Large-Scale Economy

Large-scale Economy The road to European unity A ground plan

Published by Dr. Wilhelm Gürge and Dr. Wilhelm Grotkopp

With a foreword by Reichsminister Treviranus

Organization Publishing Company m.b.H (S. Hirzel), Berlin W 8, Leipziger Strasse 115/116

Large-scale economy The road to European unity An outline

Large-scale economy The road to European unity A ground plan

Published by

Dr. Wilhelm Gürge and Dr. Wilhelm Grotkopp

with the collaboration of

Prelate Franz Blaskovicz, Temesvar / Professor Dr, Karl Brandt, Berlin / Professor Dr. phil. Ing. agr. Otto von Franges, Zagreb / Professor Dr. Elemer Hantos, Budapest / Central Director Franz Hilmer, Brno Attorney Dr. Horst Holstein, Berlin / Prof. Dr. Dr. Richard Kerschagl, Vienna / Dr. Robert Siegert, Berlin

Foreword by Reich Minister G. R. Treviranus

1931

"Organization" Publishing Company (S. Hirzel) Berlin W 8, Leipziger Strasse 115 -116.

Copyright 1931 by Organization Verla gsgesellschaft (S. Hirzel), Berlin W 8, Leipziger Straße 115 -116.

All rights reserved.

Reprints, including excerpts, may only be made with precise reference to the source after agreement with the publisher.

J. S ch aa l Bu ch d ru ck er ei G mb H ., Be rl in C 2 .

Foreword

by Reich Minister G. R. Treviranus.

It was not only with the end of the world war that pure politics suffered complete shipwreck in its efforts to bring relief to the plight of the entire world. But this process has become obvious only in the last years and then with all clarity in the last months. It is impossible to seek any way out of a crisis, even on a modest scale, with the pure politics still practiced by the so called victorious states. Even the constructive ideas put forwa rd by politicians of this type are from the outset under such a heavy hypothecary burden of power-political interests that they are instinctively rejected by suffering humanity. Even any idea that is good in itself must inevitably suffer a falsification in its political transformation on earth under these circumstances.

In the German people, in painful but clear insight, we have long since decided to approach the solution of all present and future questions in the sense that corresponds uniquely to our dise mpowered situation. At the same time, however, we have found our real task. It is the mission of the German people to contribute in a leading way to bringing new supporting ideas to the peaceless world: for the reorganization of law and for the reorganizat ion of the economy, because with a resolute yes to this inevitability, we can represent our ideas purely, witho ut power-political backgrounds. To organic thinking it seems a matter of course to think the idea of Central Europe, first expressed by our great Friedrich List and later elaborated by Friedrich Naumann, to its logical conclusion and to lead it towards its practical solution.

For organic thinking, all power -political inhibitions take a back seat to the great rationality of economic thinking. The vi ctory, however, will be with organic thinking, if mankind is to find any other way out of its misery.

G. R. Treviranus.

Berlin, September 24, 1931.

5

Editor's Preface.

Since the Southeast European conferences of 1930 and the Geneva negotiations on the German-Austrian customs union, the question of whether and how an organic partial solution can be found as a preliminary stage and starting point of a European single economy in Central and Southeast Europe *) has been at the center of European interest .

The problems to be overcome in the attempt to find such a solution will be discussed in more detail in this book. In terms of economic policy objectives, this book cannot be a unified one. The interests are too diverse and the debate has not yet led to s ufficient clarification. For this reason, the time has unfortunately not yet come to draw up a comprehensive program. What all the authors have in common, however, is the will to create better living conditions for the peoples of Europe through European an d progressive measures, the desire to arouse interest in these problems in wide circles, to cooperate in the creation of such an atmosphere of confidence as will make possible the joint work of the decisive economic -political forces. The editors therefore cherish the hope that an understanding will soon be reached on the differences of opinion which still exist and that this anthology will contribute to the clarification of the disputed problems. The work has emerged from lecture evenings of the Study Socie ty for Central and Southeastern Europe in Berlin.

Lectures held there by Brandt, Grotkopp, Gürge and Siegert are herewith presented to a wider circle of the public. They are supplemented by papers of other authors. Each contribution is the sole responsibil ity of the author. We would like to express our obligatory thanks to the members of the Study Society for Central and Southeastern Europe, who contributed to the clarification of all problems by their active participation in the debate, and to all others who supported us in our efforts to publish the book.

Berlin, October 1931 Wilhelm Gürge Wilhelm Grotkopp

*) In this book, Central Europe is generally understood to mean Germany, Austria and Czechoslovakia, and Southeastern Europe Hungary, Yugosla via and Romania. In exceptional cases, the terms are used in a broader sense, Central Europe as a collective term.

6

The construction of Central and Southeastern Europe as an economic demand.

By Dr. Wilhelm Gürge.

It is in the countries of Central and So utheastern Europe that the impact of the world crisis is most present. The collapse of one of the largest Central European banks has made the need particularly clear and alarmed the world to such an extent that international aid has been promised and provi ded from various quarters. However, it is not time to provide relief only with credit measures and instant support, but a constructive solution is necessary, because the crisis in Central Europe is more than a part of the world economic crisis.

What the causes of the world crisis are, shall not be discussed here in all breadth. One cause is undeniable: the obstruction of the international exchange of goods, the resulting economic idleness and the misallocation of capital. These consequences naturally occur most adversely in small markets, because small markets, with their narrowly defined economic organism and because of the low diversity of their production apparatus, are very dependent on traffic with other economies and are repeatedly hindered in this by customs borders.

The importance of the unimpeded circulation of goods may therefore rightly be placed in the foreground in the question of the cause of the world crisis and the Central European economic distress, and one may begin with the statement that after the war the foreign trade of the world no longer succeeds in providing for the consumption of the raw materials and foodstuffs produced, so that there is an abundance of unconsumed material which, moreover, is in a state of constant growth.

Two questions therefore force themselves upon us: Is the world's manufacturing apparatus perhaps insufficient to process the wool, copper, cotton, and hides to make clothing and other necessities? Or are the people so satiated that they do not have the physical poss ibility to consume more grain and meat, to eat more bread? Without doubt, both questions must be answered in the negative, for factories are plentiful, but operate at only half their capacity, and a large number of people could consume far more than they do now in clothing and food.

So there is no overproduction, but only the fact that it is impossible for the present system to lead the available raw materials through the factories to the consumers. At first sight, one seems to have to agree with the people who 7

blame capitalism for this. But since capitalism can only be understood as an economic function, its guilt for this can only be made credible if one proves that the present economic system actually still corresponds to the principles of capitalism. But this is not the case, for the capitalism of more recent times has become unfaithful to its original form of life, the liberal principle. It has fallen into an ossification which, in its structure of cartels, tariff agreements and customs claims, is qui te capable of competing with the planned economy of an outwardly socialist system and differs from it only in the ownership relations. If the historical task of capitalism, the exploitation of the world's resources and the invention of the production metho ds and transformation processes necessary for this, should be fulfilled, further development will take place effortlessly. But this can be only the transformation of one side of its face. The recipes of business and world economic thinking, unthinkable without capitalism as a form of economy, in the sense of the cheapest and most extensive satisfaction of needs, will not reasonably be wanted to be eliminated. The production methods of socialism would have to remain the same in technical respect, because onl y in this way the satisfaction of demand could proceed in the desired quantity, without, however, being able to reach the degree of saturation. The deficiencies, as cannot be emphasized often enough, are not so much in the field of technical organization a s in the field of obstructing the international exchange of goods. Customs frontiers, in their present level and composition, lead to artificial rent, feign capital, and permit the establishment of price zones which impede the natural equalization of values and the flow of goods. While the prices of raw materials, for which the last producer is always decisive for the price formation, have fallen by about one third compared to the pre -war level, those of industrial products have more or less held their leve l (apart from the cheapening by mass production, but in any case in relation to their cost price).

This circumstance helped the commodity and agricultural countries to believe that it would be more correct to establish a tariff -subsidized industry and to produce at greater cost - even with borrowed capital - than to import cheap finished goods. An example of this is the steady growth of spindle numbers in Egypt and India, with the price advantage of double freight, no tariff manipulation and saved insurance still accruing to the producer.

There is a certain connection between the constantly increasing industrialization overseas and the unemployment in the iron producing and processing industry in Germany. Here both parts overlook the fact that one is dependent on the other, that the Saxon industrial worker can consume all the more wool of the Peruvian Indian than the latter buys from him in other goods.

8

But the problem of the impeded circulation of goods does not arise with the same sharpness and vehemence for all partners of the world economy.

In Europe, the areas of industrial and agrarian structure stand out quite vividly and permit a demonstration of the general statements, We note the areas of Western Europe, of which Germany is the most industrial, an d the areas of agrarian surplus in the East and Southeast.

Turning first to the areas of the northwest and Scandinavia, one finds the economic connection with the north of the actual continent across Germany, but at the same time one can determine the dist inctly global economic structure. Holland and Denmark with their strong processing economy are already equipped by their geographical position on the one hand to the hinterland, on the other hand with their ports to the sea with a double interest. In addit ion to their role as suppliers of livestock and vegetable products, they form a bridge to the rest of the world.

Norway and Sweden are economically even less interested in the continent, except for Germany. The economic links of these two countries tend to extend beyond Scandinavia proper to England and America. The situation is similar in Finland, where wood and paper are the main exports, which are sold on the continent anyway. Finland's exports are supplemented by livestock products, Norway's by fish, an d Sweden's by ores. In any case, it is clear that these countries are relatively healthy and have little interest in changing their own economic situation. The question of closer association with another economic area is not fundamental for them, although they would naturally welcome a favorable development of the situation of their customers on the continent or on the world market.

As far as France is concerned, it was expected in Franco -German circles of understanding up to 1930 that the initially only va guely outlined aspirations for a United States of Europe under French leadership would soon be successful. In the meantime, however, it has again been confirmed that France's interest in a European economic solution is not too strong. France has strong interests in Africa and, from Marseilles, through the convenient and cheap means of sea transport, has direct communication with North Africa over the short 30 -hour route. There one wants to win the raw materials which France lacks. In Algiers, in addition to the grain shortage, olive oil, rubber and wool can be produced, as well as copper, lead and tin. In West Africa, cotton projects are being floated with the help of which the French textile industry is to be made independent.

The economy of continental Fra nce, on the other hand, rests confidently and balanced in the ideal distribution among the various branches of production, with 41.5 % working in agriculture and the corresponding figure of 36.1 % in 9

industry, taking into account the predominance of smal l and medium-sized farming in agriculture.

Economic links with the countries of Central and Southeastern Europe are not very close. The share of imports from Central European countries averaged 5.96% in 1925/26 and 4.52% in exports. By contrast, the releva nt figures for Germany, for example, are 25.54 % and 16.6 %.

It is now necessary to outline Germany's economic structure and show its position in the world economy in order to establish its interest in a large -scale economy in Europe and the dismantling of tariffs.

Germany has the distinct character of a labor economy, i.e., Germany rests mainly on its industrial production apparatus and imports raw materials which, processed, it tries to sell on third markets. It thus depends on third economies to pay for the labor put into its products. Since the large industrial plants require a certain minimum employment, it can exist only if this is guaranteed.

However, postwar tariff policies prevent sufficient sales. Today, German industry is operating at just under 5 0% of its capacity. This state of affairs is only bearable because the state, with the help of bonds and taxes, has so far taken over the care of the unemployed, so that these costs in any case do not weigh decisively on the prices of industrial products.

Germany must therefore seek markets to the extent that it can use exported labor to pay for the raw materials and food it needs to meet the needs of its own population, and to meet its financial obligations. At this point we will disregard the other compon ents of the balance of payments because they do not play a decisive role in relation to the movement of goods. It must therefore be decided shortly whether an active trade policy can provide Germany with the necessary markets and where these are to be soug ht and developed.

The first idea is to work overseas more intensively and to sell there. This view is justified, among other things, by the fact that we are and will be dependent on overseas. Germany needs oil, copper, zinc, tin, wool, rubber, hides and oi l fruits. The same is true of cotton, which is a major component of the German balance of trade. However, no attention is paid to the fact that the overseas sales market has deteriorated in comparison with the pre -war situation and is expected to deteriora te further. This is due to the efforts of overseas countries to make themselves independent of Europe, and thus also of Germany, for the purchase of finished products, to the extent that they can make themselves independent, the result of which has so far been the fall in raw material prices and unemployment in the industrialized countries.

It may be mentioned that an industry such as the German toy industry, which used to have a 75% share in world trade, now has only a 60% share. If this is already true for an industry which, like the toy industry, is based on very 10

specific export conditions, most of which used to exist only in Germany, one can imagine how much more difficult it will be if in the future simple mass produced articles in the metal industry and textile processing are manufactured overseas. The balance of trade is becoming more and more unfavorable. The demand for raw materials will increase rather than decrease, but the export of industrial products will certainly decrease, unless, as in the last 100 years, a further tremendous technical development influences the situation in favor of the European industrial countries. It is possible to increase competitiveness somewhat by lowering wages and the standard of living, and to temporarily attract a larger group of buyers through lower prices in order to increase sales. The only question is how long this will be the case.

A small increase in tariffs is already enough to cancel out even a considerable reduction in wages.

The further consideration of developing markets through colonial activity must be rejected for the reason that there are no areas in question for Germany that can be developed without large capital investments. In order to correctly assess the distribution of exports, it is necessary to consider the interdependence of German business with overseas in numerical terms and to bring the export business into a relationship with domestic sales. This leads to the interesting conclusion that Germany sells about 20 % of its total production to markets outside Germany, and of this 20 % total export sales, overseas only one quarter. The rest of three quarters is sold to England with its dominions, to Russia and to countries of continental Europe. These figures show the enormous importance of the internal market and the actual interdependence of the European markets. The unrestricted customs market or general free trade will always be the most important basis for the balance of the national economy and for securing sales. To round up the picture, i t must be remembered that the overseas markets, which take 25% of Germany's total exports, sell almost twice the same value to Germany. It is obvious that this ratio cannot be permanent. However, it should be recalled once again that there is also a tenden cy for the overseas markets to develop in a way that is in itself unfavorable for Europe in the future. The problem of the procurement of raw materials and that of the balance of trade must therefore be addressed in some way.

We need overseas raw materials , and overseas will not be able to produce refined products of European provenance, such as tar dyes, machinery, yarns and electrical products, for the foreseeable future. But it would be desirable if overseas became generally aware of its one -sided supplier position.

According to the foregoing, it is necessary to continue to cultivate the existing markets and at the same time to try to develop a domestic economy and, starting from this, a world -free trade economy. Unfortunately, the demand for 11

world free trade must remain a pious hope for the time being and one must strive for partial solutions.

In the present situation of the individual European economies, the agricultural states of Yugoslavia, Hungary, Romania and Bulgaria, as well as Austria, Poland and Czechoslovakia, which belong to them geographically and organically and which together absorb 15% of German exports and account for about 11% of German imports, seem to be the most suitable candidates for a customs agreement with Germany. It will be dem onstrated later in detail why the economic connection of these states with Germany can be called organic.

However, we would like to take this opportunity to point out the fragmentation of these areas, which must undoubtedly be eliminated.

The foreign trade of the states that emerged from the Danube Monarchy or were enlarged by parts of it (with the exception of Old Italy and non -Austrian Poland) amounted to about 11 billion in shillings in 1913. In 1929 and 1930 it amounted to 26 and 21 billion shillings, r espectively, about 2.5 times as large as before the war, the increase in the price level compared with the prewar period being offset by the reduced production of these areas. One should bear in mind that Hungary, for example, still supplies three quarters of Austria's wheat requirements in order to appreciate the obstacles to the flow of goods that have been erected by the tariff walls. The foreign trade of the individual successor states, calculated per capita, is in all cases at least equal to that of the old Austro-Hungarian Empire; indeed, today's Hungary has twice that amount, Czechoslovakia three times, and Austria five times.

But the foreign trade of all these states takes place almost entirely among themselves, in the natural endeavor to exploit the existing organization stemming from the old Danube monarchy. The figures therefore represent only suppressed internal trade and underline the demand for customs agreement.

The Treaty of St. Germain, Article 222, and the Treaty of Trianon, Article 205, took into account the interconnectedness of the old Austro -Hungarian Danube Monarchy by allowing the states of Hungary, Austria and Czechoslovakia to agree on preferential tariffs among themselves. However, this provision was never used because the period of 5 years provided by the above -mentioned treaties was too short for the implementation of such far -reaching economic actions.

Non-European trade, which averages just over 5%, is almost non -existent in these countries. Their main trade is with Germany, after trade with each other, both in imports and exports. The urgent need for a change in the existing conditions is expressed especially in the passive balance of Austria's trade 1

balance, which holds the continental record at about 33 2 % of imports. At the same time, Austria has no income from the other balance of payments except 12

in the form of loans, which have been granted continuously in recognition of its situation.

It is also worth mentioning that the Danube is no longer used as a waterway to the extent that it would be under natural conditions. Before the war there were no border stations between Passau and Orsova, now there are eight, in Bratislava, Szob, Batina and Gradista, taking into account the need for double customs control. The result is th at Danube traffic has fallen by about 50% since 1911. If the customs crossings were made easier and the shipping organizations were able to exploit them more, it would be possible to estimate how much cheaper the cargoes would be and how much shorter the t ransport times would be. Today, it is more expensive to bring Theiss wheat to Magdeburg than Manitoba wheat from Canada to Magdeburg.

The surplus of wheat and flour in Hungary, of wheat, corn and barley in Romania, of wood, eggs, fruits, cattle and pigs in Yugoslavia, resulting from this situation, vividly expresses the deficiency of the present distribution system, but also the necessity to include Germany in the circle of this economic area, because Germany alone offers the guarantee that the surpluses can be consumed. With Germany's inclusion, the goal is achieved: the organic link between raw materials, foodstuffs and consumption between industrial products and consumers.

The unification of the entire area can serve in balanced interaction to increase the purchasing power of the agricultural growth areas and to better exploit the industrial production apparatus. The progress of the economy would naturally not be additional, but potential, since all existing bases of development could develop freely in the newly emerging internal market. In Germany, almost all branches of the manufactured goods industry, especially the chemical industry, the electrotechnical industry, the machine industry, the textile industry, the iron industry and some smaller branches, s uch as the leather goods and toy industry, would have advantages. It can even be assumed that there would be advantages for those countries which, in terms of space, do not belong to Central Europe, such as Sweden, where iron ore mining, cellulose, paper a nd electrotechnical industries would experience an upswing, and Belgium, where iron, machine, textile, glass and cement industries would flourish. Finland, on the other hand, could sell paper, cellulose and wood on a larger scale.

In the course of time, wi th complete freedom of movement, the area would naturally undergo more or less obvious changes in the location of agricultural and industrial production; there would be shifts in the form of operation and the type of goods, which would be followed by econo mic cycles. In the case of a merger of complementary economies, there are actually only advantages to be seen. The most important disadvantage at the present stage of 13

development, the immediate loss of fixed capital in the form of unprofitable industrial enterprises, need not be questioned. The larger, unimpeded market allows each enterprise to operate with a larger rent than before. That this advantage must result in lower prices is the consequence of mass production and permits a good prognosis for the standard of living of the new economic complex.

On this occasion, the problem arises once again whether any kind of trade policy rapprochement or merger of national economies will result in net capital losses, on the one hand for the agricultural states w ith regard to their industrial production facilities, and on the other hand for the industrial states with regard to their agricultural components. On the part of the industrialized countries, it is always emphasized in the relevant Western European agricultural circles that a fall in tariff barriers would result in the loss of capital, which is invested particularly in the grain industry, and that, in addition, the balance of payments would be considerably weakened by the additional imports of raw material s and foodstuffs which would become necessary.

We do not want to go into the whole range of these agricultural policy problems here, but we would like to emphasize that neither cereal production as a whole nor any single grain crop is decisive for the deve lopment of German agriculture. In Germany, grain farming is generally seen as the pivot of German agricultural policy, while development is in fact pushing it more and more aside. Animal products today already occupy a space of over 60% of the German agricultural economy in value. The sacrifice we are making in Germany to agriculture, and especially to the grain industry, is not small, can be estimated at 2-3 billion, but our proposal wants to maintain the protection against overseas. It only allows greater competition from the southeast. This concession must be made so that support for German agriculture can be maintained at all.

Furthermore, it must not be ignored that the capital which rests in the grain economy is no longer capital, since as a criterion of the term capital it lacks the associated rent and is only artificially maintained in price. In this respect it may also be said that the capitalist system has become unfaithful to itself in all those cases in which prices are secured by shifting the pur chasing power or internally changing the wage fund. After all, agricultural policy cannot be considered in isolation; other factors, especially population policy and general policy, must be taken into account. Germany cannot afford to start dismantling agricultural protection on its own account because of the correctness of our remarks. In the present critical period, this would place an additional burden of social costs on the German budget, for which there is no cover. Above all, it would not be possible to provide housing for the migration that would begin 14

from the countryside to the cities. Due to the extensive rural economy that would result from the release of customs duties, there would be a great surplus of people. It is estimated that the number of freed workers, including family members, would be about 4 million.

Since the grain economy stretches in a belt from the east across the north of Germany, it should also be noted that the east in particular, which is currently still on the grain economy, would be extraordinarily weakened in terms of population. But there is the opposite interest. However, one should also listen to the agricultural politicians who are working toward a transformation of the eastern large landholdings to peasant farming, and thus at the same time strive for a change in agricultural production and a strengthening of resilience.

The peasant farm, by its very nature, is usually a mixed farm, and is able to engage in livestock farming to a much greater extent than the large lande d estate, based on cheap fodder. Moreover, experience teaches that in times of crisis, the farm offers more resistance to catastrophes than the large landowner, due to the possibility of greatly reducing temporary expenses.

Even if the basic tendency of to day's German agricultural policy is rejected as incorrect and its revision must be demanded in the sense of the direction advocated by Brandt, on the other hand, it must be emphasized that the accusation of pursuing an uneconomic policy cannot be made unil aterally against Germany.

The tragedy lies in the fact that Germany also makes and must make the mistake. The agricultural and raw material countries behave in exactly the same way with the protection of their industries and with the high breeding of their industries. But while we are merely pursuing a policy of capital preservation with our tariffs, these countries are misdirecting capital with their industrial protection policies. If, therefore, the elimination of tariffs and the formation of larger econo mic areas, if possible a world economic area, is to bring about a reduction in the general costs of production - for that is what the endeavor ultimately amounts to - then freedom must be given to the unimpeded development of the production locations. It i s therefore not acceptable for the agricultural countries to advocate theses which are in contradiction with this.

A leading statesman of an agricultural and raw material country, who also enjoys a reputation as an economist, spreads a theory that must not be allowed to become common practice under any circumstances. According to this view, the agricultural countries are poor in the long run, while the industrialized countries are rich countries in the long run. Accordingly, every agricultural country would have to strive to acquire an industry with the help of which it would save money, even if it produced more expensively than

15

foreign countries and thus made a protective tariff necessary for this industry.

To prove this, the following example is given: There is a difference in the productivity of the agricultural countries and the industrialized countries. The industrialized countries would have the advantage that a worker (the example works only with fictitious figures) who costs RM 1.- every working h our, could produce X light bulbs worth RM 50. -, while the agricultural worker in Romania, for example, could only produce a production of grain worth RM 5. - in the same time. With the product of 10 Romanian worker hours, therefore, the product of one Germa n is bought.

However, the argumentation is not without gaps, because it overlooks an essential moment, namely that of the use of capital. The production detour, which is connected with the installation of capital, which latter causes interest, must of cour se make production cheaper, because otherwise nobody would be interested in investing capital and taking on an interest service.

Thus, Romania does not buy with 10 worker -hours the product of one German worker-hour, but it buys with 10 worker -hours the product of one German worker-hour and the capital invested in the respective branches of production.

The fact that the German industrial worker is paid more than the Romanian agricultural worker is due to the much more expensive training of the German worker and craftsman. If, therefore, the agrarian state takes out foreign loans in order to build up an industry and at the same time secures the price and thus the rent of the capital with a protective tariff, this may absolutely be called a misallocation of cap ital. The capital is squandered, for it does not normally yield an annuity. The annuity is artificial. By the fact that the interest service flows to foreign countries, the only result in the end is that domestic purchasing power is siphoned off through th is valve for the benefit of foreign capitalists. Thus, instead of raising the productivity of economic sectors, one achieves the opposite with such things. They weaken the productivity of viable industries, in this case agriculture and commodity production , in favor of a false idea.

It can be taken for granted that the regions of the Southeast, especially Romania, Yugoslavia and Bulgaria with 80 % agriculture and Hungary as a likewise markedly agricultural country with 60 % agriculture, can only find advantages in the connection with the industrialized countries of Austria, Czechoslovakia and Germany. This is also the case vice versa and the wish of all the parties involved. The will to carry out such an economic unification has been repeatedly and unambiguo usly declared. If the idea could not be realized up to now, only political motives were to blame, which we hope cannot be claimed for eternity against the true interests of the peoples.

In the context of this consideration of the pan -European situation, it is 16

necessary to take a look at Poland and Italy, of which the former, like Czechoslovakia, has been strongly pushed away from its actual economic direction by politics. In Poland, too, agriculture is the most important branch of the economy. Almost hal f of the land is cultivated with arable crops. People employed in agriculture and forestry, including their families, make up 64% of the total population. The most important soil products in Poland are rye and potatoes. Rye is a significant export item in most years. The harvest of oats and barley is also relatively large, of which barley is the most secure item in the export of arable products. To be sure, Poland has considerable industry and some importance as a raw material area, the latter having been a chieved by the annexation of Upper Silesia. Most of the hard coal and zinc ores are mined there, and the majority of the metallurgical plants are also located there. Iron ore is not mined in such quantities that the local smelters could be adequately supplied. However, the sales conditions have been made extraordinarily difficult by the breakup of Upper Silesia, because the present Polish Upper Silesia was connected with the remaining German part and thus with the whole of Germany to form a solid unit of in dustrial organization.

It is therefore in the interest of the raw material areas to seek a connection with the processing and consuming German industries. The Polish textile industry, which occupies the first place among the processing industries, is in a similar situation as the raw material industry. It is located mainly in Lodz and is struggling extraordinarily hard due to the impossibility of supplying the Soviet Russian area, which used to be its main sales area.

Poland is seeking to industrialize prog ressively through an astonishingly high industrial tariff; such industrialization may be possible, but it is not practical.

Poland's geographical position means that it should seek to join a Central European economic area in the interest of eliminating pol itical friction with Germany. Unfortunately, however, the prospects for this are extremely unfavorable because of the political attitude. It is significant that Poland is constantly in close contact with wheat -exporting countries without having any significant importance in this commodity category.

