, in which efficient French officials make sure that French investors receive their due. Whether there is any other way, one may well ask; but the question of solutions must be left for consideration after we have mastered the facts.

THE LOGIC OF NATIONALISM

The economic stage is now set for imperialism, with surplus manufactures, steam transportation, raw materials, and surplus capital ready to play their rôles. The cast is not complete, however, until we add another actor-the new doctrine of politico-economic nationalism. Upon this all the plot hinges. For if most men still believed, as they did a half-century or so ago, that the state has no concern with economics, the economic factors mentioned above would have been impotent to spur national governments to imperialist deeds. But the mid-Victorian doctrine of liberalism, which brooked no governmental intervention in business affairs, was after all a mid-Victorian

The Department of Commerce has estimated that the private investments of United States citizens have reached a total in 1925, of 9% billions of dollars. Of this sum, 43% is invested in Latin America, 27% in Canada and Newfoundland, 72% in Asia and Oceania, and 22% in Europe. It is significant that almost four-fifths of the total is placed in nonEuropean, undeveloped, relatively weak countries, and that the greater portion is in industrial and railway enterprises, rather than in government bonds. These figures, of course, do not include the war debts owed to the United States government by European governments. . . . On this subject see R. W. Dunn, American Foreign Investments (N. Y., 1926).

'Cf. infra, pp. 197-218.

doctrine, and it soon yielded the center of the stage to the rival doctrine of economic nationalism or Neo-Mercan ism a reincarnation of that early modern Mercantilism which we have been at pains to describe.

If ever there was a "spirit of the age," the spirit of the second half of the nineteenth century was political nationalism. Germany achieved national unity "by blood and iron"; by blood and iron was Italy welded into nationhood; the Civil War cemented the American union; the Balkan nations emerged from Near Eastern turmoils; the Poles valiantly but vainly fought, in 1863, to regain national independence; Russia began to practise the nationalist policy of "Russification"; Disraeli revived British patriotism; the same ferment was at work among the Czechoslovaks and Yugoslavs and Magyars of AustriaHungary; and in France nationalism became a bitter passion after the loss of Alsace-Lorraine. The nationalist wars of the period from 1848 to 1878 were succeeded by imperialist conquests.1

Nationalism means that people considering themselves similar in language, "race," culture, or historical traditions, should constitute a separate sovereign state; imperialism, on the contrary, means domination of non-European native races by totally dissimilar European nations. Antithetical as these two principles may seem, the latter is derived from the former through economic-nationalism or neo-mercantilism. German economists in the middle of the nineteenth century were peculiarly prominent in developing this doctrine. If Adam Smith's Wealth of Nations laid the theoretic foundations for free-trade England, Friedrich List's National System of Political Economy (Das Nationale System der Politischen Ökonomie, 1841) offered a basis for the protectionist policies of Continental nations. List boldly blasphemed against the first article in the creed of the orthodox or "classical" British and French economists, namely, that by the working of natural law, the free pursuit of selfinterest by each individual would produce the greatest welfare for society collectively. Instead, List offered the dogma that the nation is a continuous and supremely important entity, whose well-being must be promoted by wise regulation of business. Private interests must bow to national needs. Nations 'See C. J. H. Hayes, Essays on Nationalism (Macmillan, 1926). "NATIONALISM NOT CASE WAR. MAN BISMARCK- DECIDED TO CAUSE THE

ONE

DOES

with infant industries should adopt "educational tariffs," until industry, a culture and commerce reached the mature development and harmonious balance. List is cited as one among a host of European theorists who led the movement of ideas in favor of economic nationalism. And such doctrines fitted in well with practical exigencies of politics. The votes of workingmen demanded labor legislation; industrialists demanded tariff protection; humanitarians pleaded for social reform; and each of these urgent political forces made for greater control over economic matters by the national state. In tariffs, in labor legislation, in social reforms, economic nationalism became the order of the day in the waning years of the century. Imperialism naturally ensued, once it was assumed that government should promote business. For then it follows that nations may legitimately reach out for colonial empire, in order to preempt markets for their surplus manufactures, protect investments of their surplus capital, obtain business and coaling stations for their shipping, and secure raw materials. Such is the logic which combined with economic facts makes imperialism a necessity.

More humanly interesting, doubtless, than the abstractions and statistics through which it has been necessary to make our way thus far, is the story of the actual conversion of England, France, Germany, and other nations to imperialism. Conversions are always interesting. And this one is a peculiarly intriguing display of man's ability to combine egotism and altruism in a plausible amalgam.

On the eve of conversion individual sinners often possess a dual personality: an unregenerate dominant ego, and a more devout but suppressed self struggling to gain the upper hand. Without carrying over the ethical implications of this metaphor, we may say that the conversion of a nation to imperialism meant not an instantaneous volte-face on the part of the entire people, but the triumph of a hitherto submerged imperialist agitation reinforced by general economic and political changes, over a gradually weakening anti-imperialist party.

ENGLAND'S "ABSENCE OF MIND"

That England acquired an empire in fits of absence of mind, is a remark which Englishmen have been curiously fond of