C. N. Biltoft The Unconventional Child of an Orthodox Marriage

The League of Nations and Alternative Economic Perspectives

The League of Nations may seem a peculiar entry in a volume dedicated to heterodoxy.  The organization emerged from the Paris Peace Conference as a manifestation of, or an international advertisement for the braided faiths of classical economics and liberalism.  The League’s paper trail certainly contains claims that the rule of law and free trade based on comparative advantage could together secure peace by assuring the greatest good and wealth for the greatest number. Yet, even though the League was born within a lineage of orthodoxy, it also provided an arena for discussing alternatives to classical liberalism. As the world’s first permanent inter-governmental forum of its kind, the League gathered and brought into conversation a host of different nations and interest groups.¹ Whatever its initial intentions, it gradually became a zone where the claims of convergence continually and publically ran up against the persistent realties of political and economic divergences.² Thus, the League piloted the working through of a question that continues to afflict multilateral institutions; should these bodies reflect or actively alter or redress the distribution of power and resources on the global stage? It was in grappling with, though not resolving, this question that the League both reasserted and then slowly came to revaluate some of its founding precepts, especially in the economic domain.³

This essay claims that beyond the narratives of success and failure, international organizations provide a historical laboratory for studying the ligaments connecting the international division of labor to the international balance of power. Furthermore, they provide a glimpse into the ways in which struggles to either preserve or restructure those ligaments often played out equally in the realm of ideology as in the realm of policy.⁴ To those ends, the following pages will first address how the League’s efforts to promote the values of classical liberalism shed light on some of the fault lines of those doctrines. Secondly, the essay will explore how the League weighed promises of laissez-faire’s long run prosperity against counter-claims that social and political dissatisfaction with gaps in wealth and power could undermine international stability in the short run. Finally, it will focus on how the League’s open discussions of wealth distribution helped to incubate the seeds of alternative trade and development theory after 1929.

Troubled Inheritances: Legacies of Liberal Capitalism

In 1918, when post-bellum leaders sought blueprints for securing and maintaining peace, they drew from a ready-made canon. A long tradition including Immanuel Kant, Frederic Bastiat, Norman Angel and then Woodrow Wilson claimed that free trade and political liberties were like water to the oil of war. Within this context, WWI came to signify an aberration set against the century of pacific liberalization that had supposedly preceded it.⁵ While this storyline offered a soothing formula for reconstruction after 1919, it was riddled with hyperbole, as economic and political freedoms had never been fully or universally secured at any time or place before 1914. The long nineteenth century had been everywhere one of state and empire building with violence enacted against the marginalized at home and the colonized abroad.⁶ As states pursued the priorities of power consolidation, protectionism often attended the limited growth of representative government. In other cases, political discriminations and injustices walked right through economic open doors. Similarly, the War had escalated to such an extent precisely because it grew from political rivalries deeply rooted in global economic competition, territorial expansion, and the armed extraction of resources.⁷

So, the distinction between freedom and despotism, laissez-faire and intervention, and pacifism and jingoism, was never so neat and tidy in practice as in rhetoric. From its growth in the 18^th century, new state-proponents of liberalism immediately had to reconcile the professed values of freedom and equality with practices of wealth (and poverty) creation, such as slavery and colonialism that ran counter to those ideals.⁸ Even where liberal philosophies fomented political revolution aimed at toppling hierarchies, they did not restructure wholesale the economic order of things. Rather, what came were acts of reframing. For example, Adam Smith and David Ricardo together provided a new temporal horizon for economic equality. The gains of specialization within and between societies would eventually elevate the wealth of both men and nations. As for imperialism, new theories devised by the likes of J.S Mill simply added paternalism to the gradualism of convergence.⁹

After the War, these same rhetorical devices permeated discussions of how to construct peace, with heavy emphasis on rights and freedoms both political and economic. However, the Treaty itself included punitive terms for the defeated powers, the continuance of empire, and the construction of a geo-political order in favor of Great Power interests.¹⁰ It was in this mixed context that Wilson called for the creation a permanent international organization to provide cartilage to lessen friction at the joints between states.¹¹ Though where liberalism served the creation of the League, it too created a host of classical contradictions. In this way, the question of the scope and meaning of equality became a constant point of contention. The League’s organizational structure consisting of a Council of mostly Great Powers (with limited rotating seats for lesser powers) and the General Assembly, weighted some states more heavily then others. Often challenges to the global political status quo first came in the form of resistance to the League’s bureaucratic structure and procedure. Yet, because wealth was a premier determinant of political weight, delegates also used the public forum to air objections to what they considered unfair economic advantages. As the League responded to each challenge raised, at times it reasserted the classical line and at other times it explored experimental policy suggestions and theories. Of greatest interest here is the League’s attempted resolution of conflicts surrounding the question of raw materials and international trade. This thread provides direct insight into the League’s hybrid legacy of orthodoxy and heterodoxy.