Italy also plays a role for the Central European economic area. It is an importer of wheat, but unfortunately political antagonisms with Yugoslavia prevent a positive attitude. On the other hand, since Italy is h eavily dependent on imports for important industrial raw materials, such as coal for about 90 %, timber for about 70 % and iron for about 25 %, its interdependence with pan European interests is obvious. One cannot expect Italy to take the initiative for a constructive solution in our sense, but one can certainly expect that Italy, in contrast to France, will have to join a larger European economic area.

This is about the end of the panorama of the forces which must be touched within the framework of Europe an cooperation. For the sake of clarity, it is 17

impossible to deal with all the national economies here. We are only interested in identifying the natural nucleus for the recovery of Europe. We see the complementary fusion characteristics especially in t he countries Germany, Austria, Czechoslovakia, Hungary, Romania and Yugoslavia. This area, if Poland is added, covers about 2 million square kilometers with a 1

population of 150 million. This means 2 2 times the present population of Germany, with an are a in which there is an abundance of the most varied raw materials and foodstuffs, which at least in this area can reach the desired target: the consumer, the consumer.

If, as we confidently hope, Central and Southeastern Europe becomes an economic unit, th is will provide the impetus for a recovery of the world economy. Inevitably, this group would result in the dissolution of other obstacles to the free flow of goods lying in Europe and the world.

18

Trade Policy Opportunities and Necessi ties.

By Dr. Wilhelm Grotkopp.

The current economic crisis in Central Europe, which has been dragging on for years, poses one of the most urgent tasks for our time: the rebuilding of the Central European economy. The elimination of this Central European t rouble spot is of crucial importance not only for Central Europe, but also for the other European countries and for the world economy, because any recovery of the world economy will be hindered as long as the economic conditions in Central Europe remain as unhealthy as they unfortunately still are today.

It is not necessary to give a detailed account of the causes of this economic distress, since the debate that has been going on for years has led to extensive clarification. The view, which we share, has pr evailed that the Central European problem is primarily one of trade policy. It has been made clear again and again that in Central Europe, as Hantos points out in one passage*), "the crisis is always present from the moment of the conclusion of the war, even if it appears soon as a currency crisis, soon as a financial crisis, soon as a trade crisis, soon as an agricultural crisis," that this constantly present crisis is primarily due to the economic fragmentation in the Central European area.

The respective world economic situation can aggravate or also mitigate this Central European crisis. A world economic crisis such as the present one will cause the Central European crisis to grow to catastrophic proportions, a world economic upswing will result in a cer tain temporary improvement of the Central European economic situation, but the crisis will always be present as long as in the Central European area there is togetherness instead of cooperation, As long as here, at a time when mass production and mass sale s are of absolutely decisive importance for the economy, economic activity remains limited to small markets, which can never be a sufficient basis for the economy. Unfortunately, in contrast to the laws of economic reason, the Central European states, unde r the influence of nationalist ideas, have been anxious in the postwar period to make their own economies as versatile as possible, to produce as many goods as possible, no matter what the cost, in their own countries. In the interest of such a self -sufficient policy, tariff increases have been made upon tariff increases, whereby, in view of the inherently close dependency relationships, the tariff increases of one country had to result in corresponding tariff increases of the others.

*) "Europa-Wirtschaft" 1931, issue 6, p. 221

19

The crucial question is how to replace tariff increases with tariff reductions, how to replace autarky with cooperation. Of course, there are other tasks to be tackled and solved, but the first and decisive task is the reorganiz ation of trade policy, the liberation of Central Europe from the fetters of the high protection tariff policy, the creation of a unified economic area allowing an unhindered exchange of goods. How is this goal to be achieved? Before the war, the isolationi st tendencies and autarky efforts of the individual states could largely be mitigated by trade agreements. But these efforts in the area of trade treaties did not lead to any major success in post -war Europe. There is only one European trade treaty which d eserves to be regarded as an economic deed, namely the Franco -German treaty. In contrast, the situation regarding trade agreements in Central Europe is bleak. No comprehensive trade agreement has yet been concluded here. For years, efforts have been made to conclude comprehensive trade treaties, to reduce tariffs by means of trade treaty policy negotiations, but all efforts have been in vain, although the peace treaties offered special opportunities. Almost always, one had to be content with the conclusion of most-favored-nation treaties as a stopgap, and often even that was not possible, a state of treatylessness or even a trade war was unavoidable. If a trade treaty was happily concluded, then all too often and too quickly it was followed by termination. T he new treaties rarely brought a reduction in tariffs, usually an increase. In the first years after the war, it was mainly the desires of the newly emerging industries of the agricultural states that caused this intensification of protectionism. Today it is especially the industrialized countries of Germany, Czechoslovakia and Austria which, as a result of the protectionist desires of their agriculture, are making it difficult to conclude comprehensive trade treaty agreements, while the former bearers of C entral European high protectionism, Romania, Yugoslavia and Hungary, recognize the mistakes they once made and are now prepared to reduce tariffs by means of trade treaty agreements.

Several important negotiations are currently taking place between the industrialized countries on the one hand and the agricultural countries on the other. Although in part these negotiations have taken a gratifying course, the overall outlook is not very favorable. Czechoslovakia, despite the political ties and necessities, ha s been able to conclude only very meager agreements with Romania and Yugoslavia, is in a state of tariff warfare with Hungary, and is in an unsettled position vis -à-vis Austria. Austria has concluded an agreement with Hungary on a completely new basis, nam ely on that of the credit agreement, but this will probably not come into force, and has granted a wheat preference to Yugoslavia. Germany has granted preferential tariffs to Romania and Hungary and intends to negotiate with Yugoslavia on the same basis.

Perhaps a small improvement will be achieved through these treaties, but they cannot be considered a liberating act. They undoubtedly offer some help for 20

the moment, but they are not measures of a long -term policy. If one wants to intervene vigorously, o ne must raise the question of a possible revision of the previous trade policy, which has been inadequate for several reasons*) , and one must want this revision.

I. The idea of preferential tariffs.

The initiative for such a revision came from the South eastern European countries, which were struggling hard for their existence. Their proposal, put forward at various conferences in the fall of 1930, was that the industrialized countries should grant preferential tariffs for the agricultural products of the southeast, thus favoring southeastern European grain over that from overseas, by 20 to 50 % lower customs duties than those from overseas, since only in this way would exports be possible, especially taking into account the freight factor. Unfortunately, the debate on this proposal for a preferential system has focused almost unilaterally on the question of whether such preferential tariffs are compatible with the idea of most -favored-nation treatment. This question, however, is of crucial importance for t he industrialized countries.

The idea of most -favored-nation treatment, that no state or exporter should be treated more unfavorably than any other, in terms of tariffs or otherwise, is the fundamental principle of international trade in goods and has prov ed to be the fairest and most equitable. It is therefore adhered to by all relevant states, despite its undeniable downsides. The principle of most -favored-nation treatment is undoubtedly disadvantageous to States which are economically very closely connected with each other but which cannot grant themselves special rights for the furtherance of their economic relations, because, in accordance with the principle of most -favored-nation treatment, these would then benefit every other State and would thus be l argely devalued for the two States concerned. In the interest of goods traffic between neighboring states, regional exceptions to the most -favored-nation treatment have therefore very often been granted. These regional exceptions, these special rights, are justified by the fact that, as a result of the common border, the similarity of population and interests, such close economic ties have developed that special treatment would be justified. It is Riedl's*) great merit to have clearly demonstrated the signi ficance of these regional exceptions and to have fought *) To go into these reasons in more detail would lead too far; they have been worked out most clearly by Riedl, who has rendered great services to the clarification of these questions. *) See, among others, the article by Riedl in "Europa -Wirtschaft" 1931, issue 4, p. 134 ff.

21

unceasingly to grant the Central European states the same right to regional exceptions from MFN treatment. He demands that the other states agree to this exception for the pu rpose of promoting economic relations within the Central European economic area. However, it is also clear from Riedl's writings that he is very pessimistic about the question of whether the other states will recognize this exception. It would not only be necessary to obtain the consent of the overseas agricultural exporting countries. It would be of decisive importance whether this exception would be recognized by all European countries. If Europe were to agree on a Central European or even a European system of preferential tariffs, then Europe would be in a bad way if it could not obtain international recognition for this system.

The decisive question, however, is not whether a system of preferential tariffs would be recognized as an exception to the most -favored-nation clause, but whether we can achieve a better division of labor and a reduction of tariffs in Central and Southeastern Europe by means of preferential tariffs and ultimately achieve a large -scale economy. The experience gained so far with the policy of preferential tariffs makes us pessimistic and skeptical in this respect. The idea of preferential tariffs has often been tried to be implemented in a comprehensive form, but this system has never led to significant results. Today, the system of p referential tariffs is of particular importance only within the English Empire. But it is this system of English preference that clearly shows the decisive moments for the assessment of preferential tariffs. This policy of preferential tariffs has indeed p romoted the relations of the parts of the Empire with each other, but it has by no means led to the great unified market, above all not to the natural division of labor to be striven for in a Central European and European solution, for precisely in spite of or because of the preferential tariffs, many parts of the Empire are pursuing a decidedly highly protective tariff policy, and the tariffs are constantly being raised further. Theoretical considerations also show us that by way of preference we shall cer tainly never arrive at a tariff reduction, never at a large-scale economy, for a policy of preference will in itself adhere to the idea that non-competitive enterprises are protected. But if this possibility of tariff protection exists, then threatened bra nches of production will certainly demand increased protection, just as they do today. Thus, tariff wars will continue and trade negotiations will be necessary to balance the demands for an increase in one's own preferential tariffs and for a reduction in those of others. In this way, the economy will never know where it stands, will never be able to settle down to stable conditions, and will never be able to conduct a policy for the long term. If now even the preferential tariffs are to be reduced "according to plan", then it will become nothing else than an organized unrest, because every time this plan will be fought over again. If, 22

contrary to expectations, it is carried out, new conditions will be created each time it is changed. Thus, by way of pref erential tariffs, we never arrive at calm and stable conditions, but rather at confusion and antagonism, which is increased by the fact that other states claim similar rights, similar exceptions, and thus, finally, every state has its own special tariff fo r every state. This is anything but an ideal large -scale economy, rather than a promotion of the natural division of labor, These concerns are, of course, strongest among those states which are most dependent on the establishment of calm and stable relations with all countries. It is therefore understandable that the industrialized countries of Germany, Austria and Czechoslovakia, which depend on sales everywhere, are very critical of this idea of preferential tariffs.

But in spite of all misgivings, German y has agreed to make a substantial concession in the interest of its trade relations with Southeastern Europe.

Germany wants to meet the wishes of the Southeast, to grant preferential tariffs for some agricultural products of the Southeast, if it receives an equivalent for the sacrifices to be made on the part of its agriculture. This equivalent lies, of course, in the promotion of German industrial exports to the Southeast, although Germany, in the interest of the most -favored-nation clause, is willing to forego the introduction of preferential tariffs in favor of its industrial exports and to be content with the demand for a general dismantling of the industrial protection system established in the Southeastern states. On the basis of this German offer, as mentioned above, agreements have been concluded with Romania and Hungary. At first, the other industrialized countries did not join Germany in its offer to the southeast of Europe. It was not until the conclusion of the preliminary treaty on the German-Austrian Customs Union gave this question increased importance that France agreed to make similar concessions, but France provides for a different character of the preferential tariffs, giving them a form amounting to open subsidization. According to this, t he import of the southeastern European grain into the countries granting these preferential tariffs is to pay the usual rate of duty in order to prevent a reduction in the protection of domestic producers, while in the German proposal the agriculture of th e industrialized countries is expected to pay a tariff reduction vis-à-vis the southeast. According to the French proposal, part of this tariff amount should then be made available again to the producers, with special public bodies having to regulate this subsidization of the agriculture of the Southeast according to plan, in each case determining exactly which tariff amounts are to be repaid for which quantities of grain.

Whether and in what form this proposal for preferential tariffs in favor of agriculture in the Southeast will be realized remains to be seen. But the debate so far has shown that it can only be a matter of preferential tariffs as an 23

emergency measure, that there will probably never be a Central European preferential system, and that thi s advantage of preferential tariffs will probably only benefit the grain industry and not the livestock and processing industries of the Southeast. Thus, this proposal represents only a partial solution. It may be that similar proposals will bring other pa rtial solutions.

The quota agreements concluded so far and the new Austro -Hungarian trade treaty undoubtedly point to other possibilities. But if one of these partial solutions is used in addition to the other, one preferential treatment complements the ot her, and the other countries in Central and Southeastern Europe, which are interested in selling their products there, are increasingly discriminated against, then there will be no lack of protests and countermeasures by those discriminated against, especi ally by the freetrading countries. Even the present negotiations, which only concern preferential tariffs for some types of grain, have caused great unrest and nervousness in the countries of the Oslo Convention and in England.

Although there is some hope that, in view of the present plight of Southeastern agriculture, some preferential tariffs for Southeastern European cereals will be generally accepted as an emergency measure, a further extension of this system must be regarded as impossible in view of t he other countries. It follows that, in order to intensify trade relations in the Central European area, another way must be chosen to supplement or replace the preferential tariff system, which does not contradict the most -favored-nation principle and at the same time allows for a comprehensive reduction of tariffs.

This other way is called customs union. Germany, in particular, advocated this path through Curtius' speech in the Europe Committee in May 1931. As a result of this German initiative, the quest ion of whether a customs union was possible in the Central and Southeastern European economic area, and what this customs union meant economically and politically, became the focus of economic policy debates. This idea of a customs union has to be dealt wi th. It will dominate the debate in the coming years.

II. The idea of the customs union.

The supporters of the idea of the customs union start from the basic principles of liberalism and free trade doctrine, from the "great knowledge, which must not be buried," imparted to us by the classical school. These include: the fundamental idea of the division of labor, of the triggering force of international competition and technical progress, the argument of consumer interests and export needs, as well as the in ternal interrelationship and 24

interaction of customs duties .*) But the supporters of the customs union are aware that the demand for world free trade resulting from this attitude is still a utopia today, that as a real politician one must be content wit h striving for a more perfect application of the principles of free trade than the present one in the form of the union of several national economies into a customs union and the establishment of free traffic within this customs union. Customs union means: "A large free market internally and only common customs duties externally. Decisive for this is the realization that the "large market" permits a better internal division of labor and a better utilization of capital through production on a large scale tha n is feasible in a small market".*) Customs union therefore means overcoming the policy of protective tariffs and applying the policy of free trade within the territory united in a customs union, extending the national market, which has become too narrow, beyond its borders. A customs union makes sense only if it leads to a more advantageous application of the idea of free trade, to a more favorable differentiation of production, if profitable enterprises take the place of unprofitable ones, if better sales opportunities arise for them, and if the supply of all goods can thus be made considerably cheaper. The idea of a customs union will become all the more topical as the contradictions and impossibility of today's high protection tariff policy become more a pparent.

So, in the case of a customs union, the customs borders in the traffic between the states participating in a customs union will be eliminated, the customs borders will fall. But is this possible? Is not the economy of each country so attuned to the present customs conditions that a considerable conversion process is unavoidable if customs borders fall? Of course a conversion process is inevitable, .yes this conversion, the displacement of unprofitable businesses by profitable ones, the migration to more favorable locations, that is the purpose of the customs union. But many do not have the courage to bear the responsibility for such a conversion process, fear the consequences, and therefore reject a customs union as belonging to the realm of utopia, or propose the path of gradual tariff dismantling, without considering that gradual tariff dismantling requires constant conversion processes for years, decades, while a customs union is a one -time affair. Undoubtedly, any customs union implies certain sa crifices. But it should be noted that the losses incurred are only of a private economic nature, that only unprofitable enterprises fall victim to the structural changes associated with a customs union, in whose interest the general public today makes grea t sacrifices. If these enterprises are abandoned, capital and labor will move to profitable enterprises, *) Eulenburg in "Außenhandel und Außenhandelspolitik," Tübingen 1929, page 102. *) Eulenburg a, a. O., P, 198.

25

consumers will be able to buy goods at a lower price, and purchasing power will be freed up for other products.

The sacrifices can and must be borne in the firm expectation that the more favorable location orientation creates more advantageous production conditions and that the basic conditi on of any progress in the economy is the displacement of the unprofitable enterprises by the profitable ones. This remark cannot be dismissed by saying that the structural transformation may well correspond to the interests of the victors, but not to those of the victims, because, firstly, the total gain of the population is certain and, secondly, it should be noted that such sacrifices are made today and have been made since time immemorial for reasons more trivial than those under discussion here.

Some technical revolution, some change of taste, some fashion whim or some other moment always makes enterprises superfluous and unprofitable.

Sacrifices are constantly being made in the interest of technical and general progress, without the general public takin g any further notice. In the case of a Central and Southeast European customs union, sacrifices are to be made in the interest of reshaping this economic area and increasing the purchasing power of the broad mass of the population. Should there really be l ack the courage to take responsibility for these sacrifices? The only concession one can make to the skeptics is to strive for a mitigation of the transitional difficulties. Several possibilities exist, the most important of which lie in the field of cartel economics. But this cartel agreement must not be protectionist in character. The purpose of these cartels must not be to keep the unprofitable enterprises, but to concentrate production on the profitable ones.

The advantages of a customs union policy are so obvious that no one dares deny them, that they are recognized in principle even by the fiercest opponent of a present-day German customs union policy, namely von Eulenburg, who was expressly quoted above from this point of view. The only question at is sue today is: Where is a customs union policy possible? Can the idea of a Central and Southeastern European customs union be realized? What are the advantages of a Central and Southeast European customs union? The question of the possibilities of such a la rge-scale economy lies at the heart of this collective work; it will be clarified as far as possible in the following articles on the agricultural and industrial economies. Therefore, we can content ourselves at this point with a few basic remarks.

The result of a Central and South -Eastern European Customs Union will be a better division of labor between the individual sub -regions of this economic area, the big winners will be the export branches of each country, generally the industrial branches of the ind ustrialized countries and the agriculture of the agricultural states. The agriculture of the Southeast will flourish and see new opportunities for development when its export to the German, Austrian 26

and Czech markets, with their purchasing power, will n o longer be hindered by anything, when, thanks to more favorable pricing, the purchasing power of the agricultural population will increase and thus better sales opportunities will be created for the industries built up on a natural basis. In the industrialized countries, the elimination of tariff barriers and the increased purchasing power of the Southeast will create new sales opportunities for industry.

These favorable effects of a customs union are not disputed by any side, but the eternal skeptics and doubters put forward another moment against the idea of a customs union, especially against the possibilities of a Central and South-Eastern European customs union. They point out that the economies in this area have such a different structure that they ca nnot be combined into one unit. But are they really so important that these differences cannot become a unity? Are the differences between the Rhenish -Westphalian industrial area and Bulgaria more important than those between New York and Nevada or between Illinois and Arizona? Surely no one will answer this question in the affirmative. But the states of New York, Nevada, Illinois and Arizona, together with other states of likewise quite different economic structure, form a uniform economic area, a uniform economic space, within the framework of which the 48 states have their special legislation in important economic questions. But these peculiarities do not prevent fre e trade between these 48 states.

The differences in the Central and South -Eastern European area will not prevent free trade within this newly created economic area. Just as in the USA, similar tendencies are gradually becoming established, a uniform economic structure will also emerge within the Central and South -Eastern European economic area in the course of time. Certain structural differences will remain, but these differences are precisely the strength, because if within this area each individual region remembers its structural peculiarities, then we will experience in this enlarged area th e cross-fertilization of the individual parts, which is given today for the smaller area of each national body. Once the economic structure of the individual parts has crystallized, there remains the undoubtedly important task of legal harmonization, at le ast to such an extent that business transactions are facilitated by legislation.

Of particular importance in the context of this harmonization will be the unification of tax legislation. If there are such great differences in tax legislation that protectio nist side effects are unavoidable, as in the case of consumption taxes, for example, then tax frontiers will have to remain for the time being. They will not be too much of a burden, especially since one will not want to do without statistical recording of goods traffic within this metropolitan area for the time being. However, these questions of tax 27

harmonization are generally overestimated just as much as those of social policy. With all the talk about lower wages and higher social burdens, it is often forgotten that performance and speed of work are more important than wages.

On the other hand, greater importance is attached to the question of the external tariff, in the determination of which it must never be forgotten that Central and Southeastern Eu rope is only the stage on the way to the European metropolitan economy, and can never be directed against any other part of Europe. Therefore, the customs policy of the new economic entity must not allow capital investment, which, from the European point o f view, is a misinvestment; therefore, the export branches of the other countries must benefit from the overall upswing in the Central and South -Eastern European area. In the interest of this objective, the lowest rate in force in one of the countries should be applied to each individual product. But, unfortunately, the struggle to set the external tariff will not lack demands of a highly protectionist nature. Where and how this decision on the external tariff is taken, whether in the framework of a customs parliament or in the form envisaged in the German -Austrian preliminary treaty, how the administration at the external customs frontier is arranged, how the incoming amounts are cleared, these are more technical questions on which, despite their importance , which should not be underestimated, a customs union will not fail once it has been decided.

If only these questions of economic policy were at issue, then a Central and Southeastern European Customs Union would already be a reality today, despite the difficulties to be mastered and despite the certainly very strong resistance of the victims of the Customs Union. But to any possible economic concerns, there are, unfortunately, significant political ones, especially the question of the possible loss of trad e, economic and political sovereignty. The commercial sovereignty of the states forming a customs union will, of course, be substantially curtailed, for the states will relinquish the right to set tariffs in favor of a newly created entity. But it is preci sely the development of capitalism that is characterized by this renunciation of trade sovereignty. In the becoming of the nation -states, the cities, the provinces and the territories have had to renounce it, the individual states of the U.S. have ceded th is right to the federal power from the outset, Prussia, Hesse, Bavaria and the other German states renounced these rights a good hundred years ago. But has this renunciation somehow been detrimental to these states? To ask the question is to answer it. The problem of the loss of trade sovereignty cannot be taken seriously; more significant, however, is the question of the extent to which states relinquish general economic and political rights as a result of a customs union.

28

A customs union undoubtedly i mplies the renunciation of considerable political and economic rights, and is not possible between states that cling to the fiction of 100% sovereignty and pursue nationalist economic policies aimed at self-sufficiency. But is such a policy of autarky even possible today?

Can the concept of sovereignty still be upheld? Haven't the individual states entered into so many ties that today one must dispense with this concept of sovereignty or at least relativize it? Is it even possible to speak of the sovereignty of states today, when one treaty after another is concluded, when states enter into very far -reaching economic and political ties, when the League of Nations, the Labor Office and the Bank for International Settlements are granted far-reaching powers? Le gal quibbles would be necessary to maintain the concept of sovereignty in view of these ties. This concept should finally be consigned to the scrap heap, because otherwise one exposes oneself to the accusation of hypocrisy.

Today, it is no longer a questio n of sovereignty, but only of the degree and forms of the ties that the individual states enter into among themselves. The only question that can be asked, therefore, is whether the ties to be entered into through a customs union are possible and desirable in view of the economic and political interests of the state concerned. As in general against every new bond, wide circles protest against those given by a customs union.

These opponents greatly overestimate the importance and scope of the ties created by a customs union. They overlook the fact that in all areas of the economy the individual states have already been so closely linked by economic policy interventions that a further strengthening of this cooperation through the conclusion of a customs union is of no fundamental importance but only a gradual one, and that the conclusion of a customs union merely adds another, new link to the existing ones.

It is not to be denied, however, that by entering into a customs union the state concerned nevertheless r elinquishes significant rights. These are not only trade treaty and customs policy rights. Rather, considerable effects on the other areas of the economy must also be taken into account. The financial management of a state is largely affected by a customs union; customs revenues are reduced or, more likely, increased; the tax laws of the states belonging to a customs union must be harmonized in such a way that tax frontiers within the customs union can be dispensed with; similar consequences apply to certai n measures of a sociopolitical nature. This is the problem of approximation already mentioned above. The pursuit of self sufficiency must be abandoned once and for all with the conclusion of a customs union. Although a certain local imperialism will remain , and administrative protectionism measures will work in this sense, the idea of the national economy will be subordinated to a higher unit, and thus the striving 29

for nationalistic self -sufficiency, which can never be realized, will become obsolete. The political consequences of this fact are far -reaching and therefore probably the only decisive moment against the idea of a customs union. National self -sufficiency and economic self -sufficiency are sought for reasons of national policy and, above all, war economy. National self sufficiency is demanded above all so that in the event of war the people can be fed and the army equipped. The most protectionist forces in many states today emanate not from industry, not from agriculture, but from the War Ministry, which, from the point of view of a possible coming war, demands the protection of large sections of agriculture and industry and enforces it without difficulty. Therefore, a customs union will always be possible only between those states between which wa r is no longer considered possible. We will have a European customs union only when European peace seems to be assured to all states. For this reason, European policy should first be concerned with securing peace to the extent possible through diplomatic n egotiations and international treaties. But since this task has been largely accomplished by the conclusion of the Locarno Treaty and the Kellogg Pact, a customs union must be regarded as politically possible. Now it is even a question of realizing the conclusion of a customs union as an important partial demand for the further strengthening of European peace, because if a European customs union is carried out consistently, then the economic possibilities of a European war are no longer given, then European peace is secured. Herein lies the great political and European significance of the customs union demand. Not only in the interest of the economy, but also in the interest of European peace and thus in the interest of saving Europe from Bolshevism, the dem and for the conclusion of a customs union must be made.

When the European Customs Union is realized, the European states will have renounced essential parts of their rights in the interest of a higher unity, but the foundations of the European nation -states will be all the more secure and solid. The nation -states will no longer be inhibited in their work by the fear of war, will be able to develop their cultural forces to the full, and will experience a new upswing. But will not the economically strongest s tates of Europe take precedence in this? Will these states not, in the course of time, acquire an ever stronger influence on the economically weaker states, and will the latter thus lose their independence? Such fears can only be entertained by those who overestimate economic events, who value the political and cultural forces of the nation-state idea so low that for them free trade between a stronger and a weaker state must result in the end of the independence of the weaker one. We consider such fears to be so absurd that it is unnecessary to go into them further.

The same applies to the objections raised against the idea of a Central European Customs Union, namely, that Germany is striving to create a new 30

empire and, by way of Central Europe, to domina te the European economy and politics. It may be that one or the other German follows the Central European aspirations with sympathy, because he sees a German -Central European empire growing here, it may be that many French and many Southeast Europeans fear this development, but it is not these imaginings that are decisive for further development, but the given facts. This German -Central European empire, feared by many and perhaps aspired to by some, will never become a reality because economic necessities i mperatively demand a European character to these Central European efforts. Germany's relations with the other parts of the world are so varied, its sales possibilities to the southeast not so important, that Germany could set itself in opposition to the other parts of Europe and the world economy because of a possible empire.

