My purpose in this paper is to indicate the extent to which the United States seems to have learned something from history as regards the economic problems incident to the preparation for war by comparing the preparations made during the period of neutrality in 1914-17 with those of the corresponding period of 1939-41, though I shall at points go beyond the neutrality period. The topic is a wide-ranging one and in the time available I can only hope to touch rather sketchily upon the more important aspects of the problem. I shall not attempt any analysis of the factors which explain the greater results secured during the last two years than in the earlier period of neutrality, involving such things as the attitude of the administration, of Congress, and of the public, as well as the fact that so many of the generation that faced the problems of the last war are still alive, in marked contrast to the situation in 1861 or 1914, for to do this would carry me too far afield. I shall treat the subject topically under the headings of the chief economic problems of war.

These chief problems are: first, getting the goods and services required for fighting; second, providing for the essential needs of the civilian population; third, devising means to enable the government to pay for these goods and services, the problem of war finance. Sometimes a fourth problem is added to this list, that of preparing to meet and to minimize the inevitable post-war readjustments. While I think this last should be classed as a peace-time problem still it is one which should properly be held in mind in shaping war-time policy, but it must be kept strictly subordinated to the problems involved in the effort to win the war.

Sometime in the future, I hope that there will be published an exhaustive account of one of the most revealing episodes in the recent history of our two countries. I refer to the propaganda for and against the proposed development of a great navigation and power project on the International Rapids Section of the St. Lawrence River.

Doubtless other political movements in our history have a public significance even greater than that of the St. Lawrence seaway. But the St. Lawrence project probably offers to historians, to political scientists, and to economists, a more illuminating study of the way in which our democracies act, or fail to act, under the drives of conflicting pressure groups and of conflicting social philosophies than does any other political controversy of recent years. This is true because the underlying motives of the people who have taken part in the fight for this project are more clear-cut and less camouflaged than those involved, say, in controversies about the protective tariff, or about the merits of American isolationism versus interventionism in international affairs. So broad is the significance of this case study in the realm of economic and social motives— so critical is its import for our democratic way of life—that I shall return to it later even at the expense of cutting short my comments on the merits of the St. Lawrence project itself.

In one of his many famous speeches, Mr. Churchill predicted “the English-speaking democracies, the British Empire and the United States, will have to be somewhat mixed up together in some of their affairs for mutual and general advantage.” Mr. Churchill was thinking presumably of the fields of public finance, administration, and war strategy—of quasi-political affairs. This paper is concerned with some of the ways in which the economic affairs of nations are “mixed up together.” Now the economic structures of trading nations are intertwined both in war and peace, and whether trade is administered by public officials or planned by a multitude of private individuals. The importance of the entanglement corresponds to the importance of trading relations in the economic structure of each country. However, when trade is not administered its importance is less direct and obvious to governments and government officials. As controls are extended in the domestic realm, international trading relationships tend more and more to become subjects of administrative and even diplomatic interest. Administrators in the domestic fields are always tempted to simplify their problems by insulating the domestic economy from unexpected or unpredictable changes elsewhere, without considering the total effects of their regulations on the domestic and foreign economies as a whole. Accordingly, international administrative co-ordination in war time must increase very rapidly if it is to keep pace with the increase in domestic regulation and prevent a rapid diminution in the extent and quality of international economic co-operation.

Economists of the past century generally believed that, beneath the appearance of social conflict, there was a fundamental harmony, if not identity, of economic interest, and that this harmony of interest existed not only for different social classes and occupational groups, but also for different regions within a nation state and even for different nation states themselves. This belief in a universal community of interest, which led to the notion of a world policy which would serve human welfare conceived as a whole, rested on certain explicit and implied articles of faith, viz. (1) on the proposition derived from Pareto's law, that all social classes benefit from an increase, and suffer from a diminution, of the national real income; (2) on the assumption of mobility of labour and capital within the national state and even across international borders; (3) on the laissez-faire theory of international trade, which invoked the principle of comparative advantage; (4) on the belief that competitive private enterprise, if left alone, naturally achieved the maximization of production along the most economic lines. Competition among sellers led to the adoption of the most efficient processes and the extension of production to the point of least profitability, that is, to the point where the least efficient firm in the industry earned no profits above “normal” interest on capital and average wages of management. Competition among buyers was likewise an operative principle for social good, for it resulted in the allocation of the productive resources so as to satisfy in the order of their importance the most urgent social wants. A final assumption was that social welfare, consisting of the sum of satisfactions, could be measured in pecuniary terms. Thus an addition to the money income of a large group was held more than to offset the real sacrifices of any small group, regardless of the level of subsistence enjoyed by the two groups before the change occurred. The natural corollary of these assumptions was that the test of national policy was its effect on the national real income. But this could not always be determined or, with respect to future policy, accurately predicted. Since, however, profitability was regarded both as the guide to the most urgent in the hierarchy of social wants and as the single stimulus to increased production, it was believed that the anticipation of high profits was a rough and ready indication of an increase in the national real income. Hence profitability was the criterion of welfare and the compass of national policy. In policy so conceived and so directed all classes were held to have a common interest.

Rapid and continuous decline in the size of the human family has been widespread during the last half-century. The main facts are widely known. A brief summary will serve as an introduction to what follows.

In most European countries a period of continuous decline in the birth-rate began about 1870. In France the decline began much earlier, in eastern European countries somewhat later. We find the same picture, varying only in time of origin and tempo, in the United States of America, the British Dominions, Russia, and probably in Japan. A precise measure of the trend in terms of gross and net reproduction rates cannot be given over a long period, but the changes in these measures are available for several countries from 1911 to 1931. The drop in the gross reproduction rate in these twenty years was 50 per cent in Sweden, 38 per cent in Denmark, 37 per cent in England and Wales. In Australia it was 41 per cent between 1912 and 1933. Studies of smaller population units reveal the same trend. Among the counties of England and Wales, the smallest percentage decrease between 1911 and 1931 was 18 per cent. In Scotland a few counties showed smaller percentage decreases, the smallest being 11 per cent.