The 23rd article of the League’s Covenant called vaguely for “the equitable treatment for the commerce of all Members of the League.” Patricia Clavin has recently argued that this light treading marked an attempt to avoid stepping on Great Power interests.¹² Yet whatever the article obfuscated, it also opened the door on efforts to translate equitable treatment into lines of policy. Economic matters eventually came to occupy one of the organization’s central focal points. For example, a multi-year discussion around the linked issues of raw materials and free trade first appeared in the League in 1920. During one Assembly session, the Italian representative, T. Titoni, made a controversial statement: “If the war has fulfilled the expectations of those who desired the triumph of liberty and justice in the political sphere, it has completely failed to satisfy those who desired justice and equality in the sphere of economics.”¹³ For Titoni, justice and equality in the economic sphere was linked directly to the question of access to those raw and primary materials necessary for fueling industrializing and feeding industrial societies. ¹⁴ Yet, as one set of experts later put it, coal bins simply were not located in every room of the extensive mansion that nature built for mankind.¹⁵ The question was how nations’ could meet their growing natural resource needs, if they were not naturally auspiciously endowed. The debate in the Assembly became heated quickly, with resource poor states aligned against resource rich ones, which demonstrated how quickly claims of economic inequality could lead to conflict.

Given the gravity of the question, the League set up a committee to investigate the nature of the problem and possible solutions. In 1921, the published report on raw materials identified protectionism as the primary obstacle. As the influential Norman Angel stated: “Once we recognize that the essence of the difficulties in the matter of raw materials… is markets… certain clear lines of policy are indicated.”¹⁶ While Angel was not a member of the League, he gave voice to the consensus that open doors and the multilateral application of most-favored nation status would allow everyone to get what they needed in the marketplace. Still, however, there were problems that the “free trade solution” could not solve simply or easily. For example, in order for the League to combat protectionism, it had to address the related dilemma of imperial preference.¹⁷ As Titoni had pointed out, the wealth of imperial powers had permitted them to “acquire a monopoly of these materials outside of their own borders.”¹⁸ Yet, to raise the question of imperial preference—or to ask if metropole states had a right to control via monopoly colonial products—could add fuel to the fires of anti-imperialism. Beyond this already sensitive point, however, the more dangerous issue was the bitterness that some powers such as Italy and Japan (and Germany after 1926) had due to their relative lack of colonies as compared to others. The Italian delegate had raised the question for precisely those reasons. Italy’s own territorial ambitions had suffered when Wilson refused to honor the secret 1915 London Agreement that had promised Italy South Tyrol, Istria, Dalmatia, Libya, Eritrea and Parts of Asia minor. In defiance of its lot, the Italian government had already demonstrated annexationist ambitions during its 1919/1920 occupation of Fiume. For Italy, this question of raw materials became a way of advertising its frustrated aspirations on the global stage.¹⁹

The League certainly saw the potential dangers attached to raw materials and sought to address them, upholding where possible their commitment to economic liberalism on the one hand and the legitimacy of empire on the other. In pursuit of better infrastructure for encouraging those policies, the League created the Permanent Economic and Financial Committee (EFC). ²⁰ The committee tackled potentially peace-disturbing problems through gathering statistics, seeking advice from prominent economists, and organizing conferences. Throughout its life the EFC attracted such notable names as Gustav Cassel, Bertil Ohlin, Gottfried Haberler, Ragnar Nurske, and James Meade among others.²¹

Between 1920 and 1937 the League addressed the question of vital resources and their distribution among nations both through the work of the EFC and in the Council and the Assembly. These discussions provide a way of tracking the League’s responses to the changing contexts of the global political economy leading up to and after the Great Depression. In 1920, there was still confidence that markets would naturally work things out, so long as states did not stand in the way. When the League held an economic conference in 1927, the final resolutions assertively urged a reduction in protectionism, citing it as the primary obstacle to the cooperation and thus collective wealth of nations.²² After 1929, things were no longer quite as clear. Mass unemployment on the one hand and the “Russian miracle” of central planning on the other together undermined faith in self-correcting markets. What is more, protracted economic crisis seemed to foment radical political regimes. As Fascism appeared on the scene, many became increasingly willing to consider that the timeframe market’s needed to “self correct” might simply be too long and too little too late.