Above all, a Central European solution directed against France or even against other countries is not economically viable for Germany. The ties of Southeastern Europe to France are als o very strong, especially to French and British capital. A Central and Southeastern European customs union is nothing other than a realization of the ideas of free trade within this area. In building up this economic body, it will be necessary to take into account the interests of the other European countries to a large extent, and to strive for cooperation with them. The most ideal thing would be the participation of France in such a customs union or the initiation of a Central European solution through a German-French customs union, for with such an agreement the talk of the hegemonic aspirations of one state, which unfortunately inhibits the European movement so much, would become irrelevant. Therefore, from the European point of view, nothing is as tragi c and disadvantageous as the fact that, due to the different economic views of the Germans and the French, a Franco German customs union does not yet seem possible. In Central and Southeastern Europe, on the other hand, the economic contradictions and difficulties are so great that it is impossible to wait until Germany and France have found common economic ground.

III. Trade policy options

For these political reasons, resistance to the idea of a customs union is unfortunately still so strong in large par ts of Central and, above all, Southeastern Europe that, for the time being, a customs union covering the area from Cologne to Constanta cannot be expected to materialize. This is regrettable, because there is no doubt that the customs union is the most ide al way to overcome the current economic crisis. The road to the Central European Customs Union will not be an easy one, but it must and can be taken.

When, in the next few years, the fight for a European customs union will be 31

waged, when one step forwa rd will be followed by another step backward, when the goal will soon seem within reach, and when many will soon regard the idea as a thing of the past, then we will always have to remember the difficulties that had to be overcome in the creation of the Ge rman Zollverein, even though far fewer political concerns were involved. As was once the case when the German Zollverein came into being, only a few states will now declare themselves ready for a customs union. The German -Austrian customs union would be th e most ideal introduction to this Central European solution.

The struggle for the German -Austrian Customs Union has clearly brought into view the problem area to be overcome. What a reasonable economic solution is this customs union!*) But how strong was t he political resistance against this idea! Whether economic necessities or political opposing forces are the stronger moment, the next time will teach. If, unfortunately, politics has once again triumphed over economics, the last word has not yet been spok en, for the Customs Union is such a sensible economic act that it will always come to the fore in the debate.

On the other hand, the other Central and Southeastern European states will probably initially adopt other methods and approaches to trade agreemen ts.

The idea of preferential tariffs as an emergency measure holds the greatest promise here. Various forms have been proposed; in the course of 1931 it will probably be decided whether and in what form such preferential agreements are possible. In additio n, there are the proposals of quota and credit agreements submitted by Italy. Central European efforts in the near future will revolve around such quota, credit and preferential agreements. In the Southeast, the article by Franges expresses this sentiment well, there are great hopes regarding these agreements, there can also be a positive attitude toward these new methods, since one need not take into account the repercussions on the other areas of the world economy, unlike Germany, Austria and Czechoslovak ia. But we do not believe in great success of such trade policy. Such treaties will very soon prove difficult or impossible to implement; it will become clear that such trade treaty policy means cannot lead to a substantial alleviation of present economic distress. Then the question of a customs union will of its own accord become the focus of Central and Southeastern European trade policy. The sooner this is the case, the better it will be for Central Europe, because a customs union is the most ideal trade policy way to realize a large -scale economy and thus to create better production and sales conditions in Central and Southeastern Europe. However, this customs union will only fulfill its real purpose if it is implemented radically *) Cf. my article on t he economic problems of the German -Austrian Customs Union in "Europa-Wirtschaft" 1931, issue 5, pp. 169 -190.

32

and is supported by a truly European and free -trade spirit. If this is the case, then the most important objections and reservations which are still being raised today against this proposal for a customs union will automatically become invalid, then a common basis, an agreement will be possible, whereas today the trade treaty policy wishes and proposals still bear a somewhat too diverse characte r. A great deal of patience will be required, and all sides must be prepared to make considerable sacrifices if a common program is to be established, but this agreement must be reached if we are to master the Central European crisis.

33

Central European market for Southeast European agricultural products?

By Prof. Dr. K. Brandt, Berlin.

For a successful cooperation of the peoples in the European economic area it is of decisive importance to what extent it is possible to use the give n natural possibilities of agricultural production for a sufficient satisfaction of demand.

Therefore, the question of how far the peoples in the part of the pan -European economic area summarized in this publication as "Central Europe" can complement each other agriculturally and industrially cannot be discussed without having first examined those natural conditions.

The adaptation to the production possibilities given for the farmer and the* horticulturist by soil and climate has been strongly disturbed in Europe by the political borders and the economic struggle of the states and groups of states up to the latest time. After the war, an unheard -of intensification of this struggle has set in by newly created states, each of them striving to become economically self-sufficient and to create by measures of state economic policy and trade policy, with artificial corrections, what would not be possible in adaptation to natural conditions. It is therefore particularly difficult to develop a picture of how agricul tural production would develop in a European economic area not disturbed by political interventions, i.e. how it would have to be organized according to purely economic principles. Nevertheless, there is a vivid example on our planet which can be used to v erify how this development would have to proceed. Since, moreover, from a knowledge of European agriculture today, it can also be determined by circumstantial evidence, as it were, where the optimal conditions of production exist after accounting for the g overnmental corrections, a rough picture can be gained.

That example is the United States with its economic area, closed partly since the beginning, but mostly since the middle of the last century, which is no longer torn apart by internal customs borders. The whole of Europe, including European Russia, is only about one seventh larger than the United States. In contrast to the latter, it is a continent deeply indented by sea bays, while "over there" it is an almost rectangular block bounded only on the two narrow sides by seas. In the United States, in more than a century, agriculture has been able to adapt itself to natural conditions in an ideal way, in the absence of economic policy limits from the outset. This development has been particularly favored a fter the development of a transportation system that opens up enormous economic areas with uniform tariff rates. Last but not least, no restrictions have been placed on the migration of people, except for that of the Negroes from the south to the north or that of the Japanese, 34

Chinese, Filipinos and Mexicans from the southwest and west, which is subject to certain restrictions.

What does the stratification of agriculture look like there, which is based on the continuous migration to the cheapest and safe st production site? First of all, compared to European conditions, it is noticeable that the entire agricultural production process is very strongly divided into labor, i.e., that there is extensive specialization. Distinct special belts have developed, e. g. a wheat belt, corn belt, milk belt, cotton -tobacco belt. The wheat belt developed on the rich deep black earth and clay soils of the original prairie, i.e. the grass steppe. It has recently expanded with advancing cultivation and machinery technology an d is shifting even more to the semiarid zones.

Originally, wheat was cultivated in the north as a summer crop, and further south also as a winter crop, as a distinct monoculture. Recently, primitive crop rotation has already begun with the use of green man ure. The corn belt is located in the warmer zone on equally good soil, but with more precipitation.

The cotton and tobacco belts are located to the south of the corn belt in areas where there is either sufficient rainfall or the possibility of irrigation, and where the amount of heat desired for both crops is available. One could also speak of a special barley belt, which is found in the decidedly dry areas of the Rocky Mountains all the way to the Pacific coast. If one moves from all of these areas to area s with higher precipitation, the first thing that happens is that multi-cropping sets in, an economic form in which oats were originally also grown as a cereal, and in which alfalfa, soybeans, and corn are used in the crop rotation. If the precipitation in creases even more, the so -called Dairy Belt already begins, with strongest fodder cultivation, in which apart from alfalfa soybeans for the hay preparation, corn for silage, also hay is won and, as far as the precipitation is sufficient for it, both is cul tivated. This dairy belt is grouped around the Great Lakes in the United States and covers the states of Maine, New York, Michigan, Minnesota, and Wisconsin. It has recently extended to North Dacota as well. In Canada, a very similar belt is present on the other side of those lakes.

A special livestock production is coupled with the first mentioned grain belts.

The corn belt produces the most pigs, the most eggs and the main quota of poultry for slaughter. Finally, in the corn belt, there is also the finish ed fattening of lean livestock. Here the pig and the egg production is based on the cheap carbohydrate. However, in the dairy belt we find a pig and egg production, even if it is smaller in quantity. There, the cheap protein, which is produced during churn ing in the form of skim milk and buttermilk, is the basis of production.

However, the number of special belts is by no means exhausted. Still missing are the fruit belt, the vegetable belt and, last but not least, the cattle, sheep 35

and goat belt, or, as one might say, the extensive grazing zone. Fruit growing has become particularly established on the shores of the Great Lakes, then in the hot valleys in the northwest corner of the U. S. A., and last but not least in California, both in the valleys and i n California as a distinctly irrigated crop.

Vegetable farming has grouped itself around the entire seacoast, namely on the Atlantic coast from Canada down to the tip of Florida, and thence in dense bearing around the Gulf of Mexico up into the Rio Grande valley. Besides, it has invaded the irrigated areas in California, the Imperial Valley and some other valleys.

Naturally, agriculture with the most diverse forms of operation can be found inside and outside these very distinct special culture belts, which makes the borders fluid and the picture more diverse. The migration and intensive search for even more favorable locations and for cheaper production costs is taking place so rapidly, partly under the supportive influence of the motor vehicle, which is opening up the most remote areas, that the trade has difficulty in keeping up quickly enough with its organization. For example, in the face of the rapid shift and newly splitting division of labor in vegetable growing, the trade has been slow to keep pace wi th its performance.

From that gradually growing adaptation to natural preconditions, a few years ago the useful application was drawn for the new unified economic area of the U.S.S.R., encompassing one and a half continents. The Central Economic Council of the Soviet Union has drawn up a plan for the entire Soviet economic territory which, as an analogy to the special belts of the United States, establishes such belts, adding to the general agricultural ones extensive forestry and finally fur belts. Even if the entire planned conversion of agriculture in Russia challenges fundamental criticism, it must be admitted that the deliberate orientation of agricultural production according to optimal production conditions is expedient and economically sound.

Even if in Europe, with its old highly developed economy and the intimate interdependence of industry and agriculture, there is neither the necessity nor the possibility of planned economic corrections, it is nevertheless valuable to weigh up where the best locat ions for the production of certain agricultural products are, in order to be able to evaluate, in the case of a g r a r p o 1 i t i c a l a n d trade policy measures, where the limit of the economically sensible is exceeded and where the zone of the unecon omical sets in. The conditions for agricultural production in Europe are fundamentally different, since here many centuries of soil use, together with polyculture, combined arable and livestock farming, and not least with the aid of intensive humus managem ent and artificial fertilization, have strongly covered and balanced the natural demarcation of the most favorable zones from one another. Nevertheless, the climatic and soil differences within the entire continent are so strong that they 36

give rise to certain special favors for individual agricultural products. But since 400 million people are to live on the European continent in contrast to only 120 million in the United States, the closest approximation to the most favorable production conditions must be pursued much more urgently than there. Even if we are forced to produce on less favorable soils and in poor climates, the core of European agricultural production must start in the economically right place.

If one eliminates the Soviet Empire from the concept of Europe, it can be seen that an actual wheat belt does not exist. Wheat is built from the Atlantic to the Russian border, but an actual wheat belt, which could be compared to the American one, exists only in European Russia in the black earth reg ion. The heaviest massing of wheat production is in Hungary and parts of Yugoslavia and Romania, and also in central Germany, the Po Valley, and northern France.

In contrast, there is a strong rye belt, which is a rye -potato area covering parts of eastern Germany and Poland. These are light soils in dry locations where the rye can manage with winter water. An equally pronounced special belt is present for corn cultivation, extending to the Po Valley, Hungary, Yugoslavia, Romania and Bulgaria. The most prono unced barley belt in Europe is in Russia, north of the Black Sea and the Caucasus. The most favorable conditions for milk production are grouped around the coast of the North Sea and the Baltic Sea, then around the precipitation -rich areas of the Alps. Pig production finds two particularly favorable locations, namely the rye -potato and corn zones.

But also here, as in America, there is a second location, that of the cheapest protein, namely the milk zone. The strong milk production produces at the same time large quantities of beef. However, the whole southeast of Europe can be considered as a zone of extensive cattle, sheep and goat farming. There is also the possibility of finished fattening in the corn belt. Egg production in Europe can be shifted to two locations, namely to the area of cheap milk protein, i.e. into the Baltic or pre -Alpine milk belt, or to the areas of greatest grain surpluses, i.e. mainly into the corn zone. The production of slaughter poultry in particular will move into the latter. Fru it growing will find the most favorable climatic conditions around the large inland seas, i.e. the Baltic Sea, the Black Sea, and also in the large river valleys, especially those of the Rhine and Rhone. As in the United States, vegetable cultivation will develop more and more on the basis of the division of labor, so that supply will be possible throughout the year with a variety of origins; the coastal areas, especially the southern ones, will be favored. The coastal areas, especially the southern ones, will be favored, while the more irrigated areas, such as the Po Valley, will gain in importance.

The strange thing is that despite all political borders that prevent the migration of people, despite all customs borders, different transport

37

possibilities and tariffs and last but not least despite the different levels of education and state of the art within the European area, the shift of agricultural products to those favored locations has been going on for a long time. These tendencies can also be clear ly seen within Germany.

Now, what about the possibilities of an agricultural -industrial division of labor within Central Europe, and to what extent is Central Europe able to absorb agricultural production internally in accordance with the best natural locations? If we start from the average of the years 1926 -1929, the following picture emerges approximately. There have been two groups of countries in Central Europe, one of which has had a continuous surplus of food, the other a surplus. The grouping of coun tries is not quite the same for the individual most important commodities. If we look at cereals as a whole, we see that on average in the years 1926 -1929, Germany, Austria and Czechoslovakia always had a large import surplus of cereals to cover, to which must be added Poland with a small deficit on average in these years. Poland, however, had strong fluctuations in its foreign grain trade. Considerable surpluses in two years alternated with deficits of almost the same size in other years. Hungary, Yugoslavia and Romania, on the other hand, very clearly have large grain surpluses on average over the years. The total grain deficit of the first group, including Poland, averaged 6,228,000 tons in 1926 -1929. For the group of surplus countries, the average export surplus for the four years was 2634,000 tons. It can be seen from this that it is not in itself a difficult problem to transfer the grain surpluses of Hungary, Yugoslavia and Romania, and even any surpluses of Poland, to the consumer countries, as long as grain production in the surplus countries is not substantially increased and the purchasing of the consumer countries is not unilaterally determined by contract in a different direction. This assessment will be based on quantity, while the quality problem will be discussed later.

The individual figures are shown in the following table, in which wheat, barley and corn are listed in particular, while cereals as a whole, i.e. including rye and oats, are also shown in the last column. It can be seen from this that the emphasis in foreign trade in cereals is on wheat, on the one hand, and on feed grains, namely barley and corn, on the other, and that the main surplus of wheat comes from Hungary and Yugoslavia, and of barley and corn from Romania.

The exchange of the important other products gives the following picture. In beef, there is a small deficit in Germany, Austria and Czechoslovakia, which imported a total of 143 000 t on average in 1926 -1929. This contrasted with an export surplus of 20 000 t in Poland, Hungary, Yugoslavia and Romania.

Germany, Austria and Czechoslovakia had an import surplus of 436,000 head of cattle, while Poland, Hungary, Yugoslavia and Romania had an export 38

surplus of 29,000 head. These figures already show that there is hardly any real sales problem here, as long as there is no strong expansion in production or curbing of own consumption in the countries tending to surplus. The surpluses existing today can easily be absorbed by the importing countries.

However, it is to be expected that their own production will slowly increase, while consumption will shift to other foodstuffs.

Import (-) and export (+) surpluses averaged over the years 1926 -29

Cou n try

Wh e at

Bar l ey

Cor n

Tot al ce r eal s in c lu d i n g ry e an d oat s

10 00 t G er man y Au str ia Cz ec h o slo v aki a T og eth e r: Pola n d Hu n ga ry Yu go sl a via Ro man ia T og eth e r:

- 21 09 - 22 8 - 25 2 - 25 89 - 11 8 + 37 1 + 26 7 + 24 0 + 76 0

- 18 54 - 60 + 11 9 - 17 95 + 13 7 + 55 + 9 + 64 2 + 84 3

- 11 91 - 16 1 - 30 9 - 16 61 - 57 + 62 + 29 8 + 12 28 + 15 31

- 51 41 - 63 2 - 46 9 - 62 42 + 18 + 65 7 + 58 2 + 13 95 + 26 52

Cat tl e

Be e f

Pig s

10 00 Pi ec e s - 27 3 - 11 8 - 45 - 43 6 + 23 + 74 + 13 0 + 64 + 29 1

10 00 t - 11 9 - 22 -2 - 14 3 + 9 + 2 + 3 + 6 + 20

10 00 Pi ec e s - 72 - 65 3 - 69 1 - 14 16 + 895 + 16 2 + 29 0 + 35 0 + 16 97

Pork

E gg s

Bu tt er

10 00 t - 27 - 14 - 2 - 43 + 16 + 3 + 8 + 6 + 33

- 0,1 6 - 0,0 1 - 0,0 02 - 0,1 72 + 0,0 6 + 0,0 1 + 0,0 3 + 0,0 1 + 0,1 1

- 11 7 - 1 - 0,3 - 11 8,3 + 9,7 + 0,5 + 0,2 + 0,1 + 10, 5

The picture is somewhat different for pork and hogs. Germany, Austria, and Czechoslovakia have an import surplus of 43,000 tons of pork and 1,416,000 head of hogs during the four years in question, compared with an export surplus for Poland, Hungary, Yugoslavia, and Romania of 33,000 tons of pork and 1,697,000 head of hogs. This shows that the countries with additional demand for other agricultural products can cover their pork consumption with their own production, and that the surplus of the other countries cannot be accommodated on these ma rkets, although it must be understood that the figures for import and export surpluses are irrelevant in view of the actually existing pig stocks, and that only the exploitation of particularly favorable freight conditions at the borders plays a role. With stocks in Germany fluctuating between 1.6 and 23 million pigs, an import surplus of 72,000 head on average and 1,000 head in the minimum year 1928 is of no consequence.

Nevertheless, the exchange between Poland and Romania as suppliers and Austria and Czechoslovakia as buyers is quite considerable.

In the case of eggs, the demand for Germany, Austria and Czechoslovakia 39

Ch ee s e

- 65 - 2 + 2 - 65 + 1 + 1 + 2 + 0,5 + 4,5

amounts to 17,000 tons, while Poland, Hungary, Yugoslavia and Romania have a surplus of 11,000,000 tons. The major consuming countries a re therefore unable to cover their entire surplus requirements from the surplus countries under discussion here, but must currently accept other sources. They are working hard to improve their high subsidy requirements by increasing their own production, b ut at the same time their deficit in feed grains is growing.

For the surplus countries, therefore, there is either the prospect of increasing egg production to supply Germany or of increasing exports of feed grains in the event of increased German -Austrian-Czech production.

The picture is different again for dairy products. Here, the only country with a large demand is Germany, which purchased an average of 117,000 tons of butter over the four years with constantly rising imports, and 65,000 tons of cheese from imports that fluctuated little. Austria purchased only 800 tons of butter and 2,000 tons of cheese, with butter demand already turning into a surplus in 1929 and the cheese deficit also showing a strong downward trend.

All other countries produce surp luses, namely a total of 10,200 tons of butter and 6,500 tons of cheese. Germany is therefore not remotely able to cover its very large surplus requirements for butter and cheese from the other Central European countries.

As is well known, it buys its impo rted butter and cheese from the Baltic countries, mainly Latvia, Denmark and Finland. In addition, it is very busy expanding its own production according to plan, which is also the case in Austria, and which is probably the most economically correct thing to do, closely following the production conditions given by nature. But here, too, the situation is such that if Germany produces more butter and cheese, the grain deficit will increase, since the natural fodder base for cattle must be expanded, which is a t the expense of grain production. Thus, if Germany buys less butter and cheese from the Baltic states, the feed grain market and perhaps also the bread grain market in Germany will become more open to foreign supplies, and the task of absorbing the grain quantities available in the Central European surplus countries would be all the easier to solve. If, in the discussion about the accommodation of Central European grain surpluses, the question is framed as if the market had to be closed to overseas grain suppliers first, the overview given here clearly shows that, purely in terms of quantity, the actual situation is quite different. The problem really begins with the state-imposed dynamics of agricultural production. If each of the surplus countries mention ed, i.e. Poland, Hungary, Yugoslavia and Romania, indiscriminately expands its agricultural production and at the same time tries to become self -sufficient in meeting its industrial needs, i.e. to block industrial exports from Germany, Austria and Czechosl ovakia, the impossibility of what is in itself a very simple exchange begins here. On the other hand, there is no mistaking the fact that the population base of Germany, Austria 40

and Czechoslovakia rests on a total of about 7 million farms, and that with increasing difficulties in selling their industries, the planned strengthening of this base becomes an absolute necessity. For this reason, these states must attach decisive importance to securing for their peasant agricultural production as large a share as possible of the domestic purchasing power. The sales proximity of agriculture in these countries shifts the emphasis of agricultural production to the highest -quality processed products, i.e. first and foremost dairy products, e ggs, meat, vegetables an d fruit. The exchange problem for agricultural products, however, has a completely different side which has not been dealt with so far, that is the quality. Those countries which have a need for imports first try to obtain the goods loco consumption place as cheaply as possible, but naturally also in the quality most pleasing to them.

The demands on the quality of the goods have constantly increased. This is due, on the one hand, to the intensification of competition in supply and the rapidly advancing tech nology of quality production, and, on the other hand, to the refinement of consumers' lifestyles. In the case of wheat, it is well known that the yield of flour is influenced just as much by the quality of the grain as the subsequent yield of bread from th e flour. As a result, durum wheat containing gluten is traded at high premiums, which is best demonstrated by the different price movements of German domestic wheat and American export wheat on the German grain exchanges. If the countries of southeastern Europe want to sell their wheat surpluses in Germany, Czechoslovakia, and Austria, the first requirement is that their quality must be competitive with that of Canada, which leads the world market. They must therefore produce glutinous durum wheat, which is already the case for certain Hungarian varieties, and must standardize their grain by appropriate treatment, which, as is well known, is essentially a matter of sorting and cleaning in the stores.

To an even greater extent than with cereals, the quality o f animal products will determine whether preference is given to Southeast European or other foreign products. It is well known that the supremacy of Danish butter and, more recently, the strong advancement of Latvian butter are due exclusively to their high quality standards. The same is true for eggs, and the demands of the market for slaughter poultry, meat and cattle are also increasing. Standard products are becoming more and more common. It will therefore be the task of the surplus countries to keep th emselves informed about the markets they supply and to adapt to the quality trends there. State export controls will quickly give the necessary emphasis to efforts to improve quality.

Even if, however, the quantities of agricultural products to be sold can be easily absorbed by the countries of demand, and the quality fully meets the requirements of the markets, there still remains an extremely serious obstacle, which may completely barricade the markets, which are in themselves open, in the question of tra nsportation. As long as it is much 41

cheaper to transport wheat from the interior of Canada across the ocean down the Rhine to Mannheim than it is to transport Hungarian wheat from Budapest to Magdeburg or Munich, it will be difficult to expect Hungarian wheat to compete with Canadian, of course, unless the Hungarian farmer succeeds in lowering his costs of production as much as his competitor in Canada and in organizing his cooperatives as well as the pool there. The greatest and first task that the Centr al European countries must solve if they want to promote the exchange of goods is to clean up those chaotic conditions that exist in the Central European transportation system. The transit freights, transhipment fees and other transportation charges need a thorough correction. In addition, the shipping routes will need to be thoroughly expanded and equipped with better means of transportation. However, all these tasks can be solved, provided that in Central Europe a strong will for sincere cooperation repla ces the economic intrigues nourished by the autarky mania and the ingenious means of the trade war.

In the coming decades, there will be a considerable shift in the conditions of sales from the side of consumption. While the population in Germany and Austria is growing at a much slower rate, the southeastern states still have very strong further increases in their populations. The German agricultural market will therefore increasingly tighten, while consumption in the present surplus countries will increase . However, this development will be strongly overshadowed by the changes in agricultural production.

The pursuit of economic self -sufficiency has led to a major retrenchment of the most-favored-nation (MFN) system on which all world trade was built.

Efforts are underway to replace MFN with a system of preference. The attempt to introduce such a train -by-train exchange denies the path of ring exchange on which much of world trade is based. In the foregoing, in accordance with the task set for the author, onl y the section of the larger economic area called "Central Europe" has been examined. This partial diagnosis has all the shortcomings of such a diagnosis. Important other European demand countries, such as France in particular, have not been taken into acco unt.

There is no doubt, however, that if the task of enabling 400 million people in Europe to live in human dignity and to open up for them a gradual further cultural advancement through the economy is not to be destroyed by maintaining trade policy walls and the economic policy struggle of all against all, only the creation of a large, uniform European economic area can come into question. But Europe as a whole, as a customs union, must not be thought of as a fighting entity against overseas or the Eurasia n Soviet economy. Rather, a European customs union will help a new stronger and healthier world trade come to life.

42

Agriculture and the Central European Problem

By Central Director Franz Hilmer -Brünn.

While in industry and banking the merging of many small businesses into large enterprises and the cartel -like influence on production and sales are progressing more and more, while in the course of rationalization the share of investment and capital in production costs is becoming larger and larger and the share of wages smaller and smaller, we see in the agriculture of the Central European states the transition to a labor -intensive economy, where with ever smaller farms and increased manual labor, ever higher yields per hectare unit must be produced.

The transition of agriculture from large farms to small farms is taking place in all countries, either because the land reform has accelerated this situation, or because the natural increase in the population, the desire to own land and the related hunger for land, especially in areas where land can be freely divided, are increasingly bringing about this transition. Only Russia and America are exceptions to this rule, because in these two countries agriculture is also run according to purely capitalist ideas, t he only difference being that Russian agriculture is state capitalist and American agriculture is private capitalist.

Russia is the greater danger for Central European agriculture because agricultural production there will still be increased even if, accor ding to private capitalist principles, production would have to be curtailed, while in America the necessary curtailment in production will occur when, for a number of years, production costs are no longer covered by sales revenues.

These statements are im portant because the agricultural organizations of all Central European countries are of the opinion that their agricultural products must be sold at prices that cover the production costs. In view of the fact that the Central European countries demand high payments in the form of taxes and surcharges, social contributions, etc. from their farms, and that the standard of living of the agricultural working population in the Central European countries is relatively high, the production costs of Central Europea n agriculture, which in many cases also suffers from a lack of credit or large mortgage debts (with high interest charges), are higher than the production costs of farms in other regions.

There are limits to rationalization in agriculture because agricultu re produces from the soil and yields depend primarily on weather conditions. The highest expenditure on soil cultivation using the best machinery and fertilizers is of no use if a drought sets in or if thunderstorms, continuous rain and floods during the harvest destroy the best conditions for quantity and quality.

43

Farming does not take place indoors, but in the open air, and is bound to time, and machines that are used in industry for three shifts of at most 300 days (after deduction of Sundays and holi days) per year for 24 hours each, can often be used in agriculture for only a few hours per year or - if weather conditions are unfavorable - often not at all.

The agricultural organizations are also of the opinion that land is the inheritance of the fathe rs and the root from which the nation is constantly rejuvenated; they are of the opinion that it is unacceptable to leave the native soil fallow and to obtain agricultural products from other regions, where they can be produced with cheaper labor and under more favorable climatic conditions, and therefore also more cheaply, merely because a greater financial success can thereby be achieved for other professions. The representatives of all agricultural organizations demand a planned economy according to which foreign agricultural products should be used only to supplement domestic production, which can still be greatly increased; from this point of view, the demands for protection of domestic production, whether through tariffs, quotas, import permits, monopo lies or syndicates, must be understood.

The present world agricultural crisis is mainly due to the fact that in the non European countries, according to capitalist principles, an over -production of agricultural products has been initiated, with the help of money, machinery and hitherto unused land, which cannot be absorbed by consumption and which is now depressing prices so low that farmers have to sell at a loss. The support actions undertaken by the individual states require significant funds and impose heavy obligations on the American states in particular. In addition, there has recently been Russian competition, which, according to principles other than those of national economy, is throwing its products onto the European markets at knockdown prices.

In connection with the Russian dumping policy, there is the dismal situation of our mountain farmers (flax farmers), and there is the call for an increase in grain duties, since the Central European farmers fear that they will be completely ruined by the Ru ssian grain factories.

The fact that all other professions are interested in these efforts to protect Central European agriculture is evident from the fact that the crisis in agriculture is always followed very soon by a crisis in small trade and commerce in the provincial towns, and then by a crisis in wholesale trade, the clothing industry and other industries. At present, the agricultural crisis has even affected the investment industry and led to bank failures.

It does not need to be pointed out that th e unilateral protection policy in no way helps to alleviate the crisis, but rather increases the crisis in the mutual 44

race of the individual states. If, for example, the German Reich sets its tariffs for hops, barley and malt so high that the farmers of the Czechoslovak Republic have been forced away from their previous Reich -German sales markets, then there is nothing to be done but to carry out a change in production and in the organization of sales, to reduce excessive barley and sugar beet cultivatio n, to grow more wheat instead, to introduce higher tariffs for it and to terminate the contractual relationship with Hungary, to enforce an admixture and blending law in order to minimize the import of wheat from the southeastern states, to continue to fee d part of the barley, which entails an increase in pig production and thus the demand for increased protection against Polish pig imports.

Thus we see how one tariff triggers*) other tariffs, how individual states try to override tariff and trade policy me asures, or at least to limit their effect, through the system of import coupons -which has become a system of export premiums-duty drawbacks, direct and indirect export premiums, and various other measures.

The result is a never -ending screw that must event ually end up in the hands of state monopolies, because things become so complicated that only state import agencies or state monopolies can then carry out a halfway appropriate regulation, provided that there are enough trained officials equipped with economic knowledge and statistics that meet all requirements, otherwise a bureaucratic apparatus will destroy all hopes and create chaos.

It should be noted at this point, however, that all customs and trade policy measures must fail if the farmers themselves do not regulate domestic production through appropriate organizational measures, if they do not ensure that production is adapted to the requirements of the market, that the production of quality products is worked towards, and that a uniform supply of flawless goods to the consumer is achieved through the organization of agricultural distribution.

In this field, the cooperative marketing organizations in the German part of Moravia started averaging grain in the previous year by requiring their members to declare the quantities of grain that could be sold after threshing, giving them an advance payment of 40% of the expected average annual price (so that farmers could settle their artificial fertilizer debts and harvesting costs), while delivery to the coop erative marketing organization could only take place at the time requested by the latter.

*) This was very well explained by Kurt Bloch in the article: European tariff dismantling - and agricultural tariffs? in "Europa -Wirtschaft" 1930, issue 2, p.

57 ff.

45

Quality sorting is carried out at the time of delivery, and at the time of the second payment of again 40% of the expected annual average price, the corresponding quality surcharges or quality deductions are made. The total quantity declared is divided into 12 months of distribution and only the relevant part is sold on a weekly or monthly basis. After the end of the delivery period, the direct costs are deducted from the total proceeds and, taking into account the down payment and the quality, each far mer is paid the calculated additional payment on the average utilization price. The German farmers in Moravia have taken similar measures for other products as well.

Before the World War, there were large economic areas in Central Europe that complemented each other; as a result, specialized agricultural crops were able to develop in the individual regions, which, with maximum utilization of the soil forces, brought the population great earning opportunities. For example, hop-growing in the German Saaz regi on, fruit-growing in the German Elbe region, vegetable -growing (cucumbers, tomatoes, etc.) in the southern Moravian German wine region along the Lower Austrian border.

As a result of the separation of states and the customs walls, flourishing branches of culture have fallen into disrepair and hardship and misery have invaded the once most productive areas. This becomes understandable when it is pointed out that in areas with specialty crops, individual farmers have only a small land holding in which large c apital is invested, and an entire family must live on a few acres of land.

As a result, Central European agriculture as a whole has an interest in the creation of larger economic areas where the exchange of products can be carried out. This exchange is pos sible in the Central European area with simultaneous protection of Central European agriculture against overseas and Russian production of a different nature, which is numerically proven in the book by Hantos: "The Central European Agricultural Problem and its Solution".

Since Brandt discusses these possibilities of exchange in more detail in this book, it should be briefly emphasized here that a balance can be achieved in all agricultural areas within this Central European economic area - in some cases even by a small change in production - according to uniform criteria.

Apart from the fact that this would bring about a recovery of agriculture, in a larger economic area there would also have to be a recovery of the entire national economy, which is of parti cular advantage for agriculture because agriculture with its production depends on the purchasing power of the other strata of the population and in particular the intensive agricultural production of fruit, vegetables, cattle, milk, eggs, potatoes, etc. n eeds a labor force with purchasing power. For these reasons, too, agriculture must agree to the formation of larger economic groups.

46

Customs Union - a necessity for the agriculture of the Southeast.

By Prelate Franz Blaskovics, Timisoara.

The agricultural surplus of the Southeastern European countries, the sale of which is a necessity for these countries, can be sold in the Central European countries, as has been demonstrated in more detail elsewhere in this book, without causing price pressure in thes e countries through imports. Germany, Austria and Czechoslovakia are the most suitable sales countries. If these countries can be accommodated by special agreements with the countries of Southeastern Europe and thus a regional economic alliance can be real ized, then other European countries, both agricultural and industrial, will certainly join this economic alliance very soon, perhaps even immediately. Such an economic alliance, encompassing the whole of Europe, is possible from an agricultural point of vi ew, because Europe has no agricultural overproduction.

The rationalization of agricultural production possible and to be undertaken in a large European economic area and the increase in consumption associated with the creation of this large economic area w ould of themselves greatly ease the difficulties of conversion.

On the other hand, the often discussed plan of a regional economic union comprising only the three countries of the small Entente is not feasible because Czechoslovakia is not in a position to absorb the exportable surpluses of the grain and livestock industries of Romania and Yugoslavia; indeed, Czechoslovakia has a production surplus for two important products, barley and sugar, which it must be anxious to export. Within this economic area, therefore, agriculture would not find a sufficient outlet, and there would even be increased competition within this area. Nor would the sales problem be solved by annexing Austria, because Austria is too small a market and offers too few sales opportunitie s.

By contrast, Germany and Austria are in a position to absorb the export surpluses of Romania, Hungary, Yugoslavia and Bulgaria. If Czechoslovakia were also willing to enter into an agreement on the sale of Southeastern European agricultural surpluses, t he situation would improve considerably. It should also be noted that if such agreements were concluded, there would still be outlets to other areas, such as for corn to Italy and Turkey. The situation would be somewhat more difficult in the case of Polish accession, not so much for the agricultural countries, but above all for the agriculture of Germany and the other Central European industrialized countries, because in contrast to the agricultural countries of Southeastern Europe, Poland's export requirements extend to goods for which the other industrialized countries also 47

have export surpluses or very low import requirements. We would like to point out the Polish export of potatoes, rye, sugar and pigs. However, inclusion of other countries in this al liance would also eliminate these difficulties. As a matter of principle, it must be emphasized that such concerns can only be regarded as petty in view of the comprehensive objective, and must be deliberately set aside, for otherwise such a comprehensive work as that of the extensive unification of the countries of Central and Southeastern Europe can never be accomplished.

An economic unification of the Central and South -Eastern European countries, as well as of the European countries in general, is an abs olute necessity, because the present economic -political situation in Europe is untenable. As a result of the peace treaties, new customs units have been created and the customs walls have not only been extended but also considerably increased.

Everywhere the idea of autarky prevailed, although it is in sharpest contradiction to the latest development of the means of transportation and the productive forces. The agrarian countries considered it their task to artificially create industries for which no precon ditions existed, while on the other hand the industrialized countries, without regard to climatic and other natural conditions, converted and expanded their agricultural production.

Both groups of countries have had to implement tariff increases upon tarif f increases in order to carry out this policy, because only behind high tariff walls is a vegetation of these artificially promoted branches possible at all. The agricultural countries of Southeastern Europe have been unfavorably affected by the agricultural protection policies of the industrialized countries, and the repercussions have been so detrimental that, in the case of Romania in particular, the collapse and ruin of the agricultural states is to be feared. In principle, nothing should be said agains t a certain policy of protecting one's own agriculture, for every country has a great interest in promoting its own food production and in preserving that professional class which, growing up and working under God's free sky, represents the physically and mentally healthiest conservative element of the people, attached to the homeland. But such a tariff policy would at most be justified against countries from which a flood threatens. This does not apply, however, to the agricultural exports of the Southeast, because the small quantities that are exported do not pose a threat to the agriculture of the industriali zed countries of Central Europe. The Southeast is thus being ruined by unnecessarily making its agricultural exports to Central Europe more difficult . However, this plight of the Southeast is not without adverse effects for Central Europe. It is necessary to point out not only the decline in industrial exports to be expected as a consequence of Central European agricultural policy, but also the impendi ng social dangers.

This state of affairs appears above all untenable in comparison with the situation of the overseas agricultural countries, some of which are almost as 48

large as the whole of Europe and have built up a new agricultural economy in this vast area. The special circumstances of the war and postwar period have induced the overseas countries to increase their agricultural production significantly. Almost everywhere, new lands were put under the plow, and improvements in production technology were made. Production increased more and more, and to a far greater extent than would have been possible due to population development, resulting in overproduction for which Ueber - see sought an outlet in the form of dumped exports. In Canada, this policy was carried out by the wheat pool, with the United States providing substantial credit.

The agricultural countries of southeastern Europe suffer the most from this export of the overseas countries, especially since their agriculture cannot offer grain as cheaply as the overseas competition. This unfavorable situation for agricultural exports is decisive for the overall economic situation of the countries, because not only the existence of the rural population, which makes up 70-80 percent of the population, but also that of trade, commerce and industry depends on the favorable utilization of agricultural products. The peasant farms are struggling hard for their existence, as they are burdened with very high interest rates and heavy taxes, and it is difficult for the peasant economy to collect and standardize the goods coming from hundreds of thousands of farms. When it comes to sales, there are also the expensive freight charges and the obstacles and costs associated with customs borders.

This struggle for ex istence of the peasants must be followed with great concern above all because the population of these areas is half bled to death as a result of the centuries -long struggle against Tartars and Turks, is culturally and economically retarded and, in view of its proximity to Russia, is much more exposed to Bolshevik agitation than that of any other area. If the peasantry of the southeast perishes from the agrarian crisis, it will become a prey to Bolshevism, which will have direct contact with the Communists o f Central Europe through it. The economic union of the industrialized countries of Central Europe with the southeastern agrarian countries is thus for the latter a question of existence, for the latter an important economic interest, for all a defense agai nst the Bolshevik danger.

This is not a new insight, and for years people have been working more and more energetically to bring about a closer union of the Southeast with the Central European and other European countries in the interest of Southeast European agriculture. In the last two years, meetings followed meetings at which the possibilities of such a policy were discussed in detail. First, the Southeast proposed a departure from MFN treatment because the MFN clause makes agreements aimed at closer ec onomic ties impossible. However, this proposal to abandon the MFN clause could not be accepted by Germany and the other industrialized countries because, due to their sales interests, the 49

MFN clause has to be the supporting principle of their trade poli cy everywhere. Even if, for example, at a meeting of the "Deutscher Schutzbund" in March 1929, an agreement on the way forward could not yet be reached, a closer economic alliance between the Southeastern European agricultural countries and the Central Eur opean industrialized countries was already on everyone's mind at that time. At other meetings, however, such as one in Berlin in December, criticism of the MFN system was increasingly voiced, and at the meeting of the "Central European Economic Day" in Bre slau in February/March 1930, there was open talk of an economic alliance that was intended and should be built up as an exception to the MFN clause. At a congress of the "German Peasants and Rural People's Associations in Prague" in May 1930, I already fou nd widespread support when I advocated a Central European alliance, as I had done in Berlin in March 1929. The favorable reception of the idea is all the more remarkable because representatives of the agriculture of Germany, Austria, and Czechoslovakia att ended this meeting, who might have feared competition from the Southeastern European agricultural countries from such an economic alliance. Certain concerns were also expressed, but it could be shown how unjustified they were. Thus, the decision of the mee ting states: "The discussion revealed that the idea of a customs union of Central and Southeastern Europe is gaining increasing support also from an agricultural point of view.

At this time, the governments also saw fit to develop the initiative to implement the widely propagated proposals. In July 1930, the Agricultural Bloc was formed, consisting of Romania, Yugoslavia and Hungary, the formation of which is proof of the fact that political antagonisms recede in times of great economic need. At the end of August, Poland also joined the Agricultural Bloc, but its different interests weakened rather than strengthened the bloc's activity. Although the members of the agricultural bloc could not grant each other any significant direct advantages, they were able to strengthen their positions * by acting jointly toward the other countries, thus trying to push through their demands. At the same time, efforts were being made within the League of Nations to carry out the plan suggested by Briand for an amalgamation of the European countries. The negotiations showed, however, that it would hardly be possible to summarize the interests of all European states in a single formula, but rather, as was emphasized above all by the Austrian Chancellor at the time, Schober, it w ould be necessary to first win over the neighboring states for joint action. Negotiations then developed in the Central and Southeastern European economic area, which were in part promoted and supplemented by the organs of the League of Nations, such as, for example, in the framework of the Paris Agricultural Conference, whose work was later continued in Rome and London. The highlights of this development were the meeting of the "Central European Economic 50

Conference" in Vienna in mid -March, the conclusio n of a preliminary treaty on a customs union between Germany and Austria, and the negotiation and conclusion of preferential treaties between Southeast and Central European states.

For the time being, the only preferential agreements that have been or will be concluded by the severely threatened agricultural countries of Southeastern Europe are those that have been approved by the League of Nations, are likely to be recognized by all mostly favored nations as exceptions to the most favored-nation clause, an d can thus enter into force.

These preferential treaties are undoubtedly a relief, but in no way eliminate the unbearable agricultural crisis of the European southeast. Even if the preference for wheat of unfortunately only 25%, which has been granted by Germany up to now, would be replaced by one of 50%, this still does not mean much. The price of wheat in Germany, for example, is RM 26 -27 per quintal, and the import duty RM 25. Assuming a 50% preference, the price of wheat would be around RM 14.50. After deducting freight and other export charges, the maximum price for Romania would be RM 11 per quintal. This price would mean an improvement of the present situation, but is still far from a profitable price. If even a wheat preference of only 25% is granted , as provided for in the German-Hungarian treaty and also benefiting Romania, then a very bad situation remains for the wide area of the Banat, for which wheat is of decisive importance, a further continuation of the crisis. The preference provided for feed barley leaves the Romanian farmer with a selling price of at most RM 5 6 per quintal, at which he cannot possibly survive.

These preferential treaties therefore do not represent significant progress. If the German-Romanian treaty has nonetheless been boo ked as a great success in Romania's official circles, this is only a sign of the well -known superficiality of these circles. A real solution to the Central European economic crisis and a rescue from today's misery, on the other hand, is only possible with a much closer economic union of the Central European industrialized countries with the Southeastern European agricultural countries. The given way would be a customs union, in which intermediate tariffs could be fixed for a certain time to facilitate the t ransition. This goal will be difficult to achieve after the policy of autarky that has been pursued for years, but it must be striven for nevertheless. It would have been most likely to be realized where there is the least resistance, i.e. between Germany and Austria, but unfortunately this project had to be shelved. Nevertheless, the proposal for a customs union must be adhered to and every effort must be made to achieve a Central European customs union as a step towards a European one. The Customs Union is the only way to free Europe from its present disunity and economic misery.

It will lead to more rational and profitable production and thus to the social and political pacification of Europe.

51

The importance of preferential contracts for Central European industry.

By Dr. phil. Ing. agr. Otto von Franges, former Yugoslav Minister and Professor at the University of Zagreb.

Ever since Friedrich List formulated his theory of economic stages of the agrarian-manufacturing-commerce state, it has been a dogma that every nation must pass through these stages of economic development, that every nation must strive toward this development as an ideal, for only in this way is it possible for every state to increase and supply its population, to promote the development of political freedom, the sciences and the arts, and to secure its independence and power. Germany has reached its highest development on the path mapped out by List and in the direction of this ideal. It is natural that all relatively undeveloped state s should also wish to follow the path thus evidently proved, and should endeavor to pass as rapidly as possible from the lower stage of development to the agri -manufacturing state and finally to the stage of the agri-manufacturing-merchanting state. There is no doubt that this conception of cunning has influenced to a large extent the economic measures of almost all states, especially the southeastern states of Europe, and we owe it above all to it if the efforts in these countries to create their own indus tries with the help of protectionist measures led to the present state of affairs in Europe. However, the liberalism of today, which perhaps celebrated its greatest triumph in the decisions of the Geneva Economic Conference of 1927, also influenced the vie ws of economic politicians in the Southeast, as it did everywhere else, but this influence, like that of the decisions of the World Economic Conference in general, remained without any major practical effect.

On the other hand, new advocates of tariff prot ection arose who defended their views with extraordinarily sharp scientific weapons. It would be too much to mention names here that are already familiar. However, we should mention a very outstanding work of this direction, which deserves to be appreciate d much more. It is the study of Mihael Manoilesco: "Theorie du protectionisme et de l'echange international". With a fresh daring, Manoilesco*) tackles the most untouchable dogmas of the old and new schools of national economy, daring to mathematically and rationalistically refute Ricardo's classic example of the exchange of goods between England and Portugal, trying to prove that in certain cases an agricultural country fares better economically if it creates industries with the help of protective tariffs. "It is better to produce expensive

*) Manoilesco was in the regime of the Peasant Party under Maniu and is in the current regime of Prime Minister Jorga Minister of Trade of Romania.

52

(industrial items) more expensively than to produce cheap goods (agr icultural products) more cheaply." This is one of the conclusions of Manoilesco's theory. Such arguments are used as justification when, for example, Yugoslavia, as well as Bulgaria, imposes an import duty of about 300 Din on plows worth 5-700 Din, on copp er vitriol worth 3 -400 Din an import duty of about. 100 Din, although it does not have a single halfway efficient agricultural machine factory and an only artificially durable chemical industry, if at all in the import of automobiles, tractors, agricultura l machines of every kind, electrical machines and apparatuses, sewing machines, chemicals, paints, etc. high duties are levied by all Southeastern and Eastern states, although these countries have neither the corresponding qualified workers and engineers n or the raw material for such a manufacturing.

Undoubtedly this makes the use of, for example, better agricultural implements and machinery in these countries generally difficult, and even impossible at times of crisis such as the present, since these capit al investments can neither be amortized nor earn interest with the low prices of agricultural products, but nevertheless this policy seems to be adhered to.

We do not wish to deny the necessity of measures in favor of industrialization, but we wish to limi t them to a certain extent for the present. Later, after the desired strengthening of the Southeastern countries , those measures can be taken which should enable the development of industries in the Southeastern countries as well. Our view in no way impli es that the southeastern countries should abandon industrialization, efforts to create employment for surplus agricultural labor in their own countries in place of the prevented emigration, or intensification of agriculture. Only these measures should be a dapted to the needs of the present, the crisis of the world economy. This would have to be taken into account both in relation to the measures taken within the States and in their relations with foreign countries. The purpose of these lines is to present some points of view from which the problem can be judged. First of all, let us consider some facts which are necessary for the understanding of the situation.

Woytinsky*) shows in a tabular compilation that the productivity of labor in agriculture is signif icantly lower than in other branches of production.

Manoilesco**) calculates that on average in 22 countries all human activities are about £.35 times more productive than agricultural activities. Specifically for Romania, Manoilesco shows that the product ivity of an agricultural producer is only 820 sw, frs, per year, i.e. only 2.25 sw, frs, per day. In Austria *) Woytinsky: The World in Numbers, Vol. IV, pp. 6 -13. **) Manoilesco: Theorie du Protectionisme, Paris 1929, p. 61.

53

the value of agricultural production per capita of the agricultural population before the war was 490 gold crowns, while the value of industrial production per capita and year of those employed in industry was 1,683 G. -Kr. In Hungary the corresponding figures were 815 G. -Kr. for agricultural and 1291 G. -Kr. for industrial activity. In Yugoslavia the figure for agricultural activity is 295 sw, frs, that for industrial 1320 sw, frs.

These figures are not absolute proof that the production values of agriculture are in fact so inferior to those of industry, for they do not take into account certain factors which shift the ratio substantially in favor of agriculture. Thus, for example, it must be noted that the value of production in agriculture has to cover only the cost of necessaries n ot produced by the producer himself, since the expenses for housing, food, heating, etc., are already covered elsewhere, while the industrial producer has to cover his entire cost of living out of the value of production or his labor earnings. Nevertheless , it must be considered proven that in agricultural production less is produced per capita than in industrial production.

Another fact is the relative overpopulation of the agricultural countries of the Southeast. Dr. Hollmann*) points out that in Denmark, for every 100 hectares of agricultural land, there are 32.4 persons of the agricultural population (employed and dependents), while in Yugoslavia (including meadows and 1

pastures) there are 8 3.5 persons, i.e. more than 2 2 times as many. We add that in Romania there are 83 persons per 100 hectares of agricultural land, in Hungary 61, in Bulgaria 92.

Finally, one more observation: according to research by Dr. Postic, only 34% of the farmers' available labor is effectively utilized in their own economy on farms in Slavonia. In Romania the percentage is probably somewhat lower, in Hungary somewhat higher. From these figures we can see that in the southeastern countries an extraordinary amount of labor is lying idle, which cannot work in its own economy and t herefore has to look for other opportunities to earn money. Hence the large -scale emigration from these countries, which is currently prevented in many cases, placing a heavy burden on the domestic labor market. This problem can only be permanently solved through industrialization, which is why the desire of the southeastern countries to expand their industry is natural and completely justified. But another demand is also justified and is even more urgent than industrialization; namely, the demand for bette r sales opportunities for agricultural products in order to be able to cover at least the production costs, including an appropriate wage. *Dr. A. H. Hollmann: Agrarian Constitution and! Agriculture of Yugoslavia.

Berlin 1931, p. 67.

54

How can these just ified needs be satisfied, which path of "least resistance" leads to this?

In the discussions on the ways and means of 'remedying the agricultural crisis, rationalization and intensification on the American model are frequently recommended in order to there by increase production per unit of land and to achieve a cheapening of the harvested unit of weight. This argumentation is purely capitalistic in thought and suffers from the same fatal flaw from which the "Americanization" of industry also suffers. It wan ts to become ever more capital intensive instead of labor intensive. For the agricultural countries of Southeastern Europe, the path of capital intensification (procurement of labor-saving machines, of artificial fertilizers, etc.) is wrong; these countrie s may and can achieve economic success only through increased application of the labor factor in the production process, such as through more frequent hoeing of all fruits, through mowing with a scythe instead of with a machine, through cultivation of crop s requiring a great deal of labor (tobacco, opium, hemp, soybeans, vegetables, etc.). These methods are not easily applicable to the large landowner because he must pay for labor, but they are rewarding to the self-creating small farmer, whose labor is und erutilized anyway, so that any increase in yield represents a pure net gain. This would also significantly increase the productivity of agricultural labor - far above the figures given by Woytinsky and Manoilesco - and correspondingly raise the consumption capacity of farmers for industrial goods of all kinds. The increased capacity to consume would be expressed in the acquisition of agricultural implements and machines which, despite the intensification of labor, are indispensable for agricultural operatio ns; for example, plows, harrows, sowing machines, threshing machines, grain -cleaning machines, and so on. In addition, the demand for clothing, linen, boots, iron, leather, crockery, glass, earthenware, etc., which had been held back for a long time, would appear, and an increased consumption of all foodstuffs and luxury goods could be expected. This recovery process is positively certain in its final success, - but it can only take effect in a series of years of purposeful propagandistic activity.

In the course of this development, more and more workers would certainly be bound and permanently employed, but not all workers are fully utilized yet.

To supplement this, industrial occupations are needed which absorb a large number of workers, as is the case abo ve all in the clearing and utilization of forests and in mining. Yugoslavia and Romania offer ample opportunity for both, but the general crisis has also affected these industries, and they cannot currently employ as many willing workers as would otherwise be the case.

However, we want to note that these industries with their branches (sawmills, lumber mills, tannin factories, furniture factories, blast furnaces, rolling mills, metal industries of all kinds, petroleum refineries, etc.) are autochthonous to the southeastern countries. Furthermore, the industries that process 55

agricultural products, i.e. mills, sugar factories, distilleries, yeast, starch and dextrin factories, beer breweries, malt houses, wine distilleries, wine vinegar factories, dairies, meat and vegetable canning factories, etc., etc., must be regarded as distinctly indigenous. Finally, the industries of national defense, which each state must develop on its own, must also be considered necessary.