Increasingly, experts in the League began considering the suggestions of those like J.M Keynes, who advocated strategic state intervention in fiscal and monetary policy to provide heating and cooling mechanisms for domestic economies. The League gathered statistics, including on business cycles and the international monetary system, in an effort to achieve more clarity on the world crisis. One result of this work was that League economists began questioning gold standard orthodoxy. Certain experts pointed out how the same mechanisms that disciplined and constrained the international balance of payments could also prevent states from using monetary policy as a recovery tool.²³ Yet, the League asserted that monetary compromises should allow economies to better engage in, not opt out of, free-multilateral trade.²⁴ The League launched research programs attempting to find ways to square the necessity of domestic intervention for recovery, with the continence and expansion of international trade.²⁵ Supporting free trade became part of the strategy for resisting the political side effects of economic nationalism. Calls for “self-sufficiency” often came with demands for territories large and resource-rich enough to support domestic populations without too much dependence on the outside world.²⁶ Japan invaded Manchuria in 1932 precisely on the grounds that it needed territory and raw materials.²⁷ This made the dangers of perceived inequalities painfully clear. Furthermore, as these claims sounded, another issue vexed the question of resources. The Great Depression put downward pressure on commodity prices, which exacerbated the overall world economic picture. When the economists Bertil Ohlin set out to investigate this problem under the League’s banner, he discovered yet another potential mine filed. Ohlin noticed severe imbalances in the prices of primary vs. finished products on the world markets. In this way, manufacturing nations gained a seemingly permanent advantage over producers of primary goods. Statistics supporting this trend posed a challenge to traditional Ricardian doctrines of comparative advantage and the mutual gains of specialization. Knowing that such a discovery could awaken the ire of agriculture states and add their discontent to that of Japan, Italy and increasingly Germany, was a great cause for concern.²⁸

The League dealt with the multi-front battle around the question of goods and resources in a number of different ways. First, the League supported a number of commodity control schemes as a way of providing non-tariff based price supports.²⁹ In this context, the League used selected intervention with the hope of moving against further protectionism, relying also on data that suggested tariffs did not in any case stabilize the prices of raw materials.³⁰ As the Depression and so protectionism kept rising regardless of efforts to the contrary, the League began to prepare for a second World Economic Conference to be held in London in 1933. The goal once again was to stimulate cooperation amidst the rising tides of economic nationalism. The conference was unable to secure the results it sought; protectionism not only ruled the day, but Hitler also withdrew from the League with his eyes set on reconquering lost territories in Europe and abroad.³¹

After the World Economic Conference, Italy continued to talk about the disparities in resources between itself and larger and/or imperial states. Thus, British delegate Samuel Hoare, suggested yet another inquiry into the matter of “raw materials position” around the world. In 1935 the League published a report saying that the resource situation was not so inequitable that free trade and a little international cooperation could not fix it. For example, it assured the world that only 3% of all-important raw materials came from colonial territories (palm oil, copper, and rubber).³² Even there, very few vital resources were truly produced or distributed under monopoly conditions. Thus, if all imperial states would practice the widest open door policies and the rest of the world would lower protective barriers, all parties could get what they need. However, this piece of assurance did not prevent the Italians from invading Ethiopia in 1935. Nor did it silence the concerns of primary producers over their poor terms of trade compared to industrial nations.