Anything beyond this scope of industrial production is not vital for the agrarian countries at the present time; the creation of all factories not native to the soil or falling under the broad concept of industries of national defense, their expansion and promotion may be postponed or omitted al together as long as the present crisis continues. We should actually say "must" instead of "can," because these states must strive to ensure that they do not make the daily necessities of their nationals more expensive, especially in the present crisis. Ho wever, this happens when a new production, which does not belong to the group of industries mentioned earlier, is included and placed under tariff protection. As a result, the consumer is forced not only to meet his needs at higher prices, but he usually r eceives a product of inferior quality at this higher price, so that he suffers a double loss. The agricultural states cannot afford the luxury of such a double burden on consumers at present, as long as they have not overcome the crisis in their agricultur al production. They must stand still for a while in the pursuit of their rise to an agrarian -manufacturingtrading state and allow the basis of this rise, their agriculture, to strengthen and recover.

From these findings, the question of interrelations bet ween the Central European industrialized countries and the agricultural countries of the Southeast can be surveyed quite clearly. We repeat what has been said before: the Southeastern countries should refrain from the artificial creation of new industries; on the other hand, as a kind of payment for this abstinence, they should obtain the possibility of selling their agricultural products in the Central European countries at their domestic prices. Such an arrangement can be made by means of bilateral trade agreements, in which the contracting parties guarantee each other those preferences which best suit their interests.

In order to prevent disturbances of the price formation in the own national territory, the handling of the transactions in the articles enj oying the preference can go through controlling central offices, which, however, need not impede the free trade at all. They have only to distribute export certificates in the amount of the corresponding agreed preference and to exercise control over the q uantities and qualities which are to enjoy the privileges under the contracts. It is quite indifferent in what way the tariff preferences*) are implemented. This may be done by means of a subsidy from *) Cf. the proposal I developed in more detail in issu e 4, volume 2 of "Europa Wirtschaft".

56

the exporting States, or by means of a deferral of customs duties at the frontiers and a clearing settlement at the end of the year, or by means of special tariff concessions or several such measures. Under no circ umstances may one of the partners sacrifice more than it gains, - do ut des must be the principle of the arrangements, otherwise they can never be permanently sustainable.

We described it as desirable that treaties should be concluded from state to state, not between groups of states, for the simple reason that the difficulties of multilateral ties seem insurmountable. But bilateral ties may also offer difficulties as soon as an agricultural state wishes to conclude preferential treaties with several indust rialized states, since clashes of interest may arise when different states demand favors for the same industrial articles. These difficulties are reduced to a large extent if the preferences are limited to special articles produced by the state in question . If we take Yugoslavia, Romania and Hungary as examples, the industrialized countries Italy, France, Switzerland, Austria, Czechoslovakia and Germany come into consideration as suppliers of industrial goods for these three agricultural states. What these industrialized countries sold in 1929 in the three Southeastern states mentioned can be seen in part from the following list, which, however, only takes into account the most important export goods and thus does not give a picture of the total export, whic h for the individual states should amount to at least double.

Italy: Total exports 14.9 billion lire, of which went to the thr ee southeastern states: Item Silk goods Cotton goods Wool, fashion articles, jute and other spun fabrics Automobiles Total:

In Mil. Lire 11 228 68 18 325 Mil. Lire =2,2% of total exports.

France: Total export 55.2 billion Frs ., of which went to the three Southeast countries:

57

Item Fabrics Metals metallurgical products webs skins and furs linen automobiles chemical products Total:

In Mil. Frs. 51 6 62 35 5 7,5 25 5 196,5 Mil. Frs. =0,04% of total exports.

Switzerland: Total export 2.1 billion Frs ., of which went to the three Southeast countries: Item Watches Silk goods Machines Cotton goods Colors Total:

In Mil. Frs. 5 5 9 10 2,6 31,6 Mil. Frs. =0,01% of total exports.

Austria: Total exports 1.1 billion shillings, of which went to the three southeastern states: Item Spun and cotton articles Paper and stationery Iron and iron articles Silk and silk goods Wool and woolen fabrics electrical equipment leather and leather goods Total:

In Mil. Shillings 92 47 54 24 38 35 15 305 Mil. Shillings =30% of total exports.

58

Czechoslovakia: Total export 20.5 billion kr., of which went to the three sou theastern states: Item Cotton and cotton fabric Wool and woolen articles Iron and iron articles Leather and leather goods Glass and porcelain Total:

In Mil Kr. 951 348 381 89 84 1853 Mil. Kr. =9,2% of total exports.

Germany: Total exports 13.5 bill ion Mk., of which went to the three Southeastern states: Item Iron products Machines Fabric Paints and chemical articles Coal and coke electrical equipment Total:

In Mil. Mk. 88 66 33 32 7,5 28 254,5 Mil. Mk. =1,96% of total exports.

From this brief summary (based on the figures of the Second Customs Peace Conference) we see that each country supplies particular special articles which would have to be taken into account above all in the setting of preferential tariffs: Italy cotton articles, jerseys and automobiles, France fabrics and luxury articles, Switzerland watches, Austria fabrics, leather and paper, Czechoslovakia glass and porcelain, Germany paints and chemical articles. Common to all industrialized countries is the export of fabrics and ma chinery.

But here, too, there are specializations. For example, the southeastern countries never purchase plows, harrows, and seeders from Italy, Switzerland, or France, and this is because the types produced in these countries do not suit the soil or draf t animals of the southeastern agricultural states. Plows are mostly purchased from Germany, seed drills from Czechoslovakia, grain cleaning machines from Austria, threshing machines from Hungary. Loden fabrics are supplied by Austria, halina by Czechoslova kia, light silk by Italy, heavy silk by France. We could enlarge the list considerably, but it should be 59

sufficiently clear from these examples that the preferential regime need by no means harm the interests of other countries, if in its development ab ove all the special articles of each country are taken into account. In this way there is a possibility of development of a much intricate network of bilateral and regional preferential agreements between the countries of Southeastern and Central Europe, which should eventually lead to the much desired European Customs Union.

If such plans were realized, what would be the effect of the new relations between these states in values?

If the Southeastern states were to receive for wheat even not the full, but nevertheless the approximate domestic price in Italy, France and Germany, this would result in a direct additional income for the Southeastern countries of 87 million gold francs, assuming average export quantities and a price difference between the world m arket price and the domestic price of the importing countries of 15 gold francs for wheat. However, since the foreign price acts on the level of the domestic price in the sense of an equalization, i.e. an increase, the added value of the wheat harvest in t he three Southeast countries would be close to 1.15 billion Gold -Frs.*). If we take into account the other cereals, the price of which is correlated with the price of wheat, this results in an added value of 2 -2.5 billion Gold -Frs. By this amount the natio nal income of the three Southeastern states would increase, the purchasing power of the agricultural countries would rise, and the sales opportunities of the industrialized countries would be increased.

We have seen above that the value of the most importa nt industrial articles exported from the industrialized countries of Europe to the agrarian Southeastern states amounts to about RM. 780 million. If we add to the most important also the articles not mentioned in the compilation of the League of Nations, we obtain more than double the sum as the value of the present export, i.e. about RM 1.5 billion. If the purchasing power in the Southeastern countries were to increase in the manner described above, it may be assumed that the satisfaction of needs, which h ad been stagnated by years of abstinence, would be unrestrictedly expressed, whereby imports to these countries would probably increase by 50%, which would amount to approximately RM 700 -800 million. Converted into working days and unemployed persons, this would mean the possibility of a reduction of unemployed persons by about 1.3 -1.5 million and the elimination of state

*) On the average of the years 1928 -1930 the harvest in Yugo - slavia was 260000 Mtz., in Romania 28 000000 Mtz., in Hungary 23 000000 M tz. Wheat, a total of 77 000000 Mtz. 60

support for the same number of unemployed persons. As a liability of this calculation, the importing states would have to consider the elimination of part of the import duty on wheat; however, this loss would alread y be more than offset by the savings in unemployment benefits. The exemption of industrial goods from the tariffs of the agricultural countries and the increased inflow of foreign currency as a result of the increased exports are further assets that make t he "business" appear profitable for the industrial countries.

The agricultural countries, which from a fiscal point of view also have to book the loss of import duties for the preferentially treated industrial products at the expense of their assets, find the countervalue not only in the increased inflow of foreign currency, but especially in the significant increase in the value of national income and the increased tax payments of their own population. How far the agricultural countries could draw special advantages from the realization of the economic ties with the industrialized countries propagated by us would go too far to describe here. In any case, this path can lead to the recovery of Central and Southeastern Europe.

61

Southeast problem and industry

By Dr. Robert Siegert, Berlin.

The problem of the importance of Southeastern Europe for the international exchange of industrial goods includes the following questions; Can industrial sales to the European agricultural surplus areas be increased?

Are these agricultural surplus areas themselves to be considered as industrial producers, either to supply their own market or for export? -.

The great importance of these questions became particularly evident when the various conferences of the agricultural countries of the Southeast, which took place several times during 1930 in Bucharest, Sinaja, Warsaw, Belgrade and other places, regardless of the more or less strongly emphasized political purpose of the meetings and of the changing number of participating states, put the initiative of the narrower Southeast countries for help out of their agricultural distress in the foreground and thereby emphasized the sales interests of the industrial states to the Southeast. In fact, the problem is how these countries, namely Romania, Yugoslavia, Hungary and Bulgaria, can be helped internationally out of their particularly sensitive economic distress, how above all the dull despair which has seized the inhabitants of these countries, i.e. essentially the fa rmer, can be remedied, if otherwise these populations, among which there are many German sprengels, are not to fall prey to Bolshevism. The Central European Agricultural Conference in Vienna in March 1931 gave an urgent and serious picture of this plight, not only economically but also politically, culturally and directly in human terms, which is expressed in particular by the fact that even the depressed world market prices for grain in the southeast are still undercut: wheat from the Banat, for example, one of the most fertile areas between Hungary, Yugoslavia and Romania, is quoted at only about 6 marks at a world market price of 10 -11 marks.

The demand of the Southeastern European countries is to secure a satisfactory and, above all, sufficiently priced sale of their surpluses, which are mainly agricultural products, in international competition. In the first place, only the current surpluses can be considered, which, however, are in varying proportion to production for the different types of grain as wel l as for each of the different countries, and therefore form a more or less large source of income for the agriculture of each of these four countries internationally. The trade policy course suggested by the Southeast, as will be more fully set forth elsewhere in this book, is that of preferential contracts.

An increase in export prices will certainly bring to the Southeastern farmer an 62

increase in his domestic prices, both for the grain itself and for the farm finished products. This, however, is ultim ately the desired goal, since it enables the farmer to make exports profitable and to obtain surpluses which he can usefully invest in improvements to his farm and in raising his standard of living. In this way, however, the goal would be achieved which ar ouses the interest of the industrialized countries in raising the agricultural price level in the Southeast: increased procurement would then begin both for agricultural needs and for direct human consumption, which would have to be covered abroad for lack of sufficient production.

Admittedly, even these prospects are only a final goal that cannot be achieved without further ado. Today, the economic situation in the Southeast is so bad and the development of prices so unfavorable that it will first be neces sary to at least secure the existing purchasing power of the Southeast through the planned aid measures and to prevent the loss of further sales areas for the world market before any thought can be given to increasing the purchasing power of the Southeast countries more or less considerably and quickly. All industrial exporting countries interested in the Southeast must therefore not overestimate the sales possibilities of industrial products for the near future.

The consolidation of the purchasing power in the Southeastern agriculture would essentially ensure the absorption possibilities for industrial goods, as they already exist today, and would guarantee the solvency. More, however, will not be able to be achieved beforehand with certainty. This will be essentially the sale of industrial consumer goods and agricultural inputs.

Certainly, the Southeast also offers a wide field in the development of its own industrial sources of raw materials for the sale of industrial means of production, but Dr. Schacher in particular, in his remarks in the "Magazin der Wirtschaft" of 19, 6, 1931, is probably only thinking of a more distant future when he suggests the development of these sources.

The Southeast European agricultural market is open to all industrialized countries. Nevertheless, the most significant turnover, which consequently has to be the focus of the present study, is to be found within the countries connected by the Danube axis; i.e., compared to the agricultural group of the four countries considered so far, the three industrial surplus countries, namely the German Reich, Czechoslovakia and Austria, are to be included in the total area under consideration. This delimitation, and in particular the participation of Germany, clearly indicate that it is not possible to consider the economic totality of these countries on their own. Germany's interest is directed to the greatest extent toward the world's oceans, overseas, and above all toward the countries of the Rhine axis and Great Britain. Germany is the only great economic power among the seven states. The German interest as well as its central position in Central Europe therefore require from the outset a balance between the two large geographical groups of sales 63

characterized by the aforementioned flow s. The considerable interest of the Southeast European agricultural countries for the German market, as well as for the entire Central European industrial block of Germany -AustriaCzechoslovakia, is best illustrated by the percentage of imports and exports of these countries. Romania's turnover with Import

Export In %

the German Empire Austria Czechoslovakia

16,7 16,5 14,3

8,4 14,9 9,4

i.e., Romania's foreign trade with the three Central European industrialized countries totaled 47.5 % in imports and 32.7 % in exports, while Romania's turnover with Hungary was only 4 % in imports and 11 % in exports and with Yugoslavia, Bulgaria and Albania together only 1.3 % in imports and 10 % in exports.

Yugoslavia's interdependence shows the following picture on average over the last few years (apart from an account of the direction of development): Import

Export In %

with the German Empire with Austria with the Czechoslovakia

12 18 18

10 18 11

Yugoslavia's turnover with Hungary, on the other hand, was only about 5% in imports and only about 8% in exports; that with Romania was only 3% in imports and about 2% in exports; that with Bulgaria is even lower. Hungarian foreign trade, in turn, amounted to an annual average of Comparatively, sales with Yugoslavia averaged 5 % in imports and exports, and those with Romania 8 % in imports and 5 % in exports.

Import

Export to %

Germany Austria Czechoslovakia

18 18 22

11 35 20

In Bulgaria, too, Germany ranks first with an average of 20% of imports and exports, but Austria is fourth behind Italy and Great Britain with 9%, and 64

Czechoslovakia with 8% and 6%, respectively, ahead of Romania with 6% of Bulgaria's imports and only 1% of its exports.

This picture is underlined even more clearly if one places the absolut e figures next to this percentage distribution and realizes that Yugoslav imports, which fell from RM 577 million to RM 515 million between 1928 and 1930, rose from RM 78 million to RM 91 million for Germany, from RM 103 million to RM 91 million for Czecho slovakia, and from RM 114 million to RM 86 million for Austria. In contrast, France, for example, with RM 26 million in 1928 and RM 20 million in 1930, took a back seat on the Yugoslav market. Great Britain also accounted for only an average of 31 million marks of total Yugoslav imports, and the United States accounted for only 29 million marks in 1928 and 21 million marks in 1930. The picture is similar for Hungary, whose imports fell from RM 885 million to RM 610 million in the same period (1928 to 1930), affecting all countries. Germany's imports, which amounted to RM 173 million in 1928, still amounted to RM 128 million in 1930, Czechoslovakia's from RM 198 million to RM 132 million, Austria's from RM 143 million to RM 72 million, French imports averaged only RM 18 million and those of the United States only RM 30 million, The Bulgarian total turnover is lower. Imports rose from RM 213 million in 1928 to RM 252 million in 1929.

Germany's share rose from RM 45 million to RM 56 million, Austria's from RM 17 million to RM 19 million, and Italy's from RM 32 million to RM 26 million.

France's share still averaged RM. 18 million.

Romanian imports fell (1928 to 1930) from RM 825 million to RM 560 million.

Unfortunately, there are no more recent figures for the in dividual countries, but it is characteristic, for example, that French exports to Romania, according to French statistics, rose from 1929 to 1930 only from RM 24.6 million to RM 28 million.

The considerable importance which Germany has as a supplier to the abovementioned countries implies that a special demand for industrial preferences is not made by the German side. This view was confirmed in particular by the remarks of the German spokesman at the Central European Agricultural Conference in Vienna in Ma rch 1931, where it was expressed that Germany, as certainly also the other Central European industrialized countries - and these did not contradict either at the said conference or later - was prepared to meet the agricultural export needs of Southeastern Europe as far as possible, without desiring tariff preferences from the other partner which would not also benefit third countries by way of most -favored-nation treatment. Even the current somewhat complicated Austro -Hungarian customs settlement agreement is probably only a transitional measure. The decisive demand, 65

however, was that the agricultural states of Southeastern Europe decide to reduce their industrial tariffs from their present exaggerated level, in their own interest of making their agricult ural production cheaper. Various calculations, about whose conditional value there should be no doubt, have shown that Romania and Yugo -Slavia, as well as Hungary, along with Poland, have the highest tariff levels in Europe: A phenomenon, which' is also ca lled unhealthy by the economic circles of the mentioned countries and which should therefore be brought back to its proper level as soon as possible.

Certainly, the agricultural states of southeastern Europe are also rich in industrial treasures. Romania's petroleum wealth has already been briefly mentioned. Yugoslavia has considerable ore resources in its soil and, at 290,000 tons a year, supplies half of its coal needs. Bulgaria meets this demand entirely by itself. In the mountainous parts of these count ries, there are large forests throughout. These are natural resources that must be exploited. It would be wrong for these countries to decide to develop their own industries under the most unfavorable conditions merely out of national pride, if not out of nationalistic arrogance. The industrial activity of these countries will essentially take place within a relatively narrow framework, as has been the case up to now, for cultural reasons. The prerequisites for the establishment of larger factories are lack ing in terms of traffic, and ultimately there is also a lack of human training and a whole series of other things, perhaps with the exception of Hungary, which has a considerable metal and machine industry in Budapest and numerous factories throughout the country for the processing of its agricultural surpluses. The picture is similar, albeit smaller, in the former Hungarian districts of Yugo -Slavia. Last but not least, there is a lack of money. It can be argued that the number of Romanian joint stock companies has increased from 900 to 2400 in the last 10 years. However, the invested capital increased only from 2 to 2.5 billion. Processing is essentially cottage industry, so the population is largely self -sufficient in clothing. The relatively large share o f textile imports, 29% in Romania and as much as 36% in Yugoslavia, should not be misleading, since these figures also include raw materials, especially wool and silk.

The supply of metal products of all kinds, especially small ironware, agricultural imple ments, etc., is considerable, accounting for about one -fourth of imports in Romania and about one -fifth in Yugoslavia. The import of machinery in both countries is only about 6%, that of vehicles about 7.5%.

From this it can be concluded that the mechaniza tion of enterprises and transport is still very little advanced. Therefore, the principle of division of labor will be the most advantageous for these countries and will be the surest guarantee of profitable exchange of goods for the countries receiving th eir agricultural products.

66

The exports of the three Central European industrialized countries in question consist essentially of manufactured goods, for all of which there is no uniform outlet everywhere, perhaps again because of the relatively lesser cultural needs of the Southeast. In the totality of exports, therefore, the preservation as well as the possible increase of purchasing power means perhaps still much more for some branches of production than for some others. We are thinking primarily of exports of household appliances from Czechoslovakia, for example, of textiles from Germany and the other two countries, and of metal products from Austria. We are also thinking, above all, of the export of agricultural inputs on the widest scale, which Germ any is likely to account for first and foremost, i.e., agricultural machinery, fertilizers, and similar goods. goods. These last production aids, which are relatively expensive to procure, are more likely to be exported in the long term than consumer goods of daily use, while on the other hand Austria and Czechoslovakia, which, as mentioned above, are primarily interested in supplying these goods, are relatively more interested in the market to the southeast than the German Reich, not least for historical r easons. It should be noted that Czechoslovakia's exports to the four Southeastern European agricultural states amounted to 18% and Austria's to as much as 22% on average in recent years.

A key question will be how to improve development prospects, i.e., th e ultimate goal of increasing purchasing power. The main question will be how to assess the development prospects, i.e., the ultimate goal of increasing purchasing power, in the countries of southeastern Europe. It is difficult to give uniform yardsticks f or this. One could start from the foreign trade interdependence of the individual countries, which is characterized by the per capita ratio of imports and exports. It amounted per head of the population on the average of the last years in RM, this ratio wi th

Import 49 103 48

Romania Hungary Yugoslavia

Export 43 71 36

If one notes that, in contrast, the quotas For Denmark for the Netherlands even with Germany for France and Czechoslovakia

67

520 and 495, 590 and 440, 220 and 224, 215 and 165, 164 und 182

The result is that the foreign trade linkage of the above -mentioned countries is relatively insignificant. The main conclusion to be drawn from this is that an increase in total purchasing power would also lead to a relative increase in foreign trade turnover. The conclusion is not necessarily conclusive, however, because examples for and against this thesis could be found by using the quota figures of various agricultural and industrial countries. After all, the quotas are so low that considerable pro gress could be made here.

The prewar analogy does not necessarily allow any firm conclusions to be drawn either. Neither does it show that the population in agricultural countries increased less than in industrialized countries, nor can it be proved with absolute certainty that the increases in imports and exports from 1900 to 1913, which doubled in Italy and Germany, for example, were essentially due to the strongest industrialization. Italy was not yet so strongly industrialized in the pre -war period. France's industrialization certainly made strong progress, but imports and exports lagged behind those of Germany and Italy by at least 30 %. English import and export development shows only relatively small increases of 20 -25 %, although England was already heavily industrialized in 1900, but then continued its industrialization.

This assumption is strengthened by the consideration that Romania accommodates 17, Yugoslavia 12, Hungary 8 and Bulgaria 6, all four countries altogether thus nevertheless 43 million humans, while they take up at the entire import only (Romania 710, Yugoslavia 515, Hungary 610 and Bulgaria 139) 1.97 billion Marks. In contrast, the population of Argentina, for example, settled in a much larger area, amounted to only about 11 million pe ople, or about the fourth part of this total crowd settled in the Southeast. Argentina's total imports, however, amounted to 2.5 billion marks in 1930. Thus, despite the pressure from the grain market, Argentina enjoys a disproportionately livelier standard of transportation for its agricultural population, from which the European southeast is still far removed.

As a third possibility of comparison, one can perhaps think of the measurement of national income, although this is also to be evaluated only relatively, especially in agrarian countries, where a large part of the income consists of payments in kind, which can be expressed only with difficulty in numerical terms. However, if we consider that the national income of the giant figure in the U.S.A. of 31 00 Reichsmark per capita in 1929 was about 1500 Marks in England, Holland and Switzerland, about 1100 Marks in Norway, Germany and France, about 700 Marks in Austria, Czechoslovakia and Italy, and only about 500 Marks in the Balkans, there is no doubt that there are strong possibilities for increase. It can only be the purpose of these observations to arrive at the same conclusions from various factors which are in themselves inadequate, in order to prove that our thesis is largely correct, 68

namely that a significant increase in purchasing power can be expected in the Southeast. It remains to be seen when this will be the case. For the merchant, it will be necessary to calculate most cautiously in order to be all the more certain of making even a modest pr ofit without having taken too great a risk.

Therefore, even this generally favorable conclusion must be viewed with slight skepticism, all the more so since it must not be forgotten that the Balkan population is undemanding, having shaken off Turkish rule only in the second generation, and which could therefore be a relatively good market for consumer goods, But here, too, educational work and, in particular, advertising activity, which tends to be particularly fruitful in such areas, can still give rise to hopes for the distant future.

What consequences can be drawn in detail from the point of view of trade policy, what combinations in particular are conceivable here, i.e. above all customs unions between some of the agricultural and some of the industrial partners, can only be hinted at within the framework of this consideration, and it can only be pointed out that wage levels, currencies and other elements can be balanced out, but must also be balanced out, if, as experience has shown, it is very difficult to consider any combinations at all in advance with a calculating pencil. Much will undoubtedly be created in this respect by the possibility of granting credit to the Southeast. Various efforts on the capital market, especially from the French side, have already been mentioned. France has a half share in the so -called second Romanian monopoly bond, which totals $50 million, while Germany has only a 3.5% share. France has been strongly involved in the last visit of the Yugoslav Foreign Minister also to Yug oslavia, finally, according to press reports, also to Bulgaria. Interest rates, especially for private loans, are still extraordinarily high in Romania at 12 -15, even 18 %, in Bulgaria at 12 -13 %, in Yugoslavia up to 20 % and in Hungary at about 12 % (Europa- Wirtschaft 1931, Heft 5, p. 202 ff.), so that, based on the principle of "first reorganization, then loans," a considerable liveliness of French capital in the Southeast is not to be expected for the time being, especially as long as the state financia l management of the Southeast countries is not yet sufficiently sound. Although there may be competition from the capital side for the narrower Central European interest in economic equalization, the private exchange of goods in free competition and, depen ding on the possibilities, in cartel or syndicate ties, is so substantial that for the distant future, especially with the creation of large trade areas, this exchange of goods can be considered promising for mutual and world economic benefit.

69

The Capital Economy of Central Europe By a. o, Professor Dr, Dr. Richard Kerschagl, Vienna.

It is impossible to obtain a perfectly accurate and clear picture of the problems of the capital economy, because the available figures can at best be regarded as indications. This also applies to all scientific studies available so far, as well as to the works published by the League of Nations. The author himself would like to emphasize that this is not an isolated opinion, but that the experts of all relevant countrie s are fully aware of the difficulties and the only relative importance of the available material. The author attaches great importance to these statements because, due to the deficiency and diversity of the material, the opinions about the conclusions to b e drawn from it also diverge strongly in the widest circles.

On the other hand, however, some problems are so obvious, the material on them so complete, that differences of opinion are inconceivable. This is true, for example, of the statement that Czechos lovakia is the richest of all Central European states in terms of its capital economy and the least dependent on foreign capital. However different the available figures may be, they provide sufficient evidence to draw this conclusion. Czechoslovakia, with 20 billion Kc of deposits in savings banks alone, has undoubtedly the highest per capita ratio of savings bank deposits, which can certainly be regarded as characteristic of capital formation to a high degree. It also undoubtedly has the lowest total fore ign debt, both in absolute and relative terms. Although estimates differ, the data of Buday's Hungary*), which puts the foreign debt at $320 million, probably correspond to the facts. In the official balance of payments**) for 1929, total debt is given as 11.6 billion Czech crowns, of which half (5.9) is accounted for by government debt and a good third (4.2) by short-term debt of industry, commerce, and banks. However, these debts are offset by foreign assets of 9.6 billion, leaving a net debt of about 2 b illion koruna. It is noteworthy that short -term foreign assets amount to 7.6 billion, thus considerably exceeding short -term debt. In interest and dividends, Czechoslovakia pays to foreign countries almost one billion Kc. annually, while it receives almost 600 million, the difference being of no great significance in comparison with the other items of the balance of payments.

*) Cf. his article: Zur Finanzkrise der Nachfolgestaaten in Europa -Wirtschaft 1931, issue 8, p. 289 ff. **) Data on balances of paym ents for all countries are taken from the League of Nations publication: Balances of International Payments, Gen "va 1931.

70

In both relative and absolute terms, Czechoslovakia has the lowest debt among the Central European states, including, of course, G ermany, and its capital account is relatively the most balanced. On the whole, Czechoslovakia presents the picture of a state whose foreign capital working at home is balanced for the most part by domestic capital working abroad, a picture which is confirmed by a number of characteristic symptoms.

Another fact which can be established with a large measure of certainty is the position of Germany. In the balance of payments for 1929, foreign debts are given as 26 to 27 billion, of which a good 10 billion are short-term debts. After deducting foreign balances, but excluding reparations, a net debt of a good 16 billion marks remains, on which Germany must pay a good 800 million marks in interest, to which must be added the reparations payments of initially about 1.7 billion marks annually. The events of the summer of 1931 should have shown everyone the fragility of such a capital economy, and also the need for a policy promoting domestic capital formation. It is true that the savings bank portfolio of about 12 bi llion marks must be regarded as very respectable, but despite the progress in domestic capital formation evident in these and other figures, it is by no means sufficient.

It cannot go unmentioned that Germany's capital supply would probably be on a much more stable basis if at least a considerable part of the German investments abroad were working at home; for according to almost all serious estimates, this German capital lying abroad would probably correspond to a certain extent to the short -term foreign credits working in Germany, i.e. to the part of the German capital supply which is in some respects the most dangerous, because it is the most unstable. In any case, it is certain that Germany's reparations payments of 1,700 million marks have undoubtedly h ad a highly unfavorable effect on German capital formation, since, if they have been raised economically at home, they have prevented or at least slowed down the formation of new capital; if they have not been raised economically at home, they have made it necessary to resort to new foreign loans for purposes that are by their nature highly unproductive.

For all other countries, it is much more difficult to obtain a picture of their capital account. The situation in Hungary is still relatively clear. One wi ll hardly err in supposing that Hungarian foreign debt amounts to about three billion pengö, or $500 million, of which about half is likely to be government debt and the other half to nongovernment debt. Whether there are significant Hungarian investments abroad that would improve this balance seems doubtful. In the balance of payments, receipts from foreign assets for 1929 are stated at 15 million pengö, which are offset by payment obligations in the form of interest and dividends amounting to a good ten t imes that amount.

71

Domestic capital accumulation has undoubtedly been between 1924 and 1930, for example, the deposits of the banks and the Postal Savings Bank rose from 5 to a good figure*), but this domestic capital accumulation is still by

not inconsiderable; 12 leading Budapest 80 % of the pre -war no means sufficient.

Yugoslavia's foreign debt is estimated to be about $600 million, of which the bulk is government debt. Yugoslavia's foreign balances are likely to be insignificant. The balance of payme nts shows interest income from abroad of 2 million dinars, while almost 1.3 billion is payable, of which 0.6 billion is in dividends, indicating a high level of external indebtedness of the industry. As far as domestic capital formation is concerned, the s ituation is such that, thanks to a better organization and a higher level of economic development, it should be better in the former Austro -Hungarian part, Croatia and Slovenia, than in Old Serbia.

No precise figures are available for Romania. It can only be inferred from individual data that capital formation at home has undoubtedly made some progress after the stabilization of the currency. Opinions differ widely on the extent to which foreign capital is working in Romania. De Buday assumes that Romania's total foreign debt amounts to about $1100 million, of which more than two-thirds is accounted for by foreign debt of the state. On the basis of the estimates of the Confederation of Birds and other bodies, it can be assumed that the foreign funds invested privately in Romania - partly shortterm, partly long-term - may amount to a total of about 150 to 200 million dollars.

For Poland, the foreign debt of the state is given as 4 billion zloty and that of the private sector as 2.5 billion, so that Poland's f oreign debt exceeds 1 billion dollars. The balances are likely to be at most a little over half a billion zlotys.

Domestic capital formation has undoubtedly made progress, but here, too, figures are available only for individual banks and individual areas, so that it is not possible to make even halfway reliable estimates of the volume of pure savings capital in banks and savings banks.

As far as Austria is concerned, there are relatively unimpeachable figures on foreign debt for the period before the crisi s of the Creditanstalt, i.e. for the period up to about the beginning of May 1931. At that time, public foreign bonds amounted to about 1.5 billion Austrian schillings, long -term and private-sector bonds to 700 million schillings, and short -term loans to about 800 million schillings. It can be assumed that they are very considerable and certainly amount to many hundreds of millions of schillings, so that, if one adds the fact that, of the foreign loans, 500 to 600 million schillings were temporarily investe d abroad as foreign currency holdings of the central bank, *) Cf. the Hungary special issue of the Economist, London, 20.12.1930.

72

one must arrive at a very substantial change in the picture which would result from a one-sided consideration of Austria 's foreign indebtedness. It may well be said that, among the successor states to the Austro -Hungarian monarchy, Austria still has, and in spite of undoubtedly heavy sales in the course of the crises, a considerable holding of foreign assets and credit bala nces. Its productive apparatus, however, like that of Germany, though perhaps not to the same extent, is dependent on the work of foreign capital; for domestic capital formation is insufficient, even though it has made significant progress since stabilization, deposits in banks and savings banks, for example, having risen to almost 2 billion p. S. Before we conclude this part of the consideration, there are three points to be discussed, which are certainly important, but about which it is difficult to obtain a completely accurate overview. The first point is the question of the per capita burden of foreign debt. If everything is not deceptive here, one arrives at a very characteristic picture, namely, that all Central European countries including Germany, bu t excluding Czechoslovakia, have an almost equal per capita burden of foreign obligations of about $50 to $60 per capita, while Czechoslovakia has only about half that amount per capita. Another very important question is that of the ratio of long -term to short-term credit. Here it is much more difficult to obtain a reasonably reliable overview. The answer will naturally depend to a large extent on the answer to the third question, namely, which part of the debt is accounted for by the state and public corporations, and which part by private individuals. We must therefore first answer this question. In Austria, Hungary and Germany, the share of the state and public corporations is probably about half of the total debt, and in Poland it is about the same, but in Czechoslovakia, Romania and Yugoslavia it is at least two-thirds of the total, although it should be emphasized once again that in the case of Czechoslovakia the foreign obligations are the smallest, both in relative and absolute terms, and are strongl y covered by foreign assets. Of the remainder in the individual countries, short -term loans in Germany and Austria probably account for more than half of private debt, while in the other countries they are probably lower in percentage terms, which, however , has a completely different significance because of the preponderance of long -term public loans. In any case, it is quite clear from this analysis that Austria and Germany are very similar in terms of capital supply, and that the difference with Hungary is smaller than with the other countries.

For all states, perhaps with the exception of Czechoslovakia, capital import is still an absolute necessity today, the domestic capital base and formation is by no means sufficient, which naturally does not exactly strengthen the European and world economic position of these states, nor does it facilitate their efforts to reorganize their economies.

73

In addition to these states dependent on capital imports, the capital -providing states have also endeavored to solve the questions of capital supply from abroad. For this purpose, some of them have created special international organizations, three of which have attained particular importance, namely the Bank for International Settlements, or BIS for short, the Internat ional Land Credit Bank in Basel, and the International Agricultural Bank in Amsterdam.

As far as the BIS is concerned, it must be remembered that its main task is by no means in the field of capital supply. It can and will, of course, be able to provide some credit from the capital stocks it accumulates through reparations and international debt payments, but two things must not be forgotten. First, that the capital base of the BIS itself is a relatively weak one.

It has a capital of 500 million Swiss franc s, of which only 125 million are paid up. Thus, in terms of its own capital strength, it does not play an overwhelming role next to British and American, but also next to French and German first class major banks. Secondly, however, the capital resources a t its disposal, even to the extent that they consist of permanent or temporary credit balances of central banks and states with it, must first and foremost be used for its other main purpose, namely monetary and credit operations, which become directly nec essary as a result of monetary policy tasks. It has also repeatedly devoted itself successfully to the fulfillment of such tasks within the bounds of possibility, especially in the period of the German, Austrian and Hungarian crises; But it is precisely in the case of this assistance that it has become particularly clear that it cannot, by its very nature, go beyond a certain extent and that its special role is perhaps even stronger and more effective as a mediator between the central banks than in its own capital strength. It should also be noted that, from a purely organizational point of view, the Central European countries can occupy only a modest place in its administration, since at most nine members of the Board of Directors - if one disregards the two German representatives - belong to the countries not entitled to reparations.

The International Soil Credit Bank in Basel has the character of a holding company to a large extent. Of its 250 million Swiss franc capital, only 5 million have been paid in f or the time being. It raises money primarily by accepting mortgage bonds and bonds issued by other institutions, for which it then issues its own mortgage bonds and bonds. In this area, it has done much to supply the Central European capital markets in par ticular. The fact that German, Swedish and Swiss groups, despite the participation of other foreign capital, are likely to influence the management of this institution in the first place also plays a major role.

The second international agricultural bank i s the Amsterdam Institute. It was founded in the fall of 1930, with American, English, French and German banks 74

and the Zivnostenska banka participating. This agricultural institute is predominantly under French influence and extends its field of activit y primarily to the countries close to the Little Entente and, incidentally, has extended credit in some cases outside Europe. Although this institute announced at its foundation that it would work primarily in Central Europe, its activities have, so far at least, been extended even to Eastern and Southeastern Europe. This bank, as well as the first one, is less concerned with the direct granting of mortgage loans than with the acquisition of mortgage bonds on the basis of which bonds are to be issued, so th at these institutions take on the character of holding companies to a certain extent. Attracting the interest and participation of French capital seems to have been particularly successful in the case of this second institute, but the bonds of the first institute have also sold well in various countries and achieved a favorable price.

In addition to the BIS and these two institutions, which are primarily private commercial enterprises with intergovernmental activities, there is a fourth project, which has n ot yet been fully realized, namely the International Agricultural Credit Bank, which, under the control of the League of Nations, is to have an official character similar to that of the BIS. It is to begin with 50 million dollars of share capital, of which , however, only 5 million will be paid up in the form of A shares, while the remaining 45 million will be issued later in the form of B shares, and the bonds to be issued by it, the total amount of which may be ten times the subscribed capital, are to be u nder guarantee of the states participating in the bank. The composition of the administration is also to be of a distinctly international character; thus the most important personalities are to be nominated by the League of Nations. The extent to which the institute will actually prove valuable for Central Europe cannot be said at present under these circumstances, just as it cannot be said of the project of the Governor of the Bank of England, Norman, concerning the foundation of an international European industrial bank, which should be mentioned for the sake of completeness, and of Franquis' plan for a bank of export banks, both of which could also have significance for Central Europe.

In these cases, it will only be possible to say with some certainty wh at influence these institutions will be able to exert on the shaping of capital in Central Europe after they have come into being and have been in operation for a long time. This follows with necessity from the fact that the capital available to these inst itutes for the fulfillment of their tasks is disproportionate to the size of the possible tasks, at least at present, and that the question of the supply of capital by means of these institutes seems to depend to a great extent on the type and clearly reco gnizable extent of their capital supply, which is not yet completely clear. For the characteristic feature of all these foundations always remains their pronounced fiduciary or 75

intermediary character, in which the essence and solidity can be grasped and determined much more strongly in the organization, in the apparatus available and in the tasks set, than in the quantities of capital actually available and accessible.

To what extent this foreign capital can be or has been used productively, this question is too comprehensive to be answered here, or indeed could be answered at all; it will be necessary at least to examine the general situation given for each case of borrowing. But we would like to make a few remarks on this complex of questions. With rega rd to the use of the previous bonds, it should first be pointed out that a not inconsiderable part of the loans granted had to be drawn upon not for purely productive purposes in the narrower sense, but for consumption purposes of a scarcely less urgent na ture. The most typical example of this is probably the so -called relief debt of Austria and Bulgaria, which had to be borrowed largely for food supplies during the worst of the famine. Secondly, however, it must not be forgotten that the strengthening of t he production apparatus through the loans taken out has not always been matched to the same extent by an increase in sales opportunities. Again, this manifests itself in two ways. On the one hand, in terms of trade policy. The sales difficulties of the Cen tral European countries are very significant today. In part, however, not without their own fault.

Better cooperation through the exchange of the products of the predominantly industrial groups on the one hand and the predominantly agricultural groups on the other would have the most favorable influence on the economic productivity and usefulness of the capital invested in this sense. Certainly, the reinforcement of the production apparatus by capital has a direct connection with the consumption capacity of broad strata directly involved in this production process, but the consumption capacity of these strata is usually not directly connected with the consumption of the goods created in this way.

A third problem to be mentioned is that the ideal situation wo uld be the replacement of foreign capital by domestic capital. In this case, of course, the progress of capital accumulation in the home country is primarily a determining factor. Unfortunately, inflation in some Central European countries has inhibited th is capital formation to the great disadvantage of these countries, as have individual acts of legislation, in some cases even after the inflation period.

In general, the currency issue must be of drastic importance for capital formation, a realization that was decisive for the implementation of currency stabilization in the Central European countries. All these countries have stabilized their currencies to such an extent that they have been able to remain the strongest support in the period of the great gen eral capital and credit crisis. As recent events have shown, this complex of questions is of 76

decisive importance, so that we would like to briefly review the fundamentals of the monetary systems of the individual states.

In the fall of 1922, after a lon g period of inflation, Austria stabilized the paper crown at a value of about 14,400 paper crowns for one gold crown. On January 1, 1923, the Oesterreichische Nationalbank (Austrian National Bank), which had been founded in the course of the League of Nati ons' reorganization action for Austria, began its activities. For notes in circulation, plus liabilities due immediately, but less the debt of the state, a minimum cover by the cash treasury, consisting of gold and gold -denominated foreign exchange, was se t at the level of 20% during the first five years, 24% during the further five years, 28% during the following five years and 331/2% during the remaining period. However, this coverage ratio was soon far exceeded. At the end of 1924, the Schilling Billing Act appeared, establishing a new monetary unit, the schilling = 0.21172086 g fine gold, and thus also putting the central bank's gold purchase obligation into effect. At the end of December 1926, the last measures of many years of foreign exchange control fell into place. Under the most difficult circumstances, especially in spite of the bank collapses that have severely shaken the Austrian economy in various phases from 1924 to the present day, the Oesterreichische Nationalbank has kept the currency completely stable and, in the stability of the schilling, has created one of the firmest pillars for the rebuilding of the Austrian economy.

On June 24, 1924, the newly established National Bank of Hungary began its operations and, for the time being, carried ou t an actual stabilization at K 346,000 for £1. According to the statutes, the total banknotes in circulation, increased by the immediately maturing liabilities of the central banks, but less the loan debt of the state (articles 53 and 54), are to be covere d by the cash treasury to the extent of 20 % during the first five years, 24 % during the following five years, 28 % during the further five years and 331/" % during the remaining period, whereby, in addition to gold, foreign bills and coins may also be included in the cash treasury. The relevant provisions are therefore almost exactly similar to those of the Austrian National Bank. After a longer period of actual stabilization of the Hungarian crown, a new currency was introduced at the end of December 192 5. Similarly to the way in which 10,000 paper crowns were combined to form a gold crown in Austria at the time, 12,500 paper crowns were now combined to form a pengo, and the gold weight of the new currency unit was determined to be 0.26315789473g.

In Czechoslovakia, the establishment of a national bank did not take place until March 31, 1926. The cover regulations of the new central bank provide as follows: From the time when at least two -thirds of the share capital has been subscribed and paid up (§ 46 of the Banking Act) until the enactment of a currency law, the bank must have a metal cover amounting to 20% of the 77

total banknotes in circulation, to which the liabilities payable at sight are to be added, whereas the government note debt is to be deduct ed therefrom.

This coverage increases by 1% per year for 15 years. The formal creation of a new monetary unit took place only later. After many years of keeping the Czechoslovak koruna at a rate of about 3 dollars for 100 Kc, legal stabilization took place in 1929, equating 1 Kc with 0.04458 g of fine gold.

In Yugoslavia, after the dinar had been stabilized at a rate of 56 to 57 dinars to 1 dollar, formal stabilization took place in early 1931. The value of one dinar was set at 26.5 mg of fine gold. At the same time, amendments were made to the statutes of the National Bank of Yugoslavia, The National Bank is obliged to hold a cash treasury in gold or foreign exchange, which is legally and actually redeemed in freely exportable gold. The amount of this cash hoard must be at least 35% of the total amount of its sight liabilities, and at least 25% of the sight liabilities of the National Bank must be covered by gold in the coffers or in free deposits abroad. The National Bank has the obligation to redeem its notes in gold or in foreign currencies exchangeable into gold without regard to the amount submitted. Under no circumstances, however, shall sums of less than 250,000 dinars be redeemed in gold.

In Poland, currency stabilization encountered difficulties, in part because different means of payment circulated in different areas of Poland. After many partial arrangements, the first currency reform took place in 1924.

But after a short time, new inflation occurred through state -issued Kuran notes; a new stabiliza tion campaign began in late 1927. The zloty was fixed with a new gold value of 0.16879219804 g of fine gold. By increasing the bank's share capital to 150 million zloty, new foreign currency was supplied to it.

Gradually, a reduction of the foreign exchang e regulations could also take place. The level reached could be maintained.

The situation in Romania was similar. Stabilization initially proved impracticable. It was not until 1929 that a permanent currency reform took place, after the rate of the lei had been kept stable at about 3.2 Swiss francs for 100 lei some time before. The gold parity of the lei was fixed at 10 mg gold 900/1000 fine, that is '(sio of the old gold parity. The National Bank of Romania underwent a series of amendments to its statutes and an increase in its capital. The National Bank is obliged to keep a cover in gold or in such foreign currencies which are redeemable in gold based on the laws and the practice.

The cover must amount to at least 35% of the total amount of immediately due liabilities. At least 25% of the immediately due liabilities must be covered by gold held either in cash or in free foreign deposit. The bank guarantees the redeemability of the notes without any limit on the amount, but no one may present less than 100,0 00 lei for payment at one time.

78

In Germany, it was not until the new Banking Act of August 1924 and the Private Central Bank Act and Coinage Act created at the same time that a solution was found. The Reichsmark = 1 trillion old paper marks was introduced as the monetary unit and equated with the old gold mark with its gold weight of 0.3584229390681g. New cover provisions were also created. At least 40% of the banknote circulation had to be covered by the cash hoard, which had to be held in gold and for eign currency, of which at least three quarters had to be effective gold, a provision which, however, could not be maintained in the crisis of 1931. Then, in 1930, in connection with the reorganization of reparation payments by the Young Plan, the central bank enacted cash payment in the form of redeeming its notes in gold or gold foreign exchange, at the bank's option. Similarly to Austria, the Deutsche Reichsbank, despite repeated severe shocks to the German economy, kept the currency stable, thus providi ng a point of calm in the midst of severe economic upheavals.

As was the case for the individual currencies, completely new foundations had to be laid for the banking system in some cases, which was not exactly conducive to the development of the capital e conomy, but rather caused many disturbances. The uniformity of the former Austro -Hungarian banking system has been replaced by diversity in the course of its development; the political upheavals have also strongly influenced the character of the banking sy stem.

What a change can be observed, for example, in the Austrian banking system!

However, it would go beyond the scope of this paper to describe the history of banking in the individual countries, which is largely a tragedy.

Thus, unfortunately, the Centr al European states have not been able to build up a sufficient capital base of their own. Instead, all of them - with the exception of Czechoslovakia - are heavily indebted to foreign countries. During the credit crisis of 1931, the question was often aske d: Is this foreign debt sustainable? We do not necessarily share the pessimistic view expressed in some quarters, but we are convinced that private foreign debt is sustainable and that the borrowing capacity allows for further foreign loans if they are granted at acceptable interest rates. However, this is often not the case with recent foreign debt. In addition, lenders have sought to exert extensive influence, at least on the economic policies of countries, in various forms. The capital policy pursued by other countries toward Central Europe is often borne by a less than European spirit! But from this one must conclude that the promotion of domestic capital formation will be of decisive importance for the future of Central Europe in every respect.

79

The Central European traffic area.*) By former State Secret ary Professor Dr. Elemer Hantos.

Like the economy in general, transport in particular is heading for the all embracing unification of the economic districts of the earth in a world economy. However, just as the creation of the world economy, even the creation of continental economies, cannot skip certain intermediate stages, so the community in world traffic cannot do without certain transitions. The urge for unification of transport systems, for dee pening of transport relations, extends to all means of transport and extends to the borders of whole continents, but unification is generally not attainable without transition.

Some means of transport are even suitable only for local or regional mergers, while the intergovernmental regulation of others has already progressed so far that they have developed into world transport systems. It is not always easy to draw the line between what is to be considered a binding community for world traffic, for the traf fic of Europe, and what is to be left to the autonomous organization of individual areas, such as Central Europe. *) The field of activity of maritime navigation, air traffic, and radio services extends over the whole world, and for this very reason create s the urgent need for world-wide regulation.

On the other hand, there are three areas in which an autonomous, regional organization would be desirable: the areas of railroads, inland navigation, and postal and telegraph services.

The transport area of Cent ral Europe, with the seven states belonging to it (Germany, Austria, Hungary, Poland, Czechoslovakia, Romania, Yugoslavia), is powerful enough to inspire an amalgamation of these transport possibilities.

Yes, Central Europe in its entirety represents an ar ea which, due to its character as a transit country of the central connections between East and West, North and South, is particularly suitable for a unified traffic regulation.

*) A detailed treatment of the problems touched upon in this essay is contained in the following writings by the author published by the same publisher: Mitteleuropäische Eisenbahnpolitik, Wien -Leipzig 1929; Mitteleuropäische Wasserstraßenpolitik, Wien -Leipzig 1929; Mitteleuropäischer Postverein, Wien -Leipzig 1930.

80

Central European Railway Community

In few fields of economic life has the idea of community, of international cooperation and association, taken root as deeply as in the field of railroads, Cooperative activity is expressed in state treaties with neighboring states on railroad construction, in association treaties among railroads, in the promotion of common affairs through conferences, in commercial treaties and other international agreements. In spite of the numerous common technical, political and legal measures, i n spite of the numerous common institutions (Berne Convention, Technical Unity, Timetable Conference, Regulations for the use of wagons, etc.), already in the pre -war period the Central European Economic Associations were striving for a further unification of the conditions of carriage in Central European railroad traffic.*) This idea was later taken up by the Central European Transport Conference (1926) in a form corresponding to the new political structure of Central Europe, by including in its resolution s a detailed program for cooperation in all areas of Central European transport.**) In Central Europe, important work was done in the pre -war period, especially with regard to passenger and freight transport, by the Association of German Railway Administra tions, which at the outbreak of the World War encompassed the railroads of Germany, Austria, Hungary, the Netherlands, Luxembourg, Romania, as well as some Russian and Belgian lines, and in the course of seven decades created a uniform transport area from Central Europe.

The work of the association, founded in 1846, was initially directed at the creation of uniform technical standards. The agreement on the technical principles of railroad construction and operation was also a prerequisite for regulating the mutual use of vehicles. Soon, due to the diversity of legal relationships and legal areas, the uniform regulation of traffic proved to be urgently necessary. The association created the first common "Regulations for Passenger and Freight Traffic", which p repared the unification of the law in the field of transportation. This was followed by standardization measures of an operational nature, such as the establishment of uniform standards for rail track gauge and operating equipment, as well as the European timetable conferences and the wagon ordering conferences. *) See "Publications of the Central European Economic Associations.

Proceedings of the Central European Economic Conference in Budapest, 1914, p. 92 and Budapest 1917, p. 74. **) Report of the "Cent ral European Transport Conference," Mitteleuropäische Wirtschaftstagung, Vienna 1926, p. 48.

81

Verlag

The outcome of the war exerted a fateful influence on this unit. The railroads of most of the successor states (Czechoslovakia, Poland, Romania, Yugoslav ia and Italy) left the association. Today, however, the association still includes the territory of the German Reichseisenbahngesellschaft, the Saar Railways and 14 German private companies, as well as three Austrian, five Hungarian, Dutch railroads, the L uxembourg Prince Heinrich Railway and the Raab Oedenburg-Ebenfurt Railway. From 101500 km in 1913, the transport network in Central Europe proper has decreased to 73093 km. The loss is already significant in terms of kilometers, and it is increased by the fact that the lines that have been eliminated (Czechoslovakia, Poland) often run centrally and transversely and interrupt the coherence of the remaining transportation network in numerous places, Since 1928, the railroads of four other countries have joine d the association.

These are the administrations of Sweden, Norway, Denmark and Switzerland.

The association thus covers quite a considerable part of Central and Northern Europe, from the North Cape in Norway to the Italian border at Chiasso, with a total of 92,740 km of member administrations. The association also accepts members that are not railroad administrations, such as shipping lines, aviation companies.

In the post-war period, the intemationalization of the railroad system was sought at a series of conferences. The first international agreement took place in Stresa in the fall of 1921, which involved an extension of the Wagon Agreement of the Association of German Railway Administrations and its extension to neighboring countries. In Portorose (1921 ), the subject of negotiations was the restoration of the railroad connections within the former Austro-Hungarian monarchy that had been torn apart by the war. At the same time, it was suggested that an organization similar to the Association of German Railway Administrations be created on an international basis. In this sense, the Conference expressed the "wish" to convene an international conference.*) In execution of a decision taken by the Conference of Genoa, an "International Railway Association" was constituted in Paris on December 1, 1922, to which the main railroads of the European states as well as the railroads of Asia, especially of China and Japan, and recently also the Anatolian railroads have joined. At the time of its foundation, it was expre ssly emphasized that the German association, which is now 80 years old, should continue to preserve its independence.

*) Conference Economique de Portorose. Protocole final (23novembre 1921), Trieste 1921, n. 14, p. 102.

82

Thus, the Association of Germa n Railway Administrations has not lost its importance for the administrations still belonging to it today, nor has the accession of its members to the new association required any sacrifice, since it was modeled after the old one. "It is not the ambition o f the Association of German Railway Administrations - writes its managing director, Reichsbahndirektor Lüdicke - to compete with the international railroad federation in terms of territorial expansion. Rather, it demands such intensive cooperation from its members that too wide an expansion of its territory would endanger its work." Nevertheless, as a result of this interconnectedness, a duplicity of affiliation arises in Central Europe, which will sooner or later make itself felt. Therefore, it seems worth considering whether the facilities created by the German Association could not be taken over by the International Association domiciled in Paris and a balance sought in this way. But several concerns stand in the way of this proposal.