One final figure, Estonian economist Ragnar Nurkse, served as an influential member of the Economic Intelligence Service from 1934 until the League’s closure. By the time Nurkse joined the League, the EFC had turned its attention seriously not only to gaps in wealth and resources, but also to the question of living standards worldwide.⁴⁰ Nurske was, along with figures such as Paul Rosenstein-Rodan, Arthur Lewis and Gunnar Myrdal, a pioneer in an early development economics and sought to tackle the problems of persistent poverty especially after the Second World War.⁴¹ While at the League, Nurske contributed to the World Economic Survey, the Review of World Trade, and other important publications, including the yearly Monetary Review.⁴² During his Geneva years, Nurske also began working through some of the ideas that he would later develop into a robust theory of development. While Nurske certainly thought that international trade had a part to play in welfare, he saw domestic employment and the development of national economies and markets as indispensible prerequisites.⁴³ Nurske’s theories went beyond his contemporaries at the League especially on the question of capital formation. Where Ohlin left capital as a naturally present or absent factor of endowment and Manoilescu left it as a vague necessity of development, Nurkse tackled the question of how poor societies could raise domestic capital through wise and balanced savings and investment in industrial and agricultural sectors.⁴⁴ In this way, the question of equality pivoted neither on raw materials, nor necessarily on labor efficiency, but on a more complex understanding how poverty had been created via the structures of the international system. For Nurkse, a theoretician who accepted some of the tenets of classical economics such as Say’s Law, the challenge was how to infuse economic theory with measures for achieving equality and not just equilibrium. To those ends, he prescribed strategically expanding domestic markets and decoupling them from foreign capital and tight and inequitable global market structures.

Nurkse did most of this work on development after his time at the League. While at the League, however, it is clear that he struggled tried to balance the organization’s agendas of international cooperation and stability and his own concerns with how to kick-start progress in underdeveloped economies. One of the publications to which Nurkse contributed, The International Currency Experience: Lessons of the Inter-war period, focused on the role that the international monetary system played in the stability of the World Economic system. On the one hand, the text addressed the necessity of currency stability for healthy international trade. On the other hand, Nurkse emphasized the need for domestic monetary autonomy and sufficient credit to address concerns of poverty alleviation and development.⁴⁵ Another League publication where Nurkse left his fingerprints was that of The Transition from War to Peace Economy: Report of the Delegation on Economic Depressions. While Nurkse was not the only author of the publication, it bears signs of his influence, as it focused on the ways in which post-War economic reconstruction would need to address questions of living standards, employment and economic development. Interestingly once again, a considerable portion of the text focused on the equitable distribution of food and raw materials on the one hand and the poor terms of trade between the rich and the poor nations on the other. Yet too the text attempted to square these concerns once again with the League’s insistence on the importance of freer trade.⁴⁶ With a stalemate as to how to reconcile this decades old dilemma, the document simply concluded with the suggestion that new international economic institutions needed to be created to tackle these problems and provide advice to governments.⁴⁷

A comparison of Nurkse’s work at the League and his latter work suggest that he perceived the possibility that League’s concern with international trade surpassed his own concern with serious questions of growth for impoverished societies. Perhaps in sensing the near impossibility of resolving the tension between the goals of trade liberalization and domestic development, after the War Nurkse did not seek an affiliation in any of the post-World War II international institutions. Yet even though Nurkse went his own way, his work at the League both served as the template for the Bretton Woods agreement, and also filtered into the structures and economic policies pursued in the group of intergovernmental organizations established at the end of WWII.⁴⁸

Whatever their differences, the work of Ohlin, Manoilescu and Nurkse each mark serious attempts to deal with the technical complexity of structural imbalances in the world economic system in the inter-war period. In a moment when those economic imbalances could and did have disastrous political consequences, each theory emerged within and in some way generated different political world-views. Beyond the influences of specific theorists, the League of Nations’ recruitment of diverse experts to address economic questions both signaled and also shaped the increasingly central role that economic advisors played in policy making in the twentieth century. That legacy continued long after the League closed its doors.

Conclusion

In 1941 when Franklin D. Roosevelt and Winston Churchill published the Atlantic Charter, it was in some ways a revision of Wilson’s Fourteen Points, modified for the post World War II world. Along with familiar calls for greater equality and cooperation, there also existed lingering liberal tensions about how those principles might affect the privileges of the haves and the claims of the have-nots.⁴⁹ The fourth article of the Atlantic Charter contained a familiar refrain: “All States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity.” Yet, the fifth article emphasized a new set of variables that had been absent in Wilson’s first call to international governance, namely, the importance of “securing, for all, improved labor standards, economic advancement and social security.” The United Nations thus came into being with a set of liberal recommitments to the wealth of nations on the one hand and the equality of nations and welfare of populations on other. Just as the League of Nations struggled in articulating and addressing the contradictions of and conflicts between those two goals, so too would the United Nations. In both cases, economists and economic theories shaped the structure and content of the ensuing and political debates.