The strength of the German association lies in the fact that the networks united in it work under approximately the same geographical, economic, legal and cultural conditions. Countries where this general sameness of conditions does not exist must naturally be very cautious a bout adapting their railroad regulations and transport facilities to each other. The weakness of the new International Union of Railways, on the other hand, lies in the fact that there are sometimes considerable differences between the means of transport o f the member countries, both in terms of quality and quantity. It is to be feared that with the enormously broad basis which has been given to the International Union of Railways, binding decisions will not be reached, although according to the decision of the Union, partial regulations are also permitted. According to the current statutes of the organization, the following case is possible: all the railroads of Europe consider the rapid and compulsory implementation of some administrative or technical meas ure to be necessary.

Their governments also agree. The Chinese government, however, the supervisory authority of 5000 to 6000 km of railroads represented in the association, believes that it cannot give its reserved consent to this measure for reasons that lie in its particular circumstances. In this case, the decision taken on this matter is also not binding for the other countries*).

The further development of the Association of German Railway Administrations for the purpose of harmonizing the technical d esign of the railroads and facilitating mutual traffic must therefore again be a goal of Central European cooperation, as it was before the war. Above all, efforts must be made again today to recognize the existence and the sphere of activity of the Association in state treaties and to place it under the protection of the governments. However, this stage of development can only be reached if the *) Cf. Karl Stieler, Der internationale Eisenbahnverband, Völkerrechtsfragen, Heft 11, Berlin 1926.

83

German association is transformed into an association of Central European railroad administrations in accordance with the new political conditions. In such an organization of their association, the German railroads would be assured a role commensurate with their imp ortance, if only because of their superior position; after all, the network of the successor states is not as important as that of the German Reichseisenbahngesellschaft.

As a third possibility for the preservation and expansion of the transport unity in Central Europe, the author suggested the sectioning of the International Union of Railways and the establishment of a Central European section within it at the transport conference of the Central European Economic Conference in Vienna in 1926. This suggesti on was described as worthy of consideration by the Secretary General of the Union internationale des chemins de fer who was present at the conference.

A minimum requirement would be that transport conferences of the Central European railroad administration s meet regularly at different locations in order to examine the questions of the promotion of mutual transport in the most expedient way. Such partial transport conferences were also recommended in a resolution of the General Assembly of the League of Nati ons in 1926. "The Assembly is following - it says - with the liveliest interest the work of the Organization for Transport and Transit, which aims at the convocation of a partial conference on transport and transit, to which the European States concerned a re to be invited."

The importance of the decision lies not so much in the expediency of the recommended cooperation, since the same has since been realized in several directions, but in the willingness of the League of Nations to promote the efforts of these intergovernmental conferences.

The transport needs of Central Europe should be met not only by technical cooperation but also by material and formal conformity of tariffs and their mutual application. The minimum requirement is that the formal organizat ion of tariffs should not be left to the many new railroad administrations, but that at least in this area the unity which has prevailed in Central Europe for decades should be restored. The tariff schemes should be harmonized at least to such an extent that a uniform, unified classification for the association tariff is made possible.

As far as the material structure of the tariffs is concerned, it is mainly the exemption tariffs that are in force everywhere for a significant part of the freight traffic th at are of interest. In order to protect against protectionist exemption tariffs, a parity clause would have to be contractually established in Central European traffic with respect to the price of transportation and handling.

84

It would be highly desirabl e to achieve the greatest possible convergence in the structure of tariffs, although the level and gradation of tariff rates will have to take into account the special nature of transport needs resulting from the geographic conditions of the region.

The systemlessness of the Central European rail freight tariff system could be alleviated by a far -reaching stabilization of tariffs. The deadlines for the amendment and announcement of tariff changes should be extended as long as possible. As in the internation al agreement, the time limit of two months for freight traffic and two weeks for passenger traffic should also apply to domestic traffic.

In addition to the establishment of a Central European Railway Association and the creation of an international tariff regime, there is another possibility to make up for the disintegration of the formerly unified economic entity, namely the transfer of the Central European transport lines to a unified operating company, an internationalization of the Central European mai n lines.)

In such an international operating company, all the economic and political advantages of uniform operation could be achieved without infringing on the sovereign rights of the individual states.

In a joint venture, all competitive considerations w ould be eliminated and transports would be directed only to the most appropriate lines. A stronger development of through traffic could take place and thus a better utilization of the wagon fleet could be achieved. Just as the utilization of resources is always more perfect in larger transportation areas than in smaller administrative districts.

It is considered possible by outstanding experts that the railroads of Central Europe unite for the purpose of improvement and rationalization of traffic at least on the lines important for international traffic and that in one form or another the idea of internationalization in the sense of the French draft of the Convention sur le regime general des transports Internationaux will find a realization and one day a Ce ntral European railroad company will be created.

Whatever form of cooperation is preferred, whether it is brought about by the necessity of the times or by the dictates of reason, the idea of community in the field of transport is unavoidable and will prov e more than ever capable of development.

*) One could think of the lines Buchs -Vienna-Budapest-Orsova, then Vienna Teschen, Vienna-Oderberg-Krakow (Warsaw)-Lemberg-Csernowitz, etc.

85

Central European Waterway Policy

The Central European waterways polic y is intended to promote the development of the main rivers and to establish connections between them.

In the first place, this concerns the connection of the Danube with the Main, the Elbe, the Oder and the Vistula. The plans for the development of these waterways have been sufficiently clarified technically to serve as a basis for economic policy demands. By connecting the Danube with the rivers flowing to the north, from the Rhine to the Vistula, a network of more than 15,000 km suitable for large -scale navigation would be achieved, whereby the mighty, but at present still traffic -weak Danube would attain its full significance as a traffic artery between West and East. The more than thousand -year-old dream of connecting the Rhine with the Danube is approa ching its fulfillment. On the basis of a state treaty between the Reich and Bavaria, Rhein -Main-Donau-A.G. has the task, as the first part of the Rhine -Main-Danube shipping route, of first expanding the 160 km long stretch of the river from Aschaffenburg u p the Main to Würzburg and then on to Nuremberg, and of completing this work by the year 1935. In this way, the major shipping route from the Rhine to the Main, which now ends in Aschaffenburg, is to be carried forward to Würzburg and Nuremberg. After comp letion of this task, the connection of the Main with the Danube will follow later.

The new waterway is built in such a way that a tow train consisting of a steamer and two 1500 -ton ships can pass through the locks. The Danube from Kehlheim to Regensburg is canalized, the old Danube bridge in Regensburg is bypassed, and the Danube between Regensburg and Passau is regulated. In the Danube near Passau, an enormous structure, the Kachletstufe, which dams the dangerous rocky stretch between Passau and Vilshofen, is nearing completion.

With the completion of this work, the Danube river will be connected to the German waterway network. The Rhine barge and the Danube barge will compete for a large part of Europe's freight traffic from Rotterdam to Sulina.

The prospects that open up here can hardly be overlooked. Ore from Styria will go to the Ruhr for smelting, potash from Central Germany to Hungary to increase agricultural production, etc. An area about 200 km wide on both sides of the approximately 4500 km long shi pping route will be under the influence of this trade route. This connection of the Atlantic Ocean with the Black Sea, this connection of America with Asia will be an economic event, which can only be equaled by the Panama and Suez Canal. The connection of the Danube with the other river basins by artificial waterways is also a plan that emerged as early as the Middle Ages. However, little has been realized. After the World War, the Czechoslovak Republic resumed plans to connect the Danube with

86

the Elbe, the Oder and the Vistula, and the government intends to start construction as soon as conditions permit.

Preparations for the realization of these waterway plans are already considerably advanced. Energetic work is being done to make the middle Elbe navigable between Melnik (confluence of the Vltava) and Jaromir. The work was started in 1907 and has continued uninterruptedly ever since. Now that the barrages on the lower Elbe have been completed, work on the Elbe, Oder and Danube canals, which is estimate d to take ten years, is expected to start soon.

The planned Elbe-Oder-Danube Canal forms an inseparable whole and requires the shortest possible construction periods in order to avoid high interest rates. The route of the canal has already been generally s olved. On the Bohemian section of the canal, the design work has been completed, while the Moravian section has already been subjected to route revisions. Likewise, in the area of the Ostrava -Oderberg coal district, the canal project has been worked out, and the course of the Slovak section of the canal has been finally determined. It goes without saying that the construction of this canal will have a favorable impact on the shipping industry in Czechoslovakia.*) Thus, there is no doubt that the importance of the Czechoslovak free port in Hamburg will increase as a result of the enlargement of its area of attraction on the Elbe.

The extension of the waterway to the Danube, the introduction of new goods will stimulate the commercial traffic of the whole Centr al Europe.

The Oder-Weiehsel Canal is to be connected to the Danube -Oder Canal in Ostrava. The development of this Danube - W eichsel Canal offers no difficulties from a technical point of view. The former Imperial and Royal Waterways Directorate in Vienna had already clarified the problem of such a canal, especially with regard to the water supply. The length of the route from Moravia-Ostrava to Krakow is 140 km, the supply of the canal comes from the Little Vistula and the Sola River and can be regarded a s secured.

*The Austrian side objects to this plan that the route on the left bank of the Morava causes much greater difficulties than the line leading directly to Vienna, not only because of the installation of several locks, but also because on the left bank of the Morava the Theben ridge comes very close to the river, which not only makes the construction of the waterway more difficult, but also extremely restricts the construction of the port that is absolutely necessary at the mouth of the river. See Otto von Schneller "Die Einpassung der österr. Donaustrecke in das europäische Binnenscliiffahrtssystem" in Publication No. 4 of the Austrian Board of Trustees for Economic Efficiency,

87

By developing the connections of the Danube with the Elbe, Oder and Vistula, the area of influence of the North and Baltic Sea ports for the shipment of cotton, sugar, foodstuffs and fertilizers will extend into the interior of the mainland, the sales area of North Bohemian brown coal, Upper Silesian, Moravian-Ostrava and West Galician hard coal will extend along the shipping network and into the Alpine countries and the lower Danube regions. From the Black Sea basin and from Eastern Europe, grain, wool, petroleum will be transported up the Danube in abundant quantities an d exchanged for industrial products. For Hungary and its southern neighbors, the Danube is a river that flows in the opposite direction for the economic life of these countries. The products of agriculture and downstream industries gravitate from these Danube regions to the north and west of Europe. At the Central European Waterways Conference in Budapest (1929), the President of the Budapest Stock Exchange vividly described the cargo situation on the Danube and its change in the post -war period: "Before th e war, grain was the largest substrate available to Danube navigation. Both Hungary and the lower Danube countries, Serbia, Bulgaria, Romania, supplied large quantities of grain, which were shipped upstream and formed the backbone of Danube traffic.

Downstream traffic was mainly supported by general cargo from Germany and Austria. The upstream traffic carried much larger quantities than the downstream traffic, so that a large part of the boats had to be brought downstream empty in order to take on new upstr eam cargoes. In the post -war period, these conditions have undergone a fundamental change. The mountain traffic, whose main substrate was the grain transports, has suffered a significant loss." *) Under the present conditions, the Danube traffic can only b e revived by a connection with the other river basins. The exchange traffic stimulated in this way will make possible an even distribution of freight. The currently predominant valley traffic on the Rhine, the Elbe and the Oder, as well as the predominant mountain traffic on the Danube, will be stimulated by the newly awakened freight traffic in the opposite direction, which will result in a better and more even utilization of the vehicles on all rivers and thus in a reduction of the cost price and freight rates. As long as the Danube is not included in the large traffic of the northern waterways, the efforts to increase traffic are futile, and the sums spent for the regulation so far and still to be invested in the future remain without major benefit.

The artificial waterway of the Mittelland Canal parallels the natural transversal route of the Danube. The plan to connect the northward flowing streams of Western Germany in the North German Plain by a canal is already *) Cf. Hanto's waterways policy p. 163.

88

more than 100 years old, having occupied Napoleon as early as 1811. Until today, however, there is no connection between the eastern and western river systems, and closing this gap in the German waterway network is to be the task of the coming years. The completion of the Mittelland Canal through the expansion of its final section of the Weser -Elbe Canal, opens up transport links that have not existed before. The large ironworks and iron -processing plants in the Rhenish-Westphalian industrial region an d the Ruhr coalfields will thus be able to ship their products at reduced freight rates to the major consumption center of Berlin. The influx of foreign grain via the Rhine -WeserElbe Canal will be prevented by an appropriate tax policy on the canal. The transport relationship from the East to the West will enable the predominantly agricultural regions to expand their sales area to the West.

At the same time, all important German seaports from Emden to Szczecin will receive a navigable connection with the m ain industrial and consumer areas by joining the northward flowing streams,*).

This well-developed waterway network of Central Europe, which shows two transversal lines running from west to east and their connections, must be completed in several direction s.

The extension of the Rhine waterway in the north by the already existing Dortmund-Ems Canal is to be followed by an extension to the south. This plan aims above all at improving the now inadequately navigable stretch between Basel and Strasbourg. For th e section between Basel and Lake Constance, the canalization of the Basel -Schaffhausen section is envisaged. The extension of the Rhine navigation to Lake Constance would establish its connection with the Arlberg railroad and make Austria a Rhine bank stat e.

A significant extension of the Rhine waterway will also be the canalization of the Neckar for 1200 -ton ships, which is currently under construction, because the stretch of the river to be extended, Mannheim -Stuttgart -Plochingen, lies in the straight lin e Emmerich-Mannheim. The continuation of the canal from Plochingen to Ulm with crossing of the Alb can be solved technically without considerable difficulties. More difficult is the question of when the upper *) A connection of the German Mittelland Canal with the Black Sea via Oder Warthe-Ner-Bsura-Wisla-Bug-Pina-Privec to the Soviet border and further via the Dnieper would represent a waterway of high economic importance, because it would directly connect Central Europe with the region rich in natural resources at the Don, Kuban, Caucasus up to the Ural region and thereby also flow into the Black Sea. The Soviet government intends to completely eliminate the shipping hindrance on the Dnieper by means of an artificial waterway. Message from Jan Zieba, Mini sterial Council, Warsaw.

89

Danube between Ulm and Regensburg can be made usable for navigation.

Making this stretch navigable would only be possible by creating a separate navigation canal. The preparatory work is already well advanced, but the raising of the construction capital is not assured.

The Weser is also called upon to form an important link in a Central European north-south waterway from the North Sea to the Danube, via the Werra to the Main at Bamberg. The Werra -Main Canal and the Weser would provide the exit to German seaports, while the completion of the Rhine -Main-Danube Canal would open the connection to foreign ports.

In this large network of main arteries from west to east and from north to southeast, important lines of the Central Europe an waterway network are still included in the east and south. Among these are: the continuation of the Danube-Oder-Canal up to the Dniester; the canalization of the Sava, on the one hand in connection with the Danube by a canal to Vukovar and Samac, on the other hand by means of the Kulpa to be canalized and a canal to Fiume for connection with the Adriatic; finally a waterway from Semendria on the Danube through the Morava and Wardar valleys to Salonika, on the Aegean Sea. However, the completion of this e xtensive Central European waterway network is still in the distant future, and already the jealousy of the riparian states has been aroused and the struggle for the new junctions has flared up.

In Austria, opposition to the continuation of the regulation o f the Danube beyond Vienna is being voiced, since it is hoped to make Vienna the terminus of Rhine-Danube navigation and the largest transhipment point. In Czechoslovakia, the intention is to have all water connections with the Elbe, Oder and Vistula join the Danube at Bratislava (mouth of the Morava), to make Bratislava the key point of shunting traffic, and thus to eliminate competition between the two major cities of Vienna and Budapest. Hungary's claim is based on the fact that small sea -going vessels alone can reach Budapest, that transhipment from sea -going vessels to smaller Danube vessels would be profitable here, and that Budapest could thus join the ranks of seaports.

Mercantilist policies, dictated by a national shipping imperialism, meant that port construction became particularly extensive in the postwar period. In part, this was a consequence of political shifts, which made ports necessary in new places, but the desire to facilitate shipping through port construction not infrequently caused all important calculations to be forgotten.

This policy of taking people by surprise has already caused a lot of damage and will not contribute to the revival of Central European traffic in the future.

Only sea-to-sea shipping can give the individual ports the importance that they deserve according to their geographic location, and traffic can only develop 90

successfully through harmonious cooperation between neighboring states.

However, this harmony will only be achieved when it is realized that national egoism will not lead to success in the long run and that an understanding consideration of the circumstances and needs of the neighbors is indispensable. As a result of the political and economic fragmentation of central Europe, inland navigation in Central Eu rope today is for the most part intergovernmental. It requires generous support through well thought -out measures that take sufficient account of the fact that navigation does not stop at national borders, but that it is called upon to bring neighboring co untries closer together and to connect them. This makes the waterway policies of the various states virtually a touchstone for judging whether economic cooperation between them is possible.

Central European Postal Union

It is now eighty years since the G erman-Austrian Postal Union was established almost simultaneously with the introduction of the penny postage stamp and the postage stamps. At that time, enormous upheavals were preparing to take place in all areas of transportation. The second half of the last century began with innovations that had a drastic effect on the reorganization of the national economy.

In our days, the German -Austrian Postal Treaty, which had been rendered almost obsolete by the Universal Postal Union and later by the World War, h as awakened to new relevance, for once again the question is being asked: Is it not possible to counteract the terrible consequences of general disintegration, artificial isolation and narrow -mindedness, as well as mutual hatred and intolerance, by means o f expedient intergovernmental agreements? A regulation of these conditions was envisaged years ago. But the last stage of this arrangement has so far remained portorose.

However, this cannot be the end of the matter, because in the narrow Central European area, the many postal administrations with their numerous special regulations and differentiated tariffs have an inhibiting effect on the handling of traffic. The goal of simplifying, generalizing and thus making postal traffic cheaper would only be served by a uniform approach by all Central European countries. In order to achieve this goal, it is of great value that one does not have to rely on mere experiments, but can build on already proven regulations.

On the basis of the former German -Austrian-Hungarian postal alliance, a Central European Postal Union could be created in accordance with the new political structure.

91

The Central European Postal Union should make use of the authorization of the Universal Postal Convention to conclude special agreemen ts within the framework of the Universal Postal Union in order to simplify and facilitate postal relations. And even if the pre -war rates for postal items could not be restored across the board, one should at least work towards the reduction of rates and their uniformity throughout the Central European postal area. After all, the effect of the Postal Union in economic and traffic life is based on the fairness and uniformity of tariff setting. The introduction of the Central European penny postage system is one of the goals of these efforts. The Central European penny postage would be equivalent to the transfer of Hill's national uniform postage to the international traffic of the seven Central European states, But even without penny postage, uniform stamps w ould have to be introduced for the area of the Postal Union. This means, first of all, a uniform scheme of stamp values, whereby each country would be free to issue special stamps between the common stamp values that are necessary for its circumstances; then, however, exactly the same coloring for the same values and, perhaps, a uniform circumscription "Central European Postal Union". The main difference between the stamps would be that they would be issued everywhere in the national currency. With basicall y identical coloring, each country could affix an emblem of national sovereignty for the purpose of national characterization.

An important demand is the abolition of transit costs in Central European traffic. Through charges for letter mail is a step back ward in world postal traffic. The former tariff covered in the first stage all distances up to 3000 km.

The newly emerged small countries have made transit very expensive, because these small countries are treated in the same way as the large ones up to a transport distance of 3000 km with regard to the assessment of transit shares.

In the Central European postal traffic, which is to be regulated uniformly, the transit should be free of charge or only charged once. Certainly, free transit would be the ideal basis for a Central European Postal Union, but even a one time charging of transit costs would not be an obstacle to practical traffic, as long as the principle is maintained that the fixing of the transit charge must not influence the design of the cab r ates. Although the main burden of transit would fall on Germany because of its superior rail network and on Hungary because of its central location, an acceptable basis for uniform postage can only be created if transit fees are reduced to such an extent t hat they do not exert any influence on the design of the taxi.

Agreements could also be reached in the special branches of business, namely for postal orders, postal packages, mail orders and newspapers, which could significantly increase the intensity of postal operations hampered by national and administrative borders.

92

Finally, the mutual transfer procedure in international postal check traffic, as established between the postal savings banks of Austria and Hungary, should be extended to all Central Eu ropean countries, provided they have postal savings banks. Such a unification of the Central European postal system will result in numerous financial, technical and administrative advantages.

The complete elimination or at least the lump -sum payment of tra nsit fees will save a costly census apparatus that has to record mutual traffic statistically every three years. The elimination of the money - and time-consuming collection, processing and comparison of statistical material will more than compensate for th e previous income from transit. Significant savings should also be realized in the area of ambulance service. Short routes, which are incompatible with the spirit of rationalization, would have to be discontinued.

Journeys where the preparations take more time than the journey itself, such as Budapest-Szob, Vienna-Bruck, etc., should make way for ambulances with more distant terminuses, such as Prague -Budapest, Vienna-Bucharest, etc.

This would put an end to the misery of re -mapping at the national borders and in the instradiation centers. The savings in time and personnel, as well as in materials, heating, lighting, etc., would soon be noticeable, and transportation could be speeded up considerably by eliminating the re mapping stations. Uniform training of the personnel (at least of the higher administrative and technical officials) in training courses to be organized jointly, uniform production of printed matter in the various national languages, standardization of the postal trucks, conformal cable constr uction, and in general joint utilization of all technical inventions and achievements in the field of aviation, radio and communications would benefit the entirety and enable savings for each individual member of the Federal Council.

The most delicate prob lem of the Central European Postal Union would undoubtedly be the question of how to organize the common body that would be called upon to ensure uniformity of administration and manipulation and to balance out the conflicting interests that arise between the individual states. From this point of view, it would be most advisable to imitate the proven model of the Berne Central Office. A joint accounting office with modern clearing, in which the mutual claims are settled without cash, a statistical office, which would make costly special recordings superfluous, are necessary subdivisions of the central office. While the decisions of the international postal congresses must be ratified by 83 countries of the Universal Postal Union in order to be carried out, t he Central European Postal Union will also be able to meet the requirements of urgency. Covering an area of 1.7 million square kilometers with a population of 150 million souls, the new Postal Union would promote the speed and mass nature of postal transport and put an end to the inhibiting, sluggish pace of today's international postal operations in Central Europe.

93

The civil and commercial law relations in the Central European states".

By attorney and notary Dr. Horst Holstein, Berlin.

Central Europe i s first and foremost an economic problem. But it is also a legal problem. There is no economic event that is not at the same time a legal process; every economic life must move within the bounds of a legal order .

Law is a manifestation of the economy, in t he broader sense of human coexistence in general. The law in force in an area of life is therefore always decisive for the shaping of the economy in it, and on the other hand, every development in the economy has a shaping effect on the legal order; whethe r it happens consciously through the creation or modification of statutory law or unconsciously through the creation of new law or a changed conception in jurisprudence. For this reason, the study of the economic problem of Central Europe requires knowledg e of the legal systems in force in the Central European area, and the discovery of the developmental tendencies. It is also necessary to understand the legal mentality of a people in order to get a clear picture of its economic will and ability.

Therefore, when the following remarks deal with the legal aspects of Central Europe, they do not refer to supranational problems, not to the major interrelationships of international law, but to questions of domestic law making. It is necessary to describe the inter nal legal conditions in the states of Central and Southeastern Europe, to compare them, to recognize their similarities and differences, to point out the forces struggling to shape them, in order to contribute in this way to the study of the problem of Cen tral Europe, to grasp the possibilities of an economic unification, the forces promoting it and those hindering it, and to clarify the future tasks arising from this knowledge. Such a consideration would have to extend to almost all areas of law, at least to all areas which are of fundamental importance for the organization of the economy in the state. However, such a consideration would go beyond the space given here. We must essentially confine ourselves to outlining the most important civil and commercia l law relationships for economic life, to giving a picture of the legal system and legal life of the individual states, and to showing their legal physiognomy. In order to give a general overview, a legal map of Central and Southeastern Europe will be drawn up.

If one wants to work out the structural similarities and differences in the rights of the individual states, one must start from the principles of distinction in the history of ideas that have been developed in comparative law. The rights of today's cultural states fall - I follow Ernst Heymann's conceptual 94

delimitation - into five large groups, the Anglo -American, the Romance, the German or Central European, the Slavic and the Oriental legal groups. If one makes this distinction, then one must bew are of the assumption, as if these were sharply delimited from each other, inwardly completely foreign legal circles. In history - and not only in modern times - there has been extensive interaction, mutual absorption of legal systems and cross -fertilization with other legal ideas. One must be careful not to introduce racial principles of distinction; in no way may one oppose the German or Central European legal group as the purely Germanic one to the purely Romanic one. In Europe the great, never to be blu rred reception of Roman law has taken place, in large parts of Germany, for example, the Code civil has ruled and left traces, the Roman law, on the other hand, is full of many Germanic legal components.

The strongest similarity in the legal systems and le gal views exists between Germany and Austria. It is based on the blood relationship, the cultural community and the close connection of the economic bodies. Both countries belong to the Central European legal circle, which includes Switzerland, Denmark, Norway, Sweden and Finland, in addition to the countries which will be discussed in the following. The legal affinity between Germany and Austria is partly due to the fact that they belonged together in the German Confederation. In part, however, after the s eparation, a development away from each other has taken place. In the field of civil law, after the unity of the Reich was established, Germany put an end to German legal particularism with the Civil Code of 1900. Despite certain deficiencies, it is a monu mental, outstanding work that has had an influence on the development of law throughout the world - as far away as Japan; but it has become of the greatest importance for the legal culture of Central Europe. In Austria, the general civil code of 1811 is st ill in force. It is based on common law, Roman law in the tradition of the codification period, with extensive adoption of legal ideas of the Prussian general land law; both legal cultures have also had a great influence on the German Civil Code. The Roman istic coloration of the Austrian civil law is neutralized, especially in favor of German legal ideas, by the fact that the code, in accordance with the basic attitude of the author of the draft, is interspersed with natural law. As a result of the short ve rsion, there is further room for additions by legislation and case law, and many provisions of private law are scattered in individual laws; real estate law is largely contained in the General Land Register Act of 1871, especially the mortgage regulation.

The development is along the lines of an approximation to German law; above all, three partial amendments were created during the war, which strongly change the code, often with literal reference to the German B.G.B. In the area of commercial law, the situ ation is similar. In Austria, the commercial law that applied to the territory of the German Confederation is still in force, namely the general German Commercial Code of 1862 with the exception of maritime 95

law, while the German Empire created a new Com mercial Code in 1897. In Austria, for example, the concession system still prevails for joint stock companies. As in all cultural states, individual legislation is extensive in areas that have only been opened up by progressive economic development. Labor law has developed from rudimentary beginnings, corporate law is in a constant state of development (limited liability companies, business cooperatives) and, beyond that, the law of large economic associations. Since we find similar legal processes in most states in this respect, they will be discussed in summary later.

The future of law in Germany and Austria is marked by the harmonization of laws with the goal of legal unification; science and practice are striving towards this goal. In the fall of 1928, a resolution was passed at the joint meeting of the German Industry and Commerce Congress and the Austrian Chamber of Commerce Congress, in which the business community demanded that efforts to harmonize the areas of law governing economic life should be directed more than hitherto to concrete practical goals, so that legal unity could be achieved in the foreseeable future. In this context, insolvency, bill of exchange, check and commercial law are suggested. In an excellent memorandum published on behalf of the Austrian-German Working Group, the former Minister and President of the Austrian Supreme Court, Dr. Julius Roller, outlined the next tasks of legal harmonization. In the field of private law, the main aim is to adopt the German H.G.B. as literally as possible, which was already the aim of a draft prepared in 1920 on behalf of the government. As Roller emphasizes, German commercial jurisprudence has exerted such a great influence on Austrian commercial jurisprudence that the adoption of German commercial law would be nothing other than the natural consequence of the entire economic and legal development. In the same way, Austrian civil law is increasingly approaching German civil law; to use the words of another Austrian jurist Unger, "the thoughtful Ger man B. G. B. exerts a strong suggestive force on theory, even on practice in Austria." On the other hand, in the field of civil procedural law, the gradual assimilation of the German to the Austrian, to the important work of Franz Klein, can be observed.

There was no legal unity between Austria and Hungary even during the period of their political unity. After the suppression of the Hungarian uprising in 1848-1849, Austria attempted to introduce Austrian law into Hungary. The attempt had to end in 1861 with out any result, because the Hungarian people is strongly law-forming and its law is closely connected with the nation as a whole. In view of the political and economic ties, it was self -evident that Austrian law had a constant influence on Hungarian law an d vice versa, that is, that there was interaction between the two legal systems. Hungarian civil law has not yet been codified by law; to the greatest extent, it is customary law in the manner of English common law. The courts exercise a highly creative 96

legal activity. Basically, the legal system is still built on the Corpus Juris Hungarici with its main part, the Tripartitum, which applies under customary law. Efforts to create a unified civil code date back some 60 years. In 1897 a commission was set up t o prepare a draft law, in 1900 the first preliminary draft was published, in 1913 the second, and in 1928 a revised draft was submitted to the Chamber of Deputies. Through the preliminary draft of 1913 and the draft of 1928 the Hungarian civil law has been strongly approximated to the German B,G.B., also the German jurisprudence and legal doctrine has found unmistakable consideration. Since the law -making activities of the courts were strongly oriented towards the preliminary draft of 1913, this developmental tendency was already reflected in the current law. Especially in the law of obligations, the influence of the German B.G.B. has become apparent, after earlier interaction in the main matter had taken place only with Austrian law. In the area of real est ate law, the land reform brought about far-reaching restrictions through the law on measures for a more correct distribution of real estate and the amendments of 1924 and 1928. The mortgage law of 1927 also created significant innovations. It is based on t he idea of greater mobilization of real estate to facilitate the procurement of credit; among other things, the land charge was introduced according to German models, as were the mortgage and land charge certificates. Hungarian commercial law was harmonize d with Austrian law, and thus with the German law in force at the time, by the Code of 1875, the Law on Bills of Exchange of 1876 (a new modern law on bills of exchange and checks was created in 1928) and the Bankruptcy Code of 1881. The driving force of t his approximation of laws was the customs community existing with Austria. The development of the modern economic system brought about a large number of laws that significantly changed commercial law, but it is impossible to go into this in detail. It should be emphasized that Hungary only has general partnerships, limited partnerships, joint -stock companies and cooperatives, but not limited partnerships with shares or limited liability companies, a form of company that is distinctly German, but which is in creasingly gaining a foothold in the world, and which is also provided for in Hungary in a bill that has already been adopted.

The silent partnership is also not regulated. In contrast to the Austrian system, the foundation of a company is based on the normative system. As in most modern corporate laws, the aim is to provide greater protection for small shareholders. A highly significant mod ern body of law is the Hungarian Code of Civil Procedure. Although internally related to German and Austrian civil procedural law, it is nevertheless of a distinctly individual nature and undoubtedly represents a major advance over the German code.

This brief overview shows that Hungary belongs to the Central European legal sphere and that a tendency toward balance is unmistakable in its 97

development. The same is the case with Czechoslovakia, which is a pure successor state of the Austro -Hungarian monarchy; for the acquisition of territory at the expense of Germany is of secondary importance. There can be no talk' of a Czechoslovak right in the sense of one that has become historical in its own right and is born of the nationhood. Czechoslovakia is divided in to two legal areas, the part formerly belonging to Austria: Bohemia, Moravia and Silesia, and the part formerly belonging to Hungary: Slovakia and Carpatho Russia. When the Czechoslovak Republic came into being, it could not be without a legal order, becau se every coexistence of people in space requires a legal order. In order to avoid a legal void, it was immediately decreed that all previous national and imperial laws and regulations would remain in force for the time being. Thus, the old legal systems co ntinued to apply; however, with regard to the Hulchiner Ländchen, which had been ceded by Germany, the Austrian legal system was introduced in 1920 instead of the German one, so that Czechoslovakia is under the sign of legal dualism.

One half is governed by Austrian law, the other by Hungarian law, and there is a common overlap, since the laws enacted by the state basically apply to the entire national territory. These are essentially special laws, many of which have their origin in the new political ideas a nd economic doctrines. For example, in the area of labor law, the extensive land reform legislation, for which there was hardly any internal necessity in the predominantly industrialized state and which, in addition to a socialist and small -agrarian tendency, is supported by a nationalist one. The socialization efforts in industry have almost entirely flooded back again. It goes without saying that in the interest of consolidating the state system, legal unification is being sought.

It is noteworthy that the development is not only independent of political currents, but in part even contrary to them in the sense of a further connection to the Central European legal culture. The fact that this is the case with individual laws, such as the newly created law on bills of exchange, is not so decisive, as is shown by the revealing experiences that Professor Egon Weiss made during his work on the new Civil Code for the Czechoslova k Republic, which is currently being prepared, i.e. the main work of any private law, and which he reproduced in his lecture given at the Vienna Law Society.

Weiss summarizes the result as follows*): "Law is an expression of legal life, i.e. of the legal consciousness of the people. Here the work on the future Czechoslovakian B. G. B. has sho wn that there really is a concept of Central Europe. Of foreign legislations, only the German and the Swiss could be regularly consulted, both of which, as is well known, are closely related to *) Zeitschrift für Ausländisches und Internatio nales Privatrecht, Berlin und Leipzig 1931, page 80.

98

each other." It was really the German legal culture that domin ated the continent, he said. "The Prague Commission would certainly not have disregarded the attempt to use Slavic law, if there had been even the slightest possibility to do so, because of the Czech majority.

But there was not the remotest basis for this, nor could one go back to English American law for the area of civil law, because here the world of thought is completely different.

The legal situation in Po land is even more disparate, since Poland is divided into four large legal areas. In Congress Poland - with exceptions, e.g. in mortgage law, where a special mortgage law was created - the Civil Code of the Kingdom of Poland of 1825 applies, furthermore pa rts of the Code Napoleon, introduced at that time by the Saxon King and the Prince of Warsaw, and in commercial law the Code de commerce of 1807, i.e. essentially Roman law. In the Eastern Marches (Wohlhynia, Polesia, Nowo - grodek and Vilnius) Russian law prevails, the Russian Civil Code and Russian commercial law, although it should be noted that Russian law had not developed a special commercial legal system. Congress Poland and the Eastern Marches are governed by the Russian Code of Civil Procedure, incl uding various Polish amendments, as well as by various common laws in the field of civil and commercial law. In Galicia and Teschen Silesia the Austrian legal system has been retained, in Posen, Pomerelia and Upper Silesia the German one. This legal system is made even more colorful by the fact that special laws and ordinances have been enacted by the new state for the individual areas of law; in the Eastern Marches, for example, mortgage law, as it applies in Congress Poland, has only been introduced by Po land. In addition, a number of laws have been created for the entire territory of the state, including a uniform law on bills of exchange, checks and commercial registers, stock corporation, limited liability company, cooperative, copyright, patent, design and trademark law, all under the strong in fluence of Central European law.

Apart from the uniform regulation of the judiciary, however, the main laws still lack legal unification. Thus, the Central European, the Romanic and the Slavic legal spheres meet in Poland, if one can speak of such a sphere in the sense of a distinction of essence at all; for there is no historically developed Slavic law peculiar to the common nationality, which can be explained without further ado historically. For a large part of t he Slavic tribes, especially those in question here, the state connection has been interrupted for too long for it to have been possible to follow the old legal systems when state independence was regained. Rather, modern law had to be incorporated. Thus, the rights that are called Slavic are mostly Central European and Romanesque rights, mixed with Slavic elements that have been preserved especially in the law of personal cohabitation (e.g., the Serbian -Bulgarian zadrugas, a kind of family cooperative).

99

The legal fragmentation that we have observed in Poland and Czechoslovakia is the fate of all states that emerged from the World War new or with a large territorial increase. In Yugoslavia, we have to distinguish no less than six areas with different laws, na mely 1. old Serbia, 2. Montenegro, 3. Croatia - Slavonia, 4, Dalmatia - Slovenia, 5. Vojvodine and Medjumurje as well as 6. Bosnia and Herzegovina, In old Serbia, Austrian law applies essentially in the area of civil law, because the Serbian B.G.B. is for the most part only an abbreviated translation of the Austrian one. In the area of commercial law, French law prevails, and the Serbian code is closely based on the Code de commerce; however, new legislation has replaced the Societes anonymes with joint -stock companies. In Slovenia and Dalmatia, the Austrian General Civil Code applies, including all amendments that have brought further convergence with German law, as does the Austrian Commercial Code. In Croatia and Slavonia, the legal situation is a mixture of Hungarian and Austrian parts; Austrian civil law applies without the amendments after 1868, and the Hungarian code applies in the area of commercial law. This difference can be explained by the Austro Hungarian Compromise of 1868, by which Croatia and Slavonia were annexed to the Hungarian state while retaining a certain degree of independence. In Vojvodina we encounter purely Hungarian law, i.e. also the non -codified, customary civil law system. The legal situation in Bosnia and Herzegovina is very peculiar. In principle, Ottoman civil law still applies, with Austrian law as a subsidiary, but it has become increasingly prevalent. The commercial code is modeled on Hungarian law and thus on Austrian law. Finally, Montenegro should be mentioned, which has a special general property code and a commercial code similar to that of Serbia. In the area of civil procedure, too, the picture is colorful. Bosnia and Herzegovina have their own law, Dalmatia and Slovenia Austrian, Vojvodina Hungarian, while in Croatia and Slavonia we find the West Galician Civil Procedure Code of 1797 in the version of 1852, one of the oldest procedural codes in Europe. It is clear that the multi -layered state of law results in substantial differences in the legal institutions and legal relations of the political territory, which are intolerable in the long run. The character of the existing law, as the brief overview shows, is predominantly Central European, and further development is obviously along these lines. Civil law is being consolidated on an Austrian -Central European basis and, to name one of the most recent laws, bankruptcy and compensation law is also based on it. It is not possible to go into the details of the individual laws under which we find comprehensive agricultural re form legislation, as in all southeastern states.

In Bulgaria, political and legal unity coincide, even if the legal system itself lacks some similarity. When Bulgaria was liberated as a state in the last century, it was faced with the task of creating a mod ern legal order, because national law had not been able to develop during the centuries of Turkish rule.

100

It was done by absorbing modern European legal systems. Civil law, which had not yet been combined into a legal system, was taken over from the Roman legal system, often in literal translation. The Code civil, the Codice civile Italiano and the Codigo civil Espanol have served as models, and in the area of real estate law, Belgian law has often been used. The Commercial Code, in turn, is modeled on Hunga rian law, as is cooperative law. The 1924 law on limited liability companies is a translation of Austrian law, while the bankruptcy law is based on the Romanian model and has a French -Italian flavor, which is also the case with maritime law. The civil proc edural law is based on the Russian Code of Civil Procedure of 1864, except for a few Romance and German touches, but the innovations introduced in 1922 follow the Austrian and German models.

The new Romania is again cut by legal borders. It is divided into four legal areas. The law of Old Romania has a distinctly Romanesque character. Civil law, though later amended several times, is modeled on the Napoleonic Code, while mortgage law is based on Belgian law. Commercial law is modeled on Italian law, while th e law of bills of exchange, corporate law and bankruptcy law again show German and Belgian influences. In the new territories, the old legal systems have remained in place; Bukovina has Austrian law, Bessarabia has Russian law, which has already been modif ied many times and is somewhat undeveloped, Transylvania lacks a uniformly structured legal system; for the most part, we encounter Austrian law here, supplemented and modified by Hungarian law, and in Banat again only Hungarian private law. The Romanian state has developed an extensive legislative activity, which is basically valid for the entire national territory. The body of civil and commercial law, however, has not yet been unified. It should be mentioned that the labor law is based on German law, and above all, the highly interesting state -economic legislation, which cannot be found anywhere else in this form and this organic development. On the basis of Article 19 of the Constitution, in 1924 the Mining Law secured and nationalized for the state the ownership of mineral resources, the Energy Law the ownership of energy sources (oil, gas), and the Water Regime Law the ownership of all bodies of water that can be used as energy sources or as waterways. Then, through the Law on Commercialization and Control of the State's Economic Enterprises, an attempt was made to involve Romanian and foreign capital in order to give new impetus to the economy. The enterprises were divided into two categories, enterprises of general national interest (e.g. railroads, po stal services, telephone, monopoly administration, army workshops) and enterprises of an exclusively commercial nature, owned by the state but not forming an exclusive state monopoly (e.g. metallurgical plants, coal, petroleum, natural gas). For the latter , the form of a mixed-economy company was envisaged, but with preservation of the national-Romanian character. However, the law did not have the hoped -for 101

effect; the influx of foreign capital did not occur to the expected extent and was therefore repealed again; the law of March 10, 1929 attempts to place the organization and administration of public enterprises on a commercial basis.

To complete the picture of the Balkans, Greece and Albania should be mentioned briefly. Greece has consciously followed the Byzantine tradition in shaping its laws and has up to now adhered to it. Thus, the decree of 22.

February 1835, which stipulated: "The civil laws of the Byzantine emperors, which are contained in the Hexabiblos of Harmenopoulos, shall remain in force until the enactment of a new civil code," The adjustment to modern conditions, however, required many individual civil laws, in which, in addition to French influence, German influence is particularly prominent, specifically Bavarian, which is explained by the history of the dynasty, as well as Austrian, Efforts at codification date back to 1836; in the various drafts, Romanesque and German character alternate, but in the most recent period the influence of German law predominates. Special laws still apply on th e Ionian Islands, on Samos and Crete. Commercial law is distinctly French, but in part - for example in stock corporation law and unfair competition law - German influences can also be found. In Albania, the law that prevailed before independence, namely Ottoman law, still applies in the main, and in commercial law, the national commercial law of 1850, which was essentially transf erred from the Code de commerce.

This is a broad outline of the legal picture in Central Europe. In addition and in summary, it sh ould be noted that the individual laws extend in particular to the areas newly opened up by modern economic and intellectual development, and that they tend toward a certain uniformity in the various states. Mention should be made of the legal protection o f intellectual property, the large circle of intangible property rights (patent law, utility models and registered designs, trademark law, ownership of works of literature, sound art and fine arts). These rights have not grown out of a long history, are no t connected with space, but have arisen out of a common modern culture, and they therefore also have common prerequisites to a certain extent.

As a result of its global linkage, modern traffic law is pushing for standardization. It is characteristic that i n commercial law the differentiation in the field of bill of exchange and check law is usually felt to be disadvantageous at first and that the unification efforts begin here. These are the areas where a harmonization of world law is also attempted with su ccess.

Common to all modern cultural states are certain political and economic ideals which prevail in the individual legal systems. Thus, in the Eastern states, too, the process can be observed everywhere that - sometimes faster, sometimes slower - a large labor law system is emerging from the old laws, born of 102

modern economic development and the economic struggle conducted by means of unification. Gradually, a law of labor contract, working hours, labor protection and labor constitution is growing up like a special labor jurisdiction. However, we do not find in any other state such a large unified system of labor law as the Soviet empire and its intellectual antipode, fascist Italy, produced in the Carta del lavoro. To the extent that we can speak of a labor law in the states we are dealing with, it has in common, to a certain extent, principles that are perceived as general cultural achievements. In addition, this area of law is decisively influenced by the basic political attitude of the state and is acco rdingly structured differently. The same is true of the areas often subsumed under the name of economic law, although it should be noted that a clearly defined concept of economic law and a correspondingly delimited area of law have not yet emerged; it is a much-used word that is associated with a wide variety of ideas.

In almost all southeastern states - Austria, Hungary, Poland, Yugoslavia, Romania, Bulgaria, Greece, Czechoslovakia - we encounter more or less comprehensive agrarian reform legislation. In m any cases, this land reform took place together with the democratization of the states. The idea of working land ownership is, actually only with the exception of Germany, Austria and Hungary, the fundamental idea of the legislation. In addition to economic and social goals, nationalistic ones often play a role. An extremely important area of law for the cooperation of states is private international law, participation in international treaties, especially mutual legal assistance, legal support and legal re cognition. To describe the participation of individual states in the treaty system would be tantamount to listing them in a table.

However, it is precisely here that the extremely strong interconnectedness of the countries of Central and Southeastern Europ e comes to the fore; it is precisely here that the legal life of the peoples that are the subject of this treatise is reflected.

An attempt has been made to characterize the legal systems of the individual states by uncovering their intellectual -historical foundations through comparative law. Only in this way is it possible to give a general picture, to recognize the essentials of the phenomena, and to see them in the light of the larger context. The overall impression is one of diversity. With the exceptio n of the Anglo-American one, we find all modern legal cultures: the Central European-German, the Romanic, the Oriental and the Slavic, Southeastern Europe has been the place for the confrontation of the greatest movements of peoples, Occident and Orient ha ve met here and, therefore, like no other area, it has been exposed to cultural alienation. The map, which shows us the legal systems in force and the borders of the individual territories, is indeed unsurpassable in its colorfulness. It is even more diver se than the political map. If the economic body has been divided up by the new political borders, 103

it has been completely cut up by the legal borders. In Yugoslavia, Czechoslovakia, Romania, and Poland, four political borders are contrasted by no fewer than sixteen legal borders. This is no longer a fragmentation of law; it borders on legal atomization. Such a state of law must have an inhibiting effect on the economy. On the other hand, the legal picture reflects the situation of an economy that is fragment ing its forces. In spite of the diversity of legal cultures, however, some major lines and certain developmental tendencies stand out in the overall picture.

The main massif - Germany, Austria, Hungary and Czechoslovakia - belongs unitedly to the Central Eu ropean legal culture circle and Southern Slavia predominantly. Poland is linked to it by huge territorial parts. The influence in Bulgaria - especially in commercial law - is unmistakable, as well as the influence in Greece. Only Old Romania is predominant ly Romanesque, but due to the extensive newly acquired territories it is drawn to the Central European bloc, which is also evident in future legal endeavors. The importance of the Central European influence becomes particularly apparent when one realizes how little influence there has been from Russia, despite the great pressure exerted, at least in the pre -war period, by this powerful center of power, supported by the pan -Slavic idea. The oriental elements in individual legal systems originate from a vanqu ished epoch. With regard to the future development, the legal reconciliation taking place between Germany and Austria and the forces acting in the sense of such a reconciliation in Czechoslovakia are particularly significant. This makes the attraction of t his legal massif even greater. It is significant that the developmental tendencies in the shaping of internal legal life do not always have to coincide with the political will to develop, an observation that is also confirmed by history. Thus, despite the marked political opposition between Prussia and Austria, a common exchange and commercial law was created at the time.

The idea suggests itself to attach only historical value to the distinction of different legal cultures, to see the future in a general, e qual world law and to strive for the creation of an exemplary legal order composed of the elements of the previous cultures. To a certain extent, this view is justified, e.g. for the area of the law of intellectual property, for the law of bills of exchang e and checks, and for traffic law. The efforts at unification have achieved a great deal here, and the drafts created have served as models for legislation. The conception becomes wrong as soon as one wants to extend it to all areas.

There are rights which are bound to the smallest space, up to rights which can be common for the whole earth population, at least the cultivated one. Thus, many states - especially Germany and Austria - have consciously retained particular rights to a certain extent, because di fferent landscapes with different living conditions require different laws. The same legal cultures are conditioned by similar prerequisites in economic, social and intellectual 104

relations. For this reason, as Weiss points out, it was precisely German law that had to be used for comparison when the new Czechoslovak private law was created, and for this reason he also comes to the conclusion that there is a concept of Central Europe.

In the case of a merger of the various European economic entities, the balancing of laws - especially in the field of tax law, social and economic policy legislation - plays an essential role; for it is clear that cooperation must suffer from excessive differences in legal relationships and legal institutions. But the attempt at a theoretical solution of this question will easily lead to the overstretching of the balancing necessities which the legislator has to face.

We Germans in particular, whom a Japanese jurist, Baron Hozuma, has said are the ones who bring science to life, and who are therefore easily inclined not to accept facts as facts, but to want to abso rb and penetrate them scientifically, fall into the mistake of overestimating the difficulty of the solution theoretically. Thus, especially in Germany, too much importance is often attached to legislation. Legislation does not create a state of rest, nor does it always shape things the way the Creator wants. Law is movement and follows its own forces stemming from deeper sources than those of legislation.

The most important thing, therefore, is that the conditions for common development are in place. This should be the case in Central Europe for a common legal culture and thus for an organic structure of the overall economy. In addition, there are the external forces of the great centers of power, which force the Central European region of disruption, this core of Europe which is crowded with people, to unite for the sake of self preservation. This does not mean that the economy is to be regarded as the only principle shaping the way of life of the peoples, and that the extreme view is to be taken that, afte r the dynastic state has been replaced by the nation-state, the latter is now to be superseded by the economic state. To do so would be to misjudge the power of the national idea to move peoples, a power which is more effective today than ever before; it w ould be to deny the reality and life of ideas altogether. But national politics does not yet demand that the state be torn out of the great economic and cultural contexts and formed into a hermetically sealed single cell; it does not yet demand the rejection of every supranational, supranational union. Today, after the tremendous incursion of the economy into politics, it will no longer be possible to keep with Napoleon's statement to Goethe that politics is destiny, but also not with Walter Rathenau's word that economy is destiny. However, political will guided by statesmanlike insight will not misjudge the economic necessities, the realities of the people's lives, but will bring them into harmony with its will. And these forces are working in the Central E uropean area toward a union, toward a mutual balance, as this brief legal outline should have shown. The task of future lawmaking will be to follow these forces 105

to an even greater extent; for private law should - in this Oswald Spengler is right - represent the spirit of the respective social and economic existence.

106

References.

The Central European question is not of interest as a historical problem within the framework of this publication. Therefore, we can refrain from listing the publications that are of de cisive importance for the history of the Central European thought. We would like to draw the attention of those interested to the overview given by Wilhelm Gürge on the development of the Central European thought in the Hungarian Yearbooks, July 1931, page 224 ff.

The best way to keep track of the current Central European problem is through regular reading of authoritative newspapers and journals. Two journals in particular should be mentioned: the Monatsschrift Europa -Wirtschaft, which deals with questions of the economic construction of Europe, especially Central Europe, and has published several fundamental articles to clarify the Central European problem, and the Wochenschrift: Der österreichische Volkswirt, which as a Viennese organ always submits valua ble and interesting material on current Central European issues.

There are several book publications on important individual issues. Thus, two series of publications are published in this field: The series of publications of the Central European Institute, Central European Economic Questions, edited by the Central European Institute in Vienna, and the series of publications of the Central European Economic Conference, Central European Economic Policy, edited by Privy Councillor Zoepfl. In the series of publi cations of the Vienna Institute, five publications by Prof. Hantos have appeared so far: Central European Railway Policy, Central European Waterways Policy, Central European Postal Union, The Central European Agricultural Problem and its Solution, and Cent ral European Cartels in the Service of Industrial Unification.

In the series of publications of the Central European Economic Conference were published: Report on the Negotiations of the Fifth Central European Economic Conference, Prof. Brockhausen: Admini strative Protectionism and the Central European Economic Association, and Reich Minister Gothein: The Gaping Price Gap as the Cause of the World Economic Crisis.

Valuable information and references to the Central European problem are also contained in most publications of a pan -European character. For example, the French author Francis Delaisi has earned great merit with his witty and interesting presentation of the Central European problem in his book: Les deux Europes. As a statistical reference work, the book by Vladimir Voytinsky: Facts and Figures of Europe. A Central European program is outlined by Wilhelm Grotkopp in his book: Europäische Zollunion als Weg aus deutscher Wirtschaftsnot. The problem of the relationship between Pan -Europe and Central Europe is dealt with by Wilhelm Gürge in his paper of the same name.

107

The interested reader will find valuable material in the numerous publications of the European meetings and committees of the League of Nations.

Also worthy of mention are several individual publications containing concrete proposals for solving the Central European problem. In the field of trade policy, the publications of Richard Riedl have been groundbreaking; his thought processes are very well summarized in his paper: Exceptions to Most Favored Nation Treatment. We would like to point out Franz Hilmer's work on Central Europe, Hans Tugendhat's proposal for a plan of consolidation in the field of trade policy, Andreas Meisner's work Das Problem der handelspolitischen Neuordnung Mitteleuropa s (The Problem of the Reorganization of Central Europe in the Field of Trade Policy), and the essays

by Friedrich Nelböck: Kleine Beiträge zum Kampf um Völkerbund, Paneuropa, Mitteleuropa (Small Contributions to the Struggle for the League of Nations, Pan-Europe, Central Europe). Valuable Czech contributions have also been published in the Prague semi -monthly: Die Wahrheit (The Truth). Prof. Hantos has recently presented an overall program in a 200 -page memorandum submitted to the League of Nations: Memoran dum sur une Nouvelle Organisation economique De L'Europe Centrale.

Furthermore, we have to refer to the literature on the individual countries and on the problem of Germany -Eastern Germany. We would like to content ourselves at this point with the citation of two works. The most comprehensive account of the German -Austrian problem is given in Klein -Wächter-Paller's Die Anschlussfrage, and that of the Southeastern problem in Gerhard Schacher's Der Balkan und seine wirtschaftlichen Kräfte.

Dr. Curt Piorkowski

108